##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K







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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014

OR



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

FOR THE TRANSITION PERIOD FROM
                    TO

COMMISSION FILE NUMBER: 814-00926





FS Investment Corporation II

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                       |  | 80-0741103                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)



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

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





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

None

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

Common Stock, par value $0.001 per share





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

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

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   ̈

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



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  | x  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

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

There is no established market for the registrants shares of common stock. The registrant closed the public offering of its shares
of common stock in March 2014. The last offering price at which the registrant issued shares in its public offering was $10.60 per share.

There were 314,690,600 shares of the registrants common stock outstanding as of March 3, 2015.

Documents Incorporated by Reference

Portions of the registrants
definitive Proxy Statement relating to the registrants 2015 Annual Meeting of Stockholders, to be filed with the U.S. Securities and Exchange Commission within 120 days following the end of the registrants fiscal year, are
incorporated by reference in Part III of this annual report on Form 10-K as indicated herein.









---

##### Table of Contents

FS INVESTMENT CORPORATION II

FORM 10-K FOR THE FISCAL YEAR

ENDED DECEMBER 31, 2014

TABLE OF CONTENTS



|         |  |                                                                                                              |  |      |     | 
|-------- |  | ------------------------------------------------------------------------------------------------------------ |  | ---- | --- | 
|         |  |                                                                                                              |  | Page |    
|PART I   |  |                                                                                                              |  |      |     | 
|ITEM 1.  |  | BUSINESS                                                                                                     |  |      | 1   | 
|ITEM 1A. |  | RISK FACTORS                                                                                                 |  |      | 26  | 
|ITEM 1B. |  | UNRESOLVED STAFF COMMENTS                                                                                    |  |      | 53  | 
|ITEM 2.  |  | PROPERTIES                                                                                                   |  |      | 53  | 
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                                            |  |      | 53  | 
|ITEM 4.  |  | MINE SAFETY DISCLOSURES                                                                                      |  |      | 53  | 
|         |  |                                                                                                             
|PART II  |  |                                                                                                              |  |      |     | 
|ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  |      | 54  | 
|ITEM 6.  |  | SELECTED FINANCIAL DATA                                                                                      |  |      | 57  | 
|ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS                        |  |      | 59  | 
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |  |      | 104 | 
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  |  |      | 105 | 
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE                         |  |      | 179 | 
|ITEM 9A. |  | CONTROLS AND PROCEDURES                                                                                      |  |      | 179 | 
|ITEM 9B. |  | OTHER INFORMATION                                                                                            |  |      | 180 | 
|         |  |                                                                                                             
|PART III |  |                                                                                                              |  |      |     | 
|ITEM 10. |  | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                       |  |      | 181 | 
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                                       |  |      | 181 | 
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS               |  |      | 181 | 
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                    |  |      | 181 | 
|ITEM 14. |  | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                       |  |      | 181 | 
|         |  |                                                                                                             
|PART IV  |  |                                                                                                              |  |      |     | 
|ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                                      |  |      | 182 | 
|         |  | SIGNATURES                                                                                                   |  |      | 188 | 



---

##### Table of Contents

PART I

Many of the amounts and percentages presented in Part I have been rounded for convenience of presentation and all dollar amounts, excluding share and per share amounts, are presented in thousands unless
otherwise noted.



|Item 1. | Business.
|------- | ---------

Summary

FS Investment Corporation II, or the Company, which may also be referred to as we, us or our, was
incorporated under the general corporation laws of the State of Maryland on July 12, 2011 and formally commenced investment operations on June 18, 2012. We are an externally managed, non-diversified, closed-end management investment
company that has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. As such, we are required to comply with certain regulatory requirements. In addition, we have
elected to be treated for U.S. federal income tax purposes, and intend to qualify annually, as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. As of December 31,
2014, we had total assets of approximately $4.7 billion.

We are managed by FSIC II Advisor, LLC, or FSIC II
Advisor, a registered investment adviser under the Investment Advisers Act of 1940, as amended, or the Advisers Act, which oversees the management of our operations and is responsible for making investment decisions for our portfolio. FSIC II
Advisor has engaged GSO / Blackstone Debt Funds Management LLC, or GDFM, to act as our investment sub-adviser. GDFM assists FSIC II Advisor in identifying investment opportunities and makes investment recommendations for approval by
FSIC II Advisor, according to guidelines set by FSIC II Advisor. GDFM, a registered investment adviser under the Advisers Act, is a subsidiary of GSO Capital Partners LP, or GSO, the credit platform of The Blackstone Group L.P., or
Blackstone, a leading global alternative asset manager and provider of financial advisory services. GSO is one of the worlds largest credit platforms in the alternative asset business with approximately $72.9 billion in assets under
management as of December 31, 2014.

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



| |  |  | utilizing the experience and expertise of the management teams of FSIC II Advisor and GDFM, along with the broader resources of GSO, which include
its access to the relationships and human capital of its parent, Blackstone, in sourcing, evaluating and structuring transactions;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | focusing primarily on debt investments in a broad array of private U.S. companies, including middle market companies, which we define as companies with
annual revenue of $50 million to $2.5 billion at the time of investment. In many market environments, we believe such a focus offers an opportunity for superior risk adjusted returns;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | investing primarily in established, stable enterprises with positive cash flows; and
| | - |  | ------------------------------------------------------------------------------------



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

Our portfolio is comprised primarily of investments in senior secured loans and second lien secured loans
of private U.S. middle market companies and, to a lesser extent, subordinated loans of private U.S. companies. Although we do not expect a significant portion of our portfolio to be comprised of subordinated loans, there is no limit on the amount of
such loans in which we may invest. We may purchase interests in loans or make other



1



---

##### Table of Contents

debt investments, including investments in senior secured bonds, through secondary market transactions in the over-the-counter market or directly from our target companies as primary
market or directly originated investments. In connection with our debt investments, we may on occasion receive equity interests such as warrants or options as additional consideration. We may also purchase minority interests in the form of common or
preferred equity or the equity-related securities in our target companies, generally in conjunction with one of our debt investments or through a co-investment with a financial sponsor, such as an institutional investor or private equity firm. In
addition, a portion of our portfolio may be comprised of corporate bonds, other debt securities and derivatives, including total return swaps and credit default swaps. FSIC II Advisor will seek to tailor our investment focus as market conditions
evolve. Depending on market conditions, we may increase or decrease our exposure to less senior portions of the capital structure or otherwise make opportunistic investments.

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

To seek to enhance our returns, we employ leverage as market conditions permit and at the discretion of FSIC II Advisor, but in no event will leverage employed exceed 50% of the value of our assets, as
required by the 1940 Act.

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

Based on our regular monthly
cash distribution rate of $0.06283 per share as of December 31, 2014 and our final public offering price of $10.60 per share, the annualized distribution rate to stockholders as of December 31, 2014 was 7.11%. The annualized distribution
rate to stockholders is expressed as a percentage equal to the projected annualized distribution amount per share divided by our final public offering price per share. Our estimated gross portfolio yield and our annualized distribution rate to
stockholders do not represent an actual investment return to stockholders, are subject to change and in the future may be greater or less than the rates set forth above. See Item 1A. Risk Factors for a discussion of the uncertainties,
risks and assumptions associated with these statements.

As a BDC, we are subject to certain regulatory restrictions in making
our investments. For example, we generally will not be permitted to co-invest with certain entities affiliated with FSIC II Advisor or GDFM in transactions originated by FSIC II Advisor or GDFM or their respective affiliates unless we obtain an
exemptive order from the U.S. Securities and Exchange Commission, or the SEC, or co-invest alongside FSIC II Advisor or GDFM or their respective affiliates in accordance with existing regulatory guidance and the allocation policies of FSIC II
Advisor, GDFM and their respective affiliates, as applicable. However, we will be permitted to, and may,



2



---

##### Table of Contents

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

While a BDC may list its shares for trading in the public markets, we have
currently elected not to do so. We believe that a non-traded structure is more appropriate for the long term nature of the assets in which we invest. This structure allows us to operate with a long-term view, similar to that of other types of
private investment funds, instead of managing to quarterly market expectations. Furthermore, while our distribution reinvestment and share repurchase prices are subject to adjustment in accordance with the 1940 Act and our pricing policy, because
our shares of common stock are not currently listed on a national securities exchange, our stockholders are not subject to the daily share price volatility associated with the public markets. However, the net asset value of our shares of common
stock may still be volatile.

Public Offering of Shares

In March 2014, we closed our continuous public offering of shares of common stock to new investors. We sold 302,266,066 shares of our common stock for gross proceeds of $3,112,692 in our continuous
public offering.

Share Repurchase Program

To provide our stockholders with limited liquidity, we intend to continue to conduct quarterly tender offers pursuant to our share repurchase program. During the years ended December 31, 2014, 2013
and 2012, we repurchased 1,735,154, 259,669, and 24,877 shares at an average price per share of $9.604, $9.424 and $9.045, respectively, for aggregate consideration totaling $16,665, $2,447 and $225, respectively. On January 2, 2015, we
repurchased 578,569 shares at $9.500 per share for aggregate consideration totaling $5,496.

We currently intend to limit
the number of shares of common stock to be repurchased during any calendar year to the number of shares of common stock we can repurchase with the proceeds we receive from the issuance of shares of our common stock under our distribution
reinvestment plan. At the discretion of our board of directors, we may also use cash on hand, cash available from borrowings and cash from the liquidation of securities investments as of the end of the applicable period to repurchase shares of
common stock. In addition, we will limit the number of shares of common stock to be repurchased in any calendar year to 10% of the weighted average number of shares of common stock outstanding in the prior calendar year, or 2.5% in each quarter,
though the actual number of shares of common stock that we offer to repurchase may be less in light of the limitations noted above.

On February 24, 2014, we amended the terms of our share repurchase program, which became effective as of our quarterly repurchase offer for the second quarter of 2014. Prior to the amendment of the
share repurchase program, we offered to repurchase shares of common stock on each date of repurchase at a price equal to 90% of the share price in effect on each date of repurchase. Under the amended share repurchase program, we intend to offer to
repurchase shares of common stock on each date of repurchase at a price equal to the price at which shares of common stock are issued pursuant to our distribution reinvestment plan on the distribution date coinciding with the applicable share
repurchase date. The price of shares of common stock issued under our



3



---

##### Table of Contents

distribution reinvestment plan is determined by our board of directors or a committee thereof, in its sole discretion, and will be (i) not less than the net asset value per share of our
common stock as determined in good faith by our board of directors or a committee thereof, in its sole discretion, immediately prior to the payment date of the distribution and (ii) not more than 2.5% greater than the net asset value per share
as of such date. Our board of directors may amend, suspend or terminate the share repurchase program at any time upon 30 days notice.

Distributions

Effective
January 1, 2015 and subject to applicable legal restrictions and the sole discretion of our board of directors, we intend to authorize and declare regular cash distributions on a quarterly basis and pay such distributions on a monthly basis.
From time to time, we may also pay special interim distributions in the form of cash or shares of our common stock at the discretion of our board of directors. The timing and amount of any future distributions to stockholders are subject to
applicable legal restrictions and the sole discretion of our board of directors.

The following table reflects the cash
distributions per share that we have declared and paid on our common stock during the years ended December 31, 2014, 2013 and 2012:



|                                |  |              |        |  |        |   |         | 
|------------------------------- |  | ------------ | ------ |  | ------ | - | ------- | 
|                                |  | Distribution |       
|For the Year Ended December 31, |  | Per Share    |        |  | Amount |  
|2012                            |  | $            | 0.3947 |  |        | $ | 10,320  | 
|2013                            |  |              | 0.7622 |  |        |   | 114,307 | 
|2014                            |  |              | 0.7395 |  |        |   | 223,554 | 

On January 22, 2015 and March 12, 2015, our board of directors declared regular monthly cash
distributions for January 2015 through March 2015 and April 2015 through June 2015, respectively, each in the amount of $0.06283 per share. These distributions have been or will be paid monthly to stockholders of record as of the monthly record
dates previously determined by our board of directors.

For additional information regarding our distributions and our
distribution reinvestment plan, including certain related tax considerations, see Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesDistributions and
Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsRIC Status and Distributions.

About FSIC II Advisor

FSIC II Advisor is a subsidiary of our affiliate,
Franklin Square Holdings, L.P., or Franklin Square Holdings, a national sponsor of alternative investment funds designed for the individual investor. FSIC II Advisor is registered as an investment adviser with the SEC under the Advisers Act and is
led by substantially the same personnel that form the investment and operations teams of FB Income Advisor, LLC, FS Investment Advisor, LLC, FS Global Advisor, LLC and FSIC III Advisor, LLC. FB Income Advisor, LLC, FS Investment Advisor, LLC and
FSIC III Advisor, LLC are registered investment advisers that manage Franklin Square Holdings three other affiliated BDCs, FS Investment Corporation, FS Energy and Power Fund and FS Investment Corporation III, respectively. FS Global Advisor,
LLC is a registered investment adviser that manages Franklin Square Holdings affiliated closed-end management investment company, FS Global Credit Opportunities Fund.



4



---

##### Table of Contents

In addition to managing our investments, the managers, officers and other personnel of FSIC
II Advisor also currently manage the following entities through affiliated investment advisers:



|                                       |  |                                          |  |                                                                                                                                             |  |               
|-------------------------------------- |  | ---------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------
|Name                                   |  | Entity                                   |  | Investment Focus                                                                                                                            |  | GrossAssets(1)
|FS Investment Corporation              |  | BDC                                      |  | Primarily invests in senior secured loans, second lien secured loans and, to a lesser extent, subordinated loans of private U.S. companies. |  | $4,354,886    
|FS Energy and Power Fund               |  | BDC                                      |  | Primarily invests in debt and income-oriented equity securities of privately-held U.S. companies in the energy and power industry.          |  | $3,714,351    
|FS Investment Corporation III          |  | BDC                                      |  | Primarily invests in senior secured loans, second lien secured loans and, to a lesser extent, subordinated loans of private U.S. companies. |  | $1,023,266    
|FS Global Credit Opportunities Fund(2) |  | Closed-end management investment company |  | Primarily invests in secured and unsecured floating and fixed rate loans, bonds and other types of credit instruments.                      |  | $1,045,346    



|(1) | As of December 31, 2014.
|--- | ------------------------

|(2) | Two funds affiliated with FS Global Credit Opportunities Fund, FS Global Credit Opportunities FundA and FS Global Credit Opportunities FundD, or together,
the FSGCOF Offered Funds, which have the same investment objectives and strategies as FS Global Credit Opportunities Fund, currently offer common shares of beneficial interest to the public and invest substantially all of the net proceeds of their
respective offerings in FS Global Credit Opportunities Fund.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our chairman, president and chief executive
officer, Michael C. Forman, has led FSIC II Advisor since its inception. In 2007, he co-founded Franklin Square Holdings with the goal of delivering alternative investment solutions, advised by what Franklin Square Holdings believes to be
best-in-class institutional asset managers, to individual investors nationwide. In addition to leading FSIC II Advisor, Mr. Forman currently serves as chairman, president and chief executive officer of FB Income Advisor, LLC, FS Investment
Advisor, LLC, FS Energy and Power Fund, FS Global Advisor, LLC, FS Global Credit Opportunities Fund, the FSGCOF Offered Funds, FSIC III Advisor, LLC and FS Investment Corporation III and as chairman and chief executive officer of FS Investment
Corporation.

FSIC II Advisors senior management team has significant experience in private lending and private equity
investing, and has developed an expertise in using all levels of a firms capital structure to produce income-generating investments, while focusing on risk management. The team also has extensive knowledge of the managerial, operational and
regulatory requirements of publicly registered alternative asset entities, such as BDCs. We believe that the active and ongoing participation by Franklin Square Holdings and its affiliates in the credit markets, and the depth of experience and
disciplined investment approach of FSIC II Advisors management team, will allow FSIC II Advisor to successfully execute our investment strategy.

All of our investment decisions require the unanimous approval of FSIC II Advisors investment committee, which is currently comprised of Mr. Forman, Gerald F. Stahlecker, our
executive vice president, Zachary Klehr, our executive vice president, and Sean Coleman, our managing director. Our board of directors, including a majority of independent directors, oversees and monitors our investment performance and, annually
reviews the compensation we pay to FSIC II Advisor and the compensation FSIC II Advisor pays to GDFM to determine, among other things, whether such compensation is reasonable in light of the services provided.



5



---

##### Table of Contents

About GDFM

From time to time, FSIC II Advisor may enter into sub-advisory relationships with registered investment advisers that possess skills that FSIC II Advisor believes will aid it in achieving our
investment objectives. FSIC II Advisor has engaged GDFM to act as our investment sub-adviser. GDFM assists FSIC II Advisor in identifying investment opportunities and makes investment recommendations for approval by FSIC II Advisor
according to guidelines set by FSIC II Advisor. GDFM also serves as the investment sub-adviser to FS Investment Corporation and FS Investment Corporation III. Furthermore, GDFMs parent, GSO, serves as the investment sub-adviser to FS
Energy and Power Fund and FS Global Credit Opportunities Fund. GDFM is a Delaware limited liability company with principal offices located at 345 Park Avenue, New York, New York 10154.

GDFM is a wholly-owned subsidiary of GSO. GSO is the credit platform of Blackstone, a leading global alternative asset manager. As of
December 31, 2014, GSO and its affiliates, excluding Blackstone, managed approximately $72.9 billion of assets across multiple strategies within the leveraged finance marketplace, including leveraged loans, high-yield bonds, distressed,
mezzanine and private equity. As investment sub-adviser, GDFM makes recommendations to FSIC II Advisor in a manner that is consistent with its existing investment and monitoring processes.

Blackstone is a leading global alternative asset manager and provider of financial advisory services. It is one of the largest
independent managers of private capital in the world, with assets under management of approximately $290.4 billion as of December 31, 2014. Blackstones alternative asset management businesses include the management of private equity
funds, real estate funds, funds of hedge funds, credit-oriented funds, collateralized loan obligation vehicles, separately managed accounts and publicly-traded closed-end mutual funds. Blackstone is a publicly-traded limited partnership that has
common units which trade on the New York Stock Exchange under the ticker symbol BX. Information about Blackstone and its various affiliates, including certain ownership, governance and financial information, is disclosed in
Blackstones periodic filings with the SEC, which can be obtained from Blackstones website at http://ir.blackstone.com or the SECs website at www.sec.gov. Information contained on Blackstones website and in
Blackstones filings with the SEC are not incorporated by reference into this annual report on Form 10-K and such information should not be considered to be part of this annual report on Form 10-K.

Market Opportunity

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

Attractive Opportunities in Senior Secured and Second Lien Secured Loans

We believe that opportunities in senior secured and second lien secured loans are significant because of the variable rate structure of
most senior secured debt issues and because of the strong defensive characteristics of this investment class. Given current market conditions, we believe that debt issues with variable interest rates offer a superior return profile to fixed-rate
securities, since variable interest rate structures are generally less susceptible to declines in value experienced by fixed-rate securities in a rising interest rate environment.

Senior secured debt also provides strong defensive characteristics. Because this debt has priority in payment among an issuers
security holders (i.e., they are due to receive payment before unsecured creditors and equityholders), they carry the least potential risk among investments in the issuers capital structure. Further, these investments are secured by the
issuers assets, which may be seized in the event of a default, if necessary. They generally also carry restrictive covenants aimed at ensuring repayment before unsecured creditors, such as unsecured bondholders, and other security holders and
preserving collateral to protect against credit deterioration.



6



---

##### Table of Contents

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





LOGO



Source: Moodys Investors Service, Inc.

Opportunity in Middle Market
Private Companies

In addition to investing in senior secured and second lien secured loans generally, we believe that the
market for lending to private companies, particularly middle market private companies within the United States, is underserved and presents a compelling investment opportunity. We believe that the following characteristics support our belief:

Large Target Market

According to The U.S. Census Bureau, in its 2007 economic census, there were approximately 40,000 middle market companies in the United States with annual revenues between $50 million and
$2.5 billion, compared with approximately 1,200 companies with revenues greater than $2.5 billion. These middle market companies represent, we believe, a significant portion of the growth segment of the U.S. economy and often require
substantial capital investment to grow their businesses. Middle market companies have generated a significant number of investment opportunities for us and investment programs managed by our affiliates and GDFM over the past several years, and we
believe that this market segment will continue to produce significant investment opportunities for us.

Limited Investment
Competition

Despite the size of the market, we believe that regulatory changes and other factors have diminished the role
of traditional financial institutions and certain other capital providers in providing financing to middle market companies. As tracked by S&P Capital IQ LCD, U.S. banks share of senior secured loans to middle market companies contracted
to 4% of overall middle market loan volume in 2014, down from 9% in 2013, 12% in 2012 and nearly 20% in 2011. We believe this trend of reduced middle market lending by financial institutions may continue as increased regulatory scrutiny as well as
other regulatory changes may further reduce banks lending activities and the role they play in providing capital to middle market companies.

In addition, regulatory uncertainty regarding collateralized loan obligations, or CLOs, may limit financing once available to middle market companies. Risk retention and certain limitations placed on some
banks ability to hold certain CLO securities may also inhibit future CLO creation and future lending to middle market



7



---

##### Table of Contents

companies. CLOs represented 62.2% of the institutional investor base for broadly syndicated loans in 2014, as tracked by S&P Capital IQ LCD, and any decline in the formation of new CLOs will
likely have broad implications for the senior secured loan marketplace and for middle market borrowers.

We also believe that
lending and originating new loans to middle market companies, which are often private, generally requires a greater dedication of the lenders time and resources compared to lending to larger companies, due in part to the smaller size of each
investment and the often fragmented nature of information available from these companies. Further, many investment firms lack the breadth and scale necessary to identify investment opportunities, particularly in regards to directly originated
investments in middle market companies, and that attractive investment opportunities are often overlooked. In addition, middle market companies may require more active monitoring and participation on the lenders part. We believe that many
large financial organizations, which often have relatively high cost structures, are not suited to deal with these factors and instead emphasize services and transactions to larger corporate clients with a consequent reduction in the availability of
financing to middle market companies.

Attractive Market Segment

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

Characteristics of and Risks Related to Investments in Private Companies

We invest primarily in the debt of private U.S. middle market companies. Investments in private companies pose significantly greater risks
than investments in public companies. First, private companies have reduced access to the capital markets, resulting in diminished capital resources and ability to withstand financial distress. As a result, these companies, which may present greater
credit risk than public companies, may be unable to meet the obligations under their debt securities that we hold. Second, the investments themselves may often be illiquid. The securities of most of the companies in which we invest are not
publicly-traded or actively-traded on the secondary market and are, instead, traded on a privately negotiated over-the-counter secondary market for institutional investors. In addition, our directly originated investments generally will not be
traded on any secondary market and a trading market for such investments may not develop. The securities in which we invest may also be subject to legal and other restrictions on resale. As such, we may have difficulty exiting an investment promptly
or at a desired price prior to maturity or outside of a normal amortization schedule. These investments may also be difficult to value because little public information generally exists about private companies, requiring an experienced due diligence
team to analyze and value the potential portfolio company. Finally, these companies may not have third-party debt ratings or audited financial statements. We must therefore rely on the ability of FSIC II Advisor and/or GDFM to obtain adequate
information through their due diligence efforts to evaluate the creditworthiness of, and risks involved in, investing in these companies, and to determine the optimal time to exit an investment. These companies and their financial information will
also generally not be subject to the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and other rules and regulations that govern public companies that are designed to protect investors.

Investment Strategy

Our
principal focus is to invest in senior secured and second lien secured loans of private U.S. middle market companies, and to a lesser extent, subordinated loans of private U.S. companies. Although we do not



8



---

##### Table of Contents

expect a significant portion of our portfolio to be comprised of subordinated loans, there is no limit on the amount of such loans in which we may invest. We may purchase interests in loans or
make other debt investments, including investments in senior secured bonds, through secondary market transactions in the over-the-counter market or directly from our target companies as primary market or directly originated investments.
In connection with our debt investments, we may on occasion receive equity interests such as warrants or options as additional consideration. We may also purchase minority interests in the form of common or preferred equity or the equity-related
securities in our target companies, generally in conjunction with one of our debt investments or through a co-investment with a financial sponsor, such as an institutional investor or private equity firm. In addition, a portion of our portfolio may
be comprised of corporate bonds, other debt securities and derivatives, including total return swaps and credit default swaps. FSIC II Advisor will seek to tailor our investment focus as market conditions evolve. Depending on market conditions, we
may increase or decrease our exposure to less senior portions of the capital structure or otherwise make opportunistic investments.

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



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



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



| |  |  | Proven management teams. We focus on companies that have experienced management teams with an established track record of success. We typically
prefer our portfolio companies to have proper incentives in place, which may include non-cash and performance-based compensation, to align managements goals with ours.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Private equity sponsorship. Often, we seek to participate in transactions sponsored by what we believe to be sophisticated and seasoned private
equity firms. FSIC II Advisors management team believes that a private equity sponsors willingness to invest significant sums of equity capital into a company is an endorsement of the quality of the investment. Further, by co-investing
with such experienced private equity firms which commit significant sums of equity capital ranking junior in priority of payment to our debt investments, we may benefit from the due diligence review performed by the private equity firm, in addition
to our own due diligence review. Further, strong private equity sponsors with significant investments at risk have the ability and a strong incentive to contribute additional capital in difficult economic times should operational or financial issues
arise, which could provide additional protections for our investments.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Allocation among various issuers and industries. We seek to allocate our portfolio broadly among issuers and industries, thereby attempting to
reduce the risk of a downturn in any one company or industry having a disproportionate adverse impact on the value of our portfolio.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Viable exit strategy. While we attempt to invest in securities that may be sold in a privately negotiated over-the-counter market, providing us
a means by which we may exit our positions, we expect that a large portion of our portfolio may not be sold on this secondary market. For any investments that are not able to be sold within this market, we focus primarily on investing in companies
whose business
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



9



---

##### Table of Contents

| | models and growth prospects offer attractive exit possibilities, including repayment of our investments, an initial public offering of equity securities, a merger, a sale or a recapitalization,
in each case with the potential for capital gains.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, in an order dated June 4, 2013, the
SEC granted exemptive relief that, subject to the satisfaction of certain conditions, expands our ability to co-invest in certain privately negotiated investment transactions with our co-investment affiliates, which we believe has and may continue
to enhance our ability to further our investment objectives and strategy.

Potential Competitive Strengths

We believe that we offer our investors the following potential competitive strengths:

Global platform with seasoned investment professionals

We believe that the breadth and depth of the experience of FSIC II Advisors senior management team, together with the wider
resources of GSOs investment team, which is dedicated to sourcing, structuring, executing, monitoring and harvesting a broad range of private investments, as well as the specific expertise of GDFM, provide us with a significant competitive
advantage in sourcing and analyzing attractive investment opportunities.

Long-term investment horizon

Our long-term investment horizon gives us great flexibility, which we believe allows us to maximize returns on our
investments. Unlike most private equity and venture capital funds, as well as many private debt funds, we are not required to return capital to our stockholders once we exit a portfolio investment. We believe that freedom from such capital return
requirements, which allows us to invest using a longer-term focus, provides us with the opportunity to increase total returns on invested capital, compared to other private company investment vehicles.

GDFM transaction sourcing capability

FSIC II Advisor seeks to leverage GDFMs significant access to transaction flow. GDFM seeks to generate investment opportunities through syndicate and club deals (generally, investments made by a
small group of investment firms) and, subject to regulatory constraints as discussed under Regulation, and the allocation policies of GDFM and its affiliates, as applicable, also through GSOs direct origination channels.
These include significant contacts to participants in the credit and leveraged finance marketplace, which it can draw upon in sourcing investment opportunities for us. With respect to syndicate and club deals, GDFM has built a network of
relationships with commercial and investment banks, finance companies and other investment funds as a result of the long track record of its investment professionals in the leveraged finance marketplace. With respect to GDFMs origination
channel, FSIC II Advisor seeks to leverage the global presence of GSO to generate access to a substantial amount of directly originated transactions with attractive investment characteristics. We believe that the broad network of GDFM provides a
significant pipeline of investment opportunities for us. GDFM also has a significant trading platform, which, we believe, allows us access to the secondary market for investment opportunities.

Disciplined, income-oriented investment philosophy

FSIC II Advisor and GDFM employ a defensive investment approach focused on long-term credit performance and principal protection. This investment approach involves a multi-stage selection process for each
investment opportunity, as well as ongoing monitoring of each investment made, with particular emphasis on early detection of deteriorating credit conditions at portfolio companies which would result in adverse portfolio developments. This strategy
is designed to maximize current income and minimize the risk of capital loss while maintaining the potential for long-term capital appreciation.



10



---

##### Table of Contents

Investment expertise across all levels of the corporate capital structure

FSIC II Advisor and GDFM believe that their broad expertise and experience investing at all levels of a
companys capital structure enable us to manage risk while affording us the opportunity for significant returns on our investments. We attempt to capitalize on this expertise in an effort to produce and maintain an investment portfolio that
will perform in a broad range of economic conditions.

Operating and Regulatory Structure

Our investment activities are managed by FSIC II Advisor and supervised by our board of directors, a majority of whom are
independent. Under our investment advisory and administrative services agreement, dated as of February 8, 2012, or the investment advisory and administrative services agreement, we have agreed to pay FSIC II Advisor an annual base
management fee based on the average value of our gross assets as well as incentive fees based on our performance. See Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsContractual
Obligations for a description of the fees we pay to FSIC II Advisor.

From time to time, FSIC II Advisor may
enter into sub-advisory relationships with registered investment advisers that possess skills or attributes that FSIC II Advisor believes will aid it in achieving our investment objectives. FSIC II Advisor has engaged GDFM to act as our
investment sub-adviser. GDFM assists FSIC II Advisor in identifying investment opportunities and makes investment recommendations for approval by FSIC II Advisor according to guidelines set by FSIC II Advisor.

FSIC II Advisor oversees our day-to-day operations, including the provision of general ledger accounting, fund accounting, legal
services, investor relations and other administrative services. FSIC II Advisor also performs, or oversees the performance of, our corporate operations and required administrative services, which includes being responsible for the financial
records which we are required to maintain and preparing reports for our stockholders and reports filed with the SEC. In addition, FSIC II Advisor assists us in calculating our net asset value, overseeing the preparation and filing of tax
returns and the printing and dissemination of reports to our stockholders, and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others.

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

We have also contracted with
State Street Bank and Trust Company to provide various accounting and administrative services, including, but not limited to, preparing preliminary financial information for review by



11



---

##### Table of Contents

FSIC II Advisor, preparing and monitoring expense budgets, maintaining accounting and corporate books and records, processing trade information provided by us and performing testing with respect
to RIC compliance. In addition, we have contracted with Vigilant Compliance, LLC to provide us with a chief compliance officer, Salvatore Faia, president of that firm.

As a BDC, we are required to comply with certain regulatory requirements. Also, while we are permitted to finance investments using debt, our ability to use debt will be limited in certain significant
respects pursuant to the 1940 Act. Within the limits of existing regulation, we will adjust our use of debt, according to market conditions, to the level we believe will allow us to generate maximum risk-adjusted returns. See
Regulation. We have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually, as a RIC under Subchapter M of the Code.

Investment Types

Our portfolio is comprised primarily of investments in
senior secured loans and second lien secured loans of private U.S. middle market companies and, to a lesser extent, subordinated loans of private U.S. companies. Although we do not expect a significant portion of our portfolio to be comprised of
subordinated loans, there is no limit on the amount of such loans in which we may invest. We may purchase interests in loans or make other debt investments, including investments in senior secured bonds, through secondary market transactions in the
over-the-counter market or directly from our target companies as primary market or directly originated investments. In connection with our debt investments, we may on occasion receive equity interests such as warrants or options as
additional consideration. We may also purchase minority interests in the form of common or preferred equity or the equity-related securities in our target companies, generally in conjunction with one of our debt investments or through a
co-investment with a financial sponsor, such as an institutional investor or private equity firm. In addition, a portion of our portfolio may be comprised of corporate bonds, other debt securities and derivatives, including total return swaps and
credit default swaps. FSIC II Advisor will seek to tailor our investment focus as market conditions evolve. Depending on market conditions, we may increase or decrease our exposure to less senior portions of the capital structure, where returns tend
to be stronger in a more stable or growing economy, but less secure in weak economic environments. Below is a diagram illustrating where these investments lie in a typical portfolio companys capital structure. Senior secured debt is situated
at the top of the capital structure and typically has the first claim on the assets and cash flows of the company, followed by second lien secured debt, subordinated debt, preferred equity and, finally, common equity. Due to this priority of cash
flows, an investments risk increases as it moves further down the capital structure. Investors are usually compensated for this risk associated with junior status in the form of higher returns, either through higher interest payments or
potentially higher capital appreciation. We rely on FSIC II Advisors and GDFMs experience to structure investments, possibly using all levels of the capital structure, which we believe will perform in a broad range of economic
environments.



12



---

##### Table of Contents

Typical Leveraged Capital Structure Diagram





LOGO

Senior Secured Loans

Senior secured loans are situated at the top of the capital structure. Because these loans generally have priority in payment, they carry
the least risk among all investments in a firm. Generally, our senior secured loans are expected to have maturities of three to seven years, offer some form of amortization and have first priority security interests in the assets of the borrower.
Generally, we expect that the interest rate on our senior secured loans typically will have variable rates ranging between 6.0% and 10.0% over a standard benchmark, such as the prime rate or the London Interbank Offered Rate, or LIBOR.

Second Lien Secured Loans

Second lien secured loans are immediately junior to senior secured loans and have substantially the same maturities, collateral and covenant structures as senior secured loans. Second lien secured loans,
however, are granted a second priority security interest in the assets of the borrower, which means that any realization of collateral will generally be applied to pay senior secured loans in full before second lien secured loans are paid and the
value of the collateral may not be sufficient to repay in full both senior secured loans and second lien secured loans. In return for this junior ranking, second lien secured loans generally offer higher returns compared to senior secured debt.
These higher returns come in the form of higher interest and in some cases the potential for equity participation through warrants, though to a lesser extent than with subordinated loans. Generally, we expect these loans to carry a fixed rate, or a
floating current yield of 9.0% to 12.0% over a standard benchmark. In addition, we may receive additional returns from any warrants we may receive in connection with these investments.

Senior Secured Bonds

Senior secured bonds are generally secured by collateral on a senior, pari passu or junior basis with other debt instruments in an issuers capital structure and have similar maturities and
covenant structures as senior secured loans. Generally, we expect these investments to carry a fixed rate of 8.0% to 14.0%.

Subordinated Debt

In addition to senior secured loans, second lien secured loans, and senior secured bonds, we may invest a portion of our assets in subordinated debt. Subordinated debt investments usually rank junior in
priority of



13



---

##### Table of Contents

payment to senior debt and are often unsecured, but are situated above preferred equity and common equity in the capital structure. In return for their junior status compared to senior debt,
subordinated debt investments typically offer higher returns through both higher interest rates and possible equity ownership in the form of warrants, enabling the lender to participate in the capital appreciation of the borrower. These warrants
typically require only a nominal cost to exercise. We generally target subordinated debt with interest-only payments throughout the life of the security, with the principal due at maturity. Typically, subordinated debt investments have maturities of
five to ten years. Generally, we expect these securities to carry a fixed rate, or a floating current yield of 7.5% to 14.0% over a standard benchmark. In addition, we may receive additional returns from any warrants we may receive in connection
with these investments. In some cases, a portion of the total interest may accrue or be paid-in-kind, or PIK.

Equity
and Equity-Related Securities

While we intend to maintain our focus on investments in debt securities, from time to
time, when we see the potential for extraordinary gain, or in connection with securing particularly favorable terms in a debt investment, we may enter into non-control investments in preferred or common equity, typically in conjunction with a
private equity sponsor we believe to be sophisticated and seasoned. In addition, we typically receive the right to make equity investments in a portfolio company whose debt securities we hold in connection with the next equity financing round for
that company. This right will provide us with the opportunity to further enhance our returns over time through equity investments in our portfolio companies. In addition, we may hold equity-related securities, such as rights and warrants that may be
converted into or exchanged for common stock or other equity or the cash value of common stock or other equity, generally obtained in conjunction with one of our debt investments or through a co-investment with a financial sponsor, such as an
institutional investor or private equity firm. In the future, we may achieve liquidity through a merger or acquisition of a portfolio company, a public offering of a portfolio companys stock or by exercising our right, if any, to require a
portfolio company to repurchase the equity-related securities we hold. With respect to any preferred or common equity investments, we expect to target an annual investment return of at least 15%.

Non-U.S. Securities

We may invest in non-U.S. securities, which may include securities denominated in U.S. dollars or in non-U.S. currencies, to the extent permitted by the 1940 Act.

Other Securities

We may also invest from time to time in derivatives, including, total return swaps and credit default swaps.

Cash and Cash Equivalents

We may maintain a certain level of cash
or equivalent instruments to make follow-on investments, if necessary, in existing portfolio companies or to take advantage of new opportunities.

Comparison of Targeted Debt Investments to Corporate Bonds

Loans to
private companies are debt instruments that can be compared to corporate bonds to aid an investors understanding. As with corporate bonds, loans to private companies can range in credit quality depending on security-specific factors, including
total leverage, amount of leverage senior to the security in question, variability in the issuers cash flows, the quality of assets securing debt and the degree to which such assets cover the subject companys debt obligations. As is the
case in the corporate bond market, we will require greater returns for securities that we perceive to carry increased risk. The companies in which we invest may be leveraged, often as a result of leveraged buyouts or other recapitalization
transactions, and, in many cases, will not be rated by national rating agencies. When our targeted debt investments do carry ratings from a NRSRO, we believe that such ratings generally will be below investment grade (rated lower than
Baa3 by Moodys or lower



14



---

##### Table of Contents

than BBB- by S&P). To the extent we make unrated investments, we believe that such investments would likely receive similar ratings if they were to be examined by a NRSRO.
Compared to below-investment grade corporate bonds that are typically available to the public, our targeted senior secured and second lien secured loan investments are higher in the capital structure, have priority in receiving payment, are secured
by the issuers assets, allow the lender to seize collateral if necessary, and generally exhibit higher rates of recovery in the event of default. Corporate bonds, on the other hand, are often unsecured obligations of the issuer.

The market for loans to private companies possesses several key differences compared to the corporate bond market. For instance, due to a
possible lack of debt ratings for certain middle market firms, and also due to the reduced availability of information for private companies, investors must conduct extensive due diligence investigations before committing to an investment. This
intensive due diligence process gives the investor significant access to management, which is often not possible in the case of corporate bondholders, who rely on underwriters, debt rating agencies and publicly available information for due
diligence reviews and monitoring of corporate issuers. While holding these investments, private debt investors often receive monthly or quarterly updates on the portfolio companys financial performance, along with possible representation on
the companys board of directors, which allows the investor to take remedial action quickly if conditions happen to deteriorate. Due to reduced liquidity, the relative scarcity of capital and extensive due diligence and expertise required on
the part of the investor, we believe that private debt securities typically offer higher returns than corporate bonds of equivalent credit quality.

Sources of Income

The primary means through which our stockholders will
receive a return of value is through interest income, dividends and capital gains generated by our investments. In addition to these sources of income, we may receive fees paid by our portfolio companies, including one-time closing fees paid at the
time each investment is made. Closing fees typically range from 1.0% to 2.0% of the purchase price of an investment. In addition, we may generate revenues in the form of commitment, origination, structuring or diligence fees, fees for providing
managerial assistance, consulting fees and performance-based fees.

Risk Management

We seek to limit the downside potential of our investment portfolio by:



| |  |  | applying our investment strategy guidelines for portfolio investments;
| | - |  | ----------------------------------------------------------------------



| |  |  | requiring a total return on investments (including both interest and potential appreciation) that adequately compensates us for credit risk;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | allocating our portfolio among various issuers and industries, size permitting, with an adequate number of companies, across different industries, with
different types of collateral; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | negotiating or seeking debt investments with covenants or features that protect us while affording portfolio companies flexibility in managing their
businesses consistent with preservation of capital, which may include affirmative and negative covenants, default penalties, lien protection, change of control provisions and board rights.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We may also enter into interest rate hedging transactions at the sole discretion of FSIC II Advisor. Such transactions will enable us to
selectively modify interest rate exposure as market conditions dictate.

Affirmative Covenants

Affirmative covenants require borrowers to take actions that are meant to ensure the solvency of the company, facilitate the lenders
monitoring of the borrower, and ensure payment of interest and loan principal due to lenders. Examples of affirmative covenants include covenants requiring the borrower to maintain adequate insurance, accounting and tax records, and to produce
frequent financial reports for the benefit of the lender.



15



---

##### Table of Contents

Negative Covenants

Negative covenants impose restrictions on the borrower and are meant to protect lenders from actions that the borrower may take that could
harm the credit quality of the lenders investments. Examples of negative covenants include restrictions on the payment of dividends and restrictions on the issuance of additional debt without the lenders approval. In addition, certain
covenants restrict a borrowers activities by requiring it to meet certain earnings interest coverage ratio and leverage ratio requirements. These covenants are also referred to as financial or maintenance covenants.

Investment Process

The
investment professionals employed by FSIC II Advisor and GDFM have spent their careers developing the resources necessary to invest in private companies. Our transaction process is highlighted below.

Our Transaction Process





LOGO

Sourcing

In order to source transactions, FSIC II Advisor seeks to leverage GDFMs significant access to transaction flow, along with GDFMs trading platform. GDFM seeks to generate investment
opportunities through its trading platform, through syndicate and club deals and, subject to regulatory constraints and the allocation policies of GDFM and its affiliates, as applicable, through GSOs direct origination channels. With respect
to syndicate and club deals, GDFM has built a network of relationships with commercial and investment banks, finance companies and other investment funds as a result of the long track record of its investment professionals in the leveraged finance
marketplace. With respect to GDFMs origination channel, FSIC II Advisor seeks to leverage the global presence of GSO to generate access to a substantial amount of directly originated transactions with attractive investment characteristics. We
believe that the broad network of GDFM provides a significant pipeline of investment opportunities for us.

Evaluation

Initial Review. In its initial review of an investment opportunity to present to FSIC II Advisor, GDFMs
transaction team examines information furnished by the target company and external sources, including rating agencies, if applicable, to determine whether the investment meets our basic investment criteria and other guidelines specified by FSIC II
Advisor, within the context of proper allocation of our portfolio among various issuers and industries, and offers an acceptable probability of attractive returns with identifiable downside risk. For the majority of securities available on the
secondary market, a comprehensive analysis is conducted and continuously maintained by a dedicated GDFM research analyst, the results of which are available for the transaction team to review. In the case of a directly originated transaction, FSIC
II Advisor and GDFM conduct detailed due diligence investigations as necessary.

Credit Analysis/Due Diligence.
Before undertaking an investment, the transaction team from GDFM and FSIC II Advisor conducts a thorough due diligence review of the opportunity to ensure the company fits our investment strategy, which may include:



| |  |  | a full operational analysis to identify the key risks and opportunities of the targets business, including a detailed review of historical and
projected financial results;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a detailed analysis of industry dynamics, competitive position, regulatory, tax and legal matters;
| | - |  | --------------------------------------------------------------------------------------------------



16



---

##### Table of Contents

| |  |  | on-site visits, if deemed necessary;
| | - |  | ------------------------------------



| |  |  | background checks to further evaluate management and other key personnel;
| | - |  | -------------------------------------------------------------------------



| |  |  | a review by legal and accounting professionals, environmental or other industry consultants, if necessary;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | financial sponsor due diligence, including portfolio company and lender reference checks, if necessary; and
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | a review of managements experience and track record.
| | - |  | -----------------------------------------------------

When possible, our advisory team seeks to structure transactions in such a way that our target companies are required to bear the costs of due diligence, including those costs related to any outside
consulting work we may require.

Execution

Recommendation. FSIC II Advisor has engaged GDFM to identify and recommend investment opportunities for its approval. GDFM seeks to
maintain a defensive approach toward its investment recommendations by emphasizing risk control in its transaction process, which includes (i) the pre-review of each opportunity by one of its portfolio managers to assess the general quality,
value and fit relative to our portfolio, (ii) where possible, transaction structuring with a focus on preservation of capital in varying economic environments and (iii) ultimate approval of investment recommendations by GDFMs
investment committee.

Approval. After completing its internal transaction process, GDFM makes formal
recommendations for review and approval by FSIC II Advisor. In connection with its recommendation, it transmits any relevant underwriting material and other information pertinent to the decision-making process. In addition, GDFM makes its staff
available to answer inquiries by FSIC II Advisor in connection with its recommendations. The consummation of a transaction requires unanimous approval of the members of FSIC II Advisors investment committee.

Monitoring

Portfolio Monitoring. FSIC II Advisor, with the help of GDFM, monitors our portfolio with a focus toward anticipating negative credit events. To maintain portfolio company performance and help to
ensure a successful exit, FSIC II Advisor and GDFM work closely with, as applicable, the lead equity sponsor, loan syndicator, portfolio company management, consultants, advisers and other security holders to discuss financial position, compliance
with covenants, financial requirements and execution of the companys business plan. In addition, depending on the size, nature and performance of the transaction, we may occupy a seat or serve as an observer on a portfolio companys board
of directors or similar governing body.

Typically, FSIC II Advisor and GDFM receive financial reports detailing
operating performance, sales volumes, margins, cash flows, financial position and other key operating metrics on a quarterly basis from our portfolio companies. FSIC II Advisor and GDFM use this data, combined with due diligence gained through
contact with the companys customers, suppliers, competitors, market research and other methods, to conduct an ongoing, rigorous assessment of the companys operating performance and prospects.



17



---

##### Table of Contents

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



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

FSIC II Advisor monitors and, when appropriate, changes the investment ratings assigned to each
investment in our portfolio. In connection with valuing our assets, our board of directors reviews these investment ratings on a quarterly basis. In the event that our advisory team determines that an investment is underperforming, or circumstances
suggest that the risk associated with a particular investment has significantly increased, we will attempt to sell the asset in the secondary market, if applicable, or to implement a plan to attempt to exit the investment or to correct the
situation.

The following table shows the distribution of our investments on the 1 to 5 investment rating scale at fair value
as of December 31, 2014 and 2013:



|                  |  |                   |           |  |                        |  |     |            |  |   |                        |  |  |  |     |  
|----------------- |  | ----------------- | --------- |  | ---------------------- |  | --- | ---------- |  | - | ---------------------- |  |  |  | --- | -
|                  |  | December 31, 2014 |           |  | December 31, 2013      | 
|Investment Rating |  | Fair Value        |           |  | Percentage ofPortfolio |  |     | Fair Value |  |   | Percentage ofPortfolio | 
|1                 |  | $                 | 284,924   |  |                        |  | 7   | %          |  | $ | 86,131                 |  |  |  | 3   | %
|2                 |  |                   | 3,608,887 |  |                        |  | 82  | %          |  |   | 2,286,820              |  |  |  | 86  | %
|3                 |  |                   | 485,443   |  |                        |  | 11  | %          |  |   | 269,660                |  |  |  | 10  | %
|4                 |  |                   | 10,528    |  |                        |  | 0   | %          |  |   | 13,217                 |  |  |  | 1   | %
|5                 |  |                   | 6,446     |  |                        |  | 0   | %          |  |   |                       |  |  |  |    |  
|                  |  |                   |           |  |                        |  |     |            |  |   |                        |  |  |  |     |  
|Total             |  | $                 | 4,396,228 |  |                        |  | 100 | %          |  | $ | 2,655,828              |  |  |  | 100 | %
|                  |  |                   |           |  |                        |  |     |            |  |   |                        |  |  |  |     |  

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

Valuation Process. Each quarter, we value investments in our portfolio, and such values are
disclosed each quarter in reports filed with the SEC. Investments for which market quotations are readily available are recorded at such market quotations. With respect to investments for which market quotations are not readily available, our board
of directors determines the fair value of such investments in good faith, utilizing the input of management, our valuation committee, FSIC II Advisor and any other professionals or materials that our board of directors deems worthy and relevant,
including GDFM, independent third-party pricing services and independent third-party valuation firms, if applicable. See Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical
Accounting PoliciesValuation of Portfolio Investments.

Managerial Assistance. As a BDC, we must
offer, and provide upon request, managerial assistance to certain of our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings,
consulting with and advising



18



---

##### Table of Contents

officers of portfolio companies and providing other organizational and financial guidance. Depending on the nature of the assistance required, FSIC II Advisor or GDFM will provide such
managerial assistance on our behalf to portfolio companies that request this assistance. To the extent fees are paid for these services, we, rather than FSIC II Advisor or GDFM, will retain any fees paid for such assistance.

Exit

While we attempt to invest in securities that may be sold in a privately negotiated over-the-counter market, providing us a means by which we may exit our positions, we expect that a large portion of our
portfolio may not be sold on this secondary market. For any investments that are not able to be sold within this market, we focus primarily on investing in companies whose business models and growth prospects offer attractive exit possibilities,
including repayment of our investments, an initial public offering of equity securities, a merger, a sale or a recapitalization, in each case with the potential for capital gains.

Financing Arrangements

To seek to enhance our returns, we employ leverage
as market conditions permit and at the discretion of FSIC II Advisor, but in no event will leverage employed exceed 50% of the value of our assets, as required by the 1940 Act. Below is a summary of our outstanding financing arrangements as of
December 31, 2014.



|                                  |  |                  |  |                   |  |                   |         |  |                 |   |         |              |  |                  
|--------------------------------- |  | ---------------- |  | ----------------- |  | ----------------- | ------- |  | --------------- | - | ------- | ------------ |  | -----------------
|Facility                          |  | Type of Facility |  | Rate              |  | AmountOutstanding |         |  | AmountAvailable |   |         | MaturityDate
|JPM Facility                      |  | Repurchase       |  | 3.25%             |  | $                 | 550,000 |  |                 | $ |        |              |  | May 20, 2017     
|Goldman Facility                  |  | Repurchase       |  | L+2.50%           |  | $                 | 75,400  |  |                 | $ | 324,600 |              |  | December 15, 2018
|Cooper River Credit Facility      |  | Revolving        |  | L+1.75%           |  | $                 | 170,494 |  |                 | $ | 29,506  |              |  | March 27, 2016   
|Wissahickon Creek Credit Facility |  | Revolving        |  | L+1.50% toL+2.50% |  | $                 | 185,000 |  |                 | $ | 65,000  |              |  | February 19, 2019
|Darby Creek Credit Facility       |  | Revolving        |  | L+2.75%           |  | $                 | 249,500 |  |                 | $ | 500     |              |  | February 20, 2018
|Dunning Creek Credit Facility     |  | Revolving        |  | L+1.55%           |  | $                 | 230,800 |  |                 | $ | 19,200  |              |  | May 14, 2015     
|Juniata River Credit Facility     |  | Revolving        |  | L+2.50%           |  | $                 | 180,000 |  |                 | $ | 120,000 |              |  | November 14, 2019

Our average borrowings and weighted average interest rate, including the effect of non-usage fees, for
the year ended December 31, 2014 were $1,039,452 and 2.98%, respectively. As of December 31, 2014, our weighted average effective interest rate on borrowings, including the effect of non-usage fees, was 2.77%.

See Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsFinancial
Condition, Liquidity and Capital ResourcesFinancing Arrangements for additional information regarding our financing arrangements.

Regulation

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

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

We will generally not be able to issue and sell our common stock at a
price per share, after deducting underwriting commissions and discounts, that is below our net asset value per share. See Item 1A. Risk



19



---

##### Table of Contents

FactorsRisks Related to Business Development CompaniesRegulations governing our operation as a BDC and RIC will affect our ability to raise, and the way in which we raise, additional
capital or borrow for investment purposes, which may have a negative effect on our growth. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value of
our common stock if our board of directors determines that such sale is in our best interests and the best interests of our stockholders, and our stockholders approve such sale. In addition, we may generally issue new shares of our common stock at a
price below net asset value per share in rights offerings to existing stockholders, in payment of dividends and in certain other limited circumstances.

As a BDC, we are subject to certain regulatory restrictions in making our investments. For example, we generally will not be permitted to co-invest with certain entities affiliated with FSIC II Advisor or
GDFM in transactions originated by FSIC II Advisor or GDFM or their respective affiliates unless we obtain an exemptive order from the SEC or co-invest alongside FSIC II Advisor or GDFM or their respective affiliates in accordance with existing
regulatory guidance and the allocation policies of FSIC II Advisor, GDFM and their respective affiliates, as applicable. However, we will be permitted to, and may, co-invest in syndicated deals and secondary loan market transactions where price is
the only negotiated point. In an order dated June 4, 2013, the SEC granted exemptive relief permitting us, subject to the satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions with our co
investment affiliates. We believe this relief has and may continue to enhance our ability to further our investment objectives and strategy. We believe this relief may also increase favorable investment opportunities for us, in part, by allowing us
to participate in larger investments, together with our co-investment affiliates, than would be available to us if such relief had not been obtained. Because we did not seek exemptive relief to engage in co-investment transactions with GDFM and its
affiliates, we will continue to be permitted to co-invest with GDFM and its affiliates only in accordance with existing regulatory guidance.

Qualifying Assets

Under the 1940 Act, a BDC may not acquire any
assets 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 BDCs total assets. The
principal categories of qualifying assets relevant to our business are any of the following:



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



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



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



| | c. | satisfies any of the following:
| | -- | -------------------------------



| | i. | does not have any class of securities that is traded on a national securities exchange;
| | -- | ---------------------------------------------------------------------------------------



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



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



| | iv. | is a small and solvent company having total assets of not more than $4.0 million and capital and surplus of not less than $2.0 million.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------



20



---

##### Table of Contents

| | 2. | Securities of any eligible portfolio company that we control.
| | -- | -------------------------------------------------------------



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



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



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



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

In addition, a BDC must have been organized and have its principal place of business in the United States and must be operated for the
purpose of making investments in the types of securities described in (1), (2) or (3) above.

Managerial
Assistance to Portfolio Companies

In order to count portfolio securities as qualifying assets for the purpose of the
70% test, we must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance; except that, where we purchase
such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Making available managerial assistance means, among other things, any arrangement
whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.

Temporary Investments

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

Senior Securities

We are permitted, under specified conditions, to issue multiple classes of debt and one class of stock senior to our
common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately



21



---

##### Table of Contents

after each such issuance. In addition, while any senior securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such
securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary purposes without regard to asset coverage. For
a discussion of the risks associated with leverage, see Item 1A. Risk FactorsRisks Related to Debt Financing and Item 1A. Risk FactorsRisks Related to Business Development Companies.

Code of Ethics

We and FSIC II Advisor have each adopted a code of ethics pursuant to Rule 17j-1 promulgated under the 1940 Act that, among other things, establishes procedures for personal investments and restricts
certain personal securities transactions. Personnel subject to the code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance
with the codes requirements. On November 6, 2014, our board of directors adopted a revised code of business conduct and ethics, or code of ethics, that amended, restated and replaced the prior code of business conduct, ethics and
statement on the prohibition of insider trading applicable to us. The code of ethics (i) clarified the applicability of certain provisions of the code of ethics to persons associated with FSIC II Advisor to the extent such persons are not
covered by a separate code of ethics and (ii) removed our insider trading policy from the code of ethics to a separate document administered by us. Our code of ethics was filed as an exhibit to our current report on Form 8-K filed with the SEC
on November 12, 2014. Stockholders may also read and copy our code of ethics at the SECs Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. Stockholders may obtain information on the operation of the Public
Reference Room by calling the SEC at (202) 551-8090. In addition, our and FSIC II Advisors code of ethics is available on our website at www.franklinsquare.com and our code of ethics is available on the EDGAR Database on the
SECs Internet site at www.sec.gov. Stockholders may also obtain a copy of our code of ethics, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SECs Public
Reference Section at 100 F Street, N.E., Washington, D.C. 20549.

Compliance Policies and Procedures

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

Proxy Voting Policies and Procedures

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

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

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



22



---

##### Table of Contents

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

Stockholders may obtain information, without charge, regarding how FSIC II Advisor voted proxies with respect to our portfolio securities by making a written request for proxy voting information to:
Chief Compliance Officer, FS Investment Corporation II, 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112 or by calling us collect at (215) 495-1150.

Other

We will be periodically examined by the SEC for compliance
with the 1940 Act.

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

Securities Exchange Act and Sarbanes-Oxley Act
Compliance

We are subject to the reporting and disclosure requirements of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, including the filing of annual, quarterly and current reports, proxy statements and other required items. In addition, we are subject to the Sarbanes-Oxley Act, which imposes a wide variety of regulatory requirements on
publicly-held companies and their insiders. Many of these requirements affect us. For example:



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



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



| |  |  | pursuant to Rule 13a-15 of the Exchange Act, our management is required to prepare a report regarding its assessment of our internal control over
financial reporting.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Sarbanes-Oxley Act requires us to review our current policies and procedures to
determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated thereunder. We monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley Act and take actions necessary to ensure that we are in
compliance therewith. In addition, we have voluntarily complied with Section 404(b) of the Sarbanes-Oxley Act, and have engaged our independent registered public accounting firm to audit our internal control over financial reporting.

Taxation as a RIC

We have elected, effective as of the date of our formation, to be treated as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay corporate-level U.S. federal income
taxes on any income that we distribute to our stockholders from our tax earnings and profits. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition,
in order to maintain RIC tax treatment, we must distribute to our stockholders, for each taxable year, dividends of



23



---

##### Table of Contents

an amount at least equal to 90% of our investment company taxable income, which is generally our net ordinary income plus the excess, if any, of realized net short-term capital gains
over realized net long-term capital losses, or the Annual Distribution Requirement.

If we:



| |  |  | qualify as a RIC; and
| | - |  | ---------------------



| |  |  | satisfy the Annual Distribution Requirement;
| | - |  | --------------------------------------------

then we will not be subject to U.S. federal income tax on the portion of our income we distribute (or are deemed to distribute) to stockholders. We will be subject to U.S. federal income tax at the
regular corporate rates on any income or capital gains not distributed (or deemed distributed) to our stockholders.

We will
be subject to a 4% nondeductible federal excise tax on certain undistributed income unless we distribute in a timely manner an amount at least equal to the sum of (1) 98% of our net ordinary income (taking into account certain deferrals and
elections) for the calendar year, (2) 98.2% of our capital gains in excess of capital losses, or capital gain net income (adjusted for certain ordinary losses), for the one-year period ending October 31 of that calendar year
and (3) any net ordinary income and net capital gains for the preceding years that were not distributed during such years and on which we paid no U.S. federal income tax, or the Excise Tax Avoidance Requirement.

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



| |  |  | continue to qualify as a BDC under the 1940 Act at all times during each tax year;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | derive in each tax year at least 90% of our gross income from dividends, interest, payments with respect to certain securities, loans, gains from the
sale of stock or other securities, net income from certain qualified publicly-traded partnerships, or other income derived with respect to our business of investing in such stock or securities; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | diversify our holdings so that at the end of each quarter of the tax year:
| | - |  | --------------------------------------------------------------------------



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



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

For U.S. federal income tax purposes, we may be required to recognize taxable income
in circumstances in which we do not receive a corresponding payment in cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in
certain cases, increasing interest rates or debt instruments that were issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash
representing such income is received by us in the same tax year. We may also have to include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are
paid in non-cash compensation such as warrants or stock. We anticipate that a portion of our income may constitute original issue discount or other income required to be included in taxable income prior to receipt of cash.



24



---

##### Table of Contents

Because any original issue discount or other amounts accrued will be included in our
investment company taxable income for the year of the accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash
amount. As a result, we may have difficulty maintaining RIC tax treatment under Subchapter M of the Code. We may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity
capital or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

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

Employees

We do not currently have any employees. Each of our executive officers, aside from our chief compliance officer, Mr. Faia, is a principal, officer or employee of FSIC II Advisor, which manages
and oversees our investment operations. Mr. Faia is not affiliated with FSIC II Advisor. In the future, FSIC II Advisor may retain additional investment personnel based upon its needs.

Available Information

For so long as our bylaws require, we will distribute to all stockholders of record our quarterly report on Form 10-Q within
60 days after the end of each fiscal quarter and our annual report on Form 10-K within 120 days after the end of each fiscal year. We also file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements
and other information meeting the informational requirements of the Exchange Act. This information is available free of charge by calling us collect at (215) 495-1150 or on our website at
www.franklinsquare.com. Information contained on our website is not incorporated into this annual report on Form 10-K and such information should not be considered to be part of this annual report on Form 10-K. Stockholders also may
inspect and copy these reports, proxy statements and other information, as well as this annual report on Form 10-K and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C.
20549. Such information is also available from the EDGAR database on the SECs web site at www.sec.gov. Stockholders also can obtain copies of such information, after paying a duplicating fee, by sending a request by e-mail to
publicinfo@sec.gov or by writing the SECs Public Reference Branch, Office of Consumer Affairs and Information Services, Securities and Exchange Commission, Washington, D.C. 20549. Stockholders may obtain information on the operation of the
SECs Public Reference Room by calling the SEC at (202) 551-8090.



25



---

##### Table of Contents

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

Investing in our common stock involves a number of significant risks. In addition to the other information contained in this annual
report on Form 10-K, investors should consider carefully the following information before making an investment in our common stock. If any of the following events occur, our business, financial condition and results of operations could be materially
and adversely affected. In such case the net asset value of our common stock could decline, and investors may lose all or part of their investment.

Risks Related to Economic Conditions

Future disruptions or instability in capital
markets could negatively impact our ability to raise capital and have a material adverse effect on our business, financial condition and results of operations.

From time to time, the global capital markets may experience periods of disruption and instability, which could materially and adversely impact the broader financial and credit markets and reduce the
availability to us of debt and equity capital. For example, between 2008 and 2009, instability in the global capital markets resulted in disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector,
the re-pricing of credit risk in the broadly syndicated credit market and the failure of major domestic and international financial institutions. In particular, the financial services sector was negatively impacted by significant write-offs as the
value of the assets held by financial firms declined, impairing their capital positions and abilities to lend and invest. We believe that such value declines were exacerbated by widespread forced liquidations as leveraged holders of financial
assets, faced with declining prices, were compelled to sell to meet margin requirements and maintain compliance with applicable capital standards. Such forced liquidations also impaired or eliminated many investors and investment vehicles, leading
to a decline in the supply of capital for investment and depressed pricing levels for many assets. These events significantly diminished overall confidence in the debt and equity markets, engendered unprecedented declines in the values of certain
assets, caused extreme economic uncertainty and significantly reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular. While market conditions have experienced relative stability in
recent years, there have been continuing periods of volatility and there can be no assurance that adverse market conditions will not repeat themselves in the future.

Future volatility and dislocation in the capital markets could create a challenging environment in which to raise or access capital. For example, the re-appearance of market conditions similar to those
experienced from 2008 through 2009 for any substantial length of time could make it difficult to extend the maturity of or refinance our existing indebtedness or obtain new indebtedness with similar terms. Significant changes or volatility in the
capital markets may also have a negative effect on the valuations of our investments. While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments
are sold in a principal market to market participants (even if we plan on holding an investment through its maturity) and impairments of the market values or fair market values of our investments, even if unrealized, must be reflected in our
financial statements for the applicable period, which could result in significant reductions to our net asset value for the period. With certain limited exceptions, we are only allowed to borrow amounts or issue debt securities if our asset
coverage, as calculated pursuant to the 1940 Act, equals at least 200% immediately after such borrowing. Equity capital may also be difficult to raise during periods of adverse or volatile market conditions because, subject to some limited
exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than net asset value without first obtaining approval for such issuance from our stockholders and our independent directors. If we are
unable to raise capital or refinance existing debt on acceptable terms, then we may be limited in our ability to make new commitments or to fund existing commitments to our portfolio companies. Significant changes in the capital markets may also
affect the pace of our investment activity and the potential for liquidity events involving our investments. Thus, the illiquidity of our investments may make it difficult for us to sell such investments to access capital if required, and as a
result, we could realize significantly less than the value at which we have recorded our investments if we were required to sell them for liquidity purposes.



26



---

##### Table of Contents

Uncertainty with respect to the financial stability of the United States and several countries in the
European Union (EU) could have a significant adverse effect on our business, financial condition and results of operations.

In August 2011, S&P lowered its long-term sovereign credit rating on the U.S. from AAA to AA+, which was affirmed by S&P in June 2013. Moodys and Fitch have also
warned that they may downgrade the U.S. federal governments credit rating. In addition, the economic downturn and the significant government interventions into the financial markets and fiscal stimulus spending over the last several years have
contributed to significantly increased U.S. budget deficits. The U.S. government has on several occasions adopted legislation to suspend the federal debt ceiling, most recently until March 16, 2015. Further downgrades or warnings by S&P or
other rating agencies, and the U.S. governments credit and deficit concerns in general, including issues around the federal debt ceiling, could cause interest rates and borrowing costs to rise, which may negatively impact both the perception
of credit risk associated with our debt portfolio and our ability to access the debt markets on favorable terms. Furthermore, in February 2014, the Federal Reserve began scaling back its bond-buying program, or quantitative easing, which it ended in
October 2014. Quantitative easing was designed to stimulate the economy and expand the Federal Reserves holdings of long-term securities until key economic indicators, such as the unemployment rate, showed signs of improvement. The Federal
Reserve has also indicated that it may raise interest raise interest rates as early as mid-2015. It is unclear what effect, if any, the end of quantitative easing and the Federal Reserves stated intentions to raise interest rates will have on
the value of our investments or our ability to access the debt markets on favorable terms.

In 2010, a financial crisis
emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt in Greece, Ireland, Italy, Portugal and Spain, which created concerns about the ability of these nations to continue to service their sovereign debt
obligations. In January 2012, S&P lowered its long-term sovereign credit rating for France, Italy, Spain and six other European countries, which has negatively impacted global markets and economic conditions. In addition, in April 2012,
S&P further lowered its long-term sovereign credit rating for Spain. While the financial stability of such countries has improved, risks resulting from any future debt crisis in Europe or any similar crisis could have a detrimental impact on the
global economic recovery, sovereign and non-sovereign debt in these countries and the financial condition of U.S. and European financial institutions. Market disruptions in Europe, including the increased cost of funding for certain governments and
financial institutions, could negatively impact the global economy, and there can be no assurance that assistance packages will be available, or if available, will be sufficient to stabilize countries and markets in Europe. To the extent uncertainty
regarding any economic recovery in Europe negatively impacts consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence and default on consumer debt and home prices, or other credit factors, our business, financial
condition and results of operations could be significantly and adversely affected.

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

Many of our portfolio companies may be susceptible to economic
slowdowns or recessions (such as the economic downturn that occurred from 2008 through 2009) and may be unable to repay our debt investments during these periods. Therefore, our non-performing assets are likely to increase, and the value of our
portfolio is likely to decrease during these periods. Adverse economic conditions may also decrease the value of any collateral securing our debt investments. A prolonged recession may further decrease the value of such collateral and result in
losses of value in our portfolio and a decrease in our revenues, net income and net asset value. 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 on terms we deem acceptable. These events could prevent us from increasing investments and harm our operating results. Economic downturns or recessions may also result in a portfolio companys failure to satisfy financial or
operating covenants imposed by us or other lenders, which could lead to defaults and, potentially, acceleration of the time when the loans are due and foreclosure on its assets representing collateral for its obligations, which could trigger cross
defaults under other agreements and



27



---

##### Table of Contents

jeopardize our portfolio companys ability to meet its obligations under the debt that we hold and the value of any equity securities we own. We may incur expenses to the extent necessary to
seek recovery upon default or to negotiate new terms with a defaulting portfolio company.

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

Prior to the onset of the financial crisis, CLOs, a type of leveraged investment vehicle holding corporate loans, hedge funds and other highly leveraged investment vehicles comprised a substantial portion
of the market for purchasing and holding first and second lien secured loans. As the secondary market pricing of the loans underlying these portfolios deteriorated during the fourth quarter of 2008, it is our understanding that many investors, as a
result of their generally high degrees of leverage, were forced to raise cash by selling their interests in performing loans in order to satisfy margin requirements or the equivalent of margin requirements imposed by their lenders. This resulted in
a forced deleveraging cycle of price declines, compulsory sales and further price declines, with widespread redemption requests and other constraints resulting from the credit crisis generating further selling pressure. This pervasive forced selling
and the resultant price declines eliminated or significantly impaired many of our leveraged competitors for investment opportunities, especially those having built their investment portfolios prior to the financial crisis. Where prices appreciated
measurably in recent years, conditions in the large corporate leveraged loan market may experience similar disruptions or deterioration, which may cause pricing levels to similarly decline or be volatile. As a result, we may suffer unrealized
depreciation and could incur realized losses in connection with the sale of our syndicated loans, which could have a material adverse impact on our business, financial condition and results of operations.

Risks Related to Our Business and Structure

Our ability to achieve our investment objectives depends on FSIC II Advisors and GDFMs ability to manage and support our investment process and if either our agreement with FSIC II
Advisor or FSIC II Advisors agreement with GDFM were to be terminated, or if either FSIC II Advisor or GDFM lose any members of their respective senior management teams, our ability to achieve our investment objectives could be significantly
harmed.

Since we have no employees, we depend on the investment expertise, skill and network of business contacts of
FSIC II Advisor and GDFM. FSIC II Advisor, with the assistance of GDFM, evaluates, negotiates, structures, executes, monitors and services our investments. Our future success depends to a significant extent on the continued service and coordination
of FSIC II Advisor and GDFM, as well as their respective senior management teams. The departure of any members of the senior management team or other key employees of either FSIC II Advisor or GDFM could have a material adverse effect on our ability
to achieve our investment objectives.

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

In addition, the investment advisory and administrative services agreement that FSIC II Advisor has entered into with us, as well as the investment sub-advisory agreement that FSIC II Advisor has entered
into with GDFM, have termination provisions that allow the parties to terminate the agreements without penalty. The investment advisory and administrative services agreement may be terminated at any time, without penalty, by



28



---

##### Table of Contents

FSIC II Advisor, upon 120 days notice to us. The investment sub-advisory agreement may be terminated at any time, without the payment of any penalty, upon 60 days written
notice by GDFM or, if our board of directors or the holders of a majority of our outstanding voting securities determine that the investment sub-advisory agreement with GDFM should be terminated, by FSIC II Advisor. If either agreement is
terminated, it may adversely affect the quality of our investment opportunities. In addition, in the event such agreements are terminated, it may be difficult for us to replace FSIC II Advisor or for FSIC II Advisor to replace GDFM.
Furthermore, the termination of either of these agreements may adversely impact the terms of any financing facility into which we may enter, which could have a material adverse effect on our business and financial condition.

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

If FSIC II Advisor or GDFM fails to maintain its existing relationships with private equity sponsors, investment banks and commercial
banks on which they rely to provide us with potential investment opportunities, or develop new relationships with other sponsors or sources of investment opportunities, we may not be able to grow our investment portfolio. In addition, individuals
with whom FSIC II Advisor and GDFM have relationships are not obligated to provide us with investment opportunities, and, therefore, there is no assurance that such relationships will generate investment opportunities for us.

We may face increasing competition for investment opportunities, which could delay deployment of our capital, reduce returns and result in losses.

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

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 current operating policies, investment criteria and strategies without prior notice and without stockholder approval. Moreover, we have
significant investment flexibility within our investment strategies. Therefore, we may invest our assets in ways with which investors may not agree. We also cannot predict the effect any changes to our current operating policies,



29



---

##### Table of Contents

investment criteria and strategies would have on our business, net asset value, operating results and the value of our stock. However, the effects might be adverse, which could negatively impact
our ability to pay stockholders distributions and cause them to lose all or part of their investment.

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

Our board of directors may decide in the future to internalize our management functions. If we do so, we may elect to negotiate to acquire FSIC II Advisors assets and personnel. At this time, we
cannot anticipate the form or amount of consideration or other terms relating to any such acquisition. Such consideration could take many forms, including cash payments, promissory notes and shares of our common stock. The payment of such
consideration could result in dilution of a stockholders interest in us and could reduce the earnings per share attributable to their investment.

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

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

Internalization transactions have
also, in some cases, been the subject of litigation. Even if these claims are without merit, we could be forced to spend significant amounts of money defending such claims, which would reduce the amount of funds we have available for investment in
targeted assets.

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

We, our portfolio companies and our business partners
are subject to regulation at the local, state and federal level. New legislation may be enacted or new interpretations, rulings or regulations could be adopted, including those governing the types of investments we are permitted to make, potentially
with retroactive effect. In particular, over the last several years there has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector, raising the possibility that some portion of the non-bank
financial sector will be subject to new regulation. New legislation, interpretations, rulings or regulations could require changes to certain business practices of us or our portfolio companies, negatively impact the operations, cash flows or
financial condition of us or our portfolio companies, impose additional costs on us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies. In addition, any changes to



30



---

##### Table of Contents

the laws and regulations governing our operations, including with respect to permitted investments, may cause us to alter our investment strategy to avail ourselves of new or different
opportunities or make other changes to our business. Such changes could result in material differences to our strategies and plans as set forth in this annual report on Form 10-K and may result in our investment focus shifting from the areas of
expertise of FSIC II Advisor and GDFM to other types of investments in which FSIC II Advisor and GDFM may have less expertise or little or no experience. Thus, any such changes, if they occur, could have a material adverse effect on our results of
operations and the value of a stockholders investment.

The impact on us of recent financial reform legislation, including the
Dodd-Frank Act, is uncertain.

In light of recent conditions in the U.S. and global financial markets and the U.S. and
global economy, legislators, the presidential administration and regulators have increased their focus on the regulation of the financial services industry. In particular, the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended, or
the Dodd-Frank Act, institutes a wide range of reforms that will have an impact on all financial institutions. Many of the requirements called for in the Dodd-Frank Act will be implemented over time, most of which will be subject to implementing
regulations over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full impact such
requirements will have on our business, results of operations or financial condition is unclear. The changes resulting from the Dodd-Frank Act may require us to invest significant management attention and resources to evaluate and make necessary
changes in order to comply with new statutory and regulatory requirements. Failure to comply with any such laws, regulations or principles, or changes thereto, may negatively impact our business, results of operations and financial condition. While
we cannot predict what effect any changes in the laws or regulations or their interpretations would have on us as a result of recent financial reform legislation, these changes could be materially adverse to us and our stockholders.

Future legislation may allow us to incur additional leverage.

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

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

As a public company, we incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements
applicable to a company whose securities are registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act, and
other rules implemented by the SEC. Our management is required to report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act and rules and regulations of the SEC thereunder. In particular, our
management is 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. Although not required, we also
elect to obtain an attestation from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting.

We incur significant expenses in connection with our compliance with the Sarbanes-Oxley Act and other regulations applicable to public companies, which may negatively impact our financial performance and
our



31



---

##### Table of Contents

ability to make distributions. Compliance with such regulations also requires a significant amount of our managements time and attention. For example, we cannot be certain as to the timing
of the completion of our Sarbanes-Oxley mandated evaluations, testings and remediation actions, if any, 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 deemed effective in the future. In the event that we are unable to maintain an effective system of internal control and maintain compliance with the Sarbanes-Oxley Act and related rules, we may be adversely
affected.

We may experience fluctuations in our quarterly results.

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

Risks Related to FSIC II Advisor, GDFM and their respective Affiliates

FSIC II Advisor, GDFM and their respective affiliates, including our officers and some of our directors, face conflicts of interest caused by compensation arrangements between us and FSIC II
Advisor, and FSIC II Advisor and GDFM, which could result in actions that are not in the best interests of our stockholders.

FSIC II Advisor, GDFM and their respective affiliates receive substantial fees from us in return for their services, and these fees could influence the advice provided to us. We pay to FSIC II Advisor an
incentive fee that is based on the performance of our portfolio and an annual base management fee that is based on the average value of our gross assets, and FSIC II Advisor shares a portion of these fees with GDFM pursuant to the investment
sub-advisory agreement between FSIC II Advisor and GDFM. Because the incentive fee is based on the performance of our portfolio, FSIC II Advisor may be incentivized to make investments on our behalf, and GDFM to recommend investments for us to FSIC
II Advisor, that are riskier or more speculative than would be the case in the absence of such compensation arrangement. The way in which the incentive fee is determined may also encourage FSIC II Advisor to use leverage to increase the return on
our investments. In addition, because the management fee is based upon the average value of our gross assets, which includes any borrowings for investment purposes, FSIC II Advisor may be incentivized to recommend the use leverage or the issuance of
additional equity to make additional investments and increase the average value of or gross assets. Under certain circumstances, the use of leverage may increase the likelihood of default, which could disfavor holders of our common stock. Our
compensation arrangements could therefore result in our making riskier or more speculative investments, or relying more on leverage to make investments, than would otherwise be the case. This could result in higher investment losses, particularly
during cyclical economic downturns.

We may be obligated to pay FSIC II Advisor incentive compensation even if we incur a net loss due
to a decline in the value of our portfolio, or on income that we have not received.

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

In addition, any incentive fee
payable by us that relates to our net investment income may be computed and paid on income that may include interest that has been accrued but not yet received. If a portfolio company defaults on a loan that is structured to provide accrued
interest, it is possible that accrued interest previously included in the calculation of the incentive fee will become uncollectible. FSIC II Advisor is not under any



32



---

##### Table of Contents

obligation to reimburse us for any part of the incentive fee it received that was based on accrued income that we never received as a result of a default by an entity on the obligation that
resulted in the accrual of such income, and such circumstances would result in our paying an incentive fee on income we never received.

For U.S. federal income tax purposes, we are required to recognize taxable income (such as deferred interest that is accrued as original issue discount) in some circumstances in which we do not receive a
corresponding payment in cash and to make distributions with respect to such income to maintain our status as a RIC. Under such circumstances, we may have difficulty meeting the Annual Distribution Requirement necessary to maintain RIC tax treatment
under the Code. This difficulty in making the required distribution may be amplified to the extent that we are required to pay an incentive fee with respect to such accrued income. As a result, we may have to sell some of our investments at times
and/or at prices we would not consider advantageous, raise additional debt or equity capital, or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment
and thus become subject to corporate-level income tax.

There may be conflicts of interest related to obligations FSIC II Advisors
and GDFMs senior management and investment teams have to our affiliates and to other clients.

The members of the
senior management and investment teams of both FSIC II Advisor and GDFM serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as we do, or of investment funds managed by the same
personnel. For example, the officers, managers and other personnel of FSIC II Advisor also serve in similar capacities to the investment advisers to Franklin Square Holdings three other affiliated BDCs, FS Investment Corporation, FS Energy and
Power Fund and FS Investment Corporation III, and Franklin Square Holdings affiliated closed-end management investment company, FS Global Credit Opportunities Fund. In serving in these multiple and other capacities, they may have obligations
to other clients or investors in those entities, the fulfillment of which may not be in our best interests or in the best interest of our stockholders. Our investment objectives may overlap with the investment objectives of such investment funds,
accounts or other investment vehicles. For example, we rely on FSIC II Advisor to manage our day-to-day activities and to implement our investment strategy. FSIC II Advisor and certain of its affiliates are presently, and plan in the future to
continue to be, involved with activities which are unrelated to us. As a result of these activities, FSIC II Advisor, its employees and certain of its affiliates will have conflicts of interest in allocating their time between us and other
activities in which they are or may become involved, including the management of other entities affiliated with Franklin Square Holdings. FSIC II Advisor and its employees will devote only as much of its or their time to our business as FSIC II
Advisor and its employees, in their judgment, determine is reasonably required, which may be substantially less than their full time.

Furthermore, GDFM, on which FSIC II Advisor relies to assist it in identifying investment opportunities and making investment recommendations, has similar conflicts of interest. GDFM or its parent, GSO,
serves as investment sub-adviser to Franklin Square Holdings three other affiliated BDCs and Franklin Square Holdings affiliated closed-end management investment company. GDFM, its affiliates and their respective members, partners,
officers and employees will devote as much of their time to our activities as they deem necessary and appropriate. GDFM and its affiliates are not restricted from forming additional investment funds, from entering into other investment advisory
relationships or from engaging in other business activities, even though such activities may be in competition with us and/or may involve substantial time and resources of GDFM. Also, in connection with such business activities, GDFM and its
affiliates may have existing business relationships or access to material, non-public information that may prevent it from recommending investment opportunities that would otherwise fit within our investment objectives. All of these factors could be
viewed as creating a conflict of interest in that the time, effort and ability of the members of GDFM, its affiliates and their officers and employees will not be devoted exclusively to our business but will be allocated between us and the
management of the monies of other advisees of GDFM and its affiliates.



33



---

##### Table of Contents

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

Neither FSIC II Advisor nor GDFM, or individuals employed by FSIC II Advisor or GDFM, are prohibited from raising
money for and managing another investment entity that makes the same types of investments as those we target. As a result, the time and resources that these individuals may devote to us may be diverted. In addition, we may compete with any such
investment entity for the same investors and investment opportunities. In an order dated June 4, 2013, the SEC granted exemptive relief permitting us, subject to the satisfaction of certain conditions, to co-invest in certain privately
negotiated investment transactions with our co-investment affiliates. Because we did not seek exemptive relief to engage in co-investment transactions with GDFM and its affiliates, we will continue to be permitted to co-invest with GDFM and its
affiliates only in accordance with existing regulatory guidance. Affiliates of GDFM, whose primary businesses include the origination of investments, engage in investment advisory business with accounts that compete with us. Affiliates of GDFM have
no obligation to make their originated investment opportunities available to GDFM or to us.

FSIC II Advisors liability is limited
under our investment advisory and administrative services agreement, and we are required to indemnify it against certain liabilities, which may lead it to act in a riskier manner on our behalf than it would when acting for its own account.

Pursuant to our investment advisory and administrative services agreement, FSIC II Advisor and its officers, managers,
partners, members (and their members, including the owners of their members), agents, employees, controlling persons and any other person or entity affiliated with FSIC II Advisor will not be liable to us for their acts under our investment advisory
and administrative services agreement, absent willful misfeasance, bad faith or gross negligence in the performance of their duties. We have agreed to indemnify, defend and protect FSIC II Advisor and its officers, managers, partners, members (and
their members, including the owners of their members), agents, employees, controlling persons and any other person or entity affiliated with FSIC II Advisor with respect to all damages, liabilities, costs and expenses resulting from acts of FSIC II
Advisor not arising out of willful misfeasance, bad faith or gross negligence in the performance of their duties under our investment advisory and administrative services agreement. These protections may lead FSIC II Advisor to act in a riskier
manner when acting on our behalf than it would when acting for its own account.

Risks Related to Business Development Companies

Failure to maintain our status as a BDC would reduce our operating flexibility.

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

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

Any working capital reserves we maintain may not be sufficient for investment purposes, and we may require debt or equity financing to
operate. We may also need to access the capital markets to refinance existing debt obligations to the extent maturing obligations are not repaid with cash flows from operations. In order to maintain our RIC status we must distribute to our
stockholders on a timely basis generally an amount equal to at least 90% of our investment company taxable income, and the amounts of such distributions will therefore not be available to fund investment originations or to repay maturing debt. In
addition, with certain limited exceptions, we are only allowed to borrow amounts or issue debt securities or preferred stock, which we refer to collectively as senior securities, such that our asset coverage, as calculated pursuant to
the 1940 Act, equals at least 200%



34



---

##### Table of Contents

immediately after such borrowing, which, in certain circumstances, may restrict our ability to borrow or issue debt securities or preferred stock. In the event that we develop a need for
additional capital in the future for investments or for any other reason, and we cannot obtain debt or equity financing on acceptable terms, or at all, our ability to acquire investments and to expand our operations will be adversely affected. As a
result, we would be less able to allocate our portfolio among various issuers and industries and achieve our investment objectives, which may negatively impact our results of operations and reduce our ability to make distributions to our
stockholders.

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

As a BDC, we may not acquire any assets other than qualifying assets unless, at the time of such acquisition, at least 70% of
our total assets are qualifying assets. Therefore, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets. Similarly, these rules could prevent us from making additional
investments in existing portfolio companies, which could result in the dilution of our position, or could require us to dispose of investments at an inopportune time to comply with the 1940 Act. If we were forced to sell non-qualifying investments
in the portfolio for compliance purposes, the proceeds from such sale could be significantly less than the current value of such investments. Conversely, if we fail to invest a sufficient portion of our assets in qualifying assets, we could lose our
status as a BDC, which would subject us to substantially more regulatory restrictions and significantly decrease our operating flexibility.

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

As a result of the Annual Distribution
Requirement to qualify as a RIC, we may need to periodically access the capital markets to raise cash to fund new investments. We may issue senior securities, as defined in the 1940 Act, including issuing preferred stock, borrowing money
from banks or other financial institutions, or issuing debt securities only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such incurrence or issuance. Our ability to issue certain other types of
securities is also limited. Under the 1940 Act, we are also generally prohibited from issuing or selling our common stock at a price per share, after deducting underwriting commissions, that is below our net asset value per share, without first
obtaining approval for such issuance from our stockholders and our independent directors. Compliance with these limitations on our ability to raise capital may unfavorably limit our investment opportunities. These limitations may also reduce our
ability in comparison to other companies to profit from favorable spreads between the rates at which we can borrow and the rates at which we can lend.

In addition, because we incur indebtedness for investment purposes, if the value of our assets declines, we may be unable to satisfy the asset coverage test under the 1940 Act, which would prohibit us
from paying distributions and could prevent us from qualifying as a RIC. If we cannot satisfy the asset coverage test, we may be required to sell a portion of our investments and, depending on the nature of our debt financing, repay a portion of our
indebtedness at a time when such sales may be disadvantageous.

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

We are prohibited under the 1940 Act from participating in certain transactions with certain of our
affiliates without the prior approval of a majority of the independent members of our board of directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities will be our affiliate
for purposes of the 1940 Act, and we will generally be prohibited from buying or selling any securities from or to such affiliate, absent the prior approval of our board of directors. The 1940 Act also prohibits certain joint
transactions with certain of our affiliates, which could include investments in the same portfolio company



35



---

##### Table of Contents

(whether at the same or different times), without prior approval of our board of directors and, in some cases, the SEC. In an order dated June 4, 2013, the SEC granted exemptive relief
permitting us, subject to the satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions with our co-investment affiliates. If a person acquires more than 25% of our voting securities, we will be
prohibited from buying or selling any security from or to such person or certain of that persons affiliates, or entering into prohibited joint transactions with such persons to the extent not covered by our exemptive relief, absent the prior
approval of the SEC. Similar restrictions limit our ability to transact business with our officers or directors or their affiliates. As a result of these restrictions, we may be prohibited from buying or selling any security from or to any portfolio
company of a private equity fund managed by FSIC II Advisor without the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to us.

Risks Related to Our Investments

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

Our investments in senior secured loans, second lien secured loans, senior secured bonds, subordinated debt and equity of private U.S.
companies, including middle market companies, may be risky and there is no limit on the amount of any such investments in which we may invest.

Senior Secured Loans, Second Lien Secured Loans and Senior Secured Bonds. There is a risk that any collateral pledged by portfolio companies in which we have taken a security interest may decrease
in value over time or lose its entire value, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of
the portfolio company to raise additional capital. To the extent our debt investment is collateralized by the securities of a portfolio companys subsidiaries, such securities may lose some or all of their value in the event of the bankruptcy
or insolvency of the portfolio company. Also, in some circumstances, our security interest may be contractually or structurally subordinated to claims of other creditors. In addition, deterioration in a portfolio companys financial condition
and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the debt. Secured debt that is under-collateralized involves a greater risk of loss. In addition, second lien
secured debt is granted a second priority security interest in collateral, which means that any realization of collateral will generally be applied to pay senior secured debt in full before second lien secured debt is paid. Consequently, the fact
that debt is secured does not guarantee that we will receive principal and interest payments according to the debts terms, or at all, or that we will be able to collect on the debt should we be forced to enforce our remedies.

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

Equity Investments. We may make select equity investments. In addition, in connection with our debt investments, we on occasion
receive equity interest such as warrants or options as additional consideration. The equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity
interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.

Non-U.S. securities. We may invest in non-U.S. securities, which may include securities denominated in U.S. dollars or in non-U.S. currencies, to the extent permitted by the 1940 Act. Because
evidences of ownership of such securities usually are held outside the United States, we would be subject to additional risks if we



36



---

##### Table of Contents

invested in non-U.S. securities, which include possible adverse political and economic developments, seizure or nationalization of foreign deposits and adoption of governmental restrictions
which might adversely affect or restrict the payment of principal and interest on the non-U.S. securities to investors located outside the country of the issuer, whether from currency blockage or otherwise. Since non-U.S. securities may be purchased
with and payable in foreign currencies, the value of these assets as measured in U.S. dollars may be affected unfavorably by changes in currency rates and exchange control regulations.

In addition, we invest in securities that are rated below investment grade by rating agencies or that would be rated below investment
grade if they were rated. Below investment grade securities, which are often referred to as junk, have predominantly speculative characteristics with respect to the issuers capacity to pay interest and repay principal. They may
also be difficult to value and illiquid.

Investing in middle market companies involves a number of significant risks, any one of which
could have a material adverse effect on our operating results.

Investments in middle market companies involve some of
the same risks that apply generally to investments in larger, more established companies. However, such investments have more pronounced risks in that they:



| |  |  | may have limited financial resources and may be unable to meet the obligations under their debt securities that we hold, which may be accompanied by a
deterioration in the value of any collateral pledged under such securities and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with
products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, our executive officers, directors and members
of FSIC II Advisor may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

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

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



37



---

##### Table of Contents

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

If one of our portfolio companies were to go bankrupt,
depending on the facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio company, a bankruptcy court might recharacterize our debt investment and subordinate all or a portion of our claim
to that of other creditors. In situations where a bankruptcy carries a high degree of political significance, our legal rights may be subordinated to other creditors. We may also be subject to lender liability claims for actions taken by us with
respect to a borrowers business or in instances where we exercise control over the borrower or render significant managerial assistance.

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

Certain debt investments that we make to portfolio companies may be secured on a second priority basis by the same collateral securing first priority debt of such companies. The first priority liens on
the collateral will secure the portfolio companys obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by such 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 debt 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 debt 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 such companys remaining assets, if any.

The rights we may have with respect to the collateral securing the debt investments we make in 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 generally will not control
our portfolio companies.

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



38



---

##### Table of Contents

Declines in market values or fair market values of our investments could result in significant net
unrealized depreciation of our portfolio, which in turn would reduce our net asset value.

Under the 1940 Act, we are
required to carry our investments at market value or, if no market value is ascertainable, at fair value as determined in good faith by or under the direction of our board of directors. While most of our investments are not publicly traded,
applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity) and impairments of the
market values or fair market values of our investments, even if unrealized, must be reflected in our financial statements for the applicable period as unrealized depreciation, which can result in significant reductions our net asset values for a
given period.

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

Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there is no readily available market value,
at fair value, as determined by our board of directors. There is not a public market for the securities of the privately-held companies in which we invest. Most of our investments are not publicly-traded or actively-traded on a secondary market but
are, instead, traded on a privately negotiated over-the-counter secondary market for institutional investors or are not traded at all. As a result, we value these securities quarterly at fair value as determined in good faith by our board of
directors.

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

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

We are subject to financial market risks, including changes in interest rates. General interest rate fluctuations may have a substantial negative impact on our investments, investment opportunities and
cost of capital and, accordingly, may have a material adverse effect on our investment objectives, our rate of return on invested capital and our ability to service our debt and make distributions to our stockholders.

Our investment portfolio primarily consists of senior secured debt with maturities typically ranging from three to seven years. The
longer the duration of these securities, generally, the more susceptible they are to changes in market interest rates. As market interest rates increase, those securities with a lower yield-at-cost can experience a mark-to-market unrealized loss. An
impairment of the fair market value of our investments, even if unrealized, must be reflected in our financial statements for the applicable period and may therefore have a material adverse effect on our results of operations for that period.

Because we incur indebtedness to make investments, our net investment income is dependent, in part, upon the difference
between the rate at which we borrow funds or pay interest on outstanding debt securities and the rate at which we invest these funds. An increase in interest rates would make it more expensive to use debt to finance our investments or to refinance
our current financing arrangements. In addition, the majority of our financing arrangements provide for adjustments in the loan interest rate along with changes in market interest



39



---

##### Table of Contents

rates. Therefore, in periods of rising interest rates, our cost of funds will increase, which could materially reduce our net investment income. Any reduction in the level of interest rates on
new investments relative to interest rates on our current investments could also adversely impact our net investment income.

We have and may continue to structure the majority of our debt investments with floating rates to position our portfolio for rate
increases. However, there can be no assurance that this will successfully mitigate our exposure to interest rate risk. For example, in the event of a rising interest rate environment, payments under floating rate debt instruments generally would
rise and there may be a significant number of issuers of such floating rate debt instruments that would be unable or unwilling to pay such increased interest costs and may otherwise be unable to repay their loans. Investments in floating rate debt
instruments may also decline in value in response to rising interest rates if the interest rates of such investments do not rise as much, or as quickly, as market interest rates in general. Similarly, during periods of rising interest rates, our
fixed rate investments may decline in value because the fixed rate of interest paid thereunder may be below market interest rates.

We may also use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the
extent permitted by the 1940 Act. However, these activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged portion of our portfolio. We also have limited experience in entering into hedging
transactions, and we will initially have to develop such expertise or arrange for such expertise to be provided. Adverse developments resulting from hedging transactions could have a material adverse effect on our business, financial condition,
results of operations and cash flows.

Furthermore, because a rise in the general level of interest rates can be expected to
lead to higher interest rates applicable to our debt investments, an increase in interest rates would make it easier for us to meet or exceed the incentive fee hurdle rate in our investment advisory and administrative services agreement and may
result in a substantial increase of the amount of incentive fees payable to FSIC II Advisor with respect to pre-incentive fee net investment income.

A covenant breach by our portfolio companies may harm our operating results.

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

Our portfolio companies may be highly leveraged.

Some of our
portfolio companies may be highly leveraged, which may have adverse consequences to these companies and to us as an investor. These companies may be subject to restrictive financial and operating covenants and the leverage may impair these
companies ability to finance their future operations and capital needs. As a result, these companies flexibility to respond to changing business and economic conditions and to take advantage of business opportunities may be limited.
Further, a leveraged companys income and net assets will tend to increase or decrease at a greater rate than if borrowed money were not used.

We may not realize gains from our equity investments.

Certain
investments that we may make may include equity-related securities, such as rights and warrants that may be converted into or exchanged for common stock or the cash value of the common stock. In addition, we may make direct equity investments in
portfolio companies. The equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our



40



---

##### Table of Contents

equity interests and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. We may also be unable to realize any
value if a portfolio company does not have a liquidity event, such as a sale of the business, recapitalization or public offering, which would allow us to sell the underlying equity interests. We may be unable to exercise any put rights we acquire,
which grant us the right to sell our equity securities back to the portfolio company, for the consideration provided in our investment documents if the issuer is in financial distress.

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

Our investments are primarily in privately-held companies. Investments in private companies pose significantly greater risks than
investments in public companies. First, private companies have reduced access to the capital markets, resulting in diminished capital resources and the ability to withstand financial distress. As a result, these companies, which may present greater
credit risk than public companies, may be unable to meet the obligations under their debt securities that we hold. Second, the investments themselves often may be illiquid. The securities of most of the companies in which we invest are not
publicly-traded or actively-traded on the secondary market and are, instead, traded on a privately negotiated over-the-counter secondary market for institutional investors. In addition, such securities may be subject to legal and other restrictions
on resale. As such, we may have difficulty exiting an investment promptly or at a desired price prior to maturity or outside of a normal amortization schedule. These investments may also be difficult to value because little public information
generally exists about private companies, requiring an experienced due diligence team to analyze and value the potential portfolio company. Finally, these companies may not have third-party debt ratings or audited financial statements. We must
therefore rely on the ability of FSIC II Advisor and/or GDFM to obtain adequate information through due diligence to evaluate the creditworthiness and potential returns from investing in these companies. These companies and their financial
information will generally not be subject to the Sarbanes-Oxley Act and other rules and regulations that govern public companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment
decision, and we may lose money on our investments.

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

We invest in certain companies whose securities are not publicly-traded or actively-traded on the secondary
market and are, instead, traded on a privately negotiated over-the-counter secondary market for institutional investors and whose securities are subject to legal and other restrictions on resale or are otherwise less liquid than publicly-traded
securities. The illiquidity of certain of our investments may make it difficult for us to sell these investments when desired. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less
than the value at which we had previously recorded these investments. The reduced liquidity of our investments may make it difficult for us to dispose of them at a favorable price, and, as a result, we may suffer losses.

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

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



41



---

##### Table of Contents

Prepayments of our debt investments by our portfolio companies could adversely impact our results of
operations and reduce our return on equity.

We are subject to the risk that the investments we make in our portfolio
companies may be repaid prior to maturity. When this occurs, we will generally reinvest these proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments will typically have
substantially lower yields than the debt being prepaid and we could experience significant delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was repaid. As a result,
our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay amounts owed to us. Additionally, prepayments, net of prepayment fees, could negatively impact our return on equity.

Our investments may include original issue discount instruments.

To the extent that we invest in original issue discount instruments and the accretion of original issue discount constitutes a portion of
our income, we will be exposed to risks associated with the requirement to include such non-cash income in taxable and accounting income prior to receipt of cash, including the following:



| |  |  | Original issue discount instruments may have unreliable valuations because the accruals require judgments about collectability;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | For accounting purposes, cash distributions to investors representing original issue discount income do not come from paid-in capital, although they
may be paid from the offering proceeds. Thus, although a distribution of original issue discount income may come from the cash invested by investors, the 1940 Act does not require that investors be given notice of this fact;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The deferral PIK interest may have a negative impact on liquidity, as it represents non-cash income that may require cash distributions to stockholders
in order to maintain our RIC election; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Original issue discount may create a risk of non-refundable cash payments to FSIC II Advisor based on non-cash accruals that may never be realized.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

We may from time to time enter into total return swaps, credit default swaps or other derivative transactions which
expose us to certain risks, including credit risk, market risk, liquidity risk and other risks similar to those associated with the use of leverage.

We may from time to time enter into total return swaps, credit default swaps or other derivative transactions that seek to modify or replace the investment performance of a particular reference security
or other asset. These transactions are typically individually negotiated, non-standardized agreements between two parties to exchange payments, with payments generally calculated by reference to a notional amount or quantity. Swap contracts and
similar derivative contracts are not traded on exchanges; rather, banks and dealers act as principals in these markets. These investments may present risks in excess of those resulting from the referenced security or other asset. Because these
transactions are not an acquisition of the referenced security or other asset itself, the investor has no right directly to enforce compliance with the terms of the referenced security or other asset and has no voting or other consensual rights of
ownership with respect to the referenced security or other asset. In the event of insolvency of a counterparty, we will be treated as a general creditor of the counterparty and will have no claim of title with respect to the referenced security or
other asset.

A total return swap is a contract in which one party agrees to make periodic payments to another party based on
the change in the market value of the referenced security or other assets underlying the total return swap during a specified period, in return for periodic payments based on a fixed or variable interest rate. A total return swap is subject to
market risk, liquidity risk and risk of imperfect correlation between the value of the total return swap and the debt obligations underlying the total return swap. In addition, we may incur certain costs in connection with a total return swap that
could in the aggregate be significant.



42



---

##### Table of Contents

A credit default swap is a contract in which one party buys or sells protection against a
credit event with respect to an issuer, such as an issuers failure to make timely payments of interest or principal on its debt obligations, bankruptcy or restructuring during a specified period. Generally, if we sell credit protection using a
credit default swap, we will receive fixed payments from the swap counterparty and if a credit event occurs with respect to the applicable issuer, we will pay the swap counterparty par for the issuers defaulted debt securities and the swap
counterparty will deliver the defaulted debt securities to us. Generally, if we buy credit protection using a credit default swap, we will make fixed payments to the counterparty and if a credit event occurs with respect to the applicable issuer, we
will deliver the issuers defaulted securities underlying the swap to the swap counterparty and the counterparty will pay us par for the defaulted securities. Alternatively, a credit default swap may be cash settled and the buyer of protection
would receive the difference between the par value and the market value of the issuers defaulted debt securities from the seller of protection. Credit default swaps are subject to the credit risk of the underlying issuer. If we are selling
credit protection, there is a risk that we will not properly assess the risk of the underlying issuer, a credit event will occur and we will have to pay the counterparty. If we are buying credit protection, there is a risk that we will not properly
assess the risk of the underlying issuer, no credit event will occur and we will receive no benefit for the premium paid.

A
derivative transaction is also subject to the risk that a counterparty will default on its payment obligations thereunder or that we will not be able to meet our obligations to the counterparty. In some cases, we may post collateral to secure our
obligations to the counterparty, and we may be required to post additional collateral upon the occurrence of certain events such as a decrease in the value of the reference security or other asset. In some cases, the counterparty may not
collateralize any of its obligations to us. Derivative investments effectively add leverage to a portfolio by providing investment exposure to a security or market without owning or taking physical custody of such security or investing directly in
such market. In addition to the risks described above, such arrangements are subject to risks similar to those associated with the use of leverage.

Risks Related to Debt Financing

We currently incur indebtedness to make investments,
which magnifies the potential for gain or loss on amounts invested in our common shares and may increase the risk of investing in our common shares.

The use of indebtedness, also known as leverage, increases the volatility of investments by magnifying the potential for gain or loss on invested equity capital. When we use leverage to partially finance
our investments, through borrowing from banks and other lenders or issuing debt securities, our stockholders will experience increased risks of investing in our common stock. If the value of our assets increases, then leverage would cause the net
asset value attributable to our common stock to increase more sharply than it would have had we not utilized leverage. Conversely, if the value of our assets decreases, leverage would cause net asset value to decline more sharply than it otherwise
would have had we not utilized leverage. Similarly, any increase in our income in excess of consolidated interest payable on our indebtedness would cause our net income to increase more than it would without leverage, while any decrease in our
income would cause net income to decline more sharply than it would have had we not utilized leverage. Such a decline could negatively affect our ability to make distributions to stockholders.

The agreements governing our debt financing arrangements contain various covenants which, if not complied with, have a material adverse effect on
our ability to meet our investment obligations and to pay distributions to our stockholders.

The agreements governing
certain of our and our special purpose financing subsidiaries financing arrangements require us and our subsidiaries to comply with certain financial and operational covenants. These covenants require us and our subsidiaries to, among other
things, maintain certain financial ratios, including asset coverage and minimum stockholders equity. Compliance with these covenants depends on many factors, some of which are beyond our and their control. For example, in the event of
deterioration in the capital markets and pricing levels, net unrealized depreciation in our and our subsidiaries portfolio may increase and could result in non-compliance with certain covenants, or our taking actions which could disrupt our
business and impact our



43



---

##### Table of Contents

ability to meet our investment objectives. There can be no assurance that we and our subsidiaries will continue to comply with the covenants under our financing arrangements. Failure to comply
with these covenants could result in a default which, if we and our subsidiaries were unable to obtain a waiver from the debt holders, could accelerate repayment under any or all of our and their debt instruments and thereby force us to liquidate
investments at a disadvantageous time and/or at a price which could result in losses, or allow our lenders to sell assets pledged as collateral under our financing arrangements in order to satisfy amounts due thereunder. These occurrences could have
a material adverse impact on our liquidity, financial condition, results of operations and ability to pay distributions. See Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations-Financial
Condition, Liquidity and Capital ResourcesFinancing Arrangements for a more detailed discussion of the terms of our debt financing arrangements.

We are subject to risks associated with our debt securitization facilities.

On April 23, 2013, through our two wholly-owned, special-purpose financing subsidiaries, Lehigh River LLC, or Lehigh River, and Cobbs Creek LLC, or Cobbs Creek, we entered into an amendment, or the
April 2013 amendment, to our debt financing arrangement with JPMorgan Chase Bank, N.A., London Branch, or JPM, pursuant to which up to $550.0 million is available to us (the JPM Facility). In addition, on December 15, 2014,
through two wholly-owned special-purpose subsidiaries, Green Creek LLC, or Green Creek, and Schuylkill River LLC, or Schuylkill River, we entered into a debt financing arrangement with Goldman pursuant to which up to $400.0 million is available
to us (the Goldman facility).

The JPM facility and the Goldman facility are both structured as debt
securitizations. We use the term debt securitization to describe a form of secured borrowing under which an operating company, sometimes referred to as an originator, acquires or originates loans or other assets that earn income, whether
on a one-time or recurring basis, or collectively referred to herein as income producing assets, and borrows money on a non-recourse basis against a legally separate pool of income producing assets. In a typical debt securitization, the
originator transfers the income producing assets to a special-purpose, bankruptcy-remote subsidiary, also referred to as a special purpose entity, which is established solely for the purpose of holding income producing assets and issuing
debt secured by these income producing assets. The special purpose entity completes the borrowing through the issuance of notes secured by the income producing assets.

Pursuant to the JPM facility, the assets held by Lehigh River secure the obligations of Lehigh River under Class A Floating Rate Notes, or the Class A Notes, to be issued from time to time by
Lehigh River to Cobbs Creek pursuant to an Amended and Restated Indenture, dated as of February 6, 2013, as supplemented by Supplemental Indenture No. 1, dated as of April 23, 2013, with Citibank N.A., or Citibank as trustee, or the
Amended and Restated Indenture. Pursuant to the Amended and Restated Indenture, the aggregate principal amount of Class A Notes that may be issued by Lehigh River from time to time is $660.0 million. All principal and interest on the
Class A Notes will be due and payable on the stated maturity date of May 20, 2024. Cobbs Creek will purchase the Class A Notes to be issued by Lehigh River from time to time at a purchase price equal to their par value.

Cobbs Creek, in turn, has entered into an amended repurchase transaction with JPM pursuant to the terms of an amended and restated global
master repurchase agreement and the related annex and amended and restated confirmation thereto, each dated as of April 23, 2013. Pursuant to the JPM facility, JPM has agreed to purchase from time to time Class A Notes held by Cobbs Creek
for an aggregate purchase price equal to approximately 83.33% of the principal amount of Class A Notes purchased. Subject to certain conditions, the maximum principal amount of Class A Notes that may be purchased under the JPM facility is
$660.0 million. Accordingly, the maximum amount payable at any time to Cobbs Creek under the JPM facility will not exceed $550.0 million.

Although the specific terms are different, the Goldman facility is structured in a similar manner as the JPM facility. See Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations-Financial Condition, Liquidity and Capital ResourcesFinancing Arrangements for a more detailed discussion of the terms of these debt securitization facilities.



44



---

##### Table of Contents

As a result of these debt securitization facilities, we are subject to certain risks. Set
forth below are certain risks relating to the JPM facility. The Goldman facility is subject to risks similar to those of the JPM facility described below.

Our equity investment in Lehigh River is subordinated to the debt obligations of Lehigh River.

Any dividends or other payments in respect of our equity interest in Lehigh River are subordinated in priority of payment to the Class A Notes. In addition, Lehigh River is subject to certain payment
restrictions set forth in the Amended and Restated Indenture in respect of our equity interest.

We will receive cash
distributions based on our investment in Lehigh River only if Lehigh River has made all required cash interest payments on the Class A Notes. We cannot assure stockholders that distributions on the assets held by Lehigh River will be sufficient
to make any distributions to us or that the yield on our investment in Lehigh River will meet our expectations.

Our equity
investment in Lehigh River is unsecured and ranks behind all of the creditors, known or unknown, of Lehigh River, including the holders of the Class A Notes. Consequently, if the value of Lehigh Rivers assets decreases as a result of
conditions in the credit markets, defaulted loans, capital gains and losses on the underlying assets, prepayment or changes in interest rates generally, the value of our equity investment in Lehigh River could be reduced. Accordingly, our investment
in Lehigh River may not produce a profit and may be subject to a loss in an amount up to the entire amount of such equity investment.

In addition, if the value of Lehigh Rivers assets decreases and Lehigh River is unable to make any required payments to Cobbs Creek pursuant to the terms of the Class A Notes, Cobbs Creek may,
in turn, be unable to make any required payments to JPM pursuant to the terms of the JPM facility. In such event, if the value of Cobbs Creeks assets is not sufficient to meet Cobbs Creeks payment obligations to JPM, we would need to
loan or otherwise provide additional funds to Cobbs Creek to cover Cobbs Creeks payment obligations to JPM, or otherwise be subject to a loss in an amount up to the entire amount of our equity investment in Cobbs Creek.

Our equity investment in Cobbs Creek is subordinated to the debt obligations of Cobbs Creek.

Any dividends or other payments in respect of our equity interest in Cobbs Creek are subordinated in priority of payment to Cobbs
Creeks payment obligations under the JPM facility. In addition, Cobbs Creek is subject to certain payment restrictions set forth in the JPM facility in respect of our equity interest.

We will receive cash distributions based on our investment in Cobbs Creek only if Cobbs Creek has made all required payments under the
JPM facility. We cannot assure stockholders that distributions on the assets held by Cobbs Creek, including the Class A Notes, will be sufficient to make any distributions to us or that the yield on our investment in Cobbs Creek will meet our
expectations.

Our equity investment in Cobbs Creek is unsecured and ranks behind all of the creditors, known or unknown, of
Cobbs Creek, including JPM. Consequently, if the value of Cobbs Creeks assets decreases as a result of conditions in the credit markets, defaulted loans, capital gains and losses on the underlying assets or prepayment or changes in interest
rates generally, the value of our equity investment in Cobbs Creek could be reduced. Accordingly, our investment in Cobbs Creek may not produce a profit and may be subject to a loss in an amount up to the entire amount of such equity investment.

In addition, if the value of Cobbs Creeks assets decreases or Lehigh River fails to make any required payments to Cobbs
Creek pursuant to the terms of the Class A Notes, Cobbs Creek may be unable to make any required payments to JPM pursuant to the terms of the JPM facility. In such event, if the value of Cobbs Creeks assets is not sufficient to meet Cobbs
Creeks payment obligations to JPM, we may be required to loan or otherwise provide additional funds to Cobbs Creek to cover Cobbs Creeks payment obligations to JPM, or otherwise be subject to a loss in an amount up to the entire amount
of our equity investment in Cobbs Creek.



45



---

##### Table of Contents

Our equity investments in Lehigh River and Cobbs Creek have a high degree of leverage.

As of December 31, 2014, Lehigh River had issued Class A Notes in an aggregate amount of $660.0 million (the
maximum amount of Class A Notes permitted to be issued by Lehigh River under the Amended and Restated Indenture). The fair value of assets held by Lehigh River as of December 31, 2014 was approximately $1,189.4 million, which included
assets purchased by Lehigh River with proceeds from the issuance of Class A Notes. The repurchase amount payable by Cobbs Creek to JPM under the JPM facility in respect of the issued Class A Notes is $550.0 million, plus applicable
interest, and as of December 31, 2014, the fair value of assets held by Cobbs Creek was approximately $392.2 million. The market value of our equity assets in Lehigh River and Cobbs Creek may be significantly affected by a variety of factors,
including changes in the market value of the assets held by Lehigh River and Cobbs Creek, changes in distributions on the assets held by Lehigh River and Cobbs Creek, defaults and recoveries on those assets, capital gains and losses on those assets,
prepayments on those assets and other risks associated with those assets. Our investments in Lehigh River and Cobbs Creek may not produce a profit and may be subject to a loss in an amount up to the entire amount of such equity investment. The
leveraged nature of our equity investment may magnify the adverse impact of any loss on our equity investment.

The
interests of JPM, as the holder of the Class A Notes, may not be aligned with our interests, and we will not have control over remedies in respect of the Class A Notes.

The Class A Notes rank senior in right of payment to any equity securities issued by Lehigh River. As a result, there are
circumstances in which the interests of JPM, as the holder of the Class A Notes, may not be aligned with our interests. For example, under the terms of the Class A Notes, JPM has the right to receive payments of principal and interest
prior to Lehigh River making any distributions or dividends to holders of its equity securities.

For as long as the
Class A Notes remain outstanding, JPM has the right to act in certain circumstances with respect to the portfolio of assets that secure the obligations of Lehigh River under the Class A Notes in ways that may benefit their interests but
not ours, including by exercising remedies or directing the Amended and Restated Indenture trustee to declare events of default under or accelerate the Class A Notes in accordance with the terms of the Amended and Restated Indenture. JPM has no
obligation to consider any possible adverse effect that actions taken may have on our equity interests. For example, upon the occurrence of an event of default with respect to the Class A Notes, the trustee, which is currently Citibank, may
declare the outstanding principal amount of all of the Class A Notes, together with any accrued interest thereon, to be immediately due and payable. This would have the effect of accelerating the outstanding principal amount of the Class A
Notes and triggering a repayment obligation on the part of Lehigh River. Lehigh River may not have funds sufficient to make required payments on the Class A Notes and make any distributions to us. Any failure of Lehigh River to make
distributions on the equity interests we hold could have a material adverse effect on our business, financial condition, results of operations and cash flows, and may result in our inability to make distributions to our stockholders in amounts
sufficient to maintain our qualification as a RIC, or at all.

Lehigh River may fail to meet certain asset coverage and
quality tests, which would have an adverse effect on us.

Under the Amended and Restated Indenture, there are coverage
tests and quality tests applicable to the collateral securing the Class A Notes. The first coverage test, or the Class A Interest Coverage Test, compares the amount of interest received on the portfolio of assets held by Lehigh River to
the amount of interest payable in respect of the Class A Notes on the following payment date. To meet the Class A Interest Coverage Test, the aggregate amount of interest received on the portfolio of assets held by Lehigh River must equal
at least 150% of the interest payable in respect of the Class A Notes. The second coverage test, or the Class A Par Value Test, compares the aggregate par value of the portfolio of assets (other than any asset acquired for a purchase price
of less than 80% of its par value which asset will be assigned a value equal to its purchase price) plus cash held by Lehigh River to the aggregate outstanding par value of the Class A Notes. To meet the Class A Par Value Test,



46



---

##### Table of Contents

the aggregate par value of the portfolio of assets (other than any assets acquired for a purchase price of less than 80% of its par value, which asset will be assigned a value equal to its
purchase price) plus cash held by Lehigh River must equal at least 164.44% of the aggregate outstanding principal amount of the Class A Notes. The third coverage test, or the Additional Class A Par Value Test, compares the aggregate par
value of the portfolio of assets (other than any defaulted asset, which asset will be assigned a value equal to its market value) held by Lehigh River to the aggregate outstanding principal amount of the Class A Notes. To meet the Additional
Class A Par Value Test, the aggregate principal amount of the portfolio of assets (other than any defaulted asset, which asset will be assigned a value equal to its market value) held by Lehigh River must equal at least 147.07% of the aggregate
outstanding principal amount of the Class A Notes. The quality tests compare the minimum weighted average fixed coupon rates, the minimum weighted average floating coupon rates, the weighted average life, the anticipated recovery rates and the
anticipated default rates of the portfolio of assets held by Lehigh River to certain benchmarks as described more fully in the Amended and Restated Indenture.

If the Class A Interest Coverage Test or the Class A Par Value Test is not satisfied on any date on which compliance is measured, Lehigh River is required to apply available amounts to the
repayment of the outstanding principal of the Class A Notes to satisfy the applicable tests. Failure to satisfy the Additional Class A Par Value Test on any measurement date constitutes an event of default under the Amended and Restated
Indenture. Obligations that may be added to the portfolio of assets held by Lehigh River and constituting collateral from time to time under the Amended and Restated Indenture are subject to certain restrictions in respect of the quality tests
referenced above and more fully described in the Amended and Restated Indenture.

The market value of the underlying
assets held by Lehigh River and Cobbs Creek may decline causing Cobbs Creek to borrow funds from us in order to meet certain margin posting and minimum market value requirements, which would have an adverse effect on the timing of payments to us.

If at any time during the term of the JPM facility the market value of the underlying assets held by Lehigh River
securing the Class A Notes declines by an amount greater than 27% of their initial aggregate purchase price, or the Margin Threshold, Cobbs Creek will be required to post cash collateral with JPM in an amount at least equal to the amount by
which the market value of such assets at such time is less than the Margin Threshold. Similarly, pursuant to the JPM facility, the market value of the underlying assets held by Cobbs Creek must be at least $270.0 million, or the Market Value
Requirement. In either such event, in order to satisfy these requirements, Cobbs Creek intends to borrow funds from us pursuant to a revolving credit agreement, dated as of October 26, 2012 and as amended as of February 6, 2013 and
April 23, 2013, between Cobbs Creek, as borrower, and us, as lender, or the Revolving Credit Agreement. We may, in our sole discretion, make such loans from time to time to Cobbs Creek pursuant to the terms of the Revolving Credit Agreement.
Borrowings under the Revolving Credit Agreement will accrue interest at a rate equal to one-month LIBOR plus a spread of 0.75% per annum. To the extent we loan additional funds to Cobbs Creek to satisfy the Margin Threshold or the Market Value
Requirement, such event could have a material adverse effect on our business, financial condition, results of operations and cash flows, and may result in our inability to make distributions to our stockholders in amounts sufficient to maintain our
qualification as a RIC, or at all. There is no assurance that loans made pursuant to the Revolving Credit Agreement will be repaid.

Restructurings of investments held by Lehigh River or Cobbs Creek, if any, may decrease their value and reduce the value of our equity interests in these entities.

As collateral manager, we have broad authority to direct and supervise the investment and reinvestment of the assets held by Lehigh River
and Cobbs Creek, which may require from time to time the execution of amendments, waivers, modifications and other changes to the investment documentation in accordance with the related collateral management agreements we have entered into with
Lehigh River and Cobbs Creek. During periods of economic uncertainty and recession, the necessity for amendments, waivers, modifications and restructurings of investments may increase. Such amendments, waivers, modifications and other restructurings
of an investment may change the terms of the investments and, in some cases, may result in Lehigh River or Cobbs



47



---

##### Table of Contents

Creek holding assets that do not meet certain specified criteria for the investments specified in the JPM facility documentation. This could adversely impact the coverage and quality tests under
the Amended and Restated Indenture applicable to Lehigh River. This could also adversely impact the ability of Lehigh River to meet the Margin Threshold and Cobbs Creek to meet the Market Value Requirement. Any amendment, waiver, modification or
other restructuring of an investment that reduces Lehigh Rivers compliance with the coverage and quality tests under the Amended and Restated Indenture will make it more likely that Lehigh River will need to pay cash to reduce the unpaid
principal amount of the Class A Notes so as to cure any breach of such tests. Similarly, any amendment, waiver, modification or other restructuring of an investment that reduces Lehigh Rivers ability to meet the Margin Threshold or Cobbs
Creeks ability to meet the Market Value Requirement will make it more likely that Cobbs Creek will need to retain assets, including cash, to increase the market value of the assets held by Cobbs Creek and to post cash collateral with JPM in an
amount at least equal to the amount by which the market value of the underlying assets held by Lehigh River is less than the Margin Threshold. Any such use of cash by Lehigh River or Cobbs Creek would reduce distributions available to us or delay
the timing of distributions to us.

We may not receive cash from Lehigh River or Cobbs Creek.

We receive cash from Lehigh River and Cobbs Creek only to the extent that Lehigh River or Cobbs Creek, respectively, makes distributions
to us. Lehigh River may make distributions to us, in turn, only to the extent permitted by the Amended and Restated Indenture. The Amended and Restated Indenture generally provides that distributions by Lehigh River may not be made unless all
amounts owing with respect to the Class A Notes have been paid in full. Cobbs Creek may make distributions to us only to the extent permitted by the JPM facility. The JPM facility generally provides that distributions by Cobbs Creek may not be
made if the Margin Threshold has not been met or if the market value of the underlying loans held by Cobbs Creek is less than the Market Value Requirement. If we do not receive cash from Lehigh River or Cobbs Creek, we may be unable to make
distributions to our stockholders in amounts sufficient to maintain our qualification as a RIC, or at all. We also could be forced to sell investments in our portfolio at less than their fair value in order to continue making such distributions.

We are subject to the credit risk of JPM.

If JPM fails to sell the Class A Notes back to Cobbs Creek at the end of the applicable period, Cobbs Creeks recourse will be
limited to an unsecured claim against JPM for the difference between the value of such Class A Notes at such time and the amount that would be owing by Cobbs Creek to JPM had JPM performed under the JPM facility. The ability of JPM to satisfy
such a claim will be subject to JPMs creditworthiness at that time.

Risks Related to an Investment in Our Common Stock

Our shares are not listed on an exchange or quoted through a quotation system, and will not be for the foreseeable future, if ever,
and there can be no assurance that we will complete a liquidity event by a specified date, or at all. Therefore, stockholders will have limited liquidity and may not receive a full return of invested capital upon selling shares.

Our shares are illiquid assets for which there is not a secondary market and it is not expected that a secondary market will develop in
the foreseeable future. In addition, there can be no assurance that we will complete a liquidity event by a specified date or at all. A liquidity event could include (1) a listing of our shares on a national securities exchange, (2) the
sale of all or substantially all of our assets either on a complete portfolio basis or individually followed by a liquidation or (3) a merger or another transaction approved by our board of directors in which our stockholders likely will
receive cash or shares of a publicly-traded company. If our shares are listed, we cannot assure stockholders that a public trading market will develop. In addition, a liquidity event involving a listing of our shares on a national securities
exchange may include certain restrictions on the ability of stockholders to sell their shares. Further, even if we do complete a liquidity event, stockholders may not receive a return of all of their invested capital.



48



---

##### Table of Contents

If we do not successfully complete a liquidity event, liquidity for an investors
shares will be limited to our share repurchase program, which we have no obligation to maintain. Any shares repurchased pursuant to our share repurchase program may be purchased at a price which reflects a significant discount from the purchase
price a stockholder paid for the shares being repurchased. In addition, there are significant limitations placed on the number of shares we may repurchase under our share repurchase program, which may prevent a stockholder from selling all of its
shares under the program. See Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesShare Repurchase Program for a detailed description of our share repurchase
program.

Only a limited number of shares may be repurchased pursuant to our share repurchase program and stockholders may not be able
to sell all of their shares under our share repurchase program or recover the amount of their investment in those shares.

Our share repurchase program includes numerous restrictions that limit stockholders ability to sell their shares. We intend to limit the number of shares repurchased pursuant to our share repurchase
program as follows: (1) we currently intend to limit the number of shares to be repurchased during any calendar year to the number of shares we can repurchase with the proceeds we receive from the sale of our shares under our distribution
reinvestment plan, although, at the discretion of our board of directors, we may also use cash on hand, cash available from borrowings and cash from the liquidation of securities investments as of the end of the applicable period to repurchase
shares; (2) we intend to limit the number of shares to be repurchased in any calendar year to 10% of the weighted average number of shares outstanding in the prior calendar year, or 2.5% in each calendar quarter (though the actual number of
shares that we offer to repurchase may be less in light of the limitations noted above); (3) unless stockholders tender all of their shares, stockholders must tender at least 25% of the number of shares they have purchased and generally must
maintain a minimum balance of $5,000 subsequent to submitting a portion of their shares for repurchase by us; and (4) to the extent that the number of shares tendered for repurchase exceeds the number of shares that we are able to purchase, we
will repurchase shares on a pro rata basis, not on a first-come, first-served basis. Further, we will have no obligation to repurchase shares if the repurchase would violate the restrictions on distributions under federal law or Maryland law, which
prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency. Any of the foregoing limitations may prevent us from accommodating all repurchase requests made in any year.

In addition, our board of directors may also amend, suspend or terminate the share repurchase program upon 30 days notice. We will
notify stockholders of such developments (1) in our quarterly reports or (2) by means of a separate mailing to stockholders, accompanied by disclosure in a current or periodic report under the Exchange Act. Notwithstanding that we have
adopted a share repurchase program, we also have discretion to not repurchase shares, to suspend the share repurchase program and to cease repurchases. In addition, any shares repurchased pursuant to our share repurchase program may be purchased at
a significant discount from the purchase price you paid for the shares being repurchased. The share repurchase program has many limitations and should not be relied upon as a method to sell shares promptly or at a desired price.

Stockholders who choose to participate in our share repurchase program will not know the purchase price per share at the time they submit their
intent to participate and their shares may be repurchased at a significant discount from the purchase price paid for the shares being repurchased.

In the event a stockholder chooses to participate in our share repurchase program, the stockholder will be required to provide us with notice of intent to participate prior to knowing what the repurchase
price will be on the repurchase date. Although a stockholder will have the ability to withdraw a repurchase request prior to the repurchase date, to the extent a stockholder seeks to sell shares to us as part of our share repurchase program, the
stockholder will be required to do so without knowledge of the repurchase price of our shares. In addition, when we make quarterly repurchase offers pursuant to our share repurchase program, we may offer to repurchase shares at a price that is lower
than the price that stockholders paid for shares in our continuous public offering.



49



---

##### Table of Contents

As a result, to the extent stockholders have the ability to sell their shares to us as part of our share repurchase program, the price at which a stockholder may sell shares may be at a
significant discount to what such stockholder paid in connection with the purchase of shares in our offering.

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

We
cannot assure stockholders 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. All distributions will be paid at the discretion of our board of
directors and will depend on our earnings, our net investment income, our financial condition, maintenance of our RIC status, compliance with applicable BDC regulations and such other factors as our board of directors may deem relevant from time to
time. In addition, due to the asset coverage test applicable to us as a BDC, we may be limited in our ability to make distributions. See Item 1. Business-Regulation-Senior Securities.

Our distribution proceeds may exceed our earnings. Therefore, portions of the distributions that we make may represent a return of capital to
stockholders, which will lower their tax basis in their shares.

A return of capital generally is a return of a
stockholders investment rather than a return of earnings or gains derived from our investment activities. We may pay all or a substantial portion of our distributions from the proceeds of the sale of shares of our common stock or from
borrowings in anticipation of future cash flow, which could constitute a return of stockholders capital and will lower such stockholders tax basis in their shares, which may result in increased tax liability to stockholders when they
sell their shares.

We may pay distributions from proceeds of the sale of shares of our common stock, borrowings, the sale of assets or
from the reimbursement of certain expenses by our affiliate, Franklin Square Holdings.

To the extent declared
distributions exceed our net investment income or cash flow from operations, we may fund distributions from the uninvested proceeds of the sale of shares of our common stock and borrowings, the sale of assets or from the reimbursement of certain
expenses by our affiliate, Franklin Square Holdings, and we have not established limits on the amount of funds we may use from these sources to make future distributions. Distributions from any of the aforementioned sources could reduce the amount
of capital we ultimately invest in our portfolio companies.

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

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

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

The Maryland General Corporation Law, or the MGCL, and our charter and bylaws contain certain provisions that may have
the effect of discouraging, delaying or making difficult a change in control of our



50



---

##### Table of Contents

company or the removal of our incumbent directors. Under the Business Combination Act of the MGCL, certain business combinations between us and an interested stockholder (defined
generally to include any person who beneficially owns 10% or more of the voting power of our outstanding shares) or an affiliate thereof is prohibited for five years and thereafter is subject to special stockholder voting requirements, to the extent
that such statute is not superseded by applicable requirements of the 1940 Act. However, our board of directors has adopted a resolution exempting from the Business Combination Act any business combination between us and any person to the extent
that such business combination receives the prior approval of our board of directors, including a majority of our directors who are not interested persons as defined in the 1940 Act. Under the Control Share Acquisition Act of the MGCL, control
shares acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares owned by the acquirer, by officers or by
directors who are employees of the corporation. Our bylaws contain a provision exempting from the Control Share Acquisition Act any and all acquisitions by any person of shares of our common stock, but such provision may be repealed at any time
(before or after a control share acquisition). However, we will amend our bylaws to repeal such provision (so as to be subject to the Control Share Acquisition Act) only if our board of directors determines that it would be in our best interests and
if the staff of the SEC does not object to our determination that our being subject to the Control Share Acquisition Act does not conflict with the 1940 Act. The Business Combination Act (if our board of directors should repeal the resolution) and
the Control Share Acquisition Act (if we amend our bylaws to be subject to that Act) may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.

In addition, at any time that we have a class of equity securities registered under the Exchange Act and we have at least three
independent directors, certain provisions of the MGCL permit our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, including adopting a
classified board or increasing the vote required to remove a director. Moreover, our board of directors may, without stockholder action, authorize the issuance of shares of stock in one or more classes or series, including preferred stock; and our
board of directors may, without stockholder action, amend our charter to increase the number of shares of stock of any class or series that we have authority to issue. These provisions may inhibit a change of control in circumstances that could give
the holders of our common stock the opportunity to realize a premium over the value of our common stock.

The net asset value of our
common stock may fluctuate significantly.

The net asset value of our common stock may be significantly affected by
numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include: (i) changes in regulatory policies or tax guidelines, particularly with respect to RICs or BDCs;
(ii) loss of RIC or BDC status; (iii) changes in earnings or variations in operating results; (iv) changes in the value of our portfolio of investments; (v) changes in accounting guidelines governing valuation of our investments;
(vi) any shortfall in revenue or net income or any increase in losses from levels expected by investors; (vii) departure of our investment adviser or sub-adviser or certain of their respective key personnel; (viii) general economic
trends and other external factors; and (ix) loss of a major funding source.

Holders of any preferred stock that we may issue will
have the right to elect members of the board of directors and have class voting rights on certain matters.

The 1940
Act requires that holders of shares of preferred stock must be entitled as a class to elect two directors at all times and to elect a majority of the directors if dividends on such preferred stock are in arrears by two years or more, until such
arrearage is eliminated. In addition, certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock, including changes in fundamental investment restrictions and conversion to open-end
status and, accordingly, preferred stockholders could veto any such changes. Restrictions imposed on the declarations and payment of dividends or other distributions to the holders of our common stock and preferred stock, both by the 1940 Act and by
requirements imposed by rating agencies, might impair our ability to maintain our qualification as a RIC for U.S. federal income tax purposes.



51



---

##### Table of Contents

Risks Related to U.S. Federal Income Tax

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

To qualify for and maintain RIC tax treatment under Subchapter M of the Code, we must meet the following annual distribution, income
source and asset diversification requirements. See Item 1. Business-Taxation as a RIC.



| |  |  | The Annual Distribution Requirement for a RIC will be satisfied if we distribute to our stockholders each tax year, dividends of an amount at least
equal to the sum of 90% of our investment company taxable income, without regard to any deduction for dividends paid. Because we may use debt financing, we are subject to an asset coverage ratio requirement under the 1940 Act and may in the future
become subject to certain financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the Annual Distribution Requirement. If we are unable to obtain cash
from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The income source requirement will be satisfied if we obtain at least 90% of our gross income for each tax year from dividends, interest, gains from
the sale of securities or similar sources.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our tax
year. To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such securities of any one issuer do not represent more
than 5% of the value of our assets or more than 10% of the outstanding voting securities of such issuer; and no more than 25% of the value of our assets can be invested in the securities, other than U.S. government securities or securities of other
RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain qualified publicly-traded
partnerships. Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in private companies, and therefore will be
relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

For U.S. federal income tax purposes, we
may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, if we hold debt instruments that are treated under applicable tax rules as having original issue discount (such as
debt instruments with PIK interest or, in certain cases, increasing interest rates or debt instruments that were issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the
obligation, regardless of whether cash representing such income is received by us in the same tax year. We may also have to include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid
after origination of the loan or are paid in non-cash compensation such as warrants or stock. We anticipate that a portion of our income may constitute original issue discount or other income required to be included in taxable income prior to
receipt of cash. Further, we may elect to amortize market discount and include such amounts in our taxable income in the current year, instead of upon disposition, as an election not to do so would limit our ability to deduct interest expenses for
tax purposes.

Because any original issue discount or other amounts accrued will be included in our investment company taxable
income for the year of the accrual, we may be required to make a distribution to our stockholders in order



52



---

##### Table of Contents

to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount. As a result, we may have difficulty maintaining RIC tax treatment under
Subchapter M of the Code. We may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If we are not able to
obtain cash from other sources, we may fail to qualify for or maintain RIC tax treatment and thus become subject to corporate-level income tax.

Our portfolio investments may present special tax issues.

Investments in below-investment grade debt instruments and certain equity securities may present special tax issues for us. U.S. federal income tax rules are not entirely clear about issues such as when
we may cease to accrue interest, original issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless debt in equity securities, how payments received on obligations in default should be allocated
between principal and interest income, as well as whether exchanges of debt instruments in a bankruptcy or workout context are taxable. Such matters could cause us to recognize taxable income for U.S. federal income tax purposes, even in the absence
of cash or economic gain, and require us to make taxable distributions to our stockholders to maintain our RIC status or preclude the imposition of either U.S. federal corporate income or excise taxation. Additionally, because such taxable income
may not be matched by corresponding cash received by us, we may be required to borrow money or dispose of other investments to be able to make distributions to our stockholders. These and other issues will be considered by us, to the extent
determined necessary, in order that we minimize the level of any U.S. federal income or excise tax that we would otherwise incur. See Item 1. Business-Taxation as a RIC.



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

Not applicable.



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

We do not
own any real estate or other physical properties materially important to our operation. Our headquarters are located at 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112. We believe that our office facilities are suitable and adequate for our
business as it is presently conducted.



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

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



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

Not applicable.



53



---

##### Table of Contents

PART II

Many of the amounts and percentages presented in Part II have been rounded for convenience of presentation and all dollar amounts, excluding share and per share amounts, are presented in thousands
unless otherwise noted.



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

Market Information

There
is currently no market for our common stock, and we do not expect that a market for our shares will develop in the foreseeable future. In March 2014, we closed our continuous public offering of shares of our common stock to new investors. Following
the closing of our continuous public offering, we have continued to issue shares pursuant to our distribution reinvestment plan.

Set forth below is a chart describing the classes of our securities outstanding as of March 3, 2015:



|               |  |                  |             |  |                                      |  |   |                                                       |  |  |             | 
|-------------- |  | ---------------- | ----------- |  | ------------------------------------ |  | - | ----------------------------------------------------- |  |  | ----------- | 
|(1)            |  | (2)              |             |  | (3)                                  |  |   | (4)                                                   | 
|Title of Class |  | AmountAuthorized |             |  | Amount Held by Us 
orfor Our Account |  |   | Amount OutstandingExclusive of
AmountUnder Column (3) | 
|Common Stock   |  |                  | 450,000,000 |  |                                      |  |  |                                                       |  |  | 314,690,600 | 

As of March 3, 2015, we had 70,136 record holders of our common stock.

Share Repurchase Program

We intend to continue to conduct quarterly tender offers pursuant to our share repurchase program. Our board of directors will consider
the following factors, among others, in making its determination regarding whether to cause us to offer to repurchase shares of common stock and under what terms:



| |  |  | the effect of such repurchases on our qualification as a RIC (including the consequences of any necessary asset sales);
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | the liquidity of our assets (including fees and costs associated with disposing of assets);
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | our investment plans and working capital requirements;
| | - |  | ------------------------------------------------------



| |  |  | the relative economies of scale with respect to our size;
| | - |  | ---------------------------------------------------------



| |  |  | our history in repurchasing shares of common stock or portions thereof; and
| | - |  | ---------------------------------------------------------------------------



| |  |  | the condition of the securities markets.
| | - |  | ----------------------------------------

We currently intend to limit the number of shares of common stock to be repurchased during any calendar year to the number of shares of common stock we can repurchase with the proceeds we receive from the
issuance of shares of common stock under our distribution reinvestment plan. At the discretion of our board of directors, we may also use cash on hand, cash available from borrowings and cash from the liquidation of securities investments as of the
end of the applicable period to repurchase shares of common stock. In addition, we will limit the number of shares of common stock to be repurchased in any calendar year to 10% of the weighted average number of shares of common stock outstanding in
the prior calendar year, or 2.5% in each quarter, though the actual number of shares of common stock that we offer to repurchase may be less in light of the limitations noted above.

On February 24, 2014, we amended the terms of our share repurchase program, which became effective as of our quarterly repurchase
offer for the second quarter of 2014. Prior to the amendment of the share repurchase program, we offered to repurchase shares of common stock on each date of repurchase at a price equal to 90% of the offering price in effect on each date of
repurchase. Under the amended share repurchase program, we intend to offer to repurchase



54



---

##### Table of Contents

shares of common stock on each date of repurchase at a price equal to the price at which shares of common stock are issued pursuant to our distribution reinvestment plan on the distribution date
coinciding with the applicable share repurchase date. The price at which shares of common stock are issued under our distribution reinvestment plan will be determined by our board of directors or a committee thereof, in its sole discretion, and will
be (i) not less than the net asset value per share of our common stock (as determined in good faith by our board of directors or a committee thereof, in its sole discretion) immediately prior to the payment date of the distribution and
(ii) not more than 2.5% greater than the net asset value per share of common stock as of such date. Our board of directors may amend, suspend or terminate the share repurchase program at any time upon 30 days notice.

The table below provides information concerning our repurchases of shares of our common stock during the quarter ended December 31,
2014 pursuant to our share repurchase program.



|                                |  |                                 |         |  |                             |   |       |                                                                              |  |  |                                                                            |  |  |  |     | 
|------------------------------- |  | ------------------------------- | ------- |  | --------------------------- | - | ----- | ---------------------------------------------------------------------------- |  |  | -------------------------------------------------------------------------- |  |  |  | --- | 
|Period                          |  | Total Number ofShares Purchased |         |  | Average Price Paidper Share |   |       | Total Number ofShares Purchased asPart of PubliclyAnnounced Plans
orPrograms |  |  | Maximum Number ofShares that May YetBe PurchasedUnder thePlans or Programs | 
|October 1 to October 31, 2014   |  |                                 | 585,142 |  |                             | $ | 9.640 |                                                                              |  |  | 585,182                                                                    |  |  |  | (1) | 
|November 1 to November 30, 2014 |  |                                 |        |  |                             |   |      |                                                                              |  |  |                                                                           |  |  |  |    | 
|December 1 to December 31, 2014 |  |                                 |        |  |                             |   |      |                                                                              |  |  |                                                                           |  |  |  |    | 
|                                |  |                                 |         |  |                             |   |       |                                                                              |  |  |                                                                            |  |  |  |     | 
|Total                           |  |                                 | 585,142 |  |                             | $ | 9.640 |                                                                              |  |  | 585,182                                                                    |  |  |  | (1) | 
|                                |  |                                 |         |  |                             |   |       |                                                                              |  |  |                                                                            |  |  |  |     | 



|(1) | A description of the maximum number of shares that may be purchased under our share repurchase program is included in the narrative preceding this table.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

On January 2, 2015, we repurchased 578,569 shares of common stock (representing 100% of the shares of
the common stock tendered for repurchase) at $9.50 per share for aggregate consideration totaling $5,496.

Distributions

Following the formal commencement of our investment operations, we declared our first distribution on June 20, 2012. Effective
January 1, 2015 and subject to applicable legal restrictions and the sole discretion of our board of directors, we intend to authorize and declare regular cash distributions on a quarterly basis and pay such distributions on a monthly basis.
From time to time, we may also pay special interim distributions in the form of cash or shares of our common stock at the discretion of our board of directors. The timing and amount of any future distributions to stockholders are subject to
applicable legal restrictions and the sole discretion of our board of directors.

The following table reflects the cash
distributions per share that we have declared and paid on our common stock during the years ended December 31, 2014, 2013 and 2012:



|                                |  |              |        |  |        |   |         | 
|------------------------------- |  | ------------ | ------ |  | ------ | - | ------- | 
|                                |  | Distribution |       
|For the Year Ended December 31, |  | Per Share    |        |  | Amount |  
|2012                            |  | $            | 0.3947 |  |        | $ | 10,320  | 
|2013                            |  |              | 0.7622 |  |        |   | 114,307 | 
|2014                            |  |              | 0.7395 |  |        |   | 223,554 | 

On January 22, 2015 and March 12, 2015, our board of directors declared regular monthly cash
distributions for January 2015 through March 2015 and April 2015 through June 2015, respectively, each in the amount of $0.06283 per share. These distributions have been or will be paid monthly to stockholders of record as of the monthly record
dates previously determined by our board of directors.



55



---

##### Table of Contents

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

On February 24, 2014, we amended and restated our distribution reinvestment plan, which first applied to the reinvestment of cash
distributions paid on or after, March 26, 2014. Under the original plan, cash distributions to participating stockholders were reinvested in additional shares of our common stock at a purchase price equal to 90% of the public offering price per
share in effect as of the date of issuance. Under the amended plan, cash distributions to participating stockholders will be reinvested in additional shares of our common stock at a purchase price determined by our board of directors, or a committee
thereof, in its sole discretion, that is (i) not less than the net asset value per share of our common stock as determined in good faith by our board of directors or a committee thereof, in its sole discretion, immediately prior to the payment
of the distribution and (ii) not more than 2.5% greater than the net asset value per share of our common stock as of such date. Any distributions reinvested under the plan will remain taxable to a U.S. stockholder.

For additional information regarding our distributions and our distribution reinvestment plan, including certain related tax
considerations, see Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsRIC Status and Distributions.



56



---

##### Table of Contents

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

The following selected consolidated financial data for the years ended December 31, 2014, 2013, 2012 and for the period from
July 13, 2011 (Inception) to December 31, 2011 is derived from our consolidated financial statements, which have been audited by McGladrey LLP, our independent registered public accounting firm. The data should be read in conjunction with
our consolidated financial statements and related notes thereto and Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this annual report on Form 10-K.



|                                                                                     |  |                         |           |   |                                                           |   |           |      |  |   |         |   |  |   |       |  
|------------------------------------------------------------------------------------ |  | ----------------------- | --------- | - | --------------------------------------------------------- | - | --------- | ---- |  | - | ------- | - |  | - | ----- | -
|                                                                                     |  | Year Ended December 31, |           |   | Period fromJuly 13, 2011(Inception) toDecember 31,2011(1) |  
|                                                                                     |  |                        
|                                                                                     |  |                        
|                                                                                     |  | 2014                    |           |   | 2013                                                      |   |           | 2012 |  |  
|Statements of operations data:                                                       |  |                         |           |   |                                                           |   |           |      |  |   |         |   |  |   |       |  
|Investment income                                                                    |  | $                       | 398,783   |   |                                                           | $ | 167,693   |      |  | $ | 9,484   |   |  | $ |      |  
|Operating expenses                                                                   |  |                         |           |   |                                                           |   |           |      |  |   |         |   |  |   |       |  
|Total expenses                                                                       |  |                         | 156,107   |   |                                                           |   | 74,978    |      |  |   | 9,157   |   |  |   | 20    |  
|Less: Expense reimbursement from sponsor                                             |  |                         |          |   |                                                           |   |          |      |  |   | (2,482  | ) |  |   |      |  
|Add: Expense recoupment to sponsor                                                   |  |                         |          |   |                                                           |   | 2,041     |      |  |   |        |   |  |   |      |  
|                                                                                     |  |                         |           |   |                                                           |   |           |      |  |   |         |   |  |   |       |  
|Net expenses                                                                         |  |                         | 156,107   |   |                                                           |   | 77,019    |      |  |   | 6,675   |   |  |   | 20    |  
|                                                                                     |  |                         |           |   |                                                           |   |           |      |  |   |         |   |  |   |       |  
|Net investment income (loss)                                                         |  |                         | 242,676   |   |                                                           |   | 90,674    |      |  |   | 2,809   |   |  |   | (20   | )
|Total net realized and unrealized gain/loss on investments                           |  |                         | (51,708   | ) |                                                           |   | 40,200    |      |  |   | 17,596  |   |  |   |      |  
|                                                                                     |  |                         |           |   |                                                           |   |           |      |  |   |         |   |  |   |       |  
|Net increase (decrease) in net assets resulting from operations                      |  | $                       | 190,968   |   |                                                           | $ | 130,874   |      |  | $ | 20,405  |   |  | $ | (20   | )
|                                                                                     |  |                         |           |   |                                                           |   |           |      |  |   |         |   |  |   |       |  
|Per share data:                                                                      |  |                         |           |   |                                                           |   |           |      |  |   |         |   |  |   |       |  
|Net investment income (loss)basic and diluted(2)                                    |  | $                       | 0.80      |   |                                                           | $ | 0.62      |      |  | $ | 0.12    |   |  | $ | (0.90 | )
|                                                                                     |  |                         |           |   |                                                           |   |           |      |  |   |         |   |  |   |       |  
|Net increase (decrease) in net assets resulting from operationsbasic and diluted(2) |  | $                       | 0.63      |   |                                                           | $ | 0.89      |      |  | $ | 0.85    |   |  | $ | (0.90 | )
|                                                                                     |  |                         |           |   |                                                           |   |           |      |  |   |         |   |  |   |       |  
|Distributions declared(3)                                                            |  | $                       | 0.74      |   |                                                           | $ | 0.76      |      |  | $ | 0.39    |   |  | $ |      |  
|                                                                                     |  |                         |           |   |                                                           |   |           |      |  |   |         |   |  |   |       |  
|Balance sheet data:                                                                  |  |                         |           |   |                                                           |   |           |      |  |   |         |   |  |   |       |  
|Total assets                                                                         |  | $                       | 4,726,571 |   |                                                           | $ | 3,321,967 |      |  | $ | 709,325 |   |  | $ | 200   |  
|                                                                                     |  |                         |           |   |                                                           |   |           |      |  |   |         |   |  |   |       |  
|Credit facilities and repurchase agreements payable                                  |  | $                       | 1,641,194 |   |                                                           | $ | 720,494   |      |  | $ | 117,500 |   |  | $ |      |  
|                                                                                     |  |                         |           |   |                                                           |   |           |      |  |   |         |   |  |   |       |  
|Total net assets                                                                     |  | $                       | 2,911,790 |   |                                                           | $ | 2,390,985 |      |  | $ | 527,727 |   |  | $ | 200   |  
|                                                                                     |  |                         |           |   |                                                           |   |           |      |  |   |         |   |  |   |       |  
|Other data:                                                                          |  |                         |           |   |                                                           |   |           |      |  |   |         |   |  |   |       |  
|Total return(4)                                                                      |  |                         | 6.92      | % |                                                           |   | 10.81     | %    |  |   | 6.11    | % |  |   |      |  
|Number of portfolio company investments at period end                                |  |                         | 200       |   |                                                           |   | 179       |      |  |   | 88      |   |  |   |      |  
|Total portfolio investments for the period                                           |  | $                       | 3,382,134 |   |                                                           | $ | 2,838,032 |      |  | $ | 681,503 |   |  | $ |      |  
|Proceeds from sales and prepayments of investments                                   |  | $                       | 1,625,100 |   |                                                           | $ | 711,652   |      |  | $ | 204,248 |   |  | $ |      |  



|(1) | We formally commenced investment operations on June 18, 2012. Prior to such date, we had no operations except for matters relating to our organization and
registration as a non-diversified, closed-end management investment company.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The per share data was derived by using the weighted average shares outstanding during the years ended December 31, 2014 and 2013 and the period from June 18,
2012 (Commencement of Operations) through December 31, 2012, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



57



---

##### Table of Contents

|(4) | The total return for each year presented was calculated by taking the net asset value per share as of the end of the applicable year, adding the cash distributions per
share that were declared during the applicable calendar year and dividing the total by the net asset value per share at the beginning of the applicable year. The total return does not consider the effect of the sales load from the sale of our common
stock. The total return includes the effect of the issuance of shares at a net offering price that is greater than net asset value per share, which causes an increase in net asset value per share. The historical calculation of total return should
not be considered a representation of our future total return, which may be greater or less than the return shown in the table due to a number of factors, including our ability or inability to make investments in companies that meet our investment
criteria, the interest rate payable on the debt securities we acquire, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets
and general economic conditions. As a result of these factors, results for any previous period should not be relied upon as being indicative of performance in future periods. The total return calculations set forth above represent the total return
on our investment portfolio during the applicable period and are calculated in accordance with GAAP. These return figures do not represent an actual return to stockholders.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



58



---

##### Table of Contents

|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations. (in thousands, except share and per share amounts)
|------- | -----------------------------------------------------------------------------------------------------------------------------------------

The information contained in this section should be read in conjunction with our consolidated financial
statements and related notes thereto appearing elsewhere in this annual report on Form 10-K.

Forward-Looking Statements

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



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



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



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



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



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



| |  |  | changes in the general interest rate environment;
| | - |  | -------------------------------------------------



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



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



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



| |  |  | actual and potential conflicts of interest with FSIC II Advisor, FB Income Advisor, LLC, FS Investment Corporation, FS Investment Advisor, LLC, FS
Energy and Power Fund, FSIC III Advisor, LLC, FS Investment Corporation III, FS Global Advisor, LLC, FS Global Credit Opportunities Fund, the FSGCOF Offered Funds, GDFM or any of their affiliates;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | our use of financial leverage;
| | - |  | ------------------------------



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



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



| |  |  | our ability to maintain our qualification as a RIC and as a BDC;
| | - |  | ----------------------------------------------------------------



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



| |  |  | the effect of changes to tax legislation and our tax position; and
| | - |  | ------------------------------------------------------------------



| |  |  | the tax status of the enterprises in which we may invest.
| | - |  | ---------------------------------------------------------

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



| |  |  | changes in the economy;
| | - |  | -----------------------



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



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



59



---

##### Table of Contents

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

Overview

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

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

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

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

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

In the case of event driven investments, we
intend to take advantage of dislocations that arise in the markets due to an impending event and where the markets apparent expectation of value differs substantially from our fundamental analysis. Such events may include a looming debt
maturity or default, a merger, spin-off or other



60



---

##### Table of Contents

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

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

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

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

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

The senior secured loans, second lien secured loans, and senior secured bonds, in which we invest
generally have stated terms of three to seven years and subordinated debt investments that we make generally have stated terms of up to ten years, but the expected average life of such securities is generally between three and seven years. However,
there is no limit on the maturity or duration of any security in our portfolio. Our debt investments may be rated by a NRSRO and, in such case, generally will carry a rating below investment grade (rated lower than Baa3 by Moodys,
or lower than BBB- by S&P).We also invest in non-rated debt securities.



61



---

##### Table of Contents

Revenues

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

Net investment income is the difference between our income from interest, dividends, fees and other investment income and our operating and other expenses. Net realized gain or loss on investments is the
difference between the proceeds received from dispositions of portfolio investments and their amortized cost, including the respective realized gain or loss on foreign currency for those foreign denominated investment transactions. Net realized gain
or loss on total return swap is the net monthly settlement payments received on our total return swap agreement, or TRS, between our wholly-owned special-purpose financing subsidiary, Del River LLC, or Del River, and Citibank, N.A., or Citibank,
which was terminated pursuant to a Termination Acknowledgment on June 13, 2013. Net gain or loss on credit default swaps represents the amortized portion of swap premiums received, the periodic payments received and the net realized gain or
loss resulting from the exit of our credit default swaps. Net realized gain or loss on foreign currency is the portion of realized gain or loss attributable to foreign currency fluctuations. Net unrealized appreciation or depreciation on investments
is the net change in the fair value of our investment portfolio, including the respective unrealized gain or loss on foreign currency for those foreign denominated investments. Net unrealized appreciation or depreciation on total return swap is the
net change in the fair value of the TRS. Net unrealized appreciation or depreciation on credit default swaps is the net change in the market value of our credit default swaps. Net unrealized gain or loss on foreign currency is the net change in the
value of receivables or accruals due to the impact of foreign currency fluctuations.

In future periods, we do not expect our
revenues to include net realized gain or loss on total return swap or net unrealized appreciation or depreciation on total return swaps as a result of the termination of our TRS. We may, however, elect to utilize another total return swap in the
future.

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

Expenses

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

We reimburse FSIC II Advisor for expenses necessary to perform services related to our administration and operations, including FSIC II
Advisors allocable portion of the compensation and related expenses of certain personnel of Franklin Square Holdings providing administrative services to us on behalf of FSIC II Advisor. Such services include the provision of general ledger
accounting, fund accounting, legal services, investor relations and other administrative services. FSIC II Advisor also performs, or oversees the performance of, our corporate operations and required administrative services, which includes being
responsible for the financial records that we are required to maintain and preparing reports for our stockholders and reports filed with the SEC. In addition,



62



---

##### Table of Contents

FSIC II Advisor assists us in calculating our net asset value, oversees the preparation and filing of tax returns and the printing and dissemination of reports to our stockholders, and
generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others.

The amount of this reimbursement is set at the lesser of (1) FSIC II Advisors actual costs incurred in providing such services and (2) the amount that we estimate we would be required to
pay alternative service providers for comparable services in the same geographic location. FSIC II Advisor allocates the cost of such services to us based on factors such as total assets, revenues, time allocations and/or other reasonable metrics.
Our board of directors reviews the methodology employed in determining how the expenses are allocated to us and the proposed allocation of the administrative expenses among us and certain affiliates of FSIC II Advisor. Our board of directors then
assesses the reasonableness of such reimbursements for expenses allocated to us based on the breadth, depth and quality of such services as compared to the estimated cost to us of obtaining similar services from third-party service providers known
to be available. In addition, our board of directors considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, our board of directors, among other things,
compares the total amount paid to FSIC II Advisor for such services as a percentage of our net assets to the same ratio as reported by other comparable BDCs. We do not reimburse FSIC II Advisor for any services for which it receives a separate fee,
or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of FSIC II Advisor.

We bear all other expenses of our operations and transactions, including (without limitation) fees and expenses relating to:



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



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



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



| |  |  | investment advisory fees;
| | - |  | -------------------------



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



| |  |  | interest payments on our debt or related obligations;
| | - |  | -----------------------------------------------------



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



| |  |  | research and market data (including news and quotation equipment and services, and any computer hardware and connectivity hardware (e.g., telephone and
fiber optic lines) incorporated into the cost of obtaining such research and market data);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | fees and expenses associated with marketing efforts;
| | - |  | ----------------------------------------------------



| |  |  | federal and state registration fees;
| | - |  | ------------------------------------



| |  |  | federal, state and local taxes;
| | - |  | -------------------------------



| |  |  | fees and expenses of directors not also serving in an executive officer capacity for us or FSIC II Advisor;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | costs of proxy statements, stockholders reports, notices and other filings;
| | - |  | ----------------------------------------------------------------------------



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



63



---

##### Table of Contents

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



| |  |  | fees and expenses associated with accounting, corporate governance, independent audits and outside legal costs;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws, including
compliance with the Sarbanes-Oxley Act;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | brokerage commissions for our investments;
| | - |  | ------------------------------------------



| |  |  | costs associated with our chief compliance officer; and
| | - |  | -------------------------------------------------------



| |  |  | all other expenses incurred by FSIC II Advisor, GDFM or us in connection with administering our business, including expenses incurred by
FSIC II Advisor or GDFM in performing administrative services for us and administrative personnel paid by FSIC II Advisor or GDFM, to the extent they are not controlling persons of FSIC II Advisor, GDFM or any of their respective
affiliates, subject to the limitations included in the investment advisory and administrative services agreement.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Expense Reimbursement

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

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

Pursuant to the expense reimbursement agreement, we have a conditional obligation to reimburse Franklin Square Holdings for any amounts funded by Franklin Square Holdings under such agreement if (and only
to the extent that), during any fiscal quarter occurring within three years of the date on which Franklin Square Holdings funded such amount, the sum of our net investment company taxable income, net capital gains and the amount of any dividends and
other distributions paid to us on account of preferred and common equity investments in portfolio companies (to the extent not included in net investment company taxable income or net capital gains) exceeds the regular cash distributions paid by us
to our stockholders; provided, however, that (i) we will only reimburse Franklin Square Holdings for expense support payments made by Franklin Square Holdings with respect to any calendar quarter beginning on or after July 1, 2013 to the
extent that the payment of such reimbursement (together with any other reimbursement paid during such fiscal year) does not cause other operating expenses (as defined below) (on an annualized basis and net of any expense support payments



64



---

##### Table of Contents

received by us during such fiscal year) to exceed the lesser of (A) 1.75% of our average net assets attributable to shares of our common stock for the fiscal year-to-date period after taking
such payments into account and (B) the percentage of our average net assets attributable to shares of our common stock represented by other operating expenses during the fiscal year in which such expense support payment from
Franklin Square Holdings was made (provided, however, that this clause (B) shall not apply to any reimbursement payment which relates to an expense support payment from Franklin Square Holdings made during the same fiscal year) and (ii) we
will not reimburse Franklin Square Holdings for expense support payments made by Franklin Square Holdings if the aggregate amount of distributions per share declared by us in such calendar quarter is less than the aggregate amount of distributions
per share declared by us in the calendar quarter in which Franklin Square Holdings made the expense support payment to which such reimbursement relates. Other operating expenses means our total operating expenses (as defined
below), excluding base management fees, incentive fees, organization and offering expenses, financing fees and costs, interest expense, brokerage commissions and extraordinary expenses. Operating expenses means all operating costs and
expenses incurred, as determined in accordance with GAAP for investment companies.

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

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

During the year ended December 31, 2012, we accrued
$2,482 for reimbursements due from Franklin Square Holdings under this agreement, of which $847 was funded by Franklin Square Holdings during such period. As of December 31, 2012, we had $1,635 of reimbursements due from Franklin Square
Holdings. In connection with FSIC II Advisors voluntary agreement to waive $441 of accrued but unpaid capital gains incentive fees, a corresponding reduction was made to the amount of accrued expense reimbursements due from Franklin Square
Holdings. During the year ended December 31, 2013, this balance was offset against expense recoupment payable to sponsor. During the year ended December 31, 2013, we accrued an expense recoupment payable to sponsor of $2,041, which we
offset against the reimbursements due on our consolidated balance sheet as of December 31, 2012, and we made expense recoupment payments of $847 to Franklin Square Holdings. As of December 31, 2014 and 2013, no further amounts remained
subject to repayment by us to Franklin Square Holdings in the future.

Portfolio Investment Activity for the Years Ended December 31,
2014 and 2013

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



65



---

##### Table of Contents

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

During
the year ended December 31, 2013, we made investments in portfolio companies totaling $2,838,032. During the same period, we sold investments for proceeds of $337,169 and received principal repayments of $374,483. As of December 31, 2013,
our investment portfolio, with a total fair value of $2,655,828 (48% in first lien senior secured loans, 26% in second lien senior secured loans, 8% in senior secured bonds, 10% in subordinated debt, 7% in collateralized securities and 1% in
equity/other), consisted of interests in 179 portfolio companies. The portfolio companies that comprised our portfolio as of such date had an average annual EBITDA of approximately $242.1 million. As of December 31, 2013, the investments in our
portfolio were purchased at a weighted average price of 98.0% of par or stated value, as applicable, and our estimated gross portfolio yield (which represents the expected yield to be generated by us on our investment portfolio based on the
composition of our portfolio as of such date), prior to leverage, was 9.5% based upon the amortized cost of our investments.

Based on our regular weekly cash distribution rate of $0.0145 per share as of December 31, 2013 and our public offering price of
$10.50 per share as of such date, the annualized distribution rate to stockholders as of December 31, 2013 was 7.18%. Our estimated gross portfolio yield and our annualized distribution rate to stockholders do not represent an actual investment
return to stockholders, are subject to change and in the future may be greater or less than the rates set forth above. See Item 1A. Risk Factors for a discussion of the uncertainties, risks and assumptions associated with these
statements.

Total Portfolio Activity

The following tables present certain selected information regarding our portfolio investment activity for the years ended December 31, 2014 and 2013:



|                        |  |                    |            |   |                  |   |           |  
|----------------------- |  | ------------------ | ---------- | - | ---------------- | - | --------- | -
|                        |  | For the Year Ended |           
|Net Investment Activity |  | December 31,2014   |            |   | December 31,2013 |  
|Purchases               |  | $                  | 3,382,134  |   |                  | $ | 2,838,032 |  
|Sales and Redemptions   |  |                    | (1,625,100 | ) |                  |   | (711,652  | )
|                        |  |                    |            |   |                  |   |           |  
|Net Portfolio Activity  |  | $                  | 1,757,034  |   |                  | $ | 2,126,380 |  
|                        |  |                    |            |   |                  |   |           |  



|                                       |  |                    |           |  |                   |  |     |           |  |   |            |  |  |  |     |  
|-------------------------------------- |  | ------------------ | --------- |  | ----------------- |  | --- | --------- |  | - | ---------- |  |  |  | --- | -
|                                       |  | For the Year Ended |          
|                                       |  | December 31, 2014  |           |  | December 31, 2013 | 
|New Investment Activity by Asset Class |  | Purchases          |           |  | Percentage        |  |     | Purchases |  |   | Percentage | 
|Senior Secured LoansFirst Lien        |  | $                  | 1,937,477 |  |                   |  | 57  | %         |  | $ | 1,417,796  |  |  |  | 50  | %
|Senior Secured LoansSecond Lien       |  |                    | 769,796   |  |                   |  | 23  | %         |  |   | 773,919    |  |  |  | 27  | %
|Senior Secured Bonds                   |  |                    | 189,249   |  |                   |  | 6   | %         |  |   | 192,607    |  |  |  | 7   | %
|Subordinated Debt                      |  |                    | 353,232   |  |                   |  | 10  | %         |  |   | 273,078    |  |  |  | 9   | %
|Collateralized Securities              |  |                    | 13,226    |  |                   |  | 0   | %         |  |   | 160,445    |  |  |  | 6   | %
|Equity/Other                           |  |                    | 119,154   |  |                   |  | 4   | %         |  |   | 20,187     |  |  |  | 1   | %
|                                       |  |                    |           |  |                   |  |     |           |  |   |            |  |  |  |     |  
|Total                                  |  | $                  | 3,382,134 |  |                   |  | 100 | %         |  | $ | 2,838,032  |  |  |  | 100 | %
|                                       |  |                    |           |  |                   |  |     |           |  |   |            |  |  |  |     |  



66



---

##### Table of Contents

The following table summarizes the composition of our investment portfolio at cost and fair
value as of December 31, 2014 and 2013:



|                                 |  |                   |           |  |                   |   |           |                         |  |  |                  |   |  |            |           |  |                         |   |           |  |  |  |     |  
|-------------------------------- |  | ----------------- | --------- |  | ----------------- | - | --------- | ----------------------- |  |  | ---------------- | - |  | ---------- | --------- |  | ----------------------- | - | --------- |  |  |  | --- | -
|                                 |  | December 31, 2014 |           |  | December 31, 2013 |  
|                                 |  | AmortizedCost(1)  |           |  | Fair Value        |   |           | Percentageof 
Portfolio |  |  | AmortizedCost(1) |   |  | Fair Value |           |  | Percentageof 
Portfolio |  
|Senior Secured LoansFirst Lien  |  | $                 | 2,360,706 |  |                   | $ | 2,346,905 |                         |  |  | 53               | % |  | $          | 1,249,333 |  |                         | $ | 1,268,093 |  |  |  | 48  | %
|Senior Secured LoansSecond Lien |  |                   | 1,019,318 |  |                   |   | 1,001,313 |                         |  |  | 23               | % |  |            | 684,825   |  |                         |   | 697,240   |  |  |  | 26  | %
|Senior Secured Bonds             |  |                   | 283,454   |  |                   |   | 248,911   |                         |  |  | 6                | % |  |            | 218,575   |  |                         |   | 203,927   |  |  |  | 8   | %
|Subordinated Debt                |  |                   | 431,441   |  |                   |   | 421,683   |                         |  |  | 10               | % |  |            | 278,306   |  |                         |   | 276,640   |  |  |  | 10  | %
|Collateralized Securities        |  |                   | 172,068   |  |                   |   | 184,590   |                         |  |  | 4                | % |  |            | 172,265   |  |                         |   | 182,100   |  |  |  | 7   | %
|Equity/Other                     |  |                   | 142,819   |  |                   |   | 192,826   |                         |  |  | 4                | % |  |            | 23,665    |  |                         |   | 27,828    |  |  |  | 1   | %
|                                 |  |                   |           |  |                   |   |           |                         |  |  |                  |   |  |            |           |  |                         |   |           |  |  |  |     |  
|                                 |  | $                 | 4,409,806 |  |                   | $ | 4,396,228 |                         |  |  | 100              | % |  | $          | 2,626,969 |  |                         | $ | 2,655,828 |  |  |  | 100 | %
|                                 |  |                   |           |  |                   |   |           |                         |  |  |                  |   |  |            |           |  |                         |   |           |  |  |  |     |  



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

The following table presents certain selected information regarding the composition of our investment portfolio
as of December 31, 2014 and 2013:



|                                                                                                        |  |                   |  |                  
|------------------------------------------------------------------------------------------------------- |  | ----------------- |  | -----------------
|                                                                                                        |  | December 31, 2014 |  | December 31, 2013
|Number of Portfolio Companies                                                                           |  | 200               |  | 179              
|% Variable Rate (based on fair value)                                                                   |  | 76.8%             |  | 74.0%            
|% Fixed Rate (based on fair value)                                                                      |  | 18.8%             |  | 24.9%            
|% Income Producing Equity or Other Investments (based on fair value)                                    |  | 0.3%              |  | 0.3%             
|% Non-Income Producing Equity or Other Investments (based on fair value)                                |  | 4.1%              |  | 0.8%             
|Average Annual EBITDA of Portfolio Companies                                                            |  | $181,700          |  | $242,100         
|Weighted Average Purchase Price of Investments (as a % of par or stated value)                          |  | 97.8%             |  | 98.0%            
|% of Investments on Non-Accrual (based on fair value)                                                   |  | 0.1%              |  |                 
|Gross Portfolio Yield Prior to Leverage (based on amortized cost)                                       |  | 9.6%              |  | 9.5%             
|Gross Portfolio Yield Prior to Leverage (based on amortized cost)Excluding Non-Income Producing Assets |  | 9.9%              |  | 9.5%             



67



---

##### Table of Contents

Direct Originations

The following tables present certain selected information regarding our direct originations for the three months and year ended December 31, 2014:



|                                                   |  |                            |         |   |                    |   |           |  
|-------------------------------------------------- |  | -------------------------- | ------- | - | ------------------ | - | --------- | -
|                                                   |  | For the Three Months Ended |         |   | For the Year Ended |  
|New Direct Originations                            |  | December 31, 2014          |         |   | December 31, 2014  |  
|Total Commitments (including unfunded commitments) |  | $                          | 643,899 |   |                    | $ | 2,078,636 |  
|Exited Investments (including partial paydowns)    |  |                            | (14,257 | ) |                    |   | (278,220  | )
|                                                   |  |                            |         |   |                    |   |           |  
|Net Direct Originations                            |  | $                          | 629,642 |   |                    | $ | 1,800,416 |  
|                                                   |  |                            |         |   |                    |   |           |  



|                                                                       |  |                            |         |  |                    |  |     |                  |  |   |            |  |  |  |     |  
|---------------------------------------------------------------------- |  | -------------------------- | ------- |  | ------------------ |  | --- | ---------------- |  | - | ---------- |  |  |  | --- | -
|                                                                       |  | For the Three Months Ended |         |  | For the Year Ended | 
|                                                                       |  | December 31, 2014          |         |  | December 31, 2014  | 
|New Direct Originations by Asset Class (including
unfundedcommitments) |  | CommitmentAmount           |         |  | Percentage         |  |     | CommitmentAmount |  |   | Percentage | 
|Senior Secured LoansFirst Lien                                        |  | $                          | 455,932 |  |                    |  | 71  | %                |  | $ | 1,393,927  |  |  |  | 67  | %
|Senior Secured LoansSecond Lien                                       |  |                            |        |  |                    |  |    |                  |  |   | 315,110    |  |  |  | 15  | %
|Senior Secured Bonds                                                   |  |                            | 46,313  |  |                    |  | 7   | %                |  |   | 79,815     |  |  |  | 4   | %
|Subordinated Debt                                                      |  |                            | 100,000 |  |                    |  | 16  | %                |  |   | 204,852    |  |  |  | 10  | %
|Collateralized Securities                                              |  |                            | 13,200  |  |                    |  | 2   | %                |  |   | 13,200     |  |  |  | 1   | %
|Equity/Other                                                           |  |                            | 28,454  |  |                    |  | 4   | %                |  |   | 71,732     |  |  |  | 3   | %
|                                                                       |  |                            |         |  |                    |  |     |                  |  |   |            |  |  |  |     |  
|Total                                                                  |  | $                          | 643,899 |  |                    |  | 100 | %                |  | $ | 2,078,636  |  |  |  | 100 | %
|                                                                       |  |                            |         |  |                    |  |     |                  |  |   |            |  |  |  |     |  



|                                                                                                                                                 |  |                            |  |                   
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------- |  | ------------------
|                                                                                                                                                 |  | For the Three Months Ended |  | For the Year Ended
|                                                                                                                                                 |  | December 31, 2014          |  | December 31, 2014 
|Average New Direct Origination Commitment Amount                                                                                                 |  | $49,531                    |  | $56,179           
|Weighted Average Maturity for New Direct Originations                                                                                            |  | 10/10/21                   |  | 11/06/20          
|Gross Portfolio Yield Prior to Leverage (based on amortized cost) of New Direct Originations during Period                                       |  | 9.2%                       |  | 9.4%              
|Gross Portfolio Yield Prior to Leverage (based on amortized cost) of New Direct Originations during PeriodExcluding
Non-Income Producing Assets |  | 10.3%                      |  | 10.0%             
|Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Investments Exited during Period                                            |  | 8.9%                       |  | 9.6%              

The following table presents certain selected information regarding our direct originations as of
December 31, 2014 and 2013:



|                                                                                                                                      |  |                   |  |                  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | -----------------
|Characteristics of All Direct Originations Held in Portfolio                                                                          |  | December 31, 2014 |  | December 31, 2013
|Number of Portfolio Companies                                                                                                         |  | 44                |  | 16               
|Average Annual EBITDA of Portfolio Companies                                                                                          |  | $52,300           |  | $32,100          
|Average Leverage Through Tranche of Portfolio CompaniesExcluding Equity/Other and Collateralized Securities                          |  | 4.7x              |  | 6.3x             
|% of Investments on Non-Accrual (based on fair value)                                                                                 |  |                  |  |                 
|Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct Originations                                       |  | 9.6%              |  | 9.7%             
|Gross Portfolio Yield Prior to Leverage (based on amortized cost) of
Funded Direct OriginationsExcluding Non-Income Producing Assets |  | 10.1%             |  | 9.8%             



68



---

##### Table of Contents

Portfolio Composition by Strategy and Industry

The table below summarizes the composition of our investment portfolio by strategy and enumerates the percentage, by fair value, of the
total portfolio assets in such strategies as of December 31, 2014 and 2013:



|                                  |  |                   |           |  |                         |  |      |            |  |   |                         |  |  |  |      | 
|--------------------------------- |  | ----------------- | --------- |  | ----------------------- |  | ---- | ---------- |  | - | ----------------------- |  |  |  | ---- | 
|                                  |  | December 31, 2014 |           |  | December 31, 2013       | 
|Portfolio Composition by Strategy |  | Fair Value        |           |  | Percentage 
ofPortfolio |  |      | Fair Value |  |   | Percentage 
ofPortfolio | 
|Direct Originations               |  | $                 | 2,722,339 |  |                         |  | 62%  |            |  | $ | 961,269                 |  |  |  | 36%  | 
|Opportunistic                     |  |                   | 903,455   |  |                         |  | 21%  |            |  |   | 765,748                 |  |  |  | 29%  | 
|Broadly Syndicated/Other          |  |                   | 770,434   |  |                         |  | 17%  |            |  |   | 928,811                 |  |  |  | 35%  | 
|                                  |  |                   |           |  |                         |  |      |            |  |   |                         |  |  |  |      | 
|Total                             |  | $                 | 4,396,228 |  |                         |  | 100% |            |  | $ | 2,655,828               |  |  |  | 100% | 
|                                  |  |                   |           |  |                         |  |      |            |  |   |                         |  |  |  |      | 

The table below describes investments by industry classification and enumerates the percentage, by fair
value, of the total portfolio assets in such industries as of December 31, 2014 and 2013:



|                                               |  |                   |           |  |                         |  |      |            |  |   |                         |  |  |  |      | 
|---------------------------------------------- |  | ----------------- | --------- |  | ----------------------- |  | ---- | ---------- |  | - | ----------------------- |  |  |  | ---- | 
|                                               |  | December 31, 2014 |           |  | December 31, 2013       | 
|Industry Classification                        |  | Fair Value        |           |  | Percentageof 
Portfolio |  |      | Fair Value |  |   | Percentageof 
Portfolio | 
|Automobiles & Components                       |  | $                 | 177,900   |  |                         |  | 4%   |            |  | $ | 53,195                  |  |  |  | 2%   | 
|Capital Goods                                  |  |                   | 383,827   |  |                         |  | 9%   |            |  |   | 199,070                 |  |  |  | 8%   | 
|Commercial & Professional Services             |  |                   | 274,316   |  |                         |  | 6%   |            |  |   | 44,881                  |  |  |  | 2%   | 
|Consumer Durables & Apparel                    |  |                   | 266,710   |  |                         |  | 6%   |            |  |   | 144,211                 |  |  |  | 5%   | 
|Consumer Services                              |  |                   | 733,804   |  |                         |  | 17%  |            |  |   | 401,187                 |  |  |  | 15%  | 
|Diversified Financials                         |  |                   | 288,250   |  |                         |  | 7%   |            |  |   | 200,485                 |  |  |  | 8%   | 
|Energy                                         |  |                   | 601,604   |  |                         |  | 14%  |            |  |   | 417,589                 |  |  |  | 16%  | 
|Food & Staples Retailing                       |  |                   | 12,585    |  |                         |  | 0%   |            |  |   | 1,181                   |  |  |  | 0%   | 
|Food, Beverage & Tobacco                       |  |                   | 9,365     |  |                         |  | 0%   |            |  |   | 10,245                  |  |  |  | 0%   | 
|Health Care Equipment & Services               |  |                   | 80,589    |  |                         |  | 2%   |            |  |   | 133,025                 |  |  |  | 5%   | 
|Household & Personal Products                  |  |                   | 3,126     |  |                         |  | 0%   |            |  |   | 5,000                   |  |  |  | 0%   | 
|Insurance                                      |  |                   | 98,174    |  |                         |  | 2%   |            |  |   | 86,466                  |  |  |  | 3%   | 
|Materials                                      |  |                   | 269,531   |  |                         |  | 6%   |            |  |   | 138,777                 |  |  |  | 5%   | 
|Media                                          |  |                   | 131,353   |  |                         |  | 3%   |            |  |   | 101,071                 |  |  |  | 4%   | 
|Pharmaceuticals, Biotechnology & Life Sciences |  |                   | 62,970    |  |                         |  | 1%   |            |  |   | 78,001                  |  |  |  | 3%   | 
|Real Estate                                    |  |                   |          |  |                         |  |     |            |  |   | 8,171                   |  |  |  | 0%   | 
|Retailing                                      |  |                   | 112,094   |  |                         |  | 3%   |            |  |   | 194,817                 |  |  |  | 7%   | 
|Software & Services                            |  |                   | 328,443   |  |                         |  | 8%   |            |  |   | 181,024                 |  |  |  | 7%   | 
|Technology Hardware & Equipment                |  |                   | 230,554   |  |                         |  | 5%   |            |  |   | 104,293                 |  |  |  | 4%   | 
|Telecommunication Services                     |  |                   | 229,690   |  |                         |  | 5%   |            |  |   | 129,704                 |  |  |  | 5%   | 
|Transportation                                 |  |                   | 101,343   |  |                         |  | 2%   |            |  |   | 21,964                  |  |  |  | 1%   | 
|Utilities                                      |  |                   |          |  |                         |  |     |            |  |   | 1,471                   |  |  |  | 0%   | 
|                                               |  |                   |           |  |                         |  |      |            |  |   |                         |  |  |  |      | 
|Total                                          |  | $                 | 4,396,228 |  |                         |  | 100% |            |  | $ | 2,655,828               |  |  |  | 100% | 
|                                               |  |                   |           |  |                         |  |      |            |  |   |                         |  |  |  |      | 

As of December 31, 2014, we did not control and were not an affiliated
person of any of our portfolio companies, each as defined in the 1940 Act. In general, under the 1940 Act, we would be presumed to control a portfolio company if we owned 25% or more of its voting securities or we had the power to
exercise control over the management or policies of such portfolio company, and would be an affiliated person of a portfolio company if we owned 5% or more of its voting securities.

Our investment portfolio may contain loans that are in the form of lines of credit, revolving credit facilities, delayed draw credit
facilities or other investments, which require us to provide funding when requested by portfolio companies in accordance with the terms of the underlying agreements. As of December 31, 2014, we



69



---

##### Table of Contents

had eight senior secured loan investments with aggregate unfunded commitments of $145,739 and one senior secured bond investment with an unfunded commitment of $16,977. As of December 31,
2013, we had five senior secured loan investments with aggregate unfunded commitments of $66,687 and one equity/other investment with an unfunded commitment of $6,157. We maintain sufficient cash on hand and available borrowings to fund such
unfunded commitments should the need arise.

Portfolio Asset Quality

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



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

The following table shows the distribution of our investments on the 1 to 5 investment rating scale at
fair value as of December 31, 2014 and 2013:



|                  |  |                   |           |  |                         |  |     |            |  |   |                         |  |  |  |     |  
|----------------- |  | ----------------- | --------- |  | ----------------------- |  | --- | ---------- |  | - | ----------------------- |  |  |  | --- | -
|                  |  | December 31, 2014 |           |  | December 31, 2013       | 
|Investment Rating |  | Fair Value        |           |  | Percentage 
ofPortfolio |  |     | Fair Value |  |   | Percentage 
ofPortfolio | 
|1                 |  | $                 | 284,924   |  |                         |  | 7   | %          |  | $ | 86,131                  |  |  |  | 3   | %
|2                 |  |                   | 3,608,887 |  |                         |  | 82  | %          |  |   | 2,286,820               |  |  |  | 86  | %
|3                 |  |                   | 485,443   |  |                         |  | 11  | %          |  |   | 269,660                 |  |  |  | 10  | %
|4                 |  |                   | 10,528    |  |                         |  | 0   | %          |  |   | 13,217                  |  |  |  | 1   | %
|5                 |  |                   | 6,446     |  |                         |  | 0   | %          |  |   |                        |  |  |  |    |  
|                  |  |                   |           |  |                         |  |     |            |  |   |                         |  |  |  |     |  
|Total             |  | $                 | 4,396,228 |  |                         |  | 100 | %          |  | $ | 2,655,828               |  |  |  | 100 | %
|                  |  |                   |           |  |                         |  |     |            |  |   |                         |  |  |  |     |  

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

Results of Operations

Comparison of the Years Ended December 31, 2014 and 2013

Revenues

We generated investment income of $398,783 and $167,693 for the years ended December 31, 2014 and 2013, respectively, in the form of
interest and fees earned on senior secured loans (first and second lien), senior secured bonds, subordinated debt and collateralized securities in our portfolio and dividends and other distributions earned on equity/other investments in our
portfolio. Such revenues represent $375,911 and $153,053 of cash income earned as well as $22,872 and $14,640 in non-cash portions relating to accretion of



70



---

##### Table of Contents

discount and PIK interest for the years ended December 31, 2014 and 2013, respectively. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years
after such revenues are recognized. The increase in investment income is due primarily to the growth of our portfolio over the last year and the increase in the number of directly originated loans. The level of investment income we receive is
directly related to the balance of income-producing investments multiplied by the weighted average yield of our investments. We expect the dollar amount of interest and any dividend income that we earn to increase as the proportion of directly
originated investments in our portfolio continues to increase.

During the years ended December 31, 2014 and 2013, we
generated $60,540 and $21,550, respectively, of fee income, which represented 15.2% and 12.9% of total investment income. Such fee income is transaction based, and typically consists of amendment and consent fees, prepayment fees, structuring fees
and other non-recurring fees. As such, future fee income is generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees.

Expenses

Our total
operating expenses, together with excise taxes, were $156,107 and $74,978 for the years ended December 31, 2014 and 2013, respectively. Our operating expenses include base management fees attributed to FSIC II Advisor of $82,325 and $38,677 for
the years ended December 31, 2014 and 2013, respectively. Our operating expenses also include administrative services expenses attributed to FSIC II Advisor of $4,607 and $2,732 for the years ended December 31, 2014 and 2013, respectively.

FSIC II Advisor is eligible to receive incentive fees based on performance. During the year ended December 31, 2014, we
accrued a subordinated incentive fee on income of $33,251 and paid FSIC II Advisor $17,917 in respect of such fee. As of December 31, 2014, a subordinated incentive fee on income of $15,334 was payable to FSIC II Advisor. During the year ended
December 31, 2013, we accrued a subordinated incentive fee on income of $8,871, all of which was paid to FSIC II Advisor during such period. During the year ended December 31, 2014, we reversed $9,234 capital gains incentive fees
previously accrued based on the performance of the portfolio, which was primarily driven by increased volatility and a widening of credit spreads. During the year ended December 31, 2013, we accrued capital gains incentive fees of $6,164 based
on the performance of our portfolio, all of which was based on unrealized gains. No capital gains incentive fees are actually payable by us with respect to unrealized gains unless and until those gains are actually realized. See Critical
Accounting PoliciesCapital Gains Incentive Fee for additional information about how the incentive fees are calculated.

We recorded interest expense of $33,496 and $12,286 for the years ended December 31, 2014 and 2013, respectively, in connection with our financing arrangements. For the years ended December 31,
2014 and 2013, fees and expenses incurred with our fund administrator, which provides various accounting and administrative services to us, totaled $1,798 and $642, respectively, and fees and expenses incurred with our stock transfer agent totaled
$2,749 and $2,357, respectively. Fees for our board of directors were $939 and $656 for the years ended December 31, 2014 and 2013, respectively.

Our other general and administrative expenses totaled $4,949 and $2,593 for the years ended December 31, 2014 and 2013, respectively, and consisted of the following:



|                                                                |  |                             |       |  |                             |   |       | 
|--------------------------------------------------------------- |  | --------------------------- | ----- |  | --------------------------- | - | ----- | 
|                                                                |  | Year EndedDecember 31, 2014 |       |  | Year EndedDecember 31, 2013 |  
|Expenses associated with our independent audit and related fees |  | $                           | 572   |  |                             | $ | 324   | 
|Compensation of our chief compliance officer                    |  |                             | 141   |  |                             |   | 72    | 
|Legal fees                                                      |  |                             | 757   |  |                             |   | 700   | 
|Printing fees                                                   |  |                             | 1,470 |  |                             |   | 585   | 
|Other                                                           |  |                             | 2,009 |  |                             |   | 912   | 
|                                                                |  |                             |       |  |                             |   |       | 
|Total                                                           |  | $                           | 4,949 |  |                             | $ | 2,593 | 
|                                                                |  |                             |       |  |                             |   |       | 



71



---

##### Table of Contents

During the years ended December 31, 2014 and 2013, we accrued $1,227 and $0,
respectively, for excise taxes.

During the years ended December 31, 2014 and 2013, the ratio of our operating expenses,
together with excise taxes, to our average net assets was 5.43% and 5.46%, respectively. During the year ended December 31, 2013, the ratio of our total operating expenses to our average net assets, which included $2,041 of expense recoupments
paid to Franklin Square Holdings, was 5.61%. During the years ended December 31, 2014 and 2013, the ratio of our operating expenses to average net assets included $33,496 and $12,286, respectively, related to interest expense, $24,017 and
$15,035, respectively, related to accruals and reversals of accruals of incentive fees and $1,227 and $0, respectively for excise taxes. Without such expenses, our ratio of operating expenses to average net assets would have been 3.38% and 3.62% for
the years ended December 31, 2014 and 2013, respectively. Incentive fees and interest expense, among other things, may increase or decrease our expense ratios relative to comparative periods depending on portfolio performance, and changes in
benchmark interest rates such as LIBOR among other factors.

Expense Reimbursement

During the years ended December 31, 2014 and 2013, no amounts were reimbursed to us by Franklin Square Holdings under the expense
reimbursement agreement and as of December 31, 2014 and 2013, we had no reimbursements due from Franklin Square Holdings under the expense reimbursement agreement. During the year ended December 31, 2013, we accrued an expense recoupment
payable to sponsor of $2,041, which we offset against the reimbursements due on our consolidated balance sheet as of December 31, 2012, and we made expense recoupment payments of $847 to Franklin Square Holdings. As of December 31, 2014
and 2013, no further amounts remained subject to repayment by us to Franklin Square Holdings in the future.

Net Investment Income

Our net investment income totaled $242,676 ($0.80 per share) and $90,674 ($0.62 per share) for the years ended
December 31, 2014 and 2013, respectively. The increase in net investment income was primarily due to the growth of our portfolio, as well as the increase in the number of directly originated transactions and better economies of scale during the
year ended December 31, 2014.

Net Realized Gains or Losses

We sold investments and received principal repayments of $951,935 and $673,165, respectively, during the year ended December 31,
2014, from which we realized a net gain of $2,931. During the year ended December 31, 2014, we realized a net gain of $7,535 on our credit default swaps. During the year ended December 31, 2014, we realized a net loss of $304 from
settlements on foreign currency. We sold investments and received principal repayments of $337,169 and $374,483, respectively, during the year ended December 31, 2013, from which we realized net gains of $5,343. During the year ended
December 31, 2013, we earned $19,689 from periodic net settlement payments on our TRS and the termination of our TRS, which are reflected as realized gains, and we realized a net loss of $144 from settlements on foreign currency.

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

For the year ended December 31, 2014, the net change in unrealized appreciation (depreciation) on
investments totaled $(42,437), the net change in unrealized gain (loss) on foreign currency was $(7), and the net change in unrealized appreciation (depreciation) on our credit default swaps was $(19,426). For the year ended December 31, 2013,
the net change in unrealized appreciation (depreciation) on investments totaled $20,823, the net change in unrealized appreciation (depreciation) on our TRS was $(5,641), and the net change in unrealized gain (loss) on foreign currency was $130. The
net change in unrealized appreciation (depreciation) on our



72



---

##### Table of Contents

investments during the year ended December 31, 2014 was primarily driven by increased volatility and a general widening of credit spreads on our loan and other debt investments during the
fourth quarter, partially offset by increased valuations of certain of our equity/other positions. During the year ended December 31, 2013, we had no credit default swaps in our portfolio and we terminated the TRS on June 13, 2013.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the years ended December 31, 2014 and 2013, the net increase in net assets resulting from operations was $190,968 ($0.63 per
share) and $130,874 ($0.89 per share), respectively.

Comparison of the Year Ended December 31, 2013 and the Period from June 18,
2012 (Commencement of Operations) through December 31, 2012

Revenues

We generated investment income of $167,693 and $9,484 for the year ended December 31, 2013 and the period from June 18, 2012
through December 31, 2012, respectively, in the form of interest and fees earned on senior secured loans (first and second lien), senior secured bonds, subordinated debt and collateralized securities in our portfolio and dividends and other
distributions earned on equity/other investments in our portfolio. Such revenues represent $153,053 and $8,758 of cash income earned as well as $14,640 and $726 in non-cash portions relating to accretion of discount and PIK interest for the year
ended December 31, 2013 and the period from June 18, 2012 through December 31, 2012, respectively. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years after such revenues are
recognized. The increase in investment income was due primarily to the growth of our portfolio over the previous year.

Expenses

Our total operating expenses were $74,978 and $8,952 for the year ended December 31, 2013 and the period from
June 18, 2012 through December 31, 2012, respectively. Our operating expenses include base management fees attributed to FSIC II Advisor of $38,677 and $3,315 for the year ended December 31, 2013 and the period from June 18, 2012
through December 31, 2012, respectively. Our expenses also include administrative services expenses attributed to FSIC II Advisor of $2,732 and $396 for the year ended December 31, 2013 and the period from June 18, 2012 through
December 31, 2012, respectively.

FSIC II Advisor is eligible to receive incentive fees based on performance. During the
year ended December 31, 2013, we accrued a subordinated incentive fee on income of $8,871 based on the performance of our portfolio, all of which was paid to FSIC II Advisor during such period. We did not accrue any subordinated incentive fee
on income during the period from June 18, 2012 through December 31, 2012. During the year ended December 31, 2013 and the period from June 18, 2012 through December 31, 2012, we accrued capital gains incentive fees of $6,164
and $3,548, respectively, based on the performance of our portfolio, of which $6,164 and $3,070, respectively, was based on unrealized gains and $0 and $478, respectively, was based on realized gains. No capital gains incentive fees are actually
payable by us with respect to unrealized gains unless and until those gains are actually realized. See Critical Accounting PoliciesCapital Gains Incentive Fee.

We recorded interest expense of $12,286 and $291 for the year ended December 31, 2013 and the period from June 18, 2012 through
December 31, 2012, respectively, in connection with the JPM facility, the Cooper River facility and our TRS. For the year ended December 31, 2013 and the period from June 18, 2012 through December 31, 2012, respectively, fees and
expenses incurred with our fund administrator, which provides various accounting and administrative services to us, totaled $642 and $85, respectively, and fees and expenses incurred with our stock transfer agent totaled $2,357 and $540,
respectively. Fees for our board of directors were $656 and $199 for the year ended December 31, 2013 and the period from June 18, 2012 through December 31, 2012, respectively.



73



---

##### Table of Contents

Our other general and administrative expenses totaled $2,593 and $578 for the year ended
December 31, 2013 and the period from June 18, 2012 through December 31, 2012, respectively, and consisted of the following:



|                                                                |  |                             |       |  |                                                                               |   |     | 
|--------------------------------------------------------------- |  | --------------------------- | ----- |  | ----------------------------------------------------------------------------- | - | --- | 
|                                                                |  | Year EndedDecember 31, 2013 |       |  | Period from June 18,2012 (Commencement ofOperations)
throughDecember 31, 2012 |  
|Expenses associated with our independent audit and related fees |  | $                           | 324   |  |                                                                               | $ | 199 | 
|Compensation of our chief compliance officer                    |  |                             | 72    |  |                                                                               |   | 46  | 
|Legal fees                                                      |  |                             | 700   |  |                                                                               |   | 147 | 
|Printing fees                                                   |  |                             | 585   |  |                                                                               |   | 124 | 
|Other                                                           |  |                             | 912   |  |                                                                               |   | 62  | 
|                                                                |  |                             |       |  |                                                                               |   |     | 
|Total                                                           |  | $                           | 2,593 |  |                                                                               | $ | 578 | 
|                                                                |  |                             |       |  |                                                                               |   |     | 

During the year ended December 31, 2013 and the period from June 18, 2012 through
December 31, 2012, the ratio of our total operating expenses to our average net assets was 5.46% and 4.11%, respectively. During the year ended December 31, 2013, the ratio of our net operating expenses to our average net assets, which
includes $2,041 of expense recoupments paid to Franklin Square Holdings was 5.61%. During the period from June 18, 2012 through December 31, 2012, the ratio of our net operating expenses to our average net assets, which includes $2,482 of
expense reimbursements from Franklin Square Holdings, was 2.97%. During the year ended December 31, 2013 and the period from June 18, 2012 through December 31, 2012, the ratio of our net operating expenses to average net assets
included $12,286 and $291, respectively, related to interest expense and $15,035 and $3,548, respectively, related to accruals for incentive fees. Without such expenses, our ratio of net operating expenses to average net assets would have been 3.62%
and 1.21% for the year ended December 31, 2013 and the period from June 18, 2012 through December 31, 2012, respectively. Incentive fees and interest expense, among other things, may increase or decrease our expense ratios relative to
comparative periods depending on portfolio performance, and changes in benchmark interest rates such as LIBOR among other factors.

Expense
Reimbursement

During the year ended December 31, 2012, we accrued $2,482 for reimbursements due from Franklin Square
Holdings under the expense reimbursement agreement, of which $847 was funded by Franklin Square Holdings during such period. As of December 31, 2012, we had $1,635 of reimbursements due from Franklin Square Holdings. In connection with FSIC II
Advisors voluntary agreement to waive $441 of accrued but unpaid capital gains incentive fees, a corresponding reduction was made to the amount of accrued expense reimbursements due from Franklin Square Holdings. During the year ended
December 31, 2013, this balance was offset against expense recoupment payable to sponsor. During the year ended December 31, 2013, we accrued an expense recoupment payable to sponsor of $2,041, which we offset against the reimbursements
due on our consolidated balance sheet as of December 31, 2012, and we made expense recoupment payments of $847 to Franklin Square Holdings. As of December 31, 2013, no further amounts remained subject to repayment by us to Franklin Square
Holdings in the future.

Net Investment Income

Our net investment income totaled $90,674 ($0.62 per share) and $3,014 ($0.13 per share) for the year ended December 31, 2013 and the period from June 18, 2012 through December 31, 2012,
respectively. The increase in net investment income on a per share basis was attributable to, among other things, the increase in the number of directly originated transactions and better economies of scale during the year ended December 31,
2013.



74



---

##### Table of Contents

Net Realized Gains or Losses

We sold investments and received principal repayments of $337,169 and $374,483, respectively, during the year ended December 31, 2013, from which we realized a net gain of $5,343. During the year
ended December 31, 2013, we earned $19,689 from periodic net settlement payments on our TRS and the termination of our TRS, which are reflected as realized gains, and we realized a net loss of $144 from settlements on foreign currency. We sold
investments and received principal repayments of $182,908 and $21,340, respectively, during the period from June 18, 2012 through December 31, 2012, from which we realized net gains of $2,625. During the period from June 18, 2012
through December 31, 2012, we earned $1,566 from periodic net settlement payments on our TRS, which are reflected as realized gains, and realized a net loss of $142 from settlements on foreign currency.

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

For the year ended December 31, 2013, the net change in unrealized appreciation (depreciation) on investments totaled
$20,823, the net change in unrealized appreciation (depreciation) on our TRS was $(5,641) and the net change in unrealized gain (loss) on foreign currency was $130. For the period from June 18, 2012 through December 31, 2012, the net
change in unrealized appreciation (depreciation) on investments totaled $8,036, the net change in unrealized appreciation (depreciation) on our TRS was $5,641, and the net change in unrealized gain (loss) on foreign currency was $(130). The net
change in unrealized appreciation (depreciation) on our investments during the year ended December 31, 2013 was primarily driven by a general tightening of credit spreads and by the performance of our directly originated and opportunistic
investments. The net change in unrealized appreciation (depreciation) on our TRS during the year ended December 31, 2013 was primarily driven by the termination of our TRS on June 13, 2013, which converted unrealized appreciation into
realized gains. The net change in unrealized appreciation (depreciation) on our investments and TRS during the period from June 18, 2012 through December 31, 2012 was primarily driven by tightening of credit spreads as demand for senior
loans and subordinated debt increased during the period.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the year ended December 31, 2013 and the period from June 18, 2012 through December 31, 2012, the net increase in net
assets resulting from operations was $130,874 ($0.89 per share) and $20,610 ($0.86 per share), respectively.

Financial Condition,
Liquidity and Capital Resources

Overview

As of December 31, 2014, we had $224,583 in cash, which we held in a custodial account, and $558,806 in borrowings available under our financing arrangements.

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

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



75



---

##### Table of Contents

As of December 31, 2014, we had eight senior secured loan investments with aggregate
unfunded commitments of $145,739 and one senior secured bond with an unfunded commitment of $16,977. We maintain sufficient cash on hand and available borrowings to fund such unfunded commitments should the need arise.

Continuous Public Offering, Private Placement and Distribution Reinvestment Plan

In March 2014, we closed our continuous public offering of shares of common stock to new investors. We sold 302,266,066 shares of common
stock for gross proceeds of $3,112,692 in our continuous public offering. As of March 3, 2015, we had issued a total of 317,288,869 shares of common stock and raised total gross proceeds of $3,255,043, including $200 of seed capital
contributed by the principals of FSIC II Advisor in December 2011 and $18,395 in proceeds raised from the principals of FSIC II Advisor, other individuals and entities affiliated with FSIC II Advisor, certain members of our board of
directors and certain individuals and entities affiliated with GDFM in a private placement completed in June 2012.

Following
the closing of our continuous public offering, we have continued to issue shares pursuant to our distribution reinvestment plan. The gross proceeds received from the issuance of our common stock during the years ended December 31, 2014, 2013
and 2012 include reinvested stockholder distributions of $129,347, $52,057 and $3,608, respectively, for which we issued 13,520,133, 5,523,072 and 377,027 shares of common stock, respectively. During the period from January 1, 2015 to
March 3, 2015, we issued 2,232,042 shares of common stock pursuant to our distribution reinvestment plan at an average price per share of $9.45 for gross proceeds of $21,093.

Share Repurchase Program

To provide our stockholders with limited
liquidity, we intend to continue to conduct quarterly tender offers pursuant to our share repurchase program. The first such tender offer commenced in August 2012, and the repurchase occurred in connection with our October 1, 2012 semi-monthly
closing.

The following table provides information concerning our repurchases of shares of common stock pursuant to our share
repurchase program during the years ended December 31, 2014, 2013 and 2012:



|                           |  |                 |  |                   |         |  |                                                    |  |     |                           |  |   |                                              |  |  |   |       | 
|-------------------------- |  | --------------- |  | ----------------- | ------- |  | -------------------------------------------------- |  | --- | ------------------------- |  | - | -------------------------------------------- |  |  | - | ----- | 
|For the Three Months Ended |  | Repurchase Date |  | SharesRepurchased |         |  | Percentageof Shares Tendered That Were Repurchased |  |     | RepurchasePrice Per Share |  |   | AggregateConsiderationfor Repurchased Shares | 
|Fiscal 2012                |  |                 |  |                   |         |  |                                                    |  |     |                           |  |   |                                              |  |  |   |       | 
|September 30, 2012         |  | October 1, 2012 |  |                   | 24,877  |  |                                                    |  | 100 | %                         |  | $ | 9.045                                        |  |  | $ | 225   | 
|Fiscal 2013                |  |                 |  |                   |         |  |                                                    |  |     |                           |  |   |                                              |  |  |   |       | 
|December 31, 2012(1)       |  | January 2, 2013 |  |                   |        |  |                                                    |  |    |                           |  | $ | 9.225                                        |  |  |   |      | 
|March 31, 2013             |  | April 1, 2013   |  |                   | 76,086  |  |                                                    |  | 100 | %                         |  | $ | 9.360                                        |  |  | $ | 712   | 
|June 30, 2013              |  | July 1, 2013    |  |                   | 45,414  |  |                                                    |  | 100 | %                         |  | $ | 9.450                                        |  |  | $ | 429   | 
|September 30, 2013         |  | October 2, 2013 |  |                   | 138,169 |  |                                                    |  | 100 | %                         |  | $ | 9.450                                        |  |  | $ | 1,306 | 
|Fiscal 2014                |  |                 |  |                   |         |  |                                                    |  |     |                           |  |   |                                              |  |  |   |       | 
|December 31, 2013          |  | January 2, 2014 |  |                   | 135,094 |  |                                                    |  | 100 | %                         |  | $ | 9.450                                        |  |  | $ | 1,277 | 
|March 31, 2014             |  | April 1, 2014   |  |                   | 372,394 |  |                                                    |  | 100 | %                         |  | $ | 9.540                                        |  |  | $ | 3,553 | 
|June 30, 2014              |  | July 1, 2014    |  |                   | 642,524 |  |                                                    |  | 100 | %                         |  | $ | 9.640                                        |  |  | $ | 6,194 | 
|September 30, 2014         |  | October 1, 2014 |  |                   | 585,142 |  |                                                    |  | 100 | %                         |  | $ | 9.640                                        |  |  | $ | 5,641 | 



|(1) | No shares were tendered for repurchase in connection with the quarterly tender offer.
|--- | -------------------------------------------------------------------------------------

On January 2, 2015, we repurchased 578,569 shares of common stock (representing 100% of the shares of the common stock tendered
for repurchase) at $9.50 per share for aggregate consideration totaling $5,496.



76



---

##### Table of Contents

For details regarding our share repurchase program, see Item 5. Market for
Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesShare Repurchase Program.

Financing Arrangements

Below is a
summary of our outstanding financing arrangements as of December 31, 2014:



|                                  |  |                  |  |                    |  |                   |         |  |                 |   |         |               |  |                  
|--------------------------------- |  | ---------------- |  | ------------------ |  | ----------------- | ------- |  | --------------- | - | ------- | ------------- |  | -----------------
|Facility                          |  | Type of Facility |  | Rate               |  | AmountOutstanding |         |  | AmountAvailable |   |         | Maturity
Date
|JPM Facility                      |  | Repurchase       |  | 3.25%              |  | $                 | 550,000 |  |                 | $ |        |               |  | May 20, 2017     
|Goldman Facility                  |  | Repurchase       |  | L+2.50%            |  | $                 | 75,400  |  |                 | $ | 324,600 |               |  | December 15, 2018
|Cooper River Credit Facility      |  | Revolving        |  | L+1.75%            |  | $                 | 170,494 |  |                 | $ | 29,506  |               |  | March 27, 2016   
|Wissahickon Creek Credit Facility |  | Revolving        |  | L+1.50% to L+2.50% |  | $                 | 185,000 |  |                 | $ | 65,000  |               |  | February 19, 2019
|Darby Creek Credit Facility       |  | Revolving        |  | L+2.75%            |  | $                 | 249,500 |  |                 | $ | 500     |               |  | February 20, 2018
|Dunning Creek Credit Facility     |  | Revolving        |  | L+1.55%            |  | $                 | 230,800 |  |                 | $ | 19,200  |               |  | May 14, 2015     
|Juniata River Credit Facility     |  | Revolving        |  | L+2.50%            |  | $                 | 180,000 |  |                 | $ | 120,000 |               |  | November 14, 2019

Our average borrowings and weighted average interest rate, including the effect of non-usage fees, for
the year ended December 31, 2014 were $1,039,452 and 2.98%, respectively. As of December 31, 2014, our weighted average effective interest rate on borrowings, including the effect of non-usage fees, was 2.77%.

JPM Facility

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

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

Pursuant to the Amended and Restated Indenture, Lehigh River has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary
requirements for similar transactions. In addition, the Amended and Restated Indenture contains events of default customary for similar financing arrangements, including: (a) the failure to make principal payments on the Class A Notes at
their stated maturity or redemption date or to make interest payments on the Class A Notes within five business days of when due; (b) the failure of the aggregate outstanding principal balance (subject to certain reductions) of the assets
securing the Class A Notes to be at least 147.07% of the outstanding principal amount of the Class A Notes; and (c) GDFM ceasing to be the investment sub-adviser to FSIC II Advisor.



77



---

##### Table of Contents

Cobbs Creek, in turn, has entered into an amended repurchase transaction with JPM pursuant
to the terms of an amended and restated global master repurchase agreement and related annex and amended and restated confirmation thereto, each dated as of April 23, 2013, or, collectively, the JPM facility. Pursuant to the JPM facility, JPM
has agreed to purchase from time to time Class A Notes held by Cobbs Creek for an aggregate purchase price equal to approximately 83.33% of the principal amount of Class A Notes purchased. Subject to certain conditions, the maximum
principal amount of Class A Notes that may be purchased under the JPM facility is $660,000. Accordingly, the maximum amount payable at any time to Cobbs Creek under the JPM facility is $550,000. Under the JPM facility, Cobbs Creek will, on a
quarterly basis, repurchase the Class A Notes sold to JPM under the JPM facility and subsequently resell such Class A Notes to JPM. The final repurchase transaction must occur no later than May 20, 2017. The repurchase price paid by
Cobbs Creek to JPM for each repurchase of Class A Notes will be equal to the purchase price paid by JPM for such Class A Notes, plus interest thereon accrued at a fixed rate of 3.25% per annum. Commencing May 20, 2015, Cobbs
Creek will be permitted to reduce (based on certain thresholds) the aggregate principal amount of Class A Notes subject to the JPM facility. Such reductions, and any other reductions of the principal amount of Class A Notes, including upon
an event of default, will be subject to breakage fees in an amount equal to the present value of 1.25% per annum over the remaining term of the JPM facility applied to the amount of such reduction.

If at any time during the term of the JPM facility the market value of the assets held by Lehigh River securing the Class A Notes
declines by an amount greater than 27% of their initial aggregate purchase price, or the Margin Threshold, Cobbs Creek will be required to post cash collateral with JPM in an amount at least equal to the amount by which the market value of such
assets at such time is less than the Margin Threshold. In such event, in order to satisfy any such margin-posting requirements, Cobbs Creek intends to borrow funds from us pursuant to a revolving credit agreement dated as of October 26, 2012
and as amended as of February 6, 2013 and April 23, 2013 between Cobbs Creek as borrower and us, as lender, or the Revolving Credit Agreement. We may, in our sole discretion, make such loans from time to time to Cobbs Creek pursuant to the
terms of the Revolving Credit Agreement. Borrowings under the Revolving Credit Agreement will accrue interest at a rate equal to one-month LIBOR plus a spread of 0.75% per annum.

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

Under the JPM facility, Cobbs Creek has made certain representations and warranties and is required to comply with various
covenants, reporting requirements and other customary requirements for similar transactions. The JPM facility contains events of default customary for similar transactions, including: (a) the failure to pay the repurchase price upon the
applicable payment dates; (b) the failure to post required cash collateral with JPM as discussed above; and (c) the occurrence of an event of default under the Amended and Restated Indenture.

In connection with the Class A Notes and the Amended and Restated Indenture, Lehigh River also entered into (i) a collateral
management agreement with us, as collateral manager, dated as of October 26, 2012 and amended on February 6, 2013, or the Lehigh Management Agreement, pursuant to which we will manage the assets of Lehigh River; and (ii) a collateral
administration agreement with Virtus Group, LP, or Virtus, as collateral administrator, and us, as collateral manager, dated as of October 26, 2012 and amended as of February 6, 2013, or the Lehigh Administration Agreement, pursuant to
which Virtus will perform certain administrative services with respect to the assets of Lehigh River. In connection with the JPM facility, Cobbs Creek also entered into a collateral management agreement with us, as collateral manager, dated as of
October 26, 2012, or the Cobbs Management Agreement, pursuant to which we will manage the assets of Cobbs Creek.

As of
December 31, 2014, Class A Notes in the aggregate principal amount of $660,000 had been purchased by Cobbs Creek from Lehigh River and subsequently sold to JPM under the JPM facility for aggregate proceeds of $550,000. The carrying amount
outstanding under the JPM facility approximates its fair value. We funded



78



---

##### Table of Contents

each purchase of Class A Notes by Cobbs Creek through a capital contribution to Cobbs Creek. As of December 31, 2014, Cobbs Creeks liability under the JPM facility was $550,000,
plus $2,085 of accrued interest expense. The Class A Notes issued by Lehigh River and purchased by Cobbs Creek eliminate in consolidation on our financial statements.

As of December 31, 2014, the fair value of assets held by Lehigh River was $1,189,438 which included assets purchased by Lehigh River with proceeds from the issuance of Class A Notes. As of
December 31, 2014, the fair value of assets held by Cobbs Creek was $392,225.

We incurred costs of $159 in connection
with obtaining and amending the JPM facility, which we have recorded as deferred financing costs on our consolidated balance sheets and amortize to interest expense over the life of the JPM facility. As of December 31, 2014, $74 of such
deferred financing costs had yet to be amortized to interest expense.

For the years ended December 31, 2014 and 2013,
the components of total interest expense for the JPM facility were as follows:



|                                         |  |                        |        |  |      |   |       | 
|---------------------------------------- |  | ---------------------- | ------ |  | ---- | - | ----- | 
|                                         |  | Year EndedDecember 31, |       
|                                         |  | 2014                   |        |  | 2013 |  
|Direct interest expense                  |  | $                      | 18,123 |  |      | $ | 9,874 | 
|Non-usage fees                           |  |                        |       |  |      |   |      | 
|Amortization of deferred financing costs |  |                        | 39     |  |      |   | 39    | 
|                                         |  |                        |        |  |      |   |       | 
|Total interest expense                   |  | $                      | 18,162 |  |      | $ | 9,913 | 
|                                         |  |                        |        |  |      |   |       | 

For the years ended December 31, 2014 and 2013, the cash paid for interest expense, average
borrowings, effective interest rate and weighted average interest rate for the JPM facility were as follows:



|                                      |  |                        |         |   |      |   |         |  
|------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | -
|                                      |  | Year EndedDecember 31, |        
|                                      |  | 2014                   |         |   | 2013 |  
|Cash paid for interest expense(1)     |  | $                      | 18,123  |   |      | $ | 8,063   |  
|Average borrowings under the facility |  | $                      | 550,000 |   |      | $ | 299,666 |  
|Effective interest rate on borrowings |  |                        | 3.25    | % |      |   | 3.25    | %
|Weighted average interest rate        |  |                        | 3.25    | % |      |   | 3.25    | %



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

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

Goldman Facility

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

We may sell and/or contribute assets to Green Creek from time to time pursuant to
an Amended and Restated Sale and Contribution Agreement, dated as of December 15, 2014, between us and Green Creek, or the Sale and Contribution Agreement. Under the Sale and Contribution Agreement, as of December 15, 2014, we had



79



---

##### Table of Contents

contributed a portfolio of assets to Green Creek with an aggregate par value of approximately $169,000. The assets held by Green Creek secure the obligations of Green Creek under Floating Rate
Notes, or the Notes, to be issued from time to time by Green Creek to Schuylkill River pursuant to an Indenture, dated as of December 15, 2014, with Citibank, as trustee, or the Indenture. Pursuant to the Indenture, the aggregate principal
amount of Notes that may be issued by Green Creek from time to time is $690,000. Schuylkill River will purchase the Notes to be issued by Green Creek from time to time at a purchase price equal to their par value.

Interest on the Notes under the Indenture will accrue at three-month LIBOR plus a spread of 4.00% per annum. Principal and any
unpaid interest on the Notes will be due and payable on the stated maturity date of February 15, 2026. Pursuant to the Indenture, Green Creek has made certain representations and warranties and is required to comply with various covenants,
reporting requirements and other customary requirements for similar transactions. The Indenture contains events of default customary for similar transactions, including: (a) the failure to make principal payments on the Notes at their stated
maturity or any earlier redemption date or to make interest payments on the Notes within five business days of when due; (b) the failure to disburse amounts in excess of $1 in accordance with the priority of payments; and (c) the
occurrence of certain bankruptcy and insolvency events with respect to Green Creek.

Schuylkill River, in turn, has entered
into a repurchase transaction with Goldman, pursuant to the terms of a master repurchase agreement and the related annex and master confirmation thereto, each dated as of December 15, 2014, or collectively, the Goldman facility. Pursuant to the
Goldman facility, on one or more occasions beginning December 15, 2014, Goldman will purchase Notes held by Schuylkill River for an aggregate purchase price equal to approximately 58.00% of the principal amount of Notes purchased. Subject to
certain conditions, the maximum principal amount of Notes that may be purchased under the Goldman facility is $690,000. Accordingly, the aggregate maximum amount payable to Schuylkill River under the Goldman facility will not exceed $400,000. On
December 15, 2014, a Note in the principal amount of $130,000 was purchased by Goldman from Schuylkill River pursuant to the Goldman facility for $75,400. Schuylkill River intends to enter into additional repurchase transactions under the
Goldman facility with respect to the remaining $560,000 in principal amount of Notes (assuming Green Creek issues the maximum amount of Notes).

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

Goldman may require Schuylkill River to post cash collateral if the market value of the Notes (measured by reference to the market value of Green Creeks portfolio of assets) declines and is less
than the required margin amount under the Goldman facility. In such event, in order to satisfy any such margin-posting requirements, Schuylkill River intends to borrow funds from us pursuant to an uncommitted Revolving Credit Agreement, dated as of
December 15, 2014, between Schuylkill River, as borrower, and us, as lender, or the Revolving Credit Agreement. We may, in our sole discretion, make such loans from time to time to Schuylkill River pursuant to the terms of the Revolving Credit
Agreement. Borrowings under the Revolving Credit Agreement may not exceed $400,000 and will accrue interest at a rate equal to one-month LIBOR plus a spread of 0.75% per annum.

Under the Goldman facility, Schuylkill River has made certain representations and warranties and is required to comply with various
covenants, reporting requirements and other customary requirements for similar



80



---

##### Table of Contents

transactions. The Goldman facility contains events of default customary for similar financing transactions, including: (a) failure to transfer the Notes to Goldman on the applicable purchase
date or repurchase the Notes from Goldman on the applicable repurchase date; (b) failure to pay certain fees and make-whole amounts when due; (c) failure to post cash collateral as required; (d) the occurrence of insolvency events
with respect to Schuylkill River; and (e) the admission by Schuylkill River of its inability to, or its intention not to, perform any of its obligations under the Goldman facility.

In connection with the Notes and the Indenture, Green Creek also entered into (i) an Amended and Restated Investment Management
Agreement with us, as investment manager, dated as of December 15, 2014, pursuant to which we will manage the assets of Green Creek; and (ii) a Collateral Administration Agreement with Virtus Group, LP, or Virtus, as collateral
administrator, dated as of December 15, 2014, pursuant to which Virtus will perform certain administrative services with respect to the assets of Green Creek.

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

As of December 31, 2014, the fair value of assets held by Green Creek was $453,678.

We incurred costs of $2,000 in connection with obtaining the Goldman facility, which we have recorded as deferred financing costs on our
consolidated balance sheets and amortize to interest expense over the life of the Goldman facility. As of December 31, 2014, $1,977 of such deferred financing costs had yet to be amortized to interest expense.

For the year ended December 31, 2014, the components of total interest expense for the Goldman facility were as follows:



|                                         |  |                             |     | 
|---------------------------------------- |  | --------------------------- | --- | 
|                                         |  | Year EndedDecember 31, 2014 |    
|Direct interest expense                  |  | $                           | 89  | 
|Non-usage fees                           |  |                             |    | 
|Amortization of deferred financing costs |  |                             | 23  | 
|                                         |  |                             |     | 
|Total interest expense                   |  | $                           | 112 | 
|                                         |  |                             |     | 

For the year ended December 31, 2014, the cash paid for interest expense, average borrowings,
effective interest rate and weighted average interest rate for the Goldman facility were as follows:



|                                                                               |  |                             |        |  
|------------------------------------------------------------------------------ |  | --------------------------- | ------ | -
|                                                                               |  | Year EndedDecember 31, 2014 |       
|Cash paid for interest expense(1)                                              |  | $                           |       |  
|Average borrowings under the facility(2)                                       |  | $                           | 75,400 |  
|Effective interest rate on borrowings (including the effect of non-usage fees) |  |                             | 2.76   | %
|Weighted average interest rate (including the effect of non-usage fees)        |  |                             | 2.76   | %



|(1) | Interest under the Goldman facility is paid quarterly in arrears and will commence on March 15, 2015.
|--- | -----------------------------------------------------------------------------------------------------



|(2) | Average borrowings for the year ended December 31, 2014 are calculated for the period since we commenced borrowings thereunder to December 31, 2014.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------



81



---

##### Table of Contents

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

Cooper River Credit Facility

On March 27, 2013, our wholly-owned, special-purpose financing subsidiary, Cooper River LLC, or Cooper River, entered
into a revolving credit facility, or the Cooper River facility, with Citibank, as administrative agent, and the financial institutions and other lenders from time to time party thereto. The Cooper River facility provides for borrowings in an
aggregate principal amount up to $200,000 on a committed basis.

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

Borrowings under the Cooper River facility accrue interest at a rate equal to three-month LIBOR plus 1.75% per annum during the first two years of the Cooper River facility and three-month LIBOR plus
2.00% per annum thereafter. Borrowings under the Cooper River facility are subject to compliance with an equity coverage ratio with respect to the current value of Cooper Rivers portfolio and a loan compliance test with respect to the
initial acquisition of each debt security in Cooper Rivers portfolio.

Beginning on June 24, 2013, Cooper River
became subject to a non-usage fee of 0.50% per annum to the extent the aggregate principal amount available under the Cooper River facility is not borrowed. Outstanding borrowings under the Cooper River facility will be amortized beginning
June 27, 2015. Any amounts borrowed under the Cooper River facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on March 27, 2016.

As of December 31, 2014, $170,494 was outstanding under the Cooper River facility. The carrying amount outstanding under the Cooper
River facility approximates its fair value. We incurred costs of $1,557 in connection with obtaining the Cooper River facility, which we have recorded as deferred financing costs on our consolidated balance sheets and amortize to interest expense
over the life of the Cooper River facility. As of December 31, 2014, $642 of such deferred financing costs had yet to be amortized to interest expense.

Under the Cooper River facility, Cooper River has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for
similar facilities. The Cooper River facility contains events of default customary for similar financing transactions including: (a) the failure to make principal payments when due or interest payments within five business days of when due;
(b) the insolvency or bankruptcy of Cooper River or us; (c) the failure of Cooper River to be beneficially owned and controlled by us; (d) our resignation or removal as Cooper Rivers investment manager; and (e) GDFM (or any
affiliate thereof or any replacement thereof approved in writing by Citibank) no longer serving as our investment sub-adviser. Upon the occurrence of an event of default, Citibank may declare the outstanding principal and interest and all other
amounts owing under the Cooper River facility immediately due and payable. During the continuation of an event of default, Cooper River must pay interest at a default rate.



82



---

##### Table of Contents

For the years ended December 31, 2014 and 2013, the components of total interest
expense for the Cooper River facility were as follows:



|                                         |  |                        |       |  |      |   |       | 
|---------------------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | 
|                                         |  | Year EndedDecember 31, |      
|                                         |  | 2014                   |       |  | 2013 |  
|Direct interest expense                  |  | $                      | 3,424 |  |      | $ | 1,848 | 
|Non-usage fees                           |  |                        | 150   |  |      |   | 118   | 
|Amortization of deferred financing costs |  |                        | 518   |  |      |   | 397   | 
|                                         |  |                        |       |  |      |   |       | 
|Total interest expense                   |  | $                      | 4,092 |  |      | $ | 2,363 | 
|                                         |  |                        |       |  |      |   |       | 

For the years ended December 31, 2014 and 2013, the cash paid for interest expense, average
borrowings, effective interest rate and weighted average interest rate for the Cooper River facility were as follows:



|                                                                               |  |                        |         |   |      |   |         |  
|------------------------------------------------------------------------------ |  | ---------------------- | ------- | - | ---- | - | ------- | -
|                                                                               |  | Year EndedDecember 31, |        
|                                                                               |  | 2014                   |         |   | 2013 |  
|Cash paid for interest expense(1)                                              |  | $                      | 3,582   |   |      | $ | 1,193   |  
|Average borrowings under the facility(2)                                       |  | $                      | 170,494 |   |      | $ | 118,460 |  
|Effective interest rate on borrowings (including the effect of non-usage fees) |  |                        | 2.07    | % |      |   | 2.01    | %
|Weighted average interest rate (including the effect of non-usage fees)        |  |                        | 2.07    | % |      |   | 2.13    | %



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



|(2) | Average borrowings under the Cooper River facility for the year ended December 31, 2013 are calculated since the inception date of the facility, or March 27,
2013.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Wissahickon Creek Credit Facility

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

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

Pricing under the Wissahickon Creek facility is
based on LIBOR for a three-month interest period, plus a spread ranging between 1.50% and 2.50% per annum, depending on the composition of the portfolio of assets for the relevant period. Interest is payable quarterly in arrears. Beginning
June 19, 2014, Wissahickon Creek became



83



---

##### Table of Contents

subject to a non-usage fee to the extent the aggregate principal amount available under the facility is not borrowed. The non-usage fee equals 0.50% per annum on unborrowed amounts up to and
including $25,000 and 2.00% on unborrowed amounts exceeding $25,000. Any amounts borrowed under the Wissahickon Creek facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on February 19, 2019. Borrowings
under the Wissahickon Creek facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Wissahickon Creek varies depending upon the types of assets in Wissahickon Creeks portfolio.

Borrowings under the Wissahickon Creek facility are subject to compliance with a borrowing base, pursuant to which the amount of funds
available to be advanced to Wissahickon Creek varies depending upon the types of assets in Wissahickon Creeks portfolio. Under the Wissahickon Creek facility, Wissahickon Creek has made certain representations and warranties and is required to
comply with various covenants, reporting requirements and other customary requirements for similar facilities. The Wissahickon Creek facility contains events of default customary for similar financing transactions, including: (a) the failure to
make principal or interest payments within three business days of when due; (b) a borrowing base deficiency that is not cured in accordance with the terms of the Wissahickon Creek facility; (c) the insolvency or bankruptcy of Wissahickon
Creek or us; (d) our resignation or removal as collateral manager; (e) our failure to maintain an asset coverage ratio of greater than or equal to 2:1; (f) our failure to have a net asset value of at least $300,000; and (g) the
failure of Wissahickon Creek to qualify as a bankruptcy-remote entity. Upon the occurrence and during the continuation of an event of default, Wells Fargo may declare the outstanding advances and all other obligations under the Wissahickon Creek
facility immediately due and payable. During the continuation of an event of default, Wissahickon Creek must pay interest at a default rate.

As of December 31, 2014, $185,000 was outstanding under the Wissahickon Creek facility. The carrying amount outstanding under the Wissahickon Creek facility approximates its fair value. We incurred
costs of $3,410 in connection with obtaining the facility, which we have recorded as deferred financing costs on our consolidated balance sheets and amortize to interest expense over the life of the facility. As of December 31, 2014, $2,825 of
such deferred financing costs had yet to be amortized to interest expense.

For the year ended December 31, 2014, the
components of total interest expense for the Wissahickon Creek facility were as follows:



|                                         |  |                             |       | 
|---------------------------------------- |  | --------------------------- | ----- | 
|                                         |  | Year EndedDecember 31, 2014 |      
|Direct interest expense                  |  | $                           | 1,798 | 
|Non-usage fees                           |  |                             | 1,208 | 
|Amortization of deferred financing costs |  |                             | 585   | 
|                                         |  |                             |       | 
|Total interest expense                   |  | $                           | 3,591 | 
|                                         |  |                             |       | 

For the year ended December 31, 2014, the cash paid for interest expense, average borrowings,
effective interest rate and weighted average interest rate for the Wissahickon Creek facility were as follows:



|                                                                               |  |                             |         |  
|------------------------------------------------------------------------------ |  | --------------------------- | ------- | -
|                                                                               |  | Year EndedDecember 31, 2014 |        
|Cash paid for interest expense(1)                                              |  | $                           | 1,702   |  
|Average borrowings under the facility(2)                                       |  | $                           | 117,703 |  
|Effective interest rate on borrowings (including the effect of non-usage fees) |  |                             | 3.03    | %
|Weighted average interest rate (including the effect of non-usage fees)        |  |                             | 4.20    | %



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



|(2) | Average borrowings under the Wissahickon Creek facility are calculated for the period since we commenced borrowings thereunder to December 31, 2014.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------



84



---

##### Table of Contents

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

Darby Creek Credit Facility

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

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

Pricing under the Darby Creek facility is based on LIBOR for a three-month interest period (for each committed lender) or the commercial
paper rate of each conduit lender, plus, in each case, a spread of 2.75% per annum. Darby Creek is subject to a non-usage fee of 0.75% per annum to the extent the aggregate principal amount available under the Darby Creek facility is not
borrowed. In addition, Darby Creek is subject to a make-whole fee on a quarterly basis effectively equal to a portion of the spread that would have been payable if the full amount under the Darby Creek facility had been borrowed, less the non-usage
fee accrued during such quarter. Any amounts borrowed under the Darby Creek facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on February 20, 2018. Borrowings under the Darby Creek facility are
subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Darby Creek varies depending upon the types of assets in Darby Creeks portfolio.

Borrowings under the Darby Creek facility are subject to compliance with a borrowing base, pursuant to which the amount of funds
available to be advanced to Darby Creek varies depending upon the types of assets in Darby Creeks portfolio. Under the Darby Creek facility, Darby Creek has made certain representations and warranties and is required to comply with various
covenants, reporting requirements and other customary requirements for similar facilities. The Darby Creek facility contains events of default customary for similar financing transactions, including: (a) the failure to make principal or
interest payments within two business days of when due; (b) the aggregate principal amount of the advances exceeds the borrowing base and is not cured within two business days; (c) the insolvency or bankruptcy of Darby Creek or us;
(d) a change of control of Darby Creek shall have occurred; (e) the failure of Darby Creek to qualify as a bankruptcy-remote entity; and (f) the minimum equity condition is not satisfied and such condition is not cured within two
business days. Upon the occurrence and during the continuation of an event of default, Deutsche Bank may declare the outstanding advances and all other obligations under the Darby Creek facility immediately due and payable. During the continuation
of an event of default, Darby Creek must pay interest at a default rate.

As of December 31, 2014, $249,500 was
outstanding under the Darby Creek facility. The carrying amount outstanding under the Darby Creek facility approximates its fair value. We incurred costs of $2,117 in connection with obtaining the facility, which we have recorded as deferred
financing costs on our consolidated balance sheets and amortize to interest expense over the life of the facility. As of December 31, 2014, $1,661 of such deferred financing costs had yet to be amortized to interest expense.



85



---

##### Table of Contents

For the year ended December 31, 2014, the components of total interest expense for the
Darby Creek facility were as follows:



|                                         |  |                              |       | 
|---------------------------------------- |  | ---------------------------- | ----- | 
|                                         |  | Year EndedDecember 31, 
2014 |      
|Direct interest expense                  |  | $                            | 3,574 | 
|Non-usage fees                           |  |                              | 586   | 
|Amortization of deferred financing costs |  |                              | 456   | 
|                                         |  |                              |       | 
|Total interest expense                   |  | $                            | 4,616 | 
|                                         |  |                              |       | 

For the year ended December 31, 2014, the cash paid for interest expense, average borrowings,
effective interest rate and weighted average interest rate for the Darby Creek facility were as follows:



|                                                                               |  |                             |         |  
|------------------------------------------------------------------------------ |  | --------------------------- | ------- | -
|                                                                               |  | Year EndedDecember 31, 2014 |        
|Cash paid for interest expense(1)                                              |  | $                           | 2,588   |  
|Average borrowings under the facility(2)                                       |  | $                           | 178,056 |  
|Effective interest rate on borrowings (including the effect of non-usage fees) |  |                             | 2.98    | %
|Weighted average interest rate (including the effect of non-usage fees)        |  |                             | 3.52    | %



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



|(2) | Average borrowings under the Darby Creek facility are calculated for the period since we commenced borrowings thereunder to December 31, 2014.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

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

Dunning Creek Credit Facility

On May 14, 2014, our wholly-owned, special-purpose financing subsidiary, Dunning Creek LLC, or Dunning Creek, entered into a
revolving credit facility, or the Dunning Creek facility, with Deutsche Bank, as administrative agent and lender, and each of the other lenders from time to time party thereto. The Dunning Creek facility originally provided for borrowings in an
aggregate principal amount up to $150,000 on a committed basis. On June 4, 2014, the Dunning Creek facility was amended to increase the maximum commitments available under the facility to $250,000.

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

Pricing under the Dunning Creek facility is based on LIBOR for an interest period reasonably
close to the weighted average LIBOR applicable to the assets held by Dunning Creek, plus a spread of 1.55% per annum. Any amounts borrowed under the Dunning Creek facility will mature, and all accrued and unpaid interest thereunder will be due
and payable, on May 14, 2015. Borrowings under the Dunning Creek facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Dunning Creek varies depending upon the types of assets in Dunning
Creeks portfolio.



86



---

##### Table of Contents

Borrowings under the Dunning Creek facility are subject to compliance with a borrowing base,
pursuant to which the amount of funds available to be advanced to Dunning Creek varies depending upon the types of assets in Dunning Creeks portfolio. Under the Dunning Creek facility, Dunning Creek has made certain representations and
warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. The Dunning Creek facility contains events of default customary for similar financing transactions,
including: (a) the failure to make principal payments when due or interest payments within three business days of when due; (b) the failure to meet an over collateralization test (which measures Dunning Creeks eligible assets, as
adjusted by the prescribed advance rates) and such failure is not cured promptly on the same day; (c) the insolvency or bankruptcy of Dunning Creek or us; (d) the purchase of certain ineligible assets if the same is not cured within five
business days; (e) our termination as investment manager; (f) our failure to maintain a net asset value of at least $50,000 plus 50% of additional equity (in excess of $50,000) raised after the closing date of the facility; and
(g) fraud or other illicit acts by us, Dunning Creek, GDFM or any of their respective directors, principals or officers, in each case, in their respective investment advisory capacities. Upon the occurrence and during the continuation of an
event of default, Deutsche Bank may declare the outstanding advances and all other obligations under the Dunning Creek facility immediately due and payable. If such amounts are accelerated and not repaid immediately, Dunning Creek will be required
to pay interest on such overdue amounts at a default rate.

As of December 31, 2014, $230,800 was outstanding under the
Dunning Creek facility. The carrying amount outstanding under the Dunning Creek facility approximates its fair value. We incurred costs of $710 in connection with obtaining and amending the facility, which we have recorded as deferred financing
costs on our consolidated balance sheets and amortize to interest expense over the life of the facility. As of December 31, 2014, $268 of such deferred financing costs had yet to be amortized to interest expense.

For the year ended December 31, 2014, the components of total interest expense for the Dunning Creek facility were as follows:



|                                         |  |                             |       | 
|---------------------------------------- |  | --------------------------- | ----- | 
|                                         |  | Year EndedDecember 31, 2014 |      
|Direct interest expense                  |  | $                           | 1,996 | 
|Non-usage fees                           |  |                             |      | 
|Amortization of deferred financing costs |  |                             | 442   | 
|                                         |  |                             |       | 
|Total interest expense                   |  | $                           | 2,438 | 
|                                         |  |                             |       | 

For the year ended December 31, 2014, the cash paid for interest expense, average borrowings,
effective interest rate and weighted average interest rate for the Dunning Creek facility were as follows:



|                                         |  |                             |         |  
|---------------------------------------- |  | --------------------------- | ------- | -
|                                         |  | Year EndedDecember 31, 2014 |        
|Cash paid for interest expense(1)        |  | $                           | 1,406   |  
|Average borrowings under the facility(2) |  | $                           | 178,526 |  
|Effective interest rate on borrowings    |  |                             | 1.77    | %
|Weighted average interest rate           |  |                             | 1.77    | %



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



|(2) | Average borrowings under the Dunning Creek facility are calculated for the period since we commenced borrowings thereunder to December 31, 2014.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

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



87



---

##### Table of Contents

Juniata River Credit Facility

On November 14, 2014, our wholly-owned, special-purpose financing subsidiary, Juniata River LLC, or Juniata River, entered into a
senior secured term loan facility, or the Juniata River facility, with JPM, as administrative agent, and the financial institutions and other lenders from time to time party thereto, Citibank, as collateral agent, and Virtus Group, LP, as collateral
administrator. The Juniata River facility provides for delayed-draw borrowings in an aggregate principal amount up to $300,000 on a committed basis before February 14, 2015.

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

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

Borrowings under the Juniata River facility are subject to a compliance condition which will be satisfied at any given time if the outstanding advances to Juniata River by the lenders minus the amount of
principal and certain interest proceeds in Juniata Rivers accounts is less than or equal to fifty percent (50%) of the net asset value of Juniata Rivers portfolio of assets.

Under the Juniata River facility, Juniata River has made certain representations and warranties and is required to comply with various
covenants, reporting requirements and other customary requirements for similar facilities. The Juniata River facility contains events of default customary for similar financing transactions, including: (a) the failure to make principal payments
when due or any other payments within two business days of when due; (b) the $300,000 committed principal amount is not fully drawn within ninety days of the Juniata River facilitys effective date; (c) the insolvency or bankruptcy of
Juniata River or us; (d) a change of control of Juniata River shall have occurred; (e) the transaction documents are amended in a manner materially adverse to JPM, as administrative agent, without JPMs consent; and (f) GDFM or
an affiliate thereof ceases to be our investment sub-advisor. Upon the occurrence and during the continuation of an event of default, JPM may declare the outstanding advances and all other obligations under the Juniata River facility immediately due
and payable.

As of December 31, 2014, $180,000 was outstanding under the Juniata River facility. The carrying amount
outstanding under the Juniata River facility approximates its fair value. We incurred costs of $289 in connection with obtaining the Juniata River facility, which we have recorded as deferred financing costs on our consolidated balance sheets and
amortize to interest expense over the life of the Juniata River facility. As of December 31, 2014, $281 of such deferred financing costs had yet to be amortized to interest expense.

For the year ended December 31, 2014, the components of total interest expense for the Juniata River facility were as follows:



|                                         |  |                             |     | 
|---------------------------------------- |  | --------------------------- | --- | 
|                                         |  | Year EndedDecember 31, 2014 |    
|Direct interest expense                  |  | $                           | 477 | 
|Non-usage fees                           |  |                             |    | 
|Amortization of deferred financing costs |  |                             | 8   | 
|                                         |  |                             |     | 
|Total interest expense                   |  | $                           | 485 | 
|                                         |  |                             |     | 



88



---

##### Table of Contents

For the year ended December 31, 2014, the cash paid for interest expense, average
borrowings, effective interest rate and weighted average interest rate for the Juniata River facility were as follows:



| |  |                            
| |  | ---------------------------
| |  | Year EndedDecember 31, 2014

|                                         |  |  |  |   |         |  
|---------------------------------------- |  |  |  | - | ------- | -
|Cash paid for interest expense(1)        |  |  |  | $ |        |  
|Average borrowings under the facility(2) |  |  |  | $ | 139,555 |  
|Effective interest rate on borrowings    |  |  |  |   | 2.73    | %
|Weighted average interest rate           |  |  |  |   | 2.73    | %



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



|(2) | Average borrowings under the Juniata River facility are calculated for the period since we commenced borrowings thereunder to December 31, 2014.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

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

Total Return Swap

On June 13, 2013, our wholly-owned, special-purpose financing subsidiary, Del River, and Citibank entered into the termination
acknowledgment, pursuant to which Del River and Citibank agreed to immediately terminate the TRS Agreement and all transactions thereunder.

The TRS was for a portfolio of senior secured floating rate loans and other debt securities with a maximum notional amount of $425,000. Del River received from Citibank all interest and fees payable in
respect of the assets underlying the TRS. Del River paid to Citibank interest at a rate equal to one-month LIBOR plus 1.25% per annum on the full notional amount of the assets subject to the TRS. In addition, upon the termination or repayment
of any asset subject to the TRS, Del River either received from Citibank the appreciation in the value of such asset, or paid to Citibank any depreciation in the value of such asset.

Del River was permitted to terminate the TRS upon prior written notice to Citibank and no termination fee was payable in connection with
the termination of the TRS.

Upon the termination of the TRS, we recognized $5,437 of gains, $1,836 of which represented
periodic net settlement payments due on the TRS.

RIC Status and Distributions

We have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually, as a RIC under Subchapter M of the
Code. In order to qualify as a RIC, we must, among other things, make distributions of an amount at least equal to 90% of our investment company taxable income, determined without regard to any deductions paid, each tax year. As long as
the distributions are declared by the later of the fifteenth day of the ninth month following the close of the tax year or the due date of the tax return, including extensions, distributions paid up to one year after the current tax year can be
carried back to the prior tax year for determining the distributions paid in such tax year. We intend to make sufficient distributions to our stockholders to qualify for and maintain our RIC status each year. We are also subject to nondeductible
federal excise taxes if we do not distribute during each calendar year an amount at least equal to the sum of (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our
capital gains net income (adjusted for certain ordinary losses) for the one-year period ending on October 31 of the calendar year and (3) any net ordinary income and capital gains net income for preceding years that were not distributed
during such years and on which we paid no U.S. federal income tax. Any distribution declared by us in October, November or December of any calendar year, payable to stockholders of record on a specified date in such a month and actually paid during
January of the following calendar year, will be treated as if it had been received



89



---

##### Table of Contents

by our U.S. stockholders on December 31 of the calendar year in which the distribution was declared. We can offer no assurance that we will achieve results that will permit us to pay any
cash distributions. If we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of
our borrowings.

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

The following table reflects the cash distributions per share
that we have declared and paid on our common stock during the years ended December 31, 2014, 2013 and 2012:



|                                |  |              |        |  |        |   |         | 
|------------------------------- |  | ------------ | ------ |  | ------ | - | ------- | 
|                                |  | Distribution |       
|For the Year Ended December 31, |  | Per Share    |        |  | Amount |  
|2012                            |  | $            | 0.3947 |  |        | $ | 10,320  | 
|2013                            |  |              | 0.7622 |  |        |   | 114,307 | 
|2014                            |  |              | 0.7395 |  |        |   | 223,554 | 

On January 22, 2015 and March 12, 2015, our board of directors declared regular monthly cash
distributions for January 2015 through March 2015 and April 2015 through June 2015, respectively, each in the amount of $0.06283. These distributions have been or will be paid monthly to stockholders of record as of monthly record dates previously
determined by our board of directors.

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

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



90



---

##### Table of Contents

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

During certain periods, our distributions may exceed
our earnings. As a result, it is possible that a portion of the distributions we make may represent a return of capital. A return of capital generally is a return of an investors investment rather than a return of earnings or gains derived
from our investment activities and will be made after the deduction of fees and expenses, including any fees payable to FSIC II Advisor. Each year a statement on Form 1099-DIV identifying the sources of the distributions will be mailed to
our stockholders. No portion of the distributions paid during the tax years ended December 31, 2014 and 2013 represented a return of capital.

Pursuant to the expense reimbursement agreement, Franklin Square Holdings has agreed to reimburse us for expenses in an amount that is sufficient to ensure that no portion of our distributions to
stockholders will be paid from our offering proceeds or borrowings. For a period of time following commencement of our continuous public offering, substantial portions of our distributions were funded through the reimbursement of certain expenses by
Franklin Square Holdings and its affiliates, including through the waiver of certain investment advisory fees by FSIC II Advisor, that were subject to repayment by us within three years. Any such distributions funded through expense reimbursements
or waivers of advisory fees were not based on our investment performance. For the year ended December 31, 2012, if Franklin Square Holdings had not reimbursed certain of our expenses, 24% of the aggregate amount of distributions paid during
such period would have been funded from offering proceeds or borrowings. Our repayment of amounts reimbursed or waived by Franklin Square Holdings and its affiliates reduced the distributions that stockholders would otherwise have received in the
year ended December 31, 2013. No portion of the distributions paid during the years ended December 31, 2014 and 2013 was funded through the reimbursement of operating expenses by Franklin Square Holdings. There can be no assurance that we
will continue to achieve the performance necessary to sustain our distributions or that we will be able to pay distributions at a specific rate or at all. Franklin Square Holding and its affiliates have no obligation to waive advisory fees or
otherwise reimburse expenses in future periods.



91



---

##### Table of Contents

The following table reflects the sources of the cash distributions on a tax basis that we
have paid on our common stock during the years ended December 31, 2014, 2013 and 2012:



|                                                          |  |                         |         |  |            |  |      |                    |  |   |            |  |  |                    |      |  |            |   |        |  |  |  |      | 
|--------------------------------------------------------- |  | ----------------------- | ------- |  | ---------- |  | ---- | ------------------ |  | - | ---------- |  |  | ------------------ | ---- |  | ---------- | - | ------ |  |  |  | ---- | 
|                                                          |  | Year Ended December 31, |        
|                                                          |  | 2014                    |         |  | 2013       |  |      | 2012               | 
|Source of Distribution                                    |  | DistributionAmount      |         |  | Percentage |  |      | DistributionAmount |  |   | Percentage |  |  | DistributionAmount |      |  | Percentage |  
|Offering proceeds                                         |  | $                       |        |  |            |  |     |                    |  | $ |           |  |  |                    |     |  |            | $ |       |  |  |  |     | 
|Borrowings                                                |  |                         |        |  |            |  |     |                    |  |   |           |  |  |                    |     |  |            |   |       |  |  |  |     | 
|Net investment income (prior to expense reimbursement)(1) |  |                         | 208,059 |  |            |  | 93%  |                    |  |   | 104,102    |  |  |                    | 91%  |  |            |   | 4,852  |  |  |  | 47%  | 
|Short-term capital gains proceeds from the sale of assets |  |                         | 14,999  |  |            |  | 7%   |                    |  |   | 10,205     |  |  |                    | 9%   |  |            |   | 2,986  |  |  |  | 29%  | 
|Long-term capital gains proceeds from the sale of assets  |  |                         | 496     |  |            |  | 0%   |                    |  |   |           |  |  |                    |     |  |            |   |       |  |  |  |     | 
|Gains from credit default swaps (ordinary income for tax) |  |                         |        |  |            |  |     |                    |  |   |           |  |  |                    |     |  |            |   |       |  |  |  |     | 
|Non-capital gains proceeds from the sale of assets        |  |                         |        |  |            |  |     |                    |  |   |           |  |  |                    |     |  |            |   |       |  |  |  |     | 
|Distributions on account of preferred and common equity   |  |                         |        |  |            |  |     |                    |  |   |           |  |  |                    |     |  |            |   |       |  |  |  |     | 
|Expense reimbursement from sponsor                        |  |                         |        |  |            |  |     |                    |  |   |           |  |  |                    |     |  |            |   | 2,482  |  |  |  | 24%  | 
|                                                          |  |                         |         |  |            |  |      |                    |  |   |            |  |  |                    |      |  |            |   |        |  |  |  |      | 
|Total                                                     |  | $                       | 223,554 |  |            |  | 100% |                    |  | $ | 114,307    |  |  |                    | 100% |  |            | $ | 10,320 |  |  |  | 100% | 
|                                                          |  |                         |         |  |            |  |      |                    |  |   |            |  |  |                    |      |  |            |   |        |  |  |  |      | 



|(1) | During the years ended December 31, 2014, 2013 and 2012, 94.3%, 91.3% and 92.3%, respectively, of our gross investment income was attributable to cash income
earned, 3.0%, 7.6% and 7.7%, respectively, was attributable to non-cash accretion of discount and 2.7%, 1.1% and 0.0%, respectively, was attributable to PIK interest.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our net investment income on a tax basis for the years ended December 31, 2014, 2013 and 2012 was $211,511, $111,686 and $7,607,
respectively. As of December 31, 2014, 2013 and 2012, we had $19,204, $15,495 and $273, respectively, of undistributed net investment income and realized gains on a tax basis.

See Note 5 to our consolidated financial statements contained in this annual report on Form 10-K for additional information
regarding our distributions for the years ended December 31, 2014, 2013 and 2012.

Our undistributed net investment
income on a tax basis as of December 31, 2013 was adjusted following the filing of our 2013 tax return in September 2014. The adjustment was primarily due to tax-basis income received by us during the year ended December 31, 2013 on
account of certain collateralized securities and interest in partnerships held in our investment portfolio during such period exceeding U.S. generally accepted accounting principles, or GAAP, basis income with respect to such investments during the
same period. The tax notices for such collateralized securities and interests in partnerships were received by us subsequent to the filing of our annual report on Form 10-K for the year ended December 31, 2013.

The difference between our GAAP-basis net investment income and our tax-basis net investment income is primarily due to the reversal of
the required accrual for GAAP purposes of incentive fees on unrealized gains even though no such incentive fees on unrealized gains are payable by us, the reclassification of unamortized original issue discount recognized upon prepayment of loans
from income for GAAP purposes to realized gains for tax purposes, the reclassification of realized gains on credit default swaps to income for tax purposes and, with respect to the year ended December 31, 2013, the inclusion of a portion of the
periodic net settlement payments due on our total return swap in tax-basis net investment income.



92



---

##### Table of Contents

The following table sets forth a reconciliation between GAAP-basis net investment income and
tax-basis net investment income during the years ended December 31, 2014, 2013, and 2012:



|                                                                            |  |                        |         |   |      |   |         |      |  |   |       | 
|--------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ----- | 
|                                                                            |  | Year EndedDecember 31, |        
|                                                                            |  | 2014                   |         |   | 2013 |   |         | 2012 | 
|GAAP-basis net investment income                                            |  | $                      | 242,676 |   |      | $ | 90,674  |      |  | $ | 2,809 | 
|Reversal of incentive fee accrual on unrealized gains                       |  |                        | (9,234  | ) |      |   | 6,164   |      |  |   | 3,070 | 
|Taxable income adjustment on collateralized securities and partnerships     |  |                        |        |   |      |   | 7,857   |      |  |   | 273   | 
|Reclassification of unamortized original issue discount and prepayment fees |  |                        | (12,821 | ) |      |   | (3,275  | )    |  |   |      | 
|Reclassification of realized gains on credit default swap                   |  |                        | 7,535   |   |      |   |        |      |  |   |      | 
|Mark-to-market on outstanding credit default swaps                          |  |                        | (19,426 | ) |      |   |        |      |  |   |      | 
|Excise taxes                                                                |  |                        | 1,227   |   |      |   |        |      |  |   |      | 
|Tax-basis net investment income portion of total return swap payments       |  |                        |        |   |      |   | 10,269  |      |  |   | 1,063 | 
|Other miscellaneous differences                                             |  |                        | 1,554   |   |      |   | (3      | )    |  |   | 392   | 
|                                                                            |  |                        |         |   |      |   |         |      |  |   |       | 
|Tax-basis net investment income                                             |  | $                      | 211,511 |   |      | $ | 111,686 |      |  | $ | 7,607 | 
|                                                                            |  |                        |         |   |      |   |         |      |  |   |       | 

We may make certain adjustments to the classification of stockholders equity as a result of
permanent book-to-tax differences. During the year ended December 31, 2014, we increased accumulated net realized gains on investments and gain/loss on foreign currency by $5,590 and decreased capital in excess of par value and accumulated
distributions in excess of net investment income by $3,099 and $2,491, respectively. During the year ended December 31, 2013, we reduced accumulated net realized gains on investments and total return swap and gain/loss on foreign currency by
$6,772 and reduced capital in excess of par value and accumulated distributions in excess of net investment income by $155. During the year ended December 31, 2012, we reduced accumulated net realized gains on investments and total return swap
and gain/loss on foreign currency by $1,063 and increased capital in excess of par value and accumulated distributions in excess of net investment income by $1,063.

The determination of the tax attributes of our distributions is made annually as of the end of our fiscal year based upon our taxable income for the full year and distributions paid for the full year. The
actual tax characteristics of distributions to stockholders are reported to stockholders annually on Form 1099-DIV.

As of
December 31, 2014 and 2013, the components of accumulated earnings on a tax basis were as follows:



|                                                                                               |  |              |         |   |      |   |        |  
|---------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------ | -
|                                                                                               |  | December 31, |        
|                                                                                               |  | 2014         |         |   | 2013 |  
|Distributable ordinary income (income and short-term capital gains)                            |  | $            | 9,166   |   |      | $ | 14,999 |  
|Distributable realized gains (long-term capital gains)                                         |  |              | 10,038  |   |      |   | 496    |  
|Incentive fee accrual on unrealized gains                                                      |  |              |        |   |      |   | (9,234 | )
|Unamortized organization costs                                                                 |  |              | (189    | ) |      |   | (203   | )
|Net unrealized appreciation (depreciation) on investments and gain/loss on foreign currency(1) |  |              | (21,715 | ) |      |   | 20,729 |  
|                                                                                               |  |              |         |   |      |   |        |  
|Total                                                                                          |  | $            | (2,700  | ) |      | $ | 26,787 |  
|                                                                                               |  |              |         |   |      |   |        |  



|(1) | As of December 31, 2014 and 2013, the gross unrealized appreciation on our investments and unrealized gain on foreign currency was $123,852 and $53,965,
respectively. As of December 31, 2014 and December 31, 2013, the gross unrealized depreciation on our investments and unrealized loss on foreign currency was $145,567 and $33,236, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



93



---

##### Table of Contents

The aggregate cost of our investments for U.S. federal income tax purposes totaled
$4,417,936 and $2,642,956 as of December 31, 2014 and 2013, respectively. The aggregate net unrealized appreciation (depreciation) on investments and gain/loss on foreign currency on a tax basis was $(21,715) and $20,729 as of the year ended
December 31, 2014 and 2013, respectively.

Critical Accounting Policies

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

Valuation of Portfolio Investments

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

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

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



| |  |  | our quarterly valuation process begins with FSIC II Advisors management team providing a preliminary valuation of each portfolio company or
investment to our valuation committee, which valuation may be obtained from an independent valuation firm, if applicable;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



94



---

##### Table of Contents

| |  |  | our valuation committee reviews the preliminary valuation and FSIC II Advisors management team, together with our independent valuation firm, if
applicable, responds and supplements the preliminary valuation to reflect any comments provided by the valuation committee; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

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

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

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

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

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

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



95



---

##### Table of Contents

The fair values of our investments are determined in good faith by our board of directors.
Our board of directors is solely responsible for the valuation of our portfolio investments at fair value as determined in good faith pursuant to our valuation policy and consistently applied valuation process.

Our investments as of December 31, 2014 consisted primarily of debt investments that were acquired directly from the issuer.
Twenty-nine senior secured loan investments, one senior secured bond investment, four subordinated debt investments and one collateralized security were valued by an independent valuation firm, which determined the fair value of such investments by
considering, among other factors, the borrowers ability to adequately service its debt, prevailing interest rates for like investments, expected cash flows, call features, anticipated prepayments and other relevant terms of the investments.
Except as described below, all of our equity/other investments were valued by the same independent valuation firm, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to such
investments, as well as various income scenarios and multiples of EBITDA, cash flows, net income, revenues, or in limited instances, book value or liquidation value. Four equity/other investments, which were traded on active public markets,
were valued at their closing price as of December 31, 2014. Three senior secured loan investments, two collateralized securities and one equity/other investment which were newly-issued and purchased near December 31, 2014, were valued at
cost, as our board of directors determined that the cost of such investments was the best indication of their fair value. Except as described above, we valued our other investments and credit default swaps, including two equity/other investments, by
using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services.

Our investments as of December 31, 2013 consisted primarily of debt securities that are traded on a private over-the-counter market
for institutional investors. Except as described below, we valued our investments by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by independent third-party pricing
services and screened for validity by such services. Thirteen senior secured loan investments and one collateralized security, for which broker quotes were not available, were valued by an independent valuation firm, which determined the fair value
of such investments by considering, among other factors, the borrowers ability to adequately service its debt, prevailing interest rates for like investments, expected cash flows, call features anticipated prepayments and other relevant terms
of the debt. Except as described below, all of our equity/other investments were valued by the same independent valuation firm, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to
such investments, as well as various income scenarios and multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. Also, one equity investment which was traded on an active public market was
valued at its closing price as of December 31, 2013.

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

Revenue Recognition

Security transactions are accounted for on the trade date. We record interest income on an accrual basis to the extent that we expect to collect such amounts. We record dividend income on the ex-dividend
date. We do



96



---

##### Table of Contents

not accrue as a receivable interest or dividends on loans and securities if we have reason to doubt our ability to collect such income. Loan origination fees, original issue discount and market
discount are capitalized and we amortize such amounts as interest income over the respective term of the loan or security. Upon the prepayment of a loan or security, any unamortized loan origination fees and original issue discount are recorded as
interest income. Structuring and other upfront fees are recorded as fee income when earned. We record prepayment premiums on loans and securities as fee income when we receive such amounts.

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

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

Capital Gains Incentive Fee

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

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

In addition, we historically treated all net settlement payments received by us pursuant to our TRS (which was terminated on
June 13, 2013) as realized capital gains and included only the aggregate amount of unrealized depreciation on the TRS as a whole in calculating the capital gains incentive fee payable to FSIC II Advisor with respect to realized gains, in each
case, in accordance with GAAP. However, the staff of the Division of Investment Management of the SEC, or the Staff, informed us that it is their interpretation of the applicable language in the Advisers Act that we should look through
the TRS in calculating our capital gains incentive fee. Under this look through methodology, the portion of the net settlement payments received by us pursuant to the TRS which would have represented net investment income to us had we
held the loans or securities underlying the TRS directly would be treated as net investment income subject to the subordinated incentive fee on income payable to FSIC II Advisor pursuant to the investment advisory and administrative services
agreement, rather than as realized capital gains in accordance with GAAP, and any unrealized depreciation on individual loans or securities underlying the TRS would further reduce the capital gains incentive fee payable to FSIC II Advisor with
respect to realized gains. FSIC II Advisor voluntarily agreed to waive any capital gains incentive fee calculated in accordance with GAAP to which it would otherwise be entitled in respect of the TRS if and to the extent that the amount of such fee
exceeds the sum of (i) the amount of capital gains incentive fee



97



---

##### Table of Contents

determined in respect of the TRS on a look through basis under which we treat the reference assets underlying the TRS as our investments and (ii) the aggregate amount of
subordinated incentive fees on income which would have been payable to FSIC II Advisor with respect to the portion of the net settlement payments received by us pursuant to the TRS which represent net investment income on the loans or securities
underlying the TRS on a look through basis.

The amount of capital gains incentive fees accrued by us as of
December 31, 2013 exceeded by $441 the amount of incentive fees which would have been payable to FSIC II Advisor as of such date in accordance with the look through methodology. In accordance with FSIC II Advisors
voluntary agreement to waive any such excess, we reduced the amount of accrued capital gains incentive fees payable to FSIC II Advisor by $441 effective as of March 31, 2013. We made a corresponding reduction to the amount of expense
reimbursement due from sponsor as of March 31, 2013, which also reduced by $441 the amount of expense recoupment payable to sponsor as of March 31, 2013. As of June 30, 2013, the aggregate capital gains incentive fees paid to
FSIC II Advisor in prior periods and accrued as of such date with respect to realized gains in accordance with GAAP did not exceed the fees which would have been payable in accordance with the look through methodology. On
June 13, 2013, we terminated the TRS.

Subordinated Income Incentive Fee

Pursuant to the investment advisory and administrative services agreement, FSIC II Advisor may also be entitled to receive a
subordinated incentive fee on income. The subordinated incentive fee on income, which is calculated and payable quarterly in arrears, equals 20.0% of our pre-incentive fee net investment income for the immediately preceding quarter and
is subject to a hurdle rate, expressed as a rate of return on adjusted capital, as defined in the investment advisory and administrative services agreement, equal to 1.875% per quarter, or an annualized hurdle rate of 7.5%. As a result, FSIC II
Advisor will not earn this incentive fee for any quarter until our pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.875%. Once our pre-incentive fee net investment income in any quarter exceeds the hurdle rate,
FSIC II Advisor will be entitled to a catch-up fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until our pre-incentive fee net investment income for such quarter equals 2.34375%,
or 9.375% annually, of adjusted capital. Thereafter, FSIC II Advisor will be entitled to receive 20.0% of pre-incentive fee net investment income.

Uncertainty in Income Taxes

We evaluate our tax positions to determine if
the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax benefits or liabilities in our
consolidated financial statements. Recognition of a tax benefit or liability with respect to an uncertain tax position is required only when the position is more likely than not to be sustained assuming examination by taxing authorities.
We recognize interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in our consolidated statements of operations. During the years ended December 31, 2014, 2013 and 2012, we did not incur any interest or
penalties.

Contractual Obligations

We have entered into an agreement with FSIC II Advisor to provide us with investment advisory and administrative services. Payments for investment advisory services under the investment advisory and
administrative services agreement are equal to (a) an annual base management fee of 2.0% of the average value of our gross assets and (b) an incentive fee based on our performance. FSIC II Advisor and, to the extent it is required to
provide such services, our investment sub-adviser, are reimbursed for administrative and organizational and operational expenses incurred on our behalf. See Related Party TransactionsCompensation of the Investment Adviser and
Dealer Manager for a discussion of this agreement.



98



---

##### Table of Contents

For the years ended December 31, 2014, 2013 and 2012, we incurred $82,325, $38,677 and
$3,315, respectively, in base management fees and $4,607, $2,732 and $396, respectively, in administrative services expenses under the investment advisory and administrative services agreement. In addition, FSIC II Advisor is eligible to receive
incentive fees based on the performance of our portfolio. During the years ended December 31, 2014, 2013 and 2012, we accrued a subordinated incentive fee on income of $33,251, $8,871 and $0, respectively, based upon the performance of our
portfolio. During the year ended December 31, 2014, we paid FSIC II Advisor $17,917 in subordinated incentive fees on income. As of December 31, 2014, a subordinated incentive fee on income of $15,334 was payable to FSIC II Advisor. As of
December 31, 2012, we had accrued capital gains incentive fees payable to FSIC II Advisor of $3,548 based on the performance of our portfolio, of which $3,070 was based on unrealized gains and $478 was based on realized gains. Effective as of
March 31, 2013, FSIC II Advisor voluntarily agreed to waive any capital gains incentive fees calculated in accordance with GAAP to the extent such fees exceeded those which would be payable in accordance with the look through
methodology described more fully under Critical Accounting PoliciesCapital Gains Incentive Fee. This waiver resulted in a reduction of $441 to the amount of capital gains incentive fees payable to FSIC II Advisor with respect
to realized gains. Accordingly, we reduced the amount of accrued capital gains incentive fees payable to FSIC II Advisor by $441 effective as of March 31, 2013. During the year ended December 31, 2013, we accrued capital gains incentive
fees of $6,164 based on the performance of our portfolio, all of which was based on unrealized gains. We paid FSIC II Advisor $478 in capital gains incentive fees during the year ended December 31, 2013. As a result of the foregoing, we do not
have any accrued capital gains incentive fees as of December 31, 2014. During the year ended December 31, 2014 we reversed $9,234 of capital gains incentive fees previously accrued.

A summary of our significant contractual payment obligations related to the repayment of our outstanding borrowings at December 31,
2014 is as follows:



|                                   |  |                        |         |  |                  |   |         |           |  |   |           |  |  |                   |         |  |  |  |   | 
|---------------------------------- |  | ---------------------- | ------- |  | ---------------- | - | ------- | --------- |  | - | --------- |  |  | ----------------- | ------- |  |  |  | - | 
|                                   |  | Payments Due By Period |        
|                                   |  | Total                  |         |  | Less than 1 year |   |         | 1-3 years |  |   | 3-5 years |  |  | More than 5 years |        
|Borrowings of Cobbs Creek(1)       |  | $                      | 550,000 |  |                  | $ | 550,000 |           |  |   |          |  |  |                   |        |  |  |  |  | 
|Borrowings of Schuylkill River(2)  |  | $                      | 75,400  |  |                  | $ | 75,400  |           |  |   |          |  |  |                   |        |  |  |  |  | 
|Borrowings of Cooper River(3)      |  | $                      | 170,494 |  |                  | $ | 20,494  |           |  | $ | 150,000   |  |  |                   |        |  |  |  |  | 
|Borrowings of Wissahickon Creek(4) |  | $                      | 185,000 |  |                  |   |        |           |  |   |          |  |  | $                 | 185,000 |  |  |  |  | 
|Borrowings of Darby Creek(5)       |  | $                      | 249,500 |  |                  |   |        |           |  |   |          |  |  | $                 | 249,500 |  |  |  |  | 
|Borrowings of Dunning Creek(6)     |  | $                      | 230,800 |  |                  | $ | 230,800 |           |  |   |          |  |  |                   |        |  |  |  |  | 
|Borrowings of Juniata River(7)     |  | $                      | 180,000 |  |                  |   |        |           |  |   |          |  |  | $                 | 180,000 |  |  |  |  | 



|(1) | At December 31, 2014, no amounts remained unused under the JPM facility. Cobbs Creek will, on a quarterly basis, repurchase the Class A Notes sold to JPM
under the JPM facility and subsequently resell such Class A Notes to JPM. The final repurchase transaction is scheduled to occur no later than May 20, 2017.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | At December 31, 2014, $324,600 remained unused under the Goldman facility. All amounts under the Goldman facility will mature, and all accrued and unpaid interest
thereunder will be due and payable, on December 15, 2018.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | At December 31, 2014, $29,506 remained unused under the Cooper River facility. All amounts under the Cooper River facility will mature, and all accrued and unpaid
interest thereunder will be due and payable, on March 27, 2016. Amounts due on the facility will begin to amortize on June 27, 2015.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | At December 31, 2014, $65,000 remained unused under the Wissahickon Creek facility. All amounts under the Wissahickon Creek facility will mature, and all accrued
and unpaid interest thereunder will be due and payable, on February 19, 2019.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | At December 31, 2014, $500 remained unused under the Darby Creek facility. All amounts under the Darby Creek facility will mature, and all accrued and unpaid
interest thereunder will be due and payable, on February 20, 2018.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



99



---

##### Table of Contents

|(6) | At December 31, 2014, $19,200 remained unused under the Dunning Creek facility. All amounts under the Dunning Creek facility will mature, and all accrued and
unpaid interest thereunder will be due and payable, on May 14, 2015.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | At December 31, 2014, $120,000 remained unused under the Juniata River facility. All amounts under the Juniata River facility will mature, and all accrued and
unpaid interest thereunder will be due and payable, on November 14, 2019.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Off-Balance Sheet Arrangements

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

Recently Issued Accounting Standards

None.

Related Party Transactions

Compensation of the Investment Adviser and Dealer Manager

Pursuant to the
investment advisory and administrative services agreement, FSIC II Advisor is entitled to an annual base management fee of 2.0% of the average value of our gross assets and an incentive fee based on our performance. We commenced accruing fees
under the investment advisory and administrative services agreement on June 18, 2012, upon commencement of our investment operations. Base management fees are paid on a quarterly basis in arrears.

The incentive fee consists of two parts. The first part of the incentive fee, which is referred to as the subordinated incentive fee on
income, is calculated and payable quarterly in arrears, equals 20.0% of pre-incentive fee net investment income for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted capital, as
defined in the investment advisory and administrative services agreement, equal to 1.875% per quarter, or an annualized hurdle rate of 7.5%. As a result, FSIC II Advisor will not earn this incentive fee for any quarter until our pre-incentive
fee net investment income for such quarter exceeds the hurdle rate of 1.875%. Once our pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FSIC II Advisor will be entitled to a catch-up fee equal to the
amount of the pre-incentive fee net investment income in excess of the hurdle rate, until our pre-incentive fee net investment income for such quarter equals 2.34375%, or 9.375% annually, of adjusted capital. This catch-up feature allows
FSIC II Advisor to recoup the fees foregone as a result of the existence of the hurdle rate. Thereafter, FSIC II Advisor will be entitled to receive 20.0% of pre-incentive fee net investment income.

The second part of the incentive fee, which is referred to as the incentive fee on capital gains, is determined and payable in arrears as
of the end of each calendar year (or upon termination of the investment advisory and administrative services agreement). This fee equals 20.0% of our incentive fee capital gains, which equals our realized capital gains on a cumulative basis from
inception, calculated as of the end of the applicable period, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. We
accrue for the capital gains incentive fee, which, if earned, is paid annually. We accrue the capital gains incentive fee based on net realized and unrealized gains; however, under the terms of the investment advisory and administrative services
agreement, the fee payable to FSIC II Advisor is based on realized gains and no such fee is payable with respect to unrealized gains unless and until such gains are actually realized. See Critical Accounting PoliciesCapital
Gains Incentive Fee for a discussion of the treatment of the TRS (which was terminated on June 13, 2013) with respect to the calculation of the capital gains incentive fee.



100



---

##### Table of Contents

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

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

Prior to satisfaction of the minimum offering requirement and for a period of time thereafter, Franklin Square Holdings funded certain of
our organization and offering costs. Following this period, we paid certain of our organization and offering costs directly and reimbursed FSIC II Advisor for offering costs incurred by FSIC II Advisor on our behalf, including marketing
expenses, salaries and other direct expenses of FSIC II Advisors personnel and employees of its affiliates while engaged in registering and marketing our common shares. Organization and offering costs funded directly by Franklin Square
Holdings were recorded by us as a contribution to capital. The offering costs were offset against capital in excess of par value on our consolidated financial statements and the organization costs were charged to expense as incurred. All other
offering costs, including costs incurred directly by us, amounts reimbursed to FSIC II Advisor for ongoing offering costs and any reimbursements paid to Franklin Square Holdings for organization and offering costs previously funded, are
recorded as a reduction of capital.

The dealer manager for our continuous public offering was FS2, which is one of our affiliates. Under the dealer manager agreement
among us, FSIC II Advisor and FS2, FS2was entitled to receive sales commissions and dealer manager fees in
connection with the sale of shares of common stock in our continuous public offering, all or a portion of which were re-allowed to selected broker-dealers. The dealer manager agreement terminated in connection with the closing of our continuous
public offering in March 2014.



101



---

##### Table of Contents

The following table describes the fees and expenses accrued under the investment advisory
and administrative services agreement and the dealer manager agreement during the years ended December 31, 2014, 2013 and 2012:



|                |  |                                                           |  |                                         |  |                         |        |   |      |   |        |      |  |   |        | 
|--------------- |  | --------------------------------------------------------- |  | --------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | 
|                |  |                                                           |  |                                         |  | Year Ended December 31, |       
|Related Party   |  | Source Agreement                                          |  | Description                             |  | 2014                    |        |   | 2013 |   |        | 2012 | 
|FSIC II Advisor |  | Investment Advisory and Administrative Services Agreement |  | Base Management Fee(1)                  |  | $                       | 82,325 |   |      | $ | 38,677 |      |  | $ | 3,315  | 
|FSIC II Advisor |  | Investment Advisory and Administrative Services Agreement |  | Capital Gains Incentive Fee(2)          |  | $                       | (9,234 | ) |      | $ | 6,164  |      |  | $ | 3,548  | 
|FSIC II Advisor |  | Investment Advisory and Administrative Services Agreement |  | Subordinated Incentive
Fee on Income(3) |  | $                       | 33,251 |   |      | $ | 8,871  |      |  | $ |       | 
|FSIC II Advisor |  | Investment Advisory and Administrative Services Agreement |  | Administrative Services Expenses(4)     |  | $                       | 4,607  |   |      | $ | 2,732  |      |  | $ | 396    | 
|FSIC II Advisor |  | Investment Advisory and Administrative Services Agreement |  | Offering Costs(5)                       |  | $                       | 1,686  |   |      | $ | 7,900  |      |  | $ | 3,882  | 
|FS2             |  | Dealer Manager Agreement                                  |  | Dealer Manager Fee(6)                   |  | $                       | 8,821  |   |      | $ | 35,718 |      |  | $ | 10,025 | 



|(1) | During the years ended December 31, 2014, 2013 and 2012, $74,269, $26,131 and $114, respectively, in base management fees were paid to FSIC II Advisor. As of
December 31, 2014, $23,069 in base management fees were payable to FSIC II Advisor.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | During the year ended December 31, 2014, we reversed $9,234 of capital gains incentive fees previously accrued based on the performance of the portfolio. During
the years ended December 31, 2013 and 2012, we accrued capital gains incentive fees of $6,164 and $3,548, respectively, based on the performance of our portfolio, of which $6,164 and $3,070, respectively, was based on unrealized gains and $0,
and $478, respectively, was based on realized gains. No such fees are actually payable by us with respect to such unrealized gains unless and until those gains are actually realized. See Critical Accounting PoliciesCapital Gains
Incentive Fee for a discussion of the methodology employed by us in calculating the capital gains incentive fee. Effective as of March 31, 2013, FSIC II Advisor voluntarily agreed to waive any capital gains incentive fees calculated in
accordance with GAAP to the extent such fees exceeded those which would be payable in accordance with the look through methodology described more fully in Critical Accounting PoliciesCapital Gains Incentive Fee.
This waiver resulted in a reduction of $441 to the amount of capital gains incentive fees payable to FSIC II Advisor with respect to realized gains. Accordingly, we reduced the amount of accrued capital gains incentive fees payable to
FSIC II Advisor by $441 effective as of March 31, 2013. We did not pay any capital gains incentive fees to FSIC II Advisor during the year ended December 31, 2014. As of December 31, 2014, we did not have any accrued capital
gains incentive fees based on the performance of our portfolio.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | During the years ended December 31, 2014 and 2013, $17,917 and $8,871, respectively, of subordinated incentive fees on income were paid to FSIC II Advisor. As
of December 31, 2014, a subordinated incentive fee on income of $15,334 was payable to FSIC II Advisor.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | During the years ended December 31, 2014, 2013 and 2012, $4,173, $2,216 and $321, respectively, of administrative services expenses related to the allocation of
costs of administrative personnel for services rendered to us by FSIC II Advisor and the remainder related to other reimbursable expenses. We paid $3,333, $2,342 and $215, in administrative services expenses to FSIC II Advisor during the
years ended December 31, 2014, 2013 and 2012, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | During the years ended December 31, 2014, 2013 and 2012, the Company incurred offering costs of $1,686, $7,900, $3,882, respectively, of which
$1,087, $3,316, $996, respectively, related to reimbursements to FSIC II Advisor for offering costs incurred on the Companys behalf, including marketing expenses, salaries and other direct expenses of FSIC II Advisors personnel
and employees of its affiliates while engaged in registering and marketing the Companys common shares. In addition, during the year ended December 31, 2012, FSIC II Advisor
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



102



---

##### Table of Contents

| | and its affiliates directly funded 2,389 of the Companys organization and offering costs and the Company paid 3,202 to FSIC II Advisor and its affiliates for organization and offering costs
previously funded.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Represents aggregate sales commissions and dealer manager fees retained by FS2and not re-allowed to selected broker-dealers.
|--- | ----------------------------------------------------------------------------------------------------------------------------

Expense Reimbursement

Pursuant to the expense reimbursement agreement, Franklin Square Holdings has agreed to reimburse us for expenses in an amount that is
sufficient to ensure that no portion of our distributions to stockholders will be paid from proceeds from the sale of shares of our common stock or borrowings. See OverviewExpense Reimbursement for a detailed description of
the expense reimbursement agreement.

During the year ended December 31, 2012, we accrued $2,482 for reimbursements due
from Franklin Square Holdings under this arrangement, of which $847 was funded by Franklin Square Holdings during such period. As of December 31, 2012, we had $1,635 of reimbursements due from Franklin Square Holdings. In connection with FSIC
II Advisors voluntary agreement to waive $441 of accrued but unpaid capital gains incentive fees, a corresponding reduction was made to the amount of accrued expense reimbursements due from Franklin Square Holdings. During the year ended
December 31, 2013, this balance was offset against expense recoupment payable to sponsor. During the year ended December 31, 2013, we accrued an expense recoupment payable to sponsor of $2,041, which we offset against the reimbursements
due on our consolidated balance sheet as of December 31, 2012, and made expense recoupment payments of $847 to Franklin Square Holdings. As of December 31, 2014 and 2013, no further amounts remained subject to repayment by us to Franklin
Square Holdings in the future.

FS Benefit Trust

On May 30, 2013, FS Benefit Trust was formed as a Delaware statutory trust for the purpose of awarding equity incentive compensation to employees of Franklin Square Holdings and its
affiliates. In connection with our semi-monthly closing that occurred on June 17, 2013, FS Benefit Trust purchased approximately $34 of our shares of common stock at a purchase price equal to 90% of the offering price in effect on such
date, or $9.45 per share.

Potential Conflicts of Interest

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

See Note 4 to our consolidated financial statements contained in this annual report on Form 10-K for additional information regarding our
related party transactions and relationships, including our exemptive relief order from the SEC.



103



---

##### Table of Contents

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

We are subject to financial market risks, including changes in interest rates. As of December 31, 2014, 76.8% of our portfolio investments (based on fair value) paid variable interest rates, 18.8%
paid fixed interest rates, 4.1% were non-income producing equity or other investments and the remaining 0.3% were income producing equity/other investments. A rise in the general level of interest rates can be expected to lead to higher
interest rates applicable to any variable rate investments we hold and to declines in the value of any fixed rate investments we hold. However, many of our variable rate investments provide for an interest rate floor, which may prevent our interest
income from increasing until benchmark interest rates increase beyond a threshold amount. To the extent that a substantial portion of our investments may be in variable rate investments, an increase in interest rates beyond this point would make it
easier for us to meet or exceed the hurdle rate applicable to the subordinated incentive fee on income under, the investment advisory and administrative services agreement we have entered into with FSIC II Advisor, and may result in a substantial
increase in our net investment income and to the amount of incentive fees payable to FSIC II Advisor with respect to our increased pre-incentive fee net investment income.

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

The following table shows the effect over a twelve month period of changes in interest rates on our interest income, interest expense and net interest income, assuming no changes in the composition of our
investment portfolio, including the accrual status of our investments, and our financing arrangements in effect as of December 31, 2014 (dollar amounts are presented in thousands):



|                                     |  |                                        |         |   |                                      |   |        |                                          |  |   |                                         |   |  |  |      |   
|------------------------------------ |  | -------------------------------------- | ------- | - | ------------------------------------ | - | ------ | ---------------------------------------- |  | - | --------------------------------------- | - |  |  | ---- | --
|Basis Point Change in Interest Rates |  | Increase(Decrease)in InterestIncome(1) |         |   | Increase(Decrease)in InterestExpense |   |        | Increase(Decrease) 
inNet InterestIncome |  |   | PercentageChange in 
NetInterest Income |  
|Down 25 basis points                 |  | $                                      | (222    | ) |                                      | $ | (2,528 | )                                        |  | $ | 2,306                                   |   |  |  | 0.6  | % 
|Current LIBOR                        |  |                                        |        |   |                                      |   |       |                                          |  |   |                                        |   |  |  |     |   
|Up 100 basis points                  |  |                                        | 5,134   |   |                                      |   | 10,114 |                                          |  |   | (4,980                                  | ) |  |  | (1.3 | )%
|Up 300 basis points                  |  |                                        | 68,281  |   |                                      |   | 30,341 |                                          |  |   | 37,940                                  |   |  |  | 10.2 | % 
|Up 500 basis points                  |  |                                        | 133,968 |   |                                      |   | 50,569 |                                          |  |   | 83,399                                  |   |  |  | 22.3 | % 



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

We expect that our long-term investments will be financed primarily with equity and debt. If deemed prudent, we may use interest rate
risk management techniques in an effort to minimize our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. Adverse developments resulting from
changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. During the years ended December 31, 2014, 2013 and 2012, we did not engage in interest rate
hedging activities.

In addition, we may have risk regarding portfolio valuation. See Item 2. Managements
Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting PoliciesValuation of Portfolio Investments.



104



---

##### Table of Contents

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

Index to Financial Statements



|                                                                                                      |  |      |     | 
|----------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                      |  | Page |    
|Managements Report on Internal Control Over Financial Reporting                                      |  |      | 106 | 
|Report of Independent Registered Public Accounting Firm                                               |  |      | 107 | 
|Report of Independent Registered Public Accounting Firm                                               |  |      | 108 | 
|Consolidated Balance Sheets as of December 31, 2014 and 2013                                          |  |      | 109 | 
|Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and
2012            |  |      | 110 | 
|Consolidated Statements of Changes in Net Assets for the years ended December 31, 2014, 2013 and
2012 |  |      | 111 | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and
2012            |  |      | 112 | 
|Consolidated Schedules of Investments as of December 31, 2014 and 2013                                |  |      | 113 | 
|Notes to Consolidated Financial Statements                                                            |  |      | 132 | 



105



---

##### Table of Contents

MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial
reporting. In connection with the preparation of our annual financial statements, management has conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 (COSO). Managements assessment included an evaluation of the design of our internal control over
financial reporting and testing of the operational effectiveness of those controls. Based on this evaluation, we have concluded that, as of December 31, 2014, our internal control over financial reporting was effective to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our internal control over financial reporting as of
December 31, 2014 has been audited by our independent registered public accounting firm.



106



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

FS Investment Corporation II

Philadelphia, Pennsylvania

We have audited FS Investment Corporation IIs internal control over financial reporting as of December 31, 2014, based on
criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. FS Investment Corporation IIs management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Managements Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the companys internal control over financial reporting based on our audit.

We conducted our
audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies
and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial
statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

In our opinion, FS Investment Corporation II maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2014, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
balance sheets, including the consolidated schedules of investments, of FS Investment Corporation II as of December 31, 2014 and 2013, 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, 2014 and our report dated March 18, 2015 expressed an unqualified opinion.

/s/
McGladrey LLP

Blue Bell, Pennsylvania

March 18, 2015



107



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

FS Investment Corporation II

Philadelphia, Pennsylvania

We have audited the accompanying consolidated balance sheets, including the consolidated schedules of investments, of FS Investment
Corporation II (the Company) as of December 31, 2014 and 2013, 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, 2014.
These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities
owned as of December 31, 2014 and 2013 by correspondence with the custodians and brokers, or by other appropriate auditing procedures where replies from custodians and brokers were not received. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of FS Investment Corporation II as of December 31, 2014 and 2013 and the results of their operations, their cash flows and the changes in their net assets for each of the three years in the period ended
December 31, 2014, in conformity with U.S. generally accepted accounting principles.

We have also audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), FS Investment Corporation IIs internal control over financial reporting as of December 31, 2014, based on criteria established in Internal
ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 18, 2015 expressed an unqualified opinion on the effectiveness of FS Investment
Corporations internal control over financial reporting.

/s/ McGladrey LLP

Blue Bell, Pennsylvania

March 18, 2015



108



---

##### Table of Contents

FS Investment Corporation II

Consolidated Balance Sheets

(in thousands, except share and per share amounts)







|                                                                                                                                       |  |              |           |   |      |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | - | ---- | - | --------- | -
|                                                                                                                                       |  | December 31, |          
|                                                                                                                                       |  | 2014         |           |   | 2013 |  
|Assets                                                                                                                                 |  |              |           |   |      |   |           |  
|Investments, at fair value (amortized cost$4,409,806 and $2,626,969, respectively)                                                    |  | $            | 4,396,228 |   |      | $ | 2,655,828 |  
|Cash                                                                                                                                   |  |              | 224,583   |   |      |   | 581,632   |  
|Collateral held at broker for open credit default swap contracts                                                                       |  |              | 37,951    |   |      |   |          |  
|Receivable for investments sold and repaid                                                                                             |  |              | 3,698     |   |      |   | 52,817    |  
|Interest receivable                                                                                                                    |  |              | 56,320    |   |      |   | 29,855    |  
|Receivable for common stock purchased                                                                                                  |  |              |          |   |      |   | 532       |  
|Deferred financing costs                                                                                                               |  |              | 7,728     |   |      |   | 1,273     |  
|Prepaid expenses and other assets                                                                                                      |  |              | 1         |   |      |   | 30        |  
|Receivable on credit default swaps                                                                                                     |  |              | 62        |   |      |   |          |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Total assets                                                                                                                           |  | $            | 4,726,571 |   |      | $ | 3,321,967 |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|                                                                                                                                       |  |             
|Liabilities                                                                                                                            |  |              |           |   |      |   |           |  
|Payable for investments purchased                                                                                                      |  | $            | 84,272    |   |      | $ | 163,785   |  
|Repurchase agreements payable(1)                                                                                                       |  |              | 625,400   |   |      |   | 550,000   |  
|Credit facilities payable                                                                                                              |  |              | 1,015,794 |   |      |   | 170,494   |  
|Stockholder distributions payable                                                                                                      |  |              | 9,085     |   |      |   | 17,826    |  
|Management fees payable                                                                                                                |  |              | 23,069    |   |      |   | 15,013    |  
|Accrued capital gains incentive fees(2)                                                                                                |  |              |          |   |      |   | 9,234     |  
|Subordinated income incentive fees payable(2)                                                                                          |  |              | 15,334    |   |      |   |          |  
|Administrative services expense payable                                                                                                |  |              | 1,845     |   |      |   | 571       |  
|Interest payable                                                                                                                       |  |              | 6,882     |   |      |   | 2,858     |  
|Directors fees payable                                                                                                                |  |              | 262       |   |      |   | 183       |  
|Unamortized swap premiums received                                                                                                     |  |              | 10,622    |   |      |   |          |  
|Unrealized depreciation on credit default swaps                                                                                        |  |              | 19,426    |   |      |   |          |  
|Other accrued expenses and liabilities                                                                                                 |  |              | 2,790     |   |      |   | 1,018     |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Total liabilities                                                                                                                      |  |              | 1,814,781 |   |      |   | 930,982   |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Commitments and contingencies(3)                                                                                                       |  |              |           |   |      |   |           |  
|                                                                                                                                       |  |             
|Stockholders equity                                                                                                                   |  |              |           |   |      |   |           |  
|Preferred stock, $0.001 par value, 50,000,000 shares authorized, none issued and outstanding                                           |  |              |          |   |      |   |          |  
|Common stock, $0.001 par value, 450,000,000 shares authorized, 313,037,127 and 254,572,096 shares issued and outstanding,
respectively |  |              | 313       |   |      |   | 255       |  
|Capital in excess of par value                                                                                                         |  |              | 2,914,177 |   |      |   | 2,363,943 |  
|Accumulated undistributed net realized gains on investments and total return swap and gain/loss on foreign currency(4)                 |  |              | 8,168     |   |      |   | 7,911     |  
|Accumulated undistributed (distributions in excess of) net investment income(4)                                                        |  |              | 22,143    |   |      |   | (9,983    | )
|Net unrealized appreciation (depreciation) on investments and credit default swaps and unrealized gain/loss on foreign
currency        |  |              | (33,011   | ) |      |   | 28,859    |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Total stockholders equity                                                                                                             |  |              | 2,911,790 |   |      |   | 2,390,985 |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Total liabilities and stockholders equity                                                                                             |  | $            | 4,726,571 |   |      | $ | 3,321,967 |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Net asset value per share of common stock at year end                                                                                  |  | $            | 9.30      |   |      | $ | 9.39      |  
|                                                                                                                                       |  |              |           |   |      |   |           |  



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



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



|(3) | See Note 10 for a discussion of the Companys commitments and contingencies
|--- | ---------------------------------------------------------------------------



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

See notes to consolidated financial statements.



109



---

##### Table of Contents

FS Investment Corporation II

Consolidated Statements of Operations

(in thousands, except share and per share amounts)







|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|------------------------------------------------------------------------------------ |  | ----------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ---------- | -
|                                                                                     |  | Year Ended December 31, |            
|                                                                                     |  | 2014                    |             |   | 2013 |   |             | 2012 | 
|Investment income                                                                    |  |                         |             |   |      |   |             |      |  |   |            |  
|Interest income                                                                      |  | $                       | 337,276     |   |      | $ | 145,783     |      |  | $ | 8,539      |  
|Fee income                                                                           |  |                         | 60,540      |   |      |   | 21,550      |      |  |   | 945        |  
|Dividend income                                                                      |  |                         | 967         |   |      |   | 360         |      |  |   |           |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Total investment income                                                              |  |                         | 398,783     |   |      |   | 167,693     |      |  |   | 9,484      |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|                                                                                     |  |                         |            
|Operating expenses                                                                   |  |                         |             |   |      |   |             |      |  |   |            |  
|Management fees                                                                      |  |                         | 82,325      |   |      |   | 38,677      |      |  |   | 3,315      |  
|Capital gains incentive fees(1)                                                      |  |                         | (9,234      | ) |      |   | 6,164       |      |  |   | 3,548      |  
|Subordinated income incentive fees(1)                                                |  |                         | 33,251      |   |      |   | 8,871       |      |  |   |           |  
|Administrative services expenses                                                     |  |                         | 4,607       |   |      |   | 2,732       |      |  |   | 396        |  
|Stock transfer agent fees                                                            |  |                         | 2,749       |   |      |   | 2,357       |      |  |   | 540        |  
|Accounting and administrative fees                                                   |  |                         | 1,798       |   |      |   | 642         |      |  |   | 85         |  
|Interest expense                                                                     |  |                         | 33,496      |   |      |   | 12,286      |      |  |   | 291        |  
|Organization costs                                                                   |  |                         |            |   |      |   |            |      |  |   | 205        |  
|Directors fees                                                                      |  |                         | 939         |   |      |   | 656         |      |  |   | 199        |  
|Other general and administrative expenses                                            |  |                         | 4,949       |   |      |   | 2,593       |      |  |   | 578        |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Operating expenses                                                                   |  |                         | 154,880     |   |      |   | 74,978      |      |  |   | 9,157      |  
|Less: Expense reimbursement from sponsor(2)                                          |  |                         |            |   |      |   |            |      |  |   | (2,482     | )
|Add: Expense recoupment to sponsor(2)                                                |  |                         |            |   |      |   | 2,041       |      |  |   |           |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Net operating expenses                                                               |  |                         | 154,880     |   |      |   | 77,019      |      |  |   | 6,675      |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Net investment income before taxes                                                   |  |                         | 243,903     |   |      |   | 90,674      |      |  |   | 2,809      |  
|Excise taxes                                                                         |  |                         | 1,227       |   |      |   |            |      |  |   |           |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Net investment income                                                                |  |                         | 242,676     |   |      |   | 90,674      |      |  |   | 2,809      |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|                                                                                     |  |                         |            
|Realized and unrealized gain/loss                                                    |  |                         |             |   |      |   |             |      |  |   |            |  
|Net realized gain (loss) on investments                                              |  |                         | 2,931       |   |      |   | 5,343       |      |  |   | 2,625      |  
|Net realized gain (loss) on total return swap(3)                                     |  |                         |            |   |      |   | 19,689      |      |  |   | 1,566      |  
|Net realized gain (loss) on credit default swaps                                     |  |                         | 7,535       |   |      |   |            |      |  |   |           |  
|Net realized gain (loss) on foreign currency                                         |  |                         | (304        | ) |      |   | (144        | )    |  |   | (142       | )
|Net change in unrealized appreciation (depreciation) on investments                  |  |                         | (42,437     | ) |      |   | 20,823      |      |  |   | 8,036      |  
|Net change in unrealized appreciation (depreciation) on total return
swap(3)         |  |                         |            |   |      |   | (5,641      | )    |  |   | 5,641      |  
|Net change in unrealized appreciation (depreciation) on credit default swaps         |  |                         | (19,426     | ) |      |   |            |      |  |   |           |  
|Net change in unrealized gain (loss) on foreign currency                             |  |                         | (7          | ) |      |   | 130         |      |  |   | (130       | )
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Total net realized and unrealized gain (loss) on investments                         |  |                         | (51,708     | ) |      |   | 40,200      |      |  |   | 17,596     |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Net increase (decrease) in net assets resulting from operations                      |  | $                       | 190,968     |   |      | $ | 130,874     |      |  | $ | 20,405     |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Per share informationbasic and diluted(4)                                           |  |                         |             |   |      |   |             |      |  |   |            |  
|Net increase (decrease) in net assets resulting from operations (Earnings per Share) |  | $                       | 0.63        |   |      | $ | 0.89        |      |  | $ | 0.85       |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Weighted average shares outstanding                                                  |  |                         | 302,935,663 |   |      |   | 146,917,410 |      |  |   | 24,067,734 |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  



|(1) | See Note 2 and Note 4 for a discussion of the methodology employed by the Company in calculating the capital gains incentive fees and subordinated income incentive
fees.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | See Note 4 for a discussion of expense reimbursements paid to the Company by its investment adviser and affiliates and recoupment of such amounts paid by the
Company to its investment adviser and affiliates.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | On June 13, 2013, the Company terminated its total return swap agreement with Citibank, N.A.
|--- | --------------------------------------------------------------------------------------------



|(4) | The weighted average shares used in the per share computation of the net increase (decrease) in net assets resulting from operations is based on the weighted average
shares outstanding during the years ended December 31, 2014 and 2013 and the period from June 18, 2012 (Commencement of Operations) through December 31, 2012, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See notes to consolidated financial statements.



110



---

##### Table of Contents

FS Investment Corporation II

Consolidated Statements of Changes in Net Assets

(in thousands)







|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |         |  
|-------------------------------------------------------------------------------------------------------- |  | ----------------------- | --------- | - | ---- | - | --------- | ---- |  | - | ------- | -
|                                                                                                         |  | Year Ended December 31, |          
|                                                                                                         |  | 2014                    |           |   | 2013 |   |           | 2012 | 
|Operations                                                                                               |  |                         |           |   |      |   |           |      |  |   |         |  
|Net investment income (loss)                                                                             |  | $                       | 242,676   |   |      | $ | 90,674    |      |  | $ | 2,809   |  
|Net realized gain (loss) on investments, total return swap, credit default swaps and foreign currency(1) |  |                         | 10,162    |   |      |   | 24,888    |      |  |   | 4,049   |  
|Net change in unrealized appreciation (depreciation) on investments                                      |  |                         | (42,437   | ) |      |   | 20,823    |      |  |   | 8,036   |  
|Net change in unrealized appreciation (depreciation) on total return
swap(1)                             |  |                         |          |   |      |   | (5,641    | )    |  |   | 5,641   |  
|Net change in unrealized appreciation (depreciation) on credit default swaps                             |  |                         | (19,426   | ) |      |   |          |      |  |   |        |  
|Net change in unrealized gain (loss) on foreign currency                                                 |  |                         | (7        | ) |      |   | 130       |      |  |   | (130    | )
|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |         |  
|Net increase (decrease) in net assets resulting from operations                                          |  |                         | 190,968   |   |      |   | 130,874   |      |  |   | 20,405  |  
|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |         |  
|Stockholder distributions(2)                                                                             |  |                         |           |   |      |   |           |      |  |   |         |  
|Distributions from net investment income                                                                 |  |                         | (208,059  | ) |      |   | (104,102  | )    |  |   | (7,334  | )
|Distributions from net realized gain on investments                                                      |  |                         | (15,495   | ) |      |   | (10,205   | )    |  |   | (2,986  | )
|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |         |  
|Net decrease in net assets resulting from stockholder distributions                                      |  |                         | (223,554  | ) |      |   | (114,307  | )    |  |   | (10,320 | )
|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |         |  
|Capital share transactions                                                                               |  |                         |           |   |      |   |           |      |  |   |         |  
|Issuance of common stock                                                                                 |  |                         | 442,395   |   |      |   | 1,804,981 |      |  |   | 518,754 |  
|Reinvestment of stockholder distributions                                                                |  |                         | 129,347   |   |      |   | 52,057    |      |  |   | 3,608   |  
|Repurchases of common stock                                                                              |  |                         | (16,665   | ) |      |   | (2,447    | )    |  |   | (225    | )
|Offering costs                                                                                           |  |                         | (1,686    | ) |      |   | (7,900    | )    |  |   | (3,882  | )
|Payments to investment advisor for organization and offering costs(3)                                    |  |                         |          |   |      |   |          |      |  |   | (3,202  | )
|Capital contributions of investment adviser                                                              |  |                         |          |   |      |   |          |      |  |   | 2,389   |  
|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |         |  
|Net increase in net assets resulting from capital share transactions                                     |  |                         | 553,391   |   |      |   | 1,846,691 |      |  |   | 517,442 |  
|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |         |  
|Total increase in net assets                                                                             |  |                         | 520,805   |   |      |   | 1,863,258 |      |  |   | 527,527 |  
|Net assets at beginning of period                                                                        |  |                         | 2,390,985 |   |      |   | 527,727   |      |  |   | 200     |  
|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |         |  
|Net assets at end of period                                                                              |  | $                       | 2,911,790 |   |      | $ | 2,390,985 |      |  | $ | 527,727 |  
|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |         |  
|Accumulated undistributed (distributions in excess of) net investment income(2)                          |  | $                       | 22,143    |   |      | $ | (9,983    | )    |  | $ | (3,482  | )
|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |         |  



|(1) | On June 13, 2013, the Company terminated its total return swap agreement with Citibank, N.A.
|--- | --------------------------------------------------------------------------------------------



|(2) | See Note 5 for a discussion of the sources of distributions paid by the Company.
|--- | --------------------------------------------------------------------------------



|(3) | See Note 4 for a discussion of reimbursements paid by the Company to its investment adviser and affiliates.
|--- | -----------------------------------------------------------------------------------------------------------

See notes to consolidated financial statements.



111



---

##### Table of Contents

FS Investment Corporation II

Consolidated Statements of Cash Flows

(in thousands)







|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | -------- | -
|                                                                                                                                   |  | Year Ended December 31, |           
|                                                                                                                                   |  | 2014                    |            |   | 2013 |   |            | 2012 | 
|Cash flows from operating activities                                                                                               |  |                         |            |   |      |   |            |      |  |   |          |  
|Net increase (decrease) in net assets resulting from operations                                                                    |  | $                       | 190,968    |   |      | $ | 130,874    |      |  | $ | 20,405   |  
|Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating
activities: |  |                         |            |   |      |   |            |      |  |   |          |  
|Purchases of investments                                                                                                           |  |                         | (3,382,134 | ) |      |   | (2,838,032 | )    |  |   | (681,503 | )
|Paid-in-kind interest                                                                                                              |  |                         | (10,735    | ) |      |   | (1,819     | )    |  |   |         |  
|Proceeds from sales and repayments of investments                                                                                  |  |                         | 1,625,100  |   |      |   | 711,652    |      |  |   | 204,248  |  
|Net realized (gain) loss on investments                                                                                            |  |                         | (2,931     | ) |      |   | (5,343     | )    |  |   | (2,625   | )
|Net change in unrealized (appreciation) depreciation on investments                                                                |  |                         | 42,437     |   |      |   | (20,823    | )    |  |   | (8,036   | )
|Net change in unrealized (appreciation) depreciation on total return swap(1)                                                       |  |                         |           |   |      |   | 5,641      |      |  |   | (5,641   | )
|Net change in unrealized (appreciation) depreciation on credit default swap                                                        |  |                         | 19,426     |   |      |   |           |      |  |   |         |  
|Accretion of discount                                                                                                              |  |                         | (12,137    | ) |      |   | (12,821    | )    |  |   | (726     | )
|Amortization of deferred financing costs                                                                                           |  |                         | 2,071      |   |      |   | 446        |      |  |   | 17       |  
|(Increase) decrease in due from counterparty                                                                                       |  |                         |           |   |      |   | 97,441     |      |  |   | (97,441  | )
|(Increase) decrease in collateral held at broker for open swap contracts                                                           |  |                         | (37,951    | ) |      |   |           |      |  |   |         |  
|(Increase) decrease in receivable for investments sold and repaid                                                                  |  |                         | 49,119     |   |      |   | (49,279    | )    |  |   | (3,538   | )
|(Increase) decrease in expense reimbursement due from
sponsor(2)                                                                   |  |                         |           |   |      |   | 1,635      |      |  |   | (1,635   | )
|(Increase) decrease in interest receivable                                                                                         |  |                         | (26,465    | ) |      |   | (25,724    | )    |  |   | (4,131   | )
|(Increase) decrease in receivable for credit default swaps                                                                         |  |                         | (62        | ) |      |   |           |      |  |   |         |  
|(Increase) decrease in receivable due on total return
swap(1)                                                                      |  |                         |           |   |      |   | 396        |      |  |   | (396     | )
|(Increase) decrease in prepaid expenses and other assets                                                                           |  |                         | 29         |   |      |   | 70         |      |  |   | (100     | )
|Increase (decrease) in payable for investments purchased                                                                           |  |                         | (79,513    | ) |      |   | 110,149    |      |  |   | 53,636   |  
|Increase (decrease) in management fees payable                                                                                     |  |                         | 8,056      |   |      |   | 12,546     |      |  |   | 2,467    |  
|Increase (decrease) in accrued capital gains incentive fees                                                                        |  |                         | (9,234     | ) |      |   | 5,686      |      |  |   | 3,548    |  
|Increase (decrease) in subordinated income incentive fees payable                                                                  |  |                         | 15,334     |   |      |   |           |      |  |   |         |  
|Increase (decrease) in administrative services expense payable                                                                     |  |                         | 1,274      |   |      |   | 390        |      |  |   | 181      |  
|Increase (decrease) in interest payable                                                                                            |  |                         | 4,024      |   |      |   | 2,584      |      |  |   | 274      |  
|Increase (decrease) in directors fees payable                                                                                     |  |                         | 79         |   |      |   | 183        |      |  |   |         |  
|Increase (decrease) in unamortized swap premiums received                                                                          |  |                         | 10,622     |   |      |   |           |      |  |   |         |  
|Increase (decrease) in other accrued expenses and liabilities                                                                      |  |                         | 1,772      |   |      |   | 370        |      |  |   | 648      |  
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |          |  
|Net cash used in operating activities                                                                                              |  |                         | (1,590,851 | ) |      |   | (1,873,778 | )    |  |   | (520,348 | )
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |          |  
|Cash flows from financing activities                                                                                               |  |                         |            |   |      |   |            |      |  |   |          |  
|Issuance of common stock                                                                                                           |  |                         | 442,927    |   |      |   | 1,804,931  |      |  |   | 518,272  |  
|Reinvestment of stockholder distributions                                                                                          |  |                         | 129,347    |   |      |   | 52,057     |      |  |   | 3,608    |  
|Repurchases of common stock                                                                                                        |  |                         | (16,665    | ) |      |   | (2,447     | )    |  |   | (225     | )
|Offering costs                                                                                                                     |  |                         | (1,686     | ) |      |   | (7,900     | )    |  |   | (3,882   | )
|Capital contributions of investment adviser                                                                                        |  |                         |           |   |      |   |           |      |  |   | 2,389    |  
|Payments to investment advisor for organization and offering costs(3)                                                              |  |                         |           |   |      |   |           |      |  |   | (3,202   | )
|Stockholder distributions                                                                                                          |  |                         | (232,295   | ) |      |   | (99,825    | )    |  |   | (6,976   | )
|Borrowings under credit facilities(4)                                                                                              |  |                         | 845,300    |   |      |   | 170,494    |      |  |   |         |  
|Borrowings under repurchase
agreements(5)                                                                                          |  |                         | 75,400     |   |      |   | 432,500    |      |  |   | 117,500  |  
|Deferred financing costs paid                                                                                                      |  |                         | (8,526     | ) |      |   | (1,557     | )    |  |   | (179     | )
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |          |  
|Net cash provided by financing activities                                                                                          |  |                         | 1,233,802  |   |      |   | 2,348,253  |      |  |   | 627,305  |  
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |          |  
|Total increase (decrease) in cash                                                                                                  |  |                         | (357,049   | ) |      |   | 474,475    |      |  |   | 106,957  |  
|Cash at beginning of period                                                                                                        |  |                         | 581,632    |   |      |   | 107,157    |      |  |   | 200      |  
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |          |  
|Cash at end of period                                                                                                              |  | $                       | 224,583    |   |      | $ | 581,632    |      |  | $ | 107,157  |  
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |          |  
|Supplemental disclosure                                                                                                            |  |                         |            |   |      |   |            |      |  |   |          |  
|Local and excise taxes paid                                                                                                        |  | $                       | 469        |   |      | $ | 117        |      |  | $ |         |  
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |          |  



|(1) | See Note 8 for a discussion of the Companys total return swap agreement, which was terminated on June 13, 2013.
|--- | ----------------------------------------------------------------------------------------------------------------



|(2) | See Note 4 for a discussion of expense reimbursements paid to the Company by its investment adviser and affiliates and recoupment of such amounts paid by the
Company to its investment adviser and affiliates.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | See Note 4 for a discussion of reimbursements paid by the Company to its investment adviser and affiliates.
|--- | -----------------------------------------------------------------------------------------------------------



|(4) | See Note 8 for a discussion of the Companys revolving credit facilities. During the years ended December 31, 2014 and 2013, the Company paid $9,279 and
$1,193 in interest expense on the credit facilities.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | See Note 8 for a discussion of the Companys repurchase transactions. During the years ended December 31, 2014, 2013 and 2012, the Company paid $18,123,
$8,063 and $0, respectively, in interest expense pursuant to its repurchase agreements.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See notes to
consolidated financial statements.



112



---

##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments

As of December 31, 2014

(in thousands, except share amounts)







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



See
notes to consolidated financial statements.



113



---

##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)







|                                            |  |              |  |                                                |  |                               |  |       |  |          |  |                    |        |  |               |   |        |               |  |   |        | 
|------------------------------------------- |  | ------------ |  | ---------------------------------------------- |  | ----------------------------- |  | ----- |  | -------- |  | ------------------ | ------ |  | ------------- | - | ------ | ------------- |  | - | ------ | 
|Portfolio
Company(a)                        |  | Footnotes    |  | Industry                                       |  | Rate(b)                       |  | Floor |  | Maturity |  | PrincipalAmount(c) |        |  | AmortizedCost |   |        | Fair Value(d) | 
|Corner Investment PropCo, LLC               |  | (e)(g)(k)    |  | Consumer Services                              |  | L+975                         |  | 1.3%  |  | 11/2/19  |  | $                  | 40,975 |  |               | $ | 41,503 |               |  | $ | 40,771 | 
|CoSentry.Net, LLC                           |  | (e)(f)(i)    |  | Software & Services                            |  | L+800                         |  | 1.3%  |  | 12/31/19 |  |                    | 57,945 |  |               |   | 57,945 |               |  |   | 58,235 | 
|Crestwood Holdings LLC                      |  | (g)          |  | Energy                                         |  | L+600                         |  | 1.0%  |  | 6/19/19  |  |                    | 5,452  |  |               |   | 5,432  |               |  |   | 5,176  | 
|Del Monte Foods Consumer Products, Inc.     |  | (i)(o)       |  | Food, Beverage & Tobacco                       |  | L+325                         |  | 1.0%  |  | 2/18/21  |  |                    | 2,788  |  |               |   | 2,775  |               |  |   | 2,563  | 
|Eastman Kodak Co.                           |  | (g)          |  | Consumer Durables & Apparel                    |  | L+625                         |  | 1.0%  |  | 9/3/19   |  |                    | 7,164  |  |               |   | 7,046  |               |  |   | 7,185  | 
|EnergySolutions, LLC                        |  | (g)          |  | Energy                                         |  | L+575                         |  | 1.0%  |  | 5/29/20  |  |                    | 4,342  |  |               |   | 4,260  |               |  |   | 4,341  | 
|FairPoint Communications, Inc.              |  | (e)(h)(o)    |  | Telecommunication Services                     |  | L+625                         |  | 1.3%  |  | 2/14/19  |  |                    | 16,505 |  |               |   | 16,693 |               |  |   | 16,412 | 
|Fairway Group Acquisition Co.               |  | (g)(n)       |  | Food & Staples Retailing                       |  | L+400                         |  | 1.0%  |  | 8/17/18  |  |                    | 9,482  |  |               |   | 8,162  |               |  |   | 8,155  | 
|Fox Head, Inc.                              |  | (h)(k)(l)    |  | Consumer Durables & Apparel                    |  | L+850                         |  | 1.0%  |  | 12/19/20 |  |                    | 13,286 |  |               |   | 13,286 |               |  |   | 13,286 | 
|FR Dixie Acquisition Corp.                  |  | (g)          |  | Energy                                         |  | L+475                         |  | 1.0%  |  | 12/18/20 |  |                    | 4,168  |  |               |   | 4,150  |               |  |   | 3,460  | 
|FR Utility Services LLC                     |  | (g)          |  | Energy                                         |  | L+575                         |  | 1.0%  |  | 10/18/19 |  |                    | 571    |  |               |   | 571    |               |  |   | 569    | 
|Fram Group Holdings Inc.                    |  | (g)          |  | Automobiles & Components                       |  | L+500                         |  | 1.5%  |  | 7/29/17  |  |                    | 2,002  |  |               |   | 2,022  |               |  |   | 1,993  | 
|Hybrid Promotions, LLC                      |  | (h)(k)(l)    |  | Consumer Durables & Apparel                    |  | L+850                         |  | 1.0%  |  | 12/19/20 |  |                    | 48,714 |  |               |   | 48,714 |               |  |   | 48,714 | 
|Ikaria Acquisition Inc.                     |  | (g)          |  | Pharmaceuticals, Biotechnology & Life Sciences |  | L+400                         |  | 1.0%  |  | 2/12/21  |  |                    | 419    |  |               |   | 417    |               |  |   | 418    | 
|Industrial Group Intermediate Holdings, LLC |  | (h)(i)(k)(l) |  | Materials                                      |  | L+800                         |  | 1.3%  |  | 5/31/20  |  |                    | 84,355 |  |               |   | 84,355 |               |  |   | 84,355 | 
|Industry City TI Lessor, L.P.               |  | (k)          |  | Consumer Services                              |  | 5.0%, 5.3% PIK (5.3% Max PIK) |  |       |  | 6/30/26  |  |                    | 9,904  |  |               |   | 9,904  |               |  |   | 9,755  | 
|Internap Network Services Corp.             |  | (g)(o)       |  | Software & Services                            |  | L+500                         |  | 1.0%  |  | 11/26/19 |  |                    | 5,910  |  |               |   | 5,861  |               |  |   | 5,888  | 
|Intralinks, Inc.                            |  | (g)(h)(k)(o) |  | Software & Services                            |  | L+525                         |  | 2.0%  |  | 2/24/19  |  |                    | 24,813 |  |               |   | 24,603 |               |  |   | 24,502 | 
|Intrawest Operations Group, LLC             |  | (i)          |  | Consumer Services                              |  | L+450                         |  | 1.0%  |  | 12/9/20  |  |                    | 4,417  |  |               |   | 4,386  |               |  |   | 4,421  | 
|Kanders C3 Holdings, LLC                    |  | (e)(f)       |  | Capital Goods                                  |  | L+900                         |  | 1.3%  |  | 12/19/18 |  |                    | 20,400 |  |               |   | 20,265 |               |  |   | 21,232 | 
|Kanders C3 Holdings, LLC                    |  | (e)(f)       |  | Capital Goods                                  |  | L+900                         |  | 1.3%  |  | 12/19/18 |  |                    | 1,765  |  |               |   | 1,754  |               |  |   | 1,783  | 
|Kanders C3 Holdings, LLC                    |  | (s)          |  | Capital Goods                                  |  | L+900                         |  | 1.3%  |  | 12/19/18 |  |                    | 10,204 |  |               |   | 10,204 |               |  |   | 10,307 | 
|Lantiq Deutschland GmbH                     |  | (e)(o)       |  | Software & Services                            |  | L+900                         |  | 2.0%  |  | 11/16/15 |  |                    | 975    |  |               |   | 949    |               |  |   | 970    | 
|Larchmont Resources, LLC                    |  | (g)          |  | Energy                                         |  | L+725                         |  | 1.0%  |  | 8/7/19   |  |                    | 7,317  |  |               |   | 7,258  |               |  |   | 7,116  | 
|MB Precision Holdings LLC                   |  | (e)(h)(i)(k) |  | Capital Goods                                  |  | L+725                         |  | 1.3%  |  | 1/23/20  |  |                    | 62,370 |  |               |   | 62,370 |               |  |   | 61,746 | 
|MMI International Ltd.                      |  | (g)(l)(o)    |  | Technology Hardware & Equipment                |  | L+600                         |  | 1.3%  |  | 11/20/18 |  |                    | 6,180  |  |               |   | 6,049  |               |  |   | 6,107  | 
|MMM Holdings, Inc.                          |  | (g)          |  | Health Care Equipment & Services               |  | L+825                         |  | 1.5%  |  | 12/12/17 |  |                    | 2,687  |  |               |   | 2,700  |               |  |   | 2,606  | 
|MModal Inc.                                 |  | (e)(g)       |  | Health Care Equipment & Services               |  | L+775                         |  | 1.3%  |  | 1/31/20  |  |                    | 10,111 |  |               |   | 10,064 |               |  |   | 9,922  | 
|Mood Media Corp.                            |  | (g)(o)       |  | Media                                          |  | L+600                         |  | 1.0%  |  | 5/1/19   |  |                    | 1,807  |  |               |   | 1,791  |               |  |   | 1,774  | 
|Moxie Liberty LLC                           |  | (g)(i)       |  | Energy                                         |  | L+650                         |  | 1.0%  |  | 8/21/20  |  |                    | 11,853 |  |               |   | 11,897 |               |  |   | 11,794 | 
|Moxie Patriot LLC                           |  | (i)          |  | Energy                                         |  | L+575                         |  | 1.0%  |  | 12/19/20 |  |                    | 5,556  |  |               |   | 5,507  |               |  |   | 5,528  | 
|MSO of Puerto Rico, Inc.                    |  | (g)          |  | Health Care Equipment & Services               |  | L+825                         |  | 1.5%  |  | 12/12/17 |  |                    | 1,953  |  |               |   | 1,963  |               |  |   | 1,895  | 
|New HB Acquisition, LLC                     |  | (h)(i)       |  | Food, Beverage & Tobacco                       |  | L+550                         |  | 1.3%  |  | 4/9/20   |  |                    | 3,867  |  |               |   | 3,836  |               |  |   | 3,935  | 



See
notes to consolidated financial statements.



114



---

##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)







|                                            |  |                 |  |                                                |  |                                |  |       |  |          |  |                    |         |  |               |   |         |               |  |   |         | 
|------------------------------------------- |  | --------------- |  | ---------------------------------------------- |  | ------------------------------ |  | ----- |  | -------- |  | ------------------ | ------- |  | ------------- | - | ------- | ------------- |  | - | ------- | 
|Portfolio
Company(a)                        |  | Footnotes       |  | Industry                                       |  | Rate(b)                        |  | Floor |  | Maturity |  | PrincipalAmount(c) |         |  | AmortizedCost |   |         | Fair Value(d) | 
|New Star Metals Inc.                        |  | (e)(g)(h)(i)(k) |  | Capital Goods                                  |  | L+800                          |  | 1.3%  |  | 3/20/20  |  | $                  | 109,725 |  |               | $ | 109,725 |               |  | $ | 109,725 | 
|Nine West Holdings                          |  | (l)             |  | Consumer Durables & Apparel                    |  | L+375                          |  | 1.0%  |  | 10/8/19  |  |                    | 473     |  |               |   | 459     |               |  |   | 443     | 
|Nova Wildcat Amerock, LLC                   |  | (e)(g)(h)       |  | Consumer Durables & Apparel                    |  | L+798                          |  | 1.3%  |  | 9/10/19  |  |                    | 75,000  |  |               |   | 75,000  |               |  |   | 73,500  | 
|Opal Acquisition, Inc.                      |  | (i)             |  | Consumer Services                              |  | L+400                          |  | 1.0%  |  | 11/27/20 |  |                    | 1,428   |  |               |   | 1,419   |               |  |   | 1,418   | 
|Panda Sherman Power, LLC                    |  | (e)             |  | Energy                                         |  | L+750                          |  | 1.5%  |  | 9/14/18  |  |                    | 2,310   |  |               |   | 2,324   |               |  |   | 2,298   | 
|Panda Temple Power, LLC (TLA)               |  | (e)             |  | Energy                                         |  | L+700                          |  | 1.5%  |  | 7/17/18  |  |                    | 1,722   |  |               |   | 1,734   |               |  |   | 1,746   | 
|PeroxyChem LLC                              |  | (h)(i)          |  | Capital Goods                                  |  | L+650                          |  | 1.0%  |  | 2/28/20  |  |                    | 9,925   |  |               |   | 9,749   |               |  |   | 9,826   | 
|PharMEDium Healthcare Corp.                 |  | (g)             |  | Health Care Equipment & Services               |  | L+325                          |  | 1.0%  |  | 1/28/21  |  |                    | 704     |  |               |   | 701     |               |  |   | 686     | 
|PHRC License, LLC                           |  | (f)(h)(i)       |  | Consumer Services                              |  | L+900                          |  | 1.5%  |  | 8/14/20  |  |                    | 60,000  |  |               |   | 60,000  |               |  |   | 59,400  | 
|Polymer Additives, Inc.                     |  | (h)(i)(l)       |  | Materials                                      |  | L+838                          |  | 1.0%  |  | 12/20/21 |  |                    | 63,068  |  |               |   | 63,068  |               |  |   | 63,068  | 
|Production Resource Group, LLC              |  | (g)(h)(i)(l)    |  | Media                                          |  | L+750                          |  | 1.0%  |  | 7/23/19  |  |                    | 47,500  |  |               |   | 47,500  |               |  |   | 47,738  | 
|Professional Plumbing Group, Inc.           |  | (e)(g)          |  | Capital Goods                                  |  | L+875                          |  | 0.8%  |  | 7/31/19  |  |                    | 29,158  |  |               |   | 29,158  |               |  |   | 29,304  | 
|PRV Aerospace, LLC                          |  | (g)             |  | Capital Goods                                  |  | L+525                          |  | 1.3%  |  | 5/9/18   |  |                    | 2,966   |  |               |   | 2,984   |               |  |   | 2,930   | 
|Reddy Ice Holdings, Inc.                    |  | (g)             |  | Food & Staples Retailing                       |  | L+550                          |  | 1.3%  |  | 5/1/19   |  |                    | 1,170   |  |               |   | 1,160   |               |  |   | 1,032   | 
|RGL Reservoir Operations Inc.               |  | (g)(h)(o)       |  | Energy                                         |  | L+500                          |  | 1.0%  |  | 8/13/21  |  |                    | 6,840   |  |               |   | 6,645   |               |  |   | 5,518   | 
|Serena Software, Inc.                       |  | (g)(h)          |  | Software & Services                            |  | L+650                          |  | 1.0%  |  | 4/14/20  |  |                    | 18,000  |  |               |   | 17,671  |               |  |   | 17,916  | 
|Smile Brands Group Inc.                     |  | (e)(f)(g)(h)(i) |  | Health Care Equipment & Services               |  | L+625                          |  | 1.3%  |  | 8/16/19  |  |                    | 43,635  |  |               |   | 43,110  |               |  |   | 41,781  | 
|Sorenson Communications, Inc.               |  | (e)(g)(h)(i)(k) |  | Telecommunication Services                     |  | L+575                          |  | 2.3%  |  | 4/30/20  |  |                    | 101,500 |  |               |   | 101,043 |               |  |   | 102,515 | 
|Southcross Holdings Borrower LP             |  | (l)             |  | Energy                                         |  | L+500                          |  | 1.0%  |  | 8/4/21   |  |                    | 316     |  |               |   | 314     |               |  |   | 283     | 
|The Sports Authority, Inc.                  |  | (g)             |  | Consumer Durables & Apparel                    |  | L+600                          |  | 1.5%  |  | 11/16/17 |  |                    | 7,818   |  |               |   | 7,871   |               |  |   | 6,939   | 
|Sprint Industrial Holdings LLC              |  | (g)             |  | Energy                                         |  | L+575                          |  | 1.3%  |  | 11/14/19 |  |                    | 7,229   |  |               |   | 7,180   |               |  |   | 6,904   | 
|Stallion Oilfield Holdings, Inc.            |  | (e)(g)(h)       |  | Energy                                         |  | L+675                          |  | 1.3%  |  | 6/19/18  |  |                    | 16,603  |  |               |   | 16,211  |               |  |   | 14,216  | 
|SunGard Availability Services Capital, Inc. |  | (g)(j)(n)       |  | Software & Services                            |  | L+500                          |  | 1.0%  |  | 3/29/19  |  |                    | 8,205   |  |               |   | 7,533   |               |  |   | 7,348   | 
|Sunnova Asset Portfolio 5 Holdings, LLC     |  |                 |  | Energy                                         |  | 12.0% PIK (12.0% Max PIK)      |  |       |  | 11/14/21 |  |                    | 3,607   |  |               |   | 3,607   |               |  |   | 3,607   | 
|Sunnova Asset Portfolio 5 Holdings, LLC     |  | (s)             |  | Energy                                         |  | 12.0% PIK (12.0% Max PIK)      |  |       |  | 11/14/21 |  |                    | 6,400   |  |               |   | 6,400   |               |  |   | 6,400   | 
|Swift Worldwide Resources US Holdings Corp. |  | (g)(i)          |  | Energy                                         |  | L+800                          |  | 1.3%  |  | 4/30/19  |  |                    | 19,887  |  |               |   | 19,887  |               |  |   | 19,489  | 
|Therakos, Inc.                              |  | (e)(g)          |  | Pharmaceuticals, Biotechnology & Life Sciences |  | L+575                          |  | 1.3%  |  | 12/27/17 |  |                    | 6,443   |  |               |   | 6,367   |               |  |   | 6,419   | 
|ThermaSys Corp.                             |  | (g)             |  | Capital Goods                                  |  | L+400                          |  | 1.3%  |  | 5/3/19   |  |                    | 4,905   |  |               |   | 4,907   |               |  |   | 4,831   | 
|U.S. Xpress Enterprises, Inc.               |  | (e)(h)(i)(k)    |  | Transportation                                 |  | L+850, 1.5% PIK (1.5% Max PIK) |  | 1.5%  |  | 5/30/19  |  |                    | 94,763  |  |               |   | 94,763  |               |  |   | 94,763  | 
|UTEX Industries, Inc.                       |  | (l)             |  | Energy                                         |  | L+400                          |  | 1.0%  |  | 5/21/21  |  |                    | 1,148   |  |               |   | 1,143   |               |  |   | 1,062   | 
|Waste Pro USA, Inc.                         |  | (e)(h)(i)(l)    |  | Commercial & Professional Services             |  | L+750                          |  | 1.0%  |  | 10/15/20 |  |                    | 112,444 |  |               |   | 112,444 |               |  |   | 112,444 | 



See
notes to consolidated financial statements.



115



---

##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)







|                                        |  |              |  |                                                |  |                                |  |       |  |          |  |                    |         |  |               |   |           |               |  |   |           |  
|--------------------------------------- |  | ------------ |  | ---------------------------------------------- |  | ------------------------------ |  | ----- |  | -------- |  | ------------------ | ------- |  | ------------- | - | --------- | ------------- |  | - | --------- | -
|Portfolio
Company(a)                    |  | Footnotes    |  | Industry                                       |  | Rate(b)                        |  | Floor |  | Maturity |  | PrincipalAmount(c) |         |  | AmortizedCost |   |           | Fair Value(d) | 
|Waste Pro USA, Inc.                     |  | (s)          |  | Commercial & Professional Services             |  | L+750                          |  | 1.0%  |  | 10/15/20 |  | $                  | 12,222  |  |               | $ | 12,222    |               |  | $ | 12,222    |  
|Winchester Electronics Corp.            |  | (e)(k)(l)    |  | Technology Hardware & Equipment                |  | Prime+750                      |  |       |  | 11/17/20 |  |                    | 98,182  |  |               |   | 98,182    |               |  |   | 98,182    |  
|Winchester Electronics Corp.            |  | (s)          |  | Technology Hardware & Equipment                |  | Prime+700                      |  |       |  | 11/17/20 |  |                    | 32,732  |  |               |   | 32,732    |               |  |   | 32,732    |  
|                                        |  |              |  |                                                |  |                                |  |       |  |          |  |                    |         |  |               |   |           |               |  |   |           |  
|Total Senior Secured LoansFirst Lien   |  |              |  |                                                |  |                                |  |       |  |          |  |                    |         |  |               |   | 2,506,445 |               |  |   | 2,492,644 |  
|Unfunded Loan Commitments               |  |              |  |                                                |  |                                |  |       |  |          |  |                    |         |  |               |   | (145,739  | )             |  |   | (145,739  | )
|                                        |  |              |  |                                                |  |                                |  |       |  |          |  |                    |         |  |               |   |           |               |  |   |           |  
|Net Senior Secured LoansFirst Lien     |  |              |  |                                                |  |                                |  |       |  |          |  |                    |         |  |               |   | 2,360,706 |               |  |   | 2,346,905 |  
|                                        |  |              |  |                                                |  |                                |  |       |  |          |  |                    |         |  |               |   |           |               |  |   |           |  
|Senior Secured LoansSecond Lien34.4%  |  |              |  |                                                |  |                                |  |       |  |          |  |                    |         |  |               |   |           |               |  |   |           |  
|Accellent Inc.                          |  | (j)          |  | Health Care Equipment & Services               |  | L+650                          |  | 1.0%  |  | 3/11/22  |  |                    | 8,814   |  |               |   | 8,792     |               |  |   | 8,350     |  
|Advantage Sales & Marketing Inc.        |  | (g)(j)       |  | Commercial & Professional Services             |  | L+650                          |  | 1.0%  |  | 7/25/22  |  |                    | 4,236   |  |               |   | 4,206     |               |  |   | 4,203     |  
|Alison US LLC                           |  | (g)(o)       |  | Capital Goods                                  |  | L+850                          |  | 1.0%  |  | 8/29/22  |  |                    | 4,444   |  |               |   | 4,272     |               |  |   | 4,160     |  
|Alliance Laundry Systems LLC            |  | (e)          |  | Capital Goods                                  |  | L+825                          |  | 1.3%  |  | 12/10/19 |  |                    | 1,450   |  |               |   | 1,439     |               |  |   | 1,451     |  
|American EnergyMarcellus, LLC          |  | (g)          |  | Energy                                         |  | L+750                          |  | 1.0%  |  | 8/4/21   |  |                    | 3,333   |  |               |   | 3,285     |               |  |   | 3,067     |  
|American EnergyUtica, LLC              |  | (e)(f)(i)(l) |  | Energy                                         |  | L+400, 5.5% PIK (5.5% Max PIK) |  | 1.5%  |  | 9/30/18  |  |                    | 106,649 |  |               |   | 106,649   |               |  |   | 104,516   |  
|American EnergyUtica, LLC              |  | (f)(l)       |  | Energy                                         |  | L+400, 5.5% PIK (5.5% Max PIK) |  | 1.5%  |  | 9/30/18  |  |                    | 72,432  |  |               |   | 72,431    |               |  |   | 70,983    |  
|AssuredPartners, Inc.                   |  | (l)          |  | Insurance                                      |  | L+675                          |  | 1.0%  |  | 4/2/22   |  |                    | 6,983   |  |               |   | 6,916     |               |  |   | 6,756     |  
|BlackBrush Oil & Gas, L.P.              |  | (l)          |  | Energy                                         |  | L+650                          |  | 1.0%  |  | 7/30/21  |  |                    | 6,637   |  |               |   | 6,589     |               |  |   | 5,509     |  
|BPA Laboratories, Inc.                  |  | (e)          |  | Pharmaceuticals, Biotechnology & Life Sciences |  | 2.5%                           |  |       |  | 7/3/17   |  |                    | 3,272   |  |               |   | 2,644     |               |  |   | 2,901     |  
|Brasa (Holdings) Inc.                   |  | (e)          |  | Consumer Services                              |  | L+950                          |  | 1.5%  |  | 1/20/20  |  |                    | 621     |  |               |   | 602       |               |  |   | 615       |  
|BRG Sports, Inc.                        |  | (l)          |  | Consumer Durables & Apparel                    |  | L+925                          |  | 1.0%  |  | 4/15/22  |  |                    | 12,500  |  |               |   | 12,205    |               |  |   | 12,594    |  
|Byrider Finance, LLC                    |  | (f)          |  | Automobiles & Components                       |  | L+1000                         |  | 1.3%  |  | 8/22/20  |  |                    | 16,667  |  |               |   | 16,667    |               |  |   | 16,667    |  
|Catalina Marketing Corp.                |  | (l)          |  | Media                                          |  | L+675                          |  | 1.0%  |  | 4/11/22  |  |                    | 10,000  |  |               |   | 9,930     |               |  |   | 9,325     |  
|Cervalis LLC                            |  | (e)(f)       |  | Commercial & Professional Services             |  | L+875                          |  | 1.3%  |  | 2/8/19   |  |                    | 30,000  |  |               |   | 29,688    |               |  |   | 30,000    |  
|Chief Exploration & Development LLC     |  | (g)          |  | Energy                                         |  | L+650                          |  | 1.0%  |  | 5/16/21  |  |                    | 2,259   |  |               |   | 2,238     |               |  |   | 2,044     |  
|ColourOz Investment 2 LLC               |  | (i)(o)(n)    |  | Materials                                      |  | L+725                          |  | 1.0%  |  | 9/5/22   |  |                    | 4,726   |  |               |   | 4,691     |               |  |   | 4,490     |  
|Compuware Corp.                         |  | (e)(o)(n)    |  | Software & Services                            |  | L+825                          |  | 1.0%  |  | 12/9/22  |  |                    | 10,000  |  |               |   | 8,700     |               |  |   | 9,250     |  
|Consolidated Precision Products Corp.   |  | (e)          |  | Capital Goods                                  |  | L+775                          |  | 1.0%  |  | 4/30/21  |  |                    | 15,575  |  |               |   | 15,506    |               |  |   | 14,874    |  
|Crossmark Holdings, Inc.                |  | (l)          |  | Commercial & Professional Services             |  | L+750                          |  | 1.3%  |  | 12/21/20 |  |                    | 7,778   |  |               |   | 7,795     |               |  |   | 7,603     |  
|DAE Aviation Holdings, Inc.             |  | (k)(o)       |  | Capital Goods                                  |  | L+675                          |  | 1.0%  |  | 8/5/19   |  |                    | 15,000  |  |               |   | 14,869    |               |  |   | 14,738    |  
|Del Monte Foods Consumer Products, Inc. |  | (l)(o)       |  | Food, Beverage & Tobacco                       |  | L+725                          |  | 1.0%  |  | 8/18/21  |  |                    | 3,333   |  |               |   | 3,303     |               |  |   | 2,867     |  
|Drew Marine Group Inc.                  |  | (l)(o)       |  | Energy                                         |  | L+700                          |  | 1.0%  |  | 5/19/21  |  |                    | 2,500   |  |               |   | 2,495     |               |  |   | 2,488     |  
|Eastman Kodak Co.                       |  | (j)          |  | Consumer Durables & Apparel                    |  | L+950                          |  | 1.3%  |  | 9/3/20   |  |                    | 25,000  |  |               |   | 24,459    |               |  |   | 25,000    |  
|Extreme Reach, Inc.                     |  | (l)          |  | Media                                          |  | L+950                          |  | 1.0%  |  | 1/22/21  |  |                    | 8,000   |  |               |   | 7,859     |               |  |   | 7,993     |  



See
notes to consolidated financial statements.



116



---

##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)







|                                    |  |           |  |                                                |  |             |  |       |  |          |  |                    |        |  |               |   |        |               |  |   |        | 
|----------------------------------- |  | --------- |  | ---------------------------------------------- |  | ----------- |  | ----- |  | -------- |  | ------------------ | ------ |  | ------------- | - | ------ | ------------- |  | - | ------ | 
|Portfolio
Company(a)                |  | Footnotes |  | Industry                                       |  | Rate(b)     |  | Floor |  | Maturity |  | PrincipalAmount(c) |        |  | AmortizedCost |   |        | Fair Value(d) | 
|Filtration Group Corp.              |  | (j)       |  | Energy                                         |  | L+725       |  | 1.0%  |  | 11/21/21 |  | $                  | 5,158  |  |               | $ | 5,173  |               |  | $ | 5,164  | 
|Flexera Software LLC                |  | (l)       |  | Software & Services                            |  | L+700       |  | 1.0%  |  | 4/2/21   |  |                    | 10,000 |  |               |   | 9,954  |               |  |   | 9,600  | 
|Inmar, Inc.                         |  | (l)       |  | Software & Services                            |  | L+700       |  | 1.0%  |  | 1/27/22  |  |                    | 2,830  |  |               |   | 2,804  |               |  |   | 2,770  | 
|Jazz Acquisition, Inc.              |  | (g)       |  | Capital Goods                                  |  | L+675       |  | 1.0%  |  | 6/19/22  |  |                    | 3,700  |  |               |   | 3,753  |               |  |   | 3,621  | 
|Kronos Inc.                         |  | (k)       |  | Software & Services                            |  | L+850       |  | 1.3%  |  | 4/30/20  |  |                    | 9,906  |  |               |   | 9,913  |               |  |   | 10,104 | 
|Leedsworld Inc.                     |  | (e)(f)(g) |  | Retailing                                      |  | L+875       |  | 1.3%  |  | 6/28/20  |  |                    | 62,500 |  |               |   | 62,500 |               |  |   | 61,875 | 
|LM U.S. Member LLC                  |  | (e)(l)    |  | Transportation                                 |  | L+725       |  | 1.0%  |  | 1/25/21  |  |                    | 8,138  |  |               |   | 8,199  |               |  |   | 8,015  | 
|MD America Energy, LLC              |  | (l)       |  | Energy                                         |  | L+850       |  | 1.0%  |  | 8/4/19   |  |                    | 12,500 |  |               |   | 11,920 |               |  |   | 12,000 | 
|Mitchell International, Inc.        |  | (k)       |  | Software & Services                            |  | L+750       |  | 1.0%  |  | 10/11/21 |  |                    | 10,000 |  |               |   | 10,224 |               |  |   | 9,985  | 
|Neff Rental LLC                     |  | (l)       |  | Capital Goods                                  |  | L+625       |  | 1.0%  |  | 6/9/21   |  |                    | 12,073 |  |               |   | 12,016 |               |  |   | 12,126 | 
|Nielsen & Bainbridge, LLC           |  | (f)       |  | Consumer Services                              |  | L+925       |  | 1.0%  |  | 8/15/21  |  |                    | 15,000 |  |               |   | 14,786 |               |  |   | 14,775 | 
|Onex Carestream Finance L.P.        |  | (f)       |  | Health Care Equipment & Services               |  | L+850       |  | 1.0%  |  | 12/7/19  |  |                    | 4,717  |  |               |   | 4,642  |               |  |   | 4,701  | 
|P2 Upstream Acquisition Co.         |  | (l)       |  | Energy                                         |  | L+800       |  | 1.0%  |  | 4/30/21  |  |                    | 14,500 |  |               |   | 14,750 |               |  |   | 13,956 | 
|Paw Luxco II Sarl                   |  | (o)       |  | Consumer Durables & Apparel                    |  | EURIBOR+950 |  |       |  | 1/29/19  |  |                   | 5,727  |  |               |   | 7,073  |               |  |   | 6,021  | 
|Payless Inc.                        |  | (l)       |  | Consumer Durables & Apparel                    |  | L+750       |  | 1.0%  |  | 3/11/22  |  | $                  | 14,092 |  |               |   | 13,961 |               |  |   | 12,683 | 
|Peak 10, Inc.                       |  | (j)       |  | Software & Services                            |  | L+725       |  | 1.0%  |  | 6/17/22  |  |                    | 5,500  |  |               |   | 5,447  |               |  |   | 5,335  | 
|Pelican Products, Inc.              |  | (l)       |  | Capital Goods                                  |  | L+825       |  | 1.0%  |  | 4/9/21   |  |                    | 5,438  |  |               |   | 5,401  |               |  |   | 5,370  | 
|Penton Media, Inc.                  |  | (j)       |  | Media                                          |  | L+775       |  | 1.3%  |  | 10/2/20  |  |                    | 9,000  |  |               |   | 8,885  |               |  |   | 8,933  | 
|Printpack Holdings, Inc.            |  | (e)(i)(l) |  | Materials                                      |  | L+875       |  | 1.0%  |  | 5/28/21  |  |                    | 60,000 |  |               |   | 58,871 |               |  |   | 59,700 | 
|PSAV Acquisition Corp.              |  | (e)       |  | Technology Hardware & Equipment                |  | L+825       |  | 1.0%  |  | 1/24/22  |  |                    | 80,000 |  |               |   | 78,898 |               |  |   | 80,500 | 
|Redtop Acquisitions Ltd.            |  | (o)       |  | Consumer Services                              |  | L+725       |  | 1.0%  |  | 6/3/21   |  |                    | 5,449  |  |               |   | 5,389  |               |  |   | 5,442  | 
|Renaissance Learning, Inc.          |  | (k)       |  | Software & Services                            |  | L+700       |  | 1.0%  |  | 4/11/22  |  |                    | 12,857 |  |               |   | 12,739 |               |  |   | 12,343 | 
|Road Infrastructure Investment, LLC |  | (l)       |  | Consumer Services                              |  | L+675       |  | 1.0%  |  | 9/30/21  |  |                    | 7,759  |  |               |   | 7,724  |               |  |   | 7,031  | 
|Samson Investment Co.               |  | (g)       |  | Energy                                         |  | L+400       |  | 1.0%  |  | 9/25/18  |  |                    | 2,000  |  |               |   | 1,818  |               |  |   | 1,579  | 
|Sensus USA Inc.                     |  | (f)       |  | Capital Goods                                  |  | L+725       |  | 1.3%  |  | 5/9/18   |  |                    | 2,050  |  |               |   | 2,055  |               |  |   | 1,963  | 
|Sequential Brands Group, Inc.       |  | (e)(i)(k) |  | Consumer Durables & Apparel                    |  | L+800       |  | 1.0%  |  | 8/15/20  |  |                    | 50,000 |  |               |   | 50,000 |               |  |   | 50,000 | 
|The Telx Group, Inc.                |  | (j)       |  | Software & Services                            |  | L+650       |  | 1.0%  |  | 4/9/21   |  |                    | 7,000  |  |               |   | 6,936  |               |  |   | 6,851  | 
|Templar Energy LLC                  |  | (h)(j)    |  | Energy                                         |  | L+750       |  | 1.0%  |  | 11/25/20 |  |                    | 29,231 |  |               |   | 28,602 |               |  |   | 21,134 | 
|Therakos, Inc.                      |  | (e)       |  | Pharmaceuticals, Biotechnology & Life Sciences |  | L+950       |  | 1.3%  |  | 6/27/18  |  |                    | 28,000 |  |               |   | 27,481 |               |  |   | 28,385 | 
|TNS, Inc.                           |  | (f)(h)(l) |  | Telecommunication Services                     |  | L+800       |  | 1.0%  |  | 8/14/20  |  |                    | 51,469 |  |               |   | 51,010 |               |  |   | 50,954 | 
|Ultima US Holdings LLC              |  | (l)(o)    |  | Capital Goods                                  |  | L+850       |  | 1.0%  |  | 12/31/20 |  |                    | 57,000 |  |               |   | 56,035 |               |  |   | 55,860 | 
|US Renal Care, Inc.                 |  | (i)       |  | Health Care Equipment & Services               |  | L+750       |  | 1.0%  |  | 1/3/20   |  |                    | 2,500  |  |               |   | 2,458  |               |  |   | 2,489  | 
|Vantage Energy II, LLC              |  | (i)       |  | Energy                                         |  | L+750       |  | 1.0%  |  | 5/8/17   |  |                    | 13,000 |  |               |   | 13,000 |               |  |   | 12,935 | 
|Vantage Energy, LLC                 |  | (i)       |  | Energy                                         |  | L+750       |  | 1.0%  |  | 12/20/18 |  |                    | 18,277 |  |               |   | 18,127 |               |  |   | 16,267 | 
|Vertafore, Inc.                     |  | (f)       |  | Software & Services                            |  | L+825       |  | 1.5%  |  | 10/27/17 |  |                    | 830    |  |               |   | 831    |               |  |   | 836    | 



See
notes to consolidated financial statements.



117



---

##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)







|                                             |  |           |  |                                                |  |                                |  |       |  |          |  |                    |        |  |               |   |           |               |  |   |           |  
|-------------------------------------------- |  | --------- |  | ---------------------------------------------- |  | ------------------------------ |  | ----- |  | -------- |  | ------------------ | ------ |  | ------------- | - | --------- | ------------- |  | - | --------- | -
|Portfolio
Company(a)                         |  | Footnotes |  | Industry                                       |  | Rate(b)                        |  | Floor |  | Maturity |  | PrincipalAmount(c) |        |  | AmortizedCost |   |           | Fair Value(d) | 
|Winebow Holdings, Inc.                       |  | (g)       |  | Retailing                                      |  | L+750                          |  | 1.0%  |  | 1/2/22   |  | $                  | 2,775  |  |               | $ | 2,755     |               |  | $ | 2,691     |  
|WNA Holdings, Inc.                           |  | (l)       |  | Materials                                      |  | L+725                          |  | 1.3%  |  | 12/7/20  |  |                    | 5,000  |  |               |   | 4,958     |               |  |   | 4,875     |  
|                                             |  |           |  |                                                |  |                                |  |       |  |          |  |                    |        |  |               |   |           |               |  |   |           |  
|Total Senior Secured LoansSecond Lien       |  |           |  |                                                |  |                                |  |       |  |          |  |                    |        |  |               |   | 1,019,318 |               |  |   | 1,001,313 |  
|                                             |  |           |  |                                                |  |                                |  |       |  |          |  |                    |        |  |               |   |           |               |  |   |           |  
|Senior Secured Bonds8.6%                    |  |           |  |                                                |  |                                |  |       |  |          |  |                    |        |  |               |   |           |               |  |   |           |  
|Advanced Lighting Technologies, Inc.         |  | (e)(f)    |  | Materials                                      |  | 10.5%                          |  |       |  | 6/1/19   |  |                    | 35,500 |  |               |   | 31,793    |               |  |   | 23,607    |  
|Allen Systems Group, Inc.                    |  | (f)(p)(t) |  | Software & Services                            |  | 10.5%                          |  |       |  | 11/15/16 |  |                    | 14,225 |  |               |   | 10,242    |               |  |   | 4,979     |  
|Altice Financing S.A.                        |  | (j)(o)    |  | Media                                          |  | 7.8%                           |  |       |  | 5/15/22  |  |                    | 7,000  |  |               |   | 7,000     |               |  |   | 6,974     |  
|Aspect Software, Inc.                        |  | (f)(j)    |  | Software & Services                            |  | 10.6%                          |  |       |  | 5/15/17  |  |                    | 8,005  |  |               |   | 8,262     |               |  |   | 7,605     |  
|Avaya Inc.                                   |  | (j)       |  | Technology Hardware & Equipment                |  | 7.0%                           |  |       |  | 4/1/19   |  |                    | 5,500  |  |               |   | 5,473     |               |  |   | 5,444     |  
|Avaya Inc.                                   |  | (f)(j)    |  | Technology Hardware & Equipment                |  | 10.5%                          |  |       |  | 3/1/21   |  |                    | 15,550 |  |               |   | 13,632    |               |  |   | 13,412    |  
|Caesars Entertainment Resort Properties, LLC |  | (e)(f)(j) |  | Consumer Services                              |  | 11.0%                          |  |       |  | 10/1/21  |  |                    | 70,460 |  |               |   | 71,140    |               |  |   | 64,471    |  
|CEVA Group Plc                               |  | (j)(o)    |  | Transportation                                 |  | 9.0%                           |  |       |  | 9/1/21   |  |                    | 2,000  |  |               |   | 2,000     |               |  |   | 1,890     |  
|FourPoint Energy, LLC                        |  | (e)(f)    |  | Energy                                         |  | 8.0%                           |  |       |  | 12/31/20 |  |                    | 43,875 |  |               |   | 41,989    |               |  |   | 38,610    |  
|FourPoint Energy, LLC                        |  | (s)       |  | Energy                                         |  | 8.0%                           |  |       |  | 12/31/20 |  |                    | 17,063 |  |               |   | 16,977    |               |  |   | 15,015    |  
|Global A&T Electronics Ltd.                  |  | (f)(o)    |  | Technology Hardware & Equipment                |  | 10.0%                          |  |       |  | 2/1/19   |  |                    | 9,000  |  |               |   | 9,000     |               |  |   | 8,118     |  
|JW Aluminum Co.                              |  | (e)(f)    |  | Materials                                      |  | 11.5%, 1.0% PIK (1.0% Max PIK) |  |       |  | 11/15/17 |  |                    | 17,550 |  |               |   | 17,527    |               |  |   | 17,550    |  
|Light Tower Rentals, Inc.                    |  | (j)       |  | Capital Goods                                  |  | 8.1%                           |  |       |  | 8/1/19   |  |                    | 2,100  |  |               |   | 2,100     |               |  |   | 1,680     |  
|Logans Roadhouse, Inc.                      |  | (f)(j)    |  | Consumer Services                              |  | 10.8%                          |  |       |  | 10/15/17 |  |                    | 36,814 |  |               |   | 32,309    |               |  |   | 27,288    |  
|Modular Space Corp.                          |  | (j)       |  | Capital Goods                                  |  | 10.3%                          |  |       |  | 1/31/19  |  |                    | 9,950  |  |               |   | 10,234    |               |  |   | 8,657     |  
|Prince Mineral Holding Corp.                 |  | (e)       |  | Materials                                      |  | 11.5%                          |  |       |  | 12/15/19 |  |                    | 2,600  |  |               |   | 2,578     |               |  |   | 2,655     |  
|Sorenson Communications, Inc.                |  | (e)(f)(j) |  | Telecommunication Services                     |  | 9.0%                           |  |       |  | 10/31/20 |  |                    | 18,877 |  |               |   | 18,175    |               |  |   | 17,933    |  
|                                             |  |           |  |                                                |  |                                |  |       |  |          |  |                    |        |  |               |   |           |               |  |   |           |  
|Total Senior Secured Bonds                   |  |           |  |                                                |  |                                |  |       |  |          |  |                    |        |  |               |   | 300,431   |               |  |   | 265,888   |  
|Unfunded Bond Commitments                    |  |           |  |                                                |  |                                |  |       |  |          |  |                    |        |  |               |   | (16,977   | )             |  |   | (16,977   | )
|                                             |  |           |  |                                                |  |                                |  |       |  |          |  |                    |        |  |               |   |           |               |  |   |           |  
|Net Senior Secured Bonds                     |  |           |  |                                                |  |                                |  |       |  |          |  |                    |        |  |               |   | 283,454   |               |  |   | 248,911   |  
|                                             |  |           |  |                                                |  |                                |  |       |  |          |  |                    |        |  |               |   |           |               |  |   |           |  
|Subordinated Debt14.5%                      |  |           |  |                                                |  |                                |  |       |  |          |  |                    |        |  |               |   |           |               |  |   |           |  
|Acosta HoldCo, Inc.                          |  | (j)       |  | Consumer Services                              |  | 7.8%                           |  |       |  | 10/1/22  |  |                    | 4,800  |  |               |   | 4,799     |               |  |   | 4,871     |  
|American EnergyWoodford, LLC                |  | (j)       |  | Energy                                         |  | 9.0%                           |  |       |  | 9/15/22  |  |                    | 3,750  |  |               |   | 3,598     |               |  |   | 2,358     |  
|Armored AutoGroup Inc.                       |  | (j)       |  | Household & Personal Products                  |  | 9.3%                           |  |       |  | 11/1/18  |  |                    | 2,544  |  |               |   | 2,651     |               |  |   | 2,557     |  
|Atlas Energy Holdings Operating Co., LLC     |  | (j)(o)    |  | Energy                                         |  | 7.8%                           |  |       |  | 1/15/21  |  |                    | 5,000  |  |               |   | 5,000     |               |  |   | 3,625     |  
|Aurora Diagnostics, LLC                      |  | (e)       |  | Pharmaceuticals, Biotechnology & Life Sciences |  | 10.8%                          |  |       |  | 1/15/18  |  |                    | 7,000  |  |               |   | 7,030     |               |  |   | 6,090     |  
|Beazer Homes USA, Inc.                       |  | (j)(o)    |  | Capital Goods                                  |  | 7.3%                           |  |       |  | 2/1/23   |  |                    | 2,750  |  |               |   | 2,750     |               |  |   | 2,681     |  
|Brooklyn Basketball Holdings, LLC            |  | (f)(i)    |  | Consumer Services                              |  | L+800                          |  |       |  | 10/15/19 |  |                    | 39,746 |  |               |   | 39,746    |               |  |   | 39,348    |  



See
notes to consolidated financial statements.



118



---

##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)







|                                            |  |              |  |                                    |  |                               |  |       |  |          |  |                    |         |  |               |   |        |               |  |   |        | 
|------------------------------------------- |  | ------------ |  | ---------------------------------- |  | ----------------------------- |  | ----- |  | -------- |  | ------------------ | ------- |  | ------------- | - | ------ | ------------- |  | - | ------ | 
|Portfolio
Company(a)                        |  | Footnotes    |  | Industry                           |  | Rate(b)                       |  | Floor |  | Maturity |  | PrincipalAmount(c) |         |  | AmortizedCost |   |        | Fair Value(d) | 
|BWAY Holding Co.                            |  | (j)          |  | Materials                          |  | 9.1%                          |  |       |  | 8/15/21  |  | $                  | 6,250   |  |               | $ | 6,211  |               |  | $ | 6,281  | 
|Cadillac Jack, Inc.                         |  | (f)(o)(n)    |  | Consumer Services                  |  | 6.0%, 7.0% PIK (7.0% Max PIK) |  |       |  | 5/15/20  |  |                    | 52,268  |  |               |   | 36,562 |               |  |   | 54,947 | 
|Calumet Specialty Products Partners, L.P.   |  | (j)(o)       |  | Energy                             |  | 6.5%                          |  |       |  | 4/15/21  |  |                    | 2,500   |  |               |   | 2,500  |               |  |   | 2,233  | 
|CEC Entertainment, Inc.                     |  | (j)          |  | Consumer Services                  |  | 8.0%                          |  |       |  | 2/15/22  |  |                    | 11,000  |  |               |   | 11,018 |               |  |   | 10,725 | 
|Compressco Partners, LP                     |  | (j)(o)       |  | Energy                             |  | 7.3%                          |  |       |  | 8/15/22  |  |                    | 4,000   |  |               |   | 3,942  |               |  |   | 3,468  | 
|Elizabeth Arden, Inc.                       |  | (j)(o)       |  | Household & Personal Products      |  | 7.4%                          |  |       |  | 3/15/21  |  |                    | 615     |  |               |   | 569    |               |  |   | 569    | 
|Era Group Inc.                              |  | (j)(o)       |  | Energy                             |  | 7.8%                          |  |       |  | 12/15/22 |  |                    | 7,250   |  |               |   | 7,145  |               |  |   | 7,540  | 
|First Data Corp.                            |  | (j)          |  | Software & Services                |  | 11.8%                         |  |       |  | 8/15/21  |  |                    | 650     |  |               |   | 671    |               |  |   | 753    | 
|Global Jet Capital, Inc.                    |  |              |  | Commercial & Professional Services |  | 8.0% PIK (8.0% Max PIK)       |  |       |  | 1/30/15  |  |                    | 313     |  |               |   | 313    |               |  |   | 313    | 
|Hub International Ltd.                      |  | (j)          |  | Insurance                          |  | 7.9%                          |  |       |  | 10/1/21  |  |                    | 3,500   |  |               |   | 3,500  |               |  |   | 3,500  | 
|Hub International Ltd.                      |  | (j)          |  | Insurance                          |  | 8.1%, 0.8% PIK (0.8% Max PIK) |  |       |  | 7/15/19  |  |                    | 6,000   |  |               |   | 5,986  |               |  |   | 5,918  | 
|Jefferies Finance LLC                       |  | (j)(o)       |  | Diversified Financials             |  | 7.4%                          |  |       |  | 4/1/20   |  |                    | 1,500   |  |               |   | 1,500  |               |  |   | 1,400  | 
|Jefferies Finance LLC                       |  | (j)(o)       |  | Diversified Financials             |  | 6.9%                          |  |       |  | 4/15/22  |  |                    | 950     |  |               |   | 950    |               |  |   | 860    | 
|Jupiter Resources Inc.                      |  | (i)(j)(o)    |  | Energy                             |  | 8.5%                          |  |       |  | 10/1/22  |  |                    | 22,300  |  |               |   | 20,975 |               |  |   | 16,725 | 
|Kinetic Concepts, Inc.                      |  | (f)          |  | Health Care Equipment & Services   |  | 12.5%                         |  |       |  | 11/1/19  |  |                    | 4,300   |  |               |   | 4,619  |               |  |   | 4,730  | 
|Legacy Reserves L.P.                        |  | (e)(o)       |  | Energy                             |  | 8.0%                          |  |       |  | 12/1/20  |  |                    | 8,250   |  |               |   | 8,107  |               |  |   | 6,895  | 
|Lightstream Resources Ltd.                  |  | (j)(o)       |  | Energy                             |  | 8.6%                          |  |       |  | 2/1/20   |  |                    | 4,150   |  |               |   | 3,436  |               |  |   | 2,925  | 
|Mood Media Corp.                            |  | (e)(f)(j)(o) |  | Media                              |  | 9.3%                          |  |       |  | 10/15/20 |  |                    | 46,207  |  |               |   | 45,596 |               |  |   | 37,774 | 
|NewStar Financial, Inc.                     |  | (e)(k)(l)(o) |  | Diversified Financials             |  | 8.3%, 0.0% PIK (8.8% Max PIK) |  |       |  | 12/4/24  |  |                    | 100,000 |  |               |   | 69,995 |               |  |   | 75,000 | 
|Ocean Rig UDW Inc.                          |  | (j)(o)       |  | Energy                             |  | 7.3%                          |  |       |  | 4/1/19   |  |                    | 4,700   |  |               |   | 4,700  |               |  |   | 3,349  | 
|Opal Acquisition, Inc.                      |  | (j)          |  | Consumer Services                  |  | 8.9%                          |  |       |  | 12/15/21 |  |                    | 27,000  |  |               |   | 27,000 |               |  |   | 27,506 | 
|P.F. Changs China Bistro, Inc.             |  | (f)(j)       |  | Consumer Services                  |  | 10.3%                         |  |       |  | 6/30/20  |  |                    | 12,968  |  |               |   | 13,314 |               |  |   | 13,033 | 
|Resolute Energy Corp.                       |  | (j)          |  | Energy                             |  | 8.5%                          |  |       |  | 5/1/20   |  |                    | 5,800   |  |               |   | 5,856  |               |  |   | 2,748  | 
|Rex Energy Corp.                            |  | (e)(o)       |  | Energy                             |  | 8.9%                          |  |       |  | 12/1/20  |  |                    | 15,000  |  |               |   | 14,914 |               |  |   | 13,500 | 
|Rex Energy Corp.                            |  | (j)(o)       |  | Energy                             |  | 6.3%                          |  |       |  | 8/1/22   |  |                    | 3,950   |  |               |   | 3,950  |               |  |   | 3,022  | 
|RKI Exploration & Production, LLC           |  | (j)          |  | Energy                             |  | 8.5%                          |  |       |  | 8/1/21   |  |                    | 1,650   |  |               |   | 1,462  |               |  |   | 1,345  | 
|Samson Investment Co.                       |  | (f)          |  | Energy                             |  | 9.8%                          |  |       |  | 2/15/20  |  |                    | 1,400   |  |               |   | 1,132  |               |  |   | 588    | 
|SandRidge Energy, Inc.                      |  | (j)(o)       |  | Energy                             |  | 8.8%                          |  |       |  | 1/5/20   |  |                    | 10,659  |  |               |   | 9,421  |               |  |   | 7,275  | 
|Sidewinder Drilling Inc.                    |  | (e)          |  | Energy                             |  | 9.8%                          |  |       |  | 11/15/19 |  |                    | 1,722   |  |               |   | 1,722  |               |  |   | 1,007  | 
|Signode Industrial Group US Inc.            |  | (j)          |  | Commercial & Professional Services |  | 6.4%                          |  |       |  | 5/1/22   |  |                    | 4,900   |  |               |   | 4,900  |               |  |   | 4,753  | 
|Sorenson Communications, Inc.               |  | (e)(f)(j)    |  | Telecommunication Services         |  | 13.0%                         |  |       |  | 10/31/21 |  |                    | 14,346  |  |               |   | 13,388 |               |  |   | 14,633 | 
|SunGard Availability Services Capital, Inc. |  | (j)          |  | Software & Services                |  | 8.8%                          |  |       |  | 4/1/22   |  |                    | 1,000   |  |               |   | 647    |               |  |   | 595    | 



See
notes to consolidated financial statements.



119



---

##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)







|                                                        |  |           |  |                                                |  |         |  |       |  |          |  |                    |            |  |               |   |         |               |  |   |         | 
|------------------------------------------------------- |  | --------- |  | ---------------------------------------------- |  | ------- |  | ----- |  | -------- |  | ------------------ | ---------- |  | ------------- | - | ------- | ------------- |  | - | ------- | 
|Portfolio
Company(a)                                    |  | Footnotes |  | Industry                                       |  | Rate(b) |  | Floor |  | Maturity |  | PrincipalAmount(c) |            |  | AmortizedCost |   |         | Fair Value(d) | 
|Talos Production LLC                                    |  | (j)       |  | Energy                                         |  | 9.8%    |  |       |  | 2/15/18  |  | $                  | 1,500      |  |               | $ | 1,364   |               |  | $ | 1,358   | 
|Triangle USA Petroleum Corp.                            |  | (j)(o)    |  | Energy                                         |  | 6.8%    |  |       |  | 7/15/22  |  |                    | 2,350      |  |               |   | 2,350   |               |  |   | 1,542   | 
|U.S. Coatings Acquisition Inc.                          |  | (j)       |  | Capital Goods                                  |  | 7.4%    |  |       |  | 5/1/21   |  |                    | 2,000      |  |               |   | 2,000   |               |  |   | 2,125   | 
|Warren Resources, Inc.                                  |  | (j)       |  | Energy                                         |  | 9.0%    |  |       |  | 8/1/22   |  |                    | 12,650     |  |               |   | 12,202  |               |  |   | 7,906   | 
|Windstream Corp.                                        |  | (j)(o)    |  | Telecommunication Services                     |  | 6.4%    |  |       |  | 8/1/23   |  |                    | 2,600      |  |               |   | 2,600   |               |  |   | 2,444   | 
|WMG Acquisition Corp.                                   |  | (j)       |  | Media                                          |  | 6.8%    |  |       |  | 4/15/22  |  |                    | 6,000      |  |               |   | 6,000   |               |  |   | 5,520   | 
|York Risk Services Holding Corp.                        |  | (j)       |  | Insurance                                      |  | 8.5%    |  |       |  | 10/1/22  |  |                    | 3,350      |  |               |   | 3,350   |               |  |   | 3,348   | 
|                                                        |  |           |  |                                                |  |         |  |       |  |          |  |                    |            |  |               |   |         |               |  |   |         | 
|Total Subordinated Debt                                 |  |           |  |                                                |  |         |  |       |  |          |  |                    |            |  |               |   | 431,441 |               |  |   | 421,683 | 
|                                                        |  |           |  |                                                |  |         |  |       |  |          |  |                    |            |  |               |   |         |               |  |   |         | 
|Collateralized Securities6.3%                          |  |           |  |                                                |  |         |  |       |  |          |  |                    |            |  |               |   |         |               |  |   |         | 
|AMMC 2012 CDO 11A Class Subord.                         |  | (o)       |  | Diversified Financials                         |  | 12.4%   |  |       |  | 10/30/23 |  |                    | 6,000      |  |               |   | 4,022   |               |  |   | 4,076   | 
|Apidos CLO XIV Class E                                  |  | (o)       |  | Diversified Financials                         |  | L+440   |  |       |  | 4/15/25  |  |                    | 6,000      |  |               |   | 5,381   |               |  |   | 5,194   | 
|Ares 2012 CLO 2A Class Subord.                          |  | (o)       |  | Diversified Financials                         |  | 8.9%    |  |       |  | 10/12/23 |  |                    | 8,500      |  |               |   | 6,614   |               |  |   | 5,698   | 
|CGMS CLO 2013-3A Class E                                |  | (o)       |  | Diversified Financials                         |  | L+525   |  |       |  | 7/15/25  |  |                    | 5,000      |  |               |   | 4,495   |               |  |   | 4,215   | 
|CGMS CLO 2013-3A Class Subord.                          |  | (o)       |  | Diversified Financials                         |  | 14.6%   |  |       |  | 7/15/25  |  |                    | 22,000     |  |               |   | 15,890  |               |  |   | 18,949  | 
|Halcyon Loan Advisors Funding 2013-2 Class Subord.      |  | (o)       |  | Diversified Financials                         |  | 15.2%   |  |       |  | 8/1/25   |  |                    | 15,000     |  |               |   | 11,363  |               |  |   | 14,628  | 
|JPMorgan Chase Bank, N.A. Credit-Linked Notes           |  | (o)       |  | Diversified Financials                         |  | 14.3%   |  |       |  | 12/20/21 |  |                    | 76,260     |  |               |   | 75,735  |               |  |   | 78,739  | 
|NewStar Clarendon 2014-1A Class D                       |  | (o)(n)    |  | Diversified Financials                         |  | L+435   |  |       |  | 1/25/27  |  |                    | 1,060      |  |               |   | 993     |               |  |   | 993     | 
|NewStar Clarendon 2014-1A Sub B                         |  | (o)(n)    |  | Diversified Financials                         |  | 12.4%   |  |       |  | 1/25/27  |  |                    | 12,140     |  |               |   | 12,013  |               |  |   | 12,013  | 
|Octagon CLO 2012-1A Class Income                        |  | (o)       |  | Diversified Financials                         |  | 14.9%   |  |       |  | 1/15/24  |  |                    | 4,650      |  |               |   | 2,926   |               |  |   | 3,715   | 
|Wind River CLO Ltd. 2013-1A Class Subord. B             |  | (o)       |  | Diversified Financials                         |  | 12.6%   |  |       |  | 4/20/25  |  |                    | 40,720     |  |               |   | 32,636  |               |  |   | 36,370  | 
|                                                        |  |           |  |                                                |  |         |  |       |  |          |  |                    |            |  |               |   |         |               |  |   |         | 
|Total Collateralized Securities                         |  |           |  |                                                |  |         |  |       |  |          |  |                    |            |  |               |   | 172,068 |               |  |   | 184,590 | 
|                                                        |  |           |  |                                                |  |         |  |       |  |          |  |                    |            |  |               |   |         |               |  |   |         | 
|                                                        |  |           |  |                                                |  |         |  |      
|                                                        |  |           |  |                                                |  |         |  |       |  |          |  | Number ofShares    |            |  | Cost          |   |         | FairValue(d)  | 
|Equity/Other6.6%                                       |  |           |  |                                                |  |         |  |       |  |          |  |                    |            |  |               |   |         |               |  |   |         | 
|A.T. Cross Co., Common Equity, Class A Units            |  | (p)       |  | Retailing                                      |  |         |  |       |  |          |  |                    | 1,000,000  |  |               |   | 1,000   |               |  |   | 1,000   | 
|Abaco Energy Technologies LLC, Common Equity            |  | (p)       |  | Energy                                         |  |         |  |       |  |          |  |                    | 3,055,556  |  |               |   | 3,056   |               |  |   | 3,056   | 
|ACP FH Holdings GP, LLC, Common Equity                  |  | (p)       |  | Consumer Durables & Apparel                    |  |         |  |       |  |          |  |                    | 88,571     |  |               |   | 89      |               |  |   | 89      | 
|ACP FH Holdings, LP, Common Equity                      |  | (p)       |  | Consumer Durables & Apparel                    |  |         |  |       |  |          |  |                    | 8,768,572  |  |               |   | 8,769   |               |  |   | 8,769   | 
|Altus Power America Holdings, Inc., Preferred Equity    |  | (p)       |  | Energy                                         |  |         |  |       |  |          |  |                    | 253,925    |  |               |   | 254     |               |  |   | 254     | 
|Amaya Gaming Group Inc., Warrants                       |  | (o)(p)    |  | Consumer Services                              |  |         |  |       |  |          |  |                    | 2,000,000  |  |               |   | 16,832  |               |  |   | 35,179  | 
|American Energy Appalachia Holdings, LLC, Common Equity |  | (p)(q)    |  | Energy                                         |  |         |  |       |  |          |  |                    | 13,555,557 |  |               |   | 12,900  |               |  |   | 13,556  | 
|AP Exhaust Holdings, LLC, Common Equity                 |  | (p)(r)    |  | Automobiles & Components                       |  |         |  |       |  |          |  |                    | 8,378      |  |               |   | 8,378   |               |  |   | 5,990   | 
|BPA Laboratories, Inc., Series A Warrants               |  | (e)(p)    |  | Pharmaceuticals, Biotechnology & Life Sciences |  |         |  |       |  |          |  |                    | 10,924     |  |               |   |        |               |  |   |        | 



See
notes to consolidated financial statements.



120



---

##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)







|                                                           |  |           |  |                                                |  |                           |  |  |      |  |  |              |            |  |  |   |           |  |  |   |            |  
|---------------------------------------------------------- |  | --------- |  | ---------------------------------------------- |  | ------------------------- |  |  | ---- |  |  | ------------ | ---------- |  |  | - | --------- |  |  | - | ---------- | -
|Portfolio
Company(a)                                       |  | Footnotes |  | Industry                                       |  | Number ofShares/Contracts |  |  | Cost |  |  | FairValue(d) |           
|BPA Laboratories, Inc., Series B Warrants                  |  | (e)(p)    |  | Pharmaceuticals, Biotechnology & Life Sciences |  |                           |  |  |      |  |  |              | 17,515     |  |  | $ |          |  |  | $ |           |  
|Burleigh Point, Ltd., Warrants                             |  | (o)(p)    |  | Retailing                                      |  |                           |  |  |      |  |  |              | 17,256,081 |  |  |   | 1,898     |  |  |   | 5,003      |  
|Cimarron Energy Inc., Common Equity                        |  | (p)       |  | Energy                                         |  |                           |  |  |      |  |  |              | 2,500,000  |  |  |   | 2,500     |  |  |   | 2,500      |  
|CoSentry.Net, LLC, Preferred Equity                        |  | (p)       |  | Software & Services                            |  |                           |  |  |      |  |  |              | 2,632      |  |  |   | 2,500     |  |  |   | 4,185      |  
|DHS Technologies LLC                                       |  | (f)       |  | Capital Goods                                  |  |                           |  |  |      |  |  |              | 60,872     |  |  |   | 5,000     |  |  |   | 1,468      |  
|Eastman Kodak Co., Common Equity                           |  | (p)       |  | Consumer Durables & Apparel                    |  |                           |  |  |      |  |  |              | 1,846      |  |  |   | 36        |  |  |   | 40         |  
|ERC Ireland Holdings Ltd., Common Equity                   |  | (o)(p)(n) |  | Telecommunication Services                     |  |                           |  |  |      |  |  |              | 22,401     |  |  |   | 2,548     |  |  |   | 3,550      |  
|ERC Ireland Holdings Ltd., Warrants                        |  | (o)(p)    |  | Telecommunication Services                     |  |                           |  |  |      |  |  |              | 4,943      |  |  |   | 598       |  |  |   | 783        |  
|FourPoint Energy, LLC, Common Equity, Class C Units        |  | (p)(r)    |  | Energy                                         |  |                           |  |  |      |  |  |              | 13,000     |  |  |   | 13,000    |  |  |   | 16,575     |  
|FourPoint Energy, LLC, Common Equity, Class D Units        |  | (p)(r)    |  | Energy                                         |  |                           |  |  |      |  |  |              | 2,437      |  |  |   | 1,610     |  |  |   | 3,132      |  
|Industrial Group Intermediate Holdings, LLC, Common Equity |  | (p)(r)    |  | Materials                                      |  |                           |  |  |      |  |  |              | 2,107,438  |  |  |   | 2,107     |  |  |   | 2,950      |  
|MB Precision Holdings LLC, Common Equity                   |  | (p)       |  | Capital Goods                                  |  |                           |  |  |      |  |  |              | 2,287,659  |  |  |   | 2,288     |  |  |   | 2,288      |  
|MModal Inc., Common Equity                                 |  | (e)(g)(p) |  | Health Care Equipment & Services               |  |                           |  |  |      |  |  |              | 132,235    |  |  |   | 2,182     |  |  |   | 1,989      |  
|New Star Metals Inc., Common Equity                        |  |           |  | Capital Goods                                  |  |                           |  |  |      |  |  |              | 2,223,246  |  |  |   | 2,250     |  |  |   | 2,890      |  
|New Star Financial, Inc., Warrants                         |  | (o)(p)    |  | Diversified Financials                         |  |                           |  |  |      |  |  |              | 4,750,000  |  |  |   | 30,115    |  |  |   | 31,350     |  
|Professional Plumbing Group, Inc., Common Equity           |  | (p)       |  | Capital Goods                                  |  |                           |  |  |      |  |  |              | 3,000,000  |  |  |   | 3,000     |  |  |   | 4,200      |  
|PSAV Holdings LLC, Common Equity                           |  | (p)       |  | Technology Hardware & Equipment                |  |                           |  |  |      |  |  |              | 10,000     |  |  |   | 10,000    |  |  |   | 15,000     |  
|Sorenson Communications, Inc., Common Equity               |  | (e)(f)(p) |  | Telecommunication Services                     |  |                           |  |  |      |  |  |              | 43,796     |  |  |   |          |  |  |   | 20,466     |  
|Swift Worldwide Resources Holdco Limited, Common Equity    |  | (o)(p)(y) |  | Energy                                         |  |                           |  |  |      |  |  |              | 1,250,000  |  |  |   | 2,010     |  |  |   | 1,947      |  
|Therakos, Inc., Common Equity                              |  |           |  | Pharmaceuticals, Biotechnology & Life Sciences |  |                           |  |  |      |  |  |              | 14,366     |  |  |   | 1,478     |  |  |   | 6,169      |  
|Weight Watchers International, Inc., Put Option            |  | (o)(p)(u) |  | Food & Staples Retailing                       |  |                           |  |  |      |  |  |              | 4,000      |  |  |   | 2,895     |  |  |   | 1,360      |  
|Weight Watchers International, Inc., Put Option            |  | (o)(p)(u) |  | Food & Staples Retailing                       |  |                           |  |  |      |  |  |              | 5,000      |  |  |   | 2,022     |  |  |   | 1,175      |  
|Weight Watchers International, Inc., Put Option            |  | (o)(p)(u) |  | Food & Staples Retailing                       |  |                           |  |  |      |  |  |              | 5,000      |  |  |   | 1,504     |  |  |   | 863        |  
|                                                           |  |           |  |                                                |  |                           |  |  |      |  |  |              |            |  |  |   |           |  |  |   |            |  
|Total Equity/Other                                         |  |           |  |                                                |  |                           |  |  |      |  |  |              |            |  |  |   | 142,819   |  |  |   | 197,776    |  
|Unfunded Contingent Warrant Commitment                     |  |           |  |                                                |  |                           |  |  |      |  |  |              |            |  |  |   |           |  |  |   | (4,950     | )
|                                                           |  |           |  |                                                |  |                           |  |  |      |  |  |              |            |  |  |   |           |  |  |   |            |  
|Net Equity/Other                                           |  |           |  |                                                |  |                           |  |  |      |  |  |              |            |  |  |   | 142,819   |  |  |   | 192,826    |  
|                                                           |  |           |  |                                                |  |                           |  |  |      |  |  |              |            |  |  |   |           |  |  |   |            |  
|TOTAL INVESTMENTS151.0%                                   |  |           |  |                                                |  |                           |  |  |      |  |  |              |            |  |  | $ | 4,409,806 |  |  |   | 4,396,228  |  
|                                                           |  |           |  |                                                |  |                           |  |  |      |  |  |              |            |  |  |   |           |  |  |   |            |  
|LIABILITIES IN EXCESS OF OTHER ASSETS(51.0%)              |  | (v)       |  |                                                |  |                           |  |  |      |  |  |              |            |  |  |   |           |  |  |   | (1,484,438 | )
|                                                           |  |           |  |                                                |  |                           |  |  |      |  |  |              |            |  |  |   |           |  |  |   |            |  
|NET ASSETS100.0%                                          |  |           |  |                                                |  |                           |  |  |      |  |  |              |            |  |  |   |           |  |  | $ | 2,911,790  |  
|                                                           |  |           |  |                                                |  |                           |  |  |      |  |  |              |            |  |  |   |           |  |  |   |            |  



See
notes to consolidated financial statements.



121



---

##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)







Credit Default Swaps on Corporate IssuesSell Protection



|                                          |  |                           |  |                                              |  |                   |  |                         |   |   |          |  |         |             |  |   |                |  |  |                                    |         |   |                                      |   |        |   |  |   |         |  
|----------------------------------------- |  | ------------------------- |  | -------------------------------------------- |  | ----------------- |  | ----------------------- | - | - | -------- |  | ------- | ----------- |  | - | -------------- |  |  | ---------------------------------- | ------- | - | ------------------------------------ | - | ------ | - |  | - | ------- | -
|Reference Entity                          |  | Counterparty              |  | Implied CreditSpread at December 31, 2014(w) |  | Industry          |  | Fixed DealReceived Rate |   |   | Maturity |  |         | Notional(x) |  |   | MarketValue(d) |  |  | UnamortizedPremiums Paid(Received) |         |   | UnrealizedAppreciation(Depreciation) |  
|Caesars Entertainment Operating Co., Inc. |  | JPMorgan Chase Bank, N.A. |  | 888.2%                                       |  | Consumer Services |  |                         | 5 | % |          |  | 6/20/15 |             |  | $ | 15,000         |  |  | $                                  | (12,026 | ) |                                      | $ | (3,768 | ) |  | $ | (8,258  | )
|Caesars Entertainment Operating Co., Inc. |  | JPMorgan Chase Bank, N.A. |  | 656.5%                                       |  | Consumer Services |  |                         | 5 | % |          |  | 9/20/15 |             |  |   | 22,000         |  |  |                                    | (18,022 | ) |                                      |   | (6,854 | ) |  |   | (11,168 | )



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



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



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



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



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



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



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



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



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



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



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



See
notes to consolidated financial statements.



122



---

##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)







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



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



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



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



|(p) | Security is non-income producing.
|--- | ---------------------------------



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



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



|(s) | Security is an unfunded commitment.
|--- | -----------------------------------



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



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



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



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



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



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



See notes to consolidated financial statements.



123



---

##### Table of Contents

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments

As of December 31, 2013

(in thousands, except share amounts)







|                                             |  |           |  |                                                |  |       |  |       |  |          |  |                     |         |  |               |   |         |               |  |   |         | 
|-------------------------------------------- |  | --------- |  | ---------------------------------------------- |  | ----- |  | ----- |  | -------- |  | ------------------- | ------- |  | ------------- | - | ------- | ------------- |  | - | ------- | 
|Portfolio
Company(a)                         |  | Footnotes |  | Industry                                       |  | Rate  |  | Floor |  | Maturity |  | Principal
Amount(b) |         |  | AmortizedCost |   |         | Fair Value(c) | 
|Senior Secured LoansFirst Lien53.0%        |  |           |  |                                                |  |       |  |       |  |          |  |                     |         |  |               |   |         |               |  |   |         | 
|A.T. Cross Co.                               |  | (d)(f)    |  | Retailing                                      |  | L+825 |  |       |  | 9/6/19   |  | $                   | 36,908  |  |               | $ | 36,908  |               |  | $ | 36,908  | 
|A.T. Cross Co.                               |  | (d)(f)    |  | Retailing                                      |  | L+825 |  |       |  | 9/6/19   |  |                     | 20,000  |  |               |   | 20,000  |               |  |   | 20,000  | 
|Advantage Sales & Marketing Inc.             |  | (g)       |  | Commercial & Professional Services             |  | L+325 |  | 1.0%  |  | 12/18/17 |  |                     | 2,107   |  |               |   | 2,097   |               |  |   | 2,120   | 
|Air Medical Group Holdings, Inc.             |  | (f)(g)    |  | Health Care Equipment & Services               |  | L+400 |  | 1.0%  |  | 6/30/18  |  |                     | 5,474   |  |               |   | 5,566   |               |  |   | 5,546   | 
|Alcatel-Lucent USA Inc.                      |  | (d)(f)(h) |  | Technology Hardware & Equipment                |  | L+475 |  | 1.0%  |  | 1/30/19  |  |                     | 8,138   |  |               |   | 8,182   |               |  |   | 8,188   | 
|Alon USA Partners, L.P.                      |  | (d)(h)    |  | Energy                                         |  | L+800 |  | 1.3%  |  | 11/26/18 |  |                     | 4,125   |  |               |   | 3,944   |               |  |   | 4,256   | 
|Alvogen Pharma US, Inc.                      |  | (f)(g)    |  | Pharmaceuticals, Biotechnology & Life Sciences |  | L+575 |  | 1.3%  |  | 5/23/18  |  |                     | 9,781   |  |               |   | 9,724   |               |  |   | 9,927   | 
|Apex Tool Group, LLC                         |  |           |  | Capital Goods                                  |  | L+325 |  | 1.3%  |  | 1/31/20  |  |                     | 5,300   |  |               |   | 5,276   |               |  |   | 5,334   | 
|ARG IH Corp.                                 |  |           |  | Consumer Services                              |  | L+400 |  | 1.0%  |  | 11/15/20 |  |                     | 1,400   |  |               |   | 1,397   |               |  |   | 1,410   | 
|Ascension Insurance, Inc.                    |  | (d)(e)    |  | Insurance                                      |  | L+825 |  | 1.3%  |  | 3/5/19   |  |                     | 79,423  |  |               |   | 78,097  |               |  |   | 78,628  | 
|Aspect Software, Inc.                        |  | (g)       |  | Software & Services                            |  | L+525 |  | 1.8%  |  | 5/7/16   |  |                     | 7,873   |  |               |   | 7,902   |               |  |   | 7,915   | 
|Attachmate Corp.                             |  | (f)       |  | Software & Services                            |  | L+575 |  | 1.5%  |  | 11/22/17 |  |                     | 2,607   |  |               |   | 2,637   |               |  |   | 2,660   | 
|Audio Visual Services Group, Inc.            |  | (d)(f)    |  | Technology Hardware & Equipment                |  | L+550 |  | 1.3%  |  | 11/9/18  |  |                     | 10,107  |  |               |   | 10,110  |               |  |   | 10,182  | 
|Audio Visual Services Group, Inc.            |  |           |  | Technology Hardware & Equipment                |  | L+550 |  | 1.3%  |  | 11/9/17  |  |                     | 7,500   |  |               |   | 7,500   |               |  |   | 7,479   | 
|Avaya Inc.                                   |  | (d)(g)    |  | Technology Hardware & Equipment                |  | L+450 |  |       |  | 10/26/17 |  |                     | 7,340   |  |               |   | 6,809   |               |  |   | 7,200   | 
|Avaya Inc.                                   |  | (d)(f)    |  | Technology Hardware & Equipment                |  | L+675 |  | 1.3%  |  | 3/31/18  |  |                     | 11,896  |  |               |   | 11,318  |               |  |   | 12,092  | 
|Azure Midstream Energy LLC                   |  | (f)       |  | Energy                                         |  | L+550 |  | 1.0%  |  | 11/15/18 |  |                     | 4,500   |  |               |   | 4,434   |               |  |   | 4,534   | 
|BlackBrush TexStar L.P.                      |  | (d)(f)    |  | Energy                                         |  | L+650 |  | 1.3%  |  | 6/4/19   |  |                     | 14,179  |  |               |   | 14,049  |               |  |   | 14,311  | 
|Blue Coat Systems, Inc.                      |  | (d)       |  | Software & Services                            |  | L+350 |  | 1.0%  |  | 5/31/19  |  |                     | 2,121   |  |               |   | 2,121   |               |  |   | 2,132   | 
|Boomerang Tube, LLC                          |  | (d)       |  | Energy                                         |  | L+950 |  | 1.5%  |  | 10/11/17 |  |                     | 4,688   |  |               |   | 4,573   |               |  |   | 4,523   | 
|Bright Horizons Family Solutions LLC         |  |           |  | Health Care Equipment & Services               |  | L+300 |  | 1.0%  |  | 1/30/20  |  |                     | 1,003   |  |               |   | 994     |               |  |   | 1,011   | 
|Cadillac Jack, Inc.                          |  | (d)(f)(h) |  | Consumer Services                              |  | L+700 |  | 1.0%  |  | 12/20/17 |  |                     | 125,000 |  |               |   | 123,770 |               |  |   | 123,750 | 
|Caesars Entertainment Operating Co.          |  | (g)(h)    |  | Consumer Services                              |  | L+425 |  |       |  | 1/26/18  |  |                     | 5,000   |  |               |   | 4,731   |               |  |   | 4,744   | 
|Caesars Entertainment Resort Properties, LLC |  | (d)(e)(f) |  | Consumer Services                              |  | L+600 |  | 1.0%  |  | 10/1/20  |  |                     | 59,093  |  |               |   | 55,624  |               |  |   | 58,908  | 
|Cenveo Corp.                                 |  | (f)       |  | Commercial & Professional Services             |  | L+500 |  | 1.3%  |  | 2/13/17  |  |                     | 2,822   |  |               |   | 2,810   |               |  |   | 2,845   | 
|Clear Channel Communications, Inc.           |  | (d)       |  | Media                                          |  | L+365 |  |       |  | 1/29/16  |  |                     | 6,156   |  |               |   | 5,267   |               |  |   | 5,974   | 
|Clover Technologies Group, LLC               |  | (f)       |  | Commercial & Professional Services             |  | L+550 |  | 1.3%  |  | 5/7/18   |  |                     | 5,772   |  |               |   | 5,772   |               |  |   | 5,772   | 
|Collective Brands, Inc.                      |  | (d)(f)    |  | Consumer Durables & Apparel                    |  | L+600 |  | 1.3%  |  | 10/9/19  |  |                     | 18,768  |  |               |   | 18,814  |               |  |   | 18,862  | 
|Corner Investment PropCo, LLC                |  | (d)(f)(g) |  | Consumer Services                              |  | L+975 |  | 1.3%  |  | 11/2/19  |  |                     | 41,000  |  |               |   | 41,624  |               |  |   | 41,820  | 
|CoSentry.Net, LLC                            |  | (e)       |  | Software & Services                            |  | L+800 |  | 1.3%  |  | 12/31/19 |  |                     | 54,500  |  |               |   | 54,500  |               |  |   | 54,500  | 
|Crestwood Holdings LLC                       |  | (f)       |  | Energy                                         |  | L+600 |  | 1.0%  |  | 6/19/19  |  |                     | 5,735   |  |               |   | 5,709   |               |  |   | 5,907   | 
|Cumulus Media Inc.                           |  | (g)(h)    |  | Media                                          |  | L+325 |  | 1.0%  |  | 12/23/20 |  |                     | 7,865   |  |               |   | 7,786   |               |  |   | 7,924   | 
|DAE Aviation Holdings, Inc.                  |  | (h)       |  | Capital Goods                                  |  | L+500 |  | 1.3%  |  | 11/2/18  |  |                     | 3,928   |  |               |   | 3,964   |               |  |   | 3,969   | 
|Del Monte Foods Consumer Products, Inc.      |  | (g)(h)    |  | Food, Beverage & Tobacco                       |  | L+325 |  | 1.0%  |  | 12/6/20  |  |                     | 2,809   |  |               |   | 2,795   |               |  |   | 2,828   | 
|DigitalGlobe, Inc.                           |  | (d)(h)    |  | Software & Services                            |  | L+275 |  | 1.0%  |  | 1/31/20  |  |                     | 2,528   |  |               |   | 2,528   |               |  |   | 2,545   | 



See
notes to consolidated financial statements.



124



---

##### Table of Contents

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)

As of December 31, 2013

(in thousands, except share amounts)







|                                     |  |           |  |                                                |  |                       |  |       |  |          |  |                     |        |  |               |   |        |               |  |   |        | 
|------------------------------------ |  | --------- |  | ---------------------------------------------- |  | --------------------- |  | ----- |  | -------- |  | ------------------- | ------ |  | ------------- | - | ------ | ------------- |  | - | ------ | 
|Portfolio
Company(a)                 |  | Footnotes |  | Industry                                       |  | Rate                  |  | Floor |  | Maturity |  | Principal
Amount(b) |        |  | AmortizedCost |   |        | Fair Value(c) | 
|Drew Marine Group Inc.               |  | (h)       |  | Energy                                         |  | L+350                 |  | 1.0%  |  | 11/19/20 |  | $                   | 2,667  |  |               | $ | 2,663  |               |  | $ | 2,680  | 
|Drumm Investors LLC                  |  |           |  | Health Care Equipment & Services               |  | L+375                 |  | 1.3%  |  | 5/4/18   |  |                     | 1,471  |  |               |   | 1,421  |               |  |   | 1,447  | 
|Eastman Kodak Co.                    |  | (f)       |  | Consumer Durables & Apparel                    |  | L+625                 |  | 1.0%  |  | 9/3/19   |  |                     | 7,236  |  |               |   | 7,098  |               |  |   | 7,229  | 
|Education Management LLC             |  | (f)(h)    |  | Consumer Services                              |  | L+400                 |  |       |  | 6/1/16   |  |                     | 3,967  |  |               |   | 3,573  |               |  |   | 3,819  | 
|Edwards (Cayman Island II) Ltd.      |  | (f)(h)    |  | Capital Goods                                  |  | L+350                 |  | 1.3%  |  | 3/26/20  |  |                     | 3,195  |  |               |   | 3,166  |               |  |   | 3,203  | 
|EFS Cogen Holdings I LLC             |  | (g)       |  | Energy                                         |  | L+275                 |  | 1.0%  |  | 12/17/20 |  |                     | 1,852  |  |               |   | 1,833  |               |  |   | 1,868  | 
|EquiPower Resources Holdings, LLC    |  | (f)       |  | Utilities                                      |  | L+325                 |  | 1.0%  |  | 12/21/18 |  |                     | 1,463  |  |               |   | 1,494  |               |  |   | 1,471  | 
|ERC Ireland Holdings Ltd.            |  | (h)       |  | Telecommunication Services                     |  | EURIBOR+300, 1.0% PIK |  |       |  | 9/30/17  |  |                    | 11,298 |  |               |   | 11,389 |               |  |   | 18,514 | 
|FairPoint Communications, Inc.       |  | (d)(h)    |  | Telecommunication Services                     |  | L+625                 |  | 1.3%  |  | 2/14/19  |  | $                   | 13,027 |  |               |   | 12,910 |               |  |   | 13,492 | 
|Filtration Group Corp.               |  |           |  | Energy                                         |  | L+350                 |  | 1.0%  |  | 11/20/20 |  |                     | 2,449  |  |               |   | 2,437  |               |  |   | 2,447  | 
|FR Utility Services LLC              |  | (f)       |  | Energy                                         |  | L+575                 |  | 1.0%  |  | 10/18/19 |  |                     | 4,630  |  |               |   | 4,584  |               |  |   | 4,630  | 
|Fram Group Holdings Inc.             |  | (f)       |  | Automobiles & Components                       |  | L+500                 |  | 1.5%  |  | 7/29/17  |  |                     | 2,015  |  |               |   | 2,042  |               |  |   | 2,003  | 
|Hamilton Lane Advisors, LLC          |  | (f)       |  | Diversified Financials                         |  | L+400                 |  | 1.3%  |  | 2/23/18  |  |                     | 1,726  |  |               |   | 1,739  |               |  |   | 1,739  | 
|Harlan Sprague Dawley, Inc.          |  | (d)       |  | Pharmaceuticals, Biotechnology & Life Sciences |  | L+550                 |  |       |  | 7/11/14  |  |                     | 7,041  |  |               |   | 6,747  |               |  |   | 6,337  | 
|Ikaria Acquisition Inc.              |  | (f)       |  | Pharmaceuticals, Biotechnology & Life Sciences |  | L+600                 |  | 1.3%  |  | 7/3/18   |  |                     | 7,088  |  |               |   | 6,990  |               |  |   | 7,141  | 
|ILC Industries, LLC                  |  | (f)       |  | Capital Goods                                  |  | L+650                 |  | 1.5%  |  | 7/11/18  |  |                     | 4,786  |  |               |   | 4,772  |               |  |   | 4,798  | 
|Inmar, Inc.                          |  | (f)       |  | Software & Services                            |  | L+525                 |  | 1.3%  |  | 8/4/17   |  |                     | 4,874  |  |               |   | 4,903  |               |  |   | 4,896  | 
|Internap Network Services Corp.      |  | (f)(h)    |  | Software & Services                            |  | L+500                 |  | 1.0%  |  | 11/26/19 |  |                     | 10,000 |  |               |   | 9,901  |               |  |   | 9,988  | 
|Intrawest Operations Group, LLC      |  |           |  | Consumer Services                              |  | L+450                 |  | 1.0%  |  | 12/9/20  |  |                     | 7,500  |  |               |   | 7,425  |               |  |   | 7,594  | 
|Kanders C3 Holdings, LLC             |  | (d)(e)    |  | Capital Goods                                  |  | L+900                 |  | 1.3%  |  | 12/19/18 |  |                     | 24,565 |  |               |   | 24,362 |               |  |   | 24,381 | 
|Kanders C3 Holdings, LLC             |  | (d)(e)    |  | Capital Goods                                  |  | L+900                 |  | 1.3%  |  | 12/19/18 |  |                     | 10,204 |  |               |   | 10,204 |               |  |   | 10,128 | 
|Keystone Automotive Operations, Inc. |  | (f)       |  | Automobiles & Components                       |  | L+575                 |  | 1.3%  |  | 8/15/19  |  |                     | 4,988  |  |               |   | 4,916  |               |  |   | 5,023  | 
|Lantiq Deutschland GmbH              |  | (d)(h)    |  | Software & Services                            |  | L+900                 |  | 2.0%  |  | 11/16/15 |  |                     | 1,521  |  |               |   | 1,445  |               |  |   | 1,475  | 
|Larchmont Resources, LLC             |  | (f)       |  | Energy                                         |  | L+725                 |  | 1.0%  |  | 8/7/19   |  |                     | 7,391  |  |               |   | 7,321  |               |  |   | 7,530  | 
|MetoKote Corp.                       |  | (d)(f)    |  | Materials                                      |  | L+800                 |  | 1.3%  |  | 9/30/19  |  |                     | 85,000 |  |               |   | 85,000 |               |  |   | 85,850 | 
|MetoKote Corp.                       |  | (d)(f)    |  | Materials                                      |  | L+800                 |  | 1.3%  |  | 9/30/19  |  |                     | 16,190 |  |               |   | 16,190 |               |  |   | 16,352 | 
|MMI International Ltd.               |  | (f)(g)(h) |  | Technology Hardware & Equipment                |  | L+600                 |  | 1.3%  |  | 11/20/18 |  |                     | 11,550 |  |               |   | 11,244 |               |  |   | 11,254 | 
|MMM Holdings, Inc.                   |  | (f)       |  | Health Care Equipment & Services               |  | L+825                 |  | 1.5%  |  | 12/12/17 |  |                     | 3,012  |  |               |   | 3,030  |               |  |   | 3,036  | 
|MModal Inc.                          |  | (d)(f)    |  | Health Care Equipment & Services               |  | L+650                 |  | 1.3%  |  | 8/16/19  |  |                     | 16,801 |  |               |   | 16,469 |               |  |   | 14,480 | 
|Moxie Liberty LLC                    |  | (f)(g)    |  | Energy                                         |  | L+650                 |  | 1.0%  |  | 8/21/20  |  |                     | 11,853 |  |               |   | 11,901 |               |  |   | 12,179 | 
|Moxie Patriot, LLC                   |  | (g)       |  | Energy                                         |  | L+575                 |  | 1.0%  |  | 12/18/20 |  |                     | 5,556  |  |               |   | 5,500  |               |  |   | 5,694  | 
|MSO of Puerto Rico, Inc.             |  | (f)       |  | Health Care Equipment & Services               |  | L+825                 |  | 1.5%  |  | 12/12/17 |  |                     | 2,191  |  |               |   | 2,204  |               |  |   | 2,208  | 
|National Mentor Holdings, Inc.       |  | (f)       |  | Health Care Equipment & Services               |  | L+525                 |  | 1.3%  |  | 2/9/17   |  |                     | 7,899  |  |               |   | 8,003  |               |  |   | 7,964  | 
|National Vision, Inc.                |  | (f)       |  | Health Care Equipment & Services               |  | L+575                 |  | 1.3%  |  | 8/2/18   |  |                     | 2,336  |  |               |   | 2,363  |               |  |   | 2,343  | 
|New HB Acquisition, LLC              |  |           |  | Food, Beverage & Tobacco                       |  | L+550                 |  | 1.3%  |  | 4/9/20   |  |                     | 3,896  |  |               |   | 3,860  |               |  |   | 4,042  | 
|Nexeo Solutions, LLC                 |  | (d)       |  | Capital Goods                                  |  | L+350                 |  | 1.5%  |  | 9/8/17   |  |                     | 6,903  |  |               |   | 6,823  |               |  |   | 6,911  | 



See
notes to consolidated financial statements.



125



---

##### Table of Contents

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)

As of December 31, 2013

(in thousands, except share amounts)







|                                              |  |              |  |                                                |  |                 |  |       |  |          |  |                     |         |  |               |   |           |               |  |   |           |  
|--------------------------------------------- |  | ------------ |  | ---------------------------------------------- |  | --------------- |  | ----- |  | -------- |  | ------------------- | ------- |  | ------------- | - | --------- | ------------- |  | - | --------- | -
|Portfolio
Company(a)                          |  | Footnotes    |  | Industry                                       |  | Rate            |  | Floor |  | Maturity |  | Principal
Amount(b) |         |  | AmortizedCost |   |           | Fair Value(c) | 
|Nova Wildcat Amerock, LLC                     |  | (d)(f)       |  | Consumer Durables & Apparel                    |  | L+825           |  | 1.3%  |  | 9/10/19  |  | $                   | 75,000  |  |               | $ | 75,000    |               |  | $ | 75,000    |  
|Opal Acquisition, Inc.                        |  | (g)          |  | Consumer Services                              |  | L+400           |  | 1.0%  |  | 11/27/20 |  |                     | 14,946  |  |               |   | 14,821    |               |  |   | 14,983    |  
|Panda Sherman Power, LLC                      |  | (d)          |  | Energy                                         |  | L+750           |  | 1.5%  |  | 9/14/18  |  |                     | 3,818   |  |               |   | 3,816     |               |  |   | 3,933     |  
|Panda Temple Power, LLC (TLA)                 |  | (d)          |  | Energy                                         |  | L+700           |  | 1.5%  |  | 7/17/18  |  |                     | 2,000   |  |               |   | 2,017     |               |  |   | 2,054     |  
|Patheon Inc.                                  |  | (d)(h)       |  | Pharmaceuticals, Biotechnology & Life Sciences |  | L+600           |  | 1.3%  |  | 12/14/18 |  |                     | 10,156  |  |               |   | 9,892     |               |  |   | 10,275    |  
|Professional Plumbing Group, Inc.             |  | (d)(f)       |  | Capital Goods                                  |  | L+875           |  | 0.8%  |  | 7/31/19  |  |                     | 32,419  |  |               |   | 32,419    |               |  |   | 32,743    |  
|PRV Aerospace, LLC                            |  | (f)          |  | Capital Goods                                  |  | L+525           |  | 1.3%  |  | 5/9/18   |  |                     | 3,039   |  |               |   | 3,063     |               |  |   | 3,053     |  
|Reddy Ice Holdings, Inc.                      |  | (f)          |  | Food & Staples Retailing                       |  | L+550           |  | 1.3%  |  | 5/1/19   |  |                     | 1,182   |  |               |   | 1,170     |               |  |   | 1,181     |  
|Sheridan Holdings, Inc.                       |  | (g)          |  | Health Care Equipment & Services               |  | L+350           |  | 1.0%  |  | 6/29/18  |  |                     | 2,035   |  |               |   | 2,025     |               |  |   | 2,046     |  
|Sheridan Holdings, Inc.                       |  |              |  | Health Care Equipment & Services               |  | L+350           |  | 1.0%  |  | 6/29/18  |  |                     | 1,680   |  |               |   | 1,672     |               |  |   | 1,680     |  
|Sirius Computer Solutions, Inc.               |  | (d)          |  | Software & Services                            |  | L+575           |  | 1.3%  |  | 12/7/18  |  |                     | 8,096   |  |               |   | 8,027     |               |  |   | 8,228     |  
|Smile Brands Group Inc.                       |  | (d)(e)(f)    |  | Health Care Equipment & Services               |  | L+625           |  | 1.3%  |  | 8/15/19  |  |                     | 39,090  |  |               |   | 38,429    |               |  |   | 38,650    |  
|Sorenson Communication, Inc.                  |  | (d)(f)       |  | Telecommunication Services                     |  | L+825           |  | 1.3%  |  | 10/31/14 |  |                     | 29,754  |  |               |   | 29,830    |               |  |   | 30,200    |  
|Sports Authority, Inc.                        |  | (f)          |  | Consumer Durables & Apparel                    |  | L+600           |  | 1.5%  |  | 11/16/17 |  |                     | 8,222   |  |               |   | 8,293     |               |  |   | 8,212     |  
|Sprint Industrial Holdings LLC                |  | (f)          |  | Energy                                         |  | L+575           |  | 1.3%  |  | 11/14/19 |  |                     | 6,396   |  |               |   | 6,338     |               |  |   | 6,476     |  
|Stallion Oilfield Holdings, Inc.              |  | (d)(f)       |  | Energy                                         |  | L+675           |  | 1.3%  |  | 6/19/18  |  |                     | 9,950   |  |               |   | 9,859     |               |  |   | 10,174    |  
|Swift Worldwide Resources US Holdings Corp. A |  |              |  | Energy                                         |  | L+800           |  | 1.3%  |  | 4/30/19  |  |                     | 20,088  |  |               |   | 20,088    |               |  |   | 20,088    |  
|Technicolor SA                                |  | (d)(f)(g)(h) |  | Media                                          |  | L+600           |  | 1.3%  |  | 7/10/20  |  |                     | 32,194  |  |               |   | 31,776    |               |  |   | 32,544    |  
|Therakos, Inc.                                |  | (d)(f)       |  | Pharmaceuticals, Biotechnology & Life Sciences |  | L+625           |  | 1.3%  |  | 12/27/17 |  |                     | 6,605   |  |               |   | 6,503     |               |  |   | 6,630     |  
|Totes Isotoner Corp.                          |  | (e)          |  | Consumer Durables & Apparel                    |  | L+575           |  | 1.5%  |  | 7/7/17   |  |                     | 911     |  |               |   | 910       |               |  |   | 916       |  
|TravelCLICK, Inc.                             |  | (f)          |  | Consumer Services                              |  | L+450           |  | 1.3%  |  | 3/16/16  |  |                     | 1,969   |  |               |   | 1,970     |               |  |   | 1,988     |  
|Tri-Northern Acquisition, Inc.                |  | (d)(e)(f)    |  | Retailing                                      |  | L+800           |  | 1.3%  |  | 7/1/19   |  |                     | 89,550  |  |               |   | 89,550    |               |  |   | 89,550    |  
|Tri-Northern Acquisition, Inc.                |  | (d)(e)(f)    |  | Retailing                                      |  | L+800           |  | 1.3%  |  | 7/1/19   |  |                     | 18,621  |  |               |   | 18,621    |               |  |   | 18,621    |  
|UTEX Industries, Inc.                         |  | (f)          |  | Energy                                         |  | L+325           |  | 1.3%  |  | 4/10/20  |  |                     | 2,689   |  |               |   | 2,677     |               |  |   | 2,705     |  
|                                              |  |              |  |                                                |  |                 |  |       |  |          |  |                     |         |  |               |   |           |               |  |   |           |  
|Total Senior Secured LoansFirst Lien         |  |              |  |                                                |  |                 |  |       |  |          |  |                     |         |  |               |   | 1,316,020 |               |  |   | 1,334,780 |  
|Unfunded Loan Commitments                     |  |              |  |                                                |  |                 |  |       |  |          |  |                     |         |  |               |   | (66,687   | )             |  |   | (66,687   | )
|                                              |  |              |  |                                                |  |                 |  |       |  |          |  |                     |         |  |               |   |           |               |  |   |           |  
|Net Senior Secured LoansFirst Lien           |  |              |  |                                                |  |                 |  |       |  |          |  |                     |         |  |               |   | 1,249,333 |               |  |   | 1,268,093 |  
|                                              |  |              |  |                                                |  |                 |  |       |  |          |  |                     |         |  |               |   |           |               |  |   |           |  
|Senior Secured LoansSecond Lien29.2%        |  |              |  |                                                |  |                 |  |       |  |          |  |                     |         |  |               |   |           |               |  |   |           |  
|Advantage Sales & Marketing Inc.              |  | (e)          |  | Commercial & Professional Services             |  | L+725           |  | 1.0%  |  | 6/12/18  |  |                     | 471     |  |               |   | 471       |               |  |   | 479       |  
|Alliance Laundry Systems LLC                  |  | (d)          |  | Capital Goods                                  |  | L+825           |  | 1.3%  |  | 12/10/19 |  |                     | 3,450   |  |               |   | 3,419     |               |  |   | 3,499     |  
|American EnergyUtica, LLC                    |  | (d)(e)       |  | Energy                                         |  | L+475, 4.8% PIK |  | 1.5%  |  | 9/30/18  |  |                     | 100,919 |  |               |   | 100,919   |               |  |   | 100,919   |  
|Attachmate Corp.                              |  | (d)          |  | Software & Services                            |  | L+950           |  | 1.5%  |  | 11/22/18 |  |                     | 17,223  |  |               |   | 17,246    |               |  |   | 16,907    |  
|Audio Visual Services Group, Inc.             |  | (d)          |  | Technology Hardware & Equipment                |  | L+950           |  | 1.3%  |  | 5/9/18   |  |                     | 15,320  |  |               |   | 15,195    |               |  |   | 15,818    |  
|Berlin Packaging LLC                          |  |              |  | Commercial & Professional Services             |  | L+750           |  | 1.3%  |  | 4/2/20   |  |                     | 3,571   |  |               |   | 3,638     |               |  |   | 3,665     |  
|Brasa (Holdings) Inc.                         |  | (d)          |  | Consumer Services                              |  | L+950           |  | 1.5%  |  | 1/20/20  |  |                     | 1,118   |  |               |   | 1,079     |               |  |   | 1,129     |  



See
notes to consolidated financial statements.



126



---

##### Table of Contents

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)

As of December 31, 2013

(in thousands, except share amounts)







|                                            |  |           |  |                                                |  |                |  |       |  |          |  |                     |        |  |               |   |        |               |  |   |        | 
|------------------------------------------- |  | --------- |  | ---------------------------------------------- |  | -------------- |  | ----- |  | -------- |  | ------------------- | ------ |  | ------------- | - | ------ | ------------- |  | - | ------ | 
|Portfolio
Company(a)                        |  | Footnotes |  | Industry                                       |  | Rate           |  | Floor |  | Maturity |  | Principal
Amount(b) |        |  | AmortizedCost |   |        | Fair Value(c) | 
|Camp International Holding Co.              |  | (e)(f)(g) |  | Capital Goods                                  |  | L+725          |  | 1.0%  |  | 11/29/19 |  | $                   | 2,106  |  |               | $ | 2,106  |               |  | $ | 2,152  | 
|Capital Automotive L.P.                     |  | (f)       |  | Real Estate                                    |  | L+500          |  | 1.0%  |  | 4/30/20  |  |                     | 7,895  |  |               |   | 7,858  |               |  |   | 8,171  | 
|Centaur Acquisition, LLC                    |  | (g)       |  | Consumer Services                              |  | L+750          |  | 1.3%  |  | 2/20/20  |  |                     | 13,585 |  |               |   | 13,840 |               |  |   | 13,993 | 
|Cervalis LLC                                |  | (d)(e)    |  | Commercial & Professional Services             |  | L+875          |  | 1.3%  |  | 2/8/19   |  |                     | 30,000 |  |               |   | 29,615 |               |  |   | 30,000 | 
|CHG Buyer Corp.                             |  | (d)       |  | Health Care Equipment & Services               |  | L+775          |  | 1.3%  |  | 11/19/20 |  |                     | 5,747  |  |               |   | 5,655  |               |  |   | 5,847  | 
|Citrus Energy Appalachia, LLC               |  | (d)       |  | Energy                                         |  | L+850          |  | 1.3%  |  | 7/26/18  |  |                     | 15,430 |  |               |   | 14,979 |               |  |   | 15,392 | 
|Consolidated Precision Products Corp.       |  | (d)       |  | Capital Goods                                  |  | L+775          |  | 1.0%  |  | 4/30/21  |  |                     | 16,750 |  |               |   | 16,668 |               |  |   | 17,085 | 
|CT Technologies Intermediate Holdings, Inc. |  |           |  | Software & Services                            |  | L+800          |  | 1.3%  |  | 10/2/20  |  |                     | 5,000  |  |               |   | 4,927  |               |  |   | 5,016  | 
|Del Monte Foods Consumer Products, Inc.     |  | (g)(h)    |  | Food, Beverage & Tobacco                       |  | L+725          |  | 1.0%  |  | 6/6/21   |  |                     | 3,333  |  |               |   | 3,300  |               |  |   | 3,375  | 
|Digital Insight Corp.                       |  |           |  | Software & Services                            |  | L+775          |  | 1.0%  |  | 10/16/20 |  |                     | 12,000 |  |               |   | 12,253 |               |  |   | 12,255 | 
|Drew Marine Group Inc.                      |  | (h)       |  | Energy                                         |  | L+700          |  | 1.0%  |  | 5/19/21  |  |                     | 2,500  |  |               |   | 2,494  |               |  |   | 2,519  | 
|Eastman Kodak Co.                           |  |           |  | Consumer Durables & Apparel                    |  | L+950          |  | 1.3%  |  | 9/3/20   |  |                     | 25,000 |  |               |   | 24,395 |               |  |   | 25,219 | 
|Filtration Group Corp.                      |  | (g)       |  | Energy                                         |  | L+725          |  | 1.0%  |  | 11/21/21 |  |                     | 5,158  |  |               |   | 5,174  |               |  |   | 5,287  | 
|ILC Industries, LLC                         |  | (e)       |  | Capital Goods                                  |  | L+1000         |  | 1.5%  |  | 7/11/19  |  |                     | 3,024  |  |               |   | 2,869  |               |  |   | 2,903  | 
|Keystone Automotive Operations, Inc.        |  | (d)(e)    |  | Automobiles & Components                       |  | L+950          |  | 1.3%  |  | 8/15/20  |  |                     | 44,500 |  |               |   | 43,644 |               |  |   | 46,169 | 
|Kronos Inc.                                 |  |           |  | Software & Services                            |  | L+850          |  | 1.3%  |  | 4/30/20  |  |                     | 7,715  |  |               |   | 7,644  |               |  |   | 7,999  | 
|Leedsworld Inc.                             |  | (d)(e)(f) |  | Retailing                                      |  | L+875          |  | 1.3%  |  | 6/28/20  |  |                     | 62,500 |  |               |   | 62,500 |               |  |   | 62,500 | 
|LM U.S. Member LLC                          |  | (d)       |  | Transportation                                 |  | L+825          |  | 1.3%  |  | 10/26/20 |  |                     | 15,137 |  |               |   | 15,221 |               |  |   | 15,355 | 
|Onex Carestream Finance L.P.                |  | (d)(e)    |  | Health Care Equipment & Services               |  | L+850          |  | 1.0%  |  | 12/5/19  |  |                     | 9,700  |  |               |   | 9,519  |               |  |   | 9,906  | 
|P2 Upstream Acquisition Co.                 |  |           |  | Energy                                         |  | L+800          |  | 1.0%  |  | 4/30/21  |  |                     | 14,500 |  |               |   | 14,788 |               |  |   | 14,790 | 
|Paw Luxco II Sarl                           |  | (h)       |  | Consumer Durables & Apparel                    |  | EURIBOR+950    |  |       |  | 1/29/19  |  |                    | 7,000  |  |               |   | 8,524  |               |  |   | 8,709  | 
|Penton Media, Inc.                          |  |           |  | Media                                          |  | L+775          |  | 1.3%  |  | 10/2/20  |  | $                   | 9,000  |  |               |   | 8,868  |               |  |   | 9,000  | 
|Redtop Acquisitions Ltd.                    |  | (g)(h)    |  | Consumer Services                              |  | L+725          |  | 1.0%  |  | 5/22/21  |  |                     | 7,500  |  |               |   | 7,406  |               |  |   | 7,622  | 
|Renaissance Learning, Inc.                  |  | (g)       |  | Software & Services                            |  | L+775          |  | 1.0%  |  | 4/24/21  |  |                     | 7,000  |  |               |   | 6,895  |               |  |   | 7,083  | 
|Sabine Oil & Gas LLC                        |  |           |  | Energy                                         |  | L+750          |  | 1.3%  |  | 12/31/18 |  |                     | 1,907  |  |               |   | 1,891  |               |  |   | 1,931  | 
|Securus Technologies Holdings, Inc.         |  |           |  | Telecommunication Services                     |  | L+775          |  | 1.3%  |  | 4/30/21  |  |                     | 4,000  |  |               |   | 3,963  |               |  |   | 3,979  | 
|Sensus USA Inc.                             |  | (e)       |  | Capital Goods                                  |  | L+725          |  | 1.3%  |  | 5/9/18   |  |                     | 2,050  |  |               |   | 2,056  |               |  |   | 2,050  | 
|SESAC Holdings Inc.                         |  | (d)       |  | Media                                          |  | L+875          |  | 1.3%  |  | 7/12/19  |  |                     | 2,000  |  |               |   | 1,974  |               |  |   | 2,050  | 
|Sheridan Holdings, Inc.                     |  | (g)       |  | Health Care Equipment & Services               |  | L+725          |  | 1.0%  |  | 12/20/21 |  |                     | 10,784 |  |               |   | 10,730 |               |  |   | 10,885 | 
|StoneRiver Group, L.P.                      |  | (e)       |  | Software & Services                            |  | L+725          |  | 1.3%  |  | 5/30/20  |  |                     | 7,246  |  |               |   | 7,212  |               |  |   | 7,323  | 
|Teine Energy Ltd.                           |  | (e)(h)    |  | Energy                                         |  | L+625          |  | 1.3%  |  | 5/17/19  |  |                     | 5,459  |  |               |   | 5,385  |               |  |   | 5,541  | 
|Templar Energy LLC                          |  |           |  | Energy                                         |  | L+700          |  | 1.0%  |  | 11/25/20 |  |                     | 19,231 |  |               |   | 18,849 |               |  |   | 19,339 | 
|Therakos, Inc.                              |  | (d)       |  | Pharmaceuticals, Biotechnology & Life Sciences |  | L+1000         |  | 1.3%  |  | 6/27/18  |  |                     | 28,000 |  |               |   | 27,310 |               |  |   | 28,677 | 
|TNS, Inc.                                   |  | (e)       |  | Telecommunication Services                     |  | L+800          |  | 1.0%  |  | 8/14/20  |  |                     | 30,469 |  |               |   | 30,056 |               |  |   | 30,878 | 
|Travelport LLC                              |  | (e)       |  | Consumer Services                              |  | L+800          |  | 1.5%  |  | 1/31/16  |  |                     | 5,119  |  |               |   | 5,216  |               |  |   | 5,313  | 
|Travelport LLC                              |  | (d)       |  | Consumer Services                              |  | 4.0%, 4.4% PIK |  |       |  | 12/1/16  |  |                     | 8,207  |  |               |   | 7,282  |               |  |   | 8,381  | 



See
notes to consolidated financial statements.



127



---

##### Table of Contents

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)

As of December 31, 2013

(in thousands, except share amounts)







|                                             |  |           |  |                                                |  |          |  |       |  |          |  |                     |        |  |               |   |         |               |  |   |         | 
|-------------------------------------------- |  | --------- |  | ---------------------------------------------- |  | -------- |  | ----- |  | -------- |  | ------------------- | ------ |  | ------------- | - | ------- | ------------- |  | - | ------- | 
|Portfolio
Company(a)                         |  | Footnotes |  | Industry                                       |  | Rate     |  | Floor |  | Maturity |  | Principal
Amount(b) |        |  | AmortizedCost |   |         | Fair Value(c) | 
|TriZetto Group, Inc.                         |  | (d)       |  | Software & Services                            |  | L+725    |  | 1.3%  |  | 3/28/19  |  | $                   | 4,186  |  |               | $ | 4,133   |               |  | $ | 4,019   | 
|Ultima US Holdings LLC                       |  | (h)       |  | Capital Goods                                  |  | L+850    |  | 1.0%  |  | 12/31/20 |  |                     | 57,000 |  |               |   | 55,919  |               |  |   | 55,860  | 
|US Renal Care, Inc.                          |  |           |  | Health Care Equipment & Services               |  | L+750    |  | 1.0%  |  | 7/3/20   |  |                     | 2,500  |  |               |   | 2,452   |               |  |   | 2,538   | 
|UTEX Industries, Inc.                        |  |           |  | Energy                                         |  | L+750    |  | 1.3%  |  | 4/10/21  |  |                     | 3,243  |  |               |   | 3,228   |               |  |   | 3,324   | 
|Vantage Energy, LLC                          |  | (g)       |  | Energy                                         |  | L+750    |  | 1.0%  |  | 12/20/18 |  |                     | 18,462 |  |               |   | 18,277  |               |  |   | 18,462  | 
|Vertafore, Inc.                              |  | (e)       |  | Software & Services                            |  | L+825    |  | 1.5%  |  | 10/27/17 |  |                     | 830    |  |               |   | 831     |               |  |   | 846     | 
|WNA Holdings, Inc.                           |  |           |  | Materials                                      |  | L+725    |  | 1.3%  |  | 12/7/20  |  |                     | 5,000  |  |               |   | 4,952   |               |  |   | 5,081   | 
|                                             |  |           |  |                                                |  |          |  |       |  |          |  |                     |        |  |               |   |         |               |  |   |         | 
|Total Senior Secured LoansSecond Lien       |  |           |  |                                                |  |          |  |       |  |          |  |                     |        |  |               |   | 684,825 |               |  |   | 697,240 | 
|                                             |  |           |  |                                                |  |          |  |       |  |          |  |                     |        |  |               |   |         |               |  |   |         | 
|Senior Secured Bonds8.5%                    |  |           |  |                                                |  |          |  |       |  |          |  |                     |        |  |               |   |         |               |  |   |         | 
|Advanced Lighting Technologies, Inc.         |  | (d)(e)    |  | Materials                                      |  | 10.5%    |  |       |  | 6/1/19   |  |                     | 35,500 |  |               |   | 31,238  |               |  |   | 25,561  | 
|Allen Systems Group, Inc.                    |  | (e)       |  | Software & Services                            |  | 10.5%    |  |       |  | 11/15/16 |  |                     | 14,225 |  |               |   | 9,814   |               |  |   | 8,037   | 
|Avaya Inc.                                   |  | (d)(e)    |  | Technology Hardware & Equipment                |  | 7.0%     |  |       |  | 4/1/19   |  |                     | 16,000 |  |               |   | 14,990  |               |  |   | 15,760  | 
|Avaya Inc.                                   |  | (d)(e)    |  | Technology Hardware & Equipment                |  | 9.0%     |  |       |  | 4/1/19   |  |                     | 8,000  |  |               |   | 7,955   |               |  |   | 8,400   | 
|Caesars Entertainment Operating Co.          |  | (h)       |  | Consumer Services                              |  | 9.0%     |  |       |  | 2/15/20  |  |                     | 10,000 |  |               |   | 9,593   |               |  |   | 9,741   | 
|Caesars Entertainment Resort Properties, LLC |  | (d)(e)    |  | Consumer Services                              |  | 11.0%    |  |       |  | 10/1/21  |  |                     | 45,000 |  |               |   | 44,910  |               |  |   | 46,484  | 
|Clear Channel Communications, Inc.           |  | (d)       |  | Media                                          |  | 9.0%     |  |       |  | 12/15/19 |  |                     | 1,844  |  |               |   | 1,712   |               |  |   | 1,892   | 
|Erickson Air-Crane Inc.                      |  | (d)(h)    |  | Capital Goods                                  |  | 8.3%     |  |       |  | 5/1/20   |  |                     | 13,312 |  |               |   | 13,053  |               |  |   | 13,811  | 
|Global A&T Electronics Ltd.                  |  | (e)(h)    |  | Technology Hardware & Equipment                |  | 10.0%    |  |       |  | 2/1/19   |  |                     | 9,000  |  |               |   | 9,000   |               |  |   | 7,920   | 
|JW Aluminum Co.                              |  | (d)(e)    |  | Materials                                      |  | 11.5%    |  |       |  | 11/15/17 |  |                     | 11,750 |  |               |   | 11,722  |               |  |   | 11,735  | 
|Logans Roadhouse Inc.                       |  | (e)       |  | Consumer Services                              |  | 10.8%    |  |       |  | 10/15/17 |  |                     | 26,564 |  |               |   | 23,779  |               |  |   | 19,883  | 
|Neff Rental LLC                              |  | (e)       |  | Capital Goods                                  |  | 9.6%     |  |       |  | 5/15/16  |  |                     | 3,750  |  |               |   | 3,785   |               |  |   | 3,975   | 
|Prince Mineral Holding Corp.                 |  | (d)       |  | Materials                                      |  | 11.5%    |  |       |  | 12/15/19 |  |                     | 2,750  |  |               |   | 2,722   |               |  |   | 3,053   | 
|Sorenson Communication, Inc.                 |  | (d)(e)    |  | Telecommunication Services                     |  | 10.5%    |  |       |  | 2/1/15   |  |                     | 37,000 |  |               |   | 34,302  |               |  |   | 27,675  | 
|                                             |  |           |  |                                                |  |          |  |       |  |          |  |                     |        |  |               |   |         |               |  |   |         | 
|Total Senior Secured Bonds                   |  |           |  |                                                |  |          |  |       |  |          |  |                     |        |  |               |   | 218,575 |               |  |   | 203,927 | 
|                                             |  |           |  |                                                |  |          |  |       |  |          |  |                     |        |  |               |   |         |               |  |   |         | 
|Subordinated Debt11.6%                      |  |           |  |                                                |  |          |  |       |  |          |  |                     |        |  |               |   |         |               |  |   |         | 
|Accellent Inc.                               |  |           |  | Health Care Equipment & Services               |  | 10.0%    |  |       |  | 11/1/17  |  |                     | 10,000 |  |               |   | 9,989   |               |  |   | 10,375  | 
|Alliant Holdings I, Inc.                     |  | (d)       |  | Insurance                                      |  | 7.9%     |  |       |  | 12/15/20 |  |                     | 4,000  |  |               |   | 4,000   |               |  |   | 4,220   | 
|Atlas Energy Holdings Operating Co., LLC     |  | (h)       |  | Energy                                         |  | 7.8%     |  |       |  | 1/15/21  |  |                     | 5,000  |  |               |   | 5,000   |               |  |   | 4,773   | 
|Aurora Diagnostics, LLC                      |  | (d)       |  | Pharmaceuticals, Biotechnology & Life Sciences |  | 10.8%    |  |       |  | 1/15/18  |  |                     | 7,000  |  |               |   | 7,039   |               |  |   | 5,180   | 
|Beazer Homes USA, Inc.                       |  | (h)       |  | Capital Goods                                  |  | 7.3%     |  |       |  | 2/1/23   |  |                     | 2,750  |  |               |   | 2,750   |               |  |   | 2,750   | 
|BOE Intermediate Holding Corp.               |  |           |  | Materials                                      |  | 9.8% PIK |  |       |  | 11/1/17  |  |                     | 6,012  |  |               |   | 5,960   |               |  |   | 6,297   | 
|Brocade Communications Systems, Inc.         |  | (h)       |  | Telecommunication Services                     |  | 4.6%     |  |       |  | 1/15/23  |  |                     | 2,750  |  |               |   | 2,750   |               |  |   | 2,532   | 
|CrownRock, L.P.                              |  | (d)(e)    |  | Energy                                         |  | 7.1%     |  |       |  | 4/15/21  |  |                     | 30,000 |  |               |   | 30,000  |               |  |   | 29,827  | 
|Diamondback Energy, Inc.                     |  | (h)       |  | Energy                                         |  | 7.6%     |  |       |  | 10/1/21  |  |                     | 4,250  |  |               |   | 4,250   |               |  |   | 4,483   | 



See
notes to consolidated financial statements.



128



---

##### Table of Contents

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)

As of December 31, 2013

(in thousands, except share amounts)







|                                          |  |           |  |                                  |  |           |  |       |  |          |  |                     |        |  |               |   |         |               |  |   |         | 
|----------------------------------------- |  | --------- |  | -------------------------------- |  | --------- |  | ----- |  | -------- |  | ------------------- | ------ |  | ------------- | - | ------- | ------------- |  | - | ------- | 
|Portfolio
Company(a)                      |  | Footnotes |  | Industry                         |  | Rate      |  | Floor |  | Maturity |  | Principal
Amount(b) |        |  | AmortizedCost |   |         | Fair Value(c) | 
|DigitalGlobe, Inc.                        |  | (h)       |  | Software & Services              |  | 5.3%      |  |       |  | 2/1/21   |  | $                   | 1,100  |  |               | $ | 1,100   |               |  | $ | 1,077   | 
|EPE Holdings LLC                          |  | (d)       |  | Energy                           |  | 8.9% PIK  |  |       |  | 12/15/17 |  |                     | 4,357  |  |               |   | 4,340   |               |  |   | 4,537   | 
|EPL Oil & Gas, Inc.                       |  | (e)(h)    |  | Energy                           |  | 8.3%      |  |       |  | 2/15/18  |  |                     | 2,150  |  |               |   | 2,133   |               |  |   | 2,317   | 
|Era Group Inc.                            |  | (h)       |  | Energy                           |  | 7.8%      |  |       |  | 12/15/22 |  |                     | 7,250  |  |               |   | 7,136   |               |  |   | 7,540   | 
|First Data Corp.                          |  | (g)       |  | Software & Services              |  | 11.8%     |  |       |  | 8/15/21  |  |                     | 1,000  |  |               |   | 1,035   |               |  |   | 1,057   | 
|Halcon Resources Corp.                    |  | (d)(h)    |  | Energy                           |  | 8.9%      |  |       |  | 5/15/21  |  |                     | 2,250  |  |               |   | 2,353   |               |  |   | 2,276   | 
|Hub International Ltd.                    |  |           |  | Insurance                        |  | 7.9%      |  |       |  | 10/1/21  |  |                     | 3,500  |  |               |   | 3,500   |               |  |   | 3,618   | 
|Jefferies Finance LLC                     |  | (h)       |  | Diversified Financials           |  | 7.4%      |  |       |  | 4/1/20   |  |                     | 1,500  |  |               |   | 1,500   |               |  |   | 1,564   | 
|The Kenan Advantage Group, Inc.           |  | (d)       |  | Transportation                   |  | 8.4%      |  |       |  | 12/15/18 |  |                     | 6,250  |  |               |   | 6,436   |               |  |   | 6,609   | 
|Kinetic Concepts, Inc.                    |  | (e)       |  | Health Care Equipment & Services |  | 12.5%     |  |       |  | 11/1/19  |  |                     | 7,800  |  |               |   | 8,145   |               |  |   | 8,795   | 
|LBC Tank Terminals Holding Netherlands BV |  | (e)(h)    |  | Materials                        |  | 6.9%      |  |       |  | 5/15/23  |  |                     | 1,000  |  |               |   | 1,000   |               |  |   | 1,038   | 
|Legacy Reserves L.P.                      |  | (d)(h)    |  | Energy                           |  | 8.0%      |  |       |  | 12/1/20  |  |                     | 8,250  |  |               |   | 8,089   |               |  |   | 8,524   | 
|Legacy Reserves L.P.                      |  | (d)(h)    |  | Energy                           |  | 6.6%      |  |       |  | 12/1/21  |  |                     | 4,900  |  |               |   | 4,826   |               |  |   | 4,740   | 
|Memorial Production Partners L.P.         |  | (d)(h)    |  | Energy                           |  | 7.6%      |  |       |  | 5/1/21   |  |                     | 2,600  |  |               |   | 2,564   |               |  |   | 2,678   | 
|Memorial Resource Development LLC         |  |           |  | Energy                           |  | 10.8% PIK |  |       |  | 12/15/18 |  |                     | 6,700  |  |               |   | 6,566   |               |  |   | 6,700   | 
|Mood Media Corp.                          |  | (d)(e)(h) |  | Media                            |  | 9.3%      |  |       |  | 10/15/20 |  |                     | 46,207 |  |               |   | 45,524  |               |  |   | 40,662  | 
|NeuStar, Inc.                             |  | (h)       |  | Software & Services              |  | 4.5%      |  |       |  | 1/15/23  |  |                     | 2,750  |  |               |   | 2,750   |               |  |   | 2,499   | 
|Nuveen Investments, Inc.                  |  | (d)(e)    |  | Diversified Financials           |  | 9.1%      |  |       |  | 10/15/17 |  |                     | 15,000 |  |               |   | 15,000  |               |  |   | 15,082  | 
|Opal Acquisition, Inc.                    |  |           |  | Consumer Services                |  | 8.9%      |  |       |  | 12/15/21 |  |                     | 27,000 |  |               |   | 27,000  |               |  |   | 27,169  | 
|Resolute Energy Corp.                     |  | (h)       |  | Energy                           |  | 8.5%      |  |       |  | 5/1/20   |  |                     | 5,800  |  |               |   | 5,864   |               |  |   | 6,106   | 
|Revlon Consumer Products Corp.            |  | (h)       |  | Household & Personal Products    |  | 5.8%      |  |       |  | 2/15/21  |  |                     | 5,050  |  |               |   | 5,050   |               |  |   | 5,000   | 
|Rex Energy Corp.                          |  | (d)(h)    |  | Energy                           |  | 8.9%      |  |       |  | 12/1/20  |  |                     | 15,000 |  |               |   | 14,904  |               |  |   | 16,425  | 
|Rockies Express Pipeline LLC              |  |           |  | Energy                           |  | 6.0%      |  |       |  | 1/15/19  |  |                     | 3,250  |  |               |   | 3,250   |               |  |   | 3,024   | 
|Sidewinder Drilling Inc.                  |  | (d)       |  | Capital Goods                    |  | 9.8%      |  |       |  | 11/15/19 |  |                     | 2,000  |  |               |   | 2,000   |               |  |   | 1,770   | 
|Six Flags Entertainment Corp.             |  | (h)       |  | Consumer Services                |  | 5.3%      |  |       |  | 1/15/21  |  |                     | 2,500  |  |               |   | 2,500   |               |  |   | 2,456   | 
|Sophia Holding Finance, L.P.              |  | (e)       |  | Software & Services              |  | 9.6%      |  |       |  | 12/1/18  |  |                     | 9,750  |  |               |   | 9,653   |               |  |   | 10,067  | 
|Southern Graphics Inc.                    |  | (d)       |  | Media                            |  | 8.4%      |  |       |  | 10/15/20 |  |                     | 1,000  |  |               |   | 1,000   |               |  |   | 1,025   | 
|Tenet Healthcare Corp.                    |  | (h)       |  | Health Care Equipment & Services |  | 8.1%      |  |       |  | 4/1/22   |  |                     | 5,500  |  |               |   | 5,500   |               |  |   | 5,940   | 
|TMS International Corp.                   |  |           |  | Energy                           |  | 7.6%      |  |       |  | 10/15/21 |  |                     | 1,250  |  |               |   | 1,250   |               |  |   | 1,331   | 
|U.S. Coatings Acquisition Inc.            |  |           |  | Capital Goods                    |  | 7.4%      |  |       |  | 5/1/21   |  |                     | 2,000  |  |               |   | 2,000   |               |  |   | 2,143   | 
|Windstream Corp.                          |  | (h)       |  | Telecommunication Services       |  | 6.4%      |  |       |  | 8/1/23   |  |                     | 2,600  |  |               |   | 2,600   |               |  |   | 2,434   | 
|                                          |  |           |  |                                  |  |           |  |       |  |          |  |                     |        |  |               |   |         |               |  |   |         | 
|Total Subordinated Debt                   |  |           |  |                                  |  |           |  |       |  |          |  |                     |        |  |               |   | 278,306 |               |  |   | 276,640 | 
|                                          |  |           |  |                                  |  |           |  |       |  |          |  |                     |        |  |               |   |         |               |  |   |         | 



See
notes to consolidated financial statements.



129



---

##### Table of Contents

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)

As of December 31, 2013

(in thousands, except share amounts)







|                                                             |  |           |  |                                                |  |       |  |       |  |          |  |                     |            |  |               |   |           |               |  |   |           |  
|------------------------------------------------------------ |  | --------- |  | ---------------------------------------------- |  | ----- |  | ----- |  | -------- |  | ------------------- | ---------- |  | ------------- | - | --------- | ------------- |  | - | --------- | -
|Portfolio
Company(a)                                         |  | Footnotes |  | Industry                                       |  | Rate  |  | Floor |  | Maturity |  | Principal
Amount(b) |            |  | AmortizedCost |   |           | Fair Value(c) | 
|Collateralized Securities7.6%                               |  |           |  |                                                |  |       |  |       |  |          |  |                     |            |  |               |   |           |               |  |   |           |  
|AMMC 2012 CDO 11A Class Subord.                              |  | (h)       |  | Diversified Financials                         |  | 14.2% |  |       |  | 10/30/23 |  | $                   | 6,000      |  |               | $ | 4,527     |               |  | $ | 4,906     |  
|Apidos CLO XIV Class E                                       |  | (h)       |  | Diversified Financials                         |  | L+440 |  |       |  | 4/15/25  |  |                     | 6,000      |  |               |   | 5,331     |               |  |   | 5,421     |  
|Ares 2012 CLO 2A Class Subord.                               |  | (h)       |  | Diversified Financials                         |  | 7.1%  |  |       |  | 10/12/23 |  |                     | 8,500      |  |               |   | 7,569     |               |  |   | 6,855     |  
|CGMS CLO 2013-3A Class E                                     |  | (h)       |  | Diversified Financials                         |  | L+525 |  |       |  | 7/15/25  |  |                     | 5,000      |  |               |   | 4,457     |               |  |   | 4,453     |  
|CGMS CLO 2013-3A Class Subord.                               |  | (h)       |  | Diversified Financials                         |  | 12.8% |  |       |  | 7/15/25  |  |                     | 22,000     |  |               |   | 20,653    |               |  |   | 23,313    |  
|Halcyon Loan Advisors Funding 2013-2 Class Subord.           |  | (h)       |  | Diversified Financials                         |  | 13.1% |  |       |  | 8/1/25   |  |                     | 15,000     |  |               |   | 13,472    |               |  |   | 15,651    |  
|JPMorgan Chase Bank, N.A. Credit-Linked Notes                |  | (h)       |  | Diversified Financials                         |  | 11.2% |  |       |  | 12/20/21 |  |                     | 76,260     |  |               |   | 76,125    |               |  |   | 76,260    |  
|Octagon CLO 2012-1A Class Income                             |  | (h)       |  | Diversified Financials                         |  | 17.7% |  |       |  | 1/15/24  |  |                     | 4,650      |  |               |   | 3,454     |               |  |   | 4,111     |  
|Wind River CLO Ltd. 2013-1A Class Subord. B                  |  | (h)       |  | Diversified Financials                         |  | 13.1% |  |       |  | 4/20/25  |  |                     | 40,720     |  |               |   | 36,677    |               |  |   | 41,130    |  
|                                                             |  |           |  |                                                |  |       |  |       |  |          |  |                     |            |  |               |   |           |               |  |   |           |  
|Total Collateralized Securities                              |  |           |  |                                                |  |       |  |       |  |          |  |                     |            |  |               |   | 172,265   |               |  |   | 182,100   |  
|                                                             |  |           |  |                                                |  |       |  |       |  |          |  |                     |            |  |               |   |           |               |  |   |           |  
|                                                             |  |           |  |                                                |  |       |  |      
|                                                             |  |           |  |                                                |  |       |  |       |  |          |  | Number ofShares     |            |  | Cost          |   |           | FairValue(c)  | 
|Equity/Other1.2%                                            |  |           |  |                                                |  |       |  |       |  |          |  |                     |            |  |               |   |           |               |  |   |           |  
|A.T. Cross Co., Common Equity, Class A Units                 |  | (i)       |  | Retailing                                      |  |       |  |       |  |          |  |                     | 1,000,000  |  |               |   | 1,000     |               |  |   | 1,200     |  
|American Energy Ohio Holdings, LLC, Common Equity            |  | (i)(j)    |  | Energy                                         |  |       |  |       |  |          |  |                     | 6,743,362  |  |               |   | 6,743     |               |  |   | 6,743     |  
|Burleigh Point, Ltd., Warrants                               |  | (h)(i)    |  | Retailing                                      |  |       |  |       |  |          |  |                     | 17,256,081 |  |               |   | 1,898     |               |  |   | 4,659     |  
|CoSentry.Net, LLC, Preferred Equity                          |  | (i)       |  | Software & Services                            |  |       |  |       |  |          |  |                     | 2,632      |  |               |   | 2,500     |               |  |   | 2,500     |  
|Eastman Kodak Co., Common Equity                             |  | (i)       |  | Consumer Durables & Apparel                    |  |       |  |       |  |          |  |                     | 1,846      |  |               |   | 36        |               |  |   | 64        |  
|ERC Ireland Holdings Ltd., Warrants                          |  | (h)(i)    |  | Telecommunication Services                     |  |       |  |       |  |          |  |                     | 4,943      |  |               |   |          |               |  |   |          |  
|ERC Ireland Holdings Ltd., Common Equity                     |  | (h)(i)    |  | Telecommunication Services                     |  |       |  |       |  |          |  |                     | 21,099     |  |               |   |          |               |  |   |          |  
|Kanders C3 Holdings, LLC, Common Equity                      |  | (e)       |  | Capital Goods                                  |  |       |  |       |  |          |  |                     | 60,872     |  |               |   | 5,000     |               |  |   | 3,756     |  
|Professional Plumbing Group, Inc., Common Equity             |  | (i)       |  | Capital Goods                                  |  |       |  |       |  |          |  |                     | 3,000,000  |  |               |   | 3,000     |               |  |   | 3,000     |  
|Swift Worldwide Resources US Holdings Corp. B, Common Equity |  | (h)(i)    |  | Energy                                         |  |       |  |       |  |          |  |                     | 1,250,000  |  |               |   | 2,010     |               |  |   | 2,072     |  
|Therakos, Inc., Common Equity                                |  |           |  | Pharmaceuticals, Biotechnology & Life Sciences |  |       |  |       |  |          |  |                     | 14,366     |  |               |   | 1,478     |               |  |   | 3,834     |  
|                                                             |  |           |  |                                                |  |       |  |       |  |          |  |                     |            |  |               |   |           |               |  |   |           |  
|Total Equity/Other                                           |  |           |  |                                                |  |       |  |       |  |          |  |                     |            |  |               |   | 23,665    |               |  |   | 27,828    |  
|                                                             |  |           |  |                                                |  |       |  |       |  |          |  |                     |            |  |               |   |           |               |  |   |           |  
|TOTAL INVESTMENTS111.1%                                     |  |           |  |                                                |  |       |  |       |  |          |  |                     |            |  |               | $ | 2,626,969 |               |  |   | 2,655,828 |  
|                                                             |  |           |  |                                                |  |       |  |       |  |          |  |                     |            |  |               |   |           |               |  |   |           |  
|LIABILITIES IN EXCESS OF OTHER ASSETS(11.1%)                |  |           |  |                                                |  |       |  |       |  |          |  |                     |            |  |               |   |           |               |  |   | (264,843  | )
|                                                             |  |           |  |                                                |  |       |  |       |  |          |  |                     |            |  |               |   |           |               |  |   |           |  
|NET ASSETS100.0%                                            |  |           |  |                                                |  |       |  |       |  |          |  |                     |            |  |               |   |           |               |  | $ | 2,390,985 |  
|                                                             |  |           |  |                                                |  |       |  |       |  |          |  |                     |            |  |               |   |           |               |  |   |           |  



See
notes to consolidated financial statements.



130



---

##### Table of Contents

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)

As of December 31, 2013

(in thousands, except share amounts)









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



|(b) | Denominated in U.S. dollars unless otherwise noted.
|--- | ---------------------------------------------------



|(c) | Fair value determined by the Companys board of directors (see Note 7).
|--- | -----------------------------------------------------------------------



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



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



|(f) | Security or portion thereof held within Cooper River LLC and is pledged as collateral supporting the obligations of Cooper River LLC under the revolving credit facility
with Citibank, N.A. (see Note 8).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(g) | Position or portion thereof unsettled as of December 31, 2013.
|--- | --------------------------------------------------------------



|(h) | The investment is not a qualifying asset under the Investment Company Act of 1940, as amended. A business development company may not acquire any asset other than
qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the companys total assets. As of December 31, 2013, 79.0% of the Companys total assets represented qualifying assets.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(i) | Security is non-income producing.
|--- | ---------------------------------



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



See notes to consolidated financial statements.



131



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)





Note 1. Principal Business and
Organization

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

The Company has elected to be regulated as a business development company, or BDC, under the Investment
Company Act of 1940, as amended, or the 1940 Act. The Company is an externally managed, non-diversified, closed-end management investment company that has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually,
as a regulated investment company, or RIC, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. As of December 31, 2014, the Company had nine wholly-owned financing subsidiaries, two wholly-owned
subsidiaries through which it holds interests in certain non-controlled and non-affiliated portfolio companies and another wholly-owned subsidiary through which it may hold certain investments in portfolio companies from time to time. The
consolidated financial statements include both the Companys accounts and the accounts of its wholly-owned subsidiaries as of December 31, 2014. All significant intercompany transactions have been eliminated in consolidation. Certain of
the Companys consolidated subsidiaries are subject to U.S. federal and state income taxes.

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

Note 2. Summary of Significant Accounting Policies

Basis of Presentation: The accompanying audited consolidated financial statements of the Company have been prepared
in accordance with U.S. generally accepted accounting principles, or GAAP. The Company is considered an investment company under GAAP and follows the accounting and reporting guidance applicable to investment companies. The Company has evaluated the
impact of subsequent events through the date the consolidated financial statements were issued and filed with the Securities and Exchange Commission, or the SEC.

Use of Estimates: The preparation of the audited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and



132



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 2. Summary of Significant Accounting
Policies (continued)



liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Many of the amounts have been rounded and all amounts are in thousands, except share and per share amounts.

Cash and Cash Equivalents: The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. All cash balances are maintained with high
credit quality financial institutions, which are members of the Federal Deposit Insurance Corporation.

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

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

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



| |  |  | the Companys quarterly valuation process begins with FSIC II Advisors management team providing a preliminary valuation of each portfolio
company or investment to the Companys valuation committee, which valuation may be obtained from an independent valuation firm, if applicable;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | preliminary valuation conclusions are then documented and discussed with the Companys valuation committee;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | the Companys valuation committee reviews the preliminary valuation and FSIC II Advisors management team, together with its independent
valuation firm, if applicable, responds and supplements the preliminary valuation to reflect any comments provided by the valuation committee; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



133



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 2. Summary of Significant Accounting
Policies (continued)



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

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

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

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

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

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



134



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 2. Summary of Significant Accounting
Policies (continued)



The fair values of the Companys investments are determined in good faith by the
Companys board of directors. The Companys board of directors is solely responsible for the valuation of the Companys portfolio investments at fair value as determined in good faith pursuant to the Companys valuation policy
and consistently applied valuation process.

Revenue Recognition: Security transactions are accounted for on the trade
date. The Company records interest income on an accrual basis to the extent that it expects to collect such amounts. The Company records dividend income on the ex-dividend date. The Company does not accrue as a receivable interest or dividends on
loans and securities if it has reason to doubt its ability to collect such income. Loan origination fees, original issue discount and market discount are capitalized and the Company amortizes such amounts as interest income over the respective term
of the loan or security. Upon the prepayment of a loan or security, any unamortized loan origination fees and original issue discount are recorded as interest income. Structuring and other upfront fees are recorded as fee income when earned. The
Company records prepayment premiums on loans and securities as fee income when it receives such amounts.

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

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

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

In addition,
the Company historically treated all net settlement payments received by the Company pursuant to its total return swap, or TRS (which was terminated on June 13, 2013), as realized capital gains and included



135



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 2. Summary of Significant Accounting
Policies (continued)



only the aggregate amount of unrealized depreciation on the TRS as a whole in calculating the capital gains incentive fee payable to FSIC II Advisor with respect to realized gains, in each case,
in accordance with GAAP. However, the staff of the Division of Investment Management of the SEC, or the Staff, informed the Company that it is their interpretation of the applicable language in the Advisers Act that the Company should look
through the TRS in calculating its capital gains incentive fee. Under this look through methodology, the portion of the net settlement payments received by the Company pursuant to the TRS which would have represented net investment
income to the Company had the Company held the loans or securities underlying the TRS directly would be treated as net investment income subject to the subordinated incentive fee on income payable to FSIC II Advisor pursuant to the investment
advisory and administrative services agreement, rather than as realized capital gains in accordance with GAAP, and any unrealized depreciation on individual loans or securities underlying the TRS would further reduce the capital gains incentive fee
payable to FSIC II Advisor with respect to realized gains. FSIC II Advisor voluntarily agreed to waive any capital gains incentive fee calculated in accordance with GAAP to which it would otherwise be entitled in respect of the TRS if and to the
extent that the amount of such fee exceeds the sum of (i) the amount of capital gains incentive fee determined in respect of the TRS on a look through basis under which the Company treats the reference assets underlying the TRS as
investments of the Company and (ii) the aggregate amount of subordinated incentive fees on income which would have been payable to FSIC II Advisor with respect to the portion of the net settlement payments received by the Company pursuant to
the TRS which represent net investment income on the loans or securities underlying the TRS on a look through basis.

Subordinated Income Incentive Fee: Pursuant to the investment advisory and administrative services agreement, FSIC II Advisor may also be entitled to receive a subordinated incentive fee on income.
The subordinated incentive fee on income, which is calculated and payable quarterly in arrears, equals 20.0% of the Companys pre-incentive fee net investment income for the immediately preceding quarter and is subject to a hurdle
rate, expressed as a rate of return on adjusted capital, as defined in the investment advisory and administrative services agreement, equal to 1.875% per quarter, or an annualized hurdle rate of 7.5%. As a result, FSIC II Advisor will not
earn this incentive fee for any quarter until the Companys pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.875%. Once the Companys pre-incentive fee net investment income in any quarter exceeds the
hurdle rate, FSIC II Advisor will be entitled to a catch-up fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until the Companys pre-incentive fee net investment income for such
quarter equals 2.34375%, or 9.375% annually, of adjusted capital. Thereafter, FSIC II Advisor will be entitled to receive 20.0% of pre-incentive fee net investment income.

Credit Default Swaps: When the Company is the buyer of a credit default swap contract, the Company is entitled to receive the par (or other agreed-upon) value of a referenced debt obligation (or
basket of debt obligations) from the counterparty to the contract if a specified credit event with respect to the issuer of the debt obligation, such as a U.S. or foreign corporate issuer or sovereign issuer, occurs. In return, the Company pays the
counterparty a periodic stream of payments over the term of the contract provided that no credit event has occurred. If no specified credit event occurs, the Company would have paid the stream of payments and received no proceeds from the contract.
When the Company is the seller of a credit default swap contract, it receives the stream of payments, but is obligated to pay to the buyer of the protection an amount up to the notional amount of the swap and, in certain instances, take delivery of
securities of the reference entity upon the occurrence of a credit event, as defined under the terms of that particular swap agreement. Credit events are contract specific but may include bankruptcy, failure to pay principal or interest,
restructuring, obligation acceleration and repudiation



136



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 2. Summary of Significant Accounting
Policies (continued)



or moratorium. If the Company is a seller of protection and a credit event occurs, the maximum potential amount of future payments that the Company could be required to make would be an amount
equal to the notional amount of the agreement. This potential amount would be partially offset by any recovery value of the respective referenced obligation, or net amount received from the settlement of a buy protection credit default swap
agreement entered into by the Company for the same referenced obligation. As the seller of a credit default swap contract, the Company may create economic leverage because, in addition to its total net assets, the Company is subject to investment
exposure on the notional amount of the swap. The interest fee paid or received on the swap contract, which is based on a specified interest rate on a fixed notional amount, is accrued daily and is recorded as realized loss or gain. The Company
records an increase or decrease to unrealized appreciation (depreciation) on credit default swaps in an amount equal to the change in daily valuation. Upfront payments or receipts, if any, are recorded as unamortized swap premiums paid or received,
respectively, and are amortized over the life of the swap contract as realized losses or gains. For financial reporting purposes, unamortized upfront payments, if any, are netted with unrealized appreciation (depreciation) on credit default
swaps to determine the market value of swaps as presented in Note 7 and Note 9. The Company will segregate assets in the form of cash and/or liquid securities in an amount equal to any unrealized depreciation on the credit default swaps of
which it is the buyer, marked-to-market on a daily basis. The Company segregates assets in the form of cash and/or liquid securities in an amount equal to the notional amount of the credit default swaps of which it is the seller. These transactions
involve certain risks, including the risk that the seller may be unable to fulfill the transaction.

Organization
Costs: Organization costs include, among other things, the cost of incorporating, including the cost of legal services and other fees pertaining to the Companys organization. These costs are expensed as incurred. For the year ended
December 31, 2012, the Company incurred organization costs of $205, which were paid on behalf of the Company by Franklin Square Holdings, L.P., or Franklin Square Holdings, an affiliate of FSIC II Advisor, and have been recorded as a
contribution to capital (see Note 4). The Company did not incur any organization costs during the years ended December 31, 2013 and 2014.

Offering Costs: Offering costs primarily include, among other things, marketing expenses and printing, legal and due diligence fees and other costs pertaining to the Companys continuous
public offering of its shares of common stock. The Company has charged offering costs against capital in excess of par value on the consolidated balance sheets.

Income Taxes: The Company has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a RIC under Subchapter M of the Code. To qualify for and maintain
qualification as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements and distribute to its stockholders, for each tax year, at least 90% of its investment company taxable
income, which is generally the Companys net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses, without regard to any deduction for dividends paid. As a RIC, the
Company will not have to pay corporate-level U.S. federal income taxes on any income that it distributes to its stockholders. The Company intends to make distributions in an amount sufficient to qualify for and maintain its RIC status each tax year
and to not pay any U.S. federal income taxes on income so distributed. The Company is also subject to nondeductible federal excise taxes if it does not distribute, in respect of each calendar year, at least 98% of net ordinary income (taking into
account certain deferrals and elections), 98.2% of any capital gains in excess of capital losses, or capital gain net income, (adjusted for certain ordinary losses), determined on the basis of a one year period ending October 31, and any
recognized and undistributed ordinary income and capital gain net income from prior years for which it paid no U.S. federal income taxes. Certain of the Companys consolidated subsidiaries are subject to U.S. federal and state income taxes.



137



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 2. Summary of Significant Accounting
Policies (continued)



Uncertainty in Income Taxes: The Company evaluates its tax positions to determine
if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax benefits or liabilities in the
Companys consolidated financial statements. Recognition of a tax benefit or liability with respect to an uncertain tax position is required only when the position is more likely than not to be sustained assuming examination by
taxing authorities. The Company recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in its consolidated statements of operations. During the years ended December 31, 2014, 2013 and 2012, the
Company did not incur any interest or penalties.

The Company has analyzed the tax positions taken on federal and state income
tax returns for all open tax years, and has concluded that no provision for income tax for uncertain tax positions is required in the Companys financial statements. The Companys federal and state income and federal excise tax returns for
tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.

Distributions: Distributions to the Companys stockholders are recorded as of the record date. Subject to applicable legal restrictions and the sole discretion of the Companys board of
directors, the Company currently intends to authorize and declare regular cash distributions on a quarterly basis and pay such distributions on a monthly basis. Net realized capital gains, if any, are distributed or deemed distributed at least
annually.

Reclassifications: Certain amounts in the consolidated financial statements for the years ended
December 31, 2013 and 2012 have been reclassified to conform to the classifications used to prepare the consolidated financial statements for the year ended December 31, 2014. These reclassifications had no material impact on the
Companys consolidated financial position, results of operations or cash flows as previously reported.

Note 3. Share Transactions

Below is a summary of transactions with respect to shares of the Companys common stock during the years ended
December 31, 2014, 2013 and 2012:



|                                     |  |                         |            |   |        |   |         |        |  |  |             |   |  |        |           |   |        |  |            |   |  |   |         |  
|------------------------------------ |  | ----------------------- | ---------- | - | ------ | - | ------- | ------ |  |  | ----------- | - |  | ------ | --------- | - | ------ |  | ---------- | - |  | - | ------- | -
|                                     |  | Year Ended December 31, |           
|                                     |  | 2014                    |            |   | 2013   |   |         | 2012   | 
|                                     |  | Shares                  |            |   | Amount |   |         | Shares |  |  | Amount      |   |  | Shares |           |   | Amount | 
|Gross Proceeds from Offering         |  |                         | 46,680,052 |   |        | $ | 486,879 |        |  |  | 191,695,887 |   |  | $      | 1,991,124 |   |        |  | 57,238,434 |   |  | $ | 570,747 |  
|Reinvestment of Distributions        |  |                         | 13,520,133 |   |        |   | 129,347 |        |  |  | 5,523,072   |   |  |        | 52,057    |   |        |  | 377,027    |   |  |   | 3,608   |  
|                                     |  |                         |            |   |        |   |         |        |  |  |             |   |  |        |           |   |        |  |            |   |  |   |         |  
|Total Gross Proceeds                 |  |                         | 60,200,185 |   |        |   | 616,226 |        |  |  | 197,218,959 |   |  |        | 2,043,181 |   |        |  | 57,615,461 |   |  |   | 574,355 |  
|Commissions and Dealer Manager Fees  |  |                         |           |   |        |   | (44,484 | )      |  |  |            |   |  |        | (186,143  | ) |        |  |           |   |  |   | (51,993 | )
|                                     |  |                         |            |   |        |   |         |        |  |  |             |   |  |        |           |   |        |  |            |   |  |   |         |  
|Net Proceeds to Company              |  |                         | 60,200,185 |   |        |   | 571,742 |        |  |  | 197,218,959 |   |  |        | 1,857,038 |   |        |  | 57,615,461 |   |  |   | 522,362 |  
|Share Repurchase Program             |  |                         | (1,735,154 | ) |        |   | (16,665 | )      |  |  | (259,669    | ) |  |        | (2,447    | ) |        |  | (24,877    | ) |  |   | (225    | )
|                                     |  |                         |            |   |        |   |         |        |  |  |             |   |  |        |           |   |        |  |            |   |  |   |         |  
|Net Proceeds from Share Transactions |  |                         | 58,465,031 |   |        | $ | 555,077 |        |  |  | 196,959,290 |   |  | $      | 1,854,591 |   |        |  | 57,590,584 |   |  | $ | 522,137 |  
|                                     |  |                         |            |   |        |   |         |        |  |  |             |   |  |        |           |   |        |  |            |   |  |   |         |  



138



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 3. Share Transactions (continued)



Public Offering of Shares

In March 2014, the Company closed its continuous public offering of shares of common stock to new investors. The Company sold 302,266,066
shares of common stock for gross proceeds of $3,112,692 in its continuous public offering, including shares issued pursuant to its distribution reinvestment plan. Following the closing of its continuous public offering, the Company has continued to
issue shares pursuant to its distribution reinvestment plan. As of March 3, 2015, the Company had issued a total of 317,288,869 shares of common stock and raised total gross proceeds of $3,255,043, including $200 of seed capital
contributed by the principals of FSIC II Advisor in December 2011 and $18,395 in proceeds raised from the principals of FSIC II Advisor, other individuals and entities affiliated with FSIC II Advisor, certain members of the
Companys board of directors and certain individuals and entities affiliated with GSO / Blackstone Debt Funds Management LLC, or GDFM, the Companys investment sub-adviser, in a private placement completed in June 2012 (see
Note 4).

During the years ended December 31, 2014, 2013 and 2012, the Company sold 60,200,185, 197,218,959 and
57,615,461 shares of common stock for gross proceeds of $616,226, $2,043,181 and $574,355 at an average price per share of $10.24, $10.36 and $9.97, respectively. The gross proceeds received during the years ended December 31, 2014, 2013
and 2012 include reinvested stockholder distributions of $129,347, $52,057 and $3,608 for which the Company issued 13,520,133, 5,523,072 and 377,027 shares of common stock, respectively. During the period from January 1, 2015 to
March 3, 2015, the Company issued 2,232,042 shares of common stock pursuant to its distribution reinvestment plan for gross proceeds of $21,093 at an average price per share of $9.45.

The proceeds from the issuance of common stock as presented on the Companys consolidated statements of changes in net assets and
consolidated statements of cash flows are presented net of selling commissions and dealer manager fees of $44,484, $186,143 and $51,993 for the years ended December 31, 2014, 2013 and 2012, respectively.

Share Repurchase Program

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



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



| |  |  | the liquidity of the Companys assets (including fees and costs associated with disposing of assets);
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | the Companys investment plans and working capital requirements;
| | - |  | ----------------------------------------------------------------



| |  |  | the relative economies of scale with respect to the Companys size;
| | - |  | -------------------------------------------------------------------



| |  |  | the Companys history in repurchasing shares of common stock or portions thereof; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | the condition of the securities markets.
| | - |  | ----------------------------------------



139



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 3. Share Transactions (continued)



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

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

The following table provides information concerning the Companys repurchases of shares of common
stock pursuant to its share repurchase program during the years ended December 31, 2014, 2013 and 2012:



|                           |  |                 |                 |  |                   |  |         |                                                 |  |  |                          |   |  |                                            |       |  |  |   |       | 
|-------------------------- |  | --------------- | --------------- |  | ----------------- |  | ------- | ----------------------------------------------- |  |  | ------------------------ | - |  | ------------------------------------------ | ----- |  |  | - | ----- | 
|For the Three Months Ended |  | Repurchase Date |                 |  | SharesRepurchased |  |         | Percentageof SharesTenderedThat WereRepurchased |  |  | RepurchasePrice PerShare |   |  | AggregateConsiderationforRepurchasedShares |      
|Fiscal 2012                |  |                 |                 |  |                   |  |         |                                                 |  |  |                          |   |  |                                            |       |  |  |   |       | 
|September 30, 2012         |  |                 | October 1, 2012 |  |                   |  | 24,877  |                                                 |  |  | 100                      | % |  | $                                          | 9.045 |  |  | $ | 225   | 
|Fiscal 2013                |  |                 |                 |  |                   |  |         |                                                 |  |  |                          |   |  |                                            |       |  |  |   |       | 
|December 31, 2012(1)       |  |                 | January 2, 2013 |  |                   |  |        |                                                 |  |  |                         |   |  | $                                          | 9.225 |  |  |   |      | 
|March 31, 2013             |  |                 | April 1, 2013   |  |                   |  | 76,086  |                                                 |  |  | 100                      | % |  | $                                          | 9.360 |  |  | $ | 712   | 
|June 30, 2013              |  |                 | July 1, 2013    |  |                   |  | 45,414  |                                                 |  |  | 100                      | % |  | $                                          | 9.450 |  |  | $ | 429   | 
|September 30, 2013         |  |                 | October 2, 2013 |  |                   |  | 138,169 |                                                 |  |  | 100                      | % |  | $                                          | 9.450 |  |  | $ | 1,306 | 
|Fiscal 2014                |  |                 |                 |  |                   |  |         |                                                 |  |  |                          |   |  |                                            |       |  |  |   |       | 
|December 31, 2013          |  |                 | January 2, 2014 |  |                   |  | 135,094 |                                                 |  |  | 100                      | % |  | $                                          | 9.450 |  |  | $ | 1,277 | 
|March 31, 2014             |  |                 | April 1, 2014   |  |                   |  | 372,394 |                                                 |  |  | 100                      | % |  | $                                          | 9.540 |  |  | $ | 3,553 | 
|June 30, 2014              |  |                 | July 1, 2014    |  |                   |  | 642,524 |                                                 |  |  | 100                      | % |  | $                                          | 9.640 |  |  | $ | 6,194 | 
|September 30, 2014         |  |                 | October 1, 2014 |  |                   |  | 585,142 |                                                 |  |  | 100                      | % |  | $                                          | 9.640 |  |  | $ | 5,641 | 



|(1) | No shares were tendered for repurchase in connection with the quarterly tender offer.
|--- | -------------------------------------------------------------------------------------



140



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 3. Share Transactions (continued)



On January 2, 2015, the Company repurchased 578,569 shares of common stock
(representing 100% of the shares of the common stock tendered for repurchase) at $9.50 per share for aggregate consideration totaling $5,496.

Note 4. Related Party Transactions

Compensation of the Investment Adviser and Dealer Manager

Pursuant to the investment advisory and administrative services agreement, FSIC II Advisor is entitled to an annual base management fee of 2.0% of the average value of the Companys gross assets and
an incentive fee based on the Companys performance. The Company commenced accruing fees under the investment advisory and administrative services agreement on June 18, 2012, upon commencement of the Companys investment operations.
Base management fees are paid on a quarterly basis in arrears.

The incentive fee consists of two parts. The first part of the
incentive fee, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears, equals 20.0% of the Companys pre-incentive fee net investment income for the immediately preceding
quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted capital, as defined in the investment advisory and administrative services agreement, equal to 1.875% per quarter, or an annualized hurdle rate of 7.5%. As a result,
FSIC II Advisor will not earn this incentive fee for any quarter until the Companys pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.875%. Once the Companys pre-incentive fee net investment
income in any quarter exceeds the hurdle rate, FSIC II Advisor will be entitled to a catch-up fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until the Companys
pre-incentive fee net investment income for such quarter equals 2.34375%, or 9.375% annually, of adjusted capital. This catch-up feature allows FSIC II Advisor to recoup the fees foregone as a result of the existence of the hurdle
rate. Thereafter, FSIC II Advisor will be entitled to receive 20.0% of pre-incentive fee net investment income.

The
second part of the incentive fee, which is referred to as the incentive fee on capital gains, is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory and administrative services
agreement). This fee equals 20.0% of the Companys incentive fee capital gains, which equals the Companys realized capital gains on a cumulative basis from inception, calculated as of the end of the applicable period, computed net of all
realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. The Company accrues for the capital gains incentive fee, which, if earned, is paid
annually. The Company accrues the capital gains incentive fee based on net realized and unrealized gains; however, under the terms of the investment advisory and administrative services agreement, the fee payable to FSIC II Advisor is based on
realized gains and no such fee is payable with respect to unrealized gains unless and until such gains are actually realized. See Note 2 for a discussion of the treatment of the TRS (which was terminated on June 13, 2013) with respect to
the calculation of the capital gains incentive fee.

The Company reimburses FSIC II Advisor for expenses necessary to
perform services related to the Companys administration and operations, including FSIC II Advisors allocable portion of the compensation and related expenses of certain personnel of Franklin Square Holdings providing administrative
services to the Company on behalf of FSIC II Advisor. The amount of this reimbursement is set at the lesser of (1) FSIC II Advisors actual costs incurred in providing such services and (2) the amount that the Company
estimates it would be required to pay alternative service providers for comparable services in the same geographic location. FSIC II Advisor is required to allocate the cost of such services to the Company based on objective factors such



141



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 4. Related Party
Transactions (continued)



as total assets, revenues, time allocations and/or other reasonable metrics. The Companys board of directors reviews the methodology employed in determining how the expenses are allocated
to the Company and the proposed allocation of the administrative expenses among the Company and certain affiliates of FSIC II Advisor. The Companys board of directors then assesses the reasonableness of such reimbursements for expenses
allocated to the Company based on the breadth, depth and quality of such services as compared to the estimated cost to the Company of obtaining similar services from third-party service providers known to be available. In addition, the
Companys board of directors considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, the Companys board of directors, among other things, compares
the total amount paid to FSIC II Advisor for such services as a percentage of the Companys net assets to the same ratio as reported by other comparable BDCs. The Company does not reimburse FSIC II Advisor for any services for which
it receives a separate fee, or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of FSIC II Advisor.

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

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

The dealer manager for the Companys continuous public offering was FS2Capital Partners, LLC, or FS2, which is one of the Companys affiliates. Under the dealer
manager agreement among the Company, FSIC II Advisor and FS2, FS2was
entitled to receive selling commissions and dealer manager fees in connection with the sale of shares of common stock in the Companys continuous public offering, all or a portion of which were re-allowed to selected broker-dealers. The dealer
manager agreement terminated in connection with the closing of the Companys continuous public offering in March 2014.



142



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 4. Related Party
Transactions (continued)



The following table describes the fees and expenses accrued under the investment
advisory and administrative services agreement and the dealer manager agreement during the years ended December 31, 2014, 2013 and 2012:



|                |  |                                                           |  |                                         |  |                         |        |   |      |   |        |      |  |   |        | 
|--------------- |  | --------------------------------------------------------- |  | --------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | 
|                |  |                                                           |  |                                         |  | Year Ended December 31, |       
|Related Party   |  | Source Agreement                                          |  | Description                             |  | 2014                    |        |   | 2013 |   |        | 2012 | 
|FSIC II Advisor |  | Investment Advisory andAdministrative Services Agreement  |  | Base Management Fee(1)                  |  | $                       | 82,325 |   |      | $ | 38,677 |      |  | $ | 3,315  | 
|FSIC II Advisor |  | Investment Advisory and Administrative Services Agreement |  | Capital Gains Incentive Fee(2)          |  | $                       | (9,234 | ) |      | $ | 6,164  |      |  | $ | 3,548  | 
|FSIC II Advisor |  | Investment Advisory and Administrative Services Agreement |  | Subordinated Incentive Fee on
Income(3) |  | $                       | 33,251 |   |      | $ | 8,871  |      |  | $ |       | 
|FSIC II Advisor |  | Investment Advisory and Administrative Services Agreement |  | Administrative Services Expenses(4)     |  | $                       | 4,607  |   |      | $ | 2,732  |      |  | $ | 396    | 
|FSIC II Advisor |  | Investment Advisory and Administrative Services Agreement |  | Offering Costs(5)                       |  | $                       | 1,686  |   |      | $ | 7,900  |      |  | $ | 3,882  | 
|FS2             |  | Dealer Manager Agreement                                  |  | Dealer Manager Fee(6)                   |  | $                       | 8,821  |   |      | $ | 35,718 |      |  | $ | 10,025 | 



|(1) | During the years ended December 31, 2014, 2013 and 2012, $74,269, $26,131 and $114, respectively, in base management fees were paid to FSIC II Advisor. As of
December 31, 2014, $23,069 in base management fees were payable to FSIC II Advisor.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | During the year ended December 31, 2014, the Company reversed $9,234 of capital gains incentive fees previously accrued based on the performance of the
Companys portfolio. During the years ended December 31, 2013 and 2012, the Company accrued capital gains incentive fees of $6,164 and $3,548, respectively, based on the performance of its portfolio, of which $6,164 and $3,070,
respectively, was based on unrealized gains and $0 and $478, respectively, was based on realized gains. No such fees are actually payable by the Company with respect to such unrealized gains unless and until those gains are actually realized. See
Note 2 for a discussion of the methodology employed by the Company in calculating the capital gains incentive fee. Effective as of March 31, 2013, FSIC II Advisor voluntarily agreed to waive any capital gains incentive fees calculated
in accordance with GAAP to the extent such fees exceeded those which would be payable in accordance with the look through methodology described more fully in Note 2. This waiver resulted in a reduction of $441 to the amount of
capital gains incentive fees payable to FSIC II Advisor with respect to realized gains. Accordingly, the Company reduced the amount of accrued capital gains incentive fees payable to FSIC II Advisor by $441 effective as of March 31,
2013. The Company did not pay any capital gains incentive fees to FSIC II Advisor during the year ended December 31, 2014. As of December 31, 2014, the Company did not have any accrued capital gains incentive fees based on the
performance of its portfolio.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | During the years ended December 31, 2014 and 2013, $17,917 and $8,871, respectively, of subordinated incentive fees on income were paid to FSIC II Advisor. As
of December 31, 2014, a subordinated incentive fee on income of $15,334 was payable to FSIC II Advisor.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | During the years ended December 31, 2014, 2013 and 2012, $4,173, $2,216 and $321, respectively, of administrative services expenses related to the allocation of
costs of administrative personnel for services rendered to the Company by FSIC II Advisor and the remainder related to other reimbursable expenses. The Company paid $3,333, $2,342 and $215, in administrative services expenses to FSIC II
Advisor during the years ended December 31, 2014, 2013 and 2012, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | During the years ended December 31, 2014, 2013 and 2012, the Company incurred offering costs of $1,686, $7,900, $3,882, respectively, of which
$1,087, $3,316, $996, respectively, related to reimbursements to FSIC II Advisor for offering costs incurred on the Companys behalf, including marketing expenses, salaries and other direct expenses of FSIC II Advisors personnel
and employees of its affiliates while engaged in registering and marketing the Companys
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



143



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 4. Related Party
Transactions (continued)



| | common shares. In addition, during the year ended December 31, 2012, FSIC II Advisor and its affiliates directly funded 2,359 of the Companys organization and offering costs and the
Company paid 3,202 to FSIC II Advisor and its affiliates for organization and offering costs previously funded.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Represents aggregate sales commissions and dealer manager fees retained by FS2and not re-allowed to selected broker-dealers.
|--- | ----------------------------------------------------------------------------------------------------------------------------

Capital Contribution by FSIC II Advisor and GDFM

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

In June 2012, pursuant to a private placement, Messrs. Forman and Adelman agreed to
purchase, through affiliated entities controlled by each of them, 222,222 additional shares of common stock at $9.00 per share, which represented the initial public offering price of $10.00 per share, excluding selling commissions and dealer manager
fees. The principals will not tender these shares of common stock for repurchase as long as FSIC II Advisor remains the Companys investment adviser. In connection with the same private placement, certain members of the Companys board of
directors and other individuals and entities affiliated with FSIC II Advisor purchased 1,247,267 shares of common stock, and certain individuals and entities affiliated with GDFM purchased 574,444 shares of common stock, in each case at a price of
$9.00 per share. In connection with the private placement, the Company sold an aggregate of 2,043,933 shares of common stock for aggregate gross proceeds of $18,395 upon satisfying the minimum offering requirement on June 18, 2012. As of
March 3, 2015, the Company had issued an aggregate of 3,392,026 shares of common stock for aggregate gross proceeds of $31,056 to members of the Companys board of directors and individuals and entities affiliated with FSIC II Advisor and
GDFM, including shares of common stock sold to Messrs. Forman and Adelman in December 2011 and shares sold in the private placement completed in June 2012.

Potential Conflicts of Interest

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



144



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 4. Related Party
Transactions (continued)



absence of FSIC II Advisor retaining additional clients, it is possible that some investment opportunities may be provided to FS Investment Corporation, FS Energy and Power Fund, FS Investment
Corporation III and/or FS Global Credit Opportunities Fund rather than to the Company.

Exemptive Relief

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

Expense Reimbursement

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

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

Pursuant to the expense reimbursement agreement, the Company has a conditional obligation to reimburse Franklin Square Holdings for any
amounts funded by Franklin Square Holdings under such agreement if (and only to the extent that), during any fiscal quarter occurring within three years of the date on which Franklin Square Holdings funded such amount, the sum of the Companys
net investment company taxable income, net capital gains and the amount of any dividends and other distributions paid to the Company on account of



145



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 4. Related Party
Transactions (continued)



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

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

Franklin Square Holdings is controlled by the Companys chairman, president and chief executive officer, Michael C. Forman, and its
vice-chairman, David J. Adelman. There can be no assurance that the expense reimbursement agreement will remain in effect or that Franklin Square Holdings will reimburse any portion of the Companys expenses in future quarters. As of
December 31, 2014, there were no unreimbursed expense support payments subject to future reimbursement by the Company.

During the year ended December 31, 2012, the Company accrued $2,482 for reimbursements due from Franklin Square Holdings under this
arrangement, of which $847 was funded by Franklin Square Holdings during such period. As of December 31, 2012, the Company had $1,635 of reimbursements due from Franklin Square Holdings. In connection with FSIC II Advisors voluntary
agreement to waive $441 of accrued but unpaid capital gains incentive fees, a corresponding reduction was made to the amount of accrued expense reimbursements due from Franklin Square Holdings. During the year ended December 31, 2013, this
balance was offset against expense recoupment payable to sponsor. During the year ended December 31, 2013, the Company accrued an expense recoupment payable to sponsor of $2,041, which the Company offset against the reimbursements due on the
Companys consolidated balance sheets as of December 31, 2012 and made expense



146



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 4. Related Party
Transactions (continued)



recoupment payments of $847 to Franklin Square Holdings. As of December 31, 2014 and 2013, no further amounts remained subject to repayment by the Company to Franklin Square Holdings in the
future.

FS Benefit Trust

On May 30, 2013, FS Benefit Trust was formed as a Delaware statutory trust for the purpose of awarding equity incentive compensation to employees of Franklin Square Holdings and its affiliates. In
connection with the Companys semi-monthly closing that occurred on June 17, 2013, FS Benefit Trust purchased approximately $34 of the Companys shares at a purchase price equal to 90% of the offering price in effect on such date, or
$9.45 per share.

Note 5. Distributions

The following table reflects the cash distributions per share that the Company declared and paid on its common stock during the years ended December 31, 2014, 2013 and 2012:



|                                |  |              |        |  |        |   |         | 
|------------------------------- |  | ------------ | ------ |  | ------ | - | ------- | 
|                                |  | Distribution |       
|For the Year Ended December 31, |  | Per Share    |        |  | Amount |  
|2012                            |  | $            | 0.3947 |  |        | $ | 10,320  | 
|2013                            |  |              | 0.7622 |  |        |   | 114,307 | 
|2014                            |  |              | 0.7395 |  |        |   | 223,554 | 

Effective January 1, 2015 and subject to applicable legal restrictions and the sole discretion of
the Companys board of directors, the Company intends to authorize and declare regular cash distributions on a quarterly basis and pays such distributions on a monthly basis. On January 22, 2015 and March 12, 2015, the Companys
board of directors declared regular monthly cash distributions for January 2015 through March 2015 and April 2015 through June 2015, respectively, each in the amount of $0.06283 per share. These distributions have been or will be paid monthly to
stockholders of record as of monthly record dates previously determined by the Companys board of directors. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion
of the Companys board of directors.

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

On February 24, 2014, the Company amended and restated its distribution reinvestment plan, which
first applied to the reinvestment of cash distributions paid on or after, March 26, 2014. Under the original plan, cash distributions to participating stockholders were reinvested in additional shares of our common stock at a purchase price
equal to 90% of the public offering price per share in effect as of the date of issuance. Under the amended plan, cash distributions to participating stockholders will be reinvested in additional shares of our common stock at a purchase price
determined by the Companys board of directors, or a committee thereof, in its sole discretion, that is (i) not less than the net asset value per share of our common stock as determined in good faith by the Companys board of
directors or a committee thereof, in its sole discretion, immediately prior to the payment of the distribution and (ii) not more than 2.5% greater than the net asset value per share of our common



147



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 5. Distributions (continued)



stock as of such date. Although distributions paid in the form of additional shares of common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash
distributions, investors who elect to participate in the Companys distribution reinvestment plan will not receive any corresponding cash distributions with which to pay any such applicable taxes. Investors receiving distributions in the form
of additional shares of common stock will be treated as receiving a distribution in the amount of the fair market value of the Companys shares of common stock.

The Company may fund its cash distributions to stockholders from any sources of funds legally available to it, including proceeds from the sale of the Companys common stock, borrowings, net
investment income from operations, capital gains proceeds from the sale of assets, gains from credit default swaps, non-capital gains proceeds from the sale of assets, and dividends or other distributions paid to the Company on account of preferred
and common equity investments in portfolio companies and expense reimbursements from Franklin Square Holdings. The Company has not established limits on the amount of funds it may use from available sources to make distributions.

For a period of time following commencement of the Companys continuous public offering, substantial portions of the Companys
distributions were funded through the reimbursement of certain expenses by Franklin Square Holdings and its affiliates, including through the waiver of certain investment advisory fees by FSIC II Advisor, that were subject to repayment by the
Company within three years. The purpose of this arrangement was to ensure that no portion of the Companys distributions to stockholders was paid from offering proceeds or borrowings. Any such distributions funded through expense reimbursements
or waivers of advisory fees were not based on the Companys investment performance. No portion of the distributions paid during the years ended December 31, 2014 or 2013 was funded through the reimbursement of operating expenses by
Franklin Square Holdings. However, the Companys repayment of amounts previously reimbursed or waived by Franklin Square Holdings and its affiliates reduced the distributions that stockholders may otherwise have received during the year ended
December 31, 2013. During the year ended December 31, 2014, the Company did not repay any amounts to Franklin Square Holdings for expenses previously reimbursed or waived. There can be no assurance that the Company will continue to achieve
the performance necessary to sustain its distributions or that the Company will be able to pay distributions at a specific rate or at all. Franklin Square Holdings and its affiliates have no obligation to waive advisory fees or otherwise reimburse
expenses in future periods.



148



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 5. Distributions (continued)



The following table reflects the sources of the cash distributions on a tax basis that
the Company paid on its common stock during the years ended December 31, 2014, 2013 and 2012:



|                                                          |  |                         |         |  |            |  |      |                    |  |   |            |  |  |                    |      |  |            |   |        |  |  |  |      | 
|--------------------------------------------------------- |  | ----------------------- | ------- |  | ---------- |  | ---- | ------------------ |  | - | ---------- |  |  | ------------------ | ---- |  | ---------- | - | ------ |  |  |  | ---- | 
|                                                          |  | Year Ended December 31, |        
|                                                          |  | 2014                    |         |  | 2013       |  |      | 2012               | 
|Source of Distribution                                    |  | DistributionAmount      |         |  | Percentage |  |      | DistributionAmount |  |   | Percentage |  |  | DistributionAmount |      |  | Percentage |  
|Offering proceeds                                         |  | $                       |        |  |            |  |     |                    |  | $ |           |  |  |                    |     |  |            | $ |       |  |  |  |     | 
|Borrowings                                                |  |                         |        |  |            |  |     |                    |  |   |           |  |  |                    |     |  |            |   |       |  |  |  |     | 
|Net investment income (prior to expense reimbursement)(1) |  |                         | 208,059 |  |            |  | 93%  |                    |  |   | 104,102    |  |  |                    | 91%  |  |            |   | 4,852  |  |  |  | 47%  | 
|Short-term capital gains proceeds from the sale of assets |  |                         | 14,999  |  |            |  | 7%   |                    |  |   | 10,205     |  |  |                    | 9%   |  |            |   | 2,986  |  |  |  | 29%  | 
|Long-term capital gains proceeds from the sale of assets  |  |                         | 496     |  |            |  | 0%   |                    |  |   |           |  |  |                    |     |  |            |   |       |  |  |  |     | 
|Gains from credit default swaps (ordinary income for tax) |  |                         |        |  |            |  |     |                    |  |   |           |  |  |                    |     |  |            |   |       |  |  |  |     | 
|Non-capital gains proceeds from the sale of assets        |  |                         |        |  |            |  |     |                    |  |   |           |  |  |                    |     |  |            |   |       |  |  |  |     | 
|Distributions on account of preferred and common equity   |  |                         |        |  |            |  |     |                    |  |   |           |  |  |                    |     |  |            |   |       |  |  |  |     | 
|Expense reimbursement from sponsor                        |  |                         |        |  |            |  |     |                    |  |   |           |  |  |                    |     |  |            |   | 2,482  |  |  |  | 24%  | 
|                                                          |  |                         |         |  |            |  |      |                    |  |   |            |  |  |                    |      |  |            |   |        |  |  |  |      | 
|Total                                                     |  | $                       | 223,554 |  |            |  | 100% |                    |  | $ | 114,307    |  |  |                    | 100% |  |            | $ | 10,320 |  |  |  | 100% | 
|                                                          |  |                         |         |  |            |  |      |                    |  |   |            |  |  |                    |      |  |            |   |        |  |  |  |      | 



|(1) | During the years ended December 31, 2014, 2013 and 2012, 94.3%, 91.3% and 92.3%, respectively, of the Companys gross investment income was attributable to
cash income earned, 3.0%, 7.6% and 7.7%, respectively, was attributable to non-cash accretion of discount and 2.7%, 1.1% and 0.0%, respectively, was attributable to paid-in-kind, or PIK, interest.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Companys net investment income on a tax basis for the years ended December 31, 2014, 2013 and 2012 was $211,511, $111,686
and $7,607, respectively. As of December 31, 2014, 2013 and 2012, the Company had $19,204, $15,495 and $273, respectively, of undistributed net investment income and realized gains on a tax basis. The Companys undistributed net investment
income on a tax basis as of December 31, 2013 was adjusted following the filing of the Companys 2013 tax return in September 2014. The adjustment was primarily due to tax-basis income received by the Company during the year ended
December 31, 2013 on account of certain collateralized securities and interests in partnerships held in its investment portfolio during such period exceeding GAAP-basis income with respect to such investments during the same period. The tax
notices for such collateralized securities and interests in partnerships were received by the Company subsequent to the filing of the Companys annual report on Form 10-K for the fiscal year ended December 31, 2013.

The difference between the Companys GAAP-basis net investment income and its tax-basis net investment income is primarily due to
the reversal of the required accrual for GAAP purposes of incentive fees on unrealized gains even though no such incentive fees on unrealized gains are payable by the Company, the reclassification of unamortized original issue discount recognized
upon prepayment of loans from income for GAAP purposes to



149



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 5. Distributions (continued)



realized gains for tax purposes, the reclassification of realized gains on credit default swaps to income for tax purposes and, with respect to the years ended December 31, 2013 and 2012,
the inclusion of a portion of the periodic net settlement payments due on the Companys total return swap in tax-basis net investment income.

The following table sets forth a reconciliation between GAAP-basis net investment income and tax-basis net investment income during the years ended December 31, 2014, 2013 and 2012:



|                                                                            |  |                         |         |   |      |   |         |      |  |   |       | 
|--------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ----- | 
|                                                                            |  | Year Ended December 31, |        
|                                                                            |  | 2014                    |         |   | 2013 |   |         | 2012 | 
|GAAP-basis net investment income                                            |  | $                       | 242,676 |   |      | $ | 90,674  |      |  | $ | 2,809 | 
|Reversal of incentive fee accrual on unrealized gains                       |  |                         | (9,234  | ) |      |   | 6,164   |      |  |   | 3,070 | 
|Taxable income adjustment on collateralized securities and partnerships     |  |                         |        |   |      |   | 7,857   |      |  |   | 273   | 
|Reclassification of unamortized original issue discount and prepayment fees |  |                         | (12,821 | ) |      |   | (3,275  | )    |  |   |      | 
|Reclassification of realized gains on credit default swap                   |  |                         | 7,535   |   |      |   |        |      |  |   |      | 
|Mark-to-market on outstanding credit default swaps                          |  |                         | (19,426 | ) |      |   |        |      |  |   |      | 
|Excise taxes                                                                |  |                         | 1,227   |   |      |   |        |      |  |   |      | 
|Tax-basis net investment income portion of total return swap payments       |  |                         |        |   |      |   | 10,269  |      |  |   | 1,063 | 
|Other miscellaneous differences                                             |  |                         | 1,554   |   |      |   | (3      | )    |  |   | 392   | 
|                                                                            |  |                         |         |   |      |   |         |      |  |   |       | 
|Tax-basis net investment income                                             |  | $                       | 211,511 |   |      | $ | 111,686 |      |  | $ | 7,607 | 
|                                                                            |  |                         |         |   |      |   |         |      |  |   |       | 

The Company may make certain adjustments to the classification of stockholders equity as a result
of permanent book-to-tax differences. During the year ended December 31, 2014, the Company increased accumulated net realized gains on investments and gain/loss on foreign currency by $5,590 and decreased capital in excess of par value and
accumulated distributions in excess of net investment income by $3,099 and $2,491, respectively. During the year ended December 31, 2013, the Company reduced capital in excess of par and accumulated undistributed net realized gains on investments
and total return swap and gain/loss on foreign currency by $155 and $6,772, respectively, and increased accumulated distributions in excess of net investment income by $6,927. During the year ended December 31, 2012, the Company reduced
accumulated net realized gains on investments and total return swap and gain/loss on foreign currency by $1,063 and increased accumulated distributions in excess of net investment income by $1,063.

The determination of the tax attributes of the Companys distributions is made annually as of the end of the Companys fiscal
year based upon the Companys taxable income for the full year and distributions paid for the full year. The actual tax characteristics of distributions to stockholders are reported to stockholders annually on Form 1099-DIV.



150



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 5. Distributions (continued)



As of December 31, 2014 and 2013, the components of accumulated earnings on a tax
basis were as follows:



|                                                                                                |  |              |         |   |      |   |        |  
|----------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------ | -
|                                                                                                |  | December 31, |        
|                                                                                                |  | 2014         |         |   | 2013 |  
|Distributable ordinary income (income and short-term capital gains)                             |  | $            | 9,166   |   |      | $ | 14,999 |  
|Distributable realized gains (long-term capital gains)                                          |  |              | 10,038  |   |      |   | 496    |  
|Incentive fee accrual on unrealized gains                                                       |  |              |        |   |      |   | (9,234 | )
|Unamortized organization costs                                                                  |  |              | (189    | ) |      |   | (203   | )
|Net unrealized appreciation (depreciation) on investments and gain/ loss on foreign currency(1) |  |              | (21,715 | ) |      |   | 20,729 |  
|                                                                                                |  |              |         |   |      |   |        |  
|Total                                                                                           |  | $            | (2,700  | ) |      | $ | 26,787 |  
|                                                                                                |  |              |         |   |      |   |        |  



|(1) | As of December 31, 2014 and 2013, the gross unrealized appreciation on the Companys investments and unrealized gain on foreign currency was $123,852 and $53,965,
respectively. As of December 31, 2014 and December 31, 2013, the gross unrealized depreciation on the Companys investments and unrealized loss on foreign currency was $145,567 and $33,236, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The aggregate cost of the Companys investments for U.S. federal income tax purposes totaled $4,417,936 and $2,642,956 as of
December 31, 2014 and 2013, respectively. The aggregate net unrealized appreciation (depreciation) on investments and gain/loss on foreign currency on a tax basis was $(21,715) and $20,729 as of the year ended December 31, 2014 and 2013,
respectively.

Note 6. Investment Portfolio

The following table summarizes the composition of the Companys investment portfolio at cost and fair value as of December 31, 2014 and 2013:



|                                 |  |                   |           |  |                   |   |           |                        |  |  |                  |   |  |            |           |  |                        |   |           |  |  |  |     |  
|-------------------------------- |  | ----------------- | --------- |  | ----------------- | - | --------- | ---------------------- |  |  | ---------------- | - |  | ---------- | --------- |  | ---------------------- | - | --------- |  |  |  | --- | -
|                                 |  | December 31, 2014 |           |  | December 31, 2013 |  
|                                 |  | AmortizedCost(1)  |           |  | Fair Value        |   |           | Percentageof Portfolio |  |  | AmortizedCost(1) |   |  | Fair Value |           |  | Percentageof Portfolio |  
|Senior Secured LoansFirst Lien  |  | $                 | 2,360,706 |  |                   | $ | 2,346,905 |                        |  |  | 53               | % |  | $          | 1,249,333 |  |                        | $ | 1,268,093 |  |  |  | 48  | %
|Senior Secured LoansSecond Lien |  |                   | 1,019,318 |  |                   |   | 1,001,313 |                        |  |  | 23               | % |  |            | 684,825   |  |                        |   | 697,240   |  |  |  | 26  | %
|Senior Secured Bonds             |  |                   | 283,454   |  |                   |   | 248,911   |                        |  |  | 6                | % |  |            | 218,575   |  |                        |   | 203,927   |  |  |  | 8   | %
|Subordinated Debt                |  |                   | 431,441   |  |                   |   | 421,683   |                        |  |  | 10               | % |  |            | 278,306   |  |                        |   | 276,640   |  |  |  | 10  | %
|Collateralized Securities        |  |                   | 172,068   |  |                   |   | 184,590   |                        |  |  | 4                | % |  |            | 172,265   |  |                        |   | 182,100   |  |  |  | 7   | %
|Equity/Other                     |  |                   | 142,819   |  |                   |   | 192,826   |                        |  |  | 4                | % |  |            | 23,665    |  |                        |   | 27,828    |  |  |  | 1   | %
|                                 |  |                   |           |  |                   |   |           |                        |  |  |                  |   |  |            |           |  |                        |   |           |  |  |  |     |  
|Total                            |  | $                 | 4,409,806 |  |                   | $ | 4,396,228 |                        |  |  | 100              | % |  | $          | 2,626,969 |  |                        | $ | 2,655,828 |  |  |  | 100 | %
|                                 |  |                   |           |  |                   |   |           |                        |  |  |                  |   |  |            |           |  |                        |   |           |  |  |  |     |  



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

As of December 31, 2014, the Company did not control and was not an affiliated
person of any of its portfolio companies, each as defined in the 1940 Act. In general, under the 1940 Act, the Company would be



151



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 6. Investment Portfolio (continued)



presumed to control a portfolio company if it owned 25% or more of its voting securities or it had the power to exercise control over the management or policies of such portfolio
company, and would be an affiliated person of a portfolio company if it owned 5% or more of its voting securities.

The Companys investment portfolio may contain loans that are in the form of lines of credit, revolving credit facilities, delayed
draw credit facilities or other investments, which require the Company to provide funding when requested by portfolio companies in accordance with the terms of the underlying agreements. As of December 31, 2014, the Company had eight senior
secured loan investments with aggregate unfunded commitments of $145,739 and one senior secured bond investment with an unfunded commitment of $16,977. As of December 31, 2013, the Company had five senior secured loan investments with aggregate
unfunded commitments of $66,687 and one equity/other investment, American Energy Ohio Holdings, LLC, with an unfunded commitment of $6,157. The Company maintains sufficient cash on hand and available borrowings to fund such unfunded commitments
should the need arise.

The table below describes investments by industry classification and enumerates the percentage, by
fair value, of the total portfolio assets in such industries as of December 31, 2014 and 2013:



|                                               |  |                   |           |  |                         |  |      |            |  |   |                         |  |  |  |     |  
|---------------------------------------------- |  | ----------------- | --------- |  | ----------------------- |  | ---- | ---------- |  | - | ----------------------- |  |  |  | --- | -
|                                               |  | December 31, 2014 |           |  | December 31, 2013       | 
|Industry Classification                        |  | Fair Value        |           |  | Percentageof 
Portfolio |  |      | Fair Value |  |   | Percentageof 
Portfolio | 
|Automobiles & Components                       |  | $                 | 177,900   |  |                         |  | 4%   |            |  | $ | 53,195                  |  |  |  | 2   | %
|Capital Goods                                  |  |                   | 383,827   |  |                         |  | 9%   |            |  |   | 199,070                 |  |  |  | 8   | %
|Commercial & Professional Services             |  |                   | 274,316   |  |                         |  | 6%   |            |  |   | 44,881                  |  |  |  | 2   | %
|Consumer Durables & Apparel                    |  |                   | 266,710   |  |                         |  | 6%   |            |  |   | 144,211                 |  |  |  | 5   | %
|Consumer Services                              |  |                   | 733,804   |  |                         |  | 17%  |            |  |   | 401,187                 |  |  |  | 15  | %
|Diversified Financials                         |  |                   | 288,250   |  |                         |  | 7%   |            |  |   | 200,485                 |  |  |  | 8   | %
|Energy                                         |  |                   | 601,604   |  |                         |  | 14%  |            |  |   | 417,589                 |  |  |  | 16  | %
|Food & Staples Retailing                       |  |                   | 12,585    |  |                         |  | 0%   |            |  |   | 1,181                   |  |  |  | 0   | %
|Food, Beverage & Tobacco                       |  |                   | 9,365     |  |                         |  | 0%   |            |  |   | 10,245                  |  |  |  | 0   | %
|Health Care Equipment & Services               |  |                   | 80,589    |  |                         |  | 2%   |            |  |   | 133,025                 |  |  |  | 5   | %
|Household & Personal Products                  |  |                   | 3,126     |  |                         |  | 0%   |            |  |   | 5,000                   |  |  |  | 0   | %
|Insurance                                      |  |                   | 98,174    |  |                         |  | 2%   |            |  |   | 86,466                  |  |  |  | 3   | %
|Materials                                      |  |                   | 269,531   |  |                         |  | 6%   |            |  |   | 138,777                 |  |  |  | 5   | %
|Media                                          |  |                   | 131,353   |  |                         |  | 3%   |            |  |   | 101,071                 |  |  |  | 4   | %
|Pharmaceuticals, Biotechnology & Life Sciences |  |                   | 62,970    |  |                         |  | 1%   |            |  |   | 78,001                  |  |  |  | 3   | %
|Real Estate                                    |  |                   |          |  |                         |  |     |            |  |   | 8,171                   |  |  |  | 0   | %
|Retailing                                      |  |                   | 112,094   |  |                         |  | 3%   |            |  |   | 194,817                 |  |  |  | 7   | %
|Software & Services                            |  |                   | 328,443   |  |                         |  | 8%   |            |  |   | 181,024                 |  |  |  | 7   | %
|Technology Hardware & Equipment                |  |                   | 230,554   |  |                         |  | 5%   |            |  |   | 104,293                 |  |  |  | 4   | %
|Telecommunication Services                     |  |                   | 229,690   |  |                         |  | 5%   |            |  |   | 129,704                 |  |  |  | 5   | %
|Transportation                                 |  |                   | 101,343   |  |                         |  | 2%   |            |  |   | 21,964                  |  |  |  | 1   | %
|Utilities                                      |  |                   |          |  |                         |  |     |            |  |   | 1,471                   |  |  |  | 0   | %
|                                               |  |                   |           |  |                         |  |      |            |  |   |                         |  |  |  |     |  
|Total                                          |  | $                 | 4,396,228 |  |                         |  | 100% |            |  | $ | 2,655,828               |  |  |  | 100 | %
|                                               |  |                   |           |  |                         |  |      |            |  |   |                         |  |  |  |     |  



152



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)







Note 7. Fair Value of Financial Instruments

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

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

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

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

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

As of December 31, 2014 and 2013, the Companys investments were categorized as
follows in the fair value hierarchy:



|                                            |  |                   |           |  |                   |   |           | 
|------------------------------------------- |  | ----------------- | --------- |  | ----------------- | - | --------- | 
|                                            |  | December 31, 2014 |           |  | December 31, 2013 |  
|Valuation Inputs                            |  | Investments       |           |  | Investments       |  
|Level 1Price quotations in active markets  |  | $                 | 3,438     |  |                   | $ | 64        | 
|Level 2Significant other observable inputs |  |                   |          |  |                   |   |          | 
|Level 3Significant unobservable inputs     |  |                   | 4,392,790 |  |                   |   | 2,655,764 | 
|                                            |  |                   |           |  |                   |   |           | 
|Total                                       |  | $                 | 4,396,228 |  |                   | $ | 2,655,828 | 
|                                            |  |                   |           |  |                   |   |           | 

As of December 31, 2014, the Companys credit default swaps were categorized as follows in the
fair value hierarchy:



|                                            |  |                   |   |  |           |   |         |  
|------------------------------------------- |  | ----------------- | - |  | --------- | - | ------- | -
|                                            |  | December 31, 2014 |  
|Valuation Inputs                            |  | Asset             |   |  | Liability |  
|Level 1Price quotations in active markets  |  | $                 |  |  |           | $ |        |  
|Level 2Significant other observable inputs |  |                   |  |  |           |   |        |  
|Level 3Significant unobservable inputs     |  |                   |  |  |           |   | (30,048 | )
|                                            |  |                   |   |  |           |   |         |  
|Total                                       |  | $                 |  |  |           | $ | (30,048 | )
|                                            |  |                   |   |  |           |   |         |  

The Companys investments as of December 31, 2014 consisted primarily of debt securities that
were acquired directly from the issuer.

Twenty-nine senior secured loan investments, one senior secured bond investment, four
subordinated debt investments and one collateralized security were valued by an independent valuation firm, which determined the



153



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 7. Fair Value of Financial
Instruments (continued)



fair value of such investments by considering, among other factors, the borrowers ability to adequately service its debt, prevailing interest rates for like investments, expected cash
flows, call features, anticipated prepayments and other relevant terms of the investments. Except as described below, all of the Companys equity/other investments were valued by the same independent valuation firm, which determined the fair
value of such investments by considering, among other factors, contractual rights ascribed to such investments, as well as various income scenarios and multiples of EBITDA, cash flows, net income, revenues or in limited instances, book value or
liquidation value. Four equity/other investments, which were traded on active public markets, were valued at their closing price as of December 31, 2014. Three senior secured loan investments, two collateralized securities and one
equity/other investment which were newly-issued and purchased near December 31, 2014, were valued at cost, as the Companys board of directors determined that the cost of such investments was the best indication of their fair value. Except
as described above, the Company valued its other investments and credit default swaps, including two equity/other investments, by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were
provided by independent third-party pricing services and screened for validity by such services.

The Companys
investments as of December 31, 2013 consisted primarily of debt securities that were traded on a private over-the-counter market for institutional investors. Except as described below, the Company valued its investments by using the midpoint of
the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services. Thirteen senior secured loan investments and one
collateralized security, for which broker quotes were not available, were valued by an independent valuation firm, which determined the fair value of such investments by considering, among other factors, the borrowers ability to adequately
service its debt, prevailing interest rates for like investments, expected cash flows, call features, anticipated prepayments and other relevant terms of the debt. Except as described below, all of the Companys equity/other investments were
valued by the same independent valuation firm, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to such investments, as well as various income scenarios and multiples of EBITDA,
cash flows, net income, revenues or, in limited instances, book value or liquidation value. Also, one equity investment which was traded on an active public market was valued at its closing price as of December 31, 2013.

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



154



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 7. Fair Value of Financial
Instruments (continued)



The following is a reconciliation for the years ended December 31, 2014 and 2013 of
investments for which significant unobservable inputs (Level 3) were used in determining fair value:



|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |           |                    |  |   |                  |   |  |                          |          |   |              |   |         |       |  |   |         |  |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------ | --------- | - | ------------------------------ | - | --------- | ------------------ |  | - | ---------------- | - |  | ------------------------ | -------- | - | ------------ | - | ------- | ----- |  | - | ------- |  |  | - | ---------- | -
|                                                                                                                                                                                                       |  | For the Year Ended December 31, 2014 |          
|                                                                                                                                                                                                       |  | Senior 
SecuredLoansFirstLien       |           |   | Senior
SecuredLoansSecondLien |   |           | SeniorSecuredBonds |  |   | SubordinatedDebt |   |  | CollateralizedSecurities |          |   | Equity/Other |   |         | Total | 
|Fair value at beginning of period                                                                                                                                                                      |  | $                                    | 1,268,093 |   |                                | $ | 697,240   |                    |  | $ | 203,927          |   |  | $                        | 276,640  |   |              | $ | 182,100 |       |  | $ | 27,764  |  |  | $ | 2,655,764  |  
|Accretion of discount (amortization of premium)                                                                                                                                                        |  |                                      | 5,542     |   |                                |   | 3,222     |                    |  |   | 1,779            |   |  |                          | 1,506    |   |              |   | 88      |       |  |   |        |  |  |   | 12,137     |  
|Net realized gain (loss)                                                                                                                                                                               |  |                                      | 1,085     |   |                                |   | 1,023     |                    |  |   | (4,964           | ) |  |                          | 5,787    |   |              |   |        |       |  |   |        |  |  |   | 2,931      |  
|Net change in unrealized appreciation (depreciation)                                                                                                                                                   |  |                                      | (32,561   | ) |                                |   | (30,420   | )                  |  |   | (19,895          | ) |  |                          | (8,092   | ) |              |   | 2,687   |       |  |   | 48,891  |  |  |   | (39,390    | )
|Purchases                                                                                                                                                                                              |  |                                      | 1,937,477 |   |                                |   | 769,796   |                    |  |   | 189,249          |   |  |                          | 353,232  |   |              |   | 13,226  |       |  |   | 112,733 |  |  |   | 3,375,713  |  
|Paid-in-kind interest                                                                                                                                                                                  |  |                                      | 273       |   |                                |   | 7,901     |                    |  |   |                 |   |  |                          | 2,561    |   |              |   |        |       |  |   |        |  |  |   | 10,735     |  
|Sales and redemptions                                                                                                                                                                                  |  |                                      | (833,004  | ) |                                |   | (447,449  | )                  |  |   | (121,185         | ) |  |                          | (209,951 | ) |              |   | (13,511 | )     |  |   |        |  |  |   | (1,625,100 | )
|Net transfers in or out of Level 3                                                                                                                                                                     |  |                                      |          |   |                                |   |          |                    |  |   |                 |   |  |                          |         |   |              |   |        |       |  |   |        |  |  |   |           |  
|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |           |                    |  |   |                  |   |  |                          |          |   |              |   |         |       |  |   |         |  |  |   |            |  
|Fair value at end of period                                                                                                                                                                            |  | $                                    | 2,346,905 |   |                                | $ | 1,001,313 |                    |  | $ | 248,911          |   |  | $                        | 421,683  |   |              | $ | 184,590 |       |  | $ | 189,388 |  |  | $ | 4,392,790  |  
|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |           |                    |  |   |                  |   |  |                          |          |   |              |   |         |       |  |   |         |  |  |   |            |  
|The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized
gains or losses relating to investments still held at the reporting date |  | $                                    | (18,662   | ) |                                | $ | (20,718   | )                  |  | $ | (24,285          | ) |  | $                        | (5,424   | ) |              | $ | 2,687   |       |  | $ | 48,891  |  |  | $ | (17,511    | )
|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |           |                    |  |   |                  |   |  |                          |          |   |              |   |         |       |  |   |         |  |  |   |            |  



|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |          |                    |  |   |                  |   |  |                          |          |   |              |   |         |       |  |   |        |   |  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------ | --------- | - | ------------------------------ | - | -------- | ------------------ |  | - | ---------------- | - |  | ------------------------ | -------- | - | ------------ | - | ------- | ----- |  | - | ------ | - |  | - | --------- | -
|                                                                                                                                                                                                       |  | For the Year Ended December 31, 2013 |          
|                                                                                                                                                                                                       |  | Senior 
SecuredLoansFirstLien       |           |   | Senior
SecuredLoansSecondLien |   |          | SeniorSecuredBonds |  |   | SubordinatedDebt |   |  | CollateralizedSecurities |          |   | Equity/Other |   |         | Total | 
|Fair value at beginning of period                                                                                                                                                                      |  | $                                    | 159,824   |   |                                | $ | 149,497  |                    |  | $ | 48,608           |   |  | $                        | 107,407  |   |              | $ | 18,308  |       |  | $ | 4,998  |   |  | $ | 488,642   |  
|Accretion of discount (amortization of premium)                                                                                                                                                        |  |                                      | 7,189     |   |                                |   | 2,441    |                    |  |   | 3,024            |   |  |                          | 126      |   |              |   | 41      |       |  |   |       |   |  |   | 12,821    |  
|Net realized gain (loss)                                                                                                                                                                               |  |                                      | 275       |   |                                |   | 1,426    |                    |  |   | 1,551            |   |  |                          | 2,091    |   |              |   |        |       |  |   |       |   |  |   | 5,343     |  
|Net change in unrealized appreciation (depreciation)                                                                                                                                                   |  |                                      | 15,715    |   |                                |   | 9,998    |                    |  |   | (15,717          | ) |  |                          | (2,360   | ) |              |   | 9,022   |       |  |   | 4,137  |   |  |   | 20,795    |  
|Purchases                                                                                                                                                                                              |  |                                      | 1,417,796 |   |                                |   | 773,919  |                    |  |   | 192,607          |   |  |                          | 273,078  |   |              |   | 160,445 |       |  |   | 20,151 |   |  |   | 2,837,996 |  
|Paid-in-kind interest                                                                                                                                                                                  |  |                                      | 125       |   |                                |   | 920      |                    |  |   | 156              |   |  |                          | 618      |   |              |   |        |       |  |   |       |   |  |   | 1,819     |  
|Sales and redemptions                                                                                                                                                                                  |  |                                      | (332,831  | ) |                                |   | (240,961 | )                  |  |   | (26,302          | ) |  |                          | (104,320 | ) |              |   | (5,716  | )     |  |   | (1,522 | ) |  |   | (711,652  | )
|Net transfers in or out of Level 3                                                                                                                                                                     |  |                                      |          |   |                                |   |         |                    |  |   |                 |   |  |                          |         |   |              |   |        |       |  |   |       |   |  |   |          |  
|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |          |                    |  |   |                  |   |  |                          |          |   |              |   |         |       |  |   |        |   |  |   |           |  
|Fair value at end of period                                                                                                                                                                            |  | $                                    | 1,268,093 |   |                                | $ | 697,240  |                    |  | $ | 203,927          |   |  | $                        | 276,640  |   |              | $ | 182,100 |       |  | $ | 27,764 |   |  | $ | 2,655,764 |  
|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |          |                    |  |   |                  |   |  |                          |          |   |              |   |         |       |  |   |        |   |  |   |           |  
|The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized
gains or losses relating to investments still held at the reporting date |  | $                                    | 16,899    |   |                                | $ | 11,911   |                    |  | $ | (14,713          | ) |  | $                        | (1,470   | ) |              | $ | 9,022   |       |  | $ | 4,137  |   |  | $ | 25,786    |  
|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |          |                    |  |   |                  |   |  |                          |          |   |              |   |         |       |  |   |        |   |  |   |           |  



155



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 7. Fair Value of Financial
Instruments (continued)



The following is a reconciliation for the year ended December 31, 2014 of credit
default swaps for which significant unobservable inputs (Level 3) were used in determining market value:



|                                                                                                                                                                                                                |  |                                     |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ------- | -
|                                                                                                                                                                                                                |  | For the Year EndedDecember 31, 2014 |        
|Market value at beginning of period                                                                                                                                                                             |  | $                                   |        |  
|Net realized gain (loss)                                                                                                                                                                                        |  |                                     | 7,535   |  
|Net change in unrealized appreciation (depreciation)                                                                                                                                                            |  |                                     | (19,426 | )
|Swap premiums received                                                                                                                                                                                          |  |                                     | (17,420 | )
|Coupon payments received                                                                                                                                                                                        |  |                                     | (737    | )
|Premiums paid on exit                                                                                                                                                                                           |  |                                     |        |  
|Net transfers in or out of Level 3                                                                                                                                                                              |  |                                     |        |  
|                                                                                                                                                                                                                |  |                                     |         |  
|Market value at end of period                                                                                                                                                                                   |  | $                                   | (30,048 | )
|                                                                                                                                                                                                                |  |                                     |         |  
|The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized
gains or losses relating to credit default swaps still held at the reporting date |  | $                                   | (19,426 | )
|                                                                                                                                                                                                                |  |                                     |         |  

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value
measurements as of December 31, 2014 and 2013 were as follows:



|                                 |  |                                |           |   |                        |                        |                    |                                   |       |                      |                  |          
|-------------------------------- |  | ------------------------------ | --------- | - | ---------------------- | ---------------------- | ------------------ | --------------------------------- | ----- | -------------------- | ---------------- | ---------
|Type of Investment               |  | Fair Value atDecember 
31,2014 |           |   | Valuation
Technique(1) |                        | Unobservable Input |                                   | Range |                      | Weighted
Average
|Senior Secured LoansFirst Lien: |  | $                              | 1,413,100 |   |                        | Market Comparables     |                    | Market Yield (%)                  |       | 4.8% - 12.3%         |                  | 8.9%     
|                                 |  |                                | 88,130    |   |                        | Other(2)               |                    | Other                             |       | N/A                  |                  | N/A      
|                                 |  |                                | 720,607   |   |                        | Market Quotes          |                    | Indicative Dealer Quotes          |       | 78.8% - 102.3%       |                  | 96.0%    
|                                 |  |                                | 125,068   |   |                        | Cost                   |                    | Cost                              |       | 100.0% - 100.0%      |                  | 100.0%   
|Senior Secured LoansSecond Lien |  |                                | 427,476   |   |                        | Market Comparables     |                    | Market Yield (%)                  |       | 8.5% - 12.0%         |                  | 10.5%    
|                                 |  |                                | 573,837   |   |                        | Market Quotes          |                    | Indicative Dealer Quotes          |       | 71.6% - 102.5%       |                  | 96.4%    
|Senior Secured Bonds             |  |                                | 36,648    |   |                        | Market Comparables     |                    | Market Yield (%)                  |       | 10.5% - 11.0%        |                  | 10.8%    
|                                 |  |                                | 212,263   |   |                        | Market Quotes          |                    | Indicative Dealer Quotes          |       | 34.0% - 102.3%       |                  | 86.2%    
|Subordinated Debt                |  |                                | 169,295   |   |                        | Market Comparables     |                    | Market Yield (%)                  |       | 8.8% - 13.0%         |                  | 10.8%    
|                                 |  |                                | 312       |   |                        | Other                  |                    | Other                             |       | N/A                  |                  | N/A      
|                                 |  |                                | 252,076   |   |                        | Market Quotes          |                    | Indicative Dealer Quotes          |       | 41.5% - 116.3%       |                  | 89.1%    
|Collateralized Securities        |  |                                | 91,745    |   |                        | Market Comparables     |                    | Market Yield (%)                  |       | 11.3% - 11.3%        |                  | 11.3%    
|                                 |  |                                | 92,845    |   |                        | Market Quotes          |                    | Indicative Dealer Quotes          |       | 67.0% - 97.5%        |                  | 86.9%    
|Equity/Other                     |  |                                | 174,209   |   |                        | Market Comparables     |                    | EBITDA Multiples (x)              |       | 5.0x - 12.0x         |                  | 7.7x     
|                                 |  |                                |           |   |                        |                        |                    | Production Multiples (Mboe/d)     |       | $37,500.0 -$70,256.0 |                  | $52,330.5
|                                 |  |                                |           |   |                        |                        |                    | Proved Reserves Multiples (Mmboe) |       | $10.5 - $12.0        |                  | $11.3    
|                                 |  |                                |           |   |                        |                        |                    | PV-10 Multiples (x)               |       | 1.7x - 1.8x          |                  | 1.7x     
|                                 |  |                                |           |   |                        | Option Valuation Model |                    | Volatility (%)                    |       | 37.5% - 55.5%        |                  | 47.1%    
|                                 |  |                                | 6,322     |   |                        | Market Quotes          |                    | Indicative Dealer Quotes          |       | $13.8 - $132.7       |                  | $94.5    
|                                 |  |                                | 8,857     |   |                        | Cost                   |                    | Cost                              |       | $1.00 - $1.00        |                  | $1.00    
|                                 |  |                                |           |   |                        |                        |                    |                                   |       |                      |                  |          
|Total                            |  | $                              | 4,392,790 |   |                        |                        |                    |                                   |       |                      |                  |          
|                                 |  |                                |           |   |                        |                        |                    |                                   |       |                      |                  |          
|Credit Default Swaps             |  | $                              | (30,048   | ) |                        | Market Quotes          |                    | Indicative Dealer Quotes          |       | (81.9)% - (80.2)%    |                  | (81.2)%  



|(1) | Investments and credit default swaps using a market quotes valuation technique were valued by using the midpoint of the prevailing bid and ask prices
from dealers on the date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services. For investments utilizing a market comparables valuation technique, a significant
increase (decrease) in the market yield, in isolation, would result in a significantly lower (higher) fair value measurement, and a significant
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



156



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 7. Fair Value of Financial
Instruments (continued)



| | increase (decrease) in any of the valuation multiples, in isolation, would result in a significantly higher (lower) fair value measurement. For investments utilizing a discounted cash flow
valuation technique, a significant increase (decrease) in the discount rate, in isolation, would result in a significantly lower (higher) fair value measurement. For investments utilizing an option valuation model valuation technique, a significant
increase (decrease) in the volatility, in isolation, would result in a significantly higher (lower) fair value measurement.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|                                 |  |                                   |         |  |                        |                        |                    |                      |       |               |                  |      
|-------------------------------- |  | --------------------------------- | ------- |  | ---------------------- | ---------------------- | ------------------ | -------------------- | ----- | ------------- | ---------------- | -----
|Type of Investment(1)            |  | Fair Value atDecember 
31,2013(2) |         |  | Valuation
Technique(3) |                        | Unobservable Input |                      | Range |               | Weighted
Average
|Senior Secured LoansFirst Lien  |  | $                                 | 686,413 |  |                        | Market Comparables     |                    | Market Yield (%)     |       | 8.3% - 10.8%  |                  | 9.2% 
|Senior Secured LoansSecond Lien |  | $                                 | 193,419 |  |                        | Market Comparables     |                    | Market Yield (%)     |       | 9.8% - 11.3%  |                  | 10.5%
|Collateralized Securities        |  | $                                 | 76,260  |  |                        | Market Comparables     |                    | Market Yield (%)     |       | 11.5% - 12.5% |                  | 12%  
|Equity/Other                     |  | $                                 | 27,764  |  |                        | Market Comparables     |                    | EBITDA Multiples (x) |       | 5.5x - 11.3x  |                  | 7.7x 
|                                 |  |                                   |         |  |                        | Discounted Cash Flow   |                    | Discount Rate (%)    |       | 19.3% - 24.3% |                  | 21.8%
|                                 |  |                                   |         |  |                        | Option Valuation Model |                    | Volatility (%)       |       | 60.0% - 61.5% |                  | 60.8%



|(1) | Table includes only those Level 3 assets that were valued by an independent valuation firm as of December 31, 2013.
|--- | -------------------------------------------------------------------------------------------------------------------



|(2) | The remaining Level 3 assets were valued by using the midpoint of the prevailing bid and ask prices from dealers as of December 31, 2013, which were provided by
independent third-party pricing services and screened for validity by such services. As of December 31, 2013, $65,015 of the senior secured loansfirst lien investments valued by independent valuation firm consisted of unfunded loan
commitments.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | For investments utilizing a market comparables valuation technique, a significant increase (decrease) in the market yield, in isolation, would result in a significantly
lower (higher) fair value measurement, and a significant increase (decrease) in any of the valuation multiples, in isolation, would result in a significantly higher (lower) fair value measurement. For investments utilizing a discounted cash flow
valuation technique, a significant increase (decrease) in the discount rate, in isolation, would result in a significantly (lower) higher fair value measurement. For investments utilizing an option valuation model valuation technique, a significant
increase (decrease) in the volatility, in isolation, would result in a significantly higher (lower) fair value measurement.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 8. Financing Arrangements

The following table presents summary information with respect to the Companys outstanding financing arrangements as of December 31, 2014.



|                                  |  |                  |  |                   |  |                   |         |  |                 |   |         |              |  |                  
|--------------------------------- |  | ---------------- |  | ----------------- |  | ----------------- | ------- |  | --------------- | - | ------- | ------------ |  | -----------------
|Facility                          |  | Type of Facility |  | Rate              |  | AmountOutstanding |         |  | AmountAvailable |   |         | MaturityDate
|JPM Facility                      |  | Repurchase       |  | 3.25%             |  | $                 | 550,000 |  |                 | $ |        |              |  | May 20, 2017     
|Goldman Facility                  |  | Repurchase       |  | L+2.50%           |  | $                 | 75,400  |  |                 | $ | 324,600 |              |  | December 15, 2018
|Cooper River Credit Facility      |  | Revolving        |  | L+1.75%           |  | $                 | 170,494 |  |                 | $ | 29,506  |              |  | March 27, 2016   
|Wissahickon Creek Credit Facility |  | Revolving        |  | L+1.50%to L+2.50% |  | $                 | 185,000 |  |                 | $ | 65,000  |              |  | February 19, 2019
|Darby Creek Credit Facility       |  | Revolving        |  | L+2.75%           |  | $                 | 249,500 |  |                 | $ | 500     |              |  | February 20, 2018
|Dunning Creek Credit Facility     |  | Revolving        |  | L+1.55%           |  | $                 | 230,800 |  |                 | $ | 19,200  |              |  | May 14, 2015     
|Juniata River Credit Facility     |  | Revolving        |  | L+2.50%           |  | $                 | 180,000 |  |                 | $ | 120,000 |              |  | November 14, 2019

The Companys average borrowings and weighted average interest rate, including the effect of
non-usage fees, for the year ended December 31, 2014 were $1,039,452 and 2.98%, respectively. As of December 31, 2014, the Companys weighted average effective interest rate on borrowings, including the effect of non-usage fees, was
2.77%.



157



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



JPM Facility

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

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

Pursuant to the Amended and Restated Indenture, Lehigh River has made
certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar transactions. In addition, the Amended and Restated Indenture contains events of default
customary for similar financing arrangements, including: (a) the failure to make principal payments on the Class A Notes at their stated maturity or redemption date or to make interest payments on the Class A Notes within five
business days of when due; (b) the failure of the aggregate outstanding principal balance (subject to certain reductions) of the assets securing the Class A Notes to be at least 147.07% of the outstanding principal amount of the
Class A Notes; and (c) GDFM ceasing to be the investment sub-adviser to FSIC II Advisor.

Cobbs Creek, in turn, has
entered into an amended repurchase transaction with JPM pursuant to the terms of an amended and restated global master repurchase agreement and related annex and amended and restated confirmation thereto, each dated as of April 23, 2013, or,
collectively, the JPM facility. Pursuant to the JPM facility, JPM has agreed to purchase from time to time Class A Notes held by Cobbs Creek for an aggregate purchase price equal to approximately 83.33% of the principal amount of Class A
Notes purchased. Subject to certain conditions, the maximum principal amount of Class A Notes that may be purchased under the JPM facility is $660,000. Accordingly, the maximum amount payable at any time to Cobbs Creek under the JPM facility is
$550,000. Under the JPM facility, Cobbs Creek will, on a quarterly basis, repurchase the Class A Notes sold to JPM under the JPM facility and subsequently resell such Class A Notes to JPM. The final repurchase transaction must occur no
later than May 20, 2017. The repurchase price paid by Cobbs Creek to JPM for each repurchase of Class A Notes will be equal to the purchase price paid by JPM for such Class A Notes, plus interest thereon accrued at a fixed rate of
3.25% per annum. Commencing May 20, 2015, Cobbs Creek will be permitted to reduce (based on certain thresholds) the aggregate principal amount of Class A Notes subject to the JPM



158



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



facility. Such reductions, and any other reductions of the principal amount of Class A Notes, including upon an event of default, will be subject to breakage fees in an amount equal to the
present value of 1.25% per annum over the remaining term of the JPM facility applied to the amount of such reduction.

If
at any time during the term of the JPM facility the market value of the assets held by Lehigh River securing the Class A Notes declines by an amount greater than 27% of their initial aggregate purchase price, or the Margin Threshold, Cobbs
Creek will be required to post cash collateral with JPM in an amount at least equal to the amount by which the market value of such assets at such time is less than the Margin Threshold. In such event, in order to satisfy any such margin-posting
requirements, Cobbs Creek intends to borrow funds from the Company pursuant to a revolving credit agreement, dated as of October 26, 2012 and as amended as of February 6, 2013 and April 23, 2013, between Cobbs Creek, as borrower, and
the Company, as lender, or the Revolving Credit Agreement. The Company may, in its sole discretion, make such loans from time to time to Cobbs Creek pursuant to the terms of the Revolving Credit Agreement. Borrowings under the Revolving Credit
Agreement will accrue interest at a rate equal to one-month LIBOR plus a spread of 0.75% per annum.

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

Under the
JPM facility, Cobbs Creek has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar transactions. The JPM facility contains events of default
customary for similar transactions, including: (a) the failure to pay the repurchase price upon the applicable payment dates; (b) the failure to post required cash collateral with JPM as discussed above; and (c) the occurrence of an
event of default under the Amended and Restated Indenture.

In connection with the Class A Notes and the Amended and
Restated Indenture, Lehigh River also entered into (i) a collateral management agreement with the Company, as collateral manager, dated as of October 26, 2012 and amended on February 6, 2013, or the Lehigh Management Agreement,
pursuant to which the Company will manage the assets of Lehigh River; and (ii) a collateral administration agreement with Virtus Group, LP, or Virtus, as collateral administrator, and the Company, as collateral manager, dated as of
October 26, 2012 and amended as of February 6, 2013, or the Lehigh Administration Agreement, pursuant to which Virtus will perform certain administrative services with respect to the assets of Lehigh River. In connection with the JPM
facility, Cobbs Creek also entered into a collateral management agreement with the Company, as collateral manager, dated as of October 26, 2012, or the Cobbs Management Agreement, pursuant to which the Company will manage the assets of Cobbs
Creek.

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



159



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



As of December 31, 2014, the fair value of assets held by Lehigh River was
$1,189,438, which included assets purchased by Lehigh River with proceeds from the issuance of Class A Notes. As of December 31, 2014, the fair value of assets held by Cobbs Creek was $392,225.

The Company incurred costs of $159 in connection with obtaining and amending the JPM facility, which the Company has recorded as deferred
financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the JPM facility. As of December 31, 2014, $74 of such deferred financing costs had yet to be amortized to interest expense.

For the years ended December 31, 2014 and 2013, the components of total interest expense for the JPM facility were as follows:



|                                         |  |                        |        |  |      |   |       | 
|---------------------------------------- |  | ---------------------- | ------ |  | ---- | - | ----- | 
|                                         |  | Year EndedDecember 31, |       
|                                         |  | 2014                   |        |  | 2013 |  
|Direct interest expense                  |  | $                      | 18,123 |  |      | $ | 9,874 | 
|Non-usage fees                           |  |                        |       |  |      |   |      | 
|Amortization of deferred financing costs |  |                        | 39     |  |      |   | 39    | 
|                                         |  |                        |        |  |      |   |       | 
|Total interest expense                   |  | $                      | 18,162 |  |      | $ | 9,913 | 
|                                         |  |                        |        |  |      |   |       | 

For the years ended December 31, 2014 and 2013, the cash paid for interest expense, average
borrowings, effective interest rate and weighted average interest rate for the JPM facility were as follows:



|                                      |  |                        |         |   |      |   |         |  
|------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | -
|                                      |  | Year EndedDecember 31, |        
|                                      |  | 2014                   |         |   | 2013 |  
|Cash paid for interest expense(1)     |  | $                      | 18,123  |   |      | $ | 8,063   |  
|Average borrowings under the facility |  | $                      | 550,000 |   |      | $ | 299,666 |  
|Effective interest rate on borrowings |  |                        | 3.25    | % |      |   | 3.25    | %
|Weighted average interest rate        |  |                        | 3.25    | % |      |   | 3.25    | %



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

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

Goldman Facility

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

The Company may sell and/or contribute assets to Green Creek from time to time pursuant to an Amended and Restated Sale and Contribution Agreement, dated as of December 15, 2014, between the Company
and



160



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



Green Creek, or the Sale and Contribution Agreement. Under the Sale and Contribution Agreement, as of December 15, 2014, the Company had contributed a portfolio of assets to Green Creek with
an aggregate par value of approximately $169,000. The assets held by Green Creek secure the obligations of Green Creek under Floating Rate Notes, or the Notes, to be issued from time to time by Green Creek to Schuylkill River pursuant to an
Indenture, dated as of December 15, 2014, with Citibank, as trustee, or the Indenture. Pursuant to the Indenture, the aggregate principal amount of Notes that may be issued by Green Creek from time to time is $690,000. Schuylkill River will
purchase the Notes to be issued by Green Creek from time to time at a purchase price equal to their par value.

Interest on
the Notes under the Indenture will accrue at three-month LIBOR plus a spread of 4.00% per annum. Principal and any unpaid interest on the Notes will be due and payable on the stated maturity date of February 15, 2026. Pursuant to the
Indenture, Green Creek has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar transactions. The Indenture contains events of default
customary for similar transactions, including: (a) the failure to make principal payments on the Notes at their stated maturity or any earlier redemption date or to make interest payments on the Notes within five business days of when due;
(b) the failure to disburse amounts in excess of $1 in accordance with the priority of payments; and (c) the occurrence of certain bankruptcy and insolvency events with respect to Green Creek.

Schuylkill River, in turn, has entered into a repurchase transaction with Goldman, pursuant to the terms of a master repurchase agreement
and the related annex and master confirmation thereto, each dated as of December 15, 2014, or collectively, the Goldman facility. Pursuant to the Goldman facility, on one or more occasions beginning December 15, 2014, Goldman will purchase
Notes held by Schuylkill River for an aggregate purchase price equal to 58.00% of the principal amount of Notes purchased. Subject to certain conditions, the maximum principal amount of Notes that may be purchased under the Goldman facility is
$690,000. Accordingly, the aggregate maximum amount payable to Schuylkill River under the Goldman facility will not exceed $400,000. On December 15, 2014, a Note in the principal amount of $130,000 was purchased by Goldman from Schuylkill River
pursuant to the Goldman facility for $75,400. Schuylkill River intends to enter into additional repurchase transactions under the Goldman facility with respect to the remaining $560,000 in principal amount of Notes (assuming Green Creek issues the
maximum amount of Notes).

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



161



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



Goldman may require Schuylkill River to post cash collateral if the market value of the
Notes (measured by reference to the market value of Green Creeks portfolio of assets) declines and is less than the required margin amount under the Goldman facility. In such event, in order to satisfy any such margin-posting requirements,
Schuylkill River intends to borrow funds from the Company pursuant to an uncommitted Revolving Credit Agreement, dated as of December 15, 2014, between Schuylkill River, as borrower, and the Company, as lender, or the Revolving Credit
Agreement. The Company may, in its sole discretion, make such loans from time to time to Schuylkill River pursuant to the terms of the Revolving Credit Agreement. Borrowings under the Revolving Credit Agreement may not exceed $400,000 and will
accrue interest at a rate equal to one-month LIBOR plus a spread of 0.75% per annum.

Under the Goldman facility,
Schuylkill River has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar transactions. The Goldman facility contains events of default
customary for similar financing transactions, including: (a) failure to transfer the Notes to Goldman on the applicable purchase date or repurchase the Notes from Goldman on the applicable repurchase date; (b) failure to pay certain fees
and make-whole amounts when due; (c) failure to post cash collateral as required; (d) the occurrence of insolvency events with respect to Schuylkill River; and (e) the admission by Schuylkill River of its inability to, or its
intention not to, perform any of its obligations under the Goldman facility.

In connection with the Notes and the Indenture,
Green Creek also entered into (i) an Amended and Restated Investment Management Agreement with the Company, as investment manager, dated as of December 15, 2014, pursuant to which the Company will manage the assets of Green Creek; and
(ii) a Collateral Administration Agreement with Virtus Group, LP, or Virtus, as collateral administrator, dated as of December 15, 2014, pursuant to which Virtus will perform certain administrative services with respect to the assets of
Green Creek.

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

As of
December 31, 2014, the fair value of assets held by Green Creek was $453,678.

The Company incurred costs of $2,000 in
connection with obtaining the Goldman facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the Goldman facility. As of December 31, 2014,
$1,977 of such deferred financing costs had yet to be amortized to interest expense.



162



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



For the year ended December 31, 2014, the components of total interest expense for
the Goldman facility were as follows:



|                                         |  |                              |     | 
|---------------------------------------- |  | ---------------------------- | --- | 
|                                         |  | Year EndedDecember 31, 
2014 |    
|Direct interest expense                  |  | $                            | 89  | 
|Non-usage fees                           |  |                              |    | 
|Amortization of deferred financing costs |  |                              | 23  | 
|                                         |  |                              |     | 
|Total interest expense                   |  | $                            | 112 | 
|                                         |  |                              |     | 

For the year ended December 31, 2014, the cash paid for interest expense, average borrowings,
effective interest rate and weighted average interest rate for the Goldman facility were as follows:



|                                                                        |  |                             |        |  
|----------------------------------------------------------------------- |  | --------------------------- | ------ | -
|                                                                        |  | Year EndedDecember 31, 2014 |       
|Cash paid for interest expense(1)                                       |  | $                           |       |  
|Average borrowings under the facility(2)                                |  | $                           | 75,400 |  
|Effective interest rate on borrowings                                   |  |                             | 2.76   | %
|Weighted average interest rate (including the effect of non-usage fees) |  |                             | 2.76   | %



|(1) | Interest under the Goldman facility is paid quarterly in arrears and will commence on March 15, 2015.
|--- | -----------------------------------------------------------------------------------------------------



|(2) | Average borrowings under the Goldman facility are calculated for the period since the Company commenced borrowings thereunder to December 31, 2014.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------

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

Cooper River Credit Facility

On March 27, 2013, the Companys wholly-owned, special-purpose financing subsidiary, Cooper River LLC, or Cooper River, entered
into a revolving credit facility, or the Cooper River facility, with Citibank, as administrative agent, and the financial institutions and other lenders from time to time party thereto. The Cooper River facility provides for borrowings in an
aggregate principal amount up to $200,000 on a committed basis.

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



163



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



Borrowings under the Cooper River facility accrue interest at a rate equal to
three-month LIBOR, plus 1.75% per annum during the first two years of the Cooper River facility and three-month LIBOR plus 2.00% per annum thereafter. Borrowings under the Cooper River facility are subject to compliance with an equity
coverage ratio with respect to the current value of Cooper Rivers portfolio and a loan compliance test with respect to the initial acquisition of each debt security in Cooper Rivers portfolio.

Beginning on June 24, 2013, Cooper River became subject to a non-usage fee of 0.50% per annum to the extent the aggregate
principal amount available under the Cooper River facility is not borrowed. Outstanding borrowings under the Cooper River facility will be amortized beginning June 27, 2015. Any amounts borrowed under the Cooper River facility will mature, and
all accrued and unpaid interest thereunder will be due and payable, on March 27, 2016.

As of December 31, 2014,
$170,494 was outstanding under the Cooper River facility. The carrying amount outstanding under the Cooper River facility approximates its fair value. The Company incurred costs of $1,557 in connection with obtaining the Cooper River facility, which
the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the Cooper River facility. As of December 31, 2014, $642 of such deferred financing costs had yet to be
amortized to interest expense.

Under the Cooper River facility, Cooper River has made certain representations and warranties
and is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. The Cooper River facility contains events of default customary for similar financing transactions, including:
(a) the failure to make principal payments when due or interest payments within five business days of when due; (b) the insolvency or bankruptcy of Cooper River or the Company; (c) the failure of Cooper River to be beneficially owned
and controlled by the Company; (d) the resignation or removal of the Company as Cooper Rivers investment manager; and (e) GDFM (or any affiliate thereof or any replacement thereof approved in writing by Citibank) no longer serving as
the investment sub-adviser to the Company. Upon the occurrence of an event of default, Citibank may declare the outstanding principal and interest and all other amounts owing under the Cooper River facility immediately due and payable. During the
continuation of an event of default, Cooper River must pay interest at a default rate.

For the years ended December 31,
2014 and 2013, the components of total interest expense for the Cooper River facility were as follows:



|                                         |  |                         |       |  |      |   |       | 
|---------------------------------------- |  | ----------------------- | ----- |  | ---- | - | ----- | 
|                                         |  | Year EndedDecember 
31, |      
|                                         |  | 2014                    |       |  | 2013 |  
|Direct interest expense                  |  | $                       | 3,424 |  |      | $ | 1,848 | 
|Non-usage fees                           |  |                         | 150   |  |      |   | 118   | 
|Amortization of deferred financing costs |  |                         | 518   |  |      |   | 397   | 
|                                         |  |                         |       |  |      |   |       | 
|Total interest expense                   |  | $                       | 4,092 |  |      | $ | 2,363 | 
|                                         |  |                         |       |  |      |   |       | 



164



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



For the years ended December 31, 2014 and 2013, the cash paid for interest expense,
average borrowings, effective interest rate and weighted average interest rate for the Cooper River facility were as follows:



|                                                                               |  |                         |         |   |      |   |         |  
|------------------------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                                                               |  | Year EndedDecember 
31, |        
|                                                                               |  | 2014                    |         |   | 2013 |  
|Cash paid for interest expense(1)                                              |  | $                       | 3,582   |   |      | $ | 1,193   |  
|Average borrowings under the facility(2)                                       |  | $                       | 170,494 |   |      | $ | 118,460 |  
|Effective interest rate on borrowings (including the effect of non-usage fees) |  |                         | 2.07    | % |      |   | 2.01    | %
|Weighted average interest rate (including the effect of non-usage fees)        |  |                         | 2.07    | % |      |   | 2.13    | %



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



|(2) | Average borrowings under the Cooper River facility for the year ended December 31, 2013 are calculated since the inception date of the facility, or March 27,
2013.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Wissahickon Creek Credit Facility

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

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

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



165



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



Borrowings under the Wissahickon Creek facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Wissahickon Creek varies depending upon the
types of assets in Wissahickon Creeks portfolio.

Borrowings under the Wissahickon Creek facility are subject to
compliance with a borrowing base, pursuant to which the amount of funds available to be advanced to Wissahickon Creek varies depending upon the types of assets in Wissahickon Creeks portfolio.

Under the Wissahickon Creek facility, Wissahickon Creek has made certain representations and warranties and is required to comply with
various covenants, reporting requirements and other customary requirements for similar facilities. The Wissahickon Creek facility contains events of default customary for similar financing transactions, including: (a) the failure to make
principal or interest payments within three business days of when due; (b) a borrowing base deficiency that is not cured in accordance with the terms of the Wissahickon Creek facility; (c) the insolvency or bankruptcy of Wissahickon Creek
or the Company; (d) the resignation or removal of the Company as collateral manager; (e) the failure of the Company to maintain an asset coverage ratio of greater than or equal to 2:1; (f) the failure of the Company to have a net
asset value of at least $300,000; and (g) the failure of Wissahickon Creek to qualify as a bankruptcy-remote entity. Upon the occurrence and during the continuation of an event of default, Wells Fargo may declare the outstanding advances and
all other obligations under the Wissahickon Creek facility immediately due and payable. During the continuation of an event of default, Wissahickon Creek must pay interest at a default rate.

As of December 31, 2014, $185,000 was outstanding under the Wissahickon Creek facility. The carrying amount outstanding under the
Wissahickon Creek facility approximates its fair value. The Company incurred costs of $3,410 in connection with obtaining the facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to
interest expense over the life of the facility. As of December 31, 2014, $2,825 of such deferred financing costs had yet to be amortized to interest expense.

For the year ended December 31, 2014, the components of total interest expense for the Wissahickon Creek facility were as follows:



|                                         |  |                             |       | 
|---------------------------------------- |  | --------------------------- | ----- | 
|                                         |  | Year EndedDecember 31, 2014 |      
|Direct interest expense                  |  | $                           | 1,798 | 
|Non-usage fees                           |  |                             | 1,208 | 
|Amortization of deferred financing costs |  |                             | 585   | 
|                                         |  |                             |       | 
|Total interest expense                   |  | $                           | 3,591 | 
|                                         |  |                             |       | 

For the year ended December 31, 2014, the cash paid for interest expense, average borrowings,
effective interest rate and weighted average interest rate for the Wissahickon Creek facility were as follows:



|                                                                               |  |                             |         |  
|------------------------------------------------------------------------------ |  | --------------------------- | ------- | -
|                                                                               |  | Year EndedDecember 31, 2014 |        
|Cash paid for interest expense(1)                                              |  | $                           | 1,702   |  
|Average borrowings under the facility(2)                                       |  | $                           | 117,703 |  
|Effective interest rate on borrowings (including the effect of non-usage fees) |  |                             | 3.03    | %
|Weighted average interest rate (including the effect of non-usage fees)        |  |                             | 4.20    | %



166



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)





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



|(2) | Average borrowings under the Wissahickon Creek facility are calculated for the period since the Company commenced borrowings thereunder to December 31, 2014.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Darby Creek Credit Facility

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

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

Pricing under the Darby Creek facility is based on LIBOR for a three-month interest period (for each committed lender) or the commercial
paper rate of each conduit lender, plus, in each case, a spread of 2.75% per annum. Darby Creek is subject to a non-usage fee of 0.75% per annum to the extent the aggregate principal amount available under the Darby Creek facility is not
borrowed. In addition, Darby Creek is subject to a make-whole fee on a quarterly basis effectively equal to a portion of the spread that would have been payable if the full amount under the Darby Creek facility had been borrowed, less the non-usage
fee accrued during such quarter. Any amounts borrowed under the Darby Creek facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on February 20, 2018. Borrowings under the Darby Creek facility are
subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Darby Creek varies depending upon the types of assets in Darby Creeks portfolio.

Borrowings under the Darby Creek facility are subject to compliance with a borrowing base, pursuant to which the amount of funds
available to be advanced to Darby Creek varies depending upon the types of assets in Darby Creeks portfolio.

Under the
Darby Creek facility, Darby Creek has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. The Darby Creek facility contains
events of default customary for similar financing transactions,



167



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



including: (a) the failure to make principal or interest payments within two business days of when due; (b) the aggregate principal amount of the advances exceeds the borrowing base and
is not cured within two business days; (c) the insolvency or bankruptcy of Darby Creek or the Company; (d) a change of control of Darby Creek shall have occurred; (e) the failure of Darby Creek to qualify as a bankruptcy-remote
entity; and (f) the minimum equity condition is not satisfied and such condition is not cured within two business days. Upon the occurrence and during the continuation of an event of default, Deutsche Bank may declare the outstanding advances
and all other obligations under the Darby Creek facility immediately due and payable. During the continuation of an event of default, Darby Creek must pay interest at a default rate.

As of December 31, 2014, $249,500 was outstanding under the Darby Creek facility. The carrying amount outstanding under the Darby
Creek facility approximates its fair value. The Company incurred costs of $2,117 in connection with obtaining the facility, which the Company has recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest
expense over the life of the facility. As of December 31, 2014, $1,661 of such deferred financing costs had yet to be amortized to interest expense.

For the year ended December 31, 2014, the components of total interest expense for the Darby Creek facility were as follows:



|                                         |  |                             |       | 
|---------------------------------------- |  | --------------------------- | ----- | 
|                                         |  | Year EndedDecember 31, 2014 |      
|Direct interest expense                  |  | $                           | 3,574 | 
|Non-usage fees                           |  |                             | 586   | 
|Amortization of deferred financing costs |  |                             | 456   | 
|                                         |  |                             |       | 
|Total interest expense                   |  | $                           | 4,616 | 
|                                         |  |                             |       | 

For the year ended December 31, 2014, the cash paid for interest expense, average borrowings,
effective interest rate and weighted average interest rate for the Darby Creek facility were as follows:



|                                                                               |  |                             |         |  
|------------------------------------------------------------------------------ |  | --------------------------- | ------- | -
|                                                                               |  | Year EndedDecember 31, 2014 |        
|Cash paid for interest expense(1)                                              |  | $                           | 2,588   |  
|Average borrowings under the facility(2)                                       |  | $                           | 178,056 |  
|Effective interest rate on borrowings (including the effect of non-usage fees) |  |                             | 2.98    | %
|Weighted average interest rate (including the effect of non-usage fees)        |  |                             | 3.52    | %



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



|(2) | Average borrowings under the Darby Creek facility are calculated for the period since the Company commenced borrowings thereunder to December 31, 2014.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

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

Dunning Creek Credit Facility

On May 14, 2014, the Companys wholly-owned, special-purpose financing subsidiary, Dunning Creek LLC, or Dunning Creek, entered
into a revolving credit facility, or the Dunning Creek facility, with Deutsche



168



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



Bank, as administrative agent and lender, and each of the other lenders from time to time party thereto. The Dunning Creek facility originally provided for borrowings in an aggregate principal
amount up to $150,000 on a committed basis. On June 4, 2014, the Dunning Creek facility was amended to increase the maximum commitments available under the facility to $250,000.

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

Pricing under the Dunning Creek
facility is based on LIBOR for an interest period reasonably close to the weighted average LIBOR applicable to the assets held by Dunning Creek, plus a spread of 1.55% per annum. Any amounts borrowed under the Dunning Creek facility will
mature, and all accrued and unpaid interest thereunder will be due and payable, on May 14, 2015. Borrowings under the Dunning Creek facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to
Dunning Creek varies depending upon the types of assets in Dunning Creeks portfolio.

Borrowings under the Dunning Creek
facility are subject to compliance with a borrowing base, pursuant to which the amount of funds available to be advanced to Dunning Creek varies depending upon the types of assets in Dunning Creeks portfolio.

Under the Dunning Creek facility, Dunning Creek has made certain representations and warranties and is required to comply with various
covenants, reporting requirements and other customary requirements for similar facilities. The Dunning Creek facility contains events of default customary for similar financing transactions, including: (a) the failure to make principal payments
when due or interest payments within three business days of when due; (b) the failure to meet an over collateralization test (which measures Dunning Creeks eligible assets, as adjusted by the prescribed advance rates) and such failure is
not cured promptly on the same day; (c) the insolvency or bankruptcy of Dunning Creek or the Company; (d) the purchase of certain ineligible assets if the same is not cured within five business days; (e) the termination of the Company
as investment manager; (f) the Companys failure to maintain a net asset value of at least $50,000 plus 50% of additional equity (in excess of $50,000) raised after the closing date of the facility; and (g) fraud or other illicit acts
by the Company, Dunning Creek, GDFM or any of their respective directors, principals or officers, in each case, in their respective investment advisory capacities. Upon the occurrence and during the continuation of an event of default, Deutsche Bank
may declare the outstanding advances and all other obligations under the Dunning Creek facility immediately due and payable. If such amounts are accelerated and not repaid immediately, Dunning Creek will be required to pay interest on such overdue
amounts at a default rate.

As of December 31, 2014, $230,800 was outstanding under the Dunning Creek facility. The
carrying amount outstanding under the Dunning Creek facility approximates its fair value. The Company incurred costs of $710 in connection with obtaining and amending the facility, which the Company has recorded as deferred



169



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the facility. As of December 31, 2014, $268 of such deferred financing costs had yet to
be amortized to interest expense.

For the year ended December 31, 2014, the components of total interest expense for the
Dunning Creek facility were as follows:



|                                         |  |                             |       | 
|---------------------------------------- |  | --------------------------- | ----- | 
|                                         |  | Year EndedDecember 31, 2014 |      
|Direct interest expense                  |  | $                           | 1,996 | 
|Non-usage fees                           |  |                             |      | 
|Amortization of deferred financing costs |  |                             | 442   | 
|                                         |  |                             |       | 
|Total interest expense                   |  | $                           | 2,438 | 
|                                         |  |                             |       | 

For the year ended December 31, 2014, the cash paid for interest expense, average borrowings,
effective interest rate and weighted average interest rate for the Dunning Creek facility were as follows:



|                                         |  |                             |         |  
|---------------------------------------- |  | --------------------------- | ------- | -
|                                         |  | Year EndedDecember 31, 2014 |        
|Cash paid for interest expense(1)        |  | $                           | 1,406   |  
|Average borrowings under the facility(2) |  | $                           | 178,526 |  
|Effective interest rate on borrowings    |  |                             | 1.77    | %
|Weighted average interest rate           |  |                             | 1.77    | %



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



|(2) | Average borrowings under the Dunning Creek facility are calculated for the period since the Company commenced borrowings thereunder to December 31, 2014.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

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

Juniata River Credit Facility

On November 14, 2014, the Companys wholly-owned, special-purpose financing subsidiary, Juniata River LLC, or Juniata River,
entered into a senior secured term loan facility, or the Juniata River facility, with JPM, as administrative agent, and the financial institutions and other lenders from time to time party thereto, Citibank, N.A., as collateral agent, and Virtus
Group, LP, as collateral administrator. The Juniata River facility provides for delayed-draw borrowings in an aggregate principal amount up to $300,000 on a committed basis before February 14, 2015.

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



170



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



the assets of Juniata River, including its portfolio of debt securities. The obligations of Juniata River under the Juniata River facility are non-recourse to the Company, and the Companys
exposure under the Juniata River facility is limited to the value of the Companys investment in Juniata River.

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

Borrowings under the Juniata River facility are subject to a compliance condition which will be satisfied at any given time if the
outstanding advances to Juniata River by the lenders minus the amount of principal and certain interest proceeds in Juniata Rivers accounts is less than or equal to fifty percent (50%) of the net asset value of Juniata Rivers
portfolio of assets.

Under the Juniata River facility, Juniata River has made certain representations and warranties and is
required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. The Juniata River facility contains events of default customary for similar financing transactions, including: (a) the
failure to make principal payments when due or any other payments within two business days of when due; (b) the $300,000 committed principal amount is not fully drawn within ninety days of the Juniata River facilitys effective date;
(c) the insolvency or bankruptcy of Juniata River or the Company; (d) a change of control of Juniata River shall have occurred; (e) the transaction documents are amended in a manner materially adverse to JPM, as administrative agent,
without JPMs consent; and (f) GDFM or an affiliate thereof ceases to be the Company investment sub-advisor. Upon the occurrence and during the continuation of an event of default, JPM may declare the outstanding advances and all other
obligations under the Juniata River facility immediately due and payable.

As of December 31, 2014, $180,000 was
outstanding under the Juniata River facility. The carrying amount outstanding under the Juniata River facility approximates its fair value. The Company incurred costs of $289 in connection with obtaining the Juniata River facility, which the Company
has recorded as deferred financing costs on its consolidated balance sheets and amortize to interest expense over the life of the Juniata River facility. As of December 31, 2014, $281 of such deferred financing costs had yet to be amortized to
interest expense.

For the year ended December 31, 2014, the components of total interest expense for the Juniata River
facility were as follows:



|                                         |  |                             |     | 
|---------------------------------------- |  | --------------------------- | --- | 
|                                         |  | Year EndedDecember 31, 2014 |    
|Direct interest expense                  |  | $                           | 477 | 
|Non-usage fees                           |  |                             |    | 
|Amortization of deferred financing costs |  |                             | 8   | 
|                                         |  |                             |     | 
|Total interest expense                   |  | $                           | 485 | 
|                                         |  |                             |     | 



171



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



For the year ended December 31, 2014, the cash paid for interest expense, average
borrowings, effective interest rate and weighted average interest rate for the Juniata River facility were as follows:



|                                         |  |                             |         |  
|---------------------------------------- |  | --------------------------- | ------- | -
|                                         |  | Year EndedDecember 31, 2014 |        
|Cash paid for interest expense(1)        |  | $                           |        |  
|Average borrowings under the facility(2) |  | $                           | 139,555 |  
|Effective interest rate on borrowings    |  |                             | 2.73    | %
|Weighted average interest rate           |  |                             | 2.73    | %



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



|(2) | Average borrowings under the Juniata River facility are calculated for the period since the Company commenced borrowings thereunder to December 31, 2014.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

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

Total Return Swap

On June 13, 2013, the Companys wholly-owned, special-purpose financing subsidiary, Del River, and Citibank entered into the
termination acknowledgment, pursuant to which Del River and Citibank agreed to immediately terminate the TRS Agreement and all transactions thereunder.

The TRS was for a portfolio of senior secured floating rate loans and other debt securities with a maximum notional amount of $425,000. Del River received from Citibank all interest and fees payable in
respect of the assets underlying the TRS. Del River paid to Citibank interest at a rate equal to one-month LIBOR plus 1.25% per annum on the full notional amount of the assets subject to the TRS. In addition, upon the termination or repayment of any
asset subject to the TRS, Del River either received from Citibank the appreciation in the value of such asset, or paid to Citibank any depreciation in the value of such asset.

Del River was permitted to terminate the TRS upon prior written notice to Citibank and no termination fee was payable in connection with the termination of the TRS.

Upon the termination of the TRS, the Company recognized $5,437 of gains, $1,836 of which represented periodic net settlement payments due
on the TRS.

Note 9. Financial Instruments

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



172



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 9. Financial Instruments (continued)



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

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



|                              |  |                 |   |  |                        |   |        | 
|----------------------------- |  | --------------- | - |  | ---------------------- | - | ------ | 
|                              |  | Fair Value      |  
|Derivative                    |  | AssetDerivative |   |  | LiabilityDerivative(1) |  
|Credit Default Swap Contracts |  | $               |  |  |                        | $ | 30,048 | 



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

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



|                          |  |                                                   |   |  |                                |   |   |                               |  |   |                           |  |  |                                  |   |  |  |   |   | 
|------------------------- |  | ------------------------------------------------- | - |  | ------------------------------ | - | - | ----------------------------- |  | - | ------------------------- |  |  | -------------------------------- | - |  |  | - | - | 
|Counterparty              |  | DerivativeAssets Subjectto MasterNettingAgreement |   |  | DerivativesAvailable forOffset |   |   | Non-cashCollateralReceived(1) |  |   | CashCollateralReceived(1) |  |  | Net Amount ofDerivativeAssets(2) |  
|JPMorgan Chase Bank, N.A. |  | $                                                 |  |  |                                | $ |  |                               |  | $ |                          |  |  | $                                |  |  |  | $ |  | 



|                          |  |                                                        |        |  |                                |   |   |                              |  |   |                          |  |  |                                       |        |  |  |   |   | 
|------------------------- |  | ------------------------------------------------------ | ------ |  | ------------------------------ | - | - | ---------------------------- |  | - | ------------------------ |  |  | ------------------------------------- | ------ |  |  | - | - | 
|Counterparty              |  | DerivativeLiabilitiesSubject toMaster NettingAgreement |        |  | DerivativesAvailable forOffset |   |   | Non-cashCollateralPledged(1) |  |   | CashCollateralPledged(1) |  |  | Net Amount ofDerivativeLiabilities(3) |       
|JPMorgan Chase Bank, N.A. |  | $                                                      | 30,048 |  |                                | $ |  |                              |  | $ |                         |  |  | $                                     | 30,048 |  |  | $ |  | 



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



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



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



173



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 9. Financial Instruments (continued)



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



|                              |  |                                                         |       |  |                                                                                   |   |         |  
|----------------------------- |  | ------------------------------------------------------- | ----- |  | --------------------------------------------------------------------------------- | - | ------- | -
|Derivative                    |  | Realized Gain(Loss) onDerivativesRecognized inIncome(1) |       |  | Change inUnrealizedAppreciation(Depreciation) onDerivativesRecognized inIncome(2) |  
|Credit Default Swap Contracts |  | $                                                       | 7,535 |  |                                                                                   | $ | (19,426 | )



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



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

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

Note 10. Commitments and Contingencies

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

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

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

Note 11. Senior Securities Asset Coverage

Information about the Companys senior securities is shown in the table below for the years ended December 31, 2014, 2013 and 2012:



|             |  |                                                          |           |  |                           |  |      |                                             |  |  |                                                   |  |  |    
|------------ |  | -------------------------------------------------------- | --------- |  | ------------------------- |  | ---- | ------------------------------------------- |  |  | ------------------------------------------------- |  |  | ---
|December 31, |  | Total AmountOutstandingExclusive ofTreasurySecurities(1) |           |  | AssetCoverageper 
Unit(2) |  |      | InvoluntaryLiquidationPreferenceper Unit(3) |  |  | AverageMarket Valueper Unit(4)(Exclude BankLoans)
|2012         |  | $                                                        | 404,991   |  |                           |  | 2.30 |                                             |  |  |                                                  |  |  | N/A
|2013         |  | $                                                        | 720,494   |  |                           |  | 4.32 |                                             |  |  |                                                  |  |  | N/A
|2014         |  | $                                                        | 1,641,194 |  |                           |  | 2.75 |                                             |  |  |                                                  |  |  | N/A



174



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 11. Senior Securities Asset
Coverage (continued)





|(1) | Total amount of each class of senior securities outstanding at the end of the period presented. For purposes of the asset coverage test, the Company treats the
outstanding notional amount of the TRS, less the initial amount of any cash collateral required to be posted, as a senior security.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|(3) | The amount to which such class of senior security would be entitled upon the voluntary liquidation of the Company in preference to any security junior to it. The
 in this column indicates that the SEC expressly does not require this information to be disclosed for certain types of senior securities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



175



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)







Note 12. Financial Highlights

The following is a schedule of financial highlights of the Company for the years ended December 31, 2014, 2013 and 2012. The Company
has omitted the financial highlights for the period from July 13, 2011 (inception) to December 31, 2011 since the Company did not have investment operations as of December 31, 2011.



|                                                                                                                                                  |  |                         |             |   |      |   |             |      |  |   |            |   
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ---------- | --
|                                                                                                                                                  |  | Year Ended December 31, |            
|                                                                                                                                                  |  | 2014                    |             |   | 2013 |   |             | 2012 | 
|Per Share Data(1):                                                                                                                                |  |                         |             |   |      |   |             |      |  |   |            |   
|Net asset value, beginning of period                                                                                                              |  | $                       | 9.39        |   |      | $ | 9.16        |      |  | $ | 9.00       |   
|Results of operations(2)                                                                                                                          |  |                         |             |   |      |   |             |      |  |   |            |   
|Net investment income (loss)                                                                                                                      |  |                         | 0.80        |   |      |   | 0.62        |      |  |   | 0.12       |   
|Net realized and unrealized appreciation (depreciation) on investments, total return swap, credit default swaps and gain/loss on
foreign currency |  |                         | (0.17       | ) |      |   | 0.27        |      |  |   | 0.73       |   
|                                                                                                                                                  |  |                         |             |   |      |   |             |      |  |   |            |   
|Net increase (decrease) in net assets resulting from operations                                                                                   |  |                         | 0.63        |   |      |   | 0.89        |      |  |   | 0.85       |   
|                                                                                                                                                  |  |                         |             |   |      |   |             |      |  |   |            |   
|Stockholder distributions(3)                                                                                                                      |  |                         |             |   |      |   |             |      |  |   |            |   
|Distributions from net investment income                                                                                                          |  |                         | (0.69       | ) |      |   | (0.69       | )    |  |   | (0.28      | ) 
|Distributions from net realized gain on investments                                                                                               |  |                         | (0.05       | ) |      |   | (0.07       | )    |  |   | (0.11      | ) 
|                                                                                                                                                  |  |                         |             |   |      |   |             |      |  |   |            |   
|Net decrease in net assets resulting from stockholder distributions                                                                               |  |                         | (0.74       | ) |      |   | (0.76       | )    |  |   | (0.39      | ) 
|                                                                                                                                                  |  |                         |             |   |      |   |             |      |  |   |            |   
|Capital share transactions                                                                                                                        |  |                         |             |   |      |   |             |      |  |   |            |   
|Issuance of common stock(4)                                                                                                                       |  |                         | 0.03        |   |      |   | 0.15        |      |  |   | 0.07       |   
|Repurchases of common stock(5)                                                                                                                    |  |                         |            |   |      |   |            |      |  |   |           |   
|Offering costs(2)                                                                                                                                 |  |                         | (0.01       | ) |      |   | (0.05       | )    |  |   | (0.28      | ) 
|Reimbursement to investment adviser(2)                                                                                                            |  |                         |            |   |      |   |            |      |  |   | (0.33      | ) 
|Capital contributions of investment adviser(2)                                                                                                    |  |                         |            |   |      |   |            |      |  |   | 0.24       |   
|                                                                                                                                                  |  |                         |             |   |      |   |             |      |  |   |            |   
|Net increase (decrease) in net assets resulting from capital share transactions                                                                   |  |                         | 0.02        |   |      |   | 0.10        |      |  |   | (0.30      | ) 
|                                                                                                                                                  |  |                         |             |   |      |   |             |      |  |   |            |   
|Net asset value, end of period                                                                                                                    |  | $                       | 9.30        |   |      | $ | 9.39        |      |  | $ | 9.16       |   
|                                                                                                                                                  |  |                         |             |   |      |   |             |      |  |   |            |   
|Shares outstanding, end of period                                                                                                                 |  |                         | 313,037,127 |   |      |   | 254,572,096 |      |  |   | 57,612,806 |   
|                                                                                                                                                  |  |                         |             |   |      |   |             |      |  |   |            |   
|Total return(6)                                                                                                                                   |  |                         | 6.92        | % |      |   | 10.81       | %    |  |   | 6.11       | % 
|                                                                                                                                                  |  |                         |             |   |      |   |             |      |  |   |            |   
|Ratio/Supplemental Data:                                                                                                                          |  |                         |             |   |      |   |             |      |  |   |            |   
|Net assets, end of period                                                                                                                         |  | $                       | 2,911,790   |   |      | $ | 2,390,985   |      |  | $ | 527,727    |   
|                                                                                                                                                  |  |                         |             |   |      |   |             |      |  |   |            |   
|Ratio of net investment income to average net assets(7)                                                                                           |  |                         | 8.43        | % |      |   | 6.60        | %    |  |   | 1.29       | % 
|                                                                                                                                                  |  |                         |             |   |      |   |             |      |  |   |            |   
|Ratio of operating expenses and excise taxes to average net assets(7)                                                                             |  |                         | 5.43        | % |      |   | 5.46        | %    |  |   | 4.20       | % 
|Ratio of expenses reimbursed by sponsor to average net assets(7)                                                                                  |  |                         |            |   |      |   |            |      |  |   | (1.14      | )%
|Ratio of expense recoupment payable to sponsor to average net assets(7)                                                                           |  |                         |            |   |      |   | 0.15        | %    |  |   |           |   
|                                                                                                                                                  |  |                         |             |   |      |   |             |      |  |   |            |   
|Ratio of net operating expenses and excise taxes to average net assets(7)                                                                         |  |                         | 5.43        | % |      |   | 5.61        | %    |  |   | 3.06       | % 
|                                                                                                                                                  |  |                         |             |   |      |   |             |      |  |   |            |   
|Portfolio turnover                                                                                                                                |  |                         | 43.79       | % |      |   | 46.38       | %    |  |   | 111.30     | % 
|                                                                                                                                                  |  |                         |             |   |      |   |             |      |  |   |            |   
|Total amount of senior securities outstanding, exclusive of treasury securities                                                                   |  | $                       | 1,641,194   |   |      | $ | 720,494     |      |  | $ | 404,991    |   
|                                                                                                                                                  |  |                         |             |   |      |   |             |      |  |   |            |   
|Asset coverage per unit(8)                                                                                                                        |  |                         | 2.75        |   |      |   | 4.32        |      |  |   | 2.30       |   



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



|(2) | The per share data was derived by using the weighted average shares outstanding for the years ended December 31, 2014, 2013 and the period from June 18, 2012
(commencement of operations) through December 31, 2012.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



176



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 12. Financial Highlights (continued)



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



|(4) | The issuance of common stock on a per share basis reflects the incremental net asset value changes as a result of the issuance of shares of common stock in the
Companys continuous public offering, as applicable, and pursuant to the Companys distribution reinvestment plan. The issuance of common stock at an offering price, net of sales commissions and dealer manager fees, that is greater than
the net asset value per share results in an increase in net asset value per share.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|(6) | The total return for each year presented was calculated by taking the net asset value per share as of the end of the applicable year, adding the cash distributions per
share which were declared during the applicable calendar year and dividing the total by the net asset value per share at the beginning of the applicable year. The total return does not consider the effect of the sales load from the sale of the
Companys common stock. The total return includes the effect of the issuance of shares at a net offering price that is greater than net asset value per share, which causes an increase in net asset value per share. The historical calculation of
total return in the table should not be considered a representation of the Companys future total return, which may be greater or less than the return shown in the table due to a number of factors, including the Companys ability or
inability to make investments in companies that meet its investment criteria, the interest rate payable on the debt securities the Company acquires, the level of the Companys expenses, variations in and the timing of the recognition of
realized and unrealized gains or losses, the degree to which the Company encounters competition in its markets and general economic conditions. As a result of these factors, results for any previous period should not be relied upon as being
indicative of performance in future periods. The total return as calculated above represents the total return on the Companys investment portfolio during the applicable period and is calculated in accordance with GAAP. These return figures do
not represent an actual return to stockholders.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Weighted average net assets during the years ended December 31, 2014, 2013, and the period from June 18, 2012 (Commencement of Operations) through
December 31, 2012 are used for this calculation. The following is a schedule of supplemental ratios for the years ended December 31, 2014, 2013 and 2012:
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                    |  |                             |         |  |                             |  |       |                             |  |  |       | 
|------------------------------------------------------------------- |  | --------------------------- | ------- |  | --------------------------- |  | ----- | --------------------------- |  |  | ----- | 
|                                                                    |  | Year EndedDecember 31, 2014 |         |  | Year EndedDecember 31, 2013 |  |       | Year EndedDecember 31, 2012 | 
|Ratio of accrued capital gains incentive fees to average net assets |  |                             | (0.32)% |  |                             |  | 0.45% |                             |  |  | 1.63% | 
|Ratio of subordinated income incentive fees to average net assets   |  |                             | 1.16%   |  |                             |  | 0.65% |                             |  |  |      | 
|Ratio of interest expense to average net assets                     |  |                             | 1.16%   |  |                             |  | 0.89% |                             |  |  | 0.13% | 
|Ratio of excise taxes to average net assets                         |  |                             | 0.04%   |  |                             |  |      |                             |  |  |      | 



|(8) | Asset coverage per unit is the ratio of the carrying value of the Companys total consolidated assets, less liabilities and indebtedness not represented by senior
securities, to the aggregate amount of senior securities representing indebtedness.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



177



---

##### Table of Contents

FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)







Note 12. Selected Quarterly Financial Data (Unaudited)

The following are the quarterly results of operations for the years ended December 31, 2014 and 2013. The following information
reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.



|                                                                |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 
|--------------------------------------------------------------- |  | ---------------- | ----------- | - | ----------------- | - | ----------- | ------------ |  | - | ------------- |  |  | - | ----------- | 
|                                                                |  | Quarter Ended    |            
|                                                                |  | December 31,2014 |             |   | September 30,2014 |   |             | June 30,2014 |  |   | March 31,2014 | 
|Investment income                                               |  | $                | 115,983     |   |                   | $ | 102,219     |              |  | $ | 99,516        |  |  | $ | 81,065      | 
|Operating expenses                                              |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 
|Total operating expenses                                        |  |                  | 34,825      |   |                   |   | 40,954      |              |  |   | 46,963        |  |  |   | 33,365      | 
|                                                                |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 
|Net investment income                                           |  |                  | 81,158      |   |                   |   | 61,265      |              |  |   | 52,553        |  |  |   | 47,700      | 
|Realized and unrealized gain (loss)                             |  |                  | (104,020    | ) |                   |   | (9,281      | )            |  |   | 31,925        |  |  |   | 29,668      | 
|                                                                |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 
|Net increase (decrease) in net assets resulting from operations |  | $                | (22,862     | ) |                   | $ | 51,984      |              |  | $ | 84,478        |  |  | $ | 77,368      | 
|                                                                |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 
|Per share informationbasic and diluted                         |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 
|Net investment income                                           |  | $                | 0.26        |   |                   | $ | 0.20        |              |  | $ | 0.17          |  |  | $ | 0.17        | 
|                                                                |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 
|Net increase (decrease) in net assets resulting from operations |  | $                | (0.07       | ) |                   | $ | 0.17        |              |  | $ | 0.28          |  |  | $ | 0.27        | 
|                                                                |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 
|Weighted average shares outstanding                             |  |                  | 311,321,362 |   |                   |   | 307,734,691 |              |  |   | 305,302,628   |  |  |   | 282,039,917 | 
|                                                                |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 



|                                                                |  |                  |             |  |                   |   |             |              |  |   |               |   |  |   |            | 
|--------------------------------------------------------------- |  | ---------------- | ----------- |  | ----------------- | - | ----------- | ------------ |  | - | ------------- | - |  | - | ---------- | 
|                                                                |  | Quarter Ended    |            
|                                                                |  | December 31,2013 |             |  | September 30,2013 |   |             | June 30,2013 |  |   | March 31,2013 |  
|Investment income                                               |  | $                | 61,222      |  |                   | $ | 61,272      |              |  | $ | 28,226        |   |  | $ | 16,973     | 
|Operating expenses                                              |  |                  |             |  |                   |   |             |              |  |   |               |   |  |   |            | 
|Total operating expenses                                        |  |                  | 27,611      |  |                   |   | 26,827      |              |  |   | 8,944         |   |  |   | 11,596     | 
|Add: Expense recoupment to sponsor                              |  |                  |            |  |                   |   |            |              |  |   |              |   |  |   | 2,041      | 
|                                                                |  |                  |             |  |                   |   |             |              |  |   |               |   |  |   |            | 
|Net expenses                                                    |  |                  | 27,611      |  |                   |   | 26,827      |              |  |   | 8,944         |   |  |   | 13,637     | 
|                                                                |  |                  |             |  |                   |   |             |              |  |   |               |   |  |   |            | 
|Net investment income (loss)                                    |  |                  | 33,611      |  |                   |   | 34,445      |              |  |   | 19,282        |   |  |   | 3,336      | 
|Realized and unrealized gain (loss)                             |  |                  | 20,561      |  |                   |   | 5,140       |              |  |   | (10,120       | ) |  |   | 24,619     | 
|                                                                |  |                  |             |  |                   |   |             |              |  |   |               |   |  |   |            | 
|Net increase (decrease) in net assets resulting from operations |  | $                | 54,172      |  |                   | $ | 39,585      |              |  | $ | 9,162         |   |  | $ | 27,955     | 
|                                                                |  |                  |             |  |                   |   |             |              |  |   |               |   |  |   |            | 
|Per share informationbasic and diluted                         |  |                  |             |  |                   |   |             |              |  |   |               |   |  |   |            | 
|Net investment income (loss)                                    |  | $                | 0.15        |  |                   | $ | 0.21        |              |  | $ | 0.17          |   |  | $ | 0.04       | 
|                                                                |  |                  |             |  |                   |   |             |              |  |   |               |   |  |   |            | 
|Net increase (decrease) in net assets resulting from operations |  | $                | 0.24        |  |                   | $ | 0.24        |              |  | $ | 0.08          |   |  | $ | 0.37       | 
|                                                                |  |                  |             |  |                   |   |             |              |  |   |               |   |  |   |            | 
|Weighted average shares outstanding                             |  |                  | 227,713,625 |  |                   |   | 165,565,150 |              |  |   | 116,647,055   |   |  |   | 75,870,282 | 
|                                                                |  |                  |             |  |                   |   |             |              |  |   |               |   |  |   |            | 

The sum of quarterly per share amounts does not necessarily equal per share amounts reported for the
years ended December 31, 2014 and 2013. This is due to changes in the number of weighted-average shares outstanding and the effects of rounding for each period.



178



---

##### Table of Contents

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

None.



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

Evaluation
of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed under the Exchange Act 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 for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures,
management recognizes 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 is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.

As required by Exchange Act Rule 13(a)-15(b), we carried
out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of
December 31, 2014. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were (a) designed to ensure that the information we are required to disclose in our
reports under the Exchange Act is recorded, processed and reported in an accurate manner and on a timely basis and the information that we are required to disclose in our Exchange Act reports is accumulated and communicated to management to permit
timely decisions with respect to required disclosure and (b) operating in an effective manner.

Managements Annual Report on
Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal
control over financial reporting. As defined in Exchange Act Rules 13a-15(f) and 15d-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal
financial officers, or persons performing similar functions, and effected by the companys board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with GAAP.

Our internal control over financial reporting includes
those policies and procedures that:

1. Pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect our transactions and the dispositions of our assets;

2. Provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and board of directors; and

3. 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, a system of internal
control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



179



---

##### Table of Contents

Managements report on internal control over financial reporting is set forth above
under the heading Managements Report on Internal Control over Financial Reporting in Item 8 of this annual report on Form 10-K.

Attestation Report of the Registered Public Accounting Firm

Our registered public accounting firm has issued an attestation report on our internal control over financial reporting. This report appears on page 106.

Changes in Internal Control Over Financial Reporting

During the fourth quarter of 2014, there was no change in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) or 15d-15(f)) that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.



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

None.



180



---

##### Table of Contents

PART III

We will file a definitive Proxy Statement for our 2015 Annual Meeting of Stockholders with the SEC, pursuant to Regulation 14A promulgated under the Exchange Act, not later than 120 days
after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of our definitive Proxy Statement that specifically address the
items set forth herein are incorporated by reference.



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

The information required by Item 10 is hereby incorporated by reference from the Companys definitive Proxy Statement relating to the Companys 2015 Annual Meeting of Stockholders, to be
filed with the SEC within 120 days following the end of the Companys fiscal year.



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

The information required by Item 11 is hereby incorporated by reference from the Companys definitive Proxy Statement relating
to the Companys 2015 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of the Companys fiscal year.



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

The information required by Item 12 is hereby incorporated by reference from the Companys definitive Proxy Statement relating
to the Companys 2015 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of the Companys fiscal year.



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

The information required by Item 13 is hereby incorporated by reference from the Companys definitive Proxy Statement relating to the Companys 2015 Annual Meeting of Stockholders, to be
filed with the SEC within 120 days following the end of the Companys fiscal year.



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

The information required by Item 14 is hereby incorporated by reference from the Companys definitive Proxy Statement relating to the Companys 2015 Annual Meeting of Stockholders, to be
filed with the SEC within 120 days following the end of the Companys fiscal year.



181



---

##### Table of Contents

PART IV



|Item 15. | Exhibits, Financial Statement Schedules.
|-------- | ----------------------------------------

a. Documents Filed as Part of this Report

The following financial statements are set forth in Item 8:



|                                                                                                       |  |      |     | 
|------------------------------------------------------------------------------------------------------ |  | ---- | --- | 
|                                                                                                       |  | Page |    
|Managements Report on Internal Control Over Financial Reporting                                       |  |      | 106 | 
|Report of Independent Registered Public Accounting Firm                                                |  |      | 107 | 
|Report of Independent Registered Public Accounting Firm                                                |  |      | 108 | 
|Consolidated Balance Sheets as of December 31, 2014 and 2013                                           |  |      | 109 | 
|Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and
2012             |  |      | 110 | 
|Consolidated Statements of Changes in Net Assets for the years ended December 
31, 2014, 2013 and 2012 |  |      | 111 | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and
2012             |  |      | 112 | 
|Consolidated Schedules of Investments as of December 31, 2014 and 2013                                 |  |      | 113 | 
|Notes to Consolidated Financial Statements                                                             |  |      | 132 | 

b. Exhibits

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

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



|     |  |                                                                                                                                                                                                                                                                                                                                                  
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|3.1  |  | Articles of Amendment and Restatement of the Company. (Incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K filed on June 14,
2012.)                                                                                                                                                                             
|     | 
|3.2  |  | Amended and Restated Bylaws of the Company. (Incorporated by reference to Exhibit (b) filed with Pre-Effective Amendment No. 3 to the Companys registration statement
on Form N-2 (File No. 333-175654) filed on February 10, 2012.)                                                                                                            
|     | 
|4.1  |  | Amended and Restated Distribution Reinvestment Plan of the Company, effective as of March 26, 2014. (Incorporated by reference to Exhibit 4.1 to the Companys Current
Report on Form 8-K filed on February 24, 2014.)                                                                                                                           
|     | 
|10.1 |  | Investment Advisory and Administrative Services Agreement, dated as of February 8, 2012, by and between the Company and FSIC II Advisor, LLC. (Incorporated by reference to
Exhibit (g)(1) filed with Pre-Effective Amendment No. 3 to the Companys registration statement on Form N-2 (File No. 333-175654) filed on February 10, 2012.)       
|     | 
|10.2 |  | Investment Sub-Advisory Agreement, dated as of February 8, 2012, by and between FSIC II Advisor, LLC and GSO / Blackstone Debt Funds Management LLC. (Incorporated by
reference to Exhibit (g)(2) filed with Pre-Effective Amendment No. 3 to the Companys registration statement on Form N-2 (File No. 333-175654) filed on February 10,
2012.)
|     | 
|10.3 |  | Dealer Manager Agreement, dated as of February 8, 2012, by and among the Company, FSIC II Advisor, LLC and FS2Capital Partners, LLC. (Incorporated by reference to Exhibit (h)(1) filed with Pre-Effective Amendment No. 3
to the Companys registration statement on Form N-2 (File No. 333-175654) filed on February 10, 2012.)                



182



---

##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                                                  
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.4  |  | Form of Follow-On Dealer Manager Agreement. (Incorporated by reference to Exhibit (h)(2) filed with Pre-Effective Amendment No. 3 to the Companys registration statement on
Form N-2 (File No. 333-184474) filed on May 10, 2013.)                                                                                                              
|      | 
|10.5  |  | Form of Selected Dealer Agreement. (Included as Appendix A to the Dealer Manager Agreement). (Incorporated by reference to Exhibit (h)(1) filed with Pre-Effective Amendment No. 3 to
the Companys registration statement on Form N-2 (File No. 333-175654) filed on February 10, 2012.)                                                        
|      | 
|10.6  |  | Form of Follow-On Selected Dealer Agreement. (Included as Exhibit A to the Form of Follow-On Dealer Manager Agreement). (Incorporated by reference to Exhibit (h)(2) filed with
Pre-Effective Amendment No. 3 to the Companys registration statement on Form N-2 (File No. 333-184474) filed on May 10, 2013.)                                  
|      | 
|10.7  |  | Custodian Agreement, dated as of February 8, 2012, by and between the Company and State Street Bank and Trust Company. (Incorporated by reference to Exhibit (j) filed with
Pre-Effective Amendment No. 3 to the Companys registration statement on Form N-2 (File No. 333-175654) filed on February 10, 2012.)                                 
|      | 
|10.8  |  | Escrow Agreement, dated as of January 23, 2012, by and among the Company, UMB Bank, N.A. and FS2 Capital Partners, LLC. (Incorporated by reference to Exhibit (k) filed with
Pre-Effective Amendment No. 3 to the Companys registration statement on Form N-2 (File No. 333-175654) filed on February 10, 2012.)                                
|      | 
|10.9  |  | ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, each dated as of July 2, 2012, by and between Del River LLC (formerly known
as IC-II Investments LLC) and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on July 3, 2012.)
|      | 
|10.10 |  | Confirmation Letter Agreement, dated as of July 2, 2012, by and between Del River LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K filed on July 3, 2012.)                                                                                                                          
|      | 
|10.11 |  | Amended and Restated Confirmation Letter Agreement, dated as of September 12, 2012, by and between Del River LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on September 12, 2012.)                                                                                         
|      | 
|10.12 |  | Amended and Restated Confirmation Letter Agreement, dated as of September 27, 2012, by and between Del River LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on October 1, 2012.)                                                                                            
|      | 
|10.13 |  | Amended and Restated Confirmation Letter Agreement, dated as of November 15, 2012, by and between Del River LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on November 15, 2012.)                                                                                           
|      | 
|10.14 |  | Amended and Restated Confirmation Letter Agreement, dated as of December 13, 2012, by and between Del River LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on December 17, 2012.)                                                                                           
|      | 
|10.15 |  | Investment Management Agreement, dated as of July 2, 2012, by and between the Company and Del River LLC. (Incorporated by reference to Exhibit 10.3 to the Companys Current
Report on Form 8-K filed on July 3, 2012.)                                                                                                                          
|      | 
|10.16 |  | Termination Acknowledgement (TRS), dated as of June 13, 2013, by and between Del River LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on June 17, 2013.)                                                                                                                    
|      | 
|10.17 |  | Asset Transfer Agreement, dated as of October 26, 2012, by and between the Company and Lehigh River LLC. (Incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on October 30, 2012.)                                                                                                                      



183



---

##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                                                                                          
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.18 |  | Indenture, dated as of October 26, 2012, by and between Lehigh River LLC and Citibank, N.A., as trustee. (Incorporated by reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K filed on October 30, 2012.)                                                                                                                                                              
|      | 
|10.19 |  | Amended and Restated Indenture, dated as of February 6, 2013, by and between Lehigh River LLC and Citibank, N.A., as trustee. (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on February 7, 2013.)                                                                                                                                         
|      | 
|10.20 |  | Lehigh River LLC Class A Floating Rate Secured Note, due 2023. (Incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K filed on October 30,
2012.)                                                                                                                                                                                                        
|      | 
|10.21 |  | Supplemental Indenture No. 1, dated as of April 23, 2013, by and between Lehigh River LLC and Citibank, N.A., as trustee. (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on April 26, 2013.)                                                                                                                                               
|      | 
|10.22 |  | Lehigh River LLC Class A Floating Rate Secured Note, due 2024. (Incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K filed on February 7,
2013.)                                                                                                                                                                                                        
|      | 
|10.23 |  | TBMA/ISMA 2000 Global Master Repurchase Agreement, by and between JPMorgan Chase Bank, N.A., London Branch and Cobbs Creek LLC, together with the related Annex and Confirmation
thereto, each dated as of October 26, 2012. (Incorporated by reference to Exhibit 10.4 to the Companys Current Report on Form 8-K filed on October 30, 2012.)                                          
|      | 
|10.24 |  | Lehigh River LLC Class A Floating Rate Secured Note, due 2024. (Incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K filed on April 26,
2013.)                                                                                                                                                                                                          
|      | 
|10.25 |  | TBMA/ISMA 2000 Amended and Restated Global Master Repurchase Agreement, by and between JPMorgan Chase Bank, N.A., London Branch and Cobbs Creek LLC, together with the related Annex
and Amended and Restated Confirmation thereto, each dated as of February 6, 2013. (Incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K filed on February 7, 2013.)
|      | 
|10.26 |  | Revolving Credit Agreement, dated as of October 26, 2012, by and between the Company and Cobbs Creek LLC. (Incorporated by reference to Exhibit 10.5 to the Companys Current
Report on Form 8-K filed on October 30, 2012.)                                                                                                                                                             
|      | 
|10.27 |  | TBMA/ISMA 2000 Amended and Restated Global Master Repurchase Agreement, by and between JPMorgan Chase Bank, N.A., London Branch, and Cobbs Creek LLC, together with the related Annex
and Amended and Restated Confirmation thereto, each dated as of April 23, 2013. (Incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K filed on April 26, 2013.)   
|      | 
|10.28 |  | Asset Transfer Agreement, dated as of October 26, 2012, by and between the Company and Cobbs Creek LLC. (Incorporated by reference to Exhibit 10.6 to the Companys Current
Report on Form 8-K filed on October 30, 2012.)                                                                                                                                                               
|      | 
|10.29 |  | Collateral Management Agreement, dated as of October 26, 2012, by and between Lehigh River LLC and the Company. (Incorporated by reference to Exhibit 10.7 to the Companys
Current Report on Form 8-K filed on October 30, 2012.)                                                                                                                                                       
|      | 
|10.30 |  | Collateral Administration Agreement, dated as of October 26, 2012, by and among Lehigh River LLC, the Company and Virtus Group, LP. (Incorporated by reference to Exhibit 10.8 to the
Companys Current Report on Form 8-K filed on October 30, 2012.)                                                                                                                                   
|      | 
|10.31 |  | Collateral Management Agreement, dated as of October 26, 2012, by and between Cobbs Creek LLC and the Company. (Incorporated by reference to Exhibit 10.9 to the Companys
Current Report on Form 8-K filed on October 30, 2012.)                                                                                                                                                        
|      | 
|10.32 |  | Loan Agreement, dated as of March 27, 2013, by and between Cooper River LLC, the financial institutions and other lenders from time to time party thereto and Citibank, N.A., as
administrative agent. (Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on March 28, 2013.)                                                                  



184



---

##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.33 |  | Account Control Agreement, dated as of March 27, 2013, by and between Cooper River LLC, Citibank, N.A. and Virtus Group, LP. (Incorporated by reference to Exhibit 10.2 to the
Companys Current Report on Form 8-K filed on March 28, 2013.)                                                                                                                                                                                                                       
|      | 
|10.34 |  | Security Agreement, dated as of March 27, 2013, by and between Cooper River LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.3 to the Companys Current
Report on Form 8-K filed on March 28, 2013.)                                                                                                                                                                                                                                                 
|      | 
|10.35 |  | Agreement and Plan of Merger, dated as of March 27, 2013, by and among Cooper River LLC, Cooper River CBNA Loan Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit
10.4 to the Companys Current Report on Form 8-K filed on March 28, 2013.)                                                                                                                                                                                                     
|      | 
|10.36 |  | Investment Management Agreement, dated as of March 27, 2013, by and between the Company and Cooper River LLC. (Incorporated by reference to Exhibit 10.5 to the Companys
Current Report on Form 8-K filed on March 28, 2013.)                                                                                                                                                                                                                                      
|      | 
|10.37 |  | Loan and Servicing Agreement, dated as of February 19, 2014, by and among Wissahickon Creek LLC, as borrower, Wells Fargo Securities, LLC, as administrative agent, Wells Fargo Bank,
National Association, as collateral agent, account bank and collateral custodian, and the other lenders and lender agents from time to time party thereto. (Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K
filed on February 25, 2014.)
|      | 
|10.38 |  | Purchase and Sale Agreement, dated as of February 19, 2014, by and between Wissahickon Creek LLC, as purchaser, and the Company, as seller. (Incorporated by reference to Exhibit
10.2 to the Companys Current Report on Form 8-K filed on February 25, 2014.)                                                                                                                                                                                                     
|      | 
|10.39 |  | Collateral Management Agreement, dated as of February 19, 2014, by and between Wissahickon Creek LLC and the Company, as collateral manager. (Incorporated by reference to Exhibit
10.3 to the Companys Current Report on Form 8-K filed on February 25, 2014.)                                                                                                                                                                                                    
|      | 
|10.40 |  | Securities Account Control Agreement, dated as of February 19, 2014, by and among Wissahickon Creek LLC, as pledgor, Wells Fargo Bank, National Association, as collateral agent, and
Wells Fargo Bank, National Association, as securities intermediary. (Incorporated by reference to Exhibit 10.4 to the Companys Current Report on Form 8-K filed on February 25, 2014.)                                                                                       
|      | 
|10.41 |  | Loan Financing and Servicing Agreement, dated as of February 20, 2014, by and among Darby Creek LLC, as borrower, Deutsche Bank AG, New York Branch, as administrative agent, Wells
Fargo Bank, National Association, as collateral agent and collateral custodian, and the other lenders and lender agents from time to time party thereto. (Incorporated by reference to Exhibit 10.5 to the Companys Current Report on Form 8-K
filed on February 25, 2014.)    
|      | 
|10.42 |  | Sale and Contribution Agreement, dated as of February 20, 2014, by and between Darby Creek LLC, as purchaser, and the Company, as seller. (Incorporated by reference to Exhibit 10.6
to the Companys Current Report on Form 8-K filed on February 25, 2014.)                                                                                                                                                                                                       
|      | 
|10.43 |  | Investment Management Agreement, dated as of February 20, 2014, by and between Darby Creek LLC and the Company, as investment manager. (Incorporated by reference to Exhibit 10.7 to
the Companys Current Report on Form 8-K filed on February 25, 2014.)                                                                                                                                                                                                          
|      | 
|10.44 |  | Securities Account Control Agreement, dated as of February 20, 2014, by and among Darby Creek LLC, as pledgor, Wells Fargo Bank, National Association, as secured party, and Wells
Fargo Bank, National Association, as securities intermediary. (Incorporated by reference to Exhibit 10.8 to the Companys Current Report on Form 8-K filed on February 25, 2014.)                                                                                                
|      | 
|10.45 |  | Credit Agreement, dated as of May 14, 2014, by and among Dunning Creek LLC, as borrower, Deutsche Bank AG, New York Branch, as administrative agent and lender, and the other
lenders from time to time party thereto. (Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on May 19, 2014.)                                                                                                                               



185



---

##### Table of Contents

|       |  |                                                                                                                                                                                                                                                                                                                                                        
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|10.46  |  | First Amendment to Credit Agreement, dated as of June 4, 2014, by and between Dunning Creek LLC and Deutsche Bank AG, New York Branch, as administrative agent and lender.
(Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on June 6, 2014.)                                                              
|       | 
|10.47  |  | Custodial Agreement, dated as of May 14, 2014, by and among Dunning Creek LLC, as borrower, the Company, as manager, Deutsche Bank AG, New York Branch, as administrative agent, and
Deutsche Bank Trust Company Americas, as custodian. (Incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K filed on May 19, 2014.)
|       | 
|10.48  |  | Security Agreement, dated as of May 14, 2014, by and between Dunning Creek LLC, as borrower, and Deutsche Bank AG, New York Branch, as administrative agent. (Incorporated
by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K filed on May 19, 2014.)                                                                            
|       | 
|10.49  |  | Sale and Contribution Agreement, dated as of May 14, 2014, by and between the Company, as seller, and Dunning Creek LLC, as purchaser. (Incorporated by reference to Exhibit
10.4 to the Companys Current Report on Form 8-K filed on May 19, 2014.)                                                                                                  
|       | 
|10.50  |  | Investment Management Agreement, dated as of May 14, 2014, by and between Dunning Creek LLC and the Company, as Investment Manager. (Incorporated by reference to Exhibit 10.5
to the Companys Current Report on Form 8-K filed on May 19, 2014.)                                                                                                     
|       | 
|10.51* |  | Loan Agreement, dated as of November 14, 2014, by and among Juniata River LLC, as borrower, JPMorgan Chase Bank, National Association, as administrative agent each of the lenders
from time to time party thereto, Citibank, N.A., as collateral agent and Virtus Group, LP, as collateral administrator.                                             
|       | 
|10.52* |  | Sale and Contribution Agreement, dated as of November 14, 2014, between Juniata River LLC, as purchaser, and the Company, as seller.                                                                                                                                                                                                                   
|       | 
|10.53* |  | Investment Management Agreement, dated as of November 14, 2014, between Juniata River LLC and the Company, as investment manager.                                                                                                                                                                                                                      
|       | 
|10.54* |  | Collateral Administration Agreement, dated as of November 14, 2014, by and among Juniata River LLC, JPMorgan Chase Bank, National Association, as administrative agent, the Company,
as investment manager and Virtus Group, LP, as collateral administrator.                                                                                          
|       | 
|10.55  |  | Amended and Restated Sale and Contribution Agreement, dated as of December 15, 2014, by and between the Company and Green Creek LLC. (Incorporated by reference to Exhibit 10.1 to
the Companys Current Report on Form 8-K filed on December 19, 2014.)                                                                                               
|       | 
|10.56  |  | Indenture, dated as of December 15, 2014, by and between Green Creek LLC and Citibank, N.A., as trustee. (Incorporated by reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K filed on December 19, 2014.)                                                                                                                           
|       | 
|10.57  |  | Green Creek LLC Floating Rate Notes due 2026. (Incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K filed on December 19,
2014.)                                                                                                                                                                                      
|       | 
|10.58  |  | September 1996 Version Master Repurchase Agreement between Goldman Sachs Bank USA and Schuylkill River LLC, together with the related Annex and Master Confirmation thereto, each
dated as of December 15, 2014. (Incorporated by reference to Exhibit 10.4 to the Companys Current Report on Form 8-K filed on December 19, 2014.)                   
|       | 
|10.59  |  | Revolving Credit Agreement, dated as of December 15, 2014, by and between the Company and Schuylkill River LLC. (Incorporated by reference to Exhibit 10.5 to the Companys
Current Report on Form 8-K filed on December 19, 2014.)                                                                                                                    
|       | 
|10.60  |  | Amended and Restated Investment Management Agreement, dated as of December 15, 2014, by and between Green Creek LLC and the Company. (Incorporated by reference to Exhibit 10.6 to
the Companys Current Report on Form 8-K filed on December 19, 2014.)                                                                                               



186



---

##### Table of Contents

|      |  |                                                                                                                                                                                                                                                        
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.61 |  | Collateral Administration Agreement, dated as of December 15, 2014, by and among Green Creek LLC, the Company and Virtus Group, LP. (Incorporated by reference to Exhibit 10.7 to the
Companys Current Report on Form 8-K filed on December 19, 2014.)
|      | 
|21.1* |  | Subsidiaries of the Company.                                                                                                                                                                                                                           
|      | 
|31.1* |  | Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.                                                                                                                                   
|      | 
|31.2* |  | Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.                                                                                                                                   
|      | 
|32.1* |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.                                       



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

c. Financial statement
schedules

No financial statement schedules are filed herewith because (1) such schedules are not required or
(2) the information has been presented in the aforementioned consolidated financial statements.



187



---

##### Table of Contents

SIGNATURES

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

FS INVESTMENT
CORPORATION II



|                     |  |                                                                       
|-------------------- |  | ----------------------------------------------------------------------
|                     |  |                                                                       
|                     | 
|Date: March 18, 2015 |  | /s/    MICHAEL C. FORMAN                                              
|                     |  | Michael C. FormanChief Executive Officer (Principal 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 capacities and on the dates indicated.



|                     |  |                                                                                                             
|-------------------- |  | ------------------------------------------------------------------------------------------------------------
|                     | 
|Date: March 18, 2015 |  | /s/    MICHAEL C. FORMAN
Michael C.
FormanChief Executive Officer and Director (Principal Executive Officer)
|                     | 
|Date: March 18, 2015 |  | /s/    MICHAEL LAWSON
Michael LawsonChief Financial Officer (Principal Financial and Accounting Officer)    
|                     | 
|Date: March 18, 2015 |  | /s/    BARBARA ADAMS
Barbara Adams
Director                                                                 
|                     | 
|Date: March 18, 2015 |  | /s/    DAVID J. ADELMAN
David J. Adelman Director                                                           
|                     | 
|Date: March 18, 2015 |  | /s/    STEPHEN T. BURDUMY
Stephen T. Burdumy Director                                                       
|                     | 
|Date: March 18, 2015 |  | /s/    MICHAEL J. HELLER
Michael J. Heller Director                                                         
|                     | 
|Date: March 18, 2015 |  | /s/    JEREL A. HOPKINS
Jerel A. Hopkins Director                                                           
|                     | 
|Date: March 18, 2015 |  | /s/    ROBERT E. KEITH, JR.
Robert E. Keith, Jr. Director                                                   
|                     | 
|Date: March 18, 2015 |  | /s/    PAUL MENDELSON
Paul Mendelson Director                                                               
|                     | 
|Date: March 18, 2015 |  | /s/    JOHN E. STUART
John E. Stuart Director                                                               
|                     | 
|Date: March 18, 2015 |  | /s/    SCOTT J. TARTE
Scott J. Tarte Director                                                               



188