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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K







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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015

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. Since the registrant closed its public offering it has continued to issue shares pursuant to its distribution reinvestment plan. The most recent price at which the registrant has issued shares pursuant to the
distribution reinvestment plan was $8.30 per share.

There were 323,527,961 shares of the registrants common stock
outstanding as of March 1, 2016.

Documents Incorporated by Reference

Portions of the registrants definitive Proxy Statement relating to the Registrants 2016 Annual Meeting of Stockholders, to be
filed with the 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.









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FS INVESTMENT CORPORATION II

FORM 10-K FOR THE FISCAL YEAR

ENDED DECEMBER 31, 2015

TABLE OF CONTENTS



|         |  |                                                                                                              |  |      |     | 
|-------- |  | ------------------------------------------------------------------------------------------------------------ |  | ---- | --- | 
|         |  |                                                                                                              |  | Page |    
|PART I   |  |                                                                                                              |  |      |     | 
|ITEM 1.  |  | BUSINESS                                                                                                     |  |      | 1   | 
|ITEM 1A. |  | RISK FACTORS                                                                                                 |  |      | 27  | 
|ITEM 1B. |  | UNRESOLVED STAFF COMMENTS                                                                                    |  |      | 56  | 
|ITEM 2.  |  | PROPERTIES                                                                                                   |  |      | 56  | 
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                                            |  |      | 56  | 
|ITEM 4.  |  | MINE SAFETY DISCLOSURES                                                                                      |  |      | 56  | 
|         |  |                                                                                                             
|PART II  |  |                                                                                                              |  |      |     | 
|ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  |      | 57  | 
|ITEM 6.  |  | SELECTED FINANCIAL DATA                                                                                      |  |      | 60  | 
|ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS                        |  |      | 62  | 
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |  |      | 108 | 
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  |  |      | 109 | 
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE                         |  |      | 190 | 
|ITEM 9A. |  | CONTROLS AND PROCEDURES                                                                                      |  |      | 190 | 
|ITEM 9B. |  | OTHER INFORMATION                                                                                            |  |      | 191 | 
|         |  |                                                                                                             
|PART III |  |                                                                                                              |  |      |     | 
|ITEM 10. |  | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                       |  |      | 192 | 
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                                       |  |      | 192 | 
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS               |  |      | 192 | 
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                    |  |      | 192 | 
|ITEM 14. |  | PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                       |  |      | 192 | 
|         |  |                                                                                                             
|PART IV  |  |                                                                                                              |  |      |     | 
|ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                                      |  |      | 193 | 
|         |  | SIGNATURES                                                                                                   |  |      | 199 | 



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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, 2015, we
had total assets of approximately $4.8 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 wholly owned subsidiary of GSO Capital Partners LP, or GSO. GSO is 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 $79.1 billion in assets under management as of December 31,
2015.

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 middle market U.S. 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



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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 or otherwise acquire minority interests in
target companies, in the form of common or preferred equity or 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. Any
such minority interests are generally acquired 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, collateralized loan obligations, or CLOs, 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, 2015, we made investments in portfolio companies totaling
$1,904,545. During the same period, we sold investments for proceeds of $872,333 and received principal repayments of $590,278. As of December 31, 2015, our investment portfolio, with a total fair value of $4,532,875 (62% in first lien senior
secured loans, 20% in second lien senior secured loans, 4% in senior secured bonds, 7% in subordinated debt, 2% in collateralized securities and 5% in equity/other), consisted of interests in 165 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 $168.7 million. As of December 31, 2015, the debt investments in our portfolio were
purchased at a weighted average price of 98.0% of par, and our estimated gross portfolio yield (which represents the expected annualized yield to be generated by us on our 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. For the year ended December 31, 2015, our total return was (1.94)%.

Based on our regular monthly cash distribution amount of $0.06283 per share as of December 31, 2015 and 2014 and our final public offering price of $10.60 per share, the annualized distribution rate
to stockholders as of December 31, 2015 and 2014 was 7.11%. Based on our regular monthly cash distribution amount of $0.06283 per share as of December 31, 2015 and 2014 and our distribution reinvestment price of $8.90 as of
December 31, 2015 and $9.50 as of December 31, 2014, the annualized distribution rate to stockholders as of December 31, 2015 and 2014 was 8.47% and 7.94%, respectively. The annualized distribution rate to stockholders, in each case,
is expressed as a percentage equal to the projected annualized distribution amount per share (which is calculated by annualizing the regular monthly cash distribution per share as of the dates indicated above without compounding), divided by our
final public offering price per share or our distribution reinvestment price, as applicable as of the dates indicated above.

Our estimated gross portfolio yield may be higher than a stockholders yield on an investment in shares of our common stock. Our
estimated gross portfolio yield does not reflect operating expenses that may be incurred



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by us. In addition, our estimated gross portfolio yield and total return figures disclosed above do not consider the effect of any selling commissions or charges that may have been incurred in
connection with the sale of shares of our common stock. Our estimated gross portfolio yield, total return and annualized distribution rate to stockholders do not represent actual investment returns 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. See footnote 4 to the table included in Item 6.
Selected Financial Data for information regarding the calculation of our total return.

As a BDC, we are subject to
certain regulatory restrictions in making our investments. For example, BDCs generally are not permitted to co-invest with certain affiliated entities in transactions originated by the BDC or its affiliates in the absence of an exemptive order from
the U.S. Securities and Exchange Commission, or the SEC. However, BDCs are permitted to, and may, simultaneously co-invest in 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, FS Investment Corporation IV 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 are 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, 2015, 2014
and 2013, we repurchased 4,081,651, 1,735,154, and 259,669 shares at an average price per share of $9.318, $9.604 and $9.424, respectively, for aggregate consideration totaling $38,034, $16,665 and $2,447, respectively. On January 4, 2016, we
repurchased 1,779,357 shares at $8.550 per share for aggregate consideration totaling $15,214.

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



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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.

Under our 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 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 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, 2015, 2014 and 2013:



|                                |  |              |        |  |        |   |         | 
|------------------------------- |  | ------------ | ------ |  | ------ | - | ------- | 
|                                |  | Distribution |       
|For the Year Ended December 31, |  | Per Share    |        |  | Amount |  
|2013                            |  | $            | 0.7622 |  |        | $ | 114,307 | 
|2014                            |  |              | 0.7395 |  |        |   | 223,554 | 
|2015                            |  |              | 0.7540 |  |        |   | 239,145 | 

On November 12, 2015 and March 23, 2016, our board of directors declared regular monthly cash
distributions for January 2016 through March 2016 and April 2016 through June 2016, 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 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, FSIC III Advisor, LLC and FSIC IV Advisor, LLC. FB Income Advisor, LLC, FS Investment Advisor, LLC, FSIC III Advisor, LLC and FSIC IV Advisor, LLC are registered
investment advisers that manage Franklin Square Holdings four other affiliated BDCs, FS Investment Corporation, FS Energy and Power Fund, FS Investment Corporation III and FS Investment Corporation IV, 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.



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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. |  | $              | 4,149,663 | 
|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.          |  | $              | 3,499,419 | 
|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. |  | $              | 3,058,486 | 
|FS Investment Corporation IV(2)        |  | BDC                                   |  | Primarily invests in senior secured loans, second lien secured loans and, to a lesser extent, subordinated loans of private U.S. companies. |  | $              | 200       | 
|FS Global Credit Opportunities Fund(3) |  | Closed-endmanagementinvestmentcompany |  | Primarily invests in secured and unsecured floating and fixed rate loans, bonds and other types of credit instruments.                      |  | $              | 1,303,793 | 



|(1) | As of December 31, 2015.
|--- | ------------------------

|(2) | FS Investment Corporation IV commenced investment operations on January 6, 2016 upon meeting its minimum offering requirement of raising gross proceeds of at least
$1.0 million in its continuous public offering from persons who were not affiliated with FS Investment Corporation IV or its investment adviser, FSIC IV Advisor, LLC.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | 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, FS Investment Corporation III, FSIC IV Advisor, LLC and FS Investment Corporation IV 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.



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All investment decisions require the unanimous approval of FSIC II Advisors investment
committee, which is currently comprised of Mr. Forman, Gerald F. Stahlecker, Zachary Klehr and Sean Coleman. Our board of directors, including a majority of independent directors, oversees and monitors our investment performance and, annually
reviews our investment advisory and administrative services agreement, by and between us and FSIC II Advisor, dated as of February 8, 2012, or the investment advisory and administrative services agreement, and the investment sub-advisory
agreement that FSIC II Advisor has entered into with GDFM to determine, among other things, whether the fees payable under such agreements are reasonable in light of the services provided.

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, FS
Investment Corporation III and FS Investment Corporation IV. 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, 2015, GSO and its affiliates, excluding Blackstone, managed approximately $79.1 billion of assets across multiple strategies and investment types
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 $336.4 billion as of December 31, 2015. 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 is 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 often 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.



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Senior secured debt also provides strong defensive characteristics. Because this debt has
priority in payment among an issuers security holders (i.e., holders are due to receive payment before junior 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 junior creditors, such as most types of
unsecured bondholders, and other security holders and preserving collateral to protect against credit deterioration.

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 2012 economic census, there were approximately 42,600 middle market companies in the United States with annual revenues between $50 million and
$2.5 billion, compared with approximately 1,350 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



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companies represented 7% of overall middle market loan volume in 2015, up slightly from 4% in 2014 and down from 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 may serve to further reduce the role banks play in providing capital to middle market
companies.

In addition, regulatory uncertainty regarding CLOs may limit financing available to middle market companies. Risk
retention and certain limitations placed on some banks ability to hold CLO securities may also inhibit future CLO creation and future lending to middle market companies. CLOs represented 61.2% of the institutional investor base for broadly
syndicated loans in 2015, 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 thus we believe 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 middle market U.S. 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. These securities 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
often 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



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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 Strategies

Our principal focus is to invest in senior secured
and second lien secured loans of private middle market U.S. 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 or otherwise acquire minority interests in target companies, in the form of common or preferred equity or 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. Any such minority interests are generally acquired 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, CLOs, 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.
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| |  |  | Investing in stable companies with positive cash flow. We seek to invest in established, stable companies with strong profitability and cash
flows. Such companies, we believe, are well-positioned to maintain consistent cash flow to service and repay our loans and maintain growth in their businesses or market share. We do not intend to invest 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.
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| |  |  | 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
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| | 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 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 strategies.

Potential Competitive Strengths

We believe that we offer 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. GDFM
also relies on its relationships with private equity sponsors, investment banks and commercial banks to source investment opportunities. 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



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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.

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,
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



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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 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 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 contracted with State Street Bank and Trust Company, or State Street, 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. Prior to April 1, 2015, we had contracted with Vigilant Compliance, LLC to provide the services of Salvatore Faia as our chief compliance
officer.

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 middle market U.S. 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 or otherwise acquire minority interests in target companies, in the form of common or preferred
equity or 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. Any such minority interests are generally acquired 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, CLOs, 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



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experience to structure investments, possibly using all levels of the capital structure, which we believe will perform in a broad range of economic environments.

Typical Leveraged Capital Structure Diagram



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.



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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 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 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 may 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.

Collateralized Loan Obligations

We may invest in CLOs, which are a form of securitization where payments from multiple loans are pooled together. Investors may purchase one or more tranches of a CLO and each tranche typically reflects a
different level of seniority in payment from the CLO.

Other Securities

We may also invest from time to time in derivatives, including total return swaps and credit default swaps. We anticipate that any use of
derivatives would primarily be as a substitute for investing in conventional securities.



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

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, through relationships with investment banks, which may be exclusive to GDFM, 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. GDFM may compensate certain brokers or other financial services firms out of its own profits or revenues for services provided in connection with the
identification of appropriate investment opportunities. With respect to GDFMs origination channel, FSIC II Advisor seeks to leverage the global presence of GSO to generate access to a



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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 teams from FSIC II Advisor and
GDFM conduct a thorough due diligence review of the opportunity to ensure the company fits our investment strategies, 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;
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| |  |  | a detailed analysis of industry dynamics, competitive position, regulatory, tax and legal matters;
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| |  |  | on-site visits, if deemed necessary;
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| |  |  | background checks to further evaluate management and other key personnel;
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| |  |  | a review by legal and accounting professionals, environmental or other industry consultants, if necessary;
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| |  |  | financial sponsor due diligence, including portfolio company and lender reference checks, if necessary; and
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| |  |  | a review of managements experience and track record.
| | - |  | -----------------------------------------------------

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

Execution

Recommendation. 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.



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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 successfulexit, 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. GDFM may rely on brokers or other financial services firms that may help identify potential
investments from time to time for assistance in monitoring those investments.

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, 2015 and 2014:



|                  |  |                   |           |  |                        |  |     |            |  |   |                        |  |  |  |     |  
|----------------- |  | ----------------- | --------- |  | ---------------------- |  | --- | ---------- |  | - | ---------------------- |  |  |  | --- | -
|                  |  | December 31, 2015 |           |  | December 31, 2014      | 
|Investment Rating |  | Fair Value        |           |  | Percentage ofPortfolio |  |     | Fair Value |  |   | Percentage ofPortfolio | 
|1                 |  | $                 | 291,690   |  |                        |  | 6   | %          |  | $ | 284,924                |  |  |  | 7   | %
|2                 |  |                   | 3,301,347 |  |                        |  | 73  | %          |  |   | 3,608,887              |  |  |  | 82  | %
|3                 |  |                   | 798,045   |  |                        |  | 18  | %          |  |   | 485,443                |  |  |  | 11  | %
|4                 |  |                   | 122,185   |  |                        |  | 3   | %          |  |   | 10,528                 |  |  |  | 0   | %
|5                 |  |                   | 19,608    |  |                        |  | 0   | %          |  |   | 6,446                  |  |  |  | 0   | %
|                  |  |                   |           |  |                        |  |     |            |  |   |                        |  |  |  |     |  
|Total             |  | $                 | 4,532,875 |  |                        |  | 100 | %          |  | $ | 4,396,228              |  |  |  | 100 | %
|                  |  |                   |           |  |                        |  |     |            |  |   |                        |  |  |  |     |  



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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 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 services, 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 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, 2015.



|                                  |  |                           |  |                   |  |                   |         |  |                 |   |         |              |  |                  
|--------------------------------- |  | ------------------------- |  | ----------------- |  | ----------------- | ------- |  | --------------- | - | ------- | ------------ |  | -----------------
|Arrangement                       |  | Type of Arrangement       |  | Rate              |  | AmountOutstanding |         |  | AmountAvailable |   |         | MaturityDate
|JPM Facility                      |  | Repurchase Agreement      |  | 3.25%             |  | $                 | 550,000 |  |                 | $ |        |              |  | May 20, 2017     
|Goldman Facility                  |  | Repurchase Agreement      |  | L+2.50%           |  | $                 | 400,000 |  |                 | $ |        |              |  | December 15, 2018
|Cooper River Credit Facility      |  | Revolving Credit Facility |  | L+2.25%           |  | $                 | 191,494 |  |                 | $ | 8,506   |              |  | May 29, 2020     
|Wissahickon Creek Credit Facility |  | Revolving Credit Facility |  | L+1.50%to L+2.50% |  | $                 | 240,146 |  |                 | $ | 9,854   |              |  | February 19, 2019
|Darby Creek Credit Facility       |  | Revolving Credit Facility |  | L+2.50%           |  | $                 | 250,000 |  |                 | $ |        |              |  | February 20, 2018
|Dunning Creek Credit Facility     |  | Revolving Credit Facility |  | L+1.45%           |  | $                 | 114,200 |  |                 | $ | 135,800 |              |  | May 14, 2016     
|Juniata River Credit Facility     |  | Term Loan Credit Facility |  | L+2.50%           |  | $                 | 300,000 |  |                 | $ |        |              |  | November 14, 2019

Our average borrowings and weighted average interest rate, including the effect of non-usage fees, for
the year ended December 31, 2015 were $1,989,137 and 2.94%, respectively. As of December 31, 2015, our weighted average effective interest rate on borrowings, including the effect of non-usage fees, was 2.90%.



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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 FactorsRisks Related to Business Development Companies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. 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, BDCs generally are not permitted to
co-invest with certain affiliated entities in transactions originated by the BDC or its affiliates in the absence of an exemptive order from the SEC. However, BDCs are permitted to, and may, simultaneously co-invest in 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. Under the terms of this relief, a required majority (as defined in Section 57(o) of the 1940 Act) of our independent directors must make certain conclusions in connection with a co-investment transaction,
including that (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned
and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objectives and strategies. We believe this relief has and may continue to enhance our ability to further our investment
objectives and strategies. 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 are 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 Companys total assets. The principal categories of qualifying assets relevant to our business are any of the following:



| | 1. | Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited
exceptions) is an eligible portfolio company, or
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | 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.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------



| | 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.



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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 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 each codes requirements. 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.



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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.

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 promulgated under 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
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | pursuant to Rule 13a-15 promulgated under 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 to be subject to tax 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 ordinary income or capital gains
that we timely distribute each tax year as distributions to our stockholders. To qualify for and maintain our RIC tax status, 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 tax year, distributions generally of an amount at least equal to 90% of our investment company taxable income, which is generally the sum
of our net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses, determined without regard to any deduction for distributions paid, 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 or capital gains we distribute (or are deemed to distribute) as distributions 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) as distributions to our stockholders.

As a RIC, we will be subject to a 4% nondeductible federal excise tax on certain undistributed income unless we make distributions in a timely manner to our stockholders generally of 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 gain net income, which is the excess of 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 (as adjusted for certain ordinary losses) and (3) any net ordinary income and capital gain net
income 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. Any distribution declared by us during 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 paid by us, as well as received by our U.S. stockholders, on
December 31 of the calendar year in which the distribution was declared. We generally will endeavor in each tax year to avoid any material U.S. federal excise tax on our earnings.

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



| |  |  | continue to qualify as a 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 other securities, or the 90% Income Test; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | 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 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 tax 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 tax year, instead of upon disposition, as an election not to do so would limit our ability to deduct interest expense for tax purposes.

We invest a portion of our net assets in below investment grade instruments. Investments in these types of instruments 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 instruments, how payments received on obligations in default should be allocated between principal and income and whether exchanges of debt instruments in a bankruptcy or workout context are taxable. We will address these and other issues
to the extent necessary in order to seek to ensure that we distribute sufficient income to avoid any material U.S. federal income or excise tax.

Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the tax year of the accrual, we may be required to make a distribution to our
stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount. As a result, we may have difficulty meeting the Annual Distribution Requirement necessary to qualify for and
maintain RIC tax treatment under Subchapter M of the Code. We may have to sell or otherwise dispose of 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 or otherwise dispose of 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 sell or otherwise dispose of assets to meet the Annual Distribution Requirement 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 sell or otherwise 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.



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A portfolio company in which we invest may face financial difficulties that require us to
work-out, modify or otherwise restructure our investment in the portfolio company. Any such transaction could, depending upon the specific terms of the transaction, result in unusable capital losses and future non-cash income. Any such transaction
could also result in our receiving assets that give rise to non-qualifying income for purposes of the 90% Income Test or otherwise would not count toward satisfying the Diversification Tests.

Some of the income that we might otherwise earn, such as fees for providing managerial assistance, certain fees earned with respect to
our investments, income recognized in a work-out or restructuring of a portfolio investment, or income recognized from an equity investment in an operating partnership, may not satisfy the 90% Income Test. To manage the risk that such income might
disqualify us as a RIC for failure to satisfy the 90% Income Test, one or more subsidiary entities treated as U.S. corporations for U.S. federal income tax purposes may be employed to earn such income and (if applicable) hold the related asset. Such
subsidiary entities will be required to pay U.S. federal income tax on their earnings, which ultimately will reduce the yield to our stockholders on such fees and income.

Employees

We do not currently have any employees. Each of our executive
officers is a principal, officer or employee of FSIC II Advisor, which manages and oversees our investment operations. 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.



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|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 the valuation of our investments and our ability to raise capital.

From time to time,
the global capital markets may experience periods of disruption and instability, which could be prolonged and which could materially and adversely impact the broader financial and credit markets, have a negative impact on the valuations of our
investments 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. More recently, the macroeconomic environment, including concerns regarding the Chinese economy,
declines in commodity prices and increasing volatility, has led to, and may continue to lead to, decreased prices in the broadly syndicated credit market as investors re-price credit risk.

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.

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 2015. Moodys and Fitch Ratings, Inc. 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 to allow the U.S. Treasury Department to issue additional debt. Further downgrades or warnings by S&P or other rating agencies, and the U.S. governments credit and



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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
also raised interest rates during the fourth quarter of 2015. It is unclear what effect, if any, the end of quantitative easing, future interest rate raises, if any, and the pace of any such raises 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
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 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.

A prolonged continuation of depressed oil and natural gas prices could negatively impact the energy and power industry and
energy-related investments within our investment portfolio.

A prolonged continuation of depressed oil and natural gas
prices would adversely affect the credit quality and performance of certain of our debt and equity investments in energy and power and related companies. A decrease in credit quality and performance would, in turn, negatively affect the fair value
of these investments, which would consequently negatively affect our net asset value. Should a prolonged period of depressed oil and natural gas prices occur, the ability of certain of our portfolio companies in the energy and power and related



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industries to satisfy financial or operating covenants imposed by us or other lenders may be adversely affected, which could, in turn, negatively impact their financial condition and their
ability to satisfy their debt service and other obligations. Likewise, should a prolonged period of depressed oil and natural gas prices occur, it is possible that the cash flow and profit generating capacity of these portfolio companies could also
be adversely affected thereby negatively impacting their ability to pay us dividends or distributions on our investments.

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.

Because 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 FSIC II Advisors senior
management team could have a material adverse effect on our ability to achieve our investment objectives. Likewise, the departure of any key employees of GDFM or termination of key industry relationships may impact its ability to render services to
us under the terms of its investment sub-advisory agreement with FSIC II Advisor.

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 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 arrangement 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



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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 generally are not obligated to provide us with investment opportunities, and, therefore, there is no assurance that such relationships will generate investment opportunities for us. GDFM may compensate
certain brokers or other financial services firms out of its own profits or revenues for services provided in connection with the identification of appropriate investment opportunities.

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 middle market private U.S. 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 middle market private U.S. companies is underserved by traditional
commercial banks and other financial sources. A significant increase in the number and/or the size of our competitors in this target market could force us to accept less attractive investment terms. Furthermore, many of our competitors have greater
experience operating under, or are not subject to, the regulatory restrictions that the 1940 Act imposes on us as a 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, 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.

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



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the laws and regulations governing our operations, including with respect to permitted investments, may cause us to alter our investment strategies 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). Recent legislation introduced in the U.S. House of Representatives, if passed, would modify 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%. Even if this legislation does not pass, similar legislation 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.

Future legislation or rules could modify how we treat derivatives and other
financial arrangements for purposes of our compliance with the leverage limitations of the 1940 Act.

Future
legislation or rules may modify how we treat derivatives and other financial arrangements for purposes of our compliance with the leverage limitations of the 1940 Act. For example, the SEC proposed a new rule in December 2015 that is designed to
enhance the regulation of the use of derivatives by registered investments companies and business development companies. The proposed rule, if adopted, or any future legislation or rules, may modify how leverage is calculated under the 1940 Act and,
therefore, may increase or decrease the amount of leverage currently available to us under the 1940 Act, which may be materially adverse to us and our stockholders.

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

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 Exchange Act,



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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 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.

If we, our affiliates and our and their respective third-party service providers are
unable to maintain the availability of electronic data systems and safeguard the security of data, our ability to conduct business may be compromised, which could impair our liquidity, disrupt our business, damage our reputation or otherwise
adversely affect our business.

Cybersecurity refers to the combination of technologies, processes, and procedures
established to protect information technology systems and data from unauthorized access, attack, or damage. We, our affiliates and our and their respective third-party service providers are subject to cybersecurity risks. Cybersecurity risks have
significantly increased in recent years and, while we have not experienced any material losses relating to cyber attacks or other information security breaches, we could suffer such losses in the future. Our affiliates and our and their respective
third-party service providers computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code and other events that could have a security impact. If one or more of such events occur,
this potentially could jeopardize confidential and other information, including nonpublic personal information and sensitive business data, processed and stored in, and transmitted through, computer systems and networks, or otherwise cause
interruptions or malfunctions in our operations or the operations of our affiliates and our and their respective third-party service providers. This could result in significant losses, reputational damage, litigation, regulatory fines or penalties,
or otherwise adversely affect our business, financial condition or results of operations. Privacy and information security laws and regulation changes, and compliance with those changes, may result in cost increases due to system changes and the
development of new administrative processes. In addition, we may be required to expend significant additional resources to modify our protective measures and to investigate and remediate vulnerabilities or other exposures arising from operational
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Risks Related to FSIC II Advisor, GDFM and their respective Affiliates

FSIC II Advisor, GDFM and their affiliates, including our officers and some of our directors, face conflicts of interest as a result of 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 may be incentivized 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 base 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 of leverage or the issuance of additional equity to make additional investments and increase the average value of our 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 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
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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 vehicles managed by the same
personnel. For example, the officers, managers and other personnel of FSIC II Advisor also serve in similar capacities for the investment advisers to Franklin Square Holdings four other affiliated BDCs, FS Investment Corporation, FS Energy and
Power Fund and FS Investment Corporation III, FS Investment Corporation IV 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 strategies. 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 four 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 vehicles, 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.

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 are 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.



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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 tax treatment, we must make distributions
to our stockholders each tax year on a timely basis generally of an amount at least equal to 90% of our investment company taxable income, determined without regard to any deduction for distributions paid, 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% 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



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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 our need to satisfy the Annual Distribution Requirement to qualify for and maintain RIC tax treatment under Subchapter M of
the Code, 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, as a result, could cause us to be subject to corporate level tax on our income and capital gains, regardless of the amount of distributions paid. 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 (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 the 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.



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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. Because 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 interests 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 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. Because 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.



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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 and 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.

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.



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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 in 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.

Our investments in CLOs may be riskier than a direct investment in the debt or other securities of the underlying companies.

When investing in CLOs, we may invest in any level of a CLOs subordination chain, including subordinated (lower-rated) tranches and
residual interests (the lowest tranche). CLOs are typically highly levered and therefore, the junior debt and equity tranches that we may invest in are subject to a higher risk of total loss and deferral or nonpayment of interest than the more
senior tranches to which they are subordinated. In addition, we will generally have the right to receive payments only from the CLOs, and will generally not have direct rights against the underlying borrowers or entities that sponsored the CLOs.
Furthermore, the investments we make in CLOs are at times thinly traded or have only a limited trading market. As a result, investments in such CLOs may be characterized as illiquid securities.

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.



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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 could result in a significant reduction to our net asset value 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 flows 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. In addition, an increase in
interest rates would make it more expensive to use debt for our financing needs, if any.

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, certain of our financing



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arrangements provide for adjustments in the loan interest rate along with changes in market interest 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 interest 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 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



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appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests and any gains that we do realize on the disposition of any
equity interests may not be sufficient to offset any other losses we experience. We 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 often 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.



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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 of 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 ability to be subject to tax as a RIC; 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.



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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 shares of our common
stock and may increase the risk of investing in shares of our common stock.

The use of borrowings and other types of
financing, also known as leverage, magnifies the potential for gain or loss on amounts invested and, therefore, increase the risks associated with investing in our common stock. When we use leverage to partially finance our investments, through
borrowing from banks and other lenders or issuing debt securities, we, and therefore our stockholders, will experience increased risks of investing in our common stock. Any lenders and debt holders would have fixed dollar claims on our assets that
are senior to the claims of our stockholders. 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 interest payable on our indebtedness
would cause our net investment income to increase more than it would without leverage, while any decrease in our income would cause net investment 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. Leverage is generally considered a speculative investment technique. In addition, the decision to utilize leverage will increase our assets and, as a result, will increase the
amount of base management fees payable for FSIC II Advisor.

The following table illustrates the effect of leverage on returns
from an investment in our common stock assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual



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returns may be higher or lower than those appearing below. The calculation assumes (i) $4.9 billion in total average assets, (ii) a weighted average cost of funds of 3.09%,
(iii) $2.2 billion in debt outstanding (i.e., assumes that the full $2.2 billion available to us as of December 31, 2015 under our financing arrangements outstanding) and (iv) $2.7 billion in stockholders equity. In order to
compute the Corresponding return to stockholders, the Assumed Return on Our Portfolio (net of expenses) is multiplied by the assumed total assets to obtain an assumed return to us. From this amount, the interest expense is
calculated by multiplying the assumed weighted average cost of funds times the assumed debt outstanding, and the product is subtracted from the assumed return to us in order to determine the return available to stockholders. The return available to
stockholders is then divided by our stockholders equity to determine the Corresponding return to stockholders. Actual interest payments may be different.



|                                                  |  |       |        |    |      |  |        |    |  |  |       |    |  |     |      |   |  |  |       |  
|------------------------------------------------- |  | ----- | ------ | -- | ---- |  | ------ | -- |  |  | ----- | -- |  | --- | ---- | - |  |  | ----- | -
|Assumed Return on Our Portfolio (net of expenses) |  | (10)% |        |    | (5)% |  |        | 0% |  |  | 5%    |    |  | 10% |     
|Corresponding return to stockholders              |  |       | (20.59 | )% |      |  | (11.55 | )% |  |  | (2.50 | )% |  |     | 6.54 | % |  |  | 15.59 | %

Similarly, assuming (i) $4.9 billion in total average assets, (ii) a weighted average cost of
funds of 3.09% and (iii) $2.2 billion in debt outstanding (i.e., assumes that the full $2.2 billion available to us as of December 31, 2015 under our financing arrangements outstanding), our assets would need to yield an annual return (net
of expenses) of approximately 1.38% in order to cover the annual interest payments on our outstanding debt.

The agreements governing
our debt financing arrangements contain, and agreements governing future debt financing arrangements may contain, various covenants which, if not complied with, could 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 special purpose financing
subsidiaries debt financing arrangements contain, and agreements governing future debt financing arrangements may contain, 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. In the event of deterioration in the capital
markets and pricing levels subsequent to this period, net unrealized depreciation in our and our subsidiaries portfolios may increase in the future and could result in non-compliance with certain covenants, or our taking actions which could
disrupt our business and impact our 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, or 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, or the Goldman facility.



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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.

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



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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.

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

As of December 31, 2015, 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, 2015 was approximately $1,150.6 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, 2015, the fair value of assets held by Cobbs Creek was approximately $345.8 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.



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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, 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



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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 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.



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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.

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:



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(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. 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. Furthermore, we are permitted to issue senior securities, including multiple classes of debt and one class
of stock senior to our shares of common stock. If any such senior securities are outstanding, we are prohibited from paying distributions to holders of shares of our common stock unless we meet the applicable asset coverage ratios at the time of
distribution. As a result, we may be limited in our ability to make distributions. See Item 1. Business-Regulation-Senior Securities.



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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.

The tax
treatment and characterization of our distributions may vary significantly from time to time due to the nature of our investments. The ultimate tax characterization of our distributions made during a tax year may not finally be determined until
after the end of that tax year. We may make distributions during a tax year that exceed our investment company taxable income and net capital gains for that tax year. In such a situation, the amount by which our total distributions exceed investment
company taxable income and net capital gains generally would be treated as a return of capital up to the amount of a stockholders tax basis in the shares, with any amounts exceeding such tax basis treated as a gain from the sale or exchange of
such 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. Moreover, we may pay all or a substantial portion of our distributions from
borrowings in anticipation of future cash flow, which could constitute a return of stockholders capital and will lower such stockholders tax basis in our shares, which may result in increased tax liability to stockholders when they sell
such 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 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 are 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



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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.



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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.

In order for us 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 RIC tax treatment will be satisfied if we distribute to our stockholders, for each tax year, dividends of an
amount at least equal to the sum of 90% of our investment company taxable income, which is generally the sum of our ordinary net income and realized net short term capital gains in excess of realized net long term capital losses, 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 90% Income Test 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 Diversification Tests will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our tax year. To
satisfy these requirements, 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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We must satisfy these tests on an ongoing basis in order to maintain RIC tax treatment, and may be required to make distributions to stockholders at times when it would be more advantageous to invest cash
in our existing or other investments, or when we do not have funds readily available for distribution. Compliance with the RIC tax requirements may hinder our ability to operate solely on the basis of maximizing profits and the value of our
stockholders investments. 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.

Some of our investments may be subject to corporate-level income tax.

We may invest in certain debt and equity investments through taxable subsidiaries and the taxable income of these
taxable subsidiaries will be subject to federal and state corporate income taxes. We may invest in certain foreign debt and equity investments which could be subject to foreign taxes (such as income tax, withholding and value added taxes).

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



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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 tax 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 tax 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 tax year of the accrual, we may be required to make a distribution to our
stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount. As a result, we may have difficulty meeting the Annual Distribution Requirement necessary to qualify for and
maintain 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.

Furthermore, we may invest in the equity securities of non-U.S. corporations (or other non-U.S. entities classified as corporations for
U.S. federal income tax purposes) that could be treated under the Code and U.S. Treasury regulations as passive foreign investment companies and/or controlled foreign corporations. The rules relating to investment in these
types of non-U.S. entities are designed to ensure that U.S. taxpayers are either, in effect, taxed currently (or on an accelerated basis with respect to corporate level events) or taxed at increased tax rates at distribution or disposition. In
certain circumstances, these rules also could require us to recognize taxable income or gains where we do not receive a corresponding payment in cash.

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.

Legislative or regulatory tax changes could adversely affect investors.

At any time, the federal income tax laws governing RICs or the administrative interpretations of those laws or regulations may be amended.
Any of those new laws, regulations or interpretations may take effect retroactively and could adversely affect the taxation of us or our stockholders. Therefore, changes in tax laws, regulations or administrative interpretations or any amendments
thereto could diminish the value of an investment in our shares or the value or the resale potential of our investments.



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|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.



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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 1, 2016:



|               |  |                  |             |  |                                      |  |   |                                                      |  |  |             | 
|-------------- |  | ---------------- | ----------- |  | ------------------------------------ |  | - | ---------------------------------------------------- |  |  | ----------- | 
|(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 |  |                                      |  |  |                                                      |  |  | 323,527,961 | 

As of March 1, 2016, we had 69,359 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.

Under our share repurchase program, we intend to offer to repurchase shares of our 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



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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, 2015 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, 2015   |  |                                 | 1,619,728 |  |                             | $ | 9.10 |                                                                              |  |  | 1,619,728                                                                  |  |  |  | (1) | 
|November 1 to November 30, 2015 |  |                                 |          |  |                             |   |     |                                                                              |  |  |                                                                           |  |  |  |    | 
|December 1 to December 31, 2015 |  |                                 |          |  |                             |   |     |                                                                              |  |  |                                                                           |  |  |  |    | 
|                                |  |                                 |           |  |                             |   |      |                                                                              |  |  |                                                                            |  |  |  |     | 
|Total                           |  |                                 | 1,619,728 |  |                             | $ | 9.10 |                                                                              |  |  | 1,619,728                                                                  |  |  |  | (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 4, 2016, we repurchased 1,779,357 shares of common stock (representing 100% of the shares of
the common stock tendered for repurchase) at $8.550 per share for aggregate consideration totaling $15,214.

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 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, 2015, 2014 and 2013:



|                                |  |              |        |  |        |   |         | 
|------------------------------- |  | ------------ | ------ |  | ------ | - | ------- | 
|                                |  | Distribution |       
|For the Year Ended December 31, |  | Per Share    |        |  | Amount |  
|2013                            |  | $            | 0.7622 |  |        | $ | 114,307 | 
|2014                            |  |              | 0.7395 |  |        |   | 223,554 | 
|2015                            |  |              | 0.7540 |  |        |   | 239,145 | 

On November 12, 2015 and March 23, 2016, our board of directors declared regular monthly cash
distributions for January 2016 through March 2016 and April 2016 through June 2016, 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.

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



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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.

Under our distribution reinvestment 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.



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

The following selected consolidated financial data for the years ended December 31, 2015, 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 RSM US 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) |  
|                                                                                     |  |                        
|                                                                                     |  |                        
|                                                                                     |  | 2015                    |           |    | 2014                                                      |   |           | 2013 |  |   | 2012      |   | 
|Statements of operations data:                                                       |  |                         |           |    |                                                           |   |           |      |  |   |           |   |  |   |         |   |  |   |       |  
|Investment income                                                                    |  | $                       | 529,462   |    |                                                           | $ | 398,783   |      |  | $ | 167,693   |   |  | $ | 9,484   |   |  | $ |      |  
|Operating expenses                                                                   |  |                         |           |    |                                                           |   |           |      |  |   |           |   |  |   |         |   |  |   |       |  
|Total expenses                                                                       |  |                         | 249,065   |    |                                                           |   | 156,107   |      |  |   | 74,978    |   |  |   | 9,157   |   |  |   | 20    |  
|Less: Expense reimbursement from sponsor                                             |  |                         |          |    |                                                           |   |          |      |  |   |          |   |  |   | (2,482  | ) |  |   |      |  
|Add: Expense recoupment to sponsor                                                   |  |                         |          |    |                                                           |   |          |      |  |   | 2,041     |   |  |   |        |   |  |   |      |  
|Less: Management fee waiver                                                          |  |                         | (10,252   | )  |                                                           |   |          |      |  |   |          |   |  |   |        |   |  |   |      |  
|                                                                                     |  |                         |           |    |                                                           |   |           |      |  |   |           |   |  |   |         |   |  |   |       |  
|Net expenses                                                                         |  |                         | 238,813   |    |                                                           |   | 156,107   |      |  |   | 77,019    |   |  |   | 6,675   |   |  |   | 20    |  
|                                                                                     |  |                         |           |    |                                                           |   |           |      |  |   |           |   |  |   |         |   |  |   |       |  
|Net investment income (loss)                                                         |  |                         | 290,649   |    |                                                           |   | 242,676   |      |  |   | 90,674    |   |  |   | 2,809   |   |  |   | (20   | )
|Total net realized and unrealized gain/loss on investments                           |  |                         | (351,632  | )  |                                                           |   | (51,708   | )    |  |   | 40,200    |   |  |   | 17,596  |   |  |   |      |  
|                                                                                     |  |                         |           |    |                                                           |   |           |      |  |   |           |   |  |   |         |   |  |   |       |  
|Net increase (decrease) in net assets resulting from operations                      |  | $                       | (60,983   | )  |                                                           | $ | 190,968   |      |  | $ | 130,874   |   |  | $ | 20,405  |   |  | $ | (20   | )
|                                                                                     |  |                         |           |    |                                                           |   |           |      |  |   |           |   |  |   |         |   |  |   |       |  
|Per share data:                                                                      |  |                         |           |    |                                                           |   |           |      |  |   |           |   |  |   |         |   |  |   |       |  
|Net investment income (loss)basic and diluted(2)                                    |  | $                       | 0.92      |    |                                                           | $ | 0.80      |      |  | $ | 0.62      |   |  | $ | 0.12    |   |  | $ | (0.90 | )
|                                                                                     |  |                         |           |    |                                                           |   |           |      |  |   |           |   |  |   |         |   |  |   |       |  
|Net increase (decrease) in net assets resulting from operationsbasic and diluted(2) |  | $                       | (0.19     | )  |                                                           | $ | 0.63      |      |  | $ | 0.89      |   |  | $ | 0.85    |   |  | $ | (0.90 | )
|                                                                                     |  |                         |           |    |                                                           |   |           |      |  |   |           |   |  |   |         |   |  |   |       |  
|Distributions declared(3)                                                            |  | $                       | 0.75      |    |                                                           | $ | 0.74      |      |  | $ | 0.76      |   |  | $ | 0.39    |   |  | $ |      |  
|                                                                                     |  |                         |           |    |                                                           |   |           |      |  |   |           |   |  |   |         |   |  |   |       |  
|Balance sheet data:                                                                  |  |                         |           |    |                                                           |   |           |      |  |   |           |   |  |   |         |   |  |   |       |  
|Total assets                                                                         |  | $                       | 4,809,872 |    |                                                           | $ | 4,726,571 |      |  | $ | 3,321,967 |   |  | $ | 709,325 |   |  | $ | 200   |  
|                                                                                     |  |                         |           |    |                                                           |   |           |      |  |   |           |   |  |   |         |   |  |   |       |  
|Credit facilities and repurchase agreements payable                                  |  | $                       | 2,045,840 |    |                                                           | $ | 1,641,194 |      |  | $ | 720,494   |   |  | $ | 117,500 |   |  | $ |      |  
|                                                                                     |  |                         |           |    |                                                           |   |           |      |  |   |           |   |  |   |         |   |  |   |       |  
|Total net assets                                                                     |  | $                       | 2,690,412 |    |                                                           | $ | 2,911,790 |      |  | $ | 2,390,985 |   |  | $ | 527,727 |   |  | $ | 200   |  
|                                                                                     |  |                         |           |    |                                                           |   |           |      |  |   |           |   |  |   |         |   |  |   |       |  
|Other data:                                                                          |  |                         |           |    |                                                           |   |           |      |  |   |           |   |  |   |         |   |  |   |       |  
|Total return(4)                                                                      |  |                         | (1.94     | )% |                                                           |   | 6.92      | %    |  |   | 10.81     | % |  |   | 6.11    | % |  |   |      |  
|Number of portfolio company investments at period end                                |  |                         | 165       |    |                                                           |   | 200       |      |  |   | 179       |   |  |   | 88      |   |  |   |      |  
|Total portfolio investments for the period                                           |  | $                       | 1,904,545 |    |                                                           | $ | 3,382,134 |      |  | $ | 2,838,032 |   |  | $ | 681,503 |   |  | $ |      |  
|Proceeds from sales and prepayments of investments                                   |  | $                       | 1,462,611 |    |                                                           | $ | 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.
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|(2) | The per share data was derived by using the weighted average shares outstanding during the years ended December 31, 2015, 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.
|--- | -----------------------------------------------------------------------------------------------------------------------------



|(4) | The total return for each period presented was calculated by taking the net asset value per share as of the end of the applicable period, adding the cash distributions
per share that were declared during the applicable period and dividing the total by the net asset value per share at the beginning of the period. The total return does not consider the effect of any selling commissions or charges that may have been
incurred in connection with the sale of shares 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 rates 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 do not represent an actual return to stockholders.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|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. In this report, we, us, our and the Company refer to FS Investment Corporation II.

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, FSIC IV Advisor, LLC, FS Investment Corporation IV, FS Global Advisor, LLC, FS Global Credit Opportunities Fund, FS Global Credit Opportunities FundA, FS Global
Credit Opportunities FundD, 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 Wall Street Reform and Consumer Protection Act, as amended, 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
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



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

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 of 1933, as
amended, 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 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. 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, including its industry relationships, to directly source investment
opportunities. Such investments are originated or structured 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 generally 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.



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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
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 middle market U.S. 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 or otherwise acquire minority interests in target companies, in the form of common or preferred equity or 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. Any such minority interests are generally acquired 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, CLOs, 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.



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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.

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 non-recurring 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 arrangements and other indebtedness, 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.



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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, 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.

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 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;
| | - |  | -------------------------------



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| |  |  | 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;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | 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; 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 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 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, 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)



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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 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 U.S. generally accepted accounting principles, or 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, 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, 2015 and 2014, 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, 2015 and 2014

During the year ended December 31, 2015, we made investments in portfolio companies totaling $1,904,545. During the
same period, we sold investments for proceeds of $872,333 and received principal repayments of $590,278. As of December 31, 2015, our investment portfolio, with a total fair value of $4,532,875 (62% in first lien senior secured loans, 20% in
second lien senior secured loans, 4% in senior secured bonds, 7% in subordinated debt, 2% in collateralized securities and 5% in equity/other), consisted of interests in 165 portfolio companies. The portfolio companies that comprised our portfolio
as of such date had an average annual EBITDA of approximately $168.7 million. As of December 31, 2015, the debt investments in our portfolio were purchased at a weighted average price of 98.0% of par and our estimated gross portfolio yield,
prior to leverage, was 9.6% based upon the amortized cost of our investments.

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



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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 debt investments in our portfolio were purchased at a weighted average price of 97.8% of par and our estimated gross portfolio yield, prior to leverage, was
9.6% based upon the amortized cost of our investments.

Based on our regular monthly cash distribution amount of $0.06283 per
share as of December 31, 2015 and 2014 and our final public offering price of $10.60 per share, the annualized distribution rate to stockholders as of December 31, 2015 and 2014 was 7.11%. Based on our regular monthly cash distribution
amount of $0.06283 per share as of December 31, 2015 and 2014 and our distribution reinvestment price of $8.90 as of December 31, 2015 and $9.50 as of December 31, 2014, the annualized distribution rate to stockholders as of
December 31, 2015 and 2014 was 8.47% and 7.94%, respectively. The annualized distribution rate to stockholders, in each case, is expressed as a percentage equal to the projected annualized distribution amount per share (which is calculated by
annualizing the regular monthly cash distribution per share as of the dates indicated above without compounding), divided by our final public offering price per share or our distribution reinvestment price, as applicable as of the dates indicated
above.

Our estimated gross portfolio yield may be higher than a stockholders yield on an investment in shares of our
common stock. Our estimated gross portfolio yield does not reflect operating expenses that may be incurred by us. In addition, our estimated gross portfolio yield and total return figures disclosed above do not consider the effect of any selling
commissions or charges that may have been incurred in connection with the sale of shares of our common stock. Our estimated gross portfolio yield, total return and annualized distribution rate to stockholders do not represent actual investment
returns 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. See footnote 4 to the table included in Item 6. Selected Financial Data for information regarding the calculation of our total return.

Total Portfolio Activity

The following tables present certain selected
information regarding our portfolio investment activity for the years ended December 31, 2015 and 2014:



|                        |  |                    |            |   |                  |   |            |  
|----------------------- |  | ------------------ | ---------- | - | ---------------- | - | ---------- | -
|                        |  | For the Year Ended |           
|Net Investment Activity |  | December 31,2015   |            |   | December 31,2014 |  
|Purchases               |  | $                  | 1,904,545  |   |                  | $ | 3,382,134  |  
|Sales and Redemptions   |  |                    | (1,462,611 | ) |                  |   | (1,625,100 | )
|                        |  |                    |            |   |                  |   |            |  
|Net Portfolio Activity  |  | $                  | 441,934    |   |                  | $ | 1,757,034  |  
|                        |  |                    |            |   |                  |   |            |  



|                                       |  |                    |           |  |                   |  |     |           |  |   |            |  |  |  |     |  
|-------------------------------------- |  | ------------------ | --------- |  | ----------------- |  | --- | --------- |  | - | ---------- |  |  |  | --- | -
|                                       |  | For the Year Ended |          
|                                       |  | December 31, 2015  |           |  | December 31, 2014 | 
|New Investment Activity by Asset Class |  | Purchases          |           |  | Percentage        |  |     | Purchases |  |   | Percentage | 
|Senior Secured LoansFirst Lien        |  | $                  | 1,201,795 |  |                   |  | 63  | %         |  | $ | 1,937,477  |  |  |  | 57  | %
|Senior Secured LoansSecond Lien       |  |                    | 321,670   |  |                   |  | 17  | %         |  |   | 769,796    |  |  |  | 23  | %
|Senior Secured Bonds                   |  |                    | 103,688   |  |                   |  | 6   | %         |  |   | 189,249    |  |  |  | 6   | %
|Subordinated Debt                      |  |                    | 231,386   |  |                   |  | 12  | %         |  |   | 353,232    |  |  |  | 10  | %
|Collateralized Securities              |  |                    | 239       |  |                   |  | 0   | %         |  |   | 13,226     |  |  |  | 0   | %
|Equity/Other                           |  |                    | 45,767    |  |                   |  | 2   | %         |  |   | 119,154    |  |  |  | 4   | %
|                                       |  |                    |           |  |                   |  |     |           |  |   |            |  |  |  |     |  
|Total                                  |  | $                  | 1,904,545 |  |                   |  | 100 | %         |  | $ | 3,382,134  |  |  |  | 100 | %
|                                       |  |                    |           |  |                   |  |     |           |  |   |            |  |  |  |     |  



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The following table summarizes the composition of our investment portfolio at cost and fair
value as of December 31, 2015 and 2014:



|                                 |  |                   |           |  |                   |   |           |                        |  |  |                  |   |  |            |           |  |                        |   |           |  |  |  |     |  
|-------------------------------- |  | ----------------- | --------- |  | ----------------- | - | --------- | ---------------------- |  |  | ---------------- | - |  | ---------- | --------- |  | ---------------------- | - | --------- |  |  |  | --- | -
|                                 |  | December 31, 2015 |           |  | December 31, 2014 |  
|                                 |  | AmortizedCost(1)  |           |  | Fair Value        |   |           | Percentageof Portfolio |  |  | AmortizedCost(1) |   |  | Fair Value |           |  | Percentageof Portfolio |  
|Senior Secured LoansFirst Lien  |  | $                 | 2,916,090 |  |                   | $ | 2,802,207 |                        |  |  | 62               | % |  | $          | 2,360,706 |  |                        | $ | 2,346,905 |  |  |  | 53  | %
|Senior Secured LoansSecond Lien |  |                   | 1,012,224 |  |                   |   | 902,113   |                        |  |  | 20               | % |  |            | 1,019,318 |  |                        |   | 1,001,313 |  |  |  | 23  | %
|Senior Secured Bonds             |  |                   | 244,558   |  |                   |   | 181,200   |                        |  |  | 4                | % |  |            | 283,454   |  |                        |   | 248,911   |  |  |  | 6   | %
|Subordinated Debt                |  |                   | 411,824   |  |                   |   | 319,019   |                        |  |  | 7                | % |  |            | 431,441   |  |                        |   | 421,683   |  |  |  | 10  | %
|Collateralized Securities        |  |                   | 118,590   |  |                   |   | 113,383   |                        |  |  | 2                | % |  |            | 172,068   |  |                        |   | 184,590   |  |  |  | 4   | %
|Equity/Other                     |  |                   | 174,099   |  |                   |   | 214,953   |                        |  |  | 5                | % |  |            | 142,819   |  |                        |   | 192,826   |  |  |  | 4   | %
|                                 |  |                   |           |  |                   |   |           |                        |  |  |                  |   |  |            |           |  |                        |   |           |  |  |  |     |  
|Total                            |  | $                 | 4,877,385 |  |                   | $ | 4,532,875 |                        |  |  | 100              | % |  | $          | 4,409,806 |  |                        | $ | 4,396,228 |  |  |  | 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, 2015 and 2014:



|                                                                                                        |  |                   |  |                  
|------------------------------------------------------------------------------------------------------- |  | ----------------- |  | -----------------
|                                                                                                        |  | December 31, 2015 |  | December 31, 2014
|Number of Portfolio Companies                                                                           |  | 165               |  | 200              
|% Variable Rate (based on fair value)                                                                   |  | 79.5%             |  | 76.8%            
|% Fixed Rate (based on fair value)                                                                      |  | 15.7%             |  | 18.8%            
|% Income Producing Equity or Other Investments (based on fair value)                                    |  | 0.8%              |  | 0.3%             
|% Non-Income Producing Equity or Other Investments (based on fair value)                                |  | 4.0%              |  | 4.1%             
|Average Annual EBITDA of Portfolio Companies                                                            |  | $168,700          |  | $181,700         
|Weighted Average Purchase Price of Debt Investments (as a % of par)                                     |  | 98.0%             |  | 97.8%            
|% of Investments on Non-Accrual (based on fair value)                                                   |  | 0.0%              |  | 0.1%             
|Gross Portfolio Yield Prior to Leverage (based on amortized cost)                                       |  | 9.6%              |  | 9.6%             
|Gross Portfolio Yield Prior to Leverage (based on amortized cost)Excluding Non-Income Producing Assets |  | 10.0%             |  | 9.9%             



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Direct Originations

The following tables present certain selected information regarding our direct originations for the three months and year ended December 31, 2015:



|                                                   |  |                            |          |   |                    |   |           |  
|-------------------------------------------------- |  | -------------------------- | -------- | - | ------------------ | - | --------- | -
|                                                   |  | For the Three Months Ended |          |   | For the Year Ended |  
|New Direct Originations                            |  | December 31, 2015          |          |   | December 31, 2015  |  
|Total Commitments (including unfunded commitments) |  | $                          | 391,778  |   |                    | $ | 1,639,283 |  
|Exited Investments (including partial paydowns)    |  |                            | (178,755 | ) |                    |   | (603,497  | )
|                                                   |  |                            |          |   |                    |   |           |  
|Net Direct Originations                            |  | $                          | 213,023  |   |                    | $ | 1,035,786 |  
|                                                   |  |                            |          |   |                    |   |           |  



|                                                                       |  |                            |         |  |                    |  |     |                  |  |   |            |  |  |  |     |  
|---------------------------------------------------------------------- |  | -------------------------- | ------- |  | ------------------ |  | --- | ---------------- |  | - | ---------- |  |  |  | --- | -
|                                                                       |  | For the Three Months Ended |         |  | For the Year Ended | 
|                                                                       |  | December 31, 2015          |         |  | December 31, 2015  | 
|New Direct Originations by Asset Class (including
unfundedcommitments) |  | CommitmentAmount           |         |  | Percentage         |  |     | CommitmentAmount |  |   | Percentage | 
|Senior Secured LoansFirst Lien                                        |  | $                          | 284,984 |  |                    |  | 73  | %                |  | $ | 1,139,041  |  |  |  | 69  | %
|Senior Secured LoansSecond Lien                                       |  |                            | 30,061  |  |                    |  | 8   | %                |  |   | 358,897    |  |  |  | 22  | %
|Senior Secured Bonds                                                   |  |                            | 39,799  |  |                    |  | 10  | %                |  |   | 45,112     |  |  |  | 3   | %
|Subordinated Debt                                                      |  |                            | 19,113  |  |                    |  | 5   | %                |  |   | 51,110     |  |  |  | 3   | %
|Collateralized Securities                                              |  |                            |        |  |                    |  |    |                  |  |   |           |  |  |  |    |  
|Equity/Other                                                           |  |                            | 17,821  |  |                    |  | 4   | %                |  |   | 45,123     |  |  |  | 3   | %
|                                                                       |  |                            |         |  |                    |  |     |                  |  |   |            |  |  |  |     |  
|Total                                                                  |  | $                          | 391,778 |  |                    |  | 100 | %                |  | $ | 1,639,283  |  |  |  | 100 | %
|                                                                       |  |                            |         |  |                    |  |     |                  |  |   |            |  |  |  |     |  



|                                                                                                                                                        |  |                            |  |                   
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- |  | ------------------
|                                                                                                                                                        |  | For the Three Months Ended |  | For the Year Ended
|                                                                                                                                                        |  | December 31, 2015          |  | December 31, 2015 
|Average New Direct Origination Commitment Amount                                                                                                        |  | $27,984                    |  | $34,152           
|Weighted Average Maturity for New Direct Originations                                                                                                   |  | 6/29/21                    |  | 12/17/20          
|Gross Portfolio Yield Prior to Leverage (based on amortized cost) of New Direct Originations funded during Period                                       |  | 10.6%                      |  | 10.0%             
|Gross Portfolio Yield Prior to Leverage (based on amortized cost) of New Direct Originations funded during PeriodExcluding
Non-Income Producing Assets |  | 11.1%                      |  | 10.3%             
|Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Exited during Period                                           |  | 9.8%                       |  | 10.8%             

The following table presents certain selected information regarding our direct originations as of
December 31, 2015 and 2014:



|                                                                                                                                      |  |                   |  |                  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | -----------------
|Characteristics of All Direct Originations Held in Portfolio                                                                          |  | December 31, 2015 |  | December 31, 2014
|Number of Portfolio Companies                                                                                                         |  | 69                |  | 44               
|Average Annual EBITDA of Portfolio Companies                                                                                          |  | $70,300           |  | $52,300          
|Average Leverage Through Tranche of Portfolio CompaniesExcluding Equity/Other and Collateralized Securities                          |  | 4.7x              |  | 4.7x             
|% 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%              |  | 9.6%             
|Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct OriginationsExcluding Non-Income
Producing Assets |  | 10.1%             |  | 10.1%            



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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, 2015 and 2014:



|                                  |  |                   |           |  |                         |  |     |            |  |   |                         |  |  |  |     |  
|--------------------------------- |  | ----------------- | --------- |  | ----------------------- |  | --- | ---------- |  | - | ----------------------- |  |  |  | --- | -
|                                  |  | December 31, 2015 |           |  | December 31, 2014       | 
|Portfolio Composition by Strategy |  | Fair Value        |           |  | Percentage 
ofPortfolio |  |     | Fair Value |  |   | Percentage 
ofPortfolio | 
|Direct Originations               |  | $                 | 3,568,330 |  |                         |  | 79  | %          |  | $ | 2,722,339               |  |  |  | 62  | %
|Opportunistic                     |  |                   | 587,065   |  |                         |  | 13  | %          |  |   | 903,455                 |  |  |  | 21  | %
|Broadly Syndicated/Other          |  |                   | 377,480   |  |                         |  | 8   | %          |  |   | 770,434                 |  |  |  | 17  | %
|                                  |  |                   |           |  |                         |  |     |            |  |   |                         |  |  |  |     |  
|Total                             |  | $                 | 4,532,875 |  |                         |  | 100 | %          |  | $ | 4,396,228               |  |  |  | 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, 2015 and 2014:



|                                               |  |                   |           |  |                         |  |     |            |  |   |                         |  |  |  |     |  
|---------------------------------------------- |  | ----------------- | --------- |  | ----------------------- |  | --- | ---------- |  | - | ----------------------- |  |  |  | --- | -
|                                               |  | December 31, 2015 |           |  | December 31, 2014       | 
|Industry Classification                        |  | Fair Value        |           |  | Percentageof 
Portfolio |  |     | Fair Value |  |   | Percentageof 
Portfolio | 
|Automobiles & Components                       |  | $                 | 234,923   |  |                         |  | 5   | %          |  | $ | 177,900                 |  |  |  | 4   | %
|Capital Goods                                  |  |                   | 474,141   |  |                         |  | 11  | %          |  |   | 383,827                 |  |  |  | 9   | %
|Commercial & Professional Services             |  |                   | 335,256   |  |                         |  | 7   | %          |  |   | 274,316                 |  |  |  | 6   | %
|Consumer Durables & Apparel                    |  |                   | 351,431   |  |                         |  | 8   | %          |  |   | 266,710                 |  |  |  | 6   | %
|Consumer Services                              |  |                   | 470,309   |  |                         |  | 10  | %          |  |   | 733,804                 |  |  |  | 17  | %
|Diversified Financials                         |  |                   | 275,053   |  |                         |  | 6   | %          |  |   | 288,250                 |  |  |  | 7   | %
|Energy                                         |  |                   | 624,508   |  |                         |  | 14  | %          |  |   | 601,604                 |  |  |  | 14  | %
|Food & Staples Retailing                       |  |                   | 7,566     |  |                         |  | 0   | %          |  |   | 12,585                  |  |  |  | 0   | %
|Food, Beverage & Tobacco                       |  |                   | 4,310     |  |                         |  | 0   | %          |  |   | 9,365                   |  |  |  | 0   | %
|Health Care Equipment & Services               |  |                   | 98,425    |  |                         |  | 2   | %          |  |   | 80,589                  |  |  |  | 2   | %
|Household & Personal Products                  |  |                   |          |  |                         |  |    |            |  |   | 3,126                   |  |  |  | 0   | %
|Insurance                                      |  |                   | 83,488    |  |                         |  | 2   | %          |  |   | 98,174                  |  |  |  | 2   | %
|Materials                                      |  |                   | 337,665   |  |                         |  | 7   | %          |  |   | 269,531                 |  |  |  | 6   | %
|Media                                          |  |                   | 102,906   |  |                         |  | 2   | %          |  |   | 131,353                 |  |  |  | 3   | %
|Pharmaceuticals, Biotechnology & Life Sciences |  |                   | 2,659     |  |                         |  | 0   | %          |  |   | 62,970                  |  |  |  | 1   | %
|Real Estate                                    |  |                   | 1,707     |  |                         |  | 0   | %          |  |   |                        |  |  |  |    |  
|Retailing                                      |  |                   | 113,654   |  |                         |  | 3   | %          |  |   | 112,094                 |  |  |  | 3   | %
|Semiconductors & Semiconductor Equipment       |  |                   | 15,397    |  |                         |  | 0   | %          |  |   |                        |  |  |  |    |  
|Software & Services                            |  |                   | 490,803   |  |                         |  | 11  | %          |  |   | 328,443                 |  |  |  | 8   | %
|Technology Hardware & Equipment                |  |                   | 234,989   |  |                         |  | 5   | %          |  |   | 230,554                 |  |  |  | 5   | %
|Telecommunication Services                     |  |                   | 158,383   |  |                         |  | 4   | %          |  |   | 229,690                 |  |  |  | 5   | %
|Transportation                                 |  |                   | 115,302   |  |                         |  | 3   | %          |  |   | 101,343                 |  |  |  | 2   | %
|                                               |  |                   |           |  |                         |  |     |            |  |   |                         |  |  |  |     |  
|Total                                          |  | $                 | 4,532,875 |  |                         |  | 100 | %          |  | $ | 4,396,228               |  |  |  | 100 | %
|                                               |  |                   |           |  |                         |  |     |            |  |   |                         |  |  |  |     |  

As of December 31, 2015, except for Allen Systems Group, Inc. and JW Aluminum Co., in which we held
senior secured loans and equity/other investments, we were not an affiliated person of any of our portfolio companies, as defined in the 1940 Act. As of December 31, 2015, we did not control any of our portfolio
companies, 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.



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Our investment portfolio may contain loans and other unfunded arrangements that are in the
form of lines of credit, revolving credit facilities, delayed draw credit facilities or other investments, pursuant to which we may be required to provide funding when requested by portfolio companies in accordance with the terms of the underlying
agreements. As of December 31, 2015, we had eighteen senior secured loan investments with aggregate unfunded commitments of $203,409, one senior secured bond investment with an unfunded commitment of $3,638 and two unfunded commitments to
purchase up to $467 and $246, respectively, in shares of preferred stock of Altus Power America Holdings, LLC and common equity of Sunnova Holdings, LLC. As of December 31, 2014, we 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. We maintain sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise.
For additional details regarding our unfunded debt and equity investments, see our audited consolidated schedules of investments as of December 31, 2015 and 2014.

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, 2015 and 2014:



|                  |  |                   |           |  |                         |  |     |            |  |   |                         |  |  |  |     |  
|----------------- |  | ----------------- | --------- |  | ----------------------- |  | --- | ---------- |  | - | ----------------------- |  |  |  | --- | -
|                  |  | December 31, 2015 |           |  | December 31, 2014       | 
|Investment Rating |  | Fair Value        |           |  | Percentage 
ofPortfolio |  |     | Fair Value |  |   | Percentage 
ofPortfolio | 
|1                 |  | $                 | 291,690   |  |                         |  | 6   | %          |  | $ | 284,924                 |  |  |  | 7   | %
|2                 |  |                   | 3,301,347 |  |                         |  | 73  | %          |  |   | 3,608,887               |  |  |  | 82  | %
|3                 |  |                   | 798,045   |  |                         |  | 18  | %          |  |   | 485,443                 |  |  |  | 11  | %
|4                 |  |                   | 122,185   |  |                         |  | 3   | %          |  |   | 10,528                  |  |  |  | 0   | %
|5                 |  |                   | 19,608    |  |                         |  | 0   | %          |  |   | 6,446                   |  |  |  | 0   | %
|                  |  |                   |           |  |                         |  |     |            |  |   |                         |  |  |  |     |  
|Total             |  | $                 | 4,532,875 |  |                         |  | 100 | %          |  | $ | 4,396,228               |  |  |  | 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.



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##### Table of Contents

Results of Operations

Comparison of the Years Ended December 31, 2015 and 2014

Revenues

We generated investment income of $529,462 and $398,783 for the years ended December 31, 2015 and 2014, 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 $501,746 and $375,911 of cash income earned as well as $27,716 and $22,872 in non-cash portions relating to accretion of discount and PIK interest for the years ended December 31, 2015 and 2014, 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.

During the years ended December 31, 2015 and 2014, we generated $471,985 and $337,276, respectively, of interest income, which represented 89.1% and 84.6%, respectively, of total investment income.
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, 2015 and 2014, we generated $50,693 and $60,540,
respectively, of fee income, which represented 9.6% and 15.2%, respectively, of total investment income. Fee income is transaction based, and typically consists of amendment and consent fees, prepayment fees, structuring fees and other non-recurring
fees. As such, fee income is generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees.

During the years ended December 31, 2015 and 2014, we generated $6,784 and $967, respectively, of dividend income, which represented 1.3% and 0.2%, respectively, of total investment income. The
increase in dividend income was due primarily to a one-time dividend paid in respect of one of our investments during the year ended December 31, 2015.

Expenses

Our net operating expenses, together with excise taxes, were
$238,813 and $156,107 for the years ended December 31, 2015 and 2014, respectively. Our operating expenses include base management fees attributed to FSIC II Advisor of $89,182 and $82,325, net of waivers by FSIC II Advisor of base management
fees to which it was otherwise entitled of $10,252 and $0, for the years ended December 31, 2015 and 2014, respectively. Our operating expenses also include administrative services expenses attributed to FSIC II Advisor of $3,917 and $4,607 for
the years ended December 31, 2015 and 2014, respectively.

FSIC II Advisor is eligible to receive incentive fees based on
our performance. During the years ended December 31, 2015 and 2014, we accrued a subordinated incentive fee on income of $72,664 and $33,251, respectively. During the years ended December 31, 2015 and 2014, we did not accrue any capital
gains incentive fees. During the year ended December 31, 2014, we reversed capital gains incentive fees of $9,234 based on the performance of our portfolio. No such 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 $61,747 and $33,496 for the years ended December 31, 2015 and 2014, respectively, in connection with
our financing arrangements. For the years ended December 31, 2015 and 2014, fees and expenses incurred with our fund administrator, which provides various accounting and administrative



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services to us, totaled $1,305 and $1,798, respectively, and fees and expenses incurred with our stock transfer agent totaled $2,015 and $2,749, respectively. Fees for our board of directors were
$1,011 and $939 for the years ended December 31, 2015 and 2014, respectively.

Our other general and administrative
expenses totaled $5,087 and $4,949 for the years ended December 31, 2015 and 2014, respectively, and consisted of the following:



|                                                                |  |                        |       |  |      |   |       | 
|--------------------------------------------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | 
|                                                                |  | Year EndedDecember 31, |      
|                                                                |  | 2015                   |       |  | 2014 |  
|Expenses associated with our independent audit and related fees |  | $                      | 542   |  |      | $ | 572   | 
|Compensation of our chief compliance officer(1)                 |  |                        | 30    |  |      |   | 141   | 
|Legal fees                                                      |  |                        | 744   |  |      |   | 757   | 
|Printing fees                                                   |  |                        | 1,361 |  |      |   | 1,470 | 
|Other                                                           |  |                        | 2,410 |  |      |   | 2,009 | 
|                                                                |  |                        |       |  |      |   |       | 
|Total                                                           |  | $                      | 5,087 |  |      | $ | 4,949 | 
|                                                                |  |                        |       |  |      |   |       | 



|(1) | On April 1, 2015, James F. Volk was appointed as our chief compliance officer. Prior to that date, we had contracted with Vigilant Compliance, LLC to provide the
services of Salvatore Faia as our chief compliance officer. Mr. Volk is employed by Franklin Square Holdings and does not receive any direct compensation from us in this capacity.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During the years ended December 31, 2015 and 2014, we accrued $1,885 and $1,227, respectively, for excise taxes.

During the years ended December 31, 2015 and 2014, the ratio of our net expenses, together with excise taxes, to our average net
assets was 8.24% and 5.43%, respectively. During the years ended December 31, 2015 and 2014, the ratio of our net expenses to average net assets included $61,747 and $33,496, respectively, related to interest expense, $72,664 and $24,017,
respectively, related to accruals and reversals of accruals of incentive fees and $1,885 and $1,227, respectively for excise taxes. Without such expenses, our ratio of net expenses to average net assets would have been 3.54% and 3.38% for the years
ended December 31, 2015 and 2014, 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.

Net Investment Income

Our net investment income totaled $290,649 ($0.92 per share) and $242,676 ($0.80 per share) for the years ended December 31, 2015 and
2014, respectively. The increase in net investment income was primarily due to the growth of our portfolio, as well as the increase in revenues from interest and dividend income during the year ended December 31, 2015, as described above.

Net Realized Gains or Losses

We sold investments and received principal repayments of $872,333 and $590,278, respectively, during the year ended December 31, 2015, from which we realized a net loss of $20,241. During the year
ended December 31, 2015, we also realized net losses of $19,588 and $304, respectively, on our credit default swaps and from settlements on foreign currency. 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 net gains of $2,931. During the year ended December 31, 2014, we realized a net gain of $7,535 on our credit default swaps and realized a net loss of $304 from
settlements on foreign currency.



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

For the year ended December 31, 2015, the net change in unrealized
appreciation (depreciation) on investments totaled $(330,932), 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, 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). The net change in unrealized appreciation (depreciation) on our investments during the year ended December 31, 2015 was primarily driven by a general widening of credit spreads and
decreased valuations of certain of our energy investments.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the years ended December 31, 2015 and 2014, the net increase (decrease) in net assets resulting from operations was $(60,983)
($(0.19) per share) and $190,968 ($0.63 per share), respectively.

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 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



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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                   |       |  | 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 | 
|                                                                |  |                        |       |  |      |   |       | 

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.



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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 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.

Financial Condition, Liquidity and Capital Resources

Overview

As of December 31, 2015, we had $228,781 in cash, which we
held in a custodial account, and $154,160 in borrowings available under our financing arrangements, subject to borrowing base and other limitations. As of December 31, 2015, we had eighteen senior secured loan investments with aggregate
unfunded commitments of $203,409, one senior secured bond investment with an unfunded commitment of $3,638 and two unfunded commitments to purchase up to $467 and $246 in shares of preferred stock of Altus Power America Holdings, LLC and common
equity of Sunnova Holdings, LLC, respectively. We maintain sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise.

We currently generate cash primarily from cash flows from fees, interest and dividends earned from our investments as well as from the
issuance of shares under our distribution reinvestment plan, and 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.



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Prior to investing in securities of portfolio companies, we invest the cash received 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 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.

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 1, 2016, we had issued a total of 331,408,669 shares of common stock and raised total gross proceeds of $3,382,697, 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 under our distribution reinvestment plan during the years ended
December 31, 2015, 2014 and 2013 include reinvested stockholder distributions of $116,784, $129,347 and $52,057, respectively, for which we issued 12,552,400, 13,520,133 and 5,523,072 shares of common stock, respectively. During the period from
January 1, 2016 to March 1, 2016, we issued 3,799,442 shares of common stock pursuant to our distribution reinvestment plan at an average price per share of $8.41 for gross proceeds of $31,963.

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 following table provides information concerning our repurchases of shares of common stock pursuant to
our share repurchase program during the years ended December 31, 2015, 2014 and 2013:



|                           |  |                 |  |                   |           |  |                                                    |  |     |                           |  |   |                                              |  |  |   |        | 
|-------------------------- |  | --------------- |  | ----------------- | --------- |  | -------------------------------------------------- |  | --- | ------------------------- |  | - | -------------------------------------------- |  |  | - | ------ | 
|For the Three Months Ended |  | Repurchase Date |  | SharesRepurchased |           |  | Percentageof Shares Tendered That Were Repurchased |  |     | RepurchasePrice Per Share |  |   | AggregateConsiderationfor Repurchased Shares | 
|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  | 
|Fiscal 2015                |  |                 |  |                   |           |  |                                                    |  |     |                           |  |   |                                              |  |  |   |        | 
|December 31, 2014          |  | January 2, 2015 |  |                   | 578,569   |  |                                                    |  | 100 | %                         |  | $ | 9.500                                        |  |  | $ | 5,496  | 
|March 31, 2015             |  | April 1, 2015   |  |                   | 885,509   |  |                                                    |  | 100 | %                         |  | $ | 9.450                                        |  |  | $ | 8,368  | 
|June 30, 2015              |  | July 1, 2015    |  |                   | 997,845   |  |                                                    |  | 100 | %                         |  | $ | 9.450                                        |  |  | $ | 9,430  | 
|September 30, 2015         |  | October 1, 2015 |  |                   | 1,619,728 |  |                                                    |  | 100 | %                         |  | $ | 9.100                                        |  |  | $ | 14,740 | 



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



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On January 4, 2016, we repurchased 1,779,357 shares of common stock (representing 100%
of the shares of the common stock tendered for repurchase) at $8.550 per share for aggregate consideration totaling $15,214.

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, 2015:



|                                  |  |                           |  |                    |  |                   |         |  |                 |   |         |              |  |                  
|--------------------------------- |  | ------------------------- |  | ------------------ |  | ----------------- | ------- |  | --------------- | - | ------- | ------------ |  | -----------------
|Arrangement                       |  | Type of Arrangement       |  | Rate               |  | AmountOutstanding |         |  | AmountAvailable |   |         | MaturityDate
|JPM Facility                      |  | Repurchase Agreement      |  | 3.25%              |  | $                 | 550,000 |  |                 | $ |        |              |  | May 20, 2017     
|Goldman Facility                  |  | Repurchase Agreement      |  | L+2.50%            |  | $                 | 400,000 |  |                 | $ |        |              |  | December 15, 2018
|Cooper River Credit Facility      |  | Revolving Credit Facility |  | L+2.25%            |  | $                 | 191,494 |  |                 | $ | 8,506   |              |  | May 29, 2020     
|Wissahickon Creek Credit Facility |  | Revolving Credit Facility |  | L+1.50% to L+2.50% |  | $                 | 240,146 |  |                 | $ | 9,854   |              |  | February 19, 2019
|Darby Creek Credit Facility       |  | Revolving Credit Facility |  | L+2.50%            |  | $                 | 250,000 |  |                 | $ |        |              |  | February 20, 2018
|Dunning Creek Credit Facility     |  | Revolving Credit Facility |  | L+1.45%            |  | $                 | 114,200 |  |                 | $ | 135,800 |              |  | May 14, 2016     
|Juniata River Credit Facility     |  | Term Loan Credit Facility |  | L+2.50%            |  | $                 | 300,000 |  |                 | $ |        |              |  | November 14, 2019

Our average borrowings and weighted average interest rate, including the effect of non-usage fees, for
the year ended December 31, 2015 were $1,989,137 and 2.94%, respectively. As of December 31, 2015, our weighted average effective interest rate on borrowings, including the effect of non-usage fees, was 2.90%.

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 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., 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.



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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 is 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, 2015 and 2014, Class A Notes in the aggregate principal amount of $660,000 and $660,000, respectively, had been purchased by Cobbs Creek from Lehigh River and subsequently sold to JPM under the JPM facility for aggregate
proceeds of $550,000 and $550,000, respectively. The carrying amount



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outstanding under the JPM facility approximates its fair value. We funded each purchase of Class A Notes by Cobbs Creek through a capital contribution to Cobbs Creek. As of December 31,
2015 and 2014, Cobbs Creeks liability under the JPM facility was $550,000 and $550,000, respectively, plus $2,085 and $2,085, respectively, 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, 2015 and 2014, the fair value of assets held
by Lehigh River was $1,150,608 and $1,189,438, respectively, which included assets purchased by Lehigh River with proceeds from the issuance of Class A Notes. As of December 31, 2015 and 2014, the fair value of assets held by Cobbs Creek
was $345,813 and $392,225, respectively.

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 amortizes to interest expense over the life of the JPM facility. As of December 31, 2015, $35 of such deferred financing costs had yet to be
amortized to interest expense.

For the years ended December 31, 2015, 2014 and 2013, the components of total interest
expense for the JPM facility were as follows:



|                                         |  |                        |        |  |      |   |        |      |  |   |       | 
|---------------------------------------- |  | ---------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ----- | 
|                                         |  | Year EndedDecember 31, |       
|                                         |  | 2015                   |        |  | 2014 |   |        | 2013 | 
|Direct interest expense                  |  | $                      | 18,123 |  |      | $ | 18,123 |      |  | $ | 9,874 | 
|Amortization of deferred financing costs |  |                        | 39     |  |      |   | 39     |      |  |   | 39    | 
|                                         |  |                        |        |  |      |   |        |      |  |   |       | 
|Total interest expense                   |  | $                      | 18,162 |  |      | $ | 18,162 |      |  | $ | 9,913 | 
|                                         |  |                        |        |  |      |   |        |      |  |   |       | 

For the years ended December 31, 2015, 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, |        
|                                      |  | 2015                   |         |   | 2014 |   |         | 2013 | 
|Cash paid for interest expense(1)     |  | $                      | 18,123  |   |      | $ | 18,123  |      |  | $ | 8,063   |  
|Average borrowings under the facility |  | $                      | 550,000 |   |      | $ | 550,000 |      |  | $ | 299,666 |  
|Effective interest rate on borrowings |  |                        | 3.25    | % |      |   | 3.25    | %    |  |   | 3.25    | %
|Weighted average interest rate        |  |                        | 3.25    | % |      |   | 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



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Sale and Contribution Agreement. 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. As of December 31, 2015 and 2014, Notes in an aggregate principal amount of $689,655
and $130,000, respectively, had been purchased by Schuylkill River from Green Creek and subsequently sold to Goldman under the Goldman facility for aggregate proceeds of $400,000 and $75,400, respectively.

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 interest (referred to as financing fees) accrued at the applicable pricing rate under the Goldman facility. Up
until March 15, 2015, financing fees accrued on the aggregate purchase price paid by Goldman for such Notes. Thereafter, financing fees commenced accruing on $400,000 (even if the aggregate purchase price paid for Notes purchased by Goldman was
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



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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, 2015 and 2014, Notes in an aggregate principal amount of $689,655 and $130,000, respectively, had been purchased by Schuylkill River from Green Creek and subsequently sold to
Goldman under the Goldman facility for aggregate proceeds of $400,000 and $75,400, respectively. 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, 2015 and 2014, Schuylkill Rivers liability under the Goldman facility was $400,000 and $75,400, respectively, plus $1,443 and $89, respectively, 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, 2015 and 2014, the fair value of assets held by Green Creek was $717,247 and $453,678, respectively.

We
incurred costs of $2,167 in connection with obtaining the Goldman facility, which we have recorded as deferred financing costs on our consolidated balance sheets and amortizes to interest expense over the life of the Goldman facility. As of
December 31, 2015, $1,612 of such deferred financing costs had yet to be amortized to interest expense.

For the years
ended December 31, 2015 and 2014, the components of total interest expense for the Goldman facility were as follows:



|                                         |  |                        |        |  |      |   |     | 
|---------------------------------------- |  | ---------------------- | ------ |  | ---- | - | --- | 
|                                         |  | Year EndedDecember 31, |       
|                                         |  | 2015                   |        |  | 2014 |  
|Direct interest expense                  |  | $                      | 9,872  |  |      | $ | 89  | 
|Amortization of deferred financing costs |  |                        | 532    |  |      |   | 23  | 
|                                         |  |                        |        |  |      |   |     | 
|Total interest expense                   |  | $                      | 10,404 |  |      | $ | 112 | 
|                                         |  |                        |        |  |      |   |     | 

For the years ended December 31, 2015 and 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, |        
|                                         |  | 2015                   |         |   | 2014 |  
|Cash paid for interest expense(1)        |  | $                      | 8,518   |   |      | $ |       |  
|Average borrowings under the facility(2) |  | $                      | 313,654 |   |      | $ | 75,400 |  
|Effective interest rate on borrowings    |  |                        | 2.82    | % |      |   | 2.76   | %
|Weighted average interest rate           |  |                        | 3.10    | % |      |   | 2.76   | %



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



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

Amounts outstanding under the Goldman facility are 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 May 29, 2015, our wholly-owned, special-purpose financing subsidiary, Cooper River LLC, or Cooper River, entered into a revolving
credit facility, or the Cooper River facility, which amends and restates that certain credit facility dated as of March 27, 2013, with Citibank, as administrative agent, and the financial institutions and other lenders from time to time party
thereto. The Cooper River facility provides for a five-year credit facility with a three-year reinvestment period, during which Cooper River, subject to Compliance with the terms of the facility, including maintenance of the required borrowing base,
is permitted to borrow, repay and re-borrow advances up to a maximum commitment of $200,000, followed by a two-year amortization period.

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, prior to its amendment and restatement, accrued interest at a rate
equal to three-month LIBOR, plus a spread of (a) 1.75% per annum from closing through March 26, 2015 and (b) 2.00% per annum thereafter. Borrowings under the amended and restated Cooper River facility will accrue interest at
a rate per annum equal to three-month LIBOR (subject to a 0% floor) plus a spread of (i) 2.25% during the reinvestment period, (ii) 2.75% during the first year of the amortization period and (iii) 3.75% thereafter.

Beginning on June 24, 2013 through March 26, 2015, Cooper River was subject to a non-usage fee of 0.50% per annum to the
extent the aggregate principal amount available under the Cooper River facility had not been borrowed. Such non-usage fee did not apply from March 27, 2015 through the date the Cooper River facility was amended and restated. Under the amended
and restated Cooper River facility, Cooper River will pay a commitment fee of 0.75% per annum of the aggregate principal amount available under the Cooper River facility that has not been borrowed. Any amounts borrowed under the Cooper River
facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on May 29, 2020.

As of
December 31, 2015 and 2014, $191,494 and $170,494, respectively, was outstanding under the Cooper River facility. The carrying amount outstanding under the Cooper River facility approximates its fair value. We incurred costs of $3,975 in
connection with obtaining the Cooper River facility (including the original facility and amended and restated facility), which we have recorded as deferred financing costs on our consolidated balance sheets and amortizes to interest expense over the
life of the Cooper River facility. As of December 31, 2015, $2,086 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



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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.

For the years ended December 31, 2015, 2014 and 2013, the components of total interest expense for the Cooper River facility were as
follows:



|                                         |  |                        |       |  |      |   |       |      |  |   |       | 
|---------------------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                         |  | Year EndedDecember 31, |      
|                                         |  | 2015                   |       |  | 2014 |   |       | 2013 | 
|Direct interest expense                  |  | $                      | 4,134 |  |      | $ | 3,424 |      |  | $ | 1,848 | 
|Non-usage fees                           |  |                        | 164   |  |      |   | 150   |      |  |   | 118   | 
|Amortization of deferred financing costs |  |                        | 974   |  |      |   | 518   |      |  |   | 397   | 
|                                         |  |                        |       |  |      |   |       |      |  |   |       | 
|Total interest expense                   |  | $                      | 5,272 |  |      | $ | 4,092 |      |  | $ | 2,363 | 
|                                         |  |                        |       |  |      |   |       |      |  |   |       | 

For the years ended December 31, 2015, 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, |        
|                                                                               |  | 2015                   |         |   | 2014 |   |         | 2013 | 
|Cash paid for interest expense(1)                                              |  | $                      | 4,060   |   |      | $ | 3,582   |      |  | $ | 1,193   |  
|Average borrowings under the facility(2)                                       |  | $                      | 174,535 |   |      | $ | 170,494 |      |  | $ | 118,460 |  
|Effective interest rate on borrowings (including the effect of non-usage fees) |  |                        | 2.46    | % |      |   | 2.07    | %    |  |   | 2.01    | %
|Weighted average interest rate (including the effect of non-usage fees)        |  |                        | 2.43    | % |      |   | 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 were 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



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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 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 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, 2015 and 2014, $240,146 and $185,000, respectively, 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 amortizes to interest expense over the life of the facility. As of December 31, 2015, $2,142 of such deferred financing costs had yet to be amortized to interest expense.

For the years ended December 31, 2015 and 2014, the components of total interest expense for the Wissahickon Creek facility were as
follows:



|                                         |  |                        |       |  |      |   |       | 
|---------------------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | 
|                                         |  | Year EndedDecember 31, |      
|                                         |  | 2015                   |       |  | 2014 |  
|Direct interest expense                  |  | $                      | 5,446 |  |      | $ | 1,798 | 
|Non-usage fees                           |  |                        | 649   |  |      |   | 1,208 | 
|Amortization of deferred financing costs |  |                        | 683   |  |      |   | 585   | 
|                                         |  |                        |       |  |      |   |       | 
|Total interest expense                   |  | $                      | 6,778 |  |      | $ | 3,591 | 
|                                         |  |                        |       |  |      |   |       | 



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For the years ended December 31, 2015 and 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, |        
|                                                                               |  | 2015                   |         |   | 2014 |  
|Cash paid for interest expense(1)                                              |  | $                      | 5,825   |   |      | $ | 1,702   |  
|Average borrowings under the facility(2)                                       |  | $                      | 199,868 |   |      | $ | 117,703 |  
|Effective interest rate on borrowings (including the effect of non-usage fees) |  |                        | 3.00    | % |      |   | 3.03    | %
|Weighted average interest rate (including the effect of non-usage fees)        |  |                        | 3.01    | % |      |   | 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 for the year ended December 31, 2014 were calculated for the period since we commenced borrowings
thereunder to December 31, 2014.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 sell or 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 2.50% per annum. Darby Creek is subject to a non-usage fee of 0.50% 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 (i) 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 and (ii) an administration fee. 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 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



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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, 2015 and 2014, $250,000 and
$249,500, respectively, was outstanding under the Darby Creek facility. The carrying amount outstanding under the Darby Creek facility approximates its fair value. We incurred costs of $3,054 in connection with obtaining the facility, which we have
recorded as deferred financing costs on our consolidated balance sheets and amortizes to interest expense over the life of the facility. As of December 31, 2015, $1,809 of such deferred financing costs had yet to be amortized to interest
expense.

For the years ended December 31, 2015 and 2014, the components of total interest expense for the Darby Creek
facility were as follows:



|                                         |  |                        |       |  |      |   |       | 
|---------------------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | 
|                                         |  | Year EndedDecember 31, |      
|                                         |  | 2015                   |       |  | 2014 |  
|Direct interest expense                  |  | $                      | 7,625 |  |      | $ | 3,574 | 
|Non-usage fees                           |  |                        | 7     |  |      |   | 586   | 
|Amortization of deferred financing costs |  |                        | 789   |  |      |   | 456   | 
|                                         |  |                        |       |  |      |   |       | 
|Total interest expense                   |  | $                      | 8,421 |  |      | $ | 4,616 | 
|                                         |  |                        |       |  |      |   |       | 

For the years ended December 31, 2015 and 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, |        
|                                                                               |  | 2015                   |         |   | 2014 |  
|Cash paid for interest expense(1)                                              |  | $                      | 7,467   |   |      | $ | 2,588   |  
|Average borrowings under the facility(2)                                       |  | $                      | 248,504 |   |      | $ | 178,056 |  
|Effective interest rate on borrowings (including the effect of non-usage fees) |  |                        | 3.04    | % |      |   | 2.98    | %
|Weighted average interest rate (including the effect of non-usage fees)        |  |                        | 3.03    | % |      |   | 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 for the year ended December 31, 2014 were 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. On May 14, 2015, the Dunning Creek
facility was amended to extend the maturity date to May 14, 2016 and to reduce the applicable spread over LIBOR to 1.45% per annum.



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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.

As of December 31, 2015,
pricing under the Dunning Creek facility was 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 1.45% 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, 2016.

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, 2015 and 2014, $114,200 and $230,800, respectively, was outstanding under the Dunning Creek facility. The
carrying amount outstanding under the Dunning Creek facility approximates its fair value. We incurred costs of $1,335 in connection with obtaining and amending the facility, which we have recorded as deferred financing costs on our consolidated
balance sheets and amortizes to interest expense over the life of the facility. As of December 31, 2015, $230 of such deferred financing costs had yet to be amortized to interest expense.

For the years ended December 31, 2015 and 2014, the components of total interest expense for the Dunning Creek facility were as
follows:



|                                         |  |                        |       |  |      |   |       | 
|---------------------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | 
|                                         |  | Year EndedDecember 31, |      
|                                         |  | 2015                   |       |  | 2014 |  
|Direct interest expense                  |  | $                      | 3,889 |  |      | $ | 1,996 | 
|Amortization of deferred financing costs |  |                        | 663   |  |      |   | 442   | 
|                                         |  |                        |       |  |      |   |       | 
|Total interest expense                   |  | $                      | 4,552 |  |      | $ | 2,438 | 
|                                         |  |                        |       |  |      |   |       | 



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For the years ended December 31, 2015 and 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, |        
|                                         |  | 2015                   |         |   | 2014 |  
|Cash paid for interest expense(1)        |  | $                      | 4,174   |   |      | $ | 1,406   |  
|Average borrowings under the facility(2) |  | $                      | 215,753 |   |      | $ | 178,526 |  
|Effective interest rate on borrowings    |  |                        | 1.93    | % |      |   | 1.77    | %
|Weighted average interest rate           |  |                        | 1.78    | % |      |   | 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 for the year ended December 31, 2014 were 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.

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 cash, loans or bonds 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



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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, 2015 and 2014, $300,000 and $180,000, respectively, was outstanding under the Juniata
River facility. The carrying amount outstanding under the Juniata River facility approximates its fair value. We incurred costs of $355 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, 2015, $274 of such deferred financing costs had yet to be amortized to interest expense.

For the years ended December 31, 2015 and 2014, the components of total interest expense for the Juniata River facility were as
follows:



|                                         |  |                        |       |  |      |   |     | 
|---------------------------------------- |  | ---------------------- | ----- |  | ---- | - | --- | 
|                                         |  | Year EndedDecember 31, |      
|                                         |  | 2015                   |       |  | 2014 |  
|Direct interest expense                  |  | $                      | 8,085 |  |      | $ | 477 | 
|Amortization of deferred financing costs |  |                        | 73    |  |      |   | 8   | 
|                                         |  |                        |       |  |      |   |     | 
|Total interest expense                   |  | $                      | 8,158 |  |      | $ | 485 | 
|                                         |  |                        |       |  |      |   |     | 

For the years ended December 31, 2015 and 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, |        
|                                         |  | 2015                   |         |   | 2014 |  
|Cash paid for interest expense(1)        |  | $                      | 6,729   |   |      | $ |        |  
|Average borrowings under the facility(2) |  | $                      | 286,822 |   |      | $ | 139,555 |  
|Effective interest rate on borrowings    |  |                        | 2.82    | % |      |   | 2.73    | %
|Weighted average interest rate           |  |                        | 2.78    | % |      |   | 2.73    | %



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



|(2) | Average borrowings under the Juniata River facility for the year ended December 31, 2014 were 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



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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.

Subsequent Events

On February 23, 2016, we entered into a revolving
credit facility, or the FSIC II revolving credit facility, which provides for borrowings in an initial aggregate amount of up to $95,000. For additional information regarding the FSIC II revolving credit facility, see Note 15 to our
consolidated financial statements included herein.

RIC Status and Distributions

We have elected to be subject to tax 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 deduction for distributions 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 a tax year or the due date of the tax return for such tax year, including extensions, distributions paid up to twelve months 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 tax status each tax year. We are also subject to a 4% nondeductible federal excise taxes
on certain undistributed income unless we make distributions in a timely manner to our stockholders generally of 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 gain net income, which is the excess of 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 capital gain net income for the 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 during 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 paid by us, as
well as received 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 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 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.



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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, 2015, 2014 and 2013:



|                                |  |              |        |  |        |   |         | 
|------------------------------- |  | ------------ | ------ |  | ------ | - | ------- | 
|                                |  | Distribution |       
|For the Year Ended December 31, |  | Per Share    |        |  | Amount |  
|2013                            |  | $            | 0.7622 |  |        | $ | 114,307 | 
|2014                            |  |              | 0.7395 |  |        |   | 223,554 | 
|2015                            |  |              | 0.7540 |  |        |   | 239,145 | 

On November 12, 2015 and March 23, 2016, our board of directors declared regular monthly cash
distributions for January 2016 through March 2016 and April 2016 through June 2016, 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 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.

Under our distribution reinvestment 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, stockholders who elect to participate in our distribution reinvestment
plan will not receive any corresponding cash distributions with which to pay any such applicable taxes. Stockholders 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.

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 reimbursements of certain expenses by Franklin Square Holdings and its affiliates,
including through the waiver of certain investment advisory fees. 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 a stockholder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, 2015, 2014 and 2013 represented a return of capital.



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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. No portion of the distributions paid during the years ended
December 31, 2015, 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 Holdings and its affiliates have no obligation to waive advisory fees or otherwise reimburse expenses in future periods.

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, 2015, 2014 and 2013:



|                                                          |  |                         |         |  |            |  |     |                    |  |   |            |  |  |                    |     |   |            |   |         |  |  |  |     |  
|--------------------------------------------------------- |  | ----------------------- | ------- |  | ---------- |  | --- | ------------------ |  | - | ---------- |  |  | ------------------ | --- | - | ---------- | - | ------- |  |  |  | --- | -
|                                                          |  | Year Ended December 31, |        
|                                                          |  | 2015                    |         |  | 2014       |  |     | 2013               | 
|Source of Distribution                                    |  | DistributionAmount      |         |  | Percentage |  |     | DistributionAmount |  |   | Percentage |  |  | DistributionAmount |     |   | Percentage |  
|Offering proceeds                                         |  | $                       |        |  |            |  |    |                    |  | $ |           |  |  |                    |    |   |            | $ |        |  |  |  |    |  
|Borrowings                                                |  |                         |        |  |            |  |    |                    |  |   |           |  |  |                    |    |   |            |   |        |  |  |  |    |  
|Net investment income (prior to expense reimbursement)(1) |  |                         | 229,252 |  |            |  | 96  | %                  |  |   | 208,059    |  |  |                    | 93  | % |            |   | 104,102 |  |  |  | 91  | %
|Short-term capital gains proceeds from the sale of assets |  |                         |        |  |            |  |    |                    |  |   | 14,999     |  |  |                    | 7   | % |            |   | 10,205  |  |  |  | 9   | %
|Long-term capital gains proceeds from the sale of assets  |  |                         | 9,893   |  |            |  | 4   | %                  |  |   | 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                        |  |                         |        |  |            |  |    |                    |  |   |           |  |  |                    |    |   |            |   |        |  |  |  |    |  
|                                                          |  |                         |         |  |            |  |     |                    |  |   |            |  |  |                    |     |   |            |   |         |  |  |  |     |  
|Total                                                     |  | $                       | 239,145 |  |            |  | 100 | %                  |  | $ | 223,554    |  |  |                    | 100 | % |            | $ | 114,307 |  |  |  | 100 | %
|                                                          |  |                         |         |  |            |  |     |                    |  |   |            |  |  |                    |     |   |            |   |         |  |  |  |     |  



|(1) | During the years ended December 31, 2015, 2014 and 2013, 94.8%, 94.3% and 91.3%, respectively, of our gross investment income was attributable to cash income
earned, 2.7%, 3.0% and 7.6%, respectively, was attributable to non-cash accretion of discount and 2.5%, 2.7% and 1.1%, respectively, was attributable to PIK interest.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our net investment income on a tax basis for the years ended December 31, 2015, 2014 and 2013 was $261,875, $211,511, and $111,686,
respectively. As of December 31, 2015, 2014 and 2013, we had $58,827, $22,272 and $15,495, respectively, of undistributed net investment income and realized gains on a tax basis. Our undistributed net investment income on a tax basis as of
December 31, 2014 was adjusted following the filing of our 2014 tax return in September 2015. The adjustment was primarily due to tax-basis income received by us during the year ended December 31, 2014 on account of certain collateralized
securities and interests in partnerships held in our 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 us subsequent to the filing of our annual report on Form 10-K for the fiscal year ended December 31, 2014.

The difference between our GAAP-basis net investment income and our tax-basis net investment income is primarily due to the reclassification of unamortized original issue discount and prepayment fees
recognized upon prepayment of loans from income for GAAP purposes to realized gains for tax purposes, the reversal of non-deductible excise taxes, the reclassification of realized gains on credit default swaps to income for tax purposes and, with
respect to the years ended December 31, 2014 and 2013, the reversal of the required accrual for GAAP purposes of incentive fees on unrealized gains even though no such incentive fees on unrealized gains were payable by us and, with respect to
the year ended December 31, 2013, the amount by which tax-basis income received by us with respect to collateralized securities and interests in partnerships exceeded its GAAP-basis income and the inclusion of a portion of the periodic net
settlement payments due on our total return swap in tax-basis net investment income.



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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, 2015, 2014 and 2013:



|                                                                            |  |                        |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                            |  | Year EndedDecember 31, |        
|                                                                            |  | 2015                   |         |   | 2014 |   |         | 2013 | 
|GAAP-basis net investment income                                            |  | $                      | 290,649 |   |      | $ | 242,676 |      |  | $ | 90,674  |  
|Reversal of incentive fee accrual on unrealized gains                       |  |                        |        |   |      |   | (9,234  | )    |  |   | 6,164   |  
|Taxable income adjustment on collateralized securities and partnerships     |  |                        |        |   |      |   |        |      |  |   | 7,857   |  
|Reclassification of unamortized original issue discount and prepayment fees |  |                        | (35,727 | ) |      |   | (12,821 | )    |  |   | (3,275  | )
|Reclassification of realized gains on credit default swap                   |  |                        | (19,588 | ) |      |   | 7,535   |      |  |   |        |  
|Reversal of mark-to-market on outstanding credit default swaps              |  |                        | 19,426  |   |      |   | (19,426 | )    |  |   |        |  
|Excise taxes                                                                |  |                        | 1,885   |   |      |   | 1,227   |      |  |   |        |  
|Tax-basis net investment income portion of total return swap payments       |  |                        |        |   |      |   |        |      |  |   | 10,269  |  
|Other miscellaneous differences                                             |  |                        | 5,230   |   |      |   | 1,554   |      |  |   | (3      | )
|                                                                            |  |                        |         |   |      |   |         |      |  |   |         |  
|Tax-basis net investment income                                             |  | $                      | 261,875 |   |      | $ | 211,511 |      |  | $ | 111,686 |  
|                                                                            |  |                        |         |   |      |   |         |      |  |   |         |  

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, 2015, we increased accumulated net realized gains on investments and gain/loss on foreign currency by $53,643 and decreased capital in excess of par value and undistributed
net investment income by $5,127 and $48,516, respectively. 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 undistributed net investment income by $3,099 and $2,491, respectively.

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, 2015 and 2014, the components of accumulated earnings on a
tax basis were as follows:



|                                                                                               |  |              |          |   |      |   |         |  
|---------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | ------- | -
|                                                                                               |  | December 31, |         
|                                                                                               |  | 2015         |          |   | 2014 |  
|Distributable ordinary income (income and short-term capital gains)                            |  | $            | 45,002   |   |      | $ | 12,379  |  
|Distributable realized gains (long-term capital gains)                                         |  |              | 13,825   |   |      |   | 9,893   |  
|Unamortized organization costs                                                                 |  |              | (175     | ) |      |   | (189    | )
|Net unrealized appreciation (depreciation) on investments and gain/loss on foreign currency(1) |  |              | (356,353 | ) |      |   | (24,783 | )
|                                                                                               |  |              |          |   |      |   |         |  
|Total                                                                                          |  | $            | (297,701 | ) |      | $ | (2,700  | )
|                                                                                               |  |              |          |   |      |   |         |  



|(1) | As of December 31, 2015 and 2014 the gross unrealized appreciation on our investments and unrealized gain on foreign currency was $78,871 and $120,784,
respectively. As of December 31, 2015 and 2014, the gross unrealized depreciation on our investments and unrealized loss on foreign currency was $435,224 and $145,567, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The aggregate cost of our investments for U.S. federal income tax purposes totaled $4,889,228 and $4,421,004 as of December 31, 2015
and 2014, respectively. The aggregate net unrealized appreciation (depreciation) on investments and gain/loss on foreign currency on a tax basis was $(356,353) and $(24,783) as of December 31, 2015 and 2014, 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



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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 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 independent third-party valuation services.

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

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



| |  |  | our quarterly fair valuation process begins with FSIC II Advisors management team reviewing and documenting valuations of each portfolio company
or investment, which valuations may be obtained from an independent third-party valuation service, if applicable;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | FSIC II Advisors management team then provides the valuation committee with the preliminary valuations for each portfolio company or investment;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | preliminary valuations are then discussed with the valuation committee;
| | - |  | -----------------------------------------------------------------------



| |  |  | the valuation committee reviews the preliminary valuations and FSIC II Advisors management team, together with our independent third-party
valuation services, if applicable, supplement the preliminary valuations to reflect any comments provided by the valuation committee;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | following its review, the valuation committee will recommend that our board of directors approve our fair valuations; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | our board of directors discusses the valuations and determines the fair value of each such 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 independent third-party valuation services, if applicable.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 any approved 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 approved 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 FSIC II Advisors management team, any approved independent third party valuation services and our board of directors may consider when determining the fair value of our 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 may be considered include the borrowers ability to adequately service its debt, the fair market value of the borrower 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 (i.e., 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 determination 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.

FSIC II Advisors management team, any approved independent third-party valuation services and our board
of directors may also consider 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. FSIC II Advisors management team, any approved independent third-party valuation services and 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 smaller size of portfolio companies relative to comparable firms, as well as such other factors as our board of directors, in
consultation with FSIC II Advisors management team and any approved independent third party valuation services, 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 in 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 their fair value.

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 board of directors
has delegated day-to-day responsibility for implementing our valuation policy to FSIC II Advisors management team, and has authorized FSIC II Advisors management team to utilize independent third-party valuation and



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pricing services that have been approved by our board of directors. The valuation committee is responsible for overseeing FSIC II Advisors implementation of the valuation process.

Our investments as of December 31, 2015 consisted primarily of debt investments that were acquired directly from the
issuer. Fifty-five senior secured loan investments, three senior secured bond investments, eight subordinated debt investments and one collateralized security, for which broker quotes were not available, were valued by independent valuation firms,
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 also valued by independent valuation firms, 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. One equity/other investment,
which was traded on an active public market, was valued at its closing price as of December 31, 2015. Two senior secured loan investments, which were newly-issued and purchased near December 31, 2015, were valued at cost, as our board of
directors determined that the cost of such investments was the best indication of its fair value. Except as described above, we valued our 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, 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, 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 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 each such investment was the best indication of its 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.

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 third-party pricing services or independent dealers, or where our board of directors
otherwise determines that the use of such other methods is appropriate. We periodically benchmark the valuations provided by the independent valuation firms against the actual prices at which we purchase and sell our investments. The valuation
committee and our board of directors reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with our valuation policy.



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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 not accrue as a receivable interest or dividends on loans and securities if we have reason to doubt our ability to collect such income. Our policy is to place investments on non-accrual status when there is reasonable doubt that interest
income will be collected. We consider many factors relevant to an investment when placing it on or removing it from non-accrual status including, but not limited to, the delinquency status of the investment, economic and business conditions, the
overall financial condition of the underlying investment, the value of the underlying collateral, bankruptcy status, if any, and any other facts or circumstances relevant to the investment. If there is reasonable doubt that we will receive any
previously accrued interest, then the interest income will be written-off. Payments received on non-accrual investments may be recognized as income or applied to principal depending upon the collectability of the remaining principal and interest.
Non-accrual investments may be restored to accrual status when principal and interest become current and are likely to remain current based on our judgment.

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 non-recurring 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 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



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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 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%. For purposes of this fee, adjusted capital means cumulative gross proceeds
generated from sales of our common stock (including proceeds from our distribution reinvestment plan) reduced for distributions paid to stockholders from proceeds of non-liquidating dispositions of our investments and amounts paid for share
repurchases pursuant to our share repurchase program. 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.



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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, 2015, 2014 and 2013, 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, GDFM, are reimbursed for administrative expenses incurred on our behalf. FSIC II Advisor agreed, effective March 5, 2015, to permanently waive a portion of the base management fee to which it is entitled under the
investment advisory and administrative services agreement so that the fee received equals 1.75% of the average value of our gross assets. See Related Party TransactionsCompensation of the Investment Adviser and Dealer Manager
for a discussion of this agreement.

For the years ended December 31, 2015, 2014 and 2013, we incurred $89,182, $82,325
and $38,677, respectively, in base management fees and $3,917, $4,607 and $2,732, 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, 2015, 2014 and 2013, we accrued a subordinated incentive fee on income of $72,664, $33,251 and $8,871, respectively, based upon the
performance of our portfolio. During the years ended December 31, 2015, 2014 and 2013, we paid FSIC II Advisor $71,744, $17,917, and $8,871, respectively, in subordinated incentive fees on income. As of December 31, 2015, a subordinated
incentive fee on income of $16,254 was payable to FSIC II Advisor. 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. During the years ended December 31, 2015 and 2014, we did not accrue any capital gains incentive fees based on the performance of our portfolio. During the year ended December 31, 2014, we
reversed $9,234 of capital gains incentive fees previously accrued. We did not pay any capital gains incentive fees to FSIC II Advisor during the year ended December 31, 2015. As of December 31, 2015, we did not have any accrued capital
gains incentive fees based on the performance of our portfolio.

A summary of our significant contractual payment obligations
related to the repayment of our outstanding indebtedness at December 31, 2015 is as follows:



|                                     |  |                        |         |  |                  |   |         |           |  |   |           |  |  |                   |         |  |  |  |   | 
|------------------------------------ |  | ---------------------- | ------- |  | ---------------- | - | ------- | --------- |  | - | --------- |  |  | ----------------- | ------- |  |  |  | - | 
|                                     |  | Payments Due By Period |        
|                                     |  | Total                  |         |  | Less than 1 year |   |         | 1-3 years |  |   | 3-5 years |  |  | More than 5 years |        
|JPM Facility(1)                      |  | $                      | 550,000 |  |                  | $ | 550,000 |           |  |   |          |  |  |                   |        |  |  |  |  | 
|Goldman Facility(2)                  |  | $                      | 400,000 |  |                  | $ | 400,000 |           |  |   |          |  |  |                   |        |  |  |  |  | 
|Cooper River Credit Facility(3)      |  | $                      | 191,494 |  |                  |   |        |           |  |   |          |  |  | $                 | 191,494 |  |  |  |  | 
|Wissahickon Creek Credit Facility(4) |  | $                      | 240,146 |  |                  |   |        |           |  |   |          |  |  | $                 | 240,146 |  |  |  |  | 
|Darby Creek Credit Facility(5)       |  | $                      | 250,000 |  |                  |   |        |           |  | $ | 250,000   |  |  |                   |        |  |  |  |  | 
|Dunning Creek Credit Facility(6)     |  | $                      | 114,200 |  |                  | $ | 114,200 |           |  |   |          |  |  |                   |        |  |  |  |  | 
|Juniata River Credit Facility(7)     |  | $                      | 300,000 |  |                  |   |        |           |  |   |          |  |  | $                 | 300,000 |  |  |  |  | 



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|(1) | At December 31, 2015, 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, 2015, no amounts remained unused under the Goldman facility. Amounts outstanding 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, 2015, $8,506 remained unused under the Cooper River facility. Amounts outstanding under the Cooper River facility will mature, and all accrued and
unpaid interest thereunder will be due and payable, on May 29, 2020.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | At December 31, 2015, $9,854 remained unused under the Wissahickon Creek facility. Amounts outstanding 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, 2015, no amounts remained unused under the Darby Creek facility. Amounts outstanding under the Darby Creek facility will mature, and all accrued
and unpaid interest thereunder will be due and payable, on February 20, 2018.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | At December 31, 2015, $135,800 remained unused under the Dunning Creek facility. Amounts outstanding under the Dunning Creek facility will mature, and all accrued
and unpaid interest thereunder will be due and payable, on May 14, 2016.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | At December 31, 2015, no amounts remained unused under the Juniata River facility. Amounts outstanding under the Juniata River facility will mature, and all
accrued and unpaid interest thereunder will be due and payable, on November 14, 2019.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On February 23,
2016, we entered into the FSIC II revolving credit facility, which provides for borrowings in an initial aggregate amount of up to $95,000. For additional information regarding the FSIC II revolving credit facility, see Note 15 to our consolidated
financial statements included herein.

Off-Balance Sheet Arrangements

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

Recently Issued Accounting Standards

In April 2015, the FASB issued Accounting Standards Update No. 2015-03,InterestImputation of Interest, or ASU 2015-03, to simplify the presentation of debt issuance costs in
the financial statements. Under existing guidance, debt issuance costs are recognized as a deferred charge and presented as an asset on the balance sheet. The amendments to the guidance require that debt issuance costs related to a recognized
liability for indebtedness be presented in the balance sheet as a direct deduction from the carrying amount of that liability, consistent with debt discounts. In August 2015, the FASB issued Accounting Standards Update
No. 2015-15, InterestImputation of Interest, or ASU 2015-15, to update the guidance to include SEC staff views regarding the presentation and subsequent measurement of debt issuance costs related to line-of-credit
arrangements. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC has indicated that it would not object to an entity deferring and presenting debt issuance costs as
an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The recognition and
measurement guidance for debt issuance costs is not affected by the amendments to the guidance. The amendments to the FASB codification guidance are to be applied



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retrospectively with applicable disclosures for a change in accounting principle upon transition. For public entities, the amendments are effective for interim and annual periods beginning after
December 15, 2015. We are currently assessing the impact of this guidance on our consolidated financial statements.

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. Effective March 5, 2015, FSIC II Advisor agreed to permanently waive a portion of its base management fee to which it is entitled under the investment advisory and
administrative services agreement, so that the fee received equals 1.75% of the average value of the Companys gross assets.

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 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 equal to 1.875% per quarter, or an annualized hurdle rate of
7.5%. For purposes of this fee, adjusted capital means cumulative gross proceeds generated from sales of our common stock (including proceeds from our distribution reinvestment plan) reduced for distributions from non-liquidating
dispositions of our investments and amounts paid for share repurchases pursuant to our share repurchase program. 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.

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 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



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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 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 our affiliates and others while engaged in registering and marketing our common stock, 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 shares of our common stock. 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, were 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 selling commissions and dealer
manager fees in connection with the sale of shares of our 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.



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The following table describes the fees and expenses we accrued under
the investment advisory and administrative services agreement and the dealer manager fees FS2received under the dealer manager agreement during the years ended December 31, 2015, 2014 and 2013:



|                |  |                                                           |  |                                         |  |                        |        |  |      |   |        |      |  |   |        | 
|--------------- |  | --------------------------------------------------------- |  | --------------------------------------- |  | ---------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                |  |                                                           |  |                                         |  | Year EndedDecember 31, |       
|Related Party   |  | Source Agreement                                          |  | Description                             |  | 2015                   |        |  | 2014 |   |        | 2013 | 
|FSIC II Advisor |  | Investment Advisory and Administrative Services Agreement |  | Base Management Fee(1)                  |  | $                      | 89,182 |  |      | $ | 82,325 |      |  | $ | 38,677 | 
|FSIC II Advisor |  | Investment Advisory and Administrative Services Agreement |  | Capital Gains Incentive Fee(2)          |  | $                      |       |  |      | $ | (9,234 | )    |  | $ | 6,164  | 
|FSIC II Advisor |  | Investment Advisory and Administrative Services Agreement |  | Subordinated Incentive Fee on
Income(3) |  | $                      | 72,664 |  |      | $ | 33,251 |      |  | $ | 8,871  | 
|FSIC II Advisor |  | Investment Advisory and Administrative Services Agreement |  | Administrative Services Expenses(4)     |  | $                      | 3,917  |  |      | $ | 4,607  |      |  | $ | 2,732  | 
|FSIC II Advisor |  | Investment Advisory and Administrative Services Agreement |  | Offering Costs(5)                       |  | $                      |       |  |      | $ | 1,087  |      |  | $ | 3,316  | 
|FS2             |  | Dealer Manager Agreement                                  |  | Dealer Manager Fee(6)                   |  | $                      |       |  |      | $ | 8,821  |      |  | $ | 35,718 | 



|(1) | FSIC II Advisor agreed, effective March 5, 2015, to permanently waive a portion of its base management fee to which it is entitled under the investment advisory
and administrative services agreement so that the fee received equals 1.75% of the average value of our gross assets. As a result, the amount shown for the year ended December 31, 2015 is net of waivers of $10,252. During the years ended
December 31, 2015, 2014 and 2013, $90,722, $74,269 and $26,131, respectively, in base management fees were paid to FSIC II Advisor. As of December 31, 2015, $21,529 in base management fees were payable to FSIC II Advisor.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | During the year ended December 31, 2015, we did not accrue any capital gains incentive fees based on the performance of our portfolio. During the year ended
December 31, 2014, we reversed $9,234 of capital gains incentive fees previously accrued based on the performance of our portfolio. 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 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, 2015. As of December 31, 2015, we did not have any accrued
capital gains incentive fees based on the performance of our portfolio.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | During the years ended December 31, 2015, 2014 and 2013, $71,744, $17,917 and $8,871, respectively, of subordinated incentive fees on income were paid to FSIC II
Advisor. As of December 31, 2015, a subordinated incentive fee on income of $16,254 was payable to FSIC II advisor.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | During the years ended December 31, 2015, 2014 and 2013, $3,679, $4,173 and $2,216, 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 $4,370, $3,333 and $2,342, in administrative services expenses to FSIC II Advisor during the years
ended December 31, 2015, 2014 and 2013, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | During the years ended December 31, 2015, 2014 and 2013, we incurred offering costs of $0, $1,686, $7,900, respectively, of which $0, $1,087 and
$3,316, respectively, related to reimbursements to FSIC II
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | Advisor for offering costs incurred 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 shares of our common stock.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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, 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, FSIC IV Advisor, LLC and FS Global Advisor, LLC, the investment advisers to certain other BDCs and a closed-end management investment company affiliated with 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, FS Investment Corporation IV and FS Global Credit Opportunities Fund. While none
of FSIC II Advisor, FB Income Advisor, LLC, FS Investment Advisor, LLC, FSIC III Advisor, LLC, FSIC IV 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, FS Investment Corporation IV 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, FS Investment Corporation IV 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.



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|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, 2015, 79.5% of our portfolio investments (based on fair value) paid variable interest rates, 15.7%
paid fixed interest rates, 4.0% were non-income producing equity or other investments and the remaining 0.8% 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 threshold 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, 2015 (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 60 basis points                 |  | $                                      | (463    | ) |                                      | $ | (8,588 | )                                        |  | $ | 8,125                                   |  |  |  | 2.0  | %
|No change                            |  |                                        |        |   |                                      |   |       |                                          |  |   |                                        |  |  |  |     |  
|Up 100 basis points                  |  |                                        | 16,781  |   |                                      |   | 14,313 |                                          |  |   | 2,468                                   |  |  |  | 0.6  | %
|Up 300 basis points                  |  |                                        | 88,605  |   |                                      |   | 42,938 |                                          |  |   | 45,667                                  |  |  |  | 11.3 | %
|Up 500 basis points                  |  |                                        | 161,192 |   |                                      |   | 71,564 |                                          |  |   | 89,628                                  |  |  |  | 22.1 | %



|(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, 2015, 2014 and 2013, we did not engage in interest rate
hedging activities.

In addition, we may have risk regarding portfolio valuation. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting PoliciesValuation of Portfolio Investments.



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

Index to Financial Statements



|                                                                                                       |  |      |     | 
|------------------------------------------------------------------------------------------------------ |  | ---- | --- | 
|                                                                                                       |  | Page |    
|Managements Report on Internal Control Over Financial Reporting                                       |  |      | 110 | 
|Report of Independent Registered Public Accounting Firm                                                |  |      | 111 | 
|Report of Independent Registered Public Accounting Firm                                                |  |      | 112 | 
|Consolidated Balance Sheets as of December 31, 2015 and 2014                                           |  |      | 113 | 
|Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and
2013             |  |      | 114 | 
|Consolidated Statements of Changes in Net Assets for the years ended December 
31, 2015, 2014 and 2013 |  |      | 115 | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and
2013             |  |      | 116 | 
|Consolidated Schedules of Investments as of December 31, 2015 and 2014                                 |  |      | 117 | 
|Notes to Consolidated Financial Statements                                                             |  |      | 139 | 



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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, 2015, 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, 2015 has been audited by our independent registered public accounting firm.



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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, 2015, 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, 2015 , 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, 2015 and 2014, 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, 2015 and our report dated March 25, 2016 expressed an unqualified opinion.

/s/ RSM
US LLP

Blue Bell, Pennsylvania

March 25, 2016



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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, 2015 and 2014, 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, 2015. 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 from 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, 2015 and 2014 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, 2015 and 2014 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, 2015, 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, 2015, 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 25, 2016 expressed an unqualified opinion on the effectiveness of FS Investment Corporation IIs internal control over financial
reporting.

/s/ RSM US LLP

Blue Bell, Pennsylvania

March 25, 2016



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FS Investment Corporation II

Consolidated Balance Sheets

(in thousands, except share and per share amounts)







|                                                                                                                                       |  |              |           |   |      |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | - | ---- | - | --------- | -
|                                                                                                                                       |  | December 31, |          
|                                                                                                                                       |  | 2015         |           |   | 2014 |  
|Assets                                                                                                                                 |  |              |           |   |      |   |           |  
|Investments, at fair value                                                                                                             |  |              |           |   |      |   |           |  
|Non-controlled/unaffiliated investments (amortized cost$4,752,111 and $4,409,806, respectively)                                       |  | $            | 4,391,357 |   |      | $ | 4,396,228 |  
|Non-controlled/affiliated investments (amortized cost$125,274 and $0, respectively)                                                   |  |              | 141,518   |   |      |   |          |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Total investments, at fair value (amortized cost$4,877,385 and $4,409,806, respectively)                                              |  |              | 4,532,875 |   |      |   | 4,396,228 |  
|Cash                                                                                                                                   |  |              | 228,781   |   |      |   | 224,583   |  
|Collateral held at broker for open credit default swap contracts                                                                       |  |              |          |   |      |   | 37,951    |  
|Receivable for investments sold and repaid                                                                                             |  |              | 1,925     |   |      |   | 3,698     |  
|Interest receivable                                                                                                                    |  |              | 37,879    |   |      |   | 56,320    |  
|Deferred financing costs                                                                                                               |  |              | 8,188     |   |      |   | 7,728     |  
|Prepaid expenses and other assets                                                                                                      |  |              | 224       |   |      |   | 1         |  
|Receivable on credit default swaps                                                                                                     |  |              |          |   |      |   | 62        |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Total assets                                                                                                                           |  | $            | 4,809,872 |   |      | $ | 4,726,571 |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|                                                                                                                                       |  |             
|Liabilities                                                                                                                            |  |              |           |   |      |   |           |  
|Payable for investments purchased                                                                                                      |  | $            |          |   |      | $ | 84,272    |  
|Repurchase agreements payable(1)                                                                                                       |  |              | 950,000   |   |      |   | 625,400   |  
|Credit facilities payable                                                                                                              |  |              | 1,095,840 |   |      |   | 1,015,794 |  
|Stockholder distributions payable                                                                                                      |  |              | 20,273    |   |      |   | 9,085     |  
|Management fees payable                                                                                                                |  |              | 21,529    |   |      |   | 23,069    |  
|Subordinated income incentive fees
payable(2)                                                                                          |  |              | 16,254    |   |      |   | 15,334    |  
|Administrative services expense payable                                                                                                |  |              | 1,392     |   |      |   | 1,845     |  
|Interest payable                                                                                                                       |  |              | 9,980     |   |      |   | 6,882     |  
|Directors fees payable                                                                                                                |  |              | 278       |   |      |   | 262       |  
|Unamortized swap premiums received                                                                                                     |  |              |          |   |      |   | 10,622    |  
|Unrealized depreciation on credit default swaps                                                                                        |  |              |          |   |      |   | 19,426    |  
|Other accrued expenses and liabilities                                                                                                 |  |              | 3,914     |   |      |   | 2,790     |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Total liabilities                                                                                                                      |  |              | 2,119,460 |   |      |   | 1,814,781 |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|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, 321,507,876 and 313,037,127 shares issued and outstanding,
respectively |  |              | 322       |   |      |   | 313       |  
|Capital in excess of par value                                                                                                         |  |              | 2,987,791 |   |      |   | 2,914,177 |  
|Accumulated undistributed net realized gains on investments and credit default swaps and gain/loss on foreign currency(4)              |  |              | 11,785    |   |      |   | 8,168     |  
|Accumulated undistributed net investment
income(4)                                                                                     |  |              | 35,024    |   |      |   | 22,143    |  
|Net unrealized appreciation (depreciation) on investments and credit default swaps and unrealized gain/loss on foreign
currency        |  |              | (344,510  | ) |      |   | (33,011   | )
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Total stockholders equity                                                                                                             |  |              | 2,690,412 |   |      |   | 2,911,790 |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Total liabilities and stockholders equity                                                                                             |  | $            | 4,809,872 |   |      | $ | 4,726,571 |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Net asset value per share of common stock at year end                                                                                  |  | $            | 8.37      |   |      | $ | 9.30      |  



|(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 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.



113



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##### Table of Contents

FS Investment Corporation II

Consolidated Statements of Operations

(in thousands, except share and per share amounts)







|                                                                                     |  |                         |             |   |      |   |             |      |  |   |             |  
|------------------------------------------------------------------------------------ |  | ----------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                                                     |  | Year Ended December 31, |            
|                                                                                     |  | 2015                    |             |   | 2014 |   |             | 2013 | 
|Investment income                                                                    |  |                         |             |   |      |   |             |      |  |   |             |  
|From non-controlled/unaffiliated investments:                                        |  |                         |             |   |      |   |             |      |  |   |             |  
|Interest income                                                                      |  | $                       | 466,788     |   |      | $ | 337,276     |      |  | $ | 145,783     |  
|Fee income                                                                           |  |                         | 49,211      |   |      |   | 60,540      |      |  |   | 21,550      |  
|Dividend income                                                                      |  |                         | 6,784       |   |      |   | 967         |      |  |   | 360         |  
|From non-controlled/affiliated investments:                                          |  |                         |             |   |      |   |             |      |  |   |             |  
|Interest income                                                                      |  |                         | 5,197       |   |      |   |            |      |  |   |            |  
|Fee income                                                                           |  |                         | 1,482       |   |      |   |            |      |  |   |            |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |             |  
|Total investment income                                                              |  |                         | 529,462     |   |      |   | 398,783     |      |  |   | 167,693     |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |             |  
|                                                                                     |  |                         |            
|Operating expenses                                                                   |  |                         |             |   |      |   |             |      |  |   |             |  
|Management fees(1)                                                                   |  |                         | 99,434      |   |      |   | 82,325      |      |  |   | 38,677      |  
|Capital gains incentive fees(2)                                                      |  |                         |            |   |      |   | (9,234      | )    |  |   | 6,164       |  
|Subordinated income incentive fees(2)                                                |  |                         | 72,664      |   |      |   | 33,251      |      |  |   | 8,871       |  
|Administrative services expenses                                                     |  |                         | 3,917       |   |      |   | 4,607       |      |  |   | 2,732       |  
|Stock transfer agent fees                                                            |  |                         | 2,015       |   |      |   | 2,749       |      |  |   | 2,357       |  
|Accounting and administrative fees                                                   |  |                         | 1,305       |   |      |   | 1,798       |      |  |   | 642         |  
|Interest expense                                                                     |  |                         | 61,747      |   |      |   | 33,496      |      |  |   | 12,286      |  
|Directors fees                                                                      |  |                         | 1,011       |   |      |   | 939         |      |  |   | 656         |  
|Other general and administrative expenses                                            |  |                         | 5,087       |   |      |   | 4,949       |      |  |   | 2,593       |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |             |  
|Operating expenses                                                                   |  |                         | 247,180     |   |      |   | 154,880     |      |  |   | 74,978      |  
|Expense recoupment to sponsor(3)                                                     |  |                         |            |   |      |   |            |      |  |   | 2,041       |  
|Management fee waiver(1)                                                             |  |                         | (10,252     | ) |      |   |            |      |  |   |            |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |             |  
|Net expenses                                                                         |  |                         | 236,928     |   |      |   | 154,880     |      |  |   | 77,019      |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |             |  
|Net investment income before taxes                                                   |  |                         | 292,534     |   |      |   | 243,903     |      |  |   | 90,674      |  
|Excise taxes                                                                         |  |                         | 1,885       |   |      |   | 1,227       |      |  |   |            |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |             |  
|Net investment income                                                                |  |                         | 290,649     |   |      |   | 242,676     |      |  |   | 90,674      |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |             |  
|                                                                                     |  |                         |            
|Realized and unrealized gain/loss                                                    |  |                         |             |   |      |   |             |      |  |   |             |  
|Net realized gain (loss) on investments:                                             |  |                         |             |   |      |   |             |      |  |   |             |  
|Non-controlled/unaffiliated investments                                              |  |                         | (20,241     | ) |      |   | 2,931       |      |  |   | 5,343       |  
|Net realized gain on total return swap(4)                                            |  |                         |            |   |      |   |            |      |  |   | 19,689      |  
|Net realized gain (loss) on credit default swaps                                     |  |                         | (19,588     | ) |      |   | 7,535       |      |  |   |            |  
|Net realized gain (loss) on foreign currency                                         |  |                         | (304        | ) |      |   | (304        | )    |  |   | (144        | )
|Net change in unrealized appreciation (depreciation) on investments:                 |  |                         |             |   |      |   |             |      |  |   |             |  
|Non-controlled/unaffiliated investments                                              |  |                         | (347,176    | ) |      |   | (42,437     | )    |  |   | 20,823      |  
|Non-controlled/affiliated investments                                                |  |                         | 16,244      |   |      |   |            |      |  |   |            |  
|Net change in unrealized appreciation (depreciation) on total return
swap(4)         |  |                         |            |   |      |   |            |      |  |   | (5,641      | )
|Net change in unrealized appreciation (depreciation) on credit default swaps         |  |                         | 19,426      |   |      |   | (19,426     | )    |  |   |            |  
|Net change in unrealized gain (loss) on foreign currency                             |  |                         | 7           |   |      |   | (7          | )    |  |   | 130         |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |             |  
|Total net realized and unrealized gain (loss) on investments                         |  |                         | (351,632    | ) |      |   | (51,708     | )    |  |   | 40,200      |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |             |  
|Net increase (decrease) in net assets resulting from operations                      |  | $                       | (60,983     | ) |      | $ | 190,968     |      |  | $ | 130,874     |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |             |  
|Per share informationbasic and diluted                                              |  |                         |             |   |      |   |             |      |  |   |             |  
|Net increase (decrease) in net assets resulting from operations (Earnings per Share) |  | $                       | (0.19       | ) |      | $ | 0.63        |      |  | $ | 0.89        |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |             |  
|Weighted average shares outstanding                                                  |  |                         | 317,164,681 |   |      |   | 302,935,663 |      |  |   | 146,917,410 |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |             |  



|(1) | See Note 4 for a discussion of the waiver by FSIC II Advisor, LLC, the Companys investment adviser, of certain management fees to which it was otherwise entitled
during the applicable period.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | On June 13, 2013, the Company terminated its total return swap agreement with Citibank, N.A.
|--- | --------------------------------------------------------------------------------------------

See notes to consolidated financial statements



114



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FS Investment Corporation II

Consolidated Statements of Changes in Net Assets

(in thousands)







|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |           |  
|-------------------------------------------------------------------------------------------------------- |  | ----------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                                                         |  | Year Ended December 31, |          
|                                                                                                         |  | 2015                    |           |   | 2014 |   |           | 2013 | 
|Operations                                                                                               |  |                         |           |   |      |   |           |      |  |   |           |  
|Net investment income                                                                                    |  | $                       | 290,649   |   |      | $ | 242,676   |      |  | $ | 90,674    |  
|Net realized gain (loss) on investments, total return swap, credit default swaps and foreign currency(1) |  |                         | (40,133   | ) |      |   | 10,162    |      |  |   | 24,888    |  
|Net change in unrealized appreciation (depreciation) on investments                                      |  |                         | (330,932  | ) |      |   | (42,437   | )    |  |   | 20,823    |  
|Net change in unrealized appreciation (depreciation) on total return
swap(1)                             |  |                         |          |   |      |   |          |      |  |   | (5,641    | )
|Net change in unrealized appreciation (depreciation) on credit default swaps                             |  |                         | 19,426    |   |      |   | (19,426   | )    |  |   |          |  
|Net change in unrealized gain (loss) on foreign currency                                                 |  |                         | 7         |   |      |   | (7        | )    |  |   | 130       |  
|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |           |  
|Net increase (decrease) in net assets resulting from operations                                          |  |                         | (60,983   | ) |      |   | 190,968   |      |  |   | 130,874   |  
|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |           |  
|Stockholder distributions(2)                                                                             |  |                         |           |   |      |   |           |      |  |   |           |  
|Distributions from net investment income                                                                 |  |                         | (229,252  | ) |      |   | (208,059  | )    |  |   | (104,102  | )
|Distributions from net realized gain on investments                                                      |  |                         | (9,893    | ) |      |   | (15,495   | )    |  |   | (10,205   | )
|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |           |  
|Net decrease in net assets resulting from stockholder distributions                                      |  |                         | (239,145  | ) |      |   | (223,554  | )    |  |   | (114,307  | )
|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |           |  
|Capital share transactions(3)                                                                            |  |                         |           |   |      |   |           |      |  |   |           |  
|Issuance of common stock                                                                                 |  |                         |          |   |      |   | 442,395   |      |  |   | 1,804,981 |  
|Reinvestment of stockholder distributions                                                                |  |                         | 116,784   |   |      |   | 129,347   |      |  |   | 52,057    |  
|Repurchases of common stock                                                                              |  |                         | (38,034   | ) |      |   | (16,665   | )    |  |   | (2,447    | )
|Offering costs                                                                                           |  |                         |          |   |      |   | (1,686    | )    |  |   | (7,900    | )
|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |           |  
|Net increase in net assets resulting from capital share transactions                                     |  |                         | 78,750    |   |      |   | 553,391   |      |  |   | 1,846,691 |  
|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |           |  
|Total increase (decrease) in net assets                                                                  |  |                         | (221,378  | ) |      |   | 520,805   |      |  |   | 1,863,258 |  
|Net assets at beginning of period                                                                        |  |                         | 2,911,790 |   |      |   | 2,390,985 |      |  |   | 527,727   |  
|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |           |  
|Net assets at end of period                                                                              |  | $                       | 2,690,412 |   |      | $ | 2,911,790 |      |  | $ | 2,390,985 |  
|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |           |  
|Accumulated undistributed (distributions in excess of) net investment income(2)                          |  | $                       | 35,024    |   |      | $ | 22,143    |      |  | $ | (9,983    | )
|                                                                                                         |  |                         |           |   |      |   |           |      |  |   |           |  



|(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 3 for a discussion of transactions with respect to shares of the Companys common stock during the years ended December 31, 2015, 2014 and 2013.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

See notes to consolidated financial statements.



115



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##### Table of Contents

FS Investment Corporation II

Consolidated Statements of Cash Flows

(in thousands)







|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |            |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                                                                   |  | Year Ended December 31, |           
|                                                                                                                                   |  | 2015                    |            |   | 2014 |   |            | 2013 | 
|Cash flows from operating activities                                                                                               |  |                         |            |   |      |   |            |      |  |   |            |  
|Net increase (decrease) in net assets resulting from operations                                                                    |  | $                       | (60,983    | ) |      | $ | 190,968    |      |  | $ | 130,874    |  
|Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating
activities: |  |                         |            |   |      |   |            |      |  |   |            |  
|Purchases of investments                                                                                                           |  |                         | (1,904,545 | ) |      |   | (3,382,134 | )    |  |   | (2,838,032 | )
|Paid-in-kind interest                                                                                                              |  |                         | (13,296    | ) |      |   | (10,735    | )    |  |   | (1,819     | )
|Proceeds from sales and repayments of investments                                                                                  |  |                         | 1,462,611  |   |      |   | 1,625,100  |      |  |   | 711,652    |  
|Net realized (gain) loss on investments                                                                                            |  |                         | 20,241     |   |      |   | (2,931     | )    |  |   | (5,343     | )
|Net change in unrealized (appreciation) depreciation on investments                                                                |  |                         | 330,932    |   |      |   | 42,437     |      |  |   | (20,823    | )
|Net change in unrealized (appreciation) depreciation on total return swap(1)                                                       |  |                         |           |   |      |   |           |      |  |   | 5,641      |  
|Net change in unrealized (appreciation) depreciation on credit default swap                                                        |  |                         | (19,426    | ) |      |   | 19,426     |      |  |   |           |  
|Accretion of discount                                                                                                              |  |                         | (32,590    | ) |      |   | (12,137    | )    |  |   | (12,821    | )
|Amortization of deferred financing costs                                                                                           |  |                         | 3,753      |   |      |   | 2,071      |      |  |   | 446        |  
|(Increase) decrease in due from counterparty                                                                                       |  |                         |           |   |      |   |           |      |  |   | 97,441     |  
|(Increase) decrease in collateral held at broker for open swap contracts                                                           |  |                         | 37,951     |   |      |   | (37,951    | )    |  |   |           |  
|(Increase) decrease in receivable for investments sold and repaid                                                                  |  |                         | 1,773      |   |      |   | 49,119     |      |  |   | (49,279    | )
|(Increase) decrease in expense reimbursement due from
sponsor(2)                                                                   |  |                         |           |   |      |   |           |      |  |   | 1,635      |  
|(Increase) decrease in interest receivable                                                                                         |  |                         | 18,441     |   |      |   | (26,465    | )    |  |   | (25,724    | )
|(Increase) decrease in receivable for credit default swaps                                                                         |  |                         | 62         |   |      |   | (62        | )    |  |   |           |  
|(Increase) decrease in receivable due on total return
swap(1)                                                                      |  |                         |           |   |      |   |           |      |  |   | 396        |  
|(Increase) decrease in prepaid expenses and other assets                                                                           |  |                         | (223       | ) |      |   | 29         |      |  |   | 70         |  
|Increase (decrease) in payable for investments purchased                                                                           |  |                         | (84,272    | ) |      |   | (79,513    | )    |  |   | 110,149    |  
|Increase (decrease) in management fees payable                                                                                     |  |                         | (1,540     | ) |      |   | 8,056      |      |  |   | 12,546     |  
|Increase (decrease) in accrued capital gains incentive fees                                                                        |  |                         |           |   |      |   | (9,234     | )    |  |   | 5,686      |  
|Increase (decrease) in subordinated income incentive fees payable                                                                  |  |                         | 920        |   |      |   | 15,334     |      |  |   |           |  
|Increase (decrease) in administrative services expense payable                                                                     |  |                         | (453       | ) |      |   | 1,274      |      |  |   | 390        |  
|Increase (decrease) in interest payable                                                                                            |  |                         | 3,098      |   |      |   | 4,024      |      |  |   | 2,584      |  
|Increase (decrease) in directors fees payable                                                                                     |  |                         | 16         |   |      |   | 79         |      |  |   | 183        |  
|Increase (decrease) in unamortized swap premiums received                                                                          |  |                         | (10,622    | ) |      |   | 10,622     |      |  |   |           |  
|Increase (decrease) in other accrued expenses and liabilities                                                                      |  |                         | 1,124      |   |      |   | 1,772      |      |  |   | 370        |  
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |            |  
|Net cash used in operating activities                                                                                              |  |                         | (247,028   | ) |      |   | (1,590,851 | )    |  |   | (1,873,778 | )
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |            |  
|Cash flows from financing activities                                                                                               |  |                         |            |   |      |   |            |      |  |   |            |  
|Issuance of common stock                                                                                                           |  |                         |           |   |      |   | 442,927    |      |  |   | 1,804,931  |  
|Reinvestment of stockholder distributions                                                                                          |  |                         | 116,784    |   |      |   | 129,347    |      |  |   | 52,057     |  
|Repurchases of common stock                                                                                                        |  |                         | (38,034    | ) |      |   | (16,665    | )    |  |   | (2,447     | )
|Offering costs                                                                                                                     |  |                         |           |   |      |   | (1,686     | )    |  |   | (7,900     | )
|Stockholder distributions                                                                                                          |  |                         | (227,957   | ) |      |   | (232,295   | )    |  |   | (99,825    | )
|Borrowings under credit facilities(3)                                                                                              |  |                         | 208,175    |   |      |   | 845,300    |      |  |   | 170,494    |  
|Borrowings under repurchase
agreements(4)                                                                                          |  |                         | 324,600    |   |      |   | 75,400     |      |  |   | 432,500    |  
|Repayments of credit facilities(3)                                                                                                 |  |                         | (128,129   | ) |      |   |           |      |  |   |           |  
|Deferred financing costs paid                                                                                                      |  |                         | (4,213     | ) |      |   | (8,526     | )    |  |   | (1,557     | )
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |            |  
|Net cash provided by financing activities                                                                                          |  |                         | 251,226    |   |      |   | 1,233,802  |      |  |   | 2,348,253  |  
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |            |  
|Total increase (decrease) in cash                                                                                                  |  |                         | 4,198      |   |      |   | (357,049   | )    |  |   | 474,475    |  
|Cash at beginning of period                                                                                                        |  |                         | 224,583    |   |      |   | 581,632    |      |  |   | 107,157    |  
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |            |  
|Cash at end of period                                                                                                              |  | $                       | 228,781    |   |      | $ | 224,583    |      |  | $ | 581,632    |  
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |            |  
|Supplemental disclosure                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |  
|Local and excise taxes paid                                                                                                        |  | $                       | 1,150      |   |      | $ | 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 8 for a discussion of the Companys revolving credit facilities. During the years ended December 31, 2015, 2014 and 2013, the Company paid $28,255,
$9,279 and $1,193 in interest expense on the credit facilities.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | See Note 8 for a discussion of the Companys repurchase transactions. During the years ended December 31, 2015, 2014 and 2013, the Company paid $26,641,
$18,123 and $8,063, respectively, in interest expense pursuant to its repurchase agreements.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See notes to
consolidated financial statements.



116



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##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments

As of December 31, 2015

(in thousands, except share amounts)







|                                          |  |                    |  |                                    |  |                                |  |       |  |          |  |                     |         |  |               |   |         |               |  |   |         | 
|----------------------------------------- |  | ------------------ |  | ---------------------------------- |  | ------------------------------ |  | ----- |  | -------- |  | ------------------- | ------- |  | ------------- | - | ------- | ------------- |  | - | ------- | 
|Portfolio
Company(a)                      |  | Footnotes          |  | Industry                           |  | Rate(b)                        |  | Floor |  | Maturity |  | Principal
Amount(c) |         |  | AmortizedCost |   |         | Fair Value(d) | 
|Senior Secured LoansFirst Lien104.2%    |  |                    |  |                                    |  |                                |  |       |  |          |  |                     |         |  |               |   |         |               |  |   |         | 
|5 Arch Income Fund 2, LLC                 |  | (o)(s)             |  | Diversified Financials             |  | 10.5%                          |  |       |  | 11/18/21 |  | $                   | 1,192   |  |               | $ | 1,219   |               |  | $ | 1,192   | 
|5 Arch Income Fund 2, LLC                 |  | (o)(p)(s)          |  | Diversified Financials             |  | 10.5%                          |  |       |  | 11/18/21 |  |                     | 17,808  |  |               |   | 17,808  |               |  |   | 17,808  | 
|A.T. Cross Co.                            |  | (e)(g)             |  | Retailing                          |  | L+875                          |  |       |  | 9/6/19   |  |                     | 39,208  |  |               |   | 39,207  |               |  |   | 38,816  | 
|A.T. Cross Co.                            |  | (p)                |  | Retailing                          |  | L+875                          |  |       |  | 9/6/19   |  |                     | 20,000  |  |               |   | 20,000  |               |  |   | 19,800  | 
|Abaco Energy Technologies LLC             |  | (g)(k)             |  | Energy                             |  | L+700                          |  | 1.0%  |  | 11/20/20 |  |                     | 26,813  |  |               |   | 25,447  |               |  |   | 13,808  | 
|Acision Finance LLC                       |  | (k)(l)             |  | Software & Services                |  | L+975                          |  | 1.0%  |  | 12/15/18 |  |                     | 31,616  |  |               |   | 30,600  |               |  |   | 31,300  | 
|Aeneas Buyer Corp.                        |  | (h)                |  | Health Care Equipment & Services   |  | L+500                          |  | 1.0%  |  | 12/18/21 |  |                     | 9,000   |  |               |   | 9,000   |               |  |   | 9,000   | 
|Aeneas Buyer Corp.                        |  | (p)                |  | Health Care Equipment & Services   |  | L+500                          |  | 1.0%  |  | 12/18/21 |  |                     | 9,000   |  |               |   | 9,000   |               |  |   | 9,000   | 
|Aeneas Buyer Corp.                        |  |                    |  | Health Care Equipment & Services   |  | L+813                          |  | 1.0%  |  | 12/18/21 |  |                     | 500     |  |               |   | 500     |               |  |   | 500     | 
|Aeneas Buyer Corp.                        |  | (p)                |  | Health Care Equipment & Services   |  | L+750                          |  | 1.0%  |  | 12/18/21 |  |                     | 100     |  |               |   | 100     |               |  |   | 100     | 
|Allen Systems Group, Inc.                 |  | (e)(g)(h)(x)       |  | Software & Services                |  | L+789, 1.2% PIK (1.2% Max PIK) |  | 1.0%  |  | 4/30/20  |  |                     | 70,682  |  |               |   | 70,682  |               |  |   | 71,389  | 
|Altus Power America, Inc.                 |  | (l)                |  | Energy                             |  | L+750                          |  | 1.5%  |  | 10/10/21 |  |                     | 1,724   |  |               |   | 1,724   |               |  |   | 1,707   | 
|Altus Power America, Inc.                 |  | (p)                |  | Energy                             |  | L+750                          |  | 1.5%  |  | 10/10/21 |  |                     | 1,401   |  |               |   | 1,401   |               |  |   | 1,387   | 
|AP Exhaust Acquisition, LLC               |  | (e)(g)(h)(i)(k)    |  | Automobiles & Components           |  | L+775                          |  | 1.5%  |  | 1/16/21  |  |                     | 163,378 |  |               |   | 163,378 |               |  |   | 153,371 | 
|Ascension Insurance, Inc.                 |  | (e)(g)(h)(i)       |  | Insurance                          |  | L+825                          |  | 1.3%  |  | 3/5/19   |  |                     | 77,769  |  |               |   | 76,954  |               |  |   | 76,797  | 
|Aspect Software, Inc.                     |  | (h)(i)             |  | Software & Services                |  | L+550, 0.3% PIK (0.3% Max PIK) |  | 1.8%  |  | 5/7/16   |  |                     | 7,375   |  |               |   | 7,381   |               |  |   | 6,828   | 
|Atlas Aerospace LLC                       |  | (g)(l)             |  | Capital Goods                      |  | L+807                          |  | 1.0%  |  | 5/8/19   |  |                     | 57,000  |  |               |   | 57,000  |               |  |   | 56,715  | 
|Atlas Aerospace LLC                       |  | (p)                |  | Capital Goods                      |  | L+750                          |  | 1.0%  |  | 5/8/19   |  |                     | 21,714  |  |               |   | 21,714  |               |  |   | 21,606  | 
|ATX Networks Corp.                        |  | (g)(h)(o)          |  | Technology Hardware & Equipment    |  | L+600                          |  | 1.0%  |  | 6/11/21  |  |                     | 1,970   |  |               |   | 1,943   |               |  |   | 1,940   | 
|Avaya Inc.                                |  | (i)                |  | Technology Hardware & Equipment    |  | L+525                          |  | 1.0%  |  | 5/29/20  |  |                     | 3,895   |  |               |   | 3,895   |               |  |   | 2,733   | 
|BenefitMall Holdings, Inc.                |  | (e)(h)(i)(k)(l)    |  | Commercial & Professional Services |  | L+725                          |  | 1.0%  |  | 11/24/20 |  |                     | 113,850 |  |               |   | 113,850 |               |  |   | 112,712 | 
|BenefitMall Holdings, Inc.                |  | (p)                |  | Commercial & Professional Services |  | L+725                          |  | 1.0%  |  | 11/24/20 |  |                     | 41,818  |  |               |   | 41,818  |               |  |   | 41,400  | 
|Blue Coat Holdings, Inc.                  |  | (p)                |  | Technology Hardware & Equipment    |  | L+350                          |  | 1.0%  |  | 5/22/20  |  |                     | 2,045   |  |               |   | 2,045   |               |  |   | 1,918   | 
|Blueprint Sub, Inc.                       |  | (g)(h)(i)(k)(l)    |  | Software & Services                |  | L+750                          |  | 1.0%  |  | 5/7/21   |  |                     | 94,119  |  |               |   | 94,119  |               |  |   | 93,819  | 
|Blueprint Sub, Inc.                       |  | (p)                |  | Software & Services                |  | L+750                          |  | 1.0%  |  | 5/7/21   |  |                     | 12,281  |  |               |   | 12,281  |               |  |   | 12,241  | 
|Blueprint Sub, Inc.                       |  | (e)                |  | Software & Services                |  | L+450                          |  | 1.0%  |  | 5/7/21   |  |                     | 2,456   |  |               |   | 2,456   |               |  |   | 2,456   | 
|Blueprint Sub, Inc.                       |  | (p)                |  | Software & Services                |  | L+450                          |  | 1.0%  |  | 5/7/21   |  |                     | 2,456   |  |               |   | 2,456   |               |  |   | 2,456   | 
|Cactus Wellhead, LLC                      |  | (g)(h)             |  | Energy                             |  | L+600                          |  | 1.0%  |  | 7/31/20  |  |                     | 16,572  |  |               |   | 15,603  |               |  |   | 11,973  | 
|Cadence Aerospace Finance, Inc.           |  | (g)                |  | Capital Goods                      |  | L+525                          |  | 1.3%  |  | 5/9/18   |  |                     | 2,737   |  |               |   | 2,750   |               |  |   | 2,689   | 
|Caesars Entertainment Operating Co., Inc. |  | (k)(n)(o)          |  | Consumer Services                  |  | 5.2%                           |  |       |  | 3/1/17   |  |                     | 15,620  |  |               |   | 15,158  |               |  |   | 13,380  | 
|Caesars Entertainment Operating Co., Inc. |  | (k)(n)(o)          |  | Consumer Services                  |  | 6.0%                           |  |       |  | 3/1/17   |  |                     | 15,707  |  |               |   | 15,288  |               |  |   | 13,495  | 
|Caesars Entertainment Operating Co., Inc. |  | (e)(g)(i)(j)(n)(o) |  | Consumer Services                  |  | 8.1%                           |  |       |  | 3/1/17   |  |                     | 68,576  |  |               |   | 68,321  |               |  |   | 53,635  | 



See notes to consolidated financial statements.



117



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##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2015

(in thousands, except share amounts)







|                                             |  |                    |  |                                    |  |                                |  |       |  |          |  |                     |         |  |               |   |         |               |  |   |         | 
|-------------------------------------------- |  | ------------------ |  | ---------------------------------- |  | ------------------------------ |  | ----- |  | -------- |  | ------------------- | ------- |  | ------------- | - | ------- | ------------- |  | - | ------- | 
|Portfolio
Company(a)                         |  | Footnotes          |  | Industry                           |  | Rate(b)                        |  | Floor |  | Maturity |  | Principal
Amount(c) |         |  | AmortizedCost |   |         | Fair Value(d) | 
|Caesars Entertainment Operating Co., Inc.    |  | (n)(o)             |  | Consumer Services                  |  | 8.8%                           |  |       |  | 10/31/16 |  | $                   | 2,671   |  |               | $ | 2,685   |               |  | $ | 2,267   | 
|Caesars Entertainment Resort Properties, LLC |  | (e)(k)             |  | Consumer Services                  |  | L+600                          |  | 1.0%  |  | 10/11/20 |  |                     | 34,132  |  |               |   | 32,591  |               |  |   | 31,167  | 
|CEVA Group Plc                               |  | (o)(p)             |  | Transportation                     |  | L+500                          |  |       |  | 3/19/19  |  |                     | 20,000  |  |               |   | 20,000  |               |  |   | 17,300  | 
|Cimarron Energy Inc.                         |  | (k)(l)             |  | Energy                             |  | L+775, 3.8% PIK (3.8% Max PIK) |  | 1.0%  |  | 12/15/19 |  |                     | 24,250  |  |               |   | 24,250  |               |  |   | 24,129  | 
|CITGO Holding, Inc.                          |  | (j)                |  | Energy                             |  | L+850                          |  | 1.0%  |  | 5/12/18  |  |                     | 2,186   |  |               |   | 2,078   |               |  |   | 2,177   | 
|Corner Investment PropCo, LLC                |  | (e)(g)(k)          |  | Consumer Services                  |  | L+975                          |  | 1.3%  |  | 11/2/19  |  |                     | 38,788  |  |               |   | 39,224  |               |  |   | 37,964  | 
|CoSentry.Net, LLC                            |  | (e)(i)(k)          |  | Software & Services                |  | L+800                          |  | 1.3%  |  | 12/31/19 |  |                     | 62,331  |  |               |   | 62,331  |               |  |   | 63,578  | 
|Crestwood Holdings LLC                       |  | (g)                |  | Energy                             |  | L+600                          |  | 1.0%  |  | 6/19/19  |  |                     | 5,166   |  |               |   | 5,151   |               |  |   | 3,350   | 
|Eastman Kodak Co.                            |  | (g)                |  | Consumer Durables & Apparel        |  | L+625                          |  | 1.0%  |  | 9/3/19   |  |                     | 7,091   |  |               |   | 7,003   |               |  |   | 6,146   | 
|Emerging Markets Communications, LLC         |  | (g)(h)             |  | Telecommunication Services         |  | L+575                          |  | 1.0%  |  | 7/1/21   |  |                     | 12,935  |  |               |   | 11,962  |               |  |   | 12,191  | 
|Fairway Group Acquisition Co.                |  | (g)                |  | Food & Staples Retailing           |  | L+400                          |  | 1.0%  |  | 8/17/18  |  |                     | 9,379   |  |               |   | 8,374   |               |  |   | 7,566   | 
|Fox Head, Inc.                               |  | (h)(k)(l)          |  | Consumer Durables & Apparel        |  | L+850                          |  | 1.0%  |  | 12/19/20 |  |                     | 13,286  |  |               |   | 13,286  |               |  |   | 13,346  | 
|FR Dixie Acquisition Corp.                   |  | (g)                |  | Energy                             |  | L+475                          |  | 1.0%  |  | 12/18/20 |  |                     | 4,126   |  |               |   | 4,111   |               |  |   | 2,744   | 
|Greystone Bridge Manager LLC                 |  | (f)(o)             |  | Diversified Financials             |  | L+1050                         |  |       |  | 5/1/20   |  |                     | 33,672  |  |               |   | 33,842  |               |  |   | 32,998  | 
|Greystone Bridge Manager LLC                 |  | (o)(p)             |  | Diversified Financials             |  | L+1050                         |  |       |  | 5/1/20   |  |                     | 4,033   |  |               |   | 4,033   |               |  |   | 3,953   | 
|H.M. Dunn Co., Inc.                          |  | (k)(l)             |  | Capital Goods                      |  | L+809                          |  | 1.0%  |  | 3/26/21  |  |                     | 60,000  |  |               |   | 60,000  |               |  |   | 59,400  | 
|H.M. Dunn Co., Inc.                          |  | (p)                |  | Capital Goods                      |  | L+725                          |  | 1.0%  |  | 3/26/21  |  |                     | 21,429  |  |               |   | 21,429  |               |  |   | 21,214  | 
|Harvey Industries, Inc.                      |  | (h)                |  | Capital Goods                      |  | L+800                          |  | 1.0%  |  | 10/1/21  |  |                     | 9,333   |  |               |   | 9,333   |               |  |   | 9,333   | 
|Hybrid Promotions, LLC                       |  | (h)(k)(l)          |  | Consumer Durables & Apparel        |  | L+850                          |  | 1.0%  |  | 12/19/20 |  |                     | 48,714  |  |               |   | 48,714  |               |  |   | 48,935  | 
|Industrial Group Intermediate Holdings, LLC  |  | (g)(h)(i)(k)(l)    |  | Materials                          |  | L+800                          |  | 1.3%  |  | 5/31/20  |  |                     | 84,721  |  |               |   | 84,721  |               |  |   | 83,873  | 
|Industry City TI Lessor, L.P.                |  | (k)                |  | Consumer Services                  |  | 10.3%, 0.0% PIK (5.3% Max PIK) |  |       |  | 6/30/26  |  |                     | 10,151  |  |               |   | 10,151  |               |  |   | 10,607  | 
|Intralinks, Inc.                             |  | (g)(h)(k)(o)       |  | Software & Services                |  | L+525                          |  | 2.0%  |  | 2/24/19  |  |                     | 24,563  |  |               |   | 24,399  |               |  |   | 24,378  | 
|JMC Acquisition Merger Corp.                 |  | (g)(h)(i)          |  | Capital Goods                      |  | L+858                          |  | 1.0%  |  | 11/6/21  |  |                     | 15,000  |  |               |   | 15,000  |               |  |   | 15,000  | 
|JMC Acquisition Merger Corp.                 |  | (p)                |  | Capital Goods                      |  | L+750                          |  | 1.0%  |  | 11/6/21  |  |                     | 2,717   |  |               |   | 2,717   |               |  |   | 2,717   | 
|JSS Holdings, Inc.                           |  | (g)                |  | Capital Goods                      |  | L+650                          |  | 1.0%  |  | 8/31/21  |  |                     | 7,900   |  |               |   | 7,374   |               |  |   | 7,466   | 
|Latham Pool Products, Inc.                   |  | (g)(h)(k)          |  | Commercial & Professional Services |  | L+775                          |  | 1.0%  |  | 6/29/21  |  |                     | 35,000  |  |               |   | 35,000  |               |  |   | 34,300  | 
|MB Precision Holdings LLC                    |  | (e)(h)(i)(k)       |  | Capital Goods                      |  | L+725                          |  | 1.3%  |  | 1/23/20  |  |                     | 59,990  |  |               |   | 59,990  |               |  |   | 59,390  | 
|MMM Holdings, Inc.                           |  | (g)                |  | Health Care Equipment & Services   |  | L+825                          |  | 1.5%  |  | 12/12/17 |  |                     | 2,524   |  |               |   | 2,532   |               |  |   | 1,186   | 
|Mood Media Corp.                             |  | (g)(o)             |  | Media                              |  | L+600                          |  | 1.0%  |  | 5/1/19   |  |                     | 1,789   |  |               |   | 1,776   |               |  |   | 1,704   | 
|Moxie Liberty LLC                            |  | (g)(i)             |  | Energy                             |  | L+650                          |  | 1.0%  |  | 8/21/20  |  |                     | 11,853  |  |               |   | 11,887  |               |  |   | 11,023  | 
|Moxie Patriot LLC                            |  | (i)                |  | Energy                             |  | L+575                          |  | 1.0%  |  | 12/19/20 |  |                     | 5,556   |  |               |   | 5,515   |               |  |   | 5,139   | 
|MSO of Puerto Rico, Inc.                     |  | (g)                |  | Health Care Equipment & Services   |  | L+825                          |  | 1.5%  |  | 12/12/17 |  |                     | 1,835   |  |               |   | 1,841   |               |  |   | 863     | 
|New Star Metals Inc.                         |  | (e)(f)(g)(h)(i)(k) |  | Capital Goods                      |  | L+800                          |  | 1.3%  |  | 3/20/20  |  |                     | 120,750 |  |               |   | 120,750 |               |  |   | 120,750 | 



See notes to consolidated financial statements.



118



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##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2015

(in thousands, except share amounts)







|                                             |  |                 |  |                                    |  |                                 |  |       |  |          |  |                     |         |  |               |   |         |               |  |   |         | 
|-------------------------------------------- |  | --------------- |  | ---------------------------------- |  | ------------------------------- |  | ----- |  | -------- |  | ------------------- | ------- |  | ------------- | - | ------- | ------------- |  | - | ------- | 
|Portfolio
Company(a)                         |  | Footnotes       |  | Industry                           |  | Rate(b)                         |  | Floor |  | Maturity |  | Principal
Amount(c) |         |  | AmortizedCost |   |         | Fair Value(d) | 
|Nobel Learning Communities, Inc.             |  | (g)(k)(l)       |  | Consumer Services                  |  | L+845                           |  | 1.0%  |  | 4/27/21  |  | $                   | 84,472  |  |               | $ | 84,472  |               |  | $ | 84,173  | 
|Nobel Learning Communities, Inc.             |  |                 |  | Consumer Services                  |  | L+450                           |  | 1.0%  |  | 4/27/20  |  |                     | 3,634   |  |               |   | 3,634   |               |  |   | 3,634   | 
|Nobel Learning Communities, Inc.             |  | (p)             |  | Consumer Services                  |  | L+450                           |  | 1.0%  |  | 4/27/20  |  |                     | 7,547   |  |               |   | 7,547   |               |  |   | 7,547   | 
|Nova Wildcat Amerock, LLC                    |  | (e)(g)(h)       |  | Consumer Durables & Apparel        |  | L+330, 5.4% PIK (5.4% Max PIK)  |  | 1.3%  |  | 9/10/19  |  |                     | 70,563  |  |               |   | 70,563  |               |  |   | 61,037  | 
|Panda Sherman Power, LLC                     |  | (e)             |  | Energy                             |  | L+750                           |  | 1.5%  |  | 9/14/18  |  |                     | 2,287   |  |               |   | 2,298   |               |  |   | 2,069   | 
|PHRC License, LLC                            |  | (f)(h)(i)       |  | Consumer Services                  |  | L+900                           |  | 1.5%  |  | 8/14/20  |  |                     | 59,425  |  |               |   | 59,425  |               |  |   | 58,831  | 
|Pittsburgh Glass Works, LLC                  |  | (e)(g)(l)       |  | Automobiles & Components           |  | L+916                           |  | 1.0%  |  | 11/25/21 |  |                     | 20,983  |  |               |   | 20,983  |               |  |   | 20,983  | 
|Polymer Additives, Inc.                      |  | (h)(i)(l)       |  | Materials                          |  | L+838                           |  | 1.0%  |  | 12/20/21 |  |                     | 63,068  |  |               |   | 63,068  |               |  |   | 64,330  | 
|Production Resource Group, LLC               |  | (g)(h)(i)(l)    |  | Media                              |  | L+750                           |  | 1.0%  |  | 7/23/19  |  |                     | 47,500  |  |               |   | 47,500  |               |  |   | 47,975  | 
|Professional Plumbing Group, Inc.            |  | (e)(g)          |  | Capital Goods                      |  | L+875                           |  | 0.8%  |  | 7/31/19  |  |                     | 25,200  |  |               |   | 25,200  |               |  |   | 25,326  | 
|Propulsion Acquisition, LLC                  |  | (e)(g)(h)       |  | Commercial & Professional Services |  | L+600                           |  | 1.0%  |  | 7/13/21  |  |                     | 37,784  |  |               |   | 34,941  |               |  |   | 36,840  | 
|PSKW, LLC                                    |  | (e)(g)(h)       |  | Health Care Equipment & Services   |  | L+842                           |  | 1.0%  |  | 11/25/21 |  |                     | 26,000  |  |               |   | 26,000  |               |  |   | 26,018  | 
|Reddy Ice Corp.                              |  | (j)             |  | Food, Beverage & Tobacco           |  | L+550                           |  | 1.3%  |  | 5/1/19   |  |                     | 1,898   |  |               |   | 1,710   |               |  |   | 1,566   | 
|Roadrunner Intermediate Acquisition Co., LLC |  | (g)             |  | Health Care Equipment & Services   |  | L+800                           |  | 1.0%  |  | 9/22/21  |  |                     | 7,950   |  |               |   | 7,950   |               |  |   | 7,925   | 
|Rogue Wave Software, Inc.                    |  | (e)(g)          |  | Software & Services                |  | L+804                           |  | 1.0%  |  | 9/25/21  |  |                     | 18,788  |  |               |   | 18,788  |               |  |   | 18,553  | 
|Sequential Brands Group, Inc.                |  | (e)(i)(k)(l)(o) |  | Consumer Durables & Apparel        |  | L+825                           |  |       |  | 12/4/21  |  |                     | 158,000 |  |               |   | 158,000 |               |  |   | 156,420 | 
|Serena Software, Inc.                        |  | (g)(h)          |  | Software & Services                |  | L+650                           |  | 1.0%  |  | 4/14/20  |  |                     | 13,281  |  |               |   | 13,075  |               |  |   | 12,683  | 
|Smile Brands Group Inc.                      |  | (e)(g)(h)(i)(j) |  | Health Care Equipment & Services   |  | L+650, 1.3% PIK (1.5% Max PIK)  |  | 1.3%  |  | 8/16/19  |  |                     | 43,247  |  |               |   | 42,836  |               |  |   | 31,408  | 
|Sorenson Communications, Inc.                |  | (e)(g)(h)(i)(k) |  | Telecommunication Services         |  | L+575                           |  | 2.3%  |  | 4/30/20  |  |                     | 100,480 |  |               |   | 100,100 |               |  |   | 100,731 | 
|Sports Authority, Inc.                       |  | (g)             |  | Retailing                          |  | L+600                           |  | 1.5%  |  | 11/16/17 |  |                     | 7,818   |  |               |   | 7,854   |               |  |   | 2,560   | 
|Stallion Oilfield Holdings, Inc.             |  | (e)(g)(h)       |  | Energy                             |  | L+675                           |  | 1.3%  |  | 6/19/18  |  |                     | 16,430  |  |               |   | 16,146  |               |  |   | 8,905   | 
|Stonewall Gas Gathering LLC                  |  | (g)(i)          |  | Capital Goods                      |  | L+775                           |  | 1.0%  |  | 1/28/22  |  |                     | 9,925   |  |               |   | 9,489   |               |  |   | 9,900   | 
|SunGard Availability Services Capital, Inc.  |  | (g)(j)          |  | Software & Services                |  | L+500                           |  | 1.0%  |  | 3/29/19  |  |                     | 10,855  |  |               |   | 10,070  |               |  |   | 9,471   | 
|Sunnova Asset Portfolio 5 Holdings, LLC      |  |                 |  | Energy                             |  | 12.0% PIK (12.0% Max PIK)       |  |       |  | 11/14/21 |  |                     | 14,435  |  |               |   | 14,160  |               |  |   | 14,110  | 
|Sunnova Asset Portfolio 5 Holdings, LLC      |  | (p)             |  | Energy                             |  | 12.0% PIK (12.0% Max PIK)       |  |       |  | 11/14/21 |  |                     | 414     |  |               |   | 414     |               |  |   | 404     | 
|Swift Worldwide Resources US Holdings Corp.  |  | (g)(i)          |  | Energy                             |  | L+800                           |  | 1.3%  |  | 4/30/19  |  |                     | 19,686  |  |               |   | 19,686  |               |  |   | 19,686  | 
|ThermaSys Corp.                              |  | (g)             |  | Capital Goods                      |  | L+400                           |  | 1.3%  |  | 5/3/19   |  |                     | 4,777   |  |               |   | 4,779   |               |  |   | 4,216   | 
|Transplace Texas, LP                         |  | (e)(g)          |  | Transportation                     |  | L+747                           |  | 1.0%  |  | 9/16/21  |  |                     | 18,000  |  |               |   | 18,000  |               |  |   | 17,843  | 
|U.S. Xpress Enterprises, Inc.                |  | (e)(h)(i)(k)    |  | Transportation                     |  | L+1000, 0.0% PIK (1.5% Max PIK) |  | 1.5%  |  | 5/30/19  |  |                     | 84,292  |  |               |   | 84,292  |               |  |   | 84,292  | 
|UTEX Industries, Inc.                        |  | (l)             |  | Energy                             |  | L+400                           |  | 1.0%  |  | 5/21/21  |  |                     | 1,137   |  |               |   | 1,132   |               |  |   | 783     | 



See notes to consolidated financial statements.



119



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##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2015

(in thousands, except share amounts)







|                                       |  |                 |  |                                                |  |                                 |  |       |  |          |  |                     |         |  |               |   |           |               |  |   |           |  
|-------------------------------------- |  | --------------- |  | ---------------------------------------------- |  | ------------------------------- |  | ----- |  | -------- |  | ------------------- | ------- |  | ------------- | - | --------- | ------------- |  | - | --------- | -
|Portfolio
Company(a)                   |  | Footnotes       |  | Industry                                       |  | Rate(b)                         |  | Floor |  | Maturity |  | Principal
Amount(c) |         |  | AmortizedCost |   |           | Fair Value(d) | 
|Vertellus Performance Chemicals LLC    |  | (k)(l)          |  | Materials                                      |  | L+950                           |  | 1.0%  |  | 1/30/20  |  | $                   | 65,000  |  |               | $ | 65,000    |               |  | $ | 61,477    |  
|Warren Resources, Inc.                 |  | (e)(f)(k)(l)    |  | Energy                                         |  | L+850                           |  | 1.0%  |  | 5/22/20  |  |                     | 70,443  |  |               |   | 70,443    |               |  |   | 57,411    |  
|Waste Pro USA, Inc.                    |  | (e)(h)(i)(k)(l) |  | Commercial & Professional Services             |  | L+750                           |  | 1.0%  |  | 10/15/20 |  |                     | 111,320 |  |               |   | 111,320   |               |  |   | 112,990   |  
|Waste Pro USA, Inc.                    |  | (p)             |  | Commercial & Professional Services             |  | L+750                           |  | 1.0%  |  | 10/15/20 |  |                     | 12,222  |  |               |   | 12,222    |               |  |   | 12,406    |  
|Winchester Electronics Corp.           |  | (i)(l)          |  | Technology Hardware & Equipment                |  | L+800                           |  | 1.0%  |  | 11/17/20 |  |                     | 12,929  |  |               |   | 12,929    |               |  |   | 12,670    |  
|Winchester Electronics Corp.           |  | (e)(k)(l)       |  | Technology Hardware & Equipment                |  | L+850                           |  | 1.0%  |  | 11/17/20 |  |                     | 98,182  |  |               |   | 98,182    |               |  |   | 96,218    |  
|Zeta Interactive Holdings Corp.        |  | (e)(g)(h)       |  | Software & Services                            |  | L+750                           |  | 1.0%  |  | 7/9/21   |  |                     | 29,719  |  |               |   | 29,719    |               |  |   | 29,684    |  
|Zeta Interactive Holdings Corp.        |  | (p)             |  | Software & Services                            |  | L+750                           |  | 1.0%  |  | 7/9/21   |  |                     | 6,424   |  |               |   | 6,424     |               |  |   | 6,416     |  
|                                       |  |                 |  |                                                |  |                                 |  |       |  |          |  |                     |         |  |               |   |           |               |  |   |           |  
|Total Senior Secured LoansFirst Lien  |  |                 |  |                                                |  |                                 |  |       |  |          |  |                     |         |  |               |   | 3,119,499 |               |  |   | 3,005,616 |  
|Unfunded Loan Commitments              |  |                 |  |                                                |  |                                 |  |       |  |          |  |                     |         |  |               |   | (203,409  | )             |  |   | (203,409  | )
|                                       |  |                 |  |                                                |  |                                 |  |       |  |          |  |                     |         |  |               |   |           |               |  |   |           |  
|Net Senior Secured LoansFirst Lien    |  |                 |  |                                                |  |                                 |  |       |  |          |  |                     |         |  |               |   | 2,916,090 |               |  |   | 2,802,207 |  
|                                       |  |                 |  |                                                |  |                                 |  |       |  |          |  |                     |         |  |               |   |           |               |  |   |           |  
|Senior Secured LoansSecond Lien33.5% |  |                 |  |                                                |  |                                 |  |       |  |          |  |                     |         |  |               |   |           |               |  |   |           |  
|Alison US LLC                          |  | (g)(o)          |  | Capital Goods                                  |  | L+850                           |  | 1.0%  |  | 8/29/22  |  |                     | 4,444   |  |               |   | 4,286     |               |  |   | 3,611     |  
|American EnergyMarcellus, LLC         |  | (g)             |  | Energy                                         |  | L+750                           |  | 1.0%  |  | 8/4/21   |  |                     | 3,333   |  |               |   | 3,291     |               |  |   | 78        |  
|AP Exhaust Acquisition, LLC            |  | (e)             |  | Automobiles & Components                       |  | 12.0%, 0.0% PIK (12.0% Max PIK) |  |       |  | 9/28/21  |  |                     | 33,514  |  |               |   | 33,514    |               |  |   | 30,581    |  
|Arena Energy, LP                       |  | (e)             |  | Energy                                         |  | L+1000                          |  | 1.0%  |  | 1/24/21  |  |                     | 15,000  |  |               |   | 15,000    |               |  |   | 13,812    |  
|Ascent ResourcesUtica, LLC            |  | (e)(f)(i)(l)    |  | Energy                                         |  | L+950, 2.0% PIK (2.0% Max PIK)  |  | 1.5%  |  | 9/30/18  |  |                     | 244,118 |  |               |   | 243,105   |               |  |   | 218,485   |  
|Altas Resource Partners, L.P.          |  | (e)(h)(k)       |  | Energy                                         |  | L+900                           |  | 1.0%  |  | 2/23/20  |  |                     | 67,000  |  |               |   | 65,296    |               |  |   | 53,590    |  
|BlackBrush Oil & Gas, L.P.             |  | (j)(l)          |  | Energy                                         |  | L+650                           |  | 1.0%  |  | 7/30/21  |  |                     | 11,182  |  |               |   | 10,419    |               |  |   | 8,964     |  
|BPA Laboratories Inc.                  |  | (e)             |  | Pharmaceuticals, Biotechnology & Life Sciences |  | L+250                           |  |       |  | 7/3/17   |  |                     | 3,272   |  |               |   | 2,870     |               |  |   | 2,659     |  
|BRG Sports, Inc.                       |  | (l)             |  | Consumer Durables & Apparel                    |  | L+925                           |  | 1.0%  |  | 4/15/22  |  |                     | 12,500  |  |               |   | 12,232    |               |  |   | 11,500    |  
|Byrider Finance, LLC                   |  | (f)             |  | Automobiles & Components                       |  | L+1000                          |  | 1.3%  |  | 8/22/20  |  |                     | 16,667  |  |               |   | 16,667    |               |  |   | 16,333    |  
|Checkout Holding Corp.                 |  | (l)             |  | Media                                          |  | L+675                           |  | 1.0%  |  | 4/11/22  |  |                     | 10,000  |  |               |   | 9,937     |               |  |   | 5,725     |  
|Chief Exploration & Development LLC    |  | (g)             |  | Energy                                         |  | L+650                           |  | 1.0%  |  | 5/16/21  |  |                     | 1,174   |  |               |   | 1,165     |               |  |   | 788       |  
|Compuware Corp.                        |  | (e)             |  | Software & Services                            |  | L+825                           |  | 1.0%  |  | 12/15/22 |  |                     | 10,000  |  |               |   | 8,798     |               |  |   | 9,050     |  
|Consolidated Precision Products Corp.  |  | (e)             |  | Capital Goods                                  |  | L+775                           |  | 1.0%  |  | 4/30/21  |  |                     | 6,932   |  |               |   | 6,905     |               |  |   | 6,308     |  
|Crossmark Holdings, Inc.               |  | (l)             |  | Media                                          |  | L+750                           |  | 1.3%  |  | 12/21/20 |  |                     | 7,778   |  |               |   | 7,793     |               |  |   | 4,394     |  
|Del Monte Foods, Inc.                  |  | (l)(o)          |  | Food, Beverage & Tobacco                       |  | L+725                           |  | 1.0%  |  | 8/18/21  |  |                     | 3,333   |  |               |   | 3,306     |               |  |   | 2,744     |  
|Eastman Kodak Co.                      |  | (j)             |  | Consumer Durables & Apparel                    |  | L+950                           |  | 1.3%  |  | 9/3/20   |  |                     | 25,000  |  |               |   | 24,563    |               |  |   | 21,625    |  
|Extreme Reach, Inc.                    |  | (l)             |  | Media                                          |  | L+950                           |  | 1.0%  |  | 1/22/21  |  |                     | 8,000   |  |               |   | 7,875     |               |  |   | 7,640     |  
|Fieldwood Energy LLC                   |  | (f)             |  | Energy                                         |  | L+713                           |  | 1.3%  |  | 9/30/20  |  |                     | 2,667   |  |               |   | 1,919     |               |  |   | 425       |  



See notes to consolidated financial statements.



120



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##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2015

(in thousands, except share amounts)







|                                       |  |              |  |                                  |  |                           |  |       |  |          |  |                     |        |  |               |   |           |               |  |   |         | 
|-------------------------------------- |  | ------------ |  | -------------------------------- |  | ------------------------- |  | ----- |  | -------- |  | ------------------- | ------ |  | ------------- | - | --------- | ------------- |  | - | ------- | 
|Portfolio
Company(a)                   |  | Footnotes    |  | Industry                         |  | Rate(b)                   |  | Floor |  | Maturity |  | Principal
Amount(c) |        |  | AmortizedCost |   |           | Fair Value(d) | 
|Flexera Software LLC                   |  | (l)          |  | Software & Services              |  | L+700                     |  | 1.0%  |  | 4/2/21   |  | $                   | 1,979  |  |               | $ | 1,971     |               |  | $ | 1,869   | 
|Gruden Acquisition, Inc.               |  | (e)          |  | Transportation                   |  | L+850                     |  | 1.0%  |  | 8/18/23  |  |                     | 15,000 |  |               |   | 14,281    |               |  |   | 14,288  | 
|Inmar, Inc.                            |  | (l)          |  | Software & Services              |  | L+700                     |  | 1.0%  |  | 1/27/22  |  |                     | 2,830  |  |               |   | 2,807     |               |  |   | 2,675   | 
|Jazz Acquisition, Inc.                 |  | (g)          |  | Capital Goods                    |  | L+675                     |  | 1.0%  |  | 6/19/22  |  |                     | 3,700  |  |               |   | 3,748     |               |  |   | 3,330   | 
|Jonah Energy LLC                       |  | (f)          |  | Energy                           |  | L+650                     |  | 1.0%  |  | 5/12/21  |  |                     | 1,250  |  |               |   | 1,070     |               |  |   | 794     | 
|JW Aluminum Co.                        |  | (e)(f)(l)(x) |  | Materials                        |  | L+850                     |  | 0.8%  |  | 11/17/20 |  |                     | 30,061 |  |               |   | 30,061    |               |  |   | 30,061  | 
|Leedsworld Inc.                        |  | (e)(f)(g)(h) |  | Retailing                        |  | L+875                     |  | 1.3%  |  | 6/28/20  |  |                     | 62,500 |  |               |   | 62,500    |               |  |   | 61,875  | 
|MD America Energy, LLC                 |  | (l)          |  | Energy                           |  | L+850                     |  | 1.0%  |  | 8/4/19   |  |                     | 8,298  |  |               |   | 7,977     |               |  |   | 6,942   | 
|Mitchell International, Inc.           |  | (k)          |  | Software & Services              |  | L+750                     |  | 1.0%  |  | 10/11/21 |  |                     | 8,843  |  |               |   | 9,021     |               |  |   | 8,482   | 
|National Surgical Hospitals, Inc.      |  | (e)          |  | Health Care Equipment & Services |  | L+900                     |  | 1.0%  |  | 6/1/23   |  |                     | 17,500 |  |               |   | 17,500    |               |  |   | 16,971  | 
|Neff Rental LLC                        |  | (l)          |  | Capital Goods                    |  | L+625                     |  | 1.0%  |  | 6/9/21   |  |                     | 8,961  |  |               |   | 8,925     |               |  |   | 7,438   | 
|Nielsen & Bainbridge, LLC              |  | (f)(h)       |  | Consumer Durables & Apparel      |  | L+925                     |  | 1.0%  |  | 8/15/21  |  |                     | 16,675 |  |               |   | 16,452    |               |  |   | 16,425  | 
|P2 Upstream Acquisition Co.            |  | (l)          |  | Energy                           |  | L+800                     |  | 1.0%  |  | 4/30/21  |  |                     | 14,500 |  |               |   | 14,721    |               |  |   | 12,144  | 
|Paw Luxco II Sarl                      |  | (o)          |  | Consumer Durables & Apparel      |  | EURIBOR+950               |  |       |  | 1/29/19  |  |                    | 5,727  |  |               |   | 7,157     |               |  |   | 4,361   | 
|Payless Inc.                           |  | (l)          |  | Retailing                        |  | L+750                     |  | 1.0%  |  | 3/11/22  |  | $                   | 10,841 |  |               |   | 10,751    |               |  |   | 4,911   | 
|Peak 10, Inc.                          |  | (h)          |  | Software & Services              |  | L+725                     |  | 1.0%  |  | 6/17/22  |  |                     | 5,500  |  |               |   | 5,453     |               |  |   | 5,088   | 
|Penton Media, Inc.                     |  | (j)          |  | Media                            |  | L+775                     |  | 1.3%  |  | 10/2/20  |  |                     | 5,942  |  |               |   | 5,876     |               |  |   | 5,838   | 
|Printpack Holdings, Inc.               |  | (e)(i)(l)    |  | Materials                        |  | L+875                     |  | 1.0%  |  | 5/28/21  |  |                     | 60,000 |  |               |   | 59,001    |               |  |   | 58,500  | 
|PSAV Acquisition Corp.                 |  | (e)(k)       |  | Technology Hardware & Equipment  |  | L+825                     |  | 1.0%  |  | 1/24/22  |  |                     | 80,000 |  |               |   | 79,020    |               |  |   | 79,600  | 
|Renaissance Learning, Inc.             |  | (k)          |  | Software & Services              |  | L+700                     |  | 1.0%  |  | 4/11/22  |  |                     | 3,736  |  |               |   | 3,705     |               |  |   | 3,531   | 
|Road Infrastructure Investment, LLC    |  | (l)          |  | Materials                        |  | L+675                     |  | 1.0%  |  | 9/30/21  |  |                     | 7,759  |  |               |   | 7,728     |               |  |   | 7,216   | 
|Templar Energy LLC                     |  | (f)(h)       |  | Energy                           |  | L+750                     |  | 1.0%  |  | 11/25/20 |  |                     | 29,231 |  |               |   | 28,697    |               |  |   | 3,544   | 
|TNS, Inc.                              |  | (h)(j)(l)    |  | Software & Services              |  | L+800                     |  | 1.0%  |  | 8/14/20  |  |                     | 45,296 |  |               |   | 44,965    |               |  |   | 44,361  | 
|Ultima US Holdings LLC                 |  | (l)(o)       |  | Capital Goods                    |  | L+850                     |  | 1.0%  |  | 12/31/20 |  |                     | 57,000 |  |               |   | 56,160    |               |  |   | 56,715  | 
|Vantage Energy, LLC                    |  | (f)(i)       |  | Energy                           |  | L+750                     |  | 1.0%  |  | 12/20/18 |  |                     | 18,092 |  |               |   | 17,979    |               |  |   | 11,624  | 
|Vantage Energy II, LLC                 |  | (i)          |  | Energy                           |  | L+750                     |  | 1.0%  |  | 5/8/17   |  |                     | 13,000 |  |               |   | 13,000    |               |  |   | 12,610  | 
|Winebow Holdings, Inc.                 |  | (g)          |  | Retailing                        |  | L+750                     |  | 1.0%  |  | 1/2/22   |  |                     | 2,775  |  |               |   | 2,757     |               |  |   | 2,608   | 
|                                       |  |              |  |                                  |  |                           |  |       |  |          |  |                     |        |  |               |   |           |               |  |   |         | 
|Total Senior Secured LoansSecond Lien |  |              |  |                                  |  |                           |  |       |  |          |  |                     |        |  |               |   | 1,012,224 |               |  |   | 902,113 | 
|                                       |  |              |  |                                  |  |                           |  |       |  |          |  |                     |        |  |               |   |           |               |  |   |         | 
|Senior Secured Bonds6.7%              |  |              |  |                                  |  |                           |  |       |  |          |  |                     |        |  |               |   |           |               |  |   |         | 
|Advanced Lighting Technologies, Inc.   |  | (e)(f)       |  | Materials                        |  | 10.5%                     |  |       |  | 6/1/19   |  |                     | 35,500 |  |               |   | 32,439    |               |  |   | 17,484  | 
|American EnergyWoodford, LLC          |  | (f)(m)(n)    |  | Energy                           |  | 12.0% PIK (12.0% Max PIK) |  |       |  | 12/30/20 |  |                     | 2,588  |  |               |   | 2,006     |               |  |   | 369     | 
|Aspect Software, Inc.                  |  | (f)          |  | Software & Services              |  | 10.6%                     |  |       |  | 5/15/17  |  |                     | 8,005  |  |               |   | 8,159     |               |  |   | 6,574   | 
|Avaya Inc.                             |  | (j)          |  | Technology Hardware & Equipment  |  | 7.0%                      |  |       |  | 4/1/19   |  |                     | 5,500  |  |               |   | 5,478     |               |  |   | 4,102   | 



See notes to consolidated financial statements.



121



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##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2015

(in thousands, except share amounts)







|                                             |  |           |  |                                          |  |                                 |  |       |  |          |  |                     |        |  |               |   |         |               |  |   |         |  
|-------------------------------------------- |  | --------- |  | ---------------------------------------- |  | ------------------------------- |  | ----- |  | -------- |  | ------------------- | ------ |  | ------------- | - | ------- | ------------- |  | - | ------- | -
|Portfolio
Company(a)                         |  | Footnotes |  | Industry                                 |  | Rate(b)                         |  | Floor |  | Maturity |  | Principal
Amount(c) |        |  | AmortizedCost |   |         | Fair Value(d) | 
|Avaya Inc.                                   |  | (f)       |  | Technology Hardware & Equipment          |  | 10.5%                           |  |       |  | 3/1/21   |  | $                   | 18,550 |  |               | $ | 16,416  |               |  | $ | 6,353   |  
|Caesars Entertainment Resort Properties, LLC |  | (e)(j)    |  | Consumer Services                        |  | 11.0%                           |  |       |  | 10/1/21  |  |                     | 37,350 |  |               |   | 37,991  |               |  |   | 33,802  |  
|CEVA Group Plc                               |  | (f)(o)    |  | Transportation                           |  | 9.0%                            |  |       |  | 9/1/21   |  |                     | 2,000  |  |               |   | 2,000   |               |  |   | 1,579   |  
|FourPoint Energy, LLC                        |  | (e)(f)    |  | Energy                                   |  | 8.0%                            |  |       |  | 12/31/20 |  |                     | 57,281 |  |               |   | 55,556  |               |  |   | 44,536  |  
|FourPoint Energy, LLC                        |  | (f)(p)    |  | Energy                                   |  | 8.0%                            |  |       |  | 12/31/20 |  |                     | 3,656  |  |               |   | 3,638   |               |  |   | 2,843   |  
|Global A&T Electronics Ltd.                  |  | (f)(l)(o) |  | Semiconductors & Semiconductor Equipment |  | 10.0%                           |  |       |  | 2/1/19   |  |                     | 19,490 |  |               |   | 18,784  |               |  |   | 15,397  |  
|Lightstream Resources Ltd.                   |  | (f)(o)    |  | Energy                                   |  | 9.9%                            |  |       |  | 6/15/19  |  |                     | 5,313  |  |               |   | 5,313   |               |  |   | 4,436   |  
|Logans Roadhouse, Inc.                      |  | (f)       |  | Consumer Services                        |  | 4.0%, 10.5% PIK (10.5% Max PIK) |  |       |  | 10/15/17 |  |                     | 39,799 |  |               |   | 31,751  |               |  |   | 33,205  |  
|Modular Space Corp.                          |  | (f)       |  | Capital Goods                            |  | 10.3%                           |  |       |  | 1/31/19  |  |                     | 9,950  |  |               |   | 10,168  |               |  |   | 3,992   |  
|SandRidge Energy, Inc.                       |  | (j)       |  | Energy                                   |  | 8.8%                            |  |       |  | 6/1/20   |  |                     | 11,700 |  |               |   | 11,675  |               |  |   | 3,572   |  
|Sorenson Communications, Inc.                |  | (e)       |  | Telecommunication Services               |  | 9.0%, 0.0% PIK (9.0% Max PIK)   |  |       |  | 10/31/20 |  |                     | 7,057  |  |               |   | 6,822   |               |  |   | 6,594   |  
|                                             |  |           |  |                                          |  |                                 |  |       |  |          |  |                     |        |  |               |   |         |               |  |   |         |  
|Total Senior Secured Bonds                   |  |           |  |                                          |  |                                 |  |       |  |          |  |                     |        |  |               |   | 248,196 |               |  |   | 184,838 |  
|Unfunded Bond Commitments                    |  |           |  |                                          |  |                                 |  |       |  |          |  |                     |        |  |               |   | (3,638  | )             |  |   | (3,638  | )
|                                             |  |           |  |                                          |  |                                 |  |       |  |          |  |                     |        |  |               |   |         |               |  |   |         |  
|Net Senior Secured Bonds                     |  |           |  |                                          |  |                                 |  |       |  |          |  |                     |        |  |               |   | 244,558 |               |  |   | 181,200 |  
|                                             |  |           |  |                                          |  |                                 |  |       |  |          |  |                     |        |  |               |   |         |               |  |   |         |  
|Subordinated Debt11.9%                      |  |           |  |                                          |  |                                 |  |       |  |          |  |                     |        |  |               |   |         |               |  |   |         |  
|Algeco Scotsman Global Finance Plc           |  | (f)(o)    |  | Commercial & Professional Services       |  | 10.8%                           |  |       |  | 10/15/19 |  |                     | 3,400  |  |               |   | 2,745   |               |  |   | 1,331   |  
|Alta Mesa Holdings, LP                       |  | (f)       |  | Energy                                   |  | 9.6%                            |  |       |  | 10/15/18 |  |                     | 1,350  |  |               |   | 1,002   |               |  |   | 474     |  
|Atlas Energy Holdings Operating Co., LLC     |  | (f)       |  | Energy                                   |  | 7.8%                            |  |       |  | 1/15/21  |  |                     | 7,535  |  |               |   | 6,617   |               |  |   | 1,505   |  
|Atlas Energy Holdings Operating Co., LLC     |  | (f)       |  | Energy                                   |  | 9.3%                            |  |       |  | 8/15/21  |  |                     | 2,264  |  |               |   | 1,717   |               |  |   | 465     |  
|Aurora Diagnostics, LLC                      |  | (e)       |  | Health Care Equipment & Services         |  | 10.8%                           |  |       |  | 1/15/18  |  |                     | 7,000  |  |               |   | 7,021   |               |  |   | 4,554   |  
|Bellatrix Exploration Ltd.                   |  | (j)(o)    |  | Energy                                   |  | 8.5%                            |  |       |  | 5/15/20  |  |                     | 5,000  |  |               |   | 4,911   |               |  |   | 3,369   |  
|BMC Software Finance, Inc.                   |  | (l)       |  | Software & Services                      |  | 7.3%                            |  |       |  | 6/1/18   |  |                     | 3,820  |  |               |   | 3,546   |               |  |   | 3,162   |  
|Brooklyn Basketball Holdings, LLC            |  | (f)(i)    |  | Consumer Services                        |  | L+725                           |  |       |  | 10/25/19 |  |                     | 39,746 |  |               |   | 39,746  |               |  |   | 39,547  |  
|CEC Entertainment, Inc.                      |  | (j)       |  | Consumer Services                        |  | 8.0%                            |  |       |  | 2/15/22  |  |                     | 18,715 |  |               |   | 18,520  |               |  |   | 17,803  |  
|Ceridian HCM Holding Inc.                    |  | (j)       |  | Commercial & Professional Services       |  | 11.0%                           |  |       |  | 3/15/21  |  |                     | 6,500  |  |               |   | 6,266   |               |  |   | 5,135   |  
|Communications Sales & Leasing, Inc.         |  | (j)(o)    |  | Real Estate                              |  | 8.3%                            |  |       |  | 10/15/23 |  |                     | 2,000  |  |               |   | 1,944   |               |  |   | 1,707   |  
|Eclipse Resources Corp.                      |  | (j)(o)    |  | Energy                                   |  | 8.9%                            |  |       |  | 7/15/23  |  |                     | 9,175  |  |               |   | 8,990   |               |  |   | 4,416   |  
|EV Energy Partners, L.P.                     |  | (f)       |  | Energy                                   |  | 8.0%                            |  |       |  | 4/15/19  |  |                     | 259    |  |               |   | 232     |               |  |   | 129     |  
|Global Jet Capital Inc.                      |  |           |  | Commercial & Professional Services       |  | 15.0% PIK (15.0% Max PIK)       |  |       |  | 1/30/25  |  |                     | 635    |  |               |   | 635     |               |  |   | 636     |  



See notes to consolidated financial statements.



122



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##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2015

(in thousands, except share amounts)







|                                              |  |                 |  |                                    |  |                                 |  |       |  |          |  |                     |         |  |               |   |         |               |  |   |         | 
|--------------------------------------------- |  | --------------- |  | ---------------------------------- |  | ------------------------------- |  | ----- |  | -------- |  | ------------------- | ------- |  | ------------- | - | ------- | ------------- |  | - | ------- | 
|Portfolio
Company(a)                          |  | Footnotes       |  | Industry                           |  | Rate(b)                         |  | Floor |  | Maturity |  | Principal
Amount(c) |         |  | AmortizedCost |   |         | Fair Value(d) | 
|Global Jet Capital Inc.                       |  |                 |  | Commercial & Professional Services |  | 15.0% PIK (15.0% Max PIK)       |  |       |  | 4/30/25  |  | $                   | 4,030   |  |               | $ | 4,030   |               |  | $ | 4,030   | 
|Global Jet Capital Inc.                       |  |                 |  | Commercial & Professional Services |  | 15.0% PIK (15.0% Max PIK)       |  |       |  | 9/3/25   |  |                     | 828     |  |               |   | 828     |               |  |   | 828     | 
|Global Jet Capital Inc.                       |  |                 |  | Commercial & Professional Services |  | 15.0% PIK (15.0% Max PIK)       |  |       |  | 9/29/25  |  |                     | 779     |  |               |   | 779     |               |  |   | 779     | 
|Global Jet Capital Inc.                       |  | (f)(o)          |  | Commercial & Professional Services |  | 15.0% PIK (15.0% Max PIK)       |  |       |  | 12/4/25  |  |                     | 5,746   |  |               |   | 5,746   |               |  |   | 5,746   | 
|Global Jet Capital Inc.                       |  | (f)(o)          |  | Commercial & Professional Services |  | 15.0% PIK (15.0% Max PIK)       |  |       |  | 12/9/25  |  |                     | 940     |  |               |   | 940     |               |  |   | 940     | 
|Jupiter Resources Inc.                        |  | (i)(j)(o)       |  | Energy                             |  | 8.5%                            |  |       |  | 10/1/22  |  |                     | 28,800  |  |               |   | 26,535  |               |  |   | 11,556  | 
|Legacy Reserves LP                            |  | (j)             |  | Energy                             |  | 6.6%                            |  |       |  | 12/1/21  |  |                     | 5,000   |  |               |   | 3,988   |               |  |   | 1,081   | 
|Legacy Reserves LP                            |  | (e)             |  | Energy                             |  | 8.0%                            |  |       |  | 12/1/20  |  |                     | 8,250   |  |               |   | 8,126   |               |  |   | 1,660   | 
|Mood Media Corp.                              |  | (e)(f)(o)       |  | Media                              |  | 9.3%                            |  |       |  | 10/15/20 |  |                     | 46,207  |  |               |   | 45,676  |               |  |   | 29,630  | 
|Navistar International Corp.                  |  | (j)(l)(o)       |  | Capital Goods                      |  | 8.3%                            |  |       |  | 11/1/21  |  |                     | 15,240  |  |               |   | 14,155  |               |  |   | 10,311  | 
|NewStar Financial, Inc.                       |  | (e)(i)(k)(l)(o) |  | Diversified Financials             |  | 8.3%, 0.0% PIK (8.8% Max PIK)   |  |       |  | 12/4/24  |  |                     | 137,500 |  |               |   | 109,003 |               |  |   | 100,375 | 
|Ocean Rig UDW Inc.                            |  | (f)(o)          |  | Energy                             |  | 7.3%                            |  |       |  | 4/1/19   |  |                     | 4,700   |  |               |   | 4,700   |               |  |   | 2,003   | 
|Opal Acquisition, Inc.                        |  | (j)             |  | Commercial & Professional Services |  | 8.9%                            |  |       |  | 12/15/21 |  |                     | 17,157  |  |               |   | 17,157  |               |  |   | 13,940  | 
|P.F. Changs China Bistro, Inc.               |  | (e)(j)          |  | Consumer Services                  |  | 10.3%                           |  |       |  | 6/30/20  |  |                     | 25,853  |  |               |   | 26,150  |               |  |   | 21,539  | 
|Rex Energy Corp.                              |  | (f)             |  | Energy                             |  | 6.3%                            |  |       |  | 8/1/22   |  |                     | 3,950   |  |               |   | 3,950   |               |  |   | 558     | 
|Sorenson Communications, Inc.                 |  | (e)(f)          |  | Telecommunication Services         |  | 13.0%, 0.0% PIK (13.0% Max PIK) |  |       |  | 10/31/21 |  |                     | 5,363   |  |               |   | 5,036   |               |  |   | 5,579   | 
|SunGard Availability Services Capital, Inc.   |  | (j)             |  | Software & Services                |  | 8.8%                            |  |       |  | 4/1/22   |  |                     | 5,900   |  |               |   | 4,268   |               |  |   | 3,592   | 
|Talos Production LLC                          |  | (f)             |  | Energy                             |  | 9.8%                            |  |       |  | 2/15/18  |  |                     | 4,500   |  |               |   | 4,131   |               |  |   | 1,856   | 
|TI Group Automotive Systems, LLC              |  | (j)(o)          |  | Automobiles & Components           |  | 8.8%                            |  |       |  | 7/15/23  |  |                     | 10,275  |  |               |   | 10,275  |               |  |   | 9,466   | 
|Triangle USA Petroleum Corp.                  |  | (f)             |  | Energy                             |  | 6.8%                            |  |       |  | 7/15/22  |  |                     | 2,350   |  |               |   | 2,350   |               |  |   | 731     | 
|Windstream Corp.                              |  | (j)(o)          |  | Telecommunication Services         |  | 6.4%                            |  |       |  | 8/1/23   |  |                     | 2,600   |  |               |   | 2,600   |               |  |   | 1,895   | 
|York Risk Services Holding Corp.              |  | (e)(j)          |  | Insurance                          |  | 8.5%                            |  |       |  | 10/1/22  |  |                     | 8,350   |  |               |   | 7,509   |               |  |   | 6,691   | 
|                                              |  |                 |  |                                    |  |                                 |  |       |  |          |  |                     |         |  |               |   |         |               |  |   |         | 
|Total Subordinated Debt                       |  |                 |  |                                    |  |                                 |  |       |  |          |  |                     |         |  |               |   | 411,824 |               |  |   | 319,019 | 
|                                              |  |                 |  |                                    |  |                                 |  |       |  |          |  |                     |         |  |               |   |         |               |  |   |         | 
|Collateralized Securities4.2%                |  |                 |  |                                    |  |                                 |  |       |  |          |  |                     |         |  |               |   |         |               |  |   |         | 
|CGMS CLO 2013-3A Class Subord.                |  | (o)             |  | Diversified Financials             |  | 17.0%                           |  |       |  | 7/15/25  |  |                     | 17,000  |  |               |   | 9,833   |               |  |   | 10,798  | 
|JPMorgan Chase Bank, N.A. CreditLinked Notes |  | (o)             |  | Diversified Financials             |  | 14.2%                           |  |       |  | 12/20/21 |  |                     | 76,260  |  |               |   | 76,187  |               |  |   | 72,828  | 
|NewStar Clarendon 20141A Class D             |  | (o)             |  | Diversified Financials             |  | L+435                           |  |       |  | 1/25/27  |  |                     | 1,060   |  |               |   | 993     |               |  |   | 965     | 



See notes to consolidated financial statements.



123



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##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2015

(in thousands, except share amounts)







|                                                           |  |           |  |                                                |  |         |  |       |  |          |  |                     |            |  |               |   |         |               |  |   |         | 
|---------------------------------------------------------- |  | --------- |  | ---------------------------------------------- |  | ------- |  | ----- |  | -------- |  | ------------------- | ---------- |  | ------------- | - | ------- | ------------- |  | - | ------- | 
|Portfolio
Company(a)                                       |  | Footnotes |  | Industry                                       |  | Rate(b) |  | Floor |  | Maturity |  | Principal
Amount(c) |            |  | AmortizedCost |   |         | Fair Value(d) | 
|NewStar Clarendon 20141A Class Subord. B                  |  | (o)       |  | Diversified Financials                         |  | 13.6%   |  |       |  | 1/25/27  |  | $                   | 12,140     |  |               | $ | 10,953  |               |  | $ | 10,142  | 
|Octagon CLO 20121A Class Income                           |  | (o)       |  | Diversified Financials                         |  | 7.9%    |  |       |  | 1/15/24  |  |                     | 4,650      |  |               |   | 2,279   |               |  |   | 1,761   | 
|Wind River CLO Ltd. 20131A Class Subord. B                |  | (o)       |  | Diversified Financials                         |  | 11.2%   |  |       |  | 4/20/25  |  |                     | 26,720     |  |               |   | 18,345  |               |  |   | 16,889  | 
|                                                           |  |           |  |                                                |  |         |  |       |  |          |  |                     |            |  |               |   |         |               |  |   |         | 
|Total Collateralized Securities                            |  |           |  |                                                |  |         |  |       |  |          |  |                     |            |  |               |   | 118,590 |               |  |   | 113,383 | 
|                                                           |  |           |  |                                                |  |         |  |       |  |          |  |                     |            |  |               |   |         |               |  |   |         | 
|                                                           |  |           |  |                                                |  |         |  |      
|                                                           |  |           |  |                                                |  |         |  |       |  |          |  | Number ofShares     |            |  | Cost          |   |         | FairValue(d)  | 
|Equity/Other8.0%                                          |  |           |  |                                                |  |         |  |       |  |          |  |                     |            |  |               |   |         |               |  |   |         | 
|5 Arches, LLC, Common Equity                               |  | (n)(o)(r) |  | Diversified Financials                         |  |         |  |       |  |          |  |                     | 4,738      |  |               |   | 125     |               |  |   | 125     | 
|A.T. Cross Co., Common Equity, Class A Units               |  | (f)(n)    |  | Retailing                                      |  |         |  |       |  |          |  |                     | 1,000,000  |  |               |   | 1,000   |               |  |   | 550     | 
|A.T. Cross Co., Preferred Equity, Class A-1 Units          |  | (f)(n)    |  | Retailing                                      |  |         |  |       |  |          |  |                     | 243,478    |  |               |   | 243     |               |  |   | 256     | 
|Abaco Energy Technologies LLC, Common Equity               |  | (n)       |  | Energy                                         |  |         |  |       |  |          |  |                     | 3,055,556  |  |               |   | 3,056   |               |  |   | 459     | 
|ACP FH Holdings GP, LLC, Common Equity                     |  | (f)(n)    |  | Consumer Durables & Apparel                    |  |         |  |       |  |          |  |                     | 88,571     |  |               |   | 89      |               |  |   | 88      | 
|ACP FH Holdings, LP, Common Equity                         |  | (f)(n)    |  | Consumer Durables & Apparel                    |  |         |  |       |  |          |  |                     | 8,768,572  |  |               |   | 8,769   |               |  |   | 8,734   | 
|Allen Systems Group, Inc., Common Equity                   |  | (n)(x)    |  | Software & Services                            |  |         |  |       |  |          |  |                     | 625,178    |  |               |   | 13,475  |               |  |   | 28,821  | 
|Altus Power America Holdings, LLC, Preferred Equity        |  |           |  | Energy                                         |  |         |  |       |  |          |  |                     | 574,758    |  |               |   | 573     |               |  |   | 1,063   | 
|Altus Power America Management, LLC, Class B Units         |  | (n)(t)    |  | Energy                                         |  |         |  |       |  |          |  |                     | 83         |  |               |   |        |               |  |   |        | 
|Amaya Inc., Warrants, 5/15/2024                            |  | (n)(o)    |  | Consumer Services                              |  |         |  |       |  |          |  |                     | 2,000,000  |  |               |   | 16,832  |               |  |   | 15,260  | 
|AP Exhaust Holdings, LLC, Common Equity                    |  | (n)(r)    |  | Automobiles & Components                       |  |         |  |       |  |          |  |                     | 8,378      |  |               |   | 8,378   |               |  |   | 4,189   | 
|Ascent Resources Utica Holdings, LLC, Common Equity        |  | (n)(q)    |  | Energy                                         |  |         |  |       |  |          |  |                     | 13,555,557 |  |               |   | 12,900  |               |  |   | 2,711   | 
|BPA Laboratories, Inc., Series A Warrants, 4/29/2024       |  | (e)(n)    |  | Pharmaceuticals, Biotechnology & Life Sciences |  |         |  |       |  |          |  |                     | 10,924     |  |               |   |        |               |  |   |        | 
|BPA Laboratories, Inc., Series B Warrants, 4/29/2024       |  | (e)(n)    |  | Pharmaceuticals, Biotechnology & Life Sciences |  |         |  |       |  |          |  |                     | 17,515     |  |               |   |        |               |  |   |        | 
|Burleigh Point, Ltd., Warrants, 7/16/2020                  |  | (n)(o)    |  | Retailing                                      |  |         |  |       |  |          |  |                     | 3,451,216  |  |               |   | 1,898   |               |  |   | 2,278   | 
|Cimarron Energy Holdco Inc., Common Equity                 |  | (n)       |  | Energy                                         |  |         |  |       |  |          |  |                     | 2,500,000  |  |               |   | 2,500   |               |  |   | 1,750   | 
|CoSentry.Net, LLC, Preferred Equity                        |  | (f)(n)    |  | Software & Services                            |  |         |  |       |  |          |  |                     | 2,632      |  |               |   | 2,500   |               |  |   | 4,385   | 
|DHS Technologies LLC, Common Equity                        |  | (f)       |  | Capital Goods                                  |  |         |  |       |  |          |  |                     | 60,872     |  |               |   | 5,000   |               |  |   | 1,218   | 
|Eastman Kodak Co., Common Equity                           |  | (n)       |  | Consumer Durables & Apparel                    |  |         |  |       |  |          |  |                     | 1,846      |  |               |   | 36      |               |  |   | 23      | 
|FourPoint Energy, LLC, Common Equity, Class C Units        |  | (n)(r)    |  | Energy                                         |  |         |  |       |  |          |  |                     | 13,000     |  |               |   | 13,000  |               |  |   | 9,100   | 
|FourPoint Energy, LLC, Common Equity, Class D Units        |  | (n)(r)    |  | Energy                                         |  |         |  |       |  |          |  |                     | 2,437      |  |               |   | 1,610   |               |  |   | 1,718   | 
|Global Jet Capital Holdings, LP, Preferred Equity          |  | (f)(n)(o) |  | Commercial & Professional Services             |  |         |  |       |  |          |  |                     | 5,283,114  |  |               |   | 5,283   |               |  |   | 5,283   | 
|Harvey Holdings, LLC, Common Equity                        |  | (n)       |  | Capital Goods                                  |  |         |  |       |  |          |  |                     | 666,667    |  |               |   | 667     |               |  |   | 633     | 
|Industrial Group Intermediate Holdings, LLC, Common Equity |  | (n)(r)    |  | Materials                                      |  |         |  |       |  |          |  |                     | 2,107,438  |  |               |   | 2,107   |               |  |   | 3,477   | 



See notes to consolidated financial statements.



124



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##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2015

(in thousands, except share amounts)







|                                                        |  |                 |  |                                 |  |                 |  |  |      |  |  |              |           |  |  |   |           |  |  |   |            |  
|------------------------------------------------------- |  | --------------- |  | ------------------------------- |  | --------------- |  |  | ---- |  |  | ------------ | --------- |  |  | - | --------- |  |  | - | ---------- | -
|Portfolio
Company(a)                                    |  | Footnotes       |  | Industry                        |  | Number ofShares |  |  | Cost |  |  | FairValue(d) |          
|JMC Acquisition Holdings, LLC, Common Equity            |  | (n)             |  | Capital Goods                   |  |                 |  |  |      |  |  |              | 1,449     |  |  | $ | 1,449     |  |  | $ | 1,449      |  
|JW Aluminum Co., Common Equity                          |  | (e)(f)(l)(n)(x) |  | Materials                       |  |                 |  |  |      |  |  |              | 244       |  |  |   |          |  |  |   |           |  
|JW Aluminum Co., Preferred Equity                       |  | (e)(f)(l)(n)(x) |  | Materials                       |  |                 |  |  |      |  |  |              | 1,128     |  |  |   | 11,056    |  |  |   | 11,247     |  
|MB Precision Investment Holdings LLC, Class A-2 Units   |  | (n)(r)          |  | Capital Goods                   |  |                 |  |  |      |  |  |              | 2,287,659 |  |  |   | 2,288     |  |  |   | 2,173      |  
|New Star Metals Inc., Common Equity                     |  | (f)             |  | Capital Goods                   |  |                 |  |  |      |  |  |              | 2,223,246 |  |  |   | 2,250     |  |  |   | 2,001      |  
|NewStar Financial, Inc., Warrants, 11/4/2024            |  | (f)(n)(o)(v)    |  | Diversified Financials          |  |                 |  |  |      |  |  |              | 6,000,000 |  |  |   | 30,115    |  |  |   | 29,520     |  
|Professional Plumbing Group, Inc., Common Equity        |  | (f)(n)          |  | Capital Goods                   |  |                 |  |  |      |  |  |              | 3,000,000 |  |  |   | 3,000     |  |  |   | 5,100      |  
|PSAV Holdings LLC, Common Equity                        |  |                 |  | Technology Hardware & Equipment |  |                 |  |  |      |  |  |              | 10,000    |  |  |   | 10,000    |  |  |   | 31,500     |  
|Sequential Brands Group, Inc., Common Equity            |  | (f)(n)(o)       |  | Consumer Durables & Apparel     |  |                 |  |  |      |  |  |              | 408,685   |  |  |   | 5,517     |  |  |   | 2,791      |  
|Sorenson Communications, Inc., Common Equity            |  | (e)(f)(n)       |  | Telecommunication Services      |  |                 |  |  |      |  |  |              | 43,796    |  |  |   |          |  |  |   | 31,393     |  
|Sunnova Holdings, LLC, Common Equity                    |  | (n)             |  | Energy                          |  |                 |  |  |      |  |  |              | 62,031    |  |  |   | 1,444     |  |  |   | 1,706      |  
|Swift Worldwide Resources Holdco Limited, Common Equity |  | (n)(o)(u)       |  | Energy                          |  |                 |  |  |      |  |  |              | 1,250,000 |  |  |   | 2,010     |  |  |   | 1,290      |  
|Zeta Interactive Holdings Corp., Preferred Equity       |  | (n)             |  | Software & Services             |  |                 |  |  |      |  |  |              | 620,025   |  |  |   | 4,929     |  |  |   | 5,122      |  
|                                                        |  |                 |  |                                 |  |                 |  |  |      |  |  |              |           |  |  |   |           |  |  |   |            |  
|Total Equity/Other                                      |  |                 |  |                                 |  |                 |  |  |      |  |  |              |           |  |  |   | 174,099   |  |  |   | 217,413    |  
|                                                        |  |                 |  |                                 |  |                 |  |  |      |  |  |              |           |  |  |   |           |  |  |   |            |  
|Unfunded Contingent Warrant Commitment                  |  | (w)             |  |                                 |  |                 |  |  |      |  |  |              |           |  |  |   |           |  |  |   | (2,460     | )
|                                                        |  |                 |  |                                 |  |                 |  |  |      |  |  |              |           |  |  |   |           |  |  |   |            |  
|Net Equity/Other                                        |  |                 |  |                                 |  |                 |  |  |      |  |  |              |           |  |  |   |           |  |  |   | 214,953    |  
|                                                        |  |                 |  |                                 |  |                 |  |  |      |  |  |              |           |  |  |   |           |  |  |   |            |  
|TOTAL INVESTMENTS168.5%                                |  |                 |  |                                 |  |                 |  |  |      |  |  |              |           |  |  | $ | 4,877,385 |  |  |   | 4,532,875  |  
|                                                        |  |                 |  |                                 |  |                 |  |  |      |  |  |              |           |  |  |   |           |  |  |   |            |  
|LIABILITIES IN EXCESS OF OTHER ASSETS(68.5%)           |  |                 |  |                                 |  |                 |  |  |      |  |  |              |           |  |  |   |           |  |  |   | (1,842,463 | )
|                                                        |  |                 |  |                                 |  |                 |  |  |      |  |  |              |           |  |  |   |           |  |  |   |            |  
|NET ASSETS100.0%                                       |  |                 |  |                                 |  |                 |  |  |      |  |  |              |           |  |  |   |           |  |  | $ | 2,690,412  |  
|                                                        |  |                 |  |                                 |  |                 |  |  |      |  |  |              |           |  |  |   |           |  |  |   |            |  



|(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, 2015, the three-month London Interbank Offered Rate, or LIBOR, was 0.61%, the Euro Interbank Offered Rate, or EURIBOR, was (0.13)% and the U.S. Prime Lending Rate, or Prime, was 3.50%.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | Denominated in U.S. dollars unless otherwise noted.
|--- | ---------------------------------------------------



|(d) | Fair value 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 Floating Rate 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).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See notes to consolidated financial statements.



125



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FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2015

(in thousands, except share amounts)







|(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 pledged as collateral supporting the amounts outstanding under a term loan credit facility with
JPMorgan Chase Bank, N.A. (see Note 8).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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 was on non-accrual status as of December 31, 2015.
|--- | -----------------------------------------------------------



|(n) | Security is non-income producing.
|--- | ---------------------------------



|(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
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, 2015, 84.7% of the Companys total assets represented qualifying assets.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(p) | Security is an unfunded commitment. The stated rate reflects the spread disclosed at the time of commitment and may not indicate the actual rate received upon funding.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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 held within IC II Arches Investments, LLC, a wholly-owned subsidiary of the Company.
|--- | ---------------------------------------------------------------------------------------------



|(t) | Security held within IC II Altus Investments, LLC, a wholly-owned subsidiary of the Company.
|--- | --------------------------------------------------------------------------------------------



|(u) | Investment denominated in British pounds. Cost and fair value are converted into U.S. dollars as of December 31, 2015.
|--- | ----------------------------------------------------------------------------------------------------------------------



|(v) | Includes 500,000 NewStar Financial, Inc., or NewStar, warrants, which is the maximum number of warrants that the Company will forfeit in the event that the Company
declines to fund additional subordinated debt investments in NewStar in an amount not to exceed $12,500 upon the request of NewStar.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(w) | Represents the maximum number of NewStar warrants that the Company will forfeit in the event that the Company declines to fund additional subordinated debt investments
in NewStar in an amount not to exceed $12,500 upon the request of NewStar.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See notes to consolidated financial statements.



126



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FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2015

(in thousands, except share amounts)







|(x) | Under the 1940 Act, the Company generally is deemed to be an affiliated person of a portfolio company if it owns 5% or more of the portfolio companys
voting securities and generally is deemed to control a portfolio company if it owns 25% or more of the portfolio companys voting securities or it has the power to exercise control over the management or policies of such portfolio
company. As of December 31, 2015, the Company held investments in two portfolio companies of which it is deemed to be an affiliated person but would not be deemed to control. The following table presents certain
financial information with respect to such portfolio companies for the year ended December 31, 2015:
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                        |  |           |        |  |                      |      |                     |   |                |        |           |        |                |  |   |                         |  |  |                                                    |  |  |   |        | 
|--------------------------------------- |  | --------- | ------ |  | -------------------- | ---- | ------------------- | - | -------------- | ------ | --------- | ------ | -------------- |  | - | ----------------------- |  |  | -------------------------------------------------- |  |  | - | ------ | 
|Portfolio Company                       |  | Purchases |        |  | Paid-in-kindInterest |      | Sales andRepayments |   | InterestIncome |        | FeeIncome |        | DividendIncome |  |   | Net RealizedGain (Loss) |  |  | Net Change inUnrealized Appreciation(Depreciation) | 
|Senior Secured LoansFirst Lien         |  |           |        |  |                      |      |                     |   |                |        |           |        |                |  |   |                         |  |  |                                                    |  |  |   |        | 
|Allen Systems Group, Inc.               |  | $         | 70,109 |  |                      | $573 |                     |  |                | $4,849 |           | $1,482 |                |  |  |                         |  |  |                                                   |  |  | $ | 707    | 
|Senior Secured LoansSecond Lien        |  |           |        |  |                      |      |                     |   |                |        |           |        |                |  |   |                         |  |  |                                                    |  |  |   |        | 
|JW Aluminum Co.                         |  | $         | 30,061 |  |                      |     |                     |  |                | $348   |           |       |                |  |  |                         |  |  |                                                   |  |  |   |       | 
|Equity/Other                            |  |           |        |  |                      |      |                     |   |                |        |           |        |                |  |   |                         |  |  |                                                    |  |  |   |        | 
|Allen Systems Group, Inc. Common Equity |  | $         | 13,475 |  |                      |     |                     |  |                |       |           |       |                |  |  |                         |  |  |                                                   |  |  | $ | 15,346 | 
|JW Aluminum Co., Common Equity          |  |           |       |  |                      |     |                     |  |                |       |           |       |                |  |  |                         |  |  |                                                   |  |  |   |       | 
|JW Aluminum Co., Preferred Equity       |  | $         | 11,056 |  |                      |     |                     |  |                |       |           |       |                |  |  |                         |  |  |                                                   |  |  | $ | 191    | 



See notes to consolidated
financial statements.



127



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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  | 
|Corner Investment PropCo, LLC                |  | (e)(g)(k)          |  | Consumer Services                              |  | L+975   |  | 1.3%  |  | 11/2/19  |  |                    | 40,975  |  |               |   | 41,503  |               |  |   | 40,771  | 



See notes to consolidated financial statements.



128



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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) | 
|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   | 
|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     | 



See notes to consolidated financial statements.



129



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##### 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) | 
|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 | 
|Waste Pro USA, Inc.                         |  | (s)             |  | Commercial & Professional Services             |  | L+750                          |  | 1.0%  |  | 10/15/20 |  |                    | 12,222  |  |               |   | 12,222  |               |  |   | 12,222  | 



See notes to consolidated financial statements.



130



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##### 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) | 
|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     |  
|Filtration Group Corp.                  |  | (j)          |  | Energy                                         |  | L+725                          |  | 1.0%  |  | 11/21/21 |  |                    | 5,158   |  |               |   | 5,173     |               |  |   | 5,164     |  



See notes to consolidated financial statements.



131



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##### 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) | 
|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    | 
|Winebow Holdings, Inc.              |  | (g)       |  | Retailing                                      |  | L+750       |  | 1.0%  |  | 1/2/22   |  |                    | 2,775  |  |               |   | 2,755  |               |  |   | 2,691  | 



See notes to consolidated financial statements.



132



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##### 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) | 
|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    |  
|BWAY Holding Co.                             |  | (j)       |  | Materials                                      |  | 9.1%                           |  |       |  | 8/15/21  |  |                    | 6,250  |  |               |   | 6,211     |               |  |   | 6,281     |  



See notes to consolidated financial statements.



133



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##### 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) | 
|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    | 
|Talos Production LLC                        |  | (j)          |  | Energy                             |  | 9.8%                          |  |       |  | 2/15/18  |  |                    | 1,500   |  |               |   | 1,364  |               |  |   | 1,358  | 



See notes to consolidated financial statements.



134



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##### 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) | 
|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   | 



See notes to consolidated financial statements.



135



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##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)







|                                                           |  |           |  |                                                |  |                           |  |  |      |  |  |              |            |  |  |   |           |  |  |   |            |  
|---------------------------------------------------------- |  | --------- |  | ---------------------------------------------- |  | ------------------------- |  |  | ---- |  |  | ------------ | ---------- |  |  | - | --------- |  |  | - | ---------- | -
|Portfolio
Company                                          |  | Footnotes |  | Industry                                       |  | Number ofShares/Contracts |  |  | Cost |  |  | FairValue(d) |           
|BPA Laboratories, Inc., Series A Warrants                  |  | (e)(p)    |  | Pharmaceuticals, Biotechnology & Life Sciences |  |                           |  |  |      |  |  |              | 10,924     |  |  | $ |          |  |  | $ |           |  
|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      |  
|NewStar 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                                           |  |           |  |                                                |  |                           |  |  |      |  |  |              |            |  |  |   |           |  |  |   | 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.



136



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##### 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 |  |                         | 5.0 | % |          |  | 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 |  |                         | 5.0 | % |          |  | 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 Floating Rate 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).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See notes to consolidated financial statements.



137



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##### Table of Contents

FS Investment Corporation II

Consolidated Schedule of Investments (continued)

As of December 31, 2014

(in thousands, except share amounts)







|(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.



138



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##### 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, 2015, the Company had nine wholly-owned financing subsidiaries, three 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 audited
consolidated financial statements include both the Companys accounts and the accounts of its wholly-owned subsidiaries as of December 31, 2015. 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 or otherwise acquire minority interests in target companies, in the form of common or preferred equity or 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. Any such minority interests are generally acquired 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, collateralized loan obligations, or CLOs, 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



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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)



consolidated financial statements were issued and filed with the U.S. 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 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 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
independent third-party valuation services.

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

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



| |  |  | the Companys quarterly fair valuation process begins with FSIC II Advisors management team reviewing and documenting valuations of each
portfolio company or investment, which valuations may be obtained from an independent third-party valuation service, if applicable;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | FSIC II Advisors management team then provides the valuation committee with the preliminary valuations for each portfolio company or investment;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | preliminary valuations are then discussed with the valuation committee;
| | - |  | -----------------------------------------------------------------------



| |  |  | the Companys valuation committee reviews the preliminary valuations and FSIC II Advisors management team, together with its independent
third-party valuation services, if applicable, supplement the preliminary valuations to reflect any comments provided by the valuation committee;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 2. Summary of Significant Accounting
Policies (continued)



| |  |  | following its review, the valuation committee will recommend that the Companys board of directors approve the fair valuations; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Companys board of directors discusses the valuations and determines the fair value of each such 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 independent third-party valuation services, if applicable.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 any approved 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 approved 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 FSIC II Advisors management team, any approved independent third-party valuation services and the Companys board of directors may consider when determining the
fair value of the Companys 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 may be considered include the borrowers ability to adequately service its debt, the fair market value of the
borrower 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 (i.e., 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 determination 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.

FSIC II Advisors management team, any approved independent third-party valuation services and the Companys board
of directors may also consider 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. FSIC II Advisors management team, any approved independent third party valuation services and the Companys board of directors may also consider the



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Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 2. Summary of Significant Accounting
Policies (continued)



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 smaller size of portfolio companies relative to comparable firms, as well as such other factors as the Companys board of directors, in consultation with FSIC II Advisors management team and any approved independent third-party
valuation services, 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 in 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 their fair value.

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. The Companys board of directors has delegated day-to-day responsibility for implementing its valuation policy to FSIC II Advisors management team, and has authorized FSIC II Advisors management team to utilize independent
third-party valuation and pricing services that have been approved by the Companys board of directors. The valuation committee is responsible for overseeing FSIC II Advisors implementation of the 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. The Companys policy is to place investments on non-accrual status when there is reasonable doubt that interest income will be collected. The Company considers many factors relevant to an investment when placing it on or
removing it from non-accrual status including, but not limited to, the delinquency status of the investment, economic and business conditions, the overall financial condition of the underlying investment, the value of the underlying collateral,
bankruptcy status, if any, and any other facts or circumstances relevant to the investment. If there is reasonable doubt that the Company will receive any previously accrued interest, then the interest income will be written-off. Payments received
on non-accrual investments may be recognized as income or applied to principal depending upon the collectability of the remaining principal and interest. Non-accrual investments may be restored to accrual status when principal and interest become
current and are likely to remain current based on the Companys judgment.

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 non-recurring 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



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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)



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 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, or AICPA, 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 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 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



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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)



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 equal to 1.875% per quarter, or an annualized hurdle rate of 7.5%. For purposes of this fee,
adjusted capital means cumulative gross proceeds generated from sales of the Companys common stock (including proceeds from its distribution reinvestment plan) reduced for distributions paid to stockholders from proceeds of
non-liquidating dispositions of the Companys investments and amounts paid for share repurchases pursuant to the Companys share repurchase program. As a result, FSIC II Advisor will not earn this part of the 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 the Companys 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 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,



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Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 2. Summary of Significant Accounting
Policies (continued)



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 will segregate 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. As of
December 31, 2015, the Company had no outstanding credit default swap contracts.

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, as well as 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, determined without regard to any deduction for distributions 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 tax 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 an amount at least equal to the sum of 98% of net ordinary income, 98.2% of any capital gain net income, if any, and any
recognized and undistributed income from prior years for which it paid no U.S. federal income taxes.

Uncertainty in Income
Taxes: The Company evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes
of measuring and recognizing tax 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, 2015, 2014 and 2013, 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 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.



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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)



Reclassifications: Certain amounts in the consolidated financial statements for
the years ended December 31, 2014 and 2013 have been reclassified to conform to the classifications used to prepare the consolidated financial statements for the year ended December 31, 2015. 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, 2015, 2014 and 2013:



|                                     |  |                         |            |   |        |   |         |        |  |  |            |   |  |        |         |   |        |  |             |   |  |   |           |  
|------------------------------------ |  | ----------------------- | ---------- | - | ------ | - | ------- | ------ |  |  | ---------- | - |  | ------ | ------- | - | ------ |  | ----------- | - |  | - | --------- | -
|                                     |  | Year Ended December 31, |           
|                                     |  | 2015                    |            |   | 2014   |   |         | 2013   | 
|                                     |  | Shares                  |            |   | Amount |   |         | Shares |  |  | Amount     |   |  | Shares |         |   | Amount | 
|Gross Proceeds from Offering         |  |                         |           |   |        | $ |        |        |  |  | 46,680,052 |   |  | $      | 486,879 |   |        |  | 191,695,887 |   |  | $ | 1,991,124 |  
|Reinvestment of Distributions        |  |                         | 12,552,400 |   |        |   | 116,784 |        |  |  | 13,520,133 |   |  |        | 129,347 |   |        |  | 5,523,072   |   |  |   | 52,057    |  
|                                     |  |                         |            |   |        |   |         |        |  |  |            |   |  |        |         |   |        |  |             |   |  |   |           |  
|Total Gross Proceeds                 |  |                         | 12,552,400 |   |        |   | 116,784 |        |  |  | 60,200,185 |   |  |        | 616,226 |   |        |  | 197,218,959 |   |  |   | 2,043,181 |  
|Commissions and Dealer Manager Fees  |  |                         |           |   |        |   |        |        |  |  |           |   |  |        | (44,484 | ) |        |  |            |   |  |   | (186,143  | )
|                                     |  |                         |            |   |        |   |         |        |  |  |            |   |  |        |         |   |        |  |             |   |  |   |           |  
|Net Proceeds to Company              |  |                         | 12,552,400 |   |        |   | 116,784 |        |  |  | 60,200,185 |   |  |        | 571,742 |   |        |  | 197,218,959 |   |  |   | 1,857,038 |  
|Share Repurchase Program             |  |                         | (4,081,651 | ) |        |   | (38,034 | )      |  |  | (1,735,154 | ) |  |        | (16,665 | ) |        |  | (259,669    | ) |  |   | (2,447    | )
|                                     |  |                         |            |   |        |   |         |        |  |  |            |   |  |        |         |   |        |  |             |   |  |   |           |  
|Net Proceeds from Share Transactions |  |                         | 8,470,749  |   |        | $ | 78,750  |        |  |  | 58,465,031 |   |  | $      | 555,077 |   |        |  | 196,959,290 |   |  | $ | 1,854,591 |  
|                                     |  |                         |            |   |        |   |         |        |  |  |            |   |  |        |         |   |        |  |             |   |  |   |           |  

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 1, 2016, the Company had issued a total of 331,408,669 shares of common stock and raised total gross proceeds of $3,382,697, 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, 2015, 2014 and 2013, the Company sold 12,552,400, 60,200,185 and 197,218,959 shares of common stock for gross proceeds of $116,784, $616,226 and $2,043,181 at an
average price per share of $9.30, $10.24 and $10.36, respectively. All of the shares of common stock the Company issued during the year ended December 31, 2015 were issued on account of reinvested stockholder distributions pursuant to the
Companys dividend reinvestment plan. The gross proceeds received during the years ended December 31, 2014 and 2013 include reinvested stockholder distributions of $129,347 and $52,057 for which the Company issued 13,520,133 and 5,523,072
shares of common stock, respectively. During the period from January 1, 2016 to March 1, 2016, the Company issued 3,799,442 shares of common stock pursuant to its distribution reinvestment plan for gross proceeds of $31,963 at an average
price per share of $8.41.



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 3. Share Transactions (continued)



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 $0, $44,484 and $186,143 for the years ended December 31, 2015, 2014 and 2013,
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.
| | - |  | ----------------------------------------

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 calendar 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.

Under the Companys 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.



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 3. Share Transactions (continued)



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, 2015, 2014 and 2013:



|                           |  |                 |  |                   |           |  |                                                 |  |     |                          |  |   |                                            |  |  |   |        | 
|-------------------------- |  | --------------- |  | ----------------- | --------- |  | ----------------------------------------------- |  | --- | ------------------------ |  | - | ------------------------------------------ |  |  | - | ------ | 
|For the Three Months Ended |  | Repurchase Date |  | SharesRepurchased |           |  | Percentageof SharesTenderedThat WereRepurchased |  |     | RepurchasePrice PerShare |  |   | AggregateConsiderationforRepurchasedShares | 
|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  | 
|Fiscal 2015                |  |                 |  |                   |           |  |                                                 |  |     |                          |  |   |                                            |  |  |   |        | 
|December 31, 2014          |  | January 2, 2015 |  |                   | 578,569   |  |                                                 |  | 100 | %                        |  | $ | 9.500                                      |  |  | $ | 5,496  | 
|March 31, 2015             |  | April 1, 2015   |  |                   | 885,509   |  |                                                 |  | 100 | %                        |  | $ | 9.450                                      |  |  | $ | 8,368  | 
|June 30, 2015              |  | July 1, 2015    |  |                   | 997,845   |  |                                                 |  | 100 | %                        |  | $ | 9.450                                      |  |  | $ | 9,430  | 
|September 30, 2015         |  | October 1, 2015 |  |                   | 1,619,728 |  |                                                 |  | 100 | %                        |  | $ | 9.100                                      |  |  | $ | 14,740 | 



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

On January 4, 2016, the Company repurchased 1,779,357 shares of common stock (representing 100% of the shares of the common stock
tendered for repurchase) at $8.550 per share for aggregate consideration totaling $15,214.

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. Effective March 5, 2015, FSIC II Advisor agreed to permanently waive a portion of its base management fee to which it is entitled under the investment advisory and administrative
services agreement, so that the fee received equals 1.75% of the average value of the Companys gross assets.

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 equal to 1.875% per quarter, or an annualized hurdle rate of 7.5%. For purposes of this fee,
adjusted capital means cumulative gross proceeds generated from sales



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 4. Related Party
Transactions (continued)



of the Companys common stock (including proceeds from its distribution reinvestment plan) reduced for distributions from non-liquidating dispositions of the Companys investments paid
to stockholders and amounts paid for share repurchases pursuant to the Companys share repurchase program. As a result, FSIC II Advisor will not earn this part of the 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 the Companys 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, L.P., or Franklin Square Holdings, the Companys sponsor and an affiliate of FSIC II Advisor, 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 factors such 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 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.



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 4. Related Party
Transactions (continued)



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 stock, which included 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 shares of and marketing the Companys common stock. 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, were 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, or the dealer manager agreement, 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.



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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 the Company
accrued under the investment advisory and administrative services agreement and the dealer manager fees FS2received under the dealer manager agreement during the years ended December 31, 2015, 2014 and 2013:



|                |  |                                                           |  |                                         |  |                         |        |  |      |   |        |      |  |   |        | 
|--------------- |  | --------------------------------------------------------- |  | --------------------------------------- |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                |  |                                                           |  |                                         |  | Year Ended December 31, |       
|Related Party   |  | Source Agreement                                          |  | Description                             |  | 2015                    |        |  | 2014 |   |        | 2013 | 
|FSIC II Advisor |  | Investment Advisory andAdministrative Services Agreement  |  | Base Management Fee(1)                  |  | $                       | 89,182 |  |      | $ | 82,325 |      |  | $ | 38,677 | 
|FSIC II Advisor |  | Investment Advisory and Administrative Services Agreement |  | Capital Gains Incentive Fee(2)          |  | $                       |       |  |      | $ | (9,234 | )    |  | $ | 6,164  | 
|FSIC II Advisor |  | Investment Advisory and Administrative Services Agreement |  | Subordinated Incentive Fee on
Income(3) |  | $                       | 72,664 |  |      | $ | 33,251 |      |  | $ | 8,871  | 
|FSIC II Advisor |  | Investment Advisory and Administrative Services Agreement |  | Administrative Services Expenses(4)     |  | $                       | 3,917  |  |      | $ | 4,607  |      |  | $ | 2,732  | 
|FSIC II Advisor |  | Investment Advisory and Administrative Services Agreement |  | Offering Costs(5)                       |  | $                       |       |  |      | $ | 1,087  |      |  | $ | 3,316  | 
|FS2             |  | Dealer Manager Agreement                                  |  | Dealer Manager Fee(6)                   |  | $                       |       |  |      | $ | 8,821  |      |  | $ | 35,718 | 



|(1) | FSIC II Advisor agreed, effective March 5, 2015, to permanently waive a portion of its base management fee to which it is entitled under the investment advisory
and administrative services agreement so that the fee received equals 1.75% of the average value of the Companys gross assets. As a result, the amount shown for the year ended December 31, 2015 is net of waivers of $10,252. During the
years ended December 31, 2015, 2014 and 2013, $90,722, $74,269 and $26,131, respectively, in base management fees were paid to FSIC II Advisor. As of December 31, 2015, $21,529 in base management fees were payable to FSIC II Advisor.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | During the year ended December 31, 2015, the Company did not accrue any capital gains incentive fees based on the performance of its portfolio. During the year
ended December 31, 2014, the Company reversed $9,234 of capital gains incentive fees previously accrued based on the performance of its portfolio. During the year ended December 31, 2013, the Company accrued capital gains incentive fees of
$6,164 based on the performance of its portfolio, all of which was based on unrealized 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, 2015. As of December 31, 2015, 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, 2015, 2014 and 2013, $71,744, $17,917 and $8,871, respectively, of subordinated incentive fees on income were paid to FSIC II
Advisor. As of December 31, 2015, a subordinated incentive fee on income of $16,254 was payable to FSIC II advisor.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | During the years ended December 31, 2015, 2014 and 2013, $3,679, $4,173 and $2,216, 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 $4,370, $3,333 and $2,342, in administrative services expenses to FSIC II Advisor
during the years ended December 31, 2015, 2014 and 2013, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 4. Related Party
Transactions (continued)



|(5) | During the years ended December 31, 2015, 2014 and 2013, the Company incurred offering costs of $0, $1,686, $7,900, respectively, of which $0, $1,087 and $3,316,
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 shares.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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 1, 2016, the Company had issued an aggregate of 3,587,422 shares of common stock for aggregate gross proceeds of $32,827 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, FSIC IV Advisor, LLC and FS Global Advisor, LLC, the investment advisers to certain
other BDCs and a closed-end management investment company affiliated with 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, FS Investment Corporation IV and FS Global Credit Opportunities Fund. While none of FSIC II Advisor, FB Income Advisor, LLC, FS Investment Advisor, LLC, FSIC III Advisor, LLC, FSIC IV 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, FS Investment Corporation IV 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



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 4. Related Party
Transactions (continued)



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, FS Investment Corporation IV and/or FS Global Credit Opportunities Fund rather than to the Company.

Exemptive Relief

As a
BDC, the Company is subject to certain regulatory restrictions in making its investments. For example, BDCs generally are not permitted to co-invest with certain affiliated entities in transactions originated by the BDC or its affiliates in the
absence of an exemptive order from the SEC. However, BDCs are permitted to, and may, simultaneously co-invest in transactions where price is the only negotiated point. 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, FS Investment Corporation IV 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 strategies. The Company believes this relief may also increase favorable investment opportunities for it, in part, by allowing the Company to participate in larger
investments, together with its co-investment affiliates, than would be available to the Company 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, the Company is 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 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, 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.



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 4. Related Party
Transactions (continued)



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 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 its 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 its 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 shares of its 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, 2015, there were no unreimbursed expense support payments subject to future reimbursement by the Company.

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 recoupment payments of $847 to Franklin Square Holdings. As of December 31, 2015 and 2014, no further amounts
remained subject to repayment by the Company to Franklin Square Holdings in the future.



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 4. Related Party
Transactions (continued)



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, 2015, 2014 and 2013:



|                                |  |              |        |  |        |   |         | 
|------------------------------- |  | ------------ | ------ |  | ------ | - | ------- | 
|                                |  | Distribution |       
|For the Year Ended December 31, |  | Per Share    |        |  | Amount |  
|2013                            |  | $            | 0.7622 |  |        | $ | 114,307 | 
|2014                            |  |              | 0.7395 |  |        |   | 223,554 | 
|2015                            |  |              | 0.7540 |  |        |   | 239,145 | 

The Company intends to declare regular cash distributions on a quarterly basis and pay such distributions
on a monthly basis. On November 12, 2015 and March 23, 2016, the Companys board of directors declared regular monthly cash distributions for January 2016 through March 2016 and April 2016 through June 2016, 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.

Under the Companys distribution reinvestment plan, cash distributions to participating stockholders will be reinvested in additional shares of the Companys 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 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 of the distribution and (ii) not more than 2.5% greater than the net asset value per share of the Companys 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, stockholders 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. Stockholders 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.



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 5. Distributions (continued)



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. During certain periods, the Companys distributions may exceed its earnings. As a result, it is possible that a portion of the distributions the
Company makes may represent a return of capital. A return of capital generally is a return of a stockholders investment rather than a return of earnings or gains derived from the Companys investment activities. Each year a statement on
Form 1099-DIV identifying the sources of the distributions (i.e., paid from ordinary income, paid from net capital gains on the sale of securities, and/or a return of capital, which is a nontaxable distribution) will be mailed to the Companys
stockholders. There can be no assurance that the Company will be able to pay distributions at a specific rate or at all. No portion of the distributions paid during the years ended December 31, 2015, 2014 and 2013 represented a return of
capital.

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, 2015, 2014 and 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 years ended December 31, 2015 and 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.



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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, 2015, 2014 and 2013:



|                                                          |  |                         |         |  |            |  |      |                    |  |   |            |  |  |                    |      |  |            |   |         |  |  |  |      | 
|--------------------------------------------------------- |  | ----------------------- | ------- |  | ---------- |  | ---- | ------------------ |  | - | ---------- |  |  | ------------------ | ---- |  | ---------- | - | ------- |  |  |  | ---- | 
|                                                          |  | Year Ended December 31, |        
|                                                          |  | 2015                    |         |  | 2014       |  |      | 2013               | 
|Source of Distribution                                    |  | DistributionAmount      |         |  | Percentage |  |      | DistributionAmount |  |   | Percentage |  |  | DistributionAmount |      |  | Percentage |  
|Offering proceeds                                         |  | $                       |        |  |            |  |     |                    |  | $ |           |  |  |                    |     |  |            | $ |        |  |  |  |     | 
|Borrowings                                                |  |                         |        |  |            |  |     |                    |  |   |           |  |  |                    |     |  |            |   |        |  |  |  |     | 
|Net investment income (prior to expense reimbursement)(1) |  |                         | 229,252 |  |            |  | 96%  |                    |  |   | 208,059    |  |  |                    | 93%  |  |            |   | 104,102 |  |  |  | 91%  | 
|Short-term capital gains proceeds from the sale of assets |  |                         |        |  |            |  |     |                    |  |   | 14,999     |  |  |                    | 7%   |  |            |   | 10,205  |  |  |  | 9%   | 
|Long-term capital gains proceeds from the sale of assets  |  |                         | 9,893   |  |            |  | 4%   |                    |  |   | 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                        |  |                         |        |  |            |  |     |                    |  |   |           |  |  |                    |     |  |            |   |        |  |  |  |     | 
|                                                          |  |                         |         |  |            |  |      |                    |  |   |            |  |  |                    |      |  |            |   |         |  |  |  |      | 
|Total                                                     |  | $                       | 239,145 |  |            |  | 100% |                    |  | $ | 223,554    |  |  |                    | 100% |  |            | $ | 114,307 |  |  |  | 100% | 
|                                                          |  |                         |         |  |            |  |      |                    |  |   |            |  |  |                    |      |  |            |   |         |  |  |  |      | 



|(1) | During the years ended December 31, 2015, 2014 and 2013, 94.8%, 94.3% and 91.3%, respectively, of the Companys gross investment income was attributable to
cash income earned, 2.7%, 3.0% and 7.6%, respectively, was attributable to non-cash accretion of discount and 2.5%, 2.7% and 1.1%, 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, 2015, 2014 and 2013 was $261,875, $211,511
and $111,686, respectively. As of December 31, 2015, 2014 and 2013, the Company had $58,827, $22,272 and $15,495, 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, 2014 was adjusted following the filing of the Companys 2014 tax return in September 2015. The adjustment was primarily due to tax-basis income received by the Company during the year
ended December 31, 2014 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, 2014.

The difference between the Companys GAAP-basis net investment income and its tax-basis net investment income is primarily due to
the reclassification of unamortized original issue discount and prepayment fees recognized upon prepayment of loans from income for GAAP purposes to realized gains for tax purposes, the reversal of non-deductible excise taxes, the reclassification
of realized gains on credit default swaps to income



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 5. Distributions (continued)



for tax purposes and, with respect to the years ended December 31, 2014 and 2013, the reversal of the required accrual for GAAP purposes of incentive fees on unrealized gains even though no
such incentive fees on unrealized gains were payable by the Company and, with respect to the year ended December 31, 2013, the amount by which tax-basis income received by the Company with respect to collateralized securities and interests in
partnerships exceeded its GAAP-basis income and 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, 2015, 2014 and 2013:



|                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                            |  | Year Ended December 31, |        
|                                                                            |  | 2015                    |         |   | 2014 |   |         | 2013 | 
|GAAP-basis net investment income                                            |  | $                       | 290,649 |   |      | $ | 242,676 |      |  | $ | 90,674  |  
|Reversal of incentive fee accrual on unrealized gains                       |  |                         |        |   |      |   | (9,234  | )    |  |   | 6,164   |  
|Taxable income adjustment on collateralized securities and partnerships     |  |                         |        |   |      |   |        |      |  |   | 7,857   |  
|Reclassification of unamortized original issue discount and prepayment fees |  |                         | (35,727 | ) |      |   | (12,821 | )    |  |   | (3,275  | )
|Reclassification of realized gains on credit default swap                   |  |                         | (19,588 | ) |      |   | 7,535   |      |  |   |        |  
|Reversal of mark-to-market on outstanding credit default swaps              |  |                         | 19,426  |   |      |   | (19,426 | )    |  |   |        |  
|Excise taxes                                                                |  |                         | 1,885   |   |      |   | 1,227   |      |  |   |        |  
|Tax-basis net investment income portion of total return swap payments       |  |                         |        |   |      |   |        |      |  |   | 10,269  |  
|Other miscellaneous differences                                             |  |                         | 5,230   |   |      |   | 1,554   |      |  |   | (3      | )
|                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Tax-basis net investment income                                             |  | $                       | 261,875 |   |      | $ | 211,511 |      |  | $ | 111,686 |  
|                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  

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, 2015, the Company increased accumulated net realized gains on investments and gain/loss on foreign currency by $53,643 and decreased capital in excess of par value and
undistributed net investment income by $5,127 and $48,516, respectively. 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 undistributed net investment income by $3,099 and $2,491, respectively.

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.



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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, 2015 and 2014, the components of accumulated earnings on a tax
basis were as follows:



|                                                                                               |  |              |          |   |      |   |         |  
|---------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | ------- | -
|                                                                                               |  | December 31, |         
|                                                                                               |  | 2015         |          |   | 2014 |  
|Distributable ordinary income (income and short-term capital gains)                            |  | $            | 45,002   |   |      | $ | 12,379  |  
|Distributable realized gains (long-term capital gains)                                         |  |              | 13,825   |   |      |   | 9,893   |  
|Unamortized organization costs                                                                 |  |              | (175     | ) |      |   | (189    | )
|Net unrealized appreciation (depreciation) on investments and gain/loss on foreign currency(1) |  |              | (356,353 | ) |      |   | (24,783 | )
|                                                                                               |  |              |          |   |      |   |         |  
|Total                                                                                          |  | $            | (297,701 | ) |      | $ | (2,700  | )
|                                                                                               |  |              |          |   |      |   |         |  



|(1) | As of December 31, 2015 and 2014, the gross unrealized appreciation on the Companys investments and unrealized gain on foreign currency was $78,871 and
$120,784, respectively. As of December 31, 2015 and 2014, the gross unrealized depreciation on the Companys investments and unrealized loss on foreign currency was $435,224 and $145,567, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The aggregate cost of the Companys investments for U.S. federal income tax purposes totaled $4,889,228 and $4,421,004 as of
December 31, 2015 and 2014, respectively. The aggregate net unrealized appreciation (depreciation) on investments and gain/loss on foreign currency on a tax basis was $(356,353) and $(24,783) as of December 31, 2015 and 2014, 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, 2015 and 2014:



|                                 |  |                   |           |  |                   |   |           |                         |  |  |                  |   |  |            |           |  |                         |   |           |  |  |  |     |  
|-------------------------------- |  | ----------------- | --------- |  | ----------------- | - | --------- | ----------------------- |  |  | ---------------- | - |  | ---------- | --------- |  | ----------------------- | - | --------- |  |  |  | --- | -
|                                 |  | December 31, 2015 |           |  | December 31, 2014 |  
|                                 |  | AmortizedCost(1)  |           |  | Fair Value        |   |           | Percentageof 
Portfolio |  |  | AmortizedCost(1) |   |  | Fair Value |           |  | Percentageof 
Portfolio |  
|Senior Secured LoansFirst Lien  |  | $                 | 2,916,090 |  |                   | $ | 2,802,207 |                         |  |  | 62               | % |  | $          | 2,360,706 |  |                         | $ | 2,346,905 |  |  |  | 53  | %
|Senior Secured LoansSecond Lien |  |                   | 1,012,224 |  |                   |   | 902,113   |                         |  |  | 20               | % |  |            | 1,019,318 |  |                         |   | 1,001,313 |  |  |  | 23  | %
|Senior Secured Bonds             |  |                   | 244,558   |  |                   |   | 181,200   |                         |  |  | 4                | % |  |            | 283,454   |  |                         |   | 248,911   |  |  |  | 6   | %
|Subordinated Debt                |  |                   | 411,824   |  |                   |   | 319,019   |                         |  |  | 7                | % |  |            | 431,441   |  |                         |   | 421,683   |  |  |  | 10  | %
|Collateralized Securities        |  |                   | 118,590   |  |                   |   | 113,383   |                         |  |  | 2                | % |  |            | 172,068   |  |                         |   | 184,590   |  |  |  | 4   | %
|Equity/Other                     |  |                   | 174,099   |  |                   |   | 214,953   |                         |  |  | 5                | % |  |            | 142,819   |  |                         |   | 192,826   |  |  |  | 4   | %
|                                 |  |                   |           |  |                   |   |           |                         |  |  |                  |   |  |            |           |  |                         |   |           |  |  |  |     |  
|Total                            |  | $                 | 4,877,385 |  |                   | $ | 4,532,875 |                         |  |  | 100              | % |  | $          | 4,409,806 |  |                         | $ | 4,396,228 |  |  |  | 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, 2015, except for Allen Systems Group, Inc. and JW Aluminum Co., in which the Company
held senior secured loans and equity/other investments, the Company was not an affiliated person of any of its portfolio companies, as defined in the 1940 Act. As of December 31, 2015, the Company did not control any of
its portfolio companies, as defined in the 1940 Act. In general, under the 1940 Act, the Company would be presumed to control a portfolio company if it owned 25% or more of its voting securities



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 6. Investment Portfolio (continued)



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 and other unfunded arrangements that are in
the form of lines of credit, revolving credit facilities, delayed draw credit facilities or other investments, pursuant to which the Company may be required to provide funding when requested by portfolio companies in accordance with the terms of the
underlying agreements. As of December 31, 2015, the Company had eighteen senior secured loan investments with aggregate unfunded commitments of $203,409, one senior secured bond investment with an unfunded commitment of $3,638 and two unfunded
commitments to purchase up to $467 and $246 in shares of preferred stock of Altus Power America Holdings, LLC and common equity of Sunnova Holdings, LLC, respectively. 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. The Company maintains sufficient cash on hand, available borrowings and liquid securities to fund such
unfunded commitments should the need arise. For additional details regarding the Companys unfunded debt and equity investments, see the Companys audited consolidated schedules of investments as of December 31, 2015 and 2014.

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, 2015 and 2014:



|                                               |  |                   |           |  |                         |  |      |            |  |   |                         |  |  |  |     |  
|---------------------------------------------- |  | ----------------- | --------- |  | ----------------------- |  | ---- | ---------- |  | - | ----------------------- |  |  |  | --- | -
|                                               |  | December 31, 2015 |           |  | December 31, 2014       | 
|Industry Classification                        |  | Fair Value        |           |  | Percentageof 
Portfolio |  |      | Fair Value |  |   | Percentageof 
Portfolio | 
|Automobiles & Components                       |  | $                 | 234,923   |  |                         |  | 5%   |            |  | $ | 177,900                 |  |  |  | 4   | %
|Capital Goods                                  |  |                   | 474,141   |  |                         |  | 11%  |            |  |   | 383,827                 |  |  |  | 9   | %
|Commercial & Professional Services             |  |                   | 335,256   |  |                         |  | 7%   |            |  |   | 274,316                 |  |  |  | 6   | %
|Consumer Durables & Apparel                    |  |                   | 351,431   |  |                         |  | 8%   |            |  |   | 266,710                 |  |  |  | 6   | %
|Consumer Services                              |  |                   | 470,309   |  |                         |  | 10%  |            |  |   | 733,804                 |  |  |  | 17  | %
|Diversified Financials                         |  |                   | 275,053   |  |                         |  | 6%   |            |  |   | 288,250                 |  |  |  | 7   | %
|Energy                                         |  |                   | 624,508   |  |                         |  | 14%  |            |  |   | 601,604                 |  |  |  | 14  | %
|Food & Staples Retailing                       |  |                   | 7,566     |  |                         |  | 0%   |            |  |   | 12,585                  |  |  |  | 0   | %
|Food, Beverage & Tobacco                       |  |                   | 4,310     |  |                         |  | 0%   |            |  |   | 9,365                   |  |  |  | 0   | %
|Health Care Equipment & Services               |  |                   | 98,425    |  |                         |  | 2%   |            |  |   | 80,589                  |  |  |  | 2   | %
|Household & Personal Products                  |  |                   |          |  |                         |  |     |            |  |   | 3,126                   |  |  |  | 0   | %
|Insurance                                      |  |                   | 83,488    |  |                         |  | 2%   |            |  |   | 98,174                  |  |  |  | 2   | %
|Materials                                      |  |                   | 337,665   |  |                         |  | 7%   |            |  |   | 269,531                 |  |  |  | 6   | %
|Media                                          |  |                   | 102,906   |  |                         |  | 2%   |            |  |   | 131,353                 |  |  |  | 3   | %
|Pharmaceuticals, Biotechnology & Life Sciences |  |                   | 2,659     |  |                         |  | 0%   |            |  |   | 62,970                  |  |  |  | 1   | %
|Real Estate                                    |  |                   | 1,707     |  |                         |  | 0%   |            |  |   |                        |  |  |  |    |  
|Retailing                                      |  |                   | 113,654   |  |                         |  | 3%   |            |  |   | 112,094                 |  |  |  | 3   | %
|Semiconductors & Semiconductor Equipment       |  |                   | 15,397    |  |                         |  | 0%   |            |  |   |                        |  |  |  |    |  
|Software & Services                            |  |                   | 490,803   |  |                         |  | 11%  |            |  |   | 328,443                 |  |  |  | 8   | %
|Technology Hardware & Equipment                |  |                   | 234,989   |  |                         |  | 5%   |            |  |   | 230,554                 |  |  |  | 5   | %
|Telecommunication Services                     |  |                   | 158,383   |  |                         |  | 4%   |            |  |   | 229,690                 |  |  |  | 5   | %
|Transportation                                 |  |                   | 115,302   |  |                         |  | 3%   |            |  |   | 101,343                 |  |  |  | 2   | %
|                                               |  |                   |           |  |                         |  |      |            |  |   |                         |  |  |  |     |  
|Total                                          |  | $                 | 4,532,875 |  |                         |  | 100% |            |  | $ | 4,396,228               |  |  |  | 100 | %
|                                               |  |                   |           |  |                         |  |      |            |  |   |                         |  |  |  |     |  



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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, 2015 and 2014, the Companys investments were categorized as
follows in the fair value hierarchy:



|                                            |  |                   |           |  |                   |   |           | 
|------------------------------------------- |  | ----------------- | --------- |  | ----------------- | - | --------- | 
|Valuation Inputs                            |  | December 31, 2015 |           |  | December 31, 2014 |  
|Level 1Price quotations in active markets  |  | $                 | 23        |  |                   | $ | 3,438     | 
|Level 2Significant other observable inputs |  |                   |          |  |                   |   |          | 
|Level 3Significant unobservable inputs     |  |                   | 4,532,852 |  |                   |   | 4,392,790 | 
|                                            |  |                   |           |  |                   |   |           | 
|Total                                       |  | $                 | 4,532,875 |  |                   | $ | 4,396,228 | 
|                                            |  |                   |           |  |                   |   |           | 

As of December 31, 2015 and 2014, the Companys credit default swaps were categorized as
follows in the fair value hierarchy:



|                                            |  |                   |   |  |                   |   |   |       |  |   |           |  |  |   |         |  
|------------------------------------------- |  | ----------------- | - |  | ----------------- | - | - | ----- |  | - | --------- |  |  | - | ------- | -
|                                            |  | December 31, 2015 |   |  | December 31, 2014 |  
|Valuation Inputs                            |  | Asset             |   |  | Liability         |   |   | 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, 2015 consisted primarily of debt investments that
were acquired directly from the issuer. Fifty-five senior secured loan investments, three senior secured bond investments, eight subordinated debt investments and one collateralized security, for which broker quotes were not available, were valued
by independent valuation firms, 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



161



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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)



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 also valued by independent valuation firms, 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. One equity/other investment, which was traded on an active public market, was valued at its closing price as of December 31, 2015. Two
senior secured loan investments, which were newly-issued and purchased near December 31, 2015, were valued at cost, as the Companys board of directors determined that the cost of such investments was the best indication of its fair value.
Except as described above, the Company valued its 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, 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, 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 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 its
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 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 firms against the actual prices at which it purchases and sells its investments. The valuation
committee of the Companys board of directors, or the valuation committee, and the board of directors reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with the Companys
valuation policy.



162



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##### 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, 2015 and 2014 of
investments for which significant unobservable inputs (Level 3) were used in determining fair value:



|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |           |                    |  |   |                  |   |  |                          |          |   |              |   |         |       |  |   |         |   |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------ | --------- | - | ------------------------------ | - | --------- | ------------------ |  | - | ---------------- | - |  | ------------------------ | -------- | - | ------------ | - | ------- | ----- |  | - | ------- | - |  | - | ---------- | -
|                                                                                                                                                                                                       |  | For the Year Ended December 31, 2015 |          
|                                                                                                                                                                                                       |  | Senior 
SecuredLoansFirstLien       |           |   | Senior
SecuredLoansSecondLien |   |           | SeniorSecuredBonds |  |   | SubordinatedDebt |   |  | CollateralizedSecurities |          |   | Equity/Other |   |         | Total | 
|Fair value at beginning of period                                                                                                                                                                      |  | $                                    | 2,346,905 |   |                                | $ | 1,001,313 |                    |  | $ | 248,911          |   |  | $                        | 421,683  |   |              | $ | 184,590 |       |  | $ | 189,388 |   |  | $ | 4,392,790  |  
|Accretion of discount (amortization of premium)                                                                                                                                                        |  |                                      | 7,627     |   |                                |   | 3,135     |                    |  |   | 2,992            |   |  |                          | 18,622   |   |              |   | 214     |       |  |   |        |   |  |   | 32,590     |  
|Net realized gain (loss)                                                                                                                                                                               |  |                                      | (2,350    | ) |                                |   | (2,488    | )                  |  |   | (15,657          | ) |  |                          | (18,271  | ) |              |   | (906    | )     |  |   | 15,349  |   |  |   | (24,323    | )
|Net change in unrealized appreciation (depreciation)                                                                                                                                                   |  |                                      | (100,082  | ) |                                |   | (92,106   | )                  |  |   | (28,815          | ) |  |                          | (83,047  | ) |              |   | (17,729 | )     |  |   | (12,159 | ) |  |   | (333,938   | )
|Purchases                                                                                                                                                                                              |  |                                      | 1,201,795 |   |                                |   | 321,670   |                    |  |   | 103,688          |   |  |                          | 231,386  |   |              |   | 239     |       |  |   | 45,767  |   |  |   | 1,904,545  |  
|Paid-in-kind interest                                                                                                                                                                                  |  |                                      | 5,109     |   |                                |   | 4,785     |                    |  |   | 1,803            |   |  |                          | 1,599    |   |              |   |        |       |  |   |        |   |  |   | 13,296     |  
|Sales and redemptions                                                                                                                                                                                  |  |                                      | (656,797  | ) |                                |   | (334,196  | )                  |  |   | (131,722         | ) |  |                          | (252,953 | ) |              |   | (53,025 | )     |  |   | (23,415 | ) |  |   | (1,452,108 | )
|Net transfers in or out of Level 3                                                                                                                                                                     |  |                                      |          |   |                                |   |          |                    |  |   |                 |   |  |                          |         |   |              |   |        |       |  |   |        |   |  |   |           |  
|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |           |                    |  |   |                  |   |  |                          |          |   |              |   |         |       |  |   |         |   |  |   |            |  
|Fair value at end of period                                                                                                                                                                            |  | $                                    | 2,802,207 |   |                                | $ | 902,113   |                    |  | $ | 181,200          |   |  | $                        | 319,019  |   |              | $ | 113,383 |       |  | $ | 214,930 |   |  | $ | 4,532,852  |  
|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |           |                    |  |   |                  |   |  |                          |          |   |              |   |         |       |  |   |         |   |  |   |            |  
|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 |  | $                                    | (87,029   | ) |                                | $ | (102,562  | )                  |  | $ | (51,396          | ) |  | $                        | (85,526  | ) |              | $ | (13,812 | )     |  | $ | 769     |   |  | $ | (339,556   | )
|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |           |                    |  |   |                  |   |  |                          |          |   |              |   |         |       |  |   |         |   |  |   |            |  



|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |           |                    |  |   |                  |   |  |                          |          |   |              |   |         |       |  |   |         |  |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------ | --------- | - | ------------------------------ | - | --------- | ------------------ |  | - | ---------------- | - |  | ------------------------ | -------- | - | ------------ | - | ------- | ----- |  | - | ------- |  |  | - | ---------- | -
|                                                                                                                                                                                                       |  | 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    | )
|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |           |                    |  |   |                  |   |  |                          |          |   |              |   |         |       |  |   |         |  |  |   |            |  



163



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##### 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, 2015 and 2014 of
credit default swaps for which significant unobservable inputs (Level 3) were used in determining market value:



|                                                                                                                                                                                                                |  |                                 |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                                                                |  | For the Year Ended December 31, |        
|                                                                                                                                                                                                                |  | 2015                            |         |   | 2014 |  
|Market value at beginning of period                                                                                                                                                                             |  | $                               | (30,048 | ) |      | $ |        |  
|Net realized gain (loss)                                                                                                                                                                                        |  |                                 | (19,662 | ) |      |   | 7,535   |  
|Net change in unrealized appreciation (depreciation)                                                                                                                                                            |  |                                 | 19,426  |   |      |   | (19,426 | )
|Swap premiums received                                                                                                                                                                                          |  |                                 |        |   |      |   | (17,420 | )
|Coupon payments received                                                                                                                                                                                        |  |                                 | 74      |   |      |   | (737    | )
|Premiums paid on exit                                                                                                                                                                                           |  |                                 | 30,210  |   |      |   |        |  
|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, 2015 and 2014 were as follows:



|                                 |  |                                |           |  |                        |                        |                    |                                   |       |                       |                 |          
|-------------------------------- |  | ------------------------------ | --------- |  | ---------------------- | ---------------------- | ------------------ | --------------------------------- | ----- | --------------------- | --------------- | ---------
|Type of Investment               |  | Fair Value atDecember 31, 2015 |           |  | Valuation Technique(1) |                        | Unobservable Input |                                   | Range |                       | WeightedAverage
|Senior Secured LoansFirst Lien  |  | $                              | 2,316,852 |  |                        | Market Comparables     |                    | Market Yield (%)                  |       | 5.5% - 16.8%          |                 | 10.0%    
|                                 |  |                                | 1,192     |  |                        | Other(2)               |                    | Other                             |       | N/A                   |                 | N/A      
|                                 |  |                                | 474,663   |  |                        | Market Quotes          |                    | Indicative Dealer Quotes          |       | 30.0% - 102.0%        |                 | 88.1%    
|                                 |  |                                | 9,500     |  |                        | Cost                   |                    | Cost                              |       | 100.0% - 100.0%       |                 | 100.0%   
|Senior Secured LoansSecond Lien |  |                                | 533,919   |  |                        | Market Comparables     |                    | Market Yield (%)                  |       | 9.0% - 19.9%          |                 | 14.5%    
|                                 |  |                                | 368,194   |  |                        | Market Quotes          |                    | Indicative Dealer Quotes          |       | 1.8% - 100.0%         |                 | 90.3%    
|Senior Secured Bonds             |  |                                | 81,382    |  |                        | Market Comparables     |                    | Market Yield (%)                  |       | 14.0% - 31.5%         |                 | 20.6%    
|                                 |  |                                |           |  |                        |                        |                    | EBITDA Multiples (x)              |       | 7.0x - 7.5x           |                 | 7.3x     
|                                 |  |                                | 99,818    |  |                        | Market Quotes          |                    | Indicative Dealer Quotes          |       | 14.0% - 94.4%         |                 | 72.3%    
|Subordinated Debt                |  |                                | 139,922   |  |                        | Market Comparables     |                    | Market Yield (%)                  |       | 8.8% - 13.8%          |                 | 12.2%    
|                                 |  |                                | 12,959    |  |                        | Other(2)               |                    | Other                             |       | N/A                   |                 | N/A      
|                                 |  |                                | 166,138   |  |                        | Market Quotes          |                    | Indicative Dealer Quotes          |       | 14.0% - 104.1%        |                 | 71.9%    
|Collateralized Securities        |  |                                | 72,828    |  |                        | Market Comparables     |                    | Market Yield (%)                  |       | 13.2% - 13.2%         |                 | 13.2%    
|                                 |  |                                | 40,555    |  |                        | Market Quotes          |                    | Indicative Dealer Quotes          |       | 37.9% - 91.0%         |                 | 67.9%    
|Equity/Other                     |  |                                | 203,182   |  |                        | Market Comparables     |                    | EBITDA Multiples (x)              |       | 5.3x - 14.3x          |                 | 8.9x     
|                                 |  |                                |           |  |                        |                        |                    | Production Multiples (Mboe/d)     |       | $50,000.0 - $55,000.0 |                 | $52,500.0
|                                 |  |                                |           |  |                        |                        |                    | Proved Reserves Multiples (Mmboe) |       | $8.8 - $11.0          |                 | $9.4     
|                                 |  |                                |           |  |                        |                        |                    | Capacity Multiple ($/kW)          |       | $2,000.0 - $2,500.0   |                 | $2,250.0 
|                                 |  |                                |           |  |                        | Option Valuation Model |                    | Volatility (%)                    |       | 40.0% - 72.5%         |                 | 46.8%    
|                                 |  |                                | 11,748    |  |                        | Other(2)               |                    | Other                             |       | N/A                   |                 | N/A      
|                                 |  |                                |           |  |                        |                        |                    |                                   |       |                       |                 |          
|Total                            |  | $                              | 4,532,852 |  |                        |                        |                    |                                   |       |                       |                 |          
|                                 |  |                                |           |  |                        |                        |                    |                                   |       |                       |                 |          



|(1) | Investments 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
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



164



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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)



| | 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Fair value based on expected outcome of proposed corporate transactions or other various factors.
|--- | -------------------------------------------------------------------------------------------------



|                                 |  |                                 |           |   |                        |                        |                    |                                   |       |                       |                  |          
|-------------------------------- |  | ------------------------------- | --------- | - | ---------------------- | ---------------------- | ------------------ | --------------------------------- | ----- | --------------------- | ---------------- | ---------
|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 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 a portfolio company.
|--- | --------------------------------------------------------------------------------------



165



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)







Note 8. Financing Arrangements

The following table presents summary information with respect to the Companys outstanding financing arrangements as of
December 31, 2015.



|                                  |  |                           |  |                   |  |                   |         |  |                 |   |         |              |  |                  
|--------------------------------- |  | ------------------------- |  | ----------------- |  | ----------------- | ------- |  | --------------- | - | ------- | ------------ |  | -----------------
|Arrangement                       |  | Type of Arrangement       |  | Rate              |  | AmountOutstanding |         |  | AmountAvailable |   |         | MaturityDate
|JPM Facility                      |  | Repurchase Agreement      |  | 3.25%             |  | $                 | 550,000 |  |                 | $ |        |              |  | May 20, 2017     
|Goldman Facility                  |  | Repurchase Agreement      |  | L+2.50%           |  | $                 | 400,000 |  |                 | $ |        |              |  | December 15, 2018
|Cooper River Credit Facility      |  | Revolving Credit Facility |  | L+2.25%           |  | $                 | 191,494 |  |                 | $ | 8,506   |              |  | May 29, 2020     
|Wissahickon Creek Credit Facility |  | Revolving Credit Facility |  | L+1.50%to L+2.50% |  | $                 | 240,146 |  |                 | $ | 9,854   |              |  | February 19, 2019
|Darby Creek Credit Facility       |  | Revolving Credit Facility |  | L+2.50%           |  | $                 | 250,000 |  |                 | $ |        |              |  | February 20, 2018
|Dunning Creek Credit Facility     |  | Revolving Credit Facility |  | L+1.45%           |  | $                 | 114,200 |  |                 | $ | 135,800 |              |  | May 14, 2016     
|Juniata River Credit Facility     |  | Term Loan Credit Facility |  | L+2.50%           |  | $                 | 300,000 |  |                 | $ |        |              |  | 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, 2015 were $1,989,137 and 2.94%, respectively. As of December 31, 2015, the Companys weighted average effective interest rate on borrowings, including the effect of non-usage fees, was
2.90%.

On February 23, 2016, the Company entered into a revolving credit facility, or the FSIC II revolving credit
facility, which provides for borrowings in an initial aggregate amount of up to $95,000. See Note 15 for additional information regarding the FSIC II revolving credit facility.

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 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 $660,000. 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



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Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



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 is 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 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,



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



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, 2015 and 2014, Class A Notes in the aggregate principal amount of $660,000 and $660,000, respectively, had
been purchased by Cobbs Creek from Lehigh River and subsequently sold to JPM under the JPM facility for aggregate proceeds of $550,000 and $550,000, respectively. 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, 2015 and 2014, Cobbs Creeks liability under the JPM facility was $550,000 and $550,000, respectively,
plus $2,085 and $2,085, respectively, 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.

As of December 31, 2015 and 2014, the fair value of assets held by Lehigh River was $1,150,608 and $1,189,438, respectively, which
included assets purchased by Lehigh River with proceeds from the issuance of Class A Notes. As of December 31, 2015 and 2014, the fair value of assets held by Cobbs Creek was $345,813 and $392,225, respectively.

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, 2015, $35 of such deferred financing costs had yet to be amortized to interest expense.

For the years ended December 31, 2015, 2014 and 2013, the components of total interest expense for the JPM facility were as follows:



|                                         |  |                        |        |  |      |   |        |      |  |   |       | 
|---------------------------------------- |  | ---------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ----- | 
|                                         |  | Year EndedDecember 31, |       
|                                         |  | 2015                   |        |  | 2014 |   |        | 2013 | 
|Direct interest expense                  |  | $                      | 18,123 |  |      | $ | 18,123 |      |  | $ | 9,874 | 
|Amortization of deferred financing costs |  |                        | 39     |  |      |   | 39     |      |  |   | 39    | 
|                                         |  |                        |        |  |      |   |        |      |  |   |       | 
|Total interest expense                   |  | $                      | 18,162 |  |      | $ | 18,162 |      |  | $ | 9,913 | 
|                                         |  |                        |        |  |      |   |        |      |  |   |       | 



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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, 2015, 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, |        
|                                      |  | 2015                   |         |   | 2014 |   |         | 2013 | 
|Cash paid for interest expense(1)     |  | $                      | 18,123  |   |      | $ | 18,123  |      |  | $ | 8,063   |  
|Average borrowings under the facility |  | $                      | 550,000 |   |      | $ | 550,000 |      |  | $ | 299,666 |  
|Effective interest rate on borrowings |  |                        | 3.25    | % |      |   | 3.25    | %    |  |   | 3.25    | %
|Weighted average interest rate        |  |                        | 3.25    | % |      |   | 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 Green Creek, or the Sale and Contribution Agreement. 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



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



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. As of December 31, 2015 and 2014, Notes in an aggregate principal amount of $689,655 and $130,000, respectively, had been
purchased by Schuylkill River from Green Creek and subsequently sold to Goldman under the Goldman facility for aggregate proceeds of $400,000 and $75,400, respectively.

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 interest (referred to as financing fees) accrued at the applicable pricing rate under the Goldman facility. Up until March 15, 2015, financing fees accrued on the aggregate purchase
price paid by Goldman for such Notes. Thereafter, financing fees commenced accruing on $400,000 (even if the aggregate purchase price paid for Notes purchased by Goldman was 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 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



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Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



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, 2015 and 2014, Notes in an aggregate principal amount of $689,655 and
$130,000, respectively, had been purchased by Schuylkill River from Green Creek and subsequently sold to Goldman under the Goldman facility for aggregate proceeds of $400,000 and $75,400, respectively. 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, 2015 and 2014, Schuylkill Rivers liability under the
Goldman facility was $400,000 and $75,400, respectively, plus $1,443 and $89, respectively, 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, 2015 and 2014, the fair value of assets held by Green Creek was $717,247 and $453,678,
respectively.

The Company incurred costs of $2,167 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, 2015, $1,612 of such deferred financing costs had yet to be amortized to
interest expense.

For the years ended December 31, 2015 and 2014, the components of total interest expense for the
Goldman facility were as follows:



|                                         |  |                        |        |  |      |   |     | 
|---------------------------------------- |  | ---------------------- | ------ |  | ---- | - | --- | 
|                                         |  | Year EndedDecember 31, |       
|                                         |  | 2015                   |        |  | 2014 |  
|Direct interest expense                  |  | $                      | 9,872  |  |      | $ | 89  | 
|Amortization of deferred financing costs |  |                        | 532    |  |      |   | 23  | 
|                                         |  |                        |        |  |      |   |     | 
|Total interest expense                   |  | $                      | 10,404 |  |      | $ | 112 | 
|                                         |  |                        |        |  |      |   |     | 

For the years ended December 31, 2015 and 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, |        
|                                         |  | 2015                   |         |   | 2014 |  
|Cash paid for interest expense(1)        |  | $                      | 8,518   |   |      | $ |       |  
|Average borrowings under the facility(2) |  | $                      | 313,654 |   |      | $ | 75,400 |  
|Effective interest rate on borrowings    |  |                        | 2.82    | % |      |   | 2.76   | %
|Weighted average interest rate           |  |                        | 3.10    | % |      |   | 2.76   | %



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



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



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Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



Amounts outstanding under the Goldman facility are 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 May 29, 2015, 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, which amends and restates that certain credit facility dated as of March 27, 2013, with Citibank, as administrative agent, and the financial institutions and other
lenders from time to time party thereto. The Cooper River facility provides for a five-year credit facility with a three-year reinvestment period, during which Cooper River, subject to compliance with the terms of the facility, including maintenance
of the required borrowing base, is permitted to borrow, repay and re-borrow advances up to a maximum commitment of $200,000, followed by a two-year amortization period.

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.

Borrowings under the Cooper River
facility, prior to its amendment and restatement, accrued interest at a rate equal to three-month LIBOR, plus a spread of (a) 1.75% per annum from closing through March 26, 2015 and (b) 2.00% per annum thereafter. Borrowings
under the amended and restated Cooper River facility will accrue interest at a rate per annum equal to three-month LIBOR (subject to a 0% floor) plus a spread of (i) 2.25% during the reinvestment period, (ii) 2.75% during the first year of
the amortization period and (iii) 3.75% thereafter.

Under the terms of the original Cooper River facility, from
June 24, 2013 through March 26, 2015, Cooper River was subject to a non-usage fee of 0.50% per annum to the extent the aggregate principal amount available under the original Cooper River facility had not been borrowed. Such non-usage
fee did not apply from March 27, 2015 through the date the Cooper River facility was amended and restated. Under the amended and restated Cooper River facility, Cooper River pays a commitment fee of 0.75% per annum of the aggregate
principal amount available under the Cooper River facility that has not been borrowed. Any amounts borrowed under the Cooper River facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on May 29, 2020.

As of December 31, 2015 and 2014, $191,494 and $170,494, respectively, 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 $3,975 in connection with obtaining the Cooper River facility (including the original facility and amended and restated
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, 2015, $2,086 of such deferred financing
costs had yet to be amortized to interest expense.



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Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



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, 2015, 2014 and 2013, the components of total interest expense for the Cooper River facility were as follows:



|                                         |  |                        |       |  |      |   |       |      |  |   |       | 
|---------------------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                         |  | Year EndedDecember 31, |      
|                                         |  | 2015                   |       |  | 2014 |   |       | 2013 | 
|Direct interest expense                  |  | $                      | 4,134 |  |      | $ | 3,424 |      |  | $ | 1,848 | 
|Non-usage fees                           |  |                        | 164   |  |      |   | 150   |      |  |   | 118   | 
|Amortization of deferred financing costs |  |                        | 974   |  |      |   | 518   |      |  |   | 397   | 
|                                         |  |                        |       |  |      |   |       |      |  |   |       | 
|Total interest expense                   |  | $                      | 5,272 |  |      | $ | 4,092 |      |  | $ | 2,363 | 
|                                         |  |                        |       |  |      |   |       |      |  |   |       | 

For the years ended December 31, 2015, 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, |        
|                                                                               |  | 2015                   |         |   | 2014 |   |         | 2013 | 
|Cash paid for interest expense(1)                                              |  | $                      | 4,060   |   |      | $ | 3,582   |      |  | $ | 1,193   |  
|Average borrowings under the facility(2)                                       |  | $                      | 174,535 |   |      | $ | 170,494 |      |  | $ | 118,460 |  
|Effective interest rate on borrowings (including the effect of non-usage fees) |  |                        | 2.46    | % |      |   | 2.07    | %    |  |   | 2.01    | %
|Weighted average interest rate (including the effect of non-usage fees)        |  |                        | 2.43    | % |      |   | 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 were 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.



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



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.

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.



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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, 2015 and 2014, $240,146 and $185,000, respectively, 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, 2015, $2,142 of such deferred financing costs had yet to be amortized to interest
expense.

For the years ended December 31, 2015 and 2014, the components of total interest expense for the Wissahickon
Creek facility were as follows:



|                                         |  |                        |       |  |      |   |       | 
|---------------------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | 
|                                         |  | Year EndedDecember 31, |      
|                                         |  | 2015                   |       |  | 2014 |  
|Direct interest expense                  |  | $                      | 5,446 |  |      | $ | 1,798 | 
|Non-usage fees                           |  |                        | 649   |  |      |   | 1,208 | 
|Amortization of deferred financing costs |  |                        | 683   |  |      |   | 585   | 
|                                         |  |                        |       |  |      |   |       | 
|Total interest expense                   |  | $                      | 6,778 |  |      | $ | 3,591 | 
|                                         |  |                        |       |  |      |   |       | 

For the years ended December 31, 2015 and 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, |        
|                                                                               |  | 2015                   |         |   | 2014 |  
|Cash paid for interest expense(1)                                              |  | $                      | 5,825   |   |      | $ | 1,702   |  
|Average borrowings under the facility(2)                                       |  | $                      | 199,868 |   |      | $ | 117,703 |  
|Effective interest rate on borrowings (including the effect of non-usage fees) |  |                        | 3.00    | % |      |   | 3.03    | %
|Weighted average interest rate (including the effect of non-usage fees)        |  |                        | 3.01    | % |      |   | 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 for the year ended December 31, 2014 were 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.



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



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 2.50% per annum. Darby Creek is subject to a non-usage fee of 0.50% 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 (i) 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 and (ii) an administration fee. 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 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 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, 2015 and 2014, $250,000 and $249,500, respectively, 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 $3,054 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, 2015, $1,809 of such
deferred financing costs had yet to be amortized to interest expense.



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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, 2015 and 2014, the components of total interest
expense for the Darby Creek facility were as follows:



|                                         |  |                        |       |  |      |   |       | 
|---------------------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | 
|                                         |  | Year EndedDecember 31, |      
|                                         |  | 2015                   |       |  | 2014 |  
|Direct interest expense                  |  | $                      | 7,625 |  |      | $ | 3,574 | 
|Non-usage fees                           |  |                        | 7     |  |      |   | 586   | 
|Amortization of deferred financing costs |  |                        | 789   |  |      |   | 456   | 
|                                         |  |                        |       |  |      |   |       | 
|Total interest expense                   |  | $                      | 8,421 |  |      | $ | 4,616 | 
|                                         |  |                        |       |  |      |   |       | 

For the years ended December 31, 2015 and 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, |        
|                                                                               |  | 2015                   |         |   | 2014 |  
|Cash paid for interest expense(1)                                              |  | $                      | 7,467   |   |      | $ | 2,588   |  
|Average borrowings under the facility(2)                                       |  | $                      | 248,504 |   |      | $ | 178,056 |  
|Effective interest rate on borrowings (including the effect of non-usage fees) |  |                        | 3.04    | % |      |   | 2.98    | %
|Weighted average interest rate (including the effect of non-usage fees)        |  |                        | 3.03    | % |      |   | 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 for the year ended December 31, 2014 were 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 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. On May 14, 2015, the
Dunning Creek facility was amended to extend the maturity date to May 14, 2016 and to reduce the applicable spread over LIBOR to 1.45% per annum.

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



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



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.

As of December 31, 2015, pricing under the Dunning Creek facility was 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 1.45% 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, 2016.

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, 2015 and 2014, $114,200 and $230,800, respectively, 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 $1,335 in connection with obtaining and amending 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, 2015, $230 of such deferred financing costs had yet to be amortized to interest expense.

For the years ended December 31, 2015 and 2014, the components of total interest expense for the Dunning Creek facility were as
follows:



|                                         |  |                        |       |  |      |   |       | 
|---------------------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | 
|                                         |  | Year EndedDecember 31, |      
|                                         |  | 2015                   |       |  | 2014 |  
|Direct interest expense                  |  | $                      | 3,889 |  |      | $ | 1,996 | 
|Amortization of deferred financing costs |  |                        | 663   |  |      |   | 442   | 
|                                         |  |                        |       |  |      |   |       | 
|Total interest expense                   |  | $                      | 4,552 |  |      | $ | 2,438 | 
|                                         |  |                        |       |  |      |   |       | 



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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, 2015 and 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, |        
|                                         |  | 2015                   |         |   | 2014 |  
|Cash paid for interest expense(1)        |  | $                      | 4,174   |   |      | $ | 1,406   |  
|Average borrowings under the facility(2) |  | $                      | 215,753 |   |      | $ | 178,526 |  
|Effective interest rate on borrowings    |  |                        | 1.93    | % |      |   | 1.77    | %
|Weighted average interest rate           |  |                        | 1.78    | % |      |   | 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 for the year ended December 31, 2014 were 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 $300,000 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 Company may contribute cash, loans or bonds 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 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.



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



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, 2015 and 2014, $300,000 and $180,000, respectively, 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 $355
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, 2015, $274 of such deferred financing costs had yet to be amortized to interest expense.

For the years
ended December 31, 2015 and 2014, the components of total interest expense for the Juniata River facility were as follows:



|                                         |  |                        |       |  |      |   |     | 
|---------------------------------------- |  | ---------------------- | ----- |  | ---- | - | --- | 
|                                         |  | Year EndedDecember 31, |      
|                                         |  | 2015                   |       |  | 2014 |  
|Direct interest expense                  |  | $                      | 8,085 |  |      | $ | 477 | 
|Amortization of deferred financing costs |  |                        | 73    |  |      |   | 8   | 
|                                         |  |                        |       |  |      |   |     | 
|Total interest expense                   |  | $                      | 8,158 |  |      | $ | 485 | 
|                                         |  |                        |       |  |      |   |     | 

For the years ended December 31, 2015 and 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, |        
|                                         |  | 2015                   |         |   | 2014 |  
|Cash paid for interest expense(1)        |  | $                      | 6,729   |   |      | $ |        |  
|Average borrowings under the facility(2) |  | $                      | 286,822 |   |      | $ | 139,555 |  
|Effective interest rate on borrowings    |  |                        | 2.82    | % |      |   | 2.73    | %
|Weighted average interest rate           |  |                        | 2.78    | % |      |   | 2.73    | %



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



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



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Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing Arrangements (continued)



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 has in the past, and may in
the future, 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.

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.



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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 had certain credit default swap contracts outstanding during the years ended
December 31, 2015 and December 31, 2014. As of December 31, 2015, the Company had no outstanding credit default swap contracts. 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, 2015 was as follows:



|                              |  |                                                         |         |   |                                                                                   |   |        | 
|----------------------------- |  | ------------------------------------------------------- | ------- | - | --------------------------------------------------------------------------------- | - | ------ | 
|Derivative                    |  | Realized Gain(Loss) onDerivativesRecognized inIncome(1) |         |   | Change inUnrealizedAppreciation(Depreciation) onDerivativesRecognized inIncome(2) |  
|Credit Default Swap Contracts |  | $                                                       | (19,588 | ) |                                                                                   | $ | 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------

See Note 7 for a summary of credit default swap activity for the year ended December 31, 2015.

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 |  |  | $ |  | 



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Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 9. Financial Instruments (continued)





|(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.
|--- | --------------------------------------------------------------------------------------------------------------------------------

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.



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)







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, 2015, 2014, 2013
and 2012:



|                        |  |                                                          |           |  |                           |  |      |                                             |  |  |                                                   |  |  |    
|----------------------- |  | -------------------------------------------------------- | --------- |  | ------------------------- |  | ---- | ------------------------------------------- |  |  | ------------------------------------------------- |  |  | ---
|Year Ended 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
|2015                    |  | $                                                        | 2,045,840 |  |                           |  | 2.32 |                                             |  |  |                                                  |  |  | N/A



|(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 treated the
outstanding notional amount of the TRS, less the initial amount of any cash collateral required to be posted, as a senior security. The TRS was terminated on June 13, 2013.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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 on an exchange.
|--- | ----------------------------------------------------------------------------------------------



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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, 2015, 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, |            
|                                                                                                                                                  |  | 2015                    |             |    | 2014 |   |             | 2013 |  |   | 2012        |  
|Per Share Data:(1)                                                                                                                                |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Net asset value, beginning of period                                                                                                              |  | $                       | 9.30        |    |      | $ | 9.39        |      |  | $ | 9.16        |   |  | $ | 9.00       |   
|Results of operations(2)                                                                                                                          |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Net investment income                                                                                                                             |  |                         | 0.92        |    |      |   | 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 |  |                         | (1.11       | )  |      |   | (0.17       | )    |  |   | 0.27        |   |  |   | 0.73       |   
|                                                                                                                                                  |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Net increase (decrease) in net assets resulting from operations                                                                                   |  |                         | (0.19       | )  |      |   | 0.63        |      |  |   | 0.89        |   |  |   | 0.85       |   
|                                                                                                                                                  |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Stockholder distributions(3)                                                                                                                      |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Distributions from net investment income                                                                                                          |  |                         | (0.72       | )  |      |   | (0.69       | )    |  |   | (0.69       | ) |  |   | (0.28      | ) 
|Distributions from net realized gain on investments                                                                                               |  |                         | (0.03       | )  |      |   | (0.05       | )    |  |   | (0.07       | ) |  |   | (0.11      | ) 
|                                                                                                                                                  |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Net decrease in net assets resulting from stockholder distributions                                                                               |  |                         | (0.75       | )  |      |   | (0.74       | )    |  |   | (0.76       | ) |  |   | (0.39      | ) 
|                                                                                                                                                  |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Capital share transactions                                                                                                                        |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Issuance of common stock(4)                                                                                                                       |  |                         | 0.01        |    |      |   | 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                                                                   |  |                         | 0.01        |    |      |   | 0.02        |      |  |   | 0.10        |   |  |   | (0.30      | ) 
|                                                                                                                                                  |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Net asset value, end of period                                                                                                                    |  | $                       | 8.37        |    |      | $ | 9.30        |      |  | $ | 9.39        |   |  | $ | 9.16       |   
|                                                                                                                                                  |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Shares outstanding, end of period                                                                                                                 |  |                         | 321,507,876 |    |      |   | 313,037,127 |      |  |   | 254,572,096 |   |  |   | 57,612,806 |   
|                                                                                                                                                  |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Total return(6)                                                                                                                                   |  |                         | (1.94       | )% |      |   | 6.92        | %    |  |   | 10.81       | % |  |   | 6.11       | % 
|                                                                                                                                                  |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Ratio/Supplemental Data:                                                                                                                          |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Net assets, end of period                                                                                                                         |  | $                       | 2,690,412   |    |      | $ | 2,911,790   |      |  | $ | 2,390,985   |   |  | $ | 527,727    |   
|                                                                                                                                                  |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Ratio of net investment income to average net
assets(7)                                                                                           |  |                         | 10.03       | %  |      |   | 8.43        | %    |  |   | 6.60        | % |  |   | 1.29       | % 
|                                                                                                                                                  |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Ratio of operating expenses and excise taxes to average net assets(7)                                                                             |  |                         | 8.59        | %  |      |   | 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 waived expenses to average net
assets(7)                                                                                                 |  |                         | (0.35       | )% |      |   |            |      |  |   |            |   |  |   |           |   
|                                                                                                                                                  |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Ratio of net operating expenses and excise taxes to average net assets(7)                                                                         |  |                         | 8.24        | %  |      |   | 5.43        | %    |  |   | 5.61        | % |  |   | 3.06       | % 
|                                                                                                                                                  |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Portfolio turnover                                                                                                                                |  |                         | 31.79       | %  |      |   | 43.79       | %    |  |   | 46.38       | % |  |   | 111.30     | % 
|                                                                                                                                                  |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Total amount of senior securities outstanding, exclusive of treasury securities                                                                   |  | $                       | 2,045,840   |    |      | $ | 1,641,194   |      |  | $ | 720,494     |   |  | $ | 404,991    |   
|                                                                                                                                                  |  |                         |             |    |      |   |             |      |  |   |             |   |  |   |            |   
|Asset coverage per unit(8)                                                                                                                        |  |                         | 2.32        |    |      |   | 2.75        |      |  |   | 4.32        |   |  |   | 2.30       |   



|(1) | Per share data may be rounded in order to recompute the ending net asset value per share.
|--- | -----------------------------------------------------------------------------------------



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 12. Financial Highlights (continued)



|(2) | The per share data was derived by using the weighted average shares outstanding during the applicable period.
|--- | -------------------------------------------------------------------------------------------------------------



|(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 selling 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 period presented was calculated by taking the net asset value per share as of the end of the applicable period, adding the cash distributions
per share which were declared during the applicable period and dividing the total by the net asset value per share at the beginning of the applicable period. The total return does not consider the effect of any sales commissions or charges that may
be incurred in connection with the sale of shares 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 rates 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 calculations set forth above represent the total return on the Companys investment portfolio during the applicable period and do not
represent an actual return to stockholders.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Weighted average net assets during the applicable period are used for this calculation. The following is a schedule of supplemental ratios for the years ended
December 31, 2015, 2014, 2013 and 2012:
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                    |  |                         |      |   |      |  |       |      |  |  |      |   |  |  |      |  
|------------------------------------------------------------------- |  | ----------------------- | ---- | - | ---- |  | ----- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                                    |  | Year Ended December 31, |     
|                                                                    |  | 2015                    |      |   | 2014 |  |       | 2013 |  |  | 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   |  |                         | 2.51 | % |      |  | 1.16  | %    |  |  | 0.65 | % |  |  |     |  
|Ratio of interest expense to average net assets                     |  |                         | 2.13 | % |      |  | 1.16  | %    |  |  | 0.89 | % |  |  | 0.13 | %
|Ratio of excise taxes to average net assets                         |  |                         | 0.07 | % |      |  | 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)







Note 13. Selected Quarterly Financial Data (Unaudited)

The following are the quarterly results of operations for the years ended December 31, 2015 and 2014. 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, 2015 |             |   | September 30, 2015 |   |             | June 30, 2015 |  |   | March 31, 2015 |  
|Investment income                                               |  | $                 | 123,665     |   |                    | $ | 122,227     |               |  | $ | 167,830        |   |  | $ | 115,740     | 
|Operating expenses                                              |  |                   |             |   |                    |   |             |               |  |   |                |   |  |   |             | 
|Total operating expenses and excise taxes                       |  |                   | 58,645      |   |                    |   | 57,822      |               |  |   | 67,456         |   |  |   | 54,890      | 
|                                                                |  |                   |             |   |                    |   |             |               |  |   |                |   |  |   |             | 
|Net investment income                                           |  |                   | 65,020      |   |                    |   | 64,405      |               |  |   | 100,374        |   |  |   | 60,850      | 
|Realized and unrealized gain (loss)                             |  |                   | (181,512    | ) |                    |   | (127,124    | )             |  |   | (43,912        | ) |  |   | 916         | 
|                                                                |  |                   |             |   |                    |   |             |               |  |   |                |   |  |   |             | 
|Net increase (decrease) in net assets resulting from operations |  | $                 | (116,492    | ) |                    | $ | (62,719     | )             |  | $ | 56,462         |   |  | $ | 61,766      | 
|                                                                |  |                   |             |   |                    |   |             |               |  |   |                |   |  |   |             | 
|Per share informationbasic and diluted                         |  |                   |             |   |                    |   |             |               |  |   |                |   |  |   |             | 
|Net investment income                                           |  | $                 | 0.20        |   |                    | $ | 0.20        |               |  | $ | 0.32           |   |  | $ | 0.19        | 
|                                                                |  |                   |             |   |                    |   |             |               |  |   |                |   |  |   |             | 
|Net increase (decrease) in net assets resulting from operations |  | $                 | (0.36       | ) |                    | $ | (0.20       | )             |  | $ | 0.18           |   |  | $ | 0.20        | 
|                                                                |  |                   |             |   |                    |   |             |               |  |   |                |   |  |   |             | 
|Weighted average shares outstanding                             |  |                   | 320,354,863 |   |                    |   | 318,458,821 |               |  |   | 316,126,500    |   |  |   | 313,630,422 | 
|                                                                |  |                   |             |   |                    |   |             |               |  |   |                |   |  |   |             | 



|                                                                |  |                   |             |   |                    |   |             |               |  |   |                |  |  |   |             | 
|--------------------------------------------------------------- |  | ----------------- | ----------- | - | ------------------ | - | ----------- | ------------- |  | - | -------------- |  |  | - | ----------- | 
|                                                                |  | 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 and excise taxes                       |  |                   | 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 | 
|                                                                |  |                   |             |   |                    |   |             |               |  |   |                |  |  |   |             | 

The sum of quarterly per share amounts does not necessarily equal per share amounts reported for the
years ended December 31, 2015 and 2014. This is due to changes in the number of weighted-average shares outstanding and the effects of rounding for each period.



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)







Note 14. Recently Issued Accounting Standards

In April 2015, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update
No. 2015-03, InterestImputation of Interest, or ASU 2015-03, to simplify the presentation of debt issuance costs in the financial statements. Under existing guidance, debt issuance costs are recognized as a deferred charge and
presented as an asset on the balance sheet. The amendments to the guidance require that debt issuance costs related to a recognized liability for indebtedness be presented in the balance sheet as a direct deduction from the carrying amount of that
liability, consistent with debt discounts. In August 2015, the FASB issued Accounting Standards Update No. 2015-15, InterestImputation of Interest,or ASU 2015-15, to update the guidance to include SEC staff views
regarding the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the
SEC has indicated that it would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of
whether there are any outstanding borrowings on the line-of-credit arrangement. The recognition and measurement guidance for debt issuance costs is not affected by the amendments to the guidance. The amendments to the FASB codification guidance are
to be applied retrospectively with applicable disclosures for a change in accounting principle upon transition. For public entities, the amendments are effective for interim and annual periods beginning after December 15, 2015. Management of
the Company is currently assessing the impact of this guidance on the Companys consolidated financial statements.

Note 15.
Subsequent Events

Revolving Credit Facility

On February 23, 2016, the Company entered into the FSIC II revolving credit facility with ING Capital LLC, or ING, as administrative agent, and the lenders party thereto. The FSIC II revolving credit
facility provides for borrowings in U.S. dollars and certain agreed upon foreign currencies in an initial aggregate amount of up to $95,000, with an option for the Company to request, at one or more times after closing, that existing or new lenders,
at their election, provide up to $80,000 of additional commitments. The FSIC II revolving credit facility provides for the issuance of letters of credit in an aggregate face amount not to exceed $25,000 if one of the lenders or another party assumes
the role of letter of credit issuer. The Companys obligations under the FSIC II revolving credit facility are guaranteed by all of the Companys subsidiaries, other than its special-purpose financing subsidiaries, tax blocker
subsidiaries and foreign subsidiaries. The Companys obligations under the FSIC II revolving credit facility are secured by a first priority security interest in substantially all of the assets of the Company and the subsidiary guarantors
thereunder.

Borrowings under the FSIC II revolving credit facility are subject to compliance with a borrowing base. Interest
under the FSIC II revolving credit facility for (i) loans for which the Company elects the base rate option is payable at a rate equal to 0.75% per annum plus the greatest of (a) the U.S. Prime Rate as published in The
Wall Street Journal, (b) the federal funds effective rate for such day plus 0.5%, (c) the three-month LIBOR plus 1% per annum and (d) zero; and (ii) loans for which the Company elects the Eurocurrency option is payable at a
rate equal to LIBOR plus 1.75% per annum. The FSIC II revolving credit facility will be subject to a non-usage fee of 0.375% per annum on the unused portion of the commitment under the FSIC II revolving credit facility during the revolving
period. The Company will be required to pay letter of credit participation fees and a fronting fee on the average daily amount of any lenders exposure with respect to any letters of credit issued under the FSIC II revolving credit facility.



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FS Investment Corporation II

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 15. Subsequent Events (continued)



In connection with the FSIC II revolving credit facility, the Company has made certain
representations and warranties and must comply with various covenants and reporting requirements customary for facilities of this type. In addition, the Company must comply with the following financial covenants: (a) the Companys minimum
stockholders equity, measured as of each fiscal quarter-end, must be greater than or equal to $1,350,000, plus 25% of the net proceeds of any post-closing equity offerings; and (b) the Company must maintain at all times a 200% asset
coverage ratio.

The FSIC II revolving credit facility contains events of default customary for facilities of this type. Upon
the occurrence of an event of default, ING, at the instruction of the lenders, may terminate the commitments and declare the outstanding advances and all other obligations under the FSIC II revolving credit facility immediately due and payable.
During the continuation of certain events of default and subject, in certain cases, to the instructions of the lenders, the Company must pay interest at a default rate.



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|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, 2015. 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.



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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 111.

Changes in Internal Control Over Financial Reporting

During the fourth quarter of 2015, 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.



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PART III

We will file a definitive Proxy Statement for our 2016 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 2016 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 2016 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 2016 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 2016 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 2016 Annual Meeting of Stockholders, to be
filed with the SEC within 120 days following the end of the Companys fiscal year.



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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                                       |  |      | 110 | 
|Report of Independent Registered Public Accounting Firm                                                |  |      | 111 | 
|Report of Independent Registered Public Accounting Firm                                                |  |      | 112 | 
|Consolidated Balance Sheets as of December 31, 2015 and 2014                                           |  |      | 113 | 
|Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and
2013             |  |      | 114 | 
|Consolidated Statements of Changes in Net Assets for the years ended December 
31, 2015, 2014 and 2013 |  |      | 115 | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and
2013             |  |      | 116 | 
|Consolidated Schedules of Investments as of December 31, 2015 and 2014                                 |  |      | 117 | 
|Notes to Consolidated Financial Statements                                                             |  |      | 139 | 

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  |  | Distribution Reinvestment Plan of the Company. (Incorporated by reference to Exhibit (e) 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.)                                                                                                  
|     | 
|4.2  |  | Amended and Restated Distribution Reinvestment Plan of the Company, effective as of January 1, 2013. (Incorporated by reference to Exhibit 4.3 filed with the Companys
Quarterly Report filed on Form 10-Q for the quarterly period ended September 30, 2012 filed on November 14, 2012.)                                                
|     | 
|4.3  |  | 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.)



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|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  |  | 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.)                                                                      
|      | 
|10.4  |  | 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.)                                                                                                                                                         
|      | 
|10.5  |  | 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.)                                                                                                                                                           
|      | 
|10.6  |  | 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.)                                                                                                                                      
|      | 
|10.7  |  | 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.)                                                                                                                                                                                                     
|      | 
|10.8  |  | 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.)                                                                                                                                            
|      | 
|10.9  |  | 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.)                                                                                                                                                                                                     
|      | 
|10.10 |  | 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.)                                                                                                                                                                                                       
|      | 
|10.11 |  | 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.)                                                                                                                                                          
|      | 
|10.12 |  | 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.)
|      | 
|10.13 |  | 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.)                                                                                                                                                            
|      | 
|10.14 |  | 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.)                                                                                                                                                    
|      | 
|10.15 |  | 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.)                                                                                                                                
|      | 
|10.16 |  | 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.)                                                                                                                                                     



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.17 |  | Amended and Restated Credit Agreement, dated as of May 29, 2015, by and among Cooper River LLC, as borrower, Citibank, N.A., as administrative agent, Citibank, N.A. acting through
its Agency and Trust division, as collateral custodian and collateral agent, each of the lenders from time to time party thereto and Virtus Group, LP, as collateral administrator. (Incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on June 4, 2015.)
|      | 
|10.18 |  | Amended and Restated Account Control Agreement, dated as of May 29, 2015, by and among Cooper River LLC, as pledgor, Citibank, N.A., as secured party, and Citibank, N.A., as
securities intermediary. (Incorporated by reference to Exhibit 10.4 to the Companys Current Report on Form 8-K filed on June 4, 2015.)                                                                                                                                                                 
|      | 
|10.19 |  | 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.)                                                                                                                                                                                                                                                                   
|      | 
|10.20 |  | 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.)                                                                                                                                                                                                                       
|      | 
|10.21 |  | Amended and Restated Investment Management Agreement, dated as of May 29, 2015, by and between the Company, as investment manager, and Cooper River LLC. (Incorporated by reference
to Exhibit 10.3 to the Companys Current Report on Form 8-K filed on June 4, 2015.)                                                                                                                                                                                                               
|      | 
|10.22 |  | 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.)                  
|      | 
|10.23 |  | 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.)                                                                                                                                                                                                                       
|      | 
|10.24 |  | 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.)                                                                                                                                                                                                                      
|      | 
|10.25 |  | 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.)                                                                                                         
|      | 
|10.26 |  | 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.)                      
|      | 
|10.27 |  | Amendment No. 1 to Loan Financing and Servicing Agreement, dated as of January 12, 2015, 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.                                                                                                                        
|      | 
|10.28 |  | Amendment No. 2 to Loan Financing and Servicing Agreement, dated as of February 3, 2015, 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.                                                                                                                        



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|      |  |                                                                                                                                                                                                                                                                                                                                                                     
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.29 |  | Amendment No. 3 to Loan Financing and Servicing Agreement, dated as of May 7, 2015, 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.           
|      | 
|10.30 |  | Amendment No. 4 to Loan Financing and Servicing Agreement, dated as of October 8, 2015, 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.       
|      | 
|10.31 |  | 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.)                                                                                                       
|      | 
|10.32 |  | 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.)                                                                                                          
|      | 
|10.33 |  | 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.)
|      | 
|10.34 |  | 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.)                               
|      | 
|10.35 |  | 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.)                                                                           
|      | 
|10.36 |  | Second Amendment to Credit Agreement, dated as of May 14, 2015, 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.                                                                                                                          
|      | 
|10.37 |  | Amended and Restated Sale and Contribution Agreement, dated as of May 29, 2015, by and between the Company, as seller, and Cooper River LLC, as purchaser. (Incorporated by reference
to Exhibit 10.2 to the Companys Current Report on Form 8-K filed on June 4, 2015.)                                                                                           
|      | 
|10.38 |  | 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.)             
|      | 
|10.39 |  | 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.)                                                                                         
|      | 
|10.40 |  | 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.)                                                                                                               
|      | 
|10.41 |  | 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.)                                                                                                                  



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|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                   
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|10.42* |  | Loan Agreement, dated as of November 14, 2014, by and among Juniata River LLC, as borrower, JPMorgan Chase Bank, National Association, as administrative agent and lender, Citibank,
N.A., as collateral agent and Virtus Group, LP as collateral administrator. (Incorporated by reference to Exhibit 10.51 to the Companys Annual Report on Form 10-K filed on March 18, 2015.)                                
|       | 
|10.43* |  | Sale and Contribution Agreement, dated as of November 14, 2014, between Juniata River LLC, as purchaser, and the Company, as seller. (Incorporated by reference to Exhibit 10.52 to
the Companys Annual Report on Form 10-K filed on March 18, 2015.)                                                                                                                                                            
|       | 
|10.44* |  | Investment Management Agreement, dated as of November 14, 2014, between Juniata River LLC and FS Investment Corporation, as investment manager. (Incorporated by reference to Exhibit
10.53 to the Companys Annual Report on Form 10-K filed on March 18, 2015.)                                                                                                                                                 
|       | 
|10.45* |  | 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. (Incorporated by reference to Exhibit 10.54 to the Companys Annual Report on Form 10-K filed on March 18, 2015.)                                   
|       | 
|10.46  |  | 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.)                                                                                                                                                          
|       | 
|10.47  |  | 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.)                                                                                                                                                                                      
|       | 
|10.48  |  | 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.)                                                                                                                                                                                                                                                 
|       | 
|10.49  |  | 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.)                                                                              
|       | 
|10.50  |  | 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.)                                                                                                                                                                               
|       | 
|10.51  |  | 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.)                                                                                                                                                          
|       | 
|10.52  |  | 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.)                                                                                                                                                           
|       | 
|10.53  |  | Senior Secured Revolving Credit Agreement, dated as of February 23, 2016, by and among the Company, ING Capital LLC, as administrative agent, and the lenders party thereto.
(Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on February 26, 2016.)                                                                                                                  
|       | 
|10.54  |  | Guarantee, Pledge and Security Agreement, dated as of February 23, 2016, by and among the Company, ING Capital LLC, as revolving administrative agent and collateral agent, the
subsidiary guarantors party thereto and each financing agent and designated indebtedness holder party thereto. (Incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K filed on February 26, 2016.)
|       | 
|10.55  |  | Control Agreement, dated as of February 23, 2016, by and among the Company, ING Capital LLC, as collateral agent, and State Street Bank and Trust Company. (Incorporated by reference
to Exhibit 10.3 to the Companys Current Report on Form 8-K filed on February 26, 2016.)                                                                                                                                    



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|      |  |                                                                                                                                                                                                                 
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|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.



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SIGNATURES

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

FS INVESTMENT
CORPORATION II



|                     |  |                                                                       
|-------------------- |  | ----------------------------------------------------------------------
|                     |  |                                                                       
|                     | 
|Date: March 25, 2016 |  | /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 25, 2016 |  | /s/    MICHAEL C. FORMAN
Michael C.
FormanChief Executive Officer and Director (Principal Executive Officer)
|                     | 
|Date: March 25, 2016 |  | /s/    MICHAEL LAWSON
Michael
LawsonChief Financial Officer (Principal Financial and Accounting Officer)    
|                     | 
|Date: March 25, 2016 |  | /s/    BARBARA ADAMS
Barbara Adams
Director                                                                 
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|Date: March 25, 2016 |  | /s/    DAVID J. ADELMAN
David J. Adelman Director                                                           
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|Date: March 25, 2016 |  | /s/    STEPHEN T. BURDUMY
Stephen T. Burdumy Director                                                       
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|Date: March 25, 2016 |  | /s/    RICHARD I. GOLDSTEIN
Richard I. Goldstein Director                                                   
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|Date: March 25, 2016 |  | /s/    MICHAEL J. HELLER
Michael J. Heller Director                                                         
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|Date: March 25, 2016 |  | /s/    JEREL A. HOPKINS
Jerel A. Hopkins Director                                                           
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|Date: March 25, 2016 |  | /s/    ROBERT E. KEITH, JR.
Robert E. Keith, Jr. Director                                                   
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|Date: March 25, 2016 |  | /s/    PAUL MENDELSON
Paul Mendelson Director                                                               
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|Date: March 25, 2016 |  | /s/    JOHN E. STUART
John E. Stuart Director                                                               
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|Date: March 25, 2016 |  | /s/    SCOTT J. TARTE
Scott J. Tarte Director                                                               



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