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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K





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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016

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: 814-01047





FS Investment
Corporation III

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                       |  | 90-0994912                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)



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

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   ☒

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  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§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 the 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   |  | ☒  (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 Exchange
Act).    Yes  ☐    No  ☒

There is no established
market for the registrants shares of common stock. The registrant is currently conducting an ongoing public offering of its shares of common stock pursuant to a Registration Statement on Form N-2, which shares are currently being sold at an
institutional offering price of $8.64 per share, or at a price per share necessary to ensure that shares are not sold at a price below net asset value per share.

There were 275,288,550 shares of the registrants common stock outstanding as of February 28, 2017.

Documents Incorporated by Reference

Portions of the registrants
definitive Proxy Statement relating to the registrants 2017 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 III

FORM 10-K FOR THE FISCAL YEAR

ENDED DECEMBER 31, 2016

TABLE OF CONTENTS



|         |  |                                                                                                              |  |      |     | 
|-------- |  | ------------------------------------------------------------------------------------------------------------ |  | ---- | --- | 
|         |  |                                                                                                              |  | Page |    
|PART I   |  |                                                                                                              |  |      |     | 
|ITEM 1.  |  | BUSINESS                                                                                                     |  |      | 1   | 
|ITEM 1A. |  | RISK FACTORS                                                                                                 |  |      | 30  | 
|ITEM 1B. |  | UNRESOLVED STAFF COMMENTS                                                                                    |  |      | 62  | 
|ITEM 2.  |  | PROPERTIES                                                                                                   |  |      | 62  | 
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                                            |  |      | 62  | 
|ITEM 4.  |  | MINE SAFETY DISCLOSURES                                                                                      |  |      | 62  | 
|         |  |                                                                                                             
|PART II  |  |                                                                                                              |  |      |     | 
|ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  |      | 63  | 
|ITEM 6.  |  | SELECTED FINANCIAL DATA                                                                                      |  |      | 66  | 
|ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS                        |  |      | 68  | 
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                   |  |      | 98  | 
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                  |  |      | 100 | 
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE                         |  |      | 184 | 
|ITEM 9A. |  | CONTROLS AND PROCEDURES                                                                                      |  |      | 184 | 
|ITEM 9B. |  | OTHER INFORMATION                                                                                            |  |      | 185 | 
|         |  |                                                                                                             
|PART III |  |                                                                                                              |  |      |     | 
|ITEM 10. |  | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                       |  |      | 186 | 
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                                       |  |      | 186 | 
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS               |  |      | 186 | 
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                    |  |      | 186 | 
|ITEM 14. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                       |  |      | 186 | 
|         |  |                                                                                                             
|PART IV  |  |                                                                                                              |  |      |     | 
|ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES                                                                      |  |      | 187 | 
|ITEM 16. |  | FORM 10-K SUMMARY                                                                                            |  |      | 192 | 
|         |  | SIGNATURES                                                                                                   |  |      | 193 | 



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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 III, 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 June 7, 2013 and formally commenced investment operations on April 2, 2014. 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, 2016, we had total assets of approximately $3.7 billion.

We
are managed by FSIC III Advisor, LLC, or FSIC III 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 with respect to our portfolio. FSIC III Advisor has engaged GSO / Blackstone Debt Funds Management LLC, or GDFM, to act as our investment sub-adviser. GDFM assists FSIC III Advisor in
identifying investment opportunities and makes investment recommendations for approval by FSIC III Advisor, according to guidelines set by FSIC III 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 $93.3 billion in assets under management as of December 31, 2016.

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 III 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 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, in our target companies, generally in conjunction with one of our debt investments or through a co-investment with a financial sponsor, such as an institutional investor or private equity firm. In addition, a portion of our portfolio may be comprised of corporate bonds, collateralized loan obligations, or
CLOs, other debt securities and derivatives, including total return swaps and credit default swaps. FSIC III 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 III 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, 2016, we made investments in portfolio companies totaling $1,446,810. During the same period, we sold investments for proceeds of $523,654 and received principal repayments of $590,384. As of December 31, 2016, our investment
portfolio, with a total fair value of $3,243,310 (66% in first lien senior secured loans, 7% in second lien senior secured loans, 3% in senior secured bonds, 19% in subordinated debt, 0% in collateralized securities and 5% in equity/other),
consisted of interests in 114 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
$159.5 million. As of December 31, 2016, the debt investments in our portfolio were purchased at a weighted average price of 98.2% 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 9.5% based upon the amortized cost of our investments. For the year ended December 31, 2016, our total return was 18.31% and our
total return without assuming reinvestment of distributions was 17.58%.

Based on our regular weekly cash distribution amount
of $0.013461 per share as of December 31, 2016 and our institutional offering price of $8.55 per share as of such date, the annualized distribution rate to stockholders as of December 31, 2016 was 8.19%. The annualized distribution rate to
stockholders is expressed as a percentage equal to the projected annualized distribution amount per share divided by our institutional offering price per share as of December 31, 2016. Our annualized distribution rate to stockholders may
include income, realized capital gains and a return of investors capital.

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 returns and annualized
distribution rate to



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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 footnotes 6 and 7 to the table included in Note 11 to our consolidated financial statements included herein for information regarding
the calculation of our total returns.

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 term. In an order dated June 4, 2013, the SEC
granted exemptive relief to our affiliates, upon which we may rely, and which permits us, subject to the satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions
with certain affiliates of FSIC III Advisor, including FS Investment Corporation, FS Energy and Power Fund, FS Investment Corporation II, FS Investment Corporation IV and any future BDCs that are advised by FSIC III 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 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 our affiliates 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 (e.g., where price is the only negotiated term).

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 during our offering stage due to 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 offering price, which exceeds our net asset value per share, is subject to adjustment in accordance with the 1940 Act and our share
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. See Item 1A. Risk FactorsRisks Related to Our Continuous Public Offering and an Investment in Our Common Stock.

We do not currently intend to list our shares on an exchange and do not expect a public market to develop for them in the foreseeable
future. We intend to seek to complete a liquidity event within five years following the completion of our offering stage; however, the offering period may extend for an indefinite period. Accordingly, stockholders should consider that they may not
have access to the money they invest for an indefinite period of time until we complete a liquidity event. We will view our offering stage as complete as of the termination date of our most recent public equity offering if we have not conducted a
public equity offering in any continuous two-year period. In addition, shares of BDCs listed on a national securities exchange frequently trade at a discount to net asset value. If we determine to pursue a
listing of our shares on a national securities exchange, stockholders, including those who purchase shares at the offering price, may experience a loss on their investment if they sell their shares at a time when our shares are trading at a discount
to net asset value. This risk is separate and distinct from the risk that our net asset value will decrease. However, there can be no assurance that we will be able to complete a liquidity event. See Item 1A. Risk FactorsRisks Related to
Our Continuous Public Offering and an Investment in Our Common Stock.

Status of Our Continuous Public Offering

Since commencing our continuous public offering and through February 28, 2017, we have issued 280,778,112 shares of common stock for
gross proceeds of $2,681,451. As of February 28, 2017, we had raised total gross proceeds of $2,693,438, including $200 of seed capital contributed by the principals of FSIC III



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Advisor in October 2013 and $11,787 in proceeds raised in a private placement completed in April 2014 from the principals of FSIC III Advisor, certain members of our board of directors and other
individuals and entities affiliated with FSIC III Advisor and GDFM.

We are currently offering shares of
our common stock pursuant to our continuous public offering only to persons who purchase through investment advisors whose contracts for investment advisory and related services include a fixed or wrap fee or other asset-based fee
arrangement, who we collectively refer to as Advisors, and to certain affiliated investors who purchase through FS Investment Solutions, LLC (formerly FS2Capital Partners, LLC), or FS Investment Solutions, our dealer manager. We refer to sales of shares of our common stock
through Advisors as the Institutional Channel. In February 2016, we closed our continuous public offering to investors investing through the IBD Channel, or the IBD Channel closing. As used herein, the IBD Channel refers to sales of shares of our
common stock through broker-dealers that are members of the Financial Industry Regulatory Authority, or FINRA, and other properly licensed financial securities firms, who we collectively refer to as selected broker-dealers. Historically, sales
through the IBD Channel have constituted the majority of shares sold in our continuous public offering.

Prior to the IBD
Channel closing, shares of our common stock in our continuous public offering were subject to a sales load of up to 10.0% of the public offering price, which consisted of selling commissions and dealer manager fees of up to 7.0% and 3.0%,
respectively, of the public offering price. Following the IBD Channel closing, shares of common stock in our continuous public offering have been sold at an institutional offering price that does not include any selling commissions or dealer manager
fees.

Share Repurchase Program

To provide our stockholders with limited liquidity, we intend to continue to conduct quarterly tender offers pursuant to our share repurchase program. The first such tender offer commenced in August 2014.
During the years ended December 31, 2016, 2015 and 2014, we repurchased 4,612,315, 669,010 and 4,050 shares, respectively, at an average price per share of $8.252, $8.786 and $9.000, respectively, for aggregate consideration totaling $38,060,
$5,878 and $36, respectively. On January 4, 2017, we repurchased 1,536,048 shares at $8.550 per share for aggregate consideration totaling $13,133.

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 calendar 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. We currently intend to offer to repurchase such shares
of common stock on each date of repurchase at a price equal to the institutional offering price on the date of repurchase. Our share repurchase program will be the only method by which our stockholders may obtain liquidity prior to a liquidity
event. Therefore, stockholders may not be able to sell their shares promptly or at a desired price. If stockholders are able to sell their shares, it is likely they will have to sell them at a significant discount to their purchase price. Our board
of directors may amend, suspend or terminate the share repurchase program at any time upon 30 days notice.

Distributions

Subject to applicable legal restrictions and the sole discretion of our board of directors, we currently intend to declare
regular cash distributions on a quarterly basis and pay such distributions on a monthly basis to stockholders of record, determined on a weekly basis. From time to time, we may also pay special interim



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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 declared and paid on our common stock during the years ended December 31, 2016, 2015 and 2014:



|                                |  |              |        |  |        |   |         | 
|------------------------------- |  | ------------ | ------ |  | ------ | - | ------- | 
|                                |  | Distribution |       
|For the Year Ended December 31, |  | Per Share    |        |  | Amount |  
|2014                            |  | $            | 0.5249 |  |        | $ | 21,526  | 
|2015                            |  | $            | 0.7000 |  |        | $ | 118,228 | 
|2016                            |  | $            | 0.7000 |  |        | $ | 183,009 | 

On November 4, 2016 and March 7, 2017, our board of directors declared regular weekly cash
distributions for January 2017 through March 2017 and April 2017 through June 2017, respectively, each in the amount of $0.013461 per share. These distributions have been or will be paid monthly to stockholders of record as of weekly 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 III Advisor

FSIC III Advisor is a subsidiary of our affiliate, Franklin Square Holdings, L.P. (which does business as
FS Investments), or FS Investments, a national sponsor of alternative investments designed for the individual investor. FSIC III 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, FSIC II Advisor, LLC, FSIC IV Advisor, LLC and FS Global Advisor, LLC. FB Income Advisor, LLC, FS Investment Advisor, LLC, FSIC II
Advisor, LLC and FSIC IV Advisor, LLC are registered investment advisers that manage FS Investments four other affiliated BDCs, FS Investment Corporation, FS Energy and Power Fund, FS Investment Corporation II and FS Investment Corporation IV,
respectively. FS Global Advisor, LLC is a registered investment adviser that manages FS Investments 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
III Advisor also currently manage the following entities through affiliated investment advisers:



|                                       |  |                                       |  |                                                                                                                                             |  |                  |           | 
|-------------------------------------- |  | ------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | --------- | 
|Name                                   |  | Entity                                |  | Investment Focus                                                                                                                            |  | Gross 
Assets(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. |  | $                | 4,110,071 | 
|FS Energy and Power Fund(2)            |  | BDC                                   |  | Primarily invests in debt and income-oriented equity securities of privately-held U.S. companies in the energy and power industry.          |  | $                | 4,073,753 | 
|FS Investment Corporation II(2)        |  | BDC                                   |  | Primarily invests in senior secured loans, second lien secured loans and, to a lesser extent, subordinated loans of private U.S. companies. |  | $                | 4,910,727 | 
|FS Investment Corporation IV           |  | BDC                                   |  | Primarily invests in senior secured loans, second lien secured loans and, to a lesser extent, subordinated loans of private U.S. companies. |  | $                | 176,089   | 
|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.                      |  | $                | 1,971,450 | 



|(1) | As of December 31, 2016, except as otherwise noted below.
|--- | ---------------------------------------------------------



|(2) | As of September 30, 2016.
|--- | -------------------------



|(3) | Two funds affiliated with FS Global Credit Opportunities Fund, FS Global Credit Opportunities FundT and FS Global Credit Opportunities FundADV, 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. Two other 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
Closed Funds, which also have the same investment objectives and strategies as FS Global Credit Opportunities Fund, closed their respective continuous public offerings to new investors in April 2016.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

FSIC III 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 FS Investments and its affiliates in the credit



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markets, and the depth of experience and disciplined investment approach of FSIC III Advisors management team, will allow FSIC III Advisor to successfully execute our investment strategies.

All investment decisions require the unanimous approval of FSIC III 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 amended and
restated investment advisory and administrative services agreement, by and between us and FSIC III Advisor, dated as of August 6, 2014, or the investment advisory and administrative services agreement, and the investment sub-advisory agreement that FSIC III 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 III Advisor may enter into sub-advisory relationships with registered investment advisers that possess skills that FSIC III Advisor believes will aid it in achieving our investment objectives. FSIC
III Advisor has engaged GDFM to act as our investment sub-adviser. GDFM assists FSIC III Advisor in identifying investment opportunities and makes investment recommendations for approval by FSIC III Advisor
according to guidelines set by FSIC III Advisor. GDFM also serves as the investment sub-adviser to FS Investment Corporation, FS Investment Corporation II 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, 2016, GSO and its affiliates, excluding Blackstone, managed approximately $93.3 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 III 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 $366.6 billion as of December 31, 2016. 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 atwww.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.

Potential 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



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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.

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.



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Limited Investment Competition

Despite the size of the market, we believe that regulatory changes and other factors have diminished the role of traditional financial
institutions and certain other capital providers in providing financing to middle market companies. As tracked by S&P Capital IQ LCD, U.S. banks share of senior secured loans to middle market companies represented 6% of overall middle
market loan volume in 2016, down slightly from 7% in 2015 and down from nearly 20% in 2011. However, the continuation of this trend is uncertain as a result of the potentially changing regulatory landscape due to the new presidential administration.

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 62.3% of the institutional investor base for broadly syndicated
loans in 2016, 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



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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 III Advisor and/or GDFM to obtain adequate information through their due diligence efforts to
evaluate the creditworthiness of, and risks involved in, investing in these companies, and to determine the optimal time to exit an investment. These companies and their financial information will also generally not be subject to the Sarbanes-Oxley
Act of 2002, or the Sarbanes-Oxley Act, and other rules and regulations that govern public companies that are designed to protect investors.

Investment 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 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, in our target companies, generally in conjunction with one of our debt investments or through a co-investment with a financial sponsor, such as an institutional investor or private equity firm. In addition, a portion of our portfolio may be comprised of corporate bonds, CLOs, other debt securities and
derivatives, including total return swaps and credit default swaps. FSIC III Advisor will seek to tailor our investment focus as market conditions evolve. Depending on market conditions, we may increase or decrease our exposure to less senior
portions of the capital structure or otherwise make opportunistic investments.

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



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



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



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



| |  |  | Private equity sponsorship. Often, we seek to participate in transactions sponsored by what we believe to be sophisticated and seasoned private
equity firms. FSIC III Advisors management team believes that a private equity sponsors willingness to invest significant sums of equity capital into a company is
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | an endorsement of the quality of the investment. Further, by co-investing with such experienced private equity firms which commit significant sums of
equity capital ranking junior in priority of payment to our debt investments, we may benefit from the due diligence review performed by the private equity firm, in addition to our own due diligence review. Further, strong private equity sponsors
with significant investments at risk have the ability and a strong incentive to contribute additional capital in difficult economic times should operational or financial issues arise, which could provide additional protections for our investments.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

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

Potential Competitive Strengths

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

Global platform with seasoned investment professionals

We believe that the breadth and depth of the experience of FSIC III 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 III 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



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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
leveraged finance marketplace. With respect to GDFMs origination channel, FSIC III 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 III 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 III 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 III 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 III Advisor an annual base management fee based on the average weekly 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 III Advisor.

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

FSIC III 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 III 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 III 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 III Advisor for expenses necessary to perform services related to our administration and operations, including FSIC III
Advisors allocable portion of the compensation and related expenses of certain



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personnel of FS Investments providing administrative services to us on behalf of FSIC III Advisor. The amount of this reimbursement is set at the lesser of (1) FSIC III 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 III Advisor allocates the cost of such
services to us based on factors such as 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 III 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 III 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 III 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 III 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 III 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 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, in our target companies, generally in
conjunction with one of our debt investments or through a co-investment with a financial sponsor, such as an institutional investor or private equity firm. In addition, a portion of our portfolio may be
comprised of corporate bonds, CLOs, other debt securities and derivatives, including total return swaps and credit default swaps. FSIC III 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



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

Typical Leveraged Capital Structure Diagram



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 8.0% 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 7.0% 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 7.0% 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;
| | - |  | ----------------------------------------------------------------------



| |  |  | 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
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 III 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 III 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 III 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 III 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.



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Evaluation

Initial Review. In its initial review of an investment opportunity to present to FSIC III Advisor, GDFMs transaction team
examines information furnished by the target company and external sources, including ratingagencies, if applicable, to determine whether the investment meets our basic investment criteria and other guidelines specified by FSIC III Advisor,
within the context of proper allocation of our portfolio among variousissuers 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
III Advisor and GDFM conduct detailed due diligence investigations as necessary.

Credit Analysis/Due Diligence. Before
undertaking an investment, the transaction teams from FSIC III 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;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



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



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

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

Execution

Recommendation. FSIC III 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 III 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 III Advisor in connection with its recommendations. The consummation of a transaction requires unanimous approval of the members of FSIC III Advisors investment committee.

Monitoring

Portfolio Monitoring. FSIC III Advisor, with the help of GDFM, monitors our portfolio with a focus toward anticipating negative credit events. To maintain portfolio company performance and help to
ensure a successful



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exit, FSIC III 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 III 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 III 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 these investments.

In addition to various risk management and monitoring tools, FSIC III Advisor uses an investment rating system to characterize and monitor the expected level of returns on each investment in our
portfolio. FSIC III 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 III 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, FSIC III Advisor 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, 2016 and 2015:



|                  |  |                   |           |  |                        |  |     |            |  |   |                        |  |  |  |     |  
|----------------- |  | ----------------- | --------- |  | ---------------------- |  | --- | ---------- |  | - | ---------------------- |  |  |  | --- | -
|                  |  | December 31, 2016 |           |  | December 31, 2015      | 
|Investment Rating |  | Fair Value        |           |  | Percentageof Portfolio |  |     | Fair Value |  |   | Percentageof Portfolio | 
|1                 |  | $                 | 31,381    |  |                        |  | 1   | %          |  | $ | 32,097                 |  |  |  | 1   | %
|2                 |  |                   | 3,060,613 |  |                        |  | 94  | %          |  |   | 2,460,811              |  |  |  | 90  | %
|3                 |  |                   | 115,673   |  |                        |  | 4   | %          |  |   | 174,729                |  |  |  | 6   | %
|4                 |  |                   | 28,191    |  |                        |  | 1   | %          |  |   | 70,246                 |  |  |  | 3   | %
|5                 |  |                   | 7,452     |  |                        |  | 0   | %          |  |   | 6,747                  |  |  |  | 0   | %
|                  |  |                   |           |  |                        |  |     |            |  |   |                        |  |  |  |     |  
|Total             |  | $                 | 3,243,310 |  |                        |  | 100 | %          |  | $ | 2,744,630              |  |  |  | 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



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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 III Advisor and any other professionals or materials that our board of directors deems relevant, including GDFM 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 III 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 III 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 III 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, 2016:



|                                 |  |                           |  |                      |  |                   |         |  |                 |   |         |               |  |                       
|-------------------------------- |  | ------------------------- |  | -------------------- |  | ----------------- | ------- |  | --------------- | - | ------- | ------------- |  | ----------------------
|Arrangement                      |  | Type of Arrangement       |  | Rate                 |  | AmountOutstanding |         |  | AmountAvailable |   |         | Maturity Date
|Citibank Total Return Swap       |  | Total Return Swap         |  | L+1.55%              |  | $                 | 388,681 |  |                 | $ | 111,319 |               |  | N/A(1)                
|BNP Facility(2)                  |  | Prime Brokerage Facility  |  | L+1.10%              |  | $                 | 187,700 |  |                 | $ | 62,300  |               |  | September 27, 
2017(3)
|Deutsche Bank Credit Facility(4) |  | Revolving Credit Facility |  | L+2.25%              |  | $                 | 240,000 |  |                 | $ | 10,000  |               |  | September 22, 2019    
|JPM Credit Facility              |  | Term Loan Credit Facility |  | L+2.69%              |  | $                 | 400,000 |  |                 | $ |        |               |  | May 8, 2019           
|Goldman Facility                 |  | Repurchase Agreement      |  | L+2.50%              |  | $                 | 300,000 |  |                 | $ |        |               |  | July 15, 2019         
|Capital One Credit Facility      |  | Revolving Credit Facility |  | L+1.75% to L+2.50%   |  | $                 | 150,000 |  |                 | $ |        |               |  | August 13, 2020       
|Partial Loan Sale                |  | Secured Borrowing         |  | L+4.50% (1.0% Floor) |  | $                 | 13,929  |  |                 | $ |        |               |  | July 29, 2022         



|(1) | The total return swap, or TRS, may be terminated by Center City Funding, LLC, or Center City Funding, or by Citibank N.A., or Citibank, at any time on or after
June 27, 2017, in each case, in whole or in part, upon prior written notice to the other party.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | On August 29, 2016, Burholme Funding LLC, or Burholme Funding, entered into an amendment to the prime brokerage facility with BNP Paribas Prime
Brokerage, Inc., or BNPP, to, among other things, (i) increase the interest rate payable on borrowings under the committed facility agreement from three-month LIBOR plus 110 basis points to three-month LIBOR plus 125 basis points effective on
and after January 2, 2017 and (ii) increase the commitment fee payable under the committed facility agreement from
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | 55 basis points on all unused amounts to, effective on and after January 2, 2017, (a) 65 basis points on unused amounts so long as 75% or more of the facility amount under the committed
facility agreement is utilized or (b) 85 basis points on unused amounts if less than 75% of the facility amount under the committed facility agreement is utilized. On November 15, 2016, Burholme Funding entered into an amendment to the facility
to increase the maximum commitment financing available to Burholme Funding to $250,000 from $200,000.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | As described in Note 8 to our consolidated financial statements contained in this annual report on Form 10-K, this facility
generally is terminable upon 270 days notice by either party. As of December 31, 2016, neither party to the facility had provided notice of its intent to terminate the facility.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | On January 12, 2017, Dunlap Funding LLC, or Dunlap Funding, entered into an amendment to the Deutsche Bank credit facility to increase the aggregate principal
amount of borrowings available under the Deutsche Bank credit facility from $250,000 to $350,000.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our average
borrowings and weighted average interest rate, including the effect of non-usage fees, for the year ended December 31, 2016 were $1,196,899 and 3.12%, respectively. As of December 31, 2016, our
weighted average effective interest rate on borrowings, including the effect of non-usage fees, was 3.30%.

See Note 8 to our consolidated financial statements contained in this annual report on Form 10-K 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 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 term. In an order dated June 4, 2013, the SEC granted exemptive relief to our affiliates, upon which we may rely, and which permits 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



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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 our affiliates 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 (e.g., where price is the only negotiated term).

Qualifying Assets

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



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



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



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



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



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



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



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



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



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



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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.

For purposes of Section 55(a) under the 1940 Act, we will treat each loan underlying the TRS as a qualifying asset if the obligor on such loan is an eligible portfolio company and as a non-qualifying asset if the obligor is not an eligible portfolio company. We may, however, accord different treatment to the TRS in the future in accordance with any applicable new rules or interpretations adopted
by the staff of the SEC.

Managerial Assistance to Portfolio Companies

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

Temporary Investments

Pending investment in other types of qualifying assets, as described above, our investments may consist of cash, cash equivalents, including money market funds, U.S. government securities or
high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. Typically, we will invest in U.S. Treasury bills or in
repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and
the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price that is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the
proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we would not meet the diversification tests in order to maintain
our qualification 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 III
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.

For purposes of the asset coverage ratio test applicable to us as a BDC, we will treat the outstanding notional amount of the TRS, less
the initial amount of any cash collateral required to be posted by Center City Funding under the TRS, as a senior security for the life of that instrument. We may, however, accord different treatment to the TRS in the future in accordance with any
applicable new rules or interpretations adopted by the staff of the SEC.



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Code of Ethics

We and FSIC III 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 codes 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 August 10, 2016 and FSIC III Advisors code of ethics was filed as an exhibit to post-effective amendment no. 7 to our registration statement on Form N-2 filed with the SEC on August 10, 2016. Stockholders may also read and copy these codes 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, each code of ethics is available on our website
atwww.fsinvestments.com and on the EDGAR Database on the SECs Internet site atwww.sec.gov. Stockholders may also obtain a copy of each 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 III 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 III Advisor are responsible for administering these policies and procedures.

Proxy Voting Policies and Procedures

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

As an investment adviser registered under
the Advisers Act, FSIC III 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 III Advisor are intended to comply with Section 206 of, and Rule 206(4)-6 promulgated
under, the Advisers Act.

FSIC III 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 III 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 III 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 III Advisor intends
to vote on a proposal in order to reduce any attempted influence from interested parties.



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Stockholders may obtain information, without charge, regarding how FSIC III 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 III, 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
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 qualification as a RIC, we must, among other things, meet certain
source-of-income and asset diversification requirements (as described below). In addition, in order to maintain RIC tax treatment, we must distribute to our
stockholders, for each 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;
| | - |  | --------------------------------------------



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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 our 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 distribute 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 (as 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, 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 have previously incurred, and may incur in the future, such excise tax on a portion of our income and capital gains. While we intend
to distribute income and capital gains to minimize exposure to the 4% excise tax, we may not be able to, or may choose not to, distribute amounts sufficient to avoid the imposition of the tax entirely. In that event, we generally will be liable for
the excise tax only on the amount by which we do not meet the Excise Tax Avoidance Requirement.

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



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



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



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



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



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

A RIC is limited in its ability to deduct expenses in excess of its investment
company taxable income. If our expenses in a given tax year exceed our investment company taxable income, we may experience a net operating loss for that tax year. However, a RIC is not permitted to carry forward net operating losses to subsequent
tax years and such net operating losses do not pass through to its stockholders. In addition, deductible expenses can be used only to offset investment company taxable income, not net capital gain. A RIC may not use any net capital losses (that is,
the excess of realized capital losses over realized capital gains) to offset its investment company taxable income, but may carry forward such net capital losses, and use them to offset future capital gains, indefinitely. Due to these limits on
deductibility of expenses and net capital losses, we may for tax purposes have aggregate taxable income for several years that we are required to distribute and that is taxable to our stockholders even if such taxable income is greater than the net
income we actually earn during those years.



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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 their 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 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.

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 entity-level income tax purposes



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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.

Competition

Our primary competitors for investments include other BDCs and investment funds (including private equity funds, mezzanine funds and CLO
funds). In addition, 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. We also compete with
traditional financial services companies such as commercial banks. We believe we will be able to compete with these entities for financing opportunities on the basis of, among other things, the experience of FSIC III Advisors senior management
team, together with the wider resources of GSOs investment team. Furthermore, while 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 private U.S. companies, we are not certain whether this trend will continue as a result of the potentially changing regulatory landscape due to the new presidential administration. For additional information, see
Market Opportunity and Potential Competitive Strengths.

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 us. 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. For additional information concerning the
competitive risks we face, see Item 1A. Risk FactorsRisks Related to Our Business and StructureWe may face increasing competition for investment opportunities, which could delay deployment of our capital, reduce returns and result
in losses.

Employees

We do not currently have any employees. Each of our executive officers is a principal, officer or employee of FSIC III Advisor, which manages and oversees our investment operations. In the future, FSIC
III Advisor may retain additional investment personnel based upon its needs.

Available Information

For so long as our bylaws require, within 60 days after the end of each fiscal quarter, we will distribute our quarterly report on Form 10-Q to all stockholders of record and to the state securities administrator in each state in which we offer or sell securities. In addition, for so long as our bylaws require, we will distribute our annual report
on Form 10-K to all stockholders and to the state securities administrator in each state in which we offer or sell securities within 120 days after the end of each fiscal year. These reports will also be
available on our website at www.fsinvestments.com and on the SECs website at www.sec.gov. Information contained on our website is not incorporated by reference into this annual report on Form
10-K and stockholders should not consider information contained on our website to be part of this annual report on Form 10-K.

We 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
atwww.fsinvestments.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



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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 Our Continuous Public Offering and 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. Therefore, if stockholders purchase shares in this offering, it is
unlikely that they will be able to sell them and, if they are able to do so, it is unlikely that they will receive a full return of their invested capital.

Our shares are illiquid assets for which there is not a secondary market and it is not expected that any will develop in the foreseeable future. There can be no assurance that we will complete a liquidity
event. 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.

In addition, any shares repurchased pursuant to our share repurchase program may be purchased at a price which may reflect a discount from the purchase price stockholders paid for the shares being
repurchased. 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.

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.

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

A liquidity event could include: (1) a listing of our common stock 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. However, there can be no assurance that we will complete a liquidity event by a specified date or at all. If we do not successfully complete a liquidity
event, liquidity for an investors shares will be limited to our share repurchase program, which we have no obligation to maintain.

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

The purchase price at which stockholders purchase shares will be determined at each weekly closing date to ensure that the sales price is
equal to or greater than the net asset value of our shares. As a result, in the event of an increase in our net asset value per share, a stockholders purchase price may be higher than the prior weekly closing price per share, and therefore a
stockholder may receive a smaller number of shares than if the stockholder had subscribed at the prior weekly closing price.



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An investor may not have the opportunity to evaluate historical data or assess our future investments
prior to purchasing our shares.

Other than those investments reflected in the schedule of investments in our most
recent financial statements at the time an investor subscribes for our shares, an investor will not be able to evaluate the economic merits, transaction terms or other financial or operational data concerning future investments we make using the
proceeds from our continuous public offering prior to making a decision to purchase our shares. An investor must rely on FSIC III Advisor and GDFM to implement our investment policies, to evaluate all of our investment opportunities and to structure
the terms of our future investments rather than evaluating our investments in advance of purchasing shares of our common stock. Because investors are not able to evaluate our investments in advance of purchasing our shares, our continuous public
offering may entail more risk than other types of offerings. This additional risk may hinder an investors ability to achieve its own personal investment objectives related to portfolio diversification, risk-adjusted investment returns and
other objectives.

Our ability to continue to successfully conduct our continuous public offering depends, in part, on the ability of
the dealer manager to establish, operate and maintain a network of Advisors to sell our shares.

The continued success
of our continuous public offering, and correspondingly our ability to fully implement our investment strategies, depends, in part, upon the ability of the dealer manager to establish, operate and maintain a network of Advisors to sell our shares. In
February 2016, we closed our continuous public offering to investors investing through the IBD Channel. Historically, sales through the IBD Channel have constituted the majority of shares sold pursuant to our continuous offering. Furthermore, our
continuous offering is being made on a best efforts basis, whereby the dealer manager and Advisors participating in the offering are only required to use their best efforts to sell our shares and have no firm commitment or obligation to purchase any
of the shares. If we are unable to sell all of the shares registered for sale in our continuous public offering, it would negatively impact the amount of proceeds we are able to raise, which could negatively impact our ability to fully implement our
investment strategies.

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

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

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

Our share repurchase program includes numerous restrictions that limit stockholders ability to sell their shares. We intend to limit the number of shares repurchased pursuant to our share repurchase
program as follows: (1) we currently intend to limit the number of shares to be repurchased during any calendar year to the number of shares we can repurchase with the proceeds we receive from the sale of our shares under our distribution
reinvestment plan, although, at the discretion of our board of directors, we may also use cash on hand, cash available from borrowings and cash from the liquidation of securities investments as of the end of the applicable period to repurchase
shares; (2) we will limit the number of shares to be repurchased in any calendar year to 10% of the weighted average number of shares outstanding in the prior calendar year, or 2.5% in each 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



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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. For example, our affiliate, FS Investment Corporation, commenced a share repurchase program in March 2010 with substantially similar terms as our share repurchase program. Because FS
Investment Corporation had relatively few shares outstanding during the first year of its operations, the limitation described in clause (2) above resulted in fewer than all of the tendered shares being repurchased in two tender offers
conducted by FS Investment Corporation in 2010.

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 price which is less than the purchase price stockholders 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.

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

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

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

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

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

In addition, even if GDFM identifies
privately-negotiated investment opportunities that meet our investment objectives, our ability to invest in such investments may be limited or restricted by the terms of the exemptive relief order from the SEC dated June 4, 2013. Moreover,
because our affiliates 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 (e.g., where price is the only negotiated term) and the allocation policies of FSIC III Advisor, GDFM and their respective affiliates.



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

We may pay distributions from offering proceeds, borrowings or the sale of assets.

To the extent declared distributions exceed our net investment income or cash flow from operations, we may fund distributions from the
uninvested proceeds of our continuous public offering or borrowings, and we have not established limits on the amount of funds we may use from these sources to make future distributions. We have also paid and may continue to pay distributions from
the sale of assets to the extent distributions exceed our earnings or cash flows from operations. Distributions from any of the aforementioned sources could reduce the amount of capital we ultimately invest.

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
550,000,000 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 III 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 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



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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.

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



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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.

Below Investment Grade Risk. 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.

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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We generally will not control our portfolio companies.

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

We 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 and investment opportunities and, accordingly, have a material adverse effect on our investment objectives and our rate of return on invested capital. In addition, an increase in interest rates
would make it more expensive to use debt for our financing needs, if any.

Interest rates have recently been at or near
historic lows. 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, fixed rate debt instruments may decline in value because the fixed rates of interest paid thereunder may be below market
interest rates.

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



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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.

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.

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;
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| |  |  | generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with
products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, our executive officers and directors, and
members of FSIC III 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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 other equity or the cash value of common stock or other equity. In addition, we may make direct equity investments in portfolio companies. The equity interests we receive may not appreciate in value and, in fact, may
decline in value. Accordingly, we may not be able to realize gains from our 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.

Investment strategies 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. In addition, in a restructuring, we may receive substantially different securities than our original investment in a portfolio company, including securities in a different part of the capital structure. 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 III 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



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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 or at all, 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.

Our investments may include original issue discount and PIK instruments.

To the extent that we invest in original issue discount or PIK instruments and the accretion of original issue discount or PIK interest
income 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:



| |  |  | The higher interest rates on PIK instruments reflect the payment deferral and increased credit risk associated with these instruments, and PIK
instruments generally represent a significantly higher credit risk than coupon loans;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Original issue discount or PIK instruments may have unreliable valuations because the accruals require judgments about collectability of the deferred
payments and the value of any associated collateral;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An election to defer PIK interest payments by adding them to the principal on such instruments increases our future investment income which increases
our gross assets and, as such, increases FSIC IV Advisors future base management fees which, thus, increases FSIC IV Advisors future income incentive fees at a compounding rate;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Market prices of PIK instruments and other zero coupon instruments are affected to a greater extent by interest rate changes, and may be more volatile
than instruments that pay interest periodically in cash. While PIK instruments are usually less volatile than zero coupon debt instruments, PIK instruments are generally more volatile than cash pay securities;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The deferral of PIK interest on an instrument increases the
loan-to-value ratio, which is a measure of the riskiness of a loan, with respect to such instrument;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Even if the conditions for income accrual under GAAP are satisfied, a borrower could still default when actual payment is due upon the maturity of such
loan;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For accounting purposes, cash distributions to investors representing original issue discount income are not derived 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 required recognition of PIK interest for U.S. federal income tax purposes may have a negative impact on liquidity, as it represents a non-cash component of our investment company taxable 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 III Advisor based on non-cash accruals that may never be realized.
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We have entered into a total return swap agreement which exposes us to certain risks, including market
risk, liquidity risk and other risks similar to those associated with the use of leverage.

Our wholly-owned financing
subsidiary, Center City Funding, has entered into a TRS for a portfolio of primarily senior secured floating rate loans with Citibank. See Note 8 to our consolidated financial statements contained in this annual report on Form 10-K for a more
detailed discussion of the terms of the TRS between Center City Funding and Citibank.

A TRS is a contract in which one party
agrees to make periodic payments to another party based on the change in the market value of the assets underlying the TRS, which may include a specified security, basket of securities or securities indices during a specified period, in return for
periodic payments based on a fixed or variable interest rate. A TRS effectively adds 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. Because of the unique structure of a TRS, a TRS often offers lower financing costs than are offered through more traditional borrowing arrangements.

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

The TRS is subject to market risk, liquidity risk and risk of imperfect correlation between the value of the TRS and the loans underlying the TRS. In addition, we may incur certain costs in connection
with the TRS that could in the aggregate be significant. Because this arrangement is not an acquisition of the underlying loans, we have no right directly to enforce compliance with the terms of the loans and have no voting or other consensual
rights of ownership with respect to the loans. In the event of insolvency of the counterparty, we will be treated as a general creditor of the counterparty and will have no claim of title with respect to the underlying loans.

A TRS is also subject to the risk that a counterparty will default on its payment obligations thereunder or that we will not be able to
meet our obligations to the counterparty. In the case of the TRS with Citibank, Center City Funding is required to post cash collateral amounts to secure its obligations to Citibank under the TRS. Citibank, however, is not required to collateralize
any of its obligations to Center City Funding under the TRS. Center City Funding bears the risk of depreciation with respect to the value of the loans underlying the TRS and is required under the terms of the TRS to post additional collateral on a dollar-for-dollar basis in the event of depreciation in the value of the underlying loans after such value decreases below a specified amount. The amount of collateral
required to be posted by Center City Funding is determined primarily on the basis of the aggregate value of the underlying loans.

The limit on the additional collateral that Center City Funding may be required to post pursuant to the agreements between Center City Funding and Citibank that collectively establish the TRS, which
agreements are collectively referred to herein as the TRS Agreement, is equal to the difference between the full notional amount of the loans underlying the TRS and the amount of cash collateral already posted by Center City Funding (determined
without consideration of the initial cash collateral posted for each loan included in the TRS). Center City Fundings maximum liability under the TRS is the amount of any decline in the aggregate value of the loans subject to the TRS, less the
amount of the cash collateral previously posted by Center City Funding. Therefore, the absolute risk of loss with respect to the TRS is the notional amount of the TRS.

Included among the customary events of default and termination events in the TRS Agreement are: (a) a failure to satisfy the portfolio criteria or obligation criteria for at least 30 days; (b) a
failure to post initial cash collateral or additional collateral as required by the TRS Agreement; (c) a default by Center City Funding or us with respect to indebtedness in an amount equal to or greater than the lesser of $10.0 million
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asset value at such time; (d) Center City Funding ceasing to be our wholly-owned subsidiary; (e) either us or Center City Funding amending its constituent documents to alter our
investment strategies in a manner that has or could reasonably be expected to have a material adverse effect; (f) our ceasing to be the investment manager of Center City Funding or having authority to enter into transactions under the TRS on
behalf of Center City Funding, and not being replaced by an entity reasonably acceptable to Citibank; (g) FSIC III Advisor (or an entity reasonably acceptable to Citibank) ceasing to be our investment adviser or GDFM (or an affiliate) ceasing
to be the investment sub-adviser to FSIC III Advisor; (h) Center City Funding failing to comply with its investment strategies or restrictions to the extent such
non-compliance has or could reasonably be expected to have a material adverse effect; (i) Center City Funding becoming liable in respect of any obligation for borrowed money, other than arising under the
TRS Agreement; (j) we dissolve or liquidate; (k) there occurs, without the prior consent of Citibank, any material change to or departure from our policies or the policies of Center City Funding that may not be changed without the vote of
our stockholders and that relates to Center City Fundings performance of its obligations under the TRS Agreement; and (l) we violate certain provisions of the 1940 Act or our election to be regulated as a BDC is revoked or withdrawn.

In addition to the rights of Citibank to terminate the TRS following an event of default or termination event as described
above, Citibank may terminate the TRS on or after June 27, 2017. Center City Funding may terminate the TRS at any time upon providing no more than 30 days, and no less than 10 days, prior notice to Citibank. Any termination prior to
June 27, 2017 will result in payment of an early termination fee to Citibank based on the maximum notional amount of the TRS. Under the terms of the TRS, the early termination fee will equal the present value of a stream of monthly payments
which would be owed by Center City Funding to Citibank for the period from the termination date through and including June 27, 2017. Such monthly payments will equal the product of (x) 80%, multiplied by (y) the maximum notional
amount of the TRS ($500.0 million as of December 31, 2016), multiplied by (z) 1.55% per annum (1.50% per annum as of December 31, 2015). Other than during the first 90 days and last 30 days of the term of the TRS, Center
City Funding is required to pay a minimum usage fee if less than 80% of the maximum notional amount of the TRS is utilized and an unused fee on any amounts unutilized if greater than 80% but less than 100% of the maximum notional amount of the TRS
is utilized.

Upon any termination of the TRS, Center City Funding will be required to pay Citibank the amount of any decline
in the aggregate value of the loans subject to the TRS or, alternatively, will be entitled to receive the amount of any appreciation in the aggregate value of such loans. In the event that Citibank chooses to exercise its termination rights, it is
possible that Center City Funding will owe more to Citibank or, alternatively, will be entitled to receive less from Citibank than it would have if Center City Funding controlled the timing of such termination due to the existence of adverse market
conditions at the time of such termination.

In addition, because a TRS is a form of synthetic leverage, such arrangements are
subject to risks similar to those associated with the use of leverage. See Risks Related to Debt Financing.

We may
from time to time enter into 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 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



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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 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. See Risks Related to Debt Financing.

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.

Risks Related to Our Business and Structure

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
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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. Finally,
because our shares are not expected to be listed on a national securities exchange, stockholders will be limited in their ability to sell their shares in response to any changes in our investment policy, operating policies, investment criteria or
strategies.

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 recent social and political
tensions in the U.S. and around the world (e.g., the United Kingdom referendum to leave the European Union), concerns regarding the Chinese economy and declines in commodity prices, has led to, and may continue to lead to, volatility 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 last affirmed by S&P in November 2016. 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 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
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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 and the fourth quarter of 2016. 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. Furthermore, following the United Kingdoms referendum to leave the European Union, S&P, lowered its long-term sovereign credit rating. In addition, the terms of the United Kingdoms exit and any future referendums in
other European countries may disrupt the global market. 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.

Prices for oil and gas, which historically have been volatile and may
continue to be volatile, may be subject to large fluctuations in response to relatively minor changes in the supply of and demand for oil and natural gas. 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.

Our ability
to achieve our investment objectives depends on FSIC III Advisors and GDFMs ability to manage and support our investment process and if either our agreement with FSIC III Advisor or FSIC III Advisors agreement with GDFM were to be
terminated, or if either FSIC III 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 III Advisor and GDFM.
FSIC III 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 III Advisor and
GDFM, as well as their respective senior management teams. The departure of any members of FSIC III 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 III
Advisor.

Our ability to achieve our investment objectives depends on FSIC III Advisors ability, with the assistance of
GDFM, to identify, analyze, invest in, finance and monitor companies that meet our investment criteria. FSIC III 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 III Advisor may need to hire, train, supervise and manage new investment professionals to participate in our investment selection and monitoring process. FSIC III 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 III Advisor has entered into with us, as well as the investment sub-advisory
agreement that FSIC III 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 III 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 III
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 III Advisor or for FSIC III 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 III 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 III Advisor or GDFM fails to maintain its existing relationships with private equity sponsors, investment banks and commercial
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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 III 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. Furthermore, the potentially changing regulatory landscape as a result of the new presidential administration may increase the number of middle market investors. 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.

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
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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.

There is a risk that investors in our common stock may not receive distributions.

We cannot assure stockholders that we will achieve investment results that will allow us to make a specified level of
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.

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 of common stock.

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 and will be made after deducting the fees and expenses payable in connection with the offering, including any fees payable to FSIC III Advisor. Moreover, we may pay all or a substantial
portion of our distributions from the proceeds of our continuous public offering or from borrowings in anticipation of future cash flow, which could constitute a return of stockholders capital and will lower such stockholders tax basis
in our shares, which may result in increased tax liability to stockholders when they sell such shares.

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 and the deductibility of interest expense by our portfolio companies, potentially with retroactive effect. Changes in laws or regulations governing the
operations of those with whom we do business, including the financial representatives selling our shares, could have a material adverse effect on our business, financial condition and results of operations. In addition, 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



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subject to new regulation. New or repealed 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 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 III Advisor and GDFM to other types of investments in which FSIC III 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.

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, 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.

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

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 financial institutions. Many of the requirements called for in the Dodd-Frank Act are expected to be implemented over time, most of which will likely be subject to implementing regulations over the course of several years.
However, the new presidential administration has announced its intention to repeal, amend, or replace certain portions of Dodd-Frank and the regulations implemented thereunder. Given the uncertainty associated with the manner in which and whether
the provisions of the Dodd-Frank Act will be implemented, repealed, amended or replaced, 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 or any changes to the regulations already implemented thereunder 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.



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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.

Our business requires a substantial amount of capital to grow because we must distribute most of our income.

Our business requires a substantial amount of capital. We have issued equity securities and have borrowed from financial institutions. A
reduction in the availability of new capital could limit our ability to grow. We must distribute at least 90% of our investment company taxable income to maintain our RIC status. As a result, any such cash earnings may not be available to fund
investment originations. We expect to continue to borrow from financial institutions and issue additional debt and equity securities. If we fail to obtain funds from such sources or from other sources to fund our investments, it could limit our
ability to grow, which may have an adverse effect on the value of our securities. In addition, as a BDC, our ability to borrow or issue preferred stock may be restricted if our total assets are less than 200% of our total borrowings and preferred
stock.

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, 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 and security
risks.

Risks Related to FSIC III Advisor and Its Affiliates

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

FSIC III 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 III Advisor
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that is based on the performance of our portfolio and an annual base management fee that is based on the average weekly value of our gross assets, and FSIC III Advisor shares a portion of these
fees with GDFM pursuant to the investment sub-advisory agreement between FSIC III Advisor and GDFM. Because the incentive fee is based on the performance of our portfolio, FSIC III Advisor may be incentivized
to make investments on our behalf, and GDFM may be incentivized to recommend investments for us to FSIC III 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 III Advisor to use leverage to increase the return on our investments. In addition, because the base management fee is based upon the average weekly value of our gross assets, which includes any
borrowings for investment purposes, FSIC III Advisor may be incentivized to recommend the use of leverage or the issuance of additional equity to make additional investments and increase the average weekly 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 III 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 III Advisor to receive incentive
compensation on income regardless of any capital losses. In such case, we may be required to pay FSIC III 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 III 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. Under such circumstances, we may have difficulty meeting the annual distribution requirement necessary to maintain RIC tax treatment under the Code. This difficulty in making the required distribution may be amplified
to the extent that we are required to pay an incentive fee with respect to such accrued income. As a result, we may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity
capital, or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

There may be conflicts of interest related to obligations FSIC III 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 III
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 III Advisor also serve in similar capacities for the investment advisers to FS Investments four other affiliated BDCs, FS Investment Corporation, FS Energy and Power Fund, FS Investment Corporation II and FS Investment
Corporation IV, and FS Investments affiliated closed-end management investment company, FS Global Credit Opportunities Fund, and may serve in similar or other capacities for the investment advisers to
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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 III Advisor to manage our day-to-day
activities and to implement our investment strategies. FSIC III 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
III 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 FS
Investments. FSIC III Advisor and its employees will devote only as much of its or their time to our business as FSIC III 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 III 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 FS Investments four other affiliated BDCs and FS Investments 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 III Advisor and GDFM devote to us may be diverted
and we may face additional competition due to the fact that individuals employed by FSIC III 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 III Advisor nor GDFM, or individuals employed by FSIC III 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 to our affiliates, upon which we may rely, and which permits us, subject to the satisfaction of certain
conditions, to co-invest in certain privately negotiated investment transactions with our co-investment affiliates. Because our affiliates 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 (e.g., where price is the only negotiated term). Affiliates of GDFM, whose primary businesses include the origination of investments, engage in investment advisory business with accounts that compete with us. Affiliates of GDFM
have no obligation to make their originated investment opportunities available to GDFM or to us.

FSIC III 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 III 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 III Advisor will not be liable to us for their acts under our
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misfeasance, bad faith or gross negligence in the performance of their duties. We have agreed to indemnify, defend and protect FSIC III 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 III Advisor with respect to all damages, liabilities, costs and expenses resulting from acts of FSIC
III 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 III 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

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

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

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.

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 in order to
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 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.



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Under the 1940 Act, we generally are prohibited from issuing or selling our common stock at
a price per share that is below our net asset value per share, which may be a disadvantage as compared with other public companies. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below
the then-current net asset value of the common stock if our board of directors and independent directors determine that such sale is in our best interests and the best interests of our stockholders, and our stockholders, as well as those
stockholders that are not affiliated with us, approve such sale.

Future legislation may allow us to incur additional leverage.

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

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. While the adoption of the December 2015 rule is currently uncertain, 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.

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 to our affiliates, upon which we may rely, and which permits 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 respective 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 fund managed by FSIC III Advisor without the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to
us.

We are uncertain of our sources for funding our future capital needs 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



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debt obligations to the extent maturing obligations are not repaid with cash flows from operations. In order to maintain RIC tax treatment we must distribute 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.

Risks Related to Debt Financing

We currently use borrowed funds to make investments and are exposed to the typical risks associated with leverage.

Borrowings and other types of financing, also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore, increase the risks associated with investing in our securities.
Our and our special purpose financing subsidiaries lenders and debt holders have fixed dollar claims on our and their assets that are superior to the claims of our stockholders. If the value of our assets increases, then leverage would cause
the net asset value to increase more sharply than it would have had we not leveraged. 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 leveraged.
Similarly, any increase in our income in excess of consolidated interest payable on the borrowed funds would cause our net income to increase more than it would without the leverage, while any decrease in our income would cause net income to decline
more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to make distributions to our 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 management fees payable to FSIC III Advisor.

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 and our special purpose financing subsidiaries financing arrangements contain, and
agreements governing future finance 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
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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 Note 8 to our consolidated financial statements contained in this annual report on Form 10-K for a more detailed discussion of the terms of our debt financing arrangements.

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

Illustration. The following table illustrates the effect of leverage on
returns from an investment in our common stock assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing below. The calculation assumes
(i) $3.8 billion in total average assets, (ii) a weighted average cost of funds of 3.19%, (iii) $1.4 billion in debt outstanding (i.e., assumes that the full $1.4 billion available to us as of December 31, 2016
under our financing arrangements as of such date is outstanding) and (iv) $2.3 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              |  |       | (17.27)% |  |      |  | (9.51)% |    |  |  | (1.76)% |  |  |     | 6.00% |  |  |  | 13.76% | 

Similarly, assuming (i) $3.8 billion in total average assets, (ii) a weighted average cost
of funds of 3.19% and (iii) $1.4 billion in debt outstanding (i.e., assumes that the full $1.4 billion available to us as of December 31, 2016 under our financing arrangements as of such date is outstanding), our assets would
need to yield an annual return (net of expenses) of approximately 1.13% in order to cover the annual interest payments on our outstanding debt.

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

Because we intend to use debt to finance investments, our net investment income will depend, in part, upon the difference between the
rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect



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on our net investment income. In periods of rising interest rates when we have debt outstanding, our cost of funds will increase, which could reduce our net investment income. We expect that our
long-term fixed-rate investments will be financed primarily with equity and long-term debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. These techniques may include various
interest rate hedging activities to the extent permitted by the 1940 Act. These activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changes
in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. Also, we have limited experience in entering into hedging transactions, and we will initially have to
develop such expertise or arrange for such expertise to be provided.

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

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

On June 18, 2015, through our two wholly-owned, special-purpose financing subsidiaries, Germantown Funding LLC, or Germantown Funding, and Society Hill Funding LLC, or Society Hill Funding, we
entered into a debt financing arrangement with Goldman, pursuant to which up to $300.0 million is available to us.

The
financing transaction with Goldman is structured as a debt securitization. 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 financing arrangement, assets in our
portfolio may be sold and/or contributed by us from time to time to Germantown Funding pursuant to an amended and restated sale and contribution agreement, dated as of June 18, 2015, between us and Germantown Funding, or the Sale and
Contribution Agreement. Assets held by Germantown Funding secure the obligations of Germantown Funding under floating rate notes, or the Notes, issued from time to time by Germantown Funding to Society Hill Funding pursuant to an indenture, dated as
of June 18. 2015, with Citibank, as trustee, or the Indenture. Pursuant to the Indenture the aggregate principal amount of Notes that may be issued by Germantown Funding from time to time is $500.0 million. Society Hill Funding will purchase
the Notes to be issued by Germantown Funding from time to time at a purchase price equal to their par value.

All principal
and any unpaid interest on the Notes will be due and payable on the stated maturity date of October 15, 2027.

Society
Hill Funding, 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 June 18, 2015 (and effective as of
July 15, 2015), or collectively, the Goldman facility. Pursuant to the Goldman facility, on one or more occasions beginning July 15, 2015 to, but excluding the date that is ten business days prior to, July 15, 2019, Goldman will
purchase notes held by Society Hill Funding for an aggregate purchase price equal to 60.0% 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 $500.0 million. Accordingly, the aggregate maximum amount payable to Society Hill Funding under the Goldman facility will not exceed $300.0 million.



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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Goldman Financing more detailed discussion of the terms of this debt securitization facility.

Our equity investment in Germantown Funding is subordinated to the debt obligations of Germantown Funding.

Any dividends or other payments in respect of our equity interest in Germantown Funding are subordinated in priority of payment to the notes. In addition, Germantown Funding is subject to certain payment
restrictions set forth in the Indenture in respect of our equity interest.

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

Our equity investment in Germantown
Funding is unsecured and ranks behind all of the creditors, known or unknown, of Germantown Funding, including the holders of the Notes. Consequently, if the value of Germantown Fundings assets decreases as a result of conditions in the credit
markets, defaulted loans, capital gains and losses on the underlying assets, prepayments or changes in interest rates generally, the value of our equity investment in Germantown Funding could be reduced. Accordingly, our investment in Germantown
Funding 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 Germantown Fundings assets decreases and Germantown Funding is unable to make any required payments to
Society Hill Funding pursuant to the terms of the notes, Society Hill Funding may, in turn, be unable to make any required payments to Goldman pursuant to the terms of the Goldman facility. In such event, if the value of Society Hill Fundings
assets is not sufficient to meet Society Hill Fundings payment obligations to Goldman, we would need to loan or otherwise provide additional funds to Society Hill Funding to cover Society Hill Fundings payment obligations to Goldman.
Otherwise, we may be subject to a loss in an amount up to the entire amount of our equity investment in Society Hill Funding.

Our
equity investment in Society Hill Funding is subordinated to the debt obligations of Society Hill Funding.

Our equity
investment in Society Hill Funding is unsecured and ranks behind all of the creditors, known or unknown, of Society Hill Funding, including Goldman. Consequently, if the value of Society Hill Fundings assets decreases as a result of conditions
in the credit markets, defaulted loans, capital gains and losses on the underlying assets, prepayments or changes in interest rates generally, the value of our equity investment in Society Hill Funding could be reduced. Accordingly, our investment
in Society Hill Funding 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 Society Hill Fundings assets decreases or Germantown Funding fails to make any required payments to Society Hill Funding pursuant to the terms of the Notes, Society Hill
Funding may be unable to make any required payments to Goldman pursuant to the terms of the Goldman facility. In such event, if the value of Society Hill Fundings assets is not sufficient to meet Society Hill Fundings payment obligations
to Goldman, we may be required to loan or otherwise provide additional funds to Society Hill Funding to cover Society Hill Fundings payment obligations to Goldman. Otherwise, we may be subject to a loss in an amount up to the entire amount of
our equity investment in Society Hill Funding.

Our equity investment in Germantown Funding will have a high degree of leverage.

The market value of our equity investment in Germantown Funding may be significantly affected by a variety of
factors, including changes in the market value of the assets held by Germantown Funding, changes in



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distributions on the assets held by Germantown Funding, 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 investment in Germantown Funding may not produce a profit and may be subject to a loss in an amount up to the entire amount of such equity investment. The leveraged nature of our equity investment may magnify the adverse
impact of any loss on our equity investment.

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

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

For as long as the Notes remain outstanding, Goldman has the right to act in certain circumstances with respect to the portfolio of assets that secure the obligations of Germantown Funding under the Notes
in ways that may benefit their interests but not ours, including by exercising remedies or directing the Indenture trustee to declare events of default under or accelerate the Notes in accordance with the terms of the Indenture. Goldman 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 Notes, the trustee, which is currently Citibank, may declare the
outstanding principal amount of all of the 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 Notes and triggering a repayment
obligation on the part of Germantown Funding. Germantown Funding may not have funds sufficient to make required payments on the Notes and make any distributions to us. Any failure of Germantown Funding 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 ability to be
subject to tax as a RIC, or at all.

The market value of the Notes may decline causing Society Hill Funding 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 Goldman facility the market value of the Notes (measured by reference to the market value of Germantown Fundings portfolio of assets), together with any posted
cash collateral, is less than the required margin amount under the Goldman facility, or the Margin Threshold, Society Hill Funding may be required to post cash collateral with Goldman in an amount at least equal to the amount by which the market
value of the Notes, plus any posted cash collateral, at such time is less than the Margin Threshold; provided, however, that Society Hill Funding will not be required to post cash collateral with Goldman until such market value has declined at least
10% from the initial market value of the Notes. In addition, if the market value of any underlying asset held in Germantown Fundings portfolio of assets is less than 70% of the initial market value of such underlying asset, or the Market Value
Requirement, Goldman may require Society Hill Funding to post additional cash collateral in an amount equal to 15% of the outstanding principal balance of such underlying asset. In each such event, in order to satisfy these requirements, Society
Hill Funding intends to borrow funds from us pursuant to a revolving credit agreement, dated as of June 18, 2015, between Society Hill Funding, 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 Society Hill Funding pursuant to the terms of the Revolving Credit Agreement. Borrowings under the revolving credit agreement may not exceed $300.0 million and 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 Society Hill Funding to satisfy the Margin Threshold or the Market Value Requirement, such event could have a material
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inability to make distributions to our stockholders in amounts sufficient to maintain our ability to be subject to tax 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 Germantown Funding, if any, may decrease their value
and reduce the value of our equity interest in Germantown Funding.

As investment manager, we have broad authority to
direct and supervise the investment and reinvestment of the assets held by Germantown Funding, 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 investment management agreement we have entered into with Germantown Funding. 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 Germantown Funding holding assets that do not meet certain specified criteria for its
investments. This could adversely impact the market value of such investments and thereby the market value of the Notes, which in turn could adversely impact the ability of Society Hill Funding to meet the Margin Threshold or the Market Value
Requirement. Any amendment, waiver, modification or other restructuring that affects the market value of the assets underlying the Notes will make it more likely that Germantown Funding will need to retain assets, including cash, to increase the
market value of the assets underlying the Notes held by Goldman and for Society Hill Funding to post cash collateral with Goldman to meet the Margin Threshold or the Market Value Requirement. Any such uses of cash would reduce distributions
available to us or delay the timing of distributions to us.

We may not receive cash from Germantown Funding or Society Hill Funding.

We receive cash from Germantown Funding and Society Hill Funding only to the extent that Germantown Funding or
Society Hill Funding, respectively, makes distributions to us. Germantown Funding may make distributions to us, in turn, only to the extent not prohibited by the Indenture. The Indenture generally provides that distributions by Germantown Funding
may not be made unless all amounts then due and owing with respect to the Notes have been paid in full. Society Hill Funding may make distributions to us only to the extent not prohibited by the Goldman facility. The Goldman facility generally
provides that Society Hill Funding may be required to post cash collateral to meet the Margin Threshold and the Market Value Requirement and therefore may not be able to make distributions to us. If we do not receive cash from Germantown Funding or
Society Hill Funding, we may be unable to make distributions to our stockholders in amounts sufficient to maintain our ability to be subject to tax 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 Goldman.

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



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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 the RIC annual distribution requirements.

Besides maintaining our election to be treated as a BDC under the 1940 Act, in order for us to qualify as a RIC 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 90% Income Test will be satisfied if we earn 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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In any tax year in which we qualify as a RIC, in order for us to be able to be subject to tax as a RIC, we are required to meet an annual distribution requirement. 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 generally 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

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. Also, the rules applicable to our qualification as a RIC are complex, with many areas of uncertainty. 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. Such a failure may have a material adverse effect on us and on any investment in us. The Code
provides certain form relief from RIC disqualification due to failures of the 90% Income Test or any of the diversification tests, although there may be additional taxes due in such cases. We cannot assure you that we would qualify for any such
relief should we fail either the 90% Income Test or any of the diversification tests.

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).



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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, our investments may include 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). To the extent original issue discount or PIK interest constitutes a portion of our income, we must include in taxable
income each tax year a portion of the original issue discount or PIK interest that accrues over the life of the instrument, 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 not making the election 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 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 U.S. federal 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 and, under recently proposed U.S. federal
income tax regulations, all or a portion of such taxable income and gains may not be considered qualifying income for purposes of the 90% Income Test.

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.



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If we do not qualify as a publicly offered regulated investment company, as defined in the
Code, you will be taxed as though you received a distribution of some of our expenses

A publicly offered
regulated investment company is a RIC whose shares are either (i) continuously offered pursuant to a public offering, (ii) regularly traded on an established securities market or (iii) held by at least 500 persons at all times
during the tax year. If we do not qualify as a publicly offered regulated investment company for any tax year, a noncorporate stockholders allocable portion of our affected expenses, including our management fees, will be treated as an
additional distribution to the stockholder and will be deductible by such stockholder only to the extent permitted under the limitations described below. For noncorporate stockholders, including individuals, trusts, and estates, significant
limitations generally apply to the deductibility of certain expenses of a non-publicly offered regulated investment company, including management fees. In particular, these expenses, referred to as
miscellaneous itemized deductions, are deductible to an individual only to the extent they exceed 2% of such a stockholders adjusted gross income, are not deductible for alternative minimum tax purposes and are subject to the overall
limitation on itemized deductions imposed by the Code. Although we believe that we are currently considered a publicly offered regulated investment company, as defined in the Code, there can be no assurance, however, that we will be considered a
publicly offered regulated investment company in the future.

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.



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

None.



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

We do not own any real estate or other physical properties materially important to our operation. Our 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. No shares of our common stock have been authorized for issuance under any equity compensation plans. Under
Maryland law, our stockholders generally will not be personally liable for our debts or obligations.

We are currently
offering our shares of common stock on a continuous basis only to investors who purchase through the Institutional Channel and certain affiliated investors who purchase through the dealer manager. In February 2016, we closed our continuous public
offering to investors investing through the IBD Channel. Historically, sales through the IBD Channel have constituted the majority of shares sold in our continuous public offering.

Prior to the IBD Channel closing, shares of our common stock in our continuous public offering were subject to a sales load of up to
10.0% of the public offering price, which consisted of selling commissions and dealer manager fees of up to 7.0% and 3.0%, respectively, of the public offering price. Following the IBD Channel closing, shares of common stock in our continuous public
offering have been sold at an institutional offering price that does not include any selling commissions or dealer manager fees. The current institutional offering price at which we are selling shares of our common stock in our continuous public
offering is $8.64; however, to the extent that our net asset value per share increases, we will sell at a price necessary to ensure that shares are not sold at a price per share that is below net asset value per share. In connection with each weekly
closing on the sale of shares of our common stock pursuant to our prospectus, as amended or supplemented, which relates to our public offering of common stock on a continuous basis, our board of directors or a committee thereof is required, within
48 hours of the time that each closing and sale is made, to make the determination that we are not selling shares of our common stock at a price per share which is below our then-current net asset value per share.

In the event of a material decline in our net asset value per share, which we consider to be a 2.5% decrease below our then-current
institutional offering price, we will reduce our institutional offering price in order to establish a new institutional offering price that is not more than 2.5% above our net asset value per share.

Set forth below is a chart describing the classes of our securities outstanding as of February 28, 2017:



|               |  |                  |             |  |                                      |  |   |                                                      |  |  |             | 
|-------------- |  | ---------------- | ----------- |  | ------------------------------------ |  | - | ---------------------------------------------------- |  |  | ----------- | 
|(1)            |  | (2)              |             |  | (3)                                  |  |   | (4)                                                  | 
|Title of Class |  | AmountAuthorized |             |  | Amount Held by Us 
orfor Our Account |  |   | Amount OutstandingExclusive of
AmountUnder Column(3) | 
|Common Stock   |  |                  | 550,000,000 |  |                                      |  |  |                                                      |  |  | 275,288,550 | 

As of February 28, 2017, we had 52,290 record holders of our common stock.

Share Repurchase Program

We intend to continue to conduct quarterly tender offers pursuant to our share repurchase program. The first such tender offer commenced
in August 2014, and the repurchase occurred in connection with our October 1,



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2014 weekly closing. 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 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 calendar 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. We currently intend to offer to repurchase such shares
of common stock on each date of repurchase at a price equal to the institutional offering price on the date of repurchase. In months in which we repurchase shares of common stock pursuant to our share repurchase program, we expect to conduct
repurchases on the same date that we hold our first weekly closing in such month for the sale of shares of common stock in our continuous public offering. Our board of directors may amend, suspend or terminate the share repurchase program at any
time upon 30 days notice.

The following table provides information concerning our repurchases of shares of common stock
pursuant to our share repurchase program during the quarter ended December 31, 2016:



|                                |  |                                 |           |  |                             |   |       |                                                                              |  |  |                                                                            |  |  |  |    |  
|------------------------------- |  | ------------------------------- | --------- |  | --------------------------- | - | ----- | ---------------------------------------------------------------------------- |  |  | -------------------------------------------------------------------------- |  |  |  | -- | -
|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, 2016   |  |                                 | 2,030,975 |  |                             | $ | 8.505 |                                                                              |  |  | 2,030,975                                                                  |  |  |  | (1 | )
|November 1 to November 30, 2016 |  |                                 |          |  |                             |   |      |                                                                              |  |  |                                                                           |  |  |  |   |  
|December 1 to December 31, 2016 |  |                                 |          |  |                             |   |      |                                                                              |  |  |                                                                           |  |  |  |   |  
|                                |  |                                 |           |  |                             |   |       |                                                                              |  |  |                                                                            |  |  |  |    |  
|Total                           |  |                                 | 2,030,975 |  |                             | $ | 8.505 |                                                                              |  |  | 2,030,975                                                                  |  |  |  | (1 | )
|                                |  |                                 |           |  |                             |   |       |                                                                              |  |  |                                                                            |  |  |  |    |  



|(1) | The maximum number of shares available for repurchase on October 5, 2016 was 4,259,891. A description of the maximum number of shares of common stock that may be
purchased under our share repurchase program is included in the narrative preceding this table.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Distributions

Subject to applicable legal restrictions and the sole discretion of our board of directors, we currently intend to declare
regular cash distributions on a quarterly basis and pay such distributions on a monthly basis to stockholders of record determined on a weekly 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.



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The following table reflects the cash distributions per share that we declared and paid on
our common stock during the years ended December 31, 2016, 2015 and 2014:



|                                |  |              |        |  |        |   |         | 
|------------------------------- |  | ------------ | ------ |  | ------ | - | ------- | 
|                                |  | Distribution |       
|For the Year Ended December 31, |  | Per Share    |        |  | Amount |  
|2014                            |  | $            | 0.5249 |  |        | $ | 21,526  | 
|2015                            |  | $            | 0.7000 |  |        | $ | 118,228 | 
|2016                            |  | $            | 0.7000 |  |        | $ | 183,009 | 

On November 4, 2016 and March 7, 2017, our board of directors declared regular weekly cash
distributions for January 2017 through March 2017 and April 2017 through June 2017, respectively, each in the amount of $0.013461 per share. These distributions have been or will be paid monthly to stockholders of record as of weekly 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, our 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 the distribution reinvestment plan, cash distributions to participating stockholders are reinvested in additional
shares of our common stock at a purchase price equal to the institutional offering price on the date of issuance.

Pursuant to
an expense support and conditional reimbursement agreement, dated as of December 20, 2013, or the expense reimbursement agreement, FS Investments 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.

See Item 7.
Managements Discussion and Analysis of Financial Condition and Results of OperationsRIC Status and Distributions and Item 7. Managements Discussion and Analysis of Financial Condition and Results of
OperationsOverviewExpense Reimbursement for additional information regarding our distributions and our distribution reinvestment plan, including certain related tax considerations as well as a detailed discussion of the expense
reimbursement agreement, including amounts reimbursed to us by FS Investments thereunder and the repayment of such amounts to FS Investments.



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

The following selected consolidated financial data for the years ended December 31, 2016 and 2015, for the period from April 2,
2014 (Commencement of Operations) through December 31, 2014 and for the period from June 7, 2013 (Inception) to December 31, 2013 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
EndedDecember 31, |           |   | Period fromApril 2,
2014(Commencement ofOperations) throughDecember 31, 2014(1) |   |           | Period fromJune 7,
2013(Inception) throughDecember 31, 2013(1) | 
|                                                                                     |  | 2016                   |           |   | 2015                                                                            |   |           |                                                               
|Statements of operations data:                                                       |  |                        |           |   |                                                                                 |   |           |                                                                |  |   |           |   |  |   |       |  
|Investment income                                                                    |  | $                      | 329,021   |   |                                                                                 | $ | 195,249   |                                                                |  | $ | 25,055    |   |  | $ |      |  
|Operating expenses                                                                   |  |                        |           |   |                                                                                 |   |           |                                                                |  |   |           |   |  |   |       |  
|Operating expenses and excise taxes                                                  |  |                        | 159,326   |   |                                                                                 |   | 81,413    |                                                                |  |   | 9,530     |   |  |   | 189   |  
|Less: Expense reimbursement from sponsor                                             |  |                        |          |   |                                                                                 |   |          |                                                                |  |   | (3,469    | ) |  |   |      |  
|Add: Expense recoupment to sponsor                                                   |  |                        |          |   |                                                                                 |   | 3,469     |                                                                |  |   |          |   |  |   |      |  
|                                                                                     |  |                        |           |   |                                                                                 |   |           |                                                                |  |   |           |   |  |   |       |  
|Total operating expenses                                                             |  |                        | 159,326   |   |                                                                                 |   | 84,882    |                                                                |  |   | 6,061     |   |  |   | 189   |  
|                                                                                     |  |                        |           |   |                                                                                 |   |           |                                                                |  |   |           |   |  |   |       |  
|Net investment income (loss)                                                         |  |                        | 169,695   |   |                                                                                 |   | 110,367   |                                                                |  |   | 18,994    |   |  |   | (189  | )
|Total net realized and unrealized gain (loss) on investments and total return swap   |  |                        | 189,791   |   |                                                                                 |   | (197,131  | )                                                              |  |   | (26,138   | ) |  |   |      |  
|                                                                                     |  |                        |           |   |                                                                                 |   |           |                                                                |  |   |           |   |  |   |       |  
|Net increase (decrease) in net assets resulting from operations                      |  | $                      | 359,486   |   |                                                                                 | $ | (86,764   | )                                                              |  | $ | (7,144    | ) |  | $ | (189  | )
|                                                                                     |  |                        |           |   |                                                                                 |   |           |                                                                |  |   |           |   |  |   |       |  
|Per share data:                                                                      |  |                        |           |   |                                                                                 |   |           |                                                                |  |   |           |   |  |   |       |  
|Net investment income (loss)basic and diluted(2)                                    |  | $                      | 0.65      |   |                                                                                 | $ | 0.65      |                                                                |  | $ | 0.45      |   |  | $ | (8.51 | )
|                                                                                     |  |                        |           |   |                                                                                 |   |           |                                                                |  |   |           |   |  |   |       |  
|Net increase (decrease) in net assets resulting from operationsbasic and diluted(2) |  | $                      | 1.37      |   |                                                                                 | $ | (0.51     | )                                                              |  | $ | (0.17     | ) |  | $ | (8.51 | )
|                                                                                     |  |                        |           |   |                                                                                 |   |           |                                                                |  |   |           |   |  |   |       |  
|Distributions declared(3)                                                            |  | $                      | 0.70      |   |                                                                                 | $ | 0.70      |                                                                |  | $ | 0.52      |   |  | $ |      |  
|                                                                                     |  |                        |           |   |                                                                                 |   |           |                                                                |  |   |           |   |  |   |       |  
|Balance sheet data:                                                                  |  |                        |           |   |                                                                                 |   |           |                                                                |  |   |           |   |  |   |       |  
|Total assets                                                                         |  | $                      | 3,662,739 |   |                                                                                 | $ | 3,056,953 |                                                                |  | $ | 1,023,266 |   |  | $ | 200   |  
|                                                                                     |  |                        |           |   |                                                                                 |   |           |                                                                |  |   |           |   |  |   |       |  
|Credit facilities, secured borrowing and repurchase agreement payable                |  | $                      | 1,290,391 |   |                                                                                 | $ | 1,088,122 |                                                                |  | $ | 112,100   |   |  | $ |      |  
|                                                                                     |  |                        |           |   |                                                                                 |   |           |                                                                |  |   |           |   |  |   |       |  
|Total net assets                                                                     |  | $                      | 2,323,940 |   |                                                                                 | $ | 1,895,042 |                                                                |  | $ | 842,577   |   |  | $ | 200   |  
|                                                                                     |  |                        |           |   |                                                                                 |   |           |                                                                |  |   |           |   |  |   |       |  
|Other data:                                                                          |  |                        |           |   |                                                                                 |   |           |                                                                |  |   |           |   |  |   |       |  
|Total return(4)                                                                      |  |                        | 18.31     | % |                                                                                 |   | (1.48     | )%                                                             |  |   | 1.72      | % |  |   |      |  
|Total return (without assuming reinvestment of distributions)(5)                     |  |                        | 17.58     | % |                                                                                 |   | (0.93     | )%                                                             |  |   | 1.67      | % |  |   |      |  
|Number of portfolio company investments at period end                                |  |                        | 114       |   |                                                                                 |   | 130       |                                                                |  |   | 83        |   |  |   |      |  
|Total portfolio investments for the period                                           |  | $                      | 1,446,810 |   |                                                                                 | $ | 2,647,079 |                                                                |  | $ | 797,312   |   |  |   |      |  
|Proceeds from sales and prepayments of investments                                   |  | $                      | 1,114,038 |   |                                                                                 | $ | 419,262   |                                                                |  | $ | 79,229    |   |  |   |      |  



|(1) | We formally commenced investment operations on April 2, 2014. Prior to such date, we had no operations except for matters relating to our organization.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------



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|(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 total return for each period presented was calculated based on the change in net asset value during the applicable period, including the impact of distributions
reinvested in accordance with our distribution reinvestment plan. The total return does not consider the effect of any selling commissions or charges that may be 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 in the table 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 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 our investment portfolio during the applicable period and do not represent an actual return to stockholders.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | The total return (without assuming reinvestment of distributions) 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 (without assuming
reinvestment of distributions) does not consider the effect of any selling commissions or charges that may be incurred in connection with the sale of shares of our common stock. The total return (without assuming reinvestment of distributions)
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 (without assuming reinvestment of
distributions) in the table should not be considered a representation of our future total return (without assuming reinvestment of distributions) 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 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 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.
|------- | --------------------------------------------------------------------------------------

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

Forward-Looking Statements

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



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



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



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



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



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



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



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



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



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



| |  |  | actual and potential conflicts of interest with FSIC III Advisor, FB Income Advisor, LLC, FS Investment Corporation, FS Investment Advisor, LLC, FS
Energy and Power Fund, FSIC II Advisor, LLC, FS Investment Corporation II, FSIC IV Advisor, LLC, FS Investment Corporation IV, FS Global Advisor, LLC, FS Global Credit Opportunities Fund, 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 III Advisor to locate suitable investments for us and to monitor and administer our investments;
| | - |  | --------------------------------------------------------------------------------------------------------------------



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



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



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



| |  |  | the effect of changes to tax legislation on us and the portfolio companies in which we may invest and our and their tax position; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



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

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



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



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



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



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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 June 7, 2013 and formally commenced investment
operations on April 2, 2014 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 III 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.

Our investment activities are managed by FSIC III 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 III Advisor an annual base management fee based on the average weekly value of our gross assets and an incentive fee based on our performance. FSIC III
Advisor has engaged GDFM to act as our investment sub-adviser. GDFM assists FSIC III Advisor in identifying investment opportunities and makes investment recommendations for approval by FSIC III Advisor
according to guidelines set by FSIC III 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 ofhaving an existing credit relationship. We believe directly originated investments may offer higher returns and more favorable protections than broadly syndicated
transactions.

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

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



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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 III Advisor and GDFM.

In addition, our relationship with GSO, 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 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, in our target companies, generally in conjunction with one of our debt investments or
through a co-investment with a financial sponsor, such as an institutional investor or private equity firm. In addition, a portion of our portfolio may be comprised of corporate bonds, CLOs, other debt
securities and derivatives, including total return swaps and credit default swaps. FSIC III Advisor will seek to tailor our investment focus as market conditions evolve. Depending on market conditions, we may increase or decrease our exposure to
less senior portions of the capital structure or otherwise make opportunistic investments.

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



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Revenues

The principal measure of our financial performance is net increase (decrease) 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 unrealized appreciation or depreciation on investments and net unrealized appreciation or depreciation on total return swap.

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. Net realized gain or loss on total return swap is the net monthly settlement payments received on the TRS. Net unrealized appreciation or
depreciation on investments is the net change in the fair value of our investment portfolio. Net unrealized appreciation or depreciation on total return swap is the net change in the fair value of the TRS.

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/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 III Advisor for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments. FSIC III Advisor is responsible for compensating
our investment sub-adviser.

We reimburse FSIC III Advisor for expenses necessary to
perform services related to our administration and operations, including FSIC III Advisors allocable portion of the compensation and related expenses of certain personnel of FS Investments providing administrative services to us on behalf of
FSIC III Advisor. Such services include the provision of general ledger accounting, fund accounting, legal services, investor relations and other administrative services. FSIC III 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 III 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 the reimbursement payable to FSIC III
Advisor is set at the lesser of (1) FSIC III 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 III Advisor allocates the cost of such services to us based on factors such as 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 III 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



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comparable cost and quality. Finally, our board of directors compares the total amount paid to FSIC III 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 III 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 III
Advisor.

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



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



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



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



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



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



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



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



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



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



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



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



| |  |  | fees and expenses of directors not also serving in an executive officer capacity for us or FSIC III 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 III Advisor, GDFM or us in connection with administering our business, including expenses incurred by FSIC III
Advisor or GDFM in performing administrative services for us and administrative personnel paid by FSIC III Advisor or GDFM, to the extent they are not controlling persons of FSIC III Advisor or 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 III 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.



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Expense Reimbursement

Pursuant to the expense reimbursement agreement, FS Investments 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, FS Investments 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 arrangement is not to prevent
tax-advantaged distributions to stockholders.

Under the expense reimbursement
agreement, FS Investments 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 FS Investments for
any amounts funded by FS Investments under such agreement if (and only to the extent that), during any fiscal quarter occurring within three years of the date on which FS Investments funded such amount, the sum of our net investment company taxable
income, net capital gains and the amount of any dividends and other distributions paid to us on account of preferred and common equity investments in portfolio companies (to the extent not included in net investment company taxable income or net
capital gains) exceeds the regular cash distributions paid by us to our stockholders; provided, however, that (i) we will only reimburse FS Investments for expense support payments made by FS Investments with respect to any calendar quarter 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 FS Investments was made (provided, however, that this clause (B) shall not apply to any reimbursement payment which relates to an expense
support payment from FS Investments made during the same fiscal year) and (ii) we will not reimburse FS Investments for expense support payments made by FS Investments for any calendar quarter if the annualized rate of regular cash
distributions declared by us at the time of such reimbursement payment is less than the annualized rate of regular cash distributions declared by us at the time FS Investments made the expense support payment to which such reimbursement payment
relates. We are not obligated to pay interest on the reimbursements we are required to make to FS Investments under the expense reimbursement agreement. 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 FS Investments may terminate the expense reimbursement agreement at any time. FS Investments has indicated that it expects to continue such reimbursements until it deems that we have achieved
economies of scale sufficient to ensure that we bear a reasonable level of expenses in relation to our income. The specific amount of expenses reimbursed by FS Investments, if any, will be determined at the end of each quarter.

Upon termination of the expense reimbursement agreement by FS Investments, FS Investments will be required to fund any amounts accrued
thereunder as of the date of termination. Similarly, our conditional



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obligation to reimburse FS Investments pursuant to the terms of the expense reimbursement agreement shall survive the termination of such agreement by either party.

As of December 31, 2015, no reimbursements were payable to us from FS Investments. During the year ended December 31, 2016, we
did not accrue any amounts for expense reimbursements that FS Investments has agreed to pay. During the year ended December 31, 2016, we did not receive any cash reimbursements from FS Investments. As of December 31, 2016, we had no
reimbursements due from FS Investments.

As discussed above, under the expense reimbursement agreement, amounts reimbursed to
us by FS Investments may become subject to repayment by us in the future. During the year ended December 31, 2016, we paid $218 in expense recoupments to FS Investments. As of December 31, 2016, we had no expense recoupments due to FS
Investments and no further amounts remain subject to repayment by us to FS Investments in the future.

FS Investments 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 FS Investments will
reimburse any portion of our expenses in future quarters.

Portfolio Investment Activity for the Years Ended December 31, 2016 and
2015

During the year ended December 31, 2016, we made investments in portfolio companies totaling $1,446,810. During
the same period, we sold investments for proceeds of $523,654 and received principal repayments of $590,384. As of December 31, 2016, our investment portfolio, with a total fair value of $3,243,310 (66% in first lien senior secured loans, 7% in
second lien senior secured loans, 3% in senior secured bonds, 19% in subordinated debt, 0% in collateralized securities and 5% in equity/other), consisted of interests in 114 portfolio companies. The portfolio companies that comprised our portfolio
as of such date had an average annual EBITDA of approximately $159.5 million. As of December 31, 2016, the debt investments in our portfolio were purchased at a weighted average price of 98.2% of par and our estimated gross portfolio
yield, prior to leverage, was 9.5% based upon the amortized cost of our investments. For the year ended December 31, 2016, our total return was 18.31% and our total return without assuming reinvestment of distributions was 17.58%.

Based on our regular weekly cash distribution amount of $0.013461 per share as of December 31, 2016 and our institutional offering
price of $8.55 per share as of such date, the annualized distribution rate to stockholders as of December 31, 2016 was 8.19%. The annualized distribution rate to stockholders is expressed as a percentage equal to the projected annualized
distribution amount per share divided by our institutional offering price per share as of December 31, 2016. Our annualized distribution rate to stockholders may include income, realized capital gains and a return of investors capital.

During the year ended December 31, 2015, we made investments in portfolio companies totaling $2,647,079. During the same
period, we sold investments for proceeds of $301,909 and received principal repayments of $117,353. As of December 31, 2015, our investment portfolio, with a total fair value of $2,744,630 (68% in first lien senior secured loans, 10% in second
lien senior secured loans, 3% in senior secured bonds, 17% in subordinated debt, 0% in collateralized securities and 2% in equity/other), consisted of interests in 130 portfolio companies. The portfolio companies that comprised our portfolio as of
such date had an average annual EBITDA of approximately $212.8 million. As of December 31, 2015, the debt investments in our portfolio were purchased at a weighted average price of 97.5% of par and our estimated gross portfolio yield,
prior to leverage, was 9.8% based upon the amortized cost of our investments. For the year ended December 31, 2015, our total return was (1.48)% and our total return without assuming reinvestment of distributions was (0.93)%.

Based on our regular weekly cash distribution amount of $0.013461 per share as of December 31, 2015 and our public offering price of
$9.05 per share as of such date, the annualized distribution rate to stockholders as of



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December 31, 2015 was 7.73%. The annualized distribution rate to stockholders is expressed as a percentage equal to the projected annualized distribution amount per share divided by our
public offering price per share as of December 31, 2015. Our annualized distribution rate to stockholders may include income, realized capital gains and a return of investors capital.

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 returns 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 the section entitled Item 1A. Risk Factors for a discussion of the uncertainties, risks and assumptions associated with
these statements. See footnotes 6 and 7 to the table included in Note 11 to our consolidated financial statements included herein for information regarding the calculations of our total returns.

Total Portfolio Activity

The following tables present certain selected information regarding our portfolio investment activity for the years ended
December 31, 2016 and 2015:



|                        |  |                                 |            |   |      |   |           |  
|----------------------- |  | ------------------------------- | ---------- | - | ---- | - | --------- | -
|                        |  | For the Year Ended December 31, |           
|Net Investment Activity |  | 2016                            |            |   | 2015 |  
|Purchases               |  | $                               | 1,446,810  |   |      | $ | 2,647,079 |  
|Sales and Redemptions   |  |                                 | (1,114,038 | ) |      |   | (419,262  | )
|                        |  |                                 |            |   |      |   |           |  
|Net Portfolio Activity  |  | $                               | 332,772    |   |      | $ | 2,227,817 |  
|                        |  |                                 |            |   |      |   |           |  



|                                       |  |                                 |           |  |            |  |     |           |  |   |            |  |  |  |     |  
|-------------------------------------- |  | ------------------------------- | --------- |  | ---------- |  | --- | --------- |  | - | ---------- |  |  |  | --- | -
|                                       |  | For the Year Ended December 31, |          
|                                       |  | 2016                            |           |  | 2015       | 
|New Investment Activity by Asset Class |  | Purchases                       |           |  | Percentage |  |     | Purchases |  |   | Percentage | 
|Senior Secured LoansFirst Lien        |  | $                               | 874,221   |  |            |  | 60  | %         |  | $ | 1,748,636  |  |  |  | 66  | %
|Senior Secured LoansSecond Lien       |  |                                 | 92,906    |  |            |  | 6   | %         |  |   | 196,803    |  |  |  | 8   | %
|Senior Secured Bonds                   |  |                                 | 125,265   |  |            |  | 9   | %         |  |   | 111,984    |  |  |  | 4   | %
|Subordinated Debt                      |  |                                 | 255,347   |  |            |  | 18  | %         |  |   | 537,531    |  |  |  | 20  | %
|Collateralized Securities              |  |                                 |          |  |            |  |    |           |  |   |           |  |  |  |    |  
|Equity/Other                           |  |                                 | 99,071    |  |            |  | 7   | %         |  |   | 52,125     |  |  |  | 2   | %
|                                       |  |                                 |           |  |            |  |     |           |  |   |            |  |  |  |     |  
|Total                                  |  | $                               | 1,446,810 |  |            |  | 100 | %         |  | $ | 2,647,079  |  |  |  | 100 | %
|                                       |  |                                 |           |  |            |  |     |           |  |   |            |  |  |  |     |  

The following table summarizes the composition of our investment portfolio at cost and fair value as of
December 31, 2016 and 2015:



|                                 |  |                   |           |  |                   |   |           |                         |  |  |                  |   |  |            |           |  |                         |   |           |  |  |  |     |  
|-------------------------------- |  | ----------------- | --------- |  | ----------------- | - | --------- | ----------------------- |  |  | ---------------- | - |  | ---------- | --------- |  | ----------------------- | - | --------- |  |  |  | --- | -
|                                 |  | December 31, 2016 |           |  | December 31, 2015 |  
|                                 |  | AmortizedCost(1)  |           |  | Fair Value        |   |           | Percentageof 
Portfolio |  |  | AmortizedCost(1) |   |  | Fair Value |           |  | Percentageof 
Portfolio |  
|Senior Secured LoansFirst Lien  |  | $                 | 2,134,733 |  |                   | $ | 2,135,929 |                         |  |  | 66               | % |  | $          | 1,908,256 |  |                         | $ | 1,878,552 |  |  |  | 68  | %
|Senior Secured LoansSecond Lien |  |                   | 248,576   |  |                   |   | 235,293   |                         |  |  | 7                | % |  |            | 297,474   |  |                         |   | 264,261   |  |  |  | 10  | %
|Senior Secured Bonds             |  |                   | 86,137    |  |                   |   | 84,664    |                         |  |  | 3                | % |  |            | 113,064   |  |                         |   | 75,597    |  |  |  | 3   | %
|Subordinated Debt                |  |                   | 610,349   |  |                   |   | 614,442   |                         |  |  | 19               | % |  |            | 539,488   |  |                         |   | 451,694   |  |  |  | 17  | %
|Collateralized Securities        |  |                   | 7,317     |  |                   |   | 7,327     |                         |  |  | 0                | % |  |            | 8,181     |  |                         |   | 7,607     |  |  |  | 0   | %
|Equity/Other                     |  |                   | 162,029   |  |                   |   | 165,655   |                         |  |  | 5                | % |  |            | 68,062    |  |                         |   | 66,919    |  |  |  | 2   | %
|                                 |  |                   |           |  |                   |   |           |                         |  |  |                  |   |  |            |           |  |                         |   |           |  |  |  |     |  
|Total                            |  | $                 | 3,249,141 |  |                   | $ | 3,243,310 |                         |  |  | 100              | % |  | $          | 2,934,525 |  |                         | $ | 2,744,630 |  |  |  | 100 | %
|                                 |  |                   |           |  |                   |   |           |                         |  |  |                  |   |  |            |           |  |                         |   |           |  |  |  |     |  



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



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The following table summarizes the composition of our investment portfolio at cost and fair
value as of December 31, 2016 and 2015 to include, on a look-through basis, the investments underlying the TRS, as disclosed in Note 8 to our consolidated financial statements contained in this annual report on Form 10-K. The investments underlying the TRS had a notional amount and market value of $388,681 and $394,986, respectively, as of December 31, 2016 and $394,680 and $365,214, respectively, as of December 31,
2015.



|                                 |  |                   |           |  |                   |   |           |                         |  |  |                  |   |  |            |           |  |                         |   |           |  |  |  |     |  
|-------------------------------- |  | ----------------- | --------- |  | ----------------- | - | --------- | ----------------------- |  |  | ---------------- | - |  | ---------- | --------- |  | ----------------------- | - | --------- |  |  |  | --- | -
|                                 |  | December 31, 2016 |           |  | December 31, 2015 |  
|                                 |  | AmortizedCost(1)  |           |  | Fair Value        |   |           | Percentageof 
Portfolio |  |  | AmortizedCost(1) |   |  | Fair Value |           |  | Percentageof 
Portfolio |  
|Senior Secured LoansFirst Lien  |  | $                 | 2,488,519 |  |                   | $ | 2,495,162 |                         |  |  | 69               | % |  | $          | 2,242,195 |  |                         | $ | 2,186,548 |  |  |  | 70  | %
|Senior Secured LoansSecond Lien |  |                   | 283,471   |  |                   |   | 271,046   |                         |  |  | 7                | % |  |            | 358,215   |  |                         |   | 321,479   |  |  |  | 10  | %
|Senior Secured Bonds             |  |                   | 86,137    |  |                   |   | 84,664    |                         |  |  | 2                | % |  |            | 113,064   |  |                         |   | 75,597    |  |  |  | 3   | %
|Subordinated Debt                |  |                   | 610,349   |  |                   |   | 614,442   |                         |  |  | 17               | % |  |            | 539,488   |  |                         |   | 451,694   |  |  |  | 15  | %
|Collateralized Securities        |  |                   | 7,317     |  |                   |   | 7,327     |                         |  |  | 0                | % |  |            | 8,181     |  |                         |   | 7,607     |  |  |  | 0   | %
|Equity/Other                     |  |                   | 162,029   |  |                   |   | 165,655   |                         |  |  | 5                | % |  |            | 68,062    |  |                         |   | 66,919    |  |  |  | 2   | %
|                                 |  |                   |           |  |                   |   |           |                         |  |  |                  |   |  |            |           |  |                         |   |           |  |  |  |     |  
|Total                            |  | $                 | 3,637,822 |  |                   | $ | 3,638,296 |                         |  |  | 100              | % |  | $          | 3,329,205 |  |                         | $ | 3,109,844 |  |  |  | 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, 2016 and 2015:



|                                                                                                        |  |                   |          |   |                   |  |          |  
|------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- | - | ----------------- |  | -------- | -
|                                                                                                        |  | December 31, 2016 |          |   | December 31, 2015 | 
|Number of Portfolio Companies                                                                           |  |                   | 114      |   |                   |  | 130      |  
|% Variable Rate (based on fair value)                                                                   |  |                   | 70.4     | % |                   |  | 76.8     | %
|% Fixed Rate (based on fair value)                                                                      |  |                   | 24.5     | % |                   |  | 20.8     | %
|% Income Producing Equity/Other Investments (based on fair value)                                       |  |                   | 0.0      | % |                   |  | 0.0      | %
|% Non-Income Producing Equity/Other Investments (based on fair value)                                   |  |                   | 5.1      | % |                   |  | 2.4      | %
|Average Annual EBITDA of Portfolio Companies                                                            |  |                   | $159,500 |   |                   |  | $212,800 |  
|Weighted Average Purchase Price of Debt Investments (as a % of par)                                     |  |                   | 98.2     | % |                   |  | 97.5     | %
|% of Investments on Non-Accrual (based on fair value)                                                   |  |                   | 0.0      | % |                   |  | 0.0      | %
|Gross Portfolio Yield Prior to Leverage (based on amortized cost)                                       |  |                   | 9.5      | % |                   |  | 9.8      | %
|Gross Portfolio Yield Prior to Leverage (based on amortized cost)Excluding
Non-Income Producing Assets |  |                   | 10.0     | % |                   |  | 10.0     | %

Direct Originations

The following tables present certain selected information regarding our direct originations for the three months and year ended December 31, 2016:



|                                                   |  |                                             |          |   |                                      |   |          |  
|-------------------------------------------------- |  | ------------------------------------------- | -------- | - | ------------------------------------ | - | -------- | -
|New Direct Originations                            |  | For the Three Months EndedDecember 31, 2016 |          |   | For the Year 
EndedDecember 31, 2016 |  
|Total Commitments (including unfunded commitments) |  | $                                           | 285,968  |   |                                      | $ | 749,165  |  
|Exited Investments (including partial paydowns)    |  |                                             | (195,778 | ) |                                      |   | (532,119 | )
|                                                   |  |                                             |          |   |                                      |   |          |  
|Net Direct Originations                            |  | $                                           | 90,190   |   |                                      | $ | 217,046  |  
|                                                   |  |                                             |          |   |                                      |   |          |  



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|                                                                        |  |                                             |         |  |                                      |  |     |                  |  |   |            |  |  |  |     |  
|----------------------------------------------------------------------- |  | ------------------------------------------- | ------- |  | ------------------------------------ |  | --- | ---------------- |  | - | ---------- |  |  |  | --- | -
|                                                                        |  | For the Three Months EndedDecember 31, 2016 |         |  | For the Year 
EndedDecember 31, 2016 | 
|New Direct Originations by Asset Class (including unfunded commitments) |  | CommitmentAmount                            |         |  | Percentage                           |  |     | CommitmentAmount |  |   | Percentage | 
|Senior Secured LoansFirst Lien                                         |  | $                                           | 248,537 |  |                                      |  | 87  | %                |  | $ | 599,683    |  |  |  | 80  | %
|Senior Secured LoansSecond Lien                                        |  |                                             | 3,591   |  |                                      |  | 1   | %                |  |   | 64,660     |  |  |  | 9   | %
|Senior Secured Bonds                                                    |  |                                             | 3,335   |  |                                      |  | 1   | %                |  |   | 3,335      |  |  |  | 0   | %
|Subordinated Debt                                                       |  |                                             | 11,504  |  |                                      |  | 4   | %                |  |   | 40,277     |  |  |  | 5   | %
|Collateralized Securities                                               |  |                                             |        |  |                                      |  |    |                  |  |   |           |  |  |  |    |  
|Equity/Other                                                            |  |                                             | 19,001  |  |                                      |  | 7   | %                |  |   | 41,210     |  |  |  | 6   | %
|                                                                        |  |                                             |         |  |                                      |  |     |                  |  |   |            |  |  |  |     |  
|Total                                                                   |  | $                                           | 285,968 |  |                                      |  | 100 | %                |  | $ | 749,165    |  |  |  | 100 | %
|                                                                        |  |                                             |         |  |                                      |  |     |                  |  |   |            |  |  |  |     |  



|                                                                                                                                                        |  |                                             |         |   |                                     |  |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------- | ------- | - | ----------------------------------- |  | ------- | -
|                                                                                                                                                        |  | For the Three Months EndedDecember 31, 2016 |         |   | For the Year EndedDecember 31, 2016 | 
|Average New Direct Origination Commitment Amount                                                                                                        |  |                                             | $17,873 |   |                                     |  | $22,034 |  
|Weighted Average Maturity for New Direct Originations                                                                                                   |  |                                             | 4/12/23 |   |                                     |  | 3/27/22 |  
|Gross Portfolio Yield Prior to Leverage (based on amortized cost) of New Direct Originations Funded during Period                                       |  |                                             | 8.8     | % |                                     |  | 10.0    | %
|Gross Portfolio Yield Prior to Leverage (based on amortized cost) of New Direct Originations Funded during PeriodExcluding Non-Income Producing Assets |  |                                             | 9.4     | % |                                     |  | 10.5    | %
|Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Exited during Period                                           |  |                                             | 6.2     | % |                                     |  | 8.5     | %

The following table presents certain selected information regarding our direct originations as of
December 31, 2016 and 2015:



|                                                                                                                                      |  |                   |         |   |                   |  |         |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- |  | ------- | -
|Characteristics of All Direct Originations Held in Portfolio                                                                          |  | December 31, 2016 |         |   | December 31, 2015 | 
|Number of Portfolio Companies                                                                                                         |  |                   | 51      |   |                   |  | 47      |  
|Average Annual EBITDA of Portfolio Companies                                                                                          |  |                   | $61,900 |   |                   |  | $77,800 |  
|Average Leverage Through Tranche of Portfolio CompaniesExcluding Equity/Other and Collateralized Securities                          |  |                   | 4.6x    |   |                   |  | 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     | % |                   |  | 9.4     | %
|Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct OriginationsExcluding Non-Income Producing Assets |  |                   | 10.0    | % |                   |  | 9.7     | %

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, 2016 and 2015:



|                                  |  |                   |           |  |                         |  |     |            |  |   |                        |  |  |  |     |  
|--------------------------------- |  | ----------------- | --------- |  | ----------------------- |  | --- | ---------- |  | - | ---------------------- |  |  |  | --- | -
|                                  |  | December 31, 2016 |           |  | December 31, 2015       | 
|Portfolio Composition by Strategy |  | Fair Value        |           |  | Percentageof 
Portfolio |  |     | Fair Value |  |   | Percentageof Portfolio | 
|Direct Originations               |  | $                 | 2,264,209 |  |                         |  | 70  | %          |  | $ | 1,890,092              |  |  |  | 69  | %
|Opportunistic                     |  |                   | 724,989   |  |                         |  | 22  | %          |  |   | 571,815                |  |  |  | 21  | %
|Broadly Syndicated/Other          |  |                   | 254,112   |  |                         |  | 8   | %          |  |   | 282,723                |  |  |  | 10  | %
|                                  |  |                   |           |  |                         |  |     |            |  |   |                        |  |  |  |     |  
|Total                             |  | $                 | 3,243,310 |  |                         |  | 100 | %          |  | $ | 2,744,630              |  |  |  | 100 | %
|                                  |  |                   |           |  |                         |  |     |            |  |   |                        |  |  |  |     |  



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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, 2016 and 2015:



|                                         |  |                   |           |  |                         |  |     |            |  |   |                        |  |  |  |     |  
|---------------------------------------- |  | ----------------- | --------- |  | ----------------------- |  | --- | ---------- |  | - | ---------------------- |  |  |  | --- | -
|                                         |  | December 31, 2016 |           |  | December 31, 2015       | 
|Industry Classification                  |  | Fair Value        |           |  | Percentageof 
Portfolio |  |     | Fair Value |  |   | Percentageof Portfolio | 
|Automobiles & Components                 |  | $                 | 35,373    |  |                         |  | 1   | %          |  | $ | 128,407                |  |  |  | 5   | %
|Capital Goods                            |  |                   | 331,376   |  |                         |  | 10  | %          |  |   | 277,975                |  |  |  | 10  | %
|Commercial & Professional Services       |  |                   | 444,650   |  |                         |  | 14  | %          |  |   | 274,662                |  |  |  | 10  | %
|Consumer Durables & Apparel              |  |                   | 147,125   |  |                         |  | 5   | %          |  |   | 147,483                |  |  |  | 5   | %
|Consumer Services                        |  |                   | 302,459   |  |                         |  | 9   | %          |  |   | 237,666                |  |  |  | 9   | %
|Diversified Financials                   |  |                   | 248,148   |  |                         |  | 8   | %          |  |   | 131,049                |  |  |  | 5   | %
|Energy                                   |  |                   | 272,759   |  |                         |  | 9   | %          |  |   | 224,961                |  |  |  | 8   | %
|Food & Staples Retailing                 |  |                   | 13,446    |  |                         |  | 1   | %          |  |   | 4,360                  |  |  |  | 0   | %
|Food, Beverage & Tobacco                 |  |                   |          |  |                         |  |    |            |  |   | 5,183                  |  |  |  | 0   | %
|Health Care Equipment & Services         |  |                   | 422,234   |  |                         |  | 13  | %          |  |   | 398,856                |  |  |  | 15  | %
|Insurance                                |  |                   | 7,602     |  |                         |  | 0   | %          |  |   | 7,251                  |  |  |  | 0   | %
|Materials                                |  |                   | 116,952   |  |                         |  | 4   | %          |  |   | 108,964                |  |  |  | 4   | %
|Media                                    |  |                   | 136,666   |  |                         |  | 4   | %          |  |   | 83,112                 |  |  |  | 3   | %
|Real Estate                              |  |                   | 171       |  |                         |  | 0   | %          |  |   | 1,707                  |  |  |  | 0   | %
|Retailing                                |  |                   | 77,310    |  |                         |  | 2   | %          |  |   | 28,204                 |  |  |  | 1   | %
|Semiconductors & Semiconductor Equipment |  |                   | 9,554     |  |                         |  | 0   | %          |  |   | 9,915                  |  |  |  | 0   | %
|Software & Services                      |  |                   | 397,389   |  |                         |  | 12  | %          |  |   | 406,231                |  |  |  | 15  | %
|Technology Hardware & Equipment          |  |                   | 40,777    |  |                         |  | 1   | %          |  |   | 48,513                 |  |  |  | 2   | %
|Telecommunication Services               |  |                   | 40,141    |  |                         |  | 1   | %          |  |   | 41,293                 |  |  |  | 1   | %
|Transportation                           |  |                   | 199,178   |  |                         |  | 6   | %          |  |   | 178,838                |  |  |  | 7   | %
|                                         |  |                   |           |  |                         |  |     |            |  |   |                        |  |  |  |     |  
|Total                                    |  | $                 | 3,243,310 |  |                         |  | 100 | %          |  | $ | 2,744,630              |  |  |  | 100 | %
|                                         |  |                   |           |  |                         |  |     |            |  |   |                        |  |  |  |     |  

As of December 31, 2016, except for Aspect Software, Inc., in which we had two senior secured loan
investments, one of which was a partially unfunded commitment, and an equity/other investment, Fairway Group Acquisition Co., in which we had three senior secured loan investments and an equity/other investment, and Warren Resources, Inc., in which
we had a senior secured loan investment, which was a partially unfunded commitment, and an equity/other investment, we were not an affiliated person of any of our portfolio companies, as defined in the 1940 Act. As of December 31,
2016, 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 more than 25% of its voting securities or we
had the power to exercise control over the management or policies of such portfolio company, and would be an affiliated person of a portfolio company if we owned 5% or more of its voting securities.

Our investment portfolio may contain loans 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, 2016,
we had twenty-one unfunded debt investments with aggregate unfunded commitments of $176,049 and one unfunded commitment to purchase up to $362 in shares of preferred stock of Altus Power America Holdings, LLC.
As of December 31, 2015, we had twenty-one unfunded debt investments with aggregate unfunded commitments of $267,776 and two unfunded commitments to purchase up to $467 and $369, respectively, in shares
of preferred stock of Altus Power America Holdings, LLC and common equity of Sunnova Holdings, LLC. 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 investments, see our audited consolidated schedules of investments as of December 31, 2016 and 2015.



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Portfolio Asset Quality

In addition to various risk management and monitoring tools, FSIC III Advisor uses an investment rating system to characterize and monitor the expected level of returns on each investment in our
portfolio. FSIC III 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, 2016 and 2015:



|                  |  |                   |           |  |                         |  |     |            |  |   |                        |  |  |  |     |  
|----------------- |  | ----------------- | --------- |  | ----------------------- |  | --- | ---------- |  | - | ---------------------- |  |  |  | --- | -
|                  |  | December 31, 2016 |           |  | December 31, 2015       | 
|Investment Rating |  | Fair Value        |           |  | Percentageof 
Portfolio |  |     | Fair Value |  |   | Percentageof Portfolio | 
|1                 |  | $                 | 31,381    |  |                         |  | 1   | %          |  | $ | 32,097                 |  |  |  | 1   | %
|2                 |  |                   | 3,060,613 |  |                         |  | 94  | %          |  |   | 2,460,811              |  |  |  | 90  | %
|3                 |  |                   | 115,673   |  |                         |  | 4   | %          |  |   | 174,729                |  |  |  | 6   | %
|4                 |  |                   | 28,191    |  |                         |  | 1   | %          |  |   | 70,246                 |  |  |  | 3   | %
|5                 |  |                   | 7,452     |  |                         |  | 0   | %          |  |   | 6,747                  |  |  |  | 0   | %
|                  |  |                   |           |  |                         |  |     |            |  |   |                        |  |  |  |     |  
|Total             |  | $                 | 3,243,310 |  |                         |  | 100 | %          |  | $ | 2,744,630              |  |  |  | 100 | %
|                  |  |                   |           |  |                         |  |     |            |  |   |                        |  |  |  |     |  

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

Results of Operations

Comparison of the Years Ended December 31, 2016 and 2015

Revenues

We generated investment income of $329,021 and $195,249 for the years ended December 31, 2016 and 2015, 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. Such revenues
represent $303,049 and $183,744 of cash income earned as well as $25,972 and $11,505 in non-cash portions relating to accretion of discount and PIK interest for the years ended December 31, 2016 and 2015,
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, 2016 and 2015, we generated $297,740 and $160,967, respectively, of interest income, which
represented 90.5% and 82.4%, respectively, of total investment income. The increase in interest income was due primarily to the growth of our investment portfolio and the increase in the number of directly originated loans in our portfolio over the
last year. The level of interest income we receive is generally



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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 size of our investment portfolio increases and the proportion of directly originated investments in our investment portfolio increases.

During the years ended December 31, 2016 and 2015, we generated $31,281 and $34,227, respectively, of fee income, which represented 9.5% and 17.5%, respectively, of total investment income. Such fee
income is transaction based, and typically consists of prepayment fees, structuring fees, amendment and consent fees and other non-recurring fees. As such, future fee income is generally dependent on new
direct origination investments and the occurrence of prepayments and other events at existing portfolio companies resulting in such fees.

Expenses

Our operating
expenses, together with excise taxes, for the years ended December 31, 2016 and 2015 were $159,326 and $81,413, respectively. Our operating expenses include base management fees attributed to FSIC III Advisor of $67,573 and $39,493 for the
years ended December 31, 2016 and 2015, respectively. Our operating expenses also include administrative services expenses attributed to FSIC III Advisor of $2,922 and $2,045 for the years ended December 31, 2016 and 2015, respectively.

FSIC III Advisor is eligible to receive incentive fees based on our performance. During the years ended December 31,
2016 and 2015, we accrued a subordinated incentive fee on income of $39,754 and $20,222, respectively, based on the performance of the portfolio. During the years ended December 31, 2016 and 2015, we did not accrue any capital gains incentive
fees based on the performance of our portfolio. See Critical Accounting PoliciesCapital Gains Incentive Fee and Critical Accounting PoliciesSubordinated Income Incentive Fee for additional information
about how the incentive fees are calculated.

We recorded interest expense of $39,584 and $13,746 for the years ended
December 31, 2016 and 2015, respectively, in connection with our financing arrangements. For the years ended December 31, 2016 and 2015, fees and expenses incurred with our fund administrator, which provides various accounting and
administrative services to us, totaled $1,019 and $691, respectively, and fees and expenses incurred with our stock transfer agent totaled $1,613 and $1,532, respectively. Fees for our board of directors were $1,010 and $822 for the years ended
December 31, 2016 and 2015, respectively. Amortization of our deferred offering costs was $1,273 for the year ended December 31, 2016. Prior to January 1, 2016, offering costs were offset against capital in excess of par value on the
consolidated financial statements.

Our other general and administrative expenses totaled $4,297 and $2,767 for the years
ended December 31, 2016 and 2015, respectively, and consisted of the following:



|                                                                |  |                         |       |  |      |   |       | 
|--------------------------------------------------------------- |  | ----------------------- | ----- |  | ---- | - | ----- | 
|                                                                |  | Year Ended December 31, |      
|                                                                |  | 2016                    |       |  | 2015 |  
|Expenses associated with our independent audit and related fees |  | $                       | 396   |  |      | $ | 308   | 
|Compensation of our chief compliance officer(1)                 |  |                         |      |  |      |   | 13    | 
|Legal fees                                                      |  |                         | 420   |  |      |   | 791   | 
|Printing fees                                                   |  |                         | 1,911 |  |      |   | 734   | 
|Other                                                           |  |                         | 1,570 |  |      |   | 921   | 
|                                                                |  |                         |       |  |      |   |       | 
|Total                                                           |  | $                       | 4,297 |  |      | $ | 2,767 | 
|                                                                |  |                         |       |  |      |   |       | 



|(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 FS Investments and does not receive any direct compensation from us in this capacity.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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During the years ended December 31, 2016 and 2015, the ratio of our operating expenses,
together with excise taxes, to our average net assets was 7.51% and 5.65%, respectively. During the year ended December 31, 2015, the ratio of our net operating expenses, together with excise taxes, to our average net assets, which includes
$3,469 of expense recoupments from FS Investments, was 5.89%. During the years ended December 31, 2016 and 2015, the ratio of our operating expenses to average net assets included $39,584 and $13,746, respectively, related to interest expense,
$39,754 and $20,222, respectively, related to accruals for incentive fees, $281 and $95, respectively, for excise taxes, and $1,273 and $0, respectively related to the amortization of offering costs. Without such expenses, our ratio of operating
expenses to average net assets would have been 3.70% and 3.52% for the years ended December 31, 2016 and 2015, 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 amounts outstanding under our financing arrangements and benchmark interest rates such as LIBOR, among other factors.

Expense Reimbursement

Under the expense reimbursement agreement, amounts
reimbursed to us by FS Investments may become subject to repayment by us in future periods. During the years ended December 31, 2016 and 2015, we paid $218 and $3,251, respectively, in expense recoupments to FS Investments. During the years
ended December 31, 2016 and 2015, we accrued $0 and $3,469 for expense recoupments payable to FS Investments. As of December 31, 2016, we did not have any expense recoupments due to FS Investments and no further amounts remain subject to
repayment by us to FS Investments in the future. See OverviewExpense Reimbursement for a discussion of the expense reimbursement agreement.

Net Investment Income

Our net investment income totaled $169,695 ($0.65
per share) and $110,367 ($0.65 per share) for the years ended December 31, 2016 and 2015, respectively.

Net Realized Gains or Losses

We sold investments and received principal repayments of $523,654 and $590,384, respectively, during the year ended
December 31, 2016, from which we realized a net loss of $47,149. We sold investments and received principal repayments of $301,909 and $117,353, respectively, during the year ended December 31, 2015, from which we realized a net loss of
$24,122. During the years ended December 31, 2016 and 2015, we earned $15,785 and $14,561, respectively, from periodic net settlement payments on our TRS, which are reflected as realized gains.

Net Change in Unrealized Appreciation (Depreciation) on Investments and Secured Borrowing and Total Return Swap

For the year ended December 31, 2016, the net change in unrealized appreciation (depreciation) on investments totaled $184,064, the
net change in unrealized appreciation (depreciation) on the secured borrowing was $(239) and the net change in unrealized appreciation (depreciation) on our TRS was $37,330. For the year ended December 31, 2015, the net change in unrealized
appreciation (depreciation) on investments totaled $(167,011) and the net change in unrealized appreciation (depreciation) on our TRS was $(20,559). The net change in unrealized appreciation (depreciation) on our investments and TRS was primarily
driven by improvement in the high yield markets, a general tightening of credit spreads and specific improvements with respect to certain of our energy investments.



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Net Increase (Decrease) in Net Assets Resulting from Operations

For the years ended December 31, 2016 and 2015, the net increase (decrease) in net assets resulting from operations was $359,486
($1.37 per share) and $(86,764) ($(0.51) per share), respectively.

Comparison of the Year Ended December 31, 2015 and the Period from
April 2, 2014 (Commencement of Operations) through December 31, 2014

Revenues

We generated investment income of $195,249 and $25,055 for the year ended December 31, 2015 and the period from April 2, 2014
through December 31, 2014, respectively, in the form of interest and fees earned on senior secured loans (first and second lien), senior secured bonds, subordinated debt, collateralized securities and dividends and other distributions earned on
equity/other investments in our portfolio. Such revenues represent $183,744 and $24,619 of cash income earned as well as $11,505 and $436 in non-cash portions relating to accretion of discount and PIK interest
for the year ended December 31, 2015 and the period from April 2, 2014 through December 31, 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 year ended December 31, 2015 and the period
from April 2, 2014 through December 31, 2014, we generated $160,967 and $17,639, respectively, of interest income, which represented 82.4% and 70.4%, respectively, of total investment income. The increase in interest income was due
primarily to the growth of our investment portfolio during the year ended December 31, 2015. The level of interest income we receive is generally 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 size of our investment portfolio increases and the proportion of directly originated investments in our investment portfolio increases.

During the year ended December 31, 2015 and the period from April 2, 2014 through December 31, 2014, we
generated $34,227 and $7,416, respectively, of fee income, which represented 17.5% and 29.6%, respectively, of total investment income. The increase in fee income for the year ended December 31, 2015 was due primarily to an increase in the
number of directly originated investments for which we received fee income. Such fee income is transaction based, and typically consists of prepayment fees, structuring fees, amendment and consent fees and other
non-recurring fees. As such, future fee income is generally dependent on new direct origination investments and the occurrence of prepayments and other events at existing portfolio companies resulting in such
fees.

Expenses

Our operating expenses, together with excise taxes, for the year ended December 31, 2015 and the period from April 2, 2014 through December 31, 2014 were $81,413 and $9,466, respectively.
Our operating expenses include base management fees attributed to FSIC III Advisor of $39,493 and $6,323 for the year ended December 31, 2015 and the period from April 2, 2014 through December 31, 2014, respectively. Our operating
expenses also include administrative services expenses attributed to FSIC III Advisor of $2,045 and $435 for the year ended December 31, 2015 and the period from April 2, 2014 through December 31, 2014, respectively.

FSIC III Advisor is eligible to receive incentive fees based on our performance. During the year ended December 31, 2015 and the
period from April 2, 2014 through December 31, 2014, we accrued a subordinated incentive fee on income of $20,222 and $0, respectively, based on the performance of the portfolio. During the year ended December 31, 2015 and the period
from April 2, 2014 through December 31, 2014, we did not accrue any capital gains incentive fees based on the performance of our portfolio. See Critical Accounting PoliciesCapital Gains Incentive Fee and
Critical Accounting PoliciesSubordinated Income Incentive Fee for additional information about how the incentive fees are calculated.



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We recorded interest expense of $13,746 and $371 for the year ended December 31, 2015
and the period from April 2, 2014 through December 31, 2014, respectively, in connection with our financing arrangements. For the year ended December 31, 2015 and the period from April 2, 2014 through December 31, 2014, fees
and expenses incurred with our fund administrator, which provides various accounting and administrative services to us, totaled $691 and $136, respectively, and fees and expenses incurred with our stock transfer agent totaled $1,532 and $522,
respectively. Fees for our board of directors were $822 and $305 for the year ended December 31, 2015 and the period from April 2, 2014 through December 31, 2014, respectively.

Our other general and administrative expenses totaled $2,767 and $1,374 for the year ended December 31, 2015 and the period from
April 2, 2014 through December 31, 2014, respectively, and consisted of the following:



|                                                                |  |                             |       |  |                                                     |   |       | 
|--------------------------------------------------------------- |  | --------------------------- | ----- |  | --------------------------------------------------- | - | ----- | 
|                                                                |  | Year EndedDecember 31, 2015 |       |  | Period from April 2, 2014through December 31, 
2014 |  
|Expenses associated with our independent audit and related fees |  | $                           | 308   |  |                                                     | $ | 331   | 
|Compensation of our chief compliance officer(1)                 |  |                             | 13    |  |                                                     |   | 60    | 
|Legal fees                                                      |  |                             | 791   |  |                                                     |   | 431   | 
|Printing fees                                                   |  |                             | 734   |  |                                                     |   | 252   | 
|Other                                                           |  |                             | 921   |  |                                                     |   | 300   | 
|                                                                |  |                             |       |  |                                                     |   |       | 
|Total                                                           |  | $                           | 2,767 |  |                                                     | $ | 1,374 | 
|                                                                |  |                             |       |  |                                                     |   |       | 



|(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 FS Investments and does not receive any direct compensation from us in this capacity.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We generally expect our general and administrative expenses to decrease as a percentage of our average net assets because of the
anticipated growth in the size of our asset base.

During the year ended December 31, 2015 and the period from
April 2, 2014 through December 31, 2014, the ratio of our operating expenses, together with excise taxes, to our average net assets was 5.65% and 2.54%, respectively. During the year ended December 31, 2015, the ratio of our total
operating expenses, together with excise taxes, to our average net assets, which includes $3,469 of expense recoupments paid to FS Investments was 5.89%. During the period from April 2, 2014 through December 31, 2014, the ratio of our
total operating expenses, together with excise taxes, to our average net assets, which includes $3,469 of expense reimbursements from FS Investments, was 1.61%. During the year ended December 31, 2015 and the period from April 2, 2014
through December 31, 2014, the ratio of our operating expenses to average net assets included $13,746 and $371, respectively, related to interest expense, $20,222 and $0, respectively, related to accruals for incentive fees and $95 and $0,
respectively, for excise taxes. Without such expenses, our ratio of operating expenses to average net assets would have been 3.52% and 2.44% for the year ended December 31, 2015 and the period from April 2, 2014 through December 31,
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 amounts outstanding under our financing
arrangements and benchmark interest rates such as LIBOR, among other factors.

Expense Reimbursement

Under the expense reimbursement agreement, amounts reimbursed to us by FS Investments may become subject to repayment by us in future
periods. During the year ended December 31, 2015, we accrued $3,469 for expense recoupments payable to FS Investments of which $3,251 was paid. As of December 31, 2015, we had $218 of expense recoupments due to FS Investments and no
further amounts remain subject to repayment by us to FS Investments in the future. See OverviewExpense Reimbursement for a discussion of the expense reimbursement agreement.



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Net Investment Income

Our net investment income totaled $110,367 ($0.65 per share) and $19,058 ($0.45 per share) for the year ended December 31, 2015 and the period from April 2, 2014 through December 31, 2014,
respectively.

Net Realized Gains or Losses

We sold investments and received principal repayments of $301,909 and $117,353, respectively, during the year ended December 31, 2015, from which we realized a net loss of $24,122. We sold
investments and received principal repayments of $71,695 and $7,534, respectively, during the period from April 2, 2014 through December 31, 2014, from which we realized a net gain of $170. During the year ended December 31, 2015 and
the period from April 2, 2014 through December 31, 2014, we earned $14,561 and $1,944, respectively, from periodic net settlement payments on our TRS, which are reflected as realized gains.

Net Change in Unrealized Appreciation (Depreciation) on Investments and Total Return Swap

For the year ended December 31, 2015, the net change in unrealized appreciation (depreciation) on investments totaled $(167,011). The
net change in unrealized appreciation (depreciation) on our TRS was $(20,559) for the year ended December 31, 2015. For the period from April 2, 2014 through December 31, 2014, the net change in unrealized appreciation (depreciation)
on investments totaled $(22,884). The net change in unrealized appreciation (depreciation) on our TRS was $(5,368) for the period from April 2, 2014 through December 31, 2014. The net change in unrealized appreciation (depreciation) on our
investments and TRS 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
year ended December 31, 2015 and the period from April 2, 2014 through December 31, 2014, the net decrease in net assets resulting from operations was $86,764 ($(0.51) per share) and $7,080 ($(0.17) per share), respectively.

Financial Condition, Liquidity and Capital Resources

Overview

As of December 31, 2016, we had $249,862 in cash, which we
and our wholly owned financing subsidiaries held in custodial accounts, and $118,000 in cash held as collateral by Citibank under the terms of the TRS. In addition, as of December 31, 2016, we had $111,319 in capacity available under the TRS
and $72,300 in borrowings available under our other financing arrangements, subject to borrowing base and other limitations. As of December 31, 2016, we also had broadly syndicated investments and opportunistic investments that could be sold to
create additional liquidity. As of December 31, 2016, we had twenty-one debt investments with aggregate unfunded commitments of $176,049 and one unfunded commitment to purchase up to $362 of preferred
stock. 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 the net proceeds of our continuous public offering and the issuance of shares under our distribution reinvestment plan and from cash flows from fees, interest and
dividends earned from our investments, as well as principal repayments and proceeds from sales of our investments. To seek to enhance our returns, we also employ leverage as market conditions permit and at the discretion of FSIC III Advisor, but in
no event will leverage employed exceed 50% of the value of our assets, as required by the 1940 Act. See Financing Arrangements.

Prior to investing in securities of portfolio companies, we invest the cash received from the net proceeds from our continuous public offering, from the issuance of shares of common stock under our
distribution



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reinvestment plan, from fees, interest and dividends earned from our investments and principal repayments and proceeds from sales of our investments primarily in cash, cash equivalents, including
money market funds, 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

We are engaged in a continuous public offering of our common stock. We accept subscriptions on a continuous basis and issue shares at
weekly closings at prices that must be above our net asset value per share.

During the year ended
December 31, 2016, we issued 35,695,739 shares of common stock for gross proceeds of $300,473 at an average price per share of $8.42. The gross proceeds received during the year ended December 31, 2016 include reinvested stockholder
distributions of $96,669 for which we issued 11,789,088 shares of common stock. The selling commissions and dealer manager fees related to the sale of our common stock was $9,992 for the year ended December 31, 2016. This amount includes $1,961
in dealer manager fees retained by the dealer manager, FS Investment Solutions,which is one of our affiliates.

Since commencing our continuous public offering
and through February 28, 2017, we have issued 280,778,112 shares of common stock for gross proceeds of $2,681,451. As of February 28, 2017, we had raised total gross proceeds of $2,693,438, including $200 of seed capital contributed by the
principals of FSIC III Advisor in October 2013 and $11,787 in proceeds raised in a private placement completed in April 2014 from the principals of FSIC III Advisor, certain members of our board of directors and other individuals and entities
affiliated with FSIC III Advisor and GDFM.

In February 2016, we closed our continuous public offering to investors investing
through the IBD Channel. We are currently offering shares of our common stock pursuant to our continuous public offering only to persons who purchase through the Institutional Channel and certain affiliated investors who purchase through the
dealer manager. Historically, sales though the IBD Channel have constituted the majority of shares sold in our continuous public offering. Prior to the IBD Channel closing, shares of our common stock in our continuous public offering were
subject to a sales load of up to 10.0% of the public offering price, which consisted of selling commissions and dealer manager fees of up to 7.0% and 3.0%, respectively, of the public offering price. Following the IBD Channel closing, shares of
common stock in our continuous public offering have been sold at an institutional offering price that does not include any selling commissions or dealer manager fees.

Share Repurchase Program

To provide our stockholders with limited
liquidity, we intend to continue to conduct quarterly tender offers pursuant to our share repurchase program. The first such tender offer commenced in August 2014, and the repurchase occurred in connection with our October 1, 2014 weekly
closing.



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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, 2016, 2015 and 2014:



|                           |  |                 |                 |  |                   |  |           |                                                 |  |  |                                                                     |   |  |                          |       |   |                                            |   |       |  |  |   |        | 
|-------------------------- |  | --------------- | --------------- |  | ----------------- |  | --------- | ----------------------------------------------- |  |  | ------------------------------------------------------------------- | - |  | ------------------------ | ----- | - | ------------------------------------------ | - | ----- |  |  | - | ------ | 
|For the Three Months Ended |  | Repurchase Date |                 |  | SharesRepurchased |  |           | Percentageof
SharesTenderedThat
WereRepurchased |  |  | Percentage ofOutstanding SharesRepurchased as
ofthe Repurchase Date |   |  | RepurchasePrice PerShare |       |   | AggregateConsiderationforRepurchasedShares |  
|Fiscal 2014                |  |                 |                 |  |                   |  |           |                                                 |  |  |                                                                     |   |  |                          |       |   |                                            |   |       |  |  |   |        | 
|September 30, 2014         |  |                 | October 1, 2014 |  |                   |  | 4,050     |                                                 |  |  | 100                                                                 | % |  |                          | 0.01% |   |                                            | $ | 9.000 |  |  | $ | 36     | 
|Fiscal 2015                |  |                 |                 |  |                   |  |           |                                                 |  |  |                                                                     |   |  |                          |       |   |                                            |   |       |  |  |   |        | 
|December 31, 2014          |  |                 | January 7, 2015 |  |                   |  | 16,692    |                                                 |  |  | 100                                                                 | % |  |                          | 0.02% |   |                                            | $ | 8.865 |  |  | $ | 148    | 
|March 31, 2015             |  |                 | April 1, 2015   |  |                   |  | 60,626    |                                                 |  |  | 100                                                                 | % |  |                          | 0.05% |   |                                            | $ | 8.955 |  |  | $ | 543    | 
|June 30, 2015              |  |                 | July 8, 2015    |  |                   |  | 316,818   |                                                 |  |  | 100                                                                 | % |  |                          | 0.19% |   |                                            | $ | 8.955 |  |  | $ | 2,837  | 
|September 30, 2015         |  |                 | October 7, 2015 |  |                   |  | 274,874   |                                                 |  |  | 100                                                                 | % |  |                          | 0.13% |   |                                            | $ | 8.550 |  |  | $ | 2,350  | 
|Fiscal 2016                |  |                 |                 |  |                   |  |           |                                                 |  |  |                                                                     |   |  |                          |       |   |                                            |   |       |  |  |   |        | 
|December 31, 2015          |  |                 | January 6, 2016 |  |                   |  | 569,282   |                                                 |  |  | 100                                                                 | % |  |                          | 0.24  | % |                                            | $ | 8.145 |  |  | $ | 4,637  | 
|March 31, 2016             |  |                 | April 6, 2016   |  |                   |  | 1,042,946 |                                                 |  |  | 100                                                                 | % |  |                          | 0.40  | % |                                            | $ | 7.875 |  |  | $ | 8,213  | 
|June 30, 2016              |  |                 | July 6, 2016    |  |                   |  | 969,112   |                                                 |  |  | 100                                                                 | % |  |                          | 0.37  | % |                                            | $ | 8.190 |  |  | $ | 7,937  | 
|September 30, 2016         |  |                 | October 5, 2016 |  |                   |  | 2,030,975 |                                                 |  |  | 100                                                                 | % |  |                          | 0.76  | % |                                            | $ | 8.505 |  |  | $ | 17,273 | 

On January 4, 2017, we repurchased 1,536,048 shares of common stock (representing 100% of the shares
of common stock tendered for repurchase and 0.56% of the shares outstanding as of such date) at $8.550 per share for aggregate consideration totaling $13,133.

For additional information 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

We borrow funds to make investments to the extent we determine that additional capital would allow us to take advantage of additional
investment opportunities, if the market for debt financing presents attractively priced debt financing opportunities, or if our board of directors determines that leveraging our portfolio would be in our best interests and the best interests of our
stockholders. We do not currently anticipate issuing any preferred stock.

The following table presents summary information
with respect to our outstanding financing arrangements as of December 31, 2016:



|                                 |  |                           |  |                      |  |                   |         |  |                 |   |         |               |  |                       
|-------------------------------- |  | ------------------------- |  | -------------------- |  | ----------------- | ------- |  | --------------- | - | ------- | ------------- |  | ----------------------
|Arrangement                      |  | Type of Arrangement       |  | Rate                 |  | AmountOutstanding |         |  | AmountAvailable |   |         | Maturity Date
|Citibank Total Return Swap       |  | Total Return Swap         |  | L+1.55%              |  | $                 | 388,681 |  |                 | $ | 111,319 |               |  | N/A(1)                
|BNP Facility(2)                  |  | Prime Brokerage Facility  |  | L+1.10%              |  | $                 | 187,700 |  |                 | $ | 62,300  |               |  | September 27, 
2017(3)
|Deutsche Bank Credit Facility(4) |  | Revolving Credit Facility |  | L+2.25%              |  | $                 | 240,000 |  |                 | $ | 10,000  |               |  | September 22, 2019    
|JPM Credit Facility              |  | Term Loan Credit Facility |  | L+2.69%              |  | $                 | 400,000 |  |                 | $ |        |               |  | May 8, 2019           
|Goldman Facility                 |  | Repurchase Agreement      |  | L+2.50%              |  | $                 | 300,000 |  |                 | $ |        |               |  | July 15, 2019         
|Capital One Credit Facility      |  | Revolving Credit Facility |  | L+1.75% to L+2.50%   |  | $                 | 150,000 |  |                 | $ |        |               |  | August 13, 2020       
|Partial Loan Sale                |  | Secured Borrowing         |  | L+4.50% (1.0% Floor) |  | $                 | 13,929  |  |                 | $ |        |               |  | July 29, 2022         



|(1) | The TRS may be terminated by Center City Funding or by Citibank at any time on or after June 27, 2017, in each case, in whole or in part, upon prior written notice
to the other party.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | On August 29, 2016, Burholme Funding entered into an amendment to the prime brokerage facility with BNPP to, among other things, (i) increase
the interest rate payable on borrowings under the committed facility agreement from three-month LIBOR plus 110 basis points to three-month LIBOR plus 125 basis points effective on and after January 2, 2017 and (ii) increase the commitment
fee payable
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | under the committed facility agreement from 55 basis points on all unused amounts to, effective on and after January 2, 2017, (a) 65 basis points on unused amounts so long as 75% or more of
the facility amount under the committed facility agreement is utilized or (b) 85 basis points on unused amounts if less than 75% of the facility amount under the committed facility agreement is utilized. On November 15, 2016, Burholme Funding
entered into an amendment to the facility to increase the maximum commitment financing available to Burholme Funding to $250,000 from $200,000.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | As described in Note 8 to our consolidated financial statements contained in this annual report on Form 10-K, this facility
generally is terminable upon 270 days notice by either party. As of December 31, 2016, neither party to the facility had provided notice of its intent to terminate the facility.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | On January 12, 2017, Dunlap Funding LLC, or Dunlap Funding, entered into an amendment to the Deutsche Bank credit facility to increase the aggregate principal
amount of borrowings available under the Deutsche Bank credit facility from $250,000 to $350,000.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our average
borrowings and weighted average interest rate, including the effect of non-usage fees, for the year ended December 31, 2016 were $1,196,899 and 3.12%, respectively. As of December 31, 2016, our
weighted average effective interest rate on borrowings, including the effect of non-usage fees, was 3.30%.

For additional information regarding our financing arrangements, see Note 8 to our consolidated financial statements contained in this annual report on Form 10-K.

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 for RIC tax treatment, 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.

Our first distribution was declared for stockholders of record as of April 8, 2014. Subject to applicable legal restrictions and the
sole discretion of our board of directors, we currently intend to declare regular cash distributions on a quarterly basis and pay such distributions on a monthly basis to stockholders of record, as determined on a weekly basis. We will calculate
each stockholders specific distribution amount for the period using record and declaration dates and each stockholders distributions will begin to accrue on the date we accept such stockholders subscription for shares of our common
stock. From time to time, we may also pay special interim distributions in the form of cash or shares of our common stock at the discretion of our board of directors. 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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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 deducting the fees and expenses payable in connection with our continuous public offering, including any fees payable to FSIC III Advisor. 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 non-taxable distribution) will be
mailed to our stockholders. No portion of the distributions paid during the tax years ended December 31, 2016 and 2015 represented a return of capital. For the year ended December 31, 2014, if FS Investments had not reimbursed certain of our
expenses, approximately, 16% of the aggregate amount of distributions paid during such period would have been funded from offering proceeds or borrowings.

We intend to continue to make our regular distributions in the form of cash, out of assets legally available for distribution, unless stockholders elect to receive their cash distributions in additional
shares of our common stock under our distribution reinvestment plan. Any distributions reinvested under the plan will nevertheless remain taxable to a U.S. stockholder.

The following table reflects the cash distributions per share that we declared and paid on our common stock during the years ended December 31, 2016, 2015 and 2014:



|                                |  |              |        |  |        |   |         | 
|------------------------------- |  | ------------ | ------ |  | ------ | - | ------- | 
|                                |  | Distribution |       
|For the Year Ended December 31, |  | Per Share    |        |  | Amount |  
|2014                            |  | $            | 0.5249 |  |        | $ | 21,526  | 
|2015                            |  | $            | 0.7000 |  |        | $ | 118,228 | 
|2016                            |  | $            | 0.7000 |  |        | $ | 183,009 | 

On November 4, 2016 and March 7, 2017, our board of directors declared regular weekly cash
distributions for January 2017 through March 2017 and April 2017 through June 2017, respectively, each in the amount of $0.013461 per share. These distributions have been or will be paid monthly to stockholders of record as of weekly 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, our 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 the distribution reinvestment plan, cash distributions to participating stockholders are reinvested in additional
shares of our common stock at a purchase price equal to the institutional offering price in effect on the date of issuance. 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 may fund our cash distributions to stockholders from any sources of funds legally available to us, including offering proceeds,
borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets and dividends or other distributions paid to us on account
of preferred and common equity investments in portfolio companies and expense reimbursements from FS Investments. We have not established limits on the amount of funds we may use from available sources to make distributions. There can be no
assurance that we will be able to pay distributions at a specific rate or at all.



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Pursuant to the expense reimbursement agreement, FS Investments 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, which
time period may be significant, substantial portions of our distributions have been, and may in the future, be funded through the reimbursement of certain expenses by FS Investments and its affiliates, including through the waiver of certain
investment advisory fees by FSIC III Advisor, that are subject to repayment by us within three years. Any such distributions funded through expense reimbursements or waivers of advisory fees are not based on our investment performance, and can only
be sustained if we achieve positive investment performance in future periods and/or FS Investments and its affiliates continue to make such reimbursements or waivers of such fees. Our future repayments of amounts reimbursed or waived by FS
Investments or its affiliates will reduce the distributions that stockholders would otherwise receive in the future. FS Investments 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, 2016, 2015 and 2014:



|                                                          |  |                         |         |  |            |  |     |                    |  |   |            |  |  |                    |     |   |            |   |        |  |  |  |     |  
|--------------------------------------------------------- |  | ----------------------- | ------- |  | ---------- |  | --- | ------------------ |  | - | ---------- |  |  | ------------------ | --- | - | ---------- | - | ------ |  |  |  | --- | -
|                                                          |  | Year Ended December 31, |        
|                                                          |  | 2016                    |         |  | 2015       |  |     | 2014               | 
|Source of Distribution                                    |  | DistributionAmount      |         |  | Percentage |  |     | DistributionAmount |  |   | Percentage |  |  | DistributionAmount |     |   | Percentage |  
|Offering proceeds                                         |  | $                       |        |  |            |  |    |                    |  | $ |           |  |  |                    |    |   |            | $ |       |  |  |  |    |  
|Borrowings                                                |  |                         |        |  |            |  |    |                    |  |   |           |  |  |                    |    |   |            |   |       |  |  |  |    |  
|Net investment income (prior to expense reimbursement)(1) |  |                         | 183,009 |  |            |  | 100 | %                  |  |   | 118,228    |  |  |                    | 100 | % |            |   | 17,970 |  |  |  | 84  | %
|Short-term capital gains proceeds from the sale of assets |  |                         |        |  |            |  |    |                    |  |   |           |  |  |                    |    |   |            |   | 87     |  |  |  | 0   | %
|Long-term capital gains proceeds from the sale of assets  |  |                         |        |  |            |  |    |                    |  |   |           |  |  |                    |    |   |            |   |       |  |  |  |    |  
|Non-capital gains proceeds from the sale of assets        |  |                         |        |  |            |  |    |                    |  |   |           |  |  |                    |    |   |            |   |       |  |  |  |    |  
|Distributions on account of preferred and common equity   |  |                         |        |  |            |  |    |                    |  |   |           |  |  |                    |    |   |            |   |       |  |  |  |    |  
|Expense reimbursement from sponsor                        |  |                         |        |  |            |  |    |                    |  |   |           |  |  |                    |    |   |            |   | 3,469  |  |  |  | 16  | %
|                                                          |  |                         |         |  |            |  |     |                    |  |   |            |  |  |                    |     |   |            |   |        |  |  |  |     |  
|Total                                                     |  | $                       | 183,009 |  |            |  | 100 | %                  |  | $ | 118,228    |  |  |                    | 100 | % |            | $ | 21,526 |  |  |  | 100 | %
|                                                          |  |                         |         |  |            |  |     |                    |  |   |            |  |  |                    |     |   |            |   |        |  |  |  |     |  



|(1) | During the years ended December 31, 2016, 2015 and 2014, 92.1%, 94.1% and 98.3%, respectively, of our gross investment income was attributable to cash income
earned, 2.6%, 4.4% and 1.7%, respectively, was attributable to non-cash accretion of discount and 5.3%, 1.5% and 0.0% respectively, was attributable to PIK interest.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our net investment income on a tax basis for the years ended December 31, 2016, 2015 and 2014 was $182,509, $127,179 and $21,439,
respectively. As of December 31, 2016, 2015 and 2014, we had $9,589, $10,089 and $0, respectively, of undistributed net investment income and $60,099, $24,134 and $0 respectively, of accumulated capital losses on a tax basis.

See Note 5 to our consolidated financial statements contained in this annual report on Form 10-K
for additional information regarding our distributions, including a reconciliation of our GAAP-basis net investment income to our tax-basis net investment income for the years ended December 31, 2016,
2015 and 2014.



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Critical Accounting Policies

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

Valuation of Portfolio Investments

We determine the net asset value of our investment portfolio each quarter. Securities are valued at fair value as determined in good faith
by our board of directors. In connection with that determination, FSIC III 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 III 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 III 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 III 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
| | - |  | -------------------------------------------------------------------------------------------------------------------------



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| |  |  | 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 III Advisor, the valuation committee and any independent third-party valuation services, if applicable.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our 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 III 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 III
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 III 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 III 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 III 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.



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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 III Advisors management team, and has authorized FSIC III Advisors management team to
utilize independent third-party valuation and pricing services that have been approved by our board of directors. The valuation committee is responsible for overseeing FSIC III Advisors implementation of the valuation process.

Our investments as of December 31, 2016 consisted primarily of debt investments that were acquired directly from the issuer.
Forty-nine senior secured loan investments, two senior secured bond investments and twelve subordinated debt investments, 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. Three senior secured loan investments and one equity/other investment which were
newly issued and purchased near December 31, 2016, 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. Three equity/other investments, which were traded on
an active public market, were valued at their closing price as of December 31, 2016. 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, 2015 consisted primarily of debt investments that were acquired directly from the issuer. Forty senior secured loan investments, two senior secured bond investments and seven subordinated debt investments, 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. 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. 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 each such investment 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.

We value the TRS in accordance with the TRS agreement. Pursuant to the
TRS agreement, the value of the TRS is based on the increase or decrease in the value of the loans underlying the TRS, together with accrued interest income, interest expense and certain other expenses incurred under the TRS. The loans underlying
the TRS are valued by Citibank. Citibank bases its valuation on the indicative bid prices provided by an independent third-party pricing service. Bid prices reflect the highest price that market participants may be willing to pay. These valuations
are sent to us for review and testing. Our valuation committee and board of directors review and approve the value of the TRS, as well as the value of the loans underlying the TRS, on a quarterly basis. To the extent our valuation committee or board
of directors has any questions or concerns regarding the valuation of the loans underlying the TRS, such valuation is discussed or challenged pursuant to the terms of the TRS agreement. See Note 8 to our consolidated financial statements contained
in this annual report on Form 10-K for additional information on the TRS.



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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 of the board of directors and the board of directors reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with
our valuation process.

Revenue Recognition

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

We follow the guidance in ASC Topic 860 when accounting for loan participations and other partial loan sales. This guidance requires a
participation or other partial loan sale to meet the definition of a participating interest, as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a
participating interest remain on our consolidated balance sheets and



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the proceeds are recorded as a secured borrowing until the participation or other partial loan sale meets the definition. Secured borrowings are carried at fair value to correspond with the
related investments, which are carried at fair value.

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 such 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, 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. 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 III Advisor if our entire portfolio was liquidated at its fair value as of the balance sheet date even though FSIC III Advisor is not entitled to an incentive fee with respect to unrealized gains unless
and until such gains are actually realized.

Based on an interpretation of the applicable language in the Advisers Act by the
staff of the Division of Investment Management of the SEC, we look through our TRS (which is described more fully in Note 8 to our consolidated financial statements contained in the this annual report on Form 10-K) in calculating the 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 underlying the TRS directly is treated as net investment income subject to the subordinated incentive fee on income payable to FSIC III 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 underlying the TRS further reduces the capital gains incentive fee payable to FSIC III Advisor with respect to
realized gains. See Note 8 to our consolidated financial statements contained in this annual report on Form 10-K for a discussion of the TRS.

Subordinated Income Incentive Fee

Pursuant to the investment advisory and
administrative services agreement, FSIC III 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 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 amounts
paid for share repurchases pursuant to our share repurchase program. As a result, FSIC III Advisor will not earn this part of the 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 III 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 III Advisor will be entitled to receive 20.0% of pre-incentive fee net investment income.



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Organization Costs

Organization costs include, among other things, the cost of incorporating, including the cost of legal services and other fees pertaining to our organization. These costs were expensed as incurred. See
also Related Party Transactions.

Offering Costs

Our offering costs primarily include, among other things, marketing expenses and printing, legal and due diligence fees and other costs
pertaining to our continuous public offering of shares of our common stock. Historically, we charged offering costs against capital in excess of par value on our consolidated balance sheets. Following recent discussions with the Staff of the
Division of Investment Management of the SEC, we decided to change our accounting treatment of offering costs and defer and amortize such costs to expense over twelve months. We evaluated this change in accounting treatment of offering costs,
which we implemented effective January 1, 2016, and determined that it did not have a material impact on our previously reported consolidated financial position, results of operations or cash flows. See also Related Party
TransactionsCompensation of the Investment Adviser and Dealer Manager.

Uncertainty in Income Taxes

We evaluate our tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting
for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax benefits or liabilities in our consolidated financial statements. Recognition of a tax benefit or liability with respect to an
uncertain tax position is required only when the position is more likely than not to be sustained assuming examination by taxing authorities. We recognize interest and penalties, if any, related to unrecognized tax liabilities as income
tax expense in our consolidated statements of operations. During the years ended December 31, 2016, 2015 and 2014 we did not incur any interest or penalties.

Contractual Obligations

We have entered into an agreement with FSIC III
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 based on
the average weekly value of our gross assets and (b) an incentive fee based on our performance. FSIC III Advisor, and to the extent it is required to provide such services, GDFM, are reimbursed for administrative expenses and/or organization
and offering costs incurred on our behalf, as applicable. See Note 4 to our consolidated financial statements included herein and Related Party TransactionsCompensation of the Investment Adviser and Dealer Manager for a
discussion of this agreement and for the amount of fees and expenses accrued under this agreement during the years ended December 31, 2016, 2015 and 2014.

For the years ended December 31, 2016, 2015 and 2014, we incurred $67,573, $39,493 and $6,323, respectively, in base management fees and $2,922, $2,045 and $435, respectively, in administrative
services expenses under the investment advisory and administrative services agreement. In addition, FSIC III Advisor is eligible to receive incentive fees based on the performance of our portfolio. During the years ended December 31, 2016, 2015
and 2014, we accrued a subordinated incentive fee on income of $39,754, $20,222 and $0, respectively, based on the performance of our portfolio. During the year ended December 31, 2016, we paid FSIC III Advisor $39,256 in subordinated incentive
fee on income. As of December 31, 2016, a subordinated incentive fee on income of $12,323 was payable to FSIC III Advisor. For the years ended December 31, 2016, 2015 and 2014, we did not accrue any capital gains incentive fees based on
the performance of our portfolio, and we did not pay any capital gains incentive fees to FSIC III Advisor during the years ended December 31, 2016, 2015 and 2014. As of December 31, 2016, we had accrued no capital gains incentive fees.



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A summary of our significant contractual payment obligations related to the repayment of our
outstanding indebtedness at December 31, 2016 is as follows:



|                                 |  |                        |         |  |                  |   |         |           |  |   |           |  |  |                   |         |  |  |   |        | 
|-------------------------------- |  | ---------------------- | ------- |  | ---------------- | - | ------- | --------- |  | - | --------- |  |  | ----------------- | ------- |  |  | - | ------ | 
|                                 |  | Payments Due By Period |        
|                                 |  | Total                  |         |  | Less than 1 year |   |         | 1-3 years |  |   | 3-5 years |  |  | More than 5 years |        
|BNP Facility(1)                  |  | $                      | 187,700 |  |                  | $ | 187,700 |           |  |   |          |  |  |                   |        |  |  |   |       | 
|Deutsche Bank Credit Facility(2) |  | $                      | 240,000 |  |                  |   |        |           |  | $ | 240,000   |  |  |                   |        |  |  |   |       | 
|JPM Credit Facility(3)           |  | $                      | 400,000 |  |                  |   |        |           |  | $ | 400,000   |  |  |                   |        |  |  |   |       | 
|Goldman Facility(4)              |  | $                      | 300,000 |  |                  |   |        |           |  | $ | 300,000   |  |  |                   |        |  |  |   |       | 
|Capital One Credit Facility(5)   |  | $                      | 150,000 |  |                  |   |        |           |  |   |          |  |  | $                 | 150,000 |  |  |   |       | 
|Partial Loan Sale(6)             |  | $                      | 13,929  |  |                  |   |        |           |  |   |          |  |  |                   |        |  |  | $ | 13,929 | 



|(1) | At December 31, 2016, $62,300 remained unused under the BNP facility. The BNP facility generally is terminable upon 270 days notice by either party. As of
December 31, 2016, neither Burholme Funding nor BNPP had provided notice of its intent to terminate the facility.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | At December 31, 2016, $10,000 remained unused under the Deutsche Bank credit facility. Amounts outstanding under the Deutsche Bank credit facility will mature, and
all accrued and unpaid interest thereunder will be due and payable, on September 22, 2019.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | At December 31, 2016, no amounts remained unused under the JPM credit facility. Amounts outstanding under the JPM credit facility will mature, and all accrued and
unpaid interest thereunder will be due and payable, on May 8, 2019.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | At December 31, 2016, 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 July 15, 2019.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | At December 31, 2016, no amounts remained unused under the Capital One credit facility. Amounts outstanding under the Capital One credit facility will mature, and
all accrued and unpaid interest thereunder will be due and payable, on August 13, 2020.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | At December 31, 2016, no amounts remained unused under the secured borrowing. Amounts outstanding under the secured borrowing will mature, and all accrued and
unpaid interest thereunder will be due and payable, on July 29, 2022.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Off-Balance Sheet Arrangements

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

Recently Issued Accounting Standards

None.

Related Party Transactions

Compensation of the Investment Adviser and Dealer Manager

Pursuant to the
investment advisory and administrative services agreement, FSIC III Advisor is entitled to an annual base management fee of 2.0% of the average weekly 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 April 2, 2014, upon commencement of our investment operations. Management fees are paid on a quarterly basis in arrears. Effective February 3, 2017, FSIC III
Advisor has agreed to permanently waive a portion of the base management fee so that the fee received equals 1.75% of our average weekly gross assets.

The dealer manager for our continuous public offering is FS Investment Solutions, which is one of our affiliates. Prior to the IBD Channel closing, the dealer manager was entitled to receive selling
commissions and



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dealer manager fees in connection with the sale of shares of common stock in our continuous public offering, all or a portion of which could be re-allowed
to selected broker-dealers. Following the IBD Channel closing, the dealer manager has waived its right to receive any selling commissions or dealer manager fees in connection with shares of our common stock sold pursuant to our continuous public
offering and, as a result, no selling commissions or dealer manager fees will be paid to the dealer manager from that date forward.

The following table describes the fees and expenses we accrued under the investment advisory and administrative services agreement and the dealer manager fees FS Investment Solutions received under the
dealer manager agreement during the years ended December 31, 2016, 2015 and 2014:



|                        |  |                                                         |  |                                        |  |                        |        |  |      |   |        |      |  |   |        | 
|----------------------- |  | ------------------------------------------------------- |  | -------------------------------------- |  | ---------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                        |  |                                                         |  |                                        |  | Year
EndedDecember 31, |       
|Related Party           |  | Source Agreement                                        |  | Description                            |  | 2016                   |        |  | 2015 |   |        | 2014 | 
|FSIC III Advisor        |  | Investment Advisory andAdministrative ServicesAgreement |  | Base ManagementFee(1)                  |  | $                      | 67,573 |  |      | $ | 39,493 |      |  | $ | 6,323  | 
|FSIC III Advisor        |  | Investment Advisory andAdministrative ServicesAgreement |  | Subordinated IncentiveFee on
Income(2) |  | $                      | 39,754 |  |      | $ | 20,222 |      |  | $ |       | 
|FSIC III Advisor        |  | Investment Advisory andAdministrative ServicesAgreement |  | AdministrativeServices Expenses(3)     |  | $                      | 2,922  |  |      | $ | 2,045  |      |  | $ | 435    | 
|FSIC III Advisor        |  | Investment Advisory andAdministrative ServicesAgreement |  | Offering Costs(4)                      |  | $                      | 1,521  |  |      | $ | 3,504  |      |  | $ | 2,494  | 
|FS Investment Solutions |  | Dealer Manager Agreement                                |  | Dealer Manager Fee(5)                  |  | $                      | 1,961  |  |      | $ | 22,411 |      |  | $ | 16,845 | 



|(1) | During the years ended December 31, 2016, 2015 and 2014, $0, $598 and $2,559, respectively, in base management fees were applied to offset the liability of FS
Investments under the expense reimbursement agreement (see Expense Reimbursement below) and $63,761, $28,648 and $0, respectively, in net base management fees were paid to FSIC III Advisor. As of December 31, 2016, $17,823 in
base management fees were payable to FSIC III Advisor.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | During the years ended December 31, 2016, 2015 and 2014, $39,256, $8,397 and $0, respectively, of subordinated incentive fees on income were paid to FSIC III
Advisor. As of December 31, 2016, a subordinated incentive fee on income of $12,323 was payable to FSIC III Advisor.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | During the years ended December 31, 2016, 2015 and 2014, $2,766, $1,875 and $384, respectively, of the accrued administrative services expenses related to the
allocation of costs of administrative personnel for services rendered to us by FSIC III Advisor and the remainder related to other reimbursable expenses. We paid $3,045, $1,493 and $232 in administrative services expenses to FSIC III Advisor during
the years ended December 31, 2016, 2015 and 2014, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | During the years ended December 31, 2016, 2015 and 2014, we incurred offering costs of $2,250, $6,200 and $4,479, respectively, of which $1,521, $3,504 and $2,494,
respectively, generally related to the reimbursement of marketing expenses, salaries and direct expenses of FSIC III Advisors employees and employees of its affiliates while engaged in registering and marketing our shares of common stock. See
Note 2 of our consolidated financial statements included herein for a discussion regarding our change in the accounting treatment of offering costs.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Represents aggregate dealer manager fees retained by FS Investment Solutions and not re-allowed to selected broker-dealers.
Following the IBD Channel closing, the dealer manager has waived its right to receive any selling commissions or dealer manager fees in connection with shares of our common stock sold pursuant to our continuous public offering. The fees reflected
for the year ended December 31, 2016 represent fees retained by FS Investment Solutions prior to the IBD Channel closing in February 2016.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See Note 4 to our consolidated financial statements contained in this annual report on Form 10-K for additional information regarding our agreements with FSIC III
Advisor and our other related party transactions and relationships, including a description of the fees and amounts due to FSIC III Advisor, capital contributions



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by FSIC III Advisor and GDFM, potential conflicts of interest, our exemptive relief order from the SEC, our expense reimbursement arrangement with FS Investments and FS Benefit Trusts
purchase of our common stock.



|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, 2016, 70.4% of our portfolio
investments (based on fair value) paid variable interest rates, 24.5% paid fixed interest rates, 5.1% were non-income producing equity/other investments and the remaining 0.0% 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, and may result in a
substantial increase in our net investment income and to the amount of incentive fees payable to FSIC III Advisor with respect to our increased pre-incentive fee net investment income.

Pursuant to the terms of the TRS between Center City Funding and Citibank, Center City Funding pays fees to Citibank at a floating rate
equal to one-month LIBOR plus 1.55% per annum on the utilized notional amount of the loans subject to the TRS in exchange for the right to receive the economic benefit of a pool of loans having a maximum
notional amount of $500,000. Pursuant to the terms of the BNP facility, Deutsche Bank credit facility, JPM credit facility, Goldman facility, the Capital One credit facility and secured borrowing arrangement, borrowings are at a floating rate based
on LIBOR. To the extent that any present or future credit facilities 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, 2016 (dollar amounts are presented in thousands):



|                                     |  |                                          |         |  |                                        |   |         |                                          |  |   |                                        |  |  |  |      |  
|------------------------------------ |  | ---------------------------------------- | ------- |  | -------------------------------------- | - | ------- | ---------------------------------------- |  | - | -------------------------------------- |  |  |  | ---- | -
|Basis Point Change in Interest Rates |  | Increase (Decrease)in Interest Income(1) |         |  | Increase (Decrease)in Interest Expense |   |         | Increase (Decrease)in Net InterestIncome |  |   | PercentageChange in NetInterest Income | 
|Down 100 basis points                |  | $                                        | 1,229   |  |                                        | $ | (11,849 | )                                        |  | $ | 13,078                                 |  |  |  | 4.6  | %
|No change                            |  |                                          |        |  |                                        |   |        |                                          |  |   |                                       |  |  |  |     |  
|Up 100 basis points                  |  |                                          | 22,871  |  |                                        |   | 11,849  |                                          |  |   | 11,022                                 |  |  |  | 3.9  | %
|Up 300 basis points                  |  |                                          | 69,189  |  |                                        |   | 35,547  |                                          |  |   | 33,642                                 |  |  |  | 11.9 | %
|Up 500 basis points                  |  |                                          | 115,518 |  |                                        |   | 59,245  |                                          |  |   | 56,273                                 |  |  |  | 20.0 | %



|(1) | Assumes no defaults or prepayments by portfolio companies over the next twelve months. Includes the net effect of the change in interest rates on the unrealized
appreciation (depreciation) on the TRS. Pursuant to the TRS, Center City Funding receives from Citibank all interest payable in respect of the loans included in the TRS and pays to Citibank interest at a rate equal to
one-month LIBOR plus 1.55% per annum on the utilized notional amount of the loans subject to the TRS. As of December 31, 2016, 100% of the loans underlying the TRS (based on fair value) paid variable
interest rates.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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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, 2016, 2015 and 2014, 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                                       |  |      | 101 | 
|                                                                                                       | 
|Report of Independent Registered Public Accounting Firm                                                |  |      | 102 | 
|                                                                                                       | 
|Report of Independent Registered Public Accounting Firm                                                |  |      | 103 | 
|                                                                                                       | 
|Consolidated Balance Sheets as of December 31, 2016 and 2015                                           |  |      | 104 | 
|                                                                                                       | 
|Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and
2014             |  |      | 105 | 
|                                                                                                       | 
|Consolidated Statements of Changes in Net Assets for the years ended December 
31, 2016, 2015 and 2014 |  |      | 106 | 
|                                                                                                       | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and
2014             |  |      | 107 | 
|                                                                                                       | 
|Consolidated Schedules of Investments as of December 31, 2016 and 2015                                 |  |      | 108 | 
|                                                                                                       | 
|Notes to Consolidated Financial Statements                                                             |  |      | 126 | 



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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, 2016, 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, 2016 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 III

Philadelphia, Pennsylvania

We have audited FS Investment Corporation IIIs internal control over financial reporting as of December 31, 2016, 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 III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 III maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, 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 of FS Investment Corporation III, including the
consolidated schedules of investments as of December 31, 2016 and 2015, 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, 2016 and our
report dated March 10, 2017 expressed an unqualified opinion.

/s/ RSM US LLP

Blue Bell, Pennsylvania

March 10, 2017



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

FS Investment Corporation III

Philadelphia, Pennsylvania

We have audited the accompanying consolidated balance sheets, including the consolidated schedules of investments, of FS Investment
Corporation III (the Company), as of December 31, 2016 and 2015, 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, 2016.
These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities
owned as of December 31, 2016 and 2015 by correspondence with the 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 III as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, 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 IIIs internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 10, 2017 expressed an unqualified opinion on the effectiveness of FS Investment Corporation IIIs internal control over
financial reporting.

/s/ RSM US LLP

Blue Bell, Pennsylvania

March 10, 2017



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FS Investment Corporation III

Consolidated Balance Sheets

(in thousands, except share and per share amounts)







|                                                                                                                                       |  |              |           |   |      |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | - | ---- | - | --------- | -
|                                                                                                                                       |  | December 31, |          
|                                                                                                                                       |  | 2016         |           |   | 2015 |  
|Assets                                                                                                                                 |  |              |           |   |      |   |           |  
|Investments, at fair value                                                                                                             |  |              |           |   |      |   |           |  
|Non-controlled/unaffiliated investments (amortized cost$3,145,895 and $2,934,525,
respectively)                                       |  | $            | 3,134,721 |   |      | $ | 2,744,630 |  
|Non-controlled/affiliated investments (amortized cost$103,246 and $0,
respectively)                                                   |  |              | 108,589   |   |      |   |          |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Total investments, at fair value (amortized cost$3,249,141 and $2,934,525, respectively)                                              |  |              | 3,243,310 |   |      |   | 2,744,630 |  
|Cash                                                                                                                                   |  |              | 249,862   |   |      |   | 142,393   |  
|Due from counterparty                                                                                                                  |  |              | 118,000   |   |      |   | 118,000   |  
|Receivable for investments sold and repaid                                                                                             |  |              | 5,228     |   |      |   | 3,696     |  
|Interest receivable                                                                                                                    |  |              | 29,501    |   |      |   | 22,451    |  
|Receivable for common stock purchased                                                                                                  |  |              |          |   |      |   | 20,189    |  
|Deferred financing costs                                                                                                               |  |              | 2,641     |   |      |   | 3,591     |  
|Deferred offering costs                                                                                                                |  |              | 977       |   |      |   |          |  
|Receivable due on total return swap(1)                                                                                                 |  |              | 1,817     |   |      |   | 1,830     |  
|Prepaid expenses and other assets                                                                                                      |  |              |          |   |      |   | 173       |  
|Unrealized appreciation on total return
swap(1)                                                                                        |  |              | 11,403    |   |      |   |          |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Total assets                                                                                                                           |  | $            | 3,662,739 |   |      | $ | 3,056,953 |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Liabilities                                                                                                                            |  |              |           |   |      |   |           |  
|Unrealized depreciation on total return
swap(1)                                                                                        |  | $            |          |   |      | $ | 25,927    |  
|Payable for investments purchased                                                                                                      |  |              | 4,850     |   |      |   | 7,546     |  
|Repurchase agreement payable(net of deferred
financing costs of $1,009 and $1,408, respectively)(2)                                    |  |              | 298,991   |   |      |   | 287,792   |  
|Credit facilities payable (net of deferred financing costs of $340 and $125, respectively)                                             |  |              | 977,360   |   |      |   | 800,330   |  
|Secured borrowing, at fair value (proceeds of $13,801 and $0, respectively)(3)                                                         |  |              | 14,040    |   |      |   |          |  
|Stockholder distributions payable                                                                                                      |  |              |          |   |      |   | 88        |  
|Management fees payable                                                                                                                |  |              | 17,823    |   |      |   | 14,011    |  
|Subordinated income incentive fees
payable(4)                                                                                          |  |              | 12,323    |   |      |   | 11,825    |  
|Expense recoupment payable to
sponsor(5)                                                                                               |  |              |          |   |      |   | 218       |  
|Administrative services expense payable                                                                                                |  |              | 632       |   |      |   | 755       |  
|Interest payable                                                                                                                       |  |              | 8,586     |   |      |   | 5,753     |  
|Directors fees payable                                                                                                                |  |              | 243       |   |      |   | 207       |  
|Other accrued expenses and liabilities                                                                                                 |  |              | 3,951     |   |      |   | 7,459     |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Total liabilities                                                                                                                      |  |              | 1,338,799 |   |      |   | 1,161,911 |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Commitments and contingencies(6)                                                                                                       |  |              |          |   |      |   |          |  
|                                                                                                                                       |  |             
|Stockholders equity                                                                                                                   |  |              |           |   |      |   |           |  
|Preferred stock, $0.001 par value, 50,000,000 shares authorized, none issued and outstanding                                           |  |              |          |   |      |   |          |  
|Common stock, $0.001 par value, 550,000,000 shares authorized, 272,354,014 and 241,270,590 shares issued and outstanding,
respectively |  |              | 272       |   |      |   | 241       |  
|Capital in excess of par value                                                                                                         |  |              | 2,376,143 |   |      |   | 2,128,529 |  
|Accumulated net realized losses on investments and total return swap(7)                                                                |  |              | (61,526   | ) |      |   | (24,135   | )
|Accumulated undistributed (distributions in excess of) net investment income(7)                                                        |  |              | 3,718     |   |      |   | 6,229     |  
|Net unrealized appreciation (depreciation) on investments, total return swap and secured borrowing                                     |  |              | 5,333     |   |      |   | (215,822  | )
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Total stockholders equity                                                                                                             |  |              | 2,323,940 |   |      |   | 1,895,042 |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Total liabilities and stockholders equity                                                                                             |  | $            | 3,662,739 |   |      | $ | 3,056,953 |  
|                                                                                                                                       |  |              |           |   |      |   |           |  
|Net asset value per share of common stock at year end                                                                                  |  | $            | 8.53      |   |      | $ | 7.85      |  



|(1) | See Note 8 for a discussion of the Companys total return swap agreement.
|--- | -------------------------------------------------------------------------



|(2) | See Note 8 for a discussion of the Companys repurchase transaction.
|--- | --------------------------------------------------------------------



|(3) | See Note 8 for a discussion of the Companys secured borrowing.
|--- | ---------------------------------------------------------------



|(4) | See Note 2 and Note 4 for a discussion of the methodology employed by the Company in calculating the subordinated income incentive fees.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------



|(5) | 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | See Note 9 for a discussion of the Companys commitments and contingencies.
|--- | ---------------------------------------------------------------------------



|(7) | See Note 5 for a discussion of the sources of distributions paid by the Company.
|--- | --------------------------------------------------------------------------------

See notes to consolidated financial statements.



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FS Investment Corporation III

Consolidated Statements of Operations

(in thousands, except share and per share amounts)







|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|------------------------------------------------------------------------------------ |  | ----------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ---------- | -
|                                                                                     |  | Year Ended December 31, |            
|                                                                                     |  | 2016                    |             |   | 2015 |   |             | 2014 | 
|Investment income                                                                    |  |                         |             |   |      |   |             |      |  |   |            |  
|From non-controlled/unaffiliated investments:                                        |  |                         |             |   |      |   |             |      |  |   |            |  
|Interest income                                                                      |  | $                       | 295,811     |   |      | $ | 160,967     |      |  | $ | 17,639     |  
|Fee income                                                                           |  |                         | 30,888      |   |      |   | 34,227      |      |  |   | 7,416      |  
|Dividend income                                                                      |  |                         |            |   |      |   | 55          |      |  |   |           |  
|From non-controlled/affiliated investments:                                          |  |                         |             |   |      |   |             |      |  |   |            |  
|Interest income                                                                      |  |                         | 1,929       |   |      |   |            |      |  |   |           |  
|Fee income                                                                           |  |                         | 393         |   |      |   |            |      |  |   |           |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Total investment income                                                              |  |                         | 329,021     |   |      |   | 195,249     |      |  |   | 25,055     |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Operating expenses                                                                   |  |                         |             |   |      |   |             |      |  |   |            |  
|Management fees                                                                      |  |                         | 67,573      |   |      |   | 39,493      |      |  |   | 6,323      |  
|Subordinated income incentive fees(1)                                                |  |                         | 39,754      |   |      |   | 20,222      |      |  |   |           |  
|Administrative services expenses                                                     |  |                         | 2,922       |   |      |   | 2,045       |      |  |   | 435        |  
|Stock transfer agent fees                                                            |  |                         | 1,613       |   |      |   | 1,532       |      |  |   | 522        |  
|Accounting and administrative fees                                                   |  |                         | 1,019       |   |      |   | 691         |      |  |   | 136        |  
|Organization costs                                                                   |  |                         |            |   |      |   |            |      |  |   | 64         |  
|Interest expense                                                                     |  |                         | 39,584      |   |      |   | 13,746      |      |  |   | 371        |  
|Directors fees                                                                      |  |                         | 1,010       |   |      |   | 822         |      |  |   | 305        |  
|Offering costs                                                                       |  |                         | 1,273       |   |      |   |            |      |  |   |           |  
|Other general and administrative expenses                                            |  |                         | 4,297       |   |      |   | 2,767       |      |  |   | 1,374      |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Operating expenses                                                                   |  |                         | 159,045     |   |      |   | 81,318      |      |  |   | 9,530      |  
|Less: Expense reimbursement from
sponsor(2)                                          |  |                         |            |   |      |   |            |      |  |   | (3,469     | )
|Add: Expense recoupment to sponsor(2)                                                |  |                         |            |   |      |   | 3,469       |      |  |   |           |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Total operating expenses                                                             |  |                         | 159,045     |   |      |   | 84,787      |      |  |   | 6,061      |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Net investment income before taxes                                                   |  |                         | 169,976     |   |      |   | 110,462     |      |  |   | 18,994     |  
|Excise taxes                                                                         |  |                         | 281         |   |      |   | 95          |      |  |   |           |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Net investment income                                                                |  |                         | 169,695     |   |      |   | 110,367     |      |  |   | 18,994     |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Realized and unrealized gain/loss                                                    |  |                         |             |   |      |   |             |      |  |   |            |  
|Net realized gain (loss) on investments:                                             |  |                         |             |   |      |   |             |      |  |   |            |  
|Non-controlled/unaffiliated investments                                              |  |                         | (50,870     | ) |      |   | (24,122     | )    |  |   | 170        |  
|Non-controlled/affiliated investments                                                |  |                         | 3,721       |   |      |   |            |      |  |   |           |  
|Net realized gain (loss) on total return
swap(3)                                     |  |                         | 15,785      |   |      |   | 14,561      |      |  |   | 1,944      |  
|Net change in unrealized appreciation (depreciation) on investments:                 |  |                         |             |   |      |   |             |      |  |   |            |  
|Non-controlled/unaffiliated investments                                              |  |                         | 178,721     |   |      |   | (167,011    | )    |  |   | (22,884    | )
|Non-controlled/affiliated investments                                                |  |                         | 5,343       |   |      |   |            |      |  |   |           |  
|Net change in unrealized appreciation (depreciation) on total return swap(3)         |  |                         | 37,330      |   |      |   | (20,559     | )    |  |   | (5,368     | )
|Net change in unrealized appreciation (depreciation) on secured borrowing(4)         |  |                         | (239        | ) |      |   |            |      |  |   |           |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Total net realized and unrealized gain (loss) on investments                         |  |                         | 189,791     |   |      |   | (197,131    | )    |  |   | (26,138    | )
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Net increase (decrease) in net assets resulting from operations                      |  | $                       | 359,486     |   |      | $ | (86,764     | )    |  | $ | (7,144     | )
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Per share informationbasic and diluted                                              |  |                         |             |   |      |   |             |      |  |   |            |  
|Net increase (decrease) in net assets resulting from operations (Earnings per share) |  | $                       | 1.37        |   |      | $ | (0.51       | )    |  | $ | (0.23      | )
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  
|Weighted average shares outstanding                                                  |  |                         | 261,901,989 |   |      |   | 170,395,623 |      |  |   | 31,450,610 |  
|                                                                                     |  |                         |             |   |      |   |             |      |  |   |            |  



|(1) | See Note 2 and Note 4 for a discussion of the methodology employed by the Company in calculating the subordinated income incentive fees.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------



|(2) | See Note 4 for a discussion of expense reimbursements paid to the Company by its investment adviser and affiliates and recoupment of such amounts paid by the Company to
its investment adviser and affiliates.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | See Note 8 for a discussion of the Companys total return swap agreement.
|--- | -------------------------------------------------------------------------



|(4) | See Note 8 for a discussion of the Companys secured borrowing.
|--- | ---------------------------------------------------------------

See notes to consolidated financial statements.



105



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FS Investment Corporation III

Consolidated Statements of Changes in Net Assets

(in thousands)







|                                                                                |  |                         |           |   |      |   |           |      |  |   |         |  
|------------------------------------------------------------------------------- |  | ----------------------- | --------- | - | ---- | - | --------- | ---- |  | - | ------- | -
|                                                                                |  | Year Ended December 31, |          
|                                                                                |  | 2016                    |           |   | 2015 |   |           | 2014 | 
|Operations                                                                      |  |                         |           |   |      |   |           |      |  |   |         |  
|Net investment income                                                           |  | $                       | 169,695   |   |      | $ | 110,367   |      |  | $ | 18,994  |  
|Net realized gain (loss) on investments and total return swap(1)                |  |                         | (31,364   | ) |      |   | (9,561    | )    |  |   | 2,114   |  
|Net change in unrealized appreciation (depreciation) on investments             |  |                         | 184,064   |   |      |   | (167,011  | )    |  |   | (22,884 | )
|Net change in unrealized appreciation (depreciation) on total return
swap(1)    |  |                         | 37,330    |   |      |   | (20,559   | )    |  |   | (5,368  | )
|Net change in unrealized appreciation (depreciation) on secured
borrowing(2)    |  |                         | (239      | ) |      |   |          |      |  |   |        |  
|                                                                                |  |                         |           |   |      |   |           |      |  |   |         |  
|Net increase (decrease) in net assets resulting from operations                 |  |                         | 359,486   |   |      |   | (86,764   | )    |  |   | (7,144  | )
|                                                                                |  |                         |           |   |      |   |           |      |  |   |         |  
|Stockholder distributions(3)                                                    |  |                         |           |   |      |   |           |      |  |   |         |  
|Distributions from net investment income                                        |  |                         | (183,009  | ) |      |   | (118,228  | )    |  |   | (21,439 | )
|Distributions from net realized gain on investments                             |  |                         |          |   |      |   |          |      |  |   | (87     | )
|                                                                                |  |                         |           |   |      |   |           |      |  |   |         |  
|Net decrease in net assets resulting from stockholder distributions             |  |                         | (183,009  | ) |      |   | (118,228  | )    |  |   | (21,526 | )
|                                                                                |  |                         |           |   |      |   |           |      |  |   |         |  
|Capital share transactions(4)                                                   |  |                         |           |   |      |   |           |      |  |   |         |  
|Issuance of common stock                                                        |  |                         | 193,812   |   |      |   | 1,206,250 |      |  |   | 866,057 |  
|Reinvestment of stockholder distributions                                       |  |                         | 96,669    |   |      |   | 63,285    |      |  |   | 11,313  |  
|Repurchases of common stock                                                     |  |                         | (38,060   | ) |      |   | (5,878    | )    |  |   | (36     | )
|Offering costs                                                                  |  |                         |          |   |      |   | (6,200    | )    |  |   | (4,479  | )
|Payments to investment adviser for organization and offering costs(5)           |  |                         |          |   |      |   |          |      |  |   | (3,801  | )
|Capital contributions of investment adviser                                     |  |                         |          |   |      |   |          |      |  |   | 1,993   |  
|                                                                                |  |                         |           |   |      |   |           |      |  |   |         |  
|Net increase in net assets resulting from capital share transactions            |  |                         | 252,421   |   |      |   | 1,257,457 |      |  |   | 871,047 |  
|                                                                                |  |                         |           |   |      |   |           |      |  |   |         |  
|Total increase in net assets                                                    |  |                         | 428,898   |   |      |   | 1,052,465 |      |  |   | 842,377 |  
|Net assets at beginning of year                                                 |  |                         | 1,895,042 |   |      |   | 842,577   |      |  |   | 200     |  
|                                                                                |  |                         |           |   |      |   |           |      |  |   |         |  
|Net assets at end of year                                                       |  | $                       | 2,323,940 |   |      | $ | 1,895,042 |      |  | $ | 842,577 |  
|                                                                                |  |                         |           |   |      |   |           |      |  |   |         |  
|Accumulated undistributed (distributions in excess of) net investment income(3) |  | $                       | 3,718     |   |      | $ | 6,229     |      |  | $ | (599)   |  
|                                                                                |  |                         |           |   |      |   |           |      |  |   |         |  



|(1) | See Note 8 for a discussion of the Companys total return swap agreement.
|--- | -------------------------------------------------------------------------



|(2) | See Note 8 for a discussion of the Companys secured borrowing.
|--- | ---------------------------------------------------------------



|(3) | See Note 5 for a discussion of the sources of distributions paid by the Company.
|--- | --------------------------------------------------------------------------------



|(4) | See Note 3 for a discussion of the Companys capital share transactions.
|--- | ------------------------------------------------------------------------



|(5) | See Note 4 for a discussion of reimbursements paid by the Company to its investment adviser and affiliates.
|--- | -----------------------------------------------------------------------------------------------------------

See notes to consolidated financial statements.



106



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FS Investment Corporation III

Consolidated Statements of Cash Flows

(in thousands)







|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | -------- | -
|                                                                                                                                   |  | Year Ended December 31, |           
|                                                                                                                                   |  | 2016                    |            |   | 2015 |   |            | 2014 | 
|Cash flows from operating activities                                                                                               |  |                         |            |   |      |   |            |      |  |   |          |  
|Net increase (decrease) in net assets resulting from operations                                                                    |  | $                       | 359,486    |   |      | $ | (86,764    | )    |  | $ | (7,144   | )
|Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating
activities: |  |                         |            |   |      |   |            |      |  |   |          |  
|Purchases of investments                                                                                                           |  |                         | (1,446,810 | ) |      |   | (2,647,079 | )    |  |   | (797,312 | )
|Paid-in-kind interest                                                                                                              |  |                         | (17,562    | ) |      |   | (2,977     | )    |  |   | (10      | )
|Proceeds from sales and repayments of investments                                                                                  |  |                         | 1,114,038  |   |      |   | 419,262    |      |  |   | 79,229   |  
|Net realized (gain) loss on investments                                                                                            |  |                         | 47,149     |   |      |   | 24,122     |      |  |   | (170     | )
|Net change in unrealized (appreciation) depreciation on investments                                                                |  |                         | (184,064   | ) |      |   | 167,011    |      |  |   | 22,884   |  
|Net change in unrealized (appreciation) depreciation on total return swap(1)                                                       |  |                         | (37,330    | ) |      |   | 20,559     |      |  |   | 5,368    |  
|Net change in unrealized appreciation (depreciation) on secured borrowing(2)                                                       |  |                         | 239        |   |      |   |           |      |  |   |         |  
|Accretion of discount                                                                                                              |  |                         | (11,431    | ) |      |   | (9,164     | )    |  |   | (426     | )
|Organization costs                                                                                                                 |  |                         |           |   |      |   |           |      |  |   | 64       |  
|Amortization of deferred financing costs                                                                                           |  |                         | 1,569      |   |      |   | 1,152      |      |  |   | 63       |  
|Amortization of deferred offering costs                                                                                            |  |                         | 1,273      |   |      |   |           |      |  |   |         |  
|(Increase) decrease in due from counterparty                                                                                       |  |                         |           |   |      |   | (32,500    | )    |  |   | (85,500  | )
|(Increase) decrease in receivable for investments sold and repaid                                                                  |  |                         | (1,532     | ) |      |   | (3,683     | )    |  |   | (13      | )
|(Increase) decrease in expense reimbursement due from
sponsor(3)                                                                   |  |                         |           |   |      |   | 598        |      |  |   | (598     | )
|(Increase) decrease in interest receivable                                                                                         |  |                         | (7,050     | ) |      |   | (10,360    | )    |  |   | (12,091  | )
|(Increase) decrease in receivable due on total return
swap(1)                                                                      |  |                         | 13         |   |      |   | (420       | )    |  |   | (1,410   | )
|(Increase) decrease in prepaid expenses and other assets                                                                           |  |                         | 173        |   |      |   | (173       | )    |  |   |         |  
|Increase (decrease) in payable for investments purchased                                                                           |  |                         | (2,696     | ) |      |   | (49,977    | )    |  |   | 57,523   |  
|Increase (decrease) in management fees payable                                                                                     |  |                         | 3,812      |   |      |   | 10,247     |      |  |   | 3,764    |  
|Increase (decrease) in subordinated income incentive fees payable                                                                  |  |                         | 498        |   |      |   | 11,825     |      |  |   |         |  
|Increase (decrease) in expense recoupment payable to
sponsor(3)                                                                    |  |                         | (218       | ) |      |   | 218        |      |  |   |         |  
|Increase (decrease) in administrative services expense payable                                                                     |  |                         | (123       | ) |      |   | 552        |      |  |   | 203      |  
|Increase (decrease) in interest payable                                                                                            |  |                         | 2,833      |   |      |   | 5,504      |      |  |   | 249      |  
|Increase (decrease) in directors fees payable                                                                                     |  |                         | 36         |   |      |   | 53         |      |  |   | 154      |  
|Increase (decrease) in other accrued expenses and liabilities                                                                      |  |                         | (3,508     | ) |      |   | 6,221      |      |  |   | 1,238    |  
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |          |  
|Net cash used in operating activities                                                                                              |  |                         | (181,205   | ) |      |   | (2,175,773 | )    |  |   | (733,935 | )
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |          |  
|Cash flows from financing activities                                                                                               |  |                         |            |   |      |   |            |      |  |   |          |  
|Issuance of common stock                                                                                                           |  |                         | 214,001    |   |      |   | 1,208,200  |      |  |   | 843,918  |  
|Reinvestment of stockholder distributions                                                                                          |  |                         | 96,669     |   |      |   | 63,285     |      |  |   | 11,313   |  
|Repurchases of common stock                                                                                                        |  |                         | (38,060    | ) |      |   | (5,878     | )    |  |   | (36      | )
|Offering costs incurred                                                                                                            |  |                         | (2,250     | ) |      |   | (6,200     | )    |  |   | (2,550   | )
|Payments to investment adviser for organization and offering costs(4)                                                              |  |                         |           |   |      |   |           |      |  |   | (3,801   | )
|Stockholder distributions                                                                                                          |  |                         | (183,097   | ) |      |   | (118,230   | )    |  |   | (21,436  | )
|Borrowings under credit facilities(5)                                                                                              |  |                         | 245,300    |   |      |   | 688,355    |      |  |   | 112,100  |  
|Borrowings under repurchase
agreement(6)                                                                                           |  |                         | 10,800     |   |      |   | 289,200    |      |  |   |         |  
|Proceeds from secured borrowing(2)                                                                                                 |  |                         | 13,789     |   |      |   |           |      |  |   |         |  
|Repayments of credit facilities(5)                                                                                                 |  |                         | (68,055    | ) |      |   |           |      |  |   |         |  
|Deferred financing costs paid                                                                                                      |  |                         | (423       | ) |      |   | (5,046     | )    |  |   | (1,293   | )
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |          |  
|Net cash provided by financing activities                                                                                          |  |                         | 288,674    |   |      |   | 2,113,686  |      |  |   | 938,215  |  
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |          |  
|Total increase (decrease) in cash                                                                                                  |  |                         | 107,469    |   |      |   | (62,087    | )    |  |   | 204,280  |  
|Cash at beginning of year                                                                                                          |  |                         | 142,393    |   |      |   | 204,480    |      |  |   | 200      |  
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |          |  
|Cash at end of year                                                                                                                |  | $                       | 249,862    |   |      | $ | 142,393    |      |  | $ | 204,480  |  
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |          |  
|Supplemental disclosure of non-cash financing activities                                                                           |  |                         |            |   |      |   |            |      |  |   |          |  
|Organization and offering costs financed by capital contributions of investment adviser                                            |  |                         |           |   |      |   |           |      |  | $ | 1,993    |  
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |          |  
|Local and excise taxes paid                                                                                                        |  | $                       | 338        |   |      | $ | 59         |      |  |   |         |  
|                                                                                                                                   |  |                         |            |   |      |   |            |      |  |   |          |  



|(1) | See Note 8 for a discussion of the Companys total return swap agreement.
|--- | -------------------------------------------------------------------------



|(2) | See Note 8 for a discussion of the Companys secured borrowing. During the year ended December 31, 2016, the Company paid $195 in interest expense on the
secured borrowing.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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) | See Note 4 for a discussion of reimbursements payable by the Company to its investment adviser and affiliates.
|--- | --------------------------------------------------------------------------------------------------------------



|(5) | See Note 8 for a discussion of the Companys credit facilities. During the years ended December 31, 2016, 2015 and 2014, the Company paid $25,792, $7,090 and
$59, respectively, in interest expense on the credit facilities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | See Note 8 for a discussion of the Companys repurchase transaction. During the years ended December 31, 2016 and 2015, the Company paid $9,195 and $0,
respectively, in interest expense pursuant to the repurchase agreement.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See notes to consolidated financial
statements.



107



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##### Table of Contents

FS Investment Corporation III

Consolidated Schedule of Investments

As of December 31, 2016

(in thousands, except share amounts)







|                                          |  |              |  |                                    |  |                                |  |       |  |          |  |                    |         |  |               |   |         |              |  |   |         | 
|----------------------------------------- |  | ------------ |  | ---------------------------------- |  | ------------------------------ |  | ----- |  | -------- |  | ------------------ | ------- |  | ------------- | - | ------- | ------------ |  | - | ------- | 
|Portfolio
Company(a)                      |  | Footnotes    |  | Industry                           |  | Rate(b)                        |  | Floor |  | Maturity |  | PrincipalAmount(c) |         |  | AmortizedCost |   |         | FairValue(d) | 
|Senior Secured LoansFirst Lien91.9%     |  |              |  |                                    |  |                                |  |       |  |          |  |                    |         |  |               |   |         |              |  |   |         | 
|5 Arch Income Fund 2, LLC                 |  | (j)(p)       |  | Diversified Financials             |  | 10.5%                          |  |       |  | 11/18/21 |  | $                  | 68,464  |  |               | $ | 68,639  |              |  | $ | 68,464  | 
|5 Arch Income Fund 2, LLC                 |  | (j)(l)(p)    |  | Diversified Financials             |  | 10.5%                          |  |       |  | 11/18/21 |  |                    | 64,536  |  |               |   | 64,536  |              |  |   | 64,536  | 
|Aeneas Buyer Corp.                        |  |              |  | Health Care Equipment & Services   |  | L+500                          |  | 1.0%  |  | 12/18/21 |  |                    | 916     |  |               |   | 916     |              |  |   | 916     | 
|Aeneas Buyer Corp.                        |  | (f)(g)(h)(i) |  | Health Care Equipment & Services   |  | L+815                          |  | 1.0%  |  | 12/18/21 |  |                    | 156,195 |  |               |   | 156,195 |              |  |   | 158,538 | 
|AG Group Merger Sub, Inc.                 |  | (g)          |  | Commercial & Professional Services |  | L+750                          |  | 1.0%  |  | 12/29/23 |  |                    | 12,500  |  |               |   | 12,500  |              |  |   | 12,500  | 
|AG Group Merger Sub, Inc.                 |  | (l)          |  | Commercial & Professional Services |  | L+750                          |  | 1.0%  |  | 12/29/23 |  |                    | 5,500   |  |               |   | 5,500   |              |  |   | 5,500   | 
|All Systems Holding LLC                   |  | (f)(g)(i)    |  | Commercial & Professional Services |  | L+770                          |  | 1.0%  |  | 10/31/23 |  |                    | 45,000  |  |               |   | 45,000  |              |  |   | 45,378  | 
|Altus Power America, Inc.                 |  |              |  | Energy                             |  | L+750                          |  | 1.5%  |  | 9/30/21  |  |                    | 2,665   |  |               |   | 2,665   |              |  |   | 2,715   | 
|Altus Power America, Inc.                 |  | (l)          |  | Energy                             |  | L+750                          |  | 1.5%  |  | 9/30/21  |  |                    | 1,085   |  |               |   | 1,085   |              |  |   | 1,106   | 
|American Bath Group, LLC                  |  | (h)          |  | Capital Goods                      |  | L+575                          |  | 1.0%  |  | 9/30/23  |  |                    | 3,854   |  |               |   | 3,703   |              |  |   | 3,868   | 
|ASG Technologies Group, Inc.              |  | (g)          |  | Software & Services                |  | L+786, 1.2% PIK (1.2% Max PIK) |  | 1.0%  |  | 4/30/20  |  |                    | 18,150  |  |               |   | 18,104  |              |  |   | 18,422  | 
|Aspect Software, Inc.                     |  | (u)          |  | Software & Services                |  | L+1000                         |  | 1.0%  |  | 5/25/18  |  |                    | 3,200   |  |               |   | 3,200   |              |  |   | 3,200   | 
|Aspect Software, Inc.                     |  | (l)(u)       |  | Software & Services                |  | L+1000                         |  | 1.0%  |  | 5/25/18  |  |                    | 110     |  |               |   | 110     |              |  |   | 110     | 
|Aspect Software, Inc.                     |  | (u)          |  | Software & Services                |  | L+1000                         |  | 1.0%  |  | 5/25/20  |  |                    | 10,156  |  |               |   | 10,156  |              |  |   | 10,270  | 
|Atlas Aerospace LLC                       |  | (f)(g)       |  | Capital Goods                      |  | L+804                          |  | 1.0%  |  | 5/8/19   |  |                    | 28,000  |  |               |   | 28,000  |              |  |   | 28,420  | 
|ATX Networks Corp.                        |  | (h)(i)(j)    |  | Technology Hardware & Equipment    |  | L+600                          |  | 1.0%  |  | 6/11/21  |  |                    | 9,850   |  |               |   | 9,736   |              |  |   | 9,678   | 
|ATX Networks Corp.                        |  | (g)(h)(i)(j) |  | Technology Hardware & Equipment    |  | L+600                          |  | 1.0%  |  | 6/11/21  |  |                    | 29,991  |  |               |   | 29,093  |              |  |   | 29,091  | 
|BenefitMall Holdings, Inc.                |  | (g)(h)       |  | Commercial & Professional Services |  | L+725                          |  | 1.0%  |  | 11/24/20 |  |                    | 34,300  |  |               |   | 34,300  |              |  |   | 34,643  | 
|BMC Software Finance, Inc.                |  | (l)          |  | Software & Services                |  | L+400                          |  |       |  | 9/10/18  |  |                    | 10,000  |  |               |   | 10,000  |              |  |   | 9,456   | 
|Cactus Wellhead, LLC                      |  | (f)(i)       |  | Energy                             |  | L+600                          |  | 1.0%  |  | 7/31/20  |  |                    | 11,483  |  |               |   | 10,892  |              |  |   | 10,478  | 
|Caesars Entertainment Operating Co., Inc. |  | (j)(m)       |  | Consumer Services                  |  | L+575                          |  |       |  | 3/1/17   |  |                    | 3,846   |  |               |   | 3,820   |              |  |   | 3,892   | 
|Caesars Entertainment Operating Co., Inc. |  | (j)(m)       |  | Consumer Services                  |  | L+675                          |  |       |  | 3/1/17   |  |                    | 594     |  |               |   | 590     |              |  |   | 610     | 
|CEVA Group Plc                            |  | (j)(l)       |  | Transportation                     |  | L+500                          |  |       |  | 3/19/19  |  |                    | 15,000  |  |               |   | 13,851  |              |  |   | 12,000  | 
|Corner Investment PropCo, LLC             |  | (f)          |  | Consumer Services                  |  | L+975                          |  | 1.3%  |  | 11/2/19  |  |                    | 12,289  |  |               |   | 12,494  |              |  |   | 12,412  | 
|CSafe Acquisition Co., Inc.               |  |              |  | Capital Goods                      |  | L+725                          |  |       |  | 11/1/21  |  |                    | 348     |  |               |   | 348     |              |  |   | 348     | 
|CSafe Acquisition Co., Inc.               |  | (l)          |  | Capital Goods                      |  | L+725                          |  |       |  | 11/1/21  |  |                    | 2,261   |  |               |   | 2,261   |              |  |   | 2,261   | 
|CSafe Acquisition Co., Inc.               |  | (f)(h)       |  | Capital Goods                      |  | L+725                          |  |       |  | 10/31/23 |  |                    | 20,000  |  |               |   | 20,000  |              |  |   | 20,000  | 
|CSafe Acquisition Co., Inc.               |  | (l)          |  | Capital Goods                      |  | L+725                          |  |       |  | 10/31/23 |  |                    | 12,174  |  |               |   | 12,174  |              |  |   | 12,174  | 
|Emerging Markets Communications, LLC      |  | (g)          |  | Telecommunication Services         |  | L+575                          |  | 1.0%  |  | 7/1/21   |  |                    | 16,745  |  |               |   | 16,144  |              |  |   | 16,494  | 
|Empire Today, LLC                         |  | (f)(g)(h)    |  | Retailing                          |  | L+800                          |  | 1.0%  |  | 11/17/22 |  |                    | 45,000  |  |               |   | 45,000  |              |  |   | 45,398  | 



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notes to consolidated financial statements.



108



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##### Table of Contents

FS Investment Corporation III

Consolidated Schedule of Investments (continued)

As of December 31, 2016

(in thousands, except share amounts)







|                                             |  |              |  |                                    |  |                           |  |       |  |          |  |                    |         |  |               |   |         |              |  |   |         | 
|-------------------------------------------- |  | ------------ |  | ---------------------------------- |  | ------------------------- |  | ----- |  | -------- |  | ------------------ | ------- |  | ------------- | - | ------- | ------------ |  | - | ------- | 
|Portfolio
Company(a)                         |  | Footnotes    |  | Industry                           |  | Rate(b)                   |  | Floor |  | Maturity |  | PrincipalAmount(c) |         |  | AmortizedCost |   |         | FairValue(d) | 
|Fairway Group Acquisition Co.                |  | (u)          |  | Food & Staples Retailing           |  | L+800                     |  | 1.0%  |  | 1/3/20   |  | $                  | 5,631   |  |               | $ | 5,631   |              |  | $ | 5,687   | 
|Fairway Group Acquisition Co.                |  | (u)          |  | Food & Staples Retailing           |  | 10.0% PIK (10.0% Max PIK) |  |       |  | 1/3/20   |  |                    | 3,633   |  |               |   | 3,633   |              |  |   | 3,306   | 
|Fox Head, Inc.                               |  | (f)          |  | Consumer Durables & Apparel        |  | L+850                     |  | 1.0%  |  | 12/19/20 |  |                    | 1,697   |  |               |   | 1,697   |              |  |   | 1,673   | 
|Greystone Equity Member Corp.                |  | (j)          |  | Diversified Financials             |  | L+1050                    |  |       |  | 3/31/21  |  |                    | 46,307  |  |               |   | 46,492  |              |  |   | 46,712  | 
|Greystone Equity Member Corp.                |  | (j)          |  | Diversified Financials             |  | L+1100                    |  |       |  | 3/31/21  |  |                    | 50,000  |  |               |   | 50,000  |              |  |   | 51,125  | 
|Greystone Equity Member Corp.                |  | (j)(l)       |  | Diversified Financials             |  | L+1100                    |  |       |  | 3/31/21  |  |                    | 9,693   |  |               |   | 9,693   |              |  |   | 9,778   | 
|Gulf Finance, LLC                            |  | (h)          |  | Energy                             |  | L+525                     |  | 1.0%  |  | 8/25/23  |  |                    | 4,988   |  |               |   | 4,844   |              |  |   | 5,025   | 
|H.M. Dunn Co., Inc.                          |  | (f)          |  | Capital Goods                      |  | L+955                     |  | 1.0%  |  | 3/26/21  |  |                    | 9,643   |  |               |   | 9,643   |              |  |   | 9,751   | 
|H.M. Dunn Co., Inc.                          |  | (l)          |  | Capital Goods                      |  | L+775                     |  | 1.0%  |  | 3/26/21  |  |                    | 3,214   |  |               |   | 3,214   |              |  |   | 3,250   | 
|Hybrid Promotions, LLC                       |  | (f)          |  | Consumer Durables & Apparel        |  | L+850                     |  | 1.0%  |  | 12/19/20 |  |                    | 6,223   |  |               |   | 6,223   |              |  |   | 6,133   | 
|Industrial Group Intermediate Holdings, LLC  |  | (g)          |  | Materials                          |  | L+800                     |  | 1.3%  |  | 5/31/20  |  |                    | 10,379  |  |               |   | 10,379  |              |  |   | 10,534  | 
|JMC Acquisition Merger Corp.                 |  | (f)(g)(h)(i) |  | Capital Goods                      |  | L+857                     |  | 1.0%  |  | 11/6/21  |  |                    | 105,736 |  |               |   | 105,736 |              |  |   | 105,736 | 
|JSS Holdings, Inc.                           |  | (h)          |  | Capital Goods                      |  | L+650                     |  | 1.0%  |  | 8/31/21  |  |                    | 15,962  |  |               |   | 15,327  |              |  |   | 15,883  | 
|Latham Pool Products, Inc.                   |  | (g)(h)       |  | Commercial & Professional Services |  | L+775                     |  | 1.0%  |  | 6/29/21  |  |                    | 45,000  |  |               |   | 45,000  |              |  |   | 45,450  | 
|Murray Energy Corp.                          |  | (i)          |  | Energy                             |  | L+725                     |  | 1.0%  |  | 4/16/20  |  |                    | 10,616  |  |               |   | 10,398  |              |  |   | 10,191  | 
|Nobel Learning Communities, Inc.             |  |              |  | Consumer Services                  |  | L+450                     |  | 1.0%  |  | 4/27/20  |  |                    | 4,193   |  |               |   | 4,193   |              |  |   | 4,193   | 
|Nobel Learning Communities, Inc.             |  | (l)          |  | Consumer Services                  |  | L+450                     |  | 1.0%  |  | 4/27/20  |  |                    | 6,988   |  |               |   | 6,988   |              |  |   | 6,988   | 
|Nobel Learning Communities, Inc.             |  | (f)(g)(h)(i) |  | Consumer Services                  |  | L+841                     |  | 1.0%  |  | 4/27/21  |  |                    | 84,472  |  |               |   | 84,472  |              |  |   | 85,739  | 
|North Haven Cadence Buyer, Inc.              |  | (l)          |  | Consumer Services                  |  | L+500                     |  | 1.0%  |  | 9/2/21   |  |                    | 750     |  |               |   | 750     |              |  |   | 750     | 
|North Haven Cadence Buyer, Inc.              |  | (f)(g)       |  | Consumer Services                  |  | L+813                     |  | 1.0%  |  | 9/2/22   |  |                    | 21,417  |  |               |   | 21,417  |              |  |   | 21,417  | 
|North Haven Cadence Buyer, Inc.              |  | (l)          |  | Consumer Services                  |  | L+750                     |  | 1.0%  |  | 9/2/22   |  |                    | 3,583   |  |               |   | 3,583   |              |  |   | 3,583   | 
|Panda Temple Power, LLC                      |  | (f)          |  | Energy                             |  | L+625                     |  | 1.0%  |  | 3/6/22   |  |                    | 14,738  |  |               |   | 14,515  |              |  |   | 13,116  | 
|PHRC License, LLC                            |  | (f)          |  | Consumer Services                  |  | L+900                     |  | 1.5%  |  | 8/14/20  |  |                    | 14,626  |  |               |   | 14,626  |              |  |   | 14,773  | 
|Polymer Additives, Inc.                      |  | (f)(i)       |  | Materials                          |  | L+888                     |  | 1.0%  |  | 12/20/21 |  |                    | 18,920  |  |               |   | 18,920  |              |  |   | 19,015  | 
|Polymer Additives, Inc.                      |  | (h)          |  | Materials                          |  | L+978                     |  | 1.0%  |  | 12/20/21 |  |                    | 9,706   |  |               |   | 9,706   |              |  |   | 10,094  | 
|Production Resource Group, LLC               |  | (f)(i)       |  | Media                              |  | L+850                     |  | 1.0%  |  | 7/23/19  |  |                    | 52,500  |  |               |   | 52,395  |              |  |   | 51,975  | 
|Production Resource Group, LLC               |  | (g)(h)(i)    |  | Media                              |  | L+850                     |  | 1.0%  |  | 7/23/19  |  |                    | 75,902  |  |               |   | 75,902  |              |  |   | 75,142  | 
|Propulsion Acquisition, LLC                  |  | (h)(i)       |  | Commercial & Professional Services |  | L+600                     |  | 1.0%  |  | 7/13/21  |  |                    | 21,334  |  |               |   | 20,030  |              |  |   | 20,907  | 
|PSKW, LLC                                    |  | (f)(g)(h)(i) |  | Health Care Equipment & Services   |  | L+839                     |  | 1.0%  |  | 11/25/21 |  |                    | 154,000 |  |               |   | 154,000 |              |  |   | 149,834 | 
|Roadrunner Intermediate Acquisition Co., LLC |  | (f)(g)(h)(i) |  | Health Care Equipment & Services   |  | L+800                     |  | 1.0%  |  | 9/22/21  |  |                    | 101,719 |  |               |   | 101,719 |              |  |   | 103,245 | 
|Rogue Wave Software, Inc.                    |  | (f)(g)(h)(i) |  | Software & Services                |  | L+802                     |  | 1.0%  |  | 9/25/21  |  |                    | 123,900 |  |               |   | 123,900 |              |  |   | 123,900 | 



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notes to consolidated financial statements.



109



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##### Table of Contents

FS Investment Corporation III

Consolidated Schedule of Investments (continued)

As of December 31, 2016

(in thousands, except share amounts)







|                                            |  |                 |  |                                    |  |                                 |  |       |  |          |  |                    |         |  |               |   |           |              |  |   |           |  
|------------------------------------------- |  | --------------- |  | ---------------------------------- |  | ------------------------------- |  | ----- |  | -------- |  | ------------------ | ------- |  | ------------- | - | --------- | ------------ |  | - | --------- | -
|Portfolio
Company(a)                        |  | Footnotes       |  | Industry                           |  | Rate(b)                         |  | Floor |  | Maturity |  | PrincipalAmount(c) |         |  | AmortizedCost |   |           | FairValue(d) | 
|Safariland, LLC                             |  | (f)(h)          |  | Capital Goods                      |  | L+769                           |  | 1.0%  |  | 11/18/23 |  | $                  | 42,893  |  |               | $ | 42,893    |              |  | $ | 42,786    |  
|Safariland, LLC                             |  | (l)             |  | Capital Goods                      |  | L+725                           |  | 1.0%  |  | 11/18/23 |  |                    | 11,566  |  |               |   | 11,566    |              |  |   | 11,537    |  
|Sequential Brands Group, Inc.               |  | (f)(g)(h)(i)(j) |  | Consumer Durables & Apparel        |  | L+900                           |  |       |  | 7/1/22   |  |                    | 131,060 |  |               |   | 131,060   |              |  |   | 132,370   |  
|ServiceMaster Co., LLC                      |  | (l)             |  | Commercial & Professional Services |  | L+325                           |  |       |  | 7/1/19   |  |                    | 2,500   |  |               |   | 2,500     |              |  |   | 2,075     |  
|Sorenson Communications, Inc.               |  | (f)             |  | Telecommunication Services         |  | L+575                           |  | 2.3%  |  | 4/30/20  |  |                    | 4,899   |  |               |   | 4,884     |              |  |   | 4,863     |  
|Sports Authority, Inc.                      |  | (f)(m)(n)       |  | Retailing                          |  | L+600                           |  | 1.5%  |  | 11/16/17 |  |                    | 3,263   |  |               |   | 2,645     |              |  |   | 665       |  
|Strike, LLC                                 |  | (l)             |  | Energy                             |  | L+800                           |  | 1.0%  |  | 5/30/19  |  |                    | 6,667   |  |               |   | 6,568     |              |  |   | 6,567     |  
|Strike, LLC                                 |  | (h)(k)          |  | Energy                             |  | L+800                           |  | 1.0%  |  | 11/30/22 |  |                    | 5,000   |  |               |   | 4,850     |              |  |   | 4,950     |  
|SunGard Availability Services Capital, Inc. |  | (l)             |  | Software & Services                |  | L+450                           |  |       |  | 3/8/18   |  |                    | 7,000   |  |               |   | 5,539     |              |  |   | 6,353     |  
|SunGard Availability Services Capital, Inc. |  | (f)(h)(i)       |  | Software & Services                |  | L+500                           |  | 1.0%  |  | 3/29/19  |  |                    | 24,822  |  |               |   | 23,587    |              |  |   | 24,098    |  
|Sunnova Asset Portfolio 5 Holdings, LLC     |  |                 |  | Energy                             |  | 12.0%, 0.0% PIK (12.0% Max PIK) |  |       |  | 11/14/21 |  |                    | 14,108  |  |               |   | 13,900    |              |  |   | 14,249    |  
|Swift Worldwide Resources US Holdings Corp. |  |                 |  | Energy                             |  | L+1100                          |  | 1.0%  |  | 7/20/21  |  |                    | 17,269  |  |               |   | 17,270    |              |  |   | 17,269    |  
|TierPoint, LLC                              |  | (h)             |  | Software & Services                |  | L+450                           |  | 1.0%  |  | 12/2/21  |  |                    | 3,621   |  |               |   | 3,556     |              |  |   | 3,649     |  
|Transplace Texas, LP                        |  | (f)(g)(h)(i)    |  | Transportation                     |  | L+744                           |  | 1.0%  |  | 9/16/21  |  |                    | 179,976 |  |               |   | 179,976   |              |  |   | 179,976   |  
|Transplace Texas, LP                        |  | (l)             |  | Transportation                     |  | L+700                           |  | 1.0%  |  | 9/16/21  |  |                    | 3,973   |  |               |   | 3,973     |              |  |   | 3,973     |  
|TTM Technologies, Inc.                      |  | (h)(j)          |  | Technology Hardware & Equipment    |  | L+425                           |  | 1.0%  |  | 5/31/21  |  |                    | 1,847   |  |               |   | 1,733     |              |  |   | 1,874     |  
|U.S. Xpress Enterprises, Inc.               |  | (f)             |  | Transportation                     |  | L+1000, 0.0% PIK (1.8% Max PIK) |  | 1.5%  |  | 5/30/19  |  |                    | 10,687  |  |               |   | 10,687    |              |  |   | 10,687    |  
|UTEX Industries, Inc.                       |  | (f)             |  | Energy                             |  | L+400                           |  | 1.0%  |  | 5/21/21  |  |                    | 750     |  |               |   | 747       |              |  |   | 702       |  
|Vertellus Performance Chemicals LLC         |  | (f)(g)          |  | Materials                          |  | L+950                           |  | 1.0%  |  | 1/30/20  |  |                    | 42,000  |  |               |   | 42,000    |              |  |   | 39,451    |  
|Warren Resources, Inc.                      |  | (g)(u)          |  | Energy                             |  | L+900, 1.0% PIK (1.0% Max PIK)  |  | 1.0%  |  | 5/22/20  |  |                    | 17,744  |  |               |   | 17,744    |              |  |   | 17,744    |  
|Warren Resources, Inc.                      |  | (l)(u)          |  | Energy                             |  | L+900, 1.0% PIK (1.0% Max PIK)  |  | 1.0%  |  | 5/22/20  |  |                    | 1,265   |  |               |   | 1,265     |              |  |   | 1,265     |  
|Waste Pro USA, Inc.                         |  | (f)(g)          |  | Commercial & Professional Services |  | L+750                           |  | 1.0%  |  | 10/15/20 |  |                    | 33,372  |  |               |   | 33,372    |              |  |   | 33,997    |  
|Zeta Interactive Holdings Corp.             |  | (g)(h)(i)       |  | Software & Services                |  | L+750                           |  | 1.0%  |  | 7/29/22  |  |                    | 47,608  |  |               |   | 47,735    |              |  |   | 48,083    |  
|Zeta Interactive Holdings Corp.             |  | (g)(h)(t)       |  | Software & Services                |  | L+750                           |  | 1.0%  |  | 7/29/22  |  |                    | 13,929  |  |               |   | 13,801    |              |  |   | 14,020    |  
|Zeta Interactive Holdings Corp.             |  | (l)             |  | Software & Services                |  | L+750                           |  | 1.0%  |  | 7/29/22  |  |                    | 8,664   |  |               |   | 8,664     |              |  |   | 8,743     |  
|Zeta Interactive Holdings Corp.             |  | (l)(t)          |  | Software & Services                |  | L+750                           |  | 1.0%  |  | 7/29/22  |  |                    | 2,229   |  |               |   | 2,229     |              |  |   | 2,249     |  
|                                            |  |                 |  |                                    |  |                                 |  |       |  |          |  |                    |         |  |               |   |           |              |  |   |           |  
|Total Senior Secured LoansFirst Lien       |  |                 |  |                                    |  |                                 |  |       |  |          |  |                    |         |  |               |   | 2,310,782 |              |  |   | 2,311,978 |  
|Unfunded Loan Commitments                   |  |                 |  |                                    |  |                                 |  |       |  |          |  |                    |         |  |               |   | (176,049  | )            |  |   | (176,049  | )
|                                            |  |                 |  |                                    |  |                                 |  |       |  |          |  |                    |         |  |               |   |           |              |  |   |           |  
|Net Senior Secured LoansFirst Lien         |  |                 |  |                                    |  |                                 |  |       |  |          |  |                    |         |  |               |   | 2,134,733 |              |  |   | 2,135,929 |  
|                                            |  |                 |  |                                    |  |                                 |  |       |  |          |  |                    |         |  |               |   |           |              |  |   |           |  



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notes to consolidated financial statements.



110



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##### Table of Contents

FS Investment Corporation III

Consolidated Schedule of Investments (continued)

As of December 31, 2016

(in thousands, except share amounts)







|                                       |  |           |        |  |          |  |                                  |         |  |  |                                 |  |  |          |      |                    |  |          |               |   |        |              |  |   |         |  |  |   |         | 
|-------------------------------------- |  | --------- | ------ |  | -------- |  | -------------------------------- | ------- |  |  | ------------------------------- |  |  | -------- | ---- | ------------------ |  | -------- | ------------- | - | ------ | ------------ |  | - | ------- |  |  | - | ------- | 
|Portfolio
Company(a)                   |  | Footnotes |        |  | Industry |  |                                  | Rate(b) |  |  | Floor                           |  |  | Maturity |      | PrincipalAmount(c) |  |          | AmortizedCost |   |        | FairValue(d) | 
|Senior Secured LoansSecond Lien10.1% |  |           |        |  |          |  |                                  |         |  |  |                                 |  |  |          |      |                    |  |          |               |   |        |              |  |   |         |  |  |   |         | 
|Alison US LLC                          |  |           | (g)(j) |  |          |  | Capital Goods                    |         |  |  | L+850                           |  |  |          | 1.0% |                    |  | 8/29/22  |               | $ | 6,389  |              |  | $ | 6,186   |  |  | $ | 6,197   | 
|Arena Energy, LP                       |  |           | (g)    |  |          |  | Energy                           |         |  |  | L+900, 4.0% PIK (4.0% Max PIK)  |  |  |          | 1.0% |                    |  | 1/24/21  |               |   | 23,864 |              |  |   | 23,864  |  |  |   | 23,983  | 
|Ascent ResourcesMarcellus, LLC        |  |           |        |  |          |  | Energy                           |         |  |  | L+750                           |  |  |          | 1.0% |                    |  | 8/4/21   |               |   | 6,667  |              |  |   | 6,583   |  |  |   | 883     | 
|Ascent ResourcesUtica, LLC            |  |           |        |  |          |  | Energy                           |         |  |  | L+950                           |  |  |          | 1.5% |                    |  | 9/30/18  |               |   | 683    |              |  |   | 681     |  |  |   | 689     | 
|ASG Technologies Group, Inc.           |  |           |        |  |          |  | Software & Services              |         |  |  | L+1100, 0.0% PIK (6.0% Max PIK) |  |  |          | 1.0% |                    |  | 6/27/22  |               |   | 5,155  |              |  |   | 3,875   |  |  |   | 5,000   | 
|BBB Industries US Holdings, Inc.       |  |           | (f)(g) |  |          |  | Automobiles & Components         |         |  |  | L+875                           |  |  |          | 1.0% |                    |  | 11/3/22  |               |   | 25,000 |              |  |   | 23,789  |  |  |   | 24,375  | 
|Byrider Finance, LLC                   |  |           |        |  |          |  | Automobiles & Components         |         |  |  | L+1000, 0.5% PIK (0.5% Max PIK) |  |  |          | 1.3% |                    |  | 8/22/20  |               |   | 3,349  |              |  |   | 3,349   |  |  |   | 3,299   | 
|CDS U.S. Intermediate Holdings, Inc.   |  |           | (f)(j) |  |          |  | Media                            |         |  |  | L+825                           |  |  |          | 1.0% |                    |  | 7/10/23  |               |   | 9,000  |              |  |   | 8,889   |  |  |   | 8,837   | 
|Chief Exploration & Development LLC    |  |           |        |  |          |  | Energy                           |         |  |  | L+650                           |  |  |          | 1.3% |                    |  | 5/16/21  |               |   | 991    |              |  |   | 924     |  |  |   | 974     | 
|ColourOz Investment 2 LLC              |  |           | (j)    |  |          |  | Materials                        |         |  |  | L+725                           |  |  |          | 1.0% |                    |  | 9/5/22   |               |   | 1,143  |              |  |   | 1,136   |  |  |   | 1,132   | 
|Compuware Corp.                        |  |           | (f)(g) |  |          |  | Software & Services              |         |  |  | L+825                           |  |  |          | 1.0% |                    |  | 12/15/22 |               |   | 17,000 |              |  |   | 15,610  |  |  |   | 17,085  | 
|Crossmark Holdings, Inc.               |  |           |        |  |          |  | Media                            |         |  |  | L+750                           |  |  |          | 1.3% |                    |  | 12/21/20 |               |   | 1,500  |              |  |   | 1,280   |  |  |   | 712     | 
|DTZ U.S. Borrower, LLC                 |  |           |        |  |          |  | Real Estate                      |         |  |  | L+825                           |  |  |          | 1.0% |                    |  | 11/4/22  |               |   | 170    |              |  |   | 172     |  |  |   | 171     | 
|EagleView Technology Corp.             |  |           | (i)    |  |          |  | Software & Services              |         |  |  | L+825                           |  |  |          | 1.0% |                    |  | 7/14/23  |               |   | 15,385 |              |  |   | 15,192  |  |  |   | 15,361  | 
|Fairway Group Acquisition Co.          |  |           | (u)    |  |          |  | Food & Staples Retailing         |         |  |  | 11.0% PIK (11.0% Max PIK)       |  |  |          |      |                    |  | 10/3/21  |               |   | 3,164  |              |  |   | 3,164   |  |  |   | 2,595   | 
|Fieldwood Energy LLC                   |  |           |        |  |          |  | Energy                           |         |  |  | L+713                           |  |  |          | 1.3% |                    |  | 9/30/20  |               |   | 5,835  |              |  |   | 4,492   |  |  |   | 4,158   | 
|Gruden Acquisition, Inc.               |  |           | (i)    |  |          |  | Transportation                   |         |  |  | L+850                           |  |  |          | 1.0% |                    |  | 8/18/23  |               |   | 10,000 |              |  |   | 9,581   |  |  |   | 7,917   | 
|Inmar, Inc.                            |  |           | (h)    |  |          |  | Software & Services              |         |  |  | L+700                           |  |  |          | 1.0% |                    |  | 1/27/22  |               |   | 5,008  |              |  |   | 5,004   |  |  |   | 4,802   | 
|Jazz Acquisition, Inc.                 |  |           |        |  |          |  | Capital Goods                    |         |  |  | L+675                           |  |  |          | 1.0% |                    |  | 6/19/22  |               |   | 1,998  |              |  |   | 2,007   |  |  |   | 1,695   | 
|Jonah Energy LLC                       |  |           |        |  |          |  | Energy                           |         |  |  | L+650                           |  |  |          | 1.0% |                    |  | 5/12/21  |               |   | 3,739  |              |  |   | 3,416   |  |  |   | 3,552   | 
|Logans Roadhouse, Inc.                |  |           |        |  |          |  | Consumer Services                |         |  |  | L+850 PIK (L+850 Max PIK)       |  |  |          | 1.0% |                    |  | 11/23/20 |               |   | 2,905  |              |  |   | 2,905   |  |  |   | 2,779   | 
|National Surgical Hospitals, Inc.      |  |           | (g)    |  |          |  | Health Care Equipment & Services |         |  |  | L+900                           |  |  |          | 1.0% |                    |  | 6/1/23   |               |   | 5,000  |              |  |   | 5,000   |  |  |   | 5,002   | 
|Neff Rental LLC                        |  |           | (f)    |  |          |  | Capital Goods                    |         |  |  | L+625                           |  |  |          | 1.0% |                    |  | 6/9/21   |               |   | 11,535 |              |  |   | 11,556  |  |  |   | 11,490  | 
|Nielsen & Bainbridge, LLC              |  |           | (g)    |  |          |  | Consumer Durables & Apparel      |         |  |  | L+925                           |  |  |          | 1.0% |                    |  | 8/15/21  |               |   | 5,558  |              |  |   | 5,492   |  |  |   | 5,447   | 
|Peak 10, Inc.                          |  |           | (i)    |  |          |  | Software & Services              |         |  |  | L+725                           |  |  |          | 1.0% |                    |  | 6/17/22  |               |   | 18,510 |              |  |   | 17,532  |  |  |   | 17,446  | 
|Spencer Gifts LLC                      |  |           | (g)(i) |  |          |  | Retailing                        |         |  |  | L+825                           |  |  |          | 1.0% |                    |  | 6/29/22  |               |   | 37,000 |              |  |   | 36,945  |  |  |   | 30,617  | 
|Titan Energy Operating, LLC            |  |           | (g)    |  |          |  | Energy                           |         |  |  | 2.0%, L+900 PIK (L+900 Max PIK) |  |  |          | 1.0% |                    |  | 2/23/20  |               |   | 34,455 |              |  |   | 28,684  |  |  |   | 28,191  | 
|UTEX Industries, Inc.                  |  |           |        |  |          |  | Energy                           |         |  |  | L+725                           |  |  |          | 1.0% |                    |  | 5/20/22  |               |   | 1,273  |              |  |   | 1,268   |  |  |   | 904     | 
|                                       |  |           |        |  |          |  |                                  |         |  |  |                                 |  |  |          |      |                    |  |          |               |   |        |              |  |   |         |  |  |   |         | 
|Total Senior Secured LoansSecond Lien |  |           |        |  |          |  |                                  |         |  |  |                                 |  |  |          |      |                    |  |          |               |   |        |              |  |   | 248,576 |  |  |   | 235,293 | 
|                                       |  |           |        |  |          |  |                                  |         |  |  |                                 |  |  |          |      |                    |  |          |               |   |        |              |  |   |         |  |  |   |         | 



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notes to consolidated financial statements.



111



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##### Table of Contents

FS Investment Corporation III

Consolidated Schedule of Investments (continued)

As of December 31, 2016

(in thousands, except share amounts)







|                                          |  |           |           |  |          |  |                                          |         |  |  |                               |  |  |          |  |                    |  |          |               |   |        |              |  |   |        |  |  |   |        | 
|----------------------------------------- |  | --------- | --------- |  | -------- |  | ---------------------------------------- | ------- |  |  | ----------------------------- |  |  | -------- |  | ------------------ |  | -------- | ------------- | - | ------ | ------------ |  | - | ------ |  |  | - | ------ | 
|Portfolio
Company(a)                      |  | Footnotes |           |  | Industry |  |                                          | Rate(b) |  |  | Floor                         |  |  | Maturity |  | PrincipalAmount(c) |  |          | AmortizedCost |   |        | FairValue(d) | 
|Senior Secured Bonds3.7%                 |  |           |           |  |          |  |                                          |         |  |  |                               |  |  |          |  |                    |  |          |               |   |        |              |  |   |        |  |  |   |        | 
|BlueLine Rental Finance Corp.             |  |           | (e)       |  |          |  | Capital Goods                            |         |  |  | 7.0%                          |  |  |          |  |                    |  | 2/1/19   |               | $ | 12,983 |              |  | $ | 11,432 |  |  | $ | 12,745 | 
|CEVA Group Plc                            |  |           | (e)(j)    |  |          |  | Transportation                           |         |  |  | 7.0%                          |  |  |          |  |                    |  | 3/1/21   |               |   | 3,000  |              |  |   | 2,567  |  |  |   | 2,449  | 
|Diamond Resorts International, Inc.       |  |           | (e)(r)    |  |          |  | Consumer Services                        |         |  |  | 7.8%                          |  |  |          |  |                    |  | 9/1/23   |               |   | 30,000 |              |  |   | 30,000 |  |  |   | 30,250 | 
|FBM Finance, Inc.                         |  |           | (e)       |  |          |  | Capital Goods                            |         |  |  | 8.3%                          |  |  |          |  |                    |  | 8/15/21  |               |   | 7,140  |              |  |   | 7,140  |  |  |   | 7,568  | 
|Global A&T Electronics Ltd.               |  |           | (e)(j)    |  |          |  | Semiconductors & Semiconductor Equipment |         |  |  | 10.0%                         |  |  |          |  |                    |  | 2/1/19   |               |   | 12,550 |              |  |   | 12,049 |  |  |   | 9,554  | 
|Kinetic Concepts, Inc.                    |  |           | (e)       |  |          |  | Health Care Equipment & Services         |         |  |  | 9.6%                          |  |  |          |  |                    |  | 10/1/21  |               |   | 4,430  |              |  |   | 4,430  |  |  |   | 4,699  | 
|Ridgeback Resources Inc.                  |  |           | (j)       |  |          |  | Energy                                   |         |  |  | 12.0%                         |  |  |          |  |                    |  | 12/29/20 |               |   | 335    |              |  |   | 328    |  |  |   | 335    | 
|Sorenson Communications, Inc.             |  |           | (e)       |  |          |  | Telecommunication Services               |         |  |  | 9.0%, 0.0% PIK (9.0% Max PIK) |  |  |          |  |                    |  | 10/31/20 |               |   | 11,820 |              |  |   | 11,476 |  |  |   | 10,520 | 
|Tembec Industries Inc.                    |  |           | (e)(j)    |  |          |  | Materials                                |         |  |  | 9.0%                          |  |  |          |  |                    |  | 12/15/19 |               |   | 3,715  |              |  |   | 3,715  |  |  |   | 3,477  | 
|Velvet Energy Ltd.                        |  |           | (j)       |  |          |  | Energy                                   |         |  |  | 9.0%                          |  |  |          |  |                    |  | 10/5/23  |               |   | 3,000  |              |  |   | 3,000  |  |  |   | 3,067  | 
|                                          |  |           |           |  |          |  |                                          |         |  |  |                               |  |  |          |  |                    |  |          |               |   |        |              |  |   |        |  |  |   |        | 
|Total Senior Secured Bonds                |  |           |           |  |          |  |                                          |         |  |  |                               |  |  |          |  |                    |  |          |               |   |        |              |  |   | 86,137 |  |  |   | 84,664 | 
|                                          |  |           |           |  |          |  |                                          |         |  |  |                               |  |  |          |  |                    |  |          |               |   |        |              |  |   |        |  |  |   |        | 
|Subordinated Debt26.5%                   |  |           |           |  |          |  |                                          |         |  |  |                               |  |  |          |  |                    |  |          |               |   |        |              |  |   |        |  |  |   |        | 
|Bellatrix Exploration Ltd.                |  |           | (e)(j)    |  |          |  | Energy                                   |         |  |  | 8.5%                          |  |  |          |  |                    |  | 5/15/20  |               |   | 10,000 |              |  |   | 9,856  |  |  |   | 9,844  | 
|BMC Software Finance, Inc.                |  |           | (e)       |  |          |  | Software & Services                      |         |  |  | 7.3%                          |  |  |          |  |                    |  | 6/1/18   |               |   | 10,069 |              |  |   | 9,927  |  |  |   | 10,113 | 
|Calumet Specialty Products Partners, L.P. |  |           | (e)(j)(r) |  |          |  | Energy                                   |         |  |  | 7.8%                          |  |  |          |  |                    |  | 4/15/23  |               |   | 10,300 |              |  |   | 10,235 |  |  |   | 8,688  | 
|Canbriam Energy Inc.                      |  |           | (e)(j)    |  |          |  | Energy                                   |         |  |  | 9.8%                          |  |  |          |  |                    |  | 11/15/19 |               |   | 20,300 |              |  |   | 20,150 |  |  |   | 21,416 | 
|CEC Entertainment, Inc.                   |  |           | (e)       |  |          |  | Consumer Services                        |         |  |  | 8.0%                          |  |  |          |  |                    |  | 2/15/22  |               |   | 39,014 |              |  |   | 37,497 |  |  |   | 39,924 | 
|Ceridian HCM Holding, Inc.                |  |           | (e)(r)    |  |          |  | Commercial & Professional Services       |         |  |  | 11.0%                         |  |  |          |  |                    |  | 3/15/21  |               |   | 92,439 |              |  |   | 92,458 |  |  |   | 95,443 | 
|Coveris Holdings S.A.                     |  |           | (e)(j)    |  |          |  | Materials                                |         |  |  | 7.9%                          |  |  |          |  |                    |  | 11/1/19  |               |   | 32,855 |              |  |   | 32,186 |  |  |   | 32,863 | 
|Eclipse Resources Corp.                   |  |           | (e)(j)    |  |          |  | Energy                                   |         |  |  | 8.9%                          |  |  |          |  |                    |  | 7/15/23  |               |   | 9,175  |              |  |   | 9,008  |  |  |   | 9,573  | 
|EV Energy Partners, L.P.                  |  |           |           |  |          |  | Energy                                   |         |  |  | 8.0%                          |  |  |          |  |                    |  | 4/15/19  |               |   | 2,150  |              |  |   | 1,966  |  |  |   | 1,524  | 
|Global Jet Capital Inc.                   |  |           |           |  |          |  | Commercial & Professional Services       |         |  |  | 15.0% PIK (15.0% Max PIK)     |  |  |          |  |                    |  | 1/30/25  |               |   | 732    |              |  |   | 732    |  |  |   | 727    | 
|Global Jet Capital Inc.                   |  |           |           |  |          |  | Commercial & Professional Services       |         |  |  | 15.0% PIK (15.0% Max PIK)     |  |  |          |  |                    |  | 4/30/25  |               |   | 4,649  |              |  |   | 4,649  |  |  |   | 4,620  | 
|Global Jet Capital Inc.                   |  |           |           |  |          |  | Commercial & Professional Services       |         |  |  | 15.0% PIK (15.0% Max PIK)     |  |  |          |  |                    |  | 9/3/25   |               |   | 961    |              |  |   | 961    |  |  |   | 955    | 
|Global Jet Capital Inc.                   |  |           |           |  |          |  | Commercial & Professional Services       |         |  |  | 15.0% PIK (15.0% Max PIK)     |  |  |          |  |                    |  | 9/29/25  |               |   | 904    |              |  |   | 904    |  |  |   | 899    | 
|Global Jet Capital Inc.                   |  |           | (j)       |  |          |  | Commercial & Professional Services       |         |  |  | 15.0% PIK (15.0% Max PIK)     |  |  |          |  |                    |  | 12/4/25  |               |   | 60,087 |              |  |   | 60,087 |  |  |   | 59,711 | 
|Global Jet Capital Inc.                   |  |           | (j)       |  |          |  | Commercial & Professional Services       |         |  |  | 15.0% PIK (15.0% Max PIK)     |  |  |          |  |                    |  | 12/9/25  |               |   | 9,827  |              |  |   | 9,827  |  |  |   | 9,766  | 
|Global Jet Capital Inc.                   |  |           | (j)       |  |          |  | Commercial & Professional Services       |         |  |  | 15.0% PIK (15.0% Max PIK)     |  |  |          |  |                    |  | 1/29/26  |               |   | 5,146  |              |  |   | 5,146  |  |  |   | 5,114  | 
|Global Jet Capital Inc.                   |  |           |           |  |          |  | Commercial & Professional Services       |         |  |  | 15.0% PIK (15.0% Max PIK)     |  |  |          |  |                    |  | 2/17/26  |               |   | 12,583 |              |  |   | 12,582 |  |  |   | 12,504 | 



See
notes to consolidated financial statements.



112



---

##### Table of Contents

FS Investment Corporation III

Consolidated Schedule of Investments (continued)

As of December 31, 2016

(in thousands, except share amounts)







|                                                    |  |           |              |  |          |  |                                   |         |  |  |                                 |  |  |          |  |  |                    |  |          |               |  |   |              |  |  |   |         |  |  |   |         | 
|--------------------------------------------------- |  | --------- | ------------ |  | -------- |  | --------------------------------- | ------- |  |  | ------------------------------- |  |  | -------- |  |  | ------------------ |  | -------- | ------------- |  | - | ------------ |  |  | - | ------- |  |  | - | ------- | 
|Portfolio
Company(a)                                |  | Footnotes |              |  | Industry |  |                                   | Rate(b) |  |  | Floor                           |  |  | Maturity |  |  | PrincipalAmount(c) |  |          | AmortizedCost |  |   | FairValue(d) | 
|Global Jet Capital Inc.                             |  |           |              |  |          |  | Commercial & ProfessionalServices |         |  |  | 15.0% PIK (15.0% Max PIK)       |  |  |          |  |  |                    |  | 4/14/26  |               |  | $ | 7,792        |  |  | $ | 7,792   |  |  | $ | 7,744   | 
|Global Jet Capital Inc.                             |  |           |              |  |          |  | Commercial & ProfessionalServices |         |  |  | 15.0% PIK (15.0% Max PIK)       |  |  |          |  |  |                    |  | 12/2/26  |               |  |   | 11,517       |  |  |   | 11,517  |  |  |   | 11,517  | 
|Jupiter Resources Inc.                              |  |           | (e)(j)       |  |          |  | Energy                            |         |  |  | 8.5%                            |  |  |          |  |  |                    |  | 10/1/22  |               |  |   | 31,850       |  |  |   | 28,838  |  |  |   | 27,656  | 
|NewStar Financial, Inc.                             |  |           | (f)(j)       |  |          |  | Diversified Financials            |         |  |  | 8.3%, 0.0% PIK (8.8% Max PIK)   |  |  |          |  |  |                    |  | 12/4/24  |               |  |   | 75,000       |  |  |   | 61,616  |  |  |   | 65,250  | 
|Northern Oil and Gas, Inc.                          |  |           | (e)          |  |          |  | Energy                            |         |  |  | 8.0%                            |  |  |          |  |  |                    |  | 6/1/20   |               |  |   | 3,150        |  |  |   | 3,035   |  |  |   | 2,544   | 
|P.F. Changs China Bistro, Inc.                     |  |           | (e)(g)(i)(r) |  |          |  | Consumer Services                 |         |  |  | 10.3%                           |  |  |          |  |  |                    |  | 6/30/20  |               |  |   | 70,595       |  |  |   | 70,674  |  |  |   | 69,301  | 
|PriSo Acquisition Corp.                             |  |           | (e)(r)       |  |          |  | Capital Goods                     |         |  |  | 9.0%                            |  |  |          |  |  |                    |  | 5/15/23  |               |  |   | 50,859       |  |  |   | 50,458  |  |  |   | 51,113  | 
|S1 Blocker Buyer Inc.                               |  |           |              |  |          |  | Commercial & ProfessionalServices |         |  |  | 10.0% PIK (10.0% Max PIK)       |  |  |          |  |  |                    |  | 10/31/22 |               |  |   | 130          |  |  |   | 130     |  |  |   | 132     | 
|SandRidge Energy, Inc.                              |  |           | (e)(j)(m)    |  |          |  | Energy                            |         |  |  | 0.0%                            |  |  |          |  |  |                    |  | 10/4/20  |               |  |   | 2,643        |  |  |   | 3,522   |  |  |   | 3,318   | 
|Scientific Games Corp.                              |  |           | (e)(j)       |  |          |  | Consumer Services                 |         |  |  | 8.1%                            |  |  |          |  |  |                    |  | 9/15/18  |               |  |   | 14,638       |  |  |   | 13,782  |  |  |   | 14,825  | 
|Sorenson Communications, Inc.                       |  |           | (e)          |  |          |  | Telecommunication Services        |         |  |  | 13.9%, 0.0% PIK (13.9% Max PIK) |  |  |          |  |  |                    |  | 10/31/21 |               |  |   | 8,983        |  |  |   | 9,376   |  |  |   | 8,264   | 
|SunGard Availability Services Capital, Inc.         |  |           | (e)          |  |          |  | Software & Services               |         |  |  | 8.8%                            |  |  |          |  |  |                    |  | 4/1/22   |               |  |   | 16,400       |  |  |   | 11,550  |  |  |   | 11,295  | 
|Talos Production LLC                                |  |           | (e)          |  |          |  | Energy                            |         |  |  | 9.8%                            |  |  |          |  |  |                    |  | 2/15/18  |               |  |   | 4,500        |  |  |   | 4,291   |  |  |   | 2,498   | 
|TI Group Automotive Systems, LLC                    |  |           | (e)(j)       |  |          |  | Automobiles & Components          |         |  |  | 8.8%                            |  |  |          |  |  |                    |  | 7/15/23  |               |  |   | 7,302        |  |  |   | 7,302   |  |  |   | 7,699   | 
|York Risk Services Holding Corp.                    |  |           | (e)          |  |          |  | Insurance                         |         |  |  | 8.5%                            |  |  |          |  |  |                    |  | 10/1/22  |               |  |   | 9,050        |  |  |   | 8,295   |  |  |   | 7,602   | 
|                                                    |  |           |              |  |          |  |                                   |         |  |  |                                 |  |  |          |  |  |                    |  |          |               |  |   |              |  |  |   |         |  |  |   |         | 
|Total Subordinated Debt                             |  |           |              |  |          |  |                                   |         |  |  |                                 |  |  |          |  |  |                    |  |          |               |  |   |              |  |  |   | 610,349 |  |  |   | 614,442 | 
|                                                    |  |           |              |  |          |  |                                   |         |  |  |                                 |  |  |          |  |  |                    |  |          |               |  |   |              |  |  |   |         |  |  |   |         | 
|Collateralized Securities0.3%                      |  |           |              |  |          |  |                                   |         |  |  |                                 |  |  |          |  |  |                    |  |          |               |  |   |              |  |  |   |         |  |  |   |         | 
|NewStar Clarendon 2014-1A Class D                   |  |           | (j)          |  |          |  | Diversified Financials            |         |  |  | L+435                           |  |  |          |  |  |                    |  | 1/25/27  |               |  |   | 730          |  |  |   | 691     |  |  |   | 689     | 
|NewStar Clarendon 2014-1A Class Subord. B           |  |           | (j)          |  |          |  | Diversified Financials            |         |  |  | 16.4%                           |  |  |          |  |  |                    |  | 1/25/27  |               |  |   | 8,310        |  |  |   | 6,626   |  |  |   | 6,638   | 
|                                                    |  |           |              |  |          |  |                                   |         |  |  |                                 |  |  |          |  |  |                    |  |          |               |  |   |              |  |  |   |         |  |  |   |         | 
|Total Collateralized Securities                     |  |           |              |  |          |  |                                   |         |  |  |                                 |  |  |          |  |  |                    |  |          |               |  |   |              |  |  |   | 7,317   |  |  |   | 7,327   | 
|                                                    |  |           |              |  |          |  |                                   |         |  |  |                                 |  |  |          |  |  |                    |  |          |               |  |   |              |  |  |   |         |  |  |   |         | 
|                                                    |  |           |              |  |          |  |                                   |        
|                                                    |  |           |              |  |          |  |                                   |         |  |  |                                 |  |  |          |  |  | Number ofShares    |  |          | Cost          |  |   | FairValue(d) | 
|Equity/Other7.1%                                   |  |           |              |  |          |  |                                   |         |  |  |                                 |  |  |          |  |  |                    |  |          |               |  |   |              |  |  |   |         |  |  |   |         | 
|5 Arches, LLC, Common Equity                        |  |           | (j)(m)(o)    |  |          |  | Diversified Financials            |         |  |  |                                 |  |  |          |  |  |                    |  |          |               |  |   | 33,163       |  |  | $ | 875     |  |  | $ | 875     | 
|ACP FH Holdings GP, LLC, Common Equity              |  |           | (m)          |  |          |  | Consumer Durables & Apparel       |         |  |  |                                 |  |  |          |  |  |                    |  |          |               |  |   | 11,429       |  |  |   | 11      |  |  |   | 9       | 
|ACP FH Holdings, LP, Common Equity                  |  |           | (m)          |  |          |  | Consumer Durables & Apparel       |         |  |  |                                 |  |  |          |  |  |                    |  |          |               |  |   | 1,131,428    |  |  |   | 1,131   |  |  |   | 906     | 
|Altus Power America Holdings, LLC, Common Equity    |  |           | (m)          |  |          |  | Energy                            |         |  |  |                                 |  |  |          |  |  |                    |  |          |               |  |   | 462,008      |  |  |   | 462     |  |  |   | 462     | 
|Altus Power America Holdings, LLC, Preferred Equity |  |           | (q)          |  |          |  | Energy                            |         |  |  |                                 |  |  |          |  |  |                    |  |          |               |  |   | 888,211      |  |  |   | 888     |  |  |   | 888     | 
|ASG Technologies Group, Inc., Warrants, 6/27/2022   |  |           | (m)          |  |          |  | Software & Services               |         |  |  |                                 |  |  |          |  |  |                    |  |          |               |  |   | 48,325       |  |  |   | 1,377   |  |  |   | 1,228   | 
|Aspect Software, Inc., Common Equity                |  |           | (m)(u)       |  |          |  | Software & Services               |         |  |  |                                 |  |  |          |  |  |                    |  |          |               |  |   | 1,092,200    |  |  |   | 52,727  |  |  |   | 59,634  | 



See
notes to consolidated financial statements.



113



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FS Investment Corporation III

Consolidated Schedule of Investments (continued)

As of December 31, 2016

(in thousands, except share amounts)







|                                                           |  |           |  |                                    |  |  |                 |  |  |      |  |  |              |  |                |  |  |   |            |  |                        |   |           |  |  |   |           |  
|---------------------------------------------------------- |  | --------- |  | ---------------------------------- |  |  | --------------- |  |  | ---- |  |  | ------------ |  | -------------- |  |  | - | ---------- |  | ---------------------- | - | --------- |  |  | - | --------- | -
|Portfolio
Company(a)                                       |  | Footnotes |  | Industry                           |  |  | Number ofShares |  |  | Cost |  |  | FairValue(d) | 
|ATX Holdings, LLC, Common Equity                           |  | (j)(m)    |  | Technology Hardware & Equipment    |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 83,488     |  |                        | $ | 134       |  |  | $ | 134       |  
|CSF Group Holdings, Inc., Common Equity                    |  | (m)       |  | Capital Goods                      |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 173,900    |  |                        |   | 174       |  |  |   | 174       |  
|Fairway Group Acquisition Co., Common Equity               |  | (m)(u)    |  | Food & Staples Retailing           |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 71,465     |  |                        |   | 2,296     |  |  |   | 1,858     |  
|Global Jet Capital Holdings, LP, Preferred Equity          |  | (j)(m)    |  | Commercial & Professional Services |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 42,484,416 |  |                        |   | 42,484    |  |  |   | 42,484    |  
|H.I.G. Empire Holdco, Inc., Common Equity                  |  | (m)       |  | Retailing                          |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 206        |  |                        |   | 614       |  |  |   | 630       |  
|Harvey Holdings, LLC, Common Equity                        |  | (m)       |  | Capital Goods                      |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 2,000,000  |  |                        |   | 2,000     |  |  |   | 4,600     |  
|Industrial Group Intermediate Holdings, LLC, Common Equity |  | (m)(o)    |  | Materials                          |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 220,619    |  |                        |   | 221       |  |  |   | 386       |  
|JMC Acquisition Holdings, LLC, Common Equity               |  | (m)       |  | Capital Goods                      |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 8,068      |  |                        |   | 8,068     |  |  |   | 8,995     |  
|NewStar Financial, Inc., Warrants, 11/4/2024               |  | (j)(m)    |  | Diversified Financials             |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 3,000,000  |  |                        |   | 15,058    |  |  |   | 8,310     |  
|North Haven Cadence Buyer, Inc., Common Equity             |  | (m)       |  | Consumer Services                  |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 833,333    |  |                        |   | 833       |  |  |   | 875       |  
|Ridgeback Resources Inc., Common Equity                    |  | (j)(m)(s) |  | Energy                             |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 827,156    |  |                        |   | 5,082     |  |  |   | 5,082     |  
|Roadhouse Holding Inc., Common Equity                      |  | (m)       |  | Consumer Services                  |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 1,202,991  |  |                        |   | 1,250     |  |  |   | 1,469     |  
|S1 Blocker Buyer Inc., Common Equity                       |  |           |  | Commercial & Professional Services |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 60         |  |                        |   | 600       |  |  |   | 584       |  
|SandRidge Energy, Inc., Common Equity                      |  | (e)(j)(m) |  | Energy                             |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 112,112    |  |                        |   | 2,803     |  |  |   | 2,640     |  
|Sequential Brands Group, Inc., Common Equity               |  | (j)(m)    |  | Consumer Durables & Apparel        |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 125,391    |  |                        |   | 1,693     |  |  |   | 587       |  
|Sunnova Energy Corp., Common Equity                        |  | (m)       |  | Energy                             |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 577,086    |  |                        |   | 2,166     |  |  |   | 3,134     |  
|Sunnova Energy Corp., Preferred Equity                     |  | (m)       |  | Energy                             |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 54,543     |  |                        |   | 290       |  |  |   | 296       |  
|TE Holdings, LLC, Common Equity                            |  | (m)(o)    |  | Energy                             |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 129,829    |  |                        |   | 1,104     |  |  |   | 974       |  
|TE Holdings, LLC, Preferred Equity                         |  | (m)       |  | Energy                             |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 86,061     |  |                        |   | 859       |  |  |   | 1,291     |  
|Titan Energy, LLC, Common Equity                           |  | (m)       |  | Energy                             |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 72,739     |  |                        |   | 2,299     |  |  |   | 1,746     |  
|Warren Resources, Inc., Common Equity                      |  | (m)(u)    |  | Energy                             |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 998,936    |  |                        |   | 4,695     |  |  |   | 4,295     |  
|White Star Petroleum Holdings, LLC, Common Equity          |  | (m)(o)    |  | Energy                             |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 1,738,244  |  |                        |   | 1,478     |  |  |   | 1,695     |  
|Zeta Interactive Holdings Corp., Preferred Equity          |  | (m)       |  | Software & Services                |  |  |                 |  |  |      |  |  |              |  |                |  |  |   | 1,051,348  |  |                        |   | 8,357     |  |  |   | 9,414     |  
|                                                           |  |           |  |                                    |  |  |                 |  |  |      |  |  |              |  |                |  |  |   |            |  |                        |   |           |  |  |   |           |  
|Total Equity/Other                                         |  |           |  |                                    |  |  |                 |  |  |      |  |  |              |  |                |  |  |   |            |  |                        |   | 162,029   |  |  |   | 165,655   |  
|                                                           |  |           |  |                                    |  |  |                 |  |  |      |  |  |              |  |                |  |  |   |            |  |                        |   |           |  |  |   |           |  
|TOTAL INVESTMENTS139.6%                                   |  |           |  |                                    |  |  |                 |  |  |      |  |  |              |  |                |  |  |   |            |  |                        | $ | 3,249,141 |  |  |   | 3,243,310 |  
|                                                           |  |           |  |                                    |  |  |                 |  |  |      |  |  |              |  |                |  |  |   |            |  |                        |   |           |  |  |   |           |  
|LIABILITIES IN EXCESS OF ASSETS(39.6%)                    |  |           |  |                                    |  |  |                 |  |  |      |  |  |              |  |                |  |  |   |            |  |                        |   |           |  |  |   | (919,370  | )
|                                                           |  |           |  |                                    |  |  |                 |  |  |      |  |  |              |  |                |  |  |   |            |  |                        |   |           |  |  |   |           |  
|NET ASSETS100.0%                                          |  |           |  |                                    |  |  |                 |  |  |      |  |  |              |  |                |  |  |   |            |  |                        |   |           |  |  | $ | 2,323,940 |  
|                                                           |  |           |  |                                    |  |  |                 |  |  |      |  |  |              |  |                |  |  |   |            |  |                        |   |           |  |  |   |           |  
|                                                           |  |           |  |                                    |  |  |                 | 
|Total Return Swap                                          |  |           |  |                                    |  |  |                 |  |  |      |  |  |              |  | NotionalAmount |  |  |   |            |  | UnrealizedAppreciation |  
|Citibank TRS Facility (Note 8)                             |  | (j)       |  |                                    |  |  |                 |  |  |      |  |  |              |  |                |  |  | $ | 388,681    |  |                        |   |           |  |  | $ | 11,403    |  
|                                                           |  |           |  |                                    |  |  |                 |  |  |      |  |  |              |  |                |  |  |   |            |  |                        |   |           |  |  |   |           |  



See
notes to consolidated financial statements.



114



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FS Investment Corporation III

Consolidated Schedule of Investments (continued)

As of December 31, 2016

(in thousands, except share amounts)









|(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, 2016, the three-month London Interbank Offered Rate, or LIBOR, was 1.00% and the U.S. Prime Lending Rate, or Prime, was 3.75%.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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 Burholme Funding LLC and is pledged as collateral supporting the amounts outstanding under the prime brokerage facility with BNP
Paribas Prime Brokerage, Inc., or BNPP. Securities held within Burholme Funding LLC may be rehypothecated from time to time as permitted under Rule 15c-1(a)(1) of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, subject to the terms and conditions governing the prime brokerage facility with BNPP (see Note 8).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(f) | Security or portion thereof held within Dunlap Funding 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).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(g) | Security or portion thereof held within Jefferson Square Funding LLC and is pledged as collateral supporting the amounts outstanding under a term loan credit facility
with JPMorgan Chase Bank, National Association (see Note 8).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(h) | Security or portion thereof held within Chestnut Hill Funding LLC and is pledged as collateral supporting the amounts outstanding under a revolving credit facility with
Capital One, National Association (see Note 8).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(i) | Security or portion thereof held within Germantown Funding LLC and is pledged as collateral supporting the amounts outstanding under the notes issued to Society Hill
Funding LLC pursuant to an indenture with Citibank, N.A., as trustee (see Note 8).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(j) | The investment is not a qualifying asset under the Investment Company Act of 1940, as amended, or the 1940 Act. A business development company may not acquire any asset
other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the companys total assets. As of December 31, 2016, 82.4% of the Companys total assets represented qualifying
assets. In addition, as described in Note 8, the Company also calculates its compliance with the qualifying asset test on a look through basis by disregarding the value of the Companys total return swap and treating each loan
underlying the total return swap as either a qualifying asset or non-qualifying asset based on whether the obligor is an eligible portfolio company. On this basis, 80.9% of the Companys total assets
represented qualifying assets as of December 31, 2016.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(k) | Position or portion thereof unsettled as of December 31, 2016.
|--- | --------------------------------------------------------------



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



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



|(n) | Security was on non-accrual status as of December 31, 2016.
|--- | -----------------------------------------------------------



|(o) | Security held within FSIC III Investments, Inc., a wholly-owned subsidiary of the Company.
|--- | ------------------------------------------------------------------------------------------



|(p) | Security held within IC III Arches Investments, LLC, a wholly-owned subsidiary of the Company.
|--- | ----------------------------------------------------------------------------------------------



See
notes to consolidated financial statements.



115



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FS Investment Corporation III

Consolidated Schedule of Investments (continued)

As of December 31, 2016

(in thousands, except share amounts)







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



|(r) | Security or portion thereof held within Burholme Funding LLC has been rehypothecated under Rule 15c-1(a)(1) of the Exchange Act,
subject to the terms and conditions governing the prime brokerage facility with BNPP (see Note 8). As of December 31, 2016, the fair value of securities rehypothecated by BNPP was $176,481.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(s) | Investment denominated in Canadian dollars. Cost and fair value are converted into U.S. dollars as of December 31, 2016.
|--- | ------------------------------------------------------------------------------------------------------------------------



|(t) | The transfer of a portion of this loan does not qualify for sale accounting under Accounting Standards Codification Topic 860,Transfers and Servicing, and
therefore, the entire senior secured loan remains in the consolidated schedule of investments as of December 31, 2016 (see Note 8).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(u) | 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 more than 25% 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, 2016, the Company held investments in three portfolio companies of which it is deemed to be an affiliated person but is not deemed to control. The following table presents certain financial
information with respect to investments in portfolio companies of which the Company was deemed to be an affiliated person of for the year ended December 31, 2016:
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See
notes to consolidated financial statements.



116



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FS Investment Corporation III

Consolidated Schedule of Investments (continued)

As of December 31, 2016

(in thousands, except share amounts)







|                                             |  |                               |   |  |                                     |   |        |                     |  |   |                      |   |  |                         |   |  |                                                   |   |       |                               |  |   |                |   |  |           |        |  |                |   |     |  |  |   |     |  |  |  |   | 
|-------------------------------------------- |  | ----------------------------- | - |  | ----------------------------------- | - | ------ | ------------------- |  | - | -------------------- | - |  | ----------------------- | - |  | ------------------------------------------------- | - | ----- | ----------------------------- |  | - | -------------- | - |  | --------- | ------ |  | -------------- | - | --- |  |  | - | --- |  |  |  | - | 
|Portfolio Company                            |  | Fair Value atDecember 31,2015 |   |  | Purchasesand 
Paid-in-Kind Interest |   |        | Sales andRepayments |  |   | Accretionof Discount |   |  | Net RealizedGain (Loss) |   |  | Net Change inUnrealizedAppreciation(Depreciation) |   |       | Fair Value atDecember 31,2016 |  |   | InterestIncome |   |  | FeeIncome |        |  | DividendIncome |  
|Senior Secured LoansFirst Lien              |  |                               |   |  |                                     |   |        |                     |  |   |                      |   |  |                         |   |  |                                                   |   |       |                               |  |   |                |   |  |           |        |  |                |   |     |  |  |   |     |  |  |  |   | 
|Aspect Software, Inc.(1)                     |  |                               |  |  |                                     | $ | 3,200  |                     |  |   |                     |   |  |                         |  |  |                                                   |   |      |                               |  |   |               |   |  | $         | 3,200  |  |                | $ | 121 |  |  | $ | 199 |  |  |  |  | 
|Aspect Software, Inc.                        |  |                               |  |  |                                     | $ | 10,285 |                     |  | $ | (129                 | ) |  |                         |  |  |                                                   |   |      |                               |  | $ | 114            |   |  | $         | 10,270 |  |                | $ | 669 |  |  |   |    |  |  |  |  | 
|Fairway Group Acquisition Co.                |  |                               |  |  |                                     | $ | 5,631  |                     |  |   |                     |   |  |                         |  |  |                                                   |   |      |                               |  | $ | 56             |   |  | $         | 5,687  |  |                | $ | 256 |  |  |   |    |  |  |  |  | 
|Fairway Group Acquisition Co.                |  |                               |  |  |                                     | $ | 3,633  |                     |  |   |                     |   |  |                         |  |  |                                                   |   |      |                               |  | $ | (327           | ) |  | $         | 3,306  |  |                | $ | 177 |  |  |   |    |  |  |  |  | 
|Warren Resources, Inc.(2)                    |  |                               |  |  |                                     | $ | 17,744 |                     |  |   |                     |   |  |                         |  |  |                                                   |   |      |                               |  |   |               |   |  | $         | 17,744 |  |                | $ | 419 |  |  | $ | 76  |  |  |  |  | 
|Senior Secured LoansSecond Lien             |  |                               |   |  |                                     |   |        |                     |  |   |                      |   |  |                         |   |  |                                                   |   |       |                               |  |   |                |   |  |           |        |  |                |   |     |  |  |   |     |  |  |  |   | 
|Fairway Group Acquisition Co.                |  |                               |  |  |                                     | $ | 3,164  |                     |  |   |                     |   |  |                         |  |  |                                                   |   |      |                               |  | $ | (569           | ) |  | $         | 2,595  |  |                | $ | 169 |  |  |   |    |  |  |  |  | 
|Subordinated Debt                            |  |                               |   |  |                                     |   |        |                     |  |   |                      |   |  |                         |   |  |                                                   |   |       |                               |  |   |                |   |  |           |        |  |                |   |     |  |  |   |     |  |  |  |   | 
|Aspect Software, Inc.                        |  |                               |  |  |                                     | $ | 7,836  |                     |  | $ | (11,557              | ) |  |                         |  |  |                                                   | $ | 3,721 |                               |  |   |               |   |  |           |       |  |                | $ | 118 |  |  |   |    |  |  |  |  | 
|Equity/Other                                 |  |                               |   |  |                                     |   |        |                     |  |   |                      |   |  |                         |   |  |                                                   |   |       |                               |  |   |                |   |  |           |        |  |                |   |     |  |  |   |     |  |  |  |   | 
|Aspect Software, Inc., Common Equity         |  |                               |  |  |                                     | $ | 52,727 |                     |  |   |                     |   |  |                         |  |  |                                                   |   |      |                               |  | $ | 6,907          |   |  | $         | 59,634 |  |                |   |    |  |  | $ | 118 |  |  |  |  | 
|Fairway Group Acquisition Co., Common Equity |  |                               |  |  |                                     | $ | 2,296  |                     |  |   |                     |   |  |                         |  |  |                                                   |   |      |                               |  | $ | (438           | ) |  | $         | 1,858  |  |                |   |    |  |  |   |    |  |  |  |  | 
|Warren Resources, Inc., Common Equity        |  |                               |  |  |                                     | $ | 4,695  |                     |  |   |                     |   |  |                         |  |  |                                                   |   |      |                               |  | $ | (400           | ) |  | $         | 4,295  |  |                |   |    |  |  |   |    |  |  |  |  | 



|(1) | Security includes a partially unfunded commitment with an amortized cost of $110 and a fair value of $110.
|--- | ----------------------------------------------------------------------------------------------------------



|(2) | Security includes a partially unfunded commitment with an amortized cost of $1,265 and a fair value of $1,265.
|--- | --------------------------------------------------------------------------------------------------------------



See
notes to consolidated financial statements.



117



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FS Investment Corporation III

Consolidated Schedule of Investments

As of December 31, 2015

(in thousands, except share amounts)







|                                          |  |              |  |                                    |  |                                |  |       |  |          |  |                    |         |  |               |   |         |              |  |   |         | 
|----------------------------------------- |  | ------------ |  | ---------------------------------- |  | ------------------------------ |  | ----- |  | -------- |  | ------------------ | ------- |  | ------------- | - | ------- | ------------ |  | - | ------- | 
|Portfolio
Company(a)                      |  | Footnotes    |  | Industry                           |  | Rate(b)                        |  | Floor |  | Maturity |  | PrincipalAmount(c) |         |  | AmortizedCost |   |         | FairValue(d) | 
|Senior Secured LoansFirst Lien99.1%     |  |              |  |                                    |  |                                |  |       |  |          | 
|5 Arch Income Fund 2, LLC                 |  | (j)(p)       |  | Diversified Financials             |  | 10.5%                          |  |       |  | 11/18/21 |  | $                  | 8,343   |  |               | $ | 8,530   |              |  | $ | 8,342   | 
|5 Arch Income Fund 2, LLC                 |  | (j)(l)(p)    |  | Diversified Financials             |  | 10.5%                          |  |       |  | 11/18/21 |  |                    | 124,657 |  |               |   | 124,657 |              |  |   | 124,657 | 
|Acision Finance LLC                       |  | (f)(i)       |  | Software & Services                |  | L+975                          |  | 1.0%  |  | 12/15/18 |  |                    | 27,664  |  |               |   | 26,775  |              |  |   | 27,387  | 
|Aeneas Buyer Corp.                        |  |              |  | Health Care Equipment & Services   |  | L+500                          |  | 1.0%  |  | 12/18/21 |  |                    | 500     |  |               |   | 500     |              |  |   | 500     | 
|Aeneas Buyer Corp.                        |  | (l)          |  | Health Care Equipment & Services   |  | L+500                          |  | 1.0%  |  | 12/18/21 |  |                    | 500     |  |               |   | 500     |              |  |   | 500     | 
|Aeneas Buyer Corp.                        |  | (f)(g)(h)(i) |  | Health Care Equipment & Services   |  | L+813                          |  | 1.0%  |  | 12/18/21 |  |                    | 133,500 |  |               |   | 133,500 |              |  |   | 133,500 | 
|Aeneas Buyer Corp.                        |  | (l)          |  | Health Care Equipment & Services   |  | L+750                          |  | 1.0%  |  | 12/18/21 |  |                    | 26,700  |  |               |   | 26,700  |              |  |   | 26,700  | 
|Allen Systems Group, Inc.                 |  |              |  | Software & Services                |  | L+789, 1.2% PIK (1.2% Max PIK) |  | 1.0%  |  | 4/30/20  |  |                    | 15,884  |  |               |   | 15,884  |              |  |   | 16,043  | 
|Altus Power America, Inc.                 |  |              |  | Energy                             |  | L+750                          |  | 1.5%  |  | 10/10/21 |  |                    | 1,724   |  |               |   | 1,724   |              |  |   | 1,707   | 
|Altus Power America, Inc.                 |  | (l)          |  | Energy                             |  | L+750                          |  | 1.5%  |  | 10/10/21 |  |                    | 1,401   |  |               |   | 1,401   |              |  |   | 1,387   | 
|AqGen Ascensus, Inc.                      |  | (h)          |  | Diversified Financials             |  | L+450                          |  | 1.0%  |  | 12/5/22  |  |                    | 4,706   |  |               |   | 4,425   |              |  |   | 4,424   | 
|AqGen Ascensus, Inc.                      |  | (h)(l)       |  | Diversified Financials             |  | L+450                          |  | 1.0%  |  | 12/5/22  |  |                    | 294     |  |               |   | 277     |              |  |   | 276     | 
|Aspect Software, Inc.                     |  | (h)(i)       |  | Software & Services                |  | L+550, 0.3% PIK (0.3% Max PIK) |  | 1.8%  |  | 5/7/16   |  |                    | 20,454  |  |               |   | 20,367  |              |  |   | 18,937  | 
|Atlas Aerospace LLC                       |  | (f)(g)       |  | Capital Goods                      |  | L+807                          |  | 1.0%  |  | 5/8/19   |  |                    | 28,000  |  |               |   | 28,000  |              |  |   | 27,860  | 
|Atlas Aerospace LLC                       |  | (l)          |  | Capital Goods                      |  | L+750                          |  | 1.0%  |  | 5/8/19   |  |                    | 10,667  |  |               |   | 10,667  |              |  |   | 10,613  | 
|ATX Networks Corp.                        |  | (h)(i)(j)    |  | Technology Hardware & Equipment    |  | L+600                          |  | 1.0%  |  | 6/11/21  |  |                    | 9,950   |  |               |   | 9,812   |              |  |   | 9,801   | 
|BenefitMall Holdings, Inc.                |  | (g)(h)       |  | Commercial & Professional Services |  | L+725                          |  | 1.0%  |  | 11/24/20 |  |                    | 34,650  |  |               |   | 34,650  |              |  |   | 34,304  | 
|BenefitMall Holdings, Inc.                |  | (l)          |  | Commercial & Professional Services |  | L+725                          |  | 1.0%  |  | 11/24/20 |  |                    | 12,727  |  |               |   | 12,727  |              |  |   | 12,600  | 
|Blue Coat Holdings, Inc.                  |  | (l)          |  | Technology Hardware & Equipment    |  | L+350                          |  | 1.0%  |  | 5/22/20  |  |                    | 2,045   |  |               |   | 2,045   |              |  |   | 1,919   | 
|Blueprint Sub, Inc.                       |  |              |  | Software & Services                |  | L+450                          |  | 1.0%  |  | 5/7/21   |  |                    | 1,842   |  |               |   | 1,842   |              |  |   | 1,842   | 
|Blueprint Sub, Inc.                       |  | (l)          |  | Software & Services                |  | L+450                          |  | 1.0%  |  | 5/7/21   |  |                    | 1,842   |  |               |   | 1,842   |              |  |   | 1,842   | 
|Blueprint Sub, Inc.                       |  | (f)(g)(h)    |  | Software & Services                |  | L+750                          |  | 1.0%  |  | 5/7/21   |  |                    | 70,589  |  |               |   | 70,589  |              |  |   | 70,364  | 
|Blueprint Sub, Inc.                       |  | (l)          |  | Software & Services                |  | L+750                          |  | 1.0%  |  | 5/7/21   |  |                    | 9,211   |  |               |   | 9,211   |              |  |   | 9,181   | 
|BMC Software Finance, Inc.                |  | (l)          |  | Software & Services                |  | L+400                          |  |       |  | 9/10/18  |  |                    | 10,000  |  |               |   | 10,000  |              |  |   | 9,250   | 
|Cactus Wellhead, LLC                      |  | (f)(i)       |  | Energy                             |  | L+600                          |  | 1.0%  |  | 7/31/20  |  |                    | 11,618  |  |               |   | 10,906  |              |  |   | 8,394   | 
|Caesars Entertainment Operating Co., Inc. |  | (f)(j)(m)    |  | Consumer Services                  |  | 5.2%                           |  |       |  | 3/1/17   |  |                    | 5,223   |  |               |   | 5,060   |              |  |   | 4,474   | 
|Caesars Entertainment Operating Co., Inc. |  | (f)(j)(m)    |  | Consumer Services                  |  | 6.0%                           |  |       |  | 3/1/17   |  |                    | 1,649   |  |               |   | 1,604   |              |  |   | 1,416   | 
|CEVA Group Plc                            |  | (j)(l)       |  | Transportation                     |  | L+500                          |  |       |  | 3/19/19  |  |                    | 15,000  |  |               |   | 13,330  |              |  |   | 12,975  | 
|CITGO Holding, Inc.                       |  | (f)          |  | Energy                             |  | L+850                          |  | 1.0%  |  | 5/12/18  |  |                    | 10,305  |  |               |   | 9,838   |              |  |   | 10,262  | 
|Corner Investment PropCo, LLC             |  | (f)          |  | Consumer Services                  |  | L+975                          |  | 1.3%  |  | 11/2/19  |  |                    | 12,299  |  |               |   | 12,568  |              |  |   | 12,037  | 
|Emerging Markets Communications, LLC      |  | (g)          |  | Telecommunication Services         |  | L+575                          |  | 1.0%  |  | 7/1/21   |  |                    | 16,915  |  |               |   | 16,217  |              |  |   | 15,942  | 
|Fairway Group Acquisition Co.             |  | (i)          |  | Food & Staples Retailing           |  | L+400                          |  | 1.0%  |  | 8/17/18  |  |                    | 5,405   |  |               |   | 4,890   |              |  |   | 4,360   | 



See
notes to consolidated financial statements.



118



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##### Table of Contents

FS Investment Corporation III

Consolidated Schedule of Investments (continued)

As of December 31, 2015

(in thousands, except share amounts)







|                                             |  |              |  |                                    |  |         |  |       |  |          |  |                    |         |  |               |   |         |              |  |   |         | 
|-------------------------------------------- |  | ------------ |  | ---------------------------------- |  | ------- |  | ----- |  | -------- |  | ------------------ | ------- |  | ------------- | - | ------- | ------------ |  | - | ------- | 
|Portfolio
Company(a)                         |  | Footnotes    |  | Industry                           |  | Rate(b) |  | Floor |  | Maturity |  | PrincipalAmount(c) |         |  | AmortizedCost |   |         | FairValue(d) | 
|Fox Head, Inc.                               |  | (f)          |  | Consumer Durables & Apparel        |  | L+850   |  | 1.0%  |  | 12/19/20 |  | $                  | 1,714   |  |               | $ | 1,714   |              |  | $ | 1,722   | 
|Greystone Bridge Manager LLC                 |  | (j)          |  | Diversified Financials             |  | L+1050  |  |       |  | 5/1/20   |  |                    | 47,140  |  |               |   | 47,379  |              |  |   | 46,197  | 
|Greystone Bridge Manager LLC                 |  | (j)(l)       |  | Diversified Financials             |  | L+1050  |  |       |  | 5/1/20   |  |                    | 5,647   |  |               |   | 5,647   |              |  |   | 5,534   | 
|H.M. Dunn Co., Inc.                          |  | (f)          |  | Capital Goods                      |  | L+809   |  | 1.0%  |  | 3/26/21  |  |                    | 9,000   |  |               |   | 9,000   |              |  |   | 8,910   | 
|H.M. Dunn Co., Inc.                          |  | (l)          |  | Capital Goods                      |  | L+725   |  | 1.0%  |  | 3/26/21  |  |                    | 3,214   |  |               |   | 3,214   |              |  |   | 3,182   | 
|Harvey Industries, Inc.                      |  | (g)(h)       |  | Capital Goods                      |  | L+800   |  | 1.0%  |  | 10/1/21  |  |                    | 28,000  |  |               |   | 28,000  |              |  |   | 28,000  | 
|Hybrid Promotions, LLC                       |  | (f)          |  | Consumer Durables & Apparel        |  | L+850   |  | 1.0%  |  | 12/19/20 |  |                    | 6,286   |  |               |   | 6,286   |              |  |   | 6,314   | 
|Industrial Group Intermediate Holdings, LLC  |  | (g)          |  | Materials                          |  | L+800   |  | 1.3%  |  | 5/31/20  |  |                    | 6,977   |  |               |   | 6,977   |              |  |   | 6,907   | 
|JMC Acquisition Merger Corp.                 |  | (f)(g)(h)(i) |  | Capital Goods                      |  | L+858   |  | 1.0%  |  | 11/6/21  |  |                    | 83,500  |  |               |   | 83,500  |              |  |   | 83,500  | 
|JMC Acquisition Merger Corp.                 |  | (l)          |  | Capital Goods                      |  | L+750   |  | 1.0%  |  | 11/6/21  |  |                    | 15,127  |  |               |   | 15,127  |              |  |   | 15,127  | 
|JSS Holdings, Inc.                           |  | (h)          |  | Capital Goods                      |  | L+650   |  | 1.0%  |  | 8/31/21  |  |                    | 11,850  |  |               |   | 11,120  |              |  |   | 11,198  | 
|Latham Pool Products, Inc.                   |  | (g)(h)       |  | Commercial & Professional Services |  | L+775   |  | 1.0%  |  | 6/29/21  |  |                    | 45,000  |  |               |   | 45,000  |              |  |   | 44,100  | 
|Mood Media Corp.                             |  | (f)(j)       |  | Media                              |  | L+600   |  | 1.0%  |  | 5/1/19   |  |                    | 358     |  |               |   | 355     |              |  |   | 341     | 
|Murray Energy Corp.                          |  | (i)          |  | Energy                             |  | L+650   |  | 1.0%  |  | 4/16/20  |  |                    | 10,292  |  |               |   | 10,019  |              |  |   | 6,631   | 
|Navistar, Inc.                               |  | (j)(k)       |  | Capital Goods                      |  | L+550   |  | 1.0%  |  | 8/7/20   |  |                    | 6,000   |  |               |   | 5,230   |              |  |   | 5,315   | 
|Nobel Learning Communities, Inc.             |  |              |  | Consumer Services                  |  | L+450   |  | 1.0%  |  | 4/27/20  |  |                    | 3,634   |  |               |   | 3,634   |              |  |   | 3,634   | 
|Nobel Learning Communities, Inc.             |  | (l)          |  | Consumer Services                  |  | L+450   |  | 1.0%  |  | 4/27/20  |  |                    | 7,547   |  |               |   | 7,547   |              |  |   | 7,547   | 
|Nobel Learning Communities, Inc.             |  | (f)(g)(h)(i) |  | Consumer Services                  |  | L+845   |  | 1.0%  |  | 4/27/21  |  |                    | 84,472  |  |               |   | 84,472  |              |  |   | 84,173  | 
|Panda Temple Power, LLC                      |  | (f)          |  | Energy                             |  | L+625   |  | 1.0%  |  | 3/6/22   |  |                    | 14,888  |  |               |   | 14,621  |              |  |   | 12,282  | 
|PHRC License, LLC                            |  | (f)          |  | Consumer Services                  |  | L+900   |  | 1.5%  |  | 8/14/20  |  |                    | 14,856  |  |               |   | 14,856  |              |  |   | 14,708  | 
|Pittsburgh Glass Works, LLC                  |  | (f)(g)(h)(i) |  | Automobiles & Components           |  | L+916   |  | 1.0%  |  | 11/25/21 |  |                    | 91,924  |  |               |   | 91,924  |              |  |   | 91,924  | 
|Polymer Additives, Inc.                      |  | (f)(i)       |  | Materials                          |  | L+838   |  | 1.0%  |  | 12/20/21 |  |                    | 18,920  |  |               |   | 18,920  |              |  |   | 19,299  | 
|Production Resource Group, LLC               |  | (f)(i)       |  | Media                              |  | L+750   |  | 1.0%  |  | 7/23/19  |  |                    | 52,500  |  |               |   | 52,362  |              |  |   | 53,025  | 
|Propulsion Acquisition, LLC                  |  | (h)(i)       |  | Commercial & Professional Services |  | L+600   |  | 1.0%  |  | 7/13/21  |  |                    | 12,091  |  |               |   | 11,179  |              |  |   | 11,789  | 
|PSKW, LLC                                    |  | (f)(g)(h)(i) |  | Health Care Equipment & Services   |  | L+842   |  | 1.0%  |  | 11/25/21 |  |                    | 154,000 |  |               |   | 154,000 |              |  |   | 154,104 | 
|Reddy Ice Corp.                              |  | (i)          |  | Food, Beverage & Tobacco           |  | L+550   |  | 1.3%  |  | 5/1/19   |  |                    | 5,217   |  |               |   | 4,703   |              |  |   | 4,303   | 
|Roadrunner Intermediate Acquisition Co., LLC |  | (f)(g)(h)(i) |  | Health Care Equipment & Services   |  | L+800   |  | 1.0%  |  | 9/22/21  |  |                    | 104,344 |  |               |   | 104,344 |              |  |   | 104,020 | 
|Rogue Wave Software, Inc.                    |  | (f)(g)(h)(i) |  | Software & Services                |  | L+804   |  | 1.0%  |  | 9/25/21  |  |                    | 116,900 |  |               |   | 116,900 |              |  |   | 115,439 | 
|Sequential Brands Group, Inc.                |  | (f)(h)(i)(j) |  | Consumer Durables & Apparel        |  | L+825   |  |       |  | 12/4/21  |  |                    | 130,000 |  |               |   | 130,000 |              |  |   | 128,700 | 
|Serena Software, Inc.                        |  | (f)          |  | Software & Services                |  | L+650   |  | 1.0%  |  | 4/14/20  |  |                    | 1,476   |  |               |   | 1,453   |              |  |   | 1,409   | 
|ServiceMaster Co., LLC                       |  | (l)          |  | Commercial & Professional Services |  | L+325   |  |       |  | 7/1/19   |  |                    | 2,500   |  |               |   | 2,500   |              |  |   | 2,075   | 
|Sorenson Communications, Inc.                |  | (f)          |  | Telecommunication Services         |  | L+575   |  | 2.3%  |  | 4/30/20  |  |                    | 4,950   |  |               |   | 4,931   |              |  |   | 4,962   | 
|Sports Authority, Inc.                       |  | (f)          |  | Retailing                          |  | L+600   |  | 1.5%  |  | 11/16/17 |  |                    | 3,263   |  |               |   | 3,270   |              |  |   | 1,069   | 
|Stardust Finance Holdings, Inc.              |  | (h)(j)       |  | Materials                          |  | L+550   |  | 1.0%  |  | 3/14/22  |  |                    | 3,137   |  |               |   | 3,067   |              |  |   | 3,051   | 



See
notes to consolidated financial statements.



119



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##### Table of Contents

FS Investment Corporation III

Consolidated Schedule of Investments (continued)

As of December 31, 2015

(in thousands, except share amounts)







|                                            |  |              |  |                                    |  |                                 |  |       |  |          |  |                    |         |           |               |   |         |              |   |   |         | 
|------------------------------------------- |  | ------------ |  | ---------------------------------- |  | ------------------------------- |  | ----- |  | -------- |  | ------------------ | ------- | --------- | ------------- | - | ------- | ------------ | - | - | ------- | 
|Portfolio
Company(a)                        |  | Footnotes    |  | Industry                           |  | Rate(b)                         |  | Floor |  | Maturity |  | PrincipalAmount(c) |         |           | AmortizedCost |   |         | FairValue(d) |  
|Stonewall Gas Gathering LLC                 |  | (h)(i)       |  | Capital Goods                      |  | L+775                           |  | 1.0%  |  | 1/28/22  |  | $                  | 13,521  |           |               | $ | 12,925  |              |   | $ | 13,488  | 
|SunGard Availability Services Capital, Inc. |  | (l)          |  | Software & Services                |  | L+450                           |  |       |  | 3/8/18   |  |                    | 7,000   |           |               |   | 5,539   |              |   |   | 5,705   | 
|SunGard Availability Services Capital, Inc. |  | (f)(h)(i)    |  | Software & Services                |  | L+500                           |  | 1.0%  |  | 3/29/19  |  |                    | 25,065  |           |               |   | 23,322  |              |   |   | 21,869  | 
|Sunnova Asset Portfolio 5 Holdings, LLC     |  |              |  | Energy                             |  | 12.0% PIK (12.0% Max PIK)       |  |       |  | 11/14/21 |  |                    | 21,651  |           |               |   | 21,239  |              |   |   | 21,164  | 
|Sunnova Asset Portfolio 5 Holdings, LLC     |  | (l)          |  | Energy                             |  | 12.0% PIK (12.0% Max PIK)       |  |       |  | 11/14/21 |  |                    | 620     |           |               |   | 620     |              |   |   | 606     | 
|Transplace Texas, LP                        |  | (f)(g)(h)(i) |  | Transportation                     |  | L+747                           |  | 1.0%  |  | 9/16/21  |  |                    | 147,000 |           |               |   | 147,000 |              |   |   | 145,714 | 
|TTM Technologies, Inc.                      |  | (h)(j)(k)    |  | Technology Hardware & Equipment    |  | L+500                           |  | 1.0%  |  | 5/31/21  |  |                    | 2,500   |           |               |   | 2,316   |              |   |   | 2,269   | 
|U.S. Xpress Enterprises, Inc.               |  | (f)          |  | Transportation                     |  | L+1000, 0.0% PIK (1.5% Max PIK) |  | 1.5%  |  | 5/30/19  |  |                    | 13,309  |           |               |   | 13,309  |              |   |   | 13,309  | 
|UTEX Industries, Inc.                       |  | (f)          |  | Energy                             |  | L+400                           |  | 1.0%  |  | 5/21/21  |  |                    | 758     |           |               |   | 755     |              |   |   | 522     | 
|Vertellus Performance Chemicals LLC         |  | (f)(g)       |  | Materials                          |  | L+950                           |  | 1.0%  |  | 1/30/20  |  |                    | 42,000  |           |               |   | 42,000  |              |   |   | 39,723  | 
|Warren Resources, Inc.                      |  | (g)          |  | Energy                             |  | L+850                           |  | 1.0%  |  | 5/22/20  |  |                    | 29,675  |           |               |   | 29,675  |              |   |   | 24,185  | 
|Waste Pro USA, Inc.                         |  | (f)(g)       |  | Commercial & Professional Services |  | L+750                           |  | 1.0%  |  | 10/15/20 |  |                    | 30,360  |           |               |   | 30,360  |              |   |   | 30,815  | 
|Waste Pro USA, Inc.                         |  | (l)          |  | Commercial & Professional Services |  | L+750                           |  | 1.0%  |  | 10/15/20 |  |                    | 3,333   |           |               |   | 3,333   |              |   |   | 3,383   | 
|Weight Watchers International, Inc.         |  | (i)(j)       |  | Consumer Services                  |  | L+300                           |  |       |  | 4/2/16   |  |                    | 24,241  |           |               |   | 23,375  |              |   |   | 23,881  | 
|Winchester Electronics Corp.                |  |              |  | Technology Hardware & Equipment    |  | L+800                           |  | 1.0%  |  | 11/17/20 |  |                    | 2,871   |           |               |   | 2,871   |              |   |   | 2,814   | 
|Winchester Electronics Corp.                |  | (g)          |  | Technology Hardware & Equipment    |  | L+850                           |  | 1.0%  |  | 11/17/20 |  |                    | 21,818  |           |               |   | 21,818  |              |   |   | 21,382  | 
|Zeta Interactive Holdings Corp.             |  | (g)(h)(i)    |  | Software & Services                |  | L+750                           |  | 1.0%  |  | 7/9/21   |  |                    | 50,394  |           |               |   | 50,394  |              |   |   | 50,333  | 
|Zeta Interactive Holdings Corp.             |  | (l)          |  | Software & Services                |  | L+750                           |  | 1.0%  |  | 7/9/21   |  |                    | 10,892  |           |               |   | 10,892  |              |   |   | 10,879  | 
|                                            |  |              |  |                                    |  |                                 |  |       |  |          |  |                    |         |           |               |   |         |              |   |   |         | 
|Total Senior Secured LoansFirst Lien       |  |              |  |                                    |  |                                 |  |       |  |          |  |                    |         | 2,176,032 |               |   |         | 2,146,328    |  
|Unfunded Loan Commitments                   |  |              |  |                                    |  |                                 |  |       |  |          |  |                    |         | (267,776  | )             |   |         | (267,776     | )
|                                            |  |              |  |                                    |  |                                 |  |       |  |          |  |                    |         |           |               |   |         |              |  
|Net Senior Secured LoansFirst Lien         |  |              |  |                                    |  |                                 |  |       |  |          |  |                    |         | 1,908,256 |               |   |         | 1,878,552    |  
|                                            |  |              |  |                                    |  |                                 |  |       |  |          |  |                    |         |           |               |   |         |              |  
|Senior Secured LoansSecond Lien14.0%      |  |              |  |                                    |  |                                 |  |       |  |          | 
|AdvancePierre Foods, Inc.                   |  |              |  | Food, Beverage & Tobacco           |  | L+825                           |  | 1.3%  |  | 10/10/17 |  |                    | 894     |           |               |   | 904     |              |   |   | 880     | 
|Alison US LLC                               |  | (j)          |  | Capital Goods                      |  | L+850                           |  | 1.0%  |  | 8/29/22  |  |                    | 6,389   |           |               |   | 6,162   |              |   |   | 5,191   | 
|American EnergyMarcellus, LLC              |  |              |  | Energy                             |  | L+750                           |  | 1.0%  |  | 8/4/21   |  |                    | 6,667   |           |               |   | 6,583   |              |   |   | 156     | 
|Arena Energy, LP                            |  |              |  | Energy                             |  | L+1000                          |  | 1.0%  |  | 1/24/21  |  |                    | 15,000  |           |               |   | 15,000  |              |   |   | 13,812  | 
|Ascent ResourcesUtica, LLC                 |  |              |  | Energy                             |  | L+950, 2.0% PIK (2.0% Max PIK)  |  | 1.5%  |  | 9/30/18  |  |                    | 671     |           |               |   | 669     |              |   |   | 601     | 
|Atlas Resource Partners, L.P.               |  | (g)          |  | Energy                             |  | L+900                           |  | 1.0%  |  | 2/23/20  |  |                    | 33,000  |           |               |   | 32,150  |              |   |   | 26,395  | 
|BBB Industries US Holdings, Inc.            |  | (f)(g)       |  | Automobiles & Components           |  | L+875                           |  | 1.0%  |  | 11/3/22  |  |                    | 25,000  |           |               |   | 23,652  |              |   |   | 23,750  | 
|BlackBrush Oil & Gas, L.P.                  |  | (i)          |  | Energy                             |  | L+650                           |  | 1.0%  |  | 7/30/21  |  |                    | 8,850   |           |               |   | 8,795   |              |   |   | 7,094   | 
|BRG Sports, Inc.                            |  | (g)          |  | Consumer Durables & Apparel        |  | L+925                           |  | 1.0%  |  | 4/15/22  |  |                    | 3,563   |           |               |   | 3,543   |              |   |   | 3,277   | 



See
notes to consolidated financial statements.



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##### Table of Contents

FS Investment Corporation III

Consolidated Schedule of Investments (continued)

As of December 31, 2015

(in thousands, except share amounts)







|                                       |  |           |  |                                          |  |                           |  |       |  |          |  |                    |        |         |               |   |        |              |  |   |        | 
|-------------------------------------- |  | --------- |  | ---------------------------------------- |  | ------------------------- |  | ----- |  | -------- |  | ------------------ | ------ | ------- | ------------- | - | ------ | ------------ |  | - | ------ | 
|Portfolio
Company(a)                   |  | Footnotes |  | Industry                                 |  | Rate(b)                   |  | Floor |  | Maturity |  | PrincipalAmount(c) |        |         | AmortizedCost |   |        | FairValue(d) | 
|Byrider Finance, LLC                   |  |           |  | Automobiles & Components                 |  | L+1000                    |  | 1.3%  |  | 8/22/20  |  | $                  | 3,333  |         |               | $ | 3,333  |              |  | $ | 3,267  | 
|CDS U.S. Intermediate Holdings, Inc.   |  | (f)(j)    |  | Media                                    |  | L+825                     |  | 1.0%  |  | 7/10/23  |  |                    | 10,000 |         |               |   | 9,858  |              |  |   | 9,500  | 
|Chief Exploration & Development LLC    |  |           |  | Energy                                   |  | L+650                     |  | 1.0%  |  | 5/16/21  |  |                    | 991    |         |               |   | 913    |              |  |   | 665    | 
|ColourOz Investment 2 LLC              |  | (j)       |  | Materials                                |  | L+725                     |  | 1.0%  |  | 9/5/22   |  |                    | 1,143  |         |               |   | 1,135  |              |  |   | 1,097  | 
|Compuware Corp.                        |  | (f)(g)    |  | Software & Services                      |  | L+825                     |  | 1.0%  |  | 12/15/22 |  |                    | 17,000 |         |               |   | 15,408 |              |  |   | 15,385 | 
|Crossmark Holdings, Inc.               |  |           |  | Media                                    |  | L+750                     |  | 1.3%  |  | 12/21/20 |  |                    | 1,500  |         |               |   | 1,230  |              |  |   | 848    | 
|EagleView Technology Corp.             |  | (i)       |  | Software & Services                      |  | L+825                     |  | 1.0%  |  | 7/14/23  |  |                    | 15,385 |         |               |   | 15,162 |              |  |   | 14,750 | 
|Emerald Performance Materials, LLC     |  |           |  | Materials                                |  | L+675                     |  | 1.0%  |  | 8/1/22   |  |                    | 2,553  |         |               |   | 2,542  |              |  |   | 2,427  | 
|Fieldwood Energy LLC                   |  |           |  | Energy                                   |  | L+713                     |  | 1.3%  |  | 9/30/20  |  |                    | 5,835  |         |               |   | 4,254  |              |  |   | 931    | 
|Gruden Acquisition, Inc.               |  | (i)       |  | Transportation                           |  | L+850                     |  | 1.0%  |  | 8/18/23  |  |                    | 10,000 |         |               |   | 9,516  |              |  |   | 9,525  | 
|Inmar, Inc.                            |  | (h)       |  | Software & Services                      |  | L+700                     |  | 1.0%  |  | 1/27/22  |  |                    | 5,008  |         |               |   | 5,003  |              |  |   | 4,733  | 
|Jazz Acquisition, Inc.                 |  |           |  | Capital Goods                            |  | L+675                     |  | 1.0%  |  | 6/19/22  |  |                    | 1,998  |         |               |   | 2,008  |              |  |   | 1,798  | 
|Jonah Energy LLC                       |  |           |  | Energy                                   |  | L+650                     |  | 1.0%  |  | 5/12/21  |  |                    | 3,739  |         |               |   | 3,363  |              |  |   | 2,374  | 
|MD America Energy, LLC                 |  | (i)       |  | Energy                                   |  | L+850                     |  | 1.0%  |  | 8/4/19   |  |                    | 8,298  |         |               |   | 7,975  |              |  |   | 6,942  | 
|National Surgical Hospitals, Inc.      |  | (g)       |  | Health Care Equipment & Services         |  | L+900                     |  | 1.0%  |  | 6/1/23   |  |                    | 5,000  |         |               |   | 5,000  |              |  |   | 4,849  | 
|Neff Rental LLC                        |  | (f)       |  | Capital Goods                            |  | L+625                     |  | 1.0%  |  | 6/9/21   |  |                    | 24,318 |         |               |   | 24,433 |              |  |   | 20,184 | 
|Nielsen & Bainbridge, LLC              |  | (g)       |  | Consumer Durables & Apparel              |  | L+925                     |  | 1.0%  |  | 8/15/21  |  |                    | 5,558  |         |               |   | 5,482  |              |  |   | 5,475  | 
|Peak 10, Inc.                          |  | (i)       |  | Software & Services                      |  | L+725                     |  | 1.0%  |  | 6/17/22  |  |                    | 12,000 |         |               |   | 11,896 |              |  |   | 11,100 | 
|Printpack Holdings, Inc.               |  | (g)       |  | Materials                                |  | L+875                     |  | 1.0%  |  | 5/28/21  |  |                    | 10,000 |         |               |   | 9,833  |              |  |   | 9,750  | 
|Spencer Gifts LLC                      |  | (g)(i)    |  | Retailing                                |  | L+825                     |  | 1.0%  |  | 6/29/22  |  |                    | 27,000 |         |               |   | 26,882 |              |  |   | 27,135 | 
|Stardust Finance Holdings, Inc.        |  | (h)(j)    |  | Materials                                |  | L+950                     |  | 1.0%  |  | 3/13/23  |  |                    | 24,875 |         |               |   | 23,924 |              |  |   | 24,005 | 
|Templar Energy LLC                     |  |           |  | Energy                                   |  | L+750                     |  | 1.0%  |  | 11/25/20 |  |                    | 5,000  |         |               |   | 4,619  |              |  |   | 606    | 
|Ultima US Holdings LLC                 |  | (j)       |  | Capital Goods                            |  | L+850                     |  | 1.0%  |  | 12/31/20 |  |                    | 3,000  |         |               |   | 2,980  |              |  |   | 2,985  | 
|UTEX Industries, Inc.                  |  |           |  | Energy                                   |  | L+725                     |  | 1.0%  |  | 5/20/22  |  |                    | 1,273  |         |               |   | 1,267  |              |  |   | 834    | 
|Vantage Energy II, LLC                 |  |           |  | Energy                                   |  | L+750                     |  | 1.0%  |  | 5/8/17   |  |                    | 2,000  |         |               |   | 2,000  |              |  |   | 1,940  | 
|                                       |  |           |  |                                          |  |                           |  |       |  |          |  |                    |        |         |               |   |        |              |  |   |        | 
|Total Senior Secured LoansSecond Lien |  |           |  |                                          |  |                           |  |       |  |          |  |                    |        | 297,474 |               |   |        | 264,261      | 
|                                       |  |           |  |                                          |  |                           |  |       |  |          |  |                    |        |         |               |   |        |              | 
|Senior Secured Bonds4.0%              |  |           |  |                                          |  |                           |  |       |  |          | 
|American EnergyWoodford, LLC          |  | (e)(m)(n) |  | Energy                                   |  | 12.0% PIK (12.0% Max PIK) |  |       |  | 12/30/20 |  |                    | 2,788  |         |               |   | 2,022  |              |  |   | 397    | 
|Aspect Software, Inc.                  |  | (e)       |  | Software & Services                      |  | 10.6%                     |  |       |  | 5/15/17  |  |                    | 22,645 |         |               |   | 21,097 |              |  |   | 18,597 | 
|Avaya Inc.                             |  | (e)       |  | Technology Hardware & Equipment          |  | 10.5%                     |  |       |  | 3/1/21   |  |                    | 36,124 |         |               |   | 30,644 |              |  |   | 12,373 | 
|Comstock Resources, Inc.               |  | (e)(r)    |  | Energy                                   |  | 10.0%                     |  |       |  | 3/15/20  |  |                    | 2,500  |         |               |   | 2,500  |              |  |   | 1,153  | 
|Global A&T Electronics Ltd.            |  | (e)(j)    |  | Semiconductors & Semiconductor Equipment |  | 10.0%                     |  |       |  | 2/1/19   |  |                    | 12,550 |         |               |   | 11,851 |              |  |   | 9,915  | 



See
notes to consolidated financial statements.



121



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##### Table of Contents

FS Investment Corporation III

Consolidated Schedule of Investments (continued)

As of December 31, 2015

(in thousands, except share amounts)







|                                          |  |           |  |                                    |  |                                 |  |       |  |          |  |                    |        |         |               |   |        |              |  |   |        | 
|----------------------------------------- |  | --------- |  | ---------------------------------- |  | ------------------------------- |  | ----- |  | -------- |  | ------------------ | ------ | ------- | ------------- | - | ------ | ------------ |  | - | ------ | 
|Portfolio
Company(a)                      |  | Footnotes |  | Industry                           |  | Rate(b)                         |  | Floor |  | Maturity |  | PrincipalAmount(c) |        |         | AmortizedCost |   |        | FairValue(d) | 
|iHeartCommunications, Inc.                |  | (e)       |  | Media                              |  | 10.6%                           |  |       |  | 3/15/23  |  | $                  | 3,500  |         |               | $ | 3,500  |              |  | $ | 2,428  | 
|Lightstream Resources Ltd.                |  | (j)       |  | Energy                             |  | 9.9%                            |  |       |  | 6/15/19  |  |                    | 5,377  |         |               |   | 5,376  |              |  |   | 4,489  | 
|Logans Roadhouse, Inc.                   |  | (e)(f)    |  | Consumer Services                  |  | 4.0%, 10.5% PIK (10.5% Max PIK) |  |       |  | 10/15/17 |  |                    | 10,683 |         |               |   | 8,523  |              |  |   | 8,913  | 
|Modular Space Corp.                       |  | (e)       |  | Capital Goods                      |  | 10.3%                           |  |       |  | 1/31/19  |  |                    | 740    |         |               |   | 754    |              |  |   | 297    | 
|SandRidge Energy, Inc.                    |  | (e)       |  | 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 |  |                    | 11,820 |         |               |   | 11,407 |              |  |   | 11,044 | 
|Tembec Industries Inc.                    |  | (e)(j)(r) |  | Materials                          |  | 9.0%                            |  |       |  | 12/15/19 |  |                    | 3,715  |         |               |   | 3,715  |              |  |   | 2,419  | 
|                                          |  |           |  |                                    |  |                                 |  |       |  |          |  |                    |        |         |               |   |        |              |  |   |        | 
|Total Senior Secured Bonds                |  |           |  |                                    |  |                                 |  |       |  |          |  |                    |        | 113,064 |               |   |        | 75,597       | 
|                                          |  |           |  |                                    |  |                                 |  |       |  |          |  |                    |        |         |               |   |        |              | 
|Subordinated Debt23.8%                   |  |           |  |                                    |  |                                 |  |       |  |          | 
|Algeco Scotsman Global Finance Plc        |  | (e)(j)(r) |  | Commercial & Professional Services |  | 10.8%                           |  |       |  | 10/15/19 |  |                    | 11,100 |         |               |   | 9,435  |              |  |   | 4,346  | 
|Alta Mesa Holdings, LP                    |  | (e)       |  | Energy                             |  | 9.6%                            |  |       |  | 10/15/18 |  |                    | 950    |         |               |   | 697    |              |  |   | 334    | 
|Atlas Energy Holdings Operating Co., LLC  |  | (e)       |  | Energy                             |  | 7.8%                            |  |       |  | 1/15/21  |  |                    | 1,000  |         |               |   | 728    |              |  |   | 200    | 
|Bellatrix Exploration Ltd.                |  | (e)(j)    |  | Energy                             |  | 8.5%                            |  |       |  | 5/15/20  |  |                    | 10,000 |         |               |   | 9,821  |              |  |   | 6,737  | 
|Builders FirstSource, Inc.                |  | (e)(j)    |  | Capital Goods                      |  | 10.8%                           |  |       |  | 8/15/23  |  |                    | 7,850  |         |               |   | 7,850  |              |  |   | 7,796  | 
|Calumet Specialty Products Partners, L.P. |  | (j)       |  | Energy                             |  | 7.8%                            |  |       |  | 4/15/23  |  |                    | 10,300 |         |               |   | 10,228 |              |  |   | 9,015  | 
|Canbriam Energy Inc.                      |  | (e)(j)    |  | Energy                             |  | 9.8%                            |  |       |  | 11/15/19 |  |                    | 20,300 |         |               |   | 20,112 |              |  |   | 18,372 | 
|CEC Entertainment, Inc.                   |  | (e)(r)    |  | Consumer Services                  |  | 8.0%                            |  |       |  | 2/15/22  |  |                    | 28,184 |         |               |   | 27,774 |              |  |   | 26,810 | 
|Ceridian HCM Holding Inc.                 |  | (e)(r)    |  | Commercial & Professional Services |  | 11.0%                           |  |       |  | 3/15/21  |  |                    | 70,139 |         |               |   | 71,107 |              |  |   | 55,410 | 
|Communications Sales & Leasing, Inc.      |  | (e)(j)(r) |  | Real Estate                        |  | 8.3%                            |  |       |  | 10/15/23 |  |                    | 2,000  |         |               |   | 1,944  |              |  |   | 1,707  | 
|Eclipse Resources Corp.                   |  | (e)(j)    |  | Energy                             |  | 8.9%                            |  |       |  | 7/15/23  |  |                    | 9,175  |         |               |   | 8,990  |              |  |   | 4,415  | 
|EV Energy Partners, L.P.                  |  |           |  | Energy                             |  | 8.0%                            |  |       |  | 4/15/19  |  |                    | 2,150  |         |               |   | 1,901  |              |  |   | 1,070  | 
|Genesis Energy, L.P.                      |  | (e)(j)    |  | Energy                             |  | 6.8%                            |  |       |  | 8/1/22   |  |                    | 7,250  |         |               |   | 7,155  |              |  |   | 6,099  | 
|Global Jet Capital Inc.                   |  |           |  | Commercial & Professional Services |  | 15.0% PIK (15.0% Max PIK)       |  |       |  | 1/30/25  |  |                    | 635    |         |               |   | 635    |              |  |   | 635    | 
|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.                   |  | (j)       |  | Commercial & Professional Services |  | 15.0% PIK (15.0% Max PIK)       |  |       |  | 12/4/25  |  |                    | 51,713 |         |               |   | 51,713 |              |  |   | 51,713 | 
|Global Jet Capital Inc.                   |  | (j)       |  | Commercial & Professional Services |  | 15.0% PIK (15.0% Max PIK)       |  |       |  | 12/9/25  |  |                    | 8,458  |         |               |   | 8,458  |              |  |   | 8,458  | 
|Greatbatch Ltd.                           |  | (e)(j)    |  | Health Care Equipment & Services   |  | 9.1%                            |  |       |  | 11/1/23  |  |                    | 1,900  |         |               |   | 1,900  |              |  |   | 1,883  | 
|Jupiter Resources Inc.                    |  | (e)(j)(r) |  | Energy                             |  | 8.5%                            |  |       |  | 10/1/22  |  |                    | 31,850 |         |               |   | 28,426 |              |  |   | 12,780 | 
|Kenan Advantage Group, Inc.               |  | (e)       |  | Transportation                     |  | 7.9%                            |  |       |  | 7/31/23  |  |                    | 10,780 |         |               |   | 10,780 |              |  |   | 10,645 | 



See
notes to consolidated financial statements.



122



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##### Table of Contents

FS Investment Corporation III

Consolidated Schedule of Investments (continued)

As of December 31, 2015

(in thousands, except share amounts)







|                                                    |  |           |  |                             |  |                                 |  |       |  |          |          |  |                    |   |           |               |  |   |              |  |  |   |        | 
|--------------------------------------------------- |  | --------- |  | --------------------------- |  | ------------------------------- |  | ----- |  | -------- | -------- |  | ------------------ | - | --------- | ------------- |  | - | ------------ |  |  | - | ------ | 
|Portfolio
Company(a)                                |  | Footnotes |  | Industry                    |  | Rate(b)                         |  | Floor |  | Maturity |          |  | PrincipalAmount(c) |   |           | AmortizedCost |  |   | FairValue(d) | 
|Legacy Reserves LP                                  |  | (e)       |  | Energy                      |  | 6.6%                            |  |       |  |          | 12/1/21  |  |                    | $ | 5,000     |               |  | $ | 3,988        |  |  | $ | 1,081  | 
|Legacy Reserves LP                                  |  | (e)       |  | Energy                      |  | 8.0%                            |  |       |  |          | 12/1/20  |  |                    |   | 1,000     |               |  |   | 865          |  |  |   | 201    | 
|Navistar International Corp.                        |  | (e)(j)(r) |  | Capital Goods               |  | 8.3%                            |  |       |  |          | 11/1/21  |  |                    |   | 33,585    |               |  |   | 30,899       |  |  |   | 22,723 | 
|NewStar Financial, Inc.                             |  | (f)(j)    |  | Diversified Financials      |  | 8.3%, 0.0% PIK (8.8% Max PIK)   |  |       |  |          | 12/4/24  |  |                    |   | 68,750    |               |  |   | 54,502       |  |  |   | 50,188 | 
|Northern Oil and Gas, Inc.                          |  | (e)(r)    |  | Energy                      |  | 8.0%                            |  |       |  |          | 6/1/20   |  |                    |   | 3,150     |               |  |   | 3,008        |  |  |   | 2,099  | 
|P.F. Changs China Bistro, Inc.                     |  | (e)(r)    |  | Consumer Services           |  | 10.3%                           |  |       |  |          | 6/30/20  |  |                    |   | 63,695    |               |  |   | 64,210       |  |  |   | 53,066 | 
|PriSo Acquisition Corp.                             |  | (e)(r)    |  | Capital Goods               |  | 9.0%                            |  |       |  |          | 5/15/23  |  |                    |   | 30,050    |               |  |   | 29,934       |  |  |   | 28,848 | 
|Production Resource Group, LLC                      |  | (e)       |  | Media                       |  | 8.9%                            |  |       |  |          | 5/1/19   |  |                    |   | 22,740    |               |  |   | 18,853       |  |  |   | 16,970 | 
|Scientific Games International, Inc.                |  | (e)(j)    |  | Consumer Services           |  | 8.1%                            |  |       |  |          | 9/15/18  |  |                    |   | 6,163     |               |  |   | 4,850        |  |  |   | 4,554  | 
|Sorenson Communications, Inc.                       |  |           |  | Telecommunication Services  |  | 13.0%, 0.0% PIK (13.0% Max PIK) |  |       |  |          | 10/31/21 |  |                    |   | 8,983     |               |  |   | 9,432        |  |  |   | 9,345  | 
|SunGard Availability Services Capital, Inc.         |  | (e)(r)    |  | Software & Services         |  | 8.8%                            |  |       |  |          | 4/1/22   |  |                    |   | 16,400    |               |  |   | 11,042       |  |  |   | 9,984  | 
|Talos Production LLC                                |  | (e)       |  | Energy                      |  | 9.8%                            |  |       |  |          | 2/15/18  |  |                    |   | 4,500     |               |  |   | 4,131        |  |  |   | 1,856  | 
|TI Group Automotive Systems, LLC                    |  | (e)(j)(r) |  | Automobiles & Components    |  | 8.8%                            |  |       |  |          | 7/15/23  |  |                    |   | 10,275    |               |  |   | 10,275       |  |  |   | 9,466  | 
|York Risk Services Holding Corp.                    |  | (e)       |  | Insurance                   |  | 8.5%                            |  |       |  |          | 10/1/22  |  |                    |   | 9,050     |               |  |   | 8,208        |  |  |   | 7,251  | 
|                                                    |  |           |  |                             |  |                                 |  |       |  |          |          |  |                    |   |           |               |  |   |              |  |  |   |        | 
|Total Subordinated Debt                             |  |           |  |                             |  |                                 |  |       |  |          |          |  |                    |   | 539,488   |               |  |   | 451,694      | 
|                                                    |  |           |  |                             |  |                                 |  |       |  |          |          |  |                    |   |           |               |  |   |              | 
|Collateralized Securities0.4%                      |  |           |  |                             |  |                                 |  |       |  |          |          | 
|NewStar Clarendon 2014-1A Class D                   |  | (j)       |  | Diversified Financials      |  | L+435                           |  |       |  |          | 1/25/27  |  |                    |   | 730       |               |  |   | 684          |  |  |   | 664    | 
|NewStar Clarendon 2014-1A Class Subord. B           |  | (j)       |  | Diversified Financials      |  | 13.6%                           |  |       |  |          | 1/25/27  |  |                    |   | 8,310     |               |  |   | 7,497        |  |  |   | 6,943  | 
|                                                    |  |           |  |                             |  |                                 |  |       |  |          |          |  |                    |   |           |               |  |   |              |  |  |   |        | 
|Total Collateralized Securities                     |  |           |  |                             |  |                                 |  |       |  |          |          |  |                    |   | 8,181     |               |  |   | 7,607        | 
|                                                    |  |           |  |                             |  |                                 |  |       |  |          |          |  |                    |   |           |               |  |   |              | 
|                                                    |  |           |  |                             |  |                                 |  |      
|                                                    |  |           |  |                             |  |                                 |  |       |  |          |          |  | Number ofShares    |   |           | Cost          |  |   | FairValue(d) | 
|Equity/Other3.5%                                   |  |           |  |                             |  |                                 |  |       |  |          |          | 
|5 Arches, LLC, Common Equity                        |  | (j)(m)(o) |  | Diversified Financials      |  |                                 |  |       |  |          |          |  |                    |   | 33,163    |               |  | $ | 875          |  |  | $ | 875    | 
|ACP FH Holdings GP, LLC, Common Equity              |  | (m)       |  | Consumer Durables & Apparel |  |                                 |  |       |  |          |          |  |                    |   | 11,429    |               |  |   | 11           |  |  |   | 11     | 
|ACP FH Holdings, LP, Common Equity                  |  | (m)       |  | Consumer Durables & Apparel |  |                                 |  |       |  |          |          |  |                    |   | 1,131,428 |               |  |   | 1,131        |  |  |   | 1,127  | 
|Altus Power America Holdings, LLC, Preferred Equity |  |           |  | Energy                      |  |                                 |  |       |  |          |          |  |                    |   | 574,759   |               |  |   | 573          |  |  |   | 1,063  | 
|Altus Power America Management, LLC, Class B Units  |  | (m)(q)    |  | Energy                      |  |                                 |  |       |  |          |          |  |                    |   | 83        |               |  |   |             |  |  |   |       | 



See
notes to consolidated financial statements.



123



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FS Investment Corporation III

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) | 
|Global Jet Capital Holdings, LP, Preferred Equity          |  | (j)(m)    |  |          | Commercial & Professional Services |  |                 |  |  |      |  |  |              |  |  | 27,956,962 |  |   | $              | 27,957 |  |   | $         | 27,957 | 
|Harvey Holdings, LLC, Common Equity                        |  | (m)       |  |          | Capital Goods                      |  |                 |  |  |      |  |  |              |  |  | 2,000,000  |  |   |                | 2,000  |  |   |           | 1,900  | 
|Industrial Group Intermediate Holdings, LLC, Common Equity |  | (m)(o)    |  |          | Materials                          |  |                 |  |  |      |  |  |              |  |  | 173,554    |  |   |                | 174    |  |   |           | 286    | 
|JMC Acquisition Holdings, LLC, Common Equity               |  | (m)       |  |          | Capital Goods                      |  |                 |  |  |      |  |  |              |  |  | 8,068      |  |   |                | 8,068  |  |   |           | 8,068  | 
|NewStar Financial, Inc., Warrants, 11/4/2024               |  | (j)(m)(s) |  |          | Diversified Financials             |  |                 |  |  |      |  |  |              |  |  | 3,000,000  |  |   |                | 15,057 |  |   |           | 14,760 | 
|Sequential Brands Group, Inc., Common Equity               |  | (j)(m)    |  |          | Consumer Durables & Apparel        |  |                 |  |  |      |  |  |              |  |  | 125,391    |  |   |                | 1,693  |  |   |           | 857    | 
|Sunnova Holdings, LLC, Common Equity                       |  | (m)       |  |          | Energy                             |  |                 |  |  |      |  |  |              |  |  | 93,041     |  |   |                | 2,166  |  |   |           | 2,559  | 
|Zeta Interactive Holdings Corp., Preferred Equity          |  | (m)       |  |          | Software & Services                |  |                 |  |  |      |  |  |              |  |  | 1,051,348  |  |   |                | 8,357  |  |   |           | 8,686  | 
|                                                           |  |           |  |          |                                    |  |                 |  |  |      |  |  |              |  |  |            |  |  
|Total Equity/Other                                         |  |           |  |          |                                    |  |                 |  |  |      |  |  |              |  |  |            |  |   |                |        |  |   | 68,062    |        |  |   | 68,149                 |  
|Unfunded Contingent Warrant Commitment                     |  | (t)       |  |          |                                    |  |                 |  |  |      |  |  |              |  |  |            |  |   |                |        |  |   |           |        |  |   | (1,230                 | )
|                                                           |  |           |  |          |                                    |  |                
|Net Equity/Other                                           |  |           |  |          |                                    |  |                 |  |  |      |  |  |              |  |  |            |  |   |                |        |  |   |           |        |  |   | 66,919                 |  
|                                                           |  |           |  |          |                                    |  |                 |  |  |      |  |  |              |  |  |            |  |   |                |        |  |   |           |        |  |   |                        |  
|TOTAL INVESTMENTS144.8%                                   |  |           |  |          |                                    |  |                 |  |  |      |  |  |              |  |  |            |  |   |                |        |  | $ | 2,934,525 |        |  |   | 2,744,630              |  
|                                                           |  |           |  |          |                                    |  |                 |  |  |      |  |  |              |  |  |            |  |   |                |        |  |   |           |        |  |   |                        |  
|LIABILITIES IN EXCESS OF OTHER ASSETS(44.8%)              |  |           |  |          |                                    |  |                 |  |  |      |  |  |              |  |  |            |  |   |                |        |  |   |           |        |  |   | (849,588               | )
|                                                           |  |           |  |          |                                    |  |                 |  |  |      |  |  |              |  |  |            |  |   |                |        |  |   |           |        |  |   |                        |  
|NET ASSETS100.0%                                          |  |           |  |          |                                    |  |                 |  |  |      |  |  |              |  |  |            |  |   |                |        |  |   |           |        |  | $ | 1,895,042              |  
|                                                           |  |           |  |          |                                    |  |                 |  |  |      |  |  |              |  |  |            |  |   |                |        |  |   |           |        |  |   |                        |  
|                                                           |  |           |  |          |                                    |  |                 | 
|Total Return Swap                                          |  |           |  |          |                                    |  |                 |  |  |      |  |  |              |  |  |            |  |   | NotionalAmount |        |  |   |           |        |  |   | UnrealizedDepreciation |  
|                                                           |  |           |  |          |                                    |  |                 |  |  |      |  |  |              |  |  |            |  |   |                |        |  |   |           |        |  |   |                        |  
|Citibank TRS Facility (Note 8)                             |  | (j)       |  |          |                                    |  |                 |  |  |      |  |  |              |  |  |            |  | $ | 394,680        |        |  |   |           |        |  | $ | (25,927                | )
|                                                           |  |           |  |          |                                    |  |                 |  |  |      | 



|(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% 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 Burholme Funding LLC, or Burholme Funding, and is pledged as collateral supporting the amounts outstanding under the prime
brokerage facility with BNP Paribas Prime Brokerage, Inc., or BNPP. Securities held within Burholme Funding may be rehypothecated from time to time as permitted under Rule 15c-1(a)(1) of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, subject to the terms and conditions governing the prime brokerage facility with BNPP (see Note 8).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(f) | Security or portion thereof held within Dunlap Funding LLC, or Dunlap Funding, and is pledged as collateral supporting the amounts outstanding under a revolving credit
facility with Deutsche Bank AG, New York Branch, or Deutsche Bank (see Note 8).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See
notes to consolidated financial statements.



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FS Investment Corporation III

Consolidated Schedule of Investments (continued)

As of December 31, 2015

(in thousands, except share amounts)







|(g) | Security or portion thereof held within Jefferson Square Funding LLC, or Jefferson Square Funding, and is pledged as collateral supporting the amounts outstanding under
a term loan credit facility with JPMorgan Chase Bank, National Association, or JPM (see Note 8).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(h) | Security or portion thereof held within Chestnut Hill Funding LLC, or Chestnut Hill Funding, and is pledged as collateral supporting the amounts outstanding under a
revolving credit facility with Capital One, National Association (see Note 8).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(i) | Security or portion thereof held within Germantown Funding LLC, or Germantown Funding, and is pledged as collateral supporting the amounts outstanding under the notes
issued to Society Hill Funding LLC, or Society Hill Funding, pursuant to an indenture with Citibank, N.A., or Citibank, as trustee (see Note 8).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(j) | The investment is not a qualifying asset under the Investment Company Act of 1940, as amended, or the 1940 Act. A business development company may not acquire any asset
other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the companys total assets. As of December 31, 2015, 83.6% of the Companys total assets represented qualifying
assets. In addition, as described in Note 8, the Company also calculates its compliance with the qualifying asset test on a look through basis by disregarding the value of the Companys total return swap and treating each loan
underlying the total return swap as either a qualifying asset or non-qualifying asset based on whether the obligor is an eligible portfolio company. On this basis, 80.7% of the Companys total assets
represented qualifying assets as of December 31, 2015.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(k) | Position or portion thereof unsettled as of December 31, 2015.
|--- | --------------------------------------------------------------



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



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



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



|(o) | Security held within FSIC III Investments, Inc., a wholly-owned subsidiary of the Company.
|--- | ------------------------------------------------------------------------------------------



|(p) | Security held within IC III Arches Investments, LLC, a wholly-owned subsidiary of the Company.
|--- | ----------------------------------------------------------------------------------------------



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



|(r) | Security or portion thereof held within Burholme Funding has been rehypothecated under Rule 15c-1(a)(1) of the Exchange Act,
subject to the terms and conditions governing the prime brokerage facility with BNPP (see Note 8). As of December 31, 2015 the fair value of securities rehypothecated by BNPP was $144,041.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(s) | Includes 250,000 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 $6,250, upon the request of NewStar.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(t) | 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 $6,250, upon the request of NewStar.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See
notes to consolidated financial statements.



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FS Investment Corporation III

Notes to Consolidated Financial Statements

(in thousands, except share and per share amounts)





Note 1. Principal Business and
Organization

FS Investment Corporation III, or the Company, was incorporated under the general corporation laws of the
State of Maryland on June 7, 2013 and formally commenced investment operations on April 2, 2014 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 III Advisor, LLC, or FSIC III 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.

The Company is 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. In addition, the
Company 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, 2016, the Company had seven wholly-owned financing subsidiaries, three wholly-owned subsidiaries through which it holds interests in non-controlled portfolio companies and one wholly-owned
subsidiary through which it expects to hold interests in non-controlled portfolio companies. The consolidated financial statements include both the Companys accounts and the accounts of its wholly-owned
subsidiaries as of December 31, 2016. All significant intercompany transactions have been eliminated in consolidation. One of the Companys consolidated subsidiaries is 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 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, in the Companys target companies, generally in conjunction with one of the Companys debt investments or through a co-investment with a financial sponsor, such as an
institutional investor or private equity firm. In addition, a portion of the Companys portfolio may be comprised of corporate bonds, 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 under Accounting Standards Update No. 2013-08, Financial ServicesInvestment



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 2. Summary of Significant
Accounting Policies (continued)



Companies. The Company has evaluated the impact of subsequent events through the date the 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 III 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 III 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 III Advisors management team then provides the valuation committee with 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 III 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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FS Investment Corporation III

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 III 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 III 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 III 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 III 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 III 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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FS Investment Corporation III

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 III 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 III Advisors management team,
and has authorized FSIC III 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
III Advisors implementation of the valuation process.

The Company values its total return swap, or TRS, between its
wholly-owned financing subsidiary, Center City Funding LLC, or Center City, and Citibank, N.A., or Citibank, in accordance with the agreements between Center City and Citibank that collectively established the TRS, which agreements are collectively
referred to herein as the TRS Agreement. Pursuant to the TRS Agreement, the value of the TRS is based on the increase or decrease in the value of the loans underlying the TRS, together with accrued interest income, interest expense and certain other
expenses incurred under the TRS. The loans underlying the TRS are valued by Citibank. Citibank bases its valuation on the indicative bid prices provided by an independent third-party pricing service. Bid prices reflect the highest price that market
participants may be willing to pay. These valuations are sent to the Company for review and testing. The valuation committee of the Companys board of directors, or the valuation committee, and board of directors review and approve the value of
the TRS, as well as the value of the loans underlying the TRS, on a quarterly basis. To the extent the Companys valuation committee or board of directors has any questions or concerns regarding the valuation of the loans underlying the TRS,
such valuation is discussed or challenged pursuant to the terms of the TRS Agreement. See Note 8 for a discussion of the TRS.

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,



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 2. Summary of Significant
Accounting Policies (continued)



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 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 III Advisor, dated as of December 20, 2013, which was amended and restated on August 6, 2014, and which, as amended and
restated, is referred to herein as 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, 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. 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 III Advisor if the Companys entire portfolio was liquidated at its fair value as of the balance sheet date even though FSIC III Advisor
is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.

Based
on an interpretation of the applicable language in the Advisers Act by the staff of the Division of Investment Management of the SEC, the Company looks through its total return swap, or TRS, in calculating



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 2. Summary of Significant
Accounting Policies (continued)



the 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 underlying the TRS directly is treated as net investment income subject to the subordinated incentive fee on income payable to FSIC III 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 underlying the TRS further reduces the capital gains incentive fee payable
to FSIC III Advisor with respect to realized gains. See Note 8 for a discussion of the TRS.

Subordinated Income Incentive
Fee: Pursuant to the investment advisory and administrative services agreement, FSIC III 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 amounts paid for share repurchases pursuant to the Companys share repurchase program. As a result, FSIC III 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 III 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% of adjusted capital, or 9.375% annually. Thereafter, FSIC
III Advisor will be entitled to receive 20.0% of the Companys pre-incentive fee net investment income.

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. The Company accrued $281, $95 and $0 in estimated excise taxes payable in respect of income received during the years ended December 31, 2016, 2015 and 2014, respectively. During the years ended
December 31, 2016, 2015 and 2014, the Company paid $260, $0 and $0, respectively, in excise 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



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 2. Summary of Significant
Accounting Policies (continued)



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, 2016, 2015 and 2014, 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 to stockholders of record,
determined on a weekly basis. Net realized capital gains, if any, are distributed or deemed distributed at least annually.

Organization Costs: Organization costs include, among other things, the cost of incorporating, including the cost of legal
services and other fees pertaining to the Companys organization. These costs were expensed as incurred (see Note 4).

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 shares of its common stock. Historically, the Company has charged offering costs against capital in excess of par value on its consolidated balance sheets. Following
recent discussions with the Staff of the Division of Investment Management of the SEC, the Company has decided to change its accounting treatment of offering costs and defer and amortize such costs to expense over twelve months. The Company
evaluated this change in accounting treatment of offering costs, which it implemented effective January 1, 2016, and determined that it did not have a material impact on the Companys consolidated financial position, results of operations
or cash flows (see Note 4).

Partial Loan Sales: The Company follows the guidance in Accounting Standards
Codification Topic 860, Transfers and Servicing, or ASC Topic 860, when accounting for loan participations and other partial loan sales. This guidance requires a participation or other partial loan sale to meet the definition of a
participating interest, as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain on the Companys consolidated balance
sheets and the proceeds are recorded as a secured borrowing until the participation or other partial loan sale meets the definition. Secured borrowings are carried at fair value to correspond with the related investments, which are carried at fair
value. See Note 8 for additional information.

Reclassifications: Certain amounts in the consolidated financial
statements for the years ended December 31, 2015 and 2014 have been reclassified to conform to the classifications used to prepare the consolidated financial statements for the year ended December 31, 2016. These
reclassifications had no material impact on the Companys consolidated financial position, results of operations or cash flows as previously reported.



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 2. Summary of Significant
Accounting Policies (continued)



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 financial
statements. Under pre-existing guidance, debt issuance costs were recognized as a deferred charge and presented as an asset on the balance sheet. ASU 2015-03 requires
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 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.

Commencing January 1, 2016, the Company adopted ASU 2015-03 and changed its method of
disclosing debt issuance costs for its repurchase agreement and term loan credit facility. ASU 2015-03 affects the presentation and disclosure of such costs in the Companys financial statements. There is
no change to the Companys recognition and measurement of debt issuance costs. In accordance with ASU 2015-15, the Company elected to continue to present debt issuance costs associated with line-of-credit arrangements as an asset, unchanged from its prior method of disclosure.

Comparative financial statements of prior interim and annual periods have been adjusted to apply the new method retrospectively. The adoption and retrospective adjustment of ASU 2015-03 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, 2016, 2015 and 2014:



|                                                |  |                         |            |   |        |   |         |        |  |  |             |   |  |        |           |   |        |  |            |   |  |   |         |  
|----------------------------------------------- |  | ----------------------- | ---------- | - | ------ | - | ------- | ------ |  |  | ----------- | - |  | ------ | --------- | - | ------ |  | ---------- | - |  | - | ------- | -
|                                                |  | Year Ended December 31, |           
|                                                |  | 2016                    |            |   | 2015   |   |         | 2014   | 
|                                                |  | Shares                  |            |   | Amount |   |         | Shares |  |  | Amount      |   |  | Shares |           |   | Amount | 
|Gross Proceeds from Offering                    |  |                         | 23,906,651 |   |        | $ | 203,804 |        |  |  | 137,078,118 |   |  | $      | 1,324,880 |   |        |  | 96,364,376 |   |  | $ | 954,837 |  
|Reinvestment of Distributions                   |  |                         | 11,789,088 |   |        |   | 96,669  |        |  |  | 7,283,080   |   |  |        | 63,285    |   |        |  | 1,195,854  |   |  |   | 11,313  |  
|                                                |  |                         |            |   |        |   |         |        |  |  |             |   |  |        |           |   |        |  |            |   |  |   |         |  
|Total Gross Proceeds                            |  |                         | 35,695,739 |   |        |   | 300,473 |        |  |  | 144,361,198 |   |  |        | 1,388,165 |   |        |  | 97,560,230 |   |  |   | 966,150 |  
|Commissions and Dealer Manager Fees             |  |                         |           |   |        |   | (9,992  | )      |  |  |            |   |  |        | (118,630  | ) |        |  |           |   |  |   | (88,780 | )
|                                                |  |                         |            |   |        |   |         |        |  |  |             |   |  |        |           |   |        |  |            |   |  |   |         |  
|Net Proceeds to Company                         |  |                         | 35,695,739 |   |        |   | 290,481 |        |  |  | 144,361,198 |   |  |        | 1,269,535 |   |        |  | 97,560,230 |   |  |   | 877,370 |  
|Share Repurchase Program                        |  |                         | (4,612,315 | ) |        |   | (38,060 | )      |  |  | (669,010    | ) |  |        | (5,878    | ) |        |  | (4,050     | ) |  |   | (36     | )
|                                                |  |                         |            |   |        |   |         |        |  |  |             |   |  |        |           |   |        |  |            |   |  |   |         |  
|Net Proceeds to Company from Share Transactions |  |                         | 31,083,424 |   |        | $ | 252,421 |        |  |  | 143,692,188 |   |  | $      | 1,263,657 |   |        |  | 97,556,180 |   |  | $ | 877,334 |  
|                                                |  |                         |            |   |        |   |         |        |  |  |             |   |  |        |           |   |        |  |            |   |  |   |         |  



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 3. Share Transactions (continued)



Status of Continuous Public Offering

Since commencing its continuous public offering and through February 28, 2017, the Company has issued 280,778,112 shares of common
stock for gross proceeds of $2,681,451. As of February 28, 2017, the Company had raised total gross proceeds of $2,693,438, including $200 of seed capital contributed by the principals of FSIC III Advisor in October 2013 and $11,787 in proceeds
raised in a private placement completed in April 2014 from the principals of FSIC III Advisor, certain members of the Companys board of directors and other individuals and entities affiliated with FSIC III Advisor and GSO / Blackstone Debt
Funds Management LLC, or GDFM, the Companys investment sub-adviser (see Note 4).

During the years ended December 31, 2016, 2015 and 2014, the Company issued 35,695,739, 144,361,198 and 97,560,230 shares of common
stock for gross proceeds of $300,473, $1,388,165 and $966,150 at an average price per share of $8.42, $9.62 and $9.90, respectively. The gross proceeds received during the years ended December 31, 2016, 2015 and 2014, include reinvested
stockholder distributions of $96,669, $63,285 and $11,313 for which the Company issued 11,789,088, 7,283,080 and 1,195,854 shares of common stock, respectively. During the period from January 1, 2017 to February 28, 2017, the Company
issued 4,470,584 shares of common stock for gross proceeds of $38,450 at an average price per share of $8.60.

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 $9,992, $118,630 and
$88,780 for the years ended December 31, 2016, 2015 and 2014, respectively.

The Company is
currently offering shares of its common stock pursuant to its continuous public offering only to persons who purchase through investment advisors whose contracts for investment advisory and related services include a fixed or wrap fee or
other asset-based fee arrangement, and who are collectively referred to herein as Advisors, and to certain affiliated investors who purchase through FS Investment Solutions, LLC (formerly FS2Capital Partners, LLC), or FSInvestment Solutions, the Companys dealer manager for the continuous public offering. Sales of shares of the
Companys common stock through Advisors is referred to herein as the Institutional Channel. In February 2016, the Company closed its continuous public offering to investors investing through the IBD Channel, or the IBD Channel closing. As used
herein, the IBD Channel refers to sales of shares of the Companys common stock through broker-dealers (other than the dealer manager) that are members of the Financial Industry Regulatory Authority, or FINRA, and other properly licensed
financial securities firms whose contracts for investment advisory and related services do not include a fixed or wrap fee or other asset-based fee arrangement, and who are collectively referred to herein as selected
broker-dealers. Historically, sales through the IBD Channel have constituted the majority of shares sold in the Companys continuous public offering.

Prior to the IBD Channel closing, shares of the Companys common stock in its continuous public offering were subject to a sales load of up to 10.0% of the public offering price, which consisted of
selling commissions and dealer manager fees of up to 7.0% and 3.0%, respectively, of the public offering price. Following the IBD Channel closing, shares of common stock in its continuous public offering have been sold at an institutional
offering price that does not include any selling commissions or dealer manager fees. The institutional offering price as of December 31, 2016 was $8.55 per share; however, to the extent that the Companys net asset value per share
increases, the Company will sell at a price necessary to ensure that shares are not sold at a price per



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 3. Share Transactions (continued)



share that is below the Companys net asset value per share. In the event of a material decline in the Companys net asset value per share, which the Company considers to be a 2.5%
decrease below the Companys then-current institutional offering price, the Company will reduce its institutional offering price in order to establish a new institutional offering price that is not more than 2.5% above the Companys net
asset value per share.

Share Repurchase Program

The Company intends to continue to conduct quarterly tender offers pursuant to its share repurchase program. The Companys board of
directors will consider the following factors, among others, in making its determination regarding whether to cause the Company to offer to repurchase shares and under what terms:



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



| |  |  | the liquidity of 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 currently intends to offer to repurchase such shares of common stock on each date of repurchase at a price equal to the institutional offering price in effect on the date of repurchase. In months in which the Company repurchases
shares of common stock pursuant to its share repurchase program, it expects to conduct repurchases on the same date that it holds its first weekly closing in such month for the sale of shares of common stock in its continuous public offering. The
Companys board of directors may amend, suspend or terminate the share repurchase program at any time upon 30 days notice.



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FS Investment Corporation III

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 its common stock pursuant to its share repurchase program during the years ended December 31, 2016, 2015 and 2014:



|                           |  |                 |                 |  |                   |  |           |                                                 |  |  |                                                                     |   |  |                          |      |   |                                            |   |       |  |  |   |        | 
|-------------------------- |  | --------------- | --------------- |  | ----------------- |  | --------- | ----------------------------------------------- |  |  | ------------------------------------------------------------------- | - |  | ------------------------ | ---- | - | ------------------------------------------ | - | ----- |  |  | - | ------ | 
|For the Three Months Ended |  | Repurchase Date |                 |  | SharesRepurchased |  |           | Percentageof SharesTenderedThat WereRepurchased |  |  | Percentage ofOutstanding SharesRepurchased as
ofthe Repurchase Date |   |  | RepurchasePrice PerShare |      |   | AggregateConsiderationforRepurchasedShares |  
|Fiscal 2014                |  |                 |                 |  |                   |  |           |                                                 |  |  |                                                                     |   |  |                          |      |   |                                            |   |       |  |  |   |        | 
|September 30, 2014         |  |                 | October 1, 2014 |  |                   |  | 4,050     |                                                 |  |  | 100                                                                 | % |  |                          | 0.01 | % |                                            | $ | 9.000 |  |  | $ | 36     | 
|Fiscal 2015                |  |                 |                 |  |                   |  |           |                                                 |  |  |                                                                     |   |  |                          |      |   |                                            |   |       |  |  |   |        | 
|December 31, 2014          |  |                 | January 7, 2015 |  |                   |  | 16,692    |                                                 |  |  | 100                                                                 | % |  |                          | 0.02 | % |                                            | $ | 8.865 |  |  | $ | 148    | 
|March 31, 2015             |  |                 | April 1, 2015   |  |                   |  | 60,626    |                                                 |  |  | 100                                                                 | % |  |                          | 0.05 | % |                                            | $ | 8.955 |  |  | $ | 543    | 
|June 30, 2015              |  |                 | July 8, 2015    |  |                   |  | 316,818   |                                                 |  |  | 100                                                                 | % |  |                          | 0.19 | % |                                            | $ | 8.955 |  |  | $ | 2,837  | 
|September 30, 2015         |  |                 | October 7, 2015 |  |                   |  | 274,874   |                                                 |  |  | 100                                                                 | % |  |                          | 0.13 | % |                                            | $ | 8.550 |  |  | $ | 2,350  | 
|Fiscal 2016                |  |                 |                 |  |                   |  |           |                                                 |  |  |                                                                     |   |  |                          |      |   |                                            |   |       |  |  |   |        | 
|December 31, 2015          |  |                 | January 6, 2016 |  |                   |  | 569,282   |                                                 |  |  | 100                                                                 | % |  |                          | 0.24 | % |                                            | $ | 8.145 |  |  | $ | 4,637  | 
|March 31, 2016             |  |                 | April 6, 2016   |  |                   |  | 1,042,946 |                                                 |  |  | 100                                                                 | % |  |                          | 0.40 | % |                                            | $ | 7.875 |  |  | $ | 8,213  | 
|June 30, 2016              |  |                 | July 6, 2016    |  |                   |  | 969,112   |                                                 |  |  | 100                                                                 | % |  |                          | 0.37 | % |                                            | $ | 8.190 |  |  | $ | 7,937  | 
|September 30, 2016         |  |                 | October 5, 2016 |  |                   |  | 2,030,975 |                                                 |  |  | 100                                                                 | % |  |                          | 0.76 | % |                                            | $ | 8.505 |  |  | $ | 17,273 | 

On January 4, 2017, the Company repurchased 1,536,048 shares of common stock (representing 100% of
the shares of common stock tendered for repurchase and 0.56% of the shares outstanding as of such date) at $8.550 per share for aggregate consideration totaling $13,133.

Note 4. Related Party Transactions

Compensation of the Investment
Adviser and Dealer Manager

Pursuant to the investment advisory and administrative services agreement, FSIC III Advisor is
entitled to an annual base management fee of 2.0% of the average weekly 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 April 2, 2014, upon commencement of the Companys investment operations. Management fees are paid on a quarterly basis in arrears. Effective February 3, 2017, FSIC III Advisor has agreed to
permanently waive a portion of the base management fee so that the fee received equals 1.75% of the Companys average weekly 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 of the Companys common stock (including proceeds from its distribution
reinvestment plan) reduced for amounts paid for share repurchases pursuant to the Companys share repurchase program. As a result, FSIC III Advisor will not earn this incentive fee for any quarter until the Companys pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.875%. Once the Companys pre-incentive fee net investment income in any quarter
exceeds the hurdle rate, FSIC III Advisor will be entitled to a catch-up fee equal to the



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 4. Related Party
Transactions (continued)



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 III
Advisor to recoup the fees foregone as a result of the existence of the hurdle rate. Thereafter, FSIC III 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 (i.e., 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 III 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 with respect to the calculation of the capital gains incentive fee.

Pursuant to an investment sub-advisory agreement between FSIC III Advisor and GDFM, or the
investment sub-advisory agreement, GDFM will receive 50% of all management and incentive fees payable to FSIC III Advisor under the investment advisory and administrative services agreement with respect to
each year.

The Company reimburses FSIC III Advisor for expenses necessary to perform services related to the Companys
administration and operations, including FSIC III Advisors allocable portion of the compensation and related expenses of certain personnel of Franklin Square Holdings, L.P., or FS Investments, the Companys sponsor and an affiliate of
FSIC III Advisor, providing administrative services to the Company on behalf of FSIC III Advisor. The amount of this reimbursement is set at the lesser of (1) FSIC III 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 III Advisor allocates the cost of such services to the Company based on factors
such as 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
administrative expenses among the Company and certain affiliates of FSIC III 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 III 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 III 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 III Advisor.

Under the investment advisory and administrative
services agreement, the Company, either directly or through reimbursement to FSIC III Advisor or its affiliates, is responsible for its organization and offering costs



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 4. Related Party
Transactions (continued)



in an amount up to 1.5% of gross proceeds raised in the Companys continuous public offering. Organization and offering costs primarily include 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
III Advisors personnel, employees of its affiliates and others while engaged in registering and marketing the Companys common stock, which includes the development of marketing materials and presentations, training and educational
meetings, and generally coordinating the marketing process for the Company.

Prior to satisfaction of the minimum offering
requirement and for a period of time thereafter, FS Investments funded certain of the Companys organization and offering costs. Following this period, the Company has paid certain of its organization and offering costs directly and reimbursed
FSIC III Advisor for offering costs incurred by FSIC III Advisor on the Companys behalf, including marketing expenses, salaries and other direct expenses of FSIC III Advisors personnel and employees of its affiliates while engaged in
registering and marketing the Companys shares of common stock. Organization and offering costs funded directly by FS Investments 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
III Advisor for ongoing offering costs and any reimbursements paid to FS Investments for organization and offering costs previously funded, are recorded as a reduction of capital. Commencing January 1, 2016, offering costs incurred by the
Company are deferred and amortized to expense over twelve months (see Note 2).

Since June 7, 2013 (Inception) through
December 31, 2014, FS Investments funded $3,801 in organization and offering costs, all of which were reimbursed during the period from April 2, 2014 (Commencement of Operations) through December 31, 2014. The reimbursements were
recorded as a reduction of capital. During the year ended December 31, 2016, FS Investments did not fund any of the Companys organization and offering costs. As of December 31, 2016, no amounts remain reimbursable to FSIC III Advisor
and its affiliates under this arrangement.

The dealer manager for the Companys continuous public offering is FS
Investment Solutions, which is one of the Companys affiliates. Prior to the IBD Channel closing, the dealer manager was entitled under the dealer manager agreement, dated as of December 20, 2013, by and among the Company, FSIC III Advisor
and FS Investment Solutions, or the dealer manager agreement, 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
could be re-allowed to selected broker-dealers. Following the IBD Channel closing, the dealer manager has waived its right to receive any selling commissions or dealer manager fees in connection with shares of
the Companys common stock sold pursuant to the Companys continuous public offering and, as a result, no selling commissions or dealer manager fees will be paid to the dealer manager from that date forward.



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FS Investment Corporation III

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 FS Investment Solutionsreceived under the dealer manager agreement during the years ended December 31, 2016, 2015 and 2014:



|                        |  |                                                         |  |                                        |  |                        |        |  |      |   |        |      |  |   |        | 
|----------------------- |  | ------------------------------------------------------- |  | -------------------------------------- |  | ---------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                        |  |                                                         |  |                                        |  | Year
EndedDecember 31, |       
|Related Party           |  | Source Agreement                                        |  | Description                            |  | 2016                   |        |  | 2015 |   |        | 2014 | 
|FSIC III Advisor        |  | Investment Advisory andAdministrative ServicesAgreement |  | Base Management Fee(1)                 |  | $                      | 67,573 |  |      | $ | 39,493 |      |  | $ | 6,323  | 
|FSIC III Advisor        |  | Investment Advisory andAdministrative ServicesAgreement |  | Subordinated IncentiveFee on
Income(2) |  | $                      | 39,754 |  |      | $ | 20,222 |      |  | $ |       | 
|FSIC III Advisor        |  | Investment Advisory andAdministrative ServicesAgreement |  | AdministrativeServices Expenses(3)     |  | $                      | 2,922  |  |      | $ | 2,045  |      |  | $ | 435    | 
|FSIC III Advisor        |  | Investment Advisory andAdministrative ServicesAgreement |  | Offering Costs(4)                      |  | $                      | 1,521  |  |      | $ | 3,504  |      |  | $ | 2,494  | 
|FS Investment Solutions |  | Dealer ManagerAgreement                                 |  | Dealer Manager Fee(5)                  |  | $                      | 1,961  |  |      | $ | 22,411 |      |  | $ | 16,845 | 



|(1) | During the years ended December 31, 2016, 2015 and 2014, $0, $598 and $2,559, respectively, in base management fees were applied to offset the liability of FS
Investments under the expense reimbursement agreement (see Expense Reimbursement below) and $63,761, $28,648 and $0, respectively, in net base management fees were paid to FSIC III Advisor. As of December 31, 2016, $17,823 in
base management fees were payable to FSIC III Advisor.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | During the years ended December 31, 2016, 2015 and 2014, $39,256, $8,397 and $0, respectively, of subordinated incentive fees on income were paid to FSIC III
Advisor. As of December 31, 2016, a subordinated incentive fee on income of $12,323 was payable to FSIC III Advisor.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | During the years ended December 31, 2016, 2015 and 2014, $2,766, $1,875 and $384, respectively, of the accrued administrative services expenses related to the
allocation of costs of administrative personnel for services rendered to the Company by FSIC III Advisor and the remainder related to other reimbursable expenses. The Company paid $3,045, $1,493 and $232 in administrative services expenses to FSIC
III Advisor during the years ended December 31, 2016, 2015 and 2014, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | During the years ended December 31, 2016, 2015 and 2014, the Company incurred offering costs of $2,250, $6,200 and $4,479, respectively, of which $1,521, $3,504
and $2,494, respectively, generally related to the reimbursement of marketing expenses, salaries and direct expenses of FSIC III Advisors employees and employees of its affiliates while engaged in registering and marketing the Companys
shares of common stock. See Note 2 for a discussion regarding the Companys change in accounting treatment of offering costs.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Represents aggregate dealer manager fees retained by FS Investment Solutions and not re-allowed to selected broker-dealers.
Following the IBD Channel closing, the dealer manager has waived its right to receive any selling commissions or dealer manager fees in connection with shares of the Companys common stock sold pursuant to the Companys continuous public
offering. The fees reflected for the year ended December 31, 2016 represent fees retained by FS Investment Solutions prior to the IBD Channel closing in February 2016.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 4. Related Party
Transactions (continued)



Capital Contributions by FSIC III Advisor and GDFM

In October 2013, pursuant to a private placement, Michael C. Forman and David J. Adelman, the principals of FSIC III Advisor, contributed
an aggregate of $200, which was used in its entirety 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 III Advisor remains the Companys investment adviser.

In April 2014, pursuant to a private placement, Messrs. Forman (through an affiliated entity) and Adelman purchased 111,111 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 III 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 III Advisor purchased 640,194 shares of common stock, and certain individuals
and entities affiliated with GDFM purchased 558,334 shares of common stock, in each case at a price of $9.00 per share, which represented the initial public offering price of $10.00 per share, excluding selling commissions and dealer manager fees.
In connection with the private placement, the Company sold an aggregate of 1,309,639 shares of common stock for aggregate proceeds of $11,787 upon satisfying the minimum offering requirement on April 2, 2014. As of February 28, 2017, the
Company has issued an aggregate of 2,036,018 shares of common stock for aggregate proceeds of $18,116 to members of the Companys board of directors and other individuals and entities affiliated with FSIC III Advisor and GDFM, including shares
of common stock sold to Messrs. Forman and Adelman in October 2013 and shares sold in the private placement completed in April 2014.

Potential Conflicts of Interest

FSIC III 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 II 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 FS Investments and such personnel may serve in similar or other capacities for investment advisers for future investment vehicles
affiliated with FS Investments. 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 II, FS Investment Corporation IV and FS Global
Credit Opportunities Fund. While none of FSIC III Advisor, FB Income Advisor, LLC, FS Investment Advisor, LLC, FSIC II 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 II, 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 III Advisor undertakes to provide investment advisory services to other clients in the future, it intends to allocate investment opportunities in a fair and equitable manner consistent with the Companys investment objectives and
strategies, if necessary, so that the Company will not be disadvantaged in relation to any other client of FSIC III Advisor or its management team. In addition, even in the absence of FSIC III 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 II, FS Investment Corporation IV and/or FS Global Credit Opportunities Fund rather than to the Company.



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 4. Related Party
Transactions (continued)



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 term. In an order dated June 4, 2013, the SEC granted exemptive relief to affiliates of the Company, upon which the Company may
rely, and which permits the Company, subject to the satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions with certain affiliates of FSIC III Advisor,
including FS Investment Corporation, FS Energy and Power Fund, FS Investment Corporation II, FS Investment Corporation IV and any future BDCs that are advised by FSIC III 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s affiliates 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 (e.g. where price is the only negotiated term).

Expense Reimbursement

Pursuant to the expense support and conditional reimbursement agreement, dated as of December 20, 2013, by and between FS Investments and the Company, or the expense reimbursement agreement, FS
Investments 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, FS
Investments 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 arrangement is not to prevent
tax-advantaged distributions to stockholders.

Under the expense reimbursement
agreement, FS Investments 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 the Companys net investment
company taxable income, net capital gains and dividends and other distributions paid to the Company on account of preferred and common equity investments in portfolio companies (to the extent such amounts are not included in net investment company
taxable income or net capital gains) in each quarter.

Pursuant to the expense reimbursement agreement, the Company has a
conditional obligation to reimburse FS Investments for any amounts funded by FS Investments under such agreement if (and only to the extent that), during any fiscal quarter occurring within three years of the date on which FS Investments 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



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 4. Related Party
Transactions (continued)



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 FS Investments for expense support payments made by FS Investments with respect to any calendar quarter 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 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 FS
Investments was made (provided, however, that this clause (B) shall not apply to any reimbursement payment which relates to an expense support payment from FS Investments made during the same fiscal year) and (ii) the Company will not
reimburse FS Investments for expense support payments made by FS Investments for any calendar quarter if the annualized rate of regular cash distributions declared by the Company at the time of such reimbursement payment is less than the annualized
rate of regular cash distributions declared by the Company at the time FS Investments made the expense support payment to which such reimbursement payment relates. The Company is not obligated to pay interest on the reimbursements it is required to
make to FS Investments under the expense reimbursement agreement. Other operating expenses means the Companys total operating expenses (as defined below), excluding base management fees, incentive fees, offering and
organization 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 FS Investments may terminate the expense reimbursement agreement at any time. FS Investments has
indicated that it expects to continue such reimbursements until it deems that the Company has achieved economies of scale sufficient to ensure that it bears a reasonable level of expenses in relation to its income. The specific amount of expenses
reimbursed by FS Investments, if any, will be determined at the end of each quarter. Upon termination of the expense reimbursement agreement by FS Investments, FS Investments will be required to fund any amounts accrued thereunder as of the date of
termination. Similarly, the Companys conditional obligation to reimburse FS Investments pursuant to the terms of the expense reimbursement agreement shall survive the termination of such agreement by either party.

As of December 31, 2015, there were no reimbursements payable to the Company from FS Investments. During the year ended
December 31, 2016, the Company did not accrue any amounts for expense reimbursements that FS Investments has agreed to pay. During the year ended December 31, 2016, the Company did not receive any cash reimbursements from FS Investments.
As of December 31, 2016, the Company had no reimbursements due from FS Investments.

As discussed above, under the
expense reimbursement agreement, amounts reimbursed to the Company by FS Investments may become subject to repayment by the Company in the future. During the year ended December 31, 2016, the Company paid $218 in expense recoupments to FS
Investments. As of December 31, 2016, the Company did not have expense recoupments due to FS Investments and no further amounts remain subject to repayment by the Company to FS Investments in the future.



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 4. Related Party
Transactions (continued)



FS Investments 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 FS Investments will reimburse any portion of the Companys expenses
in future quarters.

FS Benefit Trust

FS Benefit Trust, or FS Trust, was formed as a Delaware statutory trust for the purpose of awarding equity incentive compensation to employees of FS Investments and its affiliates. During the year ended
December 31, 2016, FS Trust purchased $203 of the Companys shares at a purchase price of $8.10 per share, which price is equal to the institutional offering price in effect on the date of purchase. During the years ended December 31,
2015 and 2014, FS Trust purchased $231 and $31 of the Companys shares of common stock at a purchase price of $8.96 and $9.00 per share, respectively, which price is equal to 90% of the offering price in effect on the purchase date.

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, 2016, 2015 and 2014:



|                                |  |              |        |  |        |   |         | 
|------------------------------- |  | ------------ | ------ |  | ------ | - | ------- | 
|                                |  | Distribution |       
|For the Year Ended December 31, |  | Per Share    |        |  | Amount |  
|2014                            |  | $            | 0.5249 |  |        | $ | 21,526  | 
|2015                            |  | $            | 0.7000 |  |        | $ | 118,228 | 
|2016                            |  | $            | 0.7000 |  |        | $ | 183,009 | 

The Company currently declares regular cash distributions on a quarterly basis and pays such
distributions on a monthly basis to stockholders of record, as determined on a weekly basis. On November 4, 2016 and March 7, 2017, the Companys board of directors declared regular weekly cash distributions for January 2017 through
March 2017 and April 2017 through June 2017, respectively, each in the amount of $0.013461 per share. These distributions have been or will be paid monthly to stockholders of record as of weekly 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 distribution reinvestment plan, cash distributions to participating stockholders are reinvested in additional shares of the
Companys common stock at a purchase price equal to the institutional offering price in effect on the date of issuance. 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



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 5. Distributions (continued)



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.

The Company may fund its cash distributions to stockholders from any sources of funds legally available to it, including offering
proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets and dividends or other distributions paid to the
Company on account of preferred and common equity investments in portfolio companies and expense reimbursements from FS Investments. 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 and will be made after deducting the fees and expenses payable in connection with the Companys continuous
public offering, including any fees payable to FSIC III Advisor. 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.

For a period of time following commencement of the Companys continuous public offering, which time period may be
significant, substantial portions of the Companys distributions have been, and may in the future, be funded through the reimbursement of certain expenses by FS Investments and its affiliates, including through the waiver of certain investment
advisory fees by FSIC III Advisor, that are subject to repayment by the Company within three years. The purpose of this arrangement is to ensure that no portion of the Companys distributions to stockholders will be paid from offering proceeds
or borrowings. Any such distributions funded through expense reimbursements or waivers of advisory fees are not based on the Companys investment performance, and can only be sustained if the Company achieves positive investment performance in
future periods and/or FS Investments continues to make such reimbursements or waivers of such fees. The Companys future repayments of amounts reimbursed or waived by FS Investments or its affiliates will reduce the distributions that
stockholders would otherwise receive in the future. FS Investments and its affiliates have no obligation to waive advisory fees or otherwise reimburse expenses in future periods. No portion of the distributions paid during the years ended
December 31, 2016 and 2015 were funded through the reimbursement of operating expenses by FS Investments. For the year ended December 31, 2014, if FS Investments had not reimbursed certain of the Companys expenses, approximately 16% of
the aggregate amount of distributions paid during such period would have been funded from offering proceeds or borrowings.



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FS Investment Corporation III

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 has paid on its common stock during the years ended December 31, 2016, 2015 and 2014:



|                                                          |  |                         |         |  |            |  |     |                    |  |   |            |  |  |                    |     |   |            |   |        |  |  |  |     |  
|--------------------------------------------------------- |  | ----------------------- | ------- |  | ---------- |  | --- | ------------------ |  | - | ---------- |  |  | ------------------ | --- | - | ---------- | - | ------ |  |  |  | --- | -
|                                                          |  | Year Ended December 31, |        
|                                                          |  | 2016                    |         |  | 2015       |  |     | 2014               | 
|Source of Distribution                                    |  | DistributionAmount      |         |  | Percentage |  |     | DistributionAmount |  |   | Percentage |  |  | DistributionAmount |     |   | Percentage |  
|Offering proceeds                                         |  | $                       |        |  |            |  |    |                    |  | $ |           |  |  |                    |    |   |            | $ |       |  |  |  |    |  
|Borrowings                                                |  |                         |        |  |            |  |    |                    |  |   |           |  |  |                    |    |   |            |   |       |  |  |  |    |  
|Net investment income (prior to expense reimbursement)(1) |  |                         | 183,009 |  |            |  | 100 | %                  |  |   | 118,228    |  |  |                    | 100 | % |            |   | 17,970 |  |  |  | 84  | %
|Short-term capital gains proceeds from the sale of assets |  |                         |        |  |            |  |    |                    |  |   |           |  |  |                    |    |   |            |   | 87     |  |  |  | 0   | %
|Long-term capital gains proceeds from the sale of assets  |  |                         |        |  |            |  |    |                    |  |   |           |  |  |                    |    |   |            |   |       |  |  |  |    |  
|Non-capital gains proceeds from the sale of assets        |  |                         |        |  |            |  |    |                    |  |   |           |  |  |                    |    |   |            |   |       |  |  |  |    |  
|Distributions on account of preferred and common equity   |  |                         |        |  |            |  |    |                    |  |   |           |  |  |                    |    |   |            |   |       |  |  |  |    |  
|Expense reimbursement from sponsor                        |  |                         |        |  |            |  |    |                    |  |   |           |  |  |                    |    |   |            |   | 3,469  |  |  |  | 16  | %
|                                                          |  |                         |         |  |            |  |     |                    |  |   |            |  |  |                    |     |   |            |   |        |  |  |  |     |  
|Total                                                     |  | $                       | 183,009 |  |            |  | 100 | %                  |  | $ | 118,228    |  |  |                    | 100 | % |            | $ | 21,526 |  |  |  | 100 | %
|                                                          |  |                         |         |  |            |  |     |                    |  |   |            |  |  |                    |     |   |            |   |        |  |  |  |     |  



|(1) | During the years ended December 31, 2016, 2015 and 2014, 92.1%, 94.1% and 98.3%, respectively, of the Companys gross investment income was attributable to
cash income earned, 2.6%, 4.4% and 1.7%, respectively, was attributable to non-cash accretion of discount and 5.3%, 1.5% and 0.0%, respectively, was attributable to paid-in-kind, or PIK, interest.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Companys net investment
income on a tax basis for the years ended December 31, 2016, 2015 and 2014 was $182,509, $127,179 and $21,439, respectively. As of December 31, 2016, 2015 and 2014, the Company had $9,589, $10,089 and $0, respectively, of undistributed net
investment income and $60,099, $24,134 and $0 respectively, of accumulated capital losses on a tax basis.

The Companys
undistributed net investment income on a tax basis as of December 31, 2015 was adjusted following the filing of the Companys 2015 tax return in September 2016. The adjustment was primarily due to
tax-basis income received by the Company during the year ended December 31, 2015 exceeding GAAP-basis income on account of interests in partnerships. The tax notices for such interests in partnerships
were received by the Company subsequent to the filing of the Companys annual report on Form 10-K for the year ended December 31, 2015.

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 inclusion of a portion of
the periodic net settlement payments due on the Companys TRS in tax-basis net investment income and the accretion of discount on the TRS.



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 5. Distributions (continued)



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, 2016, 2015 and 2014:



|                                                                            |  |                         |         |   |      |   |         |      |  |   |        |  
|--------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                            |  | Year Ended December 31, |        
|                                                                            |  | 2016                    |         |   | 2015 |   |         | 2014 | 
|GAAP-basis net investment income                                            |  | $                       | 169,695 |   |      | $ | 110,367 |      |  | $ | 18,994 |  
|Reclassification of unamortized original issue discount and prepayment fees |  |                         | (14,100 | ) |      |   | (766    | )    |  |   | (19    | )
|Tax-basis net investment income portion of total return swap payments       |  |                         | 19,858  |   |      |   | 14,508  |      |  |   | 2,046  |  
|Accretion of discount on total return swap                                  |  |                         | 2,600   |   |      |   | 1,645   |      |  |   | 359    |  
|Other miscellaneous differences                                             |  |                         | 4,456   |   |      |   | 1,425   |      |  |   | 59     |  
|                                                                            |  |                         |         |   |      |   |         |      |  |   |        |  
|Tax-basis net investment income                                             |  | $                       | 182,509 |   |      | $ | 127,179 |      |  | $ | 21,439 |  
|                                                                            |  |                         |         |   |      |   |         |      |  |   |        |  

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, 2016, the Company increased accumulated undistributed (distributions in excess of) net
investment income by $10,803 and reduced capital in excess of par value and accumulated net realized losses on investments and total return swap by $4,776 and $6,027, respectively. During the year ended December 31, 2015, the Company increased
accumulated undistributed (distributions in excess of) net investment income by $14,689 and reduced capital in excess of par value and accumulated undistributed net realized gains on investments and total return swap by $115 and $14,547,
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.

As of December 31, 2016 and 2015, the components of accumulated earnings on
a tax basis were as follows:



|                                                                                                      |  |              |         |   |      |   |          |  
|----------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | -------- | -
|                                                                                                      |  | December 31, |        
|                                                                                                      |  | 2016         |         |   | 2015 |  
|Distributable ordinary income                                                                         |  | $            | 9,589   |   |      | $ | 10,089   |  
|Other temporary differences                                                                           |  |              | (206    | ) |      |   | (223     | )
|Accumulated capital losses(1)                                                                         |  |              | (60,099 | ) |      |   | (24,134  | )
|Net unrealized appreciation (depreciation) on investments, secured borrowing and total return swap(2) |  |              | (1,759  | ) |      |   | (219,460 | )
|                                                                                                      |  |              |         |   |      |   |          |  
|Total                                                                                                 |  | $            | (52,475 | ) |      | $ | (233,728 | )
|                                                                                                      |  |              |         |   |      |   |          |  



|(1) | Under the Regulated Investment Company Modernization Act of 2010, net capital losses recognized for tax years beginning after December 22, 2010, may be carried
forward indefinitely, and their character is retained as short-term or long-term losses. As of December 31, 2016, the Company had short-term and long-term capital loss carryforwards available to offset future realized capital gains of $0 and
$60,099, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 5. Distributions (continued)



|(2) | As of December 31, 2016 and 2015, the gross unrealized appreciation on the Companys investments, secured borrowing and TRS was $65,610 and $3,541,
respectively. As of December 31, 2016 and 2015, the gross unrealized depreciation on the Companys investments, secured borrowing and TRS was $67,369 and $223,001, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The aggregate cost of the Companys investments including, the accretion of discount on the TRS, for U.S. federal income tax
purposes totaled $3,256,233 and $2,938,163 as of December 31, 2016 and 2015, respectively. The aggregate net unrealized appreciation (depreciation) on a tax basis, including the Companys TRS, was $(1,759) and $(219,460) as of
December 31, 2016 and 2015, respectively.

As of December 31, 2016, the Company had a deferred tax liability of $969
resulting from unrealized appreciation on investments held by the Companys wholly-owned taxable subsidiary and a deferred tax asset of $1,383 resulting from a net operating loss of the Companys wholly-owned taxable subsidiary. As of
December 31, 2016, the wholly-owned taxable subsidiary anticipated that it would be unable to fully utilize its generated net operating loss, therefore the deferred tax asset was offset by a valuation allowance of $414. For the year ended
December 31, 2016, the Company did not record a provision for taxes related to its wholly-owned taxable subsidiary.

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, 2016 and 2015:



|                                 |  |                   |           |  |                   |   |           |                        |  |  |                  |   |  |            |           |  |                        |   |           |  |  |  |     |  
|-------------------------------- |  | ----------------- | --------- |  | ----------------- | - | --------- | ---------------------- |  |  | ---------------- | - |  | ---------- | --------- |  | ---------------------- | - | --------- |  |  |  | --- | -
|                                 |  | December 31, 2016 |           |  | December 31, 2015 |  
|                                 |  | AmortizedCost(1)  |           |  | Fair Value        |   |           | Percentageof Portfolio |  |  | AmortizedCost(1) |   |  | Fair Value |           |  | Percentageof Portfolio |  
|Senior Secured LoansFirst Lien  |  | $                 | 2,134,733 |  |                   | $ | 2,135,929 |                        |  |  | 66               | % |  | $          | 1,908,256 |  |                        | $ | 1,878,552 |  |  |  | 68  | %
|Senior Secured LoansSecond Lien |  |                   | 248,576   |  |                   |   | 235,293   |                        |  |  | 7                | % |  |            | 297,474   |  |                        |   | 264,261   |  |  |  | 10  | %
|Senior Secured Bonds             |  |                   | 86,137    |  |                   |   | 84,664    |                        |  |  | 3                | % |  |            | 113,064   |  |                        |   | 75,597    |  |  |  | 3   | %
|Subordinated Debt                |  |                   | 610,349   |  |                   |   | 614,442   |                        |  |  | 19               | % |  |            | 539,488   |  |                        |   | 451,694   |  |  |  | 17  | %
|Collateralized Securities        |  |                   | 7,317     |  |                   |   | 7,327     |                        |  |  | 0                | % |  |            | 8,181     |  |                        |   | 7,607     |  |  |  | 0   | %
|Equity/Other                     |  |                   | 162,029   |  |                   |   | 165,655   |                        |  |  | 5                | % |  |            | 68,062    |  |                        |   | 66,919    |  |  |  | 2   | %
|                                 |  |                   |           |  |                   |   |           |                        |  |  |                  |   |  |            |           |  |                        |   |           |  |  |  |     |  
|Total                            |  | $                 | 3,249,141 |  |                   | $ | 3,243,310 |                        |  |  | 100              | % |  | $          | 2,934,525 |  |                        | $ | 2,744,630 |  |  |  | 100 | %
|                                 |  |                   |           |  |                   |   |           |                        |  |  |                  |   |  |            |           |  |                        |   |           |  |  |  |     |  



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



147



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 6. Investment
Portfolio (continued)



The following table summarizes the composition of the Companys investment
portfolio at cost and fair value as of December 31, 2016 and 2015 to include, on a look-through basis, the investments underlying the TRS, as disclosed in Note 8. The investments underlying the TRS had a notional amount and market value of
$388,681 and $394,986, respectively, as of December 31, 2016 and $394,680 and $365,214, respectively, as of December 31, 2015:



|                                 |  |                   |           |  |                   |   |           |                        |  |  |                  |   |  |            |           |  |                        |   |           |  |  |  |     |  
|-------------------------------- |  | ----------------- | --------- |  | ----------------- | - | --------- | ---------------------- |  |  | ---------------- | - |  | ---------- | --------- |  | ---------------------- | - | --------- |  |  |  | --- | -
|                                 |  | December 31, 2016 |           |  | December 31, 2015 |  
|                                 |  | AmortizedCost(1)  |           |  | Fair Value        |   |           | Percentageof Portfolio |  |  | AmortizedCost(1) |   |  | Fair Value |           |  | Percentageof Portfolio |  
|Senior Secured LoansFirst Lien  |  | $                 | 2,488,519 |  |                   | $ | 2,495,162 |                        |  |  | 69               | % |  | $          | 2,242,195 |  |                        | $ | 2,186,548 |  |  |  | 70  | %
|Senior Secured LoansSecond Lien |  |                   | 283,471   |  |                   |   | 271,046   |                        |  |  | 7                | % |  |            | 358,215   |  |                        |   | 321,479   |  |  |  | 10  | %
|Senior Secured Bonds             |  |                   | 86,137    |  |                   |   | 84,664    |                        |  |  | 2                | % |  |            | 113,064   |  |                        |   | 75,597    |  |  |  | 3   | %
|Subordinated Debt                |  |                   | 610,349   |  |                   |   | 614,442   |                        |  |  | 17               | % |  |            | 539,488   |  |                        |   | 451,694   |  |  |  | 15  | %
|Collateralized Securities        |  |                   | 7,317     |  |                   |   | 7,327     |                        |  |  | 0                | % |  |            | 8,181     |  |                        |   | 7,607     |  |  |  | 0   | %
|Equity/Other                     |  |                   | 162,029   |  |                   |   | 165,655   |                        |  |  | 5                | % |  |            | 68,062    |  |                        |   | 66,919    |  |  |  | 2   | %
|                                 |  |                   |           |  |                   |   |           |                        |  |  |                  |   |  |            |           |  |                        |   |           |  |  |  |     |  
|Total                            |  | $                 | 3,637,822 |  |                   | $ | 3,638,296 |                        |  |  | 100              | % |  | $          | 3,329,205 |  |                        | $ | 3,109,844 |  |  |  | 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, 2016, except for Aspect Software, Inc., in which the Company had two senior secured
loan investments, one of which was a partially unfunded commitment and an equity/other investment, Fairway Group Acquisition Co., in which the Company had three senior secured loan investments and an equity/other investment, and Warren Resources,
Inc., in which the Company had a senior secured loan investment, which was a partially unfunded commitment, and an equity/other investment, the Company was not an affiliated person of any of its portfolio companies, as defined in the
1940 Act. As of December 31, 2016, 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 more than 25% of its voting securities or it had the power to exercise control over the management or policies of such portfolio company, and would be an affiliated person of a portfolio company if it owned 5% or more of its
voting securities.

As of December 31, 2015, the Company did not control and was not an affiliated
person of any of its portfolio companies, each as defined in the 1940 Act. In general, under the 1940 Act, the Company would be presumed to control a portfolio company if it owned more than 25% of its voting securities or it had
the power to exercise control over the management or policies of such portfolio company, and would be an affiliated person of a portfolio company if it owned 5% or more of its voting securities.

The Companys investment portfolio may contain loans 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, 2016, the Company had twenty-one unfunded debt investments with aggregate unfunded commitments of $176,049 and one unfunded commitment to purchase up to $362 in shares of preferred stock of
Altus Power America Holdings, LLC. As of December 31, 2015, the Company had twenty-one unfunded debt investments with aggregate unfunded commitments of $267,776 and two unfunded commitments to purchase up
to $467 and $369, respectively, in shares of preferred stock of Altus Power America Holdings, LLC and common equity of Sunnova Holdings, LLC. The Company maintains



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 6. Investment
Portfolio (continued)



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
investments, see the Companys consolidated schedules of investments as of December 31, 2016 and 2015.

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, 2016 and 2015:



|                                         |  |                   |           |  |                        |  |     |            |  |   |                         |  |  |  |     |  
|---------------------------------------- |  | ----------------- | --------- |  | ---------------------- |  | --- | ---------- |  | - | ----------------------- |  |  |  | --- | -
|                                         |  | December 31, 2016 |           |  | December 31, 2015      | 
|Industry Classification                  |  | Fair Value        |           |  | Percentageof Portfolio |  |     | Fair Value |  |   | Percentageof 
Portfolio | 
|Automobiles & Components                 |  | $                 | 35,373    |  |                        |  | 1   | %          |  | $ | 128,407                 |  |  |  | 5   | %
|Capital Goods                            |  |                   | 331,376   |  |                        |  | 10  | %          |  |   | 277,975                 |  |  |  | 10  | %
|Commercial & Professional Services       |  |                   | 444,650   |  |                        |  | 14  | %          |  |   | 274,662                 |  |  |  | 10  | %
|Consumer Durables & Apparel              |  |                   | 147,125   |  |                        |  | 5   | %          |  |   | 147,483                 |  |  |  | 5   | %
|Consumer Services                        |  |                   | 302,459   |  |                        |  | 9   | %          |  |   | 237,666                 |  |  |  | 9   | %
|Diversified Financials                   |  |                   | 248,148   |  |                        |  | 8   | %          |  |   | 131,049                 |  |  |  | 5   | %
|Energy                                   |  |                   | 272,759   |  |                        |  | 9   | %          |  |   | 224,961                 |  |  |  | 8   | %
|Food & Staples Retailing                 |  |                   | 13,446    |  |                        |  | 1   | %          |  |   | 4,360                   |  |  |  | 0   | %
|Food, Beverage & Tobacco                 |  |                   |          |  |                        |  |    |            |  |   | 5,183                   |  |  |  | 0   | %
|Health Care Equipment & Services         |  |                   | 422,234   |  |                        |  | 13  | %          |  |   | 398,856                 |  |  |  | 15  | %
|Insurance                                |  |                   | 7,602     |  |                        |  | 0   | %          |  |   | 7,251                   |  |  |  | 0   | %
|Materials                                |  |                   | 116,952   |  |                        |  | 4   | %          |  |   | 108,964                 |  |  |  | 4   | %
|Media                                    |  |                   | 136,666   |  |                        |  | 4   | %          |  |   | 83,112                  |  |  |  | 3   | %
|Real Estate                              |  |                   | 171       |  |                        |  | 0   | %          |  |   | 1,707                   |  |  |  | 0   | %
|Retailing                                |  |                   | 77,310    |  |                        |  | 2   | %          |  |   | 28,204                  |  |  |  | 1   | %
|Semiconductors & Semiconductor Equipment |  |                   | 9,554     |  |                        |  | 0   | %          |  |   | 9,915                   |  |  |  | 0   | %
|Software & Services                      |  |                   | 397,389   |  |                        |  | 12  | %          |  |   | 406,231                 |  |  |  | 15  | %
|Technology Hardware & Equipment          |  |                   | 40,777    |  |                        |  | 1   | %          |  |   | 48,513                  |  |  |  | 2   | %
|Telecommunication Services               |  |                   | 40,141    |  |                        |  | 1   | %          |  |   | 41,293                  |  |  |  | 1   | %
|Transportation                           |  |                   | 199,178   |  |                        |  | 6   | %          |  |   | 178,838                 |  |  |  | 7   | %
|                                         |  |                   |           |  |                        |  |     |            |  |   |                         |  |  |  |     |  
|Total                                    |  | $                 | 3,243,310 |  |                        |  | 100 | %          |  | $ | 2,744,630               |  |  |  | 100 | %
|                                         |  |                   |           |  |                        |  |     |            |  |   |                         |  |  |  |     |  

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:



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 7. Fair Value of Financial
Instruments (continued)



Level1: Inputs that are quoted prices
(unadjusted) in active markets for identical assets or liabilities.

Level2: Inputs
that are quoted prices for similar assets or liabilities in active markets.

Level3:
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,
2016 and 2015, the Companys investments and total return swap were categorized as follows in the fair value hierarchy:



|                                            |             |                   |           |                   |                   |   |             |  |  |                   |           |  |  |   |         |  
|------------------------------------------- | ----------- | ----------------- | --------- | ----------------- | ----------------- | - | ----------- |  |  | ----------------- | --------- |  |  | - | ------- | -
|Valuation Inputs                            |             | December 31, 2016 |           |                   | December 31, 2015 |  
|                                            | Investments |                   |           | Total Return Swap |                   |   | Investments |  |  | Total Return Swap |          
|Level 1Price quotations in active markets  |             | $                 | 4,973     |                   |                   | $ |            |  |  | $                 |          |  |  | $ |        |  
|Level 2Significant other observable inputs |             |                   |          |                   |                   |   |            |  |  |                   |          |  |  |   |        |  
|Level 3Significant unobservable inputs     |             |                   | 3,238,337 |                   |                   |   | 11,403      |  |  |                   | 2,744,630 |  |  |   | (25,927 | )
|                                            |             |                   |           |                   |                   |   |             |  |  |                   |           |  |  |   |         |  
|Total                                       |             | $                 | 3,243,310 |                   |                   | $ | 11,403      |  |  | $                 | 2,744,630 |  |  | $ | (25,927 | )
|                                            |             |                   |           |                   |                   |   |             |  |  |                   |           |  |  |   |         |  

The Company has elected the fair value option under ASC Topic 825,Financial Instruments, or
ASC Topic 825, relating to accounting for debt obligations at their fair value for its secured borrowing which arose due to partial loan sales which did not meet the criteria for sale treatment under ASC Topic 860. The Company reports changes in the
fair value of its secured borrowing as a component of the net change in unrealized appreciation (depreciation) on secured borrowing in the consolidated statements of operations. The net gain or loss reflects the difference between the fair value and
the principal amount due on maturity.

The secured borrowing as of December 31, 2016 was valued using Level 3 inputs
under the fair value hierarchy. The Companys approach to determining fair value of the Level 3 secured borrowing is consistent with its approach to determining fair value of the Level 3 investments that are associated with the
secured borrowing. See Note 2 and Note 8 for additional information.

As of December 31, 2016, the Companys secured
borrowing was categorized as follows in the fair value hierarchy:



|                                            |  |                   |        | 
|------------------------------------------- |  | ----------------- | ------ | 
|Valuation Inputs                            |  | December 31, 2016 |       
|Level 1Price quotations in active markets  |  | $                 |       | 
|Level 2Significant other observable inputs |  |                   |       | 
|Level 3Significant unobservable inputs     |  |                   | 14,040 | 
|                                            |  |                   |        | 
|Total                                       |  | $                 | 14,040 | 
|                                            |  |                   |        | 

The Companys investments as of December 31, 2016 consisted primarily of debt investments that
were acquired directly from the issuer. Forty-nine senior secured loan investments, two senior secured bond investments and twelve subordinated debt investments, 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



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 7. Fair Value of Financial
Instruments (continued)



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. Three senior secured loan
investments and one equity/other investment which were newly issued and purchased near December 31, 2016, were valued at cost, as the Companys board of directors determined that the cost of each such investment was the best indication of
its fair value. Three equity/other investments, which were traded on an active public market, were valued at their closing price as of December 31, 2016. 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, 2015 consisted primarily of debt investments that were acquired directly from the
issuer. Forty senior secured loan investments, two senior secured bond investments and seven subordinated debt investments, 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. 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. 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 each such investment 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 values the TRS in accordance with the agreements between Center City Funding and Citibank that collectively established the
TRS, which agreements are collectively referred to herein as the TRS Agreement. Pursuant to the TRS Agreement, the value of the TRS is based on the increase or decrease in the value of the loans underlying the TRS, together with accrued interest
income, interest expense and certain other expenses incurred under the TRS. The loans underlying the TRS are valued by Citibank. Citibank bases its valuation on the indicative bid prices provided by an independent third-party pricing service. Bid
prices reflect the highest price that market participants may be willing to pay. These valuations are sent to the Company for review and testing. The valuation committee and the board of directors review and approve the value of the TRS, as well as
the value of the loans underlying the TRS, on a quarterly basis. To the extent the Companys valuation committee or board of directors has any questions or concerns regarding the valuation of the loans underlying the TRS, such valuation is
discussed or challenged pursuant to the terms of the TRS Agreement. For additional information on the Companys TRS, see Note 8.

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



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 7. Fair Value of Financial
Instruments (continued)



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 the Company purchases and sells its investments. The valuation committee of the
Companys board of directors 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 process.

The following is a reconciliation for the years ended December 31, 2016 and 2015 of investments for which significant unobservable
inputs (Level 3) were used in determining fair value:



|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |          |                    |  |   |                  |   |  |                          |          |   |              |   |       |       |  |   |         |   |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------ | --------- | - | ------------------------------ | - | -------- | ------------------ |  | - | ---------------- | - |  | ------------------------ | -------- | - | ------------ | - | ----- | ----- |  | - | ------- | - |  | - | ---------- | -
|                                                                                                                                                                                                       |  | For the Year Ended December 31, 2016 |          
|                                                                                                                                                                                                       |  | Senior 
SecuredLoansFirstLien       |           |   | Senior
SecuredLoansSecondLien |   |          | SeniorSecuredBonds |  |   | SubordinatedDebt |   |  | CollateralizedSecurities |          |   | Equity/Other |   |       | Total | 
|Fair value at beginning of period                                                                                                                                                                      |  | $                                    | 1,878,552 |   |                                | $ | 264,261  |                    |  | $ | 75,597           |   |  | $                        | 451,694  |   |              | $ | 7,607 |       |  | $ | 66,919  |   |  | $ | 2,744,630  |  
|Accretion of discount (amortization of premium)                                                                                                                                                        |  |                                      | 4,912     |   |                                |   | 2,384    |                    |  |   | 1,136            |   |  |                          | 3,863    |   |              |   | (864  | )     |  |   |        |   |  |   | 11,431     |  
|Net realized gain (loss)                                                                                                                                                                               |  |                                      | 20,106    |   |                                |   | (6,088   | )                  |  |   | (56,727          | ) |  |                          | (4,943   | ) |              |   |      |       |  |   | 503     |   |  |   | (47,149    | )
|Net change in unrealized appreciation (depreciation)                                                                                                                                                   |  |                                      | 30,900    |   |                                |   | 19,930   |                    |  |   | 35,994           |   |  |                          | 91,887   |   |              |   | 584   |       |  |   | 5,755   |   |  |   | 185,050    |  
|Purchases                                                                                                                                                                                              |  |                                      | 874,221   |   |                                |   | 92,906   |                    |  |   | 125,265          |   |  |                          | 255,347  |   |              |   |      |       |  |   | 93,969  |   |  |   | 1,441,708  |  
|Paid-in-kind interest                                                                                                                                                                                  |  |                                      | 1,547     |   |                                |   | 1,913    |                    |  |   | 167              |   |  |                          | 13,935   |   |              |   |      |       |  |   |        |   |  |   | 17,562     |  
|Sales and redemptions                                                                                                                                                                                  |  |                                      | (674,309  | ) |                                |   | (140,013 | )                  |  |   | (96,768          | ) |  |                          | (197,341 | ) |              |   |      |       |  |   | (5,607  | ) |  |   | (1,114,038 | )
|Net transfers in or out of Level 3(1)                                                                                                                                                                  |  |                                      |          |   |                                |   |         |                    |  |   |                 |   |  |                          |         |   |              |   |      |       |  |   | (857    | ) |  |   | (857       | )
|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |          |                    |  |   |                  |   |  |                          |          |   |              |   |       |       |  |   |         |   |  |   |            |  
|Fair value at end of period                                                                                                                                                                            |  | $                                    | 2,135,929 |   |                                | $ | 235,293  |                    |  | $ | 84,664           |   |  | $                        | 614,442  |   |              | $ | 7,327 |       |  | $ | 160,682 |   |  | $ | 3,238,337  |  
|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |          |                    |  |   |                  |   |  |                          |          |   |              |   |       |       |  |   |         |   |  |   |            |  
|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 |  | $                                    | 11,186    |   |                                | $ | 2,476    |                    |  | $ | 2,122            |   |  | $                        | 62,492   |   |              | $ | 584   |       |  | $ | 5,070   |   |  | $ | 83,930     |  
|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |          |                    |  |   |                  |   |  |                          |          |   |              |   |       |       |  |   |         |   |  |   |            |  



|(1) | There was one transfer of an investment from Level 3 to Level 1 during the year ended December 31, 2016. It is the Companys policy to recognize
transfers between levels at the beginning of the reporting period.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 7. Fair Value of Financial
Instruments (continued)



|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |         |                    |  |   |                  |   |  |                          |          |   |              |   |       |       |  |   |        |   |  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------ | --------- | - | ------------------------------ | - | ------- | ------------------ |  | - | ---------------- | - |  | ------------------------ | -------- | - | ------------ | - | ----- | ----- |  | - | ------ | - |  | - | --------- | -
|                                                                                                                                                                                                       |  | 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                                                                                                                                                                      |  | $                                    | 278,277   |   |                                | $ | 170,515 |                    |  | $ | 43,089           |   |  | $                        | 180,178  |   |              | $ | 8,907 |       |  | $ | 14,839 |   |  | $ | 695,805   |  
|Accretion of discount (amortization of premium)                                                                                                                                                        |  |                                      | 3,761     |   |                                |   | 1,216   |                    |  |   | 2,254            |   |  |                          | 2,659    |   |              |   | (726  | )     |  |   |       |   |  |   | 9,164     |  
|Net realized gain (loss)                                                                                                                                                                               |  |                                      | 4,790     |   |                                |   | (345    | )                  |  |   | (3,581           | ) |  |                          | (24,986  | ) |              |   |      |       |  |   |       |   |  |   | (24,122   | )
|Net change in unrealized appreciation (depreciation)                                                                                                                                                   |  |                                      | (28,696   | ) |                                |   | (30,371 | )                  |  |   | (37,302          | ) |  |                          | (70,713  | ) |              |   | (574  | )     |  |   | 645    |   |  |   | (167,011  | )
|Purchases                                                                                                                                                                                              |  |                                      | 1,748,636 |   |                                |   | 196,803 |                    |  |   | 111,984          |   |  |                          | 537,531  |   |              |   |      |       |  |   | 52,125 |   |  |   | 2,647,079 |  
|Paid-in-kind interest                                                                                                                                                                                  |  |                                      | 1,206     |   |                                |   | 6       |                    |  |   | 501              |   |  |                          | 1,264    |   |              |   |      |       |  |   |       |   |  |   | 2,977     |  
|Sales and redemptions                                                                                                                                                                                  |  |                                      | (129,422  | ) |                                |   | (73,563 | )                  |  |   | (41,348          | ) |  |                          | (174,239 | ) |              |   |      |       |  |   | (690   | ) |  |   | (419,262  | )
|Net transfers in or out of Level 3                                                                                                                                                                     |  |                                      |          |   |                                |   |        |                    |  |   |                 |   |  |                          |         |   |              |   |       |       |  |   |       |   |  |   |          |  
|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |         |                    |  |   |                  |   |  |                          |          |   |              |   |       |       |  |   |        |   |  |   |           |  
|Fair value at end of period                                                                                                                                                                            |  | $                                    | 1,878,552 |   |                                | $ | 264,261 |                    |  | $ | 75,597           |   |  | $                        | 451,694  |   |              | $ | 7,607 |       |  | $ | 66,919 |   |  | $ | 2,744,630 |  
|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |         |                    |  |   |                  |   |  |                          |          |   |              |   |       |       |  |   |        |   |  |   |           |  
|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 |  | $                                    | (26,513   | ) |                                | $ | (32,789 | )                  |  | $ | (37,546          | ) |  | $                        | (86,273  | ) |              | $ | (574  | )     |  | $ | 645    |   |  | $ | (183,050  | )
|                                                                                                                                                                                                       |  |                                      |           |   |                                |   |         |                    |  |   |                  |   |  |                          |          |   |              |   |       |       |  |   |        |   |  |   |           |  

The following is a reconciliation for the year ended December 31, 2016 of a secured borrowing for
which significant unobservable inputs (Level 3) were used in determining market value:



|                                                                                                                                                                                                               |  |                                     |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ------- | -
|                                                                                                                                                                                                               |  | For the Year EndedDecember 31, 2016 |        
|Fair value at beginning of period                                                                                                                                                                              |  | $                                   |        |  
|Amortization of premium (accretion of discount)                                                                                                                                                                |  |                                     | (12     | )
|Net realized gain (loss)                                                                                                                                                                                       |  |                                     |        |  
|Net change in unrealized appreciation (depreciation)                                                                                                                                                           |  |                                     | (239    | )
|Proceeds from secured borrowing                                                                                                                                                                                |  |                                     | (13,789 | )
|Paid-in-kind interest                                                                                                                                                                                          |  |                                     |        |  
|Repayments on secured borrowing                                                                                                                                                                                |  |                                     |        |  
|Net transfers in or out of Level 3                                                                                                                                                                             |  |                                     |        |  
|                                                                                                                                                                                                               |  |                                     |         |  
|Fair value at end of period                                                                                                                                                                                    |  | $                                   | (14,040 | )
|                                                                                                                                                                                                               |  |                                     |         |  
|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 a secured borrowing still held at the reporting date |  | $                                   | (239    | )
|                                                                                                                                                                                                               |  |                                     |         |  



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FS Investment Corporation III

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, 2016 and 2015 of
the total return swap for which significant unobservable inputs (Level 3) were used in determining the fair value:



|                                                                                                                                                                                                                 |  |                                 |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                                                                 |  | For the Year Ended December 31, |        
|                                                                                                                                                                                                                 |  | 2016                            |         |   | 2015 |  
|Fair value at beginning of period                                                                                                                                                                                |  | $                               | (25,927 | ) |      | $ | (5,368  | )
|Accretion of discount (amortization of premium)                                                                                                                                                                  |  |                                 |        |   |      |   |        |  
|Net realized gain (loss)                                                                                                                                                                                         |  |                                 | 15,785  |   |      |   | 14,561  |  
|Net change in unrealized appreciation (depreciation)                                                                                                                                                             |  |                                 | 37,330  |   |      |   | (20,559 | )
|Sales and redemptions                                                                                                                                                                                            |  |                                 | (15,785 | ) |      |   | (14,561 | )
|Net transfers in or out of Level 3                                                                                                                                                                               |  |                                 |        |   |      |   |        |  
|                                                                                                                                                                                                                 |  |                                 |         |   |      |   |         |  
|Fair value at end of period                                                                                                                                                                                      |  | $                               | 11,403  |   |      | $ | (25,927 | )
|                                                                                                                                                                                                                 |  |                                 |         |   |      |   |         |  
|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 the total return swap still held at the reporting date |  | $                               | 37,330  |   |      | $ | (20,559 | )
|                                                                                                                                                                                                                 |  |                                 |         |   |      |   |         |  



154



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 7. Fair Value of Financial
Instruments (continued)



The valuation techniques and significant unobservable inputs used in recurring
Level 3 fair value measurements as of December 31, 2016 and 2015 were as follows:



|                                 |  |                                |           |   |                       |                        |                    |                                  |       |                       |                 |          
|-------------------------------- |  | ------------------------------ | --------- | - | --------------------- | ---------------------- | ------------------ | -------------------------------- | ----- | --------------------- | --------------- | ---------
|Type of Investment               |  | Fair Value atDecember 31, 2016 |           |   | ValuationTechnique(1) |                        | Unobservable Input |                                  | Range |                       | WeightedAverage
|Senior Secured LoansFirst Lien  |  | $                              | 1,803,209 |   |                       | Market Comparables     |                    | Market Yield (%)                 |       | 5.5% - 17.3%          |                 | 9.7%     
|                                 |  |                                | 68,811    |   |                       | Other(2)               |                    | Other                            |       | N/A                   |                 | N/A      
|                                 |  |                                | 222,318   |   |                       | Market Quotes          |                    | Indicative Dealer Quotes         |       | 18.2% - 102.7%        |                 | 97.7%    
|                                 |  |                                | 41,591    |   |                       | Cost                   |                    | Cost                             |       | 100.0% - 100.0%       |                 | 100.0%   
|Senior Secured LoansSecond Lien |  |                                | 68,944    |   |                       | Market Comparables     |                    | Market Yield (%)                 |       | 10.3% - 22.9%         |                 | 16.3%    
|                                 |  |                                | 166,349   |   |                       | Market Quotes          |                    | Indicative Dealer Quotes         |       | 12.0% - 101.0%        |                 | 92.4%    
|Senior Secured Bonds             |  |                                | 3,403     |   |                       | Market Comparables     |                    | Market Yield (%)                 |       | 8.5% - 9.0%           |                 | 8.8%     
|                                 |  |                                |           |   |                       |                        |                    | EBITDA Multiples (x)             |       | 6.8x - 7.3x           |                 | 7.0x     
|                                 |  |                                |           |   |                       |                        |                    | Production Multiples(Mboe/d)     |       | $45,000.0 - $50,000.0 |                 | $47,500.0
|                                 |  |                                |           |   |                       |                        |                    | Proved ReservesMultiples (Mmboe) |       | $14.5 - $15.0         |                 | $14.8    
|                                 |  |                                |           |   |                       |                        |                    | PV-10 Multiples (x)              |       | 0.8x - 0.9x           |                 | 0.9x     
|                                 |  |                                | 81,261    |   |                       | Market Quotes          |                    | Indicative Dealer Quotes         |       | 76.0% - 106.6%        |                 | 95.9%    
|Subordinated Debt                |  |                                | 178,938   |   |                       | Market Comparables     |                    | Market Yield (%)                 |       | 10.5% - 15.3%         |                 | 13.5%    
|                                 |  |                                |           |   |                       |                        |                    | EBITDA Multiples (x)             |       | 9.3x - 10.3x          |                 | 9.8x     
|                                 |  |                                | 435,504   |   |                       | Market Quotes          |                    | Indicative Dealer Quotes         |       | 54.5% - 125.5%        |                 | 98.5%    
|Collateralized Securities        |  |                                | 7,327     |   |                       | Market Quotes          |                    | Indicative Dealer Quotes         |       | 79.9% - 94.3%         |                 | 81.2%    
|Equity/Other                     |  |                                | 103,652   |   |                       | Market Comparables     |                    | EBITDA Multiples (x)             |       | 4.5x - 16.3x          |                 | 9.6x     
|                                 |  |                                |           |   |                       |                        |                    | Production Multiples(Mboe/d)     |       | $2,225.0 - $55,000.0  |                 | $30,941.4
|                                 |  |                                |           |   |                       |                        |                    | Proved ReservesMultiples (Mmboe) |       | $0.7 - $15.0          |                 | $8.7     
|                                 |  |                                |           |   |                       |                        |                    | PV-10 Multiples (x)              |       | 0.8x - 2.1x           |                 | 1.4x     
|                                 |  |                                |           |   |                       |                        |                    | Capacity Multiple ($/kW)         |       | $2,375.0 - $2,875.0   |                 | $2,625.0 
|                                 |  |                                |           |   |                       | Option Valuation Model |                    | Volatility (%)                   |       | 37.5% - 40.0%         |                 | 38.8%    
|                                 |  |                                | 4,123     |   |                       | Market Quotes          |                    | Indicative Dealer Quotes         |       | 7.5% - 26.0%          |                 | 18.2%    
|                                 |  |                                | 52,773    |   |                       | Other(2)               |                    | Other                            |       | N/A                   |                 | N/A      
|                                 |  |                                | 134       |   |                       | Cost                   |                    | Cost                             |       | 100.0% - 100.0%       |                 | 100.0%   
|                                 |  |                                |           |   |                       |                        |                    |                                  |       |                       |                 |          
|Total                            |  | $                              | 3,238,337 |   |                       |                        |                    |                                  |       |                       |                 |          
|                                 |  |                                |           |   |                       |                        |                    |                                  |       |                       |                 |          
|Total Return Swap                |  | $                              | 11,403    |   |                       | Market Quotes          |                    | Indicative Dealer Quotes         |       | 51.6% - 110.8%        |                 | 97.6%    
|Secured Borrowing                |  | $                              | (14,040   | ) |                       | Market Comparables     |                    | Market Yield (%)                 |       | (6.0)% - (7.1)%       |                 | (6.6)%   



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



155



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 7. Fair Value of Financial
Instruments (continued)



|                                 |  |                                |           |  |                       |  |                        |                    |  |  |                          |  |  |                 |                     |  |  |  |          | 
|-------------------------------- |  | ------------------------------ | --------- |  | --------------------- |  | ---------------------- | ------------------ |  |  | ------------------------ |  |  | --------------- | ------------------- |  |  |  | -------- | 
|Type of Investment               |  | Fair Value atDecember 31, 2015 |           |  | ValuationTechnique(1) |  |                        | Unobservable Input |  |  | Range                    |  |  | WeightedAverage |                    
|Senior Secured LoansFirst Lien  |  | $                              | 1,447,825 |  |                       |  | Market Comparables     |                    |  |  | Market Yield (%)         |  |  |                 | 5.5% - 16.0%        |  |  |  | 9.9%     | 
|                                 |  |                                | 8,342     |  |                       |  | Other(2)               |                    |  |  | Other                    |  |  |                 | N/A                 |  |  |  | N/A      | 
|                                 |  |                                | 288,385   |  |                       |  | Market Quotes          |                    |  |  | Indicative Dealer Quotes |  |  |                 | 30.0% - 102.0%      |  |  |  | 93.8%    | 
|                                 |  |                                | 134,000   |  |                       |  | Cost                   |                    |  |  | Cost                     |  |  |                 | 100.0% - 100.0%     |  |  |  | 100.0%   | 
|Senior Secured LoansSecond Lien |  |                                | 50,864    |  |                       |  | Market Comparables     |                    |  |  | Market Yield (%)         |  |  |                 | 10.5% - 19.9%       |  |  |  | 16.3%    | 
|                                 |  |                                | 213,397   |  |                       |  | Market Quotes          |                    |  |  | Indicative Dealer Quotes |  |  |                 | 1.8% - 101.0%       |  |  |  | 92.0%    | 
|Senior Secured Bonds             |  |                                | 13,402    |  |                       |  | Market Comparables     |                    |  |  | Market Yield (%)         |  |  |                 | 16.0% - 31.5%       |  |  |  | 25.1%    | 
|                                 |  |                                |           |  |                       |  |                        |                    |  |  | EBITDA Multiples (x)     |  |  |                 | 7.0x - 7.5x         |  |  |  | 7.3x     | 
|                                 |  |                                | 62,195    |  |                       |  | Market Quotes          |                    |  |  | Indicative Dealer Quotes |  |  |                 | 14.0% - 94.4%       |  |  |  | 68.7%    | 
|Subordinated Debt                |  |                                | 50,187    |  |                       |  | Market Comparables     |                    |  |  | Market Yield (%)         |  |  |                 | 13.3% - 13.8%       |  |  |  | 13.5%    | 
|                                 |  |                                | 66,443    |  |                       |  | Other(2)               |                    |  |  | Other                    |  |  |                 | N/A                 |  |  |  | N/A      | 
|                                 |  |                                | 335,064   |  |                       |  | Market Quotes          |                    |  |  | Indicative Dealer Quotes |  |  |                 | 19.9% - 104.1%      |  |  |  | 80.8%    | 
|Collateralized Securities        |  |                                | 7,607     |  |                       |  | Market Quotes          |                    |  |  | Indicative Dealer Quotes |  |  |                 | 83.5% - 91.0%       |  |  |  | 84.2%    | 
|Equity/Other                     |  |                                | 29,401    |  |                       |  | Market Comparables     |                    |  |  | EBITDA Multiples (x)     |  |  |                 | 5.8x - 14.3x        |  |  |  | 9.7x     | 
|                                 |  |                                |           |  |                       |  |                        |                    |  |  | Capacity Multiple ($/kW) |  |  |                 | $2,000.0 - $2,500.0 |  |  |  | $2,250.0 | 
|                                 |  |                                |           |  |                       |  | Option Valuation Model |                    |  |  | Volatility (%)           |  |  |                 | 40.0% - 72.5%       |  |  |  | 41.6%    | 
|                                 |  |                                | 37,518    |  |                       |  | Other(2)               |                    |  |  | Other                    |  |  |                 | N/A                 |  |  |  | N/A      | 
|                                 |  |                                |           |  |                       |  |                        |                    |  |  |                          |  |  |                 |                     |  |  |  |          | 
|Total                            |  | $                              | 2,744,630 |  |                       |  |                        |                    |  |  |                          |  |  |                 |                     |  |  |  |          | 
|                                 |  |                                |           |  |                       |  |                        |                    |  |  |                          |  |  |                 |                     |  |  |  |          | 



|(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 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 and other various factors.
|--- | --------------------------------------------------------------------------------------------------



156



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##### Table of Contents

FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)







Note 8. Financing Arrangements

The following tables present summary information with respect to the Companys outstanding financing arrangements as of
December 31, 2016 and 2015:



|                                 |  |                           |  |                      |  |                   |         |  |                 |   |         |               |  |                       
|-------------------------------- |  | ------------------------- |  | -------------------- |  | ----------------- | ------- |  | --------------- | - | ------- | ------------- |  | ----------------------
|                                 |  | As of December 31, 2016  
|Arrangement                      |  | Type of Arrangement       |  | Rate                 |  | AmountOutstanding |         |  | AmountAvailable |   |         | Maturity Date
|Citibank Total Return Swap       |  | Total Return Swap         |  | L+1.55%              |  | $                 | 388,681 |  |                 | $ | 111,319 |               |  | N/A(1)                
|BNP Facility(2)                  |  | Prime Brokerage Facility  |  | L+1.10%              |  | $                 | 187,700 |  |                 | $ | 62,300  |               |  | September 27, 
2017(3)
|Deutsche Bank Credit Facility(4) |  | Revolving Credit Facility |  | L+2.25%              |  | $                 | 240,000 |  |                 | $ | 10,000  |               |  | September 22, 2019    
|JPM Credit Facility              |  | Term Loan Credit Facility |  | L+2.69%              |  | $                 | 400,000 |  |                 | $ |        |               |  | May 8, 2019           
|Goldman Facility                 |  | Repurchase Agreement      |  | L+2.50%              |  | $                 | 300,000 |  |                 | $ |        |               |  | July 15, 2019         
|Capital One Credit Facility      |  | Revolving Credit Facility |  | L+1.75% to L+2.50%   |  | $                 | 150,000 |  |                 | $ |        |               |  | August 13, 2020       
|Partial Loan Sale                |  | Secured Borrowing         |  | L+4.50% (1.0% Floor) |  | $                 | 13,929  |  |                 | $ |        |               |  | July 29, 2022         



|(1) | The TRS may be terminated by Center City Funding or by Citibank at any time on or after June 27, 2017, in each case, in whole or in part, upon prior written notice
to the other party.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | On August 29, 2016, Burholme Funding entered into an amendment to the prime brokerage facility with BNPP to, among other things, (i) increase the interest
rate payable on borrowings under the committed facility agreement from three-month LIBOR plus 110 basis points to three-month LIBOR plus 125 basis points effective on and after January 2, 2017 and (ii) increase the commitment fee payable
under the committed facility agreement from 55 basis points on all unused amounts to, effective on and after January 2, 2017, (a) 65 basis points on unused amounts so long as 75% or more of the facility amount under the committed facility
agreement is utilized or (b) 85 basis points on unused amounts if less than 75% of the facility amount under the committed facility agreement is utilized. On November 15, 2016, Burholme Funding entered into an amendment to the facility to
increase the maximum commitment financing available to Burholme Funding to $250,000 from $200,000.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | As described below, this facility generally is terminable upon 270 days notice by either party. As of December 31, 2016, neither party to the facility had
provided notice of its intent to terminate the facility.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | On January 12, 2017, Dunlap Funding entered into an amendment to the Deutsche Bank credit facility to increase the aggregate principal amount of borrowings
available under the Deutsche Bank credit facility from $250,000 to $350,000.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



157



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##### Table of Contents

FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing
Arrangements (continued)



The Companys average borrowings and weighted average interest rate, including the
effect of non-usage fees, for the year ended December 31, 2016 were $1,196,899 and 3.12%, respectively. As of December 31, 2016, the Companys weighted average effective interest rate on
borrowings, including the effect of non-usage fees, was 3.30%.



|                              |  |                           |  |                    |  |                   |         |  |                 |   |         |               |  |                       
|----------------------------- |  | ------------------------- |  | ------------------ |  | ----------------- | ------- |  | --------------- | - | ------- | ------------- |  | ----------------------
|                              |  | As of December 31, 2015  
|Arrangement                   |  | Type of Arrangement       |  | Rate               |  | AmountOutstanding |         |  | AmountAvailable |   |         | Maturity Date
|Citibank Total Return Swap    |  | Total Return Swap         |  | L+1.50%            |  | $                 | 394,680 |  |                 | $ | 105,320 |               |  | N/A(1)                
|BNP Facility                  |  | Prime Brokerage Facility  |  | L+1.10%            |  | $                 | 155,755 |  |                 | $ | 44,245  |               |  | September 26, 
2016(2)
|Deutsche Bank Credit Facility |  | Revolving Credit Facility |  | L+2.25%            |  | $                 | 250,000 |  |                 | $ |        |               |  | September 22, 2019    
|JPM Credit Facility(3)        |  | Term Loan Credit Facility |  | L+2.50%            |  | $                 | 300,000 |  |                 | $ |        |               |  | May 8, 2019           
|Goldman Facility              |  | Repurchase Agreement      |  | L+2.50%            |  | $                 | 289,200 |  |                 | $ | 10,800  |               |  | July 15, 2019         
|Capital One Facility          |  | Revolving Credit Facility |  | L+1.75% to L+2.50% |  | $                 | 94,700  |  |                 | $ | 55,300  |               |  | August 13, 2020       



|(1) | The TRS may be terminated by Center City Funding or by Citibank at any time on or after June 26, 2016, in each case, in whole or in part, upon prior written notice
to the other party.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | As described below, this facility generally is terminable upon 270 days notice by either party. As of December 31, 2015, neither party to the facility had
provided notice of its intent to terminate the facility.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | On March 1, 2016, Jefferson Square Funding entered into an amendment with JPM to (i) increase the aggregate principal amount of loans extended to Jefferson
Square Funding under this facility by $50,000 to $350,000, plus an option, subject to certain consents, to further increase the aggregate principal amount by an additional $50,000 prior to April 30, 2016, and (ii) increase the applicable
interest rate from LIBOR for each three-month interest period plus 2.50% to LIBOR for each three-month interest period plus 2.6875%.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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
$458,150 and 2.71%, respectively. As of December 31, 2015, the Companys weighted average effective interest rate on borrowings, including the effect of non-usage fees, was 2.72%.

Citibank Total Return Swap

On June 26, 2014, the Companys wholly-owned financing subsidiary, Center City Funding, entered into a TRS for a portfolio of primarily senior secured floating rate loans with Citibank, which
has subsequently been amended multiple times to, among other things, increase the maximum aggregate notional amount of the portfolio of loans subject to the TRS from $100,000, initially, to $500,000. Most recently, on June 27, 2016, Center City
Funding entered into a sixth amendment to the TRS to, among other things, (x) extend the date that Citibank may terminate the TRS from any time on or after June 26, 2016 to any time on or after June 27, 2017 and (y) increase the
swap spread over one-month LIBOR that Center City Funding pays to Citibank on the utilized notional amount under the TRS from 1.50% per annum to 1.55% per annum.

A TRS is a contract in which one party agrees to make periodic payments to another party based on the change in the market value of the
assets underlying the TRS, which may include a specified security, basket of securities or securities indices during a specified period, in return for periodic payments based on a fixed or variable interest rate. A TRS effectively adds leverage to a
portfolio by providing investment exposure to a



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Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing
Arrangements (continued)



security or market without owning or taking physical custody of such security or investing directly in such market. Because of the unique structure of a TRS, a TRS often offers lower financing
costs than are offered through more traditional borrowing arrangements.

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

The obligations of Center City Funding under the
TRS are non-recourse to the Company and its exposure under the TRS is limited to the value of the Companys investment in Center City Funding, which generally will equal the value of cash collateral
provided by Center City Funding under the TRS. Pursuant to the terms of the TRS, Center City Funding may select a portfolio of loans with a maximum aggregate notional amount (determined at the time each such loan becomes subject to the TRS) of
$500,000. Center City Funding is required to initially cash collateralize a specified percentage of the notional amount of each loan (generally 20%) that becomes subject to the TRS in accordance with margin requirements described in the TRS
agreement. Under the terms of the TRS, Center City Funding has agreed not to draw upon, or post as collateral, such cash collateral in respect of other financings or operating requirements prior to the termination of the TRS. Neither the cash
collateral required to be posted with Citibank nor any other assets of Center City Funding are available to pay the Companys debts.

Pursuant to the terms of an investment management agreement that the Company has entered into with Center City Funding, the Company acts as the investment manager of the rights and obligations of Center
City Funding under the TRS, including selecting the specific loans to be included in the portfolio of loans subject to the TRS. Accordingly, the loans subject to the TRS are selected by the Company in accordance with the Companys investment
objectives and strategy to generate current income and, to a lesser extent, long-term capital appreciation. In addition, pursuant to the terms of the TRS, Center City Funding may select any loan or obligation available in the market to be included
in the portfolio of loans that meets the obligation criteria set forth in the TRS agreement.

Each individual loan, and the
portfolio of loans taken as a whole, must meet criteria described in the TRS agreement, including a requirement that substantially all of the loans underlying the TRS be rated by Moodys Investors Service, Inc., or Moodys, and
Standard & Poors Ratings Services, or S&P, and quoted by a nationally recognized pricing service. Under the terms of the TRS, Citibank, as calculation agent, determines whether there has been a failure to satisfy the portfolio
criteria in the TRS. If such failure continues for 30 days following the delivery of notice thereof, then Citibank has the right, but not the obligation, to terminate the TRS. Center City Funding receives from Citibank all interest and fees payable
in respect of the loans included in the portfolio. Center City Funding pays to Citibank interest at a rate equal to one-month LIBOR plus 1.55% per annum on the utilized notional amount of the loans
subject to the TRS. In addition, upon the termination or repayment of any loan subject to the TRS, Center City Funding will either receive from Citibank the appreciation in the value of such loan or pay to Citibank any depreciation in the value of
such loan.

Under the terms of the TRS, Center City Funding may be required to post additional cash collateral, on a dollar-for-dollar basis, in the event of depreciation in the value of the underlying loans after such value decreases below a specified amount. The limit on the additional
collateral that Center City Funding may be required to post



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing
Arrangements (continued)



pursuant to the TRS is equal to the difference between the full notional amount of the loans underlying the TRS and the amount of cash collateral already posted by Center City Funding. The amount
of collateral required to be posted by Center City Funding is determined primarily on the basis of the aggregate value of the underlying loans. The terms of the TRS with Citibank, the counter-party, incorporate a master netting arrangement. If
Center City Funding enters into another derivative with the counter-party, it could be offset with the TRS. As of December 31, 2016 and 2015, there were no other contracts to offset the TRS.

The Company has no contractual obligation to post any such additional collateral or to make any interest payments to Citibank. The
Company may, but is not obligated to, increase its equity investment in Center City Funding for the purpose of funding any additional collateral or payment obligations for which Center City Funding may become obligated during the term of the TRS. If
the Company does not make any such additional investment in Center City Funding and Center City Funding fails to meet its obligations under the TRS, then Citibank will have the right to terminate the TRS and seize the cash collateral posted by
Center City Funding under the TRS. In the event of an early termination of the TRS, Center City Funding would be required to pay an early termination fee.

Citibank may terminate the TRS from any time on or after June 27, 2017. Center City Funding may terminate the TRS at any time upon providing no more than 30 days, and no less than 10 days, prior
notice to Citibank. Any termination prior to June 27, 2017 will result in payment of an early termination fee to Citibank based on the maximum notional amount of the TRS. Under the terms of the TRS, the early termination fee will equal the
present value of a stream of monthly payments, based on the minimum utilization amount, which would be owed by Center City Funding to Citibank for the period from the termination date through and including June 27, 2017. Such monthly payments
will equal the present value of the product of (x) 80%, multiplied by (y) the maximum notional amount of the TRS ($500,000), multiplied by (z) 1.55% per annum. If the TRS had been terminated as of December 31, 2016, Center
City Funding would have been required to pay an early termination fee of approximately $2,519, based on the maximum notional amount of the TRS of $500,000 as of such date. Other than during the first 90 days and last 30 days of the term of the TRS,
Center City Funding is required to pay a minimum usage fee if less than 80% of the maximum notional amount of the TRS is utilized and an unused fee on any amounts unutilized if greater than 80% but less than 100% of the maximum notional amount of
the TRS is utilized.

The value of the TRS is based primarily on the valuation of the underlying portfolio of loans subject to
the TRS. Pursuant to the terms of the TRS, on each business day, Citibank values each underlying loan in good faith on a mark-to-market basis by determining how much
Citibank would receive on such date if it sold the loan in the open market. Citibank reports the mark-to-market values of the underlying loans to Center City Funding.

As of December 31, 2016, the fair value of the TRS was $11,403, which is reflected in the Companys consolidated
balance sheets as unrealized appreciation on total return swap. As of December 31, 2015, the fair value of the TRS was $(25,927), which is reflected in the Companys consolidated balance sheets as unrealized depreciation on total return
swap. As of December 31, 2016 and 2015, the receivable due on the TRS was $1,817 and $1,830, respectively, which is reflected in the Companys consolidated balance sheets as receivable due on total return swap. As of December 31, 2016
and 2015, the Company posted $118,000 and $118,000, respectively, in cash collateral held by Citibank (of which only $94,651 and $91,174, respectively, was required to be posted). The cash collateral held by Citibank is reflected in the
Companys consolidated balance sheets as due from counterparty. As of December 31, 2015, $118,000 of cash collateral was available to offset the TRS liability of



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing
Arrangements (continued)



$(25,927), for a net amount of $92,073. The Company does not offset collateral posted in relation to the TRS with any unrealized appreciation or depreciation outstanding on the consolidated
balance sheets as of December 31, 2016 and 2015.

As of December 31, 2016, Center City Funding had selected 53
underlying loans with a notional amount and market value of $388,681 and $394,986, respectively. As of December 31, 2015, Center City Funding had selected 51 underlying loans with a total notional amount and market value of $394,680 and
$365,214, respectively.

For the years ended December 31, 2016, 2015 and 2014, transactions in the TRS resulted in net
realized gain (loss) on total return swap of $15,785, $14,561 and $1,944, respectively, and unrealized appreciation (depreciation) on total return swap of $37,330, $(20,559) and $(5,368), respectively, which are reflected in the Companys
consolidated statements of operations.

For purposes of the asset coverage ratio test applicable to the Company as a BDC, the
Company treats the outstanding notional amount of the TRS, less the initial amount of any cash collateral required to be posted by Center City Funding under the TRS, as a senior security for the life of that instrument. The Company may, however,
accord different treatment to the TRS in the future in accordance with any applicable new rules or interpretations adopted by the staff of the SEC.

Further, for purposes of Section 55(a) under the 1940 Act, the Company treats each loan underlying the TRS as a qualifying asset if the obligor on such loan is an eligible portfolio company and as a non-qualifying asset if the obligor is not an eligible portfolio company. The Company may, however, accord different treatment to the TRS in the future in accordance with any applicable new rules or interpretations
adopted by the staff of the SEC.



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing
Arrangements (continued)



The following is a summary of the underlying loans subject to the TRS as of
December 31, 2016:



|                                                |  |          |                                               |  |         |   |                                           |       |  |                       |       |                |   |        |             |  |  |                                       |        |  |  |   |        |  
|----------------------------------------------- |  | -------- | --------------------------------------------- |  | ------- | - | ----------------------------------------- | ----- |  | --------------------- | ----- | -------------- | - | ------ | ----------- |  |  | ------------------------------------- | ------ |  |  | - | ------ | -
|Underlying
Loan(1)                              |  | Industry |                                               |  | Rate(2) |   |                                           | Floor |  | Maturity              |       | NotionalAmount |   |        | MarketValue |  |  | UnrealizedAppreciation/(Depreciation) |       
|Alison US LLC(3)                                |  |          | Capital Goods                                 |  |         |   | L+425                                     |       |  | 1.0%                  |       | 8/29/21        |   | $      | 7,264       |  |  | $                                     | 7,282  |  |  | $ | 18     |  
|Alison US LLC(3)                                |  |          | Capital Goods                                 |  |         |   | L+850                                     |       |  | 1.0%                  |       | 8/29/22        |   |        | 2,400       |  |  |                                       | 2,400  |  |  |   |       |  
|American Bath Group, LLC                        |  |          | Capital Goods                                 |  |         |   | L+575                                     |       |  | 1.0%                  |       | 9/30/23        |   |        | 3,352       |  |  |                                       | 3,487  |  |  |   | 135    |  
|American Bath Group, LLC                        |  |          | Capital Goods                                 |  |         |   | L+975                                     |       |  | 1.0%                  |       | 9/30/24        |   |        | 2,760       |  |  |                                       | 2,880  |  |  |   | 120    |  
|AqGen Ascensus, Inc.                            |  |          | Diversified Financials                        |  |         |   | L+450                                     |       |  | 1.0%                  |       | 12/5/22        |   |        | 13,967      |  |  |                                       | 14,822 |  |  |   | 855    |  
|ATX Networks Corp.(3)                           |  |          | Technology Hardware & Equipment               |  |         |   | L+600                                     |       |  | 1.0%                  |       | 6/11/21        |   |        | 4,851       |  |  |                                       | 4,802  |  |  |   | (49    | )
|ATX Networks Corp.(3)                           |  |          | Technology Hardware & Equipment               |  |         |   | L+600                                     |       |  | 1.0%                  |       | 6/11/21        |   |        | 7,737       |  |  |                                       | 7,777  |  |  |   | 40     |  
|Avantor Performance Materials Holdings, Inc.    |  |          | Materials                                     |  |         |   | L+500                                     |       |  | 1.0%                  |       | 6/21/22        |   |        | 22,721      |  |  |                                       | 23,297 |  |  |   | 576    |  
|BBB Industries US Holdings, Inc.                |  |          | Automobiles & Components                      |  |         |   | L+500                                     |       |  | 1.0%                  |       | 11/3/21        |   |        | 7,703       |  |  |                                       | 7,860  |  |  |   | 157    |  
|Caesars Entertainment Operating Co.,
Inc.(3)(4) |  |          | Consumer Services                             |  |         |   | L+575                                     |       |  |                       |       | 3/1/17         |   |        | 7,097       |  |  |                                       | 8,266  |  |  |   | 1,169  |  
|Caesars Entertainment Operating Co.,
Inc.(3)(4) |  |          | Consumer Services                             |  |         |   | L+675                                     |       |  |                       |       | 3/1/17         |   |        | 1,601       |  |  |                                       | 1,896  |  |  |   | 295    |  
|Caesars Entertainment Resort Properties, LLC    |  |          | Consumer Services                             |  |         |   | L+600                                     |       |  | 1.0%                  |       | 10/11/20       |   |        | 5,171       |  |  |                                       | 5,430  |  |  |   | 259    |  
|CDS U.S. Intermediate Holdings,
Inc.(3)         |  |          | Media                                         |  |         |   | L+825                                     |       |  | 1.0%                  |       | 7/10/23        |   |        | 8,865       |  |  |                                       | 8,752  |  |  |   | (113   | )
|CEVA Group Plc(3)                               |  |          | Transportation                                |  |         |   | L+550                                     |       |  | 1.0%                  |       | 3/19/21        |   |        | 1,734       |  |  |                                       | 1,681  |  |  |   | (53    | )
|CEVA Intercompany BV(3)                         |  |          | Transportation                                |  |         |   | L+550                                     |       |  | 1.0%                  |       | 3/19/21        |   |        | 1,778       |  |  |                                       | 1,724  |  |  |   | (54    | )
|CEVA Logistics Canada, ULC(3)                   |  |          | Transportation                                |  |         |   | L+550                                     |       |  | 1.0%                  |       | 3/19/21        |   |        | 307         |  |  |                                       | 297    |  |  |   | (10    | )
|CEVA Logistics U.S. Holdings, Inc.              |  |          | Transportation                                |  |         |   | L+550                                     |       |  | 1.0%                  |       | 3/19/21        |   |        | 2,453       |  |  |                                       | 2,378  |  |  |   | (75    | )
|Compuware Corp.                                 |  |          | Software & Services                           |  |         |   | L+525                                     |       |  | 1.0%                  |       | 12/15/21       |   |        | 11,172      |  |  |                                       | 11,813 |  |  |   | 641    |  
|Concordia Healthcare Corp.(3)                   |  |          | Pharmaceuticals, Biotechnology &Life Sciences |  |         |   | L+425                                     |       |  | 1.0%                  |       | 10/21/21       |   |        | 8,452       |  |  |                                       | 6,937  |  |  |   | (1,515 | )
|Confie Seguros Holding II Co.(3)                |  |          | Insurance                                     |  |         |   | L+475                                     |       |  | 1.0%                  |       | 4/19/22        |   |        | 6,930       |  |  |                                       | 7,023  |  |  |   | 93     |  
|Corner Investment PropCo, LLC                   |  |          | Consumer Services                             |  |         |   | L+975                                     |       |  | 1.3%                  |       | 11/2/19        |   |        | 6,459       |  |  |                                       | 6,355  |  |  |   | (104   | )
|Dayton Superior Corp.                           |  |          | Materials                                     |  |         |   | L+800                                     |       |  | 1.0%                  |       | 11/15/21       |   |        | 11,317      |  |  |                                       | 11,696 |  |  |   | 379    |  
|Diamond Resorts International, Inc.             |  |          | Consumer Services                             |  |         |   | L+600                                     |       |  | 1.0%                  |       | 9/2/23         |   |        | 27,232      |  |  |                                       | 27,930 |  |  |   | 698    |  
|DTZ U.S. Borrower, LLC                          |  |          | Real Estate                                   |  |         |   | L+825                                     |       |  | 1.0%                  |       | 11/4/22        |   |        | 816         |  |  |                                       | 833    |  |  |   | 17     |  
|Engility Corp.(3)                               |  |          | Capital Goods                                 |  |         |   | L+475                                     |       |  | 1.0%                  |       | 8/14/23        |   |        | 5,381       |  |  |                                       | 5,485  |  |  |   | 104    |  
|FHC Health Systems, Inc.                        |  |          | Health Care Equipment & Services              |  |         |   | L+400                                     |       |  | 1.0%                  |       | 12/23/21       |   |        | 8,930       |  |  |                                       | 8,750  |  |  |   | (180   | )
|Forterra Finance, LLC(3)                        |  |          | Materials                                     |  |         |   | L+350                                     |       |  | 1.0%                  |       | 10/25/23       |   |        | 14,015      |  |  |                                       | 14,233 |  |  |   | 218    |  
|Gulf Finance, LLC                               |  |          | Energy                                        |  |         |   | L+525                                     |       |  | 1.0%                  |       | 8/25/23        |   |        | 9,676       |  |  |                                       | 10,000 |  |  |   | 324    |  
|Inmar, Inc.                                     |  |          | Software & Services                           |  |         |   | L+700                                     |       |  | 1.0%                  |       | 1/27/22        |   |        | 3,439       |  |  |                                       | 3,343  |  |  |   | (96    | )
|Jazz Acquisition, Inc.                          |  |          | Capital Goods                                 |  |         |   | L+675                                     |       |  | 1.0%                  |       | 6/19/22        |   |        | 2,512       |  |  |                                       | 2,079  |  |  |   | (433   | )
|Landslide Holdings, Inc.                        |  |          | Software & Services                           |  |         |   | L+450                                     |       |  | 1.0%                  |       | 9/27/22        |   |        | 6,369       |  |  |                                       | 6,506  |  |  |   | 137    |  
|LBM Borrower, LLC                               |  |          | Capital Goods                                 |  |         |   | L+525                                     |       |  | 1.0%                  |       | 8/20/22        |   |        | 5,414       |  |  |                                       | 5,382  |  |  |   | (32    | )
|LD Intermediate Holdings, Inc.                  |  |          | Software & Services                           |  |         |   | L+588                                     |       |  | 1.0%                  |       | 12/9/22        |   |        | 9,000       |  |  |                                       | 9,250  |  |  |   | 250    |  
|McGraw-Hill Global Education Holdings, LLC      |  |          | Media                                         |  |         |   | L+400                                     |       |  | 1.0%                  |       | 5/4/22         |   |        | 1,476       |  |  |                                       | 1,484  |  |  |   | 8      |  
|MORSCO, Inc.                                    |  |          | Capital Goods                                 |  |         |   | L+700                                     |       |  | 1.0%                  |       | 10/31/23       |   |        | 9,600       |  |  |                                       | 10,025 |  |  |   | 425    |  
|Murray Energy Corp.                             |  |          | Energy                                        |  |         |   | L+725                                     |       |  | 1.0%                  |       | 4/16/20        |   |        | 9,875       |  |  |                                       | 10,118 |  |  |   | 243    |  
|National Surgical Hospitals, Inc.               |  |          | Health Care Equipment & Services              |  |         |   | L+350                                     |       |  | 1.0%                  |       | 6/1/22         |   |        | 6,861       |  |  |                                       | 6,895  |  |  |   | 34     |  
|Navistar, Inc.(3)                               |  |          | Capital Goods                                 |  |         |   | L+550                                     |       |  | 1.0%                  |       | 8/7/20         |   |        | 9,208       |  |  |                                       | 9,994  |  |  |   | 786    |  
|Neff Rental LLC                                 |  |          | Capital Goods                                 |  |         |   | L+625                                     |       |  | 1.0%                  |       | 6/9/21         |   |        | 9,225       |  |  |                                       | 10,898 |  |  |   | 1,673  |  
|Nielsen & Bainbridge, LLC                       |  |          | Consumer Durables & Apparel                   |  |         |   | L+500                                     |       |  | 1.0%                  |       | 8/15/20        |   |        | 8,620       |  |  |                                       | 8,610  |  |  |   | (10    | )
|P2 Upstream Acquisition Co.                     |  |          | Energy                                        |  |         |   | L+400                                     |       |  | 1.0%                  |       | 10/30/20       |   |        | 2,307       |  |  |                                       | 2,344  |  |  |   | 37     |  
|Panda Temple Power, LLC                         |  |          | Energy                                        |  |         |   | L+625                                     |       |  | 1.0%                  |       | 3/6/22         |   |        | 9,628       |  |  |                                       | 8,597  |  |  |   | (1,031 | )
|Payless Inc.                                    |  |          | Retailing                                     |  |         |   | L+400                                     |       |  | 1.0%                  |       | 3/11/21        |   |        | 2,620       |  |  |                                       | 1,386  |  |  |   | (1,234 | )
|Printpack Holdings, Inc.                        |  |          | Materials                                     |  |         |   | L+400                                     |       |  | 1.0%                  |       | 7/26/23        |   |        | 3,947       |  |  |                                       | 3,992  |  |  |   | 45     |  
|QCP SNF East REIT, LLC(3)                       |  |          | Real Estate                                   |  |         |   | L+525                                     |       |  | 1.0%                  |       | 10/31/22       |   |        | 11,760      |  |  |                                       | 12,210 |  |  |   | 450    |  
|Spencer Gifts LLC                               |  |          | Retailing                                     |  |         |   | L+425                                     |       |  | 1.0%                  |       | 7/16/21        |   |        | 15,977      |  |  |                                       | 13,982 |  |  |   | (1,995 | )
|SRS Distribution Inc.                           |  |          | Capital Goods                                 |  |         |   | L+425                                     |       |  | 1.0%                  |       | 8/25/22        |   |        | 7,832       |  |  |                                       | 7,902  |  |  |   | 70     |  
|Strike, LLC                                     |  |          | Energy                                        |  |         |   | L+800                                     |       |  | 1.0%                  |       | 11/30/22       |   |        | 4,850       |  |  |                                       | 4,925  |  |  |   | 75     |  
|SunGard Availability Services Capital, Inc.     |  |          | Software & Services                           |  |         |   | L+500                                     |       |  | 1.0%                  |       | 3/29/19        |   |        | 4,770       |  |  |                                       | 5,249  |  |  |   | 479    |  
|TierPoint, LLC                                  |  |          | Software & Services                           |  |         |   | L+450                                     |       |  | 1.0%                  |       | 12/2/21        |   |        | 4,435       |  |  |                                       | 4,539  |  |  |   | 104    |  
|TTM Technologies, Inc.(3)                       |  |          | Technology Hardware & Equipment               |  |         |   | L+425                                     |       |  | 1.0%                  |       | 5/31/21        |   |        | 11,450      |  |  |                                       | 12,834 |  |  |   | 1,384  |  
|Weight Watchers International, Inc.(3)          |  |          | Consumer Services                             |  |         |   | L+325                                     |       |  | 0.8%                  |       | 4/2/20         |   |        | 10,487      |  |  |                                       | 11,788 |  |  |   | 1,301  |  
|Winebow Holdings, Inc.                          |  |          | Retailing                                     |  |         |   | L+750                                     |       |  | 1.0%                  |       | 1/2/22         |   |        | 4,878       |  |  |                                       | 4,568  |  |  |   | (310   | )
|                                                |  |          |                                               |  |         |   |                                           |       |  |                       |       |                |   |        |             |  |  |                                       |        |  |  |   |        |  
|Total                                           |  | $        | 388,681                                       |  |         | $ | 394,986                                   |       |  |                       | 6,305 |               
|                                                |  |          |                                               |  |         |   |                                           |       |  |                       |       |                |   |        |             |  |  |                                       |        |  |  |   |        |  
|                                                |  |          |                                               |  |         |   | Total TRS Accrued Income and Liabilities: |       |  |                       | 5,098 |               
|                                                |  |          |                                               |  |         |   |                                           |       |  |                       |       |                |   |        |             |  |  |                                       |        |  |  |   |        |  
|                                                |  |          |                                               |  |         |   |                                           |       |  | Total TRS Fair Value: |       |                | $ | 11,403 |            
|                                                |  |          |                                               |  |         |   |                                           |       |  |                       |       |                |   |        |             |  |  |                                       |        |  |  |   |        |  



162



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##### Table of Contents

FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing
Arrangements (continued)





|(1) | Loan may be an obligation of one or more entities affiliated with the named company.
|--- | ------------------------------------------------------------------------------------



|(2) | The variable rate securities underlying the TRS bear interest at a rate determined by a publicly disclosed base rate plus a basis point spread. As of December 31,
2016, three-month LIBOR was 1.00%.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | The investment is not a qualifying asset under the 1940 Act. A BDC 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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Security is non-income producing.
|--- | ---------------------------------

The following is a summary of the underlying loans subject to the TRS as of December 31, 2015:



|                                                |  |                                               |  |         |  |       |  |          |  |                |        |  |             |   |        |                                       |  |   |        |  
|----------------------------------------------- |  | --------------------------------------------- |  | ------- |  | ----- |  | -------- |  | -------------- | ------ |  | ----------- | - | ------ | ------------------------------------- |  | - | ------ | -
|Underlying
Loan(1)                              |  | Industry                                      |  | Rate(2) |  | Floor |  | Maturity |  | NotionalAmount |        |  | MarketValue |   |        | UnrealizedAppreciation/(Depreciation) | 
|AdvancePierre Foods, Inc.                       |  | Food, Beverage & Tobacco                      |  | L+825   |  | 1.3%  |  | 10/10/17 |  | $              | 7,872  |  |             | $ | 7,616  |                                       |  | $ | (256   | )
|Alison US LLC(3)                                |  | Capital Goods                                 |  | L+450   |  | 1.0%  |  | 8/29/21  |  |                | 7,338  |  |             |   | 7,240  |                                       |  |   | (98    | )
|Alison US LLC(3)                                |  | Capital Goods                                 |  | L+850   |  | 1.0%  |  | 8/29/22  |  |                | 2,400  |  |             |   | 1,969  |                                       |  |   | (431   | )
|Alliant Holdings Intermediate, LLC              |  | Insurance                                     |  | L+350   |  | 1.0%  |  | 8/12/22  |  |                | 5,877  |  |             |   | 5,737  |                                       |  |   | (140   | )
|AqGen Ascensus, Inc.                            |  | Diversified Financials                        |  | L+450   |  | 1.0%  |  | 12/5/22  |  |                | 13,270 |  |             |   | 13,129 |                                       |  |   | (141   | )
|AqGen Ascensus, Inc.(5)                         |  | Diversified Financials                        |  | L+450   |  | 1.0%  |  | 12/5/22  |  |                | 830    |  |             |   | 821    |                                       |  |   | (9     | )
|ATX Networks Corp.(3)                           |  | Technology Hardware & Equipment               |  | L+600   |  | 1.0%  |  | 6/11/21  |  |                | 4,900  |  |             |   | 4,875  |                                       |  |   | (25    | )
|Avaya Inc.                                      |  | Technology Hardware & Equipment               |  | L+525   |  | 1.0%  |  | 5/29/20  |  |                | 9,713  |  |             |   | 6,850  |                                       |  |   | (2,863 | )
|BBB Industries US Holdings, Inc.                |  | Automobiles & Components                      |  | L+500   |  | 1.0%  |  | 11/3/21  |  |                | 7,781  |  |             |   | 7,854  |                                       |  |   | 73     |  
|Blue Coat Holdings, Inc.                        |  | Technology Hardware & Equipment               |  | L+350   |  | 1.0%  |  | 5/20/22  |  |                | 8,880  |  |             |   | 8,583  |                                       |  |   | (297   | )
|Brock Holdings III, Inc.                        |  | Energy                                        |  | L+450   |  | 1.5%  |  | 3/16/17  |  |                | 1,865  |  |             |   | 1,855  |                                       |  |   | (10    | )
|Builders FirstSource, Inc.(3)                   |  | Capital Goods                                 |  | L+500   |  | 1.0%  |  | 7/29/22  |  |                | 11,373 |  |             |   | 11,344 |                                       |  |   | (29    | )
|Caesars Entertainment Operating Co.,
Inc.(3)(4) |  | Consumer Services                             |  | 5.2%    |  |       |  | 3/1/17   |  |                | 9,628  |  |             |   | 9,094  |                                       |  |   | (534   | )
|Caesars Entertainment Operating Co.,
Inc.(3)(4) |  | Consumer Services                             |  | 6.0%    |  |       |  | 3/1/17   |  |                | 4,481  |  |             |   | 4,243  |                                       |  |   | (238   | )
|CDS U.S. Intermediate Holdings,
Inc.(3)         |  | Media                                         |  | L+400   |  | 1.0%  |  | 7/8/22   |  |                | 5,892  |  |             |   | 5,557  |                                       |  |   | (335   | )
|CDS U.S. Intermediate Holdings,
Inc.(3)         |  | Media                                         |  | L+825   |  | 1.0%  |  | 7/10/23  |  |                | 9,850  |  |             |   | 9,400  |                                       |  |   | (450   | )
|Ceridian HCM Holding Inc.                       |  | Commercial & Professional Services            |  | L+350   |  | 1.0%  |  | 9/15/20  |  |                | 11,879 |  |             |   | 11,938 |                                       |  |   | 59     |  
|Communications Sales & Leasing,
Inc.(3)         |  | Real Estate                                   |  | L+400   |  | 1.0%  |  | 10/24/22 |  |                | 6,040  |  |             |   | 5,680  |                                       |  |   | (360   | )
|Compuware Corp.                                 |  | Software & Services                           |  | L+525   |  | 1.0%  |  | 12/15/21 |  |                | 11,286 |  |             |   | 10,999 |                                       |  |   | (287   | )
|Concordia Healthcare Corp.(3)                   |  | Pharmaceuticals, Biotechnology &Life Sciences |  | L+425   |  | 1.0%  |  | 10/21/21 |  |                | 8,537  |  |             |   | 8,656  |                                       |  |   | 119    |  
|Corner Investment PropCo, LLC                   |  | Consumer Services                             |  | L+975   |  | 1.3%  |  | 11/2/19  |  |                | 6,284  |  |             |   | 5,965  |                                       |  |   | (319   | )
|Curo Health Services Holdings, Inc.             |  | Health Care Equipment & Services              |  | L+550   |  | 1.0%  |  | 2/7/22   |  |                | 8,422  |  |             |   | 8,401  |                                       |  |   | (21    | )
|Drillships Ocean Ventures Inc.(3)               |  | Transportation                                |  | L+450   |  | 1.0%  |  | 7/25/21  |  |                | 6,566  |  |             |   | 3,101  |                                       |  |   | (3,465 | )
|DTZ U.S. Borrower, LLC(3)                       |  | Real Estate                                   |  | L+825   |  | 1.0%  |  | 11/4/22  |  |                | 9,587  |  |             |   | 9,620  |                                       |  |   | 33     |  
|Emerald Performance Materials, LLC              |  | Materials                                     |  | L+350   |  | 1.0%  |  | 7/30/21  |  |                | 965    |  |             |   | 947    |                                       |  |   | (18    | )
|Expro Finservices Sarl(3)                       |  | Energy                                        |  | L+475   |  | 1.0%  |  | 9/2/21   |  |                | 6,383  |  |             |   | 4,304  |                                       |  |   | (2,079 | )
|Fairway Group Acquisition Co.                   |  | Food & Staples Retailing                      |  | L+400   |  | 1.0%  |  | 8/17/18  |  |                | 13,823 |  |             |   | 12,473 |                                       |  |   | (1,350 | )
|FHC Health Systems, Inc.                        |  | Health Care Equipment & Services              |  | L+400   |  | 1.0%  |  | 12/23/21 |  |                | 9,021  |  |             |   | 8,657  |                                       |  |   | (364   | )
|Inmar, Inc.                                     |  | Software & Services                           |  | L+700   |  | 1.0%  |  | 1/27/22  |  |                | 3,439  |  |             |   | 3,220  |                                       |  |   | (219   | )
|IPC Corp.                                       |  | Telecommunication Services                    |  | L+450   |  | 1.0%  |  | 8/6/21   |  |                | 9,953  |  |             |   | 9,586  |                                       |  |   | (367   | )
|Jazz Acquisition, Inc.                          |  | Capital Goods                                 |  | L+350   |  | 1.0%  |  | 6/19/21  |  |                | 3,281  |  |             |   | 2,953  |                                       |  |   | (328   | )
|Jazz Acquisition, Inc.                          |  | Capital Goods                                 |  | L+675   |  | 1.0%  |  | 6/19/22  |  |                | 2,512  |  |             |   | 2,200  |                                       |  |   | (312   | )
|Murray Energy Corp.                             |  | Energy                                        |  | L+600   |  | 1.0%  |  | 4/17/17  |  |                | 6,058  |  |             |   | 4,681  |                                       |  |   | (1,377 | )
|Murray Energy Corp.                             |  | Energy                                        |  | L+650   |  | 1.0%  |  | 4/16/20  |  |                | 9,983  |  |             |   | 6,524  |                                       |  |   | (3,459 | )
|National Surgical Hospitals, Inc.               |  | Health Care Equipment & Services              |  | L+350   |  | 1.0%  |  | 6/1/22   |  |                | 6,930  |  |             |   | 6,721  |                                       |  |   | (209   | )
|Navistar, Inc.(3)                               |  | Capital Goods                                 |  | L+550   |  | 1.0%  |  | 8/7/20   |  |                | 26,327 |  |             |   | 24,046 |                                       |  |   | (2,281 | )
|Neff Rental LLC                                 |  | Capital Goods                                 |  | L+625   |  | 1.0%  |  | 6/9/21   |  |                | 13,092 |  |             |   | 12,013 |                                       |  |   | (1,079 | )
|Nielsen & Bainbridge, LLC                       |  | Consumer Durables & Apparel                   |  | L+500   |  | 1.0%  |  | 8/15/20  |  |                | 12,766 |  |             |   | 12,756 |                                       |  |   | (10    | )



163



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##### Table of Contents

FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing
Arrangements (continued)



|                                            |  |          |                                  |  |         |   |                                           |       |  |                       |         |                |   |         |             |  |  |                                       |        |  |  |   |        |  
|------------------------------------------- |  | -------- | -------------------------------- |  | ------- | - | ----------------------------------------- | ----- |  | --------------------- | ------- | -------------- | - | ------- | ----------- |  |  | ------------------------------------- | ------ |  |  | - | ------ | -
|Underlying
Loan(1)                          |  | Industry |                                  |  | Rate(2) |   |                                           | Floor |  | Maturity              |         | NotionalAmount |   |         | MarketValue |  |  | UnrealizedAppreciation/(Depreciation) |       
|Packaging Coordinators, Inc.                |  |          | Health Care Equipment & Services |  |         |   | L+425                                     |       |  | 1.0%                  |         | 8/1/21         |   | $       | 2,708       |  |  | $                                     | 2,705  |  |  | $ | (3     | )
|Panda Temple Power, LLC                     |  |          | Energy                           |  |         |   | L+625                                     |       |  | 1.0%                  |         | 3/6/22         |   |         | 9,727       |  |  |                                       | 7,940  |  |  |   | (1,787 | )
|Payless Inc.                                |  |          | Retailing                        |  |         |   | L+400                                     |       |  | 1.0%                  |         | 3/11/21        |   |         | 2,647       |  |  |                                       | 1,551  |  |  |   | (1,096 | )
|Phillips-Medisize Corp.                     |  |          | Health Care Equipment & Services |  |         |   | L+725                                     |       |  | 1.0%                  |         | 6/16/22        |   |         | 2,212       |  |  |                                       | 2,100  |  |  |   | (112   | )
|Physio-Control International, Inc.          |  |          | Health Care Equipment & Services |  |         |   | L+900                                     |       |  | 1.0%                  |         | 6/5/23         |   |         | 4,900       |  |  |                                       | 4,513  |  |  |   | (387   | )
|Reddy Ice Corp.                             |  |          | Food, Beverage & Tobacco         |  |         |   | L+550                                     |       |  | 1.3%                  |         | 5/1/19         |   |         | 1,332       |  |  |                                       | 1,215  |  |  |   | (117   | )
|Serena Software, Inc.                       |  |          | Software & Services              |  |         |   | L+650                                     |       |  | 1.0%                  |         | 4/14/20        |   |         | 6,682       |  |  |                                       | 6,209  |  |  |   | (473   | )
|Spencer Gifts LLC                           |  |          | Retailing                        |  |         |   | L+425                                     |       |  | 1.0%                  |         | 7/16/21        |   |         | 16,606      |  |  |                                       | 16,077 |  |  |   | (529   | )
|SRAM, LLC                                   |  |          | Consumer Durables & Apparel      |  |         |   | L+300                                     |       |  | 1.0%                  |         | 4/10/20        |   |         | 1,655       |  |  |                                       | 1,643  |  |  |   | (12    | )
|Stardust Finance Holdings, Inc.(3)          |  |          | Materials                        |  |         |   | L+550                                     |       |  | 1.0%                  |         | 3/14/22        |   |         | 7,647       |  |  |                                       | 7,569  |  |  |   | (78    | )
|SunGard Availability Services Capital, Inc. |  |          | Software & Services              |  |         |   | L+500                                     |       |  | 1.0%                  |         | 3/29/19        |   |         | 3,050       |  |  |                                       | 2,995  |  |  |   | (55    | )
|TTM Technologies, Inc.(3)                   |  |          | Technology Hardware & Equipment  |  |         |   | L+500                                     |       |  | 1.0%                  |         | 5/31/21        |   |         | 25,553      |  |  |                                       | 24,522 |  |  |   | (1,031 | )
|Winebow Holdings, Inc.                      |  |          | Retailing                        |  |         |   | L+750                                     |       |  | 1.0%                  |         | 1/2/22         |   |         | 4,877       |  |  |                                       | 4,567  |  |  |   | (310   | )
|                                            |  |          |                                  |  |         |   |                                           |       |  |                       |         |                |   |         |             |  |  |                                       |        |  |  |   |        |  
|Total                                       |  | $        | 394,680                          |  |         | $ | 365,214                                   |       |  |                       | (29,466 | )             
|                                            |  |          |                                  |  |         |   |                                           |       |  |                       |         |                |   |         |             |  |  |                                       |        |  |  |   |        |  
|                                            |  |          |                                  |  |         |   | Total TRS Accrued Income and Liabilities: |       |  |                       | 3,539   |               
|                                            |  |          |                                  |  |         |   |                                           |       |  |                       |         |                |   |         |             |  |  |                                       |        |  |  |   |        |  
|                                            |  |          |                                  |  |         |   |                                           |       |  | Total TRS Fair Value: |         |                | $ | (25,927 | )          
|                                            |  |          |                                  |  |         |   |                                           |       |  |                       |         |                |   |         |             |  |  |                                       |        |  |  |   |        |  



|(1) | Loan may be an obligation of one or more entities affiliated with the named company.
|--- | ------------------------------------------------------------------------------------



|(2) | The variable rate securities underlying the TRS bear interest at a rate determined by a publicly-disclosed base rate plus a basis point spread. As of December 31,
2015, three month LIBOR was 0.61%.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | The investment is not a qualifying asset under the 1940 Act. A BDC 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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Security is non-income producing.
|--- | ---------------------------------



|(5) | Security is an unfunded commitment.
|--- | -----------------------------------

BNP Facility

On October 17, 2014, the Companys wholly-owned,
special-purpose financing subsidiary, Burholme Funding, entered into a committed facility arrangement and related transaction documents, or the BNP facility, with BNPP, on behalf of itself and as agent for BNP Paribas, BNP Paribas Prime Brokerage
International, Ltd. and BNPP PB, Inc., or, collectively, the BNPP Entities. The BNP facility was effected through a committed facility agreement by and between Burholme Funding and BNPP, or the committed facility agreement, a U.S. PB agreement by
and between Burholme Funding and BNPP, and a special custody and pledge agreement by and among Burholme Funding, BNPP and State Street Bank and Trust Company, or State Street, as custodian, each dated as of October 17, 2014, and which are
collectively referred to herein as the BNP financing agreements. The BNP facility has subsequently been amended from time to time, most recently pursuant to an amendment dated as of November 15, 2016, to, among other matters, increase the
maximum commitment financing available to Burholme Funding under the BNP facility to $250,000 from $200,000. In addition, on August 29, 2016, Burholme Funding entered into an amendment to the BNP facility to, among other things,
(i) increase the interest rate payable on borrowings under the committed facility agreement from three-month LIBOR plus 110 basis points to three-month LIBOR plus 125 basis points effective on and after January 2, 2017 and
(ii) increase the commitment fee payable under the committed facility agreement from 55 basis points on all unused amounts to, effective on and after January 2, 2017, (a) 65 basis points on unused amounts so long as 75% or more of the
facility amount under the committed facility agreement is utilized or (b) 85 basis points on unused amounts if less than 75% of the facility amount under the committed facility agreement is utilized.

The Company may contribute securities to Burholme Funding from time to time, subject to certain restrictions set forth in the committed
facility agreement, and will retain a residual interest in any securities contributed through its ownership of



164



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##### Table of Contents

FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing
Arrangements (continued)



Burholme Funding or will receive fair market value for any securities sold to Burholme Funding. Burholme Funding may purchase additional securities from various sources. Burholme Funding has
appointed the Company to manage its portfolio of securities pursuant to the terms of an investment management agreement. Burholme Fundings obligations to BNPP under the BNP facility are secured by a first priority security interest in
substantially all of the assets of Burholme Funding, including its portfolio of securities. Such pledged portfolio of securities is held in a segregated custody account with State Street. The value of securities required to be pledged by Burholme
Funding is determined in accordance with the margin requirements described in the BNP financing agreements. The obligations of Burholme Funding under the BNP facility are non-recourse to the Company, and the
Companys exposure under the BNP facility is limited to the value of its investment in Burholme Funding.

Prior to
January 2, 2017, borrowings under the BNP facility accrued interest at a rate equal to three-month LIBOR plus 1.10% per annum and a non-usage fee in an amount equal to 0.55% was charged on unused
commitments. On August 29, 2016, Burholme Funding entered into an amendment to the BNP facility which resulted in increases effective on and after January 2, 2017 to the (i) interest rate payable on borrowings to three-month LIBOR
plus 1.25% per annum and (ii) the commitment fee payable on all unused amounts to (a) 0.65% per annum on unused amounts so long as 75% or more of the facility amount is utilized or (b) 0.85% per annum on unused amounts if less than
75% of the facility amount is utilized. Burholme Funding may terminate the committed facility agreement upon 270 days notice. Absent a default or facility termination event (or the ratings decline described in the following sentence), BNPP is
required to provide Burholme Funding with 270 days notice prior to terminating or materially amending the committed facility agreement. BNPP has a cancellation right if BNP Paribas long-term credit rating declines three or more notches
below its highest rating by any of S&P, Moodys or Fitch Ratings, Inc., during the term of the BNP facility. Upon any such termination, BNPP is required to pay Burholme Funding a fee equal to 0.50% of the maximum amount of financing
available on the termination date. Burholme Funding paid an arrangement fee and incurred certain other customary costs and expenses in connection with obtaining the BNP facility.

In connection with the BNP facility, Burholme Funding has made certain representations and warranties and is required to comply with
various covenants, reporting requirements and other customary requirements for similar facilities. The BNP financing agreements contain the following customary events of default and termination events, among others: (a) the occurrence of a
default or similar condition under certain third-party contracts of the Company or Burholme Funding; (b) any change in BNPPs interpretation of applicable law that, in the reasonable opinion of counsel to BNPP, has the effect of impeding
or prohibiting the BNP facility; (c) certain events of insolvency or bankruptcy by the Company or Burholme Funding; (d) specified material reductions in the Company or Burholme Fundings net asset value; (e) any change in the
Companys fundamental or material investment policies; and (f) the termination of the investment advisory and administrative services agreement or if FSIC III Advisor otherwise ceases to act as the Companys investment adviser and is
not immediately replaced by an affiliate or other investment adviser acceptable to BNPP.

Under the terms of the BNP financing
agreements, BNPP has the ability to borrow a portion of the pledged collateral, or collectively, the rehypothecated securities, subject to certain limits. Burholme Funding will receive a fee from BNPP in connection with any rehypothecated
securities. Burholme Funding may designate any security within the pledged collateral as ineligible to be a rehypothecated security, provided there are eligible securities within the segregated custody account in an amount equal to the outstanding
borrowings owed by Burholme Funding to BNPP. Burholme Funding may recall any rehypothecated security at any time, and BNPP must return such security or equivalent security within a commercially reasonable period. In the event BNPP



165



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##### Table of Contents

FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing
Arrangements (continued)



does not return the security, Burholme Funding will have the right to, among other things, apply and set off an amount equal to 100% of the then-current fair market value of such unreturned
rehypothecated security against any outstanding borrowings owed to BNPP under the BNP financing agreements. Rehypothecated securities are marked-to-market daily and if
the value of all rehypothecated securities exceeds 100% of the outstanding borrowings owed by Burholme Funding under the BNP financing agreements, BNPP may either reduce the amount of rehypothecated securities to eliminate such excess or deposit
into the segregated custody account an amount of cash equal to such excess. Burholme Funding will continue to receive interest and the scheduled repayment of principal balances on rehypothecated securities.

As of December 31, 2016 and 2015, $187,700 and $155,755, respectively, was outstanding under the BNP facility. The carrying amount
outstanding under the BNP facility approximates its fair value. The Company incurred costs of $375 in connection with obtaining the facility, which the Company has recorded as deferred financing costs on the Companys consolidated balance
sheets and amortizes to interest expense over the life of the facility. As of December 31, 2016, $62 of such deferred financing costs had yet to been amortized to interest expense.

For the years ended December 31, 2016, 2015 and 2014, the components of total interest expense for the BNP facility were as follows:



|                                         |  |                         |       |  |      |   |       |      |  |   |     | 
|---------------------------------------- |  | ----------------------- | ----- |  | ---- | - | ----- | ---- |  | - | --- | 
|                                         |  | Year Ended December 31, |      
|                                         |  | 2016                    |       |  | 2015 |   |       | 2014 | 
|Direct interest expense                  |  | $                       | 2,681 |  |      | $ | 1,635 |      |  | $ | 106 | 
|Non-usage fees                           |  |                         | 357   |  |      |   | 382   |      |  |   | 66  | 
|Amortization of deferred financing costs |  |                         | 13    |  |      |   | 260   |      |  |   | 40  | 
|                                         |  |                         |       |  |      |   |       |      |  |   |     | 
|Total interest expense                   |  | $                       | 3,051 |  |      | $ | 2,277 |      |  | $ | 212 | 
|                                         |  |                         |       |  |      |   |       |      |  |   |     | 

For the years ended December 31, 2016, 2015 and 2014, the cash paid for interest expense, average
borrowings, effective interest rate and weighted average interest rate for the BNP facility were as follows:



|                                                                               |  |                         |         |   |      |   |         |      |  |   |        |  
|------------------------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                               |  | Year Ended December 31, |        
|                                                                               |  | 2016                    |         |   | 2015 |   |         | 2014 | 
|Cash paid for interest expense(1)                                              |  | $                       | 2,921   |   |      | $ | 1,861   |      |  | $ | 59     |  
|Average borrowings under the facility(2)                                       |  | $                       | 142,510 |   |      | $ | 112,589 |      |  | $ | 64,736 |  
|Effective interest rate on borrowings (including the effect of non-usage
fees) |  |                         | 2.28    | % |      |   | 1.87    | %    |  |   | 1.42   | %
|Weighted average interest rate (including the effect of non-usage fees)(2)     |  |                         | 2.10    | % |      |   | 1.77    | %    |  |   | 2.18   | %



|(1) | Interest under the BNP facility is payable monthly in arrears and commenced on November 18, 2014.
|--- | -------------------------------------------------------------------------------------------------



|(2) | Average borrowings for the year ended December 31, 2014 are calculated for the period since the Company commenced borrowing thereunder to December 31, 2014.
The weighted average interest rate presented for periods of less than one year is annualized.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Borrowings of
Burholme Funding will be considered borrowings of the Company for purposes of complying with the asset coverage requirements applicable to BDCs under the 1940 Act.



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing
Arrangements (continued)



Deutsche Bank Credit Facility

On December 2, 2014, the Companys wholly-owned, special-purpose financing subsidiary, Dunlap Funding, entered into a revolving
credit facility, or the Deutsche Bank credit facility, with Deutsche Bank, as administrative agent, each of the lenders and other agents from time to time party thereto, and Wells Fargo Bank, National Association, as the collateral agent and
collateral custodian under the Deutsche Bank credit facility, which has subsequently been amended from time to time to, among other matters, (i) increase the aggregate principal amount of available borrowings to $350,000 on a committed basis
and (ii) extend the term of the facility to September 22, 2019. As of December 31, 2016, the aggregate principal amount of available borrowings was $250,000.

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

Pricing under the Deutsche Bank credit 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 2.25% per annum. Interest is payable quarterly in arrears. Dunlap Funding will be subject to a
non-usage fee of 0.50% per annum to the extent the aggregate principal amount available under the Deutsche Bank credit facility has not been borrowed. In addition, Dunlap Funding 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 Deutsche Bank credit facility had been borrowed, less the non-usage
fee accrued during such quarter and (ii) an administration fee. Any amounts borrowed under the Deutsche Bank credit facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on September 22, 2019. Dunlap
Funding paid a structuring fee and incurred certain other customary costs and expenses in connection with obtaining the Deutsche Bank credit facility.

Borrowings under the Deutsche Bank credit facility are subject to compliance with a borrowing base, and the amount of funds advanced to Dunlap Funding varies depending upon the types of assets in Dunlap
Fundings portfolio.

The occurrence of certain events described as Investment Manager Events of Default in
the loan financing and servicing agreement which governs the Deutsche Bank credit facility triggers (i) a requirement that Dunlap Funding obtain the consent of Deutsche Bank prior to entering into any transaction with respect to portfolio
assets and (ii) the right of Deutsche Bank to direct Dunlap Funding to enter into transactions with respect to any portfolio assets, in each case in Deutsche Banks sole discretion. Investment Manager Events of Default include non-performance of any obligation under the transaction documents by the Company, and other events with respect to Dunlap Funding, us or GDFM, that are adverse to Deutsche Bank and the other secured parties under
the Deutsche Bank credit facility.



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing
Arrangements (continued)



In connection with the Deutsche Bank credit facility, Dunlap Funding has made certain
representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. The Deutsche Bank credit 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 Dunlap Funding or us; (d) a change of control of Dunlap Funding; (e) the failure of Dunlap Funding to qualify as a bankruptcy-remote entity; and (f) the minimum equity condition
contained in the Deutsche Bank credit facility 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 Deutsche Bank credit facility immediately due and payable. During the continuation of an event of default, Dunlap Funding must pay interest at a default rate.

As of December 31, 2016 and 2015, $240,000 and $250,000, respectively, was outstanding under the Deutsche Bank credit facility. The
carrying amount outstanding under the Deutsche Bank credit facility approximates its fair value. The Company incurred costs of $2,938 in connection with obtaining the facility, which the Company has recorded as deferred financing costs on the
Companys consolidated balance sheets and amortizes to interest expense over the life of the facility. As of December 31, 2016, $1,579 of such deferred financing costs had yet to be amortized to interest expense.

For the years ended December 31, 2016, 2015 and 2014, the components of total interest expense for the Deutsche Bank credit facility
were as follows:



|                                         |  |                         |       |  |      |   |       |      |  |   |     | 
|---------------------------------------- |  | ----------------------- | ----- |  | ---- | - | ----- | ---- |  | - | --- | 
|                                         |  | Year Ended December 31, |      
|                                         |  | 2016                    |       |  | 2015 |   |       | 2014 | 
|Direct interest expense                  |  | $                       | 7,685 |  |      | $ | 4,385 |      |  | $ | 27  | 
|Non-usage and make whole fees(1)         |  |                         | 53    |  |      |   | 209   |      |  |   | 109 | 
|Amortization of deferred financing costs |  |                         | 750   |  |      |   | 586   |      |  |   | 23  | 
|                                         |  |                         |       |  |      |   |       |      |  |   |     | 
|Total interest expense                   |  | $                       | 8,488 |  |      | $ | 5,180 |      |  | $ | 159 | 
|                                         |  |                         |       |  |      |   |       |      |  |   |     | 



|(1) | Dunlap Funding was subject to a make whole fee for the year ended December 31, 2014 as a result of the level of its utilization of the Deutsche Bank credit
facility during such period and, accordingly, Dunlap Funding accrued such fee. Due to increased utilization of the Deutsche Bank credit facility during the years ended December 31, 2016 and 2015, Dunlap Funding was not subject to the make whole
fee during such period and, as a result, the accrual of such fee was reversed during the period.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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FS Investment Corporation III

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, 2016, 2015 and 2014, the cash paid for interest
expense, average borrowings, effective interest rate and weighted average interest rate for the Deutsche Bank credit facility were as follows:



|                                                                                                     |  |                         |         |   |      |   |         |      |  |   |        |  
|---------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                                                     |  | Year Ended December 31, |        
|                                                                                                     |  | 2016                    |         |   | 2015 |   |         | 2014 | 
|Cash paid for interest expense(1)                                                                    |  | $                       | 7,606   |   |      | $ | 3,282   |      |  | $ |       |  
|Average borrowings under the facility(2)                                                             |  | $                       | 239,568 |   |      | $ | 153,833 |      |  | $ | 25,000 |  
|Effective interest rate on borrowings (including the effect of non-usage and
administration fees)(3) |  |                         | 3.33    | % |      |   | 2.79    | %    |  |   | 4.98   | %
|Weighted average interest rate (including the effect of non-usage and administration
fees)(2)(3)     |  |                         | 3.18    | % |      |   | 2.95    | %    |  |   | 8.41   | %



|(1) | Interest under the Deutsche Bank credit facility is payable quarterly in arrears and commenced on December 18, 2014.
|--- | --------------------------------------------------------------------------------------------------------------------



|(2) | Average borrowings for the year ended December 31, 2014 are calculated for the period since the Company commenced borrowing thereunder to December 31, 2014.
The weighted average interest rate presented for periods of less than one year is annualized.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Excludes the effect of the make-whole fee. During the year ended December 31, 2014, the Company recorded a make-whole fee of $54.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

Borrowings of Dunlap Funding will be considered borrowings of the Company for purposes of complying with the asset coverage requirements
applicable to BDCs under the 1940 Act.

JPM Credit Facility

On May 8, 2015, the Companys wholly-owned, special purpose financing subsidiary, Jefferson Square Funding, entered into a
senior secured term loan credit facility, or the JPM credit facility, with JPM, as administrative agent, each of the lenders from time to time party thereto, Citibank, as collateral agent, and Virtus Group, LP as collateral administrator. On
March 1, 2016, Jefferson Square Funding entered into an amendment with JPM to (i) increase the aggregate principal amount of advances by $50,000 to $350,000, plus an option, with the consent of Jefferson Square Funding, JPM, as
administrative agent, and the lenders at the time, to further increase the aggregate principal amount of advances by an additional $50,000 prior to April 30, 2016 and (ii) increase the applicable interest rate from LIBOR for each
three-month interest period plus 2.50% to LIBOR for each three-month interest period plus 2.69%. On April 28, 2016, Jefferson Square Funding exercised its option, with the necessary consents, to increase the aggregate principal amount of
advances to $400,000.

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



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing
Arrangements (continued)



Borrowings under the JPM credit facility accrued interest at a rate equal to three-month
LIBOR plus 2.6875% per annum as of December 31, 2016. Interest is payable in arrears beginning on October 25, 2015 and each quarter thereafter. Between September 8, 2015 and November 10, 2015, Jefferson Square Funding was subject
to a non-usage fee of 1.00% per annum to the extent the aggregate principal amount available under the JPM credit facility had not been borrowed. Any amounts borrowed under the JPM credit facility will
mature, and all accrued and unpaid interest thereunder will be due and payable, on May 8, 2019.

Borrowings under the JPM
credit facility are subject to a compliance condition which will be satisfied at any given time if the outstanding advances to Jefferson Square Funding by the lenders minus the amount of principal and certain interest proceeds in Jefferson Square
Fundings accounts is less than or equal to fifty-five percent (55%) of the net asset value of Jefferson Square Fundings portfolio of assets.

In connection with the JPM credit facility, Jefferson Square Funding has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other
customary requirements for similar facilities. The JPM credit facility contains customary events of default for similar financing transactions, including: (a) the failure to make principal payment when due or any other payments under the JPM
credit facility within two business days of when due; (b) the insolvency or bankruptcy of Jefferson Square Funding or the Company; (c) a change of control of Jefferson Square Funding shall have occurred; (d) the transaction documents
are amended in a manner materially adverse to JPM, as administrative agent, without JPMs consent; and (e) GDFM or an affiliate thereof ceases to be the Companys investment sub-adviser. Upon
the occurrence and during the continuation of an event of default, JPM may declare the outstanding advances and all other obligations under the JPM credit facility immediately due and payable.

The occurrence of events of default (as described above) or events defined as Coverage Events in the loan agreement governing
the JPM credit facility triggers (i) a requirement that Jefferson Square Funding obtain the consent of JPM prior to entering into any sale or disposition with respect to portfolio assets and (ii) certain rights of JPM to direct Jefferson
Square Funding to enter into sales or dispositions with respect to any portfolio assets, in each case, in JPMs sole discretion.

As of December 31, 2016 and 2015, $400,000 and $300,000, respectively, was outstanding under the JPM credit facility. The carrying amount outstanding under the JPM credit facility approximates its
fair value. The Company incurred costs of $477 in connection with obtaining the JPM credit 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 credit facility. As of December 31, 2016, $340 of such deferred financing costs had yet to be amortized to interest expense.

For the years ended December 31, 2016 and 2015, the components of total interest expense for the JPM credit facility were as follows:



|                                         |  |                         |        |  |      |   |       | 
|---------------------------------------- |  | ----------------------- | ------ |  | ---- | - | ----- | 
|                                         |  | Year Ended December 31, |       
|                                         |  | 2016                    |        |  | 2015 |  
|Direct interest expense                  |  | $                       | 12,806 |  |      | $ | 3,597 | 
|Non-usage fees                           |  |                         |       |  |      |   | 124   | 
|Amortization of deferred financing costs |  |                         | 118    |  |      |   | 19    | 
|                                         |  |                         |        |  |      |   |       | 
|Total interest expense                   |  | $                       | 12,924 |  |      | $ | 3,740 | 
|                                         |  |                         |        |  |      |   |       | 



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FS Investment Corporation III

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, 2016 and 2015, the cash paid for interest expense,
average borrowings, effective interest rate and weighted average interest rate for the JPM credit facility were as follows:



|                                                                               |  |                         |         |   |      |   |         |  
|------------------------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                                                               |  | Year Ended December 31, |        
|                                                                               |  | 2016                    |         |   | 2015 |  
|Cash paid for interest expense(1)                                              |  | $                       | 11,447  |   |      | $ | 1,947   |  
|Average borrowings under the facility(2)                                       |  | $                       | 375,683 |   |      | $ | 194,103 |  
|Effective interest rate on borrowings (including the effect of non-usage
fees) |  |                         | 3.57    | % |      |   | 2.82    | %
|Weighted average interest rate (including the effect of non-usage fees)(2)     |  |                         | 3.35    | % |      |   | 2.90    | %



|(1) | Interest under the JPM credit facility is payable quarterly in arrears and commenced on October 25, 2015.
|--- | ---------------------------------------------------------------------------------------------------------



|(2) | Average borrowings for the year ended December 31, 2015 are calculated for the period since the Company commenced borrowing thereunder to December 31, 2015.
The weighted average interest rate presented for periods of less than one year is annualized.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Borrowings of
Jefferson Square Funding will be considered borrowings of the Company for purposes of complying with the asset coverage requirements applicable to BDCs under the 1940 Act.

Goldman Facility

On June 18, 2015, the Company, through its two
wholly-owned, special-purpose financing subsidiaries, Germantown Funding and Society Hill Funding, entered into a debt financing arrangement with Goldman Sachs Bank USA, or Goldman, pursuant to which up to $300,000 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 be available through alternative arrangements.

The Company may sell and/or contribute assets to Germantown Funding from time to time pursuant to an amended and restated sale and
contribution agreement, dated as of June 18, 2015, between the Company and Germantown Funding, or the sale and contribution agreement. The assets held by Germantown Funding secure the obligations of Germantown Funding under floating rate notes,
or the notes issued from time to time by Germantown Funding to Society Hill Funding pursuant to an indenture, dated as of June 18, 2015, with Citibank, as trustee, or the indenture. Pursuant to the indenture, the aggregate principal amount of
notes that may be issued by Germantown Funding from time to time is $500,000. Society Hill Funding has purchased the notes issued by Germantown Funding 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 October 15, 2027.

Society Hill Funding, 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 June 18, 2015 and effective as of July 15, 2015,
or collectively, the Goldman facility. Pursuant to the Goldman facility, from time to time, Goldman has purchased notes held by Society Hill Funding for an aggregate purchase



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing
Arrangements (continued)



price equal to 60% 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 $500,000.
Accordingly, the aggregate maximum amount made available under the Goldman facility will not exceed $300,000.

Society Hill
Funding will repurchase the notes sold to Goldman under the Goldman facility no later than July 15, 2019. The repurchase price paid by Society Hill Funding to Goldman will be equal to the purchase price paid by Goldman for the repurchased
notes, plus financing fees accrued at the applicable pricing rate under the Goldman facility. Up until November 15, 2015, financing fees were accrued on the aggregate purchase price paid by Goldman for such notes. Thereafter, financing fees
have accrued, and will continue to accrue, on $300,000 (even if the aggregate purchase price paid for notes purchased by Goldman at that time is less than that amount), unless and until the outstanding amount is reduced in accordance with the terms
of the Goldman facility. If the Goldman facility is accelerated prior to July 15, 2019 due to an event of default or the failure of Germantown Funding to commit to sell any underlying assets that become defaulted obligations within 30 days,
then Society Hill Funding 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 July 15, 2019 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 Society Hill Funding to post cash collateral if the market value of the notes (measured by reference to the market value of Germantown Fundings portfolio of assets), together
with any posted cash collateral, is less than the required margin amount under the Goldman facility; provided, however, that Society Hill Funding will not be required to post cash collateral with Goldman until such market value has declined at least
10% from the initial market value of the notes. In addition, if the market value of any underlying asset held in Germantown Fundings portfolio of assets is less than 70% of the initial market value of such underlying asset, Goldman may require
Society Hill Funding to post additional cash collateral in an amount equal to 15% of the outstanding principal balance of such underlying asset. In each such event, in order to satisfy these requirements, Society Hill Funding intends to borrow funds
from the Company pursuant to an uncommitted revolving credit agreement, dated as of June 18, 2015, between Society Hill Funding, 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 Society Hill Funding pursuant to the terms of the revolving credit agreement. Borrowings under the revolving credit agreement may not exceed $300,000 and will accrue interest at a rate equal to one-month LIBOR plus a spread of 0.75% per annum.

Under the Goldman facility, Society Hill
Funding 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 Society Hill Funding; and (e) the admission by Society Hill Funding 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, Germantown
Funding also entered into (i) an Amended and Restated Investment Management Agreement with the Company, as investment manager, dated as of June 18, 2015 (the Management Agreement), pursuant to which the Company will manage the
assets of Germantown



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Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing
Arrangements (continued)



Funding; and (ii) a Collateral Administration Agreement with Virtus Group, LP or Virtus, as collateral administrator, dated as of June 18, 2015, pursuant to which Virtus will perform
certain administrative services with respect to the assets of Germantown Funding.

As of December 31, 2016 and 2015,
notes in an aggregate principal amount of $500,000 and $482,000, respectively, had been purchased by Society Hill Funding from Germantown Funding and subsequently sold to Goldman under the Goldman facility for aggregate proceeds of $300,000 and
$289,200, respectively. The carrying amount outstanding under the Goldman facility approximates its fair value. The Company funded each purchase of the notes by Society Hill Funding through a capital contribution to Society Hill Funding. As of
December 31, 2016 and 2015, Society Hill Fundings liability under the Goldman facility was $300,000 and $289,200, respectively, plus $2,141 and $1,714, respectively, of accrued interest expense. The notes issued by Germantown Funding and
purchased by Society Hill Funding eliminate in consolidation on the Companys financial statements.

As of
December 31, 2016 and 2015, the fair value of assets held by Germantown Funding was $610,741 and $570,514, respectively.

The Company incurred costs of $1,590 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, 2016, $1,009 of such deferred financing costs had yet to be amortized to interest expense.

For the years ended December 31, 2016 and 2015, the components of total interest expense for the Goldman facility were
as follows:



|                                         |  |                         |        |  |      |   |       | 
|---------------------------------------- |  | ----------------------- | ------ |  | ---- | - | ----- | 
|                                         |  | Year Ended December 31, |       
|                                         |  | 2016                    |        |  | 2015 |  
|Direct interest expense                  |  | $                       | 9,621  |  |      | $ | 1,714 | 
|Amortization of deferred financing costs |  |                         | 399    |  |      |   | 182   | 
|                                         |  |                         |        |  |      |   |       | 
|Total interest expense                   |  | $                       | 10,020 |  |      | $ | 1,896 | 
|                                         |  |                         |        |  |      |   |       | 

For the years ended December 31, 2016 and 2015, the cash paid for interest expense, average
borrowings, effective interest rate and weighted average interest rate for the Goldman facility were as follows:



|                                         |  |                         |         |   |      |   |         |  
|---------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                         |  | Year Ended December 31, |        
|                                         |  | 2016                    |         |   | 2015 |  
|Cash paid for interest expense(1)        |  | $                       | 9,195   |   |      | $ |        |  
|Average borrowings under the facility(2) |  | $                       | 296,902 |   |      | $ | 200,553 |  
|Effective interest rate on borrowings    |  |                         | 3.38    | % |      |   | 2.87    | %
|Weighted average interest rate(2)        |  |                         | 3.19    | % |      |   | 3.27    | %



|(1) | Interest under the Goldman facility is payable quarterly in arrears and commenced on January 15, 2016.
|--- | ------------------------------------------------------------------------------------------------------



|(2) | Average borrowings for the year ended December 31, 2015 are calculated for the period since the Company commenced borrowing thereunder to December 31, 2015.
The weighted average interest rate presented for periods of less than one year is annualized.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing
Arrangements (continued)



Borrowings under the Goldman facility will be considered borrowings of the Company for
purposes of complying with the asset coverage requirements applicable to BDCs under the 1940 Act.

Capital One Credit
Facility

On August 13, 2015, the Companys wholly-owned, special purpose financing subsidiary, Chestnut Hill
Funding, entered into a revolving credit facility, or the Capital One credit facility, with Capital One, National Association, or Capital One, as administrative agent, hedge counterparty, lead arranger and sole bookrunner, each of the conduit
lenders and institutional lenders from time to time party thereto, and Wells Fargo Bank, National Association, as collateral agent, account bank and collateral custodian under the Capital One credit facility. The Capital One credit facility provides
for borrowings in an aggregate principal amount up to $150,000 on a committed basis.

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

Borrowings under the Capital One credit facility accrue interest at a rate equal to LIBOR for each 1-month, 2-month or 3-month interest period, as elected by Chestnut Hill Funding, in each case plus an applicable spread ranging
between 1.75% and 2.50% per annum, depending on the composition of the portfolio of assets for the relevant period. Interest is payable quarterly in arrears. Chestnut Hill Funding will be subject to (a) a
non-usage fee to the extent it has not borrowed the aggregate principal amount available under the Capital One credit facility and (b) beginning February 13, 2016, a make-whole fee to the extent it
has borrowed less than 60% of the aggregate principal amount available under the Capital One credit facility. Any amounts borrowed under the Capital One credit facility will mature, and all accrued and unpaid interest thereunder will be due and
payable, on August 13, 2020.

Borrowings under the Capital One credit facility are subject to compliance with a borrowing
base, pursuant to which the amount of funds advanced to Chestnut Hill Funding varies depending upon the types of assets in Chestnut Hill Fundings portfolio.

In connection with the Capital One credit facility, Chestnut Hill Funding has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other
customary requirements for similar facilities. The Capital One credit facility contains customary events of default for similar financing transactions, including: (a) the failure to make principal, interest or other payments after any
applicable grace period; (b) a cross-default to other indebtedness of Chestnut Hill Funding or the Company; (c) the occurrence of a bankruptcy event with respect to the Company. Chestnut Hill Funding, FSIC III Advisor or GDFM; (d) the
Companys failure to maintain an asset coverage ratio of greater than or equal to 2:1; (e) the Companys failure to have a net asset value of at least $200,000; (f) a borrowing base deficiency that is not cured



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##### Table of Contents

FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing
Arrangements (continued)



in accordance with the terms of the Capital One credit facility; (g) a change of control; (h) the resignation or removal of FSIC III Advisor, GDFM or the Company as collateral manager;
and (i) the failure of Chestnut Hill Funding to maintain a trailing six-months interest coverage ratio of at least 1.5:1. Upon the occurrence and during the continuation of an event of default, Capital
One and/or the requisite lenders may declare the outstanding advances and all other obligations under the Capital One credit facility immediately due and payable. During the continuation of an event of default, Chestnut Hill Funding must pay
interest at a default rate.

Upon the occurrence and during the continuance of certain events described as Facility
Amortization Events in the loan and security agreement governing the Capital One credit facility, Capital One and/or the requisite lenders may elect to suspend Chestnut Hill Fundings right to borrow under the Capital One credit facility
and apply all income on Chestnut Hill Fundings portfolio assets to prepay the outstanding principal amount under the Capital One credit facility.

Borrowings under the Capital One credit facility accrue interest at a rate equal to LIBOR for each one-month, two-month or
three-month interest period, as elected by Chestnut Hill Funding, in each case plus an applicable spread ranging between 1.75% and 2.50% per annum, depending on the composition of the portfolio of assets for the relevant period. Interest is payable
quarterly in arrears. Chestnut Hill Funding is subject to (a) a non-usage fee to the extent it has not borrowed the aggregate principal amount available under the Capital One credit facility and
(b) beginning February 13, 2016, a make-whole fee to the extent it has borrowed less than 60% of the aggregate principal amount available under the Capital One credit facility. Any amounts borrowed under the Capital One credit facility
will mature, and all accrued and unpaid interest thereunder will be due and payable, on August 13, 2020.

As of
December 31, 2016 and 2015, $150,000 and $94,700, respectively, was outstanding under the Capital One credit facility. The carrying amount outstanding under the Capital One credit facility approximates its fair value. The Company incurred costs
of $1,382 in connection with obtaining the Capital One credit 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 Capital One credit facility.
As of December 31, 2016, $1,000 of such deferred financing costs had yet to be amortized to interest expense.

For the
years ended December 31, 2016 and 2015, the components of total interest expense for the Capital One credit facility were as follows:



|                                         |  |                         |       |  |      |   |     | 
|---------------------------------------- |  | ----------------------- | ----- |  | ---- | - | --- | 
|                                         |  | Year Ended December 31, |      
|                                         |  | 2016                    |       |  | 2015 |  
|Direct interest expense                  |  | $                       | 4,435 |  |      | $ | 412 | 
|Non-usage fees                           |  |                         | 52    |  |      |   | 136 | 
|Amortization of deferred financing costs |  |                         | 277   |  |      |   | 105 | 
|                                         |  |                         |       |  |      |   |     | 
|Total interest expense                   |  | $                       | 4,764 |  |      | $ | 653 | 
|                                         |  |                         |       |  |      |   |     | 



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FS Investment Corporation III

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, 2016 and 2015, the cash paid for interest expense,
average borrowings, effective interest rate and weighted average interest rate for the Capital One credit facility were as follows:



|                                                                               |  |                         |         |   |      |   |        |  
|------------------------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------ | -
|                                                                               |  | Year Ended December 31, |        
|                                                                               |  | 2016                    |         |   | 2015 |  
|Cash paid for interest expense(1)                                              |  | $                       | 3,818   |   |      | $ |       |  
|Average borrowings under the facility(2)                                       |  | $                       | 136,413 |   |      | $ | 53,034 |  
|Effective interest rate on borrowings (including the effect of non-usage
fees) |  |                         | 3.32    | % |      |   | 3.13   | %
|Weighted average interest rate (including the effect of non-usage fees)(2)     |  |                         | 3.24    | % |      |   | 4.00   | %



|(1) | Interest under the Capital One credit facility is payable quarterly in arrears and commenced on January 15, 2016.
|--- | -----------------------------------------------------------------------------------------------------------------



|(2) | Average borrowings for the year ended December 31, 2015 are calculated for the period since the Company commenced borrowing thereunder to December 31, 2015.
The weighted average interest rate presented for periods of less than one year is annualized.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Borrowings of
Chestnut Hill Funding will be considered borrowings of the Company for purposes of complying with the asset coverage requirements applicable to BDCs under the 1940 Act.

Partial Loan Sale

Certain partial loan sales do not qualify for sale
accounting under ASC Topic 860 because these sales do not meet the definition of a participating interest, as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the
definition of a participating interest remain as an investment on the consolidated balance sheets and the portion sold is recorded as a secured borrowing in the liabilities section of the consolidated balance sheets. For these partial loan sales,
the interest earned on the entire loan balance is recorded within interest income and the interest earned by the buyer in the partial loan sale is recorded within interest expense in the consolidated statements of operations.

As of December 31, 2016, the Company recognized a secured borrowing at fair value of $14,040 and the fair value of the loan that is
associated with the secured borrowing was $73,095. The secured borrowing was the result of the Companys completion of a partial sale of a senior secured loan associated with one portfolio company that did not meet the definition of a
participating interest. As a result, sale treatment was not allowed and the partial loan sale was treated as a secured borrowing.

During the year ended December 31, 2016, there was a partial loan sale of $13,789 which was issued at a discount to par of $140, and no fundings on revolving and delayed draw secured borrowings
or repayments on secured borrowings.



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 8. Financing
Arrangements (continued)



For the year ended December 31, 2016, the components of total interest expense for
the secured borrowing were as follows



|                         |  |                             |     | 
|------------------------ |  | --------------------------- | --- | 
|                         |  | Year EndedDecember 31, 2016 |    
|Direct interest expense  |  | $                           | 325 | 
|Amortization of discount |  |                             | 12  | 
|                         |  |                             |     | 
|Total interest expense   |  | $                           | 337 | 
|                         |  |                             |     | 

For the year ended December 31, 2016, the cash paid for interest expense, average borrowings,
effective interest rate and weighted average interest rate for the secured borrowing were as follows:



|                                             |  |                             |        |  
|-------------------------------------------- |  | --------------------------- | ------ | -
|                                             |  | Year EndedDecember 31, 2016 |       
|Cash paid for interest expense(1)            |  | $                           | 195    |  
|Average secured borrowing(2)                 |  | $                           | 13,929 |  
|Effective interest rate on secured borrowing |  |                             | 5.50   | %
|Weighted average interest rate(2)            |  |                             | 5.50   | %



|(1) | Interest under the secured borrowing is paid quarterly in arrears.
|--- | ------------------------------------------------------------------



|(2) | For the year ended December 31, 2016, average borrowings are calculated for the period from the date of issuance to December 31, 2016. The weighted average
interest rate presented for periods of less than one year is annualized.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 9. 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 III 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 4 for a discussion of the Companys commitments to FSIC III Advisor and its
affiliates (including FS Investments) and Note 6 for a discussion of the Companys unfunded commitments.



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)







Note 10. Senior Securities Asset Coverage

Information about the Companys senior securities is shown in the table below for the years ended December 31, 2016, 2015 and
2014:



|                        |  |                                                          |           |  |                           |  |      |                                             |  |  |                                                   |  |  |    
|----------------------- |  | -------------------------------------------------------- | --------- |  | ------------------------- |  | ---- | ------------------------------------------- |  |  | ------------------------------------------------- |  |  | ---
|Year Ended December 31, |  | Total AmountOutstandingExclusive ofTreasurySecurities(1) |           |  | AssetCoverageper 
Unit(2) |  |      | InvoluntaryLiquidationPreferenceper Unit(3) |  |  | AverageMarket Valueper
Unit(4)(Exclude BankLoans)
|2014                    |  | $                                                        | 327,237   |  |                           |  | 3.58 |                                             |  |  |                                                  |  |  | N/A
|2015                    |  | $                                                        | 1,393,161 |  |                           |  | 2.36 |                                             |  |  |                                                  |  |  | N/A
|2016                    |  | $                                                        | 1,585,659 |  |                           |  | 2.47 |                                             |  |  |                                                  |  |  | 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 treats the
outstanding notional amount of the TRS, less the initial amount of any cash collateral required to be posted, as a senior security.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|(3) | The amount to which such class of senior security would be entitled upon the voluntary liquidation of the Company in preference to any security junior to it. The
 in this column indicates that the SEC expressly does not require this information to be disclosed for certain types of senior securities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Not applicable because senior securities are not registered for public trading on an exchange.
|--- | ----------------------------------------------------------------------------------------------



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)







Note 11. Financial Highlights

The following is a schedule of financial highlights of the Company for the years ended December 31, 2016 and 2015 and for the period
from April 2, 2014 (Commencement of Operations) through December 31, 2014.



|                                                                                             |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|-------------------------------------------------------------------------------------------- |  | ----------------------- | ----------- | - | ---- | - | ----------- | ----------------------------------------------------------------------------- |  | - | ---------- | -
|                                                                                             |  |                         |             |   |      |   |             | Period fromApril 2, 2014(Commencement ofOperations) 
throughDecember 31, 2014 | 
|                                                                                             |  | Year Ended December 31, |             |  
|                                                                                             |  | 2016                    |             |   | 2015 |   |            
|Per Share Data:(1)                                                                           |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Net asset value, beginning of period                                                         |  | $                       | 7.85        |   |      | $ | 8.63        |                                                                               |  | $ | 9.00       |  
|Results of operations(2)                                                                     |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Net investment income                                                                        |  |                         | 0.65        |   |      |   | 0.65        |                                                                               |  |   | 0.45       |  
|Net realized and unrealized appreciation (depreciation) on investments and total return swap |  |                         | 0.72        |   |      |   | (1.16       | )                                                                             |  |   | (0.62      | )
|                                                                                             |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Net decrease in net assets resulting from operations                                         |  |                         | 1.37        |   |      |   | (0.51       | )                                                                             |  |   | (0.17      | )
|                                                                                             |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Stockholder distributions(3)                                                                 |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Distributions from net investment income                                                     |  |                         | (0.70       | ) |      |   | (0.70       | )                                                                             |  |   | (0.52      | )
|Distributions from net realized gain on investments                                          |  |                         |            |   |      |   |            |                                                                               |  |   | (0.00      | )
|                                                                                             |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Net decrease in net assets resulting from stockholder distributions                          |  |                         | (0.70       | ) |      |   | (0.70       | )                                                                             |  |   | (0.52      | )
|                                                                                             |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Capital share transactions                                                                   |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Issuance of common stock(4)                                                                  |  |                         | 0.01        |   |      |   | 0.47        |                                                                               |  |   | 0.47       |  
|Repurchases of common stock(5)                                                               |  |                         |            |   |      |   |            |                                                                               |  |   |           |  
|Offering costs(2)                                                                            |  |                         |            |   |      |   | (0.04       | )                                                                             |  |   | (0.11      | )
|Payments to investment adviser for organization and offering costs(2)                        |  |                         |            |   |      |   |            |                                                                               |  |   | (0.09      | )
|Capital contributions of investment adviser(2)                                               |  |                         |            |   |      |   |            |                                                                               |  |   | 0.05       |  
|                                                                                             |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Net increase in net assets resulting from capital share transactions                         |  |                         | 0.01        |   |      |   | 0.43        |                                                                               |  |   | 0.32       |  
|                                                                                             |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Net asset value, end of period                                                               |  | $                       | 8.53        |   |      | $ | 7.85        |                                                                               |  | $ | 8.63       |  
|                                                                                             |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Shares outstanding, end of period                                                            |  |                         | 272,354,014 |   |      |   | 241,270,590 |                                                                               |  |   | 97,578,402 |  
|                                                                                             |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Total return(6)                                                                              |  |                         | 18.31       | % |      |   | (1.48       | )%                                                                            |  |   | 1.72       | %
|                                                                                             |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Total return (without assuming reinvestment of distributions)(7)                             |  |                         | 17.58       | % |      |   | (0.93       | )%                                                                            |  |   | 1.67       | %
|                                                                                             |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Ratio/Supplemental Data:                                                                     |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Net assets, end of period                                                                    |  | $                       | 2,323,940   |   |      | $ | 1,895,042   |                                                                               |  | $ | 842,577    |  
|                                                                                             |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Ratio of net investment income to average net assets(8)                                      |  |                         | 8.00        | % |      |   | 7.65        | %                                                                             |  |   | 5.10       | %
|                                                                                             |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Ratio of operating expenses and excise taxes to average net assets(8)                        |  |                         | 7.51        | % |      |   | 5.65        | %                                                                             |  |   | 2.56       | %
|                                                                                             |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Ratio of total operating expenses and excise taxes to average net
assets(8)                  |  |                         | 7.51        | % |      |   | 5.89        | %                                                                             |  |   | 1.63       | %
|                                                                                             |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Portfolio turnover                                                                           |  |                         | 37.52       | % |      |   | 26.01       | %                                                                             |  |   | 31.24      | %
|                                                                                             |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Total amount of senior securities outstanding, exclusive of treasury securities              |  | $                       | 1,585,659   |   |      | $ | 1,393,161   |                                                                               |  | $ | 327,237    |  
|                                                                                             |  |                         |             |   |      |   |             |                                                                               |  |   |            |  
|Asset coverage per unit(9)                                                                   |  |                         | 2.47        |   |      |   | 2.36        |                                                                               |  |   | 3.58       |  



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 11. Financial
Highlights (continued)





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



|(2) | The per share data was derived by using the weighted average shares outstanding during the years ended December 31, 2016 and 2015 and the period from April 2,
2014 (Commencement of Operations) through December 31, 2014.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | The per share data for distributions reflects the actual amount of distributions paid per share during the years ended December 31, 2016 and 2015 and the period
from April 2, 2014 (Commencement of Operations) through December 31, 2014.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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 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 to net asset value is less than $0.01 per share during the years ended December 31, 2016 and
2015 and the period from April 2, 2014 (Commencement of Operations) through December 31, 2014.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | The total return for each period presented was calculated based on the change in net asset value during the applicable period, including the impact of distributions
reinvested in accordance with the Companys distribution reinvestment plan. The total return does not consider the effect of any selling 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) | The total return (without assuming reinvestment of distributions) 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 (without assuming
reinvestment of distributions) does not consider the effect of any selling commissions or charges that may be incurred in connection with the sale of shares of the Companys common stock. The total return (without assuming reinvestment of
distributions) 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 (without assuming
reinvestment of distributions) in the table should not be considered a representation of the Companys future total return (without assuming reinvestment of distributions) 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 11. Financial
Highlights (continued)



|(8) | 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, 2016 and 2015 and the period from April 2, 2014 (Commencement of Operations) through December 31, 2014, respectively:
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                  |  |                         |      |   |      |  |      |                                                                               |  |  |      |  
|----------------------------------------------------------------- |  | ----------------------- | ---- | - | ---- |  | ---- | ----------------------------------------------------------------------------- |  |  | ---- | -
|                                                                  |  |                         |      |   |      |  |      | Period from April 2, 2014(Commencement ofOperations)
throughDecember 31, 2014 | 
|                                                                  |  | Year Ended December 31, |      |  
|                                                                  |  | 2016                    |      |   | 2015 |  |     
|Ratio of subordinated income incentive fees to average net assets |  |                         | 1.87 | % |      |  | 1.40 | %                                                                             |  |  |     |  
|Ratio of interest expense to average net assets                   |  |                         | 1.87 | % |      |  | 0.95 | %                                                                             |  |  | 0.10 | %
|Ratio of offering costs to average net assets                     |  |                         | 0.06 | % |      |  |     |                                                                               |  |  |     |  
|Ratio of excise taxes to average net assets                       |  |                         | 0.01 | % |      |  | 0.01 | %                                                                             |  |  |     |  



|(9) | 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 III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)







Note 12. Selected Quarterly Financial Data (Unaudited)

The following are the quarterly results of operations for the years ended December 31, 2016 and 2015. 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 31,2016 |             |  | September 30,2016 |   |             | June 30,2016 |  |   | March 31,2016 | 
|Investment income                                               |  | $                | 88,346      |  |                   | $ | 85,383      |              |  | $ | 82,016        |  |  | $ | 73,276      |  
|Operating expenses                                              |  |                  |             |  |                   |   |             |              |  |   |               |  |  |   |             |  
|Operating expenses and excise taxes                             |  |                  | 44,290      |  |                   |   | 42,949      |              |  |   | 39,693        |  |  |   | 32,394      |  
|                                                                |  |                  |             |  |                   |   |             |              |  |   |               |  |  |   |             |  
|Net investment income                                           |  |                  | 44,056      |  |                   |   | 42,434      |              |  |   | 42,323        |  |  |   | 40,882      |  
|Realized and unrealized gain (loss)                             |  |                  | 21,057      |  |                   |   | 84,299      |              |  |   | 100,878       |  |  |   | (16,443     | )
|                                                                |  |                  |             |  |                   |   |             |              |  |   |               |  |  |   |             |  
|Net increase (decrease) in net assets resulting from operations |  | $                | 65,113      |  |                   | $ | 126,733     |              |  | $ | 143,201       |  |  | $ | 24,439      |  
|                                                                |  |                  |             |  |                   |   |             |              |  |   |               |  |  |   |             |  
|Per share information-basic and diluted                         |  |                  |             |  |                   |   |             |              |  |   |               |  |  |   |             |  
|Net investment income                                           |  | $                | 0.16        |  |                   | $ | 0.16        |              |  | $ | 0.16          |  |  | $ | 0.16        |  
|                                                                |  |                  |             |  |                   |   |             |              |  |   |               |  |  |   |             |  
|Net increase (decrease) in net assets resulting from operations |  | $                | 0.24        |  |                   | $ | 0.48        |              |  | $ | 0.55          |  |  | $ | 0.10        |  
|                                                                |  |                  |             |  |                   |   |             |              |  |   |               |  |  |   |             |  
|Weighted average shares outstanding                             |  |                  | 269,222,021 |  |                   |   | 265,207,964 |              |  |   | 260,368,996   |  |  |   | 252,692,204 |  
|                                                                |  |                  |             |  |                   |   |             |              |  |   |               |  |  |   |             |  



|                                                                |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 
|--------------------------------------------------------------- |  | ---------------- | ----------- | - | ----------------- | - | ----------- | ------------ |  | - | ------------- |  |  | - | ----------- | 
|                                                                |  | Quarter Ended    |            
|                                                                |  | December 31,2015 |             |   | September 30,2015 |   |             | June 30,2015 |  |   | March 31,2015 | 
|Investment income                                               |  | $                | 77,982      |   |                   | $ | 53,756      |              |  | $ | 39,296        |  |  | $ | 24,215      | 
|Operating expenses                                              |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 
|Operating expenses and excise taxes                             |  |                  | 35,439      |   |                   |   | 22,629      |              |  |   | 15,053        |  |  |   | 8,292       | 
|Add: Expense recoupment to sponsor                              |  |                  | 218         |   |                   |   | 1,601       |              |  |   | 1,328         |  |  |   | 322         | 
|                                                                |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 
|Total operating expenses and excise taxes                       |  |                  | 35,657      |   |                   |   | 24,230      |              |  |   | 16,381        |  |  |   | 8,614       | 
|                                                                |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 
|Net investment income                                           |  |                  | 42,325      |   |                   |   | 29,526      |              |  |   | 22,915        |  |  |   | 15,601      | 
|Realized and unrealized gain (loss)                             |  |                  | (105,970    | ) |                   |   | (104,678    | )            |  |   | 1,351         |  |  |   | 12,166      | 
|                                                                |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 
|Net increase (decrease) in net assets resulting from operations |  | $                | (63,645     | ) |                   | $ | (75,152     | )            |  | $ | 24,266        |  |  | $ | 27,767      | 
|                                                                |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 
|Per share information-basic and diluted                         |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 
|Net investment income                                           |  | $                | 0.19        |   |                   | $ | 0.16        |              |  | $ | 0.15          |  |  | $ | 0.14        | 
|                                                                |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 
|Net increase (decrease) in net assets resulting from operations |  | $                | (0.28       | ) |                   | $ | (0.40       | )            |  | $ | 0.16          |  |  | $ | 0.24        | 
|                                                                |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 
|Weighted average shares outstanding                             |  |                  | 223,775,579 |   |                   |   | 190,004,740 |              |  |   | 152,764,784   |  |  |   | 113,611,308 | 
|                                                                |  |                  |             |   |                   |   |             |              |  |   |               |  |  |   |             | 



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FS Investment Corporation III

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)





Note 12. Selected Quarterly Financial Data
(Unaudited) (continued)



The sum of quarterly per share amounts does not necessarily equal per share amounts
reported for the years ended December 31, 2016 and 2015. 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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|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 13a-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, 2016. 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 102.

Changes in Internal Control Over Financial Reporting

During the quarter ended December 31, 2016, 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 2017 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 our definitive Proxy Statement relating to our 2017
Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of our fiscal year.



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

The information required by Item 11 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2017 Annual Meeting of Stockholders, to be filed with the SEC within
120 days following the end of our 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 our definitive Proxy Statement relating to our 2017
Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of our fiscal year.



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

The information required by Item 13 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2017
Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of our fiscal year.



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

The information required by Item 14 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2017 Annual Meeting of Stockholders, to be filed with the SEC within
120 days following the end of our 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                                       |  |      | 101 | 
|                                                                                                       | 
|Report of Independent Registered Public Accounting Firm                                                |  |      | 102 | 
|                                                                                                       | 
|Report of Independent Registered Public Accounting Firm                                                |  |      | 103 | 
|                                                                                                       | 
|Consolidated Balance Sheets as of December 31, 2016 and 2015                                           |  |      | 104 | 
|                                                                                                       | 
|Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and
2014             |  |      | 105 | 
|                                                                                                       | 
|Consolidated Statements of Changes in Net Assets for the years ended December 
31, 2016, 2015 and 2014 |  |      | 106 | 
|                                                                                                       | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and
2014             |  |      | 107 | 
|                                                                                                       | 
|Consolidated Schedules of Investments as of December 31, 2016 and 2015                                 |  |      | 108 | 
|                                                                                                       | 
|Notes to Consolidated Financial Statements                                                             |  |      | 126 | 

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 FS Investment Corporation III 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 FS Investment Corporation III. (Incorporated by reference to Exhibit 3.1 to FS Investment Corporation IIIs Current Report on Form 8-K filed on April2, 2014).                                                                                                                                                                    
|     | 
|3.2  |  | Amended and Restated Bylaws of FS Investment Corporation III. (Incorporated by reference to Exhibit(b)(2) filed with
Pre-Effective Amendment No.2 to FS Investment Corporation IIIs registration statement on Form N-2 (File No.333-191925) filed on December23, 2013).                                                                                                   
|     | 
|4.1  |  | Form of Subscription Agreement. (Incorporated by reference to Appendix A filed with FS Investment Corporation IIIs prospectus supplement (File No.333-191925) filed on January19, 2017 pursuant to Rule497 of the Securities Act of 1933, as amended).                                                                                                                    
|     | 
|4.2  |  | Amended and Restated Distribution Reinvestment Plan of FS Investment Corporation III. (Incorporated by reference to
Exhibit4.1 to FS Investment Corporation IIIs Current Report on Form
8-K filed on January6, 2015).                                                                                                                                                     
|     | 
|10.1 |  | Investment Advisory and Administrative Services Agreement, dated as of December 20, 2013, by and between FS Investment Corporation III and FSIC III Advisor, LLC.(Incorporated by reference to Exhibit(g)(1) filed with Pre-Effective Amendment No.2 to FS Investment Corporation IIIs registration statement on Form N-2 (File No.333-191925) filed on December23, 2013).



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|      |  |                                                                                                                                                                                                                                                                                                                                                                     
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.2  |  | Amended and Restated Investment Advisory and Administrative Services Agreement, dated as of August 6, 2014, by and between FS Investment Corporation III and FSIC III Advisor,
LLC. (Incorporated by reference to Exhibit10.2 to FS Investment Corporation IIIs Quarterly Report on Form 10-Q for the quarterly period ended June30, 2014 filed
on August14, 2014).
|      | 
|10.3  |  | Investment Sub-Advisory Agreement, dated as of January 2, 2014, by and between FSIC III Advisor, LLC and GSO / Blackstone Debt Funds
Management LLC. (Incorporated by reference to Exhibit 10.2 to FS Investment Corporation IIIs Annual Report on Form 10-K for the fiscal year ended December31, 2013 filed on
March31, 2014).                                   
|      | 
|10.4  |  | Dealer Manager Agreement, dated as of December 20, 2013, by and among FS Investment Corporation III, FSIC III Advisor, LLC and FS2Capital Partners, LLC. (Incorporated by reference to Exhibit 10.3
to FS Investment Corporation IIIs Annual Report on Form 10-K for the fiscal year ended December31, 2013 filed on March31, 2014).                               
|      | 
|10.5  |  | Form of Selected Dealer Agreement (Included as Exhibit A to the Dealer Manager Agreement). (Incorporated by reference to Exhibit 10.4 to FS Investment Corporation IIIs
Annual Report on Form10-K for the fiscal year ended December31, 2013 filed on March31, 2014).                                                                                              
|      | 
|10.6  |  | Custodian Agreement, dated as of January 6, 2014, by and between FS Investment Corporation III and State Street Bank and Trust Company. (Incorporated by reference to Exhibit
10.5 to FS Investment Corporation IIIs Annual Report on Form 10-K for the fiscal year ended December31, 2013 filed on March31, 2014).                                                
|      | 
|10.7  |  | Escrow Agreement, dated as of January 9, 2014, by and among FS Investment Corporation III, UMB Bank, N.A. and FS2Capital Partners, LLC. (Incorporated by reference to Exhibit 10.6 to FS Investment Corporation IIIs Annual
Report on Form 10-K for the fiscal year ended December31, 2013 filed on March31, 2014).                                                
|      | 
|10.8  |  | Investment Management Agreement, dated as of June 26, 2014, by and between FS Investment Corporation III and Center City Funding LLC. (Incorporated by reference to Exhibit
10.3 to FS Investment Corporation IIIs Current Report on Form 8-K filed on July2, 2014).                                                                                               
|      | 
|10.9  |  | ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, each dated as of June 26, 2014, by and between Center City Funding LLC
and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IIIs Current Report on Form 8-K filed on July2, 2014).                                 
|      | 
|10.10 |  | Confirmation Letter Agreement, dated as of June 26, 2014, by and between Center City Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.2 to FS
Investment Corporation IIIs Current Report on Form 8-K filed on July2, 2014).                                                                                                                 
|      | 
|10.11 |  | Amended and Restated Confirmation Letter Agreement, dated as of August 25, 2014, by and between Center City Funding LLC and Citibank, N.A. (Incorporated by reference to
Exhibit 10.1 to FS Investment Corporation IIIs Current Report on Form 8-K filed on August27, 2014).                                                                                       
|      | 
|10.12 |  | Second Amended and Restated Confirmation Letter Agreement, dated as of September 29, 2014, by and between Center City Funding LLC and Citibank, N.A. (Incorporated by
reference to Exhibit 10.1 to FS Investment Corporation IIIs Current Report on Form 8-K filed on October2, 2014).                                                                             
|      | 
|10.13 |  | Third Amended and Restated Confirmation Letter Agreement, dated as of January 28, 2015, by and between Center City Funding LLC and Citibank, N.A. (Incorporated by reference
to Exhibit 10.1 to FS Investment Corporation IIIs Current Report on Form 8-K filed on February3, 2015).                                                                               
|      | 
|10.14 |  | Fourth Amended and Restated Confirmation Letter Agreement, dated as of June 26, 2015, by and between Center City Funding LLC and Citibank, N.A. (Incorporated by reference to
Exhibit 10.1 to FS Investment Corporation IIIs Current Report on Form 8-K filed on July2, 2015).                                                                                     



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.15 |  | Fifth Amended and Restated Confirmation Letter Agreement, dated as of October 14, 2015, by and between Center City Funding LLC and Citibank, N.A. (Incorporated by reference
to Exhibit 10.1 to FS Investment Corporation IIIs Current Report on Form 8-K filed on October16, 2015).                                                                                                                                                                                             
|      | 
|10.16 |  | Sixth Amended and Restated Confirmation Letter Agreement, dated as of June 27, 2016, by and between Center City Funding LLC and Citibank, N.A. (Incorporated by reference to
Exhibit 10.1 to FS Investment Corporation IIIs Current Report on Form 8-K filed on July1, 2016).                                                                                                                                                                                                    
|      | 
|10.17 |  | Committed Facility Agreement, dated as of October 17, 2014, by and between Burholme Funding LLC and BNP Paribas Prime Brokerage, Inc., on behalf of itself and as agent for
the BNPP Entities. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IIIs Current Report on Form 8-K filed on October23, 2014).                                                                                                                                                
|      | 
|10.18 |  | U.S. PB Agreement, dated as of October 17, 2014, by and between Burholme Funding LLC and BNP Paribas Prime Brokerage, Inc., on behalf of itself and as agent for the BNPP
Entities. (Incorporated by reference to Exhibit 10.2 to FS Investment Corporation IIIs Current Report on Form 8-K filed on October23, 2014).                                                                                                                                                           
|      | 
|10.19 |  | Special Custody and Pledge Agreement, dated as of October 17, 2014, by and among Burholme Funding LLC, BNP Paribas Prime Brokerage, Inc. and State Street Bank and Trust
Company, as custodian. (Incorporated by reference to Exhibit 10.3 to FS Investment Corporation IIIs Current Report on Form 8-K filed on October23, 2014).                                                                                                                                               
|      | 
|10.20 |  | Investment Management Agreement, dated as of October 17, 2014, by and between Burholme Funding LLC and FS Investment Corporation III. (Incorporated by reference to Exhibit
10.4 to FS Investment Corporation IIIs Current Report on Form 8-K filed on October23, 2014).                                                                                                                                                                                                         
|      | 
|10.21 |  | First Amendment Agreement, dated as of March 11, 2015, to the Committed Facility Agreement, dated as of October 17, 2014, between BNP Paribas Prime Brokerage, Inc., on
behalf of itself and as agent for the BNPP Entities and Burholme Funding LLC. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IIIs Current Report on Form 8-K filed on
March13, 2015).                                                                                           
|      | 
|10.22 |  | Second Amendment Agreement, dated as of October 21, 2015, to the Committed Facility Agreement, dated as of October 17, 2014, between BNP Paribas Prime Brokerage, Inc., on
behalf of itself and as agent for the BNPP Entities and Burholme Funding LLC. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IIIs Current Report on Form 8-K filed on
March13, 2015).                                                                                        
|      | 
|10.23 |  | Third Amendment Agreement, dated as of March 16, 2016, to the Committed Facility Agreement, dated as of October 17, 2014, between BNP Paribas Prime Brokerage, Inc., on
behalf of itself and as agent for the BNPP Entities and Burholme Funding LLC (Incorporated by reference to Exhibit 10.23 to FS Investment Corporation IIIs Quarterly Report on Form 10-Q for the
quarterly period ended September30, 2016 filed on November14, 2016).                                    
|      | 
|10.24 |  | Fourth Amendment Agreement, dated as of August 29, 2016, to the Committed Facility Agreement, dated as of October 17, 2014, between BNP Paribas Prime Brokerage, Inc., on
behalf of itself and as agent for the BNPP Entities and Burholme Funding LLC (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IIIs Current Report on Form 8-K filed on
September2, 2016).                                                                                       
|      | 
|10.25 |  | Fifth Amendment Agreement, dated as of November 15, 2016, to the Committed Facility Agreement, dated as of October 17, 2014, between BNP Paribas Prime Brokerage, Inc., on
behalf of itself and as agent for the BNPP Entities and Burholme Funding LLC (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IIIs Current Report
onForm8-Kfiled on November21, 2016).                                                                                         
|      | 
|10.26 |  | Loan Financing and Servicing Agreement, dated as of December 2, 2014, by and among Dunlap Funding 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 10.1 to FS Investment Corporation IIIs
Current Report on Form 8-K filed on December8, 2014).



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.27 |  | Sale and Contribution Agreement, dated as of December 2, 2014, by and between FS Investment Corporation III, as seller, and Dunlap Funding LLC, as purchaser. (Incorporated
by reference to Exhibit 10.2 to FS Investment Corporation IIIs Current Report on Form 8-K filed on December8, 2014).                                                                                                                                                                           
|      | 
|10.28 |  | Investment Management Agreement, dated as of December 2, 2014, by and between Dunlap Funding LLC and FS Investment Corporation III, as investment manager. (Incorporated by
reference to Exhibit 10.3 to FS Investment Corporation IIIs Current Report on Form 8-K filed on December8, 2014).                                                                                                                                                                              
|      | 
|10.29 |  | Amendment No. 1 to Investment Management Agreement, dated as of May 1, 2015, by and between Dunlap Funding LLC and FS Investment Corporation III, as investment manager.
(Incorporated by reference to Exhibit 10.25 to FS Investment Corporation IIIs Annual Report on Form 10-K for the fiscal year ended December31, 2015 filed on
March11, 2016).                                                                                                                      
|      | 
|10.30 |  | Securities Account Control Agreement, dated as of December 2, 2014, by and among Dunlap Funding 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 10.4 to FS Investment Corporation IIIs Current Report on Form 8-K filed on
December8, 2014).                                                                                      
|      | 
|10.31 |  | Amendment No. 1 to Loan Financing and Servicing Agreement, dated as of February 24, 2015, between Dunlap Funding LLC, as borrower, and Deutsche Bank AG, New York Branch,
as administrative agent. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IIIs Current Report on Form 8-K filed on March2, 2015).                                                                                                                                         
|      | 
|10.32 |  | Amendment No. 2 to Loan Financing and Servicing Agreement, dated as of March 24, 2015, between Dunlap Funding LLC, as borrower, and Deutsche Bank AG, New York Branch, as
administrative agent. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IIIs Current Report on Form 8-K filed on March26, 2015).                                                                                                                                           
|      | 
|10.33 |  | Amendment No. 3 to Loan Financing and Servicing Agreement, dated as of August 25, 2015, between Dunlap Funding LLC, as borrower, and Deutsche Bank AG, New York Branch, as
administrative agent. (Incorporated by reference to Exhibit 10.29 to FS Investment Corporation IIIs Annual Report on Form 10-K for the fiscal year ended December31, 2015 filed on
March11, 2016).                                                                                              
|      | 
|10.34 |  | Amendment No. 4 to Loan Financing and Servicing Agreement, dated as of September 22, 2015, between Dunlap Funding LLC, as borrower, and Deutsche Bank AG, New York Branch,
as administrative agent. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IIIs Current Report on Form 8-K filed on September24, 2015).                                                                                                                                   
|      | 
|10.35 |  | Amendment No. 5 to Loan Financing and Servicing Agreement, dated as of October 8, 2015, between Dunlap Funding LLC, as borrower, and Deutsche Bank AG, New York Branch, as
administrative agent. (Incorporated by reference to Exhibit 10.31 to FS Investment Corporation IIIs Annual Report on Form 10-K for the fiscal year ended December31, 2015 filed on
March11, 2016).                                                                                              
|      | 
|10.36 |  | Amendment No. 7 to Loan Financing and Servicing Agreement, dated as of January 12, 2017, between Dunlap Funding LLC, as borrower, Deutsche Bank AG, New York Branch, as
administrative agent, each lender party thereto, and Wells Fargo Bank, National Association, as collateral agent and collateral custodian (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IIIs Current Report on Form 8-K filed on January19, 2017).                       
|      | 
|10.37 |  | Loan Agreement, dated as of May 8, 2015, by and among Jefferson Square Funding LLC, as borrower, JPMorgan Chase Bank, National Association, as administrative agent, each of the
lenders from time to time party thereto, Citibank, N.A., as collateral agent and securities intermediary and Virtus Group, LP, as collateral administrator. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IIIs Current
Report on Form 8-K filed on May14, 2015).



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.38 |  | Amendment No. 1 to Loan Agreement, dated as of September 8, 2015, between Jefferson Square Funding LLC, as borrower, and
JPMorgan Chase Bank, National Association, as administrative agent, each of the lenders from time to time party thereto, Citibank, N.A., as collateral agent and securities intermediary and Virtus Group, LP, as collateral administrator.(Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IIIs Current Report on Form
8-K filed on September14, 2015).
|      | 
|10.39 |  | Amendment No. 2 to Loan Agreement, dated as of March 1, 2016, between Jefferson Square Funding LLC, as borrower, and JPMorgan
Chase Bank, National Association, as administrative agent, each of the lenders from time to time party thereto, Citibank, N.A., as collateral agent and securities intermediary and Virtus Group, LP, as collateral administrator. (Incorporated by
reference to Exhibit 10.1 to FS Investment Corporation IIIs Current Report on Form 8-K
filed on March7, 2016).        
|      | 
|10.40 |  | Sale and Contribution Agreement, dated as of May 8, 2015, between Jefferson Square Funding LLC, as purchaser, and FS Investment Corporation III, as seller. (Incorporated by
reference to Exhibit 10.2 to FS Investment Corporation IIIs Current Report on Form 8-K filed on May14, 2015).                                                                                                                                                                                                              
|      | 
|10.41 |  | Investment Management Agreement, dated as of May 8, 2015, by and between Jefferson Square Funding LLC and FS Investment Corporation III, as investment manager. (Incorporated
by reference to Exhibit 10.3 to FS Investment Corporation IIIs Current Report on Form 8-K filed on May14, 2015).                                                                                                                                                                                                          
|      | 
|10.42 |  | Collateral Administration Agreement, dated as of May 8, 2015, by and among Jefferson Square Funding LLC, JPMorgan Chase Bank, National Association, as administrative agent, FS
Investment Corporation III, as investment manager and Virtus Group, LP, as collateral administrator. (Incorporated by reference to Exhibit 10.4 to FS Investment Corporation IIIs Current Report on Form
8-K filed on May14, 2015).                                                                                     
|      | 
|10.43 |  | Amended and Restated Sale and Contribution Agreement, dated as of June 18, 2015, by and between FS Investment Corporation III and
Germantown Funding LLC. (Incorporated by reference to Exhibit 10.1 to FS Investment Corporation IIIs Current Report on Form 8-K filed on June24, 2015).                                                                                                                                                                                                               
|      | 
|10.44 |  | Indenture, dated as of June 18, 2015, by and between Germantown Funding LLC and Citibank, N.A., as trustee. (Incorporated by reference to Exhibit 10.2 to FS Investment
Corporation IIIs Current Report on Form 8-K filed on June24, 2015).                                                                                                                                                                                                                                                             
|      | 
|10.45 |  | Germantown Funding LLC Floating Rate Notes due 2027. (Incorporated by reference to Exhibit 10.3 to FS Investment Corporation IIIs Current Report on Form 8-K filed on June24, 2015).                                                                                                                                                                                                                                                                                                                    
|      | 
|10.46 |  | September 1996 Version Master Repurchase Agreement between Goldman Sachs Bank USA and Society Hill Funding LLC, together with the related Annex and Master Confirmation thereto, each
dated as of June 18, 2015. (Incorporated by reference to Exhibit 10.4 to FS Investment Corporation IIIs Current Report on Form 8-K filed on June24, 2015).                                                                                                                                                        
|      | 
|10.47 |  | Revolving Credit Agreement, dated as of June 18, 2015, by and between FS Investment Corporation III and Society Hill Funding LLC. (Incorporated by reference to Exhibit 10.5
to FS Investment Corporation IIIs Current Report on Form 8-K filed on June24, 2015).                                                                                                                                                                                                                                       
|      | 
|10.48 |  | Amended and Restated Investment Management Agreement, dated as of June 18, 2015, by and between Germantown Funding LLC and FS Investment Corporation III. (Incorporated by
reference to Exhibit 10.6 to FS Investment Corporation IIIs Current Report on Form 8-K filed on June24, 2015).                                                                                                                                                                                                               
|      | 
|10.49 |  | Collateral Administration Agreement, dated as of June 18, 2015, by and among Germantown Funding LLC, FS Investment Corporation III and Virtus Group, LP. (Incorporated by
reference to Exhibit 10.7 to FS Investment Corporation IIIs Current Report on Form 8-K filed on June24, 2015).                                                                                                                                                                                                                
|      | 
|21.1* |  | Subsidiaries of FS Investment Corporation III.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|      | 
|31.1* |  | Certification of Chief Executive Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as
amended.                                                                                                                                                                                                                                                                                                                                                                                  



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|      |  |                                                                                                                                                                                                                 
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|31.2* |  | Certification of Chief Financial Officer pursuant to Rule 13a-14 under 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 financial statements.



|Item 16. | Form 10-K Summary.
|-------- | ------------------

None.



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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
annual report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                     |  |  |  |                                                        
|-------------------- |  |  |  | -------------------------------------------------------
|Date: March 10, 2017 |  |  |  | /s/ MICHAEL C. FORMAN                                  
|                     |  |  |  | Michael C. Forman President and Chief Executive Officer

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



|                     |  |  |  |                                                                                                                         
|-------------------- |  |  |  | ------------------------------------------------------------------------------------------------------------------------
|                     |  | 
|Date: March 10, 2017 |  |  |  | /s/ MICHAEL C. FORMAN
Michael C. Forman President and Chief Executive Officer and
Director                              
|                     |  | 
|Date: March 10, 2017 |  |  |  | /s/ EDWARD T. GALLIVAN, JR.
Edward T. Gallivan, Jr. Chief Financial Officer (Principal Accounting and Financial
Officer)
|                     |  | 
|Date: March 10, 2017 |  |  |  | /s/ DAVID J. ADELMAN
David J. Adelman Director                                                                          
|                     |  | 
|Date: March 10, 2017 |  |  |  | /s/ JAMES W. BROWN James W. Brown Director                                                                              
|                     |  | 
|Date: March 10, 2017 |  |  |  | /s/ BRIAN R. FORD Brian R. Ford Director                                                                                
|                     |  | 
|Date: March 10, 2017 |  |  |  | /s/ JEFFREY K. HARROW
Jeffrey K. Harrow Director                                                                        
|                     |  | 
|Date: March 10, 2017 |  |  |  | /s/ MICHAEL J. HELLER
Michael J. Heller Director                                                                        
|                     |  | 
|Date: March 10, 2017 |  |  |  | /s/ DANIEL J. HILFERTY III
Daniel J. Hilferty III Director                                                              
|                     |  | 
|Date: March 10, 2017 |  |  |  | /s/ STEVEN D. IRWIN
Steven D. Irwin Director                                                                            
|                     |  | 
|Date: March 10, 2017 |  |  |  | /s/ ROBERT N.C. NIX, III
Robert N.C. Nix, III Director                                                                  
|                     |  | 
|Date: March 10, 2017 |  |  |  | /s/ PETER G. STANLEY
Peter G. Stanley Director                                                                          



193