FS Investment Corp III 10Q 2019 Q3 Quarterly report

TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

☒

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

☐

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			19112
	(Address of principal executive offices)			(Zip Code)

(215) 495-1150

(Registrant’s telephone number, including area code)

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☒

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

Securities registered pursuant to Section 12(b) Act: None

	Title of each class			Trading Symbol(s)			Name of each exchange on which registered
	N/A			N/A			N/A

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

There were 293,921,821 shares of the registrant’s common stock outstanding as of November 8, 2019.

TABLE OF CONTENTS

	Page
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 2019 (Unaudited) and December 31, 2018		1
Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018		2
Unaudited Consolidated Statements of Changes in Net Assets for the three and nine months ended September 30, 2019 and 2018		3
Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018		4
Consolidated Schedules of Investments as of September 30, 2019 (Unaudited) and December 31, 2018		5
Notes to Unaudited Consolidated Financial Statements		28
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		60
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		77
ITEM 4. CONTROLS AND PROCEDURES		78
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		80
ITEM 1A. RISK FACTORS		80
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		80
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		80
ITEM 4. MINE SAFETY DISCLOSURES		80
ITEM 5. OTHER INFORMATION		80
ITEM 6. EXHIBITS		80
SIGNATURES		86

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

FS Investment Corporation III

Consolidated Balance Sheets
(in thousands, except share and per share amounts)

	September 30, 2019 (Unaudited)			December 31, 2018
Assets
Investments, at fair value
Non-controlled/unaffiliated investments (amortized cost—$3,812,963 and $3,710,247, respectively)		$	3,681,159		$	3,574,417
Non-controlled/affiliated investments (amortized cost—$38,477 and $86,851, respectively)			23,132			36,866
Total investments, at fair value (amortized cost—$3,851,440 and $3,797,098, respectively)			3,704,291			3,611,283
Cash			80,028			65,501
Foreign currency, at fair value (cost—$2,311 and $1,830, respectively)			2,305			1,847
Collateral held at broker for open interest rate swap contracts			25,920			—
Due from counterparty			36,038			128,764
Receivable for investments sold and repaid			9,986			1,028
Interest receivable			38,124			30,126
Deferred financing costs			7,391			4,524
Receivable due on total return swap(1)			798			1,071
Receivable on interest rate swaps			1,726			259
Prepaid expenses and other assets			161			39
Total assets		$	3,906,768		$	3,844,442
Liabilities
Unrealized depreciation on total return swap(1)		$	5,974		$	22,062
Unrealized depreciation on interest rate swaps			20,920			2,614
Payable for investments purchased			197,799			367,728
Repurchase agreement payable (net of deferred financing costs of $0 and $214, respectively)(1)			—			299,786
Credit facilities payable (net of deferred financing costs of $1,697 and $2,092, respectively)(1)			1,455,357			897,502
Stockholder distributions payable			9,952			9,401
Management fees payable			14,166			13,300
Subordinated income incentive fees payable(2)			5,835			9,525
Administrative services expense payable			1,321			425
Interest payable(1)			14,735			13,008
Interest rate swap income payable			1,956			261
Directors’ fees payable			113			215
Other accrued expenses and liabilities			4,002			1,644
Total liabilities			1,732,130			1,637,471
Commitments and contingencies(3)
Stockholders’ equity
Preferred stock, $0.001 par value, 50,000,000 shares authorized, none issued and outstanding			—			—
Common stock, $0.001 par value, 550,000,000 shares authorized, 292,986,312 and 290,353,680 shares issued and outstanding, respectively			293			290
Capital in excess of par value			2,546,626			2,526,632
Retained earnings (accumulated deficit)			(372,281)			(319,951)
Total stockholders’ equity			2,174,638			2,206,971
Total liabilities and stockholders’ equity		$	3,906,768		$	3,844,442
Net asset value per share of common stock at period end		$	7.42		$	7.60

(1)

See Note 9 for a discussion of the Company’s financing arrangements.

(2)

See Note 2 for a discussion of the methodology employed by the Company in calculating the subordinated income incentive fees.

(3)

See Note 10 for a discussion of the Company’s commitments and contingencies.

See notes to unaudited consolidated financial statements.

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FS Investment Corporation III

Unaudited Consolidated Statements of Operations
(in thousands, except share and per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Investment income
From non-controlled/unaffiliated investments:
Interest income		$	76,891		$	71,536		$	247,081		$	221,286
Paid-in-kind interest income			7,347			10,424			17,240			22,939
Fee income			5,374			8,659			16,437			15,823
Dividend income			659			353			915			430
From non-controlled/affiliated investments:
Interest income			569			1,225			1,582			3,287
Paid-in-kind interest income			414			559			1,043			982
Fee income			2			388			23			871
Total investment income			91,256			93,144			284,321			265,618
Operating expenses
Management fees(1)			14,166			13,724			43,201			47,248
Subordinated income incentive fees(2)			5,835			12,827			29,644			25,631
Administrative services expenses			1,325			919			2,522			2,435
Stock transfer agent fees			351			346			1,154			1,124
Accounting and administrative fees			277			274			787			834
Interest expense			19,122			17,709			61,185			48,961
Directors’ fees			97			200			288			913
Other general and administrative expenses			3,089			743			4,712			2,249
Operating expenses			44,262			46,742			143,493			129,395
Management fees waiver(1)			—			—			—			(2,594)
Net expenses			44,262			46,742			143,493			126,801
Net investment income			46,994			46,402			140,828			138,817
Realized and unrealized gain/loss
Net realized gain (loss) on investments:
Non-controlled/unaffiliated investments			(2,580)			2,882			(33,244)			(20,152)
Non-controlled/affiliated investments			—			—			(32,809)			(29,568)
Net realized gain (loss) on total return swap(3)			1,643			4,021			(13,641)			14,258
Net realized gain (loss) on interest rate swaps			(435)			—			(435)			—
Net realized gain (loss) on foreign currency			219			(516)			254			(290)
Net change in unrealized appreciation (depreciation) on investments:
Non-controlled/unaffiliated investments			(32,424)			(25,549)			4,026			(46,387)
Non-controlled/affiliated investments			311			(174)			34,640			22,090
Net change in unrealized appreciation (depreciation) on total return swap(3)			(3,091)			939			16,088			(6,246)
Net change in unrealized appreciation (depreciation) on interest rate swaps			(2,327)			—			(18,306)			—
Net change in unrealized gain (loss) on foreign currency			2,956			216			2,145			(253)
Total net realized gain (loss) and unrealized appreciation (depreciation)			(35,728)			(18,181)			(41,282)			(66,548)
Net increase (decrease) in net assets resulting from operations		$	11,266		$	28,221		$	99,546		$	72,269
Per share information—basic and diluted
Net increase (decrease) in net assets resulting from operations (Earnings per Share)		$	0.04		$	0.10		$	0.34		$	0.25
Weighted average shares outstanding			292,059,888			288,969,053			290,145,165			289,044,461

(1)

See Note 4 for a discussion of the waiver by FSIC III Advisor, LLC, the Company’s former investment adviser, of certain management fees to which it was otherwise entitled during the applicable period.

(2)

See Note 2 for a discussion of the methodology employed by the Company in calculating the subordinated income incentive fees.

(3)

See Note 9 for a discussion of the Company’s financing arrangements.

See notes to unaudited consolidated financial statements.

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FS Investment Corporation III

Unaudited Consolidated Statements of Changes in Net Assets
(in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Operations
Net investment income		$	46,994		$	46,402		$	140,828		$	138,817
Net realized gain (loss) on investments, total return swap, interest rate swaps and foreign currency(1)			(1,153)			6,387			(79,875)			(35,752)
Net change in unrealized appreciation (depreciation) on investments, total return swap and interest rate swaps			(37,531)			(24,784)			36,448			(30,543)
Net change in unrealized gain (loss) on foreign currency			2,956			216			2,145			(253)
Net increase in net assets resulting from operations			11,266			28,221			99,546			72,269
Stockholder distributions(2)
Distributions to stockholders			(50,946)			(50,481)			(151,876)			(151,460)
Net decrease in net assets resulting from stockholder distributions			(50,946)			(50,481)			(151,876)			(151,460)
Capital share transactions(3)
Reinvestment of stockholder distributions			21,180			22,997			64,344			70,953
Repurchases of common stock			—			(23,677)			(44,347)			(72,893)
Net increase (decrease) in net assets resulting from capital share transactions			21,180			(680)			19,997			(1,940)
Total increase (decrease) in net assets			(18,500)			(22,940)			(32,333)			(81,131)
Net assets at beginning of period			2,193,138			2,330,533			2,206,971			2,388,724
Net assets at end of period		$	2,174,638		$	2,307,593		$	2,174,638		$	2,307,593

(1)

See Note 7 for a discussion of these financial instruments.

(2)

See Note 5 for a discussion of the sources of distributions paid by the Company.

(3)

See Note 3 for a discussion of the Company’s capital share transactions.

See notes to unaudited consolidated financial statements.

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FS Investment Corporation III

Unaudited Consolidated Statements of Cash Flows
(in thousands)

	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities
Net increase (decrease) in net assets resulting from operations		$	99,546		$	72,269
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Purchases of investments			(1,203,449)			(1,089,493)
Paid-in-kind interest			(18,283)			(23,921)
Proceeds from sales and repayments of investments			1,108,376			1,133,149
Net realized (gain) loss on investments			66,053			49,720
Net change in unrealized (appreciation) depreciation on investments			(38,666)			24,297
Net change in unrealized (appreciation) depreciation on total return swap			(16,088)			6,246
Net change in unrealized (appreciation) depreciation on interest rate swaps			18,306			—
Accretion of discount			(7,039)			(3,308)
Amortization of deferred financing costs			1,940			2,063
Net change in unrealized (gain) loss on borrowings in foreign currency			(2,168)			—
(Increase) decrease in due from counterparty			92,726			(16,684)
(Increase) decrease in receivable for investments sold and repaid			(8,958)			(25,895)
(Increase) decrease in interest receivable			(7,998)			1,075
(Increase) decrease in receivable due on total return swap			273			(4,945)
(Increase) decrease in receivable on interest rate swaps			(1,467)			—
(Increase) decrease in prepaid expenses and other assets			(122)			173
Increase (decrease) in payable for investments purchased			(169,929)			(17,297)
Increase (decrease) in management fees payable			866			(3,291)
Increase (decrease) in subordinated income incentive fees payable			(3,690)			(1,660)
Increase (decrease) in administrative services expense payable			896			577
Increase (decrease) in interest rate swap income payable			1,695			—
Increase (decrease) in interest payable(1)			1,727			1,422
Increase (decrease) in directors’ fees payable			(102)			(6)
Increase (decrease) in other accrued expenses and liabilities			2,358			(921)
Net cash provided by (used in) operating activities			(83,197)			103,570
Cash flows from financing activities
Repurchases of common stock			(44,347)			(72,893)
Distributions paid			(86,981)			(71,303)
Borrowings under credit facilities(1)			965,774			715,521
Repayments of credit facilities(1)			(706,146)			(868,503)
Deferred financing costs paid			(4,198)			(6,406)
Net cash provided by (used in) financing activities			124,102			(303,584)
Total increase (decrease) in cash			40,905			(200,014)
Cash, restricted cash and foreign currency at beginning of period			67,348			368,344
Cash, restricted cash and foreign currency at end of period(2)		$	108,253		$	168,330
Supplemental disclosure
Non-cash purchase of investments		$	(52,880)		$	(167,082)
Non-cash sales of investments		$	52,880		$	167,082
Distributions reinvested		$	64,344		$	70,953
Excise and state taxes paid		$	128		$	573

(1)

See Note 9 for a discussion of the Company’s financing arrangements. During the nine months ended September 30, 2019 and 2018, the Company paid $46,117 and $35,675, respectively, in interest expense on the credit facilities and $11,401 and $9,801, respectively, in interest expense pursuant to the repurchase agreement.

(2)

As of September 30, 2019 and 2018, balance includes cash of $82,333 and $168,330, respectively and restricted cash and collateral of $25,920 and $0, respectively.

See notes to unaudited consolidated financial statements.

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FS Investment Corporation III

Unaudited Consolidated Schedule of Investments
As of September 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor(b)		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Senior Secured Loans—First Lien—119.5%
5 Arch Income Fund 2, LLC	(i)(n)	Diversified Financials	10.5%			11/18/23		$	113,307		$	113,307		$	113,062
5 Arch Income Fund 2, LLC	(i)(j)(n)	Diversified Financials	10.5%			11/18/23			35,092			35,092			35,017
Accuride Corp	(q)(r)	Capital Goods	L+525		1.0%	11/17/23			4,665			3,915			3,945
Acosta Holdco Inc	(k)(l)(q)	Commercial & Professional Services	L+325		1.0%	9/26/21			14,183			10,525			4,450
Advantage Sales & Marketing Inc	(q)	Commercial & Professional Services	L+325		1.0%	7/23/21			16,695			15,158			15,633
All Systems Holding LLC	(f)(g)(h)	Commercial & Professional Services	L+625		1.0%	10/31/23			69,277			69,277			69,970
All Systems Holding LLC	(j)	Commercial & Professional Services	L+625		1.0%	10/31/23			11,970			11,970			12,090
Alstom SA	(i)(q)	Transportation	L+450		1.0%	8/29/21			6,189			5,954			5,988
Altus Power America Inc		Energy	L+750		1.5%	9/30/21			3,750			3,750			3,642
American Tire Distributors Inc	(q)	Automobiles & Components	L+600, 1.0% PIK (1.0% Max PIK)		1.0%	9/1/23			1,447			1,365			1,436
American Tire Distributors Inc	(q)	Automobiles & Components	L+750		1.0%	9/2/24			10,841			9,642			9,584
Ammeraal Beltech Holding BV	(i)(q)	Capital Goods	E+375			7/30/25		€	1,268			1,466			1,339
Apex Group Limited	(i)(j)	Diversified Financials	L+650		1.3%	6/15/23		$	1,957			1,911			1,955
Apex Group Limited	(i)	Diversified Financials	L+650		1.3%	6/15/25			6,350			6,244			6,344
Apex Group Limited	(i)	Diversified Financials	L+700		1.0%	6/15/25			23,278			23,189			23,256
Apex Group Limited	(f)(i)	Diversified Financials	L+700		1.3%	6/15/25			13,130			12,904			13,117
Apex Group Limited	(i)	Diversified Financials	L+700		1.5%	6/15/25		£	19,449			24,703			24,041
Arrotex Australia Group Pty Ltd	(i)	Pharmaceuticals, Biotechnology & Life Sciences	B+525		1.0%	7/10/24		A$	40,732			27,950			27,068
Aspect Software Inc	(j)	Software & Services	L+500		1.0%	7/15/23		$	2,422			2,422			2,422
Aspect Software Inc	(f)	Software & Services	L+500		1.0%	1/15/24			15,595			13,943			14,094
ATX Networks Corp	(g)(i)(q)	Technology Hardware & Equipment	L+600, 1.0% PIK (1.0% Max PIK)		1.0%	6/11/21			49,218			48,109			46,511
AVF Parent LLC	(k)(l)	Retailing	L+725		1.3%	3/1/24			28,868			28,632			16,422
Belk Inc	(q)	Retailing	L+475		1.0%	12/12/22			21,705			18,102			15,965
Borden Dairy Co	(f)(g)	Food, Beverage & Tobacco	L+750		1.0%	7/6/23			48,125			48,125			41,922
Brand Energy & Infrastructure Services Inc	(q)	Capital Goods	L+425		1.0%	6/21/24			11,450			10,968			11,221
Caprock Midstream LLC	(q)	Energy	L+475			11/3/25			5,005			4,551			4,521
CEPSA Holdco (Matador Bidco)	(i)(q)(r)	Energy	L+475			6/19/26			2,154			2,132			2,162
CHS/Community Health Systems, Inc.	(e)(i)(q)(p)	Health Care Equipment & Services	8.0%			3/15/26			8,299			8,063			8,299
Conservice LLC	(j)	Consumer Services	L+525			11/29/24			1,446			1,434			1,437

See notes to unaudited consolidated financial statements.

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FS Investment Corporation III

Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor(b)		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Conservice LLC		Consumer Services	L+525			11/29/24		$	29,368		$	29,114		$	29,319
Conservice LLC	(j)	Consumer Services	L+525			11/29/24			1,229			1,224			1,227
Constellis Holdings LLC	(g)	Capital Goods	L+625		1.0%	4/15/22			39,924			39,441			33,813
CSafe Global		Capital Goods	L+650		1.0%	11/1/21			1,043			1,043			1,038
CSafe Global	(j)	Capital Goods	L+650		1.0%	11/1/21			1,565			1,565			1,557
CSafe Global	(f)	Capital Goods	L+650		1.0%	10/31/23			24,773			24,773			24,649
CSafe Global	(j)	Capital Goods	L+650		1.0%	10/31/23			5,217			5,217			5,191
CSM Bakery Products	(q)(r)	Food, Beverage & Tobacco	L+400		1.0%	7/3/20			6,354			6,048			5,941
Dayton Superior Corp	(q)	Materials	L+800, 6.0% PIK (6.0% Max PIK)		1.0%	11/15/21			3,560			2,844			1,869
Diamond Resorts International Inc	(f)(q)	Consumer Services	L+375		1.0%	9/2/23			37,607			35,605			36,724
Distribution International Inc	(q)	Retailing	L+575		1.0%	12/15/23			368			330			346
Eagle Family Foods Inc		Food, Beverage & Tobacco	L+650		1.0%	6/14/23			1,481			1,468			1,424
Eagle Family Foods Inc	(j)	Food, Beverage & Tobacco	L+650		1.0%	6/14/23			2,026			2,009			1,949
Eagle Family Foods Inc	(f)	Food, Beverage & Tobacco	L+675		1.0%	6/14/24			23,088			22,872			22,205
Eagleclaw Midstream Ventures LLC	(q)	Energy	L+425		1.0%	6/24/24			5,481			5,050			5,052
Electronics For Imaging Inc	(q)	Technology Hardware & Equipment	L+500			7/23/26			13,327			12,673			12,461
Empire Today LLC	(f)(g)	Retailing	L+650		1.0%	11/17/22			43,763			43,763			43,773
Entertainment Benefits Group LLC		Media & Entertainment	L+575		1.0%	9/30/24			504			504			504
Entertainment Benefits Group LLC	(j)	Media & Entertainment	L+575		1.0%	9/30/24			2,017			2,017			2,017
Entertainment Benefits Group LLC	(f)	Media & Entertainment	L+575		1.0%	9/30/25			15,085			14,897			14,897
Fairway Group Holdings Corp	(s)	Food & Staples Retailing	4.0%, 11.0% PIK (11.0% Max PIK)			8/28/23			4,243			4,108			4,243
Fairway Group Holdings Corp	(s)	Food & Staples Retailing	12.0% PIK (12.0% Max PIK)		1.0%	11/27/23			7,601			7,601			6,973
Fairway Group Holdings Corp	(k)(l)(s)	Food & Staples Retailing	10.0% PIK (10.0% Max PIK)		1.0%	11/28/23			4,786			3,916			209
FHC Health Systems Inc	(q)	Health Care Equipment & Services	L+400		1.0%	12/23/21			8,768			7,530			8,775
Foresight Energy LLC	(i)(k)(l)(q)	Materials	L+575		1.0%	3/28/22			12,128			8,966			6,681
Fox Head Inc	(f)	Consumer Durables & Apparel	L+850		1.0%	12/19/20			6,518			6,518			6,133
FullBeauty Brands Holdings Corp		Retailing	L+1,000		1.0%	2/7/22			310			310			302
FullBeauty Brands Holdings Corp	(q)	Retailing	L+900		1.0%	2/7/24			1,808			1,767			949
Greystone Equity Member Corp	(i)	Diversified Financials	L+725		3.8%	4/1/26			109,692			109,692			108,732
Greystone Equity Member Corp	(i)(j)	Diversified Financials	L+725		3.8%	4/1/26			9,558			9,558			9,474
HM Dunn Co Inc	(k)(l)(s)	Capital Goods	L+875 PIK (L+875 Max PIK)		1.0%	6/30/21			7,150			5,786			2,511
HM Dunn Co Inc	(s)	Capital Goods	15.0% PIK (15.0% Max PIK)			6/30/21			416			416			416

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor(b)		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
HM Dunn Co Inc	(j)(s)	Capital Goods	15.0% PIK (15.0% Max PIK)			6/30/21		$	247		$	247		$	247
Hudson Technologies Co	(i)	Commercial & Professional Services	L+1,025		1.0%	10/10/23			7,769			7,711			4,331
Icynene Group Ltd	(f)(g)(h)	Materials	L+700		1.0%	11/30/24			75,653			75,653			75,884
Industria Chimica Emiliana Srl	(i)	Pharmaceuticals, Biotechnology & Life Sciences	L+650			6/30/26		€	44,205			47,125			46,761
Industria Chimica Emiliana Srl	(i)(j)	Pharmaceuticals, Biotechnology & Life Sciences	L+650			6/30/26			6,271			6,863			6,634
Ivanti Software Inc	(q)	Software & Services	L+425		1.0%	1/20/24		$	7,370			7,341			7,357
J S Held LLC		Insurance	L+600		1.0%	7/1/25			236			233			233
J S Held LLC	(j)	Insurance	L+600		1.0%	7/1/25			3,132			3,102			3,100
J S Held LLC	(g)	Insurance	L+600		1.0%	7/1/25			29,359			29,085			29,065
J S Held LLC	(j)	Insurance	L+600		1.0%	7/1/25			7,207			7,207			7,134
JC Penney Corp Inc	(i)(q)	Retailing	L+425		1.0%	6/23/23			2,274			1,950			1,987
Jo-Ann Stores Inc	(q)	Retailing	L+500		1.0%	10/20/23			3,019			2,161			2,092
Jostens Inc	(q)	Consumer Services	L+550			12/19/25			3,941			3,841			3,937
JSS Holdings Ltd	(f)(g)(h)	Capital Goods	L+800, 0.0% PIK (2.5% Max PIK)		1.0%	3/31/23			65,951			65,518			67,930
Kodiak BP LLC	(f)(g)(h)	Capital Goods	L+725		1.0%	12/1/24			95,522			95,522			94,566
Kodiak BP LLC	(j)	Capital Goods	L+725		1.0%	12/1/24			5,609			5,609			5,553
Laird PLC	(i)(q)(r)	Technology Hardware & Equipment	L+450			7/9/25			460			423			424
LBM Borrower LLC	(f)(q)	Capital Goods	L+375		1.0%	8/20/22			5,282			4,986			5,286
LD Intermediate Holdings Inc	(q)	Software & Services	L+588		1.0%	12/9/22			9,125			8,302			9,072
Lipari Foods LLC	(h)	Food & Staples Retailing	L+588		1.0%	1/6/25			103,337			102,571			103,220
Lipari Foods LLC	(j)	Food & Staples Retailing	L+588		1.0%	1/6/25			21,437			21,437			21,412
Mitel US Holdings Inc	(q)	Technology Hardware & Equipment	L+450			11/30/25			228			221			213
Monitronics International Inc	(q)(r)	Commercial & Professional Services	L+650		1.3%	3/29/24			17,416			16,605			16,093
Monitronics International Inc	(q)	Commercial & Professional Services	L+500		1.5%	7/3/24			4,446			4,446			4,457
Monitronics International Inc	(j)(q)	Commercial & Professional Services	L+500		1.5%	7/3/24			25,541			25,541			25,605
Monitronics International Inc	(q)	Commercial & Professional Services	L+500		1.5%	7/3/24			15,195			15,195			15,328
Multi-Color Corp	(i)(q)	Commercial & Professional Services	6.8%			7/15/26			5,773			5,815			6,015
Murray Energy Corp		Energy	L+900		1.0%	2/12/21			9,258			9,217			9,273
NaviHealth Inc.	(q)	Health Care Equipment & Services	L+500			8/1/25			9,998			9,900			9,973
North Haven Cadence Buyer Inc	(j)	Consumer Services	L+500		1.0%	9/2/21			750			750			750
North Haven Cadence Buyer Inc		Consumer Services	L+650		1.0%	9/2/22			4,063			4,063			4,048

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor(b)		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
North Haven Cadence Buyer Inc	(j)	Consumer Services	L+650		1.0%	9/2/22		$	5,083		$	5,083		$	5,064
North Haven Cadence Buyer Inc	(f)(g)	Consumer Services	L+794		1.0%	9/2/22			17,686			17,687			17,620
One Call Care Management Inc	(q)	Insurance	L+400		1.0%	11/27/20			56			50			49
One Call Care Management Inc	(q)	Insurance	L+525		1.0%	11/27/22			1,287			1,098			1,019
P2 Energy Solutions, Inc.	(q)	Software & Services	L+400		1.0%	10/30/20			2,399			2,370			2,378
PAE Holding Corp	(q)	Capital Goods	L+550		1.0%	10/20/22			2,271			2,282			2,281
Peak 10 Holding Corp	(q)	Telecommunication Services	L+350			8/1/24			11,402			9,856			9,884
PF Chang’s China Bistro Inc	(q)	Consumer Services	L+625			3/1/26			8,611			8,530			7,362
PHRC License LLC	(f)	Consumer Services	L+850, 0.3% PIK (4.3% Max PIK)		1.5%	4/28/22			16,593			16,593			16,697
Power Distribution Inc		Capital Goods	L+725		1.3%	1/25/23			18,644			18,644			16,757
Production Resource Group LLC	(f)(h)	Media & Entertainment	L+700		1.0%	8/21/24			173,008			173,008			152,463
Project Marron	(i)	Consumer Services	L+625			7/3/25		C$	15,648			10,209			10,557
Project Marron	(i)	Consumer Services	L+625			7/2/25		A$	12,291			9,369			9,281
Propulsion Acquisition LLC	(f)(h)(q)	Capital Goods	L+600		1.0%	7/13/21		$	54,140			53,455			53,598
PSKW LLC	(f)(g)(h)	Health Care Equipment & Services	L+769		1.0%	11/25/21			172,364			172,262			172,364
Reliant Rehab Hospital Cincinnati LLC	(g)	Health Care Equipment & Services	L+675		1.0%	9/2/24			50,766			50,366			49,905
Roadrunner Intermediate Acquisition Co LLC	(f)(g)(h)	Health Care Equipment & Services	L+675		1.0%	3/15/23			90,215			90,215			87,799
Safariland LLC		Capital Goods	L+725		1.1%	11/18/23			955			955			917
Safariland LLC	(f)	Capital Goods	L+775		1.1%	11/18/23			41,938			41,938			40,260
Savers Inc		Retailing	L+650, 0.8% PIK (0.8% Max PIK)		1.5%	3/28/24			22,584			22,326			22,357
Savers Inc		Retailing	L+700, 0.8% PIK (0.8% Max PIK)		1.0%	3/28/24		C$	31,363			23,094			23,879
Sequa Corp	(q)(r)	Materials	L+500		1.0%	11/28/21		$	24,053			23,744			23,888
Sequel Youth & Family Services LLC	(g)	Health Care Equipment & Services	L+700		1.0%	9/1/23			2,254			2,254			2,277
Sequel Youth & Family Services LLC	(f)	Health Care Equipment & Services	L+800			9/1/23			13,000			13,000			13,130
Sequential Brands Group Inc.	(f)	Consumer Durables & Apparel	L+875			2/7/24			96,542			94,891			95,697
SI Group Inc	(q)	Materials	L+475			10/15/25			793			771			773
SIRVA Worldwide Inc	(q)	Commercial & Professional Services	L+550			8/4/25			3,088			2,991			2,995
Smart & Final Stores LLC	(h)(i)(q)	Food & Staples Retailing	L+675			6/20/25			25,538			23,093			23,389
Smart Foodservice	(i)(q)	Food & Staples Retailing	L+475			6/20/26			2,894			2,866			2,909
Sorenson Communications LLC	(q)	Telecommunication Services	L+650			4/29/24			22,966			22,107			22,995

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor(b)		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Sungard Availability Services Capital Inc		Software & Services	L+750		1.0%	2/3/22		$	1,760		$	1,710		$	1,822
Sungard Availability Services Capital Inc	(j)	Software & Services	L+750		1.0%	2/3/22			1,760			1,710			1,822
Sutherland Global Services Inc	(i)(q)	Software & Services	L+538		1.0%	4/23/21			11,899			11,311			11,813
Swift Worldwide Resources Holdco Ltd		Energy	L+1,000, 1.0% PIK (1.0% Max PIK)		1.0%	7/20/21			17,507			17,507			17,507
Tangoe LLC	(g)	Software & Services	L+650		1.0%	11/28/25			43,723			43,325			43,775
Team Health Inc	(q)	Health Care Equipment & Services	L+275		1.0%	2/6/24			88			74			73
Torrid Inc	(f)	Retailing	L+675		1.0%	12/14/24			17,267			17,081			17,088
Total Safety US Inc	(q)	Capital Goods	L+600		1.0%	8/16/25			4,090			3,690			3,873
Trace3 Inc	(f)(g)	Software & Services	L+675		1.0%	8/3/24			37,248			37,248			36,550
Vertiv Group Corp	(q)	Technology Hardware & Equipment	L+400		1.0%	11/30/23			12,595			11,983			12,017
Virgin Pulse Inc	(f)(g)(h)	Software & Services	L+650		1.0%	5/22/25			67,396			66,932			66,938
Vivint Inc	(f)(q)	Commercial & Professional Services	L+500			4/1/24			20,770			19,943			20,406
Warren Resources Inc	(s)	Energy	L+1,000, 1.0% PIK (1.0% Max PIK)		1.0%	5/22/20			6,223			6,223			6,223
West Corp	(q)	Software & Services	L+350		1.0%	10/10/24			4,938			4,387			4,384
West Corp	(g)(q)	Software & Services	L+400		1.0%	10/10/24			19,650			18,060			17,611
Zeta Interactive Holdings Corp	(g)(h)	Software & Services	L+750		1.0%	7/29/22			71,286			71,287			71,999
Zeta Interactive Holdings Corp	(j)	Software & Services	L+750		1.0%	7/29/22			8,357			8,357			8,441
Total Senior Secured Loans—First Lien												2,828,003			2,759,133
Unfunded Loan Commitments												(160,325)			(160,325)
Net Senior Secured Loans—First Lien												2,667,678			2,598,808
Senior Secured Loans—Second Lien—17.9%
Advantage Sales & Marketing Inc	(q)	Commercial & Professional Services	L+650		1.0%	7/25/22			4,413			3,588			3,837
American Bath Group LLC	(q)	Capital Goods	L+975		1.0%	9/30/24			3,000			2,985			3,000
Ammeraal Beltech Holding BV	(g)(i)	Capital Goods	L+800			7/27/26			44,463			43,648			43,098
Arena Energy LP	(f)(g)	Energy	L+900, 4.0% PIK (4.0% Max PIK)		1.0%	1/24/21			26,665			26,665			26,536
athenahealth Inc	(h)	Health Care Equipment & Services	L+850			2/11/27			55,444			54,928			55,930
BCA Marketplace PLC	(i)(r)	Retailing	L+825			9/4/27		£	25,901			31,550			31,550
Bellatrix Exploration Ltd	(i)	Energy	8.5%			9/11/23		$	3,744			3,744			3,744
Bellatrix Exploration Ltd	(i)(k)(l)	Energy	8.5%			9/11/23			9,000			8,253			2,946

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor(b)		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Byrider Finance LLC		Automobiles & Components	L+1,000, 0.5% PIK (4.0% Max PIK)		1.3%	6/7/22		$	5,962		$	5,962		$	5,947
CDS US Intermediate Holdings Inc	(f)(i)(q)	Media & Entertainment	L+825		1.0%	7/10/23			18,000			16,312			16,632
Chisholm Oil & Gas Operating LLC		Energy	L+800		1.0%	3/21/24			16,000			16,000			16,160
Electronics For Imaging Inc	(q)	Technology Hardware & Equipment	L+900			7/23/27			3,332			3,168			3,082
Emerald Performance Materials LLC	(q)(r)	Materials	L+775		1.0%	8/1/22			5,107			5,079			5,043
Excelitas Technologies Corp	(q)	Technology Hardware & Equipment	L+750		1.0%	12/1/25			6,648			6,666			6,671
Fairway Group Holdings Corp	(k)(l)(s)	Food & Staples Retailing	4.0%, 11.0% PIK (11.0% Max PIK)		1.0%	2/24/24			4,283			3,436			—
Gruden Acquisition Inc	(h)(q)	Transportation	L+850		1.0%	8/18/23			10,000			9,749			9,946
LBM Borrower LLC	(f)(q)	Capital Goods	L+925		1.0%	8/20/23			32,387			31,669			31,881
Misys Ltd	(i)(q)(r)	Software & Services	L+725		1.0%	6/13/25			5,357			5,238			5,146
NEP Broadcasting LLC	(q)	Media & Entertainment	L+700			10/19/26			1,928			1,891			1,893
OEConnection LLC		Software & Services	L+825			9/25/27			18,398			18,215			18,214
One Call Care Management Inc	(g)(h)	Insurance	L+375, 6.0% PIK (6.0% Max PIK)		1.0%	4/11/24			2,890			2,868			2,359
OPE Inmar Acquisition Inc	(f)(q)	Software & Services	L+800		1.0%	5/1/25			15,000			15,000			14,086
Paradigm Acquisition Corp	(q)	Health Care Equipment & Services	L+750			10/26/26			1,812			1,796			1,803
Peak 10 Holding Corp	(q)	Telecommunication Services	L+725		1.0%	8/1/25			7,902			7,220			5,848
Pure Fishing Inc		Consumer Durables & Apparel	L+838		1.0%	12/31/26			39,804			39,431			34,702
Rise Baking Company	(f)	Food, Beverage & Tobacco	L+800		1.0%	8/9/26			15,292			15,154			15,032
Sequa Corp	(q)	Materials	L+900		1.0%	4/28/22			5,204			4,955			5,136
SIRVA Worldwide Inc	(q)	Commercial & Professional Services	L+950			8/3/26			2,826			2,424			2,459
SMG/PA	(q)	Consumer Services	L+700			1/23/26			942			929			956
Sorenson Communications LLC	(g)	Telecommunication Services	11.5% PIK (11.5% Max PIK)			4/30/25			8,983			9,209			8,983
Titan Energy LLC	(g)(k)(l)	Energy	L+1,300 PIK (L+1,300 Max PIK)		1.0%	2/23/20			45,287			33,111			449
WireCo WorldGroup Inc	(q)	Capital Goods	L+900		1.0%	9/30/24			5,797			5,718			5,739
Total Senior Secured Loans—Second Lien												436,561			388,808
Other Senior Secured Debt—4.7%
APTIM Corp	(q)	Diversified Financials	7.8%			6/15/25			4,928			4,928			3,524
Artesyn Embedded Technologies Inc	(e)(q)(p)	Technology Hardware & Equipment	9.8%			10/15/20			970			936			975
Black Swan Energy Ltd	(i)	Energy	9.0%			1/20/24			1,333			1,333			1,326
Diamond Resorts International Inc	(h)(q)	Consumer Services	7.8%			9/1/23			11,965			11,965			12,369
Enterprise Development Authority	(e)(q)(p)	Consumer Services	12.0%			7/15/24			3,854			3,999			4,239
Frontier Communications Corp	(e)(i)(q)(p)	Telecommunication Services	8.5%			4/1/26			12,305			11,932			12,335

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor(b)		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Genesys Telecommunications Laboratories Inc	(e)(q)(p)	Technology Hardware & Equipment	10.0%			11/30/24		$	1,409		$	1,541		$	1,527
JC Penney Corp Inc	(e)(i)(q)(p)	Retailing	5.7%			6/1/20			143			133			135
JW Aluminum Co	(q)	Materials	10.3%			6/1/26			759			759			803
Lycra	(e)(i)(q)(p)	Consumer Durables & Apparel	7.5%			5/1/25			7,756			7,760			7,000
MultiPlan Inc	(e)(q)(p)	Health Care Equipment & Services	7.1%			6/1/24			7,978			8,034			7,390
PAREXEL International Corp	(e)(k)(q)(p)	Pharmaceuticals, Biotechnology & Life Sciences	6.4%			9/1/25			87			84			80
Pattonair Holdings Ltd	(e)(i)(q)(p)	Capital Goods	9.0%			11/1/22			7,766			7,971			8,174
Ply Gem Holdings Inc	(e)(q)(p)	Capital Goods	8.0%			4/15/26			8,383			8,042			8,278
Sungard Availability Services Capital Inc	(h)	Software & Services	L+400, 2.5% PIK (2.5% Max PIK)		1.0%	11/3/22			9,200			9,200			9,200
Velvet Energy Ltd	(i)	Energy	9.0%			10/5/23			4,500			4,500			4,601
Vivint Inc	(e)(h)(q)(p)	Commercial & Professional Services	7.9%			12/1/22			12,886			12,774			12,918
Vivint Inc	(e)(q)(p)	Commercial & Professional Services	7.6%			9/1/23			8,911			8,243			7,975
Total Other Senior Secured Debt												104,134			102,849
Subordinated Debt—12.5%
All Systems Holding LLC		Commercial & Professional Services	10.0% PIK (10.0% Max PIK)			10/31/22			100			100			100
Ascent Resources Utica Holdings LLC / ARU Finance Corp	(e)(q)(p)	Energy	10.0%			4/1/22			19,500		��	19,500			19,592
athenahealth Inc		Health Care Equipment & Services	L+1,125 PIK (L+1,125 Max PIK)			2/11/27			30,193			30,193			30,388
Avantor Inc	(g)(h)(q)	Pharmaceuticals, Biotechnology & Life Sciences	9.0%			10/1/25			52,500			52,502			59,128
Byrider Finance LLC		Automobiles & Components	20.0% PIK (20.0% Max PIK)			3/31/22			353			353			353
Calumet Specialty Products	(e)(i)(q)(p)	Energy	7.8%			4/15/23			10,300			10,260			9,605
ClubCorp Club Operations Inc	(e)(q)(p)	Consumer Services	8.5%			9/15/25			12,478			12,075			10,513
Craftworks Rest & Breweries Group Inc		Consumer Services				11/1/24			1,317			1,305			1,180
Diamond Resorts International Inc	(e)(q)(p)	Consumer Services	10.8%			9/1/24			3,453			3,599			3,574
GFL Environmental Inc	(e)(i)(q)(p)	Commercial & Professional Services	8.5%			5/1/27			10,129			10,408			11,256
Hub International Ltd	(e)(q)(p)	Insurance	7.0%			5/1/26			4,037			3,977			4,163
Intelsat Jackson Holdings SA	(e)(i)(q)(p)	Media & Entertainment	5.5%			8/1/23			3,577			3,287			3,355
Ken Garff Automotive LLC	(e)(q)(p)	Retailing	7.5%			8/15/23			4,039			4,047			4,246
Kenan Advantage Group Inc	(q)	Transportation	7.9%			7/31/23			8,518			7,221			7,666

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor(b)	Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
LifePoint Hospitals Inc	(e)(q)(p)	Health Care Equipment & Services	9.8%		12/1/26		$	11,204		$	11,531		$	12,015
Montage Resources Corp	(e)(i)(q)(p)	Energy	8.9%		7/15/23			8,175			8,077			6,295
Nouryon (fka Akzo Nobel Specialty Chemicals)	(e)(i)(q)(p)	Materials	8.0%		10/1/26			7,256			7,232			7,274
Plastipak Holdings Inc	(e)(q)	Materials	6.3%		10/15/25			1,118			1,048			936
Quorum Health Corp	(e)(q)(p)	Health Care Equipment & Services	11.6%		4/15/23			2,630			2,622			2,374
SRS Distribution Inc	(e)(q)(p)	Capital Goods	8.3%		7/1/26			13,222			13,096			13,519
Stars Group Holdings BV	(e)(i)(q)(p)	Consumer Services	7.0%		7/15/26			2,770			2,770			2,957
Team Health Inc	(e)(q)(p)	Health Care Equipment & Services	6.4%		2/1/25			9,254			8,289			6,441
Vertiv Group Corp	(e)(q)(p)	Technology Hardware & Equipment	9.3%		10/15/24			18,663			18,329			18,080
Vivint Inc	(e)(h)(q)(p)	Commercial & Professional Services	8.8%		12/1/20			10,105			9,787			9,941
York Risk Services Group Inc	(g)(h)(q)	Insurance	8.5%		10/1/22			27,344			26,160			27,925
Total Subordinated Debt											267,768			272,876

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor(b)	Maturity	Principal Amount(c)/ Shares			Amortized Cost			Fair Value(d)
Asset Based Finance—11.8%
Abacus JV, Private Equity	(i)	Insurance						10,971,302		$	10,971		$	10,971
Altavair NewCo, Private Equity	(i)	Capital Goods						4,499,673			4,500			4,986
Altus Power America Inc, Preferred Stock	(o)	Energy	9.0%, 5.0% PIK (5.0% Max PIK)		10/3/23			1,107,723			1,108			1,108
Australis Maritime, Private Equity	(i)(k)	Transportation						4,631,335			4,631			4,631
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		1/30/25		$	1,102			1,041			1,086
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		4/30/25		$	7,007			6,618			6,902
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		9/3/25		$	1,448			1,368			1,426
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		9/29/25		$	1,363			1,288			1,343
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/4/25		$	74,065			69,957			72,954
Global Jet Capital LLC, Structured Mezzanine	(i)	Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/4/25		$	16,491			15,576			16,244
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/9/25		$	1,703			1,609			1,678
Global Jet Capital LLC, Structured Mezzanine	(i)	Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/9/25		$	13,107			12,380			12,910
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		1/29/26		$	6,341			5,989			6,245
Global Jet Capital LLC, Structured Mezzanine	(i)	Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		1/29/26		$	1,415			1,337			1,394
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		2/17/26		$	18,963			17,911			18,678
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		4/14/26		$	11,743			11,092			11,567

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor(b)	Maturity	Principal Amount(c)/ Shares			Amortized Cost			Fair Value(d)
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/2/26		$	17,356		$	16,394		$	17,096
Global Jet Capital LLC, Preferred Stock	(k)	Commercial & Professional Services						52,964,946			52,965			3,972
Home Partners JV, Structured Mezzanine	(i)	Real Estate	11.0% PIK (11.0% Max PIK)		3/25/29		$	11,226			11,226			11,226
Home Partners JV, Structured Mezzanine	(i)(j)	Real Estate	11.0% PIK (11.0% Max PIK)		3/25/29		$	11,226			11,226			11,226
Home Partners JV, Common Stock	(i)(k)	Real Estate						5,613,013			5,613			5,801
Home Partners JV, Private Equity	(i)(k)(q)	Real Estate						302,870			303			21
Lenovo Group Ltd, Structured Mezzanine	(i)	Technology Hardware & Equipment	8.0%		6/22/22		€	3,975			4,520			4,335
Lenovo Group Ltd, Structured Mezzanine	(i)	Technology Hardware & Equipment	8.0%		6/22/22		$	8,354			8,354			8,354
Lenovo Group Ltd, Structured Mezzanine	(i)	Technology Hardware & Equipment	12.0%		6/22/22		€	2,529			2,876			2,759
Lenovo Group Ltd, Structured Mezzanine	(i)	Technology Hardware & Equipment	12.0%		6/22/22		$	5,316			5,316			5,316
NewStar Clarendon 2014-1A Class D	(i)(k)	Diversified Financials			1/25/27		$	8,310			4,915			3,809
Pretium Partners LLC P2, Structured Mezzanine	(i)	Real Estate	9.5%		5/29/25		$	12,161			12,161			12,276
Sofi Lending Corp, 2019-C R1	(i)	Diversified Financials			11/16/48		$	11,433			6,475			6,471
Toorak Capital Funding LLC, Membership Interest	(i)	Diversified Financials						292,466			292			292
Total Asset Based Finance											310,012			267,077
Unfunded Commitments											(11,226)			(11,226)
Net Asset Based Finance											298,786			255,851

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor(b)	Maturity		Number of Shares		Cost			Fair Value(d)
Equity/Other—3.9%
All Systems Holding LLC, Common Stock	(k)	Commercial & Professional Services						600,099		$	581		$	701
ASG Technologies, Warrant	(k)	Software & Services				6/27/22		48,325			1,377			1,632
Aspect Software Inc, Common Stock	(f)(k)	Software & Services						844,096			1,369			1,304
Aspect Software Inc, Warrant	(f)(k)	Software & Services				1/15/24		842,769			—			—
ATX Networks Corp, Common Stock	(i)(k)	Technology Hardware & Equipment						83,488			134			77
Bellatrix Exploration Ltd, Warrant	(i)(k)	Energy				9/11/23		254,987			—			—
Byrider Finance LLC, Common Stock	(k)	Automobiles & Components						278			—			—
Chisholm Oil & Gas Operating LLC, Series A Units	(k)(m)	Energy						75,000			75			73
Crossmark Holdings Inc	(k)	Media & Entertainment						1,351			—			—
CSafe Global, Common Stock	(k)	Capital Goods						173,900			174			320
Empire Today LLC, Common Stock	(k)	Retailing						206			614			1,096
Fairway Group Holdings Corp, Common Stock	(k)(s)	Food & Staples Retailing						71,465			2,296			—

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor(b)	Maturity		Number of Shares		Cost			Fair Value(d)
Fox Head Inc, Common Stock	(k)	Consumer Durables & Apparel						1,142,857		$	1,143		$	134
FullBeauty Brands Holdings Corp, Common Stock	(k)	Retailing						9,228			43			—
Harvey Industries Inc, Common Stock	(k)	Capital Goods						2,000,000			2,000			6,960
HM Dunn Co Inc, Preferred Stock, Series A	(k)(s)	Capital Goods						1,929			—			—
HM Dunn Co Inc, Preferred Stock, Series B	(k)(s)	Capital Goods						1,929			—			—
JHC Acquisition LLC, Common Stock	(k)	Capital Goods						8,068			8,068			9,681
JSS Holdings Ltd, Net Profits Interest	(k)	Capital Goods						24			—			706
JW Aluminum Co, Common Stock	(k)	Materials						41			—			—
JW Aluminum Co, Preferred Stock		Materials	12.5% PIK			2/15/28		1,003			5,945			13,954
North Haven Cadence Buyer Inc, Common Stock	(k)	Consumer Services						833,333			833			1,937
Power Distribution Inc, Common Stock	(k)	Capital Goods						1,294,287			1,109			129
Ridgeback Resources Inc, Common Stock	(i)(k)	Energy						827,156			5,082			4,185
Sequential Brands Group Inc., Common Stock	(k)(q)	Consumer Durables & Apparel						125,391			1,693			28
SSC (Lux) Limited S.a r.l., Common Stock	(i)(k)	Health Care Equipment & Services						113,636			2,273			3,245
Sungard Availability Services Capital Inc, Common Stock	(g)(h)(k)	Software & Services						160,071			11,187			10,211
Sunnova Energy International Inc, Common Stock	(k)(q)	Energy						292,511			3,291			3,144
Templar Energy LLC, Common Stock	(k)(m)(q)	Energy						129,829			1,104			81
Templar Energy LLC, Preferred Stock	(k)(q)	Energy						86,061			859			—
Titan Energy LLC, Common Stock	(k)(q)	Energy						72,739			2,299			2
Trace3 Inc, Common Stock	(k)	Software & Services						7,725			77			207
Warren Resources Inc, Common Stock	(k)(s)	Energy						998,936			4,695			2,557
White Star Petroleum LLC, Common Stock	(k)(m)	Energy						1,738,244			1,478			—
Zeta Interactive Holdings Corp, Preferred Stock, Series E-1	(k)	Software & Services						1,051,348			8,357			11,738
Zeta Interactive Holdings Corp, Preferred Stock, Series F	(k)	Software & Services						956,233			8,357			10,628
Zeta Interactive Holdings Corp, Warrant	(k)	Software & Services				4/20/27		143,435			—			369
Total Equity / Other											76,513			85,099
TOTAL INVESTMENTS—170.3%										$	3,851,440			3,704,291
LIABILITIES IN EXCESS OF ASSETS—(70.3%)														(1,529,653)
NET ASSETS—100.0%													$	2,174,638

Total Return Swap																		Notional Amount									Unrealized Depreciation
Citibank TRS Facility (Note 9)																			$	—								$	(5,974)

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2019
(in thousands, except share amounts)

A summary of outstanding financial instruments as of September 30, 2019 is as follows:

Interest rate swaps Counterparty	Notional Amount	Company Receives Floating Rate	Company Pays Fixed Rate	Termination Date		Premiums Paid/(Received)			Value			Unrealized Appreciation (Depreciation)
JP Morgan Chase Bank	$120,000	3-Month LIBOR	2.78%		12/18/2023		$	—		$	(6,640)		$	(6,640)
JP Morgan Chase Bank	$120,000	3-Month LIBOR	2.81%		12/18/2021			—			(3,308)			(3,308)
ING Capital Markets	$150,000	3-Month LIBOR	2.59%		1/14/2024			—			(7,291)			(7,291)
ING Capital Markets	$150,000	3-Month LIBOR	2.62%		1/14/2022			—			(3,681)			(3,681)
							$	—		$	(20,920)		$	(20,920)

(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 September 30, 2019, the three-month London Interbank Offered Rate, or LIBOR or “L”, was 2.09%, the Euro Interbank Offered Rate, or EURIBOR, or “E”, was (0.42)% and the Australian Bank Bill Swap Bid Rate, or BBSY, or “B”, was 0.95%. PIK means paid-in-kind. Variable rate securities with no floor rate use the respective benchmark rate in all cases.

(c)

Denominated in U.S. dollars unless otherwise noted.

(d)

Fair value determined by the Company’s board of directors (see Note 8).

(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 International, Ltd. (as assignee of 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 9).

(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 9).

(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 9).

(h)

Security or portion thereof held within Germantown Funding LLC and is pledged as collateral supporting the amounts outstanding under a term loan credit facility with Goldman Sachs (see Note 9).

(i)

(j)

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.

(k)

Security is non-income producing.

(l)

Security was on non-accrual status as of September 30, 2019.

(m)

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

(n)

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

(o)

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

(p)

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 9). As of September 30, 2019, the fair value of securities rehypothecated by BNPP was $101,352.

(q)

Security is classified as Level 1 or Level 2 in the Company’s fair value hierarchy (see Note 8).

(r)

Position or portion thereof unsettled as of September 30, 2019.

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Unaudited Consolidated Schedule of Investments (continued)
As of September 30, 2019
(in thousands, except share amounts)

(s)

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 September 30, 2019, the Company held investments in 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” for the nine months ended September 30, 2019:

Portfolio Company	Fair Value at December 31, 2018			Gross Additions(1)			Gross Reductions(2)			Net Realized Gain (Loss)			Net Change in Unrealized Appreciation (Depreciation)			Fair Value at September 30, 2019			Interest Income(4)			PIK Income(4)			Fee Income(4)
Senior Secured Loans—First Lien
Aspect Software Inc		$	7,328		$	—		$	(7,663)		$	(2,060)		$	2,395		$	—		$	—		$	—		$	—
Aspect Software Inc			9,741			—			(10,386)			(2,652)			3,297			—			—			—			—
Fairway Group Holdings Corp			6,742			659			—			—			(428)			6,973			652			659			—
Fairway Group Holdings Corp			582			—			—			—			(373)			209			—			—			—
Fairway Group Holdings Corp			2,897			1,362			—			—			(16)			4,243			373			317			17
H.M. Dunn Co, Inc			1,053			—			—			—			1,458			2,511			—			—			—
H.M. Dunn Co, Inc(3)			—			416			—			—			—			416			13			20			6
Warren Resources Inc			6,176			47			—			—			—			6,223			544			47			—
Senior Secured Loans—Second Lien
Fairway Group Holdings Corp			—			—			—			—			—			—			—			—			—
Equity/Other
Aspect Software Inc, Common Equity			—			—			—			(28,097)			28,097			—			—			—			—
Fairway Group Holdings Corp, Common Equity			—			—			—			—			—			—			—			—			—
HM Dunn Co Inc. Preferred Equity, Series A			—			—			—			—			—			—			—			—			—
HM Dunn Co Inc. Preferred Equity, Series B			—			—			—			—			—			—			—			—			—
Warren Resources, Inc, Common Equity			2,347			—			—			—			210			2,557			—			—			—
Total		$	36,866		$	2,484		$	(18,049)		$	(32,809)		$	34,640		$	23,132		$	1,582		$	1,043		$	23

(1)

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

(2)

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

(3)

Security includes a partially unfunded commitment with an amortized cost of $247 and a fair value of $247.

(4)

Interest income, PIK income and fee income presented for the full nine months ended September 30, 2019.

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Consolidated Schedule of Investments
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Senior Secured Loans—First Lien—119.6%
5 Arch Income Fund 2, LLC	(i)(n)	Diversified Financials	9.0%			11/18/23		$	144,445		$	144,593		$	144,445
5 Arch Income Fund 2, LLC	(i)(j)	Diversified Financials	9.0%			11/18/23			3,955			3,955			3,955
Acosta Holdco Inc	(r)	Commercial & Professional Services	L+325		1.0%	9/26/21			14,294			10,738			8,781
Addison Holdings	(g)	Commercial & Professional Services	L+675		1.0%	12/29/23			23,952			23,952			23,993
Advantage Sales & Marketing Inc	(r)(s)	Commercial & Professional Services	L+325		1.0%	7/23/21			16,827			14,850			14,948
Aleris International Inc	(r)(s)	Materials	L+475			2/27/23			275			272			274
All Systems Holding LLC	(f)(g)(h)	Commercial & Professional Services	L+767		1.0%	10/31/23			54,011			54,011			54,551
Alstom SA	(r)(i)	Transportation	L+450		1.0%	8/29/21			7,181			6,840			6,872
Altus Power America Inc		Energy	L+750		1.5%	9/30/21			3,183			3,183			3,087
Altus Power America Inc	(j)	Energy	L+750		1.5%	9/30/21			140			140			136
American Tire Distributors Inc	(r)	Automobiles & Components	L+750		1.0%	8/30/24			9,192			8,156			7,568
American Tire Distributors Inc	(r)	Automobiles & Components	L+650, 1.0% PIK (1.0% Max PIK)		1.0%	9/1/23			1,447			1,353			1,353
Ammeraal Beltech Holding BV	(i)(r)	Capital Goods	E+375			7/30/25		€	1,268			1,466			1,446
Apex Group Limited	(i)(j)	Diversified Financials	L+650			6/15/23		$	1,957			1,902			1,675
Apex Group Limited	(f)(i)	Diversified Financials	L+650		1.0%	6/15/25			13,230			12,981			12,706
Apex Group Limited	(i)(j)	Diversified Financials	L+650		1.0%	6/15/25			6,382			6,264			6,130
Apex Group Limited	(i)	Diversified Financials	L+650		1.0%	6/15/25			2,127			2,049			2,043
Apex Group Limited	(i)(j)	Diversified Financials	L+650		1.0%	6/15/25			3,191			3,191			3,065
Aspect Software Inc	(l)(t)	Software & Services	L+400, 6.5% PIK (6.5% Max PIK)			5/25/20			13,075			13,038			9,741
Aspect Software Inc	(f)(l)(t)	Software & Services	L+1100		1.0%	5/25/20			9,837			9,723			7,328
ATX Networks Corp	(h)(i)(r)(s)	Technology Hardware & Equipment	L+600, 1.0% PIK (1.0% Max PIK)		1.0%	6/11/21			14,019			13,674			13,318
ATX Networks Corp	(g)(h)(i)(r)	Technology Hardware & Equipment	L+600, 1.0% PIK (1.0% Max PIK)		1.0%	6/11/21			28,510			28,006			27,085
ATX Networks Corp	(i)(r)(s)	Technology Hardware & Equipment	L+600, 1.0% PIK (1.0% Max PIK)		1.0%	6/11/21			797			749			757
AVF Parent LLC	(f)	Retailing	L+725		1.3%	3/1/24			29,438			29,438			27,518
Belk Inc	(r)(s)	Retailing	L+475		1.0%	12/12/22			21,929			17,684			17,793
Borden Dairy Co	(f)(g)	Food, Beverage & Tobacco	L+808		1.0%	7/6/23			48,125			48,125			43,760
Brand Energy & Infrastructure Services Inc	(r)(s)	Capital Goods	L+425		1.0%	6/21/24			5,468			5,192			5,206
Caprock Midstream LLC	(s)	Energy	L+475			11/3/25			1,157			1,076			1,079
Constellis Holdings LLC/Constellis Finance Corp		Capital Goods	L+575		1.0%	4/1/22			40,226			39,628			39,623
CSafe Global		Capital Goods	L+725		1.0%	11/1/21			261			261			263
CSafe Global	(j)	Capital Goods	L+725		1.0%	11/1/21			2,348			2,348			2,371
CSafe Global	(f)	Capital Goods	L+725		1.0%	10/31/23			22,335			22,335			22,559

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
CSM Bakery Products	(r)(s)	Food, Beverage & Tobacco	L+400		1.0%	7/3/20		$	488		$	458		$	453
Dade Paper and Bag Co Inc		Capital Goods	L+700		1.0%	6/10/24			5,630			5,630			5,405
Dade Paper and Bag Co Inc	(g)(h)	Capital Goods	L+750		1.0%	6/10/24			44,141			44,141			43,258
Dayton Superior Corp	(r)(s)	Materials	L+800, 6.0% PIK (6.0% Max PIK)		1.0%	11/15/21			11,790			9,697			9,874
Diamond Resorts International Inc	(r)(s)	Consumer Services	L+375		1.0%	9/2/23			26,866			24,919			25,120
Distribution International Inc	(r)(s)	Retailing	L+500		1.0%	12/15/21			370			326			329
Eagle Family Foods Inc	(j)	Food, Beverage & Tobacco	L+650		1.0%	6/14/23			3,507			3,472			2,989
Eagle Family Foods Inc	(f)	Food, Beverage & Tobacco	L+650		1.0%	6/14/24			23,263			23,020			22,907
Eagleclaw Midstream Ventures LLC	(r)(s)	Energy	L+425		1.0%	6/24/24			578			541			542
Empire Today LLC	(f)(g)	Retailing	L+700		1.0%	11/17/22			44,100			44,100			44,180
Fairway Group Holdings Corp	(k)(l)(r)(t)	Food & Staples Retailing	10.0% PIK (10.0% Max PIK)			11/27/23			4,437			3,916			582
Fairway Group Holdings Corp	(t)	Food & Staples Retailing	12.0% PIK (12.0% Max PIK)			11/27/23			6,942			6,942			6,742
Fairway Group Holdings Corp	(t)	Food & Staples Retailing	4.0%, 11.0% PIK (11.0% Max PIK)			8/28/23			480			473			480
Fairway Group Holdings Corp	(j)(t)	Food & Staples Retailing	4.0%, 11.0% PIK (11.0% Max PIK)			8/28/23			1,028			1,028			1,028
Fairway Group Holdings Corp	(t)	Food & Staples Retailing	4.0%, 11.0% PIK (11.0% Max PIK)			8/28/23			2,417			2,273			2,417
FHC Health Systems Inc	(r)(s)	Health Care Equipment & Services	L+400		1.0%	12/23/21			8,837			7,306			7,379
Foresight Energy LLC	(i)(r)(s)	Materials	L+575		1.0%	3/28/22			4,925			4,824			4,847
Fox Head Inc	(f)	Consumer Durables & Apparel	L+850		1.0%	12/19/20			652			652			644
Fox Head Inc	(f)	Consumer Durables & Apparel	L+850		1.0%	12/19/20			6,097			6,097			6,022
FullBeauty Brands Holdings Corp	(l)(r)	Retailing	L+475		1.0%	10/14/22			8,116			2,421			2,471
Gulf Finance LLC	(h)(r)(s)	Energy	L+525		1.0%	8/25/23			14,061			11,639			10,845
HM Dunn Co Inc	(k)(l)(t)	Capital Goods	L+875 PIK (L+875 Max PIK)			6/30/21			6,583			5,786			1,053
Hudson Technologies Co	(g)(i)	Commercial & Professional Services	L+1025		1.0%	10/10/23			7,889			7,822			5,641
Icynene Group Ltd	(f)(g)(h)	Materials	L+700		1.0%	11/30/24			76,230			76,230			74,126
Industrial Group Intermediate Holdings LLC	(g)	Materials	L+800		1.3%	5/31/20			9,787			9,787			9,726
Intelsat Jackson Holdings SA	(i)(r)(s)	Media	L+375		1.0%	11/27/23			13,508			13,093			13,137
Ivanti Software Inc	(r)(s)	Software & Services	L+425		1.0%	1/20/24			777			753			757
JAKKS Pacific Inc		Consumer Durables & Apparel	L+900		1.5%	6/14/21			2,374			2,359			2,383
JC Penney Corp Inc	(i)(r)(s)	Retailing	L+425		1.0%	6/23/23			2,320			1,945			1,992
JHC Acquisition LLC	(f)(g)(h)	Capital Goods	L+750		1.0%	1/29/24			176,168			176,168			176,168
JHC Acquisition LLC	(j)	Capital Goods	L+750		1.0%	1/29/24			21,787			21,786			21,787
Jo-Ann Stores Inc	(r)(s)	Retailing	L+500		1.0%	10/20/23			325			310			310
Jostens Inc	(r)(s)	Consumer Services	L+550			12/19/25			4,152			4,038			4,051

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
JSS Holdings Ltd	(f)(g)	Capital Goods	L+800, 0.0% PIK (2.5% Max PIK)		1.0%	3/31/23		$	65,725		$	65,222		$	67,697
Kodiak BP LLC	(f)(g)(h)	Capital Goods	L+725		1.0%	12/1/24			90,878			90,878			88,947
Kodiak BP LLC	(j)	Capital Goods	L+725		1.0%	12/1/24			10,871			10,871			10,640
Koosharem LLC	(r)(s)	Commercial & Professional Services	L+450		1.0%	4/18/25			1,781			1,802			1,752
Lazard Global Compounders Fund	(i)	Diversified Financials	L+725		3.8%	4/1/26			101,644			101,644			102,406
Lazard Global Compounders Fund	(i)(j)	Diversified Financials	L+725		3.8%	4/1/26			17,606			17,606			17,738
LBM Borrower LLC	(r)(s)	Capital Goods	L+375		1.0%	8/20/22			5,322			4,966			4,983
LD Intermediate Holdings Inc	(r)(s)	Software & Services	L+588		1.0%	12/9/22			9,500			8,503			8,621
Mitel US Holdings Inc	(r)(s)	Technology Hardware & Equipment	L+450			11/30/25			8,781			8,495			8,534
Monitronics International Inc	(i)(r)(s)	Commercial & Professional Services	L+550		1.0%	9/30/22			4,350			3,915			3,901
Murray Energy Corp		Energy	L+900		1.0%	2/12/21			9,258			9,199			9,216
NaviHealth Inc.	(r)(s)	Health Care Equipment & Services	L+500			8/1/25			1,054			1,020			997
Navistar Inc	(i)(r)(s)	Automobiles & Components	L+350			11/6/24			1,012			972			979
North Haven Cadence Buyer Inc	(j)	Consumer Services	L+500		1.0%	9/2/21			750			750			750
North Haven Cadence Buyer Inc	(f)(g)	Consumer Services	L+777		1.0%	9/2/24			18,853			18,853			18,665
North Haven Cadence Buyer Inc	(j)	Consumer Services	L+650		1.0%	9/2/24			3,000			3,000			2,970
P2 Energy Solutions, Inc.	(r)(s)	Energy	L+400		1.3%	10/30/20			253			244			245
Peak 10 Holding Corp	(r)(s)	Telecommunication Services	L+325		1.0%	8/1/24			823			751			751
PF Chang’s China Bistro Inc	(r)(s)	Consumer Services	L+500		1.0%	9/1/22			359			347			350
PHRC License LLC	(f)	Consumer Services	L+850, 0.3% PIK (0.3% Max PIK)		1.5%	4/28/22			16,710			16,710			17,066
Power Distribution Inc		Capital Goods	L+725		1.3%	1/25/23			19,565			19,565			19,565
Production Resource Group LLC	(f)(h)	Media	L+700		1.0%	8/21/24			173,008			173,008			169,980
Propulsion Acquisition LLC	(f)(h)(r)	Capital Goods	L+600		1.0%	7/13/21			60,292			59,251			59,689
PSKW LLC	(f)(g)(h)	Health Care Equipment & Services	L+850		1.0%	11/25/21			172,364			172,234			172,800
Reliant Rehab Hospital Cincinnati LLC	(g)	Health Care Equipment & Services	L+675		1.0%	8/30/24			46,763			46,316			46,623
Roadrunner Intermediate Acquisition Co LLC	(f)(g)(h)	Health Care Equipment & Services	L+675		1.0%	3/15/23			94,042			94,042			87,587
Rogue Wave Software Inc	(f)(g)(h)	Software & Services	L+843		1.0%	9/25/21			151,900			151,900			151,710
Safariland LLC	(f)	Capital Goods	L+765		1.1%	11/18/23			42,893			42,893			38,443
Savers Inc	(r)(s)	Retailing	L+375		1.3%	7/9/19			2,964			2,823			2,838
Sequa Corp	(r)(s)	Materials	L+500		1.0%	11/28/21			3,672			3,493			3,520
Sequel Youth & Family Services LLC	(g)	Health Care Equipment & Services	L+700		1.0%	9/1/23			2,271			2,271			2,311
Sequel Youth & Family Services LLC	(f)	Health Care Equipment & Services	L+800			9/1/23			13,000			13,000			13,231
Sequential Brands Group Inc.	(f)(g)(h)	Consumer Durables & Apparel	L+875			2/7/24			97,853			96,047			97,853
SI Group Inc	(r)(s)	Materials	L+475			10/15/25			527			507			508

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
SIRVA Worldwide Inc	(r)(s)	Commercial & Professional Services	L+550			8/2/25		$	329		$	322		$	323
Sorenson Communications LLC	(f)(r)(s)	Telecommunication Services	L+575		2.3%	4/30/20			45,216			45,008			45,047
Spencer Gifts LLC	(r)(s)	Retailing	L+425		1.0%	7/16/21			14,530			13,786			13,895
SSC (Lux) Limited S.a r.l.	(f)(g)(i)	Health Care Equipment & Services	L+750		1.0%	9/10/24			60,820			60,820			61,428
Strike LLC	(r)(s)	Energy	L+800		1.0%	11/30/22			3,155			3,092			3,159
Sungard Availability Services Capital Inc	(f)(h)(r)(s)	Software & Services	L+700		1.0%	9/30/21			29,092			28,129			24,845
Sungard Availability Services Capital Inc	(r)	Software & Services	L+1000		1.0%	10/1/22			2,404			2,295			2,333
Sutherland Global Services Inc	(i)(r)(s)	Software & Services	L+538		1.0%	4/23/21			9,728			9,120			9,185
Sutherland Global Services Inc	(i)(r)(s)	Software & Services	L+538		1.0%	4/23/21			2,265			2,123			2,138
Swift Worldwide Resources Holdco Ltd		Energy	L+1000, 1.0% PIK (1.0% Max PIK)		1.0%	7/20/21			17,228			17,228			17,228
Tangoe LLC		Software & Services	L+650		1.0%	11/28/25			44,220			43,784			43,778
Trace3 Inc	(f)(g)	Diversified Financials	L+675		1.0%	8/5/24			37,578			37,578			37,202
Virgin Pulse Inc	(f)(g)(h)	Software & Services	L+650		1.0%	5/22/25			67,908			67,397			65,796
Vivint Inc	(r)(s)	Commercial & Professional Services	L+500			4/1/24			13,215			12,842			12,880
Warren Resources Inc	(g)(t)	Energy	L+1000, 1.0% PIK (1.0% Max PIK)		1.0%	5/22/20			6,176			6,176			6,176
West Corp	(r)(s)	Software & Services	L+350		1.0%	10/10/24			522			478			478
West Corp	(r)(s)	Software & Services	L+400		1.0%	10/10/24			15,811			14,507			14,566
Westbridge Technologies Inc	(r)(s)	Technology Hardware & Equipment	L+850		1.0%	4/28/23			25,441			25,470			25,505
York Risk Services Group Inc	(r)(s)	Insurance	L+375		1.0%	10/1/21			7,619			7,146			7,145
Zeta Interactive Holdings Corp	(g)(h)	Software & Services	L+750		1.0%	7/29/22			62,929			62,929			63,559
Zeta Interactive Holdings Corp	(j)	Software & Services	L+750		1.0%	7/29/22			11,143			11,143			11,254
Total Senior Secured Loans—First Lien												2,769,596			2,726,860
Unfunded Loan Commitments												(87,456)			(87,456)
Net Senior Secured Loans—First Lien												2,682,140			2,639,404
Senior Secured Loans—Second Lien—13.3%
Advantage Sales & Marketing Inc	(r)(s)	Commercial & Professional Services	L+650		1.0%	7/25/22			4,413			3,447			3,496
American Bath Group LLC	(r)(s)	Capital Goods	L+975		1.0%	9/30/24			314			312			312
Ammeraal Beltech Holding BV	(i)	Capital Goods	L+800			7/27/26			44,463			43,592			43,505
Arena Energy LP	(f)(g)	Energy	L+900, 4.0% PIK (4.0% Max PIK)		1.0%	1/24/21			25,872			25,872			25,872
Bellatrix Exploration Ltd	(i)	Energy	8.5%			7/26/23			3,744			3,744			3,733
Bellatrix Exploration Ltd	(i)(j)	Energy	8.5%			7/26/23			1,248			1,248			1,244
Bellatrix Exploration Ltd	(i)	Energy	8.5%			7/26/23			9,000			8,151			7,958

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Byrider Finance LLC		Automobiles & Components	L+1000, 0.5% PIK (4.0% Max PIK)		1.3%	8/22/20		$	5,939		$	5,939		$	5,828
CDS US Intermediate Holdings Inc	(f)(i)(r)(s)	Media	L+825		1.0%	7/10/23			18,000			16,110			15,030
Centric Group LLC	(r)(s)	Retailing	L+800		1.0%	2/1/24			2,215			2,176			2,184
Chisholm Oil & Gas Operating LLC		Energy	L+800		1.0%	3/21/24			16,000			16,000			15,811
Crossmark Holdings Inc	(k)(l)(r)	Media	L+750		1.3%	12/21/20			1,500			1,340			60
Fairway Group Holdings Corp	(k)(l)(r)(t)	Food & Staples Retailing	11.0% PIK (11.0% Max PIK)			2/24/24			3,941			3,436			—
Grocery Outlet Inc	(r)(s)	Food & Staples Retailing	L+725			10/22/26			271			270			269
Gruden Acquisition Inc	(h)(r)	Transportation	L+850		1.0%	8/18/23			10,000			9,703			10,025
Jazz Acquisition Inc	(r)(s)	Capital Goods	L+675		1.0%	6/19/22			4,498			4,317			4,206
LBM Borrower LLC	(r)(s)	Capital Goods	L+925		1.0%	8/20/23			19,910			19,437			19,512
One Call Care Management Inc	(g)(h)	Insurance	L+375, 6.0% PIK (6.0% Max PIK)			4/11/24			2,772			2,747			2,655
OPE Inmar Acquisition Inc	(r)(s)	Software & Services	L+800		1.0%	5/1/25			15,000			15,000			14,850
Paradigm Acquisition Corp	(r)(s)	Health Care Equipment & Services	L+750			10/26/26			190			190			190
Peak 10 Holding Corp	(r)(s)	Telecommunication Services	L+725		1.0%	8/1/25			7,902			7,177			7,132
Pure Fishing Inc		Consumer Durables & Apparel	L+838		1.0%	12/31/26			39,804			39,408			39,406
Rise Baking Company	(f)	Food, Beverage & Tobacco	L+800		1.0%	8/9/26			15,292			15,145			15,149
Sequa Corp	(r)(s)	Materials	L+900		1.0%	4/28/22			5,204			4,905			4,944
SIRVA Worldwide Inc	(r)(s)	Commercial & Professional Services	L+950			8/2/26			2,826			2,402			2,501
SMG/PA	(r)(s)	Consumer Services	L+700			1/23/26			942			928			931
Spencer Gifts LLC	(g)(h)(r)	Retailing	L+825		1.0%	6/29/22			37,000			36,963			31,635
TierPoint LLC	(r)(s)	Software & Services	L+725		1.0%	5/5/25			7,000			6,589			6,646
Titan Energy LLC	(g)(k)(l)	Energy	L+1300 PIK (L+1300 Max PIK)		1.0%	2/23/20			44,037			33,111			4,096
UTEX Industries Inc	(r)	Energy	L+725		1.0%	5/20/22			1,273			1,269			1,101
Winebow Group LLC/The	(r)(s)	Food & Staples Retailing	L+750		1.0%	1/2/22			4,912			2,456			2,701
WireCo WorldGroup Inc	(r)(s)	Capital Goods	L+900		1.0%	9/30/24			606			605			608
Total Senior Secured Loans—Second Lien												333,989			293,590
Unfunded Loan Commitments												(1,248)			(1,248)
Net Senior Secured Loans—Second Lien												332,741			292,342
Other Senior Secured Debt—4.2%
APTIM Corp	(r)	Diversified Financials	7.8%			6/15/25			13,174			13,174			9,963
Avantor Inc	(r)	Pharmaceuticals, Biotechnology & Life Sciences	6.0%			10/1/24			1,361			1,361			1,339
Black Swan Energy Ltd	(i)	Energy	9.0%			1/20/24			1,333			1,333			1,286
Boyne USA Inc	(e)(r)	Consumer Services	7.3%			5/1/25			54			56			56
Diamond Resorts International Inc	(h)(r)	Consumer Services	7.8%			9/1/23			11,965			11,965			11,544

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor	Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
DJO Finance LLC / DJO Finance Corp	(e)(r)	Health Care Equipment & Services	8.1%		6/15/21		$	4,580		$	4,611		$	4,729
Genesys Telecommunications Laboratories Inc	(r)	Technology Hardware & Equipment	10.0%		11/30/24			1,409			1,556			1,482
Global A&T Electronics Ltd	(i)(r)	Semiconductors & Semiconductor Equipment	8.5%		1/12/23			7,120			7,181			6,319
JC Penney Corp Inc	(e)(i)(r)	Retailing	5.7%		6/1/20			143			133			115
JW Aluminum Co	(r)	Materials	10.3%		6/1/26			759			759			757
Lycra	(e)(i)(r)	Consumer Durables & Apparel	7.5%		5/1/25			4,284			4,320			4,032
Numericable-SFR	(e)(i)(r)	Software & Services	8.1%		2/1/27			1,767			1,767			1,674
Pattonair Holdings Ltd	(e)(i)	Capital Goods	9.0%		11/1/22			4,660			4,821			4,708
Ply Gem Holdings Inc	(e)(r)	Capital Goods	8.0%		4/15/26			3,697			3,611			3,401
Sorenson Communications LLC	(r)	Telecommunication Services	9.0%, 0.0% PIK (9.0% Max PIK)		10/31/20			11,820			11,634			11,702
Sunnova Energy Corp		Energy	6.0%, 6.0% PIK (6.0% Max PIK)		7/31/19			1,685			1,685			1,674
Talos Production LLC	(r)	Energy	11.0%		4/3/22			4,500			4,698			4,376
Velvet Energy Ltd	(i)	Energy	9.0%		10/5/23			4,500			4,500			4,536
Vivint Inc	(e)(r)	Commercial & Professional Services	7.6%		9/1/23			8,911			8,142			7,292
Vivint Inc	(e)(h)(r)	Commercial & Professional Services	7.9%		12/1/22			12,886			12,753			12,210
Total Other Senior Secured Debt											100,060			93,195
Subordinated Debt—15.9%
Akzo Nobel Specialty Chemicals	(e)(i)(r)	Materials	8.0%		10/1/26			2,288			2,288			2,142
All Systems Holding LLC		Commercial & Professional Services	10.0% PIK (10.0% Max PIK)		10/31/22			100			100			100
Ascent Resources Utica Holdings LLC / ARU Finance Corp	(e)(r)	Energy	10.0%		4/1/22			19,500			19,500			19,957
Avantor Inc	(g)(h)(r)	Pharmaceuticals, Biotechnology & Life Sciences	9.0%		10/1/25			52,500			52,502			52,533
Byrider Finance LLC		Automobiles & Components	20.0% PIK (20.0% Max PIK)		3/31/22			292			292			292
Calumet Specialty Products	(e)(i)(r)	Energy	7.8%		4/15/23			10,300			10,252			8,000
Canbriam Energy Inc	(e)(i)(r)	Energy	7.8%		4/15/23			18,550			18,517			16,278
CEC Entertainment Inc	(g)(r)	Consumer Services	8.0%		2/15/22			37,261			36,294			33,535
ClubCorp Club Operations Inc	(e)(r)	Consumer Services	8.5%		9/15/25			12,478			12,036			11,230
Diamond Resorts International Inc	(e)(r)	Consumer Services	10.8%		9/1/24			3,453			3,615			3,117
Eclipse Resources Corp	(e)(i)(r)	Energy	8.9%		7/15/23			9,175			9,049			7,879
Exterran Energy Solutions LP / EES Finance Corp	(i)(r)	Energy	8.1%		5/1/25			4,114			4,114			3,966
Great Lakes Dredge & Dock Corp	(e)(i)(r)	Capital Goods	8.0%		5/15/22			4,896			4,899			4,978
Intelsat Jackson Holdings SA	(e)(i)	Media	5.5%		8/1/23			3,577			3,240			3,145

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Ken Garff Automotive LLC	(e)(r)	Retailing	7.5%			8/15/23		$	4,039		$	4,048		$	4,009
Lazard Global Compounders Fund	(i)(j)	Diversified Financials	L+650		4.5%	9/15/25			39,750			39,750			38,907
LifePoint Hospitals Inc	(e)(r)	Health Care Equipment & Services	9.8%			12/1/26			6,248			6,248			5,953
Logan’s Roadhouse Inc	(k)	Consumer Services				11/1/24			1,317			1,304			1,303
PF Chang’s China Bistro Inc	(g)(h)(r)	Consumer Services	10.3%			6/30/20			43,108			42,908			39,363
PriSo Acquisition Corp	(e)(g)(r)	Capital Goods	9.0%			5/15/23			47,859			47,559			48,906
Quorum Health Corp	(e)(r)	Health Care Equipment & Services	11.6%			4/15/23			2,816			2,806			2,684
Sorenson Communications LLC	(g)(r)	Telecommunication Services	13.9%, 0.0% PIK (13.9% Max PIK)			10/31/21			8,983			9,244			9,208
SRS Distribution Inc	(e)(r)	Capital Goods	8.3%			7/1/26			13,222			13,087			12,164
Stars Group Holdings BV	(e)(i)(r)	Consumer Services	7.0%			7/15/26			2,770			2,770			2,692
Sungard Availability Services Capital Inc	(g)(r)	Software & Services	8.8%			4/1/22			16,400			12,880			3,676
Surgery Partners Holdings LLC	(e)(r)	Health Care Equipment & Services	6.8%			7/1/25			2,215			2,113			1,918
Team Health Inc	(e)(r)	Health Care Equipment & Services	6.4%			2/1/25			9,254			8,187			7,553
Vertiv Group Corp	(e)(r)	Technology Hardware & Equipment	9.3%			10/15/24			18,690			18,316			16,634
Vivint Inc	(e)(h)(r)	Commercial & Professional Services	8.8%			12/1/20			4,406			4,135			4,202
York Risk Services Group Inc	(g)(h)(r)	Insurance	8.5%			10/1/22			36,050			34,162			25,235
Total Subordinated Debt												426,215			391,559
Unfunded Loan Commitments												(39,750)			(39,750)
Net Subordinated Debt												386,465			351,809

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor	Maturity	Principal Amount(c)/ Shares			Amortized Cost			Fair Value(d)
Asset Based Finance—7.6%
Altus Power America Inc, Preferred Stock	(o)	Energy	9.0%, 5.0% PIK		10/3/23			1,060,975		$	1,061		$	1,045
Australis Maritime, Private Equity	(i)(k)	Transportation						966			966			966
Global Jet Capital LLC, Preferred Stock	(k)	Commercial & Professional Services						34,893,581			34,894			4,885
Global Jet Capital LLC, Preferred Stock	(i)(k)	Commercial & Professional Services						7,590,835			7,591			1,063
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		1/30/25		$	986			971			986
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		4/30/25		$	6,267			6,175			6,267
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		9/3/25		$	1,295			1,276			1,295
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		9/29/25		$	1,219			1,201			1,219
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/4/25		$	65,587			64,612			65,587
Global Jet Capital LLC, Structured Mezzanine	(i)	Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/4/25		$	15,402			15,181			15,402
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/9/25		$	1,976			1,942			1,976
Global Jet Capital LLC, Structured Mezzanine	(i)	Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/9/25		$	11,270			11,108			11,270

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor	Maturity	Principal Amount(c)/ Shares			Amortized Cost			Fair Value(d)
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		1/29/26		$	5,622		$	5,539		$	5,622
Global Jet Capital LLC, Structured Mezzanine	(i)	Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		1/29/26		$	1,314			1,295			1,314
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		2/17/26		$	16,960			16,709			16,960
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		4/14/26		$	10,503			10,348			10,503
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/2/26		$	15,523			15,294			15,523
NewStar Clarendon 2014-1A Class Subord. B	(i)	Diversified Financials	L+435		1/25/27		$	730			698			727
NewStar Clarendon 2014-1A Class D	(i)	Diversified Financials	13.2%		1/25/27		$	8,310			5,310			5,928
Total Asset Based Finance											202,171			168,538

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor	Maturity	Number of Shares		Cost			Fair Value(d)
Equity/Other—3.0%
5 Arch Income Fund 2, LLC, Common Stock	(i)(m)	Diversified Financials					56,000		$	1,381		$	2,800
All Systems Holding LLC, Common Stock		Commercial & Professional Services					60			581			670
Altus Power America Inc, Common Stock	(k)	Energy					462,008			462			81
ASG Technologies, Warrants	(k)	Software & Services			6/27/22		48,325			1,377			1,403
Aspect Software Inc, Common Stock	(k)(t)	Software & Services					108,806			28,097			—
ATX Networks Corp, Common Stock	(i)(k)	Technology Hardware & Equipment					83,488			134			65
Byrider Finance LLC, Common Stock	(k)	Automobiles & Components					278			—			—
Chisholm Oil & Gas Operating LLC, Series A Units	(k)(m)	Energy					75,000			75			32
CSafe Global, Common Stock	(k)	Capital Goods					173,900			174			243
Empire Today LLC, Common Stock	(k)	Retailing					206			614			595
Fairway Group Holdings Corp, Common Stock	(k)(t)	Food & Staples Retailing					71,465			2,296			—
Fox Head Inc, Common Stock	(k)	Consumer Durables & Apparel					11,429			11			5
Fox Head Inc, Common Stock	(k)	Consumer Durables & Apparel					1,131,428			1,131			504
Harvest Oil & Gas Corp, Common Stock	(k)(r)	Energy					59,445			1,308			1,069
Harvey Industries Inc, Common Stock	(k)	Capital Goods					2,000,000			2,000			4,050
HM Dunn Co Inc, Preferred Stock, Series A	(k)(t)	Capital Goods					1,929			—			—
HM Dunn Co Inc, Preferred Stock, Series B	(k)(t)	Capital Goods					1,929			—			—
Industrial Group Intermediate Holdings LLC, Common Stock	(k)(m)	Materials					220,619			221			132
JHC Acquisition LLC, Common Stock	(k)	Capital Goods					8,068			8,068			10,831
JSS Holdings Ltd, Net Profits Interest	(k)	Capital Goods					—			—			426
JW Aluminum Co, Common Stock	(k)	Materials					41			—			—
JW Aluminum Co, Preferred Stock		Materials	12.5% PIK		11/17/2025		1,087			4,836			9,041
North Haven Cadence Buyer Inc, Common Equity	(k)	Consumer Services					833,333			833			1,271
Power Distribution Inc, Common Stock	(k)	Capital Goods					923,077			923			485

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor	Maturity	Number of Shares		Cost			Fair Value(d)
Ridgeback Resources Inc, Common Stock	(i)(k)(q)	Energy					827,156		$	5,082		$	4,092
Sequential Brands Group Inc., Common Stock	(k)(r)	Consumer Durables & Apparel					125,391			1,693			100
SSC (Lux) Limited S.a r.l., Common Stock	(i)(k)	Health Care Equipment & Services					113,636			2,273			2,784
Sunnova Energy Corp, Common Stock	(k)	Energy					577,086			2,166			—
Sunnova Energy Corp, Preferred Stock	(k)	Energy					105,341			561			578
Templar Energy LLC, Common Stock	(k)(m)(r)	Energy					129,829			1,103			81
Templar Energy LLC, Preferred Stock	(k)(r)	Energy					86,061			859			258
Titan Energy LLC, Common Stock	(k)(r)	Energy					72,739			2,299			22
Trace3 Inc, Common Stock		Diversified Financials					7,725			77			143
Warren Resources Inc, Common Stock	(k)(t)	Energy					998,936			4,695			2,347
White Star Petroleum LLC	(k)(m)	Energy					1,738,244			1,477			565
Zeta Interactive Holdings Corp, Preferred Stock, Series E-1	(k)	Software & Services					1,051,348			8,357			11,053
Zeta Interactive Holdings Corp, Preferred Stock, Series F	(k)	Software & Services					956,233			8,357			9,862
Zeta Interactive Holdings Corp, Warrant	(k)	Software & Services			4/20/2027		143,435			—			407
Total Equity/Other										93,521			65,995
TOTAL INVESTMENTS—163.6%									$	3,797,098			3,611,283
LIABILITIES IN EXCESS OF OTHER ASSETS—(63.6%)													(1,404,312)
NET ASSETS—100.0%												$	2,206,971

Total Return Swap																		Notional Amount									Unrealized Depreciation
Citibank TRS Facility (Note 8)			(i)																$	145,371								$	(22,062)

A summary of outstanding financial instruments as of December 31, 2018 is as follows:

Interest rate swaps

Counterparty	Notional Amount	Company Receives Floating Rate	Company Pays Fixed Rate	Termination Date		Premiums Paid/(Received)			Value			Unrealized Depreciation
JP Morgan Chase Bank	$120,000	3-Month LIBOR	2.78%		12/18/2023		$	—		$	(1,636)		$	(1,636)
JP Morgan Chase Bank	$120,000	3-Month LIBOR	2.81%		12/18/2021			—			(978)			(978)
							$	—		$	(2,614)		$	(2,614)

(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, 2018, the three-month London Interbank Offered Rate, or LIBOR or L, was 2.81% and the U.S. Prime Lending Rate, or Prime, was 5.50%. PIK means paid-in-kind.

(c)

Denominated in U.S. dollars unless otherwise noted.

(d)

Fair value determined by the Company’s board of directors (see Note 8).

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

(e)

(f)

(g)

(h)

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 9).

(i)

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, 2018, 84.3% of the Company’s total assets represented qualifying assets. In addition, as described in Note 9, 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, 83.7% of the Company’s total assets represented qualifying assets as of December 31, 2018.

(j)

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.

(k)

Security is non-income producing.

(l)

Security was on non-accrual status as of December 31, 2018.

(m)

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

(n)

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

(o)

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

(p)

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 9). As of December 31, 2018, the fair value of securities rehypothecated by BNPP was $114,799.

(q)

Investment denominated in Canadian dollars. Cost and fair value are converted into U.S. dollars at an exchange rate of CAD $1.00 to USD $0.73 as of December 31, 2018.

(r)

Security is classified as Level 1 or 2 in the Company’s fair value hierarchy (see Note 8).

(s)

Position or portion thereof unsettled as of December 31, 2018.

(t)

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, 2018, the Company held investments in 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” for the year ended December 31, 2018:

Portfolio Company	Fair Value at December 31, 2017			Transfers In or Out			Purchases and Paid-in- Kind Interest			Sales and Repayments			Accretion of Discount			Net Realized Gain (Loss)			Net Change in Unrealized Appreciation (Depreciation)			Fair Value at December 31, 2018			Interest Income			PIK Income			Fee Income
Senior Secured Loans—First Lien
Aspect Software, Inc.		$	5,004		$	—		$	—		$	(5,004)		$	—		$	—		$	—		$	—		$	286		$	—		$	6
Aspect Software, Inc.			9,156			—			195			(371)			—			—			(1,652)			7,328			1,144			195			293
Aspect Software, Inc.(1)			(1,822)			—			1,822			(1,822)			—			—			1,822			—			22			—			4
Aspect Software, Inc.			—			—			13,195			(157)			—			—			(3,297)			9,741			718			295			2
Aspect Software, Inc.			—			—			280			(283)			1			2			—			—			4			—			—
Fairway Group Acquisition Co.			6,159			—			783			—			—			—			(200)			6,742			786			783			—
Fairway Group Acquisition Co.			903			—			—			—			—			—			(321)			582			—			—			—
Fairway Group Acquisition Co.(2)			—			—			473			—			—			—			7			480			24			17			101
Fairway Group Acquisition Co.			—			—			2,382			(116)			7			—			144			2,417			124			87			—
H.M. Dunn Co., Inc.			—			9,643			—			—			—			(3,857)			(4,733)			1,053			279			—			—
Warren Resources, Inc.			18,372			—			76			(11,824)			—			—			(448)			6,176			891			76			473

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company	Fair Value at December 31, 2017			Transfers In or Out			Purchases and Paid-in- Kind Interest			Sales and Repayments			Accretion of Discount			Net Realized Gain (Loss)			Net Change in Unrealized Appreciation (Depreciation)			Fair Value at December 31, 2018			Interest Income			PIK Income			Fee Income
Senior Secured Loans—Second Lien
Fairway Group Acquisition Co.		$	795		$	—		$	—		$	—		$	—		$	—		$	(795)		$	—		$	—		$	—		$	—
Equity/Other
Aspect Software Parent, Inc., Common Equity			—			—			—			—			—			(25,711)			25,711			—			—			—			—
Fairway Group Holdings Corp., Common Equity			—			—			—			—			—			—			—			—			—			—			—
HM Dunn Aerosystems, Inc. Preferred Equity, Series A			—			—			—			—			—			—			—			—			—			—			—
HM Dunn Aerosystems, Inc. Preferred Equity, Series B			—			—			—			—			—			—			—			—			—			—			—
Warren Resources, Inc., Common Equity			1,698			—			—			—			—			—			649			2,347			—			—			—
Total		$	40,265		$	9,643		$	19,206		$	(19,577)		$	8		$	(29,566)		$	16,887		$	36,866		$	4,278		$	1,453		$	879

(1)

Security was an unfunded commitment with an amortized cost of $1,822 and a fair value of $0 as of December 31, 2017.

(2)

Security includes a partially unfunded commitment with an amortized cost of $1,028 and a fair value of $1,028.

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited 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. 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 September 30, 2019, the Company had various wholly-owned subsidiaries, including special-purpose financing subsidiaries and subsidiaries through which it holds interests in portfolio companies. The unaudited consolidated financial statements include both the Company’s accounts and the accounts of its wholly-owned subsidiaries as of September 30, 2019. 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. The Company’s 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. In addition, a portion of the Company’s portfolio may be comprised of equity and equity-related securities, corporate bonds, structured products, other debt securities and derivatives, including total return swaps and credit default swaps.

The Company is externally managed by FS/KKR Advisor, LLC, or the Advisor, pursuant to an investment advisory and administrative services agreement, dated as of April 9, 2018, or the investment advisory and administrative services agreement. On April 9, 2018, GSO / Blackstone Debt Funds Management LLC, or GDFM, resigned as the investment sub-adviser to the Company and terminated the investment sub-advisory agreement, or the investment sub-advisory agreement, between FSIC III Advisor, LLC, or FSIC III Advisor, and GDFM, effective April 9, 2018. In connection with GDFM’s resignation as the investment sub-adviser to the Company, on April 9, 2018, the Company entered into the investment advisory and administrative services agreement, which replaced an amended and restated investment advisory and administrative services agreement, dated August 6, 2014, or the FSIC III Advisor investment advisory and administrative services agreement, by and between the Company and FSIC III Advisor.

On May 31, 2019, the Company entered into an Agreement and Plan of Merger, or the Merger Agreement, with Corporate Capital Trust II, a Delaware statutory trust, or CCT II, FS Investment Corporation II, a Maryland corporation, or FSIC II, FS Investment Corporation IV, a Maryland corporation, or FSIC IV and, collectively with the Company, FSIC II and CCT II, the Funds, NT Acquisition 1, Inc., a Maryland corporation and wholly-owned subsidiary of FSIC II or Merger Sub 1, NT Acquisition 2, Inc., a Delaware corporation and wholly-owned subsidiary of FSIC II, or Merger Sub 2, NT Acquisition 3, Inc., a Maryland corporation and wholly-owned subsidiary of FSIC II, or Merger Sub 3, and the Advisor. The Merger Agreement provides that, subject to the conditions set forth in the Merger Agreement, (i) Merger Sub 1 will merge with and into the Company, with the Company continuing as the surviving company and as a wholly-owned subsidiary of FSIC II, or Merger 1A, and, immediately thereafter, the Company will merge with and into FSIC II, with FSIC II continuing as the surviving company or, together with Merger 1A, Merger 1, (ii) Merger Sub 2 will merge with and into CCT II, with CCT II continuing as the surviving company and as a wholly-owned subsidiary of FSIC II, or Merger 2A, and, immediately thereafter, CCT II will merge with and into FSIC II, with FSIC II continuing as the surviving company or, together with the Merger 2A, Merger 2, and (iii) Merger Sub 3 will merge with and into FSIC IV, with FSIC IV continuing as the surviving company and as a wholly-owned subsidiary of FSIC II, or Merger 3A, and, immediately thereafter, FSIC IV will merge with and into FSIC II, with FSIC II continuing as the surviving company or, together with the Merger 3A, Merger 3 and, collectively with Merger 1 and Merger 2, the Mergers. See Note 12 for additional information.

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 2. Summary of Significant Accounting Policies

Basis of Presentation: The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For a more complete discussion of significant accounting policies and certain other information, the Company’s interim unaudited consolidated financial statements should be read in conjunction with its audited consolidated financial statements as of and for the year ended December 31, 2018 included in the Company’s annual report on Form 10-K for the year ended December 31, 2018. Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The December 31, 2018 consolidated balance sheet and consolidated schedule of investments are derived from the Company’s audited consolidated financial statements as of and for the year ended December 31, 2018. The Company is considered an investment company under GAAP and follows the accounting and reporting guidance applicable to investment companies under Accounting Standards Codification, or ASC, Topic 946, Financial Services—Investment Companies.

Use of Estimates: The preparation of the unaudited 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.

Capital Gains Incentive Fee: Pursuant to the terms of the investment advisory and administrative services agreement, the incentive fee on capital gains is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory and administrative services agreement). This fee equals 20.0% of the Company’s incentive fee capital gains, which equals the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any capital gain incentive fees previously paid by the Company. On a quarterly basis, the Company accrues for the capital gains incentive fee by calculating such fees as if it were due and payable as of the end of such period. 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 the Advisor if the Company’s entire portfolio was liquidated at its fair value as of the balance sheet date even though the Advisor is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.

The Company “looks through” its total return swap, or TRS, between its wholly-owned financing subsidiary Center City Funding LLC, or Center City Funding, and Citibank, N.A., or Citibank, in calculating the capital gains incentive fee. Under this 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 the 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 the Advisor with respect to realized gains. See Note 9 for additional information regarding the Company’s TRS.

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 2. Summary of Significant Accounting Policies (continued)

Subordinated Income Incentive Fee: Pursuant to the terms of the investment advisory and administrative services agreement, the Advisor may also be entitled to receive a subordinated incentive fee on income. The subordinated incentive fee on income under the investment advisory and administrative services agreement, 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 1.75% per quarter (1.875% under the FSIC III Advisor investment advisory and administrative services agreement), or an annualized hurdle rate of 7.0% (7.5% under the FSIC III Advisor investment advisory and administrative services agreement). For purposes of this fee, “adjusted capital” means cumulative gross proceeds generated from sales of the Company’s common stock (including proceeds from its distribution reinvestment plan) reduced for distributions paid to stockholders from proceeds of non-liquidating dispositions of the Company’s investments and amounts paid for share repurchases pursuant to the Company’s share repurchase program. As a result, the 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 1.75% (1.875% under the FSIC III Advisor investment advisory and administrative services agreement). Once the Company’s pre-incentive fee net investment income in any quarter exceeds the hurdle rate, the 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 2.1875%, or 8.75% annually (2.34375%, or 9.375% annually under the FSIC III Advisor investment advisory and administrative services agreement), of the Company’s adjusted capital. Thereafter, the Advisor will be entitled to receive 20.0% of pre-incentive fee net investment income.

Reclassifications: Certain amounts in the unaudited consolidated financial statements as of and for the three and nine months ended September 30, 2018 and the audited consolidated financial statements as of and for the year ended December 31, 2018 may have been reclassified to conform to the classifications used to prepare the unaudited consolidated financial statements as of and for the three and nine months ended September 30, 2019.

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. Distributions received from limited liability company (“LLC”) and limited partnership (“LP”) investments are evaluated to determine if the distribution should be recorded as dividend income or a return of capital. The Company does not accrue as a receivable interest or dividends on loans and securities if it has reason to doubt its ability to collect such income. The Company’s policy is to place investments on non-accrual status when there is reasonable doubt that interest income will be collected. The Company considers many factors relevant to an investment when placing it on or removing it from non-accrual status including, but not limited to, the delinquency status of the investment, economic and business conditions, the overall financial condition of the underlying investment, the value of the underlying collateral, bankruptcy status, if any, and any other facts or circumstances relevant to the investment. If there is reasonable doubt that the Company will receive any previously accrued interest, then the interest income will be written-off. Payments received on non-accrual investments may be recognized as income or applied to principal depending upon the collectability of the remaining principal and interest. Non-accrual investments may be restored to accrual status when principal and interest become current and are likely to remain current based on the Company’s judgment.

Loan origination fees, original issue discount and market discount are capitalized and the Company amortizes such amounts as interest income over the respective term of the loan or security. Upon the prepayment of a loan or security, any unamortized loan origination fees and original issue discount are

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FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 2. Summary of Significant Accounting Policies (continued)

recorded as interest income. Structuring and other non-recurring upfront fees are recorded as fee income when earned. For the nine months ended September 30, 2019, the Company recognized $8,367 in structuring fee revenue. The Company records prepayment premiums on loans and securities as fee income when it receives such amounts.

Derivative Instruments: The Company recognizes all derivative instruments as assets or liabilities at fair value in its consolidated financial statements. Derivative contracts entered into by the Company are not designated as hedging instruments, and as a result, the Company presents changes in fair value through net change in unrealized appreciation (depreciation) on derivative instruments in the consolidated statements of operations. Realized gains and losses that occur upon the cash settlement of the derivative instruments are included in net realized gains (losses) on derivative instruments in the condensed consolidated statements of operations. As of September 30, 2019, the Company’s derivative instruments included interest rate swaps.

Recent Accounting Pronouncements: In August 2018, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820)—Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13. ASU 2018-13 introduces new fair value disclosure requirements and eliminates and modifies certain existing fair value disclosure requirements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating the impact of ASU 2018-13 on its financial statements.

Note 3. Share Transactions

Below is a summary of transactions with respect to shares of the Company’s common stock during the nine months ended September 30, 2019 and 2018:

	Nine Months Ended September 30,
	2019					2018
	Shares		Amount			Shares		Amount
Reinvestment of Distributions		8,354,855		$	64,344		8,610,947		$	70,953
Share Repurchase Program		(5,722,223)			(44,347)		(8,816,922)			(72,893)
Net Proceeds from Share Transactions		2,632,632		$	19,997		(205,975)		$	(1,940)

During the period from October 1, 2019 to November 8, 2019, the Company issued 935,509 shares of common stock pursuant to its distribution reinvestment plan, or DRP, for gross proceeds of $7,064 and at an average price per share of $7.55. For additional information regarding the terms of the DRP, see Note 5.

Share Repurchase Program

Historically, the Company has conducted quarterly tender offers pursuant to its share repurchase program. The Company’s board of directors considers the following factors, among others, in making its determination regarding whether to cause the Company to offer to repurchase shares of common stock and under what terms:

•

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

•

the liquidity of the Company’s assets (including fees and costs associated with disposing of assets);

•

the Company’s investment plans and working capital requirements;

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FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 3. Share Transactions (continued)

•

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.

Historically, the Company limited the number of shares of common stock to be repurchased during any calendar year to the lesser of (i) the number of shares of common stock that the Company could repurchase with the proceeds it received from the issuance of shares of common stock under the DRP and (ii) 10% of the weighted average number of shares of common stock outstanding in the prior calendar year, or 2.5% in each calendar quarter. On May 10, 2017, the board of directors of the Company amended the share repurchase program. As amended, the Company limits the maximum number of shares of common stock to be repurchased for any repurchase offer to the greater of (A) the number of shares of common stock that the Company can repurchase with the proceeds it has received from the sale of shares of common stock under the DRP during the twelve-month period ending on the date the applicable repurchase offer expires (less the amount of proceeds used to repurchase shares of common stock on each previous repurchase date for repurchase offers conducted during such twelve-month period) (the Company refers to this limitation as the twelve-month repurchase limitation) and (B) the number of shares of common stock that the Company can repurchase with the proceeds it received from the sale of shares of common stock under the DRP during the three-month period ending on the date the applicable repurchase offer expires (the Company refers to this limitation as the three-month repurchase limitation). In addition to this limitation, the maximum number of shares of common stock to be repurchased for any repurchase offer will also be limited 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. As a result, the maximum number of shares of common stock to be repurchased for any repurchase offer will not exceed the lesser of (i) 10% of the weighted average number of shares of common stock outstanding in the prior calendar year, or 2.5% in each calendar quarter, and (ii) whichever is greater of the twelve-month repurchase limitation described in clause (A) above and the three-month repurchase limitation described in clause (B) above. 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. The actual number of shares of common stock that the Company offers to repurchase may be less in light of the limitations noted above. The Company’s board of directors may amend, suspend or terminate the share repurchase program at any time upon 30 days’ notice.

On October 13, 2017, the Company further amended the terms of its share repurchase program, or the amended share repurchase program, which was first effective for the Company’s quarterly repurchase offer for the fourth quarter of 2017. Prior to amending the share repurchase program, the Company offered to repurchase shares of its common stock on a quarterly basis at a repurchase price equal to the institutional offering price in effect on each date of repurchase. Under the amended share repurchase program, the Company offers to repurchase shares of common stock at a price equal to the price at which shares of its common stock are issued pursuant to the DRP on the distribution date coinciding with the applicable share repurchase date. The price at which shares of common stock are issued under the DRP is determined by the Company’s board of directors or a committee thereof, in its sole discretion, and will be (i) not less than the net asset value per share of the Company’s common stock as determined in good faith by the Company’s board of directors or a committee thereof, in its sole discretion, immediately prior to the payment date of the distribution and (ii) not more than 2.5% greater than the net asset value per share as of such date.

In conjunction with the announced Merger Agreement, the Company’s board of directors suspended the Company’s share repurchase program.

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FS Investment Corporation III

Notes to Unaudited 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 nine months ended September 30, 2019 and 2018:

For the Three Months Ended	Repurchase Date	Shares Repurchased		Percentage of Shares Tendered That Were Repurchased		Percentage of Outstanding Shares Repurchased as of the Repurchase Date			Repurchase Price Per Share			Aggregate Consideration for Repurchased Shares
Fiscal 2018
December 31, 2017	January 10, 2018		2,986,249		40%		1.03%			$	8.35		$	24,935
March 31, 2018	April 2, 2018		2,943,198		28%		1.01%			$	8.25			24,281
June 30, 2018	July 2, 2018		2,887,475		19%		0.99%			$	8.20			23,677
Total			8,816,922										$	72,893
Fiscal 2019
December 31, 2018	January 2, 2019		2,899,470		16%		1.00%	��		$	7.75		$	22,471
March 31, 2019	April 1, 2019		2,822,753		13%		0.97%			$	7.75			21,876
June 30, 2019(1)	—		—		—		—				—			—
Total			5,722,223										$	44,347

(1)

The Company suspended its share repurchase program effective May 31, 2019.

Note 4. Related Party Transactions

Compensation of the Investment Adviser and Dealer Manager

Pursuant to the investment advisory and administrative services agreement, the Advisor is entitled to a base management fee calculated at an annual rate of 1.50% of the average weekly value of the Company’s gross assets (gross assets equal the total assets of the Company as set forth on the Company’s consolidated balance sheets) and an incentive fee based on the Company’s performance. The base management fee is payable quarterly in arrears. All or any part of the base management fee not taken as to any quarter will be deferred without interest, and may be taken in such other quarter as the Advisor determines. See Note 2 for a discussion of the capital gains and subordinated income incentive fees that the Advisor may be entitled to under the investment advisory and administrative services agreement.

Pursuant to the FSIC III Advisor investment advisory and administrative services agreement, which was in effect until April 9, 2018, FSIC III Advisor was entitled to an annual base management fee equal to 2.0% of the average weekly value of the Company’s gross assets (gross assets equal the total assets of the Company as set forth on the Company’s consolidated balance sheets) and an incentive fee based on the Company’s performance. Effective February 3, 2017, FSIC III Advisor contractually had agreed to permanently waive 0.25% of the base management fee to which it was entitled under the FSIC III Advisor investment advisory and administrative services agreement, so that the fee received equaled 1.75% of the average weekly value of the Company’s gross assets. Pursuant to the investment sub-advisory agreement, GDFM was entitled to receive 50% of all management and incentive fees payable to FSIC III Advisor under the FSIC III Advisor investment advisory and administrative services agreement with respect to each year.

Pursuant to the investment advisory and administrative services agreement, the Advisor oversees the Company’s day-to-day operations, including the provision of general ledger accounting, fund accounting, legal services, investor relations, certain government and regulatory affairs activities and other

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FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 4. Related Party Transactions (continued)

administrative services. The Advisor also performs, or oversees the performance of, the Company’s corporate operations and required administrative services, which includes being responsible for the financial records that the Company is required to maintain and preparing reports for the Company’s stockholders and reports filed with the U.S. Securities and Exchange Commission, or the SEC. In addition, the Advisor assists the Company in calculating its net asset value, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to the Company’s stockholders, and generally overseeing the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others.

Pursuant to the investment advisory and administrative services agreement, the Company reimburses the Advisor for expenses necessary to perform services related to its administration and operations, including the Advisor’s allocable portion of the compensation and related expenses of certain personnel of Franklin Square Holdings, L.P., which does business as FS Investments, or FS Investments, and KKR Credit Advisors (US), LLC, or KKR Credit, providing administrative services to the Company on behalf of the Advisor. The Company reimburses the Advisor no less than monthly for expenses necessary to perform services related to the Company’s administration and operations. The amount of this reimbursement is set at the lesser of (1) the 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. The Advisor allocates the cost of such services to the Company based on factors such as total assets, revenues, time allocations and/or other reasonable metrics. The Company’s board of directors reviews the methodology employed in determining how the expenses are allocated to the Company and the proposed allocation of administrative expenses among the Company and certain affiliates of the Advisor. The Company’s board of directors then assesses the reasonableness of such reimbursements for expenses allocated to it 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 the Advisor for such services as a percentage of the Company’s net assets to the same ratio as reported by other comparable BDCs. The administrative services provisions of the FSIC III Advisor investment advisory and administrative services agreement were substantially similar to the administrative services provisions of the investment advisory and administrative services agreement.

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FS Investment Corporation III

Notes to Unaudited 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 FSIC III Advisor investment advisory and administrative services agreement and the investment advisory and administrative services agreement, as applicable, during the three and nine months ended September 30, 2019 and 2018:

			Three Months Ended September 30,						Nine Months Ended September 30,
Related Party	Source Agreement	Description	2019			2018			2019			2018
The Advisor and FSIC III Advisor	FS/KKR Advisor Investment Advisory and Administrative Services Agreement and FSIC III Advisor Investment Advisory and Administrative Services Agreement	Base Management Fee(1)		$	14,166		$	13,724		$	43,201		$	44,654
The Advisor and FSIC III Advisor	FS/KKR Advisor Investment Advisory and Administrative Services Agreement and FSIC III Advisor Investment Advisory and Administrative Services Agreement	Subordinated Incentive Fee on Income(2)		$	5,835		$	12,827		$	29,644		$	25,631
The Advisor and FSIC III Advisor	FS/KKR Advisor Investment Advisory and Administrative Services Agreement and FSIC III Advisor Investment Advisory and Administrative Services Agreement	Administrative Services Expenses(3)		$	1,325		$	919		$	2,522		$	2,435

(1)

FSIC III Advisor contractually agreed, effective February 3, 2017, to permanently waive 0.25% of its base management fee to which it was entitled under the FSIC III Advisor investment advisory and administrative services agreement, so that the fee received equaled 1.75% of the average value of the Company’s weekly gross assets. As a result, the amount shown for the nine months ended September 30, 2018 is net of waivers of $2,594. During the nine months ended September 30, 2019 and 2018, $42,335 and $47,945, respectively, in base management fees were paid to the Advisor and/or FSIC III Advisor. As of September 30, 2019, $14,166 in base management fees were payable to the Advisor.

(2)

During the nine months ended September 30, 2019 and 2018, $33,334 and $27,291, respectively, of subordinated incentive fees on income were paid to the Advisor and/or FSIC III Advisor. As of September 30, 2019, a subordinated incentive fee on income of $5,835 was payable to the Advisor.

(3)

During the nine months ended September 30, 2019 and 2018, $1,947 and $2,047, 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 Advisor and the remainder related to other reimbursable expenses, including reimbursement of fees related to transactional expenses for prospective investments, such as fees and expenses associated with performing due diligence reviews of investments that do not close, often referred to as “broken deal” costs. Broken deal costs were $244 for the nine months ended September 30, 2019. The Company paid $1,626 and $1,858 in administrative services expenses to FSIC III Advisor and the Advisor during the nine months ended September 30, 2019 and 2018, respectively.

Potential Conflicts of Interest

The members of the senior management and investment teams of the Advisor serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as the Company does, or of investment vehicles managed by the same personnel. For example, the Advisor is the investment adviser to FS KKR Capital Corp., FS Investment Corporation II, FS Investment Corporation IV and Corporate Capital Trust II, and the officers, managers and other personnel of the Advisor may serve in similar or other capacities for the investment advisers to future investment vehicles affiliated with FS Investments or KKR Credit. In serving in these multiple and other capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in the Company’s best interests or in the best interest of the Company’s stockholders. The Company’s investment objectives may overlap with the investment objectives of such investment funds, accounts or other investment vehicles. For additional information regarding potential conflicts of interest, see the Company’s annual report on Form 10-K for the year ended December 31, 2018.

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FS Investment Corporation III

Notes to Unaudited 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, or the FS Order, the SEC granted exemptive relief permitting the Company, subject to the satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions with certain affiliates of FSIC III Advisor, including FS Energy and Power Fund, FS KKR Capital Corp., FS Investment Corporation II, FS Investment Corporation IV and any future BDCs that are advised by FSIC III Advisor or its affiliated investment advisers. However, in connection with the investment advisory relationship with the Advisor, and in an effort to mitigate potential future conflicts of interest, the Company’s board of directors authorized and directed that the Company (i) withdraw from the FS Order, except with respect to any transaction in which the Company participated in reliance on the FS Order prior to April 9, 2018, and (ii) rely on an exemptive relief order, dated April 3, 2018, that permits the Company, subject to the satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions, including investments originated and directly negotiated by the Advisor or KKR Credit, with certain affiliates of the Advisor.

Note 5. Distributions

The following table reflects the cash distributions per share that the Company declared and paid on its common stock during the nine months ended September 30, 2019 and 2018:

	Distribution
For the Three Months Ended	Per Share			Amount
Fiscal 2018
March 31, 2018		$	0.17499		$	50,490
June 30, 2018			0.17499			50,489
September 30, 2018			0.17499			50,481
Total		$	0.52497		$	151,460
Fiscal 2019
March 31, 2019		$	0.17499		$	50,467
June 30, 2019			0.17499			50,463
September 30, 2019			0.17499			50,946
Total		$	0.52497		$	151,876

The Company intends to declare regular cash distributions on a quarterly basis and pay such distributions on a monthly basis. On October 11, 2019, the Company’s board of directors declared a regular monthly cash distribution for October 2019 in the amount of $0.058331 per share. These distributions have been or will be paid monthly to stockholders of record as of monthly record dates previously determined by the Company’s board of directors. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of the Company’s board of directors.

The Company has adopted an “opt in” distribution reinvestment plan for its stockholders. As a result, if the Company makes a cash distribution, its stockholders will receive the distribution in cash unless they specifically “opt in” to the DRP 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 DRP.

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FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 5. Distributions (continued)

On October 13, 2017, the Company amended and restated its DRP, or the amended DRP, which first applied to the reinvestment of cash distributions paid on or after November 29, 2017. Under the original DRP, cash distributions to participating stockholders were 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. Under the amended DRP, cash distributions to participating stockholders will be reinvested in additional shares of the Company’s common stock at a purchase price determined by the Company’s board of directors or a committee thereof, in its sole discretion, that is (i) not less than the net asset value per share of the Company’s common stock as determined in good faith by the Company’s board of directors or a committee thereof, in its sole discretion, immediately prior to the payment of the distribution and (ii) not more than 2.5% greater than the net asset value per share of the Company’s common stock as of such date. Although distributions paid in the form of additional shares of common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, stockholders who elect to participate in the DRP 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 has suspended the DRP with respect to any distributions with a record date between December 1, 2019 and the closing of the Mergers.

The Company may fund its cash distributions to stockholders from any sources of funds legally available to it, including proceeds from the sale of the Company’s common stock, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, 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. The Company has not established limits on the amount of funds it may use from available sources to make distributions. During certain periods, the Company’s distributions may exceed its earnings. As a result, it is possible that a portion of the distributions the Company makes may represent a return of capital. A return of capital generally is a return of a stockholder’s investment rather than a return of earnings or gains derived from the Company’s investment activities. Each year a statement on Form 1099-DIV identifying the sources of the distributions (i.e., paid from ordinary income, paid from net capital gains on the sale of securities, and/or a return of capital, which is a nontaxable distribution) will be mailed to the Company’s stockholders. There can be no assurance that the Company will be able to pay distributions at a specific rate or at all. No portion of the distributions paid during the nine months ended September 30, 2019 and 2018 was funded through the reimbursement of operating expenses by FS Investments.

The following table reflects the sources of the cash distributions on a tax basis that the Company paid on its common stock during the nine months ended September 30, 2019 and 2018:

	Nine Months Ended September 30,
	2019					2018
Source of Distribution	Distribution Amount			Percentage		Distribution Amount			Percentage
Offering proceeds		$	—		—		$	—		—
Borrowings			—		—			—		—
Net investment income(1)			151,876		100%			151,460		100%
Short-term capital gains proceeds from the sale of assets			—		—			—		—
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			—		—			—		—
Total		$	151,876		100%		$	151,460		100%

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FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 5. Distributions (continued)

(1)

During the nine months ended September 30, 2019 and 2018, 91.3% and 89.9%, respectively, of the Company’s gross investment income was attributable to cash income earned, 2.3% and 1.1%, respectively, was attributable to non-cash accretion of discount and 6.4% and 9.0%, respectively, was attributable to PIK interest.

The Company’s net investment income on a tax basis for the nine months ended September 30, 2019 and 2018 was $148,862 and $147,127, respectively. As of September 30, 2019 and December 31, 2018, the Company had $0 and $2,186, respectively, of undistributed net investment income and $167,040 and $96,421, respectively, of accumulated capital losses on a tax basis.

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 impact of consolidating certain subsidiaries for purposes of computing GAAP-basis net investment income but not for purposes of computing tax-basis net investment income and income recognized for tax purposes on certain transactions but not recognized for GAAP purposes and the inclusion of a portion of the periodic net settlement payments due on the TRS in tax-basis net investment income and the accretion of discount on the TRS.

The following table sets forth a reconciliation between GAAP-basis net investment income and tax-basis net investment income during the nine months ended September 30, 2019 and 2018:

	Nine Months Ended September 30,
	2019			2018
GAAP-basis net investment income		$	140,828		$	138,817
Reclassification of unamortized original issue discount and prepayment fees			(4,343)			(7,315)
Tax-basis net investment income portion of total return swap payments			6,223			12,615
Accretion of discount on total return swap			340			1,124
Other miscellaneous differences			5,814			1,886
Tax-basis net investment income		$	148,862		$	147,127

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. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of the Company’s distributions for a full year. The actual tax characteristics of distributions to stockholders are reported to stockholders annually on Form 1099-DIV.

As of September 30, 2019 and December 31, 2018, the components of accumulated earnings on a tax basis were as follows:

	September 30, 2019 (Unaudited)			December 31, 2018
Distributable ordinary income		$	—		$	2,186
Accumulated capital losses(1)			(167,040)			(96,421)
Other temporary differences			(160)			(172)
Net unrealized appreciation (depreciation) on investments, total return swap and interest rate swaps and gain/loss on foreign currency(2)			(203,638)			(225,429)
Total		$	(370,838)		$	(319,836)

(1)

Net capital losses may be carried forward indefinitely, and their character is retained as short-term or long-term losses. As of September 30, 2019, the Company had short-term and long-term capital loss carryforwards available to offset future realized capital gains of $8,370 and $158,670, respectively.

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FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 5. Distributions (continued)

(2)

As of September 30, 2019 and December 31, 2018, the gross unrealized appreciation on the Company’s investments, total return swap and interest rate swaps and gain on foreign currency was $187,937 and $129,945, respectively, and the gross unrealized depreciation on the Company’s investments, total return swap and interest rate swaps and loss on foreign currency was $391,575 and $355,374, respectively.

The aggregate cost of the Company’s investments for U.S. federal income tax purposes totaled $3,883,354 and $3,812,210 as of September 30, 2019 and December 31, 2018, respectively. The aggregate net unrealized appreciation (depreciation) on investments on a tax basis was $(203,638) and $(225,429) as of September 30, 2019 and December 31, 2018, respectively.

As of September 30, 2019, the Company had a deferred tax asset of $899 comprised of the Company’s wholly-owned taxable subsidiary’s unrealized depreciation on investments, net operating loss carryforward and capital loss carryforward. As of September 30, 2019, the wholly-owned taxable subsidiary anticipated that it would be unable to fully utilize the components of the deferred tax assets, therefore, the deferred tax assets were offset by valuation allowance of $899, respectively. For the nine months ended September 30, 2019, 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 September 30, 2019 and December 31, 2018:

	September 30, 2019 (Unaudited)								December 31, 2018
	Amortized Cost(1)			Fair Value			Percentage of Portfolio		Amortized Cost(1)			Fair Value			Percentage of Portfolio
Senior Secured Loans—First Lien		$	2,667,678		$	2,598,808		70%		$	2,682,140		$	2,639,404		73%
Senior Secured Loans—Second Lien			436,561			388,808		11%			332,741			292,342		8%
Other Senior Secured Debt			104,134			102,849		3%			100,060			93,195		3%
Subordinated Debt			267,768			272,876		7%			386,465			351,809		10%
Asset Based Finance			298,786			255,851		7%			202,171			168,538		4%
Equity/Other			76,513			85,099		2%			93,521			65,995		2%
Total		$	3,851,440		$	3,704,291		100%		$	3,797,098		$	3,611,283		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 summarizes the composition of the Company’s investment portfolio at cost and fair value as of September 30, 2019 and December 31, 2018 to include, on a look-through basis, the investments underlying the TRS, as disclosed in Note 9. As of September 30, 2019, no assets were held by the TRS. As of December 31, 2018, the assets underlying the TRS had a notional amount and market value of $145,371 and $141,279, respectively.

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 6. Investment Portfolio (continued)

	September 30, 2019 (Unaudited)								December 31, 2018
	Amortized Cost(1)			Fair Value			Percentage of Portfolio		Amortized Cost(1)			Fair Value			Percentage of Portfolio
Senior Secured Loans—First Lien		$	2,667,678		$	2,598,808		70%		$	2,804,068		$	2,757,436		74%
Senior Secured Loans—Second Lien			436,561			388,808		11%			356,184			315,589		8%
Other Senior Secured Debt			104,134			102,849		3%			100,060			93,195		3%
Subordinated Debt			267,768			272,876		7%			386,465			351,809		9%
Asset Based Finance			298,786			255,851		7%			202,171			168,538		4%
Equity/Other			76,513			85,099		2%			93,521			65,995		2%
Total		$	3,851,440		$	3,704,291		100%		$	3,942,469		$	3,752,562		100%

(1)

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

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 September 30, 2019, the Company held investments in three portfolio companies of which it is deemed to be an “affiliated person” but is not deemed to “control.” As of September 30, 2019, the Company did not “control” any of its portfolio companies. For additional information with respect to such portfolio companies, see footnote (s) to the unaudited consolidated schedule of investments as of September 30, 2019 in this quarterly report on Form 10-Q.

As of December 31, 2018, the Company held investments in four portfolio companies of which it is deemed to be an “affiliated person” but is not deemed to “control.” As of December 31, 2018, the Company did not “control” any of its portfolio companies. For additional information with respect to such portfolio companies, see footnote (t) to the consolidated schedule of investments as of December 31, 2018 in this quarterly report on Form 10-Q.

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 September 30, 2019, the Company had unfunded debt investments with aggregate unfunded commitments of $171,551 and unfunded equity/other commitments of $123,924. As of December 31, 2018, the Company had unfunded debt investments with aggregate unfunded commitments of $128,454 and unfunded equity commitments of $47. The Company maintains sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise. For additional details regarding the Company’s unfunded debt investments, see the Company’s unaudited consolidated schedule of investments as of September 30, 2019 and audited consolidated schedule of investments as of December 31, 2018.

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 6. Investment Portfolio (continued)

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 September 30, 2019 and December 31, 2018:

	September 30, 2019 (Unaudited)					December 31, 2018
Industry Classification	Fair Value			Percentage of Portfolio		Fair Value			Percentage of Portfolio
Automobiles & Components		$	17,320		0%		$	16,020		0%
Capital Goods			500,781		13%			732,433		20%
Commercial & Professional Services			382,544		10%			317,113		9%
Consumer Durables & Apparel			143,694		4%			150,949		4%
Consumer Services			173,257		5%			170,264		5%
Diversified Financials			302,533		8%			317,165		9%
Energy			150,784		4%			188,262		5%
Food & Staples Retailing			140,918		4%			13,191		0%
Food, Beverage & Tobacco			86,464		2%			81,786		2%
Health Care Equipment & Services			472,181		13%			418,167		12%
Insurance			75,709		2%			35,035		1%
Materials			142,241		4%			119,891		3%
Media & Entertainment			189,744		5%			201,352		6%
Pharmaceuticals, Biotechnology & Life Sciences			132,808		4%			53,872		1%
Real Estate			29,324		1%			—		—
Retailing			182,187		5%			149,864		4%
Semiconductors & Semiconductor Equipment			—		—			6,319		0%
Software & Services			370,724		10%			454,517		13%
Technology Hardware & Equipment			122,802		3%			93,380		3%
Telecommunication Services			60,045		2%			73,840		2%
Transportation			28,231		1%			17,863		1%
Total		$	3,704,291		100%		$	3,611,283		100%

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 7. Financial Instruments

The following is a summary of the fair value and location of the Company’s derivative instruments in the consolidated balance sheets held as of September 30, 2019 and December 31, 2018:

		Fair Value
Derivative Instrument	Statement Location	September 30, 2019 (Unaudited)			December 31, 2018
Interest rate swaps	Unrealized appreciation on interest rate swaps		$	—		$	—
Interest rate swaps	Unrealized depreciation on interest rate swaps			(20,920)			(2,614)
Total			$	(20,920)		$	(2,614)

Net realized and unrealized gains and losses on derivative instruments recorded by the Company for the three and nine months ended September 30, 2019 and 2018 are in the following locations in the consolidated statements of operations:

		Net Realized Gains (Losses)
		Three Months Ended September 30,						Nine Months Ended September 30,
Derivative Instrument	Statement Location	2019			2018			2019			2018
Interest rate swaps	Net realized gains (losses) on interest rate swaps		$	(435)		$	—		$	(435)		$	—
Total			$	(435)		$	—		$	(435)		$	—

		Net Unrealized Gains (Losses)
		Three Months Ended September 30,						Nine Months Ended September 30,
Derivative Instrument	Statement Location	2019			2018			2019			2018
Interest rate swaps	Net change in unrealized appreciation (depreciation) on interest rate swaps		$	(2,327)		$	—		$	(18,306)		$	—
Total			$	(2,327)		$	—		$	(18,306)		$	—

Offsetting of Derivative Instruments

The Company has derivative instruments that are subject to master netting agreements. These agreements include provisions to offset positions with the same counterparty in the event of default by one of the parties. The Company’s unrealized appreciation and depreciation on derivative instruments are reported as gross assets and liabilities, respectively, in the condensed consolidated statements of assets and liabilities. The following tables present the Company’s assets and liabilities related to derivatives by counterparty, net of amounts available for offset under a master netting arrangement and net of any collateral received or pledged by the Company for such assets and liabilities as of September 30, 2019 and December 31, 2018:

As of September 30, 2019 (Unaudited)
Counterparty	Derivative Liabilities Subject to Master Netting Agreement			Derivatives Available for Offset			Non-cash Collateral Pledged(1)			Cash Collateral Pledged(1)			Net Amount of Derivative Liabilities(3)
JP Morgan Chase Bank		$	9,948		$	—		$	—		$	9,948		$	—
ING Capital Markets			10,972			—			—			10,972			—
Total		$	20,920		$	—		$	—		$	20,920		$	—

As of December 31, 2018
Counterparty	Derivative Liabilities Subject to Master Netting Agreement			Derivatives Available for Offset			Non-cash Collateral Pledged(1)			Cash Collateral Pledged(1)			Net Amount of Derivative Liabilities(3)
JP Morgan Chase Bank		$	2,614		$	—		$	—		$	—		$	2,614
		$	2,614		$	—		$	—		$	—		$	2,614

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 7. Financial Instruments (continued)

(1)

In some instances, the actual amount of the collateral received and/or pledged may be more than the amount shown due to overcollateralization.

(2)

Net amount of derivative assets represents the net amount due from the counterparty to the Company.

(3)

Net amount of derivative liabilities represents the net amount due from the Company to the counterparty.

Interest Rate Swaps

Interest rate swap contracts are privately negotiated agreements between the Company and a counterparty. Pursuant to interest rate swap agreements, the Company makes fixed-rate payments to a counterparty in exchange for payments on a floating benchmark interest rate. Payments received or made are recorded as realized gains or losses. During the term of the outstanding swap agreement, changes in the underlying value of the swap are recorded as unrealized gains or losses. The value of the swap is determined by changes in the relationship between two rates of interest. The Company is exposed to credit loss in the event of non-performance by the swap counterparty. Risk may also arise from movements in interest rates. The Company attempts to limit counterparty risk by dealing only with well-known counterparties. The Company utilizes interest rate swaps from time to time in order to hedge a portion of its fixed-rate portfolio investments.

The average notional balance for interest rate swaps during the nine months ended September 30, 2019 was $540,000.

As of September 30, 2019 and December 31, 2018, the Company’s open interest rate swaps were as follows:

As of September 30, 2019 (Unaudited)
Counterparty	Notional Amount	Company Receives Floating Rate	Company Pays Fixed Rate	Termination Date		Premiums Paid/ (Received)			Value			Unrealized Appreciation (Depreciation)
JP Morgan Chase Bank	$120,000	3-Month LIBOR	2.78%		12/18/2023		$	—		$	(6,640)		$	(6,640)
JP Morgan Chase Bank	$120,000	3-Month LIBOR	2.81%		12/18/2021			—			(3,308)			(3,308)
ING Capital Markets	$150,000	3-Month LIBOR	2.59%		1/14/2024			—			(7,291)			(7,291)
ING Capital Markets	$150,000	3-Month LIBOR	2.62%		1/14/2022			—			(3,681)			(3,681)
							$	—		$	(20,920)		$	(20,920)

As of December 31, 2018
Counterparty	Notional Amount	Company Receives Floating Rate	Company Pays Fixed Rate	Termination Date		Premiums Paid/ (Received)			Value			Unrealized Appreciation (Depreciation)
JP Morgan Chase Bank	$120,000	3-Month LIBOR	2.78%		12/18/2023		$	—		$	(1,636)		$	(1,636)
JP Morgan Chase Bank	$120,000	3-Month LIBOR	2.81%		12/18/2021			—			(978)			(978)
							$	—		$	(2,614)		$	(2,614)

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 8. 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 valuation techniques that maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances.

The Company classifies the inputs used to measure these fair values into the following hierarchy as defined by current accounting guidance:

Level 1: Inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs that are quoted prices for similar assets or liabilities in active markets.

Level 3: Inputs that are unobservable for an asset or liability.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

As of September 30, 2019 and December 31, 2018, the Company’s investments and total return swap were categorized as follows in the fair value hierarchy:

Valuation Inputs	September 30, 2019 (Unaudited)						December 31, 2018
Valuation Inputs	Investments			Total Return Swap			Investments			Total Return Swap
Level 1—Price quotations in active markets		$	3,174		$	—		$	1,191		$	—
Level 2—Significant other observable inputs			967,684			—			1,013,082			—
Level 3—Significant unobservable inputs			2,733,433			(5,974)			2,597,010			(22,062)
Total		$	3,704,291		$	(5,974)		$	3,611,283		$	(22,062)

As of September 30, 2019 and December 31, 2018, the Company’s interest rate swaps were categorized as follows in the fair value hierarchy:

Valuation Inputs	September 30, 2019 (Unaudited)						December 31, 2018
Valuation Inputs	Asset			Liability			Asset			Liability
Level 1—Price quotations in active markets		$	—		$	—		$	—		$	—
Level 2—Significant other observable inputs			—			(20,920)			—			(2,614)
Level 3—Significant unobservable inputs			—			—			—			—
Total		$	—		$	(20,920)		$	—		$	(2,614)

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 8. Fair Value of Financial Instruments (continued)

The Company’s investments consist primarily of debt investments that were acquired directly from the issuer. Debt investments, for which broker quotes are not available, are valued by independent valuation firms, which determine 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 repayments and other relevant terms of the investments. Except as described below, all of the Company’s equity/other investments are also valued by independent valuation firms, which determine 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 earnings before interest, taxes, depreciation and amortization, or EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. An investment that is newly issued and purchased near the date of the financial statements is valued at cost if the Company’s board of directors determines that the cost of such investment is the best indication of its fair value. Such investments described above are typically classified as Level 3 within the fair value hierarchy. Investments that are traded on an active public market are valued at their closing price as of the date of the financial statements and are classified as Level 1 within the fair value hierarchy. Except as described above, the Company typically values its other investments and interest rate swaps by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which are provided by independent third-party pricing services and screened for validity by such services and are typically classified as Level 2 within the fair value hierarchy.

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. See Note 9 for additional information regarding the TRS.

The Company periodically benchmarks the bid and ask prices it receives from the third-party pricing services and/or dealers and independent valuation firms as applicable, against the actual prices at which the Company purchases and sells its investments. Based on the results of the benchmark analysis and the experience of the Company’s management in purchasing and selling these investments, the Company believes that these prices are reliable indicators of fair value. The valuation committee and the board of directors reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with the Company’s valuation policy.

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 8. Fair Value of Financial Instruments (continued)

The following is a reconciliation for the nine months ended September 30, 2019 and 2018 of investments for which significant unobservable inputs (Level 3) were used in determining fair value:

	For the Nine Months Ended September 30, 2019
	Senior Secured Loans— First Lien			Senior Secured Loans— Second Lien			Other Senior Secured Debt			Subordinated Debt			Asset Based Finance			Equity/ Other			Total
Fair value at beginning of period		$	2,191,650		$	164,009		$	7,496		$	852		$	168,538		$	64,465		$	2,597,010
Accretion of discount (amortization of premium)			1,001			221			(6)			2			5			91			1,314
Net realized gain (loss)			(4,827)			—			3			—			24			(28,358)			(33,158)
Net change in unrealized appreciation (depreciation)			(23,350)			(13,388)			116			914			(9,021)			36,372			(8,357)
Purchases			518,743			122,088			10,921			27,721			86,668			12,785			778,926
Paid-in-kind interest			2,353			933			131			2,532			10,909			1,084			17,942
Sales and repayments			(602,609)			(8,213)			(3,534)			—			(1,293)			(4,595)			(620,244)
Net transfers in or out of Level 3			—			—			—			—			—			—			—
Fair value at end of period		$	2,082,961		$	265,650		$	15,127		$	32,021		$	255,830		$	81,844		$	2,733,433
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		$	(29,714)		$	(13,593)		$	105		$	71		$	(8,992)		$	8,771		$	(43,352)

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 8. Fair Value of Financial Instruments (continued)

	For the Nine Months Ended September 30, 2018
	Senior Secured Loans— First Lien			Senior Secured Loans— Second Lien			Other Senior Secured Debt			Subordinated Debt			Asset Based Finance			Equity/ Other			Total
Fair value at beginning of period		$	2,222,444		$	261,239		$	60,478		$	552,320		$	181,654		$	57,726		$	3,335,861
Accretion of discount (amortization of premium)			1,195			91			1			—			(627)			8			668
Net realized gain (loss)			(3,879)			649			(1,059)			121			—			(25,406)			(29,574)
Net change in unrealized appreciation (depreciation)			(25,501)			(14,694)			671			(513)			(27,295)			30,939			(36,393)
Purchases			782,150			72,583			—			48,930			224			3,357			907,244
Paid-in-kind interest			5,410			896			133			14			15,660			839			22,952
Sales and repayments			(581,698)			(134,018)			(12,269)			(51,480)			(143)			(699)			(780,307)
Net transfers in or out of Level 3			(200,374)			(60,537)			(39,432)			(549,481)			—			(1,029)			(850,853)
Fair value at end of period		$	2,199,747		$	126,209		$	8,523		$	(89)		$	169,473		$	65,735		$	2,569,598
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		$	(21,269)		$	(13,472)		$	132		$	(514)		$	(27,296)		$	5,760		$	(56,659)

The following is a reconciliation for the nine months ended September 30, 2019 and 2018 of the total return swap for which significant unobservable inputs (Level 3) were used in determining fair value:

	For the Nine Months Ended September 30,
	2019			2018
Fair value at beginning of period		$	(22,062)		$	(3,756)
Amortization of premium (accretion of discount)			—			—
Net realized gain (loss)			(13,641)			14,258
Net change in unrealized appreciation (depreciation)			16,088			(6,246)
Proceeds			—			—
Sales and repayments			13,641			(14,258)
Net transfers in or out of Level 3			—			—
Fair value at end of period		$	(5,974)		$	(10,002)
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		$	16,088		$	(6,246)

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 8. Fair Value of Financial Instruments (continued)

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements as of September 30, 2019 and December 31, 2018 were as follows:

Type of Investment

Fair Value at
September 30, 2019
(Unaudited)(1)

Valuation
Techniques(2)

Primary
Unobservable Inputs

Range
(Weighted
Average)(3)

Impact to
Valuation from
an Increase in
Input(4)

Senior Debt

2,070,168

Discounted Cash Flow

Discount Rate

6.5% – 16.7% (9.6%)

Decrease

119,659

Other(5)

112,113

Cost

61,798

Waterfall

EBITDA Multiple

0.1x – 8.5x (2.8x)

Increase

Subordinated Debt

31,921

Discounted Cash Flow

Discount Rate

13.2% – 18.0% (13.4%)

Decrease

100

Waterfall

EBITDA Multiple

9.9x – 9.9x (9.9x)

Increase

Asset Based Finance

174,341

Waterfall

EBITDA Multiple

1.0x – 13.5x (1.1x)

Increase

44,497

Discounted Cash Flow

Discount Rate

7.8% – 12.9% (9.8%)

Decrease

17,581

Other(5)

15,602

Cost

3,809

Indicative Dealer
Quotes

63.0% – 63.0% (63.0%)

Increase

Equity/Other

51,054

Waterfall

EBITDA Multiple

0.7x – 14.3x (7.7x)

Increase

30,084

Other(5)

706

Option Pricing Model

Equity Illiquidity Discount

15.0% – 15.0% (15.0%)

Decrease

Total

2,733,433

(1)

Certain investments may be valued at cost for a period of time after an acquisition as the best indicator of fair value.

(2)

For the assets and investments that have more than one valuation technique, the Company may rely on the stated techniques individually or in the aggregate based on a weight ascribed to each valuation technique, ranging from 0 – 100%. Indicative broker quotes obtained for valuation purposes are reviewed by the Company relative to other valuation techniques.

(3)

Weighted average amounts are based on the estimated fair values.

(4)

This column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the input would have the opposite effect. Significant changes in these inputs in isolation could result in significantly higher or lower fair value measurements.

(5)

Fair value based on expected outcome of proposed corporate transactions and/or other factors.

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 8. Fair Value of Financial Instruments (continued)

Type of Investment

Fair Value at
December 31,
2018

Valuation
Technique(1)

Unobservable Input

Range

Weighted
Average

Senior Secured
Loans—First Lien

1,957,628

Market Comparables

Market Yield (%)

6.9% – 16.8%

10.8%

EBITDA Multiples (x)

5.3x – 9.5x

6.9x

Revenue Multiples (x)

0.1x – 0.1x

0.1x

150,621

Other(2)

N/A

83,401

Cost

99.0% – 100.0%

99.5%

Senior Secured
Loans—Second Lien

120,507

Market Comparables

Market Yield (%)

8.9% – 15.0%

12.0%

4,096

Other(2)

N/A

39,406

Cost

98.5% – 98.5%

98.5%

Other Senior Secured Debt

7,496

Market Comparables

Market Yield (%)

8.2% – 13.6%

10.3%

Subordinated Debt

852

Market Comparables

Market Yield (%)

12.0% – 20.0%

15.1%

EBITDA Multiples (x)

9.6x – 10.1x

9.9x

Asset Based Finance

154,969

Market Comparables

Market Yield (%)

17.7% – 19.0%

18.4%

Net Aircraft Book Value Multiple (x)

1.0x – 1.0x

1.0x

6,655

Market Quotes

Indicative Dealer Quotes

71.3% – 99.6%

61.9%

Equity/Other

42,939

Market Comparables

Capacity Multiple ($/kW)

$1,875.0 – $2,125.0

$2,000.0

EBITDA Multiples (x)

4.0x – 14.3x

7.4x

Net Aircraft Book Value Multiple (x)

1.0x – 1.0x

1.0x

Production Multiples (Mboe/d)

$31,250.0 – $38,750.0

$35,795.1

Proved Reserves Multiples (Mmboe)

$7.0 – $13.8

$12.3

PV-10 Multiples (x)

0.8x – 1.3x

0.9x

426

Option Valuation
Model

Volatility (%)

30.0% – 30.0%

30.0%

27,048

Other(2)

N/A

966

Cost

100.0% – 100.0%

100.0%

Total

2,597,010

Total Return Swap

(22,062)

Market Quotes

Indicative Dealer Quotes

89.1% – 100.0%

95.9%

(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, with the exception of investments in the TRS, which was valued by using the bid price from dealers on the date of the relevant period end. Investments valued using an EBITDA multiple or a revenue multiple pursuant to the market comparables valuation technique may be conducted using an enterprise valuation waterfall analysis. 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/or other factors.

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 9. Financing Arrangements

The following tables present summary information with respect to the Company’s outstanding financing arrangements as of September 30, 2019 and December 31, 2018. For additional information regarding these financing arrangements, see the notes to the Company’s audited consolidated financial statements contained in its annual report on Form 10-K for the year ended December 31, 2018. Any significant changes to the Company’s financing arrangements during the three months ended September 30, 2019 are discussed below.

As of September 30, 2019
(Unaudited)

Arrangement

Type of Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity Date

BNP Facility(1)

Prime Brokerage Facility

L+1.25%

100,000

24,616(2)

March 27, 2020(3)

Deutsche Bank Credit Facility(1)

Revolving Credit Facility

L+2.00%

331,800

168,200

February 26, 2024

JPM Credit Facility(1)

Revolving Credit Facility

L+2.50%

320,000

80,000

July 15, 2022

Goldman Facility(1)

Term Loan Credit Facility

L+2.50%

300,000

—

December 15, 2019

Senior Secured Revolving Credit Facility(1)

Revolving Credit Facility

L+ 2.00% –
2.25%(4)

405,254(5)

319,746

August 9, 2023

Total

1,457,054

592,562

Citibank Total Return Swap

Total Return Swap

L+1.55%

—

N/A(6)

As of December 31, 2018

Arrangement

Type of Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity Date

BNP Facility(1)

Prime Brokerage Facility

L+1.25%

—

250,000

June 15, 2019(3)

Deutsche Bank Credit Facility(1)

Revolving Credit Facility

L+2.25%

269,000

81,000

September 22, 2019

JPM Credit Facility(1)

Revolving Credit Facility

L+2.50%

340,000

60,000

July 15, 2022

Goldman Facility(1)

Repurchase Agreement

L+2.50%

300,000

—

July 15, 2019

Senior Secured Revolving Credit Facility(1)

Revolving Credit Facility

L+2.00% –
2.25%(4)

290,594(7)

359,406

August 9, 2023

Total

1,199,594

750,406

Citibank Total Return Swap

Total Return Swap

L+1.55%

145,371

4,629

N/A(6)

(1)

The carrying amount outstanding under the facility approximates its fair value.

(2)

The amount available under the BNP Facility is calculated based on the value of the pledged collateral, rather than BNPP’s commitment. The Company may borrow amounts in excess of BNPP’s commitment, at the discretion of BNPP, to the extent the pledged collateral provides sufficient coverage for additional borrowings.

(3)

On June 12, 2019, Burholme Funding LLC entered into an amendment to the BNP Facility to, among other things, reduce the termination period notice from 270 days to 179 days by either party. As of September 30, 2019, neither party to the facility had provided notice of its intent to terminate the facility.

(4)

The spread over LIBOR is determined by reference to the ratio of the value of the borrowing base to the aggregate amount of certain outstanding indebtedness of the Company.

(5)

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 9. Financing Arrangements (continued)

rate of AUD $1.00 to $0.67 as of September 30, 2019, Euro balance outstanding of €51,950 has been converted to U.S. dollars at an exchange rate of €1.00 to $1.09 as of September 30, 2019 and Pound sterling balance outstanding of £19,750 has been converted to U.S. dollars at an exchange rate of £1.00 to $1.23 as of September 30, 2019 to reflect total amount outstanding in U.S. dollars.

(6)

The TRS may be terminated by Center City Funding or Citibank on or after September 30, 2019, in each case, in whole or in part, upon prior written notice to the other party. Center City Funding and Citibank mutually agreed to an orderly winddown of the TRS through purchases of all of the assets underlying the TRS. Accordingly, the parties neither extended the optional termination date under the TRS past September 30, 2019 nor terminated the TRS on that date. The parties plan to terminate the TRS when all assets underlying the TRS have been purchased and any remaining trades have been cancelled. Center City Funding has not paid, nor will pay, any termination fee as a result of the orderly winddown and ultimate termination of the TRS.

(7)

Amount includes borrowings in U.S. dollars, Canadian dollars and Euros. Canadian dollar balance outstanding of CAD $5,600 has been converted to U.S. dollars at an exchange rate of CAD $1.00 to $0.73 as of December 31, 2018 and Euro balance outstanding of €1,300 has been converted to U.S. dollars at an exchange rate of EUR €1.00 to $1.15 as of December 31, 2018 to reflect total amount outstanding in U.S. dollars.

For the three and nine months ended September 30, 2019 and 2018, the components of total interest expense for the Company’s financing arrangements were as follows:

	Three Months Ended September 30,
	2019									2018
Arrangement(1)	Interest Expense(2)			Amortization of Deferred Financing Costs			Total Interest Expense			Interest Expense(2)			Amortization of Deferred Financing Costs			Total Interest Expense
BNP Facility		$	1,129		$	—		$	1,129		$	775		$	—		$	775
Deutsche Bank Credit Facility			4,426			197			4,623			3,899			235			4,134
JPM Credit Facility			4,392			152			4,544			5,878			144			6,022
Goldman Facility			3,670			32			3,702			3,711			100			3,811
Capital One Credit Facility			—			—			—			341			587			928
Senior Secured Revolving Credit Facility			4,864			260			5,124			1,911			128			2,039
Total		$	18,481		$	641		$	19,122		$	16,515		$	1,194		$	17,709

	Nine Months Ended September 30,
	2019									2018
Arrangement(1)	Interest Expense(2)			Amortization of Deferred Financing Costs			Total Interest Expense			Interest Expense(2)			Amortization of Deferred Financing Costs			Total Interest Expense
BNP Facility		$	2,967		$	—		$	2,967		$	4,094		$	—		$	4,094
Deutsche Bank Credit Facility			12,819			524			13,343			11,694			698			12,392
JPM Credit Facility			14,273			446			14,719			15,232			216			15,448
Goldman Facility			11,482			230			11,712			10,430			297			10,727
Capital One Credit Facility			—			—			—			3,537			724			4,261
Senior Secured Revolving Credit Facility			17,704			740			18,444			1,911			128			2,039
Total		$	59,245		$	1,940		$	61,185		$	46,898		$	2,063		$	48,961

(1)

Borrowings of each of the Company’s wholly-owned financing subsidiaries are considered borrowings of the Company for purposes of complying with the asset coverage requirements applicable to BDCs under the 1940 Act.

(2)

Interest expense may include the effect of non-usage fees, administration fees and/or make-whole fees.

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 9. Financing Arrangements (continued)

The Company’s average borrowings and weighted average interest rate, including the effect of non-usage fees, for the nine months ended September 30, 2019 were $1,533,844 and 5.09%, respectively. As of September 30, 2019, the Company’s weighted average effective interest rate on borrowings was 4.61%.

The Company’s average borrowings and weighted average interest rate, including the effect of non-usage fees, for the nine months ended September 30, 2018 were $1,343,639 and 4.67%, respectively. As of September 30, 2018, the Company’s weighted average effective interest rate on borrowings, including the effect of non-usage fees, was 4.79%.

Under its financing arrangements, the Company has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar financing arrangements. The Company was in compliance with all covenants required by its financing arrangements as of September 30, 2019 and December 31, 2018.

Goldman Facility

On July 10, 2019, Germantown Funding LLC and Society Hill Funding LLC, wholly-owned financing subsidiaries of the Company, and Goldman Sachs Bank USA, or Goldman Sachs, effected a series of transactions to refinance the Goldman Facility through a $300,000 senior-secured term loan with Goldman Sachs as administrative agent and lender. The events described below took place in connection with the refinancing.

On July 10, 2019, Germantown Funding LLC entered into a credit agreement, or the Germantown Funding Credit Agreement and, together with the related transaction documents, the Germantown Credit Facility, with Goldman Sachs, as lender, sole lead arranger, administrative agent and calculation agent, and Wells Fargo Bank, National Association, as collateral agent and collateral administrator, pursuant to which Goldman Sachs advanced $300,000 to Germantown Funding LLC. Borrowings under the Germantown Credit Facility accrue interest at a rate equal to three-month LIBOR plus 250 basis points per annum and any amounts borrowed under the Germantown Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on December 15, 2019.

Under the Germantown Credit Facility, Germantown Funding LLC made certain customary representations and warranties and is required to comply with various customary covenants, reporting requirements and other requirements.

The Germantown Funding Credit Agreement contains “Events of Default” for similar financing transactions, including: (i) the failure by Germantown Funding LLC to make principal payment when due or any other payments under the Germantown Funding Credit Agreement within five business days of when they are due; (ii) the failure by Germantown Funding LLC to disburse amounts in excess of $1 in accordance with the priority of payments within 10 business days of when they are due; (iii) the failure by Germantown Funding LLC (or its written admission that it will be unable) to pay its debts as they become due; (iv) the insolvency or bankruptcy of Germantown Funding LLC; (v) breaches of representations or warranties by Germantown Funding LLC or the Company in any material respect; (vi) the failure by Germantown Funding LLC to comply with certain covenants and obligations under the Germantown Credit Facility (including the failure to post cash margin as required), subject to customary grace periods; and (vii) the failure by Germantown Funding LLC to commit to sell any portfolio assets that become defaulted obligations within 30 days, subject to extension so long as Germantown Funding continues to use commercially reasonable efforts to sell such defaulted assets thereafter.

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 9. Financing Arrangements (continued)

Upon the occurrence and during the continuation of an “Event of Default,” Goldman Sachs may declare the outstanding advances and all other obligations under the Germantown Funding Credit Agreement immediately due and payable. The occurrence of an “Event of Default” also triggers a requirement that the Company obtain the consent of Goldman Sachs prior to acting on behalf of, or otherwise directing, Germantown Funding LLC in connection with any sale or disposition with respect to portfolio assets.

Germantown Funding LLC’s obligations to Goldman Sachs under the Germantown Credit Facility are secured by a first priority security interest in substantially all of the assets of Germantown Funding LLC, including its portfolio of assets. The obligations of Germantown Funding LLC under the Germantown Credit Facility are non-recourse to the Company, and the Company’s exposure under the Germantown Credit Facility is limited to the value of the Company’s investment in Germantown Funding LLC. Borrowings of Germantown Funding LLC will be considered borrowings of the Company for purposes of complying with the asset coverage requirements under the 1940 Act, applicable to business development companies.

In connection with the Germantown Credit Facility, the Company, Germantown Funding LLC, Society Hill Funding LLC and Goldman Sachs terminated the Goldman Sachs Repurchase Facility by (i) effecting a cancellation of the floating rate notes issued by Germantown Funding LLC to Society Hill Funding LLC pursuant to an indenture, dated June 18, 2015, or as may have been amended, modified or supplemented from time to time, the Indenture; (ii) discharging the Indenture; and (iii) terminating the Master Repurchase Agreement, dated June 18, 2015, as may have been amended, modified or supplemented from time to time.

The Company and/or its subsidiaries paid certain fees to Goldman Sachs in connection with the Germantown Credit Facility, the termination of the Goldman Sachs Repurchase Facility and the related transactions.

Citibank Total Return Swap

Counterparty			Description			Termination Date			Value as of September 30, 2019
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.			Citibank may terminate the TRS at any time upon providing no less than 30 days prior notice to Center City Funding. 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. Citibank and Center City Funding mutually agreed to an orderly winddown of the TRS through purchases of all of the assets underlying the TRS. The parties plan to terminate the TRS when all assets underlying the TRS have been purchased and any remaining trades have been canceled.			$(5,974)

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 9. Financing Arrangements (continued)

As of September 30, 2019 and December 31, 2018, the fair value of the TRS was $(5,974) and $(22,062), respectively, which is reflected in the Company’s consolidated balance sheets as unrealized appreciation (depreciation) on total return swap. As of September 30, 2019 and December 31, 2018, the receivable due on the TRS was $798 and $1,071, respectively, which is reflected in the Company’s consolidated balance sheets as receivable due on total return swap. As of September 30, 2019, all assets held within the TRS were sold.

As of September 30, 2019 and December 31, 2018, the Company posted $36,038 and $128,764, respectively, in cash collateral held by Citibank (of which only $34,002 and $119,616, 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. The Company does not offset collateral posted in relation to the TRS with any unrealized appreciation (depreciation) outstanding on the consolidated balance sheets as of September 30, 2019 and December 31, 2018.

For the nine months ended September 30, 2019 and 2018, transactions in the TRS resulted in net realized gain (loss) on total return swap of $(13,641) and $14,258, respectively, and unrealized appreciation (depreciation) on total return swap of $16,088 and $(6,246), respectively, which are reflected in the Company’s consolidated statements of operations.

Note 10. Commitments and Contingencies

The Company enters into contracts that contain a variety of indemnification provisions. The Company’s maximum exposure under these arrangements is unknown; however, the Company has not had prior claims or losses pursuant to these contracts. The 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.

Unfunded commitments to provide funds to portfolio companies are not recorded in the Company’s condensed consolidated statements of assets and liabilities. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Company has sufficient liquidity to fund these commitments. As of September 30, 2019, the Company’s unfunded commitments consisted of the following:

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 10. Commitments and Contingencies (continued)

Category/Company(1)	Commitment Amount
Senior Secured Loans—First Lien
5 Arch Income Fund 2, LLC		$	35,092
All Systems Holding LLC			11,970
Apex Group Limited			1,911
Aspect Software Inc			2,422
Conservice LLC			1,434
Conservice LLC			1,224
CSafe Global			1,565
CSafe Global			5,217
Eagle Family Foods Inc			2,009
Entertainment Benefits Group LLC			2,017
Greystone Equity Member Corp			9,558
HM Dunn Co Inc			247
Industria Chimica Emiliana Srl			6,863
J S Held LLC			3,102
J S Held LLC			7,207
Kodiak BP LLC			5,609
Lipari Foods LLC			21,437
Monitronics International Inc			25,541
North Haven Cadence Buyer Inc			750
North Haven Cadence Buyer Inc			5,083
Sungard Availability Services Capital Inc			1,710
Zeta Interactive Holdings Corp			8,357
Asset Based Finance
Home Partners JV, Structured Mezzanine			11,226
Total		$	171,551
Unfunded equity/other commitments		$	123,924

(1)

May be commitments to one or more entities affiliated with the named company.

As of September 30, 2019, the Company’s unfunded debt commitments have a fair value representing unrealized appreciation (depreciation) of $(227). The Company funds its equity investments as it receives funding notices from the portfolio companies. As of September 30, 2019, the Company’s unfunded equity commitments have a fair value of zero.

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited 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 nine months ended September 30, 2019 and the year ended December 31, 2018:

	Nine Months Ended September 30, 2019 (Unaudited)			Year Ended December 31, 2018
Per Share Data:(1)
Net asset value, beginning of period		$	7.60		$	8.22
Results of operations(2)
Net investment income			0.49			0.63
Net realized gain (loss) and unrealized appreciation (depreciation)			(0.15)			(0.55)
Net increase (decrease) in net assets resulting from operations			0.34			0.08
Stockholder distributions(3)
Distributions from net investment income			(0.52)			(0.70)
Net decrease in net assets resulting from stockholder distributions			(0.52)			(0.70)
Capital share transactions
Issuance of common stock(4)			—			—
Repurchases of common stock(5)			—			—
Net increase in net assets resulting from capital share transactions			—			—
Net asset value, end of period		$	7.42		$	7.60
Shares outstanding, end of period			292,986,312			290,353,680
Total return(6)			4.49%			0.71%
Total return (without assuming reinvestment of distributions)(6)			4.47%			0.97%
Ratio/Supplemental Data:
Net assets, end of period		$	2,174,638		$	2,206,971
Ratio of net investment income to average net assets(7)			8.55%			7.84%
Ratio of operating expenses to average net assets(7)			8.72%			7.38%
Ratio of net operating expenses to average net assets(7)			8.72%			7.27%
Portfolio turnover(8)			31.13%			38.40%
Total amount of senior securities outstanding, exclusive of treasury securities		$	1,423,052		$	1,225,349
Asset coverage per unit(9)			2.53			2.80

(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 applicable period.

(3)

The per share data for distributions reflects the actual amount of distributions paid per share during the applicable period.

(4)

The issuance of common stock on a per share basis reflects the incremental net asset value changes as a result of the issuance of shares of common stock in the Company’s continuous public offering and pursuant to the DRP. The issuance of common stock at a price, net of selling commissions and dealer manager fees, that is greater than the net asset value per share results in an increase in net asset value per share.

(5)

The per share impact of the Company’s repurchases of common stock is a reduction to net asset value of less than $0.01 per share during each period.

(6)

The total return based on net asset value for each period presented was calculated by taking the net asset value per share as of the end of the applicable period, adding the cash distributions per share that were declared during the applicable period and dividing the total by the net asset value per share at the beginning of the applicable period. Total return based on net asset value does not consider the effect of any sales commissions or charges that may be incurred in connection with the sale of shares of the Company’s common stock. The historical calculation of total return based on net asset value in the table should not be

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 11. Financial Highlights (continued)

considered a representation of the Company’s future total return based on net asset value, 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 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 the Company’s investment portfolio during the applicable period and do not represent an actual return to stockholders.

(7)

Weighted average net assets during the applicable period are used for this calculation. Ratios for the nine months ended September 30, 2019 are annualized. Annualized ratios for the nine months ended September 30, 2019 are not necessarily indicative of the ratios that may be expected for the year ending December 31, 2019. The following is a schedule of supplemental ratios for the nine months ended September 30, 2019 and the year ended December 31, 2018:

	Nine Months Ended September 30, 2019 (Unaudited)		Year Ended December 31, 2018
Ratio of subordinated income incentive fees to average net assets		1.80%		1.52%
Ratio of interest expense to average net assets		3.72%		2.84%

(8)

Portfolio turnover for the nine months ended September 30, 2019 is not annualized.

(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.

Note 12. Fund Mergers

Pending Merger with FSIC II

On May 31, 2019, the Funds entered into the Merger Agreement with Merger Sub 1, Merger Sub 2, Merger Sub 3 and the Advisor. The Merger Agreement provides that, subject to the conditions set forth in the Merger Agreement, (i) Merger Sub 1 will merge with and into the Company, with the Company continuing as the surviving company and as a wholly-owned subsidiary of FSIC II, and, immediately thereafter, the Company will merge with and into FSIC II, with FSIC II continuing as the surviving company, (ii) Merger Sub 2 will merge with and into CCT II, with CCT II continuing as the surviving company and as a wholly-owned subsidiary of FSIC II, and, immediately thereafter, CCT II will merge with and into FSIC II, with FSIC II continuing as the surviving company and (iii) Merger Sub 3 will merge with and into FSIC IV, with FSIC IV continuing as the surviving company and as a wholly-owned subsidiary of FSIC II, and, immediately thereafter, FSIC IV will merge with and into FSIC II, with FSIC II continuing as the surviving company. The parties to the Merger Agreement intend the Mergers to be treated as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.

In the Mergers, each share of the Company’s common stock, CCT II common stock and FSIC IV common stock issued and outstanding immediately prior to the effective time of Merger 1A, Merger 2A and Merger 3A, respectively, will be converted into the right to receive a number of shares of FSIC II common stock equal to an exchange ratio with respect to the applicable Merger, to be determined in connection with the closing of such Merger, or each, the applicable Exchange Ratio. The Exchange Ratio for each of Merger 1A, Merger 2A and Merger 3A will equal the net asset value per share of the Company’s common stock, CCT II common stock and FSIC IV common stock, respectively (determined, in each case, no earlier than 48 hours (excluding Sundays and holidays) prior to the closing date of the applicable Merger), divided by the net asset value per share of FSIC II common stock (determined, in each case, no earlier than 48 hours (excluding Sundays and holidays) prior to the closing date of the applicable Merger).

TABLE OF CONTENTS

FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 12. Fund Mergers (continued)

Consummation of the Mergers, which is currently anticipated to occur during the fourth quarter of 2019, is subject to certain closing conditions, including (1) requisite approvals of the applicable Funds’ stockholders, (2) certain required charter amendments for each of the Funds, (3) the absence of certain legal impediments to the consummation of the Mergers, (4) effectiveness of the registration statement on Form N-14, which includes a joint proxy statement of the Funds and a prospectus of FSIC II, and (5) subject to certain exceptions, the accuracy of the representations and warranties and compliance with the covenants of each party to the Merger Agreement. Merger 1A (involving a wholly-owned subsidiary of FSIC II and the Company) is a condition precedent to each of the Mergers. No other Merger is a condition precedent to Merger 1A. Therefore, Merger 1A will occur even if Merger 2A (involving a wholly-owned subsidiary of FSIC II and CCT II) and Merger 3A (involving a wholly-owned subsidiary of FSIC II and FSIC IV) do not occur.

The Merger Agreement also contains certain termination rights in favor of each Fund including if the Mergers are not completed on or before May 31, 2020 or if the requisite approvals of the applicable Fund’s stockholders are not obtained.

On November 6, 2019, each of the Funds held its annual stockholder meeting at which stockholders voted on the applicable Mergers, the Recapitalization Transactions and certain other proposals. The stockholders of each of the Funds approved the applicable Mergers and the Recapitalization Transaction, but each of the Company, FSIC II and FSIC IV adjourned its respective annual stockholder meeting until November 22, 2019 with respect to certain other proposals, including proposals necessary to consummate the Mergers and the Recapitalization Transaction. The stockholders of CCT II approved all proposals necessary to consummate the Mergers and the Recapitalization Transaction.

Note 13. Subsequent Events

On November 7, 2019, the Company entered into an amended and restated senior secured revolving credit facility, or the Amended and Restated Senior Secured Revolving Credit Facility, with FS KKR Capital Corp., or FSK, and FSIC II, as borrowers, JPMorgan Chase Bank, N.A., or JPMorgan, as administrative agent, ING Capital LLC, or ING, as collateral agent, and the lenders party thereto, which amended and restated the senior secured revolving credit facility originally entered into on August 9, 2018, among the Company, FSK (as successor by merger to FS Investment Corporation and Corporate Capital Trust, Inc.), and FSIC II, as borrowers, JPMorgan, as administrative agent, ING, as collateral agent, and the lenders party thereto. The Amended and Restated Senior Secured Revolving Credit Facility provides for borrowings in U.S. dollars and certain agreed upon foreign currencies in an initial aggregate amount of up to $3,890,000 with an option for the Company to request, at one or more times, that existing and/or new lenders, at their election, provide up to $1,945,000 of additional commitments. The Amended and Restated Senior Secured Revolving Credit Facility initially provides for a sublimit available for the Company to borrow up to $837,500 of the total facility amount, subject to increase or reduction from time to time pursuant to the terms of the Amended and Restated Senior Secured Revolving Credit Facility and the oversight and approval of the Company’s board of directors. A sublimit of the total facility amount also is available to each of FSK and FSIC II, as additional borrowers, and the obligations of the other borrowers under the Amended and Restated Senior Secured Revolving Credit Facility are several (and not joint) in all respects. The Amended and Restated Senior Secured Revolving Credit Facility provides for the issuance of letters of credit in an initial aggregate face amount of up to $400,000, with a sublimit available for the Company to request the issuance of letters of credit in an aggregate face amount of up to $37,677, subject to increase or reduction from time to time pursuant to the terms of the Amended and Restated Senior Secured Revolving Credit Facility.

Availability under the Amended and Restated Senior Secured Revolving Credit Facility will terminate on November 7, 2023, or the Revolver Termination Date, and the outstanding loans under the Amended

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FS Investment Corporation III

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 13. Subsequent Events (continued)

and Restated Senior Secured Revolving Credit Facility will mature on November 7, 2024. The Amended and Restated Senior Secured Revolving Credit Facility also requires mandatory prepayment of interest and principal upon certain events during the term-out period commencing on the Revolver Termination Date and at certain other times when the Company’s adjusted asset coverage ratio is less than 185%.Borrowings under the Amended and Restated Senior Secured Revolving Credit Facility are subject to compliance with a borrowing base test. Interest under the Amended and Restated Senior Secured Revolving Credit Facility for (i) loans for which the Company elects the base rate option, (A) (1) so long as the Company remains unlisted, 0.25%, plus (2) if the value of the borrowing base is equal to or greater than 1.85 times the aggregate amount of certain outstanding indebtedness of the Company, or the Combined Debt Amount, is payable at an “alternate base rate” (which is the greatest of (a) the prime rate as publicly announced by JPMorgan, (b) the sum of (x) the greater of (I) the federal funds effective rate and (II) the overnight bank funding rate plus (y) 0.5%, and (c) the one month LIBOR plus 1% per annum) plus 0.75% and, (B) (1) so long as the Company remains unlisted, 0.25%, plus (2) if the value of the borrowing base is less than 1.85 times the Combined Debt Amount, the alternate base rate plus 1.00%; and (ii) loans for which the Company elects the Eurocurrency option (A) (1) so long as the Company remains unlisted, 0.25%, plus (2) if the value of the borrowing base is equal to or greater than 1.85 times the Combined Debt Amount, is payable at a rate equal to LIBOR plus 1.75% and (B) (1) so long as the Company remains unlisted, 0.25%, plus (2) if the value of the borrowing base is less than 1.85 times the Combined Debt Amount, is payable at a rate equal to LIBOR plus 2.00%. The Company will pay a commitment fee of at least 0.375% and up to 0.50% per annum (based on the immediately preceding quarter’s average usage) on the unused portion of its sublimit under the Amended and Restated Senior Secured Revolving Credit Facility during the revolving period. The Company also will be required to pay letter of credit participation fees and a fronting fee on the average daily amount of any lender’s exposure with respect to any letters of credit issued at the request of the Company under the Amended and Restated Senior Secured Revolving Credit Facility.

In connection with the Amended and Restated Senior Secured Revolving Credit Facility, the Company has made certain representations and warranties and must comply with various covenants and reporting requirements customary for facilities of this type. In addition, the Company must comply with the following financial covenants: (a) the Company must maintain a minimum shareholders’ equity, measured as of each fiscal quarter end; and (b) the Company must maintain at all times a 150% asset coverage ratio (or, if greater, the statutory requirement then applicable to the Company).

The Amended and Restated Senior Secured Revolving Credit Facility contains events of default customary for facilities of this type. Upon the occurrence of an event of default, JPMorgan, at the instruction of the lenders, may terminate the commitments and declare the outstanding advances and all other obligations under the Amended and Restated Senior Secured Revolving Credit Facility immediately due and payable.

The Company’s obligations under the Amended and Restated Senior Secured Revolving Credit Facility are guaranteed by certain of the Company’s subsidiaries. The Company’s obligations under the Amended and Restated Senior Secured Revolving Credit Facility are secured by a first priority security interest in substantially all of the assets of the Company and certain of the Company’s subsidiaries.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations
(in thousands, except share and per share amounts).

The information contained in this section should be read in conjunction with our unaudited consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q. In this report, “we,” “us,” “our” and the “Company” refer to FS Investment Corporation III.

Forward-Looking Statements

Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q 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 the other funds advised by the Advisor, their respective current or future investment advisers 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 the Advisor to locate suitable investments for us and to monitor and administer our investments;

•

the ability of the 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;

•

the tax status of the enterprises in which we may invest; and

•

the Mergers, the likelihood the Mergers are completed and the anticipated timing of its completion.

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 quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason. Factors that could cause actual results to differ materially include:

•

changes in the economy;

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•

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.

We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. 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 quarterly report on Form 10-Q are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or 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. 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.

We are externally managed by the Advisor pursuant to the investment advisory and administrative services agreement and supervised by our board of directors, a majority of whom are independent.

On April 9, 2018, GDFM resigned as our investment sub-adviser and terminated its investment sub-advisory agreement effective April 9, 2018. In connection with GDFM’s resignation as our investment sub-adviser, on April 9, 2018, we entered into the investment advisory and administrative services agreement with the Advisor, which replaced an investment advisory and administrative services agreement, or the FSIC III Advisor investment advisory and administrative services agreement, with our former investment adviser, FSIC III Advisor.

Our investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation. We pursue our investment objective by investing primarily in the debt of middle market U.S. companies with a focus on originated transactions sourced through the network of the Advisor and its affiliates. We define direct originations as any investment where the Advisor or its affiliates negotiates the terms of the transaction beyond just the price, which, for example, may include negotiating financial covenants, maturity dates or interest rate terms. These directly originated transactions include participation in other originated transactions where there may be third parties involved, or a bank acting as an intermediary, for a closely held club, or similar transactions.

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 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, including through the restructuring of such 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, structured products, other debt securities and derivatives, including total return swaps and credit default swaps. The Advisor will seek to tailor our investment focus as market conditions evolve. Depending on market conditions, we may increase or

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decrease our exposure to less senior portions of the capital structure or otherwise make opportunistic investments, such as where the market price of loans, bonds or other securities reflects a lower value than deemed warranted by the Advisor’s fundamental analysis, which may occur due to 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 and may include event driven investments, anchor orders and structured products.

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

Revenues

The principal measure of our financial performance is net increase in net assets resulting from operations, which includes net investment income, net realized gain or loss on investments, net realized gain or loss on foreign currency, net realized gain or loss on total return swap, net unrealized appreciation or depreciation on investments, net unrealized gain or loss on foreign currency, net unrealized appreciation or depreciation on swap contracts 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, including the respective realized gain or loss on foreign currency for those foreign denominated investment transactions. Net realized gain or loss on foreign currency is the portion of realized gain or loss attributable to foreign currency fluctuations. 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, including the respective unrealized gain or loss on foreign currency for those foreign denominated investments. Net unrealized gain or loss on foreign currency is the net change in the value of receivables or accruals due to the impact of foreign currency fluctuations. 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. We may also generate revenues in the form of dividends and other distributions on the equity or other securities we hold.

Expenses

Our primary operating expenses include the payment of management and incentive fees and other expenses under the investment advisory and administrative services agreement, interest expense from financing arrangements and other indebtedness, and other expenses necessary for our operations. The management and incentive fees compensate the Advisor for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments.

The Advisor oversees our day-to-day operations, including the provision of general ledger accounting, fund accounting, legal services, investor relations, certain government and regulatory affairs activities, and other administrative services. The 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, the 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.

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Pursuant to the investment advisory and administrative services agreement, we reimburse the Advisor for expenses necessary to perform services related to our administration and operations, including the Advisor’s allocable portion of the compensation and related expenses of certain personnel of FS Investments and KKR Credit providing administrative services to us on behalf of the Advisor. We reimburse the Advisor no less than monthly for expenses necessary to perform services related to our administration and operations. The amount of this reimbursement is set at the lesser of (1) the 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. The Advisor allocates the cost of such services to us based on factors such as total assets, revenues, time allocations and/or other reasonable metrics. Our board of directors reviews the methodology employed in determining how the expenses are allocated to us and the proposed allocation of administrative expenses among us and certain affiliates of the 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 the Advisor for such services as a percentage of our net assets to the same ratio as reported by other comparable BDCs.

We bear all other expenses of our operations and transactions, including all other expenses incurred by the Advisor in performing services for us and administrative personnel paid by FS Investments and KKR Credit.

In addition, we have contracted with State Street Bank and Trust Company to provide various accounting and administrative services, including, but not limited to, preparing preliminary financial information for review by the 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.

Pending Merger with FSIC II

On May 31, 2019, the Funds, Merger Sub 1, Merger Sub 2, Merger Sub 3, and the Advisor entered into the Merger Agreement. The Merger Agreement provides that, subject to the conditions set forth in the Merger Agreement, (i) Merger Sub 1 will merge with and into the Company, with the Company continuing as the surviving company and as a wholly-owned subsidiary of FSIC II, or Merger 1A, and, immediately thereafter, the Company will merge with and into FSIC II, with FSIC II continuing as the surviving company, or Merger 1, (ii) Merger Sub 2 will merge with and into CCT II, with CCT II continuing as the surviving company and as a wholly-owned subsidiary of FSIC II, or Merger 2A, and, immediately thereafter, CCT II will merge with and into FSIC II, with FSIC II continuing as the surviving company, or Merger 2, and (iii) Merger Sub 3 will merge with and into FSIC IV, with FSIC IV continuing as the surviving company and as a wholly-owned subsidiary of FSIC II, or Merger 3A, and, immediately thereafter, FSIC IV will merge with and into FSIC II, with FSIC II continuing as the surviving company. The parties to the Merger Agreement intend the Mergers to be treated as a “reorganization” within the meaning of Section 368(a) of the Code.

In the Mergers, each share of the Company’s common stock, CCT II common stock and FSIC IV common stock issued and outstanding immediately prior to the effective time of Merger 1A, Merger 2A and Merger 3A, respectively, will be converted into the right to receive a number of shares of FSIC II common stock equal to the applicable Exchange Ratio. The Exchange Ratio for each of Merger 1A, Merger 2A and Merger 3A will equal the net asset value per share of the Company’s common stock, CCT II common stock and FSIC IV common stock, respectively (determined, in each case, no earlier than 48 hours (excluding Sundays and holidays) prior to the closing date of the applicable Merger), divided by the net asset value per share of FSIC II common stock (determined, in each case, no earlier than 48 hours (excluding Sundays and holidays) prior to the closing date of the applicable Merger).

The Merger Agreement contains representations, warranties and covenants, including, among others, covenants relating to the operation of each of the Funds’ and the Advisor’s businesses during the period prior to the closing of the Mergers. The Funds have agreed to convene and hold meetings of their respective

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stockholders for the purpose of obtaining the required approvals of the Funds’ stockholders, respectively, and have agreed to recommend that their stockholders approve their respective proposals.

The Merger Agreement provides that the board of directors or trustees of each Fund may not solicit proposals relating to alternative transactions, or, subject to certain exceptions, enter into discussions or negotiations or provide information in connection with any proposal for an alternative transaction. However, each of the Funds may, subject to certain conditions, change its recommendation to its respective stockholders, terminate the Merger Agreement and enter into an agreement with respect to a superior alternative proposal if the board of directors or trustees of such Fund determines in its reasonable good faith judgment, after consultation with its outside legal counsel, that the failure to take such action would be reasonably likely to breach its standard of conduct under applicable law (taking into account any changes to the Merger Agreement proposed by the other Funds).

Consummation of the Mergers, which is currently anticipated to occur during the fourth quarter of 2019, is subject to certain closing conditions, including (1) requisite approvals of the Funds’ stockholders (2) certain required charter amendments for each of the Funds, (3) the absence of certain legal impediments to the consummation of the Mergers, (4) effectiveness of the registration statement on Form N-14, which includes a joint proxy statement of FSIC II, CCT II, FSIC IV and the Company and a prospectus of FSIC II and (5) subject to certain exceptions, the accuracy of the representations and warranties and compliance with the covenants of each party to the Merger Agreement. Merger 1A (involving a wholly-owned subsidiary of FSIC II and the Company) is a condition precedent to each of the Mergers. No other Merger is a condition precedent to Merger 1A. Therefore, Merger 1A will occur even if Merger 2A (involving a wholly-owned subsidiary of FSIC II and CCT II) and Merger 3A (involving a wholly-owned subsidiary of FSIC II and FSIC IV) do not occur.

Portfolio Investment Activity for the Three and Nine Months Ended September 30, 2019 and for the Year Ended December 31, 2018

Total Portfolio Activity

The following tables present certain selected information regarding our portfolio investment activity for the three and nine months ended September 30, 2019 and the year ended December 31, 2018:

Net Investment Activity	For the Three Months Ended September 30, 2019			For the Nine Months Ended September 30, 2019
Purchases		$	536,022		$	1,203,449
Sales and Repayments			(189,126)			(1,108,376)
Net Portfolio Activity		$	346,896		$	95,073

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	For the Three Months Ended September 30, 2019					For the Nine Months Ended September 30, 2019
New Investment Activity by Asset Class	Purchases			Percentage		Purchases			Percentage
Senior Secured Loans—First Lien		$	393,535		73%		$	861,489		72%
Senior Secured Loans—Second Lien			93,262		17%			148,264		12%
Other Senior Secured Debt			54		0%			36,299		3%
Subordinated Debt			13,493		3%			68,828		6%
Asset Based Finance			35,678		7%			86,971		7%
Equity/Other			—		—			1,598		0%
Total		$	536,022		100%		$	1,203,449		100%

The following table summarizes the composition of our investment portfolio at cost and fair value as of September 30, 2019 and December 31, 2018:

	September 30, 2019 (Unaudited)								December 31, 2018
	Amortized Cost(1)			Fair Value			Percentage of Portfolio		Amortized Cost(1)			Fair Value			Percentage of Portfolio
Senior Secured Loans—First Lien		$	2,667,678		$	2,598,808		70%		$	2,682,140		$	2,639,404		73%
Senior Secured Loans—Second Lien			436,561			388,808		11%			332,741			292,342		8%
Other Senior Secured Debt			104,134			102,849		3%			100,060			93,195		3%
Subordinated Debt			267,768			272,876		7%			386,465			351,809		10%
Asset Based Finance			298,786			255,851		7%			202,171			168,538		4%
Equity/Other			76,513			85,099		2%			93,521			65,995		2%
Total		$	3,851,440		$	3,704,291		100%		$	3,797,098		$	3,611,283		100%

(1)

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

	September 30, 2019 (Unaudited)								December 31, 2018
	Amortized Cost(1)			Fair Value			Percentage of Portfolio		Amortized Cost(1)			Fair Value			Percentage of Portfolio
Senior Secured Loans—First Lien		$	2,667,678		$	2,598,808		70%		$	2,804,068		$	2,757,436		74%
Senior Secured Loans—Second Lien			436,561			388,808		11%			356,184			315,589		8%
Other Senior Secured Debt			104,134			102,849		3%			100,060			93,195		3%
Subordinated Debt			267,768			272,876		7%			386,465			351,809		9%
Asset Based Finance			298,786			255,851		7%			202,171			168,538		4%
Equity/Other			76,513			85,099		2%			93,521			65,995		2%
Total		$	3,851,440		$	3,704,291		100%		$	3,942,469		$	3,752,562		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 presents certain selected information regarding the composition of our investment portfolio as of September 30, 2019 and December 31, 2018:

	September 30, 2019		December 31, 2018
Number of Portfolio Companies		167		157
% Variable Rate Debt Investments (based on fair value)(1)(2)		76.7%		75.9%
% Fixed Rate Debt Investments (based on fair value)(1)(2)		19.3%		21.3%
% Other Income Producing Investments (based on fair value)(3)		0.6%		0.4%
% Non-Income Producing Investments (based on fair value)(2)		2.5%		1.7%
% of Investments on Non-Accrual (based on fair value)		0.9%		0.7%
Weighted Average Annual Yield on Accruing Debt Investments(2)(4)		9.6%		10.5%
Weighted Average Annual Yield on All Debt Investments(5)		9.3%		10.2%

(1)

“Debt Investments” means investments that pay or are expected to pay a stated interest rate, stated dividend rate or other similar stated return.

(2)

Does not include investments on non-accrual status.

(3)

“Other Income Producing Investments” means investments that pay or are expected to pay interest, dividends or other income to the Company on an ongoing basis but do not have a stated interest rate, stated dividend rate or other similar stated return.

(4)

The Weighted Average Annual Yield on Accruing Debt Investments is computed as (i) the sum of (a) the stated annual interest rate, dividend rate or other similar stated return of each accruing Debt Investment, multiplied by its par amount, adjusted to U.S. dollars and for any partial income accrual when necessary, as of the end of the applicable reporting period, plus (b) the annual amortization of the purchase or original issue discount or premium of each accruing Debt Investment; divided by (ii) the total amortized cost of Debt Investments included in the calculated group as of the end of the applicable reporting period.

(5)

The Weighted Average Annual Yield on All Debt Investments is computed as (i) the sum of (a) the stated annual interest rate, dividend rate or other similar stated return of each Debt Investment, multiplied by its par amount, adjusted to U.S. dollars and for any partial income accrual when necessary, as of the end of the applicable reporting period, plus (b) the annual amortization of the purchase or original issue discount or premium of each Debt Investment; divided by (ii) the total amortized cost of Debt Investments included in the calculated group as of the end of the applicable reporting period.

Based on our regular monthly cash distribution amount of $0.058331 per share as of September 30, 2019 and our distribution reinvestment price of $7.55 per share, the annualized distribution rate to stockholders as of September 30, 2019 was 9.27%. The annualized distribution rate to stockholders is expressed as a percentage equal to the projected annualized distribution amount per share divided by our distribution reinvestment price per share. Our annualized distribution rate to stockholders may include income, realized capital gains and a return of investors’ capital. During the nine months ended September 30, 2019, our total return was 4.49% and our total return without assuming reinvestment of distributions was 4.47%.

Based on our regular monthly cash distribution amount of $0.058331 per share as of December 31, 2018 and our distribution reinvestment price of $7.75 per share as of December 31, 2018, the annualized distribution rate to stockholders was 9.03%. During the year ended December 31, 2018, our total return was 0.71% and our total return without assuming reinvestment of distributions was 0.97%.

Our weighted average annual yield on accruing debt investments may be higher than a stockholder’s yield on an investment in shares of our common stock. Our weighted average annual yield on accruing debt investments does not reflect operating expenses that may be incurred by us nor does it include all of our investments. In addition, our weighted average annual yield on accruing debt investments and total return figures disclosed above do not consider the effect of any sales commissions or charges that may have been incurred in connection with the sale of shares of our common stock. Our weighted average annual yield on accruing debt investments, total return and annualized distribution rate to stockholders do not represent actual investment returns to stockholders, are subject to change and, in the future, may be greater or less

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than the rates set forth above. See the section entitled “Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2018 and our other periodic reports filed with the SEC for a discussion of the uncertainties, risks and assumptions associated with these statements. See footnote 6 to the financial highlights table included in Note 11 to our unaudited consolidated financial statements included herein for information regarding the calculations of our total return.

Direct Originations

The following table presents certain selected information regarding our direct originations as of September 30, 2019 and December 31, 2018:

Characteristics of All Direct Originations Held in Portfolio	September 30, 2019	December 31, 2018
Number of Portfolio Companies	76	64
% of Investments on Non-Accrual (based on fair value)	0.7%	0.2%
Total Cost of Direct Originations	$2,819,795	$2,666,284
Total Fair Value of Direct Originations	$2,688,811	$2,580,206
% of Total Investments, at Fair Value	72.6%	71.4%
Weighted Average Annual Yield on Accruing Debt Investments(1)	9.6%	10.4%
Weighted Average Annual Yield on All Debt Investments(2)	9.3%	10.2%

(1)

(2)

Portfolio Composition by Industry Classification

See Note 6 to our unaudited consolidated financial statements included herein for additional information regarding the composition of our investment portfolio by industry classification.

Portfolio Asset Quality

In addition to various risk management and monitoring tools, the Advisor uses an investment rating system to characterize and monitor the expected level of returns on each investment in our portfolio. The Advisor uses an investment rating scale of 1 to 4. The following is a description of the conditions associated with each investment rating:

Investment Rating			Summary Description
1			Performing Investment—generally executing in accordance with plan and there are no concerns about the portfolio company’s performance or ability to meet covenant requirements.
2			Performing investment—no concern about repayment of both interest and our cost basis but company’s recent performance or trends in the industry require closer monitoring.
3			Underperforming investment—some loss of interest or dividend possible, but still expecting a positive return on investment.
4			Underperforming investment—concerns about the recoverability of principal or interest.

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The following table shows the distribution of our investments on the 1 to 4 investment rating scale at fair value as of September 30, 2019 and December 31, 2018:

	September 30, 2019					December 31, 2018
Investment Rating	Fair Value			Percentage of Portfolio		Fair Value			Percentage of Portfolio
1		$	2,298,758		62%		$	2,119,219		59%
2			1,279,085		35%			1,372,565		38%
3			78,223		2%			75,146		2%
4			48,225		1%			44,353		1%
Total		$	3,704,291		100%		$	3,611,283		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 Three and Nine Months Ended September 30, 2019 and 2018

Revenues

Our investment income for the three and nine months ended September 30, 2019 and 2018 was as follows:

	Three Months Ended September 30,										Nine Months Ended September 30,
	2019					2018					2019					2018
	Amount			Percentage of Total Income		Amount			Percentage of Total Income		Amount			Percentage of Total Income		Amount			Percentage of Total Income
Interest income		$	77,460		85%		$	72,761		78%		$	248,663		88%		$	224,573		85%
Paid-in-kind interest income			7,761		8%			10,983		12%			18,283		6%			23,921		9%
Fee income			5,376		6%			9,047		10%			16,460		6%			16,694		6%
Dividend income			659		1%			353		0%			915		0%			430		0%
Total investment income(1)		$	91,256		100%		$	93,144		100%		$	284,321		100%		$	265,618		100%

(1)

For the three months ended September 30, 2019 and 2018, such revenues represent $81,123 and $80,647, respectively, of cash income earned as well as $10,133 and $12,497, respectively, in non-cash portions relating to accretion of discount and PIK interest. For the nine months ended September 30, 2019 and 2018, such revenues represent $259,548 and $238,732, respectively, of cash income earned as well as $24,773 and $26,886, respectively, in non-cash portions relating to accretion of discount and PIK interest. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years after such revenues are recognized.

The 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. Fee income is transaction based, and typically consists of prepayment fees and structuring fees. As such, fee income is generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees.

The increase in interest income during the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018 can be primarily attributed to the higher average invested balance during the three and nine months ended September 30, 2019 as we purchased assets from our TRS onto our balance sheet. The decrease in fee income during the three months ended September 30, 2019 compared to the three months ended September 30, 2018 was primarily due to the decrease of origination activity during the three months ended September 30, 2019 compared to the three months ended September 30, 2018.

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Expenses

Our operating expenses for the three and nine months ended September 30, 2019 and 2018 were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Management fees		$	14,166		$	13,724		$	43,201		$	47,248
Subordinated income incentive fees			5,835			12,827			29,644			25,631
Administrative services expenses			1,325			919			2,522			2,435
Stock transfer agent fees			351			346			1,154			1,124
Accounting and administrative fees			277			274			787			834
Interest expense			19,122			17,709			61,185			48,961
Directors’ fees			97			200			288			913
Expenses associated with our independent audit and related fees			207			101			426			300
Legal fees			551			157			871			226
Printing fees			716			22			1,140			591
Other			1,615			463			2,275			1,132
Operating expenses			44,262			46,742			143,493			129,395
Management fee waiver			—			—			—			(2,594)
Net expenses		$	44,262		$	46,742		$	143,493		$	126,801

The following table reflects selected expense ratios as a percent of average net assets for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Ratio of operating expenses to average net assets		2.02%		2.02%		6.54%		5.53%
Ratio of management fee waiver to average net assets(1)		—		—		—		(0.11)%
Ratio of net operating expenses to average net assets		2.02%		2.02%		6.54%		5.42%
Ratio of incentive fees and interest expense to average net assets(1)		(1.14)%		(1.32)%		(4.14)%		(3.19)%
Ratio of net operating expenses to average net assets, excluding certain expenses		0.88%		0.70%		2.40%		2.23%

(1)

Data may be rounded in order to recompute the ending ratio of net operating expenses to average net assets, excluding certain expenses.

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 facilities and benchmark interest rates such as LIBOR, among other factors.

Net Investment Income

Our net investment income totaled $46,994 ($0.16 per share) and $46,402 ($0.16 per share) for the three months ended September 30, 2019 and 2018, respectively. The increase in net investment income for the three months ended September 30, 2019 can be attributed to the increase in interest income as discussed above, offset by higher interest expense.

Our net investment income totaled $140,828 ($0.49 per share) and $138,817 ($0.48 per share) for the nine months ended September 30, 2019 and 2018, respectively. The increase in net investment income for the nine months ended September 30, 2019 can be attributed to the increase in interest income as discussed above, offset by higher interest expense.

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Net Realized Gains or Losses

Our net realized gains (losses) on investments, TRS and foreign currency for the three and nine months ended September 30, 2019 and 2018 were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net realized gain (loss) on investments(1)		$	(2,580)		$	2,882		$	(66,053)		$	(49,720)
Net realized gain (loss) on total return swap			1,643			4,021			(13,641)			14,258
Net realized gain (loss) on interest rate swaps			(435)			—			(435)			—
Net realized gain (loss) on foreign currency			219			(516)			254			(290)
Total net realized gain (loss)		$	(1,153)		$	6,387		$	(79,875)		$	(35,752)

(1)

We sold investments and received principal repayments of $145,945 and $43,181, respectively, during the three months ended September 30, 2019 and $348,163 and $209,947, respectively, during the three months ended September 30, 2018. We sold investments and received principal repayments of $387,551 and $720,825, respectively, during the nine months ended September 30, 2019 and $818,483 and $314,666, respectively, during the nine months ended September 30, 2018.

Net Change in Unrealized Appreciation (Depreciation)

Our net change in unrealized appreciation (depreciation) on investments, total return swap and interest rate swaps and unrealized gain (loss) on foreign currency for the three and nine months ended September 30, 2019 and 2018 were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net change in unrealized appreciation (depreciation) on investments		$	(32,113)		$	(25,723)		$	38,666		$	(24,297)
Net change in unrealized appreciation (depreciation) on total return swap			(3,091)			939			16,088			(6,246)
Net change in unrealized appreciation (depreciation) on interest rate swaps			(2,327)			—			(18,306)			—
Net change in unrealized gain (loss) on foreign currency			2,956			216			2,145			(253)
Total net change in unrealized appreciation (depreciation)		$	(34,575)		$	(24,568)		$	38,593		$	(30,796)

During the three months ended September 30, 2019, the net change in unrealized appreciation (depreciation) on investments was driven by mark to market declines in certain debt investments. During the nine months ended September 30, 2019, the net change in unrealized appreciation (depreciation) was driven primarily by higher valuations from Level 2 categorized assets, partially offset by the reduction in the valuation of our interest rate swaps.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the three months ended September 30, 2019 and 2018, the net increase in net assets resulting from operations was $11,266 ($0.04 per share) and $28,221 ($0.10 per share), respectively.

For the nine months ended September 30, 2019 and 2018, the net increase in net assets resulting from operations was $99,546 ($0.34 per share) and $72,269 ($0.25 per share), respectively.

Financial Condition, Liquidity and Capital Resources

Overview

As of September 30, 2019, we had $82,333 in cash and foreign currency, which we or our wholly-owned financing subsidiaries held in custodial accounts, and $36,038 in cash held as collateral by

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Citibank under the terms of the TRS. In addition, as of September 30, 2019, we had $592,562 in borrowings available under our financing arrangements, subject to borrowing base and other limitations. As of September 30, 2019, we also had broadly syndicated investments and opportunistic investments that could be sold to create additional liquidity. As of September 30, 2019, we had unfunded debt investments with aggregate unfunded commitments of $171,551 and unfunded equity/other commitments of $123,924. We maintain sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise.

We currently generate cash primarily from cash flows from fees, interest and dividends earned from our investments as well as from the issuance of shares under the distribution reinvestment plan, and principal repayments and proceeds from sales of our investments. To seek to enhance our returns, we also employ leverage as market conditions permit and at the discretion of the 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 fees, interest and dividends earned from our investments and from the issuance of shares under the distribution reinvestment plan, as well as 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.

Financing Arrangements

The following table presents summary information with respect to our outstanding financing arrangements as of September 30, 2019:

Arrangement

Type of Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity Date

BNP Facility(1)

Prime Brokerage Facility

L+1.25%

100,000

24,616(2)

March 27, 2020(3)

Deutsche Bank Credit Facility(1)

Revolving Credit Facility

L+2.00%

331,800

168,200

February 26, 2024

JPM Credit Facility(1)

Revolving Credit Facility

L+2.50%

320,000

80,000

July 15, 2022

Goldman Facility(1)

Term Loan Credit Facility

L+2.50%

300,000

—

December 15, 2019

Senior Secured Revolving Credit Facility(1)

Revolving Credit Facility

L+ 2.00% – 2.25%(4)

405,254(5)

319,746

August 9, 2023

Total

1,457,054

592,562

Citibank Total Return
Swap

Total Return Swap

L+1.55%

—

N/A(6)

(1)

The carrying amount outstanding under the facility approximates its fair value.

(2)

The amount available under the BNP Facility is calculated based on the value of the pledged collateral, rather than BNP Paribas’ commitment. We may borrow amounts in excess of BNP Paribas’ commitment, at the discretion of BNP Paribas, to the extent the pledged collateral provides sufficient coverage for additional borrowings.

(3)

(4)

The spread over LIBOR is determined by reference to the ratio of the value of the borrowing base to the aggregate amount of certain outstanding indebtedness of the Company.

(5)

Amount includes borrowings in U.S. dollars, Canadian dollars, Australian dollars, Euros and pounds sterling. Canadian dollar balance outstanding of CAD $48,900 has been converted to U.S. dollars at an exchange rate of CAD $1.00 to $0.76 as of September 30, 2019, Australian dollar balance outstanding of AUD $55,400 has been converted to U.S. dollars at an exchange rate of AUD $1.00 to $0.67 as of September 30, 2019, Euro balance outstanding of €51,950 has been converted to U.S. dollars at an exchange rate of €1.00 to $1.09 as of September 30, 2019 and Pound sterling balance outstanding of £19,750 has been converted to U.S. dollars at an exchange rate of £1.00 to $1.23 as of September 30, 2019 to reflect total amount outstanding in U.S. dollars.

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(6)

For additional information regarding our financing arrangements, see Note 9 to our unaudited consolidated financial statements included herein.

RIC Status and Distributions

We have elected to be subject to tax as a RIC under Subchapter M of the Code. In order to qualify 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 tax on certain undistributed income unless we make distributions in a timely manner to our stockholders generally of an amount at least equal to the sum of (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gain net income, which is the excess of capital gains in excess of capital losses, or “capital gain net income” (adjusted for certain ordinary losses), for the one-year period ending October 31 of that calendar year 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 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.

Subject to applicable legal restrictions and the sole discretion of our board of directors we intend to declare regular cash distributions on a quarterly basis and pay such distributions on a monthly basis. We will calculate each stockholder’s specific distribution amount for the period using record and declaration dates and each stockholder’s distributions will begin to accrue on the date that shares of our common stock are issued to such stockholder. From time to time, we may also pay special interim distributions in the form of cash or shares of our common stock at the discretion of our board of directors. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of our board of directors.

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. Each year a statement on Form 1099-DIV identifying the sources of the distributions will be mailed to our stockholders. No portion of the distributions paid during the nine months ended September 30, 2019 and 2018 represented a return of capital.

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

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The following table reflects the cash distributions per share that we have declared and paid on our common stock during the nine months ended September 30, 2019 and 2018:

	Distribution
For the Three Months Ended	Per Share			Amount
Fiscal 2018
March 31, 2018		$	0.17499		$	50,490
June 30, 2018			0.17499			50,489
September 30, 2018			0.17499			50,481
Total		$	0.52497		$	151,460
Fiscal 2019
March 31, 2019		$	0.17499		$	50,467
June 30, 2019			0.17499			50,463
September 30, 2019			0.17499			50,946
Total		$	0.52497		$	151,876

See Note 5 to our unaudited consolidated financial statements included herein 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 nine months ended September 30, 2019 and 2018.

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 fair 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, the 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, 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

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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 the Advisor reviewing and documenting valuations of each portfolio company or investment, which valuations are obtained from an independent third-party valuation service and provide a valuation range;

•

the Advisor then provides the valuation committee of our board of directors, or the valuation committee, with its valuation recommendation for each portfolio company or investment along with supporting materials;

•

preliminary valuations are then discussed with the valuation committee;

•

our valuation committee reviews the preliminary valuations and the Advisor, together with our independent third-party valuation services, if applicable, supplement the preliminary valuations to reflect any comments provided by the valuation committee;

•

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

•

our board of directors discusses the valuations and determines the fair value of each such investment in our portfolio in good faith based on various statistical and other factors, including the input and recommendation of the 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 the 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 the Advisor, 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.

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The Advisor, 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. The Advisor, 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 the Advisor and any approved independent third-party valuation services, if applicable, may consider relevant in assessing fair value. Generally, the value of our equity interests in public companies for which market quotations are readily available is based upon the most recent closing public market price. Portfolio securities that carry certain restrictions on sale are typically valued at a discount from the public market value of the security.

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

The fair values of our investments are determined in good faith by our board of directors. Our board of directors is 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 the Advisor, and has authorized the Advisor 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 the Advisor’s implementation of the valuation process.

See Note 8 to our unaudited consolidated financial statements included herein for additional information regarding the fair value of our financial instruments.

Derivative Instruments

We recognize all derivative instruments as assets or liabilities at fair value in our consolidated financial statements. Derivative contracts entered into by us are not designated as hedging instruments, and as a result, we present changes in fair value through net change in unrealized appreciation (depreciation) on derivative instruments in the consolidated statements of operations. Realized gains and losses that occur upon the cash settlement of the derivative instruments are included in net realized gains (losses) on derivative instruments in the condensed consolidated statements of operations. As of December 31, 2018, the Company’s instruments included interest rate swaps.

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. Distributions received from limited liability company (“LLC”) and limited partnership (“LP”) investments are evaluated to determine if the distribution should be recorded as dividend income or a return of capital. 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

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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 earn such amounts.

Effective January 1, 2018, we adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, using the cumulative effect method applied to in-scope contracts with customers that have not been completed as of the date of adoption. We did not identify any in-scope contracts that had not been completed as of the date of adoption and, as a result, we did not recognize a cumulative effect on stockholders’ equity in connection with the adoption of the new revenue recognition guidance.

The new revenue recognition guidance applies to all entities and all contracts with customers to provide goods or services in the ordinary course of business, excluding, among other things, financial instruments as well as certain other contractual rights and obligations. Under the new revenue recognition guidance, which we have applied to all new in-scope contracts as of the date of adoption, structuring and other upfront fees are recognized as revenue based on the transaction price as the performance obligation is fulfilled. The related performance obligation consists of structuring activities and is satisfied over time as such activities are performed. Consideration is variable and is constrained from being included in the transaction price until the uncertainty associated with the variable consideration is resolved, typically as of the trade date of the related transaction. Payment is typically due on the settlement date of the related transaction.

For the nine months ended September 30, 2019, we recognized $8,367 in structuring fee revenue under the new revenue recognition guidance and included such revenue in the fee income line item on our consolidated statement of operations. Comparative periods are presented in accordance with revenue recognition guidance effective prior to January 1, 2018, under which we recorded structuring and other non-recurring upfront fees as income when earned. We have determined that the adoption of the new revenue recognition guidance did not have a material impact on the amount of revenue recognized for the nine months ended September 30, 2019.

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.

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 nine months ended September 30, 2019 and 2018, we did not incur any interest or penalties.

See Note 2 to our unaudited consolidated financial statements included herein for additional information regarding our significant accounting policies.

Contractual Obligations

We have entered into an agreement with the 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

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weekly value of our gross assets and (b) an incentive fee based on our performance. The Advisor is reimbursed for administrative expenses incurred on our behalf. See Note 4 to our unaudited consolidated financial statements included herein for a discussion of this agreement and for the amount of fees and expenses accrued under similar agreements with FSIC III Advisor during the three and nine months ended September 30, 2019 and 2018.

A summary of our significant contractual payment obligations related to the repayment of our outstanding indebtedness at September 30, 2019 is as follows:

		Payments Due By Period
	Maturity Date(1)	Total			Less than 1 year			1 – 3 years			3 – 5 years			More than 5 years
BNP Facility(2)	March 27, 2020		$	100,000		$	100,000			—			—		—
Deutsche Bank Credit Facility(3)	February 26, 2024		$	331,800			—			—		$	331,800		—
JPM Credit Facility(4)	July 15, 2022		$	320,000			—		$	320,000			—		—
Goldman Facility(5)	December 15, 2019		$	300,000		$	300,000			—			—		—
Senior Secured Revolving Credit Facility(6)	August 9, 2023		$	405,254			—			—		$	405,254		—

(1)

Amounts outstanding under the financing arrangements will mature, and all accrued and unpaid interest thereunder will be due and payable, on the maturity date.

(2)

At September 30, 2019, $24,616 remained unused under the BNP Facility.

(3)

At September 30, 2019, $168,200 remained unused under the Deutsche Bank Credit facility.

(4)

At September 30, 2019, $80,000 remained unused under the JPM Credit facility.

(5)

At September 30, 2019, no amounts remained unused under the Goldman facility.

(6)

At September 30, 2019, $319,746 remained unused under the Senior Secured Revolving Credit Facility.

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

Recent Accounting Pronouncements: In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement-Disclosures Framework-Changes to Disclosure Requirements of Fair Value Measurement (Topic 820), or ASU 2018-13. ASU 2018-13 introduces new fair value disclosure requirements and eliminates and modifies certain existing fair value disclosure requirements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently evaluating the impact of ASU 2018-13 on our financial statements.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk (dollar amounts in thousands).

Interest Rate Risk

We are subject to financial market risks, including changes in interest rates. As of September 30, 2019, 76.7% of our portfolio investments (based on fair value) were debt investments paying variable interest rates and 19.3% were debt investments paying fixed interest rates, while 0.6% were other income producing investments, 2.5% were non-income producing investments and the remaining 0.9% consisted of investments on non-accrual status. 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 the Advisor with respect to our increased pre-incentive fee net investment income.

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Subject to the requirements of the 1940 Act, we may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts. Although hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates. As of September 30, 2019, we have four pay-fixed, receive-floating interest rate swaps which we pay an annual fixed rate of 2.59% to 2.81% and receive three-month LIBOR on an aggregate notional amount of $540 million. The interest rate swaps have quarterly settlement payments.

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

The following table shows the effect over a twelve-month period of changes in interest rates on our interest income, interest expense and net interest income, assuming no changes in the composition of our investment portfolio, including the accrual status of our investments, and our financing arrangements in effect as of September 30, 2019:

Basis Point Change in Interest Rates	Increase (Decrease) in Interest Income(1)			Increase (Decrease) in Interest Expense			Increase (Decrease) in Net Interest Income			Percentage Change in Net Interest Income
Down 100 basis points		$	(27,331)		$	(14,824)		$	(12,507)		(4.4)%
No change			—			—			—		—
Up 100 basis points		$	27,963		$	14,824		$	13,139		4.6%
Up 300 basis points		$	85,922		$	44,472		$	41,450		14.6%
Up 500 basis points		$	144,611		$	74,120		$	70,491		24.8%

(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 September 30, 2019, all 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 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.

In addition, we may have risk regarding portfolio valuation. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Valuation of Portfolio Investments.”

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, 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 September 30, 2019.

Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we would meet our disclosure obligations.

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Changes in Internal Control Over Financial Reporting

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 occurred during the three-month period ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1.

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 1A.

Risk Factors.

There have been no material changes from the risk factors set forth in our annual report on Form 10-K for the year ended December 31, 2018, as supplemented by our definitive proxy statement for the Mergers (filed on August 13, 2019.)

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

Item 3.

Defaults upon Senior Securities.

Not applicable.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

Not applicable.

Item 6.

Exhibits.

Please note that the agreements included as exhibits to this quarterly report on Form 10-Q 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 quarterly report or hereby incorporated by reference to exhibits previously filed with the SEC:

		2.1				Agreement and Plan of Merger, dated as of May 31, 2019, by and among FS Investment Corporation II, Corporate Capital Trust II, FS Investment Corporation III, FS Investment Corporation IV, NT Acquisition 1, Inc., NT Acquisition 2, Inc., NT Acquisition 3, Inc. and FS/KKR Advisor, LLC. (Incorporated by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on June 3, 2019).
		3.1				Articles of Amendment and Restatement of the Registrant (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on April 2, 2014).
		3.2				Articles Supplementary of the Registrant (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on June 3, 2019).
		3.3				Second Amended and Restated Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on June 3, 2019).

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		4.1				Second Amended and Restated Distribution Reinvestment Plan of the Registrant (Incorporated by reference to Exhibit 4.1 to the Registrant’ s Current Report on Form 8-K filed on October 13, 2017.)
		10.1				Investment Advisory and Administrative Services Agreement, dated as of April 9, 2018, by and between the Registrant and FS/KKR Advisor, LLC (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-Kfiled on April 9, 2018).
		10.2				Custodian Agreement, dated as of January 6, 2014, by and between the Registrant and State Street Bank and Trust Company (Incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed on March 31, 2014).
		10.3				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 the Registrant’s Current Report on Form 8-K filed on July 2, 2014).
		10.4				ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, each dated as of June 26, 2014, including the Amended and Restated Paragraph 13 to such Credit Support Annex, dated September 5, 2017, by and between Center City Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 11, 2017).
		10.5				Schedule to the ISDA 2002 Master Agreement, amended and restated as of June 28, 2019, between Center City Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on July 5, 2019).
		10.6				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 the Registrant’s Current Report on Form 8-K filed on July 2, 2014).
		10.7				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 the Registrant’s Current Report on Form 8-K filed on August 27, 2014).
		10.8				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 the Registrant’s Current Report on Form 8-K filed on October 2, 2014).
		10.9				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 the Registrant’s Current Report on Form 8-K filed on February 3, 2015).
		10.10				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 the Registrant’s Current Report on Form 8-K filed on July 2, 2015).
		10.11				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 the Registrant’s Current Report on Form 8-K filed on October 16, 2015).
		10.12				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 the Registrant’s Current Report on Form 8-K filed on July 1, 2016).
		10.13				Seventh Amended and Restated Confirmation Letter Agreement, dated as of June 27, 2017, by and between Center City Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 28, 2017).
		10.14				Eighth Amended and Restated Confirmation Letter Agreement, dated as of September 5, 2017, by and between Center City Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 11, 2017).
		10.15				Ninth Amended and Restated Confirmation Letter Agreement, dated as of March 31, 2018, by and between Center City Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 4, 2018).

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		10.16				Tenth Amended and Restated Confirmation Letter Agreement, dated as of June 29, 2018, by and between Center City Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 5, 2018).
		10.17				Eleventh Amended and Restated Confirmation Letter Agreement, dated as of September 28, 2018, by and between Center City Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 1, 2018).
		10.18				Twelfth Amended and Restated Confirmation Letter Agreement, dated as of December 26, 2018, by and between Center City Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 2, 2019).
		10.19				Thirteenth Amended and Restated Confirmation Letter Agreement, dated as of June 28, 2019, by and between Center City Funding LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 5, 2019).
		10.20				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 the Registrant’s Current Report on Form 8-K filed on October 23, 2014).
		10.21				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 the Registrant’s Current Report on Form 8-K filed on October 23, 2014).
		10.22				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 the Registrant’s Current Report on Form 8-K filed on October 23, 2014).
		10.23				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 the Registrant’s Current Report on Form 8-K filed on March 13, 2015).
		10.24				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 10.21 to the Registrant’s Annual Report on Form 10-K filed on March 11, 2016).
		10.25				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 the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 filed on November 14, 2016).
		10.26				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 the Registrant’s Current Report on Form 8-K filed on September 2, 2016).
		10.27				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 10.34 to the Registrant’s Current Report on Form 8-K filed on November 21, 2016).

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		10.28				Sixth Amendment Agreement, dated as of May 29, 2018, to the Committed Facility Agreement, dated as of October 17, 2014, between BNP Paribas Prime Brokerage International, Ltd. and Burholme Funding LLC. (Incorporated by reference to Exhibit 10.34 to the Registrant’s Quarterly Report on Form 10-Q filed on August 14, 2018).
		10.29				Seventh Amendment Agreement, dated as of June 12, 2019, to the Committed Facility Agreement, dated as of October 17, 2014, between BNP Paribas Prime Brokerage International, Ltd. and Burholme Funding LLC. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 17, 2019).
		10.32				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 the Registrant’s Current Report on Form 8-K filed on December 8, 2014).
		10.33				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 the Registrant’s Current Report on Form 8-K filed on March 2, 2015).
		10.34				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 the Registrant’s Current Report on Form 8-K filed on March 26, 2015).
		10.35				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 the Registrant’s Annual Report on Form 10-K filed on March 11, 2016).
		10.36				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 the Registrant’s Current Report on Form 8-K filed on September 24, 2015).
		10.37				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 the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed on March 11, 2016).
		10.38				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 the Registrant’s Current Report on Form 8-K filed on January 19, 2017).
		10.39				Amendment No. 8 to Loan Financing and Servicing Agreement, dated as of April 5, 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 10.37 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017 filed on May 10, 2017).
		10.40				Amendment No. 9 to Loan Financing and Servicing Agreement, dated as of March 12, 2018, between Dunlap Funding LLC, as borrower, Deutsche Bank AG, New York Branch, as facility agent (formerly administrative agent), each lender party thereto, and Wells Fargo, National Association, as collateral agent and collateral custodian (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 15, 2018).

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		10.41				Amendment No. 10 to Loan Financing and Servicing Agreement, dated as of June 20, 2018, among Dunlap Funding LLC, as borrower, Deutsche Bank AG, New York Branch, as facility agent (formerly administrative agent), each lender party thereto, each agent party thereto, and Wells Fargo Bank, National Association, as collateral agent and collateral custodian. (Incorporated by reference to Exhibit 10.48 to the Registrant’s Quarterly Report on Form 10-Q filed on August 14, 2018).
		10.42				Waiver, Assignment and Amendment No. 11 to Loan Financing and Servicing Agreement, dated as of September 17, 2018, among Dunlap Funding LLC, as borrower, Deutsche Bank AG, New York Branch, as facility agent (formerly administrative agent), each lender party thereto, each agent party thereto, and Wells Fargo Bank, National Association, as collateral agent and collateral custodian. (Incorporated by reference to Exhibit 10.46 to the Registrant’s Quarterly Report on Form 10-Q filed on November 14, 2018).
		10.43				Amendment No. 12 to Loan Financing and Servicing Agreement, dated as of December 21, 2018, among Dunlap Funding LLC, as borrower, Deutsche Bank AG, New York Branch, as facility agent, each lender party thereto, each agent party thereto, and Wells Fargo Bank, National Association, as collateral agent and collateral custodian. (Incorporated by reference to Exhibit 10.43 to the Registrant’s Annual Report on Form 10-K filed on March 19, 2019).
		10.44				Omnibus Amendment, dated as of February 19, 2019, between Dunlap Funding LLC, as borrower, Deutsche Bank AG, New York Branch, as facility agent, each lender party thereto, each agent party thereto, and Wells Fargo Bank, National Association, as collateral agent and collateral custodian. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 25, 2019).
		10.45				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 the Registrant’s Current Report on Form 8-K filed on May 14, 2015).
		10.46				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 the Registrant’s Current Report on Form 8-K filed on September 14, 2015).
		10.47				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 the Registrant’s Current Report on Form 8-K filed on March 7, 2016).
		10.48				Amended and Restated Loan and Security Agreement, dated as of July 16, 2018, by and between Jefferson Square Funding LLC, as borrower, JPMorgan Chase Bank, National Association, as administrative agent, the lenders party thereto, and State Street Bank and Trust Company, as collateral administrator, collateral agent and securities intermediary (Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on July 20, 2018).
		10.49				Second Amended and Restated Loan and Security Agreement, dated as of March 4, 2019, by and between Jefferson Square Funding LLC, as borrower, JPMorgan Chase Bank, National Association, as administrative agent, the lenders party thereto, and Wells Fargo Bank, National Association, as collateral administrator, collateral agent and securities intermediary party thereto. (Incorporated by reference to Exhibit 10.49 to the Registrant’s Annual Report on Form 10-K filed on March 19, 2019).

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		10.50				Credit Agreement, dated as of July 10, 2019, among Germantown Funding LLC, Goldman Sachs Bank USA, as lender, sole lead arranger, administrative agent and calculation agent, and Wells Fargo Bank, National Association, as collateral agent and collateral administrator. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 16, 2019).
		10.51				Amended and Restated Senior Secured Revolving Credit Agreement, dated as of November 7, 2019, by and among FS KKR Capital Corp., FS Investment Corporation II, and FS Investment Corporation III, as borrowers, JPMorgan Chase Bank, N.A., as administrative agent, ING Capital LLC, as collateral agent, and the lenders, documentation agents, joint bookrunners, and joint lead arrangers party thereto. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 13, 2019.)
		31.1*				Certification of Chief Executive Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended.
		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.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized on November 14, 2019.

				FS INVESTMENT CORPORATION III
				By:			/s/ Michael C. Forman Michael C. Forman Chief Executive Officer (Principal Executive Officer)
				By:			/s/ William Goebel William Goebel Chief Financial Officer (Principal Financial and Accounting Officer)

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FS Investment Corp III Inactive 10-Q2019 Q3 Quarterly report

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