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EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE AND CHIEF FINANCIAL OFFICERS - Corporate Capital Trust, Inc.ex32_1.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - Corporate Capital Trust, Inc.ex31_2.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Corporate Capital Trust, Inc.ex31_1.htm


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

FORM 10-K

 
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2012
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number 814-00827

Corporate Capital Trust, Inc.
(Exact name of registrant as specified in its charter)
 
Maryland
27-2857503
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
   
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida
32801
(Address of principal executive offices)
(Zip Code)
 
Registrant’s telephone number, including area code: (866) 745-3797

Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Name of exchange on which registered
None
 
Not applicable
 
Securities registered pursuant to Section 12(g) of the Act:
 
Common Stock, $0.001 par value per share
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  o    No  x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  o    No x
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
 
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  o    No  o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.05 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
       
Large accelerated filer
o
Accelerated filer  o
     
Non-accelerated filer
x  (Do not check if a smaller reporting company)
Smaller reporting company  o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  o    No  x
 
There is no established market for the Registrant’s shares of common stock. The Registrant is currently conducting an ongoing public offering of its shares of common stock pursuant to a Registration Statement on Form N-2, which shares are currently being offered and sold at $11.05 per share, with discounts available for certain categories of purchasers, or at a price necessary to ensure that shares are not sold at a price, net of sales load, below net asset value per share. The number of shares held by non-affiliates as of June 30, 2012 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately 29,406,242.
 
As of March 12, 2013, there were 76,357,864 shares of the registrant’s common stock outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Registrant incorporates by reference portions of the Corporate Capital Trust Inc. definitive proxy statement for the 2013 Annual Meeting of Shareholders (Items 10, 11, 12, 13 and 14 of Part III) to be filed no later than April 30, 2013. Certain exhibits previously filed with the Securities and Exchange Commission are incorporated by reference into Part IV of this report.
 


 
 

 
 
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The following information contains statements that constitute forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements generally are characterized by the use of terms such as “may,” “should,” “plan,” “anticipate,” “estimate,” “intend,” “predict,” “believe” and “expect” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, our actual results could differ materially from those set forth in the forward-looking statements. Some factors that might cause such a difference include the following: persistent economic weakness at the global or national level, increased direct competition, changes in government regulations or accounting rules, changes in local, national and global capital market conditions, our ability to obtain credit lines or credit facilities on satisfactory terms, changes in interest rates, availability of proceeds from our offering of shares, our ability to identify suitable investments, our ability to close on identified investments, inaccuracies of our accounting estimates, our ability to locate suitable borrowers for our loans and the ability of such borrowers to make payments under their respective loans. Given these uncertainties, we caution you not to place undue reliance on such statements, which apply only as of the date hereof. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances or to reflect the occurrence of unanticipated events. The forward-looking statements should be read in light of the risk factors identified in the “Risk Factors” section of this report.
 
Business
 
General
 
Corporate Capital Trust, Inc. (which is referred to in this report as “we”, “our”, “us” and “our company”) is a non-diversified closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended, or the “1940 Act.” Formed as a Maryland corporation on June 9, 2010, we are externally managed by CNL Fund Advisors Company (“CNL”) and KKR Asset Management LLC (“KKR”). CNL, which is our investment adviser, and KKR, which is our investment sub-adviser, are referred to in this report as our “Advisors.” Our Advisors are collectively responsible for sourcing potential investments, conducting due diligence on prospective investments, analyzing investment opportunities, structuring investments and monitoring our portfolio on an ongoing basis. Both Advisors are registered as investment advisers with the SEC.  CNL also provides the administrative services necessary for our company to operate.
 
We are currently selling shares of our common stock pursuant to a registration statement on Form N-2 (as amended and supplemented, the “Registration Statement”) covering our continuous public offering of up to 150 million shares of common stock for an approximate maximum offering amount of $1.6 billion (the “Offering”). The Registration Statement was declared effective by the SEC on April 4, 2011, at which point the Offering commenced. We commenced business operations on June 17, 2011 and commenced investment operations on July 1, 2011.  See Item 5 “Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities” for current information on the progress of our Offering.
 
Our investment objective is to provide our shareholders with current income and, to a lesser extent, long-term capital appreciation. We seek to meet our investment objective by investing primarily in the debt of privately owned U.S. companies with a focus on originated transactions sourced through the networks of our Advisors. A substantial portion of our portfolio consists of senior and subordinated debt, which we believe offer opportunities for superior risk-adjusted returns and income generation. Our debt investments may take the form of corporate loans or bonds, may be secured or unsecured and may, in some cases, be accompanied by warrants, options or other forms of equity participation. Our portfolio of debt investments includes fixed-rate investments as well as floating-rate investments, the latter of which may provide lower volatility in values in a rising interest rate environment.  We may separately purchase common or preferred equity interests in transactions.  We seek to build on the strong investment expertise and sourcing networks of our Advisors and adhere to an investment approach that emphasizes strong fundamental credit analysis and rigorous portfolio monitoring. We endeavor to be disciplined in selecting investments that we perceive to offer favorable risk/reward characteristics and relative value. We believe the market for lending is currently underserved and characterized by significant demand for capital and comparatively limited available funding, and that we will therefore have considerable opportunities as a provider of capital to achieve attractive pricing and terms on our investments. We are raising funds with the goal of serving our target market and capitalizing on what we believe is a compelling and sustained market opportunity.
 
Our investment strategy is focused on creating and growing an investment portfolio that generates superior risk-adjusted returns by carefully selecting investments through rigorous due diligence and actively managing and monitoring our investment portfolio. Throughout this report we may refer to the issuers of our investments as portfolio companies.  When evaluating an investment in, or investment security issued by a portfolio company, we use the resources of our Advisors to develop an investment thesis and a proprietary view of a potential portfolio company’s intrinsic value. We believe that a flexible approach to investing allows us to take advantage of opportunities that offer the most favorable risk/reward characteristics. Except as restricted by the 1940 Act or by the Internal Revenue Code of 1986, as amended (the “Code”), we deem all of our investment policies to be non-fundamental, which means that they may be changed by our board of directors without shareholder approval.
 
 
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Our Investment Focus
 
While we consider each investment opportunity independently, we generally focus on portfolio companies that share the following characteristics:
 
 
Enterprise Size. We seek to provide capital to medium- and large-sized companies, which typically have more defensible market positions, stronger franchises and operations and better credit characteristics relative to their smaller peers. Although there are no strict lower or upper limits on the enterprise value of a company in which we may invest, we expect to focus on companies with enterprise values ranging from $100 million to $4 billion. We use the term “enterprise value” to refer to the acquisition value of an entire company based on the combined debt and equity value of such company.
 
 
Capital Structure. Our portfolio consists primarily of senior and subordinated debt, which may in some cases be accompanied by warrants, options, equity co-investments, or other forms of equity participation. We seek to invest in companies that generate free cash flow at the time of our investment and benefit from material investments from well-known equity investors.
 
 
Management Team. We seek to prioritize investing in companies with strong, existing management teams that we believe have a clear strategic vision, long-standing experience in their industry and a successful operating track record. We favor companies in which management’s incentives appear to be closely aligned with the long-term performance of the business, such as through equity ownership.
 
 
Stage of Business Life Cycle. We seek mature, privately owned businesses that have long track records of stable, positive cash flow. We do not intend to invest in start-up companies or companies with speculative business plans.
 
 
Industry Focus. While we will consider opportunities within all industries, we seek to prioritize industries having, in our view, favorable characteristics from a lending perspective. For example, we seek companies in established industries with stable competitive and regulatory frameworks, where the main participants have enjoyed predictable, less-volatile earnings. We give less emphasis to industries that are frequently characterized by less predictable and more volatile earnings.
 
 
Geography. As a business development company under the 1940 Act, we focus on and invest at least 70% of our total assets in U.S. companies. To the extent we invest in foreign companies, we intend to do so in accordance with 1940 Act limitations and only in jurisdictions with established legal frameworks and a history of respecting creditor rights, including countries that are members of the European Union, as well as Canada, Australia and Japan.
 
While we believe that the criteria listed above are important in identifying and investing in portfolio companies, we consider each investment on a case-by-case basis. It is possible that not all of these criteria will be met by each portfolio company in which we invest. There is no limit on the maturity or duration of any investment in our portfolio. We anticipate that substantially all of the investments held in our portfolio will have either a sub-investment grade rating by Moody’s Investors Service and/or Standard & Poor’s or will not be rated by any rating agency. Investment sizes will vary as our capital base changes and will ultimately be at the discretion of our Advisors subject to oversight by our board of directors.
 
Portfolio and Investment Activity
 
As of December 31, 2012, our investment program consisted of two main components.  First, throughout 2011 and 2012 we have been engaged in the direct purchase of debt securities primarily issued by portfolio companies, and these debt securities were acquired through both secondary market and primary issuance transactions.  We refer to this investment component as our investment portfolio in this report. Second, beginning in November 2012, we have been increasing our economic exposure to portfolio companies by entering into a total return swap arrangement (“the TRS”) with a commercial bank counterparty and directing the creation of a portfolio of underlying corporate bonds and loans that serve as reference assets under the TRS. We refer to this investment component as our portfolio of TRS reference assets in this report. In the case of our portfolio of TRS reference assets, we receive all: (i) realized income and fees and (ii) realized capital gains generated by TRS reference assets.  In return, we must pay quarterly to the TRS counterparty a payment consisting of: (i) realized capital losses and (ii) financing costs that are based on a floating interest rate and the settled notional amount of TRS reference assets.  At the end of the TRS contract life, we will receive additional economic benefit if the net value of the portfolio of TRS reference assets appreciates relative to the settlement date TRS notional amount.  Correspondingly, we will be required to pay the counterparty the amount, if any, by which the net value of the portfolio of TRS reference assets declines relative to the settlement date TRS notional amount. We do not own, or have physical custody of, the TRS reference assets. The TRS reference assets are not direct investments by us.
 
 
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During the years ending December 31, 2012 and 2011, we invested $992.0 million and $106.8 million, respectively, in portfolio companies, and we sold investment positions totaling $358.6 million and $0.5 million, respectively. As of December 31, 2012 and 2011, our investment portfolio consisted of 165 and 142 investment positions in 126 and 110 portfolio companies, respectively, for a total fair value of $697.7 million and $106.6 million, respectively, excluding our short term investments and derivative instruments.  As of December 31, 2012, the TRS provided us with economic exposure to 54 investment positions represented by 47 portfolio companies with a total value of $164.8 million.  There were seven investment positions and 19 portfolio companies represented in both our investment portfolio and our portfolio of TRS reference assets as of December 31, 2012.  We had not entered into any TRS as of December 31, 2011.
 
 The information presented below is for further analysis of our investment portfolio and our portfolio of TRS reference assets. However, our investment program is not managed with any specific investment diversification or dispersion target goals. The following table summarizes the composition of our investment portfolio and our portfolio of TRS reference assets based on fair value as of December 31, 2012, excluding our short term investments:
 
   
As of December 31, 2012
 
Asset Category
 
Investment Portfolio
at Fair Value
   
Percentage of Investment Portfolio
   
TRS Reference Assets
at Fair Value
   
Percentage of
TRS Portfolio
 
Senior debt securities
  $ 522,442,812       74.9 %   $ 128,005,782       77.7
%
Subordinated debt securities
    169,788,339       24.3       36,762,456       22.3  
Total debt securities
    692,231,151       99.2       164,768,238       100.0  
Common stock
    453,397       0.1              
Preferred stock
    4,983,883       0.7              
Total equity securities
    5,437,280       0.8              
Total
  $ 697,668,431       100.0 %   $ 164,768,238       100.0
%
 
The primary investment concentrations include (i) senior debt and (ii) subordinated debt securities. The debt investments in our investment portfolio as of December 31, 2012 were purchased at an average price of 99.4% of par or stated value, as applicable.
 
For a further discussion of our investment activities and investment attributes of both our investment portfolio and our portfolio of TRS reference assets as of December 31, 2012 and 2011, see “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations; Portfolio Investment Activity for the years ending December 31, 2012 and 2011.”
 
Competition
 
As a business development company with a particular focus on lending activities, we experience competition from other business development companies, commercial banks, specialty finance companies, open-end and closed-end investment companies, opportunity funds, private equity funds and institutional investors, many of which generally have had greater financial resources than we do for the purposes of lending to U.S. businesses within our stated investment focus. These competitors may also have a lower cost of capital, may be subject to less regulatory oversight, and may have lower overall operating costs. The level of competition impacts both our ability to raise capital, find suitable corporate borrowers that meet our investment criteria and acquire and originate loans to these corporate borrowers. We may also face competition from other funds in which affiliates of KKR participate or advise.
 
We believe we have the following competitive advantages over other capital providers that operate in the markets we target and allow us to take advantage of the market opportunity we have identified:
 
 
Proprietary Sourcing and Deal Origination. Our Advisors, through their deep industry relationships and investment teams that actively source new investments, provide us with immediate access to an established source of proprietary deal flow. CNL and KKR have built leading franchises and deep relationships with major companies, financial institutions and other investment and advisory institutions for sourcing new investments. KKR’s investment professionals are also organized into industry groups that conduct their own primary research, develop views on industry themes and trends and proactively work to identify companies in which to invest, often on an exclusive basis. We believe that our Advisors’ broad networks and the internal deal generation strategies of their investment teams create favorable opportunities to deploy capital across a broad range of originated transactions that have attractive investment characteristics.
 
 
Focusing on Preserving Capital and Minimizing Losses. We believe that protecting principal and avoiding capital losses are critical to generating attractive risk-adjusted returns. Toward that end, our investment process is designed to: (i) utilize our Advisors' proprietary knowledge and deep industry relationships to identify attractive prospective portfolio companies, (ii) conduct rigorous due diligence to evaluate the creditworthiness of, and potential returns from, credit investments in such portfolio companies, (iii) stress test prospective investments to assess the viability of potential portfolio companies in a downside scenario and their ability to repay principal and (iv) structure investments and design covenants and other rights that anticipate and mitigate issues identified through this process.
 
 
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Experienced Management and Investment Expertise. Our Advisors each bring with them more than 35 years of investment experience that spans a broad range of economic, market and financial conditions. By accessing their combined resources, skills and experience, we believe we benefit from CNL’s contrarian investment philosophy of focusing on underserved, undercapitalized markets and KKR’s rigorous investment approach, industry expertise and experience investing throughout a company’s capital structure.
 
 
Disciplined Credit Analysis and Portfolio Monitoring. Our Advisors provide us with immediate access to an established platform for evaluating investments, managing risk and focusing on opportunities that generate superior returns with appropriate levels of risk. Through KKR, we benefit from an investment infrastructure that currently employs more than 200 investment professionals, including more than 50 credit-focused investment professionals that currently track over 400 corporate credits. This platform should allow for intensive due diligence to filter investment opportunities and help select investments that offer the most favorable risk/reward characteristics.
 
 
Versatile Transaction Structuring and Flexible Capital. Our Advisors have experience and expertise in evaluating and structuring investments at all levels of a company’s capital structure and with varying features, providing numerous tools to manage risk while preserving opportunities for income and capital appreciation. We seek to capitalize on this expertise to produce an investment portfolio that performs in a broad range of economic conditions while meeting the unique needs of a broad range of borrowers. Although we are subject to regulation as a business development company, we are not subject to many of the regulatory limitations that govern traditional lending institutions. As a result, we believe that we can be more flexible in selecting and structuring investments and adjusting investment criteria. We believe borrowers view this flexibility as a benefit, making us an attractive financing partner.
 
 
Long-Term Investment Horizon. We believe that our flexibility to make investments with a long-term perspective provides us with the opportunity to generate favorable returns on invested capital and expands the types of investments that we may consider. The long-term nature of our capital helps us avoid disposing of assets at unfavorable prices and we believe makes us a better partner for portfolio companies.
 
 
Limited Leverage. We anticipate maintaining a relatively low level of leverage compared to traditional financial institutions and many unregulated investment funds. We believe that limiting our leverage will reduce volatility and risk in our portfolio. Furthermore, by maintaining prudent leverage levels, we believe we will be better positioned to weather market downturns. We do not foresee at any time reaching the 200% asset coverage ratio limitation, as defined in1940 Act, for business development companies.  We expect to borrow funds, consisting of senior securities, at an asset coverage ratio of approximately 250%.
 
Business Development Company Requirements
 
Business development companies are closed-end funds that elect to be treated as business development companies under the 1940 Act. As such, business development companies are subject to only certain provisions of the 1940 Act, as well as the Exchange Act. Business development companies are provided greater flexibility under the 1940 Act than are other investment companies in dealing with their portfolio companies, issuing securities, and compensating their advisors. Business development companies can be internally or externally managed and may qualify to elect to be taxed as RICs for federal tax purposes. The 1940 Act contains prohibitions and restrictions relating to transactions between business development companies and their affiliates, principal underwriters, and affiliates of those affiliates or underwriters. The 1940 Act requires that a majority of a business development company’s directors be persons other than “interested persons,” as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or withdraw our election as, a business development company unless approved by a majority of our outstanding voting securities. The 1940 Act defines “a majority of the outstanding voting securities” as the lesser of: (1) 67% or more of the voting securities present at a meeting if the holders of more than 50% of our outstanding voting securities are present or represented by proxy or (2) 50% of our voting securities.
 
We are generally not able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, or warrants, options, or rights to acquire our common stock, at a price below the then-current net asset value of our common stock if our board of directors determines that such sale is in our best interests and the best interests of our shareholders, and our shareholders approve such sale. In addition, we may generally issue new shares of our common stock at a price below net asset value in rights offerings to existing shareholders, in payment of dividends, and in certain other limited circumstances.
 
 
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As a business development company, we are generally not permitted to invest in any portfolio company in which our Advisors or any of their affiliates currently have an investment or to make any co-investments with our Advisors or any of their affiliates without an exemptive order from the SEC. We may, however, invest alongside our Advisors and their affiliates’ other clients in certain circumstances where doing so is consistent with applicable law and SEC staff interpretations. For example, we may invest alongside such other advisory clients consistent with guidance promulgated by the SEC Staff permitting us and such other advisory clients to purchase interests in a single class of privately placed securities so long as certain conditions are met, including that no Advisor, acting on our behalf or on behalf of other clients, negotiates any term other than price. We may also invest alongside our Advisors’ respective other clients as otherwise permissible under regulatory guidance, applicable regulations and our Advisors’ allocation policies. We and our Advisors have submitted an exemptive application to the SEC to permit greater flexibility for co-investments. However, there is no assurance that we will obtain such SEC exemptive relief.
 
 Financial Information About Industry Segments and Geographic Areas
 
Our primary objectives include investing in and originating a portfolio of loans, bonds and equity investments to commercial business located throughout the United States. We presently do not evaluate our investments by industry segment but rather we review performance on an individual basis. Accordingly, we do not report industry or geographic area segment information.
 
Entry into Agreements for Investment Advisory Services, Managing Dealer Services and Administrative Services
 
In 2011, we entered into the Investment Advisory Agreement with CNL for the overall management of our company’s investment activities. Our company and CNL have entered into the Sub-Advisory Agreement with KKR under which KKR is responsible for the day-to-day management of our company’s investment portfolio. CNL compensates KKR for advisory services that it provides to our company with 50% of the fees that CNL receives under the Investment Advisory Agreement.  Our board of directors renewed both the Investment Advisory Agreement and the Sub-Advisory Agreement for a one-year term on March 12, 2013. For a further discussion of Investment Advisory and Sub-Advisory Agreements, see “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Contractual Obligations — Investment Advisory Agreements.”
 
In 2011, we entered into a managing dealer agreement with CNL Securities Corp., an affiliate of CNL. CNL Securities Corp. serves as the managing dealer of the Offering and in connection therewith receives selling commissions of up to 7% of gross offering proceeds, a marketing support fee of up to 3% of gross offering proceeds, and reimbursement of due diligence and certain other expenses incurred in connection with the Offering. All or any portion of these fees and expense reimbursements may be re-allowed to participating brokers. We will pay a maximum sales load of 10% of gross offering proceeds for all combined selling commissions, marketing support fees and expense reimbursements.
 
In 2011, we entered into an administrative services agreement with CNL (the “Administrative Services Agreement”) whereby CNL performs, and oversees the performance of various administrative services on our behalf. Administrative services generally include investor services, general ledger accounting, fund accounting, maintaining required corporate and financial records, financial reporting for the Company and its subsidiaries, audit services, preparation of reports to the Company’s board of directors and lenders, calculating the Company’s net asset value, filing tax returns, preparing and filing SEC reports, preparing, printing and disseminating shareholder reports and proxy statements, overseeing the payment of our expenses and  distributions on common stock, oversight of services providers and the performance of administrative and professional services rendered to our company by others. Our board of directors renewed the Administrative Services Agreement for a one-year term on March 12, 2013.
 
CNL, certain CNL affiliates, and KKR receive compensation and reimbursement of expenses in connection with (i) the performance and supervision of administrative services on our behalf and (ii) the Offering.
 
Employees
 
Reference is made to Item 10. “Directors, Executive Officers and Corporate Governance” in our definitive proxy statement for our 2013 annual meeting of shareholders (the “2013 Proxy Statement”) for a listing of our executive officers. We have no employees. Our executive officers are compensated through CNL and/or its affiliates.
 
Tax Status
 
Beginning with our 2011 tax year, we elected to be treated for federal income tax purposes, and intend to qualify annually, as a regulated investment company, or a RIC, under the Code. As a RIC, we generally will not be subject to federal income tax at the corporate level to the extent we distribute annually at least 90% of our taxable income to our shareholders and meet other compliance requirements.
 
 
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Corporate Information
 
Our executive offices are located at 450 S. Orange Ave., Orlando, FL 32801, and our telephone number is 866-650-0650.
 
We make available all of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports free of charge on our internet website at www.corporatecapitaltrust.com as soon as reasonably practical after such material is electronically filed with or furnished to the SEC. These reports are also available on the SEC’s internet website at www.sec.gov. The public may also read and copy paper filings that we have made with the SEC at the SEC’s Public Reference Room, located at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330.
 
Risk Factors
 
Risks Related to Our Business
 
We have a limited operating history.
 
We were formed on June 9, 2010, and commenced operations on June 16, 2011 upon meeting our minimum offering requirement of selling, in aggregate, $2 million in common stock. We are subject to all of the business risks and uncertainties associated with any business with a relatively short operating history, including the risk that we will not achieve or sustain our investment objective and that the value of our common stock could decline substantially.
 
Price declines in the medium- and large-sized corporate leveraged loan market may adversely affect the fair value of our portfolio, reducing our net asset value through increased net unrealized depreciation and the incurrence of realized losses.
 
Prior to the onset of the financial crisis that began in 2007, securitized investment vehicles, hedge funds and other highly leveraged non-bank financial institutions comprised the majority of the market for purchasing and holding senior and subordinated debt. As the trading price of the loans underlying these portfolios began to deteriorate beginning in the first quarter of 2007, we believe that many institutions were forced to raise cash by selling their interests in performing assets in order to satisfy margin requirements or the equivalent of margin requirements imposed by their lenders. This resulted in a forced deleveraging cycle of price declines, compulsory sales, and further price declines, with falling underlying credit values, widespread redemption requests, and other constraints resulting from the credit crisis generating further selling pressure.
 
Conditions in the medium- and large-sized U.S. corporate debt market may experience similar disruption or deterioration in the future, which may cause pricing levels to similarly decline or be volatile. As a result, our net asset value could decline through an increase in unrealized depreciation and incurrence of realized losses in connection with the sale of our investments, which could have a material adverse impact on our business, financial condition and results of operations.
 
Our ability to achieve our investment objective depends on the Advisors’ ability to manage and support our investment process. If the Advisors were to lose a significant number of their respective key professionals, our ability to achieve our investment objective could be significantly harmed.
 
We do not have employees.  Additionally, we have no internal management capacity other than our appointed executive officers and will be dependent upon the investment expertise, skill and network of business contacts of our Advisors to achieve our investment objective. Our Advisors will evaluate, negotiate, structure, execute, monitor, and service our investments. Our future success will depend to a significant extent on the continued service and coordination of our Advisors, including their respective key professionals. The departure of a significant number of an Advisor’s key professionals could have a material adverse effect on our ability to achieve our investment objective.
 
Our ability to achieve our investment objective also depends on the ability of our Advisors to identify, analyze, invest in, finance, and monitor companies that meet our investment criteria. Our Advisors’ capabilities in structuring the investment process, providing competent, attentive and efficient services to us, and facilitating access to financing on acceptable terms depend on the involvement of investment professionals in an adequate number and of adequate sophistication to match the corresponding flow of transactions. To achieve our investment objective, our Advisors may need to retain, hire, train, supervise, and manage new investment professionals to participate in our investment selection and monitoring process. Our Advisors may not be able to find qualified investment professionals in a timely manner or at all. Any failure to do so could have a material adverse effect on our business, financial condition and results of operations.
 
In addition, both the Investment Advisory Agreement and the Sub-Advisory Agreement have termination provisions that allow the agreements to be terminated by us on 60 days’ notice without penalty. Our Investment Advisory Agreement may be terminated at any time, without penalty, by CNL upon 120 days’ notice to us. The Sub-Advisory Agreement may be terminated at any time, without the payment of any penalty, by KKR upon 120 days’ notice and may be terminated, without the payment of penalty, by CNL upon 60 days’ notice if our board of directors or holders of a majority of our outstanding shares of common stock so direct. In addition, CNL and KKR have agreed that, in the event that one of them is removed by us other than for cause, or the advisory agreement of either of them is not renewed, the other will also terminate its agreement with us. The termination of either agreement may adversely affect the quality of our investment opportunities. In addition, in the event either agreement were terminated, it may be difficult for us to replace CNL or for CNL to replace KKR.
 
 
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The amount of any distributions we may make is uncertain. Our distributions may exceed our earnings; therefore, portions of the distributions that we pay may represent a return of capital to you, which will lower your tax basis in your shares and reduce the amount of funds we have for investment in portfolio companies. We may not be able to pay you distributions, or be able to sustain distributions at any particular level, and our distributions may not grow over time. We have not established any limit on the extent to which we may use borrowings, if any, or proceeds from our Offering to fund distributions (which may reduce the amount of capital we ultimately invest in portfolio companies) and there can be no assurance that we will be able to sustain distributions at any particular level.
 
We pay distributions out of assets legally available for distribution. However, we cannot assure you that we will achieve investment results that will allow us to make a targeted level of cash distributions or year-to-year increases in cash distributions. Our ability to pay distributions might be adversely affected by the impact of the risks described in this report. In addition, the inability to satisfy the asset coverage test applicable to us as a business development company can limit our ability to pay distributions. We cannot assure you that we will continue to pay distributions to our shareholders in the future. In the event that we encounter delays in locating suitable investment opportunities, we may pay our distributions from the proceeds of our Offering or from borrowings in anticipation of future cash flow, which may constitute a return of your capital and will lower your tax basis in your shares. Distributions from the proceeds of our Offering or from borrowings also could reduce the amount of capital we ultimately invest in interests of portfolio companies.
 
Because our business model depends to a significant extent upon relationships with corporations, financial institutions and investment firms, the inability of the Advisors to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business.
 
We expect that CNL and KKR will depend on their relationships with corporations, financial institutions and investment firms, and we rely indirectly to a significant extent upon these relationships to provide us with potential investment opportunities. If CNL or KKR fails to maintain its existing relationships or develop new relationships or sources of investment opportunities, we may not be able to grow our investment portfolio. In addition, individuals with whom CNL and KKR have relationships are not obligated to provide us with investment opportunities, and, therefore, there is no assurance that such relationships will generate investment opportunities for us.
 
We may face increasing competition for investment opportunities, which could delay deployment of our capital, reduce returns and result in losses.
 
We compete for investments with other business development companies and investment funds (including registered investment companies, private equity funds and mezzanine funds), as well as traditional financial services companies such as commercial banks and other sources of funding. Moreover, alternative investment vehicles, such as hedge funds, have begun to invest in areas in which they have not traditionally invested, including making investments in our target market of privately owned U.S. companies. As a result of these new entrants, competition for investment opportunities in privately owned U.S. companies may intensify. Many of our competitors are substantially larger and have considerably greater financial, technical, and marketing resources than we do. For example, some competitors may have a lower cost of capital and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments than we have. These characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than we are able to do.
 
We may lose investment opportunities if we do not match our competitors’ pricing, terms, and structure criteria. If we are forced to match these criteria to make investments, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss. A significant increase in the number and/or the size of our competitors in this target market could force us to accept less attractive investment terms. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a business development company or the source of income, asset diversification and distribution requirements we must satisfy to maintain our RIC status. The competitive pressures we face may have a material adverse effect on our business, financial condition, results of operations, and cash flows. As a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time. Also we may not be able to identify and make investments that are consistent with our investment objective.
 
 
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A portion of our investment portfolio will be recorded at fair value as determined in good faith by our board of directors and, as a result, there is and will be uncertainty as to the value of our portfolio investments.
 
Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there is no readily available market value, at fair value as determined in accordance with GAAP by our board of directors. There is not a public market or active secondary market for many of the securities of the privately held companies in which we invest. The majority of our investments are not publicly traded or actively traded on a secondary market but, instead, may be traded on a privately negotiated over-the-counter secondary market for institutional investors. As a result, we value a significant portion of these securities quarterly at fair value as determined in good faith by our board of directors.
 
The determination of fair value, and thus the amount of unrealized gains or losses we may recognize in any year, is to a degree subjective, and our Advisors have a conflict of interest in making recommendations of fair value. We value these securities quarterly at fair value as determined in good faith by our board of directors based on input from our Advisors and our audit committee. Our board of directors may utilize the services of independent third-party valuation firms to aid it in determining the fair value of any securities. The types of factors that may be considered in determining the fair values of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flow, current market interest rates and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, the valuations may fluctuate significantly over short periods of time due to changes in current market conditions. The determinations of fair value by our board of directors may differ materially from the values that would have been used if an active market and market quotations existed for these investments. Our net asset value could be adversely affected if the determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such investments.
 
Our board of directors may change our operating policies and strategies without prior notice or shareholder approval, the effects of which may be adverse to our shareholders.
 
Our board of directors has the authority to modify or waive our current operating policies, investment criteria and strategies without prior notice and without shareholder approval. We cannot predict the effect any changes to our current operating policies, investment criteria and strategies would have on our business, net asset value, operating results and the value of our common stock. However, the effects might be adverse, which could negatively impact our ability to pay you distributions and cause you to lose all or part of your investment. Moreover, we will have significant flexibility in investing the net proceeds of our Offering and may use the net proceeds from our Offering in ways with which investors in us may not agree.
 
Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy.
 
We and our portfolio companies are subject to regulation at the local, state, and federal level. Changes to the laws and regulations governing our permitted investments may require a change to our investment strategy. Such changes could differ materially from our strategies and plans as set forth in this report and may shift our investment focus from the areas of expertise of our Advisors. Thus, any such changes, if they occur, could have a material adverse effect on our results of operations and the value of your investment.
 
We may experience fluctuations in our quarterly results.
 
We could experience fluctuations in our quarterly operating results due to a number of factors, including our ability or inability to make investments in companies that meet our investment criteria, the interest rate payable and default rates on the debt securities we acquire, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets, and general economic conditions. These occurrences could have a material adverse effect on our results of operations, the value of your investment in us and our ability to pay distributions to you and our other shareholders.
 
Any unrealized losses we experience on our portfolio may be an indication of future realized losses, which could reduce our income available for distribution.
 
As a business development company, we are required to carry our investments at market value or, if no market value is ascertainable, at the fair value as determined in good faith by our board of directors. Decreases in the market values or fair values of our investments relative to amortized cost will be recorded as unrealized depreciation. Any unrealized losses in our loan portfolio could be an indication of a portfolio company’s inability to meet its repayment obligations to us with respect to the affected loans. This could result in realized losses in the future and ultimately in reductions of our income available for distribution in future periods. In addition, decreases in the market value or fair value of our investments will reduce our net asset value.
 
 
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We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer.
 
We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer. To the extent that we assume large positions in the securities of a small number of issuers, or within a particular industry, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. However, we are subject to the diversification requirements applicable to RICs under Subchapter M of the Code.
 
If we internalize our management functions, your interest in us could be diluted, we could incur other significant costs associated with being self-managed and may not be able to retain or replace key personnel, and we may have increased exposure to litigation as a result of internalizing our management functions.
 
We may internalize management functions provided by our Advisor and our Sub-Advisor. Our board of directors may decide in the future to acquire assets and personnel from our Advisor or its affiliates for consideration that would be negotiated at that time. There can be no assurances that we will be successful in retaining our Advisor’s key personnel in the event of a management internalization transaction. In the event we were to acquire our Advisor or our Sub-Advisor, we cannot be sure of the form or amount of consideration or other terms relating to any such acquisition, which could take many forms, including cash payments, promissory notes and/or shares of our stock. The payment of such consideration could reduce our net investment income.
 
We cannot reasonably estimate the amount of fees to our Advisor and Sub-Advisor we would avoid paying, and the costs we would incur, if we acquired these entities, or acquired assets and personnel from these entities. If the expenses we assume as a result of management internalization are higher than the expenses we avoid paying to our Advisor and Sub-Advisor, our net investment income would be lower than it otherwise would have been had we not acquired these entities, or acquired assets and personnel from these entities.
 
Additionally, if we internalize our management functions, we could have difficulty integrating these functions. Currently, the officers and associates of our Administrator and related parties and contracting parties with the Administrator perform general and administrative functions, including accounting and financial reporting. We may fail to properly identify the appropriate mix of personnel and capital needs to operate as a stand-alone entity. An inability to manage an internalization transaction effectively could result in our incurring additional costs and divert our management’s attention from effectively managing our portfolio or our operations.
 
In recent years, management internalization transactions have been the subject of shareholder litigation. Shareholder litigation can be costly and time-consuming, and there can be no assurance that any litigation expenses we might incur would not be significant or that the outcome of litigation would be favorable to us. Any amounts we are required to expend defending any such litigation will reduce our net investment income.
 
Risks Related to Our Advisors and their Respective Affiliates
 
The Advisors have limited experience managing a business development company.
 
Although they have experience managing assets of the type in which we invest, our Advisors have less than two years of experience managing a vehicle regulated as a business development company and may not be able to operate our business successfully or achieve our investment objective. As a result, an investment in our shares of common stock may entail more risk than the shares of common stock of a comparable company with a substantial operating history.
 
The 1940 Act and the Code impose numerous constraints on the operations of business development companies and RICs that do not apply to the other types of investment vehicles previously managed by the Advisors. For example, under the 1940 Act, business development companies are generally required to invest at least 70% of their total assets primarily in securities of qualifying U.S. private or thinly traded companies. Moreover, qualification for RIC tax treatment under subchapter M of the Code requires satisfaction of source-of-income, asset diversification and other requirements. The failure to comply with these provisions in a timely manner could prevent us from qualifying as a business development company or RIC or could force us to pay unexpected taxes and penalties, which could be material. The Advisors’ lack of experience in managing a portfolio of assets under such constraints may hinder their ability to take advantage of attractive investment opportunities and, as a result, achieve our investment objective.
 
The Advisors and their respective affiliates, including our officers and some of our directors, may face conflicts of interest caused by compensation arrangements with us and our affiliates, which could result in increased risk-taking by us.
 
The Advisors and their respective affiliates will receive substantial fees from us in return for their services, and these fees could influence the advice provided to us. Generally, the more equity we sell in public offerings and the greater the risk assumed by us with respect to our investments, the greater the potential for growth in our assets and profits (and, correlatively, the fees payable by us to the Managing Dealer and the Advisors). These compensation arrangements could affect our Advisors’ or their respective affiliates’ judgment with respect to public offerings of equity and investments made by us, which allow the Managing Dealer to earn additional marketing support fees and the Advisors to earn increased asset management fees
 
 
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The time and resources that individuals associated with the Advisors devote to us may be diverted, and we may face additional competition due to the fact that neither CNL nor KKR is prohibited from raising money for or managing another entity that makes the same types of investments that we target.
 
The Advisors currently manage other investment entities and are not prohibited from raising money for and managing future investment entities that make the same types of investments as those we target. As a result, the time and resources that our Advisors devote to us may be diverted, and during times of intense activity in other programs they may devote less time and resources to our business than is necessary or appropriate. In addition, we may compete with any such investment entity for the same investors and investment opportunities. While we intend to co-invest with such investment entities to the extent permitted by the 1940 Act and the rules and regulations thereunder, the 1940 Act imposes significant limits on co-investment. As a result, we and our Advisors have applied for exemptive relief from the SEC under the 1940 Act, which, if granted, would allow additional latitude to co-invest. However, there is no assurance that we will obtain such relief. In the event the SEC does not grant us relief, we will be limited in our ability to invest in certain portfolio companies in which the Advisors or any of their respective affiliates are investing or are invested. Even if we are able to obtain exemptive relief, we will be unable to participate in certain transactions originated by the Advisors or their respective affiliates prior to receipt of such relief. Affiliates of KKR, whose primary business includes the origination of investments, engage in investment advisory businesses with client accounts that compete with us. Affiliates of KKR have no obligation to make their originated investment opportunities available to KKR or to us.
 
We may be obligated to pay our Advisors incentive fees even if we incur a net loss due to a decline in the value of our portfolio.
 
Our Investment Advisory Agreement entitles CNL to receive an incentive fee based on our net investment income regardless of any capital losses. In such case, we may be required to pay CNL an incentive fee for a fiscal quarter even if there is a decline in the value of our portfolio or if we incur a net loss for that quarter. CNL will pay 50% of any such incentive fee to KKR.
 
Any incentive fee payable by us that relates to our net investment income may be computed and paid on income that may include interest that has been accrued but not yet received. If a portfolio company defaults on a loan that is structured to provide accrued interest income, it is possible that accrued interest income previously included in the calculation of the incentive fee will become uncollectible. Our Advisors are not obligated to reimburse us for any part of the incentive fee they received that was based on accrued interest income that we never received as a result of a subsequent default, and such circumstances would result in our paying a subordinated incentive fee on income we never receive.
 
For federal income tax purposes, we may be required to recognize taxable income in some circumstances in which we do not receive a corresponding payment in cash and to make distributions with respect to such income to maintain our status as a RIC. Under such circumstances, we may have difficulty meeting the annual distribution requirement necessary to maintain RIC tax treatment under the Code. This difficulty in making the required distribution may be amplified to the extent that we are required to pay an incentive fee with respect to such accrued income. As a result, we may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital, or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.
 
Our incentive fee may induce our Advisors to make speculative investments.
 
The incentive fee payable by us to CNL (50% of which will be paid to KKR) may create an incentive for our Advisors to make investments on our behalf that are risky or more speculative than would be the case in the absence of such compensation arrangements. The way in which the incentive fee is determined may encourage our Advisors to use leverage to increase the return on our investments.
 
In addition, the fact that our management fee (a portion of which will be paid to KKR) is payable based upon our gross assets, which would include any borrowings for investment purposes, any unrealized depreciation or appreciation on total return swaps and any cash collateral on deposit pursuant to the terms of  total return swaps, may encourage our Advisors to use leverage to make additional investments.  Under certain circumstances, the use of leverage may increase the likelihood of default, which would disfavor holders of our common stock. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during cyclical economic downturns.
 
Our ability to enter into transactions with our affiliates will be restricted.
 
We are prohibited under the 1940 Act from participating in certain transactions with certain of our affiliates without the prior approval of a majority of the independent directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities will be our affiliate for purposes of the 1940 Act, and we will generally be prohibited from buying or selling any securities from or to such affiliate, absent the prior approval of our board of directors and, in some cases, the SEC. The 1940 Act also prohibits certain “joint” transactions with certain of our affiliates, which in certain circumstances could include investments in the same portfolio company (whether at the same or different times to the extent the transaction involves jointness), without prior approval of our board of directors and, in some cases, the SEC. If a person acquires more than 25% of our voting securities, we will be prohibited from buying or selling any security from or to such person or certain of that person’s affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. Similar restrictions limit our ability to transact business with our officers or directors or their affiliates. The SEC has interpreted the business development company regulations governing transactions with affiliates to prohibit certain joint transactions involving entities that share a common investment adviser. As a result of these restrictions, we may be prohibited from buying or selling any security from or to any portfolio company that is controlled by a fund managed by either of our Advisors or their respective affiliates without the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to us.
 
 
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We may, however, invest alongside our Advisors’ and their respective affiliates’ other clients, including other entities they manage, which we refer to as affiliates’ other clients, in certain circumstances where doing so is consistent with applicable law and SEC staff interpretations and guidance. We may also invest alongside an Advisor’s other clients as otherwise permissible under regulatory guidance, applicable regulations and the Advisors’ allocation policies. It is our policy to base our board of directors’ determinations as to the amount of capital available for investment on such factors as: the amount of cash on-hand, existing commitments and reserves, if any, the targeted leverage level, the targeted asset mix and diversification requirements and other investment policies and restrictions set by our board of directors or imposed by applicable laws, rules, regulations or interpretations. However, we can offer no assurance that investment opportunities will be allocated to us fairly or equitably in the short-term or over time.
 
In situations where co-investment with affiliates’ other clients is not permitted under the 1940 Act and related rules, existing or future staff guidance, or the terms and conditions of exemptive relief, if any, granted to us by the SEC (as discussed below), our Advisors will need to decide which client or clients will proceed with the investment. Generally, we will not have an entitlement to make a co-investment in these circumstances and, to the extent that another client elects to proceed with the investment, we will not be permitted to participate. Moreover, except in certain circumstances, we are unable to invest in any issuer in which an affiliates’ other client holds a controlling interest. These restrictions may limit the scope of investment opportunities that would otherwise be available to us. We and our Advisors have applied for exemptive relief from the SEC to permit us greater flexibility to co-invest with affiliates’ other clients in a manner consistent with our investment objective, positions, policies, strategies, and restrictions as well as regulatory requirements and other pertinent factors. However, there is no assurance that we will obtain such SEC exemptive relief.
 
If we do not obtain exemptive relief from the SEC to allow us to co-invest alongside affiliates of our Advisors, we may be required to adjust our investment strategy.
 
Our investment strategy contemplates that we will focus on investing capital in originated transactions that are sourced by our Advisors. Originated transactions may include transactions that are privately negotiated and sourced on a proprietary basis. Because our Advisors may manage other investment funds whose mandates include participating in such transactions, such investments will need to be made on a co-investment basis. The 1940 Act imposes significant limits on co-investment with affiliates of our Advisors. We generally will not be permitted to co-invest alongside affiliates of our Advisors in privately negotiated transactions unless we obtain an exemptive order from the SEC or the transaction is otherwise permitted under existing regulatory guidance, such as syndicated transactions where price is the only negotiated term, and will not participate in transactions where other terms are negotiable. We and our Advisors have sought such an exemptive order, although there is no assurance that we will obtain the requested relief. In the event the SEC does not grant us relief, we will only participate in co-investments that are allowed under existing regulatory guidance, which would reduce the amount of transactions in which we can participate and make it more difficult for us to implement our investment objective. Even if we are able to obtain exemptive relief, we are unable to participate in certain transactions originated by the Advisors or their respective affiliates, including during the period prior to receiving such relief.
 
We may make investments that could give rise to a conflict of interest.
 
We do not expect to invest in, or hold securities of, companies that are controlled by affiliates’ other clients. However, an affiliates’ other clients may invest in, and gain control over, one of our portfolio companies. If an affiliates’ other client, or clients, gains control over one of our portfolio companies, it may create conflicts of interest and may subject us to certain restrictions under the 1940 Act. As a result of these conflicts and restrictions our Advisors may be unable to implement our investment strategies as effectively as they could have in the absence of such conflicts or restrictions. For example, as a result of a conflict or restriction, our Advisors may be unable to engage in certain transactions that they would otherwise pursue. In order to avoid these conflicts and restrictions, our Advisors may choose to exit these investments prematurely and, as a result, we would forego any positive returns associated with such investments. In addition, to the extent that another client holds a different class of securities than us as a result of such transactions, our interests may not be aligned.
 
 
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We plan to forego any benefit that could result from investing in companies controlled by affiliates’ other clients.
 
We do not expect to invest in, or hold securities of, companies that are controlled by affiliates’ other clients. We do not expect to pursue or hold investments in these companies even if our Advisors determine that these investments meet our investment objective and strategies. As a result, we will forego the opportunity to receive any positive returns associated with investing in companies controlled by affiliates’ other clients.
 
We are not managed by KKR & Co. L.P. or CNL Financial Group, Inc. but rather subsidiaries of both and may not replicate the success of those entities.
 
Although we seek to capitalize on the experience and resources of our Advisors’ respective platforms, we are managed by CNL Fund Advisors Company and KKR Asset Management, LLC and not by CNL Financial Group, Inc. or KKR & Co. L.P. Our performance may be lower or higher than the performance of other entities managed by CNL Financial Group, Inc. or KKR & Co. L.P. or their affiliates and their past performance is no guarantee of our future results.
 
Risks Related to Business Development Companies
 
The requirement that we invest a sufficient portion of our assets in qualifying assets could preclude us from investing in accordance with our current business strategy; conversely, the failure to invest a sufficient portion of our assets in qualifying assets could result in our failure to maintain our status as a business development company.
 
As a business development company, the 1940 Act prohibits us from acquiring any assets other than certain qualifying assets unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. Therefore, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets. Conversely, if we fail to invest a sufficient portion of our assets in qualifying assets, we could lose our status as a business development company, which would have a material adverse effect on our business, financial condition, and result of operations. Similarly, these rules could prevent us from making additional investments in existing portfolio companies, which could result in the dilution of our position, or could require us to dispose of investments at an inopportune time to comply with the 1940 Act. If we were forced to sell non-qualifying investments in the portfolio for compliance purposes, the proceeds from such sale could be significantly less than the current value of such investments.
 
Failure to maintain our status as a business development company would reduce our operating flexibility.
 
If we do not remain a business development company, we might be regulated as a closed-end investment company under the 1940 Act, which would subject us to substantially more regulatory restrictions and correspondingly decrease our operating flexibility.
 
Regulations governing our operation as a business development company and RIC will affect our ability to raise capital and the way in which we raise additional capital or borrow for investment purposes, which may have a negative effect on our growth. As a business development company, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage.
 
As a result of the annual distribution requirement to qualify as a RIC, we may need to access the capital markets periodically to raise cash to fund new investments in portfolio companies. We may issue “senior securities,” including borrowing money from banks or other financial institutions only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such incurrence or issuance. If we issue senior securities, we are exposed to typical risks associated with leverage, including an increased risk of loss. Our ability to issue different types of securities is also limited. Compliance with these requirements may unfavorably limit our investment opportunities and reduce our ability in comparison to other companies to profit from favorable spreads between the rates at which we can borrow and the rates at which we can lend. Therefore, we intend to continuously issue equity securities, which may lead to shareholder dilution.
 
We may borrow for investment purposes. If the value of our assets declines, we may be unable to satisfy the asset coverage test, which would prohibit us from paying distributions and could prevent us from qualifying as a RIC, which would generally result in a corporate-level tax on any income and net gains. If we cannot satisfy the asset coverage test, we may be required to sell a portion of our investments and, depending on the nature of our debt financing, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distributions to our common shareholders.
 
In addition, we anticipate that as market conditions permit, we may securitize our loans to generate cash for funding new investments. To securitize loans, we may create a wholly-owned subsidiary, contribute a pool of loans to the subsidiary and have the subsidiary issue primarily investment grade debt securities to purchasers who we would expect to be willing to accept a substantially lower interest rate than the loans earn. We would retain all or a portion of the equity in the securitized pool of loans. Our retained equity would be exposed to any losses on the portfolio of loans before any of the debt securities would be exposed to such losses. Accordingly, if the pool of loans experienced a low level of losses due to defaults, we would earn an incremental amount of income on our retained equity but we would be exposed, up to the amount of equity we retained, to that proportion of any losses we would have experienced if we had continued to hold the loans in our portfolio.
 
 
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We are uncertain of our sources for funding our future capital needs. If we cannot obtain debt or equity financing on acceptable terms, our ability to acquire investments and to expand our operations will be adversely affected.
 
The net proceeds from the sale of shares will be used for our investment opportunities, operating expenses and for payment of various fees and expenses such as management fees, incentive fees and other fees. Any working capital reserves we maintain may not be sufficient for investment purposes, and we may require additional debt or equity financing to operate. Pursuant to tax rules that apply to us, we are required to distribute at least 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to our shareholders to maintain our RIC status. Accordingly, in the event that we need additional capital in the future for investments or for any other reason we may need to access the capital markets periodically to issue debt or equity securities or borrow from financial institutions in order to obtain such additional capital. These sources of funding may not be available to us due to unfavorable economic conditions, which could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. Consequently, if we cannot obtain further debt or equity financing on acceptable terms, our ability to acquire investments and to expand our operations will be adversely affected. As a result, we would be less able to achieve portfolio diversification and our investment objective, which may negatively impact our results of operations and reduce our ability to make distributions to our shareholders.
 
Risks Related to Our Investments
 
Our investments in prospective portfolio companies may be risky, and we could lose all or part of our investment.
 
We pursue a strategy focused on investing primarily in the debt of privately owned U.S. companies with a focus on originated transactions sourced through the networks of our Advisors.
 
 
Senior Debt. When we invest in senior debt, we generally seek to take a security interest in the available assets of these portfolio companies, including in equity interests in any of their subsidiaries. There is a risk that the collateral securing our investments may decrease in value over time or lose its entire value, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital. Also, in some circumstances, our lien could be subordinated to claims of other creditors. In addition, deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the loan. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the loan’s terms, or at all, or that we will be able to collect on the loan should we be forced to enforce our remedies.
 
 
Subordinated Debt. Our subordinated debt investments are generally subordinated to senior debt and are generally unsecured. This may result in a heightened level of risk and volatility or a loss of principal, which could lead to the loss of the entire investment. These investments may involve additional risks that could adversely affect our investment returns. To the extent interest payments associated with such debt are deferred, such debt may be subject to greater fluctuations in valuations, and such debt could subject us and our shareholders to non-cash income. Since we will not receive any principal repayments prior to the maturity of some of our subordinated debt investments, such investments will be of greater risk than amortizing loans.
 
 
Equity Investments. We expect to make selected equity investments. In addition, when we invest in senior and subordinated debt, we may acquire warrants or options to purchase equity securities or benefit from other types of equity participation. Our goal is ultimately to dispose of these equity interests and realize gains upon our disposition of such interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.
 
Most debt securities in which we invest will not be rated by any rating agency and, if they were rated, they would be rated as below investment grade quality. Debt securities rated below investment grade quality are generally regarded as having predominantly speculative characteristics and may carry a greater risk with respect to a borrower’s capacity to pay interest and repay principal.
 
To the extent original issue discount constitutes a portion of our income, we will be exposed to risks associated with the deferred receipt of cash representing such income.
 
Our investments may include original issue discount instruments. To the extent original issue discount constitutes a portion of our income, we will be exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash, including the following:

 
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Original issue discount instruments may have unreliable valuations because the accruals require judgments about collectability.
 
Original issue discount instruments may create heightened credit risks because the inducement to trade higher rates for the deferral of cash payments typically represents, to some extent, speculation on the part of the borrower.
 
For accounting purposes, cash distributions to shareholders representing original issue discount income do not come from paid-in capital, although they may be paid from the offering proceeds. Thus, although a distribution of original issue discount income comes from the cash invested by the shareholders, the 1940 Act does not require that shareholders be given notice of this fact.
 
In the case of payment-in-kind, or “PIK,” “toggle” debt, the PIK election has the simultaneous effects of increasing the assets under management, thus increasing the base management fee, and increasing the investment income, thus increasing the potential for realizing incentive fees.
 
Original issue discount creates risk of non-refundable cash payments to the advisor based on non-cash accruals that may never be realized.
 
Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.
 
We pursue a strategy focused on investing primarily in the debt of privately owned U.S. companies with a focus on originated transactions sourced through the networks of our Advisors. Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt in which we invest. By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with respect to the debt instruments in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution. After repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt instruments in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.
 
Subordinated liens on collateral securing debt that we will make to our portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us.
 
Certain debt investments that we make in portfolio companies will be secured on a second priority basis by the same collateral securing senior debt of such companies. The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the company under the agreements governing the debt. The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds from any realization of the collateral to repay their obligations in full before us. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the debt obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds are not sufficient to repay amounts outstanding under the debt obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the company’s remaining assets, if any.
 
We may also make unsecured debt investments in portfolio companies, meaning that such investments will not benefit from any interest in collateral of such companies. Liens on such portfolio companies’ collateral, if any, will secure the portfolio company’s obligations under its outstanding secured debt and may secure certain future debt that is permitted to be incurred by the portfolio company under its secured debt agreements. The holders of obligations secured by such liens will generally control the liquidation of, and be entitled to receive proceeds from, any realization of such collateral to repay their obligations in full before us. In addition, the value of such collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of such collateral would be sufficient to satisfy our unsecured debt obligations after payment in full of all secured debt obligations. If such proceeds were not sufficient to repay the outstanding secured debt obligations, then our unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio company’s remaining assets, if any.
 
The rights we may have with respect to the collateral securing the debt investments we make in our portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more inter-creditor agreements that we enter into with the holders of senior debt. Under such an inter-creditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority liens: the ability to cause the commencement of enforcement proceedings against the collateral; the ability to control the conduct of such proceedings; the approval of amendments to collateral documents; releases of liens on the collateral; and waivers of past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights are adversely affected.
 
 
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There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.
 
Although we generally structure certain of our investments as senior debt, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio company or a representative of us or the Advisors sat on the board of directors of such portfolio company, a bankruptcy court might re-characterize our debt investment and subordinate all or a portion of our claim to that of other creditors. In situations where a bankruptcy carries a high degree of political significance, our legal rights may be subordinated to other creditors.
 
In addition, lenders in certain cases can be subject to lender liability claims for actions taken by them when they become too involved in the borrower’s business or exercise control over a borrower. It is possible that we could become subject to a lender’s liability claim, including as a result of actions taken if we render significant managerial assistance to, or exercise control or influence over the board of directors of, the borrower.
 
We generally will not control the business operations of our portfolio companies and, due to the illiquid nature of our holdings in our portfolio companies, may not be able to dispose of our interest in our portfolio companies.
 
We do not expect to control most of our portfolio companies, although we may have board representation or board observation rights, and our debt agreements may impose certain restrictive covenants on our borrowers. As a result, we are subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as debt investors. Due to the lack of liquidity for our investments in non-traded companies, we may not be able to dispose of our interests in our portfolio companies as readily as we would like or at an appropriate valuation. As a result, a portfolio company may make decisions that could decrease the value of our portfolio holdings.
 
We are exposed to risks associated with changes in interest rates.
 
We are subject to financial market risks, including changes in interest rates. Since we use debt to finance investments, our net investment income depends, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates when we have debt outstanding, our cost of funds will increase, which could reduce our net investment income.
 
In addition, interest rates have recently been at or near historic lows. In the event of a significant rising interest rate environment, our portfolio companies with adjustable-rate loans could see their payments increase and there may be a significant increase in the number of our portfolio companies who are unable or unwilling to pay interest and repay their loans. Investments in companies with adjustable-rate loans may also decline in value in response to rising interest rates if the rates at which they pay interest do not rise as much, or as quickly, as market interest rates in general. Similarly, during periods of rising interest rates, our investments with fixed rates may decline in value because the fixed coupon rate is below market yield.
 
We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent such activities are not prohibited by the 1940 Act. These activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations.
 
International investments create additional risks.
 
We have made, and expect to continue to make, investments in portfolio companies, and we expect to continue to make such investments, that are domiciled outside of the United States. We anticipate that up to 30% of our investments may be in assets located in jurisdictions outside the United States. Our investments in foreign portfolio companies are deemed “non-qualifying assets”, which means, as required by the 1940 Act, they may not constitute more than 30% of our total assets at the time of our acquisition of any asset, after giving effect to the acquisition.  Notwithstanding that limitation on our ownership of foreign portfolio companies, those investments subject us to many of the same risks as our domestic investments, as well as certain additional risks such, including the following:
 
 
foreign governmental laws, rules and policies, including those restricting the ownership of assets in the foreign country or the repatriation of profits from the foreign country to the United States;
 
foreign currency devaluations that reduce the value of and returns on our foreign investments;
 
adverse changes in the availability, cost and terms of investments due to the varying economic policies of a foreign country in which we invest;
 
adverse changes in tax rates, the tax treatment of transaction structures and other changes in operating expenses of a particular foreign country in which we invest;
 
 
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the assessment of foreign-country taxes (including withholding taxes, transfer taxes and value added taxes, any or all of which could be significant) on income or gains from our investments in the foreign country;
 
adverse changes in foreign-country laws, including those relating to taxation, bankruptcy and ownership of assets;
 
changes that adversely affect the social, political and/or economic stability of a foreign country in which we invest;
 
high inflation in the foreign countries in which we invest, which could increase the costs to us of investing in those countries;
 
deflationary periods in the foreign countries in which we invest, which could reduce demand for our assets in those countries and diminish the value of such investments and the related investment returns to us; and
 
legal and logistical barriers in the foreign countries in which we invest that materially and adversely limit our ability to enforce our contractual rights with respect to those investments.
 
In addition we may make investments in countries whose governments or economies may prove unstable. Certain of the countries in which we may invest may have political, economic and legal systems that are unpredictable, unreliable or otherwise inadequate with respect to the implementation, interpretation and enforcement of laws protecting asset ownership and economic interests. In some of the countries in which we may invest, there may be a risk of nationalization, expropriation or confiscatory taxation, which may have an adverse effect on our portfolio companies in those countries and the rates of return we are able to achieve on such investments. We may also lose the total value of any investment which is nationalized, expropriated or confiscated.  The financial results and investment opportunities available to us, particularly in developing countries and emerging markets, may be materially and adversely affected by any or all of these political, economic and legal risks.
 
We may acquire various structured financial instruments for purposes of “hedging” or reducing our risks, which may be costly and ineffective and could reduce our cash available for distribution to our shareholders.
 
We may seek to hedge against interest rate and currency exchange rate fluctuations and credit risk by using structured financial instruments such as futures, options, swaps and forward contracts, subject to the requirements of the 1940 Act. Use of structured financial instruments for hedging purposes may present significant risks, including the risk of loss of the amounts invested. Defaults by the other party to a hedging transaction can result in losses in the hedging transaction. Hedging activities also involve the risk of an imperfect correlation between the hedging instrument and the asset being hedged, which could result in losses both on the hedging transaction and on the instrument being hedged. Use of hedging activities may not prevent significant losses and could increase our losses. Further, hedging transactions may reduce cash available to pay distributions to our shareholders.
 
Economic recessions or downturns could impair our portfolio companies and harm our operating results.
 
Many of our portfolio companies are susceptible to economic slowdowns or recessions and may be unable to repay our debt investments during these periods. Therefore, our non-performing assets are likely to increase, and the value of our portfolio is likely to decrease during these periods. Adverse economic conditions may also decrease the value of any collateral securing our senior or second lien loans. A severe recession may further decrease the value of such collateral and result in losses of value in our portfolio and a decrease in our revenues, net income, assets and net worth. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us on terms we deem acceptable. These events could prevent us from increasing investments and harm our operating results.
 
Since the third quarter of 2007, global credit and other financial markets have suffered substantial stress, volatility, illiquidity and disruption. The financial services sector has been negatively impacted by significant write-offs as the value of the assets held by financial firms has declined, impairing their capital positions and abilities to lend and invest. Such value declines were exacerbated by widespread forced liquidations. Such forced liquidations impacted many investors and investment vehicles, leading to a decline in the supply of capital for investment and depressed pricing levels for many assets. These events significantly diminished overall confidence in the debt and equity markets, engendered unprecedented declines in the values of certain assets and caused extreme economic uncertainty.
 
A prolonged period of market illiquidity may have an adverse effect on our business, financial condition, results of operations and cash flows. In addition, unfavorable economic conditions, including rising interest rates, may also increase our funding costs, limit our access to capital markets or negatively impact our ability to obtain financing, particularly from the debt markets. Future financial market uncertainty could also lead to further financial market disruptions and could further impact our ability to obtain financing. These events could limit our investment originations, limit our ability to grow and negatively impact our operating results.

 
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Defaults by our portfolio companies will harm our operating results.
 
A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its debt financing and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize a portfolio company’s ability to meet its obligations under the debt or equity securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio company.
 
An investment strategy focused primarily on privately held companies presents certain challenges, including the lack of available information about these companies.
 
We invest primarily in privately held companies. Investments in private companies pose certain incremental risks as compared to investments in public companies including that they:
 
 
have reduced access to the capital markets, resulting in diminished capital resources and ability to withstand financial distress;
 
may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment;
 
may have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and changing market conditions, as well as general economic downturns;
 
are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us; and
 
generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, our executive officers, directors and members of the Advisors’ management may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies.
 
In addition, investments in private companies tend to be less liquid. The securities of private companies are not publicly traded or actively traded on the secondary market and are, instead, traded on a privately negotiated over-the-counter secondary market for institutional investors. These privately negotiated over-the-counter secondary markets may be inactive during an economic downturn or a credit crisis. In addition, the securities in these companies will be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. Also, under the 1940 Act, if there is no readily available market for these investments, we are required to carry these investments at fair value as determined by our board of directors. As a result, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments. We may also face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we, our Advisors or any of their respective affiliates have material nonpublic information regarding such portfolio company or where the sale would be an impermissible joint transaction. The reduced liquidity of our investments may make it difficult for us to dispose of them at a favorable price, and, as a result, we may suffer losses.
 
Finally, little public information generally exists about private companies and these companies may not have third-party credit ratings or audited financial statements. We must therefore rely on the ability of our Advisors to obtain adequate information through due diligence to evaluate the creditworthiness and potential returns from investing in these companies. Additionally, these companies and their financial information will not generally be subject to the Sarbanes-Oxley Act and other rules that govern public companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments.
 
We may be subject to lender liability judgments.
 
A number of U.S. judicial decisions have upheld judgments obtained by Borrowers against lending institutions on the basis of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise that a lender has violated a duty (whether implied or contractual) of good faith, commercial reasonableness and fair dealing, or a similar duty owed to the Borrower or has assumed an excessive degree of control over the Borrower resulting in the creation of a fiduciary duty owed to the Borrower or its other creditors or shareholders. Because of the nature of its investments, the Company may be subject to allegations of lender liability.

 
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We may not have the funds or ability to make additional investments in our portfolio companies or to fund our unfunded commitments.
 
After our initial investment in a portfolio company, we may be called upon from time to time to provide additional funds to such company or have the opportunity to increase our investment through the exercise of a warrant or other right to purchase common stock. There is no assurance that we will make, or will have sufficient funds to make, follow-on investments. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our level of risk, we prefer other opportunities, we are limited in our ability to do so by compliance with business development company requirements, or we desire to maintain our RIC status. Our ability to make follow-on investments may also be limited by our Advisors’ allocation policies. Any decisions not to make a follow-on investment or any inability on our part to make such an investment may have a negative impact on a portfolio company in need of such an investment, may result in a missed opportunity for us to increase our participation in a successful operation or may reduce the expected return on the investment.
 
Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity.
 
We are subject to the risk that the investments we make in our portfolio companies may be repaid prior to maturity. When this occurs, we will generally reinvest these proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than the debt being prepaid and we could experience significant delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was repaid. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay amounts owed to us. Additionally, prepayments, net of prepayment fees, could negatively impact our return on equity.
 
To the extent that we borrow money, the potential for gain or loss on amounts invested in us will be magnified and may increase the risk of investing in us. Borrowed money may also adversely affect the return on our assets, reduce cash available for distribution to our shareholders, and result in losses.
 
The use of borrowings, also known as leverage, increases the volatility of investments by magnifying the potential for gain or loss on invested equity capital. Since we use leverage to partially finance our investments, through borrowing from banks and other lenders, you will experience increased risks of investing in our common stock. If the value of our assets decreases, leveraging will cause net asset value to decline more sharply than it otherwise would if we had not borrowed and employed leverage. Similarly, any decrease in our income would cause net income to decline more sharply than it would have if we had not borrowed and employed leverage. Such a decline could negatively affect our ability to make distributions to our shareholders. In addition, our shareholders will bear the burden of any increase in our expenses as a result of our use of leverage, including interest expenses and any increase in the management or incentive fees payable to the Advisors.
 
The amount of leverage that we employ depends on our Advisors’ and our board of directors’ assessment of market and other factors at the time of any proposed borrowing. There can be no assurance that leveraged financing will be available to us on favorable terms or at all. However, to the extent that we use leverage to finance our assets, our financing costs will reduce cash available for distributions to shareholders. Moreover, we may not be able to meet our financing obligations and, to the extent that we cannot, we risk the loss of some or all of our assets to liquidation or sale to satisfy the obligations. In such an event, we may be forced to sell assets at significantly depressed prices due to market conditions or otherwise, which may result in losses.
 
As a business development company, we generally are required to meet a coverage ratio of total assets to total borrowings and other senior securities, which include all of our borrowings and any preferred stock that we may issue in the future, of at least 200%. If this ratio declines below 200%, we cannot incur additional debt and could be required to sell a portion of our investments to repay some debt when it is disadvantageous to do so. This could have a material adverse effect on our operations, and we may not be able to make distributions.
 
The agreements governing CCT Funding’s revolving credit facility contain various covenants which, if not complied with, could accelerate repayment under the facility, thereby materially and adversely affecting our liquidity, financial condition, results of operations and our ability to pay distributions to our shareholders.
 
Our wholly-owned special purpose financing subsidiary, CCT Funding LLC (which we refer to in this report as CCT Funding), is a party to a revolving credit facility with Deutsche Bank AG, New York Branch, or Deutsche Bank, as initial lender and administrative agent, and Healthcare of Ontario Pension Plan, as a lender. The agreements governing this facility contain default provisions such as:
 
 
the failure to make principal payments when due or interest payments within three business days of when due;
 
borrowings under the facility exceeding the applicable advance rates;
 
the purchase by CCT Funding of certain ineligible assets;
 
the insolvency or bankruptcy of us or CCT Funding;
 
 
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the decline of CCT Funding’s net asset value below a specified threshold; and
 
fraud or other illicit acts by us, KKR or CNL in our or their respective investment advisory capacities.
 
An event of default under the facility may result, among other things, in the termination of the availability of further funds under the facility and an accelerated maturity date for all amounts outstanding under the facility. This could disrupt our business, reduce our revenues and, by delaying any dividends allowed to us under the facility until the lender has been paid in full, reduce our liquidity and cash flow and impair our ability to grow our business, make distribution payments to our shareholders and maintain our status as a RIC.
 
The agreements governing the facility also require CCT Funding to comply with certain operational covenants. These covenants require CCT Funding to, among other things, maintain eligible assets with an aggregate equity value, net of borrowing balance, equal to or exceeding specified amounts under the facility. In addition, the occurrence of certain “Super-Collateralization Events” results in an increase of the collateral equity value that CCT Funding is required to maintain. Super-Collateralization Events include, among other things:
 
 
certain key employees ceasing to be directors, principals, officers or investment managers of KKR;
 
the bankruptcy or insolvency of KKR or CNL;
 
KKR’s ceasing to act as sub-advisor for us or CCT Funding, or CNL’s ceasing to act as investment adviser for us or CCT Funding;
 
our ceasing to act as CCT Funding’s investment manager, becoming bankrupt or insolvent, defaulting on certain material agreements or failing to maintain a net asset value above a specified threshold; and
 
fraud or other illicit acts by us, KKR or CNL in our or their respective investment advisory capacities.
 
A decline in the value of assets owned by CCT Funding or the occurrence of a Super-Collateralization Event under the facility could result in our being required to contribute additional assets to CCT Funding, which would likely disrupt our business and impact our ability to meet our investment objectives and pay distributions to our shareholders.
 
The failure to meet collateral requirements under the facility or the occurrence of any other event of default that results in the termination of the facility may force CCT Funding or us to liquidate positions at a time and/or at a price that is disadvantageous to us and could result in losses. In addition, upon the occurrence of an event of default under the facility, Deutsche Bank would have the right to the assets pledged as collateral supporting the amounts outstanding under the facility and could sell such assets in order to satisfy amounts due under the facility.
 
Each borrowing under the facility is subject to the satisfaction of certain conditions. We cannot assure that CCT Funding will be able to borrow funds under the facility at any particular time or at all.
 
We have entered into total return swap agreements and may enter into other derivative transactions which expose us to certain risks, including market risk, liquidity risk and other risks similar to those associated with the use of leverage.
 
As of November 2012, our wholly-owned special purpose financing subsidiary, Halifax Funding LLC (which we refer to in this report as Halifax Funding) is a party to a total return swap arrangement with The Bank of Nova Scotia. Pursuant to this total return swap arrangement, we will receive any income generated by a reference asset underlying the total return swaps.  We will also receive the gain from any net appreciation in the price of a reference asset over the life of the total return swaps.  Correspondingly, if there is a net decrease in the price of a reference asset over the life of the total return swaps, we will be required to pay the reference asset owner (i.e. the counterparty) the amount of such net price decrease. In consideration of the total return swaps, we must pay the counterparty a series of floating rate periodic payments over the life of the total return swaps.  These periodic payments are based on the settled notional amounts of the underlying reference assets.
 
 A total return swap effectively adds leverage to a portfolio by providing investment and economic exposure to a security or portfolio of securities without owning, investing directly in, or taking physical custody of such security or portfolio of securities. A total return swap is subject to market risk, liquidity risk and risk of imperfect correlation between the value of the total return swap and the reference assets underlying the total return swap.  In addition, because a total return swap is a form of synthetic leverage, such arrangements are subject to risks similar to those associated with the use of leverage. In addition, we may incur certain costs in connection with the total return swaps that could in the aggregate be significant.
 
Total return swaps are subject to the risk that a counterparty will default on its payment obligations under the arrangements or that one party will not be able to meet its contractual obligations to the other. The party making periodic payments based on a fixed or variable interest rate would typically have to post collateral to secure its obligations to the other party to the total return swap. In addition, the party making periodic payments based on a fixed or variable interest rate bears the risk of depreciation with respect to the value of the reference assets underlying the total return swap and may be required under the terms of the total return swap to post additional collateral on a dollar-for-dollar basis in the event the value of the reference assets underlying the total return swap depreciates more than the amount of any cash collateral previously posted by such party.
 
 
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If the party owning the TRS reference assets chooses to exercise its termination rights under the total return swap agreement, it is possible that, because of adverse market conditions existing at the time of such termination, the counterparty will owe more to such party (or will be entitled to receive less from such party) than it would have if such counterparty controlled the timing of such termination.
 
For purposes of determining our compliance with the asset coverage ratio test applicable to us as a business development company, we will treat the outstanding notional amount of any total return swap to which we are a party, less the actual amount of any cash collateral posted by us under such total return swap, as a senior security for the life of that instrument.  Further, for purposes of determining our compliance with the 70% qualifying assets requirement of Section 55(a) under the 1940 Act, we will treat each loan underlying any total return swap to which we are a party as a qualifying asset if the obligor on such loan is an eligible portfolio company and as a non-qualifying asset if the obligor is not an eligible portfolio company.
 
Risks Related to an Investment in Our Common Stock
 
If we are unable to raise substantial funds in our ongoing, continuous “best efforts” offering, we will be limited in the number and type of investments we may make, and the value of your investment in us may be reduced in the event our assets under-perform.
 
Our continuous offering is being made on a best efforts basis, whereby our Managing Dealer and participating broker-dealers are only required to use their best efforts to sell our shares and have no firm commitment or obligation to purchase any of the shares. To the extent that less than the maximum number of shares is subscribed for, the opportunity for diversification of our investments may be decreased and the returns achieved on those investments may be reduced as a result of allocating all of our expenses among a smaller capital base.
 
Our Managing Dealer in our continuous offering may be unable to sell a sufficient number of shares of common stock for us to achieve our investment objective or to fully implement our investment strategy. Our ability to conduct our continuous offering successfully is dependent, in part, on the ability of our Managing Dealer to successfully establish, operate and maintain relationships with a network of broker-dealers.
 
There is no assurance that our Managing Dealer will be able to sell a sufficient number of shares to allow us to have adequate funds to purchase a diversified portfolio of investments.. The success of our public offering, and correspondingly our ability to implement our business strategy, is dependent upon the ability of our Managing Dealer to establish and maintain relationships with a network of licensed securities broker-dealers and other agents to sell our shares. If our Managing Dealer fails to perform, we may not be able to raise adequate proceeds through our public offering to implement our investment strategy. If we are unsuccessful in implementing our investment strategy, you could lose all or a part of your investment.
 
Our shares are not listed on an exchange or quoted through a quotation system and will not be listed for the foreseeable future, if ever. Therefore, our shareholders will have limited liquidity and may not receive a full return of invested capital upon selling their shares.
 
Our shares are illiquid investments for which there is not a secondary market nor is it expected that any such secondary market will develop in the future. On or before December 31, 2018, our board of directors must consider, but is not required to recommend, a liquidity event for our shareholders. A future liquidity event could include: (i) a listing of our shares on a national securities exchange; (ii) a merger or another transaction approved by our board of directors in which our shareholders will receive cash or shares of a listed company; or (iii) a sale of all or substantially all of our assets either on a complete portfolio basis or individually followed by a liquidation. Certain types of liquidity events, such as a listing, would allow us to retain our investment portfolio intact while providing our shareholders with access to a trading market for their securities.
 
We do not know at this time what circumstances will exist in the future and therefore we do not know what factors our board of directors will consider in determining whether to pursue a liquidity event in the future.
 
Also, since a portion of the public offering price from the sale of shares in our Offering will be used to pay expenses and fees, the full offering price paid by the shareholders will not be invested in portfolio companies. As a result, even if we do complete a liquidity event, you may not receive a return of all of your invested capital. If we do not successfully complete a liquidity event, liquidity for your shares will be limited to participation in our share repurchase program, which we have no obligation to maintain.
 
If our shares are listed on a national securities exchange or quoted through a quotation system, we cannot assure you a public trading market will develop or, if one develops, that such trading market can be sustained. Shares of companies offered in an initial public offering often trade at a discount to the initial offering price due to underwriting discounts and related offering expenses. Also, shares of closed-end investment companies, including business development companies, frequently trade at a discount from their net asset value. This characteristic of closed-end investment companies is separate and distinct from the risk that our net asset value per share of common stock may decline. We cannot predict whether our common stock, if listed, will trade at, above or below net asset value.
 
 
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We intend, but are not required, to offer to repurchase your shares on a quarterly basis. As a result you will have limited opportunities to sell your shares and, to the extent you are able to sell your shares under the program, you may not be able to recover the amount of your investment in our shares.
 
On July 9, 2012, we commenced a share repurchase program to allow you to tender your shares to us on a quarterly basis at a price that is approximately equal to our net asset value as of the last business date of each relevant calendar quarter. . The share repurchase program includes numerous restrictions that limit your ability to sell your shares. We currently intend to limit the number of shares to be repurchased during any calendar year to the number of shares we can repurchase with the proceeds we receive from the issuance of shares of our common stock under our distribution reinvestment plan. At the discretion of our board of directors, we may also use cash on hand, cash available from borrowings and cash from the sale of our investments as of the end of the applicable period to repurchase shares. We limit repurchases in each quarter to 2.5% of the weighted average number of shares of our common stock outstanding in the prior four calendar quarters. To the extent that the number of shares put to us for repurchase exceeds the number of shares that we are able to purchase, we will repurchase shares on a pro rata basis, not on a first-come, first-served basis. Further, we will have no obligation to repurchase shares if the repurchase would violate the restrictions on distributions under federal law or Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency. These limits may prevent us from accommodating all repurchase requests made in any year. Our board of directors may amend, suspend or terminate the share repurchase program upon 30 days’ notice. We will notify our shareholders of such developments: (i) in our quarterly reports or (ii) by means of a separate mailing to you, accompanied by disclosure in a current or periodic report under the Exchange Act. In addition, under the quarterly share repurchase program, we have discretion to not repurchase shares, to suspend the program, and to cease repurchases. Further, the program may have many limitations and should not be relied upon as a method to sell shares promptly and at a desired price.
 
The timing of our repurchase offers pursuant to our share repurchase program may be at a time that is disadvantageous to our shareholders.
 
When we make quarterly repurchase offers pursuant to the share repurchase program, we may offer to repurchase shares at a price that is lower than the price that you paid for shares in our Offering. As a result, to the extent you paid an offering price that includes the related sales load and to the extent you have the ability to sell your shares pursuant to our share repurchase program, then the price at which you may sell shares, which will be at a price approximately equal to our net asset value on the last business day of the calendar quarter, may be lower than the amount you paid in connection with the purchase of shares in our Offering.
 
We may be unable to invest a significant portion of the net proceeds of our Offering on acceptable terms in an acceptable timeframe.
 
Delays in investing the net proceeds of our Offering may impair our performance. We cannot assure you that we will be able to continue to identify investments that meet our investment objective or that any investment that we make will produce a positive return. We may be unable to invest the net proceeds of our offering on acceptable terms within the time period that we anticipate or at all, which could harm our financial condition and operating results.
 
Before making investments, we will invest the net proceeds of our public offering primarily in cash, cash equivalents, U.S. government securities, repurchase agreements, and/or other high-quality debt instruments maturing in one year or less from the time of investment. This will produce returns that are significantly lower than the returns, which we expect to achieve when our portfolio is fully invested in securities meeting our investment objective. As a result, any distributions that we pay while our portfolio is not fully invested in securities meeting our investment objective may be lower than the distributions that we may be able to pay when our portfolio is fully invested in securities meeting our investment objective.
 
A shareholder’s interest in us will be diluted if we issue additional shares, which could reduce the overall value of an investment in us.
 
Our shareholders do not have preemptive rights to any shares we issue in the future. Our articles of incorporation authorizes us to issue up to 1,000,000,000 shares of common stock. Pursuant to our articles of incorporation, a majority of our entire board of directors may amend our articles of incorporation to increase the number of authorized shares of stock without shareholder approval. After you purchase shares, our board may elect to sell additional shares in the future or issue equity interests in private offerings.  To the extent we issue additional equity interests at or below net asset value, after you purchase our shares, your percentage ownership interest in us will be diluted. In addition, depending upon the terms and pricing of any additional offerings and the value of our investments, you may also experience dilution in the book value and fair value of your shares.
 
Under the 1940 Act, we generally are prohibited from issuing or selling our common stock at a price below net asset value per share, which may be a disadvantage as compared with certain public companies. We may, however, sell our common stock, or warrants, options, or rights to acquire our common stock, at a price below the current net asset value of our common stock if our board of directors and independent directors determine that such sale is in our best interests and the best interests of our shareholders, and our shareholders, including a majority of those shareholders that are not affiliated with us, approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our board of directors, closely approximates the fair value of such securities (less any distributing commission or discount). If we raise additional funds by issuing common stock or senior securities convertible into, or exchangeable for, our common stock, then the percentage ownership of our shareholders at that time will decrease and you will experience dilution.
 
 
21

 
 
Preferred stock could be issued with rights and preferences that would adversely affect holders of our common stock.
 
Our Offering does not include an offering of preferred stock. However, under the terms of our articles of incorporation, our board of directors is authorized to issue shares of preferred stock in one or more series without shareholder approval, which could potentially adversely affect the interests of existing shareholders.
 
Certain provisions of the Maryland General Corporation Law could deter takeover attempts.
 
Our bylaws exempt us from the Maryland Control Share Acquisition Act, which significantly restricts the voting rights of control shares of a Maryland corporation acquired in a control share acquisition. If our board of directors were to amend our bylaws to repeal this exemption from the Maryland Control Share Acquisition Act, that statute may make it more difficult for a third party to obtain control of us and increase the difficulty of consummating such a transaction. Although we do not presently intend to adopt such an amendment to our bylaws, there can be no assurance that we will not so amend our bylaws at some time in the future. We will not, however, amend our bylaws to make us subject to the Maryland Control Share Acquisition Act without our board of directors determining that doing so would not conflict with the 1940 Act and obtaining confirmation from the SEC that it does not object to that determination.
 
Additionally, our board of directors may, without shareholder action, authorize the issuance of shares of stock in one or more classes or series, including preferred stock. Our board of directors may also, without shareholder action, amend our articles of incorporation to increase the number of shares of stock of any class or series that we have authority to issue. These anti-takeover provisions may inhibit a change of control in circumstances that could give the holders of our common stock the opportunity to realize a premium over the value of our common stock.
 
Investing in our common stock involves a high degree of risk.
 
The investments we make in accordance with our investment objective may result in a higher amount of risk than alternative investment options and volatility or loss of principal. Our investments in portfolio companies may be highly speculative and aggressive and, therefore, an investment in our common stock may not be suitable for someone with lower risk tolerance.
 
The net asset value of our common stock may fluctuate significantly.
 
The net asset value and liquidity, if any, of the market for shares of our common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include:
 
 
changes in the value of our portfolio of investments and derivative instruments;
 
changes in regulatory policies or tax guidelines, particularly with respect to RICs or business development companies;
 
loss of RIC or business development company status;
 
distributions that exceed our net investment income and net income as reported according to GAAP;
 
changes in earnings or variations in operating results;
 
changes in accounting guidelines governing valuation of our investments;
 
any shortfall in revenue or net income or any increase in losses from levels expected by investors;
 
departure of either of our Advisors or certain of their respective key personnel;
 
general economic trends and other external factors; and
 
loss of a major funding source.
 
Federal Income Tax Risks
 
We will be subject to corporate-level income tax if we are unable to maintain our qualification as a RIC under Subchapter M of the Code.
 
To maintain RIC tax treatment under the Code, we must meet the following minimum annual distribution, income source and asset diversification requirements.
 
The minimum annual distribution requirement for a RIC will be satisfied if we distribute to our shareholders on an annual basis at least 90% of our net ordinary taxable income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. In addition, a RIC may, in certain cases, satisfy the 90% distribution requirement by distributing dividends relating to a taxable year after the close of such taxable year under the “spillover dividend” provisions of subchapter M. We would be taxed on any retained income and/or gains, including any short-term capital gains or long-term capital gains. We must also satisfy an additional annual distribution requirement during each calendar year in order to avoid a 4% excise tax on the amount of the under-distribution. Because we use debt financing, we are subject to (i) an asset coverage ratio requirement under the 1940 Act and (ii) certain financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirements. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment, or could be required to retain a portion of our income or gains, and thus become subject to corporate-level income tax.
 
 
22

 
 
The income source requirement will be satisfied if we obtain at least 90% of our annual income from dividends, interest, gains from the sale of stock or securities, or similar sources. The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash equivalents (including receivables), U.S. Government securities, securities of other RICs, and other acceptable securities; and no more than 25% of the value of our assets can be invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships.” Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.
 
If we fail to qualify for or maintain RIC tax treatment for any reason and are subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution, and the amount of our distributions.
 
We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.
 
For federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK, secondary market purchase of debt securities at discount to par, interest or, in certain cases, increasing interest rates or debt instruments that were issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. Furthermore, we may invest in non-U.S. corporations (or other non-U.S. entities treated as corporations for U.S. federal income tax purposes) that could be treated under the Code and U.S. Treasury regulations as “passive foreign investment companies” and/or “controlled foreign corporations.” The rules relating to investment in these types of non-U.S. entities are designed to ensure that U.S. taxpayers are either, in effect, taxed currently (or on an accelerated basis with respect to corporate level events) or taxed at increased tax rates at distribution or disposition. In certain circumstances this could require us to recognize income where we do not receive a corresponding payment in cash.
 
A portion of our income may constitute original issue discount or other income required to be included in taxable income prior to receipt of cash. Further, we may elect to amortize market discounts and include such amounts in our taxable income in the current year, instead of upon disposition, as an election not to do so would limit our ability to deduct interest expenses for tax purposes. Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of the accrual, we may be required to make a distribution to our shareholders in order to satisfy the annual distribution requirement, even if we will not have received any corresponding cash amount. As a result, we may have difficulty meeting the annual distribution requirement necessary to maintain RIC tax treatment under the Code. We may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital, make a partial share distribution, or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, and choose not to make a qualifying share distribution, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.
 
Unresolved Staff Comments
 
Not applicable.
 
Properties
 
We do not own any real estate or other physical properties materially important to our operation. We believe that the office facilities of the Advisor are suitable and adequate for our business as it is contemplated to be conducted.
 
Legal Proceedings
 
None of us, our Advisors or our Administrator, is currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us, or against our Advisors or Administrator. From time to time, we, our Advisors or Administrator may be a party to certain legal proceedings in the ordinary course of, or incidental to the normal course of, our business, including the enforcement of our rights under contracts with our portfolio companies. While we cannot predict the outcome of these legal proceedings with certainty, we do not expect that these proceedings will have a material adverse effect on our results of operations or financial condition.
 
 
Item 4.
Mine Safety Disclosures
 
Not applicable.
 
 
23

 
 
 
 
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
 
Market Information
 
There is no established public trading market for our common stock, and we do not expect one to develop. Therefore, there is a risk that a shareholder may not be able to sell our shares of common stock at a time or price acceptable to the shareholder, or at all.
 
Continuous Public Offering of Common Stock
 
On June 23, 2010, we filed our Registration Statement with the SEC to register our Offering. The Registration Statement was declared effective by the SEC on April 4, 2011 and we commenced our Offering.
 
 To the extent that our net asset value per share increases, we will ensure that our shares are not sold at a price, after deduction of selling commissions and marketing support fees, that is below net asset value per share. In connection with each weekly closing on the sale of shares of our common stock pursuant to our Offering and periodic reinvestment of distributions in our shares, we make the determination that we are not selling shares of our common stock at a price below our then current net asset value per share within 48 hours before the time that we issue shares. In addition, if the net asset value per share were to decline below 97.5% of the public offering price, net of sales load, for ten continuous business days (for this purpose, any day on which the principal stock markets in the United States are open for business), then, unless and until our board of directors determines otherwise, we will voluntarily suspend selling shares in the Offering until the net asset value per share is greater than 97.5% of the public offering price, net of sales load. The following table lists the net asset value per share, the public offering price including and excluding sales load, the net public offering price premium as a percentage of NAV, and quarterly declared distributions per share for the years ended December 31, 2012 and 2011.
 
      End of Quarter        
   
NAV(1)
   
Public
Offering
Price
   
Net POP(2)
   
Net POP
Premium to
NAV(3)
   
Declared
 Distributions
per Share
 
Year Ended December 31, 2012
                             
First Quarter
  $ 9.66     $ 10.85     $ 9.76       1 %   $ 0.19  
Second Quarter
  $ 9.64     $ 10.85     $ 9.76       1 %   $ 0.19  
Third Quarter
  $ 9.78     $ 10.95     $ 9.86       1 %   $ 0.19  
Fourth Quarter
  $ 9.75     $ 10.95     $ 9.86       1 %   $ 0.19  
Year Ended December 31, 2011
                                       
Second Quarter
  $ 9.00     $ 10.00     $ 9.00       0 %   $ 0.00  
Third Quarter
  $ 8.81     $ 10.00     $ 9.00       2 %   $ 0.19  
Fourth Quarter
  $ 9.21     $ 10.25     $ 9.22       0 %   $ 0.18  
 
(1)
Net asset value per share (“NAV”) is determined as of the last day in the period. The NAVs are based on outstanding shares at the end of the period.
(2)
Net public offering price excluding sales load (“Net POP”) is equal to public offering price less a 10% allowance for selling commissions and marketing support fees. Net POP is also the price employed in the distribution reinvestment plan.
(3)
Calculated at end of the period, Net POP divided by NAV, less 100%.
 
 
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As of December 31, 2012, we received aggregate subscription proceeds of approximately $659.3 million (61.5 million shares) in connection with our Offering and 1.2 million shares were issued in connection with the reinvestment of $12.1 million of distributions pursuant to our distribution reinvestment plan.  Set forth below is a chart that reconciles gross and net proceeds from the Offering since we commenced our Offering on April 4, 2011.
 
   
As of December 31, 2012
 
   
Shares 
   
Amount 
 
Gross Proceeds from Offering
    61,542,375     $ 659,266,958  
Commissions and Marketing Support Fees
            (62,232,876 )
Reinvestment of Distributions
    1,236,728       12,098,346  
Net Proceeds to Company
    62,779,103     $ 609,132,428  
Average Net Proceeds Per Share
  $9.70  

Holders
 
As of March 12, 2013, we had 22,000 record holders of our common stock. No shares of our common stock have been authorized for issuance under any equity compensation plan. Set forth below is a chart describing the single class of our securities outstanding as of March 12, 2013:
 
(1)
  (2)     (3)     (4)  
Title of Class
 
Amount
Authorized 
   
Amount Held by Us 
or for Our Account 
   
Amount Outstanding Exclusive
of Amount Under Column (3) 
 
Common Stock
    1,000,000,000             76,357,864  
 
Recent Sales of Unregistered Securities
 
In connection with our formation in June 2010, our Advisors acquired 22,222 shares of our common stock in consideration of a cash payment of $200,000 in an offering exempt from registration under Section 4(2) of the Securities Act.
 
Share Repurchase Program
 
We commenced our share repurchase program in July 2012 and the first repurchase of shares occurred in August 2012.  We limit repurchases in each quarter to 2.5% of the weighted average number of shares of our common stock outstanding in the prior four calendar quarters.  We currently intend to limit the number of shares to be repurchased during any calendar year to the number of shares we can repurchase with the proceeds we receive from the issuance of shares of our common stock under our distribution reinvestment plan. At the discretion of our board of directors, we may also use cash on hand, cash available from borrowings and cash from the sale of our investments as of the end of the applicable period to repurchase shares. Our board of directors may amend, suspend or terminate the share repurchase program upon 30 days’ notice. All shares purchased by us pursuant to the terms of each tender offer will be retired and thereafter will be authorized and unissued shares. On October 9, 2012, we offered to purchase up to 470,031 shares of our issued and outstanding common stock at a price of $9.79 per share.  The offer expired on November 15, 2012 and the total number of shares purchased represented 5% of the total number of shares offered for purchase. The table below provides information concerning our repurchases of shares of our common stock during the quarter ended December 31, 2012 pursuant to our tender offer dated October 9, 2012.
 
Period
 
Total
Number of
Shares
Purchased
   
Average Price
Paid per Share
   
Total Number of
Shares Purchased as
Part of Publicly
Announced
Programs
   
Maximum
Number of Shares
that May Yet Be
Purchased Under
the Program
 
October 1, 2012 through October 31, 2012
    -       -       -       -  
November 1, 2012 through November 30, 2012
    25,405     $ 9.79       25,405       -  
December 1, 2012 through December 31, 2012
    -       -       -       -  
Total
    25,405     $ 9.79       25,405       -  

 
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Distributions
 
Distributions to our shareholders are governed by our articles of incorporation. Beginning in June 2011, our board of directors met quarterly to declare distributions for the subsequent fiscal quarter. Our board of directors declares a weekly record date, a weekly distribution rate and a monthly payment date. We intend to continue to pay monthly distributions to our shareholders. The timing and amount of our monthly distributions, if any, is determined by our board of directors. Any distributions to our shareholders are declared out of assets legally available for distribution. (See Notes 8 and 13 to our consolidated financial statements).
 
The following table presents the total cash distributions declared per share of common stock outstanding during the years ended December 31, 2012, and 2011:
 
   
Cash Distributions Declared Per Share
 
Quarter
 
2012
   
2011
 
First
  $ 0.185700     $  
Second
    0.189878        
Third
    0.189878       0.175006  
Fourth
    0.189878       0.191492  
Total
  $ 0.755334     $ 0.366498  
 
Because we intend to maintain our qualification as a RIC, we intend to distribute at least 90% of our annual taxable income to our shareholders. To the extent our taxable earnings fall below the total amount of our paid distributions for any given fiscal year, a portion of those paid distributions may be deemed to be a tax return of capital to our shareholders. For the years ended December 31, 2012, and 2011, 100% of the distributions paid to shareholders were comprised of taxable income (ordinary income and capital gains, if any) for federal income tax purposes, and none of the paid distributions were determined to be a return of capital. In January 2012 and 2011, a Form 1099-DIV was sent to our shareholders which stated the amount and source of the distribution and provided information with respect to appropriate tax treatment of the distribution.
 
On December 14, 2012 and March 12, 2013, our board of directors declared distributions for the first quarter of 2013 and the second quarter of 2013, respectively, which represent an annualized distribution rate of 7.06% based on our current public offering price of $11.05 per share. The annualized distribution rate should not be interpreted to be a measure of our current or future performance. It is anticipated that these distributions, in the aggregate, will be substantially supported by our taxable income and the sources of distributions will be disclosed in our regular financial reports. Distributions will be recorded weekly and paid monthly in accordance with the schedule below.
 
Record Date
 
Distribution
Payment Date
 
Declared Distribution
Per Share Per Record Date
 
January 2, 8, 15, 22 and 29, 2013
 
January 30, 2013
  $ 0.015004  
February 5, 12, 19 and 26, 2013
 
February 27, 2013
  $ 0.015004  
March 5, 12, 19 and 26, 2013
 
March 27, 2013
  $ 0.015004  
April 2, 9, 16, 23 and 30
 
May 1, 2013
  $ 0.015004  
May 7, 14, 21 and 28
 
May 29, 2013
  $ 0.015004  
June 4, 11, 18 and 25
 
June 26, 2013
  $ 0.015004  
 
We have adopted a distribution reinvestment plan that enables our shareholders to elect for the reinvestment of distributions in shares of common stock. As a result, if our company’s board of directors authorizes and declares a cash distribution, then shareholders who have elected to participate in the distribution reinvestment plan will have their cash distribution automatically reinvested in additional shares of common stock at a price equivalent to the public offering price exclusive of commissions and marketing support fees, rather than receiving the cash distribution.
 
 
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The following selected financial data for the years ended December 31, 2012 and 2011, and for the period from June 9, 2010, (Inception) to December 31, 2010 is derived from our consolidated financial statements. The following selected financial data for Corporate Capital Trust, Inc. should be read in conjunction with “Item 7.—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. —Financial Statements and Supplementary Data” included elsewhere in this report.
 

   
(U.S. dollar amounts in thousands, except per share data)
 
               Period from  
               June 9, 2010  
Statement of operations data:
             (Inception) to  
   Year Ended December 31,    
December 31,
 
   2012      2011    
2010
 
                 
Investment income
  $ 35,582     $ 959     $  
Operating expenses
                       
Total expenses
    19,651       1,481        
Reimbursement of expense support
    1,829                
Advisors’ Expense support
    (1,590 )     (1,376 )      
Net expenses
    19,890       106        
Net investment income
    15,692       853        
Realized and unrealized gain
    9,962       529        
Net increase in net assets resulting from operations
  $ 25,654     $ 1,382     $  
Per share data:
                       
Net investment income - basic and diluted
  $ 0.50     $ 0.67          
Net increase in net assets resulting from operations—basic and diluted
  $ 0.82     $ 1.09          
Distributions declared
  $ 0.76     $ 0.37          
Balance sheet data:
                       
Total assets
  $ 850,324     $ 116,223     $ 200  
Credit facility
  $ 159,620     $ 25,340        
Total net assets
  $ 611,484     $ 65,163     $ 200  
Other data:
                       
Total investment return-net price(1)
    14.2 %     6.5 %      
Total investment return-net asset value(2)
    14.3 %     6.5 %        
Number of portfolio companies at period end
    126       110        
Total portfolio investments for the period
  $ 991,952     $ 106,811        
Investment sales and prepayments for the period
  $ 410,530     $ 482        
 
(1)
Total investment return-net price is a measure of total return for shareholders who purchased the Company’s common stock at the beginning of the period, including dividends declared during the period. Total investment return-net price is based on (i) the purchase of one share at the public offering price, net of sales load, on the first day of the period, (ii) the sale at the net asset value per share on the last day of the period, of (A) one share plus (B) any fractional shares issued in connection with the reinvestment of monthly distributions, and (iii) the cash payment for distributions payable, if any, on the last day of the period. The total investment return-net price calculation assumes that (i) monthly cash distributions are reinvested in accordance with the Company’s distribution reinvestment plan and (ii) the fractional shares issued pursuant to the distribution reinvestment plan are issued at the then public offering price, net of sales load, on each monthly distribution payment date. There is no public market for the Company’s shares and the market value at sale is assumed to be equal to net asset value per share on the last day of the period.  The Company’s performance changes over time and currently may be different than that shown above. Past performance is no guarantee of future results.  Investment performance is presented without regard to sales load that may be incurred by our shareholders in the purchase of the Company’s shares of common stock.
 
(2)
Total investment return-net asset value is a measure of the change in total value for shareholders who held the Company’s common stock at the beginning and end of the period, including dividends declared during the period. Total investment return-net asset value is based on (i) the beginning period net asset value per share on the first day of the period, (ii) the net asset value per share on the last day of the period, of (A) one share plus (B) any fractional shares issued in connection with the reinvestment of monthly distributions, and (iii) the value of distributions payable, if any, on the last day of the period. The total investment return-net asset value calculation assumes that (i) monthly cash distributions are reinvested in accordance with the Company’s distribution reinvestment plan and (ii) the fractional shares issued pursuant to the distribution reinvestment plan are issued at the then public offering price, net of sales load, on each monthly distribution payment date. There is no public market for the Company’s shares.  The Company’s performance changes over time and currently may be different than that shown above. Past performance is no guarantee of future results.  Investment performance is presented without regard to sales load that may be incurred by our shareholders in the purchase of the Company’s shares of common stock.

 
27

 
 

The information contained in this section should be read in conjunction with our consolidated financial statements and related notes thereto appearing elsewhere in this annual report on Form 10-K. In this report, “we”, “our”, “us” and “our company” refer to Corporate Capital Trust, Inc.
 
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
 
The following information contains statements that constitute forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. These statements generally are characterized by the use of terms such as “may,” “should,” “plan,” “anticipate,” “estimate,” “intend,” “predict,” “believe” and “expect” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, our actual results could differ materially from those set forth in the forward-looking statements. Some factors that might cause such a difference include the following: the current global economic downturn, increased direct competition, changes in government regulations or accounting rules, changes in local, national and global capital market conditions, our ability to obtain credit lines or credit facilities on satisfactory terms, changes in interest rates, availability of proceeds from our offering of shares, our ability to identify suitable investments, our ability to close on identified investments, inaccuracies of our accounting estimates, our ability to locate suitable borrowers for our loans and the ability of such borrowers to make payments under their respective loans. Given these uncertainties, we caution you not to place undue reliance on such statements, which apply only as of the date hereof. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances or to reflect the occurrence of unanticipated events. The forward-looking statements should be read in light of the risk factors identified in the “Risk Factors” section of this report.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ.

Our critical accounting policies are described in the notes to the consolidated financial statements. Accordingly, see Note 2 to the consolidated financial statements for a description of critical accounting policies. We consider these accounting policies to be deemed critical because they involve management judgments and assumptions, require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results. These judgments will affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2 to the consolidated financial statements for a description of recently issued accounting pronouncements. We do not believe that any recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on our consolidated financial statements.
 
 
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EXECUTIVE OVERVIEW
 
We are a non-diversified closed-end management investment company that has elected to be treated as a business development company under the 1940 Act. Formed as a Maryland corporation on June 9, 2010, we are externally managed by CNL Fund Advisors Company (“CNL”) and KKR Asset Management LLC (“KKR”), collectively, the “Advisors”, which are responsible for sourcing potential investments, conducting due diligence on prospective investments, analyzing investment opportunities, structuring investments and monitoring our portfolio on an ongoing basis. Both Advisors are registered as investment advisers with the SEC.  CNL also provides the administrative services necessary for us to operate.

Investment Objective and Investments
 
Our investment objective is to provide our shareholders with current income and, to a lesser extent, long-term capital appreciation. We intend to meet our investment objective by investing primarily in the debt of privately owned U.S. companies (also referred to as “portfolio companies”) with a focus on originated transactions sourced through the networks of our Advisors. A substantial portion of our portfolio consists of senior and subordinated debt, which we believe offer opportunities for superior risk-adjusted returns and income generation. Our debt investments may take the form of corporate loans or bonds, may be secured or unsecured and may, in some cases, be accompanied by warrants, options or other forms of equity participation. We may also potentially purchase common or preferred equity interests in portfolio companies.
 
The level of our investment activity can and does vary substantially from period to period depending on many factors, including: the amount of equity capital we raise from offering common stock in our company, the amount of capital we may borrow under our revolving credit facility, the investment parameters of our TRS agreements, the amount of debt and equity capital available at large from various potential capital providers to finance the business activities of portfolio companies, the demand for debt from creditworthy privately owned U.S. companies, the level of merger, acquisition and refinancing activity involving private companies, the availability of credit to finance transactions, the general economic environment, and competitive environment for the types of investments we currently seek and intend to seek in the future.
 
As a business development company, we are required to comply with certain regulatory requirements. For instance, we may not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Under the relevant SEC rules, the term “eligible portfolio company” includes all private companies, companies whose securities are not listed on a national securities exchange, and certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million. These rules also permit us to include as qualifying assets certain follow-on investments in companies that were eligible portfolio companies at the time of initial investment but that no longer meet the definition.

Revenues

We generate revenue primarily in the form of interest on the debt securities of portfolio companies that we acquire and hold for investment purposes. Our investments in debt securities generally have an expected maturity of three to ten years, although we have no lower or upper constraint on maturity, and typically bear interest at a fixed or floating rates. Interest on our debt securities is generally payable quarterly or semi-annually. In some cases, our debt investments may partially defer cash interest payments with payment-in-kind provisions. Any outstanding principal amount of our debt securities and any accrued but unpaid interest will generally become due at the maturity date. In addition, we may generate revenue in the form of prepayment fees, commitment fees, origination fees, and fees for providing significant managerial assistance.  While the TRS reference assets generate interest income and fees, such amounts, net of the financing amounts we pay quarterly to the TRS counterparty, are recognized as realized gains pursuant to GAAP.

Operating Expenses

Our primary operating expenses include the payment of a base management fee and, depending on our operating results, performance-based incentive fees, reimbursable expenses under the investment advisory agreement, interest expense and financing fees, amortization of deferred offering expenses, fund administrative expenses, and third-party expenses incurred under the administrative services agreement and custody/accounting agreements. The base management fee and performance-based incentive fees compensate the Advisors for their efforts and resources in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses of our operations and transactions.
 
 
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FINANCIAL AND OPERATING HIGHLIGHTS
 
($ in millions except per share data)
 
Year ended December 31,
 
2012
   
2011
 
Total assets
  $ 850.32     $ 116.22  
Adjusted total assets (Total assets net of payable for investments purchased)
  $ 777.89     $ 91.51  
Investment in portfolio companies
  $ 697.67     $ 106.59  
Borrowings -credit facility
  $ 159.62     $ 25.34  
Borrowings - TRS deemed senior securities
  $ 76.05     $  
Net assets
  $ 611.48     $ 65.16  
Average net assets
  $ 304.26     $ 20.93  
Average credit facility borrowings
  $ 110.07     $ 4.08  
Net asset value per share
  $ 9.75     $ 9.21  
Leverage ratio (Borrowings/Adjusted total assets)
    30 %     28 %
 
Portfolio Activity for the Year Ended December 31,
    2012       2011  
Cost of investments purchased
  $ 991.95     $ 106.81  
Sales, principal payments and other exits
  $ 410.53     $ 0.48  
Number of portfolio companies at end of period
    126       110  
Net investment income
  $ 15.69     $ 0.85  
Net realized gains on investments and foreign currency transactions
  $ 3.04     $ 0.01  
Net change in unrealized appreciation on investments, derivative instruments and foreign currency translation:
  $ 6.92     $ 0.52  
Net increase in net assets from operations
  $ 25.65     $ 1.38  
Total distributions declared
  $ 23.32     $ 0.86  
Calendar year paid distribution as % of taxable income
    97 %     88 %
Net investment income before incentive fees per share
  $ 0.56     $ 0.89  
Net investment income per share
  $ 0.50     $ 0.67  
Earnings per share
  $ 0.82     $ 1.09  
Distributions declared per share outstanding for the entire period
  $ 0.76     $ 0.37  
 
Common Stock Offering Summary for the Year Ended December 31,
    2012       2011  
Gross proceeds
  $ 588.37     $ 70.90  
Net proceeds to Company
  $ 532.86     $ 64.17  
Average net proceeds per share
  $ 9.77     $ 9.14  
Shares issued in connection with offering
    54.52       7.02  
 
 
BUSINESS ENVIRONMENT
 
The U.S. economy grew at a moderate rate in 2012 of 2.2%, but key indicators of sustainable growth remain under pressure and growth slowed slightly in the fourth quarter of 2012. For example, while unemployment has declined from a high of 10% in October 2009 to 7.8% in December 2012, the unemployment rate remains high compared to its average of less than 5% in 2004-2007 and consumer and business spending continues to be cautious. While the federal debt limit has been temporarily suspended, additional efforts to suspend or increase the debt limit may be required as soon as May 2013. A tightening of U.S. fiscal policy and uncertainty about the resolution of such policy issues may further slow U.S. economic growth and adversely impact the global economy.
 
Notwithstanding these trends, capital flows into the debt markets in 2012 remained robust and bond and loan issuance and refinancing volumes increased, adding to strong price appreciation among the credit indices.  The S&P Leveraged Loan Index, a measure of senior secured debt, saw an increase of 1.45% during the fourth quarter of 2012 and the Merrill Lynch High Yield Master II, a measure of subordinated debt, increased 3.23% over the same period. Overall, both indices recorded relatively strong overall gains in 2012 with total returns of 9.67% and 15.58%, respectively, during that period. Furthermore, interest rates continued their descent in 2012, evidenced by the three-month LIBOR decreasing 5 basis points (“bps”) in the fourth quarter of 2012 and 27 bps for the year, to finish the year at 0.30%. We also witnessed credit spreads tightening in the high yield debt markets and overall increased appetite for risk from certain investors in the search for yield. These factors, along with others, compressed the yields on U.S. fixed rate bonds to an all-time low and our Advisors believe that in the fourth quarter 2012, floating rate investments offered favorable risk adjusted returns relative to fixed rate investments.  The trend of yield compression has continued into the first quarter of 2013.
 
 
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As a result, in the fourth quarter of 2012 our Advisors initiated a shift increasing the composition of our floating or variable rate investments from 42.7% as of September 30, 2012 to 57.3% as of December 31, 2012.  Floating rate debt investments typically have a shorter duration, contribute lower relative interest rate risk to the investment portfolio as interest rates rise but offer a lower relative yield as compared to high yield, fixed rate corporate bond investments.  Debt securities with shorter durations are typically subject to less interest-rate risk and for this reason, portfolios with shorter durations, like ours, are considered less price sensitive to changes in interest rates than those with longer durations. 
 
However, even as realizable yields on debt securities compressed in the fourth quarter of 2012, primarily as a result of the robust levels of liquidity entering the secondary market, our Advisors believe that there remains a long-term market investment opportunity in primary corporate debt issuances and other less liquid transactions. As new banking regulations such as Basel III and Dodd-Frank require financial institutions to meet new increased capital requirements, our Advisors believe the confluence of both legislative and regulatory measures will make it more difficult and inefficient for commercial banks to supply all of the capital to meet the financing needs of growing medium- to large-sized companies.  This in our Advisors’ view will continue to provide us with an attractive market investment opportunity to deploy capital through primary corporate debt issuance and other less liquid securities to this growing segment of the U.S. economy.
 
PORTFOLIO AND INVESTMENT ACTIVITY

As of December 31, 2012, our investment program consisted of two main components.  First, throughout 2011 and 2012 we have been engaged in the direct purchase of debt securities primarily issued by portfolio companies, and these debt securities were acquired through both secondary market and primary issuance transactions.  We refer to this investment component as our investment portfolio in this report. Second, beginning in November 2012, we have been increasing our economic exposure to portfolio companies by entering into a total return swap arrangement (“the TRS”) with a commercial bank counterparty and directing the creation of a portfolio of underlying corporate bonds and loans that serve as reference assets under the TRS. We refer to this investment component as our portfolio of TRS reference assets in this report. In the case of our portfolio of TRS reference assets, we receive all: (i) realized income and fees and (ii) realized capital gains generated by TRS reference assets.  In return, we must pay quarterly to the TRS counterparty a payment consisting of: (i) realized capital losses and (ii) financing costs that are based on a floating interest rate and the settled notional amount of TRS reference assets.  At the end of the TRS contract life, we will receive additional economic benefit if the net value of the portfolio of TRS reference assets appreciates relative to the settlement date TRS notional amount.  Correspondingly, we will be required to pay the counterparty the amount, if any, by which the net value of the portfolio of TRS reference assets declines relative to the settlement date TRS notional amount. We do not own, or have physical custody of, the TRS reference assets. The TRS reference assets are not direct investments by us.
 
Portfolio Investment Activity for the years ending December 31, 2012 and 2011

Our flexible mandate allows for our Advisors to actively manage yield and risk by re-allocating the portfolio between fixed and floating securities, senior and subordinated securities, as well as between secondary and primary debt issuance transactions. One of the most noticeable evidences of our flexible investment mandate is the shift towards direct and indirect investment participation in primary debt issuance transactions.  As of December 31, 2012, we had investment exposure to approximately $290 million of corporate debt securities that were acquired as portfolio investments or as TRS reference assets in transactions featuring the original issuance of these debt securities. See Item 8 “Financial Statements and Supplementary Data” for a comprehensive list of all investments in portfolio companies that we held in our investment portfolio as of December 31, 2012 and 2011 and TRS reference assets as of December 31. 2012.
 
During the year ending December 31, 2012, we invested $991.95 million in the securities issued by portfolio companies. These investments were sourced, underwritten and monitored by our Advisors. During the year ended December 31, 2012, we sold investment positions totaling $358.60 million. As of December 31, 2012, our investment portfolio consisted of 165 investment positions in 126 portfolio companies, representing a total fair value of $697.67 million, excluding our short term investments and derivative instruments.  During the year ended December 31, 2012, we added 62 new portfolio companies to our investment portfolio and we exited from our investment positions in 46 portfolio companies that had been held in the investment portfolio at December 31, 2011.
 
During the year ending December 31, 2011, we invested $106.81 million in portfolio companies.  During the year ended December 31, 2011, we sold investment positions totaling $0.48 million. As of December 31, 2011, our investment portfolio consisted of 142 investment positions in 110 portfolio companies, for a total fair value of $106.59 million, excluding our short term investments.
 
 
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The portfolio of TRS reference assets provides us with economic exposure to 54 debt investment positions represented by 47 portfolio companies with a total value of approximately $164.77 million.  There were seven investment positions and 19 portfolio companies represented in both our investment portfolio and our TRS portfolio of reference assets as of December 31, 2012.
 
The information presented below is for further analysis of our investment portfolio and our portfolio of TRS reference assets, or TRS portfolio. However, our investment program is not managed with any specific investment diversification or dispersion target goals. The following table summarizes the composition of our investment portfolio and our portfolio of TRS reference assets based on fair value as of December 31, 2012, excluding our short term investments: We do not own, or have physical custody of, the TRS reference assets. The reference assets are not direct investments of our Company.

   
As of December 31, 2012
 
Asset Category
 
Investment Portfolio
at Fair Value
   
Percentage of
Investment
Portfolio
   
TRS Reference Assets
at Fair Value
   
Percentage of
TRS Portfolio
 
Senior debt securities
  $ 522,442,812       74.9 %   $ 128,005,782       77.7 %
Subordinated debt securities
    169,788,339       24.3       36,762,456       22.3  
Total debt securities
    692,231,151       99.2       164,768,238       100.0  
Common stock
    453,397       0.1              
Preferred stock
    4,983,883       0.7              
Total equity securities
    5,437,280       0.8              
Total
  $ 697,668,431       100.0 %   $ 164,768,238       100.0 %

The following table summarizes the composition of our investment portfolio based on amortized cost and the notional amount of the TRS reference assets as of December 31, 2012:

   
As of December 31, 2012
 
Asset Category
 
Investment Portfolio
at Amortized Cost
   
Percentage of
Investment
Portfolio
   
TRS Reference Assets
at Notional Amount
   
Percentage of
TRS Portfolio
 
Senior debt securities
  $ 519,196,084       75.1 %   $ 127,732,013       77.9 %
Subordinated debt securities
    166,981,595       24.1       36,279,761       22.1  
Total debt securities
    686,177,679       99.2       164,011,774       100.0  
Common stock
    448,908       0.1              
Preferred stock
    4,800,812       0.7              
Total equity securities
    5,249,720       0.8              
Total
  $ 691,427,399       100.0 %   $ 164,011,774       100.0 %
 
 
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The following table summarizes the composition of our investment portfolio at amortized cost and fair value as of December 31, 2011, excluding our short term investments:
 
   
As of December 31, 2011
 
Asset Category
 
Investment Portfolio
at Amortized Cost
   
Investment Portfolio
 at Fair Value
   
Percentage of
Investment Portfolio
 
Senior debt securities
  $ 71,398,157     $ 71,609,433       67.2 %
Subordinated debt securities
    34,613,494       34,877,800       32.7  
Total debt securities
    106,011,651       106,487,233       99.9  
Preferred stock
    99,595       102,524       0.1  
Total
  $ 106,111,246     $ 106,589,757       100.0 %
 
The primary investment concentrations include (i) senior debt and (ii) subordinated debt securities. The debt investments in our portfolio were purchased at an average price of 99.4% of par value.  The table below presents a summary of statistics for the debt investments in our investment portfolio, as well as for the portfolio of TRS reference assets, as of December 31, 2012 and 2011.

   
Portfolio Debt
Investments
 as of December 31,
 
TRS Reference Assets
as of December 31,
Floating interest rate investments:
 
2012
 
2011
 
2012
Percent of portfolio (1)
 
57.3
%
 
58.5
%
 
73.7
%
Percent of floating rate debt investments with interest rate floors (1)
 
87.3
%
 
65.2
%
 
87.0
%
Weighted average interest rate floor
 
1.4
%
 
1.5
%
 
1.2
%
Weighted average coupon spread (2)
 
595
bps
 
468
bps
 
433
bps
Weighted average years to maturity (2)
 
5.2
   
4.9
   
5.8
 
                   
Fixed interest rate investments:
                 
Percent of portfolio (1)
 
42.7
%
 
41.5
%
 
26.3
%
Weighted average coupon rate (2)
 
9.5
%
 
9.3
%
 
8.3
%
Weighted average years to maturity (2)
 
5.6
   
5.3
   
7.0
 
 
(1)   Percentages are based on fair value.
(2)   Weighted average coupon, coupon spreads and weighted average years to maturity are calculated based on par values.
  
All of our floating interest rate debt investments have index reset frequencies of less than twelve months with the majority resetting at least quarterly.  The three-month LIBOR, the most prevalent index employed among our floating interest rate debt investments, ranged between 0.306% and 0.583% during the year ended December 31, 2012, and ranged between 0.245% and 0.581% during the year ended December 31, 2011.

 
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As of December 31, 2012, our investment portfolio of 126 portfolio companies was diversified across 23 industry classifications, as compared to our investment portfolio as of December 31, 2011 that consisted of 110 portfolio companies diversified across 24 distinct industry classifications.  As of December 31, 2012, the portfolio of TRS reference assets consisted of 47 portfolio companies diversified across 18 distinct industry classifications. The table below presents a diversification summary of our portfolio company investments and portfolio of TRS reference assets arranged by industry classifications at December 31, 2012 and December 31, 2011.
 
   
Portfolio Investments
as of December 31,
   
TRS Reference Assets
as of December 31,
 
Industry Classification
 
2012
   
2011
   
2012
 
Capital Goods
   
13.7
%
 
3.4
%
 
15.0
%
Media
   
11.0
   
8.1
   
13.8
 
Materials
   
9.9
   
3.4
   
3.7
 
Retailing
   
9.2
   
12.6
   
                    —
 
Software & Services
   
9.1
   
14.6
   
15.6
 
Technology Hardware & Equipment
   
7.8
   
4.6
   
2.4
 
Insurance
   
6.2
   
2.4
   
1.8
 
Health Care Equipment & Services
   
6.2
   
6.9
   
7.7
 
Telecommunication Services
   
4.1
   
9.0
   
8.2
 
Consumer Services
   
3.7
   
4.9
   
5.4
 
Commercial & Professional Services
   
3.4
   
3.2
   
                    —
 
Remaining Industries
   
15.7
   
26.9
   
26.4
 
Total
   
100.0
%
 
100.0
%
 
100.0
%
 
Our investment portfolio may contain loans that are in the form of lines of credit, unfunded delayed draw loan commitments or revolving credit facilities, which require us to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of December 31, 2012, we held two unfunded delayed draw loan commitments that amounted to $1,012,317.  As of December 31, 2011, we held one delayed draw line of credit investment position; however, this investment was fully funded and does not represent an unfunded loan commitment with recourse to us.  We maintain sufficient cash on hand to fund such unfunded loan commitments should the need arise.
 
We neither “control” nor are we an “affiliated person” (each as defined in the 1940 Act) of any of our portfolio companies. Under the 1940 Act, we generally would be presumed to “control” a portfolio company if we own beneficially, either directly or through one or more controlled companies, 25% or more of its voting securities; and generally would be an “affiliated person” of a portfolio company if we directly or indirectly own or otherwise control 5% or more of its voting securities.
 
LIQUIDITY AND CAPITAL RESOURCES
 
Offering of Common Stock
 
On June 23, 2010, we filed our Registration Statement with the SEC to register the Offering. The Offering, which relates to the offer and sale on a continuous basis of up to 150 million of shares of common stock, commenced on April 4, 2011 when the Registration Statement was declared effective. We raised net proceeds of $544.70 million during the year ending December 31, 2012 and $64.44 million during the year ending December 31, 2011, including the reinvestment of distributions into shares of our common stock. Nearly all of this equity capital has been applied to acquire investment positions in portfolio companies.
 
Credit Facility
 
We borrow funds to invest alongside the equity capital proceeds of our Offering to increase our investment positions in portfolio companies and to further diversify the number of portfolio company investment positions. In 2011, our wholly-owned special purpose financing subsidiary CCT Funding LLC (“CCT Funding”) entered into a revolving credit facility agreement as amended, the “Credit Agreement”) with Deutsche Bank AG, New York Branch (“Deutsche Bank”). At the time CCT Funding initially entered into the Credit Agreement, Deutsche Bank was the sole initial lender. CCT Funding has appointed us to manage its investment portfolio pursuant to the terms of an investment management agreement. CCT Funding’s obligations to the lenders under the Credit Agreement are secured by a first priority security interest in substantially all of the assets of CCT Funding, including its investment portfolio. The obligations of CCT Funding under the revolving credit facility are non-recourse to us. Approximately 88% of our total investment portfolio, including money market investments, was held as collateral at CCT Funding under the credit facility as of December 31, 2012.

 
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As of December 31, 2012, the Credit Agreement provided for borrowings in an aggregate amount up to $240.00 million, including $175.00 million on a committed basis and $65.00 million on an uncommitted basis.  As of December 31, 2012, we have incurred costs of $0.30 million in connection with arranging and amending the Credit Agreement, primarily consisting of legal fees.  We have recorded these costs as deferred financing costs on our consolidated balance sheets and amortize to interest expense over the life of the credit facility.  As of December 31, 2012, $0.11 million of such deferred financing costs had yet to be amortized to interest expense.
 
As of December 31, 2012, $75.00 million was borrowed and outstanding as Tranche A Loans and $84.62 million was borrowed and outstanding as Tranche B Loans. The unused commitment balance was $15.38 million under the Tranche B Loans commitment.  On February 11, 2013, CCT Funding entered into an amendment (the “Third Amendment”) under the Credit Agreement.  The Third Amendment amended the Credit Agreement by providing for, among other things, the extension of a new tranche of loan commitments (the “Tranche D Loans”) permitting additional borrowings in an aggregate amount of up to $100.00 million.  The Third Amendment reclassified the prior Tranche B Loans as the “Tranche B2 Loans” and the prior Tranche C Loans as the “Tranche B1 Loans.”  As amended, loans under the Credit Agreement will generally bear interest based on a three-month adjusted LIBOR (“Adjusted LIBOR”) for the relevant interest period (except with respect to the Tranche A Loans, which bear interest based on one-month Adjusted LIBOR), plus a spread of (a) 1.70% per annum with respect to the Tranche A Loans, (b) 1.50% per annum with respect to the Tranche B1 Loans, (c) 2.325% per annum with respect to the Tranche B2 Loans and (d) 2.325% per annum with respect to the Tranche D Loans. Interest is payable monthly in arrears. Any amounts borrowed under the Credit Agreement are scheduled to mature, and all accrued and unpaid interest thereunder will be due and payable, (x) on August 22, 2013, with respect to the Tranche A Loans, (y) on February 11, 2014, with respect to the Tranche B1 Loans and (z) on February 11, 2015, with respect to each of the Tranche B2 Loans and the Tranche D Loans. Upfront fees and unfunded commitment fees were also incurred with respect to the Tranche B1 Loans, Tranche B2 Loans and Tranche D Loans.
 
As of December 31, 2012, the ratio of credit facility borrowings-to-adjusted total assets was 21%. (Adjusted total assets is equal to total assets excluding payable for investments purchased.)  For the years ending December 31, 2012 and 2011, our all-in cost of financing for this credit facility, including fees and expenses, was 2.60% and 3.94%, respectively. We will continue to draw on the revolving credit facility and combine borrowed funds with equity capital to increase and expand our investment positions in portfolio companies. Additionally, we may further increase the aggregate maximum credit commitment in the future beyond the current amount of $340.00 million.

Total Return Swaps
 
On November 15, 2012, Halifax Funding LLC, our newly-formed, wholly-owned, special purpose financing subsidiary entered into a TRS arrangement with The Bank of Nova Scotia (“BNS”).  Our TRS arrangement with BNS consists of a set of agreements (namely, an ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, by and between Halifax Funding LLC and BNS, and a Confirmation Letter Agreement by and between Halifax Funding and BNS, and the BNS custodian agreement, each dated as of November 15, 2012), and are collectively referred to herein as the TRS Agreements. Under the terms of the TRS Agreements, each reference asset in the TRS portfolio constitutes a separate total return swap transaction, although all calculations, payments and transfers required to be made under the TRS are calculated and treated on an aggregate basis, based upon all such transactions.
 
Pursuant to the terms of the TRS Agreements, Halifax Funding may select a portfolio of single-name corporate loans and bonds with a maximum aggregate notional amount of $500 million. Halifax Funding is required to initially cash collateralize a specified percentage of each loan or bond (generally, at least 40% of the notional amount of such loan or bond) in accordance with margin requirements described in the TRS Agreements.
 
Pursuant to Halifax Funding’s limited liability company operating agreement, we act as the manager of Halifax Funding and exercise Halifax Funding’s rights under the TRS, including selecting the specific loans or bonds to be included in, or deleted from, the portfolio of TRS reference assets. Accordingly, the loans and/or bonds selected by Halifax Funding for purposes of the TRS are selected by us in accordance with our investment objective.  Each individual loan or bond, and the portfolio of loans and bonds taken as a whole, must meet criteria described in the TRS Agreements.  BNS, as calculation agent, determines whether each loan or bond complies with the TRS portfolio criteria. Halifax Funding receives quarterly from BNS all interest and fees payable related to the portfolio of TRS reference assets. Halifax Funding pays to BNS interest at a rate equal to the three-month LIBOR+0.80% per annum if the initial investment amount (i.e., posted cash collateral) equals or exceeds 50% of the trade basis notional amount, or three-month LIBOR+1.00% if the initial investment amount is less than 50% of the trade basis notional amount. In addition, upon the termination or repayment of any reference asset subject to the TRS, Halifax Funding will either receive from BNS the realized gain in the value of such reference asset relative to notional amount ,or pay to BNS any realized loss in the value of reference asset relative to notional amount.
 
Under the terms of the TRS, Halifax Funding may be required to post additional cash collateral, on a dollar-for-dollar basis, in the event of depreciation in the value of the TRS reference assets after such value decreases below a specified amount. The minimum additional collateral that Halifax Funding is required to post pursuant to the TRS Agreement is equal to the amount required to ensure that the value of the TRS credit support is equal to 25% of the value of the portfolio of TRS reference assets.
 
 
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The obligations of Halifax Funding under the TRS Agreements are non-recourse to us and our exposure under the TRS Agreements is limited to the value of our investment in Halifax Funding, which generally equals the value of cash collateral provided by Halifax Funding under the TRS Agreements net of unrealized appreciation and depreciation on the portfolio of TRS reference assets.  We have no contractual obligation to post any cash collateral or to make any payments on behalf of Halifax Funding to BNS.  We may, but are not obligated to, increase our equity investment in Halifax Funding for the purpose of funding any additional cash collateral or payment obligations for which Halifax Funding may become obligated during the term of the TRS Agreements. If we do not make any such additional investment in Halifax Funding and Halifax Funding fails to meet its obligations under the TRS Agreements, then BNS will have the right to terminate the TRS and seize the cash collateral posted by Halifax Funding. In the event of an early termination of the TRS, Halifax Funding would be required to pay an early termination fee.
 
All cash collateral required to be posted under the TRS is held in the custody of The Bank of Nova Scotia Trust Company of New York, as custodian (the “Custodian”). The Custodian will maintain and perform certain custodial services with respect to the cash collateral pursuant to a custodial agreement (the “BNS Custodian Agreement”) among us, Halifax Funding, BNS, and the Custodian. The BNS Custodian Agreement and the obligations of the Custodian will continue until BNS has notified the Custodian in writing that all obligations of the Halifax Funding under the TRS Agreements have been satisfied.
 
In connection with the TRS Agreements, Halifax Funding has made customary representations and warranties and is required to comply with various covenants, financial reporting requirements and other customary requirements for similar facilities. In addition to customary events of default and termination events, the TRS Agreements contain the following additional termination events, among others: (a) the occurrence of an event that materially and adversely affects us and that BNS reasonably believes could also materially impair Halifax Funding’s ability to perform its obligations under the TRS Agreements; (b) a regulatory or judicial authority’s initiation of a proceeding for financial fraud or criminal wrongdoing against us that is reasonably likely to adversely impact the risk profile of an investment in or loan to Halifax Funding; (c) specified material reductions in Halifax Funding’s net asset value, including if, at any time, such net asset value declines to less than 50% of its net asset value in effect either as of the last day of the preceding calendar year or as of the date of the TRS Agreements; (d) Halifax Funding’s material amendment to, or material failure to comply with, its investment strategies or restrictions, to the extent that, in light of such amendment or non-compliance, BNS reasonably expects Halifax Funding to be unable to observe its obligations under the TRS Agreements; and (e) if, at any time, out of a group of seven specifically identified key KKR personnel, fewer than four continue to be partners, members, directors or employees of KKR or serve investment or risk assessment roles in respect of KKR.
 
For purposes of the asset coverage ratio test applicable to us as a business development company, we treat the difference between (i)TRS  trade basis notional amount, and (ii) the actual amount of cash collateral posted by Halifax Funding under the TRS, as a senior security for the life of the TRS. Further, for purposes of determining our compliance with the 70% qualifying asset requirement of Section 55(a) under the 1940 Act, we treat TRS reference asset as a qualifying asset if the obligor associated with the TRS reference asset is an eligible portfolio company and as a non-qualifying asset if the obligor is not an eligible portfolio company.
 
Distributions Paid and Declared
 
We pay our monthly distributions in the form of cash. Shareholders may elect to reinvest their ordinary monthly distributions and/or long-term capital gains distributions as additional shares of our common stock under our distribution reinvestment plan. Any distributions reinvested under our distribution reinvestment plan remain taxable to the U.S. shareholder.
 
We declared our first distribution on June 8, 2011. The following table reflects the cash distributions per share and the total amount of distributions that we have declared on our common stock during the years ended December 31, 2011 and 2012:
 
 
36

 
 
For the Year Ended December 31,
 
Per Share
   
Amount
 
2011
  $ 0.366498     $ 855,670  
2012
  $ 0.755374     $ 23,321,854  
 
 Approximately 50% and 58% of the distributions we declared in the years ended December 31, 2012 and 2011, respectively, were reinvested in shares of our common stock at the prevailing net price per share at the time of distribution payments and represent an additional source of capital for the Company to invest in portfolio companies. See Note 8 to the consolidated financial statements for a discussion of the sources of distributions on a GAAP basis. The performance-based incentive fees as of December 31, 2012 included only the incentive fee on capital gains.  The performance-based incentive fees as of December 31, 2011 included an earned subordinated incentive fee on income of $176,847 and an unearned incentive fee on capital gains of $105,723.  The unearned incentive fee on capital gains payable to the Advisors as of December 31, 2012 and 2011, represents a non-cash expense, and is considered an additional source of distributions.  Accordingly the net investment income before unearned incentive fees was $17.67 million and $0.96 million for the years ended December 31, 2012 and 2011, respectively, and represented 76% and 112%, respectively of declared distributions over the same period.
 
Results of Operations
 
Set forth below are our results of operations for the years ended December 31, 2012 and 2011.  Our portfolio investment activity commenced on July 1, 2011 and our investment portfolio growth since July 1, 2011 is primarily due to growth in equity and borrowed capital, and this rise in both capital available for investment and investment activity primarily accounted for the significant increases in investment income, operating expenses, net investment income and net assets between the comparative periods, as discussed below.
 
Investment income
 
We generated investment income of $35.58 million and $0.10 million for the years ended December 31, 2012 and 2011, respectively. Our investment income primarily consists of interest earned on senior and subordinated debt investments held in our investment portfolio. This comparative increase in investment income is due to the growth of our investment portfolio since commencing investment operations in July 2011. The level of interest income we receive is directly related to (i) our rate of investing equity capital and borrowed funds into the investment securities of portfolio companies, (ii) the weighted average balance of interest-bearing investments throughout the period, and (iii) the weighted average yield of our investments.  The interest earned by the TRS reference assets is not recorded as investment income, but rather included in the value of the TRS, and eventually recorded as part of realized gain or loss on derivative instruments in connection with quarterly TRS settlement dates.
 
Operating expenses
 
Our total operating expenses were $19.65 million and $1.48 million for the years ended December 31, 2012 and 2011, respectively. Our operating expenses included $9.19 million and $0.35 million in base management fees attributed to the investment advisory services of CNL and KKR for the years ended December 31, 2012 and 2011, respectively. Our operating expenses also include administrative services expenses attributed to CNL of $0.75 million and $0.16 million for the years ended December 31, 2012 and 2011, respectively.
 
Our Advisors are eligible to receive incentive fees based on performance. We recorded incentive fee expense of $1.98 million and $0.28 million for the years ended December 31, 2012 and 2011, respectively. A significant portion of incentive fees on capital gains is accrued with respect to net unrealized appreciation in our investment portfolio, although no such incentive fee is actually payable by us with respect to such net unrealized appreciation unless and until the net unrealized appreciation is actually realized in a cumulative amount that exceeds any unrealized depreciation in our investment portfolio. The actual amount due and payable to the Advisors is determined at the end of the calendar year.  As of December 31, 2012 and 2011, the cumulative realized gains were $3.05 million and $0.01 million, respectively, and the unrealized depreciation in our investment portfolio was $8.76 million and $0.49 million, respectively, therefore the Advisors have not received, nor earned, any payment of incentive fees on capital gains since the inception of the Company.
 
We recorded interest expense of $2.87 million and $0.09 million for the years ended December 31, 2012 and 2011, respectively, in connection with borrowing under our revolving credit facility which became effective on August 23, 2011. Professional services expenses, primarily consisting of audit and legal fees, grew to $1.09 million during the year ended December 31, 2012 as compared to $0.23 million during the year ended December 31, 2011, reflecting (i) an increase in routine external audit services and (ii) legal services in connection with our SEC exemptive relief application and (iii) other corporate legal services.
 
As our asset base and number of investors have grown, our general and administrative expenses have increased accordingly, but at a slower rate compared to the growth rate in the asset base. We expect certain variable operating expenses to continue to increase because of the anticipated growth in the size of our asset base and the number of open shareholder accounts. During the year ended December 31, 2012, the ratio of core operating expenses (excluding investment advisory fees, interest expense and reimbursement of organization and offering expenses, and including net expense support) to average net assets was 1.23%.  All operating expenses for the year ended December 31, 2011, with the exception of unearned incentive fees on capital gains in the amount of $105,723, were offset by the Advisors’ Expense Support Payments (as defined and discussed below under “—Contractual Obligations —Expense Support Agreement”). We generally expect core operating expenses to decline as a percentage of our net assets during periods of asset growth over the next several calendar quarters. Incentive fees and interest expense, among other things, may also increase or decrease our overall operating expenses and our overall expense ratios relative to comparative periods depending on portfolio performance and changes in benchmark interest rates such as LIBOR, among other factors.
 
 
37

 
 
 
Expense Support Payments and Reimbursement Payments - Expense Support Payments from the Advisors were $1.59 million and $1.38 million for the year ended December 31, 2012 and for the period from July 1, 2011 (commencement of operations) to December 31, 2011, respectively. The provisions of the Expense Support Agreement that provide for Expense Support Payments from the Advisors to us were not extended beyond June 30, 2012. Additionally, we accrued $1.83 million as probable Reimbursement Payment obligation relative to the cumulative Expense Support Payments of $3.0 million as of December 31, 2012. (See “Contractual Agreements, Expense Support Agreement,” below for further details about the Expense Support Agreement. Also see “Note 6. Agreements and Related Party Transactions” included within our consolidated financial statements for additional disclosures regarding the Expense Support Payments and Reimbursement Payments.)
 
Net investment income
 
Our net investment income totaled $15.69 million ($0.50 per share) and $0.85 million ($0.67 per share) for the years ended December 31, 2012 and 2011, respectively. The higher net investment income per share in 2011 as compared to 2012 is primarily due to nearly 100% expense support from our Advisors during the year ended December 31, 2011, and partially offset by a significant increase in total investment income per share during the year ended December 31, 2012.  Additionally, the portfolio of TRS reference assets is not a source of investment income or a contributor to net investment income. The interest earned by the TRS reference assets is included in the value of the TRS, and eventually recorded as part of realized gain or loss on derivative instruments in connection with quarterly TRS settlement dates.
 
Net realized gain
 
We sold investments and received principal payments of $358.60 million and $51.93 million, respectively, during the year ended December 31, 2012, from which we realized net gains of $3.48 million.  Our net realized loss on derivative instruments of $0.43 million for the year ended December 31, 2012 was comprised entirely of losses on foreign currency forward contracts.  The net realized loss on foreign currency transactions was an additional $0.01 million. We sold investments of $0.48 million during the year ended December 31, 2011, from which we realized a net gain of $0.01 million. The quarterly TRS settlement payments that begin in January 2013 will be recorded as net realized gains and losses on derivative instruments.
 
Net unrealized appreciation or depreciation
 
For the year ended December 31, 2012, the net change in unrealized appreciation on investments totaled $5.76 million, the net change in unrealized appreciation on derivative instruments totaled $1.20 million and the net change in unrealized depreciation on foreign currency translation totaled $0.04 million. The change in unrealized appreciation on investments was primarily driven by the appreciation in fair values, including tighter credit spreads, as recorded in several investment positions held in our investment portfolio.  The net change in unrealized appreciation on derivative instruments consisted of net unrealized appreciation on the TRS of $1.35 million and net unrealized depreciation on foreign currency forward contracts of $0.15 million.  The net change in unrealized appreciation on the TRS consisted of spread interest income of $0.94 million, realized losses of $0.35 million on the TRS reference assets and an unrealized gain on the TRS reference assets of $0.76 million.  For the year ended December 31, 2011, the net change in unrealized depreciation on investments was $0.48 million and the net change in unrealized appreciation on foreign currency translation was $0.04 million.
 
Net increase in net assets resulting from operations
 
For the year ended December 31, 2012 and 2011, the net increase in net assets resulting from operations was $25.65 million and $1.38 million, respectively.
 
Net Assets, Net Asset Value per Share, Annual Investment Return and Total Return since Inception
 
Net assets increased $546.32 million during the year ended December 31, 2012. The most significant increase in net assets during the year ended December 31, 2012 was attributable to the new issuance of shares of common stock and reinvestment of distributions, net of share repurchases, in the combined amount of $543.99 million. Net investment income contributed $15.69 million to the growth in net assets during the year ended December 31, 2012.  Other increases in net assets were attributable to (i) unrealized appreciation on investments, derivative instruments and foreign currency translation of $6.92 million and (ii) net realized gains of $3.04 million. Distributions to shareholders in the amount of $23.32 million contributed to a reduction in net assets during the year ended December 31, 2012.
 
38

 
 
 
Net assets increased $64.96 million during the year ended December 31, 2011. The most significant increase in net assets during the year ended December 31, 2011 was attributable to the new issuance of shares of common stock and reinvestment of distributions in the combined amount of $64.44 million. Net investment income contributed $0.85 million to the growth in net assets during the year ended December 31, 2011.  Other increases in net assets were attributable to (i) unrealized appreciation on investments and foreign currency translation of $0.52 million and (ii) net realized gains of $0.01 million. Distributions to shareholders in the amount of $0.86 million contributed to a reduction in net assets during the year ended December 31, 2011.
 
Our net asset value per share was $9.75 and $9.21 on December 31, 2012 and 2011, respectively. After considering (i) the overall changes in net asset value per share, (ii) paid distributions of approximately $0.76 per share during the year ended December 31, 2012, and (iii) the assumed reinvestment of those distributions at 90% of the prevailing offering price per share, then the total investment return was 14.3% for shareholders who held our shares over the entire twelve-month period ending December 31, 2012.
 
Initial shareholders who subscribed to the Offering in June 2011 with an initial investment of $10,000 and an initial purchase price equal to $9.00 per share (public offering price net of sales load) have seen the value of their investment grow by 21.8% (see chart below), or an annualized return of 13.6%. Initial shareholders who subscribed to the Offering in June 2011 with an initial investment of $10,000 and an initial purchase price equal to $10.00 per share (the initial public offering price) have registered a total investment return of 9.6%, or an annualized return of 6.1%. Over the same time period the S&P/LSTA Leveraged Loan Index, a primary measure of senior debt covering the U.S. leveraged loan market which currently consists of approximately 1,100 credit facilities throughout numerous industries, and the Merrill Lynch US High Yield Master II Index, a primary measure of subordinated debt consisting of approximately 2,000 high yield corporate bonds, had total returns of approximately 8.6% and 15.5% respectively.
(LINE GRAPH)
(1) Cumulative performance: June 17, 2011 to December 31, 2012
 
The calculations for the Growth of $10,000 Initial Investment are based upon (i) an initial investment of $10,000 in our common stock at the beginning of the period, at a share price of $10.00 per share (including sales load) and $9.00 per share (excluding sales load),  (ii) assumes reinvestment of monthly distributions in accordance with our distribution reinvestment plan (iii) the sale of the entire investment position at the net asset value per share on the last day of the period; and (iv)  the cash payment for distributions payable to shareholders, if any, on the last day of the period.
 
 
39

 
 
Our shares are illiquid investments for which there is not a secondary market, and we do not expect a secondary market in our shares to develop in the future. You should not expect to be able to resell your shares regardless of how we perform. If you are able to sell your shares, you will likely receive less than your purchase price. Our net asset value and annualized returns — which are based in part upon determinations of fair value of Level 3 investments by our board of directors, not active market quotations — are inherently uncertain. Past performance is not a guarantee of future results.
 
Off-Balance Sheet Arrangements
 
We had no off-balance sheet arrangements as of December 31, 2012.
 
Contractual Obligations
 
Investment Advisory Agreements –We have entered into the Investment Advisory Agreement with CNL for the overall management of our investment activities. We and CNL have also entered into the Sub-Advisory Agreement with KKR, under which KKR is responsible for the day-to-day management of our investment portfolio. Pursuant to the Investment Advisory Agreement, CNL earns a management fee equal to an annual rate of 2% of our average gross assets (including assets purchased with borrowed funds and unsettled trades, unrealized appreciation or depreciation on total return swaps and cash collateral on deposit with custodian, but excluding deferred offering expense), and an incentive fee based on our performance. The incentive fee is comprised of the following two parts: (i) a subordinated incentive fee on pre-incentive fees net investment income, and (ii) an incentive fee on capital gains. CNL compensates KKR for advisory services that it provides to us with 50% of the fees that CNL receives under the Investment Advisory Agreement.
 
The terms of the Investment Advisory Agreement entitle CNL (and indirectly KKR) to receive up to 5% of gross proceeds in connection with the Offering as reimbursement for organization and offering expenses incurred by the Advisors on our behalf. The Advisors waived our requirement to reimburse them for organization and offering expenses for the period from June 17, 2011 through January 31, 2012. The waiver of the reimbursement requirements did not reduce the amount of organization and offering expenses incurred by the Advisors that are eligible for reimbursement in future periods. Beginning February 1, 2012, we implemented an expense reimbursement rate equal to 0.75% of gross offering proceeds to initiate the reimbursement of organization and offering expenses incurred by the Advisors.  As of December 31, 2012, the Advisors have been reimbursed in the amounts of $0.90 million for organization expenses and $2.92 million for offering expenses. As of December 31, 2012, the Advisors carried a balance of approximately $4.00 million for offering expenses incurred on our behalf, net of (i) incremental offering expenses incurred by the Advisors on our behalf and (ii) our reimbursement payments to the Advisors and any payable balances for reimbursement of offering expenses.
 
On March 1, 2013 the reimbursement rate was increased to 1.0% of gross proceeds. We will continue to reimburse the Advisors for offering expenses in connection with gross proceeds raised under the Offering only to the extent that the reimbursement payments would not cause the total organization and offering expenses borne by us to exceed 5% of the aggregate gross proceeds from our Offering. The Advisors continue to be responsible for the payment of our offering expenses to the extent they exceed 5% of the aggregate gross proceeds from the Offering, without recourse against or reimbursement by us.
 
See “Note 6 Agreements and Related Party Transactions” in our condensed consolidated financial statements for expanded discussion of the Investment Advisory Agreements.
 
Expense Support Agreement -We are party to an Expense Support and Conditional Reimbursement Agreement with CNL and KKR (as amended, the “Expense Support Agreement”) pursuant to which CNL and KKR jointly and severally agreed to reimburse us for a specified percentage of our operating expenses (an “Expense Support Payment”) during the Expense Support Payment Period beginning on June 17, 2011. On March 16, 2012, we and the Advisors entered into an amendment and restatement of the Expense Support Agreement, effective April 1, 2012, that extended the terminal date of the Expense Support Payment Period to June 30, 2012 and reduced the operating expense reimbursement ratio from 65% to 25%. As of December 31, 2012, the Advisors had incurred $3.0 million of Expense Support Payments. The Advisors’ commitment to make Expense Support Payments was not extended beyond June 30, 2012.
 
During the term of the Expense Support Agreement, the Advisors are entitled to an annual year-end reimbursement payment by us for unreimbursed Expense Support Payments made under the Agreement (a “Reimbursement Payment”), but such Reimbursement Payments may only be made within three years after the calendar year in which such Expense Support Payments are made. No Reimbursement Payment may be paid by us to the extent that it would cause our Other Operating Expenses (Other Operating Expenses is equal to Operating Expenses, but excluding base advisory fees and including a Reimbursement Payment) to exceed 1.75% of average net assets attributable to common shares as of the calendar year-end (the “Reimbursement Limit Percentage”). The Expense Support Agreement also states that in no event shall we be required to make any Reimbursement Payment prior to January 1, 2013.  As of December 31, 2012 we have accrued $1.83 million for probable Reimbursement Payment obligation. The Company records the liability for the Reimbursement Payments based on a hypothetical liquidation of its investment portfolio at the end of each reporting period. Management believes that additional liabilities for Reimbursement Payments are not probable as of December 31, 2012. Management continues to periodically assess the likelihood of whether additional Reimbursement Payments are probable.
 
 
40

 
 
 
The Expense Support Agreement will automatically terminate in the event of (a) the termination by us of either our Investment Advisory Agreement or our Sub-Advisory Agreement, or (b) our dissolution or liquidation. If the Expense Support Agreement is terminated due to termination of the Investment Advisory Agreement or the Sub-Advisory Agreement, then we must make a Reimbursement Payment to the Advisors, pro rata based on the aggregate unreimbursed Expense Support Payments made by each Advisor.
 
Revolving Credit Facility –As discussed above under “Financial Condition, Liquidity and Capital Resources – Credit Facility,” CCT Funding has entered into a revolving credit facility with Deutsche Bank. As of December 31, 2012, the credit facility provides for borrowings in an aggregate amount up to $240 million on a committed basis and$159.62 million was borrowed and outstanding under the credit facility. (See “— Liquidity and Capital Resources — Credit Facility” above and “Note 11. Revolving Credit Facility and Borrowings” in our consolidated financial statements for expanded discussion of the revolving credit facility.)
 
A summary of our significant contractual payment obligations for the repayment of outstanding borrowings and interest expense and other fees related to the credit facility at December 31, 2012 is as follows:
 
   
Total
   
< 1 year
   
1-3 years
   
3-5 years
   
After 5 years
 
Revolving Credit Facility (1)
  $ 159.62     $ 159.62     $     $     $  
Interest and Credit Facility Fees Payable
    0.25       0.25                    
 
(1) At December 31, 2012, $15.38 million was the unused commitment amount of Tranche B Loans under the revolving credit facility.
 
Critical Accounting Policies
 
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ.
 
Our critical accounting policies are described in the notes to the consolidated financial statements. Accordingly see Note 2 to the consolidated financial statements for a description of critical accounting policies. We consider these accounting policies critical because they involve management judgments and assumptions, require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results. These judgments will affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements.
 
Recent Accounting Pronouncements
 
See Note 2 to the consolidated financial statements for a description of recently issued accounting pronouncements. We do not believe that any recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on our consolidated financial statements.
 
Quantitative and Qualitative Disclosures About Market Risk
 
We are subject to financial market risks, in particular changes in interest rates. Future changes in interest rates will likely have effects on the interest income we earn on our portfolio investments, the interest rates and interest expenses associates with the money we borrow for investment purposes, the fair value of our fixed interest rate debt investments, and the fair value of loan balances.
 
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. During the years ended December 31, 2012 and 2011, we did not engage in interest rate hedging activities.
 
As of December 31, 2012, approximately 57.3% of our portfolio of debt investments, or approximately $396.39 million measured at fair value, featured floating or variable interest rates. The variable interest rate debt investments are usually based on three-month LIBOR (the base rate) and typically have durations of three months after which the base rates are reset to then prevailing three-month LIBOR. At December 31, 2012, approximately 87.3% of our portfolio of variable interest rate debt investments, or approximately $346.21 million measured at fair value, featured minimum base rates, or base rate floors, and the weighted average base rate floor for such investments was 1.35%. Variable interest rate investments that feature a base rate floor generally reset to the then prevailing three-month LIBOR only if the reset base rate exceeds the base rate floor on the applicable interest rate reset date, in which cases we may benefit through an increase in interest income from such interest rate adjustments. At December 31, 2012, we held an aggregate investment position of $50.18 million at fair value in variable interest rate debt investments that featured variable interest rates without any minimum base rates, or approximately 12.7% of our portfolio of variable interest rate debt investments. In the case of these “no base rate floor” variable interest debt investments held in our portfolio, we may benefit from increases in the base rates that may subsequently result in an increase in interest income from such interest rate adjustments.
 
 
41

 
 
 
Because we borrow money to make investments, our net investment income is partially dependent upon the difference between the interest rate at which we invest borrowed funds and the interest rate at which we borrow funds. In periods of rising interest rates and when we have borrowed capital with floating interest rates, then our interest expense would increase, which could increase our financing costs and reduce our net investment income, especially to the extent we continue to acquire and hold fixed-rate debt investments. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. Pursuant to the amended terms of our revolving credit facility agreement as discussed above (see “— Financial Condition, Liquidity and Capital Resources — Credit Facility”), CCT Funding borrows at a floating base rate of (i) one-month LIBOR plus 1.70% for Tranche A Loans ($75.00 million loan balance outstanding), (ii) three-month LIBOR plus 1.50% for Tranche B1 Loans ($65.00 million unused commitment),  (iii) three-month LIBOR plus 2.325% for Tranche B2 Loans ($84.62 million loan balance outstanding and $15.38 million unused commitment) and (iv) three-month LIBOR plus 2.325% for Tranche D Loans ($100.00 million unused commitment). Therefore, if we were to completely draw down the unused Trance B2 Loans commitment and the maximum Tranche B1 and D Loans amounts, we expect that our weighted average direct interest cost will increase by approximately 2 bps, as compared to our current weighted average direct interest cost for borrowed funds. We expect that any further expansion of the current revolving credit facility, or any future credit facilities that we or any subsidiary may enter into, will also be based on a floating base rate. As a result, we are subject to continuous risks relating to changes in market interest rates.
 
Under the terms of the TRS agreements between Halifax Funding and BNS, Halifax Funding pays interest to BNS at a floating rate based on three-month LIBOR in exchange for the right to receive the economic benefits of a portfolio of TRS reference assets having a maximum aggregate notional amount of $500 million.
 
Assuming that the consolidated schedule of investments as of December 31, 2012 was to remain constant with regards to the investment portfolio and no actions were taken to alter the existing interest rate sensitivity or investment portfolio allocations, the upper section of the table below presents an estimated and hypothetical increase in interest income due to an immediate and persistent 12-month increase in the base rates associated with our debt investments featuring variable interest rates.
 
The middle section of the table below also presents sensitivity analysis for a persistent 12-month increase in the base interest rates that apply to our floating rate credit facility and the associated increase in interest expense, as well as the net effect of change in interest rates on the TRS unrealized appreciation (depreciation).  For persistent LIBOR increases of less than 100 basis points, the increase in interest expense eclipses the hypothetical increase in interest income associated with our floating rate debt investments; for a persistent LIBOR increase greater than 150 basis points, the hypothetical increase in interest income associated with our floating rate debt investments begins to provide a positive contribution to net interest income and to exceed the increase in interest expense related to our credit facility, in both cases assuming that the consolidated schedule of investments as of December 31, 2012 was to remain constant with regards to the investment portfolio and no actions were taken to alter the existing interest rate sensitivity or investment portfolio allocations.
 
 
42

 
 
         
($ amounts in millions except per share data)
 
     Par   Weighted   Increases in LIBOR
   
Amount
 
Avg. Floor
+50 bps
 
+100 bps
 
+150 bps
 
+200 bps
 
                                   
No base rate floor
 
$
50.57
   
$
0.225
 
$
0.451
 
$
0.676
 
$
0.901
 
Base rate floor
 
$
348.96
 
1.35%
 
0.000
   
0.120
   
1.399
   
2.911
 
Increase in Floating Rate Interest Income
           
0.225
   
0.571
   
2.075
   
3.812
 
                                   
         
LIBOR + Spread
                       
Tranche A Loans
 
$
75.00
 
L(30) + 170 bps
$
(0.375
)
$
(0.750
)
$
(1.125
)
$
(1.500
)
Tranche B (B2) Loans
 
$
84.62
 
L(90) + 235 bps
 
(0.423
)
 
(0.846
)
 
(1.269
)
 
(1.692
)
Increase to Floating Rate Interest Expense
           
(0.798
)
 
(1.596
)
 
(2.394
)
 
(3.192
)
Change in Floating Rate Net Interest Income, before TRS
           
(0.573
)
 
(1.025
)
 
(0.319
)
 
0.620
 
Net change in TRS unrealized appreciation (depreciation) (1)
           
(0.751
)
 
(1.417
)
 
(1.723
)
 
(2.020
)
Overall Change in Floating Rate Net Interest Income, including TRS
         
$
(1.324
)
$
(2.442
)
$
(2.042
)
$
(1.400
)
Change in Floating Rate Net Interest Income Per Share Outstanding as of December 31, 2012
         
$
(0.02
)
$
(0.04
)
$
(0.03
)
$
(0.02
)

(1)
Pursuant to the TRS Agreements, Halifax Funding receives from BNS all collected interest and fees derived from  the TRS reference assets and pays to BNS interest at a rate equal to three-month LIBOR+80 bps per annum on the settled notional amount of TRS reference assets. As of December 31, 2012, 73.7% of the TRS reference assets, or approximately $121.46 million measured at market value, featured floating or variable interest rates.  At December 31, 2012, approximately 87.0% of the TRS reference assets with variable interest rates featured minimum base rate floors, or approximately $105.70 million measured at fair value, and the weighted average base rate floor for such TRS reference assets was 1.22%.  As of December 31, 2012, the total notional amount of the portfolio of TRS reference assets was $164.01 million, and the settled notional amount was $105.36 million.  For the purpose of presenting this net interest sensitivity analysis, we have assumed that all TRS reference assets are settled as of January 1, 2013 and that the settled notional amount would equal $164.01 million upon which the financing payments are based.
 
  The interest rate sensitivity analysis presented above does not consider the potential impact of the changes in value of our debt investments and the net asset value of our common stock in the event of sudden increases in interest rates associated with high yield corporate bonds.  Approximately 47% of our debt investment portfolio is invested in fixed interest rate, high yield corporate debt investments.  Rising market interest rates will most likely lead to falling prices for high yield corporate bonds, while declining market interest rates will most likely lead to rising bond prices. 
 
 
  Information required by this Item is included herein beginning on page F-1.
 
 
  None.
 
 
Evaluation of Disclosure Controls and Procedures
 
  Pursuant to Rule 13a-15(b) under the Exchange Act, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.
 
 
43

 
 
 
Management’s Annual Report on Internal Control Over Financial Reporting
 
  Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements.
 
  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
  Based on management’s assessment, we maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control Integrated Framework”.
 
  Pursuant to rules established by the Securities and Exchange Commission (“SEC”), this annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
 
 Changes in Internal Control over Financial Reporting
 
  During the most recent fiscal quarter, there was no change in our internal controls over financial reporting (as defined under Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
 
Item  9B.
 
  Not applicable.

 
44

 

 
 
  The information required by this Item is incorporated by reference to our 2013 Proxy Statement to be filed with the SEC within 120 days following the end of our company’s fiscal year.
 
 
  The information required by this Item is incorporated by reference to our 2013 Proxy Statement to be filed with the SEC within 120 days following the end of our company’s fiscal year.
 
 
  The information required by this Item is incorporated by reference to our 2013 Proxy Statement to be filed with the SEC within 120 days following the end of our company’s fiscal year.
 
 
  The information required by this Item is incorporated by reference to our 2013 Proxy Statement to be filed with the SEC within 120 days following the end of our company’s fiscal year.
 
 
  The information required by this Item is incorporated by reference to our 2013 Proxy Statement to be filed with the SEC within 120 days following the end of our company’s fiscal year.
 
 
Item 15.         Exhibits and Financial Statement Schedules
     
a.
The following financial statements are filed as part of this report in Part II, Item 8:
 
   
Page
 
Report of Independent Registered Certified Public Accounting Firm
F-1
 
Consolidated Statements of Assets and Liabilities
F-2
 
Consolidated Statements of Operations
F-3
 
Consolidated Statements of Changes in Net Assets
F-4
 
Consolidated Statements of Cash Flows
F-5
 
Consolidated Schedule of Investments
F-6
 
Notes to Consolidated Financial Statements
F-21
   
b.
No financial statement schedules are being filed because the required information is not applicable or is presented in the consolidated financial statements or notes.
   
c.
The following exhibits are filed or incorporated as part of this report.
   
  3.1
Second Amended and Restated Articles of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 8, 2012.)
   
  3.2
Amended and Restated Bylaws of the Registrant. (Incorporated by reference to Exhibit 2(b) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-167730) filed on March 29, 2011.)
   
10.1
Form of Managing Dealer Agreement by and between the Registrant and CNL Securities Corp. (Incorporated by reference to Exhibit 2(h)(1) filed with Pre-Effective Amendment No. 2 to the Company’s registration statement on Form N-2 (File No. 333-167730) filed on February 18, 2011.)
   
10.2
Form of Participating Broker Agreement. (Incorporated by reference to Exhibit 2(h)(2) filed with Pre-Effective Amendment No. 2 to the Company’s registration statement on Form N-2 (File No. 333-167730) filed on February 18, 2011.)
   
10.3
Form of Distribution Reinvestment Plan. (Incorporated by reference to Exhibit 2(e) filed with Pre-Effective Amendment No. 2 to the Company’s registration statement on Form N-2 (File No. 333-167730) filed on February 18, 2011.)
 
 
45

 
 
10.4
Form of Intellectual Property License Agreement by and between the Registrant and CNL Intellectual Properties, Inc. (Incorporated by reference to Exhibit 2(k)(3) filed with Pre-Effective Amendment No. 2 to the Company’s registration statement on Form N-2 (File No. 333-167730) filed on February 18, 2011.)
   
10.5
Administrative Services Agreement by and between the Registrant and CNL Fund Advisors Company. (Incorporated by reference to Exhibit 2(k)(2) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-167730) filed on March 29, 2011.)
   
10.6
Custodian Agreement. (Incorporated by reference to Exhibit 2(j) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-167730) filed on March 29, 2011.)
   
10.7
Investment Advisory Agreement by and between the Registrant and CNL Fund Advisors Company. (Incorporated by reference to Exhibit 2(g)(1) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-167730) filed on March 29, 2011.)
   
10.8
Sub-Advisory Agreement by and among the Registrant, CNL Fund Advisors Company and KKR Asset Management LLC. (Incorporated by reference to Exhibit 2(g)(2) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-167730) filed on March 29, 2011.)
   
10.9
Amended and Restated Escrow Agreement by and among the Registrant, UMB Bank N.A., and CNL Securities Corp. (Incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q filed on August 12, 2011.)
   
10.10
Selected Dealer Agreement among the Registrant, CNL Securities Corp., CNL Fund Advisors Company, CNL Financial Group, LLC, KKR Asset Management LLC and Ameriprise Financial Services, Inc. (Incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q filed on November 10, 2011.) (Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC.)
   
10.11
Limited Liability Company Agreement of CCT Funding LLC. (Incorporated by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q filed on November 10, 2011.)
   
10.12
Credit Agreement between CCT Funding LLC and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q filed on November 10, 2011.) (Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC.)
   
10.13
Custodial Agreement among the Registrant, CCT Funding LLC, Deutsche Bank AG, New York Branch and Deutsche Bank Trust Company Americas. (Incorporated by reference to Exhibit 10.15 to the Company’s Quarterly Report on Form 10-Q filed on November 10, 2011.) (Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC.)
   
10.14
Asset Contribution Agreement between the Registrant and CCT Funding LLC. (Incorporated by reference to Exhibit 10.16 to the Company’s Quarterly Report on Form 10-Q filed on November 10, 2011.)
   
10.15
Security Agreement between CCT Funding LLC and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.17 to the Company’s Quarterly Report on Form 10-Q filed on November 10, 2011.)
   
10.16
Investment Management Agreement between the Registrant and CCT Funding LLC. (Incorporated by reference to Exhibit 10.18 to the Company’s Quarterly Report on Form 10-Q filed on November 10, 2011.)
   
10.17
First Amendment to Credit Agreement between CCT Funding LLC and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K filed on March 16, 2012.) (Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC.)
   
10.18
Amended and Restated Expense Support and Conditional Reimbursement Agreement by and among the Registrant, CNL Fund Advisors Company and KKR Asset Management LLC. (Incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K filed on March 16, 2012.)
 
 
46

 
 
10.19
Amendment No. 1 to Investment Advisory Agreement by and between the Registrant and CNL Fund Advisors Company. (Incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K filed on March 16, 2012.)
   
10.20
Second Amendment to Credit Agreement between CCT Funding LLC and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 24, 2012.) (Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC.)
   
10.21
ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, each dated as of November 15, 2012, by and between Halifax Funding LLC and The Bank of Nova Scotia. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 21, 2012.)
   
10.22
Confirmation Letter Agreement, dated as of November 15, 2012, by and between Halifax Funding LLC and The Bank of Nova Scotia. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 21, 2012.)
   
10.23
Custodian Agreement, dated as of November 15, 2012, by and among Corporate Capital Trust, Inc., Halifax Funding LLC, The Bank of Nova Scotia, and The Bank of Nova Scotia Trust Company of New York. (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on November 21, 2012.)
   
10.24
Amendment to Amended and Restated Expense Support and Conditional Reimbursement Agreement by and among the Registrant, CNL Fund Advisors Company and KKR Asset Management LLC. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 7, 2013.)
   
10.25
Third Amendment to Credit Agreement between CCT Funding LLC, the lenders referred to therein and Deutsche Bank AG, New York Branch. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 14, 2013.) (Confidential portions of this exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the SEC.)
   
14.1
Amended and Restated Code of Ethics of the Registrant (Incorporated by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K filed on March 16, 2012.)
   
31.1
Certification of Chief Executive Officer of Corporate Capital Trust, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
   
31.2
Certification of Chief Financial Officer of Corporate Capital Trust, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
   
32.1
Certification of Chief Executive Officer and Chief Financial Officer of Corporate Capital Trust, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
 
 
47

 
 
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 18th day of March 2013.
 
 
CORPORATE CAPITAL TRUST, INC.
     
 
By:
/s/    Andrew A. Hyltin        
   
ANDREW A. HYLTIN
   
Chief Executive Officer
   
(Principal Executive Officer)
     
 
By:
/s/    Paul S. Saint-Pierre        
   
PAUL S. SAINT-PIERRE
   
Chief Financial Officer
   
(Principal Financial Officer)
 
 
48

 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
Signature
 
Title
 
Date
         
/s/    Thomas K. Sittema        
 
Director and Chairman of the Board
 
March 18, 2013
Thomas K. Sittema
       
         
/s/    Erik A. Falk        
 
Director
 
March 18, 2013
Erik A. Falk
       
         
/s/    Frederick Arnold        
 
Independent Director
 
March 18, 2013
Frederick Arnold
       
         
/s/    James H. Kropp        
 
Independent Director
 
March 18, 2013
James H. Kropp
       
         
/s/    Kenneth C. Wright        
 
Independent Director
 
March 18, 2013
Kenneth C. Wright
       
         
/s/    Andrew A. Hyltin        
 
Chief Executive Officer
(Principal Executive Officer)
 
March 18, 2013
Andrew A. Hyltin
     
         
/s/    Paul S. Saint-Pierre        
 
Chief Financial Officer
(Principal Financial Officer)
 
March 18, 2013
Paul S. Saint-Pierre
     
 
 
49

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders of
Corporate Capital Trust, Inc.:
 
We have audited the accompanying consolidated statements of assets and liabilities of Corporate Capital Trust, Inc. and subsidiaries (the “Company”), including the consolidated schedules of investments, as of December 31, 2012 and 2011, and the related consolidated statements of operations, changes in net assets, and cash flows for the years ended December 31, 2012 and 2011, and the period from June 9, 2010 (inception) to December 31, 2010, and the consolidated financial highlights for the year ended December 31, 2012 and the period from June 17, 2011 (commencement of operations) to December 31, 2011. These financial statements and financial highlights are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2012 and 2011, by correspondence with the custodians, or loan agents; where replies were not received we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, such consolidated financial statements and consolidated financial highlights referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2012 and 2011, and the results of its operations, changes in its net assets, and its cash flows for the years ended December 31, 2012 and 2011 and the period from June 9, 2010 (inception) to December 31, 2010, and the financial highlights for the year ended December 31, 2012 and the period from June 17, 2011 (commencement of operations) to December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.
 
/s/ Deloitte & Touche LLP
 
San Francisco, California
March 18, 2013
 
 
F-1

 
 

Corporate Capital Trust, Inc. and Subsidiaries
Consolidated Statements of Assets and Liabilities
 
December 31, 2012
   
December 31, 2011
 
Assets
           
Investments at fair value (amortized cost of $704,629,567 and $113,825,998)
  $ 710,870,599     $ 114,304,509  
Cash
    306,459        
Cash collateral on deposit with custodian
    87,974,019        
Dividends and interest receivable
    9,258,404       1,055,807  
Receivable for investments sold
    37,704,165        
Principal receivable
    462,407       59,399  
Unrealized appreciation on derivative instruments
    1,357,886        
Receivable from advisors
          564,756  
Deferred offering expense
    2,146,007        
Prepaid and deferred expenses
    244,130       238,808  
Total assets
  $ 850,324,076     $ 116,223,279  
Liabilities
               
Revolving credit facility
  $ 159,620,000     $ 25,340,000  
Payable for investments purchased
    72,435,184       24,714,313  
Unrealized depreciation on derivative instruments
    155,568        
Accrued performance-based incentive fees
    2,087,073       282,570  
Accrued investment advisory fees
    1,434,712       160,679  
Accrued reimbursement of expense support
    1,829,749        
Shareholders' distributions payable
          398,637  
Other accrued expenses and liabilities
    1,277,976       164,351  
Total liabilities
    238,840,262       51,060,550  
Net Assets
               
Common stock, $0.001 par value per share, 1,000,000,000 shares authorized, 62,728,439
         
and 7,073,166 shares issued and outstanding at December 31, 2012 and December 31, 2011, respectively
    62,728       7,073  
Paid-in capital in excess of par value
    607,351,000       64,626,198  
Undistributed (distributions in excess of) net investment income
    (3,374,805 )     5,956  
Accumulated net unrealized appreciation on investments,
               
derivative instruments and foreign currency translation
    7,444,891       523,502  
Net assets
  $ 611,483,814     $ 65,162,729  
Net asset value per share
  $ 9.75     $ 9.21  
                 
See notes to consolidated financial statements.
                 
F-2

 
 

 

Corporate Capital Trust, Inc. and Subsidiaries
Consolidated Statements of Operations
               
Period from
 
               
June 9, 2010
 
   
Year ended
   
(inception) to
 
   
December 31, 2012
   
December 31, 2011
   
December 31, 2010
 
Investment income
                 
Interest income
  $ 34,209,926     $ 955,830     $  
Fee income
    1,269,301              
Dividend income
    103,253       3,056        
Total investment income
    35,582,480       958,886        
Operating expenses
                       
Investment advisory fees
    9,193,161       347,428        
Interest expense
    2,873,729       85,944        
Performance-based incentive fees
    1,981,350       282,570        
Offering expense
    1,208,772              
Professional services
    1,092,349       233,268        
Administrative services
    1,061,111       183,918        
Organization expenses
    896,218              
Custodian and accounting fees
    202,414       114,875        
Director fees and expenses
    180,475       82,025        
Other
    961,577       151,287        
Total operating expenses
    19,651,156       1,481,315        
Reimbursement of expense support
    1,829,749              
Expense support
    (1,590,221 )     (1,375,592 )      
Net expenses
    19,890,684       105,723        
Net investment income
    15,691,796       853,163        
Realized and unrealized gain (loss):
                       
Net realized gain on investments
    3,479,314       5,113        
Net realized loss on derivative instruments
    (432,972 )            
Net realized loss on foreign currency transactions
    (5,960 )            
Net change in unrealized appreciation on investments
    5,762,521       478,511        
Net change in unrealized appreciation on derivative
                       
instruments
    1,202,318              
Net change in unrealized appreciation (depreciation)
                       
on foreign currency translation
    (43,450 )     44,991        
Net realized and unrealized gain
    9,961,771       528,615        
                         
Net increase in net assets resulting from operations
  $ 25,653,567     $ 1,381,778     $  
Net Investment Income Per Share
  $ 0.50     $ 0.67     $  
Diluted and Basic Earnings Per Share
  $ 0.82     $ 1.09     $  
Weighted Average Shares Outstanding
    31,394,766       1,269,117       22,222  
Dividends Declared Per Share
  $ 0.76     $ 0.37     $  
                         
See notes to consolidated financial statements.
                         
F-3

 
 

 

Corporate Capital Trust, Inc. and Subsidiaries
Consolidated Statements of Changes in Net Assets
               
Period from
 
               
June 9, 2010
 
   
Year ended
   
(inception) to
 
   
December 31, 2012
   
December 31, 2011
   
December 31, 2010
 
Operations
                 
Net investment income
  $ 15,691,796     $ 853,163     $  
Net realized gain on investments and foreign currency transactions
    3,040,382       5,113        
Net change in unrealized appreciation (depreciation) on investments,
                       
derivative instruments and foreign currency translation
    6,921,389       523,502        
Net increase in net assets resulting from operations
    25,653,567       1,381,778        
Distributions to shareholders from
                       
Net investment income
    (15,697,752 )     (853,163 )      
Realized gains
    (3,040,382 )     (2,507 )      
Other sources
    (4,583,720 )            
Net decrease in net assets resulting from shareholders distributions
    (23,321,854 )     (855,670 )      
Capital share transactions
                       
Issuance of shares of common stock
    532,863,358       64,170,724       200,000  
Reinvestment of shareholder distributions
    11,832,449       265,897        
Repurchase of shares of common stock
    (706,435 )            
Net increase in net assets resulting from capital share transactions
    543,989,372       64,436,621       200,000  
Total increase in net assets
    546,321,085       64,962,729       200,000  
Net assets at beginning of year/period
    65,162,729       200,000        
Net assets at end of year/period
  $ 611,483,814     $ 65,162,729     $ 200,000  
Capital share activity
                       
Shares issued from subscriptions
    54,520,455       7,021,920       22,222  
Shares issued from reinvestment of distributions
    1,207,704       29,024        
Shares repurchased
    (72,886 )            
Net increase in shares outstanding
    55,655,273       7,050,944       22,222  
Undistributed (distributions in excess of) net investment income
                       
at end of year/period
  $ (3,374,805 )   $ 5,956     $  
 
See notes to consolidated financial statements.
                         
F-4

 
 

 


Corporate Capital Trust, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
               
Period from
 
               
9-Jun-2010
 
   
For the year ended
   
(inception) to
 
    December 31, 2012     December 31, 2011    
December 31, 2010
 
                   
Operating Activities:
                 
Net increase in net assets resulting from operations
  $ 25,653,567     $ 1,381,778     $  
Adjustments to reconcile net increase in net assets resulting from operations to net
                 
cash used in operating activities:
                       
Purchases of investments
    (991,951,587 )     (106,811,148 )      
Increase in payable for investments purchased
    47,659,733       24,759,304        
Paid-in-kind interest
    (270,090 )              
Proceeds from sales of investments
    358,597,920       481,516        
Proceeds from principal payments
    51,931,990       294,863        
Net realized (gain) loss on investments
    (3,479,314 )     (5,113 )      
Net change in unrealized appreciation on investments
    (5,762,521 )     (478,511 )      
Net change in unrealized appreciation on derivative instruments
    (1,202,318 )            
Net change in unrealized depreciation on foreign currency translation
    43,450       (44,991 )      
Amortization of premium/discount - net
    (145,072 )     44,756        
Amortization of deferred financing cost
    152,315              
Increase in short-term investments, net
    (5,487,416 )     (7,714,752 )      
Increase in cash collateral on deposit with custodian
    (87,974,019 )            
Increase in dividend and interest receivable
    (8,184,909 )     (1,055,807 )      
Increase in receivable for investments sold
    (37,704,165 )            
Increase in principal receivable
    (403,008 )     (59,399 )      
Decrease in receivable from advisors
    564,756       (564,756 )      
Increase in other assets
    (2,155,047 )     (110,123 )      
Increase in accrued investment advisory fees
    1,274,033       160,679        
Increase in accrued performance-based incentive fees
    1,804,503       282,570        
Increase in other liabilities
    2,943,374       152,351        
Net cash used in operating activities
    (654,093,825 )     (89,286,783 )      
                         
Financing Activities:
                       
Proceeds from issuance of shares of common stock
    532,863,358       64,170,724       200,000  
Payment on repurchase of shares of common stock
    (706,435 )            
Distributions paid
    (11,888,042 )     (191,136 )      
Borrowings under credit facility
    189,000,000       25,340,000        
Repayments of credit facility
    (54,720,000 )            
Deferred financing costs paid
    (148,597 )     (232,805 )      
Net cash provided by financing activities
    654,400,284       89,086,783       200,000  
Net increase (decrease) in cash
    306,459       (200,000 )      
Cash, beginning of period
          200,000       200,000  
Cash, end of period
  $ 306,459     $     $ 200,000  
                         
                         
Supplemental disclosure of cash flow information and non-cash financing
                       
activities:
                       
Cash paid during period for:
                       
Interest
  $ 2,482,446     $ 27,795     $  
Dividend distributions reinvested
  $ 11,832,449     $ 265,897     $  
                         
See notes to consolidated financial statements.

 
F-5

 

Corporate Capital Trust, Inc. and Subsidiaries
Consolidated Schedule of Investments
As of December 31, 2012
Company (a)
 
Industry (n)
 
Investments
 
Interest Rate
 
EURIBOR/ LIBOR
Floor
 
Maturity Date
 
No. Shares/
Principal
Amount (b)
 
Cost (c)
   

Fair Value
   
% of Net Assets
Non-Control/Non-Affiliate Investments(d)—114.1%
                         
AdvancePierre Foods, Inc.
 
Food, Beverage & Tobacco
 
Senior Debt(e)
  L + 450   1.25%  
7/10/2017
  $ 3,938,004     $ 3,909,668     $ 3,987,230     0.6%
Allen Systems Group, Inc.
 
Software & Services
 
Senior Debt(e)(f)
  10.50%      
11/15/2016
    106,000       66,130       78,440     0.0%
Alliance Laundry Systems, LLC
 
Capital Goods
 
Senior Debt(e)
  L + 425   1.25%  
12/10/2018
    3,553,052       3,535,505       3,588,582     0.6%
Ally Financial, Inc.
 
Banks
 
Preferred Stocks(g)
                118,908       2,996,482       3,123,713     0.5%
       
Preferred Stocks(g)
                69,800       1,804,330       1,860,170     0.3%
     
4,800,812
     
4,983,883
    0.8%
Altisource Solutions (LU)(h)
 
Real Estate
 
Senior Debt(e)(g)
  L+ 450   1.25%  
11/27/2019
    7,545,192       7,470,313       7,582,918     1.2%
American Gaming Systems, LLC
 
Consumer Services
 
Senior Debt(i)
  L + 1000   1.50%  
8/15/2016
    11,974,375       11,523,790       11,974,375     2.0%
       
Senior Debt(i)
  L + 1000   1.50%  
8/15/2016
    780,938       (28,850 )         0.0%
       
Senior Debt(i)(j)
  L + 1000   1.50%  
8/15/2016
    780,938       752,433       780,938     0.1%
      12,247,373       12,755,313     2.1%
American Rock Salt Co., LLC
 
Materials
 
Senior Debt(e)
  L + 425   1.25%  
4/25/2017
    8,485,587       8,151,298       8,398,355     1.4%
Amkor Technologies, Inc.
 
Semiconductors & Semiconductor Equipment
 
Subordinated Debt(e)(g)
  7.38%      
5/1/2018
    213,000       210,801       220,455     0.0%
Amsurg Corp.
 
Health Care Equipment & Services
 
Subordinated Debt(e)(f)(g)
  5.63%      
11/30/2020
    943,000       943,000       980,720     0.2%
Aramark Corp.
 
Commercial & Professional Services
 
Subordinated Debt(e)
  8.50%      
2/1/2015
    2,836,000       2,896,962       2,850,208     0.5%
Ardagh Packaging Holdings, Ltd. (IE)(h)
 
Capital Goods
 
Senior Debt(e)(f)(g)
  7.38%      
10/15/2017
    100,000       100,409       108,750     0.0%
Aspect Software, Inc.
 
Technology Hardware & Equipment
 
Senior Debt(e)
  L + 525   1.75%  
5/7/2016
    4,360,693       4,358,808       4,393,398     0.7%
     
Senior Debt(e)
  10.63%      
5/15/2017
    9,009,000       9,484,716       8,153,145     1.3%
      13,843,524       12,546,543     2.0%
Aspen Dental Management, Inc.
 
Health Care Equipment & Services
 
Senior Debt(e)
  L + 550   1.50%  
10/6/2016
    6,115,182       6,048,762       5,839,999     0.9%
Asset Acceptance Capital Corp.
 
Diversified Financials
 
Senior Debt(g)(i)
  L + 725   1.50%  
11/14/2017
    918,991       896,692       929,894     0.2%
AssuraMed Holding, Inc.
 
Health Care Equipment & Services
 
Senior Debt(e)
  L + 800   1.25%  
4/24/2020
    5,147,021       5,045,289       5,206,536     0.8%
 
See notes to consolidated financial statements.
 
F-6

 
Corporate Capital Trust, Inc. and Subsidiaries
Consolidated Schedule of Investments (continued)
As of December 31, 2012
Company (a)
 
Industry (n)
 
Investments
 
Interest Rate
 
EURIBOR/ LIBOR
Floor
 
Maturity Date
  No. Shares/
Principal
Amount (b)
   
Cost (c)
   
Fair Value
   
% of Net Assets
Asurion, LLC
 
Software & Services
 
Senior Debt(e)
  L + 400   1.50%  
5/24/2018
  $ 3,285,425     $ 3,241,516     $ 3,323,421     0.5%
       
Senior Debt(e)
  L + 750   1.50%  
5/24/2019
    396,303       396,303       409,074     0.1%
      3,637,819       3,732,495     0.6%
Avaya, Inc.
 
Technology Hardware & Equipment
 
Senior Debt(e)(f)
  7.00%      
4/1/2019
    14,555,000       13,662,021       13,608,925     2.2%
Bill Barrett Corp.
 
Energy
 
Subordinated Debt(e)(g)
  7.63%      
10/1/2019
    251,000       256,692       264,805     0.0%
BNY ConvergEX Group, LLC
 
Diversified Financials
 
Senior Debt(e)(g)
  L + 375   1.50%  
12/19/2016
    109,585       108,431       106,024     0.0%
       
Senior Debt(e)(g)
  L + 375   1.50%  
12/19/2016
    241,455       238,911       233,608     0.0%
       
Senior Debt(e)(g)(i)
  L + 700   1.75%  
12/17/2017
    1,386,716       1,380,562       1,306,980     0.2%
       
Senior Debt(e)(g)(i)
  L + 700   1.75%  
12/17/2017
    581,872       579,290       548,415     0.1%
      2,307,194       2,195,027     0.3%
Bright Horizons Family Solutions, Inc.
 
Consumer Services
 
Senior Debt(i)
  L + 425   1.00%  
5/23/2017
    1,003,991       999,465       1,014,031     0.2%
Building Materials Corporation of America
 
Capital Goods
 
Subordinated Debt(e)(f)
  6.75%      
5/1/2021
    41,000       44,058       45,305     0.0%
Caesars Entertainment Operating Co., Inc.
 
Consumer Services
 
Senior Debt(e)(g)
  11.25%      
6/1/2017
    1,023,000       1,074,569       1,095,889     0.2%
Catalina Marketing Corp.
 
Media
 
Senior Debt(e)
  L + 550      
9/29/2017
    8,431,567       8,356,238       8,465,841     1.4%
       
Subordinated Debt(e)(f)
  10.50%      
10/1/2015
    20,436,255       20,405,415       20,691,708     3.4%
      28,761,653       29,157,549     4.8%
CDW Corp.
 
Technology Hardware & Equipment
 
Subordinated Debt(e)
  12.54%      
10/12/2017
    12,626,000       13,510,212       13,494,037     2.2%
Celanese US Holdings, LLC
 
Materials
 
Subordinated Debt(e)(g)
  4.63%      
11/15/2022
    2,900,000       2,900,000       3,037,750     0.5%
Cemex Espana S.A. (ES)(h)
 
Materials
 
Senior Debt(e)(g)(j)(EUR)
  E + 500      
2/14/2017
  928,806       1,112,127       1,173,874     0.2%
Cemex Finance, LLC
 
Materials
 
Senior Debt(e)(f)(g)
  9.38%      
10/12/2022
  $ 825,000       825,000       928,125     0.1%
Cemex Finance Europe BV
 
Materials
 
Subordinated Debt(g)
  4.75%      
3/5/2014
  419,000       480,548       565,503     0.1%
Cemex Materials, LLC
    Materials  
Subordinated Debt(e)(f)
  7.70%      
7/21/2025
  $ 12,670,000       11,742,203       12,828,375     2.1%
Cemex S.A.B. de C.V. (MX)(h)
 
Materials
 
Senior Debt(e)(g)(j)
  L + 525      
2/14/2017
    3,441,100       3,191,620       3,294,853     0.5%
Cengage Learning Acquisitions, Inc.
 
Media
 
Senior Debt(e)(f)
  11.50%      
4/15/2020
    14,622,000       15,000,475       12,611,475     2.1%
 
See notes to consolidated financial statements.
 
F-7

 
Corporate Capital Trust, Inc. and Subsidiaries
Consolidated Schedule of Investments (continued)
As of December 31, 2012
Company (a)
 
Industry (n)
 
Investments
 
Interest Rate
 
EURIBOR/ LIBOR
Floor
 
Maturity Date
 
No. Shares/
Principal
Amount (b)
   
Cost (c)
     
Fair Value
   
% of Net Assets
Ceridian Corp.
 
Commercial & Professional Services
 
Senior Debt(e)
  L + 575      
5/9/2017
  $ 11,345,455     $ 11,320,689     $ 11,359,637     1.9%
     
Senior Debt(e)(f)
  8.88%      
7/15/2019
    2,123,000       2,123,000       2,303,455     0.4%
      13,443,689       13,663,092     2.3%
CHG Companies, Inc.
 
Health Care Equipment & Services
 
Senior Debt(e)(j)
  L + 375   1.25%  
11/19/2019
    3,072,501       3,042,000       3,077,617     0.5%
     
Senior Debt(e)(j)
  L + 775   1.25%  
11/19/2020
    6,662,554       6,530,148       6,708,359     1.1%
      9,572,148       9,785,976     1.6%
Clear Channel Worldwide Holdings, Inc.
 
Media
 
Subordinated Debt(e)(g)
  7.63%      
3/15/2020
    1,857,000       1,798,731       1,870,927     0.3%
ClubCorp Club Operations, Inc.
 
Consumer Services
 
Senior Debt(e)
  L + 375   1.50%  
11/30/2016
    135,707       129,525       137,745     0.0%
CNO Financial Group, Inc.
 
Insurance
 
Senior Debt(e)(f)(g)
  6.38%      
10/1/2020
    1,092,000       1,130,752       1,135,680     0.2%
Commscope, Inc.
 
Technology Hardware & Equipment
 
Subordinated Debt(e)(f)
  8.25%      
1/15/2019
    632,000       665,688       692,040     0.1%
Continental Airlines, Inc.
 
Transportation
 
Senior Debt(e)(g)
  7.34%      
4/19/2014
    267,469       269,827       275,493     0.0%
CRC Health Corp.
 
Health Care Equipment & Services
 
Senior Debt(e)
  L + 450      
11/16/2015
    1,199,199       1,145,033       1,160,225     0.2%
     
Subordinated Debt(e)
  10.75%      
2/1/2016
    1,114,000       1,075,056       1,086,150     0.2%
      2,220,089       2,246,375     0.4%
Cunningham Lindsey U.S., Inc.
 
Insurance
 
Senior Debt(e)
  L + 375   1.25%  
12/10/2019
    4,616,499       4,570,570       4,656,894     0.8%
       
Senior Debt(e)
  L + 800   1.25%  
6/10/2020
    6,642,736       6,576,851       6,808,804     1.1%
      11,147,421       11,465,698     1.9%
Data Device Corp.
 
Capital Goods
 
Senior Debt(e)
  L + 600   1.50%  
7/11/2018
    7,895,679       7,750,227       7,875,940     1.3%
       
Senior Debt(i)
  L + 1000   1.50%  
7/11/2019
    8,000,000       7,847,290       7,840,000     1.3%
      15,597,517       15,715,940     2.6%
Datatel, Inc.
 
Software & Services
 
Senior Debt(e)
  L + 500   1.25%  
7/19/2018
    393,711       388,439       399,322     0.1%
David's Bridal, Inc.
 
Retailing
 
Senior Debt(e)
  L + 375   1.25%  
10/11/2019
    2,196,294       2,174,957       2,204,991     0.4%
DJO Finance, LLC
 
Health Care Equipment & Services
 
Senior Debt(e)
  L + 500   1.25%  
9/15/2017
    1,974,614       1,976,879       1,990,243     0.3%
     
Senior Debt(e)(f)
  8.75%      
3/15/2018
    8,188,000       8,638,609       8,945,390     1.5%
      10,615,488       10,935,633     1.8%
DuPont Fabros Technology, LP
 
Real Estate
 
Subordinated Debt(e)(g)
  8.50%      
12/15/2017
    100,000       105,687       109,250     0.0%
 
See notes to consolidated financial statements.
 
F-8

 
Corporate Capital Trust, Inc. and Subsidiaries
Consolidated Schedule of Investments (continued)
As of December 31, 2012
Company (a)
 
Industry (n)
 
Investments
 
Interest Rate
 
EURIBOR/ LIBOR
Floor
 
Maturity Date
 
No. Shares/
Principal
Amount (b)
   
Cost (c)
     
Fair Value
   
% of Net Assets
E*Trade Financial Corp.
 
Diversified Financials
 
Subordinated Debt(e)(g)
  6.75%      
6/1/2016
  $ 10,000     $ 10,548     $ 10,525     0.0%
Easton-Bell Sports, Inc.
 
Consumer Durables & Apparel
 
Senior Debt(e)
  9.75%      
12/1/2016
    1,190,000       1,260,844       1,279,369     0.2%
Education Management, LLC
 
Consumer Services
 
Senior Debt(e)(g)
  L + 700   1.25%  
3/30/2018
    7,078,341       6,890,723       5,919,263     1.0%
       
Subordinated Debt(e)(g)
  8.75%      
6/1/2014
    5,818,000       5,658,279       4,668,945     0.8%
      12,549,002       10,588,208     1.8%
Express, LLC / Express Finance Corp.
 
Retailing
 
Subordinated Debt(e)(g)
  8.75%      
3/1/2018
    707,000       764,744       765,328     0.1%
Fage Dairy Industry, SA
 
Food, Beverage & Tobacco
 
Subordinated Debt(e)(f)(g)
  9.88%      
2/1/2020
    22,000       22,220       23,375     0.0%
Fidelity National Information Services, Inc.
 
Software & Services
 
Subordinated Debt(e)(g)
  5.00%      
3/15/2022
    26,000       27,817       27,885     0.0%
       
Subordinated Debt(e)(g)
  7.88%      
7/15/2020
    114,000       122,352       128,963     0.0%
      150,169       156,848     0.0%
Fifth & Pacific Companies, Inc.
 
Consumer Durables & Apparel
 
Senior Debt(e)(f)(g)
  10.50%      
4/15/2019
    1,735,000       1,848,140       1,921,512     0.3%
FleetPride Corp.
 
Capital Goods
 
Senior Debt(e)
  L + 400   1.25%  
11/20/2019
    587,783       577,559       589,896     0.1%
Freedom Group
 
Consumer Durables & Apparel
 
Senior Debt(e)
  L + 425   1.25%  
4/19/2019
    991,786       987,087       969,471     0.2%
     
Senior Debt(e)(f)
  7.88%      
5/1/2020
    2,667,000       2,869,583       2,747,010     0.4%
      3,856,670       3,716,481     0.6%
FTI Consulting, Inc.
 
Diversified Financials
 
Subordinated Debt(e)(f)(g)
  6.00%      
11/15/2022
    2,869,000       2,869,000       2,983,760     0.5%
GCI, Inc.
 
Telecommunication Services
 
Subordinated Debt(e)
  8.63%      
11/15/2019
    8,575,000       9,102,913       9,110,937     1.5%
Genesys Telecommunications Laboratories, Inc.
 
Software & Services
 
Common Stocks*(i)
                448,908       448,908       453,397     0.1%
       
Subordinated Debt(i)(EUR)
  12.50%      
1/31/2020
  2,044,000       2,630,959       2,765,429     0.5%
      3,079,867       3,218,826     0.6%
Good Sam Enterprises, LLC
 
Media
 
Senior Debt(e)
  11.50%      
12/1/2016
  $ 12,224,000       12,629,848       13,079,680     2.1%
Great Lakes Dredge & Dock Corp.
 
Capital Goods
 
Subordinated Debt(e)(g)
  7.38%      
2/1/2019
    782,000       802,077       838,695     0.1%
Guitar Center, Inc.
 
Retailing
 
Senior Debt(e)
  L + 350      
4/9/2017
    12,249,203       11,485,884       11,848,042     2.0%
 
See notes to consolidated financial statements.
 
F-9

 
Corporate Capital Trust, Inc. and Subsidiaries
Consolidated Schedule of Investments (continued)
As of December 31, 2012
Company (a)
 
Industry (n)
 
Investments
 
Interest Rate
 
EURIBOR/ LIBOR
Floor
 
Maturity Date
 
No. Shares/
Principal
Amount (b)
   
Cost (c)
     
Fair Value
   
% of Net Assets
Hamilton Sundstrand Industrial (LU)(h)
 
Capital Goods
 
Senior Debt(e)(j)
  L + 375   1.25%  
12/13/2019
  $ 1,708,186     $ 1,691,104     $ 1,727,403     0.3%
       
Subordinated Debt(e)
  7.75%      
12/15/2020
    407,000       407,000       421,245     0.1%
      2,098,104       2,148,648     0.4%
Harbor Freight Tools USA, Inc.
 
Capital Goods
 
Senior Debt(e)
  L + 425   1.25%  
11/14/2017
    5,265,512       5,230,767       5,336,596     0.9%
HUB International, Ltd.
 
Insurance
 
Senior Debt(e)
  L + 450      
6/13/2017
    5,090,802       5,052,085       5,138,885     0.8%
       
Senior Debt(e)
  L + 475   2.00%  
12/13/2017
    329,014       329,014       333,179     0.1%
       
Subordinated Debt(e)(f)
  8.13%      
10/15/2018
    16,708,000       16,772,986       17,125,700     2.8%
      22,154,085       22,597,764     3.7%
Hubbard Radio, LLC
 
Media
 
Senior Debt
  L + 725   1.50%  
4/30/2018
    14,669,501       14,799,961       14,962,891     2.4%
Hyland Software, Inc.
 
Software & Services
 
Senior Debt(e)
  L + 425   1.25%  
10/25/2019
    4,717,850       4,694,621       4,737,760     0.8%
Immucor, Inc.
 
Health Care Equipment & Services
 
Senior Debt(e)(j)
  L + 450   1.25%  
8/19/2018
    2,371,805       2,378,649       2,406,351     0.4%
IMS Health, Inc.
 
Health Care Equipment & Services
 
Subordinated Debt(e)(f)(g)
  6.00%      
11/1/2020
    1,657,000       1,657,000       1,735,707     0.3%
Ineos US Finance, LLC (UK)(h)
 
Materials
 
Senior Debt(e)(f)(g)
  9.00%      
5/15/2015
    70,000       73,053       74,375     0.0%
Infor (US), Inc.
 
Software & Services
 
Senior Debt(e)
  L + 400   1.25%  
4/5/2018
    6,309,822       6,351,814       6,379,104     1.0%
       
Subordinated Debt(e)(f)
  11.50%      
7/15/2018
    4,549,000       4,968,034       5,322,330     0.9%
      11,319,848       11,701,434     1.9%
Interactive Data Corp.
 
Diversified Financials
 
Senior Debt(e)
  L + 325   1.25%  
2/11/2018
    17,629       17,312       17,750     0.0%
iPayment, Inc.
 
Software & Services
 
Senior Debt(e)
  L + 425   1.50%  
5/8/2017
    1,910,441       1,891,869       1,905,665     0.3%
       
Subordinated Debt(e)
  10.25%      
5/15/2018
    4,100,000       3,871,723       3,290,250     0.5%
      5,763,592       5,195,915     0.8%
IPC Systems, Inc.
 
Technology Hardware & Equipment
 
Senior Debt(e)
  L + 650   1.25%  
7/31/2017
    6,307,434       6,185,294       6,178,668     1.0%
J. Crew Group, Inc.
 
Retailing
 
Subordinated Debt(e)
  8.13%      
3/1/2019
    1,471,000       1,400,873       1,555,582     0.3%
J. Jill
 
Retailing
 
Senior Debt(e)(i)
  L + 850   1.50%  
4/29/2017
    10,265,611       10,265,611       10,265,611     1.7%
Jeld-Wen, Inc.
 
Capital Goods
 
Senior Debt(e)(f)
  12.25%      
10/15/2017
    15,171,000       17,515,794       17,522,505     2.9%
Kerling PLC (UK)(h)
 
Materials
 
Senior Debt(f)(g)(EUR)
  10.63%      
2/1/2017
  5,353,000       6,596,985       6,783,069     1.1%
KeyPoint Government Solutions, Inc.
 
Capital Goods
 
Senior Debt(e)(i)
  L + 600   1.25%  
11/13/2017
  $ 35,000,000       34,284,382       34,650,000     5.7%
 
See notes to consolidated financial statements.
 
F-10

 
Corporate Capital Trust, Inc. and Subsidiaries
Consolidated Schedule of Investments (continued)
As of December 31, 2012
Company (a)
 
Industry (n)
 
Investments
 
Interest Rate
 
EURIBOR/ LIBOR
Floor
 
Maturity Date
 
No. Shares/
Principal
Amount (b)
   
Cost (c)
     
Fair Value
   
% of Net Assets
Mcjunkin Corp.
 
Energy
 
Senior Debt(e)
  L + 500   1.25%  
10/20/2019
  $ 6,222,293     $ 6,160,357     $ 6,160,357     1.0%
MedAssets, Inc.
 
Health Care Equipment & Services
 
Subordinated Debt(e)(g)
  8.00%      
11/15/2018
    489,000       490,217       530,565     0.1%
MetroPCS Wireless, Inc.
 
Telecommunication Services
 
Subordinated Debt(e)(g)
  7.88%      
9/1/2018
    1,762,000       1,834,495       1,907,365     0.3%
Misys PLC (UK)(h)
 
Software & Services
 
Senior Debt(e)(g)
  L + 600   1.25%  
12/12/2018
    1,970,073       1,947,131       1,993,881     0.3%
Mueller Water Products, Inc.
 
Capital Goods
 
Subordinated Debt(e)(g)
  7.38%      
6/1/2017
    1,034,000       894,507       1,067,605     0.2%
Nara Cable Funding (IE)(h)
 
Media
 
Senior Debt(e)(f)(g)
  8.88%      
12/1/2018
    981,000       831,210       998,168     0.2%
National Vision, Inc.
 
Retailing
 
Senior Debt(e)(i)
  L + 575   1.25%  
8/2/2018
    3,038,620       2,995,492       3,084,199     0.5%
NBTY, Inc.
 
Household & Personal Products
 
Senior Debt(e)
  L + 325   1.00%  
10/1/2017
    26,355       26,081       26,659     0.0%
New Enterprise Stone & Lime Co., Inc.
 
Capital Goods
 
Senior Debt(e)(f)
 
4.00% CASH,
9.00% PIK
     
3/15/2018
    9,267,090       9,366,315       9,660,941     1.6%
Nexstar Broadcasting, Inc.
 
Media
 
Senior Debt(e)(g)
  L + 350   1.00%  
12/3/2019
    953,393       948,656       962,927     0.2%
       
Senior Debt(e)(g)(j)
  L + 350   1.00%  
12/3/2019
    170,525       169,678       172,870     0.0%
       
Senior Debt(e)(g)
  8.88%      
4/15/2017
    170,000       176,601       186,575     0.0%
      1,294,935       1,322,372     0.2%
North American Breweries, Inc.
 
Food, Beverage & Tobacco
 
Senior Debt(e)(j)
  L + 625   1.25%  
12/28/2018
    4,969,209       4,869,824       4,994,055     0.8%
Nuveen Investments, Inc.
 
Diversified Financials
 
Senior Debt(e)(g)
  L + 700   1.25%  
2/28/2019
    6,967,420       7,072,254       7,119,867     1.2%
Ocwen Financial Corp.
 
Banks
 
Senior Debt(e)(g)(j)
  L + 550   1.50%  
9/1/2016
    14,118,598       13,976,986       14,224,488     2.3%
Office Depot, Inc.
 
Retailing
 
Senior Debt(e)(f)(g)
  9.75%      
3/15/2019
    5,743,000       5,649,001       6,030,150     1.0%
Petco Animal Supplies, Inc.
 
Retailing
 
Senior Debt(e)
  L + 325   1.25%  
11/24/2017
    118,888       113,832       119,971     0.0%
Pharmaceutical Product Development, Inc.
 
Pharmaceuticals, Biotechnology & Life Sciences
 
Senior Debt(e)
  L + 500   1.25%  
12/5/2018
    800,576       791,408       814,730     0.1%
Prestige Brands, Inc.
 
Pharmaceuticals, Biotechnology & Life Sciences
 
Subordinated Debt(e)(g)
  8.13%      
2/1/2020
    602,000       641,657       669,725     0.1%
Realogy Corp.
 
Real Estate
 
Senior Debt(e)(g)
  L + 425      
10/10/2016
    4,126,264       3,915,765       4,145,163     0.6%
 
See notes to consolidated financial statements.
 
F-11

 
Corporate Capital Trust, Inc. and Subsidiaries
Consolidated Schedule of Investments (continued)
As of December 31, 2012
Company (a)
 
Industry (n)
 
Investments
 
Interest Rate
 
EURIBOR/ LIBOR
Floor
 
Maturity Date
 
No. Shares/
Principal
Amount (b)
   
Cost (c)
     
Fair Value
   
% of Net Assets
RedPrairie Corp.
 
Software & Services
 
Senior Debt(e)(j)
  L + 550   1.25%  
12/15/2018
  $ 13,765,573     $ 13,490,261     $ 13,784,500     2.3%
       
Senior Debt(e)(j)
  L + 1000   1.25%  
12/15/2019
    10,729,285       10,514,699       10,854,442     1.8%
      24,004,960       24,638,942     4.1%
Reynolds Group Holdings, Inc.
 
Capital Goods
 
Senior Debt(e)(f)
  5.75%      
10/15/2020
    533,000       533,000       550,323     0.1%
Rocket Software, Inc.
 
Software & Services
 
Senior Debt(e)(j)
  L + 450   1.25%  
2/8/2018
    4,176,561       4,165,748       4,203,708     0.7%
Roundy's Supermarkets, Inc.
 
Food & Staples Retailing
 
Senior Debt(e)(g)
  L + 450   1.25%  
2/13/2019
    4,465,368       4,439,740       4,212,115     0.7%
Ryerson, Inc.
 
Materials
 
Senior Debt(e)(f)
  9.00%      
10/15/2017
    6,755,000       6,755,641       6,873,212     1.1%
Sabre, Inc.
 
Transportation
 
Senior Debt(e)(j)
  L + 600   1.25%  
12/29/2017
    29       (539 )     29     0.0%
       
Senior Debt(e)(f)
  8.50%      
5/15/2019
    8,879,000       9,106,811       9,456,135     1.5%
      9,106,272       9,456,164     1.5%
Sanmina Corp.
 
Technology Hardware & Equipment
 
Subordinated Debt(e)(f)(g)
  7.00%      
5/15/2019
    7,879,000       7,867,583       8,036,580     1.3%
Schaeffler AG (DE)(h)
 
Automobiles & Components
 
Senior Debt(e)(g)(j)
  L + 475   1.25%  
1/27/2017
    3,086,176       3,094,939       3,120,679     0.5%
     
Senior Debt(e)(f)(g)
  8.50%      
2/15/2019
    5,000       5,376       5,650     0.0%
      3,100,315       3,126,329     0.5%
Sedgwick Claims Management Services Holdings, Inc.
 
Insurance
 
Senior Debt(e)(i)
  L + 350   1.50%  
12/31/2016
    112,518       107,817       112,799     0.0%
       
Senior Debt(e)(i)
  L + 750   1.50%  
5/30/2017
    1,338,888       1,318,149       1,358,971     0.3%
      1,425,966       1,471,770     0.3%
Sidera Networks, Inc.
 
Media
 
Senior Debt(e)
  L + 450   1.50%  
8/26/2016
    2,631,540       2,493,867       2,634,593     0.4%
Sinclair Television Group, Inc.
 
Media
 
Subordinated Debt(e)
  8.38%      
10/15/2018
    27,000       28,202       30,173     0.0%
Sirius XM Radio, Inc.
 
Media
 
Subordinated Debt(e)(f)(g)
  5.25%      
8/15/2022
    9,000       9,090       9,090     0.0%
SkillSoft Corp.
 
Software & Services
 
Subordinated Debt(e)
  11.13%      
6/1/2018
    1,369,000       1,444,147       1,514,456     0.2%
Smile Brands Group, Inc.
 
Health Care Equipment & Services
 
Senior Debt(e)
  L + 525   1.75%  
12/21/2017
    3,793,377       3,807,218       3,565,774     0.6%
SNL Financial, LLC
 
Commercial & Professional Services
 
Senior Debt(e)
  L + 425   1.25%  
10/23/2018
    5,667,077       5,649,799       5,671,809     0.9%
Springleaf Financial Funding Co.
 
Diversified Financials
 
Senior Debt(e)(g)
  L + 425   1.25%  
5/10/2017
    2,551,580       2,315,867       2,542,012     0.4%
Standard Chartered Bank (SG)(h)
 
Banks
 
Subordinated Debt(f)(g)(i)(k)
  L + 1600      
4/1/2014
    3,310,000       3,334,829       3,443,062     0.6%
 
See notes to consolidated financial statements.
 
F-12

 
Corporate Capital Trust, Inc. and Subsidiaries
Consolidated Schedule of Investments (continued)
As of December 31, 2012
Company (a)
 
Industry (n)
 
Investments
 
Interest Rate
 
EURIBOR/ LIBOR
Floor
 
Maturity Date
 
No. Shares/
Principal
Amount (b)
   
Cost (c)
     
Fair Value
   
% of Net Assets
Supervalu, Inc.
 
Food & Staples Retailing
 
Subordinated Debt(e)(g)
  7.25%      
5/1/2013
  $ 3,503,000     $ 3,485,074     $ 3,533,651     0.6%
     
Subordinated Debt(e)(g)
  7.50%      
11/15/2014
    5,397,000       5,234,840       5,235,090     0.9%
      8,719,914       8,768,741     1.5%
The Gymboree Corp.
 
Retailing
 
Senior Debt(e)
  L + 350   1.50%  
2/23/2018
    17,904,121       17,246,576       16,538,932     2.7%
       
Subordinated Debt(e)
  9.13%      
12/1/2018
    12,818,000       12,135,027       11,408,020     1.9%
      29,381,603       27,946,952     4.6%
The Manitowoc Co., Inc.
 
Capital Goods
 
Subordinated Debt(e)(g)
  5.88%      
10/15/2022
    183,000       184,113       183,000     0.0%
The Neiman Marcus Group, Inc.
 
Retailing
 
Senior Debt(e)
  L + 350   1.25%  
5/16/2018
    188,713       182,590       189,272     0.0%
The SI Organization, Inc.
 
Capital Goods
 
Senior Debt(e)
  L + 325   1.25%  
11/22/2016
    186,009       176,191       185,699     0.0%
The TelX Group, Inc.
 
Telecommunication Services
 
Senior Debt(e)
  L + 500   1.25%  
9/23/2017
    9,549,578       9,606,080       9,657,059     1.6%
Tomkins Air Distribution
 
Capital Goods
 
Senior Debt(e)
  L + 800   1.25%  
5/11/2020
    3,454,401       3,403,012       3,540,761     0.6%
Towergate Finance PLC (UK)(h)
 
Insurance
 
Subordinated Debt(f)(g)(GBP)
  10.50%      
2/15/2019
  £ 4,125,000       6,280,442       6,834,873     1.1%
TransUnion, LLC
 
Diversified Financials
 
Subordinated Debt(e)
  11.38%      
6/15/2018
  $ 1,403,000       1,541,024       1,634,495     0.3%
Univar, Inc.
 
Materials
 
Senior Debt(e)
  L + 350   1.50%  
6/30/2017
    953,180       928,828       951,826     0.2%
Verisure Holding AB (SE)(h)
 
Commercial & Professional Services
 
Senior Debt(f)(g)(EUR)
  8.75%      
9/1/2018
  397,000       484,437       571,182     0.1%
Vision Solutions, Inc.
 
Commercial & Professional Services
 
Senior Debt(e)(i)
  L + 450   1.50%  
7/23/2016
  $ 1,275,000       1,263,440       1,271,813     0.2%
VWR Funding, Inc.
 
Pharmaceuticals, Biotechnology & Life Sciences
 
Senior Debt(e)
  L + 425      
4/3/2017
    146,077       139,766       146,853     0.0%
     
Subordinated Debt(e)(f)
  7.25%      
9/15/2017
    5,349,000       5,349,000       5,616,450     0.9%
            5,488,766       5,763,303     0.9%
Warner Chilcott Co., LLC (IE)
 
Pharmaceuticals, Biotechnology & Life Sciences
 
Subordinated Debt(e)(g)(h)
  7.75%      
9/15/2018
    1,225,000       1,219,535       1,304,625     0.2%
Wastequip, LLC
 
Materials
 
Senior Debt(e)(i)
  L + 675   1.50%  
6/15/2018
    11,227,991       10,969,880       11,452,550     1.9%
West Corp.
 
Software & Services
 
Subordinated Debt(e)
  7.88%      
1/15/2019
    1,575,000       1,560,147       1,630,125     0.3%
Wilton Brands, LLC
 
Materials
 
Senior Debt(e)
  L + 625   1.25%  
8/30/2018
    12,823,623       12,581,156       12,983,918     2.1%
Zayo Group, LLC
 
Telecommunication Services
 
Senior Debt(e)
  8.13%      
1/1/2020
  $ 2,260,000     $ 2,400,874     $ 2,514,250     0.4%
       
Subordinated Debt(e)
  10.13%      
7/1/2020
    5,000,000       5,324,088       5,687,500     0.9%
      7,724,962       8,201,750     1.3%
 
See notes to consolidated financial statements.
 
F-13

 
Corporate Capital Trust, Inc. and Subsidiaries
Consolidated Schedule of Investments (continued)
As of December 31, 2012
Company (a)
 
Industry (n)
 
Investments
 
Interest Rate
 
EURIBOR/ LIBOR
Floor
 
Maturity Date
 
No. Shares/
Principal
Amount (b)
   
Cost (c)
     
Fair Value
   
% of Net Assets
Total Non-Control/Non-Affiliate Investments
    691,427,399       697,668,431     114.1%
Short Term Investments—2.2%
                               
Goldman Sachs Financial Square Funds - Prime Obligations Fund
 
Short Term Investments(e)
  0.08%(l)             2,049,281       2,049,281       2,049,281     0.4%
State Street Institutional Liquid Reserves Fund
 
Short Term Investments
  0.16%(l)      
12/31/2099
    11,152,887       11,152,887       11,152,887     1.8%
Total Short Term Investments
    13,202,168       13,202,168     2.2%
TOTAL INVESTMENTS —116.3%(m)
  $ 704,629,567       710,870,599     116.3%
LIABILITIES IN EXCESS OF OTHER ASSETS—(16.3%)
            (99,386,785 )   (16.3)%
NET ASSETS—100.0%
          $ 611,483,814     100.0%
Derivative Instruments—0.20%
                               
Total return swaps (Note 4) (g)
 
Total return swaps
  N/A      
1/15/2016
    N/A     $     $ 1,349,246     0.2%
Foreign currency forward contracts (Note 4) (g)
 
Foreign currency forward contracts
  N/A      
1/2013
    N/A             (146,928 )   (0.0)%
Total Derivative Instruments
        $ 1,202,318     0.2%
 
*
Non-income producing security.
(a)
Security may be an obligation of one or more entities affiliated with the named company.
(b)
Denominated in U.S. Dollars unless otherwise noted.
(c)
Represents amortized cost for debt securities and cost for common stock.
(d)
Non-Control/Non-Affiliate investments are defined by the Investment Company Act of 1940, as amended (“1940 Act”) as investments that are neither Control Investments nor Affiliate Investments. Controlled investments are defined by the 1940 Act as investments in which more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained. Affiliate investments are defined by the 1940 Act as investments in which between 5% and 25% of the voting securities are owned and the investments are not classified as Controlled investments.
(e)
Security or portion thereof is held within CCT Funding, LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Deutsche Bank.
(f)
This security was acquired in a transaction that was exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Rule 144A thereunder. This security may be resold only in transactions that are exempt from the registration requirements of the Securities Act, normally to qualified institutional buyers.
(g)
The investment is not a qualifying asset as defined in Section 55(a) 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. The Company calculates its compliance with the qualifying assets test on a "look through" basis by disregarding the value of the Company's total return swaps and treating each loan underlying the total return swaps as either a qualifying assets or non-qualifying asset based on whether the obligor is an eligible portfolio company. On this basis, 79.3% of the Company's total assets represented qualifying assets as of December 31, 2012.
(h)
A portfolio company domiciled in a foreign country.
(i)
Investments classified as Level 3 whereby fair value was determined by the Company's Board of Directors (see Note 2).
(j)
Position or portion thereof unsettled as of December 31, 2012.
(k)
A portfolio company investment structured as a credit-linked floating rate note.
(l)
7-day effective yield as of December 31, 2012.
(m)
As of December 31, 2012, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $14,999,786; the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $8,758,754; the net unrealized appreciation was $6,241,032; the aggregate cost of securities for Federal income tax purposes was $704,629,567.
(n)
Unaudited.
Abbreviations:
DE - Germany
ES - Spain
EUR - Euro; principal amount is denominated in Euros currency. €1 / US $1.320 as of December 31, 2012.
GBP - British Pound Sterling; principal amount is denominated in Pound Sterling. £1 / US $1.624 as of December 31, 2012.
IE - Ireland
L = LIBOR - London Interbank Offered Rate, typically 3-Month
LU - Luxembourg
MX - Mexico
PIK - Payment-in-kind
SE - Sweden
SG - Singapore
UK - United Kingdom
See notes to consolidated financial statements.
 
F-14

 
  Corporate Capital Trust, Inc. and Subsidiaries
As of December 31, 2011
Company (b)
 
Industry (c)
 
Investments
 
Interest
Rate
 
EURIBOR/
LIBOR
Floor
 
Maturity
Date
   
Principal
Amount / No. Shares (m)
   
Cost (d)
   
Fair Value
   
% of Net
Assets
Non-Control/Non-Affiliate Investments(a)—163.6%
                                               
Alliant Holdings I, Inc.
 
Insurance
 
Senior Debt(e)
 
L + 300
       
8/21/2014
 
  $
85,889
 
 
$
78,083
 
 
$
83,689
 
 
0.1%
Allison Transmission, Inc.
 
Automobiles & Components
 
Senior Debt(e)
 
L + 250
       
8/7/2014
 
   
7,564
 
   
7,018
 
   
7,389
 
 
0.0%
Ally Financial, Inc.
 
Banks
 
Preferred Stocks(e)(f)
                   
5,575
 
   
99,595
 
   
102,524
 
 
0.2%
Amkor Technologies, Inc.
 
Semiconductors & Semiconductor Equipment
 
Subordinated Debt(e)(f)
 
7.38%
       
5/1/2018
 
   
208,000
 
   
205,404
 
   
212,680
 
 
0.3%
Aramark Corp.
 
Commercial & Professional Services
 
Subordinated Debt(e)
 
8.50%
       
2/1/2015
 
   
1,187,000
 
   
1,222,134
 
   
1,216,675
 
 
1.9%
Aspect Software, Inc.
 
Technology Hardware & Equipment
 
Subordinated Debt(e)
 
10.63%
       
5/15/2017
 
   
1,484,000
 
   
1,529,365
 
   
1,539,650
 
 
2.4%
Aspen Dental Management, Inc.
 
Health Care Equipment & Services
 
Senior Debt(e)(g)
 
L + 450
 
1.50%
   
10/6/2016
 
   
155,886
 
   
150,857
 
   
151,989
 
 
0.2%
Asset Acceptance Capital Corp.
 
Diversified Financials
 
Senior Debt(e)(f)(h)
 
L + 725
 
1.50%
   
11/14/2017
 
   
480,179
 
   
449,331
 
   
463,373
 
 
0.7%
Associated Materials, LLC
 
Capital Goods
 
Senior Debt(e)
 
9.13%
       
11/1/2017
 
   
13,000
 
   
13,184
 
   
11,343
 
 
0.0%
Avaya, Inc.
 
Technology Hardware & Equipment
 
Senior Debt(e)(g)
Senior Debt(e)(g)
 
L + 275
L + 450
       
10/24/2014
10/26/2017
 
 
   
1,142,373
974,527
 
 
   
1,067,943
883,793
 
 
   
1,095,010
890,474
 
 
 
1.7% 1.4%
                                   
1,951,736
 
   
1,985,484
 
 
3.0%
Avis Budget Car Rental, LLC
 
Transportation
 
Senior Debt(e)(f)
 
L + 500
 
1.25%
   
9/22/2018
 
   
276,675
 
   
271,282
 
   
278,837
 
 
0.4%
BJ’s Wholesale Club, Inc.
 
Food & Staples Retailing
 
Senior Debt(e)
 
L + 575
 
1.25%
   
9/28/2018
 
   
1,113,299
 
   
1,093,129
 
   
1,118,164
 
 
1.7%
Boise Paper Holdings, LLC
 
Materials
 
Subordinated Debt(e)(f)
 
9.00%
       
11/1/2017
 
   
146,000
 
   
154,801
 
   
156,950
 
 
0.2%
Cablevision Systems Corp.
 
Media
 
Subordinated Debt(e)(f)
 
7.75%
       
4/15/2018
 
   
426,000
 
   
431,245
 
   
451,560
 
 
0.7%
Caesars Entertainment Operating Co., Inc.
 
Consumer Services
 
Senior Debt(e)(g)
 
L + 300
       
1/28/2015
 
   
12,797
 
   
11,723
 
   
11,157
 
 
0.0%
   
Senior Debt(e)
 
11.25%
       
6/1/2017
 
   
1,070,000
 
   
1,135,422
 
   
1,135,537
 
 
1.7%
                                     
1,147,145
 
   
1,146,694
 
 
1.8%
California Pizza Kitchen, Inc.
 
Food & Staples Retailing
 
Senior Debt(e)(g)(h)
 
L + 550
 
1.25%
   
7/7/2017
 
   
1,068,431
 
   
1,023,743
 
   
1,041,721
 
 
1.6%
Calpine Corp.
 
Utilities
 
Senior Debt(e)(f)(g)
 
L + 325
 
1.25%
   
4/1/2018
 
   
68,276
 
 
 
65,451
 
 
 
67,090
 
 
0.1%
CDW, LLC
 
Technology Hardware & Equipment
  Senior Debt(e)   L + 350         10/10/2014       1,229,473      
1,201,984
     
1,194,316
   
1.8%
     
Subordinated Debt(e)
 
11.50% CASH
       
10/12/2015
     
135,000
     
142,433
     
141,750
   
0.2%
          or 12.50% PIK                        
1,344,417
     
1,336,066
    2.1%
Cengage Learning Acquisitions, Inc.
 
Media
 
Senior Debt(e)(g)
 
L + 225
       
7/3/2014
 
   
1,954,781
 
   
1,624,504
 
   
1,670,243
 
 
2.6%
Ceridian Corp.
 
Software & Services
 
Senior Debt(e)(g)
 
L + 300
       
11/10/2014
 
   
1,793,378
 
   
1,652,772
 
   
1,621,330
 
 
2.5%
Charter Communications Operating Holdings, LLC
 
Media
 
Subordinated Debt(e)(f)
 
7.25%
       
10/30/2017
 
   
573,000
 
   
583,128
 
   
603,799
 
 
0.9%
CHS / Community Health Systems, Inc.
 
Health Care Equipment & Services
 
Subordinated Debt(e)(f)
 
8.88%
       
7/15/2015
 
   
433,565
 
   
439,405
 
   
447,656
 
 
0.7%
Citco III, Ltd. (IE)(i)
 
Diversified Financials
 
Senior Debt(e)(f)(g)
 
L + 500
 
1.25%
   
6/29/2018
 
   
17,307
 
   
17,349
 
   
16,572
 
 
0.0%
ClubCorp Club Operations, Inc.
 
Consumer Services
 
Senior Debt(e)(g)
 
L + 450
 
1.50%
   
11/30/2016
 
   
137,092
 
   
129,554
 
   
136,864
 
 
0.2%
Continental Airlines, Inc.
 
Transportation
 
Senior Debt(e)(f)
 
8.31%
       
4/2/2018
 
   
691,761
 
   
686,329
 
   
672,738
 
 
1.0%
CRC Health Corp.
 
Health Care Equipment & Services
  Senior Debt(e)   L + 450         11/16/2015       973,846       926,057       883,766     1.4%
     
Subordinated Debt(e)
  10.75%        
2/1/2016
     
1,114,000
     
1,065,237
     
1,058,300
    1.6%
                                   
1,991,294
     
1,942,066
    3.0%

See notes to consolidated financial statements.
 
 
F-15

Corporate Capital Trust, Inc. and Subsidiaries
Condensed Consolidated Schedule of Investments (continued)
As of December 31, 2011

Company (b)
 
Industry (c)
 
Investments
 
Interest
Rate
 
EURIBOR/
LIBOR
Floor
 
Maturity
Date
   
Principal
Amount / No. Shares (m)
   
Cost (d)
   
Fair Value
   
% of Net
Assets
Cricket Communications, Inc.
 
Telecommunication Services
 
Senior Debt(e)(f)
 
7.75%
       
5/15/2016
 
  $
1,529,000
 
  $
1,541,150
 
  $
1,578,692
 
 
2.4%
Datatel, Inc.
 
Software & Services
 
Senior Debt(e)
Senior Debt(e)
Senior Debt(e)(g)
 
L + 350
L + 725
L + 525
 
1.50%
1.50% 1.50%
   
2/20/2017
2/19/2018
9/15/2018
 
 
 
   
556,984
150,000
406,204
 
 
 
   
554,944
153,568
400,111
 
 
 
   
557,750
150,750
406,840
 
 
 
 
0.9%
0.2%
0.6%
                                   
1,108,623
 
   
1,115,340
 
 
1.7%
DineEquity, Inc.
 
Consumer Services
 
Senior Debt(e)(f)(g)
 
L + 300
 
1.25%
   
10/19/2017
 
   
75,685
 
   
72,728
 
   
74,791
 
 
0.1%
DuPont Fabros Technology, LP
 
Real Estate
 
Subordinated Debt(e)(f)
 
8.50%
       
12/15/2017
 
   
100,000
 
   
106,616
 
   
107,000
 
 
0.2%
E*TRADE Financial Corp.
 
Diversified Financials
 
Subordinated Debt(e)(f)
 
7.88%
       
12/1/2015
 
   
1,269,000
 
 
 
1,264,604
 
 
 
1,275,345
 
 
2.0%
Easton-Bell Sports, Inc.
 
Consumer Durables & Apparel
 
Senior Debt(e)
 
9.75%
       
12/1/2016
 
   
1,190,000
 
   
1,275,766
 
   
1,297,100
 
 
2.0%
Education Management, LLC
 
Consumer Services
 
Subordinated Debt(e)(f)
 
8.75%
       
6/1/2014
 
   
1,728,000
 
   
1,732,881
 
   
1,732,320
 
 
2.7%
Emergency Medical Services Corp.
 
Health Care Equipment & Services
 
Senior Debt(e)(g)
 
L + 375
 
1.50%
   
5/25/2018
 
   
216,967
 
   
205,433
 
   
211,814
 
 
0.3%
Express, LLC / Express Finance Corp.
 
Retailing
 
Subordinated Debt(e)(f)
 
8.75%
       
3/1/2018
 
   
43,000
 
   
46,248
 
   
46,547
 
 
0.1%
Fidelity National Information Services, Inc.
 
Software & Services
 
Subordinated Debt(e)(f)
Subordinated Debt(e)(f)
 
7.63%
7.88%
        7/15/2017
7/15/2020
      46,000
122,000
      48,686
130,244
      49,795
131,760
   
0.1%
0.2%
                                 
178,930
     
181,555
    0.3%
Fifth Third Processing Solutions, LLC
 
Software & Services
 
Senior Debt(e)(g)
 
L + 325
 
1.25%
   
11/3/2016
 
   
61,304
 
   
59,554
 
   
61,258
 
 
0.1%
FTI Consulting, Inc.
 
Diversified Financials
 
Subordinated Debt(e)(f)
 
6.75%
       
10/1/2020
 
   
87,000
 
   
86,817
 
   
89,827
 
 
0.1%
GCI, Inc.
 
Telecommunication Services
 
Subordinated Debt(e)
 
8.63%
       
11/15/2019
 
   
2,294,000
 
   
2,438,105
 
   
2,434,507
 
 
3.7%
General Nutrition Centers, Inc.
 
Retailing
 
Senior Debt(e)(f)
 
L + 300
 
1.25%
   
3/2/2018
 
   
23,369
 
   
23,370
 
   
23,029
 
 
0.0%
Good Sam Enterprises, LLC
 
Media
 
Senior Debt(e)
 
11.50%
       
12/1/2016
 
   
1,375,000
 
   
1,343,093
 
   
1,347,500
 
 
2.1%
Goodman Global, Inc.
 
Capital Goods
 
Senior Debt(e)(g)
 
L + 700
 
2.00%
   
10/30/2017
 
   
948,221
 
   
952,962
 
   
954,541
 
 
1.5%
Great Lakes Dredge & Dock Corp.
 
Capital Goods
 
Subordinated Debt(e)(f)
 
7.38%
       
2/1/2019
 
   
96,000
 
   
94,738
 
   
95,040
 
 
0.1%
Guitar Center, Inc.
 
Retailing
 
Senior Debt(e)(g)
 
L + 525
       
4/9/2017
 
   
4,238,739
 
   
3,716,872
 
   
3,736,449
 
 
5.7%
The Gymboree Corp.
 
Retailing
 
Senior Debt(e)(g)
Subordinated Debt(e)
 
L + 350
9.13%
  1.50%     2/23/2018
12/1/2018
      904,502
748,000
      847,281
609,721
      807,607
654,500
   
1.2%
1.0%
                                      1,457,002       1,462,107     2.2%
High Plains Broadcasting Operating Co.
 
Media
 
Senior Debt(g)
 
L + 675
 
3.00%
   
9/14/2016
 
   
351,687
 
   
347,295
 
   
349,561
 
 
0.5%
HUB International, Ltd.
 
Insurance
 
Senior Debt(e)(g)
 
L + 250
 
2.00%
   
6/13/2014
 
   
1,134,886
 
   
1,088,373
 
   
1,089,139
 
 
0.5%
     
Senior Debt(e)(g)
 
L + 475
       
6/13/2014
 
   
332,350
 
 
 
332,350
 
 
 
331,283
 
 
1.7%
                                   
1,420,723
 
   
1,420,422
 
 
2.2%
Hubbard Radio, LLC
 
Media
 
Senior Debt(e)(g)
 
L + 375
 
1.50%
   
4/28/2017
 
   
606,123
 
   
601,661
 
   
598,359
 
 
0.9%
       
Senior Debt(e)(g)
 
L + 725
 
1.50%
   
4/30/2018
 
   
2,834,070
 
   
2,819,267
 
   
2,798,644
 
 
4.3%
                                     
3,420,928
 
   
3,397,003
 
 
5.2%
 
See notes to consolidated financial statements.
 
F-16

 
Corporate Capital Trust, Inc. and Subsidiaries
Condensed Consolidated Schedule of Investments (continued)
As of December 31, 2011

Company (b)
 
Industry (c)
 
Investments
 
Interest
Rate
 
EURIBOR/
LIBOR
Floor
 
Maturity
Date
   
Principal
Amount / No. Shares (m)
   
Cost (d)
   
Fair Value
   
% of Net
Assets
Husky Injection Molding Systems, Ltd. (CA)(i)
 
Capital Goods
 
Senior Debt(e)(f)(g)
 
L + 525
 
1.25%
   
6/29/2018
 
  $
1,159,646
 
  $
1,149,330
 
  $
1,159,194
 
 
1.8%
Immucor, Inc.
 
Health Care Equipment & Services
 
Senior Debt(e)(g)
 
L + 575
 
1.50%
   
8/19/2018
 
   
2,528,757
 
   
2,533,137
 
   
2,547,407
 
 
3.9%
Ineos Holdings, Ltd. (UK)(i)
 
Materials
 
Subordinated Debt(f)(g) (EUR)
 
E + 600 PIK
 
3.00%
   
6/16/2015
 
 
889,214
 
  $
1,109,884
 
  $
1,061,432
 
 
1.6%
Infor Enterprise Solutions Holdings, Inc.
 
Software & Services
 
Senior Debt(e)(g)
 
L + 575
       
7/28/2015
 
  $
1,610,000
 
   
1,541,287
 
   
1,521,450
 
 
2.3%
Interactive Data Corp.
 
Diversified Financials
 
Senior Debt(e)(g)
 
L + 325
 
1.25%
   
2/11/2018
 
   
18,262
 
   
17,899
 
   
18,037
 
 
0.0%
iPayment, Inc.
 
Software & Services
 
Senior Debt(e)(g)
 
L + 425
 
1.50%
   
5/8/2017
 
   
1,953,798
 
   
1,931,324
 
   
1,932,629
 
 
3.0%
   
Subordinated Debt(e)(j)
 
10.25%
       
5/15/2018
 
   
415,000
 
   
375,604
 
   
390,100
 
 
0.6%
                                     
2,306,928
 
   
2,322,729
 
 
3.6%
IPC Systems, Inc.
 
Technology Hardware & Equipment
 
Senior Debt(e)(g)
 
L + 225
       
6/2/2014
 
   
4,855
 
   
4,515
 
   
4,535
 
 
0.0%
J. Crew Group, Inc.
 
Retailing
 
Senior Debt(e)(g)
 
L + 350
 
1.25%
   
3/7/2018
 
   
2,765,351
 
   
2,588,677
 
   
2,604,366
 
 
4.0%
     
Subordinated Debt(e)
 
8.13%
       
3/1/2019
 
   
1,026,000
 
   
963,411
 
   
979,830
 
 
1.5%
                                   
3,552,088
 
   
3,584,196
 
 
5.5%
Jo-Ann Stores, Inc.
 
Retailing
 
Senior Debt(e)
 
L + 350
 
1.25%
   
3/16/2018
 
   
23,488
 
   
23,262
 
   
22,453
 
 
0.0%
Kinetic Concepts, Inc.
 
Health Care Equipment & Services
 
Senior Debt(e)(f)
 
L + 525
 
1.25%
   
11/4/2016
 
   
329,847
 
   
320,184
 
   
329,642
 
 
0.5%
   
Senior Debt(e)(f)(g)
 
L + 575
 
1.25%
   
5/4/2018
 
   
375,178
 
 
 
366,342
 
 
 
379,071
 
 
0.6%
                                 
686,526
 
   
708,713
 
 
1.1%
Lamar Media Corp.
 
Media
 
Subordinated Debt(e)(f)
 
6.63%
       
8/15/2015
 
   
206,000
 
   
206,000
 
   
210,120
 
 
0.3%
Lawson Software, Inc.
 
Software & Services
 
Senior Debt(e)
 
L + 525
 
1.50%
   
7/5/2017
 
   
1,766,446
 
   
1,735,811
 
   
1,726,542
 
 
2.6%
Local TV Finance, LLC
 
Media
 
Senior Debt(e)
 
L + 200
       
5/7/2013
 
   
370,225
 
   
352,992
 
   
358,191
 
 
0.5%
The Manitowoc Co., Inc.
 
Capital Goods
 
Subordinated Debt(e)(f)
 
9.50%
       
2/15/2018
 
   
21,000
 
   
22,983
 
   
22,365
 
 
0.0%
McJunkin Red Man Corp.
 
Energy
 
Senior Debt(e)
 
9.50%
       
12/15/2016
 
   
3,393,000
 
   
3,374,953
 
   
3,443,895
 
 
5.3%
MedAssets, Inc.
 
Health Care Equipment & Services
 
Senior Debt(e)(f)(g)
 
L + 375
 
1.50%
   
11/16/2016
 
   
699,792
 
   
699,730
 
   
698,742
 
 
1.1%
     
Subordinated Debt(e)(f)
 
8.00%
       
11/15/2018
 
   
316,000
 
   
311,267
 
   
309,680
 
 
0.5%
                                   
1,010,997
 
   
1,008,422
 
 
1.5%
MetroPCS Wireless, Inc.
 
Telecommunication Services
 
Subordinated Debt(e)(f)
 
7.88%
       
9/1/2018
 
   
281,000
 
   
284,117
 
   
284,864
 
 
0.4%
Michaels Stores, Inc.
 
Retailing
 
Senior Debt(e)
 
L + 225
       
10/31/2013
 
   
215,942
 
   
202,264
 
   
212,726
 
 
0.3%
     
Senior Debt(e)(g)
 
L + 450
       
7/31/2016
 
   
681,714
 
   
667,113
 
   
671,659
 
 
1.0%
                                     
869,377
 
   
884,385
 
 
1.4%
Momentive Performance Materials USA, Inc.
 
Materials
 
Senior Debt(e)(g)
 
L + 350
       
5/5/2015
 
   
1,212,164
 
   
1,161,622
 
   
1,158,623
 
 
1.8%
Mondrian Investment Partners, Ltd. (UK)(i)
 
Diversified Financials
 
Senior Debt(e)(f)(g)
 
L + 425
 
1.25%
   
7/12/2018
 
   
488,020
 
   
484,049
 
   
488,020
 
 
0.7%
Mueller Water Products, Inc.
 
Capital Goods
 
Subordinated Debt(e)(f)
 
7.38%
       
6/1/2017
 
   
1,034,000
 
   
871,542
 
   
940,940
 
 
1.4%
   
Subordinated Debt(e)(f)
 
8.75%
       
9/1/2020
 
   
250,000
 
   
253,683
 
   
271,562
 
 
0.4%
                                   
1,125,225
 
   
1,212,502
 
 
1.9%
 
See notes to consolidated financial statements.
 
F-17

 
Corporate Capital Trust, Inc. and Subsidiaries
Condensed Consolidated Schedule of Investments (continued)
As of December 31, 2011
 
Company (b)
 
Industry (c)
 
Investments
 
Interest
Rate
 
EURIBOR/
LIBOR
Floor
 
Maturity
Date
   
Principal
Amount / No. Shares (m)
   
Cost (d)
   
Fair Value
   
% of Net
Assets
N.E.W. Holdings I, LLC
 
Software & Services
 
Senior Debt(e)
 
L + 425
 
1.75%
   
3/23/2016
 
  $
8,655
 
  $
8,250
 
  $
8,407
 
 
0.0%
   
Subordinated Debt(e)(h)
 
L + 750
 
2.00%
   
3/23/2017
 
   
998,480
 
   
986,123
 
   
963,533
 
 
1.5%
                                 
994,373
 
   
971,940
 
 
1.5%
NBTY, Inc.
 
Household & Personal Products
 
Senior Debt(e)(g)
 
L + 325
 
1.00%
   
10/1/2017
 
   
26,355
 
 
 
26,031
 
 
 
26,126
 
 
0.0%
The Neiman Marcus Group, Inc.
 
Retailing
 
Senior Debt(e)
 
L + 350
 
1.25%
   
5/16/2018
 
   
188,713
 
   
181,660
 
   
182,344
 
 
0.3%
     
Subordinated Debt(e)
 
10.38%
       
10/15/2015
 
   
1,967,000
 
   
2,040,359
 
   
2,043,241
 
 
3.1%
                                     
2,222,019
 
   
2,225,585
 
 
3.4%
Nexstar Broadcasting, Inc.
 
Media
 
Senior Debt(e)(f)
 
8.88%
       
4/15/2017
 
   
170,000
 
   
177,868
 
   
174,250
 
 
0.3%
NPC International, Inc.
 
Consumer Services
 
Senior Debt(e)(g)
 
L + 525
 
1.50%
   
11/7/2018
 
   
1,515,463
 
   
1,519,252
 
   
1,521,146
 
 
2.3%
NuSil Technology, LLC
 
Materials
 
Senior Debt(e)(g)
 
L + 400
 
1.25%
   
4/7/2017
 
   
25,312
 
   
25,312
 
   
24,848
 
 
0.0%
Nuveen Investments, Inc.
 
Diversified Financials
 
Senior Debt(e)(f)
 
L + 300
       
11/13/2014
 
   
25,629
 
   
25,290
 
   
24,556
 
 
0.0%
   
Senior Debt(e)(f)
 
L + 550
       
5/13/2017
 
   
133,224
 
   
130,890
 
   
128,395
 
 
0.2%
     
Senior Debt(e)(f)(g)
 
L + 600
 
1.25%
   
5/13/2017
 
   
282,184
 
   
276,540
 
   
278,891
 
 
0.4%
       
Subordinated Debt(e)(f)
 
10.50%
       
11/15/2015
 
   
1,715,000
 
   
1,671,568
 
   
1,702,137
 
 
2.6%
                                     
2,104,288
 
   
2,133,979
 
 
3.3%
Ocwen Financial Corp.
 
Banks
 
Senior Debt(e)(f)(g)
 
L + 550
 
1.50%
   
9/1/2016
 
   
1,400,877
 
   
1,381,333
 
   
1,380,359
 
 
2.1%
Penn National Gaming, Inc.
 
Consumer Services
 
Subordinated Debt(e)(f)
 
8.75%
       
8/15/2019
 
   
401,000
 
   
432,531
 
   
436,087
 
 
0.7%
Petco Animal Supplies, Inc.
 
Retailing
 
Senior Debt(e)
 
L + 325
 
1.25%
   
11/24/2017
 
   
120,101
 
   
114,129
 
   
117,280
 
 
0.2%
Pharmaceutical Product Development, Inc.
 
Pharmaceuticals, Biotechnology & Life Sciences
 
Senior Debt(e)(f)(g)
 
L + 500
 
1.25%
   
12/5/2018
 
   
808,662
 
   
798,202
 
   
804,938
 
 
1.2%
Pinnacle Entertainment, Inc.
 
Consumer Services
 
Subordinated Debt(e)(f)
 
8.63%
       
8/1/2017
 
   
167,000
 
   
176,491
 
   
176,602
 
 
0.3%
Pinnacle Foods Finance, LLC
 
Food & Staples Retailing
 
Senior Debt(e)(g)
 
L + 250
       
4/2/2014
 
   
547,748
 
   
530,579
 
   
537,133
 
 
0.8%
Realogy Corp.
 
Real Estate
 
Senior Debt(e)
 
L + 425
       
10/10/2016
 
   
1,566,113
 
   
1,379,558
 
   
1,403,269
 
 
2.2%
     
Senior Debt(e)
 
L - 15
       
10/10/2016
 
   
123,163
 
   
108,445
 
   
110,357
 
 
0.2%
                                     
1,488,003
 
   
1,513,626
 
 
2.3%
Ryerson, Inc.
 
Materials
 
Senior Debt(e)(f)
 
L + 737.5
       
11/1/2014
 
   
98,000
 
   
97,346
 
   
90,160
 
 
0.1%
       
Senior Debt(e)(f)
 
12.00%
       
11/1/2015
 
   
44,000
 
 
 
46,519
 
 
 
44,440
 
 
0.1%
                                     
143,865
 
   
134,600
 
 
0.2%
Sabre, Inc.
 
Transportation
 
Senior Debt(e)(g)
 
L + 200
       
9/30/2014
 
   
3,257,513
 
   
2,788,750
 
   
2,704,632
 
 
4.2%
SandRidge Energy, Inc.
 
Energy
 
Subordinated Debt(e)(f)
 
L + 362.5
       
4/1/2014
 
   
23,000
 
   
22,952
 
   
22,352
 
 
0.0%
Scitor Corp.
 
Capital Goods
 
Senior Debt(e)(g)
 
L + 350
 
1.50%
   
2/15/2017
 
   
23,310
 
   
23,255
 
   
22,203
 
 
0.0%
Sedgwick Claims Management Services Holdings, Inc.
 
Insurance
 
Senior Debt(e)(g)(h)
 
L + 350
 
1.50%
   
12/31/2016
 
   
113,219
 
   
107,480
 
   
111,662
 
 
0.2%
   
Senior Debt(e)(h)
 
L + 750
 
1.50%
   
5/30/2017
 
   
907,195
 
   
882,412
 
   
898,123
 
 
1.4%
                                   
989,892
 
   
1,009,785
 
 
1.5%
 
See notes to consolidated financial statements.
 
F-18

 
Corporate Capital Trust, Inc. and Subsidiaries
Condensed Consolidated Schedule of Investments (continued)
As of December 31, 2011
 
Company (b)
 
Industry (c)
 
Investments
 
Interest Rate
 
EURIBOR/
LIBOR
Floor
 
Maturity
Date
   
Principal
Amount / No.
Shares
(m)
   
Cost (d)
   
Fair Value
   
% of Net
Assets
Sheridan Holdings, Inc.
 
Health Care Equipment & Services
 
Senior Debt(e)(g)
 
L + 225
       
6/13/2014
 
  $
348,178
 
  $
321,180
 
  $
329,899
 
 
0.5%
The SI Organization, Inc.
 
Capital Goods
 
Senior Debt(e)(g)
 
L + 325
 
1.25%
   
11/22/2016
 
   
187,907
 
   
175,980
 
   
177,572
 
 
0.3%
Sinclair Television Group, Inc.
 
Media
 
Subordinated Debt(e)(f)
 
8.38%
       
10/15/2018
 
   
27,000
 
   
28,364
 
   
27,877
 
 
0.0%
Skilled Healthcare Group, Inc.
 
Health Care Equipment & Services
 
Senior Debt(e)(f)(g)
 
L + 375
 
1.50%
   
4/9/2016
 
   
16,179
 
   
15,723
 
   
15,125
 
 
0.0%
SNL Financial, LC
 
Commercial & Professional Services
 
Senior Debt(e)(g)(h)
 
L + 700
 
1.50%
   
8/17/2018
 
   
709,520
 
   
712,180
 
   
707,746
 
 
1.1%
Solutia, Inc.
 
Materials
 
Subordinated Debt(e)(f)
 
7.88%
       
3/15/2020
 
   
120,000
 
   
126,355
 
   
130,500
 
 
0.2%
The Sports Authority, Inc.
 
Retailing
 
Senior Debt(e)(g)
 
L + 600
 
1.50%
   
11/16/2017
 
   
1,413,097
 
   
1,366,092
 
   
1,367,171
 
 
2.1%
Springleaf Financial Funding Co.
 
Diversified Financials
 
Senior Debt(e)(f)(g)
 
L + 425
 
1.25%
   
5/10/2017
 
   
2,551,580
 
   
2,275,043
 
   
2,230,502
 
 
3.4%
Sprint Nextel Corp.
 
Telecommunication Services
 
Subordinated Debt(e)(f)
 
8.38%
       
8/15/2017
 
   
664,000
 
   
574,028
 
   
595,110
 
 
0.9%
SSI Investments II, Ltd.
 
Software & Services
 
Subordinated Debt(e)
 
11.13%
       
6/1/2018
 
   
1,422,000
 
   
1,512,863
 
   
1,503,765
 
 
2.3%
Symphony / IRI Group, Inc.
 
Commercial & Professional Services
 
Senior Debt(e)(g)
 
L + 375
 
1.25%
   
12/1/2017
 
   
20,023
 
   
19,610
 
   
19,914
 
 
0.0%
The TelX Group, Inc.
 
Telecommunication Services
 
Senior Debt(e)(g)
 
L + 650
 
1.25%
   
9/25/2017
 
   
333,726
 
 
 
314,266
 
 
 
333,726
 
 
0.5%
TowerCo Finance, LLC
 
Real Estate
 
Senior Debt
 
L + 375
 
1.50%
   
2/2/2017
 
   
30,333
 
   
29,710
 
   
30,345
 
 
0.0%
TransUnion, LLC
 
Diversified Financials
 
Subordinated Debt(e)
 
11.38%
       
6/15/2018
 
   
1,403,000
 
   
1,559,885
 
   
1,602,927
 
 
2.5%
Triple Point Technology, Inc.
 
Software & Services
 
Senior Debt(e)
 
L + 650
 
1.50%
   
10/27/2017
 
   
200,566
 
   
192,696
 
   
201,067
 
 
0.3%
Univar, Inc.
 
Materials
 
Senior Debt(e)(g)
 
L + 350
 
1.50%
   
6/30/2017
 
   
962,906
 
   
933,677
 
   
931,010
 
 
1.4%
Vision Solutions, Inc.
 
Commercial & Professional Services
 
Senior Debt(e)(h)
 
L + 450
 
1.50%
   
7/23/2016
 
   
1,443,750
 
   
1,427,658
 
   
1,429,312
 
 
2.2%
VWR Funding, Inc.   Pharmaceuticals, Biotechnology & Life Sciences   Senior Debt(e)(g)   L + 250         6/30/2014       147,590       136,713       140,358     0.2%
        Subordinated Debt(e)   10.25% CASH or        
7/15/2015
      3,051,000       3,155,464       3,150,157     4.8%
            11.25% PIK                         3,292,177       3,290,515     5.0%
Warner Chilcott Co., LLC
 
Pharmaceuticals, Biotechnology & Life Sciences
 
Subordinated Debt(e)(f)
 
7.75%
       
9/15/2018
 
   
1,225,000
 
   
1,218,819
 
   
1,251,031
 
 
1.9%
West Corp.
 
Software & Services
 
Senior Debt
 
L + 425
       
7/15/2016
 
   
5,000
 
   
4,846
 
   
4,979
 
 
0.0%
     
Subordinated Debt(e)(g)
 
7.88%
       
1/15/2019
 
   
1,743,000
 
   
1,730,393
 
   
1,729,927
 
 
2.7%
     
Subordinated Debt(e)
 
8.63%
       
10/1/2018
 
   
2,600,000
 
   
2,646,996
 
   
2,626,000
 
 
4.0%
                                     
4,382,235
 
   
4,360,906
 
 
6.7%
Wm. Bolthouse Farms, Inc.
 
Food, Beverage & Tobacco
 
Senior Debt(e)
 
L + 750
 
2.00%
   
8/11/2016
 
   
500,000
 
   
499,608
 
   
498,905
 
 
0.8%
Zayo Group, LLC
 
Telecommunication Services
 
Senior Debt(e)(g)
 
L + 550
 
1.50%
   
12/1/2016
 
   
2,749,427
 
   
2,715,285
 
   
2,740,835
 
 
4.2%
   
Senior Debt(e)(g)
 
10.25%
       
3/15/2017
 
   
1,549,000
 
   
1,649,012
 
   
1,653,557
 
 
2.5%
                                   
4,364,297
 
   
4,394,392
 
 
6.7%
 
See notes to consolidated financial statements.
 
F-19

 
Corporate Capital Trust, Inc. and Subsidiaries
Condensed Consolidated Schedule of Investments (continued)
As of December 31, 2011
 
Company (b)
 
Industry (c)
 
Investments
 
Interest
Rate
 
EURIBOR/
LIBOR
Floor
 
Maturity
Date
   
Principal
Amount / No.
Shares
(m)
   
Cost (d)
   
Fair Value
   
% of Net
Assets
Total Non-Control/Non-Affiliate Investments
                                 
$
106,111,246
 
 
$
106,589,757
 
 
163.6%
Short Term Investments—11.8%
                                                   
Goldman Sachs Financial Square Funds - Prime Obligations Fund
     
Short Term Investments(e)
 
0.11%(k)
       
NA
 
   
6,541,055
 
   
6,541,055
 
   
6,541,055
 
 
10.0%
State Street Institutional Liquid Reserves Fund
 
Short Term Investments
 
0.15%(k)
       
NA
 
   
1,173,697
 
   
1,173,697
 
   
1,173,697
 
 
1.8%
Total Short Term Investments
                                   
7,714,752
 
   
7,714,752
 
 
11.8%
TOTAL INVESTMENTS —175.4%(l)
                                 
$
113,825,998
 
   
114,304,509
 
 
175.4%
LIABILITIES IN EXCESS OF OTHER ASSETS—(75.4%)
                                       
(49,141,780
)
 
-75.4%
NET ASSETS—100.0%
                                         
$
65,162,729
 
 
100.0%
(a)
Non-Control/Non-Affiliate investments are defined by the Investment Company Act of 1940, as amended (“1940 Act”) as investments that are neither Control Investments nor Affiliate Investments. Controlled investments are defined by the 1940 Act as investments in which more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained. Affiliate investments are defined by the 1940 Act as investments in which between 5% and 25% of the voting securities are owned and the investments are not classified as Controlled investments.
(b)
Security may be an obligation of one or more entities affiliated with the named company.
(c)
Unaudited.
(d)
Represents amortized cost for debt securities and cost for preferred stock.
(e)
Security or portion thereof held within CCT Funding, LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Deutsche Bank.
(f)
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 companys total assets. As of December 31, 2011, 71.6% of the Companys total assets represented qualifying assets.
(g)
Position or portion thereof unsettled as of December 31, 2011.
(h)
Fair value was determined by the Company’s Board of Directors (see Note 2).
(i)
A portfolio company domiciled in a foreign country.
(j)
This security was acquired in a transaction that was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Rule 144A thereunder. This security may be resold only in transactions that are exempt from the registration requirements of the Securities Act, normally to qualified institutional buyers.
(k)
7-day effective yield as of December 31, 2011.
(l)
As of December 31, 2011, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $971,241; the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $492,730; the net unrealized appreciation was $478,511; the aggregate cost of securities for Federal income tax purposes was $113,825,998.
(m)
Denominated in U.S. Dollars unless otherwise noted.
Abbreviations:
CA - Canada
EUR - Euros; principal amount is denominated in Euros currency
E = EURIBOR - Euro Interbank Offered Rate
IE - Ireland
L = LIBOR - London Interbank Offered Rate, typically 3-month rate
PIK - Payment-in-kind
UK - United Kingdom
See notes to consolidated financial statements.
 
 
F-20 

 
 
 
CORPORATE CAPITAL TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
 
1.
Principal Business and Organization
 
Corporate Capital Trust, Inc. (the “Company”) was incorporated under the general corporation laws of the State of Maryland on June 9, 2010. The Company is a non-diversified closed-end management investment company and it is regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “40 Act”). The Company’s investment objective is to provide its shareholders with current income and, to a lesser extent, long-term capital appreciation, by investing primarily in the debt of privately owned U.S. companies with a focus on originated transactions sourced through the networks of its advisors.
 
The Company is externally managed by CNL Fund Advisors Company (“CNL”) and KKR Asset Management LLC (“KKR”) (collectively the “Advisors”), which are responsible for sourcing potential investments, analyzing and conducting due diligence on prospective investment opportunities, structuring investments and monitoring the Company’s investment portfolio on an ongoing basis. Both Advisors are registered as investment advisers with the Securities and Exchange Commission (“SEC”). CNL also provides the administrative services necessary for the Company to operate.
 
The Company is currently selling shares of its common stock pursuant to a registration statement on Form N-2 (as amended and supplemented, the “Registration Statement”) and it is offering to sell, on a continuous basis, 150 million shares of common stock for approximately $1.6 billion (the “Offering”). The Registration Statement was declared effective by the SEC on April 4, 2011 and the Company commenced its Offering. The Company commenced business operations on June 17, 2011 and it commenced investment operations on July 1, 2011.
 
As of December 31, 2012, the Company had two wholly owned financing subsidiaries, CCT Funding LLC (“CCT Funding”), which was established on July 15, 2011 for the purpose of arranging a secured, revolving credit facility with a bank and to borrow money to invest in portfolio companies, and Halifax Funding LLC (“Halifax Funding”), which was established on October 11, 2012 for the purpose of entering into total return swaps (“TRS”).
 
2.
Significant Accounting Policies
 
Basis of Presentation and Principles of Consolidation - The accompanying financial statements of the Company are prepared in accordance with the instructions to Form 10-K and accounting principles generally accepted in the United States of America (“GAAP”). The Company consolidates the results of the Company’s subsidiaries in its consolidated financial statements. All intercompany account balances and transactions have been eliminated in consolidation.
 
Use of Estimates - The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities at the date of the consolidated financial statements, (ii) the reported amounts of income and expenses during the reported period and (iii) disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates.
 
Cash and Cash Equivalents - Cash and cash equivalents consist of demand deposits, foreign currency, and highly liquid investments with original maturities of three months or less.
 
Valuation of Investments - The Company measures the value of its investments in accordance with Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosure (“ASC Topic 820”), issued by the Financial Accounting Standards Board (“FASB”). Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
 
Investments for which market quotations are readily available are valued using market quotations, which are generally obtained from independent pricing services, broker-dealers or market makers. With respect to the Company’s portfolio investments for which market quotations are not readily available, the Company’s board of directors is responsible for determining in good faith the fair value in accordance with the valuation policy approved by the board of directors. The board of directors will make this fair value determination on a quarterly basis and any other time when a decision regarding the fair value of the portfolio investments is required. A determination of fair value involves subjective judgments and estimates. Due to the inherent uncertainty of determining the fair value of portfolio investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
 
ASC Topic 820 also defines hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, and the hierarchical levels are described as follows:
 
Level 1 – Quoted prices are available in active markets for identical investments as of the reporting date. Publicly listed equities, debt securities and publicly listed derivatives are generally included in Level 1. The Company does not adjust the quoted price for these investments. The Company’s money market fund/short term investment funds and foreign currency are included in this category.
 
 
F-21

 
 
Level 2 – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. In certain cases, debt and equity securities are valued on the basis of prices from orderly transactions for similar investments in active markets between market participants and provided by reputable dealers or independent pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices, market transactions in comparable investments, and various relationships between investments. Investments generally included in this category are corporate bonds and loans, convertible debt indexed to publicly listed securities, foreign currency forward contracts and certain over-the-counter derivatives.
 
Level 3 – Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant judgment or estimation. Investments generally included in this category are total return swap agreements, and corporate bonds/loans and common stock investments that lack observable market pricing.
 
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and it considers factors specific to the investment.
 
Security Transactions, Realized/Unrealized Gains or Losses, and Income Recognition - Security transactions are recorded on a trade-date basis. The Company measures realized gains or losses from the repayment or sale of investments using the specific identification method. The amortized cost basis of investments includes (i) the original cost and (ii) adjustments for the accretion/amortization of market discounts and premiums, original issue discount and loan origination fees. The Company reports changes in fair value of investments that are measured at fair value as a component of net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations.
 
Interest income is recorded on an accrual basis and includes amortization of premiums to par value and accretion of discounts to par value. Discounts and premiums to par value on securities purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method. Premiums and discounts are determined based on the cash flows expected to be collected for a particular investment. Structuring service fees, origination, closing, commitment and other upfront fees are generally non-recurring and recognized as revenue when earned. Loan origination fees received in connection with the closing of investments are accreted over the contractual life of the loan based on the effective interest method as interest income. Upon prepayment of a loan or debt security, any prepayment penalties, unamortized loan origination fees, unamortized original issue discount, and unamortized market discounts are recorded as interest income.
 
The Company has investments in debt securities which contain a contractual payment-in-kind, or PIK, interest provision. If the borrower elects to pay, or is obligated to pay, PIK interest, and if deemed collectible in management’s judgment, then the PIK interest is computed at the contractual rate specified in the investment’s credit agreement, the computed PIK interest is added to the principal balance of the investment, and the computed PIK interest is recorded as interest income.
 
Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.
 
Loans or debt securities are placed on non-accrual status when principal or interest payments are at least 90 days past due or when there is reasonable doubt that principal or interest will be collected. Generally, accrued interest is reversed when a loan or a debt security is placed on non-accrual status. Interest payments received on non-accrual loans or debt securities may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans and debt securities are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. The Company may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection.
 
Derivative Instruments - The Company’s derivative instruments include foreign currency forward contracts and total return swaps. The Company marks its derivatives to market through net change in unrealized appreciation (depreciation) on derivative instruments in the consolidated statements of operations.
 
Deferred Financing Costs - Deferred financing costs represent fees and other direct costs incurred in connection with arranging the Company’s borrowings and the TRS. These amounts are initially recorded as prepaid and deferred expenses on the consolidated statements of assets and liabilities and then subsequently amortized over the contractual term of the credit facility or TRS as interest expense.
 
Paid In Capital - The Company records the proceeds from the sale of its common stock on a net basis to (i) capital stock and (ii) paid in capital in excess of par value, excluding all commissions and marketing support fees.
 
Foreign Currency Translation, Transactions and Gains/Losses - Foreign currency amounts are translated into U.S. dollars on the following basis: (i) at the exchange rate on the last business day of the reporting period for the fair value of investment securities, other assets and liabilities; and (ii) at the rates of exchange prevailing on the respective recording dates for the purchase and sale of investment securities, income, expenses, gains and losses.
 
Net assets and fair values are presented based on the applicable foreign exchange rates described above and the Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held; therefore the fluctuations related to foreign exchange rate conversion are included with the net realized gain (loss) and unrealized appreciation (depreciation) on investments.
 
 
F-22

 
 
Net realized foreign exchange gains or losses arise from activity in foreign currency forward contracts, sales of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded by the Company and the U.S. dollar equivalent of the amounts actually received or paid by the Company. Unrealized appreciation (depreciation) from currency translation for foreign currency forward contracts is included in net change in unrealized appreciation (depreciation) on derivative instruments on the consolidated statements of operations. Unrealized appreciation (depreciation) from foreign currency translation for other receivables or payables is presented as net change in unrealized appreciation (depreciation) on foreign currency translation in the consolidated statements of operations. Unrealized appreciation (depreciation) on foreign currency forward contracts is included with unrealized appreciation (depreciation) on derivative instruments on the consolidated statements of assets and liabilities.
 
Management Fees - The Company accrues for the base management fee (recorded as investment advisory fees) and performance-based incentive fees, including (i) a subordinated incentive fee on income and (ii) an incentive fee on capital gains. The Company records the liability for the incentive fee on capital gains based on a hypothetical liquidation of its investment portfolio at the end of each reporting period. Therefore the accrual for incentive fee on capital gains includes the recognition of incentive fee on both net realized gains and net unrealized appreciation, if any, although any such incentive fee associated with net unrealized appreciation is neither earned nor payable to the Advisors until net unrealized appreciation is realized as net realized gains. Additionally the determination of whether the accrued incentive fee associated with net realized gains is earned and payable to the Advisors can only be made at the end of the calendar year. The two components of performance-based incentive fees are combined and expensed on the consolidated statements of operations and accrued on the consolidated statements of assets and liabilities as accrued performance-based incentive fees.
 
Organization and Offering Expenses - Organization expenses, including reimbursement payments to Advisors, are expensed on the Company’s consolidated statements of operations. Continuous offering expenses, including reimbursement payments to Advisors, but excluding commission and marketing support fees, are accumulated monthly and capitalized on the consolidated statements of assets and liabilities as deferred offering expenses and then subsequently expensed over a 12-month period.
 
Earnings per Share - Earnings per share is calculated based upon the daily weighted average number of shares of common stock outstanding during the reporting period.
 
Dividends and Distributions - Dividends and distributions are declared by the Company’s board of directors each calendar quarter and recognized as distribution liabilities on the ex-dividend date. The ex-dividend date for the Company’s common stock is the same as the record date. Net realized gains, if any, generally are distributed at least annually, although the Company may decide to retain such net realized gains for investment.
 
The Company has adopted a distribution reinvestment plan that provides for reinvestment of distributions on behalf of shareholders. Shareholders who have elected to participate in the distribution reinvestment plan will have their cash distribution automatically reinvested in additional shares of common stock at a price per share equivalent to the public offering price on the distribution payment date, net of commissions and marketing support fees.
 
Federal Income Taxes - The Company has elected to be treated for federal income tax purposes, and intends to maintain its qualification as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code (the “Code”). Generally, a RIC is not subject to federal income taxes on distributed income and gains if it distributes at least 90% of “Investment Company Taxable Income,” as defined in the Code. The Company intends to distribute sufficient dividends to maintain its RIC status each year and it does not anticipate paying a material level of federal income taxes in the future.
 
The Company is also generally subject to nondeductible federal excise taxes if it does not distribute an amount at least equal to the sum (i) 98% of net ordinary income, (ii) 98.2% of the Company’s capital gains in excess of capital losses for the one-year period generally ending on October 31 of the calendar year and (iii) any ordinary income and net capital gains for preceding years that were not distributed during such years and on which the Company paid no federal income tax. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this excess taxable income.
 
The Company recognizes in its consolidated financial statements the effect of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. The Company did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10-25, Income Taxes – Overall –Recognition, nor did it have any unrecognized tax benefits as of the periods presented herein. Although the Company files federal and state tax returns, its major tax jurisdiction is federal.
 
Book and tax basis differences relating to permanent book and tax differences are reclassified among the Company’s capital accounts, as appropriate. Additionally, the tax character of distributions is determined in accordance with the Code which may differ from GAAP. See Note 13 to the consolidated financial statements.
 
Prior to the Company’s election for tax treatment as a RIC, it was subject to corporate federal and state income taxes on its taxable income. The Company did not have taxable income prior to the RIC election in 2011.
 
 
F-23

 
 
Recent Accounting Pronouncements - In January 2013, the FASB clarified the scope of offsetting disclosure requirements which require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments. The guidance is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods, with retrospective disclosures required for all comparative periods presented. The Company does not expect the guidance to have a material impact on its consolidated financial statements.
 
3.
Investments
 
The Company is engaged in a strategy to invest primarily in the debt of privately owned U.S. companies. The primary investment concentrations include (i) senior debt securities and (ii) subordinated debt securities. The fair value of senior and subordinated debt investments will generally fluctuate with, among other things, changes in prevailing interest rates, the general supply of, and demand for, debt capital among private and public companies, general domestic and global economic conditions, the condition of certain financial markets, developments or trends in any particular industry and changes in the financial condition and credit quality of each security’s issuer.
 
Investment purchases, sales and principal payments/paydowns are summarized below for the years ended December 31, 2012 and 2011. These purchase and sale amounts exclude short-term investments (i.e. money market fund investments) and derivative instruments.
 
   
Year Ended December 31, 2012
   
Year Ended December 31, 2011
 
Investment purchases, at cost
  $ 991,951,587     $ 106,811,148  
Investment sales, proceeds
    358,597,920       481,516  
Principal payments/paydown proceeds
    51,931,990        
 
The Company’s investment portfolio may contain loans that are in the form of lines of credit, unfunded delayed draw loan commitments, or revolving credit facilities, which require the Company to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of December 31, 2012, the Company had two unfunded delayed draw loan commitments that amounted to $1,012,317. The Company maintains sufficient cash on hand to fund such unfunded loan commitments should the need arise.
 
As of December 31, 2012, none of the Company’s debt investments were on non-accrual status or in monetary default.
 
As of December 31, 2012, the Company’s investment portfolio consisted of the following:
 
Asset Category
 
Cost
   
Fair Value
   
Percentage
of
Portfolio
   
Percentage
of
Net Assets
 
Senior debt securities
  $ 519,196,084     $ 522,442,812       74.9 %     85.4 %
Subordinated debt securities
    166,981,595       169,788,339       24.3       27.8  
Total debt securities
    686,177,679       692,231,151       99.2       113.2  
Common stock
    448,908       453,397       0.1       0.1  
Preferred Stock
    4,800,812       4,983,883       0.7       0.8  
Total equity securities
    5,249,720       5,437,280       0.8       0.9  
Subtotal
    691,427,399       697,668,431       100.0 %     114.1  
Short term investments
    13,202,168       13,202,168               2.2  
Total investments
  $ 704,629,567     $ 710,870,599               116.3 %
 
As of December 31, 2011, the Company’s investment portfolio consisted of the following:
 
Asset Category
 
Cost
   
Fair Value
   
Percentage
of
Portfolio
   
Percentage
of
Net Assets
 
Senior debt securities
  $ 71,398,157     $ 71,609,433       67.2 %     109.9 %
Subordinated debt securities
    34,613,494       34,877,800       32.7       53.5  
Total debt securities
    106,011,651       106,487,233       99.9       163.4  
Preferred stock
    99,595       102,524       0.1       0.2  
Subtotal
    106,111,246       106,589,757       100.0 %     163.6  
Short term investments
    7,714,752       7,714,752               11.8  
Total investments
  $ 113,825,998     $ 114,304,509               175.4 %
 
 
F-24

 
 
The industry composition, geographic dispersion, and local currencies of the Company’s investment portfolio at fair value, excluding short-term investments and derivative instruments, as of December 31, 2012 and December 31, 2011 was as follows:
 
Industry Composition
 
December 31, 2012
   
December 31, 2011
 
Capital Goods
    13.7 %     3.4 %
Media
    11.0       8.1  
Materials
    9.9       3.4  
Retailing
    9.2       12.6  
Software & Services
    9.1       14.6  
Technology Hardware & Equipment
    7.8       4.6  
Insurance
    6.2       2.4  
Health Care Equipment & Services
    6.2       6.9  
Telecommunication Services
    4.1       9.0  
Consumer Services
    3.7       4.9  
Commercial & Professional Services
    3.4       3.2  
Remaining Industries
    15.7       26.9  
Total
    100.0 %     100.0 %
                 
Geographic Dispersion (1)
               
United States
    94.4 %     97.4 %
United Kingdom
    2.2       1.5  
Luxembourg
    1.3        
Singapore
    0.5        
Mexico
    0.5        
Canada
          1.1  
Germany
    0.5        
Spain
    0.2        
Remaining Countries
    0.4    
<0.1
 
Total
    100.0 %     100.0 %
                 
Local Currency
               
U.S. Dollar
    97.3 %     99.0 %
Euro
    1.7       1.0  
British Pound Sterling
    1.0        
Total
    100.0 %     100.0 %
                 
(1) The geographic dispersion is determined by the portfolio company’s country of domicile.
 
During the year ended December 31, 2012, the Company did not hold any non-controlled investments where it owned 5% or more of a portfolio company’s outstanding voting securities as investments in “affiliated” companies. In addition, the Company did not hold any investments in “controlled” companies where it owned more than 25% of a portfolio company’s outstanding voting securities.
 
4.
Derivative Instruments
 
The following is a summary of the fair value and location of the Company’s derivative instruments on the consolidated statements of assets and liabilities:
 
      December 31, 2012
 
Derivative Instrument
Statement Location
  Fair Value
 
Foreign currency forward contracts
Unrealized appreciation (depreciation) on derivative instruments
 
$
(146,928
)
TRS
Unrealized appreciation on derivative instruments
   
 1,349,246
 
     
$
1,202,318
 
 
 
F-25

 
 
Realized and unrealized gains and losses on derivative instruments recorded by the Company for the year ended December 31, 2012 are in the following location on the consolidated statements of operations:
 
        December 31, 2012
 
Derivative Instrument
Statement Location
    Realized Gain (Loss)
 
Foreign currency forward contracts
Net realized loss on derivative instruments
 
$
(432,972
)
           
       
Unrealized Gain (Loss)
 
Foreign currency forward contracts
Net change in unrealized appreciation on derivative instruments
   
(146,928
)
TRS
Net change in unrealized appreciation on derivative instruments
   
 1,349,246
 
     
$
1,202,318
 
 
Foreign Currency Forward Contracts:
 
The Company may enter into foreign currency forward contracts from time to time to facilitate settlement of purchases and sales of investments denominated in foreign currencies and to economically hedge the impact that an adverse change in foreign exchange rates would have on the value of the Company’s investments denominated in foreign currencies. A foreign currency forward contract is a commitment to purchase or sell a foreign currency at a future date (usually the security transaction settlement date) at a negotiated forward rate. These contracts are marked-to-market by recognizing the difference between the contract exchange rate and the current market exchange rate as unrealized appreciation or depreciation. Realized gains or losses are recognized when forward contracts are settled. Risks may arise as a result of the potential inability of the counterparties to meet the terms of their contracts; the Company attempts to limit counterparty risk by only dealing with creditworthy counterparties.
 
There were no open foreign currency forward contracts at December 31, 2011. At December 31, 2012, the details of the Company’s open foreign currency forward contracts were as follows:
 
Foreign Currency
 
Settlement Date
   
Amount and
Transaction
 
 
 
US$ Value at
Settlement Date
   
US$ Value at
December 31, 2012
   
Unrealized
Appreciation/
 (Depreciation)
 
EUR
 
Jan. 3, 2013
  2,300,000 Sold     $ 2,917,964     $ 3,035,887     $ (117,923 )
EUR
 
Jan. 31, 2013
  6,241,682 Sold       8,249,319       8,240,679       8,640  
GBP
 
Jan. 18, 2013
  4,255,000 Sold
 
    6,874,110       6,911,755       (37,645 )
Total
              $ 18,041,393     $ 18,188,321     $ (146,928 )
 
Total Return Swaps:
 
On November 15, 2012, Halifax Funding entered into the TRS with the Bank of Nova Scotia (“BNS”).
 
The TRS arrangement with BNS consists of a set of TRS agreements. Pursuant to the terms of the TRS, Halifax Funding may select a portfolio of single-name corporate loans and/or bonds (each a “TRS reference asset” and together the “TRS reference assets”) with a maximum aggregate notional amount of $500,000,000. Under the terms of the TRS, each reference asset included in the TRS portfolio constitutes a separate total return swap transaction, although all calculations, payments and transfers required to be made under the TRS are calculated and treated on an aggregate basis, based upon all such transactions.
 
Halifax Funding receives quarterly from BNS i) all collected interest and fees generated by the TRS reference assets and ii) realized gains, if any. Halifax Funding pays to BNS i) interest on the TRS settled notional amount at a rate equal to the three-month LIBOR+0.80% per annum if the initial investment amount (i.e. posted collateral) equals or exceeds 50% of the TRS trade basis notional amount, or three-month LIBOR+1.00% if the initial investment amount is less than 50% of the TRS trade basis notional amount and ii) realized losses, if any. In addition, upon the termination, sale or repayment of any reference asset, Halifax Funding will either receive from BNS the net realized gain in the value, or pay to BNS any net realized loss in the value of the portfolio of TRS reference assets.
 
Generally, the required collateral amount is at least 40% of the notional amount of each TRS reference asset at the time that such TRS reference asset is confirmed for inclusion as a TRS reference asset by the counterparty. Halifax Funding may be required to post additional cash collateral, on a dollar-for-dollar basis, in the event of depreciation in the value of the reference assets after such value decreases below a specified amount. The minimum additional TRS cash collateral that Halifax Funding is required to post is equal to the amount required to ensure that the collateral market value, as solely determined by BNS, is at least equal to 25% of the value of the portfolio of TRS reference assets.
 
The obligations of Halifax Funding under the TRS agreements are non-recourse to the Company and the Company’s exposure to the TRS is limited to the amount of cash collateral that is posted pursuant to the terms of the TRS agreement. The Company has no contractual obligation to post any cash collateral or to make any interest payments to BNS. The Company may, but is not obligated to, increase its equity investment in Halifax Funding for the purpose of funding additional cash collateral or payment obligations for which Halifax Funding may become obligated during the term of the TRS agreements. If the Company does not make any such additional equity investment in Halifax Funding and Halifax Funding fails to meet its obligations under the TRS agreements, then BNS will have the right to terminate the TRS and use the cash collateral posted by Halifax Funding with the custodian to offset any amount owed to BNS. In the event of an early termination of the TRS, Halifax Funding would be required to pay an early termination fee. In the absence of an early termination as described above, the TRS will terminate on January 15, 2016. The Company may terminate the TRS at any time upon providing at least 30 days’ notice prior to the proposed settlement date of the reference assets related to such termination.
 
 
F-26

 
 
Realized gains and losses on the TRS are composed of any gains or losses on the reference assets as well as the net interest received or paid on the quarterly TRS settlement date. Unrealized gains and losses on the TRS are composed of the net accrued interest income and accrued interest expense owed and the overall change in fair value of the reference assets. The fair value of the TRS is included in unrealized appreciation on derivative instruments on the consolidated statements of assets and liabilities. The change in value of the TRS is included in the consolidated statements of operations as net change in unrealized appreciation on derivative instruments.
 
As of December 31, 2012, Halifax Funding had selected 54 underlying loans with a total notional amount of $164,011,774 and had posted $87,974,019 in cash collateral (of which only $65,604,709 was required to be posted), which is reflected in cash collateral on deposit with custodian on the consolidated statements of assets and liabilities. The settled notional amount as of December 31, 2012 was $105,013,915. During the year ended December 31, 2012, the Company and it wholly subsidiary CCT Funding sold $113,951,381 of loans at market prices to BNS in connection with the selection and acquisition of TRS reference assets.
 
The following table summarizes the fair value components of the portfolio of TRS reference assets as of December 31, 2012, as determined by the Company’s board of directors:
 
   
December 31, 2012
 
Spread interest income
  $ 938,085  
Net realized loss
    (345,303 )
Unrealized appreciation of reference assets
    756,464  
Total fair value
  $ 1,349,246  
 
 
F-27

 
 
The following is a summary of the TRS reference assets as of December 31, 2012:
 
Company (a)
 
Industry
 
Investment
 
Interest Rate
   
LIBOR Floor
 
Maturity Date
 
Notional Amount
   
Fair Value
   
Unrealized Appreciation (Depreciation)
 
Block Communications, Inc.
 
Media
 
Subordinated Debt
    7.250%        
2/1/2020
  $ 114,480     $ 114,345     $ (135 )
California Pizza Kitchen, Inc.
 
Food & Staples Retailing
 
Senior Debt
    L+550       1.25%  
7/7/2017
    4,262,610       4,241,136       (21,474 )
Camp International Holding Co.
 
Software & Services
 
Senior Debt
    L+400       1.25%  
5/31/2019
    2,173,058       2,171,980       (1,078 )
Catalina Marketing Corp.
 
Media
 
Subordinated Debt
    10.500%          
10/1/2015
    7,000,000       6,871,323       (128,677 )
CCC Information Services, Inc.
 
Software & Services
 
Senior Debt (c)
    L+470       1.25%  
12/14/2019
    1,510,518       1,521,266       10,748  
Charter Communications Operating, LLC
 
Media
 
Subordinated Debt (b)
    7.250%          
10/30/2017
    625,286       622,421       (2,865 )
CHG Companies, Inc.
 
Health Care Equipment & Services
 
Senior Debt (c)
    L+375       1.25%  
11/19/2019
    6,912,675       6,970,839       58,164  
Clear Channel Communications, Inc.
 
Media
 
Subordinated Debt (b)
    6.500%          
11/15/2022
    2,237,153       2,342,578       105,425  
Clear Channel Communications, Inc.
 
Media
 
Subordinated Debt (b)
    6.500%          
11/15/2022
    6,110,822       6,411,284       300,462  
Continental Airlines, Inc.
 
Transportation
 
Senior Debt (b)
    8.307%          
10/2/2019
    605,308       569,131       (36,177 )
First American Payment Systems, LP
 
Software & Services
 
Senior Debt
    L+450       1.25%  
10/12/2018
    8,951,140       8,913,603       (37,537 )
FleetPride Corp.
 
Capital Goods
 
Senior Debt (c)
    L+400       1.25%  
11/19/2019
    4,521,864       4,517,596       (4,268 )
Fly Leasing, Ltd.
 
Transportation
 
Senior Debt (b)(c)
    L+450       1.25%  
8/8/2018
    4,193,364       4,176,908       (16,456 )
GCI Inc.
 
Telecommunication Services
 
Subordinated Debt
    6.750%          
6/1/2021
    6,643,615       6,576,845       (66,770 )
Gymboree Corporation
 
Retailing
 
Senior Debt
    L+350       1.50%  
2/23/2018
    4,097,160       3,885,421       (211,739 )
Hamilton Sundstrand Industrial
 
Capital Goods
 
Senior Debt
    L+375       1.25%  
12/13/2019
    7,920,000       8,060,000       140,000  
Heartland Dental Care
 
Pharmaceuticals, Biotechnology & Life Sciences
 
Senior Debt (c)
    L+500       1.25%  
12/21/2018
    4,202,808       4,202,808      
 
Hilcorp Energy I LP
 
Energy
 
Subordinated Debt (b)
    8.000%          
2/15/2020
    1,816,605       1,808,310       (8,295 )
Hubbard Radio, LLC
 
Media
 
Senior Debt (c)
    L+375       1.50%  
4/28/2017
    493,735       494,963       1,228  
Husky Injection Molding Systems, Ltd.
 
Capital Goods
 
Senior Debt (b)(c)
    L+450       1.25%  
7/2/2018
    1,255,775       1,248,913       (6,862 )
Immucor, Inc.
 
Health Care Equipment & Services
 
Senior Debt (c)
    L+450       1.25%  
8/19/2018
    47,868       47,878       10  
IPC Systems, Inc.
 
Technology Hardware & Equipment
 
Senior Debt
    L+650          
7/31/2017
    3,951,390       3,897,764       (53,626 )
Jo-Ann Stores, Inc.
 
Retailing
 
Senior Debt (c)
    L+350       1.25%  
3/16/2018
    22,847       22,827       (20 )
Kinetic Concepts, Inc.
 
Health Care Equipment & Services
 
Senior Debt (c)
    L+425       1.25%  
5/4/2018
    1,971,180       1,971,209       29  
Kinetic Concepts, Inc.
 
Health Care Equipment & Services
 
Senior Debt (c)
    L+375       1.25%  
11/4/2016
    1,312,798       1,312,321       (477 )
Local TV Finance, LLC
 
Media
 
Senior Debt (c)
    L+400          
5/7/2015
    371,846       370,317       (1,529 )
Lord & Taylor Holdings, LLC
 
Retailing
 
Senior Debt (c)
    L+450       1.25%  
1/11/2019
    33,748       33,633       (115 )
MedAssets, Inc.
 
Health Care Equipment & Services
 
Senior Debt (b)
    L+275       1.25%  
12/13/2019
    2,340,811       2,346,693       5,882  
MGM Resorts International
 
Consumer Services
 
Senior Debt (b)
    L+325       1.00%  
12/20/2019
    7,231,413       7,340,429       109,016  
Misys PLC
 
Software & Services
 
Senior Debt (b)
    12.000%          
6/12/2019
    5,981,728       5,979,313       (2,415 )
NPC International, Inc.
 
Consumer Services
 
Senior Debt (c)
    L+325       1.25%  
12/28/2018
    1,636,027       1,623,924       (12,103 )
NuSil Technology LLC
 
Materials
 
Senior Debt (c)
    L+375       1.25%  
4/7/2017
    502,540       501,129       (1,411 )
Nuveen Investments, Inc.
 
Diversified Financials
 
Senior Debt (b)(c)
    L+550          
5/13/2017
    7,058,793       7,065,412       6,619  
Nuveen Investments, Inc.
 
Diversified Financials
 
Senior Debt (b)
    L+600       1.25%  
5/13/2017
    284,653       282,819       (1,834 )
Nuveen Investments, Inc.
 
Diversified Financials
 
Senior Debt (b)
    L+550          
5/13/2017
    25,646       25,719       73  
PQ Corp.
 
Materials
 
Senior Debt
    L+425       1.25%  
5/8/2017
    5,582,056       5,587,953       5,897  
PVH Corp.
 
Consumer Durables & Apparel
 
Senior Debt (b)(c)
    L+250       0.75%  
12/19/2019
    1,472,790       1,487,592       14,802  
RedPrairie Corp.
 
Software & Services
 
Senior Debt (c)
    L+550       1.25%  
12/21/2018
    1,078,000       1,096,857       18,857  
Roofing Supply Group, LLC
 
Retailing
 
Senior Debt (c)
    L+375       1.25%  
5/31/2019
    89,662       89,699       37  
Sabre, Inc.
 
Transportation
 
Senior Debt (c)
    L+575          
12/29/2017
    4,398,657       4,397,084       (1,573 )
Sabre, Inc.
 
Transportation
 
Senior Debt (c)
    L+600       1.25%  
12/29/2017
    2,212,085       2,211,865       (220 )
Savers, Inc.
 
Retailing
 
Senior Debt (c)
    L+375       1.25%  
7/9/2019
    204,618       204,681       63  
Scitor Corp.
 
Capital Goods
 
Senior Debt (c)
    L+350       1.50%  
2/15/2017
    21,713       21,761       48  
SGS International, Inc.
 
Media
 
Senior Debt
    L+375       1.25%  
10/17/2019
    5,515,510       5,543,226       27,716  
Skilled Healthcare Group, Inc.
 
Health Care Equipment & Services
 
Senior Debt (b)
    L+525       1.50%  
4/9/2016
    14,806       14,738       (68 )
Spectrum Brands, Inc.
 
Household & Personal Products
 
Senior Debt (b)
    L+325       1.25%  
12/17/2019
    1,525,129       1,551,848       26,719  
Tempur-Pedic International, Inc.
 
Commercial & Professional Services
 
Senior Debt (b)(c)
    L+400       1.00%  
11/14/2019
    6,852,112       7,000,436       148,324  
Terex Corp.
 
Capital Goods
 
Subordinated Debt (b)
    6.000%          
5/15/2021
    4,626,000       4,857,300       231,300  
The TelX Group, Inc.
 
Telecommunication Services
 
Senior Debt (c)
    L+500       1.25%  
9/23/2017
    7,018,541       6,998,936       (19,605 )
Tomkins Air Distribution
 
Capital Goods
 
Senior Debt
    L+375       1.25%  
11/9/2018
    5,949,104       6,058,021       108,917  
USI Holdings Corp.
 
Insurance
 
Subordinated Debt
    7.750%          
1/15/2021
    1,076,000       1,062,550       (13,450 )
USI Holdings Corp.
 
Insurance
 
Senior Debt (c)
    L+400       1.25%  
12/27/2019
    1,918,906       1,940,121       21,215  
West Corp.
 
Software & Services
 
Subordinated Debt
    8.625%          
10/1/2018
    6,029,800       6,095,500       65,700  
West Corp.
 
Software & Services
 
Senior Debt (c)
    L+425       1.25%  
7/15/2016
    5,021       5,013       (8 )
                              $ 164,011,774     $ 164,768,238     $ 756,464  
 
 
(a)
Security may be an obligation of one or more entities affiliated with the named company.
 
(b)
The investment is not a qualifying asset as defined in Section 55(a) under the 1940 Act.
 
(c)
Reference asset position or portion thereof unsettled as of December 31, 2012.
 
 
F-28

 
 
5.
Fair Value of Financial Instruments
 
The Company’s investments were categorized in the fair value hierarchy as follows as of December 31, 2012 and December 31, 2011:
 
 
   
December 31, 2012
 
Investment Type
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Senior debt securities
  $     $ 435,852,236     $ 86,590,576     $ 522,442,812  
Subordinated debt securities
          163,579,848       6,208,491       169,788,339  
Common stock
                453,397       453,397  
Preferred stock
    4,983,883                   4,983,883  
Subtotal
    4,983,883       599,432,084       93,252,464       697,668,431  
Short term investments
    13,202,168                   13,202,168  
Total
  $ 18,186,051     $ 599,432,084     $ 93,252,464     $ 710,870,599  
 
Derivative Type
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                       
Foreign currency forward contracts
  $     $ 8,640     $     $ 8,640  
Total return swaps
                1,349,246       1,349,246  
Liabilities
                               
Foreign currency forward contracts
          (155,568 )           (155,568 )
Total
  $     $ (146,928 )   $ 1,349,246     $ 1,202,318  
 
   
December 31, 2011
 
Investment Type
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Senior debt securities
  $     $ 66,957,496     $ 4,651,937     $ 71,609,433  
Subordinated debt securities
          33,914,267       963,533       34,877,800  
Preferred stock
    102,524                   102,524  
Subtotal
    102,524       100,871,763       5,615,470       106,589,757  
Short term investments
    7,714,752                   7,714,752  
Total
  $ 7,817,276     $ 100,871,763     $ 5,615,470     $ 114,304,509  
 
At December 31, 2012, the Company held 18 distinct investment positions that were classified as Level 3, representing an aggregate fair value of $93,252,464 and 13.1% of the total investment portfolio. The ranges of unobservable inputs used in the fair value measurement of the Company’s Level 3 investments as of December 31, 2012 were as follows:
 
Asset Group
 
Fair Value (1)
 
Valuation Techniques (2)
 
Unobservable Inputs
 
Range
(Weighted Average) (3)
 
    $ 18,681,009  
Broker Quotes
 
Mid Price
    94.25 - 102 (100.98)  
         
Broker Quotes
 
Mid Price
    98 - 101.5 (98.55)  
Senior Debt
    67,909,567  
Market Comparables
 
Yield
    5.0 - 11.9% (8.91%)  
           
Discount Margin
   
437 - 1069 bps (808 bps)
 
             
Illiquidity Discount
    1.0 - 4.0% (2.29%)  
         
Broker Quotes
 
Bid Price
   
104.02 (NA)
 
          Market Comparables  
Yield
    12.0 - 13.0% (12.54%)  
Subordinated Debt
    6,208,491    
Discount Margin
   
1071 - 1250 bps (1170 bps)
 
             
EBITDA Multiple
   
9.6x (NA)
 
             
Illiquidity Discount
   
2% (NA)
 
          Market Comparables  
Forward EBITDA Multiple
   
9.8x (NA)
 
Common Stock          
LTM EBITDA Multiple
   
12.9x (NA)
 
 
    453,397      
Illiquidity Discount
   
15% (NA)
 
         
Discounted Cash Flow
 
Weighted Average Cost of Capital
   
12.2% (NA)
 
Total
  $ 93,252,464                
 
 
F-29

 
 
(1)
The TRS was valued in accordance with the TRS Agreement as discussed below.
(2)
For the assets and investment 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%. 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. If noted as NA, then the number of inputs is too few to compute the weighted average for the range.
 
The more significant unobservable inputs used in the fair value measurement of the Company’s senior and subordinated loan investments are quotes obtained from unaffiliated brokers. In the event that there are limited broker quotes, then the valuation process will further rely on the inputs from comparable investments and/or discounted cash flow analysis. Depending on the type of loan investment position held by the Company, the relative comparable value analysis may rely on any of (i) market yields, (ii) discount margin, (iii) illiquidity discount and (iv) leverage EBITDA multiples analysis to either confirm a single broker quote, or to generate a fair value in the absence of any broker quote. Other significant unobservable inputs used in the fair value measurement of the Company’s investments are also disclosed in the table above. Any significant increases or decreases in these unobservable inputs would result in significant increases or decreases in the fair value of the Company’s investments.
 
The TRS is also classified as Level 3 at December 31, 2012. The Company valued its TRS in accordance with the TRS agreements between Halifax Funding and BNS, which collectively established the TRS. Pursuant to the TRS agreements, the value of the TRS is based on (i) the increase or decrease in the value of the TRS reference assets relative to the notional amounts, together with (ii) accrued interest income and fee income, (iii) TRS swap financing costs on the TRS settled trade notional amount, and (iv) certain other expenses incurred under the TRS. The TRS reference assets are valued pursuant to the valuation algorithm specified the TRS Agreement, including reliance on indicative bid prices provided by independent third-party pricing services. Bid prices reflect the highest price that market participants may be willing to pay. On a quarterly basis, the Company’s management reviews, tests and compares (i) the indicative bid prices assigned to each TRS reference asset by BNS, based on the inputs provided to BNS by third-party pricing services with (ii) third-party service provider pricing inputs that are independently sourced by the Company’s management and/or its Advisors. To the extent the Company’s management has any questions or concerns regarding the valuation of the TRS reference assets, such valuations are discussed or challenged with BNS pursuant to the terms of the TRS agreements. Additionally, the Company’s management reviews the calculations of both collected and accrued interest, total return swap financing costs, and realized gains and losses that also determine the aggregate fair value of the TRS. For additional disclosures on the Company’s TRS, including quantitative disclosures of the current period conclusions of the fair value components, as reviewed and approved by the Company’s board of directors, refer to Note 4.
 
The following is a reconciliation for the year ended December 31, 2012 of investments for which Level 3 inputs were used in determining fair value:
 
   
Senior Debt
Securities
   
Subordinated
Debt Securities
   
Common
Stock
   
Total Return
Swaps
   
Total
 
Fair Value Balance as of January 1, 2012
  $ 4,651,937     $ 963,533     $     $     $ 5,615,470  
Purchases
    81,956,118       7,090,290       448,908             89,495,316  
Net realized gain
    605,740       11,961                   617,701  
Net change in unrealized appreciation (1)
    1,111,508       249,561       4,489       1,349,246       2,714,804  
Sales or repayments
    (20,197,792 )     (998,480 )                 (21,196,272 )
Net discount accretion
    119,934       (2,492 )                 117,442  
Transfers out of Level 3
    (6,808,399 )     (1,105,882 )                 (7,914,281 )
Transfers into Level 3
    25,151,530                         25,151,530  
Fair Value Balance as of December 31, 2012
  $ 86,590,576     $ 6,208,491     $ 453,397     $ 1,349,246     $ 94,601,710  
                                         
Change in net unrealized appreciation (depreciation) in investments still held as of December 31, 2012 (1)
  $ 1,361,674     $ 242,703     $ 4,489     $ 1,349,246     $ 2,958,112  
 
(1) Amount is included in the related amount on investments in the consolidated statements of operations.
 
 
F-30

 
 
The following is a reconciliation for the period ended December 31, 2011 of investments for which Level 3 inputs were used in determining fair value:
 
   
Senior Debt Securities
   
Subordinated Debt
   
Total
 
Fair Value Balance as of July 1, 2011
  $     $     $  
Purchases
    4,659,521       985,747       5,645,268  
Net change in unrealized appreciation (1)
    49,134       (22,590 )     26,544  
Sales or repayments
    (59,343 )           (59,343 )
Net discount accretion
    2,625       376       3,001  
Fair Value Balance as of December 31, 2011
  $ 4,651,937     $ 963,533     $ 5,615,470  
                         
Change in net unrealized appreciation (depreciation) in investments still held as of December 31, 2011 (1)
  $ 49,134     $ (22,590 )   $ 26,544  
                         
(1) Amount is included in the related amount on investments in the consolidated statements of operations.
 
Eight securities were transferred into the Level 3 hierarchy and four were transferred out of the Level 3 hierarchy during the year ended December 31, 2012. These investments were transferred at fair value as of the beginning of the quarter in which they were transferred. The classification transfers between Level 2 and Level 3 were based on the observed changes in liquidity based on information supplied by a third party pricing source, whereby such liquidity information is routinely reviewed no less frequently than monthly. All realized and unrealized gains and losses are included in earnings (changes in net assets) and are reported as separate line items within the Company’s consolidated statements of operations.
 
The Company held no investments prior to July 1, 2011 and there were no transfers between Level 1, 2 or 3 relative to prior periods.
 
The carrying value of cash and foreign currency is classified as Level 1 with respect to the fair value hierarchy. The carrying value of the revolving credit facility approximates its fair value and it would be classified as Level 2 with respect to the fair value hierarchy.
 
6.
Agreements and Related Party Transactions
 
The Company entered into a managing dealer agreement with CNL Securities Corp., an affiliate of CNL. CNL Securities Corp. serves as the managing dealer of the Offering and in connection therewith receives selling commissions of up to 7% of gross offering proceeds, a marketing support fee of up to 3% of gross offering proceeds, and reimbursement of due diligence and certain other expenses incurred in connection with the Offering. All or any portion of these fees and expense reimbursements may be reallowed to participating brokers. The Company will pay a maximum sales load of 10% of gross offering proceeds for all combined selling commissions, marketing support fees and expense reimbursements.
 
The Company entered into an investment advisory agreement with CNL (together with one amendment, the “Investment Advisory Agreement”) for the overall management of the Company’s investment activities. The Company and CNL have entered into a sub-advisory agreement with KKR (the “Sub-Advisory Agreement”), under which KKR is responsible for the day-to-day management of the Company’s investment portfolio. CNL earns a base management fee equal to an annual rate of 2% of the Company’s average gross assets at the end of the two most recently completed months and it is computed and paid monthly. Gross assets include assets purchased with borrowed funds, unrealized depreciation or appreciation on total return swaps and cash collateral on deposit with custodian in connection with TRS, but exclude deferred offering expense. CNL also earns a performance-based incentive fee that is comprised of the following two parts: (i) a subordinated incentive fee on pre-incentive fee net investment income, and (ii) an incentive fee on capital gains. The subordinated incentive fee, paid quarterly if earned, is computed as the sum of (A) 100% of quarterly pre-incentive fee net investment income in excess of 1.75% of average adjusted capital up to a limit of 0.4375% of average adjusted capital, and (B) 20% of pre-incentive fee net investment income in excess of 2.1875% of average adjusted capital. The incentive fee on capital gains, paid annually if earned, is equal to 20% of realized capital gains on a cumulative basis from inception, net of (A) all realized capital losses and unrealized depreciation on a cumulative basis and (B) net of the aggregate amount of any previously paid incentive fee on capital gains. CNL compensates KKR for advisory services that it provides to the Company with 50% of the base management fees and performance-based incentive fees that CNL receives under the Investment Advisory Agreement.
 
In November 2012, the Company entered into the TRS for the purpose of gaining economic exposure to a portfolio of broadly syndicated corporate loans and bonds. For purposes of computing the performance-based incentive fee, the Company, in a manner consistent with GAAP, treats both a) the interest spread, which represents the difference between i) the interest and fees received on the TRS reference assets and ii) the interest paid to BNS on the settled notional value of the TRS, and b) the net realized gains or losses on the sale or maturity of TRS reference assets as realized gains or losses on derivative instruments. Therefore the net economic benefits, if any, associated with the TRS are included in the computation of the incentive fee on capital gains.
 
The terms of the Investment Advisory Agreement entitle CNL (and indirectly KKR) to receive up to 5% of gross proceeds in connection with the Offering as reimbursement for organization and offering expenses incurred by the Advisors on behalf of the Company. The Advisors waived the requirement for the Company to reimburse them for organization and offering expenses for the period from June 17, 2011 through January 31, 2012. The waiver of organization and offering expense reimbursement requirements did not reduce the overall amount of organization and offering expenses incurred by the Advisors that is eligible for reimbursement by the Company in future periods. Beginning February 1, 2012, the Company implemented a reimbursement rate of 0.75% of gross offering proceeds to initiate the reimbursement of organization and offering expenses incurred by the Advisors.
 
 
F-31

 
 
The Company entered into an administrative services agreement with CNL (the “Administrative Services Agreement”) whereby CNL performs, and oversees the performance of, various administrative services on behalf of the Company. Administrative services may include transfer agency oversight and supervisory services, shareholder communication services, general ledger accounting, maintaining required corporate and financial records, financial reporting for the Company and its subsidiaries, audit services, preparation of reports to the Company’s board of directors and lenders, calculating the Company’s net asset value, filing tax returns, preparing and filing SEC reports, preparing, printing and disseminating shareholder reports, overseeing the payment of the Company’s expenses and shareholder distributions, oversight of services providers and the performance of administrative and professional services rendered to the Company by others. CNL may also enter into agreements with its affiliates for the performance of select administrative services or the retention of personnel. The Company reimburses CNL and its affiliates for the professional services and expenses it incurs in performing its administrative obligations on behalf of the Company.
 
CNL, certain CNL affiliates, and KKR receive compensation and reimbursement of expenses in connection with (i) the performance and supervision of administrative services and (ii) the Offering. Related party fees, expenses and reimbursement of expenses incurred in the years ended December 31, 2012 and December 31, 2011 are summarized below:
 
Related Party
 
Source Agreement
 
Description
 
Year Ended
December 31, 2012
   
Year Ended
December 31, 2011
 
CNL Securities Corp.
 
Managing Dealer Agreement
 
Selling commissions and
marketing support fees
  $ 55,505,646     $ 6,727,230  
CNL and KKR
 
Investment Advisory Agreement
 
Base management fees
(investment advisory fees)
    9,193,161       347,428  
CNL and KKR
 
Investment Advisory Agreement
 
Performance-based incentive fees (1)
          176,847  
CNL and KKR
 
Investment Advisory Agreement
 
Organization and offering expenses reimbursement (2)
    4,250,997        
CNL
 
Administrative Services Agreement
 
Administrative and compliance services
    752,985       159,884  
 
(1)
During the year ended December 31, 2012, the Company recorded performance-based incentive fee expense of $1,981,350, comprised of (i) $1,981,350 expense provision for incentive fee on capital gains and (ii) no expense provision for subordinated incentive fee on income. The incentive fee on capital gains was accrued based on the hypothetical liquidation of the investment portfolio as of the end of each reporting period. The incentive fee on capital gains was not earned by the Advisors or payable to the Advisors as of December 31, 2012. As of December 31, 2011, the Company accrued performance-based incentive fee of $282,570, including subordinated incentive fee on income of $176,847 and incentive fee on capital gains of $105,723. The incentive fee on capital gains was not earned or payable to the Advisors as of December 31, 2011.
 
(2)
The Advisors received reimbursement payments for organization and offering expenses in the amount of $3,814,094 in the year ended December 31, 2012, including $896,218 for organization expenses and $2,917,876 for offering expenses. The Company recorded a reimbursement payable to the Advisors in the amount of $436,903 for offering expenses as of December 31, 2012 which is included in other accrued expenses and liabilities on the consolidated statements of assets and liabilities.
 
On June 7, 2011, the Company entered into an Expense Support and Conditional Reimbursement Agreement (the “Expense Support Agreement”) with CNL and KKR pursuant to which CNL and KKR jointly and severally agreed to pay to the Company all operating expenses (an “Expense Support Payment”) during the Expense Support Payment Period between June 17, 2011 to December 31, 2011. On December 16, 2011, the Company and the Advisors entered into an amendment to the Expense Support Agreement, effective January 1, 2012, that extended the terminal date of the Expense Support Payment Period to March 31, 2012 and reduced the Reimbursement Ratio from 100% to 65% of the Company’s Operating Expenses. The Amendment also redefined Operating Expenses as all operating costs and expenses paid or incurred by the Company, as determined under GAAP, including base advisory fees payable pursuant to the Investment Advisory Agreement, and excluding (i) performance-based incentive fees payable pursuant to the Investment Advisory Agreement, (ii) organization and offering expenses, and (iii) all interest costs related to borrowings for such period. On March 16, 2012, the Company and the Advisors entered into an amendment and restatement of the Expense Support Agreement, effective April 1, 2012, that extended the terminal date of the Expense Support Payment Period to June 30, 2012 and reduced the Reimbursement Ratio from 65% to 25% of the Company’s Operating Expenses. Expense support payments ceased on July 1, 2012.
 
Presented below is a summary of Expense Support Payments and the associated terminal eligibility dates for Reimbursement Payments for the years ending December 31, 2011 and December 31, 2012.
 
 
Year Ended
 
Expense Support
Payments
Received from
Advisors
   
Expense Support
Payments
Reimbursed to
Advisors(1)
   
Unreimbursed
Support Payments
 
Eligible for
Reimbursement
through
December 31, 2011
  $ 1,375,592     $     $ 1,375,592  
December 31, 2014
December 31, 2012
    1,590,221             1,590,221  
December 31, 2015
Total
  $ 2,965,813     $     $ 2,965,813    
                           
(1) As of December 31, 2012 the Company has accrued $1,829,749 for potential annual year-end reimbursement payment to Advisors.
 
 
F-32

 
 
During the term of the Expense Support Agreement, the Advisors are entitled to an annual year-end reimbursement payment by the Company for unreimbursed Expense Support Payments made under the Expense Support Agreement (a “Reimbursement Payment”), but such Reimbursement Payments may only be paid (i) within three years after the year in which such Expense Support Payments are attributable, (ii) to the extent that it would not cause the Company’s Other Operating Expenses (Operating Expenses excluding base and incentive advisory fees and organization/offering expenses) to exceed 1.91% of average net assets attributable to common shares as of the end of any such calendar year and (iii) after January 1, 2013 (the “Reimbursement Limit Percentage”). On December 31, 2012, the Company and the Advisors entered into an amendment to the Expense Support Agreement that reduced the Reimbursement Limit Percentage to 1.75%. The Company records the liability for the Reimbursement Payments based on a hypothetical liquidation of its investment portfolio at the end of each reporting period. Management believes that additional liabilities for Reimbursement Payments are not probable as of December 31, 2012.
 
Indemnification - The Investment Advisory Agreement and the Sub-Advisory Agreement provide certain indemnification to the Advisors, their directors, officers, persons associated with the Advisors, and their affiliates. The managing dealer agreement provides certain indemnification to the managing dealer and each participating broker and their respective officers, directors, partners, employees, associated persons, agents and control persons. As of December 31, 2012, management believes that the risk of incurring any losses for such indemnification is remote.
 
7.
Earnings Per Share
 
The following information sets forth the computation of basic and diluted net increase in net assets from operations per share (earnings per share).
 
Basic and Diluted Net Increase (Decrease) in Net Assets Per Share
 
   
 
Year Ended
December 31, 2012
   
 
Year Ended
December 31, 2011
   
Period from
June 9, 2010
(inception) to
December 31, 2010
 
Net increase in net assets resulting from operations
  $ 25,653,567     $ 1,381,778     $  
Weighted average shares outstanding
    31,394,766       1,269,117       22,222  
Basic/diluted net increase in net assets from operations per share (1)
  $ 0.82       1.09        
                         
(1) Diluted and basic net increase in net assets from operations per share were equivalent in each period because there were no common stock equivalents outstanding in each period.
 
8.
Distributions
 
The Company’s board of directors declared distributions for 52 record dates in the year ended December 31, 2012. Declared distributions are paid monthly. The total of declared distributions and the sources of distribution payments for the year ended December 31, 2012 are presented in the table below.
 
Declared Distributions
 
Per Share
   
Amount
   
Allocation
 
For three months ended March 31, 2012 (13 record dates)
  $ 0.19     $ 1,987,103        
For three months ended June 30, 2012 (13 record dates)
    0.19       4,107,381        
For three months ended September 30, 2012 (13 record dates)
    0.19       7,066,863        
For three months ended December 31, 2012 (13 record dates)
    0.19       10,160,507        
Total Declared Distributions for the year ended December 31, 2012
  $ 0.76     $ 23,321,854       100.0 %
From Net Investment Income
  $ 0.51     $ 15,697,751       67.3  
From Realized Gains
    0.10       3,040,382       13.0  
From Other Sources (1)
    0.15       4,583,721       19.7  
                         
(1) Includes adjustments made to GAAP net investment income to arrive at taxable income available for distributions, as more fully described in Note 13.
 
 
F-33

 
 
The Company’s board of directors declared distributions for 27 record dates in the year ended December 31, 2011. Declared distributions are paid monthly. The total of declared distributions and the sources of distribution payments for the year ended December 31, 2011 are presented in the table below.
 
Declared Distributions
 
Per Share
   
Amount
   
Allocation
 
For three months ended September 30, 2011 (14 record dates)
  $ 0.19     $ 127,941        
For three months ended December 31, 2011 (13 record dates)
    0.18       727,729        
Total Declared Distributions for the year ended December 31, 2011
  $ 0.37     $ 855,670       100.0 %
From Net Investment Income
  $ 0.37     $ 853,163       99.7  
From Realized Gains
   
<0.01
      2,507       0.3  
 
There were no distributions declared or paid during the period from June 9, 2010 (inception) to December 31, 2010 and the six months ended June 30, 2011.
 
On December 14, 2012, the Company’s board of directors declared a distribution of $0.015004 per share for 13 record dates beginning January 1, 2013 and ending on March 26, 2013.
 
9.
Share Transactions
 
On January 4, 2012, January 23, 2012, February 28, 2012 and September 17, 2012, the Company’s board of directors increased the public offering price per share of common stock under the Offering to $10.40, $10.65, $10.85 and 10.95, respectively, to ensure that the associated net offering price per share, exclusive of sales load ($9.360, $9.585, $9.765 and $9.855 respectively) equaled or exceeded the net asset value per share on each subsequent subscription closing date and distribution reinvestment date.
 
The following table summarizes the total shares issued and proceeds received in connection with the Company’s Offering for the years ended December 31, 2012 and 2011, and for shares sold in a private placement for the period from June 9, 2010 (inception) through December 31, 2010:
 
   
Year Ended
December 31, 2012
   
Year Ended
December 31, 2011
   
Period from June 9, 2010
(inception) through
December 31, 2010
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
 
Gross Proceeds from Offering
    54,520,455     $ 588,369,004       7,021,920     $ 70,897,954       22,222     $ 200,000  
Commissions and Marketing Support Fees
          (55,505,646 )           (6,727,230 )            
Net Proceeds to Company
    54,520,455       532,863,358       7,021,920       64,170,724       22,222       200,000  
Reinvestment of Distributions
    1,207,704       11,832,449       29,024       265,897              
Net Proceeds from Offering
    55,728,159     $ 544,695,807       7,050,944     $ 64,436,621       22,222     $ 200,000  
Average Net Proceeds Per Share
   
$9.77
     
$9.14
     
$9.00
 
 
The Company intends to conduct quarterly tender offers pursuant to its share repurchase program. The Company currently intends to limit the number of shares to be repurchased during any calendar year to the number of shares it can repurchase with the proceeds it receives from the issuance of shares of its common stock under its distribution reinvestment plan. At the discretion of the Company’s board of directors, the Company may also use cash on hand, cash available from borrowings and cash from the sale of investments as of the end of the applicable period to repurchase shares. The Company will limit repurchases in each quarter to 2.5% of the weighted average number of shares of common stock outstanding in the prior four calendar quarters. The Company’s board of directors may amend, suspend or terminate the share repurchase program upon 30 days’ notice.
 
The following table is a summary of the share repurchases completed during the year ended December 31, 2012:
 
Repurchase Date
 
Total Number of Tender Offer Shares
   
Total Number of Shares Purchased
   
No. of Shares Purchased/ Tender Offer Shares
   
Price Paid
per Share
   
Total
Consideration
 
August 15, 2012
    236,604       47,481       20 %   $ 9.64     $ 457,720  
November 15, 2012
    470,031       25,405       5 %   $ 9.79     $ 248,716  
Total
    706,635       72,886       10 %           $ 706,436  
 
 
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10.
Financial Highlights
 
The following per share data and financial ratios have been derived from information provided in the financial statements. The following is a schedule of financial highlights for one share of common stock during the periods shown:
 
OPERATING PERFORMANCE PER SHARE
 
Year ended
December 31, 2012
   
June 17, 2011
(commencement
 of operations)
through
December 31, 2011
 
Net Asset Value, Beginning of Year/Period
  $ 9.21     $ 9.00  
Net Investment Income (Loss), Before Expense Support (1)(9)
    0.51       (0.23 )
Expense Support (1)(9)
    (0.01 )     0.60  
Net Investment Income (1)
    0.50       0.37  
Net Realized and Unrealized Gain (Loss) (1)(2)
    0.70       0.08  
Net Increase Resulting from Investment Operations
    1.20       0.45  
Distributions from Net Investment Income (3)
    (0.51 )     (0.37 )
Distributions from Realized Gains (3)
    (0.10 )      
Distributions from Other Sources (3)
    (0.15 )      
Net Decrease Resulting from Distributions to Common Shareholders
    (0.76 )     (0.37 )
Capital share transactions –Issuance of common stock above net asset value (4)
    0.10       0.13  
Net Increase Resulting from Capital Share Transactions
    0.10       0.13  
Net Asset Value, End of Year/Period
  $ 9.75     $ 9.21  
                 
INVESTMENT RETURNS
               
Total Investment Return-Net Price (5)
    14.2 %     6.52 %
Total Investment Return-Net Asset Value (6)
    14.3 %     6.52 %
                 
RATIOS/SUPPLEMENTAL DATA (all amounts in thousands)
               
Net Assets, End of Year/Period
  $ 611,484     $ 65,163  
Average Net Assets (7)
  $ 304,261     $ 20,926  
Average Credit Facility Borrowings
  $ 110,072     $ 4,080  
Shares Outstanding, End of Year/Period
    62,728       7,073  
Weighted Average Shares Outstanding
    31,395       2,309  
Ratios to Average Net Assets: (7)
               
Total Expenses Before Operating Expense Support
    6.46 %     7.08 %
Total Expenses After Operating Expense Support
    6.54 %     0.51 %
Net Investment Income
    5.16 %     4.08 %
Portfolio Turnover Rate
    85 %     1 %
Asset Coverage Ratio (8)
    3.59       3.57  
 
 
(1)
The per share data was derived by using the weighted average shares outstanding during the year/period.
 
(2)
The amount shown at this caption is the balancing figure derived from the other figures in the schedule. The amount shown at this caption for a share outstanding throughout the entire period may not agree with the change in the aggregate net realized and unrealized gains and losses in portfolio securities for the period because of the timing of sales of the Company’s shares in relation to fluctuating market values for the portfolio securities.
 
(3)
The per share data for distributions is the actual amount of distributions paid or payable per share of common stock outstanding during the entire period; distributions per share are rounded to the nearest $0.01.
 
(4)
The continuous issuance of common stock may cause an incremental increase in net asset value per share due to the sale of shares at the then prevailing public offering price and the receipt of net proceeds per share by the Company in excess of net asset value per share on each subscription closing date. The per share data was derived by computing (i) the sum of (A) the number of shares issued in connection with subscriptions and/or distribution reinvestment on each share transaction date times (B) the differences between the net proceeds per share and the net asset value per share on each share transaction date, divided by (ii) the total shares outstanding at the end of the period.
 
 
F-35

 
 
 
(5)
Total investment return-net price is a measure of total return for shareholders who purchased the Company’s common stock at the beginning of the period, including dividends declared during the period. Total investment return-net price is based on (i) the purchase of one share at the public offering price, net of sales load, on the first day of the period, (ii) the sale at the net asset value per share on the last day of the period, of (A) one share plus (B) any fractional shares issued in connection with the reinvestment of monthly distributions, and (iii) the cash payment for distributions payable, if any, on the last day of the period. The total investment return-net price calculation assumes that (i) monthly cash distributions are reinvested in accordance with the Company’s distribution reinvestment plan and (ii) the fractional shares issued pursuant to the distribution reinvestment plan are issued at the then public offering price, net of sales load, on each monthly distribution payment date. Since there is no public market for the Company’s shares, then the terminal sales price per share is assumed to be equal to net asset value per share on the last day of the period. The Company’s performance changes over time and currently may be different than that shown above. Past performance is no guarantee of future results. Investment performance is presented without regard to sales load that may be incurred by shareholders in the purchase of the Company’s shares of common stock.
 
(6)
Total investment return-net asset value is a measure of the change in total value for shareholders who held the Company’s common stock at the beginning and end of the period, including dividends declared during the period. Total investment return-net asset value is based on (i) the beginning period net asset value per share on the first day of the period, (ii) the net asset value per share on the last day of the period, of (A) one share plus (B) any fractional shares issued in connection with the reinvestment of monthly distributions, and (iii) the value of distributions payable, if any, on the last day of the period. The total investment return-net asset value calculation assumes that (i) monthly cash distributions are reinvested in accordance with the Company’s distribution reinvestment plan and (ii) the fractional shares issued pursuant to the distribution reinvestment plan are issued at the then public offering price, net of sales load, on each monthly distribution payment date. Since there is no public market for the Company’s shares, then terminal market value per share is assumed to be equal to net asset value per share on the last day of the period. The Company’s performance changes over time and currently may be different than that shown above. Past performance is no guarantee of future results. Investment performance is presented without regard to sales load that may be incurred by shareholders in the purchase of the Company’s shares of common stock.
 
(7)
The computation of average net assets during the period is based on the daily value of net assets.
 
(8)
Asset coverage ratio is equal to (i) the sum of (A) net assets at the end of the period and (B) total debt outstanding at the end of the period, divided by (ii) total debt outstanding at the end of the period. For purposes of the asset coverage ratio test applicable to the Company as a business development company, the Company regards the TRS total notional amount at the end of the period, less the total amount of cash collateral posted by Halifax Funding under the TRS, as a senior security for the life of the TRS. These data are presented in Note 4 of the consolidated financial statements.
 
 (9)
Expense support is equal to the difference between (A) reimbursement of expense support and (B) expense support, as reported on the consolidated statements of operations.
 
11.
Revolving Credit Facility and Borrowings
 
On August 22, 2011, CCT Funding entered into a revolving credit facility agreement (including amendments, the “Credit Agreement”) with Deutsche Bank AG, New York Branch (“Deutsche Bank”). As of December 31, 2012, Deutsche Bank is the sole initial lender and serves as administrative agent under the Credit Agreement. The Credit Agreement initially provided for borrowings in an aggregate amount up to $75,000,000 on a committed basis (the “Tranche A Loans”). To partially exercise the accordion feature, CCT Funding entered into an amendment (the “First Amendment”) of its Credit Agreement on February 28, 2012, which provided for the extension of a second tranche of commitments permitting additional borrowings in an aggregate amount up to $100,000,000 (the “Tranche B Loans”). On August 20, 2012, CCT Funding entered into a second amendment (the “Second Amendment”) to its Credit Agreement, which provided for the extension of a third tranche of additional borrowings in an aggregate amount up to $65,000,000 (the “Tranche C Loans”), for total borrowings available under the facility of $240,000,000. Under the Credit Agreement, CCT Funding has made certain representations and warranties and it is required to comply with various covenants, reporting requirements and other customary requirements for credit agreements of this nature. As of December 31, 2012, management believes that the Company was in compliance with the covenants of the Credit Agreement. As of December 31, 2012, the Company has incurred deferred financing costs of $303,403 in connection with arranging and amending the Credit Agreement.
 
Revolving Credit Facility Summary for the year ended December 31, 2012
 
   
Loan Tranche
       
      A       B       C    
Total
 
Borrowing Commitment Amount (Tranche C Uncommitted)
  $ 75,000,000     $ 100,000,000     $ 65,000,000     $ 240,000,000  
Amount Borrowed as of January 1
    25,340,000                   25,340,000  
Net Amount Borrowed
    49,660,000       84,620,000             134,280,000  
Amount Borrowed as of December 31
    75,000,000       84,620,000             159,620,000  
Unused Borrowing Commitment Balance as of December 31
  $     $ 15,380,000     $ 65,000,000     $ 80,380,000  
                                 
Unused Commitment Fee
    0.75 %     0.75 %     %        
Base Interest Rate (reset monthly)
   
one-month
LIBOR
     
three-month
LIBOR
     
three-month
LIBOR
         
Spread
    1.70 %     2.35 %     1.70 %        
Average Borrowings
  $ 68,471,476     $ 39,199,508     $ 2,400,710     $ 110,071,694  
Direct Interest Expense
    1,349,380       1,083,412       49,465       2,482,257  
Unused Commitment Fees
                            235,734  
Amortization of Deferred Financing Costs
                            148,475  
Total Interest Expense
                          $ 2,866,466  
Weighted Average Interest Rate
    1.97 %     2.76 %     2.06 %     2.26 %
 
 
F-36

 
 
Revolving Credit Facility Summary
for the year ended December 31, 2011
 
   
Loan Tranche
 
      A  
Borrowing Commitment Amount
  $ 75,000,000  
Amount Borrowed as of January 1
     
Net Amount Borrowed
    25,340,000  
Amount Borrowed as of December 31
    25,340,000  
Unused Borrowing Commitment Balance as of December 31
  $ 49,660,000  
         
Unused Commitment Fee
    0.75 %
Base Interest Rate (reset monthly)
   
one-month LIBOR
 
Spread
    1.70 %
Average Borrowings
  $ 15,320,755  
Direct Interest Expense
    44,412  
Amortization of Deferred Financing Costs
    41,532  
Total Interest Expense
    85,944  
Weighted Average Interest Rate
    1.96 %
 
12.
Guarantees and Commitments
 
In the normal course of business, the Company may enter into guarantees on behalf of portfolio companies. Under these arrangements, the Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. The Company has no such guarantees outstanding at December 31, 2012 and December 31, 2011. As of December 31, 2012, the Company was committed to fund $1,012,317 for two delayed draw term loans associated with two portfolio companies. The Company received a non-refundable fee of $30,488 in connection with one delayed draw term loan commitment.
 
13.
Federal Income Taxes
 
Income and capital gain distributions are determined in accordance with the Code and federal tax regulations, which may differ from amounts determined in accordance with GAAP. The book-to-tax basis differences, which could be material, are primarily due to differing treatments of income and gains on various investment securities held by the Company and expenses incurred by the Company. Permanent book and tax basis differences result in reclassifications to paid-in capital, undistributed net investment income and accumulated undistributed realized gain/(loss). Undistributed net investment income and accumulated undistributed net realized gain/(loss) may include temporary book and tax basis differences which will reverse in subsequent periods.
 
As of December 31, 2012 and 2011, the Company made the following reclassifications of permanent book and tax basis differences:
 
Capital Accounts
 
2012
   
2011
 
Paid in capital
  $ (1,208,915 )   $ (3,350 )
Undistributed (distributions in excess of) net investment income
    4,249,297       5,956  
Accumulated capital gain
    (3,040,382 )     (2,606 )
 
The following table reconciles net increase in net assets resulting from operations to taxable income available for distributions for the years ending December 31, 2012 and 2011:
 
   
Years ended December 31,
 
   
2012
   
2011
 
Net increase in net assets resulting from operations
  $ 25,653,567     $ 1,381,778  
Net change in unrealized appreciation on investments
    (5,762,521 )     (478,511 )
Performance-based incentive fee on unrealized gains
    1,981,350       105,723  
Offering expense
    1,208,772        
Organization expenses
    836,470        
Other book-tax differences
    39,097       (41,498 )
Taxable income available for distributions
  $ 23,956,735     $ 967,492  
 
 
F-37

 
 
The tax character of shareholder distributions attributable to the fiscal year ended December 31, 2012 and December 31, 2011 were as follows:
 
   
2012
   
2011
 
Paid Distributions attributable to:
 
Amount
   
Percentage
   
Amount
   
Percentage
 
Ordinary income
  $ 22,984,443       98.6 % (1)   $ 855,670       100 %
Realized long term capital gains
    337,411       1.4 %            
Total
  $ 23,321,854       100.0 %   $ 855,670       100 %
Percentage of taxable income available for distributions
    97 %             88 %        
 
(1) Including short term capital gains of 13.4%.
 
As of December 31, 2012 and 2011, the components of tax basis accumulated earnings were as follows:
 
   
2012
   
2011
 
             
Undistributed ordinary income – net
  $ 751,056     $ 111,679  
Unrealized gains – net
    4,159,853       417,779  
Total accumulated earnings – net
  $ 4,910,909     $ 529,458  
 
14.
Selected quarterly financial data (unaudited)
 
   
Quarter Ended
 
   
December 31, 2012
   
September 30, 2012
   
June 30, 2012
   
March 31, 2012
 
Total Investment Income
  $ 14,475,985     $ 11,479,268     $ 6,249,846     $ 3,377,381  
Total Investment Income per Common Share
    0.27       0.30       0.28       0.31  
Net Investment Income
    6,545,151       4,297,655       3,713,829       1,135,161  
Net Investment Income per Common Share
    0.12       0.11       0.17       0.10  
Net Realized and Unrealized Gain (Loss)
    381,202       6,877,932       (1,638,130 )     4,340,767  
Net Realized and Unrealized Gain (Loss) per Common Share
    0.01       0.18       (0.07 )     0.40  
Net Increase (Decrease) in Net Assets Resulting from Operations
    6,926,353       11,175,587       2,075,699       5,475,928  
Basic and Diluted Earnings (Loss) per Common Share
    0.13       0.30       0.09       0.50  
Net Asset Value per Common Share at End of Quarter
    9.75       9.78       9.64       9.66  
 
   
Quarter Ended
 
   
December 31, 2011
   
September 30, 2011
   
June 30, 2011
 
Total Investment Income
  $ 884,236     $ 74,650     $  
Total Investment Income per Common Share
    0.21       0.10        
Net Investment Income
    778,513       74,650        
Net Investment Income per Common Share
    0.18       0.10        
Net Realized and Unrealized Gain (Loss)
    812,353       (283,738 )      
Net Realized and Unrealized Gain (Loss) per Common Share
    0.19       (0.39 )      
Net Increase (Decrease) in Net Assets Resulting from Operations
    1,590,866       (209,088 )      
Basic and Diluted Earnings (Loss) per Common Share
    0.38       (0.28 )      
Net Asset Value per Common Share at End of Quarter
    9.21       8.81       9.00  
 
15.
Subsequent Events
 
On January 10, 2013, the Company filed its tender offer statement with the SEC on Schedule TO. The Company offered to repurchase up to 785,106 shares of common stock at a cash price of $9.73 per share.
 
On January 29, 2013, the Company’s board of directors increased the public offering price per share of common stock under the Offering to $11.05.
 
 
F-38

 
 
On February 11, 2013, CCT Funding entered into an amendment (the “Third Amendment”) to its Credit Agreement. The Third Amendment amends the Credit Agreement by providing for, among other things, the extension of a new tranche of commitments (the “Tranche D Loans”) permitting additional borrowings in an aggregate amount of up to $100,000,000. Maturity dates for the various tranche loans under the Third Amendment are between August 2013 and February 2015. As of March 12, 2013, the total amount borrowed under the revolving credit facility was $219,440,000.
 
On March 12, 2013, the Company’s board of directors declared a distribution of $0.015004 per share for 13 record dates beginning April 2, 2013 and ending on June 25, 2013.
 
 
F-39