Edgar Filing: ARES CAPITAL CORP

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2009

OR

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

For the transition period to

Commission File No. 000-50697

ARES CAPITAL CORPORATION

(Exact name of Registrant as specified in its charter)

Maryland		33-1089684
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

280 Park Avenue, 22nd Floor, Building East, New York, NY 10017

(Address of principal executive office) (Zip Code)

(212) 750-7300

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 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. (Check one):

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

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

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

Class		Outstanding at August 6, 2009
Common stock, $0.001 par value		97,152,820

Table of Contents

ARES CAPITAL CORPORATION

INDEX

Part I.	Financial Information

Item 1.	Financial Statements

	Consolidated Balance Sheet as of June 30, 2009 (unaudited) and December 31, 2008	1

	Consolidated Statement of Operations for the three and six months ended June 30, 2009 (unaudited) and June 30, 2008 (unaudited)	2

	Consolidated Schedule of Investments as of June 30, 2009 (unaudited) and December 31, 2008	3

	Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2009 (unaudited)	28

	Consolidated Statement of Cash Flows for the six months ended June 30, 2009 (unaudited) and June 30, 2008 (unaudited)	29

	Notes to Consolidated Financial Statements (unaudited)	30

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56

Item 4.	Controls and Procedures	57

Part II.	Other Information

Item 1.	Legal Proceedings	58

Item 1A.	Risk Factors	58

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58

Item 3.	Defaults Upon Senior Securities	58

Item 4.	Submission of Matters to a Vote of Security Holders	58

Item 5.	Other Information	58

Item 6.	Exhibits	59

Table of Contents

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(dollar amounts in thousands, except per share data)

	As of
	June 30, 2009			December 31, 2008
	(unaudited)
ASSETS
Investments at fair value (amortized cost of $2,272,976 and $2,267,593, respectively)
Non-controlled/non-affiliate company investments	$	1,504,277		$	1,477,492
Non-controlled affiliate company investments	339,167			329,326
Controlled affiliate company investments	119,027			166,159
Total investments at fair value	1,962,471			1,972,977
Cash and cash equivalents	46,297			89,383
Receivable for open trades	442			3
Interest receivable	26,630			17,547
Other assets	11,215			11,423
Total assets	$	2,047,055		$	2,091,333
LIABILITIES
Debt	$	879,255		$	908,786
Management and incentive fees payable	48,287			32,989
Payable for open trades	16,744			—
Accounts payable and accrued expenses	11,726			10,006
Interest and facility fees payable	2,223			3,869
Dividend payable	98			40,804
Total liabilities	958,333			996,454
Commitments and contingencies (Note 6)
STOCKHOLDERS’ EQUITY
Common stock, par value $.001 per share, 200,000,000 common shares authorized, 97,152,820 common shares issued and outstanding	97			97
Capital in excess of par value	1,395,958			1,395,958
Accumulated undistributed net investment income (loss)	3,151			(7,637		)
Accumulated net realized gain (loss) on investments, foreign currency transactions and extinguishment of debt	(741		)	(124		)
Net unrealized loss on investments and foreign currency transactions	(309,743		)	(293,415		)
Total stockholders’ equity	1,088,722			1,094,879
Total liabilities and stockholders’ equity	$	2,047,055		$	2,091,333
NET ASSETS PER SHARE	$	11.21		$	11.27

See accompanying notes to consolidated financial statements.

Table of Contents

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(dollar amounts in thousands, except per share data)

	For the three months ended						For the six months ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
INVESTMENT INCOME:
From non-controlled/non-affiliate company investments:
Interest from investments	$	45,307		$	37,768		$	89,138		$	72,734
Capital structuring service fees	603			8,421			1,653			11,146
Interest from cash & cash equivalents	57			441			210			989
Dividend income	617			375			1,043			871
Other income	1,748			583			2,697			1,408
Total investment income from non-controlled/non-affiliate company investments	48,332			47,588			94,741			87,148

From non-controlled affiliate company investments:
Interest from investments	6,528			8,198			12,103			16,697
Capital structuring service fees	—			—			—			1,095
Dividend income	123			218			137			266
Management fees	1,192			188			1,317			188
Other income	78			190			168			431
Total investment income from non-controlled affiliate company investments	7,921			8,794			13,725			18,677

From controlled affiliate company investments:
Interest from investments	2,155			3,758			5,093			6,180
Capital structuring service fees	—			2,900			194			3,000
Management fees	695			409			1,286			606
Other income	8			15			88			60
Total investment income from controlled affiliate company investments	2,858			7,082			6,661			9,846

Total investment income	59,111			63,464			115,127			115,671

EXPENSES:
Interest and credit facility fees	6,301			7,155			12,882			17,078
Base management fees	7,496			7,679			14,994			14,766
Incentive management fees	7,987			9,015			15,537			15,508
Professional fees	2,308			1,653			3,705			2,871
Insurance	341			349			675			626
Administrative	1,092			365			2,096			900
Depreciation	165			102			338			204
Directors fees	134			66			236			140
Other	1,261			881			2,407			1,728
Total expenses	27,085			27,265			52,870			53,821

NET INVESTMENT INCOME BEFORE INCOME TAXES	32,026			36,199			62,257			61,850

Income tax expense (benefit), including excise tax	78			138			109			(184		)

NET INVESTMENT INCOME	31,948			36,061			62,148			62,034

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gains (losses):
Non-controlled/non-affiliate company investments	(857		)	10			(2,162		)	217
Non-controlled affiliate company investments	—			1			(482		)	1
Controlled affiliate company investments	—			—			—			—
Foreign currency transactions	116			6			68			(2		)
Net realized gains (losses)	(741		)	17			(2,576		)	216

Net unrealized gains (losses):
Non-controlled/non-affiliate company investments	11,333			(9,990		)	1,888			(28,594		)
Non-controlled affiliate company investments	(9,929		)	(13,116		)	(11,272		)	(23,858		)
Controlled affiliate company investments	2,175			(9,700		)	(6,926		)	2,633
Foreign currency transactions	(33		)	—			(18		)	7
Net unrealized gains (losses)	3,546			(32,806		)	(16,328		)	(49,812		)

Net realized and unrealized gains (losses) from investments and foreign currency transactions	2,805			(32,789		)	(18,904		)	(49,596		)

REALIZED GAIN ON EXTINGUISHMENT OF DEBT	—			—			26,543			—

NET INCREASE IN STOCKHOLDERS’ EQUITY RESULTING FROM OPERATIONS	$	34,753		$	3,272		$	69,787		$	12,438

BASIC AND DILUTED EARNINGS PER COMMON SHARE (see Note 4)	$	0.36		$	0.04		$	0.72		$	0.15

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING – BASIC AND DILUTED (see Note 4)	97,152,820			90,125,629			97,152,820			82,097,395

See accompanying notes to consolidated financial statements.

Table of Contents

ARES CAPITAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

As of June 30, 2009 (unaudited)

(dollar amounts in thousands, except per unit data)

Company(1)	Industry	Investment	Interest(10)	Initial Acquisition Date	Amortized Cost		Fair Value		Fair Value Per Unit			Percentage of Net Assets
Healthcare—Services
American Renal Associates, Inc.	Dialysis provider	Senior secured loan ($1,082 par due 12/2010)	8.5% (Libor + 6.00%/Q)	12/14/2005	$	1,082	$	1,082	$	1.00	(3)(15)
		Senior secured loan ($10,413 par due 12/2011)	8.5% (Libor + 6.00%/M)	12/14/2005	10,413		10,413		$	1.00	(3)(15)
		Senior secured loan ($180 par due 12/2011)	8.5% (Libor + 6.00%/Q)	12/14/2005	180		180		$	1.00	(3)(15)

Capella Healthcare, Inc.	Acute care hospital operator	Junior secured loan ($55,000 par due 2/2016)	13.00%	2/29/2008	55,000		52,250		$	0.95
		Junior secured loan ($30,000 par due 2/2016)	13.00%	2/29/2008	30,000		28,500		$	0.95	(2)

CT Technologies Intermediate Holdings, Inc. and CT Technologies Holdings, LLC(6)	Healthcare analysis services	Preferred stock (7,427 shares)		6/15/2007	7,427		7,055		$	950.00	(4)
		Common stock (9,679 shares)		6/15/2007	4,000		5,382		$	556.10	(5)
		Common stock (1,546 shares)		6/15/2007	—		—		$	—	(5)

DSI Renal, Inc.	Dialysis provider	Senior secured revolving loan ($122 par due 3/2013)	6.25% (Base Rate + 3.00%/D)	4/4/2006	122		97		$	0.80
		Senior secured revolving loan ($3,520 par due 3/2013)	5.38% (Libor + 5.00%/M)	4/4/2006	3,520		2,816		$	0.80
		Senior secured revolving loan ($1,120 par due 3/2013)	5.31% (Libor + 5.00%/M)	4/4/2006	1,120		896		$	0.80
		Senior secured revolving loan ($1,152 par due 3/2013)	3.31% (Libor + 3.00%/M)	4/4/2006	1,152		922		$	0.80
		Senior secured revolving loan ($1,600 par due 3/2013)	3.31% (Libor + 3.00%/M)	4/4/2006	1,600		1,280		$	0.80
		Senior secured revolving loan ($36 par due 3/2013)	5.38% (Libor + 5.00%/M)	4/4/2006	36		28		$	0.79
		Senior secured revolving loan ($11 par due 3/2013)	5.31% (Libor + 5.00%/M)	4/4/2006	11		9		$	0.80
		Senior secured revolving loan ($12 par due 3/2013)	3.31% (Libor + 3.00%/M)	4/4/2006	12		9		$	0.77
		Senior secured revolving loan ($16 par due 3/2013)	3.31% (Libor + 3.00%/M)	4/4/2006	16		13		$	0.81
		Senior secured revolving loan ($20 par due 3/2013)	0.25%	4/4/2006	20		17		$	0.84
		Senior subordinated note ($61,531 par due 4/2014)	16.00% PIK	4/4/2006	61,087		47,379		$	0.77	(2)(4)
		Senior subordinated note ($13,207 par due 4/2014)	16.00% PIK	4/4/2006	13,183		10,170		$	0.77	(3)(4)
		Senior secured revolving loan ($17,348 par due 4/2014)	1.60% (Libor + 1.00%/Q)	4/4/2006	12,145		13,855		$	0.80	(15)

GG Merger Sub I, Inc.	Drug testing services	Senior secured loan ($11,330 par due 12/2014)	4.32% (Libor + 4.00%/M)	12/14/2007	10,839		9,631		$	0.85
		Senior secured loan ($12,000 par due 12/2014)	4.32% (Libor + 4.00%/M)	12/14/2007	11,480		10,200		$	0.85

HCP Acquisition Holdings, LLC(7)	Healthcare compliance advisory services	Class A units (8,566,824 units)		6/26/2008	8,567		6,125		$	0.72	(5)

Table of Contents

Company(1)	Industry	Investment	Interest(10)	Initial Acquisition Date	Amortized Cost	Fair Value	Fair Value Per Unit				Percentage of Net Assets
Heartland Dental Care, Inc.	Dental services	Senior subordinated note ($32,717 par due 8/2013)	11.00% Cash, 3.25% PIK	7/31/2008	32,717	32,717	$		1.00	(4)

Magnacare Holdings, Inc., Magnacare Administrative Services, LLC, and Magnacare, LLC	Healthcare professional provider	Senior subordinated note ($4,623 par due 12/2012)	10.75% Cash, 2.00% PIK	2/9/2009	3,176	4,623	$		1.00	(4)

MPBP Holdings, Inc., Cohr Holdings, Inc. and MPBP Acquisition Co., Inc.	Healthcare equipment services	Junior secured loan ($20,000 par due 1/2014)	6.57% (Libor + 6.25%/M)	1/31/2007	20,000	6,200	$		0.31
		Junior secured loan ($12,000 par due 1/2014)	6.57% (Libor + 6.25%/M)	1/31/2007	12,000	3,720	$		0.31	(3)
		Common stock (50,000 shares)		1/31/2007	5,000	—	$	—		(5)

MWD Acquisition Sub, Inc.	Dental services	Junior secured loan ($5,000 par due 5/2012)	6.57% (Libor + 6.25%/M)	5/3/2007	5,000	4,250	$		0.85	(3)

OnCURE Medical Corp.	Radiation oncology care provider	Senior secured loan ($3,083 par due 8/2009)	3.88% (Libor + 3.50%/M)	8/18/2006	3,083	2,713	$		0.88	(3)
		Senior subordinated note ($32,393 par due 8/2013)	11.00% Cash, 1.50% PIK	8/18/2006	32,418	29,154	$		0.90	(4)
		Common stock (857,143 shares)		8/18/2006	3,000	3,000	$		3.50	(5)

Passport Health Communications, Inc., Passport Holding Corp. and Prism Holding Corp.	Healthcare technology provider	Senior secured loan ($12,790 par due 5/2014)	10.50% (Libor + 7.50%/S)	5/9/2008	12,790	12,534	$		0.98	(15)
		Senior secured loan ($11,806 par due 5/2014)	10.50% (Libor + 7.50%/S)	5/9/2008	11,806	11,570	$		0.98	(3)(15)
		Series A preferred stock (1,594,457 shares)		7/30/2008	9,900	9,900	$		6.21	(5)
		Common stock (16,106 shares)		7/30/2008	100	100	$		6.21	(5)

PG Mergersub, Inc.	Provider of patient surveys, management reports and national databases for the integrated healthcare delivery system	Senior subordinated loan ($4,000 par due 3/2016)	12.50%	3/12/2008	3,920	3,840	$		0.96
		Preferred stock (333 shares)		3/12/2008	333	334	$		1,003.00	(5)
		Common stock (16,667 shares)		3/12/2008	167	167	$		10.00	(5)

The Schumacher Group of Delaware, Inc.	Outsourced physician service provider	Junior secured loan ($30,800 par due 7/2012)	11.125% Cash, 2.50% PIK	7/18/2008	30,800	30,800	$		1.00	(4)
		Junior secured loan ($5,210 par due 7/2012)	11.125% Cash, 2.50% PIK	7/18/2008	5,210	5,210	$		1.00	(4)

Triad Laboratory Alliance, LLC	Laboratory services	Senior secured loan ($4,461 par due 12/2011)	8.50% (Libor + 5.50%/Q)	12/21/2005	4,278	4,461	$		1.00	(3)(15)
		Senior subordinated note ($15,466 par due 12/2012)	12.00% Cash, 1.75% PIK	12/21/2005	15,466	15,002	$		0.97	(4)

VOTC Acquisition Corp.	Radiation oncology care provider	Senior secured loan ($17,241 par due 7/2012)	11.00% Cash, 2.00% PIK	6/30/2008	17,241	17,241	$		1.00	(4)
		Series E preferred shares (3,888,222 shares)		7/14/2008	8,749	3,800	$		0.98	(5)
					470,166	409,645					37.63	%

Education
Campus Management Corp. and Campus Management Acquisition Corp.(6)	Education software developer	Senior secured loan ($3,243 par due 8/2013)	12.07 Cash, 3.00% PIK	2/8/2008	3,243	3,243	$		1.00	(16)(4)
		Senior secured loan ($30,277 par due 8/2013)	12.07 Cash, 3.00% PIK	2/8/2008	30,277	30,277	$		1.00	(2)(16)(4)

Table of Contents

Company(1)	Industry	Investment	Interest(10)	Initial Acquisition Date	Amortized Cost	Fair Value	Fair Value Per Unit			Percentage of Net Assets
		Senior secured loan ($8,960 par due 8/2013)	10.00 Cash, 3.00% PIK	2/8/2008	8,960	8,960	$	1.00	(16)(4)
		Preferred stock (493,147 shares)	8.00% PIK	2/8/2008	8,952	12,000	$	24.33	(4)

ELC Acquisition Corporation	Developer, manufacturer and retailer of educational products	Senior secured loan ($176 par due 11/2012)	3.56% (Libor + 3.25%/M)	11/30/2006	176	155	$	0.88	(3)
		Junior secured loan ($8,333 par due 11/2013)	7.31% (Libor + 7.00%/M)	11/30/2006	8,333	7,333	$	0.88	(3)

Instituto de Banca y Comercio, Inc. Leeds IV Advisors, Inc.(8)	Private school operator	Senior secured loan ($11,760 par due 3/2014)	8.50% (Libor + 6.00%/Q)	3/15/2007	11,760	11,760	$	1.00	(3)(15)
		Senior subordinated loan ($40,411 par due 6/2014)	13.00% Cash, 3.00% PIK	6/4/2008	40,411	40,411	$	1.00	(4)
		Preferred stock (165,811 shares)		6/4/2008	788	2,146	$	12.94	(5)
		Common stock (214,286 shares)		6/4/2008	54	214	$	1.00	(5)
		Preferred stock (140,577 shares)		3/31/2009	668	1,820	$	12.94	(5)
		Common stock (140,577 shares)		3/31/2009	35	1,820	$	12.94	(5)

Lakeland Finance, LLC	Private school operator	Senior secured note ($30,000 par due 12/2012)	11.50%	12/13/2005	30,000	29,100	$	0.97
		Senior secured note ($3,000 par due 12/2012)	11.50%	12/13/2005	3,000	2,910	$	0.97	(2)

R3 Education, Inc. (formerly known as Equinox EIC Partners, LLC and MUA Management Company)(6)(8)	Medical school operator	Senior secured revolving loan ($1,500 par due 12/2012)	8.25% (Base Rate + 5.00%/D)	4/3/2007	1,500	1,470	$	0.98
		Senior secured revolving loan ($2,000 par due 12/2012)	8.25% (Base Rate + 5.00%/D)	4/3/2007	2,000	1,960	$	0.98
		Senior secured loan ($1,799 par due 12/2012)	6.31% (Libor + 6.00%/M)	4/3/2007	1,799	1,763	$	0.98	(2)
		Senior secured loan ($14,113 par due 12/2012)	6.31% (Libor + 6.00%/M)	9/21/2007	14,113	13,830	$	0.98	(2)
		Senior secured loan ($7,300 par due 12/2012)	6.31% (Libor + 6.00%/M)	4/3/2007	7,300	7,154	$	0.98	(3)
		Common membership interest (26.27% interest)		9/21/2007	15,800	20,777			(5)
		Preferred Stock (8,000 shares)			2,000	2,000	$	250.00	(5)
		Preferred stock (800 shares)			200	200	$	250.00	(5)
					191,369	201,303				18.49	%

Restaurants and Food Services
ADF Capital, Inc. & ADF Restaurant Group, LLC	Restaurant owner and operator	Senior secured revolving loan ($608 par due 11/2013)	5.75% (Base Rate + 2.50%/D)	11/27/2006	608	608	$	1.00	(15)
		Senior secured revolving loan ($2,008 par due 11/2013)	4.69% (Libor + 3.00% Cash, 0.50% PIK/Q)	11/27/2006	2,008	2,008	$	1.00	(4)(15)
		Senior secured loan ($23,586 par due 11/2012)	9.69% (Libor + 7.50% Cash, 1.00% PIK/Q)	11/27/2006	23,592	23,586	$	1.00	(4)(15)
		Senior secured loan ($11,055 par due 11/2012)	9.69% (Libor + 7.50% Cash, 1.00% PIK/Q)	11/27/2006	11,050	11,055	$	1.00	(2)(4)(15)
		Promissory note ($12,079 par due 11/2016)	10.00% PIK	6/1/2006	12,067	12,079	$	1.00	(4)(15)
		Warrants to purchase 0.61 shares		6/1/2006	—	—	$	—	(5)

Encanto Restaurants, Inc.(8)	Restaurant owner and operator	Junior secured loan ($21,368 par due 8/2013)	7.50% Cash, 3.50% PIK	8/16/2006	21,368	20,299	$	0.95	(2)(4)

Table of Contents

Company(1)	Industry	Investment	Interest(10)	Initial Acquisition Date	Amortized Cost	Fair Value	Fair Value Per Unit			Percentage of Net Assets
		Junior secured loan ($4,070 par due 8/2013)	7.50% Cash, 3.50% PIK	8/16/2006	4,070	3,867	$	0.95	(3)(4)

OTG Management, Inc.	Airport restaurant operator	Junior secured loan ($15,623 par due 6/2013)	14.00% (Libor + 7.00% Cash, 4.00% PIK/M)	6/19/2008	15,623	14,529	$	0.93	(4) (15)
		Warrants to purchase up to 88,991 shares of common stock			—	—	$	—	(5)
		Warrants to purchase up to 9 shares of common stock			—	—	$	—	(5)

Vistar Corporation and Wellspring Distribution Corp.	Food service distributor	Senior subordinated loan ($43,625 par due 5/2015)	13.50%	5/23/2008	43,625	41,008	$	0.94
		Senior subordinated loan ($30,000 par due 5/2015)	13.50%	5/23/2008	30,000	28,200	$	0.94	(2)
		Class A non-voting common stock (1,366,120 shares)		5/23/2008	7,500	3,490	$	2.55	(5)
					171,511	160,729				14.76	%

Beverage, Food and Tobacco
3091779 Nova Scotia Inc.(8)	Baked goods manufacturer	Junior secured loan (Cdn $14,117 par due 11/2012)	11.50% Cash, 1.50% PIK	11/2/2007	14,992	11,592	$	0.82	(4)(12)
		Warrants to purchase 57,545 shares			—	—			(5)

Apple & Eve, LLC and US Juice Partners, LLC(6)	Juice manufacturer	Senior secured loan ($29,284 par due 10/2013)	14.50% (Libor + 11.50%/M)	10/5/2007	29,284	28,113	$	0.96	(15)
		Senior secured loan ($11,904 par due 10/2013)	14.50% (Libor + 11.50%/M)	10/5/2007	11,904	11,427	$	0.96	(15)
		Senior units (50,000 units)			5,000	2,500	$	50.00


Best Brands Corporation	Baked goods manufacturer	Senior secured loan ($13,110 par due 12/2012)	7.57% (Libor + 5.00% Cash, 2.25% PIK/M)	2/15/2008	11,151	13,110	$	1.00	(4)
		Junior secured loan ($8,441 par due 6/2013)	10.00% Cash, 8.00% PIK	12/14/2006	8,441	8,441	$	1.00	(4)
		Junior secured loan ($23,753 par due 6/2013)	10.00% Cash, 8.00% PIK	12/14/2006	23,753	23,753	$	1.00	(2)(4)
		Junior secured loan ($11,500 par due 6/2013)	10.00% Cash, 8.00% PIK	12/14/2006	11,500	11,500	$	1.00	(3)(4)

Bumble Bee Foods, LLC and BB Co-Invest LP	Canned seafood manufacturer	Senior subordinated loan ($30,425 par due 11/2018)	16.25% (12.00% Cash, 4.25% Optional PIK)	11/18/2008	30,425	30,425	$	1.00	(4)
		Common stock (4,000 shares)		11/18/2008	4,000	4,000	$	1,000.00	(5)

Charter Baking Company, Inc.	Baked goods manufacturer	Senior subordinated note ($5,543 par due 2/2013)	12.00% PIK	2/6/2008	5,543	5,543	$	1.00	(2)(4)
		Preferred stock (6,258 shares)		9/1/2006	2,500	1,725	$	275.65	(5)
					158,493	152,129				13.97	%

Services—Other
American Residential Services, LLC	Plumbing, heating and air-conditioning services	Junior secured loan ($20,403 par due 4/2015)	10.00% Cash, 2.00% PIK	4/17/2007	20,403	19,179	$	0.94	(2)(4)

Table of Contents

Company(1)	Industry	Investment	Interest(10)	Initial Acquisition Date	Amortized Cost	Fair Value	Fair Value Per Unit			Percentage of Net Assets
Diversified Collection Services, Inc.	Collections services	Senior secured loan ($11,175 par due 8/2011)	9.00% (Base Rate + 5.75%/D)	2/2/2005	9,415	11,175	$	1.00
		Senior secured loan ($3,978 par due 8/2011)	9.00% (Base Rate + 5.75%/D)	2/2/2005	4,079	3,978	$	1.00	(3)
		Senior secured loan ($1,931 par due 2/2011)	13.75% (Libor + 11.00%/S)	2/2/2005	1,931	1,931	$	1.00	(15)
		Senior secured loan ($7,492 par due 8/2011)	13.75% (Libor + 11.00%/S)	2/2/2005	7,492	7,492	$	1.00	(15)
		Preferred stock (14,927 shares)		5/18/2006	169	237	$	15.88	(5)
		Common stock (114,004 shares)		2/2/2005	295	286	$	2.51	(5)

GCA Services Group, Inc.	Custodial services	Senior secured loan ($20,865 par due 12/2011)	12.00%	12/15/2006	20,865	20,865	$	1.00	(2)
		Senior secured loan ($5,000 par due 12/2011)	12.00%	12/15/2006	5,000	5,000	$	1.00
		Senior secured loan ($10,346 par due 12/2011)	12.00%	12/15/2006	10,346	10,346	$	1.00	(3)

Growing Family, Inc. and GFH Holdings, LLC	Photography services	Senior secured revolving loan ($1,513 par due 8/2011)	8.42% (Libor + 3.00% Cash, 4.00% PIK/Q)	3/16/2007	1,513	454	$	0.30	(4)(14)
		Senior secured loan ($11,188 par due 8/2011)	13.84% (Libor + 3.50% Cash, 6.00% PIK/Q)	3/16/2007	11,188	3,356	$	0.30	(4)(14)
		Senior secured loan ($372 par due 8/2011)	11.25% (Base Rate + 8.00%/D)	3/16/2007	372	111	$	0.30	(4)(14)
		Senior secured loan ($3,575 par due 8/2011)	16.34% (Libor + 6.00% Cash, 6.00% PIK/Q)	3/16/2007	3,575	1,073	$	0.30	(4)(14)
		Senior secured loan ($147 par due 8/2011)	18.00% (Libor + 6.00% Cash, 6.00% PIK/Q)	3/16/2007	147	44	$	0.30	(4)(14)
		Common stock (552,430 shares)		3/16/2007	872	—	—		(5)

NPA Acquisition, LLC	Powersport vehicle auction	Junior secured loan ($12,000 par due 2/2013)	7.07% (Libor + 6.75%/M)	8/23/2006	12,000	12,000	$	1.00	(3)
	operator	Common units (1,709 shares)		8/23/2006	1,000	2,300	$	1,345.82	(5)

Web Services Company, LLC	Laundry service and	Senior subordinated loan ($17,988 par due 8/2016)	11.50% Cash, 2.50% PIK	8/29/2008	17,988	17,089	$	0.95	(4)
	equipment provider	Senior secured loan ($5,000 par due 8/2014)	7.00% (Base Rate + 3.75%/D)	6/15/2009	4,600	4,600	$	0.92	(4)
		Senior subordinated loan ($25,477 par due 8/2016)	11.50% Cash, 2.50% PIK	8/29/2008	25,477	24,203	$	0.95	(2)(4)
					158,727	145,719				13.38	%

Financial