497 1 cct-497_110513.htm PROSPECTUS cct-497_110513.htm


Filed pursuant to Rule 497(c)
Registration No. 333-189544  
 
(CORPORATE CAPITAL TRUST LOGO)
A Business Development Company

Maximum Offering of 209,000,000 Shares of Common Stock
 
Corporate Capital Trust, Inc. is an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (“1940 Act”). We are managed by CNL Fund Advisors Company and KKR Asset Management LLC, both of which are registered as investment advisers with the Securities and Exchange Commission, or the SEC. We also have elected to be treated for federal income tax purposes, and intend to qualify annually, as a regulated investment company, or a “RIC,” under the Internal Revenue Code of 1986, as amended (the “Code”).
 
Our investment objective is to provide our shareholders with current income and, to a lesser extent, long-term capital appreciation.
 
We are offering on a best efforts, continuous basis up to 209,000,000 shares of common stock at a current offering price of $11.10 per share. However, if our net asset value increases above our net proceeds per share as stated in this prospectus, we will sell our shares at a higher price as necessary to ensure that shares are not sold at a net price, after deduction of selling commissions and marketing support fees, that is below our net asset value per share. Also, if our net asset value per share declines below 97.5% of the public offering price, net of sales load, then, subject to certain conditions, we may suspend selling shares until the net asset value per share is greater than 97.5% of the public offering price, net of sales load. Accordingly, subscriptions for this offering will be for a specific dollar amount rather than a specified quantity of shares, which may result in subscribers receiving fractional shares rather than full share amounts.
 
There has been no public market for, or historical valuation of, our shares.  We commenced our continuous public offering of shares on April 4, 2011.  See  “Plan of Distribution.” We reserve the right to change our investment and operating policies without shareholder approval, except to the extent such approval is required by the 1940 Act.
 
An investment in our shares is not suitable for you if you might need access to the money you invest in the foreseeable future.
 
You will not have access to the money you invest for an indefinite period of time.
 
You will not be able to sell your shares regardless of how we perform.
 
Because you will be unable to sell your shares, you will be unable to reduce your exposure on any market downturn.
 
We do not intend to list our shares on any securities exchange during or for a significant time after the offering period, and we do not expect a secondary market in the shares to develop.
 
We have implemented a share repurchase program, but only a limited number of shares are eligible for repurchase. In addition, any such repurchases will be at an at least 10% discount to the current offering price in effect on the date of repurchase.
 
Significant portions of our distributions in previous years were not based on our investment performance, but were paid by our Advisor. Now we are obligated to repay our Advisor and these repayments will reduce the current and future distributions that you should otherwise receive from your investment.
 
We invest in securities that are rated below investment grade by rating agencies or that would be rated below investment grade if they were rated.  Below investment grade securities, which are often referred to as “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. They may also be illiquid and difficult to value.
 
Investing in our common stock may be considered speculative and involves a high degree of risk, including the risk of a substantial loss of investment. See “Risk Factors” beginning on page 15 to read about the risks you should consider before buying shares of our common stock.
 
Shares of our common stock are highly illiquid and appropriate only as a long-term investment. An investment in our common stock should be considered only by investors who can assess and bear the high degree of illiquidity and other substantial risks associated with such an investment.  See  ”Suitability Standards” and “Risk Factors.” Depending upon the terms and pricing of any additional offerings and the value of our investments, you may experience dilution in the book value and fair value of your shares.  See “Risk Factors – Risks related to an investment in our common stock – A shareholder’s interest in us will be diluted if we issue additional shares” on page 33 for more information.
 
This prospectus contains important information about us that a prospective investor should know before investing in our common stock. Please read this prospectus before investing and keep it for future reference. A statement of additional information, dated the same date as this prospectus and containing additional information about us, has been filed with the SEC. The statement of additional information is incorporated in its entirety into this prospectus by reference and its table of contents appears on page 112. We also file with the SEC annual, quarterly, and current reports, proxy statements, and other information regarding us. You may obtain a copy of any of these filings free of charge, make shareholder inquiries or request other information about us, by contacting us by mail at Shareholder Services, Corporate Capital Trust, Inc., 450 S. Orange Ave., Orlando, FL 32801, or by telephone at 866-650-0650. These documents are also available without charge at our website at www.corporatecapitaltrust.com. The SEC maintains a web site ( www.sec.gov) that contains the statement of additional information and other information regarding us.
                 
   
Current Public Offering
Price Per Share (1)
   
Maximum Offering
Amount (1) (2)
 
Price to public
 
$
11.10
   
$
2,319,900,000
 
Sales load (3)
 
$
1.11
   
$
231,990,000
 
Net proceeds to us (before expenses) (4)
 
$
9.99
   
$
2,087,910,000
 
 
(1)
Assumes all shares are sold at the offering price of $11.10 per share (as of October 29, 2013), which is subject to adjustment based upon, among other things, our net asset value per share. There can be no assurance we will be able to sell all the shares we have registered.
(2)
Your initial subscription amount must be at least $5,000 (or $4,000 for qualified plans).
(3)
The sales load includes up to 7% of the offering price for sales commissions, and up to 3% of the offering price for marketing support fees, neither of which will be paid by you for shares issued pursuant to our distribution reinvestment plan. The “marketing support fee” refers to the portion of the sales load available to participating broker-dealers for assistance in selling and marketing our shares.
(4)
In addition to the sales load, we estimate that we will incur in connection with this offering approximately $22.2 million of additional offering expenses through an assumed offering termination date of November 1, 2016. Accordingly, the offering expense reimbursement rate is expected to be 1.0% of maximum gross proceeds.
 
Because you will pay a sales load of up to 10% and offering expenses of up to 1.0% of the public offering price, if you invest $100 in our shares and pay the full sales load, at least $89.00 but less than $90.00 of your investment will actually be available to us for investment purposes.  As a result, based on the current public offering price of $11.10, you would have to experience an overall total return on your investment of between 11.1% and 12.4% in order to recover the maximum sales load and expected offering expenses.  See “Use of Proceeds” on page 64.
 
Neither the SEC, the Attorney General of the State of New York nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.  An investment in our shares is NOT a bank deposit and is NOT insured by the Federal Deposit Insurance Corporation or any other government agency.
 
November 1, 2013
 
 
 

 
 
TABLE OF CONTENTS
     
 
ii
 
ii
 
1
 
10
 
12
 
15
 
36
 
37
 
53
 
59
 
64
 
65
 
67
 
68
 
69
 
97
 
101
 
104
 
109
 
110
 
111
 
112
 
114
 
118
 
118
 
118
 
F-1
 
 
i

 
 
 
  This prospectus is part of a registration statement we have filed with the SEC, in connection with a continuous offering process, to raise capital for us. In connection with that continuous offering process, we commenced our initial public offering on April 4, 2011.  This follow-on public offering commenced upon the initial effective date of the registration statement of which this prospectus is part.  Except where the context suggests otherwise, references in this prospectus to “the offering” or “this offering” mean this follow-on public offering. As we make material investments or have other material developments, we will periodically provide a prospectus supplement or may amend this prospectus to add, update or change information contained in this prospectus. We will seek to avoid interruptions in the continuous offering of our common stock, but may, to the extent permitted or required under the rules and regulations of the SEC, supplement the prospectus or file an amendment to the registration statement with the SEC if our net asset value per share: (i) declines more than 10% from the net asset value per share as of the effective date of this registration statement or (ii) increases to an amount that is greater than the net proceeds per share as stated in the prospectus. However, there can be no assurance that our continuous offering will not be interrupted during the SEC’s review of any such registration statement amendment.
 
  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 this offering until the net asset value per share is greater than 97.5% of the public offering price, net of sales load. We will supplement the prospectus in the event that we need to change the public offering price to comply with this adopted policy.
 
  You should rely only on the information contained in this prospectus. Our Managing Dealer is CNL Securities Corp., which we refer to in this prospectus as our Managing Dealer. Neither we nor our Managing Dealer has authorized any other person to provide you with different information from that contained in this prospectus. The information contained in this prospectus is complete and accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or sale of our common stock. If there is a material change in our affairs, we will amend or supplement this prospectus. Any statement that we make in this prospectus may be modified or superseded by us in a subsequent prospectus supplement. The registration statement we filed with the SEC includes exhibits that provide more detailed descriptions of the matters discussed in this prospectus. You should read this prospectus, all prospectus supplements and the related registration statement exhibits, together with additional information described below under “Additional Information.”
 
  We maintain a website at www.corporatecapitaltrust.com. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider that information to be part of this prospectus.
 
 
  Shares of our common stock offered through this prospectus are suitable only as a long-term investment for persons of adequate financial means such that they do not have a need for liquidity in this investment. We have established financial suitability standards for initial shareholders in this offering which require that a purchaser of shares have either: 
 
a gross annual income of at least $70,000 and a net worth of at least $70,000, or 
 
a net worth of at least $250,000.
 
  For purposes of determining the suitability of an investor, net worth in all cases should be calculated excluding the value of an investor’s home, home furnishings and automobiles. In the case of sales to fiduciary accounts, these minimum standards must be met by the beneficiary, the fiduciary account or the donor or grantor who directly or indirectly supplies the funds to purchase the shares if the donor or grantor is the fiduciary.
 
  Those selling shares on our behalf and participating broker-dealers and registered investment advisers recommending the purchase of shares in this offering are required to make every reasonable effort to determine that the purchase of shares in this offering is a suitable and appropriate investment for each investor based on information provided by the investor regarding the investor’s financial situation and investment objectives and must maintain records for at least six years of the information used to determine that an investment in the shares is suitable and appropriate for each investor. In making this determination, your participating broker-dealer, authorized representative or other person selling shares on our behalf will, based on a review of the information provided by you, consider whether you:
 
meet the minimum income and net worth standards established in your state; 
 
can reasonably benefit from an investment in our common stock based on your overall investment objectives and portfolio structure; 
 
 
ii

 
 
are able to bear the economic risk of the investment based on your overall financial situation, including the risk that you may lose your entire investment; and 
 
have an apparent understanding of the following: 
 
the fundamental risks of your investment;
 
the lack of liquidity of your shares;
 
the restrictions on transferability of your shares;
 
the background and qualification of our Advisors; and
 
the tax consequences of your investment.
 
  In purchasing shares, custodians or trustees of employee pension benefit plans or IRAs may be subject to the fiduciary duties imposed by ERISA, or other applicable laws and to the prohibited transaction rules prescribed by ERISA and related provisions of the Code. In addition, prior to purchasing shares, the trustee or custodian of an employee pension benefit plan or an IRA should determine that such an investment would be permissible under the governing instruments of such plan or account and applicable law.
 
  California – A California investor’s total investment in us shall not exceed 10% of his or her net worth.
 
  Alabama – Alabama residents may not invest more than 10% of their liquid net worth in us and in other business development companies.
 
  Idaho – An investment in us is limited to Idaho investors who have either (i) a gross annual income of at least $85,000 and a liquid net worth of at least $85,000 or (ii) a liquid net worth of at least $300,000. Additionally, an Idaho investor’s total investment in us shall not exceed 10% of his or her liquid net worth. (“Liquid net worth” shall include only cash plus cash equivalents. “Cash equivalents” includes assets which may be convertible to cash within one year).
 
  Iowa – Investors are advised to limit their investments in the shares of us, our affiliates and other non-traded business development companies to no more than 10%, in aggregate, of their liquid net worth. Liquid net worth is defined as that portion of an Iowa investor’s net worth that is comprised of cash, cash equivalents or readily marketable securities.
 
  Kansas – It is recommended by the Office of the Kansas Securities Commissioner that Kansas investors not invest, in the aggregate, more than 10% of their liquid net worth in this investment and other non-traded business development companies. Liquid net worth is defined as that portion of net worth which consists of cash, cash equivalents and readily marketable securities.
 
  Kentucky – In addition to the general suitability standards, Kentucky residents must not invest more than 10% of their net worth (excluding the value of primary residence, home furnishings and automobiles) in this offering.
 
  Maine – In addition to the general suitability standards, the Maine Office of Securities recommends that an investor’s aggregate investment in this offering and other non-traded business development companies not exceed 10% of the investor’s liquid net worth. For this purpose, “liquid net worth” is defined as that portion of net worth that consists of cash, cash equivalents and readily marketable securities.
 
  Massachusetts – In addition to the general suitability standards, Massachusetts residents must not invest, in the aggregate, more than 10% of their net worth in us, our affiliates and similar investments.
 
  Michigan – It is recommended by the Michigan Office of Financial and Insurance Regulation that Michigan citizens not invest more than 10% of their liquid net worth in us. Liquid net worth is defined as that portion of net worth that consists of cash, cash equivalents and readily marketable securities that may be converted into cash within one year.
 
  Nebraska – In addition to the general suitability standards, Nebraska residents must not invest, in the aggregate, more than 10% of their net worth in this offering.
 
  New Jersey – New Jersey residents must have either (i) a net worth (not including home, furnishings and personal automobiles) of at least $100,000 and an annual gross income of at least $100,000 or (ii) a net worth (not including home, furnishings and personal automobiles) of at least $250,000.  In addition, a New Jersey resident may not invest more than 10% of his or her liquid net worth in us, our affiliates, and other direct participation programs.  ”Liquid net worth” is that portion of an investor’s net worth that is comprised of cash, cash equivalents and readily marketable securities.
 
  New Mexico and Ohio – In addition to the general suitability standards, residents must not invest, in the aggregate, more than 10% of their liquid net worth in us, our affiliates and other non-traded business development companies.  ”Liquid net worth” shall be defined as that portion of net worth (total assets exclusive of primary residence, home furnishings, and automobiles minus total liabilities) that is comprised of cash, cash equivalents, and readily marketable securities.
 
 
iii

 
 
  North Dakota – In addition to the general suitability standards, North Dakota investors must represent that they have a net worth of at least ten times their investment in us.
 
  Oklahoma – In addition to the general suitability standards, Oklahoma residents must not invest, in the aggregate, more than 10% of their net worth (not including home, home furnishings and automobiles) in us.
 
  Tennessee – An investment in us is limited to Tennessee investors who have either (i) a gross annual income of at least $100,000 and a net worth of at least $100,000 or (ii) a net worth of at least $500,000. In addition, a Tennessee investor may not invest more than 10% of his or her net worth in this offering. Net worth shall exclude home, home furnishings and personal automobiles.
 
  Texas – Texas residents purchasing shares (i) must have either (a) an annual gross income of at least $100,000 and a net worth of at least $100,000, or (b) a net worth of at least $250,000; and (ii) may not invest more than 10% of their net worth in us. For Texas residents, “net worth” does not include the value of one’s home, home furnishings or automobiles.
 
  In addition to investors who meet the minimum income and net worth requirements set forth above, our shares may be sold to financial institutions that qualify as “institutional investors” under the state securities laws of the state in which they reside. “Institutional investor” is generally defined to include banks, insurance companies, investment companies as defined in the 1940 Act, pension or profit sharing trusts and certain other financial institutions. A financial institution that desires to purchase shares will be required to confirm that it is an “institutional investor” under applicable state securities laws.
 
  In addition to the suitability standards established herein, your participating broker-dealer may impose additional suitability requirements to which you could be subject.
 
 
iv

 
 
     
   
     
 
This summary highlights some of the information in this prospectus. It is not complete and may not contain all of the information that you may want to consider. To understand this offering fully, you should read carefully the entire prospectus, including the section entitled “Risk Factors,” before making a decision to invest in our common stock. Unless otherwise noted, the terms “we,” “us,” “our,” “Company” and “Corporate Capital Trust” refer to Corporate Capital Trust, Inc. We refer to CNL Financial Group, LLC as “CNL Financial Group” and to CNL Fund Advisors Company as “CNL.” We refer to KKR & Co. L.P. as “KKR & Co.” and to KKR Asset Management LLC as “KKR.” CNL and KKR serve as our investment advisors and are collectively referred to as our “Advisors.” We refer to our wholly owned special purpose financing subsidiaries, CCT Funding LLC, Halifax Funding LLC and Paris Funding LLC, as “CCT Funding,” “Halifax Funding” and “Paris Funding,” respectively.
 
     
 
Our Company
 
     
 
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 and KKR, which 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 of our Advisors are registered as investment advisers with the SEC. We have 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.
 
     
 
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 with a focus on originated transactions sourced through the networks of our Advisors. As of the date of this prospectus, our investment portfolio totaled $1.80 billion and consisted primarily of senior and subordinated debt. We anticipate that a substantial portion of our portfolio will consist 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 separately purchase common or preferred equity interests in transactions. Our portfolio is expected to include fixed-rate investments that generate absolute returns as well as floating-rate investments that provide protection in rising interest rate and inflationary environments.
 
     
 
We will seek to continue 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 intend to continue to be disciplined in selecting investments and focus on opportunities that we perceive offer favorable risk/reward characteristics and relative value. We believe the market for lending is currently characterized by significant demand for capital and that we will continue to 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 continuing to capitalize on what we believe is a compelling and sustained market opportunity.  See “Company Profile” beginning on page 37.
 
     
 
Use of Proceeds
 
     
 
Since commencing our continuous public offering and through October 29, 2013, we have sold 136,849,799 shares of our common stock for gross proceeds of approximately $1.48 billion.
 
     
 
We have used net proceeds raised to date, and will use the net proceeds from this offering to make investments in accordance with our investment objective and by following the strategies described in this prospectus. These proceeds also may be used for working capital purposes.  See “Use of Proceeds” beginning on page 64.
 
     
 
Based on prevailing market conditions, we will invest the proceeds from each weekly subscription closing generally within 30-90 days. The precise timing will depend on the availability of investment opportunities that are consistent with our investment objective and strategies. Until we are able to find such investment opportunities, we intend to invest the net proceeds of this offering primarily in cash, cash equivalents, U.S. government securities, money market funds and high-quality debt instruments maturing in one year or less from the time of investment. This is consistent with our status as a business development company and our intention to qualify annually as a RIC.
 
     
 
We may also use a portion of the net proceeds to reduce our borrowings under revolving credit agreements, to pay our operating expenses and fund distributions to shareholders.  In addition, we will pay management fees under the Investment Advisory Agreement as described elsewhere in this prospectus.
 
     
 
 
1

 
 
                     
  Distribution Policy    
         
  On June 8, 2011, we began authorizing and paying monthly distributions to our shareholders. 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. Our board of directors meets quarterly to declare weekly distribution record dates and monthly distribution payment dates. However, there can be no assurance that we will be able to continue to pay distributions at a specific rate or at all. Each year, a statement on Internal Revenue Service Form 1099-DIV identifying the source of the distribution is mailed to our shareholders. See “Distributions” on page 65.  
                     
  We may fund our cash distributions to shareholders from any sources of funds available to us, including fee reductions by our Advisors that may be subject to repayment, as well as offering proceeds and borrowings. We have not established limits on the amount of funds we may use from any available sources to make distributions. Distributions from offering proceeds or from borrowings could also reduce the amount of capital we ultimately invest in portfolio companies. Our distributions in our initial year of investment operations resulted from operating expense support payments by our Advisors to us that we are obligated to repay within three years. You should understand that such distributions were not based on our investment performance. You should also understand that our repayments to our Advisors in current and future periods will reduce the distributions that you would otherwise be entitled to receive. There can be no assurance that we will achieve the performance necessary to sustain our distributions, or that we will be able to continue to pay distributions at a specific rate, or at all. Our Advisors have no obligation to reduce their advisory fees or otherwise reimburse expenses in future periods.  
                     
  The general sources of paid distributions attributable to the years ended December 31, 2012 and December 31, 2011 were as follows:  
                     
       
2012
   
2011
     
   
Sources of Paid Distributions:
 
Amount
   
Percentage
   
Amount
   
Percentage
     
   
Investment operations
 
$
23,321,854
     
100.0
%
 
$
5,113
     
0.6
%
   
   
Expense support from Advisors
   
     
     
850,557
     
99.4
%
   
   
Borrowings
   
     
     
     
     
   
Paid-in capital (tax return of capital)
   
     
     
     
     
   
Total Paid Distributions
 
$
23,321,854
     
100.0
%
 
$
855,670
     
100.0
%
   
                                         
  Our Advisors    
                                         
  Our investment advisers are CNL, which is responsible for the overall management of our activities, and KKR, which is responsible for the day-to-day management of our investment portfolio. Under the overall supervision of our board of directors, CNL provides its investment advisory services under an investment advisory agreement with us, or the Investment Advisory Agreement, as amended, and its administrative services under an administrative services agreement with us, or the Administrative Services Agreement. KKR provides its services under a sub-advisory agreement with CNL and us, or the Sub-Advisory Agreement.  See “Advisory Agreements and Fees” beginning on page 59.  
                                         
  Our investment process is a collaborative effort between CNL and KKR and benefits from the combined business and specific industry knowledge, transaction expertise and deal-sourcing capabilities they bring. To facilitate communication and coordination, our Advisors hold regular meetings to plan and discuss our investment strategy, potential investment opportunities, current market developments and investment goals. We believe their joint involvement in our business provides us with substantial market insight and valuable access to investment opportunities.  
                                         
  About CNL  
                                         
  CNL is a wholly owned subsidiary of CNL Financial Group, a leading private investment management firm providing global real estate and alternative investment opportunities. Since inception in 1973, CNL Financial Group or its affiliates have formed or acquired companies with more than $26 billion in assets. Over its history, CNL Financial Group has developed a contrarian investment philosophy and has invested through various market cycles in a broad range of industries, asset classes and geographies. Its sponsorship and management of a wide range of investment programs have fostered extensive experience investing in and lending to companies operating in the retail, restaurant, health care, hotel, leisure and recreation industries. CNL Financial Group has developed an investment philosophy that seeks to protect the downside, values quality over quantity and seeks to focus on underserved, undercapitalized markets. By championing a long-term perspective that focuses on building partnerships that extend beyond one transaction, CNL Financial Group has developed a broad network of business relationships, which we will continue to have access to and from which we will continue to benefit. CNL Financial Group strives to create enduring value by applying its TIC Principle™, which focuses on investing in the right Talent to work on the right Ideas with the Capital they need to succeed. Based in Orlando, Florida, CNL Financial Group is indirectly owned and controlled by James M. Seneff, Jr.  
                                         
 
 
2

 
 
         
         
 
About KKR
 
 KKR is a subsidiary of KKR & Co., a leading global investment firm with $83.5 billion in assets under management as of June 30, 2013 and a 37-year history of leadership, innovation and investment excellence. Founded in 1976, KKR & Co. is a global firm with 18 offices and over 900 employees, including more than 200 investment professionals as of June 30, 2013. It operates an integrated global platform for sourcing and executing investments across multiple industries, asset classes and geographies, and its executives are incentivized to think of KKR as “one firm” and to promote the success of all of its endeavors. Since its inception, KKR & Co. has completed more than 200 private equity transactions with a total transaction value of over $470 billion. As of June 30, 2013, KKR had $19.9 billion of assets under management.
 
 KKR & Co. operates with a single culture that rewards investment discipline, creativity, determination and patience and the sharing of information, resources, expertise and best practices across offices and asset classes, subject to well-defined information sharing policies and procedures. Because it believes that deep industry knowledge is integral to sourcing deals, working with portfolio companies and creating value for investors, its investment professionals are organized in industry-specific teams that focus on nine core industries that require specialized knowledge and experience. These teams 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 this industry approach allows investment teams to become experts within their sectors and build strong relationships with companies needing capital, while covering the full corporate credit space.
 
 See “Company Profile – Our Advisors” beginning on page 37.
 
Risk Factors
 
 An investment in our common stock involves a high degree of risk and may be considered speculative. You should carefully consider the information found in “Risk Factors” beginning on page 15 before deciding to invest in shares of our common stock. Risks involved in an investment in us include (among others) the following:
 
         
 
We are a relatively new company and 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 our investment objective and that the value of our common stock could decline substantially.  
         
 
You should not expect to be able to sell your shares regardless of how we perform.  
         
   
If you are able to sell your shares of common stock, you will likely receive less than your purchase price and the current net asset value per share.  Because you will be unable to sell your shares, you will be unable to reduce your exposure on any market downturn.
 
         
   
We do not intend to list our common stock on any securities exchange during or for what may be a significant time after the offering period, and we do not expect a secondary market in the shares to develop.
 
         
   
We have implemented a share repurchase program, but only a limited number of shares of common stock are eligible for repurchase by us. In addition, any such repurchases will be at a price less than the current offering price in effect on the date that we initiate each quarterly repurchase offer.
 
         
   
You should consider that you may not have access to the money you invest for an indefinite period of time.
 
         
   
An investment in our shares of common stock is not suitable for you if you need access to the money you invest. See “Share Repurchase Program,” “Suitability Standards” and “Liquidity Strategy.”
 
         
   
Our distributions in our initial year of investment operations were not based on our investment performance, but were supported by our Advisor in the form of operating expense support payments.  Now we are obligated to repay our Advisors and these repayments will reduce the current and future distributions that you should otherwise receive from your investment.
 
         
 
Our portfolio companies may request our assistance in the management of their affairs, however we may not have director or shareholder controls over the business affairs of the companies to which we loan capital. In addition, our investments in portfolio companies will be structured to be held until maturity and may not provide us with favorable terms for short term liquidity of the capital that we invest in them.  
         
 
We have not established any limit on the extent to which we may use borrowings or offering proceeds to fund distributions to shareholders, which may reduce the amount of capital we ultimately invest in assets, and there can be no assurances that we will be able to sustain distributions at any particular level. Our distributions may exceed our earnings, particularly during the period before we have substantially invested our net offering proceeds, which may result in commensurate reductions in net asset value per share.  
         
 
 
3

 
 
       
 
This is a “best efforts” offering and, if we are unable to raise substantial funds we will be more limited in the number and type of investments we may make. As a result, our ability to diversify will be constrained.
 
       
 
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 the cash representing such income.
 
       
 
You should not rely on your own broker-dealer to make an independent review and investigation of the terms of this offering. Because you should not rely on your broker-dealer, you will not have the benefit of any independent review and evaluation of the terms of this offering by our Managing Dealer. In addition, we do not, and do not expect to, have research analysts reviewing our performance or our securities on an ongoing basis. Therefore, you will not have an independent review of our performance and the value of our common stock relative to other publicly traded companies.
 
       
 
The TRS entered into by our wholly owned financing subsidiary exposes us to certain risks, including market risk, liquidity risk, counterparty risk and other risks associated with the use of leverage. Where indicated, some of our data includes TRS reference assets that are owned and held by a counterparty to the TRS.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio and Investment Activity” for more information.
 
       
 
Market Opportunity
 
 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. We believe that the size of the market and these companies’ demand for flexible sources of capital have the potential to create an attractive investment environment for a number of reasons, including the following:
 
 
 
Current Market Environment. Although U.S. financial conditions have improved significantly since the recession of 2008-2009, we continue to identify highly interesting idiosyncratic investment opportunities. As U.S. corporate credit fundamentals have improved, default activity has decreased dramatically over the prior three years and remains low by historical standards. There have been unprecedented new issue-volumes as the financing environment has improved dramatically. Many large corporate issuers have benefited from this favorable capital market environment. Despite the relative ease with which large-scale corporates may have access to low-cost capital, there remains a substantial number of companies that, for a variety of reasons, are unable to access the syndicated debt markets on attractive financing terms. In the United States, we have often found such reasons to include size of issuer, complicated industry dynamics, regulatory overhang, as well as unique or complex capital structures. Given these market conditions, it is our view that providing senior and subordinated debt transactions to such companies represents an attractive investment opportunity. Furthermore, we believe the opportunity set for potential lending transactions is likely to increase given the potential for a gradual Federal Reserve tapering and for a move away from the current Central Bank-subsidized low-interest rate environment.
 
       
 
Significant Private Equity Capital Available for New Transactions. In addition to general refinancing opportunities that rely heavily on debt financing, we believe there is a large pool of committed but uninvested capital, both in the United States and globally, available for use in new private equity investments. Industry sources suggest that as of October 2013, there was more than $386 billion of private equity capital available for private equity investments in the United States alone. We expect that as a result of their investable capital, private equity firms will be active investors in U.S. medium- and large-sized companies over the next few years and will require significant amounts of debt to finance their transactions.
 
       
 
Greater Demand for Non-Traditional Sources of Debt Financing. We believe that the financial crisis of 2008 inspired a certain skepticism on the part of small and middle-market companies towards institutional banks. Facing balance sheet strain as a result of the financial crisis, we believe that these institutions have also become less focused on building a constructive, long-term relationship with smaller borrowers. Consequently, we believe there is an increasing trend for companies to seek financing from alternative capital providers, such as our Company, that are able to develop trusted relationships with borrowers and offer a higher degree of certainty.
 
       
 
Business Environment.  As new banking regulations, such as those implementing the 2010 Basel Committee on Banking Supervision’s Third Accord (or, Basel III) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (or, the Dodd-Frank Act), require financial institutions to meet increased capital requirements, we believe it will become difficult and inefficient for these institutions to meet the financing needs of growing medium- to large-sized companies.  This, in our view will continue to provide us with a potential market opportunity to deploy capital through primary issuance securities to this growing segment of the U.S. economy.
 
       
 
 See “Company Profile – Market Opportunity” beginning on page 38.
 
     
 
 
4

 
 
       
 
Our Potential Competitive Advantages
 
 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 potential 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.
 
       
 
Experienced Management and Investment Expertise. Each of our Advisors has 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 40 credit-focused investment professionals that currently track over 500 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, capital preservation and, to a lesser extent, long-term capital appreciation. We seek to continue to capitalize on this expertise and build our  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 for business development companies, as defined in the 1940 Act.  We expect to borrow funds, including deemed senior securities, at an asset coverage ratio of approximately 250%.
 
       
 
 
5

 
 
       
 
See “Company Profile – Our Potential Competitive Advantages” beginning on page 39.
 
Our Investment Strategy
 
 Our investment strategy focuses on creating an investment portfolio that generates superior risk-adjusted returns by carefully selecting investments through rigorous due diligence and actively managing and monitoring our portfolio. When evaluating an investment, 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 our flexible approach to investing allows us to take advantage of opportunities that offer favorable risk/reward characteristics.
 
 While we consider each investment opportunity independently, we generally focus on portfolio companies that share the following characteristics:
 
       
 
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 size of a company in which we may invest, we expect to focus on companies with EBITDAs greater than $25 million.
 
       
 
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 portfolio 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, low-volatility 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.
 
Other Factors Affecting Portfolio Construction
 
 As a business development company that is regulated under the 1940 Act and intends to qualify annually as a RIC under the Code, our investment activities are subject to certain regulatory restrictions that will shape our portfolio construction. These restrictions include requirements that we invest our capital primarily in U.S. companies that are privately owned, as well as investment diversification and source of income criteria that are imposed by the Code. For a description of certain valuation risks associated with our investments in privately owned companies, see “Risk Factors – A significant portion of our investment portfolio is 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” on page 17.
 
 In addition, we generally are not permitted to co-invest alongside certain affiliates of our Advisors in privately negotiated transactions, absent an exemptive order from the SEC. On May 21, 2013, the SEC issued an order granting us exemptive relief that
 
       
 
 
6

 
 
               
 
expands our ability to co-invest with certain of our affiliates in privately negotiated transactions.  Subject to the conditions specified in the exemptive order, we are permitted to co-invest with those affiliates in certain additional investment opportunities, including investments originated and directly negotiated by KKR.
 
Portfolio and Investment Activity
 
 As of June 30, 2013, our investment program consisted of two main components.  First, since the inception of our investment activities 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 prospectus. Second, beginning in November 2012, we have been increasing our economic exposure to portfolio companies by entering into a total return swap, or TRS, arrangement 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 either our portfolio of TRS reference assets, or our TRS Portfolio. 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 (i) floating interest rate and (ii) the settled notional amount of TRS reference assets.  The settled notional amount of TRS reference assets is the net aggregate of notional amounts where the purchase and sale of reference assets underlying total return swaps have been settled by the counterparty and serves as the basis for paying financing charges to the counterparty under the TRS agreements.  The total notional amount of TRS reference assets includes the effect of purchases and sale of reference assets where trade settlement is pending.  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.
 
 As of June 30, 2013, our investment portfolio consisted of debt and equity securities relating to 98 portfolio companies diversified across 21 industry classifications. As of June 30, 2013, the TRS reference assets consisted of debt securities relating to 30 portfolio companies diversified across 14 industry classifications.
 
 The information presented in the following table is for further analysis of our investment portfolio and our 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 TRS Portfolio based on fair value as of June 30, 2013, excluding our short term investments.
 
       
       
As of June 30, 2013
     
   
Asset Category
 
Investment Portfolio
at Fair Value
   
Percentage of
Investment
Portfolio
   
TRS
Portfolio
at Fair Value
   
Percentage of
TRS
Portfolio
     
   
Senior debt securities
 
$
812,544,936
     
71.3
%
 
$
100,438,861
     
72.4
%
   
   
Subordinated debt securities
   
325,955,313
     
28.6
     
38,382,047
     
27.6
     
   
Total debt securities
   
1,138.500,249
     
99.9
     
138,820,908
     
100.0
     
   
Common stock
   
623,982
     
0.1
     
     
     
   
Total
 
$
1,139,124,231
     
100.0
%
 
$
138,820,908
     
100.0
%
   
                                         
 
 For a further discussion of our investment activities and investment attributes of both our investment portfolio and our portfolio of TRS reference assets, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio and Investment Activity.”
 
Advisors Fees
 
 We pay CNL a fee for its services under the Investment Advisory Agreement. The fee consists of two components: a management fee and an incentive fee. The Sub-Advisory Agreement between CNL and KKR provides that KKR receives 50% of all fees payable to CNL under the Investment Advisory Agreement. The management fee is calculated at an annual rate of 2% of our average gross assets and is payable monthly in arrears. The incentive fee comprises the following two parts:
 
                                         
 
An incentive fee on net investment income, which we refer to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears and is based upon our pre-incentive fee net investment income for the immediately preceding quarter. The quarterly incentive fee on net investment income is (a) 100% of the pre-incentive fee net investment income of between 1.75% and 2.1875% of average adjusted capital, plus (b) 20% of pre-incentive fee net investment income in excess of 2.1875% of average adjusted capital.
 
       
 
 
7

 
 
       
 
An incentive fee on capital gains is calculated and payable in arrears as of the end of each calendar year. It is equal to 20% of our realized capital gains on a cumulative basis from inception through the end of such calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid incentive fees on capital gains as calculated in accordance with U.S. generally accepted accounting principles (GAAP) (subject to the limitation discussed in the next paragraph).
 
       
 
 From and after January 1, 2013, for purposes of computing the performance-based incentive fee payable to the Advisors, we disregard any gains associated with the TRS interest spread (which represents the difference between (i) the interest and fees received on total return swaps, and (ii) the interest paid to the total return swaps counterparty on the settled notional value of total return swaps), and we only consider the net realized gains or losses on the termination or maturity of total return swaps for the purpose of testing and computing incentive fees on capital gains that may be payable annually to the Advisors.
 
 The incentive fee may induce our Advisors to make investments on our behalf that are more risky or more speculative than would otherwise be the case. Similarly, because our management fee is calculated based on our gross assets (including any borrowings for investment purposes), our Advisors may be encouraged to use leverage to make additional investments. See “Risk Factors – Risks related to our Advisors and their respective affiliates – Our incentive fee may induce our Advisors to make speculative investments” on page 20 and “Advisory Agreements and Fees” beginning on page 59.
 
Suitability Standards
 
 Pursuant to applicable state securities laws, shares of common stock offered through this prospectus are suitable only as a long-term investment for persons of adequate financial means who have no need for liquidity in this investment. Initially, there is not expected to be any public market for the shares, which means that investors will likely have limited ability to sell their shares. As a result, we have established suitability standards which require investors to have either: (i) a net worth of at least $70,000 and an annual gross income of at least $70,000, or (ii) a net worth of at least $250,000. Under these standards, net worth does not include your home, home furnishings or personal automobiles. In addition, our Managing Dealer will require that a potential investor (1) can reasonably benefit from an investment in us based on such investor’s overall investment objectives and portfolio structuring; (2) is able to bear the economic risk of the investment based on the prospective shareholder’s overall financial situation; and (3) has apparent understanding of (a) the fundamental risks of the investment, (b) the risk that such investor may lose his or her entire investment, (c) the lack of liquidity of our shares, (d) the background and qualifications of our Advisors and (e) the tax consequences of the investment.  See “Suitability Standards” beginning on page ii for further details and additional suitability requirements that may apply to residents of specific states or clients of participating broker-dealers.
 
Plan of Distribution
 
 We are offering on a best efforts, continuous basis up to 209,000,000 shares of our common stock at our current offering price of $11.10 per share. Our Managing Dealer is CNL Securities Corp., which is an affiliate of CNL and a member of the Financial Industry Regulatory Authority, or FINRA, and the Securities Investor Protection Corporation, or SIPC. Our Managing Dealer is not required to sell any specific number or dollar amount of shares, but has agreed to use its best efforts to sell the shares offered. The minimum permitted purchase is $5,000 in shares of our common stock (or $4,000 for qualified plans). We will sell our shares on a continuous basis at the current offering price of $11.10. If or when our net asset value per share increases above our net proceeds per share as stated in this prospectus, our board of directors will increase our public offering price to ensure that shares are sold at a net price, after deduction of selling commissions and marketing support fees, that is not below our net asset value per share. See “Plan of Distribution” beginning on page 104.
 
How to Subscribe
 
 Investors who meet the suitability standards described in this prospectus may purchase shares of our common stock. Investors seeking to purchase shares of our common stock should proceed as follows:
 
       
 
Review this entire prospectus and any appendices and supplements accompanying this prospectus.
 
       
 
Complete and execute a subscription agreement and submit the completed subscription agreement to a selected broker-dealer. A specimen copy of the subscription agreement is included as an exhibit to the registration statement of which this prospectus forms a part.
 
       
 
Your investment funds for the full purchase price of the shares of our common stock must be submitted with your subscription agreement. Your initial subscription amount must be at least $5,000 (or $4,000 for qualified plans). Any purchases thereafter must be at least $500.
 
       
 
Direct a funds wire to UMB Bank, N.A. as EA for Corporate Capital Trust, ABA Routing #101000695, Account #987 191 7118, FBO (Investor’s Name); or
 
       
 
 
8

 
 
       
 
Make any check payable to “UMB Bank, N.A., as EA for Corporate Capital Trust, Inc.” or, if purchasing for a qualified plan or brokerage account, the custodian of record.
 
       
 
 We schedule weekly closings on subscriptions received and accepted by us. Subscriptions will be effective only upon our acceptance, and we reserve the right to reject any subscription in whole or in part. Subscriptions will be accepted or rejected within 30 days of receipt by us and, if rejected, all funds will be returned to subscribers without deduction for any expenses within ten business days from the date the subscription is rejected. We are not permitted to accept a subscription until at least five business days after the date you receive this prospectus. See “Subscription Process” on page 109.
 
Shareholder Liquidity Strategy
 
 On or before December 31, 2018, our board of directors must consider, but is not required to recommend or complete, a liquidity event for our shareholders. A 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. 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. If a liquidity event is not completed, shareholders may be required to hold their shares for an indefinite period of time. Prior to a liquidity event, our share repurchase program may provide a limited opportunity for you to have your shares of common stock repurchased as described below.  See “Company Profile – Shareholder Liquidity Strategy” beginning on page 52.
 
Our Distribution Reinvestment Plan
 
 We have adopted a distribution reinvestment plan that allows our shareholders to have the full amount of their distributions reinvested in additional shares of our common stock.  See “Distribution Reinvestment Plan” on page 110.
 
Share Repurchase Program
 
 We have adopted a share repurchase program in which we may repurchase, in each quarter, up 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. See “Share Repurchase Program” beginning on page 111.
 
Reports to Shareholders
 
 Within 45 days after the end of each fiscal quarter, we are required to file our quarterly report on Form 10-Q. Within 90 days after the end of each fiscal year, we are required to file our annual report on Form 10-K. We will provide a copy of our annual report on Form 10-K to all shareholders of record as of the end of each fiscal year shortly after filing it with the SEC. These reports, including any prospectus supplements, current reports on Form 8-K and any amendments to these listed reports are made available free of charge on our website at  www.corporatecapitaltrust.com and on the SEC’s website at www.sec.gov. See “Additional Information – Reports to Shareholders” beginning on page 112.
 
Taxation of Our Company
 
 We have elected to be treated, and intend to qualify annually, as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay corporate-level federal income taxes on ordinary income or capital gains we distribute to our shareholders from our tax earnings and profits. To maintain our RIC qualification, we must continue to meet specified source-of-income and asset diversification requirements and distribute annually at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. We will monitor our transactions to endeavor to prevent our disqualification as a RIC.  See “Tax Matters” beginning on page 114.
 
 
       
 
 
9

 
 
 
The following table is intended to assist you in understanding the costs and expenses that an investor in shares of our common stock will bear, directly or indirectly. Other expenses are estimated and may vary.  The following table and example should not be considered a representation of our future expenses. Actual expenses may be greater or less than shown. Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by “you” or “us” or that “we” will pay fees or expenses, shareholders will indirectly bear such fees or expenses.
 
Shareholder transaction expenses (as a percentage of offering price)
     
Sales load (1)
   
10.00
%
Offering expenses (2)
   
1.0
%
Distribution reinvestment plan fees (3) 
 
%
Total shareholder transaction expenses
   
11.0
%
       
Annual expenses
(as a percentage of net assets attributable to common shares)
     
Base management fee (4) (5)
   
3.15
%
Incentive fees (6) 
   
0.65
%
Interest payments on borrowed funds (4) (7) 
   
1.68
%
Acquired fund fees and expenses (4)(8)
 
0.01
%
Other expenses (9)
   
0.82
%
Total annual expenses
   
6.32
%
 
Example: We have provided an example of the projected dollar amount of total expenses that would be incurred over various periods with respect to a hypothetical $1,000 investment in our common stock. In calculating the following expense amounts, we have assumed that: (1) we have indebtedness, including deemed senior securities from the TRS arrangement, equal to 67% of our average net assets, (2) that our annual operating expenses remain at the levels set forth in the table above, (3) that the annual return on investments before fees and expenses is 5%, (4) that the net return after payment of fees and expenses is distributed to shareholders and reinvested at net asset value, and (5) that subscribers to our shares will pay an up-front selling commission of up to 7% and a marketing support fee of up to 3% with respect to common stock sold by us in this offering.
 
   
1 Year
   
3 Years
   
5 Years
   
10 Years
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return from investment income:
 
$
160
   
$
259
   
$
357
   
$
596
 
You would pay the following incremental incentive fees on a $1,000 investment, assuming 5% annual return solely from realized capital gains:
 
$
+14
   
$
+38
   
$
+57
   
$
+88
 
Total expenses assuming a 5% annual return solely from realized capital gains:
 
$
174
   
$
297
   
$
414
   
$
684
 
 
While the example assumes a 5% annual return on investment before fees and expenses, our performance will vary and may result in an annual return that is greater or less than 5%.  This example should not be considered a representation of your future expenses.  If we achieve sufficient returns on our investments to trigger a subordinated incentive fee on income of a material amount, both our distributions to our common shareholders and our expenses would be higher. If the 5% annual return is generated entirely from annual, realized capital gains, an incentive fee on capital gains under the Investment Advisory Agreement would be incurred, as shown above.  See “Advisory Agreements and Fees” for information concerning incentive fees. If we achieve sufficient returns on our investments to trigger a subordinated incentive fee on income of a material amount, our expenses would likely be higher.
 
(1)
As shares are sold, you will pay a maximum sales load of 10% for combined selling commissions and marketing support fees to our Managing Dealer in accordance with the terms of the managing dealer agreement, which we refer to in this prospectus as the Managing Dealer Agreement. Our Managing Dealer will engage unrelated, third-party participating broker-dealers in connection with the offering of shares. In connection with the sale of shares by participating broker-dealers, our Managing Dealer will reallow and pay participating broker-dealers up to: (a) 7% of the gross proceeds from their allocated sales and (b) 3% for marketing support fees.  See ”Plan of Distribution” for a description of the circumstances under which a selling commission and/or marketing support fee may be reduced or eliminated in connection with certain purchases. Selling commissions and marketing support fees will not be paid in connection with the purchase of shares pursuant to the distribution reinvestment plan.
 
 
10

 
 
   
(2)
The offering expense reimbursement ratio of 1.0% is based on current estimates of (i) offering expenses of $22.2 million to be incurred and reimbursed by us in connection with this offering, (ii) 209 million shares sold pursuant to this offering and (iii) a public offering price of $11.10 per share over the term of this offering. While we believe that these estimates are reasonable, the actual offering expense reimbursement ratio may be higher than 1.0%. CNL and KKR are responsible for the payment of our organization and offering expenses to the extent that these expenses exceed 5% of the aggregate gross proceeds from the offering, without recourse against or reimbursement by us. For the six months ended June 30, 2013 and the year ended December 31, 2012, the effective offering expense reimbursement rates were 0.93% and 0.72% of gross offering proceeds, respectively.
   
 
Pursuant to an Expense Support and Conditional Reimbursement Agreement, as amended, between us and our Advisors agreed to pay certain of our operating expenses during the period June 16, 2011 through June 30, 2012.  We have been reimbursing and will continue to reimburse our Advisors for the full amount of these payments and our reimbursements have reduced and will continue to reduce the distributions that would otherwise be paid to shareholders.  Reimbursement payments are included in other expenses in the Fees and Expenses table above.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations—Expense Support Agreement.”
   
(3)
The expenses of the distribution reinvestment plan are included in other expenses in the table above. See “Distribution Reinvestment Plan.” 
   
(4)
Net assets employed as the denominator for expense ratio computation is $1.73 billion.  This estimate is based on the assumption that we sell $1.04 billion worth of our common stock in the twelve month period ending September 30, 2014. Actual net assets will depend on the number of shares we sell, realized gains/losses, unrealized appreciation/depreciation and share repurchase activity.
   
(5)
Our base management fee paid to our Advisors is calculated at an annual rate of 2% on the average value of our gross assets, and assuming we borrow funds, including the deemed senior securities from the TRS arrangement, at 67% of net assets. The estimate in the Fees and Expenses table is greater than 2% since it is computed as a percentage of net assets. If we borrow funds in excess of the 67% debt-to-net asset value ratio, then our base management fee in relation to our net assets would be higher than the estimate presented in the fee table.
 
(6)
The estimate for incentive fees assumes that the incentive fees payable to our Advisors (including the accrual for net unrealized appreciation) will bear the same percentage to average net assets for 2013 as (i) the incentive fees, including the accrual for earned and unearned incentive fees on capital gains for 2012 ($1.98 million, as reported in our 2012 Form 10-K) bears to (ii) our average net assets for 2012 ($304.26 million, as reported in our 2012 Form 10-K), which percentage is 0.65%. Actual results for 2013 may differ materially from this estimate. No incentive fee was earned by the Advisors in 2012. Based on our current business plan, we anticipate that we may have sufficient capital gains and net investment income that could result in the payment of an incentive fee to our Advisors for the fiscal year ending December 31, 2013. The incentive fees are based on our performance and will not be paid unless we achieve certain goals. See “Advisory Agreements and Fees” for more information concerning the incentive fees. The incentive fee, if any, comprises two parts: 
 
 
(i)
a subordinated incentive fee on income, which, at a maximum, for any quarter in which our pre-incentive fee net investment income exceeds 2.1875% of our average adjusted capital, will equal 20% of the amount of our pre-incentive fee net investment income; and
     
 
(ii)
an incentive fee on capital gains that will equal 20% of our capital gains, if any, less the aggregate amount of any previously paid incentive fee on capital gains as calculated in accordance with GAAP (subject to the limitation discussed in the next paragraph).
 
 
From and after January 1, 2013, for purposes of computing the performance-based incentive fee payable to the Advisors, we disregard any gains associated with the TRS interest spread (which represents the difference between (i) the interest and fees received on total return swaps, and (ii) the interest paid to the total return swaps counterparty on the settled notional value of total return swaps), and we only consider the net realized gains or losses on the termination or maturity of total return swaps for the purpose of testing and computing incentive fees on capital gains that may be payable annually to the Advisors.
   
(7)
We borrow funds to make investments, and the costs associated with such borrowing will be indirectly borne by our investors. The estimate in the Fees and Expenses table assumes we borrow for investment purposes an amount equal to 67% of our net assets and that the weighted average all-in annual cost of borrowings, including the TRS financing costs, is 2.59%. 
   
(8)
From time to time, we may invest in the securities or other investment instruments of public investment companies or business development companies. We assume a daily average of $100 million invested in money market funds at an average annual operating expense ratio of 0.16%.
   
(9)
Other expenses are based on a projection of expenses we expect to incur in connection with administering our business and our company during calendar year 2013. The expenses of the distribution reinvestment plan are included in other expenses. The percentage presented in the Fees and Expenses table is based on the assumptions that (i) we achieve average net assets of approximately $1.03 billion during calendar year 2013, and (ii) that all remaining unreimbursed expense support payments as of December 31, 2012 will be accrued and included in other expenses as reimbursement payable to the Advisors. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Expenses.”
 
 
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Q:
What are business development companies?
   
A:
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 sections of and rules under the 1940 Act, as well as the Securities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or the Exchange Act. Business development companies typically invest in private or thinly traded public companies in the form of long-term debt or equity capital, with the goal of generating current income and/or capital growth. Business development companies can be internally or externally managed and may qualify to elect to be taxed as regulated investment companies, or RICs, for federal tax purposes if they so choose.
   
Q:
What is a RIC?
   
A:
A RIC is a regulated investment company under Subchapter M of the Code. A RIC generally does not have to pay corporate level federal income taxes on any income that it distributes to its shareholders as taxable distributions. To qualify as a RIC, a company must meet certain source-of-income and asset diversification requirements. In addition, in order to maintain RIC tax treatment, a company must distribute to its shareholders for each taxable year at least 90% of its “investment company taxable income,” which is generally its net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses.
   
Q:
Will the distributions to which I would otherwise be entitled be reduced by reimbursements owed to the Advisors for expense support payments in prior years?
   
A:
You should understand that a significant amount of our prior distributions in calendar year 2011 were not based on our investment performance, but were supported by the Advisors in the form of operating expense support payments from the Advisors to us, and these payments are subject to reimbursement by us.  You should also understand that our reimbursements to the Advisors will reduce the distributions that you would otherwise be entitled to receive.  As of December 31, 2012, we accrued $1.83 million (approximately $0.06 per weighted average share outstanding in 2012) for reimbursement of the Advisors.  This amount, which was subsequently paid to the Advisors in the first quarter of 2013, would otherwise have been paid to shareholders in 2012.  As of June 30, 2013, we have accrued for additional reimbursements payable to the Advisors for prior-year expense support payments in the amount of $1.13 million (approximately $0.014 per weighted average share outstanding), and this amount is expected to be paid in the first quarter of 2014.  Both the paid and accrued amount in 2013 will complete our reimbursement obligations for all expense support payments from prior periods.
   
Q:
What is a “best efforts” securities offering and how long will this securities offering last?
   
A:
When shares of common stock are offered to the public on a “best efforts” basis, the broker-dealers participating in the offering are only required to use their best efforts to sell such shares. Broker-dealers are not underwriters, and they do not have a firm commitment or obligation to purchase any of the shares of common stock. We currently intend to file post-effective amendments to this registration statement, which will be subject to SEC review, to allow us to continue this offering for at least two years. Under certain conditions, we may decide to extend this offering beyond two years.
   
Q:
At what periodic frequency will we accept and close on subscriptions?
   
A:
We schedule weekly closings on subscriptions received and accepted by us.
   
Q:
Will I receive a stock certificate?
   
A:
No. Our board of directors has authorized the issuance of shares of our capital stock without stock certificates. All shares of our common stock are issued in book-entry form only. The use of book-entry registration protects against loss, theft or destruction of stock certificates and reduces our offering costs and transfer agency costs.
   
Q:
Can I invest through my IRA, SEP or after-tax deferred account?
   
A:
Yes, subject to the suitability standards. A custodian, trustee or other authorized person must process and forward to us subscriptions made through individual retirement accounts, or IRAs, simplified employee pension plans, or SEPs, or after-tax deferred accounts. In the case of investments through IRAs, SEPs or after-tax deferred accounts, we will send the confirmation and notice of our acceptance to such custodian, trustee or other authorized person. Please be aware that in purchasing shares, custodians or trustees of employee pension benefit plans or IRAs may be subject to the fiduciary duties
 
 
12

 
 
  imposed by the Employee Retirement Income Security Act of 1974, as amended, or ERISA, or other applicable laws and to the prohibited transaction rules prescribed by ERISA and related provisions of the Code. In addition, prior to purchasing shares, the trustee or custodian of an employee pension benefit plan or an IRA should determine that such an investment would be permissible under the governing instruments of such plan or account and applicable law. See ”Suitability Standards” for more information.
   
Q:
What kinds of fees will I be paying?
   
A:
There are two types of fees that you will incur. First, there are shareholder transaction expenses that are a one-time up-front fee. They are calculated as a percentage of the public offering price and made up of selling commissions, marketing support fees and offering expenses. Second, as an externally managed business development company, we also incur various recurring expenses, including the management fees and incentive fees that are payable under our Investment Advisory Agreement and administrative costs that are payable under our Administrative Services Agreement. See “Fees and Expenses” and “Advisory Agreements and Fees” for more information.
   
Q:
How will the payment of fees and expenses affect my invested capital?
   
A:
The payment of fees and expenses will reduce: (i) the funds available to us for investments in portfolio companies, (ii) the net income generated by us, (iii) funds available for distribution to our shareholders and (iv) the book value of your shares of common stock.
   
Q:
Are there any restrictions on the transfer of shares?
 
A:
No. Shares of our common stock have no preemptive, exchange, conversion or redemption rights and are freely transferable. We do not intend to list our securities on any securities exchange during the offering period, and we do not expect there to be a public market for our shares in the foreseeable future. As a result, your ability to sell your shares will be limited. We will not charge for transfers of our shares except for necessary and reasonable costs actually incurred by us. See ”Risk Factors – Risks related to an investment in our common stock.”
   
Q:
Will I be able to sell my shares of common stock in a secondary market?
   
A:
We do not intend to list our shares on a securities exchange during the offering period and do not expect a public market to develop for our shares in the foreseeable future. Because of the lack of a trading market for our shares, shareholders may not be able to sell their shares promptly or at a desired price. If you are able to sell your shares, you may have to sell them at a discount to the purchase price of your shares.
   
Q:
Will I otherwise be able to liquidate my investment?
   
A:
On or before December 31, 2018, our board of directors must consider, but is not required to recommend or complete, a liquidity event for our shareholders. A liquidity event could include: (i) a listing of our shares on a national securities exchange; (ii) a merger or other transaction approved by our board of directors in which our shareholders will receive cash or shares of another publicly traded 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. However, there can be no assurance that we will complete a liquidity event within such time or at all. To provide limited, interim liquidity to our shareholders, we conduct quarterly tender offers in accordance with the 1940 Act. This will be the only method available to our shareholders to obtain liquidity that we will offer prior to a liquidity event.  See “Share Repurchase Program.”
   
Q:
Will the distributions I receive be taxable?
   
A:
Yes. Although we intend to maintain annually our qualification as a RIC and generally not to pay federal corporate-level taxes, distributions by us generally are taxable to U.S. shareholders as ordinary income or capital gains. Distributions of our “investment company taxable income” (generally our net ordinary income plus realized net short-term capital gains in excess of realized net long-term capital losses) will be taxable as ordinary income to U.S. shareholders to the extent of our current or accumulated earnings and profits, whether paid in cash or reinvested in additional common stock. Distributions of our net capital gains (generally our realized net long-term capital gains in excess of realized net short-term capital losses) properly designated by us as “capital gain dividends” will be taxable to a U.S. shareholder as long-term capital gains in the case of individuals, trusts or estates, regardless of the U.S. shareholder’s holding period for his, her or its common stock and regardless of whether paid in cash or reinvested in additional common stock. Distributions in excess of our earnings and profits, or return of capital, first will reduce a U.S. shareholder’s adjusted tax basis in such shareholder’s common stock and, after the adjusted basis is reduced to zero, will constitute capital gains to such U.S. shareholder.  SeeTax Matters.”
 
 
13

 
 
Q:
When will I get my detailed tax information?
   
A:
Consistent with the Internal Revenue Service requirements, we intend to send to each of our U.S. shareholders, as promptly as possible after the end of each calendar year, a Form 1099-DIV detailing the amounts includible in such U.S. shareholder’s taxable income for such year as ordinary income and as long-term capital gain.
   
Q:
What is a total return swap?
   
A:
A total return swap, or TRS, is a contract in which one party agrees to make periodic payments to another party based on the change in the market value of the reference assets underlying the contract and any associated cash flows related to those reference assets, which may include a specified security, basket of securities or securities indices during the specified period, in return for periodic payments based on a fixed or variable interest rate. A TRS effectively adds leverage to a portfolio by providing investment exposure to a security or market securities index without owning or taking physical custody of such security or investing directly in such security, basket of securities or specified index.  See“Management’s Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources— Total Return Swaps.”
   
Q:
Where are the principal executive offices of Corporate Capital Trust?
   
A:
Our principal executive offices are located at 450 S. Orange Ave., Orlando, FL 32801.
   
Q:
Who can help answer my questions?
 
A:
If you have more questions about this offering and the suitability of investing, you should contact your registered representative, financial advisor or investment advisory representative. If at any time you wish to receive this prospectus or the statement of additional information, or SAI, or any amendments to either of them, you may do so, free of charge, by contacting us through written communication at 450 S. Orange Ave., Orlando, FL 32801 or by telephone at 866-650-0650 or by downloading these materials on our website at  www.corporatecapitaltrust.com .
 
 
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RISK FACTORS
 
Investing in our common stock involves a number of significant risks. In addition to the other information contained in this prospectus, you should consider carefully the following information before making an investment in our common stock. The risks below are not the only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us may also impair our operations and performance. If any of the following events occur, our business, financial condition and results of operations could be materially and adversely affected. In such case, the net asset value and trading price, if any, of our common stock could decline, and you may lose all or part of your investment.
 
Risks related to our business
 
We have a limited operating history.
 
We are a relatively new company and 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 are dependent upon the investment expertise, skill and network of business contacts of our Advisors to achieve our investment objective. Our Advisors evaluate, negotiate, structure, execute, monitor, and service our investments. Our success depends 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  key professionals from KKR and CNL 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 continued 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
 
 
15

 
 
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.
 
The amount of any distributions we may make is uncertain. 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, and our distributions may be reduced. We have not established any limit on the extent to which we may use borrowings, if any, or offering proceeds 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 prospectus. 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. Distributions from offering proceeds or from borrowings also could reduce the amount of capital we ultimately invest in interests of portfolio companies.  We cannot assure you that we will continue to pay distributions to our shareholders in the future.
 
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 have not established any limit on the extent to which we may use borrowings, if any, or offering proceeds to fund distributions (which may reduce the amount of capital we ultimately invest in portfolio companies).
 
In the event that we encounter delays in locating suitable investment opportunities, we may pay our distributions from offering proceeds 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 offering proceeds 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 significant portion of our investment portfolio is 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 this offering and may use the net proceeds from this 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 levels. 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 prospectus 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.  See “Determination of Net Asset Value.”
 
 
17

 
 
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. See “Tax Matters.”
 
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 Advisors. Our board of directors may decide in the future to acquire assets and personnel from our Advisors or their affiliates for consideration that would be negotiated at that time. There can be no assurances that we will be successful in retaining our Advisors’ key personnel in the event of a management internalization transaction. In the event we were to acquire either of our Advisors, 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 Advisors that 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 Advisors, 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 our 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.
 
Our Advisors have only two years of experience managing a vehicle regulated as a business development company and may not be able to continue 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.
 
 
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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.
 
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.
 
The Advisors will experience conflicts of interest in connection with the management of our business affairs.
 
Our Advisors will experience conflicts of interest in connection with the management of our business affairs, relating to the allocation of investment opportunities by the Advisors and its affiliates; compensation to the Advisors; services that may be provided by the Advisors and its affiliates to issuers in which we invest; investments by us and other clients of the Advisors, subject to the limitations of the 1940 Act; the formation of additional investment funds by the Advisors; differing recommendations given by the Advisors to us versus other clients; the Advisors’ use of information gained from issuers in our portfolio to investments by other clients, subject to applicable law; and restrictions on the Advisors’ use of “inside information” with respect to potential investments by us.
 
The Advisors have incentives to favor their respective other accounts and clients over us, which may result in conflicts of interest that could be harmful to us.
 
Because our Advisors manage assets for other investment companies, pooled investment vehicles and/or other accounts (including institutional clients, pension plans and certain high net worth individuals), certain conflicts of interest are present.  For instance, an Advisor may receive fees from certain accounts that are higher than the fees received by the Advisor from us, or receive a performance-based fee on certain accounts.  In those instances, a portfolio manager for the Advisor has an incentive to favor the higher and/or performance-based fee accounts over us. In addition, a conflict of interest exists to the extent an Advisor has proprietary investments in certain accounts, where its portfolio managers or other employees have personal investments in certain accounts or when certain accounts are investment options in the Advisor’s employee benefit plans. The Advisor has an incentive to favor these accounts over us.
 
An Advisor’s actions on behalf of its other accounts and clients may be adverse to us and our investments and harmful to us.
 
Each of our Advisors manages assets for accounts other than us, including private funds (for purposes of this section, “Advisor Funds”). Actions taken by an Advisor on behalf of its Advisor Funds may be adverse to us and our investments which could harm our performance.  For example, we may invest in the same credit obligations as other Advisor Funds, although, to the extent permitted under the 1940 Act, our investments may include different obligations of the same issuer.  Decisions made with respect to the securities held by one Advisor Fund may cause (or have the potential to cause) harm to the different class of securities of the issuer held by other Advisor Funds (including us).  As a further example, an Advisor may manage accounts that engage in short sales of (or otherwise take short positions in) securities or other instruments of the type in which we invest, which could harm our performance for the benefit of the accounts taking short positions, if such short positions cause the market value of the securities to fall.
 
Our Advisors will face restrictions on their use of inside information about existing or potential investments that they acquire through their relationships with other advisory clients, and those restrictions may limit the freedom of our Advisors to enter into or exit from investments for us, which could have an adverse effect on our results of operations.
 
The members, officers, directors, employees, principals or affiliates of our Advisors may come into possession of material, non-public information.  The possession of such information may limit the ability of our Advisors to buy or sell a security or otherwise to participate in an investment opportunity.  In certain circumstances, employees of our Advisors may serve as board
 
 
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members or in other capacities for portfolio or potential portfolio companies, which could restrict our ability to trade in the securities of such companies.  For example, if personnel of an Advisor come into possession of material non-public information with respect to our investments, such personnel will be restricted by our Advisor’s information-sharing policies and procedures or by law or contract from sharing such information with our management team, even where the disclosure of such information would be in our best interests or would otherwise influence decisions taken by the members of the management team with respect to that investment.  This conflict and these procedures and practices may limit the freedom of our Advisors to enter into or exit from potentially profitable investments for us which could have an adverse effect on our results of operations.  Accordingly, there can be no assurance that we will be able to fully leverage the resources and industry expertise of our Advisors’ other businesses.  Additionally, there may be circumstances in which one or more individuals associated with and Advisor will be precluded from providing services to us because of certain confidential information available to those individuals or to other parts of the Advisor.
 
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. For additional discussion regarding the tax implications of being a RIC, see “Tax Matters.”
 
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 base management fee— a portion of which is paid to KKR —is payable based upon our gross assets (which includes any borrowings for investment purposes, any unrealized depreciation or appreciation on the TRS and any cash collateral on deposit pursuant to the terms of the TRS) 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
 
 
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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.
 
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 the other clients of our Advisors, 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 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 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.
 
We and our Advisors applied for exemptive relief from the SEC under the 1940 Act to allow us additional latitude to co-invest alongside our Advisors’ and their respective affiliates. On May 21, 2013, the SEC issued a final order granting the requested exemptive relief. The exemptive relief permits us to participate in certain transactions originated by the Advisors or their respective affiliates. However, affiliates of our Advisors whose primary business includes the origination of investments may engage in investment advisory businesses with client accounts that compete with us, and those affiliates have no obligation to make their originated investment opportunities available to our Advisors or to us.
 
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 an affiliates’ other client holds a different class of securities than we as a result of such transactions, our interests may not be aligned.
 
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 forgo the opportunity to receive any positive returns associated with investing in companies controlled by affiliates’ other clients.
 
We are not managed by KKR & Co. or CNL Financial Group, but rather subsidiaries of both and may not replicate the success of those entities.
 
We are managed by our Advisors and not by CNL Financial Group or KKR & Co. Our performance may be lower or higher than the performance of other entities managed by CNL Financial Group or KKR & Co. or their affiliates and their past performance is no guarantee of our future results.
 
 
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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.
 
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, and, if necessary, the payment of operating expenses and the 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
 
 
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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 additional 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 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 the portfolio company, including equity interests in any of its 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:
 
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.
 
 
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In the case of payment-in-kind, or “PIK,” “toggle” debt, the PIK election has the simultaneous effects of increasing the investment income, thus increasing the potential for realizing incentive fees.
 
Original issue discount creates risk of non-refundable cash payments to the Advisors 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 portfolio 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 portfolio 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. Because 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 that are domiciled outside of the United States. We anticipate that up to 30% of our investments may be in these types of assets. 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 the limitation on our ownership of foreign portfolio companies, such investments subject us to many of the same risks as our domestic investments, as well as certain additional risks, 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;
 
 
 
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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;
 
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.
 
The TRS and any other derivative transactions into which we may enter expose us to certain risks, including market risk, liquidity risk and other risks associated with the use of leverage.
 
As of November 2012, our wholly owned special purpose financing subsidiary, Halifax Funding, became a party to a total return swap arrangement, or TRS, with The Bank of Nova Scotia, referred to as the counterparty. Pursuant to the TRS, we periodically receive any income generated by TRS reference assets underlying the TRS and collected by the counterparty.  We also receive the realized gains from the liquidation of TRS reference assets over the life of the TRS.  Correspondingly, if there is a net realized loss from the liquidation of TRS reference assets over the life of the TRS, we are required to periodically pay the counterparty the amount of such net realized losses. Pursuant to the terms of the TRS arrangement, we must pay the counterparty a series of floating rate periodic payments over the life of the TRS.  These periodic payments are based on the settled notional amounts of the underlying TRS reference assets.
 
The TRS effectively adds leverage to our portfolio by providing us investment and economic exposure to a security or portfolio of securities without our owning, investing directly in, or taking physical custody of such security or portfolio of securities.
 
The TRS is subject to market risk, liquidity risk and risk of imperfect correlation between the value of the TRS and the TRS reference assets underlying the TRS.  In addition, because the TRS is a form of synthetic leverage, it is subject to risks associated with the use of leverage. Moreover, we may incur certain costs in connection with the TRS that could in the aggregate be significant.
 
The TRS is subject to the risk that the counterparty will default on its payment obligations under the TRS arrangement or that one party will otherwise not be able to meet its contractual obligations to the other. Under the TRS, we make periodic payments based on a variable interest rate and have to post collateral to secure our obligations to the counterparty.  In addition, by making periodic
 
 
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payments based on a variable interest rate, we bear the risk of depreciation with respect to the value of the TRS reference assets underlying the TRS and may be required under the terms of the TRS to post additional collateral on a dollar-for-dollar basis in the event the value of the TRS reference assets underlying the TRS depreciates in a material amount relative to any cash collateral previously posted by us.
 
If the counterparty chooses to exercise its termination rights under the TRS, it is possible that, because of adverse market conditions existing at the time of such termination, we will owe more to the counterparty (or will be entitled to receive less from the counterparty) than we would otherwise have if we 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 the TRS and any further total return swap to which we are a party, less the actual amount of any cash collateral posted by us under the TRS and such further 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 or bond underlying the TRS and any further 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.
 
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 may 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 was negatively impacted by significant write-offs as the value of the assets held by financial firms declined, impairing their capital positions and abilities to lend and invest. 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.
 
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;
 
 
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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 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. 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 our investments in portfolio companies (including that, as a business development company, we may be required to provide managerial assistance to those portfolio companies), we may be subject to allegations of lender liability.
 
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.
 
 
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The agreements governing each of our revolving credit facilities contain various covenants which, if not complied with, could accelerate repayment under the relevant facility, thereby materially and adversely affecting our liquidity, financial condition, results of operations and our ability to pay distributions to our shareholders.
 
Each of our wholly owned, special purpose financing subsidiaries (CCT Funding, Halifax Funding and Paris Funding), is party to a revolving or term credit facility with one or more lenders.  We or either of our special purpose financing subsidiaries may become party to such facilities in the future. The agreements governing these facilities currently, and are likely to continue to, 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 us or the relevant financing subsidiary, as applicable, of certain ineligible assets;
 
the insolvency or bankruptcy of us or the relevant financing subsidiary;
 
the decline of our or the relevant financing subsidiary’s, as applicable, 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 relevant 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 each facility would require us or the relevant financing subsidiary, as applicable, to comply with certain operational covenants. These covenants may, for example, require us or the relevant financing subsidiary, as applicable, 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, under the relevant facility, the occurrence of certain “Super-Collateralization Events” may result in an increase of the collateral equity value that we or the relevant financing subsidiary, as applicable, is required to maintain. Super-Collateralization Events would 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 or CNL ceasing to act as sub-advisor or advisor for us or CCT Funding;
 
our ceasing to act as the relevant financing subsidiary’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 us or the relevant financing subsidiary, as applicable or the occurrence of a Super-Collateralization Event under the relevant facility could result in our being required to retain, acquire or contribute to the relevant financing subsidiary, as applicable, additional assets, 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 relevant facility or the occurrence of any other event of default that results in the termination of such facility may force 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 relevant facility, the related lender 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 any facility will be subject to the satisfaction of certain conditions. We cannot assure you that we or the relevant financing subsidiary, as applicable, will be able to borrow funds under the relevant facility at any particular time or at all. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for a more detailed discussion of the terms of our credit facilities.
 
 
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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 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.
 
As of December 31, 2011 and December 31, 2012, $25.34 million and $159.62 million, respectively, was borrowed and outstanding under our credit facility. As of December 31, 2012 the weighted average interest rate for all amounts borrowed and outstanding under the credit facility was 2.26%.
 
Illustration. The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. The calculated results in the table are hypothetical and actual returns may be higher or lower than those presented in the table. The calculated results are based on the following assumptions:
 
$741.67 million in income earning total assets at beginning of 2013 (i.e., assumed total assets for the purpose of this illustration is equal to investments at fair value as of December 31, 2012 and reduced by the amount of payables for investments purchased plus the TRS reference assets at fair value);
 
$159.62 million in senior securities from the credit facility outstanding for 2013;
 
$76.04 million in deemed senior securities from the TRS for 2013;
 
an unused credit facility commitment balance of $15.38 million for 2013 and a commitment fee of 0.50% on unused credit facility commitment balances;
 
$611.49 million in net assets attributable to common stock; and
 
a current effective interest rate of 2.239%, which includes the impact of the TRS, for 2013.
 
In order to compute the “corresponding return to shareholders,” the “assumed return on our portfolio (net of expenses)” is multiplied by the assumed total assets to obtain an assumed return to us. The accrued interest expense is calculated by adding (i) the product of the assumed current effective interest rate times the assumed debt outstanding, and (ii) the product of the commitment fee times the assumed unused credit facility commitment balance. The accrued interest expense as so calculated is then subtracted from the assumed return to us in order to determine the return available to shareholders. The return available to shareholders is then divided by the total amount of net assets attributable to common stock to determine the “corresponding return to shareholders.” The amortization of deferred credit facility financing costs is not considered in accrued interest expense; actual interest payments may be different.
 
Assumed return on our portfolio (net of expenses)
 
-10.00
%
   
-5.00
%
   
0.00
%
   
5.00
%
 
10.00
%
   
0.80
%
Corresponding return to shareholders
 
-13.00
%
   
-6.94
%
   
-0.88
%
   
5.19
%
 
11.25
%
   
0.00
%
 
 
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The illustrative results in the table above indicate that an assumed -5.0% annual return on our earning assets in 2013 would hypothetically result in a -6.94% return to shareholders of our common stock. Likewise, an assumed 5.0% annual return on our earning assets in 2013 would hypothetically result in a 5.19% return to shareholders of our common stock. Finally, our portfolio must hypothetically earn an annual return of 0.8% in 2013 in order to cover annual interest payments on the assumed level of debt outstanding in 2013.
 
Risks related to an investment in our common stock
 
Investors will not know the purchase price per share at the time they submit their subscription agreements and could receive fewer shares of common stock than anticipated if our board of directors determines to increase the offering price to comply with the requirement that we avoid selling shares below net asset value.
 
The purchase price at which you purchase shares will be determined at each closing date to ensure that the sales price is equal to or greater than the then-current net asset value of our shares, after deducting selling commissions and marketing support fees. As a result, your purchase price may be higher than the prior subscription closing price per share, and therefore you may receive a smaller number of shares than if you had subscribed at the prior subscription closing price. See ”Determination of Net Asset Value.”
 
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 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 this 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 and 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.
 
We have adopted 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 has 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 this 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 this offering.
 
Because our Managing Dealer is an affiliate of CNL, its due diligence review of us is not considered independent. The absence of an independent due diligence review increases the risks and uncertainty you face as a shareholder.
 
Our Managing Dealer, CNL Securities Corp., is an affiliate of CNL. As a result, its due diligence review and investigation of us and this prospectus cannot be considered to be an independent review. Therefore, you do not have the benefit of an independent review and investigation of this offering of the type normally performed by an unaffiliated, independent underwriter in an underwritten public securities offering. You should not rely on your own broker-dealer to make an independent review and investigation of the terms of this offering. Because you should not rely on your broker-dealer, you will not have the benefit of any independent review and evaluation of the terms of this offering by the Managing Dealer. In addition, we do not, and do not expect to, have research analysts reviewing our performance or our securities on an ongoing basis. Therefore, you will not have an independent review of our performance and the value of our common stock relative to other publicly traded companies.
 
We may be unable to invest a significant portion of the net proceeds of this offering on acceptable terms in an acceptable timeframe.
 
Delays in investing the net proceeds of this 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.
 
 
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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 charter, which we refer to herein as the 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 or decrease the aggregate number of authorized shares of stock or the number of authorized shares of stock of any class or series 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 may 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.
 
Preferred stock could be issued with rights and preferences that would adversely affect holders of our common stock.
 
This 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 bylaws were amended 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 or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue. These provisions may inhibit a change of control in circumstances that could give the holders of our common stock the opportunity to realize a premium over the value of our common stock.
 
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 includes 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;
 
 
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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.
 
The price that the investor pays for our shares may not reflect the current net asset value of our company at the time of his or her subscription.
 
If our net asset value increases above our net proceeds per share as stated in this prospectus, we will sell our shares at a higher price as necessary to ensure that shares are not sold at a net price, after deduction of selling commissions and marketing support fees, that is below our net asset value per share. Also we will file a supplement to the prospectus with the SEC, or amend our registration statement, if our net asset value per share: (i) declines more than 10% from the net asset value per share as of the effective date of this registration statement or (ii) increases to an amount that is greater than the net proceeds per share as stated in the prospectus. Therefore, the net proceeds per share, net of all sales load, from a new investor may be in excess of the then current net asset value per share.
 
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 this offering until the net asset value per share is greater than 97.5% of the public offering price, net of sales load.
 
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. See “Tax Matters.”
 
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.
 
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
 
 
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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.
 
 
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FORWARD LOOKING STATEMENTS
 
Some of the statements in this prospectus may constitute forward-looking statements because they relate to future events or our future financial conditions. Words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The use of forecasts in this offering is prohibited. Any representations to the contrary or any predictions, written or oral, as to the amount or certainty of any present or future cash benefit or tax consequence which may flow from an investment in this program is not permitted.  The forward-looking statements contained in this prospectus involve risks and uncertainties, including statements as to:
 
our future operating results; 
   
our business prospects and the prospects of our portfolio companies; 
   
the effect of investments that we expect to make; 
   
our contractual arrangements and relationships with third parties; 
   
actual and potential conflicts of interest with our Advisors and their respective affiliates; 
   
the dependence of our future success on the general economy and its effect on the industries in which we invest; 
   
the ability of our portfolio companies to achieve their objectives; 
   
the use of borrowed money to finance a portion of our investments; 
   
the adequacy of our financing sources and working capital; 
   
the timing of cash flows, if any, from the operations of our portfolio companies; 
   
the ability of our Advisors to locate suitable investments for us and to monitor and administer our investments; 
   
the ability of our Advisors and their respective affiliates to attract and retain highly talented professionals; 
   
our ability to qualify and maintain our qualification as a RIC and as a business development company; and
   
the effect of changes to tax legislation and our tax position.
 
We caution you that forward-looking statements are not guarantees. 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 or maintain credit lines or credit facilities on satisfactory terms, changes in interest rates, availability of offering proceeds, 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.
 
Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless otherwise required by law.  You are advised to consult any additional disclosures that we may make directly to you or through reports that we file with the SEC in the future, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
 
The forward-looking statements and projections contained in this prospectus or in periodic reports we file under the Exchange Act are excluded from the safe harbor protection provided by Section 27A of the Securities Act and Section 21E of the Exchange Act.
 
 
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COMPANY PROFILE
 
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 and KKR, which 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 of our Advisors are registered as investment advisers with the SEC. We elected to be treated, beginning with our first taxable year ending December 31, 2011, and intend to qualify annually as a RIC under the Code.
 
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 with a focus on originated transactions sourced through the networks of our Advisors. As of the date of this prospectus, our invesment portfolio totaled $1.80 billion and consisted primarily of senior and subordinated debt. We anticipate that a substantial portion of our portfolio will continue to consist 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 separately purchase common or preferred equity interests in transactions. Our portfolio can be expected to include fixed-rate investments that generate absolute returns as well as floating-rate investments that provide protection in rising interest rate and inflationary environments.
 
We will seek to continue 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 intend to continue to be disciplined in selecting investments and focus on those opportunities that we perceive offer favorable risk/reward characteristics and relative value. We believe the market for lending is currently characterized by significant demand for capital and that we will continue to 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 continuing to capitalize on what we believe is a compelling and sustained market opportunity.
 
We are issuing only shares of our common stock in this offering and there are no classes of securities that are currently senior to the shares in which you are investing. Each share of common stock has equal rights to distributions, voting, liquidation, and conversion. Our common stock is non-assessable such that there is no liability for calls or assessments, nor are there any preemptive or redemption rights in favor of existing shareholders. Our distributions are neither set at predetermined times nor at minimum rates.  See “– Shareholder Liquidity Strategy.”
 
Our Advisors
 
Our investment advisers are CNL, which is responsible for the overall management of our activities, and KKR, which is responsible for the day-to-day management of our investment portfolio. CNL provides its services under the Investment Advisory Agreement and under the Administrative Services Agreement, and KKR provides its services under the Sub-Advisory Agreement. The activities of both Advisors are subject to the supervision and oversight of our board of directors.
 
Our investment process is a collaborative effort between CNL and KKR, and we benefit from the combined business and specific industry knowledge, transaction expertise and deal-sourcing capabilities they bring. To facilitate communication and coordination, our Advisors hold regular meetings to plan and discuss our investment strategy, potential investment opportunities, current market developments and investment goals. We believe their joint involvement in our business provides us with substantial market insight and valuable access to investment opportunities.
 
As required by the Omnibus Guidelines, as adopted by the North American Securities Administrators Association, our Advisors and their parent entities have an aggregate net worth in excess of $22.1 million. No portion of such net worth will be available to us to satisfy any of our liabilities or other obligations.
 
About CNL
 
CNL is a wholly owned subsidiary of CNL Financial Group, a leading private investment management firm providing global real estate and alternative investment opportunities. Since inception in 1973, CNL Financial Group or its affiliates have formed or acquired companies with more than $26 billion in assets. Over its history, CNL Financial Group has developed a contrarian investment philosophy and has invested through various market cycles in a broad range of industries, asset classes and geographies. Its sponsorship and management of a wide range of investment programs have fostered extensive experience investing in and lending to companies operating in the retail, restaurant, health care, hotel, leisure and recreation industries.
 
 
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CNL Financial Group has developed an investment philosophy that seeks to protect the downside, values quality over quantity and seeks to focus on underserved, undercapitalized markets. By championing a long-term perspective that focuses on building partnerships that extend beyond one transaction, CNL Financial Group has developed a broad network of business relationships, which we will continue to have access to and from which we will continue to benefit. CNL Financial Group strives to create enduring value by applying its TIC Principle™, which focuses on investing in the right Talent to work on the right Ideas with the Capital they need to succeed. Based in Orlando, Florida, CNL Financial Group is indirectly owned and controlled by James M. Seneff, Jr.
 
CNL is a Florida corporation that has been continuously registered as an investment adviser since June 19, 1991. CNL draws upon CNL Financial Group’s long-standing history of investment and capital markets experience and is led by a team of senior investment professionals, who have extensive experience in commercial lending, investment banking, accounting, real estate and private equity investing. Services provided by CNL and its affiliates include advisory, acquisition, development, lease and loan servicing, asset and portfolio management, disposition, client services, capital raising, finance and administrative. We believe this expertise will be valuable in managing a publicly registered and reporting investment program. Historically, CNL has advised high-net-worth individuals, pension and profit sharing plans, pooled investment vehicles, government entities and charitable organizations. CNL’s principal business address is 450 South Orange Ave., Orlando, FL 32801.
 
About KKR
 
KKR is a subsidiary of KKR & Co. L.P. (“KKR & Co.”), a leading global investment firm with $83.5 billion in assets under management as of June 30, 2013 and a 37-year history of leadership, innovation and investment excellence. Founded in 1976, KKR & Co. is a global firm with 18 offices and over 900 employees, including more than 200 investment professionals as of June 30, 2013. It operates an integrated global platform for sourcing and executing investments across multiple industries, asset classes and geographies, and its executives are incentivized to think of KKR & Co. as “one firm” and to promote the success of all of its endeavors. Since its inception, KKR & Co. has completed more than 200 private equity transactions with a total transaction value of over $470 billion. As of June 30, 2013, KKR had $19.9 billion of assets under management in credit investments.
 
KKR & Co. operates with a single culture that rewards investment discipline, creativity, determination and patience and the sharing of information, resources, expertise and best practices across offices and asset classes, subject to well-defined information sharing policies and procedures. Because it believes that deep industry knowledge is integral to sourcing deals, working with portfolio companies and creating value for investors, its investment professionals are organized in industry-specific teams that focus on nine core industries which require specialized knowledge and experience. These teams 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 this industry approach allows investment teams to become experts within their sectors and build strong relationships with companies needing capital, while covering the full corporate credit space. 
 
KKR is a Delaware limited liability company that has been registered as an investment adviser with the SEC since October 15, 2008. It manages a specialty finance company and a number of investment funds, structured finance vehicles and separately managed accounts that invest capital in both liquid and illiquid credit strategies on behalf of some of the largest public and private pension plans, global financial institutions, university endowments and other institutional and public market investors. As of June 30, 2013, KKR had $19.9 billion of credit assets under management and, with more than 40 investment professionals focused on corporate credit, tracked over 400 different borrowers. Its investment professionals utilize an industry and thematic approach to investing and benefit from access, where appropriate, to the broader resources and intellectual capital of KKR & Co.  KKR’s principal business address is 9 West 57th Street, New York, New York 10019.
 
Market Opportunity
 
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. We believe that the size of the market and these companies’ demand for flexible sources of capital have the potential to create an attractive investment environment for a number of reasons, including the following:
 
Current Market Environment. Although U.S. financial conditions have improved significantly since the recession of 2008-2009, we continue to identify highly interesting idiosyncratic investment opportunities. As U.S. corporate credit fundamentals have improved, default activity has decreased dramatically over the prior three years and remains low by historical standards.  There have been unprecedented new issue-volumes as the financing environment has improved dramatically.  Many large corporate issuers have benefited from this favorable capital market environment.  Despite the relative ease with which large-scale corporates may have access to low-cost capital en masse, there remains a substantial number of companies that, for a variety of reasons, are unable to access the syndicated debt markets on attractive financing terms.  In the United States, we have often found such reasons to include size of issuer, complicated industry dynamics, regulatory overhang, as well as unique or complex capital structures.  Given these market conditions, it is our view that
 
 
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providing senior and subordinated debt transactions to such companies represents an attractive investment opportunity. Furthermore, we believe the opportunity set for potential lending transactions is likely to increase given the potential for a gradual Federal Reserve tapering and for a move away from the current Central Bank-subsidized low-interest rate environment.
 
Significant Private Equity Capital Available for New Transactions. In addition to general refinancing opportunities that rely heavily on debt financing, we believe there is a large pool of committed but uninvested capital, both in the United States and globally, available for use in new private equity investments. Industry sources suggest that as of October 2013, there was more than $386 billion of private equity capital available for private equity investments in the United States alone. We expect that as a result of their investable capital, private equity firms will be active investors in U.S. medium- and large-sized companies over the next few years and will require significant amounts of debt to finance their transactions.
 
Greater Demand for Non-Traditional Sources of Debt Financing. We believe that the financial crisis of 2008 inspired a certain skepticism on the part of small and middle-market companies towards institutional banks. Facing balance sheet strain as a result of the financial crisis, we believe that these institutions have also become less focused on building a constructive, long-term relationship with smaller borrowers. Consequently, we believe there is an increasing trend for companies to seek financing from alternative capital providers, such as our Company, that are able to develop trusted relationships with borrowers and offer a higher degree of certainty.
 
Business Environment.  As new banking regulations, such as those implementing Basel III and the Dodd-Frank Act, require financial institutions to meet increased capital requirements, we believe it will become difficult and inefficient for these institutions to meet the financing needs of growing medium- to large-sized companies.  This, in our view will continue to provide us with a potential market opportunity to deploy capital through primary issuance securities to this growing segment of the U.S. economy.
 
Our Potential Competitive Advantages
 
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 may have 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 potential 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. 
 
Experienced Management and Investment Expertise. Each of our Advisors has 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.
 
 
 
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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 40 credit-focused investment professionals that currently track over 500 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, capital preservation and, to a lesser extent, long-term capital appreciation. We seek to continue to capitalize on this expertise and build our 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%.
 
Investment Types
 
We focus primarily on investments in senior and subordinated debt of eligible portfolio companies, which we believe offer opportunities for superior risk-adjusted returns and income generation. Our debt investments may be secured in varying degrees of priority or may be unsecured. We may also invest in common or preferred equity of portfolio companies or hold instruments that convert into such securities. The following diagram illustrates the placement of these investments lie in a typical portfolio company’s capital structure.
 
Typical Capital Structure Diagram
 
(FLOW CHART)
 
Senior debt is situated at the top of the capital structure and typically has the first claim on the assets and cash flows of a company followed by subordinated debt, preferred equity and common equity, respectively. Other than common equity, each category of investment may be further divided into different classes of holders that have different rankings, or priorities, among themselves. Due to this priority of cash flows, an investment’s risk increases as it moves further down the capital structure. Investors are usually compensated for assuming the risk associated with junior status in the form of higher expected returns, either through higher interest payments or potentially greater capital appreciation. We rely on our Advisors’ experience to structure investments, possibly using all levels of the capital structure, which we believe will perform in a broad range of economic environments.
 
 
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Our Investment Strategy
 
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 prospectus 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 our 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 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.
 
Investment Approach
 
We analyze corporate debt investments both from the “top-down” and the “bottom-up.” Our top-down analysis involves a macroeconomic analysis of relative asset valuations, long-term industry trends, business cycles, interest rate expectations, credit fundamentals and technical factors to target specific industry sectors and asset classes in which to invest. Our bottom-up analysis includes a rigorous analysis of the credit fundamentals and capital structure of each portfolio company considered for investment and a thorough review of the impact of credit and industry trends and dislocation events on a potential investment.
 
Our Transaction Process
 
(FLOW CHART)
 
Sourcing and Selecting Investments
 
We expect our relationships with our Advisors to provide us with immediate access to established sources of deal flow. We seek to benefit from transaction opportunities that arise in the ordinary course from their strong brands, established investment infrastructure, significant amounts of investable capital, and deep relationships with leading executives at major companies, financial institutions and other investment and advisory institutions who are seeking capital or participating in the capital formation process. To enhance our opportunities and increase the amount of investments that we may consider, we intend to further capitalize on proprietary investment opportunities that KKR identifies and develops through primary research, industry activities and deal sourcing skills of its investment professionals.
 
Due Diligence
 
Once a potential investment has been identified, the relevant investment team will screen the opportunity and make a preliminary determination concerning whether to proceed with a more comprehensive due diligence review. Because KKR is responsible for the day-to-day operations of our investment portfolio, its professionals lead our due diligence processes. The objective of our due diligence process is to identify attractive investment opportunities based on the facts and circumstances surrounding an investment and identify applicable business, financial, tax, accounting, structural, legal or other issues in order to determine whether an investment is suitable.
 
When evaluating the suitability of a debt investment, we employ an ownership-oriented, “private equity” approach to credit underwriting and subject each investment to a rigorous credit analysis. This review considers industry dynamics, the issuer’s competitive position, the quality and track record of the issuer’s management team, margin stability, industry and company trends, pricing terms, expected returns, credit structure, credit ratings, and historical and projected financial data. KKR’s investment professionals may meet with management or use the services of outside advisors and industry experts as appropriate to assist them in the due diligence process. We have access to the full available resources of both our Advisors, including KKR & Co. professionals that focus on other asset classes, where appropriate and permitted under information barriers and ethical walls.
 
 
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Transaction Structuring and Execution
 
In addition to due diligence, we believe that structuring transactions appropriately is a key factor to producing strong investment results under any economic conditions. Accordingly, we actively consider transaction structures and seek to process and negotiate terms that provide opportunities for superior risk-adjusted returns while still addressing the financing and business needs of the prospective portfolio company. To accomplish this goal, we work with the management teams and other financing providers to structure a financing package that will work for all parties and establish how an investment is expected to perform relative to other sources of capital. Relevant investment features may include investment seniority, collateral packages, cash interest payments, PIK interest payments, amortization schedules for principal repayments, redemption features, maturity dates, sinking fund provisions, covenants and pricing terms.
 
In the case of debt investments, we seek to structure each transaction in a manner that protects our rights and manages our risk while creating incentives for the prospective portfolio company to achieve its business plan and improve its profitability. For example, in addition to seeking a more senior position in the capital structure of our portfolio companies, we may limit the downside potential of our investments by:
 
requiring a total return on our investments (including both interest and potential equity appreciation) that compensates us for credit risk;
 
incorporating “put” rights and “call protection” into the investment structure; and
 
negotiating affirmative and negative covenants, default penalties, lien protection, change of control provisions and other creditor rights that protect our capital while affording the portfolio company as much flexibility in managing its business as is prudent.
 
Our debt investments may be accompanied by warrants, options or other forms of equity participation that provide additional consideration or “upside” in a transaction. Because warrants and other similar rights generally require only a nominal cost to exercise, they may generate additional investment returns with little incremental cost to us. We may also structure warrants and other similar rights to provide provisions protecting our rights as a minority-interest holder, as well as puts, or rights to sell such securities back to the company, upon the occurrence of specified events. In many cases, we may also obtain registration rights in connection with these investments that enhance the transferability of our investment.
 
Each investment that we make requires the approval of both of our Advisors. Once an investment has received the approval of both our Advisors, the transaction may be effected. Certain affiliated co-investment transactions may also require review and approval by our independent directors. Certain affiliated co-investment transactions, may also require review and approval by our independent  directors. Specifically, the 1940 Act imposes significant limits on co-investment with affiliates such as other funds or pools of capital  managed by CNL or KKR, and we generally will not be permitted to co-invest alongside our affiliates in privately negotiated  transactions unless such transactions are permitted pursuant to 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. On May 21,  2013, the SEC issued an order granting us exemptive relief that expands our ability to co-invest with certain of our affiliates in  privately negotiated transactions. Subject to the conditions specified in the exemptive order, we are permitted to co-invest with those  affiliates in certain additional investment opportunities, including investments originated and directly negotiated by our Advisors. See “Management.”
 
Monitoring Investments
 
Our Advisors meet regularly to discuss and review our portfolio. Because KKR is responsible for the day-to-day management of our portfolio, its professionals lead our ongoing portfolio monitoring process using daily, quarterly and annual analyses for our investments. Daily analyses include morning market meetings, industry and company pricing runs, and industry and company reports. Quarterly analyses include the preparation of quarterly operating results, reconciliations of actual results to projections and updates to financial models (including baseline and stress cases). Annual analyses involve preparing annual credit memoranda, conducting internal audits and testing compliance with monitoring and documentation requirements.
 
As a business development company, we are required to offer and provide managerial assistance to our portfolio companies. This assistance could involve monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. Our Advisors or our administrator will make available such managerial assistance, on our behalf, to our portfolio companies, whether or not they request this assistance.
 
 
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Exiting Investments
 
We seek to invest in portfolio companies that can generate consistent cash flow to repay their loans while maintaining growth in their businesses. We expect this internally generated cash flow to be a key means through which we will receive timely payment of interest and loan principal. Additionally, we seek to invest in portfolio companies whose business models and growth prospects offer attractive exit possibilities via third-party transactions, including sales to strategic or other buyers and initial public offerings of common stock. Such third-party transactions may be particularly important in realizing capital gains through the equity portions of our investments. We may also seek to exit investments in secondary market transactions when price targets are achieved or circumstances otherwise warrant.
 
Characteristics of Investments
 
While we consider each investment opportunity independently, we generally focus on portfolio companies that share the following characteristics:
 
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 size of a company in which we may invest, we expect to focus on companies with EBITDAs greater than $25 million. 
 
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 portfolio 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 portfolio 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, low-volatility 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.
 
Other Factors Affecting Portfolio Construction
 
As a business development company that is regulated under the 1940 Act and intends to qualify annually as a RIC under the Code, our investment activities are subject to certain regulatory restrictions that impact our portfolio construction. These restrictions include requirements that we invest our capital primarily in U.S. companies that are privately owned, as well as investment diversification and source of income criteria that are imposed by the Code.
 
 
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In addition, we generally are not permitted to co-invest alongside certain affiliates of our Advisors in privately negotiated transactions, absent an exemptive order from the SEC. On May 21, 2013, the SEC issued an order granting us exemptive relief that expands our ability to co-invest with certain of our affiliates in privately negotiated transactions.  Subject to the conditions specified in the exemptive order, we are permitted to co-invest with those affiliates in certain additional investment opportunities, including investments originated and directly negotiated by KKR.
 
Portfolio Update
 
As of June 30, 2013, our investment program consisted of two main components.  First, since the inception of our investment activities, 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 prospectus. Second, beginning in November 2012, we have been increasing our economic exposure to portfolio companies by entering into a total return swap arrangement 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 prospectus. 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. The settled notional amount of TRS reference assets is the net aggregate of notional amounts where the purchase and sale of reference assets underlying total return swaps have been settled by the counterparty and serves as the basis for paying financing charges to the counterparty under the TRS agreements.  The total notional amount of TRS reference assets includes the effect of purchases and sale of reference assets where trade settlement is pending.  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.
 
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.
 
Portfolio Companies
 
The following table sets forth certain information as of June 30, 2013 with respect to each portfolio company in which we had a debt or equity investment.  For information relating to the value of our investments and the general terms of loans to our portfolio companies at June 30, 2013, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Portfolio and Investment Activity” and our audited consolidated schedule of investments, which forms part of our consolidated financial statements.
 
Name and Address (a)
   
Nature of Business
   
Amortized Cost (b)
 
Air Distribution Technologies, Inc.
4801 Springfield Street
Dayton, OH 45431
   
Provides innovative air distribution and ventilation solutions
    $ 9,325,181  
                 
Algeco/Scotsman Holdings S.A.R.L.
901 South Bond Street Suite 600
Baltimore, MD 21231
   
Offers real estate rental and sales services
    $ 24,251,821  
                 
Allen Systems Group, Inc.
1333 3rd Avenue
South Naples, FL 34102
   
Provides software solutions
    $ 69,393  
                 
Altisource Solutions
291 Route d’Arlon
Luxembourg, L-1150 Luxembourg
   
Provides real estate and mortgage portfolio management, asset recovery and customer relationship management services  
    $ 17,602,090  
 
 
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Name and Address (a)
   
Nature of Business
    Amortized Cost (b)  
American Builders & Contractors Supply Co, Inc.
1 ABC Parkway
Beloit, WI 53511
   
Wholesale distributor of exterior building products
    $ 5,114,000  
                 
American Gaming Systems, LLC
2470 Saint Rose Parkway
Henderson, NV 89074
   
Designs and manufactures gaming machines
    $ 21,326,692  
                 
American Rock Salt Co., LLC
5520 Route 63 PO Box 190
Mount Morris, NY 14510
   
Produces de-icing salt products
    $ 20,874,032  
                 
Applied Systems, Inc.
200 Applied Parkway
University Park, IL 60466
   
Provides software solutions and services for insurance organizations to automate the management of their clients and policies
    $ 5,987,443  
                 
Arysta Lifescience SPC, LLC
Route D Artix
Nogueres, 64150 France
   
Develops, markets and distributes agroscience products
    $ 16,142,147  
                 
Aspen Dental Management, Inc.
281 Sanders Creek Parkway
East Syracuse, NY 13201
   
Operates as a dental practice management company
    $ 6,014,059  
                 
Audatex North America, Inc.
15030 Avenue of Science Suite 100
San Diego, CA 92128
   
Provides claims processing solutions
    $ 8,154,000  
                 
Avaya Inc.
211 Mount Airy Road
Basking Ridge, NJ 07920
   
Provides and manages enterprise communications systems
    $ 60,404,944  
                 
Block Communications, Inc.
6450 Monroe Street
Sylvania, OH 43560
   
Operates diversified media services
    $ 742,443  
                 
Bon-Ton Department Stores, Inc.
2081 Springwood Road
York, PA 17403
   
Operates department stores
    $ 3,777,000  
                 
Brake Bros Ltd.
Enterprise House, Eureka Business Park
Ashford, TN25 4AG United Kingdom
   
Engages in the supply of frozen, chilled, and ambient foods
    $ 11,723,548  
                 
Builders FirstSource, Inc.
2001 Bryan Street Suite 1600
Dallas, TX 75201
   
Manufactures and supplies of structural and related building products for residential new construction 
    $ 2,649,000  
                 
Caraustar Industries, Inc.
5000 Austell Powder Springs Road Suite 300
Austell, GA 30106
   
Manufactures and markets recycled and converted paperboard products
    $ 3,692,371  
                 
Catalina Marketing Corp.
200 Carillon Parkway
St Petersburg, FL 33716
   
Provides a network of marketing programs to consumer goods companies
    $ 36,067,869  
                 
CDW Corp.
200 North Milwaukee Avenue
Vernon Hills, IL 60061
   
Distributes technology products and services
    $ 12,352,091  
 
 
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Name and Address (a)
   
Nature of Business
    Amortized Cost (b)  
Cedar Bay Generating Co., LP
9640 Eastport Road
Jacksonville, FL 32218
   
Operates power generation plants
    $ 6,348,115  
                 
Cemex Espana S.A.
Hernandez de Tejada,1 Edificio 5A
Madrid, 28027 Spain
   
Produces, distributes, and markets cement, ready-mix concrete, aggregates, and related building materials
    $ 1,114,972  
                 
Cemex Materials, LLC
1501 Belvedere Road
West Palm Beach, FL 33406
   
Produces, distributes, and markets cement, ready-mix concrete, aggregates, and related building materials
    $ 22,932,819  
                 
Cemex S.A.B. de C.V.
Av Ricardo Margain Zozaya 325 Colonia Valle del Campestre
San Pedro Garza Garcia, NL 66265 Mexico
   
Produces, distributes, and markets cement, ready-mix concrete, aggregates, and related building materials
    $ 3,192,435  
                 
Cengage Learning Acquisitions, Inc.
200 First Stamford Place
Stamford, CT 06902
   
Offers proprietary publications and information-based solutions
    $ 14,420,994  
                 
Cequel Communications Holdings, LLC
12444 Powerscort Drive Suite 140
St. Louis, MO 63131
   
Operates as a cable operator in the United States
    $ 8,007,000  
                 
Ceridian Corp.
3311 East Old Shakopee Road
Minneapolis, MN 55425
   
Provides information, outsourced processing, and employee benefit services
    $ 29,517,837  
                 
CHG Companies, Inc.
6440 South Millrock Drive
Salt Lake City, UT
   
Provides healthcare staffing across the United States
    $ 11,610,616  
                 
Clearwater Paper Corp.
601 West Riverside Suite 1100
Spokane, WA 99201
   
Manufactures and sells tissue and paperboard products
    $ 1,587,000  
                 
Commscope, Inc.
1100 CommScope Place Southeast
Hickory, NC 28602
   
Provides connectivity solutions
    $ 21,720,969  
                 
CompuCom Systems, Inc.
7171 Forest Lane
Dallas, TX 75230
   
Provides information technology consulting, integration and outsourcing services
    $ 9,551,719  
                 
Container Store, Inc.
500 Freeport Parkway
Coppell, TX 75019
   
Operates a chain of retail stores
    $ 2,323,877  
                 
CRC Health Group, Inc.
20400 Stevens Creek Boulevard
Cupertino, CA 95014
   
Provides behavioral health care services
    $ 6,534,328  
                 
CRC Health Corp.
20400 Stevens Creek Boulevard
Cupertino, CA 95014
   
Provides behavioral health care services
    $ 1,138,768  
                 
CSM Bakery Products
1912 Montreal Road
Tucker, GA 30084
   
Offers bakery ingredients and product
    $ 15,034,610  
 
 
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Name and Address (a)
   
Nature of Business
    Amortized Cost (b)  
CTI Foods Holding Co., LLC
222303 Highway 95
Wilder, ID 83676
   
Produces custom food products for the foodservice industry
    $ 22,870,715  
                 
Cunningham Lindsey U.S., Inc.
405 State Highway 121 Byp A100
Lewisville, TX 75067
   
Provides insurance agent and broker services for a range of insurance types
    $ 5,129,363  
                 
Data Device Corp.
105 Wilbur Place
Bohemia, NY 11716
   
Line of business includes the manufacturing of computer peripheral equipment
    $ 15,571,372  
                 
DJO Finance, LLC
1430 Decision Street
Vista, CA 92081
   
Manufactures orthopedic devices for rehabilitation, pain management, and physical therapy
    $ 11,576,302  
                 
Eagle Midco, Inc.
4120 Dublin Blvd.
Dublin, CA 94568
   
Designs, develops, and markets enterprise application management solutions
    $ 38,982,909  
                 
Easton-Bell Sports, Inc.
7855 Haskell Avenue Suite 200
Van Nuys, CA 91406
   
Designs, develops, and distributes sports equipment and accessories for athletic and recreational activities
    $ 14,979,711  
                 
Education Management, LLC
210 Sixth Avenue
Pittsburgh, PA 15222
   
Provides proprietary post-secondary education
    $ 8,179,390  
                 
Eze Software Group
12 Farnsworth Street 6th Floor
Boston, MA 02210
   
Provides multi-asset class investment technology solutions for the front, middle, and back office needs
    $ 12,919,004  
                 
Flagstone Foods Holding Corp.
380 St. Peter Street Suite 1000
Saint Paul, MN 55102
   
Manufactures and distributes snacks, dried fruits, and nuts
    $ 20,004,727  
                 
Gastar Exploration USA, Inc.
1331 Lamar Street
Houston, TX 77010
   
Explores for, develops and produces natural gas, condensate and oil
    $ 1,630,000  
                 
GCI, Inc.
2550 Denali Street
Anchorage, AK 99503
   
Provides voice, video, and data communications services to residential, commercial, and government customers
    $ 23,168,223  
                 
Genesys Telecommunications Laboratories, Inc.
2001 Junipero Serra Boulevard
Daly City, CA 94014
   
Provides contact center solutions for mid-sized to large enterprises
    $ 3,082,655  
                 
Good Sam Enterprises, LLC
250 Parkway Drive
Lincolnshire, IL 60069
   
Membership-based direct marketing organization
    $ 13,089,354  
                 
Guitar Center, Inc.
5795 Lindero Canyon Road
Westlake Village, CA 91362
   
Retails musical equipment
    $ 23,267,372  
                 
Gymboree Corp.
500 Howard Street
San Francisco, CA 94105
   
Designs, manufactures, and retails apparel and accessories for children
    $ 28,834,852  
                 
Heartland Dental Care, LLC
1200 Network Centre Drive Suite 2
Effingham, IL 62401
   
Provides dental practice management services to dental practices
    $ 5,988,922  
 
 
47

 
 
Name and Address (a)
   
Nature of Business
    Amortized Cost (b)  
Hot Topic, Inc.
18305 East San Jose Avenue
City of Industry, CA 91748
   
Operates as a mall and Web-based specialty retailer in the United States
    $ 5,019,522  
                 
HUB International, Ltd.
55 East Jackson Boulevard
Chicago, IL 60604
   
Global insurance brokerage that provides a broad array of products and services
    $ 16,768,068  
                 
Infor (US), Inc.
641 Avenue of the Americas
New York, NY 10011
   
Develops, services, and supports enterprise resource planning software solutions
    $ 6,343,008  
                 
Integra Telecom Holdings, Inc.
1201 NE Lloyd Boulevard Suite 500
Portland, OR 97232
   
Provides integrated telecommunication services
    $ 4,062,829  
                 
Internet Brands, Inc.
909 North Sepulveda Boulevard 11th Floor
El Segundo, CA 90245
   
Operates Websites in various product categories
    $ 37,295,547  
                 
iPayment, Inc.
126 East 56th Street
New York, NY 10022
   
Provides financial transaction processing services
    $ 5,753,880  
                 
IPC Systems, Inc.
3, 2nd Street Plaza 10
Jersey City, NJ 07311
   
Provides communication systems for trading technologies and connectivity solutions
    $ 10,716,950  
                 
J. Crew Group, Inc.
770 Broadway
New York, NY 10003
   
Retails apparel, shoes, and accessories
    $ 706,130  
                 
J. Jill
4 Batterymarch Park
Quincy, MA 02169
   
Retails women’s apparel, accessories, shoes, and gifts
    $ 8,800,474  
                 
Jeld-Wen, Inc.