UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED ~~June~~September 30, 2020

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 814-01074

NexPoint Capital, Inc.

(Exact name of registrant as specified in its charter)


Delaware		38-3926499
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

300 Crescent Court, Suite 700 Dallas, Texas		75201
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (972) 628-4100

Securities registered pursuant to Section 12(b) of the Act:


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

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001 per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☐

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

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

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

As of ~~June~~September 30, 2020, the Registrant had ~~10,545,693~~10,494,309 shares of common stock, $0.001 par value, outstanding.

Part I – Financial Information

Item 1.

Financial Statements

NexPoint Capital, Inc.

Statements of Assets and Liabilities


		June 30, 2020 (Unaudited)			December 31, 2019				September 30, 2020 (Unaudited)			December 31, 2019
Assets	Assets							Assets
Unaffiliated investments, at fair value (cost of $60,622,033 and $97,920,246, respectively)		$	52,688,077		$	94,674,323
Affiliated investments, at fair value (cost of $7,028,748 and $5,457,776, respectively)⁽¹⁾			6,324,040			5,753,369
Unaffiliated investments, at fair value (cost of $56,268,519 and $97,920,246, respectively)									$	53,484,725		$	94,674,323
Affiliated investments, at fair value (cost of $7,035,712 and $5,457,776, respectively)⁽¹⁾										5,876,503			5,753,369
Cash and cash equivalents			1,970,573			7,764,892				4,268,422			7,764,892
Due from counterparty⁽²⁾			—			21,400,000				—			21,400,000
Receivable for investments sold			8,852			—
Receivable due on total return swap⁽²⁾			224,800			—
Dividends and interest receivable			416,152			1,042,105				271,244			1,042,105
Receivable from Adviser⁽³⁾			—			50,130				94,039			50,130
Other receivables										39,117			—
Prepaid expenses			7,269			12,208				2,084			12,208

Total assets			61,639,763			130,697,027				64,036,134			130,697,027


Liabilities	Liabilities							Liabilities
Credit facilities payable⁽⁴⁾			—			33,714,864				—			33,714,864
Payable for investments purchased			—			2,533,314				—			2,533,314
Payable on total return swap⁽²⁾			—			11,458				—			11,458
Unrealized depreciation on total return swap⁽²⁾			—			2,745,042				—			2,745,042
Common stock repurchased			—			1,102,405				—			1,102,405
Payable to Adviser⁽³⁾			282,745			570,453				260,976			570,453
Interest expense and commitment fees payable			—			80,207				—			80,207
Accrued expenses and other liabilities			154,206			378,205				233,178			378,205
Distributions payable			—			625,526				944,487			625,526

Total liabilities			436,951			41,761,474				1,438,641			41,761,474


Commitments and contingencies⁽⁵⁾	Commitments and contingencies⁽⁵⁾							Commitments and contingencies⁽⁵⁾

Net assets	Net assets							Net assets
Preferred stock, $0.001 par value (25,000,000 shares authorized, 0 shares issued and outstanding)			—			—				—			—
Common stock, $0.001 par value (200,000,000 shares authorized, 10,545,693 and 10,425,431 shares issued and outstanding, respectively)			10,546			10,425
Common stock, $0.001 par value (200,000,000 shares authorized, 10,494,309 and 10,425,431 shares issued and outstanding, respectively)										10,494			10,425
Paid-in capital in excess of par			94,418,250			93,412,260				94,105,374			93,412,260
Total distributable earnings (loss)			(33,225,984	)		(4,487,132	)
Total accumulated earnings (loss)										(31,518,375	)		(4,487,132	)

Total net assets		$	61,202,812		$	88,935,553			$	62,597,493		$	88,935,553

Net asset value per share of common stock		$	5.80		$	8.53			$	5.96		$	8.53

⁽¹⁾	See Note 10 for a discussion of affiliated investments.

⁽²⁾	See Note 7 for a discussion of total return swaps.

⁽³⁾	See Note 4 for a discussion of related party transactions and arrangements.

⁽⁴⁾	See Note 7 for a discussion of credit facility.

⁽⁵⁾	See Note 4 and Note 8 for a discussion of the commitments and contingencies of the Company (as defined in Note 1).

See Notes to Financial Statements

NexPoint Capital, Inc.

Statements of Operations

(Unaudited)


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2020			2019			2020			2019				2020			2019			2020			2019
Investment income:	Investment income:													Investment income:
Interest		$	562,761		$	1,586,368		$	1,561,185		$	3,080,822			$	879,499		$	1,457,099		$	2,440,684		$	4,537,921
Interest paid-in-kind			180,558			155,393			355,015			303,939
Interest paid in kind																22,425			163,327			377,440			467,266
Dividend income from unaffiliated investments			107,688			236,591			419,364			490,883				84,493			279,927			503,857			770,810
Dividend income from affiliated investments ⁽¹⁾			148,087			57,347			369,488			103,532				133,221			79,643			502,709			183,175
Other fee income			105,578			4,965			108,554			49,895				1			—			108,555			49,895

Total investment income			1,104,672			2,040,664			2,813,606			4,029,071				1,119,639			1,979,996			3,933,245			6,009,067

Expenses:	Expenses:													Expenses:
Investment advisory fees ⁽²⁾			201,229			505,660			627,964			996,689				201,136			499,288			829,100			1,495,977
Interest expense and commitment fees ⁽³⁾			6,283			339,299			176,707			645,649
Custodian and accounting service fees			79,879			78,712			153,135			156,196				81,522			80,668			234,657			236,864
Administration fees ⁽²⁾			50,978			100,547			125,594			199,338				59,839			100,029			185,433			299,367
Interest expense and commitment fees ⁽³⁾																—			315,653			176,707			961,302
Stock transfer fee			43,403			99,673			116,222			198,174				59,005			74,605			175,227			272,779
Audit and tax fees			24,855			61,728			94,283			119,987				46,114			59,123			140,397			179,110
Legal fees																27,538			18,703			52,854			67,291
Reports to stockholders			13,960			13,303			29,344			33,104				14,173			13,448			43,517			46,552
Legal fees			12,208			21,472			25,316			48,588
Other expenses			(955	)		14,116			17,395			23,580				23,980			64,113			41,375			87,693
Directors’ fees ⁽²⁾			5,378			5,232			9,889			10,150				6,238			4,956			16,127			15,106
Amortized offering costs			—			—			—			5,445				—			—			—			5,445

Total expenses			437,218			1,239,742			1,375,849			2,436,900				519,545			1,230,586			1,895,394			3,667,486

Expenses (waived) or recouped by the Adviser ⁽²⁾			30,539			(75,592	)		(153,908	)		(114,556	)			(94,039	)		17,417			(247,947	)		(97,139	)

Net expenses			467,757			1,164,150			1,221,941			2,322,344				425,506			1,248,003			1,647,447			3,570,347

Net investment income			636,915			876,514			1,591,665			1,706,727				694,133			731,993			2,285,798			2,438,720


Net realized and unrealized gains (losses) on investments:	Net realized and unrealized gains (losses) on investments:													Net realized and unrealized gains (losses) on investments:
Net realized gain/(loss) on:	Net realized gain/(loss) on:													Net realized gain/(loss) on:
Unaffiliated investments and securities sold short			(2,014,161	)		109,755			(16,482,745	)		896,508				(2,737,698	)		(221,845	)		(19,220,443	)		674,663
Affiliated investments ⁽¹⁾			26,455			—			(1,452,337	)		—				—			—			(1,452,337	)		—
Total return swaps ⁽⁴⁾			(6,659,937	)		444,361			(6,929,996	)		806,842				—			491,235			(6,929,996	)		1,298,077
Net change in unrealized appreciation (depreciation) on:	Net change in unrealized appreciation (depreciation) on:													Net change in unrealized appreciation (depreciation) on:
Unaffiliated investments and securities sold short			5,565,212			(3,583,565	)		(4,688,033	)		229,053				5,150,162			1,084,500			462,129			1,313,553
Affiliated investments ⁽¹⁾			2,458,131			2,229,009			(1,000,301	)		2,640,637				(454,501	)		60,174			(1,454,802	)		2,700,811
Total return swaps ⁽⁴⁾			8,571,707			223,217			2,745,042			30,714				—			(352,574	)		2,745,042			(321,860	)

Net realized and unrealized gains (losses)			7,947,407			(577,223	)		(27,808,370	)		4,603,754				1,957,963			1,061,490			(25,850,407	)		5,665,244

Net increase/(decrease) in net assets resulting from operations			8,584,322			299,291			(26,216,705	)		6,310,481			$	2,652,096		$	1,793,483		$	(23,564,609	)	$	8,103,964

Per share information - basic and diluted per common share
Per share information—basic and diluted per common share														Per share information—basic and diluted per common share
Net investment income:		$	0.06		$	0.08		$	0.15		$	0.16			$	0.07		$	0.07		$	0.22		$	0.23
Earnings (loss) per share:		$	0.81		$	0.03		$	(2.49	)	$	0.61			$	0.25		$	0.17		$	(2.24	)	$	0.78
Weighted average shares outstanding:			10,555,009			10,417,096			10,516,799			10,407,806				10,528,658			10,458,686			10,520,781			10,424,953

⁽¹⁾	See Note 10 for a discussion of affiliated investments.

⁽²⁾	See Note 4 for a discussion of related party transactions and arrangements.

⁽³⁾	See Note 7 for a discussion of credit facility.

⁽⁴⁾	See Note 7 for a discussion of total return swaps.

See Notes to Financial Statements

NexPoint Capital, Inc.

Statements of Changes in Net Assets

(Unaudited)


		Common Stock						Paid in Capital in Excess of Par			Distributable Earnings			Total Net Assets				Common Stock						Paid in Capital in Excess of Par			Distributable Earnings			Total Net Assets
		Shares			Par Amount			Paid in Capital in Excess of Par			Distributable Earnings			Total Net Assets				Shares			Par Amount			Paid in Capital in Excess of Par			Distributable Earnings			Total Net Assets
Balance at March 31, 2019			10,385,280		$	10,385		$	93,182,381		$	(2,158,903	)	$	91,033,863
Balance at June 30, 2019																			10,448,961		$	10,449		$	93,756,115		$	(3,732,688	)	$	90,033,876
Increase (decrease) in net assets resulting from operations	Increase (decrease) in net assets resulting from operations																Increase (decrease) in net assets resulting from operations
Net investment income			—			—			—			876,514			876,514				—			—			—			731,993			731,993
Net realized gain (loss) on investments and securities sold short			—			—			—			109,755			109,755				—			—			—			(221,845	)		(221,845	)
Net realized gain (loss) on total return swaps⁽¹⁾			—			—			—			444,361			444,361				—			—			—			491,235			491,235
Net change in unrealized appreciation (depreciation) on investments and securities sold short			—			—			—			(1,354,556	)		(1,354,556	)			—			—			—			1,144,674			1,144,674
Net change in unrealized appreciation (depreciation) on total return swaps⁽¹⁾			—			—			—			223,217			223,217				—			—			—			(352,574	)		(352,574	)
Shareholder distributions:	Shareholder distributions:																Shareholder distributions:
Issuance of common stock			—			—			—			—			—				—			—			—			—			—
Repurchase of common stock			(71,112	)		(71	)		(617,895	)		—			(617,966	)			(127,127	)		(127	)		(1,090,622	)		—			(1,090,749	)
Reinvestment of common stock			134,793			135			1,191,629			—			1,191,764				93,278			93			794,039			—			794,132
Distributions to shareholders⁽²⁾			—			—			—			(1,873,076	)		(1,873,076	)			—			—			—			(1,889,168	)		(1,889,168	)

Total increase (decrease) for the three months ended June 30, 2019			63,681			64			573,734			(1,573,785	)		(999,987	)
Total increase (decrease) for the three months ended September 30, 2019																			(33,849	)		(34	)		(296,583	)		(95,685	)		(392,302	)

Balance at June 30, 2019			10,448,961		$	10,449		$	93,756,115		$	(3,732,688	)	$	90,033,876
Balance at September 30, 2019																			10,415,112		$	10,415		$	93,459,532		$	(3,828,373	)	$	89,641,574

Distributions to shareholder per share			—		$	—		$	—		$	0.18		$	0.18
Distributions to shareholders per share																			—		$	—		$	—		$	0.18		$	0.18

Balance at December 31, 2018			10,322,327		$	10,322		$	92,602,409		$	(6,301,768	)	$	86,310,963				10,322,327		$	10,322		$	92,602,409		$	(6,301,768	)	$	86,310,963
Increase (decrease) in net assets resulting from operations	Increase (decrease) in net assets resulting from operations																Increase (decrease) in net assets resulting from operations
Net investment income			—			—			—			1,706,727			1,706,727				—			—			—			2,438,720			2,438,720
Net realized gain (loss) on investments and securities sold short			—			—			—			896,508			896,508				—			—			—			674,663			674,663
Net realized gain (loss) on total return swaps⁽¹⁾			—			—			—			806,842			806,842				—			—			—			1,298,077			1,298,077
Net change in unrealized appreciation (depreciation) on investments and securities sold short			—			—			—			2,869,690			2,869,690				—			—			—			4,014,364			4,014,364
Net change in unrealized appreciation (depreciation) on total return swaps⁽¹⁾			—			—			—			30,714			30,714				—			—			—			(321,860	)		(321,860	)
Shareholder distributions:	Shareholder distributions:																Shareholder distributions:
Issuance of common stock			—			—			—			—			—				—			—			—			—			—
Repurchase of common stock			(196,258	)		(196	)		(1,682,335	)		—			(1,682,531	)			(323,385	)		(323	)		(2,772,957	)		—			(2,773,280	)
Reinvestment of common stock			322,892			323			2,836,041			—			2,836,364				416,170			416			3,630,080			—			3,630,496
Distributions to stockholders⁽²⁾			—			—			—			(3,741,401	)		(3,741,401	)			—			—			—			(5,630,569	)		(5,630,569	)

Total increase (decrease) for the six months ended June 30, 2019			126,634			127			1,153,706			2,569,080			3,722,913
Total increase (decrease) for the nine months ended September 30, 2019																			92,785			93			857,123			2,473,395			3,330,611

Balance at June 30, 2019			10,448,961		$	10,449		$	93,756,115		$	(3,732,688	)	$	90,033,876
Balance at September 30, 2019																			10,415,112		$	10,415		$	93,459,532		$	(3,828,373	)	$	89,641,574

Distributions to shareholders per share			—		$	—		$	—		$	0.36		$	0.36				—		$	—		$	—		$	0.54		$	0.54


⁽¹⁾	See Note 7 for a discussion on Total Return Swaps.

⁽²⁾	~~Per the Securities Exchange Commission release~~ ~~#33-10532~~ ~~“Disclosure Update and Simplification”; it is no longer required to differentiate distributions from earnings as either from net investment income or net realized capital gains.~~

See Notes to Financial Statements

NexPoint Capital, Inc.

Statements of Changes in Net Assets

(Unaudited)


		Common Stock						Paid in Capital in Excess of Par			Distributable Earnings			Total Net Assets				Common Stock						Paid in Capital in Excess of Par			Distributable Earnings			Total Net Assets
		Shares			Par Amount			Paid in Capital in Excess of Par			Distributable Earnings			Total Net Assets				Shares			Par Amount			Paid in Capital in Excess of Par			Distributable Earnings			Total Net Assets
Balance at March 31, 2020			10,498,325		$	10,498		$	94,209,558		$	(41,177,538	)	$	53,042,518
Balance at June 30, 2020																			10,545,693		$	10,546		$	94,418,250		$	(33,225,984	)	$	61,202,812
Increase (decrease) in net assets resulting from operations	Increase (decrease) in net assets resulting from operations																Increase (decrease) in net assets resulting from operations
Net investment income			—			—			—			636,915			636,915				—			—			—			694,133			694,133
Net realized gain (loss) on investments and securities sold short			—			—			—			(1,987,706	)		(1,987,706	)			—			—			—			(2,737,698	)		(2,737,698	)
Net realized gain (loss) on total return swaps⁽¹⁾			—			—			—			(6,659,937	)		(6,659,937	)			—			—			—			—			—
Net change in unrealized appreciation (depreciation) on investments and securities sold short			—			—			—			8,023,343			8,023,343				—			—			—			4,695,661			4,695,661
Net change in unrealized appreciation (depreciation) on total return swaps⁽¹⁾			—			—			—			8,571,707			8,571,707				—			—			—			—			—
Shareholder distributions:	Shareholder distributions:																Shareholder distributions:
Issuance of common stock			—			—			—			—			—				—			—			—			—			—
Repurchase of common stock			(45,916	)		(46	)		(269,484	)		—			(269,530	)			(51,384	)		(52	)		(312,876	)		—			(312,928	)
Reinvestment of common stock			93,284			94			478,176			—			478,270				—			—			—			—			—
Distributions to shareholders⁽²⁾			—			—			—			(632,768	)		(632,768	)			—			—			—			(944,487	)		(944,487	)

Total increase (decrease) for the three months ended June 30, 2020			47,368			48			208,692			7,951,554			8,160,294
Total increase (decrease) for the three months ended September 30, 2020																			(51,384	)		(52	)		(312,876	)		1,707,609			1,394,681

Balance at June 30, 2020			10,545,693		$	10,546		$	94,418,250		$	(33,225,984	)	$	61,202,812
Balance at September 30, 2020																			10,494,309		$	10,494		$	94,105,374		$	(31,518,375	)	$	62,597,493

Distributions to shareholder per share			—		$	—		$	—		$	0.06		$	0.06
Distributions to shareholders per share																			—		$	—		$	—		$	0.09		$	0.09

Balance at December 31, 2019			10,425,431		$	10,425		$	93,412,260		$	(4,487,132	)	$	88,935,553				10,425,431		$	10,425		$	93,412,260		$	(4,487,132	)	$	88,935,553
Increase (decrease) in net assets resulting from operations	Increase (decrease) in net assets resulting from operations																Increase (decrease) in net assets resulting from operations
Net investment income			—			—			—			1,591,665			1,591,665				—			—			—			2,285,798			2,285,798
Net realized gain (loss) on investments and securities sold short			—			—			—			(17,935,082	)		(17,935,082	)			—			—			—			(20,672,780	)		(20,672,780	)
Net realized gain (loss) on total return swaps⁽¹⁾			—			—			—			(6,929,996	)		(6,929,996	)			—			—			—			(6,929,996	)		(6,929,996	)
Net change in unrealized appreciation (depreciation) on investments and securities sold short			—			—			—			(5,688,334	)		(5,688,334	)			—			—			—			(992,673	)		(992,673	)
Net change in unrealized appreciation (depreciation) on total return swaps⁽¹⁾			—			—			—			2,745,042			2,745,042				—			—			—			2,745,042			2,745,042
Shareholder distributions:	Shareholder distributions:																Shareholder distributions:
Issuance of common stock			—			—			—			—			—				—			—			—			—			—
Repurchase of common stock			(95,334	)		(95	)		(510,593	)		—			(510,688	)			(146,718	)		(147	)		(823,469	)		—			(823,616	)
Reinvestment of common stock			215,596			216			1,516,583			—			1,516,799				215,596			216			1,516,583			—			1,516,799
Distributions to stockholders⁽²⁾			—			—			—			(2,522,147	)		(2,522,147	)			—			—			—			(3,466,634	)		(3,466,634	)

Total increase (decrease) for the six months ended June 30, 2020			120,262			121			1,005,990			(28,738,852	)		(27,732,741	)
Total increase (decrease) for the nine months ended September 30, 2020																			68,878			69			693,114			(27,031,243	)		(26,338,060	)

Balance at June 30, 2020			10,545,693		$	10,546		$	94,418,250		$	(33,225,984	)	$	61,202,812
Balance at September 30, 2020																			10,494,309		$	10,494		$	94,105,374		$	(31,518,375	)	$	62,597,493

Distributions to shareholders per share			—		$	—		$	—		$	0.24		$	0.24				—		$	—		$	—		$	0.33		$	0.33

⁽¹⁾	See Note 7 for a discussion on Total Return Swaps.

⁽²⁾	~~Per the Securities Exchange Commission release~~ ~~#33-10532~~ ~~“Disclosure Update and Simplification”; it is no longer required to differentiate distributions from earnings as either from net investment income or net realized capital gains.~~

See Notes to Financial Statements

NexPoint Capital, Inc.

Statements of Cash Flows

(Unaudited)


		Six Months Ended June 30,							Nine Months Ended September 30,
		2020			2019				2020			2019
Cash flows used in operating activities
Cash flows provided by (used in) operating activities								Cash flows provided by (used in) operating activities
Net increase (decrease) in net assets resulting from operations		$	(26,216,705	)	$	6,310,481			$	(23,564,609	)	$	8,103,964

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Purchases of investment securities			(42,245,592	)		(26,748,956	)			(48,565,179	)		(33,681,146	)
Payment-in-kind investments			(355,015	)		(303,939	)			(377,440	)		(467,266	)
Proceeds from sales and principal repayments of investment securities			60,723,644			27,690,827				69,041,052			30,502,390
Net realized (gain) loss on investments			17,935,082			(896,508	)			20,672,780			(674,663	)
Net change in unrealized (appreciation) depreciation on investments			5,688,334			(2,869,690	)			992,673			(4,014,364	)
Net change in unrealized depreciation on total return swaps			(2,745,042	)		(30,714	)
Net change in unrealized (appreciation) depreciation on total return swaps										(2,745,042	)		321,860
Amortization of premium/discount, net			(330,878	)		(468,316	)			(697,422	)		(706,565	)
Amortization of capitalized offering costs			—			5,445				—			5,445
Increase (decrease) in operating assets and liabilities:								Increase (decrease) in operating assets and liabilities:
(Increase) decrease in receivable for investments sold			(8,852	)		(278,712	)			—			(267,600	)
(Increase) decrease in dividends and interest receivable			625,953			(61,505	)			770,861			(398,680	)
(Increase) decrease in receivable from Adviser			50,130			—				(43,909	)		—
(Increase) decrease in other receivables										(39,117	)		—
(Increase) decrease in prepaid expenses			4,939			5,758				10,124			5,674
(Increase) decrease in due from counterparty			21,400,000			(1,300,000	)			21,400,000			(80,000	)
(Increase) decrease in receivable due on total return swap			(224,800	)		143,938				—			77,911
Increase (decrease) in payable for investments purchased			(2,533,314	)		(2,573,276	)			(2,533,314	)		(2,573,276	)
Increase (decrease) in payable to Adviser			(287,708	)		238,681				(309,477	)		324,829
Increase (decrease) in interest expense and commitment fees payable			(80,207	)		94,432				(80,207	)		86,376
Increase (decrease) in accrued expenses and other liabilities			(223,999	)		(116,199	)			(145,027	)		(170,040	)
Increase (decrease) in payable on total return swap			(11,458	)		—				(11,458	)		—

Net cash flow provided by (used in) operating activities			31,164,512			(1,158,253	)			33,775,289			(3,605,151	)


Cash flows provided by financing activities
Cash flows provided by (used in) financing activities								Cash flows provided by (used in) financing activities
Repurchase of common stock, net of payable			(1,613,093	)		(1,682,531	)			(1,926,021	)		(1,682,531	)
Distributions paid in cash			(1,630,874	)		(1,627,016	)			(1,630,874	)		(2,089,518	)
(Decrease) in credit facilities payable			(40,971,068	)		(6,727,172	)			(40,971,068	)		(6,727,171	)
Increase in credit facilities payable			7,256,204			10,709,951				7,256,204			12,793,206

Net cash flow provided by (used in) financing activities			(36,958,831	)		673,232				(37,271,759	)		2,293,986

Net decrease in cash and cash equivalents			(5,794,319	)		(485,021	)			(3,496,470	)		(1,311,165	)


Cash and cash equivalents	Cash and cash equivalents							Cash and cash equivalents
Beginning of the period			7,764,892			7,112,205				7,764,892			7,112,205

End of the period		$	1,970,573		$	6,627,184			$	4,268,422		$	5,801,040


Supplemental disclosure and non-cash financing activities	Supplemental disclosure and non-cash financing activities							Supplemental disclosure and non-cash financing activities
Paid-in-kind interest income		$	355,015		$	303,939			$	377,440		$	467,266
Cash paid during the period for interest		$	256,914		$	551,217			$	256,914		$	874,926
Reinvestment of distributions paid		$	1,516,799		$	2,836,364			$	1,516,799		$	3,630,496
Local and excise taxes paid		$	47,000		$	139,445			$	47,000		$	194,579

See Notes to Financial Statements

NexPoint Capital, Inc.

Schedule of Investments

As of ~~June~~September 30, 2020

(Unaudited)

Portfolio Company⁽¹⁾⁽²⁾
Interest
Rate Base Rate
Floor Maturity
Date Principal
Amount Amortized
Cost⁽³⁾ Fair Value
Senior Secured Loans – 49.3%⁽⁴⁾

Energy – 0.6%

Fieldwood Energy, LLC (First Lien Term Loan)⁽⁵⁾
L + 725 1.00 % 4/11/2022 $ 1,800,549 $ 1,797,763 $ 358,615
Fieldwood Energy, LLC (Second Lien Term Loan)⁽⁵⁾
L + 725 1.00 % 4/11/2023 567,797 555,216 11,356

369,971

Healthcare – 40.8%

Air Methods Corp. (First Lien Term Loan)⁽⁵⁾
L + 350 1.00 % 4/22/2024 1,972,661 1,497,467 1,636,894
Auris Luxembourg III S.a.r.l. (First Lien Term Loan)^{(6) (7)}
L + 375 0.00 % 2/27/2026 2,553,883 2,542,686 2,247,417
BioClinica Holding I, LP (First Lien Term Loan)⁽⁶⁾
L + 400 1.00 % 10/20/2023 1,942,166 1,722,476 1,830,491
BW NHHC Holdco, Inc. (First Lien Term Loan)⁽⁵⁾
L + 500 0.00 % 5/15/2025 4,537,037 2,947,126 3,577,885
Covenant Surgical Partners, Inc. (First Lien Delayed Draw Term Loan)⁽⁸⁾
4% Fixed 7/1/2026 333,333 831 (44,999 )
Covenant Surgical Partners, Inc. (First Lien Term Loan)⁽⁶⁾
L + 400 0.00 % 7/1/2026 1,654,198 1,658,322 1,430,881
Envision Healthcare Corp. (First Lien Term Loan)⁽⁶⁾
L + 375 0.00 % 10/10/2025 5,917,443 4,302,511 3,935,100
Global Medical Response, Inc. (First Lien Term Loan)⁽⁵⁾
L + 425 1.00 % 3/14/2025 3,418,332 3,082,999 3,279,463
Patterson Medical Holdings, Inc. (First Lien Term Loan)⁽⁵⁾
L + 475 1.00 % 8/29/2022 2,434,155 2,107,961 2,187,697
RadNet, Inc. (First Lien Term Loan)⁽⁵⁾⁽⁷⁾
L + 375 1.00 % 6/30/2023 3,572,052 3,464,574 3,409,631
Sound Inpatient Physicians (Second Lien Term Loan)⁽⁶⁾
L + 675 0.00 % 6/26/2026 1,555,556 1,440,608 1,493,333

24,983,793

Manufacturing – 2.5%

Truck Hero, Inc. (Second Lien Term Loan)⁽⁶⁾
L + 825 1.00 % 4/17/2025 1,666,667 1,213,466 1,550,000

Service – 4.1%

Advantage Sales & Marketing, Inc. (Second Lien Term Loan)⁽⁵⁾
L + 650 1.00 % 7/25/2022 3,000,000 2,190,962 2,504,190

Telecommunication Services – 1.3%

TerreStar Corp. (First Lien Term Loan)^{(9) (10)}
11% PIK 2/27/2021 617,914 617,914 614,206
TerreStar Corp. (First Lien Term Loan)^{(9) (10)}
11% PIK 2/28/2022 146,287 146,286 145,409
TerreStar Corp. (First Lien Term Loan)^{(9) (10)}
11% PIK 2/28/2022 26,135 26,135 25,979

785,594

Total Senior Secured Loans
30,193,548

Unsecured Loans – 1.9%

Materials – 1.9%

OmniMax International, Inc. ^{(9) (10)}

14% PIK, 2%
Cash
2/6/2021 4,718,462 4,602,193 1,170,178

Total Unsecured Loans
1,170,178

Asset-Backed Securities – 0.5%

Financials – 0.5%

Grayson Investor Corp. ^{(7) (9) (10) (11) (12) (13)}
11/1/2021 800 456,000 246,920
PAMCO CLO 1997-1A B ^{(7) (9) (10) (11) (13) (14)}
374,239 215,187 53,928

300,848

Total Asset-Backed Securities
300,848

Corporate Bonds – 9.9%

Healthcare – 9.4%

Hadrian Merger Sub, Inc. ⁽¹¹⁾
8.500% 5/1/2026 2,728,000 2,318,409 2,479,588
Surgery Center Holdings ^{(7) (11)}
6.750% 7/1/2025 3,630,000 3,482,308 3,289,306

5,768,894


Portfolio Company⁽¹⁾⁽²⁾	Interest Rate			Base Rate Floor			Maturity Date		Principal Amount		Amortized Cost⁽³⁾		Fair Value

Senior Secured Loans – 51.3%⁽⁴⁾
Energy – 0.8%
Fieldwood Energy, LLC (First Lien Term Loan)⁽⁵⁾								4/11/2022	$	1,800,549	$	1,798,137	$	479,396
Fieldwood Energy, LLC (Second Lien Term Loan)⁽⁵⁾								4/11/2023		567,797		556,231		869

														480,265

Healthcare – 42.0%
Air Methods Corp. (First Lien Term Loan)⁽⁶⁾		L + 350			1.00	%		4/22/2024		1,967,576		1,518,883		1,732,697
Auris Luxembourg III S.a.r.l. (First Lien Term Loan)^{(7) (8)}		L + 375			0.00	%		2/27/2026		2,547,419		2,536,698		2,364,858
BioClinica Holding I, LP (First Lien Term Loan)⁽⁷⁾		L + 425			1.00	%		10/20/2023		1,937,134		1,732,695		1,915,342
BW NHHC Holdco, Inc. (First Lien Term Loan)⁽⁶⁾		L + 500			0.00	%		5/15/2025		4,525,463		2,996,567		3,906,991
Covenant Surgical Partners, Inc. (First Lien Delayed Draw Term Loan)⁽⁹⁾		4% Fixed						7/1/2026		333,333		796		(26,112	)
Covenant Surgical Partners, Inc. (First Lien Term Loan)⁽⁷⁾		L + 400			0.00	%		7/1/2026		1,650,062		1,654,022		1,520,805
Envision Healthcare Corp. (First Lien Term Loan)⁽⁷⁾		L + 375			0.00	%		10/10/2025		5,902,424		4,348,221		4,287,698
Global Medical Response, Inc. (First Lien Term Loan)⁽⁶⁾		L + 425			1.00	%		3/14/2025		3,409,567		3,090,159		3,315,804
Patterson Medical Holdings, Inc. (First Lien Term Loan)⁽⁶⁾		L + 475			1.00	%		8/29/2022		2,427,783		2,136,333		2,298,806
RadNet, Inc. (First Lien Term Loan)^{(6) (8)}		L + 375			1.00	%		6/30/2023		3,517,098		3,417,655		3,479,729
Sound Inpatient Physicians (Second Lien Term Loan)⁽⁷⁾		L + 675			0.00	%		6/26/2026		1,555,556		1,444,433		1,523,480

														26,320,098

Manufacturing – 2.6%
Truck Hero, Inc. (Second Lien Term Loan)⁽⁷⁾		L + 825			1.00	%		4/17/2025		1,666,667		1,229,207		1,613,892

Service – 4.6%
Advantage Sales & Marketing, Inc. (Second Lien Term Loan)⁽⁶⁾		L + 650			1.00	%		7/25/2022		3,000,000		2,272,682		2,910,210

Telecommunication Services – 1.3%
TerreStar Corp. (First Lien Term Loan)^{(10) (11)}		11% PIK						2/27/2021		635,447		635,447		634,811
TerreStar Corp. (First Lien Term Loan)^{(10) (11)}		11% PIK						2/28/2022		150,438		150,438		150,287
TerreStar Corp. (First Lien Term Loan)^{(10) (11)}		11% PIK						2/28/2022		26,877		26,876		26,850

														811,948


Total Senior Secured Loans														32,136,413


Asset-Backed Securities – 0.4%
Financials – 0.4%
Grayson Investor Corp. ^{(8) (10) (11) (12) (13) (14)}								11/1/2021		800		456,000		238,000
PAMCO CLO 1997-1A B ^{(8) (10) (11) (12) (14) (15)}										374,239		215,187		44,310

														282,310


Total Asset-Backed Securities														282,310


Corporate Bonds – 10.7%
Healthcare – 10.2%
Hadrian Merger Sub, Inc. ⁽¹²⁾		8.500	%					5/1/2026		2,728,000		2,330,730		2,724,072
Surgery Center Holdings ^{(8) (12)}		6.750	%					7/1/2025		3,630,000		3,488,488		3,625,081

														6,349,153

Media/Telecommunications – 0.5%
iHeartCommunications, Inc. ⁽⁸⁾		6.375	%					5/1/2026		115,507		313,455		120,549
iHeartCommunications, Inc. ⁽⁸⁾		8.375	%					5/1/2027		214,073		584,792		211,250

														331,799

Total Corporate Bonds														6,680,952

See Notes to Financial Statements.

NexPoint Capital, Inc.

Schedule of Investments (continued)

As of ~~June~~September 30, 2020

(Unaudited)

Media/Telecommunications – 0.5%

iHeartCommunications, Inc.
   6.375%       5/1/2026    $ 114,206    $ 313,456    $ 113,331
iHeartCommunications, Inc.
   8.375%       5/1/2027    214,073    584,791    196,559


                  309,890


Total Corporate Bonds
                  6,078,784


            Shares
Common Stocks – 15.5%

Chemicals – 0.1%

MPM Holdings, Inc. ⁽¹⁵⁾
            8,500    17,000    42,500


Financials – 3.4%

American Banknote Corp. ^{(9) (10) (15)}
            750,000    2,062,500    2,092,500


Healthcare – 0.1%

SteadyMed Ltd. ^{(7) (9) (10) (15)}
            54,749    14,508    40,405


Materials – 0.0%

OmniMax International, Inc. ^{(9) (10) (15)}
            6,698    663,116    268


Real Estate – 2.4%

Creative Science Properties, Inc. ⁽⁹⁾⁽¹⁰⁾
            100,000    1,500,000    1,500,000


Real Estate Investment Trust (REIT) – 1.3%

NexPoint Residential Trust, Inc. ^{(7) (16)}
            22,300    716,130    788,305


Retail – 0.4%

Tru Kids, Inc. ⁽¹⁵⁾
            237    1,119,168    224,524


Service – 0.0%

Western States Life Insurance ⁽¹⁵⁾
            237    253,404    24,946


Telecommunication Services – 7.8%

TerreStar Corp. ^{(9) (10) (15)}
            14,035    1,599,990    4,761,374


Total Common Stocks
                  9,474,822


LLC Interests – 19.2%

Consumer Products – 3.3%

US GAMING LLC ^{(9) (10) (15)}

   2,000    2,000,000    2,000,000


Real Estate – 15.5%

NexPoint Real Estate Finance, LLC ⁽¹⁶⁾
            315,631    6,312,618    5,286,818
SFR WLIF II, LLC ^{(9) (10)}
            3,348,888    3,348,888    2,781,151
SFR WLIF III, LLC ^{(9) (10)}
            1,651,112    1,651,112    1,429,384


                  9,497,353


Real Estate Investment Trust (REIT) – 0.4%

NexPoint Capital REIT, LLC ^{(9) (10) (16) (17)}
            100    —      248,917


Total LLC Interests
                  11,746,270


   Preferred
Dividend
Rate
Preferred Stocks – 0.0%

Real Estate Investment Trust (REIT) – 0.0%

RAIT Financial Trust ⁽¹⁸⁾
   8.875%          148,057    3,051,713    —


Total Preferred Stocks
                  —


Warrants – 0.1%

Healthcare – 0.0%

Galena Biopharma, Inc. ^{(9) (10) (15)}
         1/12/2021    1,500,054    —      —
Gemphire Therapeutics, Inc. ^{(9) (10) (15)}
         3/15/2022    4,752    —      1,104
SCYNEXIS, Inc. ^{(9) (10) (15)}
         6/21/2021    195,000    —      20,321


                  21,425


Materials – 0.0%

OmniMax International, Inc. ^{(9) (10) (15)}
         8/6/2025    207    —      8


Media/Telecommunications – 0.1%

iHeartMedia, Inc. ⁽¹⁵⁾
         5/1/2039    2,875    52,987    26,234


Total Warrants
                  47,667


Total Investments - 96.4%
               $ 67,650,781    $ 59,012,117




Cash Equivalents – 2.6%⁽¹⁹⁾
                  $ 1,552,705
Other Assets & Liabilities, net - 1.0%
                  $ 637,990


Net Assets - 100.0%
                  $ 61,202,812


				Shares
Common Stocks – 15.1%
Chemicals – 0.1%
MPM Holdings, Inc. ⁽¹⁶⁾					8,500	$	17,000	$	42,500

Financials – 2.8%
American Banknote Corp. ^{(10) (11) (16)}					750,000		2,062,500		1,732,500

Healthcare – 0.1%
SteadyMed Ltd. ^{(8) (10) (11) (16)}					54,749		14,508		40,405

Materials – 0.0%
OmniMax International, Inc. ^{(10) (11) (16)}					6,698		663,116		—

Real Estate – 2.6%
Creative Science Properties, Inc. ^{(10) (11)}					100,000		1,500,000		1,661,000

Real Estate Investment Trust (REIT) – 1.6%
NexPoint Residential Trust, Inc. ^{(8) (17)}					22,456		723,094		995,924

Retail – 0.4%
Tru Kids, Inc. ⁽¹⁶⁾					237		1,119,168		225,840

Service – 0.0%
Western States Life Insurance ⁽¹⁶⁾					237		253,404		25,093

Telecommunication Services – 7.5%
TerreStar Corp. ^{(10) (11) (16)}					14,035		1,599,990		4,704,953


Total Common Stocks									9,428,215


LLC Interests – 9.9%
Consumer Products – 3.2%
US GAMING LLC ^{(10) (11) (16)}					2,000		2,000,000		2,000,000

Real Estate – 6.3%
SFR WLIF II, LLC ^{(10) (11)}					3,348,888		3,348,888		2,437,455
SFR WLIF III, LLC ^{(10) (11)}					1,651,112		1,651,112		1,491,235

									3,928,690

Real Estate Investment Trust (REIT) – 0.4%
NexPoint Capital REIT, LLC ^{(10) (11) (17) (18)}					100		—		247,117


Total LLC Interests									6,175,807


Partnership Units – 7.4%
Real Estate – 7.4%
NexPoint Real Estate Finance Operating Partnership, LP ⁽¹⁷⁾					315,631		6,312,618		4,633,462


Total Partnership Units									4,633,462

	Preferred Dividend Rate
Preferred Stocks – 0.0%
Real Estate Investment Trust (REIT) – 0.0%
RAIT Financial Trust ⁽¹⁹⁾		8.875%			148,057		3,051,714		—

Total Preferred Stocks


Warrants – 0.0%
Healthcare – 0.0%
Galena Biopharma, Inc. ^{(10) (11) (16)}			1/12/2021		1,500,054		—		—
Gemphire Therapeutics, Inc. ^{(10) (11) (16)}			3/15/2022		4,752		—		260
SCYNEXIS, Inc. ^{(10) (11) (16)}			6/21/2021		19,500		—		—

									260

Materials – 0.0%
OmniMax International, Inc. ^{(10) (11) (16)}			8/6/2025		207		—		—

Media/Telecommunications – 0.0%
iHeartMedia, Inc. ^{(8) (16)}			5/1/2039		2,875		52,987		23,809


Total Warrants									24,069


Total Investments- 94.8%						$	63,304,231	$	59,361,228

Cash Equivalents –6.4%⁽²⁰⁾								$	4,004,290
Other Assets & Liabilities, net- (1.2%)								$	(768,025	)

Net Assets- 100.0%								$	62,597,493

See Notes to Financial Statements.

NexPoint Capital, Inc.

Schedule of Investments (continued)

As of ~~June~~September 30, 2020

(Unaudited)

⁽¹⁾

Unless otherwise noted, the Company did not “control” and was not an “affiliated person” of any of its portfolio companies, each as defined in the Investment Company Act of 1940, as amended (the “1940 Act”). In general, under the 1940 Act, the Company would be presumed to “control” a portfolio company if it owned 25% or more of its voting securities or had the power to exercise control over the management or policies of such portfolio company, and would be an “affiliated person” of a portfolio company if it owned 5% or more of its voting securities. Additionally, companies under common control (e.g., companies with a common owner of greater than 25% of their respective voting securities) are affiliates under the 1940 Act.

⁽²⁾	All investments are denominated in United States Dollars.

⁽³⁾	Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.

⁽⁴⁾

Senior secured loans in which the Company invests generally pay interest at rates which are periodically determined by reference to a base lending rate plus a spread (unless otherwise identified, all senior secured loans carry a variable rate of interest). These base lending rates are generally (i) the Prime Rate offered by one or more major United States banks, (ii) the lending rate offered by one or more European banks such as the London Interbank Offered Rate (“LIBOR”) or (iii) the coupon rate. Rate shown represents the actual rate at ~~June~~September 30, 2020. Senior secured loans, while exempt from registration under the Securities Act of 1933 (the “1933 Act”), contain certain restrictions on resale and cannot be sold publicly. Senior secured floating rate loans often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially less than the stated maturity shown.

⁽⁵⁾ The investment is on non-accrual status as of September 30, 2020.

⁽⁶⁾The interest rate on these investments is subject to a base rate of 3-Month LIBOR, which at ~~June~~September 30, 2020 was ~~0.30%~~0.23%. The LIBOR rate used to calculate interest is the higher of the prevailing 3 month LIBOR rate in effect on the date of the quarterly reset, or the LIBOR base rate floor shown.

⁽⁶⁾⁽⁷⁾

The interest rate on these investments is subject to a base rate of 1-Month LIBOR, which at ~~June~~September 30, 2020 was ~~0.16%~~0.15%. The LIBOR rate used to calculate interest is the higher of the prevailing 1 month LIBOR rate in effect on the date of the monthly reset, or the LIBOR base rate floor shown.

⁽⁷⁾⁽⁸⁾

The investment is not a qualifying asset under Section 55 of the 1940 Act. A business development company, such as the Company, may not acquire any asset other than a qualifying asset, unless at the time the acquisition is made, qualifying assets represent at least 70% of the business development company’s total assets. Non-qualifying assets represented ~~16.4%~~17.4% of the Company’s total assets as of ~~June~~September 30, 2020.

⁽⁸⁾⁽⁹⁾

The investment has an unfunded commitment as of ~~June~~September 30, 2020. The unfunded loan commitment may be subject to a commitment termination date that may expire prior to the maturity date stated. The negative cost, if applicable, is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value, if applicable, is the result of the capitalized discount on the loan. For further details see Note 8.

^(9)(10)

Classified as Level 3 within the three-tier fair value hierarchy. Please see Note 2 for an explanation of this hierarchy, as well as a list of unobservable inputs used in the valuation of these instruments.

^(10)(11)

Represents fair value as determined by the Company’s Board of Directors (the “Board”), or its designee in good faith, pursuant to the policies and procedures approved by the Board. The Board considers fair valued securities to be securities for which market quotations are not readily available and these securities may be valued using a combination of observable and unobservable inputs. Securities with a total aggregate value of ~~$17,132,052~~$15,409,183 or ~~28.0%~~24.6% of net assets were fair valued under the Company’s valuation procedures as of ~~June~~September 30, 2020.

^(11)(12)

Securities exempt from registration under Rule 144A of the 1933 Act. These securities may only be resold in transactions exempt from registration to qualified institutional buyers. As of ~~June~~September 30, 2020, these securities amounted to ~~$6,069,742,~~$6,631,463, or ~~9.9%~~10.6% of net assets.

^(12)(13)

The investment is considered to be the equity tranche of the issuer.

^(13)(14)

Securities of collateralized loan obligations where an affiliate of the Adviser serves as collateral manager.

^(14)(15)

The issuer is in default of its payment obligation, or is in danger of default.

^(15)(16)

Non-incomeproducing security.

^(16)(17)

Represents an affiliated issuer. Assets with a total aggregate ~~market~~ value of ~~$6,324,040,~~$5,876,503, or ~~10.3%~~9.4% of net assets, were affiliated with the Company as of ~~June~~September 30, 2020 (see Note 10).

^(17)(18)

The investment is deemed to be a “controlled affiliated person” of the Company because the Company owns, either directly or indirectly, 25% or more of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company. See Note 4 “Related Party Transactions and Arrangements”.

^(18)(19)

The issuer has suspended the quarterly dividend for this security.

^(19)(20)

State Street U.S. Government Money Market Fund.

Glossary

^PIK	Payment-in-Kind

See Notes to Financial Statements.

NexPoint Capital, Inc.

Schedule of Investments

As of December 31, 2019


Portfolio Company⁽¹⁾⁽²⁾	Interest Rate	Base Rate Floor			Maturity Date		Principal Amount		Amortized Cost⁽³⁾		Fair Value
Senior Secured Loans – 9.0%⁽⁴⁾
Energy – 2.1%
Fieldwood Energy, LLC (First Lien Term Loan)⁽⁵⁾	L + 525		1.00	%		4/11/2022		1,800,549	$	1,797,034	$	1,514,208
Fieldwood Energy, LLC (Second Lien Term Loan)⁽⁵⁾	L + 725		1.00	%		4/11/2023		567,797		553,265		326,838

												1,841,046

Healthcare – 5.7%
Auris Luxembourg III S.a.r.l. (First Lien Term Loan)⁽⁶⁾⁽⁷⁾	L + 375		0.00	%		2/27/2026		2,566,812		2,554,699		2,583,933
Covenant Surgical Partners, Inc. (First Lien Delayed Draw Term Loan)⁽⁵⁾⁽⁸⁾	L + 400		0.00	%		7/1/2026		333,333		833		833
Covenant Surgical Partners, Inc. (First Lien Term Loan)⁽⁵⁾⁽⁸⁾	L + 400		0.00	%		7/1/2026		1,666,667		1,670,833		1,670,833
Envision Healthcare Corp. (First Lien Term Loan)⁽⁶⁾⁽⁸⁾	L + 375		0.00	%		10/10/2025		997,481		862,821		855,754

												5,111,353

Media/Telecommunications – 0.4%
iHeartCommunications, Inc. (First Lien Term Loan)⁽⁵⁾	L + 400		0.00	%		5/1/2026		333,537		863,774		336,802

Telecommunication Services – 0.8%
TerreStar Corp. (First Lien Term Loan)^(9)(10)	11% PIK					2/27/2020		584,639		584,639		583,470
TerreStar Corp. (First Lien Term Loan)^(9)(10)	11% PIK					2/28/2022		138,409		138,409		138,132

												721,602

Utility – 0.0%
Texas Competitive Electric Holdings Company, LLC (TXU) (Escrow Loan)^(11)(12)								3,500,000		79,372		1,925

Total Senior Secured Loans												8,012,728

Unsecured Loans – 4.2%
Materials – 4.2%
OmniMax International, Inc. ^(5)(9)(10)	14% PIK, 2% Cash					2/6/2021		4,404,735		4,195,580		3,713,191

Total Unsecured Loans												3,713,191

Asset-Backed Securities – 0.8%
Financials – 0.8%
Grayson Investor Corp. ^{(7)(13)(14)(15)}						11/1/2021		800		456,000		333,764
Highland Park CDO I Ltd. 2006 1A A2 ^{(5)(7)(13)(15)}	L + 40					11/25/2051		270,178		225,349		270,127
PAMCO CLO 1997-1A B ^{(7)(9)(10)(13)(15)(16)}								374,239		215,187		139,629

												743,520

Total Asset-Backed Securities												743,520

Mortgage-Backed Securities – 4.5%
Financials – 4.5%
FREMF 2019-KF60 Mortgage Trust ^(6)(13)						2/25/2026		4,002,449		3,996,530		3,994,444

Total Mortgage-Backed Securities												3,994,444


							Shares
Closed-End Mutual Funds – 2.4%
Financials – 2.4%
NexPoint Strategic Opportunities Fund ^(7)(17)(18)								120,633		2,419,467		2,136,410

Total Closed-End Mutual Funds												2,136,410

See Notes to Financial Statements

NexPoint Capital, Inc.

Schedule of Investments (continued)

As of December 31, 2019


Portfolio Company⁽¹⁾⁽²⁾	Interest Rate	Base Rate Floor	Maturity Date	Principal Amount		Amortized Cost⁽³⁾		Fair Value
Corporate Bonds – 45.9%
Financials – 1.7%
Freedom Mortgage Corp. ^(13)(18)	8.250%		4/15/2025		1,500,000	$	1,500,000	$	1,474,200

Healthcare – 43.8%
ASP AMC Merger Sub, Inc. ^(13)(18)	8.000%		5/15/2025		7,325,000		6,948,779		4,892,478
Endo Finance LLC / Endo Finco Inc. ^(7)(13)(18)	6.000%		7/15/2023		4,500,000		3,877,424		3,262,455
Ortho-Clinical Diagnostics ^(13)(18)	6.625%		5/15/2022		11,217,000		10,862,655		11,174,863
Surgery Center Holdings ^(7)(13)(18)	6.750%		7/1/2025		11,858,000		11,246,267		11,892,566
Valeant Pharmaceuticals International, Inc. ^(7)(13)(18)	6.125%		4/15/2025		7,500,000		6,942,340		7,764,863

									38,987,225

Media/Telecommunications – 0.4%
iHeartCommunications, Inc. ⁽¹⁸⁾	6.375%		5/1/2026		114,206		313,455		124,127
iHeartCommunications, Inc. ⁽¹⁸⁾	8.375%		5/1/2027		214,073		584,792		236,947

									361,074

Total Corporate Bonds									40,822,499


				Shares
Common Stocks – 25.9%
Chemicals – 0.0%
MPM Holdings, Inc. ⁽¹²⁾					8,500		17,000		42,500

Energy – 5.5%
Energy Transfer Equity L.P. ^(7)(18)					75,000		1,438,740		962,250
Enterprise Products Partners L.P. ^(7)(18)					140,000		3,424,740		3,942,400

									4,904,650

Financials – 2.8%
American Banknote Corp. ^(9)(10)(12)					750,000		2,062,500		2,467,500

Healthcare – 0.3%
Quorum Health Corp. ⁽¹²⁾					224,600		1,284,134		214,740
SteadyMed Ltd. ^{(7)(9)(10)(12)}					54,749		14,508		40,405

									255,145

Materials – 0.0%
OmniMax International, Inc. ^(9)(10)(12)					6,698		663,116		20,898

Media/Telecommunications – 1.9%
Clear Channel Outdoor Holding, Inc. ^(12)(18)					124,986		631,179		357,460
iHeartMedia, Inc. ^(12)(18)					80,350		2,182,708		1,357,915

									1,715,375

Real Estate Investment Trusts (REITs) – 6.9%
NexPoint Residential Trust, Inc. ^(7)(17)(18)					26,466		848,748		1,190,970
City Office REIT, Inc. ^(7)(18)					108,000		1,480,753		1,460,160
Independence Realty Trust, Inc. ^(7)(18)					246,727		2,146,330		3,473,916

									6,125,046

Retail – 1.3%
Tru Kids, Inc. ⁽¹²⁾					237		1,139,661		1,124,467

Service – 0.1%
Western States Life Insurance ⁽¹²⁾					237		255,681		59,183

Telecommunication Services – 4.4%
TerreStar Corp. ^(9)(10)(12)					14,035		1,599,990		3,890,081

Utility – 2.7%
Vistra Energy Corp. ⁽¹⁸⁾					105,000		1,622,256		2,413,950

Total Common Stocks									23,018,795

See Notes to Financial Statements

NexPoint Capital, Inc.

Schedule of Investments (continued)

As of December 31, 2019


LLC Interests – 10.5%
Consumer Products – 2.3%
US GAMING LLC ^(9)(10)(12)			2,000	$	2,000,000	$	2,000,000

Real Estate – 5.5%
SFR WLIF III, LLC ^(9)(10)			1,651,112		1,651,112		1,615,315
SFR WLIF II, LLC ^(9)(10)			3,348,888		3,348,888		3,317,342

							4,932,657

Real Estate Investment Trust (REIT) – 2.7%
NexPoint Capital REIT, LLC ^{(9)(10)(17)(22)}			100		2,189,561		2,425,989

Total LLC Interests							9,358,646


	Preferred Dividend Rate
Preferred Stocks – 9.5%
Financials – 2.3%
Tectonic Financial, Inc.	9.000%		200,000		2,000,000		2,084,000

Real Estate – 1.7%
Creative Science Properties, Inc.			100,000		1,500,000		1,500,000

Real Estate Investment Trusts (REITs) – 5.5%
Braemar Hotels & Resorts, Inc. ^(7)(18)	5.500%		258,065		3,733,840		4,903,235
RAIT Financial Trust ^(18)(19)	8.875%		148,057		3,051,715		4,235

							4,907,470

Total Preferred Stocks							8,491,470

Rights – 0.1%
Utility – 0.1%
Texas Competitive Electric Holdings Company, LLC (TXU) ⁽¹²⁾			58,356		148,370		61,391

Total Rights							61,391

Warrants – 0.1%
Healthcare – 0.0%
Galena Biopharma, Inc. ^(10)(12)		1/12/2021	1,500,054		—		—
Gemphire Therapeutics, Inc. ^(10)(12)		3/15/2022	4,752		—		1,340
SCYNEXIS, Inc. ^(10)(12)		6/21/2021	195,000		—		28,497

							29,837

Materials – 0.0%
OmniMax International, Inc. ^(9)(10)(12)		8/6/2025	207		—		647

Media/Telecommunications – 0.1%
iHeartMedia, Inc. ⁽¹²⁾		5/1/2039	2,875		52,988		44,114

Total Warrants							74,598

Total Investments - 112.9%				$	103,378,022	$	100,427,692

Cash Equivalents – 8.7%⁽²⁰⁾						$	7,764,892
Other Assets & Liabilities, net - (21.6%)						$	(19,257,031	)

Net Assets - 100.0%						$	88,935,553


				Notional Amount⁽²¹⁾		Unrealized Depreciation
Total Return Swap – (3.1%)
BNP Paribas TRS Facility (Note 7)					50,904,830		(2,745,042	)

See Notes to Financial Statements

NexPoint Capital, Inc.

Schedule of Investments (continued)

As of December 31, 2019

⁽¹⁾

⁽²⁾	All investments are denominated in United States Dollars.

⁽³⁾	Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.

⁽⁴⁾

Senior secured loans in which the Company invests generally pay interest at rates which are periodically determined by reference to a base lending rate plus a spread (unless otherwise identified, all senior secured loans carry a variable rate of interest). These base lending rates are generally (i) the Prime Rate offered by one or more major United States banks, (ii) the lending rate offered by one or more European banks such as the London Interbank Offered Rate (“LIBOR”) or (iii) the coupon rate. Rate shown represents the actual rate at December 31, 2019. Senior secured loans, while exempt from registration under the Securities Act of 1933 (the “1933 Act”), contain certain restrictions on resale and cannot be sold publicly. Senior secured floating rate loans often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially less than the stated maturity shown.

⁽⁵⁾	The interest rate on these investments is subject to a base rate of 3-Month LIBOR, which at December 31, 2019 was 1.91%. The LIBOR rate used to calculate interest is the higher of the prevailing 3 month LIBOR rate in effect on the date of the quarterly reset, or the LIBOR base rate floor shown.

⁽⁶⁾	The interest rate on these investments is subject to a base rate of 1-Month LIBOR, which at December 31, 2019 was 1.76%. The LIBOR rate used to calculate interest is the higher of the prevailing 1 month LIBOR rate in effect on the date of the monthly reset, or the LIBOR base rate floor shown.

⁽⁷⁾

The investment is not a qualifying asset under Section 55 of the 1940 Act. A business development company, such as the Company, may not acquire any asset other than a qualifying asset, unless at the time the acquisition is made, qualifying assets represent at least 70% of the business development company’s total assets. Non-qualifying assets represented 29.4% of the Company’s total assets as of December 31, 2019.

⁽⁸⁾	All or a portion of this position has not settled. Full contract rates do not take effect until settlement date.

⁽⁹⁾	Classified as Level 3 within the three-tier fair value hierarchy. Please see Note 2 for an explanation of this hierarchy, as well as a list of unobservable inputs used in the valuation of these instruments.

⁽¹⁰⁾

Represents fair value as determined by the Company’s Board of Directors (the “Board”), or its designee in good faith, pursuant to the policies and procedures approved by the Board. The Board considers fair valued securities to be securities for which market quotations are not readily available and these securities may be valued using a combination of observable and unobservable inputs. Securities with a total aggregate value of $20,382,436 or 22.9% of net assets were fair valued under the Company’s valuation procedures as of December 31, 2019.

⁽¹¹⁾	The investment represents value held in escrow pending future events. No interest is being accrued.

⁽¹²⁾	Non-income producing security.

⁽¹³⁾	Securities exempt from registration under Rule 144A of the 1933 Act. These securities may only be resold in transactions exempt from registration to qualified institutional buyers. As of December 31, 2019, these securities amounted to $45,199,389, or 50.8% of net assets.

⁽¹⁴⁾	The investment is considered to be the equity tranche of the issuer.

⁽¹⁵⁾	Securities of collateralized loan obligations where an affiliate of the Adviser serves as collateral manager.

⁽¹⁶⁾	The issuer is in default of its payment obligation, or is in danger of default.

⁽¹⁷⁾	Represents an affiliated issuer. Assets with a total aggregate market value of $5,753,369, or 6.5% of net assets, were affiliated with the Company as of December 31, 2019 (see Note 10).

⁽¹⁸⁾	All or part of this security is pledged as collateral for margin/facility borrowings. The market value of the securities pledged as collateral was $63,025,400.

⁽¹⁹⁾	The issuer has suspended the quarterly dividend for this security.

⁽²⁰⁾	State Street U.S. Government Money Market Fund.

⁽²¹⁾	Notional value of the underlying securities in the Total Return Swap is calculated by multiplying par by the initial price.

⁽²²⁾

See Notes to Financial Statements

NexPoint Capital, Inc.

Notes to Financial Statements (Unaudited)

Note 1 — Organization

NexPoint Capital, Inc. (the “Company”) is an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services—Investment ~~Companies~~Companies.. The Company’s investment objective is to generate current income and capital appreciation primarily through investments in middle-market healthcare companies, middle-market companies in non-healthcare sectors, syndicated floating rate debt of large public and nonpublic companies and collateralized loan obligations. The Company has elected to be treated for federal income tax purposes, and intends to qualify annually thereafter, as a regulated investment company (“RIC”), under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). In this report, “we,” “us” and “our” refer to NexPoint Capital, Inc.

The Company was formed in Delaware on September 30, 2013 and formally commenced operations on September 2, 2014 upon satisfying the minimum offering requirement by raising gross proceeds of $10.0 million in connection with a private placement with NexPoint Advisors, L.P. (the “Adviser”), our external advisor. In aggregate through ~~June~~September 30, 2020, the Adviser controls 2,549,002 total shares, including reinvestment of dividends, for a net amount of approximately ~~$14.8~~$15.2 million.

The Company has retained the Adviser to manage certain aspects of its affairs on a day-to-day basis. NexPoint Securities, Inc. (the “Dealer Manager”), an entity under common ownership with the Adviser, served as the dealer manager of the Company’s continuous public offering prior to the termination of the offering. The Adviser and Dealer Manager are related parties and will receive fees and other compensation for services related to the investment and management of the Company’s assets and the continuous public offering. The Company’s continuous public offering ended on February 14, 2018.

Note 2 — Summary of Significant Accounting Policies

Basis of Accounting

The accompanying financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Additionally, the accompanying financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending December 31, 2020. The interim financial data as of ~~June~~September 30, 2020 and for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 is unaudited. In the opinion of management, the interim financial data includes all adjustments, consisting only of the normal recurring adjustments, necessary to a fair statement of the results for the interim periods.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

Statements of Cash Flows

Information on financial transactions which have been settled through the receipt or disbursement of cash is presented in the Statements of Cash Flows. The cash amount shown in the Statements of Cash Flows is the amount included within the Company’s Statements of Assets and Liabilities and includes cash on hand at its custodian bank.

Cash and Cash Equivalents

The Company considers liquid assets deposited with a bank and certain short-term debt instruments with original maturities of three months or less to be cash equivalents. These investments represent amounts held with financial institutions that are readily accessible to pay Company expenses or purchase investments. Cash and cash equivalents are valued at cost plus accrued interest, which approximates market value. The value of cash equivalents denominated in foreign currencies, if any, is determined by converting to U.S. dollars on the date of the Statements of Assets and Liabilities. As of ~~June~~September 30, 2020 and December 31, 2019, the Company had cash and cash equivalents of ~~$1,970,573~~$4,268,422 and $7,764,892, respectively. As of ~~June~~September 30, 2020 and December 31, 2019, ~~$1,552,705~~$4,004,290 and $7,745,979 was held in the State Street U.S. Government Money Market Fund, and ~~$417,868~~$264,132 and $18,913 was held in a custodial account with State Street Bank and Trust Company, respectively.

Securities Sold Short and Restricted Cash

The Company may sell securities short. A security sold short is a transaction in which the Company sells a security it does not own in anticipation that the market price of that security will decline. When the Company sells a security short, it must borrow the security sold short from a broker-dealer and deliver it to the buyer upon conclusion of the transaction. The Company may have to pay a fee to borrow particular securities and is often obligated to pay over any dividends or other payments received on such borrowed securities. Cash held as collateral for securities sold short is classified as restricted cash on the Statements of Assets and Liabilities. Securities held as collateral for securities sold short are shown on the Schedule of Investments for the Company, as applicable. As of ~~June~~September 30, 2020 and December 31, 2019, the Company did not have any securities sold short.

When securities are sold short, the Company intends to limit exposure to a possible market decline in the value of its portfolio companies through short sales of securities that the Adviser believes possess volatility characteristics similar to those being hedged. In addition, the Company may use short sales for non-hedging purposes to pursue its investment objective. Subject to the requirements of the 1940 Act and the Code, the Company will not make a short sale if, after giving effect to such sale, the market value of all securities sold short by the Company exceeds 25% of the value of its total assets.

Other Fee Income

Fee income may consist of origination/closing fees, amendment fees, administrative agent fees, transaction break-up fees and other miscellaneous fees. Origination fees, amendment fees, and other similar fees are non-recurring fee sources. Such fees are received on a transaction by transaction basis and do not constitute a regular stream of income. For the three and ~~six~~nine months ended ~~June~~September 30, 2020, the Company recognized ~~$105,578~~$1 and ~~$108,554~~$108,555 of fee income, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the Company recognized ~~$4,965~~$0 and $49,895 of fee income, respectively.

Fair Value of Financial Instruments

It is the ~~fund’s~~Company’s policy to hold the investments at fair value. Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosure (“ASC Topic 820”) defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company determines the net asset value of its investment portfolio each quarter, or more frequently as needed. Securities that are publicly-traded are valued at the reported closing price on the valuation date. Securities that are not publicly-traded are valued at fair value as determined in good faith by the board of directors of the Company (the “Board”) or by the Adviser, pursuant to board-approved policies and procedures. In connection with that determination, the ~~Company~~Adviser will provide the Board with portfolio company valuations which are based on relevant inputs, including indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and valuations prepared by third-party valuation services.

With respect to investments for which market quotations are not readily available, the Board and the Adviser undertake a multi-step valuation process each quarter, as described below:

The valuation process begins with each portfolio company or investment being initially valued by investment professionals of the Adviser responsible for credit monitoring or independent third party valuation firms.

Preliminary valuation conclusions are then documented and discussed with a committee comprised of certain senior management employees of the Adviser (the “Valuation Committee”).

The Audit and Qualified Legal Compliance Committee of the Board reviews these ~~preliminary~~ valuations.

At least once each quarter, the valuations for approximately one quarter of the portfolio investments that have been fair valued are reviewed by an independent valuation firm such that, over the course of a year, each material portfolio investment that has been fair valued shall have been reviewed by an independent valuation firm at least once.

Based on this information, the Board discusses valuations and determines the fair value of each investment in the portfolio in good faith.

As of ~~June~~September 30, 2020, the Company held the following investments for which a sufficient level of current, reliable market quotations were not available:

Instrument

Type
   Fair value
Grayson Investor Corp.
   Asset-Backed Securities    $ 246,920
PAMCO CLO 1997-1A B
   Asset-Backed Securities    53,928
American Banknote Corp.
   Common Stocks    2,092,500
Creative Science Properties, Inc.
   Common Stocks    1,500,000
OmniMax International, Inc.
   Common Stocks    268
SteadyMed Ltd.
   Common Stocks    40,405
TerreStar Corp.
   Common Stocks    4,761,374
NexPoint Capital REIT, LLC
   LLC Interests    248,917
SFR WLIF III, LLC
   LLC Interests    1,429,384
SFR WLIF II, LLC
   LLC Interests    2,781,151
US GAMING LLC
   LLC Interests    2,000,000
TerreStar Corp.
   Senior Secured Loans    614,206
TerreStar Corp.
   Senior Secured Loans    145,409
TerreStar Corp.
   Senior Secured Loans    25,979
OmniMax International, Inc.
   Unsecured Loans    1,170,178
Galena Biopharma, Inc.
   Warrants    —
Gemphire Therapeutics, Inc.
   Warrants    1,104
OmniMax International, Inc.
   Warrants    8
SCYNEXIS, Inc.
   Warrants    20,321


Instrument	Type	Fair value
Grayson Investor Corp.	Asset-Backed Securities	$	238,000
PAMCO CLO 1997-1A B	Asset-Backed Securities		44,310
American Banknote Corp.	Common Stocks		1,732,500
Creative Science Properties, Inc.	Common Stocks		1,661,000
OmniMax International, Inc.	Common Stocks		—
SteadyMed Ltd.	Common Stocks		40,405
TerreStar Corp.	Common Stocks		4,704,953
NexPoint Capital REIT, LLC	LLC Interests		247,117
SFR WLIF III, LLC	LLC Interests		1,491,235
SFR WLIF II, LLC	LLC Interests		2,437,455
US GAMING LLC	LLC Interests		2,000,000
TerreStar Corp.	Senior Secured Loans		634,811
TerreStar Corp.	Senior Secured Loans		150,287
TerreStar Corp.	Senior Secured Loans		26,850
Galena Biopharma, Inc.	Warrants		—
Gemphire Therapeutics, Inc.	Warrants		260
OmniMax International, Inc.	Warrants		—
SCYNEXIS, Inc.	Warrants		—

As of December 31, 2019, the Company held the following investments for which a sufficient level of current, reliable market quotations were not available:


Instrument	Type	Fair value
PAMCO CLO 1997-1A B	Asset-Backed Securities	$	139,629
American Banknote Corp.	Common Stocks		2,467,500
OmniMax International, Inc.	Common Stocks		20,898
SteadyMed Ltd.	Common Stocks		40,405
TerreStar Corp.	Common Stocks		3,890,081


NexPoint Capital REIT, LLC	LLC Interests	2,425,989
SFR WLIF III, LLC	LLC Interests	1,615,315
SFR WLIF II, LLC	LLC Interests	3,317,342
US GAMING LLC	LLC Interests	2,000,000
TerreStar Corp.	Senior Secured Loans	583,470
TerreStar Corp.	Senior Secured Loans	138,132
OmniMax International, Inc.	Unsecured Loans	3,713,191
Galena Biopharma, Inc.	Warrants	—
Gemphire Therapeutics, Inc.	Warrants	1,340
OmniMax International, Inc.	Warrants	647
SCYNEXIS, Inc.	Warrants	28,497

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to the Company’s financial statements will refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, in the Company’s financial statements. Below is a description of factors that the Valuation Committee and the Board may consider when valuing the Company’s debt and equity investments.

Valuation of fixed income investments, such as loans and debt securities, depends upon a number of factors, including prevailing interest rates for like securities, expected volatility in future interest rates, call features, put features and other relevant terms of the debt. For investments without readily available market prices, the Company may incorporate these factors into discounted cash flow models to arrive at fair value. Other factors that the Valuation Committee and the Board may consider include the borrower’s ability to adequately service its debt, the fair market value of the portfolio company in relation to the face amount of its outstanding debt and the quality of collateral securing the Company’s debt investments.

The Company’s equity investments in portfolio companies for which there is no liquid public market will be valued at fair value. The Valuation Committee and the Board, in its analysis of fair value, may consider various factors, such as multiples of earnings before interest, taxes, depreciation and amortization (“EBITDA”), cash flows, net income, revenues or, in limited instances, book value or liquidation value. All of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or the Company’s actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners or acquisition, recapitalization, restructuring or other related items.

The Valuation Committee and the Board may also look to private merger and acquisition statistics, public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies or industry practices in determining fair value. The Valuation Committee and the Board may also consider the size and scope of a portfolio company and its specific strengths and weaknesses, as well as any other factors it deems relevant in assessing the value. Generally, the value of the Company’s equity interests in public companies for which market quotations are readily available will be based upon the most recent closing public market price.

If the Company receives warrants or other equity-linked securities at nominal or no additional cost in connection with an investment in a debt security, the Company will allocate the cost basis in the investment between the debt securities and any such warrants or other equity-linked securities received at the time of origination. The Valuation Committee and the Board will subsequently value these warrants or other equity-linked securities received at fair value.

As applicable, the Company values its Level 2 assets by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which is provided by an independent third-party pricing service and screened for validity by such service. For investments for which the third-party pricing service is unable to obtain quoted prices, the Company obtains bid and ask prices directly from dealers who make a market in such investments.

To the extent that the Company holds investments for which no active secondary market exists and, therefore, no bid and ask prices can be readily obtained, the Valuation Committee and the Board utilizes an independent third-party valuation service to value such ~~investments. Consist~~investments in a manner consistent with the ~~company’s multi-step~~Company’s multistep valuation process previously described.

The Company periodically benchmarks the bid and ask prices received from the third-party pricing service and/or dealers, as applicable, and valuations received from the third-party valuation service against the actual prices at which it purchases and sells its investments. The Company believes that these prices are reliable indicators of fair value. The Valuation Committee and the Board review and approve the valuation determinations made with respect to these investments in a manner consistent with the Company’s valuation ~~process.~~procedures.

As of ~~June~~September 30, 2020, the Company’s investments consisted of senior secured loans, ~~unsecured loans,~~ bonds, asset-backed ~~securities, mortgage-backed~~ securities, common stocks, LLC interests, preferred stocks, a ~~closed-end~~ ~~mutual fund, and rights~~corporate bonds, partnership units and warrants, which may be purchased for a fraction of the price of the underlying securities. The fair value of the Company’s loans, bonds and asset-backed securities are generally based on quotes received from brokers or independent pricing services. Loans, bonds and asset-backed securities with quotes that are based on actual trades with a sufficient level of activity on or near the measurement date are classified as Level 2 assets. Loans, bonds and asset-backed securities that are priced using quotes derived from implied values, indicative bids or a limited number of actual trades are classified as Level 3 assets because the inputs used by the brokers and pricing services to derive the values are not readily observable.

The fair value of the Company’s common stocks and options that are not actively traded on national exchanges are generally priced using quotes derived from implied values, indicative bids, or a limited amount of actual trades and are classified as Level 3 assets because the inputs used by the brokers and pricing services to derive the values are not readily observable. Exchange traded options are valued based on the last trade price on the primary exchange on which they trade. If an option does not trade, the mid-price is utilized to value the option.

Prior to its termination, the Company valued the total ~~retrun~~return swaps (“TRS”) in accordance with the agreement (the “TRS Agreement”) with BNP Paribas (“BNP Paribas”) that established the TRS. Pursuant to the TRS Agreement, the value of the TRS was based on the increase or decrease in the value of the loans underlying the TRS, together with accrued interest income, interest expense and certain other expenses incurred under the TRS. The loans underlying the TRS were valued based on indicative bid prices provided by an independent third-party pricing service. Bid prices reflected the highest price that market participants may have been willing to pay. These valuations were sent to the Company for review and testing. For additional information on the TRS, see Note 7.

At the end of each calendar quarter, the ~~Company~~Adviser evaluates the Level 2 and 3 investments for changes in liquidity, including: whether a broker is willing to execute at the quoted price, the depth and consistency of prices from third party services, and the existence of contemporaneous, observable trades in the market. Additionally, management evaluates the Level 1 and 2 assets and liabilities on a quarterly basis for changes in listings or delistings on national exchanges.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market price, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values the Company may ultimately realize. Further, such investments may be subject to legal and other restrictions on resale or otherwise less liquid than publicly traded securities.

The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those investments. Transfers in and out of the levels are recognized at the fair value at the end of the period. The following are summaries of the Company’s investments categorized within the fair value hierarchy as of ~~June~~September 30, 2020 and December 31, 2019:


		June 30,2020									September 30, 2020
Investments		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets	Assets									Assets
Senior Secured Loans	Senior Secured Loans									Senior Secured Loans
Energy		$	—	$	369,971	$	—	$	369,971		$	—	$	480,265	$	—	$	480,265
Healthcare			—		24,983,793		—		24,983,793			—		26,320,098		—		26,320,098
Manufacturing			—		1,550,000		—		1,550,000			—		1,613,892		—		1,613,892
Service			—		2,504,190		—		2,504,190			—		2,910,210		—		2,910,210
Telecommunication Services			—		—		785,594		785,594			—		—		811,948		811,948
Unsecured Loans
Materials			—		—		1,170,178		1,170,178
Asset-Backed Securities	Asset-Backed Securities									Asset-Backed Securities
Financials			—		—		300,848		300,848			—		—		282,310		282,310
Corporate Bonds	Corporate Bonds									Corporate Bonds
Healthcare			—		5,768,894		—		5,768,894			—		6,349,153		—		6,349,153
Media/Telecommunications			—		309,890		—		309,890			—		331,799		—		331,799
Common Stocks	Common Stocks
Chemicals			—		42,500		—		42,500			—		42,500		—		42,500
Financials			—		—		2,092,500		2,092,500			—		—		1,732,500		1,732,500
Healthcare			—		—		40,405		40,405			—		—		40,405		40,405
Materials			—		—		268		268			—		—		—		—
Real Estate			—		—		1,500,000		1,500,000			—		—		1,661,000		1,661,000
Real Estate Investment Trusts (REITs)			788,305		—		—		788,305			995,924		—		—		995,924
Retail			—		224,524		—		224,524			—		225,840		—		225,840
Service			—		24,946		—		24,946			—		25,093		—		25,093
Telecommunication Services			—		—		4,761,374		4,761,374			—		—		4,704,953		4,704,953
LLC Interests	LLC Interests
Consumer Products			—		—		2,000,000		2,000,000			—		—		2,000,000		2,000,000
Real Estate			—		5,286,818		4,210,535		9,497,353			—		—		3,928,690		3,928,690
Real Estate Investment Trusts (REITs)			—		—		248,917		248,917			—		—		247,117		247,117
Partnership Units
Real Estate												—		4,633,462		—		4,633,462
Preferred Stock												—		—		—		—
Warrants	Warrants									Warrants
Healthcare			—		—		21,425		21,425			—		—		260		260
Materials			—		—		8		8			—		—		—		—
Media/Telecommunications			—		26,234		—		26,234			—		23,809		—		23,809

Total Assets		$	788,305	$	41,091,760	$	17,132,052	$	59,012,117		$	995,924	$	42,956,121	$	15,409,183	$	59,361,228

Total Investments		$	788,305	$	41,091,760	$	17,132,052	$	59,012,117		$	995,924	$	42,956,121	$	15,409,183	$	59,361,228


		December 31, 2019
Investments		Level 1		Level 2		Level 3		Total

Assets
Senior Secured Loans
Energy		$	—	$	1,841,046	$	—	$	1,841,046
Healthcare			—		5,111,353		—		5,111,353
Media/Telecommunications			—		336,802		—		336,802
Telecommunication Services			—		—		721,602		721,602
Utility			—		1,925		—		1,925
Unsecured Loans
Materials			—		—		3,713,191		3,713,191
Asset-Backed Securities
Financials			—		603,891		139,629		743,520
Mortgage-Backed Securities			—		3,994,444		—		3,994,444
Closed-End Mutual Funds			2,136,410		—		—		2,136,410
Corporate Bonds
Financials			—		1,474,200		—		1,474,200
Healthcare			—		38,987,225		—		38,987,225
Media/Telecommunications			—		361,074		—		361,074
Common Stocks
Chemicals			—		42,500		—		42,500
Energy			4,904,650		—		—		4,904,650


													December 31, 2019
Investments													Level 1		Level 2		Level 3			Total

Assets												Assets
Senior Secured Loans												Senior Secured Loans
Energy													$	—	$	1,841,046	$	—		$	1,841,046
Healthcare														—		5,111,353		—			5,111,353
Media/Telecommunications														—		336,802		—			336,802
Telecommunication Services														—		—		721,602			721,602
Utility														—		1,925		—			1,925
Unsecured Loans
Materials														—		—		3,713,191			3,713,191
Asset-Backed Securities
Financials														—		603,891		139,629			743,520
Mortgage-Backed Securities														—		3,994,444		—			3,994,444
Closed-End Mutual Funds														2,136,410		—		—			2,136,410
Corporate Bonds
Financials														—		1,474,200		—			1,474,200
Healthcare														—		38,987,225		—			38,987,225
Media/Telecommunications														—		361,074		—			361,074
Common Stocks
Chemicals														—		42,500		—			42,500
Energy														4,904,650		—		—			4,904,650
Financials			—		—		2,467,500			2,467,500				—		—		2,467,500			2,467,500
Healthcare			214,740		—		40,405			255,145				214,740		—		40,405			255,145
Materials			—		—		20,898			20,898				—		—		20,898			20,898
Media/Telecommunications			1,715,375		—		—			1,715,375				1,715,375		—		—			1,715,375
Real Estate Investment Trusts (REITs)			6,125,046		—		—			6,125,046				6,125,046		—		—			6,125,046
Retail			—		1,124,467		—			1,124,467				—		1,124,467		—			1,124,467
Service			—		59,183		—			59,183				—		59,183		—			59,183
Telecommunication Services			—		—		3,890,081			3,890,081				—		—		3,890,081			3,890,081
Utility			2,413,950		—		—			2,413,950				2,413,950		—		—			2,413,950
LLC Interests
Consumer Products			—		—		2,000,000			2,000,000				—		—		2,000,000			2,000,000
Real Estate			—		—		4,932,657			4,932,657				—		—		4,932,657			4,932,657
Real Estate Investment Trusts (REITs)			—		—		2,425,989			2,425,989				—		—		2,425,989			2,425,989
Preferred Stocks
Financials			—		2,084,000		—			2,084,000				—		2,084,000		—			2,084,000
Real Estate			—		1,500,000		—			1,500,000				—		1,500,000		—			1,500,000
Real Estate Investment Trusts (REITs)			4,903,235		4,235		—			4,907,470				4,903,235		4,235		—			4,907,470
Rights			—		61,391		—			61,391				—		61,391		—			61,391
Warrants
Healthcare			—		29,837		—			29,837				—		29,837		—			29,837
Materials			—		—		647			647				—		—		647			647
Media/Telecommunications			—		44,114		—			44,114				—		44,114		—			44,114

Total Assets		$	22,413,406	$	57,661,687	$	20,352,599		$	100,427,692			$	22,413,406	$	57,661,687	$	20,352,599		$	100,427,692

Liabilities
Warrants		$	—	$	—	$	—		$	—			$	—	$	—	$	—		$	—
Derivatives	Derivatives											Derivatives
Total Return Swap Contracts		$	—	$	—	$	(2,745,042	)	$	(2,745,042	)		$	—	$	—	$	(2,745,042	)	$	(2,745,042	)

Total Liabilities		$	—	$	—	$	(2,745,042	)	$	(2,745,042	)		$	—	$	—	$	(2,745,042	)	$	(2,745,042	)

Total Investments net of Securities Sold Short		$	22,413,406	$	57,661,687	$	17,607,557		$	97,682,650			$	22,413,406	$	57,661,687	$	17,607,557		$	97,682,650

The table below sets forth a summary of changes in the Company’s Level 3 investments (measured at fair value using significant unobservable inputs) for the ~~six~~nine months ended ~~June~~September 30, 2020.

Investments:
Balance as of
December 31,
2019 Transfers
into
Level 3 Transfer
out of
Level 3 Net
amortization
(accretion)
of
premium/
(discount) Net
realized
gains/
(losses) Net change in
unrealized
gains/
(losses) Purchases/
PIK (Sales
and
redemptions) Balance as of
June 30,
2020 Change in
unrealized
gain/(loss)
on Level 3
securities still
held at period
end
Assets

Senior Secured Loans

Telecommunication Services
$ 721,602 $ —   $ —   $ —   $ —   $ (3,295 ) $ 67,287 $ —   $ 785,594 $ (3,295 )
Unsecured Loans

Materials
3,713,191 —   —   92,885 —   (2,949,626 ) 313,728 —   1,170,178 (2,949,626 )
Asset-Backed Securities

Financials
139,629 333,764 —   —   —   (172,545 ) —   —   300,848 (172,545 )
Common Stocks

Financials
2,467,500 —   —   —   —   (375,000 ) —   —   2,092,500 (375,000 )
Healthcare
40,405 —   —   —   —   —   —   —   40,405 —
Materials
20,898 —   —   —   —   (20,630 ) —   —   268 (20,630 )
Telecommunication Services
3,890,081 —   —   —   —   871,293 —   —   4,761,374 871,293
Real Estate
—   1,500,000 —   —   —   —   —   —   1,500,000 —


Investments:	Balance as of December 31, 2019			Transfers into Level 3		Transfer out of Level 3		Net amortization (accretion) of premium/ (discount)		Net realized gains/ (losses)		Net change in unrealized gains/ (losses)			Purchases/ PIK		(Sales and redemptions)			Balance as of June 30, 2020		Change in unrealized gain/(loss) on Level 3 securities still held at period end			Balance as of December 31, 2019			Transfers into Level 3		Transfer out of Level 3		Net amortization (accretion) of premium/ (discount)		Net realized gains/ (losses)			Net change in unrealized gains/ (losses)			Purchases/ PIK		(Sales and redemptions)			Balance as of September 30, 2020		Change in unrealized gain/(loss) on Level 3 securities still held at period end
Assets
Senior Secured Loans
Telecommunication Services																									$	721,602		$	—	$	—	$	—	$	—		$	633		$	89,713	$	—		$	811,948	$	633
Unsecured Loans
Materials																										3,713,191			—		—		124,719		(2,746,641	)		482,389			313,727		(1,887,385	)		—		—
Asset-Backed Securities
Financials																										139,629			333,764		—		—		—			(191,083	)		—		—			282,310		(191,083	)
Common Stocks
Financials																										2,467,500			—		—		—		—			(735,000	)		—		—			1,732,500		(735,000	)
Healthcare																										40,405			—		—		—		—			—			—		—			40,405		—
Materials																										20,898			—		—		—		—			(20,898	)		—		—			—		(20,898	)
Real Estate																										—			1,500,000		—		—		—			161,000			—		—			1,661,000		161,000
Telecommunication Services																										3,890,081			—��		—		—		—			814,872			—		—			4,704,953		814,872
LLC Interests
Consumer Products		2,000,000			—		—		—		—		—			—		—			2,000,000		—			2,000,000			—		—		—		—			—			—		—			2,000,000		—
Real Estate		4,932,657			—		—		—		—		(722,122	)		—		—			4,210,535		(722,122	)		4,932,657			—		—		—		—			(1,003,967	)		—		—			3,928,690		(1,003,967	)
Real Estate Investment Trusts (REITs)		2,425,989			—		—		—		—		12,489			—		(2,189,561	)		248,917		12,489			2,425,989			—		—		—		—			10,689			—		(2,189,561	)		247,117		10,689
Warrants
Healthcare		—			29,837		—		—		—		(8,412	)		—		—			21,425		(8,412	)		—			29,837		—		—		—			(29,577	)		—		—			260		(29,577	)
Materials		647			—		—		—		—		(639	)		—		—			8		(639	)		647			—		—		—		—			(647	)		—		—			—		(647	)

Total	$	20,352,599		$	1,863,601	$	—	$	92,885	$	—	$	(3,368,487	)	$	381,015	$	(2,189,561	)	$	17,132,052	$	(3,368,487	)	$	20,352,599		$	1,863,601	$	—	$	124,719	$	(2,746,641	)	$	(511,589	)	$	403,440	$	(4,076,946	)	$	15,409,183	$	(993,978	)


Liabilities
Total Return Swaps⁽¹⁾	$	(2,745,042	)	$	—	$	—	$	—	$	—	$	2,745,042		$	—	$	—		$	—	$	2,745,042		$	(2,745,042	)	$	—	$	—	$	—	$	(6,929,996	)	$	2,745,042		$	7,425,035	$	(495,039	)	$	—	$	—

⁽¹⁾

During the ~~six~~nine months ended ~~June~~September 30, 2020, the Company recognized a net realized loss on the TRS amounting to $6,929,996. The realized losses of the derivative instruments during the ~~six~~nine months ended ~~June~~September 30, 2020 serve as indicators of the volume of derivative activity for the Company. The Company received ~~$258,781~~$483,581 in cash payments from the TRS during the period and paid $7,425,035, with a decrease of $11,458 in payable from ~~and increase of $224,800 in receivable from~~ BNP Paribas for the ~~six~~nine months ended ~~June~~September 30, 2020.


Investments:	Balance as of December 31, 2018			Transfers into Level 3		Transfer out of Level 3		Net amortization (accretion) of premium/ (discount)		Net realized gains/ (losses)		Net change in unrealized gains/ (losses)			Purchases/ PIK		(Sales and redemptions)			Balance as of June 30, 2019			Change in unrealized gain/(loss) on Level 3 securities still held at period end			Balance as of December 31, 2018			Transfers into Level 3		Transfer out of Level 3		Net amortization (accretion) of premium/ (discount)		Net realized gains/ (losses)		Net change in unrealized gains/ (losses)			Purchases/ PIK		(Sales and redemptions)			Balance as of September 30, 2019			Change in unrealized gain/(loss) on Level 3 securities still held at period end
Assets
Senior Secured Loans
Telecommunication Services	$	522,845		$	—	$	—	$	—	$	—	$	(917	)	$	161,500	$	—		$	683,428		$	(161	)	$	522,845		$	—	$	—	$	—	$	—	$	523		$	180,155	$	—		$	703,523		$	523
Unsecured Loans
Materials		3,838,472			—		—		85,515		—		(130,746	)		273,395		—			4,066,636			(130,746	)		3,838,472			—		—		130,134		—		(240,784	)		417,310		—			4,145,132			(240,784	)
Asset-Backed Securities
Financials		144,044			—		—		—		—		8,234			—		—			152,278			8,234			144,044			—		—		—		—		20,022			—		—			164,066			20,022
Common Stocks
Financials																											—			—		—		—		—		217,000			1,925,000		—			2,142,000			217,000
Healthcare		14,509			—		—		—		—		—			—		—			14,509			—			14,509			—		—		—		—		—			—		—			14,509			—
Materials		1,303,257			—		—		—		—		(834,789	)		—		—			468,468			(834,789	)		1,303,257			—		—		—		—		(976,522	)		—		—			326,735			(976,522	)
Media/Telecommunications		1,055,803			—		—		—		—		2,422,882			—		(3,478,685	)		—			2,422,882			1,055,803			—		—		—		—		2,422,882			—		(3,478,685	)		—			2,422,882
Telecommunication Services		3,913,800			—		—		—		—		140,350			—		—			4,054,150			140,350			3,913,800			—		—		—		—		(11,649	)		—		—			3,902,151			(11,649	)
LLC Interests
Real Estate																											—			—		—		—		—		59,169			5,000,000		—			5,059,169			59,169
Real Estate Investment Trusts (REITs)		—			—		—		—		—		42,444			2,189,561		—			2,232,005			42,444			—			—		—		—		—		81,293			2,189,561		—			2,270,854			81,293
Warrants
Materials		40,340			—		—		—		—		(25,839	)		—		—			14,501			(25,839	)		40,340			—		—		—		—		(30,227	)		—		—			10,113			(30,227	)

Total	$	10,833,070		$	—	$	—	$	85,515	$	—	$	1,621,619		$	2,624,456	$	(3,478,685	)	$	11,685,975		$	1,622,375		$	10,833,070		$	—	$	—	$	130,134	$	—	$	1,541,707		$	9,712,026	$	(3,478,685	)	$	18,738,252		$	1,541,707


Liabilities
Total Return Swaps⁽¹⁾	$	(2,547,492	)	$	—	$	—	$	—	$	—	$	30,714		$	—	$	—		$	(2,516,778	)	$	30,714		$	(2,547,492	)	$	—	$	—	$	—	$	—	$	(321,860	)	$	—	$	—		$	(2,869,352	)	$	(321,860	)

⁽¹⁾

During the ~~six~~nine months ended ~~June~~September 30, 2019, the Company recognized a net realized gain on the TRS amounting to ~~$806,842. The realized gains of the derivative instruments during the six months ended June 30, 2019 serve as indicators of the volume of derivative activity for the Company.~~$1,298,077. The Company received ~~$960,936~~$1,386,143 in cash payments from the TRS during the period and paid $10,157, with a decrease of ~~$143,937~~$77,911 in receivable from BNP Paribas for the ~~six~~nine months ended ~~June~~September 30, 2019.

Investments designated as Level 3 may include investments valued using quotes or indications furnished by brokers which are based on models or estimates and may not be executable prices. In light of the developing market conditions, the Adviser

continues to search for observable data points and evaluate broker quotes and indications received for investments. Determination of fair values is uncertain because it involves subjective judgments and estimates that are unobservable. Transfers from Level 2 to Level 3 are due to a decrease in market activity (e.g. frequency of trades), which resulted in a decrease of available market inputs to determine price. For the ~~six~~nine months ended ~~June~~September 30, 2020, there were ~~four~~5 transfers from Level 2 to Level 3 due to decreases in market activity. Transfers from Level 3 to Level 2 and from Level 2 to Level 1 are due to an increase in market activity (e.g. frequency of trades), which resulted in an increase of available market inputs to determine price. For the ~~six~~nine months ended ~~June~~September 30, 2019, there was no transfer from Level 2 to Level 3.

The following are summaries of significant unobservable inputs used in the fair valuations of investments categorized within Level 3 of the fair value hierarchy as of ~~June~~September 30, 2020 and December 31, 2019:

Investment

Fair value at
June 30, 2020

Valuation

technique

Unobservable

inputs

Range of input value(s)

(weighted average)

Fair value at
September 30,
2020

Valuation

technique

Unobservable

inputs

Range of input value(s)

(weighted average)

LLC Interest

6,459,452

Discounted Cash Flow

Net Asset Value

Transaction Indication of Value

Discount Rate

N/A

1.3% - 6.93%

N/A

6,175,807

Discounted Cash Flow

Net Asset Value

Transaction Indication of Value

Discount Rate

N/A

1.28% - 5.93%

N/A

Common Stock

8,394,547

Discounted Cash Flow

Multiples Analysis

Discount Rate

Multiple of EBITDA

Unadjusted Price/MHz-PoP

Liquidity Discount

15.5% - 21.5%

5.25x - 7.00x

$0.10 - $0.95

25%

8,138,858

Discounted Cash Flow

Multiples Analysis

Transaction Indication of Value

Probability Weighted Expected Return

Discount Rate

Multiple of EBITDA

Unadjusted Price/MHz-PoP

Liquidity Discount

Enterprise Value ($mm)

Transaction Price Per Share

Probability Assessment

15.50%

5.50x

$0.10 - $0.95

25%

$771.00

$2.75 - $16.61

20%

Transaction Analysis

Transaction Indication of Value

Multiple of EBITDA

Enterprise Value ($mm)

Transaction Price Per Share

6.25x - 6.75x

$771.00

$2.75

Probability Weighted Expected Return

Transaction Indication of Value

Black-Scholes Model

Probability Assessment

Subscription Price

Volatility Assumption

20%

$15

50% - 60%

Senior Secured Loans

785,594

Discounted Cash Flow

Discount Rate

Spread Adjustment

11.35%

0.35%

811,948

Discounted Cash Flow

Discount Rate

Spread Adjustment

11.10%

0.10%

Unsecured Loans

1,170,178

Discounted Cash Flow

Multiples Analysis

Transaction Analysis

Black-Scholes Model

Discount Rate

Multiple of EBITDA

Volatility Assumption

21.5%

6.25x - 7.00x

6.25x - 6.75x

50% - 60%

Asset-Backed Securities

300,848

Discounted Cash Flow

Discount Rate

21.00%

282,310

Discounted Cash Flow

Third Party Indication of Value

Discount Rate

Broker Quote

21.00%

Various

Warrants

21,433

Discounted Cash Flow

Discount Rate

21.5%

260

Black-Scholes Model

Volatility Assumption

50%

Multiples Analysis

Transaction Analysis

Black-Scholes Model

Multiple of EBITDA

Volatility Assumption

6.25x - 7.00x

6.25x - 6.75x

50% - 60%

50%

Total

17,132,052

15,409,183


Investment	Fair value at December 31, 2019			Valuation technique	Unobservable inputs	Range of input value(s) (weighted average)
LLC Interest	$	9,358,646		Discounted Cash Flow Net Asset Value Cost Basis	Discount Rate N/A N/A	2.59% - 12.5% N/A N/A
Common Stock		6,418,884		Discounted Cash Flow Multiples Analysis Transaction Analysis Transaction Indication of Value Black-Scholes Model Implied Value	Discount Rate Multiple of EBITDA Unadjusted Price/MHz-PoP Risk Discount Liquidity Discount Multiple of EBITDA Enterprise Value ($mm) Transaction Price Per Share Volatility Assumption Cash Payment Value Probability Assessment	16.0% - 20.0% 6.00x - 8.75x $0.12 - $0.95 55.2% - 59.8% 25% 8.25x - 8.75x $365.0 - $771.0 $2.75 30% - 40% $4.46 20%
Senior Secured Loans		721,602		Discounted Cash Flow	Discount Rate Spread Adjustment	11.10% 0.10%
Unsecured Loans		3,713,191		Black-Scholes Model	Volatility Assumption	30% - 40%
Asset-Backed Securities		139,629		Discounted Cash Flow	Discount Rate	21.00%
Warrants		647		Discounted Cash Flow	Discount Rate	20.0%
				Multiples Analysis Transaction Analysis Black-Scholes Model	Multiple of EBITDA Multiple of EBITDA Volatility Assumption	7.0x - 8.75x 8.25x - 8.75x 30% - 40%

Total	$	20,352,599


Total Return Swaps	$	(2,745,042	)	Third Party Pricing Vendor	N/A	N/A

The significant unobservable input used in the fair value measurement of the Fund’s LLC interests is the discount rate. A significant increase (decrease) in this input in isolation could result in a significantly lower (higher) fair value measurement. The significant unobservable inputs used in the fair value measurement of the Fund’s common equity securities are: multiple of EBITDA, price/MHz-PoP multiple, liquidity discount, discount rate, probability assessment and transaction price. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement.

The significant unobservable inputs used in the fair value measurement of the Fund’s bank loan securities are: discount rate and spread adjustment. Significant increases (decreases) in either of those inputs in isolation could result in a significantly lower (higher) fair value measurement. The significant unobservable inputs used in the fair value measurement of the Fund’s asset-backed securities are: discount rate and broker quote indication of value. Significant increases (decreases) in either of those inputs in isolation could result in a significantly lower (higher) fair value measurement.

2122

Investment
Fair value at
December 31,
2019
Valuation
technique

Unobservable
inputs

Range of input value(s)
(weighted average)
LLC Interest
$ 9,358,646
Discounted Cash Flow
Net Asset Value
Cost Basis

Discount Rate
N/A
N/A

2.59% - 12.5%
N/A
N/A
Common Stock
6,418,884
Discounted Cash Flow
Multiples Analysis

Discount Rate
Multiple of EBITDA
Unadjusted Price/MHz-PoP
Risk Discount
Liquidity Discount

16.0% - 20.0%
6.00x - 8.75x
$0.12 - $0.95
55.2% - 59.8%
25%

Transaction Analysis
Transaction Indication of Value

Multiple of EBITDA
Enterprise Value ($mm)
Transaction Price Per Share

8.25x - 8.75x
$365.0 - $771.0
$2.75
Black-Scholes Model
Volatility Assumption
Cash Payment Value

30% - 40%
$4.46
Implied Value Probability Assessment 20%
Senior Secured Loans
721,602 Discounted Cash Flow
Discount Rate
Spread Adjustment

11.10%
0.10%
Unsecured Loans
3,713,191 Black-Scholes Model Volatility Assumption 30% - 40%
Asset-Backed Securities
139,629 Discounted Cash Flow Discount Rate 21.00%
Warrants
647 Discounted Cash Flow Discount Rate 20.0%

Multiples Analysis
Transaction Analysis
Black-Scholes Model

Multiple of EBITDA
Multiple of EBITDA
Volatility Assumption

7.0x - 8.75x
8.25x - 8.75x
30% - 40%
Total
$ 20,352,599

Total Return Swaps
$ (2,745,042 ) Third Party Pricing Vendor N/A N/A

Derivative Transactions

The Company is subject to equity price risk, interest rate risk and foreign currency exchange rate risk in the normal course of pursuing its investment objective. The Company may invest without limitation in warrants and may also use derivatives, primarily swaps (including equity, variance and volatility swaps), options and futures contracts on securities, interest rates, commodities and/or currencies, as substitutes for direct investments the Company can make. The Company may also use derivatives such as swaps, options (including options on futures), futures, and foreign currency transactions (e.g., foreign currency swaps, futures and forwards) to any extent deemed by the Adviser to be in the best interest of the Company, and to the extent permitted by the 1940 Act, to hedge various investments for risk management and speculative purposes. For additional information on the TRS, please see Note 7.

Options

The Company purchases options, subject to certain limitations. The Company may invest in options contracts to manage its exposure to the stock and bond markets and fluctuations in foreign currency values. Writing puts and buying calls tend to increase the Company’s exposure to the underlying instrument while buying puts and writing calls tend to decrease the Company’s exposure to the underlying instrument, or economically hedge other Company investments. The Company’s risks in using these contracts include changes in the value of the underlying instruments, nonperformance of the counterparties under the contracts’ terms and changes in the liquidity of the secondary market for the contracts. Options are valued at the last sale price, or if no sales occurred on that day, at the last quoted bid price. As of and during the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the Company did not hold options.

Investment Transactions

Investment transactions are accounted for on trade date. Realized gains/(losses) on investments sold are recorded on the basis of specific identification method for both financial statement and U.S. federal income tax purposes. Payable for investments purchased and receivable for investments sold on the Statements of Assets and Liabilities, if any, represents the cost of purchases and proceeds from sales of investment securities, respectively, for trades that have been executed but not yet settled.

Income Recognition

Corporate actions (including cash dividends from common stock and equity tranches of asset-backed securities) are recorded on the ex-dividend date, net of applicable withholding taxes, except for certain foreign corporate actions, which are recorded as soon after the ex-dividend date as such information becomes available. Interest income is recorded on the accrual basis. The Company does not accrue as a receivable for interest or dividends on loans, asset-backed securities and other securities if there is a reason to doubt the Company’s ability to collect such income. For loans with contractual PIK (payment-in-kind) interest income, which represents contractual interest accrued and added to the loan balance that generally becomes due at maturity, we will not accrue PIK interest if we believe that the PIK interest is no longer collectible. Loan origination fees, original issue discount and market discount are capitalized and such amounts are amortized as interest income over the respective term of the loan or security. Upon the prepayment of a loan or security, any unamortized loan origination fees and original issue discount are recorded as interest income.

Accretion of discounts and amortization of premiums on taxable bonds, loans and asset-backed securities are computed to the call or maturity date, whichever is shorter, using the effective yield method. Withholding taxes on foreign dividends have been provided for in accordance with the Company’s understanding of the applicable country’s tax rules and rates.

Organization and Offering Costs

Organization costs are paid by the Adviser and include the cost of incorporating, such as the cost of legal services and other fees pertaining to our organization. Offering costs include legal fees, promotional costs and other costs pertaining to the public offering of our shares of common stock and are also paid by the Adviser. Prior to the termination of the offering, as we raised proceeds, these organization and offering costs were expensed and became payable to the Adviser. Organization and offering costs are limited to 1% of total gross proceeds raised and are not due and payable to the Adviser to the extent they exceed that amount. Please refer to Note 4 for additional information on Organization and Offering Costs.

Paid-in Capital

The proceeds from the issuance of common stock as presented on the Company’s Statements of Changes in Net Assets is presented net of selling commissions and fees for the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019. Selling commissions and fees of $0 and $0 were paid for the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively.

Earnings Per Share

In accordance with the provisions of ASC Topic 260—Earnings per Share (“ASC 260”), basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis.

The following table sets forth the computation of the weighted average basic and diluted net increase in net assets per share from operations:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020			2019		2020		2019		2020			2019
Net increase (decrease) in net assets from operations	$	8,584,322	$	299,291	$	(26,216,705	)	$	6,310,481	$	2,652,096	$	1,793,483	$	(23,564,609	)	$	8,103,964
Weighted average common shares outstanding		10,555,009		10,417,096		10,516,799			10,407,806		10,528,658		10,458,686		10,520,781			10,424,953
Earnings (loss) per common share-basic and diluted	$	0.81	$	0.03	$	(2.49	)	$	0.61	$	0.25	$	0.17	$	(2.24	)	$	0.78

Distributions

Distributions to the Company’s stockholders will be recorded as of the record date. Subject to the discretion of the Board and applicable legal restrictions, the Company intends to authorize and declare ordinary cash distributions on a weekly basis and pay such distributions on a quarterly basis. Net realized capital gains, if any, will generally be distributed or deemed distributed at least every 12-month period.

On June 24, 2020, the Board of Directors approved a change in its dividend and capital gains distribution schedule from monthly distributions to quarterly distributions, effective immediately. The first quarterly distribution ~~is expected to be~~was paid on ~~or about~~October 12, 2020 to shareholders of record as of September 30, 2020. The dividends are expected to be declared ~~will be~~ in the amount of $0.09 per share of the Company’s common stock to the stockholders of record at each quarter end.

Recent Accounting Pronouncements

In March 2017, the FASB issued Accounting Standards Update 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this update shorten the amortization period for certain callable debt securities held at premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For the ~~company,~~Company, this update iswas effective for the fiscal ~~years~~year beginning on January 1, 2020. There is no material impact to the financial statements.

In March 2020, the FASB issued Accounting Standard Update (“ASU”) No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which provides optional exceptions for applying GAAP to contract modifications, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU No. 2020-04 is elective and effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of adopting ASU No. 2020-04.

Note 3 — Investment Portfolio

The following table shows the composition of the Company’s invested assets by industry classification at fair value at ~~June~~September 30, 2020:


	Fair value		Percentage			Fair value		Percentage
Assets
Healthcare	$	30,814,517		52.1	%	$	32,709,916		55.1	%
Real Estate		10,997,353		18.6	%		10,223,152		17.2	%
Telecommunication Services		5,546,968		9.4	%		5,516,901		9.3	%
Service		2,529,136		4.3	%		2,935,303		4.9	%
Financials		2,393,348		4.1	%		2,014,810		3.4	%
Consumer Products		2,000,000		3.4	%		2,000,000		3.4	%
Manufacturing		1,550,000		2.6	%		1,613,892		2.7	%
Materials		1,170,454		2.0	%
Real Estate Investment Trusts (REITs)		1,037,222		1.8	%		1,243,041		2.1	%
Energy		369,971		0.6	%		480,265		0.8	%
Media/Telecommunications		336,124		0.6	%		355,608		0.6	%
Retail		224,524		0.4	%		225,840		0.4	%
Chemicals		42,500		0.1	%		42,500		0.1	%
Materials							—		—

Total Assets	$	59,012,117		100.0	%	$	59,361,228		100.0	%

The following table shows the composition of the Company’s invested assets by industry classification at fair value at December 31, 2019:


	Fair value		Percentage
Assets
Healthcare	$	44,383,560		44.2	%
Real Estate Investment Trusts (REITs)		13,458,505		13.4	%
Financials		12,900,074		12.9	%
Energy		6,745,696		6.7	%
Real Estate		6,432,657		6.4	%
Telecommunication Services		4,611,683		4.6	%
Materials		3,734,736		3.7	%
Utility		2,477,266		2.5	%
Media/Telecommunications		2,457,365		2.4	%
Consumer Products		2,000,000		2.0	%
Retail		1,124,467		1.1	%
Service		59,183		0.1	%
Chemicals		42,500		0.0	%

Total Assets	$	100,427,692		100.0	%

The following table summarizes the amortized cost and the fair value of the Company’s invested assets by class of financial asset as of ~~June~~September 30, 2020:


		Amortized Cost		Fair value		Percentage of Portfolio (at Fair Value)				Amortized Cost		Fair value		Percentage of portfolio (at Fair Value)
Assets	Assets								Assets
Senior Secured Loans - First Lien		$	25,915,051	$	24,634,669		41.7	%
Senior Secured Loans - Second Lien			5,400,252		5,558,879		9.4	%
Unsecured Loans			4,602,193		1,170,178		2.0	%
Senior Secured Loans—First Lien										$	26,042,927	$	26,087,962		43.9	%
Senior Secured Loans—Second Lien											5,502,553		6,048,451		10.2	%
Asset-Backed Securities			671,187		300,848		0.5	%			671,187		282,310		0.5	%
Corporate Bonds			6,698,964		6,078,784		10.3	%			6,717,465		6,680,952		11.3	%
Common Stocks			7,945,816		9,474,822		16.1	%			7,952,780		9,428,215		15.9	%
LLC Interests			13,312,618		11,746,270		19.9	%			7,000,000		6,175,807		10.4	%
Partnership Units											6,312,618		4,633,462		7.8	%
Preferred Stocks			3,051,713		—		—				3,051,714		—		0.0	%
Warrants			52,987		47,667		0.1	%			52,987		24,069		0.0	%

Total Assets		$	67,650,781	$	59,012,117		100.0	%			$63,304,231		$59,361,228		100.0%

The following table summarizes the amortized cost and the fair value of the Company’s invested assets by class of financial asset as of December 31, 2019:

   Amortized cost    Fair value    Percentage of
portfolio
(at fair value)
Assets

Senior Secured Loans – First Lien
   $ 8,473,042    $ 7,683,965    7.7 %
Senior Secured Loans – Second Lien
   553,265    326,838    0.3 %
Senior Secured Loans – Escrow Loan
   79,372    1,925    0.0 %
Unsecured Loans
   4,195,580    3,713,191    3.7 %
Asset-Backed Securities
   896,536    743,520    0.7 %
Mortgage-Backed Securities
   3,996,530    3,994,444    4.0 %
Closed-End Mutual Funds
   2,419,467    2,136,410    2.1 %
Corporate Bonds
   42,275,712    40,822,499    40.6 %
Common Stocks
   20,812,044    23,018,795    22.9 %
LLC Interests
   9,189,561    9,358,646    9.3 %
Preferred Stocks
   10,285,555    8,491,470    8.5 %
Rights
   148,370    61,391    0.1 %
Warrants
   52,988    74,598    0.1 %






Total Assets
   $ 103,378,022    $ 100,427,692    100.0 %


	Amortized cost		Fair value		Percentage of portfolio (at Fair Value)
Assets
Senior Secured Loans – First Lien	$	8,473,042	$	7,683,965		7.7	%
Senior Secured Loans – Second Lien		553,265		326,838		0.3	%
Senior Secured Loans – Escrow Loan		79,372		1,925		0.0	%
Unsecured Loans		4,195,580		3,713,191		3.7	%
Asset-Backed Securities		896,536		743,520		0.7	%
Mortgage-Backed Securities		3,996,530		3,994,444		4.0	%
Closed-End Mutual Funds		2,419,467		2,136,410		2.1	%
Corporate Bonds		42,275,712		40,822,499		40.6	%
Common Stocks		20,812,044		23,018,795		22.9	%
LLC Interests		9,189,561		9,358,646		9.3	%
Preferred Stocks		10,285,555		8,491,470		8.5	%
Rights		148,370		61,391		0.1	%
Warrants		52,988		74,598		0.1	%

Total Assets	$	103,378,022	$	100,427,692		100.0	%

The following table summarizes the amortized cost and the fair value of the Company’s invested assets as of December 31, 2019 to include, on a look-through basis, the investments underlying the TRS, as disclosed in Note 7. The investments underlying the TRS had a notional amount and market value of $50,904,830 and $47,899,681, respectively, as of December 31, 2019.


	Amortized cost		Fair value		Percentage of portfolio (at fair value)				Amortized cost		Fair value		Percentage of portfolio (at fair value)
Assets								Assets
Senior Secured Loans - First Lien	$	51,120,740	$	47,656,091		32.1	%
Senior Secured Loans - Second Lien		8,810,397		8,254,393		5.6	%
Senior Secured Loans - Escrow Loan		79,372		1,925		0.0	%
Senior Secured Loans—First Lien									$	51,120,740	$	47,656,091		32.1	%
Senior Secured Loans—Second Lien										8,810,397		8,254,393		5.6	%
Senior Secured Loans—Escrow Loan										79,372		1,925		0.0	%
Unsecured Loans		4,195,580		3,713,191		2.5	%			4,195,580		3,713,191		2.5	%
Asset-Backed Securities		896,536		743,520		0.5	%			896,536		743,520		0.5	%
Mortgage-Backed Securities		3,996,530		3,994,444		2.7	%			3,996,530		3,994,444		2.7	%
Closed-End Mutual Funds		2,419,467		2,136,410		1.4	%			2,419,467		2,136,410		1.4	%
Corporate Bonds		42,275,712		40,822,499		27.6	%			42,275,712		40,822,499		27.6	%
Common Stocks		20,812,044		23,018,795		15.5	%			20,812,044		23,018,795		15.5	%
LLC Interests		9,189,561		9,358,646		6.3	%			9,189,561		9,358,646		6.3	%
Preferred Stocks		10,285,555		8,491,470		5.7	%			10,285,555		8,491,470		5.7	%
Rights		148,370		61,391		0.0	%			148,370		61,391		0.0	%
Warrants		52,988		74,598		0.1	%			52,988		74,598		0.1	%

Total Assets	$	154,282,852	$	148,327,373		100.0	%		$	154,282,852	$	148,327,373		100.0	%

2726

The following table shows the composition of the Company’s invested assets by geographic classification at ~~June~~September 30, 2020:


Geography		Fair value		Percentage				Fair value		Percentage
Assets	Assets						Assets
Cayman Islands⁽¹⁾		$	300,848		0.5	%		$	282,310		0.5	%
Luxembourg⁽¹⁾			2,247,417		3.8	%			2,364,858		4.0	%
United States			56,463,852		95.7	%			56,714,060		95.5	%

Total Assets		$	59,012,117		100.0	%		$	59,361,228		100.0	%

⁽¹⁾	Investment denominated in USD.

The following table shows the composition of the Company’s invested assets by geographic classification at December 31, 2019:


Geography	Fair value		Percentage
Assets
Cayman Islands⁽¹⁾	$	743,520		0.7	%
Luxembourg⁽¹⁾		2,583,933		2.6	%
United States		97,100,239		96.7	%

Total Assets	$	100,427,692		100.0	%

⁽¹⁾	Investment denominated in USD.

Note 4 — Related Party Transactions and Arrangements

Investment Advisory Fee

Payments for investment advisory services under the Company’s investment advisory agreement (the “Investment Advisory Agreement”) and administrative services agreement (the “Administration Agreement”) are equal to (a) a base management fee calculated at an annual rate of 2.0% of the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters and (b) an incentive fee based on the Company’s performance. Effective June 5, 2017, the Investment Advisory Agreement and the Administration Agreement were amended to exclude cash and cash equivalents from the calculation of gross assets for the purpose of calculating investment advisory and administration fees.

For the three and ~~six~~nine months ended ~~June~~September 30, 2020, the Company incurred investment advisory fees payable to the Adviser of ~~$201,229~~$201,136 and ~~$627,964,~~$829,100, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the Company incurred investment advisory fees payable to the Adviser of ~~$505,660~~$499,288 and ~~$996,689,~~$1,495,977, respectively. Amounts waived for investment advisory fees or administrative fees pertaining to periods prior to June 10, 2016 are not recoupable, but amounts waived for investment advisory fees or administrative fees pertaining to periods from and after June 10, 2016 are subject to recoupment by the Adviser within three years from the date that such fees were otherwise payable, provided that the recoupment will be limited to the amount of such voluntarily waived fees from and after June 10, 2016 and will not cause the sum of the Company’s investment advisory fees, administration fees, Other Expenses (as defined under “Expense Limits and Reimbursements” below), and any recoupment to exceed the annual rate of 3.40% of average gross assets. Effective December 20, 2017, the Adviser ended its voluntary waiver of advisory fees.

Incentive Fee

The incentive fee consists of two parts. The first part, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears, and equals 20.0% of “pre-incentive fee net investment income” for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on the Company’s net assets, as defined in the Investment Advisory Agreement, equal to 1.875% per quarter. As a result, the Adviser will not earn this incentive fee for any quarter until the Company’s pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.875%. Once the Company’s pre-incentive fee net investment income in any quarter exceeds the hurdle rate, the Adviser will be entitled to a “catch-up” fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until the Company’s pre-incentive fee net investment income for such quarter equals 2.34375% of the Company’s net assets at the end of such quarter. This “catch-up” feature allows the Adviser to recoup the fees foregone as a result of the existence of the hurdle rate in that quarter. Thereafter, the Adviser will receive 20.0% of the Company’s pre-incentive fee net investment income from the quarter.

2827

The second part of the incentive fee, which is referred to as the incentive fee on capital gains, is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement). This fee equals 20.0% of the Company’s incentive fee capital gains, which will equal the Company’s realized capital gains on a cumulative basis from formation, calculated as of the end of the applicable period, computed net of all realized capital losses (proceeds less amortized cost) and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. The Company will accrue for the capital gains incentive fee, which, if earned, will be paid annually. The Company will accrue for the capital gains incentive fee based on net realized and unrealized gains; however, under the terms of the Investment Advisory Agreement, the fee payable to the Adviser will be based on realized gains and no such fee will be payable with respect to unrealized gains unless and until such gains are actually realized.

For the three and ~~six~~nine months ended ~~June~~September 30, 2020, the Company incurred $0 and $0 of incentive fees on capital gains, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the Company incurred $0 and $0 of incentive fees on capital gains, respectively. Since inception, the Company has accrued $0 of incentive fees on capital gains in aggregate. Effective December 20, 2017, the Adviser ended its voluntary waiver of incentive fees. No such fees have been paid with respect to realized gains to the Adviser as of ~~June~~September 30, 2020.

Administration Fee

Pursuant to the Administration Agreement with the Adviser, the Company also reimburses the Adviser for expenses necessary for its performance of services related to the Company’s administration and operations. The amount of the reimbursement will be the lesser of (1) the Company’s allocable portion of overhead and other expenses incurred by the Adviser in performing its obligations under the Administration Agreement and (2) 0.40% of the Company’s average gross assets, (excluding cash and cash equivalents). The Adviser is required to allocate the cost of such services to the Company based on objective factors such as assets, revenues, time allocations and/or other reasonable metrics. The Board assesses the reasonableness of such reimbursements based on the breadth, depth and quality of such services as compared to the estimated cost to the Company of obtaining similar services from third-party service providers known to be available. In addition, the Board will consider whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, the Board will compare the total amount paid to the Adviser for such services as a percentage of the Company’s net assets to the same ratio as reported by other comparable BDCs.

For the three and ~~six~~nine months ended ~~June~~September 30, 2020, the Company incurred administration fees payable to the Adviser of ~~$50,978~~$59,839 and ~~$125,594,~~$185,433, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the Company incurred administration fees payable to the Adviser of ~~$100,547~~$100,029 and ~~$199,338,~~$299,367, respectively. Amounts waived for management fees or administrative services expenses pertaining to periods prior to June 10, 2016 are not recoupable, but amounts waived for management fees or administrative services, expenses pertaining to periods from and after June 10, 2016 are subject to recoupment by the Adviser within three years from the date that such fees were otherwise payable, provided that the recoupment will be limited to the amount of such voluntarily waived fees from and after June 10, 2016 and will not cause the sum of the Company’s advisory fees, administration fees, Other Expenses, and any recoupment to exceed the annual rate of 3.40% of average gross assets. Effective December 20, 2017, the Adviser ended its voluntary waiver of administration fees.

Investment Advisory and Administration Fees Table

Amounts waived and subject to recoupment pertaining to investment advisory and administration fees are shown below.


Period ended	Advisory fees waived and subject to recoupment⁽¹⁾		Administration fees waived and subject to recoupment⁽¹⁾		Recoupment eligibility expiration	Advisory fees waived and subject to recoupment⁽¹⁾		Administration fees waived and subject to recoupment⁽¹⁾		Recoupment eligibility expiration
December 31, 2017	$	413,916	$	75,906	December 31, 2020	$	413,916	$	75,906	December 31, 2020
September 30, 2017		305,288		69,308	September 30, 2020		305,288		69,308	Expired
June 30, 2017		389,733		77,947	Expired		389,733		77,947	Expired
March 31, 2017		390,969		78,194	Expired		390,969		78,194	Expired
December 31, 2016		366,861		73,372	Expired		366,861		73,372	Expired
September 30, 2016		343,320		68,664	Expired		343,320		68,664	Expired
June 30, 2016		74,421		14,884	Expired		74,421		14,884	Expired

Total	$	2,284,508	$	458,275		$	2,284,508	$	458,275

⁽¹⁾	The Adviser has permanently waived the recoupment of any advisory fees or administration fees calculated on the portion of gross assets attributable to the receivable from Adviser balance on the Statements of Assets and Liabilities. The amounts shown have been reduced by this waiver.

2928

In addition, cumulatively since inception through to June 10, 2016, the ~~Company~~Adviser has voluntarily waived $930,143 and $186,042 of advisory fees and administration fees, respectively, all of which are not recoupable.

Organization and Offering Costs

Organization costs include the cost of incorporating, such as the cost of legal services and other fees pertaining to our organization, and are paid by the Adviser. For the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the Adviser did not incur or pay organization costs on our behalf.

Offering costs include legal fees, promotional costs and other costs pertaining to the public offering of our shares of common stock, and are capitalized and amortized to expense over one year. For the three and ~~six~~nine months ended ~~June~~September 30, 2020, the Adviser incurred and paid offering costs of $0 and $0 respectively, on our behalf. For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the Adviser incurred and paid offering costs of $0 and $0, respectively, on our behalf. For the three and ~~six~~nine months ended ~~June~~September 30, 2020, the Company capitalized $0 and $0 of offering costs, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the Company capitalized $0 and $0 of offering costs, respectively. Of this amount, $0 and $0 were amortized to expense during the three and ~~six~~nine months ended ~~June~~September 30, 2020, respectively. Of this amount, $0 and $5,445 were amortized to expense during the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively. As of ~~June~~September 30, 2020 and ~~June~~September 30, 2019, $0 and $0 remained on the Statements of Assets and Liabilities, respectively.

Organization costs and offering costs are limited to 1% of total gross proceeds raised in the offering and are not due and payable to the Adviser to the extent they exceed that amount. As of ~~June~~September 30, 2020, the cumulative aggregate amount of $5,327,574 of organization and offering costs exceeds 1% of total proceeds raised. Subsequent to the termination of the offering, the Adviser forfeited the right to reimbursement of the remaining $4,305,091 of these costs.

Fees Paid to Officers and Directors

Each director receives an annual retainer of $150,000 payable in quarterly installments and allocated among each portfolio in the ~~Funds~~Fund Complex based on relative net assets. Directors are reimbursed for actual out-of-pocket expenses relating to attendance at meetings, however, the Chairman of the Board and the Chairman of the Audit and Qualified Legal Committee each receive an additional payment of $10,000 payable in quarterly installments and allocated among each portfolio in the ~~Funds~~Fund Complex based on relative net assets. The Directors do not receive any separate compensation in connection with service on Committees or for attending Board or Committee Meetings. They do not have any pension or retirement plan. The ~~“Funds~~“Fund Complex” consists of all of the registered investment companies advised by the Adviser and any affiliates as of the period covered by this report. The Company pays no compensation to any of its officers, all of whom are employees of an affiliate of the Adviser. Effective January 28, 2020, Mr. Honis is treated as an “interested person” of the Company (as defined in the 1940 Act) in light of certain relationships between Mr. Honis and certain affiliates of the Adviser, including Highland Capital Management, L.P. (“HCMLP”), arising out of HCMLP’s pending Chapter 11 proceedings.

For the three and ~~six~~nine months ended ~~June~~September 30, 2020, the Company recorded an expense relating to director fees of ~~$5,378~~$6,238 and ~~$9,889,~~$16,127, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the Company recorded an expense relating to director fees of ~~$5,232~~$4,956 and ~~$10,150,~~$15,106, respectively, which represents the allocation of the director fees to the Company. As of ~~June~~September 30, 2020, there was no expenses payable relating to director fees.

Expense Limits and Reimbursements

Pursuant to an expense limitation agreement, the Adviser is contractually obligated to waive fees and, if necessary, pay or reimburse certain other expenses to limit the ordinary “Other Expenses” to 1.0% of the quarter-end value of the Company’s gross assets through the one year anniversary of the effective date of the registration statement (the “Expense Limitation Agreement”). Under the Expense Limitation Agreement, “Other Expenses” are all expenses with the exception of advisor and administration fees, organization and offering costs and the following: (i) interest, taxes, dividends tied to short sales, brokerage commissions, and other expenditures which are capitalized in accordance with U.S. GAAP; (ii) expenses incurred indirectly as a result of investments in other investment companies and pooled investment vehicles; (iii) other expenses attributable to, and incurred as a result of, our investments; (iv) expenses payable to the Adviser, as administrator, for providing significant managerial assistance to our portfolio companies; and (v) other extraordinary expenses (including litigation expenses) not incurred in the ordinary course of our business. The obligation will automatically renew for one-year terms unless it is terminated by the Company or the Adviser upon written notice within 120 days of the end of the current term or upon termination of the Investment Advisory Agreement. The Expense Limitation Agreement will continue through at least April 30, 2021.

Any expenses waived or reimbursed by the Adviser pursuant to the Expense Limitation Agreement are subject to possible recoupment by the Adviser within three years from the date of the waiver or reimbursement. The recoupment by the Adviser will be limited to the amount of previously waived or reimbursed expenses and cannot cause the Company’s expenses to exceed any expense limitation in place at the time of recoupment or waiver.

Reimbursable Expenses Table

The cumulative total of fees waived by the Adviser under the Expense Limitation Agreement, which are recoupable as of ~~June~~September 30, 2020 is ~~$859,415.~~$700,501. This balance, and the balances in the tables below, only include amounts pertaining to the Expense Limitation Agreement, and do not include waived advisory and administration fees subject to recoupment discussed earlier in Note 4. The following table reflects the fee waivers and expense reimbursements due from the Adviser as of ~~June~~September 30, 2020, which may become subject to recoupment by the Adviser.


Period ended	Yearly cumulative other expense		Yearly expense limitation		Yearly cumulative expense reimbursement		Quarterly recoupable/ (recouped) amount			Recoupment eligibility expiration	Yearly cumulative other expense		Yearly expense limitation		Yearly cumulative expense reimbursement		Quarterly recoupable/ (recouped) amount			Recoupment eligibility expiration
September 30, 2020											$	687,228	$	439,281	$	247,947	$	94,039		September 30, 2023
June 30, 2020	$	445,585	$	291,677	$	153,908	$	(30,539	)	June 30, 2023		445,585		291,677		153,908		(30,539	)	June 30, 2023
March 31, 2020		257,226		72,779		184,447		184,447		March 31, 2023		257,226		72,779		184,447		184,447		March 31, 2023

The following table reflects the fee waivers and expense reimbursements due from the Adviser as of December 31, 2019, September 30, 2019, June 30, 2019 and March 31, 2019, which may become subject to recoupment by the Adviser.


Period ended	Yearly cumulative other expense		Yearly expense limitation		Yearly cumulative expense reimbursement		Quarterly recoupable/ (recouped) amount			Recoupment eligibility expiration	Yearly cumulative other expense		Yearly expense limitation		Yearly cumulative expense reimbursement		Quarterly recoupable/ (recouped) amount			Recoupment eligibility expiration
December 31, 2019	$	1,098,789	$	951,520	$	147,269	$	50,130		December 31, 2022	$	1,098,789	$	951,520	$	147,269	$	50,130		December 31, 2022
September 30, 2019		849,345		752,206		97,139		(17,417	)	September 30, 2022		849,345		752,206		97,139		(17,417	)	September 30, 2022
June 30, 2019		586,411		471,855		114,556		75,592		June 30, 2022		586,411		471,855		114,556		75,592		June 30, 2022
March 31, 2019		295,177		256,213		38,964		38,964		March 31, 2022		295,177		256,213		38,964		38,964		March 31, 2022

3130

The following table reflects the fee waivers and expense reimbursements due from the Adviser as of December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018, which may become subject to recoupment by the Adviser.


Period ended	Yearly cumulative other expense		Yearly expense limitation		Yearly cumulative expense reimbursement		Quarterly recoupable amount		Recoupment eligibility expiration	Yearly cumulative other expense		Yearly expense limitation		Yearly cumulative expense reimbursement		Quarterly recoupable amount		Recoupment eligibility expiration
December 31, 2018	$	1,352,097	$	924,677	$	427,420	$	279,079	December 31, 2021	$	1,352,097	$	924,677	$	427,420	$	279,079	December 31, 2021
September 30, 2018		950,045		801,704		148,341		23,992	September 30, 2021		950,045		801,704		148,341		23,992	September 30, 2021
June 30, 2018		613,809		489,460		124,349		44,203	June 30, 2021		613,809		489,460		124,349		44,203	June 30, 2021
March 31, 2018		341,882		261,736		80,146		80,146	March 31, 2021		341,882		261,736		80,146		80,146	March 31, 2021

The following table reflects the fee waivers and expense reimbursements due from the Adviser as of December 31, 2017, September 30, 2017, June 30, 2017 and March 31, 2017, which may become subject to recoupment by the Adviser.


Period ended	Yearly cumulative other expense		Yearly expense limitation		Yearly cumulative expense reimbursement		Quarterly recoupable/(recouped) amount			Recoupment eligibility expiration	Yearly cumulative other expense		Yearly expense limitation		Yearly cumulative expense reimbursement		Quarterly recoupable/(recouped) amount		Recoupment eligibility expiration
December 31, 2017	$	1,304,585	$	975,289	$	329,296	$	(122,135	)	December 31, 2020	$	1,304,585	$	975,289	$	329,296	$	(122,135)		December 31, 2020
September 30, 2017		983,110		531,679		451,431		252,953		September 30, 2020		983,110		531,679		451,431		—		Expired
June 30, 2017		631,906		433,428		198,478		—		Expired		631,906		433,428		198,478		—		Expired
March 31, 2017		329,791		182,226		147,565		—		Expired		329,791		182,226		147,565		—		Expired

During the three and ~~six~~nine months ended ~~June~~September 30, 2020, ~~$50,913~~$252,953 and ~~$198,478,~~$451,431, respectively, of expense reimbursements that were eligible for recoupment by the Adviser expired.

There can be no assurance that the Expense Limitation Agreement will remain in effect or that the Adviser will reimburse any portion of the Company’s expenses in future quarters not covered by the Expense Limitation Agreement. Amounts shown do not include the amounts committed by the Adviser to voluntarily reimburse the Company for unrealized losses, all of which are not recoupable.

Net Increase from Amounts Committed by Affiliates

For the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the Adviser did not voluntarily reimburse the Company for unrealized losses sustained. Cumulatively since inception, the Adviser has committed $2,275,000 to voluntarily reimburse the Company for such losses. Had these commitments not been made, the net asset value (“NAV”) as of ~~June~~September 30, 2020 would have been lower by approximately this amount. These commitments are shown in the Statements of Operations as net increase from amounts committed by affiliates and are not recoupable.

Amounts committed and paid by the Adviser to reimburse for unrealized losses are nonrecurring, and investors should not expect the Adviser to make similar commitments or payments in the future.

Receivable from Adviser / Payable to Adviser

As of ~~June~~September 30, 2020 and December 31, 2019, $0$94,039 and $50,130 were owed from the Adviser to the Company, ~~respectively.~~respectively, largely related to the expense limitation agreement.

As of ~~June~~September 30, 2020 and December 31, 2019, the Company owed ~~$282,745~~$260,976 and $570,453, respectively, to the Adviser, largely related to advisory fees, administration fees, and the expense limitation agreement.

Indemnification

Under the Company’s organizational documents, the officers and Directors have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Company. Additionally, in the normal course of business, the Company may enter into contracts with service providers that contain a variety of indemnification clauses. The Company’s maximum exposure under these arrangements is dependent on future claims that may be made against the Company and, therefore, cannot be estimated.

Note 5 — U.S. Federal Income Tax Information

The Company has elected to be treated for federal income tax purposes, and intends to qualify annually, as a RIC under Subchapter M of the Code. To maintain its qualification as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements and distribute to its stockholders, for each taxable year, at least 90% of its “investment company taxable income,” which is generally the Company’s net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses. As a RIC, the Company will not be subject to corporate-level federal income

taxes on any income that it timely distributes to its stockholders. The Company intends to make distributions in an amount sufficient to maintain its RIC status each year and to avoid any federal income taxes on income so distributed. The Company will also be subject to nondeductible federal excise taxes if it does not distribute at least 98% of net ordinary income, 98.2% of any capital gain net income, if any, and any recognized and undistributed income from prior years on which it paid no federal income taxes.

The character of income and capital gains to be distributed is determined in accordance with the Code, U.S. Treasury regulations, and other applicable authority, which may differ from GAAP. These differences include (but are not limited to) investments organized as partnerships for tax purposes, total return swaps, loan investments, and losses deferred due to wash sale transactions. Reclassifications are made to the Company’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under the Code, U.S. Treasury regulations, and other applicable authority. These reclassifications have no impact on net investment income, realized gains or losses, or net asset value of the Company. The calculation of net investment income per share in the Financial Highlights table excludes these adjustments.

Uncertainty in Income Taxes

The Company will evaluate its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax benefits or liabilities in the financial statements. Recognition of a tax benefit or liability with respect to an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Company’s tax returns are subject to examination by the Internal Revenue Service for a period of three fiscal years after they are filed. The Company recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in the Statements of Operations. During the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the Company did not incur any interest or penalties. Furthermore, management of the Company is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next 12 months.

Note 6 — Share Repurchase Program

On a quarterly basis, the Company intends to offer to repurchase shares of common stock on such terms as may be determined by the Board in its complete and absolute discretion unless, in the judgment of directors who are not “interested persons” of the Company (as defined in the 1940 Act), such repurchases would not be in the best interests of the Company’s stockholders or would violate applicable law. The Company will conduct such repurchase offers in accordance with the requirements of Rule 13e-4 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the 1940 Act. In months in which the Company repurchases shares of common stock, it will conduct repurchases on the same date that it holds its first weekly closing for the sale of shares of common stock in its public offering. Any offer to repurchase shares of common stock will be conducted solely through tender offer materials mailed to each stockholder.

The Company currently intends to limit the number of shares of common stock to be repurchased during any calendar year to the number of shares of common stock it can repurchase with the proceeds it receives from the sale of shares of common stock under its distribution reinvestment plan. At the discretion of the Board, the Company may also use cash on hand, cash available from borrowings and cash from liquidation of securities investments as of the end of the applicable period to repurchase shares of common stock. In addition, the Company will limit the number of shares of common stock to be repurchased in any calendar year to 10.0% of the weighted average number of shares of common stock outstanding in the prior calendar year, or 2.5% in each quarter, though the actual number of shares of common stock that the Company offers to repurchase may be less in light of the limitations noted above. The Company intends to offer to repurchase such shares of common stock at a price equal to 90% of the offering price in effect on each date of repurchase. The Board may amend, suspend or terminate the share repurchase program at any time, upon 30 days’ notice.

The Company conducted its most recent quarterly tender offer from ~~May 22,~~August 21, 2020, until expiration ~~of June 22,~~on September 21, 2020 at 4:00 p.m. New York City time, during which the Company offered to purchase for cash up to 2.5% of its outstanding shares of common stock. During the ~~second~~third quarter tender offer, ~~45,917~~51,384 shares of the Company were tendered for repurchase, constituting approximately ~~0.44%~~0.49% of the Company’s outstanding shares.

For the ~~six~~nine months ended ~~June~~September 30, 2020, the Company repurchased 0 shares as part of its death and disability repurchase program.

Note 7 — Credit Facility and Leverage Facilities

On October 19, 2017, the Company entered into a financing arrangement (the “Financing Arrangement”) with BNP Paribas Prime Brokerage International, Ltd., BNP Prime Brokerage, Inc., and BNP Paribas (together, the “BNPP Entities”). Under the Financing Agreement, the BNPP Entities may make margin loans to the Company at a rate of one-month LIBOR + 1.30%. The BNPP Entities have the right to cap the amount of margin loans with prior notice to the Company. The Financing Arrangement may be terminated by either the Company or the BNPP Entities with 179 days notice. On April 15, 2020, the Financing Arrangement was paid down and closed. At ~~June~~September 30, 2020, there were no current outstanding or fair value amounts. At December 31, 2019, current outstanding and fair value amounts were $33,714,864 and $33,975,517, respectively.

For the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the components of total interest expense were as follows:


	Three Months ended						Six Months ended						Three Months ended				Nine Months ended
	June 2020			June 2019			June 2020			June 2019			September 2020		September 2019		September 2020			September 2019
Direct interest expense	$	6,283		$	339,299		$	176,911		$	645,649		$	—	$	315,653	$	176,911		$	961,302
Commitment fees		—			—			(204	)		—			—		—		(204	)		—
Amortization of financing costs		—			—			—			—			—		—		—			—

Total interest expense	$	6,283		$	339,299		$	176,707		$	645,649		$	—	$	315,653	$	176,707		$	961,302

Average daily amount outstanding		971,068	⁽¹⁾		37,178,889			22,670,341	⁽¹⁾		35,300,202			—		36,902,623		22,670,341	⁽¹⁾		35,840,212
Weighted average interest rate		2.67	%⁽¹⁾		3.61	%		2.67	%⁽¹⁾		3.64	%		—		3.35%		2.67%	⁽¹⁾		3.54%

⁽¹⁾	The Financing Arrangement with BNP was fully paid down and closed as of April 15, 2020, the average daily amount outstanding is calculated through April 15, 2020. The 2.67% represents the weighted average interest rate from January 1, 2020 through April 15, 2020.

The Company is required to maintain 200% asset coverage with respect to its borrowings outstanding. Asset coverage is calculated by subtracting the Company’s total liabilities, not including any amount representing bank loans and senior securities, from the Company’s total assets and dividing the result by the principal amount of the borrowings outstanding. As of the dates indicated below, the Company’s borrowings outstanding and asset coverage was as follows:


Period ended	Total amount outstanding		% of asset coverage			Total amount outstanding		% of asset coverage
September 30, 2020						$	—		—
June 30, 2020	$	—		—			—		—
March 31, 2020							21,511,922		347%
December 31, 2019		63,219,694		241	%		63,219,694		241%

BNP Paribas Total Return Swap

On June 13, 2017, the Company entered into the TRS with BNP Paribas over one or more loans, with a maximum aggregate notional amount of the portfolio debt securities subject to the TRS of $40 million. The agreements between the Company and BNP Paribas, which collectively establish the TRS, are referred to herein as the “TRS Agreement.”

On April 2, 2018, the Company amended and restated the TRS ~~agreement~~Agreement with BNP Paribas. The amended and restated TRS Agreement, effective April 10, 2018 ~~increases~~increased the maximum aggregate notional amount of the portfolio debt securities subject to the TRS to $60 million. On June 10, 2020, the TRS expired.

A TRS is a contract in which one party agrees to make payments to another party based on the increase, if any, in the market value of the asset(s) underlying the TRS, which may include a specified security, basket of securities or securities indices during a specified period, and the other party agrees to make payments to the first party based on the decrease, if any, in the market value of such underlying assets plus periodic payments based on a fixed or variable interest rate. A TRS effectively adds leverage to a portfolio by providing investment exposure to an underlying asset without owning or taking physical custody of the underlying asset. A TRS often offers lower financing costs than are offered through more traditional borrowing arrangements.

Each individual security subject to the TRS, and the portfolio of securities taken as a whole, had to meet certain criteria described in the TRS Agreement, including a requirement that the securities underlying the TRS were rated by either Moody’s or S&P, and, if rated by Moody’s, have a rating of at least Caa3 and, if rated by S&P, have a rating of at least CCC-. Under the terms of the TRS, BNP Paribas determined whether there had been a failure to satisfy the portfolio criteria in the TRS but ~~may,~~could, in its sole discretion, permit assets that dodid not meet the minimum portfolio criteria set forth in the TRS. If BNP Paribas had determined that an asset ~~has~~ failed to meet the minimum portfolio criteria, BNP Paribas ~~may~~could have exercised certain rights, including increasing the amount of collateral the Company was required to provide to it or terminating all or part of the TRS, subject to certain conditions. The Company received from BNP Paribas interest and fees payable to holders of the securities included in the portfolio. The Company paid interest to BNP Paribas generally based on a percentage of the notional amount of the securities subject to the TRS. In addition, upon the termination or repayment of any security subject to the TRS, the Company had either received from BNP Paribas the appreciation in the value of such security or ~~pay~~had paid to BNP Paribas any depreciation in the value of such security.

Under the terms of the TRS, the Company or BNP Paribas ~~was~~were required to post additional collateral, on a dollar-for-dollar basis, in certain circumstances, including in the event of depreciation or appreciation in the value of the underlying loans. The limit on the additional collateral that the Company was required to post pursuant to the TRS iswas equal to the difference between the full notional amount of the loans underlying the TRS and the amount of cash collateral already posted by the Company. The amount of collateral required to be posted was determined primarily on the basis of the aggregate value of the underlying securities.

The Company had the option to terminate the TRS at any time more than one month prior to the TRS’s scheduled termination date upon providing no less than 30 ~~days~~days’ prior notice to BNP Paribas.

Included among the customary events of default and termination events in the TRS Agreement are: bankruptcy or insolvency of a party, failure to satisfy any obligations under the TRS (including payment of collateral), and misrepresentation. BNP Paribas also had the right to terminate the TRS in certain circumstances, including if the relevant loans fail to meet the agreed-upon criteria specified in the TRS Agreement or if certain credit events with respect to the “reference entity” specified with respect to a security occur, and the Company declines to provide additional collateral to BNP Paribas upon request.

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

For purposes of the asset coverage ratio test applicable to the Company as a BDC, the Company would have treated the outstanding notional amount of the TRS, less the initial amount of any cash collateral required to be posted by the Company under the TRS, as a senior security for the life of that instrument. As of ~~June~~September 30, 2020, the company has ~~$224,800~~$0 in receivable from BNP Paribas for the ~~six~~nine months ended ~~June~~September 30, 2020.

Further, for purposes of Section 55(a) under the 1940 Act, the Company treats each security underlying the TRS as a qualifying asset if such security is a loan and 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.

As of ~~June~~September 30, 2020, there were no positions held in the TRS.

3534

The following is a summary of the underlying loans subject to the TRS as of December 31, 2019:


Underlying Loan		Industry	Interest		Base Rate Floor			Maturity Date	Notional Amount⁽¹⁾		Market Value		Unrealized Appreciation (Depreciation)				Industry	Interest		Base Rate Floor			Maturity Date	Notional Amount⁽¹⁾		Market Value		Unrealized Appreciation (Depreciation)
Advantage Sales & Marketing, Inc. (Second Lien Term Loan)		Service		L + 650		1.00	%	7/25/2022	$	2,853,750	$	2,640,000	$	(213,750	)		Service		L + 650		1.00	%	7/25/2022	$	2,853,750	$	2,640,000	$	(213,750	)
Air Medical Group Holdings (First Lien Term Loan)		Aerospace		L + 425		1.00	%	3/14/2025		3,917,518		3,791,960		(125,558	)		Aerospace		L + 425		1.00	%	3/14/2025		3,917,518		3,791,960		(125,558	)
ASP AMC Merger Sub, Inc. (First Lien Term Loan)		Financial		L + 350		1.00	%	4/21/2024		1,822,226		1,730,025		(92,201	)		Healthcare		L + 350		1.00	%	4/21/2024		1,822,226		1,730,025		(92,201	)
VVC Holding Corp. (First Lien Term Loan)		Healthcare		L + 450		0.00	%	2/11/2026		5,905,504		5,964,975		59,471			Healthcare		L + 450		0.00	%	2/11/2026		5,905,504		5,964,975		59,471
BioClinica, Inc. (First Lien Term Loan)		Healthcare		L + 425		1.00	%	10/20/2023		1,874,140		1,893,662		19,522			Healthcare		L + 425		1.00	%	10/20/2023		1,874,140		1,893,662		19,522
Employbridge, LLC (First Lien Term Loan)		Service		L + 450		1.00	%	4/18/2025		767,142		751,799		(15,343	)		Service		L + 450		1.00	%	4/18/2025		767,142		751,799		(15,343	)
Endo Luxembourg Finance Company I S.a r.l. (First Lien Term Loan)		Healthcare		L + 425		0.75	%	4/27/2024		3,959,091		3,762,121		(196,970	)
Endo Luxembourg Finance Company I S.a.r.l. (First Lien Term Loan)																	Healthcare		L + 425		0.75	%	4/27/2024		3,959,091		3,762,121		(196,970	)
Envision Healthcare Corp. (First Lien Term Loan)		Healthcare		L + 375		0.00	%	10/10/2025		4,671,563		4,207,500		(464,063	)		Healthcare		L + 375		0.00	%	10/10/2025		4,671,563		4,207,500		(464,063	)
Granite Acquisition, Inc. (Second Lien Term Loan)		Utility		L + 725		1.00	%	12/19/2022		3,736,715		3,704,222		(32,493	)		Utility		L + 725		1.00	%	12/19/2022		3,736,715		3,704,222		(32,493	)
BW NHHC Holdco, Inc. (First Lien Term Loan)		Healthcare		L + 500		0.00	%	5/15/2025		4,537,384		3,420,139		(1,117,245	)		Healthcare		L + 500		0.00	%	5/15/2025		4,537,384		3,420,139		(1,117,245	)
Lanai Holdings II, Inc. (First Lien Term Loan)		Healthcare		L + 475		1.00	%	8/28/2022		2,449,958		2,300,085		(149,873	)		Healthcare		L + 475		1.00	%	8/28/2022		2,449,958		2,300,085		(149,873	)
Radnet Management Inc. (First Lien Term Loan)				L + 350		1.00	%	7/1/2023		1,492,721		1,485,331		(7,390	)				L + 350		1.00	%	7/1/2023		1,492,721		1,485,331		(7,390	)
Sound Inpatient Physicians (First Lien Term Loan)		Healthcare		L + 675		0.00	%	6/28/2026		1,575,000		1,567,222		(7,778	)		Healthcare		L + 675		0.00	%	6/28/2026		1,575,000		1,567,222		(7,778	)
Truck Hero, Inc. (Second Lien Term Loan)		Manufacturing		L + 825		1.00	%	4/21/2025		1,666,667		1,583,333		(83,334	)		Manufacturing		L + 825		1.00	%	4/21/2025		1,666,667		1,583,333		(83,334	)
Vyaire Medical, Inc. (First Lien Term Loan)		Healthcare		L + 475		1.00	%	4/30/2025		4,794,592		4,295,155		(499,437	)		Healthcare		L + 475		1.00	%	4/30/2025		4,794,592		4,295,155		(499,437	)
Weight Watchers International, Inc. (First Lien Term Loan)		Service		L + 475		0.75	%	11/29/2024		4,880,859		4,802,152		(78,707	)		Service		L + 475		0.75	%	11/29/2024		4,880,859		4,802,152		(78,707	)

Total	Total												$	(3,005,149	)	Total												$	(3,005,149	)

Accrued income and liabilities	Accrued income and liabilities													260,107		Accrued income and liabilities													260,107

Total TRS Fair Value	Total TRS Fair Value												$	(2,745,042	)	Total TRS Fair Value												$	(2,745,042	)

⁽¹⁾	Notional value of the underlying securities in the TRS is calculated by multiplying par by the initial price.

As of ~~June~~September 30, 2020 and December 31, 2019, the Company had posted $0 and $21,400,000, respectively, of cash collateral against the TRS held in an account at the Company’s custodian bank, which is shown as due from counterparty on the Statements of Assets and Liabilities.

During the ~~six~~nine months ended ~~June~~September 30, 2020, the Company recognized a net realized loss on the TRS amounting to $6,929,996. The realized losses of the derivative instruments during the ~~six~~nine months ended ~~June~~September 30, 2020 serve as indicators of the volume of derivative activity for the Company. The Company received ~~$258,781~~$483,581 in cash payments from the TRS during the period and paid $7,425,035, with a decrease of $11,458 in payable from ~~and increase of $224,800 in receivable from to~~ BNP Paribas for the ~~quarter~~nine months ended ~~June~~September 30, 2020. During the ~~six~~nine months ended ~~June~~September 30, 2020, the Company recognized a $2,745,042 change in unrealized gain on the TRS.

As a result of decreases in the market value of certain of the Company’s assets pledged at derivative counterparties, the Company was required to post additional collateral relating to its margin requirements. The Company experienced delays posting collateral with one counterparty and received an Event of Default notice dated March 23, 2020; however, the Company covered the margin call on March 24, 2020 and received a formal waiver on the Event of Default notice from the counterparty dated April 2, 2020.

Note 8 — Economic Dependency and Commitments and Contingencies

Under various agreements, the Company has engaged the Adviser and its affiliates to provide certain services that are essential to the Company, including asset management services, asset acquisition and disposition decisions, the sale of shares of the

Company’s common stock available for issue, as well as other administrative responsibilities for the Company including accounting services and investor relations. Additionally, prior to termination of the offer, the Adviser paid all of the Company’s organization and offering costs subject to reimbursement to the extent organization and offering costs paid by the Adviser did not exceed 1% of gross proceeds raised. Please see Note 4 for additional details on organization and offering costs.

As a result of these relationships, the Company is dependent upon the Adviser and its affiliates. In the event that these companies are unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.

Our Adviser, NexPoint Advisors, L.P., has historically been ~~historically~~ affiliated through common control with ~~HCMLP,~~Highland Capital Management, L.P. (“HCMLP”), an SEC-registered investment ~~adviser. On October 16, 2019, HCMLP~~adviser that filed for Chapter 11 bankruptcy protection ~~with the United States Bankruptcy Court for the District of Delaware. The case was subsequently transferred to~~on October 16, 2019. On January 9, 2020, the United States Bankruptcy Court for the Northern District of Texas (the “Court”)~~. On January 9, 2020, the Court~~ approved a change of control of HCMLP, which involved the resignation of James Dondero as the sole director of, and the appointment of an independent board to, HCMLP’s general partner.

On September 21, 2020, HCMLP filed a plan of reorganization and disclosure statement with the Court (the “Filed Plan”). On October 9, 2020, Mr. Dondero ~~remains~~resigned as an employee of HCMLP and as portfolio manager for all ~~funds~~HCMLP-advised funds. As a result of these changes, the Adviser is no longer under common control with HCMLP. Mr. Dondero continues to be a portfolio manager for the Investment Adviser and ~~vehicles for which he currently holds such titles. Nevertheless, given Mr. Dondero’s historic role with HCMLP and his continued ownership interest and roles with respect to~~ the ~~Highland platform as a whole, as well as the shared services agreements between HCMLP and our Adviser, we still treat HCMLP and its affiliates as our affiliates for purposes hereof.~~Company.

On August 12, 2020, HCMLP filed of a plan of reorganization (the “Filed Plan”) with the Court in advance of a mediation process to resolve the case (the “Mediation Plan”) involving HCMLP, the official committee of unsecured creditors, and other parties involved in the reorganization proceedings. Under ~~both~~ the Filed Plan, ~~and the Mediation Plan (together the “Plans”), HCMLP’s~~HCMLP is expected to continue to provide investment and business ~~activities are expected to continue without interruption,~~advice, including services under the ~~shared services arrangement~~Shared Services Agreement with ~~NexPoint Advisors L.P.~~the Adviser. Under this ~~arrangement our~~Arrangement the Adviser may utilize employees from HCMLP in connection with various services such as human resources, accounting, tax, valuation, information technology services, office space, employees, compliance and legal. ~~NexPoint Advisors L.P.~~The Adviser is neither party to HCMLP’s bankruptcy filing nor subject to the ~~Plans.~~

~~NexPoint Advisors L.P. is not a party to HCMLP’s bankruptcy filing. NexPoint Advisors L.P. is a party to a shared services arrangement~~Filed Plan. There can be no assurance that the Filed Plan will be approved by the Court. However, based upon on-going discussions with ~~HCMLP. Under this arrangement our~~HCMLP, the Adviser may utilize employees from HCMLP in connection with various services such as human resources, accounting, tax, valuation, information technology services, office space, employees, compliance and legal. We dodoes not expect ~~HCMLP’s bankruptcy filings~~any interruption to ~~impact its provision of~~the services that are currently being provided by HCMLP pursuant to ~~NexPoint Advisors L.P. at this time.~~the Shared Services Agreement.

From time to time, the Company may be involved in legal proceedings in the normal course of its business. Although the outcome of such litigation cannot be predicted with any clarity, management is of the opinion, based on the advice of legal counsel, that final dispositions of any litigation should not have a material adverse effect on the financial position of the Company as of ~~June~~September 30, 2020.

Unfunded commitments to provide funds to portfolio companies are not recorded in the Company’s Statements of ~~assets~~Assets and ~~liabilities.~~Liabilities. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Company has sufficient liquidity to fund these commitments. As of ~~June~~September 30, 2020, the Company had one unfunded debt commitment with an aggregate unfunded commitment of $333,333. For additional details regarding the Company’s unfunded debt investments, see the Company’s Schedule of Investments as of ~~June~~September 30, 2020.

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties that provide general indemnification. The Company’s maximum exposure under these agreements is unknown, as this would involve future claims that may be made against the Company that have not occurred. The Company believes the risk of material obligations under these indemnities to be low.

Note 9 — Market and Other Risk Factors

The primary risks of investing in the Company are described below in alphabetical order:

Concentration Risk

The Company is classified as a non-diversified investment company within the meaning of the 1940 Act, which means that it is not limited by the 1940 Act with respect to the proportion of the Company’s assets that it may invest in securities of a single issuer. To the extent that the Company assumes large positions in the securities of a small number of issuers, the Company’s 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. The Company may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. Beyond the asset diversification requirements associated with the Company’s qualification as a RIC under the Code and certain contractual diversification requirements under a credit facility or other agreements, the Company does not

have fixed guidelines for diversification, and its investments could be concentrated in relatively few portfolio companies. As a result, the aggregate returns the Company realizes may be significantly adversely affected if a small number of investments perform poorly or if the Company needs to write down the value of any one investment. Additionally, the Company’s investments may be concentrated in relatively few industries. As a result, a downturn in any particular industry in which the Company is invested could also significantly impact the aggregate returns realized.

Covenant-Lite Loans Risk

Loans in which the Company invests include covenant-lite loans, which carry more risk to the lender than traditional loans as they may contain fewer or less restrictive covenants on the borrower than traditionally included in loan documentation or may contain other borrowerfriendly characteristics. The Company may experience relatively greater difficulty or delays in enforcing its rights on its holdings of certain covenant-lite loans and debt securities than its holdings of loans or securities with the usual covenants.

Counterparty Credit Risk

Counterparty credit risk is the potential loss the Company may incur as a result of the failure of a counterparty or an issuer to make payments according to the terms of a contract. Counterparty credit risk is measured as the loss the Company would record if its counterparties failed to perform pursuant to the terms of their obligations to the Company. Because the Company may enter into over-the-counter forwards, options, swaps and other derivative financial instruments, the Company may be exposed to the credit risk of its counterparties. To limit the counterparty credit risk associated with such transactions, the Company conducts business only with financial institutions judged by the Adviser to present acceptable credit risk.

Credit Risk

Debt securities are subject to the risk of non-payment of scheduled interest and/or principal. Non-payment would result in a reduction of income to the Company, a reduction in the value of the obligation experiencing non-payment and a potential decrease in the Company’s net asset value.

Investments rated below investment grade are commonly referred to as high-yield, high risk or “junk debt.” They are regarded as predominantly speculative with respect to the issuing company’s continuing ability to meet principal and/or interest payments. Investments in high yield debt and high yield senior loans may result in greater net asset value fluctuation than if the Company did not make such investments. Corporate debt obligations, including senior loans, are subject to the risk of non-payment of scheduled interest and/or principal.

Non-payment would result in a reduction of income to the Company, a reduction in the value of the corporate debt obligation experiencing non-payment and a potential decrease in the net asset value of the Company. Some of the loans the Company makes or acquires may provide for the payment by borrowers of Payment-In-Kind (“PIK”) interest or accreted original issue discount at maturity. Such loans have the effect of deferring a borrower’s payment obligation until the end of the term of the loan, which may make it difficult for the Company to identify and address developing problems with borrowers in terms of their ability to repay debt. Particularly in a rising interest rate environment, loans containing PIK and original issue discount provisions can give rise to negative amortization on a loan, resulting in a borrower owing more at the end of the term of a loan than what it owed when the loan was originated. Any such developments may increase the risk of default on the Company’s loans by borrowers.

Because loans are not ordinarily registered with the SEC or any state securities commission or listed on any securities exchange, there is usually less publicly available information about such instruments. In addition, loans may not be considered “securities” for purposes of the anti-fraud protections of the federal securities laws and, as a result, as a purchaser of these instruments, the Company may not be entitled to the anti-fraud protections of the federal securities laws. In the course of investing in such instruments, the Company may come into possession of material nonpublic information and, because of prohibitions on trading in securities of issuers while in possession of such information, the Company may be unable to enter into a transaction in a publicly-traded security of that issuer when it would otherwise be advantageous for us to do so. Alternatively, the Company may choose not to receive material nonpublic information about an issuer of such loans, with the result that the Company may have less information about such issuers than other investors who transact in such assets.

Foreign Securities Risk

Investments in foreign securities involve certain factors not typically associated with investing in U.S. securities, such as risks relating to (i) currency exchange matters, including fluctuations in the rate of exchange between the U.S. dollar (the currency in which the books of the Company are maintained) and the various foreign currencies in which the Company’s portfolio securities will be denominated and costs associated with conversion of investment principal and income from one currency into another; (ii) differences between the U.S. and foreign securities markets, including the absence of uniform accounting, auditing and financial reporting standards and practices and disclosure requirements, and less government supervision and regulation; (iii) political, social or economic instability; and (iv) the extension of credit, especially in the case of sovereign debt.

Illiquid Securities Risk

The Company will generally make investments in private companies. Substantially all of these investments will be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. The illiquidity of the Company’s investments may make it difficult for the Company to sell such investments if the need arises. In addition, if it is required to liquidate all or a portion of its portfolio quickly, the Company may realize significantly less than the value at which it has previously recorded its investments. In addition, it may face other restrictions on its ability to liquidate an investment in a portfolio company to the extent that it has material non-public information regarding such portfolio company or if an investment is held by one of its subsidiaries and is subject to contractual limitations on sale, such as the limitations on transfer of assets under certain circumstances under a credit facility.

The Company seeks to address its short-term liquidity needs by carefully managing the settlements of its portfolio transactions, including transactions in loans, by maintaining short-term liquid assets sufficient to meet reasonably anticipated obligations, and by maintaining the Credit Facility.

Interest Rate Risk

Interest Rate risk is the risk that fixed income securities will decline in value because of changes in interest rates. When interest rates decline, the value of fixed rate securities already held by the Company can be expected to rise. Conversely, when interest rates rise, the value of existing fixed rate portfolio securities can be expected to decline. A company with a longer average portfolio duration will be more sensitive to changes in interest rates than a fund with a shorter average portfolio duration.

On July 27, 2017, the head of the United Kingdom’s Financial Conduct Authority announced a desire to phase out the use of LIBOR by the end of 2021. ~~Due~~Please refer to ~~this announcement, there remains uncertainty regarding the future utilization of LIBOR~~“LIBOR Transition and the nature of any replacement rate. As such, the potential effect of a transition away from LIBOR on the Company or the financial instruments in which the Company invests can not yet be determined. A successor rate could impact the liquidity and potentially the value of investments that reference LIBOR. The transition process may involve, among other things, increased volatility or illiquidity in marketsAssociated Risk” for instruments that currently rely on LIBOR. The transition may also result in a change in (i) the value of certain instruments held by the Trust, (ii) the cost of temporary borrowing for the Trust, or (iii) the effectiveness of related Trust transactions such as hedges, as applicable. When LIBOR is discontinued, the LIBOR replacement rate may be lower than market expectations, which could have an adverse impact on the value of preferred and debt-securities with floating or fixed-to-floating rate coupons. Any such effects of the transition away from LIBOR, as well as other unforeseen effects, could result in losses to the Company. Since the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021.more information.

Investments in Foreign Markets Risk

Investments in foreign markets involve special risks and considerations not typically associated with investing in the United States. These risks include revaluation of currencies, high rates of inflation, restrictions on repatriation of income and capital, and adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls, tariffs and taxes, subject to delays in settlements, and their prices may be more volatile. The Company may be subject to capital gains and repatriation taxes imposed by certain countries in which they invest. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued based upon net investment income, net realized gains and net unrealized appreciation as income and/or capital gains are earned.

Leverage Risk

The Company may use leverage in its investment program, including the use of borrowed funds and investments in certain types of options, such as puts, calls and warrants, which may be purchased for a fraction of the price of the underlying securities. While such strategies and techniques increase the opportunity to achieve higher returns on the amounts invested, they also increase the risk of loss. To the extent the Company purchases securities with borrowed funds, its net assets will tend to increase or decrease at a greater rate than if borrowed funds are not used. If the interest expense on borrowings were to exceed the net return on the portfolio securities purchased with borrowed funds, the Company’s use of leverage would result in a lower rate of return than if the Company were not leveraged.

LIBOR Transition and Associated Risk

Due to manipulation allegations in 2012 and reduced activity in the financial markets that it measures, in July 2017, the Financial Conduct Authority (the “FCA”), the United Kingdom financial regulatory body, announced a desire to phase out the use of LIBOR by the end of 2021. As a result, plans are underway to phase out the use of LIBOR by the end of 2021. Although the period from the FCA announcement until the end of 2021 is generally expected to be enough time for market participants to transition to the use of a different benchmark for new securities and transactions, there remains uncertainty regarding the future utilization of LIBOR and the specific replacement rate or rates. As such, the potential effect of a transition away from LIBOR on a Fund or the financial instruments utilized by a Fund cannot yet be determined. The transition process may involve, among other things, increased volatility or illiquidity in markets for instruments that currently rely on LIBOR. The transition may also result in a change in (i) the value of certain instruments held by a Fund, (ii) the cost of temporary borrowing for a Fund, or (iii) the effectiveness of related Fund transactions such as hedges, as applicable. When LIBOR is discontinued, the LIBOR replacement rate may be lower than market expectations, which could have an adverse impact on the value of preferred and debt-securities with floating or fixed-to-floating rate coupons. Any such effects of the transition away from LIBOR, as well as other unforeseen effects, could result in losses to adversely impact a Fund. Since the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021.

Options Risk

There are several risks associated with transactions in options on securities. For example, there are significant differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A transaction in options or securities may be unsuccessful to some degree because of market behavior or unexpected events.

When the Company writes a covered call option, the Company forgoes, during the option’s life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call, but retains the risk of loss should the price of the underlying security decline. The writer of an option has no control over the time when it may be required to fulfill its obligation and once an option writer has received an exercise notice, it must deliver the underlying security in exchange for the strike price.

When the Company writes a covered put option, the Company bears the risk of loss if the value of the underlying stock declines below the exercise price minus the put premium. If the option is exercised, the Company could incur a loss if it is required to purchase the stock underlying the put option at a price greater than the market price of the stock at the time of exercise plus the put premium the Company received when it wrote the option. While the Company’s potential gain in writing a covered put option is limited to distributions earned on the liquid assets securing the put option plus the premium received from the purchaser of the put option, the Company risks a loss equal to the entire exercise price of the option minus the put premium.

Pandemics and Associated Economic Disruption Risk

An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in December 2019 and subsequently spread internationally. This coronavirus has resulted in the closing of borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and customer activity, as well as general anxiety and economic uncertainty. ~~The impact~~It is not known how long any negative impacts, or any future impacts of ~~this coronavirus may be short term or may last for an extended period of time and result in~~other significant events such as a substantial economic ~~downturn.~~downturn, will last. Health crises caused by outbreaks of disease, such as the coronavirus, may exacerbate other pre-existing political, social and economic risks. This outbreak, and other epidemics and pandemics that may arise in the future, could negatively affect the global economy, as well as the economies of individual countries, individual companies and the market in general in significant and unforeseen ways. For example, a widespread health crisis such as a global pandemic could cause substantial market volatility, exchange trading suspensions and closures, impact the Company’s ability to complete tender offer requests, and affect Company performance. Any such impact could adversely affect the Company’s performance, the performance of the issuers in which the Company invests, lines of credit available to the Company and may lead to losses on your investment in the Company. In addition, the increasing interconnectedness of markets around the world may result in many markets being affected by events or conditions in a single country or region or events affecting a single or small number of issuers.

Senior Loans Risk

The risk that the issuer of a senior loan may fail to pay interest or principal when due, and changes in market interest rates may reduce the value of the senior loan or reduce the Company’s returns. The risks associated with senior loans are similar to the risks of high yield debt securities. Senior loans and other debt securities are also subject to the risk of price declines and to increases in interest rates, particularly long-term rates. Senior loans are also subject to the risk that, as interest rates rise, the cost of borrowing increases, which may increase the risk of default. In addition, the interest rates of floating rate loans typically only adjust to changes in short-term interest rates; long-term interest rates can vary dramatically from short-term interest rates. Therefore, senior loans may not mitigate price declines in a ~~longterm~~long-term interest rate environment. The Company’s investments in senior loans are typically below investment grade and are considered speculative because of the credit risk of their issuers.

LIBOR is the average offered rate for various maturities of short-term loans between major international banks who are members of the British Bankers Association. LIBOR is the most common benchmark interest rate index used to make adjustments to variable-rate loans. It is used throughout global banking and financial industries to determine interest rates for a variety of financial instruments (such as debt instruments and derivatives) and borrowing arrangements. Due to manipulation allegations in 2012 and reduced activity in the financial markets that it measures, in July 2017, the Financial Conduct Authority, the United Kingdom financial regulatory body, announced a desire to phase out the use of LIBOR by the end of 2021. Please refer to ~~“Interest Rate~~“LIBOR Transition and Associated Risk” for more information.

Structured Finance Securities Risk

A portion of the ~~Companys’s~~Company’s investments may consist of equipment trust certificates, collateralized mortgage obligations, collateralized bond obligations, collateralized loan obligations or similar instruments. Such structured finance securities are generally backed by an asset or a pool of assets, which serve as collateral. Depending on the type of security, the collateral may take the form of a portfolio of mortgage loans or bonds or other assets. The ~~Copmany~~Company and other investors in structured finance securities ultimately bear the credit risk of the underlying collateral. In some instances, the structured finance securities are issued in multiple tranches, offering investors various maturity and credit risk characteristics, often categorized as senior, mezzanine and subordinated/equity according to their degree of risk. The riskiest securities are the equity tranche, which bears the bulk of defaults from the bonds or loans serving as collateral, and thus may protect the other, more senior tranches from default. If there are defaults or the relevant collateral otherwise underperforms, scheduled payments to senior tranches of such securities take precedence over those of mezzanine tranches, and scheduled payments to mezzanine tranches take precedence over those to subordinated/equity tranches. A senior tranche typically has higher ratings and lower yields than the underlying securities, and may be rated investment grade. Despite the protection from the equity tranche, other tranches can experience substantial losses due to actual defaults, increased sensitivity to defaults due to previous defaults and the disappearance of protecting tranches, market anticipation of defaults and aversion to certain structured finance securities as a class.

Short-Selling Risk

Short sales by the Company that are not made where there is an offsetting long position in the asset that it is being sold short theoretically involve unlimited loss potential since the market price of securities sold short may continuously increase. Short selling allows the Company to profit from declines in market prices to the extent such decline exceeds the transaction costs and costs of borrowing the securities. However, since the borrowed securities must be replaced by purchases at market prices in order to close out the short position, any appreciation in the price of the borrowed securities would result in a loss. Purchasing securities to close out the short position can itself cause the price of securities to rise further, thereby exacerbating the loss. The Company may mitigate such losses by replacing the securities sold short before the market price has increased significantly. Under adverse market conditions, the Company might have difficulty purchasing securities to meet margin calls on its short sale delivery obligations, and might have to sell portfolio securities to raise the capital necessary to meet its short sale obligations at a time when fundamental investment considerations would not favor such sales.

~~Total Return Swap Risk~~

The TRS with BNP Paribas enabled us to obtain the economic benefit of owning the securities subject to the TRS without actually owning such securities, in return for making periodic interest-type payments to BNP Paribas plus an amount equal to the depreciation in value of the securities. The TRS was subject to market risk, liquidity risk and risk of imperfect correlation between the value of the TRS and the securities underlying the TRS. In addition, we may have incurred certain costs in connection with the TRS, including

an underutilization fee in the event that we utilize less than 80% of the amount of the TRS. Costs associated with the TRS in the aggregate, could have been significant. Because this arrangement was not an acquisition of the underlying securities, we have no right to enforce contractual provisions that stem had been from ownership in the securities and have no voting or other rights of ownership. In the event of insolvency of BNP Paribas, we expected that we would be treated as a general creditor of BNP Paribas and would have no claim of title with respect to the underlying securities.

A TRS is also subject to the risk that a counterparty will default on its payment obligations thereunder or that we will not be able to meet our obligations to the counterparty. In the case of the TRS with BNP Paribas, there is a requirement to post collateral to secure our obligations to BNP Paribas under the TRS. BNP Paribas, however, is not required to collateralize any of its obligations to us under the TRS. We bear the risk of depreciation with respect to the value of the securities underlying the TRS and are required under the terms of the TRS to post additional collateral on a ~~dollar-for-dollar~~ basis in the event of depreciation in the value of the underlying securities after such value decreases below a specified amount. The amount of collateral required to be posted by us is determined primarily on the basis of the aggregate value of the underlying securities.

~~In addition, because a TRS is a form of leverage, such arrangements are subject to risks similar to those associated with the use of leverage.~~

Valuation Risk

Certain of the Company’s assets are fair valued, including the Company’s investment in equity issued by TerreStar Corporation (“TerreStar”). TerreStar ~~is a nonoperating company that~~ does not currently generate ~~substantial~~ revenue and ~~which~~ primarily derives its value from holding licenses ~~for use~~ of two wireless spectrum ~~frequencies, the~~assets. The license with respect to one ~~of which~~such spectrum asset was ~~granted a conditional waiver~~previously terminated by the FCC ~~(Federal Communications Commission),~~and subsequently restored on April 30, ~~2020.~~2020 on a limited conditional basis. The ~~fair valuation~~restoration of such license requires TerreStar ~~involves significant uncertainty~~to meet certain deployment milestones for wireless medical telemetry service (“WMTS”) during a 39-month period. Upon satisfaction of the deployment milestones, TerreStar will be able use such spectrum for other services besides WMTS as itlong as those services do not interfere with WMTS and TerreStar continues to provide WMTS.

If TerreStar is ~~materially dependent on estimates of~~unsuccessful in satisfying such deployment milestones, or if other services cannot be implemented in a manner that does not interfere with WMTS, the value of the TerreStar equity would likely be materially negatively impacted. In determining the fair value of TerreStar, the Adviser has assigned a high probability of success on both ~~spectrum licenses.~~conditions based on consultation with the company and its consultants.

Note 10 — Affiliated Investments

Under Section 2(a)(3) of the 1940 Act, a portfolio company is defined as “affiliated” if a fund owns five percent or more of its outstanding voting securities or if the portfolio company is under common control. The table below shows affiliated issuers of the Company as of ~~June~~September 30, 2020:


Affiliated investments	Shares at December 31, 2019		Fair value as of December 31, 2019		Purchases		Sales			Realized gains (losses)			Change in unrealized gains (losses)			Fair value as of June 30, 2020		Shares at June 30, 2020		Affiliated Dividend income		Shares at December 31, 2019		Fair value as of December 31, 2019		Purchases		Sales			Realized gains (losses)			Change in unrealized gains (losses)			Fair value as of September 30, 2020		Shares at September 30, 2020		Affiliated Dividend income
NexPoint Strategic Opportunities Fund		120,633	$	2,136,410	$	—	$	(976,094	)	$	(1,443,373	)	$	283,057		$	—		—	$	54,253		120,633	$	2,136,410	$	—	$	(976,094	)	$	(1,443,373	)	$	283,057		$	—		—	$	54,253

NexPoint Residential Trust, Inc.		26,466		1,190,970		23,507		(147,161	)		(8,964	)		(270,047	)		788,305		22,300		66,992		26,466		1,190,970		30,475		(147,165	)		(8,964	)		(69,392	)		995,924		22,456		22,213

NexPoint Capital REIT, LLC⁽¹⁾		100		2,425,989		—		(2,189,561	)		—			12,489			248,917		100		124,322		100		2,425,989		—		(2,189,561	)		—			10,689			247,117		100		124,322

NexPoint Real Estate Finance, LLC		—		—		6,312,618		—			—			(1,025,800	)		5,286,818		315,631		123,921		—		—		6,312,618		(6,312,618	)		—			—			—		—		301,921

NexPoint Real Estate Finance Operating Partnership, LP																							—		—		6,312,618		—			—			(1,679,156	)		4,633,462		315,631		—

Total affiliated investments		147,199	$	5,753,369	$	6,336,125	$	(3,312,816	)	$	(1,452,337	)	$	(1,000,301	)	$	6,324,040		338,031	$	369,488		147,199	$	5,753,369	$	12,655,711	$	(9,625,438	)	$	(1,452,337	)	$	(1,454,802	)	$	5,876,503		338,187	$	502,709

⁽¹⁾

The investment is deemed to be a “controlled affiliated person” of the Company because the Company owns, either directly or indirectly, 25% or more of the ~~Portfolio~~portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company. See Note 4 “Related Party Transactions and Arrangements”.

Note 11 — Financial Highlights

Selected data for a share outstanding throughout the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019 is as follows:


		For the Six Months Ended			For the Six Months Ended				For the Nine Months Ended			For the Nine Months Ended
		June 30, 2020 (Unaudited)			June 30, 2019 (Unaudited)				September 30, 2020 (Unaudited)			September 30, 2019 (Unaudited)
Common shares per share operating performance:	Common shares per share operating performance:							Common shares per share operating performance:
Net asset value, beginning of period		$	8.53		$	8.36			$	8.53		$	8.36
Income from investment operations:	Income from investment operations:							Income from investment operations:
Net investment income⁽¹⁾			0.15			0.16				0.22			0.23
Net realized and unrealized gain (loss)			(2.64	)		0.46				(2.46	)		0.56

Total from investment operations			(2.49	)		0.62				(2.24	)		0.79

Less distribution declared to common shareholders:	Less distribution declared to common shareholders:							Less distribution declared to common shareholders:
From net investment income			(0.24	)		(0.36	)			(0.33	)		(0.54	)
From net realized gains			—			—				—			—

Total distributions declared to common shareholders			(0.24	)		(0.36	)			(0.33	)		(0.54	)


Capital share transactions	Capital share transactions							Capital share transactions
Issuance of common stock⁽²⁾			0.00			0.00				0.00			0.00
Shares tendered⁽¹⁾			0.00	⁽³⁾		0.00	⁽³⁾			0.00	⁽³⁾		0.00	⁽³⁾

Net asset value, end of period		$	5.80		$	8.62			$	5.96		$	8.61
Net asset value total return⁽⁴⁾⁽⁵⁾			(29.42	)%		7.38	%			(26.38	)%		9.53	%

Ratio and supplemental data:	Ratio and supplemental data:							Ratio and supplemental data:
Net assets, end of period (in 000’s)		$	61,202,812		$	90,033,876			$	62,597		$	89,642
Shares outstanding, end of period			10,545,693			10,448,961				10,494,309			10,415,112
Common share information at end of period:	Common share information at end of period:							Common share information at end of period:
Ratios based on weighted average net assets of common shares:	Ratios based on weighted average net assets of common shares:							Ratios based on weighted average net assets of common shares:
Gross operating expenses⁽⁶⁾			4.15	%		5.35	%			3.86	%		5.39	%
Fees and expenses waived or reimbursed⁽⁶⁾			(0.46	)%		(0.25	)%			(0.50	)%		(0.14	)%
Net operating expenses⁽⁶⁾			3.68	%		5.10	%			3.36	%		5.25	%
Net investment income before fees waived or reimbursed⁽⁶⁾			4.18	%		3.50	%
Net investment income after fees waived or reimbursed⁽⁶⁾			4.64	%		3.75	%
Net investment income (loss) before fees waived or reimbursed⁽⁶⁾										4.15	%		3.44	%
Net investment income (loss) after fees waived or reimbursed⁽⁶⁾										4.65	%		3.58	%
Ratio of interest and credit facility expenses to average net assets⁽⁶⁾			0.53	%		1.42	%			0.36	%		1.41	%
Portfolio turnover rate⁽⁵⁾			60	%		26	%			72	%		30	%
Asset coverage ratio			—	%		232	%			—	%		223	%
Weighted average commission rate paid⁽⁷⁾		$	0.0328		$	0.0259			$	0.0328		$	0.0399

⁽¹⁾	Per share data was calculated using weighted average shares outstanding during the period.

⁽²⁾

The continuous issuance of common stock may cause an incremental increase in net asset value per share due to the sale of shares at the then prevailing public offering price and the receipt of net proceeds per share by the Company in excess of net asset value per share on each subscription closing date. The per share data was derived by computing (i) the sum of (A) the number of shares issued in connection with subscriptions and/or distribution reinvestment on each share transaction date times (B) the differences between the net proceeds per share and the net asset value per share on each share transaction date, divided by (ii) the total shares outstanding at the end of the period.

⁽³⁾	Amount rounds to less than $0.005 per share.

⁽⁴⁾

Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains distributions, and assume no sales charge. Distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Company’s Dividend Reinvestment Plan. Had the Adviser not absorbed a portion of expenses, total returns would have been lower.

⁽⁵⁾	Not annualized.

⁽⁶⁾	Annualized.

⁽⁷⁾	Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of portfolio shares purchased and sold for which commissions were charged.

Note 12 — Subsequent Events

The Company has evaluated subsequent events through the date on which these financial statements were issued.

The full extent of the impact and effects of the recent outbreak of COVID-19 on the future financial performance of the Company are uncertain at this time. The impact will depend on future developments, including, among other factors, the duration and spread of the outbreak along with related travel advisories and restrictions, the recovery time of the disrupted supply chains, the consequential staff shortages, the production delays, the timeframe for the development and approval of a vaccine, and the uncertainty with respect to the accessibility of additional liquidity or the capital markets. The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19.

The federal government has enacted various forms of aid to the industries negatively affected by the virus, but we cannot be certain that such aid will help mitigate the material reduction in revenue we may experience. The Coronavirus Aid, Relief, and Economic Security Act (commonly referred to as the “CARES Act”) was enacted by the U.S. government on March 27, 2020, to combat the economic impact of the COVID-19 pandemic on businesses, individuals and families.

In mid-March 2020, the U.S. Federal Reserve (the “Fed”) cut interest rates to historically low levels and announced a new round of quantitative easing, including purchases of corporate and municipal government bonds. The Fed also enacted various programs to support liquidity operations and funding in the financial markets, including expanding its reverse repurchase agreement operations, which added $1.5 trillion of liquidity to the banking system; establishing swap lines with other major central banks to provide dollar funding; establishing a program to support money market funds; easing various bank capital buffers; providing funding backstops for businesses to provide bridging loans for up to four years; and providing funding to help credit flow in asset-backed securities markets. In addition, the Fed plans to extend credit to small- and medium-sized businesses.

As a result of the ongoing pandemic, most market observers believe the global economy is currently in the midst of a recession. States and municipalities across the United States have been allowing certain businesses to re-open and easing certain restrictions they had previously implemented in response to the COVID-19 pandemic, often in stages that are phased in over time. Recently, economic data have indicated that the U.S. economy has improved since the lowest periods experienced in March and April 2020. However, certain areas of the United States have experienced increased numbers of COVID-19 infections following the re-openings of their economies and easing of restrictions and, in some cases, certain states have imposed or re-imposed closings of certain business activities and other restrictions in response. It is unclear whether the increases in the number of COVID-19 infections will continue and/or amplify or whether any “second wave” of COVID-19 infection outbreaks will occur in the United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy or our business.

The Adviser is closely monitoring the rollout of the programs provided for under the CARES Act and determining the applicability and availability of CARES Act relief in the Company’s underlying investments, but there is still significant uncertainty with respect to how the CARES Act will be implemented and what relief may be available for ~~passive real estate~~ investors.

On July 2, 2020, the Audit Committee (the “Audit Committee”) of the board of directors of NexPoint Capital, Inc. recommended, and the Board approved, the appointment of Cohen & Company, Ltd. (“Cohen”) as the Company’s independent registered public accounting firm.

Item 2.

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

The information contained in this section should be read in conjunction with our unaudited financial statements and related notes thereto included elsewhere in this quarterly report on Form 10-Q. In this report, “we,” “us” and “our” refer to NexPoint Capital, Inc.

Forward-Looking Statements

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

our future operating results;

changes in healthcare technologies, finance and regulations adversely affecting our portfolio companies or financing model;

changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, which could result in changes to the value of our assets;

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

the impact of the investments that we expect to make;

the impact of increased competition;

our contractual arrangements and relationships with third parties;

the dependence of our future success on the general economy and its impact on the industries in which we may invest;

the ability of our portfolio companies to achieve their objectives;

impact and effects of the recent outbreak of COVID-19 on the future financial performance of the Company;

the relative and absolute performance of our investment adviser;

our current and expected financings and investments;

our ability to make distributions to our stockholders;

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

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

our use of financial leverage;

the ability of the Adviser, to locate suitable investments for us and to monitor and administer our investments;

the ability of the Adviser or its affiliates to attract and retain highly talented professionals;

our ability to maintain our qualification as a regulated investment company, or RIC, and as a business development company, or BDC;

the impact on our business of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations issued thereunder;

the effect of changes to tax legislation and our tax position; and

the tax status of the enterprises in which we may invest.

Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “predict,” “potential,” “plan” or similar words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth elsewhere in this quarterly report on Form 10-Q and as “Risk Factors” in the prospectus relating to the continuous public offering of our common stock.

We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. Stockholders are advised to consult any additional disclosures that we may make directly to stockholders or through reports that we may file in the future with the U.S. Securities and Exchange Commission, or the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements and projections contained in this quarterly report on

on Form 10-Q are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This quarterly report on Form 10-Q may contain statistics and other data that have been obtained from or compiled from information made available by third-party service providers. We have not independently verified such statistics or data.

Overview

We were formed in Delaware on September 30, 2013 and formally commenced operations on September 2, 2014. We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company (a “BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for U.S. federal income tax purposes, we have elected to be treated as a RIC (Regulated Investment Company) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) with retroactive effect to the date we elected to be treated as a BDC. As a BDC, we are also subject to certain constraints, including limitations imposed by the 1940 Act and the Code.

~~Our investment activities are managed by~~ NexPoint Advisors, L.P. ~~(our “Adviser”) and supervised by~~, which serves as the investment adviser of the Company, is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended. Under the general supervision of our board of directors (the “Board”) the Adviser will carry out the investment and reinvestment of the net assets of the Company, will furnish continuously an investment program with respect to the Company, and determine which securities should be purchased, sold or exchanged. In addition, the Adviser will supervise and provide oversight of the Company’s service providers.

The Adviser, through a “Shared Services Agreement” with HCMLP (discussed below), will furnish to the ~~members~~Company office facilities, equipment and personnel for servicing the management of the Company. The Adviser will compensate all Adviser personnel who provide services to the Company. The Adviser has historically been affiliated through common control with Highland Capital Management, L.P. (“HCMLP”), an SEC-registered investment adviser that filed for Chapter 11 bankruptcy protection on October 16, 2019. On January 9, 2020, the United States Bankruptcy Court for the Northern District of Texas (the “Court”) approved a change of control of HCMLP, which involved the resignation of James Dondero as the sole director of, and the appointment of an independent board to, HCMLP’s general partner. On September 21, 2020, HCMLP filed a plan of reorganization and disclosure statement with the Court (the “Filed Plan”). On October 9, 2020, Mr. Dondero resigned as an employee of HCMLP and as portfolio manager for all HCMLP-advised funds. As a result of these changes, the Adviser is no longer under common control with HCMLP. Mr. Dondero continues to be a portfolio manager for the Adviser and the Company.

Under the Filed Plan, HCMLP is expected to continue to provide investment and business advice, including services under the Shared Services Agreement with the Adviser. Under this Arrangement the Adviser may utilize employees from HCMLP in connection with various services such as human resources, accounting, tax, valuation, information technology services, office space, employees, compliance and legal. The Adviser is neither party to HCMLP’s bankruptcy filing nor subject to the Filed Plan. There can be no assurance that the Filed Plan will be approved by the Court. However, based upon on-going discussions with HCMLP, the Adviser does not expect any interruption to the services that are ~~independent of us.~~currently being provided by HCMLP pursuant to the Shared Services Agreement.

Our investment objective is to generate high current income and long-term capital appreciation. We seek to achieve our objective by using the experience of the healthcare, credit and structured products teams of the Adviser and its affiliates to source, evaluate and structure investments, identify attractive investment opportunities that are primarily debt investments that generate high income without creating undue risk for the portfolio, make equity investments where we believe there will be attractive risk-adjusted returns that compensate for the lack of current income, and make investments in debt and equity tranches of collateralized loan obligations, or CLOs, that deliver income and high relative value. We will focus on companies that are stable, have positive cash flow and the ability to grow their business model.

Our investment policy is to invest, under normal circumstances, at least 80% of our total assets in debt and equity of middle-market companies, with an emphasis on healthcare companies, syndicated floating rate debt of large public and nonpublic companies and mezzanine and equity tranches of CLOs. Middle-market companies include companies with annual revenues between $50,000,000 and $2,500,000,000 and syndicated floating rate debt refers to loans and other instruments originated by a bank to a corporation that are sold off, or syndicated, to investors in pieces. We consider a healthcare company to be a company that is engaged in the design, development, production, sale, management or distribution of products, services or facilities used for or in connection with the healthcare industry. Additionally, we consider companies that are materially impacted by the healthcare industry (such as a contractor that derives significant revenue or profit from the construction of hospitals) as being engaged in the healthcare industry. We may invest without limit in companies that are not in the healthcare sector.

We will leverage the expertise of our Adviser with regard to distressed investing and restructuring to make opportunistic investments in distressed companies. We will utilize the Adviser’s credit underwriting capability to identify the types of companies we believe will provide high current income and/or long-term capital appreciation. In addition to the investments in the healthcare industry, we may invest a portion of our capital in other opportunistic investments in which the Adviser has expertise and where we believe an opportunity exists to achieve above average risk adjusted yields and returns. These types of opportunities may include: (1) direct lending or origination investments, (2) investments in stressed or distressed situations, (3) structured product investments, (4) equity investments and (5) other investment opportunities not typically available in other BDCs. Opportunistic investments may range from broadly syndicated deals to direct lending deals in both private and public companies and may include foreign investments. We believe this is the best approach to achieving our dual mandate of attempting to generate a high yield while also attempting to produce capital appreciation.

We seek to invest primarily in securities deemed by the Adviser to be high income generating debt investments and income generating equity securities of privately held companies in the United States. We expect the portfolio will be concentrated primarily in senior floating rate debt securities, although we may invest without limit in securities which rank lower than senior secured instruments and may invest without limit in investments with a fixed rate of interest. We will buy syndicated loans, various tranches of CLOs and other debt instruments in the secondary market as well as originate debt so we can tailor the investment parameters more precisely to our needs. We also intend to invest a portion of the portfolio in equity securities that are non-income producing, when doing so will help us achieve our objective of long-term capital appreciation. We expect the size of our positions will range from less than $1,000,000 to $20,000,000, although investments may be larger as our asset base increases. We may selectively make investments in amounts larger than $20,000,000 in some of our portfolio companies. While our asset base increases, we may make smaller investments. We may invest up to 15% of our net assets in entities that are excluded from registration under the 1940

Act by virtue of section 3(c)(1) and 3(c)(7) of the 1940 Act (such as private equity funds or hedge funds). This limitation does not apply to any CLOs, certain of which may rely on Section 3(c)(1) or 3(c)(7) of the 1940 Act.

We expect that many of the securities in which we invest will be rated below investment grade by independent rating agencies or would be rated below investment grade if they were rated. These securities, which may be referred to as ~~“junk,”~~“junk”, have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. In addition, we expect that many of our debt investments will include floating interest rates that reset on a periodic basis and typically will not require the borrowers to pay down the outstanding principal of such debt prior to maturity.

We, HCMLP and the Adviser have obtained an exemptive order dated April 19, 2016 from the SEC to permit co-investments among the Company and certain other accounts managed by the Adviser or its affiliates, subject to certain conditions.

Public Offering

As a result of a series of private placements to the Adviser, we successfully satisfied the minimum offering requirement and officially commenced operations on September 2, 2014. In connection with the satisfaction of the minimum offering requirement and the commencement of our operations, the Investment Advisory Agreement became effective and the base management fee and any incentive fees, as applicable, payable to the Adviser under the Investment Advisory Agreement began to accrue. In aggregate as of ~~June~~September 30, 2020 the Adviser controls 2,549,002 total shares, including reinvestment of dividends, for a net amount of approximately $14.8 million. In February 2018, we closed our continuous public offering of shares of common stock.

Revenues

We generate a significant portion of our total revenue in the form of interest on the debt securities that we hold. We expect that the senior debt we invest in will generally have stated terms of 3 to 5 years and that the subordinated debt we invest in will generally have stated terms of 5 to 7 years. Our senior and subordinated debt investments bear interest at a fixed or floating rate. Interest on debt securities is generally payable monthly, quarterly or semiannually. In addition, some of our investments provide for deferred interest payments or payment-in-kind, or PIK, interest. We may also generate revenues in the form of dividends and other distributions on the equity or other securities we may hold. In addition, we may generate revenues in the form of commitment, closing, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance, consulting fees, prepayment fees and performance-based fees. Any such fees generated in connection with our investments will be recognized as earned.

Expenses

We expect that our primary operating expenses will include the payment of fees to the Adviser under the Investment Advisory Agreement, our allocable portion of overhead expenses under the Administration Agreement and other operating costs described below. Prior to December 20, 2017, the Adviser was waiving most fees, subject to possible recoupment for expenses pertaining to periods from and after June 10, 2016. Effective December 20, 2017, the Adviser ended its voluntary waiver of advisory and administration fees. We bear all out-of-pocket costs and expenses of our operations and transactions, including:

our organization (expenses initially paid by the Adviser until sufficient equity proceeds are raised);

calculating our net asset value and net asset value per share (including the costs and expenses of independent valuation firms);

fees and expenses, including travel expenses, incurred by the Adviser or payable to third parties in performing due diligence on prospective portfolio companies, monitoring our investments and, if necessary, enforcing our rights;

interest payable on debt, if any, incurred to finance our investments;

the costs of this and all future offerings of common shares and other securities, and other incurrence of debt;

the base management fee and any incentive fee;

distributions on our shares;

administration fees payable to the Adviser under the Administration Agreement;

transfer agent and custody fees and expenses;

the actual costs incurred by the Adviser as our administrator in providing managerial assistance to those portfolio companies that request it;

amounts payable to third parties relating to, or associated with, evaluating, making and disposing of investments;

brokerage fees and commissions;

registration fees;

listing fees;

taxes;

director fees and expenses;

costs associated with our reporting and compliance obligations under the 1940 Act and applicable U.S. federal and state securities laws;

the costs of any reports, proxy statements or other notices to our stockholders, including printing costs;

costs of holding stockholder meetings;

our fidelity bond;

directors and officers/errors and omissions liability insurance, and any other insurance premiums;

litigation, indemnification and other non-recurring or extraordinary expenses;

direct costs and expenses of administration and operation, including audit and legal costs;

fees and expenses associated with marketing efforts, including deal sourcing fees and marketing to financial sponsors;

dues, fees and charges of any trade association of which we are a member; and

all other expenses reasonably incurred by us or the Adviser in connection with administering our business.

During periods of asset growth, we expect our general and administrative expenses to be relatively stable or decline as a percentage of total assets and increase during periods of asset declines.

Expense Limitation

Pursuant to an expense limitation agreement (the “Expense Limitation Agreement”), the Adviser is contractually obligated to waive fees and, if necessary, pay or reimburse certain other expenses to limit ordinary “Other Expenses” to 1.0% of the quarter-end value of the Company’s gross assets through the ~~one year~~one-year anniversary of the effective date of the registration statement. Under the Expense Limitation Agreement, “Other Expenses” are all expenses with the exception of advisor and administration fees, organization and offering costs and the following: (i) interest, taxes, dividends tied to short sales, brokerage commissions, and other expenditures which are capitalized in accordance with U.S. GAAP; (ii) expenses incurred indirectly as a result of investments in other investment companies and pooled investment vehicles; (iii) other expenses attributable to, and incurred as a result of, our investments; (iv) expenses payable to the Adviser, as administrator, for providing significant managerial assistance to our portfolio companies; and (v) other extraordinary expenses (including litigation expenses) not incurred in the ordinary course of our business. The obligation will automatically renew for one-year terms unless it is terminated by the Company or the Adviser upon written notice within 120 days of the end of the current term or upon termination of the Investment Advisory Agreement. The Expense Limitation Agreement will continue through at least April 30, 2021.

Reimbursable Expenses Table

The cumulative total of fees waived by the Adviser under the Expense Limitation Agreement which are recoupable as of ~~June~~September 30, 2020, are ~~$859,415.~~$700,501. This balance, and the balances in the tables below, only include amounts pertaining to the Expense Limitation Agreement, and do not include waived advisory and administration fees subject to recoupment discussed elsewhere herein.

The following table reflects the 2020 quarterly fee waivers and expense reimbursements due from the Adviser as of ~~June~~September 30, 2020, which are subject to recoupment by the Adviser.

Quarter Ended
   Yearly Cumulative
Other Expenses    Yearly
Expense
Limitation    Yearly Cumulative
Expense
Reimbursement    Quarterly
Recoupable/
(Recouped)
Amount Recoupment
Eligibility Expiration
June 30, 2020
   $ 445,585    $ 291,677    $ 153,908    $ (30,539 ) June 30, 2023
March 31, 2020
   257,226    72,779    184,447    184,447 March 31, 2023

The following table reflects the 2019 quarterly fee waivers and expense reimbursements due from the Adviser as of December 31, 2019, September 30, 2019, June 30, 2019 and March 31, 2019, which are subject to recoupment by the Adviser.

Quarter Ended
   Yearly Cumulative
Other Expenses    Yearly
Expense
Limitation    Yearly Cumulative
Expense
Reimbursement    Quarterly
Recoupable/
(Recouped)
Amount Recoupment
Eligibility Expiration
December 31, 2019
   $ 1,098,789    $ 951,520    $ 147,269    $ 50,130 December 31, 2022
September 30, 2019
   849,345    752,206    97,139    (17,417 ) September 30, 2022
June 30, 2019
   586,411    471,855    114,556    75,592 June 30, 2022
March 31, 2019
   295,177    256,213    38,964    38,964 March 31, 2022

The following table reflects the 2018 quarterly fee waivers and expense reimbursements due from the Adviser as of December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018, which are subject to recoupment by the Adviser.

Quarter Ended
   Yearly Cumulative
Other Expenses    Yearly
Expense
Limitation    Yearly Cumulative
Expense
Reimbursement    Quarterly
Recoupable/
(Recouped)
Amount Recoupment
Eligibility Expiration
December 31, 2018
   $ 1,352,097    $ 924,677    $ 427,420    $ 279,079 December 31, 2021
September 30, 2018
   950,045    801,704    148,341    23,992 September 30, 2021
June 30, 2018
   613,809    489,460    124,349    44,203 June 30, 2021
March 31, 2018
   341,882    261,736    80,146    80,146 March 31, 2021

The following table reflects the 2017 quarterly fee waivers and expense reimbursements due from the Adviser as of December 31, 2017, September 30, 2017, June 30, 2017 and March 31, 2017, which may become subject to recoupment by the Adviser.

Quarter Ended
   Yearly Cumulative
Other Expenses    Yearly
Expense
Limitation    Yearly Cumulative
Expense
Reimbursement    Quarterly
Recoupable/
(Recouped)
Amount Recoupment
Eligibility Expiration
December 31, 2017
   $ 1,304,585    $ 975,289    $ 329,296    $ (122,135 ) December 31, 2020
September 30, 2017
   983,110    531,679    451,431    252,953 September 30, 2020
June 30, 2017
   631,906    433,428    198,478    —   Expired
March 31, 2017
   329,791    182,226    147,565    —   Expired


Quarter Ended	Yearly Cumulative Other Expenses		Yearly Expense Limitation		Yearly Cumulative Expense Reimbursement		Quarterly Recoupable/ (Recouped) Amount			Recoupment Eligibility Expiration
September 30, 2020	$	687,228	$	439,281	$	247,947	$	94,039			September 30, 2023
June 30, 2020		445,585		291,677		153,908		(30,539	)		June 30, 2023
March 31, 2020		257,226		72,779		184,447		184,447			March 31, 2023

The following table reflects the 2019 quarterly fee waivers and expense reimbursements due from the Adviser as of December 31, 2019, September 30, 2019, September 30, 2019 and March 31, 2019, which are subject to recoupment by the Adviser.


Quarter Ended	Yearly Cumulative Other Expenses		Yearly Expense Limitation		Yearly Cumulative Expense Reimbursement		Quarterly Recoupable/ (Recouped) Amount			Recoupment Eligibility Expiration
December 31, 2019	$	1,098,789	$	951,520	$	147,269	$	50,130			December 31, 2022
September 30, 2019		849,345		752,206		97,139		(17,417	)		September 30, 2022
June 30, 2019		586,411		471,855		114,556		75,592			June 30, 2022
March 31, 2019		295,177		256,213		38,964		38,964			March 31, 2022

The following table reflects the 2018 quarterly fee waivers and expense reimbursements due from the Adviser as of December 31, 2018, September 30, 2018, September 30, 2018 and March 31, 2018, which are subject to recoupment by the Adviser.


Quarter Ended	Yearly Cumulative Other Expenses		Yearly Expense Limitation		Yearly Cumulative Expense Reimbursement		Quarterly Recoupable/ (Recouped) Amount		Recoupment Eligibility Expiration
December 31, 2018	$	1,352,097	$	924,677	$	427,420	$	279,079		December 31, 2021
September 30, 2018		950,045		801,704		148,341		23,992		September 30, 2021
June 30, 2018		613,809		489,460		124,349		44,203		June 30, 2021
March 31, 2018		341,882		261,736		80,146		80,146		March 31, 2021

The following table reflects the 2017 quarterly fee waivers and expense reimbursements due from the Adviser as of December 31, 2017, September 30, 2017, September 30, 2017 and March 31, 2017, which may become subject to recoupment by the Adviser.


Quarter Ended	Yearly Cumulative Other Expenses		Yearly Expense Limitation		Yearly Cumulative Expense Reimbursement		Quarterly Recoupable/ (Recouped) Amount			Recoupment Eligibility Expiration
December 31, 2017	$	1,304,585	$	975,289	$	329,296	$	(122,135	)		December 31, 2020
September 30, 2017		983,110		531,679		451,431		252,953			Expired
June 30, 2017		631,906		433,428		198,478		—			Expired
March 31, 2017		329,791		182,226		147,565		—			Expired

There can be no assurance that the Expense Limitation Agreement will remain in effect beyond April 30, 2021 or that the Adviser will reimburse any portion of our expenses in future quarters not covered by the Expense Limitation Agreement. Amounts shown do not include the amounts committed by the Adviser to voluntarily reimburse the Company for unrealized losses, all of which are not recoupable.

Portfolio Investment Activity for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019

During the ~~six~~nine months ended ~~June~~September 30, 2020, we made long investments in portfolio companies and other investments totaling ~~$42,245,592.~~$42,252,561. During the same period, we generated proceeds from sales and principal repayments on long investments of ~~$60,723,644.~~$69,041,052. As of ~~June~~September 30, 2020, our investment portfolio, with a total fair value of $59 million, consisted of 4544 interests in portfolio companies (calculated as a percentage of total invested assets: ~~41.6%~~43.9% in first lien senior secured loans, ~~9.4%~~10.2% in second lien senior secured loans, ~~2.0%~~0.0% in unsecured loans, 0.0% in escrow loans, ~~10.3%~~11.3% in corporate bonds, 0.5% in asset-backed securities, 0.0% in closed-end mutual funds, ~~0.1%~~0.0% in warrants, ~~16.1%~~15.9% in common stock, 0.0% in preferred stock, 0.0% in mortgage-backed-securities, ~~19.9%~~10.4% in LLC interests, and ~~0.0%~~7.8% in ~~rights).~~Partnership units. As of ~~June~~September 30, 2020, the investments in our portfolio carry a weighted average price of ~~86.54%~~86.11% on par or stated value, as applicable, and our estimated gross annual portfolio yield (which represents the expected yield to be generated by us on our investment portfolio based on the composition of our portfolio as of such date), prior to leverage costs, was ~~6.40%~~5.55% based upon the amortized cost of our investments. The portfolio yield does not represent an actual investment return to stockholders and does not include income from CLO equity. As of ~~June~~September 30, 2020, there were no positions held in the TRS.

During the ~~six~~nine months ended ~~June~~September 30, 2019, we made long investments in portfolio companies and other investments totaling ~~$26,748,956.~~$33,681,146. During the same period, we generated proceeds from sales and principal repayments on long investments of ~~$27,690,827.~~$30,502,390. As of ~~June~~September 30, 2019, our investment portfolio, with a total fair value of ~~$99.8~~$105.3 million, consisted of 5153 interests in portfolio companies (calculated as a percentage of total invested assets: ~~7.2%~~5.0% in first lien senior secured loans, ~~0.5%~~0.4% in second lien senior secured loans, ~~4.1%~~3.9% in unsecured loans, 0.0% in escrow loans, ~~49.2%~~46.9% in corporate bonds, ~~1.1%~~1.0% in asset-backed securities, ~~2.3%~~2.1% in closed-end mutual funds, ~~0.2%~~0.1% in warrants, ~~24.3%~~22.7% in common stock, 7.1% in preferred stock, ~~4.0%~~3.8% in mortgage-backed-securities, 7.0% in LLC interests, and 0.0% in rights). As of ~~June~~September 30, 2019, including investments underlying the TRS with BNP Paribas on a look-through basis, the investments in our portfolio carry a weighted average price of ~~96.88%~~96.86% on par or stated value, as applicable, and our estimated gross annual portfolio yield (which represents the expected yield to be generated by us on our investment portfolio based on the composition of our portfolio as of such date), prior to leverage costs, was ~~7.05%~~7.06% based upon the amortized cost of our investments. The portfolio yield does not represent an actual investment return to stockholders and does not include income from CLO equity.

Total Portfolio Activity

The following tables present selected information regarding our portfolio investment activity for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019:


Net Investment Activity	For the Three Months Ended June 30, 2020			For the Six Months Ended June 30, 2020			For the Three Months Ended September 30, 2020			For the Nine Months Ended September 30, 2020
Purchases	$	22,790,930		$	42,245,592		$	6,319,587		$	48,565,179
Payment-in-kind		180,558			355,015			22,425			377,440
Sales and Principal Repayments		(8,234,903	)		(60,723,644	)		(8,317,408	)		(69,041,052	)

Net Portfolio Activity	$	14,736,585		$	(18,123,037	)	$	(1,975,396	)	$	(20,098,433	)


Net Investment Activity	For the Three Months Ended June 30, 2019			For the Six Months Ended June 30, 2019			For the Three Months Ended September 30, 2019			For the Nine Months Ended September 30, 2019
Purchases	$	12,174,537		$	26,748,956		$	6,932,190		$	33,681,146
Payment-in-kind		155,393			303,939			163,327			467,266
Sales and Principal Repayments		(19,167,964	)		(27,960,827	)		(2,811,563	)		(30,502,390	)

Net Portfolio Activity	$	(6,838,034	)	$	(637,932	)	$	(4,283,954	)	$	(3,646,022	)


	For the Three Months Ended June 30, 2020					For the Six Months Ended June 30, 2020					For the Three Months Ended September 30, 2020				For the Nine Months Ended September 30, 2020
New Investment Activity by Asset Class	Purchases		Percentage			Purchases		Percentage			Purchases		Percentage		Purchases		Percentage
Senior Secured Loans—First Lien	$	17,968,472		78.8	%	$	23,206,099		54.9	%	$	—		0.0%	$	23,206,099		47.7%
Senior Secured Loans—Second Lien		4,807,222		21.1	%		4,807,222		11.4	%		—		0.0%		4,807,222		9.9%
Corporate Bonds		—		0.0	%		4,842,635		11.5	%		—		0.0%		4,842,635		10.0%
Partnership Units												6,312,618		99.9%		6,312,618		13.0%
Equities												6,969		0.1%		3,083,987		6.4%
LLC Interests				0.0	%		6,312,618		14.9	%		—		0.0%		6,312,618		13.0%
Equities		15,236		0.1	%		3,077,018		7.3	%

Total Investment Activity	$	22,790,930		100.0	%	$	42,245,592		100.0	%	$	6,319,587		100.0%	$	48,565,179		100.0%

   For the Three Months Ended
June 30, 2019 For the Six Months Ended
June 30, 2019
New Investment Activity by Asset Class
   Purchases    Percentage Purchases    Percentage
Senior Secured Loans—First Lien
   $ 2,920,820    24.0 % $ 4,806,095    17.9 %
Senior Secure Loans—Second Lien
   —      0.0 % —      0.0 %
Mortgage-Backed-Securities
   —      0.0 % 4,000,000    15.0 %
Corporate Bonds
   1,872,945    15.4 % 8,365,445    31.2 %
Preferred Stocks
   2,000,000    16.4 % 4,189,561    15.7 %
Warrants
   52,987    0.4 % 52,987    0.2 %
Equities
   4,340,573    35.7 % 4,347,656    16.3 %
Closed-End Mutual Funds
   987,212    8.1 % 987,212    3.7 %






Total Investment Activity
   $ 12,174,537    100.0 % $ 26,748,956    100.0 %


	For the Three Months Ended September 30, 2019				For the Nine Months Ended September 30, 2019
New Investment Activity by Asset Class	Purchases		Percentage		Purchases		Percentage
Senior Secured Loans—First Lien	$	—		0.0%	$	4,806,095		14.4%
Mortgage-Backed-Securities		—		0.0%		4,000,000		11.9%
Corporate Bonds		—		0.0%		8,365,445		24.8%
Preferred Stocks		—		0.0%		4,189,561		12.4%
LLC Interests		5,000,000		72.1%		5,000,000		14.8%
Warrants		—		0.0%		52,987		0.2%
Equities		1,932,190		27.9%		6,279,846		18.6%
Closed-End Mutual Funds		—		0.0%		987,212		2.9%

Total Investment Activity	$	6,932,190		100.0%	$	33,681,146		100.0%

The following tables summarize the composition of our investment portfolio at amortized cost and fair value as of ~~June~~September 30, 2020 and December 31, 2019:


June 30, 2020
								September 30, 2020
Portfolio Composition by Investment Type	Amortized Cost⁽¹⁾		Fair Value		Percentage of Portfolio (at fair value)			Amortized Cost⁽¹⁾		Fair Value		Percentage of Portfolio (at fair value)
Senior Secured Loans — First Lien	$	25,915,051	$	24,634,669		41.7	%	$	26,042,927	$	26,087,962		43.9%
Senior Secured Loans — Second Lien		5,400,252		5,558,879		9.4	%		5,502,553		6,048,451		10.2%
Unsecured Loans		4,602,193		1,170,178		2.0	%
Asset-Backed Securities		671,187		300,848		0.5	%		671,187		282,310		0.5%
LLC Interests		13,312,618		11,746,270		19.9	%		7,000,000		6,175,807		10.4%
Corporate Bonds		6,698,964		6,078,784		10.3	%		6,717,465		6,680,952		11.3%
Common Stocks		7,945,816		9,474,822		16.1	%		7,952,780		9,428,215		15.9%
Preferred Stocks		3,051,713		—		0.0	%
Preferred Stock									3,051,714		—		0.0%
Warrants		52,987		47,667		0.1	%		52,987		24,069		0.0%
Partnership Units									6,312,618		4,633,462		7.8%

Total Invested Assets	$	67,650,781	$	59,012,117		100	%	$	63,304,231	$	59,361,228		100%

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

   December 31, 2019
Portfolio Composition by Investment Type
   Amortized
Cost⁽¹⁾    Fair Value    Percentage of
Portfolio (at fair
value)
Senior Secured Loans — First Lien
   $ 8,473,042    $ 7,683,965    7.7 %
Senior Secured Loans — Second Lien
   553,265    326,838    0.3 %
Senior Secured Loans — Escrow Loan
   79,372    1,925    0.0 %
Unsecured Loans
   4,195,580    3,713,191    3.7 %
Asset-Backed Securities
   896,536    743,520    0.7 %
Mortgage-Backed Securities
   3,996,530    3,994,444    4.0 %
LLC Interest
   9,189,561    9,358,646    9.3 %
Closed-End Mutual Funds
   2,419,467    2,136,410    2.1 %
Corporate Bonds
   42,275,712    40,822,499    40.6 %
Common Stocks
   20,812,044    23,018,795    22.9 %
Preferred Stocks
   10,285,555    8,491,470    8.5 %
Warrants
   52,988    74,598    0.1 %
Rights
   148,370    61,391    0.1 %






Total Invested Assets
   $ 103,378,022    $ 100,427,692    100 %


	December 31, 2019
Portfolio Composition by Investment Type	Amortized Cost⁽¹⁾		Fair Value		Percentage of Portfolio (at fair value)
Senior Secured Loans — First Lien	$	8,473,042	$	7,683,965		7.7%
Senior Secured Loans — Second Lien		553,265		326,838		0.3%
Senior Secured Loans — Escrow Loan		79,372		1,925		0.0%
Unsecured Loans		4,195,580		3,713,191		3.7%
Asset-Backed Securities		896,536		743,520		0.7%
Mortgage-Backed Securities		3,996,530		3,994,444		4.0%
LLC Interest		9,189,561		9,358,646		9.3%
Closed-End Mutual Funds		2,419,467		2,136,410		2.1%
Corporate Bonds		42,275,712		40,822,499		40.6%
Common Stocks		20,812,044		23,018,795		22.9%
Preferred Stocks		10,285,555		8,491,470		8.5%
Warrants		52,988		74,598		0.1%
Rights		148,370		61,391		0.1%

Total Invested Assets	$	103,378,022	$	100,427,692		100%

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

The following tables summarize the amortized cost and the fair value of the Company’s invested assets by class of financial asset as of ~~June~~September 30, 2020 and December 31, 2019 to include, on a look-through basis, the investments underlying the TRS, as disclosed in Note 7 of the financial statements included herein. There were no positions in the TRS as of ~~June~~September 30, 2020. The investments underlying the TRS had a notional amount of $50,904,830 and a market value of $47,899,681 as of December 31, 2019.

June 30, 2020
Portfolio Composition by Investment Type
   Amortized
Cost⁽¹⁾    Fair Value    Percentage of
Portfolio (at fair
value)
Senior Secured Loans — First Lien
   $ 25,915,051    $ 24,634,669    41.7 %
Senior Secured Loans — Second Lien
   5,400,252    5,558,879    9.4 %
Unsecured Loans
   4,602,193    1,170,178    2.0 %
Asset-Backed Securities
   671,187    300,848    0.5 %
LLC Interests
   13,312,618    11,746,270    19.9 %
Corporate Bonds
   6,698,964    6,078,784    10.3 %
Common Stocks
   7,945,816    9,474,822    16.1 %
Preferred Stocks
   3,051,713    —      0.0 %
Warrants
   52,987    47,667    0.1 %






Total Invested Assets
   $ 67,650,781    $ 59,012,117    100 %

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


	December 31, 2019							September 30, 2020
Portfolio Composition by Investment Type	Amortized Cost⁽¹⁾		Fair Value		Percentage of Portfolio (at fair value)			Amortized Cost⁽¹⁾		Fair Value		Percentage of Portfolio (at fair value)
Senior Secured Loans — First Lien	$	51,120,740	$	47,656,091		32.1	%	$	26,042,927	$	26,087,962		43.9%
Senior Secured Loans — Second Lien		8,810,397		8,254,393		5.6	%		5,502,553		6,048,451		10.2%
Senior Secured Loans — Escrow Loan		79,372		1,925		0.0	%
Unsecured Loans		4,195,580		3,713,191		2.5	%		—		—		0.0%
Asset-Backed Securities		896,536		743,520		0.5	%		671,187		282,310		0.5%
Mortgage-Backed Securities		3,996,530		3,994,444		2.7	%
Mortgage-Backed-Securities									—		—		0.0%
LLC Interests									7,000,000		6,175,807		10.4%
Closed-End Mutual Funds		2,419,467		2,136,410		1.4	%		—		—		0.0%
Corporate Bonds		42,275,712		40,822,499		27.6	%		6,717,465		6,680,952		11.3%
Common Stocks		20,812,044		23,018,795		15.5	%		7,952,780		9,428,215		15.9%
LLC Interests		9,189,561		9,358,646		6.3	%
Preferred Stocks		10,285,555		8,491,470		5.7	%
Preferred Stock									3,051,714		—		0.0%
Warrants		52,988		74,598		0.1	%		52,987		24,069		0.0%
Rights		148,370		61,391		0.0	%
Partnership Units									6,312,618		4,633,462		7.8%

Total Invested Assets	$	154,282,852	$	148,327,373		100.0	%	$	63,304,231	$	59,361,228		100%

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

5251


	December 31, 2019
Portfolio Composition by Investment Type	Amortized Cost⁽¹⁾		Fair Value		Percentage of Portfolio (at fair value)
Senior Secured Loans — First Lien	$	51,120,740	$	47,656,091		32.1%
Senior Secured Loans — Second Lien		8,810,397		8,254,393		5.6%
Senior Secured Loans — Escrow Loan		79,372		1,925		0.0%
Unsecured Loans		4,195,580		3,713,191		2.5%
Asset-Backed Securities		896,536		743,520		0.5%
Mortgage-Backed Mutual Funds		3,996,530		3,994,444		2.7%
Closed-End Mutual Funds		2,419,467		2,136,410		1.4%
Corporate Bonds		42,275,712		40,822,499		27.6%
Common Stocks		20,812,044		23,018,795		15.5%
LLC interest		9,189,561		9,358,646		6.3%
Preferred Stocks		10,285,555		8,491,470		5.7%
Warrants		52,988		74,598		0.1%
Rights		148,370		61,391		0.0%

Total Invested Assets	$	154,282,852	$	148,327,373		100.0%

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

The following table presents certain selected information regarding the composition of our investment portfolio as of ~~June~~September 30, 2020 and December 31, 2019:


	June 30, 2020	December 31, 2019	September 30, 2020	December 31, 2019
Number of Investments	45	54	44	54
% Variable Rate (based on fair value)	79%	56% ⁽¹⁾	81%	56% ⁽¹⁾
% Non-Income Producing Equity or Other Investments (based on fair value)	16%	9% ⁽¹⁾	16%	9% ⁽¹⁾
Weighted Average Cost Price of Investments (as a % of par or stated value)	86.54%	97.24% ⁽¹⁾	86.11%	97.24% ⁽¹⁾
Weighted Average Credit Rating of Investments that were Rated	B3	B3 ⁽¹⁾	Caa1	B3 ⁽¹⁾
% of Fixed Income Investments on Non-Accrual (based on fair value)	0.1%	0.1% ⁽¹⁾	0.1%	0.1% ⁽¹⁾

⁽¹⁾	Includes value of investments underlying the TRS.

Portfolio Composition by Strategy and Industry

The table below summarizes the composition of our investment portfolio by strategy and enumerates the percentage, by fair value, of the total portfolio assets in such strategies as of ~~June~~September 30, 2020 and December 31, 2019:


	June 30, 2020					December 31, 2019					September 30, 2020				December 31, 2019
Portfolio Composition by Strategy	Fair Value		Percentage of Portfolio			Fair Value		Percentage of Portfolio			Fair Value		Percentage of Portfolio		Fair Value		Percentage of Portfolio
Broadly Syndicated – Private	$	5,546,968		9.4	%	$	4,611,683		4.6	%	$	5,516,901		9.3%	$	4,611,683		4.6%
Broadly Syndicated – Public		336,124		0.6	%		21,598,588		21.5	%		355,608		0.0%		21,598,588		21.5%
Middle-Market		52,828,177		89.5	%		73,473,901		73.2	%		53,206,409		89.6%		73,473,901		73.2%
Opportunistic/Other		300,848		0.5	%		2743,520		0.7	%		282,310		0.5%		743,520		0.7%

Total Invested Assets	$	59,012,117		100.0	%	$	100,427,692		100.0	%	$	59,361,228		100.0%	$	100,427,692		100.0%

Broadly syndicated debt refers to loans and other instruments originated by a bank to a large corporation (both private and public) that are sold off, or syndicated, to investors in pieces. Middle-Market companies include companies with annual revenues between $50 million and $2.5 billion.

The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of ~~June~~September 30, 2020 and December 31, 2019:

   June 30, 2020 December 31, 2019
Industry Classifications
   Fair Value    Percentage of
Portfolio Fair Value    Percentage of
Portfolio
Chemicals
   $ 42,500    0.1 % $ 42,500    0.0 %
Consumer Products
   2,000,000    3.4 % 2,000,000    2.0 %
Energy
   369,971    0.6 % 6,745,696    6.7 %
Financials
   2,393,348    4.1 % 12,900,074    12.9 %
Healthcare
   30,814,517    52.2 % 44,383,560    44.2 %


									September 30, 2020				December 31, 2019
Industry Classifications									Fair Value		Percentage of Portfolio		Fair Value		Percentage of Portfolio
Chemicals									$	42,500		0.1%	$	42,500		0.0%
Consumer Products										2,000,000		3.4%		2,000,000		2.0%
Energy										480,265		0.8%		6,745,696		6.7%
Financials										2,014,810		3.4%		12,900,074		12.9%
Healthcare										32,709,916		55.1%		44,383,560		44.2%
Manufacturing		1,550,000	2.5	%		—	0.0	%		1,613,892		2.6%		—		0.0%
Materials		1,170,455	2.0	%		3,734,736	3.7	%		—		0.0%		3,734,736		3.7%
Media/Telecommunications		336,124	0.6	%		2,457,365	2.4	%		355,608		0.6%		2,457,365		2.4%
Real Estate Investment Trusts (REITs)		1,037,222	1.8	%		13,458,505	13.4	%		1,243,041		2.1%		13,458,505		13.4%
Real Estate		10,997,353	18.6	%		6,432,657	6.4	%		10,223,152		17.2%		6,432,657		6.4%
Retail		224,524	0.4	%		1,124,467	1.1	%		225,840		0.4%		1,124,467		1.1%
Service		2,529,136	4.3	%		59,183	0.1	%		2,935,303		4.9%		59,183		0.1%
Telecommunication Services		5,546,968	9.4	%		4,611,683	4.6	%		5,516,901		9.3%		4,611,683		4.6%
Utility		—	0.0	%		2,477,266	2.5	%		—		0.0%		2,477,266		2.5%

Total Invested Assets	$	59,012,117	100.0	%	$	100,427,692	100.0	%	$	59,361,228		100.0%	$	100,427,692		100.0%

As of ~~June~~September 30, 2020, the Company was an “affiliated person,” as defined in the 1940 Act, of NexPoint Real Estate Finance, LLC, NexPoint Capital REIT, LLC, and NexPoint Residential Trust, Inc. In general, under the 1940 Act, we are presumed to “control” a portfolio company if we owned 25% or more of its voting securities or we had the power to exercise control over the management or policies of such portfolio company, and would be an “affiliated person” of a portfolio company if we owned 5% or more of its voting securities.

Summary Description of Portfolio Companies/Investments

As of ~~June~~September 30, 2020, and December 31, 2019, ~~53%~~55.6% and 45% (based on fair value), respectively, of our portfolio consisted of healthcare related and opportunistic investments. Information regarding these investments is provided below, and includes investments underlying the TRS on a look-through basis. Information regarding these investments is provided below. This additional information is limited to publicly available information, and does not address credit worthiness or financial viability of the issuer, or our future plans as it relates to a specific investment:

Healthcare Investments

Envision Healthcare Corp.: As of ~~June~~September 30, 2020, and December 31, 2019, we held first lien senior secured loans of Envision Healthcare Corp. with an aggregate fair value of ~~$3.9~~$4.3 million and $0.9 million, respectively. Envision Healthcare Corporation is a nationwide provider of healthcare clinical solutions, including physician-led services, ambulatory services, and post-acute services, in addition to being one of the largest owner and operator of ambulatory surgery centers. As of ~~March 31,~~June 30, 2020, the company delivered physician services to more than 2,000 clinical departments in healthcare facilities in 44 states through a 27,000 physician and other healthcare professional employee team. In addition, the company operated 257 ambulatory surgery centers in 34 states with approximately 2,000 physician partners and 1,000 other affiliated physicians.

BW NHHC Holdco, ~~Inc.~~Inc.: As of ~~June~~September 30, 2020, and December 31, 2019, we held first lien senior secured loans of BW NHHC Holdco, Inc. with an aggregate fair value of ~~$3.6~~$3.9 million and $0 million, respectively. The company is one of the nation’s largest providers of home-based care, with a footprint in the Northeast, Midwest and South. They are a transformational company, which provides quality comprehensive care continuum of personal care, skilled home health, hospice care and behavioral health. The company is comprised of 35,000 caregivers serving over 60,000 patients and their families daily, in 225 locations across 16 states. During the quarter ended ~~March 31,~~June 30, 2020, the company had an average of ~~11,489~~11,288 episodic census in their skilled services segment, ~~765~~745 admits in their hospice segment, and ~~2,122~~1,984 hours in their personal care services segment.

Surgery Center Holdings, Inc.: As of September 30, 2020, and December 31, 2019, we held corporate bonds of Surgery Center Holdings, Inc. with an aggregate fair value of $3.6 million and $11.9 million, respectively. Surgery Center Holdings, Inc. is a leading healthcare services company with a differentiated outpatient delivery model focused on providing high quality, cost effective solutions for surgical and related ancillary care. As of June 30, 2020, the company owned or operated a portfolio of 127 surgical facilities, comprised of 111 ambulatory surgery centers and 16 surgical hospitals in 30 states.

RadNet, Inc.: As of ~~June~~September 30, 2020, and December 31, 2019, we held first lien senior secured loans of RadNet, Inc. with an aggregate fair value of ~~$3.4~~$3.5 million and $0.0 million, respectively. As of ~~March 31,~~June 30, 2020, the company owns and/or manages more than ~~335~~332 centers that offer a variety of diagnostic imaging services, including magnetic resonance imaging (MRI), computed tomography (CT), PET scanning, X-ray, ultrasound, and mammography. Its facilities are typically organized in regional clusters around urban hubs. RadNet contracts with groups of radiologists and other third parties to provide the actual medical services while it runs the administration of the facilities and takes a cut of the revenues plus a management fee. It also develops and sells radiology software and provides teleradiology interpretation services.

~~Surgery Center Holdings, Inc.~~: As of June 30, 2020 and December 31, 2019, we held corporate bonds of Surgery Center Holdings, Inc. with an aggregate fair value of $3.3 million and $11.9 million, respectively. Surgery Center Holdings, Inc. is a leading healthcare services company with a differentiated outpatient delivery model focused on providing high quality, cost effective solutions for surgical and related ancillary care. As of March 31, 2020, the company owned or operated a portfolio of 127 surgical facilities, comprised of 111 ambulatory surgery centers and 16 surgical hospitals in 30 states.

Global Medical Response, Inc.: As of ~~June~~September 30, 2020, and December 31, 2019, we held first lien senior secured loans of Global Medical Response, Inc. with an aggregate fair value of $3.3 million and $0, respectively. Global Medical Response is a medical transportation company in the United States that provides and manages community-based medical transportation services, including emergency, non-emergency and managed transportation, fixed-wing air ambulance and disaster response. Additionally, they are one of the leaders in the ambulance industry and provides quality medical care and patient relocation services in the United States, and around the world through the utilization of more than 7,000 ground vehicles, 100 fire vehicles, 300 rotor-wing aircraft, and 100 fixed-wing aircraft.

Results of Operations for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019

Revenues

We generate a significant portion of our investment income in the form of interest on the debt securities we purchase or originate. We have invested primarily in broadly syndicated bank loans of private companies. Bank loans generally pay interest at

rates which are periodically determined by reference to a base lending rate plus a spread. The base lending rate is typically the three-month LIBOR. The settlement of bank loans differs from the settlement of many other equity or debt instruments. Bank loans are manually settled through the agent by assignment. As a result, settlement can take an undetermined amount of time. Currently, according to data provided by Markit Partners, bank loans settle, on average, on the seventeenth day after the trade date. Generally, interest does not begin to accrue to the buyer until seven business days after the trade date.

Our CLO equity pays quarterly dividends based on excess cash flow available after the CLO’s payment “waterfall” provisions. Both Grayson and PAMCO CLOs are past their respective investment periods, and as a result, excess cash flow is expected to decline over time. We, therefore, expect that the quarterly dividends paid by the investment will similarly decline.

Expenses

For the three and ~~six~~nine months ended ~~June~~September 30, 2020, we had total net operating expenses of ~~$467,757~~$425,506 or $0.04 per share and ~~$1,221,941~~$1,647,447 or ~~$0.12~~$0.16 per share, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2019, we had total net operating expenses of ~~$1,164,150~~$1,248,003 or ~~$0.11per~~$0.12 per share and ~~$2,322,344~~$3,570,347 or ~~$0.22~~$0.34 per share, respectively. Base management fees attributed to the Adviser were ~~$201,229~~$201,136 and ~~$627,964~~$829,100 for the three and ~~six~~nine months ended ~~June~~September 30, 2020, respectively. Base management fees attributed to the Adviser were ~~$505,660~~$449,288 and ~~$996,689~~$1,495,977 for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively. Our expenses include administrative services expenses attributed to the Adviser of ~~$50,978~~$59,839 and ~~$125,594~~$185,433 for the three and ~~six~~nine months ended ~~June~~September 30, 2020. Administrative services expenses attributed to the Adviser of ~~$100,547~~$100,029 and ~~$199,338~~$299,367 for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively.

Amounts waived for management fees or administrative services expenses pertaining to periods prior to June 10, 2016 are not recoupable, but amounts waived for management fees or administrative services expenses pertaining to periods from and after June 10, 2016 are subject to recoupment by the Adviser within three years from the date that such fees were otherwise payable, provided that the recoupment will be limited to the amount of such voluntarily waived fees from and after June 10, 2016 and will not cause the sum of the Company’s advisory fees, administration fees, Other Expenses, and any recoupment to exceed the annual rate of 3.40% of average gross assets. Effective December 20, 2017, the Adviser ended its voluntary waiver of advisory fees.

Amounts waived and subject to recoupment pertaining to advisory and administration fees are shown below:


Period Ended	Advisory Fees Waived and Subject to Recoupment ⁽¹⁾		Administrator fees Waived and Subject to Recoupment ⁽¹⁾		Recoupment Eligibility Expiration		Advisory Fees Waived and Subject to Recoupment ⁽¹⁾		Administrator fees Waived and Subject to Recoupment ⁽¹⁾		Recoupment Eligibility Expiration
December 31, 2017	$	413,916	$	75,906		December 31, 2020	$	413,916	$	75,906		December 31, 2020
September 30, 2017		305,288		69,308		September 30, 2020		305,288		69,308		Expired
June 30, 2017		389,733		77,947		Expired		389,733		77,947		Expired
March 31, 2017		390,969		78,194		Expired		390,969		78,194		Expired
December 31, 2016		366,861		73,372		Expired		366,861		73,372		Expired
September 30, 2016		343,320		68,664		Expired		343,320		68,664		Expired
June 30, 2016		74,421		14,884		Expired		74,421		14,884		Expired

Total	$	2,284,508	$	458,275			$	2,284,508	$	458,275

⁽¹⁾	The Adviser has permanently waived the recoupment of any advisory fees or administration fees calculated on the portion of gross assets attributable to the receivable from Adviser balance on the ~~Statements~~Statement of Assets and Liabilities.

In addition, cumulatively since inception through June 10, 2016, the Company has voluntarily waived $930,143 and $186,042 of advisory fees and administration fees, respectively, all of which are not recoupable.

Our other expenses subject to the Expense Limitation Agreement for the three and ~~six~~nine months ended ~~June~~September 30, 2020 were ~~$188,359~~$241,643 and ~~$445,585,~~$687,228, respectively, and consisted of the following:

   For the Three Months
Ended June 30, 2020    For the Six Months
Ended June 30, 2020
Audit and tax fees
   $ 24,855    $ 94,283
Legal fees
   12,208    25,316
Custodian and accounting service fees
   79,879    153,135
Reports to stockholders
   13,960    29,344
Stock transfer fee
   43,403    116,222
Directors’ fees
   5,378    9,889
Other expenses
   8,676    17,396




Total
   $ 188,359    $ 445,585


	For the Three Months Ended September 30, 2020		For the Nine Months Ended September 30, 2020
Audit and tax fees	$	46,114	$	140,397
Legal fees		27,538		52,854
Custodian and accounting service fees		81,522		234,657
Reports to stockholders		14,173		43,517
Stock transfer fee		59,005		175,227
Directors’ fees		6,238		16,127
Other expenses		7,053		24,449

Total	$	241,643	$	687,228

Our other expenses subject to the Expense Limitation Agreement for three and ~~six~~nine months ended ~~June~~September 30, 2019 were $291,234 and $586,411 respectively consisted of the following:


	For the Three Months Ended June 30, 2019		For the Six Months Ended June 30, 2019		For the Three Months Ended September 30, 2019		For the Nine Months Ended September 30, 2019
Audit and tax fees	$	61,728	$	119,987	$	59,123	$	179,110
Legal fees		21,472		48,588		18,703		67,291
Custodian and accounting service fees		78,712		156,196		80,668		236,864
Reports to stockholders		13,303		33,104		13,488		46,552
Stock transfer fee		99,673		198,174		74,605		272,779
Directors’ fees		5,232		10,150		4,956		15,106
Other expenses		11,114		20,212		11,431		31,643

Total	$	291,234	$	586,411	$	262,934	$	849,345

Please refer to the Expense Limitation section above for further details on expense reimbursements.

Net Investment Income

We earned net investment income of ~~$636,915~~$694,133 or ~~$0.06~~$0.07 per share, and ~~$876,514~~$731,993 or ~~$0.08~~$0.07 per share, for the three months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively. We earned net investment income of ~~$1,591,665~~$ 2,285,798 or ~~$0.15~~$0.22 per share, and ~~$1,706,727~~$2,438,720 or ~~$0.16~~$0.23 per share for the ~~six~~nine months ended ~~June~~September 30, 2020, and ~~June~~September 30, 2019, respectively

Net Realized Gains or Losses

We had sales or principal repayments of ~~$8,243,903~~$8,317,408 and ~~$19,167,964~~$2,811,563 during the three months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively, from which we realized net gains/(losses) of $(2,737,698) and $269,390, respectively. We had sales or principal repayments of $69,041,052 and $30,502,390 during the nine months ended September 30, 2020 and September 30, 2019, respectively, from which we realized a net gains/(losses) of ~~$(1,987,706)~~$(20,672,780) and ~~$109,755,~~$674,663, respectively. We had sales or principal repayments of $60,723,644 and $27,960,827 during the six months ended June 30, 2020 and June 30, 2019, respectively, from which we realized a net gains/(losses) of $(17,935,082) and $896,508, respectively Additionally, during the three months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, we realized gains/(losses) on total return swaps of ~~$(6,659,937)~~$ 0.0 and ~~$444,361,~~$491,235, respectively. During the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, we realized gains/(losses) on total return swaps of $(6,929,996) and ~~$806,842,~~$1,298,077, respectively.

Net Change in Unrealized Appreciation (Depreciation) on Investments

For the three months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the net change in unrealized appreciation (depreciation) on investments totaled ~~$8,023,343~~$(4,695,661) or ~~$0.76~~$(0.45) per share, and ~~$(1,351,556)~~$1,144,674 or ~~$(0.13)~~$0.11 per share, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the net change in unrealized appreciation (depreciation) on investments totaled ~~($5,688,334)~~$(992,673) or ~~$(0.54)~~$(0.09) per share, and ~~$2,869,690~~$4,014,364 or ~~$0.28~~$0.39 per share, respectively. For the three months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the net change in unrealized appreciation (depreciation) on the TRS was $8,571,707, and ~~$223,217,~~$(352,574), respectively. For the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the net change in unrealized appreciation (depreciation) on the TRS was $2,745,042 and ~~$30,714, respectively the~~$(321,860), respectively. The net change in unrealized appreciation (depreciation) on our investments during the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019 was primarily driven by the performance of ~~OmniMax International~~BW NHHC Holdco, Inc. ~~Unsecured TL~~Senior Secure Loan and the and the ~~Valeant Pharmaceuticals~~Advantage Sales & Marketing, Inc. ~~6.125% Corporate Bonds,~~Second Lien Term Loan, respectively.

Net Increase from Payment from Affiliates

For the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the Adviser did not voluntarily reimburse the Company for unrealized losses sustained. Cumulatively since inception, the Adviser has paid $2,275,000 to voluntarily reimburse the Company for such losses. Had these payments not been made, the NAV as of ~~June~~September 30, 2020 would have been lower. These payments are not recoupable.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the net increase/(decrease) in net assets resulting from operations was ~~$(26,216,705)~~$(23,564,609) or ~~($2.49)~~$(2.24) per share, and ~~$6,310,481~~$8,103,964 or ~~$0.61~~$0.79 per share, respectively.


	For the Six Months Ended June 30, 2020			For the Six Months Ended June 30, 2019			For the Nine Months Ended September 30, 2020			For the Nine Months Ended September 30, 2019
Income	$	2,813,606		$	4,029,071		$	3,933,245		$	6,009,067
Net expenses		(1,221,941	)		(2,322,344	)		(1,647,447	)		(3,570,347	)
Net realized gain/(loss)		(24,865,078	)		1,703,350			(27,602,776	)		1,972,740
Net unrealized appreciation (depreciation)		(2,943,292	)		2,900,404			1,752,369			3,692,504
Net increase from amounts committed by affiliates		—			—			—			—

Total	$	(26,216,705	)	$	6,310,481		$	(23,564,609	)	$	8,103,964

For the three months ended ~~June~~September 30, ~~2010~~2020 and ~~June~~September 30, 2019, the net increase/(decrease) in net assets resulting from operations was ~~$8,584,322~~$2,652,096 or ~~$0.81~~$0.25 per share, and ~~$299,291~~$1,793,483 or ~~$0.03~~$0.17 per share, respectively.


	For the Three Months Ended June 30, 2020			For the Three Months Ended June 30, 2019			For the Three Months Ended September 30, 2020			For the Three Months Ended September 30, 2019
Income	$	1,104,672		$	2,040,664		$	1,119,639		$	1,979,996
Net expenses		(467,757	)		(1,164,150	)		(425,506	)		(1,248,003	)
Net realized gain/(loss)		(8,647,643	)		554,116			(2,737,698	)		269,390
Net unrealized appreciation (depreciation)		16,595,050			(1,131,339	)		4,695,661			792,100
Net increase from amounts committed by affiliates		—			—			—			—

Total	$	8,584,322		$	299,291		$	2,652,096		$	1,793,483

Financial Condition, Liquidity and Capital Resources

As of ~~June~~September 30, 2020, and December 31, 2019, we had cash and cash equivalents of ~~$1,970,573~~$ 4,268,422 and $7,764,892 respectively. As of ~~June~~September 30, 2020, and December 31, 2019, ~~$1,552,705~~$4,004,290 and $7,745,979 was held in the State Street U.S. Government Money Market Fund, and ~~$417,868~~$264,132 and $18,913 was held in a custodial account with State Street Bank and Trust Company, respectively. Cash and cash equivalents are available to fund new investments, pay operating expenses and pay distributions.

In aggregate as of ~~June~~September 30, 2020 the Adviser controls 2,549,002 total shares, including reinvestment of dividends, for a net amount of approximately ~~$14.8~~$15.2 million.

The sales commissions and dealer manager fees related to the sale of our common stock were $0 and $0 for the three months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively, and were offset against capital in excess of par value on the financial statements.

We expect to generate cash primarily cash flows from fees, interest and dividends earned from our investments, as well as principal repayments and proceeds from sales of our investments.

Prior to investing in securities of portfolio companies, we invest the net proceeds from the issuance of shares of common stock under our distribution reinvestment plan and from sales and paydowns of existing investments primarily in cash, cash equivalents, U.S. government securities, repurchase agreements, high-quality debt instruments maturing in one year or less from the time of investment, consistent with our BDC election and our election to be treated as a RIC. Additionally, we may invest in higher yielding, liquid credit investments such as bank loans and corporate notes and bonds, which are considered “junk” as they are rated below investment grade, to the extent that at time of purchase 70% of our portfolio is in qualified investments as required by rules and regulations under the 1940 Act.

We may borrow funds to make investments, including before we have fully invested the proceeds of our continuous public offering, to the extent we determine that additional capital would allow us to take advantage of additional investment opportunities. On January 6, 2015, we entered into a senior, secured revolving credit facility (the “Credit Facility”) with State Street Bank and Trust Company (“State Street”) as lender and agent. Under the Credit Facility, State Street had agreed to extend credit to us, in an aggregate principal amount of up to $25 million, subject to borrowing base availability and restrictions on our total outstanding debt. Loans under the Credit Facility bore interest (at our election) at either (1) the higher of (i) the federal funds rate plus 1.25% per annum and (ii) the daily one-month London Interbank Offered Rate (“LIBOR”) plus 1.25% per annum or (2) one-, two- or three-month LIBOR plus 1.15% per annum. Interest was payable monthly in arrears. On January 5, 2016, the Company amended the Credit Facility with State Street and extended the maturity to January 3, 2017. The amendment to the Credit Facility did not contain any other material changes to the original agreement which was entered into on January 6, 2015 other than increasing the commitment fee from 0.15% to 0.25% per annum on the daily unutilized portion of the $25 million program amount. On January 3, 2017, the Company amended the Credit Facility with State Street and extended the maturity to March 20, 2017. The Credit Facility was fully paid down on February 24, 2017 and expired on March 20, 2017. The Company incurred costs of $25,000 in connection with obtaining the Credit Facility. As of December 31, 2018, all such financing costs have been amortized to interest expense.

As of ~~June~~September 30, 2020, and December 31, 2019, $0 and $ $33,714,864, respectively, were outstanding under the Financing Arrangement. As of April 15, 2020, the Financing Arrangement was paid down and closed. For the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the components of total interest expense were as follows:


	For the Three Months Ended June 30, 2020		For the Six Months Ended June 30, 2020			For the Three Months Ended September 30, 2020		For the Nine Months Ended September 30, 2020
Direct interest expense	$	6,283	$	176,911		$	—	$	176,911
Commitment fees				(204	)				(204	)
Amortization of financing costs		—		—			—		—

Total	$	6,283	$	176,707		$	—	$	176,707


	For the Three Months Ended June 30, 2019		For the Six Months Ended June 30, 2019
Direct interest expense	$	339,299	$	645,649
Commitment fees		—		—
Amortization of financing costs		—		—

Total	$	339,299	$	645,649


	For the Three Months Ended September 30, 2019		For the Nine Months Ended September 30, 2019
Direct interest expense	$	315,653	$	961,302
Commitment fees		—		—
Amortization of financing costs		—		—

Total	$	315,653	$	961,302

On June 13, 2017, the Company, entered into the TRS with BNP Paribas over one or more loans, with a maximum aggregate notional amount of the portfolio debt securities subject to the TRS of $40 million. On April 2, 2018, the Company amended and restated the TRS Agreement with BNP Paribas to increase the maximum aggregate notional amount of the portfolio debt securities subject to the TRS to $60 million.

On June 10, 2020, the TRS expired. As of December 31, 2019, the TRS had a notional amount of $50,904,830 and a market value of $47,899,681. Cash collateral of $ $21,400,000 was posted against the TRS as of December 31, 2019. See Note 7 to the financial statements included herein for additional information on the TRS.

While we are authorized to issue preferred stock, we do not currently anticipate issuing any.

Contractual Obligations and Off-Balance Sheet Arrangements

We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of ~~June~~September 30, 2020, and December 31, 2019, we had no outstanding commitments to fund investments.

We have certain contracts under which we have material future commitments. We have entered into the Investment Advisory Agreement with the Adviser in accordance with the 1940 Act. Under the Investment Advisory Agreement, the Adviser provides us with investment advisory and management services. For these services, we pay (1) a management fee equal to a percentage of the average value of our gross assets and (2) an incentive fee based on our performance.

The incentive fee consists of two parts. The first part, which is calculated and payable quarterly in arrears, equals Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter and is subject to a hurdle rate, expressed as a rate of return on our net assets, equal to 1.875% per quarter. As a result, the Adviser will not earn this incentive fee for any quarter until our pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.875%. Once our pre-incentive fee net investment income in any quarter exceeds the hurdle rate, the Adviser will be entitled to a “catch-up” fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until our pre-incentive fee net investment income for such quarter equals 2.34375% of the Company’s net assets at the end of such quarter. This “catch-up” feature allows the Adviser to recoup the fees foregone as a result of the existence of the hurdle rate. Thereafter, the Adviser will receive 20.0% of our pre-incentive fee net investment income. For purposes of calculating this part of the incentive fee, “Pre-Incentive Fee Net Investment

Income” means interest income, distribution income and any other income (including any other fees, other than fees for providing managerial assistance, such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and ~~zero coupon~~zero-coupon securities), accrued income that we have not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

The second part of the incentive fee, which is referred to as the incentive fee on capital gains, is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement). This fee equals 20.0% of our incentive fee capital gains, which will equal our realized capital gains on a cumulative basis from formation, calculated as of the end of the applicable period, computed net of all realized capital losses (proceeds less amortized cost) and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees. We will accrue for the capital gains incentive fee, which, if earned, will be paid annually. We will accrue for the capital gains incentive fee based on net realized and unrealized gains; however, under the terms of the Investment Advisory Agreement, the fee payable to the Adviser will be based on realized gains and no such fee will be payable with respect to unrealized gains unless and until such gains are actually realized. For the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the Company incurred $0 and $0 of incentive fees on capital gains, respectively Since inception, the Company has accrued $0 of incentive fees on capital gains in aggregate. Effective December 20, 2017, the Adviser ended its voluntary waiver of incentive fees. No such fees have been paid with respect to realized gains as of ~~June~~September 30, 2020.

Under the Administration Agreement, the Adviser furnishes us with office facilities and equipment, provides us clerical, bookkeeping and record keeping services at such facilities and provides us with other administrative services necessary to conduct our day-to-day operations. We will reimburse the Adviser for the allocable portion (subject to the review and approval of the Board) of overhead and other expenses incurred by it in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and our allocable portion of the cost of our chief financial officer and chief compliance officer and their respective staffs, to the extent that such expenses do not exceed an annual rate of 0.4% of our gross assets. The Adviser also provides on our behalf significant managerial assistance to those portfolio companies to which we are required to offer to provide such assistance and any expenses payable to the Adviser for such managerial assistance are not subject to the cap on reimbursement.

Our organization and offering costs together are limited to 1% of total gross proceeds raised and are not due and payable to the Adviser to the extent they exceed that amount. The cumulative aggregate amount of organization and offering costs exceeds 1% of total proceeds raised. Subsequent to the termination of the Offering, the Adviser forfeited the right to reimbursement of the remaining $4,305,091 of these costs.

If any of the contractual obligations discussed above is terminated, our costs under any new agreements that we enter into may increase. In addition, we would likely incur significant time and expense in locating alternative parties to provide the services we receive under our Investment Advisory Agreement and our Administration Agreement. Any new investment advisory agreement would also be subject to approval by our stockholders.

If for any taxable year we were not a “publicly offered” RIC within the meaning of Code Section 67(c)(2)(B), certain of our direct and indirect expenses, including the management fee, the incentive fee and certain other advisory expenses, would be subject to special “pass-through” rules. Such rules would treat these expenses as additional dividends to certain of our direct or indirect stockholders (generally including individuals and entities that compute their taxable income in the same manner as an individual) and as deductible by those stockholders, subject to the 2% “floor” on miscellaneous itemized deductions and other significant limitations on itemized deductions set forth in the Code.

Distributions

In order to qualify for the special tax treatment accorded RICs and their shareholders, we are required under the Code, among other things, to distribute at least 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, or “investment company taxable income,” to our stockholders on an annual basis. We intend to authorize and declare

quarterly distributions to be paid quarterly to our stockholders as determined by the Board. In addition, we also intend to distribute any realized net capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) at least annually.

We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of our distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage requirements applicable to us as a BDC under the 1940 Act. If we do not distribute a certain percentage of our income annually, we will suffer adverse U.S. federal income tax consequences, including possible failure to qualify for the special tax treatment accorded RICs and their shareholders. We cannot assure stockholders that they will receive any distributions.

To the extent our taxable earnings fall below the total amount of our distributions for a taxable year, a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Thus, the source of a distribution to our stockholders may be the original capital invested by the stockholder rather than our income or gains. Stockholders should read any written disclosure accompanying a distribution payment carefully and should not assume that the source of any distribution is our ordinary income or gains. Required distributions are driven by tax laws and thus tax accounting applies, not GAAP. Therefore, it is possible that we pay more in required distributions than we earn for book purposes. For the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the Company did not distribute in excess of net investment income.

We have adopted an “opt in” distribution reinvestment plan for our stockholders. As a result, if we declare a cash distribution, our stockholders will receive distributions in cash unless they specifically “opt in” to the distribution reinvestment plan so as to have their cash distributions reinvested in additional shares of our common stock. However, certain state authorities or regulators may impose restrictions from time to time that may prevent or limit a stockholder’s ability to participate in our distribution reinvestment plan. Although distributions paid in the form of additional shares of our common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, stockholders participating in our dividend reinvestment plan will not receive any corresponding cash distributions with which to pay any such applicable taxes.

For the ~~six~~nine months ended ~~June~~September 30, 2020, the Company made the following distributions:


Payable Date	Dividend/ Share⁽¹⁾		Total Dividend ⁽¹⁾		Dividends Reinvested ⁽²⁾⁽³⁾		Dividend/ Share⁽¹⁾		Total Dividend ⁽¹⁾		Dividends Reinvested ^(2)(3)(4)
9/30/2020							$	0.090	$	944,487	$	—
4/27/2020	$	0.060	$	633,540	$	241,202		0.060		633,540		241,202
3/27/2020		0.060		629,128		237,068		0.060		629,128		237,068
2/27/2020		0.060		631,127		245,478		0.060		631,127		245,478
1/30/2020		0.060		628,352		396,837		0.060		628,352		396,837
1/03/2020⁽²⁾		—		—		396,214		—		—		396,214

Total	$	0.240	$	2,522,147	$	1,516,799	$	0.330	$	3,466,634	$	1,516,799

Total

¹	For the current period, there were no dividends classified as a return of capital.

²	The December 2019 Dividend was reinvested in January 2020, see total December 2019 Dividend in table below.

³	The March 2020 Dividend was reinvested in April 2020.

⁴	The September 2020 Dividend was reinvested in October 2020.

For the year ended December 31, 2019, the Company made the following distributions:


Payable Date	Dividend/ Share ⁽¹⁾		Total Dividend ⁽¹⁾		Dividends Reinvested ⁽²⁾⁽³⁾		Dividend/ Share⁽¹⁾		Total Dividend ⁽¹⁾		Dividends Reinvested ⁽²⁾⁽³⁾
1/02/2020	$	0.060	$	625,526	$	—	$	0.060	$	625,526	$	—
11/28/2019		0.060		630,505		398,908		0.060		630,505		398,908
10/30/2019		0.060		627,684		397,044		0.060		627,684		397,044
10/02/2019		0.060		632,534		397,215		0.060		632,534		397,215
8/28/2019		0.060		628,890		398,232		0.060		628,890		398,232
7/31/2019		0.060		626,130		395,900		0.060		626,130		395,900
6/26/2019		0.060		624,201		396,249		0.060		624,201		396,249
5/30/2019		0.060		625,758		398,933		0.060		625,758		398,933
5/01/2019		0.060		623,117		396,582		0.060		623,117		396,582
3/27/2019		0.060		620,420		392,542		0.060		620,420		392,542
2/27/2019		0.060		625,257		397,969		0.060		625,257		397,969
1/30/2019		0.060		622,648		397,645		0.060		622,648		397,645
1/03/2019 ⁽²⁾		—		—		456,444		—		—		456,444

Total	$	0.720	$	7,512,670	$	4,823,663	$	0.720	$	7,512,670	$	4,823,663

¹	For the current year, there were no dividends classified as a return of capital.

²	The December 2018 Dividend was reinvested in January 2019, see total December 2018 Dividend in table below.

³	The December 2019 Dividend ~~will be~~was reinvested in January 2020.

For the year ended December 31, 2018, the Company made the following distributions:


Payable Date	Dividend/ Share		Total Dividend		Dividends Reinvested		Dividend/ Share ⁽¹⁾		Total Dividend ⁽¹⁾		Dividends Reinvested ⁽²⁾⁽³⁾
1/03/2019	$	0.069	$	721,979	$	—	$	0.069	$	721,979	$	—
11/28/2018		0.055		579,638		370,940		0.055		579,638		370,940
10/31/2018		0.069		721,071		461,560		0.069		721,071		461,560
9/26/2018		0.055		578,884		369,031		0.055		578,884		369,031
8/29/2018		0.055		576,777		367,935		0.055		576,777		367,935
8/01/2018		0.069		717,708		459,995		0.069		717,708		459,995
6/27/2018		0.055		579,962		367,710		0.055		579,962		367,710
5/30/2018		0.055		577,847		368,895		0.055		577,847		368,895
5/02/2018		0.069		719,079		459,922		0.069		719,079		459,922
3/28/2018		0.055		577,343		367,026		0.055		577,343		367,026
2/28/2018		0.055		566,708		368,154		0.055		566,708		368,154
1/31/2018		0.069		683,782		451,968		0.069		683,782		451,968

Total	$	0.730	$	7,600,778	$	4,413,136	$	0.730	$	7,600,778	$	4,413,136

Related Party Transactions

We have entered into a number of business relationships with affiliated or related parties, including the following:

We entered into the Investment Advisory Agreement with the Adviser. James Dondero, our president, controls the Adviser by virtue of his control of its general partner, NexPoint Advisors GP, LLC.

Pursuant to an expense limitation agreement, the Adviser has agreed to waive fees or, if necessary, reimburse us to limit certain expenses to 1.0% of the quarter-end value of our gross assets.

The Adviser provides us with the office facilities and administrative services necessary to conduct our day-to-day operations pursuant to the Administration Agreement.

The Adviser has entered into an agreement with HCMLP, its affiliate, pursuant to which HCMLP makes available to the Adviser experienced investment professionals and other resources of HCMLP and its affiliates.

~~The~~ dealer manager for our continuous public offering, NexPoint Securities, Inc., is an affiliate of the Adviser.

In aggregate as of ~~June~~September 30, 2020, the Adviser controls 2,549,002 total shares, including reinvestment of dividends, for a net amount of approximately ~~$14.8~~$15.2 million.

Cumulatively since inception, the Adviser has paid $2,275,000 to voluntarily reimburse the Company for certain unrealized losses on investments. Had these payments not been made, the NAV as of ~~June~~September 30, 2020 would have been lower. These payments are not recoupable by the Adviser.

As discussed above, the Adviser has entered into a Shared Services Agreement with HCMLP pursuant to which the Adviser may utilize employees from HCMLP in connection with various services such as human resources, accounting, tax, valuation, information technology services, office space, employees, compliance and legal. Future investment selection and determination, however, may be expected to differ between HCMLP and the Adviser.

Employees of HCMLP providing services to the Adviser could face conflicts arising from, for example, HCMLP and the Adviser acting separately with respect to investment determinations on assets commonly held by clients of HCMLP and the Adviser, respectively, although any such persons will not have sole investment discretion with respect to any determinations made by the Adviser for its clients.

The Adviser and its affiliates also sponsor, or manage, and may in the future sponsor or manage, other investment funds, accounts or investment vehicles (together referred to as “accounts”) that have investment mandates that are similar, in whole and in part, with ours. The Adviser and its affiliates may determine that an investment is appropriate for us and for one or more of those other accounts. In such event, depending on the availability of such investment and other appropriate factors, and pursuant to the Adviser’s allocation policy and co-investment relief, the Adviser or its affiliates may determine that we should invest side-by-side with one or more other accounts. We do not intend to make any investments if they are not permitted by applicable law and interpretive positions of the SEC and its staff, or if they are inconsistent with the Adviser’s allocation procedures and co-investment relief.

In addition, we and the Adviser have each adopted a formal code of ethics that governs the conduct of our and the Adviser’s officers, directors and employees. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the Delaware General Corporations Law.

Critical Accounting Policies

The preparation of the financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, ~~income~~revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. We have identified the following as critical accounting policies.

Fair Value of Financial Instruments

We will value our investments in accordance with ASC Topic 820, Fair Value Measurements and Disclosure,, or ASC Topic 820. ASC Topic 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities measured at fair value. ASC Topic 820’s definition of fair value focuses on exit price in the principal, or most advantageous, market and prioritizes the use of market-based inputs over entity-specific inputs within a measurement of fair value.

The portfolio will often include debt investments and equity investments that are fair valued. The portion of our portfolio that receives values from independent third parties are valued at their mid quotations obtained from unaffiliated market makers, other financial institutions that trade in similar investments or based on prices provided by independent ~~third party~~third-party pricing services. For investments where there are no available bid quotations, fair value is derived using proprietary models that consider the analyses of independent valuation agents as well as credit risk, liquidity, market credit spreads, and other applicable factors for similar transactions.

Due to the nature of our strategy, our portfolio will include relatively illiquid investments that are privately held. Valuations of privately held investments are inherently uncertain, may fluctuate over short periods of time and may be based on estimates. The determination of fair value may differ materially from the values that would have been used if a ready market for these investments existed. Our net asset value could be materially affected if the determinations regarding the fair value of our investments were materially higher or lower than the values that we ultimately realize upon the disposal of such investments.

The Board, or its designee in good faith, is responsible for determining the fair value of the portfolio investments that are not publicly traded, whose market prices are not readily available on a quarterly basis in good faith or any other situation where portfolio investments require a fair value determination.

The valuation process is conducted at the end of each fiscal quarter, with a portion of our valuations of portfolio companies without market quotations subject to review by the independent valuation firms each quarter. When an external event with respect to one of our portfolio companies, such as a purchase transaction, public offering or subsequent equity sale occurs, we expect to use the pricing indicated by such external event to corroborate our valuation.

With respect to investments for which market quotations are not readily available, the Board and the ~~Adviser undertake~~adviser undertakes a multi-step valuation process each quarter, as described below:

The valuation process begins with each portfolio company or investment being initially valued by investment professionals of the ~~adviser~~Adviser responsible for credit monitoring or independent ~~third party~~third-party valuation firms.

Preliminary valuation conclusions are then documented and discussed with a committee comprised of certain senior management employees of the Adviser (the “Valuation Committee”).

The Audit and Qualified Legal Compliance Committee of the Board reviews these ~~preliminary~~ valuations.

Based on this information, the Board discusses valuations and determines the fair value of each investment in our portfolio in good faith.

As of ~~June~~September 30, 2020, the Company held the following investments for which a sufficient level of current, reliable market quotations were not available:

Instrument

Type

Fair
Market Value

Type

Fair Value

Grayson Investor Corp.

Asset-Backed Securities

246,920

Grayson Investor Corp

Asset-Backed Securities

238,000

PAMCO CLO 1997-1A B

Asset-Backed Securities

53,928

Asset-Backed Securities

44,310

American Banknote Corp.

Common Stocks

2,092,500

Common Stocks

1,732,500

Creative Science Properties, Inc.

Common Stocks

1,500,000

Common Stocks

1,661,000

OmniMax International, Inc.

Common Stocks

268

Common Stocks

—

SteadyMed Ltd.

Common Stocks

40,405

Common Stocks

40,405

Terrestar Corp.

Common Stocks

4,761,374

Common Stsocks

4,704,953

NexPoint Capital REIT, LLC

LLC Interests

248,917

LLC Interests

247,117

SFR WLIF III, LLC

LLC Interests

1,429,384

LLC Interests

1,491,235

SFR WLIF II, LLC

LLC Interests

2,781,151

LLC Interests

2,437,455

US GAMING LLC

LLC Interests

2,000,000

LLC Interests

2,000,000

Terrestar Corp.

Senior Secured Loans

614,206

Senior Secured Loans

634,811

Terrestar Corp.

Senior Secured Loans

145,409

Senior Secured Loans

150,287

Terrestar Corp.

Senior Secured Loans

25,979

Senior Secured Loans

26,850

OmniMax International, Inc.

Unsecured Loans

1,170,178

Unsecured Loans

—

Galena Biopharma, Inc.

Warrants

—

Warrant

—

Gemphire Therapeutics, Inc.

Warrants

1,104

Warrant

260

OmniMax International, Inc.

Warrants

Warrant

—

SCYNEXIS, Inc.

Warrants

20,321

Warrant

—

As of December 31, 2019, the Company held the following investments for which a sufficient level of current, reliable market quotations were not available:

Instrument

Type
   Fair
Market value
PAMCO CLO 1997-1A B
   Asset-Backed Securities    $ 139,629
American Banknote Corp
   Common Stocks    2,467,500
OmniMax International, Inc.
   Common Stocks    20,898


~~SteadyMed Ltd.~~	~~Common Stocks~~	~~40,405~~
~~TerreStar Corp.~~	~~Common Stocks~~	~~3,890,081~~
~~NexPoint Capital REIT, LLC~~	~~LLC Interests~~	~~2,425,989~~
~~SFR WLIF III, LLC~~	~~LLC Interests~~	~~1,615,315~~
~~SFR WLIF II, LLC~~	~~LLC Interests~~	~~3,317,342~~
~~US GAMING LLC~~	~~LLC Interests~~	~~2,000,000~~
~~TerreStar Corp.~~	~~Senior Secured Loans~~	~~583,470~~
~~TerreStar Corp.~~	~~Senior Secured Loans~~	~~138,132~~
~~OmniMax International, Inc~~	~~Unsecured Loans~~	~~3,713,191~~
~~Galena Biopharma, Inc.~~	~~Warrants~~	—
~~Gemphire Therapeutics, Inc.~~	~~Warrants~~	~~1,340~~
~~OmniMax International, Inc.~~	~~Warrants~~	~~647~~
~~SCYNEXIS, Inc.~~	~~Warrants~~	~~28,497~~


Instrument	Type	Fair Value
PAMCO CLO 1997-1A B	Asset-Backed Securities	$	139,629
American Banknote Corp	Common Stocks		2,467,500
OmniMax International, Inc.	Common Stocks		20,898
SteadyMed Ltd.	Common Stocks		40,405
TerreStar Corp.	Common Stocks		3,890,081
NexPoint Capital REIT, LLC	LLC Interests		2,425,989
SFR WLIF III, LLC	LLC Interests		1,615,315
SFR WLIF II, LLC	LLC Interests		3,317,342
US GAMING LLC	LLC Interests		2,000,000
TerreStar Corp.	Senior Secured Loans		583,470
TerreStar Corp.	Senior Secured Loans		138,132
OmniMax International, Inc	Unsecured Loans		3,713,191
Galena Biopharma, Inc.	Warrant		—
Gemphire Therapeutics, Inc.	Warrant		1,340
OmniMax International, Inc.	Warrant		647
SCYNEXIS, Inc.	Warrant		28,497

The Company values the TRS in accordance with the TRS Agreement. Pursuant to the TRS Agreement, the value of the TRS is based on the increase or decrease in the value of the loans underlying the TRS, together with accrued interest income, interest expense and certain other expenses incurred under the TRS. The loans underlying the TRS are valued based on indicative bid prices provided by an independent third-party pricing service. Bid prices reflect the highest price that market participants may be willing to pay. These valuations are sent to the Company for review and testing. The Valuation Committee and the Board review and approve the value of the TRS, as well as the value of the loans underlying the TRS, on a quarterly basis. To the extent the Valuation Committee or the Board have any questions or concerns regarding the valuation of the loans underlying the TRS, such valuation is discussed or challenged pursuant to the terms of the TRS Agreement. For additional information on the TRS, see Note 7 to the financial statements included herein. The TRS expired on June 10, 2020.

Organization Costs

Organization costs include the cost of incorporation, such as the cost of legal services and other fees pertaining to our organization. Organization costs, together with offering costs, are limited to 1% of total gross proceeds raised in the offering and are not due and payable to the Adviser to the extent they exceed that amount. For the three months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the Adviser did not incur or pay any organization costs on our behalf. For the period from our inception to ~~June~~September 30, 2020, the Adviser incurred and paid organization costs of $33,392 on our behalf.

Offering Costs

Our offering costs include legal fees, promotional costs and other costs pertaining to the public offering of our shares of common stock and are capitalized and amortized to expense over one year. For the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the Adviser incurred offering costs of $0 and $0, respectively, on our behalf. For the three months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the Company capitalized $0 and $0 of offering costs, respectively. Of the capitalized offering costs, $0 and $5,445 were amortized to expense during the ~~three~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively. As of ~~June~~September 30, 2020 and ~~June~~September 30, 2019, $0 and $0 remained on the Statement of Assets and Liabilities, respectively.

Organization costs and offering costs are limited to 1% of total gross proceeds raised in this offering and are not due and payable to the Adviser to the extent they exceed that amount. As of ~~June~~September 30, 2020, the cumulative aggregate amount of $5,327,574 of organization and offering costs exceeds 1% of total proceeds raised. Subsequent to the termination of the Offering, the Adviser forfeited the right to reimbursement of the remaining $4,305,091 of these costs.

Investment Transactions and Related Investment Income and Expense

We record our investment transactions on a trade date basis, which is the date when we have determined that all material terms have been defined for the transactions. These transactions could possibly settle on a subsequent date depending on the

transaction type. All related revenue and expenses attributable to these transactions are reflected on the Statements of Operations commencing on the trade date unless otherwise specified by the transaction documents. Realized gains and losses on investment transactions are recorded on the specific identification method. We accrue interest income if we expect that ultimately, we will be able to collect it. Generally, when an interest payment default occurs on a loan in our portfolio, or if our management otherwise believes that the issuer of the loan will not be able to service the loan and other obligations, we place the loan on non-accrual status and will cease recognizing interest income on that loan until all principal and interest is current through payment or until a restructuring occurs, such that the interest income is deemed to be collectible. However, we remain contractually entitled to this interest. We may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. Accrued interest is written off when it becomes probable that such interest will not be collected, and the amount of uncollectible interest can be reasonably estimated. We also accrue for delayed compensation, which is a pricing adjustment payable by the parties to a secondary loan trade that closes late, intended to assure that neither party derives an economic advantage from the delay. Delayed compensation begins calculating at the loan’s specific coupon rate if a trade hasn’t settled within 7 business days of trading. Original issue discounts, market discounts or premiums are accreted or amortized using the effective interest method as interest income and will be accreted or amortized over the maturity period of the investments. We will record prepayment premiums on loans and debt securities as interest income. Dividend income, if any, will be recognized on an accrual basis to the extent that we expect to collect such amount.

We may have investments in our portfolio that contain a PIK interest provision. Any PIK interest will be added to the principal balance of such investments and is recorded as income, if the portfolio company valuation indicates that such PIK interest is collectible. In order to qualify for the special tax treatment accorded RICs and their shareholders, substantially all of our income (including PIK interest) must be distributed to stockholders in the form of dividends, even if we have not collected any cash.

Interest expense is recorded on an accrual basis. Certain expenses related to legal and tax consultation, due diligence, rating fees, valuation expenses and independent collateral appraisals may arise when we make certain investments.

Loan Origination, Facility, Commitment and Amendment Fees

We may receive fees in addition to interest income from loans during the life of the investment. We may receive origination fees upon the origination of an investment. These origination fees are initially deferred and deducted from the cost basis of the investment and subsequently accreted into income over the term of the loan. We may receive facility, commitment and amendment fees, which are paid to us on an ongoing basis. Facility fees, sometimes referred to as asset management fees, are accrued as a percentage periodic fee on the base amount (either the funded facility amount or the committed principal amount). Commitment fees are based upon the undrawn portion committed by us and are recorded on an accrual basis. Amendment fees are paid in connection with loan amendments and waivers and are accounted for upon completion of the amendments or waivers, generally when such fees are receivable. Any such fees are included in other income on the Statements of Operations.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

We measure net realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation will reflect the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

U.S. Federal Income Taxes

We have elected to be treated as a RIC under Subchapter M of the Code and intend each year to qualify and be eligible to be treated as such. As a RIC, we generally will not have to pay corporate-level federal income taxes on any investment company taxable income or net capital gains that we distribute as dividends to our stockholders. In order to qualify for the special tax treatment accorded RICs and their shareholders, we must meet certain gross income, diversification, and distribution requirements.

Recent Accounting Pronouncements

Please refer to Note 2 to the financial statements included herein for discussion of recent accounting pronouncements.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, most significantly changes in interest rates. As of ~~June~~September 30, 2020, ~~79%~~81% (based on fair value) of the investments in our portfolio had floating interest rates. These investments are usually based on a floating LIBOR and typically have interest rate reset provisions that adjust applicable interest rates under such loans to current market rates on a monthly or quarterly basis.

~~Pursuant to the terms of the TRS, we pay fees to BNP Paribas a rate equal to~~ ~~one-month~~ LIBOR plus 2.00% per annum on the utilized notional amount of the loans subject to the TRS in exchange for the right to receive the economic benefit of a pool of loans having a maximum notional market value amount of $60,000,000. Pursuant to the terms of the Financing Arrangement, we pay fees to the BNPP entities a floating rate based on the asset type, but generally one-month LIBOR plus 1.30% per annum on the amount borrowed. To the extent that any present or future credit facilities or other financing arrangements that we or any of our subsidiaries enter into are based on a floating interest rate, we will be subject to risks relating to changes in market interest rates. In periods of rising interest rates when we or our subsidiaries have such debt outstanding, or financing arrangements in effect, our interest expense would increase, which could reduce our net investment income, especially to the extent we hold fixed rate investments.

~~The TRS expired on June 10, 2020.~~

A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments, especially to the extent that we predominantly hold variable-rate investments, and to declines in the value of any fixed- rate investments we hold. To the extent that a majority of our investments may be in variable-rate investments, an increase in interest rates could make it easier for us to meet or exceed the hurdle rate for the income incentive fee payable to the Adviser and may result in a substantial increase in our net investment income, and also to the amount of incentive fees payable to our investment adviser with respect to our increasing pre-incentive fee net investment income.

Assuming that the Statement of Assets and Liabilities as of ~~June~~September 30, 2020 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates.


Change in interest rates	Increase (decrease) in interest income			(Increase) decrease in interest expense		Increase (decrease) in NII			Increase (decrease) in interest income		(Increase) decrease in interest expense		Increase (decrease) in NII
Down 25 basis points		(41,195	)		—		(41,195	)		—		—		—
Up 50 basis points		184,629			—		184,629			184,042		—		184,042
Up 100 basis points		369,258			—		369,258			368,084		—		368,084
Up 200 basis points		738,517			—		738,517			736,169		—		736,169
Up 300 basis points		1,107,775			—		1,107,775			1,104,253		—		1,104,253

Although we believe that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit market, credit quality, the size and composition of the assets in our portfolio and other business developments, including borrowing under future credit facilities or other borrowing. Accordingly, we can offer no assurances that actual results would not differ materially from the analysis above.

We may in the future hedge against interest rate fluctuations by using standard hedging instruments such as interest rate swaps, futures, options and forward contracts to the limited extent permitted under the 1940 Act and applicable commodities laws. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s filings under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Investment Company Act of 1940, as amended, is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Company’s management (“Management”), including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s ~~management,~~Management, including the principal executive officer and principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

As of the period covered by this report, we, including our president and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon that evaluation and subject to the foregoing, our president and chief financial officer concluded that the Company’s disclosure controls and procedures were ~~not effective as~~effective.

Remediation of ~~June 30, 2020, due to the ongoing material weakness in its internal control over financial reporting described below.~~

Material Weaknesses in Internal Control over Financial Reporting

As of September 30, 2020, Management remediated the material weakness previously identified ~~a material weakness~~ as of December 31, 2019 ~~which remained as of June 30, 2020, that the Adviser’s disclosure controls and procedures were not effective due~~relating to ~~a material weakness over~~ the application of fair value accounting with respect to the validation of fair value methodologies. Specifically, the controls were not sufficiently designed to ensure the appropriateness of the fair value determinations reached for Level 3 real estate-related holdings. While this control deficiency did not result in a misstatement, it could ~~result~~have resulted in a misstatement to the investment balances or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness. Additionally, the Material Weakness could result in a misstatement to the investment balances or disclosures that would resulthave resulted in a material misstatement to the annual or interim financial statements that would not be prevented or detected.

~~Remediation of Material Weaknesses in Internal Control over Financial Reporting~~

Management ~~has developed a plan to remediate~~remediated the material weakness described above. Management utilizes one or more independent valuation experts as part of its existing valuation process for Level 3 real estate-related holdings. Management has undertaken additional review procedures by designating a member of the Adviser’s Valuation Committee to monitor and report to the Valuation Committee to ensure that for significant real estate-related holdings, fair values for such holdings are validated through one or more other valuation techniques that are acceptable under ASC 820.

~~We are committed to continuing to improve our internal control processes and will continue to review, optimize and enhance our financial reporting controls and procedures.~~ As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies, or we may modify, or in appropriate circumstances not continue, certaina result of the remediation ~~measures described above.~~

~~We believe the measures already implemented as described above will facilitate the remediation~~activities, Management has determined that Management’s controls were designed appropriately and at a sufficient level of ~~the control deficiencies we~~precision, and have ~~identified and strengthen our internal control over financial reporting. Based on the steps we have taken to date and the anticipated timing of appropriate test work to ensure adequate design and~~been operating effectiveness of such steps, we expect that the remediation of the Material Weakness will be completed on or about September 30, 2020. We cannot assure you, however, that the steps already taken will remediate such weaknesses, nor can we be certain of whether additional actions will be required or the costs of any such actions. The Material Weakness will not be considered remediated until the applicable controls operateeffectively for a sufficient period of time, ~~and management~~such that the material weakness previously identified as of December 31, 2019 has ~~concluded, through testing, that these controls are operating effectively.~~been remediated as of September 30, 2020.

Changes in Internal Control over Financial Reporting

Other than the enhancements to controls noted above, there have been no material changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II – Other Information

Item 1:

Legal Proceedings.

Although we may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise, we are currently not a party to any pending material legal proceedings.

Item 1A:

Risk Factors.

None.

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3:

Defaults Upon Senior Securities.

None.

Item 4:

Mine Safety Disclosures.

None.

Item 5:

Other Information.

None.

Item 6:

Exhibits


Number		Description

3.1		Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit (a)(3) to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on December 12, 2014)

3.2		Amended and Restated Bylaws (Incorporated by reference to Exhibit (b)(3) to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on December 12, 2014)

4.1		Forms of Subscription Agreement (Incorporated by reference to the Prospectus Appendix A. Appendix B and Appendix C filed with Post-Effective Amendment No. 7 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on May 11, 2017)

4.2		Distribution Reinvestment Plan (Incorporated by reference to Exhibit (e) to Post-Effective Amendment No. 1 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on December 12, 2014)

10.1		Amended and Restated Investment Advisory Agreement (Incorporated by reference to Exhibit (g)(1) to Post-Effective Amendment No. 8 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on September 30, 2017)

10.2		Sub-Administration and Accounting Agreement (Incorporated by reference to Company’s Registration Statement on Form N-2 (File No. 333-216277) filed on February 27, 2017)

10.3		Amended and Restated Administration Agreement (Incorporated by reference to Exhibit (k)(2) to Post-Effective Amendment No. 8 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on September 30, 2017)

10.4		Dealer Manager Agreement (Incorporated by reference to Post-Effective Amendment No. 4 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on March 2, 2016)

10.5		Form of Participating Broker-Dealer Agreement (Included as Exhibit A to the Dealer Manager Agreement)

10.6		Custodian Agreement (Incorporated by reference to Post-Effective Amendment No. 4 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on March 2, 2016)

10.7		Form of Agency Agreement (Incorporated by reference to Pre-Effective Amendment No. 3 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on July 24, 2014)

10.8		Escrow Agreement (Incorporated by reference to Post-Effective Amendment No. 4 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on March 2, 2016)

10.9		Expense Limitation Agreement (Incorporated by reference to Post-Effective Amendment No. 4 to the Company’s Registration Statement on Form N-2 (File No. 333-196096) filed on March 2, 2016)

10.10		Control Agreement, dated and effective as of ~~June~~September 9, 2017, by and between NexPoint Capital, Inc. and BNP Paribas Prime Brokerage International, Ltd. and State Street Bank and Trust Company ((Incorporated by reference to Exhibit 10.10 to Registrants Quarterly Report on 10-Q (File No. 814-01074) filed on November 9, 2017)

10.11		Master Confirmation for Loan Total Return Swap Transactions, dated and effective as of ~~June~~September 13, 2017, by and between NexPoint Capital Inc. and BNP Paribas Prime Brokerage International, Ltd. (Incorporated by reference to Exhibit 10.11 to Registrants Quarterly Report on 10-Q (File No. 814-01074) filed on November 9, 2017)


Number		Description

10.12		Committed Facility Agreement, dated and effective as of October 19, 2017, by and between NexPoint Capital, Inc. and BNP Paribas Prime Brokerage International, Ltd. (Incorporated by reference to Exhibit 10.1 to Registrants Current Report on 8-K (File No. 814-01074) filed on October 19, 2017)

10.13		U.S. PB Agreement, dated and effective as of October 19, 2017, by and between NexPoint Capital, Inc. and BNP Paribas Prime Brokerage, Inc. (Incorporated by reference to Exhibit 10.2 to Registrants Current Report on 8-K (File No. 814-01074) filed on October 19, 2017)

10.14		International PB Agreement, dated and effective as of October 19, 2017, by and between NexPoint Capital, Inc., BNP Paribas Prime Brokerage International, Ltd., and BNP Paribas acting through its New York branch (Incorporated by reference to Exhibit 10.3 to Registrants Current Report on 8-K (File No. 814-01074) filed on October 19, 2017)

10.15		U.S. Triparty Agreement, dated and effective as of October 19, 2017, by and between NexPoint Capital, Inc., BNP Paribas Prime Brokerage, Inc. and Street Bank and Trust Company (Incorporated by reference to Exhibit 10.4 to Registrants Current Report on 8-K (File No. 814-01074) filed on October 19, 2017)

10.16		International Triparty Agreement, dated and effective as of October 19, 2017, by and between NexPoint Capital, Inc., BNP Paribas Prime Brokerage International, Ltd., and State Street Bank and Trust Company, as custodian (Incorporated by reference to Exhibit 10.5 to Registrants Current Report on 8-K (File No. 814-01074) filed on October 23, 2017)

10.17		Amended and Restated Master Confirmation for Loan Total Return Swap Transactions, dated and effective as of April 2, 2018, by and between NexPoint Capital, Inc. and BNP Paribas (Incorporated by reference to Exhibit 10.1 to Registrants Current Report on 8-K (File No. 814-01074) filed on April 6,2, 2018)

31.1*		Certifications by President pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31.2*		Certifications by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32.1*		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

*	~~File~~Filed herewith

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.


Portfolio Company⁽¹⁾⁽²⁾	Interest Rate		Base Rate Floor			Maturity Date		Principal Amount		Amortized Cost⁽³⁾		Fair Value

Senior Secured Loans – 49.3%⁽⁴⁾
Energy – 0.6%
Fieldwood Energy, LLC (First Lien Term Loan)⁽⁵⁾		L + 725		1.00	%		4/11/2022	$	1,800,549	$	1,797,763	$	358,615
Fieldwood Energy, LLC (Second Lien Term Loan)⁽⁵⁾		L + 725		1.00	%		4/11/2023		567,797		555,216		11,356

													369,971

Healthcare – 40.8%
Air Methods Corp. (First Lien Term Loan)⁽⁵⁾		L + 350		1.00	%		4/22/2024		1,972,661		1,497,467		1,636,894
Auris Luxembourg III S.a.r.l. (First Lien Term Loan)^{(6) (7)}		L + 375		0.00	%		2/27/2026		2,553,883		2,542,686		2,247,417
BioClinica Holding I, LP (First Lien Term Loan)⁽⁶⁾		L + 400		1.00	%		10/20/2023		1,942,166		1,722,476		1,830,491
BW NHHC Holdco, Inc. (First Lien Term Loan)⁽⁵⁾		L + 500		0.00	%		5/15/2025		4,537,037		2,947,126		3,577,885
Covenant Surgical Partners, Inc. (First Lien Delayed Draw Term Loan)⁽⁸⁾		4% Fixed					7/1/2026		333,333		831		(44,999	)
Covenant Surgical Partners, Inc. (First Lien Term Loan)⁽⁶⁾		L + 400		0.00	%		7/1/2026		1,654,198		1,658,322		1,430,881
Envision Healthcare Corp. (First Lien Term Loan)⁽⁶⁾		L + 375		0.00	%		10/10/2025		5,917,443		4,302,511		3,935,100
Global Medical Response, Inc. (First Lien Term Loan)⁽⁵⁾		L + 425		1.00	%		3/14/2025		3,418,332		3,082,999		3,279,463
Patterson Medical Holdings, Inc. (First Lien Term Loan)⁽⁵⁾		L + 475		1.00	%		8/29/2022		2,434,155		2,107,961		2,187,697
RadNet, Inc. (First Lien Term Loan)⁽⁵⁾⁽⁷⁾		L + 375		1.00	%		6/30/2023		3,572,052		3,464,574		3,409,631
Sound Inpatient Physicians (Second Lien Term Loan)⁽⁶⁾		L + 675		0.00	%		6/26/2026		1,555,556		1,440,608		1,493,333

													24,983,793

Manufacturing – 2.5%
Truck Hero, Inc. (Second Lien Term Loan)⁽⁶⁾		L + 825		1.00	%		4/17/2025		1,666,667		1,213,466		1,550,000

Service – 4.1%
Advantage Sales & Marketing, Inc. (Second Lien Term Loan)⁽⁵⁾		L + 650		1.00	%		7/25/2022		3,000,000		2,190,962		2,504,190

Telecommunication Services – 1.3%
TerreStar Corp. (First Lien Term Loan)^{(9) (10)}		11% PIK					2/27/2021		617,914		617,914		614,206
TerreStar Corp. (First Lien Term Loan)^{(9) (10)}		11% PIK					2/28/2022		146,287		146,286		145,409
TerreStar Corp. (First Lien Term Loan)^{(9) (10)}		11% PIK					2/28/2022		26,135		26,135		25,979

													785,594


Total Senior Secured Loans													30,193,548


Unsecured Loans – 1.9%
Materials – 1.9%
OmniMax International, Inc. ^{(9) (10)}		14% PIK, 2% Cash					2/6/2021		4,718,462		4,602,193		1,170,178


Total Unsecured Loans													1,170,178


Asset-Backed Securities – 0.5%
Financials – 0.5%
Grayson Investor Corp. ^{(7) (9) (10) (11) (12) (13)}							11/1/2021		800		456,000		246,920
PAMCO CLO 1997-1A B ^{(7) (9) (10) (11) (13) (14)}									374,239		215,187		53,928

													300,848


Total Asset-Backed Securities													300,848


Corporate Bonds – 9.9%
Healthcare – 9.4%
Hadrian Merger Sub, Inc. ⁽¹¹⁾		8.500%					5/1/2026		2,728,000		2,318,409		2,479,588
Surgery Center Holdings ^{(7) (11)}		6.750%					7/1/2025		3,630,000		3,482,308		3,289,306

													5,768,894


Media/Telecommunications – 0.5%
iHeartCommunications, Inc.		6.375%	5/1/2026	$	114,206	$	313,456	$	113,331
iHeartCommunications, Inc.		8.375%	5/1/2027		214,073		584,791		196,559

									309,890


Total Corporate Bonds									6,078,784


				Shares
Common Stocks – 15.5%
Chemicals – 0.1%
MPM Holdings, Inc. ⁽¹⁵⁾					8,500		17,000		42,500

Financials – 3.4%
American Banknote Corp. ^{(9) (10) (15)}					750,000		2,062,500		2,092,500

Healthcare – 0.1%
SteadyMed Ltd. ^{(7) (9) (10) (15)}					54,749		14,508		40,405

Materials – 0.0%
OmniMax International, Inc. ^{(9) (10) (15)}					6,698		663,116		268

Real Estate – 2.4%
Creative Science Properties, Inc. ⁽⁹⁾⁽¹⁰⁾					100,000		1,500,000		1,500,000

Real Estate Investment Trust (REIT) – 1.3%
NexPoint Residential Trust, Inc. ^{(7) (16)}					22,300		716,130		788,305

Retail – 0.4%
Tru Kids, Inc. ⁽¹⁵⁾					237		1,119,168		224,524

Service – 0.0%
Western States Life Insurance ⁽¹⁵⁾					237		253,404		24,946

Telecommunication Services – 7.8%
TerreStar Corp. ^{(9) (10) (15)}					14,035		1,599,990		4,761,374


Total Common Stocks									9,474,822


LLC Interests – 19.2%
Consumer Products – 3.3%
US GAMING LLC ^{(9) (10) (15)}					2,000		2,000,000		2,000,000

Real Estate – 15.5%
NexPoint Real Estate Finance, LLC ⁽¹⁶⁾					315,631		6,312,618		5,286,818
SFR WLIF II, LLC ^{(9) (10)}					3,348,888		3,348,888		2,781,151
SFR WLIF III, LLC ^{(9) (10)}					1,651,112		1,651,112		1,429,384

									9,497,353

Real Estate Investment Trust (REIT) – 0.4%
NexPoint Capital REIT, LLC ^{(9) (10) (16) (17)}					100		—		248,917


Total LLC Interests									11,746,270


	Preferred Dividend Rate

Preferred Stocks – 0.0%
Real Estate Investment Trust (REIT) – 0.0%
RAIT Financial Trust ⁽¹⁸⁾		8.875%			148,057		3,051,713		—


Total Preferred Stocks									—


Warrants – 0.1%
Healthcare – 0.0%
Galena Biopharma, Inc. ^{(9) (10) (15)}			1/12/2021		1,500,054		—		—
Gemphire Therapeutics, Inc. ^{(9) (10) (15)}			3/15/2022		4,752		—		1,104
SCYNEXIS, Inc. ^{(9) (10) (15)}			6/21/2021		195,000		—		20,321

									21,425

Materials – 0.0%
OmniMax International, Inc. ^{(9) (10) (15)}			8/6/2025		207		—		8

Media/Telecommunications – 0.1%
iHeartMedia, Inc. ⁽¹⁵⁾			5/1/2039		2,875		52,987		26,234


Total Warrants									47,667

Total Investments - 96.4%						$	67,650,781	$	59,012,117

Cash Equivalents – 2.6%⁽¹⁹⁾								$	1,552,705
Other Assets & Liabilities, net - 1.0%								$	637,990

Net Assets - 100.0%								$	61,202,812


Quarter Ended	Yearly Cumulative Other Expenses		Yearly Expense Limitation		Yearly Cumulative Expense Reimbursement		Quarterly Recoupable/ (Recouped) Amount			Recoupment Eligibility Expiration
June 30, 2020	$	445,585	$	291,677	$	153,908	$	(30,539	)		June 30, 2023
March 31, 2020		257,226		72,779		184,447		184,447			March 31, 2023
The following table reflects the 2019 quarterly fee waivers and expense reimbursements due from the Adviser as of December 31, 2019, September 30, 2019, June 30, 2019 and March 31, 2019, which are subject to recoupment by the Adviser.
Quarter Ended	Yearly Cumulative Other Expenses		Yearly Expense Limitation		Yearly Cumulative Expense Reimbursement		Quarterly Recoupable/ (Recouped) Amount			Recoupment Eligibility Expiration
December 31, 2019	$	1,098,789	$	951,520	$	147,269	$	50,130			December 31, 2022
September 30, 2019		849,345		752,206		97,139		(17,417	)		September 30, 2022
June 30, 2019		586,411		471,855		114,556		75,592			June 30, 2022
March 31, 2019		295,177		256,213		38,964		38,964			March 31, 2022
The following table reflects the 2018 quarterly fee waivers and expense reimbursements due from the Adviser as of December 31, 2018, September 30, 2018, June 30, 2018 and March 31, 2018, which are subject to recoupment by the Adviser.
Quarter Ended	Yearly Cumulative Other Expenses		Yearly Expense Limitation		Yearly Cumulative Expense Reimbursement		Quarterly Recoupable/ (Recouped) Amount			Recoupment Eligibility Expiration
December 31, 2018	$	1,352,097	$	924,677	$	427,420	$	279,079			December 31, 2021
September 30, 2018		950,045		801,704		148,341		23,992			September 30, 2021
June 30, 2018		613,809		489,460		124,349		44,203			June 30, 2021
March 31, 2018		341,882		261,736		80,146		80,146			March 31, 2021
The following table reflects the 2017 quarterly fee waivers and expense reimbursements due from the Adviser as of December 31, 2017, September 30, 2017, June 30, 2017 and March 31, 2017, which may become subject to recoupment by the Adviser.
Quarter Ended	Yearly Cumulative Other Expenses		Yearly Expense Limitation		Yearly Cumulative Expense Reimbursement		Quarterly Recoupable/ (Recouped) Amount			Recoupment Eligibility Expiration
December 31, 2017	$	1,304,585	$	975,289	$	329,296	$	(122,135	)		December 31, 2020
September 30, 2017		983,110		531,679		451,431		252,953			September 30, 2020
June 30, 2017		631,906		433,428		198,478		—			Expired
March 31, 2017		329,791		182,226		147,565		—			Expired


	For the Three Months Ended June 30, 2019					For the Six Months Ended June 30, 2019
New Investment Activity by Asset Class	Purchases		Percentage			Purchases		Percentage
Senior Secured Loans—First Lien	$	2,920,820		24.0	%	$	4,806,095		17.9	%
Senior Secure Loans—Second Lien		—		0.0	%		—		0.0	%
Mortgage-Backed-Securities		—		0.0	%		4,000,000		15.0	%
Corporate Bonds		1,872,945		15.4	%		8,365,445		31.2	%
Preferred Stocks		2,000,000		16.4	%		4,189,561		15.7	%
Warrants		52,987		0.4	%		52,987		0.2	%
Equities		4,340,573		35.7	%		4,347,656		16.3	%
Closed-End Mutual Funds		987,212		8.1	%		987,212		3.7	%

Total Investment Activity	$	12,174,537		100.0	%	$	26,748,956		100.0	%

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company