What changed in this filing

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Item 1. Business

2022-12-16 compared with 2021-12-20 · 1299 added, 1328 removed, 78 unchanged (97% of the section changed)

Corporation (“PhenixFIN”, the “Company,”

PhenixFIN Corporation (“PhenixFIN”,

the “Company,”

“we”

and “us”) is an internally-managed

non-diversified closed-end management investment company incorporated in Delaware that has elected to be regulated as a business

development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”).

completed our initial public offering (“IPO”) and commenced operations on January 20, 2011.

The Company has elected, and

intends to qualify annually, to be treated, for U.S.

federal income tax purposes, as a regulated investment company

(“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

On November 18,

2020, the board of directors of the Company (the “Board”) approved the adoption of an internalized management structure,

effective January 1, 2021.

Until close of business on December 31, 2020 we were externally managed and advised by MCC Advisors LLC

(“MCC Advisors”), pursuant to an investment management agreement.

MCC Advisors is a wholly owned subsidiary of Medley

LLC, which is controlled by Medley Management Inc.

MDLY), a publicly traded asset management firm (“MDLY”), which

in turn is controlled by Medley Group LLC, an entity wholly owned by the senior professionals of Medley LLC.

We use the term

“Medley”

to refer collectively to the activities and operations of Medley Capital LLC, Medley LLC, MDLY, Medley Group

LLC, MCC Advisors, associated investment funds and their respective affiliates herein.

Since January 1, 2021 the Company has been

managed pursuant to an internalized management structure.

March 26, 2013, our wholly owned subsidiary, Medley SBIC, LP (“SBIC LP”), a Delaware limited partnership that we own directly

and through our wholly owned subsidiary, Medley SBIC GP, LLC, received a license from the Small Business Administration (“SBA”)

to operate as a Small Business Investment Company (“SBIC”) under Section 301(c) of the Small Business Investment Company

Act of 1958, as amended.

Effective July 1, 2019, SBIC LP surrendered its SBIC license and changed its name to Medley Small Business Fund,

In addition, Medley SBIC GP, LLC changed its name to Medley Small Business Fund GP, LLC.

Medley Small Business Fund, LP and Medley

Small Business Fund GP, LLC have since changed their names to PhenixFIN Small Business Fund, LP and PhenixFIN Small Business Fund GP,

LLC, respectively.

Company has formed and expects to continue to form certain taxable subsidiaries (the “Taxable Subsidiaries”), which are taxed

as corporations for federal income tax purposes.

These Taxable Subsidiaries allow us to, among other things, hold equity securities of

portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a RIC under the Code.

Company’s investment objective is to generate current income and capital appreciation.

The management team seeks to achieve this

objective primarily through making loans, private equity or other investments in privately-held companies.

The Company may also make

debt, equity or other investments in publicly-traded companies.

(These investments may also include investments in other BDCs, closed-end

funds or real estate investment trusts (“REITs”).) We may also pursue other strategic opportunities and invest in other assets or operate other businesses to achieve our

investment objective, such as operating and managing an asset-based lending business.

The portfolio generally consists of senior secured

first lien term loans, senior secured second lien term loans, senior secured bonds, preferred equity and common equity.

Occasionally,

we will receive warrants or other equity participation features which we believe will have the potential to increase total investment

Our loan and other debt investments are primarily rated below investment grade or are unrated.

Investments in below investment

grade securities are considered predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal

believe the private debt market is undergoing structural shifts that are creating significant opportunities for non-bank lenders and

The underlying drivers of these structural changes include reduced participation by banks in the private debt markets and

demand for private debt created by committed and uninvested private equity capital.

We focus on taking advantage of this structural shift

by lending directly to companies that are underserved by the traditional banking system and generally seek to avoid broadly marketed

and “us”) is an internally-managed non-diversified closed-end management investment

company incorporated in Delaware that has elected to be regulated as a business development company (“BDC”) under the Investment

Company Act of 1940, as amended (the “1940 Act”).

We completed our initial public offering (“IPO”) and commenced

operations on January 20, 2011.

The Company has elected, and intends to qualify annually, to be treated, for U.S.

federal income tax

purposes, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the

“Code”).

On November 18, 2020, the board of directors of the Company (the “Board”) approved the adoption of an

internalized management structure, effective January 1, 2021.

Until close of business on December 31, 2020 we were externally managed

and advised by MCC Advisors LLC (“MCC Advisors”), pursuant to an investment management agreement.

MCC Advisors is a wholly

owned subsidiary of Medley LLC, which is controlled by Medley Management Inc.

MDLY), a publicly traded asset management firm (“MDLY”),

which in turn is controlled by Medley Group LLC, an entity wholly owned by the senior professionals of Medley LLC.

We use the term “Medley”

to refer collectively to the activities and operations of Medley Capital LLC, Medley LLC, MDLY, Medley Group LLC, MCC Advisors, associated

investment funds and their respective affiliates herein.

Since January 1, 2021 the Company has been managed pursuant to an internalized

management structure.

The Company has formed and expects to continue

to form certain taxable subsidiaries (the “Taxable Subsidiaries”), which are taxed as corporations for federal income tax

These Taxable Subsidiaries allow us to, among other things, hold equity securities of portfolio companies organized as pass-through

entities while continuing to satisfy the requirements to qualify as a RIC under the Code.

The Company’s investment objective is to

generate current income and capital appreciation.

The management team seeks to achieve this objective primarily through making loans,

private equity or other investments in privately-held companies.

The Company may also make debt, equity or other investments in publicly-traded

(These investments may also include investments in other BDCs, closed-end funds or real estate investment trusts (“REITs”).)

We may also pursue other strategic opportunities and invest in other assets or operate other businesses to achieve our investment objective,

such as operating and managing an asset-based lending business.

The portfolio generally consists of senior secured first lien term loans,

senior secured second lien term loans, senior secured bonds, preferred equity and common equity.

Occasionally, we will receive warrants

or other equity participation features which we believe will have the potential to increase total investment returns.

Our loan and other

debt investments are primarily rated below investment grade or are unrated.

Investments in below investment grade securities are considered

predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal when due.

We believe the private debt market is undergoing

structural shifts that are creating significant opportunities for non-bank lenders and investors.

The underlying drivers of these structural

changes include reduced participation by banks in the private debt markets and demand for private debt created by committed and uninvested

private equity capital.

We focus on taking advantage of this structural shift by lending directly to companies that are underserved by

the traditional banking system and generally seek to avoid broadly marketed investment opportunities.

We source investment opportunities

primarily through direct relationships with financial sponsors, industry specialists, as well as financial intermediaries such as investment

banks and commercial banks.

Our Investment Team is responsible for sourcing

investment opportunities, conducting industry research, performing diligence on potential investments, structuring our investments and

monitoring our portfolio companies on an ongoing basis.

Our Investment Team draws on its expertise in lending to predominantly privately

held borrowers in a range of sectors, including industrials, transportation, energy and natural resources, financials, gemstones/jewelry

and real estate.

As a BDC, we are required to comply with regulatory

requirements, including limitations on our use of debt.

We are permitted to, and expect to continue to, finance our investments through

However, as a BDC, we are only generally allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act,

equals at least 200% (or 150% if certain requirements under the 1940 Act are met) after such borrowing.

The amount of leverage that we

employ will depend on our assessment of market conditions and other factors at the time of any proposed borrowing.

As of September 30, 2022, the Company’s

asset coverage was 255.0% after giving effect to leverage and therefore the Company’s asset coverage was greater than 200%, the

minimum asset coverage requirement applicable presently to the Company under the 1940 Act.

Our principal executive office is located at 445 Park Avenue, 10th

Floor, New York, NY and our telephone number is (212) 859-0390.

Investment Process Overview

Sourcing and Origination .

source investment opportunities through our management team’s network of long-standing relationships.

Our sourcing efforts are

led by our senior investment professionals, who leverage their experience in the sourcing and origination of investments.

Initial Evaluation .

We use a systematic,

consistent approach to credit evaluation, which typically consists of (i) a preliminary due diligence review conducted by the Company,

(ii) an initial diligence meeting with the Company’s management team, investment bank or private equity sponsor, (iii) an initial

indication of interest and terms, and (iv) preparation of memoranda including potential portfolio company overviews, investment considerations

and risks, financial model and return information.

Due Diligence & Underwriting .

undertake continued diligence, which expands on the investment thesis, risks and mitigants, and competition factors of our potential

investment opportunities.

We source investment opportunities primarily through direct relationships with financial sponsors, industry

specialists, as well as financial intermediaries such as investment banks and commercial banks.

Investment Team is responsible for sourcing investment opportunities, conducting industry research, performing diligence on potential

investments, structuring our investments and monitoring our portfolio companies on an ongoing basis.

Our Investment Team draws on its

expertise in lending to predominantly privately held borrowers in a range of sectors, including industrials, transportation, energy and

natural resources, financials, gemstones/jewelry and real estate.

In addition, our Investment Team seeks to diversify our portfolio of

loans by company type, asset type, transaction size, industry and geography.

a BDC, we are required to comply with regulatory requirements, including limitations on our use of debt.

We are permitted to, and expect

to continue to, finance our investments through borrowings.

However, as a BDC, we are only generally allowed to borrow amounts such that

our asset coverage, as defined in the 1940 Act, equals at least 200% (or 150% if certain requirements under the 1940 Act are met) after

such borrowing.

The amount of leverage that we employ will depend on our assessment of market conditions and other factors at the time

of any proposed borrowing.

of September 30, 2021, the Company’s asset coverage was 285.6% after giving effect to leverage and therefore the Company’s

asset coverage was greater than 200%, the minimum asset coverage requirement applicable presently to the Company under the 1940 Act.

Our principal

executive office is located at 445 Park Avenue, 10th Floor, New York, NY and our telephone number is (212) 859-0390.

Process Overview

and Origination .

We typically source investment opportunities through our management team’s network of long-standing relationships.

Our sourcing efforts are led by our senior investment professionals, who leverage their experience in the sourcing and origination of

We use a systematic, consistent approach to credit evaluation, which typically consists of (i) a preliminary due diligence

review conducted by the Company, (ii) an initial diligence meeting with the Company’s management team, investment bank or private equity sponsor,

(iii) an initial indication of interest and terms, and (iv) preparation of memoranda including potential portfolio company overviews,

investment considerations and risks, financial model and return information.

Diligence & Underwriting .

We typically undertake continued diligence, which expands on the investment thesis, risks and mitigants,

and competition factors of our potential investment opportunities.

We may conduct third party reviews, on-site visits and/or background

checks in connection with our potential investments in portfolio companies.

We undertake a proactive monitoring process of our portfolio companies, whereby we conduct monthly financial review and

monitoring of covenants, maintain ongoing dialogue with portfolio company management and owners, and exercise board observer rights where

Criteria We use an investment rating system to characterize and monitor the credit profile and our expected level of returns on each

investment in our portfolio.

We may conduct third party reviews, on-site visits and/or background checks in connection with our potential

investments in portfolio companies.

Portfolio Management .

We undertake a proactive

monitoring process of our portfolio companies, whereby we conduct monthly financial review and monitoring of covenants, maintain ongoing

dialogue with portfolio company management and owners, and exercise board observer rights where appropriate.

Rating Criteria We generally use an

investment rating system to characterize and monitor the credit profile and our expected level of returns on each investment in our

We use a five-level numeric rating scale.

The following is a description of the conditions associated with

each investment rating:

The following is a description of the conditions associated with each

investment rating:

Investments that are performing above expectations.

Investments that are performing within expectations,

with risks that are neutral or favorable compared to risks at the time of origination.

All new loans are rated ‘2’.

Investments that are performing below expectations

and that require closer monitoring, but where no loss of interest, dividend or principal is expected.

Companies rated ‘3’

Investments that are performing within expectations, with risks that are neutral or favorable compared to risks at the time of origination.

All new loans are rated ’2’.

Investments that are performing below expectations and that require closer monitoring, but where no loss of interest, dividend or principal is expected.

Companies rated ’3’

may be out of compliance with financial covenants, however, loan payments are generally not past due.

Investments that are performing below

expectations and for which risk has increased materially since origination.

Some loss of interest or dividend is expected but no

loss of principal.

In addition to the borrower being generally

out of compliance with debt covenants, loan payments may be past due (but generally not more than 180 days past due).

Investments that are performing substantially

below expectations and whose risks have increased substantially since origination.

Most or all of the debt covenants are out of compliance

and payments are substantially delinquent.

Investments that are performing below expectations and for which risk has increased materially since origination.

Some loss of interest or dividend is expected but no loss of principal.

In addition to the borrower being generally out of compliance with debt covenants, loan payments may be past due (but generally not more than 180 days past due).

Investments that are performing substantially below expectations and whose risks have increased substantially since origination.

Most or all of the debt covenants are out of compliance and payments are substantially delinquent.

Some loss of principal is expected.

we have determined that a prospective portfolio company is suitable for investment, we work with the management of that company and its

other capital providers to structure an investment.

We negotiate among these parties to agree on how our investment is expected to perform

relative to the other capital in the portfolio company’s capital structure.

structure our investments as follows:

Secured First Lien Term Loans We structure these investments as senior secured loans.

We obtain security interests in the assets

of the portfolio companies that serve as collateral in support of the repayment of such loans.

This collateral generally takes the form

of first-priority liens on the assets of the portfolio company borrower.

Our senior secured loans may provide for amortization of principal

with the majority of the amortization due at maturity.

Secured Second Lien Term Loans We structure these investments as junior, secured loans.

We obtain security interests in the assets

of these portfolio companies that serves as collateral in support of the repayment of such loans.

This collateral generally takes the

form of second-priority liens on the assets of a portfolio company.

These loans typically provide for amortization of principal in the

initial years of the loans, with the majority of the amortization due at maturity.

Secured First Lien Notes We structure these investments as senior secured loans.

We obtain security interests in the assets of these

portfolio companies that serve as collateral in support of the repayment of such loans.

This collateral generally takes the form of priority

liens on the assets of a portfolio company.

These loans typically have interest-only payments (often representing a combination of cash

pay and payment-in-kind, or (“PIK”) interest), with amortization of principal due at maturity.

PIK interest represents contractually

deferred interest added to the loan balance that is generally due at the end of the loan term and recorded as interest income on an accrual

basis to the extent such amounts are expected to be collected.

and Minority Equity Securities In some cases, we may also receive nominally priced warrants or options to buy a minority equity interest

in the portfolio company in connection with a debt investment.

As a result, as a portfolio company appreciates in value, we may achieve

additional investment return from this equity interest.

We may structure such warrants to include provisions protecting our rights as

a minority-interest holder, as well as a “put,”

or right to sell such securities back to the issuer, upon the occurrence

of specified events.

In many cases, we may also seek to obtain registration rights in connection with these equity interests, which may

include demand and “piggyback”

registration rights.

Loans We structure our unitranche loans, which combine the characteristics of traditional senior secured first lien term loans and

subordinated notes as senior secured loans.

Investment Structure

Once we have determined that a prospective portfolio

company is suitable for investment, we work with the management of that company and its other capital providers to structure an investment.

We negotiate among these parties to agree on how our investment is expected to perform relative to the other capital in the portfolio

company’s capital structure.

We typically structure our debt investments as follows:

Senior Secured First Lien Term Loans We

structure these investments as senior secured loans.

We obtain security interests in the assets of the portfolio companies that serve

as collateral in support of the repayment of such loans.

This collateral generally takes the form of first-priority liens on the assets

of the portfolio company borrower.

Our senior secured loans may provide for amortization of principal with the majority of the amortization

due at maturity.

Senior Secured Second Lien Term Loans We

structure these investments as junior, secured loans.

We obtain security interests in the assets of these portfolio companies that serves

as collateral in support of the repayment of such loans.

This collateral generally takes the form of second-priority liens on the assets

of a portfolio company.

These loans typically provide for amortization of principal in the initial years of the loans, with the majority

of the amortization due at maturity.

Senior Secured First Lien Notes We structure

these investments as senior secured loans.

We obtain security interests in the assets of these portfolio companies that serve as collateral

in support of the repayment of these loans.

This collateral generally takes the form of first-priority liens on the assets of a portfolio

Unitranche loans typically provide for amortization of principal in the initial years of the loans, with the majority of the

amortization due at maturity.

Debt We structure these investments as unsecured, subordinated loans that provide for relatively high, fixed interest rates that

provide us with significant current interest income.

These loans typically have interest-only payments (often representing a combination

of cash pay and payment-in-kind, or PIK interest), with amortization of principal due at maturity.

Subordinated notes generally allow

the borrower to make a large lump sum payment of principal at the end of the loan term, and there is a risk of loss if the borrower is

unable to pay the lump sum or refinance the amount owed at maturity.

Subordinated notes are generally more volatile than secured loans

and may involve a greater risk of loss of principal.

Subordinated notes often include a PIK feature, which effectively operates as negative

amortization of loan principal.

expect to hold most of our investments to maturity or repayment, but we may realize or sell some of our investments earlier if a liquidity

event occurs, such as a sale or recapitalization transaction, or the worsening of the credit quality of the portfolio company.

Company has invested in its affiliate, FlexFIN, LLC (“FlexFIN”), which operates an asset-based lending business under which

it enters into secured loans and secured financing structures with borrowers engaged in the gemstone/jewelry industry.

FlexFIN will generally

structure these loans as sale/repurchase transactions under which the collateral (that is, the gemstones/jewelry) remains under FlexFIN’s

ownership during the entire term of the loan.

a BDC, we offer, and must provide upon request, managerial assistance to certain of our portfolio companies.

This assistance could involve,

among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting

with and advising officers of portfolio companies and providing other organizational and financial guidance.

We may receive fees for

these services.

a BDC, we are generally only allowed to employ leverage to the extent that our asset coverage, as defined in the 1940 Act, equals at

least 200% after giving effect to such leverage.

The amount of leverage that we employ at any time depends on our assessment of the market

and other factors at the time of any proposed borrowing.

in support of the repayment of such loans.

This collateral generally takes the form of priority liens on the assets of a portfolio company.

These loans typically have interest-only payments (often representing a combination of cash pay and payment-in-kind, or (“PIK”)

interest), with amortization of principal due at maturity.

PIK interest represents contractually deferred interest added to the loan

balance that is generally due at the end of the loan term and recorded as interest income on an accrual basis to the extent such amounts

are expected to be collected.

Warrants and Minority Equity Securities In

some cases, we may also receive nominally priced warrants or options to buy a minority equity interest in the portfolio company in connection

with a debt investment.

As a result, as a portfolio company appreciates in value, we may achieve additional investment return from this

equity interest.

We may structure such warrants to include provisions protecting our rights as a minority-interest holder, as well as

a “put,”

or right to sell such securities back to the issuer, upon the occurrence of specified events.

In many cases, we

may also seek to obtain registration rights in connection with these equity interests, which may include demand and “piggyback”

registration rights.

Unitranche Loans We structure our unitranche

loans, which combine the characteristics of traditional senior secured first lien term loans and subordinated notes as senior secured

We obtain security interests in the assets of these portfolio companies that serve as collateral in support of the repayment of

This collateral generally takes the form of first-priority liens on the assets of a portfolio company.

Unitranche loans

typically provide for amortization of principal in the initial years of the loans, with the majority of the amortization due at maturity.

Unsecured Debt We structure these investments

as unsecured, subordinated loans that provide for relatively high, fixed interest rates that provide us with significant current interest

These loans typically have interest-only payments (often representing a combination of cash pay and payment-in-kind, or PIK interest),

with amortization of principal due at maturity.

Subordinated notes generally allow the borrower to make a large lump sum payment of principal

at the end of the loan term, and there is a risk of loss if the borrower is unable to pay the lump sum or refinance the amount owed at

Subordinated notes are generally more volatile than secured loans and may involve a greater risk of loss of principal.

notes often include a PIK feature, which effectively operates as negative amortization of loan principal.

We expect to hold most of our investments to

maturity or repayment, but we may realize or sell some of our investments earlier if a liquidity event occurs, such as a sale or recapitalization

transaction, or the worsening of the credit quality of the portfolio company.

The Company has invested in its affiliate, FlexFIN,

LLC (“FlexFIN”), which operates an asset-based lending business under which it enters into secured loans and secured financing

structures with borrowers engaged in the gemstone/jewelry industry.

FlexFIN will generally structure these loans as sale/repurchase transactions

under which the collateral (that is, the gemstones/jewelry) remains under FlexFIN’s ownership during the entire term of the loan.

Managerial Assistance

As a BDC, we offer, and must provide upon request,

managerial assistance to certain of our portfolio companies.

This assistance could involve, among other things, monitoring the operations

of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies

and providing other organizational and financial guidance.

We may receive fees for these services.

As a BDC, we are generally only allowed to employ

leverage to the extent that our asset coverage, as defined in the 1940 Act, equals at least 200% after giving effect to such leverage.

The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed

We are also subject to certain regulatory requirements relating to our borrowings.

For a discussion of such requirements, see “Regulation - Senior Securities.”

may, from time to time, seek to retire or repurchase our common stock through cash purchases, as well as retire, cancel or purchase our

outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise.

repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual and regulatory

restrictions and other factors.

The amounts involved may be material.

primary competitors to provide financing to private companies are public and private funds, commercial and investment banks, commercial

finance companies, other BDCs, SBICs and private equity and hedge funds.

Some competitors may have access to funding sources that are

not available to us.

In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could

allow them to consider a wider variety of investments and establish more relationships than us.

Furthermore, many of our competitors

are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or to the distribution and other requirements

we must satisfy to maintain our favorable RIC tax treatment.

Capital Resources

of September 30, 2021, the internalized management team consists of 4 investment professionals and 7 employees/consultants

This team includes our executive officers, investment and finance professionals, and administrative staff.

Our senior management

team consists of David Lorber, our chief executive officer, and Ellida McMillan, our chief financial officer.

response to the COVID-19 pandemic, we have instituted a temporary work-from-home policy, pursuant to which our professional team has

and continues to primarily work remotely without disruption to our operations.

This policy will remain in effect until it is deemed safe

to return to our office.

an internally managed BDC, the success of our business and investment strategy, including achieving our investment objective, depends

in material part on our professional team.

We depend upon the members of our management team and our investment professionals for the

identification, final selection, structuring, closing and monitoring of our investments.

Our professional team has critical experience

and relationships on which we rely to implement our business plan.

We expect that the members of our management team and our investment

professionals will maintain key informal relationships, which we will use to help identify and gain access to investment opportunities.

If we do not attract, develop and retain highly talented professionals, we may not be able to operate our business as we expect and our

operating results could be adversely affected.

See “Item 1A, Risk Factors.”

For a discussion of such requirements,

see “Regulation - Senior Securities.”

We may, from time to time, seek to retire or

repurchase our common stock through cash purchases, as well as retire, cancel or purchase our outstanding debt through cash purchases

and/or exchanges, in open market purchases, privately negotiated transactions or otherwise.

Such repurchases or exchanges, if any, will

depend on prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors.

involved may be material.

Our primary competitors to provide financing

to private companies are public and private funds, commercial and investment banks, commercial finance companies, other BDCs, SBICs and

private equity and hedge funds.

Some competitors may have access to funding sources that are not available to us.

In addition, some of

our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of

investments and establish more relationships than us.

Furthermore, many of our competitors are not subject to the regulatory restrictions

that the 1940 Act imposes on us as a BDC or to the distribution and other requirements we must satisfy to maintain our favorable RIC

tax treatment.

Human Capital Resources

As of September 30, 2022, the internalized management

team consists of 3 investment professionals and 6 employees/consultants overall.

This team includes our executive officers, investment

and finance professionals, and administrative staff.

Our senior management team consists of David Lorber, our chief executive officer,

and Ellida McMillan, our chief financial officer.

In response to the COVID-19 pandemic, we have

instituted a temporary hybrid work-from-home policy, pursuant to which our professional team has and continues to primarily work remotely

without disruption to our operations.

As an internally managed BDC, the success of

our business and investment strategy, including achieving our investment objective, depends in material part on our professional team.

We depend upon the members of our management team and our investment professionals for the identification, final selection, structuring,

closing and monitoring of our investments.

Our professional team has critical experience and relationships on which we rely to implement

our business plan.

We expect that the members of our management team and our investment professionals will maintain key informal relationships,

which we will use to help identify and gain access to investment opportunities.

If we do not attract, develop and retain highly talented

professionals, we may not be able to operate our business as we expect and our operating results could be adversely affected.

See “Item

1A, Risk Factors.”

Administration

previously entered into (on January 11, 2011) and, prior to January 1, 2021, operated pursuant to an investment management agreement

with MCC Advisors (the “Investment Management Agreement”) in accordance with the 1940 Act.

The Investment Management Agreement

became effective upon the pricing of our initial public offering.

Under the Investment Management Agreement, MCC Advisors agreed to provide

us with investment advisory and management services.

For these services, we agreed to pay a base management fee equal to a percentage

of our gross assets and an incentive fee based on our performance.

The Investment Management Agreement expired December 31, 2020 and

effective January 1, 2021, we operate pursuant to an internalized management structure.

also entered into an administration agreement with MCC Advisors as our administrator on January 19, 2011.

The administration agreement

became effective upon the pricing of our initial public offering.

Under the administration agreement, MCC Advisors agreed to furnish

us with office facilities and equipment, provide us clerical, bookkeeping and record keeping services at such facilities and provide

us with other administrative services necessary to conduct our day-to-day operations.

MCC Advisors also provided on our behalf significant

managerial assistance to those portfolio companies to which we are required to provide such assistance.

The administration agreement

expired at the close of business on December 31, 2020, in connection with the Company’s adoption of an internalized management

In connection with the adoption by the board of directors of an internalized management structure, on November 19, 2020, the

Company entered into a Fund Accounting Servicing Agreement and an Administration Servicing Agreement on customary terms with U.S.

Fund Services, LLC d/b/a U.S.

Bank Global Fund Services (“U.S.

We previously entered into (on January 11, 2011)

and, prior to January 1, 2021, operated pursuant to an investment management agreement with MCC Advisors (the “Investment Management

Agreement”) in accordance with the 1940 Act.

The Investment Management Agreement became effective upon the pricing of our initial

public offering.

Under the Investment Management Agreement, MCC Advisors agreed to provide us with investment advisory and management

For these services, we agreed to pay a base management fee equal to a percentage of our gross assets and an incentive fee based

on our performance.

The Investment Management Agreement expired December 31, 2020 and effective January 1, 2021, we operate pursuant

to an internalized management structure.

We also entered into an administration agreement

with MCC Advisors as our administrator on January 19, 2011.

The administration agreement became effective upon the pricing of our initial

public offering.

Under the administration agreement, MCC Advisors agreed to furnish us with office facilities and equipment, provide

us clerical, bookkeeping and record keeping services at such facilities and provide us with other administrative services necessary to

conduct our day-to-day operations.

MCC Advisors also provided on our behalf significant managerial assistance to those portfolio companies

to which we are required to provide such assistance.

The administration agreement expired at the close of business on December 31, 2020,

in connection with the Company’s adoption of an internalized management structure.

In connection with the adoption by the board

of directors of an internalized management structure, on November 19, 2020, the Company entered into a Fund Accounting Servicing Agreement

and an Administration Servicing Agreement on customary terms with U.S.

Bancorp Fund Services, LLC d/b/a U.S.

Bank Global Fund Services

Bancorp”).

Effective January 1, 2021, U.S.

Bancorp acts as

our administrator.

Under the Fund Accounting Servicing Agreement and Administration Servicing Agreement, U.S.

Bancorp serves as custodian

and provides us with fund accounting and financial reporting services.

of Agreements

entered into an investment management agreement with MCC Advisors on January 11, 2011 (the “Investment Management Agreement”),

which expired December 31, 2020.

terms of the Investment Management Agreement, MCC Advisors:

the composition of our portfolio, the nature and timing of the changes to our portfolio and

the manner of implementing such changes;

● identified,

evaluated and negotiated the structure of the investments we made (including performing due

diligence on our prospective portfolio companies);

closed, monitored and administered the investments we made, including the exercise of any

voting or consent rights.

Advisors’

services under the Investment Management Agreement were not exclusive, and it was free to furnish similar services to

other entities so long as its services to us were not impaired.

to the Investment Management Agreement, we paid MCC Advisors a fee for investment advisory and management services consisting of a base

management fee and a two-part incentive fee.

December 3, 2015, MCC Advisors recommended and, in consultation with the Board, agreed to reduce fees under the Investment Management

Beginning January 1, 2016, the base management fee was reduced to 1.50% on gross assets above $1 billion.

In addition, MCC

Advisors reduced its incentive fee from 20% on pre-incentive fee net investment income over an 8% hurdle, to 17.5% on pre-incentive fee

net investment income over a 6% hurdle.

Moreover, the revised incentive fee includes a netting mechanism and is subject to a rolling

three-year look back from January 1, 2016 forward.

Under no circumstances would the new fee structure result in higher fees to MCC Advisors

than fees under the prior investment management agreement.

following discussion of our base management fee and two-part incentive fee reflect the terms of the fee waiver agreement executed by

MCC Advisors on February 8, 2016 (the “Fee Waiver Agreement”).

The terms of the Fee Waiver Agreement were effective as of

January 1, 2016, and were a permanent reduction in the base management fee and incentive fee on net investment income payable to MCC

Advisors for the investment advisory and management services it provided under the Investment Management Agreement.

The Fee Waiver Agreement

did not change the second component of the incentive fee, which was the incentive fee on capital gains.

January 15, 2020, the Company’s board of directors, including all of the independent directors, approved the renewal of the Investment

Management Agreement through the later of April 1, 2020 or so long as the Amended and Restated Agreement and Plan of Merger, dated as

of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between the Company and Sierra (the “Amended MCC Merger

Agreement”) was in effect, but no longer than a year;

provided that, if the Amended MCC Merger Agreement is terminated by Sierra,

then the termination of the Investment Management Agreement would be effective on the 30th day following receipt of Sierra’s notice

of termination to the Company.

On May 1, 2020, the Company received a notice of termination of the Amended MCC Merger Agreement from

Under the Amended MCC Merger Agreement, either party was permitted, subject to certain conditions, to terminate the Amended MCC

Merger Agreement if the merger was not consummated by March 31, 2020.

Bancorp affiliate also served as the Company’s custodian.

The Company’s administrative

and custodial relationship with U.S.

Bancorp terminated on August 9, 2022.

SS&C Technologies, Inc.

(“SS&C”) has since

served as administrator of the Company and has provided us with fund accounting and financial reporting services pursuant to its Services

Agreement with the Company.

Effective September 12, 2022, Computershare Trust Company, N.A.

(“Computershare”) serves as custodian for

the Company pursuant to its Loan Administration and Custodial Agreement with the Company.

Termination of Management Agreement and Merger Agreement

We entered into an investment management agreement

with MCC Advisors on January 11, 2011 (the “Investment Management Agreement”), which expired December 31, 2020.

Under the terms of the Investment Management Agreement, MCC Advisors:

● determined the composition

of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;

● identified, evaluated and negotiated

the structure of the investments we made (including performing due diligence on our prospective portfolio companies);

● executed, closed, monitored

and administered the investments we made, including the exercise of any voting or consent rights.

MCC Advisors’

services under the Investment

Management Agreement were not exclusive, and it was free to furnish similar services to other entities so long as its services to us

were not impaired.

Pursuant to the Investment Management Agreement,

we paid MCC Advisors a fee for investment advisory and management services consisting of a base management fee and a two-part incentive

On December 3, 2015, MCC Advisors recommended

and, in consultation with the Board, agreed to reduce fees under the Investment Management Agreement.

Beginning January 1, 2016, the

base management fee was reduced to 1.50% on gross assets above $1 billion.

In addition, MCC Advisors reduced its incentive fee from 20%

on pre-incentive fee net investment income over an 8% hurdle, to 17.5% on pre-incentive fee net investment income over a 6% hurdle.

the revised incentive fee includes a netting mechanism and is subject to a rolling three-year look back from January 1, 2016 forward.

Under no circumstances would the new fee structure result in higher fees to MCC Advisors than fees under the prior investment management

The following discussion of our base management

fee and two-part incentive fee reflect the terms of the fee waiver agreement executed by MCC Advisors on February 8, 2016 (the “Fee

Waiver Agreement”).

The terms of the Fee Waiver Agreement were effective as of January 1, 2016, and were a permanent reduction

in the base management fee and incentive fee on net investment income payable to MCC Advisors for the investment advisory and management

services it provided under the Investment Management Agreement.

The Fee Waiver Agreement did not change the second component of the incentive

fee, which was the incentive fee on capital gains.

On January 15, 2020, the Company’s board

of directors, including all of the independent directors, approved the renewal of the Investment Management Agreement through the later

of April 1, 2020 or so long as the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MCC

Merger Agreement”), by and between the Company and Sierra (the “Amended MCC Merger Agreement”) was in effect, but no

longer than a year;

provided that, if the Amended MCC Merger Agreement is terminated by Sierra, then the termination of the Investment

Management Agreement would be effective on the 30th day following receipt of Sierra’s notice of termination to the Company.

May 1, 2020, the Company received a notice of termination of the Amended MCC Merger Agreement from Sierra.

Under the Amended MCC Merger

Agreement, either party was permitted, subject to certain conditions, to terminate the Amended MCC Merger Agreement if the merger was

not consummated by March 31, 2020.

Sierra elected to do so on May 1, 2020.

As result of the termination

by Sierra of the Amended MCC Merger Agreement on May 1, 2020, the Investment Management Agreement would have been terminated effective

as of May 31, 2020.

On May 21, 2020, the Board, including all of the independent directors, extended the term of the Investment Management

Agreement through the end of the then-current quarter, June 30, 2020.

On June 12, 2020, the Board, including all of the independent directors,

extended the term of the Investment Management Agreement through September 30, 2020.

On September 29, the Board, including all of the

independent directors, extended the term of the Investment Management Agreement through December 31, 2020.

Brook Taube, Chairman

and Chief Executive Officer through December 31, 2020 and director through January 21, 2021 and Mr.

Seth Taube, director through January

21, 2021 are affiliated with MCC Advisors and Medley.

November 18, 2020, the Board approved the adoption of an internalized management structure effective January 1, 2021.

The new management

structure replaces the current Investment Management and Administration Agreements with MCC Advisors LLC, which expired on December 31,

To lead the internalized management team, the Board approved the appointment of David Lorber, who has served as an independent

director of the Company since April 2019, as interim Chief Executive Officer, and Ellida McMillan as Chief Financial Officer of the Company,

each effective January 1, 2021.

In connection with his appointment, Mr.

Lorber stepped down from the Compensation Committee of the Board,

the Nominating and Corporate Governance Committee of the Board, and the Special Committee of the Board.

maintain a website at http://www.phenixfc.com .

We make available, free of charge, on our website, our annual report on

Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable

after we electronically file such material with, or furnish it to, the U.S.

As result of the termination by Sierra of the Amended MCC

Merger Agreement on May 1, 2020, the Investment Management Agreement would have been terminated effective as of May 31, 2020.

21, 2020, the Board, including all of the independent directors, extended the term of the Investment Management Agreement through the

end of the then-current quarter, June 30, 2020.

On June 12, 2020, the Board, including all of the independent directors, extended the

term of the Investment Management Agreement through September 30, 2020.

On September 29, the Board, including all of the independent

directors, extended the term of the Investment Management Agreement through December 31, 2020.

Brook Taube, Chairman and Chief Executive

Officer through December 31, 2020 and director through January 21, 2021 and Mr.

Seth Taube, director through January 21, 2021 are affiliated

with MCC Advisors and Medley.

On November 18, 2020, the Board approved the

adoption of an internalized management structure effective January 1, 2021.

The new management structure replaces the current Investment

Management and Administration Agreements with MCC Advisors LLC, which expired on December 31, 2020.

To lead the internalized management

team, the Board approved the appointment of David Lorber, who has served as an independent director of the Company since April 2019,

as Chief Executive Officer, and Ellida McMillan as Chief Financial Officer of the Company, each effective January 1, 2021.

In connection

with his appointment, Mr.

Lorber stepped down from the Compensation Committee of the Board, the Nominating and Corporate Governance Committee

of the Board, and the Special Committee of the Board.

Information Available

We maintain a website at http://www.phenixfc.com .

We make available, free of charge, on our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on

Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish

it to, the U.S.

Securities and Exchange Commission, or the SEC.

contained on our website is not incorporated by reference into this annual report on Form 10-K and you should not consider information

contained on our website to be part of this annual report on Form 10-K or any other report we file with the SEC.

of Risk Factors

in our securities involves a high degree of risk.

Information contained on our website is not incorporated by reference

into this annual report on Form 10-K and you should not consider information contained on our website to be part of this annual report

on Form 10-K or any other report we file with the SEC.

Summary of Risk Factors

Investing in our securities involves a high degree

You should carefully consider the information in “Item 1A.

Risk Factors”,

including, but not limited to, the following risks:

Related to our Business

have determined to internalize our operating structure, including our management and investment

functions, with the expectation that we will be able to operate more efficiently with lower

costs, but this may not be the case.

an internally managed BDC, we are dependent upon our management team and other professionals

and if we are not able to hire and retain qualified personnel, we will not realize the anticipated

benefits of the internalization.

may suffer credit and capital losses.

we use borrowed funds to make investments or fund our business operations, we are exposed

to risks typically associated with leverage which increase the risk of investing in us.

lack of liquidity in our investments may adversely affect our business.

substantial portion of our portfolio investments will be recorded at fair value as determined

in good faith by or under the direction of our board of directors and, as a result, there

may be uncertainty regarding the value of our portfolio investments.

are a non-diversified investment company within the meaning of the 1940 Act, and therefore

we are not limited with respect to the proportion of our assets that may be invested in securities

of a single issuer.

ability to enter into transactions with our affiliates will be restricted, which may limit

the scope of investments available to us.

will be exposed to risks associated with changes in interest rates.

relating to the London Interbank Offering Rate (“LIBOR”) calculation process may adversely affect the value of the LIBOR-indexed,

floating-rate debt securities in our portfolio.

we use debt to finance our investments, changes in interest rates will affect our cost of

capital and net investment income.

our investments are not managed effectively, we may be unable to achieve our investment objective.

may experience fluctuations in our periodic operating results.

failure on our part to maintain our status as a BDC would reduce our operating flexibility.

may have difficulty paying our required distributions if we recognize income before or without

receiving cash representing such income.

may not be able to pay you distributions and our distributions may not grow over time.

highly competitive market in which we operate may limit our investment opportunities.

we expect to distribute substantially all of our net investment income and net realized capital

gains to our stockholders, we will need additional capital to finance our growth and such

capital may not be available on favorable terms or at all.

board of directors may change our investment objective, operating policies and strategies

without prior notice or stockholder approval.

are significant potential conflicts of interest that could affect our investment returns.

management team may, from time to time, possess material non-public information, limiting

our investment discretion.

we borrow money, the potential for loss on amounts invested in us will be magnified and may

increase the risk of investing in us.

are highly dependent on information systems and systems failures could significantly disrupt

our business, which may, in turn, negatively affect the market price of our common stock

and our ability to pay distributions.

failure of cybersecurity systems, as well as the occurrence of events unanticipated in our

disaster recovery systems and management continuity planning could impair our ability to

conduct business effectively.

business and operations could be negatively affected if we become subject to any securities

class actions and derivative lawsuits, which could cause us to incur significant expense,

hinder execution of investment strategy and impact our stock price.

Related to our Investments

may not realize gains from our equity investments.

investments are very risky and highly speculative.

investments in private portfolio companies may be risky, and you could lose all or part of

your investment.

portfolio companies may prepay loans, which prepayment may reduce stated yields if capital

returned cannot be invested in transactions with equal or greater expected yields.

may acquire indirect interests in loans rather than direct interests, which would subject

us to additional risk.

failure to make follow-on investments in our portfolio companies could impair the value of

our portfolio and our ability to make follow-on investments in certain portfolio companies

may be restricted.

ability to invest in public companies may be limited in certain circumstances.

investments in foreign securities may involve significant risks in addition to the risks

inherent in U.S.

affiliate’s asset-based lending activities are influenced by volatility in prices of

gemstones/jewelry.

transactions may expose us to additional risks.

may invest in “unitranche”

debt instruments that combine both senior and subordinated

debt into one debt instrument.

Unitranche debt instruments typically pay a higher

rate of interest than traditional senior debt instruments, but may also pose greater risk

associated with a lesser amount of asset coverage.

may invest in, or obtain exposure to, obligations that may be “covenant-lite,”

Risk Factors”, including, but not limited to, the following

Risks Related to our Business

● We have determined to internalize

our operating structure, including our management and investment functions, with the expectation that we will be able to operate more

efficiently with lower costs, but this may not be the case.

● As an internally managed BDC,

we are dependent upon our management team and other professionals and if we are not able to hire and retain qualified personnel, we will

not realize the anticipated benefits of the internalization.

● We may suffer credit and capital

● Because we use borrowed funds

to make investments or fund our business operations, we are exposed to risks typically associated with leverage which increase the risk

of investing in us.

● The lack of liquidity in our

investments may adversely affect our business.

● A substantial portion of our

portfolio investments will be recorded at fair value as determined in good faith by our valuation designee under the oversight of our

board of directors and, as a result, there may be uncertainty regarding the value of our portfolio investments.

● We are a non-diversified investment

company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be

invested in securities of a single issuer.

● Our ability to enter into transactions

with our affiliates will be restricted, which may limit the scope of investments available to us.

● We will be exposed to risks

associated with changes in interest rates.

● Changes relating to the London

Interbank Offering Rate (“LIBOR”) calculation process may adversely affect the value of the LIBOR-indexed, floating-rate

debt securities in our portfolio.

● Because we use debt to finance

our investments, changes in interest rates will affect our cost of capital and net investment income.

● If our investments are not

managed effectively, we may be unable to achieve our investment objective.

● We may experience fluctuations

in our periodic operating results.

● Any failure on our part to

maintain our status as a BDC would reduce our operating flexibility.

● We may have difficulty paying

our required distributions if we recognize income before or without receiving cash representing such income.

● We may not be able to pay you

distributions and our distributions may not grow over time.

The highly competitive market in which we operate may limit our investment

opportunities.

● Because we expect to distribute

substantially all of our net investment income and net realized capital gains to our stockholders, we will need additional capital to

finance our growth and such capital may not be available on favorable terms or at all.

Our board of directors may change our investment objective, operating

policies and strategies without prior notice or stockholder approval.

There are significant potential conflicts of interest that could affect

our investment returns.

Our management team may, from time to time, possess material non-public

information, limiting our investment discretion.

Because we borrow money, the potential for loss on amounts invested

in us will be magnified and may increase the risk of investing in us.

We are highly dependent on information systems and systems failures

could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability

to pay distributions.

A failure of cybersecurity systems, as well as the occurrence of events

unanticipated in our disaster recovery systems and management continuity planning could impair our ability to conduct business effectively.

Our business and operations could be negatively affected if we become

subject to any securities class actions and derivative lawsuits, which could cause us to incur significant expense, hinder execution

of investment strategy and impact our stock price.

Risks Related to our Investments

We may not realize gains from our equity investments.

Our investments are very risky and highly speculative.

Our investments in private portfolio companies may be risky, and you

could lose all or part of your investment.

Our portfolio companies may prepay loans, which prepayment may reduce

stated yields if capital returned cannot be invested in transactions with equal or greater expected yields.

We may acquire indirect interests in loans rather than direct interests,

which would subject us to additional risk.

Our failure to make follow-on investments in our portfolio companies

could impair the value of our portfolio and our ability to make follow-on investments in certain portfolio companies may be restricted.

Our ability to invest in public companies may be limited in certain

circumstances.

Our investments in foreign securities may involve significant risks

in addition to the risks inherent in U.S.

21.5% of the Company’s total assets (as of September 30, 2022)

are invested in our affiliate’s asset-based lending business and its activities are influenced by volatility in prices of gemstones/jewelry.

Hedging transactions may expose us to additional risks.

We may invest in “unitranche”

debt instruments that combine

both senior and subordinated debt into one debt instrument.

Unitranche debt instruments typically pay a higher rate of

interest than traditional senior debt instruments, but may also pose greater risk associated with a lesser amount of asset coverage.

We may invest in, or obtain exposure to, obligations that may be “covenant-lite,”

which means such obligations lack certain financial maintenance covenants.

disposition of our investments may result in contingent liabilities.

we invest in the securities and obligations of distressed and bankrupt issuers, we might

not receive interest or other payments.

Related to our Operations as a BDC and a RIC

● Regulations

governing our operation as a BDC may limit our ability to, and the way in which we raise

additional capital, which could have a material adverse impact on our liquidity, financial

condition and results of operations.

in the laws or regulations governing our business, or changes in the interpretations thereof,

and any failure by us to comply with these laws or regulations, could have a material adverse

effect on our business, results of operations or financial condition.

cannot predict how tax reform legislation will affect the Company, our investments, or our

stockholders, and any such legislation could adversely affect our business.

we do not invest a sufficient portion of our assets in qualifying assets, we could fail to

qualify as a BDC, which would have a material adverse effect on our business, financial condition

The disposition of our investments may result in contingent liabilities.

If we invest in the securities and obligations of distressed and bankrupt

issuers, we might not receive interest or other payments.

We may be subject to risks associated with significant investments

in one or more economic sectors and/or industries, including the business

services sector, which includes our investment in our affiliate’s asset-based lending business.

Risks Related to our Operations as a BDC and a RIC

Regulations governing our operation as a BDC may limit our ability

to, and the way in which we raise additional capital, which could have a material adverse impact on our liquidity, financial condition

and results of operations.

will become subject to corporate-level U.S.

federal income tax if we are unable to maintain

our qualification as a regulated investment company under Subchapter M of the Code or satisfy

regulated investment company distribution requirements.

Relating to an Investment in our Securities

in our securities may involve an above average degree of risk.

of closed-end investment companies, including business development companies, may, as is

currently the case with the Company, at times, trade at a discount to their net asset value (“NAV”).

market price of our common stock may fluctuate significantly.

of substantial amounts of our common stock in the public market may have an adverse effect

on the market price of our common stock.

provisions of the Delaware General Corporation Law and our certificate of incorporation and

bylaws could deter takeover attempts and have an adverse impact on the price of our common

NAV per share of our common stock may be diluted if we sell shares of our common stock in

one or more offerings at prices below the then current NAV per share of our common stock

or securities to subscribe for or convertible into shares of our common stock.

6.125% Notes due 2023 (the “Notes”) are unsecured and therefore are effectively subordinated to any secured indebtedness

we have currently incurred or may incur in the future.

Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

indenture under which the Notes were issued contains limited protection for holders of the

active trading market for the Notes may not develop or be sustained, which could limit the

market price of the Notes or your ability to sell them.

we default on our obligations to pay our other indebtedness, we may not be able to make payments

on the Notes.

we issue preferred stock, the NAV and market value of our common stock may become more volatile.

of any preferred stock we might issue would have the right to elect members of the board

of directors and class voting rights on certain matters.

are currently operating in a period of capital markets disruptions and economic uncertainty.

Such market conditions may materially and adversely affect debt and equity capital markets,

which may have a negative impact on our business, financial condition and operations .

outside of our control, including public health crises, could negatively affect our portfolio

companies and our results of our operations.

social and economic uncertainty, including uncertainty related to the COVID-19 pandemic,

creates and exacerbates risks.

downgrades of the U.S.

credit rating, automatic spending cuts, or another government shutdown

could negatively impact our liquidity, financial condition and earnings.

recessions or downturns could impair our portfolio companies and harm our operating results.

have built a diverse portfolio that includes senior secured first lien term loans, senior secured second lien term loans, unitranche

loans, senior secured first lien notes, subordinated notes, warrants and minority equity securities by investing approximately $10 million

to $50 million of capital, on average, in the securities of companies.

following table shows the portfolio composition by industry grouping at fair value as of September 30, 2021 (dollars in thousands):

Changes in the laws or regulations governing our business, or changes

in the interpretations thereof, and any failure by us to comply with these laws or regulations, could have a material adverse effect

on our business, results of operations or financial condition.

We cannot predict how tax reform legislation will affect the Company,

our investments, or our stockholders, and any such legislation could adversely affect our business.

If we do not invest a sufficient portion of our assets in qualifying

assets, we could fail to qualify as a BDC, which would have a material adverse effect on our business, financial condition and results

of operations.

We will become subject to corporate-level U.S.

federal income tax if

we are unable to maintain our qualification as a RIC under Subchapter M of the Code or satisfy RIC distribution requirements.

Risks Relating to an Investment in our Securities

Investing in our securities may involve an above average degree of

Shares of closed-end investment companies, including business development

companies, may, as is currently the case with the Company, at times, trade at a discount to their net asset value (“NAV”).

The market price of our common stock may fluctuate significantly.

Sales of substantial amounts of our common stock in the public market

may have an adverse effect on the market price of our common stock.

Certain provisions of the Delaware General Corporation Law and our

certificate of incorporation and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.

The NAV per share of our common stock may be diluted if we sell shares

of our common stock in one or more offerings at prices below the then current NAV per share of our common stock or securities to

subscribe for or convertible into shares of our common stock.

Our 6.125% Notes due 2023 (the “Notes”) are unsecured and

therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future.

The Notes are structurally subordinated to the indebtedness and other

liabilities of our subsidiaries.

The indenture under which the Notes were issued contains limited protection

for holders of the Notes.

The indentures under which the 2023 Notes and 2028 Notes are issued place restrictions on our and/or

our subsidiaries’

An active trading market for the Notes may not develop or be sustained,

which could limit the market price of the Notes or your ability to sell them.

If we default on our obligations to pay our other indebtedness, we

may not be able to make payments on the Notes.

If we issue preferred stock, the NAV and market value of our common

stock may become more volatile.

Holders of any preferred stock we might issue would have the right

to elect members of the board of directors and class voting rights on certain matters.

General Risk Factors

We are currently operating in a period of capital markets disruptions

and economic uncertainty.

Such market conditions may materially and adversely affect debt and equity capital markets, which may have

a negative impact on our business, financial condition and operations .

Events outside of our control, including public health crises, could

negatively affect our portfolio companies and our results of our operations.

Political, social and economic uncertainty, including uncertainty related

to the COVID-19 pandemic, creates and exacerbates risks.

Further downgrades of the U.S.

credit rating, automatic spending cuts,

or another government shutdown could negatively impact our liquidity, financial condition and earnings.

Economic recessions or downturns could impair our portfolio companies

and harm our operating results.

We have built a diverse portfolio that includes

senior secured first lien term loans, senior secured second lien term loans, equity, unitranche loans, senior secured first lien notes,

subordinated notes, warrants and minority equity securities by investing approximately $10 million to $50 million of capital, on average,

in the securities of companies.

The following table shows the portfolio composition

by industry grouping at fair value as of September 30, 2022 (dollars in thousands):

Hotel, Gaming & Leisure

Banking, Finance, Insurance & Real Estate

Construction & Building

Consumer Discretionary

High Tech Industries

Broadcasting & Subscription

Metals & Mining

Aerospace & Defense

The following table shows the portfolio composition

by industry grouping at fair value as of September 30, 2021 (dollars in thousands):

Construction & Building

Banking, Finance, Insurance & Real Estate

8 unchanged sentences

Healthcare & Pharmaceuticals

following table shows the portfolio composition by industry grouping at fair value as of September 30, 2020 (dollars in thousands):

Multisector Holdings

High Tech Industries

Healthcare & Pharmaceuticals

Hotel, Gaming & Leisure

Containers, Packaging &

Consumer goods:

Banking, Finance, Insurance

& Real Estate

Consumer goods:

Environmental Industries

Metals & Mining

Forest Products & Paper

Aerospace & Defense

Broadcasting &

following table sets forth certain information as of September 30, 2021 for each portfolio company in which we had an investment.

than these investments, our only formal relationship with our portfolio companies is the managerial assistance that we provide upon request

and the board observer or participation rights we may receive in connection with our investment.

Name of Portfolio Company

The following table sets forth certain information

as of September 30, 2022 for each portfolio company in which we had an investment.

Other than these investments, our only formal relationship

with our portfolio companies is the managerial assistance that we provide upon request and the board observer or participation rights

we may receive in connection with our investment.

of Portfolio Company

Industrial Services, LLC

Senior Secured First Lien Term Loan A

9/30/2021 (2)

Secured First Lien Term Loan A

Industrial Services, LLC

Senior Secured First Lien Term Loan B

9/30/2021 (2)

Secured First Lien Term Loan C

Industrial Services, LLC

Senior Secured First Lien Term Loan C

9/30/2021 (2)

Credit Facility

Industrial Services, LLC

Revolving Credit Facility

9/30/2021 (2)

Secured First Lien Term Loan B

Green Packaging, LLC

Packaging & Glass

Angus Steakhouses, LLC

Gaming & Leisure

Secured First Lien Term Loan

Angus Steakhouses, LLC

Gaming & Leisure

Secured First Lien Super Priority DDTL

Angus Steakhouses, LLC

Gaming & Leisure

Secured First Lien Delayed Draw Term Loan

Seotowncenter, Inc.

Investment Corp.

Finance, Insurance & Real Estate

Property CTL Pass Through Trust

Finance, Insurance & Real Estate

International, Inc.

Secured Second Lien Term Loan

Tech Industries

Secured First Lien Term Loan

Tech Industries

Credit Facility

Financing, LLC

Broadcasting & Subscription

Secured First Lien Term Loan

Finders Homes, LLC

Brands Group, LLC

Secured First Lien Term Loan

Acquisition, LLC

BSP Realty Trust, Inc.

Finance, Insurance & Real Estate

Accessories Group, LLC

Finance, Insurance & Real Estate

Secured Notes

Mortgage Capital, Inc.

Finance, Insurance & Real Estate

Partners, LLC

Secured First Lien Term Loan B

Operations, LLC

Secured First Lien Term Loan

Operations, LLC

Science Group Corporation

Packaging & Glass

Discretionary

Secured First Lien Term Loan

Wireless Holdings LLC

Gaming & Leisure

Secured First Lien Term Loan A

Wireless Holdings LLC

Gaming & Leisure

Secured First Lien Term Loan B

Wireless Holdings LLC

Gaming & Leisure

Promissory Note

Investment Holdings, LLC (dba Colibri)

Secured First Lien Term Loan

Financial, Inc.

Finance, Insurance & Real Estate

York Mortgage Trust, Inc.

Finance, Insurance & Real Estate

Gaming & Leisure

Secured First Lien Term Loan B

Gaming & Leisure

Secured First Lien Term Loan C

Gaming & Leisure

Secured First Lien Delayed Draw Term Loan

Gaming & Leisure

Financial Services, Inc.

Finance, Insurance & Real Estate

Secured First Lien Term Loan

Rithm Capital Corp.

Finance, Insurance & Real Estate

Acquisition Inc.

(dba Paragon Films)

Secured First Lien Term Loan

Acquisition Inc.

(dba Paragon Films)

Secured First Lien Delayed Draw Term Loan

Drilling Company, LLC

Financial Operations, LLC

Acquisition, LLC (dba Soccer Shots Franchising)

Secured First Lien Term Loan

(dba Industrial Flow Solutions Holdings, LLC)

Lien Term Loan

Holdings, Inc.

Secured First Lien Term Loan B

Multifamily, LLC

Finance, Insurance & Real Estate

Pooling Vehicle, LLC

Edison Furniture Company LLC

Watermill-QMC

Holdings, Inc.

All interest is payable in cash and/or PIK, and all LIBOR represents

1 Month LIBOR and 3 Month LIBOR unless otherwise indicated.

For each debt investment, we have provided the current interest rate

as of September 30, 2022.

As of September 30, 2022, our income-bearing

investment portfolio, which represented 62.0% of our total portfolio, had a weighted average yield based upon cost of our portfolio investments

of approximately 4.9%, and 81.9% of our income-bearing investment portfolio bore interest based on floating rates, such as LIBOR or the

Secured Overnight Financing Rate (“SOFR”), while 18.1% of our income-bearing investment portfolio bore interest at fixed

As of September 30, 2021, our income-bearing investment portfolio, which represented 86.6% of our total portfolio, had a weighted

average yield based upon cost of our portfolio investments of approximately 6.75%, and 74.6% of our income-bearing investment portfolio

bore interest based on floating rates, such as LIBOR, while 25.4% of our income-bearing investment portfolio bore interest at fixed rates.

The weighted average yield of our total portfolio does not represent the total return to our stockholders.

The weighted average yield

on income producing investments is computed based upon a combination of the cash flows to date and the contractual interest payments,

principal amortization and fee notes due at maturity without giving effect to closing fees received, base management fees, incentive

fees or general fund related expenses.

For each floating rate loan, the projected fixed-rate equivalent coupon rate used to forecast

the interest cash flows was calculated by adding the interest rate spread specified in the relevant loan document to the fixed-rate equivalent

floating rate, duration-matched to the specific loan, adjusted by the floating rate floor and/or cap in place on that loan.

Overview of Portfolio Companies

Set forth below is a brief description of the business of our portfolio

companies as of September 30, 2022:

Portfolio Company

Brief Description of Portfolio Company

1888 Industrial Services, LLC

Alpine SG, LLC

High Tech Industries

Senior Secured First Lien Term Loan

Alpine SG, LLC

High Tech Industries

Senior Secured Incremental First Lien Term Loan

Alpine SG, LLC

High Tech Industries

Senior Secured Incremental First Lien Term Loan

Alpine SG, LLC

High Tech Industries

Senior Secured Incremental First Lien Term Loan

Alpine SG, LLC

High Tech Industries

Senior Secured Incremental First Lien Term Loan

Alpine SG, LLC

High Tech Industries

Senior Secured First Lien Delayed Draw Term Loan

Alpine SG, LLC

High Tech Industries

Revolving Credit Facility

Autosplice, Inc.

Senior Secured First Lien Term Loan

1888 Industrial Services, LLC (“1888”) provides field support services to oil and gas independent producers, drilling companies and midstream companies in the Denver-Julesburg Basin and Permian Basin.

1888 builds, repairs, modifies and maintains oil and gas production equipment, sites, wells and pipelines.

Altisource S.A.R.L.

Altisource operates as an integrated service provider and marketplace for the real estate and mortgage industries.

It provides property preservation and inspection services, payment management technologies, and a vendor management oversight software-as-a-service (“SaaS”) platform.

Be Green Packaging, LLC

Containers, Packaging & Glass

Black Angus Steakhouses, LLC

Hotel, Gaming & Leisure

Senior Secured First Lien Term Loan

Black Angus Steakhouses, LLC

Hotel, Gaming & Leisure

Senior Secured First Lien Super Priority DDTL

Be Green Packaging, LLC, founded in 2007 and headquartered in Thousand Oaks, CA, designs and manufactures sustainable, tree-free, molded fiber products and packaging for the food service and consumer packaged goods end markets.

Black Angus Steakhouses, LLC

Hotel, Gaming & Leisure

Senior Secured First Lien Delayed Draw Term Loan

Caddo Investors Holdings 1 LLC

Forest Products & Paper

Black Angus Steakhouses, LLC, founded in 1964 and headquartered in Los Altos, CA, operates restaurants across six states including California, Arizona, Alaska, New Mexico, Washington, and Hawaii.

Boostability Seotowncenter, Inc.

Seotowncenter, Inc.

is a tech-enabled business services company that delivers white label search engine optimization and local search and digital campaign fulfillment to the small and midsize business market.

Chimera Investment Corp.

Banking, Finance, Insurance & Real Estate

Preferred Equity

Cleaver-Brooks, Inc.

Manufacturing

Senior Secured Notes

CM Finance SPV, LLC

Unsecured Debt

Chimera Investment Corp.

is an internally managed REIT that is primarily engaged in the business of investing in a diversified portfolio of mortgage assets, including residential mortgage loans, Agency residential mortgage-backed securities (“RMBS”), Non-Agency RMBS, Agency commercial mortgage-backed securities (“CMBS”), and other real estate-related assets.

Copper Property CTL Pass Through Trust

Copper Property CTL Pass Through Trust was established to acquire 160 retail properties and 6 warehouse distribution centers (the “Properties”) from J.C.

Penney as part of its Chapter 11 plan of reorganization.

The Trust’s operations consist solely of owning, leasing and selling the Properties.

CPI International, Inc.

Aerospace & Defense

Senior Secured Second Lien Term Loan

CPI International, Inc., headquartered in Palo Alto, CA.

develops and manufactures microwave, radio frequency, power, and control products for critical communications, defense and medical applications.

DataOnline Corp.

High Tech Industries

Senior Secured First Lien Term Loan

DataOnline Corp.

High Tech Industries

Revolving Credit Facility

Dividend and Income Fund

Banking, Finance, Insurance & Real Estate

Name of Portfolio Company

(“DataOnline”) is a global provider of M2M solutions specifically for the monitoring of both fixed and mobile remote industrial assets.

DataOnline specializes in robust and reliable devices & sensors, remote data collection, global wireless communications & web-based applications.

DirecTV Financing, LLC

DirecTV offers digital entertainment services in the United States using satellite and IP-based technologies as well as streaming options that do not require either satellite or wired IP services.

The Company’s customer base primarily consists of residential customers.

Dream Finders Homes, LLC

Construction & Building

Preferred Equity

Dynamic Energy Services International LLC

Senior Secured First Lien Term Loan

Dynamic Energy Services International LLC

Equity Interest

Footprint Acquisition, LLC

Preferred Equity

Dream Finders Homes, LLC (“DFH”), founded in 2009 and headquartered in Jacksonville, FL, is a residential home builder currently operating in the greater Jacksonville, Orlando, Colorado, Savannah, Austin, and Washington DC markets.

DFH builds both single-family homes and townhomes.

First Brands Group, LLC

First Brands Group, LLC is an automotive aftermarket platform offering comprehensive solutions for consumable maintenance and mission-critical repair parts under a portfolio of brands.

FlexFIN operates an asset-based lending business under which it enters into secured loans and secured financing structures with borrowers engaged in the gemstone/jewelry industry.

Footprint Holding Company Inc.

Footprint Acquisition, LLC is a provider of in store merchandising and logistics solutions to major retailers and consumer packaged goods manufacturers.

Franklin BSP Realty Trust, Inc.

is a real estate finance company that primarily originates, acquires and manages a diversified portfolio of commercial real estate debt investments secured by properties located within and outside the United States.

Global Accessories Group, LLC

Consumer goods:

Global Accessories Group, LLC, headquartered in New York City, designs, manufactures, and sells custom-themed jewelry and accessory collections.

These collections are tailored to leading retailers in the specialty, department store, off-price and juniors markets.

Great AJAX Corp.

Banking, Finance, Insurance & Real Estate

Impact Group, LLC

Senior Secured First Lien Term Loan

Impact Group, LLC

Senior Secured First Lien Delayed Draw Term Loan

InterFlex Acquisition Company, LLC

Containers, Packaging & Glass

Senior Secured First Lien Term Loan

Great Ajax Corp.

is a REIT that acquires, invests in, and manages a portfolio of residential mortgage and small balance commercial mortgage loans.

Innovate Corp.

Innovate is a diversified holding company that has a portfolio of subsidiaries in a variety of operating segments, infrastructure, life sciences, and broadcasting.

Invesco Mortgage Capital, Inc.

Banking, Finance, Insurance & Real Estate

Preferred Equity

JFL-NGS Partners, LLC

Construction & Building

JFL-WCS Partners, LLC

Environmental Industries

Kemmerer Operations, LLC

Metals & Mining

Senior Secured First Lien Term Loan

Kemmerer Operations, LLC

Metals & Mining

Senior Secured First Lien Delayed Draw Term Loan

Invesco Mortgage Capital Inc.

is a Maryland corporation primarily focused on investing in, financing and managing mortgage-backed securities (“MBS”) and other mortgage-related assets.

JFL-NGS-WCS Partners, LLC

JFL-NGS-WCS Partners, LLC was formed in November 2020 when NorthStar Group Services, a provider of environmental remediation and deconstruction services, merged with Waste Control Specialists, a leading provider of hazardous and radioactive waste disposal, storage, and treatment for commercial and government customers.

Kemmerer Operations, LLC

Metals & Mining

Kemmerer Operations, LLC, location in Wyoming, is a producer of high-value thermal coal and surface-mined coal.

Lighting Science Group Corporation

Containers, Packaging & Glass

Lighting Science Group Corporation (“LSG”) is a light emitting diode (“LED”) lighting technology company.

LSG designs, develops and markets general illumination products that exclusively use LEDs as their light source.

LSG’s product portfolio includes LED-based retrofit lamps (replacement bulbs) used in existing light fixtures as well as purpose-built LED-based luminaires (light fixtures).

Lucky Bucks, LLC

Lucky Bucks, LLC owns and operates digital gaming terminals, or Coin Operated Amusement Machines, in the state Georgia.

Maritime Wireless Holdings LLC

Wireless Maritime Services LLC is a leading provider of on-board cellular communications solutions for the ocean-going cruise industry and other maritime sectors.

McKissock Investment Holdings, LLC (dba Colibri)

Colibri is a provider of career lifecycle management

for mandatory professional education

solutions across various end markets including

Financial & Accounting Services, Real Estate, Healthcare, Valuation & Property Services and Teaching..

MFA Financial, Inc.

Banking, Finance, Insurance & Real Estate

Preferred Equity

New Residential Investment Corp.

Banking, Finance, Insurance & Real Estate

Preferred Equity

MFA Financial, Inc.

is an internally-managed REIT primarily engaged in investing in residential mortgage assets, with a focus on residential whole loans, residential mortgage securities, and mortgage servicing rights-related assets.

New York Mortgage Trust, Inc.

Banking, Finance, Insurance & Real Estate

Preferred Equity

Name of Portfolio Company

Hotel, Gaming & Leisure

Senior Secured First Lien Term Loan B

Hotel, Gaming & Leisure

Senior Secured First Lien Term Loan C

Hotel, Gaming & Leisure

Senior Secured First Lien Super Priority DDTL

Hotel, Gaming & Leisure

Senior Secured First Lien Delayed Draw Term Loan

Hotel, Gaming & Leisure

Path Medical, LLC

Healthcare & Pharmaceuticals

Senior Secured First Lien Term Loan A

Path Medical, LLC

Healthcare & Pharmaceuticals

Senior Secured First Lien Term Loan B

Path Medical, LLC

Healthcare & Pharmaceuticals

Senior Secured First Lien Term Loan

RateGain Technologies, Inc.

Hotel, Gaming & Leisure

Unsecured Debt

RateGain Technologies, Inc.

Hotel, Gaming & Leisure

Unsecured Debt

Redwood Services Group, LLC

Revolving Credit Facility

NY Mortgage Trust is a REIT that acquires, invests in, finances and manages mortgage-related single-family and multi-family residential assets in the US.

NVTN LLC (d/b/a “Dick’s Last Resort”), established in 1985 and headquartered in Nashville, TN, is a “eatertainment”

restaurant concept with locations throughout the US, mostly in budget friendly tourist destinations.

NVTN LLC has developed an identifiable brand for its high-energy, unique themed restaurant concept that targets tourists and business travelers in high foot traffic locations.

PennyMac Financial Services, Inc.

isa specialty financial services firm with a comprehensive mortgage platform and integrated business primarily focused on the production and servicing of U.S.

residential mortgage loans and the management of investments related to the U.S.

mortgage market.

Point.360, headquartered in Los Angeles, CA is a full-service content management company with several facilities strategically located throughout Los Angeles supporting all aspects of postproduction.

Power Stop LLC

Power Stop LLC manufactures and distributes

braking systems for cars, trucks, SUVs, performance vehicles, and severe duty trucks and tows.

The Company offers brake kits, caliper

kits, brake pads, brake rotors, calipers, brake shoes, and pad wear sensors.

It provides products through a network of distributors in

Europe, North America, South America, the Middle East, and Africa;

and online retailers.

Rithm Capital Corp.

(“RITM”) is a vertically integrated investment management and mortgage platform externally managed by Fortress Investment Group.

RITM’s investments focus on servicing and origination, residential securities and loans, and consumer loans.

Secure Acquisition Inc.

(dba Paragon Films)

Paragon Films, Inc.

manufactures and supplies stretch film products to customers in various industries in the United States, Canada, Mexico, South America, and internationally.

Sendero Drilling Company, LLC

Unsecured Debt

Seotowncenter, Inc.

SFP Holding, Inc.

Senior Secured First Lien Term Loan

SFP Holding, Inc.

Senior Secured First Lien Delayed Draw Term Loan

SFP Holding, Inc.

Sendero Drilling Company, LLC is a land drilling contractor headquartered in San Angelo, TX.

SS Acquisition, LLC (dba Soccer Shots Franchising)

Soccer Shots Franchising is a franchised-based system operating in the U.S.

and Canada that provides children’s enrichment programs with a unique emphasis on social, cognitive, and linguistic skill through soccer.

SMART Financial Operations, LLC

Preferred Equity

Stancor, Inc.

SMART Financial Operations, LLC, headquartered in Orlando, FL, is a specialty retail platform initially comprised of three distinct retail pawn store chains and a pawn industry consulting firm.

Stancor (dba Industrial Flow Solutions Holdings, LLC)

Stancor, founded in 1985 and based out of Monroe, CT, is a designer and manufacturer of electric submersible pumps, control, accessories, and parts.

Staples, Inc.

Staples is a B2B distributor of office supplies in North America and provider of e-commerce via Staples.com.

Thryv Holdings, Inc.

Senior Secured First Lien Term Loan B

URT Acquisition Holdings Corporation

Unsecured Debt

URT Acquisition Holdings Corporation

US Multifamily, LLC

Banking, Finance, Insurance & Real Estate

Preferred Equity

Thryv Holdings, Inc.

is a provider of print and digital marketing solutions to small and medium sized businesses and SaaS end-to-end customer experience tools.

US Multifamily, LLC

Banking, Finance, Insurance & Real Estate

Senior Secured First Lien Term Loan

Velocity Pooling Vehicle, LLC

Senior Secured First Lien Term Loan

US Multifamily, LLC (“US Multifamily”) is a real estate platform focused on distressed multifamily assets primarily located in the Southeastern United States.

Velocity Pooling Vehicle, LLC

Velocity Pooling Vehicle, LLC, headquartered in Coppell, TX, is a manufacturer, distributor and retailer of branded aftermarket products for the powersports industry.

The Company’s brands include Vance & Hines, Kuryakyn, Mustang, Performance Machine, and others.

Walker Edison Furniture Company LLC

Consumer goods:

Walker Edison Furniture Company LLC (“Walker Edison”) is an e-commerce furniture platform exclusively selling through the websites of top online retailers.

Walker Edison operates a data-driven business model to sell a variety of home furnishings in the discount category including TV stands, bedroom furniture, chairs & tables, desks and other.

Watermill-QMC Midco, Inc.

(d/b/a Quality Metalcraft, Inc.), founded in 1964 and headquartered in Livonia, MI, is a provider of complex assemblies for specialty automotive production, prototype and factory assist applications.

Wingman Holdings, Inc.

(f/k/a Crow Precision Components, LLC)

Aerospace & Defense

All interest is payable in cash and/or PIK, and all London Interbank Offering Rate (“LIBOR”) represents 1 Month LIBOR and 3 Month LIBOR unless otherwise indicated.

For each debt investment, we have provided the current interest rate as of September 30, 2021.

The maturity date was extended to May 1, 2023 subsequent to September 30, 2021.

As of September 30, 2021, our income-bearing investment

portfolio, which represented 86.6% of our total portfolio, had a weighted average yield based upon cost of our portfolio investments of

approximately 6.75%, and 74.6% of our income-bearing investment portfolio bore interest based on floating rates, such as LIBOR, while

25.4% of our income-bearing investment portfolio bore interest at fixed rates.

As of September 30, 2020, our income-bearing investment

portfolio, which represented 61.2% of our total portfolio, had a weighted average yield based upon cost of our portfolio investments of

approximately 8.5%, and 87.4% of our income-bearing investment portfolio bore interest based on floating rates, such as LIBOR, while 12.6%

of our income-bearing investment portfolio bore interest at fixed rates.

The weighted average yield of our total portfolio does not represent

the total return to our stockholders.

The weighted average yield on income producing investments is computed based upon a combination

of the cash flows to date and the contractual interest payments, principal amortization and fee notes due at maturity without giving effect

to closing fees received, base management fees, incentive fees or general fund related expenses.

For each floating rate loan, the projected

fixed-rate equivalent coupon rate used to forecast the interest cash flows was calculated by adding the interest rate spread specified

in the relevant loan document to the fixed-rate equivalent floating rate, duration-matched to the specific loan, adjusted by the floating

rate floor and/or cap in place on that loan.

of Portfolio Companies

below is a brief description of the business of our portfolio companies as of September 30, 2021:

Description of Portfolio Company

1888 Industrial Services, LLC

1888 Industrial Services,

LLC (“1888”) provides field support services to oil and gas independent producers, drilling companies and midstream companies

in the Denver-Julesburg Basin and Permian Basin.

1888 builds, repairs, modifies and maintains oil and gas production equipment,

sites, wells and pipelines.

Alpine SG, LLC

Alpine SG, LLC (“Alpine

SG”) is an aggregator of niche, vertically oriented software businesses.

Each acquired business operates independently with

oversight from the Alpine SG management team.

Autosplice, Inc.

(“Autosplice”),

founded in 1954 and headquartered in San Diego, CA, is a global supplier of highly engineered, mission-critical electrical interconnectors

to OEMs and Tier 1 suppliers.

Autosplice serves a wide variety of end-markets, providing the automotive, industrial, telecommunications,

medical, transportation, consumer, and other applications.

Be Green Packaging, LLC

Be Green Packaging, LLC,

founded in 2007 and headquartered in Thousand Oaks, CA, designs and manufactures sustainable, tree-free, molded fiber products and

packaging for the food service and consumer packaged goods end markets.

Black Angus Steakhouses, LLC

Black Angus Steakhouses,

LLC, founded in 1964 and headquartered in Los Altos, CA, operates restaurants across six states including California, Arizona, Alaska,

New Mexico, Washington, and Hawaii.

Investors Holdings 1 LLC

Caddo Investors Holdings

1 LLC (d/b/a TexMark Timber Treasury, L.P.), consists of approximately 1.1 million acres of high quality and relatively young timber

lands located in East Texas.

Investment Corp.

Chimera Investment Corp.

is an internally managed REIT that is primarily engaged in the business of investing in a diversified portfolio of mortgage assets,

including residential mortgage loans, Agency residential mortgage-backed securities (“RMBS”), Non-Agency RMBS, Agency commercial mortgage-backed securities (“CMBS”), and other real estate-related assets.

Cleaver-Brooks, Inc.

is a fully integrated

boiler room solutions provider, based in Thomasville, Georgia.

CM Finance SPV LLC

CM Finance SPV LLC is a

wholly-owned subsidiary of Investcorp Credit Management BDC, Inc., a specialty finance company that invests primarily in the debt

middle-market companies.

CPI International, Inc.

CPI International, Inc.,

headquartered in Palo Alto, CA.

develops and manufactures microwave, radio frequency, power, and control products for critical communications,

defense and medical applications.

Description of Portfolio Company

(“DataOnline”) is a global provider of M2M solutions specifically for the monitoring of both fixed and mobile remote

industrial assets.

DataOnline specializes in robust and reliable devices & sensors, remote data collection, global wireless communications

& web-based applications.

and Income Fund

and Income Fund is a diversified closed end management investment company that seeks to achieve primarily high current income and

secondarily capital appreciation by investing at least 50% of its total assets in income generating equity securities.

Finders Homes, LLC

Finders Homes, LLC (“DFH”), founded in 2009 and headquartered in Jacksonville, FL, is a residential home builder currently

operating in the greater Jacksonville, Orlando, Colorado, Savannah, Austin, and Washington DC markets.

DFH builds both single-family

homes and townhomes.

Energy Services International LLC

Energy Services International LLC, headquartered in New Orleans, LA, is a provider of full-service fabrication, construction and

maintenance services to a broad range of worldwide markets including oil and gas, industrial and petrochemical markets.

operates an asset-based lending business under which it enters into secured loans and secured

financing structures with borrowers engaged in the gemstone/jewelry industry.

Acquisition, LLC

Acquisition, LLC is a provider of in store merchandising and logistics solutions to major retailers and consumer packaged goods manufacturers.

Accessories Group, LLC

Accessories Group, LLC, headquartered in New York City, designs, manufactures, and sells custom-themed jewelry and accessory collections.

These collections are tailored to leading retailers in the specialty, department store, off-price and juniors markets.

is a REIT that acquires, invests in, and manages a portfolio of residential mortgage and small balance commercial mortgage

Mortgage Capital, Inc.

Mortgage Capital Inc.

is an externally managed REIT primarily focused on investing in, financing, and managing mortgage-backed securities

(“MBS”) and other mortgage-related assets.

Partners, LLC

Partners, LLC (d/b/a NorthStar Group Services, Inc.), is a one-stop provider of demolition and environmental remediation services

including demolition, asset & scrap recovery, abatement of asbestos, lead, and mold, and disaster response.

Partners, LLC

Partners, LLC (d/b/a Waste Control Specialists LLC) operates a state-of-the-art facility for the processing, treatment, storage and

disposal of LLRW, hazardous waste, and mixed hazardous and radioactive wastes.

Operations, LLC

Operations, LLC, location in Wyoming, is a producer of high-value thermal coal and surface-mined coal.

Science Group Corporation

Science Group Corporation (“LSG”) is a light emitting diode (“LED”) lighting technology company.

develops and markets general illumination products that exclusively use LEDs as their light source.

LSG’s product portfolio

includes LED-based retrofit lamps (replacement bulbs) used in existing light fixtures as well as purpose-built LED-based luminaires

(light fixtures).

MFA Financial,

Financial, Inc.

is an internally-managed REIT primarily engaged in investing in residential mortgage assets, with a focus on residential

whole loans, residential mortgage securities, and mortgage servicing rights-related assets.

New Residential Investment

Residential Investment Corp.

(“New Residential”) is a vertically integrated investment management and mortgage platform

externally managed by Fortress Investment Group.

New Residential’s investments focus on servicing and origination, residential

securities and loans, and consumer loans.

New York Mortgage Trust,

Trust is a REIT that acquires, invests in, finances and manages mortgage-related single-family and multi-family residential assets

LLC (d/b/a “Dick’s Last Resort”), established in 1985 and headquartered in Nashville, TN, is a “eatertainment”

restaurant concept with locations throughout the US, mostly in budget friendly tourist destinations.

NVTN LLC has developed an

identifiable brand for its high-energy, unique themed restaurant concept that targets tourists and business travelers in high

foot traffic locations.

Description of Portfolio Company

Medical, LLC, founded in 1993, is a provider of fully-integrated acute trauma treatment and diagnostic imaging solutions to patients

injured in automobile and non-work related accidents throughout Florida.

headquartered in Los Angeles, CA is a full-service content management company with several facilities strategically located throughout

Los Angeles supporting all aspects of postproduction.

Technologies, Inc.

provides hospitality and travel technology solutions for revenue management decision support, rate intelligence,

electronic distribution and brand engagement helping customers across the world in streamlining their operations and sales.

Services Group, LLC

Services Group, LLC is a group of regional IT managed service providers that provide fully outsourced IT services to small and medium

sized businesses.

Drilling Company, LLC

Drilling Company, LLC is a land drilling contractor headquartered in San Angelo, TX.

Seotowncenter,

is a tech-enabled business services company that delivers white label search engine optimization and local search and digital

campaign fulfillment to the small and midsize business market.

Financial Operations, LLC

Financial Operations, LLC, headquartered in Orlando, FL, is a specialty retail platform initially comprised of three distinct retail

pawn store chains and a pawn industry consulting firm.

Inc., founded in 1985 and based out of Monroe, CT, is a designer and manufacturer of electric submersible pumps, control, accessories,

Holdings, Inc.

is a provider of print and digital marketing solutions to small and medium sized businesses and SaaS end-to-end customer

experience tools.

URT Acquisition Holdings

Corporation (d/b/a United Road Towing or “URT”) headquartered in Mokena, IL is an integrated towing company in the United

URT provides a complete range of towing, vehicle storage and vehicle auction services.

Multifamily, LLC

Multifamily, LLC (“US Multifamily”) is a real estate platform focused on distressed multifamily assets primarily located

in the Southeastern United States.

Pooling Vehicle, LLC

Pooling Vehicle, LLC, headquartered in Coppell, TX, is a manufacturer, distributor and retailer of branded aftermarket products for

the powersports industry.

The Company’s brands include Vance & Hines, Kuryakyn, Mustang, Performance Machine, and others.

Edison Furniture Company LLC

Edison Furniture Company LLC (“Walker Edison”) is an e-commerce furniture platform exclusively selling through the websites

of top online retailers.

Walker Edison operates a data-driven business model to sell a variety of home furnishings in the discount

category including TV stands, bedroom furniture, chairs & tables, desks and other.

Watermill-QMC

(d/b/a Quality Metalcraft, Inc.), founded in 1964 and headquartered in Livonia, MI, is a provider of complex assemblies

for specialty automotive production, prototype and factory assist applications.

Holdings, Inc.

Wingman Holdings, Inc.

(f/k/a Crow Precision

Holdings, Inc.

(f/k/a Crow Precision Components, LLC) is a Fort Worth, TX based forger of aluminum and steel used for mission critical

aircraft components, among other end markets.

RELATIONSHIP WITH MCC ADVISORS

to the effectiveness of our internalized management structure on January 1, 2021, MCC Advisors, an SEC-registered investment adviser

under the Advisers Act, served as our investment adviser pursuant to an investment management agreement.

Effective January 1, 2021, subject

to the overall supervision of our board of directors, our internal management team manages the day-to-day operations of PhenixFIN, and

provides investment advisory and management services.

Components, LLC) is a Fort Worth, TX based forger of aluminum and steel used for mission critical aircraft components, among other end

PREVIOUS RELATIONSHIP WITH MCC ADVISORS

Prior to the effectiveness of our internalized

management structure on January 1, 2021, MCC Advisors, an SEC-registered investment adviser under the Advisers Act, served as our investment

adviser pursuant to an investment management agreement.

Effective January 1, 2021, subject to the overall supervision of our board of

directors, our internal management team manages the day-to-day operations of PhenixFIN, and provides investment advisory and management

See “- Internalized Management Structure”

below for further information.

Management Agreement

had entered into an investment management agreement with MCC Advisors on January 11, 2011 (the “Investment Management Agreement”),

which expired on December 31, 2020.

terms of the Investment Management Agreement, MCC Advisors:

the composition of our portfolio, the nature and timing of the changes to our portfolio and

the manner of implementing such changes;

● identified,

evaluated and negotiated the structure of the investments we made (including performing due

diligence on our prospective portfolio companies);

closed, monitored and administered the investments we made, including the exercise of any

voting or consent rights.

Advisors’

services under the Investment Management Agreement were not exclusive, and it was free to furnish similar services to

other entities so long as its services to us were not impaired.

to the Investment Management Agreement, we paid MCC Advisors a fee for investment advisory and management services consisting of a base

management fee and a two-part incentive fee.

following discussion of our base management fee and two-part incentive fee reflect the terms of the fee waiver agreement executed by

MCC Advisors on February 8, 2016 (the “Fee Waiver Agreement”).

The terms of the Fee Waiver Agreement were effective as of

January 1, 2016 and were a permanent reduction in the base management fee and incentive fee on net investment income payable to MCC Advisors

for the investment advisory and management services it provided under the Investment Management Agreement.

The Fee Waiver Agreement did

not change the second component of the incentive fee, which was the incentive fee on capital gains.

January 15, 2020, the Company’s board of directors, including all of the independent directors, approved the renewal of the Investment

Management Agreement through the later of April 1, 2020 or so long as the Amended and Restated Agreement and Plan of Merger, dated as

of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between the Company and Sierra (the “Amended MCC Merger

Agreement”) was in effect, but no longer than a year;

provided that, if the Amended MCC Merger Agreement was terminated by Sierra,

then the termination of the Investment Management Agreement would be effective on the 30th day following receipt of Sierra’s notice

of termination to the Company.

On May 1, 2020, the Company received a notice of termination of the Amended MCC Merger Agreement from

Under the Amended MCC Merger Agreement, either party was permitted, subject to certain conditions, to terminate the Amended MCC

Merger Agreement if the merger was not consummated by March 31, 2020.

Investment Management Agreement

We had entered into an investment management

agreement with MCC Advisors on January 11, 2011 (the “Investment Management Agreement”), which expired on December 31, 2020.

Under the terms of the Investment Management Agreement, MCC Advisors:

determined the composition of our portfolio, the nature and timing

of the changes to our portfolio and the manner of implementing such changes;

identified, evaluated and negotiated the structure of the investments

we made (including performing due diligence on our prospective portfolio companies);

executed, closed, monitored and administered the investments we made,

including the exercise of any voting or consent rights.

MCC Advisors’

services under the Investment

Management Agreement were not exclusive, and it was free to furnish similar services to other entities so long as its services to us

were not impaired.

Pursuant to the Investment Management Agreement,

we paid MCC Advisors a fee for investment advisory and management services consisting of a base management fee and a two-part incentive

The following discussion of our base management

fee and two-part incentive fee reflect the terms of the fee waiver agreement executed by MCC Advisors on February 8, 2016 (the “Fee

Waiver Agreement”).

The terms of the Fee Waiver Agreement were effective as of January 1, 2016 and were a permanent reduction in

the base management fee and incentive fee on net investment income payable to MCC Advisors for the investment advisory and management

services it provided under the Investment Management Agreement.

The Fee Waiver Agreement did not change the second component of the incentive

fee, which was the incentive fee on capital gains.

On January 15, 2020, the Company’s board

of directors, including all of the independent directors, approved the renewal of the Investment Management Agreement through the later

of April 1, 2020 or so long as the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MCC

Merger Agreement”), by and between the Company and Sierra (the “Amended MCC Merger Agreement”) was in effect, but no

longer than a year;

provided that, if the Amended MCC Merger Agreement was terminated by Sierra, then the termination of the Investment

Management Agreement would be effective on the 30th day following receipt of Sierra’s notice of termination to the Company.

May 1, 2020, the Company received a notice of termination of the Amended MCC Merger Agreement from Sierra.

Under the Amended MCC Merger

Agreement, either party was permitted, subject to certain conditions, to terminate the Amended MCC Merger Agreement if the merger was

not consummated by March 31, 2020.

Sierra elected to do so on May 1, 2020.

As result of the termination

by Sierra of the Amended MCC Merger Agreement on May 1, 2020, the Investment Management Agreement would have been terminated effective

as of May 31, 2020.

On May 21, 2020, the Board, including all of the independent directors, extended the term of the Investment Management

Agreement through the end of the then-current quarter, June 30, 2020.

On June 12, 2020, the Board, including all of the independent directors,

extended the term of the Investment Management Agreement through September 30, 2020.

On September 29, 2020, the Board, including all

of the independent directors, extended the term of the Investment Management Agreement through December 31, 2020.

Brook Taube, our

Chairman and Chief Executive Officer through December 31, 2020 and one of our directors through January 21, 2021 and Mr.

one of our directors through January 21, 2021 are both affiliated with MCC Advisors and Medley.

November 18, 2020, the Board approved the adoption of an internalized management structure effective January 1, 2021.

The new management

structure replaces the current Investment Management and Administration Agreements with MCC Advisors LLC, which expired on December 31,

To lead the internalized management team, the Board approved the appointment of David Lorber, who had served as an independent

director of the Company since April 2019, as interim Chief Executive Officer, and Ellida McMillan as Chief Financial Officer of the Company,

each effective January 1, 2021.

In connection with his appointment, Mr.

Lorber stepped down from the Compensation Committee of the Board,

the Nominating and Corporate Governance Committee of the Board, and the Special Committee of the Board.

Base Management

December 31, 2020, for providing investment advisory and management services to us, MCC Advisors received a base management fee.

base management fee was calculated at an annual rate of 1.75% (0.4375% per quarter) of up to $1.0 billion of the Company’s gross

assets and 1.50% (0.375% per quarter) of any amounts over $1.0 billion of the Company’s gross assets and was payable quarterly

The base management fee was calculated based on the average value of the Company’s gross assets at the end of the two

most recently completed calendar quarters.

Through December

31, 2020, the incentive fee had two components, as follows:

Fee Based on Income

first component of the incentive fee was payable quarterly in arrears and was based on our pre-incentive fee net investment income earned

during the calendar quarter for which the incentive fee was being calculated.

MCC Advisors was entitled to receive the incentive fee

on net investment income from us if our Ordinary Income (as defined below) exceeded a quarterly “hurdle rate”

hurdle amount was calculated after making appropriate adjustments to the Company’s net assets, as determined as of the beginning

of each applicable calendar quarter, in order to account for any capital raising or other capital actions as a result of any issuances

by the Company of its common stock (including issuances pursuant to our dividend reinvestment plan), any repurchase by the Company of

its own common stock, and any dividends paid by the Company, each as may have occurred during the relevant quarter.

second component of the incentive fee was determined and payable in arrears as of the end of each calendar year (or upon termination

of the Investment Management Agreement as of the termination date) and equaled 20.0% of our cumulative aggregate realized capital gains

less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment

basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments

were previously made to the investment adviser.

the year ended September 30, 2021, the Company incurred net base management fees payable to MCC Advisors of $1.1 million and did not

incur any incentive fees related to pre-incentive fee net investment income.

The Investment Management Agreement terminated as of December

31, 2020, and the Company no longer incurs base management fees or incentive fees under the Investment Management Agreement as a result.

of Our Expenses

Since January 1, 2021, we are internally managed and do not pay any external investment advisory fees, but instead directly incur the

operating costs associated with employing professionals and staff.

We bear all costs and expenses of our operations and transactions,

including, but not limited to those related to:

organization and continued corporate existence;

● calculating

our net asset value (“NAV”) (including the cost and expenses of any independent

valuation firms);

including travel expense, incurred by our professionals or payable to third parties performing

due diligence on prospective portfolio companies, monitoring our investments and, if necessary,

As result of the termination by Sierra of the Amended MCC

Merger Agreement on May 1, 2020, the Investment Management Agreement would have been terminated effective as of May 31, 2020.

21, 2020, the Board, including all of the independent directors, extended the term of the Investment Management Agreement through the

end of the then-current quarter, June 30, 2020.

On June 12, 2020, the Board, including all of the independent directors, extended the

term of the Investment Management Agreement through September 30, 2020.

On September 29, 2020, the Board, including all of the independent

directors, extended the term of the Investment Management Agreement through December 31, 2020.

Brook Taube, our Chairman and Chief

Executive Officer through December 31, 2020 and one of our directors through January 21, 2021 and Mr.

Seth Taube, one of our directors

through January 21, 2021 are both affiliated with MCC Advisors and Medley.

On November 18, 2020, the Board approved the

adoption of an internalized management structure effective January 1, 2021.

The new management structure replaces the current Investment

Management and Administration Agreements with MCC Advisors LLC, which expired on December 31, 2020.

To lead the internalized management

team, the Board approved the appointment of David Lorber, who had served as an independent director of the Company since April 2019,

as Chief Executive Officer, and Ellida McMillan as Chief Financial Officer of the Company, each effective January 1, 2021.

In connection

with his appointment, Mr.

Lorber stepped down from the Compensation Committee of the Board, the Nominating and Corporate Governance Committee

of the Board, and the Special Committee of the Board.

Base Management Fee

Through December 31, 2020, for providing investment

advisory and management services to us, MCC Advisors received a base management fee.

The base management fee was calculated at an annual

rate of 1.75% (0.4375% per quarter) of up to $1.0 billion of the Company’s gross assets and 1.50% (0.375% per quarter) of any amounts

over $1.0 billion of the Company’s gross assets and was payable quarterly in arrears.

The base management fee was calculated based

on the average value of the Company’s gross assets at the end of the two most recently completed calendar quarters.

Incentive Fee

Through December 31, 2020, the incentive fee had two components, as

Incentive Fee Based on Income

The first component of the incentive fee was

payable quarterly in arrears and was based on our pre-incentive fee net investment income earned during the calendar quarter for which

the incentive fee was being calculated.

MCC Advisors was entitled to receive the incentive fee on net investment income from us if our

Ordinary Income (as defined below) exceeded a quarterly “hurdle rate”

The hurdle amount was calculated after making

appropriate adjustments to the Company’s net assets, as determined as of the beginning of each applicable calendar quarter, in

order to account for any capital raising or other capital actions as a result of any issuances by the Company of its common stock (including

issuances pursuant to our dividend reinvestment plan), any repurchase by the Company of its own common stock, and any dividends paid

by the Company, each as may have occurred during the relevant quarter.

The second component of the incentive fee was

determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Management Agreement as

of the termination date) and equaled 20.0% of our cumulative aggregate realized capital gains less cumulative realized capital losses,

unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year)

and all capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the investment

The Investment Management Agreement

terminated as of December 31, 2020, and the Company no longer incurs base management fees or incentive fees under the Investment Management

Agreement as a result.

Payment of Our Expenses

Since January 1, 2021, we are internally managed

and do not pay any external investment advisory fees, but instead directly incur the operating costs associated with employing professionals

We bear all costs and expenses of our operations and transactions, including, but not limited to those related to:

our organization and continued corporate existence;

calculating our net asset value (“NAV”) (including the

cost and expenses of any independent valuation firms);

expenses, including travel expense, incurred by our professionals or

payable to third parties performing due diligence on prospective portfolio companies, monitoring our investments and, if necessary,

enforcing our rights;

payable on debt incurred to finance our investments;

costs of all offerings of common shares and other securities;

costs associated with employing investment professionals and other staff;

● distributions

on our shares;

● administration

fees payable under our administration agreement;

payable to third parties relating to, or associated with, making investments;

agent and custodial fees;

registration and listing fees;

interest payable on debt incurred to finance our investments;

the costs of all offerings of common shares and other securities;

operating costs associated with employing investment professionals

and other staff;

distributions on our shares;

administration fees payable under our administration agreement;

custodial fees related to our assets

amounts payable to third parties relating to, or associated with, making

transfer agent and custodial fees;

all registration and listing fees;

federal, state and local taxes;

● independent

directors’

independent directors’

fees and expenses;

of preparing and filing reports or other documents with the SEC or other regulators;

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

fidelity bond;

operating lease of our office space;

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

● indemnification

costs and expenses of administration, including audit and legal costs.

Management Agreement Board Approval and Expiration

January 15, 2020, the Company’s board of directors, including all of the independent directors, approved the renewal of the investment

management agreement through the later of April 1, 2020 or so long as the Amended MCC Merger Agreement, was in effect, but no longer

provided that, if the Amended MCC Merger Agreement were to be terminated by Sierra, then the termination of the investment

management agreement would be effective on the 30th day following receipt of Sierra’s notice of such termination to the Company.

In that regard, on May 1, 2020, the Company received a notice of termination of the Amended MCC Merger Agreement from Sierra.

Amended MCC Merger Agreement, either party was permitted, subject to certain conditions, to terminate the Amended MCC Merger Agreement

if the merger was not consummated by March 31, 2020.

As result of the termination by Sierra of the Amended MCC Merger Agreement on May

1, 2020, the investment management agreement would have been terminated effective as of May 31, 2020, without further action by our board

of directors.

On May 21, 2020, our board of directors, including all of the independent directors, extended the term of the investment

management agreement through the end of the quarter ended June 30, 2020.

On June 15, 2020, our board of directors, including all of the

independent directors, extended the term of the investment management agreement through the end of the quarter ended September 30, 2020.

On September 29, 2020, our board of directors, including all of the independent directors, extended the term of the investment management

agreement through the end of the quarter ended December 31, 2020.

The Investment Management Agreement expired by its terms at the close

of business on December 31, 2020, in connection with the adoption of the internalized management structure by the board of directors.

Support Agreement

June 12, 2020, the Company entered into an expense support agreement (the “Expense Support Agreement”) with MCC Advisors

and Medley LLC, pursuant to which MCC Advisors and Medley LLC agreed (jointly and severally) to cap the management fee and all of the

Company’s other operating expenses (except interest expenses, certain extraordinary strategic transaction expenses and other expenses

approved by the Special Committee (as defined in Note 10)) at $667,000 per month (the “Cap”).

Under the Expense Support Agreement,

the Cap became effective on June 1, 2020 and expires on September 30, 2020.

On September 29, 2020, the board of directors, including

all of the independent directors, extended the term of the Expense Support Agreement through the end of quarter ending December 31, 2020.

The Expense Support Agreement expired by its terms at the close of business on December 31, 2020, in connection with the adoption of

the internalized management structure by the board of directors.

Administration

January 19, 2011, the Company entered into an administration agreement with MCC Advisors.

Pursuant to the administration agreement, MCC

Advisors furnished us with office facilities and equipment, clerical, bookkeeping, recordkeeping and other administrative services related

to the operations of the Company.

We reimbursed MCC Advisors for our allocable portion of overhead and other expenses incurred by it

performing its obligations under the administration agreement, including rent and our allocable portion of the cost of our Chief Financial

Officer and Chief Compliance Officer and their respective staffs.

From time to time, our administrator was able to pay amounts owed by

us to third-party service providers and we would subsequently reimburse our administrator for such amounts paid on our behalf.

In connection

with the adoption by the board of directors of an internalized management structure, on November 19, 2020, the Company entered into a

Fund Accounting Servicing Agreement and an Administration Servicing Agreement on customary terms with U.S.

administration agreement with MCC Advisors terminated by its terms on December 31, 2020.

Effective January 1, 2021, U.S.

Bancorp serves

as our administrator under the Fund Accounting Servicing Agreement and Administration Agreement.

Pursuant to these agreements, U.S.

serves as custodian and provides us with fund accounting and financial reporting services.

For the years ended September 30, 2021, 2020,

and 2019, we incurred $0.6 million, $2.2 million, and $3.3 million in administrator expenses, respectively.

Management Structure

November 18, 2020, the board of directors approved adoption of an internalized management structure effective January 1, 2021.

management structure replaced the investment management and administration agreements with MCC Advisors, which expired on December 31,

The board approved the establishment of a committee, consisting of Arthur Ainsberg, Karin Hirtler-Garvey, Lowell Robinson and Howard

Amster, to oversee the transition to the internalized management structure.

lead the internalized management team, the board appointed David Lorber, who has served as an independent director of the Company since

April 2019, as interim Chief Executive Officer and Ellida McMillan, who previously served as Chief Financial Officer and Chief Operating

Officer of Alcentra Capital Corporation, a NASDAQ-traded BDC, from April 2017 until it merged into Crescent Capital BDC, Inc.

2020, as Chief Financial Officer of the Company, each effective January 1, 2021.

Lorber is paid an annual base salary of $425,000,

McMillan is paid an annual base salary of $300,000, and each is eligible for one or more discretionary cash bonuses.

internalized management team is responsible for the day-to-day management and operations of the Company, under the oversight of the board.

The internalized management team presently consists of 4 investment professionals and 7 employees/consultants overall.

The Company retained

Alaric Compliance Services, LLC, whose officer serves as the Company’s Chief Compliance Officer.

As discussed above, the Company

has also entered into a fund accounting servicing agreement and an administration servicing agreement on customary terms with U.S.

which serves as the Company’s administrator.

have elected to be regulated as a BDC under the 1940 Act.

The 1940 Act contains prohibitions and restrictions relating to transactions

between BDCs and their affiliates, principal underwriters and affiliates of those affiliates or underwriters and requires that a majority

of the directors be persons other than “interested persons”, as that term is defined in the 1940 Act.

In addition, the 1940

Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved

by “a majority of our outstanding voting securities.”

a BDC, we are required to meet an asset coverage ratio, reflecting the value of our total assets to our total senior securities, which

include all of our borrowings and any preferred stock we may issue in the future, of at least 200%.

However, in March 2018, the Small

Business Credit Availability Act (the “SBCA”) modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage

it may incur from 200% to 150%, if certain requirements are met.

Under the 1940 Act, we are allowed to increase our leverage capacity

if stockholders representing at least a majority of the votes cast, when a quorum is present, approve a proposal to do so.

If we receive

stockholder approval, we would be allowed to increase our leverage capacity on the first day after such approval.

Alternatively, the

1940 Act allows the majority of our independent directors to approve an increase in our leverage capacity, and such approval would become

effective on the one-year anniversary of such approval.

In either case, we would be required to make certain disclosures on our website

and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage,

and risks related to leverage.

The Company has not sought stockholder or independent director approval to reduce its coverage ratio to

March 23, 2018, the SBCA was signed into law and, among other things, instructs the SEC to issue rules or amendments to rules allowing

BDCs to use the same registration, offering and communication processes that are available to operating companies.

The rules and amendments

specified by the SBCA became self-implementing on March 24, 2019.

On April 8, 2020, the SEC adopted rules and amendments to implement

certain provisions of the SBCA (the “Final Rules”) that, among other things, modify the registration, offering, and communication

processes available to BDCs relating to:

(i) the shelf offering process to permit the use of short-form registration statements on Form

N-2 and incorporation by reference;

(ii) the ability to qualify for well-known seasoned issuer status;

(iii) the immediate or automatic

effectiveness of certain filings made in connection with continuous public offerings;

and (iv) communication processes and prospectus

In addition, the SEC adopted rules that will require BDCs to comply with certain structured data and inline XBRL requirements.

The Final Rules generally became effective on August 1, 2020, except that a BDC eligible to file short-form registration statements on

Form N-2, like the Company, must comply with the Inline XBRL structured data requirements for its financial statements, registration

statement cover page, and certain prospectus information by August 1, 2022.

may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior

approval of our directors who are not interested persons and, in some cases, prior approval by the SEC.

the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in section 55(a) of the 1940 Act, which are referred

to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s

total assets.

The principal categories of qualifying assets relevant to our business are the following:

(1) Securities

purchased in transactions not involving any public offering from the issuer of such securities,

which issuer (subject to certain limited exceptions) is an eligible portfolio company, or

from any person who is, or has been during the preceding 13 months, an affiliated person

of an eligible portfolio company, or from any other person, subject to such rules as may

be prescribed by the SEC.

An eligible portfolio company is defined in the 1940 Act as any

issuer which:

organized under the laws of, and has its principal place of business in, the United States;

not an investment company (other than a small business investment company wholly owned by

the Company) or a company that would be an investment company but for certain exclusions

under the 1940 Act;

either of the following:

a market capitalization of less than $250 million or does not have any class of securities

listed on a national securities exchange;

controlled by a BDC or a group of companies including a BDC, the BDC actually exercises a

controlling influence over the management or policies of the eligible portfolio company,

and, as a result thereof, the BDC has an affiliated person who is a director of the eligible

portfolio company.

(2) Securities

of an eligible portfolio company purchased from any person in a private transaction if there

is no ready market for such securities and we already own 60% of the outstanding equity of

the eligible portfolio company.

(3) Securities

received in exchange for or distributed on or with respect to securities described above,

or pursuant to the exercise of warrants or rights relating to such securities.

(4) Securities

of any eligible portfolio company which we control.

(5) Securities

purchased in a private transaction from a U.S.

issuer that is not an investment company or

from an affiliated person of the issuer, or in transactions incident thereto, if the issuer

is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the

purchase of its securities was unable to meet its obligations as they came due without material

assistance other than conventional lending or financing arrangements.

(6) Cash, cash

equivalents, U.S.

Government securities or high-quality debt securities maturing in one year

or less from the time of investment.

regulations defining and interpreting qualifying assets may change over time.

We may adjust our investment focus needed to comply with

and/or take advantage of any regulatory, legislative, administrative or judicial actions in this area.

Assistance to Portfolio Companies

BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making

investments in the types of securities described in “Regulation —

costs of preparing and filing reports or other documents with the SEC

or other regulators;

the costs of any reports, proxy statements or other notices to our

stockholders, including printing costs;

our fidelity bond;

the operating lease of our office space;

directors and officers/errors and omissions liability insurance, and

any other insurance premiums;

indemnification payments;

direct costs and expenses of administration, including audit and legal

Investment Management Agreement Board Approval and Expiration

On January 15, 2020, the Company’s board

of directors, including all of the independent directors, approved the renewal of the investment management agreement through the later

of April 1, 2020 or so long as the Amended MCC Merger Agreement, was in effect, but no longer than a year;

provided that, if the Amended

MCC Merger Agreement were to be terminated by Sierra, then the termination of the investment management agreement would be effective

on the 30th day following receipt of Sierra’s notice of such termination to the Company.

In that regard, on May 1, 2020, the Company

received a notice of termination of the Amended MCC Merger Agreement from Sierra.

Under the Amended MCC Merger Agreement, either party

was permitted, subject to certain conditions, to terminate the Amended MCC Merger Agreement if the merger was not consummated by March

As result of the termination by Sierra of the Amended MCC Merger Agreement on May 1, 2020, the investment management agreement

would have been terminated effective as of May 31, 2020, without further action by our board of directors.

On May 21, 2020, our board

of directors, including all of the independent directors, extended the term of the investment management agreement through the end of

the quarter ended June 30, 2020.

On June 15, 2020, our board of directors, including all of the independent directors, extended the term

of the investment management agreement through the end of the quarter ended September 30, 2020.

On September 29, 2020, our board of directors,

including all of the independent directors, extended the term of the investment management agreement through the end of the quarter ended

December 31, 2020.

The Investment Management Agreement expired by its terms at the close of business on December 31, 2020, in connection

with the adoption of the internalized management structure by the board of directors.

Expense Support Agreement

On June 12, 2020, the Company entered into an

expense support agreement (the “Expense Support Agreement”) with MCC Advisors and Medley LLC, pursuant to which MCC Advisors

and Medley LLC agreed (jointly and severally) to cap the management fee and all of the Company’s other operating expenses (except

interest expenses, certain extraordinary strategic transaction expenses and other expenses approved by the Special Committee (as defined

in Note 10)) at $667,000 per month (the “Cap”).

Under the Expense Support Agreement, the Cap became effective on June 1,

2020 and expires on September 30, 2020.

On September 29, 2020, the board of directors, including all of the independent directors, extended

the term of the Expense Support Agreement through the end of quarter ending December 31, 2020.

The Expense Support Agreement expired

by its terms at the close of business on December 31, 2020, in connection with the adoption of the internalized management structure

by the board of directors.

Administration Agreement

On January 19, 2011, the Company entered into

an administration agreement with MCC Advisors.

Pursuant to the administration agreement, MCC Advisors furnished us with office facilities

and equipment, clerical, bookkeeping, recordkeeping and other administrative services related to the operations of the Company.

We reimbursed

MCC Advisors for our allocable portion of overhead and other expenses incurred by it performing its obligations under the administration

agreement, including rent and our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their

respective staffs.

From time to time, our administrator was able to pay amounts owed by us to third-party service providers and we would

subsequently reimburse our administrator for such amounts paid on our behalf.

In connection with the adoption by the board of directors

of an internalized management structure, on November 19, 2020, the Company entered into a Fund Accounting Servicing Agreement and an

Administration Servicing Agreement on customary terms with U.S.

Bancorp Fund Services, LLC d/b/a U.S.

Bank Global Fund Services (“U.S.

Bancorp”).

Bancorp affiliate also served as the Company’s custodian.

The Company’s administrative and custodial

relationship with U.S.

Bancorp terminated on August 9, 2022.

SS&C Technologies, Inc.

(“SS&C”) has since served as

administrator of the Company and has provided us with fund accounting and financial reporting services pursuant to its Services Agreement

with the Company.

Effective September 12, 2022, Computershare Trust Company, N.A.

(“Computershare”) serves as custodian for the Company

pursuant to its Loan Administration and Custodial Agreement with the Company.

For the years ended September 30, 2022, 2021, and 2020,

we incurred $0.3 million, $0.6 million, and $2.2 million in administrator expenses, respectively.

Internalized Management Structure

On November 18, 2020, the board of directors

approved adoption of an internalized management structure effective January 1, 2021.

The new management structure replaced the investment

management and administration agreements with MCC Advisors, which expired on December 31, 2020.

The board approved the establishment

of a committee, consisting of Arthur Ainsberg, Karin Hirtler-Garvey, Lowell Robinson and Howard Amster, to oversee the transition to

the internalized management structure.

To lead the internalized management team, the

board appointed David Lorber, who has served as an independent director of the Company since April 2019, as Chief Executive Officer and

Ellida McMillan, who previously served as Chief Financial Officer and Chief Operating Officer of Alcentra Capital Corporation, a NASDAQ-traded

BDC, from April 2017 until it merged into Crescent Capital BDC, Inc.

in February 2020, as Chief Financial Officer of the Company, each

effective January 1, 2021.

Lorber is paid an annual base salary of $425,000, and Ms.

McMillan is paid an annual base salary of $300,000,

and each is eligible for one or more discretionary cash bonuses.

The internalized management team is responsible

for the day-to-day management and operations of the Company, under the oversight of the board.

The internalized management team presently

consists of 4 investment professionals and 7 employees/consultants overall.

The Company retained Alaric Compliance Services, LLC, whose

officer serves as the Company’s Chief Compliance Officer.

As discussed above, the Company has also entered into a services agreement

on customary terms with SS&C, which serves as the Company’s administrator, as well as a loan administration and custodial agreement

on customary terms with Computershare, who serves as our primary custodian.

We have elected to be regulated as a BDC under

the 1940 Act.

The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates, principal

underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than “interested

persons”, as that term is defined in the 1940 Act.

In addition, the 1940 Act provides that we may not change the nature of our

business so as to cease to be, or to withdraw our election as, a BDC unless approved by “a majority of our outstanding voting securities.”

As a BDC, we are required to meet an asset coverage

ratio, reflecting the value of our total assets to our total senior securities, which include all of our borrowings and any preferred

stock we may issue in the future, of at least 200%.

However, in March 2018, the Small Business Credit Availability Act (the “SBCA”)

modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur from 200% to 150%, if certain requirements

Under the 1940 Act, we are allowed to increase our leverage capacity if stockholders representing at least a majority of the

votes cast, when a quorum is present, approve a proposal to do so.

If we receive stockholder approval, we would be allowed to increase

our leverage capacity on the first day after such approval.

Alternatively, the 1940 Act allows the majority of our independent directors

to approve an increase in our leverage capacity, and such approval would become effective on the one-year anniversary of such approval.

In either case, we would be required to make certain disclosures on our website and in SEC filings regarding, among other things, the

receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to leverage.

The Company has not sought

stockholder or independent director approval to reduce its coverage ratio to 150%.

On March 23, 2018, the SBCA was signed into law

and, among other things, instructs the SEC to issue rules or amendments to rules allowing BDCs to use the same registration, offering

and communication processes that are available to operating companies.

The rules and amendments specified by the SBCA became self-implementing

on March 24, 2019.

On April 8, 2020, the SEC adopted rules and amendments to implement certain provisions of the SBCA (the “Final

Rules”) that, among other things, modify the registration, offering, and communication processes available to BDCs relating to:

(i) the shelf offering process to permit the use of short-form registration statements on Form N-2 and incorporation by reference;

the ability to qualify for well-known seasoned issuer status;

(iii) the immediate or automatic effectiveness of certain filings made

in connection with continuous public offerings;

and (iv) communication processes and prospectus delivery.

In addition, the SEC adopted

rules that will require BDCs to comply with certain structured data and inline XBRL requirements.

The Final Rules generally became effective

on August 1, 2020, except that a BDC eligible to file short-form registration statements on Form N-2, like the Company, must comply with

the Inline XBRL structured data requirements for its financial statements, registration statement cover page, and certain prospectus

information by August 1, 2022.

We may also be prohibited under the 1940 Act

from knowingly participating in certain transactions with our affiliates without the prior approval of our directors who are not interested

persons and, in some cases, prior approval by the SEC.

Qualifying Assets

Under the 1940 Act, a BDC may not acquire any

asset other than assets of the type listed in section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the

time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets.

The principal categories

of qualifying assets relevant to our business are the following:

Securities purchased in transactions not involving any public offering

from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from

any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any

other person, subject to such rules as may be prescribed by the SEC.

An eligible portfolio company is defined in the 1940 Act as

any issuer which:

is organized under the laws of, and has its principal place of business

in, the United States;

is not an investment company (other than a small business investment

company wholly owned by the Company) or a company that would be an investment company but for certain exclusions under the 1940 Act;

satisfies either of the following:

has a market capitalization of less than $250 million or does not have

any class of securities listed on a national securities exchange;

is controlled by a BDC or a group of companies including a BDC, the

BDC actually exercises a controlling influence over the management or policies of the eligible portfolio company, and, as a result

thereof, the BDC has an affiliated person who is a director of the eligible portfolio company.

Securities of an eligible portfolio company purchased from any person

in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the

eligible portfolio company.

Securities received in exchange for or distributed on or with respect

to securities described above, or pursuant to the exercise of warrants or rights relating to such securities.

Securities of any eligible portfolio company which we control.

Securities purchased in a private transaction from a U.S.

is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in

bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet

its obligations as they came due without material assistance other than conventional lending or financing arrangements.

Cash, cash equivalents, U.S.

Government securities or high-quality debt securities maturing in

one year or less from the time of investment.

The regulations defining and interpreting qualifying

assets may change over time.

We may adjust our investment focus needed to comply with and/or take advantage of any regulatory, legislative,

administrative or judicial actions in this area.

Managerial Assistance to Portfolio Companies

A BDC must have been organized and have its principal

place of business in the United States and must be operated for the purpose of making investments in the types of securities described

in “Regulation —

Qualifying Assets”

However, in order to count

portfolio securities as qualifying assets for the purpose of the 70% requirement, the BDC must either control the issuer of the securities

or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant

managerial assistance.

Where the BDC purchases such securities in conjunction with one or more other persons acting together, the BDC

will satisfy this test if one of the other persons in the group makes available such managerial assistance.

Making available managerial

assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide,

and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and

policies of a portfolio company.

investment in other types of “qualifying assets”, as described above, our investments may consist of cash, cash equivalents,

Government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to,

collectively, as temporary investments, so that 70% of our assets are qualifying assets.

Typically, we will invest in highly rated commercial

Government agency notes, U.S.

Treasury bills or in repurchase agreements relating to such securities that are fully collateralized

by cash or securities issued by the U.S.

However, in order to count portfolio securities as qualifying assets for

the purpose of the 70% requirement, the BDC must either control the issuer of the securities or must offer to make available to the issuer

of the securities (other than small and solvent companies described above) significant managerial assistance.

Where the BDC purchases

such securities in conjunction with one or more other persons acting together, the BDC will satisfy this test if one of the other persons

in the group makes available such managerial assistance.

Making available managerial assistance means, among other things, any arrangement

whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance

and counsel concerning the management, operations or business objectives and policies of a portfolio company.

Temporary Investments

Pending investment in other types of “qualifying

assets”, as described above, our investments may consist of cash, cash equivalents, U.S.

Government securities or high-quality

debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments,

so that 70% of our assets are qualifying assets.

Typically, we will invest in highly rated commercial paper, U.S.

Government agency notes,

Treasury bills or in repurchase agreements relating to such securities that are fully collateralized by cash or securities issued

Government or its agencies.

A repurchase agreement involves the purchase by an investor, such

as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price

which is greater than the purchase price by an amount that reflects an agreed-upon interest rate.

There is no percentage restriction

on the proportion of our assets that may be invested in such repurchase agreements.

However, certain diversification tests that must

be met in order to qualify as a RIC for U.S.

federal income tax purposes will typically require us to limit the amount we invest with

any one counterparty.

We will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.

are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock

if our asset coverage, as defined in the 1940 Act, is at least equal to 200% (or 150% if certain requirements are met) immediately after

each such issuance.

In addition, while any preferred stock or publicly traded debt securities are outstanding, we may be prohibited from

making distributions to our stockholders or the repurchasing of such securities or shares unless we meet the applicable asset coverage

ratios at the time of the distribution or repurchase.

We may also borrow amounts up to 5% of the value of our total assets for temporary

or emergency purposes without regard to asset coverage.

A repurchase agreement involves the purchase by an investor, such as us, of a specified security

and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price which is greater than the

purchase price by an amount that reflects an agreed-upon interest rate.

There is no percentage restriction on the proportion of our assets

that may be invested in such repurchase agreements.

However, certain diversification tests that must be met in order to qualify as a

federal income tax purposes will typically require us to limit the amount we invest with any one counterparty.

We will monitor

the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.

Senior Securities

We are permitted, under specified conditions,

to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the

1940 Act, is at least equal to 200% (or 150% if certain requirements are met) immediately after each such issuance.

In addition, while

any preferred stock or publicly traded debt securities are outstanding, we may be prohibited from making distributions to our stockholders

or the repurchasing of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution

or repurchase.

We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard

to asset coverage.

For a discussion of the risks associated with leverage, see “Item 1A.

Factors—Risks Related to our Business—If we use borrowed funds to make investments or fund our business operations, we will

be exposed to risks typically associated with leverage which will increase the risk of investing in us.”

have adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts

certain personal securities transactions.

Personnel subject to each code may invest in securities for their personal investment accounts,

including securities that may be purchased or held by us, so long as such investments are made in accordance with the code’s requirements.

The code of ethics is available at our website, www.phenixfc.com , and is available on the EDGAR Database on the SEC’s Internet

site at http://www.sec.gov .

are committed to maintaining the privacy of stockholders and to safeguarding our non-public personal information.

The following information

is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we

may share information with select other parties.

we do not receive any nonpublic personal information relating to our stockholders, although certain nonpublic personal information of

our stockholders may become available to us.

We do not disclose any nonpublic personal information about our stockholders or former stockholders

to anyone, except as permitted by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent or

third party administrator).

restrict access to nonpublic personal information about our stockholders to our employees with a legitimate business need for the information.

We maintain physical, electronic and procedural safeguards designed to protect the nonpublic personal information of our stockholders.

Voting Policies and Procedures

Proxy Voting Policies and Procedures are set forth below.

The guidelines are reviewed periodically by management and our independent

directors, and, accordingly, are subject to change.

policies and procedures for voting proxies for our investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6

under, the Advisers Act.

proxy voting decisions are made by our investment professionals, who review on a case- by-case basis each proposal submitted to a shareholder

vote to determine its impact on the portfolio securities held by the Company.

Although the Company generally votes against proposals

that may have a negative impact on our portfolio securities, we may vote for such a proposal if there exists compelling long-term reasons

We generally do not believe it is necessary to engage the services of an independent third party to assist in issue analysis

and vote recommendation for proxy proposals.

Under certain circumstances and when deemed in the best interests of shareholders, the Company

may, in the discretion of its officers, refrain from exercising its proxy voting right for a particular decision.

ensure that our vote is not the product of a conflict of interest, we require that:

(i) anyone involved in the decision making process

disclose to our Chief Compliance Officer any potential conflict that he or she is aware of and any contact that he or she has had with

any interested party regarding a proxy vote;

and (ii) employees involved in the decision making process or vote administration are prohibited

from revealing how we intend to vote on a proposal in order to reduce any attempted influence from interested parties, unless such employee

has received pre-approval from our Chief Compliance Officer.

Voting Records

You may obtain

information about how we voted proxies by making a written request for proxy voting information to:

Chief Compliance

Avenue, 10 th Floor

the 1940 Act, we are not generally able to issue and sell our common stock at a price below NAV per share.

We may, however, issue and

sell our common stock, at a price below the current NAV of the common stock, or issue and sell warrants, options or rights to acquire

such common stock, at a price below the current NAV of the common stock if our board of directors determines that such sale is in our

best interest and in the best interests of our stockholders, and our stockholders have approved our policy and practice of making such

sales within the preceding 12 months.

In any such case, the price at which our securities are to be issued and sold may not be less than

a price which, in the determination of our board of directors, closely approximates the market value of such securities.

currently do not have the requisite stockholder approval, nor do we have any current plans to seek stockholder approval, to sell or issue

shares of our common stock at a price below NAV per share.

addition, at our 2012 Annual Meeting of Stockholders we received approval from our stockholders to authorize us, with the approval of

our board of directors, to issue securities to, subscribe to, convert to, or purchase shares of the Company’s common stock in one

or more offerings, subject to certain conditions as set forth in the proxy statement.

Risk Factors—Risks Related to our

Business—If we use borrowed funds to make investments or fund our business operations, we will be exposed to risks typically associated

with leverage which will increase the risk of investing in us.”

Code of Ethics

We have adopted a code of ethics pursuant to

Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certain personal securities transactions.

Personnel subject to each code may invest in securities for their personal investment accounts, including securities that may be purchased

or held by us, so long as such investments are made in accordance with the code’s requirements.

The code of ethics is available

at our website, www.phenixfc.com , and is available on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov .

We are committed to maintaining the privacy of

stockholders and to safeguarding our non-public personal information.

The following information is provided to help you understand what

personal information we collect, how we protect that information and why, in certain cases, we may share information with select other

Generally, we do not receive any nonpublic personal

information relating to our stockholders, although certain nonpublic personal information of our stockholders may become available to

We do not disclose any nonpublic personal information about our stockholders or former stockholders to anyone, except as permitted

by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent or third party administrator).

We restrict access to nonpublic personal information

about our stockholders to our employees with a legitimate business need for the information.

We maintain physical, electronic and procedural

safeguards designed to protect the nonpublic personal information of our stockholders.

Proxy Voting Policies and Procedures

Our Proxy Voting Policies and Procedures are

set forth below.

The guidelines are reviewed periodically by management and our independent directors, and, accordingly, are subject

These policies and procedures for voting proxies

for our investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.

Proxy Policies

Our proxy voting decisions are made by our investment

professionals, who review on a case-by-case basis each proposal submitted to a shareholder vote to determine its impact on the portfolio

securities held by the Company.

Although the Company generally votes against proposals that may have a negative impact on our portfolio

securities, we may vote for such a proposal if there exists compelling long-term reasons to do so.

We generally do not believe it is

necessary to engage the services of an independent third party to assist in issue analysis and vote recommendation for proxy proposals.

Under certain circumstances and when deemed in the best interests of shareholders, the Company may, in the discretion of its officers,

refrain from exercising its proxy voting right for a particular decision.

To ensure that our vote is not the product of

a conflict of interest, we require that:

(i) anyone involved in the decision making process disclose to our Chief Compliance Officer

any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy

and (ii) employees involved in the decision making process or vote administration are prohibited from revealing how we intend to

vote on a proposal in order to reduce any attempted influence from interested parties, unless such employee has received pre-approval

from our Chief Compliance Officer.

Proxy Voting Records

You may obtain information about how we voted proxies by making a

written request for proxy voting information to:

Chief Compliance Officer

PhenixFIN Corporation

445 Park Avenue, 10 th Floor

New York, NY 10022

Under the 1940 Act, we are not generally able

to issue and sell our common stock at a price below NAV per share.

We may, however, issue and sell our common stock, at a price below

the current NAV of the common stock, or issue and sell warrants, options or rights to acquire such common stock, at a price below the

current NAV of the common stock if our board of directors determines that such sale is in our best interest and in the best interests

of our stockholders, and our stockholders have approved our policy and practice of making such sales within the preceding 12 months.

In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination

of our board of directors, closely approximates the market value of such securities.

However, we currently do not have the requisite

stockholder approval, nor do we have any current plans to seek stockholder approval, to sell or issue shares of our common stock at a

price below NAV per share.

In addition, at our 2012 Annual Meeting of Stockholders

we received approval from our stockholders to authorize us, with the approval of our board of directors, to issue securities to, subscribe

to, convert to, or purchase shares of the Company’s common stock in one or more offerings, subject to certain conditions as set

forth in the proxy statement.

Such authorization has no expiration.

to be periodically examined by the SEC for compliance with the 1940 Act.

are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement.

Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising

from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s

adopted written policies and procedures reasonably designed to prevent violation of the federal securities laws, and will review these

policies and procedures annually for their adequacy and the effectiveness of their implementation.

We have designated a Chief Compliance

Officer to be responsible for administering the policies and procedures.

to Be Taxed as a RIC

have elected and intend to qualify annually to be treated as a RIC under Subchapter M of the Code.

As a RIC, we generally will not have

to pay corporate-level U.S.

federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders

as dividends.

To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements

(as described below).

In addition, we must distribute to our stockholders, for each taxable year, at least 90% of our “investment

company taxable income,”

which is generally our net ordinary income plus the excess of realized net short-term capital gains over

realized net long-term capital losses (the “Distribution Requirement”).

a RIC, if we satisfy the Distribution Requirement, we will not be subject to U.S.

federal income tax on the portion of our investment

company taxable income and net capital gain, defined as net long-term capital gains in excess of net short-term capital losses, we timely

distribute to stockholders.

We will be subject to U.S.

federal income tax at regular corporate rates on any net income or net capital

gain not distributed to our stockholders.

will be subject to a nondeductible U.S.

federal excise tax of 4% on undistributed income if we do not distribute at least the sum of

98% of our ordinary income in any calendar year, 98.2% of our capital gain net income for each one-year period ending on October 31,

and any income and capital gain net income that we recognized in preceding years, but were not distributed during such years, and on

which we did not pay U.S.

federal income tax.

Depending on the level of investment company taxable income (“ICTI”) earned

in a tax year and the amount of net capital gains recognized in such tax year, we may choose to carry forward ICTI in excess of current

year dividend distributions into the next tax year.

In order to eliminate our liability for income tax, and to the extent necessary to

maintain our qualification as a RIC, any such carryover ICTI and net capital gains must be distributed before the end of that next tax

year through a dividend declared prior to the 15th day of the 9th month after the close of the taxable year in which such ICTI was generated.

To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend

distributions for U.S.

federal excise tax purposes, we accrue U.S.

federal excise tax, if any, on estimated excess taxable income as

taxable income is earned.

to qualify as a RIC for U.S.

federal income tax purposes, we must, among other things:

to be treated as a BDC under the 1940 Act at all times during each taxable year;

in each taxable year at least 90% of our gross income from dividends, interest, payments

with respect to certain securities loans, gains from the sale of stock or other securities,

or other income derived with respect to our business of investing in such stock or securities,

and net income derived from interests in “qualified publicly traded partnerships”

(partnerships that are traded on an established securities market or tradable on a secondary

market, other than partnerships that derive 90% of their income from interest, dividends

and other permitted RIC income) (the “90% Income Test”);

our holdings so that at the end of each quarter of the taxable year:

least 50% of the value of our assets consists of cash, cash equivalents, U.S.

securities, securities of other RICs, and other securities if such other securities of any

one issuer do not represent more than 5% of the value of our assets or more than 10% of the

outstanding voting securities of the issuer;

more than 25% of the value of our assets is invested in the securities, other than U.S.

securities or securities of other RICs, of one issuer or of two or more issuers that are

controlled, as determined under applicable tax rules, by us and that are engaged in the same

or similar or related trades or businesses or in the securities of one or more qualified

publicly traded partnerships (the “Diversification Tests”).

We may invest

in partnerships, including qualified publicly traded partnerships, which may result in our being subject to state, local or foreign income

and franchise or withholding liabilities.

underwriting fees paid by us are not deductible.

We may be required to recognize taxable income in circumstances in which we do not receive

For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as

debt instruments with PIK interest or, in certain cases, with increasing interest rates or issued with warrants), we must include in

income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing

such income is received by us in the same taxable year.

Because any original issue discount accrued will be included in our investment

company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the

Distribution Requirement, even though we will not have received any corresponding cash amount.

we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy the Distribution Requirement.

However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior

securities are outstanding unless certain “asset coverage”

We expect to be periodically examined by the SEC for compliance with

the 1940 Act.

We are required to provide and maintain a bond

issued by a reputable fidelity insurance company to protect us against larceny and embezzlement.

Furthermore, as a BDC, we are prohibited

from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith,

gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.

We adopted written policies and procedures reasonably

designed to prevent violation of the federal securities laws, and will review these policies and procedures annually for their adequacy

and the effectiveness of their implementation.

We have designated a Chief Compliance Officer to be responsible for administering the

policies and procedures.

Election to Be Taxed as a RIC

We have elected and intend to qualify annually

to be treated as a RIC under Subchapter M of the Code.

As a RIC, we generally will not have to pay corporate-level U.S.

federal income

taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends.

To qualify as a RIC, we

must, among other things, meet certain source-of-income and asset diversification requirements (as described below).

In addition, we

must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,”

is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses

(the “Distribution Requirement”).

Taxation as a RIC

As a RIC, if we satisfy the Distribution Requirement,

we will not be subject to U.S.

federal income tax on the portion of our investment company taxable income and net capital gain, defined

as net long-term capital gains in excess of net short-term capital losses, we timely distribute to stockholders.

We will be subject to

federal income tax at regular corporate rates on any net income or net capital gain not distributed to our stockholders.

We will be subject to a nondeductible U.S.

excise tax of 4% on undistributed income if we do not distribute at least the sum of 98% of our ordinary income in any calendar year,

98.2% of our capital gain net income for each one-year period ending on October 31 of such year, and any income and capital gain net

income that we recognized in preceding years, but were not distributed during such years, and on which we did not pay U.S.

federal income

Depending on the level of investment company taxable income (“ICTI”) earned in a tax year and the amount of net capital

gains recognized in such tax year, we may choose to carry forward ICTI in excess of current year dividend distributions into the next

In order to eliminate our liability for income tax, and to the extent necessary to maintain our qualification as a RIC, any

such carryover ICTI and net capital gains must be distributed before the end of that next tax year through a dividend declared prior

to the 15th day of the 9th month after the close of the taxable year in which such ICTI was generated.

To the extent that we determine

that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions for U.S.

excise tax purposes, we accrue U.S.

federal excise tax, if any, on estimated excess taxable income as taxable income is earned.

In order to qualify as a RIC for U.S.

federal income tax purposes,

we must, among other things:

qualify to be treated as a BDC under the 1940 Act at all times during

each taxable year;

derive in each taxable year at least 90% of our gross income from dividends,

interest, payments with respect to certain securities loans, gains from the sale of stock or other securities, or other income derived

with respect to our business of investing in such stock or securities, and net income derived from interests in “qualified

publicly traded partnerships”

(generally, partnerships that are traded on an established securities market or tradable on a

secondary market, other than partnerships that could qualify as RICs if such partnerships were domestic corporations) (the “90%

Income Test”);

diversify our holdings so that at the end of each quarter of the taxable

at least 50% of the value of our assets consists of cash, cash equivalents,

government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent

more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer;

no more than 25% of the value of our assets is invested in the securities,

other than U.S.

government securities or securities of other RICs, of one issuer or of two or more issuers that are controlled, as

determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or in the

securities of one or more qualified publicly traded partnerships (the “Diversification Tests”).

We may invest in partnerships, including qualified publicly traded

partnerships, which may result in our being subject to state, local or foreign income and franchise or withholding liabilities.

Any underwriting fees paid by us are not deductible.

We may be required to recognize taxable income in circumstances in which we do not receive cash.

For example, if we hold debt obligations

that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain

cases, with increasing interest rates or issued with warrants), we must include in income each year a portion of the original issue discount

that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable

Because any original issue discount accrued will be included in our investment company taxable income for the year of accrual,

we may be required to make a distribution to our stockholders in order to satisfy the Distribution Requirement, even though we will not

have received any corresponding cash amount.

Although we do not presently expect to do so,

we are authorized to borrow funds and to sell assets in order to satisfy the Distribution Requirement.

However, under the 1940 Act, we

are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless

certain “asset coverage”

tests are met.

2 unchanged sentences

Senior Securities.”

Moreover, our ability to dispose of assets to satisfy the Distribution Requirement may be limited by (1) the

illiquid nature of our portfolio and/or (2) other requirements relating to our qualification as a RIC, including the Diversification

If we dispose of assets in order to meet the Distribution Requirement or avoid the imposition of excise tax, we may make such

dispositions at times that, from an investment standpoint, are not advantageous.

of the income and fees that we may recognize will not count towards satisfaction of the 90% Income Test.

In order to ensure that such

income and fees do not disqualify us as a RIC for a failure to satisfy the 90% Income Test, we may be required to recognize such income

and fees indirectly through one or more entities treated as corporations for U.S.

our ability to dispose of assets to satisfy the Distribution Requirement may be limited by (1) the illiquid nature of our portfolio and/or

(2) other requirements relating to our qualification as a RIC, including the Diversification Tests.

If we dispose of assets in order

to meet the Distribution Requirement or avoid the imposition of excise tax, we may make such dispositions at times that, from an investment

standpoint, are not advantageous.

Some of the income and fees that we may recognize

will not count towards satisfaction of the 90% Income Test.

In order to ensure that such income and fees do not disqualify us as a RIC

for a failure to satisfy the 90% Income Test, we may be required to recognize such income and fees indirectly through one or more entities

treated as corporations for U.S.

federal income tax purposes.

Such corporations will

be required to pay corporate level U.S.

federal income tax on their earnings, which ultimately will reduce our return on such income

to Qualify as a RIC

we were unable to continue to qualify for treatment as a RIC, we would be subject to U.S.

federal income tax on all of our taxable income

at regular corporate rates.

We would not be able to deduct distributions to stockholders, nor would they be required to be made.

Distributions,

including distributions of net long-term capital gain, would generally be taxable to our stockholders as ordinary dividend income to

the extent of our current and accumulated earnings and profits.

Subject to certain limitations under the Code, corporate distributees

would be eligible for the dividends received deduction.

Distributions in excess of our current and accumulated earnings and profits would

be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be

treated as a capital gain.

Such corporations will be required to pay corporate level U.S.

income tax on their earnings, which ultimately will reduce our return on such income and fees.

Failure to Qualify as a RIC

If we were unable to continue to qualify for

treatment as a RIC, we would be subject to U.S.

federal income tax on all of our taxable income at regular corporate rates.

not be able to deduct distributions to stockholders, nor would they be required to be made.

Distributions, including distributions of

net long-term capital gain, would generally be taxable to our stockholders as ordinary dividend income to the extent of our current and

accumulated earnings and profits.

Subject to certain limitations under the Code, corporate distributees would be eligible for the dividends

received deduction.

Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of

capital to the extent of the stockholder’s tax basis in their shares of the RIC, and any distributions in excess of tax basis would

be treated as a capital gain.

If we fail to qualify as a RIC for a period greater than two taxable years, to qualify as a RIC in a subsequent

3 unchanged sentences

respect to such assets if we had been liquidated) that we elect to recognize on requalification or when recognized over the next five

of our investment practices are subject to special and complex U.S.

federal income tax provisions that may, among other things, (1) disallow,

suspend or otherwise limit the allowance of certain losses or deductions, including the dividends received deduction, (2) convert lower

taxed long-term capital gains and qualified dividend income into higher taxed short-term capital gains or ordinary income, (3) convert

ordinary loss or a deduction into capital loss (the deductibility of which is more limited), (4) cause us to recognize income or gain

without a corresponding receipt of cash, (5) adversely affect the time as to when a purchase or sale of stock or securities is deemed

to occur, (6) adversely alter the characterization of certain complex financial transactions and (7) produce income that will not qualify

as good income for purposes of the 90% Income Test described above.

We will monitor our transactions and may make certain tax elections

and may be required to borrow money or dispose of securities to mitigate the effect of these rules and prevent disqualification as a

we make in securities issued at a discount or providing for deferred interest or payment of interest in kind are subject to special tax

rules that will affect the amount, timing and character of distributions to stockholders.

For example, if we hold debt obligations that

are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases,

with increasing interest rates or issued with warrants), we will generally be required to accrue daily as income a portion of the discount

and to distribute such income each year to avoid U.S.

Company Investments

Certain of our investment practices are subject

to special and complex U.S.

federal income tax provisions that may, among other things, (1) disallow, suspend or otherwise limit the

allowance of certain losses or deductions, including the dividends received deduction, (2) convert lower taxed long-term capital gains

and qualified dividend income into higher taxed short-term capital gains or ordinary income, (3) convert ordinary loss or a deduction

into capital loss (the deductibility of which is more limited), (4) cause us to recognize income or gain without a corresponding receipt

of cash, (5) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (6) adversely alter the

characterization of certain complex financial transactions and (7) produce income that will not qualify as good income for purposes of

the 90% Income Test described above.

We will monitor our transactions and may make certain tax elections and may be required to borrow

money or dispose of securities to mitigate the effect of these rules and prevent disqualification as a RIC.

Investments we make in securities issued at a

discount or providing for deferred interest or payment of interest in kind are subject to special tax rules that will affect the amount,

timing and character of distributions to stockholders.

For example, if we hold debt obligations that are treated under applicable tax

rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, with increasing interest rates

or issued with warrants), we will generally be required to accrue daily as income a portion of the discount and to distribute such income

each year to avoid U.S.

federal income and excise taxes.

Since in certain circumstances we may recognize

income before or without receiving cash representing such income, we may have difficulty making distributions in the amounts necessary

to satisfy the requirements for maintaining RIC tax treatment and for avoiding U.S.

Since in certain circumstances we may recognize income before or without receiving

cash representing such income, we may have difficulty making distributions in the amounts necessary to satisfy the requirements for maintaining

RIC tax treatment and for avoiding U.S.

federal income and excise taxes.

Accordingly, we

may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce

new investment originations to meet these distribution requirements.

If we are not able to obtain cash from other sources, we may fail

to qualify for tax treatment as a RIC and thereby be subject to corporate-level U.S.

Accordingly, we may have to sell some of our investments at

times we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these

distribution requirements.

If we are not able to obtain cash from other sources, we may fail to qualify for tax treatment as a RIC and

thereby be subject to corporate-level U.S.

federal income tax.

or loss realized by us from warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be

treated as capital gain or loss.

Such gain or loss generally will be long term or short term, depending on how long we held a particular

the event we invest in foreign securities, we may be subject to withholding and other foreign taxes with respect to those securities.

In that case, our yield on those securities would be decreased.

We do not expect to satisfy the requirements necessary to pass through

to our stockholders their share of the foreign taxes paid by us.

we purchase shares in a “passive foreign investment company’’

Gain or loss realized by us from warrants acquired

by us as well as any loss attributable to the lapse of such warrants generally will be treated as capital gain or loss.

loss generally will be long term or short term, depending on how long we held a particular warrant.

In the event we invest in foreign securities,

we may be subject to withholding and other foreign taxes with respect to those securities.

In that case, our yield on those securities

would be decreased.

We do not expect to satisfy the requirements necessary to pass through to our stockholders their share of the foreign

taxes paid by us.

If we purchase shares in a “passive foreign

investment company’’

(a “PFIC’’), we may be subject to U.S.

federal income tax on a portion of any “excess distribution’’

or gain from the disposition of such shares even if such

income is distributed as a taxable dividend by us to our stockholders.

Additional charges in the nature of interest may be imposed on

us in respect of deferred taxes arising from such distributions or gains.

If we invest in a PFIC and elect to treat the PFIC as a “qualified

electing fund’’

under the Code (a “QEF’’), in lieu of the foregoing requirements, we will be required to

include in income each year a portion of the ordinary earnings and net capital gain of the QEF, even if such income is not distributed

Alternatively, we may be able to elect to mark-to-market at the end of each taxable year our shares in certain PFICs;

case, we will recognize as ordinary income any increase in the value of such shares, and as ordinary loss any decrease in such value

to the extent it does not exceed prior increases included in income.

Under either election, we may be required to recognize in a year

income in excess of our distributions from PFICs and our proceeds from dispositions of PFIC stock during that year, and such income will

nevertheless be subject to the Distribution Requirement and will be taken into account for purposes of the 4% U.S.

federal excise tax.

inclusions from a QEF will be “good income’’

for purposes of the 90% Income Test provided that they are derived in

connection with our business of investing in stocks and securities or the QEF distributes such income to us in the same taxable year

in which the income is included in our income.

federal income tax on a portion of any “excess

distribution’’

or gain from the disposition of such shares even if such income is distributed as a taxable dividend by us

to our stockholders.

Additional charges in the nature of interest may be imposed on us in respect of deferred taxes arising from such

distributions or gains.

If we invest in a PFIC and elect to treat the PFIC as a “qualified electing fund’’

Code (a “QEF’’), in lieu of the foregoing requirements, we will be required to include in income each year a portion

of the ordinary earnings and net capital gain of the QEF, even if such income is not distributed to us.

Alternatively, we may be able

to elect to mark-to-market at the end of each taxable year our shares in certain PFICs;

in this case, we will recognize as ordinary income

any increase in the value of such shares, and as ordinary loss any decrease in such value to the extent it does not exceed prior increases

included in income.

Under either election, we may be required to recognize in a year income in excess of our distributions from PFICs

and our proceeds from dispositions of PFIC stock during that year, and such income will nevertheless be subject to the Distribution Requirement

and will be taken into account for purposes of the 4% U.S.

federal excise tax described above.

Income inclusions from a QEF will be “good

income’’

for purposes of the 90% Income Test provided that they are derived in connection with our business of investing

in stocks and securities or the QEF distributes such income to us in the same taxable year in which the income is included in our income.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business