Capital Southwest
Annual Report 2019

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FORM 10-K(Mark One)[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2019OR[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 814-00061CAPITAL SOUTHWEST CORPORATION(Exact name of registrant as specified in its charter) Texas75-1072796(State or other jurisdiction of incorporationor organization)(I.R.S. EmployerIdentification No.) 5400 Lyndon B Johnson Freeway, Suite 1300, Dallas, Texas75240(Address of principal executive offices)(Zip Code)Registrant’s telephone number, including area code: (214) 238-5700Securities registered pursuant to Section 12(b) of the Act: Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which RegisteredCommon Stock, $0.25 par value per shareCSWCThe Nasdaq Global Select Market5.95% Notes due 2022CSWCLThe Nasdaq Global Select Market Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. YES ☒ NO ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submitsuch files). YES ☐ NO ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, oran emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerginggrowth company” in Rule 12b-2 of the Exchange Act.Large accelerated filer¨Accelerated filerýNon-accelerated filer¨Smaller reportingcompany¨Emerging growthcompany¨If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with anynew or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).YES ☐ NO ☒ The aggregate market value of the voting stock held by non-affiliates of the registrant as of September 28, 2018 was $289,667,104 based on the lastsale price of such stock as quoted by The Nasdaq Global Select Market on such date.The number of shares of common stock, $0.25 par value per share, outstanding as of May 31, 2019 was 17,500,758.Documents Incorporated by ReferencePortions of the registrant’s Definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the registrant’sAnnual Meeting of Shareholders to be held July 31, 2019 are incorporated by reference into Part III of this Annual Report on Form 10-K.Table of ContentsTABLE OF CONTENTS PART I PageItem 1. Business2Item 1A. Risk Factors18Item 1B. Unresolved Staff Comments33Item 2. Properties33Item 3. Legal Proceedings33Item 4. Mine Safety Disclosures33 PART II Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities34Item 6. Selected Financial Data38Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations39Item 7A. Quantitative and Qualitative Disclosures About Market Risk55Item 8. Financial Statements and Supplementary Data56Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure122Item 9A. Controls and Procedures122Item 9B. Other Information122 PART III Item 10. Directors, Executive Officers and Corporate Governance123Item 11. Executive Compensation123Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters123Item 13. Certain Relationships and Related Transactions, and Director Independence123Item 14. Principal Accountant Fees and Services123 PART IV Item 15. Exhibits, Financial Statement Schedules124Item 16.Form 10-K Summary128 Signatures 129Table of ContentsTable of ContentsCAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements regarding the plans and objectives of management for futureoperations. Any such forward-looking statements may involve known and unknown risks, uncertainties and other factors which may cause our actualresults, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations are generallyidentifiable by use of the words “may,” “predict,” “will,” “continue,” “likely,” “would,” “could,” “should,” “expect,” “anticipate,” “potential,”“estimate,” “indicate,” “seek,” “believe,” “target,” “intend,” “plan,” or “project” or the negative of these words or other variations on these words orcomparable terminology. These forward-looking statements involve risks and uncertainties and are based on assumptions that may be incorrect, and wecannot assure you that the projections included in these forward-looking statements will come to pass. Accordingly, there are or will be important factorsthat could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. We believe these factors include,but are not limited to, the following: •our future operating results;•market conditions and our ability to access debt and equity capital and our ability to manage our capital resources effectively;•the timing of cash flows, if any, from the operations of our portfolio companies;•our business prospects and the prospects of our existing and prospective portfolio companies;•the financial condition and ability of our existing and prospective portfolio companies to achieve their objectives;•the adequacy of our cash resources and working capital;•our ability to recover unrealized losses;•our expected financings and investments;•our contractual arrangements and other relationships with third parties;•the impact of fluctuations in interest rates on our business;•the impact of a protracted decline in the liquidity of credit markets on our business;•our ability to operate as a BDC and a RIC, including the impact of changes in laws or regulations, including the tax reform, governing ouroperations or the operations of our portfolio companies;•the dependence of our future success on the general economy and its impact on the industries in which we invest;•our ability to successfully invest any capital raised in an offering;•the return or impact of current and future investments;•the valuation of our investments in portfolio companies, particularly those having no liquid trading market;•our regulatory structure and tax treatment; and•the timing, form and amount of any dividend distributions.For a discussion of these and other factors that could cause our actual results to differ materially from forward-looking statements contained in thisAnnual Report, please see the discussion under “Risk Factors” in Item 1A. We have based the forward-looking statements included in this Annual Report on Form 10-K on information available to us on the date of thisAnnual Report on Form 10-K. You should not place undue reliance on these forward-looking statements and you should carefully consider all of the factorsidentified in this report that could cause actual results to differ. We assume no obligation to update any such forward-looking statements, unless we arerequired to do so by applicable law.1Table of ContentsPART IItem 1. Business ORGANIZATION Capital Southwest Corporation, which we refer to as “we,” “our,” “us,” “CSWC,” or the “Company” is an internally managed closed-end, non-diversified investment company that has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940,as amended, or the 1940 Act. We specialize in providing customized financing to middle market companies in a broad range of industry segments locatedprimarily in the United States. Our common stock currently trades on The Nasdaq Global Select Market under the ticker symbol “CSWC.” We were organized as a Texas corporation on April 19, 1961. Until September 1969, we operated as a small business investment company, or SBIC,licensed under the Small Business Investment Act of 1958. At that time, we transferred to our wholly-owned subsidiary, Capital Southwest VentureCorporation, or CSVC, certain assets including our SBIC license. CSVC was a closed-end, non-diversified investment company registered under the 1940Act. Effective June 14, 2016, CSVC was dissolved and its SBIC license was surrendered. All assets held in CSVC were transferred to us upon dissolution.Prior to March 30, 1988, we were registered as a closed-end, non-diversified investment company under the 1940 Act. On that date, we elected to be treatedas a BDC under the 1940 Act. As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least70% of our assets in “qualifying assets,” including securities of private or thinly traded public U.S. companies, cash, cash equivalents, U.S. governmentsecurities and high quality debt investments that mature in one year or less. In addition, effective April 25, 2019, we are allowed to borrow money such thatour asset coverage, as defined in the 1940 Act, equals at least 150% after such borrowing. Additionally, the Board of Directors approved a resolution whichlimits the Company's issuance of senior securities such that the asset coverage ratio, taking into account any such issuance, would not be less than 166%, atany time after the effective date. We have elected, and intend to qualify annually, to be treated for U.S. federal income tax purposes as a regulated investment company, or RIC, underSubchapter M of the U.S. Internal Revenue Code of 1986, or the Code. As such, we generally will not have to pay corporate-level U.S. federal income tax onany ordinary income or capital gains that we distribute to our shareholders as dividends. To continue to maintain our RIC tax treatment, we must meetspecified source-of-income and asset diversification requirements and distribute annually at least 90% of our ordinary income and realized net short-termcapital gains in excess of realized net long-term capital losses, if any. Depending on the level of taxable income earned in a tax year, we may choose to carryforward taxable income in excess of current year distributions into the next year and pay a 4% U.S. federal excise tax on such income. Any such carryovertaxable income must be distributed through a dividend declared prior to filing the final tax return related to the year that generated such taxable income. Capital Southwest Management Corporation, or CSMC, our wholly-owned subsidiary, is our management company. CSMC generally incurs allnormal operating and administrative expenses, including, but not limited to, salaries and related benefits, rent, equipment and other administrative costsrequired for day-to-day operations. We also have a direct wholly-owned subsidiary that has been elected to be a taxable entity (the “Taxable Subsidiary”). The primary purpose of theTaxable Subsidiary is to permit us to hold certain interests in portfolio companies that are organized as limited liability companies, or LLCs (or other forms ofpass-through entities) and still allow us to satisfy the RIC tax requirement that at least 90% of our gross income for U.S. federal income tax purposes mustconsist of qualifying investment income. The Taxable Subsidiary is taxed at normal corporate tax rates based on its taxable income. On September 30, 2015, we completed the spin-off, which we refer to as the Share Distribution, of CSW Industrials, Inc., or CSWI. CSWI is now anindependent publicly traded company. The Share Distribution was effected through a tax-free, pro-rata distribution of 100% of CSWI’s common stock to ourshareholders. Each of our shareholders received one share of CSWI common stock for every one share of our common stock on the record date, September 18,2015. Cash was paid in lieu of any fractional shares of CSWI common stock. Following the Share Distribution, we have maintained operations as an internally managed BDC and pursued a credit-focused investing strategyakin to similarly structured organizations. We intend to continue to provide capital to middle-market companies. We invest primarily in debt securities,including senior debt, second lien and subordinated debt, and also invest in preferred stock and common stock alongside our debt investments or throughwarrants.2Table of ContentsThe following diagram depicts our organizational structure: Employees As of March 31, 2019, we had twenty-two employees, each of whom was employed by our management company, CSMC. These employees includeour corporate officers, investment and portfolio management professionals and administrative staff. All of our employees are located in our principalexecutive offices in Dallas, Texas. Corporate Information Our principal executive offices are located at 5400 Lyndon B. Johnson Freeway, Suite 1300, Dallas, Texas 75240. We maintain a website atwww.capitalsouthwest.com. You can review the filings we have made with the Securities and Exchange Commission, or the SEC, free of charge on EDGAR,the Electronic Data Gathering, Analysis, and Retrieval System of the SEC, accessible at http://www.sec.gov. We also make available free of charge on ourwebsite our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, any amendments to those reports and any otherreports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, or the Exchange Act, as soon as reasonably practicableafter filing these reports with the SEC. Information on our website is not incorporated by reference into this Annual Report on Form 10-K and you should notconsider that information to be part of this Annual Report on Form 10-K. The charters adopted by the committees of our Board of Directors are also availableon our website. OVERVIEW OF OUR BUSINESS We are an internally managed closed-end, non-diversified investment company that has elected to be regulated as a BDC under the 1940 Act. Wespecialize in providing customized debt and equity financing to lower middle market, or LMM, companies and debt capital to upper middle market, orUMM, companies in a broad range of investment segments located primarily in the United States. Our investment objective is to produce attractive risk-adjusted returns by generating current income from our debt investments and capital appreciation from our equity and equity related investments. Ourinvestment strategy is to partner with business owners, management teams and financial sponsors to provide flexible financing solutions to fund growth,changes of control, or other corporate events. We invest primarily in senior debt securities, secured by security interests in portfolio company assets, and insecured and unsecured subordinated debt securities. We also invest in equity interests in our portfolio companies alongside our debt securities.We focus on investing in companies with histories of generating revenues and positive cash flow, established market positions and provenmanagement teams with strong operating discipline. We target senior debt, subordinated debt, and equity investments in LMM companies, as well as first andsecond lien syndicated loans in UMM companies. Our target LMM companies typically have annual earnings before interest, taxes, depreciation andamortization, or EBITDA, between $3.0 million and $15.0 million, and our LMM investments generally range in size from $5.0 million to $25.0 million. OurUMM investments3Table of Contentsgenerally include syndicated first and second lien loans in companies with EBITDA generally greater than $50.0 million, and our UMM investmentstypically range in size from $5.0 million to $15.0 million. We seek to fill the financing gap for LMM companies, which historically have had more limited access to financing from commercial banks andother traditional sources. The underserved nature of the LMM creates the opportunity for us to meet the financing needs of LMM companies while alsonegotiating favorable transaction terms and equity participation. Our ability to invest across a LMM company’s capital structure, from secured loans toequity securities, allows us to offer portfolio companies a comprehensive suite of financing options. Providing customized financing solutions is important toLMM companies. We generally seek to partner directly with financial sponsors, entrepreneurs, management teams and business owners in making ourinvestments. Our LMM debt investments typically include senior loans with a first lien on the assets of the portfolio company, as well as subordinated debtwhich may either be secured or unsecured subordinated loans. Our LMM debt investments typically have a term of between five and seven years from theoriginal investment date. We also often seek to invest in the equity securities of our LMM portfolio companies. Our investments in UMM companies primarily consist of direct investments in or secondary purchases of interest bearing debt securities in privatelyheld companies that are generally larger in size than the LMM companies included in our portfolio. Our UMM debt investments are generally secured byeither a first or second priority lien on the assets of the portfolio company and typically have an expected duration of between three and seven years from theoriginal investment date. We offer managerial assistance to our portfolio companies and provide them access to our investment experience, direct industry expertise andcontacts. Our obligation to offer to make available significant managerial assistance to our portfolio companies is consistent with our belief that providingmanagerial assistance to a portfolio company is important to its business development activities. Because we are internally managed, we do not pay any external investment advisory fees, but instead directly incur the operating costs associatedwith employing investment and portfolio management professionals. We believe that our internally managed structure provides us with a beneficialoperating expense structure when compared to other publicly traded and privately held investment firms that are externally managed, and our internallymanaged structure allows us the opportunity to leverage our non-interest operating expenses as we grow our investment portfolio. Recent Developments On May 23, 2019, CSWC entered into an Incremental Assumption Agreement, which increased the total commitments under the Amended andRestated Senior Secured Revolving Credit Agreement, dated as of December 21, 2018 (the "Credit Agreement"), relating to our senior secured credit facility(the "Credit Facility"), by $25 million. The increase was executed under the accordion feature of the Credit Facility and increased total commitments from$270 million to $295 million.On May 30, 2019, the Board of Directors declared a total dividend of $0.49 per share, comprised of a regular dividend of $0.39 and a supplementaldividend of $0.10, for the quarter ended June 30, 2019. The record date for the dividend is June 14, 2019. The payment date for the dividend is June 28,2019.Our Business Strategy Our business strategy is to achieve our investment objective of producing attractive risk-adjusted returns by generating current income from our debtinvestments and realizing capital appreciation from our equity and equity-related investments. We have adopted the following business strategies to achieveour investment objective: •Leveraging the Experience of Our Management Team. Our senior management team has extensive experience investing in and lending to middlemarket companies across changing market cycles. The members of our management team have diverse investment backgrounds, with prior experienceat BDCs in the capacity of senior officers. We believe this extensive experience provides us with an in-depth understanding of the strategic, financialand operational challenges and opportunities of the middle market companies in which we invest. We believe this understanding allows us to selectand structure better investments and to efficiently monitor and provide managerial assistance to our portfolio companies.•Applying Rigorous Underwriting Policies and Active Portfolio Management. Our senior management team has implemented rigorous underwritingpolicies that are followed in each transaction. These policies include a thorough analysis of each potential portfolio company’s competitive position,financial performance, management team operating discipline, growth potential and industry attractiveness, which we believe allows us to betterassess the company’s prospects. After investing in a company, we monitor the investment closely, typically receiving monthly, quarterly and annualfinancial4Table of Contentsstatements. Senior management, together with the deal team and accounting and finance departments, meets at least monthly to analyze and discuss indetail the company’s financial performance and industry trends. We believe that our initial and ongoing portfolio review process allows us to monitoreffectively the performance and prospects of our portfolio companies.•Investing Across Multiple Companies, Industries, Regions and End Markets. We seek to maintain a portfolio of investments that is appropriatelydiverse among various companies, industries, geographic regions and end markets. This portfolio balance is intended to mitigate the potential effectsof negative economic events for particular companies, regions, industries and end markets. However, we may from time to time hold securities of anindividual portfolio company that comprise more than 5% of our total assets and/or more than 10% of the outstanding voting securities of theportfolio company. For that reason, we are classified as a non-diversified investment company that has elected to be regulated as a BDC under the1940 Act.•Utilizing Long-Standing Relationships to Source Deals. Our senior management team and investment professionals maintain extensive relationshipswith entrepreneurs, financial sponsors, attorneys, accountants, investment bankers, commercial bankers and other non-bank providers of capital whorefer prospective portfolio companies to us. These relationships historically have generated significant investment opportunities. We believe that ournetwork of relationships will continue to produce attractive investment opportunities.•Focusing on Underserved Markets. The middle market has traditionally been underserved. We believe that operating margin and growth pressures,as well as regulatory concerns, have caused many financial institutions to de-emphasize services to middle market companies in favor of largercorporate clients and more liquid capital market transactions. We also invest in securities that would be rated below investment grade if they wererated. We believe these dynamics have resulted in the financing market for middle market companies being underserved, providing us with greaterinvestment opportunities.•Focus on Established Companies. We generally invest in companies with established market positions, proven management teams with strongoperating discipline, histories of generating revenues, and recurring cash flow streams. We believe that those companies generally possess better riskadjusted return profiles than earlier stage companies that are building their management teams and establishing their revenue base. We also believethat established companies in our target size range generally provide opportunities for capital appreciation.•Capital Structures Appropriate for Potential Industry and Business Volatility. Our investment team spends significant time understanding theperformance of both the target portfolio company and its specific industry throughout a full economic cycle. The history of each specific industry andtarget portfolio company will demonstrate a different level of potential volatility in financial performance. We seek to understand this dynamicthoroughly and invest our capital at leverage levels in the capital structure that will remain within enterprise value and in securities that will receiveinterest payments if such downside volatility were to occur. •Providing Customized Financing Solutions. We offer a variety of financing structures and have the flexibility to structure our investments to meetthe needs of our portfolio companies. Often we invest in senior and subordinated debt securities, coupled with equity interests. We believe our abilityto customize financing structures makes us an attractive partner to middle market companies.INVESTMENT CRITERIA AND OBJECTIVES Our investment team has identified the following investment criteria that we believe are important in evaluating prospective investmentopportunities. However, not all of these criteria have been or will be met in connection with each of our investments: •Companies with Positive and Sustainable Cash Flow: We generally seek to invest in established companies with sound historical financialperformance.•Excellent Management: Management teams with a proven record of achievement, exceptional ability, unyielding determination and integrity. Webelieve management teams with these attributes are more likely to manage the companies in a manner that protects and enhances value.•Industry: We primarily focus on companies having competitive advantages in their respective markets and/or operating in industries with barriers toentry, which may help protect their market position.•Strong Private Equity Sponsors: We focus on developing relationships with leading private equity firms in order to partner with these firms andprovide them capital to support the acquisition and growth of their portfolio companies.5Table of Contents•Appropriate Risk-Adjusted Returns: We focus on and price opportunities to generate returns that are attractive on a risk-adjusted basis, taking intoconsideration factors, in addition to the ones depicted above, including credit structure, leverage levels and the general volatility and potentialvolatility of cash flows.We have an investment committee that is responsible for all aspects of our investment process relating to investments made by us. The currentmembers of the investment committee are Bowen Diehl, Chief Executive Officer, Michael Sarner, Chief Financial Officer, Douglas Kelley, ManagingDirector, Josh Weinstein, Managing Director, and David Brooks, Chairman of the Board. Investment Process Our investment strategy involves a team approach, whereby our investment team screens potential transactions before they are presented to theinvestment committee for approval. Transactions that are either above a certain hold size or outside our general investment policy will also be reviewed andapproved by the Board of Directors. Our investment team generally categorizes the investment process into six distinctive stages: •Deal Generation/Origination: Deal generation and origination is maximized through long-standing and extensive relationships with private equityfirms, leveraged loan syndication desks, brokers, commercial and investment bankers, entrepreneurs, service providers such as lawyers andaccountants, and current and former portfolio companies and investors.•Screening: Once it is determined that a potential investment has met our investment criteria, we will screen the investment by performing preliminarydue diligence, which could include discussions with the private equity firm, management team, loan syndication desk, etc. Upon successful screeningof the proposed investment, the investment team makes a recommendation to move forward and prepares an initial screening memo for our investmentcommittee. We then issue either a non-binding term sheet (in the case of a directly originated transaction), or submit an order to the loan syndicationdesk (in the case of a large-market syndicated loan transaction).•Term Sheet: In a directly originated transaction, the non-binding term sheet will typically include the key economic terms of our investmentproposal, along with exclusivity, confidentiality, and expense reimbursement provisions, among other terms relevant to the particular investment.Upon acceptance of the term sheet, we will begin our formal due diligence process. In a syndicated loan transaction, rather than a formal term sheet, wewill submit an order for an allocation to the syndicated loan desk.•Due Diligence: Due diligence is performed under the direction of our senior investment professionals, and involves our entire investment team as wellas certain external resources, who together perform due diligence to understand the relationships among the prospective portfolio company’s businessplan, operations, financial performance, and legal risks. On our directly originated transactions, our due diligence will often include (1) conductingsite visits with management and key personnel; (2) performing a detailed review of historical and projected financial statements, often with a third-party accounting firm, to evaluate the target company’s normalized cash flow; (3) creating our own detailed modeling projections, including adownside case which attempts to project how the business would perform in a recession based on past operating history of either the company or theindustry (4) interviewing key customers and suppliers; (5) evaluating company management, including a formal background check; (6) reviewingmaterial contracts; (7) conducting an industry, market and strategy analysis; and (8) obtaining a review by legal, environmental or otherconsultants. In instances where a financial sponsor is investing in the equity in a transaction, we will leverage work done by the financial sponsor forpurposes of our due diligence. In syndicated loan transactions, our due diligence may exclude direct customer and supplier interviews, and willconsist of a detailed review of reports from the financial sponsor or syndication agent for industry and market analysis, and legal and environmentaldiligence. •Document and Close: Upon completion of a satisfactory due diligence review, our investment team presents its written findings to the investmentcommittee. For transactions that are either over a certain hold size, or outside our general investment policy, the investment team will present thetransaction to our Board of Directors for approval. Upon approval for the investment, we re-confirm our regulatory company compliance, process andfinalize all required legal documents and fund the investment.•Post-Investment: We continuously monitor the status and progress of our portfolio companies, as well as our investment thesis developed at the timeof investment. We offer managerial assistance to our portfolio companies and provide them access to our investment experience, direct industryexpertise and contacts. The same investment team leader that was involved in the investment process will continue to be involved in the portfoliocompany post-investment. This approach provides continuity of knowledge and allows the investment team to maintain a strong businessrelationship with the6Table of Contentsfinancial sponsor, business owner and key management of our portfolio companies. As part of the monitoring process, members of our investmentteam will analyze monthly, quarterly and annual financial statements against previous periods, review financial projections, meet with the financialsponsor and management (when necessary), attend board meetings (when appropriate) and review all compliance certificates and covenants. Ourinvestment team meets once each month with senior management to review the performance of each of our portfolio companies.We utilize an internally developed investment rating system to rate the performance and monitor the expected level of returns for each debtinvestment in our portfolio. The investment rating system takes into account both quantitative and qualitative factors of the portfolio company and theinvestments held therein, including each investment’s expected level of returns and the collectability of our debt investments, comparisons to competitorsand other industry participants and the portfolio company’s future outlook. The ratings are not intended to reflect the performance or expected level ofreturns of our equity investments. •Investment Rating 1 represents the least amount of risk in our portfolio. The investment is performing materially above underwriting expectations andthe trends and risk factors are generally favorable.•Investment Rating 2 indicates the investment is performing as expected at the time of underwriting and the trends and risk factors are generallyfavorable to neutral. •Investment Rating 3 involves an investment performing below underwriting expectations and the trends and risk factors are generally neutral tonegative. The portfolio company or investment may be out of compliance with financial covenants and interest payments may be impaired, howeverprincipal payments are generally not past due. •Investment Rating 4 indicates that the investment is performing materially below underwriting expectations, the trends and risk factors are generallynegative and the risk of the investment has increased substantially. Interest and principal payments on our investment are likely to be impaired. Determination of Net Asset Value Quarterly DeterminationsWe determine our net asset value, or NAV, per share on a quarterly basis. The NAV per share is equal to our total assets minus liabilities divided bythe total number of shares of common stock outstanding. We determine in good faith the fair value of our portfolio investments pursuant to a valuation policy in accordance with Accounting StandardsCodification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) and a valuation process approved by our Board of Directors and inaccordance with the 1940 Act. Our valuation policy is intended to provide a consistent basis for determining the fair value of the portfolio. We undertake a multi-step valuation process each quarter in connection with determining the fair value of our investments. The valuation process isled by the finance department in conjunction with the investment teams and senior management. Valuations of each portfolio security are prepared quarterlyby the finance department using updated portfolio company financial and operational information. Each investment valuation is also subject to review bythe executive officers and investment teams. In conjunction with the internal valuation process, we have engaged multiple independent consulting firms that specialize in financial duediligence, valuation and business advisory services to provide third-party valuation reviews of the majority of our investments on a quarterly basis. OurBoard of Directors is ultimately responsible for overseeing, reviewing and approving, in good faith, our determination of the fair value of each investment inour portfolio. Determinations in Connection with our OfferingsIn connection with each offering of shares of our common stock, our Board of Directors or an authorized committee thereof is required by the 1940Act to make the determination that we are not selling shares of our common stock at a price below our then current NAV at the time at which the sale is made.Our Board of Directors or an authorized committee thereof considers the following factors, among others, in making such determination:•the NAV of our common stock disclosed in the most recent periodic report we filed with the SEC;•our management’s assessment of whether any material change in the NAV has occurred (including through the realization of net gains on the sale ofour investments) from the period beginning on the date of the most recently disclosed NAV7Table of Contentsper share of our common stock and ending as of a time within 48 hours (excluding Sundays and holidays) of the sale of our common stock; and•the magnitude of the difference between (i) a value that our Board of Directors or an authorized committee thereof has determined reflects the current(as of a time within 48 hours, excluding Sundays and holidays) NAV of our common stock, which is based upon the NAV disclosed in the mostrecent periodic report we filed with the SEC, as adjusted to reflect our management’s assessment of any material change in the NAV since the date ofthe most recently disclosed NAV, and (ii) the offering price of the shares of our common stock in the proposed offering. Moreover, to the extent that there is even a remote possibility that we may (i) issue shares of our common stock at a price below the then currentNAV of our common stock at the time at which the sale is made or (ii) trigger the undertaking (which we provided to the SEC) to suspend the offering ofshares of our common stock if the NAV fluctuates by certain amounts in certain circumstances, our Board of Directors or an authorized committee thereof willelect, in the case of clause (i) above, either to postpone the offering until such time that there is no longer the possibility of the occurrence of such event or toundertake to determine NAV within two days prior to any such sale to ensure that such sale will not be below our then current NAV, and, in the case of clause(ii) above, to comply with such undertaking or to undertake to determine NAV to ensure that such undertaking has not been triggered.These processes and procedures are part of our compliance policies and procedures. Records are made contemporaneously with all determinationsdescribed in this section and these records are maintained with other records we are required to maintain under the 1940 Act. COMPETITION We compete for attractive investment opportunities with other financial institutions, including BDCs, junior capital lenders, and banks. We believewe are able to be competitive with these entities primarily on the basis of the experience and contacts of our management team and our responsive andefficient investment analysis and decision-making processes. However, many of our competitors are substantially larger and have considerably greaterfinancial, technical and marketing resources than we do. Furthermore, our competitors may have a lower cost of funds and many have access to fundingsources that are not available to us. In addition, certain of our competitors may have higher risk tolerances or different risk assessments, which could allowthem to consider a wider variety of investments, establish more relationships and build their market shares. Likewise, many of our competitors are not subjectto the regulatory restrictions and valuation requirements that the 1940 Act imposes on us as a BDC. See “Risk Factors—Risks Related to Our Business andStructure—We operate in a highly competitive market for investment opportunities.” We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and resultsof operations. In addition, because of this competition, we may be unable to take advantage of attractive investment opportunities and may be unable toidentify and make investments that satisfy our investment objectives or meet our investment goals.LEVERAGE We may from time to time borrow funds to make investments, a practice known as “leverage,” in an attempt to increase returns to our shareholders.Effective April 25, 2019, we are allowed to borrow amounts such that our asset coverage, as calculated in accordance with the 1940 Act, equals at least 150%after such borrowing. Additionally, the Board of Directors approved a resolution which limits the Company's issuance of senior securities such that the assetcoverage ratio, taking into account any such issuance, would not be less than 166%, at any time after the effective date. The amount of leverage that weemploy at any particular time will depend on management’s and our Board of Directors’ assessments of portfolio mix, prevailing market advance rates andother market factors at the time of any proposed borrowing. See “Risk Factors – Risks Related to Our Business and Structure – Because we borrow money tomake investments, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us.” We intend to continue borrowing under the Credit Facility in the future and we may increase the size of the Credit Facility, add additional creditfacilities or otherwise issue additional debt securities or other evidences of indebtedness in the future, although there can be no assurance that we will be ableto do so. See "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Liquidity and Capital Resources" as wellas Note 5 to our consolidated financial statements for the year ended March 31, 2019 for information regarding the Credit Facility and the issuance of theDecember 2022 Notes.8Table of Contents BROKERAGE ALLOCATION AND OTHER PRACTICES Since we generally acquire and dispose of our investments in privately negotiated transactions, we infrequently use brokers in the normal course ofour business. Our investment team is primarily responsible for the execution of the publicly traded securities portion of our portfolio transactions and theallocation of brokerage commissions. We do not expect to execute transactions through any particular broker or dealer, but will seek to obtain the best netresults for us, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty ofexecution, and operational facilities of the firm and the firm’s risk and skill in positioning blocks of securities. While we will generally seek reasonablycompetitive trade execution costs, we will not necessarily pay the lowest spread or commission available. Subject to applicable legal requirements, we mayselect a broker based partly upon brokerage or research services provided to us. In return for such services, we may pay a higher commission than otherbrokers would charge if we determine in good faith that such commission is reasonable in relation to the services provided. We did not pay any brokeragecommissions during the three years ended March 31, 2019. DIVIDEND REINVESTMENT PLAN We have adopted a dividend reinvestment plan, or DRIP, that provides for the reinvestment of dividends on behalf of our shareholders. Under theDRIP, if we declare a dividend, registered shareholders who have opted into the DRIP as of the dividend record date will have their dividend automaticallyreinvested into additional shares of our common stock. The share requirements of the DRIP are satisfied through open market purchases of common stock bythe DRIP plan administrator. Shares purchased in the open market to satisfy the DRIP requirements will be valued based upon the average price of theapplicable shares purchased by the DRIP plan administrator, before any associated brokerage or other costs. ELECTION TO BE REGULATED AS A BUSINESS DEVELOPMENT COMPANY We are a closed-end, non-diversified investment company that has elected to be treated as a BDC under the 1940 Act. In addition, we have elected,and intend to qualify annually, to be treated as a RIC. Our election to be regulated as a BDC and our election to be treated as a RIC for U.S. federal incometax purposes have a significant impact on our operations. Some of the most important effects on our operations of our election to be regulated as a BDC andour election to be treated as a RIC are outlined below. •We report our investments at market value or fair value with changes in value reported through our consolidated statements of operations.In accordance with the requirements of the 1940 Act and Article 6 of Regulation S-X, we report all of our investments, including debt investments, atmarket value or, for investments that do not have a readily available market value, at their “fair value” as determined in good faith by our Board of Directors.Changes in these values are reported through our consolidated statements of operations under the caption of “net change in unrealized appreciation oninvestments.” See “Determination of Net Asset Value” above. •We intend to distribute substantially all of our income to our shareholders. We generally will be required to pay income taxes only on the portionof our taxable income we do not distribute to shareholders (actually or constructively).As a RIC, so long as we meet certain minimum distribution, source of income and asset diversification requirements, we generally are required to payU.S. federal income taxes only on the portion of our taxable income and gains we do not distribute (actually or constructively) and certain built-in gains.Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into thenext year and pay a 4% excise tax on such income. Any such carryover taxable income must be distributed through a dividend declared prior to filing thefinal tax return related to the year that generated such taxable income. We intend to distribute to our shareholders substantially all of our income. We may,however, make deemed distributions to our shareholders of any retained net long-term capital gains. If this happens, our shareholders will be treated as if theyreceived an actual distribution of the net capital gains and reinvested the net after-tax proceeds in us. Our shareholders also may be eligible to claim a taxcredit (or, in certain circumstances, a tax refund) equal to their allocable share of the corporate-level U.S. federal income tax we pay on the deemeddistribution. See “Material U.S. Federal Income Tax Considerations.” We met the minimum distribution requirements for tax years 2018, 2017 and 2016 andcontinually monitor our distribution requirements with the goal of ensuring compliance with the Code. In addition, we have a Taxable Subsidiary that holds a portion of one or more of our portfolio investments that are listed on the ConsolidatedSchedule of Investments. The Taxable Subsidiary is consolidated for financial reporting purposes in accordanceTable of Contentswith U.S. Generally Accepted Accounting Principles, or GAAP, so that our consolidated financial statements reflect our investments in the portfoliocompanies owned by the Taxable Subsidiary. The purpose of the Taxable Subsidiary is to permit us to hold certain interests in portfolio companies that areorganized as limited liability companies, or LLCs (or other forms of pass-through entities) and still satisfy the RIC tax requirement that at least 90% of ourgross income for U.S. federal income tax purposes must consist of qualifying investment income. Absent the Taxable Subsidiary, a proportionate amount ofany gross income of a partnership or LLC (or other pass-through entity) portfolio investment would flow through directly to us. To the extent that suchincome did not consist of investment income, it could jeopardize our ability to qualify as a RIC and therefore cause us to incur significant amounts ofcorporate-level U.S. federal income taxes. Where interests in LLCs (or other pass-through entities) are owned by the Taxable Subsidiary, the income fromthose interests is taxed to the Taxable Subsidiary and does not flow through to us, thereby helping us preserve our RIC status and resultant tax advantages.The Taxable Subsidiary is not consolidated for U.S. federal income tax purposes and may generate income tax expense as a result of its ownership of theportfolio companies. This income tax expense, if any, is reflected in our Consolidated Statements of Operations. •Our ability to use leverage as a means of financing our portfolio of investments is limited.As a BDC, we are required to meet a coverage ratio of total assets to total senior securities of at least 150%, which became effective April 25, 2019.Additionally, the Board of Directors approved a resolution which limits the Company's issuance of senior securities such that that asset coverage ratio, takinginto account any such issuance, would not be less than 166%, at any time after the effective date. For this purpose, senior securities include all borrowingsand any preferred stock we may issue in the future. Additionally, our ability to utilize leverage as a means of financing our portfolio of investments may belimited by this asset coverage requirement. While the use of leverage may enhance returns if we meet our investment objective, our returns may be reduced oreliminated if our returns on investments are less than the costs of borrowing. •We are required to comply with the provisions of the 1940 Act applicable to business development companies.As a BDC, we are required to have a majority of directors who are not “interested persons” as such term is defined in Section 2(a)(19) of the 1940Act. In addition, we are required to comply with other applicable provisions of the 1940 Act, including those requiring the adoption of a code of ethics,maintaining a fidelity bond and placing and maintaining its securities and similar investments in custody. See “Regulation as a Business DevelopmentCompany” below.Regulation as a Business Development Company We have elected to be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions betweenBDCs and their affiliates and principal underwriters as well as their respective affiliates. The 1940 Act requires that a majority of the members of the board ofdirectors of a BDC be persons other than “interested persons,” as defined in the 1940 Act. In addition, the 1940 Act provides that we may not change thenature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by holders of a majority of our outstanding votingsecurities. The 1940 Act defines “a majority of the outstanding voting securities” as the lesser of (1) 67% or more of the voting securities of holders present orrepresented by proxy at a meeting if the holders of more than 50% of our outstanding voting securities are present or represented by proxy or (2) more than50% of our voting securities. The following is a brief description of the 1940 Act provisions applicable to BDCs, which is qualified in its entirety by reference to the full text ofthe 1940 Act and rules issued thereunder by the SEC. •Generally, BDCs must offer, and must provide upon request, significant managerial assistance available to certain portfolio companies. In general, as aBDC, a company must, among other things: (1) be a domestic company; (2) have registered a class of its securities pursuant to Section 12 of theExchange Act; (3) operate for the purpose of investing in the securities of certain types of eligible portfolio companies, including early stage oremerging companies and businesses suffering or just recovering from financial distress (see following paragraph); (4) offer to make availablesignificant managerial assistance to such portfolio companies; and (5) file a proper notice of election with the SEC.•An eligible portfolio company generally is a domestic company that is not a regulated or private investment company or a financial company (such asbrokerage firms, banks, insurance companies and investment banking firms) and that: (1) does not have a class of securities listed on a nationalsecurities exchange; (2) has a class of securities listed on a national securities exchange with an equity market capitalization of less than $250 million;or (3) is controlled by the BDC itself or together with others and, as a result of such control, the BDC has an affiliated person on the board of directorsof the company. The 1940 Act presumes that a person has “control” of a portfolio company if that person owns at least 25% of its outstanding votingsecurities.10Table of Contents•As a BDC, we are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect against larceny andembezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our shareholders arisingfrom any act or omission constituting willful malfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct ofthat person’s office.•We are required to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws, reviewthese policies and procedures annually for their adequacy and the effectiveness of their implementation and designate a chief compliance officer to beresponsible for administering these policies and procedures.On March 23, 2018, the Small Business Credit Availability Act (the “SBCAA”) was signed into law and, among other things, instructs the SEC toissue rules or amendments to rules allowing BDCs to use the same securities offering and proxy rules that are available to operating companies, including,among other things, allowing BDCs to incorporate by reference in registration statements filed with the SEC and allow certain BDCs to file shelf registrationstatements that are automatically effective and take advantage of other benefits available to Well-Known Seasoned Issuers. On March 20, 2019, the SECproposed rule amendments to implement certain provisions of the SBCAA; however, as of the date of this Annual Report on Form 10-K, we do not knowwhen the proposed rules relating to this legislation will be implemented.Qualifying Assets The 1940 Act provides that we may not make an investment in non-qualifying assets unless at the time of the investment at least 70% of the value ofour total assets (measured as of the date of our most recently filed financial statements) consists of qualifying assets. Qualifying assets include: (1) securitiesof eligible portfolio companies; (2) securities of certain companies that were eligible portfolio companies at the time we initially acquired their securities andin which we retain a substantial interest; (3) securities of certain controlled companies; (4) securities of certain bankrupt, insolvent or distressed companies;(5) securities received in exchange for or distributed in or with respect to any of the foregoing; and (6) cash items, U.S. government securities and high-quality short-term debt. Significant Managerial Assistance to Portfolio Companies In order to count portfolio securities as qualifying assets for the purpose of the qualifying assets requirement, we must either control the issuer of thesecurities or must offer to make available to the issuer of the securities significant managerial assistance. However, where we purchase securities inconjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Makingavailable managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide,and, if accepted, provides, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfoliocompany. 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, short-term investments in secured debt investments, independently rated debt investments and diversified bond funds, which we referto as temporary investments. Senior Securities BDCs generally have been permitted by the 1940 Act, under specific conditions, to issue multiple classes of debt and one class of stock senior to itscommon stock if its asset coverage, as defined by the 1940 Act, is at least 200% immediately after each such issuance. However, recent legislation hasmodified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur by reducing the minimum asset coverage ratio from200% to 150%, if certain requirements are met. On April 25, 2018, the Board of Directors unanimously approved the application of the recently modifiedasset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, the minimum asset coverage ratio applicable to the Company wasdecreased from 200% to 150%, which became effective April 25, 2019. Additionally, the Board of Directors also approved a resolution which limits theCompany’s issuance of senior securities such that the asset coverage ratio, taking into account any such issuance, would not be less than 166%, at any timeafter the effective date. We are required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approvalto reduce its asset coverage requirement to 150%, its leverage capacity and usage, and risks related to leverage.As of March 31, 2019, we had $141.0 million and $77.1 million in total aggregate principal amount of debt outstanding under our Credit Facilityand December 2022 Notes, respectively. As of March 31, 2019, our asset coverage was 249%. 11Table of ContentsIn addition, while any preferred stock or publicly traded debt securities are outstanding, we may be prohibited from making distributions to ourshareholders 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. Under specificconditions, we are also permitted by the 1940 Act to issue warrants. Common Stock We are not generally able to issue and sell our common stock at a price below NAV per share. We may, however, sell our common stock, warrants,options or rights to acquire our common stock, at a price below the current NAV of the common stock if our Board of Directors determines that such sale is inour best interests and that of our shareholders, and our shareholders approve such sale. In any such case, the price at which our securities are to be issued andsold may not be less than a price which, in the determination of our Board of Directors, closely approximates the market value of such securities (less anydistributing commission or discount). We did not seek shareholder authorization to sell shares of our common stock below the then current NAV per share ofour common stock at our 2018 annual meeting of shareholders. See "Risk Factors - Risks Relating to Our Business and Structure - Regulations governing ouroperation as a BDC will affect our ability to, and the way in which we, raise additional capital." Code of Ethics and Code of Conduct We adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certainpersonal securities transactions. Personnel subject to the code may invest in securities for their personal investment accounts including securities that may bepurchased or held by us, so long as those investments are made in accordance with the code’s requirements. We have also adopted a code of conduct thatapplies to our Chief Executive Officer, Chief Financial Officer (or persons performing similar functions), our Board, and all other employees. This code setsforth policies that these executives and employees must follow when performing their duties. Proxy Voting Policies and ProceduresWe vote proxies relating to our portfolio securities in a manner in which we believe is consistent with the best interest of our shareholders. Wereview on a case-by-case basis each proposal submitted to a shareholder vote to determine its impact on the portfolio securities held by us. Although wegenerally vote against proposals that we expect would have a negative impact on our portfolio securities, we may vote for such a proposal if there existscompelling long-term reasons to do so. Our proxy voting decisions are made by the investment team that is responsible for monitoring the investments. Toensure that our vote is not the product of a conflict of interest, we require that anyone involved in the decision-making process discloses to our ChiefCompliance Officer any potential conflict of which he or she is aware. Shareholders may obtain information, without charge, regarding how we voted proxieswith respect to our portfolio securities by making a written request for proxy voting information to: Chief Financial Officer c/o Capital SouthwestCorporation, 5400 Lyndon B. Johnson Freeway, Suite 1300, Dallas, Texas 75240. Compliance Policies and Procedures We have adopted and implemented written policies and procedures reasonably designed to prevent violation of the U.S. federal securities laws, andare required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation, and to designate aChief Compliance Officer to be responsible for administering these policies and procedures. Michael S. Sarner serves as our Chief Compliance Officer. Exemptive Relief On October 26, 2010, we received an exemptive order from the SEC permitting us to issue restricted stock to our executive officers and certain keyemployees, or the Original Order. On August 22, 2017, we received an exemptive order that supersedes the Original Order, or the Exemptive Order, and inaddition to the relief granted under the Original Order, allows us to withhold shares to satisfy tax withholding obligations related to the vesting of restrictedstock granted pursuant to the 2010 Restricted Stock Award Plan, or the 2010 Plan, and to pay the exercise price of options to purchase shares of our commonstock granted pursuant to the 2009 Stock Incentive Plan, or the 2009 Plan. Other We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval ofour Board of Directors who are not interested persons and, in some cases, prior approval by the SEC. The prior approval of the SEC is not required, however,where a transaction involves no negotiation of terms other than price.12Table of Contents We expect to periodically be examined by the SEC for compliance with the 1940 Act. MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONSThe following discussion is a general summary of the material U.S. federal income tax considerations applicable to us and to an investment in ourshares. This summary does not purport to be a complete description of the income tax considerations applicable to us or to investors in such an investment.For example, we have not described tax consequences that we assume to be generally known by investors or certain considerations that may be relevant tocertain types of holders subject to special treatment under U.S. federal income tax laws, including shareholders subject to the alternative minimum tax, tax-exempt organizations, insurance companies, dealers in securities, pension plans and trusts, financial institutions, U.S. shareholders (as defined below) whosefunctional currency is not the U.S. dollar, persons who mark-to-market our shares and persons who hold our shares as part of a “straddle,” “hedge” or“conversion” transaction. This summary assumes that investors hold shares of our common stock as capital assets (within the meaning of the Code). Thediscussion is based upon the Code, Treasury regulations, and administrative and judicial interpretations, each as of the date of this Annual Report on Form10-K and all of which are subject to change, possibly retroactively, which could affect the continuing validity of this discussion. This summary does notdiscuss any aspects of U.S. estate or gift tax or foreign, state or local tax. It does not discuss the special treatment under U.S. federal income tax laws thatcould result if we invested in tax-exempt securities or certain other investment assets.For purposes of our discussion, a “U.S. shareholder” means a beneficial owner of shares of our common stock that is for U.S. federal income taxpurposes: •A citizen or individual resident of the United States;•A corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the UnitedStates or any state thereof of the District of Columbia;•An estate, the income of which is subject to U.S. federal income taxation regardless of its source; or•A trust if (1) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority tocontrol all substantial decisions of the trust or (2) it has a valid election in place to be treated as a U.S. person.For purposes of our discussion, a “Non-U.S. shareholder” means a beneficial owner of shares of our common stock that is neither a U.S. shareholdernor a partnership (including an entity treated as a partnership for U.S. federal income tax purposes). If an entity treated as a partnership for U.S. federal income tax purposes (a “partnership”) holds shares of our common stock, the tax treatment of apartner or member of the partnership will generally depend upon the status of the partner or member and the activities of the partnership. A prospectiveshareholder that is a partner or member in a partnership holding shares of our common stock should consult his, her or its tax advisors with respect to thepurchase, ownership and disposition of shares of our common stock. Tax matters are very complicated and the tax consequences to an investor of an investment in our shares will depend on the facts of his, her or itsparticular situation. We encourage investors to consult their own tax advisors regarding the specific consequences of such an investment, including taxreporting requirements, the applicability of U.S. federal, state, local and foreign tax laws, eligibility for the benefits of any applicable tax treaty and the effectof any possible changes in the tax laws. Taxation as a Regulated Investment Company Election to be Taxed as a RIC We have elected to be treated as a RIC under Subchapter M of the Code. As a RIC, we generally are not subject to corporate-level U.S. federalincome taxes on any income that we distribute to our shareholders from our tax earnings and profits. To qualify as a RIC, we must, among other things, meetcertain source-of-income and asset diversification requirements (as described below). In addition, in order to obtain RIC tax treatment, we must distribute toour shareholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus theexcess, if any, of realized net short-term capital gain over realized net long-term capital loss, or the Annual Distribution Requirement. Depending on the levelof taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next year and pay a 4%U.S. federal excise tax on such income. Any such carryover taxable income must be distributed through a dividend declared prior to filing the final tax returnrelated to the year that generated such taxable income. Even if we qualify as a RIC, we generally will be subject to corporate-level U.S. federal income tax onour undistributed taxable income and could be subject to U.S. federal excise, state, local and foreign taxes.13Table of Contents Taxation as a RIC Provided that we qualify as a RIC, we will not be subject to U.S. federal income tax on the portion of our investment company taxable income andnet capital gain (which we define as net long-term capital gain in excess of net short-term capital loss) that we timely distribute to shareholders. We will besubject to U.S. federal income tax at the regular corporate rates on any income or capital gain not distributed (or deemed distributed) to our shareholders. We will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless we distribute in a timely manner an amountat least equal to the sum of (1) 98% of our ordinary income for each calendar year, (2) 98.2% of our capital gain net income for the one year period endedOctober 31 and (3) any income and gains recognized, but not distributed, in preceding years and on which we paid no U.S. federal income tax. In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things: •Meet the Annual Distribution Requirement;•Qualify to be treated as a BDC or be registered as a management investment company 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, gainsfrom the sale or other disposition of stock or other securities or foreign currencies or other income derived with respect to our business ofinvesting in such stock, securities or currencies and net income derived from an interest in a “qualified publicly traded partnership” (as definedin the Code), or the 90% Income Test; and•Diversify our holdings so that at the end of each quarter of the taxable year:◦at least 50% of the value of our assets consists of cash, cash equivalents, U.S. Government securities, securities of other RICs, and othersecurities 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 theoutstanding voting securities of the issuer (which for these purposes includes the equity securities of a “qualified publicly tradedpartnership”); and◦no more than 25% of the value of our assets is invested in the securities, other than U.S. Government securities or securities of otherRICs, (1) of one issuer (2) of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engagedin the same or similar or related trades or businesses or (3) of one or more “qualified publicly traded partnerships,” or the DiversificationTests. To the extent that we invest in entities treated as partnerships for U.S. federal income tax purposes (other than a “qualified publicly tradedpartnership”), we generally must include the items of gross income derived by the partnerships for purposes of the 90% Income Test, and the income that isderived from a partnership (other than a “qualified publicly traded partnership”) will be treated as qualifying income for purposes of the 90% Income Testonly to the extent that such income is attributable to items of income of the partnership which would be qualifying income if realized by us directly. Inaddition, we generally must take into account our proportionate share of the assets held by partnerships (other than a “qualified publicly traded partnership”)in which we are a partner for purposes of the Diversification Tests. In order to meet the 90% Income Test, we have established the Taxable Subsidiary to hold assets from which we do not anticipate earning dividend,interest or other income under the 90% Income Test. We may establish additional subsidiaries for the same purpose in the future. Any investments heldthrough a Taxable Subsidiary generally are subject to U.S. federal income and other taxes, and therefore we can expect to achieve a reduced after-tax yield onsuch investments. We may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, if wehold debt obligations that are treated under applicable tax rules as having original issue discount (including debt instruments with payment-in-kind interestor, in certain cases, increasing interest rates or issued with warrants), we must include in income each year a portion of the original issue discount or payment-in-kind interest that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. Weanticipate that a portion of our income may constitute original issue discount or other income required to be included in taxable income prior to receipt ofcash. Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of theaccrual, we may be required to make a distribution to our shareholders in order to satisfy the Annual Distribution Requirement, even though we will not havereceived any corresponding cash amount. As a result, we may have difficulty meeting the annual distribution requirement necessary to obtain and maintainRIC tax treatment under the Code. We may have to sell some of our investments at times and/or at prices we would not consider advantageous, raiseadditional debt or equity capital or forgo14Table of Contentsnew investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thusbecome subject to corporate-level U.S. federal income tax. Furthermore, a portfolio company in which we invest may face financial difficulty that requires us to work-out, modify or otherwise restructure ourinvestment in the portfolio company. Any such restructuring may result in unusable capital losses and future non-cash income. Any restructuring may alsoresult in our recognition of a substantial amount of non-qualifying income for purposes of the 90% Income Test, such as cancellation of indebtedness incomein connection with the work-out of a leveraged investment (which, while not free from doubt, may be treated as non-qualifying income) or the receipt of othernon-qualifying income. 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 ascapital gain or loss. Such gain or loss generally will be long-term or short-term, depending on how long we held a particular warrant. Investments by us in non-U.S. securities may be subject to non-U.S. income, withholding and other taxes, and therefore, our yield on any suchsecurities may be reduced by such non-U.S. taxes. Shareholders will generally not be entitled to claim a credit or deduction with respect to non-U.S. taxespaid by us. We are authorized to borrow funds and to sell assets in order to satisfy distribution requirements. Under the 1940 Act, we are not permitted to makedistributions to our shareholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. See“Regulation as a Business Development Company” above. Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by(1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assetsin order to meet the Annual Distribution Requirement or to avoid the excise tax, we may make such dispositions at times that, from an investment standpoint,are not advantageous. If we fail to satisfy the Annual Distribution Requirement or otherwise fail to qualify as a RIC in any taxable year, we will be subject to tax in thatyear on all of our taxable income, regardless of whether we make any distributions to our shareholders. In that case, all of such income will be subject tocorporate-level U.S. federal income tax, reducing the amount available to be distributed to our shareholders. See “Failure To Obtain RIC Tax Treatment”below. As a RIC, we are not allowed to carry forward or carry back a net operating loss for purposes of computing our investment company taxable incomein other taxable years. U.S. federal income tax law generally permits a RIC to carry forward (1) the excess of its net short-term capital loss over its net long-term capital gain for a given year as a short-term capital loss arising on the first day of the following year and (2) the excess of its net long-term capital lossover its net short-term capital gain for a given year as a long-term capital loss arising on the first day of the following year. Future transactions we engage inmay cause our ability to use any capital loss carryforwards, and unrealized losses once realized, to be limited under Section 382 of the Code. Certain of ourinvestment practices may be subject to special and complex U.S. federal income tax provisions that may, among other things, (1) disallow, suspend orotherwise limit the allowance of certain losses or deductions, (2) convert lower taxed long-term capital gain and qualified dividend income into higher taxedshort-term capital gain or ordinary income, (3) convert an ordinary loss or a deduction into a 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 orsecurities is deemed to occur, (6) adversely alter the characterization of certain complex financial transactions and (7) produce income that will not bequalifying income for purposes of the 90% Income Test. We will monitor our transactions and may make certain tax elections in order to mitigate the effect ofthese provisions. As described above, to the extent that we invest in equity securities of entities that are treated as partnerships for U.S. federal income tax purposes,the effect of such investments for purposes of the 90% Income Test and the Diversification Tests will depend on whether or not the partnership is a “qualifiedpublicly traded partnership” (as defined in the Code). If the entity is a “qualified publicly traded partnership,” the net income derived from such investmentswill be qualifying income for purposes of the 90% Income Test and will be “securities” for purposes of the Diversification Tests. If the entity is not treated asa “qualified publicly traded partnership,” however, the consequences of an investment in the partnership will depend upon the amount and type of incomeand assets of the partnership allocable to us. The income derived from such investments may not be qualifying income for purposes of the 90% Income Testand, therefore, could adversely affect our qualification as a RIC. We intend to monitor our investments in equity securities of entities that are treated aspartnerships for U.S. federal income tax purposes to prevent our disqualification as a RIC. We may invest in preferred securities or other securities the U.S. federal income tax treatment of which may not be clear or may be subject to re-characterization by the Internal Revenue Service, or the IRS. To the extent the tax treatment of such15Table of Contentssecurities or the income from such securities differs from the expected tax treatment, it could affect the timing or character of income recognized, requiring usto purchase or sell securities, or otherwise change our portfolio, in order to comply with the tax rules applicable to RICs under the Code. We may distribute taxable dividends that are payable in cash or shares of our common stock at the election of each shareholder. Under certainapplicable provisions of the Code and the Treasury regulations, distributions payable in cash or in shares of stock at the election of shareholders are treated astaxable dividends. The IRS has issued a revenue procedure indicating that this rule will apply where the total amount of cash to be distributed is not less than20% of the total distribution. Under this revenue procedure, if too many shareholders elect to receive their distributions in cash, each such shareholder wouldreceive a pro rata share of the total cash to be distributed and would receive the remainder of their distribution in shares of stock. If we decide to make anydistributions consistent with this revenue procedure that are payable in part in our stock, taxable shareholders receiving such dividends will be required toinclude the full amount of the dividend (whether received in cash, our stock, or a combination thereof) as ordinary income (or as long-term capital gain to theextent such distribution is properly reported as a capital gain dividend) to the extent of our current and accumulated earnings and profits for United Statesfederal income tax purposes. As a result, a U.S. shareholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S.shareholder sells the stock it receives in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend,depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. shareholders, we may be required to withhold U.S. taxwith respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. If a significant number of our shareholdersdetermine to sell shares of our stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our stock. Failure to Obtain RIC Tax Treatment If we fail to satisfy the 90% Income Test or the Diversification Tests for any taxable year, we may nevertheless continue to qualify as a RIC for thatyear if certain relief provisions are applicable (which may, among other things, require us to pay certain corporate-level U.S. federal taxes or to dispose ofcertain assets). If we were unable to obtain tax treatment as a RIC, we would be subject to tax on all of our taxable income at regular corporate rates. We would notbe able to deduct distributions to shareholders, nor would they be required to be made. Distributions would generally be taxable to our shareholders asdividend income to the extent of our current and accumulated earnings and profits (in the case of non-corporate U.S. shareholders, generally at a maximumfederal income tax rate applicable to qualified dividend income of 20%). Subject to certain limitations under the Code, corporate distributees would beeligible for the dividends-received deduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return ofcapital to the extent of the shareholder’s tax basis, and any remaining distributions would be treated as a capital gain. If we fail to meet the RIC requirements for more than two consecutive years, and then seek to re-qualify as a RIC, we would be subject to corporate-level U.S. federal income taxation on any built-in gain recognized during the succeeding 5-year period unless we made a special election to recognize all thatbuilt-in gain upon our re-qualification as a RIC and to pay the corporate-level U.S. federal income tax on that built-in gain. Possible Legislative or Other Actions Affecting Tax Considerations Prospective investors should recognize that the present U.S. federal income tax treatment of an investment in our stock may be modified bylegislative, judicial or administrative action at any time, and that any such action may affect investments and commitments previously made. The rulesdealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. TreasuryDepartment, resulting in revisions of regulations and revised interpretations of established concepts as well as statutory changes. Revisions in U.S. federal taxlaws and interpretations thereof could affect the tax consequences of an investment in our stock. THE NASDAQ GLOBAL SELECT MARKET CORPORATE GOVERNANCE REGULATIONS The NASDAQ Global Select Market, or Nasdaq, has adopted corporate governance listing standards with which listed companies must comply inorder to remain listed. We believe that we are in compliance with these corporate governance listing standards. We intend to monitor our compliance withfuture listing standards and to take all necessary actions to ensure that we remain in compliance. SECURITIES EXCHANGE ACT OF 1934 AND SARBANES-OXLEY ACT COMPLIANCE 16Table of ContentsWe are subject to the reporting and disclosure requirements of the Exchange Act, including the filing of quarterly, annual and current reports, proxystatements and other required items. In addition, we are subject to the Sarbanes-Oxley Act of 2002 and regulations promulgated thereunder, which imposes awide variety of regulatory requirements on publicly-held companies and their insiders. For example: •Pursuant to Rule 13a-14 of the Exchange Act, our Chief Executive Officer and Chief Financial Officer are required to certify the accuracy of thefinancial statements contained in our periodic reports;•Pursuant to Item 307 of Regulation S-K, our periodic reports are required to disclose our conclusions about the effectiveness of our disclosure controlsand procedures;•Pursuant to Rule 13a-15 of the Exchange Act, our management is required to prepare a report on its assessment of our internal control over financialreporting, and we engage an independent registered public accounting firm to separately audit our internal control over financial reporting; and•Pursuant to Item 308 of Regulation S-K and Rule 13a-15 of the Exchange Act, our periodic reports must disclose whether there were significantchanges in our internal control over financial reporting or in other factors that could significantly affect these controls subsequent to the date of theirevaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.Table of ContentsItem 1A. Risk Factors Investing in our securities involves a number of significant risks. In addition to other information contained in this Annual Report on Form 10-K,investors should consider the following information before making an investment in our securities. The risks and uncertainties described below couldmaterially adversely affect our business, financial conditions and results of operations. Risks and uncertainties not presently known to us, or not presentlydeemed material by us, may also impair our operations and performance. If any of the following risks, or risks not presently known to us, actually occur, thetrading price of our securities could decline, and you may lose all or part of your investment. RISKS RELATED TO OUR BUSINESS AND STRUCTURE Our financial condition and results of operations will depend on our ability to effectively allocate and manage capital. Our ability to achieve our investment objective of maximizing risk-adjusted returns to shareholders depends on our ability to effectively allocateand manage capital. Capital allocation depends, in part, upon our investment team’s ability to identify, evaluate, invest in and monitor companies that meetour investment criteria. Accomplishing our investment objectives is largely a function of our investment team’s management of the investment process and our access toinvestments offering attractive risk adjusted returns. In addition, members of our investment team are called upon, from time to time, to provide managerialassistance to some of our portfolio companies. The results of our operations depend on many factors, including the availability of opportunities for investment, readily accessible short and long-term funding alternatives in the financial markets and economic conditions. Our ability to make new investments at attractive relative returns is also afunction of our marketing and our management of the investment process, as well as conditions in the private credit markets in which we invest. If we fail toinvest our capital effectively, our return on equity may be negatively impacted, which could have a material adverse effect on the price of the shares of ourcommon stock. Any unrealized losses we experience may be an indication of future realized losses, which could reduce our income available to make distributions.As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at the fair value as determined in goodfaith by our Board of Directors pursuant to a valuation methodology approved by our Board of Directors. Decreases in the market values or fair values of ourinvestments will be recorded as unrealized losses. An unrealized loss could be an indication of a portfolio company’s inability to generate cash flow or meetits repayment obligations. This could result in realized losses in the future and ultimately in reductions of our income available to pay dividends or interestand principal on our securities and could have a material adverse effect on your investment.Our business model depends to a significant extent upon strong referral relationships. Our inability to maintain or develop these relationships, as wellas the failure of these relationships to generate investment opportunities, could adversely affect our business. We expect that members of our management team will maintain their relationships with financial sponsors, intermediaries, financial institutions,investment bankers, commercial bankers, financial advisors, attorneys, accountants, consultants and other individuals within our network, and we will rely toa significant extent upon these relationships to provide us with potential investment opportunities. If our management team fails to maintain its existingrelationships or develop new relationships with sources of investment opportunities, we will not be able to effectively invest our capital. Individuals withwhom members of our management team have relationships are not obligated to provide us with investment opportunities; therefore, there is no assurancethat these relationships will generate investment opportunities for us. In addition to regulatory limitations on our ability to raise capital, our current debt obligations contain various covenants, which, if not complied with,could accelerate our repayment obligations under the Credit Facility or the December 2022 Notes, thereby materially and adversely affecting ourliquidity, financial condition, results of operations and ability to pay distributions. We will have a continuing need for capital to finance our investments. As of March 31, 2019, the Credit Facility provides us with a revolving creditline of up to $270.0 million of which $141.0 million was drawn. The Credit Facility contains customary terms and conditions, including, without limitation, affirmative and negative covenants such as informationreporting requirements, minimum consolidated net worth, minimum consolidated interest coverage18Table of Contentsratio, minimum asset coverage, and maintenance of RIC tax treatment and BDC status. The Credit Facility also contains customary events of default withcustomary cure and notice provisions, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect,breach of covenants, bankruptcy, and change of control. The Credit Facility permits us to fund additional loans and investments as long as we are within theconditions set out in the Credit Facility. In December 2017, we issued $57.5 million in aggregate principal amount of 5.95% Notes due 2022, or the December 2022 Notes. The indenturegoverning the December 2022 Notes contains certain covenants including but not limited to (i) a requirement that we comply with the asset coveragerequirement of Section 18(a)(1)(A) of the 1940 Act as modified by Section 61(a) of the 1940 Act or any successor provisions thereto, after giving effect to anyexemptive relief granted to us by the SEC, (ii) a requirement, subject to a limited exception, that we will not declare any cash dividend, or declare any othercash distribution, upon a class of our capital stock, or purchase any such capital stock, unless, in every such case, at the time of the declaration of any suchdividend or distribution, or at the time of any such purchase, we have the minimum asset coverage required pursuant to Section 18(a)(1)(A) of the 1940 Act asmodified by Section 61(a) of the 1940 Act or any successor provisions thereto after deducting the amount of such dividend, distribution or purchase price, asthe case may be, giving effect to any exemptive relief granted to us by the SEC and (iii) a requirement to provide financial information to the holders of theDecember 2022 Notes and the trustee under the indenture if we should no longer be subject to the reporting requirements under the Exchange Act. Theindenture and supplement relating to the December 2022 Notes also provides for customary events of default.On June 11, 2018, the Company entered into an "At-The-Market" ("ATM") debt distribution agreement, pursuant to which it may offer for sale, fromtime to time, up to $50 million in aggregate principal amount of December 2022 Notes through B. Riley FBR, Inc., acting as its sales agent (the “2022 NotesAgent”). Sales of the December 2022 Notes may be made in negotiated transactions or transactions that are deemed to be "at the market offerings" as definedin Rule 415 under the Securities Act of 1933, as amended, including sales made directly on The Nasdaq Global Select Market, or similar securities exchangesor sales made through a market maker other than on an exchange at prices related to prevailing market prices or at negotiated prices.As of March 31, 2019, the carrying amount of the December 2022 Notes was $75.1 million on an aggregate principal amount of $77.1 million. Atthis time, the Company does not intend to issue additional December 2022 Notes under this ATM debt distribution agreement. Our continued compliance with these covenants depends on many factors, some of which are beyond our control, and there are no assurances that wewill continue to comply with these covenants. Our failure to satisfy these covenants could result in foreclosure by our lenders, which would accelerate ourrepayment obligations under the facility and thereby have a material adverse effect on our business, liquidity, financial condition, results of operations andability to pay distributions to our shareholders. All of our assets are subject to security interests under our secured Credit Facility and if we default on our obligations under the Credit Facility, we maysuffer adverse consequences, including foreclosure on our assets.All of our assets are currently pledged as collateral under our Credit Facility. If we default on our obligations under the Credit Facility, the lendersparty thereto may have the right to foreclose upon and sell, or otherwise transfer, the collateral subject to their security interests. In such event, we may beforced to sell our investments to raise funds to repay our outstanding borrowings in order to avoid foreclosure and these forced sales may be at times and atprices we would not consider advantageous. Moreover, such deleveraging of our company could significantly impair our ability to effectively operate ourbusiness in the manner in which we have historically operated. As a result, we could be forced to curtail or cease new investment activities and lower oreliminate the dividends that we have historically paid to our shareholders. In addition, if the lenders exercise their right to sell the assets pledged under ourCredit Facility, such sales may be completed at distressed sale prices, thereby diminishing or potentially eliminating the amount of cash available to us afterrepayment of the amounts outstanding under the Credit Facility. These distressed prices could be materially below our most recent valuation of each security,which could have a significantly negative effect on NAV. Because we borrow money to make investments, the potential for gain or loss on amounts invested in us is magnified and may increase the risk ofinvesting in us. Borrowings to fund investments, also known as leverage, magnify the potential for loss on investments in our indebtedness and gain or loss oninvestments in our equity capital. As we use leverage to partially finance our investments, you will experience increased risks of investing in our securities.We may borrow from banks and other lenders, including under our Credit Facility, and may issue debt securities or enter into other types of borrowingarrangements in the future. If the value of our assets decreases, leveraging would cause NAV to decline more sharply than it otherwise would have had we notleveraged our business. Similarly, any decrease in our income would cause net investment income to decline more sharply than it would have had we notleveraged19Table of Contentsour business. Such a decline could negatively affect our ability to pay common stock dividends, scheduled debt payments or other payments related to oursecurities. Use of leverage is generally considered a speculative investment technique. As of March 31, 2019, we had $141.0 million debt outstanding under our Credit Facility. Borrowings under the Credit Facility bear interest, on a perannum basis at a rate equal to the applicable LIBOR rate plus 2.50%. We pay unused commitment fees of 0.50% to 1.00% per annum, based on utilization, onthe unused lender commitments under the Credit Facility. The Credit Facility is secured by substantially all of our assets. If we are unable to meet thefinancial obligations under the Credit Facility, the lenders under the Credit Facility may exercise its remedies under the Credit Facility as the result of adefault by us. On April 16, 2018 and May 11, 2018, CSWC entered into Incremental Assumption Agreements, which increased the total commitments underthe Credit Facility by $20 million and $10 million, respectively. The increases were executed under the accordion feature of the Credit Facility and increasedtotal commitments from $180 million to $210 million. On December 21, 2018, CSWC entered into the Amended and Restated Senior Secured RevolvingCredit Agreement (the "Credit Agreement"), and a related Amended and Restated Guarantee, Pledge and Security Agreement, to amend and restate its CreditFacility. The Credit Agreement (1) increased the total commitments by $60 million from $210 million to an aggregate total of $270 million, provided by adiversified group of nine lenders, (2) increased the Credit Facility's accordion feature to $350 million under the Credit Facility from new and existing lenderson the same terms and conditions as the existing commitments, (3) reduced the interest rate on borrowings from LIBOR plus 3.00% to LIBOR plus 2.50%,subject to certain conditions as outlined in the Credit Agreement, (4) reduced the minimum asset coverage with respect to senior securities representingindebtedness from 200% to 150% after the date on which such minimum asset coverage is permitted to be reduced by the Company under applicable law,subject to certain conditions as outlined in the Credit Agreement, and (5) extended the Credit Facility's revolving period from November 16, 2020 toDecember 21, 2022 and the final maturity was extended from November 16, 2021 to December 21, 2023. As of March 31, 2019, the carrying amount of the December 2022 Notes was $75.1 million. The December 2022 Notes mature on December 15, 2022and may be redeemed in whole or in part at any time, or from time to time, at our option on or after December 15, 2019. The December 2022 Notes bearinterest at a rate of 5.95% per year, payable quarterly on March 15, June 15, September 15 and December 15 of each year. The December 2022 Notes are anunsecured obligation, rank pari passu with our other outstanding and future unsecured unsubordinated indebtedness and are effectively subordinated to all ofour existing and future secured indebtedness, including borrowings under our Credit Facility. Our ability to achieve our investment objective may depend in part on our ability to access additional leverage on favorable terms by borrowingfrom banks or insurance companies or by issuing debt securities and there can be no assurance that such additional leverage can in fact be achieved.Illustration. The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annualreturns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing below.Assumed Return on Our Portfolio(1) (net of expenses) (10.0)% (5.0)% 0.0% 5.0% 10.0%Corresponding net return to common shareholder(2)(20.75)% (12.28)% (3.82)% 4.65% 13.11% (1)Assumes $551.8 million in total assets, $218.1 million in debt principal outstanding, $326.0 million in net assets and a weighted-average interest rate of 5.41% on our seniorsecurities based on our financial data available on March 31, 2019. Actual interest payments may be different.(2)In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our March 31, 2019 total assets of at least 2.25%.If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be precluded from investing according toour current business strategy. As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70%of our total assets are qualifying assets. Currently, more than 70% of our assets consist of qualifying assets. However, we may be precluded from investing in what we believe are attractiveinvestments if those investments are not qualifying assets for purposes of the 1940 Act. Similarly,20Table of Contentsthese rules could prevent us from making follow-on investments in existing portfolio companies or we could be required to dispose of investments atinappropriate times to comply with the 1940 Act (which could result in the dilution of our position). A failure on our part to maintain our status as a BDC would significantly reduce our operating flexibility. If we fail to maintain our status as a BDC, we might be regulated as a closed-end investment company that is required to register under the 1940 Act,which would subject us to additional regulatory restrictions and significantly decrease our operating flexibility. In addition, any such failure could cause anevent of default under our outstanding indebtedness, which could have a material adverse effect on our business, financial condition or results of operations. We will be subject to corporate-level U.S. federal income tax if we are unable to qualify as a Regulated Investment Company under Subchapter M of theCode. To maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source and asset diversificationrequirements: •The annual distribution requirement for a RIC will be satisfied if we distribute to our shareholders on an annual basis at least 90% of our net ordinaryincome and realized short-term capital gains in excess of realized net long-term capital losses. Depending on the level of taxable income earned in atax year, we may choose to carry forward taxable income in excess of current year distributions into the next year and pay a 4% excise tax on suchincome. Any such carryover taxable income must be distributed through a dividend declared prior to filing the final tax return related to the year thatgenerated such taxable income.•The source of income requirement will be satisfied if we obtain at least 90% of our gross income for each taxable year from dividends, interest,payments with respect to certain securities loans, gains from the sale or other disposition of stock or other securities or foreign currencies or otherincome derived with respect to our business of investing in such stock, securities or currencies and net income derived from an interest in a “qualifiedpublicly traded partnership” (as defined in the Code), or the 90% Income Test.•The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxableyear. To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash equivalents, U.S Government securities, securities ofother 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% ofthe outstanding voting securities of the issuer (which for these purposes includes the equity securities of a “qualified publicly traded partnership”). Inaddition, no more than 25% of the value of our assets can be invested in the securities, other than U.S Government securities or securities of otherRICs, (1) of one issuer (2) of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same orsimilar or related trades or businesses or (3) of one or more “qualified publicly traded partnerships,” or the Diversification Tests. Failure to meet these requirements may result in us having to dispose of certain unqualified investments quickly in order to prevent the loss of RICtax treatment. If we fail to maintain RIC tax treatment for any reason and are subject to corporate income tax, the resulting corporate taxes could substantiallyreduce our net assets, the amount of income available for distribution and the amount of our distributions. In addition, to the extent we had unrealized gains,we would have to establish deferred tax liabilities for taxes, which would reduce our NAV accordingly. In addition, our shareholders would lose the tax creditrealized when we, as a RIC, decide to retain the net realized capital gain and make deemed distributions of net realized capital gains, and pay taxes on behalfof our shareholders at the end of the tax year. The loss of this pass-through tax treatment could have a material adverse effect on the total return of aninvestment in our common stock.Even if the Company qualifies as a Regulated Investment Company, it may face tax liabilities that reduce its cash flow. Even if we qualify for taxation as a RIC, we may be subject to certain U.S. federal, state and local taxes on our income and assets. In addition, wemay hold some of our assets through our Taxable Subsidiary, which is not consolidated for U.S. federal income tax purposes, or any other taxable subsidiarywe may form. Any taxes paid by our subsidiary corporations would decrease the cash available for distribution to our shareholders. Our investment portfolio is and will continue to be recorded at fair value. Our Board of Directors has final responsibility for overseeing, reviewing andapproving, in good faith, our fair value determination. As a result of recording our investments at fair value, there is and will continue to be subjectivityas to the value of our portfolio investments. 21Table of ContentsUnder the 1940 Act, we are required to carry our portfolio investments at market value or, if there is no readily available market value, at fair value asdetermined by us, with our Board of Directors having final responsibility for overseeing, reviewing and approving, in good faith, our fair valuedetermination. Typically, there is not a public market for the securities of the privately held companies in which we have invested and will continue toinvest. As a result, we value these securities quarterly at fair value based on inputs from management and our investment team, along with the oversight,review and approval of our Board of Directors. The determination of fair value and, consequently, the amount of unrealized gains and losses in our portfolio, are to a certain degree, subjective anddependent on a valuation process approved by our Board of Directors. Certain factors that may be considered in determining the fair value of ourinvestments include external events, such as private mergers, sales and acquisitions involving comparable companies. Because of the inherent uncertainty ofthe valuation of portfolio securities that do not have readily ascertainable market values, our fair value determinations may differ materially from the values athird party would be willing to pay for our portfolio securities or the values which would be applicable to unrestricted securities having a public market. Dueto this uncertainty, our fair value determinations may cause our NAV on a given date to materially understate or overstate the value that we may ultimatelyrealize on one or more of our investments. As a result, investors purchasing our common stock based on an overstated NAV may pay a higher price than thevalue of our investments might warrant. Conversely, investors selling shares during a period in which the NAV understates the value of our investments mayreceive a lower price for their shares than the value of our investments might warrant. The capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect debt and equitycapital markets in the United States, which may have a negative impact on our business and operations. From time to time, capital markets may experience periods of disruption and instability. For example, between 2008 and 2009, the global capitalmarkets were unstable as evidenced by periodic disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, there-pricing of credit risk in the broadly syndicated credit market and the failure of major financial institutions. These events contributed to worsening generaleconomic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capitalfor the market as a whole and financial services firms in particular. While market conditions have largely recovered from the events of 2008 and 2009, therehave been continuing periods of volatility, some lasting longer than others. There can be no assurance these market conditions will not repeat themselves orworsen in the future. The reappearance of market conditions similar to those experienced from 2008 through 2009 for any substantial length of time couldmake it difficult to extend the maturity of or refinance our existing indebtedness or obtain new indebtedness with similar terms. Additionally, the debtcapital that will be available to us in the future may be at a higher cost and on less favorable terms than what we currently experience due to the existence of arising interest rate environment. If any of these conditions appear, they may have an adverse effect on our business, financial condition, and results ofoperations. These events could limit our investment originations, limit our ability to increase returns to equity holders through the effective use of leverage,and negatively impact our operating results. In addition, significant changes or volatility in the capital markets may also have a negative effect on the valuations of our investments. While mostof our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are soldin a principal market to market participants (even if we plan on holding an investment through its maturity). Significant changes in the capital markets mayalso affect the pace of our investment activity and the potential for liquidity events involving our investments. Thus, the illiquidity of our investments maymake it difficult for us to sell our investments to access capital if required, and as a result, we could realize significantly less than the value at which we haverecorded our investments if we were required to sell them for liquidity purposes. An inability to raise or access capital could have a material adverse effect onour business, financial condition or results of operations. U.S. and worldwide economic, political, regulatory and financial conditions may adversely affect our business, results of operations and financialcondition , including our revenue growth and profitability.The current worldwide financial market situation, as well as various social and political tensions in the United States and around the world, havecontributed and may continue to contribute to increased market volatility, may have long-term effects on the United States and worldwide financial markets,and may cause economic uncertainties or deterioration in the United States and worldwide. Increases to budget deficits or direct and contingent sovereigndebt may create concerns about the ability of certain nations to service their sovereign debt obligations, and risks resulting from any current or future debtcrisis in Europe, the United States or elsewhere could have a detrimental impact on the global economy and the financial condition of financial institutionsgenerally. Austerity measures that certain countries may agree to as part of any debt crisis or disruptions to major financial trading markets may adverselyaffect world economic conditions and have an adverse impact on our business and that of our portfolio companies. In June 2016, the United Kingdom held areferendum in which voters approved an exit from the European Union22Table of Contents(“Brexit”), and, subsequently, on March 29, 2017, the U.K. government began the formal process of leaving the European Union. The initial negotiations onBrexit commenced in June 2017. Brexit created political and economic uncertainty and instability in the global markets (including currency and creditmarkets), and especially in the United Kingdom and the European Union, and this uncertainty and instability may last indefinitely. Because the U.K.Parliament rejected Prime Minister Theresa May’s proposed Brexit deal with the European Union in March 2019, there is increased uncertainty on theoutcome of Brexit. There is also continued concern about national-level support for the Euro and the accompanying coordination of fiscal and wage policyamong European Economic and Monetary Union member countries. In addition, the fiscal and monetary policies of foreign nations, such as Russia andChina, may have a severe impact on the worldwide and U.S. financial markets. These market conditions have historically and could again have a materialadverse effect on debt and equity capital markets in the United States and Europe, which could have a materially negative impact on our business, financialcondition and results of operations. We and other companies in the financial services sector may have to access, if available, alternative markets for debt andequity capital.The U.S. government may adopt legislation that could significantly affect the regulation of U.S. financial markets. Areas subject to potential change,amendment or repeal include the Dodd-Frank Wall Street Reform and Consumer Protection Act and the authority of the Federal Reserve and the FinancialStability Oversight Council. For example, in March 2018, the U.S. Senate passed a bill that eased financial regulations and reduced oversight for certainentities. The United States may also potentially withdraw from or renegotiate various trade agreements and take other actions that would change current tradepolicies of the United States. We cannot predict the effects of these or similar events in the future on the U.S. economy and securities markets or on ourinvestments. We monitor developments and seek to manage our investments in a manner consistent with achieving our investment objective, but there can beno assurance that we will be successful in doing so.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 orregulations, could negatively affect the profitability of our operations. Changes in the laws or regulations or the interpretations of the laws and regulations that govern BDCs, RICs or non-depository commercial lenderscould significantly affect our operations and our cost of doing business. We are subject to federal, state and local laws and regulations and are subject tojudicial and administrative decisions that affect our operations, including our loan originations, maximum interest rates, fees and other charges, disclosures toportfolio companies, the terms of secured transactions, collection and foreclosure procedures and other trade practices. If these laws, regulations or decisionschange, or if we expand our business into jurisdictions that have adopted more stringent requirements than those in which we currently conduct business, wemay have to incur significant expenses in order to comply or we might have to restrict our operations. In addition, if we do not comply with applicable laws,regulations and decisions, we may lose licenses needed for the conduct of our business and be subject to civil fines and criminal penalties, any of whichcould have a material adverse effect upon our business, results of operations or financial condition. We operate in a highly competitive market for investment opportunities. We compete for attractive investment opportunities with other financial institutions, including BDCs, junior capital lenders, and banks. Some ofthese competitors are substantially larger and have greater financial, technical and marketing resources, and some are subject to different, and frequently lessstringent, regulations. Our competitors may have a lower cost of funds and may have access to funding sources that are not available to us. Furthermore,many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC. As a result of this competition, we may notbe able to take advantage of attractive investment opportunities from time to time, and there can be no assurance that we will be able to identify and makeinvestments that satisfy our objectives. A significant increase in the number and/or size of our competitors in our target market could force us to accept lessattractive investment terms. We cannot assure you that the competitive pressures we face will not have a materially adverse effect on our business, financialcondition and results of operation. Adverse market and economic conditions could cause harm to our operating results. Past recessions have had a significant negative impact on the operating performance and fair value of many middle market companies. Many of ourportfolio companies could be adversely impacted again by any future economic downturn or recession and may be unable to be sold at a price that wouldallow us to recover our investment, or may be unable to operate during a recession. See “The capital markets may experience periods of disruption andinstability. Such market conditions may materially and adversely affect debt and equity capital markets in the United States, which may have a negativeimpact on our business and operations.” Such portfolio company performance could have a material adverse effect on our business, financial condition andresults of operations. Our success depends on attracting and retaining qualified personnel in a competitive environment.23Table of Contents Sourcing, selecting, structuring and closing our investments depends upon the diligence and skill of our management. Our management’scapabilities may significantly impact our results of operations. Our success requires that we retain investment and operations personnel in a competitiveenvironment. Our ability to attract and retain personnel with the requisite credentials, experience and skills depends on several factors, including, but notlimited to, our ability to offer competitive wages, benefits and professional growth opportunities. The competitive environment for qualified personnel may require us to take certain measures to ensure that we are able to attract and retainexperienced personnel. Such measures may include increasing the attractiveness of our overall compensation packages, altering the structure of ourcompensation packages through the use of additional forms of compensation or other steps. The inability to attract and retain experienced personnel couldpotentially have an adverse effect on our business. Effective April 25, 2019, our asset coverage requirement was reduced from 200% to 150%, which could increase the risk of investing in the Company. The 1940 Act generally prohibits BDCs from incurring indebtedness unless immediately after such borrowing it has an asset coverage for totalborrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our total assets). However, on March 23, 2018, the SBCAA wassigned into law, which included various changes to regulations under the federal securities laws that impact BDCs. The SBCAA included changes to the1940 Act to allow BDCs to decrease their asset coverage requirement from 200% to 150%, if certain requirements are met. On April 25, 2018, the Board ofDirectors, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) of the Board of Directors, approved the application of themodified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, the minimum asset coverage ratio applicable to the Companywas decreased from 200% to 150%, which became effective April 25, 2019. Additionally, the Board of Directors also approved a resolution which limits theCompany’s issuance of senior securities such that the asset coverage ratio, taking into account such issuance, would not be less than 166%, at any time afterthe effective date. We are required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval toreduce its asset coverage requirement to 150%, its leverage capacity and usage, and risks related to leverage. Leverage is generally considered a speculative investment technique and increases the risk of investing in our securities. Leverage magnifies thepotential for loss on investments in our indebtedness and on invested equity capital. As we use leverage to partially finance our investments, you willexperience increased risks of investing in our securities. If the value of our assets increases, then leveraging would cause the NAV attributable to our commonstock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause NAV todecline more sharply than it otherwise would have had we not leveraged our business. Similarly, any increase in our income in excess of interest payable onthe borrowed funds would cause our net investment income to increase more than it would without the leverage, while any decrease in our income wouldcause net investment income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to paycommon stock dividends, scheduled debt payments or other payments related to our securities. If we incur additional leverage, you will experience increasedrisks of investing in our common stock. Efforts to comply with the Sarbanes-Oxley Act involve significant expenditures, and non-compliance with the Sarbanes-Oxley Act may adversely affectus. We are subject to the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the related rules and regulations promulgated by the SEC. Amongother requirements, under Section 404 of the Sarbanes-Oxley Act and rules and regulations of the SEC thereunder, our management is required to report onour internal controls over financial reporting. We are required to review on an annual basis our internal controls over financial reporting, and on a quarterlyand annual basis to evaluate and disclose significant changes in our internal controls over financial reporting. We have and expect to continue to incursignificant expenses related to compliance with the Sarbanes-Oxley Act, which will negatively impact our financial performance and our ability to makedistributions. In addition, this process results in a diversion of management’s time and attention. In the event that we are unable to maintain compliance withthe Sarbanes-Oxley Act and related rules, we may be adversely affected. Our ability to enter into transactions with our affiliates is restricted. We are prohibited under the 1940 Act from participating in certain transactions with certain of our affiliates without the prior approval of ourindependent directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities is ouraffiliate for purposes of the 1940 Act, and we generally are prohibited from buying or selling any security from or to an affiliate, absent the prior approval ofour independent directors. The 1940 Act also prohibits certain “joint” transactions with certain of our affiliates, which could include investments in the sameportfolio company (whether at the same or different times), without prior approval of our independent directors and, in some cases, the SEC. If a personacquires24Table of Contentsmore than 25% of our voting securities, we are prohibited from buying or selling any security from or to that person or certain of that person’s affiliates, orentering into prohibited joint transactions with that person, absent the prior approval of the SEC. Similar restrictions limit our ability to transact businesswith our officers or directors or their affiliates. Regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital. Our business will require capital to operate and grow. We may acquire such additional capital from the following sources: Senior Securities. We may issue debt securities and/or borrow money from banks or other financial institutions, which we refer to collectively assenior securities. As a result of issuing senior securities, we will be exposed to additional risks, including the following: •Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities only in amounts such that our asset coverage, asdefined in the 1940 Act, equals at least 150% immediately after each issuance of senior securities. In accordance with the 1940 Act, on April 25,2018, our Board of Directors, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) of our Board of Directors,approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, the minimum assetcoverage ratio applicable to the Company was decreased from 200% to 150%, effective April 25, 2019. If the value of our assets declines, we maybe unable to satisfy this test. If that happens, we will be prohibited from issuing debt securities and/or borrowing money from banks or otherfinancial institutions and may not be permitted to declare a dividend or make any distribution to shareholders or repurchase shares until such timeas we satisfy this test. The Board also approved a resolution which limits the Company’s issuance of senior securities such that the asset coverageratio, taking into account such issuance, would not be less than 166%, at any time after the effective date. •Any amounts that we use to service our debt will not be available for dividends to our common shareholders.•It is likely that any senior securities or other indebtedness we issue will be governed by an indenture or other instrument containing covenantsrestricting our operating flexibility. Additionally, some of these securities or other indebtedness may be rated by rating agencies, and in obtaininga rating for such securities and other indebtedness, we may be required to abide by operating and investment guidelines that further restrictoperating and financial flexibility.•We and, indirectly, our shareholders will bear the cost of issuing and servicing such securities and other indebtedness.•Any unsecured debt issued by us would rank (1) pari passu with our future unsecured indebtedness and effectively subordinated to all of ourexisting and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, and (2) structurally subordinated toall existing and future indebtedness and other obligations of any of our subsidiaries•Upon a liquidation of our company, holders of our debt securities and lenders with respect to other borrowings would receive a distribution of ouravailable assets prior to the holders of our common stock. Future offerings of additional debt securities, which would be senior to our commonstock upon liquidation, or equity securities, which could dilute our existing shareholders, may harm the value of our common stock.Additional Common Stock. The 1940 Act prohibits us from selling shares of our common stock at a price below the current NAV per share of suchstock, with certain exceptions. One such exception is prior shareholder approval of issuances below current NAV per share provided that our Board ofDirectors makes certain determinations. We did not seek shareholder authorization to sell shares of our common stock below the then current NAV per shareof our common stock at our 2018 annual meeting of shareholders. However, in the event we change our position, we will seek the requisite approval of ourcommon shareholders. See “-Shareholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then currentNAV per share of our common stock or issue securities to subscribe to, convert to or purchase shares of our common stock” for a discussion of the risks relatedto us issuing shares of our common stock below NAV. If we raise additional funds by issuing more common stock or senior securities convertible into, orexchangeable for, our common stock, the percentage ownership of our shareholders at that time would decrease, and they may experience dilution. Moreover,we can offer no assurance that we will be able to issue and sell additional equity securities in the future, on favorable terms or at all.Shareholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current NAV per share of ourcommon stock or issue securities to convert to shares of our common stock.The 1940 Act prohibits us from selling shares of our common stock at a price below the current NAV per share of such stock, with certain exceptions.One such exception is prior shareholder approval of issuances below NAV provided that our board of directors makes certain determinations. We did not seekshareholder authorization to sell shares of our common stock below the then current NAV per share of our common stock at our 2018 annual meeting ofshareholders.25Table of ContentsIf we were to sell shares of our common stock below NAV per share, such sales would result in an immediate dilution to the NAV per share. Thisdilution would occur as a result of the sale of shares at a price below the then current NAV per share of our common stock and a proportionately greaterdecrease in a shareholder’s interest in our earnings and assets and voting interest in us than the increase in our assets resulting from such issuance. Becausethe number of shares of common stock that could be so issued and the timing of any issuance is not currently known, the actual dilutive effect cannot bepredicted. Notwithstanding the foregoing, the example below illustrates the effect of dilution to existing shareholders resulting from the sale of commonstock at prices below the NAV of such shares.In addition, if we issue securities to convert to shares of common stock, the exercise or conversion of such securities would increase the number ofoutstanding shares of our common stock. Any such exercise would be dilutive on the voting power of existing shareholders, and could be dilutive withregard to dividends and our NAV, and other economic aspects of the common stock.Illustration: Example of Dilutive Effect of the Issuance of Shares Below Net Asset Value. Assume that Company XYZ has 1,000,000 total sharesoutstanding, $15,000,000 in total assets and $5,000,000 in total liabilities. The NAV per share of the common stock of Company XYZ is $10.00. Thefollowing table illustrates the reduction NAV and the dilution experienced by shareholder A following the sale of 100,000 shares of the common stock ofCompany XYZ at $9.00 per share, a price below its NAV per share. Prior to Sale BelowNAV Following Sale BelowNAV Percentage ChangeReduction to NAV Total Shares Outstanding 1,000,000 1,100,000 10.00 %NAV per share $10.00 $9.91 (0.91)%Dilution to Existing Shareholder Shares held by Shareholder A 10,000 10,0001 — %Percentage Held by Shareholder A 1.00% 0.91% (9.09)%Total Interest of Shareholder A in NAV $100,000 $99,091 (0.91)%(1) Assumes that Shareholder A does not purchase additional shares in the sale of shares below NAV.We cannot predict how tax reform legislation will affect us, our investments, or our shareholders, and any such legislation could adversely affect ourbusiness. Legislative or other actions relating to taxes could have a negative effect on us. The rules dealing with U.S. federal income taxation are constantlyunder review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. The U.S. House of Representatives and U.S.Senate passed tax reform legislation in December 2017, which the President signed into law. This legislation made many changes to the Code, includingsignificant changes to the taxation of business entities, the deductibility of interest expense, and the tax treatment of capital investment. We cannot predictwith certainty how any changes in the tax laws might affect us, our shareholders, or our portfolio investments. New legislation and any U.S. Treasuryregulations, administrative interpretations or court decisions interpreting such legislation could significantly and negatively affect our ability to qualify fortax treatment as a RIC or the U.S. federal income tax consequences to us and our shareholders of such qualification, or could have other adverseconsequences. Shareholders are urged to consult with their tax advisor regarding tax legislative, regulatory, or administrative developments and proposalsand their potential effect on an investment in our securities. We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, have a materialadverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay dividends to our shareholders. Our business is highly dependent on our and third parties’ communications and information systems. Any failure or interruption of those systems,including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems in our activities. Ourfinancial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as aresult of a number of factors, including events that are wholly or partially beyond our control and adversely affect our business. There could be: •Sudden electrical or telecommunications outages;•Natural disasters such as earthquakes, tornadoes and hurricanes;26Table of Contents•Events arising from local or larger scale political or social matters, including terrorist acts; and•Cyber-attacks.These events, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our common stock andour ability to pay dividends to our shareholders.A failure of cybersecurity systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuityplanning could impair our ability to conduct business effectively.The occurrence of a disaster, such as a cyber-attack against us or against a third-party that has access to our data or networks, a natural catastrophe,an industrial accident, failure of our disaster recovery systems, or consequential employee error, could have an adverse effect on our ability to communicateor conduct business, negatively impacting our operations and financial condition. This adverse effect can become particularly acute if those events affect ourelectronic data processing, transmission, storage, and retrieval systems, or impact the availability, integrity, or confidentiality of our data.We depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of security measures,our computer systems, networks, and data, like those of other companies, could be subject to cyber-attacks and unauthorized access, use, alteration, ordestruction, such as from physical and electronic break-ins or unauthorized tampering, malware and computer virus attacks, or system failures anddisruptions. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary, and other information processed, stored in, andtransmitted through our computer systems and networks. Such an attack could cause interruptions or malfunctions in our operations, which could result infinancial losses, litigation, regulatory penalties, client dissatisfaction or loss, reputational damage, and increased costs associated with mitigation of damagesand remediation. Third parties with which we do business may also be sources of cybersecurity or other technological risks. We outsource certain functions, and theserelationships allow for the storage and processing of our information, as well as customer, counterparty, employee and borrower information. While weengage in actions to reduce our exposure resulting from outsourcing, ongoing threats may result in unauthorized access, loss, exposure or destruction, orother cybersecurity incidents that affect our data, resulting in increased costs and other consequences as described above.Terrorist attacks, acts of war or natural disasters may affect any market for our common stock, impact the businesses in which we invest and harm ourbusiness, operating results and financial condition. Terrorist attacks, acts of war or natural disasters may disrupt our operations, as well as the operations of the businesses in which we invest. Theseevents have created, and continue to create, economic and political uncertainties and have contributed to global economic instability. Future terroristactivities, military or security operations, or natural disasters could further weaken the domestic or global economy. These events could create additionaluncertainties, which may negatively impact the businesses in which we invest directly or indirectly and, in turn, could have a material adverse impact on ourbusiness, operating results and financial condition. Losses from terrorist attacks and natural disasters are generally uninsurable. Our business and operations may be negatively affected if we become subject to securities litigation or shareholder activism, which could cause us toincur significant expense, hinder execution of our investment strategy and impact our stock price. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been broughtagainst that company. Shareholder activism, which could take many forms or arise in a variety of situations, has been increasing in the BDC space recently.While we are currently not subject to any securities litigation or shareholder activism, due to the potential volatility of our stock price and for a variety ofother reasons, we may in the future become the target of securities litigation or shareholder activism. Securities litigation and shareholder activism, includingpotential proxy contests, could result in substantial costs and divert management’s and our Board of Directors’ attention and resources from our business.Additionally, such securities litigation and shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationshipswith service providers and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant legal fees and otherexpenses related to any securities litigation and activist shareholder matters. Further, our stock price could be subject to significant fluctuation or otherwisebe adversely affected by the events, risks and uncertainties of any securities litigation and shareholder activism. RISKS RELATED TO OUR INVESTMENTS Our investments in portfolio companies involve a number of significant risks: 27Table of Contents•Portfolio companies are more likely to depend on the management talents and efforts of a small group of key employees. Therefore, the death,disability, resignation, termination, or significant under-performance of one or more of these persons could have a material adverse impact on ourportfolio company and, in turn, on us.•Portfolio companies may have unpredictable operating results, could become parties to litigation, may be engaged in rapidly changing businesseswith products subject to a substantial risk of obsolescence and may require substantial additional capital to support their operations, financeexpansion or maintain their competitive position.•Most of our portfolio companies are private companies. Private companies may not have readily publicly available information about their businesses,operations and financial condition. Consequently, we rely on the ability of our management team and investment professionals to obtain adequateinformation to evaluate the potential returns from making investments in these portfolio companies. If we are unable to uncover all materialinformation about the target portfolio company, we may not make a fully informed investment decision and may lose all or part of our investment.•Portfolio companies may have shorter operating histories, narrower product lines, smaller market shares and/or more significant customerconcentration than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as generaleconomic downturns.•Portfolio companies may have limited financial resources and may be unable to meet their obligations under their debt instruments that we hold,which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees fromsubsidiaries or affiliates of our portfolio companies that we may have obtained in connection with our investment, as well as a corresponding decreasein the value of the equity components of our investments. In addition, in the course of providing significant managerial assistance to certain of our portfolio companies, certain of our officers and directorsmay serve as directors on the boards of these companies. To the extent that litigation arises out of our investments in these companies, our officers anddirectors may be named as defendants in such litigation, which could result in an expenditure of funds for claims in excess of our directors’ and officers’insurance coverage (through our indemnification of our officers and directors) and the diversion of management’s time and resources.The lack of liquidity in our investments may adversely affect our business. We invest, and will continue to invest, in portfolio companies whose securities are not publicly traded. These securities are generally subject to legaland other restrictions on resale or will otherwise be less liquid than publicly traded securities. As a result, we do not expect to achieve liquidity in ourinvestments in the near-term. The illiquidity of these investments may make it difficult for us to sell these investments when desired. In addition, if we arerequired to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded theseinvestments and, as a result, we may suffer losses. Defaults by our portfolio companies could harm our operating results. Portfolio companies may fail to satisfy financial, operating or other covenants imposed by us or other lenders, which could lead to a default and,potentially, acceleration of its loans and foreclosure on its secured assets. These events could trigger cross-defaults under other agreements and jeopardizethe portfolio company’s ability to meet its obligations, including under the debt or equity securities we hold. We may also incur expenses to the extentnecessary to recover upon a default or to negotiate new terms with the defaulting portfolio company. Our investments in equity securities involve a substantial degree of risk. We may purchase common stock and other equity securities, including warrants. Although equity securities have historically generated higheraverage total returns than fixed-income securities over the long term, equity securities have also experienced significantly more volatility in those returns.The equity securities we acquire may fail to appreciate and may decline in value or become worthless, and our ability to recover our investment depends onour portfolio company’s success. Investments in equity securities involve a number of significant risks, including the risk of further dilution as a result ofadditional issuances, inability to access additional capital and failure to pay current distributions. Investments in preferred securities involve special risks,such as the risk of deferred distributions, credit risk, illiquidity and limited voting rights. We may not realize gains from our equity investments. Certain investments that we have made in the past and may make in the future include warrants or other equity securities. Investments in equitysecurities involve a number of significant risks, including the risk of further dilution as a result of additional issuances, inability to access additional capitaland failure to pay current distributions. Investments in preferred securities involve special risks, such as the risk of deferred distributions, credit risk,illiquidity and limited voting rights. In addition, we may from28Table of Contentstime to time make non-control, equity investments in portfolio companies. Our goal is ultimately to realize gains upon our disposition of these equityinterests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realizegains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses weexperience. We also may be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of the business, recapitalizationor public offering, which would allow us to sell the underlying equity interests. We often seek puts or similar rights to give us the right to sell our equitysecurities back to the portfolio company issuer; however, we may be unable to exercise these put rights for the consideration provided in our investmentdocuments if the issuer is in financial distress. Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity. From time to time, certain portfolio companies may prepay our debt investments in our portfolio companies prior to maturity, the specific timing ofwhich we do not control. When this occurs, we will generally reinvest these proceeds in temporary investments, pending their future investment in newportfolio companies. These temporary investments will typically have substantially lower yields than the debt being prepaid and we could experiencesignificant delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was repaid.As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay amounts owed to us.Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the market price of our securities.Changes in interest rates may affect our cost of capital, the value of investments and net investment income. Some of our debt investments will bear interest at variable rates and the interest income from these investments could be negatively affected bydecreases in market interest rates. In addition, an increase in interest rates would make it more expensive for us to use debt to finance our investments. As aresult, a significant increase in market interest rates could increase our cost of capital, which would reduce our net investment income. Also, an increase ininterest rates available to investors could make an investment in our securities less attractive than alternative investments, a situation which could reduce thevalue of our securities. Conversely, a decrease in interest rates may have an adverse impact on our returns by requiring us to seek lower yields on our debtinvestments and by increasing the risk that our portfolio companies will prepay our debt investments, resulting in the need to redeploy capital at potentiallylower rates. A decrease in market interest rates may also adversely impact our returns on temporary investments, which would reduce our net investmentincome. In addition, certain of our debt investments and debt liabilities may bear interest at fixed rates. To the extent that our fixed rate assets and liabilitiesare not perfectly hedged, our net investment income may decrease based on changes in market interest rates. An increase in market interest rates may alsodecrease the fair value of our fixed rate investments, as these may be less attractive securities in a rising rate environment. There may be circumstances in which our debt investments could be subordinated to claims of other creditors or we could be subject to lender liabilityclaims. Even though we may have structured certain of our investments as secured loans, if one of our portfolio companies were to go bankrupt, dependingon the facts and circumstances, and based upon principles of equitable subordination as defined by existing case law, a bankruptcy court could subordinateall or a portion of our claim to that of other creditors and transfer any lien securing our subordinated claim to the bankruptcy estate. The principles ofequitable subordination defined by case law have generally indicated that a claim may be subordinated only if its holder is guilty of misconduct or where thesenior loan is re-characterized as an equity investment and the senior lender has actually provided significant managerial assistance to the bankrupt debtor.We may also be subject to lender liability claims for actions taken by us with respect to a borrower’s business or instances where we exercise control over theborrower. It is possible that we could become subject to a lender’s liability claim, including as a result of actions taken in rendering significant managerialassistance or actions to compel and collect payments from the borrower outside the ordinary course of business. As a RIC, we may have certain regulatory restrictions that could preclude us from making additional investments in our portfolio companies. We may not have the ability to make additional investments in our portfolio companies. After our initial investment in a portfolio company, wemay be called upon from time to time to provide additional funds to that company or have the opportunity to increase our investment or make follow-oninvestments. Any decisions not to make a follow-on investment or any inability on our part to make such an investment may have a negative impact on aportfolio company in need of such an investment, may result in a missed opportunity for us to increase our participation in a successful operation or mayreduce the expected return on the investment.29Table of Contents Changes relating to LIBOR may adversely affect the value of the LIBOR-indexed, floating-rate debt securities in our portfolio. In July 2017, the head of the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced the desire to phase out the use ofLIBOR by the end of 2021. It is unclear if at that time whether or not LIBOR will cease to exist or if new methods of calculating LIBOR will be establishedsuch that it continues to exist after 2021. As a result of this transition, interest rates on financial instruments tied to LIBOR rates, as well as the revenue andexpenses associated with those financial instruments, may be adversely affected. Further, any uncertainty regarding the continued use and reliability ofLIBOR as a benchmark interest rate could adversely affect the value of our financial instruments tied to LIBOR rates The U.S. Federal Reserve, in conjunctionwith the Alternative Reference Rates Committee, a steering committee comprised of large US financial institutions, is considering replacing U.S. dollarLIBOR with a new index calculated by short term repurchase agreements, backed by Treasury securities, called the Secured Overnight Financing Rate(“SOFR”). The first publication of SOFR was released in April 2018. Whether or not SOFR attains market traction as a LIBOR replacement remains a questionand the future of LIBOR at this time is uncertain.As of March 31, 2019, approximately 94.7% of our debt investment portfolio (at fair value) bore interest rates indexed upon LIBOR. Additionally,our Credit Facility accrues interest at the applicable LIBOR rate plus 2.50%, subject to certain conditions as outlined in the Credit Agreement. If LIBORceases to exist, we may need to renegotiate the credit agreements extending beyond 2021 with our portfolio companies that utilize LIBOR as a factor indetermining the interest rate to replace LIBOR with the new standard that is established. Any such renegotiated agreements or methodology of the newstandard may not be as favorable to us as the current agreements and LIBOR, which may adversely affect our results of operations. We generally will not control our portfolio companies. We do not, and do not expect to, control most of our portfolio companies, even though we may have board representation or board observationrights, and our debt agreements may contain certain restrictive covenants. As a result, we are subject to the risk that a portfolio company in which we investmay make business decisions with which we disagree, and the management of such company, as representatives of the holders of their common equity, maytake risks or otherwise act in ways that do not serve our interests as debt investors. Due to the lack of liquidity of our investments in private companies, wemay not be able to dispose of our interests in our portfolio companies as readily as we would like or at an appropriate valuation. As a result, a portfoliocompany may make decisions that could decrease the value of our portfolio holdings. Second priority liens on collateral securing loans that we make to our portfolio companies may be subject to control by senior creditors with firstpriority liens. Further, in cases where we invest in unsecured subordinated debt, we would not have any lien on the collateral. In each of these cases, ifthere is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us. Certain loans that we make are either secured by a second priority security interest in the same collateral pledged by a portfolio company to securesenior debt owed by the portfolio company to commercial banks or other traditional lenders, or in the case of unsecured subordinated debt, we have no lien atall on the assets. Often the senior lender has procured covenants from the portfolio company prohibiting the incurrence of additional secured debt without thesenior lender’s consent. Prior to and as a condition of permitting the portfolio company to borrow money from us secured by the same collateral pledged tothe senior lender, or in the case where we invest in unsecured subordinated debt, the senior lender will require assurances that it will control the disposition ofany collateral in the event of bankruptcy or other default. In many cases, the senior lender will require us to enter into an “intercreditor agreement” prior topermitting the portfolio company to borrow from us. Typically the intercreditor agreements we are requested to execute expressly subordinate our debtinstruments to those held by the senior lender and further provide that the senior lender shall control: (1) the commencement of foreclosure or otherproceedings to liquidate and collect on the collateral, subject to a negotiated “standstill period” after which we can initiate; (2) the nature, timing andconduct of foreclosure or other collection proceedings, subject to a negotiated “standstill period” after which we can initiate; (3) the amendment of anycollateral document; (4) the release of the security interests in respect of any collateral; and (5) the waiver of defaults under any security agreement. Becauseof the control we may cede to senior lenders under intercreditor agreements we may enter, we may be unable to realize the proceeds of any collateral securingsome of our loans. Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in those companies. We invest primarily in the secured term debt of middle market companies and equity issued by middle market companies. Our portfolio companiesmay have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt in which we invest. By their terms, these debt instrumentsmay entitle the holders to receive payment of interest or principal on or before30Table of Contentsthe dates on which we are entitled to receive payments with respect to the debt instruments in which we invest. Also, in the event of insolvency, liquidation,dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio companywould typically be entitled to receive payment in full before we receive any distribution. After repaying its senior creditors, the portfolio company may nothave any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt instruments in which we invest, we wouldhave to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganizationor bankruptcy of the relevant portfolio company. RISKS RELATED TO OUR SECURITIES The market price of our common stock may fluctuate significantly. The market price of our common stock will fluctuate with market conditions and other factors. Our common stock is intended for long-term investorsand should not be treated as a trading vehicle. The market price and liquidity of the market for shares of our common stock may be significantly affected bynumerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include: •significant volatility in the market price and trading volume of securities of BDCs or other companies in our sector, which is not necessarily related tothe operating performance of these companies;•exclusion of our common stock from certain market indices, such as the Russell 2000 Financial Services Index, which could reduce the ability ofcertain investment funds to own our common stock and put short-term selling pressure on our common stock;•changes in regulatory policies or tax guidelines, particularly with respect to RICs or BDCs;•loss of RIC tax treatment;•our origination activity, including the pace of, and competition for, new investment opportunities;•changes or perceived changes in earnings or variations of operating results;•changes or perceived changes in the value of our portfolio of investments;•any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;•potential future sales of common stock or debt securities convertible into or exchangeable or exercisable for our common stock or the conversion ofsuch securities;•departure of our key personnel;•operating performance of companies comparable to us;•general economic trends and other external factors; and•loss of a major funding source.Investing in shares of our common stock may involve an above average degree of risk. The investments we make in accordance with our investment objectives may result in a higher amount of risk, volatility or loss of principal thanalternative investment options. Our investments in portfolio companies may be highly speculative, and therefore, an investment in our common stock maynot be suitable for investors with lower risk tolerance. Shares of closed-end investment companies, including BDCs, may trade at a discount to their net asset value. Our common stock is listed on The NASDAQ Global Select Market. Shareholders desiring liquidity may sell their shares on The NASDAQ GlobalSelect Market at current market value, which could be below NAV. Shares of closed-end investment companies frequently trade at discounts from NAV,which is a risk separate and distinct from the risk that a fund’s performance will cause its NAV to decrease. We cannot predict whether our common stock willtrade at, above or below NAV. In addition, if our common stock trades below our NAV per share, we will generally not be able to issue additional commonstock at the market price unless our shareholders approve such a sale and our Board of Directors make certain determinations. See “-Shareholders may incurdilution 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 issue securitiesto subscribe to, convert to or purchase shares of our common stock” for a discussion of the risks related to us issuing shares of our common stock below NAV. The trading market or market value of our publicly issued debt securities may be volatile. The trading market for our publicly issued debt securities may from time to time be significantly affected by numerous factors, including: •Creditworthiness;31Table of Contents•Terms, including, but not limited to, maturity, principal amount, redemption, and repayment of convertible features;•Market and economic conditions; and•Demand for our debt securities.In addition, credit rating assessments by third parties regarding our ability to pay our obligations will generally affect the market value of our debtsecurities. We currently intend to pay quarterly dividends. However, in the future we may not pay any dividends depending on a variety of factors. While we intend to pay dividends to our shareholders out of taxable income available for distribution, there can be no assurance that we will do so.Any dividends that we do pay may be payable in cash, in our stock, or in stock in any of our holdings or in a combination of all three. All dividends will bepaid at the discretion of our Board of Directors and will depend upon our financial condition, maintenance of our RIC tax treatment, and compliance withapplicable BDC regulations. We currently pay dividends in cash. However, in the future we may choose to pay dividends in our own stock, in which case you may be required to paytax in excess of the cash you receive. We may distribute taxable dividends that are payable in part in our stock. Under certain applicable provisions of the Code and the Treasuryregulations, distributions payable by us in cash or in shares of stock (at the shareholders election) would satisfy the annual distribution requirement for a RIC.The IRS has issued a revenue procedure letter rulings providing that a dividend payable in stock or in cash at the election of the shareholders will be treatedas a taxable dividend eligible for the dividends paid deduction provided that at least 20% of the total dividend is payable in cash and certain otherrequirements are satisfied. Taxable shareholders receiving such dividends will be required to include the full amount of the dividend as ordinary income (oras long-term capital gain to the extent such dividend is properly reported as a capital gain dividend) to the extent of our current and accumulated earningsand profits for U.S. federal income tax purposes. As a result, a U.S. shareholder may be required to pay tax with respect to such dividends in excess of any cashreceived. If a U.S. shareholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included inincome with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. shareholders,we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividends payable in stock. If asignificant number of our shareholders determine to sell shares of our stock in order to pay taxes owed on dividends, it may put downward pressure on thetrading price of our stock.We may not be able to invest a significant portion of the net proceeds from future capital raises on acceptable terms, which could harm our financialcondition and operating results.Delays in investing the net proceeds raised in an offering may cause our performance to be worse than that of other fully invested BDCs or otherlenders or investors pursuing comparable investment strategies. We cannot assure you that we will be able to identify any investments that meet ourinvestment objective or that any investment that we make will produce a positive return. We may be unable to invest the net proceeds of any offering onacceptable terms within the time period that we anticipate or at all, which could harm our financial condition and operating results.In the event that we cannot invest our net proceeds as desired we will invest the net proceeds from any offering primarily in cash, cash equivalents,U.S. Government securities and other high-quality debt investments that mature in one year or less from the time of investment. These securities may havelower yields than our other investments and accordingly may result in lower distributions, if any, during such period.Terms relating to redemption may materially adversely affect the return on the December 2022 Notes.The December 2022 Notes are redeemable at our option on or after December 15, 2019. We may choose to redeem the December 2022 Notes at timeswhen prevailing interest rates are lower than the interest rate paid on the December 2022 Notes. In addition, if the December 2022 Notes are subject tomandatory redemption, we may be required to redeem the December 2022 Notes at times when prevailing interest rates are lower than the interest rate paid onthe December 2022 Notes. In this circumstance, a holder of the December 2022 Notes may not be able to reinvest the redemption proceeds in a comparablesecurity at an effective interest rate as high as the December 2022 Notes being redeemed. Provisions of the Texas law and our charter could deter takeover attempts and have an adverse impact on the price of our common stock. 32Table of ContentsTexas law and our charter contain provisions that may have the effect of discouraging, delaying or making difficult a change in control. Theexistence of these provisions, among others, may have a negative impact on the price of our common stock and may discourage third-party bids forownership of our company. These provisions may prevent any premiums being offered to you for our common stock. Item 1B. Unresolved Staff Comments None. Item 2. Properties We do not own any real estate or other physical properties. We maintain our offices at 5400 Lyndon B. Johnson Freeway, Suite 1300, Dallas, Texas75240, where we lease approximately 9,261 square feet of office space pursuant to a lease agreement expiring in January 2022. We believe that our offices areadequate to meet our current and expected future needs. Item 3. Legal Proceedings We and our subsidiaries may, from time to time, be involved in litigation arising out of our operations in the normal course of business orotherwise. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. As of the datehereof, we and our subsidiaries are not a party to, and none of our assets are subject to, any material pending legal proceedings and are not aware of anyclaims that could have a materially adverse effect on our financial position, results of operations or cash flows.Item 4. Mine Safety Disclosures Not applicable.33Table of ContentsPART II Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities PRICE RANGE OF COMMON STOCK AND HOLDERS Market Information Our common stock is traded on The Nasdaq Global Select Market under the symbol “CSWC.” On May 31, 2019, there were approximately 411holders of record of our common stock, which did not include shareholders for whom shares are held in "nominee" or "street name." Shares of BDCs may trade at a market price that is less than the value of the net assets attributable to those shares. The possibility that our shares ofcommon stock will trade at a discount from net asset value per share or at premiums that are unsustainable over the long term are separate and distinct fromthe risk that our net asset value per share will decrease. It is not possible to predict whether our common stock will trade at, above, or below net asset valueper share. DISTRIBUTIONS We intend to make distributions on a quarterly basis to our shareholders of substantially all of our taxable income. In lieu of cash, we may makedeemed distributions of certain net capital gains to our shareholders. The payment dates and amounts of cash dividends per share for the past two fiscal years are as follows: Payment DateCash DividendFiscal Year 2019 July 2, 20181$0.89September 28, 201820.44December 31, 201820.46March 29, 201920.48 $2.27 Fiscal Year 2018 July 3, 2017$0.21October 2, 20170.24January 2, 20180.26April 2, 20180.28 $0.991 On July 2, 2018, CSWC paid a regular dividend of $0.29 per share and a supplemental dividend of $0.60 per share.2 On each of these dates, the cash dividend paid includes a supplemental dividend of $0.10 per share.On May 30, 2019, the Company’s Board of Directors declared a total dividend of $0.49 per share, comprised of a regular dividend of $0.39 and asupplemental dividend of $0.10, for the quarter ended June 30, 2019. The record date for the dividend is June 14, 2019. The payment date for the dividend isJune 28, 2019. The amounts and timing of cash dividend payments have generally been dictated by requirements of the Code regarding the distribution of taxablenet investment income (ordinary income) of regulated investment companies. Distribution Policy We generally intend to make distributions on a quarterly basis to our shareholders of substantially all of our taxable income. In order to avoidcertain excise taxes imposed on RICs, we must distribute during each calendar year an amount at least equal to the sum of (1) 98% of our ordinary income forthe calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one year period ended each October 31, and (3) any ordinary income andnet capital gains for the preceding year that were not distributed during that year. We will not be subject to excise taxes on amounts on which we are requiredto pay corporate income tax (such as retained net capital gains). In order to obtain the tax benefits applicable to RICs, we will be required to34Table of Contentsdistribute to our shareholders with respect to each taxable year at least 90% of our ordinary income and realized net short-term capital gains in excess ofrealized net long-term capital losses. Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excessof current year distributions into the next year and pay a 4% excise tax on such income. Any such carryover taxable income must be distributed through adividend declared prior to filing the final tax return related to the year that generated such taxable income. We may retain for investment realized net long-term capital gains in excess of realized net short-term capital losses. We may make deemeddistributions to our shareholders of any retained net capital gains. If this happens, our shareholders will be treated as if they received an actual distribution ofthe capital gains we retain and then reinvested the net after-tax proceeds in our common stock. Our shareholders also may be eligible to claim a tax credit (or,in certain circumstances, a tax refund) equal to their allocable share of the tax we paid on the capital gains deemed distributed to them. Please refer to“Business —Material U.S. Federal Income Tax Considerations” included in Item 1 of Part I of this Annual Report for further information regarding theconsequences of our retention of net capital gains. We may, in the future, make actual distributions to our shareholders of some or all realized net long-termcapital gains in excess of realized net short-term capital losses. Our ability to make distributions in the future may be limited by our Credit Facility, theindenture and related supplements governing our December 2022 Notes and the 1940 Act. For a more detailed discussion, see “Business — Election to beRegulated as a Business Development Company – Regulation as a Business Development Company,” “Management’s Discussion and Analysis of FinancialCondition and Results of Operations,” and “Note 5” to our consolidated financial statements included in this Annual Report on Form 10K. We have adopted a DRIP which provides for reinvestment of our distributions on behalf of our common shareholders if opted into by a commonshareholder. See “Business — Dividend Reinvestment Plan” included in Item I of Part I of this Annual Report on Form 10-K. Shareholders who receive dividends in the form of stock generally are subject to the same federal, state and local tax consequences as areshareholders who elect to receive their dividends in cash. A shareholder’s basis for determining gain or loss upon the sale of stock received in a dividend fromus will be equal to the total dollar amount of the dividend payable to the shareholder. Any stock received in a dividend will have a holding period for taxpurposes commencing on the day following the day on which the shares are credited to the U.S. shareholder’s account.RECENT SALES OF UNREGISTERED EQUITY SECURITIESWe did not sell any securities during the period covered by this Annual Report that were not registered under the Securities Act of 1933.ISSUER PURCHASES OF EQUITY SECURITIES In January 2016, the Company’s Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $10 millionof its outstanding common stock in the open market at certain thresholds below its NAV per share, in accordance with guidelines specified in Rules 10b5-1(c)(1)(i)(B) and 10b-18 under the Securities Exchange Act of 1934. On March 1, 2016, the Company entered into a share repurchase agreement, which becameeffective immediately and shall terminate on the earliest of: (1) the date on which a total of $10 million worth of common shares have been purchased underthe plan; (2) the date on which the terms set forth in the purchase instructions have been met; or (3) the date that is one trading day after the date on whichinsider notifies broker in writing that this agreement shall terminate. 35Table of ContentsThe following table provides information for the year ended March 31, 2019. Period Total Number ofShares Purchased Average PricePaid Per Share Total Number ofShares Purchasedas Part of PubliclyAnnounced Plans orPrograms Approximate DollarValue of SharesThat May Yet BePurchased Underthe Plans orPrograms (2)April 1 through April 30, 2018 — $— — $—May 1 through May 31, 2018 — — — —June 1 through June 30, 2018 — — — —July 1 through July 31, 2018 — — — —August 1 through August 31, 2018 — — — —September 1 through September 30, 2018 — — — —October 1 through October 31, 2018 — — — —November 1 through November 30, 2018 (1) 9,695 19.17 — —December 1 through December 31, 2018 10,452 17.72 10,452 9,227,011January 1 through January 31, 2019 (1) 37 21.60 — —February 1 through February 28, 2019 — — — —March 1 through March 31, 2019 — — — —Total 20,184 $18.42 10,452 $9,227,011 (1)Represents shares of common stock withheld upon vesting of restricted stock to cover withholding tax obligations.(2)On January 25, 2016, we announced that our Board of Directors authorized us to repurchase an indeterminate number of shares of our common stock at an aggregatemarket value of up to $10 million. The repurchase program will be in effect until the approved dollar amount has been used to repurchase shares or the Board amends ordiscontinues the plan at any time.36Table of ContentsPerformance Graph The following graph compares our cumulative total shareholder return during the last five years (based on the market price of our common stock andassuming reinvestment of all dividends, prior to any tax effect) with the Nasdaq Composite Total Return Index, the Russell 2000 Total Return Index and theKBW Regional Bank Total Return Index, as we do not believe that there is an appropriate index of companies with an investment strategy similar to our ownwith which to compare the return on our common stock. The graph assumes initial investment of $100 on March 31, 2014 and reinvestment of dividends. Thegraph measures total shareholder return, which takes into account both changes in stock price and distributions. It assumes that distributions paid areinvested in like securities. The value of the CSWI shares distributed in the Share Distribution is reflected in the cumulative total return as a reinvesteddividend. The graph and other information furnished under this Part II Item 5 of this Annual Report on Form 10-K shall not be deemed to be "solicitingmaterial" or to be filed with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act. The stock price performanceincluded in the above graph is not necessarily indicative of future stock performance.37Table of ContentsItem 6. Selected Financial Data The following table provides selected financial data relating to our historical financial condition and results of operations as of and for each of theyears ended March 31, 2015 through 2019. This data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and the consolidated financial statements and related notes. Selected Consolidated Financial Data(In thousands except per share data) Year ended March 31, 2019 2018 2017 2016 2015Income statement data: Investment income: Interest and dividends$50,192 $34,233 $22,324 $8,033 $9,231Interest income from cash and cash equivalents36 21 166 386 122Fees and other income1,653 872 984 741 595Total investment income51,881 35,126 23,474 9,160 9,948Operating expenses: Compensation-related expenses9,986 9,238 8,217 9,515 6,440Interest expense12,178 4,875 989 — —General, administrative and other4,959 4,585 4,601 11,610 5,683Total operating expenses27,123 18,698 13,807 21,125 12,123Income (loss) before income taxes24,758 16,428 9,667 (11,965) (2,175)Income tax expense (benefit)1,048 195 1,779 (1,278) 270Net investment income (loss)23,710 16,233 7,888 (10,687) (2,445)Net realized gains (losses): Non-control/Non-affiliate investments2,124 1,492 3,992 (9,575) 8,226Affiliate investments77 90 3,876 (1,458) 157,213Control investments18,653 — 28 231 (1,175)Net realized gains (losses) on investments20,854 1,582 7,896 (10,802) 164,264Net unrealized appreciation (depreciation) on investments(11,506) 21,492 7,690 16,089 (108,377)Net realized and unrealized gains on investments9,348 23,074 15,586 5,287 55,887Net increase (decrease) in net assets resulting from operations$33,058 $39,307 $23,474 $(5,400) $53,442Net investment income (loss) per share - basic and diluted$1.42 $1.01 $0.50 $(0.68) $(0.16)Net realized earnings per share - basic and diluted1$2.66 $1.11 $1.00 $(1.37) $10.45Net increase (decrease) in net assets from operations - basic and diluted$1.98 $2.45 $1.48 $(0.35) $3.44Net asset value per common share$18.62 $19.08 $17.80 $17.34 $49.30Total dividends/distributions declared per common share$2.27 $0.99 $0.79 $0.14 $0.20Weighted average number of shares outstanding – basic16,727 16,074 15,825 15,636 15,492Weighted average number of shares outstanding – diluted16,734 16,139 15,877 15,724 15,5311 “Net realized earnings per share – basic and diluted” is calculated as the sum of “Net investment income (loss)” and “Net realized gain (loss) on investments” divided byweighted average shares outstanding – basic and diluted.38Table of Contents Year ended March 31, 2019 2018 2017 2016 2015Balance sheet data: Assets: Investments at fair value$524,071 $393,095 $286,880 $178,436 $535,536Cash and cash equivalents9,924 7,907 22,386 95,969 225,797Interest, escrow and other receivables11,049 5,894 4,308 6,405 4,418Net pension assets— — — 10,294Deferred tax asset1,807 2,050 2,017 2,342 —Other assets4,992 8,544 10,161 1,341 827Total assets$551,843 $417,490 $325,752 $284,493 $776,872Liabilities: Notes$75,099 $55,305 $— $— $—Credit facility141,000 40,000 25,000 — —Other liabilities6,708 6,245 5,996 9,028 4,923Dividends payable— 4,525 7,191 625 —Accrued restoration plan liability3,073 2,937 2,170 2,205 3,119Deferred income taxes— 190 323 — 1,412Total liabilities225,880 109,202 40,680 11,858 9,454Net assets325,963 308,288 285,072 272,635 767,418Total liabilities and net assets$551,843 $417,490 $325,752 $284,493 $776,872Other data: Number of portfolio companies37 30 28 23 22Weighted average yield on debt investments at end of period11.58% 11.46% 10.28% 10.67% 3.14%Weighted average yield on total investments at end of period10.96% 10.48% 10.49% 9.46% 0.46%Expense ratios (as percentage of average net assets): Total expenses, excluding interest expense4.75% 4.70% 4.59% 4.48% 1.59%Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in thisAnnual Report on Form 10-K. Statements we make in the following discussion which express a belief, expectation or intention, as well as those that are nothistorical fact, are forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results, performance or achievements, orindustry results, could differ materially from those we express in the following discussion as a result of a variety of factors, including the risks anduncertainties we have referred to under the headings “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors” in Part I of thisreport. OVERVIEW We are an internally managed closed-end, non-diversified investment company that has been elected to be regulated as a BDC under the 1940 Act.We specialize in providing customized debt and equity financing to LMM companies and debt capital to UMM companies in a broad range of investmentsegments located primarily in the United States. Our investment objective is to produce attractive risk-adjusted returns by generating current income fromour debt investments and capital appreciation from our equity and equity related investments. Our investment strategy is to partner with business owners,management teams and financial sponsors to provide flexible financing solutions to fund growth, changes of control, or other corporate events. We investprimarily in senior debt securities, secured by security interests in portfolio company assets, and in secured and unsecured subordinated debt securities. Wealso invest in equity interests in our portfolio companies alongside our debt securities. We focus on investing in companies with histories of generating revenues and positive cash flow, established market positions and provenmanagement teams with strong operating discipline. We target senior debt, subordinated debt, and equity investments in LMM companies, as well as first andsecond lien syndicated loans in UMM companies. Our target LMM companies39Table of Contentstypically have annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) between $3.0 million and $15.0 million, and our LMMinvestments generally range in size from $5.0 million to $25.0 million. Our UMM investments generally include syndicated first and second lien loans incompanies with EBITDA generally greater than $50.0 million, and our UMM investments typically range in size from $5.0 million to $15.0 million. We seek to fill the financing gap for LMM companies, which, historically, have had more limited access to financing from commercial banks andother traditional sources. The underserved nature of the LMM creates the opportunity for us to meet the financing needs of LMM companies while alsonegotiating favorable transaction terms and equity participations. Our ability to invest across a LMM company’s capital structure, from secured loans toequity securities, allows us to offer portfolio companies a comprehensive suite of financing options. Providing customized financing solutions is important toLMM companies. We generally seek to partner directly with financial sponsors, entrepreneurs, management teams and business owners in making ourinvestments. Our LMM debt investments typically include senior loans with a first lien on the assets of the portfolio company, as well as subordinated debtwhich may either be secured or unsecured subordinated loans. Our LMM debt investments typically have a term of between five and seven years from theoriginal investment date. We also often seek to invest in the equity securities of our LMM portfolio companies. Our investments in UMM companies primarily consist of direct investments in or secondary purchases of interest bearing debt securities in privatelyheld companies that are generally larger in size than the LMM companies included in our portfolio. Our UMM debt investments are generally secured byeither a first or second priority lien on the assets of the portfolio company and typically have an expected duration of between three and seven years from theoriginal investment date. Since the Share Distribution on September 30, 2015 through March 31, 2019, our exited investments resulted in a weighted average internal rate ofreturn to the Company of approximately 18.2% (based on original cash invested of approximately $165.0 million). Internal rate of return is the discount ratethat makes the net present value of all cash flows related to a particular investment equal to zero. Internal rate of return is gross of expenses related toinvestments as these expenses are not allocable to specific investments. Investments are considered to be exited when the original investment objective hasbeen achieved through the receipt of cash and/or non-cash consideration upon the repayment of a debt investment or sale of an investment or through thedetermination that no further consideration was collectible and, thus, a loss may have been realized. Approximately 90.3% of these exited investmentsresulted in an aggregate cash flow realized internal rate of return to the Company of 10% or greater.Because we are internally managed, we do not pay any external investment advisory fees, but instead directly incur the operating costs associatedwith employing investment and portfolio management professionals. We believe that our internally managed structure provides us with a beneficialoperating expense structure when compared to other publicly traded and privately held investment firms which are externally managed, and our internallymanaged structure allows us the opportunity to leverage our non-interest operating expenses as we grow our investment portfolio. For the years ended March31, 2019, 2018 and 2017, the ratio of our annualized fourth quarter operating expenses, excluding interest expense, as a percentage of our quarterly averagetotal assets was 2.81%, 3.36% and 4.54%, respectively. CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES The preparation of our consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates andassumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenuesand expenses for the periods covered by the consolidated financial statements. We have identified investment valuation and revenue recognition as our mostcritical accounting estimates. On an on-going basis, we evaluate our estimates, including those related to the matters below. These estimates are based on theinformation that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results coulddiffer materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies follows. Valuation of Investments The most significant determination inherent in the preparation of our consolidated financial statements is the valuation of our investment portfolioand the related amounts of unrealized appreciation and depreciation. As of March 31, 2019 and 2018, our investment portfolio at fair value representedapproximately 95.0% and 94.2% of our total assets, respectively. We are required to report our investments at fair value. We follow the provisions of ASC820. ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used tomeasure fair value, and enhances disclosure requirements for fair value measurements. ASC 820 requires us to assume that the portfolio investment is to besold in the principal market to independent market participants, which may be a hypothetical market. See Note 4 — “Fair Value40Table of ContentsMeasurements” in the notes to consolidated financial statements for a detailed discussion of our investment portfolio valuation process and procedures. Due to the inherent uncertainty in the valuation process, our determination of fair value for our investment portfolio may differ materially from thevalues that would have been determined had a ready market for the securities actually existed. In addition, changes in the market environment, portfoliocompany performance, and other events may occur over the lives of the investments that may cause the gains or losses ultimately realized on theseinvestments to be materially different than the valuations currently assigned. We determine the fair value of each individual investment and record changesin fair value as unrealized appreciation or depreciation. Our Board of Directors is responsible for determining, in good faith, the fair value for our investment portfolio and our valuation procedures,consistent with 1940 Act requirements. Our Board of Directors believes that our investment portfolio as of March 31, 2019 and 2018 reflects fair value as ofthose dates based on the markets in which we operate and other conditions in existence on those reporting dates. Revenue Recognition Interest and Dividend Income Interest and dividend income is recorded on an accrual basis to the extent amounts are expected to be collected. Dividend income is recognized onthe date dividends are declared by the portfolio company or at the point an obligation exists for the portfolio company to make a distribution.Discounts/premiums received to par on loans purchased are capitalized and accreted or amortized into income over the life of the loan. In accordance withour valuation policy, accrued interest and dividend income is evaluated periodically for collectability. When we do not expect the debtor to be able toservice all of its debt or other obligations, we will generally establish a reserve against interest income receivable, thereby placing the loan or debt securityon non-accrual status, and cease to recognize interest income on that loan or debt security until the borrower has demonstrated the ability and intent to paycontractual amounts due. If a loan or debt security’s status significantly improves regarding ability to service debt or other obligations, it will be restored toaccrual basis. As of March 31, 2019 we had one investment on non-accrual status, which comprised of approximately 1.6% of our total investment portfolio'sfair value and approximately 1.9% of its cost. As of March 31, 2018, we did not have any investments on non-accrual status. Recently Issued Accounting Standards In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize on the balance sheet a right-of-use asset, representingits right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requiresqualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard requires theuse of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. The newguidance is effective for annual periods beginning after December 15, 2018, and interim periods therein. Early application is permitted. Based on ourassessment of the new standard, the single change relates to the recognition of a new right-of-use asset and lease liability on our consolidated balance sheetfor our office space operating lease. We currently have one operating lease for office space and do not expect a significant change in our leasing activitybetween now and adoption. As such, the adoption will not have a material impact on the Company's consolidated financial statements. See further discussionof our operating lease obligation in "Note 12 — Commitments and Contingencies" in the notes to the consolidated financial statements. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes the revenuerecognition requirements under SAC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the ASC. Thecore principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount thatreflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Under the new guidance, an entity is required toperform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine thetransaction price; (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies aperformance obligation. The new guidance will significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictionsand capital markets. Additionally, the guidance requires improved disclosures as to the nature, amount, timing and uncertainty of revenue that is recognized.In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606)—Narrow-Scope Improvements and PracticalExpedients. This ASU clarified guidance on assessing collectability, presenting sales tax, measuring noncash consideration, and certain transition matters.The new guidance is effective for the annual reporting period beginning after December 15, 2017, including interim41Table of Contentsperiods within that reporting period. The Company adopted ASU 2014-09 effective April 1, 2018 and determined that its material financial contracts areexcluded from the scope of ASU 2014-09. As a result of the scope exception for financial contracts, the Company's management has determined that therewere no material changes to the recognition timing and classification of revenues and expenses; additionally, the adoption of ASU 2014-09 did not have asignificant impact on pretax income or on the consolidated financial statement disclosures. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), which is intended to reduce the existing diversity in practicein how certain cash receipts and cash payments are presented and classified in the Consolidated Statements of Cash Flows. The guidance is effective forannual periods beginning after December 15, 2017, and interim periods therein. The Company adopted ASU 2016-15 effective April 1, 2018 and theadoption did not have a material impact on the Company's consolidated financial statements.In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the DisclosureRequirements for Fair Value Measurement, which changes the fair value measurement disclosure requirements of ASC 820. The key provisions include new,eliminated and modified disclosure requirements. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periodstherein. Early application is permitted. CSWC is currently evaluating the impact the adoption of this new accounting standard will have on its consolidatedfinancial statements, but the impact of the adoption is not expected to be material.In August 2018, the SEC issued the Final Rule Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosurerequirements that were redundant, duplicative, overlapping, outdated or superseded. The amendments are intended to facilitate the disclosure of informationto investors and simplify compliance. The final rule was effective on November 5, 2018. The Company adopted these disclosure updates in the quarter endedDecember 31, 2018. The disclosure updates impacted the presentation of the consolidated financial statements by requiring the presentation of the total,rather than the components of the distributable earnings on the Consolidated Balance Sheet. Additionally, the Company updated the Consolidated Statementof Changes in Net Assets for the new interim reporting requirement to disclose the current and comparative year-to-date periods, including subtotals for eachinterim periods. Management does not consider the impact of these disclosure updates to be material to the consolidated financial statements.In March 2019, the SEC issued Final Rule Release No. 33-10618, FAST Act Modernization and Simplification of Regulation S-K, which amendscertain SEC disclosure requirements. The amendments are intended to simplify certain disclosure requirements, improve readability and navigability ofdisclosure documents, and discourage repetition and disclosure of immaterial information. The amendments are effective for all filings submitted on or afterMay 2, 2019. The Company adopted the requisite amendments effective May 2, 2019. As it pertains to the Company for this Annual Report on Form 10-K, there were no significant changes to the Company’s consolidated financial position or disclosures. The Company is still evaluating the impact thisamendment will have on its other future periodic filings and registration statements. INVESTMENT PORTFOLIO COMPOSITION Our LMM investments consist of secured debt, subordinated debt, equity warrants and direct equity investments in privately held, LMM companiesbased in the United States. Our LMM portfolio companies generally have annual EBITDA between $3.0 million and $15.0 million, and our LMMinvestments typically range in size from $5.0 million to $25.0 million. The LMM debt investments are typically secured by either a first or second prioritylien on the assets of the portfolio company, generally bear interest at floating rates, and generally have a term of between five and seven years from theoriginal investment date. Our UMM investments consist of direct investments in or secondary purchases of interest-bearing debt securities in privately held companies basedin the United States that are generally larger in size than the LMM companies included in our portfolio with EBITDA generally greater than $50.0 million.Our UMM investments typically range in size from $5.0 million to $15.0 million. Our UMM debt investments are generally secured by ether a first or secondpriority lien on the assets of the portfolio company and typically have a term of between three and seven years from the original investment date. The total value of our investment portfolio was $524.1 million as of March 31, 2019, as compared to $393.1 million as of March 31, 2018. As ofMarch 31, 2019, we had investments in 37 portfolio companies with an aggregate cost of $478.1 million. As of March 31, 2018, we had investments in 30portfolio companies with an aggregate cost of $335.4 million.As of March 31, 2019 and 2018, approximately $348.2 million, or 94.7%, and $220.3 million, or 92.1%, respectively, of our debt investmentportfolio (at fair value) bore interest at floating rates, of which 87.8% and 94.2%, respectively, were subject to contractual minimum interest rates. As ofMarch 31, 2019 and 2018, approximately $19.5 million, or 5.3%, and $18.8 million, or 7.9%, respectively, of our debt investment portfolio (at fair value)bore interest at fixed rates.42Table of Contents The following tables provide a summary of our investments in LMM and UMM companies as of March 31, 2019 and 2018 (excluding ourinvestment in I-45 SLF LLC): As of March 31, 2019 LMM (a) UMM (dollars in thousands)Number of portfolio companies26 10Fair value$377,792 $80,536Cost$325,343 $84,712% of portfolio at cost - debt87.5% 100.0%% of portfolio at cost - equity12.5% —% of debt investments at cost secured by first lien76.6% 82.6%Weighted average annual effective yield (b)(c)12.2% 9.7%Weighted average EBITDA (c)$9,200 $66,531Weighted average leverage through CSWC security (c)(d)3.3x 4.8x(a)At March 31, 2019, we had equity ownership in approximately 73.1% of our LMM investments.(b)The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of March 31, 2019, including accretion of originalissue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status. As of March 31, 2019, there was oneinvestment on non-accrual status. Weighted-average annual effective yield is higher than what an investor in shares in our common stock will realize on its investment because itdoes not reflect our expenses or any sales load paid by an investor. (c)Weighted average metrics are calculated using investment cost basis weighting. (d)Includes CSWC debt investments only. Calculated as the amount of each portfolio company’s debt (including CSWC’s position and debt senior or pari passu to CSWC’sposition, but excluding debt subordinated to CSWC’s position) in the capital structure divided by each portfolio company’s adjusted EBITDA. Management uses this metric as aguide to evaluate the relative risk of its position in each portfolio debt investment. As of March 31, 2018 LMM (a) UMM (dollars in thousands)Number of portfolio companies19 10Fair value$259,116 $66,866Cost$204,331 $66,266% of portfolio at cost - debt83.5% 100.0%% of portfolio at cost - equity16.5% —% of debt investments at cost secured by first lien74.2% 65.2%Weighted average annual effective yield (b)(c)11.9% 10.2%Weighted average EBITDA (c)$8,600 $86,200Weighted average leverage through CSWC security (c)(d)3.3x 4.3x (a)At March 31, 2018, we had equity ownership in approximately 73.7% of our LMM investments.(b)The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of March 31, 2018, including accretion of originalissue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status. As of March 31, 2018, there were noinvestments on non-accrual status. Weighted-average annual effective yield is higher than what an investor in shares in our common stock will realize on its investment because itdoes not reflect our expenses or any sales load paid by an investor.(c)Weighted average metrics are calculated using investment cost basis weighting.(d)Includes CSWC debt investments only. Calculated as the amount of each portfolio company’s debt (including CSWC’s position and debt senior or pari passu to CSWC’sposition, but excluding debt subordinated to CSWC’s position) in the capital structure divided by each portfolio company’s adjusted EBITDA. Management uses this metric as aguide to evaluate the relative risk of its position in each portfolio debt investment. 43Table of ContentsAs of March 31, 2019 and 2018, our investment portfolio consisted of the following investments: Percentage of Percentage of Total Portfolio Total Portfolio Fair Value at Fair Value Cost at Cost (dollars in thousands)March 31, 2019: First lien loans1$317,544 60.6% $319,278 66.8%Second lien loans235,896 6.8 36,057 7.5Subordinated debt14,287 2.7 14,458 3.0Preferred equity17,936 3.4 7,894 1.7Common equity & warrants72,665 14.0 32,368 6.8I-45 SLF LLC365,743 12.5 68,000 14.2 $524,071 100.0% $478,055 100.0%March 31, 2018: First lien loans1$197,110 50.1% $194,820 58.1%Second lien loans223,229 5.9 23,092 6.9Subordinated debt18,783 4.8 18,885 5.6Preferred equity36,545 9.3 16,666 5.0Common equity & warrants50,315 12.8 17,134 5.1I-45 SLF LLC367,113 17.1 64,800 19.3 $393,095 100.0% $335,397 100.0%1 Included in first lien loans are loans structured as first lien last out loans. These loans may in certain cases be subordinated in payment priority to other senior securedlenders. As of March 31, 2019 and 2018, the fair value of the first lien last out loans are $38.6 million and $26.9 million, respectively.2 Included in second lien loans are loans structured as split lien term loans. These loans provide the Company with a first lien priority on certain assets of the obligor and asecond lien priority on different assets of the obligor. As of March 31, 2019 , the fair value of the split lien term loans are $18.3 million. As of March 31, 2018, therewere no investments in split lien term loans.3 I-45 SLF LLC is a joint venture between CSWC and Main Street Capital. This entity primarily invests in syndicated senior secured loans in the UMM. The portfoliocompanies held by I-45 SLF LLC represent a diverse set of industry classifications, which are similar to those in which CSWC invests directly. We own 80.0% of I-45SLF LLC and have a profits interest of 75.6%, while Main Street Capital owns 20.0% and has a profits interest of 24.4%. I-45 SLF LLC’s Board of Managers makes allinvestment and operational decisions for the fund, and consists of equal representation from our Company and Main Street Capital. The Company does not guarantee orotherwise obligate itself to make payments on debts owed by I-45 SLF LLC. Portfolio Asset Quality We utilize an internally developed investment rating system to rate the performance and monitor the expected level of returns for each debtinvestment in our portfolio. The investment rating system takes into account both quantitative and qualitative factors of the portfolio company and theinvestments held therein, including each investment’s expected level of returns and the collectability of our debt investments, comparisons to competitorsand other industry participants and the portfolio company’s future outlook. The ratings are not intended to reflect the performance or expected level ofreturns of our equity investments. •Investment Rating 1 represents the least amount of risk in our portfolio. The investment is performing materially above underwriting expectations andthe trends and risk factors are generally favorable.•Investment Rating 2 indicates the investment is performing as expected at the time of underwriting and the trends and risk factors are generallyfavorable to neutral. •Investment Rating 3 involves an investment performing below underwriting expectations and the trends and risk factors are generally neutral tonegative. The portfolio company or investment may be out of compliance with financial covenants and interest payments may be impaired, howeverprincipal payments are generally not past due. •Investment Rating 4 indicates that the investment is performing materially below underwriting expectations, the trends and risk factors are generallynegative and the risk of the investment has increased substantially. Interest and principal payments on our investment are likely to be impaired. 44Table of ContentsThe following table shows the distribution of our debt portfolio investments on the 1 to 4 investment rating scale at fair value as of March 31, 2019and 2018: As of March 31, 2019 Debt Investments at Percentage ofInvestment RatingFair Value Debt Portfolio (dollars in thousands)1$61,897 16.8%2284,041 77.3321,789 5.94— —Total$367,727 100.0% As of March 31, 2018 Debt Investments at Percentage ofInvestment RatingFair Value Debt Portfolio (dollars in thousands)1$8,194 3.4%2217,989 91.2312,939 5.44— —Total$239,122 100.0% Interest and dividend income is recorded on an accrual basis to the extent amounts are expected to be collected. When we do not expect the debtorto be able to service all of its debt or other obligations, we will generally establish a reserve against interest income receivable, thereby placing the loan ordebt security on non-accrual status, and cease to recognize interest income on that loan or debt security until the borrower has demonstrated the ability andintent to pay contractual amounts due. As of March 31, 2019, we had one debt investment on non-accrual status, which comprised of approximately 1.6% of our total investment portfolio'sfair value and approximately 1.9% of its cost. As of March 31, 2018, we did not have any investments on non-accrual status. Investment Activity During the year ended March 31, 2019, we made new debt investments in 13 portfolio companies totaling $173.7 million, follow-on debtinvestments in 10 portfolio companies totaling $32.8 million, and equity investments in three existing and seven new portfolio companies totaling $19.9million. We also funded $3.2 million on our existing equity commitment to I-45 SLF LLC. We received contractual principal repayments totalingapproximately $10.3 million and full prepayments of approximately $36.1 million from eight portfolio companies. In addition, we received proceeds fromsales of investments totaling $63.3 million and recognized net realized gains on those sales totaling $20.4 million. During the year ended March 31, 2018, we made new debt investments in 14 portfolio companies totaling $142.9 million, follow-on debtinvestments in four portfolio companies totaling $9.4 million, and equity investments in one existing and seven new portfolio companies totaling $9.8million. We also funded $4.0 million on our existing equity commitment to I-45 SLF LLC. We received contractual principal repayments totalingapproximately $11.7 million and full prepayments of approximately $72.2 million from 13 portfolio companies. 45Table of ContentsTotal portfolio investment activity for the years ended March 31, 2019 and 2018 was as follows (in thousands):Year ended March 31, 2019First Lien Loans Second LienLoans SubordinatedDebt Preferred &CommonEquity &Warrants I-45 SLF LLC TotalFair value, beginning of period$197,110 $23,229 $18,783 $86,860 $67,113 $393,095New investments185,386 21,159 — 19,853 3,200 229,598Proceeds from sales of investments(28,805) — — (34,490) — (63,295)Principal repayments received(33,226) (8,562) (4,600) — — (46,388)Conversion of security from debt to equity(539) — — 539 — —PIK interest capitalized43 181 46 231 — 501Accretion of loan discounts1,215 115 60 — — 1,390Realized gain382 73 68 20,331 — 20,854Unrealized gain (loss)(4,022) (299) (70) (2,723) (4,570) (11,684)Fair value, end of period$317,544 $35,896 $14,287 $90,601 $65,743 $524,071Weighted average yield on debt investments at endof period 11.58%Weighted average yield on total investments at endof period 10.96%Year ended March 31, 2018First Lien Loans Second LienLoans SubordinatedDebt Preferred &CommonEquity &Warrants I-45 SLF LLC TotalFair value, beginning of period$107,817 $47,176 $12,453 $56,039 $63,395 $286,880New investments128,189 9,765 14,406 9,821 4,000 166,181Proceeds from sales of investments— — — (104) — (104)Principal repayments received(41,687) (34,179) (8,100) — — (83,966)PIK interest capitalized— — 11 295 — 306Accretion of loan discounts705 100 52 — — 857Realized gain814 550 114 104 — 1,582Unrealized gain (loss)1,272 (183) (153) 20,705 (282) 21,359Fair value, end of period$197,110 $23,229 $18,783 $86,860 $67,113 $393,095Weighted average yield on debt investments at endof period 11.46%Weighted average yield on total investments at endof period 10.48%46Table of ContentsRESULTS OF OPERATIONS The composite measure of our financial performance in the Consolidated Statements of Operations is captioned “Net increase (decrease) in net assetsfrom operations” and consists of three elements. The first is “Net investment income (loss),” which is the difference between income from interest, dividendsand fees and our combined operating and interest expenses, net of applicable income taxes. The second element is “Net realized gain (loss) on investmentsbefore income tax,” which is the difference between the proceeds received from the disposition of portfolio securities and their stated cost. The third elementis the “Net change in unrealized appreciation on investments, net of tax” which is the net change in the market or fair value of our investment portfolio,compared with stated cost. It should be noted that the “Net realized gain (loss) on investments before income tax” and “Net change in unrealizedappreciation on investments, net of tax” are directly related in that when an appreciated portfolio security is sold to realize a gain, a corresponding decreasein net unrealized appreciation occurs by transferring the gain associated with the transaction from being “unrealized” to being “realized.” Conversely, whena loss is realized on a depreciated portfolio security, an increase in net unrealized appreciation occurs. Comparison of years ended March 31, 2019 and March 31, 2018 Year ended March 31, Net Change 2019 2018 Amount % (in thousands)Total investment income$51,881 $35,126 $16,755 47.7 %Interest expense(12,178) (4,875) (7,303) 149.8 %Other operating expenses(14,945) (13,823) (1,122) 8.1 %Income before taxes24,758 16,428 8,330 50.7 %Income tax expense1,048 195 853 437.4 %Net investment income23,710 16,233 7,477 46.1 %Net realized gain on investments before income tax20,854 1,582 19,272 1,218.2 %Net unrealized (depreciation) appreciation on investments, net of tax(11,506) 21,492 (32,998) (153.5)%Net increase in net assets from operations$33,058 $39,307 $(6,249) (15.9)% Investment Income Total investment income consisted of interest income, management fees, dividend income and other income for each applicable period. For the yearended March 31, 2019, total investment income was $51.9 million, a $16.8 million, or 47.7%, increase over total investment income of $35.1 million for theyear ended March 31, 2018. The increase was primarily due to a $15.4 million, or 70.5%, increase in interest income generated from our debt investmentsdue to a 56.2% increase in the cost basis of debt investments held from $236.8 million to $369.8 million year over year. In addition, the weighted averageyield on debt investments increased from 11.46% to 11.58%. We received fees and other income of $1.7 million and $0.9 million for the years ended March 31, 2019 and 2018, respectively. The increase yearover year related primarily to prepayment and amendment fees. Operating Expenses Due to the nature of our business, the majority of our operating expenses are related to interest and fees on our borrowings, employee compensation(including both cash and share-based compensation), and general and administrative expenses. Interest and Fees on our Borrowings For the year ended March 31, 2019, total interest expense was $12.2 million, an increase of $7.3 million, as compared to the total interest expense of$4.9 million for the year ended March 31, 2018. The increase was primarily attributable to an increase of $57.6 million in average borrowings on our CreditFacility and an increase of $53.2 million in average borrowings related to the December 2022 Notes outstanding during the year ended March 31, 2019. 47Table of ContentsSalaries, General and Administrative Expenses For the year ended March 31, 2019, total employee compensation expense (including both cash and share-based compensation) was $10.0 million, a$0.8 million, or 8.1%, increase over total employee compensation expense of $9.2 million for the year ended March 31, 2018. The increase was primarily dueto an increase in headcount, as well as additional restricted stock award grants, offset by the Spin-off Compensation Plan, which was fully paid out in 2018.For the year ended March 31, 2019, our total general and administrative expense was $5.0 million, an increase of $0.4 million as compared to the totalgeneral and administrative expense of $4.6 million for the year ended March 31, 2018. The increase was primarily due to an increase in board-relatedexpenses due to the addition of a new board member, an increase in insurance costs, and an increase in legal, audit and printing fees relating to maintainingthe Company's shelf registration with the SEC.Net Investment Income For the year ended March 31, 2019, net investment income increased from the prior year by $7.5 million, or 46.1%, to $23.7 million as a result of a$16.8 million increase in total investment income, offset by a $0.9 million increase in income tax expense and a $7.3 million increase in interest expense. Increase in Net Assets from Operations During the fiscal year ended March 31, 2019, we recognized realized gains on investments before income tax totaling $20.9 million, whichconsisted of gains on the partial repayments of six non-control/non-affiliate debt investments, full repayments of seven non-control/non-affiliate debtinvestments and the sale of one control, one affiliate and one non-control/non-affiliate equity investment. Realized gains on investments include a realizedgain on the sale of TitanLiner, Inc. of $18.6 million and a realized gain on the sale of Deepwater Corrosion Services of $1.7 million. In addition, for the fiscal year ended March 31, 2019, we recorded net unrealized depreciation on investments, net of tax, totaling $11.5 million,consisting of net unrealized appreciation on our current portfolio of $2.6 million, the reversal of $14.3 million of net unrealized appreciation recognized inprior periods due to the realized gains noted above, and net unrealized appreciation related to deferred tax associated with the Taxable Subsidiary of $0.2million. Net unrealized appreciation on our current portfolio included unrealized gains on Media Recovery, Inc. of $9.6 million, partially offset byunrealized losses on I-45 SLF LLC of $4.6 million and American Teleconferencing Services, Ltd. of $2.9 million. These unrealized gains and losses were dueto changes in fair value based on the overall EBITDA performance and cash flows of each investment as determined by our Board of Directors. During the fiscal year ended March 31, 2018, we recognized realized gains on investments before income tax totaling $1.6 million, which consistedof net gains on the partial repayments of five non-control/non-affiliate investments and full repayments of 13 non-control/non-affiliate investments. In addition, for the fiscal year ended March 31, 2018, we recorded net unrealized appreciation, net of tax, on investments totaling $21.5 million,consisting of net unrealized appreciation on our current portfolio of $22.0 million, the reversal of $0.6 million of net unrealized appreciation recognized inprior periods due to the realized gains noted above, and net unrealized depreciation related to deferred tax associated with the Taxable Subsidiary of $0.1million. Net unrealized appreciation on our current portfolio included unrealized gains on TitanLiner, Inc. of $20.3 million and Media Recovery, Inc. of $5.3million, partially offset by unrealized losses on Deepwater Corrosion Services of $5.3 million. These unrealized gains and losses were due to changes in fairvalue based on the overall EBITDA performance and cash flows of each investment.48Table of ContentsComparison of years ended March 31, 2018 and March 31, 2017 Year ended March 31, Net Change 2018 2017 Amount % (in thousands)Total investment income$35,126 $23,474 $11,652 49.6 %Interest expense(4,875) (989) (3,886) 392.9 %Other operating expenses(13,823) (12,818) (1,005) 7.8 %Income (loss) before taxes16,428 9,667 6,761 69.9 %Income tax expense (benefit)195 1,779 (1,584) (89.0)%Net investment income (loss)16,233 7,888 8,345 105.8 %Net realized gain (loss) on investments before income tax1,582 7,896 (6,314) (80.0)%Net unrealized appreciation on investments, net of tax21,492 7,690 13,802 179.5 %Net increase (decrease) in net assets from operations$39,307 $23,474 $15,833 67.4 % Investment Income Total investment income consisted of interest income, management fees, dividend income and other income for each applicable period. For the yearended March 31, 2018, total investment income was $35.1 million, an $11.7 million, or 49.6%, increase over total investment income of $23.5 million for theyear ended March 31, 2017. This increase was primarily due to a $9.4 million, or 76.0%, increase in interest income generated from our debt investments dueto a 42.6% increase in the cost basis of debt investments held from $166.1 million to $236.8 million year over year in addition to an increase in the weightedaverage yield on debt investments from 10.28% to 11.46%. We receive management fees primarily from our controlled affiliate investments which aggregated $0.4 million for both the years ended March 31,2018 and 2017. We also received other miscellaneous fees and income of approximately $0.5 million and $0.6 million during the years ended March 31,2018 and 2017, respectively, related primarily to other portfolio company activity. Operating Expenses Due to the nature of our business, the majority of our operating expenses are related to interest and fees on our borrowings, employee compensation(including both cash and share-based compensation), and general and administrative expenses. Interest and Fees on our Borrowings For the year ended March 31, 2018, total interest expense was $4.9 million, an increase of $3.9 million as compared to the total interest expense of$1.0 million for the year ended March 31, 2017. The increase was primarily attributable to an increase of $24.4 million in average borrowings on our CreditFacility during the year ended March 31, 2018, as well as an increase of$57.5 million in December 2022 Notes outstanding. Salaries, General and Administrative Expenses For the year ended March 31, 2018, total employee compensation expense (including both cash and share-based compensation) was $9.2 million, a$1.0 million, or 12.4%, increase over total employee compensation expense of $8.2 million for the year ended March 31, 2017. The increase was primarilydue to an increase in headcount, as well as additional restricted stock award grants. For both the years ended March 31, 2018 and 2017, total general andadministrative expense was $4.6 million.Net Investment Income/Loss For the year ended March 31, 2018, net investment income was $16.2 million, a $8.3 million, or 105.8%, increase over net investment income of$7.9 million during the fiscal year ended March 31, 2017. The increase was driven by an $11.7 million increase in total investment income and a $1.6million decrease in income tax expense primarily due to the tax reform, offset by a $3.9 million increase in interest expense and a $1.0 million increase inemployee compensation expense. 49Table of ContentsIncrease/Decrease in Net Assets from Operations During the fiscal year ended March 31, 2017, we recognized realized gains on investments before income tax totaling $7.9 million, which consistedof net gains on the partial repayments of 22 non-control/non-affiliate investments, full repayments on five non-control/non-affiliate investments and the saleof certain equity securities. In addition, for the fiscal year ended March 31, 2017, we recorded net unrealized appreciation, net of tax, on investments totaling $7.7 million,consisting of net unrealized appreciation on our current portfolio of $12.5 million, the reversal of $4.5 million of net unrealized appreciation recognized inprior periods due to the realized gains noted above, and net unrealized depreciation related to deferred tax associated with the Taxable Subsidiary of $0.3million. Net unrealized appreciation on our current portfolio included unrealized gains on Media Recovery, Inc. of $5.6 million, Deepwater CorrosionServices, Inc. of $4.9 million and I-45 SLF LLC of $3.1 million, partially offset by unrealized losses on TitanLiner, Inc. of $3.3 million. These unrealizedgains and losses were due to changes in fair value based on the overall EBITDA performance and cash flows of each investment.FINANCIAL LIQUIDITY AND CAPITAL RESOURCES Our liquidity and capital resources are generated primarily from cash flows from operations, the net proceeds of public offerings of debt securitiesand advances from the Credit Facility. Management believes that the Company’s cash and cash equivalents, cash available from investments, andcommitments under the Credit Facility are adequate to meet its needs for the next twelve months. Cash Flows At March 31, 2019, the Company had cash and cash equivalents of approximately $9.9 million. For the year ended March 31, 2019, we experienceda net increase in cash and cash equivalents in the amount of $2.0 million. During that period, our operating activities used $94.7 million in cash, consistingprimarily of new portfolio investments of $229.6 million, partially offset by $74.7 million of repayments received from debt investments in portfoliocompanies and $33.9 million of proceeds from sales of equity investments. In addition, our financing activities increased cash by $96.7 million, consistingprimarily of net borrowings under the Credit Facility of $101.0 million, proceeds from the issuance of the December 2022 Notes of $19.5 million andproceeds from the offering of common stock of $18.9 million, partially offset by cash dividends paid in the amount of $42.5 million.At March 31, 2018, the Company had cash and cash equivalents of approximately $7.9 million. For the year ended March 31, 2018, we experienceda net decrease in cash and cash equivalents in the amount of $14.5 million. During that period, our operating activities used $63.9 million in cash, consistingprimarily of new portfolio investments of $166.2 million, partially offset by $82.5 million of repayments received from debt investments in portfoliocompanies. In addition, our financing activities increased cash by $49.4 million, consisting primarily of proceeds from the issuance of the December 2022Notes of $55.8 million and net borrowings under the Credit Facility of $15.0 million, partially offset by cash dividends paid in the amount of $18.6 million. Financing TransactionsIn accordance with the 1940 Act, with certain limitations, the Company is only allowed to borrow amounts such that its asset coverage (i.e., the ratioof assets less liabilities not represented by senior securities to senior securities such as borrowings), calculated pursuant to the 1940 Act, is at least 200% (or,pursuant to the 1940 Act, 150% if certain requirements are met as described in the Business Section under “Regulation as a Business Development Company-Senior Securities”) after such borrowing. On April 25, 2018, the Board of Directors unanimously approved the application of the recently modified assetcoverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, the minimum asset coverage ratio applicable to the Company was decreasedfrom 200% to 150%, which became effective April 25, 2019. Additionally, the Board of Directors also approved a resolution which limits the Company’sissuance of senior securities such that the asset coverage ratio, taking into account any such issuance, would not be less than 166%, at any time after theeffective date. As of March 31, 2019, the Company’s asset coverage was 249%. Credit Facility In August 2016, CSWC entered into a senior secured credit facility (as amended, restated, supplemented or otherwise modified from time to time, the“Credit Facility”) to provide additional liquidity to support its investment and operational activities, which included total commitments of $100 million.The Credit Facility contained an accordion feature that allowed CSWC to increase the total commitments under the Credit Facility up to $150 million fromnew and existing lenders on the same terms and50Table of Contentsconditions as the existing commitments. In August 2017, we increased our total commitments by $15 million through adding an additional lender using theaccordion feature.On November 16, 2017, CSWC entered into Amendment No. 1 (the “Amendment”) to its Credit Facility. Prior to the Amendment, borrowings underthe Credit Facility accrued interest on a per annum basis at a rate equal to the applicable LIBOR rate plus 3.25% with no LIBOR floor. CSWC paid unusedcommitment fees of 0.50% to 1.50% per annum, based on utilization, on the unused lender commitments under the Credit Facility. The Amendment (1)increased the total borrowing capacity under the Credit Facility to $180 million, with commitments from a diversified group of eight lenders, (2) increasedthe Credit Facility’s accordion feature that allows for an increase in total commitments of up to $250 million under the Credit Facility from new and existinglenders on the same terms and conditions as the existing commitments, (3) reduced the interest rate on borrowings from LIBOR plus 3.25% down to LIBORplus 3.00%, with a further step-down to LIBOR plus 2.75% at the time the Company’s net worth exceeds $325 million, (4) reduced unused commitment feesfrom a utilization-based grid of 0.50% to 1.5% down to a range of 0.50% to 1.0% per annum, and (5) extended the Credit Facility’s revolving period thatended on August 30, 2019 through November 16, 2020. Additionally, the final maturity of the Credit Facility was extended from August 30, 2020 toNovember 16, 2021. On April 16, 2018 and May 11, 2018, CSWC entered into Incremental Assumption Agreements, which increased the total commitmentsunder the Credit Facility by $20 million and $10 million, respectively. The increases were executed in accordance with the accordion feature of the CreditFacility, increasing total commitments from $180 million to $210 million.On December 21, 2018, CSWC entered into the Amended and Restated Senior Secured Revolving Credit Agreement (the "Credit Agreement"), and arelated Amended and Restated Guarantee, Pledge and Security Agreement, to amend and restate its Credit Facility. The Credit Agreement (1) increased thetotal commitments by $60 million from $210 million to an aggregate total of $270 million, provided by a diversified group of nine lenders, (2) increased theCredit Facility's accordion feature to $350 million under the Credit Facility from new and existing lenders on the same terms and conditions as the existingcommitments, (3) reduced the interest rate on borrowings from LIBOR plus 3.00% to LIBOR plus 2.50%, subject to certain conditions as outlined in theCredit Agreement, (4) reduced the minimum asset coverage with respect to senior securities representing indebtedness from 200% to 150% after the date onwhich such minimum asset coverage is permitted to be reduced by the Company under applicable law, subject to certain conditions as outlined in the CreditAgreement, and (5) extended the Credit Facility's revolving period from November 16, 2020 to December 21, 2022 and the final maturity from November 16,2021 to December 21, 2023.The Credit Agreement modified certain covenants in the Credit Facility, including: (1) to provide for a minimum senior coverage ratio of 2-to-1 (inaddition to the asset coverage ratio noted below), (2) to increase the minimum obligors’ net worth test from $160 million to $180 million, (3) to reduce theminimum consolidated interest coverage ratio from 2.50-to-1 to 2.25-to-1 as of the last day of any fiscal quarter, and (4) to provide for the fact that theCompany will not declare or pay a dividend or distribution in cash or other property unless immediately prior to and after giving effect thereto theCompany's asset coverage ratio exceeds 150% (and certain other conditions are satisfied). The Credit Facility also contains certain affirmative and negativecovenants, including but not limited to: (1) certain reporting requirements, (2) maintaining RIC and BDC status, (3) maintaining a minimum shareholders’equity, (4) maintaining a minimum consolidated net worth, and (5) at any time the outstanding advances exceed 90% of the borrowing base, maintaining aminimum liquidity of not less than 10% of the covered debt amount. The Credit Facility also contains customary events of default, including, without limitation, nonpayment, misrepresentation of representations andwarranties in a material respect, breach of covenant, bankruptcy, and change of control, with customary cure and notice provisions. If the Company defaultson its obligations under the Credit Facility, the lenders may have the right to foreclose upon and sell, or otherwise transfer, the collateral subject to theirsecurity interests. There are no changes to the covenants or the events of default in the Credit Facility as a result of the Credit Agreement.The Credit Facility is secured by (1) substantially all of the present and future property and assets of the Company and the guarantors and (2) 100%of the equity interests in the Company’s wholly-owned subsidiaries. As of March 31, 2019, substantially all of the Company’s assets were pledged ascollateral for the Credit Facility. At March 31, 2019, CSWC had $141.0 million in borrowings outstanding under the Credit Facility. CSWC recognized interest expense related tothe Credit Facility, including unused commitment fees and amortization of deferred loan costs of $7.3 million and $3.7 million, respectively, for the yearsended March 31, 2019 and 2018. The weighted average interest rate on the Credit Facility was 5.41% and 4.66%, respectively, for the years ended March 31,2019 and 2018. Average borrowings for the years ended March 31, 2019 and 2018 were $99.8 million and $42.2 million, respectively. As of March 31, 2019and 2018, CSWC was in compliance with all financial covenants under the Credit Facility. 51Table of ContentsDecember 2022 Notes In December 2017, the Company issued $57.5 million in aggregate principal amount, including the underwriters’ full exercise of their option topurchase additional principal amounts to cover over-allotments, of 5.95% Notes due 2022 (the “December 2022 Notes”). The December 2022 Notes matureon December 15, 2022 and may be redeemed in whole or in part at any time, or from time to time, at the Company’s option on or after December 15, 2019.The December 2022 Notes bear interest at a rate of 5.95% per year, payable quarterly on March 15, June 15, September 15 and December 15 of each year,beginning on March 15, 2018. The December 2022 Notes are an unsecured obligation, rank pari passu with our other outstanding and future unsecuredunsubordinated indebtedness and are effectively subordinated to all of our existing and future secured indebtedness, including borrowings under our CreditFacility.On June 11, 2018, the Company entered into an "At-The-Market" ("ATM") debt distribution agreement, pursuant to which it may offer for sale, fromtime to time, up to $50 million in aggregate principal amount of December 2022 Notes through B. Riley FBR, Inc., acting as its sales agent (the “2022 NotesAgent”). Sales of the December 2022 Notes may be made in negotiated transactions or transactions that are deemed to be "at the market offerings" as definedin Rule 415 under the Securities Act of 1933, as amended, including sales made directly on The Nasdaq Global Select Market, or similar securities exchangesor sales made through a market maker other than on an exchange at prices related to prevailing market prices or at negotiated prices.The 2022 Notes Agent receives a commission from the Company equal to up to 2% of the gross sales of any December 2022 Notes sold through the2022 Notes Agent under the debt distribution agreement. The 2022 Notes Agent is not required to sell any specific principal amount of December 2022Notes, but will use its commercially reasonable efforts consistent with its sales and trading practices to sell the December 2022 Notes. The December 2022Notes trade “flat,” which means that purchasers in the secondary market will not pay, and sellers will not receive, any accrued and unpaid interest on theDecember 2022 Notes that is not reflected in the trading price.During the year ended March 31, 2019, the Company sold 785,447 December 2022 Notes for an aggregate principal amount of approximately $19.6million at a weighted average effective yield of 5.86%. At this time, the Company does not intend to issue additional December 2022 Notes under this ATMdebt distribution agreement.All issuances of December 2022 Notes rank equally in right of payment and form a single series of notes.As of March 31, 2019, the carrying amount of the December 2022 Notes was $75.1 million. As of March 31, 2019, the fair value of the December2022 Notes was $78.7 million. The fair value is based on the closing price of the security of The Nasdaq Global Select Market, which is a Level 1 input underASC 820. The Company recognized interest expense related to the December 2022 Notes, including amortization of deferred issuance costs, of $4.8 millionand $1.2 million for the years ended March 31, 2019 and 2018, respectively. Average borrowings for the years ended March 31, 2019 and 2018 were $70.1million and $16.9 million, respectively. The indenture governing the December 2022 Notes contains certain covenants including but not limited to (i) a requirement that the Companycomply with the asset coverage requirement of Section 18(a)(1)(A) of the 1940 Act as modified by Section 61(a) of the 1940 Act or any successor provisionsthereto, after giving effect to any exemptive relief granted to the Company by the SEC, (ii) a requirement, subject to a limited exception, that the Companywill not declare any cash dividend, or declare any other cash distribution, upon a class of its capital stock, or purchase any such capital stock, unless, in everysuch case, at the time of the declaration of any such dividend or distribution, or at the time of any such purchase, the Company has the minimum assetcoverage required pursuant to Section 18(a)(1)(A) of the 1940 Act as modified by Section 61(a) of the 1940 Act or any successor provision thereto afterdeducting the amount of such dividend, distribution or purchase price, as the case may be, giving effect to any exemptive relief granted to the Company bythe SEC and (iii) a requirement to provide financial information to the holders of the December 2022 Notes and the trustee under the indenture if theCompany should no longer be subject to the reporting requirements under the Exchange Act. The indenture and supplement relating to the December 2022Notes also provides for customary events of default. As of March 31, 2019, the Company was in compliance with all covenants of the December 2022 Notes.Equity Capital ActivitiesIn January 2016, our board of directors approved a share repurchase program authorizing us to repurchase up to $10 million in the aggregate of ouroutstanding common stock in the open market at certain thresholds below our net asset value per share, in accordance with guidelines specified in Rules10b5-1(c)(1)(i)(B) and 10b-18 under the Exchange Act. During the year ended March 31, 2019, the Company repurchased a total of 10,452 shares at anaverage price of $17.72 per share, including commissions paid. As of March 31, 2019, we had repurchased a total of 46,363 shares of our common stock inthe open market52Table of Contentsunder the stock repurchase program, at an average price of $16.67, including commissions paid, leaving approximately $9.2 million available for additionalrepurchases under the program.During the year ended March 31, 2019, the Company completed an offering of 700,000 shares of the Company's common stock at a net price of$18.90 per share, which was above NAV per share at the time of the offering. The Company issued 100,000 shares of its common stock to certain institutionalinvestors in a direct registered offering and 600,000 shares of its common stock in a "best efforts" underwritten offering. The total net proceeds of theofferings, before expenses, was approximately $13.2 million.On March 4, 2019, the Company entered into separate equity distribution agreements with certain sales agents pursuant to which we may offer andsell, from time to time, shares of our common stock having an aggregate offering price of up to $50,000,000 (the "Equity ATM Program"). During the yearended March 31, 2019, the Company sold 263,656 shares of its common stock under the Equity ATM Program at a weighted-average price of $21.47 pershare, raising $5.7 million of gross proceeds. Net proceeds were $5.5 million after commissions to the sales agents on shares sold.We anticipate that we will continue to fund our investment activities through existing cash and cash equivalents, cash flows generated through ourongoing operating activities, utilization of available borrowings under our Credit Facility and future issuances of debt and equity on terms we believe arefavorable to the Company and our shareholders. Our primary uses of funds will be investments in portfolio companies and operating expenses. In order to satisfy the Code requirements applicable to a RIC, we intend to distribute to our shareholders, after consideration and application of ourability under the Code to carry forward certain excess undistributed taxable income from one tax year into the next tax year, substantially all of our taxableincome.53Table of ContentsOFF-BALANCE SHEET ARRANGEMENTS We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfoliocompanies. These instruments may include commitments to extend credit and fund equity capital and involve, to varying degrees, elements of liquidity andcredit risk in excess of the amount recognized in the balance sheet.At March 31, 2019 and 2018, we had a total of approximately $17.7 million and $11.6 million, respectively, in currently unfunded commitments (asdiscussed in Note 12 to the Consolidated Financial Statements). As of March 31, 2019, the total unfunded commitments included commitments to issueletters of credit through a financial intermediary on behalf of certain portfolio companies. As of March 31, 2019, we had $3.4 million in letters of creditissued and outstanding under these commitments on behalf of the portfolio companies. For the letters of credit issued and outstanding, we would be requiredto make payments to third parties if the portfolio companies were to default on their related payment obligations. Of these letters of credit, $3.4 million expirein May 2020. As of March 31, 2019, none of the letters of credit issued and outstanding were recorded as a liability on the Company's balance sheet as suchletters of credit are considered in the valuation of the investments in the portfolio company.The Company believes its assets will provide adequate coverage to satisfy these commitments. As of March 31, 2019, the Company had cash andcash equivalents of $9.9 million and $125.6 million in available borrowings under the Credit Facility. Contractual Obligations As shown below, we had the following contractual obligations as of March 31, 2019. For information on our unfunded investment commitments,see Note 12 of the Notes to Consolidated Financial Statements. Payments Due By Period (In thousands) Less than More ThanContractual ObligationsTotal 1 Year 1-3 Years 3-5 Years 5 YearsOperating lease obligations$772 $257 $515 $— $—Credit Facility (1)177,540 7,753 15,463 154,324 —December 2022 Notes (2)94,411 4,666 9,307 80,438 —Total$272,723 $12,676 $25,285 $234,762 $— (1)Amounts include interest payments calculated at an average rate of 5.41% of outstanding Credit Facility borrowings, which were $141.0 million as ofMarch 31, 2019.(2)Includes interest payments.Table of ContentsRECENT DEVELOPMENTS On May 23, 2019, CSWC entered into an Incremental Assumption Agreement, which increased the total commitments under the Credit Facility, by$25 million. The increase was executed under the accordion feature of the Credit Facility and increased total commitments from $270 million to $295million.On May 30, 2019, the Company’s Board of Directors declared a total dividend of $0.49 per share, comprised of a regular dividend of $0.39 and asupplemental dividend of $0.10, for the quarter ended June 30, 2019. The record date for the dividend is June 14, 2019. The payment date for the dividend isJune 28, 2019.Item 7A. Quantitative and Qualitative Disclosures about Market Risk We are subject to market risk. Market risk includes risk that arise from changes in interest rates, commodity prices, equity prices and other marketchanges that affect market sensitive instruments. The prices of securities held by us may decline in response to certain events, including those directlyinvolving the companies in which we invest; conditions affecting the general economy; overall market changes; legislative reform; local, regional, nationalor global political, social or economic instability; and interest rate fluctuations.Interest Rate Risk We are subject to interest rate risk. Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility,variability of spread relationships, the difference in re-pricing internals between our assets and liabilities and the effect that interest rates may have on ourcash flows. Changes in the general level of interest rates can affect our net interest income, which is the difference between the interest income earned oninterest earning assets and our interest expense incurred in connection with our interest-bearing liabilities. Changes in interest rates can also affect, amongother things, our ability to acquire and originate loans and securities and the value of our investment portfolio. Our net investment income is affected byfluctuations in various interest rates including LIBOR and prime rates. However, the interest rates on our December 2022 Notes are fixed for the life of suchdebt. Our risk management systems and procedures are designed to identify and analyze our risk, to set appropriate policies and limits and to continuallymonitor these risks. We regularly measure exposure to interest rate risk and determine whether or not any hedging transactions are necessary to mitigateexposure to changes in interest rates. As of March 31, 2019, we were not a party to any hedging arrangements. As of March 31, 2019, approximately 94.7% of our debt investment portfolio (at fair value) bore interest at floating rates, of which 87.8% weresubject to contractual minimum interest rates. A hypothetical 100 basis point increase in interest rates could increase our net investment income by amaximum of $2.8 million, or $0.16 per share, on an annual basis. A hypothetical 100 basis point decrease in interest rates could decrease our net investmentincome by a maximum of $2.5 million, or $0.14 per share, on an annual basis. Our Credit Facility bears interest on a per annum basis equal to the applicableLIBOR rate plus 2.50%, subject to certain conditions as outlined in the Credit Agreement. We pay unused commitment fees of 0.50% to 1.00% per annum,based on utilization. Although we believe that the foregoing analysis is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in thecredit market, credit quality, size and composition of the assets in our portfolio. It also does not adjust for other business developments, including futureborrowings that could affect the net increase in net assets resulting from operations, or net income. It also does not assume any repayments from borrowers.Accordingly, no assurances can be given that actual results would not differ materially from the statement above. Because we currently borrow, and plan to borrow in the future, money to make investments, our net investment income is dependent upon thedifference between the rate at which we borrow funds and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that asignificant change in interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of fundswould increase, which could reduce our net investment income if there is not a corresponding increase in interest income generated by our investmentportfolio.Table of ContentsItem 8. Financial Statements and Supplementary Data Index to Financial Statements PageReports of Independent Registered Public Accounting Firm 57Consolidated Statements of Assets and Liabilities as of March 31, 2019 and 2018 60Consolidated Statements of Operations for Years Ended March 31, 2019, 2018 and 2017 61Consolidated Statements of Changes in Net Assets for Years Ended March 31, 2019, 2018 and 2017 62Consolidated Statements of Cash Flows for Years Ended March 31, 2019, 2018 and 2017 63Consolidated Schedules of Investments as of March 31, 2019 and 2018 64Notes to Consolidated Financial Statements 7756Table of ContentsReport of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors ofCapital Southwest Corporation and Subsidiaries Opinion on the Financial StatementsWe have audited the accompanying consolidated statements of assets and liabilities, including the consolidated schedules of investments, of CapitalSouthwest Corporation and Subsidiaries (collectively, the Company) as of March 31, 2019 and 2018, and the related consolidated statements of operations,changes in net assets and cash flows for each of the two years ended March 31, 2019, the related notes to the consolidated financial statements, and theSchedule of Investments in and Advances to Affiliates of the Company listed in Schedule 12-14 for the year ended March 31, 2019 (collectively, thefinancial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31,2019 and 2018, and the results of its operations and its cash flows for each of the two years ended March 31, 2019, in conformity with accounting principlesgenerally accepted in the United States of America, and in our opinion, the related Schedule of Investments in and Advances to Affiliates, when considered inrelation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sinternal control over financial reporting as March 31, 2019, based on criteria established in Internal Control - Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated June 4, 2019, expressed an unqualified opinion on theeffectiveness of the Company’s internal control over financial reporting.Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing proceduresto assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. Our procedures included confirmation of investments owned as of March 31, 2019 and 2018, by correspondence with the custodians, portfoliocompanies or agents or by other appropriate procedures where replies from custodians, portfolio companies or agents were not received. We believe that ouraudits provide a reasonable basis for our opinion. /s/ RSM US LLP We have served as the Company's auditor since 2017. Chicago, IllinoisJune 4, 201957Table of ContentsReport of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors ofCapital Southwest Corporation and Subsidiaries Opinion on the Internal Control Over Financial ReportingWe have audited Capital Southwest Corporation and Subsidiaries’ (collectively, the Company) internal control over financial reporting as of March 31,2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31,2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedstatements of assets and liabilities, including the consolidated schedules of investments, of the Company as of March 31, 2019 and 2018, and the relatedconsolidated statements of operations, changes in net assets and cash flows for each of the two years ended March 31, 2019, the related notes to theconsolidated financial statements and our report dated June 4, 2019 expressed an unqualified opinion. Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is toexpress an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with thePCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules andregulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design andoperating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary inthe circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial ReportingA company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. /s/ RSM US LLP Chicago, IllinoisJune 4, 201958Table of ContentsReport of Independent Registered Public Accounting FirmBoard of Directors and ShareholdersCapital Southwest Corporation We have audited the accompanying consolidated statements of assets and liabilities of Capital Southwest Corporation (a Texas corporation) and subsidiaries(the “Company”), including the consolidated schedules of investments, as of March 31, 2017 (not presented herein), and the related consolidated statementsof operations, changes in net assets, and cash flows for the year then ended, and the selected per share data and ratios for each of the three years in the periodended March 31, 2017. Our audit of the basic consolidated financial statements included the Schedule of Investments In and Advances to Affiliates (notpresented herein). These financial statements, per share data and ratios, and financial statement schedule are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financial statements, per share data and ratios, and financial statement schedule based onour audits.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditprovides a reasonable basis for our opinion.In our opinion, the consolidated financial statements, including the consolidated schedules of investments (not presented herein), referred to above presentfairly, in all material respects, the financial position of Capital Southwest Corporation and subsidiaries as of March 31, 2017, and the results of theiroperations, changes in their net assets and their cash flows for the year then ended in conformity with accounting principles generally accepted in the UnitedStates of America. Also in our opinion, the related financial statement schedule (not presented herein), when considered in relation to the basic consolidatedfinancial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ Grant Thornton LLP Dallas, TexasJune 1, 201759Table of ContentsCAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES(In thousands except share and per share data) March 31, March 31, 2019 2018Assets Investments at fair value: Non-control/Non-affiliate investments (Cost: $305,596 and $200,981, respectively)$304,663 $199,949Affiliate investments (Cost: $79,277 and $51,648, respectively)80,905 53,198Control investments (Cost: $93,182 and $82,768, respectively)138,503 139,948Total investments (Cost: $478,055 and $335,397, respectively)524,071 393,095Cash and cash equivalents9,924 7,907Receivables: Dividends and interest9,252 5,219Escrow370 119Other1,244 447Income tax receivable183 109Deferred tax asset1,807 2,050Debt issuance costs (net of accumulated amortization of $1,814 and $1,041, respectively)3,364 2,575Other assets1,628 5,969Total assets$551,843 $417,490 Liabilities Notes (Par value: $77,136 and $ 57,500, respectively), net of unamortized debt issuance costs$75,099 $55,305Credit facility141,000 40,000Other liabilities6,708 6,245Dividends payable— 4,525Accrued restoration plan liability3,073 2,937Deferred income taxes— 190Total liabilities225,880 109,202 Commitments and contingencies (Note 12) Net Assets Common stock, $0.25 par value per share: authorized, 25,000,000 shares; issued, 19,842,528 shares at March 31,2019 and 18,501,298 shares at March 31, 20184,961 4,625Additional paid-in capital281,205 260,713Total distributable earnings63,734 66,887Treasury stock - at cost, 2,339,512 shares(23,937) (23,937)Total net assets325,963 308,288Total liabilities and net assets$551,843 $417,490Net asset value per share (17,503,016 shares outstanding at March 31, 2019 and 16,161,786 shares outstanding atMarch 31, 2018)$18.62 $19.08The accompanying Notes are an integral part of these Consolidated Financial Statements.60Table of ContentsCAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands except share and per share data) Years Ended March 31, 2019 2018 2017Investment income: Interest income: Non-control/Non-affiliate investments$28,716 $18,257 $11,739Affiliate investments7,143 3,513 560Control investments1,406 82 116Dividend income: Non-control/Non-affiliate investments197 — 20Affiliate investments82 127 163Control investments12,648 12,254 9,726Interest income from cash and cash equivalents36 21 166Fees and other income1,653 872 984Total investment income51,881 35,126 23,474Operating expenses: Compensation7,715 7,013 6,330Spin-off compensation plan— 517 690Share-based compensation2,271 1,708 1,197Interest12,178 4,875 989Professional fees1,737 1,580 1,774Net pension expense159 164 166General and administrative3,063 2,841 2,661Total operating expenses27,123 18,698 13,807Income before taxes24,758 16,428 9,667Income tax expense1,048 195 1,779Net investment income$23,710 $16,233 $7,888 Net realized gain Non-control/Non-affiliate investments2,124 1,492 3,992Affiliate investments77 90 3,876Control investments18,653 — 28Total net realized gain on investments before income tax20,854 1,582 7,896 Net unrealized (depreciation) appreciation on investments Non-control/Non-affiliate investments(934) (4,325) (884)Affiliate investments1,109 337 184Control investments(11,859) 25,347 8,713Income tax provision178 133 (323)Total net unrealized (depreciation) appreciation on investments, net of tax(11,506) 21,492 7,690 Net realized and unrealized gains on investments$9,348 $23,074 $15,586 Net increase in net assets from operations$33,058 $39,307 $23,474 Pre-tax net investment income per share - basic and diluted$1.48 $1.02 $0.61Net investment income per share - basic and diluted$1.42 $1.01 $0.50Net increase in net assets from operations - basic and diluted$1.98 $2.45 $1.48Weighted average shares outstanding – basic16,727,254 16,073,642 15,824,879Weighted average shares outstanding – diluted16,734,369 16,138,541 15,877,331The accompanying Notes are an integral part of these Consolidated Financial Statements.61Table of ContentsCAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS(In thousands) Years Ended March 31, 2019 2018 2017Operations: Net investment income$23,710 $16,233 $7,888Net realized gain on investments20,854 1,582 7,896Net unrealized (depreciation) appreciation on investments, net of tax(11,506) 21,492 7,690Net increase in net assets from operations33,058 39,307 23,474Dividends to shareholders(38,010) (15,920) (12,560)Spin-Off Compensation Plan distribution, net of tax of $ - , $ - and $692for the years ended March 31, 2019, 2018 and 2017, respectively— (517) (1,175)Capital share transactions: Change in restoration plan liability(185) (813) (6)Issuance of common stock18,744 — —Exercise of employee stock options2,169 125 1,507Share-based compensation expense2,271 1,708 1,197Common stock withheld for payroll taxes upon vesting of restrictedstock(187) (86) —Repurchase of common stock(185) (588) —Increase in net assets17,675 23,216 12,437Net assets, beginning of year308,288 285,072 272,635Net assets, end of year$325,963 $308,288 $285,072The accompanying Notes are an integral part of these Consolidated Financial Statements.62Table of ContentsCAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Years Ended March 31, 2019 2018 2017Cash flows from operating activities Net increase in net assets from operations$33,058 $39,307 $23,474Adjustments to reconcile net increase in net assets from operations to net cash used in operatingactivities: Purchases and originations of investments(229,598) (166,181) (145,778)Proceeds from sales and repayments of debt investments in portfolio companies74,669 82,489 44,568Proceeds from sales and return of capital of equity investments in portfolio companies33,928 104 7,692Payment of accreted original issue discounts524 1,477 1,218Depreciation and amortization1,393 927 459Net pension benefit(51) (46) (41)Realized (gain) loss on investments before income tax(20,854) (1,582) (7,896)Net change in unrealized appreciation on investments11,684 (21,359) (8,013)Accretion of discounts on investments(1,390) (857) (434)Payment-in-kind interest and dividends(681) (306) (63)Stock option and restricted awards expense2,271 1,708 1,197Deferred income taxes53 (537) 1,813Changes in other assets and liabilities: Increase in dividend and interest receivable(3,850) (2,082) (1,385)Decrease in escrow receivables310 426 2,860(Increase) decrease in other receivables(797) 180 (127)(Increase) decrease in tax receivable(74) (109) 1,010Decrease (increase) in other assets4,236 1,958 (6,775)(Decrease) increase in other liabilities(695) 620 602Increase (decrease) in payable for unsettled transaction1,158 — (3,940)Net cash used in operating activities(94,706) (63,863) (89,559)Cash flows from financing activities Proceeds from common stock offering18,891 — —Equity offering costs paid(127) — —Borrowings under credit facility146,000 76,000 25,000Repayments of credit facility(45,000) (61,000) —Debt issuance costs paid(1,827) (1,739) (2,503)Proceeds from notes19,524 55,775 —Dividends to shareholders(42,535) (18,586) (5,994)Proceeds from exercise of employee stock options2,169 125 1,507Common stock withheld for payroll taxes upon vesting of restricted stock(187) (86) —Repurchase of common stock(185) (588) —Spin-off Compensation Plan distribution— (517) (2,034)Net cash provided by financing activities96,723 49,384 15,976Net increase (decrease) in cash and cash equivalents2,017 (14,479) (73,583)Cash and cash equivalents at beginning of year7,907 22,386 95,969Cash and cash equivalents at end of year$9,924 $7,907 $22,386Supplemental cash flow disclosures: Cash paid for income taxes$802 $708 $289Cash paid for interest10,912 3,405 325Supplemental disclosure of noncash financing activities: Dividends declared, not yet paid$— $4,525 $7,191Noncash adjustment to realized gain for escrow receivable— — 118Spin-off Compensation Plan distribution accrued, not yet paid— — 345 The accompanying Notes are an integral part of these Consolidated Financial Statements.63Table of ContentsCAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTSMarch 31, 2019 Current Type of Interest FairPortfolio Company1 Investment2,14 Industry Rate3 Maturity Principal Cost Value4Non-control/Non-affiliateInvestments5 AAC HOLDINGS, INC. First Lien Healthcare services L+6.75% (Floor1.00%)/Q,4.00% PIK,Current Coupon13.49% 6/30/2023 9,084 8,912 8,403 First Lien Healthcare services L+11.00%(Floor 1.00%)/M 3/31/2020 1,170 1,158 1,182 10,070 9,585ACE GATHERING, INC. Second Lien15 Energy services(midstream) L+8.50% (Floor2.00%)/Q,Current Coupon11.09% 12/13/2023 9,938 9,747 9,783ADAMS PUBLISHING GROUP,LLC First Lien Media, marketing &entertainment L+7.50% (Floor1.00%)/Q,Current Coupon10.30% 7/2/2023 13,566 13,320 13,308 Delayed Draw TermLoan10 L+7.50% (Floor1.00%) 7/2/2023 — (29) — 13,291 13,308AG KINGS HOLDINGS INC.8,16 First Lien Food, agriculture &beverage L+10.02%(Floor1.00%)/M,Current Coupon12.69% 8/8/2021 9,308 9,194 8,330ALLIANCE SPORTS GROUP,L.P. Senior subordinateddebt Consumer products &retail 11.00% 2/1/2023 10,100 9,946 9,807 3.88% preferredmembership interest — — — 2,500 2,500 12,446 12,307AMERICAN NUTS OPERATIONSLLC13 First Lien - TermLoan Food, agriculture andbeverage L+9.50% (Floor1.00%)/Q,Current Coupon12.30% 4/10/2023 17,369 17,075 16,822 First Lien - TermLoan C10 L+9.50% (Floor1.00%)/Q,Current Coupon12.30% 4/10/2023 1,750 1,723 1,695 3,000,000 units ofClass A commonstock9 — — — 3,000 1,505 21,798 20,022AMERICANTELECONFERENCINGSERVICES, LTD. First Lien Telecommunications L+6.50% (Floor1.00%)/Q,Current Coupon9.24% 12/8/2021 6,023 5,922 3,953 Second Lien L+9.50% (Floor1.00%)/Q,Current Coupon12.30% 6/6/2022 2,006 1,954 1,103 7,876 5,05664Table of ContentsCAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTSMarch 31, 2019 Current Type of Interest FairPortfolio Company1 Investment2,14 Industry Rate3 Maturity Principal Cost Value4AMWARE FULFILLMENT LLC First Lien Distribution L+9.50% (Floor1.00%)/M,Current Coupon12.10% 12/31/2020 12,753 12,666 12,651ASC ORTHO MANAGEMENTCOMPANY, LLC13 Revolving Loan10 Healthcare services L+7.50% (Floor1.00%) 8/31/2023 — (27) — First Lien L+7.50% (Floor1.00%)/Q,Current Coupon10.30% 8/31/2023 9,261 9,094 9,095 Second Lien 13.25% PIK 12/1/2023 3,250 3,178 3,178 2,042 Common Units9 — — — 750 750 12,995 13,023BINSWANGER HOLDING CORP. First Lien Distribution L+8.00% (Floor1.00%)/M,Current Coupon10.60% 3/9/2022 12,150 11,992 12,016 900,000 shares ofcommon stock — — — 900 1,013 12,892 13,029BLASCHAK COAL CORP. Second Lien15 Commodities & mining L+10.00%/Q,1.00% PIK,Current Coupon13.81% 7/30/2023 8,537 8,383 8,511CALIFORNIA PIZZA KITCHEN,INC. First Lien Restaurants L+6.00% (Floor1.00%)/M,Current Coupon8.50% 8/23/2022 4,875 4,844 4,723CAPITAL PAWN HOLDINGS,LLC First Lien Consumer products &retail L+9.50%/Q,Current Coupon12.30% 7/8/2020 11,448 11,315 11,310CLICKBOOTH.COM, LLC Revolving Loan10 Media, marketing &entertainment L+8.50% (Floor1.00%) 12/5/2022 — (15) — First Lien L+8.50% (Floor1.00%)/Q,Current Coupon11.31% 12/5/2022 16,953 16,684 17,292 16,669 17,29265Table of ContentsCAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTSMarch 31, 2019 Current Type of Interest FairPortfolio Company1 Investment2,14 Industry Rate3 Maturity Principal Cost Value4DANFORTH ADVISORS, LLC13 Revolving Loan10 Business services L+7.25% (Floor2.00%) 9/28/2023 — (18) — First Lien L+7.25% (Floor2.00%)/Q,Current Coupon10.05% 9/28/2023 7,250 7,117 7,145 875 Class A equityunits9 — — — 875 875 7,974 8,020DELPHI INTERMEDIATEHEALTHCO, LLC First Lien Healthcare services L+7.50% (Floor1.00%)/Q,Current Coupon10.23% 10/3/2022 11,400 11,310 11,023DIGITAL RIVER, INC. First Lien Software & IT services L+6.00% (Floor1.00%)/Q,Current Coupon8.60% 2/12/2021 6,285 6,277 6,128DUNN PAPER, INC. Second Lien Paper & forest products L+8.75% (Floor1.00%)/M,Current Coupon11.25% 8/25/2023 3,000 2,957 2,883ELITE SEM, INC.8 First Lien Media, marketing &entertainment L+8.40% (Floor1.00%)/M,Current Coupon11.00% 2/1/2022 14,000 13,717 14,000 1,443 InvestmentUnits (Preferred) 12% PIK — — 2,068 4,457 15,785 18,457ENVIRONMENTAL PESTSERVICE MANAGEMENTCOMPANY, LLC First Lien Consumer services L+7.25%/Q,Current Coupon10.06% 6/22/2023 16,169 15,921 16,169 Delayed Draw TermLoan10 L+7.25%/Q,Current Coupon10.06% 6/22/2023 6,461 6,353 6,461 22,274 22,630FAST SANDWICH, LLC Revolving Loan10 Restaurants L+9.00% (Floor1.00%) — — (57) — First Lien L+9.00% (Floor1.00%)/Q,Current Coupon11.80% 5/23/2023 3,238 3,191 3,190 3,134 3,19066Table of ContentsCAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTSMarch 31, 2019 Current Type of Interest FairPortfolio Company1 Investment2,14 Industry Rate3 Maturity Principal Cost Value4JVMC HOLDINGS CORP. First Lien Financial services L+6.50% (Floor1.00%)/M,Current Coupon9.00% 2/28/2024 9,152 9,062 9,062 Delayed Draw TermLoan10 L+6.50% (Floor1.00%) 2/28/2024 — (7) — 9,055 9,062LGM PHARMA, LLC13 First Lien Healthcare products L+8.50% (Floor1.00%)/M,Current Coupon10.99% 11/15/2022 9,875 9,723 10,073 Delayed Draw TermLoan L+8.50% (Floor1.00%)/M,Current Coupon10.99% 11/15/2022 1,785 1,753 1,820 110,000 units of ClassA common stock9 — — — 1,100 821 12,576 12,714LIGHTING RETROFITINTERNATIONAL, LLC First Lien Environmental services L+9.25% (Floor1.00%)/Q,Current Coupon11.84% 6/30/2022 13,688 13,580 12,606 25,603 shares ofSeries C preferredstock — — — 26 28 396,825 shares ofSeries B preferredstock — — — 500 307 14,106 12,941RESEARCH NOW GROUP, INC. Second Lien Business services L+9.50% (Floor1.00%)/M,Current Coupon12.00% 12/20/2025 10,500 9,838 10,437SCRIP INC.8 First Lien Healthcare products L+10.00%(Floor2.00%)/M,Current Coupon12.49% 3/21/2024 16,750 16,250 16,250 100 shares of commonstock — — — 1,000 1,000 17,250 17,250TAX ADVISORS GROUP, LLC13 143.3 Class A units9 Financial services — — — 541 645VISTAR MEDIA INC. First Lien Media, marketing &entertainment L+10.00%(Floor1.00%)/M,Current Coupon12.60% 2/16/2022 7,975 7,447 7,975 Warrants (Expiration -February 17, 2027) — — — 886 2,378 8,333 10,35367Table of ContentsCAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTSMarch 31, 2019 Current Type of Interest FairPortfolio Company1 Investment2,14 Industry Rate3 Maturity Principal Cost Value4 Total Non-control/Non-affiliateInvestments $305,596 $304,663Affiliate Investments6 CHANDLER SIGNS, LLC13 Senior subordinateddebt Business services 12.00% / 1.00%PIK 7/4/2021 $4,557 $4,512 $4,480 1,500,000 units ofClass A-1 commonstock9 — — — 1,500 1,937 6,012 6,417DYNAMIC COMMUNITIES, LLC13 Revolving Loan10 Business services L+8.00% (Floor1.00%) 7/17/2023 — (4) — First Lien L+8.00% (Floor1.00%)/M,Current Coupon10.59% 7/17/2023 11,060 10,863 10,972 2,000,000 PreferredUnits9 — — — 2,000 2,849 12,859 13,821ITA HOLDINGS GROUP, LLC13 Revolving Loan10 Transportation & logistics L+9.00% (Floor1.00%)/Q, 1.00%PIK, CurrentCoupon 12.60% 2/14/2023 2,000 1,960 2,000 First Lien - Term Loan L+8.00% (Floor1.00%)/Q, 1.00%PIK, CurrentCoupon 11.60% 2/14/2023 7,659 7,533 7,475 First Lien - Term BLoan L+11.00% (Floor1.00%)/Q, 1.00%PIK, CurrentCoupon 14.60% 2/14/2023 3,830 3,762 3,829 First Lien - PIK Note A 10.00% PIK 2/14/2023 2,250 1,692 2,005 First Lien - PIK Note B 10.00% PIK 2/14/2023 89 89 79 Warrants (Expiration -March 29, 2029)9 — — — 538 1,557 9.25% Class AMembership Interest9 — — — 1,500 923 17,074 17,86868Table of ContentsCAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTSMarch 31, 2019 Current Type of Interest FairPortfolio Company1 Investment2,14 Industry Rate3 Maturity Principal Cost Value4ROSELAND MANAGEMENT, LLC Revolving Loan10 Healthcare services L+7.00% (Floor2.00%) 11/9/2023 — (32) — First Lien L+7.00% (Floor2.00%)/Q,Current Coupon9.80% 11/9/2023 10,474 10,302 10,474 10,000 Class A Units — — — 1,000 1,487 11,270 11,961SIMR, LLC First Lien Healthcare services L+9.00% (Floor2.00%)/M,Current Coupon11.62% 9/7/2023 11,542 11,332 11,403 5,724,000 Class BCommon Units — — — 5,724 5,724 17,056 17,127ZENFOLIO INC. Revolving Loan10 Business services L+9.00% (Floor1.00%) 7/17/2022 — (13) — First Lien L+9.00% (Floor1.00%)/Q,Current Coupon11.60% 7/17/2022 13,298 13,119 13,165 190 shares of commonstock — — — 1,900 546 15,006 13,711 Total Affiliate Investments $79,277 $80,905 Control Investments7 I-45 SLF LLC9,11 80% LLC equityinterest Multi-sector holdings — — — $68,000 $65,743MEDIA RECOVERY, INC.11 800,000 shares ofSeries A convertiblepreferred stock Industrial products — — — 800 7,795 4,000,002 shares ofcommon stock — — — 4,615 44,965 5,415 52,760PRISM SPECTRUM HOLDINGS,LLC13 First Lien Environmental services L+9.50% (Floor2.25%)/M,Current Coupon12.12% 2/6/2023 13,461 13,229 13,461 96,498.32 Class Aunits9 — — — 6,538 6,539 19,767 20,00069Table of ContentsCAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF INVESTMENTSMarch 31, 2019 Current Type of Interest FairPortfolio Company1 Investment2,14 Industry Rate3 Maturity Principal Cost Value4 Total Control Investments 93,182 138,503 TOTAL INVESTMENTS12 $478,055 $524,0711 All debt investments are income-producing, unless otherwise noted. Equity investments and warrants are non-income producing, unless otherwise noted.2 All of the Company’s investments, unless otherwise noted, are encumbered as security for the Company’s senior secured credit facility.3 The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) and reset daily (D),monthly (M), quarterly (Q), or semiannually (S). For each the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect atMarch 31, 2019. Certain investments are subject to a LIBOR or Prime interest rate floor. Certain investments, as noted, accrue payment-in-kind ("PIK") interest.4 The Company's investment portfolio is comprised entirely of privately held debt and equity securities for which quoted prices falling within the categories of Level 1 and Level2 inputs are not available. Therefore, the Company values all of its portfolio investments at fair value, as determined in good faith by the Board of Directors, using significantunobservable Level 3 inputs. Refer to Note 4 for further discussion.5 Non-Control/Non-Affiliate investments are generally defined by the Investment Company Act of 1940 (the “1940 Act”) as investments that are neither control investments noraffiliate investments. At March 31, 2019, approximately 58.2% of the Company’s investment assets were non-control/non-affiliate investments. The fair value of theseinvestments as a percent of net assets is 93.5%.6 Affiliate investments are generally defined by the 1940 Act as investments in which between 5% and 25% of the voting securities are owned and the investments are notclassified as control investments. At March 31, 2019, approximately 15.4% of the Company’s investment assets were affiliate investments. The fair value of these investmentsas a percent of net assets is 24.8%.7 Control investments are generally defined by the 1940 Act as investments in which more than 25% of the voting securities are owned. At March 31, 2019, approximately26.4% of the Company’s investment assets were control investments. The fair value of these investments as a percent of net assets is 42.5%.8 The investment is structured as a first lien last out term loan.9 Indicates assets that are considered "non-qualifying assets” under section 55(a) of the 1940 Act. Qualifying assets must represent at least 70% of total assets at the time ofacquisition of any additional non-qualifying assets. As of March 31, 2019, approximately 16.1% of the Company's investment assets are non-qualifying assets.10 The investment has an unfunded commitment as of March 31, 2019. Refer to Note 12 - Commitments and Contingencies for further discussion.11 Income producing through dividends or distributions.12 As of March 31, 2019, the cumulative gross unrealized appreciation for federal income tax purposes is approximately $56.6 million; cumulative gross unrealized depreciationfor federal income tax purposes is $11.6 million. Cumulative net unrealized appreciation is $45.0 million, based on a tax cost of $477.8 million.70Table of Contents13 ASC Ortho Management Company, LLC common units, Danforth Advisors, LLC common units, American Nuts Operations LLC Class A common stock, LGM Pharma,LLC Class A common stock, Tax Advisors Group, LLC Class A units, Chandler Signs, LP Class A-1 common stock, Dynamic Communities, LLC Preferred units, ITAHoldings Group, LLC membership interest, and Prism Spectrum Holdings LLC Class A units are held through a wholly-owned taxable subsidiary.14 The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). Theseinvestments are generally subject to certain limitations on resale, and may be deemed "restricted securities" under the Securities Act.15 The investment is structured as a split lien term loan, which provides the Company with a first lien priority on certain assets of the obligor and a second lien priority ondifferent assets of the obligor.16 Investment was on non-accrual status as of March 31, 2019, meaning the Company has ceased to recognize interest income on the investment.The accompanying Notes are an integral part of these Consolidated Financial Statements. 71Table of ContentsCAPITAL SOUTHWEST CORPORATIONCONSOLIDATED SCHEDULE OF INVESTMENTSMarch 31, 2018 Current Type of Interest FairPortfolio Company1 Investment2,21 Industry Rate3 Maturity Principal Cost Value4Non-control/Non-affiliateInvestments5 AAC HOLDINGS, INC. First Lien Healthcare services L+6.75% (Floor1.00%), CurrentCoupon 8.52% 6/30/2023 $9,322 $9,111 $9,485AG KINGS HOLDINGS INC.8 First Lien Food, agriculture &beverage L+9.40% (Floor1.00%), CurrentCoupon 11.21% 8/8/2021 9,650 9,508 9,438ALLIANCE SPORTS GROUP, L.P. Senior subordinateddebt Consumer products &retail 11.00% 2/1/2023 10,100 9,916 9,807 2.65% membershipinterest — — — 2,500 1,996 12,416 11,803AMERICAN TELECONFERENCINGSERVICES, LTD. First Lien Telecommunications L+6.50% (Floor1.00%), CurrentCoupon 8.29% 12/8/2021 6,378 6,239 6,377 Second Lien L+9.50% (Floor1.00%), CurrentCoupon 11.20% 6/6/2022 2,006 1,941 1,919 8,180 8,295AMWARE FULFILLMENT LLC17 First Lien Distribution L+12.00% (Floor1.00%), CurrentCoupon 14.02% 5/21/2019 13,478 13,284 12,939BINSWANGER HOLDING CORP. First Lien Distribution L+8.00% (Floor1.00%), CurrentCoupon 10.02% 3/9/2022 13,036 12,818 12,900 900,000 shares ofcommon stock — — — 900 874 13,718 13,774CALIFORNIA PIZZA KITCHEN,INC. First Lien Restaurants L+6.00% (Floor1.00%), CurrentCoupon 7.88% 8/23/2022 4,925 4,887 4,836CAPITAL PAWN HOLDINGS, LLC First Lien Consumer products &retail L+9.50%,Current Coupon11.19% 7/8/2020 12,922 12,670 12,76772Table of Contents Current Type of Interest FairPortfolio Company1 Investment2,21 Industry Rate3 Maturity Principal Cost Value4CLICKBOOTH.COM, LLC First Lien Media, marketing &entertainment L+8.50% (Floor1.00%), CurrentCoupon 10.19% 12/5/2022 17,391 17,060 17,443 Revolving Loan15 L+8.50% (Floor1.00%) 12/5/2022 — (19) — 17,041 17,443DEEPWATER CORROSIONSERVICES, INC. 127,004 shares ofSeries A convertiblepreferred stock Energy services(upstream) — — — 8,000 4,629DELPHI INTERMEDIATEHEALTHCO, LLC First Lien Healthcare services L+7.50% (Floor1.00%), CurrentCoupon 9.27% 10/3/2022 7,406 7,337 7,266DIGITAL RIVER, INC. First Lien Software & IT services L+6.50% (Floor1.00%), CurrentCoupon 8.61% 2/12/2021 6,285 6,273 6,285DUNN PAPER, INC. Second Lien Paper & forest products L+8.75% (Floor1.00%), CurrentCoupon 10.63% 8/26/2023 3,000 2,950 3,000LGM PHARMA, LLC13 First Lien Healthcare products L+8.50% (Floor1.00%), CurrentCoupon 10.17% 11/15/2022 9,975 9,787 9,955 Delayed Draw TermLoan18 L+8.50% (Floor1.00%), CurrentCoupon 10.29% 11/15/2022 1,300 1,275 1,297 110,000 units of ClassA common stock9 — — — 1,100 1,100 12,162 12,352LIGHTING RETROFITINTERNATIONAL, LLC First Lien Environmental services L+9.25% (Floor1.00%), CurrentCoupon 10.94% 6/30/2022 14,625 14,487 14,362 396,825 shares ofSeries B preferredstock — — — 500 376 14,987 14,738PRE-PAID LEGAL SERVICES,INC. Second Lien Consumer services L+9.00% (Floor1.25%), CurrentCoupon 10.88% 7/1/2020 5,000 4,968 5,000RESEARCH NOW GROUP, INC. Second Lien Business services L+9.50% (Floor1.00%), CurrentCoupon 11.28% 12/20/2025 10,500 9,779 9,818RESTAURANT TECHNOLOGIES,INC. Second Lien Business services L+8.75% (Floor1.00%), CurrentCoupon 10.69% 11/23/2023 3,500 3,455 3,493JVMC HOLDINGS CORP. 14 First Lien Financial services L+8.02% (Floor1.00%), CurrentCoupon 9.90% 5/5/2022 7,219 7,157 7,21573Table of Contents Current Type of Interest FairPortfolio Company1 Investment2,21 Industry Rate3 Maturity Principal Cost Value4TAX ADVISORS GROUP, LLC13 Senior subordinateddebt Financial services 10.00% / 2.00%PIK 12/23/2022 4,600 4,518 4,600 143.3 Class A units9 — — — 541 886 5,059 5,486VISTAR MEDIA INC. First Lien Media, marketing &entertainment L+10.00% (Floor1.00%), CurrentCoupon 12.02% 2/16/2022 8,113 7,434 8,194 Warrants (Expiration -February 17, 2027) — — — 886 1,682 8,320 9,876WASTEWATER SPECIALTIES,LLC First Lien16 Industrial services L+12.25% (Floor1.00%), CurrentCoupon 13.90% 4/18/2022 9,864 9,721 10,012 Total Non-control/Non-affiliateInvestments $200,981 $199,949Affiliate Investments6 CHANDLER SIGNS, LLC13 Senior subordinateddebt Business services 12.00% / 1.00%PIK 7/4/2021 4,511 4,451 4,376 1,500,000 units ofClass A-1 commonstock9 — — — 1,500 1,934 5,951 6,310ELITE SEM, INC.8 First Lien Media, marketing &entertainment L+9.90% (Floor1.00%), CurrentCoupon 12.10% 2/1/2022 17,500 17,104 17,500 1,089 Preferred units 12% PIK — — 1,236 1,879 18,339 19,379ITA HOLDINGS GROUP, LLC13 First Lien Transportation & logistics L+8.50% (Floor1.00%, CurrentCoupon 10.32%) 2/14/2023 9,500 9,314 9,314 Revolving Loan19 L+8.50% (Floor1.00%) 2/14/2023 — (10) — Delayed Draw TermLoan L+8.50% (Floor1.00%, CurrentCoupon 10.32%) 2/14/2023 1,500 1,470 1,470 9.25% Class AMembership Interest9 — — — 1,500 1,500 12,275 12,284ZENFOLIO INC. First Lien Business services L+9.00% (Floor1.00%), CurrentCoupon 10.69% 7/17/2022 13,433 13,201 13,325 Revolving Loan15 L+9.00% (Floor1.00%) 7/17/2022 — (17) — 190 shares of commonstock — — — 1,900 1,900 15,083 15,225 Total Affiliate Investments $51,648 $53,19874Table of Contents Current Type of Interest FairPortfolio Company1 Investment2,21 Industry Rate3 Maturity Principal Cost Value4Control Investments7 I-45 SLF LLC9, 10, 11 80% LLC equity interest Multi-sector holdings — — — $64,800 $67,113MEDIA RECOVERY, INC.11 800,000 shares of Series Aconvertible preferredstock Industrial products — — — 800 6,371 4,000,002 shares ofcommon stock — — — 4,615 36,751 5,415 43,122PRISM SPECTRUM HOLDINGS,LLC13 First Lien Environmental services L+9.50% (Floor2.25%), CurrentCoupon 11.75% 2/6/2023 4,325 4,241 4,241 Revolving Loan20 L+9.50% (Floor2.25%), CurrentCoupon 11.75% 2/6/2023 500 490 490 57.25 Class A units9 — — — 1,692 1,692 6,422 6,422TITANLINER, INC. 1,189,609 shares of SeriesB convertible preferredstock Energy services(upstream) 6% PIK — — 2,926 11,362 339,277 shares of Series Aconvertible preferredstock — — — 3,204 11,928 6,130 23,290 Total Control Investments $82,768 $139,948 TOTAL INVESTMENTS12 $335,397 $393,0961 All debt investments are income-producing, unless otherwise noted. Equity investments and warrants are non-income producing, unless otherwise noted.2 All of the Company’s investments, unless otherwise noted, are encumbered as security for the Company’s senior secured credit facility.3 The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) and reset daily,monthly, quarterly, or semiannually. For each the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at March 31,2018. Certain investments are subject to a LIBOR or Prime interest rate floor. Certain investments, as noted, accrue payment-in-kind (“PIK”) interest.4 Investments are carried at fair value in accordance with the Investment Company Act of 1940 (the “1940 Act”) and Financial Accounting Standards Board (“FASB”)Accounting Standard Codification (“ASC”) 820, Fair Value Measurements and Disclosures. We determine in good faith the fair value of our Investment portfolio pursuant toa valuation policy in accordance with ASC 820 and a valuation process approved by our Board of Directors. See Note 4 to the consolidated financial statements.5 Non-Control/Non-Affiliate investments are generally defined by the 1940 Act as investments that are neither control investments nor affiliate investments. At March 31, 2018,approximately 50.9% of the Company’s investment assets were non-control/non-affiliate investments. The fair value of these investments as a percent of net assets is 64.9%.6 Affiliate investments are generally defined by the 1940 Act as investments in which between 5% and 25% of the voting securities are owned and the investments are notclassified as control investments. At March 31, 2018, approximately 13.5% of the Company’s investment assets were affiliate investments. The fair value of these investmentsas a percent of net assets is 17.3%.75Table of Contents7 Control investments are generally defined by the 1940 Act as investments in which more than 25% of the voting securities are owned or where greater than 50% of the boardrepresentation is maintained. At March 31, 2018, approximately 35.6% of the Company’s investment assets were control investments. The fair value of these investments as apercent of net assets is 45.4%.8 The investment is structured as a first lien last out term loan.9 Indicates assets that are considered “non-qualifying assets” under section 55(a) of the 1940 Act. Qualifying assets must represent at least 70% of total assets at the time ofacquisition of any additional non-qualifying assets. As of March 31, 2018, approximately 18.0% of the Company’s investment assets are non-qualifying assets.10 The investment has approximately $3.2 million unfunded commitment as of March 31, 2018.11 Income producing through dividends on distributions.12 As of March 31, 2018, the cumulative gross unrealized appreciation for federal income tax purposes is approximately $62.4 million; cumulative gross unrealized depreciationfor federal income tax purposes is $4.9 million. Cumulative net unrealized appreciation is $57.5 million, based on a tax cost of $335.6 million.13 ITA Holdings Group, LLC membership interest, LGM Pharma, LLC Class A common stock, Prism Spectrum Holdings LLC Class A units, Tax Advisors Group, LLC ClassA units and Chandler Signs, LP Class A-1 common stock are held through a wholly-owned taxable subsidiary.14 The investment is structured as a first lien first out term loan.15 The investment has approximately $2.0 million unfunded commitment as of March 31, 2018.16 As of March 31, 2018, the investment is paying default interest at a rate of 3.0% per annum.17 As of March 31, 2018, the investment is paying default interest at a rate of 2.5% per annum.18 The investment has approximately $0.9 million unfunded commitment as of March 31, 2018.19 The investment has approximately $2.0 million unfunded commitment as of March 31, 2018.20 The investment has approximately $1.5 million unfunded commitment as of March 31, 2018.21 The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). Theseinvestments are generally subject to certain limitations on resale, and may be deemed "restricted securities" under the Securities Act. The accompanying Notes are an integral part of these Consolidated Financial Statements.76Table of ContentsNotes to Consolidated Financial Statements 1. ORGANIZATION AND BASIS OF PRESENTATION References in this Annual Report on Form 10-K to “we,” “our,” “us,” “CSWC,” or the “Company” refer to Capital Southwest Corporation, unless thecontext requires otherwise. Organization Capital Southwest Corporation is an internally managed investment company that specializes in providing customized financing to middle marketcompanies in a broad range of industry segments located primarily in the United States. Our common stock currently trades on The Nasdaq Global SelectMarket under the ticker symbol “CSWC.” CSWC was organized as a Texas corporation on April 19, 1961. Until September 1969, we operated as a Small Business Investment Company(“SBIC”) licensed under the Small Business Investment Act of 1958. At that time, CSWC transferred to its then wholly-owned subsidiary, Capital SouthwestVenture Corporation (“CSVC”), certain assets including our license as a “SBIC”. CSVC was a closed-end, non-diversified investment company registeredunder the Investment Company Act of 1940, as amended (the “1940 Act”). Effective June 14, 2016, CSVC was dissolved and its SBIC license wassurrendered. All assets held in CSVC were transferred to CSWC upon dissolution. Prior to March 30, 1988, CSWC was registered as a closed-end, non-diversified investment company under the 1940 Act. On that date, we elected to be treated as a business development company (“BDC”) subject to theprovisions of the 1940 Act, as amended by the Small Business Incentive Act of 1980. In order to remain a BDC, we must meet certain specified requirementsunder the 1940 Act, including investing at least 70% of our assets in eligible portfolio companies and limiting the amount of leverage we incur. We have elected, and intend to qualify annually, to be treated as a regulated investment company (“RIC”) under Subchapter M of the U.S. InternalRevenue Code of 1986, as amended (the “Code”). As such, we generally will not have to pay corporate-level U.S. federal income tax on any ordinary incomeor capital gains that we distribute to our shareholders as dividends. To continue to maintain our RIC treatment, we must meet specified source-of-income andasset diversification requirements and distribute annually at least 90% of our net ordinary income and realized net short-term capital gains in excess ofrealized net long-term capital losses, if any. Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income inexcess of current year distributions into the next year and pay a 4% excise tax on such income. Any such carryover taxable income must be distributedthrough a dividend declared prior to filing the final tax return related to the year that generated such taxable income. Capital Southwest Management Corporation (“CSMC”), a wholly-owned subsidiary of CSWC, is the management company for CSWC. CSMCgenerally incurs all normal operating and administrative expenses, including, but not limited to, salaries and related benefits, rent, equipment and otheradministrative costs required for day-to-day operations. CSWC also has a direct wholly owned subsidiary that has been elected to be a taxable entity (the “Taxable Subsidiary”). The primary purpose of theTaxable Subsidiary is to permit CSWC to hold certain interests in portfolio companies that are organized as limited liability companies, or LLCs (or otherforms of pass-through entities) and still allow us to satisfy the RIC tax requirement that at least 90% of our gross income for federal income tax purposes mustconsist of qualifying investment income. The Taxable Subsidiary is taxed at normal corporate tax rates based on its taxable income. We focus on investing in companies with histories of generating revenues and positive cash flow, established market positions and provenmanagement teams with strong operating discipline. We target senior and subordinated investments in the lower middle market, as well as first and secondlien syndicated loans in upper middle market companies. Our target lower middle market (“LMM”) companies typically have annual earnings beforeinterest, taxes, depreciation and amortization (“EBITDA”) between $3.0 million and $15.0 million, and our LMM investments generally range in size from$5.0 million to $25.0 million. Our upper middle market (“UMM”) investments generally include syndicated first and second lien loans in companies withEBITDA generally greater than $50.0 million and typically range in size from $5.0 million to $15.0 million. We make available significant managerialassistance to the companies in which we invest as we believe that providing managerial assistance to an investee company is critical to its businessdevelopment activities.On September 30, 2015, we completed the spin-off (the “Share Distribution”) of CSW Industrials, Inc. (“CSWI”). CSWI is now an independentpublicly traded company. CSWI’s common stock trades on the Nasdaq Global Select Market under the ticker symbol “CSWI.” The Share Distribution waseffected through a tax-free, pro-rata distribution of 100% of CSWI’s common stock to shareholders of the Company. Each Company shareholder received oneshare of CSWI common stock for every one share77Table of Contentsof Company common stock on the record date, September 18, 2015. Cash was paid in lieu of any fractional shares of CSWI common stock. Following the Share Distribution, we have maintained operations as an internally managed BDC and pursue a credit-focused investing strategy akinto similarly structured organizations. We intend to continue to provide capital to middle-market companies. In the future, we intend to invest primarily indebt securities, including senior debt, second lien and subordinated debt, and may also invest in preferred stock and common stock alongside our debtinvestments or through warrants. Basis of Presentation The consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States ofAmerica (“U.S. GAAP”). We meet the definition of an investment company and follow the accounting and reporting guidance in the Financial AccountingStandards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 – Financial Services – Investment Companies (“ASC 946”). Under rulesand regulations applicable to investment companies, we are generally precluded from consolidating any entity other than another investment company,subject to certain exceptions. One of the exceptions to this general principle occurs if the investment company has an investment in an operating companythat provides services to the investment company. Accordingly, the consolidated financial statements include CSMC, our management company, and theTaxable Subsidiary. Portfolio Investment Classification We classify our investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are generally definedas investments in which we own more than 25% of the voting securities; “Affiliate investments” are generally defined as investments in which we ownbetween 5% and 25% of the voting securities, and the investments are not classified as “Control Investments”; and “Non-Control/Non-Affiliate investments”are generally defined as investments that are neither “Control Investments” nor “Affiliate Investments.” Under the 1940 Act, a BDC must meet certain requirements, including investing at least 70% of our assets in qualifying assets. As of March 31,2019, the Company has 84.6% of our assets in qualifying assets. The principal categories of qualifying assets relevant to our business are:(1)Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limitedexceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of aneligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC.(2)Securities of any eligible portfolio company that we control.(3)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 intransactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of itssecurities was unable to meet its obligations as they came due without material assistance other than conventional lending or financingarrangements.(4)Securities of an eligible portfolio company purchased from any person in a private transaction if there is no readily available market for suchsecurities and we already own 60% of the outstanding equity of the eligible portfolio company.(5)Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise ofwarrants or rights relating to such securities.(6)Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment.Additionally, in order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things meet the following tests:(1)Continue to qualify as a BDC under the 1940 Act at all times during each taxable year.(2)Derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities, loans, gains fromthe sale of stock or other securities, net income from certain “qualified publicly traded partnerships,” or other income derived with respect to ourbusiness of investing in such stock or securities (the “90% Income Test”). (3)Diversify our holdings in accordance with two Diversification Requirements: (a) Diversify our holdings such that at the end of each quarter of thetaxable year at least 50% of the value of our assets consists of cash, cash equivalents, U.S. Government securities, securities of other RICs, and suchother 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 theoutstanding voting securities of the issuer;78Table of Contentsand (b) Diversify our holdings such that no more than 25% of the value of our assets is invested in the securities, other than U.S. governmentsecurities or securities of other RICs, (i) of one issuer, (ii) of two or more issuers that are controlled, as determined under applicable Code rules, by usand that are engaged in the same or similar or related trades or businesses or (iii) of certain "qualified publicly traded partnerships" (collectively, the"Diversification Requirements"). The two Diversification Requirements must be satisfied quarterly. If a RIC satisfies the Diversification Requirements for one quarter, and then, duesolely to fluctuations in market value, fails to meet one of the Diversification Requirements in the next quarter, it retains RIC tax treatment. A RIC that failsto meet the Diversification Requirements as a result of a nonqualified acquisition may be subject to excess taxes unless the nonqualified acquisition isdisposed of and the Diversification Requirements are satisfied within 30 days of the close of the quarter in which the Diversification Requirements are failed. This quarter we satisfied all RIC requirements and have 15.1% in nonqualified assets according to measurement criteria established in Section851(d) of the Code. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed in the preparation of the consolidated financial statements of CSWC. Fair Value Measurements We account for substantially all of our financial instruments at fair value in accordance with ASC Topic 820 – Fair ValueMeasurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair value, and requires disclosures for fairvalue measurements, including the categorization of financial instruments into a three-level hierarchy based on the transparency of valuation inputs. ASC820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. We believe that the carrying amounts of ourfinancial instruments such as cash, receivables and payables approximate the fair value of these items due to the short maturity of these instruments. This isconsidered a Level 1 valuation technique. The carrying value of our credit facility approximates fair value (Level 3 input). See Note 4 below for furtherdiscussion regarding the fair value measurements and hierarchy. Investments Investments are stated at fair value and are reviewed and approved by our Board of Directors as described in the footnotes to theConsolidated Schedule of Investments and Notes 3 and 4 below. Investments are recorded on a trade date basis. Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation Realized gains or losses are measured by the differencebetween the net proceeds from the sale or redemption of an investment or a financial instrument and the cost basis of the investment or financial investment,without regard to unrealized appreciation or depreciation previously recognized, and includes investments written off during the period net of recoveries andrealized gains or losses from in-kind redemptions. Net change in unrealized appreciation or depreciation reflects the net change in the fair value of theinvestment portfolio and financial instruments and the reclassification of any prior period unrealized appreciation or depreciation on exited investments andfinancial instruments to realized gains or losses. Cash and Cash Equivalents Cash and cash equivalents, which consist of cash and highly liquid investments with an original maturity of threemonths or less at the date of purchase, are carried at cost, which approximates fair value. Cash may be held in a money market fund from time to time, which isa Level 1 security. Cash and cash equivalents includes deposits at financial institutions. We deposit our cash balances in financial institutions and, at times,such balances may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. At March 31, 2019 and 2018, cash balances totaling$8.8 million and $6.8 million, respectively, exceeded FDIC insurance limits, subjecting us to risk related to the uninsured balance. All of our cash depositsare held at large established high credit quality financial institutions and management believes that the risk of loss associated with any uninsured balances isremote. Segment Information We operate and manage our business in a singular segment. As an investment company, we invest in portfolio companies invarious industries and geographic areas as discussed in Note 3. Consolidation As permitted under Regulation S-X and ASC 946, we generally do not consolidate our investment in a portfolio company other thanan investment company subsidiary or a controlled operating company whose business consists of providing services to CSWC. Accordingly, we consolidatedthe results of CSWC’s wholly-owned Taxable Subsidiary and CSWC’s wholly-owned management company, CSMC. Prior to its dissolution, we consolidatedthe results of CSWC’s wholly-owned subsidiary, CSVC. All intercompany balances have been eliminated upon consolidation. 79Table of ContentsUse of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates andassumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.We have identified investment valuation and revenue recognition as our most critical accounting estimates. Interest and Dividend Income Interest and dividend income is recorded on an accrual basis to the extent amounts are expected to becollected. Dividend income is recognized on the date dividends are declared by the portfolio company or at the point an obligation exists for the portfoliocompany to make a distribution. Discounts/premiums received to par on loans purchased are capitalized and accreted or amortized into income over the lifeof the loan using the effective interest method. In accordance with our valuation policy, accrued interest and dividend income are evaluated quarterly forcollectability. When we do not expect the debtor to be able to service all of its debt or other obligations, we will generally establish a reserve against interestincome receivable, thereby placing the loan or debt security on non-accrual status, and cease to recognize interest income on that loan or debt security untilthe borrower has demonstrated the ability and intent to pay contractual amounts due. If a loan or debt security’s status significantly improves regarding itsability to service debt or other obligations, it will be restored to accrual basis. As of March 31, 2019, we had one investment on non-accrual status. As ofMarch 31, 2018, we did not have any investments on non-accrual status. To maintain RIC tax treatment, non-cash sources of income such as accretion of interest income may need to be paid out to shareholders in the formof distributions, even though CSWC may not have collected the interest income. For the year ended March 31, 2019, approximately 2.7% of CSWC’s totalinvestment income was attributable to non-cash interest income for the accretion of discounts associated with debt investments, net of any premiumreduction. For the year ended March 31, 2018, approximately 2.4% of CSWC’s total investment income was attributable to non-cash interest income for theaccretion of discounts associated with debt investments, net of any premium reduction. Payment-in-Kind Interest The Company currently holds, and expects to hold in the future, some investments in its portfolio that contain payment-in-kind (“PIK”) interest and dividend provisions. The PIK interest and dividends, computed at the contractual rate specified in each loan agreement, are addedto the principal balance of the loan, rather than being paid to the Company in cash, and are recorded as interest and dividend income. Thus, the actualcollection of PIK interest and dividends may be deferred until the time of debt principal repayment or disposition of equity investment. PIK interest anddividends, which are non-cash sources of income, are included in the Company’s taxable income and therefore affect the amount the Company is required todistribute to shareholders to maintain its qualification as a RIC for federal income tax purposes, even though the Company has not yet collected the cash.Generally, when current cash interest and/or principal payments on a loan become past due, or if the Company otherwise does not expect the borrower to beable to service its debt and other obligations, the Company will place the investment on non-accrual status and will generally cease recognizing PIK interestand dividend income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to arestructuring such that the interest and dividend income is deemed to be collectible. The Company writes off any accrued and uncollected PIK interest anddividends when it is determined that the PIK interest and dividends are no longer collectible. As of March 31, 2019 and 2018, we have not written off anyaccrued and uncollected PIK interest and dividends. For the years ended March 31, 2019 and 2018, approximately 1.3% and 0.9%, respectively, of CSWC’stotal investment income was attributable to non-cash PIK interest and dividend income.Warrants In connection with the Company's debt investments, the Company will sometimes receive warrants or other equity-related securities fromthe borrower. The Company determines the cost basis of warrants based upon their respective fair values on the date of receipt in proportion to the total fairvalue of the debt and warrants received. Any resulting difference between the face amount of the debt and its recorded fair value resulting from theassignment of value to the warrants is treated as original issue discount (“OID”), and accreted into interest income using the effective interest method over theterm of the debt investment. Debt Issuance Costs Debt issuance costs include commitment fees and other costs related to CSWC’s senior secured credit facility and its notes (asdiscussed further in Note 5). The costs in connection with the credit facility have been capitalized and are amortized into interest expense over the term of thecredit facility. The costs in connection with the December 2022 Notes (as defined below) are a direct deduction from the related debt liability and amortizedinto interest expense over the term of the notes.Deferred Offering Costs Deferred equity offering costs include registration expenses related to shelf filings, including expenses related to the launchof the "at-the-market" program (the "Equity ATM Program"). These expenses consist primarily of SEC registration fees, legal fees and accounting feesincurred. These expenses are included in prepaid expenses and other assets on the Consolidated Statements of Assets and Liabilities. Upon the completion ofan equity offering or a debt offering, the deferred expenses are charged to additional paid-in capital or debt issuance costs, respectively. If no offering iscompleted prior to the expiration of the registration statement, the deferred costs are charged to expense.80Table of Contents Federal Income Taxes CSWC has elected and intends to comply with the requirements of the Code necessary to qualify as a RIC. By meeting theserequirements, we will not be subject to corporate federal income taxes on ordinary income distributed to shareholders. In order to qualify as a RIC, thecompany is required to timely distribute to its shareholders at least 90% of investment company taxable income, as defined by the Code, each year.Investment company taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in therecognition of income and expenses. Investment company taxable income generally excludes net unrealized appreciation or depreciation, as investmentgains and losses are not included in investment company taxable income until they are realized.Depending on the level of taxable income or capital gains earned in a tax year, we may choose to carry forward taxable income or capital gains inexcess of current year distributions into the next year and pay a 4% excise tax on such income. Any such carryover taxable income or capital gains must bedistributed through a dividend declared on or prior to the later of (1) the filing of the U.S. federal income tax return for the applicable fiscal year and (2) thefifteenth day of the ninth month following the close of the year in which such taxable income was generated. In lieu of distributing our net capital gains for a year, we may decide to retain some or all of our net capital gains. We will be required to pay a 21%corporate-level federal income tax on any such retained net capital gains. We may elect to treat such retained capital gain as a deemed distribution toshareholders. Under such circumstances, shareholders will be required to include their share of such retained capital gain in income, but will receive a creditfor the amount of corporate-level U.S. federal income tax paid with respect to their shares. As an investment company that qualifies as a RIC, federal incometaxes payable on security gains that we elect to retain are accrued only on the last day of our tax year, December 31. Any net capital gains actually distributedto shareholders and properly reported by us as capital gain dividends are generally taxable to the shareholders as long-term capital gains. See Note 6 forfurther discussion. CSMC, a wholly-owned subsidiary of CSWC, and the Taxable Subsidiary are not RICs and are required to pay taxes at the corporate rate of 21% asof December 31, 2018. For tax purposes, CSMC and the Taxable Subsidiary have elected to be treated as taxable entities, and therefore are not consolidatedfor tax purposes and are taxed at normal corporate tax rates based on taxable income and, as a result of their activities, may generate income tax expense orbenefit. The taxable income, or loss, of each of CSMC and the Taxable Subsidiary may differ from its book income, or loss, due to temporary book and taxtiming differences and permanent differences. This income tax expense, or benefit, if any, and the related tax assets and liabilities, are reflected in ourconsolidated financial statements. Management evaluates tax positions taken or expected to be taken in the course of preparing the Company’s consolidated financial statements todetermine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions with respect to tax at the CSWClevel not deemed to meet the “more-likely-than-not” threshold would be recorded as an expense in the current year. Management’s conclusions regarding taxpositions will be subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws,regulations and interpretations thereof. The Company has concluded that it does not have any uncertain tax positions that meet the recognition ofmeasurement criteria of ASC 740, Income Taxes, (“ASC 740”) for the current period. Also, we account for interest and, if applicable, penalties for anyuncertain tax positions as a component of income tax expense. No interest or penalties expense was recorded during the years ended March 31, 2019, 2018and 2017. Deferred Taxes Deferred tax assets and liabilities are recorded for losses or income at our taxable subsidiaries using statutory tax rates. A valuationallowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. ASC740 requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation was enacted. See Note6 for further discussion. Stock-Based Compensation We account for our stock-based compensation using the fair value method, as prescribed by ASC Topic 718,Compensation – Stock Compensation. Accordingly, we recognize stock-based compensation cost on a straight-line basis for all share-based payments awardsgranted to employees. The fair value of stock options are determined on the date of grant using the Black-Scholes pricing model and are expensed over therequisite service period of the related stock options. For restricted stock awards, we measured the grant date fair value based upon the market price of ourcommon stock on the date of the grant. For restricted stock awards, we amortize this fair value to share-based compensation expense over the vesting term.We recognize forfeitures as they occur. We issue new shares upon the exercise of stock options. The unvested shares of restricted stock awarded pursuant toCSWC’s equity compensation plans are participating securities and are included in the basic and diluted earnings per share calculation. On October 26, 2010,we received an exemptive order from the SEC permitting us to issue restricted stock to our executive officers and certain key employees (the “OriginalOrder”). On August 22, 2017, we received an exemptive order that supersedes the Original Order (the “Exemptive Order”) and, in addition to the reliefgranted under the Original Order, allows us to withhold shares to satisfy tax withholding obligations related to the vesting of restricted stock grantedpursuant to the81Table of Contents2010 Restricted Stock Award Plan (the “2010 Plan”) and to pay the exercise price of options to purchase shares of our common stock granted pursuant to the2009 Stock Incentive Plan (the “2009 Plan”). At the years ended March 31, 2019, 2018 and 2017, weighted-average basic shares were adjusted for the diluted effect of stock-based awards of7,115, 64,899 and 52,452, respectively. For individual cash incentive awards, the option value of the individual cash incentive awards is calculated based onthe changes in net asset value ("NAV") of our Company. In connection with the Share Distribution, we entered into an Employee Matters Agreement (the“Employee Matters Agreement”) with CSWI. Under the Employee Matters Agreement, the value of individual cash incentive awards was determined basedupon the NAV of CSWC as of June 30, 2015. See Note 9 for further discussion. Shareholder Distributions Distributions to common shareholders are recorded on the ex-dividend date. The amount of distributions, if any, isdetermined by the Board of Directors each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, aregenerally distributed, although the Company may decide to retain such capital gains for investment. Presentation Presentation of certain amounts on the Consolidated Financial Statements for the prior year comparative financial statements is updatedto conform to the current period presentation. Recently Issued or Adopted Accounting Standards In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize onthe balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greaterthan 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flowsarising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedientsthat entities may elect to apply. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, which affects narrow aspectsof the guidance issued in the amendments in ASU 2016-02. The new guidance is effective for annual periods beginning after December 15, 2018, and interimperiods therein. Early application is permitted. Based on our assessment of the new standard, the single change relates to the recognition of a new right-of-useasset and lease liability on our consolidated balance sheet for our office space operating lease. We currently have one operating lease for office space and donot expect a significant change in our leasing activity between now and adoption. As such, the adoption will not have a material impact on the Company'sconsolidated financial statements.In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes the revenuerecognition requirements under SAC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the ASC. Thecore principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount thatreflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Under the new guidance, an entity is required toperform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine thetransaction price; (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies aperformance obligation. The new guidance will significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictionsand capital markets. Additionally, the guidance requires improved disclosures as to the nature, amount, timing and uncertainty of revenue that is recognized.In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606)—Narrow-Scope Improvements and PracticalExpedients. This ASU clarified guidance on assessing collectability, presenting sales tax, measuring noncash consideration, and certain transition matters.The new guidance is effective for the annual reporting period beginning after December 15, 2017, including interim periods within that reporting period. TheCompany adopted ASU 2014-09 effective April 1, 2018 and determined that its material financial contracts are excluded from the scope of ASU 2014-09. Asa result of the scope exception for financial contracts, the Company's management has determined that there were no material changes to the recognitiontiming and classification of revenues and expenses; additionally, the adoption of ASU 2014-09 did not have a significant impact on pretax income or on theconsolidated financial statement disclosures.In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), which is intended to reduce the existing diversity in practicein how certain cash receipts and cash payments are presented and classified in the Consolidated Statements of Cash Flows. The guidance is effective forannual periods beginning after December 15, 2017, and interim periods therein. The Company adopted ASU 2016-15 effective April 1, 2018 and theadoption did not have a material impact on the Company's consolidated financial statements.In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the DisclosureRequirements for Fair Value Measurement, which changes the fair value measurement disclosure requirements of ASC 820. The key provisions include new,eliminated and modified disclosure requirements. The new guidance is effective for82Table of Contentsfiscal years beginning after December 15, 2019, including interim periods therein. Early application is permitted. CSWC is currently evaluating the impactthe adoption of this new accounting standard will have on its consolidated financial statements, but the impact of the adoption is not expected to be material.In August 2018, the SEC issued the Final Rule Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosurerequirements that were redundant, duplicative, overlapping, outdated or superseded. The amendments are intended to facilitate the disclosure of informationto investors and simplify compliance. The final rule was effective on November 5, 2018. The Company adopted these disclosure updates in the quarter endedDecember 31, 2018. The disclosure updates impacted the presentation of the consolidated financial statements by requiring the presentation of the total,rather than the components of the distributable earnings on the Consolidated Balance Sheet. Additionally, the Company updated the Consolidated Statementof Changes in Net Assets for the new interim reporting requirement to disclose the current and comparative year-to-date periods, including subtotals for eachinterim periods. Management does not consider the impact of these disclosure updates to be material to the consolidated financial statements.In March 2019, the SEC issued Final Rule Release No. 33-10618, FAST Act Modernization and Simplification of Regulation S-K, which amendscertain SEC disclosure requirements. The amendments are intended to simplify certain disclosure requirements, improve readability and navigability ofdisclosure documents, and discourage repetition and disclosure of immaterial information. The amendments are effective for all filings submitted on or afterMay 2, 2019. The Company adopted the requisite amendments effective May 2, 2019. As it pertains to the Company for this Annual Report on Form 10-K, there were no significant changes to the Company’s consolidated financial position or disclosures. The Company is still evaluating the impact thisamendment will have on its other future periodic filings and registration statements.3. INVESTMENTS The following tables show the composition of the investment portfolio, at cost and fair value (with corresponding percentage of total portfolioinvestments), as of March 31, 2019 and 2018: Percentage of Percentage of Fair Total Portfolio Percentage of Total Portfolio Value at Fair Value Net Assets Cost at Cost (dollars in thousands)March 31, 2019: First lien loans1$317,544 60.6% 97.4% $319,278 66.8%Second lien loans235,896 6.8 11.0 36,057 7.5Subordinated debt14,287 2.7 4.4 14,458 3.0Preferred equity17,936 3.4 5.5 7,894 1.7Common equity & warrants72,665 14.0 22.3 32,368 6.8I-45 SLF LLC365,743 12.5 20.1 68,000 14.2 $524,071 100.0% 160.7% $478,055 100.0%March 31, 2018: First lien loans1$197,110 50.1% 63.9% $194,820 58.1%Second lien loans223,229 5.9 7.5 23,092 6.9Subordinated debt18,783 4.8 6.1 18,885 5.6Preferred equity36,545 9.3 11.9 16,666 5.0Common equity & warrants50,315 12.8 16.3 17,134 5.1I-45 SLF LLC367,113 17.1 21.8 64,800 19.3 $393,095 100.0% 127.5% $335,397 100.0%1 Included in first lien loans are loans structured as first lien last out loans. These loans may in certain cases be subordinated in payment priority to other senior securedlenders. As of March 31, 2019 and 2018, the fair value of the first lien last out loans are $38.6 million and $26.9 million, respectively.83Table of Contents2 Included in second lien loans are loans structured as split lien term loans. These loans provide the Company with a first lien priority on certain assets of the obligor and asecond lien priority on different assets of the obligor. As of March 31, 2019, the fair value of the split lien term loans are $18.3 million. As of March 31, 2018, there wereno investments in split lien term loans.3 I-45 SLF LLC is a joint venture between CSWC and Main Street Capital. This entity primarily invests in syndicated senior secured loans to the UMM. The portfoliocompanies held by I-45 SLF LLC represent a diverse set of industry classifications, which are similar to those in which CSWC invests directly. See Note 17 for furtherdiscussion.The following tables show the composition of the investment portfolio by industry, at cost and fair value (with corresponding percentage of totalportfolio investments), as of March 31, 2019 and 2018: Percentage of Percentage of Total Portfolio Percentage of Total Portfolio Fair Value at Fair Value Net Assets Cost at Cost (dollars in thousands)March 31, 2019: I-45 SLF LLC1$65,743 12.5% 20.2% $68,000 14.2%Healthcare Services62,719 12.0 19.2 62,701 13.1Media, Marketing, & Entertainment59,410 11.3 18.2 54,079 11.3Industrial Products52,760 10.1 16.2 5,415 1.1Business Services52,405 10.0 16.1 51,688 10.8Environmental Services32,941 6.3 10.1 33,873 7.1Healthcare Products29,964 5.7 9.2 29,826 6.2Food, Agriculture & Beverage28,352 5.4 8.7 30,991 6.5Distribution25,680 4.9 7.9 25,558 5.4Consumer Products and Retail23,618 4.5 7.2 23,762 5.0Consumer Services22,630 4.3 6.9 22,274 4.7Transportation & Logistics17,869 3.4 5.5 17,074 3.6Energy Services (Midstream)9,783 1.9 3.0 9,747 2.0Financial Services9,707 1.8 3.0 9,596 2.0Commodities & Mining8,511 1.6 2.6 8,383 1.8Restaurants7,912 1.5 2.4 7,978 1.7Software & IT Services6,128 1.2 1.9 6,277 1.3Telecommunications5,056 1.0 1.5 7,876 1.6Paper & Forest Products2,883 0.6 0.9 2,957 0.6 $524,071 100.0% 160.7% $478,055 100.0%84Table of Contents Percentage of Percentage of Total Portfolio Percentage of Total Portfolio Fair Value at Fair Value Net Assets Cost at Cost (dollars in thousands)March 31, 2018: I-45 SLF LLC1$67,113 17.1% 21.8% $64,800 19.3%Media, Marketing, & Entertainment46,697 11.9 15.1 43,700 13.0Industrial Products43,122 11.0 14.0 5,415 1.6Business Services34,846 8.9 11.3 34,268 10.2Energy Services (Upstream)27,919 7.1 9.1 14,130 4.2Distribution26,713 6.8 8.7 27,002 8.1Consumer Products and Retail24,570 6.2 7.9 25,086 7.5Environmental Services21,160 5.4 6.9 21,410 6.4Healthcare Services16,751 4.3 5.4 16,448 4.9Financial Services12,701 3.2 4.1 12,216 3.6Healthcare Products12,353 3.1 4.0 12,162 3.6Transportation & Logistics12,284 3.1 4.0 12,275 3.7Industrial Services10,012 2.5 3.2 9,721 2.9Food, Agriculture & Beverage9,438 2.4 3.1 9,507 2.8Telecommunications8,295 2.1 2.7 8,180 2.4Software & IT Services6,285 1.6 2.0 6,273 1.9Consumer Services5,000 1.3 1.6 4,968 1.5Restaurants4,836 1.2 1.6 4,886 1.5Paper & Forest Products3,000 0.8 1.0 2,950 0.9 $393,095 100.0% 127.5% $335,397 100.0%1 I-45 SLF LLC is a joint venture between CSWC and Main Street Capital. This entity primarily invests in syndicated senior secured loans to the UMM. The portfoliocompanies held by I-45 SLF LLC represent a diverse set of industry classifications, which are similar to those in which CSWC invests directly. See Note 17 for furtherdiscussion. 85Table of ContentsThe following tables summarize the composition of the investment portfolio by geographic region of the United States, at cost and fair value (withcorresponding percentage of total portfolio investments), as of March 31, 2019 and 2018: Percentage of Percentage of Total Portfolio Percentage of Total Portfolio Fair Value at Fair Value Net Assets Cost at Cost (dollars in thousands)March 31, 2019: Southwest$139,306 26.6% 42.7% $89,399 18.7%Northeast125,657 24.0 38.5 122,404 25.6Southeast119,280 22.8 36.6 120,889 25.3I-45 SLF LLC165,743 12.5 20.2 68,000 14.2West38,455 7.3 11.8 41,647 8.7Midwest35,630 6.8 10.9 35,716 7.5 $524,071 100.0% 160.7% $478,055 100.0%March 31, 2018: Southwest$131,753 33.5% 42.7% $79,713 23.8%Southeast84,969 21.6 27.6 84,290 25.1Northeast72,205 18.4 23.4 69,739 20.8I-45 SLF LLC167,113 17.1 21.8 64,800 19.3West23,554 6.0 7.6 23,425 7.0Midwest13,501 3.4 4.4 13,430 4.0 $393,095 100.0% 127.5% $335,397 100.0%1 I-45 SLF LLC is a joint venture between CSWC and Main Street Capital. This entity primarily invests in syndicated senior secured loans to the UMM. The portfoliocompanies held by I-45 SLF LLC represent a diverse set of industry classifications, which are similar to those in which CSWC invests directly. See Note 17 for furtherdiscussion. 86Table of Contents4. FAIR VALUE MEASUREMENTS Investment Valuation Process The valuation process is led by the finance department in conjunction with the investment team. The process includes a monthly review of eachinvestment by our executive officers and investment teams. Valuations of each portfolio security are prepared quarterly by the finance department usingupdated financial and other operational information collected by the investment teams. Each investment valuation is then subject to review by the executiveofficers and investment teams. In conjunction with the internal valuation process, we have also engaged multiple independent consulting firms specializingin financial due diligence, valuation, and business advisory services to provide third-party valuation reviews of certain investments. The third-partyvaluation firms provide a range of values for selected investments, which is presented to CSWC’s executive officers and Board of Directors. CSWC also uses a standard internal investment rating system in connection with its investment oversight, portfolio management, and investmentvaluation procedures for its debt portfolio. This system takes into account both quantitative and qualitative factors of the portfolio company and theinvestments held therein. There is no single standard for determining fair value in good faith, as fair value depends upon the specific circumstances of each individualinvestment. While management believes our valuation methodologies are appropriate and consistent with market participants, the recorded fair values of ourinvestments may differ significantly from fair values that would have been used had an active market for the securities existed. In addition, changes in themarket environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments tobe different than the valuations currently assigned. The Board of Directors has the ultimate responsibility for reviewing and approving, in good faith, the fairvalue of CSWC’s investments in accordance with the 1940 Act. Fair Value Hierarchy CSWC has established and documented processes for determining the fair values of portfolio company investments on a recurring basis inaccordance with the 1940 Act and ASC 820. As required by ASC 820, when the inputs used to measure fair value fall within different levels of the hierarchy,the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in itsentirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore,unrealized appreciation and depreciation related to such investments categorized within the Level 3 tables below may include changes in fair value that areattributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). CSWC conducts reviews of fair value hierarchy classifications on aquarterly basis. We also use judgment and consider factors specific to the investment in determining the significance of an input to a fair valuemeasurement. The three levels of valuation inputs established by ASC 820 are as follows: •Level 1: Investments whose values are based on unadjusted quoted prices in active markets for identical assets or liabilities.•Level 2: Investments whose values are based on quoted prices for similar assets and liabilities in active markets, and inputs that are observable for theasset or liability, either directly or indirectly, for substantially the full term of the financial instrument.•Level 3: Investments whose values are based on unobservable inputs that are significant to the overall fair value measurement. As of March 31, 2019 and 2018, 100% of the CSWC investment portfolio consisted of privately held debt and equity instruments for which inputsfalling within the categories of Level 1 and Level 2 are generally not available. Therefore, CSWC determines the fair value of its investments (excludinginvestments for which fair value is measured at NAV) in good faith using Level 3 inputs, pursuant to a valuation policy and process that is established by themanagement of CSWC with assistance from multiple third-party valuation advisors, which is subsequently approved by our Board of Directors. Investment Valuation Inputs ASC 820 defines fair value in terms of the price that would be received upon the sale of an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date excluding transaction costs. Under ASC 820, the fair value measurement also assumes thatthe transaction to sell an asset occurs in the principal market for the asset or, in the absence of a principal market, the most advantageous market for theasset. The principal market is the market in which the reporting entity would sell or transfer the asset with the greatest volume and level of activity for theasset. In determining the87Table of Contentsprincipal market for an asset or liability under ASC 820, it is assumed that the reporting entity has access to the market as of the measurement date. The Level 3 inputs to CSWC’s valuation process reflect our best estimate of the assumptions that would be used by market participants in pricingthe investment in a transaction in the principal or most advantageous market for the asset. The fair value determination of each portfolio investment categorized as Level 3 required one or more of the following unobservable inputs: •Financial information obtained from each portfolio company, including unaudited statements of operations and balance sheets for the most recentperiod available as compared to budgeted numbers;•Current and projected financial condition of the portfolio company;•Current and projected ability of the portfolio company to service its debt obligations;•Type and amount of collateral, if any, underlying the investment;•Current financial ratios (e.g., fixed charge coverage ratio, interest coverage ratio and net debt/EBITDA ratio) applicable to the investment;•Current liquidity of the investment and related financial ratios (e.g., current ratio and quick ratio);•Indicative dealer quotations from brokers, banks, and other market participants;•Market yields on other securities of similar risk;•Pending debt or capital restructuring of the portfolio company;•Projected operating results of the portfolio company;•Current information regarding any offers to purchase the investment;•Current ability of the portfolio company to raise any additional financing as needed;•Changes in the economic environment which may have a material impact on the operating results of the portfolio company;•Internal occurrences that may have an impact (both positive and negative) on the operating performance of the portfolio company;•Qualitative assessment of key management;•Contractual rights, obligations or restrictions associated with the investment; and•Other factors deemed relevant.CSWC uses several different valuation approaches depending on the security type including the Market Approach, the Income Approach, theEnterprise Value Waterfall Approach, and the NAV Valuation Method. Market Approach Market Approach is a qualitative and quantitative analysis of the aforementioned unobservable inputs. It is a combination of the Enterprise ValueWaterfall Approach and Income Approach as described in detail below. For investments recently originated (within a quarterly reporting period) or where thevalue has not departed significantly from its cost, we generally rely on our cost basis or recent transaction price to determine the fair value, unless a materialevent has occurred since origination. Income Approach In valuing debt securities, CSWC typically uses an Income Approach model, which considers some or all of the factors listed above. Under theIncome Approach, CSWC develops an expectation of the yield that a hypothetical market participant would require when purchasing each debt investment(the “Required Market Yield”). The Required Market Yield is calculated in a two-step process. First, using quarterly market data we estimate the currentmarket yield of similar debt securities. Next, based on the factors described above, we modify the current market yield for each security to produce a uniqueRequired Market Yield for each of our investments. The resulting Required Market Yield is the significant Level 3 input to the Income Approach model. If,with respect to an investment, the unobservable inputs have not fluctuated significantly from the date the investment was made or have not fluctuatedsignificantly from CSWC’s expectations on the date the investment was made, and there have been no significant fluctuations in the market pricing for suchinvestments, we may conclude that the Required Market Yield for that investment is equal to the stated rate on the investment. In instances where CSWCdetermines that the Required Market Yield is different from the stated rate on the investment, we discount the contractual cash flows on the debt instrumentusing the Required Market Yield in order to estimate the fair value of the debt security. In addition, under the Income Approach, CSWC also determines the appropriateness of the use of third-party broker quotes, if any, as a significantLevel 3 input in determining fair value. In determining the appropriateness of the use of third-party broker quotes, CSWC evaluates the level of actualtransactions used by the broker to develop the quote, whether the quote was88Table of Contentsan indicative price or binding offer, the depth and consistency of broker quotes, the source of the broker quotes, and the correlation of changes in brokerquotes with underlying performance of the portfolio company and other market indices. To the extent sufficient observable inputs are available to determinefair value, CSWC may use third-party broker quotes or other independent pricing to determine the fair value of certain debt investments.Fair value measurements using the Income Approach model can be sensitive to significant changes in one or more of the inputs. A significantincrease (decrease) in the Required Market Yield for a particular debt security may result in a lower (higher) fair value for that security. A significant increase(decrease) in a third-party broker quote for a particular debt security may result in a higher (lower) value for that security. Enterprise Value Waterfall Approach In valuing equity securities (including warrants), CSWC estimates fair value using an Enterprise Value Waterfall valuation model. CSWC estimatesthe enterprise value of a portfolio company and then allocates the enterprise value to the portfolio company’s securities in order of their relative liquidationpreference. In addition, CSWC assumes that any outstanding debt or other securities that are senior to CSWC’s equity securities are required to be repaid atpar. Additionally, we may estimate the fair value of non-performing debt securities using the Enterprise Value Waterfall approach as needed. To estimate the enterprise value of the portfolio company, CSWC uses a weighted valuation model based on public comparable companies,observable transactions and discounted cash flow analyses. A main input into the valuation model is a measure of the portfolio company’s financialperformance, which generally is either earnings before interest, taxes, depreciation and amortization, as adjusted (“Adjusted EBITDA”) or revenues. Inaddition, we consider other factors, including but not limited to (1) offers from third parties to purchase the portfolio company, and (2) the implied value ofrecent investments in the equity securities of the portfolio company. For certain non-performing assets, we may utilize the liquidation or collateral value ofthe portfolio company’s assets in our estimation of its enterprise value. The significant Level 3 inputs to the Enterprise Value Waterfall model are (1) an appropriate multiple derived from the comparable publiccompanies and transactions, (2) discount rate assumptions used in the discounted cash flow model and (3) a measure of the portfolio company’s financialperformance, which generally is either Adjusted EBITDA or revenues. Inputs can be based on historical operating results, projections of future operatingresults or a combination thereof. The operating results of a portfolio company may be unaudited, projected or pro forma financial information and mayrequire adjustments for certain non-recurring items. CSWC also may consult with the portfolio company’s senior management to obtain updates on theportfolio company’s performance, including information such as industry trends, new product development, loss of customers and other operational issues.Fair value measurements using the Enterprise Value Waterfall model can be sensitive to significant changes in one or more of the inputs. A significantincrease (decrease) in either the multiple, Adjusted EBITDA or revenues for a particular equity security would result in a higher (lower) fair value for thatsecurity. NAV Valuation Method Under the NAV valuation method, for an investment in an investment fund that does not have a readily determinable fair value, CSWC measures thefair value of the investment predominately based on the NAV of the investment fund as of the measurement date. However, in determining the fair value ofthe investment, we may consider whether adjustments to the NAV are necessary in certain circumstances, based on the analysis of any restrictions onredemption of our investment as of the measurement date, recent actual sales or redemptions of interests in the investment fund, expected future cash flowsavailable to equity holders, or other uncertainties surrounding CSWC’s ability to realize the full NAV of its interests in the investment fund. 89Table of ContentsThe following fair value hierarchy tables set forth our investment portfolio by level as of March 31, 2019 and 2018 (in thousands): Fair Value Measurements at March 31, 2019 Using Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs InputsAsset CategoryTotal (Level 1) (Level 2) (Level 3)First lien loans$317,544 — — $317,544Second lien loans35,896 — — 35,896Subordinated debt14,287 — — 14,287Preferred equity17,936 — — 17,936Common equity & warrants72,665 — — 72,665Investments measured at net asset value165,743 — — —Total Investments$524,071 — — $458,328 Fair Value Measurements at March 31, 2018 Using Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs InputsAsset Category2Total (Level 1) (Level 2) (Level 3)First lien loans$197,110 — — $197,110Second lien loans23,229 — — 23,229Subordinated debt18,783 — — 18,783Preferred equity36,545 — — 36,545Common equity & warrants50,315 — — 50,315Investments measured at net asset value167,113 — — —Total Investments$393,095 — — $325,9821 Certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in Consolidated Statements ofAssets and Liabilities. For the investment valued at net asset value per share at March 31, 2019 and 2018, the redemption restrictions dictate that we cannot withdraw ourmembership interest without unanimous approval. We are permitted to sell or transfer our membership interest and must deliver written notice of such transfer to the othermember no later than 60 business days prior to the sale or transfer. The table below presents the Valuation Techniques and Significant Level 3 Inputs (ranges and weighted averages) used in the valuation of CSWC’sdebt and equity securities at March 31, 2019 and 2018. The table is not intended to be all inclusive, but instead captures the significant unobservable inputsrelevant to our determination of fair value. 90Table of Contents Fair Value at Significant Valuation March 31, 2019 Unobservable WeightedTypeTechnique (in thousands) Inputs Range AverageFirst lien loansIncome Approach $248,404 Discount Rate 9.6% - 20.5% 12.1% Third Party Broker Quote 65.6 - 97.5 90.1 Market Approach 69,140 Cost 97.0 - 99.0 97.7 Exit Value 100.0 - 102.0 101.4Second lien loansIncome Approach 35,896 Discount Rate 11.5% - 41.9% 13.9% Third Party Broker Quote 55.0 55.0 Subordinated debtIncome Approach 14,287 Discount Rate 12.6% - 15.0% 13.4%Preferred equityEnterprise ValueWaterfall Approach 17,936 EBITDA Multiple 7.7x - 10.2x 9.5x Discount Rate 15.5% - 19.3% 17.8%Common equity & warrantsEnterprise ValueWaterfall Approach 71,665 EBITDA Multiple 4.6x - 10.7x 8.8x Discount Rate 13.9% - 21.0% 18.4% Market Approach 1,000 Cost 100.0 100.0Total Level 3 Investments $458,328 Fair Value at Significant Valuation March 31, 2018 Unobservable WeightedTypeTechnique (in thousands) Inputs Range AverageFirst lien loansIncome Approach $181,595 Discount Rate 9.5% - 17.0% 12.8% Third Party Broker Quote 98.2 - 101.8 100.3 Market Approach 15,515 Cost 98.0 - 98.1 98.0Second lien loansIncome Approach 18,229 Discount Rate 11.6% - 11.6% 11.6% Third Party Broker Quote 93.5 - 100.0 96.0 Market Approach 5,000 Cost 100.0 100.0Subordinated debtIncome Approach 18,783 Discount Rate 12.4% - 13.8% 12.9%Preferred equityEnterprise ValueWaterfall Approach 36,545 EBITDA Multiple 5.1x - 9.3x 6.9x Discount Rate 15.0% - 32.1% 20.2%Common equity & warrantsEnterprise ValueWaterfall Approach 47,123 EBITDA Multiple 6.0x - 8.4x 8.1x Discount Rate 15.7% - 21.6% 20.6% Market Approach 3,192 Cost 100.0 100.0Total Level 3 Investments $325,982 Changes in Fair Value Levels We monitor the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy.Changes in economic conditions or model based valuation techniques may require the transfer of financial instruments from one fair value to another. Werecognize transfer of financial instruments between levels at the end of each quarterly reporting period. During the years ended March 31, 2019 and 2018, wehad no transfers between levels. The following table provides a summary of changes in the fair value of investments measured using Level 3 inputs during the years ended March 31,2019 and 2018 (in thousands): 91Table of Contents Fair Value3/31/2018 Realized & UnrealizedGains (Losses) Purchases ofInvestments1 Repayments PIK InterestCapitalized Divestitures Conversion ofSecurity fromDebt to Equity Fair Value3/31/2019 YTD UnrealizedAppreciation(Depreciation) onInvestments held atperiod endFirst lienloans$197,110 $(3,640) $186,601 $(33,226) $43 $(28,805) (539) $317,544 $(3,675)Second lienloans23,229 (226) 21,274 (8,562) 181 — — 35,896 (228)Subordinateddebt18,783 (2) 60 (4,600) 46 — — 14,287 12Preferredequity38,541 10,997 2,657 — 231 (34,490) — 17,936 4,456Commonequity &warrants48,319 6,611 17,196 — — — 539 72,665 6,612TotalInvestments$325,982 $13,740 $227,788 $(46,388) $501 $(63,295) — $458,328 $7,177 Fair Value3/31/2017 Realized & UnrealizedGains (Losses) Purchases ofInvestments1 Repayments PIK InterestCapitalized Divestitures Conversion ofSecurity fromDebt to Equity Fair Value3/31/2018 YTD UnrealizedAppreciation(Depreciation) onInvestments held atperiod endFirst lienloans$107,817 $2,086 $128,894 $(41,687) $— $— $— $197,110 $1,716Second lienloans47,176 367 9,865 (34,179) — — — 23,229 (33)Subordinateddebt12,453 (39) 14,458 (8,100) 11 — — 18,783 (154)Preferredequity19,343 16,319 588 — 295 — — 36,545 16,318Commonequity &warrants36,696 4,401 9,233 — — (15) — 50,315 4,386TotalInvestments$223,485 $23,134 $163,038 $(83,966) $306 $(15) $— $325,982 $22,2331 Includes purchases of new investments, as well as discount accretion on existing investments. 5. BORROWINGS In accordance with the 1940 Act, with certain limitations, the Company is only allowed to borrow amounts such that its asset coverage (i.e., the ratioof assets less liabilities not represented by senior securities to senior securities such as borrowings), calculated pursuant to the 1940 Act, is at least 200% (or,pursuant to the 1940 Act, 150% if certain requirements are met as described in the Business Section under “Regulation as a Business Development Company-Senior Securities”) after such borrowing. On April 25, 2018, the Board of Directors unanimously approved the application of the recently modified assetcoverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, the minimum asset coverage ratio applicable to the Company was decreasedfrom 200% to 150%, which became effective April 25, 2019. Additionally, the Board of Directors also approved a resolution which limits the Company’sissuance of senior securities such that the asset coverage ratio, taking into account any such issuance, would not be less than 166%, at any time after theeffective date. As of March 31, 2019, the Company’s asset coverage was 249%. The Company had the following borrowings outstanding as of March 31, 2019 and 2018 (amounts in thousands): 92Table of Contents March 31, 2019 March 31, 2018Credit Facility$141,000 $40,000 December 2022 Notes77,136 57,500Less: Unamortized debt issuance costs and debt discount(2,037) (2,195)Total Notes75,099 55,305 Total Borrowings$216,099 $95,305 Credit Facility In August 2016, CSWC entered into a senior secured credit facility (as amended, restated, supplemented or otherwise modified from time to time, the“Credit Facility”) to provide additional liquidity to support its investment and operational activities, which included total commitments of $100 million.The Credit Facility contained an accordion feature that allowed CSWC to increase the total commitments under the Credit Facility up to $150 million fromnew and existing lenders on the same terms and conditions as the existing commitments. In August 2017, we increased our total commitments by $15 millionthrough adding an additional lender using the accordion feature. On November 16, 2017, CSWC entered into Amendment No. 1 (the “Amendment”) to its Credit Facility. Prior to the Amendment, borrowings underthe Credit Facility accrued interest on a per annum basis at a rate equal to the applicable LIBOR rate plus 3.25% with no LIBOR floor. CSWC paid unusedcommitment fees of 0.50% to 1.50% per annum, based on utilization, on the unused lender commitments under the Credit Facility. The Amendment (1)increased the total borrowing capacity under the Credit Facility to $180 million, with commitments from a diversified group of eight lenders, (2) increasedthe Credit Facility’s accordion feature that allows for an increase in total commitments of up to $250 million under the Credit Facility from new and existinglenders on the same terms and conditions as the existing commitments, (3) reduced the interest rate on borrowings from LIBOR plus 3.25% down to LIBORplus 3.00%, with a further step-down to LIBOR plus 2.75% at the time the Company’s net worth exceeds $325 million, (4) reduced unused commitment feesfrom a utilization-based grid of 0.50% to 1.5% down to a range of 0.50% to 1.0% per annum, and (5) extended the Credit Facility’s revolving period thatended on August 30, 2019 through November 16, 2020. Additionally, the final maturity of the Credit Facility was extended from August 30, 2020 toNovember 16, 2021. On April 16, 2018 and May 11, 2018, CSWC entered into Incremental Assumption Agreements, which increased the total commitmentsunder the Credit Facility by $20 million and $10 million, respectively. The increases were executed in accordance with the accordion feature of the CreditFacility, increasing total commitments from $180 million to $210 million. On December 21, 2018, CSWC entered into the Amended and Restated Senior Secured Revolving Credit Agreement (the "Credit Agreement"), and arelated Amended and Restated Guarantee, Pledge and Security Agreement, to amend and restate its Credit Facility. The Credit Agreement (1) increased thetotal commitments by $60 million from $210 million to an aggregate total of $270 million, provided by a diversified group of nine lenders, (2) increased theCredit Facility's accordion feature to $350 million under the Credit Facility from new and existing lenders on the same terms and conditions as the existingcommitments, (3) reduced the interest rate on borrowings from LIBOR plus 3.00% to LIBOR plus 2.50%, subject to certain conditions as outlined in theCredit Agreement, (4) reduced the minimum asset coverage with respect to senior securities representing indebtedness from 200% to 150% after the date onwhich such minimum asset coverage is permitted to be reduced by the Company under applicable law, subject to certain conditions as outlined in the CreditAgreement, and (5) extended the Credit Facility's revolving period from November 16, 2020 to December 21, 2022 and the final maturity from November 16,2021 to December 21, 2023.The Credit Agreement modified certain covenants in the Credit Facility, including: (1) to provide for a minimum senior coverage ratio of 2-to-1 (inaddition to the asset coverage ratio noted below), (2) to increase the minimum obligors’ net worth test from $160 million to $180 million, (3) to reduce theminimum consolidated interest coverage ratio from 2.50-to-1 to 2.25-to-1 as of the last day of any fiscal quarter, and (4) to provide for the fact that theCompany will not declare or pay a dividend or distribution in cash or other property unless immediately prior to and after giving effect thereto theCompany's asset coverage ratio exceeds 150% (and certain other conditions are satisfied). The Credit Facility also contains certain affirmative and negativecovenants, including but not limited to: (1) certain reporting requirements, (2) maintaining RIC and BDC status, (3) maintaining a minimum shareholders’equity, (4) maintaining a minimum consolidated net worth, and (5) at any time the outstanding advances exceed 90% of the borrowing base, maintaining aminimum liquidity of not less than 10% of the covered debt amount. The Credit Facility also contains customary events of default, including, without limitation, nonpayment, misrepresentation of representations andwarranties in a material respect, breach of covenant, bankruptcy, and change of control, with customary cure and notice provisions. If the Company defaultson its obligations under the Credit Facility, the lenders may93Table of Contentshave the right to foreclose upon and sell, or otherwise transfer, the collateral subject to their security interests. There are no changes to the covenants or theevents of default in the Credit Facility as a result of the Credit Agreement. The Credit Facility is secured by (1) substantially all of the present and future property and assets of the Company and the guarantors and (2) 100%of the equity interests in the Company’s wholly-owned subsidiaries. As of March 31, 2019, substantially all of the Company’s assets were pledged ascollateral for the Credit Facility. At March 31, 2019, CSWC had $141.0 million in borrowings outstanding under the Credit Facility. CSWC recognized interest expense related tothe Credit Facility, including unused commitment fees and amortization of deferred loan costs of $7.3 million and $3.7 million, respectively, for the yearsended March 31, 2019 and 2018. The weighted average interest rate on the Credit Facility was 5.41% and 4.66%, respectively, for the years ended March 31,2019 and 2018. Average borrowings for the years ended March 31, 2019 and 2018 were $99.8 million and $42.2 million, respectively. As of March 31, 2019and 2018, CSWC was in compliance with all financial covenants under the Credit Facility. December 2022 Notes In December 2017, the Company issued $57.5 million in aggregate principal amount, including the underwriters’ full exercise of their option topurchase additional principal amounts to cover over-allotments, of 5.95% Notes due 2022 (the “December 2022 Notes”). The December 2022 Notes matureon December 15, 2022 and may be redeemed in whole or in part at any time, or from time to time, at the Company’s option on or after December 15, 2019.The December 2022 Notes bear interest at a rate of 5.95% per year, payable quarterly on March 15, June 15, September 15 and December 15 of each year,beginning on March 15, 2018. The December 2022 Notes are an unsecured obligation, rank pari passu with our other outstanding and future unsecuredunsubordinated indebtedness and are effectively subordinated to all of our existing and future secured indebtedness, including borrowings under our CreditFacility.On June 11, 2018, the Company entered into an "At-The-Market" ("ATM") debt distribution agreement, pursuant to which it may offer for sale, fromtime to time, up to $50 million in aggregate principal amount of December 2022 Notes through B. Riley FBR, Inc., acting as its sales agent (the “2022 NotesAgent”). Sales of the December 2022 Notes may be made in negotiated transactions or transactions that are deemed to be "at the market offerings" as definedin Rule 415 under the Securities Act of 1933, as amended, including sales made directly on The Nasdaq Global Select Market, or similar securities exchangesor sales made through a market maker other than on an exchange at prices related to prevailing market prices or at negotiated prices.The 2022 Notes Agent receives a commission from the Company equal to up to 2% of the gross sales of any December 2022 Notes sold through the2022 Notes Agent under the debt distribution agreement. The 2022 Notes Agent is not required to sell any specific principal amount of December 2022Notes, but will use its commercially reasonable efforts consistent with its sales and trading practices to sell the December 2022 Notes. The December 2022Notes trade “flat,” which means that purchasers in the secondary market will not pay, and sellers will not receive, any accrued and unpaid interest on theDecember 2022 Notes that is not reflected in the trading price.During the year ended March 31, 2019, the Company sold 785,447 December 2022 Notes for an aggregate principal amount of approximately $19.6million at a weighted average effective yield of 5.86%. At this time, the Company does not intend to issue additional December 2022 Notes under this ATMdebt distribution agreement.All issuances of December 2022 Notes rank equally in right of payment and form a single series of notes. As of March 31, 2019, the carrying amount of the December 2022 Notes was $75.1 million. As of March 31, 2019, the fair value of the December2022 Notes was $78.7 million. The fair value is based on the closing price of the security of The Nasdaq Global Select Market, which is a Level 1 input underASC 820. The Company recognized interest expense related to the December 2022 Notes, including amortization of deferred issuance costs, of $4.8 millionand $1.2 million for the years ended March 31, 2019 and 2018, respectively. Average borrowings for the years ended March 31, 2019 and 2018 were $70.1million and $16.9 million, respectively. The indenture governing the December 2022 Notes contains certain covenants including but not limited to (i) a requirement that the Companycomply with the asset coverage requirement of Section 18(a)(1)(A) of the 1940 Act as modified by Section 61(a) of the 1940 Act or any successor provisionsthereto, after giving effect to any exemptive relief granted to the Company by the SEC, (ii) a requirement, subject to a limited exception, that the Companywill not declare any cash dividend, or declare any other cash distribution, upon a class of its capital stock, or purchase any such capital stock, unless, in everysuch case, at the time of the declaration of any such dividend or distribution, or at the time of any such purchase, the Company has the minimum assetcoverage required pursuant to Section 18(a)(1)(A) of the 1940 Act as modified by Section 61(a) of the 1940 Act or any successor94Table of Contentsprovision thereto after deducting the amount of such dividend, distribution or purchase price, as the case may be, giving effect to any exemptive reliefgranted to the Company by the SEC and (iii) a requirement to provide financial information to the holders of the December 2022 Notes and the trustee underthe indenture if the Company should no longer be subject to the reporting requirements under the Exchange Act. The indenture and supplement relating tothe December 2022 Notes also provides for customary events of default. As of March 31, 2019, the Company was in compliance with all covenants of theDecember 2022 Notes. Contractual Payment ObligationsA summary of the Company's contractual payment obligations for the repayment of outstanding indebtedness at March 31, 2019 is as follows: Years Ending March 31, 2020 2021 2022 2023 2024 Thereafter TotalCredit Facility$— $— $— $— $141,000 $— $141,000December 2022 Notes— — — 77,136 — — 77,136Total$— $— $— $77,136 $141,000 $— $218,136 6. INCOME TAXES We have elected to be treated as a RIC under Subchapter M of the Code and have a tax year end of December 31. In order to qualify as a RIC, wemust annually distribute at least 90% of our investment company taxable income, as defined by the Code, to our shareholders in a timely manner. Investmentcompany income generally includes net short-term capital gains but excludes net long-term capital gains. A RIC is not subject to federal income tax on theportion of its ordinary income and long-term capital gains that is distributed to its shareholders, including “deemed distributions” as discussed below. Aspart of maintaining RIC status, undistributed taxable income, which is subject to a 4% non-deductible U.S. federal excise tax, pertaining to a given fiscal yearmay be distributed up to 12 months subsequent to the end of that fiscal year, provided such dividends are declared on or prior to the later of (1) the filing ofthe U.S federal income tax return for the applicable fiscal year or (2) the fifteenth day of the ninth month following the close of the year in which such taxableincome was generated. For the tax years ended December 31, 2018, 2017 and 2016, CSWC qualified for RIC tax treatment. We intend to meet the applicable qualificationsto be taxed as a RIC in future periods. However, CSWC’s ability to meet certain portfolio diversification requirements of RICs in future years may not becontrollable by CSWC. We have distributed or intend to distribute sufficient dividends to eliminate taxable income for our completed tax years. If we fail to satisfy the 90%distribution requirement or otherwise fail to qualify as a RIC in any tax year, we would be subject to tax in that year on all of our taxable income, regardlessof whether we made any distributions to our shareholders. During the quarter ended March 31, 2019, CSWC declared regular dividends in the amount of $8.4million, or $0.48 per share ($0.38 per share in regular dividends and $0.10 in supplemental dividends). During the tax year ended December 31, 2018, wedeclared total dividends of $34.2 million or $2.07 per share ($1.27 per share in regular dividends and $0.80 per share in supplemental dividends). Wedeclared quarterly dividends of $0.28 per share in March 2018, $0.89 per share ($0.29 per share in regular dividends and $0.60 per share in supplementaldividends) in June 2018, $0.44 per share ($0.34 per share in regular dividends and $0.10 per share in supplemental dividends) in September 2018, and $0.46per share ($0.36 per share in regular dividends and $0.10 per share in supplemental dividends) in December 2018. For the tax year ended December 31, 2017,we declared total dividends of $18.3 million or $1.16 per share. We declared quarterly dividends of $0.45 per share ($0.19 in regular dividends and $0.26 insupplemental dividends) in March 2017, $0.21 per share in June 2017, $0.24 per share in September 2017, and $0.26 per share in December 2017. For the taxyear ended December 31, 2016, we declared total dividends of $6.0 million, or $0.38 per share. We declared quarterly dividends of $0.04 per share in March2016, $0.06 per share in June 2016, $0.11 per share in September 2016, and $0.17 per share in December 2016.Book and tax basis differences relating to shareholder dividends and distributions and other permanent book and tax differences are typicallyreclassified among the CSWC’s capital accounts. In addition, the character of income and gains to be distributed is determined in accordance with income taxregulations that may differ from GAAP; accordingly for the fiscal years ended March 31, 2019 and 2018, CSWC reclassified for book purposes amountsarising from permanent book/tax differences related to the tax treatment of return of capital and/or deemed distributions, tax treatment of investments upondisposition, and non-deductible expenses, as follows (amounts in thousands):95Table of Contents Year ended Year ended March 31, 2019 March 31, 2018Additional capital$(1,798) $(552)Total distributable earnings$1,798 $552 The determination of the tax attributes of CSWC’s distributions is made after tax year end, based upon its taxable income for the full tax year anddistributions paid for the full tax year. Therefore, the determination of tax attributes made on an interim basis for fiscal year end may not be representative ofthe actual tax attributes determined at tax year end. For tax purposes, the 2018 dividends totaled $2.07 per share and were comprised of (1) ordinary income totaling approximately $0.739 per share, (2)long term capital gains totaling approximately $1.332 per share, and (3) qualified dividend income totaling approximately $0.121 per share. In addition,57.99% of each of the ordinary distributions represent interest-related dividends and 37.08% of each of the ordinary distributions represents short-termcapital gains dividends. 98.24% of total distributions represent the portion of CSWC’s dividends received by non-U.S. residents and foreign corporationshareholders that are generally exempt from U.S. withholding tax. Of the qualified dividends of $1.9 million, 16.4% are eligible for the dividends receiveddeduction. For tax purposes, the 2017 dividends totaled $1.16 per share and were comprised of (1) ordinary income totaling approximately $0.643 per share,(2) long term capital gains totaling approximately $0.324 per share, and (3) qualified dividend income totaling approximately $0.193 per share. In addition,88.35% of each of the ordinary distributions represent interest-related dividends and 10.76% of each of the distributions represents short-term capital gainsdividends. 94.54% of total distributions represent the portion of CSWC’s dividends received by non-U.S. residents and foreign corporation shareholders thatare generally exempt from U.S. withholding tax. Of the qualified dividends of $3.5 million, 23.13% are eligible for the dividends received deduction. Ordinary dividend distributions from a RIC do not qualify for the 20% maximum tax rate (plus a 3.8% Medicare surtax, if applicable) on dividendincome from domestic corporations and qualified foreign corporations, except to the extent that the RIC received the income in the form of qualifyingdividends from domestic corporations and qualified foreign corporations. The tax attributes for distributions will generally include both ordinary income andcapital gains, but may also include qualified dividends or return of capital. The tax character of distributions paid for the tax years ended December 31, 2018 and 2017 was as follows (amounts in thousands): Twelve Months Ended December 31, 2018 2017Ordinary income$11,723 $13,149Distributions of long term capital gains21,625 5,101Distributions on tax basis1$33,348 $18,2501 Includes only those distributions which reduce estimated taxable income. As of March 31, 2019, CSWC estimates that it has cumulative undistributed taxable income of approximately $19.9 million, or $1.14 per share, thatwill be carried forward toward distributions to be paid in future periods. We intend to meet the applicable qualifications to be taxed as a RIC in futureperiods.96Table of ContentsThe following reconciles net increase in assets resulting from operations to estimated RIC taxable income for the years ended March 31, 2019, 2018and 2017: Years ended March 31, 2019 2018 2017Reconciliation of RIC Taxable Income1 Net increase in net assets resulting from operations$33,058 $39,307 $23,474Net change in unrealized (appreciation) depreciation on investments11,506 (21,492) (7,690)(Expense/loss) income/gain recognized for tax on pass-through entities223 (403) 986Gain (loss) recognized for tax on dispositions761 643 1,248Net operating loss - management company and taxable subsidiary(256) 316 1,323Non-deductible tax expense881 228 588Other book tax differences98 (62) 223Estimated taxable income (loss) before deductions for distributions$46,271 $18,537 $20,152Distributions2: Ordinary$15,468 $7,020 $932Capital gains21,625 930 4,367Deemed distributions— — —Distributions payable2— 4,421 7,072Estimated annual RIC undistributed taxable income$9,178 $6,166 $7,7811 The calculation of taxable income for each period is an estimate and will not be finally determined until the Company files its tax return each year. Final taxable incomemay be different than this estimate.2 Includes only those distributions which reduce estimated taxable income. As of March 31, 2019, 2018 and 2017, the components of estimated RIC accumulated earnings on a tax basis were as follows (amounts inthousands): Years ended March 31,Components of RIC Accumulated Earnings on a Tax Basis12019 2018 2017Undistributed ordinary income - tax basis$19,532 $13,427 $11,890Undistributed net realized gain384 2,276 3,085Unrealized appreciation on investments45,724 57,264 36,481Other temporary differences(917) (321) (122)Distributions payable2— (4,421) (7,072)Components of distributable earnings at year-end$64,723 $68,225 $44,2621 The calculation of taxable income for each period is an estimate and will not be finally determined until the Company files its tax return each year. Final taxable incomemay be different than this estimate.2 Includes only those distributions which reduce estimated taxable income.As of March 31, 2019, including the RIC and the Taxable Subsidiary, the cost of investments for U.S. federal income tax purposes was $477.8million, with such investments having a gross unrealized appreciation of $56.6 million and gross unrealized depreciation of $11.6 million. A RIC may elect to retain all or a portion of its long-term capital gains by designating them as a “deemed distribution” to its shareholders andpaying a federal tax on the long-term capital gains for the benefit of its shareholders. Shareholders then report their share of the retained capital gains on theirincome tax returns as if it had been received and report a tax credit for tax paid on their behalf by the RIC. Shareholders then add the amount of the “deemeddistribution” net of such tax to the basis of their shares. As a result of the Tax Reform, the federal tax rate for deemed distributions is 21% as of January 1,2018.For the tax years ended December 31, 2018, 2017 and 2016, we distributed all long-term capital gains and therefore had no deemed distributions toour shareholders or federal taxes incurred related to such items. 97Table of ContentsCSMC, a wholly-owned subsidiary of CSWC, is not a RIC and is required to pay taxes at the current corporate rate. For tax purposes, CSMC haselected to be treated as a taxable entity, and therefore is not consolidated for tax purposes and is taxed at normal corporate tax rates based on its taxableincome and, as a result of its activities, may generate income tax expense or benefit. The taxable income, or loss, of CSMC may differ from its book income,or loss, due to temporary book and tax timing differences and permanent differences. This income tax expense, or benefit, if any, and the related tax assetsand liabilities, are reflected in our consolidated financial statements. CSMC records individual cash incentive award and bonus accruals on a quarterly basis.Deferred taxes related to the changes in the restoration plan, individual cash incentive award and bonus accruals are also recorded on a quarterly basis. Avaluation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not berealized. Establishing a valuation allowance of a deferred tax asset requires management to make estimates related to expectations of future taxable income.Estimates of future taxable income are based on forecasted cash flows from CSMC’s operations. As of March 31, 2019, CSMC had a deferred tax asset ofapproximately $1.8 million. During the year ended March 31, 2019, the deferred tax asset decreased by approximately $0.3 million. As of March 31, 2019,we believe that we will be able to utilize all $1.8 million of our deferred tax assets. We will continue to assess our ability to realize our existing deferred taxassets. As of March 31, 2018, CSMC had a deferred tax asset of $2.1 million. Based on our assessment of our unrecognized tax benefits, management believes that all benefits will be realized and they do not contain anyuncertain tax positions. The following table sets forth the significant components of the deferred tax assets and liabilities as of March 31, 2019 and 2018 (amounts inthousands): Years ended 2019 2018Deferred tax asset: Net operating loss carryforwards$132 $487Compensation1,020 924Pension liability596 617Net unrealized depreciation on investments27 —Other32 22Total deferred tax asset1,807 2,050Deferred tax liabilities: Net unrealized appreciation on investments— (190)Total deferred tax liabilities— (190)Total net deferred tax assets$1,807 $1,860 The above referenced Net Operating Loss was generated in 2015 and expires in 2035. In addition, we have a wholly-owned taxable subsidiary, or the Taxable Subsidiary, which holds a portion of one or more of our portfolioinvestments that are listed on the Consolidated Schedule of Investments. The Taxable Subsidiary is consolidated for financial reporting purposes inaccordance with U.S. GAAP, so that our consolidated financial statements reflect our investments in the portfolio companies owned by the TaxableSubsidiary. The purpose of the Taxable Subsidiary is to permit us to hold certain interests in portfolio companies that are organized as limited liabilitycompanies, or LLCs (or other forms of pass-through entities) and still satisfy the RIC tax requirement that at least 90% of our gross income for federal incometax purposes must consist of qualifying investment income. Absent the Taxable Subsidiary, a proportionate amount of any gross income of a partnership orLLC (or other pass-through entity) portfolio investment would flow through directly to us. To the extent that our income did not consist of investmentincome, it could jeopardize our ability to qualify as a RIC and therefore cause us to incur significant amounts of corporate-level U.S. federal income taxes.Where interests in LLCs (or other pass-through entities) are owned by the Taxable Subsidiary, however, the income from those interests is taxed to theTaxable Subsidiary and does not flow through to us, thereby helping us preserve our RIC status and resultant tax advantages. The Taxable Subsidiary is notconsolidated for U.S. federal income tax purposes and may generate income tax expense as a result of their ownership of the portfolio companies. Thisincome tax expense, or benefit, and the related tax assets and liabilities, if any, are reflected in our Consolidated Statement of Operations. The income tax expense, or benefit, and the related tax assets and liabilities generated by CSWC, CSMC and the Taxable Subsidiary, if any, arereflected in CSWC’s consolidated financial statements. For the year ended March 31, 2019, we recognized total net income tax expense of $1.0 million,principally consisting of a $0.9 million accrual for excise tax on our estimated undistributed taxable income, a provision for deferred U.S. federal incometaxes relating to CSMC of $0.2 million and a $0.1 million benefit relating to the Taxable Subsidiary. For the year ended March 31, 2018, we recognized atotal net income tax98Table of Contentsprovision of $0.2 million, principally consisting of a $0.2 million accrual for excise tax on our estimated undistributed taxable income. Regarding the Tax Reform, the Company has completed all accounting and there are no items reported as provisional amounts. However, the TaxReform accounting incorporates assumptions made based on the Company's current interpretation of the Tax Act and may change, possibly materially, as theCompany receives additional clarification and implementation guidance. In addition, changes in interpretations, assumptions, and guidance regarding thenew tax legislation, as well as the potential for technical corrections to the Tax Reform, could have a material impact to the Company’s effective tax rate infuture periods. Finally, given the significant complexity of the Tax Reform, current guidance from the U.S. Treasury about implementing the Tax Act and anyrelated guidance from the SEC or the FASB may change, which may require us to refine the Company's estimates in the future. Although we believe our tax returns are correct, the final determination of tax examinations could be different from what was reported on the returns.In our opinion, we have made adequate tax provisions for years subject to examination. Generally, we are currently open to audit under the statute oflimitations by the Internal Revenue Service as well as state taxing authorities for the years ended December 31, 2015 through 2018. The following table sets forth the significant components of the income tax expense as of March 31, 2019, 2018 and 2017 (amounts in thousands): Years ended March 31,Components of Income Tax Expense2019 2018 2017Statutory federal income tax$73 $(91) $(175)162(m) limitation476 710 625Excise tax880 228 588Valuation allowance— (1,324) 459Tax related to Taxable Subsidiary(109) — 173Prior year deferred tax true-up— (164) 67Compensation benefits(280) (426) —Tax Reform— 1,246 —Other8 16 42Total income tax expense$1,048 $195 $1,7797. SHAREHOLDERS’ EQUITY For the year ended March 31, 2019, the Company completed an offering of 700,000 shares of the Company's common stock at a net price of $18.90per share, which was above NAV per share at the time of the offering. The Company issued 100,000 shares of its common stock to certain institutionalinvestors in a direct registered offering and 600,000 shares of its common stock in a "best efforts" underwritten offering. The total net proceeds of theofferings, before expenses, was approximately $13.2 million. There were no sales of the Company’s equity securities for the year ended March 31, 2018.On March 4, 2019, the Company entered into separate equity distribution agreements with certain sales agents through which it may offer to sell,from time to time, shares of its common stock having an aggregate offering price of up to $50,000,000 (the "Equity ATM Program"). During the year endedMarch 31, 2019, the Company sold 263,656 shares of its common stock under the Equity ATM Program at a weighted-average price of $21.47 per share,raising $5.7 million of gross proceeds. Net proceeds were $5.5 million after commissions to the sales agents on shares sold. On October 26, 2010, we received an exemptive order from the SEC permitting us to issue restricted stock to our executive officers and certain keyemployees, or the Original Order. On August 22, 2017, we received the Exemptive Order that supersedes the Original Order and in addition to the reliefgranted under the Original Order, allows us to withhold shares to satisfy tax withholding obligations related to the vesting of restricted stock grantedpursuant to the 2010 Restricted Stock Award Plan, or the 2010 Plan, and to pay the exercise price of options to purchase shares of our common stock grantedpursuant to the 2009 Stock Incentive Plan, or the 2009 Plan. During the year ended March 31, 2019, the Company repurchased 9,732 shares at an aggregatecost of approximately $0.2 million and a weighted average price per share of $19.18 in connection with the vesting of restricted stock awards. During theyear ended March 31, 2018, the Company repurchased 5,080 shares at an aggregate cost of approximately $0.1 million and a weighted average price pershare of $16.78 in connection with the vesting of restricted stock awards. 99Table of ContentsShare Repurchase Program In January 2016, the Company’s Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $10 millionof its outstanding common stock in the open market at certain thresholds below its NAV per share, in accordance with guidelines specified in Rules 10b5-1(c)(1)(i)(B) and 10b-18 under the Securities Exchange Act of 1934. On March 1, 2016, the Company entered into a share repurchase agreement, which becameeffective immediately and shall terminate on the earliest of: (1) the date on which a total of $10 million worth of common shares have been purchased underthe plan; (2) the date on which the terms set forth in the purchase instructions have been met; or (3) the date that is one trading day after the date on whichinsider notifies broker in writing that this agreement shall terminate. During the year ended March 31, 2019, the Company had repurchased a total of 10,452 shares at an average price of $17.72 per share, includingcommissions paid, leaving approximately $9.2 million available for additional repurchases under the program. During the year ended March 31, 2018, theCompany repurchased a total of 35,911 shares at an average price of $16.37 per share, including commissions paid, leaving approximately $9.4 millionavailable for additional repurchases under the program. The following table summarizes the Company’s share repurchases under the program for the yearsended March 31, 2019 and 2018: Year Ended March 31,Repurchases of Common Stock2019 2018Number of shares repurchased10,452 35,911Cost of shares repurchased, including commissions$185,217 $587,772Weighted average price per share$17.72 $16.37Net asset value per share at quarter end prior to repurchase$18.84 $18.44Weighted average discount to net asset value at quarter end prior to repurchase5.9% 11.2% 8. SPIN-OFF COMPENSATION PLAN On August 28, 2014, CSWC’s Board of Directors adopted a compensation plan (the “Spin-off Compensation Plan”) consisting of grants ofnonqualified stock options, restricted stock and cash incentive awards to certain officers of the Company at the time. The Spin-off Compensation Plan wasintended to align the compensation of the Company’s key officers with the Company’s strategic objective of increasing the market value of the Company’sshares through a transformative transaction for the benefit of the Company’s shareholders. Under the Spin-Off Compensation Plan, Joseph B. Armes, formerChief Executive Officer of the Company, Kelly Tacke, former Chief Financial Officer of the Company, and Bowen S. Diehl, former Chief Investment Officerand current Chief Executive Officer of the company, were collectively as a group eligible to receive an amount equal to six percent of the aggregateappreciation in the Company’s share price from August 28, 2014 (using a base price of $36.16 per share) to the date 90 days after the completion of atransformative transaction (the “Trigger Event Date”). The first plan component consisted of nonqualified options awarded to purchase an aggregate of259,000 shares of common stock at an exercise price of $36.60 per share. The second plan component consisted of an aggregate of 127,000 shares ofrestricted stock, which have voting rights but do not have cash dividend rights. See Note 9 for further discussion on the first two components of the Spin-offCompensation Plan. The final plan component consisted of cash incentive payments awarded to each participant in an amount equal to the excess of eachawardee’s allocable portion of the total payment amount over the aggregate value as of the Trigger Event Date of the awardee’s restricted common stock andnonqualified options awarded under the Spin-off Compensation Plan. On September 8, 2015, the Board designated the Share Distribution as a transformative transaction for purposes of the Spin-off Compensation Planand amended the award agreements granted under the plan to provide for accelerated vesting of the awards held by a participant in the event of a terminationof that participant’s service effected by the participant for good reason, by the employer without cause, or as a result of the disability or death of theparticipant. On September 30, 2015, we completed the Share Distribution. Effective immediately with the Share Distribution, both Joseph B. Armes and Kelly Tacke became employees of CSWI and Bowen Diehl, ourPresident and Chief Executive Officer, continued to be an employee of our Company. The Company entered into the Employee Matters Agreement withCSWI. Under the Employee Matters Agreement, we retained the cash incentive awards granted under the Spin-off Compensation Plan, and all liabilities withrespect to the cash incentive awards remained liabilities of CSWC. The equity based awards vesting terms were as follows: (1) 1/3 on December 29, 2015; (2)1/3 on December 29, 2016; and (3) 1/3 on December 29, 2017, subject to accelerated vesting as described above. The total value accretion was six percent of the aggregate appreciation in the Company’s share price from $36.16 to the combined volume-weightedaverage prices of both CSWC and CSWI stock as of December 29, 2015. The cash component of the100Table of ContentsSpin-off Compensation Plan was the difference between the total value accretion and the aggregate value of the awardee’s restricted common stock and non-qualified option awards under the Spin-Off Compensation Plan. The total cash liabilities for three participants under the plan totaled $6.1 million. The finalpayment of $1.4 million was fully vested on December 29, 2017, and was subsequently paid out in January 2018. As of March 31, 2019, there is noremaining unrecognized expense related to the Spin-off Compensation Plan. During the year ended March 31, 2019, we did not recognize any expense related to the Spin-off Compensation Plan. During both the years endedMarch 31, 2018 and 2017, we recognized the cash component of spin-off compensation expense of $0.7 million, which represented the cash component ofspin-off compensation for our current employee. During the years ended March 31, 2018 and 2017, we also recorded $0.5 million and $1.9 million,respectively, directly to additional capital for the cash component of spin-off compensation related to the two employees who transferred to CSWI, of which$1.3 million was paid to Kelly Tacke during the year ended March 31, 2017 upon her separation from CSWI. As of March 31, 2019, there is no remainingunrecognized expense related to the cash component of the Spin-Off Compensation Plan. 9. EMPLOYEE STOCK BASED COMPENSATION PLANS Stock Awards Pursuant to the Capital Southwest Corporation 2010 Plan, our Board of Directors originally reserved 188,000 shares of restricted stock for issuanceto certain of our employees. At our annual shareholder meeting in August 2015, our shareholders approved an increase of an additional 450,000 shares to our2010 Plan. A restricted stock award is an award of shares of our common stock, which generally have full voting and dividend rights but are restricted withregard to sale or transfer. Restricted stock awards are independent of stock grants and are generally subject to forfeiture if employment terminates prior tothese restrictions lapsing. Unless otherwise specified in the award agreement, these shares vest in equal annual installments over a four to five-year periodfrom the grant date and are expensed over the vesting period starting on the grant date. On August 28, 2014, our Board of Directors amended the 2010 Plan, as permitted pursuant to Section 14 of the 2010 Plan (the “First Amendment tothe 2010 Plan”). The First Amendment to the 2010 Plan provides that an award agreement may allow an award to remain outstanding after a spin-off orchange in control of one or more wholly-owned subsidiaries of the Company. In addition, on August 28, 2014, the Board of Directors granted 127,000 sharesof restricted stock under the Spin-Off Compensation Plan. On August 10, 2015, the Second Amendment to the 2010 Plan increased the number of shares ofCompany common stock available for issuance by 450,000 shares. On September 30, 2015, we completed the Share Distribution. Each holder of an outstanding Capital Southwest Restricted Stock Award immediatelyprior to the Share Distribution received, as of the effective date of the Share Distribution, a CSWI Restricted Stock Award for the number of CSWI Shares theholder would have received if the outstanding Capital Southwest Restricted Stock Award was comprised of fully vested Capital Southwest Shares as of theeffective date.The vesting terms for restricted stock awards previously granted under the Spin-off Compensation Plan are as follows: (1) one-third on December 29,2015; (2) one-third on December 29, 2016; and (3) one-third on December 29, 2017, subject to accelerated vesting as described above. As of March 31, 2019,there is no remaining unrecognized expense related to the Spin-off Compensation Plan. On August 22, 2017, we received the Exemptive Order from the SEC that supersedes the Original Order and, in addition to the relief granted underthe Original Order, allows the Company to withhold shares to satisfy tax withholding obligations related to the vesting of restricted stock granted pursuant tothe 2010 Plan. The Third Amendment to the 2010 Plan, which became effective on August 22, 2017, reflects amendments relating to the Exemptive Order.On August 2, 2018, the Fourth Amendment to the 2010 Plan increased the number of shares of Company common stock available for issuance by850,000 shares. The Fourth Amendment also includes revisions regarding change in control provisions, minimum vesting periods, incorporation of aclawback policy and other technical revisions. The following table summarizes the restricted stock available for issuance for the year ended March 31, 2019:101Table of Contents Restricted stock available for issuance as of March 31, 20189,777Additional restricted stock approved under the plan850,000Restricted stock granted during the year ended March 31, 2019(204,400)Restricted stock forfeited during the year ended March 31, 20192,250Restricted stock available for issuance as of March 31, 2019657,627 We expense the cost of the restricted stock awards, which is determined to equal the fair value of the restricted stock award at the date of grant, on astraight-line basis over the requisite service period. For these purposes, the fair value of the restricted stock award is determined based upon the closing priceof our common stock on the date of the grant. Due to the Share Distribution, for awards issued prior to the Share Distribution, the Company evaluated (1) thevalue of the CSWC stock awards prior to the Share Distribution and (2) the combined value of CSWC and CSWI stock awards following the ShareDistribution and recorded additional incremental stock based compensation expenses. For the fiscal years ended March 31, 2019, 2018, and 2017, we recognized total share based compensation expense of $2.2 million, $1.7 million and$1.0 million, respectively, related to the restricted stock issued to our employees and officers. As of March 31, 2019, the total remaining unrecognized compensation expense related to non-vested restricted stock awards was $6.8 million,which will be amortized over the weighted-average vesting period of approximately 2.8 years. Subsequent to the Share Distribution, the compensationexpense related to non-vested awards held by employees who are now employed by CSWI is recorded by CSWI.The following table summarizes the restricted stock outstanding as of March 31, 2019: Weighted Average Weighted Average Fair Value Per Remaining VestingRestricted Stock AwardsNumber of Shares Share at grant date Term (in Years)Unvested at March 31, 2017294,043 $14.99 3.1Granted185,725 16.79 3.6Vested(102,605) 15.25 —Forfeited(5,000) 14.48 —Unvested at March 31, 2018372,163 $15.82 2.9Granted204,400 19.19 3.6Vested(120,286) 15.86 —Forfeited(2,250) 15.60 —Unvested at March 31, 2019454,027 $17.33 2.8 Stock Options On July 20, 2009, shareholders approved our 2009 Plan, which provides for the granting of stock options to employees and officers and authorizesthe issuance of common stock upon exercise of stock options for up to 560,000 shares. All options are granted at or above market price, generally expire upto 10 years from the date of grant and are generally exercisable on or after the first anniversary of the date of grant in five annual installments. On August 28, 2014, our Board of Directors amended the 2009 Plan, as permitted pursuant to Section 18 of the 2009 Plan (the “First Amendment tothe 2009 Plan”). The First Amendment to the 2009 Plan provides that an award agreement may allow an award to remain outstanding after a spin-off orchange in control of one or more wholly-owned subsidiaries of the Company. In addition, on August 28, 2014, options to purchase 259,000 shares at $36.60per share were granted under the 2009 Plan, as amended. On September 8, 2015, the Board designated the Share Distribution as a transformative transactionfor purposes of the 2009 Plan and amended the award agreements granted under the 2009 Plan to provide for accelerated vesting of the awards held by aparticipant in the event of a termination of that participant’s service effected by the executive for good reason, by the employer without cause, or as a result ofthe disability or death of the participant. A third of these options were vested on each of December 29, 2015, December 29, 2016, and December 29, 2017,respectively, subject to accelerated vesting as described above. 102Table of ContentsOn August 22, 2017, we received the Exemptive Order from the SEC that supersedes the Original Order and, in addition to the relief granted underthe Original Order, allows us to withhold shares of our common stock to satisfy the exercise of options to purchase shares of our common stock grantedpursuant to the 2009 Plan. At March 31, 2019, there are no options to acquire shares of common stock outstanding. At this time, the Compensation Committee does not intendto grant additional options under the 2009 Stock Incentive Plan or request shareholders’ approval of additional stock options to be added under the 2009Stock Incentive Plan. At September 30, 2015, in connection with the Share Distribution, we entered into the Employee Matters Agreement, which provided that eachoption to acquire CSWC common stock that was outstanding immediately prior to September 30, 2015, would be converted into both an option to acquirepost-Share Distribution CSWC common stock and an option to acquire CSWI common stock and would be subject to substantially the same terms andconditions (including with respect to vesting and expiration) after the Share Distribution. Certain adjustments, using volumetric weighted-average prices forthe 10-day period immediately prior to and immediately following the distribution, were made to the exercise price and number of shares of CSWC subject tosuch awards, with the intention of preserving the economic value of the awards immediately prior to the distribution for all CSWC employees. We comparedthe fair market value of our stock options on the day of the Share Distribution with the combined fair value of our stock options and CSWI stock options theday after the completion of the Share Distribution. The distribution-related adjustments did not have an impact on compensation expense for the years endedMarch 31, 2019, 2018 and 2017. The following table summarizes activity in the 2009 Plan as of March 31, 2019, including adjustments in connection with the Share Distribution: Weighted Average Aggregate Exercise Intrinsic Number of Shares Price Value2009 Plan Balance at March 31, 2016362,513 $ 11.21* Granted— — Exercised(131,252) 11.48 $479,177Canceled/Forfeited(24,897) 10.56 Balance at March 31, 2017206,364 11.12 Granted— — Exercised(10,756) 11.66 $58,081Canceled/Forfeited— — Balance at March 31, 2018195,608 11.09 Granted— — Exercised(195,608) 11.09 $1,563,905Canceled/Forfeited— — Balance at March 31, 2019— $— * Certain adjustments were made to the exercise price and number of shares of Capital Southwest awards using volumetric weighted-average prices for the 10-day periodimmediately prior to and immediately following the Share Distribution with the intention of preserving the economic value of the awards immediately prior to the Share Distributionfor all Capital Southwest employees. We recognize compensation cost using the straight-line method for all share-based payments. The fair value of stock options is determined on thedate of grant using the Black-Scholes pricing model and is expensed over the requisite service period of the related stock options. Accordingly, for the yearsended March 31, 2019, 2018 and 2017, we recognized stock option compensation expense of $38.7 thousand, $154.6 thousand, and $197.9 thousand,respectively, related to the stock options held by our employees and officers. As of March 31, 2019, there is no remaining unrecognized compensationexpense related to stock options. At March 31, 2019, there are no remaining options outstanding. During the year ended March 31, 2019, no options were granted, 11,750 optionsvested with a total fair value of approximately $0.1 million and 195,608 options were exercised with an average exercise price of $11.09. 103Table of ContentsAt March 31, 2018, the range of exercise prices was $7.55 to $11.66 and the weighted-average remaining contractual life of outstanding options was5.6 years. The total number of options exercisable under both the 2009 Plan and the 1999 Plan at March 31, 2018, was 183,658 shares with a weighted-average exercise price of $11.07. During the year ended March 31, 2018, no options were granted, 69,272 options vested with a total fair value ofapproximately $0.4 million and 10,756 options were exercised with an average exercise price of $11.66. Individual Incentive Awards On January 16, 2012, our Board of Directors approved the issuance of 104,000 individual cash incentive awards with a baseline for measuringincreases in NAV per share of $36.74 (NAV at December 31, 2011) to provide deferred compensation to certain key employees. Under the individual cashincentive award agreements, awards vest on the fifth anniversary of the award date. Upon exercise of an individual cash incentive award, the Company paysthe recipient a cash payment in an amount equal to the net asset value per share minus the baseline net asset value per share, adjusted for capital gaindividends declared. In connection with the Share Distribution, we entered into the Employee Matters Agreement with CSWI. Under the Employee Matters Agreement,the individual cash incentive award agreements were amended to provide that the value of each individual cash incentive award is determined based uponthe NAV of CSWC as of June 30, 2015. The remaining terms of each individual incentive award agreement, including the vesting and payment terms, willremain unchanged. After the effective date of the Share Distribution, CSWC retains all liabilities associated with all individual cash incentive awards grantedby CSWC. There are currently no individual cash incentive awards outstanding as of March 31, 2019 and no remaining liability for individual cash incentiveawards at March 31, 2019. During the year ended March 31, 2019, payments in the amount of $0.3 million were made to vested employees. During the yearended March 31, 2018, no payments were made. The estimated liability for individual cash incentive awards was $0.3 million at March 31, 2018. There were no individual cash incentive awards granted during the year ended March 31, 2019. The Compensation Committee does not intend togrant additional individual cash incentive awards in the future. Weighted Average Weighted Remaining Number of Average Grant Vesting TermIndividual Cash Incentive AwardsShares Price Per Share (in Years)Unvested at March 31, 201848,000 $47.03 0.6Granted— — —Vested(48,000) 47.03 —Forfeited or expired— — —Unvested at March 31, 2019— $— —10. OTHER EMPLOYEE COMPENSATION We established a 401(k) plan (“401K Plan”) effective October 1, 2015. All full-time employees are eligible to participate in the 401K Plan. The401K Plan permits employees to defer a portion of their total annual compensation up to the Internal Revenue Service annual maximum based on age andeligibility. We made contributions to the 401K Plan of up to 4.5% of the Internal Revenue Service’s annual maximum eligible compensation, all of which isfully vested immediately. During each of the years ended March 31, 2019, 2018 and 2017, we made matching contributions of approximately $0.1 million. 104Table of Contents11. RETIREMENT PLANS Until the Share Distribution, CSWC sponsored a qualified defined benefit pension plan which covered its employees and employees of certain of itscontrolled affiliates. In connection with the Share Distribution, we entered into an Employee Matters Agreement with CSWI on September 8, 2015, which wasamended and restated on September 14, 2015. Under the Employee Matters Agreement, CSWC and CSMC withdrew as participating employers in the Planand CSWI became the Sponsoring Employer of the Qualifed Retirement Plan and assumed all the liabilities, assets and future funding obligations forproviding benefits for the covered Participants in the Qualified Retirement Plan.Additionally, CSWC sponsors an unfunded Retirement Restoration Plan, which is a nonqualified plan that provides for the payment, uponretirement, of the difference between the maximum annual payment permissible under the qualified retirement plan pursuant to federal limitations and theamount which would otherwise have been payable under the qualified plan. The Company retained all liabilities associated with benefits accrued under theRestoration Plan on behalf of individuals who remain employees of the Company or CSMC following September 30, 2015 or who terminated employmentprior to September 30, 2015 with vested benefits under the Restoration Plan. Unvested accrued benefits under the Restoration Plan were forfeited as ofSeptember 30, 2015. The Restoration Plan is a frozen plan under which no new service cost is being accrued by plan participants. The following tables set forth the retirement restoration plan’s net pension benefit and benefit obligation amounts at March 31, 2019, 2018 and2017, as well as amounts recognized in our consolidated statements of assets and liabilities at March 31, 2019 and 2018 (amounts in thousands): Years ended March 31, 2019 2018 2017Net pension cost Interest cost on projected benefit obligation$113 $116 $125Net amortization46 48 47Net pension cost from restoration plan$159 $164 $172 Years ended March 31, 2019 2018 2017Change in benefit obligation Benefit obligation at beginning of year$2,937 $3,020 $3,061Interest cost113 116 125Actuarial loss232 11 41Benefits paid(209) (210) (207)Benefit obligation at end of year$3,073 $2,937 $3,020 Years ended March 31, 2019 2018Amounts recognized in our Consolidated Statements of Assets and Liabilities Projected benefit obligation$(3,073) $(2,937)Net actuarial loss recognized as a component of equity1,000 813Total$(2,073) $(2,124) Accumulated benefit obligation$(3,073) $(2,937) The estimated net actuarial loss that will be amortized from equity into net pension cost during 2020 is approximately $31.0 thousand.The following assumptions were used in estimating the actuarial present value of the projected benefit obligations: Years ended March 31, 2019 2018 2017Discount rate3.75% 4.00% 4.00% 105Table of ContentsThe following assumptions were used in estimating the net periodic (income)/expense: Years ended March 31, 2019 2018 2017Discount rate4.00% 4.00% 4.00% Following are the expected benefit payments for the next five years and in the aggregate for the years 2025-2029 (amounts in thousands): 2020 2021 2022 2023 2024 2025-2029Restoration Plan$223 $238 $242 $238 $235 $1,096 12. COMMITMENTS AND CONTINGENCIES Commitments In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk, consisting primarily of unusedcommitments to extend financing to the Company’s portfolio companies. Since commitments may expire without being drawn upon, the total commitmentamount does not necessarily represent future cash requirements. March 31, March 31, 2019 2018Portfolio CompanyInvestment Type (amounts in thousands)I-45 SLF LLCEquity Investment $— $3,200Adams Publishing Group, LLCDelayed Draw Term Loan 1,731 —American Nuts Operations LLCTerm Loan C 438 —ASC Ortho Management Company, LLCRevolving Loan 1,500 —Clickbooth.com, LLCRevolving Loan 2,000 2,000Danforth Advisors, LLCRevolving Loan 1,000 —Dynamic Communities, LLCRevolving Loan 500 —Environmental Pest Service Management Company, LLCDelayed Draw Term Loan 525 —Fast Sandwich, LLCRevolving Loan 4,150 —ITA Holdings Group, LLCRevolving Loan 1,000 2,000JVMC Holdings Corp.Delayed Draw Term Loan 848 —LGM Pharma, LLCDelayed Draw Term Loan — 900Prism Spectrum Holdings LLCRevolving Loan — 1,500Roseland Management, LLCRevolving Loan 2,000 —Zenfolio Inc.Revolving Loan 2,000 2,000Total unused commitments to extend financing $17,692 $11,600As of March 31, 2019, total revolving and delayed draw loan commitments included commitments to issue letters of credit through a financialintermediary on behalf of certain portfolio companies. As of March 31, 2019, the Company had $3.4 million in letters of credit issued and outstanding underthese commitments on behalf of portfolio companies. For all of these letters of credit issued and outstanding, the Company would be required to makepayments to third parties if the portfolio companies were to default on their related payment obligations. Of these letters of credit, $3.4 million expire in May2020. As of March 31, 2019, none of the letters of credit issued and outstanding were recorded as a liability on the Company's balance sheet as such letters ofcredit are considered in the valuation of the investments in the portfolio company.We lease office space under an operating lease which requires annual base rentals of approximately $250 thousand. For each of the three years endedMarch 31, 2019, total rental expense was $233 thousand, and the rent commitments for the next five years as of March 31, 2019 are as follows (amounts inthousands): 106Table of ContentsYear ending March 31, Rent Commitment2020$257202126620222482023—2024—Thereafter—Total$771 Contingencies We may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise. Furthermore, thirdparties may try to seek to impose liability on us in connection with the activities of our portfolio companies. We have no currently pending material legalproceedings to which we are part or to which any of our assets is subject. 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following presents a summary of the unaudited quarterly consolidated financial information for the years ended March 31, 2019 and 2018 (inthousands except per share amounts): First Second Third Fourth 2019Quarter Quarter Quarter Quarter TotalNet investment income$4,617 $5,546 $6,675 $6,872 $23,710Net realized gain on investments18,819 94 1,883 58 20,854Net change in unrealized appreciation on investments, net of tax(11,783) 948 (4,238) 3,567 (11,506)Net increase in net assets from operations11,653 6,588 4,320 10,497 33,058Net investment income per share0.29 0.34 0.39 0.40 1.42Net increase in net assets from operations per share0.72 0.40 0.25 0.61 1.98 First Second Third Fourth 2018Quarter Quarter Quarter Quarter TotalNet investment income$3,436 $3,937 $4,663 $4,197 $16,233Net realized gain on investments624 210 617 131 1,582Net change in unrealized appreciation on investments, net of tax1,384 4,496 4,963 10,649 21,492Net increase in net assets from operations5,444 8,643 10,243 14,977 39,307Net investment income per share0.21 0.25 0.29 0.26 1.01Net increase in net assets from operations per share0.34 0.54 0.64 0.93 2.4514. RELATED PARTY TRANSACTIONS As a BDC, we are obligated under the 1940 Act to make available to our portfolio companies significant managerial assistance. “Making availablesignificant managerial assistance” refers to any arrangement whereby we provide significant guidance and counsel concerning the management, operations,or business objectives and policies of a portfolio company. We are also deemed to be providing managerial assistance to all portfolio companies that wecontrol, either by ourselves or in conjunction with others. The nature and extent of significant managerial assistance provided by us will vary according tothe particular needs of each portfolio company. During the years ended March 31, 2019 and 2018, we received management and other fees from certain of ourportfolio companies totaling $0.3 million and $0.4 million, respectively, which were recognized as fees and other income on the Consolidated Statements ofOperations. Additionally, as of March 31, 2019 and 2018, we had dividends receivable from I-45 SLF LLC of $2.5 million and $2.2 million, respectively,which were included in dividends and interest receivables on the Consolidated Statements of Assets and Liabilities. 107Table of Contents15. SUBSEQUENT EVENTS On May 23, 2019, the Company entered into an Incremental Assumption Agreement, which increased the total commitments under the CreditFacility, by $25 million. The increase was executed under the accordion feature of the Credit Facility and increased total commitments from $270 million to$295 million.On May 30, 2019, the Company’s Board of Directors declared a total dividend of $0.49 per share, comprised of a regular dividend of $0.39 and asupplemental dividend of $0.10, for the quarter ended June 30, 2019. The record date for the dividend is June 14, 2019. The payment date for the dividend isJune 28, 2019.108Table of Contents16. SELECTED PER SHARE DATA AND RATIOS The following presents a summary of the selected per share data for the years ended March 31, 2015 through 2019 (in thousands except per shareamounts): Years Ended March 31, Per Share Data:2019 2018 2017 2016 2015Investment income1$3.10 $2.18 $1.48 $0.58 $0.64Operating expenses1(1.62) (1.16) (0.87) (1.34) (0.78)Income taxes1(0.06) (0.01) (0.11) 0.08 (0.02)Net investment income (loss)11.42 1.01 0.50 (0.68) (0.16)Net realized gain (loss)11.24 0.10 0.50 (0.88) 7.06Net change in unrealized appreciation on investments1(0.68) 1.34 0.49 1.02 (6.96)Total increase (decrease) from investment operations1.98 2.45 1.49 (0.54) (0.06)Dividends to shareholders(2.27) (0.99) (0.79) (0.14) (0.20)Distribution from additional capital for spin-off— — — (1.67) —Spin-off Compensation Plan distribution, net of tax— (0.03) (0.08) (0.08) —Decrease in unrealized appreciation due to distributions to CSWI— — — (29.15) —Exercise of employee stock options2(0.12) 0.01 (0.09) 0.03 (0.04)Forfeiture (issuance) of restricted stock3(0.23) (0.18) (0.15) (0.49) (0.40)Accretive (dilutive) effect of share issuances and repurchases0.06 (0.04) — — —Share based compensation expense0.13 0.11 0.08 0.08 0.07Common stock withheld for payroll taxes upon vesting of restrictedstock(0.01) (0.01) — — —Net change in pension plan funded status(0.01) (0.05) — — (0.05)Other40.01 0.01 — — —Increase (decrease) in net asset value(0.46) 1.28 0.46 (31.96) (0.68)Net asset value Beginning of year19.08 17.80 17.34 49.30 49.98End of year$18.62 $19.08 $17.80 $17.34 $49.30Ratios and Supplemental Data Ratio of operating expenses to average net assets58.61% 6.35% 4.95% 4.48 % 1.59 %Ratio of net investment income to average net assets7.53% 5.51% 2.83% (2.27)% (0.32)%Portfolio turnover23.38% 25.42% 23.57% 4.20 % 0.93 %Total investment return638.34% 6.61% 27.88% (20.71)% 8.40 %Total return based on change in NAV79.49% 12.75% 7.21% (2.15)% (0.96)%Per share market value at end of year$21.04 $17.02 $16.91 $13.87 $46.42Weighted-average basic shares outstanding16,727 16,074 15,825 15,636 15,492Weighted-average fully diluted shares outstanding16,734 16,139 15,877 15,724 15,531Common shares outstanding at end of year17,503 16,162 16,011 15,726 15,5651 Based on weighted-average basic shares outstanding for the period.2 Net decrease is due to the exercise of employee stock options at prices less than beginning of period net asset value.3 Reflects impact of the different share amounts as a result of issuance or forfeiture of restricted stock during the period.4 Includes the impact of the different share amounts as a result of calculating certain per share data based on the weighted-average basic shares outstanding during theperiod and certain per share data based on the shares outstanding as of a period end.5 Amounts for fiscal 2015 are based on average net assets prior to the Share Distribution.6 Total investment return based on purchase of stock at the current market price on the first day and a sale at the current market price on the last day of each period reportedon the table and assumes reinvestment of dividends at prices obtained by CSWC’s DRIP during the period. The return does not reflect any sales load that may be paid byan investor.109Table of Contents7 Total return based on change in NAV was calculated using the sum of ending NAV plus dividends to shareholders and other non-operating changes during the period, asdivided by the beginning NAV. 110Table of Contents17. SIGNIFICANT SUBSIDIARIES Media Recovery Inc. Media Recovery, Inc., dba SpotSee Holdings, through its subsidiary ShockWatch, provides solutions that currently enable over 3,000 customers andsome 200 partners in 62 countries to detect mishandling that causes product damage and spoilage during transport and storage. The ShockWatch productportfolio includes impact, tilt, temperature, vibration, and humidity detection systems and is widely used in the energy, transportation, aerospace, defense,food, pharmaceutical, medical device, consumer goods and manufacturing sectors. At March 31, 2019 and 2018, our investment in Media Recovery, Inc. exceeded the 10% threshold in at least one of the tests under Rule 4-08(g) ofRegulation S-X. At March 31, 2019 and 2018, our investment in Media Recovery, Inc. did not exceed the 20% threshold in at least one of the tests underRule 3-09 of Regulation S-X. However, at March 31, 2017, our investment in Media Recovery, Inc. exceeded the 10% and 20% thresholds in at least one ofthe tests under Rule 3-09 of Regulation S-X. Accordingly, we amended our Annual Report on Form 10-K for the fiscal year ended March 31, 2017 and March31, 2018 to include the financial statements of Media Recovery, Inc. in December 2017 and 2018, respectively, within 90 days of Media Recovery, Inc.'sfiscal year end. We will amend this Annual Report on Form 10-K to include the financial statements of Media Recovery, Inc. to the extent required. Below is certain selected key financial data from Media Recovery, Inc.'s Balance Sheet at March 31, 2019 and 2018 and the twelve months endedMarch 31, 2019, 2018 and 2017 Income Statement (amounts in thousands). March 31, 2019 March 31, 2018Current Assets$8,489 $8,391Non-Current Assets23,527 24,727Current Liabilities3,089 2,559Non-Current Liabilities1,627 2,228 Twelve Months Ended March 31, 2019 2018 2017Revenue$22,346 $22,242 $19,571Income from continuing operations2,124 2,673 1,100Net income2,124 2,673 1,100 I-45 SLF LLC In September 2015, we entered into an LLC agreement with Main Street Capital to form I-45 SLF LLC. I-45 SLF LLC began investing in UMMsyndicated senior secured loans during the quarter ended December 31, 2015. The initial equity capital commitment to I-45 SLF LLC totaled $85.0 million,consisting of $68.0 million from CSWC and $17.0 million from Main Street Capital, all of which was funded as of March 31, 2019. CSWC owns 80% of I-45SLF LLC and has a profits interest of 75.6%, while Main Street Capital owns 20% and has a profits interest of 24.4%. I-45 SLF LLC’s Board of Managersmake all investment and operational decisions for the fund, and consists of equal representation from CSWC and Main Street Capital. As of March 31, 2019 and 2018, I-45 SLF LLC had total assets of $246.5 million and $233.4 million, respectively. I-45 SLF LLC had approximately$237.5 million and $220.8 million of credit investments at fair value as of March 31, 2019 and 2018, respectively. The portfolio companies in I-45 SLF LLCare in industries similar to those in which CSWC may invest directly. As of March 31, 2019 and 2018, approximately $0.9 million and $3.2 million,respectively, of the credit investments were unsettled trades. For the years ended March 31, 2019 and 2018, I-45 SLF LLC declared total dividends of $12.4million and $11.9 million, respectively. Additionally, I-45 SLF LLC closed on a $75.0 million 5-year senior secured credit facility (the “I-45 credit facility”) in November 2015. This facilityincludes an accordion feature which will allow I-45 SLF LLC to achieve leverage of approximately 2x debt-to-equity. Borrowings under the facility aresecured by all of the assets of I-45 SLF LLC and bear interest at a rate equal to LIBOR plus 2.5% per annum. During the year ended March 31, 2018, I-45 SLFLLC increased debt commitments outstanding by an additional $90.0 million by adding three additional lenders to the syndicate, bringing total debtcommitments to $165.0111Table of Contentsmillion. In July 2017, the I-45 credit facility was amended to extend the maturity to July 2022. Additionally, the amendment reduced the interest rate onborrowings to LIBOR plus 2.4% per annum. Under the I-45 credit facility, $160.0 million has been drawn as of March 31, 2019. Below is a summary of I-45 SLF LLC’s portfolio, followed by a listing of the individual loans in I-45 SLF LLC’s portfolio as of March 31, 2019 and2018:I-45 SLF LLC Loan Portfolio as of March 31, 2019Portfolio CompanyIndustry InvestmentType Maturity Date Current InterestRate1 Principal Cost Fair Value2AAC Holdings, Inc.Healthcare services First Lien 6/30/2023 L+ 6.75%(Floor 1.00%),4.00% PIK $7,375,229 $7,253,490 $6,822,087 First Lien 3/31/2020 L+11.00% (Floor 1.00%) 949,844 940,346 959,343Allen Media, LLCMedia, marketing &entertainment First Lien 8/30/2023 L+6.50% (Floor 1.00%) 5,642,857 5,496,176 5,480,625American Scaffold Holdings,Inc.Aerospace & defense First Lien 3/31/2022 L+6.50%(Floor 1.00%) 2,625,000 2,604,634 2,611,875American TeleconferencingServices, Ltd.Telecommunications First Lien 12/8/2021 L+6.50%(Floor 1.00%) 6,881,388 6,641,473 4,515,911ATI Investment Sub, Inc.Technology products &components First Lien 6/22/2021 L+7.25%(Floor 1.00%) 1,817,558 1,795,449 1,691,420ATX Canada AcquisitioncoInc.Technology products &components First Lien 6/11/2021 L+6.00%(Floor 1.00%) 4,688,923 4,665,710 4,454,477California Pizza Kitchen, Inc.Restaurants First Lien 8/23/2022 L+6.00%(Floor 1.00%) 6,829,887 6,802,221 6,616,487Chloe Ox Parent, LLC(Censeo Health)Healthcare services First Lien 12/23/2024 L+4.50%(Floor 1.00%) 5,148,000 5,105,429 5,148,000CMN.com, LLCConsumer services First Lien 11/3/2021 L+6.00%(Floor 1.00%) 9,431,480 9,347,289 9,431,480Digital River, Inc.Software & IT services First Lien 2/12/2021 L+6.50%(Floor 1.00%) 8,002,967 7,997,848 7,802,893Geo Parent CorporationBuilding & infrastructureproducts First Lien 12/19/2025 L+5.50% 5,000,000 4,951,736 4,987,500Go Wireless Holdings, Inc.Consumer products & retail First Lien 12/31/2024 L+6.50%(Floor 1.00%) 6,562,500 6,508,367 6,439,453Hunter DefenseTechnologies, Inc.Aerospace & defense First Lien 3/29/2023 L+7.00%(Floor 1.00%) 6,256,250 6,149,119 6,256,250iEnergizer LimitedBusiness services First Lien 5/1/2019 L+6.00%(Floor 1.25%) 7,307,444 7,300,086 7,307,444Imagine! Print Solutions,LLCMedia, marketing &entertainment Second Lien 6/21/2023 L+8.75%(Floor 1.00%) 3,000,000 2,968,111 2,700,000InfoGroup Inc.Software & IT services First Lien 4/3/2023 L+5.00%(Floor 1.50%) 2,940,000 2,920,233 2,892,225112Table of ContentsPortfolio CompanyIndustry InvestmentType Maturity Date Current InterestRate1 Principal Cost Fair Value2Integro Parent Inc.Business services First Lien 10/28/2022 L+5.75%(Floor 1.00%) 4,838,924 4,746,329 4,838,924Intermedia Holdings, Inc.Software & IT services First Lien 7/21/2025 L+6.00%(Floor 1.00%) 3,847,499 3,812,532 3,857,137Isagenix International, LLCHealthcare products First Lien 6/16/2025 L+5.75% (Floor 1.00%) 2,062,501 2,044,219 1,851,095JAB Wireless, Inc.Telecommunications First Lien 5/2/2023 L+8.00% (Floor 1.00%) 7,920,000 7,855,060 7,920,000KORE Wireless Group Inc.Telecommunications First Lien 12/20/2024 L+5.50% 3,325,000 3,292,962 3,308,375Lift Brands, Inc.Consumer services First Lien 4/16/2023 L+7.00% (Floor 1.00%) 4,950,000 4,898,080 4,742,100LOGIX HoldingsCompany, LLCTelecommunications First Lien 12/23/2024 L+5.75% (Floor 1.00%) 6,016,500 5,972,674 6,061,624LSF9 Atlantis Holdings,LLCTelecommunications First Lien 5/1/2023 L+6.00% (Floor 1.00%) 6,693,750 6,647,863 6,246,106Lulu's Fashion Lounge,LLCConsumer products &retail First Lien 8/26/2022 L+7.00% (Floor 1.00%) 4,034,090 3,940,388 3,913,068Mills Fleet Farm GroupLLCConsumer products &retail First Lien 10/24/2024 L+6.25%(Floor 1.00%) 4,987,500 4,894,986 4,987,500NBG Acquisition, Inc.Wholesale First Lien 4/26/2024 L+5.50% (Floor 1.00%) 2,887,500 2,845,678 2,844,188New Era Technology, Inc.3Software & IT services First Lien 6/22/2023 L+6.50% (Floor 1.00%) 4,407,251 4,336,247 4,349,076 Delayed DrawTerm Loan 6/22/2023 L+6.50% (Floor 1.00%) 221,013 221,551 218,095New Media Holdings IILLCMedia, marketing &entertainment First Lien 7/14/2022 L+6.25% (Floor 1.00%) 9,311,991 9,298,489 9,277,071Nomad Buyer, Inc.Healthcare services First Lien 8/1/2025 L+5.00% 2,985,000 2,821,449 2,906,644Novetta Solutions, LLCSoftware & IT services First Lien 10/17/2022 L+5.00% (Floor 1.00%) 4,946,868 4,830,392 4,857,206Peraton Corp. (fka MHVCAcquisition Corp.)Aerospace & defense First Lien 4/29/2024 L+5.25% (Floor 1.00%) 6,394,363 6,369,724 6,170,560Pet Supermarket, Inc.Consumer products &retail First Lien 7/5/2022 L+5.50% (Floor 1.00%) 4,859,916 4,833,425 4,762,717PT Network, LLC4Healthcare products First Lien 11/30/2021 L+5.50% (Floor 1.00%) 4,369,332 4,369,332 4,125,086STL Parent Corp.(American Railcar)Transportation & logistics First Lien 12/5/2022 L+7.00% 3,975,000 3,846,305 3,855,750Tacala, LLCConsumer products &retail Second Lien 1/30/2026 L+7.00% 3,000,000 2,986,989 2,994,750Teleguam Holdings, LLCTelecommunications Second Lien 7/25/2024 L+8.50% (Floor 1.00%) 2,000,000 1,969,537 2,012,500113Table of ContentsPortfolio CompanyIndustry InvestmentType Maturity Date Current InterestRate1 Principal Cost Fair Value2Terra MillenniumCorporationIndustrial products First Lien 10/31/2022 L+6.75% (Floor 1.00%) 7,526,019 7,478,308 7,488,389TestEquity, LLCCapital equipment First Lien 4/28/2022 L+5.50% (Floor 1.00%) 4,803,961 4,773,980 4,765,530TGP Holdings III LLCDurable consumer goods Second Lien 9/25/2025 L+8.50% (Floor 1.00%) 2,500,000 2,469,503 2,400,000The Hoover Group, Inc.Energy services(midstream) First Lien 1/28/2021 L+7.25% (Floor 1.00%) 6,436,593 6,335,553 6,243,495Time ManufacturingAcquisitionCapital equipment First Lien 2/3/2023 L+5.00% (Floor 1.00%) 4,910,038 4,879,401 4,928,450Turning Point Brands, Inc.Consumer products &retail Second Lien 3/7/2024 L+7.00% 3,000,000 2,973,482 3,030,000UniTek Global Services,Inc.Telecommunications First Lien 8/20/2024 L+5.50%(Floor 1.00%) 2,985,000 2,959,958 2,958,135U.S. TelePacific Corp.Telecommunications First Lien 5/2/2023 L+5.00% (Floor 1.00%) 6,844,420 6,777,409 6,660,510VIP Cinema Holdings, Inc.Hotel, gaming & leisure First Lien 3/1/2023 L+6.00% (Floor 1.00%) 4,500,000 4,485,268 4,207,500Wireless Vision Holdings,LLC4Telecommunications First Lien 9/29/2022 L+8.50% (Floor 1.00%), 1.00% PIK 7,865,229 7,753,144 7,778,711YS Garments, LLCConsumer products &retail First Lien 8/9/2024 L+6.00% (Floor 1.00%) 4,937,500 4,893,176 4,869,609Total Investments $242,061,110 $237,547,3711 Represents the interest rate as of March 31, 2019. All interest rates are payable in cash, unless otherwise noted. The majority of investments bear interest at a rate that maybe determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“Prime”) which reset daily, monthly, quarterly, or semiannually. For each theCompany has provided the spread over LIBOR or Prime in effect at March 31, 2019. Certain investments are subject to a LIBOR or Prime interest rate floor.2 Represents the fair value determined utilizing a similar process as the Company in accordance with ASC 820. However, the determination of such fair value is determinedby the Board of Managers of the Joint Venture. It is not included in the Company’s Board of Directors’ valuation process described elsewhere herein.3 The investment has approximately $0.3 million in an unfunded delayed draw commitment as of March 31, 2019.4 The investment is structured as a first lien last out term loan and may earn interest in addition to the stated rate.114Table of ContentsI-45 SLF LLC Loan Portfolio as of March 31, 2018 Current Investment Maturity Interest Portfolio Company Industry Type Date Rate1 Principal Cost Fair Value2AAC Holdings, Inc. Healthcare services First Lien 6/30/2023 L+ 6.75%(Floor 1.00%) $7,568,046 $7,413,688 $7,700,487American Scaffold Holdings,Inc. Aerospace & defense First Lien 3/31/2022 L+6.50%(Floor 1.00%) 2,775,000 2,746,293 2,761,125American TeleconferencingServices, Ltd. Telecommunications First Lien 12/8/2021 L+6.50% (Floor 1.00%) 7,287,370 6,938,866 7,285,548Ansira Holdings, Inc.3 Business services First Lien 12/20/2022 L+6.50%(Floor 1.00%) 3,878,182 3,847,470 3,868,486 Delayed Draw 12/20/2022 L+6.50%(Floor 1.00%) 315,316 310,799 314,527ATI Investment Sub, Inc. Technology products &components First Lien 6/22/2021 L+7.25%(Floor 1.00%) 3,557,227 3,503,722 3,552,781ATX Canada AcquisitioncoInc. Technology products &components First Lien 6/11/2021 L+6.00% (Floor 1.00%) 4,836,742 4,801,504 4,498,170Beaver-Visitec InternationalHoldings, Inc. Healthcare products First Lien 8/21/2023 L+5.00%(Floor 1.00%) 4,925,000 4,886,584 4,949,625California Pizza Kitchen, Inc. Restaurants First Lien 8/23/2022 L+6.00%(Floor 1.00%) 6,899,937 6,863,761 6,775,739Chloe Ox Parent, LLC(Censeo Health) Healthcare services First Lien 12/31/2024 L+5.00% (Floor 1.00%) 5,200,000 5,149,500 5,265,000CMN.com, LLC Consumer services First Lien 11/3/2021 L+6.00%(Floor 1.00%) 8,742,126 8,645,306 8,742,126Digital River, Inc. Software & IT services First Lien 2/12/2021 L+6.50% (Floor 1.00%) 8,002,967 7,995,112 8,002,967Go Wireless Holdings, Inc. Retail First Lien 12/31/2024 L+6.50%(Floor 1.00%) 6,912,500 6,845,573 6,903,859Highline AftermarketAcquisition, LLC Automobile First Lien 3/17/2024 L+4.25% (Floor 1.00%) 2,856,595 2,844,340 2,860,166Hunter DefenseTechnologies, Inc. Aerospace & defense First Lien 3/29/2023 L+7.00%(Floor 1.00%) 6,500,000 6,370,152 6,370,152iEnergizer Limited Business services First Lien 5/1/2019 L+6.00%(Floor 1.25%) 6,550,375 6,421,048 6,558,563Imagine! Print Solutions,LLC Media, marketing &entertainment Second Lien 6/21/2023 L+8.75% (Floor 1.00%) 3,000,000 2,960,563 2,760,000InfoGroup Inc. Software & IT services First Lien 4/3/2023 L+5.00%(Floor 1.50%) 2,970,000 2,945,028 2,957,021Integro Parent Inc. Business services First Lien 10/31/2022 L+5.75% (Floor 1.00%) 4,888,924 4,768,810 4,888,924iPayment Holdings, Inc. Financial services First Lien 4/11/2023 L+5.00% (Floor 1.50%) 4,987,500 4,987,500 5,049,844115Table of ContentsKeyPoint GovernmentSolutions, Inc. Business services First Lien 4/18/2024 L+6.00%(Floor 1.00%) 4,750,000 4,708,981 4,750,000LOGIX HoldingsCompany, LLC Telecommunications First Lien 12/22/2024 L+5.75%(Floor 1.00%) 4,528,716 4,484,992 4,551,360LSF9 Atlantis Holdings,LLC Telecommunications First Lien 5/1/2023 L+6.00%(Floor 1.00%) 6,868,750 6,810,137 6,854,429Lulu's Fashion Lounge,LLC Consumer products &retail First Lien 8/23/2022 L+7.00%(Floor 1.00%) 4,374,999 4,254,636 4,506,249NBG Acquisition, Inc. Wholesale First Lien 4/26/2024 L+5.50%(Floor 1.00%) 2,962,500 2,911,071 2,973,609New Media Holdings IILLC Media, marketing &entertainment First Lien 7/14/2022 L+6.25% (Floor 1.00%) 8,822,598 8,799,522 8,880,518Peraton Corp. (fka MHVCAcquisition Corp.) Aerospace & defense First Lien 4/29/2024 L+5.25%(Floor 1.00%) 4,960,013 4,938,405 5,022,013Pet Supermarket, Inc. Consumer products &retail First Lien 7/5/2022 L+5.50%(Floor 1.00%) 4,925,000 4,889,928 4,900,375Polycom, Inc. Telecommunications First Lien 9/27/2023 L+5.25% (Floor 1.00%) 5,234,833 5,234,833 5,287,182Prepaid Legal Services,Inc. Consumer services First Lien 7/1/2019 L+5.25% (Floor 1.25%) 3,860,938 3,859,187 3,860,938 Second Lien 7/1/2020 L+9.00% (Floor 1.25%) 405,000 398,614 405,000PT Network, LLC4 Healthcare products First Lien 11/30/2021 L+6.50%(Floor 1.00%) 4,425,133 4,425,133 4,425,133Redwood AheadAcquisition, LLC Business services First Lien 11/2/2020 L+ 6.50% 2,811,484 2,767,547 2,829,056Solaray, LLC5 Consumer services First Lien 9/8/2023 L+6.50%(Floor 1.00%) 6,308,205 6,263,089 6,308,205 DelayedDraw 9/8/2023 L+6.50%(Floor 1.00%) 1,784,890 1,768,866 1,784,890Tacala, LLC Consumer products &retail Second Lien 1/31/2026 L+7.00% 3,000,000 2,985,089 3,063,765Teleguam Holdings , LLC Telecommunications Second Lien 4/12/2024 L+8.50%(Floor 1.00%) 2,000,000 1,963,812 2,015,000Terra MillenniumCorporation Industrial products First Lien 10/31/2022 L+6.25% (Floor 1.00%) 7,776,019 7,715,978 7,834,339TestEquity, LLC Capital equipment First Lien 4/28/2022 L+5.50%(Floor 1.00%) 4,952,674 4,911,727 4,952,674TGP Holdings III LLC6 Durable consumergoods First Lien 9/25/2024 L+5.00%(Floor 1.00%) 1,720,169 1,701,604 1,736,296 Second Lien 9/25/2025 L+8.50%(Floor 1.00%) 2,500,000 2,464,804 2,537,500Time ManufacturingAcquisition Capital equipment First Lien 2/3/2023 L+5.00% (Floor 1.00%) 4,947,519 4,908,622 4,935,150116Table of ContentsTurning Point Brands, Inc. Consumer products &retail Second Lien 3/7/2024 L+7.00% (Floor 1.00%) 3,000,000 2,970,120 3,060,000UniTek Global Services,Inc. Telecommunications First Lien 1/13/2019 L+8.50%(Floor 1.00%) 4,584,809 4,584,809 4,584,809US Joiner HoldingCompany (IMECO andRAACI) Transportation &logistics First Lien 4/16/2020 L+6.00% (Floor 1.00%) 4,459,182 4,425,102 4,436,886U.S. TelePacific Corp. Telecommunications First Lien 5/2/2023 L+5.00%(Floor 1.00%) 7,643,991 7,550,843 7,441,425VIP Cinema Holdings, Inc. Hotel, gaming & leisure First Lien 3/1/2023 L+6.00% (Floor 1.00%) 4,750,000 4,730,480 4,804,934Total Investments $218,673,550 $220,806,8451 Represents the interest rate as of March 31, 2018. All interest rates are payable in cash, unless otherwise noted. The majority of investments bear interest at a rate that maybe determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“Prime”) which reset daily, monthly, quarterly, or semiannually. For each theCompany has provided the spread over LIBOR or Prime in effect at March 31, 2018. Certain investments are subject to a LIBOR or Prime interest rate floor.2 Represents the fair value determined utilizing a similar process as the Company in accordance with ASC 820. However, the fair value is determined by the Board ofManagers of the Joint Venture. It is not included in the Company’s Board of Directors’ valuation process described elsewhere herein.3 The investment has approximately $0.3 million in an unfunded delayed draw commitment as of March 31, 2018.4 The investment has approximately $2.1 million in an unfunded delayed draw commitment as of March 31, 2018.5 The investment has approximately $0.9 million in an unfunded delayed draw commitment as of March 31, 2018.6 The investment has approximately $0.3 million in an unfunded delayed draw commitment as of March 31, 2018.117Table of ContentsAt March 31, 2019, our investment in I-45 SLF LLC exceeded the 10% threshold in at least one of the tests under Rule 4-08(g) of Regulation S-X. AtMarch 31, 2019 and 2018, our investment in I-45 SLF LLC did not exceed the 20% threshold in at least one of the tests under Rule 3-09 of Regulation S-X.However, our investment in I-45 SLF LLC did exceed the 20% threshold in at least one of the tests under Rule 3-09 of Regulation S-X as of March 31, 2017.Accordingly, we have included as an exhibit to our Annual Report on Form 10-K for the fiscal year ended March 31, 2019 the financial statements of I-45SLF LLC. Below is certain summarized financial information for I-45 SLF LLC as of March 31, 2019 and 2018 and for the years ended March 31, 2019, 2018and 2017 (amounts in thousands): March 31, 2019 March 31, 2018Selected Balance Sheet Information: Investments, at fair value (cost $242,061 and $218,674)$237,547 $220,807Cash and cash equivalents6,406 9,317Due from broker— 330Deferred financing costs1,615 2,111Interest receivable979 813Total assets$246,547 $233,378 Senior credit facility payable$160,000 $143,000Payable for unsettled transactions940 3,213Other liabilities3,606 3,119Total liabilities$164,546 $149,332Members’ equity82,001 84,046Total liabilities and net assets$246,547 $233,378 Years Ended March 31, 2019 2018 2017Selected Statement of Operations Information: Total revenues$21,397 $17,066 $12,542Total expenses8,759 6,613 4,400Net investment income12,638 10,453 8,142Net unrealized appreciation (depreciation)(6,647) (615) 3,370Net realized gains400 1,660 1,653Net increase in members’ equity resulting from operations$6,391 $11,498 $13,165118Table of ContentsSCHEDULE 12-14 Schedule of Investments in and Advances to Affiliates(In thousands) Portfolio CompanyType of Investment (1) Amount ofInterest orDividendsCredited inIncome (2) Fair Value atMarch 31,2018 Amount ofRealizedGain/(Loss) Amount ofUnrealizedGain/(Loss) GrossAdditions (3) GrossReductions (4) Fair Value atMarch 31,2019Control Investments I-45 SLF LLC80% LLC equityinterest $9,401 $67,113 $— $(4,570) $3,200 $— $65,743Prism SpectrumHoldings, LLCFirst lien 1,325 4,241 — 233 8,987 — 13,461 Revolving loan 81 490 34 — 1,476 (2,000) — 96,498.32 Class Aunits — 1,692 — — 4,847 — 6,539Media Recovery,Inc.800,000 shares SeriesA ConvertiblePreferred Stock,convertible into800,000 sharescommon stock 536 6,371 — 1,424 — — 7,795 4,000,002 sharescommon stock 2,682 36,751 — 8,214 — — 44,965TitanLiner1,189,609 sharesSeries B convertiblepreferred stock (6%PIK) 29 11,362 6,913 (8,436) 29 (9,868) — 339,277 shares SeriesA convertiblepreferred stock — 11,928 11,706 (8,724) — (14,910) —Total ControlInvestments $14,054 $139,948 $18,653 $(11,859) $18,539 $(26,778) $138,503119Table of ContentsPortfolio CompanyType of Investment (1) Amount ofInterest orDividendsCredited inIncome (2) Fair Value atMarch 31,2018 Amount ofRealizedGain/(Loss) Amount ofUnrealizedGain/(Loss) GrossAdditions (3) GrossReductions (4) Fair Value atMarch 31,2019Affiliate Investments Chandler Signs,LPSenior subordinateddebt (12.00% cash,1.00% PIK) $609 $4,376 $— $43 $61 $— $4,480 1,500,000 units ofClass A-1 commonstock — 1,934 — 3 — — 1,937DynamicCommunities,LLCFirst lien 872 — — 108 11,004 (140) 10,972 Revolving loan 2 — — 4 (4) — — 2,000,000 Preferredunits — — — 849 2,000 — 2,849Elite SEM, Inc.First lien 1,082 17,500 77 79 2,446 (20,102) — 1,443 InvestmentUnits (Preferred) 82 1,879 — (87) 716 (2,508) —ITA HoldingsGroup, LLCFirst lien - TermLoan 1,130 9,314 — (58) 75 (1,856) 7,475 First lien - Term BLoan 195 — — 67 3,800 (38) 3,829 Revolving loan 152 — — 31 3,219 (1,250) 2,000 Delayed draw termloan 171 1,470 — — 3 (1,473) — First Lien - PIK NoteA 2 — — 313 1,692 — 2,005 First Lien - PIK NoteB — — — (10) 89 — 79 Warrants — — — 1,018 539 — 1,557 9.25% Class Amembership interest — 1,500 — (577) — — 923RoselandManagement, LLCFirst lien 417 — — 172 10,328 (26) 10,474 Revolving loan 6 — — 32 (32) — — 10,000 Class A Units — — — 487 1,000 — 1,487SIMR, LLCFirst lien 796 — — 71 11,478 (146) 11,403 5,724,000 Class BCommon units — — — — 5,724 — 5,724120Table of ContentsPortfolio CompanyType of Investment (1) Amount ofInterest orDividendsCredited inIncome (2) Fair Value atMarch 31,2018 Amount ofRealizedGain/(Loss) Amount ofUnrealizedGain/(Loss) GrossAdditions (3) GrossReductions (4) Fair Value atMarch 31,2019Zenfolio Inc.First lien 1,695 13,325 — (78) 53 (135) 13,165 Revolving loan 14 — — (4) 4 — — 190 shares ofcommon stock — 1,900 — (1,354) — — 546Total AffiliateInvestments $7,225 $53,198 $77 $1,109 $54,195 $(27,674) $80,905Total Control &AffiliateInvestments $21,279 $193,146 $18,730 $(10,750) $72,734 $(54,452) $219,408This schedule should be read in conjunction with our Consolidated Financial Statements, including the Consolidated Schedules of Investments andNotes to Consolidated Financial Statements. (1)The principal amount and ownership detail as shown in the Consolidated Schedules of Investments.(2)Represents the total amount of interest or dividends credited to income for the portion of the year an investment was included in the Control or Affiliate categories, respectively.(3)Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow-on investments, accrued PIK interest, and accretion of OID.Gross additions also include movement of an existing portfolio company into this category and out of a different category.(4)Gross reductions include decreases in the cost basis of investments resulting from principal repayments or sales and the exchange of one or more existing securities for one ormore new securities. Gross reductions also include movement of an existing portfolio out of this category and into a different category.121Table of ContentsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, that are designed to providereasonable assurance that information required to be disclosed in our filings and submissions under the Exchange Act is recorded, processed, summarized andreported within the periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management,including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding the required disclosure. We completed an evaluation under the supervision and with participation of management, including the Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2019. Based upon thisevaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2019, our disclosure controls and procedures wereeffective to provide the reasonable assurance described above. We note that the design of any system of controls is based in part upon certain assumptionsabout the likelihood of future events, and there can be no assurance that any design will succeed in achieving the stated goals under all potential futureconditions. Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conductedan evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in the 2013 Internal Control — IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the framework in the2013 Internal Control — Integrated Framework, management concluded that our internal control over financial reporting was effective as of March 31, 2019.RSM US, LLP, our independent registered public accounting firm, has audited the effectiveness of the Company’s internal control over financial reporting asof March 31, 2019, as stated in its report which is included in Item 8 of Part II of this Annual Report. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting (as defined in Rule 13(a)-15(f) of the Exchange Act) during the threemonths ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. Limitations on Controls Because of its inherent limitations, management does not expect that our disclosure controls and our internal controls over financial reporting willprevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may becomeinadequate because of changes in conditions or that the degree of compliance with policies and procedures may deteriorate. Any control system, no matterhow well designed and operated, is based upon certain assumptions and can only provide reasonable, not absolute, assurance that its objectives will be met.Further, no evaluation of controls can provide absolute assurance that misstatements due to errors or fraud will not occur or that all control issues andinstances of fraud, if any within the Company, have been detected. Item 9B. Other Information None.122Table of ContentsPART III Item 10. Directors, Executive Officers and Corporate Governance The information required by this Item 10 will be contained in the definitive proxy statement relating to our 2019 annual meeting of shareholders tobe filed with the SEC no later than 120 days after the close of our fiscal year ended March 31, 2019, and is incorporated herein by reference. Item 11. Executive Compensation The information required by this Item 11 will be contained in the definitive proxy statement relating to our 2019 annual meeting of shareholders tobe filed with the SEC no later than 120 days after the close of our fiscal year ended March 31, 2019, and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters The information required by this Item 12 will be contained in the definitive proxy statement relating to our 2019 annual meeting of shareholders tobe filed with the SEC no later than 120 days after the close of our fiscal year ended March 31, 2019, and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item 13 will be contained in the definitive proxy statement relating to our 2019 annual meeting of shareholdersunder the headings of “Certain Relationships and Related Transactions” and “Corporate Governance” to be filed with the Securities and ExchangeCommission no later than 120 days after the close of our fiscal year ended March 31, 2019, and is incorporated herein by reference.Item 14. Principal Accountant Fees and Services The information required by this Item 14 will be contained in the definitive proxy statement relating to our 2019 annual meeting of shareholdersunder the heading of “Ratification and Appointment of Independent Registered Public Accounting Firm for the Year Ended March 31, 2019” to be filed withthe Securities and Exchange Commission no later than 120 days after the close of our fiscal year ended March 31, 2019, and is incorporated herein byreference.123Table of ContentsPART IV Item 15. Exhibits, Financial Statement Schedules The following documents are filed or incorporated by reference as part of this Annual Report: 1. Consolidated Financial Statements PageReports of Independent Registered Public Accounting Firm 57Consolidated Statements of Assets and Liabilities as of March 31, 2019 and 2018 60Consolidated Statements of Operations for Years Ended March 31, 2019, 2018 and 2017 61Consolidated Statements of Changes in Net Assets for Years Ended March 31, 2019, 2018 and 2017 62Consolidated Statements of Cash Flows for Years Ended March 31, 2019, 2018 and 2017 63Consolidated Schedules of Investments as of March 31, 2019 and 2018 64Notes to Consolidated Financial Statements 77 2. Consolidated Financial Statement Schedule PageSchedule of Investments in and Advances to Affiliates for the Year Ended March 31, 2019 119 3. Exhibits Exhibit No.Description2.1Distribution Agreement, dated September 8, 2015, between the Company and CSW Industrials, Inc. (incorporated by reference to Exhibit 2.1 to Form8-K (File No. 814-00061) filed on September 14, 2015). 3.1Articles of Incorporation, dated April 19, 1961, including amendments dated June 30, 1969, July 20, 1987, April 23, 2007 and July 15, 2013(incorporated by reference to Exhibit (a) to Registration Statement on Form N-2 (Reg. No. 333-220385) filed on September 8, 2017). 3.2Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Form 10-Q (File No. 814-00061) filed on November 7, 2017). 3.3Amendment to Second Amended and Restated Bylaws of Capital Southwest Corporation (Incorporated by reference to Exhibit 3.1 to Form 8-K (FileNo. 814-00061) filed April 25, 2019). 4.1Specimen of Common Stock certificate (incorporated by reference to Exhibit 4.1 to Form 10-K (File No. 811-01056) filed on June 14, 2002). 4.2Indenture, dated October 23, 2017, between the Company and U.S. Bank National Association, Trustee (incorporated by reference to Exhibit (d)(2) toRegistration Statement on Form N-2 (Reg. No. 333-220385) filed on October 23, 2017). 4.3First Supplemental Indenture, dated December 15, 2017, between the Company and U.S. Bank National Association, Trustee (incorporated byreference to Exhibit (d)(4) to Registration Statement on Form N-2 (Reg. No. 333-220385) filed on December 15, 2017). 4.4Form of 5.95% Notes due 2022 (incorporated by reference Exhibit (d)(5) to Registration Statement on Form N-2 (Reg. No. 333-220385) filed onDecember 15, 2017). 4.5Dividend Reinvestment Plan (incorporated by reference Exhibit (e) to Registration Statement on Form N-2 (Reg. No. 333-220385) filed on September8, 2017). 10.1+Capital Southwest Corporation and Its Affiliates 2009 Restoration of Retirement Income Plan as amended and restated effective January 1, 2008(incorporated by reference to Exhibit 10.3 to Form 10-K (File No. 814-00061) filed on May 29, 2009). 124Table of ContentsExhibit No.Description10.2+Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.1 to Form 10-Q (File No. 814-00061) filed onNovember 7, 2017). 10.3+Capital Southwest Corporation 1999 Stock Option Plan (incorporated by reference to Exhibit 10.10 to Form 10-K (File No. 811-01056) filed on June16, 2000). 10.4+Severance Pay Agreement with William M. Ashbaugh (incorporated by reference to Exhibit 10.1 to Form 8-K (File No. 811-01056) filed on July 19,2005). 10.5+Retirement Plan for Employees of Capital Southwest Corporation and its Affiliates as amended and restated effective April 1, 2011 (incorporated byreference to Exhibit 10.15 to Form 10-K (File No. 814-00061) filed on June 1, 2012). 10.6+Amendment One to Retirement Plan for Employees of Capital Southwest Corporation and its Affiliates as amended and restated effective April 1, 2011(incorporated by reference to Exhibit 10.16 to Form 10-K (File No. 814-00061) filed on May 31, 2013). 10.7+Amendment Four to Retirement Plan for Employees of Capital Southwest Corporation and its Affiliates as amended and restated effective April 1,2011 (incorporated by reference to Exhibit 10.1 to Form 8-K (File No. 814-00061) filed on August 6, 2015). 10.8+Joseph B. Armes Revised Offer Letter (incorporated by reference to Exhibit 99.2 to Form 8-K (File No. 814-00061) filed on May 17, 2013). 10.9+Capital Southwest Corporation 2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to Form 10-Q (File No. 814-00061) filed onAugust 5, 2011). 10.10+First Amendment to the Capital Southwest Corporation 2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to Form 10-Q (File No.814-00061) filed on November 7, 2014). 10.11+Second Amendment to the Capital Southwest Corporation 2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to Form 8-K (File No.814-00061) filed on August 12, 2015). 10.12+Third Amendment to the Capital Southwest Corporation 2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to Form 10-Q (File No.814-00061) filed on November 7, 2017). 10.13+Capital Southwest Corporation 2010 Restricted Stock Award Plan (incorporated by reference to Exhibit 10.2 to Form 10-Q (File No. 814-00061) filedon August 5, 2011). 10.14+First Amendment to the Capital Southwest Corporation 2010 Restricted Stock Award Plan (incorporated by reference to Exhibit 10.2 to Form 10-Q(File No. 814-00061) filed on November 7, 2014). 10.15+Second Amendment to the Capital Southwest Corporation 2010 Restricted Stock Award Plan (incorporated by reference to Exhibit 10.2 to Form 8-K(File No. 814-00061) filed August 12, 2015). 10.16+Third Amendment to the Capital Southwest Corporation 2010 Restricted Stock Award Plan (incorporated by reference to Exhibit 10.3 to Form 10-Q(File No. 814-00061) filed on November 7, 2017). 10.17+Capital Southwest Corporation Amended and Restated 2010 Restricted Stock Award Plan (incorporated by reference to Exhibit 99.1 to Form S-8 (FileNo. 333-227117) filed on August 30, 2018). 10.18+Form of Restricted Stock Award Agreement under the 2010 Restricted Stock Award Plan, as amended (incorporated by reference to Exhibit 10.3 toForm 10-Q (File No. 814-00061) filed on November 7, 2014). 10.19+Form of Non-Qualified Stock Option Agreement under the 2009 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.4 to Form10-Q (File No. 814-00061) filed on November 7, 2014). 10.20+Form of Cash Incentive Award Agreement (incorporated by reference to Exhibit 10.5 to Form 10-Q (File No. 814-00061) filed on November 7,2014). 10.21Tax Matters Agreement, dated September 8, 2015, between the Company and CSW Industrials, Inc. (incorporated by reference to Exhibit 10.1 to Form8-K (File No. 814-00061) filed on September 14, 2015). 10.22+Amended and Restated Employee Matters Agreement, dated September 4, 2015, between the Company and CSW Industrials, Inc. (incorporated byreference to Exhibit 10.2 to Form 8-K (File No. 814-00061) filed on September 14, 2015). 10.23+Form of Amended and Restated Non-Qualified Stock Option Agreement under the 2009 Stock Incentive Plan (CSWC Employee Form) (incorporatedby reference to Exhibit 10.3 to Form 10-Q (File No. 814-00061) filed on November 9, 2015). 125Table of ContentsExhibit No.Description 10.24+Form of Amended and Restated Non-Qualified Stock Option Agreement under the 2009 Stock Incentive Plan (CSWI Employee Form) (incorporatedby reference to Exhibit 10.4 to Form 10-Q (File No. 814-00061) filed on November 9, 2015). 10.25+Form of Amended and Restated Incentive Stock Option Agreement under the 2009 Stock Incentive Plan (CSWC Employee Form) (incorporated byreference to Exhibit 10.5 to Form 10-Q (File No. 814-00061) filed on November 9, 2015). 10.26+Form of Amended and Restated Incentive Stock Option Agreement under the 2009 Stock Incentive Plan (CSWI Employee Form) (incorporated byreference to Exhibit 10.6 to Form 10-Q (File No. 814-00061) filed on November 9, 2015). 10.27+Form of Amended and Restated Non-Qualified Stock Option Agreement (Executive Compensation Plan – CSWC Employee Form) (incorporated byreference to Exhibit 10.7 to Form 10-Q (File No. 814-00061) filed on November 9, 2015). 10.28+Form of Amended and Restated Non-Qualified Stock Option Agreement (Executive Compensation Plan – CSWI Employee Form) (incorporated byreference to Exhibit 10.8 to Form 10-Q (File No. 814-00061) filed on November 9, 2015). 10.29+Form of Restricted Stock Agreement under the 2010 Restricted Stock Award Plan (CSWC Employee Form) (incorporated by reference to Exhibit 10.9to Form 10-Q (File No. 814-00061) filed on November 9, 2015). 10.30+Form of Amended and Restated Restricted Stock Agreement under the 2010 Restricted Stock Award Plan (CSWI Employee Form) (incorporated byreference to Exhibit 10.10 to Form 10-Q (File No. 814-00061) filed on November 9, 2015). 10.31+Form of Amended and Restated Restricted Stock Award (Executive Compensation Plan – CSWC Employee Form) (incorporated by reference toExhibit 10.11 to Form 10-Q (File No. 814-00061) filed on November 9, 2015). 10.32+Form of Amended and Restated Restricted Stock Award (Executive Compensation Plan – CSWI Employee Form) (incorporated by reference toExhibit 10.12 to Form 10-Q (File No. 814-00061) filed on November 9, 2015). 10.33+Form of Amended and Restated Cash Incentive Award Agreement (Executive Compensation Plan) (incorporated by reference to Exhibit 10.13 to Form10-Q (File No. 814-00061) filed on November 9, 2015). 10.34I-45 SLF LLC Agreement dated September 9, 2015 (incorporated by reference to Exhibit 10.14 to Form 10-Q (File No. 814-00061) filed onNovember 9, 2015). 10.35Guarantee, Pledge and Security Agreement dated August 30, 2016, among the Company, the subsidiary guarantors thereto, ING Capital LLC, and eachfinancing agent and designated indebtedness holder thereto (incorporated by reference to Exhibit 10.2 to Form 8-K (File No. 814-00061) filed onSeptember 2, 2016). 10.36Amended and Restated Guarantee, Pledge and Security Agreement dated as of December 21, 2018 among Capital Southwest Corporation, asBorrower, the Subsidiary Guarantors party hereto, ING Capital LLC, as Revolving Administrative Agent for the Revolving Lenders, each FinancingAgent and Designated Indebtedness Holder party hereto and ING Capital, LLC, as Collateral Agent (incorporated by reference to Exhibit 10.2 to Form8-K (File No. 814-00061) filed on December 21, 2018). 10.37Senior Secured Revolving Credit Agreement dated August 30, 2016, among the Company, the lenders party thereto, ING Capital LLC and TexasCapital Bank, N.A. (incorporated by reference to Exhibit 10.1 to Form 8-K (File No. 814-00061) filed on September 2, 2016). 10.38Amended and Restated Senior Secured Revolving Credit Agreement dated as of December 21, 2018 among Capital Southwest Corporation, asBorrower, the Lenders party hereto, ING Capital LLC, as Administrative Agent, Arranger and Bookrunner and Texas Capital Bank, N.A., asDocumentation Agent (incorporated by reference to Exhibit 10.1 to Form 8-K (File No. 814-00061) filed on December 21, 2018). 10.39Incremental Assumption Agreement, dated August 18, 2017, among the Company, ING Capital LLC and LegacyTexas Bank (incorporated byreference to Exhibit 10.2 to Form 10-Q (File No. 814-00061) filed on November 7, 2017). 10.40Amendment No. 1 to the Senior Secured Revolving Credit Agreement, dated November 16, 2017, among the Company, the lenders party thereto, INGCapital LLC and the subsidiary guarantors thereto (incorporated by reference to Exhibit 10.1 to Form 8-K (File No. 814-00061) filed on November 17,2017). 10.41Incremental Assumption Agreement, dated April 16, 2018, among the Company, ING Capital LLC and Hitachi Capital America Corp. (incorporated byreference to Exhibit 10.1 to Form 8-K (File No. 814-00061) filed on April 17, 2018). 126Table of ContentsExhibit No.Description 10.42Incremental Assumption Agreement, dated as of May 11, 2018 among Capital Southwest Corporation, as Borrower, and ING Capital LLC, asAdministrative Agent and Increasing Lender (incorporated by reference to Exhibit 10.1 to Form 8-K (File No. 814-00061) filed on May 14, 2018). 10.43Incremental Assumption Agreement dated as of May 23, 2019 among Capital Southwest Corporation, as Borrower, ING Capital LLC, asAdministrative Agent, and Mutual of Omaha Bank, as Assuming Lender (incorporated by reference to Exhibit 10.1 to Form 8-K (File No. 814-00061)filed on May 23, 2019). 10.44Master Reimbursement Agreement, dated as of May 9, 2018, by and between Capital Southwest Corporation, as Borrower, and ING Capital LLC, asIssuer (incorporated by reference to Exhibit 10.40 to Form 10-K (File No. 814-00061) filed on June 5, 2018). 10.45Amended and Restated Administration Agreement, dated March 9, 2017, between the Company and Capital Southwest Management Corporation(incorporated by reference to Exhibit (k)(3) to Registration Statement on Form N-2 (Reg. No. 333-220385) filed on September 8, 2017). 10.46Custody Agreement, dated August 30, 2016, between the Company and U.S. Bank National Association (incorporated by reference to Exhibit (j)(1) toRegistration Statement on Form N-2 (Reg. No. 333-220385) filed on September 8, 2017). 10.47Custody Control Agreement, dated August 30, 2016, between the Company, ING Capital LLC and U.S. Bank National Association (incorporated byreference to Exhibit (j)(2) to Registration Statement on Form N-2 (Reg. No. 333-220385) filed on September 8, 2017). 10.48Document Custody Agreement, dated August 30, 2016, between the Company, ING Capital LLC and U.S. Bank National Association (incorporatedby reference to Exhibit (j)(3) to Registration Statement on Form N-2 (Reg. No. 333-220385) filed on September 8, 2017). 10.49Form of Equity Distribution Agreement (incorporated by reference to Exhibit (h)(4) to Registration Statement on Form N-2 (Reg. No- 220385) filed onMarch 4, 2019). 14Code of Ethics (incorporated by reference to Exhibit (r) to Registration Statement on Form N-2 (Reg. No- 220385) filed on September 8, 2017). 21.1*List of subsidiaries of the Company. 23.1*Consent of Independent Registered Public Accounting Firm – RSM US LLP (relating to the Company). 23.2*Consent of Independent Auditor – Grant Thornton LLP (relating to the Company). 23.3*Consent of Independent Auditor – RSM US LLP (relating to I-45 SLF LLC). 31.1*Certification of Chairman of the Board and President required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act. 31.2*Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act. 32.1*^Certification of Chairman of the Board and President required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter63 of Title 18 of the United States Code. 32.2*^Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18of the United States Code. 99.1*Audited Consolidated Financial Statements of I-45 SLF LLC as of March 31, 2019 and 2018 and for the years ended March 31, 2019, 2018 and 2017.* Filed herewith.+ Indicates management contract or compensatory plan or arrangement.^ The certifications attached as Exhibit 32.1 and 32.2 accompany this Annual Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002, and shall not be deemed “filed” by the registrant for purposes of Section 18 of the Exchange Act, and are not to be incorporated by reference into any of theregistrant’s filings under the Securities Act or the Exchange Act, whether made before or after the date of this Annual Report, irrespective of any general incorporation languagecontained in any such filing.127Table of ContentsItem 16. Form 10-K SummaryNone.128Table of ContentsSIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized. CAPITAL SOUTHWEST CORPORATION By:/s/ Bowen S. Diehl Bowen S. DiehlPresident and Chief Executive Officer Date: June 4, 2019 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears below hereby constitutes and appoints Bowen S. Diehl andMichael Sarner, and each or either of them, acting individually, as his true and lawful attorney-in-fact and agent, with full power of substitution andresubstitution, for him and in his name, place and stead, in any and all capacities to sign any and all amendments to this Annual Report, and to file the same,with all exhibits thereto and other documents in connection therewith, with the SEC, granting unto said attorney-in-fact and agent, and each of them, fullpower and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents andpurposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or any of them, or their or his substitutes,may lawfully do or cause to be done or by virtue hereof. Pursuant to the requirement of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the dates indicated: SignatureTitleDate /s/ David R. BrooksChairman of the BoardJune 4, 2019David R. Brooks /s/ Christine S. BattistDirectorJune 4, 2019Christine S. Battist /s/ Jack D. FurstDirectorJune 4, 2019Jack D. Furst /s/ T. Duane MorganDirectorJune 4, 2019T. Duane Morgan /s/ William Thomas IIIDirectorJune 4, 2019William Thomas III /s/ John H. WilsonDirectorJune 4, 2019John H. Wilson /s/ Bowen S. DiehlPresident and Chief Executive OfficerJune 4, 2019Bowen S. Diehl /s/ Michael S. SarnerChief Financial OfficerJune 4, 2019Michael S. Sarner(Chief Financial/Accounting Officer) 129Exhibit 21.1CAPITAL SOUTHWEST CORPORATIONList of SubsidiariesName of Subsidiary State of Incorporation I-45 SLF LLC DelawareMedia Recovery, Inc. NevadaCapital Southwest Management Corporation NevadaCapital Southwest Equity Investments, Inc. Delaware Exhibit 23.1 Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the Registration Statements (Nos. 333-227117, 333-207296, 333-177433, 333-177432, 333-118681) onForm S-8 of Capital Southwest Corporation and Subsidiaries (collectively, the Company) of our reports dated June 4, 2019 relating to the consolidatedfinancial statements, the financial statement schedule and the effectiveness of internal control over financial reporting of the Company, appearing in thisAnnual Report on Form 10-K of the Company for the year ended March 31, 2019./s/ RSM US LLP Chicago, IllinoisJune 4, 2019Exhibit 23.2CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe have issued our report dated June 1, 2017, with respect to the consolidated financial statements and schedules included in theAnnual Report of Capital Southwest Corporation on Form 10-K for the year ended March 31, 2019. We consent to the incorporation byreference of said report in the Registration Statements of Capital Southwest Corporation on Forms S-8 (File No. 333-207296, effectiveOctober 5, 2015; File No. 333-177433, effective October 21, 2011; File No. 333-177432, effective October 21, 2011; File No. 333-118681, effective August 31, 2004)./s/ GRANT THORNTON LLPDallas, TexasJune 4, 2019Exhibit 23.3Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the Registration Statement (Nos. 333-227117, 333-207296, 333-177433, 333-177432, 333-118681) on FormS-8 of Capital Southwest Corporation of our report dated May 10, 2019 relating to the financial statements of I-45 SLF LLC for the year ended March 31,2019 included as an exhibit to this Annual Report on Form 10-K of Capital Southwest Corporation for the year ended March 31, 2019 /s/ RSM US LLP Chicago, IllinoisJune 4, 2019Exhibit 31.1 CERTIFICATIONS I, Bowen S. Diehl, certify that: 1I have reviewed this annual report on Form 10-K of Capital Southwest Corporation (the “registrant”); 2Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: June 4, 2019By:/s/ Bowen S. Diehl Bowen S. DiehlPresident and Chief Executive OfficerExhibit 31.2 CERTIFICATIONS I, Michael S. Sarner, certify that: 1I have reviewed this annual report on Form 10-K of Capital Southwest Corporation (the “registrant”); 2Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: June 4, 2019By:/s/ Michael S. Sarner Michael S. SarnerChief Financial OfficerExhibit 32.1 Certification of the President and Chief Executive OfficerPursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002 I, Bowen S. Diehl, President and Chief Executive Officer of Capital Southwest Corporation, certify that, to my knowledge: 1The Form 10-K for the year ended March 31, 2019, filed with the Securities and Exchange Commission on June 4, 2019 (“accompanied report”)fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2The information contained in the accompanied report fairly presents, in all material respects, the consolidated financial condition and results ofoperations of Capital Southwest Corporation. Date: June 4, 2019By:/s/ Bowen S. Diehl Bowen S. DiehlPresident and Chief Executive OfficerExhibit 32.2 Certification of the Chief Financial OfficerPursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002 I, Michael S. Sarner, Chief Financial Officer of Capital Southwest Corporation, certify that, to my knowledge: 1The Form 10-K for the year ended March 31, 2019, filed with the Securities and Exchange Commission on June 4, 2019 (“accompanied report”)fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2The information contained in the accompanied report fairly presents, in all material respects, the consolidated financial condition and results ofoperations of Capital Southwest Corporation. Date: June 4, 2019By:/s/ Michael S. Sarner Michael S. SarnerChief Financial OfficerI-45 SLF LLCConsolidated Financial StatementsandIndependent Auditor’s ReportAs of March 31, 2019 and 2018 and for the years endedMarch 31, 2019, 2018 and 20171Table of Contents PageIndependent Auditor's Report1Consolidated Statements of Assets, Liabilities and Members' Equity2Consolidated Schedules of Investments3Consolidated Statements of Operations9Consolidated Statements of Changes in Members' Equity10Consolidated Statements of Cash Flows11Notes to Consolidated Financial Statements12 2Independent Auditor's ReportBoard of ManagersI-45 SLF LLC and its subsidiaryReport of the Financial StatementsWe have audited the accompanying consolidated financial statements of I-45 SLF LLC and its subsidiary, which comprise the consolidated statements ofassets, liabilities and members' equity, including the consolidated schedules of investments, as of March 31, 2019 and 2018, and the related consolidatedstatements of operations, changes in members' equity and cash flows for each of the three years in the period ended March 31, 2019, and the related notes tothe consolidated financial statements (collectively the financial statements).Management's Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generallyaccepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fairpresentation of financial statements that are free from material misstatement, whether due to fraud or error.Auditor's ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standardsgenerally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selecteddepend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. Inmaking those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements inorder to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity'sinternal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and thereasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of I-45 SLF LLC and its subsidiary as ofMarch 31, 2019 and 2018, and the results of their operations, and their cash flows for the three years then ended in accordance with accounting principlesgenerally accepted in the United States of America./s/ RSM US LLPChicago, IllinoisMay 10, 20191I-45 SLF LLCConsolidated Statements of Assets, Liabilitiesand Members’ Equity March 31, 2019 2018Assets Investments, at fair value (cost $242,061,110 and $218,673,548, respectively)$237,547,371 $220,806,845Cash and cash equivalents6,405,598 9,317,184Due from broker— 329,987Deferred financing costs (net of accumulated amortization of $1,424,284 and$927,485, respectively)1,615,246 2,110,545Interest receivable978,904 813,100 $246,547,119 $233,377,661 Liabilities and Members' Equity Liabilities Credit facility$160,000,000 $143,000,000Payable for securities purchased940,346 3,212,818Distributions payable3,254,800 2,890,475Interest payable157,142 102,075Accrued expenses and other liabilities193,709 126,212 Total liabilities164,545,997 149,331,580 Commitments and contingencies (Note 8) Members' equity82,001,122 84,046,081 $246,547,119 $233,377,661See accompanying notes to consolidated financial statements.2I-45 SLF LLCConsolidated Schedules of InvestmentsMarch 31, 2019Description Maturity Date CurrentInterestRate(1) PrincipalAmount Cost Fair Value Percentageof Members'Equity Corporate Bank Loans United States Aerospace & Defense American ScaffoldHoldings, Inc. 3/31/2022 L+6.50%(Floor 1.00%) $2,625,000 $2,604,634 $2,611,875 3.19%Hunter DefenseTechnologies, Inc. 3/29/2023 L+7.00%(Floor 1.00%) 6,256,250 6,149,119 6,256,250 7.63%Peraton Corp. (fkaMHVC AcquisitionCorp.) 4/29/2024 L+5.25%(Floor 1.00%) 6,394,363 6,369,724 6,170,560 7.52%Building &Infrastructure Products Geo Parent Corporation 12/19/2025 L+5.50% 5,000,000 4,951,736 4,987,500 6.08%Business Services iEnergizer Limited 5/1/2019 L+6.00%(Floor 1.25%) 7,307,444 7,300,086 7,307,444 8.91%Integro Parent Inc. 10/28/2022 L+5.75%(Floor 1.00%) 4,838,924 4,746,329 4,838,924 5.90%Capital Equipment TestEquity, LLC 4/28/2022 L+5.50%(Floor 1.00%) 4,803,961 4,773,980 4,765,530 5.81%Time ManufacturingAcquisition 2/3/2023 L+5.00%(Floor 1.00%) 4,910,038 4,879,401 4,928,450 6.01%Consumer Products &Retail Go Wireless Holdings,Inc. 12/22/2024 L+6.50%(Floor 1.00%) 6,562,500 6,508,367 6,439,453 7.85%Lulu's Fashion Lounge,LLC 8/26/2022 L+7.00%(Floor 1.00%) 4,034,090 3,940,388 3,913,068 4.77%Mills Fleet Farm GroupLLC 10/24/2024 L+6.25%(Floor 1.00%) 4,987,500 4,894,986 4,987,500 6.08%Pet Supermarket, Inc. 7/5/2022 L+5.50%(Floor 1.00%) 4,859,916 4,833,425 4,762,717 5.81%Tacala, LLC - SecondLien 1/30/2026 L+7.00% 3,000,000 2,986,989 2,994,750 3.65%Turning Point Brands,Inc. - Second Lien 3/7/2024 L+7.00% 3,000,000 2,973,482 3,030,000 3.70%YS Garments, LLC 8/9/2024 L+6.00%(Floor 1.00%) 4,937,500 4,893,176 4,869,609 5.94%Consumer Services CMN.com, LLC 11/3/2021 L+6.00%(Floor 1.00%) 9,431,480 9,347,289 9,431,480 11.50%Lift Brands, Inc. 4/16/2023 L+7.00%(Floor 1.00%) 4,950,000 4,898,080 4,742,100 5.78%Durable ConsumerGoods TGP Holdings III LLC -Second Lien 9/25/2025 L+8.50%(Floor 1.00%) 2,500,000 2,469,503 2,400,000 2.93%Energy Services(Midstream) The Hoover Group, Inc. 1/28/2021 L+7.25%(Floor 1.00%) 6,436,593 6,335,553 6,243,495 7.61%Healthcare Products 3I-45 SLF LLCConsolidated Schedules of InvestmentsMarch 31, 2019Description Maturity Date Current InterestRate(1) PrincipalAmount Cost Fair Value Percentageof Members'EquityIsagenix International,LLC 6/16/2025 L+5.75% (Floor1.00%) 2,062,501 2,044,219 1,851,095 2.26%PT Network, LLC 11/30/2021 L+5.50% (Floor1.00%) 4,369,332 4,369,332 4,125,086 5.03%Healthcare Services AAC Holdings, Inc. 6/30/2023 L+ 6.75% (Floor1.00%), 4.00%PIK 7,375,229 7,253,490 6,822,087 8.32%AAC Holdings, Inc. 3/31/2020 L+11.00% (Floor1.00%) 949,844 940,346 959,343 1.17%Chloe Ox Parent, LLC(Censeo Health) 12/23/2024 L+4.50% (Floor1.00%) 5,148,000 5,105,429 5,148,000 6.28%Nomad Buyer, Inc. 8/1/2025 L+5.00% 2,985,000 2,821,449 2,906,644 3.54%Hotel, Gaming &Leisure VIP CinemaHoldings, Inc. 3/1/2023 L+6.00% (Floor1.00%) 4,500,000 4,485,268 4,207,500 5.13%Industrial Products Terra MillenniumCorporation 10/31/2022 L+6.75% (Floor1.00%) 7,526,019 7,478,308 7,488,389 9.13%Media, Marketing &Entertainment Allen Media, LLC 8/30/2023 L+6.50% (Floor1.00%) 5,642,857 5,496,176 5,480,625 6.68%Imagine! PrintSolutions, LLC -Second Lien 6/21/2023 L+8.75% (Floor1.00%) 3,000,000 2,968,111 2,700,000 3.29%New Media HoldingsII LLC 7/14/2022 L+6.25% (Floor1.00%) 9,311,991 9,298,489 9,277,071 11.31%Restaurants California PizzaKitchen, Inc. 8/23/2022 L+6.00% (Floor1.00%) 6,829,887 6,802,221 6,616,487 8.07%Software & ITServices Digital River, Inc. 2/12/2021 L+6.00% (Floor1.00%) 8,002,967 7,997,848 7,802,893 9.52%InfoGroup Inc. 4/3/2023 L+5.00% (Floor1.50%) 2,940,000 2,920,233 2,892,225 3.53%Intermedia Holdings,Inc. 7/21/2025 L+6.00% (Floor1.00%) 3,847,499 3,812,532 3,857,137 4.70%New Era Technology,Inc. (2) 6/22/2023 L+6.50% (Floor1.00%) 4,628,264 4,557,798 4,567,171 5.57%Novetta Solutions,LLC 10/17/2022 L+5.00% (Floor1.00%) 4,946,868 4,830,392 4,857,206 5.92%Technology Products& Components ATI Investment Sub,Inc. 6/22/2021 L+7.25% (Floor1.00%) 1,817,558 1,795,449 1,691,420 2.06%ATX CanadaAcquisitionco Inc. 6/11/2021 L+6.00% (Floor1.00%) 4,688,923 4,665,710 4,454,477 5.43%Telecommunications AmericanTeleconferencingServices, Ltd. 12/8/2021 L+6.50% (Floor1.00%) 6,881,388 6,641,473 4,515,911 5.51%4I-45 SLF LLCConsolidated Schedules of InvestmentsMarch 31, 2019Description Maturity Date Current InterestRate(1) PrincipalAmount Cost Fair Value Percentageof Members'EquityJAB Wireless, Inc. 5/2/2023 L+8.00% (Floor1.00%) 7,920,000 7,855,060 7,920,000 9.66%KORE WirelessGroup Inc. 12/20/2024 L+5.50% 3,325,000 3,292,962 3,308,375 4.03%LOGIX HoldingsCompany, LLC 12/23/2024 L+5.75% (Floor1.00%) 6,016,500 5,972,674 6,061,624 7.39%LSF9 AtlantisHoldings, LLC 5/1/2023 L+6.00% (Floor1.00%) 6,693,750 6,647,863 6,246,106 7.62%Teleguam Holdings, LLC 7/25/2024 L+8.50% (Floor1.00%) 2,000,000 1,969,537 2,012,500 2.45%U.S. TelePacificCorp. 5/2/2023 L+5.00% (Floor1.00%) 6,844,420 6,777,409 6,660,510 8.12%UniTek GlobalServices, Inc. 8/20/2024 L+5.50% (Floor1.00%) 2,985,000 2,959,958 2,958,135 3.61%Wireless VisionHoldings, LLC (3) 9/29/2022 L+8.50% (Floor1.00%), 1.00% PIK 7,865,229 7,753,144 7,778,711 9.49%Transportation &Logistics STL Parent Corp.(American Railcar) 12/5/2022 L+7.00% 3,975,000 3,846,305 3,855,750 4.70%Wholesale NBG Acquisition,Inc. 4/26/2024 L+5.50% (Floor1.00%) 2,887,500 2,845,678 2,844,188 3.47% Total Investments $242,061,110 $237,547,371 289.69% (1)The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) which reset daily, monthly,quarterly, or semiannually. For each investment, the Company has provided the spread over LIBOR in effect at March 31, 2019. Certain investments are subject to a LIBORinterest rate floor.(2)The investment has approximately $0.3 million in an unfunded delayed draw commitment as of March 31, 2019.(3)The investment is structured as a first lien last out term loan.See accompanying notes to consolidated financial statements.5I-45 SLF LLCConsolidated Schedules of InvestmentsMarch 31, 2018Description Maturity Date CurrentInterestRate(1) PrincipalAmount Cost Fair Value Percentageof Members'Equity Corporate Bank Loans United States Aerospace & Defense American ScaffoldHoldings, Inc. 3/31/2022 L+6.50% $2,775,000 $2,746,293 $2,761,125 3.29%Hunter DefenseTechnologies, Inc. 3/29/2023 L+7.00% 6,500,000 6,370,152 6,370,152 7.58%Peraton Corp. (fkaMHVC AcquisitionCorp.) 4/29/2024 L+5.25% 4,960,013 4,938,405 5,022,013 5.98%Automobile Highline AftermarketAcquisition, LLC 3/17/2024 L+4.25% 2,856,595 2,844,340 2,860,166 3.40%Business Services Ansira Holdings, Inc. 12/20/2022 L+6.50% 3,878,182 3,847,470 3,868,486 4.60%Ansira Holdings, Inc. -Delayed Draw 12/20/2022 L+6.50% 315,316 310,799 314,527 0.37%iEnergizer Limited 5/1/2019 L+6.00% 6,550,375 6,421,048 6,558,563 7.80%Integro Parent Inc. 10/31/2022 L+5.75% 4,888,924 4,768,810 4,888,924 5.82%KeyPoint GovernmentSolutions, Inc. 4/18/2024 L+6.00% 4,750,000 4,708,981 4,750,000 5.65%Redwood AheadAcquisition, LLC 11/2/2020 L+6.50% 2,811,484 2,767,547 2,829,056 3.37%Capital Equipment TestEquity, LLC 4/28/2022 L+5.50% 4,952,674 4,911,727 4,952,674 5.89%Time ManufacturingAcquisition 2/3/2023 L+5.00% 4,947,519 4,908,622 4,935,150 5.87%Consumer Products &Retail Lulu's Fashion Lounge,LLC 8/23/2022 L+7.00% 4,374,999 4,254,636 4,506,249 5.36%Pet Supermarket, Inc. 7/5/2022 L+5.50% 4,925,000 4,889,928 4,900,375 5.83%Tacala, LLC - SecondLien 1/31/2026 L+7.00% 3,000,000 2,985,088 3,063,765 3.65%Turning Point Brands,Inc. - Second Lien 3/7/2024 L+7.00% 3,000,000 2,970,120 3,060,000 3.64%Consumer Services CMN.com, LLC 11/3/2021 L+6.00% 8,742,126 8,645,306 8,742,126 10.40%Prepaid Legal Services,Inc. 7/1/2019 L+5.25% 3,860,938 3,859,187 3,860,938 4.59%Prepaid Legal Services,Inc. - Second Lien 7/1/2020 L+9.00% 405,000 398,614 405,000 0.48%Solaray, LLC 9/8/2023 L+6.50% 6,308,205 6,263,089 6,308,205 7.51%Solaray, LLC - DelayedDraw 9/8/2023 L+6.50% 1,784,890 1,768,866 1,784,890 2.12%Durable ConsumerGoods TGP Holdings III LLC 9/25/2024 L+5.00% 1,720,169 1,701,604 1,736,296 2.07%TGP Holdings III LLC -Second Lien 9/25/2025 L+8.50% 2,500,000 2,464,804 2,537,500 3.02%6I-45 SLF LLCConsolidated Schedules of InvestmentsMarch 31, 2018Description Maturity Date CurrentInterestRate(1) PrincipalAmount Cost Fair Value Percentageof Members'EquityFinancial Services iPayment Holdings, Inc. 4/11/2023 L+5.00% 4,987,500 4,987,500 5,049,844 6.01%Healthcare Products Beaver-VisitecInternational Holdings,Inc. 8/21/2023 L+5.00% 4,925,000 4,886,584 4,949,625 5.89%PT Network, LLC 11/30/2021 L+6.50% 4,425,133 4,425,133 4,425,133 5.27%Healthcare Services AAC Holdings, Inc. 6/30/2023 L+6.75% 7,568,046 7,413,688 7,700,487 9.16%Chloe Ox Parent, LLC(Censeo Health) 12/31/2024 L+5.00% 5,200,000 5,149,500 5,265,000 6.26%Hotel, Gaming & Leisure VIP Cinema Holdings,Inc. 3/1/2023 L+6.00% 4,750,000 4,730,480 4,804,934 5.72%Industrial Products Terra MillenniumCorporation 10/31/2022 L+6.25% 7,776,019 7,715,978 7,834,339 9.32%Media, Marketing &Entertainment Imagine! Print Solutions,LLC - Second Lien 6/21/2023 L+8.75% 3,000,000 2,960,563 2,760,000 3.28%New Media Holdings IILLC 7/14/2022 L+6.25% 8,822,598 8,799,522 8,880,518 10.57%Restaurants California Pizza Kitchen,Inc. 8/23/2022 L+6.00% 6,899,937 6,863,761 6,775,739 8.06%Retail Go Wireless Holdings,Inc. 12/31/2024 L+6.50% 6,912,500 6,845,573 6,903,859 8.21%Software & IT Services Digital River, Inc. 2/12/2021 L+6.50% 8,002,967 7,995,112 8,002,967 9.52%InfoGroup Inc. 4/3/2023 L+5.00% 2,970,000 2,945,028 2,957,021 3.52%Technology Products &Components ATI Investment Sub, Inc. 6/22/2021 L+7.25% 3,557,227 3,503,722 3,552,781 4.23%ATX CanadaAcquisitionco Inc. 6/11/2021 L+6.00% 4,836,742 4,801,504 4,498,170 5.35%Telecommunications AmericanTeleconferencingServices, Ltd. 12/8/2021 L+6.50% 7,287,370 6,938,866 7,285,548 8.67%LOGIX HoldingsCompany, LLC 12/22/2024 L+5.75% 4,528,716 4,484,992 4,551,360 5.42%LSF9 Atlantis Holdings,LLC 5/1/2023 L+6.00% 6,868,750 6,810,137 6,854,429 8.16%Polycom, Inc. 9/27/2023 L+5.25% 5,234,833 5,234,833 5,287,182 6.29%Teleguam Holdings , LLC 4/12/2024 L+8.50% 2,000,000 1,963,812 2,015,000 2.40%U.S. TelePacific Corp. 5/2/2023 L+5.00% 7,643,991 7,550,843 7,441,425 8.85%UniTek Global Services,Inc. 1/13/2019 L+8.50% 4,584,809 4,584,809 4,584,809 5.46%7I-45 SLF LLCConsolidated Schedules of InvestmentsMarch 31, 2018Description Maturity Date CurrentInterestRate(1) PrincipalAmount Cost Fair Value Percentageof Members'EquityTransportation &Logistics US Joiner HoldingCompany (IMECO andRAACI) 4/16/2020 L+6.00% 4,459,182 4,425,101 4,436,886 5.28%Wholesale NBG Acquisition, Inc. 4/26/2024 L+5.50% 2,962,500 2,911,071 2,973,609 3.54% Total Investments $218,673,548 $220,806,845 262.73%(1)The majority of investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) which reset daily, monthly,quarterly, or semiannually. For each investment, the Company has provided the spread over LIBOR in effect at March 31, 2018. Certain investments are subject to a LIBORinterest rate floor.See accompanying notes to consolidated financial statements.8I-45 SLF LLCConsolidated Statements of Operations Year endedMarch 31, 2019 Year endedMarch 31, 2018 Year EndedMarch 31, 2017Investment income Interest $20,808,110 $16,732,879 $12,293,686Fees and other income 588,778 332,752 247,870 Total investment income 21,396,888 17,065,631 12,541,556 Expenses Interest expense 8,369,602 6,254,444 4,042,842Administrative fee 153,400 150,362 120,543Professional fees and other 236,224 208,225 236,372 Total expenses 8,759,226 6,613,031 4,399,757 Net investment income 12,637,662 10,452,600 8,141,799 Realized and unrealized (loss) gain on investments Net realized gain on investments 399,954 1,660,104 1,653,143Net change in unrealized (depreciation) appreciation oninvestments (6,647,036) (614,866) 3,369,673 Net (loss) gain on investments (6,247,082) 1,045,238 5,022,816 Net increase in members' equity resulting from operations $6,390,580 $11,497,838 $13,164,615See accompanying notes to consolidated financial statements.9I-45 SLF LLCConsolidated Statements of Changes in Members' Equity Years Ended March 31, 2019 2018 2017 Members' equity beginning balance$84,046,081 $79,417,700 $45,357,231Contributions4,000,000 5,000,000 30,000,000Distributions(12,435,539) (11,869,457) (9,104,146) 75,610,542 72,548,243 66,253,085 Net increase in members' equity resulting from operations: Net investment income12,637,662 10,452,600 8,141,799Net realized gain on investments399,954 1,660,104 1,653,143Net change in unrealized appreciation (depreciation) on investments(6,647,036) (614,866) 3,369,673 Net increase in members' equity resulting from operations6,390,580 11,497,838 13,164,615 Members' equity ending balance$82,001,122 $84,046,081 $79,417,700See accompanying notes to consolidated financial statements.10I-45 SLF LLCConsolidated Statements of Cash Flows Years Ended March 31, 2019 2018 2017Cash flows from operating activities Net increase in members' equity resulting from operations$6,390,580 $11,497,838 $13,164,615Adjustments to reconcile net increase in members' equity resulting fromoperations to net cash used in operating activities: Net realized gain on investments(399,954) (1,660,104) (1,653,143)Net change in unrealized (appreciation) depreciation on investments6,647,036 614,866 (3,369,673)Amortization of premiums and discounts on investments(671,016) (710,236) (1,084,012)Amortization of deferred financing costs496,799 487,503 374,659Purchases of investments(95,262,272) (135,400,139) (161,951,431)Proceeds from sales / paydowns of investments72,945,680 116,591,458 67,029,872Changes in operating assets and liabilities: Due from broker329,987 1,402,513 (1,732,500)Interest receivable(165,804) (338,769) (37,939)Payable for securities purchased(2,272,472) (8,582,182) 3,754,809Interest payable55,067 41,883 30,987Accrued expenses and other liabilities67,497 28,330 58,842 Net cash used in operating activities(11,838,872) (16,027,039) (85,414,914) Cash flows from financing activities Borrowings under credit facility55,000,000 34,000,000 74,000,000Repayments of credit facility(38,000,000) (13,000,000) —Deferred financing costs paid(1,500) (939,006) (974,024)Capital contributions4,000,000 5,000,000 30,000,000Distributions(12,071,214) (11,809,424) (7,699,178) Net cash provided by financing activities8,927,286 13,251,570 95,326,798 Net change in cash and cash equivalents(2,911,586) (2,775,469) 9,911,884Cash and cash equivalents, beginning of period9,317,184 12,092,653 2,180,769Cash and cash equivalents, end of period$6,405,598 $9,317,184 $12,092,653 Supplemental disclosure of cash flow information Cash paid during the period for interest$7,797,256 $5,705,952 $3,133,149 Supplemental disclosure of noncash financing activities Distributions payable$3,254,800 $2,890,475 $2,830,442See accompanying notes to consolidated financial statements.11I-45 SLF LLCNotes to Consolidated Financial Statements1. ORGANIZATION AND BASIS OF PRESENTATIONORGANIZATIONI-45 SLF LLC (the “Company”) was organized as a Delaware limited liability company on September 3, 2015 by the filing of a certificate offormation (the “Certificate”) with the Office of the Secretary of State of the State of Delaware under and pursuant to the Delaware Limited Liability CompanyAct (the “Act”). The Company is a joint venture between Main Street Capital Corporation and Capital Southwest Corporation. Capital SouthwestCorporation owns 80.0% of the Company and has a profits interest of 75.6%, while Main Street Capital Corporation owns 20.0% and has a profits interest of24.4%. The initial equity capital commitment to I-45 SLF totaled $85 million, consisting of $68 million from Capital Southwest Corporation and $17million from Main Street Capital Corporation, all of which was funded as of March 31, 2019 and $81 million, or 95.3%, of which was funded as of March 31,2018.On September 18, 2015, the Company’s wholly-owned and consolidated subsidiary, I-45 SPV LLC (the “SPV”) was organized as a Delaware limitedliability company by the filing of a certificate of formation with the Office of the Secretary of State of the State of Delaware. The Company is the sole equitymember of the SPV. All intercompany balances and transactions have been eliminated in consolidation. The registered agent and office of the Company required by the Act to be maintained in the State of Delaware is The Corporation Trust Company,1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The principal office of the Company shall be located at such place within or withoutthe State of Delaware, and the Company shall maintain such records, as the Members shall determine from time to time.BASIS OF PRESENTATIONThe accounting and reporting policies of the Company conform with U.S. generally accepted accounting principles (“U.S. GAAP”) as detailed in theFinancial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”). The Company is an investment company and follows theaccounting and reporting guidance in FASB Topic 946 - Financial Services - Investment Companies (“ASC Topic 946”). Financial statements prepared on aU.S. GAAP basis require management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements andaccompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amountsreported and disclosed herein.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESINVESTMENTSInvestment transactions are accounted for on a trade-date basis. Premiums and discounts are amortized over the lives of the respective debt securitiesusing the effective interest method. Investments that are held by the Company are stated at fair value in accordance with ASC Topic 820 - Fair ValueMeasurements and Disclosures (“ASC Topic 820”).Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption of an investment and the cost basis ofthe investment, without regard to unrealized appreciation or depreciation previously recognized, and includes investments written-off during the year net ofrecoveries and realized gains or losses from in-kind redemptions. Net change in unrealized appreciation or depreciation reflects the net change in the fairvalue of the investment portfolio and the reclassification of any prior period unrealized appreciation or depreciation on exited investments and financialinstruments to realized gains or losses.CASH AND CASH EQUIVALENTSCash and cash equivalents, which consist of cash and highly liquid investments with an original maturity of three months or less at the date ofpurchase, are carried at cost, which approximates fair value.In the normal course of business, the Company maintains its cash and cash equivalent balances in financial institutions, which at times may exceedfederally insured limits. The Company is subject to credit risk to the extent any financial institution12with which it conducts business is unable to fulfill contractual obligations on its behalf. Management monitors the financial condition of such financialinstitutions and does not anticipate any losses from these counterparties.DEFERRED FINANCING COSTSDeferred financing costs include commitment fees and other costs related to the Company’s credit facility (the “Credit Facility”, as discussed furtherin Note 4). These costs have been capitalized and are amortized into interest expense over the term of the individual instrument.INTEREST INCOMEInterest income is recorded as earned on the accrual basis and includes amortization of premiums or accretion of discounts. In accordance with theCompany’s valuation policy, accrued interest receivables are evaluated periodically for collectability. When the Company does not expect the debtor to beable to service all of its debt or other obligations, the Company will generally establish a reserve against interest income receivable, thereby placing the loanor debt security on non-accrual status, and cease to recognize interest income on that loan or debt security until the borrower has demonstrated the ability andintent to pay contractual amounts due. If a loan or debt security’s status significantly improves regarding the ability to service debt or other obligations, itwill be restored to accrual basis. As of March 31, 2019 and 2018, the Company did not have any investments on non-accrual status.EXPENSESUnless otherwise voluntarily or contractually assumed by the Board of Managers or another party, the Company bears all expenses incurred in itsbusiness including, but not limited to, the following: all costs and expenses related to investment transactions and positions for the Company, legal fees,accounting, auditing and tax preparation fees, recordkeeping and custodial fees, costs of computing the Company’s members’ equity, research expenses,costs of registration expenses, all costs with respect to communications with members, and other types of expenses as may be approved from time to time.INCOME TAXESThe Company is organized and operates as a limited liability company and is not subject to income taxes as a separate entity. Such taxes are theresponsibility of the individual members. Accordingly, no provision for income taxes has been made in the Company’s financial statements. Investments inforeign securities may result in foreign taxes being withheld by the issuer of such securities.For the current open tax year and for all major jurisdictions, management of the Company has evaluated the tax positions taken or expected to betaken in the course of preparing the Company’s tax returns to determine whether the tax positions will “more-likely-than-not” be sustained by the Companyupon challenge by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold and that would result in a tax benefit orexpense to the Company would be recorded as a tax benefit or expense in the current year. For each of the three tax years ended December 31, 2018, 2017and 2016 the Company determined that it did not have any uncertain tax positions. Generally, the Company is subject to income tax examinations by majortaxing authorities during the three years prior to the periods covered by these financial statements.RECENTLY ISSUED OR ADOPTED ACCOUNTING STANDARDSIn May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09supersedes the revenue recognition requirements under ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the IndustryTopics of the ASC. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services tocustomers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Under the newguidance, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in thecontract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when(or as) the entity satisfies a performance obligation. The new guidance will significantly enhance comparability of revenue recognition practices acrossentities, industries, jurisdictions and capital markets. Additionally, the guidance requires improved disclosures as to the nature, amount, timing anduncertainty of revenue that is recognized. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606)-Narrow-Scope Improvements and Practical Expedients. This ASU clarified guidance on assessing collectability, presenting sales tax, measuring noncashconsideration, and certain transition matters. The FASB decided to defer the effective date of the new revenue standard for public entities under U.S. GAAPfor one year. The new guidance is effective for the annual reporting period beginning after December 15, 2018, and interim periods within annual reportingperiods beginning after December 15, 2019. Early adoption was permitted for13annual reporting periods beginning after December 15, 2016. The Company adopted ASU 2014-09 effective April 1, 2018 and determined that its materialfinancial contracts are excluded from the scope of ASU 2014-09. As a result of the scope exception for financial contracts, the Company's management hasdetermined that there were no material changes to the recognition timing and classification of revenues and expenses; additionally, the adoption of ASU2014-09 did not have a significant impact on pretax income or on the consolidated financial statement disclosures.In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), which is intended to reduce the existing diversity in practicein how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for annual periodsbeginning after December 15, 2018, and interim periods therein. Early application is permitted. The Company adopted ASU 2016-15 effective April 1, 2018and the adoption did not have a material impact on the Company's consolidated financial statements.In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which is intended to improve fair value and defined benefitdisclosure requirements by removing disclosures that are not cost beneficial, clarifying disclosures' specific requirements, and adding relevant disclosurerequirements. The amendments take effect for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15,2019. Early adoption is permitted. The adoption of this new accounting standard is not expected to have an impact on the Company’s consolidated financialstatements.3. FAIR VALUE MEASUREMENTSASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderlytransaction between market participants at the measurement date under current market conditions. The fair value of the Company’s investments is determinedas of the close of business at the end of each reporting period (“Valuation Date”) in conformity with the guidance on fair value measurements and disclosuresunder U.S. GAAP.The inputs used to determine the fair value of the Company’s investments are summarized in the three broad levels listed below:•Level 1- unadjusted quoted prices in active markets for identical investments•Level 2- investments with other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds,credit risk, etc.)•Level 3- investments with significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments)The Company establishes valuation processes and procedures to ensure the valuation methodologies for investments categorized within Level 3 ofthe fair value hierarchy are fair, consistent, and verifiable. The Company designates the Board of Managers to oversee the entire valuation process of Level 3investments. The Board of Managers is responsible for developing the Company’s valuation processes and procedures, conducting periodic reviews of thevaluation policies, and evaluating the overall fairness and consistent application of the valuation policies. Additionally, the Board of Managers is generallyresponsible for reviewing and approving the valuation determinations and any information provided by U.S. Bancorp Fund Services, LLC (the“Administrator”), as well as determining the levels of the fair value hierarchy in which the investments fall.The Board of Managers meets on a quarterly basis, or more frequently as needed, to determine the valuations of Level 3 investments. Valuationsdetermined by the Board of Managers are required to be supported by market data, third-party pricing sources, industry accepted pricing models,counterparty prices, or other methods the Board of Managers deems to be appropriate, including the use of internal proprietary pricing models. TheCompany, along with the Board of Managers, periodically reviews the valuations of Level 3 investments, and if necessary, recalibrates its valuationprocedures.Investments currently held by the Company are generally valued as follows:Securities that are listed on a recognized exchange are valued at their last available public sales price. Securities that are listed on more than onenational securities exchange are valued at the last quoted sales price on the primary exchange on which the security is listed. If a security was not traded onthe primary exchange on the valuation date, such security is valued at the last quoted sales price on the next most active market, if the Board of Managersdetermines the price to be representative of fair value. Investments that are not listed on an exchange but are traded over-the-counter are generally valuedusing independent pricing services. These pricing services may use the broker quotes or models that consider such factors as issue type, coupon rate,maturity, rating, prepayment speed, yield, or prices of comparable quality, when pricing securities.14In the case of investments not priced by independent pricing services, the Board of Managers will endeavor to obtain market maker quotes. For bothlong and short positions, the average of all “bid” and “asked” quotations is generally used.The fair value determination of the Company’s investments consists of a combination of observable inputs in non-active markets and unobservableinputs. The observable inputs are not always sufficient to determine the fair value of these investments. As a result, all investments currently held by theCompany are categorized as Level 3 under ASC 820.The following table summarizes the valuation techniques and significant unobservable inputs used for the Company’s investments that arecategorized within Level 3 of the fair value hierarchy as of March 31, 2018 and 2017:Type of Investment Fair Value at March 31,2019 Valuation Technique Unobservable Input Range WeightedAverage Corporate bank loans $174,772,948 Income Approach Broker Quotes 65.6 - 101.0 96.8 40,237,232 Income Approach Discount Rate 8.5% - 14.5% 10.8% 22,537,191 Market Approach Exit Value 100.0 - 101.0 100.0 $237,547,371 Type of Investment Fair Value at March 31,2018 Valuation Technique Unobservable Input Range WeightedAverage Corporate bank loans $182,716,013 Income Approach Broker Quotes 92.0 - 103.0 100 23,029,609 Income Approach Discount Rate 7.4% - 8.6% 7.8% 10,795,285 Market Approach Cost 98.0 - 100.0 98.8 4,265,938 Market Approach Exit Value 100.0 100.0 $220,806,845 The Board of Managers will evaluate the valuation hierarchy and make changes when necessary. The Company discloses transfers between levelsbased on valuations at the end of the reporting period. There were no transfers between levels for the years ended March 31, 2019 and 2018. The inputs ormethodology used for valuing investments are not necessarily an indication of the risk associated with investing in those investments.The following is a summary categorization, as of March 31, 2019, of the Company’s investments based on the level of inputs utilized in determiningthe value of such investments: Level 1 Level 2 Level 3 TotalInvestments (at fair value) Corporate bank loans $— $— $237,547,371 $237,547,371Total investments — — 237,547,371 237,547,371 Cash equivalents - money market fund 5,333,271 — — 5,333,271 $5,333,271 $— $237,547,371 $242,880,64215The following is a summary categorization, as of March 31, 2018, of the Company’s investments based on the level of inputs utilized in determiningthe value of such investments: Level 1 Level 2 Level 3 TotalInvestments (at fair value) Corporate bank loans $— $— $220,806,845 $220,806,845Total investments — — 220,806,845 220,806,845 Cash equivalents - money market fund 3,087,598 — — 3,087,598 $3,087,598 $— $220,806,845 $223,894,443The following table represents additional information about Level 3 assets measured at fair value. Both observable and unobservable inputs may beused to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains and losses forassets within the Level 3 category may include changes in fair value that were attributable to both observable and unobservable inputs. Changes in Level 3assets measured at fair value for the years ended March 31, 2019 and 2018 were as follows: Level 3 BeginningBalance Purchases(a) Settlements Change inUnrealizedAppreciation(b) RealizedGains(Losses)(c) Ending Balance Change inUnrealizedAppreciation(Depreciation) onInvestments Held atPeriod EndInvestments (at fairvalue) Corporate bankloans $220,806,845 $135,311,691 $(112,324,083) $(6,647,036) $399,954 $237,547,371 $(6,210,449) Total $220,806,845 $135,311,691 $(112,324,083) $(6,647,036) $399,954 $237,547,371 $(6,210,449) Level 3 BeginningBalance Purchases(a) Settlements Change inUnrealizedAppreciation(b) RealizedGains(Losses)(c) Ending Balance Change inUnrealizedAppreciation(Depreciation) onInvestments Held atPeriod EndInvestments (at fairvalue) Corporate bankloans $200,242,690 $135,480,991 $(115,962,074) $(614,866) $1,660,104 $220,806,845 $605,724 Total $200,242,690 $135,480,991 $(115,962,074) $(614,866) $1,660,104 $220,806,845 $605,724(a)Includes purchases of new investments, as well as discount accretion on investments.(b)The change in unrealized appreciation is reflected in the net change in unrealized appreciation on investments in theConsolidated Statements of Operations.(c)Realized gains (losses) are included in the net realized gain on investments in the Consolidated Statements of Operations. 4. CREDIT FACILITYThe Company closed on a $75.0 million 5-year senior secured credit facility with Deutsche Bank AG (the “Credit Facility”) in the period endedMarch 31, 2016. This facility included an accordion feature which allows the Company to achieve16leverage of up to 2x debt-to-equity. During the year ended March 31, 2017, the Company increased credit facility commitments outstanding by an additional$90.0 million by adding three additional lenders to the syndicate, bringing total debt commitments to $165.0 million. In July 2017, the Credit Facility wasamended to extend the maturity to July 2022. The Company maintains the Credit Facility to provide additional liquidity to support its investment andoperational activities.Prior to the amendment to the Credit Facility, borrowings under the Credit Facility bore interest on a per annum basis at a rate equal to theapplicable LIBOR rate plus 2.50%. Subsequent to the amendment, borrowings bear interest on a per annum basis at a rate equal to 3 month LIBOR plus2.40%. The Company pays an administrative agent fee of 0.25% per annum and unused fees of 0.40% per annum on the unused lender commitments underthe Credit Facility. The Credit Facility is secured by a first lien on the assets of the Company. The Credit Facility contains certain affirmative and negativecovenants, including but not limited to maintenance of a borrowing base. The Credit Facility is provided on a revolving basis through its final maturity datein July 2022.At March 31, 2019 and 2018, the Company had $160.0 million and $143.0 million, respectively, in borrowings outstanding under the CreditFacility. The Company recognized interest expense related to the Credit Facility, including unused commitment fees, administrative agent fees andamortization of deferred loan costs, of approximately $8.4 million and $6.3 million, respectively, for the years ended March 31, 2019 and 2018. Theweighted average interest rate on the Credit Facility was 4.96% and 3.92%, respectively, for the years ended March 31, 2019 and 2018. Average borrowingsfor the years ended March 31, 2019 and 2018 were $148.4 million and $132.5 million, respectively.A summary of the Company's contractual payment obligations for the repayment of outstanding indebtedness at March 31, 2019 is as follows: Years Ending March 31, 2020 2021 2022 2023 2024 Thereafter TotalCredit Facility— — — 160,000 — — 160,0005. ALLOCATION OF PROFITS AND LOSSESFor each fiscal year, profits or net losses of the Company are allocated among and credited to or debited against the capital accounts of the membersas of the last day of each fiscal year in accordance with the Limited Liability Company Agreement (the “LLC Agreement”). Net profits or net losses areallocated after giving effect for any initial or additional applications for interests or any repurchases of interests. Net investment income, realized gains andlosses, and unrealized gains or losses are allocated to the members pro rata in accordance with their profit percentages, as defined in the LLC Agreement. Netprofits or net losses are measured as the net change in the value of the members’ equity in the Company, including any change in unrealized appreciation ordepreciation of investments and income, net of expenses, and realized gains or losses during a fiscal year.Each quarter a cash distribution may be made to the members, which is generally equivalent to estimated taxable income less non-cash revenue(such as original issue discount amortization or PIK interest). The estimated taxable income distributions are generally made up of taxable net investmentincome (excluding non-cash revenue) and realized gains and losses. Estimated taxable income and distributions made to the members therefore may bematerially different than GAAP net investment income. The distribution policy is subject to change by the Board of Managers based on business and marketconditions at any time.6. DUE FROM BROKERSThe Company conducts business with brokers for its investment activities. The clearing and depository operations for the investment activities areperformed pursuant to agreements with the brokers. The Company is subject to credit risk to the extent any broker with whom the Company conductsbusiness is unable to deliver cash balances or securities, or clear security transactions on the Company’s behalf. The Company monitors the financialcondition of the brokers with which the Company conducts business and believes the likelihood of loss under the aforementioned circumstances is remote.At March 31, 2019 and 2018, the balance in due from brokers is cash of approximately $0 and $0.3 million, respectively.7. ADMINISTRATION AGREEMENTIn consideration for administrative, accounting, and recordkeeping services, the Company pays the Administrator a quarterly administration fee.This fee is calculated based on the quarter end invested assets. For the year ended March 31, 2019,17the Company had incurred $153,400 in administration fees, of which $78,436 were payable at the end of the year. For the year ended March 31, 2018, theCompany had incurred $150,362 in administration fees, of which $37,465 were payable at the end of the year. For the period ended March 31, 2017, theCompany had incurred $120,543 in administration fees, of which $35,101 were payable at the end of the year.The Administrator is affiliated with a broker, U.S. Bank, through which the Company transacts operations. At March 31, 2019, cash and cashequivalents in the amount of $6.4 million are held with U.S. Bank. At March 31, 2018, cash and cash equivalents in the amount of $9.3 million are held byU.S. Bank.8. COMMITMENTS AND CONTINGENCIESThe Company entered into various trades during the periods ended March 31, 2019 and 2018. As of March 31, 2019 and 2018, there wereoutstanding trades in the amount of approximately $0.9 million and $3.2 million, respectively, that remained unsettled. This is shown as payable forsecurities purchased on the Consolidated Statements of Assets, Liabilities and Members’ Equity.In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk, consisting primarily of unusedcommitments to extend financing to the Company’s portfolio companies. Since commitments may expire without being drawn upon, the total commitmentamount does not necessarily represent future cash requirements. The following table lists the outstanding commitments as of March 31, 2019 and 2018: March 31, March 31,Portfolio CompanyInvestment Type 2019 2018Ansira Holdings, Inc.Delayed Draw Term Loan $— $255,000New Era Technology, Inc.Delayed Draw Term Loan 256,000 —PT Network, LLCDelayed Draw Term Loan — 2,053,000Solaray, LLCDelayed Draw Term Loan — 912,000TGP Holdings III LLCDelayed Draw Term Loan — 271,000Total unused commitments to extend financing $256,000 $3,491,000The Company may, from time to time, be involved in litigation arising out of its operations in the normal course of business or otherwise.Furthermore, third parties may try to seek to impose liability on the Company in connection with the activities of its portfolio companies. The Company hasno currently pending material legal proceedings to which it is a party or to which any of its assets is subject.9. FINANCIAL HIGHLIGHTSFinancial highlights are as follows: Year ended Year ended Year ended March 31, 2019 March 31, 2018 March 31, 2017Net investment income to average members' equity(1) 15.37 % 12.40 % 12.17 %Expenses to average members' equity(1) (10.65)% (7.85)% (6.58)%Internal Rate of Return, end of year(2) 14.15 % 16.77 % 18.78 %(1) Ratios are calculated by dividing the indicated amount by average members' equity measured as of the end of each quarter during the period.(2) The internal rate of return since inception ("IRR") of the members is computed based on the actual dates of cash inflows, outflows and the ending net assets atthe end of the year of the members' equity account as of each measurement date. The IRR includes actual cash payments and does not include distributionsdeclared but not yet paid.Financial highlights are calculated for the members’ class taken as a whole. An individual member’s return and ratios may vary. Financial highlightsdisclosed may not be indicative of future performance of the Company.1810. SUBSEQUENT EVENTSManagement has evaluated the need for additional disclosures and/or adjustments resulting from subsequent events through May 10, 2019, the datethe consolidated financial statements were available to be issued.19

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