Semi-Annual Report
June 30, 2016

THL Credit
Senior Loan Fund

(NYSE: TSLF)

1-855-400-3927
www.fwcapitaladvisors.com/funds/tslf​

Manager Commentary (unaudited)June 30, 2016

Fellow Shareholders:

On behalf of the management teams at both Four Wood Capital Advisors LLC (“FWCA”) and THL Credit Advisors LLC (“THL Credit”), we are pleased to share with you the performance highlights for THL Credit Senior Loan Fund (the “Fund”) for the six months ended June 30, 2016, along with a review of the loan market over the same period.

First Half 2016 Loan Market in Review

The U.S. Leveraged Loan Market, as measured by the Credit Suisse Leveraged Loan Index (the “Index”)1, coming off of a sluggish 2015 when the Index had only its second ever negative calendar year return, gained positive momentum in March 2016 which continued through June 30, 2016 posting a year-to-date return of 4.23%2. For the first half of the year, interest income generated 2.54% while principal return contributed 1.66%2. Positive returns for the six-month period trended towards lower rated assets and second lien facilities. The average price of the Index declined increase from the end of 2015, beginning the year at 91.43% and ending the six-month period at 92.85%3.

After a slow start to the year, new-issue loan volume was $161 billion for the first half of 2016, driven primarily by a strong issuance in June 2016 of  $73 billion, which was the third-largest month on record4. Volume has been primarily used to fund acquisitions for well/middle-tier rated issuers, accounting for 42% of the 2016 volume4. Refinancings and repricings accounted for 30% and 22% of the volume, respectively4.

Retail bank loan continued the trend of net outflows, with $6.7 billion in net outflows recorded in the first half of 20164. However, there was significant improvement quarter over quarter, with $5.8 billion of the outflows occurring in the first quarter of 2016 and only $0.8 billion occurring in the second quarter of 20164. After a slow start to 2016, the U.S. CLO market saw a trend of increasing volumes during the first half of 2016, ending the six-month period with $27.1 billion in issuance4.

The bank loan default rate as of June 30, 2016 was 1.97%, up from 1.54% as of December 31, 20155. While the default rate has increased over the past 6 months, it is still at moderately low levels and continues to be industry specific. The increase in default activity has been driven by the deterioration of the Energy and Metals/Mining industries, which accounted for 83% of 2016’s defaulted volume in loans and high yield5.

THL Credit Senior Loan Fund Performance

With the three-year anniversary of the Fund a few months away, we continue to be pleased with the Fund’s results, even in a market environment where there is continued pressure in the senior loan space. In response to market conditions, the Fund reduced its monthly distribution to $0.105 per share starting in March 2016. However, the Fund’s current distribution rate and inception-to-date net asset value (“NAV”) total returns continue to be among the highest relative to those of its comparable peers in the senior bank loan category6.

As of June 30, 2016, the Fund has total investments recorded at fair value of approximately $188.6 million, or 143.9% of net assets. NAV per share increased 2.4% from $17.25 at December 31, 2015 to $17.66 at June 30, 2016. The Fund’s use of leverage remained stable through the first half of the year, ending the six-month period with leverage as a percentage of Managed Assets (defined as total assets of the Fund, including any assets attributable to borrowings for investment purposes minus the sum of the Fund’s accrued liabilities, other than liabilities representing borrowings for investment purposes) at 28.4%, down only slightly from 28.9% at December 31, 2015. Over the six-month period ended June 30, 2016, leverage as a percentage of Managed Assets averaged 28.6%.

During the first half of 2016, the Fund made minor adjustments to its allocation between fixed income categories. As of June 30, 2016, the Fund held 82.2% of its Managed Assets in fully collateralized first-lien loans, up slightly from 81.3% at December 31, 2015, and an additional 9.3% in second-lien loans, down slightly from 9.8% at December 31, 2015. The Fund’s allocation to fixed rate bonds increased from 3.7% at the end of 2015 to 6.2% at the end of June 2016. At the end of the first half of 2016, the Fund held 134

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THL Credit Senior Loan Fund

Manager Commentary (unaudited) (continued)June 30, 2016

 

Bank Loans, corporate bonds and common stock across 32 industries. The top 5 industry positions represented approximately 42.7% of the Fund’s total holdings, while the top 10 individual positions represented approximately 15.8% of the Fund’s total holdings.

The Fund outperformed the Index on both a market price and a NAV per share basis for the six-month period ended June 30, 2016. Over that period, the Fund had returns of 6.18% on a NAV basis and 5.63% on a market price basis, while the Index returned 4.23% over the same period. Since inception through June 30, 2016, the Fund had annualized returns of 4.39% on a NAV basis and -0.19% on a market price basis, with the Index returning 2.69% over the same period. During the six months ended June 30, 2016, the Fund has traded at an average discount to NAV of  -10.5%.

We appreciate your continued commitment in your investment with the Fund. If you have questions, please contact us directly at 855-400-FWCP (3927) or via email at info@fourwoodcapital.com. Additional information on the Fund is available at www.fwcapitaladvisors.com/tslf.

Sincerely,

Steven A. Baffico
President – THL Credit Senior Loan Fund
Managing Partner & CEO – Four Wood Capital Advisors LLC

The views expressed reflect the opinion of Four Wood Capital Advisors LLC and THL Credit Advisors LLC as of the date of this report and are subject to change at any time based on changes in the market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results. FWCA and THL Credit are not obligated to publicly update or revise any of the views expressed herein.

1

The Credit Suisse Leveraged Loan Index is an unmanaged market value-weighted index designed to mirror the investable universe of the U.S. dollar-denominated leveraged loan market. New issues are added to the index on their effective date if they qualify according to the following criteria: loan facilities must be rated “BB” or lower; only fully-funded term loan facilities are included; and issuers must be domiciled in developed countries. It is not possible to invest directly in an index.

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2

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4

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5

S&P Capital IQ LCD according to the S&P/LSTA Leveraged Loan Index Default Rate as of June 30, 2016 and December 31, 2015.

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6

Comparable peers defined as all closed end funds included in the Morningstar Category of Bank Loan, excluding funds that invest in fixed rate securities instead of floating rate securities and funds whose primary objective invests less than 70% of their Managed Assets in senior loans.

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THL Credit Senior Loan Fund
Performance & Statistics (unaudited) June 30, 2016

​	Weighted Average Loan Spread(4)	​	​	​	​	5.41%	​	​
​	Weighted Average Days to Reset	​	​	​	​	47	​	​
​	Weighted Average Bond Coupon Rate	​	​	​	​	7.57%	​	​
​	Weighted Average Bond Duration (years)	​	​	​	​	4.85	​	​
​	Average Position Size	​	​	​	$	1,335,764	​	​
​	Number of Positions	​	​	​	​	134	​	​

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6 Month

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1 Year

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Since Inception(5)

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THL Credit Senior Loan Fund

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NAV(6)

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6.18%

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1.94%

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4.39%

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Market Price

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5.63%

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4.01%

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(0.19)%

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CS Leveraged Loan Index(7)

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4.23%

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0.93%

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2.69%

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​	Mood Media Corporation, Term Loan - First Lien	​	​	​	​	2.39%	​	​
​	Scientific Games International, Inc., Term Loan B-2 - First Lien	​	​	​	​	2.06%	​	​
​	Alvogen Pharma US Inc., Term Loan - First Lien	​	​	​	​	1.71%	​	​
​	SolarWinds, Inc., Initial US Term Loan - First Lien	​	​	​	​	1.59%	​	​
​	Pre-Paid Legal Services, Inc. (Legalshield), Term Loan (2013) - First Lien	​	​	​	​	1.48%	​	​
​	Cvent Inc., Term Loan - First Lien	​	​	​	​	1.33%	​	​
​	Checkout Holding Corp., Term Loan B - First Lien	​	​	​	​	1.31%	​	​
​	Power Buyer, LLC (Powerteam Services), Initial Term Loan - Second Lien	​	​	​	​	1.30%	​	​
​	CWGS Group LLC (Camping World), Term Loan B - First Lien	​	​	​	​	1.29%	​	​
​	Lanyon Solutions, Inc., Term Loan - First Lien	​	​	​	​	1.29%	​	​

​	Services: Business	​	​	​	​	12.84%	​	​
​	Technology: Software	​	​	​	​	9.16%	​	​
​	Technology: Services	​	​	​	​	8.00%	​	​
​	Retail	​	​	​	​	6.34%	​	​
​	Telecommunications	​	​	​	​	6.32%	​	​

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See accompanying Notes to Financial Statements

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See accompanying Notes to Financial Statements

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See accompanying Notes to Financial Statements

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See accompanying Notes to Financial Statements

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See accompanying Notes to Financial Statements

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See accompanying Notes to Financial Statements

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‡

Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. Total fair value of Rule 144A securities amounts to $11,297,872 which represents approximately 8.6% of net assets as of June 30, 2016. Unless otherwise noted, 144A securities are deemed to be liquid.

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(a)

Senior loans pay interest at rates that are periodically determined on the basis of a floating benchmark lending rate plus a spread. The most popular benchmark lending rate is the London Interbank Offered Rate (“LIBOR”). LIBOR is based on rates that contributor banks in London charge each other for interbank deposits and is typically used to set coupon rates on floating rate debt securities. The rate shown represents the contractual rate (benchmark rate or floor plus spread) in effect at period end. Senior Loans often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual maturity may be substantially less than the stated maturity shown.

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(b)

Fair Value Level 3 security. All remaining securities are categorized as Level 2.

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(c)

Rate shown reflects the 7-day yield as of June 30, 2016.

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See accompanying Notes to Financial Statements

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See accompanying Notes to Financial Statements

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See accompanying Notes to Financial Statements

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See accompanying Notes to Financial Statements

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See accompanying Notes to Financial Statements

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THL Credit Senior Loan Fund
Statement of Cash FlowsFor the Period January 1, 2016 to June 30, 2016

See accompanying Notes to Financial Statements

   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2016   15​

1.

Based on average daily shares outstanding.

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2.

Realized and unrealized gain on investments and delayed draw loan commitments per share in this caption are balancing amounts necessary to reconcile the change in net asset value per share for the period, and may not reconcile with the aggregate gains and losses in the Statement of Operations due to the share transactions for the period.

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3.

Total return based on net asset value reflects changes in the Fund’s net asset value during each period. Total return based on market value reflects changes in market value. Each figure assumes that dividend and capital gain distributions, if any, were reinvested. For NAV total returns, distributions are assumed to be reinvested at NAV on the distribution date. For market value total returns, distributions are assumed to be reinvested at the prices obtained under the Fund’s Dividend Reinvestment Plan. These figures will differ depending upon the level of any discount from or premium to net asset value at which the Fund’s shares traded during the period.

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4.

Annualized.

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5.

Average for the period since the first borrowing day of October 15, 2013.

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6.

Asset coverage equals the total net assets plus borrowings divided by the borrowings of the Fund outstanding at period end (Note 4). As debt outstanding changes, level of invested assets may change accordingly. Asset coverage ratio provides a measure of leverage.

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See accompanying Notes to Financial Statements

16   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2016   

Notes to Financial Statements (unaudited) June 30, 2016

1. ORGANIZATION

THL Credit Senior Loan Fund (the “Fund”) is a non-diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended. The Fund is an unincorporated business trust established under the laws of Delaware by an Agreement and Declaration of Trust dated July 30, 2013. The Fund commenced operations on September 20, 2013. The Fund’s investment objective is to provide current income and preservation of capital primarily through investments in U.S. dollar-denominated senior secured corporate loans and notes (“Senior Loans”). Under normal market conditions, the Fund will invest 100% of its Managed Assets in the securities of issuers located in North America and does not currently intend to invest a material amount of its Managed Assets outside the United States. For the purposes of complying with these requirements, an issuer will be located in North America if its legal domicile is in North America or if the legal domicile of any co-issuer that is controlling, controlled by or under common control with the issuer is in North America where the co-issuer is (i) 100% responsible for the payment of principal and interest on the loan or security and (ii) the Fund has direct recourse against the co-issuer in the United States courts in the event that 100% of the payment of principal and interest on the securities is not made. Investments in issuers deemed to be located in the United States for these purposes will be deemed to be investments in the United States. Four Wood Capital Advisors LLC (the “Adviser” or “FWCA”) serves as the Fund’s investment adviser (the “Adviser”). FWCA has engaged THL Credit Advisors LLC (the “Sub-adviser” or “THL Credit”) to serve as the sub-adviser to the Fund.

2. SIGNIFICANT ACCOUNTING POLICIES

The Fund is an investment company that applies the accounting and reporting guidance issued in Topic 946 by the U.S. Financial Accounting Standards Board. The Fund’s financial statements have been prepared to comply with U.S. generally accepted accounting principles (‘‘U.S. GAAP’’). These principles require the Fund’s investment adviser to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. The Fund follows the significant accounting policies described in this section, as well as the valuation policies described in the next section on valuation.

The following summarizes the significant accounting policies followed by the Fund in the preparation of its financial statements.

Securities Valuation: The Fund holds portfolio securities that are fair valued at the close of each day on the New York Stock Exchange (“NYSE”), normally at 4:00 P.M., Eastern Time. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Board of Trustees (the “Board”) has delegated fair valuation responsibilities to a valuation committee (the “Committee”), subject to the Board’s supervision and direction, through the adoption of procedures for valuation of the Fund’s securities (the “Valuation Procedures”). The Committee consists of certain designated individuals of the Fund’s Adviser and Sub-adviser. Under the current Valuation Procedures, the Committee is responsible for, among other things, determining and monitoring the value of the Fund’s assets. The Valuation Procedures allow the Fund to utilize independent pricing vendor services, quotations from market makers and other valuation methods in events when market quotations are not readily available or not representative of the fair value of the securities.

The Fund’s securities are valued by various methods, as described below:

Senior Loans shall be valued at prices supplied by the Fund’s pricing agent based on broker-dealer supplied valuations (including mid or average prices) and other criteria or directly by independent brokers when the pricing agent does not provide a price or the Valuation Committee does not believe that the pricing agent price reflects the current market value. If a price of a position is sought using independent brokers, the Sub-adviser shall seek to obtain an evaluation bid price from at least two independent brokers who are knowledgeable about the position. The price of the position would be deemed to be an average of such bid prices.

   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2016   17​

THL Credit Senior Loan Fund

Notes to Financial Statements (unaudited) (continued) June 30, 2016

 

2. SIGNIFICANT ACCOUNTING POLICIES (continued)
 

Fixed income securities shall be valued at prices supplied by the Fund’s pricing agent based on broker-dealer supplied valuations, or in the absence of broker-dealer supplied valuations, matrix pricing, a method of valuing securities by reference to the value of other securities with similar characteristics, such as rating, interest rate and maturity.

Certain short-term debt instruments will be valued on an amortized cost basis. Under this method of valuation, the instrument is initially valued at cost. For securities purchased at a discount or premium, the Fund assumes a constant proportionate amortization in value until maturity, regardless of the impact of fluctuating interest rates on the market value of the instrument. While the amortized cost method provides certainty in valuation, it may result in periods during which value, as determined by amortized cost, is higher or lower than the price that would be received upon sale of the instrument. The Committee may from time to time utilize a valuation method other than amortized cost when appropriate, for example, when credit worthiness of the issuer is impaired or for other reasons.

Fair Value Measurement

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below:

Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, quoted prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates, and similar data.

Level 3 — Unobservable inputs for the asset or liability to the extent that relevant observable inputs are not available, representing the Fund’s own assumptions that a market participant would use in valuing the asset or liability based on the best information available.

Investments that use Level 2 or Level 3 inputs may include, but are not limited to: (i) an unlisted security related to corporate actions; (ii) a restricted security (e.g., one that may not be publicly sold without registration under the Securities Act of 1933 as amended); (iii) a security whose trading has been suspended or which has been de-listed from its primary trading exchange; (iv) a security that is thinly traded; (v) a security in default or bankruptcy proceedings for which there is no current market quotation; (vi) a security affected by currency controls or restrictions; and (vii) a security affected by a significant event (e.g., an event that occurs after the close of the markets on which the security is traded but before the time as of which a Fund’s net asset value is computed and that may materially affect the value of the Fund’s investment). Examples of events that may be “significant events” are government actions, natural disasters, armed conflicts and acts of terrorism.

The categorization of a value determined for investments is based on the pricing transparency of the investment and does not necessarily correspond to the Fund’s perceived risk of investing in those securities.

The valuation techniques used by the Fund to measure fair value during the six months ended June 30, 2016 were intended to maximize the use of observable inputs and to minimize the use of unobservable inputs.

18   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2016   

THL Credit Senior Loan Fund

Notes to Financial Statements (unaudited) (continued) June 30, 2016

 

2. SIGNIFICANT ACCOUNTING POLICIES (continued)
 

The following table summarizes the valuation of the Fund’s investments under the fair value hierarchy levels as of June 30, 2016:

*Please refer to Schedule of Investments for breakdown of valuations by industry.

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THL Credit Senior Loan Fund

Notes to Financial Statements (unaudited) (continued) June 30, 2016

 

2. SIGNIFICANT ACCOUNTING POLICIES (continued)
 

The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:

There were no transfers between Level 1 and 2 during the period. It is the Fund’s policy to recognize transfers into and out of all levels at the beginning of the reporting period.

Information about Level 3 fair value measurements as of June 30, 2016:

Investment Transactions and Investment Income

Investment transactions are accounted for on the trade date. Interest income, adjusted for the accretion of discount and amortization of premiums, is recorded on an accrual basis. Realized gains and losses on investments, if any, are determined on an identified cost basis. Dividend income is recorded on the ex-dividend date. Paydown gains and losses are netted and recorded as interest income on the Statement of Operations.

Interest Expense

Interest expense primarily relates to the Fund’s borrowings and is recorded on an accrual basis.

Federal Income Tax Information

The Fund intends to continue to qualify as a regulated investment company by complying with the requirements of Subchapter M of the U.S. Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distribute substantially all of its earnings to its shareholders. In early 2016, the Fund paid an excise tax liability of approximately $13,415 relating to the tax year 2015.

Income distributions and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences and differing characterization of distributions made by the Fund as a whole.

20   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2016   

THL Credit Senior Loan Fund

Notes to Financial Statements (unaudited) (continued) June 30, 2016

 

2. SIGNIFICANT ACCOUNTING POLICIES (concluded)

Fund management has determined that the Fund has not taken any uncertain tax positions that require adjustment to the financial statements. The Fund will file income tax returns in the U.S. federal jurisdiction and tax returns in certain other jurisdictions. As of June 30, 2016, the tax years ended December 31, 2013, 2014 and 2015 remains subject to examination by the Fund’s major tax jurisdictions.

Distributions

The Fund intends to make regular monthly cash distributions of all or a portion of its investment company taxable income (which includes ordinary income and short-term capital gains) to common shareholders. The Fund also intends to pay any “net capital gains” (which is the excess of net long-term capital gains over net short-term capital losses) annually. Distributions to shareholders are recorded on the ex-dividend date. To the extent distributions exceed current and accumulated earnings and profits for federal income tax purposes, they are reported as distributions to shareholders from return of capital.

Indemnifications

Under the Fund’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts that provide general indemnifications to other parties. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred.

3. SENIOR LOANS

Under normal market conditions, the Fund will invest at least 80.0% of its Managed Assets, defined as the total assets of the Fund (including any assets attributable to borrowings for investment purposes), minus the sum of the Fund’s accrued liabilities (other than liabilities representing borrowings for investment purposes), in fully collateralized, first lien corporate loans and notes. At June 30, 2016, 82.2% of the Fund’s Managed Assets were held in first lien Senior Loans.

Senior Loans are generally non-investment grade floating rate instruments that are secured by assets of the borrower. They generally hold a senior position in the capital structure of a borrower. Thus, they are generally repaid before unsecured Bank Loans, corporate bonds, subordinated debt, trade creditors, and preferred or common stockholders.

Senior Loans often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual maturity may be substantially less than the stated maturity shown. Senior loans typically pay interest at rates that are periodically determined on the basis of a floating benchmark lending rate plus a spread.

Risks associated with first lien Senior Loans include (i) the borrower’s inability to meet principal and interest payments on its obligations; (ii) the fact that prepayments may occur at any time without premium or penalty and that the exercise of prepayment rights during periods of declining spreads could cause the Fund to reinvest prepayment proceeds in lower-yielding investments, and (iii) price volatility due to such factors as interest rate sensitivity, market perception of the credit worthiness of the borrower and general market liquidity.

Second lien loans are generally second in line in terms of repayment priority. Second lien loans generally are subject to similar risks as those associated with investments in first lien Senior Loans. In addition, because second lien loans are subordinated in payment and/or lower in lien priority to first lien Senior Loans, they are subject to additional risk that the cash flow of the borrower and property securing the loan or debt may be insufficient to meet scheduled payments after giving effect to the senior secured obligations of the borrower. At June 30, 2016, the Fund had invested $17,040,964 in second lien loans.

   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2016   21​

THL Credit Senior Loan Fund

Notes to Financial Statements (unaudited) (continued) June 30, 2016

 

3. SENIOR LOANS (concluded)

The Fund may purchase assignments of, and participations in, Senior Loans originated, negotiated and structured by a U.S. or foreign commercial bank, insurance company, finance company or other financial institution (the “Agent”) for a lending syndicate of financial institutions (the “Lender”). When purchasing an assignment, the Fund succeeds to all the rights and obligations under the loan agreement with the same rights and obligations as the assigning Lender. Assignments may, however, be arranged through private negotiations between potential assignees and potential assignors, and the rights and obligations acquired by the purchaser of an assignment may differ from, and be more limited than, those held by the assigning Lender.

4. BORROWINGS

On September 30, 2015 the Fund amended its existing $70.0 million credit agreement with The Bank of New York Mellon, extending the facility’s expiration date to September 28, 2016 (the “Credit Facility”). The amended credit agreement also modified the interest rate and unused commitment fee rate. In accordance with the 1940 Act, the Fund’s borrowings under the Credit Facility will not exceed 33% of the Fund’s Managed Assets at the time of borrowing. Borrowings under the Credit Facility are secured by the Fund’s assets as collateral. The Credit Facility bears an unused commitment fee on the unused portion of the credit facility (the “Unused Facility Amount”) equal to 0.10% if the outstanding principal balance is equal to or greater than 80% of the Credit Facility on such date or 0.20% if the outstanding principal balance is less than 80% of the Credit Facility on such date. The per annum rate of interest for borrowing under the Credit Facility is equal to (a) the London Interbank Offered Rate (“LIBOR”) for one, two, three, six or twelve months, as selected by the Fund, plus 0.850% per annum or (b) the greater of (i) the Prime Rate and (ii) 0.50% plus the Federal Funds Effective Rate per annum and is payable monthly. At June 30, 2016, the Fund had borrowings outstanding of  $52,000,000 at an average interest rate of 1.31%. Due to the short term nature of the Credit Facility, face value approximates fair value at June 30, 2016. For the six month period ended June 30, 2016, the average borrowings under the Credit Facility and the average interest rate were $51,241,758 and 1.28%, respectively. As of June 30, 2016, the Fund’s effective leverage represented 28.4% of the Fund’s Managed Assets.

Under the Credit Facility, the Fund has agreed to certain covenants and additional investment limitations while the leverage is outstanding. The Fund agrees to maintain asset coverage of three times over outstanding borrowings.

The Fund utilizes the Credit Facility to increase its assets available for investment. When the Fund leverages its assets, common shareholders bear the fees associated with the Credit Facility and have the potential to benefit from or be disadvantaged by the use of leverage. The investment advisory fee is also increased in dollar terms from the use of leverage. Consequently, the Fund and the Adviser may have differing interest in determining whether to leverage the Fund’s assets. Leverage creates risks that may adversely affect the return for the holders of common shares, including:

•

the likelihood of greater volatility of net asset value and market price of common shares;

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•

fluctuations in the interest rate paid for the use of the credit facility;

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•

increased operating costs, which may reduce the Fund’s total return;

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•

the potential for a decline in the value of an investment acquired through leverage, while the Fund’s obligations under such leverage remains fixed; and

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•

the Fund is more likely to have to sell securities in a volatile market in order to meet asset coverage or other debt compliance requirements.

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To the extent the income or capital appreciation derived from securities purchased with funds received from leverage exceeds the cost of leverage, the Fund’s return will be greater than if leverage had not been used; conversely, returns would be lower if the cost of the leverage exceeds the income or capital appreciation derived.

22   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2016   

THL Credit Senior Loan Fund

Notes to Financial Statements (unaudited) (continued) June 30, 2016

 

4. BORROWINGS (concluded)

In addition to the risks created by the Fund’s use of leverage, the Fund is subject to the risk that it would be unable to timely, or at all, obtain replacement financing if the Credit Facility is terminated. Were this to happen, the Fund would be required to de-leverage, selling securities at a potentially inopportune time and incurring tax consequences. Further, the Fund’s ability to generate income from the use of leverage would be adversely affected.

5. MANAGEMENT FEES, ADMINISTRATIVE FEES AND OTHER AGREEMENTS

The Adviser administers the business and affairs of the Fund. The Adviser also selects (subject to Board approval), contracts with and compensates the Sub-adviser to manage the investment and reinvestment of the assets of the Fund. The Adviser does not itself manage the Fund’s portfolio of assets but has ultimate responsibility to oversee the Sub-adviser. In this connection, the Adviser oversees the Sub-adviser’s management of the Fund’s investment operations in accordance with the investment objectives and related policies of the Fund, reviews the Sub-adviser’s performance and reports periodically on such performance to the Board.

The Fund pays the Adviser as compensation under an advisory agreement an annual fee in the amount of 1.05% of the average daily Managed Assets.

The Fund has retained Four Wood Capital Partners LLC (“FWCP”), an affiliate of the Adviser, to provide investor support services in connection with the on-going operation of the Fund. Such services include providing ongoing contact with respect to the Fund and its performance with financial advisors that are representatives of broker-dealers and other financial intermediaries and communicating with the NYSE specialist for the Fund’s common shares, and with the closed-end analyst community regarding the Fund on a regular basis. The Fund pays FWCP as compensation under an investor support services agreement an annual fee in the amount of 0.05% of the average daily Managed Assets of the Fund. FWCP may separately contract with and coordinate the activities of a third party to provide certain of the above described services.

The Bank of New York Mellon, the Fund’s administrator, accounting agent and custodian, holds the Fund’s assets, will settle all portfolio trades and will be responsible for calculating the Fund’s net asset value and maintaining the accounting records of the Fund.

American Stock Transfer and Trust Company, LLC is the Fund’s transfer agent, registrar, dividend disbursing agent and shareholder servicing agent, as well as the agent for the Fund’s dividend reinvestment plan.

Foreside Compliance Services, LLC provides a Chief Compliance Officer to the Fund.

The Fund pays every independent trustee a fee of $15,000 per annum, plus $3,000 per in person meeting fee for serving as a trustee of the Fund.

6. PORTFOLIO TRANSACTIONS

For the six month ended June 30, 2016, purchases and sales of investments, other than short-term securities, were $38,433,452 and $33,415,534, respectively.

7. CAPITAL

The following is a summary of share transactions for the six month ended June 30, 2016:

   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2016   23​

THL Credit Senior Loan Fund

Notes to Financial Statements (unaudited) (continued) June 30, 2016

 

8. INCOME TAX INFORMATION

The Fund is required to evaluate tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Income tax and related interest and penalties would be recognized by the Fund as tax expense in the Statement of Operations if the tax positions were deemed to not meet the more-likely-than-not threshold. For the six month period ended June 30, 2016, the Fund did not incur any income tax, interest, or penalties. As of June 30, 2016, the Advisor has reviewed all open tax years and concluded that there was no impact to the Fund’s net assets or results of operations. Tax years ended December 31, 2013, 2014 and 2015 will remain subject to examination by the Internal Revenue Service and state taxing authorities. On an ongoing basis, the Advisor will monitor its tax positions to determine if adjustments to this conclusion are necessary.

The Fund distinguishes between dividends on a tax basis and on a financial reporting basis and only distributions in excess of tax basis earnings and profits are reported in the financial statements as a tax return of capital. Differences in the recognition or classification of income between the financial statements and tax earnings and profits which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized losses in the components of net assets on the Statement of Assets and Liabilities.

The amounts and characteristic of tax basis distributions and composition of distributable earnings/​(accumulated losses) are finalized at the fiscal year end; accordingly, tax basis balances have not been determined as of June 30, 2016.

As determined at December 31, 2015, certain permanent differences between financial and tax accounting were reclassified. These differences were primarily due to the differing tax treatment of certain investments and the payment of excise taxes. The amounts reclassified did not affect net assets. The reclassifications decreased accumulated net realized loss on investments by $246,971, decreased accumulated net investment income by $224,706 and decreased paid-in-capital by $22,265.

The tax character of distributions paid by the Fund during the fiscal years ended December 31, are as follows:

As of December 31, 2015 the Fund had accumulated net realized capital loss carryovers from security transactions for Federal income tax purposes as shown in the table below. This amount may be used to offset realized capital gains if any, for an unlimited time.

The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The Fund does not have capital losses with no expiration.

Certain capital and qualified late year losses incurred after October 31, and within the current taxable year, are deemed to arise on the first business day of the Fund’s following taxable year. The Fund elected to treat post-October capital losses of  $1,092,096 as having been incurred in the following fiscal year December 31, 2016.

24   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2016   

THL Credit Senior Loan Fund

Notes to Financial Statements (unaudited) (concluded) June 30, 2016

 

8. INCOME TAX INFORMATION (concluded)

At December 31, 2015, the tax components of net assets was as follows:

At June 30, 2016, the cost basis of portfolio securities for federal income tax purposes is $197,968,095. Gross unrealized appreciation is $1,043,427, gross unrealized depreciation is $10,453,357 and net unrealized depreciation is $9,409,930. There is no difference between book and tax cost basis.

9. DELAYED DRAW LOAN COMMITMENTS

As of June 30, 2016, the Fund had no delayed draw loan commitments outstanding.

Delayed draw loan commitments are marked to market on the relevant day of the valuation in accordance with the Fund’s valuation policy. Any related unrealized appreciation (depreciation) on unfunded delayed draw loan commitments is recorded on the Statement of Assets and Liabilities and the Statements of Operations.

10. SUBSEQUENT EVENTS

In preparing these financial statements, the Fund’s management has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

On July 29, 2016, the Fund paid a regularly scheduled distribution in the amount of  $0.105 per share to shareholders of record as of July 18, 2016.

On August 1, 2016, the Fund borrowed an additional $2 million on its Credit Facility, bringing the total borrowings outstanding to $54,000,000.

The Fund declared a regularly scheduled distribution in the amount of  $0.105 per share payable on August 31, 2016 to shareholders of record as of August 19, 2016.

   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2016   25​

Supplemental Information (unaudited)June 30, 2016

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The THL Credit Senior Loan Fund (the “Fund”) and the Fund’s transfer agent collect only relevant information about the Fund’s shareholders that the law allows or requires us to have in order to conduct our business and properly service you. We collect non-public financial and other personal information about you from the following sources (“Personal Information”):

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Information you provide on applications or other forms (for example, your name, address, social security number and birth date)

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