Prospect Capital(US:PSEC)2023-09-08 20:13Management and Operations - The company currently has no employees and relies on Prospect Capital Management for its investment activities[60]. - The portfolio managers, John F. Barry III and M. Grier Eliasek, have each served for 19 years and own over $1,000,000 in common stock[62][65]. - The company bears all operational costs, including investment advisory fees and expenses related to monitoring investments[66]. - The company has a license agreement with Prospect Capital Management to use the "Prospect Capital" name as long as the advisory agreement is in effect[67]. - The company has adopted compliance policies to prevent violations of U.S. federal securities laws and conducts annual reviews of these policies[162]. - The company has established a proxy voting committee to evaluate and vote on proxy matters, ensuring alignment with stockholder interests[178]. Financial Performance and Valuation - The net asset value per share is calculated quarterly by subtracting liabilities and preferred stock from total assets, divided by the number of common shares outstanding[68]. - Fair value determinations for investments without readily available market quotations involve subjective judgments and may differ significantly from actual market values[71][73]. - The independent valuation firms assist in determining fair values for investments, which are reviewed by the Audit Committee and the Board of Directors[72]. - As of June 30, 2023, the company's asset coverage ratio stood at 297.0%, with senior securities representing indebtedness of $2.6 billion[160]. - The company has received stockholder approval to reduce the asset coverage requirement from 200% to 150%, allowing for a 2:1 debt to equity ratio[160]. - A 300 basis point increase in interest rates could lead to an increase in net investment income by approximately $106,362,000[708]. Dividend and Distribution Policies - The company has adopted a dividend reinvestment plan (DRIP) that allows stockholders to reinvest dividends at a 5% discount to the market price[74][79]. - There are no brokerage charges for stockholders participating in the DRIP, and the plan administrator's fees are covered by the company[80]. - The company reserves the right to purchase shares in the open market for the DRIP implementation, depending on market conditions[79]. - Cash dividends and distributions payable on all shares credited to the Plan account will be automatically reinvested in additional shares[83]. - The first dividend payable with respect to newly-issued shares of 5.50% Preferred Stock and 6.50% Preferred Stock will be paid in cash, with subsequent dividends reinvested[94]. - The Plan may be terminated by the company upon notice in writing mailed to each participant at least 30 days prior to any payable date for the payment of any dividend[85]. Taxation and Regulatory Compliance - The company has elected to be treated as a RIC under Subchapter M of the Code, which allows it to avoid corporate-level U.S. federal income taxes on ordinary income or capital gains distributed to stockholders as dividends[113]. - To qualify as a RIC, the company must distribute at least 90% of its investment company taxable income each taxable year, which includes ordinary income and excess realized net short-term capital gains over realized net long-term capital losses[113]. - The company is subject to a 4% non-deductible U.S. federal excise tax on certain undistributed income unless it distributes at least 98% of ordinary income and 98.2% of capital gain net income recognized during the calendar year[118]. - If the company fails to meet the Annual Distribution Requirement, it would be subject to tax on all taxable income at regular corporate rates and would not be able to deduct distributions to stockholders[124]. - Non-U.S. stockholders may face a 30% withholding tax on distributions that are not effectively connected with a U.S. trade or business[140]. - The company must provide written notice to stockholders regarding deemed distributions within 60 days after the close of the relevant taxable year[131]. Investment Strategy and Risk Management - The company may invest in partnerships, and income derived from such partnerships will be treated as qualifying income for the 90% Income Test only if it is attributable to items of income that would be qualifying income if realized directly by the company[115]. - The company must ensure that at least 50% of the value of its assets consists of cash, U.S. government securities, and other qualifying securities, and no more than 25% of its assets can be invested in the securities of any one issuer[121]. - The company may be required to recognize taxable income even if it does not receive cash, such as in the case of original issue discount on debt obligations[119]. - The company monitors its transactions to mitigate the effects of complex U.S. federal income tax provisions that may limit losses or deductions[125]. - The company is subject to financial market risks, including changes in interest rates and equity price risk[705]. - The company is restricted from acquiring more than 3% of the voting stock of any regulated investment company under the 1940 Act[154]. Shareholder Information and Rights - Payments of dividends are subject to information reporting unless the stockholder is an exempt recipient[138]. - Clients can request information on how the company voted proxies on their behalf[183]. - Non-U.S. stockholders should consult tax advisors regarding the implications of U.S. federal income tax and withholding tax on their investments[148]. - A U.S. stockholder will recognize taxable gain or loss upon the sale or disposition of shares, treated as long-term capital gain if held for more than one year[133].