Table of Contents

As filed with the Securities and Exchange Commission on October 11, 2013

Registration No. 333-190850          

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-2

ý REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ý PRE-EFFECTIVE AMENDMENT NO. 1
o POST-EFFECTIVE AMENDMENT NO.    

PROSPECT CAPITAL CORPORATION
(Exact Name of Registrant as Specified in Charter)

10 East 40th Street, 44th Floor
New York, NY 10016

(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code: (212) 448-0702

John F. Barry III
Brian H. Oswald
c/o Prospect Capital Management LLC
10 East 40th Street, 44th Floor
New York, NY 10016
(212) 448-0702

(Name and Address of Agent for Service)

Copies of information to:

Richard T. Prins
Skadden Arps Slate Meagher & Flom LLP
4 Times Square
New York, NY 10036
(212) 735-3000



          Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement.

          If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a distribution reinvestment plan, check the following box.    ý

          It is proposed that this filing will become effective (check appropriate box):

o   when declared effective pursuant to section 8(c).

          If appropriate, check the following box:

o   This post-effective amendment designates a new effective date for a previously filed post-effective amendment registration statement.

o

 

This form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act and the Securities Act registration statement number of the earlier effective registration statement for the same offering is .

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

               
 
Title of Securities Being Registered
  Amount Being
Registered

  Proposed Maximum
Offering Price Per
Unit

  Proposed Maximum
Aggregate Offering
Price(1)

  Amount of
Registration Fee

 

Common Stock, $.001 par value per share(2)(3)

               
 

Preferred Stock, $.001 par value per share(2)

               
 

Subscription Rights(2)

               
 

Debt Securities(4)

               
 

Warrants(5)

               
 

Units(6)

               
 

Total

  $5,000,000,000       $5,000,000,000(7)   $663,110(1)(8)

 

(1)
Estimated solely for the purpose of calculating the registration fee. Pursuant to Rule 457(o) of the rules and regulations under the Securities Act of 1933 (the "Securities Act"), which permits the registration fee to be calculated on the basis of the maximum offering price of all the securities listed, the table does not specify by each class information as to the amount to be registered, proposed maximum offering price per unit or proposed maximum aggregate offering price. Pursuant to Rule 415(a)(6) under the Securities Act, this registration statement covers a total of $1,299,773,066 of unsold securities that had previously been registered under the registrant's registration statement on Form N-2, initially filed with the Securities and Exchange Commission (the "SEC") on August 26, 2012 (No. 333-183530) (the "Prior Registration Statement") and that are being carried forward to this registration statement. The Prior Registration Statement initially registered securities for a maximum aggregate offering price of $3,000,000,000 and of that amount the registrant has previously sold securities for an aggregate offering price of $1,700,226,934,

(Cover continued on next page)


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(2)
Subject to Note 7 below, there is being registered hereunder an indeterminate principal amount of common stock or preferred stock, or subscription rights to purchase any one or more securities being registered hereunder as may be sold, from time to time separately or as units in combination with other securities registered hereunder.

(3)
Includes such indeterminate number of shares of common stock as may, from time to time, be issued upon conversion or exchange of other securities registered hereunder, to the extent any such securities are, by their terms, convertible or exchangeable for common stock.

(4)
Subject to Note 7 below, there is being registered hereunder an indeterminate principal amount of debt securities as may be sold, from time to time. If any debt securities are issued at an original issue discount, then the offering price shall be in such greater principal amount as shall result in an aggregate price to investors not to exceed $5,000,000,000.

(5)
Subject to Note 7 below, there is being registered hereunder an indeterminate principal amount of warrants as may be sold, from time to time, representing rights to purchase common stock, preferred stock or debt securities.

(6)
Subject to Note 7 below, there is being registered hereunder an indeterminate number of units. Each unit may consist of a combination of any one or more securities being registered hereunder and may also include securities being issued by third parties, including the U.S. Treasury.

(7)
In no event will the aggregate offering price of all securities issued from time to time pursuant to this registration statement exceed $5,000,000,000.

(8)
$467,960 was previously paid and an additional $36,751 was paid in connection with this filing.

          THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATES AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

   


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission has been declared effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED OCTOBER 11, 2013

$5,000,000,000

LOGO

PROSPECT CAPITAL CORPORATION

Common Stock
Preferred Stock
Debt Securities
Subscription Rights
Warrants
Units

         We may offer, from time to time, in one or more offerings or series, together or separately, up to $5,000,000,000 of our common stock, preferred stock, debt securities, subscription rights to purchase our securities, warrants representing rights to purchase our securities or separately tradeable units combining two or more of our securities, collectively, the Securities, to provide us with additional capital. Securities may be offered at prices and on terms to be disclosed in one or more supplements to this prospectus. You should read this prospectus and the applicable prospectus supplement carefully before you invest in our Securities.

         We may offer shares of common stock, subscription rights, units, warrants, options or rights to acquire shares of common stock, at a discount to net asset value per share in certain circumstances. Sales of common stock at prices below net asset value per share dilute the interests of existing stockholders, have the effect of reducing our net asset value per share and may reduce our market price per share. At our 2012 annual meeting, held on December 7, 2012, subject to the condition that the maximum number of shares salable below net asset value pursuant to this authority in any particular offering that could result in such dilution is limited to 25% of our then outstanding common stock immediately prior to each such offering, our stockholders approved our ability to sell or otherwise issue shares of our common stock at any level of discount from net asset value per share for a twelve month period expiring on the anniversary of the date of stockholder approval. We are currently seeking stockholder approval at our 2013 annual meeting, to be held on December 6, 2013, to continue for an additional year our ability to issue shares of common stock below net asset value, subject to the condition that the maximum number of shares salable below net asset value pursuant to this authority in any particular offering that could result in such dilution is limited to 25% of our then outstanding common stock immediately prior to each such offering.

         Our Securities may be offered directly to one or more purchasers, or through agents designated from time to time by us, or to or through underwriters or dealers. The prospectus supplement relating to the offering will identify any agents, underwriters or dealers involved in the sale of our Securities, and will disclose any applicable purchase price, fee, commission or discount arrangement between us and our agents, underwriters or dealers, or the basis upon which such amount may be calculated. See "Plan of Distribution." We may not sell any of our Securities through agents, underwriters or dealers without delivery of the prospectus and a prospectus supplement describing the method and terms of the offering of such Securities. Our common stock is traded on The NASDAQ Global Select Market under the symbol "PSEC." As of October 10, 2013, the last reported sales price for our common stock was $11.07.

         Prospect Capital Corporation, or the Company, is a company that lends to and invests in middle market privately-held companies. Prospect Capital Corporation, a Maryland corporation, has been organized as a closed-end investment company since April 13, 2004 and has filed an election to be treated as a business development company under the Investment Company Act of 1940, as amended, or the 1940 Act, and is a non-diversified investment company within the meaning of the 1940 Act.

         Prospect Capital Management LLC, our investment adviser, manages our investments and Prospect Administration LLC, our administrator, provides the administrative services necessary for us to operate.

         Investing in our Securities involves a heightened risk of total loss of investment. Before buying any Securities, you should read the discussion of the material risks of investing in our Securities in "Risk Factors" beginning on page 12 of this prospectus.

         This prospectus contains important information about us that you should know before investing in our Securities. Please read it before making an investment decision and keep it for future reference. We file annual, quarterly and current reports, proxy statements and other information about us with the Securities and Exchange Commission, or the SEC. You may make inquiries or obtain this information free of charge by writing to Prospect Capital Corporation at 10 East 40th Street, 44th Floor, New York, NY 10016, or by calling 212-448-0702. Our Internet address is http://www.prospectstreet.com. Information contained on our website is not incorporated by reference into this prospectus and you should not consider information contained on our website to be a part of this prospectus. You may also obtain information about us from our website and the SEC's website (http://www.sec.gov).

         The SEC has not approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

         This prospectus may not be used to consummate sales of securities unless accompanied by a prospectus supplement.



   

The date of this Prospectus is                 , 2013.


TABLE OF CONTENTS

 
  Page

About This Prospectus

  1

Prospectus Summary

 
2

Selected Condensed Financial Data

 
10

Risk Factors

 
12

Management's Discussion and Analysis of Financial Condition and Results of Operations

 
44

Quantitative and Qualitative Disclosures about Market Risk

 
94

Report of Management on Internal Control Over Financial Reporting

 
95

Use of Proceeds

 
95

Forward-Looking Statements

 
96

Distributions

 
97

Senior Securities

 
100

Price Range of Common Stock

 
102

Business

 
104

Certain Relationships and Transactions

 
132

Control Persons and Principal Stockholders

 
133

Portfolio Companies

 
135

Determination of Net Asset Value

 
149

Sales of Common Stock Below Net Asset Value

 
150

Dividend Reinvestment Plan

 
154

Material U.S. Federal Income Tax Considerations

 
156

Description of Our Capital Stock

 
164

Description of Our Preferred Stock

 
171

Description of Our Debt Securities

 
171

Description of Our Subscription Rights

 
185

Description of Our Warrants

 
186

Description of Our Units

 
187

Regulation

 
188

Custodian, Transfer and Dividend Paying Agent and Registrar

 
193

Brokerage Allocation and Other Practices

 
194

Plan of Distribution

 
194

Legal Matters

 
196

Independent Registered Accounting Firm

 
196

Available Information

 
196

Index to Financial Statements

 
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ABOUT THIS PROSPECTUS

        This prospectus is part of a registration statement that we have filed with the SEC, using the "shelf" registration process. Under the shelf registration process, we may offer, from time to time on a delayed basis, up to $5,000,000,000 of our common stock, preferred stock, debt securities, subscription rights to purchase shares of our securities, warrants representing rights to purchase our securities or separately tradeable units combining two or more of our securities, on the terms to be determined at the time of the offering. The Securities may be offered at prices and on terms described in one or more supplements to this prospectus. This prospectus provides you with a general description of the Securities that we may offer. Each time we use this prospectus to offer Securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus. Please carefully read this prospectus and any prospectus supplement together with any exhibits and the additional information described under the heading "Available Information" and the section under the heading "Risk Factors" before you make an investment decision.

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PROSPECTUS SUMMARY

        The following summary contains basic information about this offering. It does not contain all the information that may be important to an investor. For a more complete understanding of this offering, we encourage you to read this entire document and the documents to which we have referred.

        Information contained or incorporated by reference in this prospectus may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which are statements about the future that may be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "plans," "anticipate," "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology. These forward-looking statements do not meet the safe harbor for forward-looking statements pursuant to Section 27A of the Securities Act of 1933, as amended, or the Securities Act. The matters described in "Risk Factors" and certain other factors noted throughout this prospectus and in any exhibits to the registration statement of which this prospectus is a part, constitute cautionary statements identifying important factors with respect to any such forward-looking statements, including certain risks and uncertainties, that could cause actual results to differ materially from those in such forward-looking statements. The Company reminds all investors that no forward-looking statement can be relied upon as an accurate or even mostly accurate forecast because humans cannot forecast the future.

        The terms "we," "us," "our," "Prospect," and "Company" refer to Prospect Capital Corporation; "Prospect Capital Management" or the "Investment Adviser" refers to Prospect Capital Management LLC, our investment adviser; and "Prospect Administration" or the "Administrator" refers to Prospect Administration LLC, our administrator.

The Company

        We are a financial services company that lends to and invests in middle market privately-held companies. In this prospectus, we use the term "middle-market" to refer to companies typically with annual revenues between $50 million and $2 billion.

        From our inception to the fiscal year ended June 30, 2007, we invested primarily in industries related to the industrial/energy economy, which consists of companies in the discovery, production, transportation, storage and use of energy resources as well as companies that sell products and services to, or acquire products and services from, these companies. Since then, we have widened our strategy to focus on other sectors of the economy and continue to broaden our portfolio holdings.

        We have been organized as a closed-end investment company since April 13, 2004 and have filed an election to be treated as a business development company under the 1940 Act. We are a non-diversified company within the meaning of the 1940 Act. Our headquarters are located at 10 East 40th Street, 44th Floor, New York, NY 10016, and our telephone number is (212) 448-0702.

The Investment Adviser

        Prospect Capital Management, an affiliate of the Company, manages our investment activities. Prospect Capital Management is an investment adviser that has been registered under the Investment Advisers Act of 1940, or the Advisers Act, since March 31, 2004. Under an investment advisory and management agreement between us and Prospect Capital Management, or the Investment Advisory Agreement, we have agreed to pay Prospect Capital Management investment advisory fees, which will consist of an annual base management fee based on our gross assets, which we define as total assets without deduction for any liabilities (and, accordingly, includes the value of assets acquired with proceeds from borrowings), as well as a two-part incentive fee based on our performance.

 

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Our Investment Objective and Policies

        Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. We focus on making investments in private companies. We are a non-diversified company within the meaning of the 1940 Act.

        We invest primarily in first and second lien senior loans and mezzanine debt. First and second lien senior loans generally are senior debt instruments that rank ahead of subordinated debt of a given portfolio company. These loans also have the benefit of security interests on the assets of the portfolio company, which may rank ahead of or be junior to other security interests. Mezzanine debt and our investments in CLOs are subordinated to senior loans and are generally unsecured. Our investments have generally ranged between $5 million and $250 million each, although the investment size may be more or less than this range. Our investment sizes are expected to grow as our capital base expands.

        We also acquire controlling interests in companies in conjunction with making secured debt investments in such companies. These may be in several industries, including industrial, service, real estate and financial businesses.

        We seek to maximize returns and minimize risk for our investors by applying rigorous analysis to make and monitor our investments. While the structure of our investments varies, we can invest in senior secured debt, senior unsecured debt, subordinated secured debt, subordinated unsecured debt, mezzanine debt, convertible debt, convertible preferred equity, preferred equity, common equity, warrants and other instruments, many of which generate current yield. While our primary focus is to seek current income through investment in the debt and/or dividend-paying equity securities of eligible privately-held, thinly-traded or distressed companies and long-term capital appreciation by acquiring accompanying warrants, options or other equity securities of such companies, we may invest up to 30% of the portfolio in opportunistic investments in order to seek enhanced returns for stockholders. Such investments may include investments in the debt and equity instruments of broadly-traded public companies. We expect that these public companies generally will have debt securities that are non-investment grade. Such investments may also include purchases (either in the primary or secondary markets) of the equity and junior debt tranches of a type of such pools known as CLOs. Structurally, CLOs are entities that are formed to hold a portfolio of senior secured loans ("Senior Secured Loans") made to companies whose debt is rated below investment grade or, in limited circumstances, unrated. The Senior Secured Loans within a CLO are limited to Senior Secured Loans which meet specified credit and diversity criteria and are subject to concentration limitations in order to create an investment portfolio that is diverse by Senior Secured Loan, borrower, and industry, with limitations on non-U.S. borrowers. CLOs are typically highly levered up to approximately 10 times, and therefore the junior debt and equity tranches that we will invest in are subject to a higher risk of total loss. Our potential investment in CLOs is limited by the 1940 Act to 30% of our portfolio. Within this 30% basket, we have and may make additional investments in debt and equity securities of financial companies and companies located outside of the United States.

The Offering

        We may offer, from time to time, in one or more offerings or series, together or separately, up to $5,000,000,000 of our Securities, which we expect to use initially to maintain balance sheet liquidity, involving repayment of debt under our credit facility, investment in high quality short-term debt instruments or a combination thereof, and thereafter to make long-term investments in accordance with our investment objectives.

        Our Securities may be offered directly to one or more purchasers, through agents designated from time to time by us, or to or through underwriters or dealers. The prospectus supplement relating to a particular offering will disclose the terms of that offering, including the name or names of any agents, underwriters or dealers involved in the sale of our Securities by us, the purchase price, and any fee,

 

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commission or discount arrangement between us and our agents, underwriters or dealers, or the basis upon which such amount may be calculated. See "Plan of Distribution." We may not sell any of our Securities through agents, underwriters or dealers without delivery of a prospectus supplement describing the method and terms of the offering of our Securities.

        We may sell our common stock, subscription rights, units, warrants, options or rights to acquire our common stock, at a price below the current net asset value of our common stock upon approval of our directors, including a majority of our independent directors, in certain circumstances. Our stockholders approved our ability to issue warrants, options or rights to acquire our common stock at our 2008 annual meeting of stockholders for an unlimited time period and in accordance with the 1940 Act which provides that the conversion or exercise price of such warrants, options or rights may be less than net asset value per share at the date such securities are issued or at the date such securities are converted into or exercised for shares of our common stock. At our 2012 annual meeting, held on December 7, 2012, subject to the condition that the maximum number of shares salable below net asset value pursuant to this authority in any particular offering that could result in such dilution is limited to 25% of our then outstanding common stock immediately prior to each such offering, our stockholders approved our ability to sell or otherwise issue shares of our common stock at any level of discount from net asset value per share for a twelve month period expiring on the anniversary of the date of the stockholder approval. We are currently seeking stockholder approval at our 2013 annual meeting, to be held on December 6, 2013, to continue for an additional year our ability to issue shares of common stock below net asset value, subject to the condition that the maximum number of shares salable below net asset value pursuant to this authority in any particular offering that could result in such dilution is limited to 25% of our then outstanding common stock immediately prior to each such offering. See "Sales of Common Stock Below Net Asset Value" in this prospectus and in the prospectus supplement, if applicable. Sales of common stock at prices below net asset value per share dilute the interests of existing stockholders, have the effect of reducing our net asset value per share and may reduce our market price per share. We have no current intention of engaging in a rights offering, although we reserve the right to do so in the future.

        Set forth below is additional information regarding the offering of our Securities:

Use of proceeds

  Unless otherwise specified in a prospectus supplement, we intend to use the net proceeds from selling Securities pursuant to this prospectus initially to maintain balance sheet liquidity, involving repayment of debt under our credit facility, if any, investments in high quality short-term debt instruments or a combination thereof, and thereafter to make long-term investments in accordance with our investment objective. Interest on borrowings under the credit facility is one-month LIBOR plus 275 basis points, with no minimum LIBOR floor. Additionally, the lenders charge a fee on the unused portion of the credit facility equal to either 50 basis points if at least half of the credit facility is drawn or 100 basis points otherwise. See "Use of Proceeds."

 

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Distributions

 

In June 2010, our Board of Directors approved a change in dividend policy from quarterly distributions to monthly distributions. Since that time, we have paid monthly distributions to the holders of our common stock and generally intend to continue to do so. The amount of the monthly distributions is determined by our Board of Directors and is based on our estimate of our investment company taxable income and net short-term capital gains. Certain amounts of the monthly distributions may from time to time be paid out of our capital rather than from earnings for the month as a result of our deliberate planning or accounting reclassifications. Distributions in excess of our current and accumulated earnings and profits constitute a return of capital and will reduce the stockholder's adjusted tax basis in such stockholder's common stock. A return of capital (1) is a return of the original amount invested, (2) does not constitute earnings or profits and (3) while such returns are initially tax free, they will have the effect of reducing the basis such that when a stockholder sells its shares, it may be subject to additional tax even if the shares are sold for less than the original purchase price. After the adjusted basis is reduced to zero, these distributions will constitute capital gains to such stockholders. Certain additional amounts may be deemed as distributed to stockholders for income tax purposes. Other types of Securities will likely pay distributions in accordance with their terms. See "Price Range of Common Stock," "Distributions" and "Material U.S. Federal Income Tax Considerations."

Taxation

 

We have qualified and elected to be treated for U.S. federal income tax purposes as a regulated investment company, or a RIC, under Subchapter M of the Internal Revenue Code of 1986, or the Code. As a RIC, we generally do not have to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that we distribute to our stockholders as dividends. To maintain our qualification as a RIC and obtain RIC tax treatment, we must satisfy certain source-of-income and asset diversification requirements and distribute annually at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. See "Distributions" and "Material U.S. Federal Income Tax Considerations."

Dividend reinvestment plan

 

We have a dividend reinvestment plan for our stockholders. This is an "opt out" dividend reinvestment plan. As a result, when we declare a dividend, the dividends are automatically reinvested in additional shares of our common stock, unless a stockholder specifically "opts out" of the dividend reinvestment plan so as to receive cash dividends. Stockholders who receive distributions in the form of stock are subject to the same U.S. federal, state and local tax consequences as stockholders who elect to receive their distributions in cash. See "Dividend Reinvestment Plan."

The NASDAQ Global Select Market Symbol

 

PSEC

 

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Anti-takeover provisions

 

Our charter and bylaws, as well as certain statutory and regulatory requirements, contain provisions that may have the effect of discouraging a third party from making an acquisition proposal for us. These anti-takeover provisions may inhibit a change in control in circumstances that could give the holders of our common stock the opportunity to realize a premium over the market price of our common stock. See "Description Of Our Capital Stock."

Management arrangements

 

Prospect Capital Management serves as our investment adviser. Prospect Administration serves as our administrator. For a description of Prospect Capital Management, Prospect Administration and our contractual arrangements with these companies, see "Business—Management Services—Investment Advisory Agreement," and "Business— Management Services—Administration Agreement."

Risk factors

 

Investment in our Securities involves certain risks relating to our structure and investment objective that should be considered by prospective purchasers of our Securities. In addition, as a business development company, our portfolio primarily includes securities issued by privately-held companies. These investments generally involve a high degree of business and financial risk, and are less liquid than public securities. We are required to mark the carrying value of our investments to fair value on a quarterly basis, and economic events, market conditions and events affecting individual portfolio companies can result in quarter-to-quarter mark-downs and mark-ups of the value of individual investments that collectively can materially affect our net asset value, or NAV. Also, our determinations of fair value of privately-held securities may differ materially from the values that would exist if there was a ready market for these investments. A large number of entities compete for the same kind of investment opportunities as we do. Moreover, our business requires a substantial amount of capital to operate and to grow and we seek additional capital from external sources. In addition, the failure to qualify as a RIC eligible for pass-through tax treatment under the Code on income distributed to stockholders could have a materially adverse effect on the total return, if any, obtainable from an investment in our Securities. See "Risk Factors" and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our Securities.

 

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Plan of distribution

 

We may offer, from time to time, up to $5,000,000,000 of our common stock, preferred stock, debt securities, subscription rights to purchase shares of our securities, warrants representing rights to purchase our securities or separately tradeable units combining two or more of our securities on the terms to be determined at the time of the offering. Securities may be offered at prices and on terms described in one or more supplements to this prospectus directly to one or more purchasers, through agents designated from time to time by us, or to or through underwriters or dealers. The supplement to this prospectus relating to the offering will identify any agents or underwriters involved in the sale of our Securities, and will set forth any applicable purchase price, fee and commission or discount arrangement or the basis upon which such amount may be calculated. We may not sell Securities pursuant to this prospectus without delivering a prospectus supplement describing the method and terms of the offering of such Securities. For more information, see "Plan of Distribution."

Fees and Expenses

        The following tables are intended to assist you in understanding the costs and expenses that an investor in this offering will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. In these tables, we assume that we have borrowed $2.3 billion. We do not intend to issue preferred stock during the year. Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by "you" or "us" or that "we" will pay fees or expenses, the Company will pay such fees and expenses out of our net assets and, consequently, you will indirectly bear such fees or expenses as an investor in the Company. However, you will not be required to deliver any money or otherwise bear personal liability or responsibility for such fees or expenses.

 
   
 

Stockholder transaction expenses:

       

Sales load (as a percentage of offering price)(1)

    3.00 %

Offering expenses borne by the Company (as a percentage of offering price)(2)

    0.20 %

Dividend reinvestment plan expenses(3)

    None  

Total stockholder transaction expenses (as a percentage of offering price)(4)

    3.20 %

Annual expenses (as a percentage of net assets attributable to common stock)(4):

       

Management fees(5)

    3.88 %

Incentive fees payable under Investment Advisory Agreement (20% of realized capital gains and 20% of pre-incentive fee net investment income)(6)

    3.06 %
       

Total advisory fees

    6.94 %
       

Total interest expense(7)

    4.32 %

Acquired Fund Fees and Expenses(8)

    0.02 %

Other expenses(9)

    1.21 %
       

Total annual expenses(6)(9)

    12.49 %
       

 

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Example

        The following table demonstrates the projected dollar amount of cumulative expenses we would pay out of net assets and that you would indirectly bear over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed we would have borrowed $2.3 billion, that our annual operating expenses would remain at the levels set forth in the table above and that we would pay the costs shown in the table above.

 
  1 Year   3 Years   5 Years   10 Years  

You would pay the following expenses on a $1,000 investment, assuming a 5% annual return

  $ 123.32   $ 293.98   $ 449.85   $ 782.94  

        While the example assumes, as required by the SEC, a 5% annual return, our performance will vary and may result in a return greater or less than 5%. The income incentive fee under our Investment Advisory Agreement with Prospect Capital Management is unlikely to be material assuming a 5% annual return and is not included in the example. If we achieve sufficient returns on our investments, including through the realization of capital gains, to trigger an incentive fee of a material amount, our distributions to our common stockholders and our expenses would likely be higher. In addition, while the example assumes reinvestment of all dividends and other distributions at NAV, participants in our dividend reinvestment plan will receive a number of shares of our common stock determined by dividing the total dollar amount of the distribution payable to a participant by the market price per share of our common stock at the close of trading on the valuation date for the distribution. See "Dividend Reinvestment Plan" for additional information regarding our dividend reinvestment plan.

        This example and the expenses in the table above should not be considered a representation of our future expenses. Actual expenses (including the cost of debt, if any, and other expenses) may be greater or less than those shown.


(1)
In the event that the Securities to which this prospectus relates are sold to or through underwriters, a corresponding prospectus supplement will disclose the estimated applicable sales load.

(2)
The related prospectus supplement will disclose the estimated amount of offering expenses, the offering price and the estimated offering expenses borne by us as a percentage of the offering price.

(3)
The expenses of the dividend reinvestment plan are included in "other expenses."

(4)
The related prospectus supplement will disclose the offering price and the total stockholder transaction expenses as a percentage of the offering price.

(5)
Our base management fee is 2% of our gross assets (which include any amount borrowed, i.e., total assets without deduction for any liabilities, including any borrowed amounts for non-investment purposes, for which purpose we have not and have no intention of borrowing). Although we have no intent to borrow the entire amount available under our line of credit, assuming that we borrowed $2.3 billion, the 2% management fee of gross assets equals approximately 3.88% of net assets. Based on our borrowings as of October 10, 2013 of $1.6 billion, the 2% management fee of gross assets equals approximately 3.44% of net assets. See "Business— Management Services—Investment Advisory Agreement" and footnote 6 below.

(6)
Based on the incentive fee paid during our fiscal year ended June 30, 2013, all of which consisted of an income incentive fee. The capital gain incentive fee is paid without regard to pre-incentive

 

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(7)
On December 21, 2010, the Company issued $150.0 million in aggregate principal amount of 6.25% Convertible Senior Notes due 2015, which we refer to as the 2015 Notes. See "Business—General" and "Risk Factors—Risks Related to our Business" in the accompanying prospectus for more detail on the 2015 Notes. On February 18, 2011, the Company issued $172.5 million in aggregate principal amount of 5.5% Convertible Senior Notes due 2016, which we refer to as the 2016 Notes. Between January 30, 2012 and February 2, 2012, we repurchased $5.0 million of our 2016 Notes at a price of 97.5% of par, including commissions. The transactions resulted in us recognizing $10,000 of loss in the quarter ended March 31, 2012. See "Business—General" and "Risk Factors—Risks Related to our Business" in the accompanying prospectus for more detail on the 2016 Notes. On April 16, 2012, the Company issued $130.0 million in aggregate principal amount of 5.375% Convertible Senior Notes due 2017, which we refer to as the 2017 Notes. On August 14, 2012, the Company issued $200.0 million aggregate principal amount of 5.75% Convertible Senior Notes due 2018, which we refer to as the 2018 Notes. On December 21, 2012, the Company issued $200.0 million aggregate principal amount of 5.875% Convertible Senior Notes due 2019, which we refer to as the 2019 Notes. The 2015 Notes, 2016 Notes, 2017 Notes, 2018 Notes and 2019 Notes are referred to collectively as the Senior Convertible Notes. On May 1, 2012 the Company issued $100.0 million in aggregate principal amount of 6.95% Senior Notes due 2022, which we refer to as the 2022 Notes. On March 15, 2013 the Company issued $250.0 million in aggregate principal amount of 5.875% Senior Notes due 2023, which we refer to as the 2023 Notes. As of October 10, 2013, the Company has issued $0.5 billion in aggregate principal amount of our Prospect Capital InterNotes®. The Senior Convertible Notes, the 2022 Notes, the 2023 Notes and the Prospect Capital InterNotes® are referred to collectively as the Notes.

(8)
The Company's stockholders indirectly bear the expenses of underlying investment companies in which the Company invests. This amount includes the fees and expenses of investment companies in which the Company is invested in as of June 30, 2013. When applicable, fees and expenses are based on historic fees and expenses for the investment companies and for those investment companies with little or no operating history, fees and expenses are based on expected fees and expenses stated in the investment companies' prospectus or other similar communication without giving effect to any performance. Future fees and expenses for certain investment companies may be substantially higher or lower because certain fees and expenses are based on the performance of the investment companies, which may fluctuate over time. The amount of the Company's average net assets used in calculating this percentage was based on net assets of approximately $2.7 billion as of June 30, 2013.

(9)
"Other expenses" are based on estimated amounts for the current fiscal year. The amount shown above represents annualized expenses during our three months ended June 30, 2013 representing all of our estimated recurring operating expenses (except fees and expenses reported in other items of this table) that are deducted from our operating income and reflected as expenses in our Statement of Operations. The estimate of our overhead expenses, including payments under an administration agreement with Prospect Administration, or the Administration Agreement, based on our projected allocable portion of overhead and other expenses incurred by Prospect Administration in performing its obligations under the Administration Agreement. "Other expenses" does not include non-recurring expenses. See "Business—Management Services—Administration Agreement."

 

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SELECTED CONDENSED FINANCIAL DATA

        You should read the condensed consolidated financial information below with the Consolidated Financial Statements and notes thereto included in this prospectus. Financial information below for the years ended June 30, 2013, 2012, 2011, 2010 and 2009 has been derived from the financial statements that were audited by our independent registered public accounting firm. Certain reclassifications have been made to the prior period financial information to conform to the current period presentation. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" starting on page 44 for more information.

 
  For the Year Ended June 30,  
 
  2013   2012   2011   2010   2009  
 
  (in thousands except data relating to shares, per share and
number of portfolio companies)

 

Performance Data:

                               

Interest income

  $ 435,455   $ 219,536   $ 134,454   $ 86,518   $ 62,926  

Dividend income

    82,705     64,881     15,092     15,366     22,793  

Other income

    58,176     36,493     19,930     12,675     14,762  
                       

Total investment income

    576,336     320,910     169,476     114,559     100,481  
                       

Interest and credit facility expenses

    (76,341 )   (38,534 )   (17,598 )   (8,382 )   (6,161 )

Investment advisory expense

    (151,031 )   (82,507 )   (46,051 )   (30,727 )   (26,705 )

Other expenses

    (24,040 )   (13,185 )   (11,606 )   (8,260 )   (8,452 )
                       

Total expenses

    (251,412 )   (134,226 )   (75,255 )   (47,369 )   (41,318 )
                       

Net investment income

    324,924     186,684     94,221     67,190     59,163  
                       

Realized and unrealized (losses) gains

    (104,068 )   4,220     24,017     (47,565 )   (24,059 )
                       

Net increase in net assets from operations

  $ 220,856   $ 190,904   $ 118,238   $ 19,625   $ 35,104  
                       

Per Share Data:

                               

Net increase in net assets from operations(1)

  $ 1.07   $ 1.67   $ 1.38   $ 0.33   $ 1.11  

Distributions declared per share

  $ (1.28 ) $ (1.22 ) $ (1.21 ) $ (1.33 ) $ (1.62 )

Average weighted shares outstanding for the period

    207,069,971     114,394,554     85,978,757     59,429,222     31,559,905  

Assets and Liabilities Data:

                               

Investments

  $ 4,172,852   $ 2,094,221   $ 1,463,010   $ 748,483   $ 547,168  

Other assets

    275,365     161,033     86,307     84,212     119,857  
                       

Total assets

    4,448,217     2,255,254     1,549,317     832,695     667,025  
                       

Amount drawn on credit facility

    124,000     96,000     84,200     100,300     124,800  

Senior convertible notes

    847,500     447,500     322,500          

Senior unsecured notes

    347,725     100,000              

InterNotes®

    363,777     20,638              

Amount owed to related parties

    6,690     8,571     7,918     9,300     6,713  

Other liabilities

    102,031     70,571     20,342     11,671     2,916  
                       

Total liabilities

    1,791,723     743,280     434,960     121,271     134,429  
                       

Net assets

  $ 2,656,494   $ 1,511,974   $ 1,114,357   $ 711,424   $ 532,596  
                       

Investment Activity Data:

                               

No. of portfolio companies at period end

    124     85     72     58     30  

Acquisitions

  $ 3,103,217   $ 1,120,659   $ 953,337   $ 364,788 (2) $ 98,305  

Sales, repayments, and other disposals

  $ 931,534   $ 500,952   $ 285,562   $ 136,221   $ 27,007  

Total return based on market value(3)

    6.2 %   27.2 %   17.2 %   17.7 %   (18.6 )%

Total return based on net asset value(3)

    10.9 %   18.0 %   12.5 %   (6.8 )%   (0.6 )%

Weighted average yield at end of period(4)

    13.6 %   13.9 %   12.8 %   16.2 %   14.6 %

(1)
Per share data is based on average weighted shares for the period.

 

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(2)
Includes $207,126 of acquired portfolio investments from Patriot Capital Funding, Inc.

(3)
Total return based on market value is based on the change in market price per share between the opening and ending market prices per share in each period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share in each period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan.

(4)
Excludes equity investments and non-performing loans.

 

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RISK FACTORS

        Investing in our Securities involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this prospectus, before you decide whether to make an investment in our Securities. The risks set forth below are not the only risks we face. If any of the adverse events or conditions described below occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our NAV, and the trading price of our common stock could decline, or the value of our preferred stock, debt securities, and warrants, if any are outstanding, may decline, and you may lose all or part of your investment.

Risks Relating to Our Business

Capital markets could experience a period of disruption and instability. Such market conditions have historically and could again have a material and adverse effect on debt and equity capital markets in the United States and abroad, which had, and may in the future have, a negative impact on our business and operations.

        The global capital markets have historically experienced an extended period of instability as evidenced by the periodic disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of certain major financial institutions. Despite actions of the U.S. federal government and foreign governments during such period, these events contributed to worsening general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular. While recent market conditions have improved, there can be no assurance that adverse market conditions will not repeat themselves or worsen in the future. If these adverse and volatile market conditions repeat themselves or worsen in the future, we and other companies in the financial services sector may have to access, if available, alternative markets for debt and equity capital in order to grow. Equity capital may be difficult to raise because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than net asset value without first obtaining approval for such issuance from our stockholders and our independent directors. At our annual meeting of stockholders held on December 7, 2012, subject to the condition that the maximum number of shares salable below net asset value pursuant to this authority in any particular offering that could result in such dilution is limited to 25% of our then outstanding common stock immediately prior to each such offering, our stockholders approved our ability to sell or otherwise issue shares of our common stock at a price below its then current net asset value per share for a twelve month period expiring on the anniversary of the date of stockholder approval. It should be noted that, theoretically, we may offer up to 25% of our then outstanding common stock each day. In addition, our ability to incur indebtedness (including by issuing preferred stock) is limited by applicable regulations such that our asset coverage, as calculated in accordance with the Investment Company Act, must equal at least 200% immediately after each time we incur indebtedness. The debt capital that will be available to us in the future, if at all, may be at a higher cost and on less favorable terms and conditions than what we currently experience. Any inability to raise capital could have a negative effect on our business, financial condition and results of operations.

        Moreover, the re-appearance of market conditions similar to those experienced from 2007 through 2009 for any substantial length of time could make it difficult to extend the maturity of or refinance our existing indebtedness under similar terms and any failure to do so could have a material adverse effect on our business.

        Given the extreme volatility and dislocation that the capital markets have historically experienced, many BDCs have faced, and may in the future face, a challenging environment in which to raise or access capital. In addition, significant changes in the capital markets, including the extreme volatility

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and disruption over the past several years, has had, and may in the future have, a negative effect on the valuations of our investments and on the potential for liquidity events involving our investments. While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity). As a result, volatility in the capital markets can adversely affect our investment valuations. Further, the illiquidity of our investments may make it difficult for us to sell such investments to access capital if required. As a result, we could realize significantly less than the value at which we have recorded our investments if we were required to sell them for liquidity purposes. An inability to raise or access capital could have a material adverse impact on our business, financial condition or results of operations.

        The current financial market situation, as well as various social and political tensions in the United States and around the world, particularly in the Middle East, may continue to contribute to increased market volatility, may have long-term effects on the United States and worldwide financial markets, and may cause further economic uncertainties or deterioration in the United States and worldwide. Since 2010, several European Union ("EU") countries, including Greece, Ireland, Italy, Spain, and Portugal have faced budget issues, some of which may have negative long-term effects for the economies of those countries and other EU countries. There is continued concern about national-level support for the euro and the accompanying coordination of fiscal and wage policy among European Economic and Monetary Union member countries. We do not know how long the financial markets will continue to be affected by these events and cannot predict the effects of these or similar events in the future on the United States economy and securities markets or on our investments. We monitor developments and seeks to manage our investments in a manner consistent with achieving our investment objective, but there can be no assurance that it will be successful in doing so; and we may not timely anticipate or manage existing, new or additional risks, contingencies or developments, including regulatory developments in the current or future market environment.

We may suffer credit losses.

        Investment in small and middle-market companies is highly speculative and involves a high degree of risk of credit loss. These risks are likely to increase during volatile economic periods, such as the U.S. and many other economies have recently been experiencing. See "Risks Related to Our Investments."

Our financial condition and results of operations will depend on our ability to manage our future growth effectively.

        Prospect Capital Management has been registered as an investment adviser since March 31, 2004, and we have been organized as a closed-end investment company since April 13, 2004. Our ability to achieve our investment objective depends on our ability to grow, which depends, in turn, on the Investment Adviser's ability to continue to identify, analyze, invest in and monitor companies that meet our investment criteria. Accomplishing this result on a cost-effective basis is largely a function of the Investment Adviser's structuring of investments, its ability to provide competent, attentive and efficient services to us and our access to financing on acceptable terms. As we continue to grow, Prospect Capital Management will need to continue to hire, train, supervise and manage new employees. Failure to manage our future growth effectively could have a materially adverse effect on our business, financial condition and results of operations.

We are dependent upon Prospect Capital Management's key management personnel for our future success.

        We depend on the diligence, skill and network of business contacts of the senior management of the Investment Adviser. We also depend, to a significant extent, on the Investment Adviser's access to the investment professionals and the information and deal flow generated by these investment

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professionals in the course of their investment and portfolio management activities. The senior management team of the Investment Adviser evaluates, negotiates, structures, closes, monitors and services our investments. Our success depends to a significant extent on the continued service of the senior management team, particularly John F. Barry III and M. Grier Eliasek. The departure of any of the senior management team could have a materially adverse effect on our ability to achieve our investment objective. In addition, we can offer no assurance that Prospect Capital Management will remain the Investment Adviser or that we will continue to have access to its investment professionals or its information and deal flow.

We operate in a highly competitive market for investment opportunities.

        A number of entities compete with us to make the types of investments that we make in middle-market companies. We compete with other BDCs, public and private funds, commercial and investment banks, commercial financing companies, insurance companies, hedge funds, and, to the extent they provide an alternative form of financing, private equity funds. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. Some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the Investment Company Act imposes on us as a BDC and that the Code imposes on us as a RIC. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, we may not be able to pursue attractive investment opportunities from time to time.

        We do not seek to compete primarily based on the interest rates we offer and we believe that some of our competitors may make loans with interest rates that are comparable to or lower than the rates we offer. Rather, we compete with our competitors based on our existing investment platform, seasoned investment professionals, experience and focus on middle-market companies, disciplined investment philosophy, extensive industry focus and flexible transaction structuring.

        We may lose investment opportunities if we do not match our competitors' pricing, terms and structure. If we match our competitors' pricing, terms and structure, we may experience decreased net interest income and increased risk of credit loss. As a result of operating in such a competitive environment, we may make investments that are on less favorable terms than what we may have originally anticipated, which may impact our return on these investments.

We fund a portion of our investments with borrowed money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us.

        Borrowings and other types of financing, also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore, increase the risks associated with investing in our securities. Our lenders have fixed dollar claims on our assets that are superior to the claims of our common stockholders or any preferred stockholders. If the value of our assets increases, then leveraging would cause the net asset value to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our income in excess of consolidated interest payable on the borrowed funds would cause our net income to increase more than it would without the leverage, while any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to make common stock dividend payments. Leverage is generally considered a speculative investment technique.

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Changes in interest rates may affect our cost of capital and net investment income.

        A portion of the debt investments we make bears interest at fixed rates and other debt investments bear interest at variable rates with floors and the value of these investments could be negatively affected by increases in market interest rates. In addition, as the interest rate on our revolving credit facility is at a variable rate based on an index, an increase in interest rates would make it more expensive to use debt to finance our investments. As a result, an increase in market interest rates could both reduce the value of our portfolio investments and increase our cost of capital, which could reduce our net investment income or net increase in net assets resulting from operations.

We need to raise additional capital to grow because we must distribute most of our income.

        We need additional capital to fund growth in our investments. A reduction in the availability of new capital could limit our ability to grow. We must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, to our stockholders to maintain our status as a regulated investment company, or RIC, for U.S. federal income tax purposes. As a result, such earnings are not available to fund investment originations. We have sought additional capital by borrowing from financial institutions and may issue debt securities or additional equity securities. If we fail to obtain funds from such sources or from other sources to fund our investments, we could be limited in our ability to grow, which may have an adverse effect on the value of our common stock. In addition, as a business development company, we generally may not borrow money or issue debt securities or issue preferred stock unless immediately thereafter our ratio of total assets to total borrowings and other senior securities is at least 200%. This may restrict our ability to obtain additional leverage in certain circumstances.

We may experience fluctuations in our quarterly results.

        We could experience fluctuations in our quarterly operating results due to a number of factors, including the interest or dividend rates payable on the debt or equity securities we hold, the default rate on debt securities, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets, and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

Our most recent NAV was calculated on June 30, 2013 and our NAV when calculated effective September 30, 2013 and thereafter may be higher or lower.

        Our most recently estimated NAV per share is $10.75 on an as adjusted basis solely to give effect to our issuance of common stock since June 30, 2013 in connection with our dividend reinvestment plan, shares issued in connection with investment transactions, and our issuance of 26,733,617 shares of common stock during the period from July 1, 2013 to October 10, 2013 (including shares with settlement dates through October 16, 2013) under our at-the-market program (the "ATM Program"), $0.03 higher than the $10.72 determined by us as of June 30, 2013. NAV per share as of September 30, 2013 may be higher or lower than $10.75 based on potential changes in valuations, issuances of securities, dividends paid and earnings for the quarter then ended. Our Board of Directors has not yet determined the fair value of portfolio investments at any date subsequent to June 30, 2013. Our Board of Directors determines the fair value of our portfolio investments on a quarterly basis in connection with the preparation of quarterly financial statements and based on input from independent valuation firms, the Investment Adviser, the Administrator and the Audit Committee of our Board of Directors.

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The Investment Adviser's liability is limited under the Investment Advisory Agreement, and we are required to indemnify the Investment Adviser against certain liabilities, which may lead the Investment Adviser to act in a riskier manner on our behalf than it would when acting for its own account.

        The Investment Adviser has not assumed any responsibility to us other than to render the services described in the Investment Advisory Agreement, and it will not be responsible for any action of our Board of Directors in declining to follow the Investment Adviser's advice or recommendations. Pursuant to the Investment Advisory Agreement, the Investment Adviser and its members and their respective officers, managers, partners, agents, employees, controlling persons and members and any other person or entity affiliated with it will not be liable to us for their acts under the Investment Advisory Agreement, absent willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of their duties. We have agreed to indemnify, defend and protect the Investment Adviser and its members and their respective officers, managers, partners, agents, employees, controlling persons and members and any other person or entity affiliated with it with respect to all damages, liabilities, costs and expenses resulting from acts of the Investment Adviser not arising out of willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of their duties under the Investment Advisory Agreement. These protections may lead the Investment Adviser to act in a riskier manner when acting on our behalf than it would when acting for its own account.

Potential conflicts of interest could impact our investment returns.

        Our executive officers and directors, and the executive officers of the Investment Adviser, may serve as officers, directors or principals of entities that operate in the same or related lines of business as we do or of investment funds managed by our affiliates. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be in our best interests or those of our stockholders. Nevertheless, it is possible that new investment opportunities that meet our investment objective may come to the attention of one of these entities in connection with another investment advisory client or program, and, if so, such opportunity might not be offered, or otherwise made available, to us. However, as an investment adviser, Prospect Capital Management has a fiduciary obligation to act in the best interests of its clients, including us. To that end, if Prospect Capital Management or its affiliates manage any additional investment vehicles or client accounts in the future, Prospect Capital Management will endeavor to allocate investment opportunities in a fair and equitable manner over time so as not to discriminate unfairly against any client. If Prospect Capital Management chooses to establish another investment fund in the future, when the investment professionals of Prospect Capital Management identify an investment, they will have to choose which investment fund should make the investment.

        In the course of our investing activities, under the Investment Advisory Agreement we pay base management and incentive fees to Prospect Capital Management, and reimburse Prospect Capital Management for certain expenses it incurs. As a result of the Investment Advisory Agreement, there may be times when the senior management team of Prospect Capital Management has interests that differ from those of our stockholders, giving rise to a conflict.

        The Investment Adviser receives a quarterly income incentive fee based, in part, on our pre-incentive fee net investment income, if any, for the immediately preceding calendar quarter. This income incentive fee is subject to a fixed quarterly hurdle rate before providing an income incentive fee return to Prospect Capital Management. This fixed hurdle rate was determined when then current interest rates were relatively low on a historical basis. Thus, if interest rates rise, it would become easier for our investment income to exceed the hurdle rate and, as a result, more likely that Prospect Capital Management will receive an income incentive fee than if interest rates on our investments remained constant or decreased. Subject to the receipt of any requisite stockholder approval under the 1940 Act, our Board of Directors may adjust the hurdle rate by amending the Investment Advisory Agreement.

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        The income incentive fee payable by us is computed and paid on income that may include interest that has been accrued but not yet received in cash. If a portfolio company defaults on a loan that has a deferred interest feature, it is possible that interest accrued under such loan that has previously been included in the calculation of the income incentive fee will become uncollectible. If this happens, Prospect Capital Management is not required to reimburse us for any such income incentive fee payments. If we do not have sufficient liquid assets to pay this incentive fee or distributions to stockholders on such accrued income, we may be required to liquidate assets in order to do so. This fee structure could give rise to a conflict of interest for Prospect Capital Management to the extent that it may encourage Prospect Capital Management to favor debt financings that provide for deferred interest, rather than current cash payments of interest.

        We have entered into a royalty-free license agreement with Prospect Capital Management. Under this agreement, Prospect Capital Management agrees to grant us a non-exclusive license to use the name "Prospect Capital." Under the license agreement, we have the right to use the "Prospect Capital" name for so long as Prospect Capital Management or one of its affiliates remains our investment adviser. In addition, we rent office space from Prospect Administration, an affiliate of Prospect Capital Management, and pay Prospect Administration our allocable portion of overhead and other expenses incurred by Prospect Administration in performing its obligations as Administrator under the Administration Agreement, including rent and our allocable portion of the costs of our chief financial officer and chief compliance officer and their respective staffs. This may create conflicts of interest that our Board of Directors monitors.

Our incentive fee could induce Prospect Capital Management to make speculative investments.

        The incentive fee payable by us to Prospect Capital Management may create an incentive for the Investment Adviser to make investments on our behalf that are more speculative or involve more risk than would be the case in the absence of such compensation arrangement. The way in which the incentive fee payable is determined (calculated as a percentage of the return on invested capital) may encourage the Investment Adviser to use leverage to increase the return on our investments. Increased use of leverage and this increased risk of replacement of that leverage at maturity would increase the likelihood of default, which would disfavor holders of our common stock. Similarly, because the Investment Adviser will receive an incentive fee based, in part, upon net capital gains realized on our investments, the Investment Adviser may invest more than would otherwise be appropriate in companies whose securities are likely to yield capital gains, as compared to income producing securities. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns.

        The incentive fee payable by us to Prospect Capital Management could create an incentive for the Investment Adviser to invest on our behalf in instruments, such as zero coupon bonds, that have a deferred interest feature. Under these investments, we would accrue interest income over the life of the investment but would not receive payments in cash on the investment until the end of the term. Our net investment income used to calculate the income incentive fee, however, includes accrued interest. For example, accrued interest, if any, on our investments in zero coupon bonds will be included in the calculation of our incentive fee, even though we will not receive any cash interest payments in respect of payment on the bond until its maturity date. Thus, a portion of this incentive fee would be based on income that we may not have yet received in cash in the event of default may never receive.

We may be obligated to pay our Investment Adviser incentive compensation even if we incur a loss.

        The Investment Adviser is entitled to incentive compensation for each fiscal quarter based, in part, on our pre-incentive fee net investment income if any, for the immediately preceding calendar quarter above a performance threshold for that quarter. Accordingly, since the performance threshold is based

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on a percentage of our net asset value, decreases in our net asset value make it easier to achieve the performance threshold. Our pre-incentive fee net investment income for incentive compensation purposes excludes realized and unrealized capital losses or depreciation that we may incur in the fiscal quarter, even if such capital losses or depreciation result in a net loss on our statement of operations for that quarter. Thus, we may be required to pay the Investment Adviser incentive compensation for a fiscal quarter even if there is a decline in the value of our portfolio or we incur a net loss for that quarter.

The Investment Adviser and Administrator have the right to resign on 60 days' notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our business, financial condition and results of operations.

        The Investment Adviser and Administrator have the right, under the Investment Advisory Agreement and Administration Agreement, respectively, to resign at any time upon not less than 60 days' written notice, whether we have found a replacement or not. If the Investment Adviser or Administrator resigns, we may not be able to find a replacement or hire internal management or administration with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our business, financial condition and results of operations as well as our ability to pay distributions are likely to be adversely affected and the market price of our shares may decline. In addition, the coordination of our internal management and investment activities or our internal administration activities, as applicable, is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by the Investment Adviser and its affiliates or the Administrator and its affiliates. Even if we are able to retain comparable management or administration, whether internal or external, the integration of such management or administration and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our business, financial condition and results of operations.

Changes in the laws or regulations governing our business or the businesses of our portfolio companies and any failure by us or our portfolio companies to comply with these laws or regulations, could negatively affect the profitability of our operations or of our portfolio companies.

        We are subject to changing rules and regulations of federal and state governments, as well as the stock exchange on which our common stock is listed. These entities, including the Public Company Accounting Oversight Board, the SEC and The NASDAQ Global Select Market, have issued a significant number of new and increasingly complex requirements and regulations over the course of the last several years and continue to develop additional regulations. In particular, changes in the laws or regulations or the interpretations of the laws and regulations that govern BDCs, RICs or non-depository commercial lenders could significantly affect our operations and our cost of doing business. We are subject to federal, state and local laws and regulations and are subject to judicial and administrative decisions that affect our operations, including our loan originations, maximum interest rates, fees and other charges, disclosures to portfolio companies, the terms of secured transactions, collection and foreclosure procedures and other trade practices. If these laws, regulations or decisions change, or if we expand our business into jurisdictions that have adopted more stringent requirements than those in which we currently conduct business, we may 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 which could have a material adverse effect upon our business, financial condition and results of operations.

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Foreign and domestic political risk may adversely affect our business.

        We are exposed to political risk to the extent that Prospect Capital Management, on its behalf and subject to its investment guidelines, transacts in securities in the U.S. and foreign markets. The governments in any of these jurisdictions could impose restrictions, regulations or other measures, which may have a material adverse impact on our strategy.

Risks Relating to Our Operation as a Business Development Company

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 to our 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. We believe that most of the investments that we may acquire in the future will constitute qualifying assets. However, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could be found to be in violation of the 1940 Act provisions applicable to BDCs, which would have a material adverse effect on our business, financial condition and results of operations. Similarly, these rules could prevent us from making follow-on investments in existing portfolio companies (which could result in the dilution of our position) or could require us to dispose of investments at inappropriate times in order to come into compliance with the 1940 Act. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.

If we fail to qualify as a RIC, we will have to pay corporate-level taxes on our income, and our income available for distribution would be reduced.

        To maintain our qualification for U.S. federal income tax purposes as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code, and obtain RIC tax treatment, we must meet certain source of income, asset diversification and annual distribution requirements.

        The source of income requirement is satisfied if we derive at least 90% of our annual gross income from interest, dividends, payments with respect to certain securities loans, gains from the sale or other disposition of securities or options thereon or foreign currencies, or other income derived with respect to our business of investing in such securities or currencies, and net income from interests in "qualified publicly traded partnerships," as defined in the Code.

        The annual distribution requirement for a RIC is satisfied if we distribute at least 90% of our ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to our stockholders on an annual basis. Because we use debt financing, we are subject to certain asset coverage ratio requirements under the 1940 Act and financial covenants that could, under certain circumstances, restrict us from making distributions necessary to qualify for RIC tax treatment. If we are unable to obtain cash from other sources, we may fail to qualify for RIC tax treatment and, thus, may be subject to corporate-level income tax on all of our taxable income.

        To maintain our qualification as a RIC, we must also meet certain asset diversification requirements at the end of each quarter of our taxable year. Failure to meet these tests may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments are in private companies, any such dispositions could be made at disadvantageous prices and may result in substantial losses.

        If we fail to qualify as a RIC for any reason or become subject to corporate income tax, the resulting corporate taxes would substantially reduce our net assets, the amount of income available for

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distribution, and the actual amount of our distributions. Such a failure would have a materially adverse effect on us and our stockholders. For additional information regarding asset coverage ratio and RIC requirements, see "Material U.S. Federal Income Tax Considerations" and "Business—Regulation as a Business Development Company".

We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.

        For U.S. federal income tax purposes, we include in income certain amounts that we have not yet received in cash, such as original issue discount or payment-in-kind interest, which represents contractual interest added to the loan balance and due at the end of the loan term. Such amounts could be significant relative to our overall investment activities. We also may be required to include in taxable income certain other amounts that we do not receive in cash. While we focus primarily on investments that will generate a current cash return, our investment portfolio currently includes, and we may continue to invest in, securities that do not pay some or all of their return in periodic current cash distributions.

        The income incentive fee payable by us is computed and paid on income that may include interest that has been accrued but not yet received in cash. If a portfolio company defaults on a loan that is structured to provide accrued interest, it is possible that accrued interest previously used in the calculation of the income incentive fee will become uncollectible.

        Since in some cases we may recognize taxable income before or without receiving cash representing such income, we may have difficulty distributing at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, as required to maintain RIC tax treatment. Accordingly, we may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements. If we are not able to obtain cash from other sources, we may fail to qualify for RIC treatment and thus become subject to corporate-level income tax. See "Material U.S. Federal Income Tax Considerations" and "Business—Regulation as a Business Development Company".

Regulations governing our operation as a business development company affect our ability to raise, and the way in which we raise, additional capital.

        We have incurred indebtedness under our revolving credit facility and through the issuance of the Notes and, in the future, may issue preferred stock or debt securities and/or borrow additional money from banks or other financial institutions, which we refer to collectively as "senior securities," up to the maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Act, we are permitted, as a BDC, to incur indebtedness or issue senior securities only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy this test, which would prohibit us from paying dividends in cash or other property and could prohibit us from qualifying as a RIC. If we cannot satisfy this test, we may be required to sell a portion of our investments or sell additional shares of common stock at a time when such sales may be disadvantageous in order to repay a portion of our indebtedness or otherwise increase our net assets. In addition, issuance of additional common stock could dilute the percentage ownership of our current stockholders in us.

        As a BDC regulated under provisions of the 1940 Act, we are not generally able to issue and sell our common stock at a price below the current net asset value per share without stockholder approval. If our common stock trades at a discount to net asset value, this restriction could adversely affect our ability to raise capital. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the current net asset value of our common stock in certain

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circumstances, including if (i)(1) the holders of a majority of our shares (or, if less, at least 67% of a quorum consisting of a majority of our shares) and a similar majority of the holders of our shares who are not affiliated persons of us approve the sale of our common stock at a price that is less than the current net asset value, and (2) a majority of our Directors who have no financial interest in the transaction and a majority of our independent Directors (a) determine that such sale is in our and our stockholders' best interests and (b) in consultation with any underwriter or underwriters of the offering, make a good faith determination as of a time either immediately prior to the first solicitation by us or on our behalf of firm commitments to purchase such shares, or immediately prior to the issuance of such shares, that the price at which such shares are to be sold is not less than a price which closely approximates the market value of such shares, less any distributing commission or discount or if (ii) a majority of the number of the beneficial holders of our common stock entitled to vote at our annual meeting, without regard to whether a majority of such shares are voted in favor of the proposal, approve the sale of our common stock at a price that is less than the current net asset value per share.

        To generate cash for funding new investments, we pledged a substantial portion of our portfolio investments under our revolving credit facility. These assets are not available to secure other sources of funding or for securitization. Our ability to obtain additional secured or unsecured financing on attractive terms in the future is uncertain.

        Alternatively, we may securitize our future loans to generate cash for funding new investments. See "Securitization of our assets subjects us to various risks."

Securitization of our assets subjects us to various risks.

        We may securitize assets to generate cash for funding new investments. We refer to the term securitize to describe a form of leverage under which a company such as us (sometimes referred to as an "originator" or "sponsor") transfers income producing assets to a single-purpose, bankruptcy-remote subsidiary (also referred to as a "special purpose entity" or SPE), which is established solely for the purpose of holding such assets and entering into a structured finance transaction. The SPE then issues notes secured by such assets. The special purpose entity may issue the notes in the capital markets either publicly or privately to a variety of investors, including banks, non-bank financial institutions and other investors. There may be a single class of notes or multiple classes of notes, the most senior of which carries less credit risk and the most junior of which may carry substantially the same credit risk as the equity of the SPE.

        An important aspect of most debt securitization transactions is that the sale and/or contribution of assets into the SPE be considered a true sale and/or contribution for accounting purposes and that a reviewing court would not consolidate the SPE with the operations of the originator in the event of the originator's bankruptcy based on equitable principles. Viewed as a whole, a debt securitization seeks to lower risk to the note purchasers by isolating the assets collateralizing the securitization in an SPE that is not subject to the credit and bankruptcy risks of the originator. As a result of this perceived reduction of risk, debt securitization transactions frequently achieve lower overall leverage costs for originators as compared to traditional secured lending transactions.

        In accordance with the above description, to securitize loans, we may create a wholly owned subsidiary and contribute a pool of our assets to such subsidiary. The SPE may be funded with, among other things, whole loans and such loans may or may not be rated. The SPE would then sell its notes to purchasers who we would expect to be willing to accept a lower interest rate and the absence of any recourse against us to invest in a pool of income producing assets to which none of our creditors would have access. We would retain all or a portion of the equity in the SPE. An inability to successfully securitize portions of our portfolio or otherwise leverage our portfolio through secured and unsecured borrowings could limit our ability to grow our business and fully execute our business strategy, and could decrease our earnings. However, the successful securitization of portions of our portfolio exposes

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us to a risk of loss for the equity we retain in the SPE and might expose us to greater risk on our remaining portfolio because the assets we retain may tend to be those that are riskier and more likely to generate losses. A successful securitization may also impose financial and operating covenants that restrict our business activities and may include limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a RIC under Subchapter M of the Code. The 1940 Act may also impose restrictions on the structure of any securitizations.

        Interests we hold in the SPE, if any, will be subordinated to the other interests issued by the SPE. As such, we will only receive cash distributions on such interests if the SPE has made all cash interest and other required payments on all other interests it has issued. In addition, our subordinated interests will likely be unsecured and rank behind all of the secured creditors, known or unknown, of the SPE, including the holders of the senior interests it has issued. Consequently, to the extent that the value of the SPEs portfolio of assets has been reduced as a result of conditions in the credit markets, or as a result of defaults, the value of the subordinated interests we retain would be reduced. Securitization imposes on us the same risks as borrowing except that our risk in a securitization is limited to the amount of subordinated interests we retain, whereas in a borrowing or debt issuance by us directly we would be at risk for the entire amount of the borrowing or debt issuance.

        If the SPE is not consolidated with us, our only interest will be the value of our retained subordinated interest and the income allocated to us, which may be more or less than the cash we receive from the SPE, and none of the SPEs liabilities will be reflected as our liabilities. If the assets of the SPE are not consolidated with our assets and liabilities, then our interest in the SPE may be deemed not to be a qualifying asset for purposes of determining whether 70% of our assets are qualifying assets and the leverage incurred by such SPE may or may not be treated as borrowings by us for purposes of the requirement that we not issue senior securities in an amount in excess of our net assets.

        We may also engage in transactions utilizing SPEs and securitization techniques where the assets sold or contributed to the SPE remain on our balance sheet for accounting purposes. If, for example, we sell the assets to the SPE with recourse or provide a guarantee or other credit support to the SPE, its assets will remain on our balance sheet. Consolidation would also generally result if we, in consultation with the SEC, determine that consolidation would result in a more accurate reflection of our assets, liabilities and results of operations. In these structures, the risks will be essentially the same as in other securitization transactions but the assets will remain our assets for purposes of the limitations described above on investing in assets that are not qualifying assets and the leverage incurred by the SPE will be treated as borrowings incurred by us for purposes of our limitation on the issuance of senior securities.

        The Investment Adviser may have conflicts of interest with respect to potential securitizations in as much as securitizations that are not consolidated may reduce our assets for purposes of determining its investment advisory fee although in some circumstances the Investment Adviser may be paid certain fees for managing the assets of the SPE so as to reduce or eliminate any potential bias against securitizations.

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

        As a BDC, we must not acquire any assets other than "qualifying assets" specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Subject to certain exceptions for follow-on investments and distressed companies, an investment in an issuer that has outstanding securities listed on a national securities exchange may be treated as qualifying assets only if such issuer has a market capitalization that is less than $250 million at the time of such investment.

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Risks Relating to Our Investments

We may not realize gains or income from our investments.

        We seek to generate both current income and capital appreciation. However, the securities we invest in may not appreciate and, in fact, may decline in value, and the issuers of debt securities we invest in may default on interest and/or principal payments. Accordingly, we may not be able to realize gains from our investments, and any gains that we do realize may not be sufficient to offset any losses we experience. See "Business—Our Investment Objective and Policies".

Most of our portfolio investments are recorded at fair value as determined in good faith under the direction of our Board of Directors and, as a result, there is uncertainty as to the value of our portfolio investments.

        A large percentage of our portfolio investments consist of securities of privately held companies. Hence, market quotations are generally not readily available for determining the fair values of such investments. The determination of fair value, and thus the amount of unrealized losses we may incur in any year, is to a degree subjective, and the Investment Adviser has a conflict of interest in making the determination. We value these securities quarterly at fair value as determined in good faith by our Board of Directors based on input from the Investment Adviser, our Administrator, a third party independent valuation firm and our Audit Committee. Our Board of Directors utilizes the services of an independent valuation firm to aid it in determining the fair value of any securities. The types of factors that may be considered in determining the fair values of our investments include the nature and realizable value of any collateral, the portfolio company's ability to make payments and its earnings, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flow, current market interest rates and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, the valuations may fluctuate significantly over short periods of time due to changes in current market conditions. The determinations of fair value by our Board of Directors may differ materially from the values that would have been used if an active market and market quotations existed for these investments. Our net asset value could be adversely affected if the determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such securities.

        In addition, decreases in the market values or fair values of our investments are recorded as unrealized depreciation. Unprecedented declines in prices and liquidity in the corporate debt markets experienced during the recent financial crises resulted in significant net unrealized depreciation in our portfolio in the past. The effect of all of these factors on our portfolio reduced our NAV by increasing net unrealized depreciation in our portfolio. Depending on market conditions, we could incur substantial realized losses and may continue to suffer additional unrealized losses in future periods, which could have a material adverse impact on our business, financial condition and results of operations. We have no policy regarding holding a minimum level of liquid assets. As such, a high percentage of our portfolio generally is not liquid at any given point in time. See "The lack of liquidity may adversely affect our business."

Price declines and illiquidity in the corporate debt markets have adversely affected, and may in the future adversely affect, the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation.

        As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at fair value as determined in good faith by or under the direction of our Board of Directors. As part of the valuation process, the types of factors that we may take into account in determining the fair value of our investments include, as relevant and among other factors: available current market data, including relevant and applicable market trading and transaction comparables,

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applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company's ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, merger and acquisition comparables, our principal market (as the reporting entity) and enterprise values. Decreases in the market values or fair values of our investments are recorded as unrealized depreciation. The effect of all of these factors on our portfolio can reduce our net asset value by increasing net unrealized depreciation in our portfolio. Depending on market conditions, we could incur substantial realized losses and may suffer additional unrealized losses in future periods, which could have a material adverse impact on our business, financial condition and results of operations.

Our investments in prospective portfolio companies may be risky and we could lose all or part of our investment.

        Some of our portfolio companies have relatively short or no operating histories. These companies are and will be subject to all of the business risk and uncertainties associated with any new business enterprise, including the risk that these companies may not reach their investment objective and the value of our investment in them may decline substantially or fall to zero.

        In addition, investment in the middle market companies that we are targeting involves a number of other significant risks, including:

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        In addition, our executive officers, directors and the Investment Adviser could, in the ordinary course of business, be named as defendants in litigation arising from proposed investments or from our investments in the portfolio companies.

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

        We make investments in private companies. A portion of these investments may be subject to legal and other restrictions on resale, transfer, pledge or other disposition or will otherwise be less liquid than publicly traded securities. The illiquidity of our investments may make it difficult for us to sell such investments if the need arises. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments. In addition, we face other restrictions on our ability to liquidate an investment in a business entity to the extent that we or the Investment Adviser has or could be deemed to have material non-public information regarding such business entity.

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

        Many of our portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay our loans or meet other obligations during these periods. Therefore, our non-performing assets are likely to increase, and the value of our portfolio is likely to decrease, during these periods. Adverse economic conditions also may decrease the value of collateral securing some of our loans and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing investments and harm our operating results.

        A portfolio company's failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize a portfolio company's ability to meet its obligations under the debt or equity securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio company. In addition, if one of our portfolio companies were to go bankrupt, even though we may have structured our interest as senior debt or preferred equity, depending on the facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio company, a bankruptcy court might re-characterize our debt or equity holding and subordinate all or a portion of our claim to those of other creditors.

Investments in equity securities, many of which are illiquid with no readily available market, involve a substantial degree of risk.

        We may purchase common and other equity securities. Although common stock has historically generated higher average total returns than fixed income securities over the long-term, common stock also has experienced significantly more volatility in those returns and in recent years has significantly under performed relative to fixed income securities. The equity securities we acquire may fail to appreciate and may decline in value or become worthless and our ability to recover our investment will depend on our portfolio company's success. Investments in equity securities involve a number of significant risks, including:

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        There are special risks associated with investing in preferred securities, including:

        Additionally, when we invest in first lien senior secured loans (including unitranche loans), second lien senior secured loans or mezzanine debt, we may acquire warrants or other equity securities as well. Our goal is ultimately to dispose of such equity interests and realize gains upon our disposition of such interests. 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 realize gains 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 we experience.

        We may invest, to the extent permitted by law, in the equity securities of investment funds that are operating pursuant to certain exceptions to the Investment Company Act and in advisers to similar investment funds and, to the extent we so invest, will bear our ratable share of any such company's expenses, including management and performance fees. We will also remain obligated to pay management and incentive fees to Prospect Capital Management with respect to the assets invested in the securities and instruments of such companies. With respect to each of these investments, each of our common stockholders will bear his or her share of the management and incentive fee of Prospect Capital Management as well as indirectly bearing the management and performance fees and other expenses of any such investment funds or advisers.

There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.

        If one of our portfolio companies were to go bankrupt, even though we may have structured our interest as senior debt, depending on the facts and circumstances, a bankruptcy court might recharacterize our debt holding as an equity investment and subordinate all or a portion of our claim to that of other creditors. In addition, lenders can be subject to lender liability claims for actions taken

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by them where they become too involved in the borrower's business or exercise control over the borrower. For example, we could become subject to a lender's liability claim, if, among other things, we actually render significant managerial assistance.

Our portfolio companies may incur debt or issue equity securities that rank equally with, or senior to, our investments in such companies.

        Our portfolio companies may have, or may be permitted to incur, other debt, or issue other equity securities, that rank equally with, or senior to, our investments. By their terms, such instruments may provide that the holders are entitled to receive payment of dividends, interest or principal on or before the dates on which we are entitled to receive payments in respect of our investments. These debt instruments would usually prohibit the portfolio companies from paying interest on or repaying our investments in the event and during the continuance of a default under such debt. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of securities ranking senior to our investment in that portfolio company typically are entitled to receive payment in full before we receive any distribution in respect of our investment. After repaying such holders, the portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of securities ranking equally with our investments, we would have to share on an equal basis any distributions with other security holders in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.

        The rights we may have with respect to the collateral securing any junior priority loans we make to our portfolio companies may also be limited pursuant to the terms of one or more intercreditor agreements (including agreements governing "first out" and "last out" structures) that we enter into with the holders of senior debt. Under such an intercreditor agreement, at any time that senior obligations are outstanding, we may forfeit certain rights with respect to the collateral to the holders of the senior obligations. These rights may include the right to commence enforcement proceedings against the collateral, the right to control the conduct of such enforcement proceedings, the right to approve amendments to collateral documents, the right to release liens on the collateral and the right to waive past defaults under collateral documents. We may not have the ability to control or direct such actions, even if as a result our rights as junior lenders are adversely affected.

When we are a debt or minority equity investor in a portfolio company, we are often not in a position to exert influence on the entity, and other equity holders and management of the company may make decisions that could decrease the value of our portfolio holdings.

        When we make debt or minority equity investments, we are subject to the risk that a portfolio company may make business decisions with which we disagree and the other equity holders and management of such company may take risks or otherwise act in ways that do not serve our interests. As a result, a portfolio company may make decisions that could decrease the value of our investment.

Our portfolio companies may be highly leveraged.

        Some of our portfolio companies may be highly leveraged, which may have adverse consequences to these companies and to us as an investor. These companies may be subject to restrictive financial and operating covenants and the leverage may impair these companies' ability to finance their future operations and capital needs. As a result, these companies' flexibility to respond to changing business and economic conditions and to take advantage of business opportunities may be limited. Further, a leveraged company's income and net assets will tend to increase or decrease at a greater rate than if borrowed money were not used.

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Our portfolio contains a limited number of portfolio companies, which subjects us to a greater risk of significant loss if any of these companies defaults on its obligations under any of its debt securities.

        A consequence of the limited number of investments in our portfolio is that the aggregate returns we realize may be significantly adversely affected if one or more of our significant portfolio company investments perform poorly or if we need to write down the value of any one significant investment. Beyond our income tax diversification requirements, we do not have fixed guidelines for diversification, and our portfolio could contain relatively few portfolio companies.

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

        Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as "follow-on" investments, in order to: (1) increase or maintain in whole or in part our equity ownership percentage; (2) exercise warrants, options or convertible securities that were acquired in the original or subsequent financing or (3) attempt to preserve or enhance the value of our investment.

        We may elect not to make follow-on investments, may be constrained in our ability to employ available funds, or otherwise may lack sufficient funds to make those investments. We have the discretion to make any follow-on investments, subject to the availability of capital resources. The failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our concentration of risk, because we prefer other opportunities, or because we are inhibited by compliance with BDC requirements or the desire to maintain our tax status.

We may be unable to invest the net proceeds raised from offerings and repayments from investments on acceptable terms, which would harm our financial condition and operating results.

        Until we identify new investment opportunities, we intend to either invest the net proceeds of future offerings and repayments from investments in interest-bearing deposits or other short-term instruments or use the net proceeds from such offerings to reduce then-outstanding obligations under our credit facility. We cannot assure you that we will be able to find enough appropriate investments that meet our investment criteria or that any investment we complete using the proceeds from an offering will produce a sufficient return.

We may have limited access to information about privately held companies in which we invest.

        We invest primarily in privately-held companies. Generally, little public information exists about these companies, and we are required to rely on the ability of the Investment Adviser's investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies. These companies and their financial information are not subject to the Sarbanes-Oxley Act of 2002 and other rules that govern public companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investment.

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We may not be able to fully realize the value of the collateral securing our debt investments.

        Although a substantial amount of our debt investments are protected by holding security interests in the assets of the portfolio companies, we may not be able to fully realize the value of the collateral securing our investments due to one or more of the following factors:

Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.

        Our investment strategy contemplates potential investments in securities of foreign companies, including those located in emerging market countries. Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. Such risks are more pronounced in emerging market countries.

        Although currently all of our investments are, and we expect that most of our investments will be, U.S. dollar-denominated, investments that are denominated in a foreign currency will be subject to the risk that the value of a particular currency will change in relation to one or more other currencies. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation, and political developments.

We may expose ourselves to risks if we engage in hedging transactions.

        We may employ hedging techniques to minimize certain investment risks, such as fluctuations in interest and currency exchange rates, but we can offer no assurance that such strategies will be effective. If we engage in hedging transactions, we may expose ourselves to risks associated with such transactions. We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates. Hedging against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the

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values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the portfolio positions should increase. Moreover, it may not be possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that we are not able to enter into a hedging transaction at an acceptable price. Furthermore, our ability to engage in hedging transactions may also be adversely affected by recent rules adopted by the CFTC.

        The success of our hedging transactions depends on our ability to correctly predict movements, currencies and interest rates. Therefore, while we may enter into such transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currency exchange rates or interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. The degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies. The Company has no current intention of engaging in any of the hedging transaction described above, although it reserves the right to do so in the future.

Our Board of Directors may change our operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse to us and could impair the value of our stockholders' investment.

        Our Board of Directors has the authority to modify or waive our current operating policies and our strategies without prior notice and without stockholder approval. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, financial condition, and value of our common stock. However, the effects might be adverse, which could negatively impact our ability to pay dividends and cause stockholders to lose all or part of their investment.

Our investments in CLOs may be riskier and less transparent to us and our stockholders than direct investments in the underlying companies.

        We invest in CLOs. Generally, there may be less information available to us regarding the underlying debt investments held by CLOs than if we had invested directly in the debt of the underlying companies. As a result, our stockholders will not know the details of the underlying securities of the CLOs in which we will invest. Our CLO investments are subject to the risk of leverage associated with the debt issued by such CLOs and the repayment priority of senior debt holders in such CLOs. Our investments in portfolio companies may be risky, and we could lose all or part of our investment.

CLOs typically will have no significant assets other than their underlying Senior Secured Loans; payments on CLO investments are and will be payable solely from the cashflows from such Senior Secured Loans.

        CLOs typically will have no significant assets other than their underlying Senior Secured Loans. Accordingly, payments on CLO investments are and will be payable solely from the cashflows from such Senior Secured Loans, net of all management fees and other expenses. Payments to us as a holder of CLO junior securities are and will be made only after payments due on the senior secured notes, and, where appropriate, the junior secured notes, have been made in full. This means that relatively small numbers of defaults of Senior Secured Loans may adversely impact our returns.

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Our CLO investments are exposed to leveraged credit risk.

        Generally, we are in a subordinated position with respect to realized losses on the Senior Secured Loans underlying our investments in CLOs. The leveraged nature of CLOs, in particular, magnifies the adverse impact of Senior Secured Loan defaults. CLO investments represent a leveraged investment with respect to the underlying Senior Secured Loans. Therefore, changes in the market value of the CLO investments could be greater than the change in the market value of the underlying Senior Secured Loans, which are subject to credit, liquidity and interest rate risk.

There is the potential for interruption and deferral of cashflow from CLO investments.

        If certain minimum collateral value ratios and/or interest coverage ratios are not met by a CLO, primarily due to Senior Secured Loan defaults, then cashflow that otherwise would have been available to pay distributions to us on our CLO investments may instead be used to redeem any senior notes or to purchase additional Senior Secured Loans, until the ratios again exceed the minimum required levels or any senior notes are repaid in full. This could result in an elimination, reduction or deferral in the distribution and/or principal paid to the holders of the CLO investments, which would adversely impact our returns.

Investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.

        Our CLO investment strategy involves investments in foreign CLOs. Investing in foreign entities may expose us to additional risks not typically associated with investing in U.S. issuers. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. Further, we, and the CLOs in which we invest, may have difficulty enforcing creditor's rights in foreign jurisdictions. In addition, the underlying companies of the CLOs in which we invest may be foreign, which may create greater exposure for us to foreign economic developments.

The payment of underlying portfolio manager fees and other charges on CLO investments could adversely impact our returns.

        We may invest in CLO investments where the underlying portfolio securities may be subject to management, administration and incentive or performance fees, in addition to those payable by us. Payment of such additional fees could adversely impact the returns we achieve.

The inability of a CLO collateral manager to reinvest the proceeds of the prepayment of Senior Secured Loans may adversely affect us.

        There can be no assurance that for any CLO investment, in the event that any of the Senior Secured Loans of a CLO underlying such investment are prepaid, the CLO collateral manager will be able to reinvest such proceeds in new Senior Secured Loans with equivalent investment returns. If the CLO collateral manager cannot reinvest in new Senior Secured Loans with equivalent investment returns, the interest proceeds available to pay interest on the rated liabilities and investments may be adversely affected.

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Our CLO investments are subject to prepayments and calls, increasing re-investment risk.

        Our CLO investments and/or the underlying senior secured loans may be prepaid more quickly than expected, which could have an adverse impact on our value. Prepayment rates are influenced by changes in interest rates and a variety of economic, geographic and other factors beyond our control, and consequently cannot be predicted with certainty. In addition, for a CLO collateral manager there is often a strong incentive to refinance well performing portfolios once the senior tranches amortize. The yield to maturity of the investments will depend on the amount and timing of payments of principal on the loans and the price paid for the investments. Such yield may be adversely affected by a higher or lower than anticipated rate of prepayments of the debt.

        Furthermore, our CLO investments generally do not contain optional call provisions, other than a call at the option of the holders of the equity tranches for the senior notes and the junior secured notes to be paid in full after the expiration of an initial period in the deal (referred to as the "non-call period").

        The exercise of the call option is by the relevant percentage (usually a majority) of the holders of the equity tranches and, therefore, where we do not hold the relevant percentage we will not be able to control the timing of the exercise of the call option. The equity tranches also generally have a call at any time based on certain tax event triggers. In any event, the call can only be exercised by the holders of equity tranches if they can demonstrate (in accordance with the detailed provisions in the transaction) that the senior notes and junior secured notes will be paid in full if the call is exercised.

        Early prepayments and/or the exercise of a call option other than at our request may also give rise to increased re-investment risk with respect to certain investments, as we may realize excess cash earlier than expected. If we are unable to reinvest such cash in a new investment with an expected rate of return at least equal to that of the investment repaid, this may reduce our net income and, consequently, could have an adverse impact on our ability to pay dividends.

We have limited control of the administration and amendment of Senior Secured Loans owned by the CLOs in which we invest.

        We may not be able to directly enforce any rights and remedies in the event of a default of a Senior Secured Loan held by a CLO vehicle. In addition, the terms and conditions of the Senior Secured Loans underlying our CLO investments may be amended, modified or waived only by the agreement of the underlying lenders. Generally, any such agreement must include a majority or a super majority (measured by outstanding loans or commitments) or, in certain circumstances, a unanimous vote of the lenders. Consequently, the terms and conditions of the payment obligations arising from Senior Secured Loans could be modified, amended or waived in a manner contrary to our preferences.

We have limited control of the administration and amendment of any CLO in which we invest.

        The terms and conditions of target securities may be amended, modified or waived only by the agreement of the underlying security holders. Generally, any such agreement must include a majority or a super majority (measured by outstanding amounts) or, in certain circumstances, a unanimous vote of the security holders. Consequently, the terms and conditions of the payment obligation arising from the CLOs in which we invest be modified, amended or waived in a manner contrary to our preferences.

Senior Secured Loans of CLOs may be sold and replaced resulting in a loss to us.

        The Senior Secured Loans underlying our CLO investments may be sold and replacement collateral purchased within the parameters set out in the relevant CLO indenture between the CLO and the CLO trustee and those parameters may typically only be amended, modified or waived by the agreement of a majority of the holders of the senior notes and/or the junior secured notes and/or the

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equity tranche once the CLO has been established. If these transactions result in a net loss, the magnitude of the loss from the perspective of the equity tranche would be increased by the leveraged nature of the investment.

Our financial results may be affected adversely if one or more of our significant equity or junior debt investments in a CLO vehicle defaults on its payment obligations or fails to perform as we expect.

        We expect that a majority of our portfolio will consist of equity and junior debt investments in CLOs, which involve a number of significant risks. CLOs are typically highly levered up to approximately 10 times, and therefore the junior debt and equity tranches that we will invest in are subject to a higher risk of total loss. In particular, investors in CLOs indirectly bear risks of the underlying debt investments held by such CLOs. We will generally have the right to receive payments only from the CLOs, and will generally not have direct rights against the underlying borrowers or the entities that sponsored the CLOs. Although it is difficult to predict whether the prices of indices and securities underlying CLOs will rise or fall, these prices, and therefore, the prices of the CLOs, will be influenced by the same types of political and economic events that affect issuers of securities and capital markets generally.

        The investments we make in CLOs are thinly traded or have only a limited trading market. CLO investments are typically privately offered and sold, in the primary and secondary markets. As a result, investments in CLOs may be characterized as illiquid securities. In addition to the general risks associated with investing in debt securities, CLOs carry additional risks, including, but not limited to: (i) the possibility that distributions from the underlying Senior Secured Loans will not be adequate to make interest or other payments; (ii) the quality of the underlying Senior Secured Loans may decline in value or default; and (iii) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the CLO or unexpected investment results. Further, our investments in equity and junior debt tranches of CLOs are subordinate to the senior debt tranches thereof.

        Investments in structured vehicles, including equity and junior debt instruments issued by CLOs, involve risks, including credit risk and market risk. Changes in interest rates and credit quality may cause significant price fluctuations. Additionally, changes in the underlying Senior Secured Loans held by a CLO may cause payments on the instruments we hold to be reduced, either temporarily or permanently. Structured investments, particularly the subordinated interests in which we invest, are less liquid than many other types of securities and may be more volatile than the Senior Secured Loans underlying the CLOs in which we invest.

Non-investment grade debt involves a greater risk of default and higher price volatility than investment grade debt.

        The Senior Secured Loans underlying our CLO investments typically are rated non-investment grade and, in limited circumstances, are unrated. Non-investment grade securities are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal when due and therefore involve a greater risk of default and higher price volatility than investment grade debt.

We will have no influence on management of underlying investments managed by non-affiliated third party CLO collateral managers.

        We are not responsible for and have no influence over the asset management of the portfolios underlying the CLO investments we hold as those portfolios are managed by non-affiliated third party CLO collateral managers. Similarly, we are not responsible for and have no influence over the day-to-day management, administration or any other aspect of the issuers of the individual securities.

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As a result, the values of the portfolios underlying our CLO investments could decrease as a result of decisions made by third party CLO collateral managers.

Risks Relating To Our Securities

Our credit ratings may not reflect all risks of an investment in our debt securities.

        Our credit ratings are an assessment by third parties of our ability to pay our obligations. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of our debt securities. Our credit ratings, however, may not reflect the potential impact of risks related to market conditions generally or other factors discussed above on the market value of or trading market for the publicly issued debt securities. Our debt securities are rated by Standard & Poors.

Senior securities, including debt, expose us to additional risks, including the typical risks associated with leverage and could adversely affect our business, financial condition and results of operations.

        We currently use our revolving credit facility to leverage our portfolio and we expect in the future to borrow from and issue senior debt securities to banks and other lenders and may securitize certain of our portfolio investments. We also have the Senior Notes outstanding, which are a form of leverage and are senior in payment rights to our common stock.

        With certain limited exceptions, as a business development company, or a BDC, we are only allowed to borrow amounts or otherwise issue senior securities such that our asset coverage, as defined in the 1940 Act, is at least 200% after such borrowing or other issuance. The amount of leverage that we employ will depend on the Investment Adviser's and our Board of Directors' assessment of market conditions and other factors at the time of any proposed borrowing. There is no assurance that a leveraging strategy will be successful. Leverage involves risks and special considerations for stockholders, any of which could adversely affect our business, financial condition and results of operations, including the following:

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        For example, the amount we may borrow under our revolving credit facility is determined, in part, by the fair value of our investments. If the fair value of our investments declines, we may be forced to sell investments at a loss to maintain compliance with our borrowing limits. Other debt facilities we may enter into in the future may contain similar provisions. Any such forced sales would reduce our net asset value and also make it difficult for the net asset value to recover. The Investment Adviser and our Board of Directors in their best judgment nevertheless may determine to use leverage if they expect that the benefits to our stockholders of maintaining the leveraged position will outweigh the risks.

        In addition, our ability to meet our payment and other obligations of the Notes and our credit facility depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations, or that future borrowings will be available to us under our existing credit facility or otherwise, in an amount sufficient to enable us to meet our payment obligations under the Notes and our other debt and to fund other liquidity needs. If we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, including the Notes, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations under the Notes and our other debt.

        Illustration.    The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of interest expense. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing below. The calculation assumes (i) $4.4 billion in total assets, (ii) an average cost of funds of 5.63%, (iii) $1.7 billion in debt outstanding and (iv) $2.7 billion of shareholders' equity.

Assumed Return on Our Portfolio (net of expenses)

    (10 )%   (5 )%   0 %   5 %   10 %

Corresponding Return to Stockholder

   
(19.8

)%
 
(11.7

)%
 
(3.5

)%
 
4.6

%
 
12.7

%

        The assumed portfolio return is required by regulation of the SEC and is not a prediction of, and does not represent, our projected or actual performance. Actual returns may be greater or less than those appearing in the table.

The Senior Convertible Notes, the 2022 Notes and the 2023 Notes present other risks to holders of our common stock, including the possibility that such Notes could discourage an acquisition of the Company by a third party and accounting uncertainty.

        Certain provisions of the Senior Convertible Notes, the 2022 Notes and the 2023 Notes could make it more difficult or more expensive for a third party to acquire us. Upon the occurrence of certain transactions constituting a fundamental change, holders of the Senior Convertible Notes, the 2022 Notes and the 2023 Notes will have the right, at their option, to require us to repurchase all of their Senior Convertible Notes, the 2022 Notes and the 2023 Notes or any portion of the principal amount of such Senior Convertible Notes, the 2022 Notes and the 2023 Notes in integral multiples of $1,000, in the case of the Senior Convertible Notes and the 2023 Notes, and $25, in the case of the

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2022 Notes. We may also be required to increase the conversion rate or provide for conversion into the acquirer's capital stock in the event of certain fundamental changes with respect to the Senior Convertible Notes. These provisions could discourage an acquisition of us by a third party.

        The accounting for convertible debt securities is subject to frequent scrutiny by the accounting regulatory bodies and is subject to change. We cannot predict if or when any such change could be made and any such change could have an adverse impact on our reported or future financial results. Any such impacts could adversely affect the market price of our common stock.

We may in the future determine to fund a portion of our investments with preferred stock, which would magnify the potential for gain or loss and the risks of investing in us in the same way as our borrowings.

        Preferred stock, which is another form of leverage, has the same risks to our common stockholders as borrowings because the dividends on any preferred stock we issue must be cumulative. Payment of such dividends and repayment of the liquidation preference of such preferred stock must take preference over any dividends or other payments to our common stockholders, and preferred stockholders are not subject to any of our expenses or losses and are not entitled to participate in any income or appreciation in excess of their stated preference.

Holders of any preferred stock we might issue would have the right to elect members of the board of directors and class voting rights on certain matters.

        Holders of any preferred stock we might issue, voting separately as a single class, would have the right to elect two members of the board of directors at all times and in the event dividends become two full years in arrears would have the right to elect a majority of the directors until such arrearage is completely eliminated. In addition, preferred stockholders have class voting rights on certain matters, including changes in fundamental investment restrictions and conversion to open-end status, and accordingly can veto any such changes. Restrictions imposed on the declarations and payment of dividends or other distributions to the holders of our common stock and preferred stock, both by the 1940 Act and by requirements imposed by rating agencies or the terms of our credit facilities, might impair our ability to maintain our qualification as a RIC for federal income tax purposes. While we would intend to redeem our preferred stock to the extent necessary to enable us to distribute our income as required to maintain our qualification as a RIC, there can be no assurance that such actions could be effected in time to meet the tax requirements.

In addition to regulatory restrictions that restrict our ability to raise capital, our credit facility contains various covenants which, if not complied with, could accelerate repayment under the facility, thereby materially and adversely affecting our liquidity, financial condition and results of operations.

        The agreement governing our credit facility requires us to comply with certain financial and operational covenants. These covenants include:

        As of June 30, 2013, we were in compliance with these covenants. However, our continued compliance with these covenants depends on many factors, some of which are beyond our control. Accordingly, there are no assurances that we will continue to comply with the covenants in our credit facility. Failure to comply with these covenants would result in a default under this facility which, if we were unable to obtain a waiver from the lenders thereunder, could result in an acceleration of

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repayments under the facility and thereby have a material adverse impact on our business, financial condition and results of operations.

Failure to extend our existing credit facility, the revolving period of which is currently scheduled to expire on March 27, 2015, could have a material adverse effect on our results of operations and financial position and our ability to pay expenses and make distributions.

        The revolving period for our credit facility with a syndicate of lenders is currently scheduled to terminate on March 27, 2015, with an additional two year amortization period (with distributions allowed) after the completion of the revolving period. During such two year amortization period, all principal payments on the pledged assets will be applied to reduce the balance. At the end of the two year amortization period, the remaining balance will become due if required by the lenders. If the credit facility is not renewed or extended by the participant banks by March 27, 2015, we will not be able to make further borrowings under the facility after such date and the outstanding principal balance on that date will be due and payable on March 27, 2017. At June 30, 2013 we had $124.0 million of outstanding borrowings under our credit facility. Interest on borrowings under the credit facility is one-month LIBOR plus 275 basis points with no minimum LIBOR floor. Additionally, the lenders charge a fee on the unused portion of the credit facility equal to either 50 basis points if at least half of the credit facility is drawn or 100 basis points otherwise. The credit facility requires us to pledge assets as collateral in order to borrow under the credit facility. If we are unable to extend our facility or find a new source of borrowing on acceptable terms, we will be required to pay down the amounts outstanding under the facility during the two-year term-out period through one or more of the following: (1) principal collections on our securities pledged under the facility, (2) at our option, interest collections on our securities pledged under the facility and cash collections on our securities not pledged under the facility, or (3) possible liquidation of some or all of our loans and other assets, any of which could have a material adverse effect on our results of operations and financial position and may force us to decrease or stop paying certain expenses and making distributions until the facility is repaid. In addition, our stock price could decline significantly, we would be restricted in our ability to acquire new investments and, in connection with our year-end audit, our independent registered accounting firm could raise an issue as to our ability to continue as a going concern.

Failure to refinance our existing Senior Notes, could have a material adverse effect on our results of operations and financial position.

        Our Senior Notes mature at various dates from December 15, 2015 to June 15, 2043. If we are unable to refinance our Senior Notes or find a new source of borrowing on acceptable terms, we will be required to pay down the amounts outstanding at maturity under the facility during the two-year term-out period through one or more of the following: (1) borrowing additional funds under our then current credit facility, (2) issuance of additional common stock or (3) possible liquidation of some or all of our loans and other assets, any of which could have a material adverse effect on our results of operations and financial position. In addition, our stock price could decline significantly; we would be restricted in our ability to acquire new investments and, in connection with our year-end audit, our independent registered accounting firm could raise an issue as to our ability to continue as a going concern.

The trading market or market value of our publicly issued debt securities may fluctuate.

        Our publicly issued debt securities may or may not have an established trading market. We cannot assure our noteholders that a trading market for our publicly issued debt securities will ever develop or be maintained if developed. In addition to our creditworthiness, many factors may materially adversely

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affect the trading market for, and market value of, our publicly issued debt securities. These factors include, but are not limited to, the following:

        Our noteholders should also be aware that there may be a limited number of buyers when they decide to sell their debt securities. This too may materially adversely affect the market value of the debt securities or the trading market for the debt securities.

Terms relating to redemption may materially adversely affect our noteholders return on any debt securities that we may issue.

        If our noteholders' debt securities are redeemable at our option, we may choose to redeem their debt securities at times when prevailing interest rates are lower than the interest rate paid on their debt securities. In addition, if our noteholders' debt securities are subject to mandatory redemption, we may be required to redeem their debt securities also at times when prevailing interest rates are lower than the interest rate paid on their debt securities. In this circumstance, our noteholders may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as their debt securities being redeemed.

Our shares of common stock have traded at a discount from net asset value and may do so again in the future, which could limit our ability to raise additional equity capital.

        Shares of closed-end investment companies frequently trade at a market price that is less than the net asset value that is attributable to those shares. This characteristic of closed-end investment companies is separate and distinct from the risk that our net asset value per share may decline. It is not possible to predict whether any shares of our common stock will trade at, above, or below net asset value. In the recent past, including during much of 2009, the stocks of BDCs as an industry, including at times shares of our common stock, traded below net asset value and at near historic lows as a result of concerns over liquidity, leverage restrictions and distribution requirements. When our common stock is trading below its net asset value per share, we will generally not be able to issue additional shares of our common stock at its market price without first obtaining approval for such issuance from our stockholders and our independent directors. At our 2012 annual meeting of stockholders held on December 7, 2012, our stockholders approved our ability, subject to the condition that the maximum number of shares salable below net asset value pursuant to this authority in any particular offering that could result in such dilution is limited to 25% of our then outstanding common stock immediately prior to each such offering, to sell shares of our common stock at any level of discount from net asset value per share during the 12 month period following December 7, 2012. It should be noted that, theoretically, we may offer up to 25% of our then outstanding common stock each day.

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There is a risk that investors in our common stock may not receive dividends or that our dividends may not grow over time and investors in our debt securities may not receive all of the interest income to which they are entitled.

        We intend to make distributions on a monthly basis to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. If we declare a dividend and if more stockholders opt to receive cash distributions rather than participate in our dividend reinvestment plan, we may be forced to sell some of our investments in order to make cash dividend payments.

        In addition, due to the asset coverage test applicable to us as a BDC, we may be limited in our ability to make distributions. Further, if we invest a greater amount of assets in equity securities that do not pay current dividends, it could reduce the amount available for distribution.

        The above-referenced restrictions on distributions may also inhibit our ability to make required interest payments to holders of our debt, which may cause a default under the terms of our debt agreements. Such a default could materially increase our cost of raising capital, as well as cause us to incur penalties under the terms of our debt agreements.

Investing in our securities may involve a high degree of risk and is highly speculative.

        The investments we make in accordance with our investment objective may result in a higher amount of risk than alternative investment options and volatility or loss of principal. Our investments in portfolio companies may be speculative and aggressive, and therefore, an investment in our shares may not be suitable for someone with low risk tolerance.

Our stockholders will experience dilution in their ownership percentage if they opt out of our dividend reinvestment plan.

        All dividends declared in cash payable to stockholders that are participants in our dividend reinvestment plan are automatically reinvested in shares of our common stock. As a result, our stockholders that opt out of our dividend reinvestment plan will experience dilution in their ownership percentage of our common stock over time.

Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock.

        Sales of substantial amounts of our common stock, or the availability of such common stock for sale (including as a result of the conversion of our Senior Convertible Notes into common stock), could adversely affect the prevailing market prices for our common stock. If this occurs and continues, it could impair our ability to raise additional capital through the sale of securities should we desire to do so.

If we sell shares of our common stock or securities to subscribe for or are convertible into shares of our common stock at a discount to our net asset value per share, stockholders who do not participate in such sale will experience immediate dilution in an amount that may be material.

        At our 2012 annual meeting of stockholders held on December 7, 2012, our stockholders approved our ability, subject to the condition that the maximum number of shares salable below net asset value pursuant to this authority in any particular offering that could result in such dilution is limited to 25% of our then outstanding common stock immediately prior to each such offering, to sell shares of our common stock at any level of discount from net asset value per share during the 12 month period following December 7, 2012. It should be noted that, theoretically, we may offer up to 25% of our then

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outstanding common stock each day. The issuance or sale by us of shares of our common stock or securities to subscribe for or are convertible into shares of our common stock at a discount to net asset value poses a risk of dilution to our stockholders. In particular, stockholders who do not purchase additional shares of common stock at or below the discounted price in proportion to their current ownership will experience an immediate decrease in net asset value per share (as well as in the aggregate net asset value of their shares of common stock if they do not participate at all). These stockholders will also experience a disproportionately greater decrease in their participation in our earnings and assets and their voting power than the increase we experience in our assets, potential earning power and voting interests from such issuance or sale. In addition, such sales may adversely affect the price at which our common stock trades. We have sold shares of our common stock at prices below net asset value per share in the past and may do so to the future. We have not sold any shares of our common stock at prices below net asset value per share since July 18, 2011.

Our ability to enter into transactions with our affiliates is restricted.

        We are prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our independent directors. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities is our affiliate for purposes of the 1940 Act and we are generally prohibited from buying or selling any security or other property from or to such affiliate, absent the prior approval of our independent directors. The 1940 Act also prohibits "joint" transactions with an affiliate, which could include investments in the same portfolio company (whether at the same or different times), without prior approval of our independent directors. Subject to certain limited exceptions, we are prohibited from buying or selling any security or other property from or to the Investment Adviser and its affiliates and persons with whom we are in a control relationship, or entering into joint transactions with any such person, absent the prior approval of the SEC.

        We and Priority Senior Secured Income Fund, Inc., Pathway Energy Infrastructure Fund, Inc., Prospect Capital Funding LLC, Prospect Capital Management LLC, Priority Senior Secured Income Management, LLC and Pathway Energy Infrastructure Management, LLC have submitted an exemptive application to the SEC to permit us to participate in negotiated co-investments with other funds managed by Prospect Capital Management LLC, Priority Senior Secured Income Management, LLC or Pathway Energy Infrastructure Management, LLC or affiliated advisers in a manner consistent with our investment objective, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to the conditions therein. However, there is no assurance that we will obtain such exemptive relief.

The market price of our securities may fluctuate significantly.

        The market price and liquidity of the market for our securities may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include:

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In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has, from time to time, been brought against that company.

        If our stock price fluctuates significantly, we may be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management's attention and resources from our business.

There is a risk that you may not receive distributions or that our distributions may not grow over time.

        We have made and intend to continue to make distributions on a monthly basis to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results or maintain a tax status that will allow or require any specified level of cash distributions or year-to-year increases in cash distributions. In addition, due to the asset coverage test applicable to us as a business development company, we may be limited in our ability to make distributions.

Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.

        Our charter and bylaws and the Maryland General Corporation Law contain provisions that may have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for our stockholders or otherwise be in their best interest. These provisions may prevent stockholders from being able to sell shares of our common stock at a premium over the current of prevailing market prices.

        Our charter provides for the classification of our Board of Directors into three classes of directors, serving staggered three-year terms, which may render a change of control or removal of our incumbent management more difficult. Furthermore, any and all vacancies on our Board of Directors will be filled generally only by the affirmative vote of a majority of the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy will serve for the remainder of the full term until a successor is elected and qualifies.

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        Our Board of Directors is authorized to create and issue new series of shares, to classify or reclassify any unissued shares of stock into one or more classes or series, including preferred stock and, without stockholder approval, to amend our charter to increase or decrease the number of shares of common stock that we have authority to issue, which could have the effect of diluting a stockholder's ownership interest. Prior to the issuance of shares of common stock of each class or series, including any reclassified series, our Board of Directors is required by our governing documents to set the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series of shares of stock.

        Our charter and bylaws also provide that our Board of Directors has the exclusive power to adopt, alter or repeal any provision of our bylaws, and to make new bylaws. The Maryland General Corporation Law also contains certain provisions that may limit the ability of a third party to acquire control of us, such as:

        The provisions of the Maryland Business Combination Act will not apply, however, if our Board of Directors adopts a resolution that any business combination between us and any other person will be exempt from the provisions of the Maryland Business Combination Act. Our Board of Directors has adopted a resolution that any business combination between us and any other person is exempted from the provisions of the Business Combination Act, provided that the business combination is first approved by the Board of Directors, including a majority of the directors who are not interested persons as defined in the 1940 Act. There can be no assurance that this resolution will not be altered or repealed in whole or in part at any time. If the resolution is altered or repealed, the provisions of the Maryland Business Combination Act may discourage others from trying to acquire control of us.

        As permitted by Maryland law, our bylaws contain a provision exempting from the Maryland Control Share Acquisition Act any and all acquisitions by any person of our common stock. Although our bylaws include such a provision, such a provision may also be amended or eliminated by our Board of Directors at any time in the future, provided that we will notify the Division of Investment Management at the SEC prior to amending or eliminating this provision. However, as noted above, the SEC has recently taken the position that the Maryland Control Share Acquisition Act is inconsistent with the 1940 Act and may not be invoked by a BDC. It is the view of the staff of the SEC that opting into the Maryland Control Share Acquisition Act would be acting in a manner inconsistent with section 18(i) of the 1940 Act.

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Your interest in us may be diluted if you do not fully exercise your subscription rights in any rights offering. In addition, if the subscription price is less than our net asset value per share, then you will experience an immediate dilution of the aggregate net asset value of your shares.

        In the event we issue subscription rights, stockholders who do not fully exercise their subscription rights should expect that they will, at the completion of a rights offering pursuant to this prospectus, own a smaller proportional interest in us than would otherwise be the case if they fully exercised their rights. We cannot state precisely the amount of any such dilution in share ownership because we do not know at this time what proportion of the shares will be purchased as a result of such rights offering.

        In addition, if the subscription price is less than the net asset value per share of our common stock, then our stockholders would experience an immediate dilution of the aggregate net asset value of their shares as a result of the offering. The amount of any decrease in net asset value is not predictable because it is not known at this time what the subscription price and net asset value per share will be on the expiration date of a rights offering or what proportion of the shares will be purchased as a result of such rights offering. Such dilution could be substantial.

We may in the future choose to pay dividends in our own stock, in which case our stockholders may be required to pay tax in excess of the cash they receive.

        We may distribute taxable dividends that are payable in part in our stock. The IRS has issued private letter rulings on cash/stock dividends paid by RICs and real estate investment trusts if certain requirements are satisfied, and we have received such a ruling permitting us to declare such taxable cash/stock dividends, up to 80% in stock, with respect to our taxable years ending August 31, 2012 and August 31, 2013. Taxable stockholders receiving such dividends would be required to include the full amount of the dividend as ordinary income (or as long-term capital gain to the extent such distribution is properly designated as a capital gain dividend) to the extent of our current and accumulated earnings and profits for United States federal income tax purposes. As a result, a U.S. Stockholder (as defined in "Material U.S. Federal Income Tax Considerations") may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S. Stockholder sells the stock it receives as a dividend in order to pay this tax, it may be subject to transaction fees (e.g. broker fees or transfer agent fees) and the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of its stock at the time of the sale. Furthermore, with respect to Non-U.S. Stockholders (as defined in "Material U.S. Federal Income Tax Considerations"), we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine 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. It is unclear whether and to what extent we will be able to pay dividends in cash and our stock.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(All figures in this section are in thousands except share, per share and other data)

        The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this prospectus or incorporated by reference into this prospectus. In addition to historical information, the following discussion and other parts of this prospectus contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under "Risk Factors" and "Forward-Looking Statements" appearing elsewhere herein.

Note on Forward Looking Statements

        Some of the statements in this section of the prospectus constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained herein involve risks and uncertainties, including statements as to:

        We generally use words such as "anticipates," "believes," "expects," "intends" and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors set forth in "Risk Factors" and elsewhere in this prospectus. These forward-looking statements do not meet the safe harbor for forward-looking statements pursuant to Section 27A of the Securities Act.

        We have based the forward-looking statements included in herein on information available to us on the date of this document, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including any annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Overview

        We are a financial services company that primarily lends to and invests in middle market privately-held companies. We are a closed-end investment company that has filed an election to be treated as a business development company under the Investment Company Act of 1940, or the 1940 Act. We invest primarily in senior and subordinated debt and equity of companies in need of capital for

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acquisitions, divestitures, growth, development and recapitalization. We work with the management teams or financial sponsors to seek investments with historical cash flows, asset collateral or contracted pro-forma cash flows.

        We currently have seven origination strategies in which we make investments: (1) lending in private equity sponsored transactions, (2) lending directly to companies not owned by private equity firms, (3) control investments in corporate operating companies, (4) control investments in financial companies, (5) investments in structured credit, (6) real estate investments, and (7) investments in syndicated debt. We continue to evaluate other origination strategies in the ordinary course of business with no specific tops-down allocation to any single origination strategy.

        Lending in Private Equity Sponsored Transactions—We make loans to companies which are controlled by leading private equity firms. This debt can take the form of first lien, second lien, unitranche or mezzanine loans. In making these investments, we look for a diversified customer base, recurring demand for the product or service, barriers to entry, strong historical cash flow and experienced management teams. These loans typically have significant equity subordinate to our loan position. This strategy has represented approximately 50%-60% of our business.

        Lending Directly to Companies—We provide debt financing to companies owned by non-private equity firms, the company founder, a management team or a family. Here, in addition to the strengths we look for in a sponsored transaction, we also look for the alignment with the management team with significant invested capital. This strategy often has less competition than the private equity sponsor strategy because such company financing needs are not easily addressed by banks and often require more diligence preparation. Direct lending can result in higher returns and lower leverage than sponsor transactions and may include warrants or equity to us. This strategy generally has comprised approximately 10%-15% of our business.

        Control Investments in Corporate Operating Companies—This strategy involves acquiring controlling stakes in non-financial operating companies. Our investments in these companies are generally structured as a combination of yield-producing debt and equity. We provide certainty of closure to our counterparties, give the seller personal liquidity and generally look for management to continue on in their current roles. This strategy has comprised approximately 10%-15% of our business.

        Control Investments in Financial Companies—This strategy involves acquiring controlling stakes in financial companies, including consumer direct lending, subprime auto lending and other strategies. Our investments in these companies are generally structured as a combination of yield-producing debt and equity. These investments are often structured in a tax-efficient RIC-compliant partnership, enhancing returns. This strategy has comprised approximately 10%-15% of our business.

        Investments in Structured Credit—We make investments in CLOs, generally taking a significant position in the subordinated interests (equity) of the CLOs. The CLOs include a diversified portfolio of broadly syndicated loans and do not have direct exposure to real estate, mortgages, sub-prime debt, or consumer based debt. The CLOs in which we invest are managed by top-tier collateral managers that have been thoroughly diligenced prior to investment. This strategy has represented 10%-20% of the portfolio.

        Real Estate Investments—We make investments in real estate through our wholly-owned tax-efficient real estate investment trust ("REIT"), American Property Holding Corp. ("APHC"). Our real estate investments are in various classes of fully developed and occupied real estate properties that generate current yields. We seek to identify properties that have historically high occupancy and steady cash flow generation. We partner with established property managers with experience in managing the property type to manage such properties after acquisition. This is a more recent investment strategy that has represented less than 5% of our business.

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        Investments in Syndicated Debt—On an opportunistic basis, we make investments in loans and high yield bonds that have been sold to a syndicate of buyers. Here we look for investments with attractive risk-adjusted returns after we have completed a fundamental credit analysis. These investments are purchased with a long term, buy-and-hold outlook and we look to provide significant structuring input by providing anchoring orders. This strategy has represented approximately 5%-10% of the portfolio.

        We invest primarily in first and second lien senior loans and mezzanine debt, which in some cases includes an equity component. First and second lien senior loans generally are senior debt instruments that rank ahead of subordinated debt of a given portfolio company. These loans also have the benefit of security interests on the assets of the portfolio company, which may rank ahead of or be junior to other security interests. Mezzanine debt and our investments in CLOs are subordinated to senior loans and are generally unsecured. We invest in debt and equity positions of CLOs which are a form of securitization in which the cash flows of a portfolio of loans are pooled and passed on to different classes of owners in various tranches. Our CLO investments are derived from portfolios of corporate debt securities which are generally risk rated from BB to B depending on the tranche.

        We seek to be a long-term investor with our portfolio companies. The aggregate value of our portfolio investments was $4,172,852 and $2,094,221 as of June 30, 2013 and June 30, 2012, respectively. During the year ended June 30, 2013, our net cost of investments increased by $2,156,465, or 102.7%, as a result of 68 new investments, 25 follow-on investments and several revolver advances of $3,043,531, accrued of payment-in-kind interest of $10,947, structuring fees of $52,699 and amortization of discounts and premiums of $11,016, while we received full repayment on 23 investments, sold ten investments, impaired one investment, and received several partial prepayments, amortization payments and a revolver repayment, totaling $931,534.

        Compared to the end of last fiscal year (ended June 30, 2012), net assets increased by $1,144,520, or 75.7% during the year ended June 30, 2013, from $1,511,974 to $2,656,494. This increase resulted from the issuance of new shares of our common stock (less offering costs) in the amount of $1,179,084, dividend reinvestments of $16,087, and $220,856 from operations. These increases, in turn, were offset by $271,507 in dividend distributions to our stockholders. The $220,856 increase in net assets resulting from operations is net of the following: net investment income of $324,924, net realized loss on investments of $26,234, and a decrease in net assets due to changes in net unrealized depreciation of investments of $77,834.

        The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ, and these differences could be material.

Fourth Quarter Highlights

Investment Transactions

        On April 1, 2013, we refinanced our existing $18,635 of subordinated loans to Ajax Rolled Ring & Machine, Inc. ("Ajax"), increasing the size of our debt investment to $38,537. Concurrent with the refinancing, we received repayment of the $18,635 subordinated loans that were previously outstanding. The subordinated unsecured term loan bears interest in cash at the greater of 11.5% or Libor plus 8.5% and interest payment in kind of 6.0% and has a final maturity of March 30, 2018.

        On April 15, 2013, assets previously held by H&M were assigned to Wolf in exchange for a $66,000 term loan secured by the assets. Our cost basis in this loan of $44,632 was determined in accordance with ASC 310-40, Troubled Debt Restructurings by Creditors, and is equal to the fair value of

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assets at the time of transfer and we recorded a realized loss of $19,647 in connection with the foreclosure on the assets. On May 17, 2013, Wolf sold certain of the assets that had been previously held by H&M that were located in Martin County to Hibernia for $66,000. Proceeds from the sale were primarily used to repay the loan and NPI receivable due to us and we recognized as a realized gain of $11,826 partially offsetting the previously recorded loss. We received $3,960 of structuring and advisory fees from Wolf during the year ended June 30, 2013 related to the sale and $991 under the NPI agreement which was recognized as other income during the fiscal year ended June 30, 2013.

        On April 17, 2013, we made an investment of $43,650 to purchase 97% of the subordinated notes in Mountain View CLO 2013-I Ltd. ("Mountain View").

        On April 22, 2013, we provided $34,375 of senior secured financing, of which $31,875 was funded at closing, to support the acquisition of Pegasus Business Intelligence, LP ("Pegasus"), the world's largest processor of commissions paid by hotels to travel agencies for room booking services. The $15,938 Term Loan A note bears interest in cash at the greater of 6.75% or Libor plus 5.5% and has a final maturity of April 18, 2018. The $15,938 Term Loan B note bears interest in cash at the greater of 13.75% or Libor plus 12.5% and has a final maturity of April 18, 2018. The $2,500 senior secured revolver, which was unfunded at closing, bears interest in cash at the greater of 9.0% or Libor plus 7.75% and has a final maturity of April 18, 2014.

        On April 25, 2013, we made an investment of $26,000 to purchase 50.9% of the subordinated notes in Brookside Mill CLO Ltd. ("Brookside").

        On April 30, 2013, we made a $21,247 follow-on investment in APH, to acquire Lofton Place Apartments and Vista at Palma Sola, multi-family residential properties located in Florida. We invested $3,247 of equity and $18,000 of debt in APH. The senior secured note bears interest in cash at the greater of 6.0% or Libor plus 4.0% and interest payment in kind of 5.50% and has a final maturity of October 24, 2020.

        On April 30, 2013, we sold our investment in Fischbein, LLC ("Fischbein") for net proceeds of $3,168, recognizing a realized gain of $2,293 on the sale. In addition, there is $310 being held in escrow which will be recognized as additional gain if and when received.

        On May 8, 2013, we made a $6,119 follow-on investment in APH, to acquire Arlington Park, a multi-family residential property located in Marietta, Georgia. We invested $2,119 of equity and $4,000 of debt in APH. The senior secured note bears interest in cash at the greater of 6.0% or Libor plus 4.0% and interest payment in kind of 5.50% and has a final maturity of October 24, 2020.

        On May 9, 2013, we provided a $55,000 senior secured credit facility to support the recapitalization of Sandow Media, LLC ("Sandow"), a provider of multimedia content and services to businesses and consumers focused on the areas of design and luxury. The senior secured first lien loan bears interest in cash at the greater of 10.5% or Libor plus 8.5% and interest payment in kind of 1.5% and has a final maturity of May 8, 2018.

        On May 10, 2013, we provided $150,000 of secured second lien financing to support the recapitalization of Arctic Glacier, Inc. ("Arctic Glacier"), a leading producer, marketer, and distributor of high-quality packaged ice to consumers in the United States and Canada. After the financing, we received repayment of $86,982 of subordinated unsecured term loan previously outstanding. The senior secured second lien loan bears interest in cash at the greater of 11.25% or Libor plus 10.0% and has a final maturity of November 10, 2019.

        On May 14, 2013, we provided $4,000 of senior secured financing to SourceHOV, LLC ("SourceHOV"), a leading provider of business and knowledge process outsourcing. The second lien term loan bears interest in cash at the greater of 8.75% or Libor plus 7.5% and has a final maturity of

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April 30, 2019. On June 13, 2013, we sold our $4,000 investment in SourceHOV and realized a gain of $40 on this investment.

        On May 16, 2013, Out Rage, LLC ("Out Rage") repaid the $11,836 loan receivable to us.

        On May 23, 2013, Snacks Holding Corporation ("Snacks Holding") repaid the $15,366 loan receivable to us.

        On May 31, 2013, we made a follow-on secured second lien debt investment of $7,190 in Injured Workers Pharmacy LLC ("IWP"), a specialty pharmacy services company. The secured second lien loan bears interest in cash at the greater of 11.5% or Libor plus 7.0% and interest payment in kind of 1.0% and has a final maturity of May 31, 2019.

        On June 3, 2013, Nobel Learning Communities, Inc. ("Nobel") repaid the $15,262 loan receivable to us.

        On June 4, 2013, Springs Window Fashions, LLC ("Springs") repaid the $35,000 loan receivable to us.

        On June 11, 2013, we provided $115,000 of senior secured financing to CI Holdings ("Transplace"), a third-party logistics company that services many of the largest shippers in the world. The senior secured first lien loan bears interest in cash at the greater of 10.0% or Libor plus 5.0% and has a final maturity of June 11, 2019.

        On June 11, 2013, we provided $7,000 of secured second lien financing to Armor Holding II LLC ("AST"), a leading North American third-party provider of share registry and associated value added services to shareholders on behalf of listed public companies. The second lien loan bears interest in cash at the greater of 9.25% or Libor plus 8.0% and has a final maturity of December 26, 2020.

        On June 12, 2013, we made a $23,250 follow-on investment in R-V Industries, Inc. ("R-V"). The senior subordinated note bears interest in cash at the greater of 10.0% or Libor plus 9.0% and has a final maturity of June 12, 2018.

        On June 14, 2013, we sold our $10,000 investment in Transaction Networks Services, Inc. ("TNS") and realized a gain of $117 on this investment.

        On June 18, 2013, we served as sole agent and provider of $70,000 senior secured financing, of which $65,643 was funded at closing, to support the recapitalization of Traeger Pellet Grills LLC ("Traeger"), a leading designer, marketer, and distributor of wood pellet grills, flavored wood pellets, and grill accessories. The $30,000 Term Loan A note bears interest in cash at the greater of 6.5% or Libor plus 4.5% and has a final maturity of June 18, 2018. The $30,000 Term Loan B note bears interest in cash at the greater of 11.5% or Libor plus 9.5% and has a final maturity of June 18, 2018. The $10,000 senior secured revolver, of which $5,643 was drawn at closing, bears interest in cash at the greater of 9.0% or Libor plus 7.0% and has a final maturity of June 18, 2014.

        On June 24, 2013, we made a $76,533 follow-on investment in APH, to acquire Arium Resort (f/k/a The Resort at Pembroke Pines), a prominent multi-family residential community located in Pembroke Pines, Florida. We invested $13,533 of equity and $63,000 of debt in APH. The senior secured note bears interest in cash at the greater of 6.0% or Libor plus 4.0% and interest payment in kind of 5.50% and has a final maturity of October 24, 2020.

        On June 25, 2013, we made an investment of $26,500 to purchase 84.13% of the subordinated notes in LCM XIV CLO Ltd. ("LCM XIV").

        On June 27, 2013, we provided $11,000 of secured second lien financing to Blue Coat Systems, Inc. ("Blue Coat"), a leading provider of web security and wide area network (WAN) optimization

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solutions. The second lien note bears interest in cash at the greater of 9.5% or Libor plus 8.5% and has a final maturity of June 28, 2020.

        On June 27, 2013, we made a follow-on secured debt investment of $87,500 to support the recapitalization of Progrexion Holdings, Inc. ("Progrexion"). After the financing, we now hold $241,033 of senior secured debt of Progrexion. The senior secured first lien note bears interest in cash at the greater of 10.5% or Libor plus 8.5% and has a final maturity of September 14, 2017.

        On June 28, 2013, Sandow repaid $30,100 of the $55,000 loan receivable to us. After the repayment, we now hold $24,900 of senior secured debt of Sandow.

        On June 28, 2013, we made a $1,000 follow-on investment in Ajax. The subordinated unsecured term loan bears interest in cash at the greater of 11.5% or Libor plus 8.5% and interest payment in kind of 6.0% and has a final maturity of March 30, 2018.

        On June 28, 2013, we made an $18,000 secured debt follow-on investment in New Star Metals, Inc. ("New Star"), a provider of specialized processing services to the steel industry. The senior subordinated term loan bears interest in cash at 11.5% and interest payment in kind of 1.0% and has a final maturity of February 2, 2018.

        In June 2013, we determined that the impairment of Manx was other-than-temporary and recorded a realized loss of $9,397 for the amount that the amortized cost exceeded the fair market value.

Equity Issuance

        During the period from April 1, 2013 to May 31, 2013, we sold 8,836,237 shares of our common stock at an average price of $10.92 per share, and raised $96,476 of gross proceeds, under the ATM Program. Net proceeds were $95,474 after commissions to the broker-dealer on shares sold and offering costs. No additional shares were sold from June 1, 2013 to June 30, 2013.

        On April 18, 2013, May 23, 2013 and June 20, 2013, we issued 138,087, 117,497 and 117,107 shares of our common stock in connection with the dividend reinvestment plan, respectively.

Dividend

        On May 6, 2013, we announced the declaration of monthly dividends in the following amounts and with the following dates:

        On June 17, 2013, we announced the declaration of monthly dividends in the following amounts and with the following dates:

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Debt Issuance

        During the quarter ended June 30, 2013, we issued $164,376 in aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of approximately $159,983, as follows:

Date of Issuance
  Principal
Amount
  Interest Rate
Range
  Weighted Average
Interest Rate
  Maturity Date  

April 4, 2013 - April 25, 2013

  $ 29,528   4.50% - 5.00%     4.96 %   April 15, 2020  

April 4, 2013 - April 25, 2013

    264   3.78% - 3.78%     3.78 %   April 15, 2023  

April 4, 2013 - April 25, 2013

    5,164   4.63% - 5.50%     5.34 %   April 15, 2031  

April 4, 2013 - April 25, 2013

    12,280   6.00%     6.00 %   April 15, 2043  

May 2, 2013 - May 31, 2013

    42,482   5.00%     5.00 %   May 15, 2020  

May 2, 2013 - May 31, 2013

    10,000   5.00%     5.00 %   May 15, 2028  

May 2, 2013 - May 31, 2013

    7,548   5.75%     5.75 %   May 15, 2031  

May 2, 2013 - May 31, 2013

    33,641   6.25%     6.25 %   May 15, 2043  

June 6, 2013 - June 27, 2013

    9,905   5.00% - 5.25%     5.04 %   June 15, 2020  

June 6, 2013 - June 27, 2013

    5,000   5.00%     5.00 %   June 15, 2028  

June 6, 2013 - June 27, 2013

    1,707   5.75% - 6.00%     5.85 %   June 15, 2031  

June 6, 2013 - June 27, 2013

    6,857   6.25% - 6.50%     6.31 %   June 15, 2043  
                       

  $ 164,376                  
                       

Investment Holdings

        As of June 30, 2013, we continue to pursue our diversified investment strategy. At June 30, 2013, approximately $4,172,852 or 157.1% of our net assets are invested in 124 long-term portfolio investments and CLOs and 5.4% of our net assets are invested in money market funds.

        During the year ended June 30, 2013, we originated $3,103,217 of new investments. Our origination efforts are focused primarily on secured lending, to reduce the risk in the portfolio, investing primarily in first lien loans, and subordinated notes in CLOs, though we also continue to close select junior debt and equity investments. In addition to targeting investments senior in corporate capital structures with our new originations, we have also increased our origination business mix of third party private equity sponsor owned companies, which tend to have more third party equity capital supporting our debt investments than non-sponsor transactions. Our annualized current yield was 13.9% and 13.6% as of June 30, 2012 and June 30, 2013, respectively, across all performing interest bearing investments. The decrease in our current yield is primarily due to recent originations being at lower yields than the existing portfolio. Monetization of equity positions that we hold and loans on non-accrual status are not included in this yield calculation. In many of our portfolio companies we hold equity positions, ranging from minority interests to majority stakes, which we expect over time to contribute to our investment returns. Some of these equity positions include features such as contractual minimum internal rates of returns, preferred distributions, flip structures and other features expected to generate additional investment returns, as well as contractual protections and preferences over junior equity, in addition to the yield and security offered by our cash flow and collateral debt protections.

        We classify our investments by level of control. As defined in the 1940 Act, control investments are those where there is the ability or power to exercise a controlling influence over the management or

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policies of a company. Control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of more than 25% of the voting securities of an investee company. Affiliated investments and affiliated companies are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of the investee company.

        As of June 30, 2013, we own controlling interests in AIRMALL USA, Inc. ("AIRMALL"), Ajax, APH, AWCNC, LLC, Borga, Inc., CCPI Holdings, Inc. ("CCPI"), Credit Central Holdings of Delaware, LLC ("Credit Central"), Energy Solutions Holdings, Inc. (f/k/a Gas Solutions Holdings, Inc.) ("Energy Solutions"), First Tower Holdings of Delaware, LLC ("First Tower Delaware"), Manx Energy, Inc. ("Manx"), Nationwide Acceptance Holdings, LLC ("Nationwide"), NMMB Holdings, Inc. ("NMMB"), R-V Industries, Inc. ("R-V"), The Healing Staff, Inc. ("THS"), Valley Electric Holdings I, Inc. ("Valley Electric") and Wolf Energy Holdings, Inc. ("Wolf"). We also own an affiliated interest in BNN Holdings Corp. (f/k/a Biotronic NeuroNetwork) ("Biotronic"), Boxercraft Incorporated ("Boxercraft") and Smart, LLC.

        The following is a summary of our investment portfolio by level of control at June 30, 2013 and June 30, 2012, respectively:

 
  June 30, 2013   June 30, 2012  
Level of Control
  Cost   Percent of
Portfolio
  Fair Value   Percent of
Portfolio
  Cost   Percent of
Portfolio
  Fair Value   Percent of
Portfolio
 

Control

  $ 830,151     19.5 % $ 811,634     19.5 % $ 518,015     24.7 % $ 564,489     27.0 %

Affiliate

    49,189     1.2 %   42,443     1.0 %   44,229     2.1 %   46,116     2.2 %

Non-control/Non-affiliate

    3,376,438     79.3 %   3,318,775     79.5 %   1,537,069     73.2 %   1,483,616     70.8 %
                                   

Total Portfolio

  $ 4,255,778     100.0 % $ 4,172,852     100.0 % $ 2,099,313     100.0 % $ 2,094,221     100.0 %
                                   

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        The following is our investment portfolio presented by type of investment at June 30, 2013 and June 30, 2012, respectively:

 
  June 30, 2013   June 30, 2012  
Type of Investment
  Cost   Percent of
Portfolio
  Fair Value   Percent of
Portfolio
  Cost   Percent of
Portfolio
  Fair Value   Percent of
Portfolio
 

Revolving Line of Credit

  $ 9,238     0.2 % $ 8,729     0.2 % $ 1,145     0.1 % $ 868     0.0 %

Senior Secured Debt

    2,262,327     53.1 %   2,207,091     52.8 %   1,146,454     54.6 %   1,080,053     52.0 %

Subordinated Secured Debt

    1,062,386     25.0 %   1,024,901     24.6 %   536,900     25.6 %   488,113     22.9 %

Subordinated Unsecured Debt

    88,470     2.1 %   88,827     2.1 %   72,617     3.5 %   73,195     3.5 %

CLO Debt

    27,667     0.7 %   28,589     0.7 %   27,258     1.3 %   27,717     1.3 %

CLO Residual Interest

    660,619     15.5 %   658,086     15.8 %   214,559     10.2 %   218,009     10.4 %

Preferred Stock

    25,016     0.6 %   14,742     0.4 %   31,323     1.5 %   29,155     1.4 %

Common Stock

    117,678     2.7 %   108,494     2.6 %   61,459     2.9 %   137,198     6.6 %

Membership Interests

    216     0.0 %   492     0.0 %   5,437     0.2 %   13,844     0.7 %

Overriding Royalty Interests

        %       %       %   1,623     0.1 %

Net Profit Interests

        %   20,959     0.5 %       %       %

Escrows Receivable

        %   4,662     0.1 %       %   17,686     0.8 %

Warrants

    2,161     0.1 %   7,280     0.2 %   2,161     0.1 %   6,760     0.3 %
                                   

Total Portfolio

  $ 4,255,778     100.0 % $ 4,172,852     100.0 % $ 2,099,313     100.0 % $ 2,094,221     100.0 %
                                   

        The following is our investments in interest bearing securities presented by type of security at June 30, 2013 and June 30, 2012, respectively:

 
  June 30, 2013   June 30, 2012  
Type of Investment
  Cost   Percent
of Debt
Securities
  Fair Value   Percent
of Debt
Securities
  Cost   Percent
of Debt
Securities
  Fair Value   Percent
of Debt
Securities
 

First Lien

  $ 2,271,565     55.3 % $ 2,215,820     55.2 % $ 1,147,599     57.4 % $ 1,088,887     57.6 %

Second Lien

    1,062,386     25.8 %   1,024,901     25.5 %   536,900     26.9 %   480,147     25.4 %

Unsecured

    88,470     2.2 %   88,827     2.2 %   72,617     3.6 %   73,195     3.9 %

CLO Residual Interest

    660,619     16.0 %   658,086     16.4 %   214,559     10.7 %   218,009     11.6 %

CLO Debt

    27,667     0.7 %   28,589     0.7 %   27,258     1.4 %   27,717     1.5 %
                                   

Total Debt Securities

  $ 4,110,707     100.0 % $ 4,016,223     100.0 % $ 1,998,933     100.0 % $ 1,887,955     100.0 %
                                   

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        The following is our investment portfolio presented by geographic location of the investment at June 30, 2013 and June 30, 2012, respectively:

 
  June 30, 2013   June 30, 2012  
Geographic Location
  Cost   Percent of
Portfolio
  Fair Value   Percent of
Portfolio
  Cost   Percent of
Portfolio
  Fair Value   Percent of
Portfolio
 

Canada

  $ 165,000     3.9 % $ 165,000     4.0 % $ 15,134     0.7 % $ 17,040     0.8 %

Cayman Islands

    688,286     16.2 %   686,675     16.5 %   241,817     11.5 %   245,726     11.7 %

Ireland

    14,927     0.4 %   15,000     0.4 %   14,918     0.7 %   15,000     0.7 %

Midwest US

    565,239     13.3 %   531,934     12.7 %   427,430     20.4 %   377,139     18.0 %

Northeast US

    649,484     15.3 %   663,025     15.9 %   293,181     14.0 %   313,437     15.0 %

Puerto Rico

    41,352     1.0 %   41,352     1.0 %       %       %

Southeast US

    1,111,946     26.0 %   1,081,320     25.8 %   642,984     30.6 %   634,945     30.4 %

Southwest US

    345,392     8.1 %   336,362     8.1 %   193,627     9.2 %   234,433     11.2 %

Western US

    674,152     15.8 %   652,184     15.6 %   270,222     12.9 %   256,501     12.2 %
                                   

Total Portfolio

  $ 4,255,778     100.0 % $ 4,172,852     100.0 % $ 2,099,313     100.0 % $ 2,094,221     100.0 %
                                   

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        The following is our investment portfolio presented by industry sector of the investment at June 30, 2013 and June 30, 2012, respectively:

 
  June 30, 2013   June 30, 2012  
Industry
  Cost   Percent of
Portfolio
  Fair Value   Percent of
Portfolio
  Cost   Percent of
Portfolio
  Fair Value   Percent of
Portfolio
 

Aerospace and Defense

  $ 56     0.0 % $     % $ 56     0.0 % $     %

Automobile / Auto Finance

    23,214     0.6 %   22,917     0.5 %   32,806     1.6 %   32,478     1.6 %

Biotechnology

        %   14     0.0 %       %       %

Business Services

    180,793     4.2 %   179,544     4.3 %   3,164     0.2 %   3,288     0.2 %

Chemicals

    28,364     0.7 %   28,648     0.7 %   58,104     2.8 %   58,104     2.8 %

Commercial Services

    252,073     5.9 %   252,073     6.0 %   80,418     3.8 %   80,407     3.8 %

Construction and Engineering

    53,615     1.3 %   53,615     1.3 %       %       %

Consumer Finance

    413,332     9.7 %   406,964     9.8 %   305,521     14.6 %   305,521     14.6 %

Consumer Services

    330,343     7.8 %   332,394     8.0 %   146,335     7.0 %   147,809     7.1 %

Contracting

    2,145     0.1 %       %   15,949     0.8 %       %

Diversified Financial Services

    745,705     17.5 %   742,434     17.8 %   260,219     12.3 %   264,128     12.6 %

Diversified / Conglomerate Service

        %   143     0.0 %       %   35     0.0 %

Durable Consumer Products

    380,225     8.9 %   370,207     8.9 %   153,327     7.3 %   152,862     7.3 %

Ecological

    141     0.0 %   335     0.0 %   141     0.0 %   240     0.0 %

Electronics

        %   149     0.0 %       %   144     0.0 %

Energy

    63,895     1.5 %   56,321     1.3 %   63,245     3.0 %   126,868     6.1 %

Food Products

    177,423     4.2 %   177,428     4.3 %   101,975     4.9 %   96,146     4.5 %

Healthcare

    275,124     6.5 %   273,838     6.6 %   141,990     6.8 %   143,561     6.9 %

Hotel, Restaurant & Leisure

    11,764     0.3 %   12,000     0.3 %       %       %

Insurance

        %       %   83,461     4.0 %   83,461     4.0 %

Machinery

    396     0.0 %   790     0.0 %   4,684     0.2 %   6,485     0.3 %

Manufacturing

    163,431     3.8 %   167,584     4.0 %   95,191     4.5 %   127,127     6.1 %

Media

    171,290     4.0 %   161,325     3.9 %   165,866     7.9 %   161,843     7.7 %

Metal Services and Minerals

    60,162     1.4 %   60,274     1.4 %       %       %

Oil and Gas Equipment Services

        %       %   7,188     0.3 %   7,391     0.4 %

Oil and Gas Production

    75,126     1.8 %   24,420     0.6 %   130,928     6.2 %   38,993     1.9 %

Personal and Nondurable Consumer Products

    39,000     0.9 %   39,630     0.9 %   39,351     1.8 %   39,968     1.9 %

Production Services

        %       %   268     0.0 %   2,040     0.1 %

Property Management

    51,170     1.2 %   54,648     1.3 %   51,770     2.5 %   47,982     2.2 %

Real Estate

    152,540     3.6 %   152,540     3.7 %       %       %

Retail

    14,190     0.3 %   14,569     0.3 %   63     0.0 %   129     0.0 %

Software & Computer Services

    307,734     7.2 %   309,308     7.4 %   53,908     2.6 %   54,711     2.6 %

Specialty Minerals

    38,500     0.9 %   42,558     1.0 %   37,732     1.8 %   44,562     2.1 %

Textiles, Apparel & Luxury Goods

    99,500     2.3 %   99,323     2.4 %       %       %

Textiles and Leather

    16,760     0.4 %   9,385     0.2 %   15,123     0.7 %   17,161     0.8 %

Transportation

    127,767     3.0 %   127,474     3.1 %   50,530     2.4 %   50,777     2.4 %
                                   

Total Portfolio

  $ 4,255,778     100.0 % $ 4,172,852     100.0 % $ 2,099,313     100.0 % $ 2,094,221     100.0 %
                                   

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Portfolio Investment Activity

        During the year ended June 30, 2013, we acquired $2,574,755 of new investments, completed follow-on investments in existing portfolio companies, totaling approximately $496,371, funded $21,143 of revolver advances, and recorded PIK interest of $10,947, resulting in gross investment originations of $3,103,217. The more significant of these investments are described briefly in the following:

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        During the year ended June 30, 2013, we closed-out twenty-three positions which are briefly described below.

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        In addition to the repayments noted above, during the year ended June 30, 2013, we received principal amortization payments of $19,568 on several loans, and $99,066 of partial prepayments primarily related to Byrider Systems Acquisition Corp, Capstone, Cargo Airport Services USA, LLC ("Cargo"), Energy Solutions, NMMB, Northwestern, and Sandow.

        On January 4, 2012, Energy Solutions sold its gas gathering and processing assets ("Gas Solutions") for a sale price of $199,805, adjusted for the final working capital settlement, including a potential earnout of $28,000 that will be paid based on the future performance of Gas Solutions. We do not know the timing, if any, related to this potential earnout and have valued the $28,000 at zero as of June 30, 2013. After expenses, including structuring fees of $9,966 paid to us, Energy Solutions received approximately $158,687 in cash. Currently, a loan to Energy Solutions remains outstanding and is collateralized by the cash held by Energy Solutions after the sale transaction. The sale of Gas

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Solutions by Energy Solutions resulted in significant earnings and profits, as defined by the Internal Revenue Code, at Energy Solutions for calendar year 2012. As a result, distributions from Energy Solutions to us were required to be recognized as dividend income, in accordance with ASC 946, Financial Services—Investment Companies, as cash distributions are received from Energy Solutions to the extent there are earnings and profits sufficient to support such recognition. During the year ended June 30, 2013, Energy Solutions repaid $28,500 of senior and subordinated secured debt. We received $19,543 of make-whole fees for early repayment of the outstanding loan receivables, which was recorded as interest income during the year ended June 30, 2013. During the year ended June 30, 2013, we received distributions of $53,820 from Energy Solutions which were recorded as dividend income. Energy Solutions continues to hold $23,979 of cash for future investment and repayment of the remaining debt.

        During the year ended June 30, 2013, we recognized $1,481 of interest income due to purchase discount accretion from the assets acquired from Patriot Capital Funding, Inc. ("Patriot"). Included in the $1,481 recorded during the year ended June 30, 2013 is $1,111 of normal accretion and $370 of accelerated accretion resulting from the repayment of Hudson. We expect to recognize $240 of normal accretion during the three months ended September 30, 2013.

        During the year ended June 30, 2012, we recognized $6,613 of interest income due to purchase discount accretion from the assets acquired from Patriot. Included in the $6,613 is $3,083 of normal accretion and $3,530 of accelerated accretion resulting from the repayment of Mac & Massey Holdings, LLC ("Mac & Massey"), Nupla Corporation ("Nupla"), ROM Acquisition Corp and Sport Helmets Holdings, LLC ("Sport Helmets").

        During the year ended June 30, 2011, we recognized $22,084 of interest income due to purchase discount accretion from the assets acquired from Patriot. Included in the $22,084 is $4,912 of normal accretion, $12,035 of accelerated accretion resulting from the repayment of Impact Products, LLC, Label Corp Holdings Inc. and Prince, and $4,968 of accelerated accretion resulting from the recapitalization of our debt investments in Arrowhead General Insurance Agency, Inc. ("Arrowhead"), The Copernicus Inc. ("Copernicus"), Fischbein and Northwestern. The restructured loans for Arrowhead, Copernicus, Fischbein and Northwestern were issued at market terms comparable to other industry transactions. In accordance with ASC 320-20-35 the cost basis of the new loans were recorded at par value, which precipitated the acceleration of original purchase discount from the loan repayments which was recognized as interest income.

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        The following is a quarter-by-quarter summary of our investment activity:

Quarter-End
  Acquisitions(1)   Dispositions(2)  

June 30, 2013

  $ 798,760   $ 321,615  

March 31, 2013

    784,395     102,527  

December 31, 2012

    772,125     349,269  

September 30, 2012

    747,937     158,123  

June 30, 2012

    573,314     146,292  

March 31, 2012

    170,073     188,399  

December 31, 2011

    154,697     120,206  

September 30, 2011

    222,575     46,055  

June 30, 2011

    312,301     71,738  

March 31, 2011

    359,152     78,571  

December 31, 2010

    140,933     67,405  

September 30, 2010

    140,951     68,148  

June 30, 2010

    88,973     39,883  

March 31, 2010

    59,311     26,603  

December 31, 2009(3)

    210,438     45,494  

September 30, 2009

    6,066     24,241  

June 30, 2009

    7,929     3,148  

March 31, 2009

    6,356     10,782  

December 31, 2008

    13,564     2,128  

September 30, 2008

    70,456     10,949  

June 30, 2008

    118,913     61,148  

March 31, 2008

    31,794     28,891  

December 31, 2007

    120,846     19,223  

September 30, 2007

    40,394     17,949  

June 30, 2007

    130,345     9,857  

March 31, 2007

    19,701     7,731  

December 31, 2006

    62,679     17,796  

September 30, 2006

    24,677     2,781  

June 30, 2006

    42,783     5,752  

March 31, 2006

    15,732     901  

December 31, 2005

        3,523  

September 30, 2005

    25,342      

June 30, 2005

    17,544      

March 31, 2005

    7,332      

December 31, 2004

    23,771     32,083  

September 30, 2004

    30,371      
           

Since inception

  $ 6,352,530   $ 2,089,211  
           

(1)
Includes new deals, additional fundings, refinancings and PIK interest.

(2)
Includes scheduled principal payments, prepayments and refinancings.

(3)
The $210,438 of acquisitions for the quarter ended December 31, 2009 includes $207,126 of portfolio investments acquired from Patriot.

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Investment Valuation

        In determining the fair value of our portfolio investments at June 30, 2013, the Audit Committee considered valuations from the independent valuation firms and from management having an aggregate range of $4,081,889 to $4,354,692, excluding money market investments.

        In determining the range of value for debt instruments, management and the independent valuation firms generally shadow rated the investment and then based upon the range of ratings, determined appropriate yields to maturity for a loan rated as such. A discounted cash flow analysis was then prepared using the appropriate yield to maturity as the discount rate, yielding the ranges. For equity investments, the enterprise value was determined by applying EBITDA multiples for similar recent investment sales. For stressed equity investments, a liquidation analysis was prepared.

        In determining the range of value for our investments in CLOs, management and the independent valuation firms used discounted cash flow models. The valuations were accomplished through the analysis of the CLO deal structures to identify the risk exposures from the modeling point of view. For each security, the most appropriate valuation approach was chosen from alternative approaches to ensure the most accurate valuation for each security. A discounted cash flow model is prepared, utilizing a waterfall engine to store the collateral data, generate collateral cash flows from the assets, and distributes the cash flow to the liability structure based on the payment priorities, and discount them back using proper discount rates that incorporate all the risk factors.

        The Board of Directors looked at several factors in determining where within the range to value the asset including: recent operating and financial trends for the asset, independent ratings obtained from third parties, comparable multiples for recent sales of companies within the industry and discounted cash flow models for our investments in CLOs. The composite of all these analyses, applied to each investment, was a total valuation of $4,172,852, excluding money market investments.

        Our portfolio companies are generally lower middle market companies, outside of the financial sector, with less than $150,000 of annual EBITDA. We believe our market has experienced less volatility than others because we believe there are more buy and hold investors who own these less liquid investments.

        Control investments offer increased risk and reward over straight debt investments. Operating results and changes in market multiples can result in dramatic changes in values from quarter to quarter. Significant downturns in operations can further result in our looking to recoveries on sales of assets rather than the enterprise value of the investment. Several control investments in our portfolio are under enhanced scrutiny by our senior management and our Board of Directors and are discussed below.

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No.
  Property Name   City   Date of
Acquisition
  Purchase
Price
  Mortgage
Outstanding
 

1

  146 Forest Parkway   Forest Park, GA   10/24/2012   $ 7,400   $  

2

  Abbington Pointe   Marietta, GA   12/28/2012     23,500     15,275  

3

  Amberly Place   Tampa, FL   1/17/2013     63,400     39,600  

4

  Lofton Place   Tampa, FL   4/30/2013     26,000     16,965  

5

  Vista at Palma Sola   Bradenton, FL   4/30/2013     27,000     17,550  

6

  Arlington Park   Marietta, GA   5/8/2013     14,850     9,650  

7

  Arium Resort   Pembroke Pines, GA   6/24/2013     225,000     157,500  

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        Equity positions in the portfolio are susceptible to potentially significant changes in value, both increases as well as decreases, due to changes in operating results. Two of our portfolio companies,

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Ajax and First Tower Delaware, experienced such volatility and experienced fluctuations in valuation during the year ended June 30, 2013. The valuation of Ajax decreased due to declining operating results. The value of our equity position in Ajax decreased to zero as of June 30, 2013, a discount of $6,057 to its cost, compared to the $11,134 unrealized gain recorded at June 30, 2012. The valuation of First Tower Delaware decreased due to change in current market conditions. The value of our equity position in First Tower decreased to $33,324 as of June 30, 2013, a discount of $9,869 to its cost, compared to the value of $43,193 recorded at June 30, 2012, equal to its cost. Six of the other controlled investments have been valued at discounts to the original investment. Eight of the control investments are valued at the original investment amounts or higher. Overall, at June 30, 2013, the control investments are valued at $18,517 below their amortized cost.

        We hold three affiliate investments at June 30, 2013. One of our affiliate portfolio companies, Boxercraft, experienced a meaningful decrease in valuation during the year ended June 30, 2013 due to declining operating results. As of June 30, 2013, Boxercraft is valued at $9,385, a reduction of $7,375 to its amortized cost. Overall, at June 30, 2013, affiliate investments are valued at $6,746 below their amortized cost.

        With the Non-control/Non-affiliate investments, generally, there is less volatility related to our total investments because our equity positions tend to be smaller than with our control/affiliate investments, and debt investments are generally not as susceptible to large swings in value as equity investments. For debt investments, the fair value is limited on the high side to each loan's par value, plus any prepayment premia that could be imposed. Many of the debt investments in this category have not experienced a significant change in value, as they were previously valued at or near par value. Non-control/Non-affiliate investments did not experience significant changes in valuation and are generally performing as expected or better than expected. As of June 30, 2013 and June 30, 2012, four of our Non-control/Non-affiliate investments, ICON Health & Fitness, Inc. ("ICON"), Gulf Coast Machine & Supply Company ("Gulf Coast"), Stryker Energy, LLC ("Stryker") and Wind River Resources Corp. and Wind River II Corp. ("Wind River"), are valued at a significant discount to amortized cost, due to significant decreases in the operating results of the operating companies. Overall, at June 30, 2013, other Non-control/Non-affiliate investments are valued at $8,427 above their amortized cost, excluding our investments in ICON, Gulf Coast, Stryker and Wind River, as the remaining companies are generally performing as or better than expected.

Capitalization

        Our investment activities are capital intensive and the availability and cost of capital is a critical component of our business. We capitalize our business with a combination of debt and equity. Our debt currently consists of a revolving credit facility availing us of the ability to borrow debt subject to borrowing base determinations and Senior Convertible Notes which we issued in December 2010, February 2011, April 2012, August 2012 and December 2012, Senior Unsecured Notes, and Prospect Capital InterNotes®, which we may issue from time to time, and our equity capital, which is comprised entirely of common equity. The following table shows the Revolving Credit Facility, Senior Convertible Notes, Senior Unsecured Notes and InterNotes® amounts and outstanding borrowings at June 30, 2013 and June 30, 2012:

 
  As of June 30, 2013   As of June 30, 2012  
 
  Maximum
Draw Amount
  Amount
Outstanding
  Maximum
Draw Amount
  Amount
Outstanding
 

Revolving Credit Facility

  $ 552,500   $ 124,000   $ 492,500   $ 96,000  

Senior Convertible Notes

  $ 847,500   $ 847,500   $ 447,500   $ 447,500  

Senior Unsecured Notes

  $ 347,725   $ 347,725   $ 100,000   $ 100,000  

InterNotes®

  $ 363,777   $ 363,777   $ 20,638   $ 20,638  

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        The following table shows the contractual maturity of our Revolving Credit Facility, Senior Convertible Notes, Senior Unsecured Notes and InterNotes® at June 30, 2013:

 
  Payments Due by Period  
 
  Total   Less than
1 year
  1 - 3 Years   3 - 5 Years   After
5 Years
 

Revolving Credit Facility

  $ 124,000   $   $   $ 124,000   $  

Senior Convertible Notes

    847,500         150,000     297,500     400,000  

Senior Unsecured Notes

    347,725                 347,725  

InterNotes®

    363,777                 363,777  
                       

Total contractual obligations

  $ 1,683,002   $   $ 150,000   $ 421,500   $ 1,111,502  
                       

        We have and expect to continue to fund a portion of our cash needs through borrowings from banks, issuances of senior securities, including secured, unsecured and convertible debt securities, or issuances of common equity. For flexibility, we maintain a universal shelf registration statement that allows for the public offering and sale of our debt securities, common stock, preferred stock, subscription rights, and warrants and units to purchase such securities in an amount up to $3,000,000 less issuances to date. As of June 30, 2013, we can issue up to $1,743,217 of additional debt and equity securities in the public market under this shelf registration. We may from time to time issue securities pursuant to the shelf registration statement or otherwise pursuant to private offerings. The issuance of debt or equity securities will depend on future market conditions, funding needs and other factors and there can be no assurance that any such issuance will occur or be successful.

Revolving Credit Facility

        On June 11, 2010, we closed an extension and expansion of our existing credit facility with a syndicate of lenders through PCF (the "2010 Facility"). The 2010 Facility, which had $325,000 total commitments as of June 30, 2011, included an accordion feature which allowed the 2010 Facility to accept up to an aggregate total of $400,000 of commitments, a limit which was met on September 1, 2011. Interest on borrowings under the 2010 Facility was one-month Libor plus 325 basis points, subject to a minimum Libor floor of 100 basis points. Additionally, the lenders charged a fee on the unused portion of the 2010 Facility equal to either 75 basis points if at least half of the credit facility was used or 100 basis points otherwise.

        On March 27, 2012, we renegotiated the 2010 Facility and closed on an expanded five-year $650,000 revolving credit facility (the "2012 Facility"). The lenders have extended commitments of $552,500 under the 2012 Facility as of June 30, 2013. The 2012 Facility includes an accordion feature which allows commitments to be increased up to $650,000 in the aggregate. The revolving period of the 2012 Facility extends through March 2015, with an additional two year amortization period (with distributions allowed) after the completion of the revolving period. During such two year amortization period, all principal payments on the pledged assets will be applied to reduce the balance. At the end of the two year amortization period, the remaining balance will become due, if required by the lenders.

        The 2012 Facility contains restrictions pertaining to the geographic and industry concentrations of funded loans, maximum size of funded loans, interest rate payment frequency of funded loans, maturity dates of funded loans and minimum equity requirements. The 2012 Facility also contains certain requirements relating to portfolio performance, including required minimum portfolio yield and limitations on delinquencies and charge-offs, violation of which could result in the early termination of the 2012 Facility. The 2012 Facility also requires the maintenance of a minimum liquidity requirement. At June 30, 2013, we were in compliance with the applicable covenants.

        Interest on borrowings under the 2012 Facility is one-month Libor plus 275 basis points with no minimum Libor floor. Additionally, the lenders charge a fee on the unused portion of the 2012 Facility

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equal to either 50 basis points if at least half of the credit facility is drawn or 100 basis points otherwise. The 2012 Facility requires us to pledge assets as collateral in order to borrow under the credit facility. As of June 30, 2013 and June 30, 2012, we had $473,508 and $418,980, respectively, available to us for borrowing under our 2012 Facility, of which the amount outstanding was $124,000 and $96,000, respectively. As additional investments that are eligible are transferred to PCF and pledged under the 2012 Facility, PCF will generate additional availability up to the commitment amount of $552,500. At June 30, 2013, the investments used as collateral for the 2012 Facility had an aggregate market value of $833,310, which represents 31.4% of our net assets. These assets have been transferred to PCF, a bankruptcy remote special purpose entity, which owns these investments and as such, these investments are not available to our general creditors. PCF, a bankruptcy remote special purpose entity and our wholly-owned subsidiary, holds all of these investments at market value as of June 30, 2013. The release of any assets from PCF requires the approval of the facility agent.

        In connection with the origination and amendments of the 2012 Facility, we incurred $11,150 of fees, including $1,319 of fees carried over from the previous facility, which are being amortized over the term of the facility in accordance with ASC 470-50, Debt Modifications and Extinguishments, of which $6,722 remains to be amortized as of June 30, 2013.

        During the years ended June 30, 2013, June 30, 2012 and June 30, 2011, we recorded $9,082, $14,883 and $8,507 of interest costs, unused fees and amortization of financing costs on our credit facility as interest expense, respectively.

Senior Convertible Notes

        On December 21, 2010, we issued $150,000 in aggregate principal amount of our 6.25% senior convertible notes due 2015 ("2015 Notes") for net proceeds following underwriting expenses of approximately $145,200. Interest on the 2015 Notes is paid semi-annually in arrears on June 15 and December 15, at a rate of 6.25% per year, commencing June 15, 2011. The 2015 Notes mature on December 15, 2015 unless converted earlier. The 2015 Notes are convertible into shares of common stock at an initial conversion rate and conversion rate at June 30, 2013 of 88.0902 and 88.1429 shares of common stock, respectively, per $1 principal amount of 2015 Notes, which is equivalent to a conversion price of approximately $11.35 per share of common stock, subject to adjustment in certain circumstances. The conversion price in effect at June 30, 2013 was last calculated on the anniversary of the issuance (December 21, 2012) and will next be adjusted on the next anniversary, unless the exercise price shall have changed by more than 1% before the anniversary. The conversion rate for the 2015 Notes is increased if monthly cash dividends paid to common shares exceed the rate of $0.101125 per share, subject to adjustment.

        On February 18, 2011, we issued $172,500 in aggregate principal amount of our 5.50% senior convertible notes due 2016 ("2016 Notes") for net proceeds following underwriting expenses of approximately $167,325. Between January 30, 2012 and February 2, 2012, we repurchased $5,000 of our 2016 Notes at a price of 97.5, including commissions. The transactions resulted in our recognizing $10 of loss in the year ended June 30, 2012. Interest on the remaining $167,500 of 2016 Notes is paid semi-annually in arrears on February 15 and August 15, at a rate of 5.50% per year, commencing August 15, 2011. The 2016 Notes mature on August 15, 2016 unless converted earlier. The 2016 Notes are convertible into shares of common stock at an initial conversion rate and conversion rate at June 30, 2013 of 78.3699 and 78.5395 shares, respectively, of common stock per $1 principal amount of 2016 Notes, which is equivalent to a conversion price of approximately $12.73 per share of common stock, subject to adjustment in certain circumstances. The conversion price in effect at June 30, 2013 was last calculated on the anniversary of the issuance (February 14, 2012) and will next be adjusted on the next anniversary, unless the exercise price shall have changed by more than 1% before the anniversary. The conversion rate for the 2016 Notes is increased when monthly cash dividends paid to common shares exceed the monthly dividend rate of $0.101150 per share.

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        On April 16, 2012, we issued $130,000 in aggregate principal amount of our 5.375% senior convertible notes due 2017 ("2017 Notes") for net proceeds following underwriting expenses of approximately $126,035. Interest on the 2017 Notes is paid semi-annually in arrears on October 15 and April 15, at a rate of 5.375% per year, commencing October 15, 2012. The 2017 Notes mature on October 15, 2017 unless converted earlier. The 2017 Notes are convertible into shares of common stock at an initial conversion rate and conversion rate at June 30, 2013 of 85.8442 and 86.1162 shares of common stock, respectively, per $1 principal amount of 2017 Notes, which is equivalent to a conversion price of approximately $11.61 per share of common stock, subject to adjustment in certain circumstances. The conversion price in effect at June 30, 2013 was last calculated on the anniversary of the issuance (April 16, 2012) and will next be adjusted on the next anniversary, unless the exercise price shall have changed by more than 1% before the anniversary. The conversion rate for the 2017 Notes is increased when monthly cash dividends paid to common shares exceed the monthly dividend rate of $0.10150 per share.

        On August 14, 2012, we issued $200,000 in aggregate principal amount of our 5.75% senior convertible notes due 2018 ("2018 Notes") for net proceeds following underwriting expenses of approximately $193,600. Interest on the 2018 Notes is paid semi-annually in arrears on March 15 and September 15, at a rate of 5.75% per year, commencing March 15, 2013. The 2018 Notes mature on March 15, 2018 unless converted earlier. The 2018 Notes are convertible into shares of common stock at an initial conversion rate and conversion rate at June 30, 2013 of 82.3451 shares of common stock per $1 principal amount of 2018 Notes, which is equivalent to a conversion price of approximately $12.07 per share of common stock, subject to adjustment in certain circumstances. The conversion price has not been adjusted since the issuance (August 14, 2012) and will next be adjusted on the first anniversary, unless the exercise price shall have changed by more than 1% before the anniversary. The conversion rate for the 2018 Notes is increased when monthly cash dividends paid to common shares exceed the monthly dividend rate of $0.101600 per share.

        On December 21, 2012, we issued $200,000 in aggregate principal amount of 5.875% senior convertible notes due 2019 (the "2019 Notes") for net proceeds following underwriting and other expenses of approximately $193,600. Interest on the 2019 Notes is paid semi-annually in arrears on January 15 and July 15, at a rate of 5.875% per year, commencing July 15, 2013. The 2019 Notes mature on January 15, 2019 unless converted earlier. The 2019 Notes are convertible into shares of common stock at an initial conversion rate and conversion rate at June 30, 2013 of 79.7766 shares of common stock per $1 principal amount of 2019 Notes, which is equivalent to a conversion price of approximately $12.54 per share of common stock, subject to adjustment in certain circumstances. The conversion price has not been adjusted since the issuance (December 21, 2012) and will next be adjusted on the first anniversary, unless the exercise price shall have changed by more than 1% before the anniversary. The conversion rate for the 2019 Notes is increased when monthly cash dividends paid to common shares exceed the monthly dividend rate of $0.110025 per share.

        In no event will the total number of shares of common stock issuable upon conversion exceed 96.8992 per $1 principal amount of the 2015 Notes (the "conversion rate cap"), except that, to the extent we receive written guidance or a no-action letter from the staff of the Securities and Exchange Commission (the "Guidance") permitting us to adjust the conversion rate in certain instances without regard to the conversion rate cap and to make the 2015 Notes convertible into certain reference property in accordance with certain reclassifications, business combinations, asset sales and corporate events by us without regard to the conversion rate cap, we will make such adjustments without regard to the conversion rate cap and will also, to the extent that we make any such adjustment without regard to the conversion rate cap pursuant to the Guidance, adjust the conversion rate cap accordingly. We will use our commercially reasonable efforts to obtain such Guidance as promptly as practicable.

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        Prior to obtaining the Guidance, we will not engage in certain transactions that would result in an adjustment to the conversion rate of the 2015 Notes increasing the conversion rate beyond what it would have been in the absence of such transaction unless we have engaged in a reverse stock split or share combination transaction such that in our reasonable best estimation, the conversion rate following the adjustment for such transaction will not be any closer to the conversion rate cap than it would have been in the absence of such transaction.

        Upon conversion, unless a holder converts after a record date for an interest payment but prior to the corresponding interest payment date, the holder will receive a separate cash payment with respect to the Notes surrendered for conversion representing accrued and unpaid interest to, but not including the conversion date. Any such payment will be made on the settlement date applicable to the relevant conversion on the 2015 Notes and 2016 Notes (collectively, "Senior Convertible Notes").

        No holder of Senior Convertible Notes will be entitled to receive shares of our common stock upon conversion to the extent (but only to the extent) that such receipt would cause such converting holder to become, directly or indirectly, a beneficial owner (within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of more than 5.0% of the shares of our common stock outstanding at such time. The 5.0% limitation shall no longer apply following the effective date of any fundamental change. We will not issue any shares in connection with the conversion or redemption of the Notes which would equal or exceed 20% of the shares outstanding at the time of the transaction in accordance with NASDAQ rules.

        Subject to certain exceptions, holders may require us to repurchase, for cash, all or part of their Notes upon a fundamental change at a price equal to 100% of the principal amount of the Notes being repurchased plus any accrued and unpaid interest up to, but excluding, the fundamental change repurchase date. In addition, upon a fundamental change that constitutes a non-stock change of control we will also pay holders an amount in cash equal to the present value of all remaining interest payments (without duplication of the foregoing amounts) on such Senior Convertible Notes through and including the maturity date.

        In connection with the issuance of the Senior Convertible Notes, we incurred $27,032 of fees which are being amortized over the terms of the notes in accordance with ASC 470-50, Debt Modifications and Extinguishments, of which $20,254 remains to be amortized and is included within deferred financing costs on the consolidated statements of assets and liabilities as of June 30, 2013.

        During the years ended June 30, 2013, June 30, 2012 and June 30, 2011, we recorded $45,878, $22,197 and $9,090 of interest costs and amortization of financing costs on the Senior Convertible Notes as interest expense, respectively.

Senior Unsecured Notes

        On May 1, 2012, we issued $100,000 in aggregate principal amount of 6.95% senior unsecured notes due 2022 for proceeds net of offering expenses of $97,000 (the "2022 Notes"). Interest on the 2022 Notes is paid quarterly in arrears on August 15, November 15, February 15 and May 15, at a rate of 6.95% per year, commencing on August 15, 2012. The 2022 Notes mature on November 15, 2022. These notes will be our direct unsecured obligations and rank equally with all of our unsecured senior indebtedness from time to time outstanding.

        On March 15, 2013, we issued $250,000 in aggregate principal amount of 5.875% senior unsecured notes due 2023 (the "2023 Notes") for net proceeds following underwriting and other expenses of approximately $245,885. Interest on the 2023 Notes is paid semi-annually. The 2023 Notes mature on March 15, 2023. These notes will be our direct unsecured obligations and rank equally with all of our unsecured senior indebtedness from time to time outstanding.

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        In connection with the issuance of the 2022 Notes and 2023 Notes (collectively the "Senior Unsecured Notes"), we incurred $7,480 of fees which are being amortized over the term of the notes in accordance with ASC 470-50, Debt Modifications and Extinguishments, of which $7,114 remains to be amortized and is included within deferred financing costs on the consolidated statements of assets and liabilities.

        During the years ended June 30, 2013 and June 30, 2012, we recorded $11,672 and $1,178 of interest costs and amortization of financing costs on the Senior Unsecured Notes as interest expense, respectively.

Prospect Capital InterNotes®

        On February 16, 2012, we entered into a Selling Agent Agreement (the "Selling Agent Agreement") with Incapital LLC, as purchasing agent for our issuance and sale from time to time of up to $500,000 of Prospect Capital InterNotes® (the "InterNotes® Offering"), which was subsequently increased to $1,000,000. Additional agents appointed by us from time to time in connection with the InterNotes Offering may become parties to the Selling Agent Agreement.

        These notes are direct unsecured senior obligations and will rank equally with all of our unsecured senior indebtedness outstanding. Each series of notes will be issued by a separate trust. These notes bear interest at fixed interest rates and offer a variety of maturities no less than twelve months from the original date of issuance.

        During the year ended June 30, 2013, we issued $343,139 in aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of approximately $334,243. These notes were issued with stated interest rates ranging from 3.28% to 6.63% with a weighted average rate of 5.59%. These notes mature between July 15, 2019 and June 15, 2043.

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        The bonds outstanding as of June 30, 2013 are:

Date of Issuance
  Principal
Amount
  Interest Rate
Range
  Weighted
Average
Interest
Rate
  Maturity Date

March 1, 2012 - March 8, 2012

  $ 5,465   6.90% - 7.00%     6.97 % March 15, 2022

April 5, 2012 - April 26, 2012

    8,516   6.50% - 6.85%     6.72 % April 15, 2022

June 14, 2012

    2,657   6.95%     6.95 % June 15, 2022

June 28, 2012

    4,000   6.55%     6.55 % June 15, 2019

July 6, 2012 - July 26, 2012

    20,928   6.20% - 6.45%     6.31 % July 15, 2019

August 2, 2012 - August 23, 2012

    17,545   6.05% - 6.15%     6.09 % August 15, 2019

September 7, 2012 - September 27, 2012

    29,406   5.85% - 6.00%     5.92 % September 15, 2019

October 4, 2012

    7,172   5.70%     5.70 % October 19, 2019

November 23, 2012 - November 29, 2012

    13,754   5.00% - 5.13%     5.09 % November 15, 2019

November 29, 2012

    1,979   5.75%     5.75 % November 15, 2032

November 23, 2012 - November 29, 2012

    16,437   6.50% - 6.63%     6.58 % November 15, 2042

December 6, 2012 - December 28, 2012

    9,339   4.50% - 4.86%     4.73 % December 15, 2019

December 6, 2012

    1,127   5.63%     5.63 % December 15, 2032

December 13, 2012 - December 28, 2012

    3,702   5.00% - 5.13%     5.11 % December 15, 2030

December 6, 2012 - December 28, 2012

    22,966   6.00% - 6.38%     6.21 % December 15, 2042

January 4, 2013 - January 31, 2013

    4,427   4.00% - 4.375%     4.15 % January 15, 2020

January 4, 2013 - January 31, 2013

    2,388   4.50% - 4.875%     4.74 % January 15, 2031

January 4, 2013 - January 31, 2013

    9,338   5.50% - 5.875%     5.63 % January 15, 2043

February 4, 2013 - February 28, 2013

    2,619   4.00%     4.00 % February 15, 2031

February 4, 2013 - February 28, 2013

    664   4.50%     4.50 % February 15, 2031

February 4, 2013 - February 28, 2013

    4,623   5.50%     5.50 % February 15, 2043

March 4, 2013 - March 28, 2013

    3,832   4.00%     4.00 % March 15, 2020

March 4, 2013 - March 28, 2013

    984   4.125% - 4.50%     4.24 % March 15, 2031

March 4, 2013 - March 28, 2013

    4,308   5.50%     5.50 % March 15, 2043

March 14, 2013 - March 28, 2013

    1,225   L+3.00%     3.27 % March 15, 2023

April 4, 2013 - April 25, 2013

    29,528   4.50% - 5.00%     4.96 % April 15, 2020

April 4, 2013 - April 25, 2013

    264   L+3.50%     3.78 % April 15, 2023

April 4, 2013 - April 25, 2013

    5,164   4.63% - 5.50%     5.34 % April 15, 2031

April 4, 2013 - April 25, 2013

    12,280   6.00%     6.00 % April 15, 2043

May 2, 2013 - May 31, 2013

    42,482   5.00%     5.00 % May 15, 2020

May 2, 2013 - May 31, 2013

    10,000   5.00%     5.00 % May 15, 2028

May 2, 2013 - May 31, 2013

    7,548   5.75%     5.75 % May 15, 2031

May 2, 2013 - May 31, 2013

    33,641   6.25%     6.25 % May 15, 2043

June 6, 2013 - June 27, 2013

    9,905   5.00% - 5.25%     5.04 % June 15, 2020

June 6, 2013 - June 27, 2013

    5,000   5.00%     5.00 % June 15, 2028

June 6, 2013 - June 27, 2013

    1,707   5.75% - 6.00%     5.85 % June 15, 2031

June 6, 2013 - June 27, 2013

    6,857   6.25% - 6.50%     6.31 % June 15, 2043
                   

  $ 363,777              
                   

        In connection with the issuance of the Prospect Capital InterNotes®, we incurred $10,598 of fees which are being amortized over the term of the notes in accordance with ASC 470-50, Debt Modifications and Extinguishments, of which $10,248 remains to be amortized and is included within deferred financing costs on the consolidated statements of assets and liabilities.

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        During the years ended June 30, 2013 and June 30, 2012, we recorded $9,707 and $276 of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense, respectively.

Net Asset Value

        During the year ended June 30, 2013, we raised $1,179,084 of additional equity, net of offering costs, by issuing 106,752,517 shares of our common stock. The following table shows the calculation of net asset value per share as of June 30, 2013 and June 30, 2012:

 
  As of June 30, 2013   As of June 30, 2012  

Net Assets

  $ 2,656,494   $ 1,511,974  

Shares of common stock outstanding

    247,836,965     139,633,870  
           

Net asset value per share

  $ $10.72   $ 10.83  
           

Results of Operations

        Net increase in net assets resulting from operations for the years ended June 30, 2013, 2012 and 2011 was $220,856, $190,904 and $118,238, respectively, representing $1.07, $1.67 and $1.38 per weighted average share, respectively. During the year ended June 30, 2013, we experienced net unrealized and realized losses of $104,068 or approximately $0.50 per weighted average share primarily due to the reduction in the fair value of our investments in Ajax, Boxercraft and First Tower because of changes in current market conditions and Energy Solutions for which we received $19,543 of make-whole fees for early repayment of the outstanding loan and dividends of $53,820 during the year, which were recorded as interest and dividend income, respectively, reducing the amount previously recorded as unrealized appreciation. These losses were partially offset by net realized gains from the sale of assets in Wolf, assets formerly held by H&M, and distributions received from our escrow receivable account, primarily from NRG. During the year ended June 30, 2012, we experienced net unrealized and realized gains of $4,220 or approximately $0.04 per weighted average share primarily from significant write-ups of our investments in Ajax, Energy Solutions and R-V, and our sale of NRG for which we realized a gain of $36,940. These instances of appreciation were partially offset by unrealized depreciation in Biotronic, H&M, Meatco, NMMB, Stryker and Wind River.

        Net investment income decreased on a weighted average per share basis from $1.63 to $1.57 for the years ended June 30, 2012 and 2013, respectively. The decrease is primarily due to an increase of $6,500 in accrued excise as the result of undisturbed ordinary income at December 31, 2012 and expected at December 31, 2013, and higher levels of cash awaiting deployment during the year ended June 30, 2013. Net investment income increased on a weighted average per share basis from $1.10 to $1.63 for the years ended June 30, 2011 and 2012, respectively. This increase is primarily due to the sale of NRG, for which we received a $26,936 make-whole fee for early repayment of the outstanding loan, which was recorded as interest income in the year ended June 30, 2012, and an increase in dividend income received from Energy Solutions and NRG of $38,000 and $11,411, respectively. These increases were partially offset by a $15,471 decline in interest income from purchase discount accretion from the assets acquired from Patriot.

        While we seek to maximize gains and minimize losses, our investments in portfolio companies can expose our capital to risks greater than those we may anticipate. These companies are typically not issuing securities rated investment grade, have limited resources, have limited operating history, have concentrated product lines or customers, are generally private companies with limited operating information available and are likely to depend on a small core of management talents. Changes in any of these factors can have a significant impact on the value of the portfolio company.

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Investment Income

        We generate revenue in the form of interest income on the debt securities that we own, dividend income on any common or preferred stock that we own, and fees generated from the structuring of new deals. Our investments, if in the form of debt securities, will typically have a term of one to ten years and bear interest at a fixed or floating rate. To the extent achievable, we will seek to collateralize our investments by obtaining security interests in our portfolio companies' assets. We also may acquire minority or majority equity interests in our portfolio companies, which may pay cash or in-kind dividends on a recurring or otherwise negotiated basis. In addition, we may generate revenue in other forms including prepayment penalties and possibly consulting fees. Any such fees generated in connection with our investments are recognized as earned.

        Investment income, which consists of interest income, including accretion of loan origination fees and prepayment penalty fees, dividend income and other income, including net profits interests revenue, overriding royalty interests and structuring fees, was $576,336, $320,910, and $169,476, for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, respectively. During the year ended June 30, 2013, the increase in investment income is primarily the result of a larger income producing portfolio, increased structuring, advisory and amendment fees from the deployment of additional capital in revenue-producing assets, make-whole fees from Energy Solutions for early repayment of our outstanding loan, and increased dividends received from Energy Solutions and R-V.

        The following table describes the various components of investment income and the related levels of debt investments:

 
  Year Ended
June 30, 2013
  Year Ended
June 30, 2012
  Year Ended
June 30, 2011
 

Interest income

  $ 435,455   $ 219,536   $ 134,454  

Dividend income

    82,705     64,881     15,092  

Other income

    58,176     36,493     19,930  
               

Total investment income

  $ 576,336   $ 320,910   $ 169,476  
               

Average debt principal of performing investments

  $ 2,878,421   $ 1,466,703   $ 871,400  
               

Weighted average interest rate earned on performing assets

    15.1 %   15.0 %   15.2 %
               

        Average interest income producing assets have increased from $871,400 for the year ended June 30, 2011 to $1,466,703 for the year ended June 30, 2012 to $2,878,421 for the year ended June 30, 2013. The average yield on performing interest bearing assets remained relatively consistent over the three year period.

        Investment income is also generated from dividends and other income. Dividend income increased from $64,881 for the year ended June 30, 2012 to $82,705 for the year ended June 30, 2013. This $17,824 increase in dividend income is primarily attributed to an increase in the level of dividends received from our investments in Energy Solutions and R-V due to increased profits generated by the portfolio companies. We received dividends from Energy Solutions of $53,820 and $47,850 during the years ended June 30, 2013 and June 30, 2012, respectively. The sale of Gas Solutions by Energy Solutions has resulted in significant earnings and profits, as defined by the Internal Revenue Code, at Energy Solutions for calendar year 2012. As a result, distributions from Energy Solutions to us were recognized as dividend income, in accordance with ASC 946, Financial Services—Investment Companies, as cash distributions are received from Energy Solutions to the extent there are earnings and profits sufficient to support such recognition. We received dividends from R-V of $24,462 and $283 during the years ended June 30, 2013 and June 30, 2012, respectively. The $24,462 of dividends received from R-V

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during the year ended June 30, 2013 include a $11,073 distribution as part of R-V's recapitalization in November 2012 for which we provided an additional $9,500 of senior secured financing. The increases in dividend income from our investments in Energy Solutions and R-V were offset by a reduction in dividends received from NRG. We received dividends from NRG of $15,011 during the year ended June 30, 2012. There were no dividends from NRG received during the year ended June 30, 2013 as NRG has been sold.

        Dividend income increased from $15,092 for the year ended June 30, 2011 to $64,881 for the year ended June 30, 2012. This $49,789 increase in dividend income is primarily attributed to an increase in the dividends received from our investments in Energy Solutions and NRG due to increased profits generated by the portfolio companies. We received dividends from NRG of $15,011 and $3,600 during the years ended June 30, 2012 and June 30, 2011, respectively. We received dividends from Energy Solutions of $47,850 and $9,850 during the years ended June 30, 2012 and June 30, 2011, respectively. The sale of Gas Solutions by Energy Solutions has resulted in significant earnings and profits, as defined by the Internal Revenue Code, at Energy Solutions for calendar year 2012. As a result, distributions from Energy Solutions to us were recognized as dividend income, in accordance with ASC 946, Financial Services—Investment Companies, as cash distributions are received from Energy Solutions to the extent there are earnings and profits sufficient to support such recognition.

        Other income has come primarily from structuring fees, overriding royalty interests, and settlement of net profits interests. Comparing the year ended June 30, 2012 to the year ended June 30, 2013, income from other sources increased from $36,493 to $58,176, respectively. This $21,683 increase is primarily due to $52,699 of structuring fees recognized during the year ended June 30, 2013 primarily from our investments in APH, Arctic Glacier, Broder, InterDent, Progrexion, Ryan, TransPlace, USC and Wolf originations, in comparison to $26,443 of structuring fees recognized during the year ended June 30, 2012. This $26,256 increase in structuring fees is partially offset by a decrease in advisory fees recognized during the year ended June 30, 2013 from our investments in Energy Solutions and NRG. We received $8,783 of advisory fees from Energy Solutions and NRG during the year ended June 30, 2012. No such fee was received during the year ended June 30, 2013. The remaining $4,210 increase is primarily due to $4,122 of royalty income recognized during the year ended June 30, 2013 primarily from First Tower and Wolf, in comparison to $224 of royalty income recognized during the year ended June 30, 2012.

        Comparing the year ended June 30, 2011 to the year ended June 30, 2012, income from other sources increased from $19,930 to $36,493. This $16,563 increase is primarily due to $14,137 of structuring and advisory fees recognized during the year ended June 30, 2012 from our investments in Energy Solutions and NRG. The remaining $2,426 increase is primarily due to $21,088 of structuring fees recognized, excluding those received from our investments in Energy Solutions and NRG, during the year ended June 30, 2012 primarily from the Capstone, First Tower, Naylor, LLC and Totes Isotoner Corporation ("Totes") originations, in comparison to $18,494 of structuring fees recognized during the year ended June 30, 2011.

Operating Expenses

        Our primary operating expenses consist of investment advisory fees (base management and income incentive fees), borrowing costs, legal and professional fees and other operating and overhead-related expenses. These expenses include our allocable portion of overhead under the Administration Agreement with Prospect Administration under which Prospect Administration provides administrative services and facilities for us. Our investment advisory fees compensate Prospect Capital Management (the "Investment Adviser") for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses of our operations and transactions in accordance with our Administration Agreement with Prospect Administration. Operating expenses were $251,412, $134,226 and $75,255 for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, respectively.

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        The base investment advisory expenses were $69,800, $35,836 and $22,496 for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, respectively. These increases are directly related to our growth in total assets. For the years ended June 30, 2013, June 30, 2012 and June 30, 2011, income incentive fees incurred were $81,231, $46,761 and $23,555, respectively. The $34,470 increase in the income incentive fee for the year ended June 30, 2013 is driven by an increase in pre-incentive fee net investment income of $172,800 primarily due to an increase in interest income from a larger asset base. No capital gains incentive fee has yet been incurred pursuant to the Investment Advisory Agreement.

        During the years ended June 30, 2013, June 30, 2012 and June 30, 2011, we incurred $76,341, $38,534 and $17,598, respectively, of expenses related to our 2012 Facility, InterNotes®, Senior Unsecured Notes and Senior Convertible Notes. These expenses are related directly to the leveraging capacity put into place for each of those years and the levels of indebtedness actually undertaken in those years. The table below describes the various expenses of our 2012 Facility, InterNotes®, Senior Unsecured Notes and Senior Convertible Notes and the related indicators of leveraging capacity and indebtedness during these years.

 
  Year Ended
June 30, 2013
  Year Ended
June 30, 2012
  Year Ended
June 30, 2011
 

Interest on borrowings

  $ 62,657   $ 27,346   $ 9,861  

Amortization of deferred financing costs

    8,283     8,510     5,366  

Commitment and other fees

    5,401     2,678     2,371  
               

Total

  $ 76,341   $ 38,534   $ 17,598  
               

Weighted-average debt outstanding

  $ 1,066,368   $ 502,038   $ 176,277  

Weighted average interest rate on borrowings (excluding amortization and undrawn facility fees)

    5.88 %   5.45 %   5.59 %

Facility amount at beginning of year

  $ 492,500   $ 325,000   $ 210,000  

        The increase in interest expense for the year ended June 30, 2013 is primarily due to the issuance of the 2022 Notes, 2023 Notes and the Senior Convertible Notes on April 16, 2012, August 14, 2012 and December 21, 2012, for which we incurred $34,551 of collective interest expense. The weighted average interest rate on borrowings (excluding amortization and undrawn facility fees) increased from 5.45% to 5.88% as of June 30, 2012 and June 30, 2013, respectively. This increase is primarily due to a decrease in utilization of our credit facility in favor of longer term financing.

        The allocation of overhead expense from Prospect Administration was $8,737, $6,848 and $4,979 for the years ended June 30, 2013, 2012 and 2011, respectively. As our portfolio continues to grow, we expect Prospect Administration to continue to increase the size of its administrative and financial staff.

        Total operating expenses, net of investment advisory fees, interest costs, excise tax and allocation of overhead from Prospect Administration ("Other Operating Expenses"), were $8,803, $6,337 and $6,627 for the years ended June 30, 2013, 2012 and 2011, respectively. The increase in Other Operating Expenses during the year ended June 30, 2013 when compared to the year ended June 30, 2012 is primarily the result of a $1,000 insurance claim settlement for legal fees expensed in previous periods that was received during the year ended June 30, 2012. The decrease in Other Operating Expenses during the year ended June 30, 2012 when compared to the year ended June 30, 2011 is primarily the result of a $1,000 insurance claim settlement for legal fees expensed in previous periods that was received during the year ended June 30, 2012.

Net Investment Income

        Net investment income represents the difference between investment income and operating expenses. Our net investment income was $324,924, $186,684 and $94,221 for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, respectively, or $1.57 per share, $1.63 per share and $1.10 per

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share, respectively. The $138,240 increase for the year ended June 30, 2013 is primarily due to an increase of $215,919 in interest income, due to the increased size of our portfolio for which we have recognized additional interest income. The $255,426 increase in investment income is offset by an increase in operating expenses of $117,186, primarily due to a $68,524 increase in advisory fees due to the growing size of our portfolio and related income, and $37,807 of additional interest and credit facility expenses. For the calendar year ended December 31, 2012, we elected to retain a portion of our annual taxable income and have paid $4,500 for the excise tax due with the filing of the return. As of June 30, 2013, we have $2,000 accrued as an estimate of two quarters of the excise tax due for the calendar year ending December 31, 2013. The per share decrease is primarily due to an increase of $6,500 in excise taxes and higher levels of cash awaiting deployment during the year ended June 30, 2013.

        The $92,463 increase for the year ended June 30, 2012 is primarily due to a $151,434 increase in investment income offset by an increase in operating expenses of $58,971. The $151,434 increase in investment income is due to increases of $85,082, $49,789 and $16,563 in interest income, dividend income and other income, respectively, due to the increased size of our portfolio for which we have recognized additional interest income, dividends, structuring fees and advisory fees recognized primarily from our investments in Energy Solutions, First Tower and NRG. In conjunction with the sale of NRG we also received a $26,936 make-whole fee for early repayment of the outstanding loan, which was recorded as interest income in the year ended June 30, 2012. The offsetting $58,971 increase in operating expenses is primarily due to a $36,456 increase in advisory fees due to the growing size of our portfolio and related income, $20,936 of additional interest and credit facility expenses and a $1,869 increase in overhead allocated from Prospect Administration.

Net Realized (Losses) Gains, (Decrease) Increase in Net Assets from Net Changes in Unrealized Appreciation/Depreciation

        Net realized (losses) gains were ($26,234), $36,588 and $16,465 for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, respectively. The net realized loss for the year ended June 30, 2013 was primarily due to the sale of Meatco (realized loss of $10,814), the other-than-temporary impairment of ICS (realized loss of $12,117) and restructuring of the H&M debt in conjunction with the foreclosure on the assets of H&M (realized loss of $19,647). These losses were partially offset by net realized gains from the sale of our assets in Wolf (realized gain of $11,826), assets formerly held by H&M, and distributions received from our escrow receivable account, primarily NRG (resulting in realized gains of $3,252). The net realized gain for the year ended June 30, 2012 was due primarily to the sale of NRG common stock for which we realized a gain of $36,940 and the sale of our equity interests in Copernicus, C&J, Fairchild Industrial Products, Co., Fischbein, Mac & Massey, Nupla and Sport Helmets for which we realized a total gain of $14,317. These gains were offset by our impairment of Deb Shops. During the year ended June 30, 2012, Deb Shops filed for bankruptcy and a plan for reorganization was proposed. The plan was approved by the bankruptcy court and our debt position was eliminated with no payment to us. We determined that the impairment of Deb Shops was other-than-temporary on September 30, 2011 and recorded a realized loss of $14,607 for the full amount of the amortized cost. The asset was completely written off when the plan of reorganization was approved. The net realized gain for the year ended June 30, 2011 was due primarily to gains from the sales of our common equity in Fischbein and Miller of $9,893 and $7,977, respectively.

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        Net (decrease) increase in net assets from changes in unrealized (depreciation) appreciation was ($77,834), ($32,368), and $7,552 for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, respectively, or ($0.37) per share, ($0.28) per share and $0.09 per share, respectively. For the year ended June 30, 2013, the $77,834 decrease in net assets from the net change in unrealized depreciation was driven by reduction in the fair value of our investments in Ajax, Boxercraft and First Tower because of changes in current market conditions and Energy Solutions for which we received $19,543 of make-whole fees for early repayment of the outstanding loan and distributions of $53,820 during the year, which were recorded as interest and dividend income, respectively, reducing the amount previously recorded as unrealized appreciation. These instances of unrealized depreciation were partially offset by the elimination of the unrealized depreciation resulting from the H&M foreclosure mentioned above. For the year ended June 30, 2012, the $32,368 decrease in net assets from the net change in unrealized appreciation/depreciation was driven by write-downs of $68,197 related to our investments in H&M, Meatco and Stryker, as well as the elimination of the unrealized appreciation resulting from the sale of NRG mentioned above. The unrealized depreciation was partially offset by unrealized appreciation of approximately $34,712 related to our investments in Ajax and R-V. For the year ended June 30, 2011, the $7,552 increase in net assets from the net change in unrealized appreciation was driven by significant write-ups of $54,916 related to our investments in Ajax, Biotronic, ESHI, Iron Horse, NRG and Sport Helmets. The unrealized appreciation were partially offset by unrealized depreciation of approximately $35,689 related to our investments in H&M, ICS, Manx, Shearer's, Stryker, and $10,840 related to the repayment of Prince.

Financial Condition, Liquidity and Capital Resources

        For the years ended June 30, 2013, June 30, 2012 and June 30, 2011, our operating activities used $1,811,101, $287,881 and $581,609 of cash, respectively. There were no investing activities for the years ended June 30, 2013, June 30, 2012 and June 30, 2011. Financing activities provided cash flows of $1,868,250, $289,214 and $582,020 for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, respectively. Dividends paid were $242,301, $127,564 and $91,247 for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, respectively.

        Our primary uses of funds have been to continue to invest in portfolio companies, through both debt and equity investments, repay outstanding borrowings and to make cash distributions to holders of our common stock.

        Our primary sources of funds have been issuances of debt and equity. We have and may continue to fund a portion of our cash needs through borrowings from banks, issuances of senior securities or secondary offerings. We may also securitize a portion of our investments in mezzanine or senior secured loans or other assets. Our objective is to put in place such borrowings in order to enable us to expand our portfolio. During the year ended June 30, 2013, we borrowed $223,000 and made repayments totaling $195,000 under our 2012 Facility. As of June 30, 2013, we had $124,000 outstanding on our revolving credit facility, $847,500 outstanding on our Senior Convertible Notes, $347,725 outstanding on our Senior Unsecured Notes and $363,777 outstanding on InterNotes®. (See Capitalization.)

        Undrawn committed revolvers incur commitment fees ranging from 0.50% to 2.00%. As of June 30, 2013 and June 30, 2012, we have $202,518 and $180,646 of undrawn revolver commitments to our portfolio companies, respectively.

        Our Board of Directors, pursuant to the Maryland General Corporation Law, executed Articles of Amendment to increase the number of shares authorized for issuance from 200,000,000 to 500,000,000 in the aggregate. The amendment became effective July 30, 2012.

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        On October 29, 2012, our Registration Statement on Form N-2 was declared effective by the SEC. Under this Shelf Registration Statement, we can issue up to an additional $1,743,217 of debt and equity securities in the public market at June 30, 2013.

        We also continue to generate liquidity through public and private stock offerings.

        On June 1, 2012, we entered into an ATM Program with KeyBanc through which we could sell, by means of at-the-market offerings from time to time, of up to 9,500,000 shares of our common stock. During the period from July 2, 2012 to July 12, 2012, we sold 2,247,275 shares of our common stock at an average price of $11.59 per share, and raised $26,040 of gross proceeds, under the ATM Program. Net proceeds were $25,779 after commission to KeyBanc on shares sold.

        On July 16, 2012, we issued 21,000,000 shares of our common stock at $11.15 per share (or $11.05 per share net proceeds excluding expenses), raising $234,150 of gross proceeds.

        On July 27, 2012, we issued 3,150,000 shares in connection with the exercise of an option granted with the July 12, 2012 offering of 21,000,000 shares which were delivered July 16, 2012, raising an additional $35,123 of gross proceeds and $34,808 of net proceeds.

        On September 10, 2012, we entered into an ATM Program with KeyBanc through which we could sell, by means of at-the-market offerings from time to time, of up to 9,750,000 shares of our common stock. During the period from October 1, 2012 to October 9, 2012, we sold 1,245,655 shares of our common stock at an average price of $11.53 per share, and raised $14,361 of gross proceeds, under this program. Net proceeds were $14,217 after commission to the broker-dealer on shares sold and offering costs.

        On November 7, 2012, we issued 35,000,000 shares of our common stock at $11.10 per share (or $10.96 per share net proceeds excluding expenses), raising $383,600 of net proceeds.

        On December 21, 2012, we entered into an ATM Program with KeyBanc through which we could sell, by means of at-the-market offerings from time to time, of up to 17,500,000 shares of our common stock. During the period from January 7, 2013 to February 5, 2013, we sold 10,248,051 shares of our common stock at an average price of $11.25 per share, and raised $115,315 of gross proceeds, under this program. Net proceeds were $114,162 after commission to KeyBanc on shares sold.

        On February 11, 2013, we entered into an ATM Program with KeyBanc through which we could sell, by means of at-the-market offerings from time to time, of up to 45,000,000 shares of our common stock. During the period from February 14, 2013 to May 3, 2013, we sold 17,230,253 shares of our common stock at an average price of $11.14 per share, and raised $191,897 of gross proceeds, under the ATM Program. Net proceeds were $190,109 after commissions to KeyBanc on shares sold.

        On May 8, 2013, we entered into an ATM Program with BB&T Capital Markets, BMO Capital Markets, and KeyBanc through which we could sell, by means of at-the-market offerings from time to time, of up to 45,000,000 shares of our common stock. During the period from May 14, 2013 to June 30, 2013, we sold 4,359,200 shares of our common stock at an average price of $10.90 per share, and raised $47,532 of gross proceeds, under the ATM Program. Net proceeds were $47,133 after commissions to BB&T Capital Markets, BMO Capital Markets, and KeyBanc on shares sold. During the period from July 1, 2013 to August 21, 2013, we sold 9,818,907 shares of our common stock at an average price of $10.97 per share, and raised $107,725 of gross proceeds, under the ATM Program. Net proceeds were $106,822 after commissions to BB&T Capital Markets, BMO Capital Markets, Goldman, Sachs & Co. and KeyBanc on shares sold. (See Recent Developments.)

        On August 23, 2013, we entered into an ATM Program with BMO Capital Markets, Goldman, Sachs & Co., RBC Capital Markets and KeyBanc through which we could sell, by means of at-the-market offerings from time to time, of up to 45,000,000 shares of our common stock. During the period from August 26, 2013 to October 10, 2013 (with settlements August 29, 2013 through October 16,

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2013), we sold 16,914,710 shares of our common stock at an average price of $11.27 per share, and raised $190,609 of gross proceeds, under the ATM Program. Net proceeds were $188,735 after commissions to BMO Capital Markets, Goldman, Sachs & Co., RBC Capital Markets and KeyBanc on shares sold.

Off-Balance Sheet Arrangements

        At June 30, 2013, we did not have any off-balance sheet liabilities or other contractual obligations that are reasonably likely to have a current or future material effect on our financial condition, other than those which originate from 1) the investment advisory and management agreement and the administration agreement and 2) the portfolio companies.

Recent Developments

        During the period from July 1, 2013 to October 10, 2013, we issued $115,110 in aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $112,713.

        During the period from July 1, 2013 to August 21, 2013, we sold 9,818,907 shares of our common stock at an average price of $10.97 per share, and raised 107,725, under the ATM Program. Net proceeds were $106,822 after commissions to the broker-dealer on shares sold and offering costs.

        On August 23, 2013, we entered into an ATM Program with BMO Capital Markets, Goldman, Sachs & Co., RBC Capital Markets and KeyBanc through which we could sell, by means of at-the-market offerings from time to time, of up to 45,000,000 shares of our common stock. During the period from August 26, 2013 to October 10, 2013 (with settlements August 29, 2013 through October 16, 2013), we sold 16,914,710 shares of our common stock at an average price of $11.27 per share, and raised $190,609 of gross proceeds, under the ATM Program. Net proceeds were $188,735 after commissions to BMO Capital Markets, Goldman, Sachs & Co., RBC Capital Markets and KeyBanc on shares sold.

        On July 1, 2013, Pre-Paid Legal Services, Inc. repaid the $5,000 loan receivable to us.

        On July 9, 2013, Southern Management Corporation repaid the $17,565 loan receivable to us.

        On July 12, 2013, we provided $11,000 of secured second lien financing to Water PIK, Inc., a leader in developing innovative personal and oral healthcare products.

        On July 12, 2013, we provided $11.0 million of secured second lien financing to Blue Coat Systems, Inc., a leading provider of web security and wide area network (WAN) optimization solutions.

        On July 23, 2013, we made a $2,000 investment in Carolina Beverage Group, LLC ("Carolina Beverage"), a contract beverage manufacturer.

        On July 24, 2013, we sold our $2,000 investment in Carolina Beverage and realized a gain of $45 on this investment.

        On July 26, 2013, we made a $2,000 follow-on senior secured debt investment in Spartan, a leading provider of thru tubing and flow control services to oil and gas companies.

        On July 26, 2013, we made a $20,000 follow-on secured second lien investment in Royal Adhesives & Sealants, LLC ("Royal"), a leading producer of proprietary, high-performance adhesives and sealants.

        On July 31, 2013, we made a $5,100 follow-on investment in Coverall, a leading franchiser of commercial cleaning businesses.

        On July 31, 2013, Royal repaid the $28,364 subordinated unsecured loan receivable to us.

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        On July 31, 2013, Cargo repaid the $43,399 loan receivable to us.

        On August 1, 2013, Medical Security Card Company, LLC repaid the $13,214 loan receivable to us.

        On August 2, 2013, we made an investment of $44,100 to purchase 90% of the subordinated notes in CIFC Funding 2013-III, Ltd.

        On August 2, 2013, we funded a recapitalization of CP Energy Services, Inc. ("CP Energy") with $81,273 of debt and $12,741 of equity financing. Through the recapitalization, we acquired a controlling interest in CP Energy for $73,009 in cash and 1,918,342 unregistered shares of our common stock. After the financing, we received repayment of the $18,991 loan previously outstanding.

        On August 12, 2013, we provided $80,000 in senior secured loans and a senior secured revolving loan facility, of which $70,000 was funded at closing, for the recapitalization of Matrixx Initiatives, Inc., owner of Zicam, a leading developer and marketer of OTC cold remedy products under the Zicam brand.

        On August 14, 2013, we announced the revised conversion rate on the 2018 Notes of 82.8631 shares of common stock per $1 principal amount of 2018 Notes, which is equivalent to a conversion price of approximately $12.07.

        On August 15, 2013, we announced an increase of $15,000 to our commitments to our credit facility. The commitments to the credit facility now stand at $567,500.

        On August 15, 2013, we made a $14,000 follow-on investment in Totes, a leading designer, distributer and retailer of high quality, branded functional accessories.

        On August 21, 2013, we announced the declaration of monthly dividends in the following amounts and with the following dates:

        On August 30, 2013, we made a $16,000 follow-on investment in System One Holdings, LLC, a leading provider of professional staffing services.

        On September 5, 2013, we provided $50,000 of floating rate senior secured financing to a leading payments processor.

        On September 10, 2013, we made a $12,500 first lien secured investment in Photonis SAS, a world leader in the development, manufacture and sale of electro-optic components for the detection and intensification of very faint light sources.

        On September 11, 2013, Seaton Corp. repaid the $13,310 loan receivable to us.

        On September 12, 2013, we provided a $75,000 floating-rate senior secured term loan to support the recapitalization of American Broadband Communications, LLC, a leading provider of voice, video, and high-speed internet services.

        On September 13, 2013, we made an investment of $36,515 to purchase 83.56% of the subordinated notes in Apidos CLO XV, Ltd.

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        On September 19, 2013, we provided $47,985 of combined senior secured floating rate debt and equity to support the recapitalization of Mity Enterprises, Inc., a leading designer, manufacturer and seller of multipurpose room furniture and specialty healthcare seating products.

        On September 25, 2013, we made a $12,000 senior secured investment in NCP Finance, a lender to short term loan providers in the alternative financial services industry.

        On September 25, 2013, we received payment of $5,000 in settlement of a lawsuit related to the loan to Integrated Contract Services, Inc., which was previously written off.

        On September 30, 2013, we made an investment of $22,575 to purchase 51.02% of the subordinated notes in Galaxy XVI CLO, Ltd.

        On September 30, 2013, we sold our investment in ADAPCO, Inc. for net proceeds of $553, recognizing a realized gain of $413 on the sale.

        On September 30, 2013, we made an $18,818 follow-on investment in JHH Holdings, Inc., a leading provider of home healthcare services in Texas.

        On October 1, 2013, we made a $2,600 follow-on investment in AIRMALL USA, Inc., a leading developer and manager of airport retail operations.

        On October 7, 2013, Evanta Ventures, Inc. repaid the $10,506 loan receivable to us.

        On October 11, 2013, we made a $5,846 follow-on senior debt and equity investment in CP Energy Services, Inc., an energy services company based in western Oklahoma.

        On October 11, 2013, we provided $25,000 in preferred equity for the recapitalization of Ajax Rolled Ring & Machine, Inc. After the financing, we received repayment of the $20,009 loan previously outstanding.

Critical Accounting Policies and Estimates

        Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially. In addition to the discussion below, our critical accounting policies are further described in the notes to the financial statements.

Basis of Consolidation

        Under the 1940 Act rules, the regulations pursuant to Article 6 of Regulation S-X and the American Institute of Certified Public Accountants' Audit and Accounting Guide for Investment Companies, we are precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services and benefits to us. Our financial statements include our accounts and the accounts of PCF, our only wholly-owned, closely-managed subsidiary that is also an investment company. All intercompany balances and transactions have been eliminated in consolidation.

Investment Classification

        We are a non-diversified company within the meaning of the 1940 Act. We classify our investments by level of control. As defined in the 1940 Act, control investments are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is

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generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of 25% or more of the voting securities of an investee company. Affiliated investments and affiliated companies are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of another person.

        Investments are recognized when we assume an obligation to acquire a financial instrument and assume the risks for gains or losses related to that instrument. Investments are derecognized when we assume an obligation to sell a financial instrument and forego the risks for gains or losses related to that instrument. Specifically, we record all security transactions on a trade date basis. Investments in other, non-security financial instruments are recorded on the basis of subscription date or redemption date, as applicable. Amounts for investments recognized or derecognized but not yet settled are reported as receivables for investments sold and payables for investments purchased, respectively, in the Consolidated Statements of Assets and Liabilities.

Investment Valuation

        To value our assets, we follow the guidance of ASC 820 that defines fair value, establishes a framework for measuring fair value in conformity with accounting principles generally accepted in the United States or America, or GAAP, and requires disclosures about fair value measurements.

        ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:

        In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.

        ASC 820 applies to fair value measurements already required or permitted by other standards.

        In accordance with ASC 820, the fair value of our investments is defined as the price that we would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market in which that investment is transacted.

        Our Board of Directors has established procedures for the valuation of our investment portfolio. These procedures are detailed below.

        Investments for which market quotations are readily available are valued at such market quotations.

        For most of our investments, market quotations are not available. With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our Board of Directors has approved a multi-step valuation process each quarter, as described below:

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        Investments are valued utilizing a shadow bond approach, a market approach, an income approach, a liquidation approach, or a combination of approaches, as appropriate. The shadow bond and market approaches use prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present value amount (discounted) calculated based on an appropriate discount rate. The measurement is based on the net present value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company's ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, the principal market and enterprise values, among other factors.

        Our investments in CLOs are classified as ASC 820 level 3 securities, and are valued using discounted cash flow model. The valuations have been accomplished through the analysis of the CLO deal structures to identify the risk exposures from the modeling point of view. For each security, the most appropriate valuation approach has been chosen from alternative approaches to ensure the most accurate valuation for each security. To value a CLO, both the assets and liabilities of the CLO capital structure need be modeled. We use a waterfall engine to store the collateral data, generate collateral cash flows from the assets, and distributes the cash flow to the liability structure based on the payment priorities, and discount them back using proper discount rates that incorporate all the risk factors. The main risk factors are: default risk, interest rate risk, downgrade risk, and credit spread risk.

        For a discussion of the risks inherent in determining the value of securities for which readily available market values do not exist, see "Risk Factors—Risks relating to our business—Most of our portfolio investments are recorded at fair value as determined in good faith under the direction of our Board of Directors and, as a result, there is uncertainty as to the value of our portfolio investments."

Valuation of Other Financial Assets and Financial Liabilities

        ASC Subtopic 820-10-05-1, The Fair Value Option for Financial Assets and Financial Liabilities ("ASC 820-10-05-1") permits an entity to elect fair value as the initial and subsequent measurement attribute for many of assets and liabilities for which the fair value option has been elected and similar assets and liabilities measured using another measurement attribute. We have elected not to value some assets and liabilities at fair value as would be permitted by ASC 820-10-05-1.

Federal and State Income Taxes

        We have elected to be treated as a regulated investment company and intend to continue to comply with the requirements of the Internal Revenue Code of 1986 (the "Code"), applicable to regulated investment companies. We are required to distribute at least 90% of our investment company taxable income and intend to distribute (or retain through a deemed distribution) all of our investment

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company taxable income and net capital gain to stockholders; therefore, we have made no provision for income taxes. The character of income and gains that we will distribute is determined in accordance with income tax regulations that may differ from GAAP. Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified to paid-in capital.

        If we do not distribute at least 98% of our annual income and 98.2% of our capital gains in the calendar year earned, we will generally be required to pay an excise tax equal to 4% of the amount by which 98% of our annual ordinary income and 98.2% of our capital gains exceeds the distributions from such taxable income for the year. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, we accrue excise taxes, if any, on estimated excess taxable income as taxable income is earned using an annual effective excise tax rate. The annual effective excise tax rate is determined by dividing the estimated annual excise tax by the estimated annual taxable income. For the calendar year ended December 31, 2012, we elected to retain a portion of our annual taxable income and have paid $4,500 for the excise tax due with the filing of the return. As of June 30, 2013, we have $2,000 accrued as an estimate of two quarters of the excise tax due for the calendar year ending December 31, 2013.

        If we fail to satisfy the Annual Distribution Requirement or otherwise fail to qualify as a RIC in any taxable year, we would be subject to tax on all of our taxable income at regular corporate rates. We would not be able to deduct distributions to stockholders, nor would we be required to make distributions. Distributions would generally be taxable to our individual and other non-corporate taxable stockholders as ordinary dividend income eligible for the reduced maximum rate applicable to qualified dividend income to the extent of our current and accumulated earnings and profits, provided certain holding period and other requirements are met. Subject to certain limitations under the Code, corporate distributions would be eligible for the dividends-received deduction. To qualify again to be taxed as a RIC in a subsequent year, we would be required to distribute to our shareholders our accumulated earnings and profits attributable to non-RIC years reduced by an interest charge of 50% of such earnings and profits payable by us as an additional tax. In addition, if we failed to qualify as a RIC for a period greater than two taxable years, then, in order to qualify as a RIC in a subsequent year, we would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of ten years.

        We adopted FASB ASC 740, Income Taxes ("ASC 740"). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Adoption of ASC 740 was applied to all open tax years as of July 1, 2007. The adoption of ASC 740 did not have an effect on our net asset value, financial condition or results of operations as there was no liability for unrecognized tax benefits and no change to our beginning net asset value. As of June 30, 2013 and for the year then ended, we did not have a liability for any unrecognized tax benefits. Management's determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.

Revenue Recognition

        Realized gains or losses on the sale of investments are calculated using the specific identification method.

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        Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing and/or commitment fees associated with investments in portfolio companies are accreted into interest income over the respective terms of the applicable loans. Upon the prepayment of a loan or debt security, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as interest income.

        Interest income from investments in the "equity" class of security of CLO Funds (typically income notes or subordinated notes) is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40-35, Beneficial Interests in Securitized Financial Assets. We monitor the expected cash inflows from our CLO equity investments, including the expected residual payments and the effective yield is determined and updated periodically.

        Loans are placed on non-accrual status when principal or interest payments are past due 90 days or more or when there is reasonable doubt that principal or interest will be collected. Unpaid accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management's judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and in management's judgment, are likely to remain current. As of June 30, 2013, approximately 0.3% of our net assets are in non-accrual status.

        Dividend income is recorded on the ex-dividend date.

        Structuring fees and similar fees are recognized as income as earned, usually when paid. Structuring fees, excess deal deposits, net profits interests and overriding royalty interests are included in other income.

Dividends and Distributions

        Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount, if any, to be paid as a dividend or distribution is approved by our Board of Directors each quarter and is generally based upon our management's estimate of our earnings for the quarter. Net realized capital gains, if any, are distributed at least annually.

Financing Costs

        We record origination expenses related to our credit facility and Senior Notes as deferred financing costs. These expenses are deferred and amortized as part of interest expense using the straight-line method for our revolving credit facility and the effective interest method for our Senior Notes, over the respective expected life.

        We record registration expenses related to shelf filings as prepaid assets. These expenses consist principally of Securities and Exchange Commission ("SEC") registration fees, legal fees and accounting fees incurred. These prepaid assets will be charged to capital upon the receipt of an equity offering proceeds or charged to expense if no offering completed.

Guarantees and Indemnification Agreements

        We follow ASC 460, Guarantees ("ASC 460"). ASC 460 elaborates on the disclosure requirements of a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, for those guarantees that are covered by ASC 460, the fair value of the obligation undertaken in issuing certain guarantees.

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Per Share Information

        Net increase or decrease in net assets resulting from operations per common share are calculated using the weighted average number of common shares outstanding for the period presented. In accordance with ASC 946, Financial Services—Investment Companies, convertible securities are not considered in the calculation of net assets per share.

Recent Accounting Pronouncements

        In May 2011, the FASB issued Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS ("ASU 2011-04"). ASU 2011-04 amends Topic 820, Fair Value Measurements, ("ASC 820") by: (1) clarifying that the highest-and-best-use and valuation-premise concepts only apply to measuring the fair value of non-financial assets; (2) allowing a reporting entity to measure the fair value of the net asset or net liability position in a manner consistent with how market participants would price the net risk position, if certain criteria are met; (3) providing a framework for considering whether a premium or discount can be applied in a fair value measurement; (4) providing that the fair value of an instrument classified in a reporting entity's shareholders' equity is estimated from the perspective of a market participant that holds the identical item as an asset; and (5) expanding the qualitative and quantitative fair value disclosure requirements. The expanded disclosures include, for Level 3 items, a description of the valuation process and a narrative description of the sensitivity of the fair value to changes in unobservable inputs and interrelationships between those inputs if a change in those inputs would result in a significantly different fair value measurement. ASU 2011-4 also requires disclosures about the highest-and-best-use of a non-financial asset when this use differs from the asset's current use and the reasons for such a difference. In addition, this ASU amends ASC 820, Fair Value Measurements, to require disclosures to include any transfers between Level 1 and Level 2 of the fair value hierarchy. These amendments were effective for fiscal years beginning after December 15, 2011 and for interim periods within those fiscal years. The adoption of the amended guidance in ASU 2011-04 did not have a significant effect on our financial statements. See Note 3 for the disclosure required by ASU 2011-04.

        In August 2012, the FASB issued Accounting Standards Update 2012-03, Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 114 ("SAB No. 114"), Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 ("ASU 2012-03"). The update amends various SEC paragraphs pursuant to the issuance of SAB No. 114 and is effective upon issuance. The adoption of the amended guidance in ASU 2012-03 did not have a significant effect on our financial statements.

        In October 2012, the FASB issued Accounting Standards Update 2012-04, Technical Corrections and Improvements ("ASU 2012-04"). The amendments in this update cover a wide range of Topics in the ASC. These amendments include technical corrections and improvements to the ASC and conforming amendments related to fair value measurements. The adoption of the amended guidance in ASU 2012-04 did not have a significant effect on our financial statements.

        In June 2013, the FASB issued Accounting Standards Update 2013-08, Financial Services—Investment Companies (Topic 946)—Amendments to the Scope, Measurement, and Disclosure Requirements ("ASU 2013-08"). ASU 2013-08 clarifies the approach to be used for determining whether an entity is an investment company and provides new measurement and disclosure requirements. ASU 2013-08 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2013. Earlier application is prohibited. The adoption of ASU 2013-08 is not expected to materially effect on our financial statements.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We are subject to financial market risks, including changes in interest rates and equity price risk. Some of the loans in our portfolio have floating interest rates.

        We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of higher interest rates with respect to our portfolio of investments. During the year ended June 30, 2013, we did not engage in hedging activities.

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REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

        Management is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of June 30, 2013. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.

        Management performed an assessment of the effectiveness of the Company's internal control over financial reporting as of June 30, 2013 based upon criteria in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on our assessment, management determined that the Company's internal control over financial reporting was effective as of June 30, 2013 based on the criteria on Internal Control—Integrated Framework issued by COSO. There were no changes in our internal control over financial reporting during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.

        Our management's assessment of the effectiveness of our internal control over financial reporting as of June 30, 2013 has been audited by our independent registered public accounting firm, as stated in their report which appears in the 10-K.

USE OF PROCEEDS

        Unless otherwise specified in a prospectus supplement, we intend to use the net proceeds from selling Securities pursuant to this prospectus initially to maintain balance sheet liquidity, involving repayment of debt under our credit facility, if any, investments in high quality short-term debt instruments or a combination thereof, and thereafter to make long-term investments in accordance with our investment objective. Interest on borrowings under the credit facility is one-month LIBOR plus 275 basis points, with no minimum LIBOR floor. Additionally, the lenders charge a fee on the unused portion of the credit facility equal to either 50 basis points if at least half of the credit facility is drawn or 100 basis points otherwise. A supplement to this prospectus relating to each offering will provide additional detail, to the extent known at the time, regarding the use of the proceeds from such offering including any intention to utilize proceeds to pay expenses in order to avoid sales of long-term assets.

        We anticipate that substantially all of the net proceeds of an offering of Securities pursuant to this prospectus will be used for the above purposes within six months, depending on the availability of appropriate investment opportunities consistent with our investment objective and market conditions. In addition, we expect that there will be several offerings pursuant to this prospectus; we expect that substantially all of the proceeds from all offerings will be used within three years. Pending our new investments, we plan to invest a portion of net proceeds in cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from the date of investment and other general corporate purposes. The management fee payable by us will not be reduced while our assets are invested in such securities, which may generate a loss to the Company. See "Regulation—Temporary Investments" for additional information about temporary investments we may make while waiting to make longer-term investments in pursuit of our investment objective.

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FORWARD-LOOKING STATEMENTS

        Our annual report on Form 10-K for the year ended June 30, 2013, any of our quarterly reports on Form 10-Q or current reports on Form 8-K, or any other oral or written statements made in press releases or otherwise by or on behalf of Prospect Capital Corporation including this prospectus may contain forward looking statements within the meaning of the Section 21E of the Securities Exchange Act of 1934, as amended, which involve substantial risks and uncertainties. Forward looking statements predict or describe our future operations, business plans, business and investment strategies and portfolio management and the performance of our investments and our investment management business. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs, and our assumptions. Words such as "intends," "intend," "intended," "goal," "estimate," "estimates," "expects," "expect," "expected," "project," "projected," "projections," "plans," "seeks," "anticipates," "anticipated," "should," "could," "may," "will," "designed to," "foreseeable future," "believe," "believes" and "scheduled" and variations of these words and similar expressions are intended to identify forward-looking statements. Our actual results or outcomes may differ materially from those anticipated. Readers are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date the statement was made. We undertake no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements do not meet the safe harbor for forward-looking statements pursuant to Section 27A of the Securities Act. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:

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        Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new loans and investments, certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in "Risk Factors" and elsewhere in this prospectus. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus.

DISTRIBUTIONS

        Through March 2010, we made quarterly distributions to our stockholders out of assets legally available for distribution. In June 2010, we changed our distribution policy from a quarterly payment to a monthly payment and intend to continue with monthly distributions. Our distributions, if any, will be determined by our Board of Directors. Certain amounts of the monthly distributions may from time to time be paid out of our capital rather than from earnings for the quarter as a result of our deliberate planning or by accounting reclassifications.

        As a RIC, we generally are not subject to U.S. federal income tax on income and gains we distribute each taxable year to our stockholders, provided that in such taxable year we distribute at least 90% of our ordinary income and net short-term capital gains in excess of realized net long-term capital losses. In order to avoid certain excise taxes imposed on RICs, we are required to timely distribute with respect to each calendar year an amount at least equal to the sum of

        At December 31, 2012, we accrued, and subsequently paid, $4,500 for the undistributed ordinary income retained at December 31, 2012. Through June 30, 2013, we have accrued an additional $2,000 as we expect to again retain undistributed ordinary income at December 31, 2013.

        In addition, although we currently intend to distribute realized net capital gains (which we define as net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may decide in the future to retain such capital gains for investment. In such event, the consequences of our retention of net capital gains are as described under "Material U.S. Federal Income Tax Considerations." We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we may be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.

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        We maintain an "opt out" dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, then stockholders' cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically "opt out" of the dividend reinvestment plan so as to receive cash distributions. Stockholders who receive distributions in the form of stock are subject to the same U.S. Federal, state and local tax consequences as are stockholders who elect to receive their distributions in cash. See "Dividend Reinvestment Plan". To the extent prudent and practicable, we intend to declare and pay dividends on a monthly basis.

        With respect to the distributions paid to stockholders, income from origination, structuring, closing, commitment and other upfront fees associated with investments in portfolio companies were treated as taxable income and accordingly, distributed to stockholders. During the fiscal year ended June 30, 2013, we declared total distributions of approximately $271.5 million.

        Tax characteristics of all distributions will be reported to stockholders, as appropriate, on Form 1099-DIV after the end of the year. Our ability to pay distributions could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and loan covenants.

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        The following table reflects the distributions per share that we have declared on our common stock to date. In June 2010, we changed our distribution policy from a quarterly payment to a monthly payment.

Declaration Date   Record Date   Pay Date   Rate   Amount
(in thousands)
 
8/20/2013   3/31/2014   4/17/2014     0.110375       *
8/20/2013   2/28/2014   3/20/2014     0.110350       *
8/20/2013   1/31/2014   2/20/2014     0.110325       *
6/17/2013   12/31/2013   1/23/2014     0.110300       *
6/17/2013   11/29/2013   12/19/2013     0.110275       *
6/17/2013   10/31/2013   11/21/2013     0.110250       *
6/17/2013   9/30/2013   10/24/2013     0.110225       *
5/6/2013   8/30/2013   9/19/2013     0.110200       *
5/6/2013   7/31/2013   8/22/2013     0.110175   $ 28,001  
5/6/2013   6/28/2013   07/18/2013     0.110150     27,299  
5/6/2013   5/31/2013   6/19/2013     0.110125     27,280  
2/7/2013   4/30/2013   5/23/2013     0.110100     26,619  
2/7/2013   3/29/2013   4/18/2013     0.110075     26,267  
2/7/2013   2/28/2013   3/21/2013     0.110050     25,307  
11/7/2012   1/31/2013   2/20/2013     0.110025     24,641  
11/7/2012   12/31/2012   1/23/2013     0.110000     23,669  
11/7/2012   11/30/2012   12/20/2012     0.101675     21,308  
8/21/2012   10/31/2012   11/22/2012     0.101650     17,736  
8/21/2012   9/30/2012   10/24/2012     0.101625     17,597  
5/7/2012   8/31/2012   9/21/2012     0.101600     16,897  
5/7/2012   7/31/2012   8/24/2012     0.101575     16,886  
5/7/2012   6/29/2012   7/24/2012     0.101550     14,180  
5/7/2012   5/31/2012   6/22/2012     0.101525     12,395  
2/6/2012   4/30/2012   5/24/2012     0.101500     12,384  
2/6/2012   3/30/2012   4/20/2012     0.101475     12,372  
2/6/2012   2/29/2012   3/23/2012     0.101450     12,361  
11/7/2011   1/31/2012   2/17/2012     0.101425     11,134  
11/7/2011   12/31/2011   1/25/2012     0.101400     11,122  
11/7/2011   11/30/2011   12/22/2011     0.101375     11,111  
8/24/2011   10/31/2011   11/22/2011     0.101350     11,098  
8/24/2011   9/30/2011   10/25/2011     0.101325     11,087  
5/9/2011   8/31/2011   9/23/2011     0.101300     11,074  
5/9/2011   7/29/2011   8/26/2011     0.101275     11,060  
5/9/2011   6/30/2011   7/22/2011     0.101250     10,896  
5/9/2011   5/31/2011   6/24/2011     0.101225     9,871  
2/8/2011   4/29/2011   5/31/2011     0.101200     9,861  
2/8/2011   3/31/2011   4/29/2011     0.101175     8,939  
2/8/2011   2/28/2011   3/31/2011     0.101150     8,930  
11/8/2010   1/31/2011   2/28/2011     0.101125     8,919  
11/8/2010   12/31/2010   1/31/2011     0.101000     8,899  
11/8/2010   11/30/2010   12/31/2010     0.100875     8,668  
8/26/2010   10/29/2010   11/30/2010     0.100750     8,347  
8/26/2010   9/30/2010   10/29/2010     0.100625     7,889  
6/18/2010   8/31/2010   9/30/2010     0.100500     7,620  
6/18/2010   7/30/2010   8/31/2010     0.100250     7,330  
Prior to 6/30/2010                   215,157  
                     
        Since Inception   $ 762,211  
                     

*
Not yet determinable

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SENIOR SECURITIES

        Information about our senior securities is shown in the following table as of each fiscal year ended June 30 since the Company commenced operations.

Credit Facility
  Total Amount
Outstanding(1)
  Asset
Coverage per
Unit(2)
  Involuntary
Liquidating
Preference per
Unit(3)
  Average
Market
Value per
Unit(4)
 

Fiscal 2013 (as of June 30, 2013)

  $ 124,000   $ 34,996          

Fiscal 2012 (as of June 30, 2012)

    96,000     22,668          

Fiscal 2011 (as of June 30, 2011)

    84,200     18,065          

Fiscal 2010 (as of June 30, 2010)

    100,300     8,093          

Fiscal 2009 (as of June 30, 2009)

    124,800     5,268          

Fiscal 2008 (as of June 30, 2008)

    91,167     5,712          

Fiscal 2007 (as of June 30, 2007)

        N/A          

Fiscal 2006 (as of June 30, 2006)

    28,500     4,799          

Fiscal 2005 (as of June 30, 2005)

        N/A          

Fiscal 2004 (as of June 30, 2004)

        N/A          

 

2015 Notes
   
   
   
   
 

Fiscal 2013 (as of June 30, 2013)

  $ 150,000   $ 28,930          

Fiscal 2012 (as of June 30, 2012)

    150,000     14,507          

Fiscal 2011 (as of June 30, 2011)

    150,000     10,140          

 

2016 Notes
   
   
   
   
 

Fiscal 2013 (as of June 30, 2013)

  $ 167,500   $ 25,907          

Fiscal 2012 (as of June 30, 2012)

    167,500     12,992          

Fiscal 2011 (as of June 30, 2011)

    172,500     8,818          

 

2017 Notes
   
   
   
   
 

Fiscal 2013 (as of June 30, 2013)

  $ 130,000   $ 33,381          

Fiscal 2012 (as of June 30, 2012)

    130,000     16,739          

 

2018 Notes
   
   
   
   
 

Fiscal 2013 (as of June 30, 2013)

  $ 200,000   $ 21,697          

 

2019 Notes
   
   
   
   
 

Fiscal 2013 (as of June 30, 2013)

  $ 200,000   $ 21,697          

 

2022 Notes
   
   
   
   
 

Fiscal 2013 (as of June 30, 2013)

  $ 100,000   $ 43,395          

Fiscal 2012 (as of June 30, 2012)

    100,000     21,761          

 

2023 Notes
   
   
   
   
 

Fiscal 2013 (as of June 30, 2013)

  $ 247,725   $ 17,517          

 

Prospect Capital InterNotes®
   
   
   
   
 

Fiscal 2013 (as of June 30, 2013)

  $ 363,777   $ 11,929          

Fiscal 2012 (as of June 30, 2012)

    20,638     105,442          

All Senior Securities(5)
   
   
   
   
 

Fiscal 2013 (as of June 30, 2013)

  $ 1,683,002   $ 2,578          

Fiscal 2012 (as of June 30, 2012)

    664,138     3,277          

Fiscal 2011 (as of June 30, 2011)

    406,700     3,740          

(1)
Total amount of each class of senior securities outstanding at the end of the period presented (in 000's).

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(2)
The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by senior securities representing indebtedness. This asset coverage ratio is multiplied by $1,000 to determine the Asset Coverage Per Unit.

(3)
This column is inapplicable.

(4)
This column is inapplicable.

(5)
On February 16, 2012, we entered into the Selling Agent Agreement and began offering notes (the "Prospect Capital InterNotes® Program"). On March 4, 2013, we entered into a Second Amended and Restated Selling Agent Agreement which continued the Prospect Capital InterNotes® Program on substantially similar terms and provides for our issuance of floating rate notes in addition to fixed rate notes. Through October 10, 2013, we have sold $478.9 million aggregate principal amount of notes. Amounts sold under the Prospect Capital InterNotes® Program after June 30, 2013 are not reflected in the table above. On August 23, 2013, we amended the Selling Agent Agreement for the Prospect Capital InterNotes® to increase the aggregate principal amount of notes that may be issued from time to time under such agreement from $500.0 million to $1.0 billion.

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PRICE RANGE OF COMMON STOCK

        Our common stock is quoted on the NASDAQ Global Select Market under the symbol "PSEC." The following table sets forth, for the periods indicated, our NAV per share of common stock and the high and low sales prices per share of our common stock as reported on the NASDAQ Global Select Market. Our common stock historically trades at prices both above and below its NAV per share. There can be no assurance, however, that such premium or discount, as applicable, to NAV per share will be maintained. Common stock of business development companies, like that of closed-end investment companies, frequently trades at a discount to current NAV per share. In the past, our common stock has traded at a discount to our NAV per share. The risk that our common stock may continue to trade at a discount to our NAV per share is separate and distinct from the risk that our NAV per share may decline.

 
  Stock Price   Premium
(Discount)
of High to
NAV
  Premium
(Discount)
of Low to
NAV
   
 
 
  Dividend
Declared
 
 
  NAV(1)   High(2)   Low(2)  

Twelve Months Ending June 30, 2009

                                     

First quarter

  $ 14.63   $ 14.24   $ 11.12     (2.7 )%   (24.0 )% $ 0.402500  

Second quarter

    14.43     13.08     6.29     (9.4 )%   (56.4 )%   0.403750  

Third quarter

    14.19     12.89     6.38     (9.2 )%   (55.0 )%   0.405000  

Fourth quarter

    12.40     10.48     7.95     (15.5 )%   (35.9 )%   0.406250  

Twelve Months Ending June 30, 2010

                                     

First quarter

  $ 11.11   $ 10.99   $ 8.82     (1.1 )%   (20.6 )% $ 0.407500  

Second quarter

    10.10     12.31     9.93     21.9 %   (1.7 )%   0.408750  

Third quarter

    10.12     13.20     10.45     30.4 %   3.3 %   0.410000  

Fourth quarter

    10.30     12.20     9.65     18.4 %   (6.3 )%   0.100000  

Twelve Months Ending June 30, 2011

                                     

First quarter

  $ 10.24   $ 10.00   $ 9.18     (2.3 )%   (10.4 )% $ 0.301375  

Second quarter

    10.25     10.86     9.69     6.0 %   (5.5 )%   0.302625  

Third quarter

    10.33     12.33     10.72     19.4 %   3.8 %   0.303450  

Fourth quarter

    10.36     12.18     9.95     17.6 %   (4.0 )%   0.303675  

Twelve Months Ending June 30, 2012

                                     

First quarter

  $ 10.41   $ 10.18   $ 7.41     (2.2 )%   (28.8 )% $ 0.303900  

Second quarter

    10.69     9.88     7.99     (7.6 )%   (25.3 )%   0.304125  

Third quarter

    10.82     11.39     9.43     5.3 %   (12.8 )%   0.304350  

Fourth quarter

    10.83     11.39     10.55     5.2 %   (2.5 )%   0.304575  

Twelve Months Ending June 30, 2013

                                     

First quarter

  $ 10.88   $ 12.21   $ 10.83     12.2 %   (0.5 )% $ 0.304800  

Second quarter

    10.81     11.98     9.89     10.8 %   (8.5 )%   0.313325  

Third quarter

    10.71     11.49     10.91     7.3 %   1.9 %   0.330150  

Fourth quarter

    10.72     11.11     10.08     3.6 %   (6.0 )%   0.330375  

Twelve Months Ending June 30, 2014

                                     

First quarter

  $        (3)(4) $ 11.61   $ 10.76            (4)          (4) $ 0.330600 (5)

Second quarter (through October 10, 2013)

  $        (3)(4) $ 11.21   $ 10.80            (4)          (4) $ 0.330825 (5)

(1)
Net asset value per share is determined as of the last day in the relevant quarter and therefore may not reflect the net asset value per share on the date of the high or low sales price. The NAVs shown are based on outstanding shares of our common stock at the end of each period.

(2)
The High/Low Stock Price is calculated as of the closing price on a given day in the applicable quarter.

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(3)
Our most recently estimated NAV per share is $10.75 on an as adjusted basis solely to give effect to our issuance of common stock since June 30, 2013 in connection with our dividend reinvestment plan, our issuance of 26,733,617 shares of common stock during the period from July 1, 2013 to October 10, 2013 including shares settling through October 16, 2013 under our at-the-market offering program, and our issuance of 1,918,342 shares of common stock on August 2, 2013 in connection with the recapitalization of CP Energy, $0.01 higher than the $10.72 determined by us as of June 30, 2013. NAV per share as of September 30, 2013, may be higher or lower than $10.75 based on potential changes in valuations, issuances of securities, dividends paid and earnings for the quarter then ended.

(4)
NAV has not yet been finally determined for any day after June 30, 2013.

(5)
On June 17, 2013, we announced the declaration of monthly dividends in the following amounts and with the following dates:

    $0.110225 per share for September 2013 to holders of record on September 30, 2013 with a payment date of October 24, 2013;

    $0.110250 per share for October 2013 to holders of record on October 31, 2013 with a payment date of November 21, 2013;

    $0.110275 per share for November 2013 to holders of record on November 29, 2013 with a payment date of December 19, 2013; and

    $0.110300 per share for December 2013 to holders of record on December 31, 2013 with a payment date of January 23, 2014.

Title of Class
  Amount
Authorized
  Amount Held by
Registrant or for
its Account
  Amount
Outstanding
 

Common Stock

    500,000,000     0     276,844,568  

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BUSINESS

General

        We are a financial services company that primarily lends to and invests in middle market privately-held companies. We are a closed-end investment company that has filed an election to be treated as a business development company under the Investment Company Act of 1940, or the 1940 Act. We invest primarily in senior and subordinated debt and equity of companies in need of capital for acquisitions, divestitures, growth, development and recapitalization. We work with the management teams or financial sponsors to seek investments with historical cash flows, asset collateral or contracted pro-forma cash flows.

        We currently have seven origination strategies in which we make investments: (1) lending in private equity sponsored transactions, (2) lending directly to companies not owned by private equity firms, (3) control investments in corporate operating companies, (4) control investments in financial companies, (5) investments in structured credit, (6) real estate investments, and (7) investments in syndicated debt. We continue to evaluate other origination strategies in the ordinary course of business with no specific tops-down allocation to any single origination strategy.

        Lending in Private Equity Sponsored Transactions—We make loans to companies which are controlled by leading private equity firms. This debt can take the form of first lien, second lien, unitranche or mezzanine loans. In making these investments, we look for a diversified customer base, recurring demand for the product or service, barriers to entry, strong historical cash flow and experienced management teams. These loans typically have significant equity subordinate to our loan position. This strategy has represented approximately 50%-60% of our business.

        Lending Directly to Companies—We provide debt financing to companies owned by non-private equity firms, the company founder, a management team or a family. Here, in addition to the strengths we look for in a sponsored transaction, we also look for alignment with the management team with significant invested capital. This strategy often has less competition than the private equity sponsor strategy because such company financing needs are not easily addressed by banks and often require more diligence preparation. Direct lending can result in higher returns and lower leverage than sponsor transactions and may include warrants or equity to us. This strategy generally has comprised approximately 10%-15% of our business.

        Control Investments in Corporate Operating Companies—This strategy involves acquiring controlling stakes in non-financial operating companies. Our investments in these companies are generally structured as a combination of yield-producing debt and equity. We provide certainty of closure to our counterparties, give the seller personal liquidity and generally look for management to continue on in their current roles. This strategy has comprised approximately 10%-15% of our business.

        Control Investments in Financial Companies—This strategy involves acquiring controlling stakes in financial companies, including consumer direct lending, subprime auto lending and other strategies. Our investments in these companies are generally structured as a combination of yield-producing debt and equity. These investments are often structured in a tax-efficient RIC (as defined below) compliant partnership, enhancing returns. This strategy has comprised approximately 10%-15% of our business.

        Investments in Structured Credit—We make investments in Collateralized Loan Obligations ("CLOs"), generally taking a significant position in the subordinated interests (equity) of the CLOs. The CLOs include a diversified portfolio of broadly syndicated loans and do not have direct exposure to real estate, mortgages, sub-prime debt, or consumer based debt. The CLOs in which we invest are managed by top-tier collateral managers that have been thoroughly diligenced prior to investment. This strategy has represented 10%-20% of the portfolio.

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        Real Estate Investments—We make investments in real estate through our wholly-owned tax-efficient real estate investment trust ("REIT"), American Property Holdings Corp. ("APHC"). Our real estate investments are in various classes of fully developed and occupied real estate properties that generate current yields. We seek to identify properties that have historically high occupancy and steady cash flow generation. We partner with established property managers with experience in managing the property type to manage such properties after acquisition. This is a more recent investment strategy that has represented less than 5% of our business.

        Investments in Syndicated Debt—On an opportunistic basis, we make investments in loans and high yield bonds that have been sold to a syndicate of buyers. Here we look for investments with attractive risk-adjusted returns after we have completed a fundamental credit analysis. These investments are purchased with a long term, buy-and-hold outlook and we look to provide significant structuring input by providing anchoring orders. This strategy has represented approximately 5%-10% of the portfolio.

        Typically, we concentrate on making investments in companies with annual revenues of less than $750 million and enterprise values of less than $1 billion. Our typical investment involves a secured loan of less than $250 million. We also acquire controlling interests in companies in conjunction with making secured debt investments in such companies. In most cases, companies in which we invest are privately held at the time we invest in them. We refer to these companies as "target" or "middle market" companies and these investments as "middle market investments".

        We seek to maximize total returns to our investors, including both current yield and equity upside, by applying rigorous credit analysis and asset-based and cash-flow based lending techniques to make and monitor our investments. We are currently pursuing multiple investment opportunities, including purchases of portfolios from private and public companies, as well as originations and secondary purchases of particular securities. We also regularly evaluate control investment opportunities in a range of industries, and some of these investments could be material to us. There can be no assurance that we will successfully consummate any investment opportunity we are currently pursuing. If any of these opportunities are consummated, there can be no assurance that investors will share our view of valuation or that any assets acquired will not be subject to future write downs, each of which could have an adverse effect on our stock price.

        We seek to be a long-term investor with our portfolio companies. From our July 27, 2004 inception to the fiscal year ended June 30, 2007, we invested primarily in industries related to the industrial/energy economy. Since then, we have widened our strategy to focus in other sectors of the economy and continue to reduce our exposure to the energy industry, and our holdings in the energy and energy related industries now represent less than 7% of our investment portfolio.

        We have been organized as a closed-end investment company since April 13, 2004 and have filed an election to be treated as a business development company under the Investment Company Act of 1940 (the "1940 Act"). We are a non-diversified company within the meaning of the 1940 Act. Our headquarters are located at 10 East 40th Street, 44th Floor, New York, NY 10016, and our telephone number is (212) 448-0702. Our investment adviser is Prospect Capital Management LLC.

        On July 27, 2004, we completed our initial public offering ("IPO") and sold 7 million shares of common stock at a price of $15.00 per share, less underwriting discounts and commissions totaling $1.05 per share. An additional 55,000 shares were issued through the exercise of an over-allotment option with respect to the IPO on August 27, 2004. Since the IPO and the exercise of the related over-allotment option, we have made other common stock share offerings (including options exercised by underwriters) resulting in the issuance of 206,744,448 shares at prices ranging from $7.75 to $17.70. We issued the 2015 Notes on December 21, 2010, the 2016 Notes on February 18, 2011, the 2017 Notes on April 16, 2012, the 2022 Notes on May 1, 2012, the 2018 Notes on August 14, 2012, the 2019 Notes

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on December 21, 2012, the 2023 Notes on March 15, 2013 and have issued Prospect Capital InterNotes® since February 16, 2012.

        On December 21, 2010, February 18, 2011, April 16, 2012, August 14, 2012 and December 21, 2012, the Company issued the 2015 Notes, the 2016 Notes, the 2017 Notes, the 2018 Notes and the 2019 Notes, respectively. We refer to the 2015 Notes, the 2016 Notes, the 2017 Notes, the 2018 Notes and the 2019 Notes collectively as the Senior Convertible Notes. The Senior Convertible Notes were issued only to qualified institutional investors under Rule 144A of the 1933 Act. The 2015 Notes mature on December 15, 2015, the 2016 Notes mature on August 15, 2016, the 2017 Notes mature on October 15, 2017, the 2018 Notes mature on March 15, 2018 and the 2019 Notes mature on January 15, 2019, in each case unless previously converted in accordance with their terms. The Senior Convertible Notes are general unsecured obligations of the Company, rank equally in right of payment with the Company's existing and future senior unsecured debt, and rank senior in right of payment to any potential subordinated debt, should any be issued in the future. The Company may not redeem the Senior Convertible Notes prior to maturity. The net proceeds from the offerings of the Senior Convertible Notes were approximately $825.8 million which was used initially to maintain balance sheet liquidity, including repayment of debt under the Company's credit facility, if any, investments in high quality short-term debt instruments or a combination thereof, and to make long-term investments in accordance with the Company's investment objective.

        The interest rate on the 2015 Notes is 6.25% per year, payable semiannually in arrears on June 15 and December 15 of each year, commencing June 15, 2011. Holders may convert their 2015 Notes at any time on or prior to the close of business on the business day immediately preceding the maturity date at an initial conversion rate of 88.0902 shares of common stock per $1,000 principal amount of 2015 Notes (equivalent to an initial conversion price of approximately $11.35 per share). The conversion rate is subject to adjustment in certain events and in no event will the total number of shares of common stock issuable upon conversion exceed 96.8992 per $1,000 principal amount of the 2015 Notes, or the "conversion rate cap," except that, to the extent the Company receives written guidance or a no-action letter from the staff of the SEC permitting it to adjust the conversion rate in certain instances without regard to the conversion rate cap, and to make the 2015 Notes convertible into certain reference property in accordance with certain reclassifications, business combinations, asset sales and corporate events of the Company without regard to the conversion rate cap it will make such adjustments without regard to the conversion rate cap and will also, to the extent that it makes any such adjustment without regard to the conversion rate cap pursuant to such written guidance or a no-action, adjust the conversion rate cap accordingly. Prior to obtaining the previously mentioned written guidance or no-action letter from the staff of the SEC, the Company will not engage in certain transactions that would result in an adjustment to the conversion rate of the 2015 Notes increasing the conversion rate beyond what it would have been in the absence of such transaction unless the Company has engaged in a reverse stock split or share combination transaction such that in our reasonable best estimation, the conversion rate following the adjustment for such transaction will not be any closer to the conversion rate cap than it would have been in the absence of such transaction. At June 30, 2013, the 2015 Notes are convertible into 88.1429 shares of common stock per $1,000 principal amount of 2015 Notes (equivalent to a conversion price of approximately $11.35 per share). The conversion rate is subject to adjustment in certain events. The conversion price in effect at June 30, 2013 was last calculated on the anniversary of the issuance (December 21, 2012) and will next be adjusted on the next anniversary, unless the exercise price shall have changed by more than 1% before the anniversary.

        The interest rate on the 2016 Notes is 5.50% per year, payable semiannually in arrears on February 15 and August 15 of each year, commencing August 15, 2011. Holders may convert their 2016 Notes at any time on or prior to the close of business on the business day immediately preceding the

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maturity date at an initial conversion rate of 78.3699 shares of common stock per $1,000 principal amount of 2016 Notes (equivalent to an initial conversion price of approximately $12.76 per share). The conversion rate is subject to adjustment in certain events. At June 30, 2013, the 2016 Notes are convertible into 78.5395 shares of common stock per $1,000 principal amount of 2016 Notes (equivalent to a conversion price of approximately $12.73 per share). The conversion rate is subject to adjustment in certain events. The conversion price in effect at June 30, 2013 was last calculated on the anniversary of the issuance (February 14, 2012) and will next be adjusted on the next anniversary, unless the exercise price shall have changed by more than 1% before the anniversary.

        The interest rate on the 2017 Notes is 5.375% per year, payable semiannually in arrears on April 15 and October 15 of each year, commencing October 15, 2012. Holders may convert their 2017 Notes at any time on or prior to the close of business on the business day immediately preceding the maturity date at an initial conversion rate of 85.8442 shares of common stock per $1,000 principal amount of 2017 Notes (equivalent to an initial conversion price of approximately $11.65 per share). The conversion rate is subject to adjustment in certain events. At June 30, 2013, the 2017 Notes are convertible into 86.1162 shares of common stock per $1,000 principal amount of 2017 Notes (equivalent to a conversion price of approximately $11.61 per share). The conversion rate is subject to adjustment in certain events. The conversion price in effect at June 30, 2013 was last calculated on the anniversary of the issuance (April 16, 2012) and will next be adjusted on the next anniversary, unless the exercise price shall have changed by more than 1% before the anniversary.

        The interest rate on the 2018 Notes is 5.75% per year, payable semiannually in arrears on March 15 and September 15 of each year, commencing March 15, 2013. Holders may convert their 2018 Notes at any time on or prior to the close of business on the business day immediately preceding the maturity date at an initial conversion rate of 82.3451 shares of common stock per $1,000 principal amount of 2018 Notes (equivalent to an initial conversion price of approximately $12.14 per share). The conversion rate is subject to adjustment in certain events. At June 30, 2013, the 2018 Notes are convertible into 82.3451 shares of common stock, as adjusted for monthly cash dividends paid in excess of $0.1016 per share after closing. The conversion price was adjusted on the anniversary date of August 14, 2013 to 82.8631 shares of common stock per $1,000 principal amount of 2018 Notes (equivalent to an initial conversion price of approximately $12.07 per share) and will be adjusted on the next anniversary, unless the exercise price shall have changed by more than 1% before the anniversary.

        The interest rate on the 2019 Notes is 5.875% per year, payable semiannually in arrears on January 15 and July 15 of each year, commencing July 15, 2013. Holders may convert their 2019 Notes at any time on or prior to the close of business on the business day immediately preceding the maturity date at an initial conversion rate of 79.7766 shares of common stock per $1,000 principal amount of 2019 Notes (equivalent to an initial conversion price of approximately $12.54 per share). The conversion price has not been adjusted since the issuance (December 21, 2012) and will be adjusted on the first anniversary, unless the exercise price shall have changed by more than 1% before the anniversary.

Senior Unsecured Notes

        On May 1, 2012, the Company issued the 2022 Notes pursuant to its effective shelf registration statement. The 2022 Notes are listed on the New York Stock Exchange under the symbol "PRY." The 2022 Notes are general unsecured obligations and rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company. The 2022 Notes will mature on November 15, 2022. The Company will pay interest on the 2022 Notes on February 15, May 15, August 15 and November 15 of each year, beginning August 15, 2012. The Company may redeem the 2022 Notes in whole or in part at any time or from time to time on or after May 15, 2015, at a redemption price as specified in the indenture governing the 2022 Notes. The 2022 Notes were issued in minimum denominations of $25 and integral multiples of $25 in excess thereof.

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        On March 15, 2013, the Company issued the 2023 Notes pursuant to its effective shelf registration statement. The 2023 Notes are general unsecured obligations and rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company. The 2023 Notes will mature on March 15, 2023. The Company will pay interest on the 2023 Notes on September 15 and March 15 of each year, commencing on September 15, 2013.

Prospect Capital InterNotes®

        On March 4, 2013, the Company entered into a Second Amended and Restated Selling Agent Agreement (the "Selling Agent Agreement") with Incapital LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as purchasing agents for the Company's issuance and sale from time to time of up to $500 million of Prospect Capital InterNotes® (the "InterNotes® Offering"). The initial Selling Agent Agreement was entered into on February 16, 2012. Citigroup Global Markets Inc. joined the Selling Agent Agreement by the Agent Joinder Letter dated April 15, 2013. Additional agents appointed by us from time to time in connection with the InterNotes Offering may become parties to the Selling Agent Agreement. On August 23, 2013, we amended the Selling Agent Agreement to increase the aggregate principal amount of notes that may be issued from time to time under such agreement from $500.0 million to $1.0 billion.

        These Prospect Capital InterNotes® are and will be the Company's direct unsecured senior obligations and will and do rank equally with all of the Company's unsecured senior indebtedness from time to time outstanding. Each series of Prospect Capital InterNotes® will be issued by a separate supplemental indenture. The Prospect Capital InterNotes® bear interest at fixed interest rates and offer a variety of maturities no less than twelve months from the original date of issuance. Since the inception of the InterNotes® Offering, the Company has issued $430.1 million in aggregate principal amount of Prospect Capital InterNotes® for net proceeds of approximately $419.3 million. The Prospect Capital InterNotes® were issued with variable and fixed interest rates ranging from 3.28% to 7.00% with an average rate of 5.63%, and maturities ranging from July 15, 2018 to August 15, 2043. The Prospect Capital InterNotes® may be issued with a Survivor's Option, which is a provision in such Note's supplemental indenture pursuant to which the Company will repay that Note, if requested by the authorized representative of the beneficial owner of that Note, following the death of the beneficial owner of the Note, so long as the Note was owned by that beneficial owner or the estate of that beneficial owner at least six months prior to the request. Each of the Prospect Capital InterNotes® issued thus far includes a Survivor's Option.

        Under each indenture governing the Notes, there are certain events of default, the occurrence of which may lead to the Notes being due and payable immediately. An event of default under an indenture could have a material adverse effect on our business, financial conditions and results of operations.

        If the Company undergoes a "fundamental change" as described in the indenture for each of the Senior Convertible Notes or Unsecured Senior Notes, holders may require the Company to repurchase all or part of their Senior Convertible Notes or Unsecured Senior Notes at a price equal to 100% of the principal amount of the Senior Convertible Notes or Unsecured Senior Notes, plus accrued and unpaid interest (including additional interest, if any).

Our Investment Objective and Policies

        Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. We focus on making investments in private companies. We are a non-diversified company within the meaning of the 1940 Act.

        We invest primarily in first and second lien senior loans and mezzanine debt. First and second lien senior loans generally are senior debt instruments that rank ahead of subordinated debt of a given

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portfolio company. These loans also have the benefit of security interests on the assets of the portfolio company, which may rank ahead of or be junior to other security interests. Mezzanine debt and our investments in CLOs are subordinated to senior loans and are generally unsecured. Our investments have generally ranged between $5 million and $250 million each, although the investment size may be more or less than this range. Our investment sizes are expected to grow as our capital base expands.

        We also acquire controlling interests in companies in conjunction with making secured debt investments in such companies. These may be in several industries, including industrial, service, real estate and financial businesses.

        We seek to maximize returns and minimize risk for our investors by applying rigorous analysis to make and monitor our investments. While the structure of our investments varies, we can invest in senior secured debt, senior unsecured debt, subordinated secured debt, subordinated unsecured debt, mezzanine debt, convertible debt, convertible preferred equity, preferred equity, common equity, warrants and other instruments, many of which generate current yield. While our primary focus is to seek current income through investment in the debt and/or dividend-paying equity securities of eligible privately-held, thinly-traded or distressed companies and long-term capital appreciation by acquiring accompanying warrants, options or other equity securities of such companies, we may invest up to 30% of the portfolio in opportunistic investments in order to seek enhanced returns for stockholders. Such investments may include investments in the debt and equity instruments of broadly-traded public companies. We expect that these public companies generally will have debt securities that are non-investment grade. Such investments may also include purchases (either in the primary or secondary markets) of the equity and junior debt tranches of a type of such pools known as CLOs. Structurally, CLOs are entities that are formed to hold a portfolio of senior secured loans ("Senior Secured Loans") made to companies whose debt is rated below investment grade or, in limited circumstances, unrated. The Senior Secured Loans within a CLO are limited to Senior Secured Loans which meet specified credit and diversity criteria and are subject to concentration limitations in order to create an investment portfolio that is diverse by Senior Secured Loan, borrower, and industry, with limitations on non-U.S. borrowers. Within this 30% basket, we have and may make additional investments in debt and equity securities of financial companies and companies located outside of the United States.

        Our investments may include other equity investments, such as warrants, options to buy a minority interest in a portfolio company, or contractual payment rights or rights to receive a proportional interest in the operating cash flow or net income of such company. When determined by the Investment Adviser to be in our best interest, we may acquire a controlling interest in a portfolio company. Any warrants we receive with our debt securities may require only a nominal cost to exercise, and thus, as a portfolio company appreciates in value, we may achieve additional investment return from this equity interest. We have structured, and will continue to structure, some warrants to include provisions protecting our rights as a minority-interest or, if applicable, controlling-interest holder, as well as puts, or rights to sell such securities back to the company, upon the occurrence of specified events. In many cases, we obtain registration rights in connection with these equity interests, which may include demand and "piggyback" registration rights.

        We plan to hold many of our investments to maturity or repayment, but will sell an investment earlier if a liquidity event takes place, such as the sale or recapitalization of a portfolio company, or if we determine a sale of such investment to be in our best interest.

        We have qualified and elected to be treated for U.S. Federal income tax purposes as a regulated investment company ("RIC"), under Subchapter M of the Code. As a RIC, we generally do not have to pay corporate-level U.S. Federal income taxes on any ordinary income or capital gains that we distribute to our stockholders as dividends. To continue to qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, to qualify for RIC tax treatment we must distribute to our stockholders, for each taxable year,

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at least 90% of our "investment company taxable income," which is generally our ordinary income plus the excess of our realized net short-term capital gains over our realized net long-term capital losses.

        For a discussion of the risks inherent in our portfolio investments, see "Risk Factors—Risks Relating to our Investments."

Industry Sectors

        While our original investments were concentrated in industrial and energy related companies, we continue to widen our focus in other sectors of the economy to diversify our portfolio holdings. Our portfolio is now well diversified into 36 industry categories with no individual industry comprising more than 14.6% of the portfolio on either a cost or fair value basis.

Ongoing Relationships with Portfolio Companies

Monitoring

        Prospect Capital Management monitors our portfolio companies on an ongoing basis. Prospect Capital Management will continue to monitor the financial trends of each portfolio company to determine if it is meeting its business plan and to assess the appropriate course of action for each company.

        Prospect Capital Management employs several methods of evaluating and monitoring the performance and value of our investments, which may include, but are not limited to, the following:

Investment Valuation

        To value our assets, we follow the guidance of Accounting Standards Codification ("ASC") 820 that defines fair value, establishes a framework for measuring fair value in conformity with accounting principles generally accepted in the United States or America, or GAAP, and requires disclosures about fair value measurements.

        ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:

        In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.

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        ASC 820 applies to fair value measurements already required or permitted by other standards.

        In accordance with ASC 820, the fair value of our investments is defined as the price that we would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market in which that investment is transacted.

        Our Board of Directors has established procedures for the valuation of our investment portfolio. These procedures are detailed below.

        Investments for which market quotations are readily available are valued at such market quotations.

        For most of our investments, market quotations are not available. With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our Board of Directors has approved a multi-step valuation process each quarter, as described below:

        Investments are valued utilizing a shadow bond approach, a market approach, an income approach, a liquidation approach, or a combination of approaches, as appropriate. The shadow bond and market approaches use prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present value amount (discounted) calculated based on an appropriate discount rate. The measurement is based on the net present value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company's ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, the principal market and enterprise values, among other factors.

        Our investments in CLOs are classified as ASC 820 level 3 securities, and are valued using discounted cash flow model. The valuations have been accomplished through the analysis of the CLO deal structures to identify the risk exposures from the modeling point of view. For each security, the most appropriate valuation approach has been chosen from alternative approaches to ensure the most accurate valuation for each security. To value a CLO, both the assets and liabilities of the CLO capital structure need be modeled. We use a waterfall engine to store the collateral data, generate collateral cash flows from the assets, and distributes the cash flow to the liability structure based on the payment priorities, and discount them back using proper discount rates that incorporate all the risk factors. The main risk factors are: default risk, interest rate risk, downgrade risk, and credit spread risk.

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        For a discussion of the risks inherent in determining the value of securities for which readily available market values do not exist, see "Risk Factors—Risks relating to our business—Most of our portfolio investments are recorded at fair value as determined in good faith under the direction of our Board of Directors and, as a result, there is uncertainty as to the value of our portfolio investments."

Valuation of Other Financial Assets and Financial Liabilities

        ASC Subtopic 820-10-05-1, The Fair Value Option for Financial Assets and Financial Liabilities, ("ASC 820-10-05-1") permits an entity to elect fair value as the initial and subsequent measurement attribute for many assets and liabilities for which the fair value option has been elected and similar assets and liabilities measured using another measurement attribute. We have elected not to value some assets and liabilities at fair value as would be permitted by ASC 820-10-05-1.

Managerial Assistance

        As a business development company, we offer, and must provide upon request, managerial assistance to certain of our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. Prospect Administration provides such managerial assistance on our behalf to portfolio companies when we are required to provide this assistance. We are also deemed to be providing managerial assistance to all portfolio companies that we control, either by ourselves or in conjunction with others.

Investment Adviser

        Prospect Capital Management manages our investments as the Investment Adviser. Prospect Capital Management is a Delaware limited liability corporation that has been registered as an investment adviser under the Investment Adviser Act of 1940 (the "Advisers Act") since March 31, 2004. Prospect Capital Management is led by John F. Barry III and M. Grier Eliasek, two senior executives with significant investment advisory and business experience. Both Messrs. Barry and Eliasek spend a significant amount of their time in their roles at Prospect Capital Management working on the Company's behalf. The principal executive offices of Prospect Capital Management are 10 East 40th Street, 44th Floor, New York, NY 10016. We depend on the due diligence, skill and network of business contacts of the senior management of the Investment Adviser. We also depend, to a significant extent, on the Investment Adviser's investment professionals and the information and deal flow generated by those investment professionals in the course of their investment and portfolio management activities. The Investment Adviser's senior management team evaluates, negotiates, structures, closes, monitors and services our investments. Our future success depends to a significant extent on the continued service of the senior management team, particularly John F. Barry III and M. Grier Eliasek. The departure of any of the senior managers of the Investment Adviser could have a materially adverse effect on our ability to achieve our investment objective. In addition, we can offer no assurance that Prospect Capital Management will remain the Investment Adviser or that we will continue to have access to its investment professionals or its information and deal flow. Under the Investment Advisory Agreement, we pay Prospect Capital Management investment advisory fees, which consist of an annual base management fee based on our gross assets as well as a two-part incentive fee based on our performance. Mr. Barry currently controls Prospect Capital Management.

Staffing

        Mr. John F. Barry III, our chairman and chief executive officer, Mr. Grier Eliasek, our chief operating officer and president, and Mr. Brian H. Oswald, our chief financial officer, chief compliance

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officer, treasurer and secretary, comprise our senior management. Over time, we expect to add additional officers and employees.

        Messrs. Barry and Eliasek each also serves as an officer of Prospect Administration and performs his respective functions under the terms of the Administration Agreement. Our day-to-day investment operations are managed by Prospect Capital Management. In addition, we reimburse Prospect Administration for our allocable portion of expenses incurred by it in performing its obligations under the Administration Agreement, including rent and our allocable portion of the costs of our chief executive officer, president, chief financial officer, chief operating officer, chief compliance officer, treasurer and secretary and their respective staffs. See "Business—Management Services—Administration Agreement."

Properties

        We do not own any real estate or other physical properties materially important to our operation. Our corporate headquarters are located at 10 East 40th Street, 44th Floor, New York, NY 10016, where we occupy an office space pursuant to the Administration Agreement.

Legal Proceedings

        From time to time, we may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. These matters may relate to intellectual property, employment, tax, regulation, contract or other matters. The resolution of such matters that may arise out of these investigations, claims and proceedings will be subject to various uncertainties and, even if such matters are without merit, could result in the expenditure of significant financial and managerial resources.

        We are not aware of any material pending legal proceeding, and no such material proceedings are contemplated to which we are a party or of which any of our property is subject.

Management

        Our business and affairs are managed under the direction of our Board of Directors. Our Board of Directors currently consists of five directors, three of whom are not "interested persons" of the Company as defined in Section 2(a)(19) of the 1940 Act. We refer to these individuals as our independent directors. Our Board of Directors elects our officers to serve for a one-year term and until their successors are duly elected and qualify, or until their earlier removal or resignation.

Board Of Directors And Executive Officers

        Under our charter, our directors are divided into three classes. Directors are elected for a staggered term of three years each, with a term of office of one of the three classes of directors expiring each year. At each annual meeting of our stockholders, the successors to the class of directors whose terms expire at such meeting are elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. Each director holds office for the term to which he or she is elected and until his or her successor is duly elected and qualifies.

Directors and Executive Officers

        Our directors and executive officers and their positions are set forth below. The address for each director and executive officer is c/o Prospect Capital Corporation, 10 East 40th Street, 44th Floor, New York, NY 10016.

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Independent Directors

Name and Age
  Position(s)
Held with
the Company
  Term of
Office(1) and
Length of
Time Served
  Principal Occupation(s) During
Past 5 Years
  Number of
Portfolios
in Fund
Complex
Overseen by
Director
  Other
Directorships
Held by
Director
William J. Gremp, 70   Director   Class II Director from 2006 to 2009; Class I Director since April 2010; Term expires 2014   Mr. Gremp is responsible for traditional banking services, credit and lending, private equity and corporate cash management with Merrill Lynch & Co. from 1999 to present.   One   Priority Senior Secured Income Fund, Inc. since October 28, 2012(2), Pathway Energy Infrastructure Fund, Inc. since February 19, 2013(2)

Eugene S. Stark, 55

 

Director

 

Class III Director since September 2008; Term expires 2013

 

Principal Financial Officer, Chief Compliance Officer and Vice President—Administration of General American Investors Company, Inc. from May 2005 to present.

 

One

 

Priority Senior Secured Income Fund, Inc. since October 28, 2012(2), Pathway Energy Infrastructure Fund, Inc. since February 19, 2013(2)

Andrew C. Cooper, 51

 

Director

 

Class II Director since February 2009; Term expires 2015

 

Mr. Cooper is an entrepreneur, who over the last 15 years has founded, built, run and sold three companies. He is Co-Chief Executive Officer of Unison Energy, LLC, a company that develops, owns and operates, distributed combined heat and power co-generation solutions.

 

One

 

Priority Senior Secured Income Fund, Inc. since October 28, 2012(2), Pathway Energy Infrastructure Fund, Inc. since February 19, 2013(2)

(1)
Our Board of Directors is divided into three classes of directors serving staggered three-year terms. Mr. Gremp is a Class I director with a term that will expire in 2014, Mr. Eliasek and Mr. Cooper are Class II directors with terms that will expire in 2015 and Mr. Barry and Mr. Stark are Class III directors with terms that will expire in 2013.

(2)
An investment company subject to the 1940 Act.

Interested Directors

Name and Age
  Position(s)
Held with
the Company
  Term of
Office(1) and
Length of
Time Served
  Principal Occupation(s)
During Past 5 Years
  Number of
Portfolios
in Fund
Complex
Overseen by
Director
  Other
Directorships
Held by
Director
John F. Barry III, 61(2)   Director, Chairman of the Board of Directors, and Chief Executive Officer   Class III Director since June 2004; Term expires 2013   Chairman and Chief Executive Officer of the Company; Managing Director of Prospect Capital Management and Prospect Administration since June 2004   One   None

M. Grier Eliasek, 40(2)

 

Director, Chief Operating Officer

 

Class II Director since June 2004; Term expires 2015

 

President and Chief Operating Officer of the Company, Managing Director of Prospect Capital Management and Prospect Administration, President and CEO of Priority Senior Secured Income Fund, Inc., President and COO of Priority Senior Secured Income Management, LLC, President and CEO of Pathway Energy Infrastructure Fund, Inc., President and COO of Pathway Energy Infrastructure Management, LLC.

 

One

 

Priority Senior Secured Income Fund, Inc. since October 28, 2012(2), Pathway Energy Infrastructure Fund, Inc. since February 19, 2013(2)

(1)
Our Board of Directors is divided into three classes of directors serving staggered three-year terms. Mr. Gremp is a Class I director with a term that will expire in 2014, Mr. Eliasek and Mr. Cooper are Class II directors with terms that will expire in 2015 and Mr. Barry and Mr. Stark are Class III directors with terms that will expire in 2013.

(2)
Messrs. Barry and Eliasek are each considered an "interested person" under the 1940 Act by virtue of serving as one of our officers and having a relationship with Prospect Capital Management.

(3)
An investment company subject to the 1940 Act.

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Information about Executive Officers who are not Directors

Name and Age
  Position(s)
Held with
the Company
  Term of
Office and Length of
Time Served
  Principal Occupation(s)
During Past Five Years
Brian H. Oswald, 52   Chief Financial Officer, Chief Compliance Officer, Treasurer and Secretary   November 2008 to present as Chief Financial Officer, Treasurer and Secretary and October 2008 to present as Chief Compliance Officer.   Joined Prospect Administration as Managing Director in June 2008.

Board Leadership Structure

        The Board of Directors believes that the combined position of Chief Executive Officer of the Company and Chairman of the Board of Directors of the Company is a superior model that results in greater efficiency regarding management of the Company, reduced confusion due to the elimination of the need to transfer substantial information quickly and repeatedly between a chief executive officer and chairman, and business advantages to the Company arising from the specialized knowledge acquired from the duties of the dual roles. The need for efficient decision making is particularly acute in the line of business of the Company, whereby multiple factors including market factors, interest rates and innumerable other financial metrics change on an ongoing and daily basis.

        The Company's Board of Directors does not currently have a designated lead independent director. Instead, all of the independent directors play an active role on the Board of Directors. The independent directors compose a majority of the Company's Board of Directors, and are closely involved in all material board level deliberations related to the Company. The Board of Directors believes that, with these practices, each independent director has an equal stake in the Board's actions and oversight role and equal accountability to the Company and its stockholders. The Company believes that Eugene Stark acts as the de facto lead independent director, by virtue of his role as an accounting expert and Chairman of the Audit Committee.

Director Independence

        On an annual basis, each member of our Board of Directors is required to complete an independence questionnaire designed to provide information to assist the Board of Directors in determining whether the director is independent. Our Board of Directors has determined that each of our directors, other than Messrs. Barry and Eliasek, is independent under the 1940 Act.

Role of the Chairman and Chief Executive Officer

        As Chairman of the Board of Directors and Chief Executive Officer, Mr. Barry assumes a leading role in mid- and long-term strategic planning and supports major transaction initiatives of the Company. Mr. Barry also manages the day-to-day operations of the Company, with the support of the other executive officers. As Chief Executive Officer, Mr. Barry has general responsibility for the implementation of the policies of the Company, as determined by the Board of Directors, and for the management of the business and affairs of the Company. The Board of Directors has determined that its leadership structure, in which the majority of the directors are not affiliated with the Company, Prospect Capital Management or Prospect Administration, is appropriate in light of the services that Prospect Capital Management and Prospect Administration and their affiliates provide to the Company and the potential conflicts of interest that could arise from these relationships.

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Experience, Qualifications, Attributes and/or Skills that Led to the Board's Conclusion that such Members Should Serve as Director of the Company

        The Board believes that, collectively, the directors have balanced and diverse experience, qualifications, attributes and skills, which allow the Board to operate effectively in governing the Company and protecting the interests of its stockholders. Below is a description of the various experiences, qualifications, attributes and/or skills with respect to each director considered by the Board.

        The Board benefits from Mr. Barry's years of experience in the investment banking and the financial advisory industries, as well as his service on multiple boards for various companies. In addition to overseeing the Company, Mr. Barry has served on the boards of directors of private and public companies, including financial services, financial technology and energy companies. Mr. Barry also managed an investment bank, focusing on private equity and debt financing for energy and other companies, and was the founding member of the project finance group at Merrill Lynch & Co. The Board also benefits from Mr. Barry's past experience as a corporate securities lawyer at a premiere United States law firm, advising energy companies and their commercial and investment bankers. Mr. Barry is also chairman of the board of directors of the Mathematics Foundation of America, a non-profit foundation which enhances opportunities in mathematics education for students from diverse backgrounds. Mr. Barry's longstanding service as Chairman and Chief Executive Officer of the Company and as a Managing Director of Prospect Capital Management and Prospect Administration provide him with a specific understanding of the Company, its operation, and the business and regulatory issues facing the Company.

        Mr. Eliasek brings to the Board business leadership and experience and knowledge of senior loan, mezzanine, bridge loan, private equity and venture capital investments, as well as a knowledge of diverse management practices. Mr. Eliasek is the President and Chief Operating Officer of the Company and a Managing Director of Prospect Capital Management and Prospect Administration. He is also responsible for leading the origination and assessment of investments for the Company. The Board also benefits from Mr. Eliasek's experience as a consultant with Bain & Company, a global strategy consulting firm, where he managed engagements for companies in several different industries, by providing the Company with unique views on investment and management issues. At Bain & Company, Mr. Eliasek analyzed new lines of businesses, developed market strategies, revamped sales organizations, and improved operational performance for Bain & Company clients. Mr. Eliasek's longstanding service as Director, President and Chief Operating Officer of the Company and as a Managing Director of Prospect Capital Management and Prospect Administration provide him with a specific understanding of the Company, its operation, and the business and regulatory issues facing the Company.

        Mr. Cooper's over 25 years of experience in venture capital management, venture capital investing and investment banking provides the Board with a wealth of leadership, business investing and financial experience. Mr. Cooper's experience as the co-founder, director and former co-CEO of Unison Site Management LLC, a leading cellular site owner with 2,000 plus cell sites which generate more than $40 million in annual cash flow, and as co-founder, CFO and VP of business development for Avesta Technologies, an enterprise, information and technology management software company bought by Visual Networks in 2000, provides the Board with the benefit of leadership and experience in finance and management. Mr. Cooper also serves on the board of Brand Asset Digital, Aquatic Energy and the Madison Square Boys and Girls Club of New York. Further, Mr. Cooper's time as a director of CSG

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Systems, Protection One Alarm, LionBridge Technologies and Weblink Wireless, provides the Board with a wealth of experience and an in-depth understanding of management practices. Mr. Cooper's knowledge of financial and accounting matters qualifies him to serve on the Company's Audit Committee and his independence from the Company, Prospect Capital Management and Prospect Administration enhances his service as a member of the Nominating and Corporate Governance Committee.

        Mr. Gremp brings to the Board a broad and diverse knowledge of business and finance as a result of his career as an investment banker, spanning over 40 years working in corporate finance and originating and executing transactions and advisory assignments for energy and utility related clients. Since 1999, Mr. Gremp has been responsible for traditional banking services, credit and lending, private equity and corporate cash management with Merrill Lynch & Co.. From 1996 to 1999, he served at Wachovia as senior vice president, managing director and co-founder of the utilities and energy investment banking group, responsible for origination, structuring, negotiation and successful completion of transactions utilizing investment banking, capital markets and traditional commercial banking products. From 1990 to 1996, Mr. Gremp was the managing director of global power and project finance at JPMorgan Chase & Co., and from 1970 to 1990, Mr. Gremp was with Merrill Lynch & Co., starting out as an associate in the mergers and acquisitions department, then in 1986 becoming the senior vice president, managing director and head of the regulated industries group. Mr. Gremp's knowledge of financial and accounting matters qualifies him to serve on the Company's Audit Committee and his independence from the Company, Prospect Capital Management and Prospect Administration enhances his service as a member of the Nominating and Corporate Governance Committee.

        Mr. Stark brings to the Board over 25 years of experience in directing the financial and administrative functions of investment management organizations. The Board benefits from his broad experience in financial management; SEC reporting and compliance; strategic and financial planning; expense, capital and risk management; fund administration; due diligence; acquisition analysis; and integration activities. Since May 2005, Mr. Stark's position as the Principal Financial Officer, Chief Compliance Officer and Vice President of Administration at General American Investors Company, Inc., where he is responsible for operations, compliance, and financial functions, allows him to provide the Board with added insight into the management practices of other financial companies. From January to April of 2005, Mr. Stark was the Chief Financial Officer of the Company, prior to which he worked at Prudential Financial, Inc. between 1987 and 2004. His many positions within Prudential include 10 years as Vice President and Fund Treasurer of Prudential Mutual Funds, 4 years as Senior Vice President of Finance of Prudential Investments, and 2 years as Senior Vice President of Finance of Prudential Amenities. Mr. Stark is also a Certified Public Accountant. Mr. Stark's knowledge of financial and accounting matters qualifies him to serve on the Company's Audit Committee and his independence from the Company, Prospect Capital Management and Prospect Administration enhances his service as a member of the Nominating and Corporate Governance Committee. Mr. Stark is also a member of Mount Saint Mary Academy's Finance Committee.

Means by Which the Board of Directors Supervises Executive Officers

        The Board of Directors is regularly informed on developments and issues related to the Company's business, and monitors the activities and responsibilities of the executive officers in various ways.

        At each regular meeting of the Board of Directors, the executive officers report to the Board of Directors on developments and important issues. Each of the executive officers, as applicable, also

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provide regular updates to the members of the Board of Directors regarding the Company's business between the dates of regular meetings of the Board of Directors.

        Executive officers and other members of Prospect Capital Management, at the invitation of the Board of Directors, regularly attend portions of meetings of the Board of Directors and its committees to report on the financial results of the Company, its operations, performance and outlook, and on areas of the business within their responsibility, including risk management and management information systems, as well as other business matters.

The Board's Role in Risk Oversight

        The Company's Board of Directors performs its risk oversight function primarily through (a) its two standing committees, which report to the entire Board of Directors and are comprised solely of independent directors and (b) monitoring by the Company's Chief Compliance Officer in accordance with its compliance policies and procedures.

        As set forth in the descriptions regarding the Audit Committee and the Nominating and Governance Committee, the Audit Committee and the Nominating and Governance Committee assist the Board of Directors in fulfilling its risk oversight responsibilities. The Audit Committee's risk oversight responsibilities include reviewing and discussing with management and the independent accountants the annual audited financial statements of the Company, including disclosures made in management's discussion and analysis; reviewing and discussing with management and the independent accountants the Company's quarterly financial statements prior to the filings of its quarterly reports on Form 10-Q; pre-approving the independent accountants' engagement to render audit and/or permissible non-audit services; and evaluating the qualifications, performance and independence of the independent accountants. The Nominating and Governance Committee's risk oversight responsibilities include selecting qualified nominees to be elected to the Board of Directors by stockholders; selecting qualified nominees to fill any vacancies on the Board of Directors or a committee thereof; developing and recommending to the Board of Directors a set of corporate governance principles applicable to the Company; and overseeing the evaluation of the Board of Directors and management. Both the Audit Committee and the Nominating and Governance Committee consist solely of independent directors.

        The Company's Board of Directors also performs its risk oversight responsibilities with the assistance of the Chief Compliance Officer. The Company's Chief Compliance Officer prepares a written report annually discussing the adequacy and effectiveness of the compliance policies and procedures of the Company and certain of its service providers. The Chief Compliance Officer's report, which is reviewed by the Board of Directors, addresses at a minimum (a) the operation of the compliance policies and procedures of the Company and certain of its service providers since the last report; (b) any material changes to such policies and procedures since the last report; (c) any recommendations for material changes to such policies and procedures as a result of the Chief Compliance Officer's annual review; and (d) any compliance matter that has occurred since the date of the last report about which the Board of Directors would reasonably need to know to oversee the Company's compliance activities and risks. In addition, the Chief Compliance Officer meets separately in executive session with the independent directors at least once each year.

        The Company believes that its Board of Director's role in risk oversight is effective and appropriate given the extensive regulation to which it is already subject as a business development company, or BDC, under the 1940 Act. Specifically, as a BDC the Company must comply with certain regulatory requirements that control certain types of risk in its business and operations. For example, the Company's ability to incur indebtedness is limited such that its asset coverage must equal at least 200% immediately after each time it incurs indebtedness, the Company generally has to invest at least 70% of its total assets in "qualifying assets." In addition, the Company elected to be treated as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code, as

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amended. As a RIC, the Company must, among other things, meet certain income source and asset diversification requirements.

        The Company believes that the extent of its Board of Directors' (and its committees') role in risk oversight complements its Board's leadership structure because it allows the Company's independent directors to exercise oversight of risk without any conflict that might discourage critical review through the two fully independent board committees, auditor and independent valuation providers, and otherwise.

        The Company believes that a board's roles in risk oversight must be evaluated on a case by case basis and that the Board of Directors' practices concerning risk oversight is appropriate. However, the Company continually re-examines the manners in which the Board administers its oversight function on an ongoing basis to ensure that they continue to meet the Company's needs.

Committees of the Board of Directors

        Our Board of Directors has established an Audit Committee and a Nominating and Corporate Governance Committee. For the fiscal year ended June 30, 2013, our Board of Directors held 17 Board of Director meetings, 9 Audit Committee meetings, and 1 Nominating and Corporate Governance Committee meetings. All directors attended at least 75% of the aggregate number of meetings of the Board of Directors and of the respective committees on which they served. We require each director to make a diligent effort to attend all board and committee meetings, as well as each annual meeting of stockholders. Three directors attended last year's annual meeting of stockholders in person.

        The Audit Committee.    The Audit Committee operates pursuant to a charter approved by the Board of Directors. The charter sets forth the responsibilities of the Audit Committee, which include selecting or retaining each year an independent registered public accounting firm, or independent accountants, to audit the accounts and records of the Company; reviewing and discussing with management and the independent accountants the annual audited financial statements of the Company, including disclosures made in management's discussion and analysis, and recommending to the Board of Directors whether the audited financial statements should be included in the Company's annual report on Form 10-K; reviewing and discussing with management and the independent accountants the Company's quarterly financial statements prior to the filings of its quarterly reports on Form 10-Q; pre-approving the independent accountants' engagement to render audit and/or permissible non-audit services; and evaluating the qualifications, performance and independence of the independent accountants. The Audit Committee is presently composed of three persons: Messrs. Cooper, Gremp and Stark, each of whom is not an "interested person" as defined in the 1940 Act and is considered independent under applicable NASDAQ rules, with Mr. Stark serving as chairman of the committee. The Board of Directors has determined that Mr. Stark is an "audit committee financial expert" as that term is defined under Item 407 of Regulation S-K. The Audit Committee may delegate its pre-approval responsibilities to one or more of its members. The member(s) to whom such responsibility is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting. Messrs. Cooper, Gremp and Stark were added to the Audit Committee concurrent with their election to the Board of Directors on February 12, 2009, April 1, 2010 and September 4, 2008, respectively.

        The function of the Audit Committee is oversight. Our management is primarily responsible for maintaining appropriate systems for accounting and financial reporting principles and policies and internal controls and procedures that provide for compliance with accounting standards and applicable laws and regulations. The independent accountants are primarily responsible for planning and carrying out a proper audit of our annual financial statements in accordance with generally accepted accounting standards. The independent accountants are accountable to the Board of Directors and the Audit Committee, as representatives of our stockholders. The Board of Directors and the Audit Committee

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have the ultimate authority and responsibility to select, evaluate and, where appropriate, replace our independent accountants (subject, if applicable, to stockholder ratification).

        In fulfilling their responsibilities, it is recognized that members of the Audit Committee are not our full-time employees or management and are not, and do not represent themselves to be, accountants or auditors by profession. As such, it is not the duty or the responsibility of the Audit Committee or its members to conduct "field work" or other types of auditing or accounting reviews or procedures, to determine that the financial statements are complete and accurate and are in accordance with generally accepted accounting principles, or to set auditor independence standards. Each member of the Audit Committee shall be entitled to rely on (a) the integrity of those persons within and outside us and management from which it receives information; (b) the accuracy of the financial and other information provided to the Audit Committee absent actual knowledge to the contrary (which shall be promptly reported to the Board of Directors); and (c) statements made by our officers and employees, our investment adviser or other third parties as to any information technology, internal audit and other non-audit services provided by the independent accountants to us.

        The Nominating and Corporate Governance Committee.    The Nominating and Corporate Governance Committee, or Nominating and Governance Committee, is responsible for selecting qualified nominees to be elected to the Board of Directors by stockholders; selecting qualified nominees to fill any vacancies on the Board of Directors or a committee thereof; developing and recommending to the Board of Directors a set of corporate governance principles applicable to the Company; overseeing the evaluation of the Board of Directors and management; and undertaking such other duties and responsibilities as may from time to time be delegated by the Board of Directors to the Nominating and Governance Committee. The Nominating and Governance Committee takes into consideration the educational, professional and technical backgrounds and diversity of each nominee when evaluating such nominees to be elected to the Board of Directors. The Nominating and Governance Committee does not have a formal policy with respect to diversity. The Nominating and Governance Committee is presently composed of three persons: Messrs. Cooper, Gremp and Stark, each of whom is not an "interested person" as defined in the 1940 Act and is considered independent under applicable NASDAQ rules, with Mr. Gremp serving as chairman of the committee. Messrs. Cooper, Gremp and Stark were added to the Nominating and Governance Committee concurrent with their election to the Board of Directors on February 12, 2009, April 1, 2010 and September 4, 2008, respectively.

        The Nominating and Governance Committee will consider stockholder recommendations for possible nominees for election as directors when such recommendations are submitted in accordance with the Company's Bylaws and any applicable law, rule or regulation regarding director nominations. Nominations should be sent to the Corporate Secretary c/o Prospect Capital Corporation, 10 East 40th Street, 44th Floor, New York, New York 10016. When submitting a nomination to the Company for consideration, a stockholder must provide all information that would be required under applicable Commission rules to be disclosed in connection with election of a director, including the following minimum information for each director nominee: full name, age and address; principal occupation during the past five years; current directorships on publicly held companies and investment companies; number of shares of our common stock owned, if any; and, a written consent of the individual to stand for election if nominated by the Board of Directors and to serve if elected by the stockholders. Criteria considered by the Nominating and Governance Committee in evaluating the qualifications of individuals for election as members of the Board of Directors include compliance with the independence and other applicable requirements of the NASDAQ rules and the 1940 Act and all other applicable laws, rules, regulations and listing standards, the criteria, policies and principles set forth in the Nominating and Corporate Governance Committee Charter, and the ability to contribute to the effective management of the Company, taking into account our needs and such factors as the individual's experience, perspective, skills, expertise and knowledge of the industries in which the

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Company operates, personal and professional integrity, character, business judgment, time availability in light of other commitments, dedication, and conflicts of interest. The Nominating and Governance Committee also may consider such other factors as it may deem to be in our best interests and those of our stockholders. The Board of Directors also believes it is appropriate for certain key members of our management to participate as members of the Board of Directors.

Corporate Governance

        Corporate Governance Guidelines.    Upon the recommendation of the Nominating and Governance Committee, the Board of Directors has adopted Corporate Governance Guidelines on behalf of the Company. These Corporate Governance Guidelines address, among other things, the following key corporate governance topics: director responsibilities; the size, composition, and membership criteria of the Board of Directors; composition and responsibilities of directors serving on committees of the Board of Directors; director access to officers, employees, and independent advisors; director orientation and continuing education; director compensation; and an annual performance evaluation of the Board of Directors.

        Code of Conduct.    We have adopted a code of conduct which applies to, among others, our senior officers, including our Chief Executive Officer and Chief Financial Officer, as well as all of our employees. Our code of conduct is an exhibit to our Annual Report on Form 10-K filed with the SEC, and can be accessed via the Internet site of the SEC at http://www.sec.gov. We intend to disclose amendments to or waivers from a required provision of the code of conduct on Form 8-K.

        Code of Ethics.    We, Prospect Capital Management and Prospect Administration have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to each code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code's requirements.

        Internal Reporting and Whistle Blower Protection Policy.    The Company's Audit Committee has established guidelines and procedures regarding the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, collectively, Accounting Matters, and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters. Persons with complaints or concerns regarding Accounting Matters may submit their complaints to our Chief Compliance Officer, or CCO. Persons who are uncomfortable submitting complaints to the CCO, including complaints involving the CCO, may submit complaints directly to our Audit Committee Chairman. Complaints may be submitted on an anonymous basis.

        The CCO may be contacted at: Prospect Capital Corporation, Chief Compliance Officer, 10 East 40th Street, 44th Floor, New York, New York 10016.

        The Audit Committee Chairman may be contacted at: Prospect Capital Corporation, Audit Committee Chairman, 10 East 40th Street, 44th Floor, New York, New York 10016.

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        The Board of Directors, in connection with the 1940 Act and the applicable Marketplace Rules of NASDAQ, has considered the independence of members of the Board of Directors who are not employed by Prospect Capital Management and has concluded that Messrs. Cooper, Gremp and Stark are not "interested persons" as defined by the 1940 Act and therefore qualify as independent directors under the standards promulgated by the Marketplace Rules of NASDAQ. In reaching this conclusion, the Board of Directors concluded that Messrs. Cooper, Gremp and Stark had no relationships with Prospect Capital Management or any of its affiliates, other than their positions as directors of the Company and, if applicable, investments in us that are on the same terms as those of other stockholders.

Proxy Voting Policies And Procedures

        We have delegated our proxy voting responsibility to Prospect Capital Management. The guidelines are reviewed periodically by Prospect Capital Management and our non-interested directors, and, accordingly, are subject to change. See "Regulation—Proxy Voting Policies and Procedures."

Compensation of Directors and Officers

        The following table sets forth information regarding the compensation received by the directors and executive officers from the Company for the fiscal year ended June 30, 2013. No compensation is paid to the interested directors by the Company.

Name and Position
  Aggregate
Compensation
from the
Company
  Pension or
Retirement Benefits
Accrued as Part of
the Company's
Expenses(1)
  Total Compensation
Paid to Director/
Officer
 

Interested Directors

                   

John F. Barry III(2)

    None     None     None  

M. Grier Eliasek(2)

    None     None     None  

Independent Directors

                   

Andrew C. Cooper(3)

  $ 100,000     None   $ 100,000  

William J. Gremp(4)

  $ 100,000     None   $ 100,000  

Eugene S. Stark(5)

  $ 100,000     None   $ 100,000  

Executive Officers

                   

Brian H. Oswald(2)

    None     None     None  

(1)
We do not have a bonus, profit sharing or retirement plan, and directors do not receive any pension or retirement benefits.

(2)
We have not paid, and we do not intend to pay, any annual cash compensation to our executive officers for their services as executive officers. Messrs. Barry and Eliasek are compensated by Prospect Capital Management from the income Prospect Capital Management receives under the management agreement between Prospect Capital Management and us. Mr. Oswald is compensated from the income Prospect Administration receives under the administration agreement.

(3)
Mr. Cooper joined our Board of Directors on February 12, 2009.

(4)
Mr. Gremp joined our Board of Directors on April 1, 2010.

(5)
Mr. Stark joined our Board of Directors on September 4, 2008.

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        No compensation was paid to directors who are interested persons of the Company as defined in 1940 Act. In addition, the Company purchases directors' and officers' liability insurance on behalf of the directors and officers.

Management Services

        We have entered into the Investment Advisory Agreement with Prospect Capital Management under which the Investment Adviser, subject to the overall supervision of our Board of Directors, manages the day-to-day operations of, and provides investment advisory services to, us. Under the terms of the Investment Advisory Agreement, our Investment Adviser: (i) determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes, (ii) identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); and (iii) closes and monitors investments we make.

        Prospect Capital Management's services under the Investment Advisory Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired. For providing these services the Investment Adviser receives a fee from us, consisting of two components: a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 2% on our gross assets (including amounts borrowed). For services rendered under the Investment Advisory Agreement, the base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of our gross assets at the end of the two most recently completed calendar quarters and appropriately adjusted for any share issuances or repurchases during the current calendar quarter. Base management fees for any partial month or quarter are appropriately prorated.

        The incentive fee has two parts. The first part, the income incentive fee, which is payable quarterly in arrears, will equal 20% of the excess, if any, of our pre-incentive fee net investment income that exceeds a 1.75% quarterly (7% annualized) hurdle rate, subject to a "catch up" provision measured as of the end of each calendar quarter. In the three months ended June 30, 2013, we paid an incentive fee of $23.0 million (see calculation below). For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees and other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement described below, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment in kind interest and zero coupon securities), accrued income that we have not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to a "hurdle rate" of 1.75% per quarter (7% annualized).

        We expect the incentive fees we pay to increase to the extent we earn greater interest and dividend income through our investments in portfolio companies and, to a lesser extent, realize capital gains upon the sale of warrants or other equity investments in our portfolio companies and to decrease if our interest and dividend income and capital gains decrease. The "catch-up" provision requires us to pay 100% of our pre-incentive fee net investment income with respect to that portion of such income, if any, that exceeds the hurdle rate but is less than 125% of the quarterly hurdle rate in any calendar

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quarter (8.75% annualized assuming an annualized hurdle rate of 7%). The catch-up provision is meant to provide Prospect Capital Management with 20% of our pre-incentive fee net investment income as if a hurdle rate did not apply when our pre-incentive fee net investment income exceeds 125% of the quarterly hurdle rate in any calendar quarter (8.75% annualized assuming an annualized hurdle rate of 7%). The income incentive fee will be computed and paid on income that may include interest that is accrued but not yet received in cash. If interest income is accrued but never paid, the Board of Directors would decide to write off the accrual in the quarter when the accrual is determined to be uncollectible. The write off would cause a decrease in interest income for the quarter equal to the amount of the prior accrual. The Investment Adviser is not under any obligation to reimburse us for any part of the incentive fee it received that was based on accrued income that we never receive as a result of a default by an entity on the obligation that resulted in the accrual of such income.

        The net investment income used to calculate this part of the incentive fee is also included in the amount of the gross assets used to calculate the 2% base management fee. We pay the Investment Adviser an income incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows:

        These calculations are appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.

        The second part of the incentive fee, the capital gains incentive fee, is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), and equals 20% of our realized capital gains for the calendar year, if any, computed net of all realized capital losses and unrealized capital depreciation at the end of such year. In determining the capital gains incentive fee payable to the Investment Adviser, we calculate the aggregate realized capital gains, aggregate realized capital losses and aggregate unrealized capital depreciation, as applicable, with respect to each investment that has been in our portfolio. For the purpose of this calculation, an "investment" is defined as the total of all rights and claims which may be asserted against a portfolio company arising out of our participation in the debt, equity, and other financial instruments issued by that company. Aggregate realized capital gains, if any, equals the sum of the differences between the aggregate net sales price of each investment and the aggregate cost basis of such investment when sold or otherwise disposed. Aggregate realized capital losses equal the sum of the amounts by which the aggregate net sales price of each investment is less than the aggregate cost basis of such investment when sold or otherwise disposed. Aggregate unrealized capital depreciation equals the sum of the differences, if negative, between the aggregate valuation of each investment and the aggregate cost basis of such investment as of the applicable calendar year-end. At the end of the applicable calendar year, the amount of capital gains that serves as the basis for our calculation of the capital gains incentive fee involves netting aggregate realized capital gains against aggregate realized capital losses on a since-inception basis and then reducing this amount by the aggregate unrealized capital depreciation. If this number is positive, then the capital gains incentive fee payable is equal to 20% of such amount, less the aggregate amount of any capital gains incentive fees paid since inception.

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        The actual transfer or sale of assets by Prospect to a SPE established by Prospect and consolidated with Prospect is disregarded for purposes of calculating the incentive fee.

        The following is a calculation of the most recently paid incentive fee paid in July 2013 (for the quarter ended June 30, 2013) (in thousands):

Prior Quarter Net Asset Value (adjusted for stock offerings during the quarter)

  $ 2,615,648  

Quarterly Hurdle Rate

    1.75 %
       

Current Quarter Hurdle

  $ 45,774  
       

125% of the Quarterly Hurdle Rate

    2.1875 %

125% of the Current Quarter Hurdle

  $ 57,217  
       

Current Quarter Pre Incentive Fee Net Investment Income

  $ 115,120  
       

Incentive Fee—"Catch-Up"

  $ 11,443  

Incentive Fee—20% in excess of 125% of the Current Quarter Hurdle

  $ 11,581  
       

Total Current Quarter Incentive Fee

  $ 23,024  
       

        The total base management fees earned by and paid to Prospect Capital Management during the twelve months ended June 30, 2013, June 30, 2012 and June 30, 2011 were $69.8 million, $35.8 million and $22.5 million, respectively.

        The income incentive fees were $81.2 million, $46.7 million and $23.6 million for the twelve months ended June 30, 2013, June 30, 2012 and June 30, 2011, respectively. No capital gains incentive fees were earned for the twelve months ended June 30, 2013, June 30, 2012 and June 30, 2011.

        The total investment advisory fees were $151.0 million, $82.5 million and $46.1 million for the twelve months ended June 30, 2013, June 30, 2012 and June 30, 2011, respectively.

        Because of the structure of the incentive fee, it is possible that we may have to pay an incentive fee in a quarter where we incur a loss. For example, if we receive pre-incentive fee net investment income in excess of the hurdle rate for a quarter, we will pay the applicable income incentive fee even if we have incurred negative total return in that quarter due to realized or unrealized losses on our investments.

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        Pre-incentive fee net investment income (investment income - (base management fee + other expenses)) = 0.55%

        Pre-incentive net investment income does not exceed hurdle rate, therefore there is no income incentive fee.

        Pre-incentive fee net investment income (investment income - (base management fee + other expenses)) = 2%

        Pre-incentive net investment income exceeds hurdle rate, therefore there is an income incentive fee payable by us to our Investment Adviser.

Income incentive Fee   = 100% × "Catch Up" + the greater of 0% AND (20% × (pre-incentive fee net investment income - 2.1875)%
= (100% × (2% - 1.75%)) + 0%
= 100% × 0.25% + 0%
= 0.25%

        Alternative 3

        Assumptions

        Investment income (including interest, dividends, fees, etc.) = 3%

        Hurdle rate(1) = 1.75%

        Base management fee(2) = 0.50%

        Other expenses (legal, accounting, custodian, transfer agent, etc.)(3) = 0.20%

        Pre-incentive fee net investment income (investment income - (base management fee + other expenses)) = 2.30%

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        Pre-incentive net investment income exceeds hurdle rate, therefore there is an income incentive fee payable by us to our Investment Adviser.

Income incentive Fee   = 100% × "Catch Up" + the greater of 0% AND (20% × (pre-incentive fee net
    investment income - 2.1875)%
    = (100% × (2.1875% - 1.75%)) + the greater of 0% AND
    (20% × (2.30% - 2.1875%))
    = (100% × 0.4375%) + (20% × 0.1125%)
    = 0.4375% + 0.0225%
    = 0.46%

        Example 2: Capital Gains Incentive Fee:

        Alternative 1

        Assumptions

        The impact, if any, on the capital gains portion of the incentive fee would be:

        Alternative 2

        Assumptions

        The impact, if any, on the capital gains portion of the incentive fee would be:

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        Alternative 3

        Assumptions

        The impact, if any, on the capital gains portion of the incentive fee would be:

        Alternative 4

        Assumptions

        The impact, if any, on the capital gains portion of the incentive fee would be:

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        All investment professionals of the Investment Adviser and its staff, when and to the extent engaged in providing investment advisory and management services, and the compensation and routine overhead expenses of such personnel allocable to such services, will be provided and paid for by the Investment Adviser. We bear all other costs and expenses of our operations and transactions, including those relating to: organization and offering; calculation of our net asset value (including the cost and expenses of any independent valuation firms); expenses incurred by Prospect Capital Management payable to third parties, including agents, consultants or other advisers (such as independent valuation firms, accountants and legal counsel), in monitoring our financial and legal affairs and in monitoring our investments and performing due diligence on our prospective portfolio companies; interest payable on debt, if any, and dividends payable on preferred stock, if any, incurred to finance our investments; offerings of our debt, our preferred shares, our common stock and other securities; investment advisory fees; fees payable to third parties, including agents, consultants or other advisors, relating to, or associated with, evaluating and making investments; transfer agent and custodial fees; registration fees; listing fees; taxes; independent directors' fees and expenses; costs of preparing and filing reports or other documents with the SEC; the costs of any reports, proxy statements or other notices to stockholders, including printing costs; our allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; direct costs and expenses of administration, including auditor and legal costs; and all other expenses incurred by us, by our Investment Adviser or by Prospect Administration in connection with administering our business, such as our allocable portion of overhead under the Administration Agreement, including rent and our allocable portion of the costs of our chief compliance officer and chief financial officer and his staff, including the internal legal staff.

        The Investment Advisory Agreement was originally approved by our Board of Directors on June 23, 2004 and was recently re-approved by the Board of Directors on May 3, 2013 for an additional one-year term expiring June 22, 2014. Unless terminated earlier as described below, it will remain in effect from year to year thereafter if approved annually by our Board of Directors or by the affirmative vote of the holders of a majority of our outstanding voting securities, including, in either case, approval by a majority of our directors who are not interested persons. The Investment Advisory Agreement will automatically terminate in the event of its assignment. The Investment Advisory Agreement may be terminated by either party without penalty upon not more than 60 days' written notice to the other. See "Risk factors—Risks Relating to Our Business—We are dependent upon Prospect Capital Management's key management personnel for our future success."

        We have also entered into an Administration Agreement with Prospect Administration under which Prospect Administration, among other things, provides (or arranges for the provision of) administrative services and facilities for us. For providing these services, we reimburse Prospect Administration for our allocable portion of overhead incurred by Prospect Administration in

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performing its obligations under the Administration Agreement, including rent and our allocable portion of the costs of our chief compliance officer and chief financial officer and his staff, including the internal legal staff. Under this agreement, Prospect Administration furnishes us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities. Prospect Administration also performs, or oversees the performance of, our required administrative services, which include, among other things, being responsible for the financial records that we are required to maintain and preparing reports to our stockholders and reports filed with the Securities and Exchange Commission, or the SEC. In addition, Prospect Administration assists us in determining and publishing our net asset value, overseeing the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. Under the Administration Agreement, Prospect Administration also provides on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance. The Administration Agreement may be terminated by either party without penalty upon 60 days' written notice to the other party. Prospect Administration is a wholly owned subsidiary of our Investment Adviser.

        We reimbursed Prospect Administration $8.7 million, $6.8 million and $5.0 million for the twelve months ended June 30, 2013, June 30, 2012 and June 30, 2011, respectively, for services it provided to the Company at cost.

        The Investment Advisory Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, Prospect Capital Management and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from the rendering of Prospect Capital Management's services under the Investment Advisory Agreement or otherwise as our investment adviser.

        The Administration Agreement provides that, absent willful misfeasance, bad faith or negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, Prospect Administration and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from the rendering of Prospect Administration's services under the Administration Agreement or otherwise as our administrator.

        On May 3, 2013, our Board of Directors voted unanimously to renew the Investment Advisory Agreement for the 12-month period ending June 22, 2014. In its consideration of the Investment Advisory Agreement, the Board of Directors focused on information it had received relating to, among other things: (a) the nature, quality and extent of the advisory and other services to be provided to us by Prospect Capital Management; (b) comparative data with respect to advisory fees or expense ratios paid by other business development companies with similar investment objectives; (c) our projected operating expenses; (d) the projected profitability of Prospect Capital Management and any existing and potential sources of indirect income to Prospect Capital Management or Prospect Administration from their relationships with us and the profitability of those relationships; (e) information about the services to be performed and the personnel performing such services under the Investment Advisory Agreement; (f) the organizational capability and financial condition of Prospect Capital Management and its affiliates and (g) the possibility of obtaining similar services from other third party service providers or through an internally managed structure. In approving the renewal of the Investment

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Advisory Agreement, the Board of Directors, including all of the directors who are not "interested persons," considered the following:

        Based on the information reviewed and the discussions detailed above, the Board of Directors (including all of the directors who are not "interested persons") concluded that the investment advisory fee rates and terms are fair and reasonable in relation to the services provided and approved the renewal of the Investment Advisory Agreement with Prospect Capital Management as being in the best interests of the Company and its stockholders.

Portfolio Managers

        The following individuals function as portfolio managers primarily responsible for the day-to-day management of our portfolio. Our portfolio managers are not responsible for day-to-day management of any other accounts. For a description of their principal occupations for the past five years, see above.

Name
  Position   Length of Service
with Company (Years)
 

John F. Barry III

  Chairman and Chief Executive Officer     9  

M. Grier Eliasek

  President and Chief Operating Officer     9  

        Mr. Eliasek receives no compensation from the Company. Mr. Eliasek receives a salary and bonus from Prospect Capital Management that takes into account his role as a senior officer of the Company and of Prospect Capital Management, his performance and the performance of each of Prospect Capital Management and the Company. Mr. Barry receives no compensation from the Company.

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Mr. Barry, as the sole member of Prospect Capital Management, receives a salary and/or bonus from Prospect Capital Management and is entitled to equity distributions after all other obligations of Prospect Capital Management are met.

        The following table sets forth the dollar range of our common stock beneficially owned by each of the portfolio managers described above as of June 30, 2013.

Name
  Aggregate Dollar Range of
Common Stock Beneficially
Owned by Prospect Capital
Management
 

John F. Barry III

  Over $100,000  

M. Grier Eliasek

  Over $100,000  

        As a business development company, we offer, and must provide upon request, managerial assistance to certain of our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. We billed $5.3 million, $1.6 million and $1.3 million of managerial assistance fees for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, respectively, of which $1.3 million, $165,000 and $128,000 remains on the consolidated statement of assets and liabilities as of June 30, 2013, June 30, 2012 and June 30, 2011, respectively. These fees are paid to the Administrator so we simultaneously accrue a payable to the Administrator for the same amounts, which remain on the consolidated statements of assets and liabilities.

        We entered into a license agreement with Prospect Capital Management, pursuant to which Prospect Capital Management agreed to grant us a nonexclusive, royalty free license to use the name "Prospect Capital." Under this agreement, we have a right to use the Prospect Capital name, for so long as Prospect Capital Management or one of its affiliates remains our investment adviser. Other than with respect to this limited license, we have no legal right to the Prospect Capital name. This license agreement will remain in effect for so long as the Investment Advisory Agreement with our Investment Adviser is in effect.

CERTAIN RELATIONSHIPS AND TRANSACTIONS

        We have entered into the Investment Advisory Agreement with Prospect Capital Management. Our Chairman of the Board of Directors is the sole member of and controls Prospect Capital Management. Our senior management may in the future also serve as principals of other investment managers affiliated with Prospect Capital Management that may in the future manage investment funds with investment objectives similar to ours. In addition, our executive officers and directors and the principals of Prospect Capital Management may serve as officers, directors or principals of entities that operate in the same or related lines of business as we do or of investment funds managed by affiliates. Accordingly, we may not be given the opportunity to participate in certain investments made by investment funds managed by advisers affiliated with Prospect Capital Management. However, our Investment Adviser and other members of the affiliated present and predecessor companies of Prospect Capital Management intend to allocate investment opportunities in a fair and equitable manner consistent with our investment objectives and strategies so that we are not disadvantaged in relation to any other client. See "Risk Factors—Risks Relating To Our Business—Potential conflicts of interest could impact our investment returns" and "Risk Factors—Risks Relating To Our Securities—Our ability to enter into transactions with our affiliates is restricted."

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        In addition, pursuant to the terms of the Administration Agreement, Prospect Administration provides, or arranges to provide, the Company with the office facilities and administrative services necessary to conduct our day-to-day operations. Prospect Capital Management is the sole member of and controls Prospect Administration.

CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS

        As of October 10, 2013, there were no persons that owned 25% or more of our outstanding voting securities, and we believe no person should be deemed to control us, as such term is defined in the 1940 Act.

        The following table sets forth, as of October 10, 2013, certain ownership information with respect to our common stock for those persons who directly or indirectly own, control or hold with the power to vote, 5% or more of our outstanding common stock and all officers and directors, as a group. Unless otherwise indicated, we believe that the beneficial owners set forth in the tables below have sole voting and investment power.

Name and Address of Beneficial Owner
  Number of Shares
Beneficially Owned
  Percentage of
Class(1)
 

5% or more holders

             

Zazove Associates, LLC
1001 Tahoe Blvd.
Incline Village, NV 89451

   
15,219,643

(2)
 
5.2

%

Executive officers and directors as a group

   
3,769,498
   
1.4

%

*
Represents less than one percent.

(1)
Based on a total of 276,844,568 shares of our common stock issued and outstanding as of October 10, 2013.

(2)
Based upon a Schedule 13G filed with the SEC on February 5, 2013 by Zazove Associates, LLC, or Zazove. According to the Schedule 13G, all of the shares beneficially owned by Zazove represent shares issuable upon the conversion of certain convertible notes, or the Notes, issued by the Company and beneficially owned by Zazove. Notwithstanding the percentage of common stock noted, each of the Notes contain a provision that limits the holders of the Notes from converting the Notes to shares of common stock of the Company to the extent such conversion would cause the holder to become a beneficial owner of more than 5.0% of the Company's outstanding common stock at the time of conversion. Percentage of common stock outstanding included the conversion of these shares in the total outstanding.

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Table of Contents

        The following table sets forth the dollar range of our equity securities beneficially owned by each of our directors and officers as of June 30, 2013. We are not part of a "family of investment companies" as that term is defined in the 1940 Act.

Name of Director or Officer
  Dollar Range of Equity
Securities in the Company(1)
 

Independent Directors

     

William J. Gremp

  $10,001 - $50,000  

Andrew C. Cooper

  None  

Eugene S. Stark

  Over $100,000  

Interested Directors

     

John F. Barry III(2)

  Over $100,000  

M. Grier Eliasek

  Over $100,000  

Officer

     

Brian H. Oswald

  Over $100,000  

(1)
Dollar ranges are as follows: none, $1-$10,000, $10,001-$50,000, $50,001-$100,000 or over $100,000.

(2)
Represents an indirect beneficial ownership in shares of our common stock, that are beneficially owned directly by Prospect Capital Management, by reason of Mr. Barry's position as a control person of Prospect Capital Management.

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Table of Contents

PORTFOLIO COMPANIES

        The following is a listing of our portfolio companies at June 30, 2013. Values are as of June 30, 2013.

        The portfolio companies are presented in three categories: "companies more than 25% owned" are portfolio companies in which Prospect directly or indirectly owns more than 25% of the outstanding voting securities of such portfolio company and, therefore, such portfolio company is presumed to be controlled by us under the 1940 Act; "companies owned 5% to 25%" are portfolio companies where Prospect directly or indirectly owns 5% to 25% of the outstanding voting securities of such portfolio company and/or holds one or more seats on the portfolio company's Board of Directors and, therefore, such portfolio company is deemed to be an affiliated person with us under the 1940 Act; "companies less than 5% owned" are portfolio companies where Prospect directly or indirectly owns less than 5% of the outstanding voting securities of such portfolio company and where it has no other affiliations with such portfolio company. As of June 30, 2013, Prospect owned 100.0% of the fully diluted common equity of ESHI, 100.0% of the equity of Airmall, 100.0% of the common equity of Borga, 100.0% of the fully diluted common equity of The Healing Staff, Inc., 100.0% of the members unit of AWCNC, LLC, 100.0% of the common equity of Manx Energy, Inc., 100.0% of the common equity of Wolf Energy Holdings, Inc., 100.0% of the common equity of American Property Holdings Corp. through our wholly-owned entity, APH Property Holdings, LLC, 96.3% of the common equity of Valley Electric Co. of Mt. Vernon, Inc., through our wholly-owned entity, Valley Electric Holdings I, Inc., 95.13% of the common equity of CCPI Inc. through our wholly-owned entity, CCPI Holdings, Inc., 93.8% of the common equity of Nationwide Acceptance LLC, through our wholly-owned entity, Nationwide Acceptance Holdings, LLC, 88.3% of the fully diluted equity of R-V, 83.5% of the fully diluted preferred equity of NMMB Holdings, Inc., 80.1% of First Tower Holdings LLC through our wholly-owned entity, First Tower Holdings of Delaware LLC, 77.9% of the fully diluted equity of Ajax and 74.8% of the common equity of Credit Central Holdings LLC., through our wholly-owned entity, Credit Central Holdings of Delaware, LLC. Prospect makes available significant managerial assistance to its portfolio companies. Prospect generally requests and may receive rights to observe the meetings of its portfolio companies' Boards of Directors.

Name of
Portfolio
Company
  Nature of its
Principal
Business
(Location)
  Title and Class
of Securities Held
  Collateral Held   Investment Structure   Equity
Securities
Held, at
Fair Value
  Loans, at
Fair Value
 
 
   
   
   
   
  (In millions of $)
  (In millions of $)
 
Companies more than 25% owned                          
Airmail USA, Inc.   Property management
(Pennsylvania)
  Senior secured debt, senior subordinated debt, convertible preferred stock and common equity   First priority lien on substantially all assets   Common shares; convertible preferred shares; senior secured
term loan, 12% due 6/30/2015;
senior subordinated term loan,
12.00% plus 6.00% PIK, due
12/31/2015
    13.4     41.3  

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Table of Contents

Name of
Portfolio
Company
  Nature of its
Principal
Business
(Location)
  Title and Class
of Securities Held
  Collateral Held   Investment Structure   Equity
Securities
Held, at
Fair Value
  Loans, at
Fair Value
 
 
   
   
   
   
  (In millions of $)
  (In millions of $)
 
Ajax Rolled Ring and Machine, Inc.   Manufacturing (South Carolina)   Senior secured
debt, subordinated
unsecured debt, convertible preferred stock and common equity
  First priority lien
on substantially all assets
  Common shares; Convertible
Preferred shares; Senior secured
note Tranche A, 10.50% due 3/30/2018; Subordinated unsecured
note 11.50% plus
6.00% PIK, due 3/30/2018
    0.0     39.4  

APH Property
Holdings, LLC. 

 

Georgia/
Real Estate

 

Senior secured
debt, and common
equity

 

First priority lien
on substantially all
assets

 

Common shares; Senior
secured note 6.00% plus
5.50% PIK, due 10/24/2020

 

 

26.6

 

 

125.9

 

AWCNC, LLC

 

Machinery (North
Carolina)

 

Members Units

 

N/A

 

Members units

 

 

0.0

 

 

0.0

 

Borga, Inc. 

 

Manufacturing
(California)

 

Revolving line of
credit, senior
secured debt,
warrants and
common equity

 

First priority lien
on all assets and
pledge of all stock

 

Warrants; common shares;
Revolving line of credit, 5.00%
plus 3.00% default interest, in
non-accrual status effective
03/02/2010, past due; Senior
secured Term Loan B, 8.50% plus 3.00% default interest, in non-accrual status effective
03/02/2010, past due; Senior secured Term Loan C, 12.00% plus 4.00% PIK plus 3.00% default interest, in non-accrual status effective 03/02/2010, past due

 

 

0.0

 

 

0.6

 

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Table of Contents

Name of
Portfolio
Company
  Nature of its
Principal
Business
(Location)
  Title and Class
of Securities Held
  Collateral Held   Investment Structure   Equity
Securities
Held, at
Fair Value
  Loans, at
Fair Value
 
 
   
   
   
   
  (In millions of $)
  (In millions of $)
 
CCPI Holdings, Inc.    Ohio/ Manufacturing   Senior secured debt, net revenue interest and common equity   First priority lien on substantially all assets   Common shares; Net Revenue Interest; Senior secured note, 10.00% due 12/31/2017; Senior secured note, 12.00% plus 7.00% PIK, due 6/30/2018     8.6     25.3  

Credit Central Holdings of Delaware, LLC.(1)

 

Ohio/ Consumer Finance

 

Senior secured debt, net revenue interest, Senior Secured revolving Credit facility and Common equity.

 

First priority lien on substantially all assets

 

Common shares; Net Revenue Interest; Senior secured revolving credit facility $60,000 commitment 20.00% due 12/31/2022

 

 

12.4

 

 

38.1

 

Energy Solutions Holdings, Inc. 

 

Gas Gathering
and Processing (Texas)

 

Escrow receivable,
Senior secured debt, subordinated secured debt, and common equity

 

First priority lien
on substantially all assets

 

Escrow receivable,
Common shares; Senior secured notes, 18.00% due 12/12/2016; Junior secured note, 18.00% due 12/12/2016; Subordinated secured note, 12.00% plus 4.00% PIK, in non-accrual status effective 10/1/2010, past due; Senior Secured Debt, in non-accrual status effective 01/01/2009, past due

 

 

6.2

 

 

20.4

 

First Tower Holdings of Delaware, LLC.(1)

 

Consumer Finance
(Mississippi)

 

Senior Secured
Revolving Credit
Facility, common
equity, net revenue
interest

 

First priority lien
on substantially all
assets

 

Common shares;
Net revenue interest; Senior
Secured Revolving Credit
Facility, 20.00% due 6/30/2022

 

 

33.3

 

 

264.8

 

Manx Energy, Inc.

 

Oil and Gas production (Kansas)

 

Senior secured debt, preferred stock and common

 

First priority lien on substantially all assets

 

Common shares; Preferred shares; senior secured note, 13.00%, in non-accrual status effective 1/19/2010, past due

 

 

0.0

 

 

0.3

 

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Table of Contents

Name of
Portfolio
Company
  Nature of its
Principal
Business
(Location)
  Title and Class
of Securities Held
  Collateral Held   Investment Structure   Equity
Securities
Held, at
Fair Value
  Loans, at
Fair Value
 
 
   
   
   
   
  (In millions of $)
  (In millions of $)
 
Nationwide Acceptance Holdings, LLC.(1)   Consumer
Finance
(Chicago)
  Senior secured
debt, net revenue
Interest, Senior Secured revolving credit facility, and Membership units
  First priority lien
on substantially all
assets
  Net Revenue
Interest; Membership Units;
Senior secured Revolving credit facility $30,000 Commitment 20.00% due 1/31/2023
    3.8     21.3  

NMMB Holdings, Inc. 

 

Media (New York)

 

Preferred stock,
senior term debt and senior subordinated debt

 

First priority lien
on substantially all assets

 

Preferred shares; senior term
loan, 14.00% due 5/6/2016; senior subordinated term loan, 15.00% due 5/6/2016

 

 

0.0

 

 

13.1

 

R-V Industries, Inc. 

 

Manufacturing (Pennsylvania)

 

Senior Subordinated Note, Warrants and common equity

 

First priority lien on substantially all assets

 

Common shares; Warrants, expiring 6/30/2017, Senior Subordinated Note, 10.00% due 6/12/2018

 

 

25.3

 

 

32.8

 

The Healing Staff, Inc. 

 

Contracting
(North Carolina)

 

Secured
promissory note,
Senior and junior secured debt, preferred stock and common equity

 

First priority lien
on substantially all
assets

 

Common shares; Preferred
shares; Senior and junior
secured notes, 7.00% plus 7.00% PIK plus 6.00% default interest, in non-accrual status effective 10/09/2007 past due; Senior demand note, 15.00%, in non-accrual status effective 11/1/2010 past due; Secured promissory note, 15%, in non- accrual status effective 12/22/2010, due 3/21/2012-
12/18/2013

 

 

0.0

 

 

0.0

 

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Table of Contents

Name of
Portfolio
Company
  Nature of its
Principal
Business
(Location)
  Title and Class
of Securities Held
  Collateral Held   Investment Structure   Equity
Securities
Held, at
Fair Value
  Loans, at
Fair Value
 
 
   
   
   
   
  (In millions of $)
  (In millions of $)
 
Valley Electric Holdings I, Inc.    Construction & Engineering (Washington)   Senior Secured debt, common equity, and net revenue interest   First priority lien on substantially all assets   Common shares; net revenue interest; senior secured note 9.00% plus 9.00% PIK, due 12/31/2018; senior secured note 8.00% plus 2.5% PIK, due 12/31/2017     9.5     44.1  

Wolf Energy Holdings, Inc

 

Oil & Gas Production
(Kansas)

 

Senior Secured debt,
common equity

 

First priority lien on
substantially all assets

 

Common shares;
Senior Secured Note 18.00% in non-accrual status effective 4/15/2013, due 4/15/2018; Senior secured note (AEH), 8% in non-accrual status effective 1/19/2010, past due; senior secured note (Coalbed), 8%, in non- accrual status effective 1/19/2010, past due;

 

 

0.5

 

 

4.4

 

Companies 5% to 25% owned

 

 

 

 

 

 

 

 

 

 

 

 

 

Biotronic NeuroNetwork

 

Healthcare
(Michigan)

 

Senior secured
debt and preferred
stock

 

First priority lien
on substantially all
assets

 

Preferred shares; Senior secured
note, 10.00%
due 12/17/2017

 

 

3.4

 

 

29.6

 

Boxercraft Incorporated

 

Textiles & Leather
(Georgia)

 

Senior secured
debt, subordinated secured debt preferred stock and common equity

 

First priority lien
on substantially all assets

 

Common shares; Preferred
shares; Warrants; Senior secured term loans 10.00% plus 1.00% PIK, due 9/15/2015

 

 

0.0

 

 

9.4

 

Smart, LLC

 

Diversified Conglomerate Service (New York)

 

Membership interests

 

N/A

 

Membership interests

 

 

0.1

 

 

0.0

 

Companies less than 5% owned

 

 

 

 

 

 

 

 

 

 

 

 

 

ADAPCO, Inc. 

 

Ecological
(Florida)

 

Common equity

 

N/A

 

Common shares

 

 

0.3

 

 

0.0

 

Aderant North America, Inc. LLC

 

Software & Computer Services (Georgia)

 

Second Lien Term Loan

 

Second priority
lien on substantially all assets

 

Second Lien Term Loan 10.00%
due 6/20/2019

 

 

0.0

 

 

7.0

 

Aircraft Fasteners International, LLC

 

Machinery
(California)

 

Convertible
preferred stock

 

N/A

 

Convertible preferred shares

 

 

0.6

 

 

0.0

 

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Table of Contents

Name of
Portfolio
Company
  Nature of its
Principal
Business
(Location)
  Title and Class
of Securities Held
  Collateral Held   Investment Structure   Equity
Securities
Held, at
Fair Value
  Loans, at
Fair Value
 
 
   
   
   
   
  (In millions of $)
  (In millions of $)
 
ALG USA Holdings, LLC   Hotels, Restaurants & Leisure (Pennsylvania)   Second Lien Term Loan   Second priority lien on substantially all assets   Second Lien Term Loan 10.25%, due 2/28/2020     0.0     12.0  

Allied Defense Group, Inc. 

 

Aerospace &
Defense (Virginia)

 

Common equity

 

N/A

 

Common shares

 

 

0.0

 

 

0.0

 

American Gilsonite Company

 

Specialty minerals
(Utah)

 

Second lien
term loan and membership interests

 

Second priority
lien on substantially all assets

 

Membership interests;
Second lien term loan 11.50% due 9/1/2017

 

 

4.1

 

 

38.5

 

Apidos CLO VIII(1)

 

Diversified Financial Services (Cayman Islands)

 

Subordinated Notes (Residual Interest)

 

N/A

 

Subordinated Note (Residual Interest)

 

 

19.7

 

 

0.0

 

Apidos CLO IX, Ltd(1)

 

Diversified Financial
Services (Cayman Islands)

 

Subordinated Notes
(Residual Interest)

 

N/A

 

Subordinated Notes (Residual Interest)

 

 

19.3

 

 

0.0

 

Apidos CLO XI, Ltd(1)

 

Diversified Financial
Services (Cayman Islands)

 

Subordinated Notes
(Residual Interest)

 

N/A

 

Subordinated Notes (Residual Interest)

 

 

38.0

 

 

0.0

 

Apidos CLO XII, Ltd1(1)

 

Diversified Financial
Services (Cayman Islands)

 

Subordinated Notes
(Residual Interest)

 

N/A

 

Subordinated Notes (Residual Interest)

 

 

40.3

 

 

0.0

 

Arctic Glacier U.S.A, Inc. 

 

Food Products
(Canada)

 

Second Lien Term
Loan

 

Second lien on all
assets

 

Second Lien Term Loan, 11.25% due
11/10/2019

 

 

0.0

 

 

150.0

 

Armor Holding II, LLC. 

 

Diversified Financial
Services (New York)

 

Second Lien Term
Loan

 

Second lien on all
assets

 

Second Lien Term Loan, 9.25% due
12/26/2020

 

 

0.0

 

 

7.0

 

Atlantis Healthcare Group (Puerto Rico), Inc. 

 

Health Care (Puerto
Rico)

 

Senior Term Loan
and Revolving Line
of Credit

 

First lien on all
assets

 

Revolving Line of Credit 10.00%, due
2/21/2014; Senior Term Loan,
10.00% due 2/21/2018,

 

 

0.0

 

 

41.4

 

Babson CLO Ltd 2011-I(1)

 

Diversified Financial Services (Cayman Islands)

 

Subordinated Notes (Residual Interest)

 

N/A

 

Subordinated Notes (Residual Interest)

 

 

34.5

 

 

0.0

 

Babson CLO Ltd 2012-IA (1)

 

Diversified Financial Services (Cayman Islands)

 

Subordinated Notes (Residual Interest)

 

N/A

 

Subordinated Notes (Residual Interest)

 

 

27.3

 

 

0.0

 

Babson CLO Ltd 2012-IIA(1)

 

Diversified Financial Services (Cayman Islands)

 

Subordinated Notes (Residual Interest)

 

N/A

 

Subordinated Notes (Residual Interest)

 

 

27.5

 

 

0.0

 

Blue Coat Systems, Inc. 

 

Software &
Computer Services
(Massachusetts)

 

Second Lien Term
Loan

 

Second lien on all
other assets and
equity pledge

 

Second Lien Term Loan, 9.50% due 6/28/2020

 

 

0.0

 

 

11.0

 

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Table of Contents

Name of
Portfolio
Company
  Nature of its
Principal
Business
(Location)
  Title and Class
of Securities Held
  Collateral Held   Investment Structure   Equity
Securities
Held, at
Fair Value
  Loans, at
Fair Value
 
 
   
   
   
   
  (In millions of $)
  (In millions of $)
 
Broder Bros., Inc.   Textiles, Apparel & Luxury Goods (Pennsylvania)   Senior Secured Notes   First lien on all assets   Senior secured note, 10.75% due 6/27/2018     0.0     99.3  

Brookside Mill CLO Ltd.(1)

 

Diversified Financial Services (Cayman Islands)

 

Subordinated Notes (Residual Interest)

 

N/A

 

Subordinated Notes (Residual Interest)

 

 

23.7

 

 

0.0

 

Byrider Systems Acquisition Corp.(1)

 

Auto Finance (Indiana)

 

Senior subordinated debt

 

Subordinated lien on substantially all assets

 

Senior subordinated note, 12.00% plus 2.00% PIK due 11/3/2016

 

 

0.0

 

 

10.4

 

Caleel & Hayden

 

Personal & Nondurable Consumer Products (Colorado)

 

Escrow receivable and Membership units

 

N/A

 

Escrow receivable and Membership units

 

 

0.2

 

 

0.0

 

Capstone Logistics, LLC

 

Commercial Services (Georgia)

 

Senior secured debt

 

First priority lien on substantially all assets

 

Senior secured Term Loan A, 6.50% due 9/16/2016; Senior secured Term Loan B, 11.50% due 9/16/2016;

 

 

0.0

 

 

197.3

 

Cargo Airport Services USA, LLC

 

Transportation (New York)

 

Common equity and senior
secured debt

 

First priority lien on substantially all assets

 

Common shares; senior secured term loan, 10.50% due 3/31/2016

 

 

1.9

 

 

44.4

 

Cent 17 CLO Limited(1)

 

Diversified Financial Services (Cayman Islands)

 

Subordinated Notes (Residual Interest)

 

N/A

 

Subordinated Notes (Residual Interest)

 

 

25.5

 

 

0.0

 

CI Holdings Inc. 

 

Software & Computer Services (Texas)

 

Senior Secured Notes

 

First lien on all assets

 

Senior secured term loan, 10.00% due 6/11/2019

 

 

0.0

 

 

114.7

 

CIFC Funding 2011-I, Ltd.(1)

 

Diversified Financial Services (Cayman Islands)

 

Secured Notes, Unsecured Notes

 

N/A

 

Secured Class D Notes 5.79% due 1/19/2023; Unsecured Class E Notes 7.79% due 1/19/2023;

 

 

0.0

 

 

28.6

 

Cinedigm DC Holdings, LLC. 

 

Software & Computer Services (New York)

 

Senior Secured Notes

 

First lien on all assets

 

Senior secured term loan, 11.00% due 3/31/2021

 

 

0.0

 

 

70.6

 

The Copernicus Group, Inc. 

 

Healthcare (North Carolina)

 

Escrow Receivable

 

N/A

 

Escrow Receivable

 

 

0.1

 

 

0.0

 

Correctional Healthcare

 

Healthcare (Colorado)

 

Second Lien Term
Loan

 

Second lien on all assets

 

Second Lien Term Loan 11.25% due 1/11/2020

 

 

0.0

 

 

27.1

 

Coverall North America, Inc. 

 

Commercial
Services
(Florida)

 

Senior Secured
Term Loan

 

First Priority Lien

 

Senior Secured Lien Term Loan
11.50% due 12/17/2017

 

 

0.0

 

 

39.3

 

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Table of Contents

Name of
Portfolio
Company
  Nature of its
Principal
Business
(Location)
  Title and Class
of Securities Held
  Collateral Held   Investment Structure   Equity
Securities
Held, at
Fair Value
  Loans, at
Fair Value
 
 
   
   
   
   
  (In millions of $)
  (In millions of $)
 
CP Well Testing, LLC   Oil & Gas Products
(Oklahoma)
  Senior secured
debt
  First Priority Lien   Senior secured term loan, 13.50%
due 10/03/2017
    0.0     19.1  

CRT MIDCO, LLC

 

Media (Wisconsin)

 

Senior secured debt

 

First priority lien on substantially all assets

 

Senior secured term loan, 10.5% due 6/30/2017

 

 

0.0

 

 

71.1

 

Deltek, Inc. 

 

Software & Computer Services (Virginia)

 

Second Lien Term Loan

 

Second Priority Lien

 

Second Lien Term Loan, 10.00% due 10/10/2019

 

 

0.0

 

 

12.0

 

Diamondback Operating LP

 

Oil and gas production (Oklahoma)

 

Net profit interest

 

N/A

 

Net profit interest, 15.00%

 

 

0.0

 

 

0.0

 

Dover Saddlery, INc. 

 

Retail (Massachusetts)

 

Common equity

 

N/A

 

Common shares

 

 

0.1

 

 

0.0

 

Edmentum, Inc., (f/k/a Archipelago Learning)

 

Consumer Services (Minnesota)

 

Second Lien Term Loan

 

Second priority lien on substantially all assets

 

Second lien term loan, 11.25% due 5/17/2019

 

 

0.0

 

 

50.0

 

EIG Investors Corp

 

Software & Computer Services (Illinois)

 

Second Lien Term Loan

 

Second priority lien on substantially all assets

 

Second lien term loan, 10.25% due 5/09/2020

 

 

0.0

 

 

22.0

 

Empire Today, LLC

 

Durable Consumer Products (Illinois)

 

Senior secured debt

 

First priority lien on substantially all assets

 

Senior secured note, 11.375% due 2/1/2017

 

 

0.0

 

 

14.7

 

Evanta Ventures, Inc. 

 

Commerical Services (Oregon)

 

Subordinated unsecured debt

 

Unsecured

 

Subordinated Unsecured 12.00% plus 1.00% PIK, due 9/28/2018

 

 

0.0

 

 

10.5

 

EXL Acquistion Corp. 

 

Biotechnology (South Carolina)

 

Escrow Receivable

 

N/A

 

Escrow Receivable

 

 

0.0

 

 

0.0

 

Fairchild Industrial Products, Co. 

 

Electronics (North Carolina)

 

Escrow Receivable

 

N/A

 

Escrow Receivable

 

 

0.1

 

 

0.0

 

Fischbein, LLC

 

Machinery (North Carolina)

 

Escrow Receivable

 

N/A

 

Escrow Receivable

 

 

0.2

 

 

0.0

 

Focus Brands, Inc.

 

Consumer Services (Georgia)

 

Second Lien Term Loan

 

Second lien on all assets

 

Common equity; Second Lien Term Loan, 10.25%

 

 

0.0

 

 

18.0

 

FPG, LLC

 

Durable Consumer Products (Illnois)

 

Senior secured debt, and common equity

 

First priority lien on substantially all assets

 

due 8/21/2018; Senior secured Term Loan, 12.00% due 1/20/2017

 

 

0.0

 

 

21.4

 

Galaxy XII CLO, Ltd(1)

 

Diversified Financial Services (Cayman Islands)

 

Subordinated Notes (Residual Interest)

 

N/A

 

Subordinated Notes (Residual Interest)

 

 

21.7

 

 

0.0

 

Galaxy XV CLO, Ltd1(1)

 

Diversified Financial Services (Cayman Islands)

 

Subordinated Notes (Residual Interest)

 

N/A

 

Subordinated Notes (Residual Interest)

 

 

30.2

 

 

0.0

 

Grocery Outlet, Inc. 

 

Retail (California)

 

Second Lien Term Loan

 

Second lien on all assets

 

Second Lien Term Loan, 10.50%, due 6/17/2019

 

 

0.0

 

 

14.5

 

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Table of Contents

Name of
Portfolio
Company
  Nature of its
Principal
Business
(Location)
  Title and Class
of Securities Held
  Collateral Held   Investment Structure   Equity
Securities
Held, at
Fair Value
  Loans, at
Fair Value
 
 
   
   
   
   
  (In millions of $)
  (In millions of $)
 
Gulf Coast Machine & Supply Company   Manufacturing (Texas)   Senior secured debt   First priority lien on substantially all assets   Senior secured Term Loan, 10.50% due 10/12/2017     0.0     32.0  

Halcyon Loan Advisors Funding 2012-I, Ltd.(1)

 

Diversified Financial Services (Cayman Islands)

 

Subordinated Notes (Residual Interest)

 

N/A

 

Subordinated Notes (Residual Interest)

 

 

22.7

 

 

0.0

 

Halcyon Loan Advisors Funding 2013-I, Ltd.(1)

 

Diversified Financial Services (Cayman Islands)

 

Subordinated Notes (Residual Interest)

 

N/A

 

Subordinated Notes (Residual Interest)

 

 

38.3

 

 

0.0

 

Hoffmaster Group, Inc. 

 

Durable Consumer Products (Wisconsin)

 

Second lien debt

 

Second priority lien on substantially all assets

 

Second lien term loan, 11.00% due 1/3/2019; Second lien term loan, 10.25% due 1/03/2019

 

 

0.0

 

 

20.6

 

ICON Health & Fitness, Inc. 

 

Durable Consumer Products (Utah)

 

Senior secured debt

 

First priority lien on substantially all assets

 

Senior secured notes, 11.875%, due 10/15/2016

 

 

0.0

 

 

33.9

 

IDQ Holdings, Inc.

 

Automobile (Texas)

 

Senior Secured Note

 

Secured by first liens on substantially all of the Company's assets and a second lien on the Company's working capital assets

 

Senior Secured Note, 11.50% due 4/01/2017

 

 

0.0

 

 

12.5

 

ING IM CLO 2012-II, Ltd.(1)

 

Diversified Financial Services (Cayman Islands)

 

Subordinated Notes (Residual Interest)

 

N/A

 

Subordinated Notes (Residual Interest)

 

 

36.8

 

 

0.0

 

ING IM CLO 2012-III, Ltd.(1)

 

Diversified Financial Services (Cayman Islands)

 

Subordinated Notes (Residual Interest)

 

N/A

 

Subordinated Notes (Residual Interest)

 

 

46.4

 

 

0.0

 

ING IM CLO 2012-IV, Ltd.(1)

 

Diversified Financial Services (Cayman Islands)

 

Income Notes (Residual Interest)

 

N/A

 

Income Notes (Residual Interest)

 

 

41.2

 

 

0.0

 

Injured Workers Pharmacy LLC

 

Healthcare (Massachusetts)

 

Second lien debt

 

Second lien on substantially all assets

 

Second Lien Debt, 11.50% plus 1.00% PIK, due 5/31/2019

 

 

0.0

 

 

22.4

 

Interdent, Inc. 

 

Healthcare (California)

 

Senior Secured debt

 

First priority lien on all assets

 

Senior secured term loan A, 8.00%, due 8/3/2017; senior secured term loan B, 13.00%, due 8/3/2017

 

 

0.0

 

 

108.5

 

JHH Holdings, Inc. 

 

Healthcare (Texas)

 

Second lien debt

 

Subordinated lien on substantially all assets

 

Senior Subordinated debt, 12.00% plus 1.50% PIK, due 6/23/2018

 

 

0.0

 

 

16.1

 

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Table of Contents

Name of
Portfolio
Company
  Nature of its
Principal
Business
(Location)
  Title and Class
of Securities Held
  Collateral Held   Investment Structure   Equity
Securities
Held, at
Fair Value
  Loans, at
Fair Value
 
 
   
   
   
   
  (In millions of $)
  (In millions of $)
 
LaserShip Inc.    Transportation (Virginia)   Senior Secured debt and revolving line of credit   First priority lien on all assets   Revolving line of credit 10.25% due 12/21/2014; senior secured term loan, 10.25%, due 12/21/2017     0.0     37.0  

LCM XIV CLO Ltd.(1)

 

Diversified Financial Services (Cayman Islands)

 

Subordinated Notes (Residual Interest)

 

N/A

 

Subordinated Notes (Residual Interest)

 

 

25.8

 

 

0.0

 

LHC Holdings Corp. 

 

Healthcare (Florida)

 

Revolving line of credit, senior subordinated debt membership interests

 

First priority lien on all assets and stock

 

Membership interests; Revolving line of credit 8.50% due 5/31/2015; Senior subordinated debt, 10.50% due 5/31/2015

 

 

0.2

 

 

2.9

 

Madison Park Funding IX, Ltd(1)

 

Diversified Financial Services (Cayman Islands)

 

Subordinated Notes (Residual Interest)

 

N/A

 

Subordinated Notes (Residual Interest)

 

 

26.6

 

 

0.0

 

Material Handling Services, LLC

 

Business Services (Ohio)

 

Senior Secured Term Loan

 

First priority lien on all assets

 

Senior Secured Term Loan, 10.5%, due 7/5/2017; Senior Secured Term Loan, 10.00%, due 12/21/2017

 

 

0.0

 

 

64.2

 

Maverick Healthcare LLC

 

Healthcare (Arizona)

 

Preferred units and common units

 

N/A

 

Common units; Preferred units

 

 

0.8

 

 

0.0

 

Mountain View CLO 2013-I, Ltd.(1)

 

Diversified Financial Services (Cayman Islands)

 

Subordinated Notes (Residual Interest)

 

N/A

 

Subordinated Notes (Residual Interest)

 

 

43.2

 

 

0.0

 

Medical Security Card Company, LLC

 

Healthcare (Arizona)

 

Revolving line of credit and senior secured debt

 

First priority lien on substantially all assets

 

Revolving line of credit, 9.50% due 2/1/2016; First Lien Term Loan, 11.25% due 2/01/2016

 

 

0.0

 

 

13.4

 

National Bankruptcy Services, LLC

 

Diversified Financial Services (Texas)

 

Senior Subordinated Term Loan

 

Second lien on substantially all assets

 

Senior Subordinated Term Loan, 12.00% plus 1.50% PIK, due 7/17/2017

 

 

0.0

 

 

16.9

 

Naylor, LLC

 

Florida / Media

 

Revolving line of credit and senior secured debt

 

First lien on all assets and equity pledge

 

Revolving line of credit, 11.00% due 6/07/2017; Senior secured term loan, 11.00% due 6/07/2017

 

 

0.0

 

 

46.2

 

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Table of Contents

Name of
Portfolio
Company
  Nature of its
Principal
Business
(Location)
  Title and Class
of Securities Held
  Collateral Held   Investment Structure   Equity
Securities
Held, at
Fair Value
  Loans, at
Fair Value
 
 
   
   
   
   
  (In millions of $)
  (In millions of $)
 
New Century Transportation Inc.    Transportation (New Jersey)   Senior Subordinated Term Loan   Second lien on substantially all assets   Senior Subordinated Term Loan, 12.00% plus 3.00% PIK, due 2/3/2018     0.0     44.2  

New Star Metals Inc. 

 

Metal Services & Minerals (Indiana)

 

Senior Subordinated Term Loan

 

Second lien on substantially all assets

 

Senior Subordinated Term Loan, 11.50% plus 1.00% PIK due 2/2/2018

 

 

0.0

 

 

50.3

 

Nixon, Inc

 

Durable Consumer Products (California)

 

Senior secured debt

 

First lien on all assets and equity pledge

 

Senior secured term loan, 8.75% plus 2.75% PIK, due 4/16/2018

 

 

0.0

 

 

15.0

 

NRG Manufacturing, Inc.

 

Manufacturing (Texas)

 

Escrow Receivable

 

N/A

 

Escrow Receivable

 

 

3.6

 

 

0.0

 

Octagon Investment Partners, XV, Ltd(1)

 

Diversified Financial Services (Cayman Islands)

 

Income Notes (Residual Interest)

 

N/A

 

Income Notes (Residual Interest)

 

 

25.5

 

 

0.0

 

Pegasus Busineness Intelligence, LP

 

Diversified Financial Services Secured Debt

 

Revolving Line of of Credit, Senior

 

First lien on substantially all assets

 

Revolving Line of Credit, 9.0% due 4/18/2014; Senior secured term loan A, 6.75% due 4/18/2018; Senior secured term loan B, 13.75% due 4/18/2018

 

 

0.0

 

 

31.9

 

Pelican Products, Inc. 

 

Durable Consumer Products (California)

 

Subordinated secured debt

 

Second lien on substantially all assets

 

Subordinated Secured, 11.50% due 6/14/2019

 

 

0.0

 

 

15.0

 

Pinnacle (US) Acquisition, Co Limited

 

Software & Computer Services (Texas)

 

Senior Subordinated debt

 

Second lien on all assets

 

Second Lien Term Loan, 10.50%, due 8/3/2020

 

 

0.0

 

 

10.0

 

Pre-Paid Legal Services, Inc. 

 

Consumer Services (Oklahoma)

 

Senior subordinated debt

 

Subordinated lien on substantially all assets

 

Senior subordinated term loan, 11.50% due 12/31/2016

 

 

0.0

 

 

5.0

 

Prince Mineral Holdings, Corp. 

 

Metal Services & Minerals (New York)

 

Senior Secured debt

 

First lien on substantially all assets

 

Senior subordinated term loan, 11.50% due 12/15/2019

 

 

0.0

 

 

10.0

 

Progexion Holdings, Inc. 

 

Consumer Services (Utah)

 

Senior secured debt

 

First priority lien on substantially all assets

 

Senior Secured Term Loan, 10.50%, due 9/14/2017

 

 

0.0

 

 

241.0

 

Rocket Software, Inc

 

Software & Computer Services (Massachusetts)

 

Second Lien Term Loan

 

Second lien on all assets

 

Second Lien Term Loan, 10.25% due 2/08/2019

 

 

0.0

 

 

20.0

 

145


Table of Contents

Name of
Portfolio
Company
  Nature of its
Principal
Business
(Location)
  Title and Class
of Securities Held
  Collateral Held   Investment Structure   Equity
Securities
Held, at
Fair Value
  Loans, at
Fair Value
 
 
   
   
   
   
  (In millions of $)
  (In millions of $)
 
Royal Adhesives & Sealants, LLC   Chemicals (Indiana)   Senior Unsecured debt   Unsecured   Senior Subordinated debt, 12.00% plus 2.00% PIK due 11/29/2016     0.0     28.6  

Ryan LLC,

 

Business Services (Texas)

 

Subordinated Secured debt

 

Second lien on substantially all assets

 

Subordinated secured 12.00% plus 3.00% PIK, due 6/30/2018

 

 

0.0

 

 

70.0

 

Sandow Media, LLC

 

Media (Florida)

 

Senior Secured debt

 

First lien on substantially all assets

 

Senior secured term loan, 10.50% plus 1.50% PIK, due 5/8/2018

 

 

0.0

 

 

24.9

 

Seaton Corp. 

 

Business Services (Illinois)

 

Subordinated secured debt

 

Second priority lien on substantially all assets

 

Subordinated secured debt, 12.50% plus 2.00% PIK, due 3/14/2014; Subordinated secured debt, 12.50% plus 2.00 PIK, due 3/14/2015

 

 

0.0

 

 

13.3

 

SESAC Holdco II LLC

 

Media (Tennessee)

 

Second lien Term Loan

 

Second lien on substantially all assets

 

Second lien Term Loan, 10.00% due 7/12/2019

 

 

0.0

 

 

6.0

 

Skillsoft Public Limited Company(1)

 

Software and computer services (Ireland)

 

Subordinated unsecured debt

 

Unsecured

 

Subordinated unsecured debt, 11.125% due 6/1/2018

 

 

0.0

 

 

15.0

 

Snacks Holding Corporation

 

Food Products (Minnesota)

 

preferred stock and warrants

 

N/A

 

Warrants, expiring 11/12/2020; preferred shares;

 

 

0.6

 

 

0.0

 

Southern Management Corporation(1)

 

Consumer Finance (South Carolina)

 

Second Lien Term Loan

 

Second lien on loan receivables

 

Second Lien Term Loan, 12.00% plus 5.00% PIK, due 5/31/2017

 

 

0.0

 

 

18.3

 

Spartan Energy Services, Inc. 

 

Energy (Louisiana)

 

Senior secured term loan

 

First priority lien on substantially all assets

 

Senior secured term loan, 10.50% due 12/28/2017

 

 

0.0

 

 

29.6

 

Speedy Group Holdings Corp(1)

 

Consumer Finance (Canada)

 

Senior unsecured debt

 

Unsecured

 

Senior unsecured, 12.00% due 11/15/2017

 

 

0.0

 

 

15.0

 

Sport Helmets Holdings, LLC

 

Personal & Non- durable Consumer Products

 

Escrow Receivable

 

N/A

 

Escrow Receivable

 

 

0.4

 

 

0.0

 

Stauber Performance Ingredients, Inc. 

 

Food Products (California)

 

Senior secured debt

 

First priority lien on substantially all assets

 

Senior secured term loan, 10.50% due 1/21/2016, Senior Secured Term Loan, 10.50% due 5/21/2017

 

 

0.0

 

 

26.8

 

146


Table of Contents

Name of
Portfolio
Company
  Nature of its
Principal
Business
(Location)
  Title and Class
of Securities Held
  Collateral Held   Investment Structure   Equity
Securities
Held, at
Fair Value
  Loans, at
Fair Value
 
 
   
   
   
   
  (In millions of $)
  (In millions of $)
 
Stryker Energy LLC   Oil and gas production (Ohio)   Subordinated secured revolving credit facility and overriding royalty Interest   Second priority lien on substantially all assets   Overriding royalty interest; Subordinated secured revolving credit facility, 8.5% plus 3.75% PIK, in non-accrual status effective 12/01/2011, due 12/1/2015     0.0     0.0  

Symphony CLO, IX Ltd(1)

 

Diversified Financial Services (Cayman Islands)

 

LP Certificates (Residual Interest)

 

N/A

 

LP Certificates (Residual Interest)

 

 

44.0

 

 

0.0

 

System One Holdings, LLC

 

Business Services (Pennsylvania)

 

Senior Secured Term Loan

 

First lien on substantially all assets

 

Senior Secured Term Loan, 11.00%, due 12/31/2018

 

 

0.0

 

 

32.0

 

TB Corp. 

 

Consumer Services (Texas)

 

Senior Subordinated debt

 

Second lien on substantially all assets

 

Senior Subordinated Note, 12.00% plus 1.50% PIK, due 12/18/2018

 

 

0.0

 

 

23.4

 

Targus Group International, Inc. 

 

Durable Consumer Products (California)

 

First lien debt

 

First priority lien on substantially all assets

 

First lien term loan, 11.00% due 5/25/2016

 

 

0.0

 

 

23.5

 

TGG Medical Transitory, Inc. 

 

Healthcare (New Jersey)

 

Second lien Term Loan

 

Second lien on substantially all assets

 

Second lien Term Loan, 11.25% due 6/27/2018

 

 

0.0

 

 

8.0

 

The Petroleum Place, Inc. 

 

Software & Computer Services (Colorado)

 

Second lien Term Loan

 

Second lien on substantially all assets

 

Second lien Term Loan, 10.00% due 5/20/2019

 

 

0.0

 

 

22.0

 

Totes Isotoner Corporation

 

Nondurable Consumer Products (Ohio)

 

Second lien Term Loan

 

Second lien on substantially all assets

 

Second lien Term Loan, 10.75% due 1/08/2018

 

 

0.0

 

 

39.0

 

Traeger Pellet Grills LLC Products

 

Durable Consumer Term Loan (Oregon)

 

Revolving Line of Credit, Senior Secured Term Loan

 

First lien on substantially all assets

 

Revolving Line of Credit, 9.00% due 6/18/2014; Senior secured term loan A, 6.50% due 6/18/2018; Senior secured term loan B, 11.50% due 6/18/2018

 

 

0.0

 

 

66.1

 

TransFirst Holdings, Inc. 

 

Software & Consumer Services (New York)

 

Second lien Term Loan

 

Second lien on substantially all assets

 

Second lien Term Loan, 11.00% due 6/27/2018

 

 

0.0

 

 

5.0

 

United Sporting Companies Inc. 

 

Durable Consumer Products (South Carolina)

 

Second lien Term Loan

 

Second priority lien on Substantially all assets

 

Second lien term loan, 12.75% due 5/16/2018

 

 

0.0

 

 

160.0

 

147


Table of Contents

Name of
Portfolio
Company
  Nature of its
Principal
Business
(Location)
  Title and Class
of Securities Held
  Collateral Held   Investment Structure   Equity
Securities
Held, at
Fair Value
  Loans, at
Fair Value
 
 
   
   
   
   
  (In millions of $)
  (In millions of $)
 
Wind River Resources Corp. and Wind River II Corp.    Oil and gas production (Utah)   Senior secured debt and net profit interest   First priority lien on substantially all assets   Net profit interest, 5.00%; Senior secured note, 13.00% plus 3.00% default interest on principal, 16% default interest on past due interest, in non- accrual status effective 12/01/2008, past due     0.0     0.0  

(1)
Certain investments that the Company has determined are not "qualifying" assets" under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. The Company monitors the status of these assets on an ongoing basis

148


Table of Contents

DETERMINATION OF NET ASSET VALUE

        The net asset value per share of our outstanding shares of common stock will be determined quarterly by dividing the value of total assets minus liabilities by the total number of shares outstanding.

        In calculating the value of our total assets, we will value investments for which market quotations are readily available at such market quotations. Short-term investments which mature in 60 days or less, such as U.S. Treasury bills, are valued at amortized cost, which approximates market value. The amortized cost method involves recording a security at its cost (i.e., principal amount plus any premium and less any discount) on the date of purchase and thereafter amortizing/accreting that difference between the principal amount due at maturity and cost assuming a constant yield to maturity as determined at the time of purchase. Short-term securities which mature in more than 60 days are valued at current market quotations by an independent pricing service or at the mean between the bid and ask prices obtained from at least two brokers or dealers (if available, or otherwise by a principal market maker or a primary market dealer). Investments in money market mutual funds are valued at their net asset value as of the close of business on the day of valuation.

        Most of the investments in our portfolio do not have market quotations which are readily available, meaning the investments do not have actively traded markets. Debt and equity securities for which market quotations are not readily available are valued with the assistance of an independent valuation service using a documented valuation policy and a valuation process that is consistently applied under the direction of our Board of Directors. For a discussion of the risks inherent in determining the value of securities for which readily available market values do not exist, see "Risk Factors—Risks Relating to Our Business—Most of our portfolio investments are recorded at fair value as determined in good faith by our Board of Directors and, as a result, there is uncertainty as to the value of our portfolio investments."

        The factors that may be taken into account in valuing such investments include, as relevant, the portfolio company's ability to make payments, its estimated earnings and projected discounted cash flows, the nature and realizable value of any collateral, the financial environment in which the portfolio company operates, comparisons to securities of similar publicly traded companies, changes in interest rates for similar debt instruments and other relevant factors. Due to the inherent uncertainty of determining the fair value of investments that do not have readily available market quotations, the fair value of these investments may differ significantly from the values that would have been used had such market quotations existed for such investments, and any such differences could be material.

        As part of the fair valuation process, the independent valuation firms engaged by the Board of Directors performs a review of each debt and equity investment and provides a range of values for each investment, which, along with management's valuation recommendations, is reviewed by the Audit Committee. Management and the independent valuation firm may adjust their preliminary evaluations to reflect comments provided by the Audit Committee. The Audit Committee reviews the final valuation report and management's valuation recommendations and makes a recommendation to the Board of Directors based on its analysis of the methodologies employed and the various weights that should be accorded to each portion of the valuation as well as factors that the independent valuation firm and management may not have included in their evaluation processes. The Board of Directors then evaluates the Audit Committee recommendations and undertakes a similar analysis to determine the fair value of each investment in the portfolio in good faith.

        Determination of fair values involves subjective judgments and estimates not susceptible to substantiation by auditing procedures. Accordingly, under current accounting standards, the notes to our financial statements will refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial statements.

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Table of Contents

SALES OF COMMON STOCK BELOW NET ASSET VALUE

        At our 2012 annual meeting of stockholders held on December 7, 2012, our stockholders approved our ability to sell, subject to the condition that the maximum number of shares salable below net asset value pursuant to this authority in any particular offering that could result in such dilution is limited to 25% of our then outstanding common stock immediately prior to each such offering, an unlimited number of shares of our common stock at any level of discount from NAV per share during the twelve-month period following such approval. In order to sell shares pursuant to this authorization, a majority of our directors who have no financial interest in the sale and a majority of our independent directors must (a) find that the sale is in our best interests and in the best interests of our stockholders, and (b) in consultation with any underwriter or underwriters or sales manager or sales managers of the offering, make a good faith determination as of a time either immediately prior to the first solicitation by us or on our behalf of firm commitments to purchase such shares, or immediately prior to the issuance of such shares of common stock, that the price at which such shares are to be sold is not less than a price which closely approximates the market value of such shares, less any distributing commission or discount.

        We may make sales of our common stock at prices below our most recently determined NAV per share. Pursuant to the approval of our Board of Directors, we have made such sales in the past and we may continue to do so under this prospectus.

        In making a determination that an offering below NAV per share is in our and our stockholders' best interests, our Board of Directors considers a variety of factors including matters such as:

        Our Board of Directors also considers the fact that sales of common stock at a discount will benefit our Advisor as the Advisor will earn additional investment management fees on the proceeds of such offerings, as it would from the offering of any other securities of the Company or from the offering of common stock at premium to NAV per share.

        We will not sell shares of common stock under a prospectus supplement to the registration statement (the "current registration statement") if the cumulative dilution to our NAV per share from offerings under the current registration statement exceeds 15%. This limit would be measured separately for each offering pursuant to the current registration statement by calculating the percentage dilution or accretion to aggregate NAV from that offering and then summing the percentage from each offering. For example, if our most recently determined NAV per share at the time of the first offering is $10.75 and we have 275.0 million shares of common stock outstanding, sale of 50.0 million shares of common stock at net proceeds to us of $5.38 per share (an approximately 50% discount) would

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produce dilution of 7.69%. If we subsequently determined that our NAV per share increased back to $10.50 on the then 325.0 million shares of common stock outstanding and then made an additional offering, we could, for example, sell approximately an additional 55.7 million shares of common stock at net proceeds to us of $5.25 per share, which would produce dilution of 7.31%, before we would reach the aggregate 15% limit. If we file a new post-effective amendment, the threshold would reset.

        Sales by us of our common stock at a discount from NAV per share pose potential risks for our existing stockholders whether or not they participate in the offering, as well as for new investors who participate in the offering.

        The following three headings and accompanying tables will explain and provide hypothetical examples on the impact of an offering at a price less than NAV per share on three different set of investors:

        The tables below provide hypothetical examples of the impact that an offering at a price less than NAV per share may have on the NAV per share of shareholders and investors who do and do not participate in such an offering. However, the tables below do not show and are not intended to show any potential changes in market price that may occur from an offering at a price less than NAV per share and it is not possible to predict any potential market price change that may occur from such an offering.

Impact On Existing Stockholders Who Do Not Participate in the Offering

        Our existing stockholders who do not participate in an offering below NAV per share or who do not buy additional shares of common stock in the secondary market at the same or lower price we obtain in the offering (after expenses and commissions) face the greatest potential risks. These stockholders will experience an immediate decrease (often called dilution) in the NAV of the shares of common stock they hold and their NAV per share. These stockholders will also experience a disproportionately greater decrease in their participation in our earnings and assets and their voting power than the increase we will experience in our assets, potential earning power and voting interests due to the offering. These stockholders may also experience a decline in the market price of their shares of common stock, which often reflects to some degree announced or potential increases and decreases in NAV per share. This decrease could be more pronounced as the size of the offering and level of discounts increases.

        The following chart illustrates the level of NAV dilution that would be experienced by a nonparticipating stockholder in three different hypothetical offerings of different sizes and levels of discount from NAV per share. It is not possible to predict the level of market price decline that may occur. Actual sales prices and discounts may differ from the presentation below. There is no maximum level of discount from NAV at which we may sell shares pursuant to the stockholder authority.

        The examples assume that the issuer has 275.0 million common shares outstanding, $4,756,250,000 in total assets and $1,800,000,000 in total liabilities. The current NAV and NAV per share are thus $2,956,250,000 and $10.75. The chart illustrates the dilutive effect on Stockholder A of (1) an offering of 13,750,000 shares of common stock (5% of the outstanding shares of common stock) at $10.21 per share after offering expenses and commission (a 5% discount from NAV), (2) an offering of 27,500,000 shares of common stock (10% of the outstanding shares of common stock) at $9.68 per share after offering expenses and commissions (a 10% discount from NAV), (3) an offering of 68,750,000 shares of

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common stock (25% of the outstanding shares of common stock) at $8.06 per share after offering expenses and commissions (a 25% discount from NAV), and (4) an offering of 68,750,000 shares of common stock (25% of the outstanding shares of common stock) at $0.00 per share after offering expenses and commissions (a 100% discount from NAV).

 
   
  Example 1
5% Offering
at 5% Discount
  Example 2
10% Offering
at 10% Discount
  Example 3
25% Offering
at 25% Discount
  Example 4
25% Offering
at 100% Discount
 
 
  Prior to Sale
Below NAV
  Following
Sale
  %
Change
  Following
Sale
  %
Change
  Following
Sale
  %
Change
  Following
Sale
  %
Change
 

Offering Price

                                                       

Price per Share to Public

        $ 10.77         $ 10.20         $ 8.49         $        

Net Proceeds per Share to Issuer

        $ 10.21         $ 9.68         $ 8.06         $        

Decrease to NAV

                                                       

Total Shares Outstanding

    275,000,000     288,750,000     5.00 %   302,500,000     10.00 %   343,750,000     25.00 %   343,750,000     25.00 %

NAV per Share

  $ 10.75   $ 10.72     (0.24 )% $ 10.65     (0.91 )% $ 10.21     (5.00 )% $ 8.60     (20.00 )%

Dilution to Nonparticipating Stockholder

                                                       

Shares Held by Stockholder A

    275,000     275,000     0.00 %   275,000     0.00 %   275,000     0.00 %   275,000     0.00 %

Percentage Held by Stockholder A

    0.10 %   0.10 %   (4.76 )%   0.09 %   (9.09 )%   0.08 %   (20.00 )%   0.08 %   (20.00 )%

Total NAV Held by Stockholder A

  $ 2,956,250   $ 2,949,211     (0.24 )% $ 2,929,375     (0.91 )% $ 2,808,438     (5.00 )% $ 2,365,000     (20.00 )%

Total Investment by Stockholder A (Assumed to be $10.75 per Share on Shares Held Prior to Sale)

        $ 2,956,250         $ 2,956,250         $ 2,956,250         $ 2,956,250        

Total Dilution to Stockholder A (Total NAV Less Total Investment)

        $ (7,039 )       $ (26,875 )       $ (147,812 )       $ (591,250 )      

NAV per Share Held by Stockholder A

        $ 10.72         $ 10.65         $ 10.21         $ 8.60        

Investment per Share Held by Stockholder A (Assumed to be $10.75 per Share on Shares Held Prior to Sale)

  $ 10.75   $ 10.75         $ 10.75         $ 10.75         $ 10.75        

Dilution per Share Held by Stockholder A (NAV per Share Less Investment per Share)

        $ (0.03 )       $ (0.10 )       $ (0.54 )       $ (2.15 )      

Percentage Dilution to Stockholder A (Dilution per Share Divided by Investment per Share)

                (0.24 )%         (0.91 )%         (5.00 )%         (20.00 )%

Impact On Existing Stockholders Who Do Participate in the Offering

        Our existing stockholders who participate in an offering below NAV per share or who buy additional shares of common stock in the secondary market at the same or lower price as we obtain in the offering (after expenses and commissions) will experience the same types of NAV dilution as the nonparticipating stockholders, albeit at a lower level, to the extent they purchase less than the same percentage of the discounted offering as their interest in our shares of common stock immediately prior to the offering. The level of NAV dilution will decrease as the number of shares of common stock such stockholders purchase increases. Existing stockholders who buy more than such percentage will experience NAV dilution on their existing shares but will, in contrast to existing stockholders who purchase less than their proportionate share of the offering, experience an increase (often called accretion) in average NAV per share over their investment per share and will also experience a disproportionately greater increase in their participation in our earnings and assets and their voting power than our increase in assets, potential earning power and voting interests due to the offering. The level of accretion will increase as the excess number of shares of common stock such stockholder purchases increases. Even a stockholder who over-participates will, however, be subject to the risk that we may make additional discounted offerings in which such stockholder does not participate, in which case such a stockholder will experience NAV dilution as described above in such subsequent offerings. These shareholders may also experience a decline in the market price of their shares of common stock, which often reflects to some degree announced or potential decreases in NAV per share. This decrease could be more pronounced as the size of the offering and level of discounts increases. There is no maximum level of discount from NAV at which we may sell shares pursuant to this authority.

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        The following chart illustrates the level of dilution and accretion in the hypothetical 25% discount offering from the prior chart (Example 3) for a stockholder that acquires shares of common stock equal to (1) 50% of its proportionate share of the offering (i.e., 34,375 shares of common stock, which is 0.05% of an offering of 68,750,000 shares of common stock) rather than its 0.10% proportionate share and (2) 150% of such percentage (i.e., 103,125 shares of common stock, which is 0.15% of an offering of 68,750,000 shares of common stock rather than its 0.10% proportionate share). It is not possible to predict the level of market price decline that may occur. Actual sales prices and discounts may differ from the presentation below. There is no maximum level of discount from NAV at which we may sell shares pursuant to the stockholder authority.

 
   
  50%
Participation
  150%
Participation
 
 
  Prior to
Sale Below
NAV
  Following
Sale
  %
Change
  Following
Sale
  %
Change
 

Offering Price

                               

Price per Share to Public

        $ 8.49         $ 8.49        

Net Proceeds per Share to Issuer

        $ 8.06         $ 8.06        

Decrease to NAV

                               

Total Shares Outstanding

    275,000,000     343,750,000     25.00 %   343,750,000     25.00 %

NAV per Share

  $ 10.75   $ 10.21     (5.00 )% $ 10.21     (5.00 )%

Dilution to Nonparticipating Stockholder

                               

Shares Held by Stockholder A

    275,000     309,375     12.50 %   378,125     37.50 %

Percentage Held by Stockholder A

    0.10 %   0.09 %   (10.00 )%   0.11 %   10.00 %

Total NAV Held by Stockholder A

  $ 10.75   $ 3,159,492     6.88 % $ 3,861,602     30.63 %

Total Investment by Stockholder A (Assumed to be $10.75 per Share on Shares Held Prior to Sale)

        $ 3,248,143         $ 3,831,929        

Total Dilution to Stockholder A (Total NAV Less Total Investment)

        $ (88,651 )       $ 29,673        

NAV per Share Held by Stockholder A

        $ 10.21         $ 10.21        

Investment per Share Held by Stockholder A (Assumed to be $10.75 per Share on Shares Held Prior to Sale)

        $ 10.50         $ 10.13        

Dilution per Share Held by Stockholder A (NAV per Share Less Investment per Share)

        $ (0.29 )       $ 0.08        

Percentage Dilution to Stockholder A
(Dilution per Share Divided by Investment per Share)

                (2.73 )%         0.77 %

Impact On New Investors

        Investors who are not currently stockholders and who participate in an offering below NAV but whose investment per share is greater than the resulting NAV per share due to selling compensation and expenses paid by the issuer will experience an immediate decrease, albeit small, in the NAV of their shares of common stock and their NAV per share compared to the price they pay for their shares of common stock. Investors who are not currently stockholders and who participate in an offering below NAV per share and whose investment per share is also less than the resulting NAV per share due to selling compensation and expenses paid by the issuer being significantly less than the discount per share will experience an immediate increase in the NAV of their shares of common stock and their NAV per share compared to the price they pay for their shares of common stock. These investors will experience a disproportionately greater participation in our earnings and assets and their voting power than our increase in assets, potential earning power and voting interests. These investors will, however, be subject to the risk that we may make additional discounted offerings in which such new stockholder does not participate, in which case such new stockholder will experience dilution as described above in such subsequent offerings. These investors may also experience a decline in the market price of their shares of common stock, which often reflects to some degree announced or potential increases and decreases in NAV per share. This decrease could be more pronounced as the size of the offering and

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level of discounts increases. There is no maximum level of discount from NAV at which we may sell shares pursuant to this authority.

        The following chart illustrates the level of dilution or accretion for new investors that would be experienced by a new investor in the same hypothetical 5%, 10% and 25% discounted offerings as described in the first chart above. The illustration is for a new investor who purchases the same percentage (0.10%) of the shares of common stock in the offering as Stockholder A in the prior examples held immediately prior to the offering. It is not possible to predict the level of market price decline that may occur. Actual sales prices and discounts may differ from the presentation below. There is no maximum level of discount from NAV at which we may sell shares pursuant to the stockholder authority.

 
   
  Example 1
5% Offering
at 5% Discount
  Example 2
10% Offering
at 10% Discount
  Example 3
25% Offering
at 25% Discount
 
 
  Prior to
Sale Below NAV
  Following
Sale
  %
Change
  Following Sale   %
Change
  Following
Sale
  %
Change
 

Offering Price

                                           

Price per Share to Public

        $ 10.77         $ 10.20         $ 8.49        

Net Proceeds per Share to Issuer

        $ 10.21         $ 9.68         $ 8.06        

Decrease to NAV

                                           

Total Shares Outstanding

    275,000,000     288,750,000     5.00 %   302,500,000     10.00 %   343,750,000     25.00 %

NAV per Share

  $ 10.75   $ 10.72     (0.24 )% $ 10.65     (0.91 )% $ 10.21     (5.00 )%

Dilution to Nonparticipating Stockholder

                                           

Shares Held by Stockholder A

        13,750           27,500           68,750        

Percentage Held by Stockholder A

    0.00 %   0.00 %         0.01 %         0.02 %      

Total NAV Held by Stockholder A

  $   $ 147,461         $ 292,938         $ 702,109        

Total investment by Stockholder A

        $ 148,128         $ 280,382         $ 583,786        

Total Dilution to Stockholder A (Total NAV Less Total investment)

        $ (667 )       $ 12,556         $ 118,323        

NAV per Share Held by Stockholder A

        $ 10.72         $ 10.65         $ 10.21        

Investment per Share Held by Stockholder A

        $ 10.77         $ 10.20         $ 8.49        

Dilution per Share Held by Stockholder A (NAV per Share Less Investment per Share)

        $ (0.05 )       $ 0.45         $ 1.72        

Percentage Dilution to Stockholder A (Dilution per Share Divided by Investment per Share)

                (0.45 )%         4.48 %         20.27 %

DIVIDEND REINVESTMENT PLAN

        We have adopted a dividend reinvestment plan that provides for reinvestment of our distributions on behalf of our stockholders, unless a stockholder elects to receive cash as provided below. As a result, when our Board of Directors authorizes, and we declare, a cash dividend, then our stockholders who have not "opted out" of our dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of our common stock, rather than receiving the cash dividends.

        No action is required on the part of a registered stockholder to have their cash dividend reinvested in shares of our common stock. A registered stockholder may elect to receive an entire dividend in cash by notifying the plan administrator and our transfer agent and registrar, in writing so that such notice is received by the plan administrator no later than the record date for dividends to stockholders. The plan administrator sets up an account for shares acquired through the plan for each stockholder who has not elected to receive dividends in cash and hold such shares in non-certificated form. Upon request by a stockholder participating in the plan, the plan administrator will, instead of crediting shares to the participant's account, issue a certificate registered in the participant's name for the number of whole shares of our common stock and a check for any fractional share. Such request by a stockholder must be received three days prior to the dividend payable date in order for that dividend to be paid in cash. If such request is received less than three days prior to the dividend payable date,

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then the dividends are reinvested and shares are repurchased for the stockholder's account; however, future dividends are paid out in cash on all balances. Those stockholders whose shares are held by a broker or other financial intermediary may receive dividends in cash by notifying their broker or other financial intermediary of their election.

        We primarily use newly-issued shares to implement the plan, whether our shares are trading at a premium or at a discount to net asset value. However, we reserve the right to purchase shares in the open market in connection with our implementation of the plan. The number of shares to be issued to a stockholder is determined by dividing the total dollar amount of the dividend payable to such stockholder by the market price per share of our common stock at the close of regular trading on The NASDAQ Global Select Market on the valuation date for such dividend. If we use newly-issued shares to implement the plan, the valuation date will not be earlier than the last day that stockholders have the right to elect to receive cash in lieu of shares. Market price per share on that date will be the closing price for such shares on The NASDAQ Global Select Market or, if no sale is reported for such day, at the average of their reported bid and asked prices. The number of shares of our common stock to be outstanding after giving effect to payment of the dividend cannot be established until the value per share at which additional shares will be issued has been determined and elections of our stockholders have been tabulated. Stockholders who do not elect to receive dividends in shares of common stock may experience accretion to the net asset value of their shares if our shares are trading at a premium at the time we issue new shares under the plan and dilution if our shares are trading at a discount. The level of accretion or discount would depend on various factors, including the proportion of our stockholders who participate in the plan, the level of premium or discount at which our shares are trading and the amount of the dividend payable to a stockholder.

        There are no brokerage charges or other charges to stockholders who participate in the plan. The plan administrator's fees under the plan are paid by us. If a participant elects by written notice to the plan administrator to have the plan administrator sell part or all of the shares held by the plan administrator in the participant's account and remit the proceeds to the participant, the plan administrator is authorized to deduct a $15 transaction fee plus a $0.10 per share brokerage commissions from the proceeds.

        Stockholders who receive dividends in the form of stock are subject to the same U.S. Federal, state and local tax consequences as are stockholders who elect to receive their dividends in cash. A stockholder's basis for determining gain or loss upon the sale of stock received in a dividend from us will be equal to the total dollar amount of the dividend payable to the stockholder. Any stock received in a dividend will have a new holding period for tax purposes commencing on the day following the day on which the shares are credited to the U.S. stockholder's account.

        Participants may terminate their accounts under the plan by notifying the plan administrator via its website at www.amstock.com or by filling out the transaction request form located at the bottom of their statement and sending it to the plan administrator at American Stock Transfer & Trust Company, P.O. Box 922, Wall Street Station, New York, NY 10269-0560 or by calling the plan administrator's Interactive Voice Response System at (888) 888-0313.

        The plan may be terminated by us upon notice in writing mailed to each participant at least 30 days prior to any payable date for the payment of any dividend by us. All correspondence concerning the plan should be directed to the plan administrator by mail at American Stock Transfer & Trust Company, 6201 15th Avenue, Brooklyn, NY 11219 or by telephone at (718) 921-8200.

        Stockholders who purchased their shares through or hold their shares in the name of a broker or financial institution should consult with a representative of their broker or financial institution with respect to their participation in our dividend reinvestment plan. Such holders of our stock may not be identified as our registered stockholders with the plan administrator and may not automatically have their cash dividend reinvested in shares of our common stock by the administrator.

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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

        The following discussion is a general summary of the material U.S. federal income tax considerations applicable to us and to an investment in our shares. This summary does not purport to be a complete description of the income tax considerations applicable to us or our investors on 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 to certain types of holders subject to special treatment under U.S. federal income tax laws, including stockholders subject to the alternative minimum tax, tax-exempt organizations, insurance companies, dealers in securities, pension plans and trusts, financial institutions, U.S. Stockholders (as defined below) whose functional 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 does not discuss any aspects of U.S. estate or gift tax or foreign, state or local tax. This summary assumes that investors hold our common stock as capital assets (within the meaning of the Code). This discussion is based upon the Code, Treasury regulations, and administrative and judicial interpretations thereof, each as of the date of this prospectus and all of which are subject to differing interpretation or change, possibly retroactively, which could affect the continuing validity of this discussion. We have not sought and will not seek any ruling from the Internal Revenue Service, or the IRS, regarding this offering. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to the any of the tax aspects set forth below.

        This summary does not discuss the consequences of an investment in shares of our preferred stock, debt securities, subscription rights to purchase our securities, warrants representing rights to purchase our securities or separately tradeable units combining two or more of our securities. The tax consequences of such an investment will be discussed in a relevant prospectus supplement.

        A "U.S. Stockholder" is a beneficial owner of shares of our common stock that is for U.S. federal income tax purposes:

        A "Non-U.S. Stockholder" is a beneficial owner of shares of our common stock that is not a partnership and is not a U.S. Stockholder.

        If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds shares of our common stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A prospective stockholder that is a partner of a partnership holding shares of our common stock should consult its tax advisors with respect to the purchase, 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 its particular situation. We encourage investors to consult their own tax advisors regarding the specific consequences of such an investment, including tax reporting requirements, the applicability of U.S. federal, state, local and foreign tax laws, eligibility for the benefits of any applicable tax treaty and the effect of any possible changes in the tax laws.

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Election To Be Taxed As A RIC

        As a business development company, we have elected and intend to continue to qualify 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. federal income taxes on any ordinary income or capital gains that we distribute to our stockholders as dividends. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, to obtain RIC tax treatment, we must distribute to our stockholders, for each taxable year, at least 90% of our "investment company taxable income," which is generally our ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses (the Annual Distribution Requirement).

Taxation As A RIC

        In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things:

        To the extent that we invest in entities treated as partnerships for U.S. federal income tax purposes (other than a "qualified publicly traded partnership"), we generally must include the items of gross income derived by the partnerships for purposes of the 90% Income Test, and the income that is derived from a partnership (other than a "qualified publicly traded partnership") will be treated as qualifying income for purposes of the 90% Income Test only 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. In addition, 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 asset diversification tests. If the partnership is a "qualified publicly traded partnership," the net income derived from such partnership will be qualifying income for purposes of the 90% Income Test, and interests in the partnership will be "securities" for purposes of the diversification tests. We intend to monitor our investments in equity securities of entities that are treated as partnerships for U.S. federal income tax purposes to prevent our disqualification as a RIC.

        In order to meet the 90% Income Test, we may establish one or more special purpose corporations to hold assets from which we do not anticipate earning dividend, interest or other qualifying income under the 90% Income Test. Any such special purpose corporation would generally be subject to U.S.

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federal income tax, and could result in a reduced after-tax yield on the portion of our assets held by such corporation.

        Provided that we qualify as a RIC and satisfy the Annual Distribution Requirement, we will not be subject to U.S. federal income tax on the portion of our investment company taxable income and net capital gain (which we define as net long-term capital gains in excess of net short-term capital losses) we timely distribute to stockholders. We will be subject to U.S. federal income tax at the regular corporate rates on any investment company taxable income and net capital gain not distributed (or deemed distributed) to our stockholders.

        We will be subject to a 4% non-deductible U.S. federal excise tax on certain undistributed income unless we distribute during each calendar year an amount at least equal to the sum of (1) 98% of our ordinary income for the calendar year and (2) 98.2% of our capital gain net income for the one-year period ending October 31 in that calendar year and (3) any income realized, but not distributed, in preceding years. In addition, the minimum amounts that must be distributed in any year to avoid the excise tax will be increased or decreased to reflect any under-distribution or over-distribution, as the case may be, from the previous year.

        We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount, we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. Because any original issue discount accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.

        Gain or loss realized by us from warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as capital gain or loss. Such gain or loss generally will be long-term or short-term, depending on how long we held a particular warrant. 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 income in other taxable years.

        Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy distribution requirements. However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain "asset coverage" tests are met. 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 assets in 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 would be subject to tax on all of our taxable income at regular corporate rates. We would not be able to deduct distributions to stockholders, nor would we be required to make distributions. Distributions would generally be taxable to our individual and other non-corporate taxable stockholders as ordinary dividend income eligible for the reduced maximum rate applicable to "qualified dividend income" to the extent of our current and accumulated earnings and profits, provided certain holding period and other requirements are met. Subject to certain limitations under the Code, corporate distributees would be eligible for the dividends-received deduction. To qualify again to be taxed as a RIC in a subsequent year, we would be required to distribute to our stockholders our accumulated earnings and profits attributable to non-RIC years reduced by an interest charge on 50% of such earnings and profits payable by us as an additional tax. In addition, if we failed to qualify as a RIC for a period greater than two taxable years, then, in order to qualify as a RIC in a subsequent year, we would be required to elect to recognize and pay tax on any net built-in gain (the

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excess of aggregate gain, including items of income, over aggregate loss that would have been realized if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of ten years.

        Certain of our investment practices may be subject to special and complex U.S. federal income tax provisions that may, among other things, (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (ii) convert lower taxed long-term capital gain and qualified dividend income into higher taxed short-term capital gain or ordinary income, (iii) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (iv) cause us to recognize income or gain without a corresponding receipt of cash, (v) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (vi) adversely alter the characterization of certain complex financial transactions, and (vii) produce income that will not be qualifying 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 of these provisions.

        We may invest in preferred securities or other securities the U.S. federal income tax treatment of which may be unclear or may be subject to recharacterization by the IRS. To the extent the tax treatment of such securities or the income from such securities differs from the expected tax treatment, it could affect the timing or character of income recognized, requiring us to purchase or sell securities, or otherwise change our portfolio, in order to comply with the tax rules applicable to RICs under the Code.

Taxation Of U.S. Stockholders

        Distributions by us generally are taxable to U.S. Stockholders as ordinary income or capital gains. Distributions of our "investment company taxable income" (which is, generally, our ordinary income plus realized net short-term capital gains in excess of realized net long-term capital losses) will be taxable as ordinary income to U.S. Stockholders to the extent of our current and accumulated earnings and profits, whether paid in cash or reinvested in additional common stock. Provided that certain holding period and other requirements are met, such distributions (if designated by us) may qualify (i) for the dividends received deduction available to corporations, but only to the extent that our income consists of dividend income from U.S. corporations and (ii) in the case of individual shareholders, as qualified dividend income eligible to be taxed at long-term capital gain rates to the extent that we receive qualified dividend income (generally, dividend income from taxable domestic corporations and certain qualified foreign corporations). There can be no assurance as to what portion, if any, of our distributions will qualify for favorable treatment as qualified dividend income.

        Distributions of our net capital gain (which is generally our realized net long-term capital gains in excess of realized net short-term capital losses) properly designated by us as "capital gain dividends" will be taxable to a U.S. Stockholder as long-term capital gains, regardless of the U.S. Stockholder's holding period for its common stock and regardless of whether paid in cash or reinvested in additional common stock. Distributions in excess of our current and accumulated earnings and profits first will reduce a U.S. Stockholder's adjusted tax basis in such stockholder's common stock and, after the adjusted basis is reduced to zero, will constitute capital gains to such U.S. Stockholder.

        Although we currently intend to distribute any long-term capital gains at least annually, we may in the future decide to retain some or all of our long-term capital gains, and designate the retained amount as a "deemed distribution." In that case, among other consequences, we will pay tax on the retained amount, each U.S. Stockholder will be required to include its proportionate share of the deemed distribution in income as if it had been actually distributed to the U.S. Stockholder, and the U.S. Stockholder will be entitled to claim a credit equal to its allocable share of the tax paid thereon by us. The amount of the deemed distribution net of such tax will be added to the U.S. Stockholder's tax basis for its common stock. Since we expect to pay tax on any retained capital gains at our regular corporate tax rate, and since that rate is in excess of the maximum rate currently payable by individuals

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on long-term capital gains, the amount of tax that individual stockholders will be treated as having paid and for which they will receive a credit will exceed the tax they owe on the retained net capital gain. Such excess generally may be claimed as a credit against the U.S. Stockholder's other U.S. federal income tax obligations or may be refunded to the extent it exceeds such U.S. Stockholder's liability for U.S. federal income tax. A U.S. Stockholder that is not subject to U.S. federal income tax or otherwise required to file a U.S. federal income tax return would be required to file a U.S. federal income tax return on the appropriate form in order to claim a refund for the taxes we paid. In order to utilize the deemed distribution approach, we must provide written notice to our stockholders prior to the expiration of 60 days after the close of the relevant taxable year. We cannot treat any of our investment company taxable income as a "deemed distribution."

        For purposes of determining (1) whether the Annual Distribution Requirement is satisfied for any year and (2) the amount of capital gain dividends paid for that year, we may, under certain circumstances, elect to treat a dividend that is paid during the following taxable year as if it had been paid during the taxable year in question. If we make such an election, the U.S. Stockholder will still be treated as receiving the dividend in the taxable year in which the distribution is made. However, any dividend declared by us in October, November or December of any calendar year, payable to stockholders of record on a specified date in any such month and actually paid during January of the following year, will be treated as if it had been received by our U.S. Stockholders on December 31 of the year in which the dividend was declared.

        If a U.S. Stockholder purchases shares of our common stock shortly before the record date of a distribution, the price of the shares will include the value of the distribution and the investor will be subject to tax on the distribution even though it represents a return of its investment.

        A U.S. Stockholder generally will recognize taxable gain or loss if such U.S. Stockholder sells or otherwise disposes of its shares of our common stock. Any gain or loss arising from such sale or taxable disposition generally will be treated as long-term capital gain or loss if the U.S. Stockholder has held its shares for more than one year. Otherwise, it would be classified as short-term capital gain or loss. However, any capital loss arising from the sale or taxable disposition of shares of our common stock held for six months or less will be treated as long-term capital loss to the extent of the amount of capital gain dividends received, or undistributed capital gain deemed received, with respect to such shares. In addition, all or a portion of any loss recognized upon a taxable disposition of shares of our common stock may be disallowed if other substantially identical shares are purchased (whether through reinvestment of distributions or otherwise) within 30 days before or after the disposition. Capital losses are deductible only to the extent of capital gains (subject to an exception for individuals under which a limited amount of capital losses may be offset against ordinary income).

        In general, individual U.S. Stockholders currently are subject to a preferential rate on their net capital gain, or the excess of realized net long-term capital gain over realized net short-term capital loss for a taxable year, including long-term capital gain derived from an investment in our shares. Such rate is lower than the maximum rate on ordinary income currently payable by individuals. Corporate U.S. Stockholders currently are subject to U.S. federal income tax on net capital gain at ordinary income rates.

        Certain U.S. Stockholders who are individuals, estates or trusts and whose income exceeds certain thresholds will be required to pay a 3.8% Medicare tax on all or a portion of their "net investment income," which includes dividends received from us and capital gains from the sale or other disposition of our stock.

        We will send to each of our U.S. Stockholders, as promptly as possible after the end of each calendar year, a notice detailing, on a per share and per distribution basis, the amounts includible in such U.S. Stockholder's taxable income for such year as ordinary income and as long-term capital gain. In addition, the amount and the U.S. federal tax status of each year's distributions generally will be

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reported to the IRS. Distributions may also be subject to additional state, local and foreign taxes depending on a U.S. Stockholder's particular situation.

        Payments of dividends, including deemed payments of constructive dividends, or the proceeds of the sale or other taxable disposition of our common stock generally are subject to information reporting unless the U.S. Stockholder is an exempt recipient. Such payments may also be subject to U.S. federal backup withholding at the applicable rate if the recipient of such payment fails to supply a taxpayer identification number and otherwise comply with the rules for establishing an exemption from backup withholding. Backup withholding is not an additional tax, and any amounts withheld under the backup withholding rules generally will be allowed as a refund or credit against the holder's U.S. federal income tax liability, provided that certain information is provided timely to the IRS.

Taxation Of Non-U.S. Stockholders

        Whether an investment in our common stock is appropriate for a Non-U.S. Stockholder will depend upon that person's particular circumstances. An investment in our common stock by a Non-U.S. Stockholder may have adverse tax consequences. Non-U.S. Stockholders should consult their tax advisers before investing in our common stock.

        Distributions of our investment company taxable income to Non-U.S. Stockholders that are not "effectively connected" with a U.S. trade or business conducted by the Non-U.S. Stockholder, will generally be subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) to the extent of our current and accumulated earnings and profits.

        For our taxable years beginning before January 1, 2014 (and, if extended as has happened in the past, for taxable years covered by such extension), properly reported distributions to Non-U.S. Stockholders are generally exempt from U.S. federal withholding tax where they (i) are paid in respect of our "qualified net interest income" (generally, our U.S.-source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which we are at least a 10% shareholder, reduced by expenses that are allocable to such income) or (ii) are paid in respect of our "qualified short-term capital gains" (generally, the excess of our net short-term capital gain over our long-term capital loss for such taxable year). There can be no assurance as to whether this provision will be extended. In addition, depending on our circumstances, we may report all, some or none of our potentially eligible dividends as such qualified net interest income or as qualified short-term capital gains, and/or treat such dividends, in whole or in part, as ineligible for this exemption from withholding. In order to qualify for this exemption from withholding, a Non-U.S. Stockholder needs to comply with applicable certification requirements relating to its non-U.S. status (including, in general, furnishing an IRS Form W-8BEN or substitute Form). In the case of shares held through an intermediary, the intermediary may withhold even if we report the payment as qualified net interest income or qualified short-term capital gain. Non-U.S. Stockholders should contact their intermediaries with respect to the application of these rules to their accounts. There can be no assurance as to what portion of our distributions will qualify for favorable treatment as qualified net interest income or qualified short-term capital gains.

        Actual or deemed distributions of our net capital gain to a Non-U.S. Stockholder, and gains recognized by a Non-U.S. Stockholder upon the sale of our common stock, that are not effectively connected with a U.S. trade or business conducted by the Non-U.S. Stockholder will generally not be subject to U.S. federal withholding tax and generally will not be subject to U.S. federal income tax unless the Non-U.S. Stockholder is a nonresident alien individual and is physically present in the U.S. for 183 or more days during the taxable year and meets certain other requirements.

        Distributions of our investment company taxable income and net capital gain (including deemed distributions) to Non-U.S. Stockholders, and gains recognized by Non-U.S. Stockholders upon the sale of our common stock, that are effectively connected with a U.S. trade or business conducted by the Non-U.S. Stockholder will be subject to U.S. federal income tax at the graduated rates applicable to

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U.S. citizens, residents and domestic corporations. In addition, if such Non-U.S. Stockholder is a foreign corporation, it may also be subject to a 30% (or lower applicable treaty rate) branch profits tax on its effectively connected earnings and profits for the taxable year, subject to adjustments, if its investment in our common stock is effectively connected with its conduct of a U.S. trade or business.

        If we distribute our net capital gain in the form of deemed rather than actual distributions (which we may do in the future), a Non-U.S. Stockholder will be entitled to a U.S. federal income tax credit or tax refund equal to the stockholder's allocable share of the tax we pay on the capital gains deemed to have been distributed. In order to obtain the refund, the Non-U.S. Stockholder must obtain a U.S. taxpayer identification number and file a U.S. federal income tax return even if the Non-U.S. Stockholder would not otherwise be required to obtain a U.S. taxpayer identification number or file a U.S. federal income tax return.

        In addition, after June 30, 2014, withholding at a rate of 30% will be required on dividends in respect of, and after December 31, 2016, withholding at a rate of 30% will be required on gross proceeds from the sale of, shares of our stock held by or through certain foreign financial institutions (including investment funds), unless such institution enters into an agreement with the Secretary of the Treasury to report, on an annual basis, information with respect to interests in, and accounts maintained by, the institution to the extent such interests or accounts are held by certain U.S. persons or by certain non-U.S. entities that are wholly or partially owned by U.S. persons and to withhold on certain payments. Accordingly, the entity through which our shares are held will affect the determination of whether such withholding is required. An intergovernmental agreement between the United States and an applicable foreign country, or future Treasury regulations or other guidance, may modify these requirements. Similarly, dividends in respect of, and gross proceeds from the sale of, our shares held by an investor that is a non-financial non-U.S. entity that does not qualify under certain exemptions will be subject to withholding at a rate of 30%, unless such entity either (i) certifies to us that such entity does not have any "substantial United States owners" or (ii) provides certain information regarding the entity's "substantial United States owners," which we will in turn provide to the Internal Revenue Service. We will not pay any additional amounts to stockholders in respect of any amounts withheld. Non-U.S. Stockholders are encouraged to consult their tax advisors regarding the possible implications of the legislation on their investment in our shares.

        A Non-U.S. Stockholder generally will be required to comply with certain certification procedures to establish that such holder is not a U.S. person in order to avoid backup withholding with respect to payments of dividends, including deemed payments of constructive dividends, or the proceeds of a disposition of our common stock. In addition, we are required to annually report to the IRS and each Non-U.S. Stockholder the amount of any dividends or constructive dividends treated as paid to such Non-U.S. Stockholder, regardless of whether any tax was actually withheld. Copies of the information returns reporting such dividend or constructive dividend payments and the amount withheld may also be made available to the tax authorities in the country in which a Non-U.S. Stockholder resides under the provisions of an applicable income tax treaty. Backup withholding is not an additional tax, and any amounts withheld under the backup withholding rules generally will be allowed as a refund or credit against a Non-U.S. Stockholder's U.S. federal income tax liability, if any, provided that certain required information is provided timely to the IRS.

        Non-U.S. persons should consult their tax advisors with respect to the U.S. federal income tax and withholding tax, and state, local and foreign tax consequences of an investment in our common stock.

Failure To Obtain RIC Tax Treatment

        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 not be able to deduct distributions to stockholders, nor would they be required to be made. Distributions would generally be taxable to our stockholders as ordinary dividend income eligible for the reduced maximum rate applicable to qualified

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dividend income to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the Code, corporate distributees would be eligible for the dividends-received deduction.

        Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder's tax basis, and any remaining distributions would be treated as a capital gain.

        The discussion set forth herein does not constitute tax advice, and potential investors should consult their own tax advisors concerning the tax considerations relevant to their particular situation.

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DESCRIPTION OF OUR CAPITAL STOCK

        The following description is based on relevant portions of the Maryland General Corporation Law and on our charter and bylaws. This summary is not necessarily complete, and we refer you to the Maryland General Corporation Law and our charter and bylaws for a more detailed description of the provisions summarized below.

Capital Stock

        Our authorized capital stock consists of 500,000,000 shares of stock, par value $0.001 per share, all of which is initially classified as common stock. Our common stock is traded on The NASDAQ Global Select Market under the symbol "PSEC." There are no outstanding options or warrants to purchase our stock. No stock has been authorized for issuance under any equity compensation plans. Under Maryland law, our stockholders generally are not personally liable for our debts or obligations.

        Under our charter, our Board of Directors is authorized to classify and reclassify any unissued shares of stock into other classes or series of stock, and to authorize the issuance of such shares, without obtaining stockholder approval. Our Board of Directors will only take such actions in accordance with Section 18 as modified by Section 61 of the 1940 Act. The 1940 Act limits business development companies to only one class or series of common stock and only one class of preferred stock. As permitted by the Maryland General Corporation Law, our charter provides that the Board of Directors, without any action by our stockholders, may amend the charter from time to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue.

        The below table sets forth each class of our outstanding securities as of October 10, 2013 including shares sold with settlement dates through October 16, 2013:

(1)
Title of Class
  (2)
Amount Authorized
  (3)
Amount Held
by the Company
or for its Account
  (4)
Amount Outstanding
Exclusive of Amount
Shown Under(3)
 

Common Stock

    500,000,000     0     276,844,568  

        All shares of our common stock have equal rights as to earnings, assets, dividends and voting and, when they are issued, will be duly authorized, validly issued, fully paid and nonassessable. Distributions may be paid to the holders of our common stock if, as and when authorized by our Board of Directors and declared by us out of funds legally available therefor. Shares of our common stock have no preemptive, conversion or redemption rights and are freely transferable, except where their transfer is restricted by U.S. Federal and state securities laws or by contract. In the event of a liquidation, dissolution or winding up of us, each share of our common stock would be entitled to share ratably in all of our assets that are legally available for distribution after we pay all debts and other liabilities and subject to any preferential rights of holders of our preferred stock, if any preferred stock is outstanding at such time. Each share of our common stock is entitled to one vote on all matters submitted to a vote of stockholders, including the election of directors. Except as provided with respect to any other class or series of stock, the holders of our common stock will possess exclusive voting power. There is no cumulative voting in the election of directors, which means that prior to the issuance of preferred stock holders of a majority of the outstanding shares of common stock will elect all of our directors, and holders of less than a majority of such shares will be unable to elect any director.

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        Our charter authorizes our Board of Directors to classify and reclassify any unissued shares of stock into other classes or series of stock, including preferred stock. Prior to issuance of shares of each class or series, the Board of Directors is required by Maryland law and by our charter to set the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, the Board of Directors could authorize the issuance of shares of preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of our common stock or otherwise be in their best interest. You should note, however, that any issuance of preferred stock must comply with the requirements of the 1940 Act. The 1940 Act requires, among other things, that (1) immediately after issuance and before any dividend or other distribution (other than in shares of stock) is made with respect to our common stock and before any purchase of common stock is made, such preferred stock together with all other senior securities must not exceed an amount equal to 50% of our total assets after deducting the amount of such dividend, distribution or purchase price, as the case may be, and (2) the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if dividends on such preferred stock become in arrears by two years or more until all arrears are cured. Certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock. For example, holders of preferred stock would vote separately from the holders of common stock on a proposal to operate other than as an investment company. We believe that the availability for issuance of preferred stock will provide us with increased flexibility in structuring future financings and acquisitions.

Limitation On Liability Of Directors And Officers; Indemnification And Advance Of Expenses

        Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty established by a final judgment as being material to the cause of action. Our charter contains such a provision which eliminates directors' and officers' liability to the maximum extent permitted by Maryland law, subject to the requirements of the 1940 Act.

        Our charter authorizes us, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to obligate ourselves to indemnify any present or former director or officer or any individual who, while serving as a director or officer and at our request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee, from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her service in any such capacity and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. Our bylaws obligate us, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to indemnify any present or former director or officer or any individual who, while serving as a director or officer and at our request, serves or has served another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner, manager, member or trustee and who is made, or threatened to be made, a party to the proceeding by reason of his or her service in any such capacity from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her service in any such capacity and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. The charter and bylaws also permit us to indemnify and advance expenses to any person who served a predecessor of us in any of the capacities described above and any of our employees or agents or any employees or agents of our predecessor. In accordance with the 1940 Act, we will not indemnify any person for any

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liability to which such person would be subject by reason of such person's willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.

        Maryland law requires a corporation (unless its charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service in that capacity. Maryland law permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made, or threatened to be made, a party by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, under Maryland law, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis that a personal benefit was improperly received, unless in either case a court orders indemnification, and then only for expenses. In addition, Maryland law permits a corporation to advance reasonable expenses to a director or officer upon the corporation's receipt of (a) a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the standard of conduct was not met.

        Our insurance policy does not currently provide coverage for claims, liabilities and expenses that may arise out of activities that a present or former director or officer of us has performed for another entity at our request. There is no assurance that such entities will in fact carry such insurance. However, we note that we do not expect to request our present or former directors or officers to serve another entity as a director, officer, partner or trustee unless we can obtain insurance providing coverage for such persons for any claims, liabilities or expenses that may arise out of their activities while serving in such capacities.

Provisions Of The Maryland General Corporation Law And Our Charter And Bylaws

        The Maryland General Corporation Law and our charter and bylaws contain provisions that could make it more difficult for a potential acquiror to acquire us by means of a tender offer, proxy contest or otherwise. These provisions are expected to discourage certain coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to negotiate first with our Board of Directors. These provisions could have the effect of depriving stockholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of us. We believe that the benefits of these provisions outweigh the potential disadvantages of discouraging any such acquisition proposals because, among other things, the negotiation of such proposals may improve their terms.

        The Maryland General Corporation Law under the Control Share Act provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by the affirmative vote of holders of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquiror, by officers or by directors who are employees of the corporation are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock

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which, if aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power:

        The requisite stockholder approval must be obtained each time an acquiror crosses one of the thresholds of voting power set forth above. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition means the acquisition of control shares, subject to certain exceptions.

        A person who has made or proposes to make a control share acquisition may compel the Board of Directors of the corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.

        If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may redeem for fair value any or all of the control shares, except those for which voting rights have previously been approved. The right of the corporation to redeem control shares is subject to certain conditions and limitations, including, as provided in our bylaws, compliance with the 1940 Act. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or of any meeting of stockholders at which the voting rights of the shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition.

        The Control Share Act does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation.

        Our bylaws contain a provision exempting from the Control Share Act any and all acquisitions by any person of our shares of stock. There can be no assurance that such provision will not be amended or eliminated at any time in the future. However, we will notify the Division of Investment Management at the SEC prior to amending our bylaws to be subject to the Control Share Act and will make such amendment only if the Board of Directors determines that it would be in our best interests.

        Under Maryland law, "business combinations" between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the

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statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:

        A person is not an interested stockholder under this statute if the Board of Directors approved in advance the transaction by which he otherwise would have become an interested stockholder. However, in approving a transaction, the Board of Directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the Board of Directors.

        After the five-year prohibition, any such business combination must be recommended by the Board of Directors of the corporation and approved by the affirmative vote of at least:

        These super-majority vote requirements do not apply if the corporation's common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.

        The statute provides various exemptions from its provisions, including for business combinations that are exempted by the Board of Directors before the time that the interested stockholder becomes an interested stockholder. Our Board of Directors has adopted a resolution that any business combination between us and any other person is exempted from the provisions of the Business Combination Act, provided that the business combination is first approved by the Board of Directors, including a majority of the directors who are not interested persons as defined in the 1940 Act. This resolution, however, may be altered or repealed in whole or in part at any time. If this resolution is repealed, or the Board of Directors does not otherwise approve a business combination, the statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.

        Our bylaws provide that, if and to the extent that any provision of the Maryland General Corporation Law, including the Control Share Act (if we amend our bylaws to be subject to such Act) and the Business Combination Act, or any provision of our charter or bylaws conflicts with any provision of the 1940 Act, the applicable provision of the 1940 Act will control.

        Our Board of Directors is divided into three classes of directors serving staggered three-year terms. The current terms of the first, second and third classes will expire at the annual meeting of stockholders held in 2014, 2015 and 2013 respectively, and in each case, until their successors are duly elected and qualify. Each year one class of directors will be elected to the Board of Directors by the stockholders to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. Each director holds office for the term to which he or she is

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elected and until his or her successor is duly elected and qualifies. A classified board may render a change in control of us or removal of our incumbent management more difficult. We believe, however, that the longer time required to elect a majority of a classified Board of Directors will help to ensure the continuity and stability of our management and policies.

        Our charter and bylaws provide that the affirmative vote of the holders of a majority of the outstanding shares of stock entitled to vote in the election of directors will be required to elect a director. Under the charter, our Board of Directors may amend the bylaws to alter the vote required to elect directors.

        Our charter provides that the number of directors will be set only by the Board of Directors in accordance with our bylaws. Our bylaws provide that a majority of our entire Board of Directors may at any time increase or decrease the number of directors. However, unless our bylaws are amended, the number of directors may never be less than three nor more than eight. Our charter provides that, at such time as we are eligible to make the election provided for under Section 3-802(b) of the Maryland General Corporation Law, we elect to be subject to the provision of Subtitle 8 of Title 3 of the Maryland General Corporation Law regarding the filling of vacancies on the Board of Directors. Accordingly, except as may be provided by the Board of Directors in setting the terms of any class or series of preferred stock, any and all vacancies on the Board of Directors may be filled only by the affirmative vote of a majority of the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy will serve for the remainder of the full term of the directorship in which the vacancy occurred and until a successor is elected and qualifies, subject to any applicable requirements of the 1940 Act.

        Our charter provides that a director may be removed only for cause, as defined in our charter, and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast in the election of directors.

        The Maryland General Corporation Law provides that stockholder action can be taken only at an annual or special meeting of stockholders or (unless the charter provides for stockholder action by less than unanimous written consent, which our charter does not) by unanimous written consent in lieu of a meeting. These provisions, combined with the requirements of our bylaws regarding the calling of a stockholder-requested special meeting of stockholders discussed below, may have the effect of delaying consideration of a stockholder proposal until the next annual meeting.

        Our bylaws provide that with respect to an annual meeting of stockholders, nominations of persons for election to the Board of Directors and the proposal of business to be considered by stockholders may be made only (1) pursuant to our notice of the meeting, (2) by or at the direction of the Board of Directors or (3) by a stockholder who was a stockholder of record both at the time of provision of notice and at the annual meeting, who is entitled to vote at the meeting and who has complied with the advance notice procedures of the bylaws. With respect to special meetings of stockholders, only the business specified in our notice of the meeting may be brought before the meeting. Nominations of persons for election to the Board of Directors at a special meeting may be made only (1) by or at the direction of the Board of Directors or (2) provided that the Board of Directors has determined that directors will be elected at the meeting, by a stockholder who was a stockholder of record both at the

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time of provision of notice and at the special meeting, who is entitled to vote at the meeting and who has complied with the advance notice provisions of the bylaws.

        The purpose of requiring stockholders to give us advance notice of nominations and other business is to afford our Board of Directors a meaningful opportunity to consider the qualifications of the proposed nominees and the advisability of any other proposed business and, to the extent deemed necessary or desirable by our Board of Directors, to inform stockholders and make recommendations about such qualifications or business, as well as to provide a more orderly procedure for conducting meetings of stockholders. Although our bylaws do not give our Board of Directors any power to disapprove stockholder nominations for the election of directors or proposals recommending certain action, they may have the effect of precluding a contest for the election of directors or the consideration of stockholder proposals if proper procedures are not followed and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal without regard to whether consideration of such nominees or proposals might be harmful or beneficial to us and our stockholders.

        Our bylaws provide that special meetings of stockholders may be called by our Board of Directors and certain of our officers. Additionally, our bylaws provide that, subject to the satisfaction of certain procedural and informational requirements by the stockholders requesting the meeting, a special meeting of stockholders will be called by the secretary of the corporation upon the written request of stockholders entitled to cast not less than a majority of all the votes entitled to be cast at such meeting.

        Under Maryland law, a Maryland corporation generally cannot dissolve, amend its charter, merge, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business, unless approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter. However, a Maryland corporation may provide in its charter for approval of these matters by a lesser percentage, but not less than a majority of all of the votes entitled to be cast on the matter. Our charter generally provides for approval of charter amendments and extraordinary transactions by the stockholders entitled to cast at least a majority of the votes entitled to be cast on the matter.

        Our charter also provides that certain charter amendments and any proposal for our conversion, whether by merger or otherwise, from a closed-end company to an open-end company or any proposal for our liquidation or dissolution requires the approval of the stockholders entitled to cast at least 80 percent of the votes entitled to be cast on such matter. However, if such amendment or proposal is approved by at least two-thirds of our continuing directors (in addition to approval by our Board of Directors), such amendment or proposal may be approved by a majority of the votes entitled to be cast on such a matter. The "continuing directors" are defined in our charter as our current directors as well as those directors whose nomination for election by the stockholders or whose election by the directors to fill vacancies is approved by a majority of the continuing directors then on the Board of Directors.

        Our charter and bylaws provide that the Board of Directors will have the exclusive power to make, alter, amend or repeal any provision of our bylaws.

        Except with respect to appraisal rights arising in connection with the Control Share Act discussed above, as permitted by the Maryland General Corporation Law, our charter provides that stockholders will not be entitled to exercise appraisal rights.

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DESCRIPTION OF OUR PREFERRED STOCK

        In addition to shares of common stock, our charter authorizes the issuance of preferred stock. If we offer preferred stock under this prospectus, we will issue an appropriate prospectus supplement. We may issue preferred stock from time to time in one or more series, without stockholder approval. Our Board of Directors is authorized to fix for any series of preferred stock the number of shares of such series and the designation, relative powers, preferences and rights, and the qualifications, limitations or restrictions of such series; except that, such an issuance must adhere to the requirements of the 1940 Act, Maryland law and any other limitations imposed by law.

        The 1940 Act requires, among other things, that (1) immediately after issuance and before any distribution is made with respect to common stock, the liquidation preference of the preferred stock, together with all other senior securities, must not exceed an amount equal to 50% of our total assets (taking into account such distribution) and (2) the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if dividends on the preferred stock are in arrears by two years or more.

        For any series of preferred stock that we may issue, our Board of Directors will determine and the prospectus supplement relating to such series will describe:

        All shares of preferred stock that we may issue will be identical and of equal rank except as to the particular terms thereof that may be fixed by our Board of Directors, and all shares of each series of preferred stock will be identical and of equal rank except as to the dates from which cumulative dividends thereon will be cumulative.

DESCRIPTION OF OUR DEBT SECURITIES

        We currently have the Notes outstanding. However, we may issue additional debt securities in one or more series in the future which, if publicly offered, will be under an indenture to be entered into between us and a trustee. The specific terms of each series of debt securities we publicly offer will be described in the particular prospectus supplement relating to that series. The prospectus supplement may or may not modify the general terms found in this prospectus and will be filed with the SEC. For

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a complete description of the terms of a particular series of debt securities, you should read both this prospectus and the prospectus supplement relating to that particular series. The description below is a summary with respect to future debt securities we may issue and not a summary of the Notes. Please see "Business—General—Notes" for a description of the Notes.

        As required by federal law for all bonds and notes of companies that are publicly offered, the debt securities are governed by a document called an "indenture." On March 9, 2012, we entered into an Agreement of Resignation, Appointment and Acceptance (the "Agreement") with American Stock Transfer & Trust Company, LLC (the "Retiring Trustee") and U.S. Bank National Association (the "trustee"). Under the Agreement, we formally accepted the resignation of the Retiring Trustee and appointed the trustee under the Indenture, dated as of February 16, 2012 (the "indenture"), by and between us and the Retiring Trustee, as supplemented by the First Supplemental Indenture, dated as of March 1, 2012, by and between us and the Retiring Trustee, as further supplemented by the Second Supplemental Indenture, dated as of March 8, 2012, by and between us and the Retiring Trustee, and as further supplemented by the Joinder Supplemental Indenture, dated as of March 8, 2012, by and among us, the Retiring Trustee and the trustee. We accepted the resignation of the Retiring Trustee and appointed the trustee in order to take advantage of a more efficient money market based system of settling issuances of notes issued pursuant to the indenture not available through the Retiring Trustee. The indenture is subject to and governed by the Trust Indenture Act of 1939, as amended. The trustee has two main roles. First, the trustee can enforce your rights against us if we default. There are some limitations on the extent to which the trustee acts on your behalf, described in the second paragraph under "Events of Default—Remedies if an Event of Default Occurs." Second, the trustee performs certain administrative duties for us.

        Because this section is a summary, it does not describe every aspect of the debt securities and the indenture. We urge you to read the indenture because it, and not this description, defines your rights as a holder of debt securities. For example, in this section, we use capitalized words to signify terms that are specifically defined in the indenture. Some of the definitions are repeated in this prospectus, but for the rest you will need to read the indenture. We have filed the form of the indenture with the SEC. See "Available Information" for information on how to obtain a copy of the indenture.

        The prospectus supplement, which will accompany this prospectus, will describe the particular series of debt securities being offered by including:

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        The debt securities may be secured or unsecured obligations. Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue debt only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after each issuance of debt. Unless the prospectus supplement states otherwise, principal (and premium, if any) and interest, if any, will be paid by us in immediately available funds.

General

        The indenture provides that any debt securities proposed to be sold under this prospectus and the attached prospectus supplement ("offered debt securities") and any debt securities issuable upon the exercise of warrants or upon conversion or exchange of other offered securities ("underlying debt securities"), may be issued under the indenture in one or more series.

        For purposes of this prospectus, any reference to the payment of principal of or premium or interest, if any, on debt securities will include additional amounts if required by the terms of the debt securities.

        The indenture limits the amount of debt securities that may be issued thereunder from time to time. Debt securities issued under the indenture, when a single trustee is acting for all debt securities issued under the indenture, are called the "indenture securities." The indenture also provides that there may be more than one trustee thereunder, each with respect to one or more different series of indenture securities. See "Resignation of Trustee" below. At a time when two or more trustees are acting under the indenture, each with respect to only certain series, the term "indenture securities" means the one or more series of debt securities with respect to which each respective trustee is acting. In the event that there is more than one trustee under the indenture, the powers and trust obligations of each trustee described in this prospectus will extend only to the one or more series of indenture securities for which it is trustee. If two or more trustees are acting under the indenture, then the

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indenture securities for which each trustee is acting would be treated as if issued under separate indentures.

        The indenture does not contain any provisions that give you protection in the event we issue a large amount of debt.

        We refer you to the prospectus supplement for information with respect to any deletions from, modifications of or additions to the Events of Default or our covenants that are described below, including any addition of a covenant or other provision providing event risk or similar protection.

        We have the ability to issue indenture securities with terms different from those of indenture securities previously issued and, without the consent of the holders thereof, to reopen a previous issue of a series of indenture securities and issue additional indenture securities of that series unless the reopening was restricted when that series was created.

Conversion and Exchange

        If any debt securities are convertible into or exchangeable for other securities, the prospectus supplement will explain the terms and conditions of the conversion or exchange, including the conversion price or exchange ratio (or the calculation method), the conversion or exchange period (or how the period will be determined), if conversion or exchange will be mandatory or at the option of the holder or us, provisions for adjusting the conversion price or the exchange ratio and provisions affecting conversion or exchange in the event of the redemption of the underlying debt securities. These terms may also include provisions under which the number or amount of other securities to be received by the holders of the debt securities upon conversion or exchange would be calculated according to the market price of the other securities as of a time stated in the prospectus supplement.

Issuance of Securities in Registered Form

        We may issue the debt securities in registered form, in which case we may issue them either in book-entry form only or in "certificated" form. Debt securities issued in book-entry form will be represented by global securities. We expect that we will usually issue debt securities in book-entry only form represented by global securities.

        We also will have the option of issuing debt securities in non-registered form as bearer securities if we issue the securities outside the United States to non-U.S. persons. In that case, the prospectus supplement will set forth the mechanics for holding the bearer securities, including the procedures for receiving payments, for exchanging the bearer securities, including the procedures for receiving payments, for exchanging the bearer securities for registered securities of the same series, and for receiving notices. The prospectus supplement will also describe the requirements with respect to our maintenance of offices or agencies outside the United States and the applicable U.S. federal tax law requirements.

Book-Entry Holders

        We will issue registered debt securities in book-entry form only, unless we specify otherwise in the applicable prospectus supplement. This means debt securities will be represented by one or more global securities registered in the name of a depositary that will hold them on behalf of financial institutions that participate in the depositary's book-entry system. These participating institutions, in turn, hold beneficial interests in the debt securities held by the depositary or its nominee. These institutions may hold these interests on behalf of themselves or customers.

        Under the indenture, only the person in whose name a debt security is registered is recognized as the holder of that debt security. Consequently, for debt securities issued in book-entry form, we will recognize only the depositary as the holder of the debt securities and we will make all payments on the

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debt securities to the depositary. The depositary will then pass along the payments it receives to its participants, which in turn will pass the payments along to their customers who are the beneficial owners. The depositary and its participants do so under agreements they have made with one another or with their customers; they are not obligated to do so under the terms of the debt securities.

        As a result, investors will not own debt securities directly. Instead, they will own beneficial interests in a global security, through a bank, broker or other financial institution that participates in the depositary's book-entry system or holds an interest through a participant. As long as the debt securities are represented by one or more global securities, investors will be indirect holders, and not holders, of the debt securities.

Street Name Holders

        In the future, we may issue debt securities in certificated form or terminate a global security. In these cases, investors may choose to hold their debt securities in their own names or in "street name." Debt securities held in street name are registered in the name of a bank, broker or other financial institution chosen by the investor, and the investor would hold a beneficial interest in those debt securities through the account he or she maintains at that institution.

        For debt securities held in street name, we will recognize only the intermediary banks, brokers and other financial institutions in whose names the debt securities are registered as the holders of those debt securities and we will make all payments on those debt securities to them. These institutions will pass along the payments they receive to their customers who are the beneficial owners, but only because they agree to do so in their customer agreements or because they are legally required to do so. Investors who hold debt securities in street name will be indirect holders, and not holders, of the debt securities.

Legal Holders

        Our obligations, as well as the obligations of the applicable trustee and those of any third parties employed by us or the applicable trustee, run only to the legal holders of the debt securities. We do not have obligations to investors who hold beneficial interests in global securities, in street name or by any other indirect means. This will be the case whether an investor chooses to be an indirect holder of a debt security or has no choice because we are issuing the debt securities only in book-entry form.

        For example, once we make a payment or give a notice to the holder, we have no further responsibility for the payment or notice even if that holder is required, under agreements with depositary participants or customers or by law, to pass it along to the indirect holders but does not do so. Similarly, if we want to obtain the approval of the holders for any purpose (for example, to amend an indenture or to relieve us of the consequences of a default or of our obligation to comply with a particular provision of an indenture), we would seek the approval only from the holders, and not the indirect holders, of the debt securities. Whether and how the holders contact the indirect holders is up to the holders.

        When we refer to you, we mean those who invest in the debt securities being offered by this prospectus, whether they are the holders or only indirect holders of those debt securities. When we refer to your debt securities, we mean the debt securities in which you hold a direct or indirect interest.

        If you hold debt securities through a bank, broker or other financial institution, either in book-entry form or in street name, we urge you to check with that institution to find out:

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Global Securities

        As noted above, we usually will issue debt securities as registered securities in book-entry form only. A global security represents one or any other number of individual debt securities. Generally, all debt securities represented by the same global securities will have the same terms.

        Each debt security issued in book-entry form will be represented by a global security that we deposit with and register in the name of a financial institution or its nominee that we select. The financial institution that we select for this purpose is called the depositary. Unless we specify otherwise in the applicable prospectus supplement, The Depository Trust Company, New York, New York, known as DTC, will be the depositary for all debt securities issued in book-entry form.

        A global security may not be transferred to or registered in the name of anyone other than the depositary or its nominee, unless special termination situations arise. We describe those situations below under "Special Situations when a Global Security Will Be Terminated". As a result of these arrangements, the depositary, or its nominee, will be the sole registered owner and holder of all debt securities represented by a global security, and investors will be permitted to own only beneficial interests in a global security. Beneficial interests must be held by means of an account with a broker, bank or other financial institution that in turn has an account with the depositary or with another institution that has an account with the depositary. Thus, an investor whose security is represented by a global security will not be a holder of the debt security, but only an indirect holder of a beneficial interest in the global security.

        As an indirect holder, an investor's rights relating to a global security will be governed by the account rules of the investor's financial institution and of the depositary, as well as general laws relating to securities transfers. The depositary that holds the global security will be considered the holder of the debt securities represented by the global security.

        If debt securities are issued only in the form of a global security, an investor should be aware of the following:

        An investor cannot cause the debt securities to be registered in his or her name, and cannot obtain certificates for his or her interest in the debt securities, except in the special situations we describe below.

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Special Situations when a Global Security will be Terminated

        In a few special situations described below, a global security will be terminated and interests in it will be exchanged for certificates in non-book-entry form (certificated securities). After that exchange, the choice of whether to hold the certificated debt securities directly or in street name will be up to the investor. Investors must consult their own banks or brokers to find out how to have their interests in a global security transferred on termination to their own names, so that they will be holders. We have described the rights of legal holders and street name investors under "Issuance of Securities in Registered Form" above.

        The special situations for termination of a global security are as follows:

        The prospectus supplement may list situations for terminating a global security that would apply only to the particular series of debt securities covered by the prospectus supplement. If a global security is terminated, only the depositary, and not we or the applicable trustee, is responsible for deciding the names of the institutions in whose names the debt securities represented by the global security will be registered and, therefore, who will be the holders of those debt securities.

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Payment and Paying Agents

        We will pay interest to the person listed in the applicable trustee's records as the owner of the debt security at the close of business on a particular day in advance of each due date for interest, even if that person no longer owns the debt security on the interest due date. That day, usually about two weeks in advance of the interest due date, is called the "record date." Because we will pay all the interest for an interest period to the holders on the record date, holders buying and selling debt securities must work out between themselves the appropriate purchase price. The most common manner is to adjust the sales price of the debt securities to prorate interest fairly between buyer and seller based on their respective ownership periods within the particular interest period. This prorated interest amount is called "accrued interest."

        We will make payments on a global security in accordance with the applicable policies of the depositary as in effect from time to time. Under those policies, we will make payments directly to the depositary, or its nominee, and not to any indirect holders who own beneficial interests in the global security. An indirect holder's right to those payments will be governed by the rules and practices of the depositary and its participants, as described under "—Special Considerations for Global Securities."

        We will make payments on a certificated debt security as follows. We will pay interest that is due on an interest payment date by check mailed on the interest payment date to the holder at his or her address shown on the trustee's records as of the close of business on the regular record date. We will make all payments of principal and premium, if any, by check at the office of the applicable trustee in New York, NY and/or at other offices that may be specified in the prospectus supplement or in a notice to holders against surrender of the debt security.

        Alternatively, if the holder asks us to do so, we will pay any amount that becomes due on the debt security by wire transfer of immediately available funds to an account at a bank in New York City, on the due date. To request payment by wire, the holder must give the applicable trustee or other paying agent appropriate transfer instructions at least 15 business days before the requested wire payment is due. In the case of any interest payment due on an interest payment date, the instructions must be given by the person who is the holder on the relevant regular record date. Any wire instructions, once properly given, will remain in effect unless and until new instructions are given in the manner described above.

        If any payment is due on a debt security on a day that is not a business day, we will make the payment on the next day that is a business day. Payments made on the next business day in this situation will be treated under the indenture as if they were made on the original due date, except as otherwise indicated in the attached prospectus supplement. Such payment will not result in a default under any debt security or the indenture, and no interest will accrue on the payment amount from the original due date to the next day that is a business day.

Book-entry and other indirect holders should consult their banks or brokers for information on how they will receive payments on their debt securities.

Events of Default

        You will have rights if an Event of Default occurs in respect of the debt securities of your series and is not cured, as described later in this subsection.

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        The term "Event of Default" in respect of the debt securities of your series means any of the following:

        An Event of Default for a particular series of debt securities does not necessarily constitute an Event of Default for any other series of debt securities issued under the same or any other indenture. The trustee may withhold notice to the holders of debt securities of any default, except in the payment of principal, premium or interest, if it considers the withholding of notice to be in the best interests of the holders.

        If an Event of Default has occurred and has not been cured, the trustee or the holders of at least 25% in principal amount of the debt securities of the affected series may declare the entire principal amount of all the debt securities of that series to be due and immediately payable. This is called a declaration of acceleration of maturity. A declaration of acceleration of maturity may be canceled by the holders of a majority in principal amount of the debt securities of the affected series under certain circumstances.

        Except in cases of default, where the trustee has some special duties, the trustee is not required to take any action under the indenture at the request of any holders unless the holders offer the trustee reasonable protection from expenses and liability (called an "indemnity"). (Section 315 of the Trust Indenture Act of 1939) If reasonable indemnity is provided, the holders of a majority in principal amount of the outstanding debt securities of the relevant series may direct the time, method and place of conducting any lawsuit or other formal legal action seeking any remedy available to the trustee. The trustee may refuse to follow those directions in certain circumstances. No delay or omission in exercising any right or remedy will be treated as a waiver of that right, remedy or Event of Default.

        Before you are allowed to bypass your trustee and bring your own lawsuit or other formal legal action or take other steps to enforce your rights or protect your interests relating to the debt securities, the following must occur:

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        However, you are entitled at any time to bring a lawsuit for the payment of money due on your debt securities on or after the due date.

        Holders of a majority in principal amount of the debt securities of the affected series may waive any past defaults other than:

Book-entry and other indirect holders should consult their banks or brokers for information on how to give notice or direction to or make a request of the trustee and how to declare or cancel an acceleration of maturity.

        Each year, we will furnish to each trustee a written statement of certain of our officers certifying that to their knowledge we are in compliance with the indenture and the debt securities or else specifying any default.

Merger or Consolidation

        Under the terms of the indenture, we are generally permitted to consolidate or merge with another entity. We are also permitted to sell all or substantially all of our assets to another entity. However, we may not take any of these actions unless all the following conditions are met:

Modification or Waiver

        There are three types of changes we can make to the indenture and the debt securities issued thereunder.

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        First, there are changes that we cannot make to your debt securities without your specific approval. The following is a list of those types of changes:

        The second type of change does not require any vote by the holders of the debt securities. This type is limited to clarifications and certain other changes that would not adversely affect holders of the outstanding debt securities in any material respect. We also do not need any approval to make any change that affects only debt securities to be issued under the indenture after the change takes effect.

        Any other change to the indenture and the debt securities would require the following approval:

        In each case, the required approval must be given by written consent.

        The holders of a majority in principal amount of all of the series of debt securities issued under an indenture, voting together as one class for this purpose, may waive our compliance with some of our covenants in that indenture. However, we cannot obtain a waiver of a payment default or of any of the matters covered by the bullet points included above under "—Changes Requiring Your Approval."

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        When taking a vote, we will use the following rules to decide how much principal to attribute to a debt security:

        Debt securities will not be considered outstanding, and therefore not eligible to vote, if we have deposited or set aside in trust money for their payment or redemption. Debt securities will also not be eligible to vote if they have been fully defeased as described later under "Defeasance—Full Defeasance."

        We will generally be entitled to set any day as a record date for the purpose of determining the holders of outstanding indenture securities that are entitled to vote or take other action under the indenture. If we set a record date for a vote or other action to be taken by holders of one or more series, that vote or action may be taken only by persons who are holders of outstanding indenture securities of those series on the record date and must be taken within eleven months following the record date.

Book-entry and other indirect holders should consult their banks or brokers for information on how approval may be granted or denied if we seek to change the indenture or the debt securities or request a waiver.

Defeasance

        The following provisions will be applicable to each series of debt securities unless we state in the applicable prospectus supplement that the provisions of covenant defeasance and full defeasance will not be applicable to that series.

        Under current United States federal tax law, we can make the deposit described below and be released from some of the restrictive covenants in the indenture under which the particular series was issued. This is called "covenant defeasance." In that event, you would lose the protection of those restrictive covenants but would gain the protection of having money and government securities set aside in trust to repay your debt securities. In order to achieve covenant defeasance, we must do the following:

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        If there is a change in United States federal tax law, as described below, we can legally release ourselves from all payment and other obligations on the debt securities of a particular series (called "full defeasance") if we put in place the following other arrangements for you to be repaid:

Form, Exchange and Transfer of Certificated Registered Securities

        If registered debt securities cease to be issued in book-entry form, they will be issued:

        Holders may exchange their certificated securities for debt securities of smaller denominations or combined into fewer debt securities of larger denominations, as long as the total principal amount is not changed.

        Holders may exchange or transfer their certificated securities at the office of their trustee. We have appointed the trustee to act as our agent for registering debt securities in the names of holders transferring debt securities. We may appoint another entity to perform these functions or perform them ourselves.

        Holders will not be required to pay a service charge to transfer or exchange their certificated securities, but they may be required to pay any tax or other governmental charge associated with the transfer or exchange. The transfer or exchange will be made only if our transfer agent is satisfied with the holder's proof of legal ownership.

        If we have designated additional transfer agents for your debt security, they will be named in your prospectus supplement. We may appoint additional transfer agents or cancel the appointment of any particular transfer agent. We may also approve a change in the office through which any transfer agent acts.

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        If any certificated securities of a particular series are redeemable and we redeem less than all the debt securities of that series, we may block the transfer or exchange of those debt securities during the period beginning 15 days before the day we mail the notice of redemption and ending on the day of that mailing, in order to freeze the list of holders to prepare the mailing. We may also refuse to register transfers or exchanges of any certificated securities selected for redemption, except that we will continue to permit transfers and exchanges of the unredeemed portion of any debt security that will be partially redeemed.

        If a registered debt security is issued in book-entry form, only the depositary will be entitled to transfer and exchange the debt security as described in this subsection, since it will be the sole holder of the debt security.

Resignation of Trustee

        Each trustee may resign or be removed with respect to one or more series of indenture securities provided that a successor trustee is appointed to act with respect to these series. In the event that two or more persons are acting as trustee with respect to different series of indenture securities under the indenture, each of the trustees will be a trustee of a trust separate and apart from the trust administered by any other trustee.

Indenture Provisions—Subordination

        Upon any distribution of our assets upon our dissolution, winding up, liquidation or reorganization, the payment of the principal of (and premium, if any) and interest, if any, on any indenture securities denominated as subordinated debt securities is to be subordinated to the extent provided in the indenture in right of payment to the prior payment in full of all Senior Indebtedness (as defined below), but our obligation to you to make payment of the principal of (and premium, if any) and interest, if any, on such subordinated debt securities will not otherwise be affected. In addition, no payment on account of principal (or premium, if any), sinking fund or interest, if any, may be made on such subordinated debt securities at any time unless full payment of all amounts due in respect of the principal (and premium, if any), sinking fund and interest on Senior Indebtedness has been made or duly provided for in money or money's worth.

        In the event that, notwithstanding the foregoing, any payment or distribution of our assets by us is received by the trustee in respect of subordinated debt securities or by the holders of any of such subordinated debt securities before all Senior Indebtedness is paid in full, the payment or distribution must be paid over, upon written notice to the Trustee, to the holders of the Senior Indebtedness or on their behalf for application to the payment of all the Senior Indebtedness remaining unpaid until all the Senior Indebtedness has been paid in full, after giving effect to any concurrent payment or distribution to the holders of the Senior Indebtedness. Subject to the payment in full of all Senior Indebtedness upon this distribution by us, the holders of such subordinated debt securities will be subrogated to the rights of the holders of the Senior Indebtedness to the extent of payments made to the holders of the Senior Indebtedness out of the distributive share of such subordinated debt securities.

        By reason of this subordination, in the event of a distribution of our assets upon our insolvency, certain of our senior creditors may recover more, ratably, than holders of any subordinated debt securities. The indenture provides that these subordination provisions will not apply to money and securities held in trust under the defeasance provisions of the indenture.

        Senior Indebtedness is defined in the indenture as the principal of (and premium, if any) and unpaid interest on:

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If this prospectus is being delivered in connection with the offering of a series of indenture securities denominated as subordinated debt securities, the accompanying prospectus supplement will set forth the approximate amount of our Senior Indebtedness outstanding as of a recent date.

The Trustee under the Indenture

        U.S. Bank National Association will serve as trustee under the indenture.

Certain Considerations Relating to Foreign Currencies

        Debt securities denominated or payable in foreign currencies may entail significant risks. These risks include the possibility of significant fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary market. These risks will vary depending upon the currency or currencies involved and will be more fully described in the applicable prospectus supplement.


DESCRIPTION OF OUR SUBSCRIPTION RIGHTS

General

        We may issue subscription rights to the holders of the class of securities to whom the subscription rights are being distributed, or the Holders to purchase our Securities. Subscription rights may be issued independently or together with any other offered security and may or may not be transferable by the person purchasing or receiving the subscription rights. In connection with a subscription rights offering to the Holders, we would distribute certificates evidencing the subscription rights and a prospectus supplement to the Holders on the record date that we set for receiving subscription rights in such subscription rights offering.

        The applicable prospectus supplement would describe the following terms of subscription rights in respect of which this prospectus is being delivered:

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Exercise of Subscription Rights

        Each subscription right would entitle the holder of the subscription right to purchase for cash such amount of our Securities at such exercise price as shall in each case be set forth in, or be determinable as set forth in, the prospectus supplement relating to the subscription rights offered thereby. Subscription rights may be exercised at any time up to the close of business on the expiration date for such subscription rights set forth in the prospectus supplement. After the close of business on the expiration date, all unexercised subscription rights would become void.

        Subscription rights may be exercised as set forth in the prospectus supplement relating to the subscription rights offered thereby. Upon receipt of payment and the subscription rights certificate properly completed and duly executed at the corporate trust office of the subscription rights agent or any other office indicated in the prospectus supplement we will forward, as soon as practicable, the Securities purchasable upon such exercise. To the extent permissible under applicable law, we may determine to offer any unsubscribed offered securities directly to persons other than stockholders, to or through agents, underwriters or dealers or through a combination of such methods, as set forth in the applicable prospectus supplement.

DESCRIPTION OF OUR WARRANTS

        The following is a general description of the terms of the warrants we may issue from time to time. Particular terms of any warrants we offer will be described in the prospectus supplement relating to such warrants.

        We may issue warrants to purchase shares of our common stock, preferred stock or debt securities from time to time. Such warrants may be issued independently or together with one of our Securities and may be attached or separate from such securities. We will issue each series of warrants under a separate warrant agreement to be entered into between us and a warrant agent. The warrant agent will act solely as our agent and will not assume any obligation or relationship of agency for or with holders or beneficial owners of warrants.

        A prospectus supplement will describe the particular terms of any series of warrants we may issue, including the following:

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        We and the warrant agent may amend or supplement the warrant agreement for a series of warrants without the consent of the holders of the warrants issued thereunder to effect changes that are not inconsistent with the provisions of the warrants and that do not materially and adversely affect the interests of the holders of the warrants.

        Under the 1940 Act, we may generally only offer warrants provided that (1) the warrants expire by their terms within ten years; (2) the exercise or conversion price is not less than the current market value at the date of issuance; (3) our stockholders authorize the proposal to issue such warrants, and our Board of Directors approves such issuance on the basis that the issuance is in our best interests and the best interest of our stockholders; and (4) if the warrants are accompanied by other securities, the warrants are not separately transferable unless no class of such warrants and the securities accompanying them has been publicly distributed. The 1940 Act also provides that the amount of our voting securities that would result from the exercise of all outstanding warrants at the time of issuance may not exceed 25% of our outstanding voting securities.

DESCRIPTION OF OUR UNITS

        A unit is a separate security consisting of two or more other securities that either may or must be traded or transferred together as a single security. The following is a general description of the terms of the units we may issue from time to time. Particular terms of any units we offer will be described in the prospectus supplement relating to such units. For a complete description of the terms of particular units, you should read both this prospectus and the prospectus supplement relating to those particular units.

        We may issue units comprised of one or more of the other securities described in this prospectus in any combination. Each unit may also include contracts for purchase of any such security or debt obligations of third parties, such as U.S. Treasury securities, such that the holder holds each component. Thus, the holder of a unit will have the rights and obligations of a holder of each included security.

        A prospectus supplement will describe the particular terms of any series of units we may issue, including the following:

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REGULATION

        We are a closed-end, non-diversified investment company that has filed an election to be treated as a business development company under the 1940 Act and has elected to be treated as a RIC under Subchapter M of the Code. The 1940 Act contains prohibitions and restrictions relating to transactions between business development companies and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than "interested persons," as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a business development company unless approved by a majority of our outstanding voting securities.

        We may invest up to 100% of our assets in securities acquired directly from issuers in privately negotiated transactions. With respect to such securities, we may, for the purpose of public resale, be deemed an "underwriter" as that term is defined in the Securities Act. Our intention is to not write (sell) or buy put or call options to manage risks associated with the publicly-traded securities of our portfolio companies, except that we may enter into hedging transactions to manage the risks associated with interest rate and other market fluctuations. However, in connection with an investment or acquisition financing of a portfolio company, we may purchase or otherwise receive warrants to purchase the common stock of the portfolio company. Similarly, in connection with an acquisition, we may acquire rights to require the issuers of acquired securities or their affiliates to repurchase them under certain circumstances. We also do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act. Under these limits, except with respect to money market funds we generally cannot acquire more than 3% of the voting stock of any registered investment company, invest more than 5% of the value of our total assets in the securities of one investment company or invest more than 10% of the value of our total assets in the securities of more than one investment company. With regard to that portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments subject our stockholders indirectly to additional expenses. None of these policies are fundamental and may be changed without stockholder approval.

Qualifying Assets

        Under the 1940 Act, a business development company may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company's total assets. The principal categories of qualifying assets relevant to our business are the following:

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        In addition, a business development company must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in (1), (2), (3) or (4) above.

Managerial Assistance to Portfolio Companies

        In order to count portfolio securities as qualifying assets for the purpose of the 70% test, a business development company must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance; except that, where the business development company purchases such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Making available significant managerial assistance means, among other things, exercising control, either on its own or together with others, over a portfolio company or any arrangement whereby the business development company, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.

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Temporary Investments

        Pending investment in other types of "qualifying assets," as described above, our investments may consist of cash, cash equivalents, including money market funds, U.S. government securities or high quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. Typically, we will invest in money market funds, U.S. treasury bills or in repurchase agreements that are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we would not meet the diversification tests in order to qualify as a RIC for U.S. Federal income tax purposes. Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. Our Investment Adviser will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.

Senior Securities

        We are permitted, under specified conditions, to issue multiple classes of indebtedness and classes of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. The 1940 Act allows BDCs to issue multiple series of the same class of preferred stock and to issue multiple classes in connection with certain refundings or reorganizations. In addition, while any preferred stock or public debt securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios after giving effect to such distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage. For a discussion of the risks associated with leverage, see "Risk Factors."

Code of Ethics

        We, Prospect Capital Management and Prospect Administration have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to each code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code's requirements. For information on how to obtain a copy of each code of ethics, see "Available Information."

Investment Concentration

        Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. While we are broadening the portfolio, many of our existing investments are in the energy and energy related industries.

Compliance Policies and Procedures

        We and our Investment Adviser have adopted and implemented written policies and procedures reasonably designed to prevent violation of the U.S. Federal securities laws, and are required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation, and to designate a Chief Compliance Officer to be responsible for administering the policies and procedures. Brian H. Oswald serves as our Chief Compliance Officer.

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Proxy Voting Policies and Procedures

        We have delegated our proxy voting responsibility to Prospect Capital Management. The Proxy Voting Policies and Procedures of Prospect Capital Management are set forth below. The guidelines are reviewed periodically by Prospect Capital Management and our independent directors, and, accordingly, are subject to change.

        Introduction.    As an investment adviser registered under the Advisers Act, Prospect Capital Management has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, Prospect Capital Management recognizes that it must vote client securities in a timely manner free of conflicts of interest and in the best interests of its clients.

        These policies and procedures for voting proxies for Prospect Capital Management's Investment Advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.

        Proxy policies.    These policies are designed to be responsive to the wide range of subjects that may be the subject of a proxy vote. These policies are not exhaustive due to the variety of proxy voting issues that Prospect Capital Management may be required to consider. In general, Prospect Capital Management will vote proxies in accordance with these guidelines unless: (1) Prospect Capital Management has determined to consider the matter on a case-by-case basis (as is stated in these guidelines), (2) the subject matter of the vote is not covered by these guidelines, (3) a material conflict of interest is present, or (4) Prospect Capital Management might find it necessary to vote contrary to its general guidelines to maximize stockholder value and vote in its clients' best interests. In such cases, a decision on how to vote will be made by the Proxy Voting Committee (as described below). In reviewing proxy issues, Prospect Capital Management will apply the following general policies:

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        All of the above-referenced records will be maintained and preserved for a period of not less than five years from the end of the fiscal year during which the last entry was made. The first two years of records must be maintained at our office.

        Proxy voting records.    Clients may obtain information about how Prospect Capital Management voted proxies on their behalf by making a written request for proxy voting information to: Compliance Officer, Prospect Capital Management LLC, 10 East 40th Street, 44th Floor, New York, NY 10016.

Sarbanes-Oxley Act of 2002

        The Sarbanes-Oxley Act of 2002 imposes a variety of regulatory requirements on publicly-held companies. In addition to our Chief Executive and Chief Financial Officers' required certifications as to the accuracy of our financial reporting, we are also required to disclose the effectiveness of our disclosure controls and procedures as well as report on our assessment of our internal controls over financial reporting, the latter of which must be audited by our independent registered public accounting firm.

        The Sarbanes-Oxley Act also requires us to continually review our policies and procedures to ensure that we remain in compliance with all rules promulgated under the Act.

CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR

        Our Securities are held under a custody agreement by U.S. Bank National Association. The address of the custodian is: 1555 North Rivercenter Drive, MK-WI-5302, Milwaukee, WI 53212, Attention: Mutual Fund Custody Account Administrator, facsimile: (866) 350-1430. American Stock Transfer & Trust Company acts as our transfer agent, dividend paying agent and registrar. The principal business address of American Stock Transfer & Trust Company is 6201 15th Avenue, Brooklyn, NY 11219, telephone number: (718) 921-8200.

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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 of our business. We have not paid any brokerage commissions during the three most recent fiscal years. Subject to policies established by our Board of Directors, Prospect Capital Management is primarily responsible for the execution of the publicly-traded securities portion of our portfolio transactions and the allocation of brokerage commissions.

        Prospect Capital Management does not expect to execute transactions through any particular broker or dealer, but seeks to obtain the best net results for the Company, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm and the firm's risk and skill in positioning blocks of securities. While Prospect Capital Management generally seeks reasonably competitive trade execution costs, the Company will not necessarily pay the lowest spread or commission available. Subject to applicable legal requirements, Prospect Capital Management may select a broker based partly upon brokerage or research services provided to it and the Company and any other clients. In return for such services, we may pay a higher commission than other brokers would charge if Prospect Capital Management determines in good faith that such commission is reasonable in relation to the services provided.

PLAN OF DISTRIBUTION

        We may sell the Securities pursuant to this prospectus and a prospectus supplement in any of four ways (or in any combination): (a) through underwriters or dealers; (b) directly to a limited number of purchasers or to a single purchaser, including existing stockholders in a rights offering; (c) through agents; or (d) directly to our stockholders and others through the issuance of transferable or non-transferable rights to our stockholders. In the case of a rights offering, the applicable prospectus supplement will set forth the number of shares of our common stock or units issuable upon the exercise of each right and the other terms of such rights offering. Any underwriter or agent involved in the offer and sale of the Securities will also be named in the applicable prospectus supplement. The Securities may be sold "at-the-market" to or through a market maker or into an existing trading market for the securities, on an exchange or otherwise. The prospectus supplement will set forth the terms of the offering of such securities, including:

        In addition, we may enter into registration rights agreements or other similar agreements in the future pursuant to which certain of our stockholders may resell our Securities under this prospectus and as described in any related prospectus supplement.

        We may use Securities to acquire investments in companies, the terms of which will be further disclosed in a prospectus supplement if such stock is issued in an offering hereunder.

        Any offering price and any discounts or concessions allowed or reallowed or paid to underwriters or agents may be changed from time to time.

        We may sell our common stock, subscription rights, units, warrants, options or rights to acquire our common stock, at a price below the current net asset value of our common stock in certain circumstances, including if (i)(1) the holders of a majority of our shares (or, if less, at least 67% of a quorum consisting of a majority of our shares) and a similar majority of the holders of our shares who

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are not affiliated persons of us approve the sale of our common stock at a price that is less than the current net asset value, and (2) a majority of our Directors who have no financial interest in the transaction and a majority of our independent Directors (a) determine that such sale is in our and our stockholders' best interests and (b) in consultation with any underwriter or underwriters of the offering, make a good faith determination as of a time either immediately prior to the first solicitation by us or on our behalf of firm commitments to purchase such shares, or immediately prior to the issuance of such shares, that the price at which such shares are to be sold is not less than a price which closely approximates the market value of such shares, less any distributing commission or discount or if (ii) a majority of the number of the beneficial holders of our common stock entitled to vote at the annual meeting, without regard to whether a majority of such shares are voted in favor of the proposal, approve the sale of our common stock at a price that is less than the current net asset value per share.

        If underwriters are used in the sale of any Securities, Securities acquired by the underwriters for their own account may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. The Securities may be either offered to the public through underwriting syndicates represented by managing underwriters, or directly by underwriters. Generally, any obligations by the underwriters to purchase the Securities will be subject to certain conditions precedent.

        In compliance with the guidelines of FINRA, the maximum compensation to the underwriters or dealers in connection with the sale of our Securities pursuant to this prospectus and the accompanying supplement to this prospectus may not exceed 8% of the aggregate offering price of the Securities as set forth on the cover page of the supplement to this prospectus. In connection with any rights offering to our stockholders, we may also enter into a standby underwriting arrangement with one or more underwriters pursuant to which the underwriter(s) will purchase our common stock remaining unsubscribed for after the rights offering.

        We may sell the Securities through agents from time to time. The prospectus supplement will name any agent involved in the offer or sale of the Securities and any commissions we pay to them. Generally, any agent will be acting on a best efforts basis for the period of its appointment.

        Agents, dealers and underwriters may be entitled to indemnification by us against certain civil liabilities, including liabilities under the Securities Act or to contribution with respect to payments which the agents or underwriters may be required to make in respect thereof. Agents, dealers and underwriters may be customers of, engage in transactions with, or perform services for us in the ordinary course of business.

        We may enter into derivative transactions with third parties, or sell Securities outside of this prospectus to third parties in privately negotiated transactions. If the applicable prospectus supplement indicates, in connection with those derivatives, the third parties may sell Securities covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use Securities pledged by us or borrowed from us or others to settle those sales or to close out any related open borrowings of stock, and may use securities received from us in settlement of those derivatives to close out any related open borrowings of stock. The third party in such sale transactions will be an underwriter and, if not identified in this prospectus, will be identified in the applicable prospectus supplement (or a post-effective amendment). We or one of our affiliates may loan or pledge Securities to a financial institution or other third party that in turn may sell the securities using this prospectus. Such financial institution or third party may transfer its short position to investors in our Securities or in connection with a simultaneous offering of other Securities offered by this prospectus or otherwise.

        Any of our common stock sold pursuant to a prospectus supplement will be listed on The NASDAQ Global Select Market, or another exchange on which our common stock is traded.

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        In order to comply with the securities laws of certain states, if applicable, the Securities offered hereby will be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states, the Securities may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirements is available and is complied with.

LEGAL MATTERS

        Certain legal matters regarding the securities offered by this prospectus will be passed upon for the Company by Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, and Venable LLP as special Maryland counsel.

INDEPENDENT REGISTERED ACCOUNTING FIRM

        BDO USA, LLP is the independent registered public accounting firm of the Company.

AVAILABLE INFORMATION

        We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to our Securities offered by this prospectus. The registration statement contains additional information about us and the Securities being registered by this prospectus. We file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act. This information and the information specifically regarding how we voted proxies relating to portfolio securities for the period ended June 30, 2013, are available free of charge by contacting us at 10 East 40th Street, 44th floor, New York, NY 10016 or by telephone at toll-free (888) 748-0702. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at (202) 551-8090 or by calling 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information filed electronically by us with the SEC which are available on the SEC's Internet site at http://www.sec.gov. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102.

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INDEX TO FINANCIAL STATEMENTS

 
  Page

AUDITED FINANCIAL STATEMENTS

   

Report of Independent Registered Public Accounting Firm

  F-2

Consolidated Statements of Assets and Liabilities as of June 30, 2013 and June 30, 2012

  F-3

Consolidated Statements of Operations—For the Years Ended June 30, 2013, June 30, 2012 and June 30, 2011

  F-4

Consolidated Statements of Changes in Net Assets—For the Years Ended June 30, 2013, June 30, 2012 and June 30, 2011

  F-5

Consolidated Statements of Cash Flows—For the Years Ended June 30, 2013, June 30, 2012 and June 30, 2011

  F-6

Consolidated Schedules of Investments as of June 30, 2013 and June 30, 2012

  F-7

Notes to Consolidated Financial Statements

  F-42

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
Prospect Capital Corporation
New York, New York

        We have audited the accompanying consolidated statements of assets and liabilities of Prospect Capital Corporation, the "Company", including the consolidated schedule of investments, as of June 30, 2013 and 2012, and the related consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period ended June 30, 2013, and the financial highlights for each of the five years in the period ended June 30, 2013. These consolidated financial statements and financial highlights are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial highlights based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements and financial highlights are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. Our procedures include confirmation of securities owned as of June 30, 2013 and 2012 by correspondence with the custodian, trustees and portfolio companies, and alternative procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Prospect Capital Corporation at June 30, 2013 and 2012, the results of its operations, the changes in its net assets, and its cash flows for each of the three years in the period ended June 30, 2013, and the financial highlights for each of the five years in the period ended June 30, 2013, in conformity with accounting principles generally accepted in the United States of America.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Prospect Capital Corporation's internal control over financial reporting as of June 30, 2013, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated August 21, 2013 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

BDO USA, LLP
New York, New York
August 21, 2013
   

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except share and per share data)

 
  June 30,
2013
  June 30,
2012
 

Assets (Note 4)

             

Investments at fair value:

             

Control investments (net cost of $830,151 and $518,015, respectively)

  $ 811,634   $ 564,489  

Affiliate investments (net cost of $49,189 and $44,229, respectively)

    42,443     46,116  

Non-control/Non-affiliate investments (net cost of $3,376,438 and $1,537,069, respectively)

    3,318,775     1,483,616  
           

Total investments at fair value (net cost of $4,255,778 and $2,099,313, respectively, Note 3)

    4,172,852     2,094,221  
           

Investments in money market funds

    143,262     118,369  

Cash

    59,974     2,825  

Receivables for:

             

Interest, net

    22,863     14,219  

Other

    4,397     784  

Prepaid expenses

    540     421  

Deferred financing costs

    44,329     24,415  
           

Total Assets

    4,448,217     2,255,254  
           

Liabilities

             

Credit facility payable (Notes 4 and 8)

    124,000     96,000  

Senior convertible notes (Notes 5 and 8)

    847,500     447,500  

Senior unsecured notes (Notes 6 and 8)

    347,725     100,000  

Prospect Capital InterNotes® (Notes 7 and 8)

    363,777     20,638  

Due to Broker

    43,588     44,533  

Dividends payable

    27,299     14,180  

Due to Prospect Administration (Note 12)

    1,366     658  

Due to Prospect Capital Management (Note 12)

    5,324     7,913  

Accrued expenses

    2,345     2,925  

Interest payable

    24,384     6,723  

Other liabilities

    4,415     2,210  
           

Total Liabilities

    1,791,723     743,280  
           

Net Assets

  $ 2,656,494   $ 1,511,974  
           

Components of Net Assets

             

Common stock, par value $0.001 per share (500,000,000 common shares authorized; 247,836,965 and 139,633,870 issued and outstanding, respectively) (Note 9)

  $ 248   $ 140  

Paid-in capital in excess of par (Note 9)

    2,739,864     1,544,801  

Undistributed net investment income

    77,084     23,667  

Accumulated realized losses on investments

    (77,776 )   (51,542 )

Unrealized depreciation on investments

    (82,926 )   (5,092 )
           

Net Assets

  $ 2,656,494   $ 1,511,974  
           

Net Asset Value Per Share

  $ 10.72   $ 10.83  
           

   

See notes to consolidated financial statements.

F-3


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

 
  Year Ended  
 
  June 30,
2013
  June 30,
2012
  June 30,
2011
 

Investment Income

                   

Interest income: (Note 3)

                   

Control investments

  $ 106,425   $ 53,408   $ 21,747  

Affiliate investments

    6,515     12,155     11,307  

Non-control/Non-affiliate investments

    234,013     144,592     101,400  

CLO Fund securities

    88,502     9,381      
               

Total interest income

    435,455     219,536     134,454  
               

Dividend income:

                   

Control investments

    78,282     63,144     13,569  

Affiliate Investments

    728          

Non-control/Non-affiliate investments

    3,656     1,733     1,507  

Money market funds

    39     4     16  
               

Total dividend income

    82,705     64,881     15,092  
               

Other income: (Note 10)

                   

Control investments

    16,821     25,464     2,829  

Affiliate investments

    623     108     190  

Non-control/Non-affiliate investments

    40,732     10,921     16,911  
               

Total other income

    58,176     36,493     19,930  
               

Total Investment Income

    576,336     320,910     169,476  
               

Operating Expenses

                   

Investment advisory fees:

                   

Base management fee (Note 12)

    69,800     35,836     22,496  

Income incentive fee (Note 12)

    81,231     46,671     23,555  
               

Total investment advisory fees

    151,031     82,507     46,051  
               

Interest and credit facility expenses

    76,341     38,534     17,598  

Legal fees

    1,918     279     1,062  

Valuation services

    1,579     1,212     992  

Audit, compliance and tax related fees

    1,566     1,446     876  

Allocation of overhead from Prospect Administration (Note 12)

    8,737     6,848     4,979  

Insurance expense

    356     324     285  

Directors' fees

    300     273     255  

Excise tax

    6,500          

Other general and administrative expenses

    3,084     2,803     3,157  
               

Total Operating Expenses

    251,412     134,226     75,255  
               

Net Investment Income

    324,924     186,684     94,221  
               

Net realized (loss) gain on investments (Note 3)

    (26,234 )   36,588     16,465  

Net change in unrealized (depreciation) appreciation on investments (Note 3)

    (77,834 )   (32,368 )   7,552  
               

Net Increase in Net Assets Resulting from Operations

  $ 220,856   $ 190,904   $ 118,238  
               

Net increase in net assets resulting from operations per share: (Notes 11 and 15)

  $ 1.07   $ 1.67   $ 1.38  
               

Weighted average shares of common stock outstanding:

    207,069,971     114,394,554     85,978,757  
               

   

See notes to consolidated financial statements.

F-4


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(in thousands, except share data)

 
  Year Ended  
 
  June 30,
2013
  June 30,
2012
  June 30,
2011
 

Increase in Net Assets from Operations:

                   

Net investment income

  $ 324,924   $ 186,684   $ 94,221  

Net (loss) gain on investments

    (26,234 )   36,588     16,465  

Net change in unrealized (depreciation) appreciation on investments

    (77,834 )   (32,368 )   7,552  
               

Net Increase in Net Assets Resulting from Operations

    220,856     190,904     118,238  
               

Dividends to Shareholders:

                   

Distribution of net investment income

    (271,507 )   (136,875 )   (94,326 )

Distribution of return of capital

        (4,504 )   (11,841 )
               

Total Dividends to Shareholders

    (271,507 )   (141,379 )   (106,167 )
               

Capital Share Transactions:

                   

Net proceeds from capital shares sold

    1,180,899     338,270     381,316  

Less: Offering costs of public share offerings

    (1,815 )   (708 )   (1,388 )

Reinvestment of dividends

    16,087     10,530     10,934  
               

Net Increase in Net Assets Resulting from Capital Share Transactions

    1,195,171     348,092     390,862  
               

Total Increase in Net Assets:

    1,144,520     397,617     402,933  

Net assets at beginning of year

    1,511,974     1,114,357     711,424  
               

Net Assets at End of Year

  $ 2,656,494   $ 1,511,974   $ 1,114,357  
               

Capital Share Activity:

                   

Shares sold

    101,245,136     30,970,696     37,494,476  

Shares issued to acquire controlled investments

    5,507,381          

Shares issued through reinvestment of dividends

    1,450,578     1,056,484     1,025,352  
               

Net increase in capital share activity

    108,203,095     32,027,180     38,519,828  

Shares outstanding at beginning of year

    139,633,870     107,606,690     69,086,862  
               

Shares Outstanding at End of Year

    247,836,965     139,633,870     107,606,690  
               

   

See notes to consolidated financial statements.

F-5


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except share data)

 
  Year Ended  
 
  June 30,
2013
  June 30,
2012
  June 30,
2011
 

Cash Flows from Operating Activities:

                   

Net increase in net assets resulting from operations

  $ 220,856   $ 190,904   $ 118,238  

Net realized loss (gain) on investments

    26,234     (36,588 )   (16,465 )

Net change in unrealized depreciation (appreciation) on investments

    77,834     32,368     (7,552 )

Amortization of discounts and premiums

    (11,016 )   (7,284 )   (23,035 )

Amortization of deferred financing costs

    8,232     8,511     5,365  

Payment-in-kind interest

    (10,947 )   (5,647 )   (9,634 )

Structuring fees

    (52,699 )   (8,075 )   (13,460 )

Change in operating assets and liabilities:

                   

Payments for purchases of investments

    (2,980,320 )   (901,833 )   (930,243 )

Proceeds from sale of investments and collection of investment principal

    931,534     500,952     285,862  

Net (increase) decrease of investments in money market funds          

    (24,893 )   (58,466 )   8,968  

Increase in interest receivable, net

    (8,644 )   (4,950 )   (3,913 )

(Increase) decrease in other receivables

    (3,613 )   (517 )   153  

(Increase) decrease in prepaid expenses

    (119 )   (320 )   270  

Decrease in other assets

            534  

Decrease in due to Broker

    (945 )        

Increase (decrease) in due to Prospect Administration

    708     446     (82 )

Increase (decrease) in due to Prospect Capital Management

    (2,589 )   207     (1,300 )

(Decrease) increase in accrued expenses

    (580 )   1,052     (1,998 )

Increase in interest payable

    17,661     2,720     3,817  

Increase (decrease) in other liabilities

    2,205     (1,361 )   2,866  
               

Net Cash Used In Operating Activities:

    (1,811,101 )   (287,881 )   (581,609 )
               

Cash Flows from Financing Activities:

                   

Borrowings under credit facility (Note 4)

    223,000     726,800     465,900  

Payments under credit facility (Note 4)

    (195,000 )   (715,000 )   (482,000 )

Issuance of Senior Convertible Notes (Note 5)

    400,000     130,000     322,500  

Repurchases under Senior Convertible Notes (Note 5)

        (5,000 )    

Issuance of Senior Unsecured Notes

    247,725     100,000      

Issuance of Prospect Capital InterNotes® (Note 7)

    343,139     20,638      

Financing costs paid and deferred

    (28,146 )   (17,651 )   (13,061 )

Net proceeds from issuance of common stock

    1,121,648     177,699     381,316  

Offering costs from issuance of common stock

    (1,815 )   (708 )   (1,388 )

Dividends paid

    (242,301 )   (127,564 )   (91,247 )
               

Net Cash Provided By Financing Activities:

    1,868,250     289,214     582,020  
               

Total Increase in Cash

    57,149     1,333     411  

Cash balance at beginning of year

    2,825     1,492     1,081  
               

Cash Balance at End of Year

  $ 59,974   $ 2,825   $ 1,492  
               

Cash Paid For Interest

  $ 45,363   $ 24,515   $ 6,101  
               

Non-Cash Financing Activity:

                   

Amount of shares issued in connection with dividend reinvestment plan

  $ 16,087   $ 10,530   $ 10,934  
               

Amount of shares issued in conjunction with controlled investments

  $ 59,251   $ 160,571   $  
               

   

See notes to consolidated financial statements.

F-6


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2013  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

LEVEL 3 PORTFOLIO INVESTMENTS:

                         

Control Investments (greater than 25.00% voting control)

                         

AIRMALL USA, Inc.(27)

  Pennsylvania / Property Management  

Senior Secured Term Loan (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor), due 6/30/2015)(3)(4)

  $ 28,750   $ 28,750   $ 28,750     1.1 %

     

Senior Subordinated Term Loan (12.00% plus 6.00% PIK, due 12/31/2015)

    12,500     12,500     12,500     0.5 %

     

Convertible Preferred Stock (9,919.684 shares)

          9,920     9,920     0.4 %

     

Common Stock (100 shares)

              3,478     0.1 %
                             

                  51,170     54,648     2.1 %
                             

Ajax Rolled Ring & Machine, Inc. 

  South Carolina / Manufacturing  

Senior Secured Note—Tranche A (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 3/30/2018)(3)(4)

    19,737     19,737     19,737     0.7 %

     

Subordinated Unsecured Term Loan (11.50% (LIBOR + 8.50% with 3.00% LIBOR floor) plus 6.00% PIK, due 3/30/2018)(4)

    19,700     19,700     19,700     0.7 %

     

Convertible Preferred Stock—Series A (6,142.6 shares)

          6,057         0.0 %

     

Unrestricted Common Stock (6 shares)

                  0.0 %
                             

                  45,494     39,437     1.4 %
                             

APH Property Holdings, LLC(32)

  Georgia / Real Estate  

Senior Secured Note (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 10/24/2020)(4)

    125,892     125,892     125,892     4.8 %

     

Common Stock (148,951 shares)

          26,648     26,648     1.0. %
                             

                  152,540     152,540     5.8 %
                             

AWCNC, LLC(19)

  North Carolina /  

Members Units—Class A (1,800,000 units)

                  0.0 %

  Machinery  

Members Units—Class B-1 (1 unit)

                  0.0 %

     

Members Units—Class B-2 (7,999,999 units)

                  0.0 %
                             

                          0.0 %
                             

Borga, Inc. 

  California / Manufacturing  

Revolving Line of Credit—$1,150 Commitment (5.00% (PRIME + 1.75%) plus 3.00% default interest, in non-accrual status effective 03/02/2010, past due)(4)(25)

    1,150     1,095     586     0.0 %

     

Senior Secured Term Loan B (8.50% (PRIME + 5.25%) plus 3.00% default interest, in non-accrual status effective 03/02/2010, past due)(4)

    1,611     1,501         0.0 %

     

Senior Secured Term Loan C (12.00% plus 4.00% PIK plus 3.00% default interest, in non-accrual status effective 03/02/2010, past due)

    9,738     706         0.0 %

     

Common Stock (100 shares)(21)

                  0.0 %

     

Warrants (33,750 warrants)(21)

                  0.0 %
                             

                  3,302     586     0.0 %
                             

   

See notes to consolidated financial statements.

F-7


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2013  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

CCPI Holdings, Inc.(33)

  Ohio / Manufacturing  

Senior Secured Note (10.00%, due 12/31/2017)(3)

  $ 17,663   $ 17,663   $ 17,663     0.7 %

     

Senior Secured Note (12.00% plus 7.00% PIK, due 6/30/2018)

    7,659     7,659     7,659     0.3 %

     

Common Stock (100 shares)

          8,581     7,977     0.3 %

     

Net Revenue Interest (4% of Net Revenue)

              604     0.0 %
                             

                  33,903     33,903     1.3 %
                             

Credit Central Holdings of Delaware, LLC(22)(34)

  Ohio / Consumer Finance  

Senior Secured Revolving Credit Facility—$60,000 Commitment (20.00% (LIBOR + 18.50% with 1.50% LIBOR floor), due 12/31/2022)(4) (25)

    38,082     38,082     38,082     1.4 %

     

Common Stock (100 shares)

          9,581     8,361     0.3 %

     

Net Revenue Interest (5% of Net Revenue)

              4,019     0.2 %
                             

                  47,663     50,462     1.9 %
                             

Energy Solutions Holdings, Inc.(8)

  Texas / Gas Gathering and Processing  

Junior Secured Note (18.00%, due 12/12/2016)

    8,500     8,500     8,500     0.3 %

     

Senior Secured Note to Vessel Holdings LLC (18.00%, due 12/12/2016)

    3,500     3,500     3,500     0.1 %

     

Subordinated Secured Note to Freedom Marine Holdings, LLC (12.00% (LIBOR + 6.11% with 5.89% LIBOR floor) plus 4.00% PIK, in non-accrual status effective 10/1/2010, past due)(4)

    13,906     12,503     8,449     0.3 %

     

Senior Secured Debt to Yatesville Coal Holdings, Inc. (Non-accrual status effective 1/1/2009, past due)

    1,449     1,449         0.0 %

     

Escrow Receivable

                  0.0 %

     

Common Stock (100 shares)

          8,318     6,247     0.2 %
                             

                  34,270     26,696     0.9 %
                             

First Tower Holdings of Delaware, LLC(22)(29)

  Mississippi / Consumer Finance  

Senior Secured Revolving Credit Facility—$400,000 Commitment (20.00% (LIBOR + 18.50% with 1.50% LIBOR floor), due 6/30/2022)(4) (25)

    264,760     264,760     264,760     10.0 %

     

Common Stock (83,729,323 shares)

          43,193     20,447     0.8 %

     

Net Revenue Interest (5% of Net Revenue & Distributions)

              12,877     0.5 %
                             

                  307,953     298,084     11.3 %
                             

Manx Energy, Inc. ("Manx")(12)

  Kansas / Oil & Gas Production  

Senior Secured Note (13.00%, in non-accrual status effective 1/19/2010, past due)

    500     500     346     0.0 %

     

Preferred Stock (6,635 shares)

                  0.0 %

     

Common Stock (17,082 shares)

                  0.0 %
                             

                  500     346     0.0 %
                             

   

See notes to consolidated financial statements.

F-8


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2013  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

Nationwide Acceptance Holdings, LLC(22)(36)

  Chicago / Consumer Finance  

Senior Secured Revolving Credit Facility—$30,000 Commitment (20.00% (LIBOR + 18.50% with 1.50% LIBOR floor), due 1/31/2023)(4)(25)

  $ 21,308   $ 21,308   $ 21,308     0.8 %

     

Membership Units (100 shares)

          3,843     2,142     0.1 %

     

Net Revenue Interest (5% of Net Revenue)

              1,701     0.1 %
                             

                  25,151     25,151     1.0 %
                             

NMMB Holdings, Inc.(24)

  New York / Media  

Senior Term Loan (14.00%, due 5/6/2016)

    16,000     16,000     13,149     0.5 %

     

Senior Subordinated Term Loan (15.00%, due 5/6/2016)

    2,800     2,800         0.0 %

     

Series A Preferred Stock (4,400 shares)

          4,400         0.0 %
                             

                  23,200     13,149     0.5 %
                             

R-V Industries, Inc. 

  Pennsylvania / Manufacturing  

Senior Subordinated Note (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 6/12/2018)(4)

    32,750     32,750     32,750     1.2 %

     

Warrants (200,000 warrants, expiring 6/30/2017)

          1,682     6,796     0.3 %

     

Common Stock (545,107 shares)

          5,087     18,522     0.7 %
                             

                  39,519     58,068     2.2 %
                             

The Healing Staff, Inc.(9)

  North Carolina / Contracting  

Secured Promissory Notes (15.00%, in non-accrual status effective 12/22/2010, past due)

    1,688     1,686         0.0 %

     

Senior Demand Note (15.00%, in non-accrual status effective 11/1/2010, past due)

    1,170     1,170         0.0 %

     

Common Stock (1,000 shares)

          975         0.0 %
                             

                  3,831         0.0 %
                             

Valley Electric Holdings I, Inc. 

  Washington / Construction & Engineering  

Senior Secured Note (9.00% (LIBOR + 6.00%, with 3.00% LIBOR floor) plus 9.00% PIK, due 12/31/2018)(4)

    34,063     34,063     34,063     1.3 %

     

Senior Secured Note (8.00% (LIBOR + 5.00% with 3.00% LIBOR floor) plus 2.50% PIK, due 12/31/2017)(3)(4)

    10,026     10,026     10,026     0.4 %

     

Common Stock (50,000 shares)

          9,526     8,288     0.3 %

     

Net Revenue Interest (5% of Net Revenue)

              1,238     0.1 %
                             

                  53,615     53,615     2.1 %
                             

   

See notes to consolidated financial statements.

F-9


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2013  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

Wolf Energy Holdings, Inc.(12)(37)

  Kansas / Oil & Gas Production  

Senior Secured Promissory Note secured by assets formerly owned by H&M (18.00%, in non-accrual status effective 4/15/2013, due 4/15/2018)

  $ 22,000   $   $ 3,832     0.1 %

     

Appalachian Energy Holdings, LLC ("AEH")—Senior Secured First Lien Note (8.00%, in non-accrual status effective 1/19/2010, past due)

    2,642     2,000     546     0.0 %

     

Appalachian Energy Holdings, LLC ("AEH")—Senior Secured First Lien Note (8.00%, in non-accrual status, past due)

    51     50     51     0.0 %

     

Coalbed, LLC—Senior Secured Note (8.00%, in non-accrual status effective 1/19/2010, past due)(6)

    7,930     5,990         0.0 %

     

Common Stock (100 shares)

                  0.0 %

     

Net Profits Interest (8.00% payable on Equity distributions)(7)

              520     0.0 %
                             

                  8,040     4,949     0.1 %
                             

     

    Total Control Investments

          830,151     811,634     30.6 %
                             

Affiliate Investments (5.00% to 24.99% voting control)

                         

BNN Holdings Corp. (f/k/a Biotronic NeuroNetwork)

  Michigan / Healthcare  

Senior Secured Note (10.00% (LIBOR + 8.00% with 2.00% LIBOR floor), due 12/17/2017)(3)(4)

    29,550     29,550     29,550     1.1 %

     

Preferred Stock Series A (9,925.455 shares)(13)

          2,300     2,832     0.1 %

     

Preferred Stock Series B (1,753.64 shares)(13)

          579     533     0.0 %
                             

                  32,429     32,915     1.2 %
                             

Boxercraft Incorporated(20)

  Georgia / Textiles & Leather  

Senior Secured Term Loan A (10.00% plus 1.00% PIK, due 9/15/2015)

    1,712     1,702     1,712     0.1 %

     

Senior Secured Term Loan B (10.00% plus 1.00% PIK, due 9/15/2015)

    4,892     4,809     4,892     0.2 %

     

Senior Secured Term Loan C (10.00% plus 1.00% PIK, due 9/15/2015)

    2,371     2,371     2,371     0.1 %

     

Senior Secured Term Loan (10.00% plus 1.00% PIK, due 9/15/2015)

    8,325     7,878     410     0.0 %

     

Preferred Stock (1,000,000 shares)

                  0.0 %

     

Common Stock (10,000 shares)

                  0.0 %

     

Warrants (1 warrant, expiring 8/31/2022)

                  0.0 %
                             

                  16,760     9,385     0.4 %
                             

Smart, LLC(14)

  New York / Diversified / Conglomerate Service  

Membership Interest

              143     0.0 %
                             

                      143     0.0 %
                             

     

    Total Affiliate Investments

          49,189     42,443     1.6 %
                             

   

See notes to consolidated financial statements.

F-10


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2013  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

Non-control/Non-affiliate Investments (less than 5.00% of voting control)

                         

ADAPCO, Inc. 

  Florida / Ecological  

Common Stock (5,000 shares)

        $ 141   $ 335     0.0 %
                             

                  141     335     0.0 %
                             

Aderant North America, Inc. 

  Georgia / Software & Computer Services  

Second Lien Term Loan (10.00% (LIBOR + 8.75% with 1.25% LIBOR floor), due 6/20/2019)(4)

  $ 7,000     6,900     7,000     0.3 %
                             

                  6,900     7,000     0.3 %
                             

Aircraft Fasteners International, LLC

  California / Machinery  

Convertible Preferred Stock (32,500 units)

          396     565     0.0 %
                             

                  396     565     0.0 %
                             

ALG USA Holdings, LLC

  Pennsylvania / Hotels, Restaurants & Leisure  

Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 2/28/2020)(4)

    12,000     11,764     12,000     0.4 %
                             

                  11,764     12,000     0.4 %
                             

American Gilsonite Company

  Utah / Specialty Minerals  

Second Lien Term Loan (11.50%, due 9/1/2017)

    38,500     38,500     38,500     1.4 %

     

Membership Interest in AGC/PEP, LLC (99.9999%)(15)

              4,058     0.2 %
                             

                  38,500     42,558     1.6 %
                             

Apidos CLO VIII, Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    19,730     19,931     19,718     0.7 %
                             

                  19,931     19,718     0.7 %
                             

Apidos CLO IX, Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    20,525     19,609     19,294     0.7 %
                             

                  19,609     19,294     0.7 %
                             

Apidos CLO XI, Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    38,340     39,239     37,972     1.4 %
                             

                  39,239     37,972     1.4 %
                             

Apidos CLO XII, Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    44,063     43,480     40,294     1.5 %
                             

                  43,480     40,294     1.5 %
                             

Arctic Glacier U.S.A, Inc.(4)

  Canada / Food Products  

Second Lien Term Loan (11.25% (LIBOR + 10.00% with 1.25% LIBOR floor), due 11/10/2019)

    150,000     150,000     150,000     5.6 %
                             

                  150,000     150,000     5.6 %
                             

Armor Holding II LLC(4)

  New York / Diversified Financial Services  

Second Lien Term Loan (9.25% (LIBOR + 8.00% with 1.25% LIBOR floor), due 12/26/2020)

    7,000     6,860     7,000     0.3 %
                             

                  6,860     7,000     0.3 %
                             

   

See notes to consolidated financial statements.

F-11


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2013  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

Atlantis Healthcare Group (Puerto Rico), Inc.(4)

  Puerto Rico / Healthcare  

Revolving Line of Credit—$7,000 Commitment (10.00% (LIBOR + 8.00% with 2.00% LIBOR floor), due 2/21/2014)(25)(26)

  $ 2,000   $ 2,000   $ 2,000     0.1 %

     

Senior Term Loan (10.00% (LIBOR + 8.00% with 2.00% LIBOR floor), due 2/21/2018)(3)

    39,352     39,352     39,352     1.5 %
                             

                  41,352     41,352     1.6 %
                             

Babson CLO Ltd 2011-I(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    35,000     34,499     34,450     1.3 %
                             

                  34,499     34,450     1.3 %
                             

Babson CLO Ltd 2012-IA(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    29,075     25,917     27,269     1.0 %
                             

                  25,917     27,269     1.0 %
                             

Babson CLO Ltd 2012-IIA(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    27,850     28,863     27,510     1.0 %
                             

                  28,863     27,510     1.0 %
                             

Blue Coat Systems, Inc. 

  Massachusetts / Software & Computer Services  

Second Lien Term Loan (9.50% (LIBOR + 8.50% with 1.00% LIBOR floor), due 6/28/2020)(4)

    11,000     10,890     11,000     0.4 %
                             

                  10,890     11,000     0.4 %
                             

Broder Bros., Co

  Pennsylvania / Textiles, Apparel & Luxury Goods  

Senior Secured Notes (10.75% (LIBOR + 9.00% with 1.75% LIBOR floor), due 6/27/2018(3)(4)

    99,500     99,500     99,323     3.7 %
                             

                  99,500     99,323     3.7 %
                             

Brookside Mill CLO Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    26,000     23,896     23,743     0.9 %
                             

                  23,896     23,743     0.9 %
                             

Byrider Systems Acquisition Corp(22)

  Indiana / Auto Finance  

Senior Subordinated Notes (12.00% plus 2.00% PIK, due 11/3/2016)(3)

    10,914     10,914     10,417     0.4 %
                             

                  10,914     10,417     0.4 %
                             

Caleel + Hayden, LLC(14)(31)

  Colorado / Personal &  

Membership Units (13,220 shares)

              104     0.0 %

  Nondurable Consumer  

Escrow Receivable

              137     0.0 %
                             

  Products                   241     0.0 %
                             

   

See notes to consolidated financial statements.

F-12


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2013  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

Capstone Logistics, LLC(4)

  Georgia / Commercial Services  

Senior Secured Term Loan A (6.50% (LIBOR + 5.00% with 1.50% LIBOR floor), due 9/16/2016)(3)

  $ 97,291   $ 97,291   $ 97,291     3.7 %

     

Senior Secured Term Loan B (11.50% (LIBOR + 10.00% with 1.50% LIBOR floor), due 9/16/2016)

    100,000     100,000     100,000     3.8 %
                             

                  197,291     197,291     7.5 %
                             

Cargo Airport Services USA, LLC

  New York / Transportation  

Senior Secured Term Loan (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 3/31/2016)(3)(4)

    43,977     43,977     44,417     1.7 %

     

Common Equity (1.6 units)

          1,639     1,860     0.1 %
                             

                  45,616     46,277     1.8 %
                             

Cent 17 CLO Limited(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    24,870     24,615     25,454     1.0 %
                             

                  24,615     25,454     1.0 %
                             

CI Holdings(4)

  Texas / Software & Computer Services  

Senior Secured Term Loan (10.00% (LIBOR + 5.00% with 5.00% LIBOR floor), due 6/11/2019)

    114,713     114,713     114,713     4.3 %
                             

                  114,713     114,713     4.3 %
                             

CIFC Funding 2011-I, Ltd.(4)(22)

  Cayman Islands / Diversified Financial Services  

Secured Class D Notes (5.32% (LIBOR + 5.00%), due 1/19/2023)

    19,000     15,029     15,844     0.6 %

     

Unsecured Class E Notes (7.32% (LIBOR + 7.00%), due 1/19/2023)

    15,400     12,638     12,745     0.5 %
                             

                  27,667     28,589     1.1 %
                             

Cinedigm DC Holdings, LLC(4)

  New York / Software & Computer Services  

Senior Secured Term Loan (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 2.50% PIK, due 3/31/2021)

    70,595     70,595     70,595     2.7 %
                             

                  70,595     70,595     2.7 %
                             

The Copernicus Group, Inc. 

  North Carolina / Healthcare  

Escrow Receivable

              130     0.0 %
                             

                      130     0.0 %
                             

Correctional Healthcare Holding Company, Inc. 

  Colorado / Healthcare  

Second Lien Term Loan (11.25%, due 1/11/2020)(3)

    27,100     27,100     27,100     1.0 %
                             

                  27,100     27,100     1.0 %
                             

Coverall North America, Inc. 

  Florida / Commercial Services  

Senior Secured Term Loan (11.50% (LIBOR + 8.50% with 3.00% LIBOR floor), due 12/17/2017)(3)(4)

    39,303     39,303     39,303     1.5 %
                             

                  39,303     39,303     1.5 %
                             

   

See notes to consolidated financial statements.

F-13


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2013  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

CP Well Testing, LLC

  Oklahoma / Oil & Gas Products  

Senior Secured Term Loan (13.50% (LIBOR + 11.00% with 2.50% LIBOR floor), due 10/03/2017)(4)

  $ 19,125   $ 19,125   $ 19,125     0.7 %
                             

                  19,125     19,125     0.7 %
                             

CRT MIDCO, LLC

  Wisconsin / Media  

Senior Secured Term Loan (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 6/30/2017)(3)(4)

    71,106     71,106     71,106     2.7 %
                             

                  71,106     71,106     2.7 %
                             

Deltek, Inc. 

  Virginia / Software & Computer Services  

Second Lien Term Loan (10.00% (LIBOR + 8.75% with 1.25% LIBOR floor), due 10/10/2019)(4)

    12,000     11,833     12,000     0.5 %
                             

                  11,833     12,000     0.5 %
                             

Diamondback Operating, LP

  Oklahoma / Oil & Gas Production  

Net Profits Interest (15.00% payable on Equity distributions)(7)

                  0.0 %
                             

                          0.0 %
                             

Edmentum, Inc (f/k/a Archipelago Learning, Inc)(4)

  Minnesota / Consumer Services  

Second Lien Term Loan (11.25% (LIBOR + 9.75% with 1.50% LIBOR floor), due 5/17/2019)

    50,000     48,218     50,000     1.9 %
                             

                  48,218     50,000     1.9 %
                             

EIG Investors Corp

  Massachusetts / Software & Computer Services  

Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 5/09/2020)(4)(16)

    22,000     21,792     22,000     0.8 %
                             

                  21,792     22,000     0.8 %
                             

Empire Today, LLC

  Illinois / Durable Consumer Products  

Senior Secured Note (11.375%, due 2/1/2017)

    15,700     15,332     14,650     0.6 %
                             

                  15,332     14,650     0.6 %
                             

EXL Acquisition Corp

  South Carolina / Biotechnology  

Escrow Receivable

            14     0.0 %
                             

                      14     0.0 %
                             

Evanta Ventures, Inc.(11)

  Oregon / Commercial Services  

Subordinated Unsecured (12.00% plus 1.00% PIK, due 9/28/2018)

    10,479     10,479     10,479     0.4 %
                             

                  10,479     10,479     0.4 %
                             

Fairchild Industrial Products, Co. 

  North Carolina / Electronics  

Escrow Receivable

              149     0.0 %
                             

                      149     0.0 %
                             

Fischbein, LLC

  North Carolina / Machinery  

Escrow Receivable

              225     0.0 %
                             

                      225     0.0 %
                             

Focus Brands, Inc.(4)

  Georgia / Consumer Services  

Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 8/21/2018)

    18,000     17,731     18,000     0.7 %
                             

                  17,731     18,000     0.7 %
                             

   

See notes to consolidated financial statements.

F-14


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2013  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

FPG, LLC

  Illinois / Durable Consumer Products  

Senior Secured Term Loan (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 1/20/2017)(4)

  $ 21,401   $ 21,401   $ 21,401     0.8 %

     

Common Stock (5,638 shares)

          27     19     0.0 %
                             

                  21,428     21,420     0.8 %
                             

Galaxy XII CLO, Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    22,000     20,792     21,657     0.8 %
                             

                  20,792     21,657     0.8 %
                             

Galaxy XV CLO, Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    35,025     32,119     30,227     1.1 %
                             

                  32,119     30,227     1.1 %
                             

Grocery Outlet, Inc. 

  California / Retail  

Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 6/17/2019)(4)

    14,457     14,127     14,457     0.5 %
                             

                  14,127     14,457     0.5 %
                             

Gulf Coast Machine & Supply Company

  Texas / Manufacturing  

Senior Secured Term Loan (10.50% (LIBOR + 8.50% with 2.00% LIBOR floor), due 10/12/2017)(3)(4)

    41,213     41,213     31,972     1.2 %
                             

                  41,213     31,972     1.2 %
                             

Halcyon Loan Advisors Funding 2012-I, Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    23,188     22,279     22,724     0.9 %
                             

                  22,279     22,724     0.9 %
                             

Halcyon Loan Advisors Funding 2013-I, Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    40,400     41,085     38,291     1.4 %
                             

                  41,085     38,291     1.4 %
                             

Hoffmaster Group, Inc.(4)

  Wisconsin / Durable Consumer Products  

Second Lien Term Loan (11.00% (LIBOR + 9.50% with 1.50% LIBOR floor), due 1/3/2019)

    20,000     19,831     19,598     0.7 %

     

Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 1/3/2019)

    1,000     991     955     0.0 %
                             

                  20,822     20,553     0.7 %
                             

ICON Health & Fitness, Inc. 

  Utah / Durable Consumer Products  

Senior Secured Note (11.875%, due 10/15/2016)(3)

    43,100     43,310     33,929     1.3 %
                             

                  43,310     33,929     1.3 %
                             

IDQ Holdings, Inc. 

  Texas / Automobile  

Senior Secured Note (11.50%, due 4/1/2017)

    12,500     12,300     12,500     0.5 %
                             

                  12,300     12,500     0.5 %
                             

   

See notes to consolidated financial statements.

F-15


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2013  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

ING IM CLO 2012-II, Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

  $ 38,070   $ 34,904   $ 36,848     1.4 %
                             

                  34,904     36,848     1.4 %
                             

ING IM CLO 2012-III, Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    46,632     44,454     46,361     1.7 %
                             

                  44,454     46,361     1.7 %
                             

ING IM CLO 2012-IV, Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Income Notes (Residual Interest)

    40,613     39,255     41,153     1.5 %
                             

                  39,255     41,153     1.5 %
                             

Injured Workers Pharmacy LLC

  Massachusetts / Healthcare  

Second Lien Debt (11.50% (LIBOR + 7.00% with 4.50% LIBOR floor) plus 1.00% PIK, due 5/31/2019)(3)(4)

    22,430     22,430     22,430     0.8 %
                             

                  22,430     22,430     0.8 %
                             

Interdent, Inc.(4)

  California / Healthcare  

Senior Secured Term Loan A (8.00% (LIBOR + 6.50% with 1.50% LIBOR floor), due 8/3/2017)

    53,475     53,475     53,475     2.0 %

     

Senior Secured Term Loan B (13.00% (LIBOR + 10.00% with 3.00% LIBOR floor), due 8/3/2017)(3)

    55,000     55,000     55,000     2.1 %
                             

                  108,475     108,475     4.1 %
                             

JHH Holdings, Inc. 

  Texas / Healthcare  

Second Lien Debt (12.00% (LIBOR + 10.00% with 2.00% LIBOR floor) plus 1.50% PIK, due 6/23/2018)(3)(4)

    16,119     16,119     16,119     0.6 %
                             

                  16,119     16,119     0.6 %
                             

LaserShip, Inc.(4)

  Virginia / Transportation  

Revolving Line of Credit—$5,000 Commitment (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor), due 12/21/2014)(25)

                0.0 %

     

Senior Secured Term Loan (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor), due 12/21/2017)(3)

    37,031     37,031     37,031     1.4 %
                             

                  37,031     37,031     1.4 %
                             

LCM XIV CLO Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    26,500     25,838     25,838     1.0 %
                             

                  25,838     25,838     1.0 %
                             

   

See notes to consolidated financial statements.

F-16


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2013  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

LHC Holdings Corp. 

  Florida / Healthcare  

Revolving Line of Credit—$750 Commitment (8.50% (LIBOR + 6.00% with 2.50% LIBOR floor), due 5/31/2015)(4)(25)(26)

  $   $   $     0.0 %

     

Senior Subordinated Debt (10.50%, due 5/31/2015)(3)

    2,865     2,865     2,865     0.1 %

     

Membership Interest (125 units)

          216     245     0.0 %
                             

                  3,081     3,110     0.1 %
                             

Madison Park Funding IX, Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Income Notes (Residual Interest)

    31,110     26,401     26,596     1.0 %
                             

                  26,401     26,596     1.0 %
                             

Material Handling Services, LLC(4)

  Ohio / Business Services  

Senior Secured Term Loan (10.50% (LIBOR + 8.50% with 2.00% LIBOR floor), due 7/5/2017)(3)

    27,580     27,580     27,199     1.0 %

     

Senior Secured Term Loan (10.00% (LIBOR + 8.00% with 2.00% LIBOR floor), due 12/21/2017)

    37,959     37,959     37,035     1.4 %
                             

                  65,539     64,234     2.4 %
                             

Maverick Healthcare, LLC

  Arizona / Healthcare  

Preferred Units (1,250,000 units)

          1,252     780     0.0 %

     

Common Units (1,250,000 units)

                  0.0 %
                             

                  1,252     780     0.0 %
                             

Mountain View CLO 2013-I Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    43,650     44,235     43,192     1.6 %
                             

                  44,235     43,192     1.6 %
                             

Medical Security Card Company, LLC(4)

  Arizona / Healthcare  

Revolving Line of Credit—$1,500 Commitment (9.50% (LIBOR + 7.00% with 2.50% LIBOR floor), due 2/1/2016)(25)

                0.0 %

     

First Lien Term Loan (11.25% (LIBOR + 8.75% with 2.50% LIBOR floor), due 2/1/2016)(3)

    13,427     13,427     13,427     0.5 %
                             

                  13,427     13,427     0.5 %
                             

National Bankruptcy Services, LLC(3)(4)

  Texas / Diversified Financial Services  

Senior Subordinated Term Loan (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor) plus 1.50% PIK, due 7/17/2017)

    18,683     18,683     16,883     0.6 %
                             

                  18,683     16,883     0.6 %
                             

   

See notes to consolidated financial statements.

F-17


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2013  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

Naylor, LLC(4)

  Florida / Media  

Revolving Line of Credit—$2,500 Commitment (11.00% (LIBOR + 8.00% with 3.00% LIBOR floor), due 6/7/2017)(25)

  $   $   $     0.0 %

     

Senior Secured Term Loan (11.00% (LIBOR + 8.00% with 3.00% LIBOR floor), due 6/7/2017)(3)

    46,170     46,170     46,170     1.7 %
                             

                  46,170     46,170     1.7 %
                             

New Century Transportation, Inc. 

  New Jersey / Transportation  

Senior Subordinated Term Loan (12.00% (LIBOR + 10.00% with 2.00% LIBOR floor) plus 3.00% PIK, due 2/3/2018)(3)(4)

    45,120     45,120     44,166     1.7 %
                             

                  45,120     44,166     1.7 %
                             

New Star Metals, Inc. 

  Indiana / Metal Services & Minerals  

Senior Subordinated Term Loan (11.50% (LIBOR + 8.50% with 3.00% LIBOR floor) plus 1.00% PIK, due 2/2/2018)(4)

    50,274     50,274     50,274     1.9 %
                             

                  50,274     50,274     1.9 %
                             

Nixon, Inc. 

  California / Durable Consumer Products  

Senior Secured Term Loan (8.75% plus 2.75% PIK, due 4/16/2018)(16)

    15,509     15,252     14,992     0.6 %
                             

                  15,252     14,992     0.6 %
                             

NRG Manufacturing, Inc. 

  Texas /
Manufacturing
 

Escrow Receivable

              3,618     0.1 %
                             

                      3,618     0.1 %
                             

Pegasus Business Intelligence, LP(4)

  Texas / Diversified Financial Services  

Revolving Line of Credit—$2,500 Commitment (9.00% (LIBOR + 7.75% with 1.25% LIBOR floor), due 4/18/2014)(25)

                0.0 %

     

Senior Secured Term Loan A (6.75% (LIBOR + 5.50% with 1.25% LIBOR floor), due 4/18/2018)

    15,938     15,938     15,938     0.6 %

     

Senior Secured Term Loan B (13.75% (LIBOR + 12.50% with 1.25% LIBOR floor), due 4/18/2018)

    15,938     15,938     15,938     0.6 %
                             

                  31,876     31,876     1.2 %
                             

Octagon Investment Partners XV, Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Income Notes (Residual Interest)

    26,901     26,919     25,515     1.0 %
                             

                  26,919     25,515     1.0 %
                             

Pelican Products, Inc.(16)

  California / Durable Consumer Products  

Subordinated Secured (11.50% (LIBOR + 10.00% with 1.50% LIBOR floor), due 6/14/2019)(3)(4)

    15,000     14,729     15,000     0.6 %
                             

                  14,729     15,000     0.6 %
                             

   

See notes to consolidated financial statements.

F-18


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2013  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

Pinnacle (US) Acquisition Co Limited(16)

  Texas / Software & Computer Services  

Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 8/3/2020)(4)

  $ 10,000   $ 9,815   $ 10,000     0.4 %
                             

                  9,815     10,000     0.4 %
                             

Pre-Paid Legal Services, Inc.(16)

  Oklahoma / Consumer Services  

Senior Subordinated Term Loan (11.50% (PRIME + 8.25%), due 12/31/2016)(3)(4)

    5,000     5,000     5,000     0.2 %
                             

                  5,000     5,000     0.2 %
                             

Prince Mineral Holding Corp. 

  New York / Metal Services & Minerals  

Senior Secured Term Loan (11.50%, due 12/15/2019)

    10,000     9,888     10,000     0.4 %
                             

                  9,888     10,000     0.4 %
                             

Progrexion Holdings, Inc.(4)(28)

  Utah / Consumer Services  

Senior Secured Term Loan (10.50% (LIBOR + 8.50% with 2.00% LIBOR floor), due 9/14/2017)(3)

    241,033     241,033     241,033     9.1 %
                             

                  241,033     241,033     9.1 %
                             

Rocket Software, Inc.(3)(4)

  Massachusetts / Software & Computer Services  

Second Lien Term Loan (10.25% (LIBOR + 8.75% with 1.50% LIBOR floor), due 2/8/2019)

    20,000     19,719     20,000     0.8 %
                             

                  19,719     20,000     0.8 %
                             

Royal Adhesives & Sealants, LLC

  Indiana / Chemicals  

Senior Subordinated Unsecured Term Loan (12.00% plus 2.00% PIK, due 11/29/2016)

    28,364     28,364     28,648     1.1 %
                             

                  28,364     28,648     1.1 %
                             

Ryan, LLC(4)

  Texas / Business Services  

Subordinated Secured (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor) plus 3.00% PIK, due 6/30/2018)

    70,000     70,000     70,000     2.6 %
                             

                  70,000     70,000     2.6 %
                             

Sandow Media, LLC

  Florida / Media  

Senior Secured Term Loan (10.50% (LIBOR + 8.50% with 2.00% LIBOR floor) plus 1.50% PIK, due 5/8/2018)(4)

    24,900     24,900     24,900     0.9 %
                             

                  24,900     24,900     0.9 %
                             

Seaton Corp.(3)(4)

  Illinois / Business Services  

Subordinated Secured (12.50% (LIBOR + 9.00% with 3.50% LIBOR floor) plus 2.00% PIK, due 3/14/2014)

    3,305     3,249     3,305     0.1 %

     

Subordinated Secured (12.50% (LIBOR + 9.00% with 3.50% LIBOR floor) plus 2.00% PIK, due 3/14/2015)

    10,005     10,005     10,005     0.4 %
                             

                  13,254     13,310     0.5 %
                             

SESAC Holdco II LLC

  Tennessee / Media  

Second Lien Term Loan (10.00% (LIBOR + 8.75% with 1.25% LIBOR floor), due 7/12/2019)(4)

    6,000     5,914     6,000     0.2 %
                             

                  5,914     6,000     0.2 %
                             

   

See notes to consolidated financial statements.

F-19


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2013  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

Skillsoft Public Limited Company(22)

  Ireland / Software & Computer Services  

Senior Unsecured (11.125%, due 6/1/2018)

  $ 15,000   $ 14,927   $ 15,000     0.6 %
                             

                  14,927     15,000     0.6 %
                             

Snacks Holding Corporation

  Minnesota / Food  

Series A Preferred Stock (4,021.45 shares)

          56     56     0.0 %

  Products  

Series B Preferred Stock (1,866.10 shares)

          56     56     0.0 %

     

Warrant (to purchase 31,196.52 voting common shares, expires 11/12/2020)

          479     484     0.0 %
                             

                  591     596     0.0 %
                             

Southern Management Corporation (22)(30)

  South Carolina / Consumer Finance  

Second Lien Term Loan (12.00% plus 5.00% PIK, due 5/31/2017)

    17,565     17,565     18,267     0.7 %
                             

                  17,565     18,267     0.7 %
                             

Spartan Energy Services, Inc.(3)(4)

  Louisiana / Energy  

Senior Secured Term Loan (10.50% (LIBOR + 9.00% with 1.50% LIBOR floor), due 12/28/2017)

    29,625     29,625     29,625     1.1 %
                             

                  29,625     29,625     1.1 %
                             

Speedy Group Holdings Corp. 

  Canada / Consumer Finance  

Senior Unsecured (12.00%, due 11/15/2017)(22)

    15,000     15,000     15,000     0.6 %
                             

                  15,000     15,000     0.6 %
                             

Sport Helmets Holdings, LLC(14)

  New York / Personal & Nondurable Consumer Products  

Escrow Receivable

              389     0.0 %
                             

                      389     0.0 %
                             

Stauber Performance Ingredients, Inc.(3)(4)

  California / Food Products  

Senior Secured Term Loan (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 1/21/2016)

    16,594     16,594     16,594     0.6 %

     

Senior Secured Term Loan (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 5/21/2017)

    10,238     10,238     10,238     0.4 %
                             

                  26,832     26,832     1.0 %
                             

Stryker Energy, LLC

  Ohio / Oil & Gas Production  

Subordinated Secured Revolving Credit Facility—$50,300 Commitment (8.50% (LIBOR + 7.00% with 1.50% LIBOR floor) plus 3.75% PIK, in non-accrual status effective 12/1/2011, due 12/1/2015)(4)(25)

    34,738     32,711         0.0 %

     

Overriding Royalty Interests(18)

                  0.0 %
                             

                  32,711         0.0 %
                             

   

See notes to consolidated financial statements.

F-20


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2013  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

Symphony CLO, IX Ltd.(22)

  Cayman Islands / Diversified Financial Services  

LP Certificates (Residual Interest)

  $ 45,500   $ 42,289   $ 43,980     1.7 %
                             

                  42,289     43,980     1.7 %
                             

System One Holdings, LLC(3)(4)

  Pennsylvania / Business Services  

Senior Secured Term Loan (11.00% (LIBOR + 9.50% with 1.50% LIBOR floor), due 12/31/2018)

    32,000     32,000     32,000     1.2 %
                             

                  32,000     32,000     1.2 %
                             

TB Corp.(3)

  Texas / Consumer Service  

Senior Subordinated Note (12.00% plus 1.50% PIK, due 12/18/2018)

    23,361     23,361     23,361     0.9 %
                             

                  23,361     23,361     0.9 %
                             

Targus Group International, Inc. (16)

  California / Durable Consumer Products  

First Lien Term Loan (11.00% (LIBOR + 9.50% with 1.50% LIBOR floor), due 5/25/2016)(3)(4)

    23,520     23,209     23,520     0.9 %
                             

                  23,209     23,520     0.9 %
                             

TGG Medical Transitory, Inc. 

  New Jersey / Healthcare  

Second Lien Term Loan (11.25% (LIBOR + 10.00% with 1.25% LIBOR floor), due 6/27/2018)(4)

    8,000     7,773     8,000     0.3 %
                             

                  7,773     8,000     0.3 %
                             

The Petroleum Place, Inc. 

  Colorado / Software & Computer Services  

Second Lien Term Loan (10.00% (LIBOR + 8.75% with 1.25% LIBOR floor), due 5/20/2019)(4)

    22,000     21,690     22,000     0.8 %
                             

                  21,690     22,000     0.8 %
                             

Totes Isotoner Corporation

  Ohio / Nondurable Consumer Products  

Second Lien Term Loan (10.75%, (LIBOR + 9.25% with 1.50% LIBOR floor), due 1/8/2018)(3)(4)

    39,000     39,000     39,000     1.5 %
                             

                  39,000     39,000     1.5 %
                             

Traeger Pellet Grills LLC(4)

  Oregon / Durable Consumer Products  

Revolving Line of Credit—$10,000 Commitment (9.00% (LIBOR + 7.00% with 2.00% LIBOR floor), due 6/18/2014)(25)

    6,143     6,143     6,143     0.3 %

     

Senior Secured Term Loan A (6.50% (LIBOR + 4.50% with 2.00% LIBOR floor), due 6/18/2018)

    30,000     30,000     30,000     1.1 %

     

Senior Secured Term Loan B (11.50% (LIBOR + 9.50% with 2.00% LIBOR floor), due 6/18/2018)

    30,000     30,000     30,000     1.1 %
                             

                  66,143     66,143     2.5 %
                             

TransFirst Holdings, Inc.(4)

  New York / Software & Computer Services  

Second Lien Term Loan (11.00%, (LIBOR + 9.75% with 1.25% LIBOR floor), due 6/27/2018)

    5,000     4,860     5,000     0.2 %
                             

                  4,860     5,000     0.2 %
                             

   

See notes to consolidated financial statements.

F-21


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2013  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

United Sporting Companies, Inc.(5)

  South Carolina / Durable Consumer Products  

Second Lien Term Loan (12.75% (LIBOR + 11.00% with 1.75% LIBOR floor), due 5/16/2018)(4)

  $ 160,000   $ 160,000   $ 160,000     6.0 %
                             

                  160,000     160,000     6.0 %
                             

Wind River Resources Corp. and Wind River II Corp. 

  Utah / Oil & Gas Production  

Senior Secured Note (13.00% (LIBOR + 7.50% with 5.50% LIBOR floor) plus 3.00% default interest on principal, 16.00% default interest on past due interest, in non-accrual status effective 12/1/2008, past due)(4)

    15,000     14,750         0.0 %

     

Net Profits Interest (5.00% payable on Equity distributions)(7)

                  0.0 %
                             

                  14,750         0.0 %
                             

     

Total Non-control/Non-affiliate Investments (Level 3 Investments)

          3,376,319     3,318,663     124.9 %
                             

     

    Total Level 3 Portfolio Investments

          4,255,659     4,172,740     157.1 %
                             

LEVEL 1 PORTFOLIO INVESTMENTS:

                         

Non-control/Non-affiliate Investments (less than 5.00% of voting control)

                         

Allied Defense Group, Inc. 

  Virginia / Aerospace & Defense  

Common Stock (10,000 shares)

          56         0.0 %
                             

                  56         0.0 %
                             

Dover Saddlery, Inc. 

  Massachusetts / Retail  

Common Stock (30,974 shares)

          63     112     0.0 %
                             

                  63     112     0.0 %
                             

     

Total Non-control/Non-affiliate Investments (Level 1 Investments)

          119     112     0.0 %
                             

     

    Total Portfolio Investments

          4,255,778     4,172,852     157.1 %
                             

SHORT TERM INVESTMENTS: Money Market Funds (Level 2 Investments)

                         

Fidelity Institutional Money Market Funds—Government Portfolio (Class I)

         
83,456
   
83,456
   
3.1

%

Fidelity Institutional Money Market Funds—Government Portfolio (Class I)(3)

          49,804     49,804     1.9 %

Victory Government Money Market Funds

          10,002     10,002     0.4 %
                             

Total Money Market Funds

          143,262     143,262     5.4 %
                             

Total Investments

        $ 4,399,040   $ 4,316,114     162.5 %
                             

   

See notes to consolidated financial statements.

F-22


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2012  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

LEVEL 3 PORTFOLIO INVESTMENTS:

                         

Control Investments (greater than 25.00% voting control)

                         

AIRMALL USA, Inc.(27)

  Pennsylvania / Property Management  

Senior Secured Term Loan (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor), due 6/30/2015)(3)(4)

  $ 29,350   $ 29,350   $ 29,350     2.0 %

     

Senior Subordinated Term Loan (12.00% plus 6.00% PIK, due 12/31/2015)

    12,500     12,500     12,500     0.8 %

     

Convertible Preferred Stock (9,919.684 shares)

          9,920     6,132     0.4 %

     

Common Stock (100 shares)

                  0.0 %
                             

                  51,770     47,982     3.2 %
                             

Ajax Rolled Ring & Machine, Inc. 

  South Carolina / Manufacturing  

Senior Secured Note—Tranche A (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 4/01/2013)(3)(4)

    20,167     20,167     20,167     1.3 %

     

Subordinated Secured Note—Tranche B (11.50% (LIBOR + 8.50% with 3.00% LIBOR floor) plus 6.00% PIK, due 4/01/2013)(3)(4)

    15,035     15,035     15,035     1.0 %

     

Convertible Preferred Stock—Series A (6,142.6 shares)

          6,057     17,191     1.1 %

     

Unrestricted Common Stock (6 shares)

              17     0.0 %
                             

                  41,259     52,410     3.4 %
                             

AWCNC, LLC(19)

  North Carolina /  

Members Units—Class A (1,800,000 units)

                  0.0 %

  Machinery  

Members Units—Class B-1 (1 unit)

                  0.0 %

     

Members Units—Class B-2 (7,999,999 units)

                  0.0 %
                             

                          0.0 %
                             

Borga, Inc. 

  California / Manufacturing  

Revolving Line of Credit—$1,000 Commitment (5.00% (PRIME + 1.75%) plus 3.00% default interest, in non-accrual status effective 03/02/2010, past due)(4)(25)

    1,000     945     668     0.0 %

     

Senior Secured Term Loan B (8.50% (PRIME + 5.25%) plus 3.00% default interest, in non-accrual status effective 03/02/2010, past due)(4)

    1,612     1,500         0.0 %

     

Senior Secured Term Loan C (12.00% plus 4.00% PIK plus 3.00% default interest, in non-accrual status effective 03/02/2010, past due)

    9,352     707         0.0 %

     

Common Stock (100 shares)(21)

                  0.0 %

     

Warrants (33,750 warrants)(21)

                  0.0 %
                             

                  3,152     668     0.0 %
                             

   

See notes to consolidated financial statements.

F-23


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2012  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

Energy Solutions Holdings, Inc.(8)

  Texas / Gas Gathering and Processing  

Senior Secured Note (18.00%, due 12/11/2016)(3)

  $ 25,000   $ 25,000   $ 25,000     1.7 %

     

Junior Secured Note (18.00%, due 12/12/2016)(3)

    12,000     12,000     12,000     0.8 %

     

Senior Secured Note to Vessel Holdings LLC (18.00%, due 12/12/2016)

    3,500     3,500     3,500     0.2 %

     

Subordinated Secured Note to Freedom Marine Holdings, LLC (12.00% (LIBOR + 6.11% with 5.89% LIBOR floor) plus 4.00% PIK, in non-accrual status effective 10/1/2010, due 12/31/2011)(4)

    13,352     12,504     5,603     0.4 %

     

Senior Secured Debt to Yatesville Coal Holdings, Inc. (Non-accrual status effective 1/1/2009, past due)

    1,449     1,449         0.0 %

     

Escrow Receivable

              9,825     0.6 %

     

Common Stock (100 shares)

          8,792     70,940     4.7 %
                             

                  63,245     126,868     8.4 %
                             

First Tower Holdings of Delaware, LLC(22)(29)

  Mississippi / Consumer Finance  

Senior Secured Revolving Credit Facility—$400,000 Commitment (20.00% (LIBOR + 18.50% with 1.50% LIBOR floor), due 6/30/2022)(25)

    244,760     244,760     244,760     16.2 %

     

Common Stock (83,729,323 shares)

          43,193     43,193     2.9 %

     

Net Revenue Interest (5% of Net Revenue & Distributions)

                  0.0 %
                             

                  287,953     287,953     19.1 %
                             

Integrated Contract Services, Inc.(9)

  North Carolina / Contracting  

Secured Promissory Notes (15.00%, in non-accrual status effective 12/22/2010, due 3/21/2012—12/18/2013)(10)

    2,581     2,580         0.0 %

     

Senior Demand Note (15.00%, in non-accrual status effective 11/1/2010, past due)(10)

    1,170     1,170         0.0 %

     

Senior Secured Note (7.00% plus 7.00% PIK plus 6.00% default interest, in non-accrual status effective 10/9/2007, past due)

    300             0.0 %

     

Junior Secured Note (7.00% plus 7.00% PIK plus 6.00% default interest, in non-accrual status effective 10/9/2007, past due)

    11,520     11,520         0.0 %

     

Preferred Stock—Series A (10 shares)

                  0.0 %

     

Common Stock (49 shares)

          679         0.0 %
                             

                  15,949         0.0 %
                             

Manx Energy, Inc. ("Manx")(12)

  Kansas / Oil & Gas Production  

Senior Secured Note (13.00%, in non-accrual status effective 1/19/2010, due 6/21/2013)

    3,550     3,550         0.0 %

     

Preferred Stock (6,635 shares)

          6,307         0.0 %

     

Common Stock (17,082 shares)

          1,170         0.0 %
                             

                  11,027         0.0 %
                             

   

See notes to consolidated financial statements.

F-24


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2012  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

NMMB Holdings, Inc.(24)

  New York / Media  

Senior Term Loan (14.00%, due 5/6/2016)

  $ 21,700   $ 21,700   $ 21,700     1.4 %

     

Senior Subordinated Term Loan (15.00%, due 5/6/2016)

    2,800     2,800     2,800     0.2 %

     

Series A Preferred Stock (4,400 shares)

          4,400     252     0.0 %
                             

                  28,900     24,752     1.6 %
                             

R-V Industries, Inc. 

  Pennsylvania / Manufacturing  

Warrants (200,000 warrants, expiring 6/30/2017)

          1,682     6,403     0.4 %

     

Common Stock (545,107 shares)

          5,087     17,453     1.2 %
                             

                  6,769     23,856     1.6 %
                             

Wolf Energy Holdings, Inc.(12)

  Kansas / Oil & Gas Production  

Appalachian Energy Holdings, LLC ("AEH")—Senior Secured First Lien Note (8.00%, in non-accrual status effective 1/19/2010, due 6/21/2013)

    2,437     2,000         0.0 %

     

Coalbed, LLC—Senior Secured Note (8.00%, in non-accrual status effective 1/19/2010, due 6/21/2013)(6)

    7,311     5,991         0.0 %

     

Common Stock (100 Shares)

                  0.0 %
                             

                  7,991         0.0 %
                             

     

    Total Control Investments

          518,015     564,489     37.3 %
                             

Affiliate Investments (5.00% to 24.99% voting control)

                         

BNN Holdings Corp. (f/k/a Biotronic NeuroNetwork)

  Michigan / Healthcare  

Senior Secured Note (11.50% (LIBOR + 7.00% with 4.50% LIBOR floor) plus 1.00% PIK, due 2/21/2013)(3)(4)

    26,227     26,227     26,227     1.8 %

     

Preferred Stock Series A (9,925.455 shares)(13)

          2,300     2,151     0.2 %

     

Preferred Stock Series B (1,753.64 shares)(13)

          579     542     0.0 %
                             

                  29,106     28,920     2.0 %
                             

Boxercraft Incorporated

  Georgia / Textiles & Leather  

Senior Secured Term Loan A (9.50% (LIBOR + 6.50% with 3.00% LIBOR floor), due 9/16/2013)(3)(4)

    1,644     1,532     1,644     0.1 %

     

Senior Secured Term Loan B (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor), due 9/16/2013)(3)(4)

    4,698     4,265     4,698     0.3 %

     

Senior Secured Term Loan C (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 9/16/2013)(3)(4)

    2,277     2,277     2,277     0.2 %

     

Senior Secured Term Loan (12.00% plus 3.00% PIK, due 3/16/2014)(3)

    7,966     7,049     7,966     0.5 %

     

Preferred Stock (1,000,000 shares)

              576     0.0 %

     

Common Stock (10,000 shares)

                  0.0 %
                             

                  15,123     17,161     1.1 %
                             

Smart, LLC(14)

  New York / Diversified / Conglomerate Service  

Membership Interest

              35     0.0 %
                             

                      35     0.0 %
                             

     

    Total Affiliate Investments

          44,229     46,116     3.1 %
                             

   

See notes to consolidated financial statements.

F-25


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2012  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

Non-control/Non-affiliate Investments (less than 5.00% of voting control)

                         

ADAPCO, Inc. 

  Florida / Ecological  

Common Stock (5,000 shares)

        $ 141   $ 240     0.0 %
                             

                  141     240     0.0 %
                             

Aircraft Fasteners International, LLC

  California / Machinery  

Convertible Preferred Stock (32,500 units)

          396     471     0.0 %
                             

                  396     471     0.0 %
                             

American Gilsonite Company

  Utah / Specialty Minerals  

Senior Subordinated Note (12.00% (LIBOR + 10.00% with 2.00% LIBOR floor) plus 2.50% PIK, due 3/10/2016)(3)(4)

  $ 30,232     30,232     30,232     2.0 %

     

Senior Subordinated Note (12.00% (LIBOR + 10.00% with 2.00% LIBOR floor) plus 2.50% PIK, due 3/10/2016)(4)

    7,500     7,500     7,500     0.5 %

     

Membership Interest in AGC/PEP, LLC (99.9999%)(15)

              6,830     0.5 %
                             

                  37,732     44,562     3.0 %
                             

Apidos CLO VIII, Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    19,730     18,056     19,509     1.3 %
                             

                  18,056     19,509     1.3 %
                             

Apidos CLO IX, Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    20,525     18,723     18,723     1.2 %
                             

                  18,723     18,723     1.2 %
                             

Archipelago Learning, Inc

  Minnesota / Consumer Services  

Second Lien Debt (11.25% (LIBOR + 9.75% with 1.50% LIBOR floor), due 5/17/2019)(4)(16)

    50,000     48,022     49,271     3.3 %
                             

                  48,022     49,271     3.3 %
                             

Babson CLO Ltd 2011-I(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    35,000     33,080     34,244     2.3 %
                             

                  33,080     34,244     2.3 %
                             

Babson CLO Ltd 2012-IA(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    29,075     27,014     27,197     1.8 %
                             

                  27,014     27,197     1.8 %
                             

Babson CLO Ltd 2012-IIA(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    27,850     27,486     27,017     1.8 %
                             

                  27,486     27,017     1.8 %
                             

Blue Coat Systems, Inc.(3)(4)

  Massachusetts / Software & Computer Services  

Second Lien Term Loan (11.50% (LIBOR + 10.00% with 1.50% LIBOR floor), due 8/15/2018)

    25,000     24,279     25,000     1.7 %
                             

                  24,279     25,000     1.7 %
                             

   

See notes to consolidated financial statements.

F-26


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2012  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

Byrider Systems Acquisition Corp(22)

  Indiana / Auto Finance  

Senior Subordinated Notes (12.00% plus 2.00% PIK, due 11/3/2016)(3)

  $ 20,546   $ 20,546   $ 19,990     1.3 %
                             

                  20,546     19,990     1.3 %
                             

Caleel + Hayden, LLC(14)(31)

  Colorado / Personal & Nondurable Consumer Products  

Membership Units (7,500 shares)

          351     1,031     0.1 %
                             

                  351     1,031     0.1 %
                             

Capstone Logistics, LLC(4)

  Georgia / Commercial Services  

Senior Secured Term Loan A (7.50% (LIBOR + 5.50% with 2.00% LIBOR floor), due 9/16/2016)

    33,793     33,793     33,793     2.2 %

     

Senior Secured Term Loan B (13.50% (LIBOR + 11.50% with 2.00% LIBOR floor), due 9/16/2016)(3)

    41,625     41,625     41,625     2.8 %
                             

                  75,418     75,418     5.0 %
                             

Cargo Airport Services USA, LLC

  New York / Transportation  

Senior Secured Term Loan (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 3/31/2016)(3)(4)

    48,891     48,891     48,891     3.2 %

     

Common Equity (1.6 units)

          1,639     1,886     0.1 %
                             

                  50,530     50,777     3.3 %
                             

CIFC Funding 2011-I, Ltd.(4)

  Cayman Islands / Diversified Financial Services  

Secured Class D Notes (5.79% (LIBOR + 5.00%), due 1/19/2023)

    19,000     14,778     15,229     1.0 %

     

Unsecured Class E Notes (7.79% (LIBOR + 7.00%), due 1/19/2023)

    15,400     12,480     12,488     0.8 %
                             

                  27,258     27,717     1.8 %
                             

The Copernicus Group, Inc. 

  North Carolina / Healthcare  

Escrow Receivable

              315     0.0 %
                             

                      315     0.0 %
                             

CRT MIDCO, LLC

  Wisconsin / Media  

Senior Secured Term Loan (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 6/30/2017)(3)(4)

    73,500     73,500     73,491     4.9 %
                             

                  73,500     73,491     4.9 %
                             

Diamondback Operating, LP

  Oklahoma / Oil & Gas Production  

Net Profits Interest (15.00% payable on Equity distributions)(7)

                  0.0 %
                             

                          0.0 %
                             

Empire Today, LLC

  Illinois / Durable Consumer Products  

Senior Secured Note (11.375%, due 2/1/2017)

    15,700     15,255     15,700     1.0 %
                             

                  15,255     15,700     1.0 %
                             

Fairchild Industrial Products, Co. 

  North Carolina / Electronics  

Escrow Receivable

              144     0.0 %
                             

                      144     0.0 %
                             

   

See notes to consolidated financial statements.

F-27


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2012  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

Fischbein, LLC

  North Carolina / Machinery  

Senior Subordinated Debt (12.00% plus 2.00% PIK, due 10/31/2016)

  $ 3,413   $ 3,413   $ 3,413     0.3 %

     

Escrow Receivable Escrow Escrow

              565     0.0 %

     

Membership Class A (875,000 units)

          875     2,036     0.1 %
                             

                  4,288     6,014     0.4 %
                             

Focus Brands, Inc.(4)

  Georgia / Consumer Services  

Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 8/21/2018)

    15,000     14,711     14,711     1.0 %
                             

                  14,711     14,711     1.0 %
                             

Galaxy XII CLO, Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    22,000     21,526     21,897     1.4 %
                             

                  21,526     21,897     1.4 %
                             

H&M Oil & Gas, LLC

  Texas / Oil & Gas Production  

Senior Secured Note (13.00% (LIBOR + 7.50% with 5.50% LIBOR floor) plus 3.00% PIK, plus 2.00% default interest, in non-accrual status effective 1/1/2011, past due)(4)

    62,814     60,019     30,524     2.0 %

     

Senior Secured Note (18.00% PIK, in non-accrual status effective 4/27/2012, past due)

    4,507     4,430     4,507     0.3 %

     

Net Profits Interest (8.00% payable on Equity distributions)(7)

                  0.0 %
                             

                  64,449     35,031     2.3 %
                             

Hi-Tech Testing Service, Inc. and Wilson Inspection X-Ray Services, Inc. 

  Texas / Oil & Gas Equipment & Services  

Senior Secured Term Loan (11.00%, due 9/26/2016)

    7,400     7,188     7,391     0.5 %
                             

                  7,188     7,391     0.5 %
                             

Hoffmaster Group, Inc.(4)

  Wisconsin / Durable Consumer Products  

Second Lien Term Loan (11.00% (LIBOR + 9.50% with 1.50% LIBOR floor), due 1/3/2019)

    10,000     9,810     9,811     0.6 %

     

Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 1/3/2019)

    1,000     990     951     0.1 %
                             

                  10,800     10,762     0.7 %
                             

Hudson Products Holdings, Inc.(16)

  Texas / Manufacturing  

Senior Secured Term Loan (9.00% (PRIME + 5.00% with 4.00% PRIME floor), due 8/24/2015)(3)(4)

    6,299     5,880     5,826     0.4 %
                             

                  5,880     5,826     0.4 %
                             

ICON Health & Fitness, Inc. 

  Utah / Durable Consumer Products  

Senior Secured Note (11.875% , due 10/15/2016)(3)

    43,100     43,361     43,100     2.9 %
                             

                  43,361     43,100     2.9 %
                             

IDQ Holdings, Inc. 

  Texas / Automobile  

Senior Secured Note (11.50%, due 4/1/2017)

    12,500     12,260     12,488     0.8 %
                             

                  12,260     12,488     0.8 %
                             

   

See notes to consolidated financial statements.

F-28


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2012  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

Injured Workers Pharmacy LLC

  Massachusetts / Healthcare  

Second Lien Debt (12.00% (LIBOR + 7.50% with 4.50% LIBOR floor) plus 1.00% PIK, due 11/4/2017)(3)(4)

  $ 15,100   $ 15,100   $ 15,100     1.0 %
                             

                  15,100     15,100     1.0 %
                             

Iron Horse Coiled Tubing, Inc.(23)

  Alberta, Canada / Production Services  

Common Stock (3,821 shares)

          268     2,040     0.1 %
                             

                  268     2,040     0.1 %
                             

JHH Holdings, Inc. 

  Texas / Healthcare  

Second Lien Debt (12.00% (LIBOR + 10.00% with 2.00% LIBOR floor) plus 2.50% PIK, due 6/23/2016)(3)(4)

    15,736     15,736     15,736     1.0 %
                             

                  15,736     15,736     1.0 %
                             

LHC Holdings Corp. 

  Florida / Healthcare  

Revolving Line of Credit—$750 Commitment (8.50% (LIBOR + 6.00% with 2.50% LIBOR floor), due 5/31/2015)(4)(25)(26)

                0.0 %

     

Senior Subordinated Debt (10.50%, due 5/31/2015)(3)

    4,265     4,125     4,125     0.3 %

     

Membership Interest (125 units)

          216     225     0.0 %
                             

                  4,341     4,350     0.3 %
                             

Madison Park Funding IX, Ltd.(22)

  Cayman Islands / Diversified Financial Services  

Subordinated Notes (Residual Interest)

    31,110     25,810     25,810     1.7 %
                             

                  25,810     25,810     1.7 %
                             

Maverick Healthcare, LLC

  Arizona / Healthcare  

Preferred Units (1,250,000 units)

          1,252     1,756     0.1 %

     

Common Units (1,250,000 units)

              95     0.0 %
                             

                  1,252     1,851     0.1 %
                             

Medical Security Card Company, LLC(4)

  Arizona / Healthcare  

Revolving Line of Credit—$1,500 Commitment (9.50% (LIBOR + 7.00% with 2.50% LIBOR floor), due 2/1/2016)(25)

                0.0 %

     

First Lien Term Loan (11.25% (LIBOR + 8.75% with 2.50% LIBOR floor), due 2/1/2016)(3)

    17,317     17,317     17,317     1.1 %
                             

                  17,317     17,317     1.1 %
                             

Mood Media Corporation(3)(16)(22)

  Canada / Media  

Senior Subordinated Term Loan (10.25% (LIBOR + 8.75% with 1.50% LIBOR floor), due 11/6/2018)(4)

    15,000     14,866     15,000     1.0 %
                             

                  14,866     15,000     1.0 %
                             

   

See notes to consolidated financial statements.

F-29


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2012  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

National Bankruptcy Services, LLC(3)(4)

  Texas / Diversified Financial Services  

Senior Subordinated Term Loan (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor) plus 1.50% PIK, due 7/16/2017)

  $ 18,402   $ 18,402   $ 18,402     1.2 %
                             

                  18,402     18,402     1.2 %
                             

Naylor, LLC(4)

  Florida / Media  

Revolving Line of Credit—$2,500 Commitment (11.00% (LIBOR + 8.00% with 3.00% LIBOR floor), due 6/7/2017)(25)

                0.0 %

     

Senior Secured Term Loan (11.00% (LIBOR + 8.00% with 3.00% LIBOR floor), due 6/7/2017)

    48,600     48,600     48,600     3.2 %
                             

                  48,600     48,600     3.2 %
                             

New Meatco Provisions, LLC

  California / Food Products  

Senior Subordinated Term Loan (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor) plus 4.00%, PIK due 4/18/2016)(4)

    12,438     12,438     6,571     0.4 %
                             

                  12,438     6,571     0.4 %
                             

Nixon, Inc. 

  California / Durable Consumer Products  

Senior Secured Term Loan (8.75% plus 2.75% PIK, due 4/16/2018)(16)

    15,085     14,792     14,792     1.0 %
                             

                  14,792     14,792     1.0 %
                             

Nobel Learning Communities, Inc. 

  Pennsylvania / Consumer Services  

Subordinated Unsecured (11.50% plus 1.50% PIK, due 8/9/2017)

    15,147     15,147     15,147     1.0 %
                             

                  15,147     15,147     1.0 %
                             

Northwestern Management Services, LLC

  Florida / Healthcare  

Revolving Line of Credit—$1,500 Commitment (10.50% (PRIME + 6.75% with 3.75% PRIME floor), due 7/30/2015)(4)(25)

    200     200     200     0.0 %

     

Senior Secured Term Loan A (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor), due 7/30/2015)(3)(4)

    16,092     16,092     16,092     1.1 %

     

Common Stock (50 shares)

          371     1,205     0.1 %
                             

                  16,663     17,497     1.2 %
                             

NRG Manufacturing, Inc. 

  Texas / Manufacturing  

Escrow Receivable

              6,431     0.4 %
                             

                      6,431     0.4 %
                             

Out Rage, LLC(4)

  Wisconsin / Durable Consumer Products  

Revolving Line of Credit—$1,500 Commitment (11.0% (LIBOR + 8.00% with 3.00% LIBOR floor), due 3/02/2013)(25)

                0.0 %

     

Senior Secured Term Loan (11.00% (LIBOR + 8.00% with 3.00% LIBOR floor), due 3/2/2015)

    10,756     10,756     10,686     0.7 %
                             

                  10,756     10,686     0.7 %
                             

   

See notes to consolidated financial statements.

F-30


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2012  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

Pinnacle Treatment Centers, Inc.(4)

  Pennsylvania / Healthcare  

Revolving Line of Credit—$1,000 Commitment (8.0% (LIBOR + 5.00% with 3.00% LIBOR floor), due 1/10/2016)(25)

  $   $   $     0.0 %

     

Senior Secured Term Loan (11.00% (LIBOR + 8.00% with 3.00% LIBOR floor), due 1/10/2016)(3)

    17,475     17,475     17,475     1.2 %
                             

                  17,475     17,475     1.2 %
                             

Potters Holdings II, L.P.(16)

  Pennsylvania / Manufacturing  

Senior Subordinated Term Loan (10.25% (LIBOR + 8.50% with 1.75% LIBOR floor), due 11/6/2017)(3)(4)

    15,000     14,803     14,608     1.0 %
                             

                  14,803     14,608     1.0 %
                             

Pre-Paid Legal Services, Inc.(16)

  Oklahoma / Consumer Services  

Senior Subordinated Term Loan (11.00% (LIBOR + 9.50% with 1.50% LIBOR floor), due 12/31/2016)(3)(4)

    5,000     5,000     4,989     0.3 %
                             

                  5,000     4,989     0.3 %
                             

Progrexion Holdings, Inc.(4)(28)

  Utah / Consumer Services  

Senior Secured Term Loan A (11.25% (LIBOR + 9.25% with 2.00% LIBOR floor), due 12/31/2014)(3)

    34,502     34,502     34,502     2.3 %

     

Senior Secured Term Loan B (11.25% (LIBOR + 9.25% with 2.00% LIBOR floor), due 12/31/2014)

    28,178     28,178     28,178     1.9 %
                             

                  62,680     62,680     4.2 %
                             

Renaissance Learning, Inc.(16)

  Wisconsin / Consumer Services  

Second Lien Term Loan (12.00% (LIBOR + 10.50% with 1.50% LIBOR floor), due 10/19/2018)(4)

    6,000     5,775     6,000     0.4 %
                             

                  5,775     6,000     0.4 %
                             

Rocket Software, Inc.(3)(4)

  Massachusetts / Software & Computer Services  

Second Lien Term Loan (10.25% (LIBOR + 8.75% with 1.50% LIBOR floor), due 2/8/2019)

    15,000     14,711     14,711     1.0 %
                             

                  14,711     14,711     1.0 %
                             

Royal Adhesives & Sealants, LLC

  Indiana / Chemicals  

Senior Subordinated Unsecured Term Loan (12.00% plus 2.00% PIK due 11/29/2016)

    27,798     27,798     27,798     1.8 %
                             

                  27,798     27,798     1.8 %
                             

Seaton Corp. 

  Illinois / Business Services  

Subordinated Secured (12.50% (LIBOR + 9.00% with 3.50% LIBOR floor) plus 2.00% PIK, due 3/14/2014)(3)(4)

    3,288     3,164     3,288     0.2 %
                             

                  3,164     3,288     0.2 %
                             

F-31


Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2012  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

SG Acquisition, Inc.(4)

  Georgia / Insurance  

Senior Secured Term Loan A (8.50% (LIBOR + 6.50% with 2.00% LIBOR floor), due 3/18/2016)

  $ 27,469   $ 27,469   $ 27,469     1.8 %

     

Senior Secured Term Loan B (14.50% (LIBOR + 12.50% with 2.00% LIBOR floor), due 3/18/2016)(3)

    29,625     29,625     29,625     2.0 %

     

Senior Secured Term Loan C (8.50% (LIBOR + 6.50% with 2.00% LIBOR floor), due 3/18/2016)

    12,686     12,686     12,686     0.8 %

     

Senior Secured Term Loan D (14.50% (LIBOR + 12.50% with 2.00% LIBOR floor), due 3/18/2016)

    13,681     13,681     13,681     0.9 %
                             

                  83,461     83,461     5.5 %
                             

Shearer's Foods, Inc. 

  Ohio / Food Products  

Junior Secured Debt (12.00% plus 3.75% PIK (3.75% LIBOR floor), due 3/31/2016)(3)(4)

    37,639     37,639     37,639     2.5 %

     

Membership Interest in Mistral Chip Holdings, LLC—Common (2,000 units)(17)

          2,000     2,161     0.1 %

     

Membership Interest in Mistral Chip Holdings, LLC 2—Common (595 units)(17)

          1,322     643     0.0 %

     

Membership Interest in Mistral Chip Holdings, LLC 3—Preferred (67 units)(17)

          673     883     0.1 %
                             

                  41,634     41,326     2.7 %
                             

Skillsoft Public Limited Company(22)

  Ireland / Software & Computer Services  

Senior Unsecured (11.125%, due 6/1/2018)

    15,000     14,918     15,000     1.0 %
                             

                  14,918     15,000     1.0 %
                             

Snacks Holding Corporation

  Minnesota / Food Products  

Senior Subordinated Unsecured Term Loan (12.00% plus 1.00% PIK, due 11/12/2017)

    15,250     14,754     5,250     1.0 %

     

Series A Preferred Stock (4,021.45 shares)

          56     42     0.0 %

     

Series B Preferred Stock (1,866.10 shares)

          56     42     0.0 %

     

Warrant (to purchase 31,196.52 voting common shares, expires 11/12/2020)

          479     357     0.0 %
                             

                  15,345     15,691     1.0 %
                             

Southern Management Corporation(22)(30)

  South Carolina / Consumer Finance  

Second Lien Term Loan (12.00% plus 5.00% PIK due 5/31/2017)

    17,568     17,568     17,568     1.2 %
                             

                  17,568     17,568     1.2 %
                             

Sport Helmets Holdings, LLC(14)

  New York / Personal & Nondurable Consumer Products  

Escrow Receivable

              406     0.0 %
                             

                      406     0.0 %
                             

   

See notes to consolidated financial statements.

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2012  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

Springs Window Fashions, LLC

  Wisconsin / Durable Consumer Products  

Second Lien Term Loan (11.25% (LIBOR + 9.25% with 2.00% LIBOR floor), due 11/30/2017)(3)(4)

  $ 35,000   $ 35,000   $ 34,062     2.3 %
                             

                  35,000     34,062     2.3 %
                             

ST Products, LLC

  Pennsylvania/ Manufacturing  

Senior Secured Term Loan (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor), due 6/16/2016)(3)(4)

    23,328     23,328     23,328     1.5 %
                             

                  23,328     23,328     1.5 %
                             

Stauber Performance Ingredients, Inc.(4)

  California / Food Products  

Senior Secured Term Loan (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 1/21/2016)(3)

    22,058     22,058     22,058     1.5 %

     

Senior Secured Term Loan (10.50% (LIBOR + 7.50% with 3.00% LIBOR floor), due 5/21/2017)

    10,500     10,500     10,500     0.7 %
                             

                  32,558     32,558     2.2 %
                             

Stryker Energy, LLC

  Ohio / Oil & Gas Production  

Subordinated Secured Revolving Credit Facility—$50,300 Commitment (8.50% (LIBOR + 7.00% with 1.50% LIBOR floor) plus 3.75% PIK, in non-accrual status effective 12/1/2011, due 12/1/2015)(4)(25)

    33,444     32,711         0.0 %

     

Overriding Royalty Interests(18)

              1,623     0.1 %
                             

                  32,711     1,623     0.1 %
                             

Symphony CLO, IX Ltd.(22)

  Cayman Islands / Diversified Financial Services  

LP Certificates (Residual Interest)

    45,500     42,864     43,612     2.9 %
                             

                  42,864     43,612     2.9 %
                             

Targus Group International, Inc.(16)

  California / Durable Consumer Products  

First Lien Term Loan (11.00% (LIBOR + 9.50% with 1.50% LIBOR floor), due 5/25/2016)(3)(4)

    23,760     23,363     23,760     1.6 %
                             

                  23,363     23,760     1.6 %
                             

Totes Isotoner Corporation

  Ohio / Nondurable Consumer Products  

Second Lien Term Loan (10.75%, (LIBOR + 9.25% with 1.50% LIBOR floor) due 1/8/2018)(3)(4)

    39,000     39,000     38,531     2.5 %
                             

                  39,000     38,531     2.5 %
                             

U.S. HealthWorks Holding Company, Inc.(16)

  California / Healthcare  

Second Lien Term Loan (10.50% (LIBOR + 9.00% with 1.50% LIBOR floor), due 6/15/2017)(3)(4)

    25,000     25,000     25,000     1.7 %
                             

                  25,000     25,000     1.7 %
                             

VanDeMark Chemicals, Inc.(3)

  New York / Chemicals  

Senior Secured Term Loan (12.20% (LIBOR + 10.20% with 2.0% LIBOR floor), due 12/31/2014)(4)

    30,306     30,306     30,306     2.0 %
                             

                  30,306     30,306     2.0 %
                             

   

See notes to consolidated financial statements.

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Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
   
   
  June 30, 2012  
Portfolio Company
  Locale / Industry   Investments(1)   Principal
Value
  Cost   Fair
Value(2)
  % of
Net
Assets
 

Wind River Resources Corp. and Wind River II Corp. 

  Utah / Oil & Gas Production  

Senior Secured Note (13.00% (LIBOR + 7.50% with 5.50% LIBOR floor) plus 3.00% default interest on principal, 16.00% default interest on past due interest, in non-accrual status effective 12/1/2008, past due)(4)

  $ 14,750   $ 14,750   $ 2,339     0.2 %

     

Net Profits Interest (5.00% payable on Equity distributions)(7)

                  0.0 %
                             

                  14,750     2,339     0.2 %
                             

     

Total Non-control/Non-affiliate Investments (Level 3 Investments)

          1,536,950     1,483,487     98.1 %
                             

     

    Total Level 3 Portfolio Investments

          2,099,194     2,094,092     138.5 %
                             

LEVEL 1 PORTFOLIO INVESTMENTS:

                         

Non-control/Non-affiliate Investments (less than 5.00% of voting control)

                         

Allied Defense Group, Inc. 

  Virginia / Aerospace & Defense  

Common Stock (10,000 shares)

          56         0.0 %
                             

                  56         0.0 %
                             

Dover Saddlery, Inc. 

  Massachusetts / Retail  

Common Stock (30,974 shares)

          63     129     0.0 %
                             

                  63     129     0.0 %
                             

     

Total Non-control/Non-affiliate Investments (Level 1 Investments)

          119     129     0.0 %
                             

     

    Total Portfolio Investments

          2,099,313     2,094,221     138.5 %
                             

SHORT TERM INVESTMENTS: Money Market Funds (Level 2 Investments)

                         

Fidelity Institutional Money Market Funds—Government Portfolio (Class I)

          86,596     86,596     5.7 %

Fidelity Institutional Money Market Funds—Government Portfolio (Class I)(3)

          31,772     31,772     2.1 %

Victory Government Money Market Funds

          1     1     0.0 %
                             

     

Total Money Market Funds

          118,369     118,369     7.8 %
                             

     

    Total Investments

        $ 2,217,682   $ 2,212,590     146.3 %
                             

   

See notes to consolidated financial statements.

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Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

Endnote Explanations for the Consolidated Schedule of Investments as of June 30, 2013 and June 30, 2012

(1)
The securities in which Prospect Capital Corporation ("we", "us" or "our") has invested were acquired in transactions that were exempt from registration under the Securities Act of 1933, as amended, or the "Securities Act." These securities may be resold only in transactions that are exempt from registration under the Securities Act.

(2)
Fair value is determined by or under the direction of our Board of Directors. As of June 30, 2013 and June 30, 2012, two of our portfolio investments, Allied Defense Group, Inc. ("Allied") and Dover Saddlery, Inc. ("Dover") were publicly traded and classified as Level 1 within the valuation hierarchy established by Accounting Standards Codification ("ASC") 820, Fair Value Measurements and Disclosures ("ASC 820"). As of June 30, 2013 and June 30, 2012, the fair value of our remaining portfolio investments was determined using significant unobservable inputs. ASC 820 classifies such inputs used to measure fair value as Level 3 within the valuation hierarchy. Our investments in money market funds are classified as Level 2. See Note 2 and Note 3 within the accompanying consolidated financial statements for further discussion.

(3)
Security, or a portion thereof, is held by Prospect Capital Funding LLC, a bankruptcy remote special purpose entity, and is pledged as collateral for the revolving credit facility and such security is not available as collateral to our general creditors (See Note 4). The market values of these investments at June 30, 2013 and June 30, 2012 were $883,114 and $783,384, respectively; they represent 20.5% and 35.4% of total investments at fair value, respectively. Prospect Capital Funding LLC (See Note 1), our wholly-owned subsidiary, holds an aggregate market value of $883,114 and $783,384 of these investments as of June 30, 2013 and June 30, 2012, respectively.

(4)
Security, or portion thereof, has a floating interest rate which may be subject to a LIBOR or PRIME floor. Stated interest rate was in effect at June 30, 2013 and June 30, 2012.

(5)
Ellett Brothers, LLC., Evans Sports, Inc., Jerry's Sports, Inc., Simmons Gun Specialties, Inc., Bonitz Brothers, Inc. and Outdoor Sports Headquarters, Inc., are joint borrowers on our second lien loan. United Sporting Companies, Inc., is a parent guarantor of this debt investment.

(6)
During the quarter ended December 31, 2009, we created two new entities, Coalbed Inc. and Coalbed LLC, to foreclose on the outstanding senior secured loan and assigned rights and interests of Conquest Cherokee, LLC ("Conquest"), as a result of the deterioration of Conquest's financial performance and inability to service debt payments. We own 1,000 shares of common stock in Coalbed Inc., representing 100% of the issued and outstanding common stock. Coalbed Inc., in turn owns 100% of the membership interest in Coalbed LLC.

On October 21, 2009, Coalbed LLC foreclosed on the loan formerly made to Conquest. On January 19, 2010, as part of the Manx rollup, the Coalbed LLC assets and loan were assigned to Manx, the holding company. On June 30, 2012, Manx reassigned our investment in Coalbed to Wolf Energy Holdings, Inc. ("Wolf"), a newly-formed, separately owned holding company. Our Board of Directors set value at zero for the loan position in Coalbed LLC investment as of June 30, 2013 and June 30, 2012.

(7)
In addition to the stated returns, the net profits interest held will be realized upon sale of the borrower or a sale of the interests.

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Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

(8)
During the quarter ended December 31, 2011, our ownership of Change Clean Energy Holdings, Inc. ("CCEHI") and Change Clean Energy, Inc. ("CCEI"), Freedom Marine Holding, Inc. ("Freedom Marine") and Yatesville Coal Holdings, Inc. ("Yatesville") was transferred to Energy Solutions Holdings, Inc. (f/k/a Gas Solutions Holdings, Inc.) ("Energy Solutions") to consolidate all of our energy holdings under one management team. We own 100% of Energy Solutions.

(9)
Entity was formed as a result of the debt restructuring of ESA Environmental Specialist, Inc. In early 2009, we foreclosed on the two loans on non-accrual status and purchased the underlying personal and real property. We own 1,000 shares of common stock in The Healing Staff ("THS"), f/k/a Lisamarie Fallon, Inc. representing 100% ownership. We own 1,500 shares of Vets Securing America, Inc. ("VSA"), representing 100% ownership.

During the three months ended December 31, 2012, we determined that the impairment of Integrated Contract Services, Inc. ("ICS") was other-than-temporary and recorded a realized loss of $12,198 for the amount that the amortized cost exceeded the fair market value. Our remaining investment in The Healing Staff ("THS"), an affiliate of ICS, was valued at zero as of June 30, 2013 and continues to provide staffing solutions for health care facilities and security staffing.

(10)
Loan is with THS, an affiliate of ICS.

(11)
Evanta Ventures, Inc. and Sports Leadership Institute, Inc. are joint borrowers on our investment.

(12)
On January 19, 2010, we modified the terms of our senior secured debt in AEH and Coalbed in conjunction with the formation of Manx Energy, a new entity consisting of the assets of AEH, Coalbed and Kinley Exploration. The assets of the three companies were brought under new common management. We funded $2,800 at closing to Manx to provide for working capital. A portion of our loans to AEH and Coalbed was exchanged for Manx preferred equity, while our AEH equity interest was converted into Manx common stock. There was no change to fair value at the time of restructuring. On June 30, 2012, Manx reassigned our investments in Coalbed and AEH to Wolf, a newly-formed, separately owned holding company. We continue to fully reserve any income accrued for Manx. During the quarter ended June 30, 2013, we determined that the impairment of Manx was other-than-temporary and recorded a realized loss of $9,397 for the amount that the amortized cost exceeded the fair market value. The Board of Directors set the fair value of our investment in Manx at $346 as of June 30, 2013.

(13)
On a fully diluted basis, represents 10.00% of voting common shares.

(14)
A portion of the positions listed was issued by an affiliate of the portfolio company.

(15)
We own 99.9999% of AGC/PEP, LLC. AGC/PEP, LLC owns 2,037.65 out of a total of 83,818.69 shares (including 5,111 vested and unvested management options) of American Gilsonite Holding Company which owns 100% of American Gilsonite Company.

(16)
Syndicated investment which had been originated by another financial institution and broadly distributed.

(17)
At June 30, 2012, Mistral Chip Holdings, LLC owns 44,800 shares of Chip Holdings, Inc. and Mistral Chip Holdings 2, LLC owns 11,975 shares in Chip Holdings, Inc. Chip Holdings, Inc. is the parent company of Shearer's Foods, Inc. and has 67,936 shares outstanding before adjusting for

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Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

(18)
The overriding royalty interests held receive payments at the stated rates based upon operations of the borrower.

(19)
On December 31, 2009, we sold our investment in Aylward Enterprises, LLC. AWCNC, LLC is the remaining holding company with zero assets. Our remaining outstanding debt after the sale was written off on December 31, 2009 and no value has been assigned to the equity position as of June 30, 2013 and June 30, 2012.

(20)
We own a warrant to purchase 3,755,000 shares of Series A Preferred Stock, 625,000 shares of Series B Preferred Stock, and 43,800 shares of Voting Common Stock in Boxercraft Incorporated.

(21)
We own warrants to purchase 33,750 shares of common stock in Metal Buildings Holding Corporation ("Metal Buildings"), the former holding company of Borga, Inc. Metal Buildings Holding Corporation owned 100% of Borga, Inc.

On March 8, 2010, we foreclosed on the stock in Borga, Inc. that was held by Metal Buildings, obtaining 100% ownership of Borga, Inc.

(22)
Certain investments that we have determined are not "qualifying" assets under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. We monitor the status of these assets on an ongoing basis.

(23)
On January 1, 2010, we restructured our senior secured and bridge loans investment in Iron Horse Coiled Tubing, Inc. ("Iron Horse") and we reorganized Iron Horse's management structure. The senior secured loan and bridge loan were replaced with three new tranches of senior secured debt. During the period from June 30, 2011 to June 30, 2012, our fully diluted ownership of Iron Horse decreased from 57.8% to 5.0%, respectively, as we continued to transfer ownership interests to Iron Horse's management as they repaid our outstanding debt. Iron Horse management had an option to repurchase our remaining interest for $2,040.

On July 24, 2012, we sold our 3,821 shares of Iron Horse Coiled Tubing, Inc. common stock in connection with the exercise of the equity buyout option, receiving $2,040 of net proceeds and realizing a gain of approximately $1,772 on the sale.

(24)
On May 6, 2011, we made a secured first lien $24,250 debt investment to NMMB Acquisition, Inc., a $2,800 secured debt and $4,400 equity investment to NMMB Holdings, Inc. We own 100% of the Series A Preferred Stock in NMMB Holdings, Inc. NMMB Holdings, Inc. owns 100% of the Convertible Preferred in NMMB Acquisition, Inc. NMMB Acquisition, Inc. has a 5.8% dividend rate which is paid to NMMB Holdings, Inc. Our fully diluted ownership in NMMB Holdings, Inc. is 100% as of June 30, 2013 and June 30, 2012. Our fully diluted ownership in NMMB Acquisition, Inc. is 83.5% as of June 30, 2013 and June 30, 2012.

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

(25)
Undrawn committed revolvers incur commitment and unused fees ranging from 0.50% to 2.00%. As of June 30, 2013 and June 30, 2012, we had $202,518 and $180,646 of undrawn revolver commitments to our portfolio companies, respectively.

(26)
Stated interest rates are based on June 30, 2013 and June 30, 2012 one month Libor rates plus applicable spreads based on the respective credit agreements. Interest rates are subject to change based on actual elections by the borrower for a Libor rate contract or Base Rate contract when drawing on the revolver.

(27)
On July 30, 2010, we made a secured first lien $30,000 debt investment to AIRMALL USA, Inc., a $12,500 secured second lien to AMU Holdings, Inc., and acquired 100% of the Convertible Preferred Stock and Common stock of AMU Holdings, Inc. Our Convertible Preferred Stock in AMU Holdings, Inc. has a 12.0% dividend rate which is paid from the dividends received from the underlying operating company, AIRMALL USA Inc. AMU Holdings, Inc. owns 100% of the common stock in AIRMALL USA, Inc.

(28)
Progrexion Marketing, Inc., Progrexion Teleservices, Inc., Progrexion ASG, Inc. Progrexion IP, Inc. and Efolks, LLC, are joint borrowers on our senior secured investment. Progrexion Holdings, Inc. and eFolks Holdings, Inc. are the guarantors of this debt investment.

(29)
Our wholly-owned entity, First Tower Holdings of Delaware, LLC, owns 80.1% of First Tower Holdings LLC, the operating company of First Tower, LLC.

(30)
Southern Management Corporation, Thaxton Investment Corporation, Southern Finance of Tennessee, Inc., Covington Credit of Texas, Inc., Covington Credit, Inc., Covington Credit of Alabama, Inc., Covington Credit of Georgia, Inc., Southern Finance of South Carolina, Inc. and Quick Credit Corporation, are joint borrowers on our senior secured investment. SouthernCo, Inc. is the guarantor of this debt investment.

(31)
We own 2.8% (13,220 shares) of the Mineral Fusion Natural, LLC, a subsidiary of Caleel + Hayden, common and preferred interest.

(32)
Our wholly-owned entity, APH Property Holdings, LLC, owns 100% of the common equity of American Property Holdings Corp., a REIT which holds investments in several real estate properties.

(33)
Our wholly-owned entity, CCPI Holdings, Inc. owns 95.13% of CCPI Inc., the operating company.

(34)
Our wholly-owned entity, Credit Central Holdings of Delaware, LLC owns 74.8% of Credit Central Holdings, LLC, which owns 100% of each of Credit Central, LLC, Credit Central South, LLC and Credit Central of Tennessee, LLC, the operating companies.

(35)
Our wholly-owned entity, Valley Electric Holdings I, Inc. ("HoldCo"), owns 100% of Valley Electric Holdings, II, Inc. ("Valley II"). Valley II owns 96.3% of Valley Electric Co. of Mt. Vernon, Inc. ("OpCo"), the operating company. Our debt investments are with both HoldCo and OpCo.

(36)
Our wholly-owned entity, Nationwide Acceptance Holdings, LLC owns 93.8% of Nationwide Acceptance LLC, the operating company.

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Table of Contents


PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

(37)
On April 15, 2013, assets previously held by H&M were assigned to Wolf in exchange for a $66,000 term loan secured by the assets. The cost basis in this loan of $44,632 was determined in accordance with ASC 310-40, Troubled Debt Restructurings by Creditors, and was equal to the fair value of assets at the time of transfer resulting in a capital loss of $19,647 in connection with the foreclosure on the assets. On May 17, 2013, Wolf sold the assets located in Martin County for $66,000. Proceeds from the sale were primarily used to repay the loan and net profits interest receivable due to us resulting in a realized capital gain of $11,826. We received $3,960 of structuring and advisory fees from Wolf during the year ended June 30, 2013 related to the sale and $991 under the net profits interest agreement which was recognized as other income during the fiscal year ended June 30, 2013.

(38)
As defined in the Investment Company Act, the Company is deemed to be both an "Affiliated Person" and "Control" this portfolio company because it owns more than 25% of the portfolio company's outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the period for the year ended June 30, 2013 in which the issuer was both an Affiliated company and a portfolio company that the Company is deemed to Control are as follows:

Company
  Purchases   Redemptions   Sales   Interest
income
  Dividend
income
  Structuring
fee
  Other
income
  Net
realized
gains (losses)
  Net
unrealized
gains (losses)
 

AIRMALL USA, Inc. 

  $   $ 600   $   $ 5,822   $   $   $   $   $ 7,266  

Ajax Rolled Ring & Machine, Inc. 

    23,300     19,065         5,176         155             (17,208 )

APH Property Holdings, LLC

    151,648             2,898         4,511     140          

AWCNC, LLC

                                     

Borga, Inc. 

    150                                 (232 )

CCPI Holdings, Inc. 

    34,081     338         1,792         575     32          

Credit Central Holdings of Delaware, LLC

    47,663             3,893         1,440     240         2,799  

Energy Solutions Holdings, Inc. 

        28,500     475     24,809     53,820                 (71,198 )

First Tower Holdings of Delaware, LLC

    20,000             52,476             2,426         (9,869 )

Manx Energy, Inc. 

                                (9,397 )   18,865  

Nationwide Acceptance Holdings, LLC

    25,151             1,787         753     131          

NMMB Holdings, Inc. 

            5,700     3,026                     (5,903 )

R-V Industries, Inc. 

    32,750             781     24,462     143             1,463  

The Healing Staff, Inc. 

    975         894     2                 (12,117 )   12,117  

Valley Electric Holdings I, Inc. 

    52,098         100     3,511         1,227     98          

Wolf Energy Holdings, Inc. 

    50             452         3,960     991     11,826     (3,092 )
(39)
As defined in the Investment Company Act, the Company is deemed to be an "Affiliated Person" of a portfolio company because it owns 5% or more of the portfolio company's outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

 
Company
  Purchases   Redemptions   Sales   Interest
income
  Dividend
income
  Structuring
fee
  Other
income
  Net
realized
gains (losses)
  Net
unrealized
gains (losses)
 
 

BNN Holdings Corp. (f/k/a Biotronic NeuroNetwork)

  $ 30,000   $ 26,677   $   $ 3,159   $   $ 600   $ 22   $   $ 672  
 

Boxercraft Incorporated

                3,356                     (9,413 )
 

Smart, LLC

                    728                 108  
(40)
As defined in the Investment Company Act, the Company is deemed to be both an "Affiliated Person" and "Control" this portfolio company because it owns more than 25% of the portfolio company's outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the period for the year ended June 30, 2012 in which the issuer was both an Affiliated company and a portfolio company that the Company is deemed to Control are as follows:

Company
  Purchases   Redemptions   Sales   Interest
income
  Dividend
income
  Structuring
fee
  Other
income
  Net
realized
gains (losses)
  Net
unrealized
gains (losses)
 

AIRMALL USA, Inc. 

  $   $ 650   $   $ 5,900   $   $   $   $   $ (3,094 )

Ajax Rolled Ring & Machine, Inc. 

        440         4,849                     18,973  

AWCNC, LLC

                                     

Borga, Inc. 

                                    (1,023 )

C&J Cladding LLC

            580             1,500         2,420     (4,119 )

Change Clean Energy Holdings, Inc. 

                                    2,540  

Energy Solutions Holdings, Inc. 

    5,951             7,174     47,850     5,220     4,983         (63,403 )

First Tower Holdings of Delaware, LLC

    287,953             2,312         8,075              

Integrated Contract Services, Inc. 

    1,033     1,054                             503  

Iron Horse Coiled Tubing, Inc. 

        14,338         324                     802  

Manx Energy, Inc. 

                                    (1,312 )

NMMB Holdings, Inc. 

        2,550         3,683                     (4,148 )

NRG Manufacturing, Inc. 

    37,218     50,299     2,317     28,579     15,011     372     3,800     36,940     (23,655 )

Nupla Corporation

        1,995         587         1,500     14     2,907     (4,194 )

R-V Industries, Inc. 

                    283                 15,740  

Yatesville Coal Holdings, Inc. 

                                    1,035  
(41)
As defined in the Investment Company Act, the Company is deemed to be an "Affiliated Person" of a portfolio company because it owns 5% or more of the portfolio company's outstanding voting securities or it has the power to exercise control over the management or policies of such portfolio company (including through a management agreement). Transactions during the year ended

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

June 30, 2013 and June 30, 2012

(in thousands, except share data)

Company
  Purchases   Redemptions   Sales   Interest
income
  Dividend
income
  Structuring
fee
  Other
income
  Net
realized
gains (losses)
  Net
unrealized
gains (losses)
 

BNN Holdings Corp. (f/k/a Biotronic NeuroNetwork)

  $   $   $   $ 3,333   $   $   $   $   $ (5,099 )

Boxercraft Incorporated

    2,300     1,144         2,947             70         (662 )

Smart, LLC

                                    35  

Sport Helmets Holdings, LLC

        19,102         5,875             38     4,445     (7,483 )

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

Note 1. Organization

        References herein to "we", "us" or "our" refer to Prospect Capital Corporation ("Prospect") and its subsidiary unless the context specifically requires otherwise.

        We were organized on April 13, 2004 and were funded in an initial public offering ("IPO"), completed on July 27, 2004. We are a closed-end investment company that has filed an election to be treated as a Business Development Company ("BDC"), under the Investment Company Act of 1940 (the "1940 Act"). As a BDC, we have qualified and have elected to be treated as a regulated investment company ("RIC"), under Subchapter M of the Internal Revenue Code of 1986 (the "Internal Revenue Code"). We invest primarily in senior and subordinated debt and equity of companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes.

        On May 15, 2007, we formed a wholly-owned subsidiary, Prospect Capital Funding LLC ("PCF"), a Delaware limited liability company and a bankruptcy remote special purpose entity, which holds certain of our portfolio loan investments that are used as collateral for the credit facility at PCF.

Note 2. Significant Accounting Policies

        The following are significant accounting policies consistently applied by us:

Basis of Presentation

        The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and pursuant to the requirements for reporting on Form 10-K and Regulation S-X. The financial results of our portfolio investments are not consolidated in the financial statements.

Reclassifications

        Certain reclassifications have been made in the presentation of prior consolidated financial statements and accompanying notes to conform to the presentation as of and for the twelve months ended June 30, 2013.

Use of Estimates

        The preparation of GAAP financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period. Changes in the economic environment, financial markets, creditworthiness of our portfolio companies and any other parameters used in determining these estimates could cause actual results to differ, and these differences could be material.

Basis of Consolidation

        Under the 1940 Act rules, the regulations pursuant to Article 6 of Regulation S-X and the American Institute of Certified Public Accountants' Audit and Accounting Guide for Investment Companies, we are precluded from consolidating any entity other than another investment company or

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 2. Significant Accounting Policies (Continued)

an operating company which provides substantially all of its services and benefits to us. Our consolidated financial statements include our accounts and the accounts of PCF, our only wholly-owned, closely-managed subsidiary that is also an investment company. All intercompany balances and transactions have been eliminated in consolidation.

Investment Classification

        We are a non-diversified company within the meaning of the 1940 Act. We classify our investments by level of control. As defined in the 1940 Act, control investments are those where there is the ability or power to exercise a controlling influence over the management or policies of a company. Control is generally deemed to exist when a company or individual possesses or has the right to acquire within 60 days or less, a beneficial ownership of 25% or more of the voting securities of an investee company. Affiliated investments and affiliated companies are defined by a lesser degree of influence and are deemed to exist through the possession outright or via the right to acquire within 60 days or less, beneficial ownership of 5% or more of the outstanding voting securities of another person.

        Investments are recognized when we assume an obligation to acquire a financial instrument and assume the risks for gains or losses related to that instrument. Investments are derecognized when we assume an obligation to sell a financial instrument and forego the risks for gains or losses related to that instrument. Specifically, we record all security transactions on a trade date basis. Investments in other, non-security financial instruments are recorded on the basis of subscription date or redemption date, as applicable. Amounts for investments recognized or derecognized but not yet settled are reported as receivables for investments sold and payables for investments purchased, respectively, in the Consolidated Statements of Assets and Liabilities.

Investment Risks

        The Company's investments are subject to a variety of risks. Those risks include the following:

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 2. Significant Accounting Policies (Continued)

Investment Valuation

        To value our assets, we follow the guidance of ASC 820 that defines fair value, establishes a framework for measuring fair value in conformity with accounting principles generally accepted in the United States or America, or GAAP, and requires disclosures about fair value measurements.

        ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:

        In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.

        ASC 820 applies to fair value measurements already required or permitted by other standards.

        In accordance with ASC 820, the fair value of our investments is defined as the price that we would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market in which that investment is transacted.

        Our Board of Directors has established procedures for the valuation of our investment portfolio. These procedures are detailed below.

        Investments for which market quotations are readily available are valued at such market quotations.

        For most of our investments, market quotations are not available. With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 2. Significant Accounting Policies (Continued)

represent fair value, our Board of Directors has approved a multi-step valuation process each quarter, as described below:

        Investments are valued utilizing a shadow bond approach, a market approach, an income approach, a liquidation approach, or a combination of approaches, as appropriate. The shadow bond and market approaches use prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present value amount (discounted) calculated based on an appropriate discount rate. The measurement is based on the net present value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company's ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, the principal market and enterprise values, among other factors.

        Our investments in CLOs are classified as ASC 820 level 3 securities, and are valued using a discounted cash flow model. The valuations have been accomplished through the analysis of the CLO deal structures to identify the risk exposures from the modeling point of view. For each security, the most appropriate valuation approach has been chosen from alternative approaches to ensure the most accurate valuation for each security. To value a CLO, both the assets and liabilities of the CLO capital structure need be modeled. We use a waterfall engine to store the collateral data, generate collateral cash flows from the assets, and distributes the cash flow to the liability structure based on the payment priorities, and discount them back using proper discount rates that incorporate all the risk factors. The main risk factors are: default risk, interest rate risk, downgrade risk, and credit spread risk.

        For a discussion of the risks inherent in determining the value of securities for which readily available market values do not exist, see "Risk Factors—Risks relating to our business—Most of our portfolio investments are recorded at fair value as determined in good faith under the direction of our Board of Directors and, as a result, there is uncertainty as to the value of our portfolio investments."

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 2. Significant Accounting Policies (Continued)

Valuation of Other Financial Assets and Financial Liabilities

        ASC Subtopic 820-10-05-1, The Fair Value Option for Financial Assets and Financial Liabilities ("ASC 820-10-05-1") permits an entity to elect fair value as the initial and subsequent measurement attribute for many of assets and liabilities for which the fair value option has been elected and similar assets and liabilities measured using another measurement attribute. We have elected not to value some assets and liabilities at fair value as would be permitted by ASC 820-10-05-1.

Senior Convertible Notes

        We have recorded the Senior Convertible Notes (See Note 5) at their contractual amounts. The Senior Convertible Notes were analyzed for any features that would require their accounting to be bifurcated and such features were determined to be immaterial.

Revenue Recognition

        Realized gains or losses on the sale of investments are calculated using the specific identification method.

        Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing and/or commitment fees associated with investments in portfolio companies are accreted into interest income over the respective terms of the applicable loans. Accretion of such purchase discounts or premiums is calculated by the effective interest method as of the purchase date and adjusted only for material amendments or prepayments. Upon the prepayment of a loan or debt security, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as interest income. The purchase discount for portfolio investments acquired from Patriot Capital Funding, Inc. ("Patriot") was determined based on the difference between par value and fair market value as of December 2, 2009, and continues to accrete until maturity or repayment of the respective loans.

        Interest income from investments in the "equity" class of security of CLO Funds (typically income notes or subordinated notes) is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40-35, Beneficial Interests in Securitized Financial Assets. We monitor the expected cash inflows from our CLO equity investments, including the expected residual payments, and the effective yield is determined and updated periodically.

        Dividend income is recorded on the ex-dividend date.

        Structuring fees and similar fees are recognized as income as earned, usually when paid. Structuring fees, excess deal deposits, net profits interests and overriding royalty interests are included in other income.

        Loans are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected in accordance with the terms of the investment. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management's judgment of collectability.

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 2. Significant Accounting Policies (Continued)

Non-accrual loans are restored to accrual status when past due principal and interest is paid and in management's judgment, are likely to remain current.

Federal and State Income Taxes

        We have elected to be treated as a regulated investment company and intend to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies. We are required to distribute at least 90% of our investment company taxable income and intend to distribute (or retain through a deemed distribution) all of our investment company taxable income and net capital gain to stockholders; therefore, we have made no provision for income taxes. The character of income and gains that we will distribute is determined in accordance with income tax regulations that may differ from GAAP. Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified to paid-in capital.

        If we do not distribute (or are not deemed to have distributed) at least 98% of our annual ordinary income and 98.2% of our capital gains in the calendar year earned, we will generally be required to pay an excise tax equal to 4% of the amount by which 98% of our annual ordinary income and 98.2% of our capital gains exceed the distributions from such taxable income for the year. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, we accrue excise taxes, if any, on estimated excess taxable income as taxable income is earned using an annual effective excise tax rate. The annual effective excise tax rate is determined by dividing the estimated annual excise tax by the estimated annual taxable income.

        If we fail to satisfy the annual distribution requirement or otherwise fail to qualify as a RIC in any taxable year, we would be subject to tax on all of our taxable income at regular corporate rates. We would not be able to deduct distributions to stockholders, nor would we be required to make distributions. Distributions would generally be taxable to our individual and other non-corporate taxable stockholders as ordinary dividend income eligible for the reduced maximum rate applicable to qualified dividend income to the extent of our current and accumulated earnings and profits, provided certain holding period and other requirements are met. Subject to certain limitations under the Internal Revenue Code, corporate distributions would be eligible for the dividends-received deduction. To qualify again to be taxed as a RIC in a subsequent year, we would be required to distribute to our shareholders our accumulated earnings and profits attributable to non-RIC years reduced by an interest charge of 50% of such earnings and profits payable by us as an additional tax. In addition, if we failed to qualify as a RIC for a period greater than two taxable years, then, in order to qualify as a RIC in a subsequent year, we would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of ten years.

        We follow ASC 740, Income Taxes ("ASC 740"). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are "more-likely-than-not" of being

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 2. Significant Accounting Policies (Continued)

sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. As of June 30, 2013 and for the year then ended, we did not have a liability for any unrecognized tax benefits. Management's determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.

Dividends and Distributions

        Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount, if any, to be paid as a monthly dividend or distribution is approved by our Board of Directors quarterly and is generally based upon our management's estimate of our earnings for the quarter. Net realized capital gains, if any, are distributed at least annually.

Financing Costs

        We record origination expenses related to our credit facility and Senior Convertible Notes, Senior Unsecured Notes and Prospect Capital InterNotes® (collectively, our "Senior Notes"), as deferred financing costs. These expenses are deferred and amortized as part of interest expense using the straight-line method for our revolving credit facility and the effective interest method for our Senior Notes, over the respective expected life.

        We record registration expenses related to shelf filings as prepaid assets. These expenses consist principally of Securities and Exchange Commission ("SEC") registration fees, legal fees and accounting fees incurred. These prepaid assets will be charged to capital upon the receipt of an equity offering proceeds or charged to expense if no offering completed.

Guarantees and Indemnification Agreements

        We follow ASC 460, Guarantees ("ASC 460"). ASC 460 elaborates on the disclosure requirements of a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, for those guarantees that are covered by ASC 460, the fair value of the obligation undertaken in issuing certain guarantees.

Per Share Information

        Net increase or decrease in net assets resulting from operations per common share are calculated using the weighted average number of common shares outstanding for the period presented. In accordance with ASC 946, Financial Services—Investment Companies, convertible securities are not considered in the calculation of net assets per share.

Recent Accounting Pronouncements

        In May 2011, the FASB issued Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs ("ASU 2011-04"). ASU 2011-04 amends Accounting Standards Codification 820, Fair Value

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 2. Significant Accounting Policies (Continued)

Measurements ("ASC 820") by: (1) clarifying that the highest-and-best-use and valuation-premise concepts only apply to measuring the fair value of non-financial assets; (2) allowing a reporting entity to measure the fair value of the net asset or net liability position in a manner consistent with how market participants would price the net risk position, if certain criteria are met; (3) providing a framework for considering whether a premium or discount can be applied in a fair value measurement; (4) providing that the fair value of an instrument classified in a reporting entity's shareholders' equity is estimated from the perspective of a market participant that holds the identical item as an asset; and (5) expanding the qualitative and quantitative fair value disclosure requirements. The expanded disclosures include, for Level 3 items, a description of the valuation process and a narrative description of the sensitivity of the fair value to changes in unobservable inputs and interrelationships between those inputs if a change in those inputs would result in a significantly different fair value measurement. ASU 2011-4 also requires disclosures about the highest-and-best-use of a non-financial asset when this use differs from the asset's current use and the reasons for such a difference. In addition, this ASU amends ASC 820, Fair Value Measurements, to require disclosures to include any transfers between Level 1 and Level 2 of the fair value hierarchy. These amendments were effective for fiscal years beginning after December 15, 2011 and for interim periods within those fiscal years. The adoption of the amended guidance in ASU 2011-04 did not have a significant effect on our financial statements. See Note 3 for the disclosure required by ASU 2011-04.

        In August 2012, the FASB issued Accounting Standards Update 2012-03, Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 114 ("SAB No. 114"), Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 ("ASU 2012-03"). The update amends various SEC paragraphs pursuant to the issuance of SAB No. 114 and is effective upon issuance. The adoption of the amended guidance in ASU 2012-03 did not have a significant effect on our financial statements.

        In October 2012, the FASB issued Accounting Standards Update 2012-04, Technical Corrections and Improvements ("ASU 2012-04"). The amendments in this update cover a wide range of Topics in the ASC. These amendments include technical corrections and improvements to the ASC and conforming amendments related to fair value measurements. The adoption of the amended guidance in ASU 2012-04 did not have a significant effect on our financial statements.

        In June 2013, the FASB issued Accounting Standards Update 2013-08, Financial Services—Investment Companies (Topic 946)—Amendments to the Scope, Measurement, and Disclosure Requirements ("ASU 2013-08"). ASU 2013-08 clarifies the approach to be used for determining whether an entity is an investment company and provides new measurement and disclosure requirements. ASU 2013-08 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2013. Earlier application is prohibited. The adoption of ASU 2013-08 is not expected to materially effect on our financial statements.

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 3. Portfolio Investments

        At June 30, 2013, we had investments in 124 long-term portfolio investments, which had an amortized cost of $4,255,778 and a fair value of $4,172,852 and at June 30, 2012, we had investments in 85 long-term portfolio investments, which had an amortized cost of $2,099,313 and a fair value of $2,094,221.

        As of June 30, 2013, we own controlling interests in AIRMALL USA, Inc. ("Airmall"), Ajax Rolled Ring & Machine, Inc., APH Property Holdings, LLC ("APH"), AWCNC, LLC, Borga, Inc. ("Borga"), CCPI Holdings, Inc., Credit Central Holdings of Delaware, LLC, Energy Solutions Holdings, Inc. (f/k/a Gas Solutions Holdings, Inc.) ("Energy Solutions"), First Tower Holdings of Delaware, LLC ("First Tower Delaware"), Manx Energy, Inc. ("Manx"), Nationwide Acceptance Holdings, LLC, NMMB Holdings, Inc., R-V Industries, Inc., The Healing Staff, Inc. ("THS"), Valley Electric Holdings I, Inc. and Wolf Energy Holdings, Inc. ("Wolf"). We also own an affiliated interest in BNN Holdings Corp. (f/k/a Biotronic NeuroNetwork), Boxercraft Incorporated and Smart, LLC.

        The composition of our investments and money market funds as of June 30, 2013 and June 30, 2012 at cost and fair value was as follows:

 
  June 30, 2013   June 30, 2012  
 
  Cost   Fair Value   Cost   Fair Value  

Revolving Line of Credit

  $ 9,238   $ 8,729   $ 1,145   $ 868  

Senior Secured Debt

    2,262,327     2,207,091     1,138,991     1,080,053  

Subordinated Secured Debt

    1,062,386     1,024,901     544,363     488,113  

Subordinated Unsecured Debt

    88,470     88,827     72,617     73,195  

CLO Debt

    27,667     28,589     27,258     27,717  

CLO Residual Interest

    660,619     658,086     214,559     218,009  

Equity

    145,071     156,629     100,380     206,266  
                   

Total Investments

    4,255,778     4,172,852     2,099,313     2,094,221  

Money Market Funds

    143,262     143,262     118,369     118,369  
                   

Total Investments and Money Market Funds

  $ 4,399,040   $ 4,316,114   $ 2,217,682   $ 2,212,590  
                   

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 3. Portfolio Investments (Continued)

        The fair values of our investments and money market funds as of June 30, 2013 disaggregated into the three levels of the ASC 820 valuation hierarchy are as follows:

 
  Quoted Prices in
Active Markets for
Identical Securities
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
  Total  

Investments at fair value

                         

Revolving Line of Credit

  $   $   $ 8,729   $ 8,729  

Senior Secured Debt

            2,207,091     2,207,091  

Subordinated Secured Debt

            1,024,901     1,024,901  

Subordinated Unsecured Debt

            88,827     88,827  

CLO Debt

            28,589     28,589  

CLO Residual Interest

            658,086     658,086  

Equity

    112         156,517     156,629  
                   

Total Investments

    112         4,172,740     4,172,852  

Money Market Funds

        143,262         143,262  
                   

Total Investments and Money Market Funds

  $ 112   $ 143,262   $ 4,172,740   $ 4,316,114  
                   

 

 
  Fair Value Hierarchy    
 
 
  Level 1   Level 2   Level 3   Total  

Investments at fair value

                         

Control investments

  $   $   $ 811,634   $ 811,634  

Affiliate investments

            42,443     42,443  

Non-control/non-affiliate investments

    112         3,318,663     3,318,775  
                   

    112         4,172,740     4,172,852  

Investments in money market funds

        143,262         143,262  
                   

Total assets reported at fair value

  $ 112   $ 143,262   $ 4,172,740   $ 4,316,114  
                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 3. Portfolio Investments (Continued)

        The fair values of our investments and money market funds as of June 30, 2012 disaggregated into the three levels of the ASC 820 valuation hierarchy are as follows:

 
  Quoted Prices in
Active Markets for
Identical Securities
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
  Total  

Investments at fair value

                         

Revolving Line of Credit

  $   $   $ 868   $ 868  

Senior Secured Debt

            1,080,053     1,080,053  

Subordinated Secured Debt

            488,113     488,113  

Subordinated Unsecured Debt

            73,195     73,195  

CLO Debt

            27,717     27,717  

CLO Residual Interest

            218,009     218,009  

Equity

    129         206,137     206,266  
                   

Total Investments

    129         2,094,092     2,094,221  

Money Market Funds

        118,369         118,369  
                   

Total Investments and Money Market Funds

  $ 129   $ 118,369   $ 2,094,092   $ 2,212,590  
                   

 

 
  Fair Value Hierarchy    
 
 
  Level 1   Level 2   Level 3   Total  

Investments at fair value

                         

Control investments

  $   $   $ 564,489   $ 564,489  

Affiliate investments

            46,116     46,116  

Non-control/non-affiliate investments

    129         1,483,487     1,483,616  
                   

    129         2,094,092     2,094,221  

Investments in money market funds

        118,369         118,369  
                   

Total assets reported at fair value

  $ 129   $ 118,369   $ 2,094,092   $ 2,212,590  
                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 3. Portfolio Investments (Continued)

        The aggregate values of Level 3 portfolio investments changed during the year ended June 30, 2013 as follows:

 
  Fair Value Measurements
Using Unobservable Inputs (Level 3)
 
 
  Control
Investments
  Affiliate
Investments
  Non-Control/
Non-Affiliate
Investments
  Total  

Fair value as of June 30, 2012

  $ 564,489   $ 46,116   $ 1,483,487   $ 2,094,092  
                   

Total realized loss, net

    (9,688 )       (16,672 )   (26,360 )

Change in unrealized depreciation

    (64,991 )   (8,634 )   (4,192 )   (77,817 )
                   

Net realized and unrealized loss

    (74,679 )   (8,634 )   (20,864 )   (104,177 )

Purchases of portfolio investments

    387,866     30,000     2,674,404     3,092,270  

Payment-in-kind interest

    2,668     715     7,564     10,947  

Accretion of purchase discount

        922     10,095     11,017  

Repayments and sales of portfolio investments

    (68,710 )   (26,676 )   (836,023 )   (931,409 )

Transfers within Level 3

                 

Transfers in (out) of Level 3

                 
                   

Fair value as of June 30, 2013

  $ 811,634   $ 42,443   $ 3,318,663   $ 4,172,740  
                   

 

 
  Fair Value Measurements Using Unobservable Inputs (Level 3)  
 
  Revolver   Senior
Secured
Debt
  Subordinated
Secured Debt
  Unsecured
Debt
  CLO Debt   CLO
Residual
Interest
  Equity   Total  

Fair value as of June 30, 2012

  $ 868   $ 1,080,053   $ 488,113   $ 73,195   $ 27,717   $ 218,009   $ 206,137   $ 2,094,092  
                                   

Total realized loss (gain), net

        (21,545 )   (22,001 )               17,186     (26,360 )

Change in unrealized (depreciation) appreciation

    (232 )   3,197     19,265     (222 )   464     (5,981 )   (94,308 )   (77,817 )
                                   

Net realized and unrealized (loss) gain

    (232 )   (18,348 )   (2,736 )   (222 )   464     (5,981 )   (77,122 )   (104,177 )

Purchases of portfolio investments

    21,143     1,626,172     812,025     133,700         440,050     59,180     3,092,270  

Payment-in-kind interest

        4,401     3,687     2,859                 10,947  

Amortization of discounts and premiums

        1,747     2,346     508     408     6,008         11,017  

Repayments and sales of portfolio investments

    (13,050 )   (499,900 )   (265,568 )   (121,213 )           (31,678 )   (931,409 )

Transfers within Level 3

        12,966     (12,966 )                    

Transfers in (out) of Level 3

                                 
                                   

Fair value as of June 30, 2013

  $ 8,729   $ 2,207,091   $ 1,024,901   $ 88,827   $ 28,589   $ 658,086   $ 156,517   $ 4,172,740  
                                   

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PROSPECT CAPITAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 3. Portfolio Investments (Continued)

        The aggregate values of Level 3 portfolio investments changed during the year ended June 30, 2012 as follows:

 
  Fair Value Measurements
Using Unobservable Inputs (Level 3)
 
 
  Control
Investments
  Affiliate
Investments
  Non-Control/
Non-Affiliate
Investments
  Total  

Fair value as of June 30, 2011

  $ 310,072   $ 72,337   $ 1,080,421   $ 1,462,830  
                   

Total realized loss (gain), net

    42,267     4,445     (10,115 )   36,597  

Change in unrealized appreciation (depreciation)

    6,776     (13,617 )   (25,476 )   (32,317 )
                   

Net realized and unrealized gain (loss)

    49,043     (9,172 )   (35,591 )   4,280  

Purchases of portfolio investments

    332,156     2,300     780,556     1,115,012  

Payment-in-kind interest

    219     467     4,961     5,647  

Accretion of purchase discount

    81     4,874     2,329     7,284  

Repayments and sales of portfolio investments

    (118,740 )   (24,690 )   (357,531 )   (500,961 )

Transfers within Level 3

    (8,342 )       8,342      

Transfers in (out) of Level 3

                 
                   

Fair value as of June 30, 2012

  $ 564,489   $ 46,116   $ 1,483,487   $ 2,094,092  
                   

 

 
  Fair Value Measurements Using Unobservable Inputs (Level 3)  
 
  Revolver   Senior
Secured
Debt
  Subordinated
Secured Debt
  Subordinated
Unsecured
Debt
  CLO Debt   CLO
Residual
Interest
  Equity   Total  

Fair value as of June 30, 2011

  $ 7,278   $ 789,981   $ 448,675   $ 55,336   $   $   $ 161,560   $ 1,462,830  
                                   

Total realized loss (gain), net

        2,686     (14,606 )               48,517     36,597  

Change in unrealized (depreciation) appreciation

    (412 )   (26,340 )   (13,737 )   (67 )   459     3,450     4,330     (32,317 )
                                   

Net realized and unrealized (loss) gain

    (412 )   (23,654 )   (28,343 )   (67 )   459     3,450     52,847     4,280  

Purchases of portfolio investments

    1,500     582,566     227,733     17,000     27,072     214,559     44,582     1,115,012  

Payment-in-kind interest

        304     4,485     858                 5,647  

Accretion of purchase discount

    80     3,449     3,501     68     186             7,284  

Repayments and sales of portfolio investments

    (7,578 )   (272,593 )   (167,938 )               (52,852 )   (500,961 )

Transfers within Level 3

                                 

Transfers in (out) of Level 3

                                 
                                   

Fair value as of June 30, 2012

  $ 868   $ 1,080,053   $ 488,113   $ 73,195   $ 27,717   $ 218,009   $ 206,137   $ 2,094,092  
                                   

        For the year ended June 30, 2013 and 2012, the net change in unrealized appreciation on the investments that use Level 3 inputs was $77,488 and $18,866 for assets still held as of June 30, 2013 and 2012, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 3. Portfolio Investments (Continued)

        The ranges of unobservable inputs used in the fair value measurement of our Level 3 investments as of June 30, 2013 were as follows:

 
   
   
  Unobservable Input  
Asset Category
  Fair Value   Primary Valuation
Technique
  Input   Range   Weighted
Average
 

Senior

  $ 2,215,820   Yield Analysis   Market Yield   5.7% - 20.8%     10.7 %

Subordinated Secured

    1,024,901   Yield Analysis   Market Yield   7.7% - 19.8%     11.6 %

Subordinated Unsecured

    88,827   Yield Analysis   Market Yield   6.1% - 14.6%     10.7 %

CLO Debt

    28,589   Discounted Cash Flow   Discount Rate   12.10% - 20.1%     15.7 %

CLO Residual Interest

    658,086   Discounted Cash Flow   Discount Rate   11.3% - 19.8%     15.3 %

Equity

    151,855   EV Market Multiple Analysis   EV Market Multiple Analysis   3.3x - 8.8x     6.2x  

Escrow

    4,662   Discounted Cash Flow   Discount Rate   6.5% - 7.5%     7.0 %
                         

Total

  $ 4,172,740                    
                         

        The ranges of unobservable inputs used in the fair value measurement of our Level 3 investments as of June 30, 2012 were as follows:

 
   
   
  Unobservable Input  
Asset Category
  Fair Value   Primary Valuation Technique   Input   Range   Weighted
Average
 

Senior

  $ 1,080,921   Yield Analysis   Market Yield   6.7% - 30.0%     11.1 %

Subordinated Secured

    488,113   Yield Analysis   Market Yield   7.0% - 30.0%     12.6 %

Subordinated Unsecured

    73,195   Yield Analysis   Market Yield   8.7% - 13.5%     11.8 %

CLO Debt

    27,717   Discounted Cash Flow   Discount Rate   13.0%     13.0 %

CLO Residual Interest

    218,009   Discounted Cash Flow   Discount Rate   8.0% - 14.0%     10.2 %

Equity

    188,451   EV Market Multiple Analysis   EV Market Multiple Analysis   3.3x - 9.0x     6.6x  

Escrow

    17,686   Discounted Cash Flow   Discount Rate   6.5% - 8.5%     7.7 %
                         

Total

  $ 2,094,092                    
                         

        The significant unobservable inputs used in the market approach of fair value measurement of our investments are the market multiples of earnings before income tax, depreciation and amortization ("EBITDA") of the comparable guideline public companies. The independent valuation firm selects a population of public companies for each investment with similar operations and attributes of the subject company. Using these guideline public companies' data, a range of multiples of enterprise value to EBITDA is calculated. The independent valuation firm selects percentages from the range of multiples for purposes of determining the subject company's estimated enterprise value based on said multiple and generally the latest twelve months EBITDA of the subject company (or other meaningful measure). Significant increases or decreases in the multiple will result in an increase or decrease in enterprise value, resulting in an increase or decrease in the fair value estimate of the equity investment.

        The significant unobservable input used in the income approach of fair value measurement of our investments is the discount rate used to discount the estimated future cash flows expected to be

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 3. Portfolio Investments (Continued)

received from the underlying investment, which include both future principal and interest payments. Significant increases or decreases in the discount rate would result in a decrease or increase in the fair value measurement. Included in the consideration and selection of discount rates are the following factors: risk of default, rating of the investment and comparable company investments, and call provisions.

        Changes in market yields, discount rates or EBITDA multiples, each in isolation, may change the fair value of certain of our investments. Generally, an increase in market yields or discount rates or decrease in EBITDA multiples may result in a decrease in the fair value of certain of our investments.

        Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it.

        In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.

        During the year ended June 30, 2013, the valuation methodology for Airmall changed to incorporate the income method (discounted cash flow analysis) in addition to the market method (public comparable company analysis) used in previous quarters. Management adopted the income method to incorporate current financial projections in recognition of the time elapsed since the initial acquisition of the company in June 2010. As a result of this change and in recognition of recent improved company performance, we increased the fair value of our investment in Airmall to $54,648 as of June 30, 2013, a premium of $3,478 from its amortized cost, compared to the $3,788 unrealized depreciation recorded at June 30, 2012.

        During the year ended June 30, 2013, the valuation methodology for First Tower Delaware changed to incorporate the income method (discounted cash flow analysis) in addition to the market method (public comparable company analysis) used in previous quarters. Management adopted the income method in consideration of management forecasts not previously available. As a result of this change and in recognition of recent company performance and current market conditions we decreased the fair value of our investment in First Tower Delaware to $298,084 as of June 30, 2013, a discount of $13,869 to its amortized cost, compared to $287,953 as of June 30, 2012, equal to its amortized cost at that time.

        During the year ended June 30, 2013, the valuation methodology for ICON Health & Fitness, Inc. ("ICON") changed to incorporate an enterprise value waterfall analysis in place of a trading analysis in addition to the income method (discounted cash flow analysis) used in previous quarters. Management adopted the enterprise value waterfall analysis due to the impairment of the senior term loan, and removed the trading analysis due to lack of trading activity during the quarter. As a result of this change and in recognition of recent company performance and current market conditions, we decreased

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 3. Portfolio Investments (Continued)

the fair value of our investment in ICON to $33,929 as of June 30, 2013, a discount of $9,381 to its amortized cost, compared to the $261 unrealized depreciation recorded at June 30, 2012.

        In December 2011, we completed a reorganization of Gas Solutions Holdings, Inc. renaming the company Energy Solutions and transferring ownership of other operating companies owned by us that operate within the energy industry. As part of the reorganization, our equity interests in Change Clean Energy Holdings, Inc. and Change Clean Energy, Inc., Freedom Marine Holdings, LLC, a subsidiary of Energy Solutions ("Freedom Marine") and Yatesville Coal Holdings, Inc., a subsidiary of Energy Solutions ("Yatesville"), were transferred to Energy Solutions to consolidate all of our energy holdings under one management team strategically expanding Energy Solutions across energy sectors.

        On January 4, 2012, Energy Solutions sold its gas gathering and processing assets ("Gas Solutions") for a sale price of $199,805, adjusted for the final working capital settlement, including a potential earnout of $28,000 that will be paid based on the future performance of Gas Solutions. After expenses, including structuring fees of $9,966 paid to us, Energy Solutions received approximately $158,687 in cash. Currently, a loan to Energy Solutions remains outstanding and is collateralized by the cash held by Energy Solutions after the sale transaction. The sale of Gas Solutions by Energy Solutions has resulted in significant earnings and profits, as defined by the Internal Revenue Code, at Energy Solutions for calendar year 2012. As a result, distributions from Energy Solutions to us were required to be recognized as dividend income, in accordance with ASC 946, Financial Services—Investment Companies, as cash distributions are received from Energy Solutions, to the extent there are current year earnings and profits sufficient to support such recognition. During the year ended June 30, 2013, Energy Solutions repaid $28,500 of senior and subordinated secured debt. We received $19,543 of make-whole fees for early repayment of the outstanding loan receivables, which was recorded as interest income during the year ended June 30, 2013. During the year ended June 30, 2013, we received distributions of $53,820 from Energy Solutions which were recorded as dividend income. Energy Solutions continues to hold $23,979 of cash for future investment and repayment of the remaining debt.

        During the year ended June 30, 2013, we provided $125,892 and $26,648 of debt and equity financing, respectively, to APH for the acquisition of various industrial and multi-family residential real estate properties in Florida and Georgia. APH is a holding company that owns 100% of the common equity of American Property Holdings Corp. ("APHC"). APHC is a Maryland corporation and qualified REIT for federal income tax purposes. During the year ended June 30, 2013, we received $4,511 of structuring fees related to our investments in APH which were recorded as other income. As of June 30, 2013, APHC's real estate portfolio was comprised of seven investments. The following table shows the mortgages outstanding due to other parties for each of the seven properties:

No.
  Property Name   City   Date of Acquisition   Purchase Price   Mortgage
Outstanding
 

1

  146 Forest Parkway   Forest Park, GA     10/24/2012   $ 7,400   $  

2

  Abbington Pointe   Marietta, GA     12/28/2012     23,500     15,275  

3

  Amberly Place   Tampa, FL     1/17/2013     63,400     39,600  

4

  Lofton Place   Tampa, FL     4/30/2013     26,000     16,965  

5

  Vista at Palma Sola   Bradenton, FL     4/30/2013     27,000     17,550  

6

  Arlington Park   Marietta, GA     5/8/2013     14,850     9,650  

7

  Arium Resort   Pembroke Pines, GA     6/24/2013     225,000     157,500  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 3. Portfolio Investments (Continued)

        At June 30, 2013, eight loan investments were on non-accrual status: Borga, Freedom Marine, THS, formerly a subsidiary of Integrated Contract Services, Inc. ("ICS"), Manx, Stryker Energy, LLC ("Stryker"), Wind River Resources Corp. and Wind River II Corp. ("Wind River"), Wolf and Yatesville. At June 30, 2012, nine loan investments were on non-accrual status: Borga, Freedom Marine, H&M Oil and Gas, LLC ("H&M"), THS, formerly a subsidiary of ICS, Manx, Stryker, Wind River, Wolf and Yatesville. Principal balances of these loans amounted to $106,395 and $171,149 as of June 30, 2013 and June 30, 2012, respectively. The fair value of these loans amounted to $13,810 and $43,641 as of June 30, 2013 and June 30, 2012, respectively. The fair values of these investments represent approximately 0.5% and 2.9% of our net assets as of June 30, 2013 and June 30, 2012, respectively. For the years ended June 30, 2013, June 30, 2012 and June 30, 2011, the income foregone as a result of not accruing interest on non-accrual debt investments amounted to $25,965, $25,460 and $18,535, respectively.

        On December 3, 2010, we exercised our warrants in Miller Petroleum, Inc ("Miller") and received 2,013,814 shares of Miller common stock. On December 27, 2010, we sold 1,397,510 of these shares receiving $3.95 of net proceeds per share, realizing a gain of $5,415. On January 10, 2011, we sold the remaining 616,304 shares of Miller common stock receiving $4.23 of net proceeds per share, realizing an additional gain of $2,561. The total gain was $7,976 on the sale of the Miller common stock.

        On May 2, 2011, we sold our membership interests in Fischbein, LLC ("Fischbein") for $12,396 of gross proceeds, $1,479 of which is deferred revenue held in escrow, realizing a gain of $9,893, and received a repayment on the loan that was outstanding. We subsequently made a $3,334 senior secured second lien term loan and invested $875 in the common equity of Fischbein with the new ownership group.

        During the year ended June 30, 2012, Deb Shops, Inc. ("Deb Shops") filed for bankruptcy and a plan for reorganization was proposed. The plan was approved by the bankruptcy court and our debt position was eliminated with no payment to us. We determined that the impairment of Deb Shops was other-than-temporary on September 30, 2011 and recorded a realized loss of $14,607 for the full amount of the amortized cost. The asset was completely written off when the plan of reorganization was approved.

        On December 28, 2011, we made a secured debt investment of $37,218 to support the recapitalization of NRG Manufacturing, Inc. ("NRG"). After the financing, we received repayment of the $13,080 loan that was previously outstanding and a dividend of $6,711 as a result of our equity holdings. In addition, we sold 392 shares of NRG common stock held by us back to NRG for $13,266, realizing a gain of $12,131.

        On February 2, 2012, NRG was sold to an outside buyer for $123,258. In conjunction with the sale, the $37,218 loan that was outstanding was repaid. We also received a $26,936 make-whole fee for early repayment of the outstanding loan, which was recorded as interest income in the year ended June 30, 2012. Further, we received a $3,800 advisory fee for the transaction, which was recorded as other income in the quarter ending March 31, 2012. After expenses, including the make whole and advisory fees discussed above, $40,886 was available to be distributed to stockholders. While our 408 shares of NRG common stock represented 67.1% of the ownership, we received net proceeds of $25,991 as our contribution to the escrow amount was proportionately higher than the other shareholders. In

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 3. Portfolio Investments (Continued)

connection with the sales, we recognized a realized gain of $24,810 during the year ended June 30, 2012. In total, we received proceeds of $93,977 at closing. In addition, there was $11,125 being held in escrow of which 80% is due to us upon release of the escrowed amounts. During the year ended June 30, 2013, we received $3,251 upon release of escrowed amounts for which we recognized a gain in the same amount. As of June 30, 2013, the fair value of the remaining escrow amounts was $3,618. This will be recognized as a gain if and when received.

        On February 5, 2013, we received a distribution of $3,250 related to our investment in NRG, for which we realized a gain of the same amount. This was a partial release of the amount held in escrow.

        On June 15, 2012, we acquired 80.1% of the businesses of First Tower LLC ("First Tower") for $110,200 in cash and 14,518,207 unregistered shares of our common stock. Based on our share price of $11.06 at the time of issuance, we acquired our 80.1% interest in First Tower for approximately $270,771. As consideration for our investment, First Tower Holdings of Delaware, which is 100% owned by us, recorded a secured revolving credit facility to us of $244,760 and equity of $43,193. First Tower Delaware owns 80.1% of First Tower Holdings LLC, the holding company of First Tower. The assets of First Tower acquired include, among other things, the subsidiaries owned by First Tower, which hold finance receivables, leaseholds, and tangible property associated with First Tower's businesses. We received $8,075 in structuring fee income as part of the acquisition.

        In December 2012, we determined that the impairment of ICS was other-than-temporary and recorded a realized loss of $12,198 for the amount that the amortized cost exceeded the fair market value. Our remaining investment in THS, an affiliate of ICS, was valued at zero as of June 30, 2013 and continues to provide staffing solutions for health care facilities and security staffing.

        On March 28, 2013, we sold our investment in New Meatco Provisions, LLC for net proceeds of approximately $1,965, recognizing a realized loss of $10,814 on the sale.

        On April 30, 2013, we sold our investment in Fischbein for net proceeds of $3,168, recognizing a realized gain of $2,293 on the sale. In addition, there is $310 being held in escrow which will be recognized as additional gain if and when received.

        On April 15, 2013, assets previously held by H&M were assigned to Wolf in exchange for a $66,000 term loan secured by the assets. Our cost basis in this loan of $44,632 was determined in accordance with ASC 310-40, Troubled Debt Restructurings by Creditors, and is equal to the fair value of assets at the time of transfer and we recorded a realized loss of $19,647 in connection with the foreclosure on the assets. On May 17 2013, Wolf sold certain of the assets that had been previously held by H&M that were located in Martin County to Hibernia for $66,000. Proceeds from the sale were primarily used to repay the loan and net profits interest receivable due to us and we recognized as a realized gain of $11,826 partially offsetting the previously recorded loss. We received $3,960 of structuring and advisory fees from Wolf during the year ended June 30, 2013 related to the sale and $991 under the net profits interest agreement which was recognized as other income during the fiscal year ended June 30, 2013.

        In June 2013, we determined that the impairment of Manx was other-than-temporary and recorded a realized loss of $9,397 for the amount that the amortized cost exceeded the fair market value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 3. Portfolio Investments (Continued)

        The original cost basis of debt placements and equity securities acquired, including follow-on investments for existing portfolio companies, totaled $3,103,217, $1,120,659 and $953,337 during the years ended June 30, 2013, June 30, 2012 and June 30, 2011, respectively. Debt repayments and proceeds from sales of equity securities of $931,534, $500,952 and $285,862 were received during the years ended June 30, 2013, June 30, 2012 and June 30, 2011, respectively.

        During the year ended June 30, 2013, we recognized $1,481 of interest income due to purchase discount accretion from the assets acquired from Patriot. Included in the $1,481 recorded during the year ended June 30, 2013 is $1,111 of normal accretion and $370 of accelerated accretion resulting from the repayment of Hudson Products Holdings, Inc.

        During the year ended June 30, 2012, we recognized $6,613 of interest income due to purchase discount accretion from the assets acquired from Patriot. Included in the $6,613 is $3,083 of normal accretion and $3,530 of accelerated accretion resulting from the repayment of Mac & Massey Holdings, LLC, Nupla Corporation, ROM Acquisition Corp and Sport Helmets Holdings, LLC.

        During the year ended June 30, 2011, we recognized $22,084 of interest income due to purchase discount accretion from the assets acquired from Patriot. Included in the $22,084 is $4,912 of normal accretion, $12,035 of accelerated accretion resulting from the repayment of Impact Products, LLC, Label Corp Holdings Inc. and Prince Mineral Company, Inc., and $4,968 of accelerated accretion resulting from the recapitalization of our debt investments in Arrowhead General Insurance Agency, Inc. ("Arrowhead"), The Copernicus Inc. ("Copernicus"), Fischbein and Northwestern Management Services, LLC ("Northwestern"). The restructured loans for Arrowhead, Copernicus, Fischbein and Northwestern were issued at market terms comparable other industry transactions. In accordance with ASC 320-20-35 the cost basis of the new loan was recorded at par value, which precipitated the acceleration of original purchase discount from the loan repayment which was recognized as interest income.

        As of June 30, 2013, $540 of purchase discount from the assets acquired from Patriot remains to be accreted as interest income, of which $240 is expected to be amortized during the three months ending September 30, 2013.

        As of June 30, 2013, $3,005,298 of our loans bear interest at floating rates, $2,976,709 of which have Libor floors ranging from 1.00% to 5.89%.

        Undrawn committed revolvers incur commitment fees ranging from 0.50% to 2.00%. As of June 30, 2013 and June 30, 2012, we had $202,518 and $180,646 of undrawn revolver commitments to our portfolio companies, respectively.

Note 4. Revolving Credit Agreements

        On June 11, 2010, we closed an extension and expansion of our existing credit facility with a syndicate of lenders through PCF (the "2010 Facility"). The 2010 Facility, which had $325,000 total commitments as of June 30, 2011, included an accordion feature which allowed the 2010 Facility to accept up to an aggregate total of $400,000 of commitments, a limit which was met on September 1, 2011. Interest on borrowings under the 2010 Facility was one-month Libor plus 325 basis points, subject to a minimum Libor floor of 100 basis points. Additionally, the lenders charged a fee on the unused

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 4. Revolving Credit Agreements (Continued)

portion of the 2010 Facility equal to either 75 basis points if at least half of the credit facility was used or 100 basis points otherwise.

        On March 27, 2012, we renegotiated the 2010 Facility and closed on an expanded five-year $650,000 revolving credit facility (the "2012 Facility"). The lenders have extended commitments of $552,500 under the 2012 Facility as of June 30, 2013. The 2012 Facility includes an accordion feature which allows commitments to be increased up to $650,000 in the aggregate. The revolving period of the 2012 Facility extends through March 2015, with an additional two year amortization period (with distributions allowed) after the completion of the revolving period. During such two year amortization period, all principal payments on the pledged assets will be applied to reduce the balance. At the end of the two year amortization period, the remaining balance will become due, if required by the lenders.

        The 2012 Facility contains restrictions pertaining to the geographic and industry concentrations of funded loans, maximum size of funded loans, interest rate payment frequency of funded loans, maturity dates of funded loans and minimum equity requirements. The 2012 Facility also contains certain requirements relating to portfolio performance, including required minimum portfolio yield and limitations on delinquencies and charge-offs, violation of which could result in the early termination of the 2012 Facility. The 2012 Facility also requires the maintenance of a minimum liquidity requirement. At June 30, 2013, we were in compliance with the applicable covenants.

        Interest on borrowings under the 2012 Facility is one-month Libor plus 275 basis points with no minimum Libor floor. Additionally, the lenders charge a fee on the unused portion of the 2012 Facility equal to either 50 basis points if at least half of the credit facility is drawn or 100 basis points otherwise. The 2012 Facility requires us to pledge assets as collateral in order to borrow under the credit facility. As of June 30, 2013 and June 30, 2012, we had $473,508 and $418,980, respectively, available to us for borrowing under our 2012 Facility, of which the amount outstanding was $124,000 and $96,000, respectively. As additional investments that are eligible are transferred to PCF and pledged under the 2012 Facility, PCF will generate additional availability up to the commitment amount of $552,500. At June 30, 2013, the investments used as collateral for the 2012 Facility had an aggregate market value of $833,310, which represents 31.37% of our net assets. These assets have been transferred to PCF, a bankruptcy remote special purpose entity, which owns these investments and as such, these investments are not available to our general creditors. PCF, a bankruptcy remote special purpose entity and our wholly-owned subsidiary, holds all of these investments at market value as of June 30, 2013. The release of any assets from PCF requires the approval of the facility agent.

        In connection with the origination and amendments of the 2012 Facility, we incurred $11,150 of fees, including $1,319 of fees carried over from the previous facility, which are being amortized over the term of the facility in accordance with ASC 470-50, Debt Modifications and Extinguishments, of which $6,722 remains to be amortized.

        During the years ended June 30, 2013, June 30, 2012 and June 30, 2011, we recorded $9,082, $14,883 and $8,507 of interest costs, unused fees and amortization of financing costs on our credit facility as interest expense, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 5. Senior Convertible Notes

        On December 21, 2010, we issued $150,000 in aggregate principal amount of our 6.25% senior convertible notes due 2015 ("2015 Notes") for net proceeds following underwriting expenses of approximately $145,200. Interest on the 2015 Notes is paid semi-annually in arrears on June 15 and December 15, at a rate of 6.25% per year, commencing June 15, 2011. The 2015 Notes mature on December 15, 2015 unless converted earlier. The 2015 Notes are convertible into shares of common stock at an initial conversion rate and conversion rate at June 30, 2013 of 88.0902 and 88.1429 shares of common stock, respectively, per $1 principal amount of 2015 Notes, which is equivalent to a conversion price of approximately $11.35 per share of common stock, subject to adjustment in certain circumstances. The conversion price in effect at June 30, 2013 was last calculated on the anniversary of the issuance (December 21, 2012) and will next be adjusted on the next anniversary, unless the exercise price shall have changed by more than 1% before the anniversary. The conversion rate for the 2015 Notes is increased if monthly cash dividends paid to common shares exceed the rate of $0.101125 cents per share, subject to adjustment.

        On February 18, 2011, we issued $172,500 in aggregate principal amount of our 5.50% senior convertible notes due 2016 ("2016 Notes") for net proceeds following underwriting expenses of approximately $167,325. Between January 30, 2012 and February 2, 2012, we repurchased $5,000 of our 2016 Notes at a price of 97.5, including commissions. The transactions resulted in our recognizing $10 of loss in the year ended June 30, 2012. Interest on the remaining $167,500 of 2016 Notes is paid semi-annually in arrears on February 15 and August 15, at a rate of 5.50% per year, commencing August 15, 2011. The 2016 Notes mature on August 15, 2016 unless converted earlier. The 2016 Notes are convertible into shares of common stock at an initial conversion rate and conversion rate at June 30, 2013 of 78.3699 and 78.5395 shares, respectively, of common stock per $1 principal amount of 2016 Notes, which is equivalent to a conversion price of approximately $12.73 per share of common stock, subject to adjustment in certain circumstances. The conversion price in effect at June 30, 2013 was last calculated on the anniversary of the issuance (February 14, 2012) and will next be adjusted on the next anniversary, unless the exercise price shall have changed by more than 1% before the anniversary. The conversion rate for the 2016 Notes is increased when monthly cash dividends paid to common shares exceed the monthly dividend rate of $0.101150 per share.

        On April 16, 2012, we issued $130,000 in aggregate principal amount of our 5.375% senior convertible notes due 2017 ("2017 Notes") for net proceeds following underwriting expenses of approximately $126,035. Interest on the 2017 Notes is paid semi-annually in arrears on October 15 and April 15, at a rate of 5.375% per year, commencing October 15, 2012. The 2017 Notes mature on October 15, 2017 unless converted earlier. The 2017 Notes are convertible into shares of common stock at an initial conversion rate and conversion rate at June 30, 2013 of 85.8442 and 86.1162 shares of common stock, respectively, per $1 principal amount of 2017 Notes, which is equivalent to a conversion price of approximately $11.61 per share of common stock, subject to adjustment in certain circumstances. The conversion price in effect at June 30, 2013 was last calculated on the anniversary of the issuance (April 16, 2012) and will next be adjusted on the next anniversary, unless the exercise price shall have changed by more than 1% before the anniversary. The conversion rate for the 2017 Notes is increased when monthly cash dividends paid to common shares exceed the monthly dividend rate of $0.10150 per share.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 5. Senior Convertible Notes (Continued)

        On August 14, 2012, we issued $200,000 in aggregate principal amount of our 5.75% senior convertible notes due 2018 ("2018 Notes") for net proceeds following underwriting expenses of approximately $193,600. Interest on the 2018 Notes is paid semi-annually in arrears on March 15 and September 15, at a rate of 5.75% per year, commencing March 15, 2013. The 2018 Notes mature on March 15, 2018 unless converted earlier. The 2018 Notes are convertible into shares of common stock at an initial conversion rate and conversion rate at June 30, 2013 of 82.3451 shares of common stock per $1 principal amount of 2018 Notes, which is equivalent to a conversion price of approximately $12.07 per share of common stock, subject to adjustment in certain circumstances. The conversion price has not been adjusted since the issuance (August 14, 2012) and will next be adjusted on the first anniversary, unless the exercise price shall have changed by more than 1% before the anniversary. The conversion rate for the 2018 Notes is increased when monthly cash dividends paid to common shares exceed the monthly dividend rate of $0.101600 per share.

        On December 21, 2012, we issued $200,000 in aggregate principal amount of 5.875% senior convertible notes due 2019 (the "2019 Notes") for net proceeds following underwriting and other expenses of approximately $193,600. Interest on the 2019 Notes is paid semi-annually in arrears on January 15 and July 15, at a rate of 5.875% per year, commencing July 15, 2013. The 2019 Notes mature on January 15, 2019 unless converted earlier. The 2019 Notes are convertible into shares of common stock at an initial conversion rate and conversion rate at June 30, 2013 of 79.7766 shares of common stock per $1 principal amount of 2019 Notes, which is equivalent to a conversion price of approximately $12.54 per share of common stock, subject to adjustment in certain circumstances. The conversion price has not been adjusted since the issuance (December 21, 2012) and will next be adjusted on the first anniversary, unless the exercise price shall have changed by more than 1% before the anniversary. The conversion rate for the 2019 Notes is increased when monthly cash dividends paid to common shares exceed the monthly dividend rate of $0.110025 per share.

        In no event will the total number of shares of common stock issuable upon conversion exceed 96.8992 per $1 principal amount of the 2015 Notes (the "conversion rate cap"), except that, to the extent we receive written guidance or a no-action letter from the staff of the Securities and Exchange Commission (the "Guidance") permitting us to adjust the conversion rate in certain instances without regard to the conversion rate cap and to make the 2015 Notes convertible into certain reference property in accordance with certain reclassifications, business combinations, asset sales and corporate events by us without regard to the conversion rate cap, we will make such adjustments without regard to the conversion rate cap and will also, to the extent that we make any such adjustment without regard to the conversion rate cap pursuant to the Guidance, adjust the conversion rate cap accordingly. We will use our commercially reasonable efforts to obtain such Guidance as promptly as practicable.

        Prior to obtaining the Guidance, we will not engage in certain transactions that would result in an adjustment to the conversion rate increasing the conversion rate beyond what it would have been in the absence of such transaction unless we have engaged in a reverse stock split or share combination transaction such that in our reasonable best estimation, the conversion rate following the adjustment for such transaction will not be any closer to the conversion rate cap than it would have been in the absence of such transaction.

        Upon conversion, unless a holder converts after a record date for an interest payment but prior to the corresponding interest payment date, the holder will receive a separate cash payment with respect

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 5. Senior Convertible Notes (Continued)

to the Notes surrendered for conversion representing accrued and unpaid interest to, but not including the conversion date. Any such payment will be made on the settlement date applicable to the relevant conversion on the 2015 Notes and 2016 Notes (collectively, "Senior Convertible Notes").

        No holder of Senior Convertible Notes will be entitled to receive shares of our common stock upon conversion to the extent (but only to the extent) that such receipt would cause such converting holder to become, directly or indirectly, a beneficial owner (within the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of more than 5.0% of the shares of our common stock outstanding at such time. The 5.0% limitation shall no longer apply following the effective date of any fundamental change. We will not issue any shares in connection with the conversion or redemption of the Notes which would equal or exceed 20% of the shares outstanding at the time of the transaction in accordance with NASDAQ rules.

        Subject to certain exceptions, holders may require us to repurchase, for cash, all or part of their Notes upon a fundamental change at a price equal to 100% of the principal amount of the Notes being repurchased plus any accrued and unpaid interest up to, but excluding, the fundamental change repurchase date. In addition, upon a fundamental change that constitutes a non-stock change of control we will also pay holders an amount in cash equal to the present value of all remaining interest payments (without duplication of the foregoing amounts) on such Senior Convertible Notes through and including the maturity date.

        In connection with the issuance of the Senior Convertible Notes, we incurred $27,032 of fees which are being amortized over the terms of the notes in accordance with ASC 470-50, Debt Modifications and Extinguishments, of which $20,254 remains to be amortized and is included within deferred financing costs on the consolidated statements of assets and liabilities as of June 30, 2013.

        During the years ended June 30, 2013, June 30, 2012 and June 30, 2011, we recorded $45,878, $22,197 and $9,090 of interest costs and amortization of financing costs on the Senior Convertible Notes as interest expense.

Note 6. Senior Unsecured Notes

        On May 1, 2012, we issued $100,000 in aggregate principal amount of 6.95% senior unsecured notes due 2022 for proceeds net of offering expenses of $97,000 (the "2022 Notes"). Interest on the 2022 Notes is paid quarterly in arrears on August 15, November 15, February 15 and May 15, at a rate of 6.95% per year, commencing on August 15, 2012. The 2022 Notes mature on November 15, 2022. These notes will be our direct unsecured obligations and rank equally with all of our unsecured senior indebtedness from time to time outstanding.

        On March 15, 2013, we issued $250,000 in aggregate principal amount of 5.875% senior unsecured notes due 2023 (the "2023 Notes") for net proceeds following underwriting and other expenses of approximately $245,885. Interest on the 2023 Notes is paid semi-annually. The 2023 Notes mature on March 15, 2023. These notes will be our direct unsecured obligations and rank equally with all of our unsecured senior indebtedness from time to time outstanding.

        In connection with the issuance of the 2022 Notes and 2023 Notes (collectively the "Senior Unsecured Notes"), we incurred $7,480 of fees which are being amortized over the term of the notes in

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 6. Senior Unsecured Notes (Continued)

accordance with ASC 470-50, Debt Modifications and Extinguishments, of which $7,114 remains to be amortized and is included within deferred financing costs on the consolidated statements of assets and liabilities.

        During the years ended June 30, 2013 and June 30, 2012, we recorded $11,672 and $1,178 of interest costs and amortization of financing costs on the Senior Unsecured Notes as interest expense, respectively.

Note 7. Prospect Capital InterNotes®

        On February 16, 2012, we entered into a Selling Agent Agreement (the "Selling Agent Agreement") with Incapital LLC, as purchasing agent for our issuance and sale from time to time of up to $500,000 of Prospect Capital InterNotes® (the "InterNotes® Offering"), which was subsequently increased to $1,000,000. Additional agents appointed by us from time to time in connection with the InterNotes Offering may become parties to the Selling Agent Agreement.

        These notes are direct unsecured senior obligations and will rank equally with all of our unsecured senior indebtedness outstanding. Each series of notes will be issued by a separate trust. These notes bear interest at fixed interest rates and offer a variety of maturities no less than twelve months from the original date of issuance.

        During the year ended June 30, 2013, we issued $343,139 in aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of approximately $334,243. These notes were issued with stated interest rates ranging from 3.28% to 6.63% with a weighted average rate of 5.59%. These notes mature between July 15, 2019 and June 15, 2043.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 7. Prospect Capital InterNotes® (Continued)

        The bonds outstanding as of June 30, 2013 are:

Date of Issuance
  Principal Amount   Interest Rate
Range
  Weighted
Average
Interest
Rate
  Maturity Date

March 1, 2012 - March 8, 2012

  $ 5,465   6.90% - 7.00%     6.97 % March 15, 2022

April 5, 2012 - April 26, 2012

    8,516   6.50% - 6.85%     6.72 % April 15, 2022

June 14, 2012

    2,657   6.95%     6.95 % June 15, 2022

June 28, 2012

    4,000   6.55%     6.55 % June 15, 2019

July 6, 2012 - July 26, 2012

    20,928   6.20% - 6.45%     6.31 % July 15, 2019

August 2, 2012 - August 23, 2012

    17,545   6.05% - 6.15%     6.09 % August 15, 2019

September 7, 2012 - September 27, 2012

    29,406   5.85% - 6.00%     5.92 % September 15, 2019

October 4, 2012

    7,172   5.70%     5.70 % October 19, 2019

November 23, 2012 - November 29, 2012

    13,754   5.00% - 5.13%     5.09 % November 15, 2019

November 29, 2012

    1,979   5.75%     5.75 % November 15, 2032

November 23, 2012 - November 29, 2012

    16,437   6.50% - 6.63%     6.58 % November 15, 2042

December 6, 2012 - December 28, 2012

    9,339   4.50% - 4.86%     4.73 % December 15, 2019

December 6, 2012

    1,127   5.63%     5.63 % December 15, 2032

December 13, 2012 - December 28, 2012

    3,702   5.00% - 5.13%     5.11 % December 15, 2030

December 6, 2012 - December 28, 2012

    22,966   6.00% - 6.38%     6.21 % December 15, 2042

January 4, 2013 - January 31, 2013

    4,427   4.00% - 4.375%     4.15 % January 15, 2020

January 4, 2013 - January 31, 2013

    2,388   4.50% - 4.875%     4.74 % January 15, 2031

January 4, 2013 - January 31, 2013

    9,338   5.50% - 5.875%     5.63 % January 15, 2043

February 4, 2013 - February 28, 2013

    2,619   4.00%     4.00 % February 15, 2031

February 4, 2013 - February 28, 2013

    664   4.50%     4.50 % February 15, 2031

February 4, 2013 - February 28, 2013

    4,623   5.50%     5.50 % February 15, 2043

March 4, 2013 - March 28, 2013

    3,832   4.00%     4.00 % March 15, 2020

March 4, 2013 - March 28, 2013

    984   4.125% - 4.50%     4.24 % March 15, 2031

March 4, 2013 - March 28, 2013

    4,308   5.50%     5.50 % March 15, 2043

March 14, 2013 - March 28, 2013

    1,225   L+3.00%     3.27 % March 15, 2023

April 4, 2013 - April 25, 2013

    29,528   4.50% - 5.00%     4.96 % April 15, 2020

April 4, 2013 - April 25, 2013

    264   L+3.50%     3.78 % April 15, 2023

April 4, 2013 - April 25, 2013

    5,164   4.63% - 5.50%     5.34 % April 15, 2031

April 4, 2013 - April 25, 2013

    12,280   6.00%     6.00 % April 15, 2043

May 2, 2013 - May 31, 2013

    42,482   5.00%     5.00 % May 15, 2020

May 2, 2013 - May 31, 2013

    10,000   5.00%     5.00 % May 15, 2028

May 2, 2013 - May 31, 2013

    7,548   5.75%     5.75 % May 15, 2031

May 2, 2013 - May 31, 2013

    33,641   6.25%     6.25 % May 15, 2043

June 6, 2013 - June 27, 2013

    9,905   5.00% - 5.25%     5.04 % June 15, 2020

June 6, 2013 - June 27, 2013

    5,000   5.00%     5.00 % June 15, 2028

June 6, 2013 - June 27, 2013

    1,707   5.75% - 6.00%     5.85 % June 15, 2031

June 6, 2013 - June 27, 2013

    6,857   6.25% - 6.50%     6.31 % June 15, 2043
                   

  $ 363,777              
                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 7. Prospect Capital InterNotes® (Continued)

        In connection with the issuance of the Prospect Capital InterNotes®, we incurred $10,598 of fees which are being amortized over the term of the notes in accordance with ASC 470-50, Debt Modifications and Extinguishments, of which $10,248 remains to be amortized and is included within deferred financing costs on the consolidated statements of assets and liabilities.

        During the years ended June 30, 2013 and June 30, 2012, we recorded $9,707 and $276 of interest costs and amortization of financing costs on the Prospect Capital InterNotes® as interest expense, respectively.

Note 8. Financial Instruments Disclosed, But Not Carried, At Fair Value

        The fair values of our financial liabilities disclosed, but not carried, at fair value as of June 30, 2013 disaggregated into the three levels of the ASC 820 valuation hierarchy are as follows:

 
  Fair Value Hierarchy    
 
 
  Level 1   Level 2   Level 3   Total  

Credit facility payable(1)

  $   $ 124,000   $   $ 124,000  

Senior convertible notes(2)

        886,210         886,210  

Senior unsecured notes(2)

    101,800     242,013         343,813  

Prospect Capital InterNotes®(3)

        336,055         336,055  
                   

Total

  $ 101,800   $ 1,588,278   $   $ 1,690,078  
                   

(1)
The carrying value of our credit facility payable approximates the fair value.

(2)
We use available market quotes to estimate the fair value of the Senior Convertible Notes and Senior Unsecured Notes.

(3)
The fair value of our Prospect Capital InterNotes® is estimated by discounting remaining payments using estimated current market rates.

        The fair values of our financial liabilities disclosed, but not carried, at fair value as of June 30, 2012 disaggregated into the three levels of the ASC 820 valuation hierarchy are as follows:

 
  Fair Value Hierarchy    
 
 
  Level 1   Level 2   Level 3   Total  

Credit facility payable(1)

  $   $ 96,000   $   $ 96,000  

Senior convertible notes(2)

        456,671         456,671  

Senior unsecured notes(2)

    99,560             99,560  

Prospect Capital InterNotes ®(3)

        20,280         20,280  
                   

Total

  $ 99,560   $ 572,951   $   $ 672,511  
                   

(1)
The carrying value of our credit facility payable approximates the fair value.

(2)
We use available market quotes to estimate the fair value of the Senior Convertible Notes and Senior Unsecured Notes.

(3)
The fair value of our Prospect Capital InterNotes® is estimated by discounting remaining payments using estimated current market rates.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 9. Equity Offerings, Offering Expenses, and Distributions

        We issued 106,752,517 and 30,970,696 shares of our common stock during the years ended June 30, 2013 and June 30, 2012, respectively. The proceeds raised, the related underwriting fees, the offering expenses and the prices at which these shares were issued are as follows:

Issuances of Common Stock
  Number of
Shares
Issued
  Gross
Proceeds
Raised
  Underwriting
Fees
  Offering
Expenses
  Average
Offering
Price
 

During the year ended June 30, 2013:

                               

July 2, 2012 - July 12, 2012(1)

    2,247,275   $ 26,040   $ 260   $   $ 11.59  

July 16, 2012

    21,000,000   $ 234,150   $ 2,100   $ 300   $ 11.15  

July 27, 2012

    3,150,000   $ 35,123   $ 315   $   $ 11.15  

September 13, 2012 - October 9, 2012(2)                         

    8,010,357   $ 94,610   $ 946   $ 638   $ 11.81  

November 7, 2012

    35,000,000   $ 388,500   $ 4,550   $ 814   $ 11.10  

December 13, 2012(3)

    467,928   $ 5,021   $   $   $ 10.73  

December 28, 2012(3)

    897,906   $ 9,581   $   $   $ 10.67  

December 31, 2012(3)

    4,141,547   $ 44,650   $   $   $ 10.78  

January 7, 2013 - February 5, 2013(4)

    10,248,051   $ 115,315   $ 1,153   $   $ 11.25  

February 14, 2013 - May 3, 2013(5)

    17,230,253   $ 191,897   $ 1,788   $   $ 11.14  

May 14, 2013 - May 31, 2013(6)

    4,359,200   $ 47,532   $ 399   $ 245   $ 10.90  

During the year ended June 30, 2012:

                               

June 12, 2012 - June 29, 2012(1)

    2,952,489   $ 33,130   $ 331   $ 184   $ 11.220  

June 15, 2012(7)

    14,518,207   $ 160,571   $   $   $ 11.060  

February 28, 2012

    12,000,000   $ 131,400   $ 1,560   $ 360   $ 10.950  

July 18, 2011

    1,500,000   $ 15,225   $ 165   $ 165   $ 10.150  

(1)
On June 1, 2012, we established an at-the-market program through which we may sell, from time to time and at our sole discretion 9,500,000 shares of our common stock. Through this program we issued 5,199,764 shares of our common stock at an average price of $11.38 per share, raising $59,170 of gross proceeds, from June 12, 2012 through July 12, 2012.

(2)
On September 10, 2012, we established an at-the-market program through which we may sell, from time to time and at our sole discretion 9,750,000 shares of our common stock. Through this program we issued 8,010,357 shares of our common stock at an average price of $11.81 per share, raising $94,610 of gross proceeds, from September 13, 2012 through October 9, 2012.

(3)
On December 13, 2012, December 28, 2012 and December 31, 2012, we issued 467,928, 897,906 and 4,141,547 shares of our common stock, respectively, in conjunction with investments in controlled portfolio companies.

(4)
On December 21, 2012, we established an at-the-market program through which we may sell, from time to time and at our sole discretion 17,500,000 shares of our common stock. Through this program we issued 10,248,051 shares of our common stock at an average price of $11.25 per share, raising $115,315 of gross proceeds.

(5)
On February 11, 2013, we established an at-the-market program through which we may sell, from time to time and at our sole discretion 45,000,000 shares of our common stock. Through this

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 9. Equity Offerings, Offering Expenses, and Distributions (Continued)

(5)
On May 8, 2013, we established an at-the-market program through which we may sell, from time to time and at our sole discretion 45,000,000 shares of our common stock. Through this program we issued 4,539,200 shares of our common stock at an average price of $10.90 per share, raising $47,532 of gross proceeds.

(7)
On June 15, 2012, we completed the acquisition of the businesses of First Tower. We acquired 80.1% of First Tower's businesses for $110,200 in cash and 14,518,207 unregistered shares of our common stock.

        Our shareholders' equity accounts at June 30, 2013 and June 30, 2012 reflect cumulative shares issued as of those respective dates. Our common stock has been issued through public offerings, a registered direct offering, the exercise of over-allotment options on the part of the underwriters and our dividend reinvestment plan. When our common stock is issued, the related offering expenses have been charged against paid-in capital in excess of par. All underwriting fees and offering expenses were borne by us.

        On August 24, 2011, our Board of Directors approved a share repurchase plan under which we may repurchase up to $100,000 of our common stock at prices below our net asset value. We have not made any purchases of our common stock during the period from August 24, 2011 to June 30, 2013 pursuant to this plan. Prior to any repurchase we are required to notify shareholders of our intention to purchase our common stock. This notice lasts for six months after notice is given. The last notice was more than six months ago, therefore notice would be necessary before such repurchase could be effected.

        On October 29, 2012, our Registration Statement on Form N-2 was declared effective by the SEC. Under this Shelf Registration Statement, as of June 30, 2013 we can issue up to $1,743,217 of additional debt and equity securities in the public market.

        On May 6, 2013, we announced the declaration of monthly dividends in the following amounts and with the following dates:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 9. Equity Offerings, Offering Expenses, and Distributions (Continued)

        On June 17, 2013, we announced the declaration of monthly dividends in the following amounts and with the following dates:

        During the years ended June 30, 2013 and June 30, 2012, we issued 1,450,578 and 1,056,484 shares, respectively, of our common stock in connection with the dividend reinvestment plan.

        At June 30 2013, we have reserved 70,246,258 shares of our common stock for issuance upon conversion of the Senior Convertible Notes (See Note 5).

Note 10. Other Investment Income

        Other investment income consists of structuring fees, overriding royalty interests, revenue receipts related to net profit interests, deal deposits, administrative agent fee, and other miscellaneous and sundry cash receipts. Income from such sources was $58,176, $36,493 and $19,930 for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, respectively.

 
  For The Year Ended  
Income Source
  June 30, 2013   June 30, 2012   June 30, 2011  

Structuring, advisory and amendment fees (Note 3)

  $ 53,708   $ 35,976   $ 19,589  

Overriding royalty interests

    4,122     224     154  

Administrative agent fee

    346     293     187  
               

Other Investment Income

  $ 58,176   $ 36,493   $ 19,930  
               

Note 11. Net Increase in Net Assets per Common Share

        The following information sets forth the computation of net increase in net assets resulting from operations per common share for the years ended June 30, 2013, 2012 and 2011, respectively.

 
  For The Year Ended  
 
  June 30, 2013   June 30, 2012   June 30, 2011  

Net increase in net assets resulting from operations

  $ 220,856   $ 190,904   $ 118,238  

Weighted average common shares outstanding

    207,069,971     114,394,554     85,978,757  
               

Net increase in net assets resulting from operations per common share

  $ 1.07   $ 1.67   $ 1.38  
               

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 12. Related Party Agreements and Transactions

Investment Advisory Agreement

        We have entered into an investment advisory and management agreement with Prospect Capital Management (the "Investment Advisory Agreement") under which the Investment Adviser, subject to the overall supervision of our Board of Directors, manages the day-to-day operations of, and provides investment advisory services to, us. Under the terms of the Investment Advisory Agreement, the Investment Adviser: (i) determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes, (ii) identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); and (iii) closes and monitors investments we make.

        Prospect Capital Management's services under the Investment Advisory Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired. For providing these services the Investment Adviser receives a fee from us, consisting of two components: a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 2.00% on our gross assets (including amounts borrowed). For services currently rendered under the Investment Advisory Agreement, the base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of our gross assets at the end of the two most recently completed calendar quarters and appropriately adjusted for any share issuances or repurchases during the current calendar quarter.

        The total base management fees earned by and paid to Prospect Capital Management for the years ended June 30, 2013, June 30, 2012 and June 30, 2011 were $69,800, $35,836 and $22,496, respectively.

        The incentive fee has two parts. The first part, the income incentive fee, is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees and other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement described below, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment in kind interest and zero coupon securities), accrued income that we have not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to a "hurdle rate" of 1.75% per quarter (7.00% annualized).

        The net investment income used to calculate this part of the incentive fee is also included in the amount of the gross assets used to calculate the 2.00% base management fee. We pay the Investment

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 12. Related Party Agreements and Transactions (Continued)

Adviser an income incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows:

        These calculations are appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.

        The second part of the incentive fee, the capital gains incentive fee, is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), and equals 20.00% of our realized capital gains for the calendar year, if any, computed net of all realized capital losses and unrealized capital depreciation at the end of such year. In determining the capital gains incentive fee payable to the Investment Adviser, we calculate the aggregate realized capital gains, aggregate realized capital losses and aggregate unrealized capital depreciation, as applicable, with respect to each investment that has been in its portfolio. For the purpose of this calculation, an "investment" is defined as the total of all rights and claims which maybe asserted against a portfolio company arising from our participation in the debt, equity, and other financial instruments issued by that company. Aggregate realized capital gains, if any, equal the sum of the differences between the aggregate net sales price of each investment and the aggregate cost basis of such investment when sold or otherwise disposed. Aggregate realized capital losses equal the sum of the amounts by which the aggregate net sales price of each investment is less than the aggregate cost basis of such investment when sold or otherwise disposed. Aggregate unrealized capital depreciation equals the sum of the differences, if negative, between the aggregate valuation of each investment and the aggregate cost basis of such investment as of the applicable calendar year-end. At the end of the applicable calendar year, the amount of capital gains that serves as the basis for our calculation of the capital gains incentive fee involves netting aggregate realized capital gains against aggregate realized capital losses on a since-inception basis and then reducing this amount by the aggregate unrealized capital depreciation. If this number is positive, then the capital gains incentive fee payable is equal to 20.00% of such amount, less the aggregate amount of any capital gains incentive fees paid since inception.

        Income incentive fees totaling $81,231, $46,671 and $23,555 were earned for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, respectively. No capital gains incentive fees were earned for years ended June 30, 2013, June 30, 2012 and June 30, 2011, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 12. Related Party Agreements and Transactions (Continued)

Administration Agreement

        We have also entered into an Administration Agreement with Prospect Administration, LLC ("Prospect Administration") under which Prospect Administration, among other things, provides (or arranges for the provision of) administrative services and facilities for us. For providing these services, we reimburse Prospect Administration for our allocable portion of overhead incurred by Prospect Administration in performing its obligations under the Administration Agreement, including rent and our allocable portion of the costs of our chief financial officer and chief compliance officer and his staff. For the years ended June 30, 2013, 2012 and 2011, the reimbursement was approximately $8,737, $6,848 and $4,979, respectively. Under this agreement, Prospect Administration furnishes us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities. Prospect Administration also performs, or oversees the performance of, our required administrative services, which include, among other things, being responsible for the financial records that we are required to maintain and preparing reports to our stockholders and reports filed with the SEC. In addition, Prospect Administration assists us in determining and publishing our net asset value, overseeing the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. Under the Administration Agreement, Prospect Administration also provides on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance. The Administration Agreement may be terminated by either party without penalty upon 60 days' written notice to the other party. Prospect Administration is a wholly owned subsidiary of the Investment Adviser.

        The Administration Agreement provides that, absent willful misfeasance, bad faith or negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, Prospect Administration and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from the rendering of Prospect Administration's services under the Administration Agreement or otherwise as administrator for us.

Managerial Assistance

        As a business development company, we offer, and must provide upon request, managerial assistance to certain of our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. As of June 30, 2013 and June 30, 2012, $1,291 and $165 of managerial assistance fees remain on the consolidated statements of assets and liabilities as a payable to the Administrator for reimbursement of its cost in providing such assistance.

Note 13. Litigation

        From time to time, we may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. These matters may relate to intellectual property, employment, tax, regulation, contract or other matters. The resolution of these matters as they arise

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 13. Litigation (Continued)

will be subject to various uncertainties and, even if such claims are without merit, could result in the expenditure of significant financial and managerial resources. We are not aware of any such material litigation as of the date of this report.

Note 14. Financial Highlights

 
  Year
Ended
June 30,
2013
  Year
Ended
June 30,
2012
  Year
Ended
June 30,
2011
  Year
Ended
June 30,
2010
  Year
Ended
June 30,
2009
 

Per Share Data(1):

                               

Net asset value at beginning of period

  $ 10.83   $ 10.36   $ 10.30   $ 12.40   $ 14.55  

Net investment income

    1.57     1.63     1.10     1.13     1.87  

Realized (loss) gain

    (0.13 )   0.32     0.19     (0.87 )   (1.24 )

Net unrealized (depreciation) appreciation

    (0.37 )   (0.28 )   0.09     0.07     0.48  

Net increase (decrease) in net assets as a result of public offering

    0.13     0.04     (0.08 )   (0.85 )   (2.11 )

Net increase in net assets as a result of shares issued for Patriot acquisition

                0.12      

Dividends to shareholders

    (1.31 )   (1.24 )   (1.24 )   (1.70 )   (1.15 )
                       

Net asset value at end of period

  $ 10.72   $ 10.83   $ 10.36   $ 10.30   $ 12.40  
                       

Per share market value at end of period

  $ 10.80   $ 11.39   $ 10.11   $ 9.65   $ 9.20  

Total return based on market value(2)

    6.24 %   27.21 %   17.22 %   17.66 %   (18.60 )%

Total return based on net asset value(2)

    10.91 %   18.03 %   12.54 %   (6.82 )%   (0.61 )%

Shares outstanding at end of period

    247,836,965     139,633,870     107,606,690     69,086,862     42,943,084  

Average weighted shares outstanding for period

    207,069,971     114,394,554     85,978,757     59,429,222     31,559,905  

Ratio / Supplemental Data:

                               

Net assets at end of period (in thousands)

  $ 2,656,494   $ 1,511,974   $ 1,114,357   $ 711,424   $ 532,596  

Portfolio turnover rate

    29.24 %   29.06 %   27.63 %   21.61 %   4.99 %

Annualized ratio of operating expenses to average net assets

    11.50 %   10.73 %   8.47 %   7.54 %   9.03 %

Annualized ratio of net investment income to average net assets

    14.86 %   14.92 %   10.60 %   10.69 %   13.14 %

(1)
Financial highlights are based on weighted average shares.

(2)
Total return based on market value is based on the change in market price per share between the opening and ending market prices per share in each period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. Total return based on net asset value is based upon the change in net asset value per share between the opening and ending net asset values per share in each period and assumes that dividends are reinvested in accordance with our dividend reinvestment plan.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 15. Selected Quarterly Financial Data (Unaudited)

 
  Investment Income   Net Investment
Income
  Net Realized
and Unrealized
Gains (Losses)
  Net Increase
(Decrease)
in Net Assets from
Operations
 
Quarter Ended
  Total   Per Share(1)   Total   Per Share(1)   Total   Per Share(1)   Total   Per Share(1)  

September 30, 2010

    35,212     0.47     20,995     0.28     4,585     0.06     25,580     0.34  

December 31, 2010

    33,300     0.40     19,080     0.23     12,861     0.16     31,940     0.38  

March 31, 2011

    44,573     0.51     23,956     0.27     9,803     0.11     33,759     0.38  

June 30, 2011

    56,391     0.58     30,190     0.31     (3,232 )   (0.03 )   26,959     0.28  

September 30, 2011

   
55,342
   
0.51
   
27,877
   
0.26
   
12,023
   
0.11
   
39,900
   
0.37
 

December 31, 2011

    67,263     0.61     36,508     0.33     27,984     0.26     64,492     0.59  

March 31, 2012

    95,623     0.84     58,072     0.51     (7,863 )   (0.07 )   50,209     0.44  

June 30, 2012

    102,682     0.82     64,227     0.52     (27,924 )   (0.22 )   36,303     0.29  

September 30, 2012

   
123,636
   
0.76
   
74,027
   
0.46
   
(26,778

)
 
(0.17

)
 
47,249
   
0.29
 

December 31, 2012

    166,035     0.85     99,216     0.51     (52,727 )   (0.27 )   46,489     0.24  

March 31, 2013

    120,195     0.53     59,585     0.26     (15,156 )   (0.07 )   44,429     0.20  

June 30, 2013

    166,470     0.68     92,096     0.38     (9,407 )   (0.04 )   82,689     0.34  

(1)
Per share amounts are calculated using weighted average shares during period.

(2)
As adjusted for increase in earnings from Patriot.

Note 16. Subsequent Events

        During the period from July 1, 2013 to October 2, 2013, we issued $58,607 in aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $57,344.

        During the period from July 1, 2013 to August 21, 2013, we sold 9,818,907 shares of our common stock at an average price of $10.97 per share, and raised $107,725 of gross proceeds, under the ATM Program. Net proceeds were $106,822 after commissions to the broker-dealer on shares sold and offering costs.

        On August 23, 2013, we entered into an ATM Program with BMO Capital Markets, Goldman, Sachs & Co., RBC Capital Markets and KeyBanc through which we could sell, by means of at-the-market offerings from time to time, of up to 45,000,000 shares of our common stock. During the period from August 26, 2013 to October 10, 2013 (with settlements August 29, 2013 through October 16, 2013), we sold 16,914,710 shares of our common stock at an average price of $11.27 per share, and raised $190,609 of gross proceeds, under the ATM Program. Net Proceeds were $188,735 after commissions to BMO Capital Markets, Goldman, Sachs & Co., RBC Capital Markets and KeyBanc on shares sold.

        On July 1, 2013, Pre-Paid Legal Services, Inc. repaid the $5,000 loan receivable to us.

        On July 9, 2013, Southern Management Corporation repaid the $17,565 loan receivable to us.

        On July 12, 2013, we provided $11,000 of secured second lien financing to Water PIK, Inc., a leader in developing innovative personal and oral healthcare products.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 16. Subsequent Events (Continued)

        On July 23, 2013, we made a $2,000 investment in Carolina Beverage Group, LLC ("Carolina Beverage"), a contract beverage manufacturer.

        On July 24, 2013, we sold our $2,000 investment in Carolina Beverage and realized a gain of $45 on this investment.

        On July 26, 2013, we made a $2,000 follow-on senior secured debt investment in Spartan Energy Services, LLC, a leading provider of thru tubing and flow control services to oil and gas companies.

        On July 26, 2013, we made a $20,000 follow-on secured second lien investment in Royal Adhesives & Sealants, LLC ("Royal"), a leading producer of proprietary, high-performance adhesives and sealants.

        On July 31, 2013, we made a $5,100 follow-on investment in Coverall North America, Inc., a leading franchiser of commercial cleaning businesses.

        On July 31, 2013, Royal repaid the $28,364 subordinated unsecured loan receivable to us.

        On July 31, 2013, Cargo Airport Services USA, LLC repaid the $43,399 loan receivable to us.

        On August 1, 2013, Medical Security Card Company, LLC repaid the $13,214 loan receivable to us.

        On August 2, 2013, we made an investment of $44,100 to purchase 90% of the subordinated notes in CIFC Funding 2013-III, Ltd.

        On August 2, 2013, we funded a recapitalization of CP Energy Services, Inc. ("CP Energy") with $81,273 of debt and $12,741 of equity financing. Through the recapitalization, we acquired a controlling interest in CP Energy for $73,009 in cash and 1,918,342 unregistered shares of our common stock. After the financing, we received repayment of the $18,991 loan previously outstanding.

        On August 12, 2013, we provided $80,000 in senior secured loans and a senior secured revolving loan facility, of which $70,000 was funded at closing, for the recapitalization of Matrixx Initiatives, Inc., owner of Zicam, a leading developer and marketer of OTC cold remedy products under the Zicam brand.

        On August 14, 2013, we announced the revised conversion rate on the 2018 Notes of 82.8631 shares of common stock per $1 principal amount of 2018 Notes, which is equivalent to a conversion price of approximately $12.07.

        On August 15, 2013, we announced an increase of $15,000 to our commitments to our credit facility. The commitments to the credit facility now stand at $567,500.

        On August 15, 2013, we made a $14,000 follow-on investment in Totes Isotoner Corporation, a leading designer, distributer and retailer of high quality, branded functional accessories.

        On August 21, 2013, we announced the declaration of monthly dividends in the following amounts and with the following dates:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except share and per share data)

Note 16. Subsequent Events (Continued)

        On August 30, 2013, we made a $16,000 follow-on investment in System One Holdings, LLC, a leading provider of professional staffing services.

        On September 5, 2013, we provided $50,000 of floating rate senior secured financing to a leading payments processor.

        On September 10, 2013, we made a $12,500 first lien secured investment in Photonis SAS, a world leader in the development, manufacture and sale of electro-optic components for the detection and intensification of very faint light sources.

        On September 11, 2013, Seaton Corp. repaid the $13,310 loan receivable to us.

        On September 12, 2013, we provided a $75,000 floating-rate senior secured term loan to support the recapitalization of American Broadband Communications, LLC, a leading provider of voice, video, and high-speed internet services.

        On September 13, 2013, we made an investment of $36,515 to purchase 83.56% of the subordinated notes in Apidos CLO XV, Ltd.

        On September 19, 2013, we provided $47,985 of combined senior secured floating rate debt and equity to support the recapitalization of Mity Enterprises, Inc., a leading designer, manufacturer and seller of multipurpose room furniture and specialty healthcare seating products.

        On September 25, 2013, we made a $12,000 senior secured investment in NCP Finance, a lender to short term loan providers in the alternative financial services industry.

        On September 25, 2013, we received payment of $5,000 in settlement of a lawsuit related to the loan to Integrated Contract Services, Inc., which was previously written off.

        On September 30, 2013, we made an investment of $22,575 to purchase 51.02% of the subordinated notes in Galaxy XVI CLO, Ltd.

        On September 30, 2013, we sold our investment in ADAPCO, Inc. for net proceeds of $553, recognizing a realized gain of $413 on the sale.

        On September 30, 2013, we made an $18,818 follow-on investment in JHH Holdings, Inc., a leading provider of home healthcare services in Texas.

        On October 1, 2013, we made a $2,600 follow-on investment in AIRMALL USA, Inc., a leading developer and manager of airport retail operations.

        On October 7, 2013, Evanta Ventures, Inc. repaid the $10,506 loan receivable to us.

        On October 11, 2013, we made a $5,846 follow-on senior debt and equity investment in CP Energy Services, Inc., an energy services company based in western Oklahoma.

        On October 11, 2013, we provided $25,000 in preferred equity for the recapitalization of Ajax Rolled Ring & Machine, Inc. After the financing, we received repayment of the $20,009 loan previously outstanding.

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PART C—OTHER INFORMATION

ITEM 25.    FINANCIAL STATEMENTS AND EXHIBITS

        (1)   Financial Statements

        The following statements of Prospect Capital Corporation (the "Company" or the "Registrant") are included in Part A of this Registration Statement:


INDEX TO FINANCIAL STATEMENTS

 
  Page

AUDITED FINANCIAL STATEMENTS

   

Report of Independent Registered Public Accounting Firm

  F-2

Consolidated Statements of Assets and Liabilities as of June 30, 2013 and June 30, 2012

  F-3

Consolidated Statements of Operations—For the Years Ended June 30, 2013, June 30, 2012 and June 30, 2011

  F-4

Consolidated Statements of Changes in Net Assets—For the Years Ended June 30, 2013, June 30, 2012 and June 30, 2011

  F-5

Consolidated Statements of Cash Flows—For the Years Ended June 30, 2013, June 30, 2012 and June 30, 2011

  F-6

Consolidated Schedules of Investments as of June 30, 2013 and June 30, 2012

  F-7

Notes to Consolidated Financial Statements

  F-42

        (2)   Exhibits

        The agreements included or incorporated by reference as exhibits to this registration statement contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of "materiality" that are different from "materiality" under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.

        The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this registration statement not misleading.

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Exhibit No.   Description
(a)(1)   Articles of Amendment and Restatement(1)

(b)(1)

 

Amended and Restated Bylaws(3)

(c)

 

Not Applicable

(d)(1)

 

Form of Share Certificate(2)

(d)(2)

 

Form of Indenture(12)

(d)(3)

 

Indenture dated as of December 21, 2010 relating to the 6.25% Senior Convertible Notes, by and between the Registrant and American Stock Transfer & Trust Company, LLC, as Trustee(10)

(d)(3)(a)

 

Form of 6.25% Senior Convertible Note due 2015 (included as part of Exhibit (d)(3)(a))(10)

(d)(4)

 

Indenture dated as of February 18, 2011 relating to the 5.50% Senior Convertible Notes, by and between the Registrant and American Stock Transfer & Trust Company, LLC, as Trustee(11)

(d)(4)(a)

 

Form of 5.50% Senior Convertible Note due 2016(8)

(d)(5)

 

Statement of Eligibility of U.S. Bank National Association on Form T-1(100)

(d)(6)

 

Intentionally deleted.

(d)(7)

 

Indenture dated as of February 16, 2012, by and between the Registrant and American Stock Transfer & Trust Company, LLC, as Trustee(15)

(d)(8)

 

First Supplemental Indenture dated as of March 1, 2012, to the Indenture dated as of February 16, 2012, by and between the Registrant and American Stock Transfer & Trust Company, LLC, as Trustee(15)

(d)(9)

 

Form of 7.00% Prospect Capital InterNote® due 2022 (included as part of Exhibit (d)(8))(15)

(d)(10)

 

Second Supplemental Indenture dated as of March 8, 2012, to the Indenture dated as of February 16, 2012, by and between the Registrant and American Stock Transfer & Trust Company, LLC, as Trustee(16)

(d)(11)

 

Joinder Supplemental Indenture dated as of March 8, 2012, to the Indenture dated as of February 16, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Original Trustee, and U.S. Bank National Association, as Series Trustee(16)

(d)(12)

 

Form of 6.900% Prospect Capital InterNote® due 2022 (included as part of Exhibit (d)(10))(16)

(d)(13)

 

Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee(17)

(d)(14)

 

Third Supplemental Indenture dated as of April 5, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(20)

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Exhibit No.   Description
(d)(15)   Form of 6.850% Prospect Capital InterNote® due 2022 (included as part of Exhibit (d)(14))(20)

(d)(16)

 

Fourth Supplemental Indenture dated as of April 12, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(21)

(d)(17)

 

Form of 6.700% Prospect Capital InterNote® due 2022 (included as part of Exhibit (d)(16))(21)

(d)(18)

 

Indenture dated as of April 16, 2012 relating to the 5.375% Senior Convertible Notes, by and between the Registrant and American Stock Transfer & Trust Company, as Trustee(22)

(d)(19)

 

Form of 5.375% Senior Convertible Note due 2017(23)

(d)(20)

 

Fifth Supplemental Indenture dated as of April 26, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(24)

(d)(21)

 

Form of 6.500% Prospect Capital InterNote® due 2022 (included as part of Exhibit (d)(20))(24)

(d)(22)

 

Supplemental Indenture dated as of May 1, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(25)

(d)(23)

 

Form of Global Note 6.95% Senior Note due 2022(26)

(d)(24)

 

Sixth Supplemental Indenture dated as of June 14, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(27)

(d)(25)

 

Form of 6.950% Prospect Capital InterNote® due 2022 (included as part of Exhibit (d)(24))(27)

(d)(26)

 

Seventh Supplemental Indenture dated as of June 28, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(28)

(d)(27)

 

Form of 6.550% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(26))(28)

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Exhibit No.   Description
(d)(28)   Eighth Supplemental Indenture dated as of July 6, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(29)

(d)(29)

 

Form of 6.450% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(28))(29)

(d)(30)

 

Ninth Supplemental Indenture dated as of July 12, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(31)

(d)(31)

 

Form of 6.350% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(30))(31)

(d)(32)

 

Tenth Supplemental Indenture dated as of July 19, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(33)

(d)(33)

 

Form of 6.300% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(32))(33)

(d)(34)

 

Eleventh Supplemental Indenture dated as of July 26, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(34)

(d)(35)

 

Form of 6.200% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(34))(34)

(d)(36)

 

Twelfth Supplemental Indenture dated as of August 2, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(35)

(d)(37)

 

Form of 6.150% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(36))(35)

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Exhibit No.   Description
(d)(38)   Thirteenth Supplemental Indenture dated as of August 9, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(36)

(d)(39)

 

Form of 6.150% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(38))(36)

(d)(40)

 

Indenture dated as of August 14, 2012 relating to the 5.75% Senior Convertible Notes, by and between the Registrant and American Stock Transfer & Trust Company, as Trustee(37)

(d)(41)

 

Form of 5.75% Senior Convertible Note due 2018(38)

(d)(42)

 

Fourteenth Supplemental Indenture dated as of August 16, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(39)

(d)(43)

 

Form of 6.100% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(42))(39)

(d)(44)

 

Fifteenth Supplemental Indenture dated as of August 23, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(40)

(d)(45)

 

Form of 6.050% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(44))(40)

(d)(46)

 

Sixteenth Supplemental Indenture dated as of September 7, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(42)

(d)(47)

 

Form of 6.000% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(46))(42)

(d)(48)

 

Seventeenth Supplemental Indenture dated as of September 13, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(44)

(d)(49)

 

Form of 5.950% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(48))(44)

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Exhibit No.   Description
(d)(50)   Eighteenth Supplemental Indenture dated as of September 20, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(45)

(d)(51)

 

Form of 5.900% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(50))(45)

(d)(52)

 

Nineteenth Supplemental Indenture dated as of September 27, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(48)

(d)(53)

 

Form of 5.850% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(52))(48)

(d)(54)

 

Twentieth Supplemental Indenture dated as of October 4, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(51)

(d)(55)

 

Form of 5.700% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(54))(51)

(d)(56)

 

Twenty-First Supplemental Indenture dated as of November 23, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(54)

(d)(57)

 

Form of 5.125% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(56))(54)

(d)(58)

 

Twenty-Second Supplemental Indenture dated as of November 23, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(54)

(d)(59)

 

Form of 6.625% Prospect Capital InterNote® due 2042 (included as part of Exhibit (d)(58))(54)

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Exhibit No.   Description
(d)(60)   Twenty-Third Supplemental Indenture dated as of November 29, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(55)

(d)(61)

 

Form of 5.000% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(60))(55)

(d)(62)

 

Twenty-Fourth Supplemental Indenture dated as of November 29, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(55)

(d)(63)

 

Form of 5.750% Prospect Capital InterNote® due 2032 (included as part of Exhibit (d)(62))(55)

(d)(64)

 

Twenty-Fifth Supplemental Indenture dated as of November 29, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(55)

(d)(65)

 

Form of 6.500% Prospect Capital InterNote® due 2042 (included as part of Exhibit (d)(64))(55)

(d)(66)

 

Twenty-Sixth Supplemental Indenture dated as of December 6, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(56)

(d)(67)

 

Form of 4.875% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(66))(56)

(d)(68)

 

Twenty-Seventh Supplemental Indenture dated as of December 6, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(56)

(d)(69)

 

Form of 5.625% Prospect Capital InterNote® due 2032 (included as part of Exhibit (d)(68))(56)

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Exhibit No.   Description
(d)(70)   Twenty-Eighth Supplemental Indenture dated as of December 6, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(56)

(d)(71)

 

Form of 6.375% Prospect Capital InterNote® due 2042 (included as part of Exhibit (d)(70))(56)

(d)(72)

 

Twenty-Ninth Supplemental Indenture dated as of December 13, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(57)

(d)(73)

 

Form of 4.750% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(72))(57)

(d)(74)

 

Thirtieth Supplemental Indenture dated as of December 13, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(57)

(d)(75)

 

Form of 5.250% Prospect Capital InterNote® due 2030 (included as part of Exhibit (d)(74))(57)

(d)(76)

 

Thirty-First Supplemental Indenture dated as of December 13, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(57)

(d)(77)

 

Form of 6.250% Prospect Capital InterNote® due 2042 (included as part of Exhibit (d)(76))(57)

(d)(78)

 

Thirty-Second Supplemental Indenture dated as of December 20, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(58)

(d)(79)

 

Form of 4.625% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(78))(58)

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Exhibit No.   Description
(d)(80)   Thirty-Third Supplemental Indenture dated as of December 20, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(58)

(d)(81)

 

Form of 5.125% Prospect Capital InterNote® due 2030 (included as part of Exhibit (d)(80))(58)

(d)(82)

 

Thirty-Fourth Supplemental Indenture dated as of December 20, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(58)

(d)(83)

 

Form of 6.125% Prospect Capital InterNote® due 2042 (included as part of Exhibit (d)(82))(58)

(d)(84)

 

Indenture dated as of December 21, 2012, by and between the Registrant and American Stock Transfer & Trust Company, as Trustee(59)

(d)(85)

 

Form of Global Note 5.875% Convertible Senior Note Due 2019 (included as part of Exhibit (d)(84))(59)

(d)(86)

 

Thirty-Fifth Supplemental Indenture dated as of December 28, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(61)

(d)(87)

 

Form of 4.500% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(86))(61)

(d)(88)

 

Thirty-Sixth Supplemental Indenture dated as of December 28, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(61)

(d)(89)

 

Form of 5.000% Prospect Capital InterNote® due 2030 (included as part of Exhibit (d)(88))(61)

(d)(90)

 

Thirty-Seventh Supplemental Indenture dated as of December 28, 2012, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(61)

(d)(91)

 

Form of 6.000% Prospect Capital InterNote® due 2042 (included as part of Exhibit (d)(90))(61)

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Exhibit No.   Description
(d)(92)   Thirty-Eighth Supplemental Indenture dated as of January 4, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(62)

(d)(93)

 

Form of 4.375% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(92))(62)

(d)(94)

 

Thirty-Ninth Supplemental Indenture dated as of January 4, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(62)

(d)(95)

 

Form of 4.875% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(94))(62)

(d)(96)

 

Fortieth Supplemental Indenture dated as of January 4, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(62)

(d)(97)

 

Form of 5.875% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(96))(62)

(d)(98)

 

Forty-First Supplemental Indenture dated as of January 10, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(63)

(d)(99)

 

Form of 4.250% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(98))(63)

(d)(100)

 

Forty-Second Supplemental Indenture dated as of January 10, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(63)

(d)(101)

 

Form of 4.750% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(100))(63)

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Table of Contents

Exhibit No.   Description
(d)(102)   Forty-Third Supplemental Indenture dated as of January 10, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(63)

(d)(103)

 

Form of 5.750% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(102))(63)

(d)(104)

 

Forty-Fourth Supplemental Indenture dated as of January 17, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(64)

(d)(105)

 

Form of 4.125% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(104))(64)

(d)(106)

 

Forty-Fifth Supplemental Indenture dated as of January 17, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(64)

(d)(107)

 

Form of 4.625% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(106))(64)

(d)(108)

 

Forty-Sixth Supplemental Indenture dated as of January 17, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(64)

(d)(109)

 

Form of 5.625% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(108))(64)

(d)(110)

 

Forty-Seventh Supplemental Indenture dated as of January 25, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(65)

(d)(111)

 

Form of 4.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(110))(65)

C-11


Table of Contents

Exhibit No.   Description
(d)(112)   Forty-Eighth Supplemental Indenture dated as of January 25, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(65)

(d)(113)

 

Form of 4.500% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(112))(65)

(d)(114)

 

Forty-Ninth Supplemental Indenture dated as of January 25, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(65)

(d)(115)

 

Form of 5.500% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(114))(65)

(d)(116)

 

Fiftieth Supplemental Indenture dated as of January 31, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(66)

(d)(117)

 

Form of 4.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(116))(66)

(d)(118)

 

Fifty-First Supplemental Indenture dated as of January 31, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(66)

(d)(119)

 

Form of 4.500% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(118))(66)

(d)(120)

 

Fifty-Second Supplemental Indenture dated as of January 31, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(66)

(d)(121)

 

Form of 5.500% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(120))(66)

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Table of Contents

Exhibit No.   Description
(d)(122)   Fifty-Third Supplemental Indenture dated as of February 7, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(67)

(d)(123)

 

Form of 4.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(122))(67)

(d)(124)

 

Fifty-Fourth Supplemental Indenture dated as of February 7, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(67)

(d)(125)

 

Form of 4.500% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(124))(67)

(d)(126)

 

Fifty-Fifth Supplemental Indenture dated as of February 7, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(67)

(d)(127)

 

Form of 5.500% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(126))(67)

(d)(128)

 

Fifty-Sixth Supplemental Indenture dated as of February 22, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(69)

(d)(129)

 

Form of 4.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(128))(69)

(d)(130)

 

Fifty-Seventh Supplemental Indenture dated as of February 22, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(69)

(d)(131)

 

Form of 4.500% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(130))(69)

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Table of Contents

Exhibit No.   Description
(d)(132)   Fifty-Eighth Supplemental Indenture dated as of February 22, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(69)

(d)(133)

 

Form of 5.500% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(132))(69)

(d)(134)

 

Fifty-Ninth Supplemental Indenture dated as of February 28, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(70)

(d)(135)

 

Form of 4.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(134))(70)

(d)(136)

 

Sixtieth Supplemental Indenture dated as of February 28, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(70)

(d)(137)

 

Form of 4.500% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(136))(70)

(d)(138)

 

Sixty-First Supplemental Indenture dated as of February 28, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(70)

(d)(139)

 

Form of 5.500% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(138))(70)

(d)(140)

 

Sixty-Second Supplemental Indenture dated as of March 7, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(71)

(d)(141)

 

Form of 4.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(140))(71)

C-14


Table of Contents

Exhibit No.   Description
(d)(142)   Sixty-Third Supplemental Indenture dated as of March 7, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(71)

(d)(143)

 

Form of 4.500% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(142))(71)

(d)(144)

 

Sixty-Fourth Supplemental Indenture dated as of March 7, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(71)

(d)(145)

 

Form of 5.500% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(144))(71)

(d)(146)

 

Sixty-Fifth Supplemental Indenture dated as of March 14, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(72)

(d)(147)

 

Form of 4.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(146))(72)

(d)(148)

 

Sixty-Sixth Supplemental Indenture dated as of March 14, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(72)

(d)(149)

 

Form of 4.125% to 6.000% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(148))(72)

(d)(150)

 

Sixty-Seventh Supplemental Indenture dated as of March 14, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(72)

(d)(151)

 

Form of 5.500% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(150))(72)

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Table of Contents

Exhibit No.   Description
(d)(152)   Sixty-Eighth Supplemental Indenture dated as of March 14, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(72)

(d)(153)

 

Form of Floating Prospect Capital InterNote® due 2023 (included as part of Exhibit (d)(152))(72)

(d)(154)

 

Supplemental Indenture dated as of March 15, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(73)

(d)(155)

 

Form of Global Note 5.875% Senior Note due 2023(74)

(d)(156)

 

Sixty-Ninth Supplemental Indenture dated as of March 21, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(77)

(d)(157)

 

Form of 4.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(156))(77)

(d)(158)

 

Seventieth Supplemental Indenture dated as of March 21, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(77)

(d)(159)

 

Form of 4.125% to 6.000% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(158))(77)

(d)(160)

 

Seventy-First Supplemental Indenture dated as of March 21, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(77)

(d)(161)

 

Form of 5.500% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(160))(77)

(d)(162)

 

Seventy-Second Supplemental Indenture dated as of March 21, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(77)

C-16


Table of Contents

Exhibit No.   Description
(d)(163)   Form of Floating Prospect Capital InterNote® due 2023 (included as part of Exhibit (d)(162))(77)

(d)(164)

 

Seventy-Third Supplemental Indenture dated as of March 28, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(78)

(d)(165)

 

Form of 4.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(164))(78)

(d)(166)

 

Seventy-Fourth Supplemental Indenture dated as of March 28, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(78)

(d)(167)

 

Form of 4.125% to 6.000% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(166))(78)

(d)(168)

 

Seventy-Fifth Supplemental Indenture dated as of March 28, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(78)

(d)(169)

 

Form of 5.500% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(168))(78)

(d)(170)

 

Seventy-Sixth Supplemental Indenture dated as of March 28, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(78)

(d)(171)

 

Form of Floating Prospect Capital InterNote® due 2023 (included as part of Exhibit (d)(170))(78)

(d)(172)

 

Seventy-Seventh Supplemental Indenture dated as of April 4, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(79)

(d)(173)

 

Form of 4.500% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(172))(79)

C-17


Table of Contents

Exhibit No.   Description
(d)(174)   Seventy-Eighth Supplemental Indenture dated as of April 4, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(79)

(d)(175)

 

Form of 4.625% to 6.500% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(174))(79)

(d)(176)

 

Seventy-Ninth Supplemental Indenture dated as of April 4, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(79)

(d)(177)

 

Form of 6.000% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d))(176)(79)

(d)(178)

 

Eightieth Supplemental Indenture dated as of April 4, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(79)

(d)(179)

 

Form of Floating Prospect Capital InterNote® due 2023 (included as part of Exhibit (d)(178))(79)

(d)(180)

 

Eighty-First Supplemental Indenture dated as of April 11, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(80)

(d)(181)

 

Form of 4.500% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(180))(80)

(d)(182)

 

Eighty-Second Supplemental Indenture dated as of April 11, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(80)

(d)(183)

 

Form of 5.500% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(182))(80)

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Table of Contents

Exhibit No.   Description
(d)(184)   Eighty-Third Supplemental Indenture dated as of April 11, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(80)

(d)(185)

 

Form of 6.000% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(184))(80)

(d)(186)

 

Eighty-Fourth Supplemental Indenture dated as of April 11, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(80)

(d)(187)

 

Form of Floating Prospect Capital InterNote® due 2023 (included as part of Exhibit (d)(186))(80)

(d)(188)

 

Eighty-Fifth Supplemental Indenture dated as of April 18, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(81)

(d)(189)

 

Form of 5.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(188))(81)

(d)(190)

 

Eighty-Sixth Supplemental Indenture dated as of April 18, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(81)

(d)(191)

 

Form of 5.500% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(190))(81)

(d)(192)

 

Eighty-Seventh Supplemental Indenture dated as of April 18, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(81)

(d)(193)

 

Form of 6.000% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(192))(81)

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Exhibit No.   Description
(d)(194)   Eighty-Eighth Supplemental Indenture dated as of April 25, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(82)

(d)(195)

 

Form of 5.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(194))(82)

(d)(196)

 

Eighty-Ninth Supplemental Indenture dated as of April 25, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(82)

(d)(197)

 

Form of 5.500% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(196))(82)

(d)(198)

 

Ninetieth Supplemental Indenture dated as of April 25, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(82)

(d)(199)

 

Form of 6.000% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(198))(82)

(d)(200)

 

Ninety-First Supplemental Indenture dated as of May 2, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(83)

(d)(201)

 

Form of 5.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(200))(83)

(d)(202)

 

Ninety-Second Supplemental Indenture dated as of May 2, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(83)

(d)(203)

 

Form of 5.750% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(202))(83)

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Table of Contents

Exhibit No.   Description
(d)(204)   Ninety-Third Supplemental Indenture dated as of May 2, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(83)

(d)(205)

 

Form of 6.250% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(204))(83)

(d)(206)

 

Ninety-Fourth Supplemental Indenture dated as of May 9, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(85)

(d)(207)

 

Form of 5.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(206))(85)

(d)(208)

 

Ninety-Fifth Supplemental Indenture dated as of May 9, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(85)

(d)(209)

 

Form of 5.750% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(208))(85)

(d)(210)

 

Ninety-Sixth Supplemental Indenture dated as of May 9, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(85)

(d)(211)

 

Form of 6.250% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(210))(85)

(d)(212)

 

Ninety-Seventh Supplemental Indenture dated as of May 23, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(86)

(d)(213)

 

Form of 5.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(212))(86)

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Exhibit No.   Description
(d)(214)   Ninety-Eighth Supplemental Indenture dated as of May 23, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(86)

(d)(215)

 

Form of 5.750% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(214))(86)

(d)(216)

 

Ninety-Ninth Supplemental Indenture dated as of May 23, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(86)

(d)(217)

 

Form of 6.250% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(216))(86)

(d)(218)

 

One Hundredth Supplemental Indenture dated as of May 23, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(86)

(d)(219)

 

Form of 5.000% to 7.000% Prospect Capital InterNote® due 2028 (included as part of Exhibit (d)(218))(86)

(d)(220)

 

One Hundred-First Supplemental Indenture dated as of May 31, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(87)

(d)(221)

 

Form of 5.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(220))(87)

(d)(222)

 

One Hundred-Second Supplemental Indenture dated as of May 31, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(87)

(d)(223)

 

Form of 5.750% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(222))(87)

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Exhibit No.   Description
(d)(224)   One Hundred-Third Supplemental Indenture dated as of May 31, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(87)

(d)(225)

 

Form of 6.250% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(224))(87)

(d)(226)

 

One Hundred-Fourth Supplemental Indenture dated as of June 6, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(88)

(d)(227)

 

Form of 5.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(226))(88)

(d)(228)

 

One Hundred-Fifth Supplemental Indenture dated as of June 6, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(88)

(d)(229)

 

Form of 5.750% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(228))(88)

(d)(230)

 

One Hundred-Sixth Supplemental Indenture dated as of June 6, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(88)

(d)(231)

 

Form of 6.250% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(230))(88)

(d)(232)

 

One Hundred-Seventh Supplemental Indenture dated as of June 6, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(88)

(d)(233)

 

Form of 5.000% to 7.000% Prospect Capital InterNote® due 2028 (included as part of Exhibit (d)(232))(88)

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Exhibit No.   Description
(d)(234)   One Hundred-Eighth Supplemental Indenture dated as of June 13, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(89)

(d)(235)

 

Form of 5.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(234))(89)

(d)(236)

 

One Hundred-Ninth Supplemental Indenture dated as of June 13, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(89)

(d)(237)

 

Form of 5.750% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(236))(89)

(d)(238)

 

One Hundred-Tenth Supplemental Indenture dated as of June 13, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(89)

(d)(239)

 

Form of 6.250% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(238))(89)

(d)(240)

 

One Hundred-Eleventh Supplemental Indenture dated as of June 20, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(90)

(d)(241)

 

Form of 5.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(240))(90)

(d)(242)

 

One Hundred-Twelfth Supplemental Indenture dated as of June 20, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(90)

(d)(243)

 

Form of 5.750% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(242))(90)

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Exhibit No.   Description
(d)(244)   One Hundred-Thirteenth Supplemental Indenture dated as of June 20, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(90)

(d)(245)

 

Form of 6.250% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(244))(90)

(d)(246)

 

One Hundred-Fourteenth Supplemental Indenture dated as of June 27, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(91)

(d)(247)

 

Form of 5.250% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(246))(91)

(d)(248)

 

One Hundred-Fifteenth Supplemental Indenture dated as of June 27, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(91)

(d)(249)

 

Form of 6.000% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(248))(91)

(d)(250)

 

One Hundred-Sixteenth Supplemental Indenture dated as of June 27, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(91)

(d)(251)

 

Form of 6.500% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(250))(91)

(d)(252)

 

One Hundred-Seventeenth Supplemental Indenture dated as of July 5, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(92)

(d)(253)

 

Form of 4.750% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(252))(92)

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Exhibit No.   Description
(d)(254)   One Hundred-Eighteenth Supplemental Indenture dated as of July 5, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(92)

(d)(255)

 

Form of 5.500% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(254))(92)

(d)(256)

 

One Hundred-Nineteenth Supplemental Indenture dated as of July 5, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(92)

(d)(257)

 

Form of 6.250% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(256))(92)

(d)(258)

 

One Hundred-Twentieth Supplemental Indenture dated as of July 5, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(92)

(d)(259)

 

Form of 6.750% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(258))(92)

(d)(260)

 

One Hundred Twenty-First Supplemental Indenture dated as of July 11, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(93)

(d)(261)

 

Form of 4.750% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(260))(93)

(d)(262)

 

One Hundred Twenty-Second Supplemental Indenture dated as of July 11, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(93)

(d)(263)

 

Form of 5.500% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(262))(93)

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Table of Contents

Exhibit No.   Description
(d)(264)   One Hundred Twenty-Third Supplemental Indenture dated as of July 11, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(93)

(d)(265)

 

Form of 6.250% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(264))(93)

(d)(266)

 

One Hundred Twenty-Fourth Supplemental Indenture dated as of July 11, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(93)

(d)(267)

 

Form of 6.750% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(266))(93)

(d)(268)

 

One Hundred Twenty-Fifth Supplemental Indenture dated as of July 18, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(94)

(d)(269)

 

Form of 5.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(268))(94)

(d)(270)

 

One Hundred Twenty-Sixth Supplemental Indenture dated as of July 18, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(94)

(d)(271)

 

Form of 5.750% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(270))(94)

(d)(272)

 

One Hundred Twenty-Seventh Supplemental Indenture dated as of July 18, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(94)

(d)(273)

 

Form of 6.250% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(272))(94)

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Table of Contents

Exhibit No.   Description
(d)(274)   One Hundred Twenty-Eighth Supplemental Indenture dated as of July 18, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(94)

(d)(275)

 

Form of 6.750% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(274))(94)

(d)(276)

 

One Hundred Twenty-Ninth Supplemental Indenture dated as of July 25, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(95)

(d)(277)

 

Form of 5.000% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(276))(95)

(d)(278)

 

One Hundred Thirtieth Supplemental Indenture dated as of July 25, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(95)

(d)(279)

 

Form of 5.750% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(278))(95)

(d)(280)

 

One Hundred Thirty-First Supplemental Indenture dated as of July 25, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(95)

(d)(281)

 

Form of 6.250% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(280))(95)

(d)(282)

 

One Hundred Thirty-Second Supplemental Indenture dated as of July 25, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(95)

(d)(283)

 

Form of 6.750% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(282))(95)

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Table of Contents

Exhibit No.   Description
(d)(284)   One Hundred Thirty-Third Supplemental Indenture dated as of August 1, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(96)

(d)(285)

 

Form of 5.000% Prospect Capital InterNote® due 2019 (included as part of Exhibit (d)(284))(96)

(d)(286)

 

One Hundred Thirty-Fourth Supplemental Indenture dated as of August 1, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(96)

(d)(287)

 

Form of 5.750% Prospect Capital InterNote® due 2021 (included as part of Exhibit (d)(286))(96)

(d)(288)

 

One Hundred Thirty-Fifth Supplemental Indenture dated as of August 1, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(96)

(d)(289)

 

Form of 6.125% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(288))(96)

(d)(290)

 

One Hundred Thirty-Sixth Supplemental Indenture dated as of August 1, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(96)

(d)(291)

 

Form of 6.625% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(290))(96)

(d)(292)

 

One Hundred Thirty-Seventh Supplemental Indenture dated as of August 8, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(97)

(d)(293)

 

Form of 5.000% Prospect Capital InterNote® due 2018 (included as part of Exhibit (d)(292))(97)

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Exhibit No.   Description
(d)(294)   One Hundred Thirty-Eighth Supplemental Indenture dated as of August 8, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(97)

(d)(295)

 

Form of 5.500% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(294))(97)

(d)(296)

 

One Hundred Thirty-Ninth Supplemental Indenture dated as of August 8, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(97)

(d)(297)

 

Form of 6.000% Prospect Capital InterNote® due 2031 (included as part of Exhibit (d)(296))(97)

(d)(298)

 

One Hundred Fortieth Supplemental Indenture dated as of August 8, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(97)

(d)(299)

 

Form of 6.500% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(298))(97)

(d)(300)

 

One Hundred Forty-First Supplemental Indenture dated as of August 15, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(98)

(d)(301)

 

Form of 5.000% Prospect Capital InterNote® due 2018 (included as part of Exhibit (d)(300))(98)

(d)(302)

 

One Hundred Forty-Second Supplemental Indenture dated as of August 15, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(98)

(d)(303)

 

Form of 5.500% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(302))(98)

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Exhibit No.   Description
(d)(304)   One Hundred Forty-Third Supplemental Indenture dated as of August 15, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(98)

(d)(305)

 

Form of 6.000% Prospect Capital InterNote® due 2028 (included as part of Exhibit (d)(304))(98)

(d)(306)

 

One Hundred Forty-Fourth Supplemental Indenture dated as of August 15, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(98)

(d)(307)

 

Form of 6.500% Prospect Capital InterNote® due 2038 (included as part of Exhibit (d)(306))(98)

(d)(308)

 

One Hundred Forty-Fifth Supplemental Indenture dated as of August 22, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(99)

(d)(309)

 

Form of 5.000% Prospect Capital InterNote® due 2018 (included as part of Exhibit (d)(308))(99)

(d)(310)

 

One Hundred Forty-Sixth Supplemental Indenture dated as of August 22, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(99)

(d)(311)

 

Form of 5.500% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(310))(99)

(d)(312)

 

One Hundred Forty-Seventh Supplemental Indenture dated as of August 22, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(99)

(d)(313)

 

Form of 6.000% Prospect Capital InterNote® due 2028 (included as part of Exhibit (d)(312))(99)

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Exhibit No.   Description
(d)(314)   One Hundred Forty-Eighth Supplemental Indenture dated as of August 22, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(99)

(d)(315)

 

Form of 6.500% Prospect Capital InterNote® due 2038 (included as part of Exhibit (d)(314))(99)

(d)(316)

 

One Hundred Forty-Ninth Supplemental Indenture dated as of September 6, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(101)

(d)(317)

 

Form of 5.000% Prospect Capital InterNote® due 2018 (included as part of Exhibit (d)(316))(101)

(d)(318)

 

One Hundred Fiftieth Supplemental Indenture dated as of September 6, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(101)

(d)(319)

 

Form of 5.500% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(318))(101)

(d)(320)

 

One Hundred Fifty-First Supplemental Indenture dated as of September 6, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(101)

(d)(321)

 

Form of 6.000% Prospect Capital InterNote® due 2028 (included as part of Exhibit (d)(320))(101)

(d)(322)

 

One Hundred Fifty-Second Supplemental Indenture dated as of September 6, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(101)

(d)(323)

 

Form of 6.500% Prospect Capital InterNote® due 2038 (included as part of Exhibit (d)(322))(101)

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Exhibit No.   Description
(d)(324)   One Hundred Fifty-Third Supplemental Indenture dated as of September 12, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(102)

(d)(325)

 

Form of 5.000% Prospect Capital InterNote® due 2018 (included as part of Exhibit (d)(324))(102)

(d)(326)

 

One Hundred Fifty-Fourth Supplemental Indenture dated as of September 12, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(102)

(d)(327)

 

Form of 5.500% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(326))(102)

(d)(328)

 

One Hundred Fifty-Fifth Supplemental Indenture dated as of September 12, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(102)

(d)(329)

 

Form of 6.000% Prospect Capital InterNote® due 2033 (included as part of Exhibit (d)(328))(102)

(d)(330)

 

One Hundred Fifty-Sixth Supplemental Indenture dated as of September 12, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(102)

(d)(331)

 

Form of 6.500% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(330))(102)

(d)(332)

 

One Hundred Fifty-Seventh Supplemental Indenture dated as of September 19, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(103)

(d)(333)

 

Form of 5.000% Prospect Capital InterNote® due 2018 (included as part of Exhibit (d)(332))(103)

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Exhibit No.   Description
(d)(334)   One Hundred Fifty-Eighth Supplemental Indenture dated as of September 19, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(103)

(d)(335)

 

Form of 5.500% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(334))(103)

(d)(336)

 

One Hundred Fifty-Ninth Supplemental Indenture dated as of September 19, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(103)

(d)(337)

 

Form of 6.000% Prospect Capital InterNote® due 2033 (included as part of Exhibit (d)(336))(103)

(d)(338)

 

One Hundred Sixtieth Supplemental Indenture dated as of September 19, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(103)

(d)(339)

 

Form of 6.500% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(338))(103)

(d)(340)

 

One Hundred Sixty-First Supplemental Indenture dated as of September 26, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(104)

(d)(341)

 

Form of 5.000% Prospect Capital InterNote® due 2018 (included as part of Exhibit (d)(340))(104)

(d)(342)

 

One Hundred Sixty-Second Supplemental Indenture dated as of September 26, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(104)

(d)(343)

 

Form of 5.500% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(342))(104)

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Exhibit No.   Description
(d)(344)   One Hundred Sixty-Third Supplemental Indenture dated as of September 26, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(104)

(d)(345)

 

Form of 6.000% Prospect Capital InterNote® due 2033 (included as part of Exhibit (d)(344))(104)

(d)(346)

 

One Hundred Sixty-Fourth Supplemental Indenture dated as of September 26, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(104)

(d)(347)

 

Form of 6.500% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(346))(104)

(d)(348)

 

One Hundred Sixty-Fifth Supplemental Indenture dated as of October 3, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(105)

(d)(349)

 

Form of 5.000% Prospect Capital InterNote® due 2018 (included as part of Exhibit (d)(348))(105)

(d)(350)

 

One Hundred Sixty-Sixth Supplemental Indenture dated as of October 3, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(105)

(d)(351)

 

Form of 5.500% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(350))(105)

(d)(352)

 

One Hundred Sixty-Seventh Supplemental Indenture dated as of October 3, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(105)

(d)(353)

 

Form of 6.000% Prospect Capital InterNote® due 2033 (included as part of Exhibit (d)(352))(105)

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Exhibit No.   Description
(d)(354)   One Hundred Sixty-Eighth Supplemental Indenture dated as of October 3, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(105)

(d)(355)

 

Form of 6.500% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(354))(105)

(d)(356)

 

One Hundred Sixty-Ninth Supplemental Indenture dated as of October 10, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(106)

(d)(357)

 

Form of 5.000% Prospect Capital InterNote® due 2018 (included as part of Exhibit (d)(356))(106)

(d)(358)

 

One Hundred Seventieth Supplemental Indenture dated as of October 10, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(106)

(d)(359)

 

Form of 5.500% Prospect Capital InterNote® due 2020 (included as part of Exhibit (d)(358))(106)

(d)(360)

 

One Hundred Seventy-First Supplemental Indenture dated as of October 10, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(106)

(d)(361)

 

Form of 6.000% Prospect Capital InterNote® due 2033 (included as part of Exhibit (d)(360))(106)

(d)(362)

 

One Hundred Seventy-Second Supplemental Indenture dated as of October 10, 2013, to the Indenture dated as of February 16, 2012, as amended by that certain Agreement of Resignation, Appointment and Acceptance dated as of March 12, 2012, by and among the Registrant, American Stock Transfer & Trust Company, LLC, as Retiring Trustee, and U.S. Bank National Association, as Successor Trustee, by and between the Registrant and U.S. Bank National Association, as Trustee(106)

(d)(363)

 

Form of 6.500% Prospect Capital InterNote® due 2043 (included as part of Exhibit (d)(362))(106)

(e)

 

Form of Dividend Reinvestment Plan(2)

(f)

 

Not Applicable

(g)

 

Form of Investment Advisory Agreement between Registrant and Prospect Capital Management LLC(2)

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Exhibit No.   Description
(h)(1)   Form of Underwriting Agreement(9)

(h)(2)

 

Form of Equity Distribution Agreement(30)

(h)(3)

 

Form of Selling Agent Agreement(13)

(h)(4)

 

First Amendment to the Second Amended and Restated Selling Agent Agreement(100)

(i)

 

Not Applicable

(j)(1)

 

Custody Agreement, dated as of January 23, 2013, by and between the Registrant and U.S. Bank National Association(5)

(j)(2)

 

Custody Agreement, dated as of April 24, 2013, by and between the Registrant and Israeli Discount Bank of New York Ltd.(7)

(k)(1)

 

Form of Administration Agreement between Registrant and Prospect Administration LLC(2)

(k)(2)

 

Form of Transfer Agency and Registrar Services Agreement(4)

(k)(3)

 

Form of Trademark License Agreement between the Registrant and Prospect Capital Management(2)

(k)(4)

 

Agreement and Plan of Merger dated August 3, 2009 between Prospect Capital Corporation and Patriot Capital Funding, Inc.(6)

(k)(5)

 

Master Purchase and Sale and Contribution Agreement, dated as of March 19, 2012, by and among Prospect Capital Corporation, First Tower Corp., certain other entities related to Prospect Capital Corporation and certain shareholders of First Tower Corp.(18)

(k)(6)

 

Fourth Amended and Restated Loan and Servicing Agreement, dated March 27, 2012, among Prospect Capital Funding LLC, Prospect Capital Corporation, the lenders from time to time party thereto, the managing agents from time to time party thereto, Key Equipment Finance Inc. and Royal Bank of Canada as Syndication Agents, U.S. Bank National Association as Calculation Agent, Paying Agent and Documentation Agent, Key Equipment Finance Inc. as Facility Agent, and Key Equipment Finance Inc. as Structuring Agent, Sole Lead Arranger and Sole Bookrunner(19)

(l)(1)

 

Opinion and Consent of Venable LLP, as special Maryland counsel for the Registrant(100)

(l)(2)

 

Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP, as special New York counsel for the Registrant(100)

(m)

 

Not Applicable

(n)(1)

 

Consent of independent registered public accounting firm†

(n)(2)

 

Report of independent registered public accounting firm on "Senior Securities" table†

(n)(3)

 

Power of Attorney(100)

(o)

 

Not Applicable

(p)

 

Not Applicable

(q)

 

Not Applicable

(r)

 

Code of Ethics(14)

99.1

 

Form of Preliminary Prospectus Supplement For Common Stock Offerings(100)

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Exhibit No.   Description
99.2   Form of Preliminary Prospectus Supplement For Preferred Stock Offerings(100)

99.3

 

Form of Preliminary Prospectus Supplement For Debt Offerings(100)

99.4

 

Form of Preliminary Prospectus Supplement For Rights Offerings(100)

99.5

 

Form of Preliminary Prospectus Supplement For Warrant Offerings(100)

99.6

 

Form of Preliminary Prospectus Supplement For Unit Offerings(100)

(1)
Incorporated by reference to Exhibit 3.1 of the Registrant's Form 8-K filed on July 30, 2012.

(2)
Incorporated by reference to the corresponding exhibit number to the Registrant's Pre-effective Amendment No. 2 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-114552), filed on July 6, 2004.

(3)
Incorporated by reference to Exhibit 3.1 of the Registrant's Form 8-K filed on August 26, 2011.

(4)
Incorporated by reference to the corresponding exhibit number to the Registrant's Pre-effective Amendment No. 3 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-114552), filed on July 23, 2004.

(5)
Incorporated by reference to Exhibit 4.22 of the Registrant's Form 10-Q filed on May 6, 2013.

(6)
Incorporated by reference to Exhibit 2.1 of the Registrant's Form 8-K filed on August 5, 2009.

(7)
Incorporated by reference to Exhibit 10.258 of the Registrant's Form 10-K filed on August 21, 2013.

(8)
Incorporated by reference to Exhibit 4.2 of the Registrant's Form 8-K filed on February 18, 2011.

(9)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-effective Amendment No. 1 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-170724), filed on April 6, 2011.

(10)
Incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-K filed on December 21, 2010.

(11)
Incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-K filed on February 18, 2011.

(12)
Incorporated by reference to the corresponding exhibit number to the Registrant's Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on September 1, 2011.

(13)
Incorporated by reference to Exhibit (d)(6) to the Registrant's Pre-Effective Amendment No. 1 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on October 11, 2011.

(14)
Incorporated by reference to Exhibit 14 of the Registrant's Form 10-K filed on August 21, 2013.

(15)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 1 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on March 1, 2012.

(16)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 2 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on March 8, 2012.

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(17)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 3 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on March 14, 2012.

(18)
Incorporated by reference to Exhibit 2.1 of the Registrant's Form 8-K filed on March 21, 2012.

(19)
Incorporated by reference to Exhibit 99.1 of the Registrant's Form 8-K filed on April 2, 2012.

(20)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 5 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on April 5, 2012.

(21)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 6 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on April 12, 2012.

(22)
Incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-K filed on April 16, 2012.

(23)
Incorporated by reference to Exhibit 4.2 of the Registrant's Form 8-K filed on April 16, 2012.

(24)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 8 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on April 26, 2012.

(25)
Incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-K filed on May 7, 2012.

(26)
Incorporated by reference to Exhibit 4.2 of the Registrant's Form 8-K filed on May 7, 2012.

(27)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 10 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on June 14, 2012.

(28)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 11 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on June 28, 2012.

(29)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 12 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on July 6, 2012.

(30)
Incorporated by reference to the corresponding exhibit number to the Registrant's Pre-Effective Amendment No. 1 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-170724), filed on January 27, 2011.

(31)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 13 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on July 12, 2012.

(32)
Intentionally deleted.

(33)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 15 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on July 19, 2012.

(34)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 16 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on July 26, 2012.

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(35)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 17 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on August 2, 2012.

(36)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 18 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on August 9, 2012.

(37)
Incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-K filed on August 14, 2012.

(38)
Incorporated by reference to Exhibit 4.2 of the Registrant's Form 8-K filed on August 14, 2012.

(39)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 19 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on August 16, 2012.

(40)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 20 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on August 23, 2012.

(41)
Intentionally deleted.

(42)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 22 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on September 7, 2012.

(43)
Intentionally deleted.

(44)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 24 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on September 13, 2012.

(45)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 25 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on September 20, 2012.

(46)
Intentionally deleted.

(47)
Intentionally deleted.

(48)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 26 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on September 27, 2012.

(49)
Intentionally deleted.

(50)
Intentionally deleted.

(51)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 27 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-176637), filed on October 4, 2012.

(52)
Intentionally deleted.

(53)
Intentionally deleted.

(54)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 2 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on November 23, 2012.

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(55)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 3 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on November 29, 2012.

(56)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 4 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on December 6, 2012.

(57)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 5 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on December 13, 2012.

(58)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 6 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on December 20, 2012.

(59)
Incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-K filed on December 21, 2012.

(60)
Intentionally deleted.

(61)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 8 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on December 28, 2012.

(62)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 9 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on January 4, 2013.

(63)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 10 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on January 10, 2013.

(64)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 11 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on January 17, 2013.

(65)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 12 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on January 25, 2013.

(66)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 13 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on January 31, 2013.

(67)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 14 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on February 7, 2013.

(68)
Intentionally deleted.

(69)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 16 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on February 22, 2013.

(70)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 17 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on February 28, 2013.

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(71)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 18 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on March 7, 2013.

(72)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 19 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on March 14, 2013.

(73)
Incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-K filed on March 15, 2013.

(74)
Incorporated by reference to Exhibit 4.2 of the Registrant's Form 8-K filed on March 15, 2013.

(75)
Intentionally deleted.

(76)
Intentionally deleted.

(77)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 21 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on March 21, 2013.

(78)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 22 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on March 28, 2013.

(79)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 23 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on April 4, 2013.

(80)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 24 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on April 11, 2013.

(81)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 25 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on April 18, 2013.

(82)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 26 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on April 25, 2013.

(83)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 27 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on May 2, 2013.

(84)
Intentionally deleted.

(85)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 29 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on May 9, 2013.

(86)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 30 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on May 23, 2013.

(87)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 31 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on May 31, 2013.

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(88)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 32 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on June 6, 2013.

(89)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 33 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on June 13, 2013.

(90)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 34 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on June 20, 2013.

(91)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 35 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on June 27, 2013.

(92)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 36 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on July 5, 2013.

(93)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 37 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on July 11, 2013.

(94)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 38 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on July 18, 2013.

(95)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 39 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on July 25, 2013.

(96)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 40 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on August 1, 2013.

(97)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 41 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on August 8, 2013.

(98)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 42 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on August 15, 2013.

(99)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 43 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on August 22, 2013.

(100)
Incorporated by reference to the corresponding exhibit number to the Registrant's pre-effective Registration Statement under the Securities Act, as amended, on Form N-2 (333-190850), filed on August 27, 2013.

(101)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 45 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on September 6, 2013.

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(102)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 46 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on September 12, 2013.

(103)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 47 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on September 19, 2013.

(104)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 48 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on September 26, 2013.

(105)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 49 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on October 3, 2013.

(106)
Incorporated by reference to the corresponding exhibit number to the Registrant's Post-Effective Amendment No. 50 to the Registration Statement under the Securities Act, as amended, on Form N-2 (File No. 333-183530), filed on October 10, 2013.

Filed herewith.

*
To be filed by amendment.

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ITEM 26.    MARKETING ARRANGEMENTS

        The information contained under the heading "Plan of Distribution" on this Registration Statement is incorporated herein by reference and any information concerning any underwriters will be contained in the accompanying prospectus supplement, if any.

ITEM 27.    OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION**

Commission registration fee

  $ 659,194  

NASDAQ Global Select Additional Listing Fees

    65,000  

Accounting fees and expenses

    500,000  

Legal fees and expenses

    1,000,000  

Printing and engraving

    500,000  

Miscellaneous fees and expenses

    100,000  
       

Total

  $ 2,824,194  
       

**
These amounts are estimates.

        All of the expenses set forth above shall be borne by the Company.

ITEM 28.    PERSONS CONTROLLED BY OR UNDER COMMON CONTROL

        As of June 30, 2013, the following list sets forth entities in which the Registrant owns a controlling interest, the state under whose laws the entity is organized, and the percentage of voting securities or membership interests owned by the Registrant in such entity. None of these entities are consolidated for purposes of financial reporting.

Name of Entity and Place of Jurisdiction
 
% of Voting Securities Owned
 

AMU Holdings, Inc. (Delaware)

    100.0 %

AIRMALL USA Holdings Inc. (Delaware)

    100.0 %

AIRMALL USA Inc. (Delaware)

    100.0 %

AIRMALL Boston Inc. (Delaware)

    100.0 %

AIRMALL Pittsburgh Inc. (Delaware)

    100.0 %

AIRMALL Maryland Inc. (Maryland)

    100.0 %

AIRMALL Cleveland Inc. (Delaware)

    100.0 %

ARRM Holdings Inc. (Delaware)

    100.0 %

Ajax Rolled Ring & Machine, LLC (Delaware)

    78.0 %

Borga, Inc. (California)

    100.0 %

Energy Solutions Holdings Inc. (Delaware)

    100.0 %

Change Clean Energy Holdings, LLC (Delaware)

    100.0 %

Change Clean Energy LLC (Delaware)

    100.0 %

DownEast Power Company, LLC (Delaware)

    100.0 %

Biochips, LLC (Maine)

    51.0 %

Yatesville Coal Holdings, LLC (Delaware)

    100.0 %

North Fork Collieries LLC (Delaware)

    100.0 %

Gas Solutions GP LLC (Delaware)

    100.0 %

Gas Solutions LP LLC (Delaware)

    100.0 %

Gas Solutions II Ltd. (Texas)

    100.0 %

Freedom Marine Holdings, LLC (Delaware)

    100.0 %

Vessel Holdings, LLC (Louisiana)

    100.0 %

Jettco Marine Services LLC (Delaware)

    100.0 %

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Name of Entity and Place of Jurisdiction
 
% of Voting Securities Owned
 

M.V. Gulf Endeavor L.L.C. (Louisiana)

    100.0 %

M.V. Clint L.L.C. (Louisiana)

    100.0 %

M.V. JF Jett L.L.C. (Louisiana)

    100.0 %

First Tower Holdings of Delaware LLC (Delaware)

    100.0 %

First Tower Holdings LLC (Mississippi)

    80.1 %

First Tower, LLC (Mississippi)

    80.1 %

First Tower Loan, LLC (Louisiana)

    80.1 %

Gulfco of Louisiana, LLC (Louisiana)

    80.1 %

Gulfco of Mississippi, LLC (Mississippi)

    80.1 %

Gulfco of Alabama, LLC (Alabama)

    80.1 %

Tower Loan of Illinois, LLC (Mississippi)

    80.1 %

Tower Loan of Mississippi, LLC (Mississippi)

    80.1 %

Tower Loan of Missouri, LLC (Mississippi)

    80.1 %

Tower Auto Loan, LLC (Mississippi)

    80.1 %

American Federated Holding Company (Mississippi)

    80.1 %

American Federated Insurance Company, Inc. (Mississippi)

    80.1 %

American Federated Life Insurance Company, Inc. (Mississippi)

    80.1 %

Integrated Contract Services, Inc. (Delaware)

    100.0 %

Manx Energy, Inc. (Delaware)*

    42.0 %

Kinley Exploration LLC (Kansas)*

    42.0 %

NMMB Holdings, Inc. (Delaware)

    100.0 %

NMMB Acquisition, Inc. (Delaware)

    83.5 %

MPM Holding, Inc. (Delaware)

    83.5 %

Armed Forces Communications, Inc. (New York)

    83.5 %

Wolf Energy Holdings Inc. (Delaware)

    100.0 %

Wolf Energy, LLC (Delaware)

    100.0 %

Coalbed, LLC (Delaware)

    100.0 %

Coalbed Pipelines, LLC (Delaware)

    100.0 %

Appalachian Energy Holdings LLC (Delaware)

    100.0 %

C & S Operating, LLC (Delaware)

    100.0 %

East Cumberland, L.L.C. (West Virginia)

    100.0 %

The Healing Staff, Inc. (Texas)

    100.0 %

R-V Industries, Inc. (Pennsylvania)

    88.3 %

STI Holding, Inc. (Delaware)

    100.0 %

Vets Securing America, Inc. (Delaware)

    100.0 %

APH Property Holdings, LLC (Delaware)

    100.0 %

American Property Holdings Corp. (Maryland)

    100.0 %

146 Forest Parkway, LLC (Delaware)

    100.0 %

1557 Terrell Mill Road, LLC (Delaware)

    92.6 %

5100 Live Oaks Blvd, LLC (Delaware)

    97.7 %

APH Carroll Resort, LLC (Delaware)

    95.0 %

ARIUM Resort, LLC (Delaware)

    95.0 %

Arlington Park Marietta, LLC (Delaware)

    93.3 %

Lofton Place, LLC (Delaware)

    93.2 %

Vista Palma Sola, LLC (Delaware)

    93.2 %

AWCNC, LLC (Delaware)

    100.0 %

CCPI Holdings, Inc. (Delaware)

    100.0 %

CCPI Inc. (Delaware)

    95.1 %

CCPI Europe Limited (England)

    95.1 %

Mefec B.V. (Netherlands)

    95.1 %

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Name of Entity and Place of Jurisdiction
 
% of Voting Securities Owned
 

Credit Central Holdings of Delaware, LLC (Delaware)

    100.0 %

Credit Central Holdings, LLC (South Carolina)

    74.8 %

Credit Central, LLC (South Carolina)

    74.8 %

Credit Central South, LLC (South Carolina)

    74.8 %

Credit Central of Tennessee, LLC (South Carolina)

    74.8 %

Credit Central of Texas, LLC (South Carolina)

    74.8 %

Nationwide Acceptance Holdings LLC (Delaware)

    100.0 %

Nationwide Acceptance LLC (Delaware)

    93.8 %

Hercules Insurance Agency LLC (Illinois)

    93.8 %

Nationwide CAC LLC (Illinois)

    93.8 %

Nationwide Cassel LLC (Illinois)

    93.8 %

Nationwide Installment Services LLC (Illinois)

    93.8 %

Nationwide Loans LLC (Illinois)

    93.8 %

Nationwide Nevada LLC (Illinois)

    93.8 %

Nationwide Northwest LLC (Illinois)

    93.8 %

Nationwide Southeast LLC (Illinois)

    93.8 %

Nationwide West LLC (Illinois)

    93.8 %

NIKO Credit Services LLC (Illinois)

    93.8 %

Valley Electric Holdings I, Inc. (Delaware)

    100.0 %

Valley Electric Holdings II, Inc. (Delaware)

    100.0 %

Valley Electric Co. of Mt. Vernon, Inc. (Washington)

    96.3 %

*
The Registrant has the right to vote a controlling interest of the voting securities of Manx Energy, Inc. pursuant to proxies.

        Prospect Capital Management LLC, a Delaware limited liability company, does not own any shares of the Registrant. Without conceding that Prospect Capital Management controls the Registrant, an affiliate of Prospect Capital Management is the general partner of, and may be deemed to control, the following entities:

Name
  Jurisdiction of
Organization

Prospect Street Ventures I, LLC

  Delaware

Prospect Management Group LLC

  Delaware

Prospect Street Broadband LLC

  Delaware

Prospect Street Energy LLC

  Delaware

Prospect Administration LLC

  Delaware

ITEM 29.    NUMBER OF HOLDERS OF SECURITIES

        The following table sets forth the approximate number of record holders of our common stock at October 10, 2013.

Title of Class
  Number of Record Holders

Common Stock, par value $.001 per share

  140

ITEM 30.    INDEMNIFICATION

        Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty established by a final judgment as being material to the

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cause of action. Our charter contains such a provision which eliminates directors' and officers' liability to the maximum extent permitted by Maryland law, subject to the requirements of the 1940 Act.

        Our charter authorizes us, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to obligate ourselves to indemnify any present or former director or officer or any individual who, while a director or officer and at our request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee, from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her service in any such capacity and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. Our bylaws obligate us, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to indemnify any present or former director or officer or any individual who, while a director or officer and at our request, serves or has served another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner, member, manager or trustee and who is made, or threatened to be made, a party to the proceeding by reason of his or her service in any such capacity from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her service in any such capacity and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. The charter and bylaws also permit us to indemnify and advance expenses to any person who served a predecessor of us in any of the capacities described above and any of our employees or agents or any employees or agents of our predecessor. In accordance with the 1940 Act, we will not indemnify any person for any liability to which such person would be subject by reason of such person's willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.

        Maryland law requires a corporation (unless its charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service in that capacity. Maryland law permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made, or threatened to be made, a party by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, under Maryland law, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis that a personal benefit was improperly received, unless in either case a court orders indemnification, and then only for expenses. In addition, Maryland law permits a corporation to advance reasonable expenses to a director or officer upon the corporation's receipt of (a) a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the standard of conduct was not met.

        The Investment Advisory Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, Prospect Capital Management LLC (the "Adviser") and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from the Company for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from the rendering of the

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Adviser's services under the Investment Advisory Agreement or otherwise as an Investment Adviser of the Company.

        The Administration Agreement provides that, absent willful misfeasance, bad faith or negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, Prospect Administration LLC and its officers, manager, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from the Company for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from the rendering of Prospect Administration LLC's services under the Administration Agreement or otherwise as administrator for the Company.

        The Administrator is authorized to enter into one or more sub-administration agreements with other service providers (each a "Sub-Administrator") pursuant to which the Administrator may obtain the services of the service providers in fulfilling its responsibilities hereunder. Any such sub-administration agreements shall be in accordance with the requirements of the 1940 Act and other applicable U.S. Federal and state law and shall contain a provision requiring the Sub-Administrator to comply with the same restrictions applicable to the Administrator.

ITEM 31.    BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

        A description of any other business, profession, vocation or employment of a substantial nature in which the Adviser, and each managing member, director or executive officer of the Adviser, is or has been during the past two fiscal years, engaged in for his or her own account or in the capacity of director, officer, employee, partner or trustee, is set forth in Part A of this Registration Statement in the section entitled "Management." Additional information regarding the Adviser and its officers and directors is set forth in its Form ADV, as filed with the Securities and Exchange Commission (SEC File No. 801-62969), and is incorporated herein by reference.

ITEM 32.    LOCATION OF ACCOUNTS AND RECORDS

        All accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940, and the rules thereunder are maintained at the offices of:

ITEM 33.    MANAGEMENT SERVICES

        Not Applicable.

ITEM 34.    UNDERTAKINGS

        1.     The Registrant undertakes to suspend the offering of shares until the prospectus is amended if (1) subsequent to the effective date of its registration statement, the net asset value declines more than ten percent from its net asset value as of the effective date of the registration statement; or (2) the net asset value increases to an amount greater than the net proceeds as stated in the prospectus.

        2.     The Registrant undertakes if the securities being registered are to be offered to existing stockholders pursuant to warrants or rights, and any securities not taken by stockholders are to be reoffered to the public, to supplement the prospectus, after the expiration of the subscription period, to set forth the results of the subscription offer, the transactions by underwriters during the subscription period, the amount of unsubscribed securities to be purchased by underwriters, and the terms of any

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subsequent reoffering thereof. If any public offering by the underwriters of the securities being registered is to be made on terms differing from those set forth on the cover page of the prospectus, we will file a post-effective amendment to set forth the terms of such offering.

        3.     The Registrant undertakes:

        4.     The Registrant undertakes that it will not sell any units consisting of combinations of securities that have not previously been described in a registration statement of the Registrant or an amendment thereto that was subject to review by the Commission and that subsequently became effective.

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SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form N-2 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, in the State of New York, on the 11th day of October 2013.

    PROSPECT CAPITAL CORPORATION

 

 

By:

 

/s/ JOHN F. BARRY III

John F. Barry III
Chief Executive Officer and Chairman of the
Board of Directors

        Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on October 11, 2013. This document may be executed by the signatories hereto on any number of counterparts, all of which constitute one and the same instrument.

Signature
 
Title

 

 

 

 

 
/s/ JOHN F. BARRY III

John F. Barry III
  Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)

/s/ M. GRIER ELIASEK

M. Grier Eliasek

 

Chief Operating Officer and Director

/s/ BRIAN H. OSWALD

Brian H. Oswald

 

Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)

/s/ WILLIAM J. GREMP*

William J. Gremp

 

Director

/s/ ANDREW C. COOPER*

Andrew C. Cooper

 

Director

/s/ EUGENE S. STARK*

Eugene S. Stark

 

Director

*By:

 

/s/ M. GRIER ELIASEK

M. Grier Eliasek,
as Attorney-in-Fact

 

 

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INDEX TO EXHIBITS

Exhibit No.   Description
(n)(1)   Consent of independent registered public accounting firm
(n)(2)   Report of independent registered public accounting firm on "Senior Securities" table