Prospect Capital
Annual Report 2016

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ýý oo ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2016 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 814-00659 PROSPECT CAPITAL CORPORATION (Exact name of Registrant as specified in its charter) Maryland (State or other jurisdiction of incorporation or organization) 10 East 40th Street, 42nd Floor New York, New York (Address of principal executive offices) 43-2048643 (I.R.S. Employer Identification No.) 10016 (Zip Code) Securities registered pursuant to Section 12(b) of the Act: Registrant’s telephone number, including area code: (212) 448-0702 Title of each class Name of each exchange on which registered Common Stock, par value $0.001 per share NASDAQ Global Select Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes o No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ý Accelerated filer o Non-accelerated filer o Smaller reporting company o (Do not check if a smaller reporting company) Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý The aggregate market value of the common equity held by non-affiliates of the Registrant as of December 31, 2015 was $2.382 billion (based on the closing price on that date of $6.98 on the NASDAQ Global Select Market). For the purposes of calculating this amount only, all executive officers and Directors are “affiliates” of the Registrant. As of August 26, 2016 , there were 357,724,896 shares of the Registrant’s common stock outstanding. Portions of the Registrant’s definitive Proxy Statement relating to the 2016 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission, are incorporated by reference in Part III of this Annual Report on Form 10-K to the extent described therein. Documents Incorporated by Reference Table of Contents Forward-Looking Statements PART I Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Item 3. Item 4. PART II Item 5. Item 6. Item 7. Properties Legal Proceedings Mine Safety Disclosures Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Item 9. Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Item 11. Item 12. Item 13. Item 14. Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services PART IV Item 15. Exhibits and Financial Statement Schedules Signatures Page 1 2 25 57 57 57 57 58 63 64 98 100 225 225 227 227 227 227 227 227 228 255 FORWARD-LOOKING STATEMENTS This report contains information that may constitute “forward-looking statements.” Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will” and similar expressions identify forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future—including statements relating to volume growth, share of sales and earnings per share growth, and statements expressing general views about future operating results—are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when 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, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part I, “Item 1A. Risk Factors” and elsewhere in this report and those described from time to time in our future reports filed with the Securities and Exchange Commission. The forward-looking statements contained in this report involve a number of risks and uncertainties, including statements concerning: • • • • • • • • • • • • • • • our future operating results; our business prospects and the prospects of our portfolio companies; the impact of investments that we expect to make; our contractual arrangements and relationships with third parties; the dependence of our future success on the general economy and its impact on the industries in which we invest; the ability of our portfolio companies to achieve their objectives; difficulty in obtaining financing or raising capital, especially in the current credit and equity environment; the level and volatility of prevailing interest rates and credit spreads, magnified by the current turmoil in the credit markets; adverse developments in the availability of desirable loan and investment opportunities whether they are due to competition, regulation or otherwise; a compression of the yield on our investments and the cost of our liabilities, as well as the level of leverage available to us; our regulatory structure and tax treatment, including our ability to operate as a business development company and a regulated investment company; the adequacy of our cash resources and working capital; the timing of cash flows, if any, from the operations of our portfolio companies; the ability of the Investment Adviser to locate suitable investments for us and to monitor and administer our investments; and authoritative generally accepted accounting principles or policy changes from such standard-setting bodies as the Financial Accounting Standards Board, the Securities and Exchange Commission, Internal Revenue Service, the NASDAQ Global Select Market, and other authorities that we are subject to, as well as their counterparts in any foreign jurisdictions where we might do business. 1 Item 1. Business PART I In this report, the terms “Prospect,” “we,” “us” and “our” mean Prospect Capital Corporation and all entities included in our consolidated financial statements, unless the context specifically requires otherwise. General Prospect Capital Corporation is a financial services company that primarily lends to and invests in middle market privately-held companies. We are a closed-end investment company incorporated in Maryland. We have elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). As a BDC, we have elected to be treated as a regulated investment company (“RIC”), under Subchapter M of the Internal Revenue Code of 1986 (the “Code”). We were organized on April 13, 2004 and were funded in an initial public offering completed on July 27, 2004. We are one of the largest BDCs with approximately $6.28 billion of total assets as of June 30, 2016 . We are externally managed by our investment adviser, Prospect Capital Management L.P. (“Prospect Capital Management” or the “Investment Adviser”). Prospect Administration LLC (“Prospect Administration” or the “Administrator”), a wholly-owned subsidiary of the Investment Adviser, provides administrative services and facilities necessary for us to operate. Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. We invest primarily in senior and subordinated debt and equity of private companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes. 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 nine 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, (7) investments in syndicated debt, (8) aircraft leasing and (9) online lending. We continue to evaluate other origination strategies in the ordinary course of business with no specific top-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 unsecured 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. Historically, this strategy has comprised approximately 50%-60% of our business, but more recently it is less than 50% 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. Historically, this strategy has comprised approximately 5%-15% of our business, but more recently it is less than 5% 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 enhanced 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, sub- prime 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 5%-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, 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 comprised approximately 10%-20% of our business. 2 Real Estate Investments – We make investments in real estate through our wholly-owned tax-efficient real estate investment trust (“REIT”) National Property REIT Corp. (“NPRC”), the surviving entity of the May 23, 2016 merger with American Property REIT Corp. (“APRC”) and United Property REIT Corp. (“UPRC”). 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. NPRC co-invests with established and experienced property managers that manage such properties after acquisition. This investment strategy has comprised approximately 5%-10% 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 comprised approximately 5%- 10% of our business. Aircraft Leasing – We invest in debt as well as equity in aircraft assets subject to commercial leases to credit-worthy airlines across the globe. These investments present attractive return opportunities due to cash flow consistency from long-lived assets coupled with hard asset collateral. We seek to deliver risk-adjusted returns with strong downside protection by analyzing relative value characteristics across the spectrum of aircraft types of all vintages. Our target portfolio includes both in-production and out-of-production jet and turboprop aircraft and engines, operated by airlines across the globe. This strategy comprised approximately 1% of our business. Online Lending – We make investments in loans originated by certain consumer loan and small and medium sized business (“SME”) loan facilitators. We purchase each loan in its entirety (i.e., a “whole loan”). The borrowers are consumers and SMEs. The loans are typically serviced by the facilitators of the loans. This investment strategy has comprised approximately 4%-7% of our business. We invest primarily in first and second lien secured loans and unsecured debt, which in some cases includes an equity component. First and second lien secured loans generally are senior debt instruments that rank ahead of unsecured 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. 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. 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 constantly 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. “Spin-Offs” of Certain Business Strategies We previously announced that we intend to unlock value by “spinning off” three “pure play” business strategies - our consumer online lending business, real estate business and structured credit business - to our shareholders in conjunction with rights offering capital raises in which existing Prospect shareholders could elect to participate in each offering or sell their rights. The goals of these “spin-offs” include leverage and earnings neutrality for Prospect. Our primary objective is to maximize the valuation of each offering (declining to proceed with any offering if we find any valuation not to be attractive). The size and likelihood of each of these dispositions, some of which are expected to be partial rather than complete spin-offs, remain to be determined, but we currently expect the collective size of these three dispositions, if any, to be 10% or less of our asset base. Any such dispositions cannot occur unless and until our application for exemptive relief is granted by the SEC. Should the SEC not grant our application for exemptive relief, these dispositions will not occur as initially planned. The consummation of any of the dispositions also depends upon, among other things: market conditions, regulatory and exchange listing approval, and sufficient investor demand. There can be no assurance that we will consummate any of these dispositions. 3 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 secured loans and unsecured debt, which in some cases includes an equity component. First and second lien secured loans generally are senior debt instruments that rank ahead of unsecured 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. 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. 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, aircraft leasing, 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, 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 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 debt investments to maturity or repayment, but will sell a debt 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 debt investment to be in our best interest. We have qualified and elected to be treated for U.S. federal income tax purposes as a 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, 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 Our portfolio is invested across 27 industry categories. Excluding our CLO investments, which do not have industry concentrations, no individual industry comprises more than 8.2% of the portfolio on either a cost or fair value basis. 4 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: • • • • • Assessment of success in adhering to the portfolio company’s business plan and compliance with covenants; Regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor to discuss financial position, requirements and accomplishments; Comparisons to other portfolio companies in the industry, if any; Attendance at and participation in board meetings of the portfolio company; and Review of monthly and quarterly financial statements and financial projections for the portfolio company. Investment Valuation To value our investments, we follow the guidance of ASC 820, Fair Value Measurement (“ASC 820”), that defines fair value, establishes a framework for measuring fair value in conformity with GAAP, and requires disclosures about fair value measurements. 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. ASC 820 classifies the inputs used to measure these fair values into the following hierarchy: Level 1 : Quoted prices in active markets for identical assets or liabilities, accessible by us at the measurement date. Level 2 : Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices. Level 3 : Unobservable inputs for the asset or liability. 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. 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. 1. Each portfolio company or investment is reviewed by our investment professionals with independent valuation firms engaged by our Board of Directors. 2. The independent valuation firms prepare independent valuations for each investment based on their own independent assessments and issues their report. 3. The Audit Committee of our Board of Directors reviews and discusses with the independent valuation firms the valuation reports, and then makes a recommendation to the Board of Directors of the value for each investment. 5 4. The Board of Directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser, the respective independent valuation firm and the Audit Committee. Our non-CLO investments are valued utilizing a yield analysis, enterprise value (“EV”) analysis, net asset value analysis, liquidation analysis, discounted cash flow analysis, or a combination of methods, as appropriate. The yield analysis uses loan spreads for loans, dividend yields for certain investments and other relevant information implied by market data involving identical or comparable assets or liabilities. Under the EV analysis, the EV of a portfolio company is first determined and allocated over the portfolio company’s securities in order of their preference relative to one another (i.e., “waterfall” allocation). To determine the EV, we typically use a market multiples approach that considers relevant and applicable market trading data of guideline public companies, transaction metrics from precedent merger and acquisitions transactions and/or a discounted cash flow analysis. The net asset value analysis is used to derive a value of an underlying investment (such as real estate property) by dividing a relevant earnings stream by an appropriate capitalization rate. For this purpose, we consider capitalization rates for similar properties as may be obtained from guideline public companies and/or relevant transactions. The liquidation analysis is intended to approximate the net recovery value of an investment based on, among other things, assumptions regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company’s assets. The discounted cash flow analysis uses valuation techniques to convert future cash flows or earnings to a range of fair values from which a single estimate may be derived utilizing an appropriate discount rate. The measurement is based on the net present value indicated by current market expectations about those future amounts. In applying these methodologies, additional factors that we consider in valuing our investments may include, as we deem relevant: security covenants, call protection provisions, and information rights; the nature and realizable value of any collateral; the portfolio company’s ability to make payments; the principal markets in which the portfolio company does business; publicly available financial ratios of peer companies; 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 as well as to determine an appropriate call date (i.e., expected maturity). For each CLO security, the most appropriate valuation approach has been chosen from alternative approaches to ensure the most accurate valuation for such security. To value a CLO, both the assets and the liabilities of the CLO capital structure are modeled. Our valuation agent utilizes additional methods to validate the results from the discounted cash flow method, such as Monte Carlo simulations of key model variables, analysis of relevant data observed in the CLO market, and review of certain benchmark credit indices. We use a waterfall engine to store the collateral data, generate collateral cash flows from the assets based on various assumptions for the risk factors, distribute the cash flows to the liability structure based on the payment priorities, and discount them back using appropriate market discount rates. 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. 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.” Managerial Assistance As a BDC, we are obligated under the 1940 Act to make available to certain of our portfolio companies significant managerial assistance. “Making available significant managerial assistance” refers to any arrangement whereby we provide significant guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company. We are also deemed to be providing managerial assistance to all portfolio companies that we control, either by ourselves or in conjunction with others. The nature and extent of significant managerial assistance provided by us to controlled and non-controlled portfolio companies will vary according to the particular needs of each portfolio company. Examples of such activities include (i) advice on recruiting, hiring, management and termination of employees, officers and directors, succession planning and other human resource matters; (ii) advice on capital raising, capital budgeting, and capital expenditures; (iii) advice on advertising, marketing, and sales; (iv) advice on fulfillment, operations, and execution; (v) advice on managing relationships with unions and other personnel organizations, financing sources, vendors, customers, lessors, lessees, lawyers, accountants, regulators and other important counterparties; (vi) evaluating acquisition and divestiture opportunities, plant expansions and closings, and market expansions; (vii) participating in audit committee, nominating committee, board and management meetings; (viii) consulting with and advising board members and officers of portfolio companies (on overall strategy and other matters); and (ix) providing other organizational, operational, managerial and financial guidance. Prospect Administration, when performing a managerial assistance agreement executed with each portfolio company to which we provide managerial assistance, arranges for the provision of such managerial assistance on our behalf. When doing so, Prospect 6 Administration utilizes personnel of our Investment Adviser. We, on behalf of Prospect Administration, invoice portfolio companies receiving and paying for managerial assistance, and we remit to Prospect Administration its cost of providing such services, including the charges deemed appropriate by our Investment Adviser for providing such managerial assistance. No income is recognized by Prospect. Investment Adviser Prospect Capital Management manages our investments as the Investment Adviser. Prospect Capital Management is a Delaware limited partnership that has been registered as an investment adviser under the Investment Advisers 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 our behalf. The principal executive offices of Prospect Capital Management are 10 East 40th Street, 42nd 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 (as defined below), 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. Investment Advisory Agreement Terms We have entered into an investment advisory and management agreement with the Investment Adviser, Prospect Capital Management L.P., (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. The Investment Adviser’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 total assets. 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 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). 7 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 Adviser an income incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows: • • • No incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate; 100.00% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 125.00% of the quarterly hurdle rate in any calendar quarter (8.75% annualized assuming a 7.00% annualized hurdle rate); and 20.00% of the amount of our pre-incentive fee net investment income, if any, that exceeds 125.00% of the quarterly hurdle rate in any calendar quarter (8.75% annualized assuming a 7.00% annualized hurdle rate). 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 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 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. Examples of Quarterly Incentive Fee Calculation Example 1: Income Incentive Fee* *The hypothetical amount of pre-incentive fee net investment income shown is based on a percentage of total net assets. Alternative 1 Assumptions • • • • • Investment income (including interest, dividends, fees, etc.) = 1.25% 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)) = 0.55% Pre-incentive net investment income does not exceed hurdle rate, therefore there is no income incentive fee. 8 Alternative 2 Assumptions • • • • • Investment income (including interest, dividends, fees, etc.) = 2.70% 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)) = 2.00% Pre-incentive net investment income exceeds hurdle rate, therefore there is an income incentive fee payable by us to the Investment Adviser. The Income Incentive Fee would be calculated as follows: = 100% × “Catch Up” + the greater of 0% AND (20% × (pre-incentive fee net investment income – 2.1875%) = (100% × (2.00% - 1.75%)) + 0% = 100% × 0.25% + 0% = 0.25% Alternative 3 Assumptions • • • • • Investment income (including interest, dividends, fees, etc.) = 3.00% 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% Pre-incentive net investment income exceeds hurdle rate, therefore there is an income incentive fee payable by us to the Investment Adviser. The Income Incentive Fee would be calculated as follows: = 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% (1) Represents 7% annualized hurdle rate. (2) Represents 2% annualized base management fee. (3) Excludes organizational and offering expenses. 9 Example 2: Capital Gains Incentive Fee Alternative 1 Assumptions • • • • Year 1: $20 million investment made Year 2: Fair market value (“FMV”) of investment determined to be $22 million Year 3: FMV of investment determined to be $17 million Year 4: Investment sold for $21 million The impact, if any, on the capital gains portion of the incentive fee would be: • • • • Year 1: No impact Year 2: No impact Year 3: Decrease base amount on which the second part of the incentive fee is calculated by $3 million (unrealized capital depreciation) Year 4: Increase base amount on which the second part of the incentive fee is calculated by $4 million ($1 million of realized capital gain and $3 million reversal in unrealized capital depreciation) Alternative 2 Assumptions • • • • • • Year 1: $20 million investment made Year 2: FMV of investment determined to be $17 million Year 3: FMV of investment determined to be $17 million Year 4: FMV of investment determined to be $21 million Year 5: FMV of investment determined to be $18 million Year 6: Investment sold for $15 million The impact, if any, on the capital gains portion of the incentive fee would be: • • • • • • Year 1: No impact Year 2: Decrease base amount on which the second part of the incentive fee is calculated by $3 million (unrealized capital depreciation) Year 3: No impact Year 4: Increase base amount on which the second part of the incentive fee is calculated by $3 million ( reversal in unrealized capital depreciation) Year 5: Decrease base amount on which the second part of the incentive fee is calculated by $2 million (unrealized capital depreciation) Year 6: Decrease base amount on which the second part of the incentive fee is calculated by $3 million ($5 million of realized capital loss offset by a $2 million reversal in unrealized capital depreciation) 10 Alternative 3 Assumptions • • • Year 1: $20 million investment made in company A (“Investment A”) and $20 million investment made in company B (“Investment B”) Year 2: FMV of Investment A is determined to be $21 million and Investment B is sold for $18 million Year 3: Investment A is sold for $23 million The impact, if any, on the capital gains portion of the incentive fee would be: • • • Year 1: No impact Year 2: Decrease base amount on which the second part of the incentive fee is calculated by $2 million (realized capital loss on Investment B) Year 3: Increase base amount on which the second part of the incentive fee is calculated by $3 million (realized capital gain on Investment A) Alternative 4 Assumptions • • • • • Year 1: $20 million investment made in company A (“Investment A”) and $20 million investment made in company B (“Investment B”) Year 2: FMV of Investment A is determined to be $21 million and FMV of Investment B is determined to be $17 million Year 3: FMV of Investment A is determined to be $18 million and FMV of Investment B is determined to be $18 million Year 4: FMV of Investment A is determined to be $19 million and FMV of Investment B is determined to be $21 million Year 5: Investment A is sold for $17 million and Investment B is sold for $23 million The impact, if any, on the capital gains portion of the incentive fee would be: • • • • • Year 1: No impact Year 2: Decrease base amount on which the second part of the incentive fee is calculated by $3 million (unrealized capital depreciation on Investment B) Year 3: Decrease base amount on which the second part of the incentive fee is calculated by $1 million ($2 million in unrealized capital depreciation on Investment A and $1 million recovery in unrealized capital depreciation on Investment B) Year 4: Increase base amount on which the second part of the incentive fee is calculated by $3 million ($1 million recovery in unrealized capital depreciation on Investment A and $2 million recovery in unrealized capital depreciation on Investment B) Year 5: Increase base amount on which the second part of the incentive fee is calculated by $1 million ($3 million realized capital gain on Investment B offset by $3 million realized capital loss on Investment A plus a $1 million reversal in unrealized capital depreciation on Investment A from Year 4) 11 Duration and Termination 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 June 21, 2016 for an additional one-year term expiring June 22, 2017. 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.” Indemnification 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 the Investment Adviser. Administration Agreement We have also entered into an administration agreement (the “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 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, 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 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 (see Managerial Assistance section below). 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. Our payments to Prospect Administration are periodically reviewed by our Board of Directors. Payment of Our Expenses All investment professionals of the Investment Adviser and its respective 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 firm); 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 12 other insurance premiums; direct costs and expenses of administration, including auditor and legal costs; and all other expenses incurred by us, by the 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 Financial Officer and Chief Compliance Officer and his staff. License Agreement We entered into a license agreement with Prospect Capital Management pursuant to which Prospect Capital Management agreed to grant us a non-exclusive, 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 the 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 the Investment Adviser is in effect. 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 under the direction of 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 perform a review of each debt and equity investment requiring fair valuation and provide a range of values for each investment, which, along with management’s valuation recommendations, is reviewed by our Audit Committee. Management and the independent valuation firms may adjust their preliminary evaluations to reflect comments provided by our Audit Committee. The Audit Committee reviews the final valuation reports 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 firms 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. 13 Dividend Reinvestment Plan We have adopted a dividend reinvestment and direct stock purchase plan that provides for reinvestment of our dividends or distributions on behalf of our stockholders, unless a stockholder elects to receive cash as provided below, and the ability to purchase additional shares by making optional cash investments. As a result, when our Board of Directors authorizes, and we declare, a cash dividend or distribution, then our stockholders who have not “opted out” of our dividend reinvestment and direct stock purchase plan will have their cash dividends or distributions automatically reinvested in additional shares of our common stock, rather than receiving the cash dividends or distributions. If you are not a current stockholder and want to enroll or have “opted out” and wish to rejoin, you may purchase shares directly through the plan or opt in by enrolling online or submitting to the plan administrator a completed enrollment form and, if you are not a current stockholder, making an initial investment of at least $250. No action is required on the part of a registered stockholder to have their cash dividend or distribution reinvested in shares of our common stock. A registered stockholder may elect to receive an entire dividend or distribution 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 will set up a dividend reinvestment account for shares acquired pursuant to the plan for each stockholder who has not so elected to receive dividends and distributions in cash or who has enrolled in the plan as described herein (each, a “Participant”). The plan administrator will hold each Participant’s shares, together with the shares of other Participants, in non-certificated form in the plan administrator’s name or that of its nominee. Upon request by a Participant to terminate their participation in the plan, received in writing, via the internet or the plan administrator’s toll free number no later than 3 business days prior to a dividend or distribution payment date, such dividend or distribution will be paid out in cash and not be reinvested. If such request is received fewer than 3 business days prior to a dividend or distribution payment date, such dividend or distribution will be reinvested but all subsequent dividends and distributions will be paid to the stockholder in cash on all balances. Upon such termination of the Participant’s participation in the plan, all whole shares owned by the Participant will be issued to the Participant in certificated form and a check will be issued to the Participant for the proceeds of fractional shares less a transaction fee of $15. Those stockholders whose shares are held by a broker or other financial intermediary may receive dividends or distributions in cash by notifying their broker or other financial intermediary of their election. We primarily use newly-issued shares to implement reinvestment of dividends and distributions under 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 the implementation of reinvestment of dividends or distributions under the plan. The number of shares to be issued to a stockholder is determined by dividing the total dollar amount of the dividend or distribution 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 last business day before the payment date for such dividend or distribution. 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 or distribution 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 and distributions 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 or distribution payable to a stockholder. There are no brokerage charges or other charges to stockholders who participate in reinvestment of dividends or distributions under 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 or 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 dividends or distributions in cash. A stockholder’s basis for determining gain or loss upon the sale of stock received in a dividend or distribution from us will be equal to the total dollar amount of the dividend or distribution payable to the stockholder. Any stock received in a dividend or distribution 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 (as defined below). Participants in the plan have the option of making additional cash payments to the plan administrator for investment in the shares at the then current market price. Such payments may be made in any amount from $25 to $10,000 per transaction. Participants in the plan may also elect to have funds electronically withdrawn from their checking or savings account each month. Direct debit of cash will be performed on the 10th of each month. Participants may elect this option by submitting a written authorization form or by enrolling online at the plan administrator’s website. The plan administrator will use all funds received from participants 14 since the prior investment of funds to purchase shares of our common stock in the open market. We will not use newly-issued shares of our common stock to implement such purchases. Purchase orders will be submitted daily. The Plan Administrator may, at its discretion, submit purchase orders less frequently but no later than 30 days after receipt. The plan administrator will charge each stockholder who makes such additional cash payments $2.50, plus a $0.10 per share brokerage commission. Cash dividends and distributions payable on all shares credited to your plan account will be automatically reinvested in additional shares pursuant to the terms of the plan. Brokerage charges for some purchases are expected to be less than the usual brokerage charge for such transactions. Instructions sent by a participant to the plan administrator in connection with such participant’s cash payment may not be rescinded. 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. Upon termination, the stockholder will receive certificates for the full shares credited to your plan account. If you elect to receive cash, the plan administrator sells such shares and delivers a check for the proceeds, less the $0.10 per share commission and the plan administrator’s transaction fee of $15. In every case of termination, fractional shares credited to a terminating plan account are paid in cash at the then-current market price, less any commission and transaction fee. 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 or distribution pursuant to any additional cash payment made. All correspondence concerning the plan should be directed to the plan administrator by mail at American Stock Transfer and Trust Company LLC, 6201 15th Avenue, Brooklyn, New York 11219, or by telephone at 888-888-0313. 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 and direct stock purchase 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 or distribution reinvested in shares of our common stock by the plan administrator. 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 assumes that investors hold our common stock as capital assets (within the meaning of the Code). The discussion is based upon the Code, Treasury regulations, and administrative and judicial interpretations, each as of the date of this report and all of which are subject to change, possibly retroactively, which could affect the continuing validity of this discussion. This summary does not discuss any aspects of U.S. estate or gift tax or foreign, state or local tax. It does not discuss the special treatment under U.S. federal income tax laws that could result if we invested in tax-exempt securities or certain other investment assets. A “U.S. Stockholder” is a beneficial owner of shares of our common stock that is for U.S. federal income tax purposes: • • • • A citizen or individual resident of the United States; A corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any state thereof or the District of Columbia; An estate, the income of which is subject to U.S. federal income taxation regardless of its source; or A trust if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) it has a valid election in place to be treated as a U.S. person. 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. 15 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 advisor 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. 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: • • • Qualify to be treated as a business development company or be registered as a management investment company under the 1940 Act at all times during each taxable year; Derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock or other securities or currencies or other income derived with respect to our business of investing in such stock, securities or currencies and net income derived from an interest in a “qualified publicly traded partnership” (as defined in the Code) (the “90% Income Test”); and Diversify our holdings so that at the end of each quarter of the taxable year: ◦ ◦ At least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets and more than 10% of the outstanding voting securities of the issuer (which for these purposes includes the equity securities of a “qualified publicly traded partnership”); and No more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities of other RICs, (i) of one issuer (ii) of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or (iii) of one or more “qualified publicly traded partnerships,” (the “Diversification Tests”). 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 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 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. federal income tax, and could result in a reduced after-tax yield on the portion of our assets held by such corporation. 16 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 income or capital gain not distributed (or deemed distributed) to our stockholders. Any undistributed taxable income is subject to U.S. federal income tax. We will be subject to a 4% non-deductible U.S. federal excise tax on certain undistributed income of RICs unless we distribute in a timely manner an amount at least equal to the sum of (i) 98% of our ordinary income recognized during the calendar year, (ii) 98.2% of our capital gain net income, as defined by the Code, recognized for the one year period ending October 31 in that calendar year and (iii) any income recognized, but not distributed, in preceding years. 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. See “Regulation as a Business Development Company – Senior Securities.” 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. On September 16, 2015, we received a private letter ruling from the Internal Revenue Service (the “IRS”) permitting us to pay up to 80% of our required dividends in stock for the tax years ending August 31, 2016 and August 31, 2017. Any dividends paid in stock will be taxable to the shareholder as if the dividend had been paid in cash and we will receive a dividend paid deduction for such distribution. 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 shareholders 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 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 17 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 or 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 his, her or 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 his, her or 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 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 a stockholder’s liability for U.S. federal income tax. A 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 his, her or 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 18 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 make available 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 basis, the amounts includible in such U.S. Stockholder’s taxable income for such year as ordinary income and as long-term capital gain on form 1099-DIV. In addition, the amount and the U.S. federal tax status of each year’s distributions generally will be 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. We generally are not required to withhold federal tax for distributions to non-U.S. stockholders if (i) the distributions are properly reported to our stockholders as “interest-related dividends” or “short-term capital gain dividends,” (ii) the distributions are derived from sources specified in the Code for such dividends and (iii) certain other requirements were satisfied. However, 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 United States 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 realized 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 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 19 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. Foreign Account Tax Compliance Act In addition, after June 30, 2014, withholding at a rate of 30% will be required on interest and dividends, and after December 31, 2018, 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 IRS. 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 for qualified 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. Regulation as a Business Development Company General We are a closed-end, non-diversified investment company that has filed an election to be treated as a BDC 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), 20 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 of 1933. 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, foreign currency 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 regulated 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: 1. Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An “eligible portfolio company” is defined in the 1940 Act and rules adopted pursuant thereto as any issuer which: a. b. is organized under the laws of, and has its principal place of business in, the United States; is not an investment company (other than a small business investment company wholly owned by the business development company) or a company that would be an investment company but for certain exclusions under the 1940 Act for certain financial companies such as banks, brokers, commercial finance companies, mortgage companies and insurance companies; and c. satisfies any of the following: i. ii. does not have any class of securities with respect to which a broker or dealer may extend margin credit; is controlled by a business development company or a group of companies including a business development company and the business development company has an affiliated person who is a director of the eligible portfolio company; iii. is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million; iv. does not have any class of securities listed on a national securities exchange; or v. has a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding voting and non-voting common equity of less than $250 million. 2. Securities in companies that were eligible portfolio companies when we made our initial investment if certain other requirements are satisfied. 3. Securities of any eligible portfolio company which we control. 21 4. Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing agreements. 5. Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company. 6. Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities. 7. Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment. 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” refers to any arrangement whereby we provide significant guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company. We are also deemed to be providing managerial assistance to all portfolio companies that we control, either by ourselves or in conjunction with others. The nature and extent of significant managerial assistance provided by us will vary according to the particular needs of each portfolio company. Examples of such activities include advice on marketing, operations, fulfillment and overall strategy, capital budgeting, managing relationships with financing sources, recruiting management personnel, evaluating acquisition and divestiture opportunities, participating in board and management meetings, consulting with and advising officers of portfolio companies, and providing other organizational and financial guidance. We provide significant managerial assistance to all portfolio companies that we control, either by ourselves or in conjunction with others. Prospect Administration provides such managerial assistance on our behalf to portfolio companies, including controlled companies, when we are required to provide this assistance, utilizing personnel from Prospect Capital Management. 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. The 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 one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. 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 – Risks Relating to Our Securities.” 22 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.” Compliance Policies and Procedures We and the 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. 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: Elections of directors. In general, Prospect Capital Management will vote in favor of the management-proposed slate of directors. If there is a proxy fight for seats on the Board of Directors or Prospect Capital Management determines that there are other compelling reasons for withholding votes for directors, the Proxy Voting Committee will determine the appropriate vote on the matter. Prospect Capital Management believes that directors have a duty to respond to stockholder actions that have received significant stockholder support. Prospect Capital Management may withhold votes for directors that fail to act on key issues such as failure to implement proposals to declassify boards, failure to implement a majority vote requirement, failure to submit a rights plan to a stockholder vote and failure to act on tender offers where a majority of stockholders have tendered their shares. Finally, Prospect Capital Management may withhold votes for directors of non-U.S. issuers where there is insufficient information about the nominees disclosed in the proxy statement. Appointment of auditors. Prospect Capital Management believes that the company remains in the best position to choose the auditors and will generally support management’s recommendation. Changes in capital structure. Changes in a company’s charter, articles of incorporation or by-laws may be required by state or U.S. federal regulation. In general, Prospect Capital Management will cast its votes in accordance with the company’s management on such proposal. However, the Proxy Voting Committee will review and analyze on a case-by-case basis any proposals regarding changes in corporate structure that are not required by state or U.S. federal regulation. Corporate restructurings, mergers and acquisitions. Prospect Capital Management believes proxy votes dealing with corporate reorganizations are an extension of the investment decision. Accordingly, the Proxy Voting Committee will analyze such proposals on a case-by-case basis. 23 Proposals affecting the rights of stockholders. Prospect Capital Management will generally vote in favor of proposals that give stockholders a greater voice in the affairs of the company and oppose any measure that seeks to limit those rights. However, when analyzing such proposals, Prospect Capital Management will weigh the financial impact of the proposal against the impairment of the rights of stockholders. Corporate governance. Prospect Capital Management recognizes the importance of good corporate governance in ensuring that management and the Board of Directors fulfill their obligations to the stockholders. Prospect Capital Management favors proposals promoting transparency and accountability within a company. Anti-takeover measures. The Proxy Voting Committee will evaluate, on a case-by-case basis, proposals regarding anti-takeover measures to determine the measure’s likely effect on stockholder value dilution. Stock splits. Prospect Capital Management will generally vote with the management of the company on stock split matters. Limited liability of directors. Prospect Capital Management will generally vote with management on matters that would affect the limited liability of directors. Social and corporate responsibility. The Proxy Voting Committee may review and analyze on a case-by-case basis proposals relating to social, political and environmental issues to determine whether they will have a financial impact on stockholder value. Prospect Capital Management may abstain from voting on social proposals that do not have a readily determinable financial impact on stockholder value. Proxy voting procedures. Prospect Capital Management will generally vote proxies in accordance with these guidelines. In circumstances in which (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, the Proxy Voting Committee will vote the proxy. Proxy voting committee. Prospect Capital Management has formed a proxy voting committee to establish general proxy policies and consider specific proxy voting matters as necessary. In addition, members of the committee may contact the management of the company and interested stockholder groups as necessary to discuss proxy issues. Members of the committee will include relevant senior personnel. The committee may also evaluate proxies where we face a potential conflict of interest (as discussed below). Finally, the committee monitors adherence to guidelines, and reviews the policies contained in this statement from time to time. Conflicts of interest. Prospect Capital Management recognizes that there may be a potential conflict of interest when it votes a proxy solicited by an issuer that is its advisory client or a client or customer of one of our affiliates or with whom it has another business or personal relationship that may affect how it votes on the issuer’s proxy. Prospect Capital Management believes that adherence to these policies and procedures ensures that proxies are voted with only its clients’ best interests in mind. To ensure that its votes are not the product of a conflict of interests, Prospect Capital Management requires that: (i) anyone involved in the decision making process (including members of the Proxy Voting Committee) disclose to the chairman of the Proxy Voting Committee any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote; and (ii) employees involved in the decision making process or vote administration are prohibited from revealing how Prospect Capital Management intends to vote on a proposal in order to reduce any attempted influence from interested parties. Proxy voting. Each account’s custodian will forward all relevant proxy materials to Prospect Capital Management, either electronically or in physical form to the address of record that Prospect Capital Management has provided to the custodian. Proxy recordkeeping. Prospect Capital Management must retain the following documents pertaining to proxy voting: • • • • • copies of its proxy voting policies and procedures; copies of all proxy statements; records of all votes cast by Prospect Capital Management; copies of all documents created by Prospect Capital Management that were material to making a decision how to vote proxies or that memorializes the basis for that decision; and copies of all written client requests for information with regard to how Prospect Capital Management voted proxies on behalf of the client as well as any written responses provided. 24 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, 42nd 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 of 2002 also requires us to continually review our policies and procedures to ensure that we remain in compliance with all rules promulgated thereunder. Available Information 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”). This information is available free of charge by contacting us at (212) 448-0702 or on our website at www.prospectstreet.com . Information contained on our website is not incorporated into this Annual Report and you should not consider such information to be part of this Annual Report. You also may inspect and copy these reports, proxy statements and other information, as well as the Annual Report and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street NE, Washington, D.C. 20549. Such information is also available from the EDGAR database on the SEC’s website at http://www.sec.gov . You also can obtain copies of such information, after paying a duplicating fee, by sending a request by e-mail to publicinfo@sec.gov or by writing the SEC’s Public Reference Branch, Office of Consumer Affairs and Information Services, Securities and Exchange Commission, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC at (202) 551-8090 or (800) SEC-0330. Item 1A. Risk Factors You should carefully consider the risks described below, together with all of the other information included in this Annual Report, 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 occurs, 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. Our $167.5 million of 5.50% convertible notes due 2016 are referred to as the 2016 Notes. Our $129.5 million of 5.375% convertible notes due 2017 are referred to as the 2017 Notes. Our $200.0 million of 5.75% convertible notes due 2018 are referred to as the 2018 Notes. Our $200.0 million of 5.875% convertible notes due 2019 are referred to as the 2019 Notes. Our $392.0 million of 4.75% convertible notes due 2020 are referred to as the 2020 Notes, and collectively with the 2016 Notes, the 2017 Notes, the 2018 Notes and the 2019 Notes, are the Convertible Notes. Our $250.0 million of 5.875% unsecured notes due 2023 are referred to as the 2023 Notes. Our $161.4 million of 6.25% unsecured notes due 2024 are referred to as the 2024 Notes. Our $300.0 million of 5.00% unsecured notes due 2019 are referred to as the 5.00% 2019 Notes, and collectively with the 2023 Notes, the 2024 Notes, are the Public Notes. Any corporate notes issued pursuant to our medium term notes program with Incapital LLC are referred to as Prospect Capital InterNotes®. 25 Risks Relating to Our Business Capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect debt and equity capital markets in the United States and abroad, which may have a negative impact on our business and operations. From time to time, capital markets may experience periods of disruption and instability. For example, between 2007 and 2009, the global capital markets experienced an extended period of disruption as evidenced by a lack of liquidity in the debt capital markets, write-offs in the financial services sector, the re-pricing of credit risk and the failure of certain major financial institutions. Despite actions of the United States federal government and foreign governments, 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 the adverse effects of these conditions have abated to a degree, global financial markets experienced significant volatility following the downgrade by Standard & Poor’s on August 5, 2011 of the long-term credit rating of U.S. Treasury debt from AAA to AA+. These market conditions have historically and could again have a material adverse effect on debt and equity capital markets in the United States and Europe, which could have a materially negative impact on our business, financial condition and results of operations. We and other companies in the financial services sector may have to access, if available, alternative markets for debt and equity capital. In such circumstances, 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 general approval by our stockholders, which we currently have, and approval of the specific issuance by our Board of Directors. In addition, our ability to incur indebtedness or issue preferred stock is limited by applicable regulations such that our asset coverage, as defined in the 1940 Act, must equal at least 200% immediately after each time we incur indebtedness or issue preferred stock. The debt capital that may be available, if at all, may be at a higher cost and on less favorable terms and conditions in the future. Any inability to raise capital could have a negative effect on our business, financial condition and results of operations. Market conditions may in the future make it difficult to extend the maturity of or refinance our existing indebtedness, including the final maturity of our credit facility in March 2019, and any failure to do so could have a material adverse effect on our business. The illiquidity of our investments may make it difficult for us to sell such investments if required. As a result, we may realize significantly less than the value at which we have recorded our investments. 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 capital. We may in the future have difficulty accessing debt and equity capital, and a severe disruption in the global financial markets or deterioration in credit and financing conditions could have a material adverse effect on our business, financial condition and results of operations. In addition, significant changes in the capital markets, including the extreme volatility and disruption, have 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. An inability to raise capital, and any required sale of our investments for liquidity purposes, could have a material adverse impact on our business, financial condition or results of operations. The Investment Adviser does 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. The Investment Adviser monitors 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 the Investment Adviser 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 are required to record certain of our assets at fair value, as determined in good faith by our Board of Directors in accordance with our valuation policy. As a result, volatility in the capital markets may have a material adverse effect on our investment valuations and our net asset value, even if we plan to hold investments to maturity. 26 The downgrade of the U.S. credit rating and economic crisis in Europe could negatively impact our business, financial condition and earnings. Although U.S. lawmakers passed legislation to raise the federal debt ceiling and Standard & Poor’s Ratings Services affirmed its AA+ long-term sovereign credit rating on the United States and revised the outlook on the long-term rating from negative to stable in June of 2013, U.S. debt ceiling and budget deficit concerns together with signs of deteriorating sovereign debt conditions in Europe continue to present the possibility of a credit-rating downgrade, economic slowdowns, or a recession for the United States. The impact of any further downgrades to the U.S. government’s sovereign credit rating or downgraded sovereign credit ratings of European countries or the Russian Federation, or their perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions. These developments, along with any further European sovereign debt issues, could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms. Continued adverse economic conditions could have a material adverse effect on our business, financial condition and results of operations. In October 2014, the Federal Reserve announced that it was concluding its bond-buying program. It is unknown what effect, if any, the conclusion of this program will have on credit markets and the value of our investments. These and any future developments and reactions of the credit markets toward these developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to obtain debt financing on favorable terms. Additionally, in January 2015, the Federal Reserve reaffirmed its view that the current target range for the federal funds rate was appropriate based on current economic conditions. However, if key economic indicators, such as the unemployment rate or inflation, do not progress at a rate consistent with the Federal Reserve’s objectives, the target range for the federal funds rate may increase and cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms. Rising interest rates may adversely affect the value of our portfolio investments which could have an adverse effect on our business, financial condition and results of operations. Our debt investments may be based on floating rates, such as London Interbank Offer Rate (“LIBOR”), EURIBOR, the Federal Funds Rate or the Prime Rate. General interest rate fluctuations may have a substantial negative impact on our investments, the value of our common stock and our rate of return on invested capital. A reduction in the interest rates on new investments relative to interest rates on current investments could also have an adverse impact on our net interest income. An increase in interest rates could decrease the value of any investments we hold which earn fixed interest rates, including subordinated loans, senior and junior secured and unsecured debt securities and loans and high yield bonds, and also could increase our interest expense, thereby decreasing our net income. Also, an increase in interest rates available to investors could make investment in our common stock less attractive if we are not able to increase our dividend rate, which could reduce the value of our common stock. Because we have borrowed money, and may issue preferred stock to finance investments, our net investment income depends, in part, upon the difference between the rate at which we borrow funds or pay distributions on preferred stock and the rate that our investments yield. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds would increase except to the extent we have issued fixed rate debt or preferred stock, which could reduce our net investment income. You should also be aware that a change in the general level of interest rates can be expected to lead to a change in the interest rate we receive on many of our debt investments. Accordingly, a change in the interest rate could make it easier for us to meet or exceed the performance threshold and may result in a substantial increase in the amount of incentive fees payable to our Investment Adviser with respect to the portion of the Incentive Fee based on income. Changes relating to the LIBOR calculation process may adversely affect the value of our portfolio of LIBOR-indexed, floating-rate debt securities. In the recent past, concerns have been publicized that some of the member banks surveyed by the British Bankers’ Association (“BBA”) in connection with the calculation of LIBOR across a range of maturities and currencies may have been under-reporting or otherwise manipulating the inter-bank lending rate applicable to them in order to profit on their derivatives positions or to avoid an appearance of capital insufficiency or adverse reputational or other consequences that may have resulted from reporting inter-bank lending rates higher than those they actually submitted. A number of BBA member banks entered into settlements with their regulators and law enforcement agencies with respect to alleged manipulation of LIBOR, and investigations by regulators and governmental authorities in various jurisdictions are ongoing. 27 Actions by the BBA, regulators or law enforcement agencies as a result of these or future events, may result in changes to the manner in which LIBOR is determined. Potential changes, or uncertainty related to such potential changes may adversely affect the market for LIBOR-based securities, including our portfolio of LIBOR-indexed, floating-rate debt securities. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based securities or the value of our portfolio of LIBOR-indexed, floating-rate debt securities. Volatility in the global financial markets resulting from relapse of the Eurozone crisis, geopolitical developments in Eastern Europe, turbulence in the Chinese stock markets and global commodity markets, the United Kingdom’s vote to leave the European Union or otherwise could have a material adverse effect on our business, financial condition and results of operations. Volatility in the global financial markets could have an adverse effect on the economic recovery in the United States and could result from a number of causes, including a relapse in the Eurozone crisis, geopolitical developments in Eastern Europe, turbulence in the Chinese stock markets and global commodity markets or otherwise. The effects of the Eurozone crisis, which began in late 2009 as part of the global economic and financial crisis, continued to impact the global financial markets through 2015. Numerous factors continued to fuel the Eurozone crisis, including continued high levels of government debt, the undercapitalization and liquidity problems of many banks in the Eurozone and relatively low levels of economic growth. These factors made it difficult or impossible for some countries in the Eurozone, including Greece, Ireland and Portugal, to repay or refinance their debt without the assistance of third parties. As a combination of austerity programs, debt write-downs and the European Central Bank’s commitment to restore financial stability to the Eurozone and the finalization of the primary European Stability Mechanism bailout fund, in 2013 and into 2014 interest rates began to fall and stock prices began to increase. Although these trends helped to stabilize the effects of the Eurozone crisis in the first half of 2014, the underlying causes of the crisis were not completely eliminated. As a result, the financial markets relapsed toward the end of 2014. In particular, Greece’s newly elected government, which campaigned against austerity measures, has been unable to reach an acceptable solution to the country’s debt crisis with the European Union, and in June 2015, Greece failed to make a scheduled debt repayment to the International Monetary Fund, falling into arrears. Following further unsuccessful negotiations between the government of Greece and the European Union to solve the Greek debt crisis, on July 5, 2015, Greek voters rejected a bailout package submitted by the European Commission, the European Central Bank and the International Monetary Fund, and while the European Central Bank continues to extend credit to Greece, it is uncertain how long such support will last, whether Greece will receive and accept any future bailout packages and whether Greece will default on future payments. The result of continued defaults and the removal of credit support for Greek banks may cause Greece to exit the European Union, which could lead to significant economic uncertainty and abandonment of the Euro common currency, resulting in destabilization in the financial markets. Continued financial instability in Greece and in other similarly situated Eurozone countries could have a continued contagion effect on the financial markets. Stock prices in China have experienced a significant drop in the second quarter of 2015, resulting primarily from continued sell-off of shares trading in Chinese markets. The volatility has been followed by volatility in stock markets around the world, including in the United States, as well as increased turbulence in commodity markets, such as reductions in prices of crude oil. Although the Chinese government has already taken steps to halt the collapse, it is uncertain what effect such measures will have, if any. Continued sell-off and price drops in the Chinese stock markets may have a contagion effect across the financial markets. In addition, Russian intervention in Ukraine during 2014 significantly increased regional geopolitical tensions. In response to Russian actions, U.S. and European governments have imposed sanctions on a limited number of Russian individuals and business entities. The situation remains fluid with potential for further escalation of geopolitical tensions, increased severity of sanctions against Russian interests, and possible Russian counter-measures. Further economic sanctions could destabilize the economic environment and result in increased volatility. On June 23, 2016, voters in the United Kingdom referendum (the “Referendum”) on the question of whether to remain or leave the European Union voted in a majority in favor of leaving the European Union (“Brexit”). This historic event is widely expected to have consequences that are both profound and uncertain for the economic and political future of the United Kingdom and the European Union, and those consequences include significant legal and business uncertainties pertaining to our investments. Due to the very recent occurrence of Brexit, the full scope and nature of the consequences are not at this time known and are unlikely to be known for a significant period of time. However, Brexit has led to significant uncertainty in the business, legal and political environment. Risks associated with the outcome of the Referendum include short and long term market volatility and currency volatility (including volatility of the value of the British pound sterling relative to the United States dollar and other currencies and volatility in global currency markets generally), macroeconomic risk to the United Kingdom and European economies, impetus for further disintegration of the European Union and related political stresses (including those related to sentiment against cross border capital movements and activities of investors like us), prejudice to financial services businesses that are conducting business in the European Union and which are based in the United Kingdom, legal uncertainty regarding achievement of compliance with applicable financial and commercial laws and regulations in view of the expected steps to be taken pursuant to or in contemplation of Article 50 of the Treaty on European Union and negotiations undertaken under Article 218 of the Treaty on the Functioning of the European Union, and the unavailability of 28 timely information as to expected legal, tax and other regimes. Should the economic recovery in the United States be adversely impacted by increased volatility in the global financial markets caused by continued contagion from the Eurozone crisis, developments in respect of the Russian sanctions, further turbulence in Chinese stock markets and global commodity markets, Brexit or for any other reason, loan and asset growth and liquidity conditions at U.S. financial institutions, including us, may deteriorate. 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. 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 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 1940 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. 29 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. 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 level of structuring fees received, 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, 2016 and our NAV when calculated effective September 30, 2016 and thereafter may be higher or lower. Our NAV per share is $9.62 as of June 30, 2016. NAV per share as of September 30, 2016 may be higher or lower than $9.62 based on potential changes in valuations, issuances of securities, repurchases 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, 2016. 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. 30 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. 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, we will reverse the interest that was recorded but Prospect Capital Management is not required to reimburse us for any such income incentive fee payments that were received in the past but would reduce the current period incentive fee for the effects of the reversal, if any. 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. 31 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 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. 32 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 the profitability 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. 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. If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock. Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or the subsequent testing by our independent registered public accounting firm (when undertaken, as noted below), may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our consolidated financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors and lenders to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. We face cyber-security risks. Our business operations rely upon secure information technology systems for data processing, storage and reporting. Despite careful security and controls design, implementation and updating, our information technology systems could become subject to cyber-attacks. Network, system, application and data breaches could result in operational disruptions or information misappropriation, which could have a material adverse effect on our business, results of operations and financial condition. The failure in cyber-security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning, could impair our ability to conduct business effectively. The occurrence of a disaster such as a cyber-attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated in our disaster recovery systems, or a support failure from external providers, could have an adverse effect on our ability to conduct business and on our results of operations and financial condition, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems or destroy data. If a significant number of our managers were unavailable in the event of a disaster, our ability to effectively conduct our business could be severely compromised. 33 We depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of security measures, our computer systems could be subject to cyber-attacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering. Like other companies, we may experience threats to our data and systems, including malware and computer virus attacks, unauthorized access, system failures and disruptions. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss. We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends. Our business is dependent on our and third parties’ communications and information systems. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems in our activities. Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and adversely affect our business. There could be: • • • • • sudden electrical or telecommunications outages; natural disasters such as earthquakes, tornadoes and hurricanes; disease pandemics; events arising from local or larger scale political or social matters, including terrorist acts; and cyber-attacks. These events, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay dividends to our stockholders. 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 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 Code and obtain RIC tax treatment, we must meet certain source of income, annual distribution and asset diversification 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. 34 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 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 “Business – 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. 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 “Business – 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 Unsecured 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. 35 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 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 or interests from other pools 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 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. 36 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. 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. 37 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. Declines in prices and liquidity in the corporate debt markets experienced during a financial crisis will result in significant net unrealized depreciation in our portfolio. The effect of all of these factors on our portfolio will reduce our NAV by increasing net unrealized depreciation in our portfolio. Depending on market conditions, we could incur substantial realized losses 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, 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: • • • • • These companies may have limited financial resources and may be unable to meet their obligations under their securities that we hold, which may be accompanied by a deterioration in the value of their securities or of any collateral with respect to any securities and a reduction in the likelihood of our realizing on any guarantees we may have obtained in connection with our investment. They may have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns. Because many of these companies are privately held companies, public information is generally not available about these companies. As a result, we will depend on the ability of the Investment Adviser to obtain adequate information to evaluate these companies in making investment decisions. If the Investment Adviser is unable to uncover all material information about these companies, it may not make a fully informed investment decision, and we may lose money on our investments. They are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a materially adverse impact on our portfolio company and, in turn, on us. They may have less predictable operating results, may from time to time be parties to litigation, may be engaged in changing businesses with products subject to a risk of obsolescence and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. 38 • • • They may have difficulty accessing the capital markets to meet future capital needs. Changes in laws and regulations, as well as their interpretations, may adversely affect their business, financial structure or prospects. Increased taxes, regulatory expense or the costs of changes to the way they conduct business due to the effects of climate change may adversely affect their business, financial structure or prospects. We acquire majority interests in operating companies engaged in a variety of industries. When we acquire these companies we generally seek to apply financial leverage to them in the form of debt. In most cases all or a portion of this debt is held by us, with the obligor being either the operating company itself, a holding company through which we own our majority interest or both. The level of debt leverage utilized by these companies makes them susceptible to the risks identified above. 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 has significantly more volatility in those returns and may significantly underperform 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: • • Any equity investment we make in a portfolio company could be subject to further dilution as a result of the issuance of additional equity interests and to serious risks as a junior security that will be subordinate to all indebtedness (including trade creditors) or senior securities in the event that the issuer is unable to meet its obligations or becomes subject to a bankruptcy process. To the extent that the portfolio company requires additional capital and is unable to obtain it, we may not recover our investment. 39 • In some cases, equity securities in which we invest will not pay current dividends, and our ability to realize a return on our investment, as well as to recover our investment, will be dependent on the success of the portfolio company. Even if the portfolio company is successful, our ability to realize the value of our investment may be dependent on the occurrence of a liquidity event, such as a public offering or the sale of the portfolio company. It is likely to take a significant amount of time before a liquidity event occurs or we can otherwise sell our investment. In addition, the equity securities we receive or invest in may be subject to restrictions on resale during periods in which it could be advantageous to sell them. There are special risks associated with investing in preferred securities, including: • • • • Preferred securities may include provisions that permit the issuer, at its discretion, to defer distributions for a stated period without any adverse consequences to the issuer. If we own a preferred security that is deferring its distributions, we may be required to report income for tax purposes before we receive such distributions. Preferred securities are subordinated to debt in terms of priority to income and liquidation payments, and therefore will be subject to greater credit risk than debt. Preferred securities may be substantially less liquid than many other securities, such as common stock or U.S. government securities. Generally, preferred security holders have no voting rights with respect to the issuing company, subject to limited exceptions. Additionally, when we invest in first lien senior secured loans (including unitranche loans), second lien senior secured loans or unsecured 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 1940 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 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. 40 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. This risk is characteristic of many of the majority-owned operating companies in our portfolio in that any debt to us from a holding company and the holding company’s substantial equity investments in the related operating company are subordinated to any creditors of the operating company. 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 debt holders, other equity holders and portfolio company management 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. In addition, when we hold a subordinate debt position, other more senior debt holders 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. Our portfolio contains a limited number of portfolio companies, some of which comprise a substantial percentage of our portfolio, 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 existing 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. 41 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 or repayments 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. 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 or equity interests 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 debt investments may be in the form of unsecured loans, therefore our liens on the collateral, if any, are subordinated to those of the senior secured debt of the portfolio companies, if any. As a result, we may not be able to control remedies with respect to the collateral. The collateral may not be valuable enough to satisfy all of the obligations under our secured loan, particularly after giving effect to the repayment of secured debt of the portfolio company that ranks senior to our loan. Bankruptcy laws may limit our ability to realize value from the collateral and may delay the realization process. Our rights in the collateral may be adversely affected by the failure to perfect security interests in the collateral. The need to obtain regulatory and contractual consents could impair or impede how effectively the collateral would be liquidated and could affect the value received. Some or all of the collateral may be illiquid and may have no readily ascertainable market value. The liquidity and value of the collateral could be impaired as a result of changing economic conditions, competition, and other factors, including the availability of suitable buyers. 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 substantially 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. 42 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 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 rules adopted by the U.S. Commodity Futures Trading Commission. 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. We have 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 cash flows 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 cash flows 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. 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. 43 There is the potential for interruption and deferral of cash flow 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 cash flow 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 allows 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. Our CLO investments are subject to prepayments and calls, increasing re-investment risk. Our CLO investments and/or the underlying senior secured loans may prepay 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 otherwise 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. 44 We have limited control of the administration and amendment of senior secured loans owned by the CLOs in which we invest. We are not 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 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 BB or B rated (non-investment grade) and in limited circumstances, unrated, senior secured loans. 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. 45 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. 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. The effects of compliance with the Volcker Rule may affect the CLO market in ways that we cannot currently anticipate. Section 619 of the Dodd-Frank Act added a provision, commonly referred to as the “Volcker Rule,” to federal banking laws to prohibit covered banking entities from engaging in proprietary trading or acquiring or retaining an ownership interest in, sponsoring or having certain relationships with “covered funds.” Generally, a covered fund would include a hedge fund or a private equity fund; however, the definition is sufficiently broad that it may include certain CLOs. The Volcker Rule provides that certain loan securitization vehicles are not considered “covered funds” for purposes of the prohibitions. In order to meet the definition of a loan securitization, the assets or holdings of the fund must, among other things, consist solely of loans and cannot include securities, such as bonds. In an effort to qualify for this “loan securitization” exclusion, many current CLOs are undertaking amendments to their related transaction documents that restrict the ability of the issuer to acquire bonds and certain other securities. Such an amendment may have the effect of reducing the return available to holders of CLO equity securities because bonds are generally higher yielding assets than are loans. In addition, the costs associated with such an amendment are typically paid out of the cash flow of the CLO, which could impact the return on our investment in any CLO equity securities. In addition, as a result of the uncertainty regarding the implementation and interpretation of the Volcker Rule, it is likely that many future CLOs will contain similar restrictions on the acquisition of bonds and certain other securities, which may have the effect of lowering returns on CLO equity securities. Our CLO equity portfolio is comprised principally of non-Volcker Rule compliant CLOs. Generally, due to the lack of clarity as to the application of the Volcker Rule and the availability of certain exemptions, certain investors that are subject to the Volcker Rule may not be as interested in CLO investments in the future. Any decline in interest may adversely affect the market value or liquidity of any or all of the CLO investments we hold. Similarly, it is possible that uncertainty regarding the treatment of CLOs may adversely affect the volume of CLO issuance. With respect to our online consumer lending initiative, we are dependent on the business performance and competitiveness of marketplace lending facilitators and our ability to assess loan underwriting performance and, if the marketplace lending facilitators from which we currently purchase consumer loans are unable to maintain or increase consumer loan originations, or if such marketplace lending facilitators do not continue to sell consumer loans to us, or we are unable to otherwise purchase additional loans, our business and results of operations will be adversely affected. With respect to our online consumer lending initiative, we invest primarily in marketplace loans through marketplace lending facilitators. We do not conduct loan origination activities ourselves. Therefore, our ability to purchase consumer loans, and our ability to grow our portfolio of consumer loans, is directly influenced by the business performance and competitiveness of the marketplace loan origination business of the marketplace lending facilitators from which we purchase consumer loans. In addition, our ability to analyze the risk-return profile of consumer loans is significantly dependent on the marketplace facilitator's ability to effectively evaluate a borrower's credit profile and likelihood of default. The platforms from which we purchase such loans utilize credit decisioning and scoring models that assign each such loan offered a corresponding interest rate and origination fee. Our returns are a function of the assigned interest rate for each such particular loan purchased less any defaults over the term of the applicable loan. We evaluate the credit decisioning and scoring models implemented by each platform on a regular basis and leverage the additional data on loan history experience, borrower behavior, economic factors and prepayment trends that we accumulate to continually improve our own decisioning model. If we are unable to effectively evaluate borrowers' credit profiles or the credit decisioning and scoring models implemented by each platform , we may incur unanticipated losses which could adversely impact our operating results. Further, if the interest rates for consumer loans available through marketplace lending platforms are set too high or too low, it may adversely impact our ability to receive returns on our investment that are commensurate with the risks we incur in purchasing the loans. With respect to our online consumer lending initiative, we rely on the marketplace lending facilitators to service loans including pursuing collections against borrowers. Personal loans facilitated through the marketplace lending facilitators are not secured by any collateral, are not guaranteed or insured by any third-party and are not backed by any governmental authority in any way. Marketplace lending facilitators are therefore limited in their ability to collect on the loans if a borrower is unwilling or unable to repay. A borrower's ability to repay can be negatively impacted by increases in their payment obligations to other lenders under mortgage, credit card and other loans, including student loans and home equity lines of credit. These changes can result from 46 increases in base lending rates or structured increases in payment obligations and could reduce the ability of the borrowers to meet their payment obligations to other lenders and under the loans purchased by us. If a borrower defaults on a loan, the marketplace lending facilitators may outsource subsequent servicing efforts to third-party collection agencies, which may be unsuccessful in their efforts to collect the amount of the loan. Marketplace lending facilitators make payments ratably on an investor's investment only if they receive the borrower's payments on the corresponding loan. If they do not receive payments on the corresponding loan related to an investment, we are not entitled to any payments under the terms of the investment. As servicers of the loans we purchase as part of our online consumer lending initiative, the marketplace lending facilitators have the authority to waive or modify the terms of a consumer loan without our consent or allow the postponement of strict compliance with any such term or in any manner grant any other indulgence to any borrower. If the marketplace lending facilitators approve a modification to the terms of any consumer loan it may adversely impact our revenues. To continue to grow our online consumer lending initiative business, we rely on marketplace lending facilitators from which we purchase loans to maintain or increase their consumer loan originations and to agree to sell their consumer loans to us. However, we do not have any exclusive arrangements with any of the marketplace lending facilitators and have no agreements with them to provide us with a guaranteed source of supply. There can be no assurance that such marketplace lending facilitators will be able to maintain or increase consumer loan originations or will continue to sell their consumer loans to us, or that we will be able to otherwise purchase additional loans and, consequently, there can be no assurance that we will be able to grow our business through investment in additional loans. The consumer marketplace lending facilitators could elect to become investors in their own marketplace loans which would limit the amount of supply available for our own investments. An inability to expand our business through investments in additional consumer loans would reduce the return on investment that we might otherwise be able to realize from an increased portfolio of such investments. If we are unable to expand our business relating to our online consumer lending initiative, this may have a material adverse effect on our business, financial condition, results of operations and prospects. Additionally, if marketplace lending facilitators are unable to attract qualified borrowers and sufficient investor commitments or borrowers and investors do not continue to participate in marketplace lending at current rates, the growth of loan originations will slow or loan originations will decrease. As a result of any of these factors, we may be unable to increase our consumer loan investments and our revenue may grow more slowly than expected or decline, which could have a material adverse effect on our business, financial condition and results of operations. Marketplace lending facilitators on which we rely as part of our online consumer lending initiative depend on issuing banks to originate all loans and to comply with various federal, state and other laws. Typically, the contracts between marketplace lending facilitators and their loan issuing banks are non-exclusive and do not prohibit the issuing banks from working with other marketplace lending facilitators or from offering competing services. Issuing banks could decide that working with marketplace lending facilitators is not in their interests, could make working with marketplace lending facilitators cost prohibitive or could decide to enter into exclusive or more favorable relationships with other marketplace lending facilitators that do not provide consumer loans to us. In addition, issuing banks may not perform as expected under their agreements. Marketplace lending facilitators could in the future have disagreements or disputes with their issuing banks. Any of these factors could negatively impact or threaten our ability to obtain consumer loans and consequently could have a material adverse effect on our business, financial condition, results of operations and prospects. Issuing banks are subject to oversight by the FDIC and the states where they are organized and operate and must comply with complex rules and regulations, as well as licensing and examination requirements, including requirements to maintain a certain amount of regulatory capital relative to their outstanding loans. If issuing banks were to suspend, limit or cease their operations or the relationship between the marketplace lending facilitators and the issuing bank were to otherwise terminate, the marketplace lending facilitators would need to implement a substantially similar arrangement with another issuing bank, obtain additional state licenses or curtail their operations. If the marketplace lending facilitators are required to enter into alternative arrangements with a different issuing bank to replace their existing arrangements, they may not be able to negotiate a comparable alternative arrangement. This may result in their inability to facilitate loans through their platform and accordingly our inability to operate the business of our online consumer lending initiative. If the marketplace lending facilitators were unable to enter into an alternative arrangement with a different issuing bank, they would need to obtain a state license in each state in which they operate in order to enable them to originate loans, as well as comply with other state and federal laws, which would be costly and time-consuming and could have a material adverse effect on our business, financial condition, results of operations and prospects. If the marketplace lending facilitators are unsuccessful in maintaining their relationships with the issuing banks, their ability to provide loan products could be materially impaired and our operating results could suffer. 47 Credit and other information that is received about a borrower may be inaccurate or may not accurately reflect the borrower's creditworthiness, which may cause the loans to be inaccurately priced. The marketplace lending facilitators obtain borrower credit information from consumer reporting agencies, such as TransUnion, Experian or Equifax, and assign loan grades to loan requests based on credit decisioning and scoring models that take into account reported credit scores and the requested loan amount, in addition to a variety of other factors. A credit score or loan grade assigned to a borrower may not reflect that borrower's actual creditworthiness because the credit score may be based on incomplete or inaccurate consumer reporting data, and typically, the marketplace lending facilitators do not verify the information obtained from the borrower's credit report. Additionally, there is a risk that, following the date of the credit report that the models are based on, a borrower may have: • • • • become delinquent in the payment of an outstanding obligation; defaulted on a pre-existing debt obligation; taken on additional debt; or sustained other adverse financial events. Borrowers supply a variety of information to the marketplace lending facilitators based on which the facilitators price the loans. In a number of cases, marketplace lending facilitators do not verify all of this information, and it may be inaccurate or incomplete. For example, marketplace lending facilitators do not always verify a borrower's stated tenure, job title, home ownership status or intention for the use of loan proceeds. Moreover, we do not, and will not, have access to financial statements of borrowers or to other detailed financial information about the borrowers. If we invest in loans through the marketplace provided by the marketplace lending facilitators based on information supplied by borrowers or third parties that is inaccurate, misleading or incomplete, we may not receive expected returns on our investments and this could have a material adverse impact on our business, financial condition, results of operations and prospects and our reputation may be harmed. Marketplace lending is a relatively new lending method and the platforms of marketplace lending facilitators have a limited operating history relative to established consumer banks. Borrowers may not view or treat their obligations under any such loans we purchase as having the same significance as loans from traditional lending sources, such as bank loans. The return on our investment in consumer loans depends on borrowers fulfilling their payment obligations in a timely and complete manner under the corresponding consumer loan. Borrowers may not view their obligations originated on the lending platforms that the marketplace lending facilitators provide as having the same significance as other credit obligations arising under more traditional circumstances, such as loans from banks or other commercial financial institutions. If a borrower neglects his or her payment obligations on a consumer loan or chooses not to repay his or her consumer loan entirely, we may not be able to recover any portion of our investment in the consumer loans. This will adversely impact our business, financial condition, results of operations and prospects. Risks affecting investments in real estate. We make investments in commercial and multi-family residential real estate through our wholly-owned tax-efficient real estate investment trust NPRC, the surviving entity of the May 23, 2016 merger of APRC and UPRC. A number of factors may prevent each of NPRC’s properties and assets from generating sufficient net cash flow or may adversely affect their value, or both, resulting in less cash available for distribution, or a loss, to us. These factors include: • • • • • • • national economic conditions; regional and local economic conditions (which may be adversely impacted by plant closings, business layoffs, industry slow-downs, weather conditions, natural disasters, and other factors); local real estate conditions (such as over-supply of or insufficient demand for office space); changing demographics; perceptions by prospective tenants of the convenience, services, safety, and attractiveness of a property; the ability of property managers to provide capable management and adequate maintenance; the quality of a property’s construction and design; 48 • • • • • • • • • increases in costs of maintenance, insurance, and operations (including energy costs and real estate taxes); changes in applicable laws or regulations (including tax laws, zoning laws, or building codes); potential environmental and other legal liabilities; the level of financing used by NPRC in respect of its properties, increases in interest rate levels on such financings and the risk that NPRC will default on such financings, each of which increases the risk of loss to us; the availability and cost of refinancing; the ability to find suitable tenants for a property and to replace any departing tenants with new tenants; potential instability, default or bankruptcy of tenants in the properties owned by NPRC; potential limited number of prospective buyers interested in purchasing a property that NPRC wishes to sell; and the relative illiquidity of real estate investments in general, which may make it difficult to sell a property at an attractive price or within a reasonable time frame. To the extent OID and PIK interest constitute a portion of our income, we will be exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash representing such income. Our investments may include original issue discount, or OID, instruments and payment in kind, or PIK, interest arrangements, which represents contractual interest added to a loan balance and due at the end of such loan’s term. To the extent OID or PIK interest constitute a portion of our income, we are exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash, including the following: • • • The higher interest rates of OID and PIK instruments reflect the payment deferral and increased credit risk associated with these instruments, and OID and PIK instruments generally represent a significantly higher credit risk than coupon loans. Even if the accounting conditions for income accrual are met, the borrower could still default when our actual collection is supposed to occur at the maturity of the obligation. OID and PIK instruments may have unreliable valuations because their continuing accruals require continuing judgments about the collectibility of the deferred payments and the value of any associated collateral. OID and PIK income may also create uncertainty about the source of our cash distributions. For accounting purposes, any cash distributions to shareholders representing OID and PIK income are not treated as coming from paid-in capital, even if the cash to pay them comes from offering proceeds. As a result, despite the fact that a distribution representing OID and PIK income could be paid out of amounts invested by our stockholders, the 1940 Act does not require that stockholders be given notice of this fact by reporting it as a return of capital. 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. 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 Unsecured Notes outstanding, which are a form of leverage and are senior in payment rights to our common stock. With certain limited exceptions, as 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 49 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: • • • • • • • • • • • A likelihood of greater volatility in the net asset value and market price of our common stock; Diminished operating flexibility as a result of asset coverage or investment portfolio composition requirements required by lenders or investors that are more stringent than those imposed by the 1940 Act; The possibility that investments will have to be liquidated at less than full value or at inopportune times to comply with debt covenants or to pay interest or dividends on the leverage; Increased operating expenses due to the cost of leverage, including issuance and servicing costs; Convertible or exchangeable securities, such as the Convertible Notes outstanding or those issued in the future may have rights, preferences and privileges more favorable than those of our common stock; Subordination to lenders’ superior claims on our assets as a result of which lenders will be able to receive proceeds available in the case of our liquidation before any proceeds will be distributed to our stockholders; Difficulty meeting our payment and other obligations under the Unsecured Notes and our other outstanding debt; The occurrence of an event of default if we fail to comply with the financial and/or other restrictive covenants contained in our debt agreements, including the credit agreement and each indenture governing the Unsecured Notes, which event of default could result in all or some of our debt becoming immediately due and payable; Reduced availability of our cash flow to fund investments, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes; The risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates, including borrowings under our amended senior credit facility; and Reduced flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and the general economy. 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 Unsecured 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 provide assurance 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 Unsecured 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 Unsecured 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 Unsecured 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) $6.3 billion in total assets, (ii) an average cost of funds of 5.38%, (iii) $2.9 billion in debt outstanding and (iv) $3.4 billion of shareholders’ equity. Assumed Return on Our Portfolio (net of expenses) Corresponding Return to Stockholder (10)% (23.1)% (5)% (13.9)% 0 % (4.6)% 5% 4.7% 10% 13.9% 50 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 Convertible Notes and the Public Notes present other risks to holders of our common stock, including the possibility that such notes could discourage an acquisition of us by a third party and accounting uncertainty. Certain provisions of the Convertible Notes and the Public 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 Convertible Notes and the Public Notes will have the right, at their option, to require us to repurchase all of their notes or any portion of the principal amount of such notes in integral multiples of $1,000. 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 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: • • Restrictions on the level of indebtedness that we are permitted to incur in relation to the value of our assets; Restrictions on our ability to incur liens; and • Maintenance of a minimum level of stockholders’ equity. As of June 30, 2016 , 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 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, 2019, could have a material adverse effect on our results of operations and financial position and our ability to pay expenses and make distributions. 51 The revolving period for our credit facility with a syndicate of lenders is currently scheduled to terminate on March 27, 2019, with an additional one year amortization period (with distributions allowed) after the completion of the revolving period. During such one year amortization period, all principal payments on the pledged assets will be applied to reduce the balance. At the end of the one 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, 2019, 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, 2020. As of June 30, 2016 , we did not have any outstanding borrowings under our credit facility. Interest on borrowings under the credit facility is one-month LIBOR plus 225 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 35% 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 Unsecured Notes could have a material adverse effect on our results of operations and financial position. The Unsecured Notes mature at various dates from August 15, 2016 to October 15, 2043. If we are unable to refinance the Unsecured 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 affect the trading market for, and market value of, our publicly issued debt securities. These factors include, but are not limited to, the following: • • • • • • • the time remaining to the maturity of these debt securities; the outstanding principal amount of debt securities with terms identical to these debt securities; the ratings assigned by national statistical ratings agencies; the general economic environment; the supply of debt securities trading in the secondary market, if any; the redemption or repayment features, if any, of these debt securities; the level, direction and volatility of market interest rates generally; and • market rates of interest higher or lower than rates borne by the debt securities. 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. 52 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 currently trade at a discount from net asset value and may continue to do so 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. The stocks of BDCs as an industry, including shares of our common stock, currently trade below net asset value as a result of concerns over liquidity, interest rate changes, leverage restrictions and distribution requirements. When our common stock is trading below its net asset value per share, we will 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 2015 annual meeting of stockholders held on December 4, 2015 and continued until January 8, 2016, 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 January 8, 2016. 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 quarterly 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 the 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. 53 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 2015 annual meeting of stockholders held on December 4, 2015 and continued until January 8, 2016, 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 January 8, 2016. 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 December 3, 2014. 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. On February 10, 2014, we received an exemptive order from the SEC (the “Order”) that gave us the ability to negotiate terms other than price and quantity of co- investment transactions with other funds managed by the Investment Adviser or certain affiliates, including Priority Income Fund, Inc. and Pathway Energy Infrastructure Fund, Inc., subject to the conditions included therein. Under the terms of the relief permitting us to co-invest with other funds managed by our Investment Adviser or its affiliates, a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors must make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies. In certain situations where co-investment with one or more funds managed by the Investment Adviser or its affiliates is not covered by the Order, such as when there is an opportunity to invest in different securities of the same issuer, the personnel of the Investment Adviser or its affiliates will need to decide which fund will proceed with the investment. Such personnel will make these determinations based on policies and procedures, which are designed to reasonably ensure that investment opportunities are allocated fairly and equitably among affiliated funds over time and in a manner that is consistent with applicable laws, rules and regulations. Moreover, except in certain circumstances, when relying on the Order, we will be unable to invest in any issuer in which one or more funds managed by the Investment Adviser or its affiliates has previously invested. 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: • • • • significant volatility in the market price and trading volume of securities of business development companies or other companies in the energy industry, which are not necessarily related to the operating performance of these companies; price and volume fluctuations in the overall stock market from time to time; changes in regulatory policies or tax guidelines, particularly with respect to RICs or business development companies; loss of RIC qualification; 54 • • • • • • • • • • • • • changes in earnings or variations in operating results; changes in the value of our portfolio of investments; any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; departure of one or more of Prospect Capital Management’s key personnel; operating performance of companies comparable to us; short-selling pressure with respect to shares of our common stock or BDCs generally; future sales of our securities convertible into or exchangeable or exercisable for our common stock or the conversion of such securities, including the Convertible Notes; uncertainty surrounding the strength of the U.S. economic recovery; concerns regarding European sovereign debt; changes in prevailing interest rates; litigation matters; general economic trends and other external factors; and loss of a major funding source. 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. 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 terms, 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. 55 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 Maryland Business Combination Act, which, subject to certain limitations, prohibits certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of the common stock or an affiliate thereof) for five years after the most recent date on which the stockholder becomes an interested stockholder and, thereafter, imposes special minimum price provisions and special stockholder voting requirements on these combinations. The Maryland Control Share Acquisition Act, which provides that “control shares” of a Maryland corporation (defined as shares of common stock which, when aggregated with other shares of common stock controlled by the stockholder, entitles the stockholder to exercise one of three increasing ranges of voting power in electing directors, as described more fully below) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares of common stock. 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 Maryland 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. 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. 56 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 a private letter ruling on cash/stock dividends paid by us if certain requirements are satisfied, and the ruling permits us to declare such taxable cash/stock dividends, up to 80% in stock, with respect to our taxable years ending August 31, 2016 and August 31, 2017. 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. Item 1B. Unresolved Staff Comments Not applicable. Item 2. Properties We do not own any real estate or other physical properties materially important to our operation. Our principal executive offices are located at 10 East 40th Street, New York, New York 10016, where we occupy our office space pursuant to our Administration Agreement with Prospect Administration. The office facilities, which are shared with the Investment Adviser and Administrator, consist of approximately 31,700 square feet, with various leases expiring up to and through 2023. We believe that our office facilities are suitable and adequate for our business as currently conducted. Item 3. 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 as may arise 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 material legal proceedings as of June 30, 2016 . Our Investment Adviser and Administrator have been named as defendants in a lawsuit filed on April 21, 2016 by a purported shareholder of Prospect in the United States District Court for the Southern District of New York under the caption Paskowitz v. Prospect Capital Management and Prospect Administration. The complaint alleges that the defendants received purportedly excessive management and administrative services fees from us in violation of Section 36(b) of the 1940 Act. The plaintiff seeks to recover on behalf of us damages in an amount not specified in the complaint. The defendants have informed us that they believe the complaint is without merit and intend to defend themselves vigorously against the plaintiff’s claims. We believe that the lawsuit is not likely to have a material adverse effect on Prospect. On June 30, 2016, the Investment Adviser and the Administrator filed a motion to dismiss the complaint. Item 4. Mine Safety Disclosures Not applicable. 57 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the NASDAQ Global Select Market under the symbol “PSEC.” PART II The following table sets forth, for the quarterly reporting periods indicated, the net asset value per share of our common stock and the high and low sales prices for our common stock, as reported on the NASDAQ Global Select Market. Our common stock historically has traded at prices both above and below its net asset value. There can be no assurance, however, that such premium or discount, as applicable, to net asset value will be maintained. See also “Item 1A. Risk Factors” in Part I of this report for additional information about the risks and uncertainties we face. Net Asset Value Per Share(1) Sales Price High Low Premium (Discount) of High Sales Price to Net Asset Value Premium (Discount) of Low Sales Price to Net Asset Value Year Ended June 30, 2015 First quarter $ 10.47 $ 11.00 $ Second quarter Third quarter Fourth quarter June 30, 2016 10.35 10.30 10.31 9.92 8.81 8.65 First quarter $ 10.17 $ 7.99 $ Second quarter Third quarter Fourth quarter 9.65 9.61 9.62 7.63 7.48 7.86 9.90 8.11 8.23 7.22 6.98 6.20 5.26 7.15 5.1% (4.2%) (14.5%) (16.1%) (21.4%) (20.9%) (22.2%) (18.3%) (5.4%) (21.6%) (20.1%) (30.0%) (31.4%) (35.8%) (45.3%) (25.7%) (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 and low sales prices. The net asset values shown are based on outstanding shares at the end of the relevant quarter. As of August 26, 2016 , there were 130 shareholders of record of our common stock. This figure does not include a substantially greater number of beneficial holders of our common stock, whose shares are held in the names of brokers, dealers and clearing agencies. Distribution Policy 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. To the extent prudent and practicable, we currently intend to continue making distributions on a monthly basis. Our ability to pay distributions could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and loan covenants. 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 an amount equal to at least 90% of our investment company taxable income (as defined by the Code) to our stockholders. Any undistributed taxable income is subject to U.S. federal income tax. In addition, we will be subject to a 4% non-deductible U.S. federal excise tax on certain undistributed income unless we distribute in a timely manner an amount at least equal to the sum of (i) 98% of our ordinary income recognized during the calendar year, (ii) 98.2% of our capital gain net income, as defined by the Code, recognized for the one year period ending October 31 in that calendar year and (iii) any income recognized, but not distributed, in preceding years. We had an excise tax liability of $305 for the calendar year ended December 31, 2015. Through June 30, 2016, we have an accrued excise tax payable of $1,100. Tax characteristics of all distributions will be reported to stockholders, as appropriate, on Form 1099-DIV after the end of the calendar year. 58 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 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. During the years ended June 30, 2016 and June 30, 2015 , we distributed approximately $356.1 million and $421.6 million , respectively, to our stockholders. The following table summarizes our distributions declared and payable for the years ended June 30, 2015 and June 30, 2016 . Declaration Date Record Date Payment Date Amount Per Share Amount Distributed (in thousands) 2/3/2014 2/3/2014 2/3/2014 5/6/2014 5/6/2014 5/6/2014 9/24/2014 12/8/2014 12/8/2014 12/8/2014 5/6/2015 5/6/2015 5/6/2015 5/6/2015 8/24/2015 8/24/2015 11/4/2015 11/4/2015 11/4/2015 2/9/2016 2/9/2016 2/9/2016 5/9/2016 5/9/2016 7/31/2014 8/29/2014 9/30/2014 10/31/2014 11/28/2014 12/31/2014 1/30/2015 2/27/2015 3/31/2015 4/30/2015 5/29/2015 6/30/2015 8/21/2014 $ 0.110475 $ 9/18/2014 10/22/2014 11/20/2014 12/18/2014 1/22/2015 2/19/2015 3/19/2015 4/23/2015 5/21/2015 6/18/2015 7/23/2015 0.110500 0.110525 0.110550 0.110575 0.110600 0.110625 0.083330 0.083330 0.083330 0.083330 0.083330 37,863 37,885 38,519 38,977 39,583 39,623 39,648 29,878 29,887 29,898 29,910 29,923 Total declared and payable for the year ended June 30, 2015 $ 421,594 7/31/2015 8/31/2015 9/30/2015 10/30/2015 11/30/2015 12/31/2015 1/29/2016 2/29/2016 3/31/2016 4/29/2016 5/31/2016 6/30/2016 8/20/2015 $ 0.083330 $ 9/17/2015 10/22/2015 11/19/2015 12/24/2015 1/21/2016 2/18/2016 3/24/2016 4/21/2016 5/19/2016 6/23/2016 7/21/2016 0.083330 0.083330 0.083330 0.083330 0.083330 0.083330 0.083330 0.083330 0.083330 0.083330 0.083330 29,909 29,605 29,601 29,600 29,611 29,616 29,641 29,663 29,674 29,702 29,730 29,758 Total declared and payable for the year ended June 30, 2016 $ 356,110 Dividends and distributions to common stockholders are recorded on the ex-dividend date. As such, the table above includes distributions with record dates during the years ended June 30, 2016 and June 30, 2015 . It does not include distributions previously declared to stockholders of record on any future dates, as those amounts are not yet determinable. The following dividends were previously declared and will be payable subsequent to June 30, 2016 : • • $0.08333 per share for July 2016 to holders of record on July 29, 2016 with a payment date of August 18, 2016; and $0.08333 per share for August 2016 to holders of record on August 31, 2016 with a payment date of September 22, 2016. 59 Dividend Reinvestment Plan We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution (as discussed above), 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. Stockholders are advised to consult with their brokers or financial institutions, as appropriate, with respect to the administration of their dividends and related instructions. See also “Dividend Reinvestment Plan” in Part I of this report for additional information. 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 the implementation of the plan. Our Board of Directors determines how the stock to be distributed as part of the plan is made available. During the years ended June 30, 2016 and June 30, 2015 , we distributed 2,725,222 and 1,618,566 shares of our common stock, respectively, in connection with the dividend reinvestment plan. All of the shares distributed were new issues. The following table summarizes the shares issued through the reinvestment of dividends in the years ended June 30, 2015 and June 30, 2016 . Record Date Payment Date Shares Issued Value of Shares (in thousands) % of Distribution 6/30/2014 7/31/2014 8/29/2014 9/30/2014 10/31/2014 11/28/2014 12/31/2014 1/30/2015 2/27/2015 3/31/2015 4/30/2015 5/29/2015 7/24/2014 8/21/2014 9/18/2014 10/22/2014 11/20/2014 12/18/2014 1/22/2015 2/19/2015 3/19/2015 4/23/2015 5/21/2015 6/18/2015 98,503 $ 129,435 113,020 138,721 136,076 162,173 151,538 146,186 113,596 131,971 137,878 159,469 1,074 1,412 1,154 1,346 1,314 1,370 1,279 1,279 971 1,140 1,122 1,220 Total issued in the year ended June 30, 2015 1,618,566 $ 14,681 6/30/2015 7/31/2015 8/31/2015 9/30/2015 10/30/2015 11/30/2015 12/31/2015 1/29/2016 2/29/2016 3/31/2016 4/29/2016 5/31/2016 7/23/2015 8/20/2015 9/17/2015 10/22/2015 11/19/2015 12/24/2015 1/21/2016 2/18/2016 3/24/2016 4/21/2016 5/19/2016 6/23/2016 193,892 $ 152,896 143,685 189,172 182,331 167,727 299,423 255,743 146,899 324,060 338,027 331,367 1,425 1,115 1,142 1,402 1,349 1,211 1,749 1,685 1,027 2,430 2,522 2,581 Total issued in the year ended June 30, 2016 2,725,222 $ 19,638 2.8% 3.7% 3.0% 3.5% 3.4% 3.5% 3.2% 3.2% 3.2% 3.8% 3.8% 4.1% 4.8% 3.7% 3.9% 4.7% 4.6% 4.1% 5.9% 5.7% 3.5% 8.2% 8.5% 8.7% Registered stockholders who opt out of the dividend reinvestment plan must notify the plan administrator prior to the payment date in order for that distribution to be paid in cash. As such, the table above includes distributions with payment dates during the years ended June 30, 2016 and June 30, 2015 . It does not include distributions previously declared and recorded as payable to stockholders on any future dates, as those amounts are not yet determinable. 60 On February 9, 2016, we amended our dividend reinvestment plan that already provides for reinvestment of our dividends or distributions on behalf of our stockholders, unless a stockholder elects to receive cash, to add the ability of stockholders to purchase additional shares by making optional cash investments. Under the revised dividend reinvestment and direct stock repurchase plan, stockholders may elect to purchase additional shares through our transfer agent in the open market or in negotiated transactions. Purchases of equity securities by the issuer and affiliated purchasers On August 24, 2011, our Board of Directors approved a share repurchase plan (the “Repurchase Program”) under which we may repurchase up to $100,000 of our common stock at prices below our net asset value per share. Prior to any repurchase, we are required to notify shareholders of our intention to purchase our common stock. We delivered a notice with our annual proxy mailing on September 23, 2015 and our most recent notice was delivered with a shareholder letter mailing on February 2, 2016. This notice extends for six months after the date that notice is delivered. During the year ended June 30, 2016 , we repurchased 4,708,750 shares of our common stock pursuant to our publicly announced Repurchase Program for $34,140 , or approximately $7.25 weighted average price per share at approximately a 30% discount to net asset value as of June 30, 2015. Our NAV per share was increased by approximately $0.02 for the year ended June 30, 2016 as a result of the share repurchases. Repurchases of Common Stock Year Ended June 30, 2016 Dollar amount repurchased Shares Repurchased Weighted average price per share $ 7.25 Weighted average discount to June 30, 2015 net asset value Approximate dollar value of shares that may yet be purchased under the plan $ 34,140 4,708,750 30% 65,860 There were no repurchases made for the years ended June 30, 2015 and 2014 under our Repurchase Program. During the year ended June 30, 2016 , Prospect officers purchased 16,909,556 shares of our stock, or 4.74% of total outstanding shares as of June 30, 2016 , both through the open market transactions and shares issued in connection with our dividend reinvestment plan. 61 Stock Performance Graph The following graph compares a shareholder’s cumulative total return for the last five fiscal years as if such amounts had been invested in: (i) our common stock; (ii) the stocks included in the S&P 500 Index; (iii) the stocks included in the S&P 500 Financials Sector Index; and (iv) a customized BDC Peer Group composed of Apollo Investment Corporation, Ares Capital Corporation, BlackRock Capital Investment Corporation, Gladstone Capital Corporation, and MVC Capital, Inc. The graph is based on historical stock prices and measures total shareholder return, which takes into account both changes in stock price and dividends. The total return assumes that dividends were reinvested daily and is based on a $100 investment on June 30, 2011. SOURCE: S&P Capital IQ The graph and other information furnished under this Part II, Item 5 of this Annual Report on Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act. The stock price performance included in the above graph is not necessarily indicative of future stock performance. 62 Item 6. Selected Financial Data The following selected financial data should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and consolidated financial statements and notes thereto contained in “Item 8. Financial Statements and Supplementary Data” of this report. All amounts are in thousands except per share data and number of portfolio companies at year end. 2016 2015 2014 2013 2012 Year Ended June 30, Summary of Operations Total investment income $ 791,973 $ 791,084 $ Total operating expenses Net investment income Net realized and unrealized (losses) gains on investments Net realized gains (losses) on extinguishment of debt Net increase in net assets resulting from operations Per Share Data 420,845 371,128 428,337 362,747 712,291 355,068 357,223 $ 576,336 $ 320,910 251,412 324,924 134,226 186,684 (267,990) (12,458) (38,203) (104,068) 4,220 224 (3,950) — — — 103,362 346,339 319,020 220,856 190,904 Net investment income(1) $ 1.04 $ 1.03 $ 1.19 $ 1.57 $ 1.63 Net increase in net assets resulting from operations(1) Dividends to shareholders Net asset value at end of year Balance Sheet Data Total assets Total debt outstanding Net assets Other Data 0.29 (1.00) 9.62 0.98 (1.19) 10.31 1.06 (1.32) 10.56 1.07 (1.28) 10.72 1.67 (1.22) 10.83 $ 6,276,707 $ 6,798,054 $ 6,477,269 $ 4,448,217 $ 2,255,254 2,707,465 3,435,917 2,983,736 3,703,049 2,773,051 3,618,182 1,683,002 2,656,494 664,138 1,511,974 Investment purchases for the year $ 979,102 $ 1,867,477 $ 2,933,365 $ 3,103,217 $ 1,120,659 Investment sales and repayments for the year Number of portfolio companies at year end Total return based on market value(2) Total return based on net asset value(2) Weighted average yield on debt portfolio at year end(3) $ 1,338,875 $ 1,411,562 $ 767,978 $ 931,534 $ 500,952 125 131 142 124 85 21.8% (20.8%) 10.9% 6.2% 27.2% 7.2% 11.5% 11.0% 10.9% 18.0% 13.2% 12.7% 12.1% 13.6% 13.9% (1) Per share data is based on the weighted average number of common shares outstanding for the years presented (except for dividends to shareholders which is based on actual rate per share). (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 year 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 year and assumes that dividends are reinvested in accordance with our dividend reinvestment plan. (3) Excludes equity investments and non-performing loans. 63 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (All figures in this item 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 Annual Report. In addition to historical information, the following discussion and other parts of this Annual Report contain forward-looking information that involves risks and uncertainties. Our actual results may differ significantly from any results expressed or implied by these forward-looking statements due to the factors discussed in Part II, “Item 1A. Risk Factors” and “Forward-Looking Statements” appearing elsewhere herein. Overview The terms “Prospect,” “we,” “us” and “our” mean Prospect Capital Corporation and its subsidiaries unless the context specifically requires otherwise. Prospect Capital Corporation is a financial services company that primarily lends to and invests in middle market privately-held companies. We are a closed-end investment company incorporated in Maryland. We have elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). As a BDC, we have elected to be treated as a regulated investment company (“RIC”), under Subchapter M of the Internal Revenue Code of 1986 (the “Code”). We were organized on April 13, 2004 and were funded in an initial public offering completed on July 27, 2004. 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 revolving credit facility at PCF. Our wholly-owned subsidiary Prospect Small Business Lending, LLC (“PSBL”) was formed on January 27, 2014 and purchases small business whole loans on a recurring basis from online small business loan originators, including OnDeck Capital, Inc. (“OnDeck”). On September 30, 2014, we formed a wholly-owned subsidiary Prospect Yield Corporation, LLC (“PYC”) and effective October 23, 2014, PYC holds our investments in collateralized loan obligations (“CLOs”). Each of these subsidiaries have been consolidated since operations commenced. Effective July 1, 2014, we began consolidating certain of our wholly-owned and substantially wholly-owned holding companies formed by us in order to facilitate our investment strategy. The following companies have been included in our consolidated financial statements since July 1, 2014: AMU Holdings Inc. (“Airmall”); APH Property Holdings, LLC (“APH”); Arctic Oilfield Equipment USA, Inc.; CCPI Holdings Inc.; CP Holdings of Delaware LLC; Credit Central Holdings of Delaware, LLC; Energy Solutions Holdings Inc.; First Tower Holdings of Delaware LLC (“First Tower Delaware”); Harbortouch Holdings of Delaware Inc.; MITY Holdings of Delaware Inc.; Nationwide Acceptance Holdings LLC; NMMB Holdings, Inc.; NPH Property Holdings, LLC (“NPH”); STI Holding, Inc.; UPH Property Holdings, LLC (“UPH”); Valley Electric Holdings I, Inc.; Valley Electric Holdings II, Inc.; and Wolf Energy Holdings Inc. On October 10, 2014, concurrent with the sale of the operating company, our ownership increased to 100% of the outstanding equity of ARRM Services, Inc. which was renamed SB Forging Company, Inc. (“SB Forging”). As such, we began consolidating SB Forging on October 11, 2014. Effective May 23, 2016, in connection with the merger of American Property REIT Corp. (“APRC”) and United Property REIT Corp. (“UPRC”) with and into National Property REIT Corp. (“NPRC”), APH and UPH merged with and into NPH, and dissolved . We collectively refer to these entities as the “Consolidated Holding Companies.” We are externally managed by our investment adviser, Prospect Capital Management L.P. (“Prospect Capital Management” or the “Investment Adviser”). Prospect Administration LLC (“Prospect Administration” ), a wholly-owned subsidiary of the Investment Adviser, provides administrative services and facilities necessary for us to operate. Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. We invest primarily in senior and subordinated debt and equity of private companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes. 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 nine 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, (7) investments in syndicated debt, (8) aircraft leasing and (9) online lending. We continue to evaluate other origination strategies in the ordinary course of business with no specific top-down allocation to any single origination strategy. 64 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 unsecured 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. Historically, this strategy has comprised approximately 50%-60% of our business, but more recently it is less than 50% 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. Historically, this strategy has comprised approximately 5%-15% of our business, but more recently it is less than 5% 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 enhanced 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, sub- prime 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 5%-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, 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 comprised approximately 10%-20% of our business. Real Estate Investments – We make investments in real estate through our wholly-owned tax-efficient real estate investment trust (“REIT”) NPRC, the surviving entity of the May 23, 2016 merger with APRC and UPRC. 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. NPRC co-invests with established and experienced property managers that manage such properties after acquisition. This investment strategy has comprised approximately 5%-10% 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 comprised approximately 5%- 10% of our business. Aircraft Leasing – We invest in debt as well as equity in aircraft assets subject to commercial leases to credit-worthy airlines across the globe. These investments present attractive return opportunities due to cash flow consistency from long-lived assets coupled with hard asset collateral. We seek to deliver risk-adjusted returns with strong downside protection by analyzing relative value characteristics across the spectrum of aircraft types of all vintages. Our target portfolio includes both in-production and out-of-production jet and turboprop aircraft and engines, operated by airlines across the globe. This strategy comprised approximately 1% of our business. Online Lending – We make investments in loans originated by certain consumer loan and small and medium sized business (“SME”) loan facilitators. We purchase each loan in its entirety (i.e., a “whole loan”). The borrowers are consumers and SMEs. The loans are typically serviced by the facilitators of the loans. This investment strategy has comprised approximately 4%-7% of our business. We invest primarily in first and second lien secured loans and unsecured debt, which in some cases includes an equity component. First and second lien secured loans generally are senior debt instruments that rank ahead of unsecured 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. 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. 65 We hold many of our control investments in a two-tier structure consisting of a holding company and one or more related operating companies for tax purposes. These holding companies serve various business purposes including concentration of management teams, optimization of third party borrowing costs, improvement of supplier, customer, and insurance terms, and enhancement of co-investments by the management teams. In these cases, our investment in the holding company, generally as equity, its equity investment in the operating company and along with any debt from us directly to the operating company structure represents our total exposure for the investment. As of June 30, 2016 , as shown in our Consolidated Schedule of Investments, the cost basis and fair value of our investments in controlled companies was $1,768,220 and $1,752,449 , respectively. This structure gives rise to several of the risks described in our public documents and highlighted elsewhere in this Annual Report. On July 1, 2014, we began consolidating all wholly-owned and substantially wholly-owned holding companies formed by us for the purpose of holding our controlled investments in operating companies. There were no significant effects of consolidating these holding companies as they hold minimal assets other than their investments in the controlled operating companies. Investment company accounting prohibits the consolidation of any operating companies. Fourth Quarter Highlights Investment Transactions We seek to be a long-term investor with our portfolio companies. During the three months ended June 30, 2016 , we acquired $62,930 of new investments, completed follow-on investments in existing portfolio companies totaling approximately $214,370 , funded $3,682 of revolver advances, and recorded paid in kind (“PIK”) interest of $13,056 , resulting in gross investment originations of $294,038 . During the three months ended June 30, 2016 , we sold our investment in Harbortouch and sold down two investments to lower retained amounts, and received several partial prepayments and amortization payments totaling $383,460 , including realized losses totaling $6,180 . The more significant of these transactions are discussed in “Portfolio Investment Activity.” Debt Issuances and Redemptions During the three months ended June 30, 2016 , we issued $ 13,573 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $ 13,403 . These notes were issued with stated interest rates of 5.50% with a weighted average interest rate of 5.50% . These notes mature between April 15, 2021 and June 15, 2021 . The following table summarizes the Prospect Capital InterNotes® issued during the three months ended June 30, 2016 . Tenor at Origination (in years) Principal Amount Interest Rate Range Weighted Average Interest Rate Maturity Date Range 5 $ 13,573 5.50% 5.50% April 15, 2021 – June 15, 2021 During the three months ended June 30, 2016 , we repaid $ 3,300 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the difference between the reacquisition price and the net carrying amount of the notes, net of the proportionate amount of unamortized debt issuance costs. The net gain on the extinguishment of Prospect Capital InterNotes® in the three months ended June 30, 2016 was $ 310 . On June 16, 2016, we entered into an at-the-market program with FBR Capital Markets & Co. through which we could sell, by means of at-the-market offerings, from time to time, up to $100,000 in aggregate principal amount of our existing 2024 Notes. During the period from June 28, 2016 to June 30, 2016, we issued $1,380 in aggregate principal amount of our 2024 Notes for net proceeds of $1,247 after commissions and offering costs. Equity Issuances On April 21, 2016 , May 19, 2016 and June 23, 2016 , we issued 324,060 , 338,027 and 331,367 shares of our common stock in connection with the dividend reinvestment plan, respectively. 66 “Spin-Offs” of Certain Business Strategies We previously announced that we intend to unlock value by “spinning off” three “pure play” business strategies - our consumer online lending business, real estate business and structured credit business - to our shareholders in conjunction with rights offering capital raises in which existing Prospect shareholders could elect to participate in each offering or sell their rights. The goals of these “spin-offs” include leverage and earnings neutrality for Prospect. Our primary objective is to maximize the valuation of each offering (declining to proceed with any offering if we find any valuation not to be attractive). The size and likelihood of each of these dispositions, some of which are expected to be partial rather than complete spin-offs, remain to be determined, but we currently expect the collective size of these three dispositions, if any, to be 10% or less of our asset base. Any such dispositions cannot occur unless and until our application for exemptive relief is granted by the SEC. Should the SEC not grant our application for exemptive relief, these dispositions will not occur as initially planned. The consummation of any of the dispositions also depends upon, among other things: market conditions, regulatory and exchange listing approval, and sufficient investor demand. There can be no assurance that we will consummate any of these dispositions. Investment Holdings As of June 30, 2016 , we continue to pursue our investment strategy. At June 30, 2016 , approximately $5,897,708 , or 171.6% , of our net assets are invested in 125 long-term portfolio investments and CLOs. During the year ended June 30, 2016 , we originated $979,102 of new investments, primarily composed of $570,338 of debt and equity financing to non-controlled portfolio investments, $312,144 of debt and equity financing to controlled investments, and $96,620 of subordinated notes in CLOs. Our origination efforts are focused primarily on secured lending to non-control investments to reduce the risk in the portfolio by investing primarily in first lien loans, though we also continue to close select junior debt and equity investments. Our annualized current yield was 12.7% and 13.2% as of June 30, 2015 and June 30, 2016 , respectively, across all performing interest bearing investments. The increase in our current yield is primarily due to market fluctuations and the resulting decline in our portfolio value. 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 are a non-diversified company within the meaning of the 1940 Act. As required by 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. Under the 1940 Act, “Affiliate Investments” 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. “Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments. As of June 30, 2016 , we own controlling interests in the following portfolio companies: Arctic Energy Services, LLC (“Arctic Energy”); CCPI Inc. (“CCPI”); CP Energy Services Inc. (“CP Energy”); Credit Central Loan Company, LLC (“Credit Central”); Echelon Aviation LLC (“Echelon”); Edmentum Ultimate Holdings, LLC (“Edmentum”); First Tower Finance Company LLC (“First Tower Finance”); Freedom Marine Solutions, LLC (“Freedom Marine”); Gulf Coast Machine & Supply Company (“Gulf Coast”); MITY, Inc. (“MITY”); NPRC; Nationwide Loan Company LLC (f/k/a Nationwide Acceptance LLC) (“Nationwide”); NMMB, Inc.; R-V Industries, Inc. (“R-V”); USES Corp. (“USES”); Valley Electric Company, Inc. (“Valley Electric”); and Wolf Energy, LLC. We also own an affiliated interest in BNN Holdings Corp and Targus International, LLC (“Targus”). The following shows the composition of our investment portfolio by level of control as of June 30, 2016 and June 30, 2015 : 67 Level of Control Cost Portfolio Fair Value June 30, 2016 % of % of Portfolio June 30, 2015 % of Cost Portfolio Fair Value % of Portfolio Control Investments Affiliate Investments $ 1,768,220 29.0% $ 1,752,449 29.7% $ 1,894,644 28.9% $ 1,974,202 29.9% 10,758 0.2% 11,320 0.2% 45,150 0.7% 45,945 0.7% Non-Control/Non-Affiliate Investments 4,312,122 70.8% 4,133,939 70.1% 4,619,582 70.4% 4,589,411 69.4% Total Investments $ 6,091,100 100.0% $ 5,897,708 100.0% $ 6,559,376 100.0% $ 6,609,558 100.0% The following shows the composition of our investment portfolio by type of investment as of June 30, 2016 and June 30, 2015 : Type of Investment Cost % of Portfolio Fair Value June 30, 2016 % of Portfolio June 30, 2015 % of Cost Portfolio Fair Value Revolving Line of Credit $ 13,274 Senior Secured Debt Subordinated Secured Debt Subordinated Unsecured Debt Small Business Loans CLO Debt 3,072,839 1,228,598 75,878 14,603 0.2% 50.4% 20.2% 1.2% 0.2% — — % $ 13,274 0.2% $ 30,546 0.5% $ 30,546 2,941,722 1,209,604 68,358 14,215 — 50.0% 3,617,111 55.1% 3,533,447 20.5% 1,234,701 18.8% 1,205,303 1.2% 0.2% —% 145,644 50,558 28,613 2.2% 0.8% 0.4% 144,271 50,892 32,398 % of Portfolio 0.5% 53.5% 18.2% 2.2% 0.8% 0.5% CLO Residual Interest 1,083,540 17.9% 1,009,696 17.1% 1,072,734 16.4% 1,113,023 16.8% Preferred Stock Common Stock Membership Interest Participating Interest(1) Escrow Receivable Warrants 139,320 298,033 159,417 — 3,916 1,682 2.3% 4.9% 2.6% —% 0.1% 0.0% 78,922 315,587 167,389 70,609 6,116 2,216 1.3% 5.4% 2.8% 1.2% 0.1% — 41,047 181,404 148,192 — 7,144 1,682 0.6% 2.8% 2.3% —% 0.1% —% 4,361 164,984 278,537 42,787 5,984 3,025 0.1% 2.5% 4.2% 0.6% 0.1% —% Total Investments $ 6,091,100 100.0% $ 5,897,708 100.0% $ 6,559,376 100.0% $ 6,609,558 100.0% (1) Participating Interest includes our participating equity investments, such as net profits interests, net operating income interests, net revenue interests, and overriding royalty interests. The following shows our investments in interest bearing securities by type of investment as of June 30, 2016 and June 30, 2015 : Type of Investment Cost Portfolio Fair Value June 30, 2016 % of % of Portfolio June 30, 2015 % of Cost Portfolio Fair Value First Lien Second Lien Unsecured Small Business Loans CLO Debt $ 3,079,689 56.1% $ 2,948,572 56.1% $ 3,642,761 58.9% $ 3,559,097 1,235,022 22.5% 1,216,028 23.1% 1,239,597 20.0% 1,210,199 75,878 14,603 — 1.4% 0.3% —% 68,358 14,215 — 1.3% 0.3% —% 145,644 50,558 28,613 2.4% 0.8% 0.5% 144,271 50,892 32,398 % of Portfolio 58.3% 19.8% 2.4% 0.8% 0.5% CLO Residual Interest 1,083,540 19.7% 1,009,696 19.2% 1,072,734 17.4% 1,113,023 18.2% Total Debt Investments $ 5,488,732 100.0% $ 5,256,869 100.0% $ 6,179,907 100.0% $ 6,109,880 100.0% 68 The following shows the composition of our investment portfolio by geographic location as of June 30, 2016 and June 30, 2015 : Geographic Location Cost Portfolio Fair Value June 30, 2016 % of % of Portfolio June 30, 2015 % of Cost Portfolio Fair Value % of Portfolio Canada Cayman Islands France MidWest US NorthEast US NorthWest US Puerto Rico SouthEast US SouthWest US Western US $ 15,000 0.2% $ 8,081 0.1% $ 15,000 0.2% $ 15,000 0.2% 1,083,540 17.8% 1,009,696 17.1% 1,101,347 16.8% 1,145,421 17.3% 9,756 804,515 838,331 41,317 40,516 0.2% 13.2% 13.8% 0.7% 0.7% 9,015 849,029 824,408 40,122 40,516 0.2% 14.4% 13.9% 0.7% 0.7% 10,145 0.2% 9,734 749,036 11.4% 767,419 1,085,569 16.6% 1,151,510 — 40,911 —% 0.6% — 37,539 1,498,976 24.6% 1,531,944 26.0% 1,609,956 24.5% 1,661,477 586,701 9.6% 486,695 8.3% 762,454 11.6% 693,138 1,172,448 19.2% 1,098,202 18.6% 1,184,958 18.1% 1,128,320 0.2% 11.6% 17.4% —% 0.6% 25.1% 10.5% 17.1% Total Investments $ 6,091,100 100.0% $ 5,897,708 100.0% $ 6,559,376 100.0% $ 6,609,558 100.0% 69 The following shows the composition of our investment portfolio by industry as of June 30, 2016 and June 30, 2015 : Industry Cost Portfolio Fair Value June 30, 2016 % of % of Portfolio June 30, 2015 % of Cost Portfolio Fair Value % of Portfolio Aerospace & Defense $ 67,518 1.1% $ 69,836 1.2% $ 70,860 1.1% $ 78,675 1.2% Business Services Chemicals Commercial Services Construction & Engineering Consumer Finance Consumer Services Diversified Financial Services Durable Consumer Products Food Products Healthcare Hotels, Restaurants & Leisure Machinery Manufacturing Media Metal Services & Minerals Oil and Gas Production Oil and Gas Services Online Lending Personal & Nondurable Consumer Products Pharmaceuticals Property Management Real Estate Retail Software & Computer Services Telecommunication Services Textiles, Apparel & Luxury Goods Transportation Subtotal Structured Finance(1) Total Investments 249,482 4,967 247,144 60,436 449,203 194,554 115,648 457,075 287,626 307,136 139,813 330 219,503 371,440 9,934 5,460 286,105 406,931 213,585 70,739 3,916 335,048 — 153,485 4,392 278,552 67,538 4.1% 0.1% 4.1% 1.0% 7.4% 3.1% 1.9% 7.5% 4.7% 5.0% 2.3% —% 3.6% 6.1% 0.2% 0.1% 4.7% 6.7% 3.5% 1.2% 0.1% 5.5% —% 2.5% 0.1% 4.5% 1.1% 246,960 4,819 219,988 31,091 474,652 197,346 115,648 453,795 283,172 308,345 139,954 511 180,546 357,864 8,701 6,138 165,091 377,385 193,054 70,739 3,900 480,763 — 151,192 4,392 278,552 63,578 4.2% 0.1% 3.7% 0.5% 8.0% 3.2% 2.0% 7.7% 4.8% 5.2% 2.4% —% 3.1% 6.1% 0.1% 0.1% 2.8% 6.4% 3.3% 1.2% 0.1% 8.2% —% 2.6% 0.1% 4.7% 1.1% 646,021 4,963 245,913 58,837 426,697 190,037 120,327 439,172 282,185 435,893 177,748 376 163,380 361,825 25,670 3,000 289,803 263,958 213,796 74,951 5,880 412,080 63 217,429 4,573 252,200 70,392 9.8% 0.1% 3.8% 0.9% 6.5% 2.9% 1.8% 6.7% 4.3% 6.6% 2.7% —% 2.5% 5.5% 0.4% —% 4.4% 4.0% 3.4% 1.1% 0.1% 6.3% —% 3.3% 0.1% 3.8% 1.1% 711,541 10.8% 5,000 241,620 30,497 486,977 190,216 119,919 422,033 281,365 434,446 177,926 563 126,921 350,365 23,745 22 246,817 260,526 193,046 74,588 3,814 465,196 260 217,472 4,595 252,200 63,792 0.1% 3.6% 0.4% 7.4% 2.9% 1.8% 6.4% 4.3% 6.6% 2.7% —% 1.9% 5.3% 0.4% —% 3.7% 3.9% 2.9% 1.1% 0.1% 7.0% —% 3.3% 0.1% 3.8% 1.0% $ 5,007,560 82.2% $ 4,888,012 82.9% $ 5,458,029 83.2% $ 5,464,137 1,083,540 17.8% 1,009,696 17.1% 1,101,347 16.8% 1,145,421 82.7% 17.3% $ 6,091,100 100.0% $ 5,897,708 100.0% $ 6,559,376 100.0% $ 6,609,558 100.0% (1) Our CLO investments do not have industry concentrations and as such have been separated in the table above. 70 Portfolio Investment Activity During the year ended June 30, 2016 , we acquired $375,409 of new investments, completed follow-on investments in existing portfolio companies totaling approximately $573,338 , funded $9,824 of revolver advances, and recorded PIK interest of $20,531 , resulting in gross investment originations of $979,102 . The more significant of these transactions are briefly described below. On July 1, 2015, we provided $31,000 of first lien senior secured financing to Intelius, Inc. (“Intelius”), an online information commerce company, of which $30,200 was funded at closing. On August 11, 2015, we made a $13,500 follow-on first lien senior secured debt investment in Intelius, of which $13,000 was funded at closing, to support an acquisition. The $21,500 Term Loan A note bears interest at the greater of 6.5% or LIBOR plus 5.5% and has a final maturity of July 1, 2020. The $21,500 Term Loan B note bears interest at the greater of 12.5% or LIBOR plus 11.5% and has a final maturity of July 1, 2020. The $1,500 senior secured revolver, which was not funded at closing, bears interest at 9.5% or LIBOR plus 8.5% and has a final maturity of August 11, 2016. On July 23, 2015, we made an investment of $37,969 to purchase 80.73% of the subordinated notes issued by Halcyon Loan Advisors Funding 2015-3 Ltd. in a co-investment transaction with Priority Income Fund, Inc., a closed-end fund managed by an affiliate of Prospect Capital Management. On August 6, 2015, we provided $92,500 of first lien senior secured debt to support the refinancing of Crosman Corporation (“Crosman”). Concurrent with the refinancing, we received repayment of the $40,000 second lien term loan previously outstanding. The $52,500 Term Loan A note bears interest at the greater of 9.0% or LIBOR plus 8.7% and interest payment in kind of 4.0%, and has a final maturity of August 5, 2020. The $40,000 Term Loan B note bears interest at the greater of 16.0% or LIBOR plus 15.7% and interest payment in kind of 4.0%, and has a final maturity of August 5, 2020. On August 12, 2015, we made an investment of $22,898 to purchase 50.04% of the subordinated notes issued by Octagon Investment Partners XVIII, Ltd. On August 12, 2015, we sold 780 of our small business whole loans (with a cost of $30,968) purchased from OnDeck to Jefferies Asset Funding LLC for proceeds of $26,619, net of related transaction expenses, and a trust certificate representing a 41.54% interest in the MarketPlace Loan Trust, Series 2015- OD2. We realized a loss of $775 on the sale. On August 21, 2015, we committed to funding a $16,000 second lien secured investment in Sitel Worldwide Corporation, a provider of customer care outsourcing services. The second lien term loan bears interest at the greater of 10.5% or LIBOR plus 9.5% and has a final maturity of September 18, 2022. On September 16, 2015, we made an investment of $26,773 to purchase 75.09% of the subordinated notes issued by Apidos CLO XXII in a co-investment transaction with Priority Income Fund, Inc., a closed-end fund managed by an affiliate of Prospect Capital Management. On October 2, 2015, we provided $17,500 of first lien senior secured debt to Easy Gardener Products, Inc., a designer, marketer, and manufacturer of branded lawn and garden products. The first lien term loan bears interest at the greater of 10.25% or LIBOR plus 10.0% and has a final maturity of September 30, 2020. On October 16, 2015, we made a $37,000 second lien secured debt investment in Universal Fiber Systems, LLC, a manufacturer of custom and specialty fiber products used in high performance applications. The second lien term loan bears interest at the greater of 10.5% or LIBOR plus 9.5% and has a final maturity of October 2, 2022. On November 2, 2015, we provided $50,000 of first lien senior secured debt to Coverall North America, Inc. (“Coverall”), a leading franchiser of commercial cleaning businesses. We invested $25,000 in Term Loan A and $25,000 in Term Loan B Notes. Term Loan A bears interest at the greater of 7.0% or LIBOR plus 6.0% and has a final maturity of November 2, 2020. Term Loan B bears interest at the greater of 12.0% or LIBOR plus 11.0% and has a final maturity of November 2, 2020. As part of the recapitalization, we received repayment of the $49,600 loan outstanding. On November 6, 2015, we made a $20,000 second lien secured debt investment in SCS Merger Sub, Inc., a value-added reseller of data center-focused hardware, software and related services. The second lien term loan bears interest at the greater of 10.5% or LIBOR plus 9.5% and has a final maturity of October 30, 2023. On November 9, 2015 and December 28, 2015, we made a combined $30,100 follow-on first lien senior secured debt investment in System One Holdings, LLC (“System One”), to support an acquisition. The first lien term loan bears interest at the greater of 11.25% or LIBOR plus 10.5% and has a final maturity of November 17, 2020. 71 On December 3, 2015, we provided $245,900 of first lien senior secured debt to Broder Bros., Co. (“Broder”), a leading distributor of imprintable sportswear and accessories in the United States. We invested $122,950 in Term Loan A and $122,950 in Term Loan B Notes. Term Loan A bears interest at the greater of 7.0% or LIBOR plus 5.75% and has a final maturity of June 3, 2021. Term Loan B bears interest at the greater of 13.50% or LIBOR plus 12.25% and has a final maturity of June 3, 2021. As part of the recapitalization, we sold $5,000 and received a repayment of $245,900 of the previous loan outstanding. We realized no gain or loss on the sale. On February 3, 2016, lenders foreclosed on Targus Group International, Inc., and our $21,613 first lien term loan was extinguished and exchanged for 1,262,737 common units representing 12.63% equity ownership in Targus Cayman HoldCo Limited, the parent company of Targus. On February 17, 2016, we provided additional debt financing to support the recapitalization of Targus. As part of the recapitalization, we invested an additional $1,263 in a new senior secured Term Loan A notes and were allocated $3,788 in new senior secured Term Loan B notes. Term Loan A and Term Loan B bear interest payment in kind of 15.0%, and have a final maturity date of December 31, 2019. During the same period, Targus was written-down for tax purposes and a loss of $14,194 was therefore realized for the amount that the amortized cost exceeded the fair value, reducing the amortized cost to $3,479. On April 29, 2016, we invested an additional $25,000 of Senior Secured Term Loan A and $25,000 of Senior Secured Term Loan B debt investments in Trinity Services Group, Inc. (“Trinity”). On April 29, 2016, through our delayed draw term loan commitment with Instant Web, LLC, we funded $8,000 of Senior Secured Term Loan A and $8,000 of Senior Secured Term Loan B. During the period from May 18, 2016 through June 22, 2016, we made $34,726 of follow-on first lien senior secured debt investments in Empire Today, LLC. On June 7, 2016, we made a $19,000 second lien secured investment in Generation Brands Holdings, Inc., a leading designer and provider of lighting fixtures for commercial and residential applications. The second lien term loan bears interest at the greater of 11.0% or LIBOR plus 10.0% and has a final maturity of December 10, 2022. On June 8, 2016, we made a $17,000 first lien senior secured investment in Inpatient Care Management Company, LLC (“Inpatient Care”), a company providing general surgery services to hospitals with a focus on emergency care. The first lien term loan bears interest at the greater of 11.5% or LIBOR plus 10.5% and has a final maturity of June 8, 2021. During the period from June 10, 2016 through June 29, 2016, we collectively invested an additional $11,109 of second lien senior secured debt in NCP Finance Limited Partnership. During the period from June 15, 2016 through June 29, 2016, we provided additional $3,500 debt financing to USES and its subsidiaries in the form of additional Term Loan A debt and, in connection with this debt financing, USES issued to us 268,962 shares of its common stock representing a 99.96% common equity ownership interest in USES. Therefore, USES became a controlled company on June 30, 2016. On June 17, 2016, we made a $25,000 follow-on second lien secured debt investment in Instant Web, LLC. Effective May 23, 2016, APRC and UPRC merged with and into NPRC, to consolidate all of our real estate holdings, with NPRC as the surviving entity. APRC and UPRC have been dissolved. No gain or loss was recognized upon the merger. During the year ended June 30, 2016 , we made 29 follow-on investments in NPRC totaling $243,584 to support the online consumer lending initiative. We invested $41,118 of equity through NPH and $202,466 of debt directly to NPRC and its wholly-owned subsidiaries. We also provided $12,449 of equity financing to NPRC, $9,017 of which was for the acquisition of Orchard Village Apartments, a multi-family property located in Aurora, Illinois, and $3,432 to fund capital expenditures for existing properties. During the period from July 1, 2015 through May 23, 2016, we provided $2,268 of equity financing to APRC, and $4,484 debt and $3,047 of equity financing to UPRC to fund capital expenditures for existing properties. During the year ended June 30, 2016 , we purchased $68,799 of small business whole loans from OnDeck. 72 During the year ended June 30, 2016 , we received full repayments on eleven investments, sold five investments in addition to five partial sales, and received several partial prepayments and amortization payments totaling $1,338,875 , net of realized losses totaling $24,417 . The more significant of these transactions are briefly described below. On July 8, 2015, we sold 27.45% of the outstanding principal balance of the senior secured Term Loan A investment in InterDent, Inc. (“Interdent”) for $34,415. We realized no gain or loss on the sale. On July 24, 2015, TB Corp. repaid the $23,628 loan receivable to us. On August 7, 2015, Ryan, LLC repaid the $72,701 loan receivable to us. On September 1, 2015, BNN Holdings Corp. repaid the $42,922 loans receivable to us. On September 16, 2015, GTP Operations, LLC repaid the $116,411 loan receivable to us. On September 22, 2015, we sold 19.4% of the outstanding principal balance of the senior secured Term Loan A investment in Instant Web, LLC for $29,447. We realized no gain or loss on the sale. On September 25, 2015, we sold an additional 8.39% of the total outstanding principal balance of the senior secured Term Loan A investment in InterDent for $10,516. We realized no gain or loss on the sale. On September 25, 2015, Therakos, Inc. repaid the $13,000 loan receivable to us. On September 30, 2015, we restructured our investment in Arctic Energy. Concurrent with the restructuring, we exchanged our $31,640 senior secured loan and our $20,230 subordinated loan for Class D and Class E equity in Arctic Energy. On October 9, 2015, BAART Programs, Inc. repaid the $42,866 loans receivable to us. On October 21, 2015, Aderant North American, Inc. repaid the $7,000 loan receivable to us. On October 30, 2015, we restructured our investment in CP Energy. Concurrent with the restructuring, we exchanged our $86,965 senior secured loan and $15,924 subordinated loan for Series B Redeemable Preferred Stock in CP Energy. On October 30, 2015, we restructured our investment in Freedom Marine. Concurrent with the restructuring, we exchanged our $32,500 senior secured loans for additional membership interest in Freedom Marine. On November 16, 2015 and November 25, 2015, we sold our $14,755 debt investment in American Gilsonite Company (“American Gilsonite”). We realized a loss of $4,127 on the sale. On November 30, 2015, Tolt Solutions, Inc. repaid the $96,382 loan receivable to us. On December 23, 2015, Stauber Performance Ingredients, Inc. repaid the $16,811 loan receivable to us. On January 21, 2016, we sold 100% of our CIFC Funding 2011-I, Ltd. Class E and Class D notes with a cost basis of $29,004. We realized a gain of $3,911 on the sale. On March 22, 2016 and March 24, 2016, United Sporting Company, Inc. partially repaid the $17,391 loan receivable to us. During the year ended June 30, 2016 , we sold our $16,100 debt investment in ICON Health and Fitness, Inc (“ICON”). We realized a loss of $1,170 on the sale. During the year ended June 30, 2016 , our remaining investment in New Century Transportation, Inc. was written-off for tax purposes and a loss of $187 was realized. During the year ended June 30, 2016 , our remaining investment in Wind River Resources Corporation (“Wind River”) was written-off for tax purposes and a loss of $3,000 was realized. During the period from May 3, 2016 through May 10, 2016, we collectively sold 72.10% of the outstanding principal balance of the Senior Secured Term Loan A investment in Trinity for $25,000. There was no gain or loss realized on the sale. On May 31, 2016, we sold our investment in Harbortouch Payments, LLC (“Harbortouch”) for total consideration of $328,032, including fees and escrowed amounts. Prior to the sale, $154,382 of Senior Secured Term Loan B loan outstanding was 73 converted to preferred equity. We received a repayment of $146,989 loans receivable to us and $157,639 of proceeds related to the equity investment. We recorded a realized loss of $5,419 related to the sale. We also received a $5,145 prepayment premium for early repayment of the outstanding loans, which was recorded as interest income in the year ended June 30, 2016 and a $12,909 advisory fee for the transaction, which was recorded as other income in the year ended June 30, 2016. In addition, there is $5,350 being held in escrow which will be recognized as additional realized gain if and when it is received. Concurrent with the sale, we made a $27,500 second lien secured investment in Harbortouch. During the year ended June 30, 2016 , we received partial repayments of $115,532 of our loans previously outstanding and $12,396 as a return of capital on our equity investment in NPRC. During the period from July 1, 2015 through May 23, 2016, we received a partial repayment of $29,703 of our loan previously outstanding with APRC and recorded $11,016 of dividend income from APRC in connection with the sale of its Vista Palma Sola (“Vista”) property. During the period from July 1, 2015 through May 23, 2016, we received a partial repayment of $7,567 of our loan previously outstanding with UPRC. The following table provides a summary of our investment activity for each quarter within the three years ending June 30, 2016 : Quarter Ended September 30, 2013 December 31, 2013 March 31, 2014 June 30, 2014 September 30, 2014 December 31, 2014 March 31, 2015 June 30, 2015 September 30, 2015 December 31, 2015 March 31, 2016 June 30, 2016 Acquisitions(1) Dispositions(2) 537,851 608,154 1,343,256 444,104 714,255 522,705 219,111 411,406 345,743 316,145 23,176 294,038 145,176 255,238 197,947 169,617 690,194 224,076 108,124 389,168 436,919 354,855 163,641 383,460 (1) Includes investments in new portfolio companies, follow-on investments in existing portfolio companies, refinancings and PIK interest. (2) Includes sales, scheduled principal payments, prepayments and refinancings. Investment Valuation In determining the range of values for debt instruments, except CLOs and debt investments in controlling portfolio companies, management and the independent valuation firm estimated corporate and security credit ratings and identified corresponding yields to maturity for each loan from relevant market data. A discounted cash flow analysis was then prepared using the appropriate yield to maturity as the discount rate, to determine a range of values. In determining the range of values for debt investments of controlled companies and equity investments, the enterprise value was determined by applying earnings before income tax, depreciation and amortization (“EBITDA”) multiples, the discounted cash flow technique, net income and/or book value multiples for similar guideline public companies and/or similar recent investment transactions. For stressed equity investments, a liquidation analysis was prepared. During the year ended June 30, 2016, we changed the valuation methodology for our REITs portfolio (American Property REIT Corp. (“APRC”), National Property REIT Corp. (“NPRC”), and United Property REIT Corp. (“UPRC”)) from averaging the net asset value and dividend yield method to averaging the net asset value and discounted cash flow method utilizing capitalization rates for similar guideline companies and/or similar recent investment transactions. 74 In determining the range of values for our investments in CLOs, management and the independent valuation firm used a discounted cash flow model. The valuations were accomplished through the analysis of the CLO deal structures to identify the risk exposures from the modeling point of view as well as to determine an appropriate call date. For each CLO security, the most appropriate valuation approach was chosen from alternative approaches to ensure the most accurate valuation for such security. To value a CLO, both the assets and the liabilities of the CLO capital structure are modeled. Our valuation agent utilizes additional methods to validate the results from the discounted cash flow method, such as Monte Carlo simulations of key model variables, analysis of relevant data observed in the CLO market, and review of certain benchmark credit indices. A waterfall engine was used to store the collateral data, generate collateral cash flows from the assets based on various assumptions for the risk factors, distribute the cash flows to the liability structure based on the payment priorities, and discount them back using proper discount rates to expected maturity or call date. 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 $5,897,708 . Our portfolio companies are generally lower middle market companies, outside of the financial sector, with less than $100,000 of annual earnings before income tax, depreciation and amortization (“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. Transactions between our controlled investments and us have been detailed in Note 14 to the accompanying consolidated financial statements. Several control investments in our portfolio are under enhanced scrutiny by our senior management and our Board of Directors and are discussed below. First Tower Finance Company LLC We own 80.1% of First Tower Finance, which owns 100% of First Tower, LLC (“First Tower”), the operating company. First Tower is a multiline specialty finance company based in Flowood, Mississippi with over 170 branch offices. On June 15, 2012, we acquired 80.1% of First Tower businesses As of June 30, 2016 , First Tower had $432,639 of finance receivables net of unearned charges. As of June 30, 2016 , First Tower’s total debt outstanding to parties senior to us was $365,448 . The Board of Directors decreased the fair value of our investment in First Tower to $352,666 , representing a premium of 8% to its amortized cost basis, as of June 30, 2016 , from $365,950, representing a premium of 15% to its amortized cost basis, as of June 30, 2015. The decline in fair value was driven by higher credit losses and reserves for insurance losses, as well as an increase in operating costs. First Tower’s operating costs were higher due to growth in loan originations as the company expands in newer states. Freedom Marine Solutions, LLC Prospect owns 100% of the equity of Energy Solutions, a Consolidated Holding Company. Energy Solutions owns 100% of Freedom Marine. Freedom Marine owns 100% of each of Vessel Company, LLC, Vessel Company II, LLC, and Vessel Company III, LLC. Freedom Marine owns, manages, and operates offshore supply vessels to provide transportation and support services for the oil and gas exploration and production industries in the Gulf of Mexico. On December 29, 2014, Freedom Marine reached a settlement for and received $5,174, net of third party obligations, related to the contingent earn-out from the sale of Gas Solutions in January 2012 which was retained by Freedom Marine. This is a final settlement and no further payments are expected from the sale. On October 30, 2015, we restructured our investment in Freedom Marine. Concurrent with the restructuring, we exchanged our $32,500 senior secured loans for additional membership interest in Freedom Marine. The Board of Directors decreased the fair value of our investment in Freedom Marine to $26,618 as of June 30, 2016, a discount of $14,192 to its amortized cost, compared to the $12,722 unrealized depreciation recorded at June 30, 2015. The decline in fair value was driven by the challenging environment for the oil and gas industry, which in turn decreased demand for Freedom Marine’s vessels. 75 Gulf Coast Machine & Supply Company We own 100% of the preferred equity of Gulf Coast. Gulf Coast is a provider of value-added forging solutions to energy and industrial end markets. On November 8, 2013, Gulf Coast issued $25,950 of convertible preferred stock to Prospect (representing 99.9% of the voting securities of Gulf Coast) in exchange for crediting the same amount to the first lien term loan previously outstanding, leaving a first lien loan balance of $15,000. As of June 30, 2016 , Gulf Coast’s total debt outstanding to parties senior to us was $42,865. Due to the continued depressed energy markets coupled with lower steel prices and lower margins from increased competition in non-oil and gas forging markets, the Board of Directors slightly decreased the fair value of our investment in Gulf Coast to $7,312 as of June 30, 2016, a discount of $53,063 to its amortized cost, compared to the $45,032 unrealized depreciation recorded at June 30, 2015. National Property REIT Corp. NPRC is a Maryland corporation and a qualified REIT for federal income tax purposes. NPRC is held for purposes of investing, operating, financing, leasing, managing and selling a portfolio of real estate assets and engages in any and all other activities that may be necessary, incidental, or convenient to perform the foregoing. NPRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi-family properties. NPRC may acquire real estate assets directly or through joint ventures by making a majority equity investment in a property-owning entity. Additionally, through its wholly-owned subsidiaries, NPRC invests in online consumer loans. Effective May 23, 2016, APRC and UPRC merged with and into NPRC, to consolidate all of our real estate holdings, with NPRC as the surviving entity. As of June 30, 2016 , we own 100% of the fully-diluted common equity of NPRC. During the period from July 1, 2015 through May 23, 2016, we provided $2,268 of equity financing to APRC to fund capital expenditures for existing properties. In addition, during the period, we received a partial repayment of $29,703 of our loan previously outstanding and recorded $11,016 of dividend income in connection with the sale of Vista Palma Sola property. During the period from July 1, 2015 through May 23, 2016, we provided $4,484 and $3,047 of debt and equity financing, respectively, to UPRC to fund capital expenditures for existing properties. In addition, during the period from July 1, 2015 through June 30, 2016 , we received a partial repayment of $7,567 of our loan previously outstanding. During the year ended June 30, 2016 , we provided $9,017 of equity financing to NPRC for the acquisition of real estate properties and $3,433 of equity financing to NPRC to fund capital expenditures for existing properties. In addition, during the year ended June 30, 2016, we received partial repayments of $63,271 of our loans previously outstanding. During the year ended June 30, 2016 , we provided $202,466 and $41,118 of debt and equity financing, respectively, to NPRC to enable certain of its wholly- owned subsidiaries to invest in online consumer loans. In addition, during the year ended June 30, 2016 , we received partial repayments of $52,260 of our loans previously outstanding with NPRC and its wholly-owned subsidiaries and $12,396 as a return of capital on our equity investment in NPRC. The online consumer loan investments held by certain of NPRC’s wholly-owned subsidiaries are unsecured obligations of individual borrowers that are issued in amounts ranging from $1 to $50, with fixed terms ranging from 18 to 84 months. As of June 30, 2016 , the outstanding investment in online consumer loans by certain of NPRC’s wholly-owned subsidiaries was comprised of 91,721 individual loans and had an aggregate fair value of $674,423. The average outstanding individual loan balance is approximately $8 and the loans mature on dates ranging from October 31, 2016 to August 1, 2023 with a weighted- average outstanding term of 33 months as of June 30, 2016 . Fixed interest rates range from 4.0% to 36.0% with a weighted-average current interest rate of 22.0%. As of June 30, 2016, based on outstanding principal balance, 9.3% of the portfolio was invested in super prime loans (borrowers with a Fair Isaac Corporation score, “FICO score”, of 720 or greater), 24.8% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 65.9% of the portfolio in near prime loans (borrowers with a FICO score of 580 to 659). 76 Loan Type Outstanding Balance Interest Rate Range Weighted Average Interest Rate* Super Prime Prime Near Prime $ 66,152 175,899 467,106 4.0% - 36.0% 5.3% - 36.0% 6.0% - 36.0% 11.7% 14.9% 26.2% *Based on outstanding principal of the unsecured consumer loans. As of June 30, 2016 , our investment in NPRC had an amortized cost of $727,376 and a fair value of $843,933 , including $363,170 of fair value related to our investment in the online consumer loan subsidiary as discussed above. The remaining fair value of $480,763 relates to NPRC’s real estate portfolio was comprised of thirty eight multi-families properties, twelve self-storage units and three commercial properties. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by NPRC as of June 30, 2016 . 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 No. Property Name 1557 Terrell Mill Road, LLC Lofton Place, LLC Arlington Park Marietta, LLC Cordova Regency, LLC Crestview at Oakleigh, LLC Inverness Lakes, LLC Kings Mill Pensacola, LLC Plantations at Pine Lake, LLC Verandas at Rocky Ridge, LLC Plantations at Hillcrest, LLC Crestview at Cordova, LLC Taco Bell, OK 146 Forest Parkway, LLC 5100 Live Oaks Blvd, LLC NPRC Carroll Resort, LLC APH Carroll 41, LLC Matthews Reserve II, LLC City West Apartments II, LLC Vinings Corner II, LLC Acquisition Date Purchase Price Mortgage Outstanding 12/28/2012 $ 23,500 $ City Marietta, GA Tampa, FL Marietta, GA Pensacola, FL Pensacola, FL Mobile, AL Pensacola, FL Tallahassee, FL Birmingham, AL Mobile, AL Pensacola, FL Yukon, OK 4/30/2013 5/8/2013 11/15/2013 11/15/2013 11/15/2013 11/15/2013 11/15/2013 11/15/2013 1/17/2014 1/17/2014 6/4/2014 Forest Park, GA 10/24/2012 Tampa, FL 1/17/2013 63,400 Pembroke Pines, FL 6/24/2013 225,000 Marietta, GA Matthews, NC Orlando, FL Smyrna, GA 11/1/2013 11/19/2013 11/19/2013 11/19/2013 Uptown Park Apartments II, LLC Altamonte Springs, FL 11/19/2013 Mission Gate II, LLC St. Marin Apartments II, LLC Plano, TX Coppell, TX APH Carroll Bartram Park, LLC Jacksonville, FL APH Carroll Atlantic Beach, LLC Atlantic Beach, FL 23 Mile Road Self Storage, LLC 36th Street Self Storage, LLC Chesterfield, MI Wyoming, MI Ball Avenue Self Storage, LLC Grand Rapids, MI Ford Road Self Storage, LLC Westland, MI Ann Arbor Kalamazoo Self Storage, LLC Ann Arbor, MI Ann Arbor Kalamazoo Self Storage, LLC Scio, MI Ann Arbor Kalamazoo Self Storage, LLC Kalamazoo, MI Jolly Road Self Storage, LLC Okemos, MI Eaton Rapids Road Self Storage, LLC Lansing West, MI Haggerty Road Self Storage, LLC Novi, MI Waldon Road Self Storage, LLC Lake Orion, MI 11/19/2013 11/19/2013 12/31/2013 1/31/2014 8/19/2014 8/19/2014 8/19/2014 8/29/2014 8/29/2014 8/29/2014 8/29/2014 1/16/2015 1/16/2015 1/16/2015 1/16/2015 77 26,000 14,850 13,750 17,500 29,600 20,750 18,000 15,600 6,930 8,500 1,719 7,400 30,600 22,063 23,562 35,691 36,590 47,621 73,078 38,000 13,025 5,804 4,800 7,281 4,642 4,458 8,927 2,363 7,492 1,741 6,700 6,965 14,897 20,402 9,650 11,375 13,845 24,700 17,550 14,092 10,205 4,881 8,126 — — 46,700 181,707 32,713 19,964 23,354 33,026 29,839 41,711 62,552 28,100 8,766 4,350 3,600 5,460 3,480 3,345 6,695 1,775 5,620 1,305 5,025 5,225  Acquisition Date Purchase Price Mortgage Outstanding No. Property Name Tyler Road Self Storage, LLC SSIL I, LLC City Ypsilanti, MI Aurora, IL Atlanta Eastwood Village LLC Stockbridge, GA Atlanta Monterey Village LLC Atlanta Hidden Creek LLC Atlanta Meadow Springs LLC Atlanta Meadow View LLC Atlanta Peachtree Landing LLC Taco Bell, MO Jonesboro, GA Morrow, GA College Park, GA College Park, GA Fairburn, GA Marshall, MO 1/16/2015 11/5/2015 12/12/2013 12/12/2013 12/12/2013 12/12/2013 12/12/2013 12/12/2013 6/4/2014 Canterbury Green Apartments Holdings LLC Fort Wayne, IN 9/29/2014 Abbie Lakes OH Partners, LLC Canal Winchester, OH 9/30/2014 Kengary Way OH Partners, LLC Reynoldsburg, OH 9/30/2014 Lakeview Trail OH Partners, LLC Canal Winchester, OH 9/30/2014 Lakepoint OH Partners, LLC Pickerington, OH Sunbury OH Partners, LLC Heatherbridge OH Partners, LLC Jefferson Chase OH Partners, LLC Goldenstrand OH Partners, LLC Columbus, OH Blacklick, OH Blacklick, OH Hilliard, OH 9/30/2014 9/30/2014 9/30/2014 9/30/2014 10/29/2014 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 3,507 34,500 25,957 11,501 5,098 13,116 14,354 17,224 1,405 85,500 12,600 11,500 26,500 11,000 13,000 18,416 13,551 7,810 2,630 26,450 19,785 9,193 3,619 10,180 11,141 13,575 — 74,286 10,440 11,000 20,142 10,080 10,480 15,480 12,240 8,040 $ 1,200,441 $ 972,796 The Board of Directors increased the fair value of our investment in NPRC to $843,933 as of June 30, 2016 , a premium of $116,557 from its amortized cost, compared to the $49,350 unrealized appreciation , inclusive of APRC and UPRC, recorded at June 30, 2015 . This increase is primarily due to improved operating performance at the property level and selected cap rates, partially offset by a decline in our online lending portfolio value resulting from an increase in delinquent loans. NMMB, Inc. Prospect owns 100% of the equity of NMMB Holdings, Inc. (“NMMB Holdings”), a Consolidated Holding Company. NMMB Holdings owns 96.33% of the fully-diluted equity of NMMB, Inc. (f/k/a NMMB Acquisition, Inc.) (“NMMB”), with NMMB management owning the remaining 3.67% of the equity. NMMB owns 100% of Refuel Agency, Inc. (“Refuel Agency”). Refuel Agency owns 100% of Armed Forces Communications, Inc. (“Armed Forces”). NMMB is an advertising media buying business. On May 6, 2011, Prospect initially made a $34,450 investment (of which $31,750 was funded at closing) in NMMB Holdings and NMMB, of which $24,250 was a senior secured term loan to NMMB, $3,000 was a senior secured revolver to NMMB (of which $300 was funded at closing), $2,800 was a senior subordinated term loan to NMMB Holdings and $4,400 to purchase 100% of the Series A Preferred Stock of NMMB Holdings. The proceeds received by NMMB were used to purchase 100% of the equity of Refuel Agency and assets related to the business for $30,069, pay $1,035 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), pay $396 for third party expenses and $250 was retained by NMMB for working capital. The Board of Directors decreased the fair value of our investment in NMMB to $10,007, representing a discount of 58% to its amortized cost basis, as of June 30, 2016, from $12,052, representing a discount of 49% to its amortized cost basis, as of June 30, 2015. The decrease in fair value was driven by declining revenues from NMMB’s print business. The impact of this decline was partially offset by increases in gross profit and EBITDA margins as well as by growth in the digital and out-of-home advertising business lines. USES Corp. On June 15, 2016, we provided additional $1,300 debt financing to USES and its subsidiaries in the form of additional Term Loan A debt and, in connection with such Term Loan A debt financing, USES issued to us 99,900 shares of its common stock. On June 29, 2016, we provided additional $2,200 debt financing to USES and its subsidiaries in the form of additional Term Loan A debt and, in connection with such Term Loan A debt financing, USES issued to us 169,062 shares of its common 78 stock. As a result of such debt financing and recapitalization, as of June 29, 2016, we held 268,962 shares of USES common stock representing a 99.96% common equity ownership interest in USES. We own 99.96% of USES as of June 30, 2016 . USES provides industrial and environmental services in the Gulf States region. The company offers industrial services, such as tank and chemical cleaning, hydro blasting, waste management, vacuum, safety training, turnaround management, and oilfield. It also offers response/remediation services, including hazardous and non-hazardous material emergency response, oil spill response, industrial fire suppression, disaster response, remediation, demolition and safety training. The company serves pulp paper, oil and gas production, utilities, transportation, refinery, petrochemical, shipping, manufacturing, government, engineering, consulting, spill management and chemical industries. The first half of 2016 saw the company’s revenue suffer due to a pull back in capital and maintenance spending across the energy sector. In addition the company did not benefit from any large emergency response projects. As a result a number of changes have been made to position the company for growth again. The Company has replaced the CEO and CFO. Under the new leadership, the company is now operating under a right sized cost structure. The company is also improving its fleet of equipment with support from Prospect and other financing sources. Management has implemented a new sales strategy that is helping build the company’s revenue backlog across multiple end markets and service lines. Due to the softening of the energy markets partially offset by increased margins on projects, the Board of Directors determined the fair value of our investment in USES to be $40,286 as of June 30, 2016, a discount of $21,440 from its amortized cost, compared to the $4,293 unrealized depreciation recorded at June 30, 2015. Valley Electric Company, Inc. We own 94.99% of Valley Electric as of June 30, 2016 . Valley Electric owns 100% of the equity of VE Company, Inc., which owns 100% of the equity of Valley Electric Co. of Mt. Vernon, Inc. (“Valley”). Valley is a leading provider of specialty electrical services in the state of Washington and is among the top 50 electrical contractors in the U.S. The company, with its headquarters in Everett, Washington, offers a comprehensive array of contracting services, primarily for commercial, industrial, and transportation infrastructure applications, including new installation, engineering and design, design-build, traffic lighting and signalization, low to medium voltage power distribution, construction management, energy management and control systems, 24-hour electrical maintenance and testing, as well as special projects and tenant improvement services. Valley was founded in 1982 by the Ward family, who held the company until the end of 2012. On December 31, 2012, we acquired 96.3% of the outstanding shares of Valley. On June 24, 2014, Prospect and management of Valley formed Valley Electric and contributed their shares of Valley stock to Valley Electric. Valley management made an additional equity investment in Valley Electric, reducing our ownership to 94.99%. In early 2016, Valley’s project backlog and revenue steadily improved primarily due to a more robust construction market in the state of Washington and successful project execution. Due to the softening of the energy markets partially offset by increased project margins, the Board of Directors determined the fair value of our investment in Valley Electric to be $31,091 as of June 30, 2016 , a discount of $29,345 from its amortized cost, compared to the $28,340 unrealized depreciation recorded at June 30, 2015 . Equity positions in our portfolio are susceptible to potentially significant changes in value, both increases as well as decreases, due to changes in operating results and market multiples. Several of our controlled companies experienced such volatility and we recorded corresponding fluctuations in valuations during the year ended June 30, 2016 . See above for discussions regarding the fluctuations in NPRC, First Tower Finance, USES, NMMB, Freedom Marine and Valley Electric. During the year ended June 30, 2016 , the value of our investments in Arctic Energy, CP Energy and Gulf Coast decreased by $22,024 , $12,188 and $8,031 , respectively, as a result of depressed earnings resulting from softness of the energy markets; Echelon decreased by $5,166 due to aircraft sale proceeds and resulting dividend distribution; and R-V decreased by $3,017 due to lower sales profitability. In total, ten of the controlled investments are valued at the original investment amounts or higher, and seven of the controlled investments have been valued at discounts to the original cost basis. Overall, at June 30, 2016 , control investments are valued at $15,771 below their amortized cost. We hold two affiliate investments at June 30, 2016 . Our affiliate portfolio companies did not experience a significant change in valuation during the year ended June 30, 2016 . Overall, at June 30, 2016 , affiliate investments are valued at $562 above 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 79 large swings in value as equity investments. For debt investments, the fair value is generally limited on the high side to each loan’s par value, plus any prepayment premium 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 and are generally performing as expected or better. Two of our non-control/non-affiliate investments, Ark-La-Tex Wireline Services (“Ark-La-Tex”), LLC and Spartan Energy Services, Inc. (“Spartan”), are valued at a discount to amortized cost of $32,548 and $14,240 , respectively, due to a decline in operating results from softness of the energy markets. During the year ended June 30, 2016 , the value of our CLO residual interest investments decreased by $ 114,133 primarily due to non-credit related changes in the capital markets impacting the underlying collateral and increasing our discount rate by 404 bps inclusive of new investments. Overall, at June 30, 2016 , non-control/non-affiliate investments are valued $ 57,551 below their amortized cost, excluding our investments in Ark-La-Tex, Spartan, and CLO investments, 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 as of June 30, 2016 consists of: a Revolving Credit Facility availing us of the ability to borrow debt subject to borrowing base determinations; Convertible Notes which we issued in February 2011, April 2012, August 2012, December 2012 and April 2014; Public Notes which we issued in March 2013, April 2014, December 2015, and from time to time, through our Baby Bond Program; and Prospect Capital InterNotes® which we issue from time to time. Our equity capital is comprised entirely of common equity. The following table shows the maximum draw amounts and outstanding borrowings of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes ® as of June 30, 2016 and June 30, 2015 . Revolving Credit Facility Convertible Notes Public Notes Prospect Capital InterNotes® Total June 30, 2016 June 30, 2015 Maximum Draw Amount Amount Outstanding Maximum Draw Amount Amount Outstanding $ 885,000 $ — $ 885,000 $ 368,700 1,089,000 1,089,000 1,239,500 1,239,500 709,657 908,808 709,657 908,808 548,094 827,442 548,094 827,442 $ 3,592,465 $ 2,707,465 $ 3,500,036 $ 2,983,736 The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes ® as of June 30, 2016 . Payments Due by Period Total Less than 1 Year 1 – 3 Years 3 – 5 Years Revolving Credit Facility $ — $ — $ — $ — $ Convertible Notes Public Notes Prospect Capital InterNotes® 1,089,000 167,500 529,500 709,657 908,808 — — 8,819 257,198 392,000 300,000 360,599 After 5 Years — — 409,657 282,192 Total Contractual Obligations $ 2,707,465 $ 176,319 $ 786,698 $ 1,052,599 $ 691,849 80 The Convertible Notes due August 15, 2016, with an outstanding balance of $167,500 at June 30, 2016, were paid on August 15, 2016 from cash-on-hand, primarily generated from the sale of Harbortouch. The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes ® as of June 30, 2015 . Payments Due by Period Total Less than 1 Year 1 – 3 Years 3 – 5 Years Revolving Credit Facility $ 368,700 $ — $ — $ 368,700 $ Convertible Notes Public Notes Prospect Capital InterNotes® 1,239,500 150,000 497,500 548,094 827,442 — — — 54,509 592,000 300,000 369,938 After 5 Years — — 248,094 402,995 Total Contractual Obligations $ 2,983,736 $ 150,000 $ 552,009 $ 1,630,638 $ 651,089 Historically, we have funded 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 $5,000,000 less issuances to date. As of June 30, 2016 , we can issue up to $4,807,503 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. Each of our Unsecured Notes (as defined below) are our general, unsecured obligations and rank equal in right of payment with all of our existing and future unsecured indebtedness and will be senior in right of payment to any of our subordinated indebtedness that may be issued in the future. The Unsecured Notes are effectively subordinated to our existing secured indebtedness, such as our credit facility, and future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to any existing and future liabilities and other indebtedness of any of our subsidiaries. Revolving Credit Facility On March 27, 2012, we closed on an extended and expanded credit facility with a syndicate of lenders through PCF (the “2012 Facility”). The lenders had extended commitments of $857,500 under the 2012 Facility as of June 30, 2014, which was increased to $877,500 in July 2014. The 2012 Facility included an accordion feature which allowed commitments to be increased up to $1,000,000 in the aggregate. Interest on borrowings under the 2012 Facility was one-month LIBOR plus 275 basis points with no minimum LIBOR floor. Additionally, the lenders charged 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. On August 29, 2014, we renegotiated the 2012 Facility and closed an expanded five and a half year revolving credit facility (the “2014 Facility” and collectively with the 2012 Facility, the “Revolving Credit Facility”). The lenders have extended commitments of $885,000 under the 2014 Facility as of June 30, 2016 . The 2014 Facility includes an accordion feature which allows commitments to be increased up to $1,500,000 in the aggregate. The revolving period of the 2014 Facility extends through March 2019, with an additional one year amortization period (with distributions allowed) after the completion of the revolving period. During such one year amortization period, all principal payments on the pledged assets will be applied to reduce the balance. At the end of the one year amortization period, the remaining balance will become due, if required by the lenders. The 2014 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 2014 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 2014 Facility. The 2014 Facility also requires the maintenance of a minimum liquidity requirement. As of June 30, 2016 , we were in compliance with the applicable covenants. Interest on borrowings under the 2014 Facility is one-month LIBOR plus 225 basis points with no minimum LIBOR floor. Additionally, the lenders charge a fee on the unused portion of the 2014 Facility equal to either 50 basis points if at least 35% of the credit facility is drawn or 100 basis points otherwise. The 2014 Facility requires us to pledge assets as collateral in order to borrow under the credit facility. 81 As of June 30, 2016 and June 30, 2015 , we had $538,456 and $721,800 , respectively, available to us for borrowing under the Revolving Credit Facility, of which the amount outstanding was $0 and $368,700 , respectively. As additional eligible investments are transferred to PCF and pledged under the Revolving Credit Facility, PCF will generate additional availability up to the current commitment amount of $885,000 . As of June 30, 2016 , the investments, including cash and money market funds, used as collateral for the Revolving Credit Facility had an aggregate fair value of $1,373,569 , which represents 22.1% of our total investments, including cash and money market funds. These assets are held and owned by PCF, a bankruptcy remote special purpose entity, and as such, these investments are not available to our general creditors. The release of any assets from PCF requires the approval of the facility agent. In connection with the origination and amendments of the Revolving Credit Facility, we incurred $12,405 of new fees and $3,539 of fees carried over for continuing participants from the previous facility, which are being amortized over the term of the facility in accordance with ASC 470-50, of which $7,525 remains to be amortized and is included within deferred financing costs on the Consolidated Statements of Assets and Liabilities as of June 30, 2016 . During the year ended June 30, 2015, in accordance with ASC 470-50, we expensed $332 of fees relating to credit providers in the 2012 Facility who did not commit to the 2014 Facility. During the years ended June 30, 2016, 2015 and 2014 , we recorded $13,213 , $14,424 , and $12,216 , respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense. Convertible Notes On December 21, 2010, we issued $150,000 aggregate principal amount of convertible notes that matured on December 15, 2015 (the “2015 Notes”). The 2015 Notes bore interest at a rate of 6.25% per year, payable semi-annually on June 15 and December 15 of each year, beginning June 15, 2011. Total proceeds from the issuance of the 2015 Notes, net of underwriting discounts and offering costs, were $145,200. On December 15, 2015, we repaid the outstanding principal amount of the 2015 Notes, plus interest. No gain or loss was realized on the transaction. On February 18, 2011, we issued $172,500 aggregate principal amount of convertible notes that mature on August 15, 2016 (the “2016 Notes”), unless previously converted or repurchased in accordance with their terms. The 2016 Notes bear interest at a rate of 5.50% per year, payable semi-annually on February 15 and August 15 of each year, beginning August 15, 2011. Total proceeds from the issuance of the 2016 Notes, net of underwriting discounts and offering costs, were $167,325. Between January 30, 2012 and February 2, 2012, we repurchased $5,000 aggregate principal amount of the 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. The 2016 Notes were repaid on maturity of August 15, 2016, after our June 30, 2016 fiscal year end. On April 16, 2012, we issued $130,000 aggregate principal amount of convertible notes that mature on October 15, 2017 (the “2017 Notes”), unless previously converted or repurchased in accordance with their terms. The 2017 Notes bear interest at a rate of 5.375% per year, payable semi-annually on April 15 and October 15 of each year, beginning October 15, 2012. Total proceeds from the issuance of the 2017 Notes, net of underwriting discounts and offering costs, were $126,035. On March 28, 2016, we repurchased $500 aggregate principal amount of the 2017 Notes at a price of 98.25, including commissions. The transaction resulted in our recognizing a $9 gain for the period ended March 31, 2016. On August 14, 2012, we issued $200,000 aggregate principal amount of convertible notes that mature on March 15, 2018 (the “2018 Notes”), unless previously converted or repurchased in accordance with their terms. The 2018 Notes bear interest at a rate of 5.75% per year, payable semi-annually on March 15 and September 15 of each year, beginning March 15, 2013. Total proceeds from the issuance of the 2018 Notes, net of underwriting discounts and offering costs, were $193,600. On December 21, 2012, we issued $200,000 aggregate principal amount of convertible notes that mature on January 15, 2019 (the “2019 Notes”), unless previously converted or repurchased in accordance with their terms. The 2019 Notes bear interest at a rate of 5.875% per year, payable semi-annually on January 15 and July 15 of each year, beginning July 15, 2013. Total proceeds from the issuance of the 2019 Notes, net of underwriting discounts and offering costs, were $193,600. On April 11, 2014, we issued $400,000 aggregate principal amount of convertible notes that mature on April 15, 2020 (the “2020 Notes”), unless previously converted or repurchased in accordance with their terms. The 2020 Notes bear interest at a rate of 4.75% per year, payable semi-annually on April 15 and October 15 each year, beginning October 15, 2014. Total proceeds from the issuance of the 2020 Notes, net of underwriting discounts and offering costs, were $387,500. On January 30, 2015, we repurchased $8,000 aggregate principal amount of the 2020 Notes at a price of 93.0, including commissions. As a result of this transaction, we recorded a gain of $332, in the amount of the difference between the reacquisition price and the net carrying amount of the notes, net of the proportionate amount of unamortized debt issuance costs. 82 Certain key terms related to the convertible features for the 2016 Notes, the 2017 Notes, the 2018 Notes, the 2019 Notes and the 2020 Notes (collectively, the “Convertible Notes”) are listed below. Initial conversion rate(1) Initial conversion price Conversion rate at June 30, 2016(1)(2) Conversion price at June 30 , 2016(2)(3) Last conversion price calculation date Dividend threshold amount (per share)(4) 2016 Notes 2017 Notes 2018 Notes 2019 Notes 2020 Notes 78.3699 85.8442 82.3451 79.7766 12.76 $ 11.65 $ 12.14 $ 12.54 $ 80.2196 87.7516 84.1497 79.8360 12.47 $ 11.40 $ 11.88 $ 12.53 $ 2/18/2016 4/16/2016 8/14/2015 12/21/2015 0.101150 $ 0.101500 $ 0.101600 $ 0.110025 $ 80.6647 12.40 80.6670 12.40 4/11/2016 0.110525 $ $ $ (1) Conversion rates denominated in shares of common stock per $1 principal amount of the Convertible Notes converted. (2) Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date. (3) The conversion price in effect at June 30, 2016 was calculated on the last anniversary of the issuance and will be adjusted again on the next anniversary, unless the exercise price shall have changed by more than 1% before the anniversary. (4) The conversion rate is increased if monthly cash dividends paid to common shares exceed the monthly dividend threshold amount, subject to adjustment. Current dividend rates are below the minimum dividend threshold amount for further conversion rate adjustments for all bonds. 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 Convertible Notes. No holder of 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 Convertible 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 Convertible Notes upon a fundamental change at a price equal to 100% of the principal amount of the Convertible 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 Convertible Notes through and including the maturity date. In connection with the issuance of the Convertible Notes, we incurred $34,629 of fees which are being amortized over the terms of the notes, of which $14,639 remains to be amortized and is included within deferred financing costs on the Consolidated Statement of Assets and Liabilities as of June 30, 2016 . During the years ended June 30, 2016 , 2015 and 2014 , we recorded $68,966 , $74,365 and $58,042 , respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense. Public Notes On May 1, 2012, we issued $100,000 aggregate principal amount of unsecured notes that were scheduled to mature on November 15, 2022 (the “2022 Notes”). The 2022 Notes bore interest at a rate of 6.95% per year, payable quarterly on February 15, May 15, August 15 and November 15 of each year, beginning August 15, 2012. Total proceeds from the issuance of the 2022 Notes, net of underwriting discounts and offering costs, were $97,000. On May 15, 2015, we redeemed $100,000 aggregate principal amount of the 2022 Notes at par. In connection with this transaction, we recorded a loss in the amount of the difference between the reacquisition price and the net carrying amount of the notes, net of the proportionate amount of unamortized debt issuance costs. The net loss on the extinguishment of the 2022 Notes in the year ended June 30, 2015 was $2,600. 83 On March 15, 2013, we issued $250,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “2023 Notes”). The 2023 Notes bear interest at a rate of 5.875% per year, payable semi-annually on March 15 and September 15 of each year, beginning September 15, 2013. Total proceeds from the issuance of the 2023 Notes, net of underwriting discounts and offering costs, were $245,966. On April 7, 2014, we issued $300,000 aggregate principal amount of unsecured notes that mature on July 15, 2019 (the “5.00% 2019 Notes”). Included in the issuance is $45,000 of Prospect Capital InterNotes® that were exchanged for the 5.00% 2019 Notes. The 5.00% 2019 Notes bear interest at a rate of 5.00% per year, payable semi-annually on January 15 and July 15 of each year, beginning July 15, 2014. Total proceeds from the issuance of the 5.00% 2019 Notes, net of underwriting discounts and offering costs, were $295,998. On December 10, 2015, we issued $160,000 aggregate principal amount of unsecured notes that mature on June 15, 2024 (the “2024 Notes”). The 2024 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning March 15, 2016. Total proceeds from the issuance of the 2024 Notes, net of underwriting discounts and offering costs, were $155,043. On June 16, 2016, we entered into an at-the-market program with FBR Capital Markets & Co. through which we could sell, by means of at-the-market offerings, from time to time, up to $100,000 in aggregate principal amount of our existing 2024 Notes. During the period from June 28, 2016 to June 30, 2016, we issued $1,380 in aggregate principal amount of our 2024 Notes for net proceeds of $1,247 after commissions and offering costs. The 2022 Notes, the 2023 Notes, the 5.00% 2019 Notes, and the 2024 Notes (collectively, the “Public Notes”) are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding. In connection with the issuance of the 2023 Notes, the 5.00% 2019 Notes, and the 2024 Notes, we incurred $13,109 of fees which are being amortized over the term of the notes, of which $10,289 remains to be amortized and is included within deferred financing costs on the Consolidated Statement of Assets and Liabilities as of June 30, 2016 . During the years ended June 30, 2016, 2015 and 2014 , we recorded $36,859 , $37,063 , and $25,988 , respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense . 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 increased to $1,500,000 in May 2014. Additional agents may be appointed by us from time to time in connection with the InterNotes® Offering and become parties to the Selling Agent Agreement. These notes are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time 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, 2016 , we issued $88,435 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $87,141 . These notes were issued with stated interest rates ranging from 4.625% to 6.00% with a weighted average interest rate of 5.18% . These notes mature between July 15, 2020 and December 15, 2025 . The following table summarizes the Prospect Capital InterNotes® issued during the year ended June 30, 2016 . Tenor at Origination (in years) 5 6.5 7 10 Principal Amount Interest Rate Range $ 51,503 4.625%–6.00% 35,155 5.10%–5.25% 990 787 5.625%–6.00% 5.125%–6.00% $ 88,435 Weighted Average Interest Rate 5.12% 5.25% 5.77% 5.33% 84 Maturity Date Range July 15, 2020 – June 15, 2021 January 15, 2022 – May 15, 2022 November 15, 2022 – December 15, 2022 November 15, 2025 – December 15, 2025 During the year ended June 30, 2015 , we issued $125,696 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $123,641 . These notes were issued with a stated interest rates ranging from 3.375% to 5.10% with a weighted average interest rate of 4.65% . These notes mature between May 15, 2020 and June 15, 2022 . The following table summarizes the Prospect Capital InterNotes® issued during the year ended June 30, 2015 . Tenor at Origination (in years) Principal Amount Interest Rate Range Weighted Average Interest Rate 5.25 $ 7,126 4.625% 5.5 6 6.5 7 106,364 4.25%–4.75% 2,197 3,912 6,097 3.375% 5.10% 5.10% $ 125,696 4.625% 4.63% 3.375% 5.10% 5.10% 0.051 Maturity Date Range August 15, 2020 – September 15, 2020 May 15, 2020 – November 15, 2020 April 15, 2021 – May 15, 2021 December 15, 2021 May 15, 2022 – June 15, 2022 During the year ended June 30, 2016 , we repaid $7,069 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the difference between the reacquisition price and the net carrying amount of the notes, net of the proportionate amount of unamortized debt issuance costs. The net gain on the extinguishment of Prospect Capital InterNotes® in the year ended June 30, 2016 was $215. The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2016 . Tenor at Origination (in years) 3 3.5 4 5 5.2 5.3 5.4 5.5 6 6.5 7 7.5 10 12 15 18 20 25 30 Principal Amount Interest Rate Range $ 5,710 3,109 4.00% 4.00% 45,690 3.75%–4.00% 259,191 4.25%–5.75% 4,440 2,686 5,000 4.625% 4.625% 4.75% 109,808 4.25%–5.00% 2,197 3.375% 40,867 5.10%–5.50% 192,076 4.00%–6.55% 1,996 5.75% 37,533 3.62%–7.00% 2,978 6.00% 17,325 5.25%–6.00% 22,303 4.125%–6.25% 4,462 5.625%–6.00% 35,110 6.25%–6.50% 116,327 5.50%–6.75% $ 908,808 Weighted Average Interest Rate 4.00% 4.00% 3.92% 4.95% 4.625% 4.625% 4.75% 4.65% 3.375% 5.24% 5.13% 5.75% 6.11% 6.00% 5.36% 5.53% 5.89% 6.39% 6.23% Maturity Date Range October 15, 2016 April 15, 2017 November 15, 2017 – May 15, 2018 July 15, 2018 – June 15, 2021 August 15, 2020 – September 15, 2020 September 15, 2020 August 15, 2019 February 15, 2019 – November 15, 2020 April 15, 2021 – May 15, 2021 February 15, 2020 – May 15, 2022 June 15, 2019 – December 15, 2022 February 15, 2021 March 15, 2022 – December 15, 2025 November 15, 2025 – December 15, 2025 May 15, 2028 – November 15, 2028 December 15, 2030 – August 15, 2031 November 15, 2032 – October 15, 2033 August 15, 2038 – May 15, 2039 November 15, 2042 – October 15, 2043 During the year ended June 30, 2015 , we redeemed $76,931 aggregate principal amount of our Prospect Capital InterNotes® at par with a weighted average interest rate of 6.06% in order to replace debt with higher interest rates with debt with lower rates. During the year ended June 30, 2015, we repaid $6,993 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the difference between the reacquisition price and the net carrying amount of the notes, net of the proportionate amount of unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the year ended June 30, 2015 was $1,682. The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2015 . 85 Tenor at Origination (in years) 3 3.5 4 5 5.25 5.5 6 6.5 7 7.5 10 12 15 18 20 25 30 Principal Amount Interest Rate Range $ 5,710 3,109 4.00% 4.00% 45,690 3.75%–4.00% 207,719 4.25%–5.00% 7,126 4.625% 115,184 4.25%–5.00% 2,197 5,712 3.375% 5.10%–5.50% 191,549 4.00%–5.85% 1,996 5.75% 36,925 3.29%–7.00% 2,978 6.00% 17,385 5.00%–6.00% 22,729 4.125%–6.25% 4,530 5.75%–6.00% 36,320 6.25%–6.50% 120,583 5.50%–6.75% $ 827,442 Weighted Average Interest Rate 4.00% 4.00% 3.92% 4.92% 4.63% 4.65% 3.38% 5.23% 5.13% 5.75% 6.11% 6.00% 5.14% 5.52% 5.89% 6.39% 6.23% Maturity Date Range October 15, 2016 April 15, 2017 November 15, 2017 – May 15, 2018 July 15, 2018 – May 15, 2019 August 15, 2020 – September 15, 2020 February 15, 2019 – November 15, 2020 April 15, 2021 – May 15, 2021 February 15, 2020 – December 15, 2021 September 15, 2019 – June 15, 2022 February 15, 2021 March 15, 2022 – May 15, 2024 November 15, 2025 – December 15, 2025 May 15, 2028 – November 15, 2028 December 15, 2030 – August 15, 2031 November 15, 2032 – October 15, 2033 August 15, 2038 – May 15, 2039 November 15, 2042 – October 15, 2043 In connection with the issuance of Prospect Capital InterNotes ® , we incurred $22,294 of fees which are being amortized over the term of the notes, of which $15,598 remains to be amortized and is included within deferred financing costs on the Consolidated Statement of Assets and Liabilities as of June 30, 2016 . During the years ended June 30, 2016, 2015 and 2014 , we recorded $48,681 , $44,808 , and $33,857 , respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes ® as interest expense. Net Asset Value During the year ended June 30, 2016 , our net asset value decreased by $267,132 , or $0.69 per share, resulting primarily from a decrease in net realized and unrealized gains and losses on CLOs, financial and energy related investments. Our net investment income of $371,128 , or $1.04 per weighted average share exceeded dividends to shareholders of $356,110 , or $ 1.00 per share. During the year ended June 30, 2016 , we repurchased 4,708,750 shares of our common stock pursuant to our publicly announced Repurchase Program for $34,140 , or approximately $7.25 weighted average price per share at approximately a 30% discount to net asset value as of June 30, 2015. Our NAV per share was increased by approximately $0.02 for the year ended June 30, 2016 as a result of the share repurchases. During the year ended June 30, 2016 , we issued 2,725,222 shares of our common stock in connection with the dividend reinvestment plan. The following table shows the calculation of net asset value per share as of June 30, 2016 and June 30, 2015 . Net assets Shares of common stock issued and outstanding Net asset value per share Results of Operations $ $ June 30, 2016 June 30, 2015 3,435,917 $ 357,107,231 9.62 $ 3,703,049 359,090,759 10.31 Net increase in net assets resulting from operations for the years ended June 30, 2016, 2015 and 2014 was $103,362 , $346,339 and $319,020 . During the year ended June 30, 2016 the $242,977 decrease is primarily due to a $255,532 unfavorable increase in net realized and unrealized losses on investments when comparing results for the years ended June 30, 2016 and June 30, 2015 . This $255,532 is primarily due to softening of the energy markets, non-credit related changes in the capital markets and increased default rates impacting the underlying collateral of our CLO residual interest investments. These factors resulted in an unfavorable increase in net unrealized and realized losses of $15,178 in our energy-related investments and $88,104 in our CLO investments for the year ended June 30, 2016 . The remaining $152,250 increase in net realized and unrealized losses is primarily due to net 86 unrealized losses for certain controlled investments, including Harbortouch, First Tower and USES, partially offset by unrealized gains related to our real estate investments. During the year ended June 30, 2015 , the significant increase in the asset base resulted in an additional $135,233 of interest income which was partially offset by increased interest costs from the leverage utilized of $40,557 and increased base management fees of $26,981 . Also reducing the net increase in net assets resulting from operations for the year ended June 30, 2015 versus June 30, 2014 were significant declines in the dividends received from Airmall, Borga, and Credit Central, and a decrease in other income of $37,266 . The decrease in other income is primarily from a reduction in structuring fees from lower origination levels and purchases of online consumer and commercial loans, which do not generate structuring fees. These decreases were partially offset by a $25,745 favorable decrease in net realized and unrealized losses on investments. Net increase in net assets resulting from operations for the years ended June 30, 2016, 2015 and 2014 was $0.29 , $0.98 , and $1.06 per weighted average share, respectively. The decrease in net assets resulting from operations for the year ended June 30, 2016 compared to the year ended June 30, 2015 is primarily due to a $0.71 per weighted average share decrease in net realized and unrealized losses primarily due to softening of the energy markets, non-credit related changes in the capital markets and increased default rates impacting the underlying collateral of our CLO residual interest investments. The decrease in net assets resulting from operations for the year ended June 30, 2015 compared to the year ended June 30, 2014 is primarily due to a $0.14 per weighted average share decrease in other income driven by reduced structuring fees and a $0.07 per weighted average share decrease in dividend income received from our investments in Airmall, Borga, and Credit Central. These decreases were partially offset by a $0.04 per weighted average share decrease in income incentive fees and a $0.09 per weighted average share favorable decrease in net realized and unrealized losses on investments. 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 typically do not issue securities rated investment grade, and have limited resources, limited operating history, and concentrated product lines or customers. These 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. 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 settlement of net profits interests, overriding royalty interests and structuring fees, was $791,973 , $791,084 and $712,291 for the years ended June 30, 2016, 2015 and 2014, respectively. Investment income remained relatively stable for the year ended June 30, 2016 compared to the year ended June 30, 2015 primarily due to an increase in dividend income offset by a decrease in interest income. The increases for the year ended June 30, 2015 compared to the year ended June 30, 2014 are primarily the result of a larger income producing portfolio. The following table describes the various components of investment income and the related levels of debt investments: Interest income Dividend income Other income Year Ended June 30, 2016 2015 2014 $ 731,618 $ 748,974 $ 613,741 26,501 33,854 7,663 34,447 26,837 71,713 Total investment income $ 791,973 $ 791,084 $ 712,291 Average debt principal of performing investments $ 6,013,754 $ 6,183,163 $ 4,886,910 Weighted average interest rate earned on performing debt and equity investments 12.17% 12.11% 12.56% 87 Average interest income producing assets decreased from $6,183,163 for the year ended June 30, 2015 to $6,013,754 for the year ended June 30, 2016 . The average interest earned on interest bearing performing assets increased from 12.11% for the year ended June 30, 2015 to 12.17% for the year ended June 30, 2016 . This moderate increase is primarily due to repayments of lower yielding portfolio investments. Average interest income producing assets increased from $4,886,910 for the year ended June 30, 2014 to $6,183,163 for the year ended June 30, 2015 . The average interest earned on interest bearing performing assets decreased from 12.56% for the year ended June 30, 2014 to 12.11% for the year ended June 30, 2015 . This decrease is primarily due to originations at lower rates than our average existing portfolio yield, and to a lesser extent, a decline in prepayment penalty income. Excluding the adjustment for prepayment penalty income, our annual return would have been 12.28% for the year ended June 30, 2014 , 11.97% for the year ended June 30, 2015 . Investment income is also generated from dividends and other income which is less predictable than interest income. Dividend income increased from $7,663 for the year ended June 30, 2015 to $26,501 for the year ended June 30, 2016 . The $18,838 increase in dividend income is primarily attributable to a $11,016 dividend received from our investment in APRC and $7,250 dividend received from our investment in Echelon. No such dividends were received from either APRC or Echelon during the year ended June 30, 2015 . Additionally, we received dividends of $3,196 , $3,963 and $711 related to our investments in CCPI, Nationwide and MITY, respectively, during the year ended June 30, 2016 . No such dividends were received from CCPI or MITY during the year ended June 30, 2015 . The increase in dividend income was partially offset by dividends of $4,425 and $1,929 received from our investments in Nationwide and First Tower, respectively, during the year ended June 30, 2015. No such dividends were received from First Tower during the year ended June 30, 2016 . Dividend income decreased from $26,837 for the year ended June 30, 2014 to $7,663 for the year ended June 30, 2015 . The decrease in dividend income is primarily attributed to a $12,000 decrease in the level of dividends received from our investment in Airmall. We received dividends of $12,000 from Airmall during the year ended June 30, 2014 . No such dividends were received from Airmall during the year ended June 30, 2015 . The decrease in dividend income is further attributed to a $4,682 and $3,246 decrease in the level of dividends received from our investments in Credit Central and Borga (f/k/a STI Holding, Inc.), respectively. We received dividends of $159 and $4,841 from Credit Central during the years ended June 30, 2015 and June 30, 2014 , respectively. We received dividends of $3,246 from Borga during the year ended June 30, 2014 . No dividends were received from Borga during the year ended June 30, 2015 . The decrease in dividend income was partially offset by dividends of $1,929 received from our investment in First Tower during the year ended June 30, 2015 . No dividends were received from First Tower during the year ended June 30, 2014 . Other income has come primarily from structuring fees, royalty interests, and settlement of net profits interests. Income from other sources decreased from $34,447 for the year ended June 30, 2015 to $33,854 for the year ended June 30, 2016 . The decrease is primarily due to a $2,355 decrease in structuring fees, which are generated from originations and will fluctuate as levels of originations and types of originations fluctuate. During the fiscal year ended June 30, 2015, we elected to suspend our equity raising activities. The curtailment of capital raising activities suppressed our levels of origination. Total originations decreased from $1,867,477 in the year ended June 30, 2015 to $979,102 in the year ended June 30, 2016 . As a result, structuring fees fell from $28,562 in the year ended June 30, 2015 to $26,207 in the year ended June 30, 2016 . Included within the $26,207 of structuring fees recognized during the year ended June 30, 2016 is a $12,909 advisory fee for the Harbortouch transaction, as well as from follow-on investments in existing portfolio companies and new originations, primarily from our investments in Crosman, Intelius, Broder, Coverall, NPRC, Inpatient Care and System One. Income from other sources decreased from $71,713 for the year ended June 30, 2014 to $34,447 for the year ended June 30, 2015 . The decrease is primarily due to a $30,965 decrease in structuring fees. Total originations decreased from $2,933,365 in the year ended June 30, 2014 to $1,867,477 in the year ended June 30, 2015 . As a result, structuring fees fell from $59,527 in the year ended June 30, 2014 to $28,562 in the year ended June 30, 2015 . Included within the $28,562 of structuring fees recognized during the year ended June 30, 2015 is a $3,000 fee from Airmall related to the sale of the operating company for which a fee was received in August 2014 and a $2,000 fee from Ajax Rolled Ring & Machine, LLC (“Ajax”) related to the sale of the operating company for which a fee was received in October 2014. The remaining structuring fees recognized during the year ended June 30, 2015 resulted from follow-on investments in existing portfolio companies and new originations, primarily from our investments in InterDent, Instant Web, LLC, Pacific World Corporation (“Pacific World”), PrimeSport, Inc., Trinity, and UPRC, as discussed above. To a lesser extent, the decrease in other income resulted from a decrease in miscellaneous income due to the receipt of $5,825 of legal cost reimbursement from a litigation settlement during the year ended June 30, 2014 which had been expensed in prior years. No such income was received during the year ended June 30, 2015 . 88 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 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. Operating expenses were $420,845 , $428,337 and $355,068 for the years ended June 30, 2016, 2015 and 2014, respectively. The net base management fee was $126,523 , $134,590 , and $108,990 for the years ended June 30, 2016, 2015 and 2014, respectively ( $0.36 , $0.38 and $0.36 per weighted average share, respectfully). The changes are directly related to the level of our total assets. The Investment Adviser has entered into a servicing agreement with certain institutions, where we serve as the agent and collect a servicing fee on behalf of the Investment Adviser. We received payments of $1,893 and $170 from these institutions for the years ended June 30, 2016 and 2015, respectively, on behalf of the Investment Adviser for providing such services under the servicing agreement. We were given a credit for these payments as a reduction of base management fee payable by us to the Investment Adviser resulting in net total base management fees of $126,523 . No such credits were received during the year ended 2014. The total gross base management fee incurred to the favor of the Investment Adviser was $128,416 , $134,760 and $108,990 during the years ended June 30, 2016, 2015 and 2014, respectively. For the years ended June 30, 2016, 2015 and 2014, we incurred $92,782 , $90,687 and $89,306 of income incentive fees, respectively, ( $0.26 , $0.26 , and $0.30 per weighted average share, respectively). Income incentive fees remained stable year-over-year on a dollars basis, but the per share decreases were driven by corresponding decreases in pre-incentive fee net investment income from $1.49 per weighted average share for the year ended June 30, 2014 to $1.28 per weighted average share for the year ended June 30, 2015 primarily due to decreases in dividend and other income per share. For the year ended June 30, 2016 , the pre- incentive fee net investment income was $1.30 per weighted average share ( $0.02 less than the fiscal year ended June 30, 2015) due to year over year decreases in base management fees and interest expense. No capital gains incentive fee has yet been incurred pursuant to the Investment Advisory Agreement. During the years ended June 30, 2016, 2015 and 2014, we incurred $167,719 , $170,660 and $130,103 , respectively, of interest expenses related to our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “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 Notes and the related indicators of leveraging capacity and indebtedness during these years. Year Ended June 30, 2016 2015 2014 Interest on borrowings $ 146,659 $ 149,312 $ 111,900 Amortization of deferred financing costs Accretion of discount on Public Notes Facility commitment fees 13,561 200 7,299 14,266 213 6,869 11,491 156 6,556 Total interest and credit facility expenses $ 167,719 $ 170,660 $ 130,103 Average principal debt outstanding $ 2,807,125 $ 2,830,727 $ 1,984,164 Weighted average stated interest rate on borrowings(1) Weighted average interest rate on borrowings(2) 5.22% 5.97% 5.27% 6.03% 5.64% 6.56% (1) Includes only the stated interest expense. (2) Includes the stated interest expense, amortization of deferred financing costs, accretion of discount on Public Notes and commitment fees on the undrawn portion of our Revolving Credit Facility. Interest expense during the year ended June 30, 2016 and June 30, 2015 is relatively stable as a result of increased issuances through our InterNotes programs and increased utilization of our Revolving Credit Facility, offset by both Public and Convertible 89 Note maturities. The weighted average stated interest rate on borrowings (excluding amortization, accretion and undrawn facility fees) decreased from 5.27% for the year ended June 30, 2015 to 5.22% for the year ended June 30, 2016 . This decrease is primarily due to issuances of Prospect Capital InterNotes® at lower rates. The allocation of gross overhead expense from Prospect Administration was $20,090, $21,992 and $22,393 for the years ended June 30, 2016 , 2015 and 2014 , respectively. Prospect Administration received estimated payments of $7,443, $7,014 and $8,020 directly from our portfolio companies and certain funds managed by the Investment Adviser for legal, tax and portfolio level accounting services during the years ended June 30, 2016 , 2015 and 2014, respectively. We were given a credit for these payments as a reduction of the administrative services cost payable by us to Prospect Administration, resulting in net overhead expense of $12,647 , $14,977 and 14,373 during the years ended June 30, 2016, 2015 and 2014, respectively. Had Prospect Administration not received these payments, Prospect Administration’s charges for its administrative services would have increased by these amounts . During the year ended June 30, 2016 , we renegotiated the managerial assistance agreement with First Tower and reversed $1,200 of previously accrued managerial assistance at First Tower Delaware as the fee was paid by First Tower, which decreased our overhead allocation. 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 and credit facility expenses, allocation of overhead from Prospect Administration (“Other Operating Expenses”) was $21,174 , $17,423 , and $12,296 for the years ended June 30, 2016, 2015 and 2014, respectively. The increase of $3,751 and $5,127 during the years ended June 30, 2016 and 2015, respectively, is primarily due to an increase in administrative expenses related to investor relations and the growing complexity of our business. Net Investment Income Net investment income represents the difference between investment income and operating expenses. Net investment income was $371,128 , $362,747 and $357,223 for the years ended June 30, 2016, 2015 and 2014, respectively. The $8,381 increase during the year ended June 30, 2016 is primarily the result of a $18,838 increase in dividend income from Echelon and APRC, and a $5,972 decrease in base management fees from a decrease in our asset base. These results were partially offset by a $17,356 decrease in interest income, primarily due to a decrease in our interest earning asset base. During the year ended June 30, 2015 , the significant increase in the asset base resulted in an additional $135,233 of interest income which was offset by increased interest costs from the leverage utilized of $40,557 and increased base management fees of $25,600 . Also reducing net investment income for the year ended June 30, 2015 versus June 30, 2014 were significant declines in the dividends received from Airmall, Borga, Inc. (“Borga”), and Credit Central, and a decrease in other income of $37,266 . The decrease in other income is primarily from a reduction in structuring fees from lower origination levels and purchases of online consumer and commercial loans, which do not generate structuring fees. Net investment income for the years ended June 30, 2016, 2015 and 2014 was $1.04 , $1.03 and $1.19 per weighted average share, respectively. During the year ended June 30, 2016, the increase is primarily due to a $0.02 per weighted average share decrease in base management fees. This decrease was partially offset by a $0.07 per weighted average share decrease in interest income driven by reduced interest earning asset base and an increase of $0.05 per weighted average share in dividend income received by our investments in APRC and Echelon. The decrease in net investment income for the year ended June 30, 2015 compared to the year ended June 30, 2014 is primarily due to a $0.14 per weighted average share decrease in other income driven by reduced structuring fees and a $0.07 per weighted average share decrease in dividend income received from our investments in Airmall, Borga, and Credit Central. These decreases were partially offset by a $0.04 per weighted average share decrease in income incentive fees. Net Realized Gains/Losses During the years ended June 30, 2016, 2015 and 2014, we recognized net realized losses on investments of $24,417 , $180,423 and $3,346 , respectively. The net realized loss during the year ended June 30, 2016 was primarily due to the write-down of our investment in Targus of $14,194, the sale of our investments in American Gilsonite, ICON, and Harbortouch for which we recognized total realized losses of $10,860 and the write-off of defaulted loans in our small business lending portfolio of $5,986 . These losses were partially offset by net realized gains from the sale of two of our CLO investments for which we realized total gains of $3,912. 90 The net realized loss during the year ended June 30, 2015 was primarily due to the sale of our investments in Airmall, Ajax, Borga, BXC Company, Inc. (“BXC”) and Vets Securing America, Inc. (“VSA”) for which we recognized total realized losses of $47,546, and the sale of four of our CLO investments for which we realized total losses of $15,561. During the year ended June 30, 2015, we determined that the impairments of several of our investments (e.g., Appalachian Energy Holdings, LLC, Change Clean Energy Company, Coalbed LLC, Edmentum, Manx Energy Inc., NCT, Stryker Energy, LLC, The Healing Staff, Inc., Wind River, and Yatesville Coal Company) were other-than-temporary and recorded total realized losses of $123,555 (which were previously recognized as unrealized losses) for the amount that the amortized cost exceeded the fair value. These losses were partially offset by net realized gains from the proceeds collected on warrants redeemed from Snacks Parent Corporation, litigation settlements, partial sales, and the release of escrowed amounts due to us from several portfolio companies, for which we recognized total realized gains of $6,239. During the year ended June 30, 2016 , we repurchased $500 aggregate principal amount of the 2017 Notes and repaid $7,069 aggregate principal amount of Prospect Capital InterNotes® (including amounts repaid in accordance with the Survivor’s Option). As a result of these transactions, we recognized net realized gain on debt extinguishment of $224 in the year ended June 30, 2016 . During the year ended June 30, 2015, we repurchased $8,000 aggregate principal amount of the 2020 Notes, redeemed $100,000 aggregate principal amount of the 2022 Notes, and redeemed $83,924 aggregate principal amount of Prospect Capital InterNotes® (including amounts repaid in accordance with the Survivor’s Option). As a result of these transactions, we recognized net realized losses on debt extinguishment of $3,950 in the year ended June 30, 2015. We did not recognize any gains or losses on debt extinguishment during the year ended June 30, 2014. Net Change in Unrealized (Depreciation) Appreciation Net change in unrealized (depreciation) appreciation was $(243,573) , $167,965 and $(34,857) for the years ended June 30, 2016, 2015 and 2014, respectively. For the year ended June 30, 2016 , the $(243,573) change in net unrealized depreciation was driven primarily due to softening of the energy markets, non-credit related changes in the capital markets and increased default rates impacting the underlying collateral of our CLO residual interest investments. These factors resulted in net unrealized losses of $86,617 in our energy-related investments and $114,131 in our CLO investments. The remaining $42,825 increase in unrealized depreciation is primarily due to net unrealized losses for certain controlled investments - Harbortouch, First Tower and USES. Our investment in Harbortouch was sold and the previously recorded unrealized gain was reversed. Additionally, First Tower and USES experienced a decline in operating results contributing $21,471 and $17,148 of unrealized losses during the year ended June 30, 2016. These combined unrealized losses in certain controlled investments were partially offset by unrealized appreciation in our real estate portfolio due to improved operating performance at the property level and selected cap rates, partially offset by a decline in our online lending portfolio value resulting from an increase in delinquent loans. For the year ended June 30, 2015, the $202,822 increase in net change in unrealized appreciation was primarily the result of realizing losses that were previously unrealized related to the sale of our investments in Airmall, Ajax, Borga, BXC and VSA, and the impairment of certain investments for which we eliminated the unrealized depreciation balances related to these investments. We also experienced significant write-ups in our investments in APRC, First Tower, Harbortouch, NPRC, and UPRC. These instances of unrealized appreciation were partially offset by unrealized depreciation related to CP Energy, Gulf Coast, Pacific World, R- V, and Valley Electric. Financial Condition, Liquidity and Capital Resources For the years ended June 30, 2016, 2015 and 2014, our operating activities provided (used) $861,869 , $45,464 , $(1,725,231) of cash, respectively. There were no investing activities for the years ended June 30, 2016, 2015 and 2014. Financing activities (used) provided $654,097 , $(69,663) , and $1,656,220 of cash during the years ended June 30, 2016, 2015 and 2014, respectively, which included dividend payments of $336,637 , $414,833 and $377,070 , 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 historically been issuances of debt and equity. More recently, we have and may continue to fund a portion of our cash needs through repayments and opportunistic sales of our existing investment portfolio. We may also securitize a portion of our investments in unsecured 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, 2016 , we borrowed $615,000 and made repayments totaling $983,700 under our Revolving Credit Facility. As of June 30, 2016 , we had no outstanding balance on our Revolving Credit Facility, $1,089,000 outstanding on the Convertible Notes, Public Notes with a carrying value of $709,657 and $908,808 outstanding on the Prospect Capital InterNotes®. (See “Capitalization” above.) 91 Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 6.00%. As of June 30, 2016 and June 30, 2015 , we had $40,560 and $88,288 , respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies. The fair value of our undrawn committed revolvers and delayed draw term loans was zero as of June 30, 2016 and as of June 30, 2015 . Our shareholders’ equity accounts as of June 30, 2016 , June 30, 2015 and June 30, 2014 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, our dividend reinvestment plan and in connection with the acquisition of certain controlled portfolio companies. 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. As part of our Repurchase Program, we delivered a notice with our annual proxy mailing on September 23, 2015 and our most recent notice was delivered with a shareholder letter mailing on February 2, 2016. This notice extends for six months after the date that notice is delivered. During the year ended June 30, 2016 , we repurchased 4,708,750 shares of our common stock pursuant to our publicly announced Repurchase Program for $34,140 , or approximately $7.25 weighted average price per share at approximately a 30% discount to net asset value as of June 30, 2015. Our NAV per share was increased by approximately $0.02 for the year ended June 30, 2016 as a result of the share repurchases. On November 3, 2015, our Registration Statement on Form N-2 was declared effective by the SEC. Under this Shelf Registration Statement, we can issue up to $4,807,503 of additional debt and equity securities in the public market as of June 30, 2016 . Off-Balance Sheet Arrangements As of June 30, 2016 , 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 On July 1, 2016, we made an investment of $7,320 to purchase 19.7% of the subordinated notes in Madison Park Funding IX, Ltd. On July 22, 2016, we made a $32,500 Senior Secured Term Loan A and a $32,500 Senior Secured Term Loan B debt investment in Universal Turbine Parts, LLC, an independent supplier of aftermarket turboprop engines and parts. On August 9, 2016, JHH Holdings, Inc. repaid the $35,507 loan receivable to us. On August 9, 2016, we made an investment of $29,634 to purchase 71.9% of the subordinated notes in Carlyle Global Market Strategies CLO 2016-3, Ltd. in a co- investment transaction with Priority Income Fund, Inc., a closed-end fund managed by an affiliate of Prospect Capital Management L.P. On August 14, 2016, we announced the then current conversion rate on the 2018 Notes as 84.1497 shares of common stock per $1 principal amount of the 2018 Notes converted, which is equivalent to a conversion price of approximately $11.88. On August 15, 2016, the 5.50% unsecured convertible notes, which had an outstanding principal balance of $167,500, matured and were repaid in full with cash on hand, primarily from the Harbortouch sale proceeds. On August 22, 2016, the 2014 Facility was amended to eliminate some of the restrictions in the definition of an eligible loan for pledging to the facility and increase our overall borrowing base. During the period from July 1, 2016 through August 29, 2016 , we made seven follow-on investments in NPRC totaling $55,710 to support the online consumer lending initiative. During the period from July 1, 2016 through August 25, 2016 we issued $28,820 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $28,464. During the period from July 1, 2016 through August 24, 2016, we issued $37,901 in aggregate principal amount of our 2024 Notes for net proceeds of $37,106. On August 26, 2016, we announced the declaration of monthly dividends in the following amounts and with the following dates: • • $0.08333 per share for September 2016 to holders of record on September 30, 2016 with a payment date of October 20, 2016; $0.08333 per share for October 2016 to holders of record on October 31, 2016 with a payment date of November 17, 2016. 92 Critical Accounting Policies and Estimates Basis of Presentation and Consolidation The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) pursuant to the requirements for reporting on Form 10-K, ASC 946, Financial Services—Investment Companies (“ASC 946”), and Articles 6, 10 and 12 of Regulation S-X. Under the 1940 Act, ASC 946, and the regulations pursuant to Article 6 of Regulation S-X, we are precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services to benefit us. Our consolidated financial statements include the accounts of Prospect, PCF, PSBL, PYC, and the Consolidated Holding Companies. All intercompany balances and transactions have been eliminated in consolidation. The financial results of our non-substantially wholly-owned holding companies and operating portfolio company investments are not consolidated in the financial statements. Any operating companies owned by the Consolidated Holding Companies are not consolidated. 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 years ended June 30, 2016 , 2015 and 2014 . Use of Estimates The preparation of the consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income, expenses, and gains and losses 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. Cash and Cash Equivalents Cash and cash equivalents include funds deposited with financial institutions and short-term, highly-liquid overnight investments in money market funds. Cash and cash equivalents are carried at cost which approximates fair value. Investment Classification We are a non-diversified company within the meaning of the 1940 Act. As required by 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 more than 25% of the voting securities of an investee company. Under the 1940 Act, “Affiliate Investments” 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. “Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments. Investment Transactions 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. Amounts for investments recognized or derecognized but not yet settled are reported in due to broker or as a receivable for investments sold, respectively, in the Consolidated Statements of Assets and Liabilities . Investment Risks Our investments are subject to a variety of risks. Those risks include the following: Market Risk Market risk represents the potential loss that can be caused by a change in the fair value of the financial instrument. Credit Risk 93 Credit risk represents the risk that we would incur if the counterparties failed to perform pursuant to the terms of their agreements with us. Liquidity Risk Liquidity risk represents the possibility that we may not be able to rapidly adjust the size of our investment positions in times of high volatility and financial stress at a reasonable price. Interest Rate Risk Interest rate risk represents a change in interest rates, which could result in an adverse change in the fair value of an interest-bearing financial instrument. Prepayment Risk Many of our debt investments allow for prepayment of principal without penalty. Downward changes in interest rates may cause prepayments to occur at a faster than expected rate, thereby effectively shortening the maturity of the security and making the security less likely to fully earn all of the expected income and reinvesting in a lower yielding instrument. Structured Credit Related Risk CLO investments may be riskier and less transparent to us than direct investments in underlying companies. CLOs typically will have no significant assets other than their underlying senior secured loans. Therefore, payments on CLO investments are and will be payable solely from the cash flows from such senior secured loans. Online Lending Risk With respect to our online consumer lending initiative, we invest primarily in marketplace loans through marketplace lending facilitators. We do not conduct loan origination activities ourselves. Therefore, our ability to purchase consumer and small and medium sized business loans, and our ability to grow our portfolio of consumer loans, is directly influenced by the business performance and competitiveness of the marketplace loan origination business of the marketplace lending facilitators from which we purchase consumer loans. In addition, our ability to analyze the risk-return profile of consumer loans is significantly dependent on the marketplace facilitator's ability to effectively evaluate a borrower's credit profile and likelihood of default. If we are unable to effectively evaluate borrowers' credit profiles or the credit decisioning and scoring models implemented by each platform, we may incur unanticipated losses which could adversely impact our operating results. Investment Valuation To value our investments, we follow the guidance of ASC 820, Fair Value Measurement (“ASC 820”), that defines fair value, establishes a framework for measuring fair value in conformity with GAAP, and requires disclosures about fair value measurements. 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. ASC 820 classifies the inputs used to measure these fair values into the following hierarchy: Level 1 : Quoted prices in active markets for identical assets or liabilities, accessible by us at the measurement date. Level 2 : Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices. Level 3 : Unobservable inputs for the asset or liability. 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. 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. 94 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. 1. Each portfolio company or investment is reviewed by our investment professionals with independent valuation firms engaged by our Board of Directors. 2. The independent valuation firms prepare independent valuations for each investment based on their own independent assessments and issues their report. 3. The Audit Committee of our Board of Directors reviews and discusses with the independent valuation firms the valuation reports, and then makes a recommendation to the Board of Directors of the value for each investment. 4. The Board of Directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser, the respective independent valuation firm and the Audit Committee. Our non-CLO investments are valued utilizing a yield analysis, enterprise value (“EV”) analysis, net asset value analysis, liquidation analysis, discounted cash flow analysis, or a combination of methods, as appropriate. The yield analysis uses loan spreads for loans, dividend yields for certain investments and other relevant information implied by market data involving identical or comparable assets or liabilities. Under the EV analysis, the EV of a portfolio company is first determined and allocated over the portfolio company’s securities in order of their preference relative to one another (i.e., “waterfall” allocation). To determine the EV, we typically use a market multiples approach that considers relevant and applicable market trading data of guideline public companies, transaction metrics from precedent merger and acquisitions transactions and/or a discounted cash flow analysis. The net asset value analysis is used to derive a value of an underlying investment (such as real estate property) by dividing a relevant earnings stream by an appropriate capitalization rate. For this purpose, we consider capitalization rates for similar properties as may be obtained from guideline public companies and/or relevant transactions. The liquidation analysis is intended to approximate the net recovery value of an investment based on, among other things, assumptions regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company’s assets. The discounted cash flow analysis uses valuation techniques to convert future cash flows or earnings to a range of fair values from which a single estimate may be derived utilizing an appropriate discount rate. The measurement is based on the net present value indicated by current market expectations about those future amounts. In applying these methodologies, additional factors that we consider in valuing our investments may include, as we deem relevant: security covenants, call protection provisions, and information rights; the nature and realizable value of any collateral; the portfolio company’s ability to make payments; the principal markets in which the portfolio company does business; publicly available financial ratios of peer companies; 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 as well as to determine an appropriate call date (i.e., expected maturity). For each CLO security, the most appropriate valuation approach has been chosen from alternative approaches to ensure the most accurate valuation for such security. To value a CLO, both the assets and the liabilities of the CLO capital structure are modeled. Our valuation agent utilizes additional methods to validate the results from the discounted cash flow method, such as Monte Carlo simulations of key model variables, analysis of relevant data observed in the CLO market, and review of certain benchmark credit indices. We use a waterfall engine to store the collateral data, generate collateral cash flows from the assets based on various assumptions for the risk factors, distribute the cash flows to the liability structure based on the payment priorities, and discount them back using appropriate market discount rates. 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. The main risk factors are: default risk, interest rate risk, downgrade risk, and credit spread risk. Valuation of Other Financial Assets and Financial Liabilities ASC 825, Financial Instruments , specifically ASC 825-10-25, permits an entity to choose, at specified election dates, to measure eligible items at fair value (the “Fair Value Option”). We have not elected the Fair Value Option to report selected financial assets and financial liabilities. See Note 8 in the accompanying Consolidated Financial Statements for further discussion of our financial liabilities that are measured using another measurement attribute. 95 Convertible Notes We have recorded the Convertible Notes at their contractual amounts. The Convertible Notes were analyzed for any features that would require bifurcation and such features were determined to be immaterial. See Note 5 in the accompanying Consolidated Financial Statements for further discussion. 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 amortization of premiums is calculated using 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. Loans are placed on non-accrual status 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, is likely to remain current. As of June 30, 2016 , approximately 1.4% of our total assets at fair value are in non-accrual status. Interest income from investments in the “equity” class of security of CLO funds (typically preferred shares, income notes or subordinated notes) and “equity” class of security of securitized trust is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40, Beneficial Interests in Securitized Financial Assets . We monitor the expected cash inflows from our CLO and securitized trust 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 is earned, usually when paid. Structuring fees, excess deal deposits, net profits interests and overriding royalty interests are included in other income. Federal and State Income Taxes We have elected to be treated as a RIC and intend to continue to comply with the requirements of 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 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 earned in the calendar year, 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 calendar year taxable income will be in excess of estimated current calendar year dividend distributions from such taxable income, we accrue excise taxes, if any, on estimated excess taxable income. As of June 30, 2016 and June 30, 2015, we accrued $1,100 and $305, respectively, for any unpaid potential excise tax liability and have included these amounts within other liabilities on the accompanying Consolidated Statements of Assets and Liabilities . 96 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 income tax 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. 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 consolidated 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. For the years ended June 30, 2016 and June 30, 2015, we did not record any unrecognized tax benefits or liabilities. 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. Although we file both federal and state income tax returns, our major tax jurisdiction is federal. Our tax returns for our federal tax years ended August 31, 2013 and thereafter remain subject to examination by the Internal Revenue Service. 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 future earnings. Net realized capital gains, if any, are distributed at least annually. Financing Costs We record origination expenses related to our Revolving Credit Facility and Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “Unsecured Notes”) as deferred financing costs. These expenses are deferred and amortized as part of interest expense using the straight-line method over the stated life of the obligation which approximates the effective yield method for our Revolving Credit Facility, Baby Bond Program, and Prospect Capital InterNotes®. The effective interest method is used for our remaining Unsecured Notes over the respective expected life or maturity. In the event that we modify or extinguish our debt before maturity, we follow the guidance in ASC 470-50, Modification and Extinguishments (“ASC 470-50”). For modifications to or exchanges of our Revolving Credit Facility, any unamortized deferred costs relating to lenders who are not part of the new lending group are expensed. For extinguishments of our Unsecured Notes, any unamortized deferred costs are deducted from the carrying amount of the debt in determining the gain or loss from the extinguishment. Effective July 1, 2016, these costs will be reclassified to the balance sheet as a deduction from the debt liability rather than an asset, in accordance with Accounting Standards Update 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). We may record registration expenses related to shelf filings as prepaid assets. These expenses consist principally of SEC registration fees, legal fees and accounting fees incurred. These prepaid assets are charged to capital upon the receipt of proceeds from an equity offering or charged to expense if no offering is completed. As of June 30, 2016 and June 30, 2015 , there are no prepaid assets related to registration expenses and all amounts incurred have been expensed. 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 consolidated 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. 97 Per Share Information Net increase or decrease in net assets resulting from operations per share is calculated using the weighted average number of common shares outstanding for the period presented. In accordance with ASC 946, convertible securities are not considered in the calculation of net asset value per share. Recent Accounting Pronouncement In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the debt liability rather than as an asset. The new guidance will make the presentation of debt issuance costs consistent with the presentation of debt discounts or premiums. ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The new guidance must be applied on a retrospective basis to all prior periods presented in the financial statements. The adoption of the amended guidance in ASU 2015-03 is expected to decrease total liabilities by decreasing the carrying value of our debt, and is expected to decrease total assets by decreasing deferred financing costs of our debt, but is not expected to have any other significant effect on our consolidated financial statements and disclosures. Item 7A. Quantitative and Qualitative Disclosures about Market Risk We are subject to financial market risks, including changes in interest rates and equity price risk. Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates impacting some of the loans in our portfolio which have floating interest rates. Additionally, because we fund a portion of our investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. See “Risk Factors - Risks Relating to Our Business - Changes in interest rates may affect our cost of capital and net investment income.” Our debt investments may be based on floating rates or fixed rates. For our floating rate loans the rates are determined from the LIBOR, EURO Interbank Offer Rate, the Federal Funds Rate or the Prime Rate. The floating interest rate loans may be subject to a LIBOR floor. Our loans typically have durations of one to three months after which they reset to current market interest rates. As of June 30, 2016, 91.0% of the interesting earning investments in our portfolio, at fair value, bore interest at floating rates. We also have a revolving credit facility and certain Prospect Capital InterNotes® issuances that are based on floating LIBOR rates. Interest on borrowings under the revolving credit facility is one-month LIBOR plus 225 basis points with no minimum LIBOR floor and there is no outstanding balance as of June 30, 2016. Interest on five Prospect Capital InterNotes® is three-month LIBOR plus a range of 350 to 300 basis points with no minimum LIBOR floor. The Convertible Notes, Public Notes and remaining Prospect Capital InterNotes® bear interest at fixed rates. The following table shows the approximate annual impact on net investment income of base rate changes in interest rates (considering interest rate flows for floating rate instruments, excluding our investments in CLO residual interests) to our loan portfolio and outstanding debt as of June 30, 2016, assuming no changes in our investment and borrowing structure: (in thousands) Basis Point Change Up 300 basis points Up 200 basis points Up 100 basis points Down 100 basis points Interest Income Interest Expense Net Income Net Investment Income (1) $ 83,879 $ 47,172 14,352 (219) 43 29 16 (10) $ 83,836 $ 47,143 14,336 (209) 67,069 37,714 11,469 (251) (1) Includes the impact of income incentive fees. See Note 13 to our consolidated financial statements for the year ended June 30, 2016 for more information on the income incentive fees. (2) As of June 30, 2016, one and three month LIBOR was 0.47% and 0.65%, respectively. 98 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, 2016, we did not engage in hedging activities. 99 Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Consolidated Statements of Assets and Liabilities as of June 30, 2016 and June 30, 2015 Consolidated Statements of Operations for the years ended June 30, 2016, 2015 and 2014 Consolidated Statements of Changes in Net Assets for the years ended June 30, 2016, 2015 and 2014 Consolidated Statements of Cash Flows for the years ended June 30, 2016, 2015 and 2014 Consolidated Schedules of Investments as of June 30, 2016 and June 30, 2015 Notes to Consolidated Financial Statements 100 Page 101 102 103 104 105 106 141 Board of Directors and Stockholders Prospect Capital Corporation New York, New York Report of Independent Registered Public Accounting Firm We have audited the accompanying consolidated statements of assets and liabilities of Prospect Capital Corporation (the “Company”), including the consolidated schedules of investments, as of June 30, 2016 and 2015, 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, 2016, and the financial highlights for each of the five years in the period ended June 30, 2016. 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 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 financial statements. Our procedures included confirmation of securities owned as of June 30, 2016 and 2015 by correspondence with the custodians, online lending servicers and portfolio companies, or by other appropriate auditing procedures where replies were not received. 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, 2016 and 2015, and 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, 2016, and the financial highlights for each of the five years in the period ended June 30, 2016, 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, 2016, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated August 29, 2016 expressed an unqualified opinion thereon. /s/ BDO USA, LLP BDO USA, LLP New York, New York August 29, 2016 101 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (in thousands, except share and per share data) June 30, 2016 June 30, 2015 Assets Investments at fair value: Control investments (amortized cost of $1,768,220 and $1,894,644, respectively) $ 1,752,449 $ 1,974,202 Affiliate investments (amortized cost of $10,758 and $45,150, respectively) Non-control/non-affiliate investments (amortized cost of $4,312,122 and $4,619,582, respectively) Total investments at fair value (amortized cost of $6,091,100 and $6,559,376, respectively) Cash and cash equivalents Receivables for: Interest, net Other Prepaid expenses Deferred financing costs Total Assets Liabilities Revolving Credit Facility (Notes 4 and 8) Convertible Notes (Notes 5 and 8) Public Notes (Notes 6 and 8) Prospect Capital InterNotes ® (Notes 7 and 8) Interest payable Due to broker Dividends payable Due to Prospect Capital Management (Note 13) Due to Prospect Administration (Note 13) Accrued expenses Other liabilities Commitments and Contingencies (Note 3) Total Liabilities Net Assets Components of Net Assets Common stock, par value $0.001 per share (1,000,000,000 common shares authorized; 357,107,231 and 359,090,759 issued and outstanding, respectively) (Note 9) Paid-in capital in excess of par (Note 9) Accumulated overdistributed net investment income Accumulated net realized loss on investments and extinguishment of debt Net unrealized (depreciation) appreciation on investments Net Assets Net Asset Value Per Share (Note 16) See notes to consolidated financial statements. 102 11,320 4,133,939 5,897,708 317,798 12,127 168 855 48,051 45,945 4,589,411 6,609,558 110,026 20,408 2,885 757 54,420 6,276,707 6,798,054 — 1,089,000 709,657 908,808 40,804 957 29,758 54,149 1,765 2,259 3,633 — 368,700 1,239,500 548,094 827,442 39,659 26,778 29,923 2,550 4,238 3,408 4,713 — 2,840,790 3,435,917 $ 3,095,005 3,703,049 357 $ 359 3,967,397 3,975,672 (3,623) (334,822) (193,392) (21,077) (302,087) 50,182 3,435,917 $ 3,703,049 9.62 $ 10.31 $ $ $ $ PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) Investment Income Interest income: Control investments Affiliate investments Non-control/non-affiliate investments Structured credit securities Total interest income Dividend income: Control investments Affiliate investments Non-control/non-affiliate investments Total dividend income Other income: Control investments Affiliate investments Non-control/non-affiliate investments Total other income (Note 10) Total Investment Income Operating Expenses Investment advisory fees: Base management fee (Note 13) Income incentive fee (Note 13) Interest and credit facility expenses Audit, compliance and tax related fees Allocation of overhead from Prospect Administration (Note 13) Directors’ fees Excise tax Other general and administrative expenses Total Operating Expenses Net Investment Income Net Realized and Change in Unrealized Gains (Losses) Net realized gains (losses) Control investments Affiliate investments Non-control/non-affiliate investments Net realized gains (losses) on extinguishment of debt Net realized losses Net change in unrealized gains (losses) Control investments Affiliate investments Non-control/non-affiliate investments Net change in unrealized gains (losses) Net Realized and Change in Unrealized Losses Net Increase in Net Assets Resulting from Operations Net increase in net assets resulting from operations per share Dividends declared per share Year Ended June 30, 2016 2015 2014 $ 207,377 $ 200,409 $ 153,307 896 347,132 176,213 731,618 3,799 385,710 159,056 748,974 4,358 334,039 122,037 613,741 26,435 6,811 26,687 — 66 778 74 — 150 26,501 7,663 26,837 22,528 12,975 43,671 — 11,326 33,854 226 21,246 34,447 17 28,025 71,713 791,973 791,084 712,291 126,523 92,782 167,719 4,428 12,647 379 2,295 14,072 420,845 371,128 (5,406) (14,194) (4,817) 224 134,590 108,990 90,687 89,306 170,660 130,103 3,772 14,977 379 2,505 10,767 428,337 362,747 2,959 14,373 325 (4,200) 13,212 355,068 357,223 (80,640) — (99,783) (3,950) — — (3,346) — (24,193) (184,373) (3,346) (88,751) 158,346 (20,519) (233) (154,589) (243,573) (267,766) 503 9,116 167,965 (16,408) (4,500) (9,838) (34,857) (38,203) $ $ $ 103,362 $ 346,339 $ 319,020 0.29 $ (1.00) $ 0.98 $ (1.19) $ 1.06 (1.32) See notes to consolidated financial statements. 103 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (in thousands, except share data) Year Ended June 30, 2016 2015 2014 $ 371,128 $ 362,747 $ 357,223 (24,417) (180,423) Operations Net investment income Net realized losses on investments Net change in unrealized (depreciation) appreciation on investments (243,573) 167,965 Net realized gains (losses) on extinguishment of debt 224 (3,950) Net Increase in Net Assets Resulting from Operations 103,362 346,339 319,020 Distributions to Shareholders Distribution from net investment income Distribution of return of capital Net Decrease in Net Assets Resulting from Distributions to Shareholders (356,110) (421,594) (403,188) — — — (356,110) (421,594) (403,188) (3,346) (34,857) — Common Stock Transactions Issuance of common stock, net of underwriting costs Less: Offering costs from issuance of common stock Repurchase of common stock under stock repurchase program Value of shares issued to acquire controlled investments — 118 (34,140) — 146,085 973,832 (644) — — (1,380) — 57,830 15,574 Value of shares issued through reinvestment of dividends 19,638 14,681 Net (Decrease) Increase in Net Assets Resulting from Common Stock Transactions (14,384) 160,122 1,045,856 Total (Decrease) Increase in Net Assets Net assets at beginning of year Net Assets at End of Year (267,132) 84,867 961,688 3,703,049 3,618,182 2,656,494 $ 3,435,917 $ 3,703,049 $ 3,618,182 Common Stock Activity Shares sold Shares issued to acquire controlled investments Shares repurchased under stock repurchase program Shares issued through reinvestment of dividends — — (4,708,750) 14,845,556 88,054,653 — — 5,326,949 — 2,725,222 1,618,566 1,408,070 Net shares (repurchased) issued due to common stock activity (1,983,528) 16,464,122 94,789,672 Shares issued and outstanding at beginning of year 359,090,759 342,626,637 247,836,965 Shares Issued and Outstanding at End of Year 357,107,231 359,090,759 342,626,637 See notes to consolidated financial statements. 104 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, except share data) Operating Activities Net increase in net assets resulting from operations Net realized (gains) losses on extinguishment of debt Net realized losses on investments Net change in unrealized depreciation (appreciation) on investments Amortization of discounts and premiums, net Accretion of discount on Public Notes (Note 6) Amortization of deferred financing costs Payment-in-kind interest Structuring fees Change in operating assets and liabilities: Payments for purchases of investments Year Ended June 30, 2016 2015 2014 $ 103,362 $ 346,339 $ 319,020 (224) 24,417 243,573 84,087 200 13,561 (20,531) (9,393) 3,950 180,423 (167,965) 87,638 213 14,266 (29,277) (20,916) — 3,346 34,857 46,297 156 11,491 (15,145) (45,087) (921,679) (1,817,284) (2,815,303) Proceeds from sale of investments and collection of investment principal 1,311,375 1,411,562 767,978 Decrease in interest receivable, net Decrease (increase) in other receivables (Increase) decrease in prepaid expenses (Decrease) increase in due to broker Increase in interest payable (Decrease) increase in due to Prospect Administration Increase (decrease) in due to Prospect Capital Management (Decrease) increase in accrued expenses (Decrease) increase in other liabilities Net Cash Provided by (Used in) Operating Activities Financing Activities Borrowings under Revolving Credit Facility (Note 4) Principal payments under Revolving Credit Facility (Note 4) Issuances of Public Notes, net of original issue discount (Note 6) (Redemptions) and issuances of Convertible Notes (Note 5) Repurchase of Convertible Notes, net (Note 5) Redemption of Public Notes, net (Note 6) Issuances of Prospect Capital InterNotes® (Note 7) Redemptions of Prospect Capital InterNotes®, net (Note 7) Financing costs paid and deferred Cost of shares repurchased under stock repurchase program Proceeds from issuance of common stock, net of underwriting costs Offering costs from issuance of common stock Dividends paid Net Cash (Used in) Provided by Financing Activities Net Increase (Decrease) in Cash and Cash Equivalents Cash and cash equivalents at beginning of year Cash and Cash Equivalents at End of Year Supplemental Disclosures Cash paid for interest Non-Cash Financing Activities Value of shares issued through reinvestment of dividends Value of shares issued to acquire controlled investments Exchange of Prospect Capital InterNotes® for Public Notes $ $ $ $ $ 8,281 2,717 (98) (25,821) 1,145 (2,473) 51,599 (1,149) (1,080) 861,869 615,000 (983,700) 161,364 (150,000) (500) — 88,435 (7,069) (6,968) (34,140) — 118 (336,637) (654,097) 207,772 110,026 1,589 (298) 2,071 26,778 2,200 2,030 2,547 (1,382) 980 866 1,810 (2,288) (43,588) 13,075 842 (5,321) 2,445 (682) 45,464 (1,725,231) 1,567,000 1,078,500 (1,290,300) (1,110,500) — — (7,668) (102,600) 125,696 (85,606) (6,793) — 146,085 (644) (414,833) 255,000 400,000 — — 473,762 (6,869) (29,055) — 973,832 (1,380) (377,070) (69,663) 1,656,220 (24,199) 134,225 (69,011) 203,236 134,225 317,798 $ 110,026 $ 152,817 $ 153,982 $ 105,410 19,638 $ 14,681 $ — $ — $ — $ — $ 15,574 57,830 45,000 See notes to consolidated financial statements. 105 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) June 30, 2016 Principal Value Cost Fair Value(2) % of Net Assets LEVEL 3 PORTFOLIO INVESTMENTS Control Investments (greater than 25.00% voting control)(48) Arctic Energy Services, LLC(18) Wyoming / Oil & Gas Services Class D Units (32,915 units) Class E Units (21,080 units) Class A Units (700 units) Class C Units (10 units) CCPI Inc.(19) Ohio / Manufacturing Senior Secured Term Loan A (10.00%, due 12/31/2017)(3) Senior Secured Term Loan B (12.00% plus 7.00% PIK, due 12/31/2017)(47) Common Stock (14,857 shares) 12,313 9,320 CP Energy Services Inc.(20) Oklahoma / Oil & Gas Services Series B Convertible Preferred Stock (1,043 shares) Common Stock (2,924 shares) Credit Central Loan Company, LLC(21) South Carolina / Consumer Finance Subordinated Term Loan (10.00% plus 10.00% PIK, due 6/26/2019)(15)(47) Class A Shares (7,500,000 shares)(15) Net Revenues Interest (25% of Net Revenues)(15) Echelon Aviation LLC New York / Aerospace & Defense Senior Secured Term Loan (11.75% (LIBOR + 9.75% with 2.00% LIBOR floor) plus 2.25% PIK, due 3/31/2022)(11)(14) (47) Membership Interest (99%) Edmentum Ultimate Holdings, LLC(22) Minnesota / Consumer Services Second Lien Revolving Credit Facility to Edmentum, Inc. – $7,834 Commitment (5.00%, due 6/9/2020)(16) Unsecured Senior PIK Note (8.50% PIK, due 6/9/2020)(47) Unsecured Junior PIK Note (10.00% PIK, due 6/9/2020)(47) Class A Common Units (370,964 units) 36,931 37,855 6,424 6,341 28,834 First Tower Finance Company LLC(23) Mississippi / Consumer Finance Subordinated Term Loan to First Tower, LLC (10.00% plus 12.00% PIK, due 6/24/2019)(15)(47) Class A Shares (86,711,625 shares)(15) 255,762 Freedom Marine Solutions, LLC(24) Louisiana / Oil & Gas Services Membership Interest (100%) Gulf Coast Machine & Supply Company Texas / Manufacturing Senior Secured Term Loan (10.50% (LIBOR + 8.50% with 2.00% LIBOR floor), in non-accrual status effective 1/1/2015, due 10/12/2017)(11)(13) Series A Convertible Preferred Stock (99,900 shares) 38,892 See notes to consolidated financial statements. 106 $ 31,640 $ 20,230 9,006 — 60,876 12,313 9,320 6,635 28,268 98,273 15,227 35,815 2,525 1.0% 0.1% — —% — —% 38,340 1.1% 12,313 0.4% 9,320 19,723 0.3% 0.5% 41,356 1.2% 76,002 2.2% — —% 113,500 76,002 2.2% 36,931 11,633 — 48,564 37,855 19,907 57,762 6,424 6,341 22,337 6,576 41,678 255,762 70,476 326,238 40,810 40,810 34,425 25,950 60,375 36,931 11,707 3,616 1.1% 0.3% 0.1% 52,254 1.5% 37,855 22,966 1.1% 0.7% 60,821 1.8% 6,424 6,341 25,569 6,012 0.2% 0.2% 0.7% 0.2% 44,346 1.3% 255,762 96,904 7.4% 2.8% 352,666 10.2% 26,618 0.8% 26,618 0.8% 7,312 0.2% — —% 7,312 0.2% PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) June 30, 2016 Principal Value Cost Fair Value(2) % of Net Assets LEVEL 3 PORTFOLIO INVESTMENTS Control Investments (greater than 25.00% voting control)(48) MITY, Inc.(26) Utah / Durable Consumer Products National Property REIT Corp.(27) Various / Real Estate Senior Secured Note A (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor), due 3/19/2019)(3)(11)(13) Senior Secured Note B (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor) plus 10.00% PIK, due 3/19/2019)(3)(11)(13)(47) Subordinated Unsecured Note to Broda Enterprises ULC (10.00%, due on demand)(15) Common Stock (42,053 shares) Senior Secured Term Loan A (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 4/1/2019)(11)(13) (47) Senior Secured Term Loan E (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 5.00% PIK, due 4/1/2019)(11)(13) (47) Senior Secured Term Loan C to ACL Loan Holdings, Inc. (11.00% (LIBOR + 9.00% with 2.00% LIBOR floor) plus 5.00% PIK, due 4/1/2019)(11)(13)(15)(47) Common Stock (1,533,899 shares) Net Operating Income Interest (5% of Net Operating Income) Nationwide Loan Company LLC(28) Illinois / Consumer Finance Senior Subordinated Term Loan to Nationwide Acceptance LLC (10.00% plus 10.00% PIK, due 6/18/2019)(15)(47) Class A Shares (29,343,795 shares)(15) NMMB, Inc.(29) New York / Media Senior Secured Note (14.00%, due 5/6/2021) Senior Secured Note to Armed Forces Communications, Inc. (14.00%, due 5/6/2021) Series A Preferred Stock (7,200 shares) Series B Preferred Stock (5,669 shares) R-V Industries, Inc. Pennsylvania / Manufacturing Senior Subordinated Note (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 6/12/2018)(3)(11)(13) Common Stock (545,107 shares) Warrant (to purchase 200,000 shares of Common Stock, expires 6/30/2017) USES Corp. (31) Texas / Commercial Services Senior Secured Term Loan A (7.00% (LIBOR + 6.00% with 1.00% LIBOR floor) plus 2.00% default interest, in non-accrual status effective 4/1/2016, due 3/31/2019)(11)(13) Senior Secured Term Loan B (13.50% (LIBOR + 12.50% with 1.00% LIBOR floor) plus 2.00% default interest, in non-accrual status effective 4/1/2016, due 3/31/2019)(11)(13) Common Stock (268,962 shares) $ 18,250 $ 18,250 $ 18,250 0.5% 16,442 16,442 16,442 0.5% 7,200 7,200 6,848 5,667 13,690 0.2% 0.4% 48,740 54,049 1.6% 248,677 248,677 248,677 7.2% 212,819 212,819 212,819 6.2% 99,972 16,696 3,714 7,000 28,622 99,972 165,908 — 727,376 16,696 16,201 32,897 3,714 7,000 7,200 5,669 99,972 215,491 66,974 2.9% 6.3% 2.0% 843,933 24.6% 16,696 19,117 0.5% 0.5% 35,813 1.0% 3,442 0.1% 6,487 0.2% 44 —% 34 —% 23,583 10,007 0.3% 28,622 5,087 1,682 35,391 28,622 6,039 0.8% 0.2% 2,216 0.1% 36,877 1.1% 26,300 26,158 26,300 0.8% 36,000 35,568 — 61,726 13,986 0.4% — —% 40,286 1.2% See notes to consolidated financial statements. 107 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) Principal Value Cost Fair Value(2) % of Net Assets June 30, 2016 LEVEL 3 PORTFOLIO INVESTMENTS Control Investments (greater than 25.00% voting control)(48) Valley Electric Company, Inc.(32) Washington / Construction & Engineering Senior Secured Note to Valley Electric Co. of Mt. Vernon, Inc. (8.00% (LIBOR + 5.00% with 3.00% LIBOR floor) plus 2.50% PIK, due 12/31/2019)(3)(11)(13)(47) Senior Secured Note (10.00% plus 8.50% PIK, due 6/23/2019) (47) Common Stock (50,000 shares) Wolf Energy, LLC 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) Membership Interest (100%) Net Profits Interest (8% of Equity Distributions)(4) Affiliate Investments (5.00% to 24.99% voting control)(49) $ 10,430 $ 10,430 $ 10,430 0.3% 23,802 38,257 23,802 26,204 60,436 20,661 0.6% — —% 31,091 0.9% — — — — 659 —% — —% 19 —% 678 —% $ 1,768,220 $ 1,752,449 51.0% BNN Holdings Corp. Michigan / Healthcare Series A Preferred Stock (9,925.455 shares)(8) $ 1,780 $ 2,270 0.1% Series B Preferred Stock (1,753.636 shares)(8) Targus International, LLC(33) California / Durable Consumer Products Senior Secured Term Loan A (15.00% PIK, in non-accrual status effective 10/1/15, due 12/31/2019)(9) Senior Secured Term Loan B (15.00% PIK , in non-accrual status effective 10/1/15, due 12/31/2019)(9) Common Stock (1,262,737 shares) 1,319 3,957 See notes to consolidated financial statements. 108 448 2,228 572 —% 2,842 0.1% 1,263 1,319 —% 3,788 3,479 8,530 3,957 3,202 8,478 $ 10,758 $ 11,320 0.1% 0.1% 0.2% 0.3% PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) LEVEL 3 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) June 30, 2016 Principal Value Cost Fair Value(2) % of Net Assets California / Machinery AFI Shareholder, LLC (f/k/a Aircraft Fasteners International, LLC) Class A Units (32,500 units) $ 330 $ 511 —% Airmall Inc. Pennsylvania / Property Management Escrow Receivable Ajax Rolled Ring & Machine, LLC(42) South Carolina / Manufacturing Escrow Receivable ALG USA Holdings, LLC Pennsylvania / Hotels, Restaurants & Leisure American Gilsonite Company Utah / Metal Services & Minerals Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 2/28/2020)(9)(11)(13) 11,771 Membership Interest (1.93%)(34) Apidos CLO IX Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 16.98%)(6)(15) Apidos CLO XI Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 11.95%)(6)(15) Apidos CLO XII Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 13.39%)(6)(15) Apidos CLO XV Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 10.72%)(6)(15) Apidos CLO XXII Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 17.29%)(6)(7)(15) 23,525 38,340 44,063 36,515 31,350 330 511 —% 3,916 3,900 0.1% 3,916 3,900 0.1% — — 608 —% 608 —% 11,630 11,630 11,771 0.3% 11,771 0.3% — — 19,997 19,997 29,763 29,763 34,598 34,598 31,479 31,479 26,948 26,948 — —% — —% 19,966 0.6% 19,966 0.6% 26,057 0.8% 26,057 0.8% 30,638 0.9% 30,638 0.9% 25,335 0.7% 25,335 0.7% 25,369 0.7% 25,369 0.7% Arctic Glacier U.S.A., Inc. Minnesota / Food Products Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 11/10/2019)(3)(11)(13) Ark-La-Tex Wireline Services, LLC Louisiana / Oil & Gas Services Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), in non-accrual status effective 4/1/2016, due 4/8/2019)(11)(14) Senior Secured Term Loan B (12.50% (LIBOR + 11.50% with 1.00% LIBOR floor), in non-accrual status effective 4/1/2016, due 4/8/2019)(11)(14) 150,000 150,000 145,546 4.2% 150,000 145,546 4.2% 21,322 21,088 11,779 0.3% 23,981 23,239 44,327 — —% 11,779 0.3% Armor Holding II LLC New York / Diversified Financial Services Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 12/26/2020)(3)(9)(11)(13) 7,000 6,907 6,907 6,907 0.2% 6,907 0.2% See notes to consolidated financial statements. 109 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) LEVEL 3 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) June 30, 2016 Principal Value Cost Fair Value(2) % of Net Assets Atlantis Health Care Group (Puerto Rico), Inc. Puerto Rico / Healthcare Revolving Line of Credit – $7,000 Commitment (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor), due 8/21/2017)(11)(13)(16) Senior Term Loan (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor), due 2/21/2018)(3)(11)(13) Babson CLO Ltd. 2014-III Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 12.25%)(6)(7)(15) Broder Bros., Co. Pennsylvania / Textiles, Apparel & Luxury Goods Senior Secured Term Loan A (7.00% (LIBOR + 5.75% with 1.25% LIBOR floor), due 6/03/2021)(3)(11)(14) Senior Secured Term Loan B (13.50% (LIBOR + 12.25% with 1.25% LIBOR floor), due 6/03/2021)(11) (14) $ 2,350 $ 2,350 $ 2,350 0.1% 38,166 52,250 38,166 40,516 44,075 44,075 38,166 1.1% 40,516 1.2% 40,312 1.2% 40,312 1.2% 120,737 120,737 120,737 3.5% 121,475 121,475 121,475 3.5% Brookside Mill CLO Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 14.44%)(6)(15) 26,000 242,212 242,212 7.0% 19,875 19,875 18,990 0.6% 18,990 0.6% Capstone Logistics Acquisition, Inc. Georgia / Business Services Second Lien Term Loan (9.25% (LIBOR + 8.25% with 1.00% LIBOR floor), due 10/7/2022)(3)(9)(11)(14) Cent CLO 17 Limited Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 12.64%)(6)(15) Cent CLO 20 Limited Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 10.19%)(6)(15) Cent CLO 21 Limited Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 11.64%)(6)(7)(15) CIFC Funding 2013-III, Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 15.72%)(6)(15) CIFC Funding 2013-IV, Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 16.13%)(6)(15) CIFC Funding 2014-IV Investor, Ltd. Cayman Islands / Structured Finance Income Notes (Residual Interest, current yield 15.05%) (6)(7)(15) Cinedigm DC Holdings, LLC 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)(11)(13)(47) 101,828 101,298 97,752 2.8% 101,298 97,752 2.8% 24,870 40,275 48,528 44,100 45,500 41,500 65,990 18,839 18,839 32,835 32,835 38,125 38,125 32,338 32,338 33,414 33,414 31,729 31,729 65,940 65,940 16,695 0.5% 16,695 0.5% 26,501 0.8% 26,501 0.8% 31,467 0.9% 31,467 0.9% 29,634 0.9% 29,634 0.9% 32,752 0.9% 32,752 0.9% 30,378 0.9% 30,378 0.9% 65,990 1.9% 65,990 1.9% See notes to consolidated financial statements. 110 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) Principal Value Cost Fair Value(2) % of Net Assets June 30, 2016 LEVEL 3 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) Coverall North America, Inc. Florida / Commercial Services Crosman Corporation New York / Manufacturing Senior Secured Term Loan A (7.00% (LIBOR + 6.00% with 1.00% LIBOR floor), due 11/02/2020)(3) (11)(13) Senior Secured Term Loan B (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 11/02/2020) (3)(11)(13) Senior Secured Term Loan A (9.16% (LIBOR + 8.70% with .30% LIBOR floor) plus 4.00% PIK, due 8/5/2020)(3)(11)(14)(47) Senior Secured Term Loan B (16.16% (LIBOR + 15.70% with .30% LIBOR floor) plus 4.00% PIK, due 8/5/2020)(11)(14)(47) CURO Group Holdings Corp (f/k/a Speedy Cash Holdings Corp.) Canada / Consumer Finance Senior Unsecured Notes (12.00%, due 11/15/2017)(9) (15) Easy Gardener Products, Inc. Texas / Durable Consumer Products Senior Secured Term Loan (10.63% (LIBOR + 10.00% with .25% LIBOR floor), due 09/30/2020)(3) (11)(13) $ 24,250 $ 24,250 $ 24,250 0.7% 25,000 25,000 49,250 25,000 0.7% 49,250 1.4% 54,185 54,185 53,935 1.6% 41,284 15,000 17,369 41,284 95,469 15,000 15,000 17,369 17,369 40,458 1.1% 94,393 2.7% 8,081 0.2% 8,081 0.2% 17,369 0.5% 17,369 0.5% Empire Today, LLC Illinois / Durable Consumer Products Senior Secured Note (11.375%, due 2/1/2017)(9) 50,426 49,988 49,938 1.4% Fleetwash, Inc. New Jersey / Business Services Senior Secured Term Loan B (10.50% (LIBOR + 9.50% with 1.00% LIBOR floor), due 4/30/2019)(3)(11)(13) Delayed Draw Term Loan – $15,000 Commitment (expires 4/30/2019)(11)(16) 49,988 49,938 1.4% 23,402 23,402 23,402 0.7% — — — —% 23,402 23,402 0.7% Focus Brands, Inc. Galaxy XV CLO, Ltd. Galaxy XVI CLO, Ltd. Galaxy XVII CLO, Ltd. Generation Brands Holdings, Inc. Global Employment Solutions, Inc. Georgia / Consumer Services Cayman Islands / Structured Finance Cayman Islands / Structured Finance Cayman Islands / Structured Finance Illinois / Durable Consumer Products Colorado / Business Services Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 8/21/2018)(9)(11)(14) 18,000 Subordinated Notes (Residual Interest, current yield 18.19%)(6)(15) Subordinated Notes (Residual Interest, current yield 16.22%)(6)(15) Subordinated Notes (Residual Interest, current yield 15.77%)(6)(7)(15) Subordinated Secured Term Loan (11.00% (LIBOR + 10.00% with 1.00% LIBOR floor), due 12/10/2022) (9)(11)(13) Senior Secured Term Loan (10.25% (LIBOR + 9.25% with 1.00% LIBOR floor), due 6/26/2020)(3)(11)(14) 39,275 24,575 39,905 19,000 49,312 See notes to consolidated financial statements. 17,876 17,876 29,037 29,037 19,195 19,195 31,077 31,077 18,437 18,437 49,312 49,312 18,000 0.5% 18,000 0.5% 30,452 0.9% 30,452 0.9% 18,925 0.5% 18,925 0.5% 29,820 0.9% 29,820 0.9% 19,000 0.6% 19,000 0.6% 49,312 1.4% 49,312 1.4% 111 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) LEVEL 3 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) Halcyon Loan Advisors Funding 2012-1 Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 17.90%)(6)(15) Halcyon Loan Advisors Funding 2013-1 Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 18.01%)(6)(15) Halcyon Loan Advisors Funding 2014-1 Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 13.66%)(6)(15) Halcyon Loan Advisors Funding 2014-2 Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 16.91%)(6)(7)(15) Halcyon Loan Advisors Funding 2015-3 Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 15.86%)(6)(7)(15) Harbortouch Payments, LLC Pennsylvania / Business Services Second Lien Term Loan (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor) plus 3.00% PIK, due 5/31/2023)(11) (13)(47) Escrow Receivable HarbourView CLO VII, Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 17.35%)(6)(7)(15) Harley Marine Services, Inc. Washington / Transportation Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 12/20/2019)(3)(9)(11)(13) Hollander Sleep Products, LLC Florida / Durable Consumer Products Senior Secured Term Loan (9.00% (LIBOR + 8.00% with 1.00% LIBOR floor), due 10/21/2020)(3)(11)(14) ICV-CAS Holdings, LLC New York / Transportation Escrow Receivable Inpatient Care Management Company LLC Florida / Healthcare Senior Secured Term Loan (11.50% (LIBOR + 10.50% with 1.00% LIBOR floor), due 6/8/2021(9)(11)(14) Instant Web, LLC Minnesota / Media Senior Secured Term Loan A (5.50% (LIBOR + 4.50% with 1.00% LIBOR floor), due 3/28/2019)(11)(13) Senior Secured Term Loan B (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 3/28/2019)(3)(11)(13) Senior Secured Term Loan C-1 (12.75% (LIBOR + 11.75% with 1.00% LIBOR floor), due 3/28/2019)(11)(13) Senior Secured Term Loan C-2 (13.50% (LIBOR + 12.50% with 1.00% LIBOR floor), due 3/28/2019)(11)(13) See notes to consolidated financial statements. 112 June 30, 2016 Principal Value Cost Fair Value(2) % of Net Assets $ 23,188 $ 18,245 $ 18,140 0.5% 18,245 18,140 0.5% 40,400 24,500 41,164 39,598 27,500 19,025 9,000 21,860 31,897 31,897 18,255 18,255 30,795 30,795 36,746 36,746 27,500 — 27,500 14,454 14,454 8,886 8,886 21,860 21,860 — — 32,212 0.9% 32,212 0.9% 17,076 0.5% 17,076 0.5% 30,532 0.9% 30,532 0.9% 35,202 1.0% 35,202 1.0% 27,500 0.8% 1,602 —% 29,102 0.8% 13,005 0.4% 13,005 0.4% 8,886 0.3% 8,886 0.3% 21,098 0.6% 21,098 0.6% 6 —% 6 —% 17,000 17,000 17,000 17,000 0.5% 17,000 0.5% 122,943 122,943 122,943 3.6% 158,100 158,100 158,100 4.6% 27,000 27,000 27,000 0.8% 25,000 25,000 25,000 0.7% 333,043 333,043 9.7% PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) LEVEL 3 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) June 30, 2016 Principal Value Cost Fair Value(2) % of Net Assets InterDent, Inc. California / Healthcare Senior Secured Term Loan A (6.25% (LIBOR + 5.50% with 0.75% LIBOR floor), due 8/3/2017)(11)(14) Senior Secured Term Loan B (11.25% (LIBOR + 10.50% with 0.75% LIBOR floor), due 8/3/2017)(3) (11)(14) $ 79,538 $ 79,538 $ 79,538 2.3% 131,125 131,125 130,582 3.8% 210,663 210,120 6.1% JAC Holding Corporation Michigan / Transportation Senior Secured Note (11.50%, due 10/1/2019)(9) 2,868 Jefferson Mill CLO Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 9.75%)(6)(7)(15) 19,500 JHH Holdings, Inc. Texas / Healthcare Second Lien Term Loan (11.25% (LIBOR + 10.00% with 1.25% LIBOR floor) plus 0.50% PIK, due 3/30/2019)(3)(11)(13)(47) 35,477 2,868 2,868 16,915 16,915 35,477 35,477 2,868 0.1% 2,868 0.1% 13,072 0.4% 13,072 0.4% 35,477 1.0% 35,477 1.0% LaserShip, Inc. Virginia / Transportation Senior Secured Term Loan A (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor) plus 2.00% PIK, due 3/18/2019)(3)(11)(14)(47) Senior Secured Term Loan B (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor) plus 2.00% PIK, due 3/18/2019)(3)(11)(14)(47) 21,214 34,570 34,570 32,113 0.9% 21,214 55,784 22,890 22,890 22,259 22,259 19,705 0.6% 51,818 1.5% 23,376 0.7% 23,376 0.7% 21,174 0.6% 21,174 0.6% LCM XIV Ltd. Cayman Islands / Structured Finance Income Notes (Residual Interest, current yield 18.80%) (6)(15) 30,500 Madison Park Funding IX, Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 21.15%)(6)(15) 31,110 Matrixx Initiatives, Inc. New Jersey / Pharmaceuticals Senior Secured Term Loan A (7.50% (LIBOR + 6.00% with 1.50% LIBOR floor), due 8/9/2018)(3)(11)(13) Senior Secured Term Loan B (12.50% (LIBOR + 11.00% with 1.50% LIBOR floor), due 8/9/2018)(3)(11)(13) Maverick Healthcare Equity, LLC Arizona / Healthcare Preferred Units (1,250,000 units) Class A Common Units (1,250,000 units) Mineral Fusion Natural Brands Colorado / Personal & Nondurable Consumer Products Membership Interest (1.43%)(37) Mountain View CLO 2013-I Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 14.72%)(6)(15) Mountain View CLO IX Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 16.23%)(6)(7)(15) 30,177 30,177 30,177 0.9% 40,562 43,650 47,830 40,562 70,739 1,252 — 1,252 — — 33,156 33,156 43,088 43,088 40,562 1.2% 70,739 2.1% 2,037 0.1% 353 —% 2,390 0.1% 266 —% 266 —% 30,928 0.9% 30,928 0.9% 40,218 1.2% 40,218 1.2% See notes to consolidated financial statements. 113 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) LEVEL 3 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) June 30, 2016 Principal Value Cost Fair Value(2) % of Net Assets Nathan's Famous, Inc. New York / Food Products Senior Secured Notes (10.00%, due 3/15/2020)(9) $ 3,000 $ 3,000 $ 3,000 0.1% NCP Finance Limited Partnership(38) Ohio / Consumer Finance Subordinated Secured Term Loan (11.00% (LIBOR + 9.75% with 1.25% LIBOR floor), due 9/30/2018) (3)(9)(11)(14)(15) 27,199 Nixon, Inc. California / Durable Consumer Products Senior Secured Term Loan (9.50% plus 3.00% PIK, due 4/16/2018)(3)(9)(47) 14,311 Octagon Investment Partners XV, Ltd. Cayman Islands / Structured Finance Income Notes (Residual Interest, current yield 16.54%)(6)(15) Octagon Investment Partners XVIII, Ltd. Cayman Islands / Structured Finance Income Notes (Residual Interest, current yield 20.29%)(6)(7)(15) 32,921 28,200 3,000 3,000 0.1% 26,504 26,504 14,197 14,197 26,213 26,213 20,046 20,046 25,838 0.7% 25,838 0.7% 11,776 0.3% 11,776 0.3% 24,027 0.7% 24,027 0.7% 19,701 0.6% 19,701 0.6% Onyx Payments(39) Texas / Diversified Financial Services Pacific World Corporation California / Personal & Nondurable Consumer Products Revolving Line of Credit – $5,000 Commitment (9.00% (LIBOR + 8.00% with 1.00% LIBOR floor), due 9/10/2016)(11)(13)(16) Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 9/10/2019)(3) (11)(13) Senior Secured Term Loan B (13.50% (LIBOR + 12.50% with 1.00% LIBOR floor), due 9/10/2019)(3) (11)(13) Revolving Line of Credit – $15,000 Commitment (8.00% (LIBOR + 7.00% with 1.00% LIBOR floor), due 9/26/2020)(11)(14)(16) Senior Secured Term Loan A (6.00% (LIBOR + 5.00% with 1.00% LIBOR floor), due 9/26/2020)(11) (14) Senior Secured Term Loan B (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/26/2020)(3)(11)(14) Pelican Products, Inc. California / Durable Consumer Products Second Lien Term Loan (9.25% (LIBOR + 8.25% with 1.00% LIBOR floor), due 4/9/2021)(3)(9)(11) (14) PeopleConnect Intermediate, LLC (f/k/a Intelius, Inc.) Washington / Software & Computer Services Revolving Line of Credit – $1,500 Commitment (9.50% (LIBOR + 8.50% with 1.00% LIBOR floor), due 8/11/16)(11)(13)(16) Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 7/1/2020)(3) (11)(13) Senior Secured Term Loan B (12.50% (LIBOR + 11.50% with 1.00% LIBOR floor), due 7/1/2020)(3) (11)(13) 1,000 1,000 1,000 —% 48,352 48,352 48,352 1.4% 59,389 59,389 59,389 1.8% 108,741 108,741 3.2% 2,500 2,500 2,500 0.1% 97,994 97,994 93,624 2.7% 97,994 97,994 81,567 2.4% 198,488 177,691 5.2% 17,500 17,486 17,486 15,744 0.5% 15,744 0.5% — — — —% 20,379 20,379 19,907 0.6% 20,938 20,938 41,317 20,215 0.6% 40,122 1.2% PGX Holdings, Inc. (40) Utah / Consumer Services Second Lien Term Loan (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/29/2021)(3)(11)(14) 135,000 135,000 135,000 135,000 3.9% 135,000 3.9% See notes to consolidated financial statements. 114 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) LEVEL 3 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) June 30, 2016 Principal Value Cost Fair Value(2) % of Net Assets Photonis Technologies SAS France / Aerospace & Defense First Lien Term Loan (8.50% (LIBOR + 7.50% with 1.00% LIBOR floor), due 9/18/2019)(9)(11)(14)(15) $ Pinnacle (US) Acquisition Co. Limited PlayPower, Inc. Texas / Software & Computer Services Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 8/3/2020)(9)(11)(13) North Carolina / Durable Consumer Products Second Lien Term Loan (9.75% (LIBOR + 8.75% with 1.00% LIBOR floor), due 6/23/2022)(3)(9)(11) (13) Prime Security Services Borrower, LLC Illinois / Consumer Services Second Lien Term Loan (9.75% (LIBOR + 8.75% with 1.00% LIBOR floor), due 7/1/2022)(9)(11)(14) PrimeSport, Inc. Georgia / Hotels, Restaurants & Leisure Senior Secured Term Loan A (7.00% (LIBOR + 6.00% with 1.00% LIBOR floor), due 2/11/2021)(3)(11)(13) Senior Secured Term Loan B (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 2/11/2021)(3)(11)(13) Prince Mineral Holding Corp. New York / Metal Services & Minerals Senior Secured Term Loan (11.50%, due 12/15/2019)(9) Rocket Software, Inc. Massachusetts / Software & Computer Services Second Lien Term Loan (10.25% (LIBOR + 8.75% with 1.50% LIBOR floor), due 2/8/2019)(3)(9)(11) (13) Royal Holdings, Inc. Indiana / Chemicals Second Lien Term Loan (8.50% (LIBOR + 7.50% with 1.00% LIBOR floor), due 6/19/2023)(9)(11) (14) SCS Merger Sub, Inc. Texas / Software & Computer Services Second Lien Term Loan (10.50% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/30/2023)(3)(9) (11)(14) Security Alarm Financing Enterprises, L.P.(41) California / Consumer Services Subordinated Unsecured Notes (11.50% (LIBOR + 9.50% with 2.00% LIBOR floor), due 12/19/2020) (11)(14) 9,927 $ 9,756 $ 9,015 0.3% 9,756 9,015 0.3% 7,037 6,918 6,918 5,425 0.2% 5,425 0.2% 11,000 10,856 10,856 10,911 0.3% 10,911 0.3% 10,000 9,870 9,870 10,000 0.3% 10,000 0.3% 53,683 53,683 53,683 1.6% 74,500 74,500 74,500 2.1% 128,183 128,183 3.7% 10,000 9,934 9,934 8,701 0.3% 8,701 0.3% 20,000 19,854 19,854 20,000 0.6% 20,000 0.6% 5,000 4,967 4,967 4,819 0.1% 4,819 0.1% 20,000 19,456 19,456 19,655 0.6% 19,655 0.6% 25,000 25,000 25,000 22,700 0.7% 22,700 0.7% SESAC Holdco II LLC Tennessee / Media Second Lien Term Loan (9.00% (LIBOR + 8.00% with 1.00% LIBOR floor), due 4/22/2021)(3)(9)(11) (13) SITEL Worldwide Corporation Tennessee / Business Services Second Lien Term Loan (10.50% (LIBOR + 9.50% with 1.00% LIBOR floor), due 9/18/2022)(9)(11) (13) 10,000 16,000 Small Business Whole Loan Portfolio(43) New York / Online Lending 741 Small Business Loans purchased from On Deck Capital, Inc. 14,603 9,878 9,878 9,878 0.3% 9,878 0.3% 15,715 15,715 14,603 14,603 15,715 0.5% 15,715 0.5% 14,215 0.4% 14,215 0.4% See notes to consolidated financial statements. 115 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) LEVEL 3 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) Spartan Energy Services, Inc. Louisiana / Oil & Gas Services Senior Secured Term Loan A (7.00% (LIBOR + 6.00% with 1.00% LIBOR floor), in non-accrual status effective 4/1/2016, due 12/28/2017)(11)(14) Senior Secured Term Loan B (13.00% (LIBOR + 12.00% with 1.00% LIBOR floor), in non-accrual status effective 4/1/2016, due 12/28/2017)(11)(14) Stryker Energy, LLC Ohio / Oil & Gas Production Overriding Royalty Interests(10) Sudbury Mill CLO Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 12.64%)(6)(15) Symphony CLO IX Ltd. Cayman Islands / Structured Finance Preference Shares (Residual Interest, current yield 14.11%) (6)(15) 45,500 Symphony CLO XIV Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 13.12%)(6)(7)(15) Symphony CLO XV, Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 13.76%)(6)(15) 49,250 50,250 System One Holdings, LLC Pennsylvania / Business Services Senior Secured Term Loan (11.25% (LIBOR + 10.50% with 0.75% LIBOR floor), due 11/17/2020)(3)(11)(14) 104,553 June 30, 2016 Principal Value Cost Fair Value(2) % of Net Assets $ 13,156 $ 12,923 $ 11,368 0.3% 14,123 — 28,200 13,669 26,592 984 0.1% 12,352 0.4% — — 20,865 20,865 32,629 32,629 39,602 39,602 44,141 44,141 — —% — —% 17,395 0.5% 17,395 0.5% 29,267 0.9% 29,267 0.9% 35,703 1.0% 35,703 1.0% 39,523 1.2% 39,523 1.2% 104,553 104,553 104,553 3.0% 104,553 3.0% TouchTunes Interactive Networks, Inc. New York / Media Second Lien Term Loan (9.25% (LIBOR + 8.25% with 1.00% LIBOR floor), due 5/29/2022)(9)(11)(14) Traeger Pellet Grills LLC Oregon / Durable Consumer Products Senior Secured Term Loan A (6.50% (LIBOR + 4.50% with 2.00% LIBOR floor), due 6/18/2018)(3)(11)(13) Senior Secured Term Loan B (11.50% (LIBOR + 9.50% with 2.00% LIBOR floor), due 6/18/2018)(3)(11)(13) Transaction Network Services, Inc. Virginia / Telecommunication Services Second Lien Term Loan (9.00% (LIBOR + 8.00% with 1.00% LIBOR floor), due 8/14/2020)(9)(11)(13) Trinity Services Group, Inc.(44) Florida / Food Products Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 8/13/2019)(11)(13) 5,000 4,936 4,936 4,936 0.1% 4,936 0.1% 34,519 34,519 34,519 1.0% 36,506 36,506 71,025 36,506 1.1% 71,025 2.1% 4,410 4,392 4,392 4,392 0.1% 4,392 0.1% 9,626 9,626 9,626 0.3% Senior Secured Term Loan B (11.50% (LIBOR + 10.50% with 1.00% LIBOR floor), due 8/13/2019)(3)(11)(13) 125,000 125,000 134,626 125,000 3.6% 134,626 3.9% United Sporting Companies, Inc.(45) South Carolina / Durable Consumer Products Second Lien Term Loan (12.75% (LIBOR + 11.00% with 1.75% LIBOR floor), due 5/16/2018)(3)(11)(14) 140,847 140,847 140,847 136,668 4.0% 136,668 4.0% Universal Fiber Systems, LLC Virginia / Textiles, Apparel & Luxury Goods Second Lien Term Loan (10.50% (LIBOR + 9.50% with 1.00% LIBOR floor), due 10/02/2022)(3)(9)(11)(14) 37,000 36,340 36,340 1.1% 36,340 36,340 1.1% See notes to consolidated financial statements. 116 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) LEVEL 3 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) USG Intermediate, LLC Texas / Durable Consumer Products Revolving Line of Credit – $2,500 Commitment (10.75% (LIBOR + 9.75% with 1.00% LIBOR floor), due 4/15/2017)(11) (14)(16) Senior Secured Term Loan A (8.25% (LIBOR + 7.25% with 1.00% LIBOR floor), due 4/15/2020)(3)(11)(14) Senior Secured Term Loan B (13.25% (LIBOR + 12.25% with 1.00% LIBOR floor), due 4/15/2020)(3)(11)(14) Equity June 30, 2016 Principal Value Cost Fair Value(2) % of Net Assets $ 1,000 $ 1,000 $ 1,000 —% 16,779 16,779 16,779 0.5% 19,960 Venio LLC Pennsylvania / Business Services Second Lien Term Loan (12.00% (LIBOR + 9.50% with 2.50% LIBOR floor) plus 2.00% default interest, in non- accrual status effective 12/31/15, due 2/19/2020)(11)(13) 17,000 Voya CLO 2012-2, Ltd. Cayman Islands / Structured Finance Income Notes (Residual Interest, current yield 18.84%)(6) (15) 38,070 Voya CLO 2012-3, Ltd. Cayman Islands / Structured Finance Income Notes (Residual Interest, current yield 18.51%)(6) (15) 46,632 Voya CLO 2012-4, Ltd. Cayman Islands / Structured Finance Income Notes (Residual Interest, current yield 19.09%)(6) (15) 40,613 Voya CLO 2014-1, Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 19.32%)(6)(7)(15) Washington Mill CLO Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 9.52%)(6)(7)(15) 32,383 22,600 19,960 1 37,740 17,000 17,000 28,112 28,112 34,597 34,597 30,772 30,772 26,133 26,133 18,406 18,406 19,960 0.6% — —% 37,739 1.1% 12,876 0.4% 12,876 0.4% 28,982 0.8% 28,982 0.8% 34,319 1.0% 34,319 1.0% 30,756 0.9% 30,756 0.9% 26,741 0.8% 26,741 0.8% 15,056 0.4% 15,056 0.4% Water Pik, Inc. Colorado / Personal & Nondurable Consumer Products Wheel Pros, LLC Colorado / Business Services Second Lien Term Loan (9.75% (LIBOR + 8.75% with 1.00% LIBOR floor), due 1/8/2021)(9)(11)(13) 15,439 15,097 15,097 15,097 0.4% 15,097 0.4% Senior Subordinated Secured Note (11.00% (LIBOR + 7.00% with 4.00% LIBOR floor), due 6/29/2020)(3)(11)(13) Senior Subordinated Secured Note (11.00% (LIBOR + 7.00% with 4.00% LIBOR floor), due 6/29/2020)(3)(11) (13) 12,000 12,000 12,000 0.4% 5,460 5,460 17,460 5,460 0.2% 17,460 0.6% Total Non-Control/Non-Affiliate Investments (Level 3) $ 4,312,122 $ 4,133,939 120.3% Total Portfolio Investments $ 6,091,100 $ 5,897,708 171.6% See notes to consolidated financial statements. 117 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) June 30, 2015 Principal Value Cost Fair Value(2) % of Net Assets LEVEL 3 PORTFOLIO INVESTMENTS Control Investments (greater than 25.00% voting control)(50) American Property REIT Corp.(17) Various / Real Estate Senior Secured Term Loan (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 4/1/2019)(11)(13) (47) Common Stock (301,845 shares) Net Operating Income Interest (5% of Net Operating Income) Arctic Energy Services, LLC(18) Wyoming / Oil & Gas Services Senior Secured Term Loan (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor), due 5/5/2019)(3)(11)(14) Senior Subordinated Term Loan (14.00% (LIBOR + 11.00% with 3.00% LIBOR floor), due 5/5/2019)(3)(11)(14) Class A Units (700 units) Class C Units (10 units) CCPI Inc.(19) Ohio / Manufacturing Senior Secured Term Loan A (10.00%, due 12/31/2017)(3) Senior Secured Term Loan B (12.00% plus 7.00% PIK, due 12/31/2017)(47) Common Stock (14,857 shares) CP Energy Services Inc.(20) Oklahoma / Oil & Gas Services Senior Secured Term Loan A to CP Well Testing, LLC (7.00% (LIBOR + 5.00% with 2.00% LIBOR floor), due 4/1/2019)(11) (13) Senior Secured Term Loan B to CP Well Testing, LLC (10.00% (LIBOR + 8.00% with 2.00% LIBOR floor) plus 7.50% PIK, due 4/1/2019)(3)(11)(13)(47) Second Lien Term Loan to CP Well Testing, LLC (9.00% (LIBOR + 7.00% with 2.00% LIBOR floor) plus 9.00% PIK, due 4/1/2019)(11)(13)(47) Common Stock (2,924 shares) Credit Central Loan Company, LLC(21) South Carolina / Consumer Finance Subordinated Term Loan (10.00% plus 10.00% PIK, due 6/26/2019)(15)(47) Class A Shares (7,500,000 shares)(15) Net Revenues Interest (25% of Net Revenues)(15) Echelon Aviation LLC New York / Aerospace & Defense Senior Secured Term Loan (11.75% (LIBOR + 9.75% with 2.00% LIBOR floor) plus 2.25% PIK, due 3/31/2022)(11)(14) (47) Membership Interest (99%) Edmentum Ultimate Holdings, LLC(22) Minnesota / Consumer Services Second Lien Revolving Credit Facility to Edmentum, Inc. – $7,834 Commitment (5.00%, due 6/9/2020)(16) Unsecured Senior PIK Note (8.50% PIK, due 6/9/2020)(47) Unsecured Junior PIK Note (10.00% PIK, due 6/9/2020)(47) Class A Common Units (370,964.14 units) $ 78,077 $ — — 78,077 $ 22,115 — 78,077 32,098 8,081 2.1% 0.9% 0.2% 100,192 118,256 3.2% 31,640 31,640 31,640 0.9% 20,230 — — 16,763 8,844 — 20,230 8,879 127 60,876 16,763 8,844 8,553 20,230 8,374 0.5% 0.2% 120 —% 60,364 1.6% 16,763 0.5% 8,844 15,745 0.2% 0.4% 34,160 41,352 1.1% 11,035 11,035 11,035 0.3% 74,493 74,493 74,493 2.0% 15,563 — 15,563 15,227 5,481 0.2% — —% 116,318 91,009 2.5% 36,333 — — 40,808 — 4,896 5,875 19,868 — 36,333 11,633 — 47,966 40,808 19,907 60,715 4,896 5,875 19,868 6,577 37,216 36,333 14,529 4,310 1.0% 0.4% 0.1% 55,172 1.5% 40,808 28,133 1.1% 0.8% 68,941 1.9% 4,896 5,875 19,868 6,577 0.1% 0.2% 0.5% 0.2% 37,216 1.0% See notes to consolidated financial statements. 118 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) June 30, 2015 Principal Value Cost Fair Value(2) % of Net Assets LEVEL 3 PORTFOLIO INVESTMENTS Control Investments (greater than 25.00% voting control)(50) First Tower Finance Company LLC(23) Mississippi / Consumer Finance Subordinated Term Loan to First Tower, LLC (10.00% plus 12.00% PIK, due 6/24/2019)(15)(47) Class A Shares (83,729,323 shares)(15) Freedom Marine Solutions, LLC(24) Louisiana / Oil & Gas Services Senior Secured Note to Vessel Company, LLC (18.00%, due 12/12/2016) Senior Secured Note to Vessel Company II, LLC (13.00%, due 11/25/2018) Senior Secured Note to Vessel Company III, LLC (13.00%, due 12/3/2018) Membership Interest (100%) $ 251,578 $ 251,578 $ 251,578 66,473 114,372 6.8% 3.1% 318,051 365,950 9.9% 3,500 3,500 3,500 0.1% 13,000 12,504 8,680 0.2% 16,000 16,000 7,808 39,812 26,000 25,950 51,950 13,790 0.4% 1,120 —% 27,090 0.7% 6,918 0.2% — —% 6,918 0.2% Gulf Coast Machine & Supply Company Texas / Manufacturing Senior Secured Term Loan (10.50% (LIBOR + 8.50% with 2.00% LIBOR floor), in non-accrual status effective 1/1/2015, due 10/12/2017)(11)(13) 26,844 Series A Convertible Preferred Stock (99,900 shares) Harbortouch Payments, LLC(25) Pennsylvania / Business Services Senior Secured Term Loan A (9.00% (LIBOR + 7.00% with 2.00% LIBOR floor), due 9/30/2017)(3)(11)(13) Senior Secured Term Loan B (5.50% (LIBOR + 4.00% with 1.50% LIBOR floor) plus 5.50% PIK, due 3/31/2018)(11)(13)(47) 128,980 128,980 128,980 3.5% 144,878 144,878 144,878 3.9% Senior Secured Term Loan C (13.00% (LIBOR + 9.00% with 4.00% LIBOR floor), due 9/29/2018)(11)(13) 22,876 Class C Shares (535 shares) 22,876 8,725 22,876 80,202 0.6% 2.2% 305,459 376,936 10.2% MITY, Inc.(26) Utah / Durable Consumer Products National Property REIT Corp.(27) Various / Real Estate Senior Secured Note A (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor), due 3/19/2019)(3)(11)(13) Senior Secured Note B (10.00% (LIBOR + 7.00% with 3.00% LIBOR floor) plus 10.00% PIK, due 3/19/2019)(11)(13)(47) Subordinated Unsecured Note to Broda Enterprises ULC (10.00%, due on demand)(15) Common Stock (42,053 shares) Senior Secured Term Loan A (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 4/1/2019)(11)(13) (47) Senior Secured Term Loan C (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 7.50% PIK, due 4/1/2019)(11)(13) (47) Senior Secured Term Loan D (14.00% (LIBOR + 12.00% with 2.00% LIBOR floor) plus 4.50% PIK, due 4/1/2019)(11)(13) (47) Senior Secured Term Loan A to ACL Loan Holdings, Inc. (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 7.50% PIK, due 4/1/2019)(11)(13)(47) Senior Secured Term Loan B to ACL Loan Holdings, Inc. (14.00% (LIBOR + 12.00% with 2.00% LIBOR floor) plus 4.50% PIK, due 4/1/2019)(11)(13)(47) Common Stock (643,175 shares) Net Operating Income Interest (5% of Net Operating Income) 18,250 18,250 18,250 0.5% 16,301 16,301 16,301 0.4% 7,200 7,200 6,849 5,827 10,417 0.2% 0.3% 48,600 50,795 1.4% 202,629 202,629 202,629 5.5% 44,147 44,147 44,147 1.2% 67,443 67,443 67,443 1.8% 20,413 20,413 20,413 0.6% 30,582 30,582 84,446 — 30,582 87,002 19,673 0.8% 2.3% 0.5% 449,660 471,889 12.7% See notes to consolidated financial statements. 119 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) Principal Value Cost Fair Value(2) % of Net Assets June 30, 2015 LEVEL 3 PORTFOLIO INVESTMENTS Control Investments (greater than 25.00% voting control)(50) Nationwide Loan Company LLC(28) Illinois / Consumer Finance Senior Subordinated Term Loan to Nationwide Acceptance LLC (10.00% plus 10.00% PIK, due 6/18/2019)(15)(47) $ 14,820 $ 14,820 $ Class A Shares (26,974,454.27 shares)(15) NMMB, Inc.(29) New York / Media Senior Secured Note (14.00%, due 5/6/2016) Senior Secured Note to Armed Forces Communications, Inc. (14.00%, due 5/6/2016) 3,714 7,000 Series A Preferred Stock (7,200 shares) Series B Preferred Stock (5,669 shares) R-V Industries, Inc. Pennsylvania / Manufacturing Senior Subordinated Note (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 6/12/2018)(3)(11)(13) 29,237 Common Stock (545,107 shares) Warrant (to purchase 200,000 shares of Common Stock, expires 6/30/2017) United Property REIT Corp.(30) Various / Real Estate Senior Term Loan (6.00% (LIBOR + 4.00% with 2.00% LIBOR floor) plus 5.50% PIK, due 4/1/2019)(11)(13)(47) 62,768 Common Stock (74,449 shares) Net Operating Income Interest (5% of Net Operating Income) 14,795 29,615 3,714 7,000 7,200 5,669 14,820 19,730 0.4% 0.5% 34,550 0.9% 3,714 0.1% 7,000 0.2% 1,338 —% — —% 23,583 12,052 0.3% 29,237 5,087 1,682 36,006 62,768 12,860 29,237 8,246 0.8% 0.2% 3,025 0.1% 40,508 1.1% 62,768 11,216 1.7% 0.3% — 10,701 0.3% 75,628 84,685 2.3% Valley Electric Company, Inc.(32) Washington / Construction & Engineering Senior Secured Note to Valley Electric Co. of Mt. Vernon, Inc. (8.00% (LIBOR + 5.00% with 3.00% LIBOR floor) plus 2.50% PIK, due 12/31/2017)(3)(11)(13)(47) Senior Secured Note (10.00% plus 8.50% PIK, due 12/31/2018)(47) Common Stock (50,000 shares) 10,340 10,340 10,340 0.3% 22,293 22,293 26,204 58,837 20,157 0.5% — —% 30,497 0.8% Wolf Energy, LLC 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) 32,112 Membership Interest (100%) Net Profits Interest (8% of Equity Distributions)(4) — — — — — —% — —% 22 —% 22 —% Total Control Investments $ 1,894,644 $ 1,974,202 53.3% Affiliate Investments (5.00% to 24.99% voting control)(51) BNN Holdings Corp. Michigan / Healthcare Senior Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 8/29/2019)(3)(11)(12) Senior Term Loan B (11.50% (LIBOR + 10.50% with 1.00% LIBOR floor), due 8/29/2019)(3)(11)(12) Series A Preferred Stock (9,925.455 shares)(8) Series B Preferred Stock (1,753.636 shares)(8) $ 21,182 $ 21,182 $ 21,182 0.6% 21,740 21,740 1,780 448 21,740 0.6% 2,569 —% 454 —% 45,150 45,945 1.2% Total Affiliate Investments $ 45,150 $ 45,945 1.2% See notes to consolidated financial statements. 120 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) LEVEL 3 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) June 30, 2015 Principal Value Cost Fair Value(2) % of Net Assets 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)(9)(11)(13) $ 7,000 $ 6,928 $ 7,000 0.2% 6,928 7,000 0.2% California / Machinery AFI Shareholder, LLC (f/k/a Aircraft Fasteners International, LLC) Class A Units (32,500 units) 376 563 —% Airmall Inc. Pennsylvania / Property Management Escrow Receivable Ajax Rolled Ring & Machine, LLC(42) South Carolina / Manufacturing Escrow Receivable 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)(9)(11)(14) American Gilsonite Company Utah / Metal Services & Minerals Second Lien Term Loan (11.50%, due 9/1/2017)(9) Membership Interest (99.9999%)(34) Apidos CLO IX Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 22.56%)(6)(15) Apidos CLO XI Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 15.64%)(6)(15) Apidos CLO XII Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 17.68%)(6)(15) Apidos CLO XV Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 15.07%)(6)(15) 11,771 15,755 23,525 38,340 44,063 36,515 Arctic Glacier U.S.A., Inc. Minnesota / Food Products Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 11/10/2019)(3)(11)(13) 150,000 376 563 —% 5,880 3,814 0.1% 5,880 1,264 1,264 11,593 11,593 15,755 — 15,755 20,644 20,644 31,485 31,485 37,751 37,751 33,958 33,958 3,814 0.1% 2,170 0.1% 2,170 0.1% 11,771 0.3% 11,771 0.3% 14,287 0.4% — —% 14,287 0.4% 22,325 0.6% 22,325 0.6% 32,108 0.9% 32,108 0.9% 38,817 1.0% 38,817 1.0% 30,911 0.8% 30,911 0.8% 150,000 150,000 149,180 4.0% 149,180 4.0% Ark-La-Tex Wireline Services, LLC Louisiana / Oil & Gas Services Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 4/8/2019)(11)(14) Senior Secured Term Loan B (10.50% (LIBOR + 9.50% with 1.00% LIBOR floor), due 4/8/2019)(11)(14) Armor Holding II LLC New York / Diversified Financial Services Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 12/26/2020)(3)(9)(11)(13) Atlantis Health Care Group (Puerto Rico), Inc. Puerto Rico / Healthcare Revolving Line of Credit – $4,000 Commitment (13.00% (LIBOR + 11.00% with 2.00% LIBOR floor), due 8/21/2016)(11)(13)(16) Senior Term Loan (10.00% (LIBOR + 8.00% with 2.00% LIBOR floor), due 2/21/2018)(3)(11)(13) 21,743 21,743 20,042 0.5% 23,697 23,697 45,440 21,675 0.6% 41,717 1.1% 7,000 6,888 6,888 6,480 0.2% 6,480 0.2% 2,350 2,350 2,350 0.1% 38,561 38,561 40,911 35,189 0.9% 37,539 1.0% See notes to consolidated financial statements. 121 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) LEVEL 3 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) June 30, 2015 Principal Value Cost Fair Value(2) % of Net Assets BAART Programs, Inc. California / Healthcare Revolving Line of Credit – $5,000 Commitment (8.75% (LIBOR + 8.25% with 0.50% LIBOR floor), due 6/30/2018)(13)(16) Senior Secured Term Loan A (6.25% (LIBOR + 5.75% with 0.50% LIBOR floor), due 6/30/2020)(11)(13) Senior Secured Term Loan B (11.25% (LIBOR + 10.75% with 0.50% LIBOR floor), due 6/30/2020)(11) (13) Delayed Draw Term Loan – $10,500 Commitment (expires 12/31/2015)(16) $ 1,000 $ 1,000 $ 1,000 —% 21,500 21,500 21,500 0.6% 21,500 21,500 21,500 0.6% — — — —% 44,000 44,000 1.2% Babson CLO Ltd. 2014-III Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 14.25%)(6)(7)(15) 52,250 47,799 47,799 47,148 1.3% 47,148 1.3% Broder Bros., Co. Pennsylvania / Textiles, Apparel & Luxury Goods Senior Secured Notes (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 4/8/2019)(3)(11)(14)(35) 252,200 252,200 252,200 252,200 6.8% 252,200 6.8% Brookside Mill CLO Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 19.25%)(6)(15) 26,000 Caleel + Hayden, LLC Colorado / Personal & Nondurable Consumer Products Membership Interest(37) Capstone Logistics Acquisition, Inc. Georgia / Business Services Second Lien Term Loan (9.25% (LIBOR + 8.25% with 1.00% LIBOR floor), due 10/7/2022)(3)(11)(14) 102,500 Cent CLO 17 Limited Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 14.90%)(6)(15) Cent CLO 20 Limited Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 12.49%)(6)(15) Cent CLO 21 Limited Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 13.42%)(6)(7)(15) 24,870 40,275 48,528 21,432 21,432 24,566 0.7% 24,566 0.7% — — 227 —% 227 —% 101,891 101,891 101,891 2.8% 101,891 2.8% 20,309 20,309 35,724 35,724 43,038 43,038 20,922 0.6% 20,922 0.6% 33,505 0.9% 33,505 0.9% 41,910 1.1% 41,910 1.1% CIFC Funding 2011-I, Ltd. Cayman Islands / Structured Finance Class D Senior Secured Notes (5.28% (LIBOR + 5.00%, due 1/19/2023)(5)(11)(13)(15) Class E Subordinated Notes (7.28% (LIBOR + 7.00%, due 1/19/2023)(5)(11)(13)(15) CIFC Funding 2013-III, Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 14.56%)(6)(15) CIFC Funding 2013-IV, Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 14.87%)(6)(15) CIFC Funding 2014-IV Investor, Ltd. Cayman Islands / Structured Finance Income Notes (Residual Interest, current yield 13.83%) (6)(7)(15) 19,000 15,604 18,175 0.5% 15,400 44,100 45,500 13,009 28,613 35,412 35,412 36,124 36,124 14,223 0.4% 32,398 0.9% 35,599 1.0% 35,599 1.0% 38,265 1.0% 38,265 1.0% 41,500 34,921 34,921 36,195 1.0% 36,195 1.0% See notes to consolidated financial statements. 122 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) LEVEL 3 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) June 30, 2015 Principal Value Cost Fair Value(2) % of Net Assets Cinedigm DC Holdings, LLC 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)(11)(13)(47) $ 67,449 $ 67,399 $ 67,449 1.8% 67,399 67,449 1.8% 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)(11)(14) 49,922 Crosman Corporation New York / Manufacturing Second Lien Term Loan (12.00% (LIBOR + 10.50% with 1.50% LIBOR floor), due 12/30/2019)(3)(11)(14) 40,000 Diamondback Operating, LP Oklahoma / Oil & Gas Production Net Profits Interest (15% of Equity Distributions)(4) 49,922 49,922 40,000 40,000 — — 49,922 1.3% 49,922 1.3% 35,973 1.0% 35,973 1.0% — —% — —% Empire Today, LLC Illinois / Durable Consumer Products Senior Secured Note (11.375%, due 2/1/2017)(9) 15,700 15,518 13,070 0.4% Fleetwash, Inc. New Jersey / Business Services Senior Secured Term Loan B (10.50% (LIBOR + 9.50% with 1.00% LIBOR floor), due 4/30/2019)(3)(11)(13) Delayed Draw Term Loan – $15,000 Commitment (expires 4/30/2019)(16) 15,518 13,070 0.4% 24,446 24,446 24,446 0.7% — — — —% 24,446 24,446 0.7% Focus Brands, Inc. Georgia / Consumer Services Second Lien Term Loan (10.25% (LIBOR + 9.00% with 1.25% LIBOR floor), due 8/21/2018)(9)(11)(14) 18,000 Galaxy XV CLO, Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 15.65%)(6)(15) Galaxy XVI CLO, Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 13.97%)(6)(15) Galaxy XVII CLO, Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 13.43%)(6)(7)(15) Global Employment Solutions, Inc. Colorado / Business Services Senior Secured Term Loan (10.25% (LIBOR + 9.25% with 1.00% LIBOR floor), due 6/26/2020)(3)(11)(14) 35,025 24,575 39,905 49,567 GTP Operations, LLC(36) Texas / Software & Computer Services Senior Secured Term Loan (10.00% (LIBOR + 5.00% with 5.00% LIBOR floor), due 12/11/2018)(3)(11)(13) 116,411 17,821 17,821 27,762 27,762 20,434 20,434 33,493 33,493 49,567 49,567 18,000 0.5% 18,000 0.5% 29,739 0.8% 29,739 0.8% 20,849 0.6% 20,849 0.6% 33,742 0.9% 33,742 0.9% 49,567 1.3% 49,567 1.3% 116,411 116,411 116,411 3.1% 116,411 3.1% Halcyon Loan Advisors Funding 2012-1 Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 30.89%)(6)(15) Halcyon Loan Advisors Funding 2013-1 Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 21.41%)(6)(15) Halcyon Loan Advisors Funding 2014-1 Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 17.17%)(6)(15) 23,188 19,941 19,941 23,172 0.6% 23,172 0.6% 40,400 34,936 34,936 39,208 1.1% 39,208 1.1% 24,500 21,020 21,020 22,096 0.6% 22,096 0.6% See notes to consolidated financial statements. 123 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) Principal Value Cost Fair Value(2) % of Net Assets June 30, 2015 LEVEL 3 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) Halcyon Loan Advisors Funding 2014-2 Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 18.73%)(6)(7)(15) HarbourView CLO VII, Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 17.84%)(6)(7)(15) Harley Marine Services, Inc. Washington / Transportation Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 12/20/2019)(3)(9)(11)(13) Hollander Sleep Products, LLC Florida / Durable Consumer Products Senior Secured Term Loan (9.00% (LIBOR + 8.00% with 1.00% LIBOR floor), due 10/21/2020)(3)(11)(14) $ 41,164 $ 34,723 $ 37,555 1.0% 34,723 37,555 1.0% 19,025 9,000 15,252 15,252 8,855 8,855 15,197 0.4% 15,197 0.4% 8,748 0.2% 8,748 0.2% 22,444 22,444 22,444 22,444 0.6% 22,444 0.6% ICON Health & Fitness, Inc. Utah / Durable Consumer Products Senior Secured Note (11.875%, due 10/15/2016)(9) 16,100 16,103 16,100 0.4% ICV-CSI Holdings, LLC New York / Transportation Membership Units (1.6 units) Instant Web, LLC Minnesota / Media Senior Secured Term Loan A (5.50% (LIBOR + 4.50% with 1.00% LIBOR floor), due 3/28/2019)(11)(13) Senior Secured Term Loan B (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 3/28/2019)(3)(11)(13) Senior Secured Term Loan C (12.75% (LIBOR + 11.75% with 1.00% LIBOR floor), due 3/28/2019)(11)(13) Delayed Draw Term Loan – $16,000 Commitment (expires 5/29/2016)(16) 16,103 16,100 0.4% 1,639 1,639 2,400 0.1% 2,400 0.1% 146,363 146,363 146,363 4.0% 150,100 150,100 150,100 4.0% 27,000 27,000 27,000 0.7% — — — —% 323,463 323,463 8.7% InterDent, Inc. California / Healthcare Senior Secured Term Loan A (6.25% (LIBOR + 5.25% with 1.00% LIBOR floor), due 8/3/2017)(11)(14) 125,350 125,350 125,350 3.4% Senior Secured Term Loan B (11.25% (LIBOR + 10.25% with 1.00% LIBOR floor), due 8/3/2017)(3)(11)(14) 131,125 JAC Holding Corporation Michigan / Transportation Senior Secured Note (11.50%, due 10/1/2019)(9) 3,000 131,125 256,475 131,125 3.5% 256,475 6.9% 3,000 3,000 3,000 0.1% 3,000 0.1% Jefferson Mill CLO Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 15.65%)(6)(7)(15) JHH Holdings, Inc. Texas / Healthcare Second Lien Term Loan (11.25% (LIBOR + 10.00% with 1.25% LIBOR floor) plus 0.50% PIK, due 3/30/2019)(3) (11)(13)(47) 19,500 16,928 16,928 16,928 0.5% 16,928 0.5% 35,297 35,297 35,297 35,297 1.0% 35,297 1.0% See notes to consolidated financial statements. 124 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) LEVEL 3 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) June 30, 2015 Principal Value Cost Fair Value(2) % of Net Assets LaserShip, Inc. Virginia / Transportation Senior Secured Term Loan A (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor) plus 2.00% default interest, due 3/18/2019)(3)(11)(14) Senior Secured Term Loan B (10.25% (LIBOR + 8.25% with 2.00% LIBOR floor) plus 2.00% default interest, due 3/18/2019)(3)(11)(14) Delayed Draw Term Loan – $6,000 Commitment (expires 12/31/2016)(16) LCM XIV Ltd. Cayman Islands / Structured Finance Income Notes (Residual Interest, current yield 16.70%)(6)(15) Madison Park Funding IX, Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 21.64%) (6)(15) $ 35,156 $ 35,156 $ 30,778 0.8% 21,555 21,555 18,866 0.5% — — — —% 56,711 49,644 1.3% 26,500 22,636 22,636 23,163 0.6% 23,163 0.6% 31,110 23,663 23,663 25,804 0.7% 25,804 0.7% Matrixx Initiatives, Inc. New Jersey / Pharmaceuticals Senior Secured Term Loan A (7.50% (LIBOR + 6.00% with 1.50% LIBOR floor), due 8/9/2018)(3)(11)(13) 34,389 34,389 34,026 0.9% Senior Secured Term Loan B (12.50% (LIBOR + 11.00% with 1.50% LIBOR floor), due 8/9/2018)(3)(11)(13) 40,562 Maverick Healthcare Equity, LLC Arizona / Healthcare Preferred Units (1,250,000 units) Class A Common Units (1,250,000 units) 40,562 74,951 1,252 — 40,562 1.1% 74,588 2.0% 2,190 0.1% — —% 1,252 2,190 0.1% Mountain View CLO 2013-I Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 18.47%) (6)(15) 43,650 37,168 37,168 40,480 1.1% 40,480 1.1% Mountain View CLO IX Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 15.43%) (6)(7)(15) 47,830 Nathan's Famous, Inc. New York / Food Products Senior Secured Notes (10.00%, due 3/15/2020)(9) 3,000 44,739 44,739 3,000 3,000 44,666 1.2% 44,666 1.2% 3,000 0.1% 3,000 0.1% NCP Finance Limited Partnership(38) Ohio / Consumer Finance Subordinated Secured Term Loan (11.00% (LIBOR + 9.75% with 1.25% LIBOR floor), due 9/30/2018)(3)(9)(11)(14)(15) New Century Transportation, Inc. New Jersey / Transportation Senior Subordinated Term Loan (12.00% (LIBOR + 10.00% with 2.00% LIBOR floor) plus 4.00% PIK, in non-accrual status effective 4/1/2014, due 2/3/2018)(11)(14)(47) Nixon, Inc. California / Durable Consumer Products Octagon Investment Partners XV, Ltd. Cayman Islands / Structured Finance Senior Secured Term Loan (8.75% plus 2.75% PIK, due 4/16/2018)(3)(9)(47) Income Notes (Residual Interest, current yield 20.72%)(6)(15) 16,305 16,065 16,065 16,305 0.4% 16,305 0.4% 187 187 187 — —% — —% 13,925 13,749 13,749 13,616 0.4% 13,616 0.4% 28,571 24,515 24,515 26,461 0.7% 26,461 0.7% See notes to consolidated financial statements. 125 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) LEVEL 3 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) June 30, 2015 Principal Value Cost Fair Value(2) % of Net Assets Onyx Payments(39) Texas / Diversified Financial Services Pacific World Corporation California / Personal & Nondurable Consumer Products Revolving Line of Credit – $5,000 Commitment (9.00% (LIBOR + 8.00% with 1.00% LIBOR floor), due 9/10/2015) (11)(13)(16) Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 9/10/2019)(3)(11)(13) Senior Secured Term Loan B (13.50% (LIBOR + 12.50% with 1.00% LIBOR floor), due 9/10/2019)(11)(13) Revolving Line of Credit – $15,000 Commitment (8.00% (LIBOR + 7.00% with 1.00% LIBOR floor), due 9/26/2020)(11)(14)(16) Senior Secured Term Loan A (6.00% (LIBOR + 5.00% with 1.00% LIBOR floor), due 9/26/2020)(11)(14) Senior Secured Term Loan B (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/26/2020)(3)(11)(14) $ 2,000 $ 2,000 $ 2,000 0.1% 52,050 52,050 52,050 1.4% 59,389 59,389 59,389 1.6% 113,439 113,439 3.1% 6,500 6,500 6,500 0.2% 99,250 99,250 95,400 2.6% 99,250 99,250 81,772 2.2% 205,000 183,672 5.0% Pelican Products, Inc. California / Durable Consumer Products Second Lien Term Loan (9.25% (LIBOR + 8.25% with 1.00% LIBOR floor), due 4/9/2021)(9)(11)(14) 17,500 PGX Holdings, Inc. (40) Utah / Consumer Services Second Lien Term Loan (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 9/29/2021)(3)(11)(14) 135,000 Photonis Technologies SAS France / Aerospace & Defense First Lien Term Loan (8.50% (LIBOR + 7.50% with 1.00% LIBOR floor), due 9/18/2019)(9)(11)(14)(15) 10,369 Pinnacle (US) Acquisition Co. Limited PlayPower, Inc. Texas / Software & Computer Services Second Lien Term Loan (10.50% (LIBOR + 9.25% with 1.25% LIBOR floor), due 8/3/2020)(9)(11)(13) North Carolina / Durable Consumer Products Second Lien Term Loan (9.75% (LIBOR + 8.75% with 1.00% LIBOR floor), due 6/23/2022)(9)(11)(13) Prime Security Services Borrower, LLC Illinois / Consumer Services Second Lien Term Loan (9.75% (LIBOR + 8.75% with 1.00% LIBOR floor), due 7/1/2022)(9)(11)(14) 7,037 10,000 10,000 17,484 17,484 17,500 0.5% 17,500 0.5% 135,000 135,000 135,000 3.6% 135,000 3.6% 10,145 10,145 9,734 0.3% 9,734 0.3% 6,890 6,890 9,850 9,850 9,850 9,850 6,612 0.2% 6,612 0.2% 9,850 0.3% 9,850 0.3% 9,850 0.3% 9,850 0.3% PrimeSport, Inc. Georgia / Hotels, Restaurants & Leisure Revolving Line of Credit – $15,000 Commitment (9.50% (LIBOR + 8.50% with 1.00% LIBOR floor), due 7/31/2015) (11)(13)(16) Senior Secured Term Loan A (7.00% (LIBOR + 6.00% with 1.00% LIBOR floor), due 2/11/2021)(3)(11)(13) Senior Secured Term Loan B (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 2/11/2021)(3)(11) 13,800 13,800 13,800 0.4% 54,227 54,227 54,227 1.4% 74,500 74,500 74,500 2.0% 142,527 142,527 3.8% Prince Mineral Holding Corp. New York / Metal Services & Minerals Senior Secured Term Loan (11.50%, due 12/15/2019) (9) 10,000 9,915 9,915 9,458 0.3% 9,458 0.3% See notes to consolidated financial statements. 126 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) LEVEL 3 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) June 30, 2015 Principal Value Cost Fair Value(2) % of Net Assets Rocket Software, Inc. Massachusetts / Software & Computer Services Second Lien Term Loan (10.25% (LIBOR + 8.75% with 1.50% LIBOR floor), due 2/8/2019)(3)(9)(11)(13) $ 20,000 $ 19,801 $ 20,000 0.5% 19,801 20,000 0.5% Royal Holdings, Inc. Indiana / Chemicals Second Lien Term Loan (8.50% (LIBOR + 7.50% with 1.00% LIBOR floor), due 6/19/2023)(9)(11)(14) 5,000 4,963 4,963 5,000 0.1% 5,000 0.1% Ryan, LLC Texas / Business Services Subordinated Unsecured Notes (12.00% (LIBOR + 9.00% with 3.00% LIBOR floor) plus 3.00% PIK, due 6/30/2018)(11)(13)(47) 72,701 72,701 72,701 72,701 2.0% 72,701 2.0% Security Alarm Financing Enterprises, L.P.(41) California / Consumer Services Subordinated Unsecured Notes (11.50% (LIBOR + 9.50% with 2.00% LIBOR floor), due 12/19/2020)(11) (14) 25,000 SESAC Holdco II LLC Tennessee / Media Second Lien Term Loan (9.00% (LIBOR + 8.00% with 1.00% LIBOR floor), due 4/22/2021)(3)(9)(11)(13) 10,000 25,000 25,000 9,854 9,854 25,000 0.7% 25,000 0.7% 9,925 0.3% 9,925 0.3% Small Business Whole Loan Portfolio(43) New York / Online Lending 40 small business loans purchased from Direct Capital Corporation 2,306 small business loans purchased from On Deck Capital, Inc. 492 492 362 —% 50,066 50,066 50,558 50,530 1.4% 50,892 1.4% Spartan Energy Services, Inc. Louisiana / Oil & Gas Services Senior Secured Term Loan A (7.00% (LIBOR + 6.00% with 1.00% LIBOR floor), due 12/28/2017)(3)(11)(14) 13,422 13,422 12,973 0.3% Senior Secured Term Loan B (11.00% (LIBOR + 10.00% with 1.00% LIBOR floor), due 12/28/2017)(3)(11)(14) 13,935 Speedy Group Holdings Corp. Canada / Consumer Finance Senior Unsecured Notes (12.00%, due 11/15/2017)(9) (15) 15,000 13,935 27,357 15,000 15,000 13,664 0.4% 26,637 0.7% 15,000 0.4% 15,000 0.4% Stauber Performance Ingredients, Inc. California / Food Products Senior Secured Term Loan A (7.50% (LIBOR + 6.50% with 1.00% LIBOR floor), due 11/25/2019)(3)(11)(13) Senior Secured Term Loan B (10.50% (LIBOR + 9.50% with 1.00% LIBOR floor), due 11/25/2019)(3)(11)(13) Stryker Energy, LLC Ohio / Oil & Gas Production Overriding Royalty Interests(10) Sudbury Mill CLO Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 15.92%)(6)(15) Symphony CLO IX Ltd. Cayman Islands / Structured Finance Preference Shares (Residual Interest, current yield 20.76%)(6)(15) Symphony CLO XIV Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 12.24%)(6)(7)(15) Symphony CLO XV, Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 11.72%)(6)(15) 9,561 9,799 9,561 9,561 0.2% 9,799 19,360 9,799 0.3% 19,360 0.5% — — 22,562 22,562 34,797 34,797 44,018 44,018 46,994 46,994 — —% — —% 24,425 0.7% 24,425 0.7% 40,034 1.1% 40,034 1.1% 45,641 1.2% 45,641 1.2% 46,452 1.3% 46,452 1.3% 28,200 45,500 49,250 50,250 See notes to consolidated financial statements. 127 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) LEVEL 3 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) June 30, 2015 Principal Value Cost Fair Value(2) % of Net Assets System One Holdings, LLC Pennsylvania / Business Services Senior Secured Term Loan (10.50% (LIBOR + 9.50% with 1.00% LIBOR floor), due 11/17/2020)(3)(11)(14) Delayed Draw Term Loan – $11,500 Commitment (expires 12/31/2015)(16) $ 68,146 $ 68,146 $ 68,146 1.8% — — — —% 68,146 68,146 1.8% Targus Group International, Inc. California / Durable Consumer Products First Lien Term Loan (11.75% (PRIME + 8.50%) plus 1.00% PIK and 2.00% default interest, due 5/24/2016)(9) (11)(47) TB Corp. Texas / Hotels, Restaurants & Leisure Senior Subordinated Note (12.00% plus 1.50% PIK, due 12/19/2018)(3)(47) Therakos, Inc. New Jersey / Healthcare Second Lien Term Loan (10.75% (LIBOR + 9.50% with 1.25% LIBOR floor), due 6/27/2018)(9)(11)(13) Tolt Solutions, Inc. South Carolina / Business Services Senior Secured Term Loan A (7.00% (LIBOR + 6.00% with 1.00% LIBOR floor), due 3/7/2019)(3)(11)(13) Senior Secured Term Loan B (12.00% (LIBOR + 11.00% with 1.00% LIBOR floor), due 3/7/2019)(3)(11)(13) TouchTunes Interactive Networks, Inc. New York / Media Second Lien Term Loan (9.25% (LIBOR + 8.25% with 1.00% LIBOR floor), due 5/29/2022)(9)(11)(14) 21,487 21,378 21,378 17,233 0.5% 17,233 0.5% 23,628 13,000 23,628 23,628 12,808 12,808 23,628 0.6% 23,628 0.6% 13,000 0.4% 13,000 0.4% 47,802 47,802 45,548 1.2% 48,900 48,900 96,702 46,155 1.2% 91,703 2.4% 5,000 4,925 4,925 4,925 0.1% 4,925 0.1% Traeger Pellet Grills LLC Oregon / Durable Consumer Products Senior Secured Term Loan A (6.50% (LIBOR + 4.50% with 2.00% LIBOR floor), due 6/18/2018)(3)(11)(13) 35,644 35,644 35,644 1.0% Senior Secured Term Loan B (11.50% (LIBOR + 9.50% with 2.00% LIBOR floor), due 6/18/2018)(3)(11)(13) 36,881 36,881 72,525 36,881 1.0% 72,525 2.0% Transaction Network Services, Inc. Virginia / Telecommunication Services Second Lien Term Loan (9.00% (LIBOR + 8.00% with 1.00% LIBOR floor), due 8/14/2020)(9)(11)(14) Trinity Services Group, Inc.(44) Florida / Food Products Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor), due 8/13/2019)(11)(13) Senior Secured Term Loan B (11.50% (LIBOR + 10.50% with 1.00% LIBOR floor), due 8/13/2019)(3)(11)(13) United Sporting Companies, Inc.(45) South Carolina / Durable Consumer Products Second Lien Term Loan (12.75% (LIBOR + 11.00% with 1.75% LIBOR floor), due 5/16/2018)(3)(11)(14) United States Environmental Services, LLC Texas / Commercial Services Senior Secured Term Loan A (6.50% (LIBOR + 5.50% with 1.00% LIBOR floor) plus 2.00% default interest, due 3/31/2019)(3)(11)(13) Senior Secured Term Loan B (11.50% (LIBOR + 10.50% with 1.00% LIBOR floor) plus 2.00% default interest, due 3/31/2019)(3)(11)(13) 4,595 4,573 4,573 4,595 0.1% 4,595 0.1% 9,825 9,825 9,825 0.3% 100,000 100,000 109,825 100,000 2.7% 109,825 3.0% 158,238 158,238 158,238 145,618 3.9% 145,618 3.9% 23,250 23,250 21,551 0.6% 36,000 36,000 59,250 33,406 0.9% 54,957 1.5% See notes to consolidated financial statements. 128 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) Principal Value Cost Fair Value(2) % of Net Assets June 30, 2015 LEVEL 3 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) USG Intermediate, LLC Texas / Durable Consumer Products Revolving Line of Credit – $5,000 Commitment (10.00% (LIBOR + 9.00% with 1.00% LIBOR floor), due 4/15/2016)(11)(14)(16) Senior Secured Term Loan A (7.50% (LIBOR + 6.50% with 1.00% LIBOR floor), due 4/15/2020)(3)(11)(14) Senior Secured Term Loan B (12.50% (LIBOR + 11.50% with 1.00% LIBOR floor), due 4/15/2020)(3)(11)(14) Equity Venio LLC Pennsylvania / Business Services Second Lien Term Loan (12.00% (LIBOR + 9.50% with 2.50% LIBOR floor), due 2/19/2020)(3)(11)(13) Voya CLO 2012-2, Ltd. Cayman Islands / Structured Finance Voya CLO 2012-3, Ltd. Cayman Islands / Structured Finance Voya CLO 2012-4, Ltd. Cayman Islands / Structured Finance Income Notes (Residual Interest, current yield 19.32%)(6)(15) Income Notes (Residual Interest, current yield 16.87%)(6)(15) Income Notes (Residual Interest, current yield 19.40%)(6)(15) Voya CLO 2014-1, Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 15.25%) (6)(7)(15) Washington Mill CLO Ltd. Cayman Islands / Structured Finance Subordinated Notes (Residual Interest, current yield 14.28%) (6)(7)(15) Water Pik, Inc. Wheel Pros, LLC Colorado / Personal & Nondurable Consumer Products Colorado / Business Services Second Lien Term Loan (9.75% (LIBOR + 8.75% with 1.00% LIBOR floor), due 1/8/2021)(9)(11)(13) Senior Subordinated Secured Note (11.00% (LIBOR + 7.00% with 4.00% LIBOR floor), due 6/29/2020)(3)(11)(13) Delayed Draw Term Loan – $3,000 Commitment (expires 12/30/2015)(16) Wind River Resources Corporation(46) Utah / Oil & Gas Production Senior Secured Note (13.00% (LIBOR + 7.50% with 5.50% LIBOR floor) plus 3.00% default interest on principal and 16.00% default interest on past due interest, in non-accrual status effective 12/1/2008, past due)(11) Net Profits Interest (5% of Equity Distributions)(4) $ — $ — $ — —% 21,587 21,587 21,587 0.6% 21,695 — 17,000 38,070 46,632 40,613 32,383 22,600 21,695 1 43,283 21,695 0.6% — —% 43,282 1.2% 17,000 17,000 16,042 0.4% 16,042 0.4% 30,002 30,002 32,391 0.9% 32,391 0.9% 37,208 37,208 38,465 1.0% 38,465 1.0% 32,918 32,918 34,977 0.9% 34,977 0.9% 28,886 28,886 29,170 0.8% 29,170 0.8% 19,542 19,542 20,137 0.5% 20,137 0.5% 9,147 8,796 8,796 9,147 0.2% 9,147 0.2% 12,000 12,000 12,000 0.3% — — — —% 12,000 12,000 0.3% 3,000 3,000 — 3,000 — —% — —% — —% Total Non-Control/Non-Affiliate Investments (Level 3) $ 4,619,519 $ 4,589,151 124.0% Total Level 3 Portfolio Investments $ 6,559,313 $ 6,609,298 178.5% See notes to consolidated financial statements. 129 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Portfolio Company Locale / Industry Investments(1) June 30, 2015 (Audited) Principal Value Cost Fair Value(2) % of Net Assets LEVEL 1 PORTFOLIO INVESTMENTS Non-Control/Non-Affiliate Investments (less than 5.00% voting control) Dover Saddlery, Inc. Massachusetts / Retail Common Stock (30,974 shares) $ Total Non-Control/Non-Affiliate Investments (Level 1) $ 63 $ 63 63 $ 260 —% 260 —% 260 —% Total Non-Control/Non-Affiliate Investments $ 4,619,582 $ 4,589,411 124.0% Total Portfolio Investments $ 6,559,376 $ 6,609,558 178.5% See notes to consolidated financial statements. 130 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Endnote Explanations as of June 30, 2016 and June 30, 2015 (1) (2) (3) (4) (5) (6) (7) (8) (9) The terms “Prospect,” “we,” “us” and “our” mean Prospect Capital Corporation and its subsidiaries unless the context specifically requires otherwise. The securities in which Prospect has invested were acquired in transactions that were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These securities may be resold only in transactions that are exempt from registration under the Securities Act. Fair value is determined by or under the direction of our Board of Directors. As of June 30, 2015 , one of our portfolio investments, Dover Saddlery, Inc. (“Dover”), was publicly traded and classified as Level 1 within the valuation hierarchy established by ASC 820, Fair Value Measurement (“ASC 820”). On July 1, 2015 we redeemed our investment in Dover and realized a gain of $200. As of June 30, 2015 , the fair value of our remaining portfolio investments was determined using significant unobservable inputs. As of June 30, 2016 , all of our investments were classified as Level 3. ASC 820 classifies such unobservable inputs used to measure fair value as Level 3 within the valuation hierarchy. See Notes 2 and 3 within the accompanying notes to consolidated financial statements for further discussion. Security, or a portion thereof, is held by Prospect Capital Funding LLC (“PCF”), our wholly-owned subsidiary and 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 fair values of the investments held by PCF at June 30, 2016 and June 30, 2015 were $1,348,577 and $1,511,585 , respectively, representing 22.9% and 22.9% of our total investments, respectively. 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. This investment is in the debt class of a CLO security. This investment is in the equity class of a CLO security. The CLO equity investments are entitled to recurring distributions which are generally equal to the excess cash flow generated from the underlying investments after payment of the contractual payments to debt holders and fund expenses. The current estimated yield is based on the current projections of this excess cash flow taking into account assumptions which have been made regarding expected prepayments, losses and future reinvestment rates. These assumptions are periodically reviewed and adjusted. Ultimately, the actual yield may be higher or lower than the estimated yield if actual results differ from those used for the assumptions. Co-investment with another fund managed by an affiliate of our investment adviser, Prospect Capital Management L.P. See Note 13 for further discussion. On a fully diluted basis represents 10.00% of voting common shares. Syndicated investment which was originated by a financial institution and broadly distributed. (10) The overriding royalty interests held receive payments at the stated rates based upon operations of the borrower. (11) Security, or a portion thereof, has a floating interest rate which may be subject to a LIBOR or PRIME floor. The interest rate was in effect at June 30, 2016 and June 30, 2015 . (12) The interest rate on these investments is subject to the base rate of 6-Month LIBOR, which was 0.44% at June 30, 2015 . No loans utilized a base rate of 6 month LIBOR at June 30, 2016. The current base rate for each investment may be different from the reference rate on June 30, 2015. (13) The interest rate on these investments is subject to the base rate of 3-Month LIBOR, which was 0.65% and 0.28% at June 30, 2016 and June 30, 2015 , respectively. The current base rate for each investment may be different from the reference rate on June 30, 2016 and June 30, 2015 . (14) The interest rate on these investments is subject to the base rate of 1-Month LIBOR, which was 0.47% and 0.19% at June 30, 2016 and June 30, 2015 , respectively. The current base rate for each investment may be different from the reference rate on June 30, 2016 and June 30, 2015 . (15) Investment has been designated as an investment not “qualifying” under Section 55(a) of the Investment Company Act of 1940 (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. As of June 30, 2016 and June 30, 2015 , our qualifying assets as a percentage of total assets, stood at 74.58% and 75.1%, respectively. We monitor the status of these assets on an ongoing basis. See notes to consolidated financial statements. 131 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Endnote Explanations as of June 30, 2016 and June 30, 2015 (Continued) (16) Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 6.00% . As of June 30, 2016 and June 30, 2015 , we had $40,560 and $88,288 , respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies. (17) APH Property Holdings, LLC, a consolidated entity in which we own 100% of the membership interests, owns 100% of the common equity of American Property REIT Corp. (f/k/a American Property Holdings Corp. (“APRC”)), a qualified Real Estate Investment Trust (“REIT”) which holds investments in several real estate properties. See Note 3 for further discussion of the properties held by APRC. Effective May 23, 2016, APRC merged with and into National Property REIT Corp. (“NPRC”), with NPRC as the surviving entity. (18) Arctic Oilfield Equipment USA, Inc. (“Arctic Oilfield”), a consolidated entity in which we own 100% of the common equity, owns 70% of the equity units of Arctic Energy Services, LLC (“Arctic Energy”), the operating company. We report Arctic Energy as a separate contro lled company. On September 30, 2015, we restructured our investment in Arctic Energy. Concurrent with the restructuring, we exchanged our $31,640 senior secured loan and our $20,230 subordinated loan for Class D and Class E Units in Arctic Energy. Our ownership of Arctic Oilfield includes a preferred interest in their holdings of all the Class D, Class E, Class C, and Class A Units (in order of priority returns). These unit classes are senior to management’s interests in the F and B Units. (19) CCPI Holdings Inc., a consolidated entity in which we own 100% of the common stock, owns 94.59% and 94.95% of CCPI Inc. (“CCPI”), the operating company, as of June 30, 2016 and June 30, 2015 , respectively. We report CCPI as a separate controlled company. (20) CP Holdings of Delaware LLC, a consolidated entity in which we own 100% of the membership interests, owns 82.3% of CP Energy Services Inc. (“CP Energy”) as of June 30, 2016 and June 30, 2015 , respectively. As of June 30, 2015 , CP Energy owned directly or indirectly 100% of each of CP Well Testing, LLC (“CP Well”); Wright Foster Disposals, LLC; Foster Testing Co., Inc.; ProHaul Transports, LLC; and Wright Trucking, Inc. We report CP Energy as a separate controlled company. Effective December 31, 2014, CP Energy underwent a corporate reorganization in order to consolidate certain of its wholly-owned subsidiaries. On October 30, 2015, we restructured our investment in CP Energy. Concurrent with the restructuring, we exchanged our $86,965 senior secured loan and $15,924 subordinated loan for Series B Redeemable Preferred Stock in CP Energy. (21) Credit Central Holdings of Delaware, LLC, a consolidated entity in which we own 100% of the membership interests, owns 74.93% of Credit Central Loan Company, LLC (f/k/a Credit Central Holdings, LLC (“Credit Central”)) as of June 30, 2016 and June 30, 2015 , Credit Central owns 100% of each of Credit Central, LLC; Credit Central South, LLC; Credit Central of Texas, LLC; and Credit Central of Tennessee, LLC, the operating companies. We report Credit Central as a separate controlled company. (22) On June 9, 2015, we provided additional debt and equity financing to support the recapitalization of Edmentum, Inc. (“Edmentum”). As part of the recapitalization, we exchanged 100% of the $50,000 second lien term loan previously outstanding for $26,365 of junior PIK notes and 370,964.14 Class A common units representing 37.1% equity ownership in Edmentum Ultimate Holdings, LLC. In addition, we invested $5,875 in senior PIK notes and committed $7,834 as part of a second lien revolving credit facility, of which $4,896 was funded at closing. On June 9, 2015, we determined that Edmentum was impaired and recorded a realized loss of $22,116 for the amount that the amortized cost exceeded the fair value, reducing the amortized cost to $37,216. (23) First Tower Holdings of Delaware LLC, a consolidated entity in which we own 100% of the membership interests, owns 80.1% of First Tower Finance Company LLC (“First Tower Finance”), which owns 100% of First Tower, LLC, the operating company as of June 30, 2016 and June 30, 2015 , respectively. We report First Tower Finance as a separate controlled company. (24) Energy Solutions Holdings Inc., a consolidated entity in which we own 100% of equity, owns 100% of Freedom Marine Solutions, LLC (“Freedom Marine”), which owns Vessel Company, LLC, Vessel Company II, LLC and Vessel Company III, LLC. We report Freedom Marine as a separate controlled company. On October 30, 2015, we restructured our investment in Freedom Marine. Concurrent with the restructuring, we exchanged our $32,500 senior secured loans for additional membership interest in Freedom Marine. (25) Harbortouch Holdings of Delaware Inc., a consolidated entity in which we owned 100% of the common stock, owned 100% of the Class C voting units of Harbortouch Payments, LLC (“Harbortouch”), which provide for a 53.5% residual profits allocation. Harbortouch management owns 100% of the Class B and Class D voting units of Harbortouch, which provide for a 46.5% residual profits allocation. Harbortouch owns 100% of Credit Card Processing USA, LLC. We reported Harbortouch as a separate controlled company as of June 30, 2015. On May 31, 2016, we sold our investment in Harbortouch for total consideration of $328,032, including fees and escrowed amounts. Prior to the sale, $154,382 of Senior Secured Term Loan B loan outstanding was converted to preferred equity. We received a repayment of $146,989 loans receivable to us and $157,639 of proceeds related See notes to consolidated financial statements. 132 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Endnote Explanations as of June 30, 2016 and June 30, 2015 (Continued) to the equity investment. We recorded a realized loss of $5,419 related to the sale. We also received a $5,145 prepayment premium for early repayment of the outstanding loans, which was recorded as interest income in the year ended June 30, 2016 and a $12,909 advisory fee for the transaction, which was recorded as other income in the year ended June 30, 2016. In addition, there is $5,350 being held in escrow which will be recognized as additional realized gain if and when it is received. Concurrent with the sale, we made a $27,500 second lien secured investment in Harbortouch. (26) MITY Holdings of Delaware Inc. (“MITY Delaware”), a consolidated entity in which we own 100% of the common stock, owns 95.83% and 94.99% of the equity of MITY, Inc. (f/k/a MITY Enterprises, Inc.) (“MITY”), as of June 30, 2016 and June 30, 2015 , respectively. MITY owns 100% of each of MITY- Lite, Inc.; Broda Enterprises USA, Inc.; and Broda Enterprises ULC (“Broda Canada”). We report MITY as a separate controlled company. MITY Delaware has a subordinated unsecured note issued and outstanding to Broda Canada that is denominated in Canadian Dollars (CAD). As of June 30, 2016 and June 30, 2015 , the principal balance of this note was CAD 7,371. In accordance with ASC 830, Foreign Currency Matters (“ASC 830”), this note was remeasured into our functional currency, US Dollars (USD), and is presented on our Consolidated Schedule of Investments in USD. (27) NPH Property Holdings, LLC, a consolidated entity in which we own 100% of the membership interests, owns 100% of the common equity of NPRC (f/k/a National Property Holdings Corp.), a property REIT which holds investments in several real estate properties. Additionally, through its wholly-owned subsidiaries, NPRC invests in online consumer loans. We report NPRC as a separate controlled company. See Note 3 for further discussion of the properties held by NPRC. On March 17, 2015, we entered into a new credit agreement with ACL Loan Holdings, Inc. (“ACLLH”), a wholly-owned subsidiary of NPRC, to form two new tranches of senior secured term loans, Term Loan A and Term Loan B, with the same terms as the then existing NPRC Term Loan A and Term Loan B due to us. That agreement was effective as of June 30, 2014. On June 30, 2014, ACLLH made a non-cash return of capital distribution of $22,390 to NPRC and NPRC transferred and assigned to ACLLH a senior secured Term Loan A due to us. On June 2, 2015, we amended the credit agreement with NPRC to form two new tranches of senior secured term loans, Term Loan C and Term Loan D, with the same terms as the then existing ACLLH Term Loan A and Term Loan B due to us. That amendment was effective as of April 1, 2015. On August 18, 2015, we amended the credit agreement with NPRC to form a new tranche of senior secured term loans, Term Loan E. The amendment was effective as of July 1, 2015, and the outstanding Term Loan C and Term Loan D balances were converted to Term Loan E. On August 12, 2015, we also amended the credit agreement with ACLLH to form a new tranche of senior secured term loans, Term Loan C. The amendment was effective as of July 1, 2015, and the outstanding Term Loan A and Term Loan B balances were converted to Term Loan C. Effective May 23, 2016, APRC and United Property REIT Corp. (“UPRC”) merged with and into NPRC, with NPRC as the surviving entity. APRC and UPRC have been dissolved. (28) Nationwide Acceptance Holdings LLC, a consolidated entity in which we own 100% of the membership interests, owns 93.79% of Nationwide Loan Company LLC (f/k/a Nationwide Acceptance LLC (“Nationwide”)), the operating company, as of June 30, 2016 and June 30, 2015 . We report Nationwide as a separate controlled company. On June 1, 2015, Nationwide completed a corporate reorganization. As part of a reorganization, Nationwide Acceptance LLC was renamed Nationwide Loan Company LLC (continues as “Nationwide”) and formed two new wholly-owned subsidiaries: Pelican Loan Company LLC (“Pelican”) and Nationwide Consumer Loans LLC. Nationwide assigned 100% of the equity interests in its other subsidiaries to Pelican which, in turn, assigned these interests to Nationwide Acceptance LLC (“New Nationwide”), the new operating company wholly-owned by Pelican. New Nationwide also assumed the existing senior subordinated term loan due to Prospect. (29) NMMB Holdings, a consolidated entity in which we own 100% of the equity, owns 96.33% of the fully diluted equity of NMMB, Inc. (“NMMB”) as of June 30, 2016 and June 30, 2015 . NMMB owns 100% of Refuel Agency, Inc., which owns 100% of Armed Forces Communications, Inc. We report NMMB as a separate controlled company. (30) UPH Property Holdings, LLC, a consolidated entity in which we own 100% of the membership interests, owns 100% of the common equity of UPRC (f/k/a United Property Holdings Corp.), a property REIT which holds investments in several real estate properties. We report UPRC as a separate controlled company. See Note 3 for further discussion of the properties held by UPRC. Effective May 23, 2016, UPRC merged with and into NPRC, with NPRC as the surviving entity. (31) During the period from June 15, 2016 through June 29, 2016, we provided additional $3,500 debt financing to USES Corp. (“USES”) and its subsidiaries in the form of additional Term Loan A debt and, in connection with this debt financing, USES issued to us 268,962 shares of its common stock representing a 99.96% common equity ownership interest in USES. Therefore, USES became a controlled company on June 30, 2016. (32) Valley Electric Holdings I, Inc., a consolidated entity in which we own 100% of the common stock, owns 100% of Valley Electric Holdings II, Inc. (“Valley Holdings II”), another consolidated entity. Valley Holdings II owns 94.99% of Valley Electric Company, Inc. (“Valley Electric”). Valley Electric owns 100% of the equity of VE Company, Inc., which owns 100% of the equity of Valley Electric Co. of Mt. Vernon, Inc. (“Valley”). We report Valley Electric as a separate controlled company. See notes to consolidated financial statements. 133 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Endnote Explanations as of June 30, 2016 and June 30, 2015 (Continued) (33) On February 3, 2016, lenders foreclosed on Targus Group International, Inc., and our $21,613 first lien term loan was extinguished and exchanged for 1,262,737 common units representing 12.63% equity ownership in Targus Cayman HoldCo Limited, the parent company of Targus International LLC (“Targus”). On February 17, 2016, we provided additional debt financing to support the recapitalization of Targus. As part of the recapitalization, we invested an additional $1,263 in a new senior secured Term Loan A notes and were allocated $3,788 in new senior secured Term Loan B notes. During the same period, Targus was written-down for tax purposes and a realized loss of $14,194 therefore was realized for the amount that the amortized cost exceeded the fair value. (34) We own 99.9999% of AGC/PEP, LLC. AGC/PEP, LLC owns 2,038 out of a total of 93,485 shares (including 7,456 vested and unvested management options) of American Gilsonite Holding Company which owns 100% of American Gilsonite Company. (35) A portion of the senior secured note is denominated in Canadian Dollars (CAD). As of June 30, 2015, the principal balance of this note was CAD 36,666. In accordance with ASC 830, this note was remeasured into our functional currency, US Dollars (USD), and is presented on our Consolidated Schedules of Investments in USD. (36) GTP Operations, LLC, Transplace, LLC, CI (Transplace) International, LLC, Transplace Freight Services, LLC, Transplace Texas, LP, Transplace Stuttgart, LP, Transplace International, Inc., Celtic International, LLC, and Treetop Merger Sub, LLC are joint borrowers on the senior secured term loan. (37) As of June 30, 2016 and June 30, 2015 , we own 1.43% (13,220 shares) of Mineral Fusion Natural, LLC, a subsidiary of Caleel + Hayden, LLC, common and preferred interest. (38) NCP Finance Limited Partnership, NCP Finance Ohio, LLC, and certain affiliates thereof are joint borrowers on the subordinated secured term loan (39) Pegasus Business Intelligence, LP, Paycom Acquisition, LLC, and Paycom Acquisition Corp. are joint borrowers on the senior secured loan facilities. Paycom Intermediate Holdings, Inc. is the parent guarantor of this debt investment. These entities transact business internationally under the trade name Onyx Payments. (40) As of June 30, 2015 , Progrexion Marketing, Inc., Progrexion Teleservices, Inc., Progrexion ASG, Inc., Progrexion IP, Inc., Creditrepair.com, Inc., and eFolks, LLC were joint borrowers on the senior secured term loan. PGX Holdings, Inc. (“PGX”) was the parent guarantor of this debt investment. As of June 30, 2016 , PGX is the sole borrower on the second lien term loan. (41) Security Alarm Financing Enterprises, L.P. and California Security Alarms, Inc. are joint borrowers on the senior subordinated note. (42) SB Forging Company, Inc. (“SB Forging”), a consolidated entity in which we own 100% of the equity, owned 100% of Ajax Rolled Ring & Machine, LLC, the operating company, which was sold on October 10, 2014. As part of the sale there is $3,000 being held in escrow of which $802 and $1,750 was received on May 6, 2015 and May 31, 2016, respectively, for which Prospect realized a gain of the same amount. (43) Our wholly-owned subsidiary Prospect Small Business Lending, LLC purchases small business whole loans from small business loan originators, including On Deck Capital, Inc., and Direct Capital Corporation. (44) Trinity Services Group, Inc. and Trinity Services I, LLC are joint borrowers on the senior secured loan facility. (45) 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 the second lien term loan. United Sporting Companies, Inc. is a parent guarantor of this debt investment. (46) Wind River Resources Corporation and Wind River II Corporation are joint borrowers on the senior secured note. The interest rate for this investment is subject to the base rate of 12-Month LIBOR, which was 0.77% at June 30, 2015 . (47) The interest rate on these investments contains a paid in kind (“PIK”) provision, whereby the issuer has either the option or the obligation to make interest payments with the issuance of additional securities. The interest rate in the schedule represents the current interest rate in effect for these investments. See notes to consolidated financial statements. 134 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Endnote Explanations as of June 30, 2016 and June 30, 2015 (Continued) The following table provides additional details on these PIK investments, including the maximum annual PIK interest rate allowed under the existing credit agreements, as of and for three months ended June 30, 2016 : Security Name CCPI Inc. Cinedigm DC Holdings, LLC Credit Central Loan Company Crosman Corporation - Senior Secured Term Loan A Crosman Corporation - Senior Secured Term Loan B Echelon Aviation LLC Edmentum Ultimate Holdings, LLC - Unsecured Senior PIK Note Edmentum Ultimate Holdings, LLC - Unsecured Junior PIK Note First Tower Finance Company LLC Harbortouch Payments, LLC JHH Holdings, Inc. LaserShip , Inc. - Term Loan A LaserShip , Inc. - Term Loan B Mity, Inc. National Property REIT Corp. - Senior Secured Term Loan A National Property REIT Corp. - Senior Secured Term Loan E National Property REIT Corp. - Senior Secured Term Loan C to ACL Holdings, Inc. Nationwide Loan Company LLC Nixon, Inc. Valley Electric Co. of Mt. Vernon, Inc. Valley Electric Company, Inc. PIK Rate - Capitalized PIK Rate - Paid as cash Maximum Current PIK Rate —% —% 6.49% 4.00% 4.00% —% 8.50% 10.00% 0.80% N/A 0.50% 2.00% 2.00% —% —% —% —% —% 3.00% —% 3.42% 7.00% 2.50% 3.51% —% —% 2.25% —% —% 11.20% N/A —% —% —% 10.00% 5.50% 5.00% 5.00% 10.00% —% 2.50% 5.08% (A) 7.00% 2.50% 10.00% 4.00% 4.00% 2.25% 8.50% 10.00% 12.00% 3.00% 0.50% 2.00% 2.00% 10.00% 5.50% 5.00% 5.00% 10.00% 3.00% 2.50% 8.50% See notes to consolidated financial statements. 135 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Endnote Explanations as of June 30, 2016 and June 30, 2015 (Continued) The following table provides additional details on these PIK investments, including the maximum annual PIK interest rate allowed under the existing credit agreements, as of and for the three months ended June 30, 2015 : Security Name American Property REIT Corp. CCPI Inc. Cinedigm DC Holdings, LLC CP Energy Services Inc. - Second Lien Term Loan CP Energy Services Inc. - Senior Secured Term Loan B Credit Central Loan Company, LLC Echelon Aviation LLC Edmentum Ultimate Holdings, LLC - Unsecured Senior PIK Note Edmentum Ultimate Holdings, LLC - Unsecured Junior PIK Note First Tower Finance Company LLC Harbortouch Payments, LLC JHH Holdings, Inc. Mity, Inc. National Property REIT Corp. - Senior Secured Term Loan A National Property REIT Corp. - Senior Secured Term Loan C National Property REIT Corp. - Senior Secured Term Loan D National Property REIT Corp. - Senior Secured Term Loan A to ACL Loan Holdings, Inc. National Property REIT Corp. - Senior Secured Term Loan B to ACL Loan Holdings, Inc. Nationwide Loan Company LLC Nixon, Inc. Ryan, LLC TB Corp. Targus Group International, Inc. United Property REIT Corp. Valley Electric Co. of Mt. Vernon, Inc. Valley Electric Company, Inc. PIK Rate - Capitalized PIK Rate - Paid as cash Maximum Current PIK Rate —% 7.00% 2.50% 9.00% 7.50% —% N/A N/A N/A 1.64% 5.50% 0.50% 10.00% —% —% —% —% —% —% 2.75% 3.00% —% 1.00% —% 2.50% 8.50% 5.50% —% —% —% —% 10.00% N/A N/A N/A 10.36% —% —% —% 5.50% 7.50% 4.50% 7.50% 4.50% 10.00% —% —% 1.50% —% 5.50% —% —% (B) (B) (B) (C) 5.50% 7.00% 2.50% 9.00% 7.50% 10.00% 2.25% 8.50% 10.00% 12.00% 5.50% 0.50% 10.00% 5.50% 7.50% 4.50% 7.50% 4.50% 10.00% 2.75% 3.00% 1.50% 1.00% 5.50% 2.50% 8.50% (A) PIK is capitalized quarterly; next PIK payment/capitalization date at June 30, 2016 is August 31, 2016. (B) PIK is capitalized quarterly; next PIK payment date at June 30, 2015 was July 31, 2015. (C) PIK is capitalized annually; next PIK payment/capitalization date at June 30, 2015 was April 1, 2016. See notes to consolidated financial statements. 136 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Endnote Explanations as of June 30, 2016 and June 30, 2015 (Continued) (48) As defined in the 1940 Act, we are deemed to “Control” these portfolio companies because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the year ended June 30, 2016 with these controlled investments were as follows: Portfolio Company American Property REIT Corp.*** Arctic Energy Services, LLC CCPI Inc. CP Energy Services Inc. Credit Central Loan Company, LLC Echelon Aviation LLC Edmentum Ultimate Holdings, LLC First Tower Finance Company LLC Freedom Marine Solutions, LLC Gulf Coast Machine & Supply Company Harbortouch Payments, LLC MITY, Inc. National Property REIT Corp.**** Nationwide Loan Company LLC NMMB, Inc. R-V Industries, Inc. SB Forging Company, Inc. United Property REIT Corp.*** USES Corp. Valley Electric Company, Inc. Wolf Energy, LLC Fair Value at June 30, 2015 Gross Additions (Cost)* Gross Reductions (Cost)** Net unrealized gains (losses) Fair Value at June 30, 2016 Interest income Dividend income Other income Net realized gains (losses) $ 118,256 $ 2,826 $ (103,017) $ (18,065) $ — $ 7,306 $ 11,016 $ 899 $ 60,364 41,352 91,009 55,172 68,941 — 475 (2,819) 921 — — (6,368) — (323) (2,954) (22,024) 5,897 (12,188) (3,516) (5,166) 38,340 41,356 76,002 52,254 60,821 1,123 3,123 (390) 7,398 5,700 — 3,196 — — — — — 2,067 — 7,250 37,216 9,358 (4,896) 2,668 44,346 3,650 365,950 8,866 (679) (21,471) 352,666 56,698 27,090 1,000 — (1,472) 26,618 1,112 6,918 9,500 (1,075) (8,031) 7,312 — — — — — — — — — — — — — — — — — — — 376,936 50,795 9,503 139 (314,962) — (71,477) 3,115 — 54,049 33,419 5,762 — 12,909 — 711 (5,419) 13 471,889 256,737 20,979 94,328 843,933 62,690 — 5,375 34,550 12,052 40,508 3,583 — — — — 84,685 — 30,497 22 7,531 55,297 1,599 — (300) — (614) — (83,159) (150) — — (2,020) (2,045) (3,017) 35,813 10,007 36,877 3,212 1,525 2,908 3,963 — 299 — — — — — — — — (9,057) (14,861) (1,005) 656 — 40,286 31,091 678 6,778 — 5,363 — — 1,278 — — — — — — — — — — — — — — — Total $ 1,974,202 $ 364,516 $ (497,518) $ (88,751) $ 1,752,449 $ 207,377 $ 26,435 $ 22,528 $ (5,406) * Gross additions include increases in the cost basis of the investments resulting from new portfolio investments, and PIK interest. ** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales, and impairments. ***Effective May 23, 2016, APRC and UPRC merged with and into NPRC, to consolidate all of our real estate holdings, with NPRC as the surviving entity. No gain or loss was recognized upon the merger. ****NPRC’s gross reductions include the amortized amounts of $73,314 and $75,592 transferred in from APRC and UPRC, respectively, in conjunction with the merger described above. See notes to consolidated financial statements. 137 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Endnote Explanations as of June 30, 2016 and June 30, 2015 (Continued) (49) As defined in the 1940 Act, we are deemed to be an “Affiliated company” of these portfolio companies because we own more than 5% of the portfolio company’s outstanding voting securities. Transactions during the year ended June 30, 2016 with these affiliated investments were as follows: Portfolio Company Fair Value at June 30, 2015 Gross Additions (Cost)* Gross Reductions (Cost)** Net unrealized gains (losses) Fair Value at June 30, 2016 Interest income Dividend income Other income Net realized gains (losses) BNN Holdings Corp. Targus International LLC $ 45,945 $ — — $ 22,724 (42,922) $ (14,194) Total $ 45,945 $ 22,724 $ (57,116) $ (181) $ (52) (233) $ 2,842 $ 8,478 11,320 $ 896 $ — 896 $ — $ — — $ — $ — — (14,194) — $ (14,194) * Gross additions include increases in the cost basis of the investments resulting from new portfolio investments, and PIK interest. ** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales, and impairments. (50) As defined in the 1940 Act, we are deemed to “Control” these portfolio companies because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the year ended June 30, 2015 with these controlled investments were as follows: See notes to consolidated financial statements. 138 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Endnote Explanations as of June 30, 2016 and June 30, 2015 (Continued) Fair Value at June 30, 2014 Gross Additions (Cost)* $ 45,284 $ — 206,159 (102,543) *** — 61,114 436 2,115 32,594 — — 130,119 50,432 92,628 — — — 250 599 — — 2,818 300 5,800 — 60,772 326,785 32,004 14,459 291,314 — 49,289 332 — 8,500 35,374 — 3,032 29,923 6,297 57,734 25,536 2,814 383 — — 33,556 2,053 — 3,599 100 — Portfolio Company Airmall Inc. American Property REIT Corp. Appalachian Energy LLC Arctic Energy Services, LLC Borga, Inc. BXC Company, Inc. CCPI Inc. Change Clean Energy Company, LLC Coalbed, LLC CP Energy Services Inc. Credit Central Loan Company, LLC Echelon Aviation LLC Edmentum Ultimate Holdings, LLC First Tower Finance Company LLC Freedom Marine Solutions, LLC Gulf Coast Machine & Supply Company Harbortouch Payments, LLC Manx Energy, Inc. MITY, Inc. National Property REIT Corp. Nationwide Loan Company LLC (f/k/a Nationwide Acceptance LLC) NMMB, Inc. R-V Industries, Inc. SB Forging Company, Inc. ***** United Property REIT Corp. Valley Electric Company, Inc. Vets Securing America, Inc.**** Wolf Energy, LLC Yatesville Coal Company, LLC Gross Reductions (Cost)** Net unrealized gains (losses) Fair Value at June 30, 2015 Interest income Dividend income Other income Net realized gains (losses) $ (57,500) $ 12,216 $ — $ 576 $ — $ 3,000 $ (2,808) (32) (2,050) 14,672 118,256 14,747 2,050 — — — (750) 60,364 6,721 (3,177) (17,698) (476) — — — (2,337) (37,713) (23,556) 2,741 15,333 8,635 — — — — — — 41,352 3,332 — — — — (41,927) 91,010 16,420 6,777 8,226 55,172 68,941 7,375 6,895 — 37,216 — (1,932) 40,765 365,950 52,900 1,929 (485) (4,429) 27,090 4,461 — (16,041) 6,918 1,370 (8,609) (50) (2,594) 58,857 376,936 29,834 50 1,068 — — 50,795 5,783 (2,350) — 4,163 5,372 (1,175) (16,052) 34,550 12,052 40,507 3,005 1,521 3,018 4,425 — 298 (46,550) 21,014 — 956 159 1,220 — — — — — — — — — — — — — — — — — 1,342 — — (2,050) — — — (2,589) 5 (16,949) 525 — — — — — — — — — — — (22,116) — — — 579 — — 1,959 — — — — — — — (50) (5) — — — — — — — — — — 2,000 (21,001) 2,345 — — — — (3,246) — (5,818) — (1,449) 24,566 51,936 *** (448) 8,631 84,685 5,893 (76) (5,036) 30,497 4,991 (3,931) (5,991) 3,831 2,414 1,449 — 22 — — — — — — — (1,449) 124,511 361,481 *** (38,420) 24,317 471,889 30,611 Total $ 1,640,454 $ 434,001 $ (258,599) $ 158,346 $ 1,974,202 $ 200,409 $ 6,811 $ 12,975 $ (78,081) * Gross additions include increases in the cost basis of the investments resulting from new portfolio investments, and PIK interest. ** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales, and impairments. Redemption amounts included within gross reductions include the cost basis adjustments resulting from consolidation on July 1, 2014. *** These amounts include the cost basis of investments transferred from APRC and UPRC to NPRC. (See Note 3 for details.) **** During the year ended June 30, 2015, The Healing Staff, Inc. (“THS”) ceased operations and Vets Securing America, Inc. (“VSA”) management team supervised both the continued operations of VSA and the wind-down of activities at THS. See notes to consolidated financial statements. 139 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED SCHEDULES OF INVESTMENTS (CONTINUED) (in thousands, except share data) Endnote Explanations as of June 30, 2016 and June 30, 2015 (Continued) ***** Realized loss reflects an adjustment from three months ended March 31, 2016, pertaining to prior period. (51) As defined in the 1940 Act, we are deemed to be an “Affiliated company” of these portfolio companies because we own more than 5% of the portfolio company’s outstanding voting securities. Transactions during the year ended June 30, 2015 with these affiliated investments were as follows: Portfolio Company Fair Value at June 30, 2014 Gross Additions (Cost)* Gross Reductions (Cost)** Net unrealized gains (losses) Fair Value at June 30, 2015 Interest income Dividend income Other income Net realized gains (losses) BNN Holdings Corp. $ 32,121 $ 44,000 $ (30,679) $ Total $ 32,121 $ 44,000 $ (30,679) $ 503 $ 503 $ 45,945 $ 45,945 $ 3,799 $ 3,799 $ 778 $ 778 $ 226 $ 226 $ — — * Gross additions include increases in the cost basis of the investments resulting from new portfolio investments, and PIK interest. ** Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investments repayments or sales, and impairments. See notes to consolidated financial statements. 140 PROSPECT CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Note 1. Organization In this report, the terms “Prospect,” “we,” “us” and “our” mean Prospect Capital Corporation and its subsidiaries unless the context specifically requires otherwise. Prospect Capital Corporation is a financial services company that primarily lends to and invests in middle market privately-held companies. We are a closed-end investment company incorporated in Maryland. We have elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). As a BDC, we have elected to be treated as a regulated investment company (“RIC”), under Subchapter M of the Internal Revenue Code of 1986 (the “Code”). We were organized on April 13, 2004 and were funded in an initial public offering completed on July 27, 2004. 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 revolving credit facility at PCF. Our wholly-owned subsidiary Prospect Small Business Lending, LLC (“PSBL”) was formed on January 27, 2014 and purchases small business whole loans on a recurring basis from online small business loan originators, including OnDeck Capital, Inc. (“OnDeck”). On September 30, 2014, we formed a wholly-owned subsidiary Prospect Yield Corporation, LLC (“PYC”) and effective October 23, 2014, PYC holds our investments in collateralized loan obligations (“CLOs”). Each of these subsidiaries have been consolidated since operations commenced. Effective July 1, 2014, we began consolidating certain of our wholly-owned and substantially wholly-owned holding companies formed by us in order to facilitate our investment strategy. The following companies have been included in our consolidated financial statements since July 1, 2014: AMU Holdings Inc. ; APH Property Holdings, LLC (“APH”); Arctic Oilfield Equipment USA, Inc.; CCPI Holdings Inc.; CP Holdings of Delaware LLC; Credit Central Holdings of Delaware, LLC; Energy Solutions Holdings Inc.; First Tower Holdings of Delaware LLC; Harbortouch Holdings of Delaware Inc.; MITY Holdings of Delaware Inc.; Nationwide Acceptance Holdings LLC; NMMB Holdings, Inc.; NPH Property Holdings, LLC (“NPH”); STI Holding, Inc.; UPH Property Holdings, LLC (“UPH”); Valley Electric Holdings I, Inc.; Valley Electric Holdings II, Inc.; and Wolf Energy Holdings Inc. On October 10, 2014, concurrent with the sale of the operating company, our ownership increased to 100% of the outstanding equity of ARRM Services, Inc. (“ARRM”) which was renamed SB Forging Company, Inc. (“SB Forging”). As such, we began consolidating SB Forging on October 11, 2014. Effective May 23, 2016, in connection with the merger of American Property REIT Corp. (“APRC”) and United Property REIT Corp. (“UPRC”) with and into National Property REIT Corp. (“NPRC”), APH and UPH merged with and into NPH, and dissolved . We collectively refer to these entities as the “Consolidated Holding Companies.” We are externally managed by our investment adviser, Prospect Capital Management L.P. (“Prospect Capital Management” or the “Investment Adviser”). Prospect Administration LLC (“Prospect Administration” or the “Administrator”), a wholly-owned subsidiary of the Investment Adviser, provides administrative services and facilities necessary for us to operate. Our investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. We invest primarily in senior and subordinated debt and equity of private companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes. We work with the management teams or financial sponsors to identify investments with historical cash flows, asset collateral or contracted pro-forma cash flows for investment. Note 2. Significant Accounting Policies Basis of Presentation and Consolidation The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) pursuant to the requirements for reporting on Form 10-K, ASC 946, Financial Services—Investment Companies (“ASC 946”), and Articles 6, 10 and 12 of Regulation S-X. Under the 1940 Act, ASC 946, and the regulations pursuant to Article 6 of Regulation S-X, we are precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services to benefit us. Our consolidated financial statements include the accounts of Prospect, PCF, PSBL, PYC, and the Consolidated Holding Companies. All intercompany balances and transactions have been eliminated in consolidation. The financial results of our non-substantially wholly-owned holding companies and operating portfolio company investments are not consolidated in the financial statements. Any operating companies owned by the Consolidated Holding Companies are not consolidated. 141 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 years ended June 30, 2016 , 2015 and 2014 . Use of Estimates The preparation of the consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income, expenses, and gains and losses 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. Cash and Cash Equivalents Cash and cash equivalents include funds deposited with financial institutions and short-term, highly-liquid overnight investments in money market funds. Cash and cash equivalents are carried at cost which approximates fair value. Investment Classification We are a non-diversified company within the meaning of the 1940 Act. As required by 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 more than 25% of the voting securities of an investee company. Under the 1940 Act, “Affiliate Investments” 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. “Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments. Investment Transactions 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. Amounts for investments recognized or derecognized but not yet settled are reported in due to broker or as a receivable for investments sold, respectively, in the Consolidated Statements of Assets and Liabilities . Investment Risks Our investments are subject to a variety of risks. Those risks include the following: Market Risk Market risk represents the potential loss that can be caused by a change in the fair value of the financial instrument. Credit Risk Credit risk represents the risk that we would incur if the counterparties failed to perform pursuant to the terms of their agreements with us. Liquidity Risk Liquidity risk represents the possibility that we may not be able to rapidly adjust the size of our investment positions in times of high volatility and financial stress at a reasonable price. Interest Rate Risk Interest rate risk represents a change in interest rates, which could result in an adverse change in the fair value of an interest-bearing financial instrument. 142 Prepayment Risk Many of our debt investments allow for prepayment of principal without penalty. Downward changes in interest rates may cause prepayments to occur at a faster than expected rate, thereby effectively shortening the maturity of the security and making the security less likely to fully earn all of the expected income and reinvesting in a lower yielding instrument. Structured Credit Related Risk CLO investments may be riskier and less transparent to us than direct investments in underlying companies. CLOs typically will have no significant assets other than their underlying senior secured loans. Therefore, payments on CLO investments are and will be payable solely from the cash flows from such senior secured loans. Online Lending Risk With respect to our online consumer lending initiative, we invest primarily in marketplace loans through marketplace lending facilitators. We do not conduct loan origination activities ourselves. Therefore, our ability to purchase consumer and small and medium sized business loans, and our ability to grow our portfolio of consumer loans, is directly influenced by the business performance and competitiveness of the marketplace loan origination business of the marketplace lending facilitators from which we purchase consumer loans. In addition, our ability to analyze the risk-return profile of consumer loans is significantly dependent on the marketplace facilitator's ability to effectively evaluate a borrower's credit profile and likelihood of default. If we are unable to effectively evaluate borrowers' credit profiles or the credit decisioning and scoring models implemented by each platform, we may incur unanticipated losses which could adversely impact our operating results. Investment Valuation To value our investments, we follow the guidance of ASC 820, Fair Value Measurement (“ASC 820”), that defines fair value, establishes a framework for measuring fair value in conformity with GAAP, and requires disclosures about fair value measurements. 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. ASC 820 classifies the inputs used to measure these fair values into the following hierarchy: Level 1 : Quoted prices in active markets for identical assets or liabilities, accessible by us at the measurement date. Level 2 : Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices. Level 3 : Unobservable inputs for the asset or liability. 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. 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. 1. Each portfolio company or investment is reviewed by our investment professionals with independent valuation firms engaged by our Board of Directors. 2. The independent valuation firms prepare independent valuations for each investment based on their own independent assessments and issues their report. 3. The Audit Committee of our Board of Directors reviews and discusses with the independent valuation firms the valuation reports, and then makes a recommendation to the Board of Directors of the value for each investment. 143 4. The Board of Directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser, the respective independent valuation firm and the Audit Committee. Our non-CLO investments are valued utilizing a yield analysis, enterprise value (“EV”) analysis, net asset value analysis, liquidation analysis, discounted cash flow analysis, or a combination of methods, as appropriate. The yield analysis uses loan spreads for loans, dividend yields for certain investments and other relevant information implied by market data involving identical or comparable assets or liabilities. Under the EV analysis, the EV of a portfolio company is first determined and allocated over the portfolio company’s securities in order of their preference relative to one another (i.e., “waterfall” allocation). To determine the EV, we typically use a market multiples approach that considers relevant and applicable market trading data of guideline public companies, transaction metrics from precedent merger and acquisitions transactions and/or a discounted cash flow analysis. The net asset value analysis is used to derive a value of an underlying investment (such as real estate property) by dividing a relevant earnings stream by an appropriate capitalization rate. For this purpose, we consider capitalization rates for similar properties as may be obtained from guideline public companies and/or relevant transactions. The liquidation analysis is intended to approximate the net recovery value of an investment based on, among other things, assumptions regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company’s assets. The discounted cash flow analysis uses valuation techniques to convert future cash flows or earnings to a range of fair values from which a single estimate may be derived utilizing an appropriate discount rate. The measurement is based on the net present value indicated by current market expectations about those future amounts. In applying these methodologies, additional factors that we consider in valuing our investments may include, as we deem relevant: security covenants, call protection provisions, and information rights; the nature and realizable value of any collateral; the portfolio company’s ability to make payments; the principal markets in which the portfolio company does business; publicly available financial ratios of peer companies; 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 as well as to determine an appropriate call date (i.e., expected maturity). For each CLO security, the most appropriate valuation approach has been chosen from alternative approaches to ensure the most accurate valuation for such security. To value a CLO, both the assets and the liabilities of the CLO capital structure are modeled. Our valuation agent utilizes additional methods to validate the results from the discounted cash flow method, such as Monte Carlo simulations of key model variables, analysis of relevant data observed in the CLO market, and review of certain benchmark credit indices. We use a waterfall engine to store the collateral data, generate collateral cash flows from the assets based on various assumptions for the risk factors, distribute the cash flows to the liability structure based on the payment priorities, and discount them back using appropriate market discount rates. 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. The main risk factors are: default risk, interest rate risk, downgrade risk, and credit spread risk. Valuation of Other Financial Assets and Financial Liabilities ASC 825, Financial Instruments , specifically ASC 825-10-25, permits an entity to choose, at specified election dates, to measure eligible items at fair value (the “Fair Value Option”). We have not elected the Fair Value Option to report selected financial assets and financial liabilities. See Note 8 for further discussion of our financial liabilities that are measured using another measurement attribute. Convertible Notes We have recorded the Convertible Notes at their contractual amounts. The Convertible Notes were analyzed for any features that would require bifurcation and such features were determined to be immaterial. See Note 5 for further discussion. 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 amortization of premiums is calculated using 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. 144 Loans are placed on non-accrual status 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, is likely to remain current. As of June 30, 2016 , approximately 1.4% of our total assets at fair value are in non-accrual status. Interest income from investments in the “equity” class of security of CLO funds (typically preferred shares, income notes or subordinated notes) and “equity” class of security of securitized trust is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40, Beneficial Interests in Securitized Financial Assets . We monitor the expected cash inflows from our CLO and securitized trust 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 is earned, usually when paid. Structuring fees, excess deal deposits, net profits interests and overriding royalty interests are included in other income. See Note 10 for further discussion. 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 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 earned in the calendar year, 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 calendar year taxable income will be in excess of estimated current calendar year dividend distributions from such taxable income, we accrue excise taxes, if any, on estimated excess taxable income. As of June 30, 2016 and June 30, 2015, we accrued $1,100 and $305, respectively, for any unpaid potential excise tax liability and have included these amounts within other liabilities on the accompanying Consolidated Statements of Assets and Liabilities . 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 income tax 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. 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 consolidated 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. For the years ended June 30, 2016 and June 30, 2015, we did not record any unrecognized tax benefits or liabilities. 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. Although we file both federal and state income tax returns, our major tax jurisdiction is federal. Our tax returns for our federal tax years ended August 31, 2013 and thereafter remain subject to examination by the Internal Revenue Service. Dividends and Distributions 145 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 future earnings. Net realized capital gains, if any, are distributed at least annually. Financing Costs We record origination expenses related to our Revolving Credit Facility and Convertible Notes, Public Notes and Prospect Capital InterNotes® (collectively, our “Unsecured Notes”) as deferred financing costs. These expenses are deferred and amortized as part of interest expense using the straight-line method over the stated life of the obligation which approximates the effective yield method for our Revolving Credit Facility, Baby Bond Program, and Prospect Capital InterNotes®. The effective interest method is used for our remaining Unsecured Notes over the respective expected life or maturity. In the event that we modify or extinguish our debt before maturity, we follow the guidance in ASC 470-50, Modification and Extinguishments (“ASC 470-50”). For modifications to or exchanges of our Revolving Credit Facility, any unamortized deferred costs relating to lenders who are not part of the new lending group are expensed. For extinguishments of our Unsecured Notes, any unamortized deferred costs are deducted from the carrying amount of the debt in determining the gain or loss from the extinguishment. Effective July 1, 2016, these costs will be reclassified to the balance sheet as a deduction from the debt liability rather than an asset, in accordance with Accounting Standards Update 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). We may record registration expenses related to shelf filings as prepaid assets. These expenses consist principally of SEC registration fees, legal fees and accounting fees incurred. These prepaid assets are charged to capital upon the receipt of proceeds from an equity offering or charged to expense if no offering is completed. As of June 30, 2016 and June 30, 2015 , there are no prepaid assets related to registration expenses and all amounts incurred have been expensed. 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 consolidated 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 share is calculated using the weighted average number of common shares outstanding for the period presented. In accordance with ASC 946, convertible securities are not considered in the calculation of net asset value per share. Recent Accounting Pronouncement In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the debt liability rather than as an asset. The new guidance will make the presentation of debt issuance costs consistent with the presentation of debt discounts or premiums. ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The new guidance must be applied on a retrospective basis to all prior periods presented in the financial statements. The adoption of the amended guidance in ASU 2015-03 is expected to decrease total liabilities by decreasing the carrying value of our debt, and is expected to decrease total assets by decreasing deferred financing costs of our debt, but is not expected to have any other significant effect on our consolidated financial statements and disclosures. Note 3. Portfolio Investments At June 30, 2016 , we had investments in 125 long-term portfolio investments, which had an amortized cost of $6,091,100 and a fair value of $5,897,708 . At June 30, 2015 , we had investments in 131 long-term portfolio investments, which had an amortized cost of $6,559,376 and a fair value of $6,609,558 . The original cost basis of debt placement and equity securities acquired, including follow-on investments for existing portfolio companies, payment-in-kind interest, and structuring fees, totaled $979,102 and $1,867,477 during the years ended June 30, 2016 and June 30, 2015 , respectively. Debt repayments and considerations from sales of equity securities of approximately $1,338,875 and $1,411,562 were received during the years ended June 30, 2016 and June 30, 2015 , respectively. The following table shows the composition of our investment portfolio as of June 30, 2016 and June 30, 2015 . 146 Revolving Line of Credit Senior Secured Debt Subordinated Secured Debt Subordinated Unsecured Debt Small Business Loans CLO Debt CLO Residual Interest Equity Total Investments June 30, 2016 June 30, 2015 Cost Fair Value Cost Fair Value $ 13,274 $ 13,274 $ 30,546 $ 3,072,839 1,228,598 75,878 14,603 — 2,941,722 1,209,604 68,358 14,215 — 3,617,111 1,234,701 145,644 50,558 28,613 1,083,540 1,009,696 1,072,734 602,368 640,839 379,469 $ 6,091,100 $ 5,897,708 $ 6,559,376 $ 30,546 3,533,447 1,205,303 144,271 50,892 32,398 1,113,023 499,678 6,609,558 In the previous table and throughout the remainder of this footnote, we aggregate our portfolio investments by type of investment, which may differ slightly from the nomenclature used by the constituent instruments defining the rights of holders of the investment, as disclosed on our Consolidated Schedules of Investments (“SOI”). The following investments are included in each category: • • • • • • • Senior Secured Debt includes investments listed on the SOI such as senior secured term loans, senior term loans, secured promissory notes, senior demand notes, and first lien term loans. Subordinated Secured Debt includes investments listed on the SOI such as subordinated secured term loans, subordinated term loans, senior subordinated notes, and second lien term loans. Subordinated Unsecured Debt includes investments listed on the SOI such as subordinated unsecured notes and senior unsecured notes. Small Business Loans includes our investments in small business whole loans purchased from OnDeck and Direct Capital Corporation (“Direct Capital”). CLO Debt includes our investments in the “debt” class of security of CLO funds. CLO Residual Interest includes our investments in the “equity” class of security of CLO funds such as income notes, preference shares, and subordinated notes. Equity, unless specifically stated otherwise, includes our investments in preferred stock, common stock, membership interests, net profits interests, net operating income interests, net revenue interests, overriding royalty interests, escrows receivable, and warrants. 147 The following table shows the fair value of our investments disaggregated into the three levels of the ASC 820 valuation hierarchy as of June 30, 2016 . Revolving Line of Credit Senior Secured Debt Subordinated Secured Debt Subordinated Unsecured Debt Small Business Loans CLO Residual Interest Equity Total Investments Level 1 Level 2 Level 3 Total — $ — $ 13,274 $ — — — — — — — — — — — — 2,941,722 1,209,604 68,358 14,215 1,009,696 640,839 — $ — $ 5,897,708 $ 13,274 2,941,722 1,209,604 68,358 14,215 1,009,696 640,839 5,897,708 $ $ The following table shows the fair value of our investments disaggregated into the three levels of the ASC 820 valuation hierarchy as of June 30, 2015 . Revolving Line of Credit Senior Secured Debt Subordinated Secured Debt Subordinated Unsecured Debt Small Business Loans CLO Debt CLO Residual Interest Equity Total Investments Level 1 Level 2 Level 3 Total $ — $ — $ 30,546 $ 30,546 — — — — — — 260 260 $ $ — — — — — — — 3,533,447 3,533,447 1,205,303 1,205,303 144,271 144,271 50,892 32,398 50,892 32,398 1,113,023 1,113,023 499,418 499,678 — $ 6,609,298 $ 6,609,558 The following tables show the aggregate changes in the fair value of our Level 3 investments during the year ended June 30, 2016 . Fair Value Measurements Using Unobservable Inputs (Level 3) Fair value as of June 30, 2015 Net realized losses on investments Net change in unrealized depreciation Net realized and unrealized losses Purchases of portfolio investments Payment-in-kind interest Amortization of discounts and premiums, net Repayments and sales of portfolio investments Transfers within Level 3(1) Transfers in (out) of Level 3(1) Control Investments Affiliate Investments Non-Control/ Non-Affiliate Investments $ 1,974,202 $ 45,945 $ 4,589,151 $ Total 6,609,298 (27,737) (243,376) (271,113) 958,572 20,531 (84,087) (14,194) (8,137) (233) (154,392) (14,427) (162,529) 1,263 660,339 — — (42,922) 21,461 — 5,356 (84,087) (800,459) (1,335,493) (73,832) — — — (5,406) (88,751) (94,157) 296,970 15,175 — (492,112) 52,371 — Fair value as of June 30, 2016 $ 1,752,449 $ 11,320 $ 4,133,939 $ 5,897,708 148 Revolving Line of Credit Senior Secured Debt Subordinated Secured Debt Subordinated Unsecured Debt 144,271 $ Small Business Loans 50,892 $ 32,398 $ 1,113,023 $ 499,418 $ 6,609,298 CLO Residual Interest CLO Debt Equity Total 1,205,303 $ Fair value as of June 30, 2015 Net realized (losses) gains on investments Net change in unrealized (depreciation) appreciation Net realized and unrealized (losses) gains Purchases of portfolio investments Payment-in-kind interest Accretion (amortization) of discounts and premiums Repayments and sales of portfolio investments Transfers within Level 3(1) Transfers in (out) of Level 3(1) Fair value as of June 30, 2016 $ 30,546 $ 3,533,447 $ — — — 9,824 — — (27,096) — — (1,246) (47,455) (48,701) 412,950 15,900 353 (847,644) (124,583) — (7,456) 10,403 2,947 147,104 1,697 986 (73,200) (75,233) — 10 (5,986) 3,911 — (16,970) (27,737) (722) (3,784) (114,131) (81,541) (243,376) (6,146) (6,136) — 2,934 — (6,708) 72,400 — — 127 — — 390 (114,131) 96,620 — (85,816) (98,511) 219,674 — — (72,711) — — (102,369) — — (32,915) — — — — — (179,558) 199,816 — (271,113) 958,572 20,531 (84,087) (1,335,493) — — $ 13,274 $ 2,941,722 $ 1,209,604 $ 68,358 $ 14,215 $ — $ 1,009,696 $ 640,839 $ 5,897,708 (1) Transfers are assumed to have occurred at the beginning of the quarter during which the asset was transferred. The following tables show the aggregate changes in the fair value of our Level 3 investments during the year ended June 30, 2015 . Fair Value Measurements Using Unobservable Inputs (Level 3) Fair value as of June 30, 2014 $ 1,640,454 $ 32,121 $ 4,580,996 $ Control Investments Affiliate Investments Non-Control/ Non-Affiliate Investments Total 6,253,571 Net realized losses on investments Net change in unrealized appreciation Net realized and unrealized gains (losses) Purchases of portfolio investments Payment-in-kind interest Amortization of discounts and premiums, net Repayments and sales of portfolio investments Transfers within Level 3(1) Transfers in (out) of Level 3(1) (80,640) 158,346 77,706 361,151 22,850 — (177,959) 50,000 — — 503 503 (99,836) (180,476) 9,024 (90,812) 167,873 (12,603) 15,050 1,461,999 1,838,200 — — 6,427 (87,638) 29,277 (87,638) (1,729) (1,231,821) (1,411,509) — — (50,000) — — — Fair value as of June 30, 2015 $ 1,974,202 $ 45,945 $ 4,589,151 $ 6,609,298 Revolving Line of Credit Senior Secured Debt Subordinated Secured Debt Subordinated Unsecured Debt Small Business Loans 2,786 $ 3,514,198 $ (1,095) (36,955) 1,200,221 $ (77,745) 85,531 $ (6,502) 4,252 $ (2,490) CLO Residual Interest CLO Debt 33,199 $ 1,093,985 $ 319,399 $ 6,253,571 Equity Total — (15,561) (40,128) (180,476) Fair value as of June 30, 2014 $ Net realized loss on investments Net change in unrealized appreciation (depreciation) Net realized and unrealized (losses) gains Purchases of portfolio investments Payment-in-kind interest Accretion (amortization) of discounts and premiums Repayments and sales of portfolio investments Transfers within Level 3(1) Transfers in (out) of Level 3(1) 659 (19,521) (436) 58,196 — — (30,000) — — (56,476) 1,205,788 25,695 314 (1,012,072) (144,000) — 42,658 (35,087) 170,767 1,412 3,617 (206,066) 70,439 — Fair value as of June 30, 2015 $ 30,546 $ 3,533,447 $ 1,205,303 $ (1,374) (7,876) 12,469 2,170 — 719 (1,296) (9,043) 155,071 167,873 (1,771) 96,614 — (1,296) — — (24,604) 220,779 — 114,943 73,587 — — 495 (92,064) — 612 51,365 — 144,271 $ (48,203) — — 50,892 $ — — — (85,073) — — (30,707) 22,196 — — 32,398 $ 1,113,023 $ 499,418 $ 6,609,298 (12,603) 1,838,200 29,277 (87,638) (1,411,509) — (1) Transfers are assumed to have occurred at the beginning of the quarter during which the asset was transferred. The net change in unrealized (depreciation) appreciation on the investments that use Level 3 inputs was $(157,796) and $82,432 for investments still held as of June 30, 2016 and June 30, 2015 , respectively. 149 The ranges of unobservable inputs used in the fair value measurement of our Level 3 investments as of June 30, 2016 were as follows: Asset Category Fair Value Primary Valuation Technique Input Range Weighted Average Unobservable Input Senior Secured Debt Senior Secured Debt Senior Secured Debt Senior Secured Debt Senior Secured Debt Senior Secured Debt (1) Senior Secured Debt (2) Subordinated Secured Debt Subordinated Secured Debt Subordinated Secured Debt (3) Subordinated Unsecured Debt Subordinated Unsecured Debt Small Business Loans (4) CLO Residual Interest Preferred Equity (6) Preferred Equity Common Equity/Interests/Warrants (7) $ 2,167,389 115,893 64,418 37,856 7,972 99,972 461,496 871,593 28,622 309,389 30,781 37,577 14,215 76,081 2,842 92,391 Common Equity/Interests/Warrants (2) 215,490 Common Equity/Interests/Warrants (3) 127,727 Common Equity/Interests/Warrants (5) Common Equity/Interests/Warrants Common Equity/Interests/Warrants Common Equity/Interests/Warrants Escrow Receivable 66,973 22,965 3,616 26,638 6,116 Total Level 3 Investments $ 5,897,708 Discounted Cash Flow (Yield analysis) Enterprise Value Waterfall (Market approach) Enterprise Value Waterfall (Market approach) Enterprise Value Waterfall (Discounted cash flow) Liquidation Analysis Market Yield 5.3%-27.6% 11.6% EBITDA Multiple Revenue Multiple Discount Rate N/A 4.5x-6.8x 0.4x-0.6x 6.5%-8.5% N/A Enterprise Value Waterfall Loss-adjusted discount rate 3.0%-18.0% Enterprise Value Waterfall (NAV Analysis) Enterprise Value Waterfall (Income approach) Discounted Cash Flow (Yield Analysis) Enterprise Value Waterfall (Market approach) Enterprise Value Waterfall (Market approach) Enterprise Value Waterfall (Market approach) Discounted Cash Flow (Yield Analysis) Enterprise Value Waterfall (Market approach) Capitalization Rate Discount Rate 3.4%-8.3% 6.5%-7.5% Market Yield 5.3%-25.7% EBITDA Multiple Book Value Multiple 7.0x-8.0x 1.2x-3.7x Earnings Multiple 7.0x-11.0x Market Yield 14.1%-71.9% EBITDA Multiple 5.8x-8.5x Discounted Cash Flow Loss-Adjusted Discount Rate 1,009,696 Discounted Cash Flow Discount Rate Enterprise Value Waterfall (Market approach) EBITDA Multiple Discounted Cash Flow Discount Rate 12.7%-33.6% 15.6%-23.9% 4.5x-7.0x 6.2%-7.3% 4.8x-9.0x 3.4%-8.3% 6.5%-7.5% EBITDA Multiple Capitalization Rate Discount Rate Book Value Multiple 1.2x-3.7x Earnings Multiple Discount Rate Discount Rate Market Yield N/A Discount Rate 7.0x-11.0x 6.5%-7.5% 6.5%-8.5% 16.0%-18.0% N/A 6.2%-7.5% Enterprise Value Waterfall (Market approach) Enterprise Value Waterfall (NAV analysis) Enterprise Value Waterfall (Income approach) Enterprise Value Waterfall (Market approach) Enterprise Value Waterfall (Market approach) Discounted Cash Flow Discounted Cash Flow Discounted Cash Flow (Yield analysis) Liquidation Analysis Discounted Cash Flow 150 5.9x 0.5x 7.5% N/A 13.5% 5.9% 7.0% 12.6% 7.5x 2.5x 10.2x 28.9% 7.7x 21.8% 18.0% 6.7x 6.8% 6.0x 5.9% 7.0% 2.3x 10.0x 7.0% 7.5% 17.0% N/A 6.8% (1) Represents an investment in a Real Estate Investment subsidiary. The Enterprise Value analysis includes the fair value of our investments in such indirect subsidiary’s consumer loans purchased from online consumer lending platforms, which are valued using a discounted cash flow valuation technique. The key unobservable input to the discounted cash flow analysis is noted above. In addition, the valuation also used projected loss rates as an unobservable input ranging from 1.07%-24.50%, with a weighted average of 10.58%. (2) Represents our REIT investments. EV waterfall methodology uses both the net asset value analysis and discounted cash flow analysis, which are weighted equally (50%). (3) Represents investments in consumer finance subsidiaries. The enterprise value waterfall methodology utilizes book value and earnings multiples, as noted above. In addition, the valuation of certain consumer finance companies utilizes the discounted cash flow technique whereby the significant unobservable input is the discount rate. For these companies each observable input (book value multiple, earnings multiple and discount rate) is weighted equally. For these companies the discount rate ranged from 14.5% to 18.0% with a weighted average of 15.7%. (4) Includes our investments in small business whole loans purchased from OnDeck. Valuation also used projected loss rates as an unobservable input ranging from 0.71%- 5.25%, with a weighted average of 1.22%. (5) Represents net operating income interests in our REIT investments. (6) (7) In addition, the valuation of certain controlled energy companies utilizes the discounted cash flow technique whereby the significant unobservable input is the discount rate. For these companies each observable input is weighted equally. For these companies the discounted rate ranged from 20.0% to 21.0% with a weighted average of 20.5%. In addition, the valuation of certain energy companies utilizes the discounted cash flow technique whereby the significant unobservable input is the discount rate. For these companies each observable input is weighted equally. For these companies the discounted rate ranged from 20.5% to 21.5% with a weighted average of 21.0%. 151 The ranges of unobservable inputs used in the fair value measurement of our Level 3 investments as of June 30, 2015 were as follows: Asset Category Fair Value Primary Valuation Technique Input Range Weighted Average Unobservable Input Enterprise value waterfall Loss-Adjusted Discount Rate Enterprise value waterfall Loss-Adjusted Discount Rate Senior Secured Debt Senior Secured Debt Senior Secured Debt Senior Secured Debt Senior Secured Debt (1) Senior Secured Debt (2) Senior Secured Debt Senior Secured Debt (3) Subordinated Secured Debt Subordinated Secured Debt Subordinated Secured Debt (4) Subordinated Unsecured Debt Subordinated Unsecured Debt Small Business Loans (5) Small Business Loans (6) CLO Debt CLO Residual Interest Preferred Equity Preferred Equity Common Equity/Interests/Warrants Common Equity/Interests/Warrants (3) $ 2,421,188 563,050 40,808 6,918 98,025 64,560 25,970 343,474 847,624 54,948 302,731 112,701 31,570 362 50,530 32,398 1,113,023 4,091 3,023 135,333 130,316 Common Equity/Interests/Warrants (4) 148,631 Discounted cash flow (Yield analysis) Enterprise value waterfall (Market approach) Enterprise value waterfall (Discounted cash flow) Liquidation Analysis Enterprise value waterfall Enterprise value waterfall (NAV analysis) Enterprise value waterfall (Market approach) Discounted cash flow (Yield analysis) Enterprise value waterfall (Market approach) Enterprise value waterfall (Market approach) Enterprise value waterfall (Market approach) Discounted cash flow (Yield analysis) Enterprise value waterfall (Market approach) Discounted Cash Flow Discounted Cash Flow Enterprise value waterfall (Market approach) Discounted cash flow (Yield analysis) Enterprise value waterfall (Market approach) Enterprise value waterfall (NAV analysis) Enterprise value waterfall (Market approach) Enterprise value waterfall (Market approach) Enterprise value waterfall (Market approach) Common Equity/Interests/Warrants (7) Common Equity/Interests/Warrants Common Equity/Interests/Warrants Common Equity/Interests/Warrants Common Equity/Interests/Warrants Escrow Receivable 38,455 28,133 4,310 1,120 22 5,984 Discounted cash flow Enterprise value waterfall (Discounted cash flow) Discounted cash flow (Yield analysis) Enterprise value waterfall Liquidation analysis Discounted cash flow Total Level 3 Investments $ 6,609,298 152 Market Yield 6.1%-21.4% 11.3% EBITDA Multiple 3.5x-11.0x Market Yield 8.1%-18.3% 12.5% Discount Rate N/A Appraisal 7.0%-9.0% N/A 3.8%-10.7% 5.4%-16.3% N/A Capitalization Rate 5.6%-7.0% Dividend Yield 8.8%-11.7% EBITDA Multiple Book Value Multiple 3.5x-6.0x 1.2x-3.8x Earnings multiple 6.8x-11.0x Market Yield 9.1%-15.3% EBITDA Multiple 5.8x-8.0x Discount Rate Discount Rate 6.1%-6.9% 11.2%-18.0% EBITDA multiple 4.5x - 8.5x Market yield 19.8% - 24.7% EBITDA multiple 3.5x-11.0x Capitalization Rate 5.6%-7.0% Dividend Yield 8.8% - 11.7% Book value multiple 1.2x-3.8x Earnings multiple Discount rate Discount rate Market yield Appraisal n/a 6.8x-11.0x 11.5% - 12.5% 7.0%-9.0% 16.0% - 18.0% n/a n/a Discount rate 7.0%-8.2% 8.1x 8.0% N/A 6.9% 10.0% N/A 6.0% 9.7% 4.7x 2.7x 10.3x 11.8% 7.2x 23.5% 24.9% 6.5% 14.0% 6.7x 22.2% 8.6x 5.9% 9.5% 2.5x 10.1x 12.0% 8.0% 17.0% n/a n/a 7.6% Discounted Cash Flow Loss-Adjusted Discount Rate 11.7%-27.3% Discounted Cash Flow Loss-Adjusted Discount Rate 20.4%-33.2% (1) Represents an investment in a REIT subsidiary. The EV analysis includes the fair value of our investments in such indirect subsidiary’s consumer loans purchased from online consumer lending platforms, which are valued using a discounted cash flow valuation technique. The key unobservable input to the discounted cash flow analysis is noted above. In addition, the valuation also used projected loss rates as an unobservable input ranging from 0.6%-26.5%, with a weighted average of 8.4%. (2) EV analysis is based on the fair value of our investments in consumer loans purchased from Lending Club, which are valued using a discounted cash flow valuation technique. The key unobservable input to the discounted cash flow analysis is noted above. In addition, the valuation also used projected loss rates as an unobservable input ranging from 2.3%-23.8%, with a weighted average of 16.9%. (3) Represents our REIT investments. EV waterfall methodology uses both the net asset value analysis and dividend yield analysis, which are weighted equally (50%). (4) Represents investments in consumer finance controlled subsidiaries. The enterprise value waterfall methodology utilizes book value and earnings multiples, as noted above. In addition, the valuation of certain consumer finance companies utilizes the discounted cash flow technique whereby the significant unobservable input is the discount rate. For these companies each observable input (book value multiple, earnings multiple and discount rate) is weighted equally. For these companies the discount rate ranged from 14.5% - 18.0% with a weighted average of 15.7%. (5) (6) Includes our investments in small business whole loans purchased from Direct Capital Corporation and OnDeck and our residual interest in MarketPlace Loan Trust. Valuation also used projected loss rates as an unobservable input ranging from 4.2%-11.7%, with a weighted average of 9.71%. Includes our investments in small business whole loans purchased from OnDeck. Valuation also used projected loss rates as an unobservable input ranging from 4.2%- 11.7%, with a weighted average of 9.7%. (7) Represents net operating income interests in our REIT investments. In determining the range of values for debt instruments, except CLOs and debt investments in controlling portfolio companies, management and the independent valuation firm estimated corporate and security credit ratings and identified corresponding yields to maturity for each loan from relevant market data. A discounted cash flow analysis was then prepared using the appropriate yield to maturity as the discount rate, to determine a range of values. In determining the range of values for debt investments of controlled companies and equity investments, the enterprise value was determined by applying earnings before income tax, depreciation and amortization (“EBITDA”) multiples, the discounted cash flow technique, net income and/or book value multiples for similar guideline public companies and/or similar recent investment transactions. For stressed equity investments, a liquidation analysis was prepared. During the year ended June 30, 2016, we changed the valuation methodology for our REITs portfolio (APRC, NPRC, and UPRC) from averaging the net asset value and dividend yield method to averaging the net asset value and discounted cash flow method utilizing capitalization rates for similar guideline companies and/or similar recent investment transactions. In determining the range of values for our investments in CLOs, management and the independent valuation firm used a discounted cash flow model. The valuations were accomplished through the analysis of the CLO deal structures to identify the risk exposures from the modeling point of view as well as to determine an appropriate call date. For each CLO security, the most appropriate valuation approach was chosen from alternative approaches to ensure the most accurate valuation for such security. To value a CLO, both the assets and the liabilities of the CLO capital structure are modeled. Our valuation agent utilizes additional methods to validate the results from the discounted cash flow method, such as Monte Carlo simulations of key model variables, analysis of relevant data observed in the CLO market, and review of certain benchmark credit indices. A waterfall engine was used to store the collateral data, generate collateral cash flows from the assets based on various assumptions for the risk factors, distribute the cash flows to the liability structure based on the payment priorities, and discount them back using proper discount rates to expected maturity or call date. Our portfolio consists of residual interests in CLOs, which involve a number of significant risks. CLOs are typically very highly levered (10 - 14 times), and therefore the residual interest tranches that we invest in are subject to a higher degree of risk of total loss. In particular, investors in CLO residual interests indirectly bear risks of the underlying loan investments held by such CLOs. We generally have the right to receive payments only from the CLOs, and generally do not have direct rights against the underlying borrowers or the entity that sponsored the CLO. While the CLOs we target generally enable the investor to acquire interests in a pool of senior loans without the expenses associated with directly holding the same investments, our 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 failure by a CLO investment in which we invest to satisfy financial covenants, including with respect to adequate collateralization and/or interest coverage tests, could lead to a reduction in its payments to us. In the event that a CLO fails certain tests, holders of debt senior to us would be entitled to additional payments that would, in turn, reduce the payments we would otherwise be entitled to receive. Separately, we may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting CLO or 153 any other investment we may make. If any of these occur, it could materially and adversely affect our operating results and cash flows. The interests we have acquired in CLOs are generally thinly traded or have only a limited trading market. CLOs are typically privately offered and sold, even in the secondary market. As a result, investments in CLOs may be characterized as illiquid securities. In addition to the general risks associated with investing in debt securities, CLO residual interests carry additional risks, including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or default; (iii) the investments in CLO tranches will likely be subordinate to other senior classes of note tranches thereof; and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the CLO investment or unexpected investment results. Our net asset value may also decline over time if our principal recovery with respect to CLO residual interests is less than the cost of those investments. Our CLO investments and/or the underlying senior secured loans may prepay more quickly than expected, which could have an adverse impact on our value. An increase in LIBOR would materially increase the CLO’s financing costs. Since most of the collateral positions within the CLOs have LIBOR floors, there may not be corresponding increases in investment income (if LIBOR increases but stays below the LIBOR floor rate of such investments) resulting in materially smaller distribution payments to the residual interest investors. We hold more than 10% of the shares in a foreign corporation that is treated as a controlled foreign corporation (“CFC”) (including residual interest tranche investments in a CLO investment treated as a CFC), for which we are treated as receiving a deemed distribution (taxable as ordinary income) each year from such foreign corporation in an amount equal to our pro rata share of the corporation’s income for the tax year (including both ordinary earnings and capital gains). We are required to include such deemed distributions from a CFC in our income and we are required to distribute such income to maintain our RIC status regardless of whether or not the CFC makes an actual distribution during such year. If we acquire shares in “passive foreign investment companies” (“PFICs”) (including residual interest tranche investments in CLOs that are PFICs), we may be subject to federal income tax on a portion of any “excess distribution” or gain from the disposition of such shares even if such income is distributed as a taxable dividend to our stockholders. Certain elections may be available to mitigate or eliminate such tax on excess distributions, but such elections (if available) will generally require us to recognize our share of the PFICs income for each year regardless of whether we receive any distributions from such PFICs. We must nonetheless distribute such income to maintain its status as a RIC. Legislation enacted in 2010 imposes a withholding tax of 30% on payments of U.S. source interest and dividends paid after December 31, 2013, or gross proceeds from the disposition of an instrument that produces U.S. source interest or dividends paid after December 31, 2016, to certain non-U.S. entities, including certain non-U.S. financial institutions and investment funds, unless such non-U.S. entity complies with certain reporting requirements regarding its United States account holders and its United States owners. Most CLOs in which we invest will be treated as non-U.S. financial entities for this purpose, and therefore will be required to comply with these reporting requirements to avoid the 30% withholding. If a CLO in which we invest fails to properly comply with these reporting requirements, it could reduce the amounts available to distribute to residual interest and junior debt holders in such CLO vehicle, which could materially and adversely affect our operating results and cash flows. If we are required to include amounts in income prior to receiving distributions representing such income, we may have to sell some of its investments at times and/or at prices management would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax. The significant unobservable input used to value our investments based on the yield analysis and discounted cash flow analysis is the market yield (or applicable discount rate) used to discount the estimated future cash flows expected to be received from the underlying investment, which includes both future principal and interest/dividend payments. Increases or decreases in the market yield (or applicable discount rate) would result in a decrease or increase, respectively, in the fair value measurement. Management and the independent valuation firms consider the following factors when selecting market yields or discount rates: risk of default, rating of the investment and comparable company investments, and call provisions. 154 The significant unobservable inputs used to value our investments based on the EV analysis may include market multiples of specified financial measures such as EBITDA, net income, or book value of identified guideline public companies, implied valuation multiples from precedent M&A transactions, and/or discount rates applied in a discounted cash flow analysis. The independent valuation firm identifies a population of publicly traded companies with similar operations and key attributes to that of the portfolio company. Using valuation and operating metrics of these guideline public companies and/or as implied by relevant precedent transactions, a range of multiples of the latest twelve months EBITDA, or other measure such as net income or book value, is typically calculated. The independent valuation firm utilizes the determined multiples to estimate the portfolio company’s EV generally based on the latest twelve months EBITDA of the portfolio company (or other meaningful measure). Increases or decreases in the multiple may result in an increase or decrease, respectively, in EV which may increase or decrease the fair value measurement of the debt of controlled companies and/or equity investment, as applicable. In certain instances, a discounted cash flow analysis may be considered in estimating EV, in which case, discount rates based on a weighted average cost of capital and application of the capital asset pricing model may be utilized. The significant unobservable input used to value our private REIT investments based on the net asset value analysis is the capitalization rate applied to the earnings measure of the underlying property. Increases or decreases in the capitalization rate would result in a decrease or increase, respectively, in the fair value measurement. Changes in market yields, discount rates, capitalization rates or EBITDA multiples, each in isolation, may change the fair value measurement of certain of our investments. Generally, an increase in market yields, discount rates or capitalization rates, or a decrease in EBITDA (or other) multiples may result in a decrease in the fair value measurement 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 currently assigned valuations. During the year ended June 30, 2016 , the valuation methodology for Empire Today, LLC (“Empire”) changed to remove the waterfall analysis used in previous periods due to positive trends in financial performance and deleveraging. As a result of this change and current market conditions, as well as additional purchases of $34,726, the fair value of our investment in Empire increased to $49,938 as of June 30, 2016 , a discount of $50 from its amortized cost, compared to the $2,448 unrealized depreciation recorded at June 30, 2015 . During the year ended June 30, 2016 , the valuation methodology for Ark-La-Tex Wireline Services, LLC (“Ark-La-Tex”) changed to add the waterfall analysis due to impairment of Term Loan A and Term Loan B. As a result of this change, and in recognition of recent company performance and current market conditions, the fair value of our investment in Ark-La-Tex decreased to $11,779 as of June 30, 2016 , a discount of $32,548 from its amortized cost, compared to the $3,723 unrealized depreciation recorded at June 30, 2015 . During the year ended June 30, 2016 , the valuation methodology for Nixon, Inc. (“Nixon”) changed to incorporate a waterfall analysis. As a result of the company’s performance and current market conditions, the fair value of our investment in Nixon decreased to $11,776 as of June 30, 2016 , a discount of $2,421 from its amortized cost, compared to the $133 unrealized depreciation recorded at June 30, 2015 . During the year ended June 30, 2016 , the valuation methodology for Royal Holdings, Inc. (“Royal”) changed to remove the relative value method based on low liquidity of first lien term loan. As a result of this change the fair value of our investment in Royal decreased to $4,819 as of June 30, 2016 , a discount of $148 from its amortized cost, compared to the $37 unrealized appreciation recorded at June 30, 2015 . During the year ended June 30, 2016 , the valuation methodology for CURO Group Holding Corp (f/k/a Speedy Group Holdings Corp.) (“Speedy”) changed to remove the shadow method and incorporate relative value method. As a result of this change and decreased market prices, the fair value of our investment in Speedy decreased to $8,081 as of June 30, 2016 , a discount of $6,919 from its amortized cost. No unrealized depreciation/appreciation was recorded at June 30, 2015 . 155 During the year ended June 30, 2016 , the valuation methodology for USES Corp. (“USES”) changed to incorporate a waterfall analysis due to impairment of Term Loan B. As a result of this change, the fair value of our investment in USES decreased to $40,286 as of June 30, 2016 , a discount of $21,440 from its amortized cost, compared to the $4,293 unrealized depreciation recorded at June 30, 2015 . During the year ended June 30, 2016 , the valuation methodology for Spartan Energy Services, Inc. (“Spartan”) changed to add the waterfall analysis due to impairment of Term Loan B. During the three months ended June 30, 2016, liquidation analysis was added due to impairment of both Term Loan A and Term Loan B. As a result of this change and current market conditions, the fair value of our investment in Spartan decreased to $12,352 as of June 30, 2016 , a discount of $14,240 from its amortized cost, compared to the $720 unrealized depreciation recorded at June 30, 2015 . During the year ended June 30, 2016 , the valuation methodology for Arctic Energy Services, LLC (“Arctic Energy”) changed to incorporate a discounted cash flow analysis. As a result of the company’s performance and current market conditions, the fair value of our investment in Arctic Energy decreased to $38,340 as of June 30, 2016 , a discount of $22,536 from its amortized cost, compared to the $512 unrealized depreciation recorded at June 30, 2015 . During the year ended June 30, 2016 , the valuation methodology for CP Energy Services Inc. (“CP Energy”) changed to incorporate a discounted cash flow analysis. As a result of the company’s performance and current market conditions, the fair value of our investment in CP Energy decreased to $76,002 as of June 30, 2016 , a discount of $37,498 from its amortized cost, compared to the $25,309 unrealized depreciation recorded at June 30, 2015 . During the year ended June 30, 2016 , we changed the valuation methodology for our REITs portfolio (American Property REIT Corp. (“APRC”), NPRC, and United Property REIT Corp. (“UPRC”)) from averaging the net asset value and dividend yield method to averaging the net asset value and discounted cash flow method. The use of the discounted cash flow method more closely reflects the valuation techniques used by the broader multifamily real estate industry. During the year ended June 30, 2016 , we removed the dividend yield method and used the discounted cash flow method for NPRC. The discounted cash flow method is averaged with the net asset value method. The fair value of our investment in NPRC increased primarily as a result of improved operating performance at the property level and market conditions. Total fair value of our investment in NPRC increased to $843,933 as of June 30, 2016, a premium of $116,557 from its amortized cost, compared to the $49,350 unrealized appreciation recorded at June 30, 2015 , including ARPC and UPRC. Effective May 23, 2016, APRC and UPRC merged with and into NPRC, with NPRC as the surviving entity. APRC and UPRC have been dissolved. Effective May 23, 2016, APRC and UPRC merged with and into NPRC, with NPRC as the surviving entity. During the period from July 1, 2015 through May 23, 2016, we provided $2,268 of equity financing to APRC to fund capital expenditures for existing properties. In addition, during the period from July 1, 2015 through May 23, 2016, we received a partial repayment of $29,703 of our loan previously outstanding and recorded $11,016 of dividend income in connection with the sale of Vista. During the period from July 1, 2015 through May 23, 2016, we provided $4,484 and $3,047 of debt and equity financing, respectively, to UPRC to fund capital expenditures for existing properties. In addition, during the period from July 1, 2015 through May 23, 2016, we received a partial repayment of $7,567 of our loan previously outstanding. During the year ended June 30, 2016 , we provided $9,017 of equity financing to NPRC for the acquisition of real estate properties and $3,433 of equity financing to NPRC to fund capital expenditures for existing properties. In addition, during the year ended June 30, 2016 , we received partial repayments of $63,271 of our loans previously outstanding. During the year ended June 30, 2016 , we provided $202,466 and $41,118 of debt and equity financing, respectively, to NPRC to enable certain of its wholly- owned subsidiaries to invest in online consumer loans. In addition, during the year ended June 30, 2016 , we received partial repayments of $52,260 of our loans previously outstanding with NPRC and its wholly-owned subsidiaries and $12,396 as a return of capital on our equity investment in NPRC. The online consumer loan investments held by certain of NPRC’s wholly-owned subsidiaries are unsecured obligations of individual borrowers that are issued in amounts ranging from $1 to $50, with fixed terms ranging from 18 to 84 months. As of June 30, 2016 , the outstanding investment in online consumer loans by certain of NPRC’s wholly-owned subsidiaries was comprised of 91,721 individual loans and had an aggregate fair value of $674,423. The average outstanding individual loan balance is approximately $8 and the loans mature on dates ranging from October 31, 2016 to August 1, 2023 with a weighted- average outstanding term of 33 months as of June 30, 2016 . Fixed interest rates range from 4.0% to 36.0% with a weighted-average current interest rate of 22.0%. 156 As of June 30, 2016, based on outstanding principal balance, 9.3% of the portfolio was invested in super prime loans (borrowers with a Fair Isaac Corporation score, “FICO score”, of 720 or greater), 24.8% of the portfolio in prime loans (borrowers with a FICO score of 660 to 719) and 65.9% of the portfolio in near prime loans (borrowers with a FICO score of 580 to 659). Loan Type Outstanding Balance Interest Rate Range Weighted Average Interest Rate* Super Prime Prime Near Prime $ 66,152 175,899 467,106 4.0% - 36.0% 5.3% - 36.0% 6.0% - 36.0% 11.7% 14.9% 26.2% *Based on outstanding principal of the unsecured consumer loans. As of June 30, 2016 , our investment in NPRC had an amortized cost of $727,376 and a fair value of $843,933 , including $363,170 of fair value related to our investment in the online consumer loan subsidiary as discussed above. The remaining fair value of $480,763 relates to NPRC’s real estate portfolio was comprised of thirty eight multi-families properties, twelve self-storage units and three commercial properties. The following table shows the location, acquisition date, purchase price, and mortgage outstanding due to other parties for each of the properties held by NPRC as of June 30, 2016 . No. Property Name Acquisition Date Purchase Price Mortgage Outstanding 1557 Terrell Mill Road, LLC Lofton Place, LLC Arlington Park Marietta, LLC Cordova Regency, LLC Crestview at Oakleigh, LLC Inverness Lakes, LLC Kings Mill Pensacola, LLC Plantations at Pine Lake, LLC Verandas at Rocky Ridge, LLC Plantations at Hillcrest, LLC Crestview at Cordova, LLC Taco Bell, OK 146 Forest Parkway, LLC 5100 Live Oaks Blvd, LLC NPRC Carroll Resort, LLC APH Carroll 41, LLC Matthews Reserve II, LLC City West Apartments II, LLC Vinings Corner II, LLC 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 City Marietta, GA Tampa, FL Marietta, GA Pensacola, FL Pensacola, FL Mobile, AL Pensacola, FL Tallahassee, FL Birmingham, AL Mobile, AL Pensacola, FL Yukon, OK Forest Park, GA Tampa, FL 12/28/2012 $ 23,500 $ 4/30/2013 5/8/2013 11/15/2013 11/15/2013 11/15/2013 11/15/2013 11/15/2013 11/15/2013 1/17/2014 1/17/2014 6/4/2014 10/24/2012 26,000 14,850 13,750 17,500 29,600 20,750 18,000 15,600 6,930 8,500 1,719 7,400 1/17/2013 63,400 Pembroke Pines, FL 6/24/2013 225,000 Marietta, GA Matthews, NC Orlando, FL Smyrna, GA 11/1/2013 11/19/2013 11/19/2013 11/19/2013 14,897 20,402 9,650 11,375 13,845 24,700 17,550 14,092 10,205 4,881 8,126 — — 46,700 181,707 32,713 19,964 23,354 33,026 29,839 41,711 62,552 28,100 8,766 4,350 3,600 5,460 3,480 3,345 6,695 30,600 22,063 23,562 35,691 36,590 47,621 73,078 38,000 13,025 5,804 4,800 7,281 4,642 4,458 8,927 Uptown Park Apartments II, LLC Altamonte Springs, FL 11/19/2013 Mission Gate II, LLC St. Marin Apartments II, LLC APH Carroll Bartram Park, LLC APH Carroll Atlantic Beach, LLC 23 Mile Road Self Storage, LLC 36th Street Self Storage, LLC Ball Avenue Self Storage, LLC Ford Road Self Storage, LLC Plano, TX Coppell, TX Jacksonville, FL Atlantic Beach, FL Chesterfield, MI Wyoming, MI Grand Rapids, MI Westland, MI Ann Arbor Kalamazoo Self Storage, LLC Ann Arbor, MI Ann Arbor Kalamazoo Self Storage, LLC Scio, MI 11/19/2013 11/19/2013 12/31/2013 1/31/2014 8/19/2014 8/19/2014 8/19/2014 8/29/2014 8/29/2014 8/29/2014 157 No. Property Name City Acquisition Date Purchase Price Mortgage Outstanding 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 Ann Arbor Kalamazoo Self Storage, LLC Kalamazoo, MI Jolly Road Self Storage, LLC Okemos, MI Eaton Rapids Road Self Storage, LLC Lansing West, MI Haggerty Road Self Storage, LLC Novi, MI Waldon Road Self Storage, LLC Tyler Road Self Storage, LLC SSIL I, LLC Atlanta Eastwood Village LLC Atlanta Monterey Village LLC Atlanta Hidden Creek LLC Atlanta Meadow Springs LLC Atlanta Meadow View LLC Atlanta Peachtree Landing LLC Taco Bell, MO Lake Orion, MI Ypsilanti, MI Aurora, IL Stockbridge, GA Jonesboro, GA Morrow, GA College Park, GA College Park, GA Fairburn, GA Marshall, MO Canterbury Green Apartments Holdings LLC Fort Wayne, IN 8/29/2014 1/16/2015 1/16/2015 1/16/2015 1/16/2015 1/16/2015 11/5/2015 12/12/2013 12/12/2013 12/12/2013 12/12/2013 12/12/2013 12/12/2013 6/4/2014 9/29/2014 Abbie Lakes OH Partners, LLC Canal Winchester, OH 9/30/2014 Kengary Way OH Partners, LLC Reynoldsburg, OH 9/30/2014 Lakeview Trail OH Partners, LLC Canal Winchester, OH 9/30/2014 Lakepoint OH Partners, LLC Sunbury OH Partners, LLC Heatherbridge OH Partners, LLC Jefferson Chase OH Partners, LLC Goldenstrand OH Partners, LLC Pickerington, OH Columbus, OH Blacklick, OH Blacklick, OH Hilliard, OH 9/30/2014 9/30/2014 9/30/2014 9/30/2014 10/29/2014 2,363 7,492 1,741 6,700 6,965 3,507 34,500 25,957 11,501 5,098 13,116 14,354 17,224 1,405 85,500 12,600 11,500 26,500 11,000 13,000 18,416 13,551 7,810 1,775 5,620 1,305 5,025 5,225 2,630 26,450 19,785 9,193 3,619 10,180 11,141 13,575 — 74,286 10,440 11,000 20,142 10,080 10,480 15,480 12,240 8,040 $ 1,200,441 $ 972,796 On August 1, 2014, we sold our investments in Airmall Inc. (“Airmall”) for net proceeds of $51,379 and realized a loss of $3,473 on the sale. In addition, there is $6,000 being held in escrow, of which 98% is due to Prospect, which will be recognized as an additional realized loss if it is not received. Included in the net proceeds were $3,000 of structuring fees from Airmall related to the sale of the operating company which was recognized as other income during the three months ended September 30, 2014. On October 22, 2014, we received a tax refund of $665 related to our investment in Airmall for which we realized a gain of the same amount. On March 21, 2016, we received $1,720 of the escrow proceeds. As of June 30, 2016 , our Board of Directors has valued our remaining escrow receivable investment in Airmall at $3,000 which we expect to collect in early fiscal 2017. On August 20, 2014, we sold the assets of Borga, Inc. (“Borga”), a wholly-owned subsidiary of STI Holding, Inc., for net proceeds of $382 and realized a loss of $2,589 on the sale. On December 29, 2014, Borga was dissolved. On August 25, 2014, we sold Boxercraft Incorporated, a wholly-owned subsidiary of BXC Company, Inc., for net proceeds of $750 and realized a net loss of $16,949 on the sale. On September 15, 2014, Echelon Aviation LLC repaid $37,313 of the $78,121 loan receivable to us. On September 30, 2014, we made a $26,431 follow-on investment in Harbortouch Payments, LLC (“Harbortouch”) to support an acquisition. As part of the transaction, we received $529 of structuring fee income and $50 of amendment fee income from Harbortouch which was recognized as other income. During the three months ended September 30, 2014, we impaired our investment in Appalachian Energy LLC and realized a loss of $2,050, reducing the amortized cost to zero. On October 3, 2014, we sold our $35,000 investment in Babson CLO Ltd. 2011-I and realized a loss of $6,410 on the sale. 158 On October 10, 2014, ARRM sold Ajax Rolled Ring & Machine, LLC to a third party and repaid the $19,337 loan receivable to us. We recorded a realized loss of $21,001 related to the sale. Concurrent with the sale, our ownership increased to 100% of the outstanding equity of SB Forging. As such, we began consolidating SB Forging on October 11, 2014. In addition, there is $3,000 being held in escrow of which $802 and $1,750 was received on May 6, 2015 and May 31, 2016, respectively, for which Prospect realized a gain of the same amount. On October 20, 2014, we sold our $22,000 investment in Galaxy XII CLO, Ltd. and realized a loss of $2,435 on the sale. On November 21, 2014, Coalbed, LLC (“Coalbed”) merged with and into Wolf Energy, LLC (“Wolf Energy”), with Wolf Energy as the surviving entity. During the three months ended December 31, 2014, we impaired our investment in the Coalbed debt assumed by Wolf Energy and realized a loss of $5,991, reducing the amortized cost to zero. On December 4, 2014, we sold our $29,075 investment in Babson CLO Ltd. 2012-I and realized a loss of $3,833 on the sale. On January 15, 2015, we received additional proceeds of $66 for which Prospect realized a gain of the same amount. On December 4, 2014, we sold our $27,850 investment in Babson CLO Ltd. 2012-II and realized a loss of $2,961 on the sale. On February 18, 2015, we received additional proceeds of $12 for which Prospect realized a gain of the same amount. During the three months ended December 31, 2014, Manx Energy, Inc. was dissolved and we recorded a realized loss of $50, reducing the amortized cost to zero. During the three months ended December 31, 2014, we impaired our investments in Change Clean Energy Company, LLC and Yatesville Coal Company, LLC and recorded a realized loss of $1,449, reducing the amortized cost to zero. During the three months ended December 31, 2014, we impaired our investment in New Century Transportation, Inc. (“NCT”) a realized a loss of $42,064, reducing the amortized cost to $980. During the three months ended December 31, 2014, we impaired our investment in Stryker Energy, LLC and realized a loss of $32,711, reducing the amortized cost to zero. During the three months ended December 31, 2014, we impaired our investment in Wind River Resources Corporation (“Wind River”) and recorded a realized loss of $11,650, reducing the amortized cost to $3,000. During the three months ended March 31, 2016, our remaining investment in Wind River was written-off for tax purposes and a loss of $3,000 was therefore realized. On June 5, 2015, we sold our equity investment in Vets Securing America, Inc. (“VSA”) and realized a net loss of $975 on the sale. In connection with the sale, VSA was released as a borrower on the secured promissory notes, leaving The Healing Staff, Inc. (“THS”) as the sole borrower. During the year ended June 30, 2015, THS ceased operations and we recorded a realized loss of $2,956, reducing the amortized cost to zero. On June 9, 2015, we provided additional debt and equity financing to support the recapitalization of Edmentum Ultimate Holdings, LLC (“Edmentum”). As part of the recapitalization, we exchanged 100% of the $50,000 second lien term loan previously outstanding for $26,365 of junior PIK notes and 370,964.14 Class A common units representing 37.1% equity ownership in Edmentum. In addition, we invested $5,875 in senior PIK notes and committed $7,834 as part of a second lien revolving credit facility, of which $4,896 was funded at closing. On June 9, 2015, we determined that the impairment of Edmentum was other-than-temporary and recorded a realized loss of $22,116 for the amount that the amortized cost exceeded the fair value, reducing the amortized cost to $37,216. On August 12, 2015, we sold 780 of our small business whole loans (with a cost of $30,968) purchased from OnDeck to Jefferies Asset Funding LLC for proceeds of $26,619, net of related transaction expenses, and a trust certificate representing a 41.54% interest in the MarketPlace Loan Trust, Series 2015-OD2. We realized a loss of $775 on the sale. On September 30, 2015, we restructured our investment in Arctic Energy. Concurrent with the restructuring, we exchanged $31,640 senior secured loan and $20,230 subordinated loan for Class D and Class E equity in Arctic Energy. On October 30, 2015, we restructured our investment in CP Energy. Concurrent with the restructuring, we exchanged our $86,965 senior secured loan and $15,924 subordinated loan for Series B Redeemable Preferred Stock in CP Energy. On October 30, 2015, we restructured our investment in Freedom Marine Solutions, LLC (“Freedom Marine”). Concurrent with the restructuring, we exchanged our $32,500 senior secured loans for additional membership interest in Freedom Marine. 159 On November 16, 2015 and November 25, 2015, we sold our $14,755 debt investment in AGC. We realized a loss of $4,127 on the sale. On January 21, 2016, we sold 100% of our CIFC Funding 2011-I, Ltd. Class E and Class D notes with a cost basis of $29,004. We realized a gain of $3,911 on the sale. On February 3, 2016, lenders foreclosed on Targus Group International, Inc., and our $21,613 first lien term loan was extinguished and exchanged for 1,262,737 common units representing 12.63% equity ownership in Targus Cayman HoldCo Limited, the parent company of Targus International LLC (“Targus”). On February 17, 2016, we provided additional debt financing to support the recapitalization of Targus. As part of the recapitalization, we invested an additional $1,263 in a new senior secured Term Loan A notes and were allocated $3,788 in new senior secured Term Loan B notes. During the same period, Targus was written- down for tax purposes and a realized loss of $14,194 therefore was realized for the amount that the amortized cost exceeded the fair value. During the three months ended March 31, 2016, we sold our $10,100 debt investment in ICON Health and Fitness, Inc. We realized a loss of $1,053 on the sale. On March 22, 2016 and March 24, 2016, United Sporting Company, Inc. partially repaid the $17,391 loan receivable to us. During the three months ended March 31, 2016, NCT was written-off for tax purposes and a loss of $187 was realized. On April 29, 2016, we invested an additional $25,000 of Senior Secured Term Loan A and $25,000 of Senior Secured Term Loan B debt investments in Trinity Services Group, Inc. (“Trinity”). On April 29, 2016, through our delayed draw term loan commitment with Instant Web, LLC (“IWCO”), we funded $8,000 of Senior Secured Term Loan A and $8,000 of Senior Secured Term Loan B. During the period from May 3, 2016 through May 10, 2016, we collectively sold 72.10% of the outstanding principal balance of the Senior Secured Term Loan A investment in Trinity for $25,000. There was no gain or loss realized on the sale. On May 31, 2016, we sold our investment in Harbortouch for total consideration of $328,032, including fees and escrowed amounts. Prior to the sale, $154,382 of Senior Secured Term Loan B loan outstanding was converted to preferred equity. We received a repayment of $146,989 loans receivable to us and $157,639 of proceeds related to the equity investment. We recorded a realized loss of $5,419 related to the sale. We also received a $5,145 prepayment premium for early repayment of the outstanding loans, which was recorded as interest income in the year ended June 30, 2016 and a $12,909 advisory fee for the transaction, which was recorded as other income in the year ended June 30, 2016. In addition, there is $5,350 being held in escrow which will be recognized as additional realized gain if and when it is received. Concurrent with the sale, we made a $27,500 second lien secured investment in Harbortouch. As of June 30, 2016 , $3,737,046 of our loans, at fair value, bear interest at floating rates and have LIBOR floors ranging from 0.3% to 4.0%. As of June 30, 2016 , $495,912 of our loans, at fair value, bear interest at fixed rates ranging from 5% to 22.0%. As of June 30, 2015 , $4,413,161 of our loans, at fair value, bore interest at floating rates and $4,380,763 of those loans had LIBOR floors ranging from 0.5% to 5.5%. As of June 30, 2015 , $532,804 of our loans, at fair value, bear interest at fixed rates ranging from 5% to 22.0%. At June 30, 2016 , seven loan investments were on non-accrual status: Ark-La-Tex, Gulf Coast Machine & Supply Company (“Gulf Coast”), Spartan Energy Services, Inc. (“Spartan”), Targus, USES, Venio LLC and Wolf Energy. At June 30, 2015 , four loan investments were on non-accrual status: Gulf Coast, NCT, Wind River and Wolf Energy. Principal balances of these loans amounted to $234,307 and $62,143 as of June 30, 2016 and June 30, 2015 , respectively. The fair value of these loans amounted to $90,540 and $6,918 as of June 30, 2016 and June 30, 2015 , respectively. The fair values of these investments represent approximately 1.4% and 0.1% of our total assets at fair value as of June 30, 2016 and June 30, 2015 , respectively. For the years ended June 30, 2016 , 2015 and 2014 , the income foregone as a result of not accruing interest on non-accrual debt investments amounted to $23,089, $22,927 and $24,040, respectively. Undrawn committed revolvers and delayed draw term loans to our portfolio companies incur commitment and unused fees ranging from 0.00% to 6.00%. As of June 30, 2016 and June 30, 2015 , we had $40,560 and $88,288 , respectively, of undrawn revolver and delayed draw term loan commitments to our portfolio companies. The fair value of our undrawn committed revolvers and delayed draw term loans was zero as of June 30, 2016 and June 30, 2015 . During the year ended June 30, 2016 , we sold $99,377 of the outstanding principal balance of the senior secured Term Loan A investments in certain portfolio companies. There was no gain or loss realized on the sale. We serve as an agent for these loans 160 and collect a servicing fee from the counterparties on behalf of the Investment Adviser. We receive a credit for these payments as a reduction of base management fee payable by us to the Investment Adviser. See Note 13 for further discussion. Unconsolidated Significant Subsidiaries Our investments are generally in small and mid-sized companies in a variety of industries. In accordance with Rules 3-09 and 4-08(g) of Regulation S-X, we must determine which of our unconsolidated controlled portfolio companies are considered “significant subsidiaries”, if any. In evaluating these investments, there are three tests utilized to determine if any of our controlled investments are considered significant subsidiaries: the investment test, the asset test and the income test. Rule 3-09 of Regulation S-X, requires separate audited financial statements of an unconsolidated majority-owned subsidiary in an annual report if any of the three tests exceed 20%. Rule 4-08(g) of Regulation S-X requires summarized financial information in an annual report if any of the three tests exceeds 10%. As of June 30, 2016 , we had one investment that represented greater than 10% but less than 20% of our total investment portfolio at fair value. As of June 30, 2015, we had no single investment that represented greater than 10% of our total investment portfolio at fair value, and one investment whose assets represented greater than 10% but less than 20% of our total assets. Income, consisting of interest, dividends, fees, other investment income and gains or losses, which can fluctuate upon repayment or sale of an investment or the marking to fair value an investment in any given period, can be highly concentrated among several investments. In accordance with Rules 1-02(w), if the registrant’s consolidated income or the absolute value of its loss from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle, is at least 10% less than the average of the last five fiscal years (including zero for any loss years in the numerator, but still using five as the denominator), the average should be substituted as the denominator in the income test. In performing the income analysis for the year ended June 30, 2016 , our net increase in net assets was 10% less than the average increase in net assets for the last five fiscal years. Therefore, we used the five year average net increase in net assets and determined that one of our controlled investments individually generated more than 10% but less than 20% of our income. After performing the income analysis for the year ended June 30, 2015, we determined that one of our controlled investments individually generated more than 10% but less than 20% of our income, primarily due to the unrealized appreciation that was recognized on the investment during the year ended June 30, 2015. As such, First Tower Finance, an unconsolidated majority-owned portfolio company, was considered a significant subsidiary at the 10% level as of June 30, 2016 , and NPRC was considered a significant subsidiary at the 10% level as of June 30, 2015. The following tables show summarized financial information for First Tower Finance Company LLC and its subsidiaries, which met the 10% income test for the year ended June 30, 2016: June 30, 2016 June 30, 2015 Balance Sheet Data Cash and cash equivalents $ 71,295 $ Receivables Intangibles, including goodwill Other assets Notes payable Notes payable, due to Prospect or Affiliate Other liabilities Total equity 432,639 106,179 21,234 365,448 255,762 51,544 (41,407) 65,614 400,451 121,822 17,373 334,637 251,578 47,493 (28,448) Summary of Operations Total revenue Total expenses Net (loss) income Year Ended June 30, 2016 2015 2014 207,128 219,143 (12,015) 201,724 162,941 38,783 214,697 233,543 (18,846) 161 As of June 30, 2016 , we had no single investment that represented greater than 20% of our total investment portfolio at fair value. As of June 30, 2016 , we had one investment whose assets represented greater than 20% of our total assets. Income, consisting of interest, dividends, fees, other investment income and realization of gains or losses, can fluctuate upon repayment or sale of an investment or the marking to fair value of an investment in any given year can be highly concentrated among several investments. After performing the income analysis for the year ended June 30, 2016 , we determined that one of our controlled investments individually generated more than 20% of our income, primarily due to the unrealized appreciation that was recognized on the investment during the year ended June 30, 2016 . After performing the income analysis for the year ended June 30, 2015, we determined that two of our controlled investments individually generated more than 20% of our income, primarily due to the unrealized appreciation that was recognized on the investments during the year ended June 30, 2015. As such, NPRC, an unconsolidated majority-owned portfolio company, was considered a significant subsidiary at the 20% level as of June 30, 2016 , and First Tower and Harbortouch were considered a significant subsidiary at the 20% level as of June 30, 2015. We included the audited financial statements of NPRC, and its subsidiaries, for the years ended December 31, 2015 and 2014 as an Exhibit 99.2 to the Form 10-K filing for the year ended June 30, 2016. The SEC has requested comments on the proper mechanics of how the calculations related to Rules 3-09 and 4-08(g) of Regulation S-X should be completed. There is currently diversity in practice for the calculations. We expect that the SEC will clarify the calculation methods in the future. Note 4. Revolving Credit Facility On March 27, 2012, we closed on an extended and expanded credit facility with a syndicate of lenders through PCF (the “2012 Facility”). The lenders had extended commitments of $857,500 under the 2012 Facility as of June 30, 2014, which was increased to $877,500 in July 2014. The 2012 Facility included an accordion feature which allowed commitments to be increased up to $1,000,000 in the aggregate. Interest on borrowings under the 2012 Facility was one-month LIBOR plus 275 basis points with no minimum LIBOR floor. Additionally, the lenders charged 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. On August 29, 2014, we renegotiated the 2012 Facility and closed an expanded five and a half year revolving credit facility (the “2014 Facility” and collectively with the 2012 Facility, the “Revolving Credit Facility”). The lenders have extended commitments of $885,000 under the 2014 Facility as of June 30, 2016 . The 2014 Facility includes an accordion feature which allows commitments to be increased up to $1,500,000 in the aggregate. The revolving period of the 2014 Facility extends through March 2019, with an additional one year amortization period (with distributions allowed) after the completion of the revolving period. During such one year amortization period, all principal payments on the pledged assets will be applied to reduce the balance. At the end of the one year amortization period, the remaining balance will become due, if required by the lenders. The 2014 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 2014 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 2014 Facility. The 2014 Facility also requires the maintenance of a minimum liquidity requirement. As of June 30, 2016 , we were in compliance with the applicable covenants. Interest on borrowings under the 2014 Facility is one-month LIBOR plus 225 basis points with no minimum LIBOR floor. Additionally, the lenders charge a fee on the unused portion of the 2014 Facility equal to either 50 basis points if at least 35% of the credit facility is drawn or 100 basis points otherwise. The 2014 Facility requires us to pledge assets as collateral in order to borrow under the credit facility. As of June 30, 2016 and June 30, 2015 , we had $538,456 and $721,800 , respectively, available to us for borrowing under the Revolving Credit Facility, of which the amount outstanding was $0 and $368,700 , respectively. As additional eligible investments are transferred to PCF and pledged under the Revolving Credit Facility, PCF will generate additional availability up to the current commitment amount of $885,000 . As of June 30, 2016 , the investments, including cash and money market funds, used as collateral for the Revolving Credit Facility had an aggregate fair value of $1,373,569 , which represents 22.1% of our total investments, including cash and money market funds. These assets are held and owned by PCF, a bankruptcy remote special purpose entity, and as such, these investments are not available to our general creditors. The release of any assets from PCF requires the approval of the facility agent. In connection with the origination and amendments of the Revolving Credit Facility, we incurred $12,405 of new fees and $3,539 of fees carried over for continuing participants from the previous facility, which are being amortized over the term of the facility in accordance with ASC 470-50, of which $7,525 remains to be amortized and is included within deferred financing costs on the 162 Consolidated Statements of Assets and Liabilities as of June 30, 2016 . During the year ended June 30, 2015, in accordance with ASC 470-50, we expensed $332 of fees relating to credit providers in the 2012 Facility who did not commit to the 2014 Facility. During the years ended June 30, 2016, 2015 and 2014 , we recorded $13,213 , $14,424 , and $12,216 , respectively, of interest costs, unused fees and amortization of financing costs on the Revolving Credit Facility as interest expense. Note 5. Convertible Notes On December 21, 2010, we issued $150,000 aggregate principal amount of convertible notes that matured on December 15, 2015 (the “2015 Notes”). The 2015 Notes bore interest at a rate of 6.25% per year, payable semi-annually on June 15 and December 15 of each year, beginning June 15, 2011. Total proceeds from the issuance of the 2015 Notes, net of underwriting discounts and offering costs, were $145,200. On December 15, 2015, we repaid the outstanding principal amount of the 2015 Notes, plus interest. No gain or loss was realized on the transaction. On February 18, 2011, we issued $172,500 aggregate principal amount of convertible notes that mature on August 15, 2016 (the “2016 Notes”), unless previously converted or repurchased in accordance with their terms. The 2016 Notes bear interest at a rate of 5.50% per year, payable semi-annually on February 15 and August 15 of each year, beginning August 15, 2011. Total proceeds from the issuance of the 2016 Notes, net of underwriting discounts and offering costs, were $167,325. Between January 30, 2012 and February 2, 2012, we repurchased $5,000 aggregate principal amount of the 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. The 2016 Notes were repaid on maturity of August 15, 2016, after our June 30, 2016 fiscal year end. On April 16, 2012, we issued $130,000 aggregate principal amount of convertible notes that mature on October 15, 2017 (the “2017 Notes”), unless previously converted or repurchased in accordance with their terms. The 2017 Notes bear interest at a rate of 5.375% per year, payable semi-annually on April 15 and October 15 of each year, beginning October 15, 2012. Total proceeds from the issuance of the 2017 Notes, net of underwriting discounts and offering costs, were $126,035. On March 28, 2016, we repurchased $500 aggregate principal amount of the 2017 Notes at a price of 98.25, including commissions. The transaction resulted in our recognizing a $9 gain for the period ended March 31, 2016. On August 14, 2012, we issued $200,000 aggregate principal amount of convertible notes that mature on March 15, 2018 (the “2018 Notes”), unless previously converted or repurchased in accordance with their terms. The 2018 Notes bear interest at a rate of 5.75% per year, payable semi-annually on March 15 and September 15 of each year, beginning March 15, 2013. Total proceeds from the issuance of the 2018 Notes, net of underwriting discounts and offering costs, were $193,600. On December 21, 2012, we issued $200,000 aggregate principal amount of convertible notes that mature on January 15, 2019 (the “2019 Notes”), unless previously converted or repurchased in accordance with their terms. The 2019 Notes bear interest at a rate of 5.875% per year, payable semi-annually on January 15 and July 15 of each year, beginning July 15, 2013. Total proceeds from the issuance of the 2019 Notes, net of underwriting discounts and offering costs, were $193,600. On April 11, 2014, we issued $400,000 aggregate principal amount of convertible notes that mature on April 15, 2020 (the “2020 Notes”), unless previously converted or repurchased in accordance with their terms. The 2020 Notes bear interest at a rate of 4.75% per year, payable semi-annually on April 15 and October 15 each year, beginning October 15, 2014. Total proceeds from the issuance of the 2020 Notes, net of underwriting discounts and offering costs, were $387,500. On January 30, 2015, we repurchased $8,000 aggregate principal amount of the 2020 Notes at a price of 93.0, including commissions. As a result of this transaction, we recorded a gain of $332, in the amount of the difference between the reacquisition price and the net carrying amount of the notes, net of the proportionate amount of unamortized debt issuance costs. Certain key terms related to the convertible features for the 2016 Notes, the 2017 Notes, the 2018 Notes, the 2019 Notes and the 2020 Notes (collectively, the “Convertible Notes”) are listed below. Initial conversion rate(1) Initial conversion price Conversion rate at June 30, 2016(1)(2) Conversion price at June 30 , 2016(2)(3) Last conversion price calculation date Dividend threshold amount (per share)(4) 2016 Notes 2017 Notes 2018 Notes 2019 Notes 2020 Notes 78.3699 85.8442 82.3451 79.7766 12.76 $ 11.65 $ 12.14 $ 12.54 $ 80.2196 87.7516 84.1497 79.8360 12.47 $ 11.40 $ 11.88 $ 12.53 $ 2/18/2016 4/16/2016 8/14/2015 12/21/2015 0.101150 $ 0.101500 $ 0.101600 $ 0.110025 $ 80.6647 12.40 80.6670 12.40 4/11/2016 0.110525 $ $ $ (1) Conversion rates denominated in shares of common stock per $1 principal amount of the Convertible Notes converted. 163 (2) Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date. (3) The conversion price in effect at June 30, 2016 was calculated on the last anniversary of the issuance and will be adjusted again on the next anniversary, unless the exercise price shall have changed by more than 1% before the anniversary. (4) The conversion rate is increased if monthly cash dividends paid to common shares exceed the monthly dividend threshold amount, subject to adjustment. Current dividend rates are below the minimum dividend threshold amount for further conversion rate adjustments for all bonds. 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 Convertible Notes. No holder of 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 Convertible 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 Convertible Notes upon a fundamental change at a price equal to 100% of the principal amount of the Convertible 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 Convertible Notes through and including the maturity date. In connection with the issuance of the Convertible Notes, we incurred $34,629 of fees which are being amortized over the terms of the notes, of which $14,639 remains to be amortized and is included within deferred financing costs on the Consolidated Statement of Assets and Liabilities as of June 30, 2016 . During the years ended June 30, 2016 , 2015 and 2014 , we recorded $68,966 , $74,365 and $58,042 , respectively, of interest costs and amortization of financing costs on the Convertible Notes as interest expense. Note 6. Public Notes On May 1, 2012, we issued $100,000 aggregate principal amount of unsecured notes that were scheduled to mature on November 15, 2022 (the “2022 Notes”). The 2022 Notes bore interest at a rate of 6.95% per year, payable quarterly on February 15, May 15, August 15 and November 15 of each year, beginning August 15, 2012. Total proceeds from the issuance of the 2022 Notes, net of underwriting discounts and offering costs, were $97,000. On May 15, 2015, we redeemed $100,000 aggregate principal amount of the 2022 Notes at par. In connection with this transaction, we recorded a loss in the amount of the difference between the reacquisition price and the net carrying amount of the notes, net of the proportionate amount of unamortized debt issuance costs. The net loss on the extinguishment of the 2022 Notes in the year ended June 30, 2015 was $2,600. On March 15, 2013, we issued $250,000 aggregate principal amount of unsecured notes that mature on March 15, 2023 (the “2023 Notes”). The 2023 Notes bear interest at a rate of 5.875% per year, payable semi-annually on March 15 and September 15 of each year, beginning September 15, 2013. Total proceeds from the issuance of the 2023 Notes, net of underwriting discounts and offering costs, were $245,966. 164 On April 7, 2014, we issued $300,000 aggregate principal amount of unsecured notes that mature on July 15, 2019 (the “5.00% 2019 Notes”). Included in the issuance is $45,000 of Prospect Capital InterNotes® that were exchanged for the 5.00% 2019 Notes. The 5.00% 2019 Notes bear interest at a rate of 5.00% per year, payable semi-annually on January 15 and July 15 of each year, beginning July 15, 2014. Total proceeds from the issuance of the 5.00% 2019 Notes, net of underwriting discounts and offering costs, were $295,998. On December 10, 2015, we issued $160,000 aggregate principal amount of unsecured notes that mature on June 15, 2024 (the “2024 Notes”). The 2024 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning March 15, 2016. Total proceeds from the issuance of the 2024 Notes, net of underwriting discounts and offering costs, were $155,043. On June 16, 2016, we entered into an at-the-market program with FBR Capital Markets & Co. through which we could sell, by means of at-the-market offerings, from time to time, up to $100,000 in aggregate principal amount of our existing 2024 Notes. During the period from June 28, 2016 to June 30, 2016, we issued $1,380 in aggregate principal amount of our 2024 Notes for net proceeds of $1,247 after commissions and offering costs. The 2022 Notes, the 2023 Notes, the 5.00% 2019 Notes, and the 2024 Notes (collectively, the “Public Notes”) are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time outstanding. In connection with the issuance of the 2023 Notes, the 5.00% 2019 Notes, and the 2024 Notes, we incurred $13,109 of fees which are being amortized over the term of the notes, of which $10,289 remains to be amortized and is included within deferred financing costs on the Consolidated Statement of Assets and Liabilities as of June 30, 2016 . During the years ended June 30, 2016, 2015 and 2014 , we recorded $36,859 , $37,063 , and $25,988 , respectively, of interest costs and amortization of financing costs on the Public Notes as interest expense . 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 increased to $1,500,000 in May 2014. Additional agents may be appointed by us from time to time in connection with the InterNotes® Offering and become parties to the Selling Agent Agreement. These notes are direct unsecured obligations and rank equally with all of our unsecured indebtedness from time to time 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, 2016 , we issued $88,435 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $87,141 . These notes were issued with stated interest rates ranging from 4.625% to 6.00% with a weighted average interest rate of 5.18% . These notes mature between July 15, 2020 and December 15, 2025 . The following table summarizes the Prospect Capital InterNotes® issued during the year ended June 30, 2016 . Tenor at Origination (in years) 5 6.5 7 10 Principal Amount Interest Rate Range $ 51,503 4.625%–6.00% 35,155 5.10%–5.25% 990 787 5.625%–6.00% 5.125%–6.00% $ 88,435 Weighted Average Interest Rate 5.12% 5.25% 5.77% 5.33% 165 Maturity Date Range July 15, 2020 – June 15, 2021 January 15, 2022 – May 15, 2022 November 15, 2022 – December 15, 2022 November 15, 2025 – December 15, 2025 During the year ended June 30, 2015 , we issued $125,696 aggregate principal amount of our Prospect Capital InterNotes® for net proceeds of $123,641 . These notes were issued with a stated interest rates ranging from 3.375% to 5.10% with a weighted average interest rate of 4.65% . These notes mature between May 15, 2020 and June 15, 2022 . The following table summarizes the Prospect Capital InterNotes® issued during the year ended June 30, 2015 . Tenor at Origination (in years) Principal Amount Interest Rate Range Weighted Average Interest Rate 5.25 $ 7,126 4.625% 5.5 6 6.5 7 106,364 4.25%–4.75% 2,197 3,912 6,097 3.375% 5.10% 5.10% $ 125,696 4.625% 4.63% 3.375% 5.10% 5.10% 0.051 Maturity Date Range August 15, 2020 – September 15, 2020 May 15, 2020 – November 15, 2020 April 15, 2021 – May 15, 2021 December 15, 2021 May 15, 2022 – June 15, 2022 During the year ended June 30, 2016 , we repaid $7,069 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the difference between the reacquisition price and the net carrying amount of the notes, net of the proportionate amount of unamortized debt issuance costs. The net gain on the extinguishment of Prospect Capital InterNotes® in the year ended June 30, 2016 was $215. The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2016 . Tenor at Origination (in years) 3 3.5 4 5 5.2 5.3 5.4 5.5 6 6.5 7 7.5 10 12 15 18 20 25 30 Principal Amount Interest Rate Range $ 5,710 3,109 4.00% 4.00% 45,690 3.75%–4.00% 259,191 4.25%–5.75% 4,440 2,686 5,000 4.625% 4.625% 4.75% 109,808 4.25%–5.00% 2,197 3.375% 40,867 5.10%–5.50% 192,076 4.00%–6.55% 1,996 5.75% 37,533 3.62%–7.00% 2,978 6.00% 17,325 5.25%–6.00% 22,303 4.125%–6.25% 4,462 5.625%–6.00% 35,110 6.25%–6.50% 116,327 5.50%–6.75% $ 908,808 Weighted Average Interest Rate 4.00% 4.00% 3.92% 4.95% 4.625% 4.625% 4.75% 4.65% 3.375% 5.24% 5.13% 5.75% 6.11% 6.00% 5.36% 5.53% 5.89% 6.39% 6.23% Maturity Date Range October 15, 2016 April 15, 2017 November 15, 2017 – May 15, 2018 July 15, 2018 – June 15, 2021 August 15, 2020 – September 15, 2020 September 15, 2020 August 15, 2019 February 15, 2019 – November 15, 2020 April 15, 2021 – May 15, 2021 February 15, 2020 – May 15, 2022 June 15, 2019 – December 15, 2022 February 15, 2021 March 15, 2022 – December 15, 2025 November 15, 2025 – December 15, 2025 May 15, 2028 – November 15, 2028 December 15, 2030 – August 15, 2031 November 15, 2032 – October 15, 2033 August 15, 2038 – May 15, 2039 November 15, 2042 – October 15, 2043 During the year ended June 30, 2015 , we redeemed $76,931 aggregate principal amount of our Prospect Capital InterNotes® at par with a weighted average interest rate of 6.06% in order to replace debt with higher interest rates with debt with lower rates. During the year ended June 30, 2015, we repaid $6,993 aggregate principal amount of Prospect Capital InterNotes® at par in accordance with the Survivor’s Option, as defined in the InterNotes® Offering prospectus. As a result of these transactions, we recorded a loss in the amount of the difference between the reacquisition price and the net carrying amount of the notes, net of the proportionate amount of unamortized debt issuance costs. The net loss on the extinguishment of Prospect Capital InterNotes® in the year ended June 30, 2015 was $1,682. The following table summarizes the Prospect Capital InterNotes® outstanding as of June 30, 2015 . 166 Tenor at Origination (in years) 3 3.5 4 5 5.25 5.5 6 6.5 7 7.5 10 12 15 18 20 25 30 Principal Amount Interest Rate Range $ 5,710 3,109 4.00% 4.00% 45,690 3.75%–4.00% 207,719 4.25%–5.00% 7,126 4.625% 115,184 4.25%–5.00% 2,197 5,712 3.375% 5.10%–5.50% 191,549 4.00%–5.85% 1,996 5.75% 36,925 3.29%–7.00% 2,978 6.00% 17,385 5.00%–6.00% 22,729 4.125%–6.25% 4,530 5.75%–6.00% 36,320 6.25%–6.50% 120,583 5.50%–6.75% $ 827,442 Weighted Average Interest Rate 4.00% 4.00% 3.92% 4.92% 4.63% 4.65% 3.38% 5.23% 5.13% 5.75% 6.11% 6.00% 5.14% 5.52% 5.89% 6.39% 6.23% Maturity Date Range October 15, 2016 April 15, 2017 November 15, 2017 – May 15, 2018 July 15, 2018 – May 15, 2019 August 15, 2020 – September 15, 2020 February 15, 2019 – November 15, 2020 April 15, 2021 – May 15, 2021 February 15, 2020 – December 15, 2021 September 15, 2019 – June 15, 2022 February 15, 2021 March 15, 2022 – May 15, 2024 November 15, 2025 – December 15, 2025 May 15, 2028 – November 15, 2028 December 15, 2030 – August 15, 2031 November 15, 2032 – October 15, 2033 August 15, 2038 – May 15, 2039 November 15, 2042 – October 15, 2043 In connection with the issuance of Prospect Capital InterNotes ® , we incurred $22,294 of fees which are being amortized over the term of the notes, of which $15,598 remains to be amortized and is included within deferred financing costs on the Consolidated Statement of Assets and Liabilities as of June 30, 2016 . During the years ended June 30, 2016, 2015 and 2014 , we recorded $48,681 , $44,808 , and $33,857 , respectively, of interest costs and amortization of financing costs on the Prospect Capital InterNotes ® as interest expense. Note 8. Fair Value and Maturity of Debt Outstanding The following table shows the maximum draw amounts and outstanding borrowings of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of June 30, 2016 and June 30, 2015 . Revolving Credit Facility Convertible Notes Public Notes Prospect Capital InterNotes ® Total June 30, 2016 June 30, 2015 Maximum Draw Amount Amount Outstanding Maximum Draw Amount Amount Outstanding $ $ 885,000 $ — $ 885,000 $ 1,089,000 1,089,000 709,657 908,808 709,657 908,808 1,239,500 548,094 827,442 368,700 1,239,500 548,094 827,442 3,592,465 $ 2,707,465 $ 3,500,036 $ 2,983,736 The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of June 30, 2016 . Revolving Credit Facility Convertible Notes Public Notes Prospect Capital InterNotes® Total Contractual Obligations Payments Due by Period Total Less than 1 Year 1 – 3 Years 3 – 5 Years After 5 Years $ — — $ — $ — $ 1,089,000 167,500 529,500 709,657 908,808 — 8,819 — 257,198 392,000 300,000 360,599 $ 2,707,465 $ 176,319 $ 786,698 $ 1,052,599 $ — — 409,657 282,192 691,849 167 The following table shows the contractual maturities of our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® as of June 30, 2015 . Revolving Credit Facility Convertible Notes Public Notes Prospect Capital InterNotes ® Total Contractual Obligations Payments Due by Period Total Less than 1 Year 1 – 3 Years 3 – 5 Years After 5 Years $ 368,700 $ — $ — $ 368,700 $ 1,239,500 150,000 497,500 548,094 827,442 — — — 54,509 592,000 300,000 369,938 $ 2,983,736 $ 150,000 $ 552,009 $ 1,630,638 $ — — 248,094 402,995 651,089 As permitted by ASC 825-10-25, we have not elected to value our Revolving Credit Facility, Convertible Notes, Public Notes and Prospect Capital InterNotes® at fair value. The following table shows the fair value of these financial liabilities disaggregated into the three levels of the ASC 820 valuation hierarchy as of June 30, 2016 . Revolving Credit Facility Convertible Notes(1) Public Notes(1) Prospect Capital InterNotes®(2) Total Fair Value Hierarchy Level 1 Level 2 Level 3 Total — $ — $ — $ — — — — 1,080,724 714,047 894,840 — — — 1,080,724 714,047 894,840 — $ 2,689,611 $ — $ 2,689,611 $ $ (1) We use available market quotes to estimate the fair value of the Convertible Notes and Public Notes. (2) The fair value of Prospect Capital InterNotes® is estimated by discounting remaining payments using current Treasury rates. The following table shows the fair value of these financial liabilities disaggregated into the three levels of the ASC 820 valuation hierarchy as of June 30, 2015 . Revolving Credit Facility(1) Convertible Notes(2) Public Notes(2) Prospect Capital InterNotes®(3) Total Fair Value Hierarchy Level 1 Level 2 Level 3 Total — $ 368,700 $ — $ 368,700 — — — 1,244,402 564,052 848,387 — — — 1,244,402 564,052 848,387 — $ 3,025,541 $ — $ 3,025,541 $ $ (1) The carrying value of our Revolving Credit Facility approximates the fair value. (2) We use available market quotes to estimate the fair value of the Convertible Notes and Public Notes. (3) The fair value of Prospect Capital InterNotes® is estimated by discounting remaining payments using current Treasury rates. 168 Note 9. Stock Repurchase Program, Equity Offerings, Offering Expenses, and Distributions On August 24, 2011, our Board of Directors approved a share repurchase plan (the “Repurchase Program”) under which we may repurchase up to $100,000 of our common stock at prices below our net asset value per share. Prior to any repurchase, we are required to notify shareholders of our intention to purchase our common stock. We delivered a notice with our annual proxy mailing on September 23, 2015 and our most recent notice was delivered with a shareholder letter mailing on February 2, 2016. This notice extends for six months after the date that notice is delivered. During the year ended June 30, 2016 , we repurchased 4,708,750 shares of our common stock pursuant to our publicly announced Repurchase Program for $34,140 , or approximately $7.25 weighted average price per share at approximately a 30% discount to net asset value as of June 30, 2015. Our NAV per share was increased by approximately $0.02 for the year ended June 30, 2016 as a result of the share repurchases. Repurchases of Common Stock Year Ended June 30, 2016 Dollar amount repurchased Shares Repurchased Weighted average price per share $ 7.25 Weighted average discount to June 30, 2015 net asset value Approximate dollar value of shares that may yet be purchased under the plan $ 34,140 4,708,750 30% 65,860 There were no repurchases made for the years ended June 30, 2015 and 2014 under our Repurchase Program. Excluding dividend reinvestments, during the year ended June 30, 2016 we did not issue any shares of our common stock. Excluding dividend reinvestments, we issued 14,845,556 shares of our common stock during the year ended June 30, 2015 . The following table summarizes our issuances of common stock during the years ended June 30, 2014 and June 30, 2015. Issuances of Common Stock During the year ended June 30, 2014: July 5, 2013 – August 21, 2013(1) August 2, 2013(2) August 29, 2013 – November 4, 2013(1) November 12, 2013 – February 5, 2014(1) February 10, 2014 – April 9, 2014(1) March 31, 2014(2) April 15, 2014 – May 2, 2014(1) May 5, 2014(2) During the year ended June 30, 2015: September 11, 2014 – November 3, 2014(1) November 17, 2014 – December 3, 2014(1) Number of Shares Issued Gross Proceeds Underwriting Fees Offering Expenses Average Offering Price 9,818,907 $ 107,725 $ 902 $ 169 $ 1,918,342 21,006 24,127,242 272,114 27,301,889 307,045 21,592,715 239,305 2,306,294 5,213,900 1,102,313 24,908 56,995 11,916 — 2,703 3,069 2,233 — 445 — — 414 436 168 — 193 — 9,490,975 $ 95,149 $ 5,354,581 51,678 474 $ 268 175 $ 469 10.97 10.95 11.28 11.25 11.08 10.80 10.93 10.81 10.03 9.65 (1) Shares were issued in connection with our at-the-market offering program which we enter into from time to time with various counterparties. (2) Shares were issued in conjunction with our investments in the following controlled portfolio companies: CP Holdings of Delaware LLC, Harbortouch Holdings of Delaware Inc., and Arctic Oilfield Equipment USA, Inc. Our shareholders’ equity accounts as of June 30, 2016 , June 30, 2015 and June 30, 2014 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, our dividend reinvestment plan and in connection with the acquisition of certain controlled portfolio companies. 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. 169 On November 3, 2015, our Registration Statement on Form N-2 was declared effective by the SEC. Under this Shelf Registration Statement, we can issue up to $4,807,503 of additional debt and equity securities in the public market as of June 30, 2016 . During the year ended June 30, 2016 and June 30, 2015 , we distributed approximately $356,110 and $421,594 , respectively, to our stockholders. The following table summarizes our distributions declared and payable for the year ended June 30, 2015 and June 30, 2016 . Declaration Date Record Date Payment Date Amount Per Share Amount Distributed (in thousands) 2/3/2014 2/3/2014 2/3/2014 5/6/2014 5/6/2014 5/6/2014 9/24/2014 12/8/2014 12/8/2014 12/8/2014 5/6/2015 5/6/2015 5/6/2015 5/6/2015 8/24/2015 8/24/2015 11/4/2015 11/4/2015 11/4/2015 2/9/2016 2/9/2016 2/9/2016 5/9/2016 5/9/2016 7/31/2014 8/29/2014 9/30/2014 10/31/2014 11/28/2014 12/31/2014 1/30/2015 2/27/2015 3/31/2015 4/30/2015 5/29/2015 6/30/2015 8/21/2014 $ 0.110475 $ 9/18/2014 10/22/2014 11/20/2014 12/18/2014 1/22/2015 2/19/2015 3/19/2015 4/23/2015 5/21/2015 6/18/2015 7/23/2015 0.110500 0.110525 0.110550 0.110575 0.110600 0.110625 0.083330 0.083330 0.083330 0.083330 0.083330 37,863 37,885 38,519 38,977 39,583 39,623 39,648 29,878 29,887 29,898 29,910 29,923 Total declared and payable for the year ended June 30, 2015 $ 421,594 7/31/2015 8/31/2015 9/30/2015 10/30/2015 11/30/2015 12/31/2015 1/29/2016 2/29/2016 3/31/2016 4/29/2016 5/31/2016 6/30/2016 8/20/2015 $ 0.083330 $ 9/17/2015 10/22/2015 11/19/2015 12/24/2015 1/21/2016 2/18/2016 3/24/2016 4/21/2016 5/19/2016 6/23/2016 7/21/2016 0.083330 0.083330 0.083330 0.083330 0.083330 0.083330 0.083330 0.083330 0.083330 0.083330 0.083330 29,909 29,605 29,601 29,600 29,611 29,616 29,641 29,663 29,674 29,702 29,730 29,758 Total declared and payable for the year ended June 30, 2016 $ 356,110 Dividends and distributions to common stockholders are recorded on the ex-dividend date. As such, the table above includes distributions with record dates during the years ended June 30, 2016 and June 30, 2015 . It does not include distributions previously declared to stockholders of record on any future dates, as those amounts are not yet determinable. The following dividends were previously declared and will be payable subsequent to June 30, 2016 : • • $0.08333 per share for July 2016 to holders of record on July 29, 2016 with a payment date of August 18, 2016; and $0.08333 per share for August 2016 to holders of record on August 31, 2016 with a payment date of September 22, 2016. During the year ended June 30, 2016 and June 30, 2015 , we issued 2,725,222 and 1,618,566 shares of our common stock, respectively, in connection with the dividend reinvestment plan. On February 9, 2016, we amended our dividend reinvestment plan that already provides for reinvestment of our dividends or distributions on behalf of our stockholders, unless a stockholder elects to receive cash, to add the ability of stockholders to purchase additional shares by making optional cash investments. Under the revised dividend reinvestment and direct stock 170 repurchase plan, stockholders may elect to purchase additional shares through our transfer agent in the open market or in negotiated transactions. During the year ended June 30, 2016 , Prospect officers purchased 16,909,556 shares of our stock, or 4.74% of total outstanding shares as of June 30, 2016 , both through the open market transactions and shares issued in connection with our dividend reinvestment plan. As of June 30, 2016 , we have reserved 89,219,237 shares of our common stock for issuance upon conversion of the Convertible Notes (see Note 5). Note 10. Other Income Other income consists of structuring fees, overriding royalty interests, revenue receipts related to net profit interests, deal deposits, administrative agent fees, and other miscellaneous and sundry cash receipts. The following table shows income from such sources during the years ended June 30, 2016 , 2015, and 2014. Year Ended June 30, 2016 2015 2014 Structuring, advisory and amendment fees (refer to Note 3) $ 26,207 $ 28,562 $ 59,527 Recovery of legal costs from prior periods from legal settlement Royalty and Net Revenue interests Administrative agent fees Total Other Income Note 11. Net Increase in Net Assets per Share — 6,853 794 — 5,219 666 5,825 5,893 468 $ 33,854 $ 34,447 $ 71,713 The following information sets forth the computation of net increase in net assets resulting from operations per share during the years ended June 30, 2016 , 2015, and 2014. Net increase in net assets resulting from operations Weighted average common shares outstanding Net increase in net assets resulting from operations per share Note 12. Income Taxes Year Ended June 30, 2016 2015 2014 103,362 $ 346,339 $ 319,020 356,134,297 353,648,522 300,283,941 0.29 $ 0.98 $ 1.06 $ $ While our fiscal year end for financial reporting purposes is June 30 of each year, our tax year end is August 31 of each year. The information presented in this footnote is based on our tax year end for each period presented, unless otherwise specified. For income tax purposes, dividends paid and distributions made to shareholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. The tax character of dividends paid to shareholders during the tax years ended August 31, 2015, 2014 and 2013 were as follows: Ordinary income Capital gain Return of capital Tax Year Ended August 31, 2015 2014 2013 $ 413,640 $ 413,051 $ 282,621 — — — — — — Total dividends paid to shareholders $ 413,640 $ 413,051 $ 282,621 We generate certain types of income that may be exempt from U.S. withholding tax when distributed to non-U.S shareholders. Under IRC Section 871(K), a RIC is permitted to designate distributions of qualified interest income and short-term capital gains as exempt from U.S. withholding tax when paid to non-U.S. shareholders with proper documentation. For the 2016 calendar year, 43.78% of our distributions as of June 30, 2016 qualified as interest related dividends which are exempt from U.S. withholding tax applicable to non U.S. shareholders. 171 For the tax year ending August 31, 2016, the tax character of dividends paid to shareholders through June 30, 2016 is expected to be ordinary income. Because of the difference between our fiscal and tax year ends, the final determination of the tax character of dividends will not be made until we file our tax return for the tax year ending August 31, 2016. Taxable income generally differs from net increase in net assets resulting from operations for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized gains or losses, as unrealized gains or losses are generally not included in taxable income until they are realized. The following reconciles the net increase in net assets resulting from operations to taxable income for the tax years ended August 31, 2015, 2014 and 2013: Tax Year Ended August 31, 2015 2014 2013 Net increase in net assets resulting from operations $ 360,572 $ 317,671 $ 238,721 Net realized loss on investments Net unrealized (appreciation) depreciation on investments Other temporary book-to-tax differences Permanent differences 164,230 (157,745) 98,289 2,436 28,244 24,638 (9,122) (4,317) 24,632 77,835 (6,994) 5,939 Taxable income before deductions for distributions $ 467,782 $ 357,114 $ 340,133 Capital losses in excess of capital gains earned in a tax year may generally be carried forward and used to offset capital gains, subject to certain limitations. The Regulated Investment Company Modernization Act (the “RIC Modernization Act”) was enacted on December 22, 2010. Under the RIC Modernization Act, capital losses incurred by taxpayers in taxable years beginning after the date of enactment will be allowed to be carried forward indefinitely and are allowed to retain their character as either short-term or long-term losses. As such, the capital loss carryforwards generated by us after the August 31, 2011 tax year will not be subject to expiration. Any losses incurred in post-enactment tax years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As of August 31, 2015, we had capital loss carryforwards of approximately $295,106 available for use in later tax years. Of the amount available as of August 31, 2015, $32,612 and $46,156 will expire on August 31, 2017 and 2018, respectively, and $216,338 is not subject to expiration. The unused balance each year will be carried forward and utilized as gains are realized, subject to limitations. While our ability to utilize losses in the future depends upon a variety of factors that cannot be known in advance, substantially all of the Company's capital loss carryforwards may become permanently unavailable due to limitations by the Code. For the tax year ended August 31, 2015, we had taxable income in excess of the distributions made and we elected to carry forward the excess for distribution to shareholders in the tax year ending August 31, 2016. The cumulative amount carried forward to 2016 is approximately $103,613. As of June 30, 2016 , the cost basis of investments for tax purposes was $6,175,709 resulting in estimated gross unrealized appreciation and depreciation of $192,035 and $470,036, respectively. As of June 30, 2015, the cost basis of investments for tax purposes was $6,599,876 resulting in estimated gross unrealized appreciation and depreciation of $263,892 and $254,210, respectively. Due to the difference between our fiscal year end and tax year end, the cost basis of our investments for tax purposes as of June 30, 2016 and June 30, 2015 was calculated based on the book cost of investments as of June 30, 2016 and June 30, 2015, respectively, with cumulative book-to-tax adjustments for investments through August 31, 2015 and 2014, respectively. In general, we may make certain adjustments to the classification of net assets as a result of permanent book-to-tax differences, which may include merger-related items, differences in the book and tax basis of certain assets and liabilities, and nondeductible federal excise taxes, among other items. During the tax year ended August 31, 2015, we decreased overdistributed net investment income by $2,435, increased accumulated net realized loss on investments by $8,542 and increased capital in excess of par value by $6,107. During the tax year ended August 31, 2014, we increased accumulated overdistributed net investment income by $4,316, decreased accumulated net realized loss on investments by $3,384 and increased capital in excess of par value by $932. Due to the difference between our fiscal and tax year end, the reclassifications for the taxable year ended August 31, 2015 is being recorded in the fiscal year ending June 30, 2016 and the reclassifications for the taxable year ended August 31, 2014 were recorded in the fiscal year ended June 30, 2015. 172 Note 13. Related Party Agreements and Transactions Investment Advisory Agreement We have entered into an investment advisory and management agreement with the Investment Adviser, Prospect Capital Management L.P., (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. The Investment Adviser’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 total assets. 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 gross base management fee incurred to the favor of the Investment Adviser was $128,416 , $134,760 , $108,990 during the years ended June 30, 2016 , 2015, and 2014 , respectively. The Investment Adviser has entered into a servicing agreement with certain institutions who purchased loans with us, where we serve as the agent and collect a servicing fee on behalf of the Investment Adviser. During the years ended June 30, 2016 and 2015 (beginning with the quarter ended June 30, 2015), we received payments of $1,893 and $170 , respectively, from these institutions, on behalf of the Investment Adviser, for providing such services under the servicing agreement. We were given a credit for these payments, which reduced the base management fee payable to $126,523 and $134,590 for the years ended June 30, 2016 and 2015, 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 Adviser an income incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows: • • • No incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate; 100.00% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 125.00% of the quarterly hurdle rate in any calendar quarter (8.75% annualized assuming a 7.00% annualized hurdle rate); and 20.00% of the amount of our pre-incentive fee net investment income, if any, that exceeds 125.00% of the quarterly hurdle rate in any calendar quarter (8.75% annualized assuming a 7.00% annualized hurdle rate). 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. 173 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 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 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. The total income incentive fee incurred was $92,782 , $90,687 and $89,306 during the years ended June 30, 2016, 2015 and 2014, respectively. No capital gains incentive fee was incurred during the years ended June 30, 2016, 2015 and 2014. Administration Agreement We have also entered into an administration agreement (the “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 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, 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 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 (see Managerial Assistance section below). 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. Our payments to Prospect Administration are periodically reviewed by our Board of Directors. The allocation of gross overhead expense from Prospect Administration was $20,090, $21,992 and $22,393 for the years ended June 30, 2016 , 2015 and 2014 , respectively. Prospect Administration received estimated payments of $7,443, $7,014 and $8,020 directly from our portfolio companies and certain funds managed by the Investment Adviser for legal, tax and portfolio level accounting services during the years ended June 30, 2016 , 2015 and 2014, respectively. We were given a credit for these payments as a reduction of the administrative services cost payable by us to Prospect Administration, resulting in net overhead expense of $12,647 , $14,977 and 14,373 during the years ended June 30, 2016, 2015 and 2014, respectively. Had Prospect Administration not received these payments, Prospect Administration’s charges for its administrative services would have increased by these amounts . During the year ended June 30, 2016 , we renegotiated the managerial assistance agreement with First Tower LLC and reversed $1,200 of previously accrued managerial assistance at First Tower Delaware as the fee was paid by First Tower LLC, which decreased our overhead allocation. (See Managerial Assistance section below and Note 14 for further discussion.) 174 Managerial Assistance As a BDC, we are obligated under the 1940 Act to make available to certain of our portfolio companies significant managerial assistance. “Making available significant managerial assistance” refers to any arrangement whereby we provide significant guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company. We are also deemed to be providing managerial assistance to all portfolio companies that we control, either by ourselves or in conjunction with others. The nature and extent of significant managerial assistance provided by us to controlled and non-controlled portfolio companies will vary according to the particular needs of each portfolio company. Examples of such activities include (i) advice on recruiting, hiring, management and termination of employees, officers and directors, succession planning and other human resource matters; (ii) advice on capital raising, capital budgeting, and capital expenditures; (iii) advice on advertising, marketing, and sales; (iv) advice on fulfillment, operations, and execution; (v) advice on managing relationships with unions and other personnel organizations, financing sources, vendors, customers, lessors, lessees, lawyers, accountants, regulators and other important counterparties; (vi) evaluating acquisition and divestiture opportunities, plant expansions and closings, and market expansions; (vii) participating in audit committee, nominating committee, board and management meetings; (viii) consulting with and advising board members and officers of portfolio companies (on overall strategy and other matters); and (ix) providing other organizational, operational, managerial and financial guidance. Prospect Administration, when performing a managerial assistance agreement executed with each portfolio company to which we provide managerial assistance, arranges for the provision of such managerial assistance on our behalf. When doing so, Prospect Administration utilizes personnel of our Investment Adviser. We, on behalf of Prospect Administration, invoice portfolio companies receiving and paying for managerial assistance, and we remit to Prospect Administration its cost of providing such services, including the charges deemed appropriate by our Investment Adviser for providing such managerial assistance. No income is recognized by Prospect. During the years ended June 30, 2016 , 2015, and 2014 , we received payments of $6,102, $5,126 and $6,612, respectively, from our portfolio companies for managerial assistance and subsequently remitted these amounts to Prospect Administration. During the year ended June 30, 2016 , we reversed $1,200 of managerial assistance expense related to our consolidated entity First Tower Delaware which was included within allocation from Prospect Administration on our Consolidated Statement of Operations for the year ended June 30, 2015 . The $1,200 was subsequently paid to Prospect Administration by First Tower LLC, the operating company. See Note 14 for further discussion. Co-Investments On February 10, 2014, we received an exemptive order from the SEC (the “Order”) that gave us the ability to negotiate terms other than price and quantity of co- investment transactions with other funds managed by the Investment Adviser or certain affiliates, including Priority Income Fund, Inc. and Pathway Energy Infrastructure Fund, Inc., subject to the conditions included therein. Under the terms of the relief permitting us to co-invest with other funds managed by our Investment Adviser or its affiliates, a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors must make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies. In certain situations where co-investment with one or more funds managed by the Investment Adviser or its affiliates is not covered by the Order, such as when there is an opportunity to invest in different securities of the same issuer, the personnel of the Investment Adviser or its affiliates will need to decide which fund will proceed with the investment. Such personnel will make these determinations based on policies and procedures, which are designed to reasonably ensure that investment opportunities are allocated fairly and equitably among affiliated funds over time and in a manner that is consistent with applicable laws, rules and regulations. Moreover, except in certain circumstances, when relying on the Order, we will be unable to invest in any issuer in which one or more funds managed by the Investment Adviser or its affiliates has previously invested. We will reimburse CLO investment valuation service fees initially borne by Priority Income Fund, Inc. During the years ended June 30, 2016 and 2015, we recognized expenses that were reimbursed for valuation services of $112,625 and $72,470, respectively. No such expenses were incurred for the year ending June 30, 2014. As of June 30, 2016 , we had co-investments with Priority Income Fund, Inc. in the following CLO funds: Apidos CLO XXII, Babson CLO Ltd. 2014-III, Cent CLO 21 Limited, CIFC Funding 2014-IV Investor, Ltd., Galaxy XVII CLO, Ltd., Halcyon Loan Advisors Funding 2014-2 Ltd., Halcyon Loan Advisors Funding 2015-3 Ltd., HarbourView CLO VII, Ltd., Jefferson Mill CLO Ltd., Mountain View CLO IX Ltd., Octagon Investment Partners XVIII, Ltd., Symphony CLO XIV Ltd., Voya IM CLO 2014-1 Ltd. and Washington Mill CLO Ltd, however HarbourView CLO VII, Ltd. and Octagon Investment Partners XVIII, Ltd. are not considered co-investments pursuant to the Order as they were purchased on the secondary market. 175 Note 14. Transactions with Controlled Companies The descriptions below detail the transactions which Prospect Capital Corporation (“Prospect”) has entered into with each of our controlled companies. Certain of the controlled entities discussed below were consolidated effective July 1, 2014 (see Note 1). As such, transactions with these Consolidated Holding Companies for the years ended June 30, 2015 and June 30, 2016 are presented on a consolidated basis. Airmall Inc. As of June 30, 2014, Prospect owned 100% of the equity of AMU Holdings Inc. (“AMU”), a Consolidated Holding Company. AMU owned 98% of Airmall Inc. (f/k/a Airmall USA Holdings, Inc.) (“Airmall”). Airmall is a developer and manager of airport retail operations. On July 30, 2010, Prospect made a $22,420 investment in AMU, of which $12,500 was a senior subordinated note and $9,920 was used to purchase 100% of the preferred and common equity of AMU. AMU used its combined debt and equity proceeds of $22,420 to purchase 100% of Airmall’s common stock for $18,000, to pay $1,573 of structuring fees from AMU to Prospect (which was recognized by Prospect as structuring fee income), $836 of third party expenses, $11 of legal services provided by attorneys at Prospect Administration, and $2,000 of withholding tax. Prospect then purchased for $30,000 two loans of Airmall payable to unrealized third parties, one for $10,000 and the other $20,000. Prospect and Airmall subsequently refinanced the two loans into a single $30,000 loan from Airmall to Prospect. On October 1, 2013, Prospect made an additional $2,600 investment in the senior subordinated note, of which $575 was utilized by AMU to pay interest due to Prospect and $2,025 was retained by AMU for working capital. On November 25, 2013, Prospect funded an additional $5,000 to the senior subordinated note, which was utilized by AMU to pay a $5,000 dividend to Prospect. On December 4, 2013, Prospect sold 2% of the outstanding principal balance of the senior secured term loan to Airmall and 2% of the outstanding principal balance of the senior subordinated note to AMU for $972. On June 13, 2014, Prospect made a new $19,993 investment as a senior secured loan to Airmall. Airmall then distributed this amount to AMU as a return of capital, which AMU used to pay down the senior subordinated loan in the same amount. The minority interest held by a third party in AMU was exchanged for common stock of Airmall. On July 1, 2014, Prospect began consolidating AMU. As a result, any transactions between AMU and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are denoted below as “N/A”. On August 1, 2014, Prospect sold its investments in Airmall for net proceeds of $51,379 and realized a loss of $3,473 on the sale. In addition, there is $6,000 being held in escrow, of which 98% is due to Prospect, which will be recognized as an additional realized loss if it is not received. Included in the net proceeds were $3,000 of structuring fees from Airmall related to the sale of the operating company which was recognized as other income during the year ended June 30, 2015. On October 22, 2014, Prospect received a tax refund of $665 related to its investment in Airmall and realized a gain of the same amount. On March 21, 2016, Prospect received $1,720 of the escrow proceeds which reduced the cost basis of the escrow receivable held on the balance sheet. In addition to the repayments noted above, the following amounts were paid from Airmall to Prospect and recorded by Prospect as repayment of loan receivable: Year Ended June 30, 2014 Year Ended June 30, 2015 $ 593 49 The following dividends were declared and paid from Airmall to AMU and recognized as dividend income by AMU: Year Ended June 30, 2014 Year Ended June 30, 2015 $ 7,000 N/A The following dividends were declared and paid from AMU to Prospect and recognized as dividend income by Prospect: Year Ended June 30, 2014 Year Ended June 30, 2015 $ 12,000 N/A All dividends were paid from earnings and profits of Airmall and AMU. 176 The following interest payments were accrued and paid from AMU to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 $ 3,159 N/A Included above, the following payment-in-kind interest from AMU was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 $ 295 N/A The following interest payments were accrued and paid from Airmall to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 $ 3,420 576 The following managerial assistance payments were paid from AMU to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 $ 300 N/A The following managerial assistance payments were paid from Airmall to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 $ — 75 The following payments were paid from Airmall to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Airmall (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 $ — 730 American Property REIT Corp. APH Property Holdings, LLC (“APH”) owned 100% of the common equity of American Property REIT Corp. (f/k/a American Property Holdings Corp.) (“APRC”). Effective May 23, 2016, in connection with the merger of APRC and United Property REIT Corp. (“UPRC”) with and into National Property REIT Corp. (f/k/a National Property Holdings Corp.) (“NPRC”), APH and UPH Property Holdings, LLC (“UPH”) merged with and into NPH Property Holdings, LLC (“NPH”). Prospect owns 100% of the equity of NPH, a Consolidated Holding Company, and NPH owns 100% of the common equity of NPRC. APRC was formed to hold for investment, operate, finance, lease, manage, and sell a portfolio of real estate assets and engage in any and all other activities as may be necessary, incidental or convenient to carry out the foregoing. APRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi- family properties. APRC may acquire real estate assets directly or through joint ventures by making a majority equity investment in a property-owning entity (the “JV”). On October 24, 2012, Prospect initially made a $7,808 investment in APH, of which $6,000 was a Senior Term Loan and $1,808 was used to purchase the membership interests of APH. The proceeds were utilized by APH to purchase APRC common equity for $7,806, with $2 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 100% ownership interest in 146 Forest Parkway, LLC for $7,326, pay a $250 non-refundable deposit and $222 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $8 retained by APRC for working capital. 146 Forest Parkway, LLC was purchased for $7,400. The remaining proceeds were used to pay $168 of third party expenses and $5 of legal services provided by attorneys at Prospect Administration, with $3 retained by the JV for working capital. The investment was subsequently contributed to NPRC. 177 On December 28, 2012, Prospect made a $9,594 investment in APH, of which $6,400 was a Senior Term Loan and $3,194 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $9,594. The proceeds were utilized by APRC to purchase a 92.7% ownership interest in 1557 Terrell Mill Road, LLC for $9,548, with $46 retained by APRC for other expenses. The JV was purchased for $23,500 which included debt financing and minority interest of $15,275 and $757, respectively. The remaining proceeds were used to pay $286 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income) and $1,652 of third party expenses, with $142 retained by the JV for working capital. On January 17, 2013, Prospect made a $30,348 investment in APH, of which $27,600 was a Senior Term Loan and $2,748 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $29,348, with $1,000 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 97.7% ownership interest in 5100 Live Oaks Blvd, LLC for $29,348. The JV was purchased for $63,400 which included debt financing and minority interest of $39,600 and $686, respectively. The remaining proceeds were used to pay $880 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $4,265 of third party expenses, $14 of legal services provided by attorneys at Prospect Administration, and $1,030 of prepaid assets, with $45 retained by the JV for working capital. The investment was subsequently contributed to NPRC. On April 30, 2013, Prospect made a $10,383 investment in APH, of which $9,000 was a Senior Term Loan and $1,383 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $10,233, with $150 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 93.2% ownership interest in Lofton Place, LLC for $10,233. The JV was purchased for $26,000 which included debt financing and minority interest of $16,965 and $745, respectively. The remaining proceeds were used to pay $306 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,223 of third party expenses, $5 of legal services provided by attorneys at Prospect Administration, and $364 of prepaid assets, with $45 retained by the JV for working capital. On April 30, 2013, Prospect made a $10,863 investment in APH, of which $9,000 was a Senior Term Loan and $1,863 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $10,708, with $155 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 93.2% ownership interest in Vista Palma Sola, LLC for $10,708. The JV was purchased for $27,000 which included debt financing and minority interest of $17,550 and $785, respectively. The remaining proceeds were used to pay $321 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,272 of third party expenses, $4 of legal services provided by attorneys at Prospect Administration, and $401 of prepaid assets, with $45 retained by the JV for working capital. On May 8, 2013, Prospect made a $6,118 investment in APH, of which $4,000 was a Senior Term Loan and $2,118 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $6,028, with $90 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 93.3% ownership interest in Arlington Park Marietta, LLC for $6,028. Arlington Park Marietta, LLC was purchased for $14,850 which included debt financing and minority interest of $9,650 and $437, respectively. The remaining proceeds were used to pay $181 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $911 of third party expenses, and $128 of prepaid assets, with $45 retained by the JV for working capital. On June 24, 2013, Prospect made a $76,533 investment in APH, of which $63,000 was a Senior Term Loan and $13,533 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $75,233, with $1,300 retained by APH for working capital. The proceeds were utilized by APRC to purchase a 95.0% ownership interest in APH Carroll Resort, LLC for $74,398 and to pay $835 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income). The JV was purchased for $225,000 which included debt financing and minority interest of $157,500 and $3,916, respectively. The remaining proceeds were used to pay $1,436 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $7,687 of third party expenses, $8 of legal services provided by attorneys at Prospect Administration, and $1,683 of prepaid assets. The investment was subsequently contributed to NPRC and renamed NPRC Carroll Resort, LLC. Between October 29, 2013 and December 4, 2013, Prospect made an $11,000 investment in APH, of which $9,350 was a Senior Term Loan and $1,650 was used to purchase additional membership interests of APH. The proceeds were utilized by certain of APH’s wholly-owned subsidiaries to purchase online consumer loans from a third party. The investment was subsequently contributed to NPRC. 178 On November 1, 2013, Prospect made a $9,869 investment in APH, of which $8,200 was a Senior Term Loan and $1,669 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $9,869. The proceeds were utilized by APRC to purchase a 94.0% ownership interest in APH Carroll 41, LLC for $9,548 and to pay $102 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $219 retained by APRC for working capital. The JV was purchased for $30,600 which included debt financing and minority interest of $22,497 and $609, respectively. The remaining proceeds were used to pay $190 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,589 of third party expenses, $5 of legal services provided by attorneys at Prospect Administration, and $270 of prepaid assets. The investment was subsequently contributed to NPRC. On November 15, 2013, Prospect made a $45,900 investment in APH, of which $38,500 was a Senior Term Loan and $7,400 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $45,900. The proceeds were utilized by APRC to purchase a 99.3% ownership interest in APH Gulf Coast Holdings, LLC for $45,024 and to pay $364 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $512 retained by APRC for working capital. The JV was purchased for $115,200 which included debt financing and minority interest of $75,558 and $337, respectively. The remaining proceeds were used to pay $1,013 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $2,590 of third party expenses, $23 of legal services provided by attorneys at Prospect Administration, and $2,023 of prepaid assets, with $70 retained by the JV for working capital. On November 19, 2013, Prospect made a $66,188 investment in APH, of which $55,000 was a Senior Term Loan and $11,188 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $66,188. The proceeds were utilized by APRC to purchase a 90.0% ownership interest in APH McDowell, LLC for $64,392 and to pay $695 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $1,101 retained by APRC for working capital. The JV was purchased for $238,605 which included debt financing and minority interest of $180,226 and $7,155, respectively. The remaining proceeds were used to pay $1,290 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $9,205 of third party expenses, $23 of legal services provided by attorneys at Prospect Administration, and $1,160 of prepaid assets, with $1,490 retained by the JV for working capital. The investment was subsequently contributed to NPRC and renamed NPH McDowell, LLC. On December 12, 2013, Prospect made a $22,507 investment in APH, of which $18,800 was a Senior Term Loan and $3,707 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $22,507. The proceeds were utilized by APRC to purchase a 92.6% ownership interest in South Atlanta Portfolio Holding Company, LLC for $21,874 and to pay $238 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $395 retained by APRC for working capital. The JV was purchased for $87,250 which included debt financing and minority interest of $67,493 and $1,756, respectively. The remaining proceeds were used to pay $437 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $2,920 of third party expenses, and $116 of prepaid assets, with $400 retained by the JV for working capital. The investment was subsequently contributed to UPRC. On December 31, 2013, APRC distributed its majority interests in five JVs holding real estate assets to APH. APH then distributed these JV interests to Prospect in a transaction characterized as a return of capital. Prospect, on the same day, contributed certain of these JV interests to NPH and the remainder to UPH (each wholly-owned subsidiaries of Prospect). Each of NPH and UPH immediately thereafter contributed these JV interests to NPRC and UPRC, respectively. The total investments in the JVs transferred consisted of $98,164 and $20,022 of debt and equity financing, respectively. There was no material gain or loss realized on these transactions. On January 17, 2014, Prospect made a $6,565 investment in APH, of which $5,500 was a Senior Term Loan and $1,065 was used to purchase additional membership interests of APH. The proceeds were utilized by APH to purchase additional APRC common equity for $6,565. The proceeds were utilized by APRC to purchase a 99.3% ownership interest in APH Gulf Coast Holdings, LLC for $6,336 and to pay $54 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $175 retained by APRC for other expenses. The JV was purchased for $15,430 which included debt financing and minority interest of $10,167 and $48, respectively. The remaining proceeds were used to pay $143 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $627 of third party expenses, $4 of legal services provided by attorneys at Prospect Administration, and $312 of prepaid assets, with $35 retained by the JV for working capital. Effective April 1, 2014, Prospect made a new $167,162 senior term loan to APRC. APRC then distributed this amount to APH as a return of capital which was used to pay down the Senior Term Loan from APH by the same amount. On June 4, 2014, Prospect made a $1,719 investment in APH to purchase additional membership interests of APH, which was revised to $1,732 on July 1, 2014. The proceeds were utilized by APH to purchase additional APRC common equity for $1,732. The proceeds were utilized by APRC to acquire the real property located at 975 South Cornwell, Yukon, OK (“Taco Bell, OK”) for $1,719 and pay $13 of third party expenses. 179 On July 1, 2014, Prospect began consolidating APH. As a result, any transactions between APH and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are denoted below as “N/A”. On November 26, 2014, APRC transferred its investment in APH Carroll Resort, LLC to NPRC and the investment was renamed NPRC Carroll Resort, LLC. As a result, Prospect’s investments in APRC related to this property also transferred to NPRC. The investments transferred consisted of $10,237 of equity and $65,586 of debt. There was no gain or loss realized on the transaction. On May 1, 2015, APRC transferred its investment in 5100 Live Oaks Blvd, LLC to NPRC. As a result, Prospect’s investments in APRC related to this property also transferred to NPRC. The investments transferred consisted of $2,748 of equity and $29,990 of debt. There was no gain or loss realized on the transaction. On May 6, 2015, Prospect made a $1,475 investment in APRC, of which $1,381 was a Senior Term Loan and $94 was used to purchase additional common equity of APRC through APH. The proceeds were utilized by APRC to purchase additional ownership interest in its twelve multi-family properties for $1,473 and pay $2 of legal services provided by attorneys at Prospect Administration. The minority interest holder also invested an additional $17 in the JVs. The proceeds were used by the JVs to fund $1,490 of capital expenditures. During the year ended June 30, 2015 Prospect received $8 as a return of capital on the equity investment in APRC. On September 9, 2015, Prospect made a $799 investment in APRC used to purchase additional common equity of APRC through APH. The proceeds were utilized by APRC to purchase additional ownership interest in its twelve multi-family properties for $799. The minority interest holder also invested an additional $12 in the JVs. The proceeds were used by the JVs to fund $811 of capital expenditures. On December 23, 2015, Prospect made a $1,469 investment in APRC used to purchase additional common equity of APRC through APH. The proceeds were utilized by APRC to purchase additional ownership interest in its eleven multi-family properties for $1,468 and pay $1 of legal services provided by attorneys at Prospect Administration. The minority interest holder also invested an additional $20 in the JVs. The proceeds were used by the JVs to fund $1,488 of capital expenditures. On December 31, 2015, APRC made a partial repayment on the Senior Term Loan of $9,000 and declared a dividend of $11,016 that Prospect recorded as dividend income in connection with the sale of the Vista Palma Sola property. On March 3, 2016, APRC used supplemental proceeds to make a partial repayment on the Senior Term Loan of $14,621. On March 28, 2016, APRC used supplemental proceeds to make a partial repayment on the Senior Term Loan of $3,109. On April 9, 2016, APRC used supplemental proceeds to make a partial repayment on the Senior Term Loan of $2,973. Effective May 23, 2016, APRC and UPRC merged with and into NPRC, to consolidate all of our real estate holdings, with NPRC as the surviving entity. APRC and UPRC have been dissolved. No gain or loss was recognized upon the merger. The following dividends were declared and paid from APRC to APH (partially via a wholly-owned subsidiary of APH) and recognized as dividend income by APH: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 8,810 N/A N/A All dividends were paid from earnings and profits of APRC. The following interest payments were accrued and paid from APH to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 13,928 N/A N/A 180 Included above, the following payment-in-kind interest from APH was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 4,084 N/A N/A The following interest payments were accrued and paid from APRC to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 4,860 14,747 7,306 Included above, the following payment-in-kind interest from APRC was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 581 4,529 558 The following interest income recognized had not yet been paid by APRC to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 25 — The following net revenue interest payments were paid from APH to Prospect and recognized by Prospect as other income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 1,418 N/A N/A The following net revenue interest payments were paid from APRC to Prospect and recognized by Prospect as other income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 1,342 899 The following managerial assistance payments were paid from APRC to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 637 590 528 The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration: June 30, 2015 June 30, 2016 $ 148 86 181 The following payments were paid from APRC to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to APRC (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 1,791 301 860 The following amounts were due from APRC to Prospect for reimbursement of expenses paid by Prospect on behalf of APRC and were included by Prospect within other receivables: June 30, 2015 June 30, 2016 $ 124 — Arctic Energy Services, LLC Prospect owns 100% of the equity of Arctic Oilfield Equipment USA, Inc. (“Arctic Equipment”), a Consolidated Holding Company. Arctic Equipment owns 70% of the equity of Arctic Energy Services, LLC (“Arctic Energy”), with Ailport Holdings, LLC (“Ailport”) (100% owned and controlled by Arctic Energy management) owning the remaining 30% of the equity of Arctic Energy. Arctic Energy provides oilfield service personnel, well testing flowback equipment, frac support systems and other services to exploration and development companies in the Rocky Mountains. On May 5, 2014, Prospect initially purchased 100% of the common shares of Arctic Equipment for $9,006. Proceeds were utilized by Arctic Equipment to purchase 70% of Arctic Energy as described in the following paragraph. On May 5, 2014, Prospect made an additional $51,870 investment (including in exchange for 1,102,313 common shares of Prospect at fair value of $11,916) in Arctic Energy in exchange for a $31,640 senior secured loan and a $20,230 subordinated loan. Total proceeds received by Arctic Energy of $60,876 were used to purchase 70% of the equity interests in Arctic Energy from Ailport for $47,516, pay $875 of third-party expenses, $1,713 of structuring fees to Prospect (which was recognized as structuring fee income), $445 of legal services provided by attorneys at Prospect Administration and $10,327 was retained as working capital. On July 1, 2014, Prospect began consolidating Arctic Equipment. On September 30, 2015, we restructured our investment in Arctic Energy. Concurrent with the restructuring, we exchanged our $31,640 senior secured loan and $20,230 subordinated loan for Class D and Class E equity in Arctic Energy. The following interest payments were accrued and paid from Arctic Energy to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 1,050 6,721 1,123 The following interest income recognized had not yet been paid by Arctic Energy to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 18 — The following managerial assistance payments were paid from Arctic Energy to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 15 100 50 182 The following managerial assistance received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration: June 30, 2015 June 30, 2016 $ 25 — The following managerial assistance recognized had not yet been paid by Arctic Energy to Prospect and was included by Prospect within other receivables and due to Prospect Administration: June 30, 2015 June 30, 2016 $ — 50 The following payments were paid from Arctic Energy to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Arctic Energy (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 445 — — The following amounts were due to Arctic Energy from Prospect for reimbursement of expenses paid by Arctic Energy on behalf of Prospect and were included by Prospect within other liabilities: June 30, 2015 June 30, 2016 $ 1 — Borga, Inc. As of June 30, 2014, Prospect owned 100% of the equity of STI Holding, Inc. (“STI”), a Consolidated Holding Company. STI owned 100% of the equity of Borga, Inc. (“Borga”). Borga manufactures pre-engineered metal buildings and components for the agricultural and light industrial markets. On May 6, 2005, Patriot Capital Funding, Inc. (“Patriot”) (previously acquired by Prospect) provided $14,000 in senior secured debt to Borga. The debt was comprised of $1,000 Senior Secured Revolver, $3,500 Senior Secured Term Loan A, $2,500 Senior Secured Term Loan B and $7,000 Senior Secured Term Loan C. On March 31, 2009, Borga made its final amortization payment on the Senior Secured Term Loan A. The other loans remained outstanding. Prospect owned warrants to purchase 33,750 shares of common stock in Metal Buildings Holding Corporation (“Metal Buildings”), the former holding company of Borga. Metal Buildings owned 100% of Borga. On March 8, 2010, Prospect acquired the remaining common stock of Borga. On January 24, 2014, Prospect contributed its holdings in Borga to STI. STI also held $3,371 of proceeds from the sale of a minority equity interest in Smart Tuition Holdings, LLC (“SMART”). Prospect initially acquired membership interests in SMART indirectly as part of the Patriot acquisition on December 2, 2009 recording a zero cost basis for the equity investment. The $3,371 was distributed to Prospect on May 29, 2014, of which $3,246 was paid from earnings and profits of STI and was recognized as dividend income by Prospect. The remaining $125 was recognized as return of capital by Prospect. On July 1, 2014, Prospect began consolidating STI. As a result, any transactions between STI and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below. On August 20, 2014, Prospect sold the assets of Borga, a wholly-owned subsidiary of STI, for net proceeds of $382 and realized a loss of $2,589 on the sale. On December 29, 2014, Borga was dissolved. 183 BXC Company, Inc. As of June 30, 2014, Prospect owned 86.7% of Series A Preferred Stock, 96.8% of Series B Preferred Stock, and 83.1% of fully diluted common stock of BXC Company, Inc. (f/k/a BXC Holding Company) (“BXC”). BXC owned 100% of the common stock of Boxercraft Incorporated (“Boxercraft”). As of July 1, 2012, the cost basis of Prospect’s total debt and equity investment in Boxercraft was $15,123, including capitalized payment-in-kind interest of $1,466. On December 31, 2013, Boxercraft repaid $100 of the senior secured term loan. On April 18, 2014, Prospect made a new $300 senior secured term loan to Boxercraft. During the period from July 1, 2012 through June 30, 2014, Prospect capitalized a total of $804 of paid-in-kind interest and accreted a total of $1,321 of the original purchase discount, increasing the total debt investment to $17,448 as of June 30, 2014. Effective March 28, 2014, Prospect acquired voting control of BXC pursuant to a voting agreement and irrevocable proxy. Effective May 8, 2014, Prospect acquired control of BXC by transferring shares held by the other equity holders of BXC to Prospect pursuant to an assignment agreement entered into with such other equity holders. On July 2, 2014, Prospect made a new $250 senior secured term loan to provide liquidity to Boxercraft. On July 17, 2014, Prospect restructured the investments in BXC and Boxercraft. The existing Senior Secured Term Loan A and a portion of the existing Senior Secured Term Loan B were replaced with a new Senior Secured Term Loan A to Boxercraft. The remainder of the existing Senior Secured Term Loan B and the existing Senior Secured Term Loan C, Senior Secured Term Loan D, and Senior Secured Term Loan E were replaced with a new Senior Secured Term Loan B to Boxercraft. The existing Senior Secured Term Loan to Boxercraft was converted into Series D Preferred Stock in BXC. During the year ended June 30, 2015, Prospect accrued $5 of administrative agent fees from Boxercraft (which were recognized by Prospect as other income). On August 25, 2014, Prospect sold Boxercraft, a wholly-owned subsidiary of BXC, for net proceeds of $750 and realized a net loss of $16,949 on the sale. CCPI Inc. Prospect owns 100% of the equity of CCPI Holdings Inc. (“CCPI Holdings”), a Consolidated Holding Company. CCPI Holdings owns 94.95% of the equity of CCPI Inc. (“CCPI”), with CCPI management owning the remaining 5.05% of the equity. CCPI owns 100% of each of CCPI Europe Ltd. and MEFEC B.V., and 45% of Gulf Temperature Sensors W.L.L. On December 13, 2012, Prospect initially made a $15,921 investment (including 467,928 common shares of Prospect at fair value of $5,021) in CCPI Holdings, $7,500 senior secured note and $8,443 equity interest. The proceeds received by CCPI Holdings were partially utilized to purchase 95.13% of CCPI common stock for $14,878. The remaining proceeds were used to pay $395 of structuring fees from CCPI Holdings to Prospect (which were recognized by Prospect as structuring fee income), $215 for legal services provided by attorneys at Prospect Administration, $137 for third party expenses and $318 was retained by CCPI Holdings for working capital. On December 13, 2012, Prospect made an additional investment of $18,000 in CCPI senior secured debt. The proceeds of the Prospect loan along with $14,878 of equity financing from CCPI Holdings (mentioned above) were used to purchase 95.13% of CCPI equity from the sellers for $31,829, provide $120 of debt financing to CCPI management (to partially fund a purchase by management of CCPI stock), fund $180 of structuring fees from CCPI to Prospect (which were recognized by Prospect as structuring fee income), pay $548 of third-party expenses, reimburse $12 for reimbursement of expenses paid by Prospect on behalf of CCPI (no income was recognized by Prospect) and $189 was retained by CCPI as working capital. During the year ended June 30, 2014, certain members of CCPI management exercised options to purchase common stock, decreasing our ownership to 94.77%. On June 13, 2014, Prospect made a new $8,218 senior secured note to CCPI. CCPI then distributed this amount to CCPI Holdings as a return of capital which was used to pay down the $8,216 senior secured note from CCPI Holdings to Prospect. The remaining $2 was distributed to Prospect as a return of capital of Prospect’s equity investment in CCPI Holdings. On July 1, 2014, Prospect began consolidating CCPI Holdings. As a result, any transactions between CCPI Holdings and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are denoted below as “N/A”. During the year ended June 30, 2015, CCPI repurchased 30 shares of its common stock from a former CCPI executive, decreasing the number of shares outstanding and increasing Prospect’s ownership to 94.95%. 184 In June 2015, CCPI engaged Prospect to provide certain investment banking and financial advisory services in connection with a possible transaction. As compensation for the services provided, Prospect received $525 of advisory fees from CCPI which was recognized as other income during the year ended June 30, 2015. During the three months ended September 30, 2015, CCPI repurchased 86 shares of its common stock from former CCPI executives. Additionally, certain CCPI executives exercised their option rights, purchasing 246 shares of CCPI common stock. These transactions increased the number of common shares outstanding by 160 shares and thus decreased Prospect’s ownership to 93.99%. As of June 30, 2016, after the departure of a former CCPI executive, Prospect’s ownership of CCPI increased to 94.59%. In addition to the repayments noted above, the following amounts were paid from CCPI to Prospect and recorded by Prospect as repayment of loan receivable: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 450 450 4,450 The following cash distributions were declared and paid from CCPI to Prospect and recognized as a return of capital by Prospect: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — — 1,918 The following dividends were declared and paid from CCPI to CCPI Holdings and recognized as dividend income by CCPI Holdings: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 1,266 N/A N/A The following dividends were declared and paid from CCPI Holdings to Prospect and recognized as dividend income by Prospect: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 500 N/A N/A The following dividends were declared and paid from CCPI to Prospect and recognized as dividend income by Prospect: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — — 3,196 All dividends were paid from earnings and profits of CCPI and CCPI Holdings. The following interest payments were accrued and paid from CCPI Holdings to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 1,464 N/A N/A 185 Included above, the following payment-in-kind interest from CCPI Holdings was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 557 N/A N/A The following interest payments were accrued and paid from CCPI to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 1,848 3,332 3,123 Included above, the following payment-in-kind interest from CCPI was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 27 599 475 The following royalty payments were paid from CCPI Holdings to Prospect and recognized by Prospect as other income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 71 N/A N/A The following managerial assistance payments were paid from CCPI to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 240 240 240 The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration: June 30, 2015 June 30, 2016 $ 60 60 The following payments were paid from CCPI to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to CCPI (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 249 — 96 The following amounts were due from CCPI to Prospect for reimbursement of expenses paid by Prospect on behalf of CCPI and were included by Prospect within other receivables: June 30, 2015 June 30, 2016 $ — 2 186 CP Energy Services Inc. Prospect owns 100% of the equity of CP Holdings of Delaware LLC (“CP Holdings”), a Consolidated Holding Company. CP Holdings owns 82.3% of the equity of CP Energy Services Inc. (“CP Energy”), and the remaining 17.7% of the equity is owned by CP Energy management. As of June 30, 2014, CP Energy owned directly or indirectly 100% of each of CP Well Testing Services, LLC (f/k/a CP Well Testing Holding Company LLC) (“CP Well Testing”); CP Well Testing, LLC (“CP Well”); Fluid Management Services, Inc. (f/k/a Fluid Management Holdings, Inc.) (“Fluid Management”); Fluid Management Services LLC (f/k/a Fluid Management Holdings LLC); Wright Transport, Inc. (f/k/a Wright Holdings, Inc.); Wright Foster Disposals, LLC; Foster Testing Co., Inc.; ProHaul Transports, LLC; Artexoma Logistics, LLC; and Wright Trucking, Inc. Effective December 31, 2014, CP Energy underwent a corporate reorganization in order to consolidate certain of its wholly-owned subsidiaries. As of June 30, 2015, CP Energy owned directly or indirectly 100% of each of CP Well; Wright Foster Disposals, LLC; Foster Testing Co., Inc.; ProHaul Transports, LLC; and Wright Trucking, Inc. CP Energy provides oilfield flowback services and fluid hauling and disposal services through its subsidiaries. On October 3, 2012, Prospect initially made a $21,500 senior secured debt investment in CP Well. As part of the transaction, Prospect received $430 of structuring fees from CP Well (which was recognized by Prospect as structuring fee income) and $7 was paid by CP Well to Prospect Administration for legal services provided by attorneys at Prospect Administration. On August 2, 2013, Prospect invested $94,014 (including 1,918,342 unregistered shares of Prospect common stock at a fair value of $21,006) to support the recapitalization of CP Energy where Prospect acquired a controlling interest in CP Energy. On August 2, 2013, Prospect invested $12,741 into CP Holdings to purchase 100% of the common stock in CP Holdings. The proceeds were used by CP Holdings to purchase 82.9% of the common stock in CP Energy for $12,135 and pay $606 of legal services provided by attorneys at Prospect Administration. On August 2, 2013, Prospect made a senior secured debt investment of $58,773 in CP Energy. CP Energy also received $2,505 management co-investment in exchange for 17.1% of CP Energy common stock. Total proceeds received by CP Energy of $73,413 (including the $12,135 of equity financing from CP Holdings mentioned above) were used to purchase 100% of the equity interests in CP Well Testing and Fluid Management for $33,600 and $34,576, respectively. The remaining proceeds were used by CP Energy to pay $1,414 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income) and pay $823 of third-party expenses, with $3,000 retained by CP Energy for working capital. On August 2, 2013, Prospect made an additional senior secured debt investment of $22,500 in CP Well Testing. Total proceeds received by CP Well Testing of $56,100 (including the $33,600 of equity financing from CP Energy mentioned above) were used to purchase 100% of the equity interests in CP Well for $55,650 and pay $450 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income). After the financing, Prospect received repayment of the $18,991 loan previously outstanding from CP Well. On October 11, 2013, Prospect made a $746 follow-on investment in CP Holdings to fund equity into CP Energy and made an additional senior secured loan to CP Energy of $5,100. Management invested an additional $154 of equity in CP Energy, and the percentage ownership of CP Energy did not change. Total proceeds of $6,000 were used to purchase flowback equipment and expand the CP Well operations in West Texas. On December 26, 2013, Prospect made an additional $1,741 follow-on investment in CP Holdings to fund equity into CP Energy and made an additional senior secured loan to CP Energy of $11,900. Management invested an additional $359 of equity in CP Energy, and the percentage ownership of CP Energy did not change. Total proceeds of $14,000 were used to purchase additional equipment. On April 1, 2014, Prospect made new loans to CP Well (with Foster Testing Co., Inc.; ProHaul Transports, LLC; and Wright Trucking, Inc. as co-borrowers), two first lien loans in the amount of $11,035 and $72,238, and a second lien loan in the amount of $15,000. The proceeds of these loans were used to repay CP Energy’s senior secured term loan and CP Well Testing’s senior secured term loan previously outstanding from Prospect. On July 1, 2014, Prospect began consolidating CP Holdings. As a result, any transactions between CP Holdings and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are not presented below. During the year ended June 30, 2015, certain members of CP Energy management exercised options to purchase common stock, decreasing our ownership to 82.3%. On October 30, 2015, we restructured our investment in CP Energy. Concurrent with the restructuring, we exchanged our $86,965 senior secured loan and $15,924 subordinated loan for Series B Redeemable Preferred Stock in CP Energy. 187 The following interest payments were accrued and paid from CP Energy to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 8,083 — — The following interest payments were accrued and paid from CP Well Testing to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 1,657 — — The following interest payments were accrued and paid from CP Well to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 4,118 16,420 (390) Included above, the following payment-in-kind interest from CP Well was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 2,818 (2,819) The following interest income recognized had not yet been paid by CP Well to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 46 — The following managerial assistance payments were paid from CP Energy to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 275 300 300 The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration: June 30, 2015 June 30, 2016 $ 75 75 The following payments were paid from CP Energy to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to CP Energy (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 609 60 — 188 The following amounts were due from CP Energy to Prospect for reimbursement of expenses paid by Prospect on behalf of CP Energy and were included by Prospect within other receivables: June 30, 2015 June 30, 2016 $ 1 — Credit Central Loan Company, LLC Prospect owns 100% of the equity of Credit Central Holdings of Delaware, LLC (“Credit Central Delaware”), a Consolidated Holding Company. Credit Central Delaware owns 74.93% of the equity of Credit Central Loan Company, LLC (f/k/a Credit Central Holdings, LLC) (“Credit Central”), with entities owned by Credit Central management owning the remaining 25.07% of the equity. Credit Central owns 100% of each of Credit Central, LLC; Credit Central South, LLC; Credit Central of Texas, LLC; and Credit Central of Tennessee, LLC. Credit Central is a branch-based provider of installment loans. On December 28, 2012, Prospect initially made a $47,663 investment (including the fair value of 897,906 common shares of Prospect for $9,581 on that date, which were included in the purchase cost paid to acquire Credit Central) in Credit Central Delaware, of which $38,082 was a Senior Secured Revolving Credit Facility and $9,581 to purchase the membership interests of Credit Central Delaware. The proceeds were partially utilized to purchase 74.75% of Credit Central’s membership interests for $43,293. The remaining proceeds were used to pay $1,440 of structuring fees from Credit Central Delaware to Prospect (which was recognized by Prospect as structuring fee income), $638 for third party expenses, $292 for legal services provided by attorneys at Prospect Administration and $2,000 was retained by Credit Central Delaware for working capital. On March 28, 2014, Prospect funded an additional $2,500 ($2,125 to the Senior Secured Revolving Credit Facility and $375 to purchase additional membership interests of Credit Central Delaware) which was utilized by Credit Central Delaware to pay a $2,000 dividend to Prospect and $500 was retained by Credit Central Delaware for working capital. On June 26, 2014, Prospect made a new $36,333 second lien term loan to Credit Central. Credit Central then distributed this amount to Credit Central Delaware as a return of capital which was used to pay down the Senior Secured Revolving Credit Facility from Credit Central Delaware by the same amount. The remaining amount of the Senior Secured Revolving Credit Facility, $3,874, was then converted to additional membership interests in Credit Central Delaware. On July 1, 2014, Prospect began consolidating Credit Central Delaware. As a result, any transactions between Credit Central Delaware and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are denoted below as “N/A”. During the year ended June 30, 2015, Credit Central redeemed 24,629 shares of its membership interest from former Credit Central employees, decreasing the number of shares outstanding and increasing Prospect’s ownership to 74.93%. In addition to the repayments noted above, the following amounts were paid from Credit Central to Prospect and recorded by Prospect as repayment of loan receivable: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 300 323 The following dividends were declared and paid from Credit Central to Credit Central Delaware and recognized as dividend income by Credit Central Delaware: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 10,431 N/A N/A The following dividends were declared and paid from Credit Central Delaware to Prospect and recognized as dividend income by Prospect: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 4,841 N/A N/A During the year ended June 30, 2015, Prospect reclassified $159 of return of capital received from Credit Central Delaware in prior periods as dividend income. 189 All dividends were paid from earnings and profits of Credit Central and Credit Central Delaware. The following interest payments were accrued and paid from Credit Central Delaware to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 7,744 N/A N/A The following interest payments were accrued and paid from Credit Central to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 101 7,375 7,398 Included above, the following payment-in-kind interest from Credit Central was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 300 921 The following interest income recognized had not yet been paid by Credit Central to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 20 21 The following net revenue interest payments were paid from Credit Central Delaware to Prospect and recognized by Prospect as other income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 521 N/A N/A The following net revenue interest payments were paid from Credit Central to Prospect and recognized by Prospect as other income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 1,220 2,067 The following managerial assistance payments were paid from Credit Central to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 700 700 700 The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration: June 30, 2015 June 30, 2016 $ 175 175 190 The following payments were paid from Credit Central to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Credit Central (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 131 — — The following amounts were due to Credit Central from Prospect for reimbursement of expenses paid by Credit Central on behalf of Prospect and were included by Prospect within other liabilities: June 30, 2015 June 30, 2016 $ 27 3 Echelon Aviation LLC Prospect owns 99.02% of the membership interests of Echelon Aviation LLC (“Echelon”). Echelon owns 60.7% of the equity of AerLift Leasing Limited (“AerLift”). On March 31, 2014, Prospect initially made a $92,628 investment in Echelon, of which $78,521 was a Senior Secured Revolving Credit Facility and $14,107 to purchase 100% of the membership interests of Echelon. The proceeds were partially utilized to purchase 60.7% of AerLift’s membership interests for $83,657. The remaining proceeds were used to pay $2,771 of structuring fees from Echelon to Prospect (which was recognized by Prospect as structuring fee income), $540 for third party expenses, $664 for legal and tax services provided by Prospect Administration and $4,996 was retained by Echelon for working capital. During the year ended June 30, 2014, Echelon issued 57,779.44 Class B shares to the company’s President, decreasing Prospect’s ownership to 99.49%. On July 1, 2014, Prospect sold a $400 participation in the Senior Secured Revolving Credit Facility, equal to 0.51% of the outstanding principal amount on that date. On September 15, 2014, Echelon made an optional partial prepayment of $37,313 of the Senior Secured Revolving Credit Facility outstanding. On September 30, 2014, Prospect made an additional $5,800 investment in the membership interests of Echelon. During the year ended June 30, 2015, Echelon issued 54,482.06 Class B shares to the company’s President, decreasing Prospect’s ownership to 99.02%. On March 28, 2016, Echelon made an optional partial prepayment of $2,954 of the Senior Secured Revolving Credit Facility outstanding. During the quarter ended March 31, 2016, Echelon issued 36,059 Class B shares to the company’s President, decreasing Prospect’s ownership to 98.97%. The following dividends were declared and paid from Echelon to Prospect and recognized as dividend income by Prospect: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — — 7,250 All dividends were paid from earnings and profits of Echelon. The following interest payments were accrued and paid from Echelon to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 2,809 6,895 5,700 191 The following interest income recognized had not yet been paid by Echelon to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 2,412 2,335 The following managerial assistance payments were paid from Echelon to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 313 250 The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration: June 30, 2015 June 30, 2016 $ 63 63 The following payments were paid from Echelon to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Echelon (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 664 211 120 The following amounts were due from Echelon to Prospect for reimbursement of expenses paid by Prospect on behalf of Echelon and were included by Prospect within other receivables: June 30, 2015 June 30, 2016 $ 30 — Edmentum Ultimate Holdings, LLC Prospect owns 37.1% of the equity of Edmentum Ultimate Holdings, LLC (“Edmentum Holdings”). Edmentum Holdings owns 100% of the equity of Edmentum, Inc. (“Edmentum”). Edmentum is the largest all subscription based, software as a service provider of online curriculum and assessments to the U.S. education market. Edmentum provides high-value, comprehensive online solutions that support educators to successfully transition learners from one stage to the next. On May 17, 2012, Prospect initially made a $50,000 second lien term loan to Edmentum. On June 9, 2015, Prospect provided additional debt and equity financing to support the recapitalization of Edmentum. As part of the recapitalization, Prospect exchanged 100% of the $50,000 second lien term loan previously outstanding for $26,365 of junior paid in kind (“PIK”) notes and 370,964.14 Class A common units representing 37.1% equity ownership in Edmentum Holdings. In addition, Prospect invested $5,875 in senior PIK notes and committed $7,834 as part of a second lien revolving credit facility, of which $4,896 was funded at closing. On June 9, 2015, our investment in Edmentum was written-down for tax purposes and a loss of $22,116 was therefore realized for the amount that the amortized cost exceeded the fair value, reducing the amortized cost to $37,216. During the year ended June 30, 2016, Prospect funded an additional $6,424 in the second lien revolving credit facility. The following amounts were paid from Edmentum to Prospect and recorded by Prospect as repayment of loan receivable: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 N/A — 4,896 192 The following interest payments were accrued and paid from Edmentum to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 N/A — 3,650 $ Included above, the following payment-in-kind interest from Edmentum was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 N/A — 2,934 The following interest income recognized had not yet been paid by Edmentum to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ — 639 Energy Solutions Holdings Inc. Prospect owns 100% of the equity of Energy Solutions Holdings Inc. (f/k/a Gas Solutions Holdings Inc.) (“Energy Solutions”), a Consolidated Holding Company. Energy Solutions owns 100% of each of Change Clean Energy Company, LLC (f/k/a Change Clean Energy Holdings, LLC) (“Change Clean”); Freedom Marine Solutions, LLC (f/k/a Freedom Marine Services Holdings, LLC) (“Freedom Marine”); and Yatesville Coal Company, LLC (f/k/a Yatesville Coal Holdings, LLC) (“Yatesville”). Change Clean owns 100% of each of Change Clean Energy, LLC and Down East Power Company, LLC, and 50.1% of BioChips LLC. Freedom Marine owns 100% of each of Vessel Company, LLC (f/k/a Vessel Holdings, LLC) (“Vessel”); Vessel Company II, LLC (f/k/a Vessel Holdings II, LLC) (“Vessel II”); and Vessel Company III, LLC (f/k/a Vessel Holdings III, LLC) (“Vessel III”). Yatesville owns 100% of North Fork Collieries, LLC. Energy Solutions owns interests in companies operating in the energy sector. These include companies operating offshore supply vessels, ownership of a non- operating biomass electrical generation plant and several coal mines. Energy Solutions subsidiaries formerly owned interests in gathering and processing business in east Texas. As of July 1, 2011, the cost basis of Prospect’s investment in Energy Solutions, including debt and equity, was $42,003. In December 2011, Prospect completed a reorganization of Gas Solutions Holdings Inc. renaming the company Energy Solutions and transferring ownership of other operating companies owned by Prospect and operating within the energy industry. As part of the reorganization, Prospect transferred its debt and equity interests with cost basis of $2,540 in Change Clean Energy Holdings, Inc. and Change Clean Energy, Inc. to Change Clean; $12,504 in Freedom Marine Holdings, Inc. to Freedom Marine; and $1,449 of Yatesville Coal Holdings, Inc. to Yatesville. Each of these entities is wholly owned (directly or indirectly) by Energy Solutions. On December 28, 2011, Prospect made a follow-on $1,250 equity investment in Energy Solutions and a $3,500 debt investment in Vessel. On January 4, 2012, Energy Solutions sold its gas gathering and processing assets held in Gas Solutions II Ltd. (“Gas Solutions”) for a potential sale price of $199,805, adjusted for the final working capital settlement, including a potential earn-out of $28,000 that may be paid based on the future performance of Gas Solutions. After expenses, including structuring fees of $9,966 paid to Prospect, and $3,152 of third-party expenses, Gas Solutions LP LLC and Gas Solutions GP LLC, subsidiaries of Gas Solutions, received $157,100 and $1,587 in cash, respectively, and subsequently distributed these amounts, $158,687 in total, to Energy Solutions. The sale of Gas Solutions by Energy Solutions resulted in significant earnings and profits, as defined by the Code, at Energy Solutions for calendar year 2012. In accordance with ASC 946, the distributions Prospect received from Energy Solutions during calendar year 2012 were required to be recognized as dividend income, as there were current year earnings and profits sufficient to support such recognition. As a result, we recognized dividends of $53,820 from Energy Solutions during the year ended June 30, 2013. No such dividends were received from Energy Solutions during the year ended June 30, 2014. During the year ended June 30, 2013, Energy Solutions repaid $28,500 of senior and subordinated secured debt due to Prospect. In addition to the repayment of principal, Prospect received $19,543 of make-whole fees for early repayment of the outstanding loan receivables, which was recorded as additional interest income during the year ended June 30, 2013. 193 On November 25, 2013, Prospect restructured its investment in Freedom Marine. The $12,504 subordinated secured loan to Jettco Marine Services, LLC, a subsidiary of Freedom Marine, was replaced with a senior secured note to Vessel II. On December 3, 2013, Prospect made a $16,000 senior secured investment in Vessel III. Overall, the restructuring of Prospect’s investment in Freedom Marine provided approximately $16,000 net new senior secured debt financing to support the acquisition of two new vessels. Prospect received $2,480 of structuring fees from Energy Solutions related to the Freedom Marine restructuring which was recognized as other income. During the year ended June 30, 2014, Energy Solutions repaid the remaining $8,500 of the subordinated secured debt due to Prospect. In addition to the repayment of principal, Prospect received $4,812 of make-whole fees for early repayment of the outstanding loan receivables, which was recorded as additional interest income during the year ended June 30, 2014. On November 28, 2012 and January 1, 2014, Prospect received $475 and $25 of litigation settlement proceeds related to Change Clean and recorded a reduction in its equity investment cost basis for Energy Solutions, respectively. On June 4, 2014, Gas Solutions GP LLC and Gas Solutions LP LLC merged with and into Freedom Marine, with Freedom Marine as the surviving entity. On July 1, 2014, Prospect began consolidating Energy Solutions. As a result, any transactions between Energy Solutions and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are denoted below as “N/A”. Transactions between Prospect and Freedom Marine are separately discussed below under “Freedom Marine Solutions, LLC.” During the three months ended December 31, 2014, Prospect determined that our remaining investments in Change Clean and Yatesville were impaired and recorded a realized loss of $1,449, reducing the amortized cost to zero. During the six months ended December 31, 2015, Prospect dissolved the following entities: Change Clean Energy Company, LLC, Change Clean Energy, LLC, Down East Power Company, LLC and BioChips LLC. The following interest payments, including prepayment penalty fees, were accrued and paid from Energy Solutions to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 5,368 N/A N/A The following managerial assistance payments were paid from Energy Solutions to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 180 N/A N/A First Tower Finance Company LLC Prospect owns 100% of the equity of First Tower Holdings of Delaware LLC (“First Tower Delaware”), a Consolidated Holding Company. First Tower Delaware owns 80.1% of First Tower Finance Company LLC (f/k/a First Tower Holdings LLC) (“First Tower Finance”). First Tower Finance owns 100% of First Tower, LLC (“First Tower”), a multiline specialty finance company. On June 15, 2012, Prospect made a $287,953 investment (including 14,518,207 common shares of Prospect at a fair value of $160,571) in First Tower Delaware, of which $244,760 was a Senior Secured Revolving Credit Facility and $43,193 of membership interest in First Tower Delaware. The proceeds were utilized by First Tower Delaware to purchase 80.1% of the membership interests in First Tower Finance for $282,968. The remaining proceeds at First Tower Delaware were used to pay $4,038 of structuring fees from First Tower Delaware to Prospect (which was recognized by Prospect as structuring fee income), $940 of legal services provided by attorneys at Prospect Administration, and $7 of third party expenses. Prospect received an additional $4,038 of structuring fees from First Tower (which was recognized by Prospect as structuring fee income). Management purchased the additional 19.9% of First Tower Finance common stock for $70,300. The combined proceeds received by First Tower Finance of $353,268 ($282,968 equity financing from First Tower Delaware mentioned above and $70,300 equity financing from management) were used to purchase 100% of the common stock of First Tower for $338,042, pay $11,188 of third-party expenses and $4,038 of structuring fees from First Tower mentioned above (which was recognized by Prospect as structuring fee income). 194 On October 18, 2012, Prospect made an additional $20,000 investment through the Senior Secured Revolving Credit Facility, $12,008 of which was invested by First Tower Delaware in First Tower Finance as equity and $7,992 of which was retained by First Tower Delaware as working capital. On December 30, 2013, Prospect funded an additional $10,000 into First Tower Delaware, $8,500 through the Senior Secured Revolving Credit Facility and $1,500 through the purchase of additional membership interests in First Tower Delaware. $8,000 of the proceeds were utilized by First Tower Delaware to pay structuring fees to Prospect for the renegotiation and expansion of First Tower’s third-party revolver, and $2,000 of the proceeds were retained by First Tower Delaware for working capital. On June 24, 2014, Prospect made a new $251,246 second lien term loan to First Tower. First Tower distributed this amount to First Tower Finance, which distributed this amount to First Tower Delaware as a return of capital. First Tower Delaware used the distribution to partially pay down the Senior Secured Revolving Credit Facility. The remaining $23,712 of the Senior Secured Revolving Credit Facility was then converted to additional membership interests held by Prospect in First Tower Delaware. On July 1, 2014, Prospect began consolidating First Tower Delaware. As a result, any transactions between First Tower Delaware and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are denoted below as “N/A”. During the quarter ended December 31, 2015, Prospect made an additional $8,005 investment split evenly between equity and the second lien term loan to First Tower. The following cash distributions were declared and paid from First Tower Finance to First Tower Delaware and recognized as a return of capital by First Tower Delaware: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 14,912 N/A N/A The following dividends were declared and paid from First Tower Finance to First Tower Delaware and recognized as dividend income by First Tower Delaware: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 36,064 N/A N/A During the year ended June 30, 2015, Prospect reclassified $1,929 of return of capital received from First Tower in prior periods as dividend income. All dividends were paid from earnings and profits of First Tower. The following amounts were paid from First Tower to Prospect and recorded by Prospect as repayment of loan receivable: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — — 679 The following interest payments were accrued and paid from First Tower Delaware to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 53,489 N/A N/A Included above, the following payment-in-kind interest from First Tower Delaware was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 1,698 N/A N/A 195 The following interest payments were accrued and paid from First Tower to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 831 52,900 56,698 Included above, the following payment-in-kind interest from First Tower was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 332 861 The following interest income recognized had not yet been paid by First Tower to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 4,612 156 The following royalty payments were accrued and paid from First Tower Delaware to Prospect and recognized by Prospect as other income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 2,560 N/A N/A The following managerial assistance payments were paid from First Tower Delaware to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 2,400 N/A N/A During the year ended June 30, 2016, the managerial assistance agreement between First Tower Delaware and Prospect Administration was amended and $1,200 of managerial assistance expense was reversed at Prospect. First Tower replaced First Tower Delaware in the managerial assistance agreement with Prospect Administration as of December 14, 2015. The following managerial assistance payments were accrued and paid from First Tower Delaware to Prospect Administration and recognized by Prospect as an expense: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 2,400 — The following managerial assistance recognized has not yet been paid by First Tower Delaware to Prospect Administration and was included by Prospect within due to Prospect Administration. June 30, 2015 June 30, 2016 $ 600 — 196 The following managerial assistance payments were paid from First Tower Finance to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 N/A N/A 1,200 $ The following managerial assistance payments received by Prospect has not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration: June 30, 2015 June 30, 2016 $ — 600 The following payments were paid from First Tower Delaware to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to First Tower Delaware (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 243 N/A N/A The following amounts were due from First Tower to Prospect for reimbursement of expenses paid by Prospect on behalf of First Tower and were included by Prospect within other receivables: June 30, 2015 June 30, 2016 $ 20 2 Freedom Marine Solutions, LLC As discussed above, Prospect owns 100% of the equity of Energy Solutions, a Consolidated Holding Company. Energy Solutions owns 100% of Freedom Marine. Freedom Marine owns 100% of each of Vessel, Vessel II, and Vessel III. As of July 1, 2014, the cost basis of Prospect’s total debt and equity investment in Freedom Marine was $39,811, which consisted of the following: $3,500 senior secured note to Vessel; $12,504 senior secured note to Vessel II; $16,000 senior secured note to Vessel III; and $7,807 of equity. On December 29, 2014, Freedom Marine reached a settlement for and received $5,174, net of third party obligations, related to the contingent earn-out from the sale of Gas Solutions in January 2012 which was retained by Freedom Marine. This is a final settlement and no further payments are expected from the sale. (See “Energy Solutions Holdings Inc.” above for more information related to the sale of Gas Solutions.) On October 30, 2015, we restructured our investment in Freedom Marine. Concurrent with the restructuring, we exchanged our $32,500 senior secured loans for additional membership interest in Freedom Marine. On January 7, 2016 and April 11, 2016, Prospect purchased an additional $400 and $600, respectively, in membership interests in Freedom Marine to support its ongoing operations and liquidity needs. The following interest payments were accrued and paid from Vessel to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 641 639 159 197 The following interest income recognized had not yet been paid by Vessel to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 2 — The following interest payments were accrued and paid from Vessel II to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 1,023 1,713 427 The following interest income recognized had not yet been paid by Vessel II to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 5 — The following interest payments were accrued and paid from Vessel III to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 1,213 2,109 526 The following interest income recognized had not yet been paid by Vessel III to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 6 — The following managerial assistance payments were paid from Freedom Marine to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 300 75 The following managerial assistance recognized had not yet been paid by Freedom Marine to Prospect and was included by Prospect within other receivables and due to Prospect Administration: June 30, 2015 June 30, 2016 $ — 225 The following payments were paid from Freedom Marine to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Freedom Marine (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 38 115 65 The following amounts were due from Freedom Marine to Prospect for reimbursement of expenses paid by Prospect on behalf of Freedom Marine and were included by Prospect within other receivables: June 30, 2015 June 30, 2016 $ 3 — 198 Gulf Coast Machine & Supply Company Prospect owns 100% of the preferred equity of Gulf Coast Machine & Supply Company (“Gulf Coast”). Gulf Coast is a provider of value-added forging solutions to energy and industrial end markets. On October 12, 2012, Prospect initially made a $42,000 first lien term loan to Gulf Coast, of which $840 was used to pay structuring fees from Gulf Coast to Prospect (which was recognized by Prospect as structuring fee income). During the year ended June 30, 2013, Gulf Coast repaid $787 of the first lien term loan. Between July 1, 2013 and November 8, 2013, Gulf Coast repaid $263 of the first lien term loan, leaving a balance of $40,950. On November 8, 2013, Gulf Coast issued $25,950 of convertible preferred stock to Prospect (representing 99.9% of the voting securities of Gulf Coast) in exchange for crediting the same amount to the first lien term loan previously outstanding, leaving a first lien loan balance of $15,000. Prior to this conversion, Prospect was just a lender to Gulf Coast and the investment was not a controlled investment. On November 29, 2013 and December 16, 2013, Prospect provided an additional $1,000 and $1,500, respectively, to fund working capital needs, increasing the first lien loan balance to $17,500. During the year ended June 30, 2015, Prospect made an additional $8,500 investment in the first lien term loan to Gulf Coast to fund capital improvements to key forging equipment and other liquidity needs. During the year ended, 2016, Prospect made an additional $9,500 investment in the first lien term loan to Gulf Coast to fund capital improvements to key forging equipment and other liquidity needs. The following amounts were paid from Gulf Coast to Prospect and recorded by Prospect as repayment of loan receivable: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — — 1,075 The following interest payments were accrued and paid from Gulf Coast to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 1,449 1,370 — The following amounts were due from Gulf Coast to Prospect for reimbursement of expenses paid by Prospect on behalf of Gulf Coast and were included by Prospect within other receivables: June 30, 2015 June 30, 2016 $ 1 — Harbortouch Payments, LLC Prospect owned 100% of the equity of Harbortouch Holdings of Delaware Inc. (“Harbortouch Delaware”), a Consolidated Holding Company. Harbortouch Delaware owned 100% of the Class C voting units of Harbortouch Payments, LLC (“Harbortouch”), which provide for a 53.5% residual profits allocation. Harbortouch management owns 100% of the Class B and D voting units of Harbortouch, which provide for a 46.5% residual profits allocation. Harbortouch owns 100% of Credit Card Processing USA, LLC. Harbortouch is a provider of transaction processing services and point-of sale equipment used by merchants across the United States. On March 31, 2014, Prospect made a $147,898 investment (including 2,306,294 common shares of Prospect at a fair value of $24,908) in Harbortouch Delaware. Of this amount, $123,000 was loaned in exchanged for a subordinated note and $24,898 was an equity contribution. Harbortouch Delaware utilized $137,972 to purchase 100% of the Harbortouch Class A voting preferred units which provided an 11% preferred return and a 53.5% interest in the residual profits. Harbortouch Delaware used the remaining proceeds to pay $4,920 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,761 for legal services provided by attorneys at Prospect Administration and $3,245 was retained by Harbortouch Delaware for working capital. Additionally, on March 31, 2014, Prospect provided Harbortouch a senior secured loan of $130,796. Prospect received a structuring fee of $2,616 from Harbortouch (which was recognized by Prospect as structuring fee income). 199 On April 1, 2014, Prospect made a new $137,226 senior secured term loan to Harbortouch. Harbortouch then distributed this amount to Harbortouch Delaware as a return of capital which was used to pay down the $123,000 senior secured note from Harbortouch Delaware to Prospect. The remaining $14,226 was distributed to Prospect as a return of capital of Prospect’s equity investment in Harbortouch Delaware. On July 1, 2014, Prospect began consolidating Harbortouch Delaware. As a result, any transactions between Harbortouch Delaware and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are denoted as “N/A”. On September 30, 2014, Prospect made a new $26,431 senior secured term loan to Harbortouch to support an acquisition. As part of the transaction, Prospect received $529 of structuring fees (which was recognized by Prospect as structuring fee income) and $50 of amendment fees (which was recognized by Prospect as amendment fee income). On December 19, 2014, Prospect made an additional $1,291 equity investment in Harbortouch Class C voting units. This amount was deferred consideration stipulated in the original agreement. On May 31, 2016, we sold our investment in Harbortouch for total consideration of $328,032, including fees and escrowed amounts. Prior to the sale, $154,382 of Senior Secured Term Loan B loan outstanding was converted to preferred equity. We received a repayment of $146,989 loans receivable to us and $157,639 of proceeds related to the equity investment. We recorded a realized loss of $5,419 related to the sale. We also received a $5,145 prepayment premium for early repayment of the outstanding loans, which was recorded as interest income in the year ended June 30, 2016 and a $12,909 advisory fee for the transaction, which was recorded as other income in the year ended June 30, 2016. In addition, there is $5,350 being held in escrow which will be recognized as additional realized gain if and when it is received. Concurrent with the sale, we made a $27,500 second lien secured investment in Harbortouch. In addition to the repayments noted above, the following amounts were paid from Harbortouch to Prospect and recorded by Prospect as repayment of loan receivable: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 5,371 4,865 The following cash distributions were declared and paid from Harbortouch to Prospect and recognized as a return of capital by Prospect: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 55 50 The following interest payments were accrued and paid from Harbortouch Delaware to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 55 N/A N/A The following interest payments were accrued and paid from Harbortouch to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 6,824 29,834 28,274 200 Included above, the following payment-in-kind interest from Harbortouch was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 7,652 9,503 The following interest income recognized had not yet been paid by Harbortouch to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 2,077 — The following managerial assistance payments were paid from Harbortouch to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 125 500 458 The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration: June 30, 2015 June 30, 2016 $ 125 83 The following payments were paid from Harbortouch to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Harbortouch (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 1,761 46 351 Manx Energy, Inc. As of June 30, 2014, Prospect owned 41% of the equity of Manx Energy, Inc. (“Manx”). Manx was formed on January 19, 2010 for the purpose of rolling up the assets of existing Prospect portfolio companies, Coalbed, LLC (“Coalbed”), Appalachian Energy LLC (f/k/a Appalachian Energy Holdings, LLC) (“AEH”) and Kinley Exploration LLC. The three companies were combined under new common management. On January 19, 2010, Prospect made a $2,800 investment at closing to Manx to provide for working capital. On the same date, Prospect exchanged $2,100 and $4,500 of the loans to AEH and Coalbed, respectively, for Manx preferred equity, and Prospect’s AEH equity interest was converted into Manx common stock. There was no change to fair value at the time of restructuring, and Prospect continued to fully reserve any income accrued for Manx. On October 15, 2010 and May 26, 2011, Prospect increased its loan to Manx in the amount of $500 and $250, respectively, to provide additional working capital. As of June 30, 2011, the cost basis of Prospect’s investment in Manx, including debt and equity, was $19,019. On June 30, 2012, AEH and Coalbed loans held by Manx with a cost basis of $7,991 were removed from Manx and contributed by Prospect to Wolf Energy Holdings Inc., a separate holding company wholly owned by Prospect. During the three months ended June 30, 2013, Prospect determined that our investment in Manx was impaired and recorded a realized loss of $9,397 for the amount that the amortized cost exceeded the fair value, reducing the amortized cost to $500. During the year ended June 30, 2014, Manx repaid $450 of the senior secured note. During the three months ended December 31, 2014, Manx was dissolved and Prospect recorded a realized loss of $50, reducing the amortized cost to zero. 201 MITY, Inc. Prospect owns 100% of the equity of MITY Holdings of Delaware Inc. (“MITY Delaware”), a Consolidated Holding Company. MITY Delaware holds 94.99% of the equity of MITY, Inc. (f/k/a MITY Enterprises, Inc.) (“MITY”), with management of MITY owning the remaining 5.01% of the equity of MITY. MITY owns 100% of each of MITY-Lite, Inc. (“MITY-Lite”); Broda USA, Inc. (f/k/a Broda Enterprises USA, Inc.) (“Broda USA”); and Broda Enterprises ULC (“Broda Canada”). MITY is a designer, manufacturer and seller of multipurpose room furniture and specialty healthcare seating products. On September 19, 2013, Prospect made a $29,735 investment in MITY Delaware, of which $22,792 was a senior secured debt to MITY Delaware and $6,943 was a capital contribution to the equity of MITY Delaware. The proceeds were partially utilized to purchase 97.7% of MITY common stock for $21,027. The remaining proceeds were used to issue a $7,200 note from Broda Canada to MITY Delaware, pay $684 of structuring fees from MITY Delaware to Prospect (which was recognized by Prospect as structuring fee income), $311 for legal services provided by attorneys employed by Prospect Administration and $513 was retained by MITY Delaware for working capital. On September 19, 2013, Prospect made an additional $18,250 senior secured debt investment in MITY. The proceeds were used to repay existing third-party indebtedness, pay $365 of structuring fees from MITY to Prospect (which was recognized by Prospect as structuring fee income), pay $1,143 of third party expenses and $2,580 was retained by MITY for working capital. Members of management of MITY purchased additional shares of common stock of MITY, reducing MITY Delaware’s ownership to 94.99%. MITY, MITY-Lite and Broda USA are joint borrowers on the senior secured debt of MITY. On June 23, 2014, Prospect made a new $15,769 debt investment in MITY and MITY distributed proceeds to MITY Delaware as a return of capital. MITY Delaware used this distribution to pay down the senior secured debt of MITY Delaware to Prospect by the same amount. The remaining amount of the senior secured debt due from MITY Delaware to Prospect, $7,200, was then contributed to the capital of MITY Delaware. On June 23, 2014, Prospect also extended a new $7,500 senior secured revolving facility to MITY, which was unfunded at closing. On July 1, 2014, Prospect began consolidating MITY Delaware. As a result, any transactions between MITY Delaware and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are denoted below as “N/A”. During the year ended June 30, 2015, Prospect funded $2,500 of MITY’s senior secured revolving facility, which MITY fully repaid during that time. During the quarter ended March 31, 2016, Prospect’s ownership in MITY increased to 95.83% resulting from a stock repurchase of a key executive’s shares. The following cash distributions were declared and paid from MITY to MITY Delaware and recognized as return of capital by MITY Delaware: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 884 N/A N/A The following dividends were declared and paid from MITY to MITY Delaware and recognized as dividend income by MITY Delaware: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 861 N/A N/A The following dividends were declared and paid from MITY to Prospect and recognized as dividend income by Prospect: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — — 711 All dividends were paid from earnings and profits of MITY. 202 The following interest payments were accrued and paid from MITY Delaware to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 3,177 N/A N/A Included above, the following payment-in-kind interest from MITY Delaware was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 177 N/A N/A The following interest payments were accrued and paid from MITY to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 1,516 5,146 5,196 Included above, the following payment-in-kind interest from MITY was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 532 139 The following interest income recognized had not yet been paid by MITY to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 14 440 The following interest payments were accrued and paid from Broda Canada to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 637 566 The following interest income recognized had not yet been paid by Broda Canada to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ — 48 During the year ended June 30, 2015, there was an unfavorable fluctuation in the foreign currency exchange rate and MITY Delaware recognized $5 of realized loss related to its investment in Broda Canada. During the year ended June 30, 2016, there was a favorable fluctuation in the foreign currency exchange rate and MITY Delaware recognized $13 of realized gain related to its investment in Broda Canada. The following managerial assistance payments were paid from MITY to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 225 310 300 203 The following managerial assistance recognized had not yet been paid by MITY to Prospect and was included by Prospect within other receivables and due to Prospect Administration: June 30, 2015 June 30, 2016 $ — 75 The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration: June 30, 2015 June 30, 2016 $ 75 — The following payments were paid from MITY to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to MITY (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 495 121 60 The following amounts were due to MITY from Prospect for reimbursement of expenses paid by MITY on behalf of Prospect and were included within other liabilities: June 30, 2015 June 30, 2016 $ 1 — National Property REIT Corp. Prospect owns 100% of the equity of NPH Property Holdings, LLC (“NPH”), a Consolidated Holding Company. NPH owns 100% of the common equity of National Property REIT Corp. (f/k/a National Property Holdings Corp.) (“NPRC”). Effective May 23, 2016, in connection with the merger of APRC and United Property REIT Corp. UPRC with and into NPRC, APH and UPH merged with and into NPH. NPRC is a Maryland corporation and a qualified REIT for federal income tax purposes. In order to qualify as a REIT, NPRC issued 125 shares of Series A Cumulative Non-Voting Preferred Stock to 125 accredited investors. The preferred stockholders are entitled to receive cumulative dividends semi-annually at an annual rate of 12.5% and do not have the ability to participate in the management or operation of NPRC. NPRC was formed to hold for investment, operate, finance, lease, manage, and sell a portfolio of real estate assets and engage in any and all other activities as may be necessary, incidental or convenient to carry out the foregoing. NPRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi- family properties. NPRC may acquire real estate assets directly or through joint ventures by making a majority equity investment in a property-owning entity (the “JV”). Additionally, through its wholly-owned subsidiaries, NPRC invests in online consumer loans. On December 31, 2013, APRC distributed its majority interests in five JVs holding real estate assets to APH. APH then distributed these JV interests to Prospect in a transaction characterized as a return of capital. Prospect, on the same day, contributed certain of these JV interests to NPH and the remainder to UPH (each wholly-owned subsidiaries of Prospect). Each of NPH and UPH immediately thereafter contributed these JV interests to NPRC and UPRC, respectively. The total investments in the JVs transferred to NPH and from NPH to NPRC consisted of $79,309 and $16,315 of debt and equity financing, respectively. There was no material gain or loss realized on these transactions. On December 31, 2013, Prospect made a $10,620 investment in NPH, of which $8,800 was a Senior Term Loan and $1,820 was used to purchase additional membership interests of NPH. The proceeds were utilized by NPH to purchase additional NPRC common equity for $10,620. The proceeds were utilized by NPRC to purchase a 93.0% ownership interest in APH Carroll Bartram Park, LLC for $10,288 and to pay $113 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $219 retained by NPRC for working capital. The JV was purchased for $38,000 which included debt financing and minority interest of $28,500 and $774, respectively. The remaining proceeds were used to pay $206 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,038 of third party expenses, $5 of legal services provided by attorneys at Prospect Administration, and $304 of prepaid assets, with $9 retained by the JV for working capital. 204 Between January 7, 2014 and March 13, 2014, Prospect made a $14,000 investment in NPH, of which $11,900 was a Senior Term Loan and $2,100 was used to purchase additional membership interests of NPH. The proceeds were utilized by certain of NPRC’s wholly-owned subsidiaries to purchase online consumer loans from a third party. On January 31, 2014, Prospect made a $4,805 investment in NPH, of which $4,000 was a Senior Term Loan and $805 used to purchase additional membership interests of NPH. The proceeds were utilized by NPH to purchase additional NPRC common equity for $4,805. The proceeds were utilized by NPRC to purchase a 93.0% ownership interest in APH Carroll Atlantic Beach, LLC for $4,603 and to pay $52 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $150 retained by NPRC for working capital. The JV was purchased for $13,025 which included debt financing and minority interest of $9,118 and $346, respectively. The remaining proceeds were used to pay $92 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $681 of third party expenses, $7 of legal services provided by attorneys at Prospect Administration, and $182 of prepaid assets, with $80 retained by the JV for working capital. Effective April 1, 2014, Prospect made a new $104,460 senior term loan to NPRC. NPRC then distributed this amount to NPH as a return of capital which was used to pay down the Senior Term Loan from NPH by the same amount. Between April 3, 2014 and May 21, 2014, Prospect made an $11,000 investment in NPH and NPRC, of which $9,350 was a Senior Term Loan to NPRC and $1,650 was used to purchase additional membership interests of NPH. The proceeds were utilized by NPH to purchase additional NPRC common equity for $1,650. The proceeds were utilized by certain of NPRC’s wholly-owned subsidiaries to purchase online consumer loans from a third party. On July 1, 2014, Prospect began consolidating NPH. As a result, any transactions between NPH and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are denoted below as “N/A”. On October 23, 2014, UPRC transferred its investment in Michigan Storage, LLC to NPRC. As a result, Prospect’s investments in UPRC related to these properties also transferred to NPRC. The investments transferred consisted of $1,281 of equity and $9,444 of debt. There was no gain or loss realized on the transaction. On November 26, 2014, APRC transferred its investment in APH Carroll Resort, LLC to NPRC and the investment was renamed NPRC Carroll Resort, LLC. As a result, Prospect’s investments in APRC related to this property also transferred to NPRC. The investments transferred consisted of $10,237 of equity and $65,586 of debt. There was no gain or loss realized on the transaction. On January 16, 2015, Prospect made a $13,871 investment in NPRC, of which $11,810 was a Senior Term Loan directly to NPRC and $2,061 was used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in Michigan Storage, LLC (which was originally purchased by UPRC and transferred to NPRC, as discussed below) for $13,854, with $17 retained by NPRC for working capital. The minority interest holder also invested an additional $2,445 in the JV. With additional debt financing of $12,602, the total proceeds were used by the JV to purchase five additional properties for $26,405. The remaining proceeds were used to pay $276 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,762 of third party expenses, $65 in pre-funded capital expenditures, and $393 of prepaid assets. On March 17, 2015, Prospect entered into a new credit agreement with ACL Loan Holdings, Inc. (“ACLLH”), a wholly-owned subsidiary of NPRC, to form two new tranches of senior secured term loans, Term Loan A and Term Loan B, with the same terms as the existing NPRC Term Loan A and Term Loan B due to Prospect. The agreement was effective as of June 30, 2014. On June 30, 2014, ACLLH made a non-cash return of capital distribution of $22,390 to NPRC and NPRC transferred and assigned to ACLLH a senior secured Term Loan A due to Prospect. On May 1, 2015, APRC transferred its investment in 5100 Live Oaks Blvd, LLC to NPRC. As a result, Prospect’s investments in APRC related to this property also transferred to NPRC. The investments transferred consisted of $2,748 of equity and $29,990 of debt. There was no gain or loss realized on the transaction. On May 6, 2015, Prospect made a $252 investment in NPRC, of which $236 was a Senior Term Loan and $16 was used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in 5100 Live Oaks Blvd, LLC for $252. The minority interest holder also invested an additional $6 in the JV. The proceeds were used by the JV to fund $258 of capital expenditures. On June 2, 2015, Prospect amended the credit agreement with NPRC to form two new tranches of senior secured term loans, Term Loan C and Term Loan D, with the same terms as the existing ACLLH Term Loan A and Term Loan B due to Prospect. The amendment was effective as of April 1, 2015. 205 During the year ended June 30, 2015, Prospect made thirty-six follow-on investments in NPRC totaling $224,200 to support the online consumer lending initiative. Prospect invested $52,350 of equity through NPH and $171,850 of debt directly to NPRC and its wholly-owned subsidiaries. In addition, during the year ended June 30, 2015, Prospect received partial repayments of $32,883 of the loans previously outstanding and $5,577 as a return of capital on the equity investment in NPRC. On September 9, 2015, Prospect made a $159 investment in NPRC used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in its multi-family property for $159. The minority interest holder also invested an additional $4 in the JVs. The proceeds were used by the JVs to fund $163 of capital expenditures. On November 5, 2015 Prospect made a $9,017 investment in NPRC used to purchase additional common equity in NPRC through NPH. The proceeds were utilized by NPRC to purchase an 80.0% ownership interest in SSIL I, LLC for $9,017. The JV was purchased for $34,500 which included debt financing and minority interest of $26,450 and $2,254, respectively. The remaining proceeds were used to pay $180 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $1,243 of escrows and reserves, $1,243 of third party expenses, $42 of legal services provided by attorneys at Prospect Administration, and $513 of capital expenditures. On November 12, 2015, NPRC used supplemental debt proceeds obtained by their JVs to make a partial repayment on the Senior Term Loan of 22,098. On November 19, 2015, Prospect made a $695 investment in NPRC used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in its multi-family properties for $690 and pay $5 of legal services provided by attorneys at Prospect Administration. The minority interest holder also invested an additional $76 in the JVs. The proceeds were used by the JVs to fund $766 of capital expenditures. On November 25, 2015, Prospect made a $323 investment in NPRC used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in its multi-family properties for $321 and pay $2 of legal services provided by attorneys at Prospect Administration. The minority interest holder also invested an additional $19 in the JVs. The proceeds were used by the JVs to fund $340 of capital expenditures. On December 23, 2015, Prospect made a $499 investment in NPRC used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in its multi-family property for $499. The minority interest holder also invested an additional $12 in the JVs. The proceeds were used by the JVs to fund $511 of capital expenditures. On December 30, 2015, NPRC used supplemental debt proceeds obtained by its’ JVs to make a partial repayment on the Senior Term Loan of 9,821. On January 20, 2016, NPRC used supplemental proceeds to make a partial repayment on the Senior Term Loan of 6,774. On February 10, 2016, Prospect made a $354 investment in NPRC used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest Carroll Management Group, LLC for $352. The minority interest holder also invested an additional $22 in the JVs. The proceeds were used by the JVs to fund $376 of capital expenditures. On February 24, 2016, NPRC used supplemental proceeds to make a partial repayment on the Senior Term Loan of 24,579. On April 19, 2016, Prospect made a $1,404 investment in NPRC used to purchase additional common equity of NPRC through NPH. The proceeds were utilized by NPRC to purchase additional ownership interest in NPH McDowell, LLC for $1,402 and pay $2 of legal services provided by attorneys at Prospect Administration. The minority interest holder also invested an additional $155 in the JVs. The proceeds were used by the JVs to fund $1,557 of capital expenditures . During the year ended June 30, 2016 , we provided $202,466 and $41,118 of debt and equity financing, respectively, to NPRC to enable certain of its wholly- owned subsidiaries to invest in online consumer loans. In addition, during the year ended June 30, 2016 , we received partial repayments of $52,260 of our loans previously outstanding with NPRC and its wholly-owned subsidiaries and $12,396 as a return of capital on our equity investment in NPRC. Effective May 23, 2016, APRC and UPRC merged with and into NPRC, to consolidate all of our real estate holdings, with NPRC as the surviving entity. APRC and UPRC have been dissolved. No gain or loss was recognized upon the merger. 206 The following dividends were declared and paid from NPRC to NPH (partially via a wholly-owned subsidiary of NPH) and recognized as dividend income by NPH: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 2,696 N/A N/A All dividends were paid from earnings and profits of NPRC. The following interest payments were accrued and paid by NPH to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 2,838 N/A N/A Included above, the following payment-in-kind interest from NPH was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 432 N/A N/A The following interest payments were accrued and paid by NPRC to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 3,135 23,869 40,147 Included above, the following payment-in-kind interest from NPRC was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 18 3,056 703 The following interest income recognized had not yet been paid by NPRC to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 116 174 The following interest payments were accrued and paid by ACLLH to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 6,742 22,543 Included above, the following payment-in-kind interest from ACLLH was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 816 — 207 The following interest income recognized had not yet been paid by ACLLH to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 23 44 The following net revenue interest payments were paid from NPH to Prospect and recognized by Prospect as other income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 567 N/A N/A The following net revenue interest payments were paid from NPRC to Prospect and recognized by Prospect as other income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ The following structuring fees were paid from NPRC to Prospect and recognized by Prospect as other income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ The following structuring fees were paid from ACLLH to Prospect and recognized by Prospect as other income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 1,683 2,712 — — 180 — — 2,483 The following managerial assistance payments were paid from NPRC to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 255 510 593 The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration: June 30, 2015 June 30, 2016 $ 128 210 The following payments were paid from NPRC to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to NPRC (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 207 1,164 2,363 The following amounts were due from NPRC to Prospect for reimbursement of expenses paid by Prospect on behalf of NPRC and included by Prospect within other receivables: June 30, 2015 June 30, 2016 $ 108 — 208 Nationwide Acceptance LLC Prospect owns 100% of the membership interests of Nationwide Acceptance Holdings LLC (“Nationwide Holdings”), a Consolidated Holding Company. Nationwide Holdings owns 93.79% of the equity of Nationwide Loan Company LLC (f/k/a Nationwide Acceptance LLC) (“Nationwide”), with members of Nationwide management owning the remaining 6.21% of the equity. On January 31, 2013, Prospect initially made a $25,151 investment in Nationwide Holdings, of which $21,308 was a Senior Secured Revolving Credit Facility and $3,843 was in the form of membership interests in Nationwide Holdings. $21,885 of the proceeds were utilized to purchase 93.79% of the membership interests in Nationwide. Proceeds were also used to pay $753 of structuring fees from Nationwide Holdings to Prospect (which was recognized by Prospect as structuring fee income), $350 of third party expenses and $163 of legal services provided by attorneys at Prospect Administration. The remaining $2,000 was retained by Nationwide Holdings as working capital. In December 2013, Prospect received $1,500 of structuring fees from Nationwide Holdings related to the amendment of the loan agreement. On March 28, 2014, Prospect funded an additional $4,000 to Nationwide Holdings ($3,400 through the Senior Secured Revolving Credit Facility and $600 to purchase additional membership interests in Nationwide Holdings). The additional funding along with cash on hand was utilized by Nationwide Holdings to fund a $5,000 dividend to Prospect. On June 18, 2014, Prospect made a new $14,820 second lien term loan to Nationwide. Nationwide distributed this amount to Nationwide Holdings as a return of capital. Nationwide Holdings used the distribution to pay down the Senior Secured Revolving Credit Facility. The remaining $9,888 of the Senior Secured Revolving Credit Facility was then converted to additional membership interests in Nationwide Holdings. On July 1, 2014, Prospect began consolidating Nationwide Holdings. As a result, any transactions between Nationwide Holdings and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are denoted below as “N/A”. On June 1, 2015, Nationwide completed a corporate reorganization. As part of the reorganization, Nationwide Acceptance LLC was renamed Nationwide Loan Company LLC (continues as “Nationwide”) and formed two new wholly-owned subsidiaries: Pelican Loan Company LLC (“Pelican”) and Nationwide Consumer Loans LLC. Nationwide assigned 100% of the equity interests in its other subsidiaries to Pelican which, in turn, assigned these interests to Nationwide Acceptance LLC (“New Nationwide”), the new operating company wholly-owned by Pelican. New Nationwide also assumed the existing senior subordinated term loan due to Prospect. During the year ended June 30, 2015, Prospect made additional equity investments totaling $2,814 in Nationwide. Nationwide management invested an additional $186 of equity in Nationwide, and Prospect’s ownership in Nationwide did not change. During the quarter ended December 31, 2015, Prospect made additional investments totaling $1,876 in the senior subordinated term loan to Nationwide. On March 31, 2016, Prospect made an additional equity investment totaling $1,407, and Prospect’s ownership in Nationwide did not change. The following dividends were declared and paid from Nationwide to Nationwide Holdings and recognized as dividend income by Nationwide Holdings: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 7,074 N/A N/A The following dividends were declared and paid from Nationwide Holdings to Prospect and recognized as dividend income by Prospect: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 5,000 N/A N/A 209 The following dividends were declared and paid from Nationwide to Prospect and recognized as dividend income by Prospect: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 4,425 3,963 All dividends were paid from earnings and profits of Nationwide and Nationwide Holdings. The following amounts were paid from Nationwide to Prospect and recorded by Prospect as repayment of loan receivable: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — — 300 The following interest payments were accrued and paid from Nationwide Holdings to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 4,322 N/A N/A The following interest payments were accrued and paid from Nationwide to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 107 3,005 3,212 Included above, the following payment-in-kind interest from Nationwide was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — — 300 The following interest income recognized had not yet been paid by Nationwide to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 8 9 The following royalty payments were paid from Nationwide Holdings to Prospect and recognized by Prospect as other income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 354 N/A N/A The following managerial assistance payments were paid from Nationwide to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 400 400 400 210 The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration: June 30, 2015 June 30, 2016 $ 100 100 The following payments were paid from Nationwide to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Nationwide (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative service costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 234 4 — The following amounts were due to Nationwide from Prospect for reimbursement of expenses paid by Nationwide on behalf of Prospect and were included by Prospect within other liabilities: June 30, 2015 June 30, 2016 $ 12 4 NMMB, Inc. Prospect owns 100% of the equity of NMMB Holdings, Inc. (“NMMB Holdings”), a Consolidated Holding Company. NMMB Holdings owns 96.33% of the fully- diluted equity of NMMB, Inc. (f/k/a NMMB Acquisition, Inc.) (“NMMB”), with NMMB management owning the remaining 3.67% of the equity. NMMB owns 100% of Refuel Agency, Inc. (“Refuel Agency”). Refuel Agency owns 100% of Armed Forces Communications, Inc. (“Armed Forces”). NMMB is an advertising media buying business. On May 6, 2011, Prospect initially made a $34,450 investment (of which $31,750 was funded at closing) in NMMB Holdings and NMMB, of which $24,250 was a senior secured term loan to NMMB, $3,000 was a senior secured revolver to NMMB (of which $300 was funded at closing), $2,800 was a senior subordinated term loan to NMMB Holdings and $4,400 to purchase 100% of the Series A Preferred Stock of NMMB Holdings. The proceeds received by NMMB were used to purchase 100% of the equity of Refuel Agency and assets related to the business for $30,069, pay $1,035 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), pay $396 for third party expenses and $250 was retained by NMMB for working capital. On May 31, 2011, NMMB repaid the $300 senior secured revolver. During the year ended June 30, 2012, NMMB repaid $2,550 of the senior secured term loan. During the year ended June 30, 2013, NMMB repaid $5,700 of the senior secured term loan due. On December 13, 2013, Prospect invested $8,086 for preferred equity to recapitalize NMMB Holdings. The proceeds were used by NMMB Holdings to repay in full the $2,800 outstanding under the subordinated term loan and the remaining $5,286 of proceeds from Prospect were used by NMMB Holdings to purchase preferred equity in NMMB. NMMB used the proceeds from the preferred equity issuance to pay down the senior term loan. On June 12, 2014, Prospect made a new $7,000 senior secured term loan to Armed Forces. Armed Forces distributed this amount to Refuel Agency as a return of capital. Refuel Agency distributed this amount to NMMB as a return of capital, which was used to pay down $7,000 of NMMB’s $10,714 senior secured term loan to Prospect. On July 1, 2014, Prospect began consolidating NMMB Holdings. As a result, any transactions between NMMB Holdings and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are denoted below as “N/A”. On October 1, 2014, Prospect made an additional $383 equity investment in NMMB Series B Preferred Stock, increasing Prospect’s ownership to 93.13%. During the year ended June 30, 2015, NMMB repurchased 460 shares of its common stock from a former NMMB executive, decreasing the number of shares outstanding and increasing Prospect’s ownership to 96.33%. 211 The following interest payments were accrued and paid from NMMB Holdings to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 192 N/A N/A The following interest payments were accrued and paid from NMMB to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 1,826 525 529 The following interest income recognized had not yet been paid by NMMB to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 133 1 The following interest payments were accrued and paid from Armed Forces to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 33 996 996 The following interest income recognized had not yet been paid by Armed Forces to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 250 3 The following managerial assistance payments were paid from NMMB to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 100 — — The following managerial assistance recognized had not yet been paid by NMMB to Prospect and was included by Prospect within other receivables and due to Prospect Administration: June 30, 2015 June 30, 2016 $ 700 1,100 The following payments were paid from NMMB to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to NMMB (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative service costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 15 — — 212 The following amounts were due from NMMB to Prospect for reimbursement of expenses paid by Prospect on behalf of NMMB and were included by Prospect within other receivables: June 30, 2015 June 30, 2016 $ 2 2 R-V Industries, Inc. As of July 1, 2011 and continuing through June 30, 2016 , Prospect owns 88.27% of the fully-diluted equity of R-V Industries, Inc. (“R-V”), with R-V management owning the remaining 11.73% of the equity. As of June 30, 2011, Prospect’s equity investment cost basis was $1,682 and $5,087 for warrants and common stock, respectively. On November 30, 2012, Prospect made a $9,500 second lien term loan to R-V and R-V received an additional $4,000 of senior secured financing from a third-party lender. The combined $13,500 of proceeds was partially utilized by R-V to pay a dividend to its common stockholders in an aggregate amount equal to $13,288 (including $11,073 to Prospect recognized by Prospect as a dividend). The remaining proceeds were used by R-V to pay $142 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $47 for third party expenses and $23 for legal services provided by attorneys at Prospect Administration. On June 12, 2013, Prospect provided an additional $23,250 to the second lien term loan to R-V. The proceeds were partially utilized by R-V to pay a dividend to the common stockholders in an aggregate amount equal to $15,000 (including $13,240 dividend to Prospect). The remaining proceeds were used to pay off $7,835 of outstanding debt due from R-V to a third-party, $11 for legal services provided by attorneys at Prospect Administration and $404 was retained by R-V for working capital. In addition to the repayments noted above, the following amounts were paid from R-V to Prospect and recorded by Prospect as repayment of loan receivable: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 2,339 1,175 614 The following dividends were declared and paid from R-V to Prospect and recognized as dividend income by Prospect: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 1,100 298 299 All dividends were paid from earnings and profits of R-V. The following interest payments were accrued and paid from R-V to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 3,188 3,018 2,908 The following managerial assistance payments were paid from R-V to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 180 180 180 The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration: June 30, 2015 June 30, 2016 $ 45 45 213 The following payments were paid from R-V to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to R-V (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative service costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 13 2 The following amounts were due to R-V from Prospect for reimbursement of expenses paid by R-V on behalf of Prospect and were included by Prospect within other liabilities: June 30, 2015 June 30, 2016 $ 2 1 SB Forging Company, Inc. As of June 30, 2014, Prospect owned 79.53% of the fully-diluted common, 85.76% of the Series A Preferred and 100% of the Series B Preferred equity of ARRM Services, Inc. (f/k/a ARRM Holdings, Inc.) (“ARRM”). ARRM owned 100% of the equity of Ajax Rolled Ring & Machine, LLC (f/k/a Ajax Rolled Ring & Machine, Inc.) (“Ajax”). Ajax forges large seamless steel rings on two forging mills in the company’s York, South Carolina facility. The rings are used in a range of industrial applications, including in construction equipment and power turbines. Ajax also provides machining and other ancillary services. As of July 1, 2011, the cost basis of Prospect’s total debt and equity investment in Ajax was $41,699, including capitalized payment-in-kind interest of $3,535. Prospect’s investment in Ajax consisted of the following: $20,607 of senior secured term debt (“Tranche A Term Loan”); $15,035 of subordinated secured term debt (“Tranche B Term Loan”); and $6,057 of common equity. In October 2011, ARRM assumed Ajax’s Tranche B Term Loan and the equity of Ajax was exchanged for equity in ARRM. Ajax was converted into a limited liability company shortly thereafter. On December 28, 2012, Prospect provided an additional $3,600 of unsecured debt to ARRM (“Promissory Demand Note”). On April 1, 2013, Prospect refinanced its investment in Ajax and ARRM, increasing the total size of the debt investment to $38,537. The $19,837 Tranche A Term Loan was replaced with a new senior secured term loan to Ajax in the same amount. The $15,035 Tranche B Term Loan and $3,600 Promissory Demand Note were replaced with a new subordinated unsecured term loan to ARRM in the amount of $18,700. Prospect received $50 and $46 of structuring fees from Ajax and ARRM, respectively, which were recognized as other income. On June 28, 2013, Prospect provided an additional $1,000 in the ARRM subordinated unsecured term loan to fund equity into Ajax. The proceeds were used by Ajax to repay senior debt to a third party. On October 11, 2013, Prospect provided $25,000 in preferred equity for the recapitalization of ARRM. After the financing, Prospect received repayment of the $20,008 subordinated unsecured term loan previously outstanding from ARRM. In March 2014, Prospect received $98 of structuring fees from Ajax related to the amendment of the loan agreement in September 2013. On October 10, 2014, ARRM sold Ajax to a third party and repaid the $19,337 loan receivable to Prospect. Prospect recorded a realized loss of $21,001 related to the sale. Concurrent with the sale, Prospect’s ownership increased to 100% of the outstanding equity of ARRM Services, Inc. which was renamed SB Forging Company, Inc. (“SB Forging”). As such, Prospect began consolidating SB Forging on October 11, 2014. As a result, any transactions between SB Forging and Prospect are eliminated in consolidation and as such, transactions after October 11, 2014 are denoted below as “N/A”. In addition, there is $3,000 being held in escrow of which $802 was received on May 6, 2015 for which Prospect realized a gain of the same amount. Prospect received $2,000 of structuring fees from Ajax related to the sale of the operating company which was recognized as other income during the year ended June 30, 2015. On May 31, 2016, $1,750 of the escrow proceeds were received. Prospect realized a gain of the same amount. In addition to the repayments noted above, the following amounts were paid from Ajax to Prospect and recorded by Prospect as repayment of loan receivable: Year Ended June 30, 2014 Year Ended June 30, 2015 $ 400 — 214 The following interest payments, including prepayment penalty fees, were accrued and paid from ARRM to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 $ 1,029 — Included above, the following payment-in-kind interest from ARRM was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 $ 309 — The following interest payments, including prepayment penalty fees, were accrued and paid from Ajax to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 $ 2,082 956 The following managerial assistance payments were paid from Ajax to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 $ 180 45 The following payments were paid from SB Forging to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to SB Forging (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 $ 17 1,485 United Property REIT Corp. UPH Property Holdings, LLC (“UPH”) owned 100% of the common equity of United Property REIT Corp. (“UPRC”). Effective May 23, 2016, in connection with the merger of UPRC and APRC with and into NPRC, UPH and APH merged with and into NPH. Prospect owns 100% of the equity of NPH, a Consolidated Holding Company, and NPH owns 100% of the common equity of NPRC. UPRC was formed to hold for investment, operate, finance, lease, manage, and sell a portfolio of real estate assets and engage in any and all other activities as may be necessary, incidental or convenient to carry out the foregoing. UPRC acquires real estate assets, including, but not limited to, industrial, commercial, and multi- family properties. UPRC may acquire real estate assets directly or through joint ventures by making a majority equity investment in a property-owning entity (the “JV”). On December 31, 2013, APRC distributed its majority interests in five JVs holding real estate assets to APH. APH then distributed these JV interests to Prospect in a transaction characterized as a return of capital. Prospect, on the same day, contributed certain of these JV interests to NPH and the remainder to UPH (each wholly-owned subsidiaries of Prospect). Each of NPH and UPH immediately thereafter contributed these JV interests to NPRC and UPRC, respectively. The total investments in the JVs transferred to UPH and from UPH to UPRC consisted of $18,855 and $3,707 of debt and equity financing, respectively. There was no material gain or loss realized on these transactions. Effective April 1, 2014, Prospect made a new $19,027 senior term loan to UPRC. UPRC then distributed this amount to UPH as a return of capital which was used to pay down the Senior Term Loan from UPH by the same amount. On June 4, 2014, Prospect made a $1,405 investment in UPH to purchase additional membership interests of UPH, which was revised to $1,420 on July 1, 2014. The proceeds were utilized by UPH to purchase additional UPRC common equity for $1,420. The proceeds were utilized by UPRC to acquire the real property located at 1201 West College, Marshall, MO (“Taco Bell, MO”) for $1,405 and pay $15 of third party expenses. 215 On July 1, 2014, Prospect began consolidating UPH. As a result, any transactions between UPH and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are denoted below as “N/A”. On August 19, 2014 and August 27, 2014, Prospect made a combined $11,046 investment in UPRC, of which $9,389 was a Senior Term Loan directly to UPRC and $1,657 was used to purchase additional common equity of UPRC through UPH. On October 1, 2015, UPRC distributed $376 to Prospect as a return of capital. The net proceeds were utilized by UPRC to purchase an 85.0% ownership interest in Michigan Storage, LLC for $10,579, with $42 retained by UPRC for working capital and $49 restricted for future property acquisitions. The JV was purchased for $38,275 which included debt financing and minority interest of $28,705 and $1,867, respectively. The remaining proceeds were used to pay $210 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $2,589 of third party expenses, and $77 for legal services provided by attorneys at Prospect Administration. The investment was subsequently contributed to NPRC. On September 29, 2014, Prospect made a $22,618 investment in UPRC, of which $19,225 was a Senior Term Loan and $3,393 was used to purchase additional common equity of UPRC through UPH. The proceeds were utilized by UPRC to purchase a 92.5% ownership interest in Canterbury Green Apartments Holdings, LLC for $22,036, with $582 retained by UPRC for working capital. The JV was purchased for $85,500 which included debt financing and minority interest of $65,825 and $1,787, respectively. The remaining proceeds were used to pay $432 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $2,135 of third party expenses, $82 for legal services provided by attorneys at Prospect Administration, and $1,249 of prepaid assets, with $250 retained by the JV for working capital. On September 30, 2014 and October 29, 2014, Prospect made a combined $22,688 investment in UPRC, of which $19,290 was a Senior Term Loan and $3,398 was used to purchase additional common equity of UPRC through UPH. The proceeds were utilized by UPRC to purchase a 66.2% ownership interest in Columbus OH Apartment Holdco, LLC for $21,992 and to pay $241 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), with $455 retained by UPRC for working capital. The JV was purchased for $114,377 which included debt financing and minority interest of $97,902 and $11,250, respectively. The remaining proceeds were used to pay $440 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income), $7,711 of third party expenses, $180 for legal services provided by attorneys at Prospect Administration, $6,778 in pre-funded capital expenditures, and $1,658 of prepaid assets. On October 23, 2014, UPRC transferred its investment in Michigan Storage, LLC to NPRC. As a result, Prospect’s investments in UPRC related to these properties also transferred to NPRC. The investments transferred consisted of $1,281 of equity and $9,444 of debt. There was no gain or loss realized on the transaction. On November 12, 2014, Prospect made a $669 investment in UPRC, of which $569 was a Senior Term Loan and $100 was used to purchase additional common equity of UPRC through UPH. The proceeds were utilized by UPRC to purchase additional ownership interest in South Atlanta Portfolio Holding Company, LLC for $667, with $2 retained by UPRC for working capital. The minority interest holder also invested an additional $53 in the JV. The proceeds were used by the JV to fund $707 of capital expenditures and pay $13 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income). On April 27, 2015, Prospect made a $733 investment in UPRC, of which $623 was a Senior Term Loan and $110 was used to purchase additional common equity of UPRC through UPH. The proceeds were utilized by UPRC to purchase additional ownership interest in South Atlanta Portfolio Holding Company, LLC for $731 and pay $2 of legal services provided by attorneys at Prospect Administration. The minority interest holder also invested an additional $59 in the JV. The proceeds were used by the JV to fund $775 of capital expenditures and pay $15 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income). On May 19, 2015, Prospect made a $4,730 investment in UPRC, of which $3,926 was a Senior Term Loan and $804 was used to purchase additional common equity of UPRC through UPH. The proceeds were utilized by UPRC to purchase additional ownership interest in Columbus OH Apartment Holdco, LLC for $4,658, with $72 retained by UPRC for working capital. The proceeds were used by the JV to fund $4,565 of capital expenditures and pay $93 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income). On July 9, 2015, Prospect made a $2,044 investment in UPRC, of which $1,738 was a Senior Term Loan and $306 was used to purchase additional common equity of UPRC through UPH. The proceeds were utilized by UPRC to purchase additional ownership interest in Canterbury Green Apartment Holdings, LLC for $2042, and pay $2 of legal services provided by attorneys at Prospect Administration. The proceeds were used by the JV to fund $2,167 of capital expenditures and pay $40 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income). On November 25, 2015, Prospect made a $3,433 investment in UPRC, of which $2,746 was a Senior Term Loan and $687 was used to purchase additional common equity of UPRC through UPH. The proceeds were utilized by UPRC to purchase 216 additional ownership interest in Columbus OH Apartment Holdco, LLC for $3,274, and pay $2 of legal services provided by attorneys at Prospect Administration with $158 retained by UPRC for working capital. The proceeds were used by the JV to fund $3,209 of capital expenditures and pay $65 of structuring fees to Prospect (which was recognized by Prospect as structuring fee income). On March 9, 2016, Prospect made a $777 investment in UPRC used to purchase additional common equity of UPRC through UPH. The proceeds were utilized by UPRC to purchase additional ownership interest in South Atlanta Portfolio Holding Company, LLC for $775, and pay $2 of legal services provided by attorneys at Prospect. The minority interest holder also invested an additional $62 in the JVs. The proceeds were used by the JV to fund $836 of capital expenditures. On March 9, 2016, Prospect made a $1,277 investment in UPRC used to purchase additional common equity of UPRC through UPH. The proceeds were utilized by UPRC to purchase additional ownership interest in Canterbury Green Apartments Holdings, LLC for $1,277. The minority interest holder also invested an additional $104 in the JVs. The proceeds were used by the JV to fund $1,381 of capital expenditures. On April 6, 2016, UPRC used supplemental proceeds to make a partial repayment on the Senior Term Loan of $7,567. Effective May 23, 2016, APRC and UPRC merged with and into NPRC, to consolidate all of our real estate holdings, with NPRC as the surviving entity. APRC and UPRC have been dissolved. No gain or loss was recognized upon the merger. The following dividends were declared and paid from UPRC to UPH and recognized as dividend income by UPH: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 510 N/A N/A All dividends were paid from earnings and profits of UPRC. The following interest payments were accrued and paid by UPH to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 548 N/A N/A Included above, the following payment-in-kind interest from UPH was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 173 N/A N/A The following interest payments were accrued and paid by UPRC to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 553 5,893 6,777 Included above, the following payment-in-kind interest from UPRC was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 162 — 217 The following interest income recognized had not yet been paid by UPRC to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 20 — The following net revenue interest payments were paid from UPH to Prospect and recognized by Prospect as other income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 156 N/A N/A The following net revenue interest payments were paid from UPRC to Prospect and recognized by Prospect as other income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — 901 1,173 The following managerial assistance payments were paid from UPRC to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 100 200 179 The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration: June 30, 2015 June 30, 2016 $ 50 29 The following payments were paid from UPRC to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to UPRC (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 85 262 788 The following amounts were due from UPRC to Prospect for reimbursement of expenses paid by Prospect on behalf of UPRC and were included by Prospect within other receivables: June 30, 2015 June 30, 2016 $ 15 — USES Corp. On June 15, 2016, we provided additional $1,300 debt financing to USES Corp. (“USES”) and its subsidiaries in the form of additional Term Loan A debt and, in connection with such Term Loan A debt financing, USES issued to us 99,900 shares of its common stock. On June 29, 2016, we provided additional $2,200 debt financing to USES and its subsidiaries in the form of additional Term Loan A debt and, in connection with such Term Loan A debt financing, USES issued to us 169,062 shares of its common stock. As a result of such debt financing and recapitalization, as of June 29, 2016, we held 268,962 shares of USES common stock representing a 99.96% common equity ownership interest in USES. As such, USES became a controlled company on June 30, 2016. 218 Valley Electric Company, Inc. Prospect owns 100% of the common stock of Valley Electric Holdings I, Inc. (“Valley Holdings I”), a Consolidated Holding Company. Valley Holdings I owns 100% of Valley Electric Holdings II, Inc. (“Valley Holdings II”), a Consolidated Holding Company. Valley Holdings II owns 94.99% of Valley Electric Company, Inc. (“Valley Electric”), with Valley Electric management owning the remaining 5.01% of the equity. Valley Electric owns 100% of the equity of VE Company, Inc., which owns 100% of the equity of Valley Electric Co. of Mt. Vernon, Inc. (“Valley”), a leading provider of specialty electrical services in the state of Washington and among the top 50 electrical contractors in the United States. On December 31, 2012, Prospect initially invested $52,098 (including 4,141,547 common shares of Prospect at a fair value of $44,650) in exchange for $32,572 was in the form of a senior secured note to Valley Holdings I, a $10,000 senior secured note to Valley (discussed below) and $9,526 to purchase the common stock of Valley Holdings I. The proceeds were partially utilized by Valley Holdings I to purchase 100% of Valley Holdings II common stock for $40,528. The remaining proceeds at Valley Holdings I were used to pay $977 of structuring fees from Valley Holdings I to Prospect (which were recognized by Prospect as structuring fee income), $345 for legal services provided by attorneys at Prospect Administration and $248 was retained by Valley Holdings I for working capital. The $40,528 of proceeds received by Valley Holdings II were subsequently used to purchase 96.3% of Valley’s common stock. Valley management provided a $1,500 co- investment in Valley. On December 31, 2012, Prospect invested $10,000 (as mentioned above) into Valley in the form of senior secured debt. Total proceeds of $52,028 received by Valley (including $42,028 equity investment mentioned above) were used to purchase the equity of Valley from third-party sellers for $45,650, pay $4,628 of third- party transaction expenses (including bonuses to Valley’s management of $2,320), pay $250 from Valley to Prospect (which were recognized by Prospect as structuring fee income) and $1,500 was retained by Valley for working capital. On June 24, 2014, Valley Holdings II and management of Valley formed Valley Electric and contributed their shares of Valley stock to Valley Electric. Valley management made an additional equity investment in Valley Electric, reducing our ownership to 94.99%. Prospect made a new $20,471 senior secured loan to Valley Electric. Valley Electric then distributed this amount to Valley Holdings I, via Valley Holdings II, as a return of capital which was used to pay down the senior secured note of Valley Holdings I by the same amount. The remaining principal amount of the senior secured note, $16,754, was then contributed to the capital of Valley Holdings I. On July 1, 2014, Prospect began consolidating Valley Holdings I and Valley Holdings II. As a result, any transactions between Valley Holdings I, Valley Holdings II and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are denoted below as “N/A”. In addition to the repayments noted above, the following amounts were paid from Valley to Prospect and recorded by Prospect as repayment of loan receivable: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 200 — — The following dividends were declared and paid from Valley to Valley Holdings II, which were subsequently distributed to and recognized as dividend income by Valley Holdings I: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 2,953 N/A N/A All dividends were paid from earnings and profits of Valley and Valley Holdings II. The following interest payments were accrued and paid from Valley Holdings I to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 6,323 N/A N/A 219 Included above, the following payment-in-kind interest from Valley Holdings I was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 3,162 N/A N/A The following interest payments were accrued and paid from Valley Electric to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 74 3,905 4,252 Included above, the following payment-in-kind interest from Valley Electric was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 29 1,794 1,509 The following interest income recognized had not yet been paid by Valley Electric to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 11 12 The following interest payments were accrued and paid from Valley to Prospect and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 1,074 1,086 1,111 Included above, the following payment-in-kind interest from Valley was capitalized and recognized by Prospect as interest income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 255 259 90 The following interest income recognized had not yet been paid by Valley to Prospect and was included by Prospect within interest receivable: June 30, 2015 June 30, 2016 $ 3 3 The following royalty payments were paid from Valley Holdings I to Prospect and recognized by Prospect as other income: Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 148 N/A N/A 220 The following managerial assistance payments were paid from Valley to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 300 300 300 The following managerial assistance payments received by Prospect had not yet been remitted to Prospect Administration and were included by Prospect within due to Prospect Administration: June 30, 2015 June 30, 2016 $ 75 75 The following payments were paid from Valley Electric to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Valley Electric (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 91 18 9 Vets Securing America, Inc. As of June 30, 2014, Prospect owned 100% of the equity of Vets Securing America, Inc. (“VSA”) and 100% of the equity of The Healing Staff, Inc. (“THS”), a former wholly-owned subsidiary of ESA Environmental Specialists, Inc. (“ESA”). During the year ended June 30, 2015, THS ceased operations and the VSA management team supervised both the continued operations of VSA and the wind-down of activities at THS. VSA provides out-sourced security guards staffing. As of July 1, 2011, the cost basis of Prospect’s investment in THS and VSA, including debt and equity, was $18,219. During the year ended June 30, 2012, Prospect made follow-on secured debt investments of $1,033 to support the ongoing operations of THS and VSA. In October 2011, Prospect sold a building previously acquired from ESA for $894. In January 2012, Prospect received $2,250 of litigation settlement proceeds related to ESA. The proceeds from both of these transactions were used to reduce the outstanding loan balances due from THS and VSA by $3,144. In June 2012, THS and VSA repaid $118 and $42, respectively, of loans previously outstanding. In May 2012, in connection with the implementation of accounts receivable based funding programs for THS and VSA with a third party provider, Prospect agreed to subordinate its first priority security interest in all of the accounts receivable and other assets of THS and VSA to the third party provider of that accounts receivable based funding. During the year ended June 30, 2013, Prospect determined that our investment in THS and VSA was impaired and recorded a realized loss of $12,117, reducing the amortized cost to $3,831. During the year ended June 30, 2014, Prospect received $5,825 of legal cost reimbursement related to the ESA litigation settlement which had been expensed in prior years. The proceeds were recognized by Prospect as other income during the year ended June 30, 2014. During the year ended June 30, 2015, Prospect received $685 related to the ESA litigation settlement which was recognized as realized gain. On May 20, 2015, Prospect made a new $100 secured promissory note to provide liquidity to VSA. As of June 30, 2014, THS and VSA were joint borrowers on the secured promissory notes. On June 5, 2015, Prospect sold its equity investment in VSA and realized a net loss of $975 on the sale. In connection with the sale, VSA was released as a borrower on the secured promissory notes, leaving THS as the sole borrower. During the year ended June 30, 2015, THS ceased operations and Prospect recorded a realized loss of $2,956, reducing the amortized cost to zero. Wolf Energy, LLC Prospect owns 100% of the equity of Wolf Energy Holdings Inc. (“Wolf Energy Holdings”), a Consolidated Holding Company. Wolf Energy Holdings owns 100% of each of Appalachian Energy LLC (f/k/a Appalachian Energy Holdings, LLC) (“AEH”); Coalbed, LLC (“Coalbed”); and Wolf Energy, LLC (“Wolf Energy”). AEH owns 100% of C&S Operating, LLC. 221 Wolf Energy Holdings is a holding company formed to hold 100% of the outstanding membership interests of each of AEH and Coalbed. The membership interests and associated operating company debt of AEH and Coalbed, which were previously owned by Manx Energy, Inc. (“Manx”), were assigned to Wolf Energy Holdings effective June 30, 2012. The purpose of assignment was to remove those activities from Manx deemed non-core by the Manx convertible debt investors who were not interested in funding those operations. On June 30, 2012, AEH and Coalbed loans with a cost basis of $7,991 were assigned by Prospect to Wolf Energy Holdings from Manx. In addition, effective June 29, 2012, C&J Cladding Holding Company, Inc. (“C&J Holdings”) merged with and into Wolf Energy Holdings, with Wolf Energy Holdings as the surviving entity. At the time of the merger, C&J Holdings held the remaining undistributed proceeds in cash from the sale of its membership interests in C&J Cladding, LLC (“C&J”) (discussed below). The merger was effectuated in connection with the broader simplification of Prospect’s energy investment holdings. On June 1, 2012, Prospect sold the membership interests in C&J for $5,500. Proceeds from the sale were used to pay a $3,000 distribution to Prospect ($580 reduction in cost basis and $2,420 realized gain recognized by Prospect), an advisory fee of $1,500 from C&J to Prospect (which was recognized by Prospect as other income) and $978 was retained by C&J as working capital to pay $22 of legal services provided by attorneys at Prospect Administration and third-party expenses. On February 27, 2013, Prospect made a $50 senior secured debt investment senior secured to East Cumberland, L.L.C., a former wholly-owned subsidiary of AEH with AEH as guarantor. Proceeds were used to pay off vendors. On April 15, 2013, Prospect foreclosed on the assets of H&M Oil & Gas, LLC (“H&M”). At the time of foreclosure, H&M was in default on loans receivables due to Prospect with a cost basis of $64,449. The assets previously held by H&M were assigned by Prospect to Wolf Energy 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 Energy sold the assets located in Martin County, which were previously held by H&M, for $66,000. Proceeds from the sale were primarily used to repay the loan, accrued interest and net profits interest receivable due to us resulting in a realized capital gain of $11,826 offsetting the previously recognized loss. Prospect received $3,960 of structuring and advisory fees from Wolf Energy 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. On July 1, 2014, Prospect began consolidating Wolf Energy Holdings. As a result, any transactions between Wolf Energy Holdings and Prospect are eliminated in consolidation and as such, transactions after July 1, 2014 are denoted below as “N/A”. During the three months ended September 30, 2014, Prospect determined that our investment in AEH was impaired and recorded a realized loss of $2,050, reducing the amortized cost to zero. On November 21, 2014, Coalbed merged with and into Wolf Energy, with Wolf Energy as the surviving entity. During the three months ended December 31, 2014, Prospect determined that our investment in the Coalbed debt assumed by Wolf Energy was impaired and recorded a realized loss of $5,991, reducing the amortized cost to zero. During the year ended June 30, 2015, Wolf Energy Holdings received a tax refund of $173 related to its investment in C&J and Prospect realized a gain of the same amount. The following managerial assistance payments were paid from Wolf Energy to Prospect and subsequently remitted to Prospect Administration (no income was recognized by Prospect): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ — — 124 The following managerial assistance recognized had not yet been paid by Wolf Energy to Prospect and was included by Prospect within other receivables and due to Prospect Administration: June 30, 2015 June 30, 2016 $ — 14 222 The following payments were paid from Wolf Energy Holdings to Prospect Administration as reimbursement for legal, tax and portfolio level accounting services provided directly to Wolf Energy Holdings (no direct income was recognized by Prospect, but Prospect was given credit for these payments as a reduction of the administrative services costs payable by Prospect to Prospect Administration): Year Ended June 30, 2014 Year Ended June 30, 2015 Year Ended June 30, 2016 $ 101 N/A N/A Note 15. 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 such matters as may arise 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 material legal proceedings as of June 30, 2016 . Our Investment Adviser and Administrator have been named as defendants in a lawsuit filed on April 21, 2016 by a purported shareholder of Prospect in the United States District Court for the Southern District of New York under the caption Paskowitz v. Prospect Capital Management and Prospect Administration. The complaint alleges that the defendants received purportedly excessive management and administrative services fees from us in violation of Section 36(b) of the 1940 Act. The plaintiff seeks to recover on behalf of us damages in an amount not specified in the complaint. The defendants have informed us that they believe the complaint is without merit and intend to defend themselves vigorously against the plaintiff’s claims. We believe that the lawsuit is not likely to have a material adverse effect on Prospect. On June 30, 2016, the Investment Adviser and the Administrator filed a motion to dismiss the complaint. Note 16. Financial Highlights The following is a schedule of financial highlights for each of the five years ended in the period ended June 30, 2016 : Per Share Data Net asset value at beginning of year Net investment income(1) Net realized (losses) gains on investments(1) Net change in unrealized (depreciation) appreciation on investments(1) Net realized losses on extinguishment of debt(1) Dividends to shareholders Common stock transactions(2) Net asset value at end of year Per share market value at end of year Total return based on market value(3) Total return based on net asset value(3) Shares of common stock outstanding at end of year Weighted average shares of common stock outstanding Ratios/Supplemental Data Net assets at end of year Portfolio turnover rate Annualized ratio of operating expenses to average net assets Annualized ratio of net investment income to average net assets 2016 2015 2014 2013 2012 Year Ended June 30, $ $ $ $ $ $ 10.31 1.04 (0.07) (0.68) — (4) (1.00) 0.02 9.62 7.82 21.84% 7.15% 10.56 1.03 (0.51) 0.47 (0.01) (1.19) (0.04) 10.31 7.37 $ $ $ (20.84%) 11.47% 10.72 1.19 (0.01) (0.12) — (1.32) 0.10 10.56 $ $ 10.83 1.57 (0.13) (0.37) — (1.28) 0.10 10.72 $ $ $ 10.63 10.88% 10.97% $ 10.80 6.24% 10.91% 10.36 1.63 0.32 (0.28) — (1.22) 0.02 10.83 11.39 27.21% 18.03% 357,107,231 359,090,759 342,626,637 247,836,965 139,633,870 356,134,297 353,648,522 300,283,941 207,069,971 114,394,554 $ 3,435,917 $ 3,703,049 $ 3,618,182 $ 2,656,494 $ 1,511,974 15.98% 11.95% 10.54% 21.89% 15.21% 29.24% 11.66% 11.11% 11.50% 9.87% 11.18% 14.86% 29.06% 10.73% 14.92% (1) Per share data amount is based on the weighted average number of common shares outstanding for the year presented (except for dividends to shareholders which is based on actual rate per share). 223 (2) Common stock transactions include the effect of our issuance of common stock in public offerings (net of underwriting and offering costs), shares issued in connection with our dividend reinvestment plan, shares issued to acquire investments and shares repurchased below net asset value pursuant to our Repurchase Program. (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) Amount is less than $0.01. Note 17. Selected Quarterly Financial Data (Unaudited) The following table sets forth selected financial data for each quarter within the three years ending June 30, 2016 . Quarter Ended September 30, 2013 December 31, 2013 March 31, 2014 June 30, 2014 September 30, 2014 December 31, 2014 March 31, 2015 June 30, 2015 September 30, 2015 December 31, 2015 March 31, 2016 June 30, 2016 Investment Income Net Investment Income Net Realized and Unrealized Gains (Losses) Total 161,034 178,090 190,327 182,840 Per Share(1) 0.62 0.62 0.60 0.54 Total Per Share(1) 0.32 0.32 0.31 0.25 82,337 92,215 98,523 84,148 Total Per Share(1) (0.01) (0.02) (0.05) (0.04) (2,437) (6,853) (16,422) (12,491) 202,021 198,883 191,350 198,830 200,251 209,191 189,493 193,038 0.59 0.56 0.53 0.55 0.56 0.59 0.53 0.54 94,463 91,325 87,441 89,518 91,242 100,893 87,626 91,367 0.28 0.26 0.24 0.25 0.26 0.28 0.25 0.26 (10,355) (5,355) (5,949) 5,251 (63,425) (196,013) (12,118) 3,790 (0.04) (0.02) (0.01) 0.01 (0.18) (0.55) (0.03) 0.01 Net Increase (Decrease) in Net Assets from Operations Per Share(1) Total 79,900 85,362 82,101 71,657 84,108 85,970 81,492 94,769 27,817 (95,120) 75,508 95,157 0.31 0.30 0.26 0.21 0.24 0.24 0.23 0.26 0.08 (0.27) 0.21 0.27 (1) Per share amounts are calculated using the weighted average number of common shares outstanding for the period presented. As such, the sum of the quarterly per share amounts above will not necessarily equal the per share amounts for the fiscal year. Note 18. Subsequent Events On July 1, 2016, we made an investment of $7,320 to purchase 19.7% of the subordinated notes in Madison Park Funding IX, Ltd. On July 22, 2016, we made a $32,500 Senior Secured Term Loan A and a $32,500 Senior Secured Term Loan B debt investment in Universal Turbine Parts, LLC, an independent supplier of aftermarket turboprop engines and parts. On August 9, 2016, JHH Holdings, Inc. repaid the $35,507 loan receivable to us. On August 9, 2016, we made an investment of $29,634 to purchase 71.9% of the subordinated notes in Carlyle Global Market Strategies CLO 2016-3, Ltd. in a co- investment transaction with Priority Income Fund, Inc., a closed-end fund managed by an affiliate of Prospect Capital Management L.P. On August 14, 2016, we announced the then current conversion rate on the 2018 Notes as 84.1497 shares of common stock per $1 principal amount of the 2018 Notes converted, which is equivalent to a conversion price of approximately $11.88. On August 15, 2016, the 5.50% unsecured convertible notes, which had an outstanding principal balance of $167,500, matured and were repaid in full with cash on hand, primarily from the Harbortouch sale proceeds. On August 22, 2016, the 2014 Facility was amended to eliminate some of the restrictions in the definition of an eligible loan for pledging to the facility and increase our overall borrowing base. During the period from July 1, 2016 through August 29, 2016 , we made seven follow-on investments in NPRC totaling $55,710 to support the online consumer lending initiative. During the period from July 1, 2016 through August 25, 2016 we issued $28,820 aggregate principal amount of Prospect Capital InterNotes® for net proceeds of $28,464. 224 During the period from July 1, 2016 through August 24, 2016, we issued $37,901 in aggregate principal amount of our 2024 Notes for net proceeds of $37,106. On August 26, 2016, we announced the declaration of monthly dividends in the following amounts and with the following dates: • • $0.08333 per share for September 2016 to holders of record on September 30, 2016 with a payment date of October 20, 2016; $0.08333 per share for October 2016 to holders of record on October 31, 2016 with a payment date of November 17, 2016. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures As of June 30, 2016 , we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the 1934 Act). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures. 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, 2016 . 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, 2016 based upon criteria in Internal Control—Integrated Framework (2013) 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, 2016 based on the criteria on Internal Control—Integrated Framework (2013) issued by COSO. There were no changes in our internal control over financial reporting during the quarter ended June 30, 2016 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, 2016 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in their report which appears herein. 225 Board of Directors and Shareholders Prospect Capital Corporation New York, New York Report of Independent Registered Public Accounting Firm We have audited Prospect Capital Corporation’s internal control over financial reporting as of June 30, 2016 , based on criteria established in Internal Control— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Prospect Capital Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Report of Management on Internal Control Over Financial Reporting.” Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit. We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, Prospect Capital Corporation maintained, in all material respects, effective internal control over financial reporting as of June 30, 2016 , based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Consolidated Statements of Assets and Liabilities of Prospect Capital Corporation, including the consolidated schedules of investments, as of June 30, 2016 and 2015, 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, 2016 , and the financial highlights for each of the five years in the period ended June 30, 2016 , and our report dated August 29, 2016 expressed an unqualified opinion thereon. /s/ BDO USA, LLP BDO USA, LLP New York, New York August 29, 2016 226 Item 9B. Other Information Not applicable. Item 10. Directors, Executive Officers and Corporate Governance Section 16(a) Beneficial Ownership Reporting Compliance PART III Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and executive officers, and persons who own more than 10% of the Company’s common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission. To the Company’s knowledge, during the fiscal year ended June 30, 2016 , the Company’s officers, directors and greater than 10% stockholders had complied with all Section 16(a) filing requirements, except that one Form 4 was filed three days late on behalf of John F. Barry III, Chief Executive Officer, for the purchase of shares of common stock due to an administrative error. The information required by Item 10 is hereby incorporated by reference from our 2016 Proxy Statement. 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” in Part I of this Annual Report. Item 11. Executive Compensation The information required by Item 11 is hereby incorporated by reference from our 2016 Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by Item 12 is hereby incorporated by reference from our 2016 Proxy Statement. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by Item 13 is hereby incorporated by reference from our 2016 Proxy Statement. Item 14. Principal Accountant Fees and Services The information required by Item 14 is hereby incorporated by reference from our 2016 Proxy Statement. 227 Item 15. Exhibits and Financial Statement Schedules The following documents are filed as part of this Annual Report: 1. Financial Statements – See the Index to Consolidated Financial Statements in Item 8 of this report. PART IV 2. Financial Statement Schedules – The financial statements of Harbortouch Payments, LLC required by Rule 3-09 of Regulation S-X will be provided as Exhibit 99.1 to this report. The financial statements of National Property REIT Corp., NPH McDowell, LLC and Michigan Storage, LCC required by Rule 3-09 of Regulation S-X will be provided as Exhibit 99.2, Exhibit 99.3 and Exhibit 99.4, respectively, to this report. 3. Exhibits – The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC (according to the number assigned to them in Item 601 of Regulation S-K): Exhibit No. 3.1 Articles of Amendment and Restatement(1) 3.2 Amended and Restated Bylaws(3) 4.1 Form of Share Certificate(2) 4.2 Form of Indenture(9) 4.3 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 and Form of 6.25% Senior Convertible Note due 2015(7) 4.4 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(8) 4.5 Form of 5.50% Senior Convertible Note due 2016(6) 4.6 Indenture dated as of February 16, 2012, by and between the Registrant and American Stock Transfer & Trust Company, LLC, as Trustee(10) 4.7 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 and Form of 7.00% Prospect Capital InterNote® due 2022(10) 4.8 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(11) 4.9 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 and Form of 6.900% Prospect Capital InterNote® due 2022(11) 4.10 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 (the “U.S. Bank Indenture”)(12) 4.11 Third Supplemental Indenture dated as of April 5, 2012, to the U.S. Bank Indenture and Form of 6.850% Prospect Capital InterNote® due 2022(14) 4.12 Fourth Supplemental Indenture dated as of April 12, 2012, to the U.S. Bank Indenture and Form of 6.700% Prospect Capital InterNote® due 2022(15) 4.13 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(16) 4.14 Form of 5.375% Senior Convertible Note due 2017(17) 4.15 Fifth Supplemental Indenture dated as of April 26, 2012, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2022(18) 4.16 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(19) 4.17 Form of 5.75% Senior Convertible Note due 2018(20) 4.18 Nineteenth Supplemental Indenture dated as of September 27, 2012, to the U.S. Bank Indenture and Form of 5.850% Prospect Capital InterNote® due 2019(21) 4.19 Twentieth Supplemental Indenture dated as of October 4, 2012, to the U.S. Bank Indenture and Form of 5.700% Prospect Capital InterNote® due 2019(22) 228 Exhibit No. 4.20 Twenty-First Supplemental Indenture dated as of November 23, 2012, to the U.S. Bank Indenture and Form of 5.125% Prospect Capital InterNote® due 2019(23) 4.21 Twenty-Second Supplemental Indenture dated as of November 23, 2012, to the U.S. Bank Indenture and Form of 6.625% Prospect Capital InterNote® due 2042(23) 4.22 Twenty-Third Supplemental Indenture dated as of November 29, 2012, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2019(24) 4.23 Twenty-Fourth Supplemental Indenture dated as of November 29, 2012, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2032(24) 4.24 Twenty-Fifth Supplemental Indenture dated as of November 29, 2012, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2042(24) 4.25 Twenty-Sixth Supplemental Indenture dated as of December 6, 2012, to the U.S. Bank Indenture and Form of 4.875% Prospect Capital InterNote® due 2019(25) 4.26 Twenty-Eighth Supplemental Indenture dated as of December 6, 2012, to the U.S. Bank Indenture and Form of 6.375% Prospect Capital InterNote® due 2042(25) 4.27 Twenty-Ninth Supplemental Indenture dated as of December 13, 2012, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2019(26) 4.28 Thirty-First Supplemental Indenture dated as of December 13, 2012, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2042(26) 4.29 Thirty-Second Supplemental Indenture dated as of December 20, 2012, to the U.S. Bank Indenture and Form of 4.625% Prospect Capital InterNote® due 2019(27) 4.30 Thirty-Fourth Supplemental Indenture dated as of December 20, 2012, to the U.S. Bank Indenture and Form of 6.125% Prospect Capital InterNote® due 2042(27) 4.31 Indenture dated as of December 21, 2012, by and between the Registrant and American Stock Transfer & Trust Company, as Trustee and Form of Global Note 5.875% Convertible Senior Note Due 2019(28) 4.32 Thirty-Fifth Supplemental Indenture dated as of December 28, 2012, to the U.S. Bank Indenture and Form of 4.500% Prospect Capital InterNote® due 2019(29) 4.33 Thirty-Sixth Supplemental Indenture dated as of December 28, 2012, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2030(29) 4.34 Thirty-Seventh Supplemental Indenture dated as of December 28, 2012, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2042(29) 4.35 Thirty-Eighth Supplemental Indenture dated as of January 4, 2013, to the U.S. Bank Indenture and Form of 4.375% Prospect Capital InterNote® due 2020(30) 4.36 Thirty-Ninth Supplemental Indenture dated as of January 4, 2013, to the U.S. Bank Indenture and Form of 4.875% Prospect Capital InterNote® due 2031(30) 4.37 Fortieth Supplemental Indenture dated as of January 4, 2013, to the U.S. Bank Indenture and Form of 5.875% Prospect Capital InterNote® due 2043(30) 4.38 Forty-First Supplemental Indenture dated as of January 10, 2013, to the U.S. Bank Indenture and Form of 4.250% Prospect Capital InterNote® due 2020(31) 4.39 Forty-Second Supplemental Indenture dated as of January 10, 2013, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2031(31) 4.40 Forty-Third Supplemental Indenture dated as of January 10, 2013, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2043(31) 4.41 Forty-Fourth Supplemental Indenture dated as of January 17, 2013, to the U.S. Bank Indenture and Form of 4.125% Prospect Capital InterNote® due 2020(32) 4.42 Forty-Fifth Supplemental Indenture dated as of January 17, 2013, to the U.S. Bank Indenture and Form of 4.625% Prospect Capital InterNote® due 2031(32) 4.43 Forty-Sixth Supplemental Indenture dated as of January 17, 2013, to the U.S. Bank Indenture and Form of 5.625% Prospect Capital InterNote® due 2043(32) 4.44 Forty-Seventh Supplemental Indenture dated as of January 25, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2020(33) 4.45 Forty-Eighth Supplemental Indenture dated as of January 25, 2013, to the U.S. Bank Indenture and Form of 4.500% Prospect Capital InterNote® due 2031(33) 229 Exhibit No. 4.46 Forty-Ninth Supplemental Indenture dated as of January 25, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2043(33) 4.47 Fiftieth Supplemental Indenture dated as of January 31, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2020(34) 4.48 Fifty-First Supplemental Indenture dated as of January 31, 2013, to the U.S. Bank Indenture and Form of 4.500% Prospect Capital InterNote® due 2031(34) 4.49 Fifty-Second Supplemental Indenture dated as of January 31, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2043(34) 4.50 Fifty-Third Supplemental Indenture dated as of February 7, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2020(35) 4.51 Fifty-Fourth Supplemental Indenture dated as of February 7, 2013, to the U.S. Bank Indenture and Form of 4.500% Prospect Capital InterNote® due 2031(35) 4.52 Fifty-Fifth Supplemental Indenture dated as of February 7, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2043(35) 4.53 Fifty-Sixth Supplemental Indenture dated as of February 22, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2020(36) 4.54 Fifty-Seventh Supplemental Indenture dated as of February 22, 2013, to the U.S. Bank Indenture and Form of 4.500% Prospect Capital InterNote® due 2031(36) 4.55 Fifty-Eighth Supplemental Indenture dated as of February 22, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2043(36) 4.56 Fifty-Ninth Supplemental Indenture dated as of February 28, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2020(37) 4.57 Sixtieth Supplemental Indenture dated as of February 28, 2013, to the U.S. Bank Indenture and Form of 4.500% Prospect Capital InterNote® due 2031(37) 4.58 Sixty-First Supplemental Indenture dated as of February 28, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2043(37) 4.59 Sixty-Second Supplemental Indenture dated as of March 7, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2020(38) 4.60 Sixty-Third Supplemental Indenture dated as of March 7, 2013, to the U.S. Bank Indenture and Form of 4.500% Prospect Capital InterNote® due 2031(38) 4.61 Sixty-Fourth Supplemental Indenture dated as of March 7, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2043(38) 4.62 Sixty-Fifth Supplemental Indenture dated as of March 14, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2020(39) 4.63 Sixty-Sixth Supplemental Indenture dated as of March 14, 2013, to the U.S. Bank Indenture and Form of 4.125% to 6.000% Prospect Capital InterNote® due 2031(39) 4.64 Sixty-Seventh Supplemental Indenture dated as of March 14, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2043(39) 4.65 Sixty-Eighth Supplemental Indenture dated as of March 14, 2013, to the U.S. Bank Indenture and Form of Floating Prospect Capital InterNote® due 2023(39) 4.66 Supplemental Indenture dated as of March 15, 2013, to the U.S. Bank Indenture(40) 4.67 Form of Global Note 5.875% Senior Note due 2023(41) 4.68 Sixty-Ninth Supplemental Indenture dated as of March 21, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2020(42) 4.69 Seventieth Supplemental Indenture dated as of March 21, 2013, to the U.S. Bank Indenture and Form of 4.125% to 6.000% Prospect Capital InterNote® due 2031(42) 4.70 Seventy-First Supplemental Indenture dated as of March 21, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2043(42) 4.71 Seventy-Second Supplemental Indenture dated as of March 21, 2013, to the U.S. Bank Indenture and Form of Floating Prospect Capital InterNote® due 2023(42) 4.72 Seventy-Third Supplemental Indenture dated as of March 28, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2020(43) 230 Exhibit No. 4.73 Seventy-Fourth Supplemental Indenture dated as of March 28, 2013, to the U.S. Bank Indenture and Form of 4.125% to 6.000% Prospect Capital InterNote® due 2031(43) 4.74 Seventy-Fifth Supplemental Indenture dated as of March 28, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2043(43) 4.75 Seventy-Sixth Supplemental Indenture dated as of March 28, 2013, to the U.S. Bank Indenture and Form of Floating Prospect Capital InterNote® due 2023(43) 4.76 Seventy-Seventh Supplemental Indenture dated as of April 4, 2013, to the U.S. Bank Indenture and Form of 4.500% Prospect Capital InterNote® due 2020(44) 4.77 Seventy-Eighth Supplemental Indenture dated as of April 4, 2013, to the U.S. Bank Indenture and Form of 4.625% to 6.500% Prospect Capital InterNote® due 2031(44) 4.78 Seventy-Ninth Supplemental Indenture dated as of April 4, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2043(44) 4.79 Eightieth Supplemental Indenture dated as of April 4, 2013, to the U.S. Bank Indenture and Form of Floating Prospect Capital InterNote® due 2023(44) 4.80 Eighty-First Supplemental Indenture dated as of April 11, 2013, to the U.S. Bank Indenture and Form of 4.500% Prospect Capital InterNote® due 2020(45) 4.81 Eighty-Second Supplemental Indenture dated as of April 11, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2031(45) 4.82 Eighty-Third Supplemental Indenture dated as of April 11, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2043(45) 4.83 Eighty-Fourth Supplemental Indenture dated as of April 11, 2013, to the U.S. Bank Indenture and Form of Floating Prospect Capital InterNote® due 2023(45) 4.84 Eighty-Fifth Supplemental Indenture dated as of April 18, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2020(46) 4.85 Eighty-Sixth Supplemental Indenture dated as of April 18, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2031(46) 4.86 Eighty-Seventh Supplemental Indenture dated as of April 18, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2043(46) 4.87 Eighty-Eighth Supplemental Indenture dated as of April 25, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2020(47) 4.88 Eighty-Ninth Supplemental Indenture dated as of April 25, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2031(47) 4.89 Ninetieth Supplemental Indenture dated as of April 25, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2043(47) 4.90 Ninety-First Supplemental Indenture dated as of May 2, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2020(48) 4.91 Ninety-Second Supplemental Indenture dated as of May 2, 2013, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2031(48) 4.92 Ninety-Third Supplemental Indenture dated as of May 2, 2013, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2043(48) 4.93 Ninety-Fourth Supplemental Indenture dated as of May 9, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2020(49) 4.94 Ninety-Fifth Supplemental Indenture dated as of May 9, 2013, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2031(49) 4.95 Ninety-Sixth Supplemental Indenture dated as of May 9, 2013, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2043(49) 4.96 Ninety-Seventh Supplemental Indenture dated as of May 23, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2020(50) 4.97 Ninety-Eighth Supplemental Indenture dated as of May 23, 2013, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2031(50) 4.98 Ninety-Ninth Supplemental Indenture dated as of May 23, 2013, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2043(50) 231 Exhibit No. 4.99 One Hundredth Supplemental Indenture dated as of May 23, 2013, to the U.S. Bank Indenture and Form of 5.000% to 7.000% Prospect Capital InterNote® due 2028(50) 4.100 One Hundred-First Supplemental Indenture dated as of May 31, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2020(51) 4.101 One Hundred-Second Supplemental Indenture dated as of May 31, 2013, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2031(51) 4.102 One Hundred-Third Supplemental Indenture dated as of May 31, 2013, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2043(51) 4.103 One Hundred-Fourth Supplemental Indenture dated as of June 6, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2020(52) 4.104 One Hundred-Fifth Supplemental Indenture dated as of June 6, 2013, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2031(52) 4.105 One Hundred-Sixth Supplemental Indenture dated as of June 6, 2013, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2043(52) 4.106 One Hundred-Seventh Supplemental Indenture dated as of June 6, 2013, to the U.S. Bank Indenture and Form of 5.000% to 7.000% Prospect Capital InterNote® due 2028(52) 4.107 One Hundred-Eighth Supplemental Indenture dated as of June 13, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2020(53) 4.108 One Hundred-Ninth Supplemental Indenture dated as of June 13, 2013, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2031(53) 4.109 One Hundred-Tenth Supplemental Indenture dated as of June 13, 2013, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2043(53) 4.110 One Hundred-Eleventh Supplemental Indenture dated as of June 20, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2020(54) 4.111 One Hundred-Twelfth Supplemental Indenture dated as of June 20, 2013, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2031(54) 4.112 One Hundred-Thirteenth Supplemental Indenture dated as of June 20, 2013, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2043(54) 4.113 One Hundred-Fifteenth Supplemental Indenture dated as of June 27, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2031(55) 4.114 One Hundred-Sixteenth Supplemental Indenture dated as of June 27, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2043(55) 4.115 One Hundred-Seventeenth Supplemental Indenture dated as of July 5, 2013, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(56) 4.116 One Hundred-Eighteenth Supplemental Indenture dated as of July 5, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2031(56) 4.117 One Hundred-Nineteenth Supplemental Indenture dated as of July 5, 2013, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2043(56) 4.118 One Hundred-Twentieth Supplemental Indenture dated as of July 5, 2013, to the U.S. Bank Indenture and Form of 6.750% Prospect Capital InterNote® due 2043(56) 4.119 One Hundred Twenty-First Supplemental Indenture dated as of July 11, 2013, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(57) 4.120 One Hundred Twenty-Second Supplemental Indenture dated as of July 11, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2031(57) 4.121 One Hundred Twenty-Third Supplemental Indenture dated as of July 11, 2013, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2043(57) 4.122 One Hundred Twenty-Fourth Supplemental Indenture dated as of July 11, 2013, to the U.S. Bank Indenture and Form of 6.750% Prospect Capital InterNote® due 2043(57) 4.123 One Hundred Twenty-Fifth Supplemental Indenture dated as of July 18, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2020(58) 4.124 One Hundred Twenty-Sixth Supplemental Indenture dated as of July 18, 2013, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2031(58) 232 Exhibit No. 4.125 One Hundred Twenty-Seventh Supplemental Indenture dated as of July 18, 2013, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2043(58) 4.126 One Hundred Twenty-Eighth Supplemental Indenture dated as of July 18, 2013, to the U.S. Bank Indenture and Form of 6.750% Prospect Capital InterNote® due 2043(58) 4.127 One Hundred Twenty-Ninth Supplemental Indenture dated as of July 25, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2020(59) 4.128 One Hundred Thirtieth Supplemental Indenture dated as of July 25, 2013, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2031(59) 4.129 One Hundred Thirty-First Supplemental Indenture dated as of July 25, 2013, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2043(59) 4.130 One Hundred Thirty-Second Supplemental Indenture dated as of July 25, 2013, to the U.S. Bank Indenture and Form of 6.750% Prospect Capital InterNote® due 2043(59) 4.131 One Hundred Thirty-Third Supplemental Indenture dated as of August 1, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2019(60) 4.132 One Hundred Thirty-Fourth Supplemental Indenture dated as of August 1, 2013, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2021(60) 4.133 One Hundred Thirty-Fifth Supplemental Indenture dated as of August 1, 2013, to the U.S. Bank Indenture and Form of 6.125% Prospect Capital InterNote® due 2031(60) 4.134 One Hundred Thirty-Sixth Supplemental Indenture dated as of August 1, 2013, to the U.S. Bank Indenture and Form of 6.625% Prospect Capital InterNote® due 2043(60) 4.135 One Hundred Thirty-Seventh Supplemental Indenture dated as of August 8, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(61) 4.136 One Hundred Thirty-Eighth Supplemental Indenture dated as of August 8, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2020(61) 4.137 One Hundred Thirty-Ninth Supplemental Indenture dated as of August 8, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2031(61) 4.138 One Hundred Fortieth Supplemental Indenture dated as of August 8, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2043(61) 4.139 One Hundred Forty-First Supplemental Indenture dated as of August 15, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(62) 4.140 One Hundred Forty-Second Supplemental Indenture dated as of August 15, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2020(62) 4.141 One Hundred Forty-Third Supplemental Indenture dated as of August 15, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2028(62) 4.142 One Hundred Forty-Fourth Supplemental Indenture dated as of August 15, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2038(62) 4.143 One Hundred Forty-Fifth Supplemental Indenture dated as of August 22, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(63) 4.144 One Hundred Forty-Sixth Supplemental Indenture dated as of August 22, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2020(63) 4.145 One Hundred Forty-Seventh Supplemental Indenture dated as of August 22, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2028(63) 4.146 One Hundred Forty-Eighth Supplemental Indenture dated as of August 22, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2038(63) 4.147 One Hundred Forty-Ninth Supplemental Indenture dated as of September 6, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(64) 4.148 One Hundred Fiftieth Supplemental Indenture dated as of September 6, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2020(64) 4.149 One Hundred Fifty-First Supplemental Indenture dated as of September 6, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2028(64) 4.150 One Hundred Fifty-Second Supplemental Indenture dated as of September 6, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2038(64) 233 Exhibit No. 4.151 One Hundred Fifty-Third Supplemental Indenture dated as of September 12, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(65) 4.152 One Hundred Fifty-Fourth Supplemental Indenture dated as of September 12, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2020(65) 4.153 One Hundred Fifty-Fifth Supplemental Indenture dated as of September 12, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2033(65) 4.154 One Hundred Fifty-Sixth Supplemental Indenture dated as of September 12, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2043(65) 4.155 One Hundred Fifty-Seventh Supplemental Indenture dated as of September 19, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(66) 4.156 One Hundred Fifty-Eighth Supplemental Indenture dated as of September 19, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2020(66) 4.157 One Hundred Fifty-Ninth Supplemental Indenture dated as of September 19, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2033(66) 4.158 One Hundred Sixtieth Supplemental Indenture dated as of September 19, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2043(66) 4.159 One Hundred Sixty-First Supplemental Indenture dated as of September 26, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(67) 4.160 One Hundred Sixty-Second Supplemental Indenture dated as of September 26, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2020(67) 4.161 One Hundred Sixty-Third Supplemental Indenture dated as of September 26, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2033(67) 4.162 One Hundred Sixty-Fourth Supplemental Indenture dated as of September 26, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2043(67) 4.163 One Hundred Sixty-Fifth Supplemental Indenture dated as of October 3, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(68) 4.164 One Hundred Sixty-Sixth Supplemental Indenture dated as of October 3, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2020(68) 4.165 One Hundred Sixty-Seventh Supplemental Indenture dated as of October 3, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2033(68) 4.166 One Hundred Sixty-Eighth Supplemental Indenture dated as of October 3, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2043(68) 4.167 One Hundred Sixty-Ninth Supplemental Indenture dated as of October 10, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(69) 4.168 One Hundred Seventieth Supplemental Indenture dated as of October 10, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2020(69) 4.169 One Hundred Seventy-First Supplemental Indenture dated as of October 10, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2033(69) 4.170 One Hundred Seventy-Second Supplemental Indenture dated as of October 10, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2043(69) 4.171 One Hundred Seventy-Third Supplemental Indenture dated as of October 18, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(70) 4.172 One Hundred Seventy-Fourth Supplemental Indenture dated as of October 18, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2020(70) 4.173 One Hundred Seventy-Fifth Supplemental Indenture dated as of October 18, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2033(70) 4.174 One Hundred Seventy-Sixth Supplemental Indenture dated as of October 18, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2043(70) 4.175 One Hundred Seventy-Seventh Supplemental Indenture dated as of October 24, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2016(71) 4.176 One Hundred Seventy-Eighth Supplemental Indenture dated as of October 24, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(71) 234 Exhibit No. 4.177 One Hundred Seventy-Ninth Supplemental Indenture dated as of October 24, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2020(71) 4.178 One Hundred Eightieth Supplemental Indenture dated as of October 24, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2033(71) 4.179 One Hundred Eighty-First Supplemental Indenture dated as of October 24, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2043(71) 4.180 One Hundred Eighty-Second Supplemental Indenture dated as of October 31, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2017(72) 4.181 One Hundred Eighty-Third Supplemental Indenture dated as of October 31, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(72) 4.182 One Hundred Eighty-Fourth Supplemental Indenture dated as of October 31, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2020(72) 4.183 One Hundred Eighty-Fifth Supplemental Indenture dated as of October 31, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2028(72) 4.184 One Hundred Eighty-Sixth Supplemental Indenture dated as of October 31, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2038(72) 4.185 One Hundred Eighty-Seventh Supplemental Indenture dated as of November 7, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2017(73) 4.186 One Hundred Eighty-Eighth Supplemental Indenture dated as of November 7, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(73) 4.187 One Hundred Eighty-Ninth Supplemental Indenture dated as of November 7, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2020(73) 4.188 One Hundred Ninetieth Supplemental Indenture dated as of November 7, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2028(73) 4.189 One Hundred Ninety-First Supplemental Indenture dated as of November 7, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2038(73) 4.190 One Hundred Ninety-Second Supplemental Indenture dated as of November 15, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2017(74) 4.191 One Hundred Ninety-Third Supplemental Indenture dated as of November 15, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(74) 4.192 One Hundred Ninety-Fourth Supplemental Indenture dated as of November 15, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2020(74) 4.193 One Hundred Ninety-Fifth Supplemental Indenture dated as of November 15, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2028(74) 4.194 One Hundred Ninety-Sixth Supplemental Indenture dated as of November 15, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2038(74) 4.195 One Hundred Ninety-Seventh Supplemental Indenture dated as of November 21, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2017(75) 4.196 One Hundred Ninety-Eighth Supplemental Indenture dated as of November 21, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(75) 4.197 One Hundred Ninety-Ninth Supplemental Indenture dated as of November 21, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2020(75) 4.198 Two Hundredth Supplemental Indenture dated as of November 21, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2028(75) 4.199 Two Hundred First Supplemental Indenture dated as of November 21, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2038(75) 4.200 Two Hundred Second Supplemental Indenture dated as of November 29, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2017(76) 4.201 Two Hundred Third Supplemental Indenture dated as of November 29, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(76) 4.202 Two Hundred Fourth Supplemental Indenture dated as of November 29, 2013, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2020(76) 235 Exhibit No. 4.203 Two Hundred Fifth Supplemental Indenture dated as of November 29, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2025(76) 4.204 Two Hundred Sixth Supplemental Indenture dated as of November 29, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2038(76) 4.205 Two Hundred Seventh Supplemental Indenture dated as of December 5, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2017(77) 4.206 Two Hundred Eighth Supplemental Indenture dated as of December 5, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(77) 4.207 Two Hundred Tenth Supplemental Indenture dated as of December 5, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2025(77) 4.208 Two Hundred Eleventh Supplemental Indenture dated as of December 5, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2038(77) 4.209 Two Hundred Twelfth Supplemental Indenture dated as of December 12, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2017(78) 4.210 Two Hundred Thirteenth Supplemental Indenture dated as of December 12, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(78) 4.211 Two Hundred Fifteenth Supplemental Indenture dated as of December 12, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2025(78) 4.212 Two Hundred Sixteenth Supplemental Indenture dated as of December 12, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2038(78) 4.213 Two Hundred Seventeenth Supplemental Indenture dated as of December 19, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2017(79) 4.214 Two Hundred Eighteenth Supplemental Indenture dated as of December 19, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(79) 4.215 Two Hundred Twentieth Supplemental Indenture dated as of December 19, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2025(79) 4.216 Two Hundred Twenty-First Supplemental Indenture dated as of December 19, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2038(79) 4.217 Two Hundred Twenty-Second Supplemental Indenture dated as of December 27, 2013, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2017(80) 4.218 Two Hundred Twenty-Third Supplemental Indenture dated as of December 27, 2013, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2018(80) 4.219 Two Hundred Twenty-Fifth Supplemental Indenture dated as of December 27, 2013, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2025(80) 4.220 Two Hundred Twenty-Sixth Supplemental Indenture dated as of December 27, 2013, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2038(80) 4.221 Two Hundred Twenty-Seventh Supplemental Indenture dated as of January 3, 2014, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2018(81) 4.222 Two Hundred Twenty-Eighth Supplemental Indenture dated as of January 3, 2014, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2019(81) 4.223 Two Hundred Twenty-Ninth Supplemental Indenture dated as of January 3, 2014, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(81) 4.224 Two Hundred Thirtieth Supplemental Indenture dated as of January 3, 2014, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2026(81) 4.225 Two Hundred Thirty-First Supplemental Indenture dated as of January 3, 2014, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2039(81) 4.226 Two Hundred Thirty-Second Supplemental Indenture dated as of January 9, 2014, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2018(82) 4.227 Two Hundred Thirty-Third Supplemental Indenture dated as of January 9, 2014, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2019(82) 4.228 Two Hundred Thirty-Fourth Supplemental Indenture dated as of January 9, 2014, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(82) 236 Exhibit No. 4.229 Two Hundred Thirty-Fifth Supplemental Indenture dated as of January 9, 2014, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2026(82) 4.230 Two Hundred Thirty-Sixth Supplemental Indenture dated as of January 9, 2014, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2039(82) 4.231 Two Hundred Thirty-Seventh Supplemental Indenture dated as of January 16, 2014, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2018(83) 4.232 Two Hundred Thirty-Eighth Supplemental Indenture dated as of January 16, 2014, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2019(83) 4.233 Two Hundred Thirty-Ninth Supplemental Indenture dated as of January 16, 2014, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(83) 4.234 Two Hundred Fortieth Supplemental Indenture dated as of January 16, 2014, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2026(83) 4.235 Two Hundred Forty-First Supplemental Indenture dated as of January 16, 2014, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2039(83) 4.236 Two Hundred Forty-Second Supplemental Indenture dated as of January 24, 2014, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2018(84) 4.237 Two Hundred Forty-Third Supplemental Indenture dated as of January 24, 2014, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2019(84) 4.238 Two Hundred Forty-Fourth Supplemental Indenture dated as of January 24, 2014, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(84) 4.239 Two Hundred Forty-Fifth Supplemental Indenture dated as of January 24, 2014, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2026(84) 4.240 Two Hundred Forty-Sixth Supplemental Indenture dated as of January 24, 2014, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2039(84) 4.241 Two Hundred Forty-Seventh Supplemental Indenture dated as of January 30, 2014, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2018(85) 4.242 Two Hundred Forty-Eighth Supplemental Indenture dated as of January 30, 2014, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2019(85) 4.243 Two Hundred Forty-Ninth Supplemental Indenture dated as of January 30, 2014, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(85) 4.244 Two Hundred Fiftieth Supplemental Indenture dated as of January 30, 2014, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2026(85) 4.245 Two Hundred Fifty-First Supplemental Indenture dated as of January 30, 2014, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2039(85) 4.246 Two Hundred Fifty-Second Supplemental Indenture dated as of February 6, 2014, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2018(86) 4.247 Two Hundred Fifty-Third Supplemental Indenture dated as of February 6, 2014, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2019(86) 4.248 Two Hundred Fifty-Fourth Supplemental Indenture dated as of February 6, 2014, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(86) 4.249 Two Hundred Fifty-Fifth Supplemental Indenture dated as of February 6, 2014, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2026(86) 4.250 Two Hundred Fifty-Sixth Supplemental Indenture dated as of February 6, 2014, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2039(86) 4.251 Two Hundred Fifty-Seventh Supplemental Indenture dated as of February 13, 2014, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2018(87) 4.252 Two Hundred Fifty-Eighth Supplemental Indenture dated as of February 13, 2014, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2019(87) 4.253 Two Hundred Fifty-Ninth Supplemental Indenture dated as of February 13, 2014, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(87) 4.254 Two Hundred Sixtieth Supplemental Indenture dated as of February 13, 2014, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2026(87) 237 Exhibit No. 4.255 Two Hundred Sixty-First Supplemental Indenture dated as of February 13, 2014, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2039(87) 4.256 Two Hundred Sixty-Seventh Supplemental Indenture dated as of February 19, 2014, to the U.S. Bank Indenture and Form of 4.75% Prospect Capital InterNote® due 2019(88) 4.257 Two Hundred Sixty-Second Supplemental Indenture dated as of February 21, 2014, to the U.S. Bank Indenture and Form of 4.000% Prospect Capital InterNote® due 2018(89) 4.258 Two Hundred Sixty-Third Supplemental Indenture dated as of February 21, 2014, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2019(89) 4.259 Two Hundred Sixty-Fourth Supplemental Indenture dated as of February 21, 2014, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(89) 4.260 Two Hundred Sixty-Fifth Supplemental Indenture dated as of February 21, 2014, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2026(89) 4.261 Two Hundred Sixty-Sixth Supplemental Indenture dated as of February 21, 2014, to the U.S. Bank Indenture and Form of 6.500% Prospect Capital InterNote® due 2039(89) 4.262 Two Hundred Sixty-Eighth Supplemental Indenture dated as of February 27, 2014, to the U.S. Bank Indenture and Form of 3.750% Prospect Capital InterNote® due 2018(90) 4.263 Two Hundred Sixty-Ninth Supplemental Indenture dated as of February 27, 2014, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2019(90) 4.264 Two Hundred Seventieth Supplemental Indenture dated as of February 27, 2014, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2021(90) 4.265 Two Hundred Seventy-First Supplemental Indenture dated as of February 27, 2014, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2026(90) 4.266 Two Hundred Seventy-Second Supplemental Indenture dated as of February 27, 2014, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2039(90) 4.267 Two Hundred Seventy-Third Supplemental Indenture dated as March 6, 2014, to the U.S. Bank Indenture and Form of 3.750% Prospect Capital InterNote® due 2018(91) 4.268 Two Hundred Seventy-Fourth Supplemental Indenture dated as of March 6, 2014, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2019(91) 4.269 Two Hundred Seventy-Fifth Supplemental Indenture dated as of March 6, 2014, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2021(91) 4.270 Two Hundred Seventy-Sixth Supplemental Indenture dated as of March 6, 2014, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2026(91) 4.271 Two Hundred Seventy-Seventh Supplemental Indenture dated as of March 6, 2014, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2039(91) 4.272 Supplement No. 1 to the Two Hundred Sixty-Seventh Supplemental Indenture dated as of March 11, 2014, to the U.S. Bank Indenture and Form of 4.75% Prospect Capital InterNote® due 2019(92) 4.273 Two Hundred Seventy-Eighth Supplemental Indenture dated as March 13, 2014, to the U.S. Bank Indenture and Form of 3.750% Prospect Capital InterNote® due 2018(93) 4.274 Two Hundred Seventy-Ninth Supplemental Indenture dated as of March 13, 2014, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2019(93) 4.275 Two Hundred Eightieth Supplemental Indenture dated as of March 13, 2014, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2021(93) 4.276 Two Hundred Eighty-First Supplemental Indenture dated as of March 13, 2014, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2026(93) 4.277 Two Hundred Eighty-Second Supplemental Indenture dated as of March 13, 2014, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2039(93) 4.278 Two Hundred Eighty-Fourth Supplemental Indenture dated as March 20, 2014, to the U.S. Bank Indenture and Form of 3.750% Prospect Capital InterNote® due 2018(94) 4.279 Two Hundred Eighty-Fifth Supplemental Indenture dated as of March 20, 2014, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2019(94) 4.280 Two Hundred Eighty-Sixth Supplemental Indenture dated as of March 20, 2014, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2021(94) 238 Exhibit No. 4.281 Two Hundred Eighty-Seventh Supplemental Indenture dated as of March 20, 2014, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2026(94) 4.282 Two Hundred Eighty-Eighth Supplemental Indenture dated as of March 20, 2014, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2039(94) 4.283 Two Hundred Eighty-Ninth Supplemental Indenture dated as March 27, 2014, to the U.S. Bank Indenture and Form of 3.750% Prospect Capital InterNote® due 2018(95) 4.284 Two Hundred Ninetieth Supplemental Indenture dated as of March 20, 2014, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2019(95) 4.285 Two Hundred Ninety-First Supplemental Indenture dated as of March 27, 2014, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2021(95) 4.286 Two Hundred Ninety-Second Supplemental Indenture dated as of March 27, 2014, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2026(95) 4.287 Two Hundred Ninety-Third Supplemental Indenture dated as of March 27, 2014, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2039(95) 4.288 Two Hundred Ninety-Fourth Supplemental Indenture dated as of April 3, 2014, to the U.S. Bank Indenture and Form of 3.750% Prospect Capital InterNote® due 2018(96) 4.289 Two Hundred Ninety-Fifth Supplemental Indenture dated as of April 3, 2014, to the U.S. Bank Indenture and Form of 4.500% Prospect Capital InterNote® due 2019(96) 4.290 Two Hundred Ninety-Sixth Supplemental Indenture dated as of April 3, 2014, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2021(96) 4.291 Two Hundred Ninety-Seventh Supplemental Indenture dated as of April 3, 2014, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2024(96) 4.292 Two Hundred Ninety-Eighth Supplemental Indenture dated as of April 3, 2014, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2039(96) 4.293 Supplemental Indenture dated as of April 7, 2014, to the U.S. Bank Indenture and Form of 5.000% Senior Notes due 2019(97) 4.294 Two Hundred Ninety-Ninth Supplemental Indenture dated as of April 10, 2014, to the U.S. Bank Indenture and Form of 3.750% Prospect Capital InterNote® due 2018(98) 4.295 Three Hundredth Supplemental Indenture dated as of April 10, 2014, to the U.S. Bank Indenture and Form of 4.250% Prospect Capital InterNote® due 2019(98) 4.296 Three Hundred First Supplemental Indenture dated as of April 10, 2014, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2021(98) 4.297 Three Hundred Second Supplemental Indenture dated as of April 10, 2014, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2024(98) 4.298 Three Hundred Third Supplemental Indenture dated as of April 10, 2014, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2039(98) 4.299 Indenture dated as of April 11, 2014, by and between Prospect Capital Corporation and American Stock Transfer & Trust Company, as Trustee and Form of Global Note of 4.75% Senior Convertible Notes Due 2020(99) 4.300 Three Hundred Fourth Supplemental Indenture dated as of April 17, 2014, to the U.S. Bank Indenture and Form of 3.750% Prospect Capital InterNote® due 2018(100) 4.301 Three Hundred Fifth Supplemental Indenture dated as of April 17, 2014, to the U.S. Bank Indenture and Form of 4.250% Prospect Capital InterNote® due 2019(100) 4.302 Three Hundred Sixth Supplemental Indenture dated as of April 17, 2014, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2021(100) 4.303 Three Hundred Seventh Supplemental Indenture dated as of April 17, 2014, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2024(100) 4.304 Three Hundred Eighth Supplemental Indenture dated as of April 17, 2014, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2039(100) 4.305 Three Hundred Ninth Supplemental Indenture dated as of April 24, 2014, to the U.S. Bank Indenture and Form of 3.750% Prospect Capital InterNote® due 2018(101) 4.306 Three Hundred Tenth Supplemental Indenture dated as of April 24, 2014, to the U.S. Bank Indenture and Form of 4.500% Prospect Capital InterNote® due 2019(101) 239 Exhibit No. 4.307 Three Hundred Eleventh Supplemental Indenture dated as of April 24, 2014, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2021(101) 4.308 Three Hundred Twelfth Supplemental Indenture dated as of April 24, 2014, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2024(101) 4.309 Three Hundred Thirteenth Supplemental Indenture dated as of April 24, 2014, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2039(101) 4.310 Three Hundred Fourteenth Supplemental Indenture dated as of May 1, 2014, to the U.S. Bank Indenture and Form of 3.750% Prospect Capital InterNote® due 2018(102) 4.311 Three Hundred Fifteenth Supplemental Indenture dated as of May 1, 2014, to the U.S. Bank Indenture and Form of 4.500% Prospect Capital InterNote® due 2019(102) 4.312 Three Hundred Sixteenth Supplemental Indenture dated as of May 1, 2014, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2021(102) 4.313 Three Hundred Seventeenth Supplemental Indenture dated as of May 1, 2014, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2024(102) 4.314 Three Hundred Eighteenth Supplemental Indenture dated as of May 1, 2014, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2039(102) 4.315 Three Hundred Nineteenth Supplemental Indenture dated as of May 8, 2014, to the U.S. Bank Indenture and Form of 3.750% Prospect Capital InterNote® due 2018(103) 4.316 Three Hundred Twentieth Supplemental Indenture dated as of May 8, 2014, to the U.S. Bank Indenture and Form of 4.500% Prospect Capital InterNote® due 2019(103) 4.317 Three Hundred Twenty-First Supplemental Indenture dated as of May 8, 2014, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2021(103) 4.318 Three Hundred Twenty-Second Supplemental Indenture dated as of May 8, 2014, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2024(103) 4.319 Three Hundred Twenty-Third Supplemental Indenture dated as of May 8, 2014, to the U.S. Bank Indenture and Form of 6.250% Prospect Capital InterNote® due 2039(103) 4.320 Three Hundred Twenty-Fourth Supplemental Indenture dated as of November 17, 2014, to the U.S. Bank Indenture and Form of 4.250% Prospect Capital InterNote® due 2020(110) 4.321 Three Hundred Twenty-Fifth Supplemental Indenture dated as of November 28, 2014, to the U.S. Bank Indenture and Form of 4.250% Prospect Capital InterNote® due 2020(111) 4.322 Three Hundred Twenty-Sixth Supplemental Indenture dated as of December 4, 2014, to the U.S. Bank Indenture and Form of 4.250% Prospect Capital InterNote® due 2020(112) 4.323 Three Hundred Twenty-Seventh Supplemental Indenture dated as of December 11, 2014, to the U.S. Bank Indenture and Form of 4.250% Prospect Capital InterNote® due 2020(113) 4.324 Three Hundred Twenty-Eighth Supplemental Indenture dated as of December 18, 2014, to the U.S. Bank Indenture and Form of 4.250% Prospect Capital InterNote® due 2020(114) 4.325 Three Hundred Twenty-Ninth Supplemental Indenture dated as of December 29, 2014, to the U.S. Bank Indenture and Form of 4.250% Prospect Capital InterNote® due 2020(115) 4.326 Three Hundred Thirtieth Supplemental Indenture dated as of January 2, 2015, to the U.S. Bank Indenture and Form of 4.250% Prospect Capital InterNote® due 2020(116) 4.327 Three Hundred Thirty-First Supplemental Indenture dated as of January 8, 2015, to the U.S. Bank Indenture and Form of 4.250% Prospect Capital InterNote® due 2020(117) 4.328 Three Hundred Thirty-Second Supplemental Indenture dated as of January 15, 2015, to the U.S. Bank Indenture and Form of 4.500% Prospect Capital InterNote® due 2020(118) 4.329 Three Hundred Thirty-Third Supplemental Indenture dated as of January 23, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(119) 4.330 Three Hundred Thirty-Fourth Supplemental Indenture dated as of January 29, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(120) 4.331 Three Hundred Thirty-Fifth Supplemental Indenture dated as of February 5, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(121) 4.332 Three Hundred Thirty-Sixth Supplemental Indenture dated as of February 20, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(122) 240 Exhibit No. 4.333 Three Hundred Thirty-Seventh Supplemental Indenture dated as of February 26, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(123) 4.334 Three Hundred Thirty-Eighth Supplemental Indenture dated as of March 5, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(124) 4.335 Three Hundred Thirty-Ninth Supplemental Indenture dated as of March 12, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(125) 4.336 Three Hundred Fortieth Supplemental Indenture dated as of March 19, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(126) 4.337 Three Hundred Forty-First Supplemental Indenture dated as of March 26, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(127) 4.338 Three Hundred Forty-Second Supplemental Indenture dated as of April 2, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(128) 4.339 Three Hundred Forty-Third Supplemental Indenture dated as of April 9, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(129) 4.340 Three Hundred Forty-Fourth Supplemental Indenture dated as of April 16, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(130) 4.341 Three Hundred Forty-Fifth Supplemental Indenture dated as of April 16, 2015, to the U.S. Bank Indenture and Form of 3.375% to 6.375% Prospect Capital InterNote® due 2021(130) 4.342 Three Hundred Forty-Sixth Supplemental Indenture dated as of April 23, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(131) 4.343 Three Hundred Forty-Seventh Supplemental Indenture dated as of April 23, 2015, to the U.S. Bank Indenture and Form of 3.375% to 6.375% Prospect Capital InterNote® due 2021(131) 4.344 Three Hundred Forty-Eighth Supplemental Indenture dated as of April 30, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(132) 4.345 Three Hundred Forty-Ninth Supplemental Indenture dated as of April 30, 2015, to the U.S. Bank Indenture and Form of 3.375% to 6.375% Prospect Capital InterNote® due 2021(132) 4.346 Three Hundred Fiftieth Supplemental Indenture dated as of May 7, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(133) 4.347 Three Hundred Fifty-First Supplemental Indenture dated as of May 7, 2015, to the U.S. Bank Indenture and Form of 3.375% to 6.375% Prospect Capital InterNote® due 2021(133) 4.348 Three Hundred Fifty-Second Supplemental Indenture dated as of May 21, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(134) 4.349 Three Hundred Fifty-Third Supplemental Indenture dated as of May 29, 2015, to the U.S. Bank Indenture and Form of 4.625% Prospect Capital InterNote® due 2020(135) 4.350 Three Hundred Fifty-Fourth Supplemental Indenture dated as of May 29, 2015, to the U.S. Bank Indenture and Form of 5.100% Prospect Capital InterNote® due 2022(135) 4.351 Three Hundred Fifty-Fifth Supplemental Indenture dated as of June 4, 2015, to the U.S. Bank Indenture and Form of 4.625% Prospect Capital InterNote® due 2020(136) 4.352 Three Hundred Fifty-Sixth Supplemental Indenture dated as of June 4, 2015, to the U.S. Bank Indenture and Form of 5.100% Prospect Capital InterNote® due 2022(136) 4.353 Three Hundred Fifty-Seventh Supplemental Indenture dated as of June 11, 2015, to the U.S. Bank Indenture and Form of 4.625% Prospect Capital InterNote® due 2020(137) 4.354 Three Hundred Fifty-Eighth Supplemental Indenture dated as of June 11, 2015, to the U.S. Bank Indenture and Form of 5.100% Prospect Capital InterNote® due 2022(137) 4.355 Three Hundred Fifty-Ninth Supplemental Indenture dated as of June 18, 2015, to the U.S. Bank Indenture and Form of 4.625% Prospect Capital InterNote® due 2020(138) 4.356 Three Hundred Sixtieth Supplemental Indenture dated as of June 18, 2015, to the U.S. Bank Indenture and Form of 5.100% Prospect Capital InterNote® due 2021(138) 4.357 Three Hundred Sixty-First Supplemental Indenture dated as of June 25, 2015, to the U.S. Bank Indenture and Form of 4.625% Prospect Capital InterNote® due 2020(139) 4.358 Three Hundred Sixty-Second Supplemental Indenture dated as of June 25, 2015, to the U.S. Bank Indenture and Form of 5.100% Prospect Capital InterNote® due 2021(139) 241 Exhibit No. 4.359 Three Hundred Sixty-Third Supplemental Indenture dated as of July 2, 2015, to the U.S. Bank Indenture and Form of 4.625% Prospect Capital InterNote® due 2020(140) 4.360 Three Hundred Sixty-Fourth Supplemental Indenture dated as of July 2, 2015, to the U.S. Bank Indenture and Form of 5.100% Prospect Capital InterNote® due 2021(140) 4.361 Three Hundred Sixty-Fifth Supplemental Indenture dated as of July 9, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(141) 4.362 Three Hundred Sixty-Sixth Supplemental Indenture dated as of July 9, 2015, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2022(141) 4.363 Three Hundred Sixty-Seventh Supplemental Indenture dated as of July 16, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(142) 4.364 Three Hundred Sixty-Eighth Supplemental Indenture dated as of July 16, 2015, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2022(142) 4.365 Three Hundred Sixty-Ninth Supplemental Indenture dated as of July 23, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(143) 4.366 Three Hundred Seventieth Supplemental Indenture dated as of July 23, 2015, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2022(143) 4.367 Three Hundred Seventy-First Supplemental Indenture dated as of July 30, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(144) 4.368 Three Hundred Seventy-Second Supplemental Indenture dated as of July 30, 2015, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2022(144) 4.369 Three Hundred Seventy-Third Supplemental Indenture dated as of August 6, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(145) 4.370 Three Hundred Seventy-Fourth Supplemental Indenture dated as of August 6, 2015, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2022(145) 4.371 Three Hundred Seventy-Fifth Supplemental Indenture dated as of August 13, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(146) 4.372 Three Hundred Seventy-Sixth Supplemental Indenture dated as of August 13, 2015, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2022(146) 4.373 Three Hundred Seventy-Fifth Supplemental Indenture dated as of August 20, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(147) 4.374 Three Hundred Seventy-Sixth Supplemental Indenture dated as of August 20, 2015, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2022(147) 4.375 Three Hundred Seventy-Ninth Supplemental Indenture dated as of August 27, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(148) 4.376 Three Hundred Eightieth Supplemental Indenture dated as of August 27, 2015, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2022(148) 4.377 Three Hundred Eighty-One Supplemental Indenture dated as of September 11, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(153) 4.378 Three Hundred Eighty-Second Supplemental Indenture dated as of September 11, 2015, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2022(153) 4.379 Three Hundred Eighty-Third Supplemental Indenture dated as of September 17, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(154) 4.380 Three Hundred Eighty-Fourth Supplemental Indenture dated as of September 17, 2015, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2022(154) 4.381 Three Hundred Eighty-Fifth Supplemental Indenture dated as of September 24, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(155) 4.382 Three Hundred Eighty-Sixth Supplemental Indenture dated as of September 24, 2015, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2022(155) 4.383 Three Hundred Eighty-Seventh Supplemental Indenture dated as of October 1, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(156) 4.384 Three Hundred Eighty-Eighth Supplemental Indenture dated as of October 1, 2015, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2022(156) 242 Exhibit No. 4.385 Three Hundred Eighty-Ninth Supplemental Indenture dated as of October 8, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(157) 4.386 Three Hundred Ninetieth Supplemental Indenture dated as of October 8, 2015, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2022(157) 4.387 Three Hundred Ninety-First Supplemental Indenture dated as of October 16, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(159) 4.388 Three Hundred Ninety-Second Supplemental Indenture dated as of October 16, 2015, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2022(159) 4.389 Three Hundred Ninety-Third Supplemental Indenture dated as of October 22, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(160) 4.390 Three Hundred Ninety-Fourth Supplemental Indenture dated as of October 22, 2015, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2022(160) 4.391 Three Hundred Ninety-Fifth Supplemental Indenture dated as of October 29, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(161) 4.392 Three Hundred Ninety-Sixth Supplemental Indenture dated as of October 29, 2015, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2022(161) 4.393 Three Hundred Ninety-Seventh Supplemental Indenture dated as of November 4, 2015, to the U.S. Bank Indenture and Form of 4.750% Prospect Capital InterNote® due 2020(163) 4.394 Three Hundred Ninety-Eighth Supplemental Indenture dated as of November 4, 2015, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2022(163) 4.395 Three Hundred Ninety-Ninth Supplemental Indenture dated as of November 19, 2015, to the U.S. Bank Indenture and Form of 5.000% Prospect Capital InterNote® due 2020(164) 4.396 Four Hundredth Supplemental Indenture dated as of November 19, 2015, to the U.S. Bank Indenture and Form of 5.625% Prospect Capital InterNote® due 2022(164) 4.397 Four Hundred First Supplemental Indenture dated as of November 19, 2015, to the U.S. Bank Indenture and Form of 5.875% Prospect Capital InterNote® due 2025(164) 4.398 Four Hundred Second Supplemental Indenture dated as of November 27, 2015, to the U.S. Bank Indenture and Form of 5.125% Prospect Capital InterNote® due 2020(165) 4.399 Four Hundred Third Supplemental Indenture dated as of November 27, 2015, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2022(165) 4.400 Four Hundred Fourth Supplemental Indenture dated as of November 27, 2015, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2025(165) 4.401 Four Hundred Fifth Supplemental Indenture dated as of December 3, 2015, to the U.S. Bank Indenture and Form of 5.250% Prospect Capital InterNote® due 2020(166) 4.402 Four Hundred Sixth Supplemental Indenture dated as of December 3, 2015, to the U.S. Bank Indenture and Form of 5.750% Prospect Capital InterNote® due 2022(166) 4.403 Four Hundred Seventh Supplemental Indenture dated as of December 3, 2015, to the U.S. Bank Indenture and Form of 6.000% Prospect Capital InterNote® due 2025(166) 4.404 Supplemental Indenture dated as of December 10, 2015, to the U.S. Bank Indenture and Form of 6.250% Note due 2024(167) 4.405 Four Hundred Eighth Supplemental Indenture dated as of December 17, 2015, to the U.S. Bank Indenture and Form of 5.375% Prospect Capital InterNote® due 2020(168) 4.406 Four Hundred Ninth Supplemental Indenture dated as of December 24, 2015, to the U.S. Bank Indenture and Form of 5.375% Prospect Capital InterNote® due 2020(169) 4.407 Four Hundred Tenth Supplemental Indenture dated as of December 31, 2015, to the U.S. Bank Indenture and Form of 5.375% Prospect Capital InterNote® due 2020(170) 4.408 Four Hundred Eleventh Supplemental Indenture dated as of January 7, 2016, to the U.S. Bank Indenture and Form of 5.375% Prospect Capital InterNote® due 2021(171) 4.409 Four Hundred Twelfth Supplemental Indenture dated as of January 14, 2016, to the U.S. Bank Indenture and Form of 5.375% Prospect Capital InterNote® due 2021(172) 4.410 Four Hundred Thirteenth Supplemental Indenture dated as of January 22, 2016, to the U.S. Bank Indenture and Form of 5.375% Prospect Capital InterNote® due 2021(173) 243 Exhibit No. 4.411 Four Hundred Fourteenth Supplemental Indenture dated as of March 3, 2016, to the U.S. Bank Indenture and Form of 5.375% Prospect Capital InterNote® due 2021(175) 4.412 Four Hundred Fifteenth Supplemental Indenture dated as of March 10, 2016, to the U.S. Bank Indenture and Form of 5.375% Prospect Capital InterNote® due 2021(176) 4.413 Four Hundred Sixteenth Supplemental Indenture dated as of March 17, 2016, to the U.S. Bank Indenture and Form of 5.375% Prospect Capital InterNote® due 2021(177) 4.414 Four Hundred Seventeenth Supplemental Indenture dated as of March 24, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(178) 4.415 Four Hundred Eighteenth Supplemental Indenture dated as of March 31, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(179) 4.416 Four Hundred Nineteenth Supplemental Indenture dated as of April 7, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(180) 4.417 Four Hundred Twentieth Supplemental Indenture dated as of April 14, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(181) 4.418 Four Hundred Twenty-First Supplemental Indenture dated as of April 21, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(182) 4.419 Four Hundred Twenty-Second Supplemental Indenture dated as of April 28, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(183) 4.420 Four Hundred Twenty-Third Supplemental Indenture dated as of May 5, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(184) 4.421 Four Hundred Twenty-Fourth Supplemental Indenture dated as of May 12, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(185) 4.422 Four Hundred Twenty-Fifth Supplemental Indenture dated as of May 26, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(186) 4.423 Four Hundred Twenty-Sixth Supplemental Indenture dated as of June 3, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(187) 4.424 Four Hundred Twenty-Seventh Supplemental Indenture dated as of June 9, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(188) 4.425 Four Hundred Twenty-Eighth Supplemental Indenture dated as of June 16, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(189) 4.426 Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture, and Form of 6.250% Note due 2024(190) 4.427 Four Hundred Twenty-Ninth Supplemental Indenture dated as of June 23, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(190) 4.428 Form of 6.250% Notes due 2024, Note 1, of an aggregate principal amount of $650,775.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(191) 4.429 Form of 6.250% Notes due 2024, Note 2, of an aggregate principal amount of $538,575.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(191) 4.430 Form of 6.250% Notes due 2024, Note 3, of an aggregate principal amount of $191,075.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(191) 4.431 Four Hundred Thirtieth Supplemental Indenture dated as of June 30, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(191) 4.432 Form of 6.250% Notes due 2024, Note 4, of an aggregate principal amount of $563,000.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(192) 4.433 Form of 6.250% Notes due 2024, Note 5, of an aggregate principal amount of $323,825.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(192) 4.434 Form of 6.250% Notes due 2024, Note 6, of an aggregate principal amount of $730,600.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(192) 4.435 Form of 6.250% Notes due 2024, Note 7, of an aggregate principal amount of $265,125.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(192) 4.436 Form of 6.250% Notes due 2024, Note 8, of an aggregate principal amount of $722,100.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(192) 244 Exhibit No. 4.437 Four Hundred Thirty-First Supplemental Indenture dated as of July 8, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(192) 4.438 Form of 6.250% Notes due 2024, Note 9, of an aggregate principal amount of $599,050.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(193) 4.439 Form of 6.250% Notes due 2024, Note 10, of an aggregate principal amount of $807,500.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(193) 4.440 Form of 6.250% Notes due 2024, Note 11, of an aggregate principal amount of $799,475.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(193) 4.441 Form of 6.250% Notes due 2024, Note 12, of an aggregate principal amount of $501,625.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(193) 4.442 Four Hundred Thirty-Second Supplemental Indenture dated as of July 14, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(193) 4.443 Form of 6.250% Notes due 2024, Note 13, of an aggregate principal amount of $592,500.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(194) 4.444 Form of 6.250% Notes due 2024, Note 14, of an aggregate principal amount of $581,250.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(194) 4.445 Form of 6.250% Notes due 2024, Note 15, of an aggregate principal amount of $463,750.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(194) 4.446 Form of 6.250% Notes due 2024, Note 16, of an aggregate principal amount of $836,475.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(194) 4.447 Form of 6.250% Notes due 2024, Note 17, of an aggregate principal amount of $536,725.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(194) 4.448 Four Hundred Thirty-Third Supplemental Indenture dated as of July 21, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(194) 4.449 Form of 6.250% Notes due 2024, Note 18, of an aggregate principal amount of $1,746,400.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(195) 4.450 Form of 6.250% Notes due 2024, Note 19, of an aggregate principal amount of $826,325.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(195) 4.451 Form of 6.250% Notes due 2024, Note 20, of an aggregate principal amount of $838,525.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(195) 4.452 Form of 6.250% Notes due 2024, Note 21, of an aggregate principal amount of $1,027,325.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(195) 4.453 Form of 6.250% Notes due 2024, Note 22, of an aggregate principal amount of $1,329,050.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(195) 4.454 Four Hundred Thirty-Fourth Supplemental Indenture dated as of July 28, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(195) 4.455 Form of 6.250% Notes due 2024, Note 23, of an aggregate principal amount of $1,232,075.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(196) 4.456 Form of 6.250% Notes due 2024, Note 24, of an aggregate principal amount of $1,273,150.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(196) 4.457 Form of 6.250% Notes due 2024, Note 25, of an aggregate principal amount of $1,825,850.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(196) 4.458 Form of 6.250% Notes due 2024, Note 26, of an aggregate principal amount of $902,650.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(196) 4.459 Form of 6.250% Notes due 2024, Note 27, of an aggregate principal amount of $866,500.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(196) 4.460 Four Hundred Thirty-Fifth Supplemental Indenture dated as of August 4, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(196) 4.461 Form of 6.250% Notes due 2024, Note 28, of an aggregate principal amount of $1,284,800.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(197) 4.462 Form of 6.250% Notes due 2024, Note 29, of an aggregate principal amount of $1,423,275.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(197) 245 Exhibit No. 4.463 Form of 6.250% Notes due 2024, Note 30, of an aggregate principal amount of $1,424,750.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(197) 4.464 Form of 6.250% Notes due 2024, Note 31, of an aggregate principal amount of $1,525,475.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(197) 4.465 Form of 6.250% Notes due 2024, Note 32, of an aggregate principal amount of $1,335,200.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(197) 4.466 Four Hundred Thirty-Sixth Supplemental Indenture dated as of August 11, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(197) 4.467 Form of 6.250% Notes due 2024, Note 33, of an aggregate principal amount of $746,950.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(198) 4.468 Form of 6.250% Notes due 2024, Note 34, of an aggregate principal amount of $1,254,725.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(198) 4.469 Form of 6.250% Notes due 2024, Note 35, of an aggregate principal amount of $790,900.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(198) 4.470 Form of 6.250% Notes due 2024, Note 36, of an aggregate principal amount of $1,477,725.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(198) 4.471 Form of 6.250% Notes due 2024, Note 37, of an aggregate principal amount of $2,147,375.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(198) 4.472 Four Hundred Thirty-Seventh Supplemental Indenture dated as of August 18, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(198) 4.473 Form of 6.250% Notes due 2024, Note 38, of an aggregate principal amount of $1,502,000.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(199) 4.474 Form of 6.250% Notes due 2024, Note 39, of an aggregate principal amount of $1,098,150.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(199) 4.475 Form of 6.250% Notes due 2024, Note 40, of an aggregate principal amount of $719,375.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(199) 4.476 Form of 6.250% Notes due 2024, Note 41, of an aggregate principal amount of $979,025.00, pursuant to the Supplemental Indenture dated as of June 22, 2016, to the U.S. Bank Indenture(199) 4.477 Four Hundred Thirty-Eighth Supplemental Indenture dated as of August 25, 2016, to the U.S. Bank Indenture and Form of 5.500% Prospect Capital InterNote® due 2021(199) 10.1 Investment Advisory Agreement between Registrant and Prospect Capital Management L.P.(2) 10.2 Administration Agreement between Registrant and Prospect Administration LLC(2) 10.3 Dividend Reinvestment and Direct Stock Purchase Plan(174) 10.4 Trademark License Agreement between the Registrant and Prospect Capital Investment Management, LLC(2) 10.5 Transfer Agency and Registrar Services Agreement(4) 10.6 Fifth Amended and Restated Loan and Servicing Agreement, dated August 29, 2014, 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, U.S. Bank National Association as Calculation Agent, Paying Agent and Documentation Agent, KeyBank National Association as Facility Agent, Key Equipment Finance Inc. and Royal Bank of Canada as Syndication Agents, and KeyBank National Association as Structuring Agent, Sole Lead Arranger and Sole Bookrunner(13) 10.7 Fourth Amended and Restated Selling Agent Agreement, dated November 7, 2014, by and among, the Registrant, Prospect Capital Management L.P., Prospect Administration LLC, Incapital LLC and the Agents named therein and added from time to time(109) 10.8 Amended and Restated Custody Agreement, dated as of September 23, 2014, by and between the Registrant and U.S. Bank National Association(106) 10.9 Custody Agreement, dated as of April 24, 2013, by and between the Registrant and Israeli Discount Bank of New York Ltd.(5) 10.10 Custody Agreement, dated as of October 28, 2013, by and between the Registrant and Fifth Third Bank(82) 10.11 Custody Agreement, dated as of May 9, 2014, by and between the Registrant and Customers Bank(104) 10.12 Custody Agreement, dated as of May 9, 2014, by and between the Registrant and Peapack-Gladstone Bank(105) 10.13 Custody Agreement, dated as of October 10, 2014, by and between Prospect Yield Corporation, LLC and U.S. Bank National Association(106) 10.14 Debt Distribution Agreement, dated June 22, 2016(190) 246 Exhibit No. 11 Computation of Per Share Earnings (included in the notes to the financial statements contained in this report) 12 Computation of Ratios (included in the notes to the financial statements contained in this report) 14 Code of Ethics* 21 Subsidiaries of the Registrant (included in the notes to the consolidated financial statements contained in this annual report) 22.1 Proxy Statement(200) 22.2 Published report regarding matters submitted to vote of security holders(201) 22.3 Published report regarding matters submitted to vote of security holders(202) 23.1 Consent of MSPC, Certified Public Accountants of Harbortouch Payments, LLC* 23.2 Consent of BDO USA, LLP, Certified Public Accountants of National Property REIT Corp.* 23.3 Consent of Hood & Strong LLP, Certified Public Accountants of NPH McDowell, LLC* 23.4 Consent of Tidwell Group, LLC, Certified Public Accountants of Michigan Storage, LLC* 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended* 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended* 32.1 Certification of Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)* 32.2 Certification of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)* 99.1 Audited Consolidated Financial Statements of Harbortouch Payments, LLC for the year ended December 31, 2015* 99.2 Audited Combined Consolidated Financial Statements of National Property REIT Corp. for the years ended December 31, 2015 and 2014* 99.3 Audited Consolidated Financial Statements of NPH McDowell, LLC for the years ended December 31, 2015 and 2014* 99.4 Audited Consolidated Financial Statements of Michigan Storage, LLC for the year ended December 31, 2015 and the period of July 22, 2014 (date of inception) through December 31, 2014* ________________________ * Filed herewith. (1) Incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K, filed on May 9, 2014. (2) Incorporated by reference from the Registrant’s Pre-effective Amendment No. 2 to the Registration Statement on Form N-2, filed on July 6, 2004. (3) Incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K, filed on December 11, 2015. (4) Incorporated by reference from the Registrant’s Pre-effective Amendment No. 3 to the Registration Statement on Form N-2, filed on July 23, 2004. (5) Incorporated by reference to Exhibit 10.258 of the Registrant’s Form 10-K filed on August 21, 2013. (6) Incorporated by reference to Exhibit 4.2 of the Registrant’s Form 8-K, filed on February 18, 2011. (7) Incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K, filed on December 21, 2010. (8) Incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K, filed on February 18, 2011. (9) Incorporated by reference from the Registrant’s Registration Statement on Form N-2, filed on September 1, 2011. (10) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 1 to the Registration Statement on Form N-2, filed on March 1, 2012. (11) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 2 to the Registration Statement on Form N-2, filed on March 8, 2012. (12) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 3 to the Registration Statement on Form N-2, filed on March 14, 2012. (13) Incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K, filed on September 2, 2014. (14) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 5 to the Registration Statement on Form N-2, filed on April 5, 2012. (15) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 6 to the Registration Statement on Form N-2, filed on April 12, 2012. (16) Incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K, filed on April 16, 2012. (17) Incorporated by reference to Exhibit 4.2 of the Registrant’s Form 8-K, filed on April 16, 2012. (18) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 8 to the Registration Statement on Form N-2, filed on April 26, 2012. 247 (19) Incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K, filed on August 14, 2012. (20) Incorporated by reference to Exhibit 4.2 of the Registrant’s Form 8-K, filed on August 14, 2012. (21) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 26 to the Registration Statement on Form N-2, filed on September 27, 2012. (22) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 27 to the Registration Statement on Form N-2, filed on October 4, 2012. (23) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 2 to the Registration Statement on Form N-2, filed on November 23, 2012. (24) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 3 to the Registration Statement on Form N-2, filed on November 29, 2012. (25) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 4 to the Registration Statement on Form N-2, filed on December 6, 2012. (26) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 5 to the Registration Statement on Form N-2, filed on December 13, 2012. (27) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 6 to the Registration Statement on Form N-2, filed on December 20, 2012. (28) Incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K, filed on December 21, 2012. (29) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 8 to the Registration Statement on Form N-2, filed on December 28, 2012. (30) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 9 to the Registration Statement on Form N-2, filed on January 4, 2013. (31) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 10 to the Registration Statement on Form N-2, filed on January 10, 2013. (32) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 11 to the Registration Statement on Form N-2, filed on January 17, 2013. (33) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 12 to the Registration Statement on Form N-2, filed on January 25, 2013. (34) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 13 to the Registration Statement on Form N-2, filed on January 31, 2013. (35) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 14 to the Registration Statement on Form N-2, filed on February 7, 2013. (36) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 16 to the Registration Statement on Form N-2, filed on February 22, 2013. (37) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 17 to the Registration Statement on Form N-2, filed on February 28, 2013. (38) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 18 to the Registration Statement on Form N-2, filed on March 7, 2013. (39) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 19 to the Registration Statement on Form N-2, filed on March 14, 2013. (40) Incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K, filed on March 15, 2013. (41) Incorporated by reference to Exhibit 4.2 of the Registrant’s Form 8-K, filed on March 15, 2013. (42) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 21 to the Registration Statement on Form N-2, filed on March 21, 2013. (43) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 22 to the Registration Statement on Form N-2, filed on March 28, 2013. (44) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 23 to the Registration Statement on Form N-2, filed on April 4, 2013. (45) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 24 to the Registration Statement on Form N-2, filed on April 11, 2013. (46) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 25 to the Registration Statement on Form N-2, filed on April 18, 2013. (47) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 26 to the Registration Statement on Form N-2, filed on April 25, 2013. (48) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 27 to the Registration Statement on Form N-2, filed on May 2, 2013. 248 (49) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 29 to the Registration Statement on Form N-2, filed on May 9, 2013. (50) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 30 to the Registration Statement on Form N-2, filed on May 23, 2013. (51) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 31 to the Registration Statement on Form N-2, filed on May 31, 2013. (52) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 32 to the Registration Statement on Form N-2, filed on June 6, 2013. (53) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 33 to the Registration Statement on Form N-2, filed on June 13, 2013. (54) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 34 to the Registration Statement on Form N-2, filed on June 20, 2013. (55) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 35 to the Registration Statement on Form N-2, filed on June 27, 2013. (56) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 36 to the Registration Statement on Form N-2, filed on July 5, 2013. (57) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 37 to the Registration Statement on Form N-2, filed on July 11, 2013. (58) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 38 to the Registration Statement on Form N-2, filed on July 18, 2013. (59) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 39 to the Registration Statement on Form N-2, filed on July 25, 2013. (60) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 40 to the Registration Statement on Form N-2, filed on August 1, 2013. (61) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 41 to the Registration Statement on Form N-2, filed on August 8, 2013. (62) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 42 to the Registration Statement on Form N-2, filed on August 15, 2013. (63) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 43 to the Registration Statement on Form N-2, filed on August 22, 2013. (64) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 45 to the Registration Statement on Form N-2, filed on September 6, 2013. (65) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 46 to the Registration Statement on Form N-2, filed on September 12, 2013. (66) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 47 to the Registration Statement on Form N-2, filed on September 19, 2013. (67) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 48 to the Registration Statement on Form N-2, filed on September 26, 2013. (68) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 49 to the Registration Statement on Form N-2, filed on October 3, 2013. (69) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 50 to the Registration Statement on Form N-2, filed on October 10, 2013. (70) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 51 to the Registration Statement on Form N-2, filed on October 18, 2013. (71) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 3 to the Registration Statement on Form N-2, filed on October 24, 2013. (72) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 4 to the Registration Statement on Form N-2, filed on October 31, 2013. (73) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 6 to the Registration Statement on Form N-2, filed on November 7, 2013. (74) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 7 to the Registration Statement on Form N-2, filed on November 15, 2013. (75) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 8 to the Registration Statement on Form N-2, filed on November 21, 2013. (76) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 9 to the Registration Statement on Form N-2, filed on November 29, 2013. 249 (77) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 10 to the Registration Statement on Form N-2, filed on December 5, 2013. (78) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 11 to the Registration Statement on Form N-2, filed on December 12, 2013. (79) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 12 to the Registration Statement on Form N-2, filed on December 19, 2013. (80) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 13 to the Registration Statement on Form N-2, filed on December 27, 2013. (81) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 14 to the Registration Statement on Form N-2, filed on January 3, 2014. (82) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 15 to the Registration Statement on Form N-2, filed on January 9, 2014. (83) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 16 to the Registration Statement on Form N-2, filed on January 16, 2014. (84) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 17 to the Registration Statement on Form N-2, filed on January 24, 2014. (85) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 18 to the Registration Statement on Form N-2, filed on January 30, 2014. (86) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 19 to the Registration Statement on Form N-2, filed on February 6, 2014. (87) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 20 to the Registration Statement on Form N-2, filed on February 13, 2014. (88) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 21 to the Registration Statement on Form N-2, filed on February 19, 2014. (89) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 22 to the Registration Statement on Form N-2, filed on February 21, 2014. (90) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 23 to the Registration Statement on Form N-2, filed on February 27, 2014. (91) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 24 to the Registration Statement on Form N-2, filed on March 6, 2014. (92) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 25 to the Registration Statement on Form N-2, filed on March 11, 2014. (93) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 26 to the Registration Statement on Form N-2, filed on March 13, 2014. (94) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 27 to the Registration Statement on Form N-2, filed on March 20, 2014. (95) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 28 to the Registration Statement on Form N-2, filed on March 27, 2014. (96) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 29 to the Registration Statement on Form N-2, filed on April 3, 2014. (97) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 30 to the Registration Statement on Form N-2, filed on April 7, 2014. (98) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 31 to the Registration Statement on Form N-2, filed on April 10, 2014. (99) Incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K, filed on April 16, 2014. (100) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 32 to the Registration Statement on Form N-2, filed on April 17, 2014. (101) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 33 to the Registration Statement on Form N-2, filed on April 24, 2014. (102) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 34 to the Registration Statement on Form N-2, filed on May 1, 2014. (103) Incorporated by reference from the Registrant’s Post-Effective Amendment No. 35 to the Registration Statement on Form N-2, filed on May 8, 2014. (104) Incorporated by reference to Exhibit 10.12 of the Registrant’s Form 10-K, filed on August 25, 2014. (105) Incorporated by reference to Exhibit 10.13 of the Registrant’s Form 10-K, filed on August 25, 2014. 250 (106) Incorporated by reference from the Registrant's Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2, filed on October 14, 2014. (107) Incorporated by reference to Exhibit 99.1 of the Registrant's Form 10-K/A, filed on November 3, 2014. (108) Incorporated by reference from the Registrant's Pre-Effective Amendment No. 2 to the Registration Statement on Form N-2, filed on November 3, 2014. (109) Incorporated by reference from the Registrant's Post-Effective Amendment No. 1 to the Registration Statement on Form N-2, filed on November 3, 2014. (110) Incorporated by reference from the Registrant's Post-Effective Amendment No. 2 to the Registration Statement on Form N-2, filed on November 20, 2014. (111) Incorporated by reference from the Registrant's Post-Effective Amendment No. 3 to the Registration Statement on Form N-2, filed on November 28, 2014. (112) Incorporated by reference from the Registrant's Post-Effective Amendment No. 4 to the Registration Statement on Form N-2, filed on December 4, 2014. (113) Incorporated by reference from the Registrant's Post-Effective Amendment No. 5 to the Registration Statement on Form N-2, filed on December 11, 2014. (114) Incorporated by reference from the Registrant's Post-Effective Amendment No. 6 to the Registration Statement on Form N-2, filed on December 18, 2014. (115) Incorporated by reference from the Registrant's Post-Effective Amendment No. 7 to the Registration Statement on Form N-2, filed on December 29, 2014. (116) Incorporated by reference from the Registrant's Post-Effective Amendment No. 8 to the Registration Statement on Form N-2, filed on January 5, 2015. (117) Incorporated by reference from the Registrant's Post-Effective Amendment No. 9 to the Registration Statement on Form N-2, filed on January 8, 2015. (118) Incorporated by reference from the Registrant's Post-Effective Amendment No. 10 to the Registration Statement on Form N-2, filed on January 15, 2015. (119) Incorporated by reference from the Registrant's Post-Effective Amendment No. 11 to the Registration Statement on Form N-2, filed on January 23, 2015. (120) Incorporated by reference from the Registrant's Post-Effective Amendment No. 12 to the Registration Statement on Form N-2, filed on January 29, 2015. (121) Incorporated by reference from the Registrant's Post-Effective Amendment No. 13 to the Registration Statement on Form N-2, filed on February 5, 2015. (122) Incorporated by reference from the Registrant's Post-Effective Amendment No. 14 to the Registration Statement on Form N-2, filed on February 20, 2015. (123) Incorporated by reference from the Registrant's Post-Effective Amendment No. 15 to the Registration Statement on Form N-2, filed on February 26, 2015. (124) Incorporated by reference from the Registrant's Post-Effective Amendment No. 16 to the Registration Statement on Form N-2, filed on March 5, 2015. (125) Incorporated by reference from the Registrant's Post-Effective Amendment No. 17 to the Registration Statement on Form N-2, filed on March 12, 2015. (126) Incorporated by reference from the Registrant's Post-Effective Amendment No. 18 to the Registration Statement on Form N-2, filed on March 19, 2015. (127) Incorporated by reference from the Registrant's Post-Effective Amendment No. 19 to the Registration Statement on Form N-2, filed on March 26, 2015. (128) Incorporated by reference from the Registrant's Post-Effective Amendment No. 20 to the Registration Statement on Form N-2, filed on April 2, 2015. (129) Incorporated by reference from the Registrant's Post-Effective Amendment No. 21 to the Registration Statement on Form N-2, filed on April 9, 2015. (130) Incorporated by reference from the Registrant's Post-Effective Amendment No. 22 to the Registration Statement on Form N-2, filed on April 16, 2015. (131) Incorporated by reference from the Registrant's Post-Effective Amendment No. 23 to the Registration Statement on Form N-2, filed on April 23, 2015. (132) Incorporated by reference from the Registrant's Post-Effective Amendment No. 24 to the Registration Statement on Form N-2, filed on April 29, 2015. (133) Incorporated by reference from the Registrant's Post-Effective Amendment No. 25 to the Registration Statement on Form N-2, filed on May 7, 2015. 251 (134) Incorporated by reference from the Registrant's Post-Effective Amendment No. 26 to the Registration Statement on Form N-2, filed on May 21, 2015. (135) Incorporated by reference from the Registrant's Post-Effective Amendment No. 27 to the Registration Statement on Form N-2, filed on May 29, 2015. (136) Incorporated by reference from the Registrant's Post-Effective Amendment No. 28 to the Registration Statement on Form N-2, filed on June 4, 2015. (137) Incorporated by reference from the Registrant's Post-Effective Amendment No. 29 to the Registration Statement on Form N-2, filed on June 11, 2015. (138) Incorporated by reference from the Registrant's Post-Effective Amendment No. 30 to the Registration Statement on Form N-2, filed on June 18, 2015. (139) Incorporated by reference from the Registrant's Post-Effective Amendment No. 31 to the Registration Statement on Form N-2, filed on June 25, 2015. (140) Incorporated by reference from the Registrant's Post-Effective Amendment No. 32 to the Registration Statement on Form N-2, filed on July 2, 2015. (141) Incorporated by reference from the Registrant's Post-Effective Amendment No. 33 to the Registration Statement on Form N-2, filed on July 9, 2015. (142) Incorporated by reference from the Registrant's Post-Effective Amendment No. 34 to the Registration Statement on Form N-2, filed on July 16, 2015. (143) Incorporated by reference from the Registrant's Post-Effective Amendment No. 35 to the Registration Statement on Form N-2, filed on July 23, 2015. (144) Incorporated by reference from the Registrant's Post-Effective Amendment No. 36 to the Registration Statement on Form N-2, filed on July 30, 2015. (145) Incorporated by reference from the Registrant's Post-Effective Amendment No. 37 to the Registration Statement on Form N-2, filed on August 6, 2015. (146) Incorporated by reference from the Registrant's Post-Effective Amendment No. 38 to the Registration Statement on Form N-2, filed on August 13, 2015. (147) Incorporated by reference from the Registrant's Post-Effective Amendment No. 39 to the Registration Statement on Form N-2, filed on August 20, 2015. (148) Incorporated by reference from the Registrant's Post-Effective Amendment No. 40 to the Registration Statement on Form N-2, filed on August 27, 2015. (149) Incorporated by reference to Exhibit 14 of the Registrant’s Form 10-K, filed on August 26, 2015. (150) Incorporated by reference from the Registrant's Pre-Effective Registration Statement on Form N-2, filed on August 31, 2015. (151) Incorporated by reference to Exhibit 99.1 of the Registrant’s Form 10-K/A, filed on September 11, 2015. (152) Incorporated by reference to Exhibit 99.2 of the Registrant’s Form 10-K/A, filed on September 11, 2015. (153) Incorporated by reference from the Registrant's Post-Effective Amendment No. 42 to the Registration Statement on Form N-2, filed on September 16, 2015. (154) Incorporated by reference from the Registrant's Post-Effective Amendment No. 43 to the Registration Statement on Form N-2, filed on September 17, 2015. (155) Incorporated by reference from the Registrant's Post-Effective Amendment No. 44 to the Registration Statement on Form N-2, filed on September 24, 2015. (156) Incorporated by reference from the Registrant's Post-Effective Amendment No. 45 to the Registration Statement on Form N-2, filed on October 1, 2015. (157) Incorporated by reference from the Registrant's Post-Effective Amendment No. 46 to the Registration Statement on Form N-2, filed on October 8, 2015. (158) Incorporated by reference from the Registrant's Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2, filed on October 9, 2015. (159) Incorporated by reference from the Registrant's Post-Effective Amendment No. 47 to the Registration Statement on Form N-2, filed on October 16, 2015. (160) Incorporated by reference from the Registrant's Post-Effective Amendment No. 48 to the Registration Statement on Form N-2, filed on October 22, 2015. (161) Incorporated by reference from the Registrant's Post-Effective Amendment No. 49 to the Registration Statement on Form N-2, filed on October 29, 2015. (162) Incorporated by reference from the Registrant's Pre-Effective Amendment No. 2 to the Registration Statement on Form N-2, filed on November 2, 2015. 252 (163) Incorporated by reference from the Registrant's Post-Effective Amendment No. 50 to the Registration Statement on Form N-2, filed on November 4, 2015. (164) Incorporated by reference from the Registrant's Post-Effective Amendment No. 1 to the Registration Statement on Form N-2, filed on November 19, 2015. (165) Incorporated by reference from the Registrant's Post-Effective Amendment No. 2 to the Registration Statement on Form N-2, filed on November 27, 2015. (166) Incorporated by reference from the Registrant's Post-Effective Amendment No. 3 to the Registration Statement on Form N-2, filed on December 3, 2015. (167) Incorporated by reference from the Registrant's Post-Effective Amendment No. 4 to the Registration Statement on Form N-2, filed on December 10, 2015. (168) Incorporated by reference from the Registrant's Post-Effective Amendment No. 5 to the Registration Statement on Form N-2, filed on December 17, 2015. (169) Incorporated by reference from the Registrant's Post-Effective Amendment No. 6 to the Registration Statement on Form N-2, filed on December 24, 2015. (170) Incorporated by reference from the Registrant's Post-Effective Amendment No. 7 to the Registration Statement on Form N-2, filed on December 31, 2015. (171) Incorporated by reference from the Registrant's Post-Effective Amendment No. 8 to the Registration Statement on Form N-2, filed on January 7, 2016. (172) Incorporated by reference from the Registrant's Post-Effective Amendment No. 9 to the Registration Statement on Form N-2, filed on January 14, 2016. (173) Incorporated by reference from the Registrant's Post-Effective Amendment No. 10 to the Registration Statement on Form N-2, filed on January 22, 2016. (174) Incorporated by reference from the Registrant's Post-Effective Amendment No. 11 to the Registration Statement on Form N-2, filed on February 12, 2016. (175) Incorporated by reference from the Registrant's Post-Effective Amendment No. 12 to the Registration Statement on Form N-2, filed on March 3, 2016. (176) Incorporated by reference from the Registrant's Post-Effective Amendment No. 13 to the Registration Statement on Form N-2, filed on March 10, 2016. (177) Incorporated by reference from the Registrant's Post-Effective Amendment No. 14 to the Registration Statement on Form N-2, filed on March 17, 2016. (178) Incorporated by reference from the Registrant's Post-Effective Amendment No. 15 to the Registration Statement on Form N-2, filed on March 24, 2016. (179) Incorporated by reference from the Registrant's Post-Effective Amendment No. 16 to the Registration Statement on Form N-2, filed on March 31, 2016. (180) Incorporated by reference from the Registrant's Post-Effective Amendment No. 17 to the Registration Statement on Form N-2, filed on April 7, 2016. (181) Incorporated by reference from the Registrant's Post-Effective Amendment No. 18 to the Registration Statement on Form N-2, filed on April 14, 2016. (182) Incorporated by reference from the Registrant's Post-Effective Amendment No. 19 to the Registration Statement on Form N-2, filed on April 21, 2016. (183) Incorporated by reference from the Registrant's Post-Effective Amendment No. 20 to the Registration Statement on Form N-2, filed on April 28, 2016. (184) Incorporated by reference from the Registrant's Post-Effective Amendment No. 21 to the Registration Statement on Form N-2, filed on May 5, 2016. (185) Incorporated by reference from the Registrant's Post-Effective Amendment No. 22 to the Registration Statement on Form N-2, filed on May 12, 2016. (186) Incorporated by reference from the Registrant's Post-Effective Amendment No. 23 to the Registration Statement on Form N-2, filed on May 26, 2016. (187) Incorporated by reference from the Registrant's Post-Effective Amendment No. 24 to the Registration Statement on Form N-2, filed on June 3, 2016. (188) Incorporated by reference from the Registrant's Post-Effective Amendment No. 25 to the Registration Statement on Form N-2, filed on June 9, 2016. (189) Incorporated by reference from the Registrant's Post-Effective Amendment No. 26 to the Registration Statement on Form N-2, filed on June 16, 2016. (190) Incorporated by reference from the Registrant's Post-Effective Amendment No. 27 to the Registration Statement on Form N-2, filed on June 23, 2016. 253 (191) Incorporated by reference from the Registrant's Post-Effective Amendment No. 28 to the Registration Statement on Form N-2, filed on June 30, 2016. (192) Incorporated by reference from the Registrant's Post-Effective Amendment No. 29 to the Registration Statement on Form N-2, filed on July 8, 2016. (193) Incorporated by reference from the Registrant's Post-Effective Amendment No. 30 to the Registration Statement on Form N-2, filed on July 14, 2016. (194) Incorporated by reference from the Registrant's Post-Effective Amendment No. 31 to the Registration Statement on Form N-2, filed on July 21, 2016. (195) Incorporated by reference from the Registrant's Post-Effective Amendment No. 32 to the Registration Statement on Form N-2, filed on July 28, 2016. (196) Incorporated by reference from the Registrant's Post-Effective Amendment No. 33 to the Registration Statement on Form N-2, filed on August 4, 2016. (197) Incorporated by reference from the Registrant's Post-Effective Amendment No. 34 to the Registration Statement on Form N-2, filed on August 11, 2016. (198) Incorporated by reference from the Registrant's Post-Effective Amendment No. 35 to the Registration Statement on Form N-2, filed on August 18, 2016. (199) Incorporated by reference from the Registrant's Post-Effective Amendment No. 36 to the Registration Statement on Form N-2, filed on August 25, 2016. (200) Incorporated by reference from the Registrant's Proxy Statement, filed on September 10, 2015. (201) Incorporated by reference from the Registrant’s Form 8-K, filed on December 7, 2015. (202) Incorporated by reference from the Registrant’s Form 8-K, filed on January 8, 2016. 254 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on August 29, 2016 . SIGNATURES PROSPECT CAPITAL CORPORATION By: /s/ JOHN F. BARRY III John F. Barry III Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ JOHN F. BARRY III John F. Barry III Chairman of the Board, Chief Executive Officer and Director August 29, 2016 /s/ BRIAN H. OSWALD Brian H. Oswald Chief Financial Officer August 29, 2016 /s/ M. GRIER ELIASEK M. Grier Eliasek President, Chief Operating Officer and Director August 29, 2016 /s/ ANDREW C. COOPER Andrew C. Cooper Director August 29, 2016 /s/ WILLIAM J. GREMP William J. Gremp Director August 29, 2016 /s/ EUGENE S. STARK Eugene S. Stark Director August 29, 2016 CODE OF ETHICS FOR PROSPECT CAPITAL CORPORATION PROSPECT CAPITAL MANAGEMENT L.P. (Board Approved: August 25, 2016) Section I. Statement of General Fiduciary Principles This Code of Ethics (the “Code”) has been adopted by each of Prospect Capital Corporation and its consolidated subsidiaries (“PCC” or the “Corporation”), and Prospect Capital Management L.P., the investment adviser (the “Adviser” or “PCM”) of the Corporation (together “Prospect”) , in compliance with Rule 17j-1 under the Investment Company Act of 1940 (the “1940 Act”) and Rule 204A-1 under the Investment Advisers Act of 1940 (the “Advisers Act”). The purpose of the Code is to establish standards and procedures for the detection and prevention of activities by which persons having knowledge of the investments, investment intentions and other non-public information of the Corporation may abuse their fiduciary duty to the Corporation, and otherwise to deal with the types of conflict of interest situations to which Rule 17j-1 and Rule 204A-1 are addressed. The Code is based on the principle that the directors and officers of the Corporation, and the managers, partners, officers and employees of the Adviser, who provide services to the Corporation, (i) owe a fiduciary duty to the Corporation to conduct their personal securities transactions in a manner that does not interfere with the Corporation’s transactions or otherwise take unfair advantage of their relationship with the Corporation, and (ii) owe a fiduciary duty of care, loyalty, honesty and good faith to act in the best interests of the Corporation and its shareholders. All Access Persons (as defined below) are expected to adhere to this general principle as well as to comply with all of the specific provisions of this Code that are applicable to them. Any Access Person who is affiliated with another entity that is a registered investment adviser is, in addition, expected to comply with the provisions of the code of ethics that has been adopted by such other investment adviser. Technical compliance with the Code will not automatically insulate any Access Person from scrutiny of transactions that show a pattern of compromise or abuse of the individual’s fiduciary duty to the Corporation. Accordingly, all Access Persons must seek to avoid any actual or potential conflicts between their personal interests and the interests of the Corporation and its shareholders. In sum, all Access Persons shall place the interests of the Corporation before their own personal interests. All Access Persons must read and retain this Code of Ethics. Section II Definitions (A) “Access Person” means any Supervised Person (as defined below) of the Adviser who has access to non-public information regarding the Corporation or any other clients’ purchase or sale of securities, or non-public information regarding the portfolio holdings of the Corporation or any other clients for which the Adviser serves as investment adviser, or whose investment adviser or principal underwriter controls (as defined below) the Adviser, is controlled by the Adviser, or is under common control with the Adviser, or Advisory Person (as defined below) of the Corporation or the Adviser. (B) An “Advisory Person” of the Corporation or the Adviser means: (i) any director, officer, general partner or employee of the Corporation or the Adviser, or any company in a control relationship to the Corporation or the Adviser, who in connection with his or her regular functions or duties makes, participates in, or obtains information regarding the purchase or sale of any Covered Security (as defined below) by the Corporation, or whose functions relate to the making of any recommendation with respect to such purchases or sales; and (ii) any natural person in a control relationship to the Corporation or the Adviser, who obtains information concerning recommendations made to the Corporation with regard to the purchase or sale of any Covered Security by the Corporation. (C) “Beneficial Ownership” is interpreted in the same manner as it would be under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended (the “1934 Act”). Under this Rule, a person is deemed to have 1 beneficial ownership of a security if the person, directly or indirectly, through contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in such security. A “pecuniary interest” in a security means the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the security. A person is presumed to have an “indirect pecuniary interest” in securities held by a member of his or her “Immediate Family” (although this presumption may be rebutted). For purposes of the Rule, “Immediate Family” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son- in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships. An indirect pecuniary interest also includes, among other things: • • a general partner’s proportionate interest in the portfolio securities held by a general or limited partnership; subject to certain exceptions specified in the Rule, a performance-related fee, other than an asset-based fee, received by any broker, dealer, bank, insurance company, investment company, investment adviser, investment manager, trustee or person or entity performing a similar function; a person’s right to dividends that is separated or separable from the underlying securities; • • a person’s interest in securities held by certain trusts; and • a person’s right to acquire equity securities through the exercise or conversion of any derivative security, whether or not presently exercisable. The term “derivative security” means any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege at a price related to an equity security, or similar securities with a value derived from the value of an equity security. A person who is a shareholder of a corporation or similar entity is not deemed to have a pecuniary interest in portfolio securities held by the corporation or the entity if the shareholder is not a controlling shareholder of the corporation or the entity and does not have or share investment control over the corporation’s or the entity’s portfolio. (D) “Chief Compliance Officer” means the Chief Compliance Officer of the Corporation or the Adviser, as the context requires. (E) (F) “Control” shall have the same meaning as that set forth in Section 2(a)(9) of the 1940 Act. Under the 1940 Act, “control” means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with the company. A person is presumed to control a company if he or she owns beneficially, either directly or through one or more controlled companies, more than 25% of the voting securities of that company. “Covered Security” means a security as defined in Section 2(a)(36) of the 1940 Act and Section 202(a)(18) of the Advisers Act, which includes: any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit- sharing agreement, collateral-trust certificate, pre-organization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security,” or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. Covered Security also means any exchange traded fund. “Covered Security” does not include: (i) direct obligations of the Government of the United States; (ii) bankers’ acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; (iii) shares issued by money market funds; (iv) shares issued by open-end investment companies registered under the 1940 Act that are not Reportable Funds (as defined below); and (v) shares issued by unit investment trusts that are invested exclusively in one or more open-end investment companies registered under the 1940 Act, none of which are Reportable Funds. 2 References to a Covered Security in this Code (e.g., a prohibition or requirement applicable to the purchase or sale of a Covered Security) shall be deemed to refer to and to include any warrant for, option in, or security immediately convertible into that Covered Security, and shall also include any instrument that has an investment return or value that is based, in whole or in part, on that Covered Security (collectively, “Derivatives”). Therefore, except as otherwise specifically provided by this Code: (i) any prohibition or requirement of this Code applicable to the purchase or sale of a Covered Security shall also be applicable to the purchase or sale of a Derivative relating to that Covered Security; and (ii) any prohibition or requirement of this Code applicable to the purchase or sale of a Derivative shall also be applicable to the purchase or sale of a Covered Security relating to that Derivative. (G) “Independent Director” means a director of the Corporation who is not an “interested person” of the Corporation within the meaning of Section 2(a)(19) of the 1940 Act. (H) “Initial Public Offering” means an offering of securities registered under the Securities Act of 1933 (the “1933 Act”), the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the 1934 Act. (I) (J) (K) (L) “Limited Offering” means an offering that is exempt from registration under the 1933 Act pursuant to Section 4(2) or Section 4(6) thereof or pursuant to Rule 504, Rule 505, or Rule 506 thereunder. “Reportable Fund” means any investment company registered under the 1940 Act: (i) for which the Adviser serves as an investment adviser; or (ii) whose investment adviser or principal underwriter controls the Adviser, is controlled by the Adviser or is under common control with the Adviser. “Security Held or to be Acquired” by the Corporation means: (i) any Covered Security which, within the most recent 15 days: (A) is or has been held by the Corporation; or (B) is being or has been considered by the Corporation or the Adviser for purchase by the Corporation; and (ii) any option to purchase or sell, and any security convertible into or exchangeable for, a Covered Security described in Section II (F). “Supervised Person” means any partner, officer, director (or other person occupying a similar status or performing similar functions) or employee of the Adviser, or other person who provides investment advice on behalf of the Adviser and is subject to the supervision and control of the Adviser. Section III Objective and General Prohibitions A. As set forth in this Code, all Supervised Persons must comply with applicable federal securities laws and regulations. Access Persons may not engage in any investment transaction under circumstances in which he or she benefits from or interferes with the purchase or sale of investments by the Corporation (or the Adviser on behalf of the Corporation). In addition, Access Persons may not use information concerning the investments or investment intentions of the Corporation, or such person’s ability to improperly influence such investment intentions, for personal gain or in a manner detrimental to the interests of the Corporation. Access Persons may not engage in conduct that is deceitful, fraudulent or manipulative, or that involves false or misleading statements, in connection with the purchase or sale of investments by the Corporation. In this regard, Access Persons should recognize that Rule 17j-1 makes it unlawful for any affiliated person of the Corporation, or any affiliated person of an investment adviser for the Corporation, in connection with the purchase or sale, directly or indirectly, by the person of a Security Held or to be Acquired by the Corporation to: (i) (ii) (iii) employ any device, scheme or artifice to defraud the Corporation; make any untrue statement of a material fact to the Corporation or omit to state to the Corporation a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; engage in any act, practice or course of business that operates or would operate as a fraud or deceit upon the Corporation; or 3 (iv) engage in any manipulative practice with respect to the Corporation. Access Persons should also recognize that a violation of this Code, Rule 17j-1 or Rule 204A-1 may result in the imposition of: (1) sanctions as provided by Section VIII below; or (2) administrative, civil and, in certain cases, criminal fines, sanctions or penalties. No Access Person may trade any security without advance approval from an Approving Officer. B. For purposes of this Section III.B, (i) “Prospect” shall mean Prospect Capital Corporation, Prospect Capital Management L.P., Prospect Administration LLC, and any affiliate or portfolio company of any of the foregoing; (ii) “AP” shall mean any Access Person; and (iii) “relationship” shall mean, without limitation, any employment, consulting or other arrangement with Prospect. For a period ending on the later of (a) two years after the most recent circulation hereof to any AP, and (b) one year after termination of any AP’s relationship with Prospect, such AP shall not enter into discussions for a commercial relationship, nor consummate a commercial relationship, with (i) Prospect, or (ii) any person, entity or counterparty (x) with which Prospect has communicated, (y) as to which Prospect has considered issuing a term sheet or similar document, or (z) that Prospect has been in discussions with about a term sheet or similar document, in the case of each of (x), (y) or (z), at any time during the course of such AP’s relationship with Prospect. Notwithstanding any other provision, document or agreement, in addition to each AP agreeing to comply with all common law duties imposed upon an officer or employee, and those contained in this Manual, such AP also agrees not to aid any competitor or potential competitor of Prospect engaged in secured, senior, second lien, subordinated or mezzanine lending or private equity investing (a) in the New York, New Jersey, Connecticut “Tri State” area, (b) east of the Mississippi River, (c) in the United States or (d) in North America, or to do anything with any competitor or any such potential competitor to the potential detriment of Prospect during the term of the AP’s employment with Prospect and for one year thereafter. During, and for a period of one year after termination of, a AP’s employment with Prospect, such AP agrees not to take any action directly or indirectly that could impair PCM or any affiliate’s contract or relationship with PCC or any affiliate. Activities constituting a violation of this agreement include, among other things (the following list being non-exhaustive and included for illustrative purposes only): direct or indirect employment by or acting as a consultant to, or being a research analyst, portfolio manager, business development professional, employee, agent, owner or partner of, or permitting your name to be used in connection with the activities of any other business or organization (a) in the New York, New Jersey, Connecticut “Tri State” area, (b) east of the Mississippi River, (c) in the United States or (d) in North America, which provides services or products of a nature substantially similar to those provided by Prospect, PCC or any affiliate, or which otherwise competes with Prospect, PCC or any affiliate. For a period of one year following termination of each AP’s employment with Prospect, such AP agrees (x) not to enter into discussions for a commercial relationship, nor consummate a commercial relationship, with (i) any existing portfolio company of Prospect, (ii) any person, entity or counterparty as to which Prospect has issued a term sheet at any time prior to such AP’s departure from Prospect, or (iii) any person, entity or counterparty that Prospect has been in discussions with about a term sheet at any time prior to such AP’s departure from Prospect; and (y) not tosolicit any person or personnel associated with Prospect to work elsewhere, or compete with Prospect or do anything that could or might potentially impair, in any way, any aspect of Prospect’s business by using any confidential proprietary or nonpublic information such AP acquires as a result of or in connection with such AP’s employment by Prospect for any purpose other than to advance the business objectives of Prospect and even then only as authorized by the Chief Compliance Officer of each of Prospect and PCC. Notwithstanding any provision of this Manual or any other agreement or document, each AP agrees, as a condition of their offer of a relationship and of any continuing employment, that the agreements set forth in this Section III.B are a contract between such AP and Prospect, enforceable as a contract ancillary to such AP’s relationship with Prospect, without which no such employment would be permitted to exist. Each AP agrees to respect the confidentiality of all confidential, proprietary or nonpublic information such AP obtains as a result of or in connection with such AP’s relationship with Prospect or any of its affiliates. Each AP agrees not to use any such confidential, proprietary or nonpublic information for any purpose other than the purpose for which it has been entrusted to such AP, and will not use it to compete with or otherwise harm Prospect. 4 Each AP of Prospect, and of any company Prospect invests in, is required to obey all standards of prudence and safety, and to comply at all times with all civil and criminal legal standards, including but not limited to all international, federal, state, local, SRO, and other duly constituted authority laws, regulations, procedures and protocols, and best practices, at all times, at work, at home, on vacation, domestically and internationally, and to do everything possible at all times to avoid any potential risk, harm or injury to the person or property of anyone or anything else, wherever situated. Accordingly, just as illustrative examples, it shall be a violation of the Compliance Manual of each of PCC and PCM to talk on a cell phone while driving, text message while driving, drive while under the influence of alcohol, drive above applicable speed limits, trespass, refuse to cooperate with an officer, ski or snowboard faster than is prudent, listen to an iPod while snowboarding, jaywalk, or fail to exercise due care on a golf course, at the beach, walking on the streets of New York City, making discriminatory or hurtful remarks, faces or gestures, etc. The above list is designed to be illustrative only and in no way exhaustive. Lapses of sound judgment are violations of the Compliance Manual of each of PCC and PCM. Annex A is an integral part of this Section III.B as fully as if set forth herein in haec verba . Section IV Prohibited Transactions Access Persons must comply with Section 9.4.2 of the Adviser’s Compliance Manual, which is excerpted below and may not purchase or sell any individual publicly traded security without advance approval from the CCO of PCM or the CCO of PCC. Mutual Funds are exempt from this prohibition. 9.4.2 Restricted Lists Upon notice that an employee of PCM is in possession of any material, non-public information regarding an issuer, or otherwise at his or her discretion, the Chief Compliance Officer of PCM will place the issuer on a “Restricted List” and circulate the list to employees. PCM officers, employees and their immediate family members are prohibited from personally, or on behalf of an advisory account, purchasing or selling securities of an issuer during any period the issuer is listed on the Restricted List. Issuers of which PCM employees are expected to have material, non-public information on a regular basis should generally be placed on the Restricted List. The Chief Compliance Officer of PCM shall take steps to immediately inform all employees of the issuers listed on the Restricted List. Personal Trading of PSEC shares No affiliate, director, member, officer or employee of PCC or PCM, or any other person who has access to non-public information pertaining to the operations, assets, investment activities or other material matters concerning the Corporation ("Access Persons") and their immediate family members may trade in the Corporation’s shares (“PSEC Shares”): (i) (ii) (iii) (iv) under any circumstances, when in possession of material non-public information; without advance permission of one of the CCO of PCC or CCO of PCM (the "Approving Officers"); without providing a written confirm of any permitted trade under paragraph (ii) above immediately to the Approving Officers; and other than during the period beginning on the business day immediately following any earnings call held by or on behalf of PCC and ending on the later of (x) the four week anniversary of such date, or (y) one week before the end of the next fiscal quarter; provided, that such “trading window” shall be closed at any time any Approving Officer comes into possession of material non-public information. Notwithstanding the foregoing, an Access Person is not permitted to short PSEC Shares (or enter into any Derivative which has the economic effect of increasing in value when PSEC Shares decrease in value). Upon submitting prospective trades to the Approving Officers for pre-approval, the applicant will be informed of any restrictions or black-out periods due to 10Q or 10K filings or for any other reason that warrants suspension of trading by Access Persons in order to comply with applicable laws and regulations and the policies and procedures of PCC or PCM. 5 Additionally, Access Persons may make transactions in PSEC Shares outside the trading window if they are made pursuant to a predetermined, non-discretionary trading plan, provided such plan has been reviewed and approved by the PCM CCO. In addition, the Adviser may grant stock or other forms of equity of the Corporation to an Access Person outside the trading window if it is made pursuant to a predetermined employee stock plan or vesting schedule, provided such grant has been reviewed and approved by the PCM CCO. (A) Advisory Persons of the Corporation or the Adviser must obtain approval from the Corporation or the Adviser, as the case may be, before directly or indirectly acquiring Beneficial Ownership in any securities in an Initial Public Offering or in a Limited Offering. Such approval must be obtained from the Chief Compliance Officer of the Corporation or the Adviser, as the case may be, unless he is the person seeking such approval, in which case it must be obtained from the President of the Corporation or of the Adviser. (B) No Access Person shall recommend any transaction in any Covered Securities by the Corporation without having disclosed to the Chief Compliance Officer of the Adviser and the Corporation, his or her interest, if any, in such Covered Security or the issuer thereof, including: the Access Person’s Beneficial Ownership of any Covered Securities of such issuer; any contemplated transaction by the Access Person in such Covered Securities; any position or other economic interest that the Access Person has with such issuer; and any present or proposed business relationship between such issuer and the Access Person (or a party in which the Access Person has a significant interest). (C) An Access Person must comply with the Adviser’s insider trading policies and procedures with respect to material non-public information. Please refer to the section entitled “Insider Trading Procedures” in the Adviser’s Compliance Manual. Section V Reports by Access Persons (A) Initial Holdings Reports. No later than 10 days after a person becomes an Access Person, such person must file with the Chief Compliance Officer a Holdings Report [See attached]. The report requires the Access Person to list all Covered Securities in which the Access Person has Beneficial Ownership. It also requires the Access Person to list all brokers, dealers, and banks where the Access Person maintained an account in which any securities (not just Covered Securities) were held for the direct or indirect benefit of the Access Person on the date such person became an Access Person. The report must be current as of a date no more than 45 days prior to the date the person became an Access Person. For purposes of this section, the term “Access Person” shall also include such person’s Immediate Family sharing the same household. (B) Quarterly Transactions Reports No later than 30 days after the end of March, June, September, and December each year, each Access Person must file with the Chief Compliance Officer a Quarterly Transactions Report [See attached]. The report requires each Access Person to list all transactions (other than transactions effected pursuant to an automatic investment plan) during the most recent calendar quarter in Covered Securities, in which transactions such Access Person had Beneficial Ownership. The report also requires each Access Person to list all brokers, dealers, and banks where such Access Person established an account in which any securities (not just Covered Securities) were held during the quarter for the direct or indirect benefit of the Access Person. For purposes of this section, the term “Access Person” shall also include such person’s Immediate Family sharing the same household. Copies of statements or confirmations containing the information specified in the report may be submitted in lieu of listing the transactions. Access Persons submitting statements (or causing statements to be submitted) will be deemed to have satisfied this reporting requirement, and need only sign off quarterly on having complied. For periods in which no reportable transactions were effected, the Quarterly Transactions Report shall contain a representation that no transactions subject to the reporting requirements were effected during the relevant time period. 6 (C) Annual Holdings Reports By February 14 of each year, each Access Person must file with the Chief Compliance Officer an Annual Holdings Report [See attached]. The report requires the Access Person to list all Covered Securities in which the Access Person has Beneficial Ownership as of December 31 of the prior year. It also requires the Access Person to list all brokers, dealers, and banks where the Access Person maintained an account in which any securities (not just Covered Securities) were held for the direct or indirect benefit of the Access Person as of December 31 of the prior year. For purposes of this section, the term “Access Person” shall also include such person’s Immediate Family sharing the same household. (D) Exceptions to Reporting Requirements. (1) Independent Directors Notwithstanding the reporting requirements set forth in this Section V, an Independent Director who would be required to make a report under this Section V solely by reason of being a director of the Corporation is not required to file a Quarterly Transactions or Annual Holdings Form upon becoming a director of the Corporation. Such an Independent Director remains exempt from filing such Quarterly Transactions and Annual Holdings Forms unless such director knew or, in the ordinary course of fulfilling his or her official duties as a director of the Corporation, should have known that during the 15-day period immediately preceding or after the date of the transaction in a Covered Security by the director, such Covered Security is or was purchased or sold by the Corporation, or the Corporation or the Adviser considered purchasing or selling such Covered Security. (2) Access Persons An Access Person need not make any report under Section V with respect to transactions effected for, and Covered Securities held in, any account over which the Access Person has no direct or indirect influence or control. An Access Person of the Adviser need not submit a Quarterly Transactions Form if all of the information in the report would duplicate information held by the Adviser in its records that are required to be recorded pursuant to Rule 204-2(a)(13) under the Advisers Act, as amended, so long as the Adviser receives such information no later than 15 days after the end of the applicable calendar quarter. (E) Brokerage Accounts and Statements. Access Persons, except Independent Directors, shall: 1. within 15 days after the end of each calendar quarter, identify the name of the broker, dealer or bank with whom the Access Person established an account in which any securities were held during the quarter for the direct or indirect benefit of the Access Person and identify any new account(s) and the date the account(s) were established. This information shall be included on the appropriate Quarterly Transactions Form. 2. Instruct the brokers, dealers or banks with whom they maintain such an account to provide duplicate account statements to the Chief Compliance Officer of the Adviser. 3. On a quarterly basis, certify that they have complied with the requirements of (1) and (2) above as provided for in the Quarterly Acknowledgement Form. (F) Form of Reports. A Quarterly Transactions Form may be attached to broker statements or other statements which provide a list of all personal Covered Securities holdings and transactions in the time period covered by the report and contain the information required in the Quarterly Transactions Form. 7 (G) Responsibility to Report. It is the responsibility of each Access Person to take the initiative to comply with the requirements of this Section V. Any effort by the Corporation, or by the Adviser and its affiliates, to facilitate the reporting process does not change or alter that responsibility. (H) Where to File Reports. All Quarterly Transactions, Annual Holdings, and Quarterly Acknowledgement Forms must be filed with the Chief Compliance Officer of the Adviser or his or her appointee. (I) Disclaimers. Any report required by this Section V must contain a statement that the report will not be construed as an admission that the person making the report has any direct or indirect Beneficial Ownership in the Covered Security to which the report relates. Section VI Additional Prohibitions (A) Confidentiality. Until disclosed in a public report to shareholders or to the Securities and Exchange Commission in the normal course, it is the Adviser’s fiduciary duty to keep all information concerning the identity of security holdings and financial circumstances of the Corporation confidential. In addition, all information concerning the securities “being considered for purchase or sale” by the Corporation shall be kept confidential by all Access Persons and disclosed by them to other Access Persons only on a “need to know” basis or as otherwise permitted by law. It shall be the responsibility of the Chief Compliance Officer of the Adviser and the Corporation to report any inadequacy found in this regard to the directors of the Corporation. (B) Outside Business Activities and Directorships. Access Persons may not engage in any outside business activities that may give rise to actual, or the appearance of, conflicts of interest, interfere with the duties to the Corporation or the Adviser, or otherwise jeopardize the integrity or reputation of the Corporation or the Adviser. Similarly, no such outside business activities may be inconsistent with the interests of the Corporation or the Adviser. Access Persons may not use the Corporation’s or Adviser’s name or related trademarks for personal benefit (or for the benefit of a third party). All directorships of public or private companies held by Access Persons shall be reported to the Chief Compliance Officer of the Adviser and the Corporation. Section VII Certification (A) Initial, Quarterly and Annual Certification. It is the duty of each Access Person to read and understand the Code of Ethics and consult with the Chief Compliance Officer of the Adviser with respect to any portion of the Code that is not clearly understood. Access Persons who are directors, managers, officers or employees of the Corporation or the Adviser shall be required to certify initially, quarterly and annually that they have read this Code and that they understand it and recognize that they are subject to it and agree to comply with its terms. Furthermore, each time an amendment to the Code is made, Access Persons shall be required to submit a written acknowledgement that they have received, read and understood the amendments to the Code and agree to comply with its terms. On a quarterly and annual basis, Access Persons shall certify their understanding of the Code of Ethics and the Compliance Manuals by signing and submitting the Quarterly Acknowledgement Form to the Chief Compliance Officer of the Adviser or such designee. 8 (B) Board Review. No less frequently than annually, the Chief Compliance Officers of the Corporation and the Adviser must furnish to the Corporation’s board of directors, and the board must consider, a written report that: (A) describes any issues arising under this Code of Ethics or procedures since the last report to the board, including, but not limited to, information about material violations of the Code or procedures and sanctions imposed in response to material violations; and (B) certifies that the Corporation or the Adviser, as applicable, has adopted procedures reasonably necessary to prevent Access Persons from violating the Code. Section VIII Sanctions Any violation of this Code shall be subject to the imposition of such sanctions by the Corporation or the Adviser as may be deemed appropriate under the circumstances to achieve the purposes of Rule 17j-1, Rule 204A-1 and this Code. The sanctions to be imposed shall be determined by the board of directors, including a majority of the Independent Directors, provided, however, that with respect to violations by persons who are directors, managers, officers or employees of the Adviser (or of a company that controls the Adviser), the sanctions to be imposed shall be determined by the Adviser (or the controlling person thereof). Sanctions may include, but are not limited to, suspension or termination of employment, a letter of censure and/or restitution of an amount equal to the difference between the price paid or received by the Corporation and the more advantageous price paid or received by the offending person with respect to any security transaction. Section IX Administration and Construction (A) The administration of this Code shall be the responsibility of the Chief Compliance Officer of the Adviser. (B) The duties of the Chief Compliance Officer of the Adviser are as follows: (1) Continuous maintenance of a current list of the names of all Access Persons with an appropriate description of their title or employment, including a notation of any directorships held by Access Persons who are officers or employees of the Adviser or of any company that controls the Adviser, and informing all Access Persons of their reporting obligations hereunder; (2) On an annual basis, providing all Access Persons a copy of this Code and informing such persons of their duties and obligations hereunder including any supplemental training that may be required from time to time; (3) Maintaining or supervising the maintenance of all records and reports required by this Code and reviewing Quarterly Transactions, Annual Holdings, and Quarterly Acknowledgement Forms periodically; (4) Preparing listings of all transactions effected by Access Persons who are subject to the requirement to file Quarterly Transactions, Annual Holdings, and Quarterly Acknowledgement Forms and reviewing such transactions against a listing of all transactions effected by the Corporation; (5) Issuance either personally or with the assistance of counsel as may be appropriate, of any interpretation of this Code that may appear inconsistent with the objectives of Rule 17j-1, Rule 204A-1 and this Code; (6) Conducting such inspections or investigations as shall reasonably be required to detect and report, with recommendations, any apparent violations of this Code to the board of directors of the Corporation; and (7) Submission of a written report to the board of directors of the Corporation, no less frequently than annually, that describes any issues arising under the Code since the last such report, including but not limited to the information described in Section VII (B). 9 (C) The Chief Compliance Officer of the Adviser shall maintain or cause to be maintained in an easily accessible place at the principal place of business of the Corporation and the Adviser, the following records: 1. A copy of all codes of ethics adopted by the Corporation or the Adviser and its affiliates, as the case may be, pursuant to Rule 17j-1 and/or Rule 204A-1 that have been in effect at any time during the past five (5) years; 2. A record of each violation of such codes of ethics and of any action taken as a result of such violation for at least five (5) years after the end of the fiscal year in which the violation occurs; 3. A copy of each report made by an Access Person for at least two (2) years after the end of the fiscal year in which the report is made, and for an additional three (3) years in a place that need not be easily accessible; 4. A copy of each report made by the Chief Compliance Officer of the Adviser and/or the Corporation to the board of directors of the Corporation for two (2) years from the end of the fiscal year of the Corporation in which such report is made or issued and for an additional three (3) years in a place that need not be easily accessible; 5. A list of all persons who are, or within the past five (5) years have been, required to make reports pursuant to Rule 17j-1, Rule 204A-1 and this Code of Ethics, or who are or were responsible for reviewing such reports; 6. A copy of each report required by Section VII (B) for at least two (2) years after the end of the fiscal year in which it is made, and for an additional three (3) years in a place that need not be easily accessible; and 7. A record of any decision, and the reasons supporting the decision, to approve the acquisition by Advisory Persons of securities in an Initial Public Offering or Limited Offering for at least five (5) years after the end of the fiscal year in which the approval is granted. (D) This Code may not be amended or modified except in a written form that is specifically approved by majority vote of the Independent Directors. This Code of Ethics initially was adopted and approved by the Board of Directors of the Corporation, including a majority of the Independent Directors, at a meeting on June 9, 2004. An amendment to this Code was approved and ratified effective as of February 1, 2005 by the Board of Directors of the Corporation, including a majority of the Independent Directors, at a meeting on February 10, 2005. A second set of amendments to this Code was approved and ratified effective as of September 1, 2006 by the Board of Directors, including a majority of the Independent Directors, at a meeting on September 6, 2006. The Code of Ethics was further reviewed, approved and ratified effective by the Board of Directors, including a majority of the Independent Directors, at a meeting on September 28, 2007 and again at a meeting on March 28, 2008. The Code of Ethics was further reviewed, approved and ratified effective by the Board of Directors, including a majority of the Independent Directors, at a meeting on September 28, 2007, March 28, 2008, June 17, 2009, June 15, 2010, August 24, 2011, August 21, 2012, August 20, 2013, August 25, 2014, August 26, 2015 and August 25, 2016. 10 Holdings Reporting Form (Annual and Initial) Information is current as of: ________________ (must be no more than 45 days prior to the date of submission) (month/day/year) Check here if this is an Initial Holdings Report ___ (*If no holdings, write NONE *) Broker Account# Security Name Ticker or CUSIP (As Applicable) Type (Common Stock, Bond, etc.) Number of Shares Principal Amount I certify that this form fully discloses all Covered Security holdings in which I have a Beneficial Ownership (as such terms are defined in the Code of Ethics). I understand that I am presumed to have a Beneficial Ownership in Securities holdings of immediate family members living in the same household. Deliver to the Chief Compliance Officer or designee within 10 days of becoming an Access Person, and by February 14 th of each year. Use additional sheets if necessary. Signature Date Print Name 11 Quarterly Transactions Reporting Form For the Quarter Ended: The following lists all transactions in Covered Securities in which I had any direct or indirect Beneficial Ownership interest, that were effected during the last calendar quarter and required to be reported by Section V (B) of the Code of Ethics. Please sign and date this report, and return it to the Chief Compliance Officer no later than the 15 th day of the month following the end of the quarter. Brokerage statements can be attached in lieu of listing purchases/sales/new accounts; please indicate below if purchases/sales/changes were made. (*If no activity, write NONE *) Number of Shares Security Name Type (common stock, bond, etc.) Ticker or CUSIP Buy / Sell Principal Amount Interest Rate / Maturity Price Date Executed By (Broker-Dealer or Bank), including Account # New Accounts Established During the Quarter (*If no activity, write NONE *) Name of Broker-Dealer or Bank Account Title Account Number Date Account was Established I certify that this form fully discloses all transactions Covered Securities in which I have a Beneficial Ownership (as such terms are defined in the Code of Ethics). I further certify that this form fully discloses all Securities accounts opened during the calendar quarter noted above in which I have a Beneficial Ownership I understand that I am presumed to have a Beneficial Ownership in Securities transactions of immediate family members living in the same household. Deliver to the Chief Compliance Officer or designee within 30 days of the end of a calendar quarter. Use additional sheets if necessary. Signature Date Print Name 12 By clicking submit below I certify that this form fully discloses all transactions in Covered Securities in which I have a Beneficial Ownership (as such terms are defined in the Code of Ethics), other than transactions which were previously reported on a duplicate account statement or confirmation and reported to the Compliance Officer. I further certify that this form fully discloses all Securities accounts opened during the calendar quarter noted above in which I have a Beneficial Ownership. I understand that I am presumed to have a Beneficial Ownership in Securities transactions of immediate family members living with me in the same household. Initial and Quarterly Acknowledgment Form By clicking submit below I certify that (a) I have read and understood, and understand, the policies and procedures set forth in the Compliance Manual of each of (i) Prospect Capital Corporation (“Prospect”) and (ii) Prospect Capital Management L.P. (“PCM”) as of the date set forth below, as well as the Prospect and PCM Code of Ethics, implemented pursuant to Rule 17j-1 of the Investment Company Act of 1940 and Rule 204A-1 of the Investment Advisors Act of 1940, and all amendments relating thereto, (b) I recognize that all such policies, procedures and codes (hereafter “Rules”) apply fully to me at all times and (c) I agree to comply in all respects with the policies, procedures and codes described therein for the duration of my employment or other business relationship with Prospect, PCM or any affiliate of either (and for as long as any of the Rules apply to me), and to report promptly any deviation, regardless of immateriality, therefrom that I become aware of. I hereby represent, covenant and agree that I have promptly, by a written instrument entitled “Notice of Violation” and signed by me, reported to two or more Prospect or PCM Compliance Officers (such persons being John Barry, Grier Eliasek, Brian Oswald, Daria Becker or Joseph Ferraro (and only after exhausting these possibilities, Gene Stark)) in writing each and every, and any and all, instances of conduct, action, inaction or any other activity or circumstance by or involving any Prospect person, agent, representative, director, officer, personnel, employee, shareholder, consultant or affiliate, that is or could be, or is or could be in my judgment, unfair, unethical, immoral, a violation of the letter or spirit of the Prospect or PCM Compliance Manuals, or joint Code of Ethics, or of any other rule, regulation, law, code, best practice, or of any other standard of which I am aware, including but not limited to investment, disclosure and workplace best practices and procedures, including but not limited to anti-discrimination, whistleblower, and similar best practices, and represent, covenant and agree to so notify, by a written instrument signed by me, two or more of such aforementioned Compliance Officers immediately if I learn that this representation is or becomes inaccurate or believe or learn that any such acts, inactions or circumstances have occurred (or may be about to occur) since the commencement of my employment or other business relationship with Prospect, for as long into the future as I continue my business relationship with Prospect. In particular, I will promptly report any (i) discrimination actions, words or commissions, whether racial, gender, ethnic, sexual orientation, or any other type of discrimination and (ii) sexual harassment of any kind, no matter how minor. Name:_____________________________ (PRINT NAME) Signature:_____________________________ Date:___________________ 13 Annex A – Dispute Resolution Section III.B of this Code contains the entire agreement of PCC and any covered person with respect to the subject matter thereof and supersedes all prior negotiations, agreements and understandings with respect thereto, both written and oral, other than those addressing the same subject matter contained in the PCC Compliance Manual, the Adviser’s Compliance Manual and any separate written agreement between any covered person and PCC or any of its affiliates, as applicable. Section III.B of this Code may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten or oral agreements between the parties. Any offer of employment and any other agreement of any kind between anyone and any of PCC, PCM, PA, or any affiliate of any, must be in the form of a formal written instrument (and not an email or series of emails) signed in blue ink by John F. Barry and the counterparty. Section III.B of this Code may not be modified or amended except by a formal written instrument (and not by an email or series of emails) signed by John F. Barry III as Authorized Signatory of PCC in blue ink and by the covered person. No term or provision of Section III.B of this Code may be waived except by a formal written instrument signed (and not by an email or series of emails) by the party against whom such waiver is sought; provided, that in the case of the PCC, such waiver must be signed by John F. Barry III as Authorized Signatory of PCC in blue ink. PCC’s failure to insist at any time upon strict compliance with Section III.B of this Code or any continued course of such conduct on its part will not constitute or be considered a waiver by PCC of any of its rights or privileges. A waiver or consent, express or implied, of or to any breach or default by any party in the performance by that party of its obligations with respect to Section III.B of this Code is not a waiver or consent of or to any other breach or default in the performance by that party of the same or any other obligations of that party. All provisions of Section III.B of this Code are severable, and the unenforceability or invalidity of any of the provisions of Section III.B of this Code shall not affect the validity or enforceability of the remaining provisions of Section III.B of this Code. Should any part of Section III.B of this Code be held unenforceable, the unenforceable portion or portions shall be removed (and no more), and the remaining portions of Section III.B of this Code shall be enforced as fully as possible (removing the minimum amount possible), and the parties shall thereafter negotiate in good faith a provision replacing the provision removed so as to best achieve the original intent of the parties. Each covered person agrees that injunctive relief shall be available to enforce his or her obligations described in Section III.B of this Code. Notwithstanding any provision of Section III.B of this Code or any other agreement or document, should any covered person or any affiliate (“you”), notwithstanding this Code or any other agreement, wish to assert any claim against PCC or any affiliate, you must notify PCC of your intention to do so in writing within 30 days of termination of your employment from PCC or any affiliate. You agree that failure to notify PCC in writing of any potential claim you might have within 30 days of termination of your employment will forever waive your right to seek any relief from PCC or any affiliate. You further agree that, prior to asserting any claim, you will first provide PCC in writing at least 30 business days in advance of filing or serving any such claim (a) certification that you have at all times complied with this Manual and the Adviser’s Compliance Manual in all respects and (b) a complete statement detailing the claim you wish assert, the factual and legal grounds therefor, what PCC can and/or need do to cure, the amount of time available for such cure, and the reasons why such claim is not barred by this Code, and you will thereafter engage in in-person “executive to executive” mediation with PCC for at least 30 business days (i) after providing to PCC such certification and written statement and (ii) prior to filing any such claim (other than with PCC) anywhere else (should you decide to file any such claim anywhere else (other than with PCC) notwithstanding such filing being in violation of this Code), following these procedures: A. B. C. First, after you have provided PCC the certification and written statement referenced above, you shall promptly meet with PCC in person, in a good faith attempt to resolve any dispute, and shall continue to mediate in person “executive to executive” for at least 30 business days; Second, if the dispute remains unresolved after 30 business days following the commencement of the mediation described in the sentence immediately above, or after such lesser time as agreed to by you and PCC, then you must submit such dispute to mediation or non-binding arbitration before a mediator or arbitrator chosen by you and reasonably agreeable to PCC; and Third, if such non-binding mediation or arbitration fails, you must submit such dispute to binding arbitration (not to a court) pursuant to this agreement by delivering an arbitration notice to PCC (whether or not such claim is permitted by this Code). Under no circumstances will you file any claim against PCC or any affiliate in any court or anywhere other than in arbitration in New York City, Borough of Manhattan (“New York City”). No part of this dispute resolution procedure shall be deemed to permit a claim not otherwise permitted. Section III.B of this Code shall be governed by, and any claim by you or any affiliate against PCC shall be determined, in accordance with the internal laws of the State of New York for contracts made and to be enforced therein, without regard to principles of conflicts of laws requiring application of the law of any other jurisdiction. If you assert a claim and executive to executive mediation fails (after 30 business days of such mediation) and thereafter non-binding arbitration or mediation fails, should you then decide to proceed with your claim, you agree to submit any persisting claim (whether or not permitted by this Section III.B of this Code or this Annex A) including, but not limited to, any issue regarding arbitrability, not to a court but only to binding arbitration in New York City in accordance with the Commercial Arbitration Rules and the Expedited Procedures of the American Arbitration Association (“AAA”) then in effect (“the Rules”), except as modified herein. The arbitration shall be held and the award shall issue in New York City before three arbitrators, agreed to by the parties within 30 business days of receipt by PCC or you of a copy of the demand for arbitration, or in default thereof, appointed by the AAA in accordance with listing, ranking and striking provisions in the Rules. Any arbitrator appointed by the AAA shall be a retired judge or a practicing attorney with no less than 15 years of experience with large, complex, commercial cases and an experienced arbitrator. The parties hereby agree that there shall be no discovery (other than 50 or fewer written interrogatories) relating to or in the arbitration, and they agree not to seek any such discovery (before any arbitrator, court or other tribunal). In rendering the award, each arbitrator shall be required to apply the substantive law of the State of New York. The arbitral tribunal is not empowered to award damages in excess of out-of-pocket expenses, and each party hereby irrevocably waives and disclaims to the maximum extent enforceable under controlling law any right to recover before any court, arbitrator or other tribunal or forum special, punitive, compensatory, benefit of the bargain, expectancy, exemplary, incidental, direct, indirect, consequential, “lost profits”, similar or other damages including, but not limited to, multiples of damages or damages resulting from loss of profits, business impact or anticipated savings, and whether or not contemplated, foreseeable or noticed. The award of the arbitrators shall be in writing and shall briefly state the findings of fact and conclusions of law on which it is based. The award shall be final and binding upon the parties and shall be the sole and exclusive remedy between the parties regarding any claims, counterclaims, issues or accountings presented to the arbitrators. Judgment upon the award may be entered and enforced in any court having jurisdiction. The losing party shall pay the costs, fees and expenses of the arbitration including, but not limited to, the fees and expenses of the AAA and the arbitrators and the legal fees and expenses of the prevailing party, which shall be included in the final award (and both parties shall post before the arbitration commences adequate security for such fees and expenses equal to the greater of (i) $25,000 or (ii) such larger amount as the arbitrators shall direct), with an immediate default judgment to be entered against any party (a) failing to post such security at least 30 days before the scheduled date of the first hearing or (b) failing to pay the costs of arbitration, including filing fees, by the date due for any such payment. Any costs, fees and expenses (including attorneys fees and expenses) incident to enforcing the arbitral award shall be included in any judgment rendered thereon (including an estimate for post trial proceedings, appeals, collections, etc., the parties agreeing here that the loser shall pay all out- of-pocket and legal expenses of the winner until paid in full following all collections). Each party unconditionally and irrevocably agrees to submit to the exclusive jurisdiction of the state and federal courts located in New York City(the “New York Courts”) for the purpose of any proceedings to compel or in aid of arbitration, and to the non-exclusive jurisdiction of New York Courts for proceedings for the enforcement of any award or decision of the arbitrators. Each party hereto expressly consents and unconditionally submits to the jurisdiction of the AAA in New York City and, if applicable, on confirmation, appeal or otherwise consistently herewith, the New York Courts in any such proceeding (and agrees that registered mail shall suffice for service of process), and hereby waives any objection which such party may have based upon imperfect service (provided actual or constructive notice is received), lack of personal jurisdiction, improper venue or inconvenient forum, AND EACH PARTY HERETO EXPRESSLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO DISCOVERY (OTHER THAN 50 OR FEWER WRITTEN INTERROGATORIES) OR TRIAL BY JURY IN ANY SUCH PROCEEDING. In the event either party obtains an order compelling arbitration or denying a stay of arbitration (the “Arbitration Order”), the party compelled to arbitrate shall reimburse the party seeking enforcement of this arbitration agreement for all its reasonable expenses, attorneys fees and costs incurred in obtaining such relief, which expenses, fees and costs shall be determined forthwith upon entry of the Arbitration Order and payable within 30 days of such order, without awaiting, and independent of, the outcome of any arbitration proceedings, and failure to make such payment when due shall result in the immediate entry of a default judgment against the defaulting party with respect to the entire case. Notwithstanding anything else herein, to the fullest extent permitted by applicable law, PCC shall have the right to initiate a claim in court, or within 30 days following receipt by PCC of the first written statement of a claim as set forth in the first paragraph of this Annex A and in A. above to designate a New York Court to hear, resolve and determine any part of any dispute between the parties (but only claims, including claims for injunctive relief, submitted by PCC or any affiliate and not counterclaims, cross claims or claims submitted by others unless also submitted by PCC or any affiliate), to the fullest extent that such right to so designate a court pursuant to the terms of this arbitration agreement remains enforceable under controlling law, but PCC and you agree that if such right of PCC or any affiliate to so designate a court pursuant to the terms of this arbitration agreement no longer remains enforceable or is not enforceable under controlling law, then the unenforceable portions of this sentence shall be severed from this arbitration agreement (as with any other unenforceable portions of Section III.B of this Code), and the other enforceable procedures for resolving any claim between the parties set forth herein shall continue in full force and effect to the maximum extent enforceable under controlling law. EACH PARTY HERETO EXPRESSLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, (Y) ANY RIGHT TO DISCOVERY (OTHER THAN 50 OR FEWER WRITTEN INTERROGATORIES), WHETHER PURSUANT TO THE FEDERAL RULES OF CIVIL PROCEDURE, OR ANY OTHER RULE, REGULATION, OR CUSTOM (OF THE AAA OR OF ANY COURT) AND (Z) TRIAL BY JURY, IN EACH CASE WITH RESPECT TO ANY ASPECT OF ANY DISPUTE RELATING HERETO OR BETWEEN OR AMONG THE PARTIES HERETO, INCLUDING ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING IN CONNECTION WITH ANY ASPECT OF THIS SECTION III.B OF THIS CODE, ANY TRANSACTION RELATING THERETO, OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION THEREWITH, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. Should you prevail on any claim, you agree that the damages are difficult to calculate and therefore agree to the maximum extent enforceable under controlling law that $10,000 shall be the liquidated damages ceiling on any claim by you against PCC or any affiliate, whether for out-of-pocket, special, punitive, compensatory, benefit of the bargain, expectancy, exemplary, incidental, direct, indirect, consequential, “lost profits” or similar or other damages including, but not limited to, multiples of damages or damages resulting from loss of profits, business impact or anticipated savings and whether or not contemplated, foreseeable or noticed, and you, in addition to agreeing not to assert any such claim, agree not to assert before any court, arbitrator, or other tribunal or forum any claim for damages in excess of such $10,000 amount. If you, in violation of this arbitration agreement, assert any claim against PCC or any affiliate anywhere, you agree that PCC’s or any affiliate’s liquidated damages for the assertion of any such claim shall be $25,000 in addition to PCC’s or any affiliate’s legal fees associated therewith and any other damages that PCC or any affiliate may show. To the extent the agreement herein to arbitrate does not enjoy the respect and enforcement the parties intend, or upon PCC’s or any affiliate’s initiation of a court proceeding or removal of any part of an arbitration to court, or on confirmation, appeal or otherwise consistently herewith, and without diminishing your obligation hereunder to arbitrate, each party hereto consents and agrees that the New York Courts shall have exclusive jurisdiction to hear and determine any claim or dispute between or among any of the parties hereto pertaining to any part of Section III.B of this Code or this Annex A, any investigation, litigation, or proceeding related to or arising out of any such matters, any course of conduct, course of dealing, statement (whether verbal or written) or action of any party to Section III.B of this Code and this Annex A and any of its affiliates, or otherwise, and the arbitrability of any claim (which shall initially be determined by the arbitrators), and you agree not to assert any such claim or any claim relating hereto (or to the subject matter hereof or anything related thereto) outside of arbitration, or upon appeal therefrom (or if arbitration is not enforced) to courts other than a New York Court, provided that the parties hereto acknowledge that any appeals from those courts may have to be heard by a court located outside of New York City, and provided further that enforcement of an arbitrator’s award may require a filing or a hearing in a court located outside of New York City. You expressly waive any objection which you may have to New York jurisdiction based upon lack of personal jurisdiction, improper venue or inconvenient forum. Service of any process, summons, notice or document by registered mail addressed to you shall be effective service of process against you for any suit, action or proceeding brought in any forum and you shall not contest such service provided you have actual or constructive notice. Judgment upon an arbitrator’s award or any court’s award shall include payment of all costs, fees and expenses of the arbitration and any court proceeding, including all costs, fees and expenses (including legal fees and expenses) incident to enforcing the arbitrator’s and any court’s award and any and all appeals, collateral proceedings, collection proceedings, post judgment proceedings (and shall include an appropriate award for post-judgment proceedings), etc. CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.1 We have issued our report dated April 14, 2016, with respect to the financial statements of Harbortouch Payments LLC, included in the Annual Report of Prospect Capital Corporation on Form 10-K, dated August 29, 2016, for the year ended June 30, 2016. We hereby consent to the inclusion of said report in the Form 10-K, dated August 29, 2016. /s/ MSPC Certified Public Accountants and Advisors, A Professional Corporation Cranford, New Jersey August 29, 2016 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.2 We have issued our report dated August 18, 2016, with respect to the financial statements of National Property REIT Corp., included in the Annual Report of Prospect Capital Corporation on Form 10-K, dated August 29, 2016, for the year ended June 30, 2016. We hereby consent to the inclusion of said report in the Form 10-K, dated August 29, 2016. /s/ BDO USA, LLP August 29, 2016 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.3 We have issued our report dated March 7, 2016, with respect to the financial statements of NPH McDowell, LLC, included in the Annual Report of Prospect Capital Corporation on Form 10-K, dated August 29, 2016, for the year ended June 30, 2016. We hereby consent to the inclusion of said report in the Form 10-K, dated August 29, 2016. /s/ Hood & Strong LLP August 29, 2016 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.4 We have issued our report dated April 4, 2016, with respect to the financial statements of Michigan Storage, LLC, included in the Annual Report of Prospect Capital Corporation on Form 10-K, dated August 29, 2016, for the year ended June 30, 2016. We hereby consent to the inclusion of said report in the Form 10-K, dated August 29, 2016. /s/ Tidwell Group, LLC Birmingham, AL August 29, 2016 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a)/15d-14(a) I, John F. Barry III, Chairman of the Board and Chief Executive Officer of Prospect Capital Corporation, certify that: 1. I have reviewed this annual report on Form 10-K of Prospect Capital Corporation; EXHIBIT 31.1 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a 15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over the financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: August 29, 2016 /s/ JOHN F. BARRY III John F. Barry III Chairman of the Board and Chief Executive Officer CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a)/15d-14(a) I, Brian H. Oswald, Chief Financial Officer and Treasurer of Prospect Capital Corporation, certify that: 1. I have reviewed this annual report on Form 10-K of Prospect Capital Corporation; EXHIBIT 31.2 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a 15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over the financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: August 29, 2016 /s/ BRIAN H. OSWALD Brian H. Oswald Chief Financial Officer CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350) EXHIBIT 32.1 In connection with the annual report on Form 10-K for the period ended June 30, 2016 (the “Report”) of Prospect Capital Corporation (the “Registrant”), as filed with the Securities and Commission on the date hereof, I, John F. Barry III, Chairman of the Board and Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: August 29, 2016 /s/ JOHN F. BARRY III John F. Barry III Chairman of the Board and Chief Executive Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Prospect Capital Corporation and will be retained by Prospect Capital Corporation and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. ss. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing. CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350) EXHIBIT 32.2 In connection with the annual report on Form 10-K for the period ended June 30, 2016 (the “Report”) of Prospect Capital Corporation (the “Registrant”), as filed with the Securities and Commission on the date hereof, I, Brian H. Oswald, Chief Financial Officer of the Registrant, hereby certify, to the best of my knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: August 29, 2016 /s/ BRIAN H. OSWALD Brian H. Oswald Chief Financial Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Prospect Capital Corporation and will be retained by Prospect Capital Corporation and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. ss. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.  

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