For tax reporting purposes, the following types of taxable income dividends/distributions and non-taxable return of capital distributions may result and will be reported as such to US individual taxpayers on Form 1099 DIV in January of the calendar year following the year of distribution.
Ordinary Income: This type of income arises from the receipt of interest income on debt securities held by us less expenses. Since we are a “pass-through entity” from a tax perspective, this type of income is the same as if the interest income was received directly from the borrower. This type of income is reported in Box 1a of Form 1099.
Dividends: This type of income arises from the receipt of dividend income on stock held by us. As with interest income, it is treated as if the individual taxpayer held the stock directly. This income is considered as “qualified” for the 15% tax rate on dividends in the United States. This type of income is reported in Box 1b of Form 1099.
From 2004 to the first quarter of 2010, we paid our dividends quarterly in arrears. Starting at the end of the second quarter of 2010, we switched to monthly payments. Dividends are paid out of the assets legally available for distribution. Our dividends, if any, will be determined by our board of directors.
The following is a table representing dividends and distributions paid by Prospect Capital:
Amount Per Share
Qualified Dividend Percentage
Non-Qualified Dividend Percentage
Return of Capital Percentage
* To Be Determined as of each year-end.
In addition, although we currently intend to distribute realized net capital gains (i.e., 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.
Short Term Capital Gains: This type of income arises from the sale of a security held for less than one year. This income is the same as if the tax payer sold a security directly owned. This type of income is considered ordinary income and is reported in Box 1a of Form 1099.
Long Term Capital Gains: This type of income arises from the sale of a security held for over one year. This income is the same as if the tax payer sold a security directly owned. This type of income is considered capital gain income and is reported in Box 2a of Form 1099.
Return of Capital: Sometimes due to tax timing differences or other circumstances, we may make a distribution that is not sourced from taxable income but represents a return of your investment or capital. There is no tax liability resulting from a return of capital. This type of distribution is reported in Box 3 of Form 1099.