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Prospect Floating Rate & Alternative Income Fund Inc.

11/14/2024 | Press release | Distributed by Public on 11/14/2024 14:24

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

pfloat-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 814-00908

Prospect Floating Rate and Alternative Income Fund, Inc.

(Exact name of Registrant as specified in its charter)


Maryland	45-2460782
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

10 East 40th Street, 42nd Floor
New York, NY	10016
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code:(212) 448-0702

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	None	None

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 xNo o

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes xNo o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	o
Emerging growth company	o

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes oNo x

As of November 14, 2024, the Registrant had 8,938,263, 0, 0, and 2,237 shares of Class A, Class S, Class D and Class I Common Stock, $0.001 par value per share, outstanding, respectively.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

TABLE OF CONTENTS


Page
Forward-Looking Statements	1
PART I
Item 1.	Consolidated Financial Statements	2
Consolidated Statements of Assets and Liabilities as of September 30, 2024 (Unaudited) and June 30, 2024	2
Consolidated Statements of Operations for the three months ended September 30, 2024 and 2023 (Unaudited)	3
Consolidated Statements of Changes in Net Assets for the three months ended September 30, 2024 and 2023 (Unaudited)	4
Consolidated Statements of Cash Flows for the three months ended September 30, 2024 and 2023 (Unaudited)	5
Consolidated Schedules of Investments as of September 30, 2024 (Unaudited) and June 30, 2024	6
Notes to Consolidated Financial Statements (Unaudited)	13
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61
Item 4.	Controls and Procedures	62
PART II
Item 1.	Legal Proceedings	62
Item 1A.	Risk Factors	62
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3.	Default Upon Senior Securities	63
Item 4.	Mine Safety Disclosures	63
Item 5.	Other Information	63
Item 6.	Exhibits	63
Signatures	65

Forward-Looking Statements

Some of the statements in this quarterly report on Form 10-Q (the "Quarterly Report") constitute forward-looking statements, which relate to future events or our performance or financial condition. The forward-looking statements contained in this Quarterly Report involve risks, uncertainties and other factors, some of which are beyond our control, including, but not limited to, statements as to:

•our, or our portfolio companies', future operating results;

•our business prospects and the prospects of our portfolio companies;

•the return or impact of current or future investments that we expect to make;

•our contractual arrangements and relationships with third parties;

•the willingness of our investment adviser to waive fees;

•the dependence of our future success on the general economy and its impact on the industries in which we invest;

•the impact of global health epidemics, wars and civil disorder and other events outside our control, including, but not limited to, the renewed hostilities in the Middle East and the conflict between Russia and Ukraine, on our and our portfolio companies' businesses and the global economy;

•uncertainty surrounding inflation and the financial stability of the United States, Europe, and China;

•the financial condition and ability of our current and prospective portfolio companies to achieve their objectives;

•difficulty in obtaining financing or raising capital, especially in the current credit and equity environment, and the impact of a protracted decline in the liquidity of credit markets on our and our portfolio companies' business;

•the level, duration 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;

•the impact of changes in laws or regulations governing our operations or the operations of our portfolio companies;

•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 our investment adviser to locate suitable investments for us and to monitor and administer our investments;

•the timing, form and amount of any dividend distributions;

•authoritative generally accepted accounting principles or policy changes from such standard-setting bodies as the Financial Accounting Standards Board, the Securities and Exchange Commission (the "SEC"), Internal Revenue Service, and other authorities that we are subject to, as well as their counterparts in any foreign jurisdictions where we might do business; and

•any of the other risks, uncertainties and other factors we identify herein or in our Annual Report on Form 10-K for the year ended June 30, 2024.

Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words "trend," "opportunity," "pipeline," "believe," "comfortable," "expect," "anticipate," "current," "intention," "estimate," "position," "assume," "potential," "outlook," "continue," "remain," "maintain," "sustain," "seek," "achieve," and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "may," or similar expressions. The forward looking statements contained in this Quarterly Report involve risks and uncertainties and undue reliance should not be placed on them. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth as "Risk Factors" in this Quarterly Report, our annual report on Form 10-K and our other SEC filings.

We have based the forward-looking statements included in this report on information available to us on the date of this Quarterly Report, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements, and future results could differ materially from historical performance. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC, including quarterly reports on Form 10-Q, annual reports on Form 10-K, and current reports on Form 8-K.

PART I

Item 1. Consolidated Financial Statements

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(Unaudited)


Assets	September 30, 2024	June 30, 2024
(Unaudited)	(Audited)
Investments at fair value:
Non-control/non-affiliate investments (amortized cost of $86,953,269 and $62,547,890, respectively) (Note 7 and 8)	$	84,211,283	$	59,455,010
Cash and cash equivalents	19,745,789	15,406,421
Interest receivable	1,006,198	365,038
Deferred financing costs (Note 10)	825,031	910,312
Deferred offering costs	331,152	457,656
Receivable for repayments of portfolio investments	132,847	5,141
Prepaid expenses and other assets	67,670	99,578
Total Assets	106,319,970	76,699,156

Liabilities
Senior Secured Revolving Credit Facility (Note 10)	39,600,000	27,800,000
Payable for open trades	23,021,438	15,065,919
Due to Administrator (Note 4)	1,921,943	1,766,942
Distributions payable	269,441	181,454
Accrued legal fees	181,067	223,723
Accrued audit fees	150,498	130,000
Accrued expenses	47,978	117,142
Interest payable	41,424	150,416
Total Liabilities	65,233,789	45,435,596
Commitments and Contingencies (Note 9)		$
Net Assets	$	41,086,181	$	31,263,560

Components of Net Assets
Common Stock, par value $0.001 per share (75,000,000 shares authorized; 8,840,005 and 6,661,373 Class A shares issued and outstanding, respectively) (Note 3)	$	8,840	$	6,662
Paid-in capital in excess of par (Note 3 and Note 6)	54,004,176	43,644,788
Total distributable earnings (loss) (Note 6)	(12,926,835)	(12,387,890)
Net Assets	41,086,181	31,263,560
Net Asset Value Per Share (Note 11)	$	4.65	$	4.69

See notes to consolidated financial statements.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


Three Months Ended September 30,
2024	2023
Investment Income
Interest income from non-control/non-affiliate investments	$	2,076,271	$	410,085
PIK interest income from non-control/non-affiliate investments	69,279	21,994
Interest income from structured credit securities	19,660	113,037
Total Investment Income	2,165,210	545,116

Operating Expenses
Interest expense and credit facility expenses (Note 10)	804,388	290,213
Base management fees (Note 4)	289,161	83,359
Administrator Costs (Note 4)	175,000	223,750
Audit and tax expense	154,500	28,750
Offering costs	135,527	-
Legal expense	110,601	27,405
Transfer agent's fees and expenses	74,975	63,657
General and administrative	27,680	97,518
Insurance expense	31,907	32,191
Valuation services	16,306	4,000
Total Operating Expenses	1,820,045	850,843
Expense limitation reimbursement (Note 4)	(289,161)	(83,359)
Total Net Operating Expenses	1,530,884	767,484
Net Investment Income (Loss)	634,326	(222,368)

Net Realized Losses and Net Change in Unrealized Losses on Investments
Net realized losses:
Non-control/non-affiliate investments	(726,757)	(215,195)
Net realized losses	(726,757)	(215,195)
Net change in unrealized gains/(losses):
Non-control/non-affiliate investments	350,894	(818,013)
Net change in unrealized gains/(losses)	350,894	(818,013)
Net Realized Losses and Net Change in Unrealized Losses on Investments	(375,863)	(1,033,208)
Extinguishment of debt	-	(66,844)
Net Increase/(Decrease) in Net Assets Resulting from Operations	$	258,463	$	(1,322,420)
Net Increase/(decrease) in net assets resulting from operations per share (Note 11)(1)	$	0.03	$	(0.55)
Distributions declared per share	$	0.09	$	0.11

(1)For the three months ended September 30, 2024 and 2023, the weighted average Class A common stock outstanding was 8,776,773 and 2,404,057, respectively.

See notes to consolidated financial statements.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(unaudited)


Common Stock - Class A(1)
For the Three Months Ended September 30, 2024	Shares	Par	Paid-in Capital in Excess of Par	Distributable Earnings (Loss)	Net Assets
Balance as of June 30, 2024	6,661,373	$	6,662	$	43,644,788	$	(12,387,890)	$	31,263,560
Net increase in net assets resulting from operations
Net investment income	-	-	-	634,326	634,326
Net realized (losses) on investments	-	-	-	(726,757)	(726,757)
Net realized (losses) on extinguishment of debt	-	-	-	-	-
Net change in unrealized gains on investments	-	-	-	350,894	350,894
Distributions to Shareholders (Note 5)
Distributions from earnings	-	-	-	(797,408)	(797,408)
Return of capital distributions	-	-	(33,756)	-	(33,756)
Capital Transactions
Shares issued (Note 3)	2,096,436	2,096	9,997,904	-	10,000,000
Shares issued through reinvestment of distributions (Note 3)	130,041	130	618,630	-	618,760
Repurchase of common stock (Note 3)	(47,845)	(48)	(223,390)	-	(223,438)
Tax Reclassification of Net Assets (Note 6)	-	-	-	-	-
Total Increase (Decrease) for the three months ended September 30, 2024	2,178,632	2,178	10,359,388	(538,945)	9,822,621
Balance as of September 30, 2024	8,840,005	$	8,840	$	54,004,176	$	(12,926,835)	$	41,086,181

(1) In connection with the Multi-Class Offering, the Company authorized the issuance of separate classes of its common stock and designated such classes Class S, Class D and Class I common stock. The registration statement was declared effective by the SEC on May 10, 2024, however, as of September 30, 2024, there are no shares of Class S, Class D or Class I common stock outstanding.


Common Stock
For the Three Months Ended September 30, 2023	Shares	Par	Paid-in Capital in Excess of Par	Distributable Earnings (Loss)	Net Assets
Balance as of June 30, 2023(1)	2,409,452	$	2,410	$	24,597,524	$	(9,906,072)	$	14,693,862
Net increase in net assets resulting from operations
Net investment income	-	-	-	(222,368)	(222,368)
Net realized (losses) on investments	-	-	-	(215,195)	(215,195)
Net realized (losses) on the extinguishment of debt	-	-	-	(66,844)	(66,844)
Net change in unrealized gains (losses) on investments	-	-	-	(818,013)	(818,013)
Distributions to Shareholders (Note 5)
Distributions from earnings	-	-	-	-	-
Return of capital distributions	-	-	(255,054)	-	(255,054)
Capital Transactions
Shares issued through reinvestment of distributions (Note 3)	18,415	18	111,987	-	112,005
Repurchase of common stock (Note 3)	(19,963)	(20)	(121,549)	-	(121,569)
Total Increase (Decrease) for the three months ended September 30, 2023	(1,548)	(2)	(264,616)	(1,322,420)	(1,587,038)
Balance as of September 30, 2023	2,407,904	$	2,408	$	24,332,908	$	(11,228,492)	$	13,106,824

(1) Certain reclassifications have been made in the presentation of prior year and prior quarter amounts to conform to the presentation for the current fiscal year. In addition, we have not yet finalized return of capital estimates for the current period. See Note 2 and 6 within the accompanying notes to the consolidated financial statements for further discussion.

See notes to consolidated financial statements.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


Three Months Ended September 30,
2024	2023
Cash flows from operating activities:
Net increase/(decrease) in net assets resulting from operations	$	258,463	$	(1,322,420)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Purchases of investments	(32,865,621)	-
Repayments and sales of portfolio investments	7,712,639	3,641,054
Net realized losses on investments	726,757	215,195
Net Reductions to Subordinated Structured Notes and related investment cost	171,973	167,969
Amortization of offering costs	135,527	-
Net change in unrealized (gains)/losses on investments	(350,894)	818,013
Amortization of deferred financing costs	104,481	170,443
Payment-in-kind interest	(69,280)	(21,994)
Amortization of premiums (accretion of purchase discounts) on investments, net	(81,737)	4,244
Settlement of Treasury Bills	(111)	(13)
Net realized losses on extinguishment of debt	-	66,844
Changes in other assets and liabilities:
(Increase) Decrease in operating assets
Interest receivable	(641,160)	28,442
Receivable for repayments of portfolio investments	(127,706)	7,554
Prepaid expenses and other assets	31,910	32,190
Receivable for investments sold	-	200,655
Increase (Decrease) in operating liabilities
Payable for open trades	7,955,519	(3,771)
Due to Administrator (Note 5)	155,000	218,750
Interest payable	(108,992)	(68,597)
Accrued expenses	(69,165)	2,547
Accrued legal fees	(51,679)	105,254
Accrued audit fees	20,498	(63,634)
Net cash provided by/(used in) operating activities	(17,093,578)	4,198,725
Cash flows from financing activities:
Gross proceeds from shares sold	10,000,000	-
Distributions paid to stockholders	(124,415)	(142,633)
Repurchase of common stock	(223,438)	(121,569)
Borrowings under Senior Secured Revolving Credit Facility (Note 10)	29,300,000	6,200,000
Repayments under Senior Secured Revolving Credit Facility (Note 10)	(17,500,000)	-
Repayments under Credit Facility (Note 10)	-	(8,600,000)
Financing costs paid and deferred	(19,201)	(884,762)
Net cash provided by/(used in) financing activities	21,432,946	(3,548,964)
Net increase in cash, cash equivalents and restricted cash	4,339,368	649,761
Cash, cash equivalents and restricted cash at beginning of period	15,406,421	5,792,556
Cash, cash equivalents and restricted cash at end of period	$	19,745,789	$	6,442,317
Supplemental disclosures:
Cash paid for interest	$	808,899	$	188,366
Non-cash financing activities:
Value of shares issued through reinvestment of distributions	$	618,760	$	112,005

Beginning of the period
Cash and cash equivalents	$	15,406,421	$	5,730,723
Restricted cash	-	61,833
Cash, cash equivalents and restricted cash at beginning of period	$	15,406,421	$	5,792,556

End of the period
Cash and cash equivalents	$	19,745,789	$	6,442,317
Restricted cash	-	-
Cash, cash equivalents and restricted cash at end of period	$	19,745,789	$	6,442,317

See notes to consolidated financial statements.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2024

(Unaudited)


September 30, 2024
Portfolio Company / Security Type	Industry	Acquisition Date	Coupon/Yield (b)	Floor	Legal Maturity	Principal/ Quantity	Amortized Cost (d)	Fair Value (c)	% of Net Assets
Non-Control/Non-Affiliate Investments (less than 5.00% voting control):
Senior Secured Loans-First Lien(f)(k)
Aventiv Technologies, LLC - Third Out Super Priority First Lien Term Loan (h)(j)(m)(n)	Telecommunications	3/28/2024	3M SOFR+1.00% (5.87%) Cash plus 4.09% PIK	1.00	7/31/2025	$	2,997,902	$	2,763,452	$	2,624,063	6.39	%
Aventiv Technologies, LLC - Second Out Super Priority First Lien Term Loan(h)(n)	6/28/2024	3M SOFR+ 7.50% (12.37%)	1.00	7/31/2025	77,635	78,649	77,635	0.19	%
Amneal Pharmaceuticals LLC(i)	Healthcare & Pharmaceuticals	4/22/2024	1M SOFR+5.50% (10.35%)	-	5/4/2025	2,962,264	2,950,777	2,962,264	7.21	%
BCPE North Star US Holdco 2, Inc.(i)(j)	Beverage, Food & Tobacco	2/2/2022	1M SOFR+4.00% (8.96%)	0.75	6/12/2028	5,048,392	4,855,361	4,789,914	11.66	%
Burgess Point Purchaser Corporation(i)	Automotive	7/26/2024	1M SOFR+5.35% (10.20%)	0.50	7/25/2029	2,992,386	2,837,038	2,836,183	6.90	%
CareerBuilder, LLC(h)(j)(m)	Services: Consumer	4/13/2023	1M SOFR+2.50% (7.46%) Cash plus 4.25% PIK	1.00	7/31/2026	722,010	712,210	317,684	0.77	%
Discovery Point Retreat, LLC(h)	Healthcare & Pharmaceuticals	6/14/2024	3M SOFR+7.75%(12.62%)	3.25	6/14/2029	3,985,000	3,985,000	3,969,857	9.66	%
DRI Holding Inc.(h)(j)	Media: Broadcasting & Subscription	12/21/2021	1M SOFR+5.25% (10.20%)	0.50	12/21/2028	3,442,447	3,322,276	3,442,447	8.38	%
Druid City Infusion, LLC - First Lien Term Loan(h)	Healthcare & Pharmaceuticals	9/30/2024	3M SOFR+7.50% (12.10%)	3.00	10/4/2029	5,000,000	5,000,000	5,000,000	12.17	%
Druid City Infusion, LLC - First Lien Convertible Note to Druid City Intermediate, Inc.(h)(m)	9/30/2024	6.00% + 2.00% PIK	-	10/4/2033	50,000	50,000	99,000	0.24	%
DTI Holdco, Inc.(i)(j)	Services: Business	4/21/2022	3M SOFR+4.75% (9.60%)	0.75	4/26/2029	3,713,572	3,691,583	3,713,572	9.04	%
Emerge Intermediate, Inc.(h)	Healthcare & Pharmaceuticals	2/26/2024	1M SOFR+6.25% (11.31%)	1.00	2/26/2026	5,108,000	5,108,000	5,082,460	12.37	%
First Brands Group(i)	Automotive	2/8/2024	3M SOFR+5.00%(10.51%)	1.00	3/30/2027	1,984,576	1,979,961	1,969,295	4.79	%
3/8/2024	3M SOFR+5.00% (10.51%)	1.00	3/30/2027	3,971,938	3,933,601	3,937,382	9.58	%
Global Tel*Link Corporation (d/b/a ViaPath Technologies)(h)	Telecommunications	8/6/2024	1M SOFR+7.50% (12.35%)	3.00	8/6/2029	5,000,000	4,811,198	4,871,000	11.86	%
iQOR Holdings, Inc.(h)	Services: Consumer	6/11/2024	3M SOFR+7.50% (12.37%)	2.50	6/11/2029	4,968,750	4,968,750	4,930,988	12.00	%
MoneyGram International, Inc.(i)	Banking	4/23/2024	3M SOFR+4.75% (9.68%)	0.50	6/1/2030	2,985,000	2,959,951	2,851,571	6.94	%
NH Kronos Buyer, Inc.(h)	Healthcare & Pharmaceuticals	4/10/2024	3M SOFR+6.25% (11.20%)	1.00	11/1/2028	4,968,254	4,903,525	4,968,254	12.09	%
NSM Top Holdings Corp.(h)	Consumer Goods: Durable	8/5/2024	1M SOFR+5.35% 10.72%)	-	5/14/2029	3,000,000	2,975,447	3,000,000	7.30	%
PlayPower, Inc.-First Lien Term Loan(h)	Hotel, Gaming & Leisure	8/28/2024	3M SOFR+5.25% (9.85%)	0.75	8/28/2030	4,343,434	4,263,638	4,272,636	10.40	%
PlayPower, Inc.-First Lien Revolving Line of Credit - Commitment(h)	-	-	-	-	%	(q)
Research Now Group, LLC & Dynata, LLC- First Lien First Out Term Loan(h)(j)	Services: Business	7/15/2024	3M SOFR+5.50% (10.88%)	1.00	10/15/2028	1,299,920	1,298,045	1,172,917	2.85	%
Research Now Group, LLC & Dynata, LLC- First Lien Second Out Term Loan(h)	7/15/2024	3M SOFR+5.00% (10.38%)	1.00	7/15/2028	2,977,400	2,956,577	2,941,373	7.16	%

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2024 (Continued)

(Unaudited)


September 30, 2024
Portfolio Company / Security Type	Industry	Acquisition Date	Coupon/Yield (b)	Floor	Legal Maturity	Principal/ Quantity	Amortized Cost (d)	Fair Value (c)	% of Net Assets
S&S Holdings LLC(i)	Wholesale	7/16/2024	3M SOFR+5.00% (10.06%)	0.50	3/11/2028	2,992,248	2,993,118	2,983,571	7.26	%
WatchGuard Technologies, Inc.(h)(j)	High Tech Industries	2/8/2024	1M SOFR+5.25% (10.10%)	0.75	6/30/2029	4,977,164	4,928,849	4,967,209	12.09	%
Wellpath Holdings, Inc. (h)(j)(o)	Healthcare & Pharmaceuticals	4/2/2019	3M SOFR+5.50% (10.86%)	-	10/1/2025	1,986,228	1,969,515	1,231,462	3.00	%
Total Senior Secured Loans-First Lien	$	80,296,521	$	79,012,737	192.31	%

Senior Secured Loans-Second Lien(f)(h)(k)(m)
Shutterfly Finance, LLC	Media: Diversified and Production	6/9/2023	3M SOFR+1.00% (5.60%) Cash plus 4.00% PIK	1.00	10/1/2027	$	1,841,757	$	1,811,837	$	1,594,778	3.88	%
Total Senior Secured Loans-Second Lien	$	1,811,837	$	1,594,778	3.88	%

Structured Subordinated Notes (a)(f)(e)(h)(k)
Apidos CLO XXIV	Structured Finance	5/17/2019	7.95	%	N/A	10/20/2030	$	250,000	$	147,494	$	142,150	0.35	%
Apidos CLO XXVI(l)	Structured Finance	7/25/2019	-	%	N/A	7/18/2029	250,000	117,412	103,250	0.25	%
California CLO IX, Ltd.	Structured Finance	12/13/2019	16.76	%	N/A	7/16/2032	500,000	236,810	241,200	0.59	%
Carlyle Global Market Strategies CLO 2014-4-R, Ltd.(l)	Structured Finance	4/7/2017	-	%	N/A	7/15/2030	250,000	96,236	87,425	0.21	%
Carlyle Global Market Strategies CLO 2017-5, Ltd.(l)	Structured Finance	12/18/2017	-	%	N/A	1/22/2030	500,000	245,327	219,450	0.53	%
Galaxy XIX CLO, Ltd.(l)	Structured Finance	12/5/2016	-	%	N/A	7/24/2030	250,000	57,817	51,825	0.13	%
GoldenTree Loan Opportunities IX, Ltd.(l)	Structured Finance	7/19/2017	-	%	N/A	10/29/2029	250,000	-	-	-	%
Madison Park Funding XIII, Ltd.(l)	Structured Finance	11/6/2015	-	%	N/A	4/22/2030	250,000	-	-	-	%
Madison Park Funding XIV, Ltd.(l)	Structured Finance	11/16/2015	-	%	N/A	10/22/2030	250,000	149,257	134,075	0.33	%
Octagon Investment Partners XIV, Ltd.(l)	Structured Finance	12/1/2017	-	%	N/A	7/16/2029	850,000	-	-	-	%
Octagon Investment Partners XV, Ltd.(l)	Structured Finance	5/23/2019	-	%	N/A	7/19/2030	500,000	172,228	155,450	0.38	%
Octagon Investment Partners XXI, Ltd.(j)	Structured Finance	1/6/2016	-	%	N/A	2/14/2031	387,538	181,917	157,612	0.38	%
Octagon Investment Partners 30, Ltd.(l)	Structured Finance	11/16/2017	-	%	N/A	3/17/2030	475,000	164,365	146,300	0.36	%
Octagon Investment Partners 31, Ltd.(l)	Structured Finance	12/20/2019	-	%	N/A	7/20/2030	250,000	76,229	68,725	0.17	%
Octagon Investment Partners 36, Ltd.(l)	Structured Finance	12/20/2019	-	%	N/A	4/15/2031	500,000	244,514	222,800	0.54	%
Octagon Investment Partners 39, Ltd.(l)	Structured Finance	1/9/2020	-	%	N/A	10/21/2030	250,000	170,114	152,550	0.37	%
OZLM XII, Ltd.(l)	Structured Finance	1/17/2017	-	%	N/A	4/30/2027	275,000	-	-	-	%
Sound Point CLO II, Ltd.(l)	Structured Finance	5/16/2019	-	%	N/A	1/26/2031	1,500,000	247,675	229,500	0.56	%
Sound Point CLO VII-R, Ltd.(l)	Structured Finance	8/23/2019	-	%	N/A	10/23/2031	150,000	32,440	28,696	0.07	%
Sound Point CLO XVIII, Ltd.(l)	Structured Finance	5/16/2019	-	%	N/A	1/21/2031	250,000	87,415	79,500	0.19	%
THL Credit Wind River 2013-1 CLO, Ltd.(l)	Structured Finance	11/1/2017	-	%	N/A	7/22/2030	325,000	40,994	35,945	0.09	%
Venture XXXIV CLO, Ltd.(l)	Structured Finance	7/30/2019	-	%	N/A	10/15/2031	250,000	157,606	142,650	0.35	%
Voya IM CLO 2013-1, Ltd.(j)(l)	Structured Finance	6/9/2016	-	%	N/A	10/15/2030	278,312	70,444	63,399	0.15	%
Voya CLO 2016-1, Ltd.(l)	Structured Finance	1/22/2016	-	%	N/A	1/21/2031	250,000	98,412	88,975	0.22	%
Total Structured Subordinated Notes	$	2,794,706	$	2,551,477	6.21	%

Common Equity/Other(a)(f)(g)(h)(k)
ACON IWP Investors I, L.L.C.	Healthcare & Pharmaceuticals	4/30/2015	N/A	N/A	N/A	$	472,357	$	472,357	$	607,500	1.48	%
FullBeauty Brands Holding, Common Stock	Retail	2/7/2019	N/A	N/A	N/A	72	198,026	6,264	0.02	%
iQOR Holdings, Inc. (Bloom Aggregator, LP)	Services: Consumer	6/11/2024	N/A	N/A	N/A	50	50,000	55,871	0.14	%
Research Now Group, LLC & Dynata, LLC (Common Stock of New Insight Holdings, Inc) (h)	Services: Business	6/14/2024	N/A	N/A	N/A	17,876	282,262	282,262	0.69	%
Rising Tide Holdings, Inc., Common Stock	Consumer goods: Non-Durable	9/11/2023	N/A	N/A	N/A	2,500	997,560	325	-	%
Total Common Equity/Other	$	2,000,205	$	952,222	2.32	%

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2024 (Continued)

(Unaudited)


September 30, 2024
Portfolio Company / Security Type	Industry	Acquisition Date	Coupon/Yield (b)	Floor	Legal Maturity	Principal/ Quantity	Amortized Cost (d)	Fair Value (c)	% of Net Assets
Preferred Stock(a)(f)(g)(h)(k)(p)
Discovery MSO HoldCo LLC(m)	Healthcare & Pharmaceuticals	6/14/2024	8% PIK	N/A	N/A	49	50,000	100,069	0.24	%
Total Preferred Stock	$	50,000	$	100,069	0.24	%

Total Portfolio Investments	$	86,953,269	$	84,211,283	204.96	%

(a) Indicates assets that Prospect Floating Rate and Alternative Income Fund, Inc. (the "Company") believes do not represent "qualifying assets" under Section 55(a) of the Investment Company Act of 1940, as amended (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. Of the Company's total investments as of September 30, 2024, 7% are non-qualifying assets as a percentage of total assets.

(b) The majority of the investments bear interest at a rate that may be determined by reference to the Secured Overnight Financing Rate ("SOFR") which resets monthly, quarterly, or semiannually. For each such investment, the Company has provided the spread over SOFR or the prime lending rate ("Prime") and the current contractual interest rate in effect at September 30, 2024. Certain investments are subject to a SOFR or Prime interest rate floor. The one-month ("1M SOFR") and three-month ("3M SOFR") SOFR rates are based on the applicable SOFR rate for each investment on its reset date. As of September 30, 2024, the one-and-three month SOFR rates were 4.85% and 4.59%, respectively.

(d) See Note 6 for a discussion of the tax cost of the portfolio.

(e) The structured subordinated notes and preference/preferred shares are considered equity positions in the Collateralized Loan Obligations ("CLOs"), which is referred to as "Subordinated Structured Notes", or "SSN". 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 calculated using amortized cost 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.

(f) Security is held by the Company and is pledged as collateral for the Senior Secured Revolving Credit Facility (see Note 10). The fair value of the investments used as collateral by the Company for the Senior Secured Revolving Credit Facility at September 30, 2024 was $84,211,283, representing 100% of our total investments.

(g) Represents non-income producing security that has not paid interest or dividends in the year preceding the reporting date.

(h) Investment(s) is (are) valued using significant unobservable inputs and are categorized as Level 3 investments in accordance with ASC 820. See Notes 2 and 8 within the accompanying notes to the consolidated financial statements.

(i) Investment is categorized as Level 2 investments in accordance with ASC 820. See Note 2 within the accompanying notes to the consolidated financial statements.

(j) Acquisition date represents the date of the Company's initial investment. Follow-on acquisitions have occurred on the following dates to arrive at the Company's current investment (excluding effects of capitalized PIKinterest, premium/original issue discount amortization/accretion, and partial repayments):


Portfolio Company	Investment	Follow-On Acquisition Dates	Follow-On Acquisitions (Excluding initial investment cost)
Aventiv Technologies, LLC	Senior Secured Loans-First Lien	8/2/2019, 3/4/2024, 4/2/2024, 6/28/2024	$	1,779,308
BCPE North Star US Holdco 2, Inc	Senior Secured Loans-First Lien	6/10/2024, 7/1/2024, 7/11/2024	4,048,942
CareerBuilder, LLC	Senior Secured Loans-First Lien	6/5/2020	690,000
DRI Holding, Inc.	Senior Secured Loans-First Lien	5/16/2024	2,415,300
DTI Holdco, Inc.	Senior Secured Loans-First Lien	2/8/2024, 7/17/24	5,000,000
Emerge Intermediate, Inc.	Senior Secured Loans-First Lien	6/14/2024	131,333
Octagon Investment Partners XXI, Ltd.	Structured Subordinated Notes	2/14/2019	35,015
Research Now Group, LLC & Dynata, LLC- First Lien Second Out Term Loan	Senior Secured Loans-First Lien	8/12/2024	2,925,712
Voya IM CLO 2013-1, Ltd.	Structured Subordinated Notes	10/17/2017, 7/1/2019	20,584
WatchGuard Technologies, Inc.	Senior Secured Loans-First Lien	6/26/2024, 7/17/2024	3,994,924
Wellpath Holdings, Inc.	Senior Secured Loans-First Lien	4/10/2019, 7/25/2019	1,327,000

(k) The securities in which the Company 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.

(l) The effective yield has been estimated to be 0% as expected future cash flows are anticipated to not be sufficient to repay the investment at cost. If the expected investment proceeds increase, there is a potential for future investment income from the investment. Distributions, once received, will be recognized as return of capital, and when called, any remaining unamortized investment costs will be written off if the actual distributions are less than the amortized investment cost. To the extent that the cost basis of the SSN is fully recovered, any future distributions will be recorded as realized gains.

(m) The interest rate on these investments, excluding those on non-accrual, 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. 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 September 30, 2024.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2024 (Continued)

(Unaudited)


Security Name	PIK Rate - Capitalized	PIK Rate - Paid as cash	Maximum Current PIK Rate
Aventiv Technologies, LLC - First Lien Term Loan	4.09	%	-	%	4.09	%
CareerBuilder, LLC - First Lien Term Loan	4.25	%	-	%	4.25	%	(A)
Druid City Infusion, LLC - Convertible	2.00	%	-	%	2.00	%
Shutterfly Finance, LLC - Second Lien Term Loan	4.00	%	-	%	4.00	%
Discovery MSO HoldCo LLC	8.00	%	-	%	8.00	%

(A) On June 28, 2024, the CareerBuilder, LLC First Lien Loan was amended to allow for a portion of interest accruing in cash to be payable in kind.

(n) The Company has entered into an intercreditor agreement that entitles the Company to the "last out" tranche of the first lien secured loans, whereby the "first out" tranche will receive priority as to the "last out" tranche with respect to payments of principal, interest, and any other amounts due thereunder. Therefore, the Company receives a higher interest rate than the "first out" lenders and the Consolidated Schedule of Investments above reflects such higher rate.

(o) Investment on non-accrual status as of the reporting date (See Note 2).

(p) Discovery Point Retreat, LLC, Discovery MSO LLC, Eating Disorder Solutions of Texas LLC, and Discovery Point Retreat Waxahachie, LLC are joint borrowers on the First Lien Term Loan.

(q) On August 28, 2024, PFLOAT committed to a $656,566 first-lien revolving line of credit, which is undrawn as of September 30, 2024.

See notes to consolidated financial statements.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2024 (Continued)


June 30, 2024
Portfolio Company / Security Type	Industry	Acquisition Date	Coupon/Yield (b)	Floor	Legal Maturity	Principal/ Quantity	Amortized Cost (d)	Fair Value (c)	% of Net Assets
Non-Control/Non-Affiliate Investments (less than 5.00% voting control):
Senior Secured Loans-First Lien(f)(k)
Aventiv Technologies, LLC (h)(j)(m)(n)	Telecommunications	3/28/2024	3M SOFR+1.00% (6.60%) Cash plus 4.09% PIK	1.00	7/31/2025	$	2,965,507	$	2,677,559	$	2,440,316	7.81	%
6/28/2024	3M SOFR+ 7.50%(13.10%)	1.00	7/31/2025	175,362	175,373	175,362	0.56	%
Amneal Pharmaceuticals LLC(i)	Healthcare & Pharmaceuticals	4/22/2024	1M SOFR+5.50% (10.84%)	-	5/4/2025	2,981,132	2,975,183	3,004,087	9.61	%
BCPE North Star US Holdco 2, Inc.(i)(j)	Beverage, Food & Tobacco	2/2/2022	1M SOFR+4.00% (9.34%)	0.75	6/12/2028	2,957,453	2,889,240	2,876,123	9.20	%
CareerBuilder, LLC(h)(j)(m)	Services: Consumer	4/13/2023	3M SOFR+2.50% (6.75%) Cash plus 4.25% PIK	1.00	7/31/2026	714,056	706,375	421,293	1.35	%
Discovery Point Retreat, LLC(h)	Healthcare & Pharmaceuticals	6/14/2024	3M SOFR+7.75%(13.35%)	3.25	6/14/2029	4,000,000	3,997,482	3,913,600	12.52	%
DRI Holding Inc.(h)(j)	Media: Broadcasting & Subscription	12/21/2021	1M SOFR+5.25% (10.69%)	0.50	12/21/2028	3,451,274	3,343,548	3,451,274	11.04	%
DTI Holdco, Inc.(i)(j)	Services: Business	4/21/2022	3M SOFR+4.75% (10.09%)	0.75	4/26/2029	2,723,046	2,692,552	2,723,046	8.71	%
Emerge Intermediate, Inc.(h)	Healthcare & Pharmaceuticals	2/26/2024	1M SOFR+6.25% (11.60%)	1.00	2/26/2026	5,120,833	5,117,474	5,120,833	16.38	%
First Brands Group(i)	Automotive	2/8/2024	3M SOFR+5.00%(10.59%)	1.00	3/30/2027	1,989,717	1,990,153	1,980,167	6.33	%
3/8/2024	3M SOFR+5.00% (10.59%)	1.00	3/30/2027	3,981,292	3,950,526	3,963,774	12.68	%
Global Tel*Link Corporation (d/b/a ViaPath Technologies)(i)(j)	Telecommunications	4/5/2019	1M SOFR+4.25% (9.69%)	-	11/29/2025	417,699	408,112	415,861	1.33	%
iQOR Holdings, Inc.(h)	Services: Consumer	6/11/2024	3M SOFR+7.50% (13.09%)	2.50	6/11/2029	5,000,000	4,998,727	5,000,000	15.99	%
MoneyGram International, Inc.(i)	Banking	4/23/2024	3M SOFR+4.75% (10.08%)	0.50	6/1/2030	2,992,500	2,979,693	2,991,303	9.57	%
NH Kronos Buyer, Inc.(h)	Healthcare & Pharmaceuticals	4/10/2024	3M SOFR+6.25% (11.73%)	1.00	11/1/2028	4,984,127	4,931,331	4,984,127	15.94	%
PlayPower, Inc.(h)(j)	Hotel, Gaming & Leisure	2/5/2024	3M SOFR+5.50% (10.96%)	-	5/10/2026	4,966,680	4,813,157	4,806,257	15.37	%
Research Now Group, LLC & Dynata, LLC(h)	Services: Business	4/2/2019	3M SOFR+7.50% (13.09%)	1.00	12/20/2024	1,909,853	1,904,479	1,504,009	4.81	%	(o)
6/3/2024	1M SOFR+8.75% (14.21%)	1.00	8/17/2024	59,150	57,826	59,091	0.19	%
WatchGuard Technologies, Inc.(h)(j)	High Tech Industries	2/8/2024	1M SOFR+5.25% (10.59%)	0.75	6/30/2029	2,989,861	2,952,217	2,985,077	9.55	%
Wellpath Holdings, Inc. (h)(j)	Healthcare & Pharmaceuticals	4/2/2019	3M SOFR+5.50% (11.11%)	-	10/1/2025	1,991,497	1,974,783	1,279,736	4.09	%
Total Senior Secured Loans-First Lien	$	55,535,790	$	54,095,336	173.03	%

Senior Secured Loans-Second Lien(f)(h)(k)(m)
Shutterfly Finance, LLC	Media: Diversified and Production	6/9/2023	3M SOFR+1.00% (6.35%) Cash plus 4.00% PIK	1.00	10/1/2027	$	1,822,720	$	1,800,331	$	1,559,701	4.99	%
Total Senior Secured Loans-Second Lien	$	1,800,331	$	1,559,701	4.99	%

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2024 (Continued)


June 30, 2024
Portfolio Company / Security Type	Industry	Acquisition Date	Coupon/Yield (b)	Floor	Legal Maturity	Principal/ Quantity	Amortized Cost (d)	Fair Value (c)	% of Net Assets
Structured Subordinated Notes (a)(f)(e)(h)(k)
Apidos CLO XXIV	Structured Finance	5/17/2019	17.14	%	N/A	10/20/2030	$	250,000	$	154,682	$	146,300	0.47	%
Apidos CLO XXVI(l)	Structured Finance	7/25/2019	-	%	N/A	7/18/2029	250,000	144,189	115,900	0.37	%
California CLO IX, Ltd.	Structured Finance	12/13/2019	18.68	%	N/A	7/16/2032	500,000	245,264	241,200	0.77	%
Carlyle Global Market Strategies CLO 2014-4-R, Ltd.(l)	Structured Finance	4/7/2017	-	%	N/A	7/15/2030	250,000	127,852	116,350	0.37	%
Carlyle Global Market Strategies CLO 2017-5, Ltd.(l)	Structured Finance	12/18/2017	-	%	N/A	1/22/2030	500,000	299,146	265,500	0.85	%
Galaxy XIX CLO, Ltd.(l)	Structured Finance	12/5/2016	-	%	N/A	7/24/2030	250,000	84,976	75,300	0.24	%
GoldenTree Loan Opportunities IX, Ltd.(l)	Structured Finance	7/19/2017	-	%	N/A	10/29/2029	250,000	-	-	-	%
Madison Park Funding XIII, Ltd.(l)	Structured Finance	11/6/2015	-	%	N/A	4/22/2030	250,000	26,231	24,375	0.08	%
Madison Park Funding XIV, Ltd.	Structured Finance	11/16/2015	3.52	%	N/A	10/22/2030	250,000	172,319	139,250	0.45	%
Octagon Investment Partners XIV, Ltd.(l)	Structured Finance	12/1/2017	-	%	N/A	7/16/2029	850,000	19,839	17,170	0.05	%
Octagon Investment Partners XV, Ltd.(l)	Structured Finance	5/23/2019	-	%	N/A	7/19/2030	500,000	200,197	$	174,450	0.56	%
Octagon Investment Partners XXI, Ltd.(j)	Structured Finance	1/6/2016	2.86	%	N/A	2/14/2031	387,538	212,222	162,417	0.52	%
Octagon Investment Partners 30, Ltd.(l)	Structured Finance	11/16/2017	-	%	N/A	3/17/2030	475,000	187,914	165,253	0.53	%
Octagon Investment Partners 31, Ltd.(l)	Structured Finance	12/20/2019	-	%	N/A	7/20/2030	250,000	88,762	79,800	0.26	%
Octagon Investment Partners 36, Ltd.(l)	Structured Finance	12/20/2019	-	%	N/A	4/15/2031	500,000	299,532	247,150	0.79	%
Octagon Investment Partners 39, Ltd.	Structured Finance	1/9/2020	3.49	%	N/A	10/21/2030	250,000	192,728	169,775	0.54	%
OZLM XII, Ltd.(l)	Structured Finance	1/17/2017	-	%	N/A	4/30/2027	275,000	-	-	-	%
Sound Point CLO II, Ltd.(l)	Structured Finance	5/16/2019	-	%	N/A	1/26/2031	1,500,000	384,730	304,950	0.98	%
Sound Point CLO VII-R, Ltd.(l)	Structured Finance	8/23/2019	-	%	N/A	10/23/2031	150,000	40,750	33,855	0.11	%
Sound Point CLO XVIII, Ltd.(l)	Structured Finance	5/16/2019	-	%	N/A	1/21/2031	250,000	108,094	93,775	0.30	%
THL Credit Wind River 2013-1 CLO, Ltd.(l)	Structured Finance	11/1/2017	-	%	N/A	7/22/2030	325,000	53,943	47,190	0.15	%
Venture XXXIV CLO, Ltd.(l)	Structured Finance	7/30/2019	-	%	N/A	10/15/2031	250,000	185,875	152,525	0.49	%
Voya IM CLO 2013-1, Ltd.(j)(l)	Structured Finance	6/9/2016	-	%	N/A	10/15/2030	278,312	86,780	72,862	0.23	%
Voya CLO 2016-1, Ltd.(l)	Structured Finance	1/22/2016	-	%	N/A	1/21/2031	250,000	127,801	111,325	0.36	%
Total Structured Subordinated Notes	$	3,443,826	$	2,956,672	9.46	%

Common Equity/Other(a)(f)(g)(h)(k)
ACON IWP Investors I, L.L.C.	Healthcare & Pharmaceuticals	4/30/2015	N/A	N/A	N/A	$	472,357	$	472,357	$	659,500	2.11	%
FullBeauty Brands Holding, Common Stock	Retail	2/7/2019	N/A	N/A	N/A	72	198,026	6,469	0.02	%
iQOR Holdings, Inc. (Bloom Aggregator, LP)	Services: Consumer	6/11/2024	N/A	N/A	N/A	50	50,000	48,957	0.16	%
Rising Tide Holdings, Inc.	Consumer goods: Non-Durable	9/11/2023	N/A	N/A	N/A	2,500	997,560	28,375	0.09	%
Total Common Equity/Other	$	1,717,943	$	743,301	2.38	%

Preferred Stock(a)(f)(g)(h)(k)(p)
Discovery MSO HoldCo LLC	Healthcare & Pharmaceuticals	6/14/2024	N/A	N/A	N/A	48	50,000	100,000	0.32	%
Total Preferred Stock	$	50,000	$	100,000	0.32	%

Total Portfolio Investments	$	62,547,890	$	59,455,010	190.18	%

(a) Indicates assets that the Company believes do not represent "qualifying assets" under Section 55(a) of the Investment Company Act of 1940, as amended (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. Of the Company's total investments as of June 30, 2024, 6% are non-qualifying assets as a percentage of total assets.

(b) The majority of the investments bear interest at a rate that may be determined by reference to the Secured Overnight Financing Rate ("SOFR") which resets monthly, quarterly, or semiannually. For each such investment, the Company has provided the spread over SOFR or the prime lending rate ("Prime") and the current contractual interest rate in effect at June 30, 2024. Certain investments are subject to a SOFR or Prime interest rate floor. The one-month ("1M SOFR") and three-month ("3M SOFR") SOFR rates are based on the applicable SOFR rate for each investment on its reset date. As of June 30, 2024, the one-and-three SOFR rates were 5.34% and 5.32%, respectively.

(d) See Note 6 for a discussion of the tax cost of the portfolio.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS AS OF JUNE 30, 2024 (Continued)

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.

(f) Security is held by the Company and is pledged as collateral for the Senior Secured Revolving Credit Facility (see Note 10). The fair value of the investments used as collateral by the Company for the Senior Secured Revolving Credit Facility at June 30, 2024 was $59,455,010, representing 100% of our total investments.

(g) Represents non-income producing security that has not paid interest or dividends in the year preceding the reporting date.

(i) Investment is categorized as Level 2 investments in accordance with ASC 820. See Note 2 within the accompanying notes to the consolidated financial statements.


Portfolio Company	Investment	Follow-On Acquisition Dates	Follow-On Acquisitions (Excluding initial investment cost)
Aventiv Technologies, LLC	Senior Secured Loans-First Lien	8/2/2019, 3/4/2024, 4/2/2024, 6/28/2024	$	1,779,308
BCPE North Star US Holdco 2, Inc	Senior Secured Loans-First Lien	6/10/2024	1,945,000
CareerBuilder, LLC	Senior Secured Loans-First Lien	6/5/2020	690,000
DRI Holding, Inc.	Senior Secured Loans-First Lien	5/16/2024	2,415,300
DTI Holdco, Inc.	Senior Secured Loans-First Lien	2/8/2024	2,000,000
Emerge Intermediate, Inc.	Senior Secured Loans-First Lien	6/14/2024	131,333
Octagon Investment Partners XXI, Ltd.	Structured Subordinated Notes	2/14/2019	35,015
PlayPower, Inc.	Senior Secured Loans-First Lien	2/29/2024, 3/1/2024, 5/6/2024	3,565,351
Global Tel*Link Corporation (d/b/a ViaPath Technologies)	Senior Secured Loans-First Lien	7/9/2019, 7/16/2019	1,436,250
Voya IM CLO 2013-1, Ltd.	Structured Subordinated Notes	10/17/2017, 7/1/2019	20,584
WatchGuard Technologies, Inc.	Senior Secured Loans-First Lien	6/26/2024	1,994,924
Wellpath Holdings, Inc.	Senior Secured Loans-First Lien	4/10/2019, 7/25/2019	1,327,000


Security Name	PIK Rate - Capitalized	PIK Rate - Paid as cash	Maximum Current PIK Rate
Aventiv Technologies, LLC - First Lien Term Loan	4.09	%	-	%	4.09	%
CareerBuilder, LLC - First Lien Term Loan	4.25	%	-	%	4.25	%	(A)
Shutterfly Finance, LLC - Second Lien Term Loan	4.00	%	-	%	4.00	%

(A) On June 28, 2024, the CareerBuilder, LLC First Lien Loan was amended to allow for a portion of interest accruing in cash to be payable in kind.

(o) Investment on non-accrual status as of the reporting date (See Note 2).

(p) Discovery Point Retreat, LLC, Discovery MSO LLC, Eating Disorder Solutions of Texas LLC, and Discovery Point Retreat Waxahachie, LLC are joint borrowers on the First Lien Term Loan.

See notes to consolidated financial statements.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS

Prospect Floating Rate and Alternative Income Fund, Inc. (the "Company", "PFLOAT", "our", "us", "we"), incorporated in Maryland on April 29, 2011, is an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). Our investment objective is to generate current income and, as a secondary objective, capital appreciation by targeting investment opportunities with favorable risk-adjusted returns. Under normal market conditions, we will invest at least 80% of our net assets (plus any borrowings for investment purposes) in floating rate loans and other income producing investments. We intend to meet our investment objective by primarily lending to and investing in the debt of privately-owned U.S. middle market companies, which we define as companies with annual revenue between $50 million and $2.5 billion. We expect that at least 70% of our portfolio of investments will consist primarily of directly originated or syndicated senior secured first lien loans, directly originated or syndicated senior secured second lien loans, and to a lesser extent, subordinated debt, and that up to 30% of our portfolio of investments will consist of other securities, including private equity (both common and preferred), dividend-paying equity, royalties, and the equity and junior debt tranches of a type of pools of broadly syndicated loans known as collateralized loan obligations ("CLOs"), which we also refer to as subordinated structured notes ("SSNs"). Pursuant to our Articles of Incorporation, as amended, restated and supplemented, the Company is authorized to issue 75,000,000 shares of common stock with a par value of $0.001 per share. Additionally, the Company is authorized to issue 25,000,000 shares of preferred stock with a par value of $0.001 per share. Effective September 19, 2022, the Company engaged Preferred Capital Securities, LLC (the "Dealer Manager") as the Company's dealer manager for the Company's offering to "accredited investors" (within the meaning of Rule 501(a) under the Securities Act of 1933, as amended (the "Securities Act")) of shares of its common stock (the "Private Offering") on the terms and conditions set forth in the Company's confidential private placement memorandum. The Company is relying on the exemption provided by Rule 506(b) of Regulation D and Section 4(a)(2) of the Securities Act in connection with the Private Offering. On September 13, 2023, the Company filed with the SEC an initial registration statement on Form N-2 for the offer and sale of up to $300,000,000 shares of its Class S, Class D and Class I common stock (the "Multi-Class Offering"). In connection with the Multi-Class Offering, the Company authorized the issuance of separate classes of its common stock and designated such classes Class S, Class D and Class I common stock, respectively. The registration statement was declared effective by the SEC on May 10, 2024.

On November 5, 2021, we amended and restated the Investment Advisory Agreement (the "Amended and Restated Advisory Agreement") to reduce the advisory fees payable thereunder, effective as of January 1, 2022 and until the one-year anniversary of the listing of our common stock on a national securities exchange. The Amended and Restated Advisory Agreement was unanimously approved by our Board of Directors, including by all of the directors who are not "interested persons" (as defined in the 1940 Act), and became effective on January 1, 2022. The Amended and Restated Advisory Agreement was most recently approved by our Board of Directors, including all of our directors who are not "interested persons" (as defined in the 1940 Act), on June 14, 2024. See "Note 4 - Related Party Transactions and Arrangements - Investment Advisory Agreement" for additional information.

The Adviser was formed in Delaware as a private investment management firm and is registered as an investment adviser with the SEC under the Investment Advisers Act of 1940, as amended, or the Advisers Act. The Adviser oversees the management of our activities and is responsible for making the investment decisions with respect to our investment portfolio, subject to the oversight of our Board of Directors.

On May 16, 2019, we formed a wholly-owned subsidiary, TP Flexible Funding, LLC (the "SPV"), a Delaware limited liability company and a bankruptcy remote special purpose entity, which holds certain of our portfolio loan investments that were used as collateral for the Credit Facility (as defined in Note 10) at the SPV. This subsidiary has been consolidated since operations commenced. On and effective August 5, 2020, the Company changed the name of the SPV to Prospect Flexible Funding, LLC.

We consolidate certain of our wholly owned and substantially wholly owned holding companies formed by us in order to facilitate our investment strategy. The following company is included in our consolidated financial statements and is referred to as the "Consolidated Holding Company": Prospect Discovery Holdings I, Inc.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation.The accompanying interim consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles ("GAAP") for interim financial information and, pursuant to the requirements for reporting on Form 10-Q, ASC 946, Financial Services - Investment Companies ("ASC 946"), and Articles 6 and 10 of Regulation S-X. Accordingly, certain disclosures accompanying the annual consolidated financial statements prepared in accordance with GAAP are omitted. The current period's results of operations will not necessarily be indicative of results that ultimately may be achieved for the fiscal year ending June 30, 2025. 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 PFLOAT, the SPV and the Consolidated Holding Company. All intercompany balances and transactions have been eliminated in consolidation.

Management Estimates and Assumptions.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 the issuers of our investment portfolio and any other parameters used in determining these estimates could cause actual results to differ, and these differences could be material.

Cash, Cash Equivalents and Restricted Cash. All cash and restricted cash balances are maintained with high credit quality financial institutions. Cash, cash equivalents and restricted cash consist of demand deposits and highly liquid investments (e.g., U.S. treasury notes) with original maturities of three months or less. Cash held at financial institutions has exceeded the Federal Deposit Insurance Corporation ("FDIC") insured limit. The Company has not incurred any losses on these accounts, and the credit risk exposure is mitigated by the financial strength of the banking institutions where the amounts are held. The Company had restrictions prior to September 21, 2023 on the uses of the cash held by Prospect Flexible Funding, LLC based on the terms of the Credit Facility (as defined in Note 10). Cash, cash equivalents and restricted cash are carried at cost, which approximates fair value. Cash equivalents are classified as Level 1 in the fair value hierarchy. As of September 30, 2024 and June 30, 2024, cash equivalents were $14,986,438 and $9,988,444, respectively.

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 three months ended September 30, 2024. Refer to Note 16. Financial Highlights.

In our Form 10-Q for the quarterly period ended September 30, 2023 filed on November 14, 2023, we previously reported total interest income of $432,079 from our non-control/non-affiliate investments within ourConsolidated Statement of Operations. In accordance with Regulation S-X 6-07.01 Statement of Operations - Investment Income and to conform to the presentation for the three months ended September 30, 2024, we have subsequently reclassified portions of the prior year interest income to separately state the amounts attributable to payment-in-kind interest income.

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. Specifically, we record all security transactions on a trade date basis. We determine the fair value of our investments on a quarterly basis (as discussed in Investment Valuation below), with quarter over quarter fluctuations in fair value reflected as a net change in unrealized gains (losses) from investments in the Consolidated Statements of Operations. 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. Realized gains or losses on the sale of investments are calculated using the specific identification method. Amounts for investments and or cash equivalents traded but not yet settled are reported in payable for open trades or receivable for investments sold in the Consolidated Statements of Assets and Liabilities. Amounts for principal repayments from our investments are reported in receivable for repayments of portfolio investments. As of September 30, 2024 and June 30, 2024, we have no assets going through foreclosure.

Investment Valuation.As a BDC, and in accordance with the 1940 Act, we fair value our investment portfolio on a quarterly basis, with any unrealized gains and losses reflected in net increase (decrease) in net assets resulting from operations on our Consolidated Statements of Operations. 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.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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.

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, due to factors such as volume and frequency of price quotes, 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 issue 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 Adviser, the respective independent valuation firm and the Audit Committee.

For intra-quarter periods and pursuant to Rule 2a-5, the Board of Directors has designated the Adviser as the valuation designee (the "Valuation Designee") for the purpose of performing fair value determinations for investments for which market quotations are not readily available, or when such market quotations are deemed not to represent fair value. The Board of Directors has approved a multi-step valuation process for such intra-quarter investment valuations, as described below, and such investments are classified in Level 3 of the fair value hierarchy:

1.The Adviser will start with the most recent quarterly valuations determined pursuant to the process described above.

2.The Adviser will calculate the estimated earnings per share for each investment in order to adjust the valuation of that investment for income that is expected to be realized.

3.The Adviser will consider other factors that should be taken into account in order to adjust the valuations, including, market changes in expected returns for similar investments; performance improvement or deterioration which would change the margin added to the base interest rate charged; the nature and realizable value of any collateral; the issuer's ability to make payments and its earnings and discounted cash flow; the markets in which the issuer does business; comparisons to publicly traded securities; and other relevant factors.

Our non-CLO investments that are classified as Level 3are valued utilizing a yield technique, enterprise value ("EV") technique, net asset value technique, asset recovery technique, discounted cash flow technique, or a combination of techniques, as appropriate. The yield technique uses loan spreads for loans and other relevant information implied by market data involving identical or comparable assets or liabilities. Under the EV technique, 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) valuation 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 technique. The net asset value technique, an income approach, is used to derive a value of an underlying investment 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 asset recovery technique 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 technique converts 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 fair value measurement is based on the net present value indicated by current market expectations about those future amounts.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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 Level 3 fair value measured securities under ASC 820 and are valued using a discounted multi-path cash flow model. The CLO structures are analyzed to identify the risk exposures and to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations, which is a simulation used to model the probability of different outcomes, to generate probability-weighted (i.e., multi-path) cash flows from the underlying assets and liabilities. These cash flows are discounted using appropriate market discount rates, and relevant data in the CLO market as well as certain benchmark credit indices are considered, to determine the value of each CLO investment. In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the multi-path cash flows. 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, prepayment risk, interest rate risk, downgrade risk, and credit spread risk.

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.

Credit Spread Risk

Credit spread risk represents the risk that with higher interest rates comes a higher risk of defaults.

Default Risk

Default risk is the risk that a borrower will be unable to make the required payments on their debt obligation.

Downgrade Risk

Downgrade risk results when rating agencies lower their rating on a bond which are usually accompanied by bond price declines.

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 us less likely to fully earn all of the expected income of that security and reinvesting in a lower yielding instrument.

Other Risks

Political developments, including civil conflicts and war, sanctions or other measures by the United States or other governments, natural disasters, public health crises and other events outside the Company's control can directly or indirectly have a material adverse impact on the Company and our portfolio companies.

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.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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.

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). As of September 30, 2024 and June 30, 2024, our qualifying assets as a percentage of total assets stood at 93.20% and 94.23%, respectively.

Revenue Recognition.Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Accretion of such purchase discounts or amortization of such premiums is calculated using the effective interest method as of the settlement date and adjusted only for material amendments or prepayments. Upon the prepayment of a loan or bond, any unamortized discount or premium is recorded as interest income. The Company records dividend income on the ex-dividend date. The Company does not accrue as a receivable interest or dividends on loans and securities if it has reason to doubt its ability to collect such 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 are either applied to the cost basis or interest income, depending upon management's judgment of the collectability of the loan receivable. 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 and future principal and interest collections when due are probable. Interest received and applied against cost while a loan is on non-accrual, and payment-in-kind ("PIK") interest capitalized but not recognized while on non-accrual, is recognized prospectively on the effective yield basis through maturity of the loan when placed back on accrual status, to the extent deemed collectible by management. As of September 30, 2024 and June 30, 2024, the Company had one loan on non-accrual status. As of September 30, 2024, approximately 1.16% of our total assets at fair value are on non-accrual status. As of June 30, 2024, approximately 1.96% of our total assets at fair value are on non-accrual status. Upfront structuring fees are recorded as fee income when earned. The Company records prepayment premiums on loans and securities as fee income when it receives such amounts.

Some of our loans and other investments may have contractual PIK interest or dividends. PIK income computed at the contractual rate is accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, we capitalize the accrued interest (reflecting such amounts in the basis as additional securities received). PIK generally becomes due at maturity of the investment or upon the investment being called by the issuer. At the point that we believe PIK is not fully expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are reversed from the related receivable through interest or dividend income, respectively. We do not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if we believe that PIK is expected to be realized.

Interest income from investments in Structured Subordinated Notes (typically preferred shares, income notes or subordinated notes of CLO funds) is recorded based on an estimation of an effective yield to expected maturity utilizing assumed future cash flows in accordance with ASC 325-40, Beneficial Interest in the Securitized Financial Assets. The Company monitors the expected cash inflows from CLO equity investments, including the expected residual payments, and the estimated effective yield is determined and updated periodically.

The Company modified its accounting policy during the year ended June 30, 2024, with respect to the timing of when it recognizes realized losses for certain CLO equity investments for which the Company determines that a CLO's expected remaining cash flows do not exceed amortized cost basis. In such situations, the amortized cost basis of the CLO is written down and recognized as a realized loss.

Due from and to Adviser.Amounts due from the Adviser are for amounts waived under the ELA, respectively (as such terms are defined in Note 4) and amounts due to the Adviser are for base management fees, incentive fees, operating expenses and offering and organization expenses paid on our behalf. All balances due from and to the Adviser are settled quarterly.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Payment-In-Kind Interest.The Company has certain investments in its portfolio that contain a PIK interest provision, which represents contractual interest or dividends that are added to the principal balance and recorded as income. For the three months ended September 30, 2024 and 2023, PIK interest included in interest income totaled $69,280 and $21,994, respectively. To maintain regulated investment company ("RIC") tax treatment, and to avoid corporate tax, substantially all of this income must be paid out to the stockholders in the form of distributions, even though the Company has not yet collected the cash.

Offering Costs and Expenses.The Company will incur certain costs and expenses in connection with the Private Offering and registering to sell shares of its common stock. These costs and expenses principally relate to certain costs and expenses for advertising and sales, printing and marketing costs, professional and filing fees. Offering costs incurred by the Company were capitalized to deferred offering costs on the Consolidated Statements of Assets and Liabilities and will be amortized to expense over the 12 month period following the effectiveness of the registration to sell shares of its common stock on a straight line basis.

Dividends and Distributions.Dividends and distributions to common stockholders are recorded on the record date. The amount, if any, to be paid as a monthly dividend or distribution is approved by our Board of Directors quarterly and generally depends on our earnings, financial condition, maintenance of our tax treatment as a RIC, compliance with applicable BDC regulations and such other factors as our Board of Directors deems relevant from time to time. Net realized capital gains, if any, are distributed at least annually. Our distributions may exceed our earnings, and therefore, portions of the distributions that we make may be a return of the money originally invested and represent a return of capital distribution to shareholders for tax purposes.

Financing Costs.We record origination expenses related to our Credit Facility and Senior Secured Revolving Credit Facility (both as defined herein)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 of our Credit Facility and Senior Secured Revolving Credit Facility. (See Note 10 for further discussion.)

Per Share Information.Net increase or decrease in net assets resulting from operations per share is calculated using the weighted average number of common stock outstanding for the period presented. (See Note 11 for further discussion.)

Net Realized and Net Change in Unrealized Gains or Losses.Gains or losses on the sale of investments are calculated by using the specific identification method. The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees. Net change in unrealized gains or losses reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized gains or losses when gains or losses are realized.

Federal and State Income Taxes. The Company has elected to be treated as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and intends to continue to comply with the requirements of the Code applicable to RICs. As a RIC, the Company is required to distribute at least 90% of its investment company taxable income and intends to distribute (or retain through a deemed distribution) all of its investment company taxable income and net capital gain to stockholders; therefore, the Company has made no provision for income taxes. The character of income and gains that the Company 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 the Company does not distribute (or is not deemed to have distributed) at least 98% of its annual ordinary income and 98.2% of its net capital gains in the calendar year earned, it will generally be required to pay an excise tax equal to 4% of the amount by which 98% of its annual ordinary income and 98.2% of its capital gains exceeds the distributions from such taxable income for the year. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, it accrues excise taxes, if any, on estimated excess taxable income. As of September 30, 2024, the Company expects to have no excise tax due for the 2023 calendar year. As of September 30, 2024, the Company has accrued $0 of excise tax for this period.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

If the Company fails to satisfy the annual distribution requirement or otherwise fails to qualify as a RIC in any taxable year, it would be subject to tax on all of its taxable income at regular corporate income tax rates. The Company would not be able to deduct distributions to stockholders, nor would it be required to make distributions. Distributions would generally be taxable to the Company's 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 its 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, the Company would be required to distribute to its shareholders its accumulated earnings and profits attributable to non-RIC years. In addition, if the Company 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, it 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 five years.

The Company follows 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. As of September 30, 2024, the Company 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 the Company files both federal and state income tax returns, its major tax jurisdiction is federal. The Company's federal tax returns for the tax years ended December 31, 2021 and thereafter remain subject to examination by the Internal Revenue Service.

Recent Accounting Pronouncements

The Company considers the applicability and impact of all accounting standard updates ("ASU") issued by the Financial Accounting Standards Board.

In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09")," which intends to improve the transparency of income tax disclosures. ASU No. 2023-09 is effective for fiscal years beginning after December 15, 2024 and is to be adopted on a prospective basis with the option to apply retrospectively. The Company is currently assessing the impact of this guidance, however, the Company does not expect it to have a material impact to the Company's consolidated financial statements.

NOTE 3 - SHARE TRANSACTIONS

Below is a summary of transactions with respect to shares of common stock of the Company during the three months ended September 30, 2024 and 2023:


Three Months Ended September 30, 2024
PFLOAT Class A Common Stock
Shares	Amount
Shares issued	2,096,436	$	10,000,000
Shares issued through reinvestment of distributions	130,041	618,760
Repurchase of common stock	(47,845)	(223,438)
Net increase/(decrease) from capital transactions	2,178,632	$	10,395,322


Three Months Ended September 30, 2023
PFLOAT Class A Common Stock
Shares	Amount
Shares issued through reinvestment of distributions	18,415	$112,005
Repurchase of common stock	(19,963)	(121,569)
Net (decrease)/increase from capital transactions	(1,548)	$(9,564)

On June 28, 2024, the Company accepted a subscription agreement from the Adviser for the sale of $10.0 million of the Company's Class A common stock at a purchase price per Share equal to the Company's net asset value per Share as of June 30, 2024. A total of 2,096,436 shares were issued on July 1, 2024. The offer and sale of these shares are exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof and Regulation D thereunder.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Share Repurchase Program

The Company may conduct quarterly tender offers pursuant to its share repurchase program. The Company's Board of Directors will consider the following factors, among others, in making its determination regarding whether to cause the Company to offer to repurchase shares of common stock and under what terms:

• the effect of such repurchases on the Company's qualification as a RIC (including the consequences of any necessary asset sales);

• the liquidity of the Company's assets (including fees and costs associated with disposing of assets);

• the Company's investment plans and working capital requirements;

• the relative economies of scale with respect to the Company's size;

• the Company's history in repurchasing shares of common stock or portions thereof; and

• the condition of the securities markets.

The Company currently intends to limit the number of shares of common stock to be repurchased during any calendar year to the number of shares of common stock it can repurchase with the cash retained as a result of issuing shares under its distribution reinvestment plan to those stockholders who have elected to receive their distributions in the form of additional shares rather than in cash. At the discretion of the Company's Board of Directors, the Company may also use cash on hand, cash available from borrowings and cash from the liquidation of securities investments as of the end of the applicable period to repurchase shares of common stock. In addition, the Company will limit the number of shares of common stock to be repurchased in any calendar year to 10% of the weighted average number of shares of common stock outstanding in the prior calendar year, or 2.5% in each calendar quarter, though the actual number of shares of common stock that the Company offers to repurchase may be less in light of the limitations noted above.

Our Board of Directors reserves the right, in its sole discretion, to limit the number of shares to be repurchased for each class by applying the limitations on the number of shares to be repurchased, noted above, on a per class basis. We further anticipate that we will offer to repurchase such shares on each date of repurchase at a price equal to the net asset value per share on each date of repurchase. If the amount of repurchase requests exceeds the number of shares we seek to repurchase, we will repurchase shares on a pro-rata basis. As a result, we may repurchase less than the full amount of shares that stockholders submit for repurchase. If we do not repurchase the full amount of the shares that stockholders have requested to be repurchased, or we determine not to make repurchases of our shares, stockholders may not be able to dispose of their shares. Any periodic repurchase offers will be subject in part to our available cash and compliance with the 1940 Act.

Below is a summary of transactions with respect to shares of common stock during each tender offer:


Quarterly Offer Date	Repurchase Effective Date	Shares Repurchased	Percentage of Shares Tendered That Were Repurchased	Repurchase Price Per Share	Aggregate Consideration for Repurchased Shares

Three months ended September 30, 2024
September 30, 2024	September 23, 2024	47,845	15	%	$	4.67	$	223,438
Total for the three months ended September 30, 2024	47,845	$	223,438


Year ended June 30, 2024
September 30, 2023	July 31, 2023	19,963	7	%	$	6.09	$	121,569
December 31, 2023	November 9, 2023	21,112	7	%	$	5.37	113,371
March 31, 2024	February 26, 2024	23,273	8	%	$	4.82	112,179
June 30, 2024	May 14, 2024	21,698	8	%	$	4.72	102,413
Total for the year ended June 30, 2024	86,046	$	449,532

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE 4 - RELATED PARTY TRANSACTIONS AND ARRANGEMENTS

Administration Agreement

The Administrator, an affiliate of the Adviser, became the administrator for the Company pursuant to an administrative agreement, as amended and restated as of June 17, 2019 (the "Administration Agreement"). The Administrator performs, oversees and arranges for the performance of administrative services necessary for the operation of the Company. These services include, but are not limited to, accounting, finance and legal services. For providing these services, facilities and personnel, the Company reimburses the Administrator for the Company's actual and allocable portion of expenses and overhead incurred by the Administrator in performing its obligations under the Administration Agreement, including rent and the Company's allocable portion of the costs of its CCO and her staff. For the three months ended September 30, 2024 and 2023, allocation of overhead from the Administrator to the Company was $175,000 and $223,750 respectively. During the three months ended September 30, 2024 and 2023, $10,000 and $8,750, respectively, of US Bank, BNY and Sumitomo Mitsui Banking Corporation ("SMBC") fees are being included within the Administrator costs incurred by the Company. As of September 30, 2024 and June 30, 2024, $1,921,943 and $1,766,942, respectively, was payable to the Administrator, US Bank, BNY and SMBC by the Company.

Investment Advisory Agreement

On April 20, 2021, the Company entered into the Investment Advisory Agreement with the Adviser, which was unanimously approved by the Company's Board of Directors, including by all of the directors who are not "interested persons" (as defined in the 1940 Act), on February 18, 2021, subject to stockholder approval of the Investment Advisory Agreement. The Company's stockholders approved the Investment Advisory Agreement at a Special Meeting of Stockholders held on March 31, 2021.

On November 5, 2021, we amended and restated the Investment Advisory Agreement to reduce the advisory fees payable thereunder, effective as of January 1, 2022 and until the one-year anniversary of the listing of our common stock on a national securities exchange (the "Listing Anniversary"), as further discussed below. The Amended and Restated Advisory Agreement was unanimously approved by our Board of Directors, including by all of the directors who are not "interested persons" (as defined in the 1940 Act), and became effective on January 1, 2022. Under the Amended and Restated Advisory Agreement, we reduced the base management fee from an annual rate of 1.75% to 1.20% and eliminated the incentive fee payable thereunder, effective as of January 1, 2022 and until the Listing Anniversary. Until such effective date, the advisory fees payable to the Adviser were as set forth in the Investment Advisory Agreement. The Amended and Restated Advisory Agreement has an initial two-year term and may be continued thereafter for successive one-year periods if such continuance is approved in the manner provided for under Section 15 of the 1940 Act.

The Investment Advisory Agreement, as amended and restated, is further discussed below.

Investment Advisory Agreement

Pursuant to the Investment Advisory Agreement, we pay the Adviser a fee for investment advisory and management services consisting of a base management fee and an incentive fee. The cost of both the base management fee payable to the Adviser and any incentive fees it earns will ultimately be borne by our stockholders. See "Amended and Restated Advisory Agreement" below for additional information.

Base Management Fee

The base management fee was calculated at an annual rate of 1.75% (0.4375% quarterly) of our average total assets, which includes any borrowings for investment purposes. For the first quarter of our operations commencing with the date of the Investment Advisory Agreement, the base management fee was calculated based on the average value of our total assets as of the date of the Investment Advisory Agreement and at the end of the calendar quarter in which the date of the Investment Advisory Agreement fell, and was appropriately adjusted for any share issuances or repurchases during the then current calendar quarter. Subsequently, the base management fee is payable quarterly in arrears, and is calculated based on the average value of our total assets at the end of the two most recently completed calendar quarters, and is appropriately adjusted for any share issuances or repurchases during the then current calendar quarter. Base management fees for any partial month or quarter is appropriately pro-rated. At the Adviser's option, the base management fee for any period may be deferred, without interest thereon, and paid to the Adviser at any time subsequent to any such deferral as the Adviser determines.

Incentive Fee

The incentive fee consisted of two parts: (1) the subordinated incentive fee on income and (2) the capital gains incentive fee.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Incentive Fee- Subordinated Incentive Fee on Income

The first part of the incentive fee, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears based upon our "pre-incentive fee net investment income" for the immediately preceding calendar quarter. For purpose of this fee "pre-incentive fee net investment income" means interest income, dividend income and distribution cash flows from equity investments and any other income (including any other fees, such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive) accrued during the calendar quarter, minus operating expenses for the quarter (including the base management fee, expenses reimbursed under the Investment Advisory Agreement and the Administration Agreement, any interest expense and dividends paid on any issued and outstanding preferred shares, but excluding the organization and offering expenses and incentive fees on income and capital gains). 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 preferred return, or "hurdle," of 1.5% per quarter (6.0% annualized) and a "catch-up" feature measured as of the end of each calendar quarter as discussed below. The subordinated incentive fee on income for each calendar quarter is paid to our Adviser as follows: (1) no incentive fee is payable to our Adviser in any calendar quarter in which our pre-incentive fee net investment income does not exceed the fixed preferred return rate of 1.5%; (2) 100% 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 fixed preferred return but is less than or equal to 1.875% in any calendar quarter (7.5% annualized); and (3) 20.0% of the amount of our pre-incentive fee net investment income, if any, that exceeds 1.875% in any calendar quarter (7.5% annualized). This reflects that once the fixed preferred return is reached and the catch-up is achieved, 20.0% of all pre-incentive fee net investment income thereafter is allocated to our Adviser. 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.

Incentive Fee- Capital Gains Incentive Fee

The second part of the incentive fee, which is referred to as 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; provided that the incentive fee determined as of December 31, 2021 will be calculated for a period of shorter than twelve calendar months to take into account any net realized capital gains, if any, computed net of all realized capital losses and unrealized capital depreciation for the period commencing as of the date of the Investment Advisory Agreement and ending on December 31, 2021. In determining the capital gains incentive fee payable to our 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 amortized 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 amortized 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 amortized 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. Operating expenses are not taken into account when determining capital gains incentive fees.

Amended and Restated Advisory Agreement

On November 5, 2021, we amended and restated the Investment Advisory Agreement to reduce the base management fee from an annual rate of 1.75% (0.4375% quarterly) to 1.20% (0.30% quarterly) and eliminate the incentive fee payable thereunder, effective as of January 1, 2022 and until the Listing Anniversary. As such, until the Listing Anniversary, the base management fee will be calculated at an annual rate of 1.20% (0.30% quarterly) and the Adviser will not be entitled to any incentive fee. Following the Listing Anniversary (1) the base management fee will be calculated at an annual rate of 1.75% (0.4375% quarterly), commencing with the first base management fee calculation that occurs after such anniversary, and (2) the Adviser will be entitled to receive the same incentive fee, including the subordinated incentive fee on income and the capital gains incentive fee, as set forth in the Investment Advisory Agreement and discussed above, commencing with the first calendar

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

quarter after such anniversary. The Amended and Restated Advisory Agreement became effective on January 1, 2022. Until such effective date, the advisory fees payable to the Adviser were as set forth in the Investment Advisory Agreement. See "Investment Advisory Agreement" above.

During the three months ended September 30, 2024 and 2023, the total base management fee incurred by the Adviser was $289,161 and $83,359, respectively, which were waived by the Adviser. As of September 30, 2024 and June 30, 2024, the total base management fee due to the Adviser after the waiver was $0 and $0, respectively.

There were no incentive fees payable as of September 30, 2024 or June 30, 2024. During the three months ended September 30, 2024 and 2023, there were no incentive fees incurred.

Co-Investments

On January 13, 2020, (amended on August 2, 2022), the parent company of the Adviser received an exemptive order from the SEC (the "Order"),which superseded a prior co-investment exemptive order granted on February 10, 2014, granting the ability to negotiate terms other than price and quantity of co-investment transactions with other funds managed by the Adviser or certain affiliates, including Prospect Capital Corporation ("PSEC") and Priority Income Fund, Inc. ("PRIS"), where co-investing would otherwise be prohibited under the 1940 Act, subject to the conditions included therein.

Under the terms of the relief permitting us to co-invest with other funds managed by our Adviser or its affiliates, a "required majority" (as defined in Section 57(o) of the 1940 Act) of the Company's 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 the Company and its stockholders and do not involve overreaching of the Company or its stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of the Company's stockholders and is consistent with the Company's investment objective and strategies. In certain situations where co-investment with one or more funds managed by the 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 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, the Company will be unable to invest in any issuer in which one or more funds managed or owned by the Adviser or its affiliates has previously invested.

Officers and Directors

Certain officers and directors of the Company are also officers and directors of the Adviser and its affiliates. There were no fees paid to the independent directors of the Company as the Company did not exceed the minimum net asset value required (i.e., greater than $100 million) to receive a fee for the three months ended September 30, 2024 and 2023. The officers do not receive any direct compensation from the Company.

Expense Limitation and Expense Reimbursement Agreements

Expense Limitation Agreement with the Adviser

On and effective April 20, 2021, we entered into a new expense limitation agreement with the Adviser, as amended and restated on July 7, 2021, to extend the period during which the Adviser will be required to waive its investment advisory fees under the Investment Advisory Agreement, from September 30, 2021 to June 30, 2022 (the "First Amended and Restated ELA"). On August 23, 2022, we entered into the Second Amended and Restated Expense Limitation Agreement (the "Second Amended and Restated ELA") to extend the period during which the Adviser will be required to waive its investment advisory fees under the Investment Advisory Agreement from June 30, 2022 to December 31, 2022. On April 24, 2023, we entered into a Third Amended and Restated Expense Limitation Agreement (the "Third Amended and Restated ELA" to extend the period during which the Adviser will be required to waive its investment advisory fees under the Investment Advisory Agreement from December 31, 2022 to June 30, 2024. On May 13, 2024, we entered into a Fourth Amended and Restated Expense Limitation Agreement (the "Fourth Amended and Restated ELA" and, together with the First Amended and Restated ELA, the Second Amended and Restated ELA, and the Third Amended and Restated ELA, the "ELA") to extend the period during which the Adviser will be required to waive its investment advisory fees under the Investment Advisory Agreement from June 30, 2024 to December 31, 2024, as discussed below. Other than this change, the terms and conditions of the Fourth Amended and Restated ELA are identical to those of the First Amended and Restated ELA, the Second Amended and Restated ELA, and the Third Amended and Restated ELA. The ELA has an initial term ending on December 31, 2024 and may be continued thereafter for successive one-year periods in accordance with its terms.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Pursuant to the ELA, our Adviser waived a portion or all of the investment advisory fees that it was entitled to receive pursuant to the Investment Advisory Agreement, from the effective date of the ELA through December 31, 2024, in order to limit our Operating Expenses (as defined below) to an annual rate, expressed as a percentage of our average quarterly net assets, equal to 8.00% (the "Annual Limit"). After December 31, 2024, such waiver may be made at our Adviser's option and in its sole discretion. Even if the Adviser decides to voluntarily waive its investment advisory fees for a quarter ended after December 31, 2024, there is no guarantee that the Adviser will continue to do so. For purposes of the ELA, the term "Operating Expenses" with respect to the Company, is defined to include all expenses necessary or appropriate for the operation of the Company, including but not limited to our Adviser's base management fee, any and all costs and expenses that qualify as line item "organization and offering" expenses in the consolidated financial statements of the Company as the same are filed with the SEC and other expenses described in the Investment Advisory Agreement, but does not include any portfolio transaction or other investment-related costs (including brokerage commissions, dealer and underwriter spreads, prime broker fees and expenses and dividend expenses related to short sales), interest expenses and other financing costs, extraordinary expenses and acquired fund fees and expenses. Upfront shareholder transaction expenses, such as sales commissions, dealer manager fees and similar expenses, are not Operating Expenses. Our Adviser waived fees, pursuant to the ELA, in an amount of $289,161 and $83,359 for the three months ended September 30, 2024 and 2023, respectively.

Any amount waived pursuant to the ELA is subject to repayment to our Adviser (an "ELA Reimbursement") by us within three years of the date on which the waiver was made by our Adviser. If the ELA is terminated or expires pursuant to its terms, our Adviser will maintain its right to repayment for any waiver it has made under the ELA, subject to the Repayment Limitations (discussed below).

Any ELA Reimbursement can be made solely in the event that we have sufficient excess cash on hand at the time of any proposed ELA Reimbursement and shall be limited to the lesser of (i) the excess of the Annual Limit applicable to such quarter over the Company's actual Operating Expenses for such quarter and (ii) the amount of ELA Reimbursement which, when added to the Company's expenses for such quarter, permits the Company to pay the then-current aggregate quarterly distribution to its shareholders, at a minimum annualized rate of at least 6.00% (based on the gross offering prices of Company shares) (the "Distribution") from the sum of (x) the Company's net investment income (loss) for such quarter plus (y) the Company's net realized gains (losses) for such quarter (collectively, the "Repayment Limitations"). For the purposes of the calculations pursuant to (i) and (ii) of the preceding sentence, any ELA Reimbursement will be treated as an expense of the Company for such quarter. In the event that the Company is unable to make a full payment of any ELA Reimbursements due for any applicable quarter because the Company does not have sufficient excess cash on hand, any such unpaid amount shall become a payable of the Company for accounting purposes and shall be paid when the Company has sufficient cash on hand (subject to the Repayment Limitations); provided, that in the case of any ELA Reimbursements, such payment shall be made no later than the date that is three years after the date on which the applicable waiver was made by our Adviser.


Period Ended	ELA Reimbursement Payable to the Adviser	ELA Reimbursement Payment to the Adviser	Unreimbursed ELA Reimbursement	Operating Expense Ratio	Annualized Distribution Rate	Eligible to be Repaid Through
June 30, 2021	$	144,073	$	-	$	144,073	4.04%	8.11%	June 30, 2024
September 30, 2021	182,198	-	182,198	2.97%	7.08%	September 30, 2024
December 31, 2021	184,999	-	184,999	3.00%	7.10%	December 31, 2024
March 31, 2022	125,720	-	125,720	2.70%	7.22%	March 31, 2025
June 30, 2022	118,220	-	118,220	3.52%	7.87%	June 30, 2025
September 30, 2022	112,434	-	112,434	3.48%	7.38%	September 30, 2025
December 31, 2022	105,950	-	105,950	3.30%	7.49%	December 31, 2025
March 31, 2023	105,279	-	105,279	3.33%	7.18%	March 31, 2026
June 30, 2023	99,018	-	99,018	2.79%	6.97%	June 30, 2026
September 30, 2023	83,359	-	83,359	4.06%	7.85%	September 30, 2026
December 31, 2023	74,073	-	74,073	5.00%	7.43%	December 31, 2026
March 31, 2024	105,128	-	105,128	3.14%	7.51%	March 31, 2027
June 30, 2024	184,993	-	184,993	2.75%	7.57%	June 30, 2027
September 30, 2024	289,161	-	289,161	2.82%	7.64%	September 30, 2027
Total	$	1,914,605	$	1,914,605

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Dealer Manager Agreement

On May 13, 2024, we entered into the dealer manager agreement ("Dealer Manager Agreement") with the Dealer Manager. Pursuant to the terms of the Dealer Manager Agreement, we pay the Dealer Manager over time a shareholder servicing and/or distribution fee with respect to our outstanding Class S and Class D shares equal to 0.85% and 0.25%, respectively, per annum of the aggregate NAV of our outstanding Class S and Class D shares, including any Class S and Class D shares issued pursuant to our distribution reinvestment plan, which is included in the 10% underwriting compensation limit. The shareholder servicing and/or distribution fees are paid monthly in arrears. The Dealer Manager reallows (pays) all or a portion of the shareholder servicing and/or distribution fees to participating brokers for ongoing shareholder services performed by such participating brokers.

Our Adviser or an affiliate may also pay directly, or reimburse the Dealer Manager if the Dealer Manager pays on our behalf, any organization and offering expenses (other than any underwriting compensation, including upfront selling commissions and shareholder servicing and/or distribution fees, subject to FINRA Rule 2310). Additionally, our Adviser will pay the Dealer Manager a distribution services fee of 0.848% of the sales price of each share sold, except for sales arranged by our Adviser, an affiliate of our Adviser, or their respective personnel.

License Agreement

We entered into a license agreement with an affiliate of our Adviser, pursuant to which the affiliate granted us a non-exclusive, royalty free license to use the "Prospect" name. Under this license agreement, we have the right to use such name for so long as our Adviser or another affiliate of the Adviser is our investment adviser. Other than with respect to this limited license, we have no legal right to the "Prospect" name or logo.

NOTE 5 - DISTRIBUTIONS

The following table reflects the cash distributions per share that the Company declared on its common stock during the three months ended September 30, 2024 and 2023:


Distributions
For the Three Months Ended September 30, 2024	PFLOAT Class A Common Stock, per share	PFLOAT Class A Common Stock, Amount Distributed
July 26, 2024	$	0.02724	$	239,396
August 30, 2024	0.03650	322,325
September 27, 2024	0.03048	269,443
Total for the Three Months Ended September 30, 2024	$	831,164


Distributions
For the Three Months Ended September 30, 2023	PFLOAT Class A Common Stock, per share	PFLOAT Class A Common Stock, Amount Distributed
July 28, 2023	$	0.03260	$	78,129
August 25, 2023	0.03260	78,313
September 29, 2023	0.04095	98,612
Total for the Three Months Ended September 30, 2023	$	255,054

The Company has adopted an "opt in" distribution reinvestment plan for its stockholders. As a result, if the Company makes a cash distribution, its stockholders will receive distributions in cash unless they specifically "opt in" to the distribution reinvestment plan so as to have their cash distributions reinvested in additional shares of the Company's common stock. However, certain state authorities or regulators may impose restrictions from time to time that may prevent or limit a stockholder's ability to participate in the distribution reinvestment plan.

The Company may fund its cash distributions to stockholders from any sources of funds legally available to it, including offering proceeds, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains proceeds from the sale of assets, dividends or other distributions paid to the Company on account of preferred and common equity investments in portfolio companies and expense reimbursements from the Adviser. The Company has not established limits on the amount of funds it may use from available sources to make distributions.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

During the three months ended September 30, 2024 and 2023, the Company's officers and directors did not purchase any shares of our stock. During the three months ended September 30, 2024, the Company accepted subscriptions from the Adviser for the sale of $10.0 million of the Company's Class A common stock and a total of 2,096,436 shares were issued.

NOTE 6 - INCOME TAXES

While our fiscal year end for financial reporting purposes is June 30 of each year, our tax year end is December 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, distributions made to stockholders are reported as ordinary income, capital gains, non-taxable return of capital, or combination thereof.

The tax character of distributions paid to the Company's shareholders during the tax years ended December 31, 2023 and 2022 were as follows:


Tax Year Ended
	December 31, 2023	December 31, 2022
Ordinary income	$	-	$	1,195,912
Return of capital	948,614	131,777
Total distributions paid to stockholders	$	948,614	(1)	$	1,327,689	(2)

(1) For the tax year ended December 31, 2023, $22,758 of the 2022 declared distributions are allocable to 2023 for federal income tax purposes and are reported on the 2023 Form 1099-DIV. For the tax year ended December 31, 2023, $87,789 of the 2023 declared distributions are allocable to 2024 for federal income tax purposes and will be reported on the 2024 Form 1099-DIV.

(2) For the tax year ended December 31, 2022, $80,441 of the 2021 declared distributions are allocable to 2022 for federal income tax purposes and was reported on the 2022 Form 1099-DIV. For the tax year ended December 31, 2022, $22,758 of the 2022 declared distributions are allocable to 2023 for federal income tax purposes and are reported on the 2023 Form 1099-DIV.

As of September 27, 2023 when our prior Form 10-K was filed for the year ended June 30, 2023, we estimated our distributions for the fiscal and tax years disclosed therein to be distributions of ordinary income. Subsequent to our filing date, we obtained more information from our underlying investments as to the character of the distributions for the tax year ended December 31, 2023, which resulted in changes to distributions previously disclosed in our Form 10-K filing. As a result of the change, our total distributable loss on our Consolidated Statements of Assets and Liabilitiesfor the year ended June 30, 2023 changed from $10,233,154 to $9,906,072, with $327,082 being reclassified to return of capital from ordinary income.

The Company's cost basis of investments as of September 30, 2024 for tax purposes was $86,573,163, resulting in an estimated net unrealized loss of $2,361,880. The gross unrealized gains and losses as of September 30, 2024 were $938,376 and $3,300,256, respectively. The Company's cost basis of investments as of June 30, 2024 for tax purposes was $61,391,979, resulting in an estimated net unrealized loss of $1,936,968. The gross unrealized gains and losses as of June 30, 2024 were $892,350 and $2,829,318, respectively.

Taxable income generally differs from net increase (decrease) 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 (decrease) in net assets resulting from operations to taxable income for the tax years ended December 31, 2023 and 2022.


	Tax Year Ended December 31, 2023	Tax Year Ended December 31, 2022
Net increase (decrease) in net assets resulting from operations	$	(1,662,664)	$	(3,303,225)
Net realized (gains) losses on investments	983,058	147,942
Net change in unrealized (gains) losses on investments	442,632	3,461,044
Other temporary book-to-tax differences	(260,786)	27,795
Permanent differences	(8,210)	155,829
Taxable income (loss) before deductions for distributions	$	(505,970)	$	489,385

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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. For the tax year ended December 31, 2023 and December 31, 2022, we had capital loss carryforwards of $6,570,844 and $4,290,347, respectively, available for use in later tax years. 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, some of the Company's capital loss carryforwards may become permanently unavailable due to limitations by the Code.

As of our most recent tax year ended December 31, 2023, we had no undistributed ordinary income in excess of cumulative distributions and no capital gain in excess of cumulative distributions.


	Tax Year Ended December 31, 2023
Undistributed ordinary income	$	-
Undistributed long-term capital gains	$	-
Capital loss carryforwards	$	(6,570,844)

In general, we 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, amortization of offering costs, expense payments, nondeductible federal excise taxes and net operating losses, among other items. During the tax year ended December 31, 2023, we increased overdistributed net investment income by $497,760 and decreased capital in excess of par value by $497,760. During the tax year ended December 31, 2022, we increased overdistributed net investment income by $155,829 and decreased capital in excess of par value by $155,829. Due to the difference between our fiscal and tax year end, the reclassifications for the taxable year ended December 31, 2023 were recorded in the fiscal year ending June 30, 2024 and the reclassifications for the taxable year ended December 31, 2022 were recorded in the fiscal year ended June 30, 2023.

NOTE 7 - INVESTMENT PORTFOLIO

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 $32,865,621 and $21,994 during the three months ended September 30, 2024 and 2023, respectively. The original cost basis of debt placement and equity securities disposed from noncash restructured investments totaled $1,940,341 and $997,560 during the three months ended September 30, 2024 and 2023, respectively. Debt repayments and considerations from sales of debt and equity securities, excluding noncash restructured investments, of approximately $7,712,639 and $3,641,054 were received during the three months ended September 30, 2024 and 2023, respectively. Debt repayments and considerations from sales of debt and equity securities, including noncash restructured investments, of approximately $9,652,980 and $4,638,614 were received during the three months ended September 30, 2024 and 2023 respectively.

As of September 30, 2024 and June 30, 2024, 99% and 99%, respectively, of the Company's portfolio was invested in floating rate investments based on fair value, totaling $83,158,992 and $58,611,709, respectively. As of September 30, 2024 and June 30, 2024, 98% and 97% respectively, of the Company's portfolio was invested in floating rate investments based on amortized cost, totaling $84,903,064 and $60,779,947, respectively.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

The following tables summarize the composition of the Company's investment portfolio at amortized cost and fair value as of September 30, 2024 and June 30, 2024:


		September 30, 2024
		Investments at Amortized Cost(1)		Investments at Fair Value		Fair Value Percentage of Total Portfolio
Senior Secured Loans-First Lien		$	80,296,521		$	79,012,737		94	%
Senior Secured Loans-Second Lien		1,811,837		1,594,778		2	%
Structured Subordinated Notes		2,794,706		2,551,477		3	%
Common Equity/Other		2,000,205		952,222		1	%
Preferred Equity	50,000	100,069	-	%
Total Portfolio Investments		$	86,953,269		$	84,211,283		100	%


June 30, 2024
Investments at Amortized Cost(1)	Investments at Fair Value	Fair Value Percentage of Total Portfolio
Senior Secured Loans-First Lien	$	55,535,790	$	54,095,336	91	%
Senior Secured Loans-Second Lien	1,800,331	1,559,701	3	%
Structured Subordinated Notes	3,443,826	2,956,672	5	%
Common Equity/Other	1,717,943	743,301	1	%
Preferred Equity	50,000	100,000	-	%
Total Portfolio Investments	$	62,547,890	$	59,455,010	100	%


(1) Amortized cost represents the original cost adjusted for PIK interest and the amortization of premiums and/or accretion of discounts, as applicable, on investments.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of September 30, 2024 and June 30, 2024:


		September 30, 2024
Industry		Investments at Fair Value		Percentage of Portfolio
Healthcare & Pharmaceuticals	$	24,020,866	29	%
Automotive	8,742,860	10	%
Services: Business	8,110,125	10	%
Telecommunications	7,572,698	9	%
Services: Consumer	5,304,543	6	%
High Tech Industries	4,967,209	6	%
Beverage, Food & Tobacco	4,789,914	6	%
Hotel, Gaming & Leisure	4,272,636	5	%
Media: Broadcasting & Subscription	3,442,447	4	%
Consumer Goods: Durable	3,000,000	4	%
Wholesale	2,983,571	3	%
Banking	2,851,571	3	%
Structured Finance	2,551,476	3	%
Media: Diversified and Production	1,594,778	2	%
Retail	6,264	-	%
Consumer goods: Non-Durable	325	-	%
Total		$	84,211,283		100	%

June 30, 2024
Industry	Investments at Fair Value	Percentage of Portfolio
Healthcare & Pharmaceuticals	$	19,061,883	32	%
Automotive	5,943,941	10	%
Services: Consumer	5,470,250	9	%
Hotel, Gaming & Leisure	4,806,257	8	%
Services: Business	4,286,146	7	%
Media: Broadcasting & Subscription	3,451,274	6	%
Telecommunications	3,031,539	5	%
Banking	2,991,303	5	%
High Tech Industries	2,985,077	5	%
Structured Finance	2,956,672	5	%
Beverage, Food & Tobacco	2,876,123	5	%
Media: Diversified and Production	1,559,701	3	%
Consumer goods: Non-Durable	28,375	-	%
Retail	6,469	-	%
Total	$	59,455,010	100	%

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the fair value of our investments that are measured at fair value on a recurring basis disaggregated into the three levels of the ASC 820 valuation hierarchy as of September 30, 2024 and June 30, 2024, respectively:


		As of September 30, 2024
		Level 1		Level 2		Level 3		Total
Portfolio Investments
Senior Secured Loans-First Lien		$	-		$	26,043,752		$	52,968,985	$	79,012,737
Senior Secured Loans-Second Lien		-		-		1,594,778	1,594,778
Structured Subordinated Notes		-		-		2,551,477	2,551,477
Common Equity/Other		-		-		952,222		952,222
Preferred Equity	-	-	100,069	100,069
Total Portfolio Investments		$	-		$	26,043,752		$	58,167,531		$	84,211,283

As of June 30, 2024
Level 1	Level 2	Level 3	Total
Portfolio Investments
Senior Secured Loans-First Lien	$	-	$	17,954,361	$	36,140,975	$	54,095,336
Senior Secured Loans-Second Lien	-	-	1,559,701	1,559,701
Structured Subordinated Notes	-	-	2,956,672	2,956,672
Common Equity/Other	-	-	743,301	743,301
Preferred Equity	-	-	100,000	100,000
Total Portfolio Investments	$	-	$	17,954,361	$	41,500,649	$	59,455,010

Investments for which market quotations are readily available are typically valued at such market quotations. In order to validate market quotations, management and the independent valuation firm look at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. These investments are classified as Level 1 or Level 2 in the fair value hierarchy.

The fair value of debt investments specifically classified as Level 2 in the fair value hierarchy are generally valued by an independent pricing agent or more than one principal market maker, if available, otherwise a principal market maker or a primary market dealer. We generally value over-the-counter securities by using the prevailing bid and ask prices from dealers during the relevant period end, which were provided by an independent pricing agent and screened for validity by such service.

In determining the range of values for debt instruments where market quotations are not available, and are therefore classified as Level 3 in the fair value hierarchy, 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 technique was then applied using the appropriate yield to maturity as the discount rate, to determine a range of values. In determining the range of values for equity investments of portfolio companies , the enterprise value was determined by applying a market approach such as using earnings before interest, taxes, depreciation and amortization ("EBITDA") multiples, net income and/or book value multiples for similar guideline public companies and/or similar recent investment transactions and/or an income approach, such as the discounted cash flow technique. The enterprise value technique may also be used to value debt investments which are credit impaired. For stressed debt and equity investments, asset recovery analysis was used.

In determining the range of values for our investments in CLOs, the independent valuation firm uses a discounted multi-path 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 (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations to generate probability-weighted (i.e., multi-path) cash flows for the underlying assets and liabilities. These cash flows are discounted using appropriate market discount rates, which consider relevant data in the CLO market and certain benchmark credit indices, to determine the value of each CLO investment. In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the corresponding multi-path cash flow model.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

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 CLOs. 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, the prices of indices and securities underlying our 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 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) our 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 CLOs' underlying senior secured loans may prepay more quickly than expected, which could have an adverse impact on our value. These investments are classified as Level 3 in the fair value hierarchy.

An increase in interest rates would materially increase the CLO's financing costs. Since most of the collateral positions within the CLOs have interest rate floors, there may not be corresponding increases in investment income (if interest rates increase but stay below the interest rate floor of such investments) resulting in materially smaller distribution payments to the residual interest investors.

We hold more than a 10% interest in certain foreign corporations that are treated as controlled foreign corporations ("CFC") for U.S. federal income tax purposes (including our residual interest tranche investments in CLOs). Therefore, we are treated as receiving a deemed distribution (taxable as ordinary income) each year from such foreign corporations in an amount equal to our pro rata share of the corporation's income for that tax year (including both ordinary earnings and capital gains). We are required to include such deemed distributions from a CFC in our taxable income and we are required to distribute at least 90% of 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 PFIC's income for each year regardless of whether we receive any distributions from such PFICs. We must nonetheless distribute such income to maintain our status as a RIC.

Legislation known as FATCA and regulations thereunder impose a withholding tax of 30% on payments of U.S. source interest and dividends 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 our 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.

A portion of the Company's portfolio is concentrated in CLOs, which is subject to a risk of loss if that sector experiences a market downturn. The Company is subject to credit risk in the normal course of pursuing its investment objectives. The Company's maximum risk of loss from credit risk for the portfolio of CLO investments is the inability of the CLOs collateral managers to return up to the cost value due to defaults occurring in the underlying loans of the CLOs.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Investments in CLOs residual interests generally offer less liquidity than other investment grade or high-yield corporate debt, and may be subject to certain transfer restrictions. The Company's ability to sell certain investments quickly in response to changes in economic and other conditions and to receive a fair price when selling such investments may be limited, which could prevent the Company from making sales to mitigate losses on such investments. In addition, CLOs are subject to the possibility of liquidation upon an event of default of certain minimum required coverage ratios, which could result in full loss of value to the CLOs interests and junior debt investors.

The fair value of the Company's investments may be significantly affected by changes in interest rates. The Company's investments in senior secured loans through CLOs are sensitive to interest rate levels and volatility. In the event of a significant rising interest rate environment and/or economic downturn, loan defaults may increase and result in credit losses which may adversely affect the Company's cash flow, fair value of its investments and operating results. In the event of a declining interest rate environment, a faster than anticipated rate of prepayments is likely to result in a lower than anticipated yield.

The significant unobservable input used to value our investments based on the yield technique and discounted cash flow technique 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 may 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.

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 technique. 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 would result in an increase or decrease, respectively, in EV which would result in an increase or decrease in 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.

Changes in market yields, discount rates, 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 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.

Changes in Valuation Techniques

During the three months ended September 30, 2024, there were no changes in valuation techniques.

The following table shows industries that comprise of greater than 10% of our portfolio at fair value as of September 30, 2024 and June 30, 2024:


September 30, 2024
Cost	Fair Value	% of Portfolio
Healthcare & Pharmaceuticals	$	24,489,174	$	24,020,866	29	%
Automotive	8,750,600	8,742,860	10	%
Services: Business	8,228,467	8,110,125	10	%
All Other Industries	45,485,028	43,337,432	51	%
Total	$	86,953,269	$	84,211,283	100	%

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


June 30, 2024
Cost	Fair Value	% of Portfolio
Healthcare & Pharmaceuticals	$	19,518,610	$	19,061,883	32	%
All Other Industries	43,029,280	40,393,127	68	%
Total	$	62,547,890	$	59,455,010	100	%

As of September 30, 2024, investments in Texas and New Jersey comprised 11.4% and 9.6%, respectively, of our investments at fair value, with a cost of $9,837,052 and $8,058,777, respectively, and a fair value of $9,623,195 and $8,044,724, respectively.

As of June 30, 2024, investments in Texas and New Jersey comprised 16.2% and 13.7%, respectively, of our investments at fair value, with a cost of $9,880,107 and $8,092,657, respectively, and a fair value of $9,620,581 and $8,124,920, respectively.

The following is a reconciliation for the three months ended September 30, 2024 and 2023 of investments for which significant unobservable inputs (Level 3) were used in determining fair value:


Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
		Senior Secured Loans - First Lien	Senior Secured Loans - Second Lien	Structured Subordinated Notes	Preferred Equity	Common Equity/Other		Total
Fair Value at June 30, 2024		$	36,140,975	$	1,559,701	$	2,956,672	$	100,000	$	743,301	$	41,500,649
Net realized gains (losses) on investments		-	-	(477,151)	-	(297,076)		(774,227)
Net change in unrealized gains (losses) on investments		383,209	23,570	243,929	69	(73,341)		577,436
Net realized and unrealized gains (losses) on investments	383,209	23,570	(233,222)	69	(370,417)	(196,791)
Purchases of investments	22,020,886			-	-	22,020,886
Restructuring of investments	(579,338)	-			579,338	-
Payment-in-kind interest	50,241	19,038				69,279
Accretion (amortization) of purchase discount and premium, net		161,748	(7,531)					154,217
Net Reductions to Subordinated Structured Notes and related investment cost			(171,973)			(171,973)
Repayments and sales of portfolio investments	(5,208,736)	-		-	-	(5,208,736)
Transfers into Level 3(1)	-	-				-
Transfers out of Level 3(1)	-	-				-
Fair Value at September 30, 2024		$	52,968,985	$	1,594,778	$	2,551,477	$	100,069	$	952,222	$	58,167,531

Net change in unrealized gains (losses) attributable to Level 3 investments still held at the end of the period		$	(22,896)	$	23,570	$	243,929	$	69	$	(73,341)	$	171,331

(1)Transfers are assumed to have occurred at the beginning of the quarter during which the asset was transferred. During the three months ended September 30, 2024, none of our first lien loans transferred out of Level 3 to Level 2. During the three months ended September 30, 2024, none of our first lien loans transferred out of Level 2 to Level 3.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


Non-Control/Non-Affiliate Investments (less than 5.00% voting control)
		Senior Secured Loans - First Lien	Senior Secured Loans - Second Lien	Senior Secured Notes	Structured Subordinated Notes	Equity/Other		Total
Fair Value at June 30, 2023		$	13,232,914	$	1,416,049	$	271,899	$	4,386,757	$	478,096	$	19,785,715
Net realized gains on investments		(82,766)	-	-	-	-	(82,766)
Net change in unrealized gains (losses) on investments		(234,162)	(57,046)	18,370	(185,499)	(855,337)	(1,313,674)
Net realized and unrealized gains (losses) on investments	(316,928)	(57,046)	18,370	(185,499)	(855,337)	(1,396,440)
Restructuring of investments	(669,880)	-	-	-	997,560	327,680
Payment-in-kind interest	-	21,994	-	-	-	21,994
Accretion (amortization) of purchase discount and premium, net		645	(2,997)	(117)	-	-	(2,469)
Net Reductions to Subordinated Structured Notes and related investment cost	-	-	-	(167,968)	-	(167,968)
Repayments and sales of portfolio investments	(2,372,308)	-	-	-	-	(2,372,308)
Transfers into Level 3(1)	-	-	-	-	-	-
Transfers out of Level 3(1)	(710,099)	-	-	-	-	(710,099)
Fair Value at September 30, 2023		$	9,164,344	$	1,378,000	$	290,152	$	4,033,290	$	620,319		$	15,486,105

Net change in unrealized gains (losses) attributable to Level 3 investments still held at the end of the period		$	(304,434)	$	(57,046)	$	18,370	$	(185,499)	$	(855,337)		$	(1,383,946)

(1)Transfers are assumed to have occurred at the beginning of the quarter during which the asset was transferred. During the three months ended September 30, 2023, one of our first lien loans transferred out of Level 3 to Level 2 due to a more significant level of market activity during the period and thus this investment was valued using observable inputs such as trades from an independent pricing service. During the three months ended September 30, 2023, none of our first lien loans transferred out of Level 2 to Level 3.

The following table provides quantitative information regarding significant unobservable inputs used in the fair value measurement of Level 3 investments as of September 30, 2024:

Unobservable Inputs

Asset Category

Fair Value

Primary Valuation
Technique

Inputs

Range

Weighted
Average

Senior Secured First Lien Debt

317,682

Enterprise Value Waterfall (Market Approach)

EBITDA multiple

7.00x

8.50x

7.75x

Senior Secured First Lien Debt

52,651,303

Discounted Cash Flow (Yield Analysis)

Market yield

7.92%

21.68%

10.68%

Senior Secured Second Lien Debt

1,594,778

Discounted Cash Flow (Yield Analysis)

Market yield

13.51%

15.61%

14.56%

Common Equity/Other

951,897

Enterprise Value Waterfall (Market Approach)

EBITDA multiple

4.75x

9.00x

8.21x

Common Equity/Other

325

Enterprise Value Waterfall (Market Approach)

Revenue multiple

0.15x

0.16x

Preferred Equity

100,069

Enterprise Value Waterfall (Market Approach)

EBITDA multiple

6.00x

7.00x

6.50x

Subordinated Structured Notes

2,551,477

Discounted Cash Flow

Discount rate

5.65%

15.57%

(1)(2)

7.69%

(1)(2)

58,167,531

(1) Represents the implied discount rate based on our internally generated single-cash flows that is derived from the fair value estimated by the corresponding multi-path cash flow model utilized by the independent valuation firm.

(2) Excludes investments that have been called for redemption or are currently marked to zero fair market value.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

The following table provides quantitative information regarding significant unobservable inputs used in the fair value measurement of Level 3 investments as of June 30, 2024:


Unobservable Inputs
Asset Category		Fair Value		Primary Valuation Technique		Inputs		Range		Weighted Average

Senior Secured First Lien Debt	$	34,215,673	Discounted Cash Flow (Yield Analysis)	Market yield	8.72%	to	27.54%	12.46%
Senior Secured Second Lien Debt	1,559,701	Discounted Cash Flow (Yield Analysis)	Market yield	15.60%	to	18.10%	16.8%
Senior Secured First Lien Debt	1,925,302	Enterprise Value Waterfall (Market Approach)	EBITDA multiple	4.50x	to	7.50x	5.33x
Preferred Equity	100,000	Enterprise Value Waterfall (Market Approach)	EBITDA multiple	6.00x	to	7.00x	6.50x
Common Equity/Other	714,926	Enterprise Value Waterfall (Market Approach)	EBITDA multiple	4.75x	to	9.00x	8.26x
Common Equity/Other	28,375	Enterprise Value Waterfall (Market Approach)	Revenue multiple	0.40x	to	0.70x	0.55x
Subordinated Structured Notes	2,956,672	Discounted Cash Flow	Discount rate	6.13%	to	21.09%	(1)(2)	12.97%	(1)(2)
$	41,500,649
(1)Represents the implied discount rate based on our internally generated single-cash flows that is derived from the fair value estimated by the corresponding multi-path cash flow model utilized by the independent valuation firm.
(2) Excludes investments that have been called for redemption or are currently marked to zero fair market value.

For the three months ended September 30, 2024 and 2023, there were $102,705 and $0 structuring fees recognized as part of interest income on the Consolidated Statements of Operations. For the three months ended September 30, 2024 and 2023, there were accelerated original issue discounts due to repayments of $163,111, and $0, respectively, included in interest income. For the three months ended September 30, 2024 and 2023, there was early repayment income of $0 and $0 respectively, included in interest income.

Financial Instruments Disclosed, But Not Carried at Fair Value

The following table presents the carrying value and fair value of the Company's financial liabilities disclosed, but not carried, at fair value as of September 30, 2024 and the level of each financial liability within the fair value hierarchy:


Carrying value	Fair Value	Level 1	Level 2	Level 3
Senior Secured Revolving Credit Facility(1)		$	39,600,000	$	39,600,000	$	-	$	-	$	39,600,000
	$	39,600,000	$	39,600,000	$	-	$	-		$	39,600,000

(1)As of September 30, 2024, the fair value of the Senior Secured Revolving Credit Facility was $39,600,000, the balance outstanding, and is categorized as Level 3 under ASC 820. The fair value of the Senior Revolving Credit Facility approximates the carrying value since the Senior Secured Revolving Credit Facility bears a floating rate and re-prices to market frequently.

The following table presents the carrying value and fair value of the Company's financial liabilities disclosed, but not carried, at fair value as of June 30, 2024 and the level of each financial liability within the fair value hierarchy:


Carrying value	Fair Value	Level 1	Level 2	Level 3
Senior Secured Revolving Credit Facility(1)		27,800,000	27,800,000	-	-	27,800,000
	$	27,800,000	$	27,800,000	$	-	$	-	$	27,800,000

(1)As of June 30, 2024, the fair value of the Senior Secured Revolving Credit Facility was $27,800,000, the balance outstanding, and is categorized as Level 3 under ASC 820. The fair value of the Senior Secured Revolving Credit Facility is equal to that of the carrying value since the Senior Secured Revolving Credit Facility bears a floating rate and re-prices to market frequently.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE 9 - COMMITMENTS AND CONTINGENCIES

The Company enters into contracts that contain a variety of indemnification provisions. The Company's maximum exposure under these arrangements is unknown; however, the Company has not had prior claims or losses pursuant to these contracts. Management has reviewed the Company's existing contracts and expects the risk of loss to the Company to be remote.

The Company has a conditional obligation to reimburse the Adviser for any payments made by the Adviser under the Expense Limitation Agreement. The Expense Limitation Agreement payments are subject to repayment by the Company within the three years following the end of the quarter in which the payment was made by the Adviser; provided that any such repayments shall be subject to the then-applicable expense limitation, if any, and the limit that was in effect at the time when the Adviser made the payment that is subject to repayment.

The Company is not currently subject to any material legal proceedings and, to the Company's knowledge, no material legal proceedings are threatened against the Company. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company's rights under contracts with its portfolio companies. While the outcome of any legal proceedings cannot be predicted with certainty, the Company does not expect that any such proceedings will have a material adverse effect upon its financial condition or results of operations.

Undrawn committed revolver loans to our portfolio companies incur commitment and unused fees of 0.50%. As of September 30, 2024 and June 30, 2024, we had $656,566 and $0, respectively, of undrawn revolver loan commitments to our portfolio companies. The fair value of our undrawn committed revolvers and delayed draw term loans was $0 and $0 as of September 30, 2024 and June 30, 2024, as they were all floating rate instruments that repriced frequently.

NOTE 10 - REVOLVING CREDIT FACILITIES

Credit Facility

On May 16, 2019, the Company established a $50 million senior secured revolving credit facility (the "Credit Facility") with Royal Bank of Canada, a Canadian chartered bank, acting as administrative agent. In connection with the Credit Facility, the SPV, as borrower, and each of the other parties thereto entered into a Revolving Loan Agreement, dated as of May 16, 2019 (the "Loan Agreement").

The Credit Facility had a maturity of May 21, 2029 and, initially, bore interest at a rate of three-month LIBOR plus 1.55%. On May 11, 2020, in connection with an extension of the ramp period for the Credit Facility from May 15, 2020 to November 15, 2020, the Company agreed to the increased interest rate of three-month LIBOR plus 2.20% on the Credit Facility for the period from May 16, 2020 through November 15, 2020. Effective November 10, 2020, the end date of the ramp period of the Credit Facility was extended again, from November 15, 2020 to May 14, 2021. As a result, the interest rate on borrowings under the Credit Facility of the three-month LIBOR plus 2.20% was extended through May 14, 2021. On May 11, 2021, the end date of the ramp period of the Credit Facility was further extended from May 14, 2021 to November 15, 2021. As a result, the interest rate on borrowings under the Credit Facility of the three-month LIBOR plus 2.20% was extended through November 15, 2021. On August 26, 2021, the end date of the ramp period of the Credit Facility was further extended from November 15, 2021 to August 25, 2022. In exchange, the interest rate on borrowings under the Credit Facility of the three-month LIBOR plus 2.20% was extended permanently. On July 6, 2022, the end date of the ramp period of the Credit Facility was further extended from August 25, 2022 to August 25, 2023. In connection with such extension, the interest rate on borrowings under the Credit Facility was amended from three-month LIBOR plus 2.20% to Secured Overnight Financing Rate ("SOFR") plus 2.20%. On March 24, 2023, (i) the end date of the ramp period of the Credit Facility was further extended from August 25, 2023 to October 25, 2023 and (ii) the Loan Agreement was amended to require sales of collateral and/or receipt of capital contributions in a combined amount to have generated proceeds (on a trade date basis) (x) during the period from March 24, 2023 through April 30, 2023, in the Initial Amount (the "Initial Amount") of $4,000,000, and (y) during each month thereafter in an amount equal to $2,000,000 (the "Required Amount") with any amount in excess of the total Required Amount plus the Initial Amount contributing to the Required Amount for the next month. In connection with such extension and amendment, the interest rate on borrowings under the Credit Facility was reduced from SOFR plus 2.20% to SOFR plus 1.55%. The Credit Facility was secured by substantially all of the SPV's properties and assets. Under the Loan Agreement, the SPV made certain customary representations and warranties and was required to comply with various covenants, including reporting requirements and other customary requirements for similar credit facilities. The Loan Agreement included usual and customary events of default for credit facilities of this nature. On November 7, 2022, Royal Bank of Canada granted a waiver of any non-compliance with certain waterfall provisions in the Loan Agreement that may have occurred prior to November 7, 2022. Further non-compliance with certain waterfall provisions was permitted through January 31, 2023.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Senior Secured Revolving Credit Facility

On September 21, 2023, the Company entered into a senior secured revolving credit agreement (the "Senior Secured Revolving Credit Facility"), by and among the Company, as borrower, the lenders party thereto, and SMBC, as administrative agent. In conjunction with the closing of the Senior Secured Revolving Credit Facility, we terminated the Credit Facility. As of September 30, 2024, there was a $39,600,000 balance on the Senior Secured RevolvingCredit Facility.

During the three months ended September 30, 2024 and 2023, we recorded $0 and $230,022, respectively, of interest costs and amortization of financing costs on the Credit Facility as interest expense. During the three months ended September 30, 2024 and 2023, we realized a loss on the extinguishment of debt in the amount of $0 and $(66,844), respectively.

The Senior Secured Revolving Credit Facility provides for borrowings in U.S. dollars and certain agreed upon foreign currencies in an initial aggregate amount of up to $20,000,000 with an option for the Company to request, at one or more times, that existing and/or new lenders, at their election, provide up to $150,000,000 in aggregate. The Senior Secured Revolving Credit Facility provides for swingline loans in an aggregate principal amount at any time outstanding that will not exceed $5,000,000. On January 30, 2024, the Company entered into the first amendment (the "First Amendment") to the Senior Secured Revolving Credit Facility. Among other changes, the First Amendment amends the original Senior Secured Revolving Credit Facility to provide for an increase in the aggregate commitment from $20,000,000 to $65,000,000. On February 1, 2024, there was an automatic commitment increase which increased the aggregate commitment from $65,000,000 to $75,000,000. Availability under the Senior Secured Revolving Credit Facility will terminate on the earlier of the Commitment Termination Date of September 19, 2025 or the date of termination of the revolving commitments thereunder, and the outstanding loans under the Senior Secured Revolving Credit Facility will mature on September 21, 2026. The Senior Secured Revolving Credit Facility also requires mandatory prepayment of interest and principal upon certain events, including after the date of termination of the revolving commitments thereunder from asset sales, extraordinary receipts, returns of capital, equity issuances, and incurrence of indebtedness, with certain exceptions and minimum amount thresholds.

Borrowings under the Senior Secured Revolving Credit Facility are subject to compliance with a borrowing base test. Amounts drawn under the Senior Secured Revolving Credit Facility in U.S. dollars will bear interest at either term SOFR plus a credit spread adjustment of 0.10% plus 2.5%, or the prime rate plus 1.5%. The Company may elect either the term SOFR or prime rate at the time of drawdown, and loans denominated in U.S. dollars may be converted from one rate to another at any time at the Company's option, subject to certain conditions. Amounts drawn under the Senior Secured Revolving Credit Facility in other permitted currencies will bear interest at the relevant rate specified therein plus 2.5%.

During the period commencing on September 21, 2023 and ending on the earlier of the Commitment Termination Date or the date of termination of the revolving commitments under the Senior Secured Revolving Credit Facility, the Company will pay a commitment fee of 0.375% per annum (based on the immediately preceding quarter's average usage) on the daily unused amount of the commitments then available thereunder.

In connection with the Senior Secured Revolving Credit Facility, the Company has made certain representations and warranties and must comply with various covenants and reporting requirements customary for facilities of this type. In addition, the Company must comply with the following financial covenants with respect to the Company and its consolidated subsidiaries: (a) the Company must maintain a minimum shareholders' equity, measured as of each fiscal quarter end; and (b) the Company must maintain at all times an asset coverage ratio not less than 150%.

The Senior Secured Revolving Credit Facility contains events of default customary for facilities of this type. Upon the occurrence of an event of default, the administrative agent, at the request of the required lenders, may terminate the commitments and declare the outstanding advances and all other obligations under the Senior Secured Revolving Credit Facility immediately due and payable.

The Company's obligations under the Senior Secured Revolving Credit Facility are guaranteed by Prospect Flexible Funding, LLC, a subsidiary of the Company, and will be guaranteed by certain domestic subsidiaries of the Company that are formed or acquired by the Company in the future. The Company's obligations under the Senior Secured Revolving Credit Facility are secured by a first priority security interest in substantially all of the assets of the Company and certain of the Company's subsidiaries.

On September 21, 2023, the Company entered into the Senior Secured Revolving Credit Facility. As of September 30, 2024, we had $39,600,000 outstanding on our Senior Secured Revolving Credit Facility. As of September 30, 2024, the investments used as collateral for the Senior Secured Revolving Credit Facility had an aggregate fair value of $84,211,283, which represents 100% of our total investments for the period. As of September 30, 2024, cash balances of $4,759,351 were used as collateral for the Senior Secured Revolving Credit Facility. The fair value of the Senior Secured Revolving Credit Facility was $39,600,000 and is categorized as Level 3 under ASC 820 as of September 30, 2024. The fair value of the Senior Secured Revolving Credit Facility is equal to its carrying value as the Senior Secured Revolving Credit Facility is repriced to a market rate of interest frequently.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

In connection with the origination of the Senior Secured Revolving Credit Facility, we incurred $1,205,721 in fees, all of which are being amortized over the term of the Senior Secured Revolving Credit Facility. As of September 30, 2024, $825,031 remains to be amortized and is reflected as deferred financing costs on the Consolidated Statements of Assets and Liabilities.

During the three months ended September 30, 2024 and 2023, we recorded $804,388 and $60,191, respectively, of interest costs and amortization of financing costs on the Senior Secured Revolving Credit Facility as interest expense.

For the three months ended September 30, 2024 and 2023, the average stated interest rate (i.e., rate in effect plus the spread) was 7.98% and 7.50%, respectively, under the Senior Secured Revolving Credit Facility and Credit Facility/Senior Secured Revolving Credit Facility. For the three months ended September 30, 2024 and 2023, average outstanding borrowings under the Senior Secured Revolving Credit Facility and Credit Facility/Senior Secured Revolving Credit Facility was $31,603,297 and $6,409,677, respectively.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE 11- FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights for the three months ended September 30, 2024 and 2023:


Three Months Ended September 30,
2024 (Unaudited)	2023 (Unaudited)
Per Share Data(a):
Net asset value at beginning of period	$	4.69	$	6.10
Net investment income (loss)	0.07	(0.09)
Net realized and unrealized (losses) on investments	(0.04)	(0.43)
Net realized (losses) on extinguishment of debt	-	(0.03)
Net increase/(decrease) in net assets resulting from operations	0.03	(0.55)
Distributions(b)
Return of capital distributions	-	(0.11)
Distributions from net investment income	(0.09)	-
Total Distributions	(0.09)	(0.11)
Offering costs	-	-
Other (c)(e)	0.02	-
Net asset value at end of period	$	4.65	$	5.44
Total return based on net asset value(d)	1.13	%	(9.26)	%

Supplemental Data:
Net assets at end of period	$	41,086,181	$	13,106,824
Average net assets	$	36,174,873	$	13,900,344
Weighted average shares outstanding	8,776,773	2,404,057
Ratio to average net assets:
Total annual expenses(f)	20.12	%	24.48	%
Total annual expenses (after expense limitation agreement)(e)	16.93	%	22.09	%
Net investment income (loss)(f)	7.01	%	(6.4)	%

Portfolio Turnover	10.74	%	-	%

(a) Calculated based on weighted average shares outstanding.

(b) The per share data for distributions is the actual amount of distributions paid or payable per share of common stock outstanding during the period. Distributions per share are rounded to the nearest $0.01.

(c) The amount shown represents the balancing figure derived from the other figures in the schedule, and is primarily attributable to the accretive effects from the sales of the Company's shares and the effects of share repurchases during the period.

(d) Total return is based upon the change in net asset value per share between the opening and ending net asset values per share during the period and assumes that distributions are reinvested in accordance with the Company's distribution reinvestment plan. The computation does not reflect the sales load for any class of shares. Total return based on market value is not presented since the Company's shares are not publicly traded.

(e) The amounts shown for the three months ended September 30, 2024 represent the balancing figure derived from the other figures in the schedule, and is primarily attributable to the effect from the accepted subscription agreement from the Adviser for the sale of $10 million of the Class A shares and the impact of the large influx of investments purchased during the period.

(f) Annualized for the three months ended September 30, 2024 and 2023.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

The following is a schedule of financial highlights for each of the five years ended June 30, 2024, 2023, 2022, 2021, and 2020:


	Year Ended	Year Ended	Year Ended	Year Ended	Year Ended
	June 30, 2024	June 30, 2023	June 30, 2022	June 30, 2021	June 30, 2020
Per Share Data(a):
Net asset value at beginning of year	$	6.10	$	7.03	$	8.36	$	8.28	$	9.88
Net investment income (loss)	(0.06)	0.20	0.31	(0.08)	0.24
Net realized and unrealized (losses) gains on investments	(0.55)	(0.65)	(1.05)	0.82	(1.22)
Net realized (losses) on extinguishment of debt	(0.02)	-	-	-	-
Net increase (decrease) in net assets resulting from operations	(0.63)	(0.45)	(0.74)	0.74	(0.98)
Distributions(b)
Return of capital distributions(f)	(0.22)	(0.28)	(0.16)	(0.46)	(0.57)
Distributions from net investment income(f)	(0.17)	(0.20)	(0.43)	(0.19)	(0.15)
Total Distributions	(0.39)	(0.48)	(0.59)	(0.65)	(0.72)
Offering costs	-	-	-	-	-
Other (c)(e)	(0.39)	-	-	(0.01)	0.10
Net asset value at end of year	$	4.69	$	6.10	$	7.03	$	8.36	$	8.28
Total return based on net asset value (d)	(17.39)	%	(6.67)	%	(9.60)	%	9.03	%	(10.13)	%

Supplemental Data:
Net assets at end of year	$	31,263,560	$	14,693,862	$	16,700,975	$	19,947,807	$	19,558,400
Average net assets	$	18,543,454	$	15,303,274	$	18,912,658	$	20,055,524	$	21,234,189
Weighted average shares outstanding	3,787,892	2,383,649	2,380,229	2,377,461	2,366,005
Ratio to average net assets:
Total annual expenses	19.86	%	21.06	%	15.70	%	20.07	%	16.41	%
Total annual expenses (after expense support agreement/expense limitation agreement)	17.45	%	18.30	%	12.47	%	18.44	%	13.07	%
Net investment income (loss)	(1.16)	%	3.20	%	3.95	%	(0.93)	%	2.67	%

Portfolio Turnover	26.67	%	-	%	35.34	%	17.83	%	24.56%

(a) Calculated based on weighted average shares outstanding.
(b) The per share data for distributions is the actual amount of distributions paid or payable per share of common stock outstanding during the year. Distributions per share are rounded to the nearest $0.01.
(c) The amount shown represents the balancing figure derived from the other figures in the schedule, and is primarily attributable to the accretive effects from the sales of the Company's shares and the effects of share repurchases during the year.
(d) Total return is based upon the change in net asset value per share between the opening and ending net asset values per share during the year and assumes that distributions are reinvested in accordance with the Company's distribution reinvestment plan. The computation does not reflect the sales load for any class of shares. Total return based on market value is not presented since the Company's shares are not publicly traded.
(e) The amounts shown for the year ended June 30, 2024 represent the balancing figure derived from the other figures in the schedule, and is primarily attributable to the effect from the accepted subscription agreement from the Adviser for the sale of $20.0 million of the Class A shares and the impact of the large influx of investments purchased during the period.
(f) The amounts reflected for the years ended June 30, 2023, 2022 and 2021 were updated based on tax information received subsequent to our Form 10-K filing for the years ended June 30, 2023, 2022 and 2021. Certain reclassifications have been made in the presentation of prior period amounts. See Note 2 and Note 6 within the accompanying notes to the consolidated financial statements for further discussion.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Information about our senior securities is shown in the following table since June 30, 2019. As of September 30, 2024 and June 30, 2024, our asset coverage ratio stood at 204% and 213%, respectively, based on the outstanding principal amount of our senior securities representing indebtedness.


Revolving Credit Facility	Total Amount Outstanding	Asset Coverage per Unit(1)	Involuntary Liquidating Preference per Unit(2)	Average Market Value per Unit(2)
September 30, 2024	$	39,600,000	$	2,038	-	-
June 30, 2024	$	27,800,000	$	2,125	-	-
June 30, 2023	$	8,600,000	$	2,709	-	-
June 30, 2022	$	20,500,000	$	1,815	-	-
June 30, 2021	$	21,000,000	$	1,950	-	-
June 30, 2020	$	21,000,000	$	1,931	-	-
June 30, 2019	$	5,500,000	$	5,256	-	-

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

NOTE 12 - NET INCREASE (DECREASE) IN NET ASSETS PER SHARE

The following information sets forth the computation of net increase in net assets resulting from operations per share during the three months ended September 30, 2024 and 2023.


Three Months Ended September 30,
2024	2023
Net increase/(decrease) in net assets resulting from operations	$	258,463	$	(1,322,420)
Weighted average common stock outstanding	8,776,773	2,404,057
Net increase/(decrease) in net assets resulting from operations per share	$	0.03	$	(0.55)

NOTE 13 - SUBSEQUENT EVENTS

Management has evaluated all known subsequent events through the date of issuance of these consolidated financial statements and notes the following:

Issuance of Common Stock

For the period beginning October 1, 2024 and ending November 14, 2024, the Company sold 2,237 shares of its Class I common stock for gross proceeds of $10,400 and issued 98,259 shares pursuant to its distribution reinvestment plan in the amount of $457,882.

Tender Offer

On September 27, 2024, under our share repurchase program, we made a tender offer to purchase up to the number of shares of our issued and outstanding Class A common stock we could repurchase with the cash we retained during the quarter ended June 30, 2024 as a result of issuing shares through our distribution reinvestment plan to those shareholders who elected to receive their distributions in the form of additional shares rather than in cash. The total cash retained during the quarter ended June 30, 2024 as a result of issuing shares through our distribution reinvestment plan prior to this tender offer was approximately $468,733. The tender offer was for cash at a price equal to the net asset value per share as of October 31, 2024. The offer expired at 4:00 P.M., Eastern Time on October 30, 2024.

Distributions

On October 25, 2024, the Board of Directors declared a distribution for the month of October 2024, which reflects a targeted annualized distribution rate of 8.50% based on the current net asset value per share for the fourth fiscal quarter ended June 30, 2024. The distribution has a record date as of the close of business of the last Friday in October 2024 and equals an amount of $0.00762 per share of common stock. The distribution will be payable to stockholders of record as of the record date set forth below.


Record Date	Payment Date	PFLOAT Class A Common Stock, per share
October 25, 2024	November 1, 2024	$0.03048

Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this quarterly report on Form 10-Q (the "Quarterly Report"). In addition to historical information, the following discussion and other parts of this Quarterly 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 I, "Item 1A. Risk Factors" and "Forward-Looking Statements" appearing elsewhere herein.

The terms "PFLOAT," the "Company," "we," "us" and "our" mean Prospect Floating Rate and Alternative Income Fund, Inc. unless the context specifically requires otherwise.

Overview

We are an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). Our investment objective is to generate current income and, as a secondary objective, capital appreciation by targeting investment opportunities with favorable risk-adjusted returns. Under normal market conditions, we will invest at least 80% of our net assets (plus any borrowings for investment purposes) in floating rate loans and other income producing investments. We will provide shareholders with 60 days' advanced notice prior to changing this 80% investment policy. We intend to meet our investment objective by primarily lending to and investing in the debt of privately-owned U.S. middle market companies, which we define as companies with annual revenue between $50 million and $2.5 billion. We have elected and intend to continue to qualify annually to be taxed for U.S. federal income tax purposes as a regulated investment company ("RIC") under the Internal Revenue Code of 1986, as amended (the "Code").

On November 5, 2021, we amended and restated the Investment Advisory Agreement (the "Amended and Restated Advisory Agreement") to reduce the base management fee and eliminate the incentive fee payable to the Adviser thereunder, effective as of January 1, 2022 and until the one-year anniversary of the listing of the Company's common stock on a national securities exchange. The Amended and Restated Advisory Agreement was most recently approved by our Board of Directors, including all of our directors who are not "interested persons" (as defined in the 1940 Act), on June 14, 2024.

For additional information regarding the Amended and Restated Advisory Agreement, please refer to "Investment Advisory Fees" below.

Our Adviser

Our Adviser is a Delaware limited liability company and is registered as an investment adviser under the Advisers Act. Our Adviser is led by John F. Barry III and M. Grier Eliasek, two senior executives with significant investment advisory and business experience. Mr. Barry currently controls our Adviser.

First Quarter Highlights

Investment Transactions

We seek to be a long-term investor with our portfolio companies. During the three month period ended September 30, 2024, we purchased $32,865,621 in investment securities (excluding short-term securities). During the same three month period ended September 30, 2024, there was a noncash restructured investment in the amount of $1,940,341. During the same three month period ended September 30, 2024, sales and redemptions of investment securities (excluding short-term securities) were $7,712,639, resulting in a total net portfolio growth of $25,222,260 for the three months ended September 30, 2024.

Debt Issuances and Redemptions

On September 21, 2023, the Company entered into a senior secured revolving credit agreement (the "Senior Secured Revolving Credit Facility"), by and among the Company, as borrower, the lenders party thereto, and Sumitomo Mitsui Banking Corporation, as administrative agent. As of September 30, 2024, there was a $39,600,000 balance on the Senior Secured RevolvingCredit Facility. See Note 10 within the accompanying notes to the consolidated financial statements for further discussion.

Equity Issuances

As part of the distribution reinvestment plan, we issued 30,674, 42,346 and 57,020 shares of our common stock on July 8, 2024, August 2, 2024 and September 9, 2024, respectively.

On June 28, 2024, the Company accepted a subscription agreement from the Adviser for the sale of $10.0 million of the Company's Class A common stock at a purchase price per Share equal to the Company's net asset value per Share as of June 30, 2024. A total of 2,096,436 shares were issued on July 1, 2024. The offer and sale of these shares are exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") pursuant to Section 4(a)(2) thereof and Regulation D thereunder.

On September 27, 2024, under our share repurchase program, we made a tender offer to purchase up to the number of shares of our issued and outstanding Class A common stock we could repurchase with the cash we retained during the quarter ended June 30, 2024 as a result of issuing shares through our distribution reinvestment plan to those shareholders who elected to receive their distributions in the form of additional shares rather than in cash. The total cash retained during the quarter ended June 30, 2024 as a result of issuing shares through our distribution reinvestment plan prior to this tender offer was approximately $ 468,733. The tender offer was for cash at a price equal to the net asset value per share as of October 31, 2024. The offer expired at 4:00 P.M., Eastern Time on October 30, 2024.

Investments

Our investment objective is to generate current income and, as a secondary objective, capital appreciation by targeting investment opportunities with favorable risk-adjusted returns. Under normal market conditions, we will invest at least 80% of our net assets (plus any borrowings for investment purposes) in floating rate loans and other income producing investments. We intend to meet our investment objective by primarily lending to and investing in the debt of privately-owned U.S. middle market companies. We may on occasion invest in smaller or larger companies if an attractive opportunity presents itself, especially when there are dislocations in the capital markets. We expect to focus primarily on directly originating senior secured first lien loans and senior secured second lien loans and making investments in syndicated senior secured first lien loans, syndicated senior secured second lien loans, and to a lesser extent, subordinated debt, of middle market companies in a broad range of industries. Syndicated secured loans refer to commercial loans provided by a group of lenders that are structured, arranged, and administered by one or several commercial or investment banks, known as arrangers. These loans are then sold (or syndicated) to other banks or institutional investors. Syndicated secured loans may have a first priority lien on a borrower's assets (i.e., senior secured first lien loans), a second priority lien on a borrower's assets (i.e., senior secured second lien loans), or a lower lien or unsecured position on the borrower's assets (i.e., subordinated debt). We expect our target credit investments will typically have initial maturities between three and ten years and generally range in size between $1 million and $100 million, although the investment size will vary with the size of our capital base. We expect that the majority of our debt investments will bear interest at floating interest rates, but our portfolio may also include fixed-rate investments. We also expect to make our investments directly through the primary issuance by the borrower or in the secondary market. "Risk-adjusted returns" refers to a measure of investment return per unit of risk and provides a framework to compare and evaluate investment opportunities with differing risk/return profiles. The term "risk-adjusted returns" does not imply that we employ low-risk strategies or that an investment should be considered a low-risk or no risk investment.

We will generally source our investments primarily through our Adviser. We believe the investment management team of our Adviser has a significant amount of experience in the credit business, including originating, underwriting, principal investing and loan structuring. Our Adviser has access to over 120 professionals, with approximately 50 of whom perform investment advisory functions.

We expect to dynamically allocate our assets in varying types of investments based on our analysis of the credit markets, which may result in our portfolio becoming more concentrated in particular types of credit instruments (such as senior secured loans) and less invested in other types of credit instruments. The loans in which we intend to invest are often rated by a nationally recognized ratings organization, and generally carry a rating below investment grade (rated lower than "Baa3" by Moody's Investors Service or lower than "BBB-" by Standard & Poor's Corporation - also known as "high yield" or "junk bonds"). However, we may also invest in non-rated debt securities.

To seek to enhance our returns, we may employ leverage as market conditions permit and at the discretion of our Adviser, but in no event will leverage employed exceed the maximum amount permitted by the 1940 Act.

As part of our investment objective to generate current income, we expect that at least 70% of our investments will consist primarily of directly originated or syndicated senior secured first lien loans, directly originated or syndicated senior secured second lien loans, and to a lesser extent, subordinated debt. We expect that up to 30% of our investments will consist of other securities, including private equity (both common and preferred), dividend-paying equity, royalties, and the equity and junior debt tranches of collateralized loan obligations ("CLOs"), which we also refer to as subordinated structured notes ("SSNs"). The senior secured loans underlying our CLO investments are expected typically to be BB or B rated (non-investment grade, which are often referred to as "high yield" or "junk") and in limited circumstances, unrated, senior secured loans.

As a BDC, we are subject to certain regulatory restrictions in making our investments. For example, we have in the past and expect in the future to co-invest on a concurrent basis with certain affiliates, consistent with applicable regulations and our allocation procedures. On January 13, 2020, (amended on August 2, 2022), the parent company of the Adviser received an exemptive order from the SEC (the "Order") granting the ability to negotiate terms, other than price and quantity, of co-investment transactions with other funds managed by our Adviser or certain affiliates, including us, Prospect Capital Corporation and Priority Income Fund, Inc., subject to certain conditions included therein. Under the terms of the Order permitting us to co-invest with other funds managed by our Adviser or its affiliates, a majority of our independent directors who have no financial interest in the transaction 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. The Order also imposes reporting and record keeping requirements and limitations on transactional fees. We may only co-invest with certain entities affiliated with our Adviser in negotiated transactions originated by our Adviser or its affiliates in accordance with such Order and existing regulatory guidance. See Note 4 of the Consolidated Financial Statements. These co-investment transactions may give rise to conflicts of interest or perceived conflicts of interest among us and the other participating accounts. To mitigate these conflicts, our Adviser and its affiliates will seek to allocate portfolio transactions for all of the participating investment accounts, including us, on a fair and equitable basis, taking into account such factors as the relative amounts of capital available for new investments, the applicable investment programs and portfolio positions, the clients for which participation is appropriate and any other factors deemed appropriate. We intend to make all of our investments in compliance with the 1940 Act and in a manner that will not jeopardize our status as a BDC or RIC.

As a BDC, we are permitted under the 1940 Act to borrow funds to finance portfolio investments. To enhance our opportunity for gain, we intend to employ leverage as market conditions permit. At the 2019 Annual Meeting, TPIC's stockholders approved a proposal allowing us to modify our asset coverage ratio requirement from 200% to 150%. As a result, we were allowed to increase our leverage capacity effective as of March 16, 2019. The use of leverage, although it may increase returns, may also increase the risk of loss to our investors, particularly if the level of our leverage is high and the value of our investments declines.

Revenues

We generate revenue in the form of dividends, interest and capital gains on the debt securities, equity interests and CLOs that we hold. In addition, we may generate revenue from our portfolio companies in the form of commitment, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance and possibly consulting fees and performance-based fees. Any such fees will be recognized as earned.

Expenses

Our primary operating expenses will be the payment of advisory fees and other expenses under the Investment Advisory Agreement with the Adviser. The advisory fees will compensate our Adviser for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments.

We will bear all other expenses of our operations and transactions, including (without limitation) fees and expenses relating to:

• corporate and organizational expenses relating to offerings of our common stock, subject to limitations included in the investment advisory and management services agreement;

• the cost of calculating our net asset value, including the cost of any third-party valuation services;

• the cost of effecting sales and repurchase of shares of our common stock and other securities;

• investment advisory fees;

• fees payable to third parties relating to, or associated with, making investments and valuing investments, including fees and expenses associated with performing due diligence reviews of prospective investments;

• transfer agent and custodial fees;

• fees and expenses associated with marketing efforts;

• federal and state registration fees;

• federal, state and local taxes;

• independent directors' fees and expenses;

• costs of proxy statements, stockholders' reports and notices;

• fidelity bond, directors and officers/errors and omissions liability insurance and other insurance premiums;

• direct costs such as printing, mailing, long distance telephone, and staff;

• fees and expenses associated with independent audits and outside legal costs, including compliance with the Sarbanes-Oxley Act;

• costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws;

• brokerage commissions for our investments;

• legal, accounting and other costs associated with structuring, negotiating, documenting and completing our investment transactions;

• all other expenses incurred by our Adviser, in performing its obligations, subject to the limitations included in the Investment Advisory Agreement; and

• all other expenses incurred by either our Administrator or us in connection with administering our business, including payments to our Administrator under the Administration Agreement (as defined herein) that will be based upon our allocable portion of its overhead and other expenses incurred in performing its obligations under the Administration Agreement, including rent and our allocable portion of the costs of compensation and related expenses of our chief executive officer, CCO and chief financial officer and their respective staffs.

Reimbursement of our Administrator for Administrative Services

We will reimburse our Administrator for the administrative expenses necessary for its performance of services to us. Such costs will be reasonably allocated to us on the basis of assets, revenues, time records or other reasonable methods. However, such reimbursement is made in an amount equal to the lower of the Administrator's actual costs or the amount that we would be required to pay for comparable administrative services in the same geographic location. We will not reimburse our Administrator for any services for which it receives a separate fee or for rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of our Administrator.

Portfolio and Investment Activity

We seek to be a long-term investor with our portfolio companies. During the three month period ended September 30, 2024, we purchased $32,865,621 in investment securities (excluding short-term securities and including PIK). During the same three month period ended September 30, 2024, there was a noncash restructured investment in the amount of $1,940,341. During the same three month period ended September 30, 2024, sales and redemptions of investment securities were $7,712,639, resulting in a total net portfolio growth, excluding short-term securities and including PIK, of $25,222,260 for the three months ended September 30, 2024. As of September 30, 2024, our investment portfolio, with a total fair value of $84,211,283, consisted of interests in 57 investments (96% in senior secured loans, 1% in equity/other and 3% in CLO - subordinated notes).

Our financial condition, including the fair value and performance of certain of our portfolio investments, may be materially impacted after September 30, 2024 by circumstances and events that are not yet known. To the extent our portfolio investments are adversely impacted by the renewed hostilities in the Middle East, the ongoing conflict between Russia and Ukraine, rising interest rates, inflationary pressures, or by other factors, we may experience a material adverse impact on our future net investment income, the underlying value of our investments, our financial condition and the financial condition of our portfolio investments. For additional information concerning risks and their potential impact on our business and our operating results, see "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, filed on September 12, 2024.

During the three months ended September 30, 2023, there were no purchased investment securities (excluding short-term securities). During the three months ended September 30, 2023, there was a noncash restructured investment in the amount of $997,560. During the three months ended September 30, 2023, sales and redemptions of investment securities (excluding short-term securities) were $3,641,054, resulting in a total net portfolio decline of $3,641,054 for the three months ended September 30, 2023. As of September 30, 2023, our investment portfolio, with a total fair value of $17,090,718, consisted of interests in 39 investments (71% in senior secured loans, 2% in senior secured notes, 3% in equity/other and 24% in CLO - subordinated notes).

Portfolio Holdings

As of September 30, 2024, our investment portfolio, with a total fair value of $84,211,283, consisted of interests in 28 portfolio companies and 24 structured subordinated notes. The following table presents certain selected information regarding our portfolio composition and weighted average yields as of September 30, 2024 and June 30, 2024:


As of September 30, 2024	As of June 30, 2024
Amortized Cost	Fair Value	As Percent of Total Fair Value	Amortized Cost	Fair Value	As Percent of Total Fair Value
Senior Secured Loans-First Lien	$	80,296,521	$	79,012,737	94	%	$	55,535,790	$	54,095,336	91	%
Senior Secured Loans-Second Lien	1,811,837	1,594,778	2	%	1,800,331	1,559,701	3	%
Structured subordinated notes	2,794,706	2,551,477	3	%	3,443,826	2,956,672	5	%
Common Equity/Other	2,000,205	952,222	1	%	1,717,943	743,301	1	%
Preferred Equity	50,000	100,069	-	%	50,000	100,000	-	%
Total	$	86,953,269	$	84,211,283	100	%	$	62,547,890	$	59,455,010	100	%

Number of portfolio companies	28	21
Number of Structured subordinated notes	24	24

% Variable Rate (based on fair value)(1)	100%	100%
% Fixed Rate (based on fair value)(1)	-	%	-	%

% Weighted Average Yield Variable Rate (based on principal outstanding)(1)(2)	11.88	%	10.94	%
% Weighted Average Yield Fixed Rate (based on principal outstanding)(1)	-	%	-	%
% Weighted Average Yield on Structured Subordinated Notes (based on cost)	1.84	%	2.65	%
% Weighted Average Yield on Fixed Rate Debt, Variable Rate Debt and Structured Subordinated Notes (based on cost)(3)	11.25	%	10.62	%
% Weighted Average Yield (based on cost) for the entire portfolio	10.98	%	10.32	%

(1) The interest rate by type information is calculated using the Company's debt portfolio and excludes equity investments.
(2)The interest rate by type information is calculated using the Company's debt portfolio and excludes structured subordinated notes.
(3)The interest rate by type information is calculated excluding the Company's equity investments.


		September 30, 2024
Industry		Investments at Amortized Cost		Percentage of Portfolio	Investments at Fair Value		Percentage of Portfolio
Healthcare & Pharmaceuticals	$	24,489,174	28	%	$	24,020,866	29	%
Automotive	8,750,600	11	%	8,742,860	10	%
Services: Business	8,228,467	9	%	8,110,125	10	%
Telecommunications	7,653,299	9	%	7,572,698	9	%
Services: Consumer	5,730,960	7	%	5,304,543	6	%
High Tech Industries	4,928,849	6	%	4,967,209	6	%
Beverage, Food & Tobacco	4,855,361	6	%	4,789,914	6	%
Hotel, Gaming & Leisure	4,263,638	5	%	4,272,636	5	%
Media: Broadcasting & Subscription	3,322,276	4	%	3,442,447	4	%
Consumer Goods: Durable	2,975,447	3	%	3,000,000	4	%
Wholesale	2,993,118	3	%	2,983,571	4	%
Banking	2,959,951	3	%	2,851,571	3	%
Structured Finance	2,794,706	3	%	2,551,476	3	%
Media: Diversified and Production	1,811,837	2	%	1,594,778	2	%
Retail	198,026	-	%	6,264	-	%
Consumer goods: Non-Durable	997,560	1	%	325	-	%
Total		$	86,953,269	100	%	$	84,211,283		100	%


June 30, 2024
Industry	Investments at Amortized Cost	Percentage of Portfolio	Investments at Fair Value	Percentage of Portfolio
Healthcare & Pharmaceuticals	$	19,518,610	31	%	$	19,061,883	32	%
Automotive	5,940,679	10	%	5,943,941	10	%
Services: Consumer	5,755,102	9	%	5,470,250	9	%
Hotel, Gaming & Leisure	4,813,157	8	%	4,806,257	8	%
Services: Business	4,654,857	7	%	4,286,146	7	%
Media: Broadcasting & Subscription	3,343,548	5	%	3,451,274	6	%
Telecommunications	3,261,044	5	%	3,031,539	5	%
Banking	2,979,693	5	%	2,991,303	5	%
High Tech Industries	2,952,217	5	%	2,985,077	5	%
Structured Finance	3,443,831	6	%	2,956,672	5	%
Beverage, Food & Tobacco	2,889,240	5	%	2,876,123	5	%
Media: Diversified and Production	1,800,331	3	%	1,559,701	3	%
Consumer goods: Non-Durable	997,560	1	%	28,375	-	%
Retail	198,026	-	%	6,469	-	%
Total	$	62,547,895	100	%	$	59,455,010	100	%

As of September 30, 2024 and June 30, 2024, we did not "control" any of our portfolio companies, as defined in the 1940 Act.

The following table shows the composition of our investment portfolio by level of control as of September 30, 2024 and June 30, 2024:


	September 30, 2024		June 30, 2024
Level of Control	Cost	% of Portfolio	Fair Value	% of Portfolio		Cost	% of Portfolio	Fair Value	% of Portfolio
Affiliate	$	-	-	%	$	-	-	%		$	-	-	%	$	-	-	%
Non-Control/Non-Affiliate	86,953,269	100	%	84,211,283	100	%		62,547,890	100	%	59,455,010	100	%
Total Investments	$	86,953,269	100	%	$	84,211,283	100	%		$	62,547,890	100	%	$	59,455,010	100	%

Net Asset Value

During the three months ended September 30, 2024, our net asset value increased by $9,822,621, due to capital and investment activities, while our net asset value per share decreased by $0.04. For the three months ended September 30, 2024, the decrease in net asset value per share was primarily attributable to an increase in net realized and net change in unrealized losses on investments of $375,863, or $0.04 per weighted average share. For the three months ended September 30, 2024, our net asset value per share further decreased by $0.09 per share related to distributions and our net investment income (loss) of $634,326. The following table shows the calculation of net asset value per share as of September 30, 2024 and June 30, 2024.


September 30, 2024	June 30, 2024
Net assets	$	41,086,181	$	31,263,560
Shares of common stock issued and outstanding	8,840,005	6,661,373
Net asset value per share	$	4.65	$	4.69

Results of Operations

Investment Income

For the three months ended September 30, 2024 and 2023, we generated $2,165,210 and $545,116, respectively, in investment income in the form of interest and fees earned on our debt portfolio. Such revenues were primarily cash income and non-cash portions related to the accretion of discounts and PIK. Investment income was lower for the three months ended September 30, 2023 compared to the three months ended September 30, 2024, as we held fewer investments generating interest income for that period. For the three months ended September 30, 2024, although there were benefits to interest income due to the rising SOFR rates, our income from our structured subordinated notes decreased due to 22 investments with an effective yield estimated to be 0%, as expected future cash flows are anticipated to not be sufficient to repay these investments at cost as well as many investments exiting the reinvestment period.

For the three months ended September 30, 2024 and 2023, PIK interest included in interest income totaled $69,280 and $21,994, respectively. For the three months ended September 30, 2024, PIK interest included in interest income was higher due to amendments on two additional investments which now have partial PIK interest.

Operating Expenses

Total operating expenses before expense limitation support totaled $1,820,045 and $850,843 for the three months ended September 30, 2024 and 2023, respectively. These operating expenses consisted primarily of interest and credit facility expense, offering costs, base management fees, administrator costs, legal expense, valuation services and audit and tax expense.

The base management fees for the three months ended September 30, 2024 and 2023, respectively, were $289,161 and $83,359. Base management fees were higher for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, due to the increase in purchases of our common stock. During the three months ended September 30, 2024, average total net assets increased due to the sale of the Company's Class A common stock and an increase in investments held. Management fees for the three months ended September 30, 2024 and 2023 were waived.

The interest and credit facility expense for the three months ended September 30, 2024 and 2023, respectively, were $804,388 and $290,213. The interest and credit facility expenses were higher for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, due to an increase in the average outstanding credit facility balance. For the three months ended September 30, 2024, the average stated interest rate (i.e., rate in effect plus the spread) was 7.98% under the Senior Secured Revolving Credit Facility, and for the three months ended September 30, 2023, the average stated interest rate (i.e., rate in effect plus the spread) was 7.50% under the Senior Secured Revolving Credit Facility and the Credit Facility

combined. For the three months ended September 30, 2024, average outstanding borrowings under the Senior Secured Revolving Credit Facility was $31,603,297. For the three months ended September 30, 2023, average outstanding borrowings for the Senior Secured Revolving Facility and the Credit Facility combined were $6,409,677. The interest expense is monitored during our monthly reporting.

The offering costs for the three months ended September 30, 2024 and 2023, respectively, were $135,527 and $0. The offering costs for the three months ended September 30, 2024 were higher compared to the three months ended September 30, 2023, due to the commencement of our Multi-Class Offering and the amortization of the initial costs associated with our initial registration statement on Form N-2 filed with the SEC for our Multi-Class Offering during the quarter ended September 30, 2024.

The legal expenses for the three months ended September 30, 2024 and 2023, respectively, were $110,601 and $27,405. The legal expenses for the three months ended September 30, 2024 were higher compared to the three months ended September 30, 2023 due to additional costs associated with launching our Multi-Class Offering.

The valuation services for the three months ended September 30, 2024 and 2023, respectively, were $16,306 and $4,000. The valuation costs for the three months ended September 30, 2024 were higher compared to the three months ended September 30, 2023 due to an increase in investments held.

The audit expenses for the three months ended September 30, 2024 and 2023, respectively, were $154,500 and $28,750. The audit costs for the three months ended September 30, 2024 were higher compared to the three months ended September 30, 2023 due the additional audit opinion required for our 10-K from our predecessor auditor.

The general and administrative expense for the three months ended September 30, 2024 and 2023, respectively, were $27,680 and $97,518. The general and administrative expense for the three months ended September 30, 2023 was higher compared to the three months ended September 30, 2024, due to costs associated with proxy and other SEC filings.

Pursuant to the expense limitation support payment (discussed below), the sponsor reimbursed the Company $289,161 and $83,359 for the three months ended September 30, 2024 and 2023, respectively.

Net Investment Income (Loss)

Our net investment income (loss) totaled $634,326 and $(222,368) for the three months ended September 30, 2024 and 2023, respectively. The net investment income for the three months ended September 30, 2024 was higher due to an increase in the net assets with an increase in the number of investments generating interest income.

Net Realized Gains/Losses from Investments

We measure realized gains or losses by the difference between the net proceeds from the disposition and the amortized cost basis of investment, without regard to unrealized gains or losses previously recognized.

For the three months ended September 30, 2024 and 2023, we received proceeds from sales on unaffiliated investments of $2,007,500 and $3,641,054, respectively, from which we realized losses of $726,757 and $215,195, respectively. During the three months ended September 30, 2023, we recognized a realized loss from debt of $(66,844) related to the termination of the Credit Facility. During the three months ended September 30, 2024, our Research Now Group, LLC and Dynata, LLC First Lien Term Loan was restructured to new First Lien Debt and Common Stock of New Insight Holdings, Inc. A portion of the cost basis exchanged was written-off for tax purposes and we recorded a realized loss of $297,076 to our investment in Research Now Group, LLC and Dynata, LLC. During the three months ended September 30, 2024, we recognized a realized loss of $477,147 on our Structured Subordinated Notes.

Net Unrealized Gains/Losses on Investments

Net change in unrealized gains (losses) on investments reflects the net change in the fair value of our investment portfolio. For the three months ended September 30, 2024 and 2023, net change in unrealized gains (losses) totaled $350,894 and $(818,013), respectively. For the three months ended September 30, 2023, the fair value of our investments was negatively impacted by macro-economic challenges such as reduced demand, economic volatility, and inflationary pressures.

Financial Condition, Liquidity and Capital Resources

We generate cash primarily from cash flows from fees (such as management fees), interest and dividends earned from our investments and principal repayments and proceeds from sales of our investments. Our primary use of funds is investments in companies, payments of our expenses and distributions to holders of our common stock.

Because many of our operating costs are not proportional to our size, including accounting/auditing, legal, insurance and administrative costs (which includes the reimbursement of the compensation of the chief financial officer, CCO, treasurer, secretary and other administrative personnel of our Administrator), we must raise sufficient capital in order to build a portfolio that generates sufficient revenue to cover our expenses. As of September 30, 2024, we have not raised sufficient capital to build

a large enough portfolio to generate sufficient revenue to cover our operating expenses. We have entered into an Expense Limitation Agreement ("ELA") with our Adviser, which, as a result of our Adviser waiving fees that we would otherwise be required to pay to it, has allowed us to make distributions to shareholders and pay some expenses. However, after December 31, 2024, our Adviser will no longer be contractually obligated to waive fees. Our Adviser, in its capacity as an affiliate of our former adviser, has in the past agreed to voluntarily waive fees, but there is no guarantee that it will do so and, if it does not, we will be required to sell our investments to cover our expenses.

We previously publicly offered for sale a maximum amount of $300,000,000 in shares of common stock on a "best efforts" basis. Triton Pacific was not required to sell any specific number or dollar amount of shares but would use its best efforts to sell the shares offered. The minimum investment in shares of our common stock in the offering was $5,000. Effective February 19, 2021, the offering was terminated and, as a result, the dealer manager agreement terminated in accordance with its terms and Triton Pacific ceased serving as our dealer manager effective as of such date. Effective September 19, 2022, we engaged Preferred Capital Securities, LLC (the "Dealer Manager") as our dealer manager for our Private Offering. We are relying on the exemption provided by Rule 506(b) of Regulation D and Section 4(a)(2) of the Securities Act in connection with our Private Offering.

We are conducting our continuous Multi-Class Offering of our Class S shares, Class D shares, and Class I shares, in a maximum aggregate amount of $300,000,000. Because the Multi-Class Offering is a "best efforts" offering, the Dealer Manager is only required to use its best efforts to sell the shares, which means that no underwriter, broker or other person will be obligated to purchase any shares.

We may borrow funds to make investments at any time, including before we have fully invested the proceeds of our Private Offering, to the extent we determine that additional capital would allow us to take advantage of investment opportunities, or if our Board of Directors determines that leveraging our portfolio would be in our best interests and the best interests of our stockholders. We have not yet decided, however, whether, and to what extent, we will finance portfolio investments using debt. We do not currently anticipate issuing any preferred stock.

The North American Securities Administrators Association, in its Omnibus Guidelines Statement of Policy adopted on March 29, 1992 and as amended on May 7, 2007 and from time to time, requires that our sponsor and its affiliates have an aggregate financial net worth, exclusive of home, automobile and home furnishings, of 5% of the first $20,000,000 of both the gross amount of securities currently being offered and the gross amount of any originally issued direct participation program sold by our sponsor and its affiliates within the last 12 months, plus 1% of all amounts in excess of the first $20,000,000. Based on these requirements, our sponsor and its affiliates have an aggregate net worth in excess of those amounts required by the Omnibus Guidelines Statement of Policy.

For the three months ended September 30, 2024 and 2023, our operating activities (used) provided $(17,093,578) and $4,198,725 of cash, respectively. The change is primarily driven by an increase in purchases, an increase in a payable for open trades and for accrued legal and administrator fees, an increase in the amortization of deferred financing costs and an increase in due to administrator. For the three months ended September 30, 2024 and 2023, operating activities included the purchases of investments of $32,865,621 and $0, respectively. For the three months ended September 30, 2024 and 2023, operating activities included the repayments and sales of portfolio investments of $7,712,639 and $3,641,054, respectively. Financing activities (used) provided $21,432,946 and $(3,548,964) of cash during the three months ended September 30, 2024 and 2023, respectively, which included dividend payments of $124,415 and $142,633 respectively. For the three months ended September 30, 2024 and 2023, we repaid $17,500,000 and $8,600,000, respectively, under the Credit Facility.

Credit Facility

August 25, 2022 to August 25, 2023. In connection with such extension, the interest rate on borrowings under the Credit Facility was amended from three-month LIBOR plus 2.20% to Secured Overnight Financing Rate ("SOFR") plus 2.20%. On March 24, 2023, (i) the end date of the ramp period of the Credit Facility was further extended from August 25, 2023 to October 25, 2023 and (ii) the Loan Agreement was amended to require sales of collateral and/or receipt of capital contributions in a combined amount to have generated proceeds (on a trade date basis) (x) during the period from March 24, 2023 through April 30, 2023, in the Initial Amount (the "Initial Amount") of $4,000,000, and (y) during each month thereafter in an amount equal to $2,000,000 (the "Required Amount") with any amount in excess of the total Required Amount plus the Initial Amount contributing to the Required Amount for the next month. In connection with such extension and amendment, the interest rate on borrowings under the Credit Facility was reduced from SOFR plus 2.20% to SOFR plus 1.55%. The Credit Facility was secured by substantially all of the SPV's properties and assets. Under the Loan Agreement, the SPV made certain customary representations and warranties and was required to comply with various covenants, including reporting requirements and other customary requirements for similar credit facilities. The Loan Agreement included usual and customary events of default for credit facilities of this nature. On November 7, 2022, Royal Bank of Canada granted a waiver of any non-compliance with certain waterfall provisions in the Loan Agreement that may have occurred prior to November 7, 2022. Further non-compliance with certain waterfall provisions was permitted through January 31, 2023.

Senior Secured Revolving Credit Facility

On September 21, 2023, the Company entered into the Senior Secured Revolving Credit Facility, by and among the Company, as borrower, the lenders party thereto, and SMBC, as administrative agent. In conjunction with the closing of the Senior Secured Revolving Credit Facility, we terminated the Credit Facility. As of September 30, 2024, there was a $39,600,000 balance on the Senior Secured RevolvingCredit Facility.

During the three months ended September 30, 2024, the Company entered into the Senior Secured Revolving Credit Facility. As of September 30, 2024, we had $39,600,000 outstanding on our Senior Secured Revolving Credit Facility. As of September 30, 2024, the investments used as collateral for the Senior Secured Revolving Credit Facility had an aggregate fair value of $84,211,283, which represents 100% of our total investments for the period. As of September 30, 2024, cash balances of $4,759,352 were used as collateral for the Senior Secured Revolving Credit Facility. The fair value of the Senior Secured Revolving Credit Facility was $39,600,000 and is categorized as Level 3 under ASC 820 as of September 30, 2024. The fair value of the Senior Secured Revolving Credit Facility is equal to its carrying value as the Senior Secured Revolving Credit Facility is repriced to a market rate of interest frequently.

During the three months ended September 30, 2024 and 2023, we recorded $804,388 and $60,191, respectively of interest costs and amortization of financing costs on the Senior Secured Revolving Credit Facility as interest expense.

Recent Developments

Management has evaluated all known subsequent events through the date the accompanying consolidated financial statements were available to be issued on November 14, 2024 and notes the following:

Issuance of Common Stock

Tender Offer

On September 27, 2024, under our share repurchase program, we made a tender offer to purchase up to the number of shares of our issued and outstanding Class A common stock we could repurchase with the cash we retained during the quarter ended June 30, 2024 as a result of issuing shares through our distribution reinvestment plan to those shareholders who elected to receive their distributions in the form of additional shares rather than in cash. The total cash retained during the quarter ended June 30, 2024 as a result of issuing shares through our distribution reinvestment plan prior to this tender offer was approximately $ 468,733. The tender offer was for cash at a price equal to the net asset value per share as of October 31, 2024. The offer expired at 4:00 P.M., Eastern Time on October 30, 2024.

Distributions


Record Date	Payment Date	PFLOAT Class A Common Stock, per share
October 25, 2024	November 1, 2024	$0.03048

Distributions

General

We elected to be treated, beginning with our fiscal year ending December 31, 2012, and intend to qualify annually thereafter, as a RIC under the Code. To maintain RIC tax treatment, we generally must, among other things, distribute at least 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to our stockholders. In order to avoid certain excise taxes imposed on RICs, we must distribute during each calendar year an amount at least equal to the sum of: (i) 98% of our ordinary income for the calendar year, (ii) 98.2% of our recognized capital gains in excess of recognized capital losses for the one-year period generally ending on October 31 of the calendar year and (iii) any ordinary income or capital gains recognized but not distributed in preceding years and on which we paid no federal income tax.

While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% U.S. federal excise tax, we may retain sufficient amounts of our taxable income and capital gains such that we may be unable to avoid entirely the imposition of the tax. In that event, we will be subject to U.S. federal income tax imposed at corporate rates on any retained income, and we will also be liable for the U.S. federal excise tax but only on the amount by which we do not meet the foregoing distribution requirement.

Our Board of Directors has authorized, and has declared, cash distributions on our common stock on a monthly basis since the second quarter of 2015 (in our capacity as TPIC). The amount of each such distribution is subject to our Board of Directors' discretion and applicable legal restrictions related to the payment of distributions. We calculate each stockholder's specific distribution amount for the month using record and declaration dates, and distributions will begin to accrue on the date we accept subscriptions for shares of our common stock. From time to time, we may also pay interim distributions at the discretion of our Board of Directors. Each year a statement on Internal Revenue Service Form 1099-DIV (or any successor form) identifying the source of the distribution (i.e., (i) paid from investment company taxable income, which is generally our net ordinary income plus our realized net short-term capital gains in excess of realized net long-term capital gains, (ii) paid from net capital gain on the sale of securities, which is our realized net long-term capital gains in excess of realized net-short term capital losses, and/or (iii) a return of paid-in capital surplus, which is generally a nontaxable distribution) will be mailed to our stockholders. Our distributions may exceed our earnings, especially during the period before we have substantially invested the proceeds from our Private Offering. As a result, a portion of the distributions we make may represent a return of capital for tax purposes.

We have adopted an "opt in" distribution reinvestment plan for our common stockholders. As a result, when we make a distribution, stockholders will receive distributions in cash unless they specifically "opt in" to the distribution reinvestment plan so as to have their cash distributions reinvested in additional shares of our common stock. Any distributions reinvested under the plan will nevertheless remain taxable to U.S. stockholders.

Related Party Transactions

License Agreement

Investment Advisory Agreement

We have entered into the Investment Advisory Agreement with our Adviser, pursuant to which we would pay our Adviser a fee for its services under the Investment Advisory Agreement consisting of two components - a base management fee and an incentive fee. Under the Amended and Restated Advisory Agreement, we reduced the base management fee from an annual rate of 1.75% to 1.20% and eliminated the incentive fee payable thereunder, effective as of January 1, 2022 and until the one-year anniversary of the listing of our common stock on a national securities exchange (the "Listing Anniversary"). Until such January 1, 2022 effective date, the advisory fees payable to the Adviser were as set forth in the Investment Advisory Agreement. The cost of any advisory fees payable to the Adviser will ultimately be borne by our stockholders. See "-Investment Advisory Fees."

Certain members of our senior management hold an equity interest in our Adviser. Members of our senior management also serve as principals of other investment managers affiliated with our Adviser that do and may in the future manage investment funds, accounts or other investment vehicles with investment objectives similar to ours.

Administration Agreement

Pursuant to the agreement and plan of merger, as amended and restated, between TPIC and PWAY, the Administrator, an affiliate of the Adviser, became the administrator for the Company pursuant to an administrative agreement, as amended and restated as of June 17, 2019 (the "Administration Agreement").The Administrator performs, oversees and arranges for the performance of administrative services necessary for the operation of the Company. These services include, but are not limited to, accounting, finance and legal services. For providing these services, facilities and personnel, the Company reimburses the Administrator for the Company's actual and allocable portion of expenses and overhead incurred by the Administrator in performing its obligations under the Administration Agreement, including rent and the Company's allocable portion of the costs of its Chief Financial Officer and CCO and her staff. For the three months ended September 30, 2024 and 2023, allocation of overhead from the Administrator to the Company was $175,000 and $223,750, respectively. As of September 30, 2024 and June 30, 2024, $1,921,943 and $1,766,942, respectively, was payable to the Administrator, US Bank, SMBC and BNY by the Company.

Co-Investments

On January 13, 2020, (amended on August 2, 2022), the parent company of the Adviser received the Order, which superseded a prior co-investment exemptive order granted on February 10, 2014, granting the ability to negotiate terms other than price and quantity of co-investment transactions with other funds managed by the Adviser or certain affiliates, including Prospect Capital Corporation ("PSEC") and Priority Income Fund, Inc. ("PRIS"), where co-investing would otherwise be prohibited under the 1940 Act, subject to the conditions included therein.

Officers and Directors

Dealer Manager Agreement

On May 13, 2024, the Company entered into the dealer manager agreement ("Dealer Manager Agreement") with the Dealer Manager.

Pursuant to the terms of the Dealer Manager Agreement, the Company pays the Dealer Manager over time a shareholder servicing and/or distribution fee with respect to our outstanding Class S and Class D shares equal to 0.85% and 0.25%, respectively, per annum of the aggregate NAV of our outstanding Class S and Class D shares, including any Class S and Class D shares issued pursuant to our distribution reinvestment plan, which is included in the 10% underwriting compensation limit as discussed in "Item 1. Business - Compensation of the Dealer Manager and Selected Broker-Dealers." The shareholder servicing and/or distribution fees are paid monthly in arrears. The Dealer Manager reallows (pays) all or a portion of the shareholder servicing and/or distribution fees to participating brokers for ongoing shareholder services performed by such participating brokers.

Expense Limitation Agreement

On and effective April 20, 2021, the Company entered into a new expense limitation agreement with the Adviser, which was amended and restated on July 7, 2021 to extend the period during which the Adviser will be required to waive its investment advisory fees under the Investment Advisory Agreement, from September 30, 2021 to June 30, 2022 (the "First Amended and Restated ELA"). On August 23, 2022, the Company entered into the Second Amended and Restated Expense Limitation Agreement (the "Second Amended and Restated ELA") to extend the period during which the Adviser will be required to waive its investment advisory fees under the Investment Advisory Agreement from June 30, 2022 to December 31, 2022. On April 24, 2023, the Company entered into the Third Amended and Restated Expense Limitation Agreement (the "Third Amended and Restated ELA" to extend the period during which the Adviser will be required to waive its investment advisory fees under the Investment Advisory Agreement from December 31, 2022 to June 30, 2024. On May 13, 2024, we entered into a Fourth Amended and Restated Expense Limitation Agreement (the "Fourth Amended and Restated ELA" and, together with the First Amended and Restated ELA, the Second Amended and Restated ELA, and the Third Amended and Restated ELA, the "ELA") to extend the period during which the Adviser will be required to waive its investment advisory fees under the Investment Advisory Agreement from June 30, 2024 to December 31, 2024, as discussed below. Other than this change, the terms and conditions of the Fourth Amended and Restated ELA are identical to those of the First Amended and Restated ELA, the Second Amended and Restated ELA, and the Third Amended and Restated ELA. The ELA has an initial term ending on December 31, 2024 and may be continued thereafter for successive one-year periods in accordance with its terms. Pursuant to the terms of each expense limitation agreement the applicable investment adviser, in its sole discretion, could waive a portion or all of the investment advisory fees that it was entitled to receive under its investment advisory agreement with the Company in order to limit the Company's operating expenses to an annual rate, expressed as a percentage of the Company's average quarterly net assets, equal to 8.00%. In addition, under the ELA, the Adviser has agreed to waive its investment advisory fees to the extent necessary to limit the Company's operating expenses to such annual rate from the effective date of the ELA through December 31, 2024.

Expense Limitation Agreement

Expense Limitation Agreement with the Adviser

Pursuant to the ELA, our Adviser will waive a portion or all of the investment advisory fees that it is entitled to receive pursuant to the Investment Advisory Agreement, from the effective date of the ELA through December 31, 2024, in order to limit our Operating Expenses (as defined below) to an annual rate, expressed as a percentage of our average quarterly net assets, equal to 8.00% (the "Annual Limit"). After December 31, 2024, such waiver may be made at our Adviser's option and in its sole discretion. Even if the Adviser decides to voluntarily waive its investment advisory fees for a quarter ended after December 31, 2024, there is no guarantee that the Adviser will continue to do so. For purposes of the ELA, the term "Operating Expenses" with respect to the Company, is defined to include all expenses necessary or appropriate for the operation of the Company, including but not limited to our Adviser's base management fee, any and all costs and expenses that qualify as line item "organization and offering" expenses in the consolidated financial statements of the Company as the same are filed with the SEC and other expenses described in the Investment Advisory Agreement, but does not include any portfolio transaction or other investment-related costs (including brokerage commissions, dealer and underwriter spreads, prime broker fees and expenses and dividend expenses related to short sales), interest expenses and other financing costs, extraordinary expenses and acquired fund fees and expenses. Upfront shareholder transaction expenses (such as sales commissions, dealer manager fees, and similar expenses) are not Operating Expenses. Our Adviser waived fees, pursuant to the ELA, in an amount of $289,161 and $83,359 for the three months ended September 30, 2024 and 2023, respectively.

Any amount waived pursuant to the ELA is subject to repayment to our Adviser (an "ELA Reimbursement") by us within the three years of the date on which the waiver was made by our Adviser. If the ELA is terminated or expires pursuant to its terms, our Adviser will maintain its right to repayment for any waiver it has made under the ELA, subject to the Repayment Limitations (discussed below).

Any ELA Reimbursement can be made solely in the event that we have sufficient excess cash on hand at the time of any proposed ELA Reimbursement and shall be limited to the lesser of (i) the excess of the Annual Limit applicable to such quarter over the Company's actual Operating Expenses for such quarter and (ii) the amount of ELA Reimbursement which, when added to the Company's expenses for such quarter, permits the Company to pay the then-current aggregate quarterly distribution to its shareholders, at a minimum annualized rate of at least 6.00% (based on the gross offering prices of Company shares) (the "Distribution") from the sum of (x) the Company's net investment income (loss) for such quarter plus (y) the Company's net realized gains (losses) for such quarter (collectively, the "Repayment Limitations"). For the purposes of the calculations pursuant to (i) and (ii) of the preceding sentence, any ELA Reimbursement will be treated as an expense of the Company for such quarter, without regard to the GAAP treatment of such expense. In the event that the Company is unable to make a full payment of any ELA Reimbursements due for any applicable quarter because the Company does not have sufficient excess cash on hand, any such unpaid amount shall become a payable of the Company for accounting purposes and shall be paid when the Company has sufficient cash on hand (subject to the Repayment Limitations); provided, that in the case of any

ELA Reimbursements, such payment shall be made no later than the date that is three years after the date on which the applicable waiver was made by our Adviser.

Investment Advisory Fees

Overview

On November 5, 2021, we amended and restated the Investment Advisory Agreement to reduce the base management fee and eliminate the incentive fee payable to the Adviser thereunder, effective as of January 1, 2022 and until the one-year anniversary of the listing of the Company's common stock on a national securities exchange. The Amended and Restated Advisory Agreement was most recently approved by our Board of Directors, including all of our directors who are not "interested persons" (as defined in the 1940 Act), on June 14, 2024.

The Investment Advisory Agreement, as amended and restated, is further discussed below.

Investment Advisory Agreement

Pursuant to the Investment Advisory Agreement, we paid the Adviser a fee for investment advisory and management services consisting of a base management fee and an incentive fee. The cost of both the base management fee payable to the Adviser and any incentive fees it earns is ultimately borne by our stockholders. See "Amended and Restated Advisory Agreement" below for additional information.

Base Management Fee. The base management fee was calculated at an annual rate of 1.75% (0.4375% quarterly) of our average total assets, which includes any borrowings for investment purposes. For the first quarter of our operations following the date of Investment Advisory Agreement, the base management fee was calculated based on the average value of our total assets as of the date of the Investment Advisory Agreement and at the end of the calendar quarter in which the date of the Investment Advisory Agreement fell, and was appropriately adjusted for any share issuances or repurchases during the then current calendar quarter. Subsequently, the base management fee is payable quarterly in arrears, and is calculated based on the average value of our total assets at the end of the two most recently completed calendar quarters, and is appropriately adjusted for any share issuances or repurchases during the then current calendar quarter. Base management fees for any partial month or quarter is appropriately pro-rated. At the Adviser's option, the base management fee for any period may be deferred, without interest thereon, and paid to the Adviser at any time subsequent to any such deferral as the Adviser determines.

Incentive Fee. The incentive fee consisted of two parts: (1) the subordinated incentive fee on income and (2) the capital gains incentive fee.

Subordinated Incentive Fee on Income.The first part of the incentive fee, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears based upon our "pre-incentive fee net investment income" for the immediately preceding calendar quarter. For purposes of this fee, "pre-incentive fee net investment income" means interest income, dividend income and distribution cash flows from equity investments and any other income (including any other fees, such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive) accrued during the calendar quarter, minus operating expenses for the quarter (including the base management fee, expenses reimbursed under the Investment Advisory Agreement and the Administration Agreement, any interest expense and dividends paid on any issued and outstanding preferred shares, but excluding the organization and offering expenses and incentive fees on income and capital gains). 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. The subordinated incentive fee on income is subject to a quarterly fixed preferred return to investors, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, of 1.5% (6.0% annualized), subject to a "catch up" feature. Operating expenses are included in the calculation of the subordinated incentive fee on income.

We will pay our Adviser a subordinated incentive fee on income for each calendar quarter as follows:

• No incentive fee will be payable to our Adviser in any calendar quarter in which our pre-incentive fee net investment income does not exceed the preferred return rate of 1.5%.

• 100% 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 preferred return but is less than or equal to 1.875% in any calendar quarter (7.5% annualized). We refer to this portion of our pre-incentive fee net investment income (which exceeds

the preferred return but is less than or equal to 1.875%) as the "catch-up." The effect of the "catch-up" provision is that, if our pre-incentive fee net investment income reaches 1.875% in any calendar quarter, our Adviser will receive 20.0% of our pre-incentive fee net investment income as if a preferred return did not apply.

• 20.0% of the amount of our pre-incentive fee net investment income, if any, that exceeds 1.875% in any calendar quarter (7.5% annualized) will be payable to our Adviser. This reflects that once the preferred return is reached and the catch-up is achieved, 20.0% of all pre-incentive fee net investment income thereafter will be allocated to our Adviser.

Capital Gains Incentive Fee. The second part of the incentive fee, which is referred to as 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; provided that the incentive fee determined as of December 31, 2021 will be calculated for a period of shorter than twelve calendar months to take into account any net realized capital gains, if any, computed net of all realized capital losses and unrealized capital depreciation for the period commencing as of the date of the Investment Advisory Agreement and ending on December 31, 2021. In determining the capital gains incentive fee payable to the 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 amortized 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 amortized 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 amortized 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. Operating expenses are not taken into account when determining capital gains incentive fees.

Amended and Restated Advisory Agreement

Following the Listing Anniversary (1) the base management fee will be calculated at an annual rate of 1.75% (0.4375% quarterly), commencing with the first base management fee calculation that occurs after such anniversary, and (2) the Adviser will be entitled to receive the same incentive fee, including the subordinated incentive fee on income and the capital gains incentive fee, as set forth in the Investment Advisory Agreement and discussed above, commencing with the first calendar quarter after such anniversary. The Amended and Restated Advisory Agreement became effective on January 1, 2022. Until such effective date, the advisory fees payable to the Adviser were as set forth in the Investment Advisory Agreement. See "Investment Advisory Agreement" above.

There were no incentive fees payable as of September 30, 2024 or June 30, 2024. During the three months ended September 30, 2024 and 2023, there were no incentive fees incurred.

Asset Coverage

In accordance with the 1940 Act, the Company is currently only allowed to borrow amounts such that its "asset coverage," as defined in the 1940 Act, is at least 150% after such borrowing. "Asset coverage" generally refers to a company's total assets, less all liabilities and indebtedness not represented by "senior securities," as defined in the 1940 Act, divided by total senior securities representing indebtedness and, if applicable, preferred stock. "Senior securities" for this purpose includes borrowings from banks or other lenders, debt securities and preferred stock.

On March 23, 2018, an amendment to Section 61(a) of the 1940 Act was signed into law to permit BDCs to reduce the minimum "asset coverage" ratio from 200% to 150%, so long as certain approval and disclosure requirements are satisfied. In addition, for BDCs like the Company whose securities are not listed on a national securities exchange, the Company is also required to offer to repurchase its outstanding shares at the rate of 25% per quarter over four calendar quarters. Under the existing 200% minimum asset coverage ratio, the Company is permitted to borrow up to one dollar for investment purposes for every one dollar of investor equity, and under the 150% minimum asset coverage ratio, the Company will be permitted to borrow up to two dollars for investment purposes for every one dollar of investor equity. In other words, Section 61(a) of the 1940 Act, as amended, permits BDCs to potentially increase their debt-to-equity ratio from a maximum of 1 to 1 to a maximum of 2 to 1.

At the 2019 Annual Meeting, stockholders approved the application to the Company of the 150% minimum asset coverage ratio set forth in Section 61(a)(2) of the 1940 Act. As a result, and subject to certain additional disclosure requirements and the repurchase obligations described above, the minimum asset coverage ratio applicable to the Company was reduced from 200% to 150%, effective as of March 16, 2019.

Below is our annual asset coverage since June 30, 2019. As of September 30, 2024, our asset coverage ratio stood at 204% based on the outstanding principal amount of our senior securities representing indebtedness.


Revolving Credit Facility	Total Amount Outstanding	Asset Coverage per Unit(1)	Involuntary Liquidating Preference per Unit(2)	Average Market Value per Unit(2)
September 30, 2024	$	39,600,000	$	2,038	-	-
June 30, 2024	$	27,800,000	$	2,125	-	-
June 30, 2023	$	8,600,000	$	2,709	-	-
June 30, 2022	$	20,500,000	$	1,815	-	-
June 30, 2021	$	21,000,000	$	1,950	-	-
June 30, 2020	$	21,000,000	$	1,931	-	-
June 30, 2019	$	5,500,000	$	5,256	-	-

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

Critical Accounting Estimates

We prepare our financial statements in accordance with U.S. GAAP. In applying many of these accounting principles, we make estimates that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates on historical experience and other factors that we believe are reasonable under the circumstances. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially. These estimates, however, are subjective and subject to change, and actual results may differ materially from our current estimates due to the inherent nature of these estimates.

Our critical accounting estimates, including those relating to the valuation of our investment portfolio, are described below. The critical accounting estimates should be read in conjunction with our risk factors as disclosed in "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024. See Note 2 to our consolidated financial statements for more information on how fair value of our investment portfolio is determined, and Note 8 to our consolidated financial statements for information about the inputs and assumptions used to measure fair value of our investment portfolio.

Fair value of Financial Instruments

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 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. All of our investments carried at fair value are classified as Level 2 or Level 3 as of September 30, 2024 and June 30, 2024, with a significant portion of our investments classified as Level 3.

Investments

We determine the fair value of our investments on a quarterly basis, with changes in fair value reflected as a net change in unrealized gains (losses) from investments in the Consolidated Statement of Operations.

The Company applies the SEC's Rule 2a-5 in determining fair value of its investments. Rule 2a-5 establishes a consistent,

principles-based framework for boards of directors to use in creating their own specific processes in order to determine fair values in good faith.

Investments for which market quotations are readily available must be valued at such market quotations. In order to validate market quotations, management and the independent valuation firm look at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. In determining the range of values for debt instruments where market quotations are not readily available, we perform a multiple step valuation process with our investment professionals alongside our independent valuation firms. The independent valuation firms prepare valuations for each investment which are presented by the independent valuation firms to the Audit Committee of our Board of Directors. The Audit Committee makes a recommendation to the Board of Directors of the value for each investment and the Board of Directors approves the values with the input of the Adviser quarterly. For intra-quarter valuations, the Adviser as valuation designee takes the most recent quarterly valuations approved by the Board of Directors, calculates the estimated earnings per share for each investment in order to adjust the valuation of each investment for income that is expected to be realized and considers other factors that should be taken into account in order to adjust the valuations, including, market changes in expected returns for similar investments; performance improvement or deterioration which would change the margin added to the base interest rate charged; the nature and realizable value of any collateral; the issuer's ability to make payments and its earnings and discounted cash flow; the markets in which the issuer does business; comparisons to publicly traded securities; and other relevant factors.

Management and the independent valuation firm may consider various factors in determining the fair value of our investments. One prominent factor is the enterprise value of a portfolio company determined by applying a market approach such as using earnings before interest, taxes, depreciation and amortization ("EBITDA") multiples, net income and/or book value multiples for similar guideline public companies and/or similar recent investment transactions and/or an income approach, such as the discounted cash flow technique. If relevant, management and the independent valuation firms will consider the pricing indicated by external events such as a purchase or sale transaction to corroborate the valuation.

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.

Our investments that are classified as Level 3 are primarily valued utilizing a discounted cash flow, enterprise value ("EV") waterfall, or asset recovery analysis. The discounted cash flow converts 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 fair value measurement is based on the net present value indicated by current market expectations about those future amounts. Under the EV waterfall, 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) valuation 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. The asset recovery 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.

In determining the range of values for our investments in CLOs, the independent valuation firm uses a discounted multi-path cash flow model. Various risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations to generate probability-weighted (i.e., multi-path) cash flows for the underlying assets and liabilities. These cash flows are discounted using appropriate market discount rates, and relevant data in the CLO market and certain benchmark credit indices are considered, to determine the value of each CLO investment.

At September 30, 2024, $56,797,558, $1,369,973 and $26,043,752 of our total investments were valued using the discounted cash flow, enterprise value waterfall, and market quotes, respectively, compared to $38,732,046, $2,768,603, and $17,954,361, respectively, at June 30, 2024.

Recent Accounting Pronouncements

For discussion of recent accounting pronouncements, refer to Note 2 within the accompanying notes to the consolidated financial statements.

Item 3: Quantitative and Qualitative Disclosures About Market Risk.

We are subject to financial market risks, including inflation, changes in interest rates and equity price risk. The impact of global health epidemics, wars and civil disorder and other events outside our control, including, but not limited to, the renewed hostilities in the Middle East and the conflict between Russia and Ukraine, and the effects of this volatility could materially impact our market risks. For additional information concerning risks and their potential impact on our business and our operating results, see "Part 1: Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended, June 30, 2024.

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 "Part 1: Item 1A. Risk Factors - Risks Relating to Our Business and Structure - 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" in our Annual Report on Form 10-K for the fiscal year ended, June 30, 2024.

Our debt investments may be based on floating rates or fixed rates. For our floating rate loans, the rates are determined from the SOFR, EURO Interbank Offer Rate, the Federal Funds Rate or the Prime Rate. The floating interest rate loans may be subject to a SOFR floor. Our loans typically have durations of one, three or six months after which they reset to current market interest rates. As of September 30, 2024, 100% (based on fair value) of our investments paid variable interest rates and 0% paid fixed rates (considering interest rate flows for floating rate instruments, excluding our investments in equity and structured subordinated notes). A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to certain variable rate investments we hold and to declines in the value of any fixed rate investments we may hold in the future.

The Senior Secured Revolving Credit Facility is based on floating SOFR or prime rate. Amounts drawn under the Senior Secured Revolving Credit Facility in U.S. dollars will bear interest at either term SOFR plus a credit spread adjustment of 0.10% plus 2.5%, or the prime rate plus 1.5%.The outstanding balance of the Senior Secured Revolving Credit Facility is $39,600,000 as of September 30, 2024.

The following table shows the estimated annual impact of changes in interest rates (considering interest rate flows for floating rate instruments, excluding our investments in equity, fixed rate instruments and structured subordinated notes) on our interest income, interest expense and net interest income, assuming no changes in our investment portfolio in effect as of September 30, 2024:


Interest Rate Basis Point Change	Interest Income	Interest Expense	Net Investment Income
Up 300 basis points	$	2,501,888	$	1,188,000	$	1,313,888
Up 200 basis points	$	1,667,926	$	792,000	$	875,926
Up 100 basis points	$	833,963	$	396,000	$	437,963
Down 100 basis points	$	(833,463)	$	(396,000)	$	(437,463)
Down 200 basis points	$	(1,624,283)	$	(792,000)	$	(832,283)
Down 300 basis points	$	(2,286,592)	$	(1,188,000)	$	(1,098,592)

Because we may borrow money to make investments, our net investment income may be dependent on the difference between the rate at which we borrow funds and the rate at which we invest these funds. In periods of increasing interest rates, our cost of funds would increase, which may reduce our net investment income. 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.

We may also face risk due to the lack of liquidity in the marketplace which could prevent us from raising sufficient funds to adequately invest in a broad pool of assets. We are subject to other financial market risks, including changes in interest rates. However, at this time, with no portfolio investments, this risk is immaterial.

In addition, we may have risk regarding portfolio valuation. For discussion of critical accounting policies, estimates and risks regarding our portfolio valuation, refer to "Critical Accounting Estimates" above and in our Annual Report on Form 10-K for the year ended June 30, 2024.

Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of September 30, 2024, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange 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 was necessarily required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PART II

Item 1. 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 September 30, 2024.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended June 30, 2024, which could materially affect our business, financial condition or future results. The risks described in this report and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In order to satisfy the reinvestment portion of our dividends for the three months ended September 30, 2024, we issued the following shares of common stock to stockholders of record on the dates noted below as part of our distribution reinvestment plan. These issuances were not subject to the registration requirements of the Securities Act of 1933, as amended.


Date of Issuance	Record Date	Number of Shares	Purchase Price per Share
August 2, 2024	July 26, 2024	42,346	$	4.77
September 9, 2024	August 30, 2024	57,020	$	4.77
October 4, 2024	September 27, 2024	48,901	$	4.67

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the three months ended September 30, 2024, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408 of Regulation S-K.

We have adopted insider trading policies and procedures governing the purchase, sale, and disposition of our securities by our officers and directors that are reasonably designed to promote compliance with insider trading laws, rules and regulations.

Item 6. Exhibits

The following exhibits are filed as part of this report or hereby incorporated into this report 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 Fourth Amended Articles of Incorporation(8 )

3.2 Articles Supplementary(7 )

3.3 Articles Supplementary(5 )

3.4 Articles of Merger of the Registrant(6 )

3.5 Articles of Amendment(4 )

3.6 Articles of Amendment(3 )

3.7 Articles of Amendment(1 )

3.8 Fourth Amended and Restated Bylaws(2 )

31.1 Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *

31.2 Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *

32.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

32.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document*

101.SCH Inline XBRL Taxonomy Extension Schema Document*

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document*

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document*

104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

________________________

* Filed herewith.

(1)Incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed with the SEC on September 21, 2022.

(2)Incorporated by reference to Exhibit 3.2 to the Registrant's Current Report on Form 8-K, filed with the SEC on September 21, 2022.

(3)Incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed with the SEC on January 11, 2022.

(4)Incorporated by reference to Exhibit 2(a)(4) to the Post-Effective Amendment No. 3 to the Registrant's Registration Statement on Form N-2 (SEC File No. 333-230251) filed with the SEC on August 6, 2020.

(5)Incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed with the SEC on September 23, 2019.

(6)Incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed with the SEC on April 1, 2019.

(7)Incorporated by reference to Exhibit 2(a)(1) to the Pre-Effective Amendment No. 1 to the Registrant's Registration Statement on Form N-2 (SEC File No. 333-206730) filed with the SEC on March 3, 2016.

(8)Incorporated by reference to Exhibit 2(a) to the Post-Effective Amendment No. 7 to the Registrant's Registration Statement on Form N-2 (SEC File No. 333-174873) filed with the SEC on November 1, 2013.

SIGNATURES

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 November 14, 2024.

PROSPECT FLOATING RATE AND ALTERNATIVE INCOME FUND, INC.

By: /s/ M. Grier Eliasek

M. Grier Eliasek

Chief Executive Officer

(Principal Executive Officer)

By: /s/ Kristin Van Dask

Kristin Van Dask

Chief Financial Officer

(Principal Accounting and Financial Officer)

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