Prospect Floating Rate & Alternative Income Fund, Inc.

Prospect Floating Rate & Alternative Income Fund, Inc. Annual Review
Plain English Breakdown for Investors

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1. What They Do & 2023 Performance

They pool investor money to make loans (mostly to smaller/riskier companies) with interest rates that adjust over time. This helps protect against rising rates.
2023 Summary: A steady year! They outperformed many peers despite market turbulence. Not explosive growth, but reliable results.
Tax Strategy: They avoid corporate taxes by paying out nearly all profits as dividends. This benefits shareholders but means they must constantly raise new money to grow.

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2. Key Numbers: Growth & Returns

• Total Returns: ~8% in 2023 (up from 6% in 2022).
• Dividends: Held steady at $0.10 per share monthly.
• Assets Under Management: Grew to $1.2 billion (from $1.1 billion last year).

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3. Wins vs. Challenges

Wins:

• Floating-rate loans paid off as interest rates rose.
• Only 1% of loans defaulted (vs. 3% industry average).

Challenges:

• Restructured some loans to avoid borrower defaults.
• Stock price dipped mid-year during recession fears (recovered most losses).

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4. Financial Health Check

• Cash Reserves: Can cover 6+ months of dividends.
• Dividend Safety: 95% covered by earnings (industry average: ~90%).
• Growth Limitation: Requires constant new investor cash or loans to expand.

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5. Risks to Watch

• Interest Rates: Their edge fades if rates drop (the Fed may cut in 2024).
• Fundraising Pressure: Growth stalls if investors stop supplying cash.
• Mergers & Acquisitions: Potential growth strategy, but integration risks exist.

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6. How They Compare to Competitors

• Returns: Beat similar funds by ~2% this year.
• Fees: Slightly higher (0.95% vs. 0.85% average), but justified by performance.
• Risk Management: Best-in-class low default rate.

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7. Strategy Shifts & Leadership

• New Hire: Added a risk-management expert to monitor loans.
• Focus Areas: Prioritizing shorter-term loans and stable sectors like tech/healthcare.

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8. What’s Next for 2024?

• Dividends: Likely steady unless the economy tanks.
• Loan Strategy: Cautious growth, favoring stable industries.
• M&A Activity: Potential deals to boost scale.

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Bottom Line for Investors

Good For: Steady income seekers comfortable with moderate risk.
Think Twice If: You want rapid growth or can’t handle interest-rate volatility.

Strengths:

• Reliable dividends
• Strong risk management
• Outperforms peers

Weaknesses:

• Growth depends on fundraising
• Vulnerable to rate cuts

Red Flag: If investor cash dries up, their ability to grow (and your returns) could stall.

Final Takeaway: A solid choice for monthly income in turbulent markets, but watch the Fed’s rate decisions closely.

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