SEC Company Response from FS KKR Capital Corp (FSK) (CIK 0001422183) (FSK) — May 27, 2016
FS KKR Capital Corp (FSK) (CIK 0001422183)
Date: May 27, 2016 · CIK: 0001422183 · Accession: 0001193125-16-606520
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 333-205180
Letter
VIA EDGAR Securities and Exchange Commission Division of Investment Management, Disclosure Review Office 100 F Street, N.E. Washington, DC 20549 Re: FS Investment Corporation Post-Effective Amendment No. 1 to Registration Statement on Form N-2 (File No. 333-205180)
Dear Messrs. O’Connor and Sandoval:
On behalf of FS Investment Corporation (the “Company”), set forth below are the Company’s responses to the oral comments provided by the staff of the Division of Investment Management (the “Staff”) of the Securities and Exchange Commission (the “Commission”) in telephone conversations on April 22, 2016 and May 2, 2016 regarding the Company’s Post-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-205180) (the “Registration Statement”) and the prospectus included therein. For your convenience, a summary of the Staff’s comments is numbered and presented in bold, italicized text below, and each comment is followed by the Company’s response. All page references are to page numbers in the Registration Statement.
We also describe below the changes that the Company has made in response to the Staff’s comments in Post-Effective Amendment No. 2 to the Registration Statement on Form N-2, filed by the Company on May 27, 2016 (the “Revised Registration Statement”).
Prospectus Summary
About FB Advisor, Page 3
1. Please update the disclosure in footnote 3 to the table to refer to the two new feeder funds affiliated with FS Global Credit Opportunities Fund.
James O’Connor, Esq.
Jacob Sandoval
May 27,
Page
The Company accepts the Staff’s comment and has revised the disclosure in the Revised Registration Statement to read as follows:
“Two funds affiliated with FS Global Credit Opportunities Fund, FS Global Credit Opportunities Fund—A, and FS Global Credit Opportunities Fund—D, FS Global Credit Opportunities Fund—T and FS Global Credit Opportunities Fund—ADV, or together, the FSGCOF Offered Funds, which have the same investment objectives and strategies as FS Global Credit Opportunities Fund, currently offer common shares of beneficial interest to the public and invest substantially all of the net proceeds of their respective offerings in FS Global Credit Opportunities Fund. Two other funds affiliated with FS Global Credit Opportunities Fund, FS Global Credit Opportunities Fund—A and FS Global Credit Opportunities Fund—D, or together, the FSGCOF Closed Funds, which also have the same investment objectives and strategies as FS Global Credit Opportunities Fund, closed their respective continuous public offerings to new investors in April 2016.”
Risk Factors, Page 7
2. The second bullet on page 7 of the Registration Statement refers to the annual distribution requirement as a qualification for regulated investment company (“RIC”) status. Please note, the Company will not “fail to qualify as a RIC” if it does not distribute at least 90% of its income and short-term capital annually. While the income test of Section 851(b)(2) of the Internal Revenue Code of 1986, as amended (the “Code”), and the asset test of Section 851(b)(3) of the Code are RIC qualification requirements, the distribution requirements of Section 852 of the Code are not. Please revise the disclosure to reflect this distinction.
The Company accepts the Staff’s comment and has revised the disclosure in the Revised Registration Statement to read as follows:
“As a result of the annual distribution requirement to maintain our qualification ability to be subject to tax as a RIC, we will likely need to continually raise cash or borrow to fund new investments. At times, these sources of funding may not be available to us on acceptable terms, if at all.”
Risk Factors
Risks Related to Our Investments, Page 33
3. A credit default swap is a derivative that creates a senior security, as defined in Section 18(g) of the Investment Company Act of 1940, as amended (the “1940 Act”). Please explain, where appropriate, how the Company’s investments in loan-only credit default swap (“LCDS”) and loan-only credit swap index (“LCDX”) contracts conform to the requirements of Investment Company Act Release No. 10666 (April 18, 1979), as modified by Dreyfus Strategic Investing & Dreyfus Strategic Income (June 22, 1987) and Merrill Lynch Asset Management,
James O’Connor, Esq.
Jacob Sandoval
May 27,
Page
L.P. (July 2, 1996). It is the position of the Staff that where the Company sells LCDS and LCDX contracts it must segregate liquid assets equal to the full, un-netted amount of its contractual obligation (notional amount) to avoid senior security treatment through Investment Company Act Release No. 10666.
The Company respectfully submits that it has no current plans to invest in LCDS or LCDX contracts. The Company acknowledges that if it enters into a LCDS or LCDX contract as the seller of credit protection, it will segregate cash, cash equivalents or highly-liquid securities with a value equal to the notional amount of protection sold under any such contract.
Risks Related to Debt Financing, Page 40
4. Item 8.3(b)(3) of Form N-2 requires a registrant to provide a table illustrating the effect on return to a common stockholder of leverage (using senior securities), in the format, using the captions, and assuming the annual returns specified by Item 8.3(b)(3). Please confirm that the Company’s tabular disclosure conforms to Item 8.3(b)(3) and the instructions thereto.
The Company has revised the tabular disclosure illustrating the effect of leverage in the Revised Registration Statement to round all percentages to the nearest hundredth of one percent as required by Instruction 1 to Item 8.3(b)(3) of Form N-2. The Company confirms such tabular disclosure in the Revised Registration Statement conforms to the requirements of Item 8.3(b)(3) of Form N-2 and the instructions thereto.
5. Please state the amount of the leverage in the risk factor “Our equity investments in Locust Street and Race Street have a high degree of leverage.”
The Company accepts the Staff’s comment and has revised the disclosure in the Revised Registration Statement to read as follows:
“The repurchase amount payable as of March 31, 2016 by Race Street to JPM under the JPM Facility in respect of the issued Class A Notes is $800725 million (which is the amount of debt financing outstanding under the JPM Facility), plus applicable interest accruing at a fixed rate of 3.25% per annum, and as of December March 31, 20165, the fair value of assets held by Race Street was approximately $818792 million.”
6. The Staff notes the Company’s disclosure in the risk factor “Restructurings of investments held by Locust Street or Race Street, if any, may decrease their value and reduce the value of our equity interests in these entities.” Please explain whether amendments of investments would be intended to rectify situations where assets are already nonconforming under the terms of the JPM Facility documentation.
James O’Connor, Esq.
Jacob Sandoval
May 27,
Page
The Company respectfully submits that the amendments referred to in the noted disclosure relate to the terms of the underlying investments and the fact that any such amendments, particularly during periods of economic uncertainty, may result in the underlying investments no longer meeting the specified criteria in the facility documentation on and after the effective time of any such amendment.
Risks Related to U.S. Federal Income Tax, Page 50
7. Please distinguish between qualification requirements and the distribution requirement to avoid double taxation in the risk factor “We will be subject to corporate-level income tax if we are unable to qualify as a RIC under Subchapter M of the Code or to satisfy RIC distribution requirements.”
The Company accepts the Staff’s comment and has revised the disclosure in the Revised Registration Statement to read as follows:
“We will be subject to corporate-level income tax if we are unable to qualify as a RIC under Subchapter M of the Code or to satisfy the RIC annual distribution requirements.
Besides maintaining our election to be treated as a BDC under the 1940 Act, in order for us to qualify for and maintain as a RIC tax treatment under Subchapter M of the Code, we must meet the following annual distribution, income source and asset diversification requirements. See “Material U.S. Federal Income Tax Considerations—Taxation as a RIC.”
•
The annual distribution requirement for RIC tax treatment will be satisfied if we distribute to our stockholders, for each tax year, dividends of an amount at least equal to the sum of 90% of our investment company taxable income, which is generally the sum of our ordinary net income and realized net short-term capital gains in excess of realized net long-term capital losses, without regard to any deduction for dividends paid. Because we may use debt financing, we are subject to an asset coverage ratio requirement under the 1940 Act and may in the future become subject to certain financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the annual distribution requirement. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.
James O’Connor, Esq.
Jacob Sandoval
May 27,
Page
•
The 90% income test will be satisfied if we obtain at least 90% of our gross income for each tax year from dividends, interest, gains from the sale of securities or similar sources.
•
The diversification tests will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our tax year. To satisfy these requirements, at least 50% of the value of our assets must consist of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of such issuer; and no more than 25% of the value of our assets can be invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly-traded partnerships.” Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.
In any taxable year in which we qualify as a RIC, in order for us to be able to be subject to tax as a RIC, we are required to meet an annual distribution requirement. The annual distribution requirement for RIC tax treatment will be satisfied if we distribute to our stockholders, for each tax year, dividends of an amount at least equal to the sum of 90% of our investment company taxable income, which is generally the sum of our ordinary net income and realized net short-term capital gains in excess of realized net long-term capital losses, without regard to any deduction for dividends paid. Because we may use debt financing, we are subject to an asset coverage ratio requirement under the 1940 Act and may in the future become subject to certain financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the annual distribution requirement. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.
We must satisfy these tests on an ongoing basis in order to maintain RIC tax treatment, and may be required to make distributions to stockholders at times when it would be more advantageous to invest cash in our existing or other investments, or when we do not have funds readily available for distribution. Compliance with the RIC tax requirements may hinder our ability to operate solely on the basis of maximizing profits and the value of our stockholders’ investments. If we fail to qualify for or maintain RIC tax treatment for any reason and are subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions.”
James O’Connor, Esq.
Jacob Sandoval
May 27,
Page
8. Please disclose that, to the extent original issue discount instruments, such as zero coupon bonds and PIK loans, constitute a significant portion of the Company’s income, investors will be exposed to risks associated with such income being required to be included in taxable and accounting income prior to the receipt of cash, including the following:
a) The higher interest rates of PIK loans reflect the payment deferral and increased credit risk associated with these instruments, and PIK instruments generally represent a significantly higher credit risk than coupon loans.
b) PIK loans may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral.
c) An election to defer PIK interest payments by adding them to loan principal increases the Company’s gross assets, thus increasing the adviser’s future base management fees, and increases future investment income, thus increasing the adviser’s future income incentive fees at a compounding rate.
d) Market prices of zero-coupon or PIK securities are affected to a greater extent by interest rate changes and may be more volatile than securities that pay interest periodically and in cash. PIK securities are usually less volatile than zero-coupon bonds, but more volatile than cash pay securities.
e) Because original issue discount income is accrued without any cash being received by the Company, required cash distributions may have to be paid from offering proceeds or the sale of assets without investors being given any notice of this fact.
f) The deferral of PIK interest increases the loan-to-value ratio, which is a measure of the riskiness of a loan.
g) Even if the accounting conditions for income accrual are met, the borrower could still default when the Company’s actual payment is due at the maturity of the loan.
h) Original issue discount creates risk of non-refundable cash payments to the adviser based on non-cash accruals that may never be realized.
James O’Connor, Esq.
Jacob Sandoval
May 27,
Page
i) Because original issue discount will be included in the Company’s “investment company taxable income” for the year of the accrual, the Company may be required to make distributions to shareholders to satisfy the annual distribution requirement applicable to RICs, even where the Company has not received any corresponding cash amount. As a result, the Company may have difficulty meeting the annual distribution requirement necessary to maintain favorable tax treatment. If the Company is not able to obtain cash from other sources, and chooses not to make a qualifying share distribution, it may become subject to corporate-level income tax.
The Company has included additional disclosure on pages 39-40 and 52 of the Revised Re
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CORRESP 1 filename1.htm CORRESP Cira Centre 2929 Arch Street Philadelphia, PA 19104-2808 +1 215 994 4000 Main +1 215 994 2222 Fax www.dechert.com JAMES A. LEBOVITZ james.lebovitz@dechert.com +1 215 994 2510 Direct +1 215 655 2510 Fax May 27, 2016 VIA EDGAR James O’Connor, Esq. Jacob Sandoval Securities and Exchange Commission Division of Investment Management, Disclosure Review Office 100 F Street, N.E. Washington, DC 20549 Re: FS Investment Corporation Post-Effective Amendment No. 1 to Registration Statement on Form N-2 (File No. 333-205180) Dear Messrs. O’Connor and Sandoval: On behalf of FS Investment Corporation (the “Company”), set forth below are the Company’s responses to the oral comments provided by the staff of the Division of Investment Management (the “Staff”) of the Securities and Exchange Commission (the “Commission”) in telephone conversations on April 22, 2016 and May 2, 2016 regarding the Company’s Post-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-205180) (the “Registration Statement”) and the prospectus included therein. For your convenience, a summary of the Staff’s comments is numbered and presented in bold, italicized text below, and each comment is followed by the Company’s response. All page references are to page numbers in the Registration Statement. We also describe below the changes that the Company has made in response to the Staff’s comments in Post-Effective Amendment No. 2 to the Registration Statement on Form N-2, filed by the Company on May 27, 2016 (the “Revised Registration Statement”). Prospectus Summary About FB Advisor, Page 3 1. Please update the disclosure in footnote 3 to the table to refer to the two new feeder funds affiliated with FS Global Credit Opportunities Fund. James O’Connor, Esq. Jacob Sandoval May 27, 2016 Page 2 The Company accepts the Staff’s comment and has revised the disclosure in the Revised Registration Statement to read as follows: “Two funds affiliated with FS Global Credit Opportunities Fund, FS Global Credit Opportunities Fund—A, and FS Global Credit Opportunities Fund—D, FS Global Credit Opportunities Fund—T and FS Global Credit Opportunities Fund—ADV, or together, the FSGCOF Offered Funds, which have the same investment objectives and strategies as FS Global Credit Opportunities Fund, currently offer common shares of beneficial interest to the public and invest substantially all of the net proceeds of their respective offerings in FS Global Credit Opportunities Fund. Two other funds affiliated with FS Global Credit Opportunities Fund, FS Global Credit Opportunities Fund—A and FS Global Credit Opportunities Fund—D, or together, the FSGCOF Closed Funds, which also have the same investment objectives and strategies as FS Global Credit Opportunities Fund, closed their respective continuous public offerings to new investors in April 2016.” Risk Factors, Page 7 2. The second bullet on page 7 of the Registration Statement refers to the annual distribution requirement as a qualification for regulated investment company (“RIC”) status. Please note, the Company will not “fail to qualify as a RIC” if it does not distribute at least 90% of its income and short-term capital annually. While the income test of Section 851(b)(2) of the Internal Revenue Code of 1986, as amended (the “Code”), and the asset test of Section 851(b)(3) of the Code are RIC qualification requirements, the distribution requirements of Section 852 of the Code are not. Please revise the disclosure to reflect this distinction. The Company accepts the Staff’s comment and has revised the disclosure in the Revised Registration Statement to read as follows: “As a result of the annual distribution requirement to maintain our qualification ability to be subject to tax as a RIC, we will likely need to continually raise cash or borrow to fund new investments. At times, these sources of funding may not be available to us on acceptable terms, if at all.” Risk Factors Risks Related to Our Investments, Page 33 3. A credit default swap is a derivative that creates a senior security, as defined in Section 18(g) of the Investment Company Act of 1940, as amended (the “1940 Act”). Please explain, where appropriate, how the Company’s investments in loan-only credit default swap (“LCDS”) and loan-only credit swap index (“LCDX”) contracts conform to the requirements of Investment Company Act Release No. 10666 (April 18, 1979), as modified by Dreyfus Strategic Investing & Dreyfus Strategic Income (June 22, 1987) and Merrill Lynch Asset Management, James O’Connor, Esq. Jacob Sandoval May 27, 2016 Page 3 L.P. (July 2, 1996). It is the position of the Staff that where the Company sells LCDS and LCDX contracts it must segregate liquid assets equal to the full, un-netted amount of its contractual obligation (notional amount) to avoid senior security treatment through Investment Company Act Release No. 10666. The Company respectfully submits that it has no current plans to invest in LCDS or LCDX contracts. The Company acknowledges that if it enters into a LCDS or LCDX contract as the seller of credit protection, it will segregate cash, cash equivalents or highly-liquid securities with a value equal to the notional amount of protection sold under any such contract. Risks Related to Debt Financing, Page 40 4. Item 8.3(b)(3) of Form N-2 requires a registrant to provide a table illustrating the effect on return to a common stockholder of leverage (using senior securities), in the format, using the captions, and assuming the annual returns specified by Item 8.3(b)(3). Please confirm that the Company’s tabular disclosure conforms to Item 8.3(b)(3) and the instructions thereto. The Company has revised the tabular disclosure illustrating the effect of leverage in the Revised Registration Statement to round all percentages to the nearest hundredth of one percent as required by Instruction 1 to Item 8.3(b)(3) of Form N-2. The Company confirms such tabular disclosure in the Revised Registration Statement conforms to the requirements of Item 8.3(b)(3) of Form N-2 and the instructions thereto. 5. Please state the amount of the leverage in the risk factor “Our equity investments in Locust Street and Race Street have a high degree of leverage.” The Company accepts the Staff’s comment and has revised the disclosure in the Revised Registration Statement to read as follows: “The repurchase amount payable as of March 31, 2016 by Race Street to JPM under the JPM Facility in respect of the issued Class A Notes is $800725 million (which is the amount of debt financing outstanding under the JPM Facility), plus applicable interest accruing at a fixed rate of 3.25% per annum, and as of December March 31, 20165, the fair value of assets held by Race Street was approximately $818792 million.” 6. The Staff notes the Company’s disclosure in the risk factor “Restructurings of investments held by Locust Street or Race Street, if any, may decrease their value and reduce the value of our equity interests in these entities.” Please explain whether amendments of investments would be intended to rectify situations where assets are already nonconforming under the terms of the JPM Facility documentation. James O’Connor, Esq. Jacob Sandoval May 27, 2016 Page 4 The Company respectfully submits that the amendments referred to in the noted disclosure relate to the terms of the underlying investments and the fact that any such amendments, particularly during periods of economic uncertainty, may result in the underlying investments no longer meeting the specified criteria in the facility documentation on and after the effective time of any such amendment. Risks Related to U.S. Federal Income Tax, Page 50 7. Please distinguish between qualification requirements and the distribution requirement to avoid double taxation in the risk factor “We will be subject to corporate-level income tax if we are unable to qualify as a RIC under Subchapter M of the Code or to satisfy RIC distribution requirements.” The Company accepts the Staff’s comment and has revised the disclosure in the Revised Registration Statement to read as follows: “We will be subject to corporate-level income tax if we are unable to qualify as a RIC under Subchapter M of the Code or to satisfy the RIC annual distribution requirements. Besides maintaining our election to be treated as a BDC under the 1940 Act, in order for us to qualify for and maintain as a RIC tax treatment under Subchapter M of the Code, we must meet the following annual distribution, income source and asset diversification requirements. See “Material U.S. Federal Income Tax Considerations—Taxation as a RIC.” • The annual distribution requirement for RIC tax treatment will be satisfied if we distribute to our stockholders, for each tax year, dividends of an amount at least equal to the sum of 90% of our investment company taxable income, which is generally the sum of our ordinary net income and realized net short-term capital gains in excess of realized net long-term capital losses, without regard to any deduction for dividends paid. Because we may use debt financing, we are subject to an asset coverage ratio requirement under the 1940 Act and may in the future become subject to certain financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the annual distribution requirement. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax. James O’Connor, Esq. Jacob Sandoval May 27, 2016 Page 5 • The 90% income test will be satisfied if we obtain at least 90% of our gross income for each tax year from dividends, interest, gains from the sale of securities or similar sources. • The diversification tests will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our tax year. To satisfy these requirements, at least 50% of the value of our assets must consist of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of such issuer; and no more than 25% of the value of our assets can be invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly-traded partnerships.” Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses. In any taxable year in which we qualify as a RIC, in order for us to be able to be subject to tax as a RIC, we are required to meet an annual distribution requirement. The annual distribution requirement for RIC tax treatment will be satisfied if we distribute to our stockholders, for each tax year, dividends of an amount at least equal to the sum of 90% of our investment company taxable income, which is generally the sum of our ordinary net income and realized net short-term capital gains in excess of realized net long-term capital losses, without regard to any deduction for dividends paid. Because we may use debt financing, we are subject to an asset coverage ratio requirement under the 1940 Act and may in the future become subject to certain financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the annual distribution requirement. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax. We must satisfy these tests on an ongoing basis in order to maintain RIC tax treatment, and may be required to make distributions to stockholders at times when it would be more advantageous to invest cash in our existing or other investments, or when we do not have funds readily available for distribution. Compliance with the RIC tax requirements may hinder our ability to operate solely on the basis of maximizing profits and the value of our stockholders’ investments. If we fail to qualify for or maintain RIC tax treatment for any reason and are subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions.” James O’Connor, Esq. Jacob Sandoval May 27, 2016 Page 6 8. Please disclose that, to the extent original issue discount instruments, such as zero coupon bonds and PIK loans, constitute a significant portion of the Company’s income, investors will be exposed to risks associated with such income being required to be included in taxable and accounting income prior to the receipt of cash, including the following: a) The higher interest rates of PIK loans reflect the payment deferral and increased credit risk associated with these instruments, and PIK instruments generally represent a significantly higher credit risk than coupon loans. b) PIK loans may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral. c) An election to defer PIK interest payments by adding them to loan principal increases the Company’s gross assets, thus increasing the adviser’s future base management fees, and increases future investment income, thus increasing the adviser’s future income incentive fees at a compounding rate. d) Market prices of zero-coupon or PIK securities are affected to a greater extent by interest rate changes and may be more volatile than securities that pay interest periodically and in cash. PIK securities are usually less volatile than zero-coupon bonds, but more volatile than cash pay securities. e) Because original issue discount income is accrued without any cash being received by the Company, required cash distributions may have to be paid from offering proceeds or the sale of assets without investors being given any notice of this fact. f) The deferral of PIK interest increases the loan-to-value ratio, which is a measure of the riskiness of a loan. g) Even if the accounting conditions for income accrual are met, the borrower could still default when the Company’s actual payment is due at the maturity of the loan. h) Original issue discount creates risk of non-refundable cash payments to the adviser based on non-cash accruals that may never be realized. James O’Connor, Esq. Jacob Sandoval May 27, 2016 Page 7 i) Because original issue discount will be included in the Company’s “investment company taxable income” for the year of the accrual, the Company may be required to make distributions to shareholders to satisfy the annual distribution requirement applicable to RICs, even where the Company has not received any corresponding cash amount. As a result, the Company may have difficulty meeting the annual distribution requirement necessary to maintain favorable tax treatment. If the Company is not able to obtain cash from other sources, and chooses not to make a qualifying share distribution, it may become subject to corporate-level income tax. The Company has included additional disclosure on pages 39-40 and 52 of the Revised Re