1287032--9/9/2008--PROSPECT_CAPITAL

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{investment, property, distribution}

{loan, real, estate}

{tax, income, asset}

{acquisition, growth, future}

{stock, price, share}

{stock, price, operating}

{interest, director, officer}

{competitive, industry, competition}

{debt, indebtedness, cash}

{cost, contract, operation}

{personnel, key, retain}

{loss, insurance, financial}

{provision, law, control}

{regulation, change, law}

{control, financial, internal}

{condition, economic, financial}

Risks Relating To Our Business Our financial condition and results of operations will depend on our ability to manage our future growth effectively. We are dependent upon Prospect Capital Management s key management personnel for our future success. We are a relatively new company with limited operating history. We operate in a highly competitive market for investment opportunities. Most of our portfolio investments are recorded at fair value as determined in good faith by our Board of Directors and, as a result, there is uncertainty as to the value of our portfolio investments. Senior securities, including debt, exposes us to additional risks, including the typical risks associated with leverage. Changes in interest rates may affect our cost of capital and net investment income. We need to raise additional capital to grow because we must distribute most of our income. The lack of liquidity in our investments may adversely affect our business. We may experience fluctuations in our quarterly results. Potential conflicts of interest could impact our investment returns. Our incentive fee could induce Prospect Capital Management to make speculative investments. Changes in laws or regulations governing our operations may adversely affect our business. Risks Relating To Our Operation As A Business Development Company Our Investment Adviser and its senior management team have limited experience managing a business development company under the 1940 Act. A failure on our part to maintain our status as a business development company would significantly reduce our operating flexibility. If we fail to qualify as a RIC, we will have to pay corporate-level taxes on our income, and our income available for distribution would be reduced. Regulations governing our operation as a business development company affect our ability to raise, and the way in which we raise, additional capital. Our common stock may trade at a discount to our net asset value per share. We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income. Our ability to enter into transactions with our affiliates is restricted. Risks Relating To Our Investments We may not realize gains or income from our investments. The energy industry is subject to many risks. Our investments in prospective portfolio companies may be risky and we could lose all or part of our investment. Economic recessions or downturns could impair our portfolio companies and harm our operating results. The lack of liquidity in our investments may adversely affect our business. We may have limited access to information about privately held companies in which we invest. We may not be in a position to control a portfolio investment when we are a debt or minority equity investor and its management may make decisions that could decrease the value of our investment. Our portfolio companies may incur debt or issue equity securities that rank equally with, or senior to, our investments in such companies. We may not be able to fully realize the value of the collateral securing our debt investments. Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments. We may expose ourselves to risks if we engage in hedging transactions. Our Board of Directors may change our operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse to us and could impair the value of our stockholders investment. Risks Relating To Our Securities Investing in our securities may involve a high degree of risk. The market price of our securities may fluctuate significantly. Sales of substantial amounts of our securities in the public market may have an adverse effect on the market price of our securities. We may allocate the net proceeds from any offering in ways with which stockholders may not agree. There is a risk that you may not receive dividends or that our dividends may not grow over time. Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.

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1287032--9/9/2008--PROSPECT_CAPITAL_CORP