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Business Development Company (BDC): A BDC is a publicly traded, non-diversified closed-end investment company, which is typically taxed as a regulated investment company (RIC) under Subchapter M of the Internal Revenue Code. A BDC makes investments in private companies in the form of debt (loans) or equity securities. It seeks to generate current income, return of capital and/or capital gains in a tax-efficient manner. Like mutual funds, BDCs are highly regulated entities.

 

Benefits of the BDC Structure to Shareholders:

 

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Access to private investments without requirement of accredited investor status

Shareholders in publicly-traded BDCs receive Form 1099-DIV and are not required to file
K-1s

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Daily liquidity through listing on a national exchange that provides shareholders the flexibility to enter or exit the investment when desired

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Quarterly distribution of net investment income and net realized capital gains to shareholders

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RICs that meet dividend paid deduction, gross income qualification and diversification requirements receive flow-through tax treatment and are typically not taxed at the investment company level. Shareholders are taxed on BDC's distributions

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Sarbanes-Oxley compliant; Majority of directors on board are independent; Debt-to-equity leverage is limited to a maximum of 1 to 1, far lower than typical bank leverage. Quarterly portfolio valuations approved by independent directors

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RIC requirements for portfolio company diversification typically result in less position concentration than traditional private equity funds

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Quarterly SEC financials; Entire portfolio publicly disclosed in the Schedule of Investments with each portfolio company valued at fair market value quarterly