Is the distribution fully covered by operating earnings or is it being funded by capital reserves?

Short answer:

Based on the information contained in the news release, we cannot determine whether the $0.25‑per‑share monthly distribution for the third fiscal quarter of 2026 is being paid out of operating earnings (i.e., “covered” by the company’s current earnings) or is being drawn from capital reserves (i.e., a return of capital).

Why the press release does not disclose the source of the distribution

In a typical closed‑end management investment company, the source of a distribution can be:

1. Operating earnings (net investment income) – the portion of the portfolio’s earnings that is generated each period and is usually the first line of support for regular distributions.
   
2. Capital reserves (return of capital) – when earnings are insufficient, the company may dip into retained capital to maintain the declared payout, which would be classified as a return of capital on the shareholder’s tax return.

Because the press release does not explicitly state either of these, we have no basis for concluding which source is being used.

How you could find the answer

1. Review the company’s most recent Form 10‑K or 10‑Q (filed with the SEC).

   • The “Distribution Policy” section typically spells out whether distributions are paid from net investment income first and, if that is insufficient, from capital reserves.
     
   • The “Management’s Discussion and Analysis” (MD&A) often discusses the coverage ratio (distribution ÷ net investment income) for the quarter.

2. Check the quarterly earnings release or earnings call transcript for Q3 2026 (or Q4 2025 calendar).

   • Companies often comment on whether the declared distribution is “fully covered by earnings” or “partially funded by capital.”

3. Contact Investor Relations directly. The release includes a contact for the IR team; they can confirm the source of the distribution.

What to keep in mind for investors

• If the distribution is fully covered by earnings:

  • It is generally considered a regular dividend and is taxed as ordinary income (subject to the investor’s tax situation).
    
  • It suggests the portfolio’s operating performance is strong enough to sustain the payout.

• If the distribution is being funded by capital reserves (a return of capital):

  • The portion classified as return of capital reduces the shareholder’s basis in the investment and may be tax‑free to the extent it does not exceed that basis.
    
  • Over time, a pattern of return‑of‑capital payouts can erode the net asset value (NAV) of the fund and may signal that earnings are insufficient to meet the declared distribution level.

Bottom line

The news release does not provide enough detail to answer whether the $0.25 per share distribution is fully covered by operating earnings or is being funded by capital reserves. To obtain a definitive answer, you would need to consult Sound Point Meridian Capital’s SEC filings, earnings releases, or directly ask the company’s investor‑relations department.