GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(UNAUDITED)

	December 31, 2006			March 31, 2006
ASSETS
Non-Control/Non-Affiliate investments (Cost 12/31/06: $141,804,619; 3/31/06: $97,423,004)	$	140,777,989		$	97,585,972
Control investments (Cost 12/31/06: $80,601,004; 3/31/06: $55,846,318)	80,188,063			55,796,318
Affiliate investments (Cost 12/31/06: $19,550,000)	19,550,000			—
Total investments at fair value (Cost 12/31/06: $241,955,623; 3/31/06: $153,269,322)	240,516,052			153,382,290
Cash and cash equivalents	1,890,942			75,672,605
Interest receivable	1,444,705			761,388
Due from custodian	2,798,620			—
Deferred finance costs	459,347			—
Prepaid directors fees	37,900			—
Prepaid insurance	145,382			99,874
Due from Adviser	—			234,551
Other assets	180,114			173,099
TOTAL ASSETS	$	247,473,062		$	230,323,807

LIABILITIES
Administration fee payable to Administrator	$	124,101		$	110,002
Fees due to Adviser	407,221			—
Borrowings under line of credit	20,000,000			—
Accrued expenses	812,864			367,031
Other liabilities	43,120			5,077
Total Liabilities	21,387,306			482,110
NET ASSETS	$	226,085,756		$	229,841,697

ANALYSIS OF NET ASSETS:

Common stock, $0.001 par value, 100,000,000 shares authorized and 16,560,100 shares issued and outstanding	$	16,560		$	16,560
Capital in excess of par value	230,096,572			230,229,279
Net unrealized (depreciation) appreciation of investment portfolio	(1,439,571		)	112,968
Distributions in excess of net investment income	(2,587,805		)	(517,110		)
TOTAL NET ASSETS	$	226,085,756		$	229,841,697
NET ASSETS PER SHARE	$	13.65		$	13.88

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2006

(UNAUDITED)

Company (1)	Industry	Investment (2)	Cost		Fair Value

NON-CONTROL/NON-AFFILIATE INVESTMENTS

ACS Media, LLC	Service - directory advertising	Senior Term Debt (7.9%, Due 11/2013)(3)	$	2,627,096	$	2,626,550

Activant	Service - enterprise software and services	Senior Term Debt (7.4%, Due 5/2013)(3)	3,848,960		3,792,675

American Safety Razor Company Inc.	Manufacturing - razors and blades	Senior Term Debt (7.9%, Due 7/2013)(3)	1,494,998		1,499,963

Aspect Software, Inc.	Service - call center software	Senior Term Debt (8.4%, Due 7/2011)(3)	2,996,361		2,992,500

Bankruptcy Management Solutions, Inc.	Service - software and service to bankrupcy trustees	Senior Term Debt (8.1%, Due 7/2012)(3)	1,000,942		1,004,981

Brock Holdings II, Inc.	Service - industrial specialty maintenance	Senior Term Debt (7.9%, Due 8/2013)(3)(5)	3,000,480		3,011,203

Compsych Investments Corp.	Service - independent employee assistance programs	Senior Term Debt (8.1%, Due 2/2012)(3) (5)	3,926,043		3,919,775

CRC Health Group, Inc.	Service - substance abuse treatment	Senior Term Debt (7.9%, Due 2/2012)(3)	10,041,596		10,005,278

CST Industries Acquisition, Inc.	Manufacturing - metal storage units	Senior Term Debt (8.5%, Due 8/2013)(3)	999,523		1,002,488

Dealer Computer Services, Inc.	Manufacturing & Service - systems for automotive retailers	Senior Term Debt (7.9%, Due 9/2013)(3)	1,045,380		1,051,914

Dresser Holdings, Inc.	Manufacturing - oilfield & energy products	Senior Term Debt (8.1%, Due 10/2013)(3)	2,015,898		2,033,537

Generac Acquisition Corp.	Manufacturing - standby power products	Senior Term Debt (7.8%, Due 11/2013)(3)	2,620,000		2,629,825

Graham Packaging Holdings Co.	Manufacturing - custom blow molded plastic containers	Senior Term Debt (7.6%, Due 10/2011)(3)	10,745,127		10,711,271

Hudson Products Holdings, Inc.	Manufacturing - heat transfer solutions	Senior Term Debt (8.1%, Due 12/2013)(3)	1,310,000		1,313,275

IPC Information Systems, LLC	Manufacturing - specialized telephony systems	Senior Term Debt (7.9%, Due 9/2013)(3)	262,000		263,310

J. Crew Operating Corp.	Retail - apparel	Senior Term Debt (7.1%, Due 5/2013)(3)	1,406,089		1,399,999

Latham Manufacturing Corp.	Manufacturing - swimming pool components accessories	Senior Term Debt (8.9%, Due 6/2012)(3)	2,435,461		2,369,505

Lexicon Marketing USA, Inc.	Service - marketing to Hispanic community	Senior Term Debt (7.9%, Due 5/2012)(3) (5)	2,979,159		3,006,478

LVI Services, Inc.	Service - asbestos and mold remediation	Senior Term Debt (10.4%, Due 11/2010)(3) (5)	6,458,112		5,920,200

Madison River Capital LLC	Service - communications and information	Senior Term Debt (7.6%, Due 7/2012)(3)	5,729,255		5,702,357

Maidenform, Inc.	Manufacturing - intimate apparel	Senior Term Debt (7.2%, Due 5/2010)(3)	2,569,468		2,566,667

MedAssets, Inc.	Service - pharmaceuticals and healthcare GPO	Senior Term Debt (7.9%, Due 10/2013)(3) (5)	3,502,680		3,500,000

MediMedia USA, LLC	Service - healthcare and pharmeceutical marketing	Senior Term Debt (7.8%, Due 10/2013)(3)	1,183,505		1,180,463

National Mentor Holdings, Inc.	Service - home health care	Senior Term Debt (7.7%, Due 6/2013)(3)	1,991,799		2,000,503

NPC International Inc.	Service - Pizza Hut franchisee	Senior Term Debt (7.1%, Due 5/2013)(3)	3,018,085		2,995,367

Nutro Products, Inc.	Manufacturing - pet food	Senior Term Debt (7.4%, Due 4/2012)(3)	2,503,442		2,484,352

Ozburn-Hessey Holding Co. LLC	Service - third party logistics	Senior Term Debt (8.6%, Due 8/2012)(3)	7,791,254		7,714,823

Patriot Media & Communications CNJ, LLC	Service - telecommunications	Senior Term Debt (7.4%, Due 3/2013)(3)	4,169,901		4,136,293

Radio Systems Corporation	Service - design electronic pet containment products	Senior Term Debt (8.1%, Due 9/2013)(3)	1,048,000		1,051,930

Rally Parts, Inc.	Manufacturing - aftermarket motorcycle parts and accessories	Senior Term Debt (7.9%, Due 11/2013)(3)	262,000		262,655

RPG Holdings, Inc.	Manufacturing and design - greeting cards	Senior Term Debt (8.9%, Due 12/2011)(3)	5,001,158		4,975,000

SGS International, Inc.	Service - digital imaging and graphics	Senior Term Debt (7.9%, Due 12/2011)(3)	1,616,364		1,612,774

Stolle Machinery Company	Manufacturing - can-making equipment and parts	Senior Term Debt (7.9%, Due 9/2012)(3)	262,000		263,310

Company (1)	Industry			Investment (2)	Cost		Fair Value

NON-CONTROL/NON-AFFILIATE INVESTMENTS (Continued)

SunGard Data Systems, Inc.		Service & Manufacturing - integrated software and processing solutions and information availability services	Senior Term Debt (7.9%, Due 2/2013)(3)		$	9,946,579		$	9,960,813

Survey Sampling, LLC		Service - telecommunications-based sampling	Senior Term Debt (8.6%, Due 5/2011)(3)		3,373,571			3,331,493

Triad Laboratory Alliance, LLC		Service - regional medical laboratories	Senior Term Debt (8.6%, Due 12/2011)(3) (5)		4,966,908			4,912,875

US Investigative Services, Inc.		Service - background investigations	Senior Term Debt (7.9%, Due 10/2012)(3)		10,943,766			10,927,767

Wastequip, Inc.		Service - process and transport waste materials	Senior Term Debt (7.6%, Due 7/2011)(3)		5,471,659			5,390,720

West Corporation		Service - business process outsourcing	Senior Term Debt (8.1%, Due 10/2013)(3)		5,240,000			5,253,100

Total Non-Control/Non-Affiliate Investments					$	141,804,619		$	140,777,989

CONTROL INVESTMENTS

Acme Cryogenics Corporation		Manufacturing - manifolds and pipes for industrial gasses	Senior Subordinated Term Debt (11.5% Due 3/2013)(6)		$	14,500,000		$	14,500,000
			Redeemable Preferred Stock(4) (6)		7,245,634			7,245,634
			Common Stock(4) (6)		1,084,366			1,084,366
			Common Stock Warrants(4) (6)		24,686			24,686
					22,854,686			22,854,686

Chase II Holdings Corp.		Manufacturing - traffic doors	Revolving Credit Facility(7)		—			—
			Senior Term Debt (9.9%, Due 3/2011)(5)		12,900,000			12,835,500
			Senior Term Debt (12.0% Due 3/2011)(5)		8,000,000			7,910,000
			Subordinated Term Debt (13% Due 3/2013)(5)		6,167,810			6,036,744
			Redeemable Preferred Stock(4) (6)		6,960,806			6,960,806
			Common Stock Warrants(4) (6)		61,384			61,384
					34,090,000			33,804,434

Hailey Transport Corporation		Retail and Service - school buses and parts	Senior Subordinated Term Debt (12.0%, Due 1/2012)(5)		4,000,000			3,900,000
			Preferred Stock(4) (6)		2,500,000			2,500,000
					6,500,000			6,400,000

Quench Holdings Corp.		Service - sales, installation and service of water coolers	Revolving Credit Facility (9.4%, Due 3/2009)(5) (8)		1,900,000			1,897,625
			Senior Term Debt (9.4%, Due 3/2011)(5)		4,000,000			4,005,000
			Subordinated Term Debt (11.5%, Due 3/2011)(5)		8,000,000			7,970,000
			Common Stock(4) (6)		3,256,318			3,256,318
					17,156,318			17,128,943

Total Control Investments					$	80,601,004		$	80,188,063

AFFILIATE INVESTMENTS

Noble Logistics, Inc.		Service - aftermarket auto parts delivery	Revolving Credit Facility(9)		$	1,800,000		$	1,800,000
			Senior Term Debt (9.8%, Due 3/2011)(6)		7,000,000			7,000,000
			Senior Term Debt (12.0% Due 3/2011)(6)		7,000,000			7,000,000
			Senior Subordinated Term Debt (13% Due 3/2013)(6)		500,000			500,000
			Preferred Stock(4) (6)		1,750,000			1,750,000
			Common Stock(4) (6)		1,500,000			1,500,000
					19,550,000			19,550,000

Total Affiliate Investments					$	19,550,000		$	19,550,000

Total Investments					$	241,955,623		$	240,516,052

(1) Certain of the listed securities are issued by affiliate(s) of the indicated portfolio company.

(2) Percentage represents the weighted average interest rates in effect at December 31, 2006 and due date represents the contractual maturity date.

(3) Marketable securities are valued based on the indicative bid price, as of December 31, 2006, from the respective originating syndication agent’s trading desk.

(4) Security is non-income producing.

(5) Valued using Standard & Poor’s Securities Evaluations, Inc. opinions of value at December 31, 2006.

(6) Fair value is equal to cost due to recent acquisition.

(7) Total available under the revolving credit facility is $500,000 which was undrawn as of December 31, 2006.

(8) Total available under the revolving credit facility is $2,000,000, of which $100,000 remains undrawn at December 31, 2006.

(9) Total available under the revolving credit facility is $2,000,000, of which $200,000 remains undrawn at December 31, 2006.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
March 31, 2006
(UNAUDITED)

Company (1)	Industry	Investment (2)	Cost		Fair Value

NON-CONTROL/NON-AFFILIATE INVESTMENTS

CRC Health Group, Inc.	Service - substance abuse treatment	Senior Term Debt (6.9%, Due 2/2016)(3)	$	5,056,761	$	5,056,250

Graham Packaging Holdings Co.	Manufacturing - custom blow molded	Senior Term Debt (7.0%, Due 10/2011)(3)	10,071,296		10,061,087

Hertz Equipment Rental Corporation	Service - car rentals	Senior Term Debt (6.7%, Due 12/2010)(3)	871,388		876,560

Latham Manufacturing Corp.	Manufacturing - swimming pool components accessories	Senior Term Debt (7.8%, Due 12/2010)(3)	4,454,333		4,461,188

Le-Natures, Inc.	Marketing & development - natural beverages	Senior Term Debt (7.7%, Due 6/2010)(3)	5,042,467		5,074,713

LVI Services, Inc.	Service - asbestos and mold remediation	Senior Term Debt (7.3%, Due 11/2010)(3)	6,511,390		6,540,483

Madison River Capital LLC	Service - communications and information information	Senior Term Debt (6.8%, Due 7/2012)(3)	5,788,660		5,829,062

Maidenform, Inc.	Manufacturing - intimate apparel	Senior Term Debt (6.5%, Due 5/2010)(3)	3,118,448		3,122,787

MedAssets, Inc.	Service - pharmaceuticals and healthcare GPO	Senior Term Debt (7.7%, Due 7/2010)(3)(7)	2,340,111		2,348,526

Ozburn-Hessey Holding Co. LLC	Service - third party logistics	Senior Term Debt (7.3%, Due 8/2012)(3)	6,382,673		6,376,646

Patriot Media & Communications CNJ, LLC	Service - telecommunications	Senior Term Debt (7.0%, Due 3/2013)(3)	4,360,777		4,359,125

Revere Industries, LLC	Manufacturing-plastic and metal components	Senior Term Debt (7.6%, Due 9/2010)(3)	3,508,831		3,504,546

RPG Holdings, Inc.	Manufacturing and design - greeting cards	Senior Term Debt (8.2%, Due 12/2011)(3)	5,001,332		5,000,000

SGS International, Inc.	Service - digital imaging and graphics	Senior Term Debt (7.2%, Due 12/2011)(3)	1,404,081		1,415,702

SunGard Data Systems, Inc.	Service & manufacturing - integrated software and processing	Senior Term Debt (7.2%, Due 2/2013)(3)	10,033,531		10,049,063

Triad Laboratory Alliance, LLC	Service - regional medical laboratories	Senior Term Debt (7.8%, Due 12/2011)(3)(7)	5,006,982		5,012,438

TexStar Operating, L.P.	Manufacturing - midstream natural gas processing	Senior Term Debt (8.3%, Due 12/2011)(3)(7)	3,000,161		2,999,981

US Investigative Services, Inc.	Service - background investigations	Senior Term Debt (7.4%, Due 10/2012)(3)	9,948,345		9,984,478

Wastequip, Inc.	Manufacturing - waste removal equipment	Senior Term Debt (7.0%, Due 7/2011)(3)	5,521,437		5,513,337

Total Non-Control/Non-Affiliate Investments			97,423,004		97,585,972

Company (1)	Industry	Investment (2)	Cost		Fair Value

CONTROL INVESTMENTS

Chase II Holdings Corporation	Manufacturing - Traffic doors	Revolving Credit Facility (5)	—		—
		Senior Term Debt (9.1%, Due 3/2011)	12,900,000		12,900,000
		Senior Term Debt (12.0% Due 3/2011)	8,000,000		8,000,000
		Subordinated Term Debt (13% Due 3/2013)	6,167,810		6,167,810
		Redeemable Preferred Stock (4) (8)	6,960,806		6,960,806
		Common Stock (4) (8)	61,384		61,384
			34,090,000		34,090,000

Hailey Transport Corporation	Retail and Service - school buses and parts	Senior Subordinated Term Debt (12.0%, Due 1/2012) (7)	4,000,000		3,950,000
		Common Stock (4) (8)	2,500,000		2,500,00
			6,500,000		6,450,000

Quench Holdings Corporation	Service - sales, installation and service of water coolers	Revolving Credit Facility (6)	—		—
		Senior Term Debt (9.1%, Due 3/2011)	4,000,000		4,000,000
		Subordinated Term Debt (11.5%, Due 3/2011)	8,000,000		8,000,000
		Common Stock (4) (8)	3,256,318		3,256,318
			15,256,318		15,256,318

Total Control Investments			55,846,318		55,796,318

Total Investments			$	153,269,322	$	153,382,290

Cash equivalents
	Government	US Treasury Bill (4.2%, 4/20/2006)	3,989,800		3,989,800

	Government	US Treasury Bill (4.4%, 4/27/2006)	15,241,694		15,241,694

	Government	US Treasury Bill (4.4%, 5/4/2006)	35,132,347		35,132,347

	Government	US Treasury Bill (4.4%, 5/25/2006)	15,243,245		15,243,245

Total cash equivalents:			69,607,086		69,607,086

Total investments and cash equivalents:			$	222,876,408	$	222,989,376

(1) Certain of the listed securities are issued by affiliate(s) of the indicated portfolio company.

(2) Percentage represents the weighted average interest rates in effect at March 31, 2006 and due date represents the contractual maturity date.

(3) Marketable securities are valued based on the indicative bid price, as of March 31, 2006, from the respective originating syndication agent’s trading desk.

(4) Security is non-income producing.

(5) Total available under the revolving credit facility is $500,000 which was undrawn as of March 31, 2006.

(6) Total available under the revolving credit facility is $2,000,000 which was undrawn as of March 31, 2006.

(7) Valued using Standard & Poor’s Securities Evaluations, Inc. opinions of value at March 31, 2006.

(8) Fair value is equal to cost due to recent acquisition.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	For the three			For the three
	months ended			months ended
	December 31, 2006			December 31, 2005

INVESTMENT INCOME
Interest income
Non-Control/Non-Affiliate investments	$	2,586,171		$	790,879
Control investments	1,264,451			—
Affiliate investments	114,668			—
Cash and cash equivalents	332,586			1,530,809
Total interest income	4,297,876			2,321,688
Other income	1,492			—
Total investment income	4,299,368			2,321,688

EXPENSES
Base management fee	551,235			265,522
Loan servicing fee	508,691			—
Administration fee	124,101			73,424
Directors fees	54,800			51,000
Professional fees	186,537			69,570
Insurance expense	60,696			69,552
Stockholder related costs	28,643			24,363
Interest expense	68,748			—
Amortization of deferred finance costs	91,392			—
Taxes and licenses	41,550			—
Other expenses	60,132			15,687
Expenses before credit from Adviser	1,776,525			569,118
Credit to base management fee for fees collected by Adviser (Refer to Note 3)	(375,225		)	—
Total expenses net of credit to management fee	1,401,300			569,118
NET INVESTMENT INCOME	2,898,068			1,752,570

REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Realized (loss) gain on sale of Non-Control/Non-Affiliate investments	(2,283		)	38,056
Net unrealized depreciation of investment portfolio	(211,242		)	(175,879		)
Net loss on investments	(213,525		)	(137,823		)

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS (Refer to Note 6)	$	2,684,543		$	1,614,747

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE:
Basic and Diluted	$	0.16		$	0.10

SHARES OF COMMON STOCK OUTSTANDING:
Basic and diluted weighted average shares	16,560,100			16,560,100

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

				For the period
				June 22, 2005
	For the nine			(Commencement of
	months ended			Operations) to
	December 31, 2006			December 31, 2005

INVESTMENT INCOME
Interest income
Non-Control/Non-Affiliate investments	$	6,938,026		$	984,457
Control investments	3,711,056			—
Affiliate investments	114,668			—
Cash and cash equivalents	1,610,506			3,192,019
Total interest income	12,374,256			4,176,476
Other income	2,478			—
Total investment income	12,376,734			4,176,476

EXPENSES
Base management fee	2,214,437			357,630
Loan servicing fee	508,691			—
Administration fee	364,351			178,469
Directors fees	154,300			103,000
Professional fees	354,325			135,872
Insurance expense	200,933			112,030
Stockholder related costs	187,509			67,901
Interest expense	68,748			378
Amortization of deferred finance costs	91,392			—
Taxes and licenses	139,994			—
Other expenses	104,161			35,920
Expenses before credit from Gladstone Management	4,388,841			991,200
Credit to management fee for fees collected by Adviser (Refer to Note 3)	(375,225		)	—
Total expenses net of credit to management fee	4,013,616			991,200
NET INVESTMENT INCOME	8,363,118			3,185,276

REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Realized (loss) gain on sale of Non-Control/Non-Affiliate investments	(944		)	38,056
Net unrealized depreciation of investment portfolio	(1,552,539		)	(112,053		)
Net loss on investments	(1,553,483		)	(73,997		)

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS (Refer to Note 6)	$	6,809,635		$	3,111,279

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE:
Basic and Diluted	$	0.41		$	0.19

SHARES OF COMMON STOCK OUTSTANDING:
Basic and diluted weighted average shares	16,560,100			16,560,100

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)

				For the period
				June 22, 2005
	For the nine			(Commencement of
	months ended			Operations) to
	December 31, 2006			December 31, 2005
Operations:
Net investment income	$	8,363,118		$	3,185,276
Realized (loss) gain on sale of investments	(944		)	38,056
Unrealized depreciation of portfolio	(1,552,539		)	(112,053		)
Increase in net assets from operations	6,809,635			3,111,279

Capital transactions:
Issuance of common stock	—			230,244,339
Shelf registration offering costs	(132,707		)	—
Dividends from net investment income	(10,432,869		)	(2,980,818		)
Total change in net assets from capital transactions	(10,565,576		)	227,263,521

Total change in net assets	(3,755,941		)	230,374,800

Net Assets
Beginning of period	229,841,697			1,500
End of period	$	226,085,756		$	230,376,300

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

				For the period
				June 22, 2005
	For the nine			(Commencement of
	months ended			Operations) to
	December 31, 2006			December 31, 2005

CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations	$	6,809,635		$	3,111,279
Adjustments to reconcile net increase in net assets
resulting from operations to net cash used in operating activities:
Purchase of investments	(118,850,626		)	(64,221,339		)
Principal repayments of investments	10,448,688			1,376,483
Proceeds from the sale of investments	19,589,945			2,038,056
Net unrealized depreciation of investment portfolio	1,552,539			112,053
Net realized loss (gain) on sales of investments	944			(38,056		)
Net amortization of premiums and discounts	124,748			21,797
Increase in interest receivable	(683,317		)	(317,233		)
Increase in due from custodian	(2,798,620		)	—
Increase in prepaid assets	(67,993		)	(214,485		)
Increase in other assets	(22,429		)	(108,604		)
Increase in other liabilities	38,042			—
Increase in administration fee payable to Administrator	410,561			73,424
Increase in base management fee payable to Adviser	14,099			192,787
Increase in loan servicing fee payable to Adviser	231,211			—
Increase in accounts payable	—			2,207
Increase in accrued expenses	445,833			53,933
Net cash used in operating activities	(82,756,740		)	(57,917,698		)

CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from the issuance of common stock	—			230,292,203
Borrowings from line of credit	23,500,000			—
Repayments of line of credit	(3,500,000		)	—
Deferred finance costs	(459,347		)	—
Shelf offering registration costs	(132,707		)	—
Distributions paid	(10,432,869		)	(2,980,818		)
Decrease in loan payable to affiliate	—			(50,000		)
Net cash provided by financing activities	8,975,077			227,261,385

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1)	(73,781,663		)	169,343,687
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	75,672,605			3,636
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,890,942		$	169,347,323

CASH PAID DURING PERIOD FOR INTEREST TO AFFILIATE	$	—		$	378

(1) Cash and cash equivalents consist of demand deposits and highly liquid investments with original maturities of three months or less when purchased.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

GLADSTONE INVESTMENT CORPORATION
FINANCIAL HIGHLIGHTS
(UNAUDITED)

	For the three			For the three
	months ended			months ended
	December 31, 2006			December 31, 2005
Per Share Data (1)
Balance at beginning of period	$	13.71		$	13.93

Income from investment operations:
Net investment income (2)	0.18			0.11
Realized gain on sale of investments (2)	—			—
Net unrealized depreciation of investments (2)	(0.02		)	(0.01		)
Total from investment operations	0.16			0.10
Distributions	(0.21		)	(0.12		)
Net asset value at end of period	$	13.65		$	13.91

Per share market value at beginning of period	$	14.46		$	15.05
Per share market value at end of period	15.31			13.59
Total return (3)	7.38		%	(6.63		%)
Shares outstanding at end of period	16,560,100			16,560,100

Ratios/Supplemental Data
Net assets at end of period	$	226,085,756		$	230,376,300
Average net assets (4)	$	225,338,878		$	229,896,936
Ratio of expenses to average net assets (annualized)	3.15		%	0.99		%
Ratio of net expenses to average net assets (annualized)	2.49		%	0.99		%
Ratio of net investment income to average net assets (annualized)	5.14		%	3.05		%

(1) Based on actual shares outstanding.

(2) Based on weighted average basic per share data.

(3) Total return equals the change in the market value of the Company’s common stock from the beginning of the period taking into account dividends reinvested in accordance with the terms of our dividend reinvestment plan.

(4) Calculated using the average of the ending monthly net assets for the respective periods.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

GLADSTONE INVESTMENT CORPORATION
FINANCIAL HIGHLIGHTS
(UNAUDITED)

				For the period
				June 22, 2005
	For the nine			(Commencement of
	months ended			Operations) to
	December 31, 2006			December 31, 2005
Per Share Data (1)
Balance at beginning of period	$	13.88		$	—
Net proceeds from initial public offering (2)	—			13.95
Offering costs	—			(0.05		)

Income from investment operations:
Net investment income (3)	0.51			0.20
Realized gain on sale of investments (3)	—			—
Net unrealized depreciation of investments (3)	(0.10		)	(0.01		)
Total from investment operations	0.41			0.19
Distributions	(0.63		)	(0.18		)
Net asset value at end of period	$	13.65		$	13.91

Per share market value at beginning of period	$	14.90		$	15.00
Per share market value at end of period	15.31			13.59
Total return (4)	7.28		%	(8.25		%)
Shares outstanding at end of period	16,560,100			16,560,100

Ratios/Supplemental Data
Net assets at end of period	$	226,085,756		$	230,376,300
Average net assets (5)	$	226,399,367		$	225,793,817
Ratio of expenses to average net assets (annualized)	2.59		%	0.75		%
Ratio of net expenses to average net assets (annualized)	2.36		%	0.75		%
Ratio of net investment income to average net assets (annualized)	4.93		%	2.42		%

(1) Based on actual shares outstanding.

(2) Net of initial underwriting discount of $1.05 per share.

(3) Based on weighted average basic per share data.

(4) Total return equals the change in the market value of the Company’s common stock from the beginning of the period taking into account dividends reinvested in accordance with the terms of our dividend reinvestment plan.

(5) Calculated using the average of the ending monthly net assets for the respective periods.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.

GLADSTONE INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006
(UNAUDITED)

NOTE 1. ORGANIZATION

Gladstone Investment Corporation (the “Company”) was incorporated under the General Corporation Laws of the State of Delaware on February 18, 2005 and completed an initial public offering on June 22, 2005. The Company is a closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, the Company has elected to be treated for tax purposes as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, as amended (the “Code”). The Company’s investment objectives are to achieve a high level of current income and capital gains by investing in debt and equity securities of established private businesses.

Gladstone Business Investment LLC, (“Business Investment”) a wholly-owned subsidiary of the Company, was established on August 11, 2006 for the sole purpose of owning the Company’s portfolio of investments in connection with the establishment of its line of credit facility with Deutsche Bank AG, which recently closed on October 19, 2006. The financial statements of Business Investment are consolidated with those of the Company.

The Company is externally managed by Gladstone Management Corporation (“GMC” or the “Adviser”), an unconsolidated affiliate of the Company.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Statements

Interim financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim periods have been included. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended March 31, 2006, as filed with the Securities and Exchange Commission on June 14, 2006.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Classification of Investments

The 1940 Act requires classification of the Company’s investments by its respective level of control. As defined in the 1940 Act, “Control Investments” are investments in those portfolio companies that the Company is deemed to “Control”. “Affiliate Investments” are investments in those portfolio companies that are “Affiliated Companies” of the Company, as defined in the 1940 Act, other than Control Investments. “Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments. In general, the 1940 Act prescribes that the Company has control over a portfolio company if it owns greater than 25% of the voting securities of the portfolio company. The Company is deemed to be an affiliate of a portfolio company if it owns between 5% and 25% of the voting securities of such portfolio company or has one or more seats on the affiliated company’s board of directors. However, if the Company holds 50% or more

representation on a portfolio company’s board of directors, the Company will be deemed to have control over the portfolio company.

Investment Valuation

The Company carries its investments at fair value, as determined by its Board of Directors. Securities that are publicly traded are valued at the closing price on the valuation date. Securities for which a limited market exists, such as participations in syndicated loans, are valued at the indicative bid price on the valuation date from the respective originating syndication agent’s trading desk. Debt and equity securities that are not publicly traded are valued at fair value. The Company’s Board of Directors has established a valuation policy and consistently applied valuation procedures used to determine the fair value of these securities quarterly. These procedures for the determination of value of 13 of the Company’s debt securities rely on the opinions of value submitted to us by Standard & Poor’s Securities Evaluations, Inc. (“SPSE”). SPSE will only evaluate the debt portion of the Company’s investments for which the Company specifically requests evaluation, and may decline to make requested evaluations for any reason in its sole discretion. SPSE opinions of value are submitted to the Board of Directors along with the Adviser’s supplemental assessment and recommendation regarding valuation of each of these investments. The Board of Directors then reviews whether the Adviser has followed its established procedures for determinations of fair value, and votes to accept or not accept the recommended valuation of the Company’s investment portfolio. The Company’s fair valuation procedures provide for valuation of non-convertible debt securities at cost plus amortized original issue discount (“OID”) plus paid in kind (“PIK”) interest, if any, unless adverse factors lead to a determination of a lesser valuation. The fair value of convertible debt, equity, success or exit fees or other equity-like securities is determined based on the collateral, the enterprise value of the issuer, the issuer’s ability to make payments, the earnings of the issuer, sales to third parties of similar securities, the comparison to publicly traded securities, discounted cash flow and other pertinent factors. Due to the uncertainty inherent in the valuation process, such estimates of fair value may differ significantly from the values that would have resulted had a ready market for the securities existed, and the differences could be material. Additionally, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuation currently assigned. Because there is a delay between when the Company closes an investment and when the investment can be evaluated by SPSE, new investments are not valued immediately by SPSE; rather, the Adviser makes its own determination about the recommended value of these investments in accordance with the Company’s valuation policy without the input of SPSE during the specific quarter in which the investment is made. Because SPSE does not currently perform independent valuations of mortgage loans or equity securities for the Company, the Adviser also determines a recommendation for the fair value of these investments without the input of SPSE. The Adviser considers a number of qualitative and quantitative factors in current market conditions when performing valuations. The Board of Directors then determines whether or not to accept the Adviser’s recommendations for the aggregate valuation of the Company’s portfolio of investments. The Board of Directors is ultimately responsible for setting the fair value and disclosure of investments in the financial statements.

Interest and Dividend Income Recognition

Interest income, adjusted for amortization of premiums and acquisition costs and for the accretion of discounts, is recorded on the accrual basis to the extent that such amounts are expected to be collected. The Company stops accruing interest on its investments when it is determined that interest is no longer collectible. There were no uncollectible accounts at December 31, 2006. Conditional interest or a success fee is recorded upon full repayment of a loan investment. Dividend income on preferred equity securities is accrued to the extent that such amounts are expected to be collected and that the Company has the option to collect such amounts in cash. To date, the Company has not accrued any dividend income.

Services Provided to Portfolio Companies

The 1940 Act requires that a business development company make available managerial assistance to its portfolio companies by providing significant guidance and counsel concerning the management, operations, or business objectives and policies of the respective portfolio company. The Company provides these and other services to portfolio companies through its Adviser. Currently, neither the Company nor the Adviser receives fees in connection with managerial assistance.

The Adviser receives fees for other services it provides to portfolio companies. These other fees are typically non-recurring, are recognized as revenue when earned and are generally paid directly to the Adviser by the borrower or potential borrower upon closing of the investment. The services the Adviser provides to portfolio companies vary by investment, but generally include a broad array of services, such as investment banking services, arranging bank and equity financing, structuring

financing from multiple lenders and investors, reviewing existing credit facilities, restructuring existing investments, raising equity and debt capital, turnaround management, merger and acquisition services and recruiting new management personnel. When the Adviser receives fees for these services, 50% of those fees are credited against the base management fee due to the Adviser from the Company. Any services of this nature subsequent to the closing would typically generate a separate fee at the time of completion.

The Adviser also receives fees for monitoring and reviewing portfolio company investments. These fees are recurring and are generally paid annually or quarterly in advance to the Adviser throughout the life of the investment. Fees of this nature are recorded as revenue by the Adviser when earned and are not credit against the base management fees.

The Company may receive fees for the origination and closing services it provides to portfolio companies through its Adviser. These fees are paid directly to the Company and are recognized as revenue upon closing of the originated investment and are reported as fee income in the consolidated statements of operations.

Cash and Cash Equivalents

The Company considers all short-term, highly liquid investments that are both readily convertible to cash and have a maturity of three months or less at the time of purchase to be cash equivalents. Items classified as cash equivalents include temporary investments in U.S. Treasury bills and can also include commercial paper and money-market funds. All of the Company’s cash at December 31, 2006 was deposited with two financial institutions, and the Company’s balances exceed federally insurable limits. The Company seeks to mitigate this risk by depositing funds with major financial institutions.

Realized Gain or Loss and Unrealized Appreciation or Depreciation of Portfolio Investments

Realized gain or loss is recognized when an investment is sold and is computed as the difference between the Company’s cost basis in the investment at the date of sale and the net proceeds received from such sale. Unrealized appreciation or depreciation reflects the difference between the fair market value of the investment and the cost basis of such investment.

Federal Income Taxes

The Company intends to continue to qualify for treatment as a RIC under subchapter M of the Code. As a RIC, the Company will not be subject to federal income tax on the portion of its taxable income and gains distributed to stockholders. To qualify as a RIC, the Company is required to distribute at least 90% of investment company taxable income, as defined by the Code. The Company intends to distribute at least 90% of its ordinary income, and as a result, no income tax provisions have been recorded. The Company may, but does not intend to, pay out a return of capital.

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurments (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is required to adopt the provisions of SFAS 157 beginning with the fiscal year ended March 31, 2009. The Company is currently evaluating the impact of this pronouncement on its consolidated financial statements.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”). SAB 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements and requires registrants to consider the effect of all carry over and reversing effects of prior year misstatements when quantifying errors in current year financial statements. SAB 108 does not change the SEC’s previous guidance in SAB No. 99, “Materiality,” on evaluating the materiality of misstatements. A registrant applying the new guidance for the first time that identifies material errors in existence at the beginning of the first fiscal year ending after November 15, 2006, may correct those errors through a one-time cumulative effect adjustment to beginning-of-year retained earnings. The cumulative effect alternative is available only if the application of the new guidance results in a conclusion that a material error exists as of the beginning of the first fiscal year ending after November 15, 2006, and those misstatements were determined to be immaterial based on a proper application of the registrant’s previous method

for quantifying misstatements. The Company is currently evaluating the impact of this pronouncement on its consolidated financial statements

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109,” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” SFAS No. 109 is effective as of the beginning of an entity’s first fiscal year that begins after December 15, 2006. The Company will adopt this Interpretation effective April 1, 2007. The Company is currently evaluating the impact of this pronouncement on its consolidated financial statements.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments, an amendment of FASB statements No. 133 and 140” (SFAS No. 155). SFAS No. 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) as long as the entire instrument is valued on a fair value basis. The statement also resolves and clarifies other specific SFAS No. 133 and SFAS No. 140 related issues. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company will be required to adopt SFAS No. 155 on April 1, 2007. The Company is currently evaluating the impact of this pronouncement on its consolidated financial statements.

NOTE 3. RELATED PARTY TRANSACTIONS

Investment Advisory and Management Agreement

We have entered into an investment advisory and management agreement with the Adviser (the “Advisory Agreement”), which is controlled by our chairman and chief executive officer. In accordance with the Advisory Agreement, we pay the Adviser a fee, as compensation for its services, consisting of a base management fee and an incentive fee.

The base management fee is assessed at an annual rate of 2.0% computed on the basis of the average value of the Company’s gross invested assets at the end of the two most recently completed quarters, which are total assets less the cash proceeds and cash and cash equivalents from the proceeds of the Company’s initial public offering that are not invested in debt and equity securities of portfolio companies. Through December 31, 2006, the base management fee was computed and payable quarterly. Beginning in periods subsequent to December 31, 2006, the base management fee will be computed and payable quarterly and will be assessed at an annual rate of 2.0% computed on the basis of the value of the Company’s average gross assets at the end of the two most recently completed quarters, which are total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings. This new calculation was originally scheduled to begin in periods after March 31, 2006; however, on April 11, 2006, July 11, 2006 and October 10, 2006, the Company’s Board of Directors accepted voluntary waivers from the Adviser that allowed the current calculation of the base management fee to be effective through June 30, 2006, September 30, 2006 and December 31, 2006, respectively.

On January 9, 2007, the Company’s Board of Directors accepted a voluntary waiver from the Adviser to reduce the annual 2.0% base management fee on senior syndicated loan participations to 0.5% to the extent that proceeds resulting from borrowings were used to purchase such syndicated loan participations.

When the Adviser receives fees from portfolio companies, as discussed in Note 2 under “Services Provided to Portfolio Companies,” 50% of certain of these fees will be credited against the base management fee that the Company would otherwise be required to pay to the Adviser.

For the three and nine months ended December 31, 2006, the Company incurred a base management fee to the Adviser of $551,235 and $2,214,437, respectively. For the three months ended December 31, 2005 and for the period June 22, 2005 (commencement of operations) to December 31, 2005, the Company incurred a base management fee to the Adviser of $265,522 and $357,630, respectively. As of December 31, 2006, $176,010 was unpaid and included in fees due to Adviser in the accompanying consolidated statements of assets and liabilities. For the three and nine months ended December 31, 2006, the Company recognized aggregate credits against the base management fee of $375,225 resulting from investment banking fees paid to the Adviser during the respective periods.

In addition, the Adviser services the loans held by Business Investment, in return for which the Adviser receives a 2.0% annual fee based on the monthly aggregate balance of loans held by Business Investment. Since the Company owns these loans, all loan servicing fees paid to the Adviser are treated as reductions against the 2.0% base management fee payable to

the Adviser. Overall, the management fee due to the Adviser cannot exceed 2.0% of total assets (as reduced by cash and cash equivalents pledged to creditors) during any given fiscal year.

For the three and nine months ended December 31, 2006, the Company recorded loan servicing fees to the Adviser of $508,691, of which $231,211 was unpaid at December 31, 2006 and included in fees due to Adviser in the accompanying consolidated statements of assets and liabilities.

The incentive fee consists of two parts: an income-based incentive fee and a capital gains incentive fee. The income-based incentive fee is calculated and payable quarterly in arrears based on the Company’s pre-incentive fee net investment income for the immediately preceding calendar quarter. The capital gains incentive fee is determined and payable annually in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement, as of the termination date) and equals 20.0% of the Company’s realized capital gains since inception through the end of the current fiscal year, if any, computed net of all realized capital losses since inception, and unrealized capital depreciation at the end of each fiscal year. Refer to the Company’s Form 10-K for the fiscal year ended March 31, 2006 for more information regarding the calculation of the incentive fee.

Because pre-incentive fee net investment income was below the hurdle rate of 1.75% of net assets, no income-based incentive fee was recorded for the three or nine months ended December 31, 2006, the three months ended December 31, 2005 or the period June 22, 2005 (commencement of operations) to December 31, 2005.

Administration Agreement

The Company has entered into an administration agreement (the “Administration Agreement”) with Gladstone Administration, LLC (“Gladstone Administration” or the “Administrator”), a wholly-owned subsidiary of the Adviser. Under the Administration Agreement, the Company pays separately for administrative services. The Administration Agreement provides for payments equal to the Company’s allocable portion of the Administrator’s overhead expenses in performing its obligations under the Administration Agreement, including but not limited to, rent for employees of the Administrator, and the allocable portion of salaries and benefits expenses of the Company’s chief financial officer, controller, chief compliance officer, treasurer and their respective staffs. The Company recorded fees to the Administrator on the consolidated statements of operations of $124,101 and $73,424 for the three months ended December 31, 2006 and 2005, respectively. The Company recorded fees to the Administrator on the consolidated statements of operations of $364,351 and $178,469 for the nine months ended December 31, 2006 and the period June 22, 2005 (commencement of operations) to December 31, 2005, respectively. As of December 31, 2006 and March 31, 2006, $124,101 and 110,002, respectively, was unpaid and included in the administration fee payable to Administrator in the accompanying consolidated statements of assets and liabilities.

Loan Payable to Affiliate

On June 30, 2005, the Company repaid a $50,000 loan payable to its chairman and chief executive officer. The demand recourse promissory note accrued interest at the rate of 3.0% per annum and was repaid with accrued interest of $378 using a portion of the net proceeds from the Company’s initial public offering.

NOTE 4. LINE OF CREDIT

Through the Company’s wholly-owned subsidiary, Business Investment, the Company has obtained a $100 million revolving credit facility (the “Credit Facility”). On October 19, 2006, the Company executed a Purchase and Sale Agreement pursuant to which it agreed to sell certain loans to Business Investment in consideration of a membership interest therein. Simultaneously, Business Investment executed a Credit Agreement (the “Credit Agreement”) with Deutsche Bank AG, New York Branch (“Deutsche Bank”), as administrative agent, pursuant to which Business Investment pledged the loans purchased from the Company to secure future advances by certain institutional lenders. Availability under the Credit Facility will terminate on October 18, 2007, unless extended in the discretion of the lenders, at the request of Business Investment. Interest will be payable monthly during the term of the Credit Facility and principal will be payable out of collections on loans purchased from the Company during the period following the date of which availability for advances has terminated through maturity. The Credit Facility will mature two years following the date on which availability for advances has terminated and on such date, all principal, interest and other amounts owing under the Credit Facility will be due and payable. Interest rates charged on the advances under the facility are based on the rate paid by the lenders on commercial paper notes issued by such lenders to fund some or all of the advances, the London Interbank Offered Rate (“LIBOR”), the

Prime Rate or the Federal Funds Rate, depending on market conditions, and adjust periodically. Available borrowings are subject to various constraints imposed under the Credit Agreement, based on the aggregate loan balance pledged by Business Investment, which varies as loans are added and repaid, regardless of whether such repayments are early prepayment or are made as contractually required.

The Credit Facility contains covenants that require Business Investment to maintain its status as a separate entity; prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions); and restrict material changes to the Company’s credit and collection policies. The facility also restricts some of the terms and provisions (including interest rates, terms to maturity and payments schedules) and limits the borrower and industry concentrations of loans that are eligible to secure advances. As of December 31, 2006, Business Investment was in compliance with all of the facility covenants. As of December 31, 2006 there was $20 million of borrowings outstanding on the Credit Facility and the remaining borrowing capacity under the Credit Facility was $80 million.

The administrative agent also requires that any interest or principal payments on pledged loans be remitted directly by the borrower into a lockbox account with the Bank of New York as custodian. Deutsche Bank is also the trustee of the account and once a month remits the collected funds to the Company. At December 31, 2006, the amount due from the custodian was $2,798,620.

The Adviser services the loans pledged under the Credit Facility. As a condition to this servicing arrangement, the Company executed a performance guaranty pursuant to which it guaranteed that the Adviser would comply fully with all of its obligations under the Credit Facility. The performance guaranty requires the Company to maintain a minimum net worth of $100 million and to maintain “asset coverage” with respect to “senior securities representing indebtedness” of at least 200%, in accordance with Section 18 of the 1940 Act. As of December 31, 2006, the Company was in compliance with the covenants under the performance guaranty.

NOTE 5. COMMON STOCK

As of December 31, 2006 and March 31, 2006, 100,000,000 shares of $0.001 par value common stock were authorized and 16,560,100 shares were outstanding.

NOTE 6. INCREASE IN NET ASSETS PER SHARE RESULTING FROM OPERATIONS

The following table sets forth the computation of basic and diluted net increase in net assets per share resulting from operations:

	For the three months ended December 31, 2006		For the three months ended December 31, 2005		For the nine months ended December 31, 2006		For the period June 22, 2005 (Commencement of Operations) to December 31, 2005

Numerator for basic and diluted net increase in net assets resulting from operations per share	$	2,684,543	$	1,614,747	$	6,809,635	$	3,111,279

Denominator for basic and diluted shares	16,560,100		16,560,100		16,560,100		16,560,100

Basic and diluted net increase in net assets per share resulting from operations	$	0.16	$	0.10	$	0.41	$	0.19

NOTE 7. DIVIDENDS

The Company is required to pay out as a dividend, 90% of its ordinary income and realized net short-term capital gains in excess of realized net short-term capital losses, if any, for each taxable year in order to maintain its status as a RIC under

Subtitle A, Chapter 1 of Subchapter M of the Code. It is the policy of the Company to pay out as a dividend up to 100% of those amounts. The amount to be paid out monthly as a dividend is determined by the Board of Directors each quarter and is based on the annual earnings estimated by the management of the Company. Based on that estimate, three monthly dividends are declared each quarter. At year-end the Company may pay a bonus dividend, in addition to the monthly dividends, to ensure that it has paid out at least 90% of its ordinary income and realized net short-term capital gains for the year. Long-term capital gains are composed of success fees, prepayment fees and gains from the sale of securities held from one year or more. The Company intends to retain long-term capital gains from the sale of securities, if any, and not pay them out as dividends, however, the Board of Directors may decide to declare and pay out capital gains during any fiscal year. If the Company decides to retain long-term capital gains, the portion of the retained capital gains will be subject to 35% tax. The Company currently pays a monthly dividend. The tax characteristics of all dividends will be reported to stockholders on Form 1099 at the end of each calendar year. The Company’s Board of Directors declared the following monthly dividends for the nine months ended December 31, 2006 and the period June 22, 2005 (commencement of operations) to December 31, 2005:

Fiscal Year 2007

Declaration Date	Record Date	Payment Date	Dividend per Share
October 10, 2006	December 20, 2006	December 29, 2006	$	0.07
October 10, 2006	November 21, 2006	November 30, 2006	$	0.07
October 10, 2006	October 23, 2006	October 31, 2006	$	0.07
July 11, 2006	September 21, 2006	September 29, 2006	$	0.07
July 11, 2006	August 21, 2006	August 31, 2006	$	0.07
July 11, 2006	July 19, 2006	July 31, 2006	$	0.07
April 11, 2006	June 22, 2006	June 30, 2006	$	0.07
April 11, 2006	May 22, 2006	May 31, 2006	$	0.07
April 11, 2006	April 20, 2006	April 28, 2006	$	0.07

Fiscal Year 2006

Declaration Date	Record Date	Payment Date	Dividend per Share
October 7, 2005	December 21, 2005	December 31, 2005	$	0.04
October 7, 2005	November 21, 2005	November 31, 2005	$	0.04
October 7, 2005	October 21, 2005	Octob

DELAWARE		83-0423116
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

PART I.		FINANCIAL INFORMATION

Item 1.		Financial Statements (Unaudited)

		Consolidated Statements of Assets and Liabilities as of December 31, 2006 and March 31, 2006
		Consolidated Schedule of Investments as of December 31, 2006
		Consolidated Schedule of Investments as of March 31, 2006
		Consolidated Statements of Operations for the three months ended December 31, 2006 and 2005
		Consolidatd Statements of Operations for the nine months ended December 31, 2006 and for the period June 22, 2005 (Commencement of Operations) to December 31, 2005
		Consolidated Statements of Changes in Net Assets for nine months ended December 31, 2006 and for the period June 22, 2005 (Commencement of Operations) to December 31, 2005
		Consolidated Statements of Cash Flows for the nine months ended December 31, 2006 and for the period June 22, 2005 (Commencement of Operations) to December 31, 2005
		Financial Highlights for the three months ended December 31, 2006 and 2005
		Financial Highlights for the nine months ended December 31, 2006 and for the period June 22, 2005 (Commencement of Operations) to December 31, 2005
		Notes to Consolidated Financial Statements

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
		Overview
		Results of Operations
		Liquidity and Capital Resources

Item 3.		Quantitative and Qualitative Disclosures About Market Risk

Item 4.		Controls and Procedures

PART II.		OTHER INFORMATION

Item 1.		Legal Proceedings

Item 1A.		Risk Factors

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.		Defaults Upon Senior Securities

Item 4.		Submission of Matters to a Vote of Security Holders

Item 5.		Other Information

Item 6.		Exhibits

SIGNATURES

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED DECEMBER 31, 2006

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934