##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 FOR THE QUARTER ENDED DECEMBER 31, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 COMMISSION FILE NUMBER: 000-51233
 GLADSTONE INVESTMENT CORPORATION
  DELAWARE
    
    83-0423116(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1521 WESTBRANCH DRIVE, SUITE 200
MCLEAN, VIRGINIA 22102
 (703) 287-5800
 þ o
  o o þ
 o þ
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GLADSTONE INVESTMENT CORPORATION
TABLE OF CONTENTS
 PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Statement of Assets and Liabilities as of December 31, 2005Schedule of Investments as of December 31, 2005Statement of Operations for the three months ended December 31, 2005 and the period
June 22, 2005* to December 31, 2005Statement of Changes in Net Assets for the period June 22, 2005* to December 31, 2005Statement of Cash Flows for the period June 22, 2005* to December 31, 2005Financial Highlights for the period June 22, 2005* to December 31, 2005Notes to Financial Statements* denotes the date operations commencedItem 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of OperationsOverviewResults of OperationsLiquidity and Capital ResourcesItem 3.
    
    Quantitative and Qualitative Disclosure About Market RiskItem 4.
    
    Controls and ProceduresPART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal ProceedingsItem 2.
    
    Unregistered Sales of Equity Securities and Use of ProceedsItem 3.
    
    Defaults Upon Senior SecuritiesItem 4.
    
    Submission of Matters to a Vote of Security HoldersItem 5.
    
    Other InformationItem 6.
    
    ExhibitsSIGNATURES




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GLADSTONE INVESTMENT CORPORATION
 STATEMENTS OF ASSETS AND LIABILITIES
(Unaudited)
 December 31,
    
    
    March 31,2005
    
    
    2005ASSETSCash
    
    $
    16,218,450
    
    
    $
    3,636Investments at fair value (Cost 12/31/2005: $60,823,059)
    
    
    60,711,006
    
    
    
    Cash equivalents
    
    
    153,128,873
    
    
    
    Interest receivable
    
    
    317,233
    
    
    
    Prepaid insurance
    
    
    172,485
    
    
    
    Prepaid directors fees
    
    
    42,000
    
    
    
    Deferred offering costs
    
    
    
    
    
    
    47,864Other assets
    
    
    366,341
    
    
    
    TOTAL ASSETS
    
    $
    230,956,388
    
    
    $
    51,500LIABILITIESAccounts payable
    
    $
    2,207
    
    
    $
    Administration fee payable to Gladstone Administration
    
    
    73,424
    
    
    
    Base management fee payable to Gladstone Management
    
    
    192,787
    
    
    
    Loan payable to affiliate
    
    
    
    
    
    
    50,000Accrued expenses
    
    
    311,670
    
    
    
    Total Liabilities
    
    
    580,088
    
    
    
    50,000NET ASSETS
    
    $
    230,376,300
    
    
    $
    1,500ANALYSIS OF NET ASSETS:Common stock, $0.001 par value, 100,000,000 shares
authorized and 16,560,100 and 100 shares issued and
outstanding, respectively
    
    $
    16,560
    
    
    $
    Capital in excess of par value
    
    
    230,229,279
    
    
    
    1,500Net unrealized depreciation of investment portfolio
    
    
    (112,053
    )
    
    
    Undistributed net investment income
    
    
    242,514
    
    
    
    Total Net Assets
    
    $
    230,376,300
    
    
    $
    1,500Net assets per share
    
    $
    13.91
    
    
    $
    15.00
 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART TO THESE FINANCIAL STATEMENTS.
 2




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##### 



GLADSTONE INVESTMENT CORPORATION
 SCHEDULE OF INVESTMENTS
December 31, 2005
(Unaudited)
 Company (1)
    
    Industry
    

Investment (2)
    
    Cost
    
    
    Fair ValueGraham Packaging Holdings Co.
Graham Packaging Company, L.P.
GPC Capital Corp. I
    
    Manufacturing-custom blow molded
plastic containers
    
    Senior Term Debt (3)
(6.5%, Due 10/2011)
    
    $
    10,103,058
    
    
    $
    10,049,246Kenan Advantage Group, Inc.
    
    Service-fuel delivery
    
    Senior Term Debt (3)
(7.5%, Due 12/2011)
    
    
    1,000,000
    
    
    
    1,000,000Latham Manufacturing Corp.
    
    Manufacturing-swimming pool
components accessories
    
    Senior Term Debt (3)
(7.8%, Due 12/2010)
    
    
    4,467,757
    
    
    
    4,455,882LVI Services, Inc.
    
    Service-asbestos and
mold remediation
    
    Senior Term Debt (3)
(7.3%, Due 11/2010)
    
    
    6,529,165
    
    
    
    6,556,875Madison River Capital LLC
    
    Service-communications and
information
    
    Senior Term Debt (3)
(6.6%, Due 7/2012)
    
    
    5,029,366
    
    
    
    5,075,000Maidenform, Inc.
    
    Intimate apparel
    
    Senior Term Debt (3)
(6.4%, Due 5/2010)
    
    
    3,211,996
    
    
    
    3,232,396MedAssets, Inc.
    
    Pharmaceuticals and healthcare GPO
    
    Senior Term Debt (3)
(7.3%, Due 7/2010)
    
    
    1,903,465
    
    
    
    1,909,500Ozburn-Hessey Holding Co. LLC
    
    Third party logistics provider
    
    Senior Term Debt (3)
(6.7%, Due 8/2012)
    
    
    3,412,622
    
    
    
    3,407,670Revere Industries, LLC
    
    Manufacturing-plastic and
metal components
    
    Senior Term Debt (3)
(7.4%, Due 9/2010)
    
    
    2,505,000
    
    
    
    2,525,000SunGard Data Systems, Inc.
Solar Capital Corp.
SunGard Holdco LLC
    
    Integrated software and processing
solutions
    
    Senior Term Debt (3)
(6.8%, Due 2/2013)
    
    
    10,062,515
    
    
    
    10,024,625US Investigative Services, Inc.
    
    Service-background investigations
    
    Senior Term Debt (3)
(6.6%, Due 10/2012)
    
    
    7,059,982
    
    
    
    6,947,587Wastequip,
Inc.

WQP Acquisition, Inc.
    
    Manufacturing-waste removal
equipment
    
    Senior Term Debt (3)
(7.0%, Due 7/2011)
    
    
    5,538,133
    
    
    
    5,527,225Total investments:
    
    
    
    
    
    
    60,823,059
    
    
    
    60,711,006Cash equivalentsGovernment
    
    US Treasury Bill   
(3.70%, 1/26/2006)
    
    
    45,497,273
    
    
    
    45,497,273Government
    
    US Treasury Bill  
(3.74%, 2/9/2006)
    
    
    15,230,574
    
    
    
    15,230,574Government
    
    US Treasury
Bill    
(3.82%, 2/23/2006)
    
    
    40,121,876
    
    
    
    40,121,876Government
    
    US Treasury
Bill    
(3.75%, 3/16/2006)
    
    
    34,790,447
    
    
    
    34,790,447Government
    
    US Treasury Bill   
(3.79%, 3/30/2006)
    
    
    17,488,703
    
    
    
    17,488,703Total cash equivalents:
    
    
    
    
    
    
    153,128,873
    
    
    
    153,128,873Total investments and cash equivalents:
    
    
    
    $
    213,951,932
    
    
    $
    213,839,879
 
 (1)
    
    We do not Control, and are not an Affiliate of, any of our portfolio companies, each
as defined in the Investment Company Act of 1940, as amended (the 1940 Act). In general, under
the 1940 Act, we would Control a portfolio company if we owned 25% or more of its voting
securities and would be an Affiliate of a portfolio company if we owned 5% or more of its voting
securities.(2)
    
    Percentage represents interest rates in effect at December 31, 2005 and due date represents
the contractual maturity date.(3)
    
    Marketable securities are valued based on the indicative bid price, as of December 31, 2005,
from the respective originating syndication agents trading desk. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART TO THESE FINANCIAL STATEMENTS.
 3




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##### 



GLADSTONE INVESTMENT CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
 For the periodJune 22, 2005For the three
    
    
    (Commencement ofmonths ended
    
    
    Operations) toDecember 31, 2005
    
    
    December 31, 2005INVESTMENT INCOMEInterest income  investments
    
    $
    790,879
    
    
    $
    984,457Interest income  cash and cash equivalents
    
    
    1,530,809
    
    
    
    3,192,019Total investment income
    
    
    2,321,688
    
    
    
    4,176,476EXPENSESAdministration fee to Gladstone Administration
    
    
    73,424
    
    
    
    178,469Base management fee to Gladstone Management
    
    
    265,522
    
    
    
    357,630Directors fees
    
    
    51,000
    
    
    
    103,000Insurance expense
    
    
    69,552
    
    
    
    112,030Organizational costs
    
    
    
    
    
    
    7,002Professional fees
    
    
    69,570
    
    
    
    135,872Stockholder related costs
    
    
    24,363
    
    
    
    67,901Interest expense
    
    
    
    
    
    
    378General and administrative expenses
    
    
    15,687
    
    
    
    28,918Total expenses
    
    
    569,118
    
    
    
    991,200NET INVESTMENT INCOME
    
    
    1,752,570
    
    
    
    3,185,276REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTSRealized gain on sale of investment
    
    
    38,056
    
    
    
    38,056Net unrealized depreciation of investment portfolio
    
    
    (175,879
    )
    
    
    (112,053
    )Net loss on investments
    
    
    (137,823
    )
    
    
    (73,997
    )NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS (Refer to
Note 5)
    
    $
    1,614,747
    
    
    $
    3,111,279NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE:Basic and Diluted
    
    $
    0.10
    
    
    $
    0.19SHARES OF COMMON STOCK OUTSTANDING:Basic and diluted weighted average shares
    
    
    16,560,100
    
    
    
    16,312,600
 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART TO THESE FINANCIAL STATEMENTS.
 4




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GLADSTONE INVESTMENT CORPORATION
STATEMENT OF CHANGES IN NET ASSETS
For the Period June 22, 2005 (Commencement of Operations) to December 31, 2005
(UNAUDITED)
 Operations:Net investment income
    
    $
    3,185,276Realized gain on sale of investment
    
    
    38,056Unrealized depreciation of portfolio
    
    
    (112,053
    )Increase in net assets from operations
    
    
    3,111,279Capital transactions:Issuance of common stock
    
    
    230,244,339Dividends from net investment income
    
    
    (2,980,818
    )Total increase
    
    
    230,374,800Net AssetsCommencement of operations
    
    
    1,500End of period
    
    $
    230,376,300
 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART TO THESE FINANCIAL STATEMENTS.
 5




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GLADSTONE INVESTMENT CORPORATION
STATEMENT OF CASH FLOWS
For the Period June 22, 2005 (Commencement of Operations) to December 31, 2005
 (UNAUDITED)
 CASH FLOWS FROM OPERATING ACTIVITIESNet increase in net assets resulting from operations
    
    $
    3,111,279Adjustments to reconcile net increase in net assets
resulting from operations to net cash used in operating activities:Purchase of investments
    
    
    (64,221,339
    )Principal repayments of investments
    
    
    3,376,483Net unrealized depreciation of investment portfolio
    
    
    112,053Net amortization of premiums
    
    
    21,797Increase in interest receivable
    
    
    (317,233
    )Increase in prepaid assets
    
    
    (214,485
    )Increase in other assets
    
    
    (108,604
    )Increase in accounts payable
    
    
    2,207Increase in administration fee payable to Gladstone Administration
    
    
    73,424Increase in base management fee payable to Gladstone Management
    
    
    192,787Increase in accrued expenses
    
    
    53,933Net cash used in operating activities
    
    
    (57,917,698
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net proceeds from the issuance of common stock
    
    
    230,292,203Distributions paid
    
    
    (2,980,818
    )Decrease in loan payable to affiliate
    
    
    (50,000
    )Net cash provided by financing activities
    
    
    227,261,385NET INCREASE IN CASH AND CASH EQUIVALENTS (1)
    
    
    169,343,687CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    3,636CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    169,347,323CASH 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 TO THESE FINANCIAL STATEMENTS.
 6




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GLADSTONE INVESTMENT CORPORATION
FINANCIAL HIGHLIGHTS
(UNAUDITED)
 For the periodJune 22, 2005For the three
    
    
    (Commencement ofmonths ended
    
    
    Operations) toDecember 31, 2005
    
    
    December 31, 2005Per Share Data (1)Balance at beginning of period
    
    $
    13.93
    
    
    $
    Net proceeds from initial public offering (2)
    
    
    
    
    
    
    13.95Offering costs
    
    
    
    
    
    
    (0.05
    )Income from investment operations:Net
investment income(3)
    
    
    0.11
    
    
    
    0.20Realized
gain on sale of investments(3)
    
    
    0.00
    
    
    
    0.00Net
unrealized depreciation of investments(3)
    
    
    (0.01
    )
    
    
    (0.01
    )Total from investment operations
    
    
    0.10
    
    
    
    0.19Distributions
    
    
    (0.12
    )
    
    
    (0.18
    )Net asset value at end of period
    
    $
    13.91
    
    
    $
    13.91Per share market value at beginning of period
    
    $
    15.05
    
    
    $
    15.00Per share market value at end of period
    
    
    13.59
    
    
    
    13.59Total Return
(4) (5)
    
    
    -6.63
    %
    
    
    -8.25
    %Shares outstanding at end of period
    
    
    16,560,100
    
    
    
    16,560,100Ratios/Supplemental DataNet assets at end of period
    
    $
    230,376,300
    
    
    $
    230,376,300Average net
assets (6)
    
    $
    229,896,936
    
    
    $
    225,793,817Ratio of expenses to average net assets-annualized
    
    
    0.99
    %
    
    
    0.75
    %Ratio of net investment income to average net assets-annualized
    
    
    3.05
    %
    
    
    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)
    
    Amounts are not annualized.(6)
    
    Average net assets calculated from October 1, 2005 and
June 22, 2005 (commencement of operations), respectively, to December 31,
2005. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART TO THESE FINANCIAL STATEMENTS.
 7




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GLADSTONE INVESTMENT CORPORATION
 NOTES TO FINANCIAL STATEMENTS
 December 31, 2005
 (UNAUDITED)
        Interim Financial Statements
  Use of Estimates
  Investment Valuation
  8




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Interest Income Recognition
  Cash and Cash Equivalents
  Organizational Costs
  Income Taxes
   Investment Advisory and Management Agreement
    9




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§
    
    no incentive fee in any calendar quarter in which pre-incentive fee net investment
income does not exceed the 1.75% hurdle rate (7% annualized);§
    
    100% of pre-incentive fee net investment income with respect to that portion of such
pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less
than 125% of the hurdle rate (2.1875%) in any calendar quarter (8.75% annualized). This
portion of the income-based incentive fee is referred to as the catch-up. The catch-up
provision is intended to provide Gladstone Management with an incentive fee of 20% on all
of pre-incentive fee net investment income up to 125% of the quarterly hurdle rate once the
hurdle rate has been surpassed; and§
    
    20% of the amount of pre-incentive fee net investment income, if any, that exceeds 125%
of the quarterly hurdle rate (2.1875%) in any calendar quarter (8.75% annualized).
     10




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Administration Agreement
   License Agreement
  Loan Payable to Affiliate
     Common StockShares
    
    
    AmountBeginning balance, March 31, 2005
    
    
    100
    
    
    $
    1,500Issuance of common shares in
public offering (net of offering
costs of $767,661)
    
    
    16,560,000
    
    
    
    230,244,339Ending balance, December 31, 2005
    
    
    16,560,100
    
    
    $
    230,245,839
 11




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For the periodJune 22, 2005For the three
    
    
    (Commencement ofmonths ended
    
    
    Operations) toDecember 31, 2005
    
    
    December 31, 2005Numerator for basic and diluted net increase in
net assets resulting from operations per share
    
    $
    1,614,747
    
    
    $
    3,111,277Denominator for basic and diluted shares
    
    
    16,560,100
    
    
    
    16,312,600Basic and diluted net increase in net assets
per share resulting from operations
    
    $
    0.10
    
    
    $
    0.19
   Declaration Date
    
    Record Date
    
    Payment Date
    
    Dividend per ShareOctober 7, 2005
    
    Dec. 21, 2005
    
    Dec. 31, 2005
    
    $0.04October 7, 2005
    
    Nov. 21, 2005
    
    Nov. 30, 2005
    
    $0.04October 7, 2005
    
    Oct. 21, 2005
    
    Oct. 30, 2005
    
    $0.04July 7, 2005
    
    Sept. 22, 2005
    
    Sept. 30, 2005
    
    $0.02July 7, 2005
    
    Aug. 23, 2005
    
    Aug. 31, 2005
    
    $0.02July 7, 2005
    
    July 21, 2005
    
    July 29, 2005
    
    $0.02
   Payment Due by PeriodMore thanContractual Obligations
    
    Total
    
    
    Less than 1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsInvestments
    
    
    16,500,000
    
    
    
    16,500,000Total
    
    $
    16,500,000
    
    
    $
    16,500,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
  12




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Investment in Rocky Mountain Bus Company, LLC
    Loan Participations
  Dividends
  Declaration Date
    
    Record Date
    
    Payment Date
    
    Dividend per ShareJanuary 10, 2006
    
    Jan. 17, 2006
    
    Jan. 31, 2006
    
    $0.07January 10, 2006
    
    Feb. 16, 2006
    
    Feb. 28, 2006
    
    $0.07January 10, 2006
    
    Mar. 23, 2006
    
    Mar. 31, 2006
    
    $0.07
 13




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 All statements contained herein, other than historical facts, may constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements may relate to,
among other things, future events or our future performance or financial condition. In some cases,
you can identify forward-looking statements by terminology such as may, might, believe,
will, provided, anticipate, future, could, growth, plan, intend, expect,
should, would, if, seek, possible, potential, likely or the negative of such terms or
comparable terminology. These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of activity, performance
or achievements to be materially different from any future results, levels of activity, performance
or achievements expressed or implied by such forward-looking statements. Such factors include,
among others: (1) our future operating results as we are a company with a limited operating
history; (2) the loss of one or more of our executive officers, in particular, David Gladstone,
Terry Lee Brubaker, or George Stelljes, III; (3) the impact of the investments that we make and the
ability of these investments to achieve their objectives; (4) our contractual relationships with
third parties; (5) the adequacy of our cash resources and working capital; (6) our ability to
obtain future financing, if at all; and (7) those factors listed under the caption Risk Factors
of the Companys prospectus dated June 22, 2005, as filed with the Securities and Exchange
Commission on June 23, 2005. We caution readers not to place undue reliance on any such
forward-looking statements, which are made pursuant to the Private Securities Litigation Reform Act
of 1995 and, as such, speak only as of the date made. We undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of new information, future events or
otherwise, after the date of this Form 10-Q
 The following analysis of our financial condition and results of operations should be read in
conjunction with our financial statements and the notes thereto contained elsewhere in this report.
 OVERVIEW
    14




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##### 




    
    determines the composition of our portfolio, the nature and
timing of the changes to our portfolio, and the manner of
implementing such changes;
    
    identifies, evaluates, and negotiates the structure of the
investments we make (including performing due diligence on
our prospective portfolio companies);
    
    closes and monitors the investments we make; and
    
    makes available on our behalf, and provides if requested,
managerial assistance to our portfolio companies.
  Investment Advisory and Management Agreement
    15




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##### 



§
    
    no incentive fee in any calendar quarter in which pre-incentive fee net investment
income does not exceed the hurdle rate (1.75%) (7% annualized);§
    
    100% of pre-incentive fee net investment income with respect to that portion of such
pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less
than 125% of the hurdle rate (2.1875%) in any calendar quarter (8.75% annualized). This
portion of the income-based incentive fee is referred to as the catch-up. The catch-up
provision is intended to provide Gladstone Management with an incentive fee of 20% on all
of pre-incentive fee net investment income up to 125% of the quarterly hurdle rate once the
hurdle rate has been surpassed; and§
    
    20% of the amount of pre-incentive fee net investment income, if any, that exceeds 125%
of the quarterly hurdle rate (2.1875%) in any calendar quarter (8.75% annualized).
     Managerial Assistance
  16




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##### 



Administration Agreement
   License Agreement
  Critical Accounting Policies
  Investment Valuation
  General Valuation Policy
  17




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##### 



Credit Information:
 Loan Grading and Risk Rating:
  18




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##### 



Companys
    
    First
    
    SecondSystem
    
    NRSRO
    
    NRSRO
    
    Gladstone Capitals Description(a)>10
    
    Baa2
    
    BBB
    
    Probability of Default (PD during the next ten years is 4% and the
Expected Loss (EL) is 1% or less10
    
    Baa3
    
    BBB-
    
    PD is 5% and the EL is 1% to 2%9
    
    Ba1
    
    BB+
    
    PD is 10% and the EL is 2% to 3%8
    
    Ba2
    
    BB
    
    PD is 16% and the EL is 3% to 4%7
    
    Ba3
    
    BB-
    
    PD is 17.8% and the EL is 4% to 5%6
    
    B1
    
    B+
    
    PD is 22.0% and the EL is 5% to 6.5%5
    
    B2
    
    B
    
    PD is 25% and the EL is 6.5% to 8%4
    
    B3
    
    B-
    
    PD is 27% and the EL is 8% to 10%3
    
    Caa1
    
    CCC+
    
    PD is 30% and the EL is 10.0% to 13.3%2
    
    Caa2
    
    CCC
    
    PD is 35% and the EL is 13.3% to 16.7%1
    
    Caa3
    
    CC
    
    PD is 65% and the EL is 16.7% to 20%0
    
    N/a
    
    D
    
    PD is 85% or there is a Payment Default: and the EL is greater than 20%
 
 (a)
    
    the default rates set forth herein are for a ten year term debt, if a debt securitys term is
less than ten years then the probability of default is adjusted to a lower percentage for the
shorter period which may move the security higher on our risk rating scale.  Rating
    
    Dec. 31, 2005Average
    
    
    7.3Weighted Average
    
    
    7.3Highest
    
    
    9.0Lowest
    
    
    6.0
  Valuation Methods:
  
    
    financial standing of the issuer of the security;
    
    comparison of the business and financial plan of the issuer with actual results;
    
    the cost of the security;
    
    the size of the security held as it relates to the liquidity of the market for such securities;
    
    contractual restrictions on the disposition of the security;
    
    pending public offering of the issuer of the security;
    
    pending reorganization activity affecting the issuer such as mergers or debt restructuring;
    
    reported prices of similar securities of the issuer or comparable issuers;
    
    ability of the issuer to obtain needed financing;
    
    changes in the economy affecting the issuer;
    
    recent purchases or sale of a security of the issuer;
    
    pricing by other buyers or sellers of similar securities;
    
    financial statements of the borrower;
    
    reports from portfolio company senior management and ownership;
    
    the type of security;
    
    cost at date of purchase;
 19




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##### 




    
    size of holding;
    
    discount from market value of unrestricted securities of the same class at the time of purchase;
    
    special reports prepared by analysts;
    
    information as to any transactions or offers with respect to the security;
    
    existence of merger proposals or tender offers affecting the securities;
    
    the collateral;
    
    the issuers ability to make payments;
    
    the current and forecasted earnings of the issuer;
    
    sales to third parties of similar securities;
    
    statistical ratios compared to lending standards;
    
    statistical ratios compared to other similar securities; and
    
    other pertinent factors.
   Tax Status
 Federal Income Taxes
  Revenue Recognition
 Interest Income Recognition
  RESULTS OF OPERATIONS
 For the three months ended December 31, 2005
 Investment Income
   20




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##### 



Operating Expenses
         Realized and Unrealized Gain (Loss) on Investments
  Net Increase in Net Assets from Operations
  For the period June 22, 2005 (commencement of operations) to December 31, 2005
 Investment Income
   Operating Expenses
   21




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##### 



Realized and Unrealized Gain (Loss) on Investments
  Net Increase in Net Assets from Operations
    22




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##### 



LIQUIDITY AND CAPITAL RESOURCES
   Quarter Ended
    
    New Investments
    
    Principal Repayments
    
    Gain on DisposalJune 30, 2005
    
    $
    
    
    
    $
    
    
    
    $
    September 30, 2005
    
    
    40,844,381
    
    
    
    333,363
    
    
    
    December 31, 2005
    
    
    23,376,958
    
    
    
    3,043,120
    
    
    
    38,056Total
    
    $
    64,221,339
    
    
    $
    3,376,483
    
    
    $
    38,056
  Fiscal Year Ended March 31,
    
    Amount2006
    
    $
    178,9272007
    
    
    790,7082008
    
    
    890,7082009
    
    
    932,2462010
    
    
    3,324,816Thereafter
    
    
    54,705,654Total
    
    $
    60,823,059
    Declaration Date
    
    Record Date
    
    Payment Date
    
    Dividend per ShareJanuary 10, 2005
    
    Mar. 17, 2006
    
    Mar. 31, 2006
    
    $
    0.07January 10, 2005
    
    Feb. 16, 2006
    
    Feb. 28, 2006
    
    $
    0.07January 10, 2005
    
    Jan. 23, 2006
    
    Jan. 31, 2006
    
    $
    0.07October 7, 2005
    
    Dec. 21, 2005
    
    Dec. 31, 2005
    
    $
    0.04October 7, 2005
    
    Nov. 21, 2005
    
    Nov. 30, 2005
    
    $
    0.04October 7, 2005
    
    Oct. 21, 2005
    
    Oct. 30, 2005
    
    $
    0.04July 7, 2005
    
    Sept. 22, 2005
    
    Sept. 30, 2005
    
    $
    0.02July 7, 2005
    
    Aug. 23, 2005
    
    Aug. 31, 2005
    
    $
    0.02July 7, 2005
    
    July 21, 2005
    
    July 29, 2005
    
    $
    0.02
 23




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##### 



Contractual Obligations and Off-Balance Sheet Arrangements
  Payment Due by PeriodMore thanContractual Obligations
    
    Total
    
    
    Less than 1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsInvestments
    
    
    16,500,000
    
    
    
    16,500,000Total
    
    $
    16,500,000
    
    
    $
    16,500,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
   24




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##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
      ITEM 4. CONTROLS AND PROCEDURES.
   25




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##### 



PART IIOTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS.
  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
  26




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##### 



SIGNATURE
  GLADSTONE INVESTMENT CORPORATIONBy:
    
    /s/ HARRY BRILLHarry BrillChief Financial Officer and TreasurerDate: February 8, 2006
 27




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##### 



EXHIBIT INDEX
 Exhibit
    
    Description3.1
    
    Articles of Amendment and Restatement of the Articles of Incorporation, incorporated by reference
to Exhibit a.2 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File
No. 333-123699), filed March 31, 2005.3.2
    
    By-laws, incorporated by reference to Exhibit b to the Registration Statement on Form N-2 (File
No. 333-123699), filed March 31, 2005.11
    
    Computation of Per Share Earnings (included in the notes to the unaudited financial statements
contained in this report).31.1
    
    Certification of Chief Executive Officer pursuant to section 302 of The Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to section 302 of The Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.
  28