##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended March 31, 2011
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number 814-00704
 
 GLADSTONE INVESTMENT CORPORATION
  Delaware
    
    83-0423116(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)1521 Westbranch Drive, Suite 200McLean, Virginia
    
    22102(Address of principal executive offices)
    
    (Zip Code)
 (703) 287-5800
  Common Stock, $0.001 par value per share
    
    NASDAQ Global Select Market(Title of each class)
    
    (Name of exchange on which registered)
 None
 o þ
 o þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Documents Incorporated by Reference.




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GLADSTONE INVESTMENT CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED
MARCH 31, 2011
 TABLE OF CONTENTS
 PART I      ITEM 1 Business
    
    
    3ITEM 1A Risk Factors
    
    
    17ITEM 1B Unresolved Staff Comments
    
    
    30ITEM 2 Properties
    
    
    30ITEM 3 Legal Proceedings
    
    
    30PART II      ITEM 5 Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    31ITEM 6 Selected Financial Data
    
    
    31ITEM 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    33ITEM 7A Quantitative and Qualitative Disclosures About Market Risk
    
    
    59ITEM 8 Financial Statements and Supplementary Data
    
    
    61ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    91ITEM 9A Controls and Procedures
    
    
    91ITEM 9B Other Information
    
    
    91PART III      ITEM 10 Directors, Executive Officers and Corporate Governance
    
    
    91ITEM 11 Executive Compensation
    
    
    91ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    91ITEM 13 Certain Relationships and Related Transactions and Director Independence
    
    
    91ITEM 14 Principal Accountant Fees and Services
    
    
    91PART IV      ITEM 15 Exhibits and Financial Statement Schedules
    
    
    92SIGNATURES
    
    
    93EX-21EX-31.1EX-31.2EX-32.1EX-32.2
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FORWARD-LOOKING STATEMENTS
 All statements contained herein, other than historical facts, may constitute forward-looking
statements. 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) further adverse changes in the economy and the
capital markets; (2) risks associated with negotiation and consummation of pending and future
transactions; (3) the loss of one or more of our executive officers, in particular David Gladstone,
Terry Lee Brubaker, George Stelljes III or David Dullum; (4) changes in our business strategy; (5)
availability, terms and deployment of capital; (6) changes in our industry, interest rates,
exchange rates or the general economy; (7) the degree and nature of our competition; and (8) those
factors described in the Risk Factors section of this Form 10-K. We caution readers not to place
undue reliance on any such forward-looking statement. 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-K.
 PART I
 In this Annual Report on Form 10-K, or Annual Report, the Company, we, us, and our refer to
Gladstone Investment Corporation and its wholly-owned subsidiaries unless the context otherwise
indicates. Dollar amounts are in thousands unless otherwise indicated.
 
 ITEM 1.
    
    BUSINESS
 Overview
     
    
    Subordinated Debt and Mezzanine Debt.We anticipate that, over time, much of
the capital that we invest will be in the form of subordinated or mezzanine debt. Most of
our mezzanine and subordinated loans are collateralized by a subordinated lien on some or
all of the assets of the borrower. We structure most of our mezzanine and subordinated
loans with variable interest rates, but some are fixed rate loans. In either event, we
structure the loans at rates of interest that provide us with significant current interest
income and generally have interest rate floors to protect against declining interest rates.
Our subordinated and mezzanine loans typically have maturities of five to seven years and
provide for interest-only payments in the early years, with amortization of principal
deferred to the later years of the mezzanine loans. In some cases, we may enter into loans
that, by their terms, convert into equity or additional debt securities or defer payments
of interest for the first few years after our investment.
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Our subordinated and mezzanine debt investments may include equity features, such as warrants
or options to buy a significant common stock ownership interest in the portfolio company, or
success fees if the business is sold. If a portfolio company appreciates in value, we may
achieve additional investment returns from any equity interests we hold. If we are a minority
interest holder, we may structure the warrants to provide provisions protecting our rights as
a minority-interest holder, such as the right to sell the warrants back to the company upon
the occurrence of specified events. In many cases, we also obtain registration rights in
connection with these equity interests, which may include demand and co-registration rights.
    
    Preferred Stock, Warrants to Purchase Common Stock and Common Stock.We also
acquire preferred stock, warrants to purchase common stock or common stock, or a
combination of the three, in connection with a buyout or recapitalization. These
investments are generally in combination with an investment in one of our debt products.
With respect to preferred stock, warrants to purchase common stock or common stock
investments, we target an investment return substantially higher than our investments in
loans. However, we can offer no assurance that we can achieve such a return with respect
to any investment or our portfolio as a whole. The features of the preferred stock we
receive vary by transaction but may include priority distribution rights, superior voting
rights, redemption rights, liquidation preferences and other provisions intended to protect
our interests. Generally speaking, warrants to purchase common stock and common stock do
not have any current income and its value is realized, if at all, upon the sale of the
business or following the companys initial public offering.
    
    Senior Secured Debt.We may provide senior secured acquisition financing for
some portfolio companies. We typically structure these senior secured loans to have terms
of three to five years, and they may provide for limited principal payments in the first
few years of the term of the loan. We generally obtain security interests in the assets of
our portfolio companies that will serve as collateral in support of the repayment of these
senior loans. This collateral usually takes the form of first priority liens on the assets
of the portfolio company. The interest rates on our senior secured loans are generally
variable rates based on the London Interbank Offered Rate (LIBOR).
 Investment Concentrations
  March 31, 2011
    
    
    March 31, 2010Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueSenior term debt
    
    $
    64,566
    
    
    $
    58,627
    
    
    $
    102,446
    
    
    $
    94,359Senior subordinated term debt
    
    
    74,602
    
    
    
    62,806
    
    
    
    79,799
    
    
    
    71,112Preferred equity
    
    
    52,922
    
    
    
    25,398
    
    
    
    40,728
    
    
    
    20,425Common equity/Equivalents
    
    
    5,102
    
    
    
    6,454
    
    
    
    4,594
    
    
    
    20,962Total Investments
    
    $
    197,192
    
    
    $
    153,285
    
    
    $
    227,567
    
    
    $
    206,858
  March 31, 2011
    
    
    March 31, 2010Percentage of
    
    
    
    
    
    
    Percentage of TotalFair Value
    
    
    Total Investments
    
    
    Fair Value
    
    
    InvestmentsContainers, packaging and glass
    
    $
    29,029
    
    
    
    19.0
    %
    
    $
    18,731
    
    
    
    9.1
    %Electronics
    
    
    25,012
    
    
    
    16.3
    
    
    
    
    
    
    
    Chemicals, plastics and rubber
    
    
    19,906
    
    
    
    13.0
    
    
    
    13,585
    
    
    
    6.6Cargo transport
    
    
    13,183
    
    
    
    8.6
    
    
    
    9,394
    
    
    
    4.5Diversified/Conglomerate manufacturing
    
    
    12,746
    
    
    
    8.3
    
    
    
    43,054
    
    
    
    20.8Machinery
    
    
    10,431
    
    
    
    6.8
    
    
    
    60,692
    
    
    
    29.3Buildings and real estate
    
    
    10,120
    
    
    
    6.6
    
    
    
    10,220
    
    
    
    4.9Home and office furnishings/Consumer products
    
    
    8,627
    
    
    
    5.6
    
    
    
    9,374
    
    
    
    4.5Automobile
    
    
    7,560
    
    
    
    4.9
    
    
    
    9,040
    
    
    
    4.4Aerospace and defense
    
    
    6,659
    
    
    
    4.4
    
    
    
    17,099
    
    
    
    8.3Oil and gas
    
    
    4,931
    
    
    
    3.2
    
    
    
    4,943
    
    
    
    2.4Printing and publishing
    
    
    3,073
    
    
    
    2.0
    
    
    
    2,895
    
    
    
    1.4Telecommunications
    
    
    1,499
    
    
    
    1.0
    
    
    
    7,831
    
    
    
    3.8Diversified/Conglomerate service
    
    
    509
    
    
    
    0.3
    
    
    
    
    
    
    
    Total Investments
    
    $
    153,285
    
    
    
    100.0
    %
    
    $
    206,858
    
    
    
    100.0
    %
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March 31, 2011
    
    
    March 31, 2010Percentage of
    
    
    
    
    
    
    Percentage ofFair Value
    
    
    Total Investments
    
    
    Fair Value
    
    
    Total InvestmentsSouth
    
    $
    92,172
    
    
    
    60.1
    %
    
    $
    60,363
    
    
    
    29.2
    %Northeast
    
    
    38,126
    
    
    
    24.9
    
    
    
    81,276
    
    
    
    39.3West
    
    
    12,746
    
    
    
    8.3
    
    
    
    16,124
    
    
    
    7.8Midwest
    
    
    10,241
    
    
    
    6.7
    
    
    
    49,095
    
    
    
    23.7Total Investments
    
    $
    153,285
    
    
    
    100.0
    %
    
    $
    206,858
    
    
    
    100.0
    %
  Our Investment Adviser and Administrator
    Investment Process
 Overview of Investment and Approval Process
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Prospective Portfolio Company Characteristics
  §
    
    Value-and-Income Orientation and Positive Cash Flow.Our investment
philosophy places a premium on fundamental analysis from an investors perspective and
has a distinct value-and-income orientation. In seeking value, we focus on companies in
which we can invest at relatively low multiples of earnings before interest, taxes,
depreciation and amortization (EBITDA) and that have positive operating cash flow at
the time of investment. In seeking income, we seek to invest in companies that generate
relatively high and stable cash flow to provide some assurance that they will be able to
service their debt and pay any required distributions on preferred stock. Typically, we
do not expect to invest in start-up companies or companies with speculative business
plans.§
    
    Experienced Management.We generally require that our portfolio companies
have experienced management teams. We also require the portfolio companies to have in
place proper incentives to induce management to succeed and to act in concert with our
interests as investors, including having significant equity or other interests in the
financial performance of their companies.§
    
    Strong Competitive Position in an Industry.We seek to invest in target
companies that have developed strong market positions within their respective markets
and that we believe are well-positioned to capitalize on growth opportunities. We seek
companies that demonstrate significant competitive advantages versus their competitors,
which we believe will help to protect their market positions and profitability.§
    
    Exit Strategy.We seek to invest in companies that we believe will provide
a stable stream of cash flow that is sufficient to repay the loans we make to them while
reinvesting for the growth of their respective businesses. We target such internally
generated cash flow to allow our portfolio companies to pay interest on, and repay the
principal of, our investments. This is a major factor in our investment thesis and
evaluation of risk. In addition, we also seek to invest in companies whose business
models and expected future cash flows offer attractive possibilities for capital
appreciation on any equity interests we may obtain or retain. These capital appreciation
possibilities include strategic acquisitions by other industry participants or financial
buyers, initial public offerings of common stock, or other capital market transactions.§
    
    Liquidation Value of Assets.The prospective liquidation value of the
assets, if any, collateralizing loans in which we invest is an important factor in our
investment analysis. We emphasize both tangible assets, such as accounts receivable,
inventory, equipment, and real estate, and intangible assets, such as intellectual
property, customer lists, networks, and databases, although the relative weight we place
on these asset classes will vary by company and industry.
 Extensive Due Diligence
  §
    
    a review of the prospective portfolio companys historical and projected
financial information;§
    
    visits to the prospective portfolio companys business site(s);§
    
    interviews with the prospective portfolio companys management, employees,
customers and vendors;§
    
    review of all loan documents;§
    
    background checks on the prospective portfolio companys management team;
and§
    
    research on the prospective portfolio companys products, services or
particular industry and its competitive position.
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Investment Structure
  §
    
    making investments with an expected total return (including both interest
and potential equity appreciation) that we believe compensates us for the credit risk of
the investment;§
    
    seeking collateral or superior positions in the portfolio companys capital
structure where possible;§
    
    incorporating put rights and call protection into the investment structure
where possible; and§
    
    negotiating covenants in connection with our investments that afford our
portfolio companies as much flexibility as possible in managing their businesses,
consistent with the need for the preservation of our capital.
  Temporary Investments
  Hedging Strategies
    Competitive Advantages
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Management expertise
  Increased access to investment opportunities developed through proprietary research capability and
an extensive network of contacts
  Disciplined, value-and-income-oriented investment philosophy with a focus on preservation of
capital
  §
    
    focusing on companies with good market positions, established management
teams and good cash flow;§
    
    investing in businesses with experienced management teams;§
    
    engaging in extensive due diligence from the perspective of a long-term
investor;§
    
    investing at low price-to-cash flow multiples; and§
    
    adopting flexible transaction structures by drawing on the experience of
the investment professionals of our Adviser and its affiliates.
 Longer investment horizon with attractive publicly traded model
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Flexible transaction structuring
  Leverage
  Ongoing Management of Investments and Portfolio Company Relationships
  Monitoring
  §
    
    Monthly analysis of financial and operating performance;§
    
    Assessment of the portfolio companys performance against its business plan
and our investment expectations;§
    
    Assessment of the investments risks;§
    
    Participation in portfolio company board of directors or management
meetings;§
    
    Assessment of portfolio company management, sponsor, governance and
strategic direction;§
    
    Assessment of the portfolio companys industry and competitive environment;
and§
    
    Review and assessment of the portfolio companys operating outlook and
financial projections.
 Relationship Management
  §
    
    Management;§
    
    Boards of directors;
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§
    
    Financial sponsors;§
    
    Capital partners; and§
    
    Advisers and consultants.
 Managerial Assistance and Services
  Valuation Process
  §
    
    Our quarterly valuation process begins with each portfolio company or
investment being initially assessed by our Advisers investment professionals
responsible for the investment, using the Policy.§
    
    Preliminary valuation conclusions are then discussed with our management,
and documented, along with any independent opinions of value provided by Standard &
Poors Securities Evaluations, Inc. (SPSE), for review by our Board of Directors.§
    
    Our Board of Directors reviews this documentation and discusses the
information provided by our management, and the opinions of value provided by SPSE to
arrive at a determination that the Policy has been followed for determining the
aggregate fair value of our portfolio of investments.
  Investment Advisory and Management Agreement
  Base Management Fee
  
    
    Loan Servicing FeesOur Adviser also services the loans held by our wholly owned subsidiary, Gladstone
Business Investment, LLC (Business Investment), in return for which our Adviser
receives a 2.0% annual fee based on the monthly aggregate outstanding balance of loans
pledged under our Credit Facility. Since we own these loans, all loan servicing fees
paid to our Adviser are treated as reductions directly against the 2.0% base
management fee under the Advisory Agreement.
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
    
    Senior Syndicated Loan Fee WaiverOur Board of Directors accepted an unconditional and irrevocable 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, for the years ended March 31,
2011 and 2010.
    
    Portfolio Company FeesUnder the Advisory Agreement, our Adviser has also provided and continues to provide
managerial assistance and other services to our portfolio companies and may receive
fees for services other than managerial assistance. 50% of certain of these fees and
100% of others are credited against the base management fee that we would otherwise be
required to pay to our Adviser.
 Incentive Fee
  
    
    no incentive fee in any calendar quarter in which its pre-incentive fee
net investment income does not exceed the hurdle rate (7.0% annualized);
    
    100% of our 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 2.1875% in any calendar quarter (8.75% annualized);
and
    
    20% of the amount of our pre-incentive fee net investment income, if
any, that exceeds 2.1875% in any calendar quarter (8.75% annualized).
 Quarterly Incentive Fee Based on Net Investment Income
 Pre-incentive fee net investment income
(expressed as a percentage of the value of net assets)
 
 Percentage of pre-incentive fee net investment income
allocated to income-related portion of incentive fee
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Administration Agreement
  Material U.S. Federal Income Tax Considerations
 Regulated Investment Company Status
  
    
    Business Development Company Status.At all times during the taxable year, we must
maintain our status as a business development company.
    
    Income source requirements.At least 90% of our gross income for each taxable year must
be from dividends, interest, payments with respect to securities loans, gains from sales or
other dispositions of securities or other income derived with respect to our business of
investing in securities, and net income derived from an interest in a qualified publicly
traded partnership.
    
    Asset diversification requirements.As of the close of each quarter of our taxable year:
(1) at least 50% of the value of our assets must consist of cash, cash items, U.S.
government securities, the securities of other regulated investment companies and other
securities to the extent that (a) we do not hold more than 10% of the outstanding voting
securities of an issuer of such other securities and (b) such other securities of any one
issuer do not represent more than 5% of our total assets, and (2) no more than 25% of the
value of our total assets may be invested in the securities of one issuer (other than U.S.
government securities or the securities of other regulated investment companies), or of two
or more issuers that are controlled by us and are engaged in the same or similar or related
trades or businesses or in the securities of one or more qualified publicly traded
partnerships.
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Failure to Qualify as a RIC.
 Qualification as a RIC.
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Taxation of Our U.S. Stockholders
 Distributions. th
  Sale of Our Shares. i.e.
 Backup Withholding.
 Regulation as a Business Development Company
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Qualifying Assets
  (1)
    
    Securities purchased in transactions not involving any public offering from the issuer
of such securities, which issuer is an eligible portfolio company. An eligible portfolio
company is generally defined in the 1940 Act as any issuer which:
 (a)
    
    is organized under the laws of, and has its principal place of business in, any
State or States in the United States;(b)
    
    is not an investment company (other than a small business investment company
wholly owned by the business development company or otherwise excluded from the
definition of investment company); and(c)
    
    satisfies one of the following:
 (i)
    
    it does not have any class of securities with respect to which a broker
or dealer may extend margin credit;(ii)
    
    it is controlled by the business development company and for which an
affiliate of the business development company serves as a director;(iii)
    
    it has total assets of not more than $4 million and capital and surplus
of not less than $2 million;(iv)
    
    it does not have any class of securities listed on a national securities
exchange; or(v)
    
    it has a class of securities listed on a national securities exchange,
with an aggregate market value of outstanding voting and non-voting equity of less
than $250 million.
 (2)
    
    Securities received in exchange for or distributed on or with respect to securities
described in (1) above, or pursuant to the exercise of options, warrants or rights relating
to such securities.(3)
    
    Cash, cash items, government securities or high quality debt securities maturing in one
year or less from the time of investment.
 Asset Coverage
  Significant Managerial Assistance
  Investment Policies
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§
    
    We will at all times conduct our business so as to retain our status as a
business development company. In order to retain that status, we must be operated for
the purpose of investing in certain categories of qualifying assets. In addition, we
may not acquire any assets (other than non-investment assets necessary and appropriate
to our operations as a business development company or qualifying assets) if, after
giving effect to such acquisition, the value of our qualifying assets is less than 70%
of the value of our total assets. We anticipate that the securities we seek to acquire,
as well as temporary investments, will generally be qualifying assets.§
    
    We will at all times endeavor to conduct our business so as to retain our
status as a RIC under the Code. In order to do so, we must meet income source, asset
diversification and annual distribution requirements. We may issue senior securities,
such as debt or preferred stock, to the extent permitted by the 1940 Act for the purpose
of making investments, to fund share repurchases, or for temporary emergency or other
purposes.
  Code of Ethics
  Compliance Policies and Procedures
  Staffing
   Number of Individuals
    
    Functional Area9
    
    
    Executive Management33
    
    
    Investment Management, Portfolio Management and Due Diligence10
    
    
    Administration, Accounting, Compliance, Human Resources, Legal and Treasury
 Available Information:
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ITEM 1A.
    
    RISK FACTORS
 An investment in our securities involves a number of significant risks and other factors relating
to our structure and investment objectives. As a result, we cannot assure you that we will achieve
our investment objectives. You should consider carefully the following information before making an
investment in our securities.
 Risks Related to the Economy
 The current state of the economy and the capital markets increases the possibility of adverse
effects on our financial position and results of operations. Continued economic adversity could
impair our portfolio companies financial positions and operating results and affect the industries
in which we invest, which could, in turn, harm our operating results. Continued adversity in the
capital markets could impact our ability to raise capital and reduce our volume of new investments.
   We may experience fluctuations in our quarterly and annual results based on the impact of inflation
in the United States.
  Risks Related to Our External Management
 We are dependent upon our key management personnel and the key management personnel of our Adviser,
particularly David Gladstone, George Stelljes III, Terry Lee Brubaker and David Dullum, and on the
continued operations of our Adviser, for our future success.
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Our incentive fee may induce our Adviser to make certain investments, including speculative
investments.
  We may be obligated to pay our Adviser incentive compensation even if we incur a loss.
   Our Advisers failure to identify and invest in securities that meet our investment criteria or
perform its responsibilities under the Advisory Agreement may adversely affect our ability for
future growth.
  There are significant potential conflicts of interest which could impact our investment returns.
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§
    
    Our affiliate, Gladstone Commercial, may lease property to portfolio
companies that we do not control under certain circumstances. Our
Adviser may pursue such
transactions only if (i) the portfolio company is not controlled by us or any of our
affiliates, (ii) the portfolio company satisfies the tenant underwriting criteria of
Gladstone Commercial and (iii) the transaction is approved by a majority of our
independent directors and a majority of the independent directors of Gladstone
Commercial. We expect that any such negotiations between Gladstone Commercial and our
portfolio companies would result in lease terms consistent with the terms that the
portfolio companies would be likely to receive were they not portfolio companies of
ours.§
    
    We may invest simultaneously with our affiliate Gladstone Capital in senior
syndicated loans whereby neither we nor any affiliate has the ability to dictate the
terms of the loans.§
    
    Additionally, pursuant to an exemptive order granted by the Securities and
Exchange Commission, our Adviser may sponsor a private investment fund to co-invest with
us and Gladstone Capital in accordance with the terms and conditions of the order.
   Our Adviser is not obligated to provide a waiver of the base management fee, which could negatively
impact our earnings and our ability to maintain our current level of distributions to our
stockholders.
  Our business model is dependent upon developing and sustaining strong referral relationships with
investment bankers, business brokers and other intermediaries.
  Risks Related to Our External Financing
 In recent years, creditors have significantly curtailed their lending to business development
companies, including us. Because of the limited amount of committed funding under our line of
credit, we will have limited ability to fund new investments if we are unable to expand the facility.
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Our business plan is dependent upon external financing, which is constrained by the limitations of
the 1940 Act.
  
    
    Senior Securities.We may issue debt securities, other evidences of indebtedness
(including borrowings under our line of credit) and possibly preferred stock, up to the
maximum amount permitted by the 1940 Act. The 1940 Act currently permits us, as a business
development company, to issue debt securities, and preferred stock, which we refer to
collectively as senior securities, in amounts such that our asset coverage, as defined in the
1940 Act, is at least 200% after each issuance of senior securities. As a result of issuing
senior securities, we will be exposed to the risks associated with leverage. Although
borrowing money for investments increases the potential for gain, it also increases the risk
of a loss. A decrease in the value of our investments will have a greater impact on the value
of our common stock to the extent that we have borrowed money to make investments. There is a
possibility that the costs of borrowing could exceed the income we receive on the investments
we make with such borrowed funds. In addition, our ability to pay distributions or incur
additional indebtedness would be restricted if asset coverage is not at least twice our
indebtedness. If the value of our assets declines, we might be unable to satisfy that test. If
this happens, we may be required to liquidate a portion of our loan portfolio and repay a
portion of our indebtedness at a time when a sale, to the extent possible given the limited
market for many of our investments, may be disadvantageous. Furthermore, any amounts that we
use to service our indebtedness will not be available for distributions to our stockholders.
    
    Common Stock.Because we are constrained in our ability to issue debt for the reasons
given above, we are dependent on the issuance of equity as a financing source. If we raise
additional funds by issuing more common stock or senior securities convertible into or
exchangeable for our common stock, the percentage ownership of our stockholders at the time of
the issuance would decrease and our common stock may experience dilution. In addition, any
convertible or exchangeable securities that we issue in the future may have rights,
preferences and privileges more favorable than those of our common stock. In addition, under
the 1940 Act, we will generally not be able to issue additional shares of our common stock at
a price below net asset value per share to purchasers, other than to our existing
stockholders, through a rights offering without first obtaining the approval of our
stockholders and our independent directors. If we were to sell shares of our common stock
below our then current net asset value per share, such sales would result in an immediate
dilution to the net asset value per share. This dilution would occur as a result of the sale
of shares at a price below the then current net asset value per share of our common stock and
a proportionately greater decrease in a stockholders interest in our earnings and assets and
voting interest in us than the increase in our assets resulting from such issuance. For
example, if we sell an additional 10% of our common stock at a 5% discount from net asset
value, a stockholder who does not participate in that offering for its proportionate interest
will suffer net asset value dilution of up to 0.5% or $5 per $1,000 of net asset value. This
imposes constraints on our ability to raise capital when our common stock is trading at below
net asset value, as it has for the last year.
 A change in interest rates may adversely affect our profitability and our hedging strategy may
expose us to additional risks.
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In addition to regulatory limitations on our ability to raise capital, our line of credit contains
various covenants which, if not complied with, could accelerate our repayment obligations under the
facility, thereby materially and adversely affecting our liquidity, financial condition, results of
operations and ability to pay distributions.
    Any inability to renew, extend or replace our line of credit on terms favorable to us, or at all,
could adversely impact our liquidity and ability to fund new investments or maintain distributions
to our stockholders.
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Risks Related to Our Investments
 We operate in a highly competitive market for investment opportunities.
  Our investments in small and medium-sized portfolio companies are extremely risky and could cause
you to lose all or a part of your investment.
  §
    
    Small and medium-sized businesses are likely to have greater exposure to
economic downturns than larger businesses.Our portfolio companies may have fewer
resources than larger businesses, and thus the recent recession, and any further economic
downturns or recessions, are more likely to have a material adverse effect on them. If one
of our portfolio companies is adversely impacted by a recession, its ability to repay our
loan or engage in a liquidity event, such as a sale, recapitalization or initial public
offering would be diminished.§
    
    Small and medium-sized businesses may have limited financial resources and may
not be able to repay the loans we make to them.Our strategy includes providing financing
to portfolio companies that typically is not readily available to them. While we believe
that this provides an attractive opportunity for us to generate profits, this may make it
difficult for the portfolio companies to repay their loans to us upon maturity. A
borrowers ability to repay its loan may be adversely affected by numerous factors,
including the failure to meet its business plan, a downturn in its industry or negative
economic conditions. A deterioration in a borrowers financial condition and prospects
usually will be accompanied by a deterioration in the value of any collateral and a
reduction in the likelihood of us realizing on any guarantees we may have obtained from the
borrowers management. Although we will sometimes seek to be the senior, secured lender to
a borrower, in most of our loans we expect to be subordinated to a senior lender, and our
interest in any collateral would, accordingly, likely be subordinate to another lenders
security interest.§
    
    Small and medium-sized businesses typically have narrower product lines and
smaller market shares than large businesses.Because our target portfolio companies are
smaller businesses, they will tend to be more vulnerable to competitors actions and market
conditions, as well as general economic downturns. In addition, our portfolio companies may
face intense competition, including competition from companies with greater financial
resources, more extensive development, manufacturing, marketing and other capabilities and
a larger number of qualified managerial and technical personnel.§
    
    There is generally little or no publicly available information about these
businesses.Because we seek to invest in privately-owned businesses, there is generally
little or no publicly available operating and financial information about our potential
portfolio companies. As a result, we rely on our officers, our Adviser and its employees
and consultants to perform due diligence investigations of these portfolio companies, their
operations and their prospects. We may not learn all of the material information we need to
know regarding these businesses through our investigations.§
    
    Small and medium-sized businesses generally have less predictable operating
results.We expect that our portfolio companies may have significant variations in their
operating results, may from time to time be parties to litigation, may be engaged in
rapidly changing businesses with products subject to a substantial risk of obsolescence,
may require substantial additional capital to support their operations, to finance
expansion or to maintain their competitive position, may otherwise have a weak financial
position or may be adversely affected by changes in the business cycle. Our portfolio
companies may not meet net income, cash flow and other coverage tests typically imposed by
their senior lenders. A borrowers failure to
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satisfy financial or operating covenants
imposed by senior lenders could lead to defaults and, potentially, foreclosure on its
senior credit facility, which could additionally trigger cross-defaults in other
agreements. If this were to occur, it is possible that the borrowers ability to repay our
loan would be jeopardized.§
    
    Small and medium-sized businesses are more likely to be dependent on one or
two persons.Typically, the success of a small or medium-sized business also depends on
the management talents and efforts of one or two persons or a small group of persons. The
death, disability or resignation of one or more of these persons could have a material
adverse impact on our borrower and, in turn, on us.§
    
    Small and medium-sized businesses may have limited operating histories.While
we intend to target stable companies with proven track records, we may make loans to new
companies that meet our other investment criteria. Portfolio companies with limited
operating histories will be exposed to all of the operating risks that new businesses face
and may be particularly susceptible to, among other risks, market downturns, competitive
pressures and the departure of key executive officers.
 Because the loans we make and equity securities we receive when we make loans are not publicly
traded, there is uncertainty regarding the value of our privately held securities that could
adversely affect our determination of our net asset value.
    §
    
    the nature and realizable value of any collateral;§
    
    the portfolio companys earnings and cash flows and its ability to make
payments on its obligations;§
    
    the markets in which the portfolio company does business;§
    
    the comparison to publicly traded companies; and§
    
    discounted cash flow and other relevant factors.
   The lack of liquidity of our privately held investments may adversely affect our business.
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Our financial results could be negatively affected if a significant portfolio investment fails to
perform as expected.
  When we are a debt or minority equity investor in a portfolio company,
we may not be in a position to control the entity, and its management may
make decisions that could decrease the value of our investment.
  We typically invest in transactions involving acquisitions, buyouts and recapitalizations of
companies, which will subject us to the risks associated with change in control transactions.
  Prepayments of our investments by our portfolio companies could adversely impact our results of
operations and reduce our return on equity.
  Higher taxation of our portfolio companies may impact our quarterly and annual operating results.
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Our portfolio is concentrated in a limited number of companies and industries, which subjects us to
an increased risk of significant loss if any one of these companies does not repay us or if the
industries experience downturns.
  Our investments are typically long term and will require several years to realize liquidation
events.
  The disposition of our investments may result in contingent liabilities.
  There may be circumstances where our debt investments could be subordinated to claims of other
creditors or we could be subject to lender liability claims.
  Portfolio company litigation could result in additional costs and the diversion of management time
and resources.
  We may not realize gains from our equity investments and other yield enhancements.
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Any unrealized depreciation we experience on our investment portfolio may be an indication of
future realized losses, which could reduce our income available for distribution.
  Risks Related to Our Regulation and Structure
 We currently do not meet the 50% threshold of the asset diversification test applicable to RICs
under the Code. If we make any additional investment in the future, including advances under
outstanding lines of credit to our portfolio companies, and remain below this threshold as of June
30, 2011, or any subsequent quarter end, we would lose our RIC status unless we are able to cure
such failure within 30 days of the quarter end.
 st
  We will be subject to corporate-level tax if we are unable to satisfy Code requirements for RIC
qualification.
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Changes in laws or regulations governing our operations, or changes in the interpretation thereof,
and any failure by us to comply with laws or regulations governing our operations may adversely
affect our business.
  Provisions of the Delaware General Corporation Law and of our certificate of incorporation and
bylaws could restrict a change in control and have an adverse impact on the price of our common
stock.
   Risks Related to an Investment in Our Common Stock
 We may experience fluctuations in our quarterly and annual operating results.
  There is a risk that you may not receive distributions.
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Distributions by us have and may in the future include a return of capital.
  The market price of our shares may fluctuate significantly.
   §
    
    general economic trends and other external factors;§
    
    price and volume fluctuations in the stock market from time to time, which
are often unrelated to the operating performance of particular companies;§
    
    significant volatility in the market price and trading volume of shares of
RICs, business development companies or other companies in our sector, which is not
necessarily related to the operating performance of these companies;§
    
    changes in regulatory policies or tax guidelines, particularly with respect
to RICs or business development companies;§
    
    loss of business development company status;§
    
    loss of RIC status;§
    
    changes in our earnings or variations in our operating results;§
    
    changes in the value of our portfolio of investments;§
    
    any shortfall in our revenue or net income or any increase in losses from
levels expected by securities analysts;§
    
    departure of key personnel;§
    
    operating performance of companies comparable to us;§
    
    short-selling pressure with respect to our shares or business development
companies generally;§
    
    the announcement of proposed, or completed, offerings of our securities,
including a rights offering; and§
    
    loss of a major funding source.
  The issuance of subscription rights to our existing stockholders may dilute the ownership and
voting powers by existing stockholders in our common stock, dilute the net asset value of their
shares and have a material adverse effect on the trading price of our common stock.
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Shares of closed-end investment companies frequently trade at a discount from net asset value.
  Stockholders may incur dilution if we sell shares of our common stock in one or more offerings at
prices below the then current net asset value per share of our common stock.
   Other Risks
 We could face losses and potential liability if intrusion, viruses or similar disruptions to our
technology jeopardize our confidential information, whether through breach of our network security
or otherwise.
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Terrorist attacks, acts of war, or national disasters may affect any market for our common stock,
impact the businesses in which we invest, and harm our business, operating results, and financial
conditions.
  
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
  
 ITEM 3.
    
    LEGAL PROCEEDINGS
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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
  Quarter
    
    
    
    
    
    Closing Sales Price
    
    Discount of
    
    Discount of
    
    DeclaredEnded
    
    NAV (1)
    
    High
    
    Low
    
    High to NAV(2)
    
    Low to NAV(2)
    
    DistributionsFY 2011
    
    
    6/30/10
    
    
    $
    8.86
    
    
    $
    6.89
    
    
    $
    5.13
    
    
    
    22
    %
    
    
    42
    %
    
    $
    0.129/30/10
    
    
    
    8.43
    
    
    
    6.93
    
    
    
    5.52
    
    
    
    18
    
    
    
    35
    
    
    
    0.1212/31/10
    
    
    
    9.00
    
    
    
    7.90
    
    
    
    6.61
    
    
    
    12
    
    
    
    27
    
    
    
    0.123/31/11
    
    
    
    9.00
    
    
    
    8.28
    
    
    
    6.92
    
    
    
    8
    
    
    
    23
    
    
    
    0.12FY 2010
    
    
    6/30/09
    
    
    $
    9.19
    
    
    $
    5.38
    
    
    $
    3.52
    
    
    
    41
    %
    
    
    62
    %
    
    $
    0.129/30/09
    
    
    
    8.24
    
    
    
    5.37
    
    
    
    4.02
    
    
    
    35
    
    
    
    51
    
    
    
    0.1212/31/09
    
    
    
    7.93
    
    
    
    5.11
    
    
    
    4.41
    
    
    
    36
    
    
    
    44
    
    
    
    0.123/31/10
    
    
    
    8.74
    
    
    
    6.23
    
    
    
    4.61
    
    
    
    29
    
    
    
    47
    
    
    
    0.12
 
 (1)
    
    NAV per share is determined as of the last day in the relevant quarter and
therefore may not reflect the NAV per share on the date of the high and low sales prices. The
NAVs shown are based on outstanding shares at the end of each period.(2)
    
    The discounts set forth in these columns represent the high or low, as applicable,
closing price per share for the relevant quarter minus the NAV per share as of the end of such
quarter, and therefore may not reflect the discount to NAV per share on the date of the high
and low closing prices.  Distributions
  Recent Sales of Unregistered Securities and Purchases of Equity Securities
  
 ITEM 6.
    
    SELECTED FINANCIAL DATA
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##### Table of Contents



GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SELECTED FINANCIAL AND OTHER DATA
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT DATA)
 Year Ended March 31,2011
    
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007Statement of operations data:Total investment income
    
    $
    26,064
    
    
    $
    20,785
    
    
    $
    25,812
    
    
    $
    27,894
    
    
    $
    17,262Total expenses net of credits from Adviser
    
    
    9,893
    
    
    
    10,187
    
    
    
    12,424
    
    
    
    14,842
    
    
    
    6,114Net investment income
    
    
    16,171
    
    
    
    10,598
    
    
    
    13,388
    
    
    
    13,052
    
    
    
    11,148Net gain (loss) on investments
    
    
    268
    
    
    
    (21,669
    )
    
    
    (24,837
    )
    
    
    (13,993
    )
    
    
    (3,879
    )Net increase (decrease) in net assets resulting from operations
    
    $
    16,439
    
    
    $
    (11,071
    )
    
    $
    (11,449
    )
    
    $
    (941
    )
    
    $
    7,269Per share data(1):Net increase (decrease) in net assets resulting
from operations per common sharebasic and
diluted
    
    $
    0.74
    
    
    $
    (0.50
    )
    
    $
    (0.53
    )
    
    $
    (0.06
    )
    
    $
    0.44Net investment income before net gain (loss) on
investments per common sharebasic and diluted
    
    
    0.73
    
    
    
    0.48
    
    
    
    0.62
    
    
    
    0.79
    
    
    
    0.67Cash distributions declared per share
    
    
    0.48
    
    
    
    0.48
    
    
    
    0.96
    
    
    
    0.93
    
    
    
    0.86Statement of assets and liabilities data:Total assets
    
    $
    241,109
    
    
    $
    297,161
    
    
    $
    326,843
    
    
    $
    352,293
    
    
    $
    323,590Net assets
    
    
    198,829
    
    
    
    192,978
    
    
    
    214,802
    
    
    
    206,445
    
    
    
    222,819Net asset value per share
    
    
    9.00
    
    
    
    8.74
    
    
    
    9.73
    
    
    
    12.47
    
    
    
    13.46Common shares outstanding
    
    
    22,080,133
    
    
    
    22,080,133
    
    
    
    22,080,133
    
    
    
    16,560,100
    
    
    
    16,560,100Weighted common shares outstandingbasic and
diluted
    
    
    22,080,133
    
    
    
    22,080,133
    
    
    
    21,545,936
    
    
    
    16,560,100
    
    
    
    16,560,100Senior securities data:Borrowings under line of credit (2)
    
    $
    
    
    
    $
    27,812
    
    
    $
    110,265
    
    
    $
    144,835
    
    
    $
    100,000Short term loan(2)
    
    
    40,000
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    Asset coverage ratio(3)
    
    
    534
    %
    
    
    281
    %
    
    
    293
    %
    
    
    242
    %
    
    
    323
    %Asset coverage per unit(4)
    
    $
    5,344
    
    
    $
    2,814
    
    
    $
    2,930
    
    
    $
    2,422
    
    
    $
    3,228Other unaudited data:Number of portfolio companies
    
    
    17
    
    
    
    16
    
    
    
    46
    
    
    
    52
    
    
    
    47Average size of portfolio company investment at
cost
    
    $
    11,600
    
    
    $
    14,223
    
    
    $
    7,586
    
    
    $
    6,746
    
    
    $
    5,843Principal amount of new investments
    
    
    43,634
    
    
    
    4,788
    
    
    
    49,959
    
    
    
    175,255
    
    
    
    182,953Proceeds from loan repayments and investments sold
    
    
    97,491
    
    
    
    90,240
    
    
    
    46,742
    
    
    
    96,437
    
    
    
    61,167Weighted average yield on investments(5)
    
    
    11.39
    %
    
    
    11.02
    %
    
    
    8.22
    %
    
    
    8.91
    %
    
    
    8.72
    %Total return(6)
    
    
    38.56
    
    
    
    79.80
    
    
    
    (51.65
    )
    
    
    (31.54
    )
    
    
    4.36
 
 (1)
    
    Per share data for net increase (decrease) in net assets resulting from
operations is based on the weighted average common stock outstanding for both basic and
diluted.(2)
    
    See Managements Discussion and Analysis of Financial Condition and Results of
Operations for more information regarding our level of indebtedness.(3)
    
    As a business development company, the Company is generally required to maintain an
asset coverage ratio of at least 200% of total consolidated assets, less all liabilities and
indebtedness not represented by senior securities, to total borrowings and guaranty
commitments. Asset coverage ratio is the ratio of the carrying value of our total
consolidated assets, less all liabilities and indebtedness not represented by senior
securities, to the aggregate amount of senior securities representing indebtedness.(4)
    
    Asset coverage per unit is the asset coverage ratio expressed in terms of dollar
amounts per one thousand dollars of indebtedness.(5)
    
    Weighted average yield on investments equals interest income on investments divided
by the annualized weighted average investment balance throughout the year.(6)
    
    Total return equals the increase (decrease) of the ending market value over the
beginning market value plus monthly distributions divided by the monthly beginning market
value. 
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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 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 Form
10-K. Except per share amounts, dollar amounts are in thousands unless otherwise indicated.
 OVERVIEW
 General
  Business Environment
   Consolidated Schedule of Investments
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34




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Investment Highlights
  Recent Developments
 Short-Term Loan
  35




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Investment Activity
  
    
    In April 2010, Interstate FiberNet, Inc. (ITC) made full repayment of its senior term
debt owed to us resulting in the receipt of approximately $6.7 million in cash proceeds.
    
    In May 2010, Cavert made full repayment of its senior term A debt owed to us resulting
in the receipt of approximately $2.9 million in cash proceeds.
    
    In June 2010, we sold our equity investment and received full repayment of our debt
investment in A. Stucki in connection with the sale of 100% of the outstanding capital
stock of A. Stucki. The net cash proceeds to us from the sale of our equity in A. Stucki
were $21.4 million, resulting in a realized gain of $16.6 million, which includes a $0.3
million closing adjustment decrease during the three months ended December 31, 2010. In
connection with the equity sale, we accrued and received dividend cash proceeds of $0.3
million from our preferred stock investment in A. Stucki. At the same time, we received
$30.6 million in payment of our principal, accrued interest and success fees on the loans
to A. Stucki. Additionally, immediately prior to the sale of A. Stucki, we received a
special distribution of property with a fair value of $0.5 million, which was recorded as
dividend income and has been reflected as a Control investment, Neville Limited, on our
Consolidated Schedule of Investmentssince June 30, 2010.
    
    In July and August 2010, we restructured Galaxy Tool Holding Corporation (Galaxy) by
converting $12.3 million of our senior subordinated term note into preferred and common
stock and investing an additional $3.2 million into preferred stock. After the
restructuring, our investments at cost in Galaxy consisted of a $5.2 million senior
subordinated term note, $19.6 million in preferred stock and $0.1 million in common stock.
    
    In September 2010, Cavert prepaid $0.8 million of its success fee on its senior term
debt and senior subordinated term debt.
    
    In October 2010, we invested $25.0 million in a new Control investment, Venyu,
consisting of subordinated debt and preferred equity. Venyu, headquartered in Baton Rouge,
Louisiana, is a leader in commercial-grade, customizable solutions for data protection,
data hosting and disaster recovery.
    
    In October and November 2010, Mathey Investments, Inc. (Mathey) prepaid $0.4 million
of its success fee on its senior term debt.
    
    In November 2010, we participated in a syndicated loan, Fifth Third Processing Solutions
(Fifth Third), at a cost of $0.5 million.
    
    In December 2010, we invested $10.5 million in a new Control investment, Precision,
consisting of senior debt and preferred and common equity. Precision, headquartered in
Myrtle Beach, South Carolina, is a custom injection molding company, focused on the
filtration, consumer and industrial markets.
    
    In December 2010, we sold our equity investment and received full repayment of our debt
investment in Chase in connection with Chases sale of 100% of its outstanding capital
stock. The net cash proceeds to us from the sale of our equity in Chase were $13.9 million,
resulting in a realized gain of $6.9 million. In connection with the equity sale, we
accrued and received cash dividend proceeds of $4.0 million from our preferred stock
investment in Chase. At the same time, we received $22.9 million in repayment of our
principal, accrued interest and success fees on the loans to Chase.
 Consolidated Financial Statements
 Registration Statement
 .
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Investment Strategy
          37




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Our Adviser and Administrator
   Investment Advisory and Management Agreement
     38




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Administration Agreement
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RESULTS OF OPERATIONS
 Comparison of the Fiscal Year Ended March 31, 2011 to the Fiscal Year Ended March 31, 2010
 For the fiscal year ended March 31,2011
    
    
    2010
    
    
    $ Change
    
    
    % ChangeINVESTMENT INCOMEInterest income
    
    $
    15,722
    
    
    $
    19,817
    
    
    $
    (4,095
    )
    
    
    (20.7
    )%Other income
    
    
    10,342
    
    
    
    968
    
    
    
    9,374
    
    
    
    968.4Total investment income
    
    
    26,064
    
    
    
    20,785
    
    
    
    5,279
    
    
    
    25.4EXPENSESLoan servicing fee
    
    
    2,743
    
    
    
    3,747
    
    
    
    (1,004
    )
    
    
    (26.8
    )Base management fee
    
    
    1,236
    
    
    
    737
    
    
    
    499
    
    
    
    67.7Incentive fee
    
    
    2,949
    
    
    
    588
    
    
    
    2,361
    
    
    
    401.5Administration fee
    
    
    753
    
    
    
    676
    
    
    
    77
    
    
    
    11.4Interest expense
    
    
    701
    
    
    
    1,988
    
    
    
    (1,287
    )
    
    
    (64.7
    )Amortization of deferred financing fees
    
    
    491
    
    
    
    1,618
    
    
    
    (1,127
    )
    
    
    (69.7
    )Other
    
    
    1,700
    
    
    
    1,659
    
    
    
    41
    
    
    
    2.5Expenses before credits from Adviser
    
    
    10,573
    
    
    
    11,013
    
    
    
    (440
    )
    
    
    (4.0
    )Credits to fees
    
    
    (680
    )
    
    
    (826
    )
    
    
    146
    
    
    
    (17.7
    )Total expenses net of credits to fee
    
    
    9,893
    
    
    
    10,187
    
    
    
    (294
    )
    
    
    (2.9
    )NET INVESTMENT INCOME
    
    
    16,171
    
    
    
    10,598
    
    
    
    5,573
    
    
    
    52.6REALIZED AND UNREALIZED GAIN (LOSS) ON:Net realized gain (loss) on investments
    
    
    23,489
    
    
    
    (35,923
    )
    
    
    59,412
    
    
    NMNet realized loss on other
    
    
    
    
    
    
    (53
    )
    
    
    53
    
    
    
    (100.0
    )Net unrealized (depreciation) appreciation on investments
    
    
    (23,197
    )
    
    
    14,305
    
    
    
    (37,502
    )
    
    NMNet unrealized (depreciation) appreciation on other
    
    
    (24
    )
    
    
    2
    
    
    
    (26
    )
    
    NMNet gain (loss) on investments and other
    
    
    268
    
    
    
    (21,669
    )
    
    
    21,937
    
    
    NMNET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS
    
    $
    16,439
    
    
    $
    (11,071
    )
    
    $
    27,510
    
    
    NM
 
 NM = Not Meaningful
 Investment Income
    40




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##### Table of Contents



As of March 31, 2011
    
    
    Year Ended March 31, 2011Investment
    
    % of TotalCompany
    
    Fair Value
    
    % of Portfolio
    
    
    Income
    
    Investment IncomeVenyu Solutions, Inc.
    
    $
    25,012
    
    
    
    16.3
    %
    
    
    $
    1,056
    
    
    
    4.1
    %Acme Cryogenics, Inc.
    
    
    19,906
    
    
    
    13.0
    
    
    
    
    1,737
    
    
    
    6.7Cavert II Holding Corp.
    
    
    18,252
    
    
    
    11.9
    
    
    
    
    1,675
    
    
    
    6.4Noble Logistics, Inc.
    
    
    13,183
    
    
    
    8.6
    
    
    
    
    1,468
    
    
    
    5.6Danco Acquisition Corp.
    
    
    12,746
    
    
    
    8.3
    
    
    
    
    1,599
    
    
    
    6.1Subtotalfive largest investments
    
    
    89,099
    
    
    
    58.1
    
    
    
    
    7,535
    
    
    
    28.9Other portfolio companies
    
    
    64,186
    
    
    
    41.9
    
    
    
    
    18,529
    
    
    
    71.1Total investment portfolio
    
    $
    153,285
    
    
    
    100.0
    %
    
    
    $
    26,064
    
    
    
    100.0
    %
 As of March 31, 2010
    
    
    Year Ended March 31, 2010Investment
    
    % of TotalCompany
    
    Fair Value
    
    % of Portfolio
    
    
    Income
    
    Investment IncomeA. Stucki Holding Corp.
    
    $
    50,379
    
    
    
    24.3
    %
    
    
    $
    3,246
    
    
    
    15.6
    %Chase II Holdings Corp.
    
    
    29,101
    
    
    
    14.1
    
    
    
    
    2,545
    
    
    
    12.2Cavert II Holding Corp.
    
    
    18,731
    
    
    
    9.1
    
    
    
    
    1,204
    
    
    
    5.8Galaxy Tool Holding Corp.
    
    
    17,099
    
    
    
    8.3
    
    
    
    
    2,361
    
    
    
    11.4Danco Acquisition Corp.
    
    
    13,953
    
    
    
    6.7
    
    
    
    
    1,661
    
    
    
    8.0Subtotalfive largest investments
    
    
    129,263
    
    
    
    62.5
    
    
    
    
    11,017
    
    
    
    53.0Other portfolio companies
    
    
    77,595
    
    
    
    37.5
    
    
    
    
    9,768
    
    
    
    47.0Total investment portfolio
    
    $
    206,858
    
    
    
    100.0
    %
    
    
    $
    20,785
    
    
    
    100.0
    %
   Operating Expenses
    41




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##### Table of Contents



Consolidated Financial Statements
 Year Ended March 31,2011
    
    
    2010Average total assets subject to base management fee(1)
    
    $
    198,950
    
    
    $
    224,200Multiplied by annual base management fee of 2%
    
    
    2
    %
    
    
    2
    %Unadjusted base management fee
    
    
    3,979
    
    
    
    4,484Reduction for loan servicing fees(2)
    
    
    (2,743
    )
    
    
    (3,747
    )Base management fee(2)
    
    $
    1,236
    
    
    $
    737Credits to base management fee from Adviser:Fee reduction for the waiver of 2.0% fee on senior syndicated loans to 0.5%
    
    
    (15
    )
    
    
    (291
    )Credit for fees received by Adviser from the portfolio companies
    
    
    (665
    )
    
    
    (433
    )Credit to base management fee from Adviser(2)
    
    
    (680
    )
    
    
    (724
    )Net base management fee
    
    $
    556
    
    
    $
    13Incentive fee(2)
    
    $
    2,949
    
    
    $
    588Credit from voluntary, irrevocable waiver issued by Advisers board of directors
    
    
    
    
    
    
    (102
    )Net incentive fee
    
    $
    2,949
    
    
    $
    486Total credits to fees:Fee reduction for the voluntary, irrevocable waiver of 2.0% fee on senior
syndicated loans to 0.5%
    
    $
    (15
    )
    
    $
    (291
    )Credit for fees received by Adviser from portfolio companies
    
    
    (665
    )
    
    
    (433
    )Incentive fee credit
    
    
    
    
    
    
    (102
    )Credit to base management and incentive fees from Adviser(2)
    
    $
    (680
    )
    
    $
    (826
    )
 
 (1)
    
    Average total assets subject to the base management fee is defined as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings,
valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share issuances or repurchases during the periods.(2)
    
    Reflected, in total, as a line item on the Consolidated Statement of Operationslocated elsewhere in this report. ,
  Realized and Unrealized Gain (Loss) on Investments
 Realized Losses
  Unrealized Appreciation and Depreciation
  42




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##### Table of Contents



Year Ended March 31, 2011Unrealized
    
    
    Reversal ofInvestment
    
    Realized
    
    
    Appreciation
    
    
    Unrealized
    
    
    Net GainPortfolio Company
    
    Classification
    
    Gain
    
    
    (Depreciation)
    
    
    Appreciation
    
    
    (Loss)Chase II Holding Corp.
    
    Control
    
    $
    6,856
    
    
    $
    3,753
    
    
    $
    (4,444
    )
    
    $
    6,165Acme Cryogenics, Inc.
    
    Control
    
    
    
    
    
    
    5,906
    
    
    
    
    
    
    
    5,906Noble Logistics, Inc.
    
    Affiliate
    
    
    
    
    
    
    4,489
    
    
    
    
    
    
    
    4,489Cavert II Holding Corp.
    
    Control
    
    
    
    
    
    
    2,446
    
    
    
    
    
    
    
    2,446Survey Sampling, LLC
    
    Non-Control/Non-Affiliate
    
    
    
    
    
    
    507
    
    
    
    
    
    
    
    507Precision Southeast, Inc.
    
    Control
    
    
    
    
    
    
    253
    
    
    
    
    
    
    
    253American Greetings
Corporation
    
    Non-Control/Non-Affiliate
    
    
    
    
    
    
    178
    
    
    
    
    
    
    
    178Mathey Investments, Inc.
    
    Control
    
    
    
    
    
    
    119
    
    
    
    
    
    
    
    119Country Club Enterprises, LLC
    
    Control
    
    
    
    
    
    
    (309
    )
    
    
    
    
    
    
    (309
    )Quench Holdings Corp.
    
    Affiliate
    
    
    
    
    
    
    (747
    )
    
    
    
    
    
    
    (747
    )A. Stucki Holding Corp.
    
    Control
    
    
    16,614
    
    
    
    
    
    
    
    (17,405
    )
    
    
    (791
    )ASH Holdings Corp.
    
    Control
    
    
    
    
    
    
    (3,718
    )
    
    
    
    
    
    
    (3,718
    )Galaxy Tool Holding Corp.
    
    Control
    
    
    
    
    
    
    (13,956
    )
    
    
    
    
    
    
    (13,956
    )Other, net (<$100 Net)
    
    Various
    
    
    19
    
    
    
    (250
    )
    
    
    (19
    )
    
    
    (250
    )Total
    
    
    
    $
    23,489
    
    
    $
    (1,329
    )
    
    $
    (21,868
    )
    
    $
    292
   Year Ended March 31, 2010Reversal ofUnrealized
    
    
    UnrealizedInvestment
    
    Realized
    
    
    Appreciation
    
    
    (Appreciation)
    
    
    Net GainPortfolio Company
    
    Classification
    
    Gain (Loss)
    
    
    (Depreciation)
    
    
    Depreciation
    
    
    (Loss)Cavert II Holding Corp.
    
    Control
    
    $
    
    
    
    $
    3,162
    
    
    $
    
    
    
    $
    3,162A. Stucki Holding Corp.
    
    Control
    
    
    
    
    
    
    2,773
    
    
    
    
    
    
    
    2,773Interstate FiberNet, Inc.
    
    Non-Control/Non-Affiliate
    
    
    (561
    )
    
    
    2,564
    
    
    
    561
    
    
    
    2,564Quench Holdings Corp.
    
    Affiliate
    
    
    
    
    
    
    1,032
    
    
    
    
    
    
    
    1,032American Greetings Corp.
    
    Non-Control/Non-Affiliate
    
    
    
    
    
    
    714
    
    
    
    
    
    
    
    714B-Dry, LLC
    
    Non-Control/Non-Affiliate
    
    
    
    
    
    
    370
    
    
    
    
    
    
    
    370HMTBP Acquisition II Corp.
    
    Non-Control/Non-Affiliate
    
    
    (757
    )
    
    
    142
    
    
    
    755
    
    
    
    140Syndicated Loan Sales, net
    
    Non-Control/Non-Affiliate
    
    
    (34,605
    )
    
    
    
    
    
    
    34,422
    
    
    
    (183
    )ASH Holdings Corp.
    
    Control
    
    
    
    
    
    
    (684
    )
    
    
    
    
    
    
    (684
    )Mathey Investments, Inc.(1)
    
    Control
    
    
    
    
    
    
    (838
    )
    
    
    
    
    
    
    (838
    )Survey Sampling, LLC
    
    Non-Control/Non-Affiliate
    
    
    
    
    
    
    (1,161
    )
    
    
    
    
    
    
    (1,161
    )Tread Corp.
    
    Affiliate
    
    
    
    
    
    
    (1,227
    )
    
    
    
    
    
    
    (1,227
    )Danco Acquisition Corp.
    
    Affiliate
    
    
    
    
    
    
    (1,875
    )
    
    
    
    
    
    
    (1,875
    )Noble Logistics, Inc.
    
    Affiliate
    
    
    
    
    
    
    (2,251
    )
    
    
    
    
    
    
    (2,251
    )Country Club Enterprises, LLC
    
    Control
    
    
    
    
    
    
    (3,856
    )
    
    
    
    
    
    
    (3,856
    )Galaxy Tool Holding Corp.
    
    Control
    
    
    
    
    
    
    (5,338
    )
    
    
    
    
    
    
    (5,338
    )Chase II Holding Corp.
    
    Control
    
    
    
    
    
    
    (7,124
    )
    
    
    
    
    
    
    (7,124
    )Acme Cryogenics, Inc.
    
    Control
    
    
    
    
    
    
    (7,836
    )
    
    
    
    
    
    
    (7,836
    )Total
    
    
    
    $
    (35,923
    )
    
    $
    (21,433
    )
    
    $
    35,738
    
    
    $
    (21,618
    )
 43




---



##### Table of Contents



(1)
    
    Investment was reclassified from an Affiliate investment to a Control investment
in the third quarter of the year ended March 31, 2010. Net unrealized depreciation of $838
includes $260 of unrealized appreciation recorded while classified as an Affiliate investment
and $1,098 of unrealized depreciation recorded while classified as a Control investment.   Net Increase (Decrease) in Net Assets Resulting from Operations
  44




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##### Table of Contents



Comparison of the Fiscal Year Ended March 31, 2010 to the Fiscal Year Ended March 31, 2009
 For the fiscal year ended March 31,2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeINVESTMENT INCOMEInterest income
    
    $
    19,817
    
    
    $
    25,245
    
    
    $
    (5,428
    )
    
    
    (21.5
    )%Other income
    
    
    968
    
    
    
    567
    
    
    
    401
    
    
    
    70.7Total investment income
    
    
    20,785
    
    
    
    25,812
    
    
    
    (5,027
    )
    
    
    (19.5
    )EXPENSESLoan servicing fee
    
    
    3,747
    
    
    
    5,002
    
    
    
    (1,255
    )
    
    
    (25.1
    )Base management fee
    
    
    737
    
    
    
    1,699
    
    
    
    (962
    )
    
    
    (56.6
    )Incentive fee
    
    
    588
    
    
    
    
    
    
    
    588
    
    
    NMAdministration fee
    
    
    676
    
    
    
    821
    
    
    
    (145
    )
    
    
    (17.7
    )Interest expense
    
    
    1,988
    
    
    
    5,349
    
    
    
    (3,361
    )
    
    
    (62.8
    )Amortization of deferred financing fees
    
    
    1,618
    
    
    
    323
    
    
    
    1,295
    
    
    
    400.9Other
    
    
    1,659
    
    
    
    1,704
    
    
    
    (45
    )
    
    
    (2.6
    )Expenses before credits from Adviser
    
    
    11,013
    
    
    
    14,898
    
    
    
    (3,885
    )
    
    
    (26.1
    )Credits to fees
    
    
    (826
    )
    
    
    (2,474
    )
    
    
    1,648
    
    
    
    (66.6
    )Total expenses net of credits to fee
    
    
    10,187
    
    
    
    12,424
    
    
    
    (2,237
    )
    
    
    (18.0
    )NET INVESTMENT INCOME
    
    
    10,598
    
    
    
    13,388
    
    
    
    (2,790
    )
    
    
    (20.8
    )REALIZED AND UNREALIZED (LOSS) GAIN ON:Net realized loss on investments
    
    
    (35,923
    )
    
    
    (5,023
    )
    
    
    (30,900
    )
    
    
    615.2Net realized loss on other
    
    
    (53
    )
    
    
    
    
    
    
    (53
    )
    
    NMNet unrealized appreciation (depreciation) on investments
    
    
    14,305
    
    
    
    (19,814
    )
    
    
    34,119
    
    
    NMNet unrealized appreciation on other
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    NMNet loss on investments and other
    
    
    (21,669
    )
    
    
    (24,837
    )
    
    
    3,168
    
    
    
    (12.8
    )NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
    
    $
    (11,071
    )
    
    $
    (11,449
    )
    
    $
    378
    
    
    
    (3.3
    )%
 
 NM = Not Meaningful
 Investment Income
     45




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##### Table of Contents



As of March 31, 2010
    
    
    Year Ended March 31, 2010% of TotalCompany
    
    Fair Value
    
    % of Portfolio
    
    
    Revenues
    
    RevenuesA. Stucki Holding Corp.
    
    $
    50,379
    
    
    
    24.3
    %
    
    
    $
    3,246
    
    
    
    15.6
    %Chase II Holdings Corp.
    
    
    29,101
    
    
    
    14.1
    
    
    
    
    2,545
    
    
    
    12.2Cavert II Holding Corp.
    
    
    18,731
    
    
    
    9.1
    
    
    
    
    1,204
    
    
    
    5.8Galaxy Tool Holding Corp.
    
    
    17,099
    
    
    
    8.3
    
    
    
    
    2,361
    
    
    
    11.4Danco Acquisition Corp.
    
    
    13,953
    
    
    
    6.7
    
    
    
    
    1,661
    
    
    
    8.0Subtotalfive largest investments
    
    
    129,263
    
    
    
    62.5
    
    
    
    
    11,017
    
    
    
    53.0Other portfolio companies
    
    
    77,595
    
    
    
    37.5
    
    
    
    
    9,768
    
    
    
    47.0Total investment portfolio
    
    $
    206,858
    
    
    
    100.0
    %
    
    
    $
    20,785
    
    
    
    100.0
    %
 As of March 31, 2009
    
    
    Year Ended March 31, 2009% of TotalCompany
    
    Fair Value
    
    % of Portfolio
    
    
    Revenues
    
    RevenuesA. Stucki Holding Corp.
    
    $
    49,431
    
    
    
    15.8
    %
    
    
    $
    2,716
    
    
    
    10.5
    %Chase II Holdings Corp.
    
    
    40,880
    
    
    
    13.0
    
    
    
    
    2,811
    
    
    
    10.9Galaxy Tool Holding Corp.
    
    
    22,437
    
    
    
    7.2
    
    
    
    
    1,436
    
    
    
    5.6Acme Cryogenics, Inc.
    
    
    21,420
    
    
    
    6.8
    
    
    
    
    1,691
    
    
    
    6.6Cavert II Holding Corp.
    
    
    18,632
    
    
    
    5.9
    
    
    
    
    1,587
    
    
    
    6.1Subtotalfive largest investments
    
    
    152,800
    
    
    
    48.7
    
    
    
    
    10,241
    
    
    
    39.7Other portfolio companies
    
    
    161,130
    
    
    
    51.3
    
    
    
    
    15,571
    
    
    
    60.3Total investment portfolio
    
    $
    313,930
    
    
    
    100.0
    %
    
    
    $
    25,812
    
    
    
    100.0
    %
   Operating Expenses
   Investment Advisory and
Management Agreement
 46




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##### Table of Contents



Year Ended March 31,2010
    
    
    2009Average total assets subject to base management fee(1)
    
    $
    224,200
    
    
    $
    335,050Multiplied by annual base management fee of 2%
    
    
    2
    %
    
    
    2
    %Unadjusted base management fee
    
    
    4,484
    
    
    
    6,701Reduction for loan servicing fees(2)
    
    
    (3,747
    )
    
    
    (5,002
    )Base management fee(2)
    
    $
    737
    
    
    $
    1,699Credits to base management fee from Adviser:Fee reduction for the waiver of 2.0% fee on senior syndicated loans to
0.5%
    
    
    (291
    )
    
    
    (1,613
    )Credit for fees received by Adviser from the portfolio companies
    
    
    (433
    )
    
    
    (861
    )Credit to base management fee from Adviser
    
    
    (724
    )
    
    
    (2,474
    )Net base management fee
    
    $
    13
    
    
    $
    (775
    )Incentive fee(2)
    
    $
    588
    
    
    $
    Credit from voluntary, irrevocable waiver issued by Advisers board of
directors
    
    
    (102
    )
    
    
    Net incentive fee
    
    $
    486
    
    
    $
    Total credits to fees:Fee reduction for the voluntary, irrevocable waiver of 2.0% fee on
senior syndicated loans to 0.5%
    
    $
    (291
    )
    
    $
    (1,613
    )Credit for fees received by Adviser from portfolio companies
    
    
    (433
    )
    
    
    (861
    )Incentive fee credit
    
    
    (102
    )
    
    
    Credit to base management and incentive fees from Adviser(2)
    
    $
    (826
    )
    
    $
    (2,474
    )
 
 (1)
    
    Average total assets subject to the base management fee is defined as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued
at the end of the four most recently completed quarters and appropriately adjusted for any share issuances or repurchases during the current year.(2)
    
    Reflected, in total, as a line item on the consolidated statement of operations located elsewhere in this report.  Administration Agreement
   Realized and Unrealized (Loss) Gain on Investments
 Realized Losses
  47




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##### Table of Contents



Unrealized Appreciation and Depreciation
  Year Ended March 31, 2010Net UnrealizedInvestment
    
    AppreciationPortfolio Company
    
    Classification
    
    (Depreciation)Aggregate Non-Proprietary Investments
    
    Non-Control / Non-Affiliate
    
    $
    37,997
    (1)Cavert II Holding Corp.
    
    Control
    
    
    3,162A.Stucki Holding Corp.
    
    Control
    
    
    2,773Quench Holdings Corp.
    
    Affiliate
    
    
    1,032B-Dry, LLC
    
    Non-Control / Non-Affiliate
    
    
    370ASH Holdings Corp.
    
    Control
    
    
    (684
    )Mathey Investments, Inc.
    
    Control
    
    
    (838
    )(2)Tread Corp.
    
    Affiliate
    
    
    (1,227
    )Danco Acquisition Corp.
    
    Affiliate
    
    
    (1,875
    )Noble Logistics, Inc.
    
    Affiliate
    
    
    (2,251
    )Country Club Enterprises, LLC
    
    Control
    
    
    (3,856
    )Galaxy Tool Holding Corp.
    
    Control
    
    
    (5,338
    )Chase II Holdings Corp.
    
    Control
    
    
    (7,124
    )Acme Cryogenics, Inc.
    
    Control
    
    
    (7,836
    )Total:
    
    
    
    $
    14,305
 
 (2)
    
    Includes the reversal of approximately $35.7
million of previously-recorded unrealized depreciation
relating to loans sold during the year ended March 31, 2010,
as well as the net unrealized appreciation experienced during
the year on Non-Control/Non-Affiliate investments held at
March 31, 2010.(3)
    
    Investment was reclassified from an Affiliate
investment to a Control investment in the third quarter of
the year ended March 31, 2010. Net unrealized depreciation
of $838 includes $260 of unrealized appreciation recorded
while classified as an Affiliate investment and $1,098 of
unrealized depreciation recorded while classified as a
Control investment.   Year Ended March 31, 2009Net UnrealizedInvestment
    
    AppreciationPortfolio Company
    
    Classification
    
    (Depreciation)A.Stucki Holding Corp.
    
    Control
    
    $
    4,339Chase II Holdings Corp.
    
    Control
    
    
    2,874ASH Holdings Corp.
    
    Control
    
    
    1,101Galaxy Tool Holding Corp.
    
    Control
    
    
    1,027Tread Corp.
    
    Affiliate
    
    
    418Quench Holdings Corp.
    
    Affiliate
    
    
    392
    (1)Cavert II Holding Corp.
    
    Control
    
    
    384Mathey Investments, Inc.
    
    Affiliate
    
    
    (260
    )B-Dry, LLC
    
    Non-Control / Non-Affiliate
    
    
    (617
    )
 48




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##### Table of Contents



Year Ended March 31, 2009Net UnrealizedInvestment
    
    AppreciationPortfolio Company
    
    Classification
    
    (Depreciation)Danco Acquisition Corp.
    
    Affiliate
    
    
    (1,908
    )Acme Cryogenics, Inc.
    
    Control
    
    
    (4,143
    )Noble Logistics, Inc.
    
    Affiliate
    
    
    (7,620
    )Aggregate Non-Proprietary Investments
    
    Non-Control / Non-Affiliate
    
    
    (15,801
    )Total:
    
    
    
    $
    (19,814
    )
 
 (1)
    
    Investment was reclassified from a Control
investment to an Affiliate investment in the second quarter
of fiscal year 2009. Net unrealized appreciation of $392
includes $3,447 of unrealized depreciation recorded while
classified as a Control investment and $3,055 of unrealized
appreciation recorded while classified as an Affiliate
investment.   Net Decrease in Net Assets Resulting from Operations
  49




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LIQUIDITY AND CAPITAL RESOURCES
 Operating Activities
   Year ended March 31,2011
    
    
    2010Beginning investment portfolio, at fair value
    
    $
    206,858
    
    
    $
    313,930New investments
    
    
    35,814
    
    
    
    Disbursements to existing investments
    
    
    7,293
    
    
    
    3,938Scheduled principal repayments
    
    
    (3,214
    )
    
    
    (3,294
    )Unscheduled principal repayments
    
    
    (59,037
    )
    
    
    (11,390
    )Amortization of premiums and discounts
    
    
    (8
    )
    
    
    (2
    )Proceeds from sales
    
    
    (35,009
    )
    
    
    (74,706
    )Net realized gain (loss)
    
    
    23,489
    
    
    
    (35,923
    )Net unrealized depreciation
    
    
    (1,329
    )
    
    
    (21,433
    )Reversal of net unrealized (appreciation) depreciation
    
    
    (21,868
    )
    
    
    35,738Other cash activity, net
    
    
    (231
    )
    
    
    Other non-cash activity, net
    
    
    527
    
    
    
    Ending investment portfolio, at fair value
    
    $
    153,285
    
    
    $
    206,858
  Fiscal Year Ending March 31,
    
    Amount2012
    
    $
    18,9462013
    
    
    33,8662014
    
    
    34,3312015
    
    
    21,9422016
    
    
    26,775Thereafter
    
    
    3,543Total contractual repayments
    
    $
    139,403Investment in equity securities
    
    
    58,023Adjustments to cost basis on debt securities
    
    
    (234
    )Total cost basis of investments held at March 31, 2011:
    
    $
    197,192
  50




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Financing Activities
  Distributions
   Section 19(a) Disclosure
  Equity
   Future Capital Resources
  Revolving Credit Facility
  51




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52




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Short-Term Note
  Contractual Obligations and Off-Balance Sheet Arrangements
     Consolidated Statements of Assets and Liabilities
 As of March 31,2011
    
    2010Unused lines of credit
    
    $
    2,386
    
    
    $
    1,814Guarantees
    
    
    4,664
    
    
    
    2,250
  Payments Due by PeriodLess than 1Contractual Obligations(1)
    
    Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 Years
    
    
    TotalBorrowings:Short-term loan(2)
    
    $
    40,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    40,000Credit Facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total borrowings
    
    $
    40,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    40,000
 
 (1)
    
    Excludes the unused commitments to extend credit to our portfolio companies of $2.4 million, as discussed above.(2)
    
    On April 7, 2011, we repaid the entire short-term loan. 53




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##### Table of Contents



Critical Accounting Policies
  Investment Valuation
  General Valuation Policy:
  
    
    Level 1inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets;
    
    Level 2inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the financial
instrument. Level 2 inputs are in those markets for which there are few transactions, the
prices are not current, little public information exists or instances where prices vary
substantially over time or among brokered market makers; and
    
    Level 3inputs to the valuation methodology are unobservable and significant
to the fair value measurement. Unobservable inputs are those inputs that reflect our own
assumptions that market participants would use to price the asset or liability based upon
the best available information.
 Investments Consolidated Financial Statements
    
    
    Publicly-traded securities;
    
    Securities for which a limited market exists; and
    
    Securities for which no market exists.
 Valuation Methods:
 Publicly-traded securities:
 Securities for which a limited market exists:
 54




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##### Table of Contents



Securities for which no market exists:
 (1)
    
    Portfolio investments comprised solely of debt securities:Debt securities that are not
publicly traded on an established securities market, or for which a limited market does not
exist (Non-Public Debt Securities), and that are issued by portfolio companies in which we
have no equity, or equity-like securities, are fair valued in accordance with the terms of the
policy, which utilizes opinions of value submitted to us by Standard and Poors Securities
Evaluations, Inc (SPSE). We may also submit PIK interest to SPSE for its evaluation when it
is determined that PIK interest is likely to be received.
 In the case of Non-Public Debt Securities, we have engaged SPSE to submit opinions of value for
our debt securities that are issued by portfolio companies in which we own no equity, or
equity-like securities. SPSEs opinions of value are based on the valuations prepared by our
portfolio management team, as described below. We request that SPSE also evaluate and assign
values to success fees when we determine that there is a reasonable probability of receiving a
success fee on a given loan. SPSE will only evaluate the debt portion of our investments for
which we specifically request evaluation, and may decline to make requested evaluations for any
reason, at its sole discretion. Upon completing our collection of data with respect to the
investments (which may include the information described below under Credit Information, the
risk ratings of the loans described below under Loan Grading and Risk Rating and the factors
described hereunder), this valuation data is forwarded to SPSE for review and analysis. SPSE
makes its independent assessment of the data that we have assembled and assesses its independent
data to form an opinion as to what they consider to be the market values for the securities.
With regard to its work, SPSE has issued the following paragraph:
  SPSE opinions of the value of our debt securities that are issued by portfolio companies in
which we do not own equity, or equity-like securities, are submitted to our Board of Directors
along with our Advisers supplemental assessment and recommendation regarding valuation of each
of these investments. Our Adviser generally accepts the opinion of value given by SPSE; however,
in certain limited circumstances, such as when our Adviser may learn new information regarding
an investment between the time of submission to SPSE and the date of our Board of Directors
assessment, our Advisers conclusions as to value may differ from the opinion of value delivered
by SPSE. Our Board of Directors then reviews whether our Adviser has followed its established
procedures for determinations of fair value, and votes to accept or reject the recommended
valuation of our investment portfolio. Our Adviser and our management recommended, and our Board
of Directors voted to accept, the opinions of value delivered by
 55




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##### Table of Contents



SPSE on the loans in our portfolio as denoted on the Schedule of Investments included in our
accompanying Consolidated Financial Statements.
 Because there is a delay between when we close an investment and when the investment can be
evaluated by SPSE, new loans are not valued immediately by SPSE; rather, management makes its
own determination about the value of these investments in accordance with our valuation policy
using the methods described herein.
 (2)
    
    Portfolio investments in controlled companies comprised of a bundle of investments, which can
include debt and equity securities:The fair value of these investments is determined based on
the total enterprise value (TEV) of the portfolio company, or issuer, utilizing a liquidity
waterfall approach under ASC 820. For Non-Public Debt Securities and equity or equity-like
securities (e.g. preferred equity, common equity, or other equity-like securities) that are
purchased together as part of a package, where we have control or could gain control through
an option or warrant security, both the debt and equity securities of the portfolio investment
would exit in the mergers and acquisitions market as the principal market, generally through a
sale or recapitalization of the portfolio company. In accordance with ASC 820, we apply the
in-use premise of value which assumes the debt and equity securities are sold together. Under
this liquidity waterfall approach, we continue to use the enterprise value methodology
utilizing a liquidity waterfall approach to determine the fair value of these investments
under ASC 820 if we have the ability to initiate a sale of a portfolio company as of the
measurement date. Under this approach, we first calculate the TEV of the issuer by
incorporating some or all of the following factors:
 
    
    the issuers ability to make payments;
    
    the earnings of the issuer;
    
    recent sales to third parties of similar securities;
    
    the comparison to publicly traded securities; and
    
    DCF or other pertinent factors.
 In gathering the sales to third parties of similar securities, we may gather and analyze
industry statistics and use outside experts. Once we have estimated the TEV of the issuer, we
subtract the value of all the debt securities of the issuer, which are valued at the contractual
principal balance. Fair values of these debt securities are discounted for any shortfall of TEV
over the total debt outstanding for the issuer. Once the values for all outstanding senior
securities (which include the debt securities) have been subtracted from the TEV of the issuer,
the remaining amount, if any, is used to determine the value of the issuers equity or equity
like securities. If, in our Advisers judgment, the liquidity waterfall approach does not
accurately reflect the value of the debt component, our Adviser may recommend that we use a
valuation by SPSE, or if that is unavailable, a DCF valuation technique.
 (3)
    
    Portfolio investments in non-controlled companies comprised of a bundle of investments, which
can include debt and equity securities:We value Non-Public Debt Securities that are purchased
together with equity or equity-like securities from the same portfolio company, or issuer, for
which we do not control or cannot gain control as of the measurement date, using a
hypothetical secondary market as our principal market. In accordance with ASC 820, we
determine the fair value of these debt securities of non-control investments assuming the sale
of an individual debt security using the in-exchange premise of value (as defined in ASC 820).
As such, we estimate the fair value of the debt component using estimates of value provided by
SPSE and our own assumptions in the absence of observable market data, including synthetic
credit ratings, estimated remaining life, current market yield and interest rate spreads of
similar securities as of the measurement date. Subsequent to June 30, 2009, for equity or
equity-like securities of investments that we do not control or cannot gain control as of the
measurement date, we estimate the fair value of the equity using the in-exchange premise of
value based on factors such as the overall value of the issuer, the relative fair value of
other units of account, including debt, or other relative value approaches. Consideration also
is given to capital structure and other contractual obligations that may impact the fair value
of the equity. Further, we may utilize comparable values of similar companies, recent
investments and indices with similar structures and risk characteristics or our own
assumptions in the absence of other observable market data, and may also employ DCF valuation
techniques.
 Due to the uncertainty inherent in the valuation process, such estimates of fair value may
differ significantly from the values that would have been obtained 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 valuations currently
assigned. There is no single standard for determining fair value in good faith, as fair value
depends upon circumstances of each individual case. In general, fair value is the amount that we
might reasonably expect to receive upon the current sale of the security in an arms-length
transaction in the securitys principal market.
 Valuation Considerations:
 
    
    the nature and realizable value of the collateral;
    
    the portfolio companys earnings and cash flows and its ability to make payments on its obligations;
    
    the markets in which the portfolio company does business;
 56




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##### Table of Contents




    
    the comparison to publicly traded companies; and
    
    DCF and other relevant factors.
  Credit Information:
 Loan Grading and Risk Rating:
  Companys
    
    First
    
    SecondSystem
    
    NRSRO
    
    NRSRO
    
    Gladstone Investments Description(a)>10
    
    Baa2
    
    BBB
    
    Probability of Default (PD) during the next 10 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% 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% 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 of default and the EL is greater than 20%
 
 (a)
    
    The default rates set forth are for a 10-year term debt security. If a debt
security is less than 10 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  57




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As of March 31,Rating
    
    2011
    
    2010Highest
    
    
    9.0
    
    
    
    9.0Average
    
    
    5.6
    
    
    
    5.3Weighted Average
    
    
    5.9
    
    
    
    5.9Lowest
    
    
    3.0
    
    
    
    2.0
  Tax Status
 Federal Income Taxes
    Revenue Recognition
 Interest and Dividend Income Recognition
   58




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Consolidated
Statements of Operations
  Recent Accounting Pronouncements
 Consolidated Financial Statements
 
 ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  0.2
    %
    
    Variable rates71.7
    
    
    Variable rates with a floor28.1
    
    
    Fixed rates100.0
    %
    
    Total
      59




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##### Table of Contents



(dollars in thousands)
    
    
    
    
    
    
    
    
    
    Net Increase inIncrease in
    
    Increase in
    
    Net Assets Resulting fromBasis Point Change(1)
    
    Interest Income
    
    Interest Expense(2)
    
    OperationsUp 300 basis points
    
    $
    385
    
    
    $
    
    
    
    $
    385Up 200 basis points
    
    
    78
    
    
    
    
    
    
    
    78Up 100 basis points
    
    
    3
    
    
    
    
    
    
    
    3
 
 (1)
    
    As of March 31, 2011, our effective average LIBOR was 0.24%; thus, a 100 basis point decrease could not occur.(2)
    
    As of March 31, 2011, we had no borrowings outstanding.   60




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Index to Consolidated Financial Statements
 Report of Management on Internal Controls
    
    
    62Report of Independent Registered Public Accounting Firm
    
    
    63Consolidated Statements of Assets and Liabilities as of March 31, 2011 and March 31, 2010
    
    
    64Consolidated Statements of Operations for the years ended March 31, 2011, March 31, 2010 and March 31, 2009
    
    
    65Consolidated Statements of Changes in Net Assets for the years ended March 31, 2011, March 31, 2010 and March 31, 2009
    
    
    66Consolidated Statements of Cash Flows for the years ended March 31, 2011, March 31, 2010 and March 31, 2009
    
    
    67Consolidated Schedules of Investments as of March 31, 2011 and March 31, 2010
    
    
    68Notes to Consolidated Financial Statements
    
    
    72
 61




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Report of Management on Internal Controls
       62




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
  Internal Control  Integrated Framework
    
 63




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GLADSTONE INVESTMENT CORPORATION
 
 CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
 March 31,2011
    
    
    2010ASSETSInvestments at fair valueControl investments (Cost of $136,306and $152,166, respectively)
    
    $
    104,062
    
    
    $
    148,248Affiliate investments (Cost of $45,145and $52,727, respectively)
    
    
    34,556
    
    
    
    37,664Non-Control/Non-Affiliate investments (Cost of $15,741and $22,674, respectively)
    
    
    14,667
    
    
    
    20,946Total investments (Cost of $197,192and $227,567, respectively)
    
    
    153,285
    
    
    
    206,858Cash and cash equivalents
    
    
    80,580
    
    
    
    87,717Restricted cash
    
    
    4,499
    
    
    
    Interest receivable
    
    
    737
    
    
    
    1,234Due from Custodian
    
    
    859
    
    
    
    935Deferred financing fees
    
    
    373
    
    
    
    83Prepaid assets
    
    
    224
    
    
    
    221Other assets
    
    
    552
    
    
    
    113TOTAL ASSETS
    
    $
    241,109
    
    
    $
    297,161LIABILITIESBorrowings at fair valueShort-term loan (Cost of $40,000and $75,000, respectively)
    
    $
    40,000
    
    
    $
    75,000Credit Facility (Cost of $0and $27,800, respectively)
    
    
    
    
    
    
    27,812Total borrowings (Cost of $40,000and $102,800, respectively)
    
    
    40,000
    
    
    
    102,812Accounts payable and accrued expenses
    
    
    201
    
    
    
    206Fees due to Adviser(1)
    
    
    499
    
    
    
    721Fee due to Administrator(1)
    
    
    171
    
    
    
    149Other liabilities
    
    
    1,409
    
    
    
    295TOTAL LIABILITIES
    
    
    42,280
    
    
    
    104,183NET ASSETS
    
    $
    198,829
    
    
    $
    192,978ANALYSIS OF NET ASSETSCommon stock, $0.001 par value per share, 100,000,000 shares authorized, 22,080,133
shares issued and outstanding at March 31, 2011 and 2010
    
    $
    22
    
    
    $
    22Capital in excess of par value
    
    
    257,192
    
    
    
    257,206Net unrealized depreciation of investment portfolio
    
    
    (43,907
    )
    
    
    (20,710
    )Net unrealized depreciation of other
    
    
    (76
    )
    
    
    (51
    )Undistributed net investment income
    
    
    165
    
    
    
    Accumulated net realized investment loss
    
    
    (14,567
    )
    
    
    (43,489
    )TOTAL NET ASSETS
    
    $
    198,829
    
    
    $
    192,978NET ASSETS PER SHARE
    
    $
    9.00
    
    
    $
    8.74
 
 (1)
    
    Refer to Note 4Related Party Transactionsfor additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
 64




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GLADSTONE INVESTMENT CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
 Year Ended March 31,2011
    
    
    2010
    
    
    2009INVESTMENT INCOMEInterest incomeControl investments
    
    $
    10,108
    
    
    $
    11,745
    
    
    $
    11,306Affiliate investments
    
    
    4,003
    
    
    
    5,677
    
    
    
    5,378Non-Control/Non-Affiliate investments
    
    
    1,578
    
    
    
    2,393
    
    
    
    8,494Cash and cash equivalents
    
    
    33
    
    
    
    2
    
    
    
    67Total interest income
    
    
    15,722
    
    
    
    19,817
    
    
    
    25,245Other incomeControl investments
    
    
    10,342
    
    
    
    968
    
    
    
    Affiliate investments
    
    
    
    
    
    
    
    
    
    
    567Total other income
    
    
    10,342
    
    
    
    968
    
    
    
    567Total investment income
    
    
    26,064
    
    
    
    20,785
    
    
    
    25,812EXPENSESLoan servicing fee(1)
    
    
    2,743
    
    
    
    3,747
    
    
    
    5,002Base management fee(1)
    
    
    1,236
    
    
    
    737
    
    
    
    1,699Incentive fee(1)
    
    
    2,949
    
    
    
    588
    
    
    
    Administration fee(1)
    
    
    753
    
    
    
    676
    
    
    
    821Interest expense
    
    
    701
    
    
    
    1,988
    
    
    
    5,349Amortization of deferred financing fees
    
    
    491
    
    
    
    1,618
    
    
    
    323Professional fees
    
    
    473
    
    
    
    626
    
    
    
    532Stockholder related costs
    
    
    273
    
    
    
    295
    
    
    
    485Insurance expense
    
    
    293
    
    
    
    262
    
    
    
    222Directors fees
    
    
    201
    
    
    
    196
    
    
    
    194Other expenses
    
    
    460
    
    
    
    280
    
    
    
    271Expenses before credits from Adviser
    
    
    10,573
    
    
    
    11,013
    
    
    
    14,898Credits to fees from Adviser(1)
    
    
    (680
    )
    
    
    (826
    )
    
    
    (2,474
    )Total expenses net of credits to fees
    
    
    9,893
    
    
    
    10,187
    
    
    
    12,424NET INVESTMENT INCOME
    
    
    16,171
    
    
    
    10,598
    
    
    
    13,388REALIZED AND UNREALIZED GAIN (LOSS)Realized gain (loss) on sale of investments
    
    
    23,489
    
    
    
    (35,923
    )
    
    
    (5,023
    )Realized loss on other
    
    
    
    
    
    
    (53
    )
    
    
    Net unrealized (depreciation) appreciation of investment portfolio
    
    
    (23,197
    )
    
    
    14,305
    
    
    
    (19,814
    )Net unrealized (depreciation) appreciation of other
    
    
    (24
    )
    
    
    2
    
    
    
    Net gain (loss) on investments and other
    
    
    268
    
    
    
    (21,669
    )
    
    
    (24,837
    )NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
    
    $
    16,439
    
    
    $
    (11,071
    )
    
    $
    (11,449
    )NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS PER
COMMON SHAREBasic and diluted
    
    $
    0.74
    
    
    $
    (0.50
    )
    
    $
    (0.53
    )WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDINGBasic and diluted weighted average shares
    
    
    22,080,133
    
    
    
    22,080,133
    
    
    
    21,545,936
 
 (1)
    
    Refer to Note 4Related Party Transactionsfor additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
 
 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
 (IN THOUSANDS)
 Year Ended March 31,2011
    
    
    2010
    
    
    2009Operations:Net investment income
    
    $
    16,171
    
    
    $
    10,598
    
    
    $
    13,388Realized gain (loss) on sale of investments
    
    
    23,489
    
    
    
    (35,923
    )
    
    
    (5,023
    )Realized loss on other
    
    
    
    
    
    
    (53
    )
    
    
    Net unrealized (depreciation) appreciation of investment portfolio
    
    
    (23,197
    )
    
    
    14,305
    
    
    
    (19,814
    )Net unrealized (depreciation) appreciation of other
    
    
    (24
    )
    
    
    2
    
    
    
    Net increase (decrease) in net assets from operations
    
    
    16,439
    
    
    
    (11,071
    )
    
    
    (11,449
    )Capital transactions:Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    41,290Shelf offering registration costs
    
    
    10
    
    
    
    (155
    )
    
    
    (728
    )Net increase (decrease) in net assets from capital transactions
    
    
    10
    
    
    
    (155
    )
    
    
    40,562Distributions to stockholders from:Net investment income
    
    
    (10,598
    )
    
    
    (10,598
    )
    
    
    (13,388
    )Tax return on capital
    
    
    
    
    
    
    
    
    
    
    (7,368
    )Net decrease in net assets from distributions to stockholders
    
    
    (10,598
    )
    
    
    (10,598
    )
    
    
    (20,756
    )Total increase (decrease) in net assets
    
    
    5,851
    
    
    
    (21,824
    )
    
    
    8,357Net assets at beginning of year
    
    
    192,978
    
    
    
    214,802
    
    
    
    206,445Net assets at end of year
    
    $
    198,829
    
    
    $
    192,978
    
    
    $
    214,802
 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (IN THOUSANDS)
 Year Ended March 31,2011
    
    
    2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIESNet increase (decrease) in net assets resulting from operations
    
    $
    16,439
    
    
    $
    (11,071
    )
    
    $
    (11,449
    )Adjustments to reconcile net decrease in net assets resulting from operations to
net cash provided by operating activities:Purchase of investments
    
    
    (43,634
    )
    
    
    (4,788
    )
    
    
    (49,959
    )Principal repayments of investments
    
    
    62,482
    
    
    
    15,534
    
    
    
    32,828Proceeds from sales of investments
    
    
    35,009
    
    
    
    74,706
    
    
    
    13,914Net realized (gain) loss on sales of investments
    
    
    (23,489
    )
    
    
    35,923
    
    
    
    5,023Net realized loss on other
    
    
    
    
    
    
    53
    
    
    
    Net unrealized depreciation (appreciation) of investment portfolio
    
    
    23,197
    
    
    
    (14,305
    )
    
    
    19,814Net unrealized depreciation (appreciation) of other
    
    
    24
    
    
    
    (2
    )
    
    
    Net amortization of premiums and discounts
    
    
    8
    
    
    
    2
    
    
    
    54Amortization of deferred financing fees
    
    
    491
    
    
    
    1,618
    
    
    
    323Increase in restricted cash
    
    
    (4,499
    )
    
    
    
    
    
    
    Decrease in interest receivable
    
    
    497
    
    
    
    266
    
    
    
    162Decrease in due from custodian
    
    
    76
    
    
    
    1,771
    
    
    
    1,693(Increase) decrease in prepaid assets
    
    
    (3
    )
    
    
    (49
    )
    
    
    308(Increase) decrease in other assets
    
    
    (435
    )
    
    
    19
    
    
    
    244(Decrease) increase in accounts payable and accrued expenses
    
    
    (1
    )
    
    
    (1,077
    )
    
    
    371Increase (decrease) in administration fee payable to Administrator(1)
    
    
    22
    
    
    
    (30
    )
    
    
    (29
    )(Decrease) increase in fees due to Adviser(1)
    
    
    (222
    )
    
    
    534
    
    
    
    276Increase in other liabilities
    
    
    1,114
    
    
    
    168
    
    
    
    38Net cash provided by operating activities
    
    
    67,076
    
    
    
    99,272
    
    
    
    13,611CASH FLOWS FROM FINANCING ACTIVITIES:Shelf offering registration proceeds (costs), net
    
    
    10
    
    
    
    (155
    )
    
    
    40,562Proceeds from short-term borrowings
    
    
    207,401
    
    
    
    290,000
    
    
    
    Repayments on short-term borrowings
    
    
    (242,401
    )
    
    
    (215,000
    )
    
    
    Borrowings from Credit Facility
    
    
    24,000
    
    
    
    107,500
    
    
    
    123,850Repayments on Credit Facility
    
    
    (51,800
    )
    
    
    (189,965
    )
    
    
    (158,420
    )Purchase of derivative
    
    
    (41
    )
    
    
    (39
    )
    
    
    Deferred financing fees
    
    
    (784
    )
    
    
    (534
    )
    
    
    (971
    )Distributions paid
    
    
    (10,598
    )
    
    
    (10,598
    )
    
    
    (20,756
    )Net cash used in financing activities
    
    
    (74,213
    )
    
    
    (18,791
    )
    
    
    (15,735
    )NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (7,137
    )
    
    
    80,481
    
    
    
    (2,124
    )CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    87,717
    
    
    
    7,236
    
    
    
    9,360CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    80,580
    
    
    $
    87,717
    
    
    $
    7,236CASH PAID DURING YEAR FOR INTEREST
    
    $
    762
    
    
    $
    2,182
    
    
    $
    5,428NON-CASH ACTIVITIES
(2)
    
    
    527
    
    
    
    850
    
    
    
    3,043
 
 (1)

    Refer to Note 4Related Party Transactionsfor additional information.(2)
    2011:
    Non-cash activities represent real
property distributed to
shareholders of A.Stucki as a
dividend prior to its sale in June
2010, from which the Company
recorded dividend income of $515,
and $12 of paid in-kind income from
the Companys syndicated loan to
Survey Sampling, LLC. The
distributed property is included in
the Companys Schedule of
Investments at March 31, 2011, and
its fair value was recognized as
other income on the Companys
Statements of Operations during the
year ended March 31, 2011.2010:
    Non-cash activities represent an
investment disbursement to Cavert
II Holding Corp. for approximately
$850 on their revolving line of
credit, which proceeds were used to
make the next four quarterly
payments due under normal
amortization for both their senior
term A and senior term B loans in a
non-cash transaction.2009:
    Non-cash activities represent the
assumption of senior term notes
from American Greetings Corporation
in exchange for a settlement
agreement related to RPG, a senior
syndicated loan. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
 
 CONSOLIDATED SCHEDULES OF INVESTMENTS
 MARCH 31, 2011
 (DOLLAR AMOUNTS IN THOUSANDS)
 Company(1)
    
    Industry
    
    Investment(2)
    
    Principal
    
    
    Cost
    
    
    Fair ValueCONTROL INVESTMENTS:Acme Cryogenics, Inc.
    
    Manufacturing  manifolds and  pipes for industrial gasses
    
    Senior Subordinated Term Debt (11.5%, Due 3/2012)
    
    $
    14,500
    
    
    $
    14,500
    
    
    $
    14,500Senior Subordinated Term Debt (12.5%, Due 12/2011)
    
    
    415
    
    
    
    415
    
    
    
    415Preferred Stock (898,814 shares)(4)(7)
    
    
    
    
    
    
    6,984
    
    
    
    4,991Common Stock (418,072 shares)(4)(7)
    
    
    
    
    
    
    1,045
    
    
    
    Common Stock Warrants (452,683 shares)(4)(7)
    
    
    
    
    
    
    24
    
    
    
    22,968
    
    
    
    19,906ASH Holdings Corp.
    
    Retail and Service  school buses and parts
    
    Revolving Credit Facility, $717 available (non-accrual, Due 3/2013)(4)
    
    
    3,283
    
    
    
    3,241
    
    
    
    Senior Subordinated Term Debt (non-accrual, Due 3/2013)(4)
    
    
    6,250
    
    
    
    6,060
    
    
    
    Preferred Stock (2,500 shares)(4)(7)
    
    
    
    
    
    
    2,500
    
    
    
    Common Stock (1 share)(4)(7)
    
    
    
    
    
    
    
    
    
    
    Common Stock Warrants (73,599 shares)(4)(7)
    
    
    
    
    
    
    4
    
    
    
    Guaranty ($750)11,805
    
    
    
    Cavert II Holding Corp.(10)
    
    Manufacturing  bailing wire
    
    Senior Term Debt (10.0%, Due 10/2012)(6)
    
    
    2,650
    
    
    
    2,650
    
    
    
    2,650Senior Subordinated Term Debt (13.0%, Due 10/2014)
    
    
    4,671
    
    
    
    4,671
    
    
    
    4,671Preferred Stock (41,102 shares)(4)(7)
    
    
    
    
    
    
    4,110
    
    
    
    5,354Common Stock (69,126 shares)(4)(7)
    
    
    
    
    
    
    69
    
    
    
    5,57711,500
    
    
    
    18,252Country Club Enterprises, LLC
    
    Service  golf cart distribution
    
    Senior Subordinated Term Debt (16.3%, Due 11/2014)(5)
    
    
    8,000
    
    
    
    8,000
    
    
    
    7,560Preferred Stock (2,380,000 shares)(4)(7)
    
    
    
    
    
    
    3,725
    
    
    
    Guaranty ($3,914)11,725
    
    
    
    7,560Galaxy Tool Holding Corp.
    
    Manufacturing  aerospace and  plastics
    
    Senior Subordinated Term Debt (13.5%, Due 8/2013)
    
    
    5,220
    
    
    
    5,220
    
    
    
    5,220Preferred Stock (4,111,907 shares)(4)(7)
    
    
    
    
    
    
    19,658
    
    
    
    1,439Common Stock (48,093 shares)(4)(7)
    
    
    
    
    
    
    48
    
    
    
    24,926
    
    
    
    6,659Mathey Investments, Inc.
    
    Manufacturing  pipe-cutting and pipe-fitting equipment
    
    Revolving Credit Facility, $718 available (10.0%, Due 3/2012)(5)
    
    
    1,032
    
    
    
    1,032
    
    
    
    1,022Senior Term Debt (10.0%, Due 3/2013)(5)
    
    
    2,375
    
    
    
    2,375
    
    
    
    2,345Senior Term Debt (12.0%, Due 3/2014)(5)
    
    
    3,727
    
    
    
    3,727
    
    
    
    3,643Senior Term Debt (2.5%, Due 3/2014)(5)(6)
    
    
    3,500
    
    
    
    3,500
    
    
    
    3,421Common Stock (37 shares)(4)(7)
    
    
    
    
    
    
    500
    
    
    
    Common Stock Warrants (21 shares)(4)(7)
    
    
    
    
    
    
    277
    
    
    
    11,411
    
    
    
    10,431Neville Limited(9)
    
    Real Estate  investments
    
    Common Stock (100 shares)(4)(7)
    
    
    
    
    
    
    610
    
    
    
    534610
    
    
    
    534Precision Southeast, Inc.
    
    Manufacturing  injection molding and plastics
    
    Revolving Credit Facility, $251 available (7.5%, Due 12/2011)
    
    
    749
    
    
    
    749
    
    
    
    749Senior Term Debt (14.0%, Due 12/2015)
    
    
    7,775
    
    
    
    7,775
    
    
    
    7,775Preferred Stock (19,091 shares)(4)(7)
    
    
    
    
    
    
    1,909
    
    
    
    1,948Common Stock (90,909 shares)(4)(7)
    
    
    
    
    
    
    91
    
    
    
    30510,524
    
    
    
    10,777Tread Corp.(8)
    
    Manufacturing  storage and  transport equipment
    
    Senior Subordinated Term Debt (12.5%, Due 5/2013)(5)
    
    
    5,000
    
    
    
    5,000
    
    
    
    4,931Preferred Stock (832,765 shares)(4)(7)
    
    
    
    
    
    
    833
    
    
    
    Common Stock (129,067 shares)(4)(7)
    
    
    
    
    
    
    1
    
    
    
    Common Stock Warrants (1,022,727 shares)(4)(7)
    
    
    
    
    
    
    3
    
    
    
    5,837
    
    
    
    4,931Venyu Solutions, Inc.
    
    Service  online servicing suite
    
    Senior Subordinated Term Debt (11.3%, Due 10/2015)
    
    
    7,000
    
    
    
    7,000
    
    
    
    7,000Senior Subordinated Term Debt (14.0%, Due 10/2015)
    
    
    12,000
    
    
    
    12,000
    
    
    
    12,000Preferred Stock (5,400 shares)(4)(7)
    
    
    
    
    
    
    6,000
    
    
    
    6,01225,000
    
    
    
    25,012Total Control Investments (represents 67.9% of total investments at fair value)
    
    
    
    
    
    $
    136,306
    
    
    $
    104,062
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##### Table of Contents



GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS (Continued)
MARCH 31, 2011
(DOLLAR AMOUNTS IN THOUSANDS)
 Company(1)
    
    Industry
    
    Investment(2)
    
    Principal
    
    
    Cost
    
    
    Fair ValueAFFILIATE INVESTMENTS:Danco Acquisition Corp.
    
    Manufacturing  machining and sheet metal work
    
    Revolving Credit Facility, $400 available (10.0%, Due 10/2011)(5)
    
    $
    1,100
    
    
    $
    1,100
    
    
    $
    1,084Senior Term Debt (10.0%, Due 10/2012)(5)
    
    
    2,925
    
    
    
    2,925
    
    
    
    2,881Senior Term Debt (12.5%, Due 4/2013)(5)
    
    
    8,961
    
    
    
    8,961
    
    
    
    8,781Preferred Stock (25 shares)(4)(7)
    
    
    
    
    
    
    2,500
    
    
    
    Common Stock Warrants (420 shares)(4)(7)
    
    
    
    
    
    
    2
    
    
    
    15,488
    
    
    
    12,746Noble Logistics, Inc.
    
    Service  aftermarket auto parts delivery
    
    Revolving Credit Facility, $300 available (4.3%, Due 6/2011)(5)
    
    
    300
    
    
    
    300
    
    
    
    206Senior Term Debt (9.2%, Due 12/2012)(5)
    
    
    7,227
    
    
    
    7,227
    
    
    
    4,951Senior Term Debt (10.5%, Due 12/2012)(5)
    
    
    3,650
    
    
    
    3,650
    
    
    
    2,500Senior Term Debt (10.5%, Due 12/2012)(5)(6)
    
    
    3,650
    
    
    
    3,650
    
    
    
    2,500Preferred Stock (1,075,000 shares)(4)(7)
    
    
    
    
    
    
    1,750
    
    
    
    3,026Common Stock (1,682,444 shares)(4)(7)
    
    
    
    
    
    
    1,683
    
    
    
    18,260
    
    
    
    13,183Quench Holdings Corp.
    
    Service  sales, installation and  service of water coolers
    
    Senior Subordinated Term Debt (10.0%, Due 8/2013)(5)
    
    
    8,000
    
    
    
    8,000
    
    
    
    6,000Preferred Stock (388 shares)(4)(7)
    
    
    
    
    
    
    2,950
    
    
    
    2,627Common Stock (35,242 shares)(4)(7)
    
    
    
    
    
    
    447
    
    
    
    11,397
    
    
    
    8,627Total Affiliate Investments (represents 22.5% of total investments at fair value)
    
    
    
    
    
    $
    45,145
    
    
    $
    34,556NON-CONTROL/NON-AFFILIATE INVESTMENTS:Syndicated Loans:Fifth Third Processing Solutions, LLC(11)
    
    Service  electronic payment processing
    
    Senior Subordinated Term Debt (8.3%, Due 11/2017)(3)
    
    $
    500
    
    
    $
    495
    
    
    $
    509Survey Sampling, LLC
    
    Service  telecommunications-based sampling
    
    Senior Term Debt (10.7%, Due 12/2012)(3)
    
    
    2,306
    
    
    
    2,308
    
    
    
    1,499Subtotal  Syndicated Loans
    
    
    
    
    
    
    
    
    
    
    2,803
    
    
    
    2,008Non-syndicated Loans:American Greetings Corporation
    
    Manufacturing and design  greeting cards
    
    Senior Notes (7.4%, Due 6/2016)(3)
    
    
    3,043
    
    
    
    3,043
    
    
    
    3,073B-Dry, LLC
    
    Service  basement waterproofer
    
    Senior Term Debt (11.0%, Due 5/2014)(5)
    
    
    6,545
    
    
    
    6,545
    
    
    
    6,512Senior Term Debt (11.5%, Due 5/2014)(5)
    
    
    3,050
    
    
    
    3,050
    
    
    
    3,035Common Stock Warrants (55 shares)(4)(7)
    
    
    
    
    
    
    300
    
    
    
    399,895
    
    
    
    9,586Total Non-Control/Non-Affiliate Investments (represents 9.6% of total investments at fair value)
    
    
    
    
    
    $
    15,741
    
    
    $
    14,667TOTAL INVESTMENTS(12)
    
    
    
    
    
    $
    197,192
    
    
    $
    153,285
 
 (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, 2011, and due date represents the contractual maturity date.(3)
    
    Valued based on the indicative bid price on or near March 31, 2011, offered by the respective syndication agents trading desk or secondary desk.(4)
    
    Security is non-income producing.(5)
    
    Fair value based on opinions of value submitted by Standard & Poors Securities Evaluations, Inc. at March 31, 2011.(6)
    
    Last Out Tranche (LOT) of senior debt, meaning if the portfolio company is liquidated, the holder of the LOT is paid after the other senior debt and before the senior subordinated debt.(7)
    
    Aggregates all shares of such class of stock owned by the Company without regard to specific series owned within such class, some series of which may or may not be voting shares or
aggregates all warrants to purchase shares of such class of stock owned by the Company without regard to specific series of such class of stock such warrants allow the Company to purchase.(8)
    
    In June 2010, an additional equity investment increased the Companys fully-diluted ownership above 25%, resulting in the investment being reclassified as Control during the quarter
ended June 30, 2010.(9)
    
    In July 2010, Gladstone Neville Corp. changed its name to Neville Limited.(10)
    
    In April 2011, the Company sold its equity investment, received partial redemption of its preferred stock and invested new subordinated debt in Cavert II Holding Corp. as part of a
recapitalization. See Note 14,Subsequent Events, for more detail on this transaction.(11)
    
    In May 2011, the Company received full repayment of its senior subordinated term debt to Fifth Third Processing Solutions, LLC.(12)
    
    Aggregate gross unrealized depreciation for federal income tax purposes is $52,243; aggregate gross unrealized appreciation for federal income tax purposes is $8,336. Net unrealized
depreciation is $43,907 based on a tax cost of $197,192. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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##### Table of Contents



GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS
MARCH 31, 2010
(DOLLAR AMOUNTS IN THOUSANDS)
 Company(1)
    
    Industry
    
    Investment(2)
    
    Principal
    
    
    Cost
    
    
    Fair ValueCONTROL INVESTMENTS:A. Stucki Holding Corp.
    
    Manufacturing  railroad freight car products
    
    Senior Term Debt (4.7%, Due 3/2012)
    
    $
    9,101
    
    
    $
    9,101
    
    
    $
    9,101Senior Term Debt (7.0%, Due 3/2012)(6)
    
    
    9,900
    
    
    
    9,900
    
    
    
    9,900Senior Subordinated Term Debt (13.0%, Due 3/2014)
    
    
    9,456
    
    
    
    9,456
    
    
    
    9,456Preferred Stock (43,867 shares)(7)
    
    
    
    
    
    
    4,387
    
    
    
    4,529Common Stock (130,054 shares)(4)(7)
    
    
    
    
    
    
    130
    
    
    
    17,39332,974
    
    
    
    50,379Acme Cryogenics, Inc.
    
    Manufacturing  manifolds and pipes for industrial gasses
    
    Senior Subordinated Term Debt (11.5%, Due 3/2012)
    
    
    14,500
    
    
    
    14,500
    
    
    
    13,585Preferred Stock (898,814 shares)(4)(7)
    
    
    
    
    
    
    6,984
    
    
    
    Common Stock (418,072 shares)(4)(7)
    
    
    
    
    
    
    1,045
    
    
    
    Common Stock Warrants (452,683 shares)(4)(7)
    
    
    
    
    
    
    24
    
    
    
    22,553
    
    
    
    13,585ASH Holdings Corp.
    
    Retail and Service  school buses and parts
    
    Revolving Credit Facility, $496 available (non-accrual, Due 3/2013)(5)
    
    
    1,504
    
    
    
    1,504
    
    
    
    421Senior Subordinated Term Debt (non-accrual, Due 3/2013)(5)
    
    
    6,250
    
    
    
    6,250
    
    
    
    1,750Preferred Stock (2,500 shares)(4)(7)
    
    
    
    
    
    
    2,500
    
    
    
    Common Stock (1 share)(4)(7)
    
    
    
    
    
    
    
    
    
    
    Common Stock Warrants (73,599 shares)(4)(7)
    
    
    
    
    
    
    4
    
    
    
    Guaranty ($250)10,258
    
    
    
    2,171Cavert II Holding Corp.
    
    Manufacturing  bailing wire
    
    Senior Term Debt (8.3%, Due 10/2012)(11)
    
    
    2,875
    
    
    
    2,875
    
    
    
    2,875Senior Term Debt (10.0%, Due 10/2012)(6)
    
    
    2,700
    
    
    
    2,700
    
    
    
    2,700Senior Subordinated Term Debt (13.0%, Due 10/2014)
    
    
    4,671
    
    
    
    4,671
    
    
    
    4,671Preferred Stock (41,102 shares)(4)(7)
    
    
    
    
    
    
    4,110
    
    
    
    4,959Common Stock (69,126 shares)(4)(7)
    
    
    
    
    
    
    69
    
    
    
    3,52614,425
    
    
    
    18,731Chase II Holdings Corp.
    
    Manufacturing  traffic doors
    
    Senior Term Debt (8.8%, Due 3/2011)
    
    
    7,700
    
    
    
    7,700
    
    
    
    7,700Senior Term Debt (12.0%, Due 3/2011)(6)
    
    
    7,520
    
    
    
    7,520
    
    
    
    7,520Senior Subordinated Term Debt (13.0%, Due 3/2013)
    
    
    6,168
    
    
    
    6,168
    
    
    
    6,168Preferred Stock (69,608 shares)(4)(7)
    
    
    
    
    
    
    6,961
    
    
    
    7,713Common Stock (61,384 shares)(4)(7)
    
    
    
    
    
    
    61
    
    
    
    28,410
    
    
    
    29,101Country Club Enterprises, LLC
    
    Service  golf cart distribution
    
    Senior Subordinated Term Debt (16.7%, Due 11/2014)(5)
    
    
    7,000
    
    
    
    7,000
    
    
    
    6,869Preferred Stock (2,380,000 shares)(4)(7)
    
    
    
    
    
    
    3,725
    
    
    
    Guaranty ($2,000)10,725
    
    
    
    6,869Galaxy Tool Holding Corp.
    
    Manufacturing  aerospace and plastics
    
    Senior Subordinated Term Debt (13.5%, Due 8/2013)(5)
    
    
    17,250
    
    
    
    17,250
    
    
    
    17,099Preferred Stock (4,111,907 shares)(4)(7)
    
    
    
    
    
    
    4,112
    
    
    
    Common Stock (48,093 shares)(4)(7)
    
    
    
    
    
    
    48
    
    
    
    21,410
    
    
    
    17,099Mathey Investments, Inc.
    
    Manufacturing  pipe-cutting and pipe-fitting equipment
    
    Revolving Credit Facility, $718 available (10.0%, Due 3/2011)(5)
    
    
    1,032
    
    
    
    1,032
    
    
    
    1,011Senior Term Debt (10.0%, Due 3/2013)(5)
    
    
    2,375
    
    
    
    2,375
    
    
    
    2,328Senior Term Debt (17.0%, Due 3/2014)(5) (6) (10)
    
    
    7,727
    
    
    
    7,727
    
    
    
    6,974Common Stock (37 shares)(4)(7)
    
    
    
    
    
    
    500
    
    
    
    Common Stock Warrants (21 shares)(4)(7)
    
    
    
    
    
    
    277
    
    
    
    11,411
    
    
    
    10,313Total Control Investments (represents 71.7% of total investments at fair value)
    
    
    
    
    
    $
    152,166
    
    
    $
    148,248
 70




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GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS (Continued)
MARCH 31, 2010
(DOLLAR AMOUNTS IN THOUSANDS)
 Company(1)
    
    Industry
    
    Investment(2)
    
    Principal
    
    
    Cost
    
    
    Fair ValueAFFILIATE INVESTMENTS:Danco Acquisition Corp.
    
    Manufacturing  machining and sheet metal work
    
    Revolving Credit Facility, $600 available (10.0%, Due 10/2010)(5)
    
    $
    900
    
    
    $
    900
    
    
    $
    893Senior Term Debt (10.0%, Due 10/2012)(5)
    
    
    4,163
    
    
    
    4,163
    
    
    
    4,131Senior Term Debt (12.5%, Due 4/2013)(5)
    
    
    9,053
    
    
    
    9,053
    
    
    
    8,929Preferred Stock (25 shares)(4)(7)
    
    
    
    
    
    
    2,500
    
    
    
    Common Stock Warrants (420 shares)(4)(7)
    
    
    
    
    
    
    2
    
    
    
    16,618
    
    
    
    13,953Noble Logistics, Inc.
    
    Service  aftermarket auto parts delivery
    
    Revolving Credit Facility, $0 available (4.2%, Due 5/2010)(5)
    
    
    2,000
    
    
    
    2,000
    
    
    
    1,210Senior Term Debt (9.3%, Due 12/2011)(5)
    
    
    6,227
    
    
    
    6,227
    
    
    
    3,767Senior Term Debt (10.5%, Due 12/2011)(5) (6)
    
    
    7,300
    
    
    
    7,300
    
    
    
    4,417Preferred Stock (1,075,000 shares)(4)(7)
    
    
    
    
    
    
    1,750
    
    
    
    Common Stock (1,682,444 shares)(4)(7)
    
    
    
    
    
    
    1,682
    
    
    
    18,959
    
    
    
    9,394Quench Holdings Corp.
    
    Service  sales, installation and service of water coolers
    
    Senior Subordinated Term Debt (10.0%, Due 8/2013)(5)
    
    
    8,000
    
    
    
    8,000
    
    
    
    6,150Preferred Stock (388 shares)(4)(7)
    
    
    
    
    
    
    2,950
    
    
    
    3,224Common Stock (35,242 shares)(4)(7)
    
    
    
    
    
    
    447
    
    
    
    11,397
    
    
    
    9,374Tread Corp.
    
    Manufacturing  storage and transport equipment
    
    Senior Subordinated Term Debt (12.5%, Due 5/2013)(5)
    
    
    5,000
    
    
    
    5,000
    
    
    
    4,943Preferred Stock (750,000 shares)(4)(7)
    
    
    
    
    
    
    750
    
    
    
    Common Stock Warrants (1,022,727 shares)(4)(7)
    
    
    
    
    
    
    3
    
    
    
    5,753
    
    
    
    4,943Total Affiliate Investments (represents 18.2% of total investments at fair value)
    
    
    
    
    
    $
    52,727
    
    
    $
    37,664NON-CONTROL/NON-AFFILIATE INVESTMENTS:Syndicated Loans:Interstate FiberNet, Inc.
    
    Service  provider of voice and data telecommunications services
    
    Senior Term Debt (4.3%, Due 7/2013)(9)
    
    $
    6,762
    
    
    $
    6,743
    
    
    $
    6,762Survey Sampling, LLC
    
    Service  telecommunications-based sampling
    
    Senior Term Debt (9.5%, Due 5/2011)(3)
    
    
    2,375
    
    
    
    2,385
    
    
    
    1,069Subtotal  Syndicated Loans
    
    
    
    
    
    
    
    
    
    
    9,128
    
    
    
    7,831Non-syndicated Loans:American Greetings Corporation
    
    Manufacturing and design  greeting cards
    
    Senior Notes (7.4%, Due 6/2016)(3)
    
    
    3,043
    
    
    
    3,043
    
    
    
    2,895B-Dry, LLC
    
    Service  basement waterproofer
    
    Senior Term Debt (10.5%, Due 5/2014)(5)
    
    
    6,613
    
    
    
    6,613
    
    
    
    6,596Senior Term Debt (10.5%, Due 5/2014)(5)
    
    
    3,590
    
    
    
    3,590
    
    
    
    3,581Common Stock Warrants (55 shares)(4)(7)
    
    
    
    
    
    
    300
    
    
    
    4310,503
    
    
    
    10,220Total Non-Control/Non-Affiliate Investments (represents 10.1% of total investments at fair value)
    
    
    
    
    
    $
    22,674
    
    
    $
    20,946TOTAL INVESTMENTS(11)
    
    
    
    
    
    $
    227,567
    
    
    $
    206,858
 
 (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, 2010, and due date represents the contractual maturity date.(3)
    
    Valued based on the indicative bid price on or near March 31, 2010, offered by the respective syndication agents trading desk or secondary desk.(4)
    
    Security is non-income producing.(5)
    
    Fair value based on opinions of value submitted by Standard & Poors Securities Evaluations, Inc. at March 31, 2010.(6)
    
    Last Out Tranche of senior debt, meaning if the portfolio company is liquidated, the holder of the Last Out Tranche is paid after the other
senior debt and before the senior subordinated debt.(7)
    
    Aggregates all shares of such class of stock owned by the Company without regard to specific series owned within such class, some series of
which may or may not be voting shares or aggregates all warrants to purchase shares of such class of stock owned by the Company without regard to
specific series of such class of stock such warrants allow the Company to purchase.(8)
    
    Restructured in December 2009, resulting in the Company owning 100% of Mathey Investments, Inc. and thus reclassifying it as a Control Investment.(9)
    
    Security was paid off, at par, subsequent to March 31, 2010 and was valued based on the pay off.(10)
    
    Loan was restructured into two separate term loans with face values of $3.7 million and $3.5 million effective February 2010.(11)
    
    Loan was repaid, in full, subsequent to March 31, 2010.(12)
    
    Aggregate gross unrealized depreciation for federal income tax purposes is $43,465; aggregate gross unrealized appreciation for federal income
tax purposes is $22,756. Net unrealized depreciation is $20,709 based on a tax cost of $227,567.  71




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GLADSTONE INVESTMENT CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2011
 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
 NOTE 1. ORGANIZATION
    NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
  Reclassifications
  Consolidation
  Use of Estimates
  Cash and Cash Equivalents
  Restricted Cash
  72




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##### Table of Contents



Classification of Investments
  
    
    Control InvestmentsControl investments are generally those in which the Company owns
more than 25% of the voting securities or has greater than 50% representation on the board
of directors;
    
    Affiliate InvestmentsAffiliate investments are generally those in which the Company
owns from 5% to 25% of the voting securities and has less than 50% representation on the
board of directors, or is otherwise deemed to be an affiliate of the Company under the 1940
Act; and
    
    Non-Control/Non-Affiliate InvestmentsNon-Control/Non-Affiliate investments are
generally those in which the Company owns less than 5% of the voting securities.
 Investment Valuation Policy
    Publicly-traded securities:
 Securities for which a limited market exists:
  73




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##### Table of Contents



Securities for which no market exists:
 (1)
    
    Portfolio investments comprised solely of debt securities:Debt securities that are not
publicly traded on an established securities market, or for which a limited market does not
exist (Non-Public Debt Securities), and that are issued by portfolio companies in which the
Company has no equity, or equity-like securities, are fair valued in accordance with the terms
of the Policy, which utilizes opinions of value submitted to the Company by Standard & Poors
Securities Evaluations, Inc. (SPSE). The Company may also submit paid in-kind (PIK)
interest to SPSE for its evaluation when it is determined that PIK interest is likely to be
received.
 (2)
    
    Portfolio investments in controlled companies comprised of a bundle of investments, which can
include debt and equity securities:The fair value of these investments is determined based on
the total enterprise value (TEV) of the portfolio company, or issuer, utilizing a liquidity
waterfall approach under ASC 820 for the Companys Non-Public Debt Securities and equity or
equity-like securities (e.g. preferred equity, common equity, or other equity-like securities)
that are purchased together as part of a package, where the Company has control or could gain
control through an option or warrant security; both the debt and equity securities of the
portfolio investment would exit in the mergers and acquisition market as the principal market,
generally through a sale or recapitalization of the portfolio company. In accordance with ASC
820, the Company applies the in-use premise of value which assumes the debt and equity
securities are sold together. Under this liquidity waterfall approach, the Company first
calculates the TEV of the issuer by incorporating some or all of the following factors to
determine the TEV of the issuer:
 
    
    the issuers ability to make payments,
    
    the earnings of the issuer,
    
    recent sales to third parties of similar securities,
    
    the comparison to publicly traded securities, and
    
    DCF or other pertinent factors.
 In gathering the sales to third parties of similar securities, the Company may reference
industry statistics and use outside experts. Once the Company has estimated the TEV of the
issuer, the Company will subtract the value of all the debt securities of the issuer, which are
valued at the contractual principal balance. Fair values of these debt securities are discounted
for any shortfall of TEV over the total debt outstanding for the issuer. Once the values for all
outstanding senior securities (which include the debt securities) have been subtracted from the
TEV of the issuer, the remaining amount, if any, is used to determine the value of the issuers
equity or equity-like securities. If, in the Advisers judgment, the liquidity waterfall
approach does not accurately reflect the value of the debt component, the Adviser may recommend
that the Company use a valuation by SPSE, or, if that is unavailable, a DCF valuation technique.(3)
    
    Portfolio investments in non-controlled companies comprised of a bundle of investments, which
can include debt and equity securities:The Company values Non-Public Debt Securities that are
purchased together with equity or equity-like securities from the same portfolio company, or
issuer, for which the Company does not control or cannot gain control as of the measurement
date, using a hypothetical secondary market as the Companys principal market. In accordance
with ASC 820, the Company determines its fair value of these debt securities of non-control
investments assuming the sale of an individual debt security using the in-exchange premise of
value. As such, the Company estimates the fair value of the debt component using estimates of
value provided by SPSE and its own assumptions in the absence of observable market data,
including synthetic credit ratings, estimated remaining life, current market yield and
interest rate spreads of similar securities as of the measurement date. Subsequent to June 30,
2009, for equity or equity-like securities of investments for which the Company does not
control or cannot gain control as of the measurement date, the Company estimates the fair
value of the equity using the in-exchange premise of value based on factors such as the
overall value of the issuer, the relative fair value of other units of account including debt,
or other relative value approaches. Consideration is also given to capital structure and other
contractual obligations that may impact the fair value of the equity. Further, the Company may
utilize comparable values of similar companies, recent investments and indices with similar
structures and risk characteristics or its own assumptions in the absence of other observable
market data and may also employ DCF valuation techniques.
  74




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##### Table of Contents



Interest and Dividend Income Recognition
   Consolidated
Statements of Operations
  Realized Gain or Loss and Unrealized Appreciation or Depreciation of Portfolio Investments
  Deferred Financing Fees
  Related Party Costs
  75




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##### Table of Contents



Federal Income Taxes
   Distributions
  Recent Accounting Pronouncements
  NOTE 3. INVESTMENTS
  
    
    Level 1 inputs to the valuation methodology are quoted prices
(unadjusted) for identical assets or liabilities in active
markets;
    
    Level 2 inputs to the valuation methodology include quoted
prices for similar assets and liabilities in active markets, and
inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the
financial instrument. Level 2 inputs are in those markets for
which there are few transactions, the prices are not current,
little public information exists or instances where prices vary
substantially over time or among brokered market makers; and
    
    Level 3 inputs to the valuation methodology are unobservable and
significant to the fair value measurement. Unobservable inputs are
those inputs that reflect the Companys own assumptions that
market participants would use to price the asset or liability
based upon the best available information.
  Consolidated Statements of Assets and Liabilities
 76




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##### Table of Contents



As of March 31, 2011Total Fair ValueReported inConsolidatedStatement ofLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Assets and LiabilitiesControl InvestmentsSenior term debt
    
    $
    
    
    
    $
    
    
    
    $
    21,605
    
    
    $
    21,605Senior subordinated term debt
    
    
    
    
    
    
    
    
    
    
    56,297
    
    
    
    56,297Preferred equity
    
    
    
    
    
    
    
    
    
    
    19,745
    
    
    
    19,745Common equity/equivalents
    
    
    
    
    
    
    
    
    
    
    6,415
    
    
    
    6,415Total Control investments
    
    
    
    
    
    
    
    
    
    
    104,062
    
    
    
    104,062Affiliate InvestmentsSenior term debt
    
    
    
    
    
    
    
    
    
    
    22,903
    
    
    
    22,903Senior subordinated term debt
    
    
    
    
    
    
    
    
    
    
    6,000
    
    
    
    6,000Preferred equity
    
    
    
    
    
    
    
    
    
    
    5,653
    
    
    
    5,653Total Affiliate investments
    
    
    
    
    
    
    
    
    
    
    34,556
    
    
    
    34,556Non-Control/Non-Affiliate InvestmentsSenior term debt
    
    
    
    
    
    
    
    
    
    
    14,119
    
    
    
    14,119Senior subordinated term debt
    
    
    
    
    
    
    
    
    
    
    509
    
    
    
    509Common equity/equivalents
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    39Total Non-Control/Non-Affiliate
Investments
    
    
    
    
    
    
    
    
    
    
    14,667
    
    
    
    14,667Total Investments at fair value
    
    $
    
    
    
    $
    
    
    
    $
    153,285
    
    
    $
    153,285Cash Equivalents
    
    
    60,000
    
    
    
    
    
    
    
    
    
    
    
    60,000Total Investments and Cash Equivalents
    
    $
    60,000
    
    
    $
    
    
    
    $
    153,285
    
    
    $
    213,285
 Consolidated Statements of Assets and Liabilities
 As of March 31, 2010Total Fair ValueReported inConsolidatedStatement ofLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Assets and LiabilitiesControl InvestmentsSenior term debt
    
    $
    
    
    
    $
    
    
    
    $
    50,110
    
    
    $
    50,110Senior subordinated term debt
    
    
    
    
    
    
    
    
    
    
    60,018
    
    
    
    60,018Preferred equity
    
    
    
    
    
    
    
    
    
    
    17,201
    
    
    
    17,201Common equity/equivalents
    
    
    
    
    
    
    
    
    
    
    20,919
    
    
    
    20,919Total Control investments
    
    
    
    
    
    
    
    
    
    
    148,248
    
    
    
    148,248Affiliate InvestmentsSenior term debt
    
    
    
    
    
    
    
    
    
    
    23,346
    
    
    
    23,346Senior subordinated term debt
    
    
    
    
    
    
    
    
    
    
    11,094
    
    
    
    11,094Preferred equity
    
    
    
    
    
    
    
    
    
    
    3,224
    
    
    
    3,224Total Affiliate investments
    
    
    
    
    
    
    
    
    
    
    37,664
    
    
    
    37,664Non-Control/Non-Affiliate InvestmentsSenior term debt
    
    
    
    
    
    
    
    
    
    
    20,903
    
    
    
    20,903Common equity/equivalents
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    43Total Non-Control/Non-Affiliate
Investments
    
    
    
    
    
    
    
    
    
    
    20,946
    
    
    
    20,946Total Investments at fair value
    
    $
    
    
    
    $
    
    
    
    $
    206,858
    
    
    $
    206,858Cash Equivalents
    
    
    85,000
    
    
    
    
    
    
    
    
    
    
    
    85,000Total Investments and Cash Equivalents
    
    $
    85,000
    
    
    $
    
    
    
    $
    206,858
    
    
    $
    291,858
 77




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Changes in Level 3 Fair Value Measurements of Investments
  Fair value measurements using unobservable data inputs (Level 3)
 Fiscal Year 2011:
 Non-Control/Control
    
    
    Affiliate
    
    
    Non-AffiliateInvestments
    
    
    Investments
    
    
    Investments
    
    
    TotalYear ended March 31, 2011:Fair value as of March 31, 2010
    
    $
    148,248
    
    
    $
    37,664
    
    
    $
    20,946
    
    
    $
    206,858Net realized gains(1)
    
    
    23,470
    
    
    
    
    
    
    
    19
    
    
    
    23,489Net unrealized (depreciation) appreciation(2)
    
    
    (6,476
    )
    
    
    4,474
    
    
    
    673
    
    
    
    (1,329
    )Reversal of previously-recorded appreciation upon
realization(2)
    
    
    (21,849
    )
    
    
    
    
    
    
    (19
    )
    
    
    (21,868
    )Issuances / Originations(3)
    
    
    42,927
    
    
    
    200
    
    
    
    507
    
    
    
    43,634Sales
    
    
    (35,009
    )
    
    
    
    
    
    
    
    
    
    
    (35,009
    )Settlements / Repayments(4)
    
    
    (53,002
    )
    
    
    (2,029
    )
    
    
    (7,459
    )
    
    
    (62,490
    )Transfers(5)
    
    
    5,753
    
    
    
    (5,753
    )
    
    
    
    
    
    
    Fair value as of March 31, 2011
    
    $
    104,062
    
    
    $
    34,556
    
    
    $
    14,667
    
    
    $
    153,285
 Senior
    
    
    
    
    
    
    CommonSenior
    
    
    Subordinated
    
    
    Preferred
    
    
    Equity/Term Debt
    
    
    Term Debt
    
    
    Equity
    
    
    Equivalents
    
    
    TotalYear ended March 31, 2011:Fair value as of March 31, 2010
    
    $
    94,359
    
    
    $
    71,112
    
    
    $
    20,425
    
    
    $
    20,962
    
    
    $
    206,858Net realized gains(1)
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    23,470
    
    
    
    23,489Net unrealized appreciation (depreciation)(2)
    
    
    2,167
    
    
    
    (3,109
    )
    
    
    (3,295
    )
    
    
    2,908
    
    
    
    (1,329
    )Reversal of previously-recorded appreciation upon
realization(2)
    
    
    (19
    )
    
    
    
    
    
    
    (3,923
    )
    
    
    (17,926
    )
    
    
    (21,868
    )Issuances / Originations(3)
    
    
    8,736
    
    
    
    22,958
    
    
    
    11,238
    
    
    
    702
    
    
    
    43,634Sales
    
    
    
    
    
    
    
    
    
    
    (11,347
    )
    
    
    (23,662
    )
    
    
    (35,009
    )Settlements / Repayments(4)
    
    
    (46,635
    )
    
    
    (15,855
    )
    
    
    
    
    
    
    
    
    
    
    (62,490
    )Transfers(6)
    
    
    
    
    
    
    (12,300
    )
    
    
    12,300
    
    
    
    
    
    
    
    Fair value as of March 31, 2011
    
    $
    58,627
    
    
    $
    62,806
    
    
    $
    25,398
    
    
    $
    6,454
    
    
    $
    153,285
 Fiscal Year 2010:
 Non-Control/Control
    
    
    Affiliate
    
    
    Non-AffiliateInvestments
    
    
    Investments
    
    
    Investments
    
    
    TotalYear ended March 31, 2010:Fair value as of March 31, 2009
    
    $
    166,163
    
    
    $
    53,027
    
    
    $
    94,740
    
    
    $
    313,930Net realized gains (losses)(1)
    
    
    
    
    
    
    
    
    
    
    (35,923
    )
    
    
    (35,923
    )Net unrealized (depreciation) appreciation(2)
    
    
    (20,001
    )
    
    
    (4,061
    )
    
    
    2,629
    
    
    
    (21,433
    )Reversal of previously-recorded depreciation upon
realization(2)
    
    
    
    
    
    
    
    
    
    
    35,738
    
    
    
    35,738Issuances / Originations(3)
    
    
    3,925
    
    
    
    713
    
    
    
    150
    
    
    
    4,788Sales
    
    
    
    
    
    
    
    
    
    
    (74,706
    )
    
    
    (74,706
    )Settlements / Repayments(4)
    
    
    (12,968
    )
    
    
    (886
    )
    
    
    (1,682
    )
    
    
    (15,536
    )Transfers(7)
    
    
    11,129
    
    
    
    (11,129
    )
    
    
    
    
    
    
    Fair value as of March 31, 2010
    
    $
    148,248
    
    
    $
    37,664
    
    
    $
    20,946
    
    
    $
    206,858
 78




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##### Table of Contents



Senior
    
    
    
    
    
    
    CommonSenior
    
    
    Subordinated
    
    
    Preferred
    
    
    Equity/Term Debt
    
    
    Term Debt
    
    
    Equity
    
    
    Equivalents
    
    
    TotalYear ended March 31, 2010:Fair value as of March 31, 2009
    
    $
    179,676
    
    
    $
    72,062
    
    
    $
    40,042
    
    
    $
    22,150
    
    
    $
    313,930Net realized gains (losses)(1)
    
    
    (35,923
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,923
    )Net unrealized appreciation (depreciation)(2)
    
    
    759
    
    
    
    (1,387
    )
    
    
    (19,617
    )
    
    
    (1,188
    )
    
    
    (21,433
    )Reversal of previously-recorded depreciation upon
realization(2)
    
    
    35,738
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,738Issuances / Originations(3)
    
    
    2,101
    
    
    
    2,687
    
    
    
    
    
    
    
    
    
    
    
    4,788Sales
    
    
    (74,706
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74,706
    )Settlements / Repayments(4)
    
    
    (13,786
    )
    
    
    (1,750
    )
    
    
    
    
    
    
    
    
    
    
    (15,536
    )Transfers(8)
    
    
    500
    
    
    
    (500
    )
    
    
    
    
    
    
    
    
    
    
    Fair value as of March 31, 2010
    
    $
    94,359
    
    
    $
    71,112
    
    
    $
    20,425
    
    
    $
    20,962
    
    
    $
    206,858
 
 (1)
    
    Included in the realized and unrealized gain (loss) section on the
accompanying Consolidated Statement of Operationsfor the year ended March 31, 2011.(2)
    
    Included in Net unrealized appreciation (depreciation) of investment
portfolio on the accompanying Consolidated Statement of Operationsfor the year ended
March 31, 2011.(3)
    
    Includes PIK and other non-cash disbursements to portfolio companies.(4)
    
    Includes amortization of premiums and discounts and other
cost-adjustments.(5)
    
    Transfer represents the cost basis as of March 31, 2010 of Tread
Corporation, which was reclassified from an Affiliate to a Control investment during the
three months ended June 30, 2010.(6)
    
    Transfer represents $12.3 million of senior subordinated term debt of
Galaxy Tool Holding Corp. at cost as of June 30, 2010 that was converted to preferred and
common equity during the three months ended September 30, 2010.(7)
    
    Transfer represents the cost basis of Mathey as of September 30, 2009,
which was reclassified from an Affiliate to a Control investment during the three months
ended December 31, 2009.(8)
    
    Transfer represents the cost basis as of March 31, 2009 of Noble senior
subordinated term debt that was converted into senior term debt during the three months
ended June 30, 2009. Non-Proprietary Investment Activity
   Proprietary Investment Activity
  
    
    In May 2010, Cavert made full repayment of its senior term A debt owed to the Company
resulting in the receipt of approximately $2.9 million in cash proceeds.
    
    In June 2010, the Company sold its equity investment and received full repayment of its
debt investment in A. Stucki in connection with the sale of 100% of the outstanding capital
stock of A. Stucki. The net cash proceeds to the Company from the sale of its equity in A.
Stucki were $21.4 million, resulting in a realized gain of $16.6 million, which includes a
$0.3 million closing adjustment decrease during the three months ended December 31, 2010.
In connection with the equity sale, the Company accrued and received cash dividend proceeds
of $0.3 million from its preferred stock investment in A. Stucki. At the same time, the
Company received $30.6 million in repayment of its principal, accrued interest and success
fees on the loans to A. Stucki. Additionally, immediately prior to the sale of A. Stucki,
the Company received a special distribution of property with a fair value of $0.5 million,
which was recorded as dividend income and is reflected as a Control investment, Neville
Limited, on the accompanying Consolidated Schedule of Investmentssince June 30, 2010.
    
    In July and August 2010, the Company restructured Galaxy Tool Holding Corp. (Galaxy)
by converting $12.3 million of its senior subordinated term note into preferred and common
stock and investing an additional $3.2 million into preferred
 79




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##### Table of Contents



stock. After the restructuring, the Companys investments at cost in Galaxy consisted of a
$5.2 million senior subordinated term note, $19.6 million in preferred stock and $0.1 million
in common stock.
    
    In September 2010, Cavert prepaid $0.8 million of its success fee on its senior term
debt and senior subordinated term debt.
    
    In October 2010, the Company invested $25.0 million in a Control investment, Venyu
Solutions, Inc. (Venyu), consisting of subordinated debt and preferred equity. Venyu,
headquartered in Baton Rouge, Louisiana, is a leader in commercial-grade, customizable
solutions for data protection, data hosting and disaster recover.
    
    In October and November 2010, Mathey prepaid $0.4 million of its success fee on its
senior term debt.
    
    In December 2010, the Company invested $10.5 million in a Control investment, Precision
Southeast, Inc. (Precision), consisting of senior debt and preferred and common equity.
Precision, headquartered in Myrtle Beach, South Carolina, is a custom injection molding
company, focused on the filtration, consumer and industrial markets.
    
    In December 2010, the Company sold its equity investment and received full repayment of
its debt investment in Chase in connection with the sale of 100% of the outstanding capital
stock of Chase. The net cash proceeds to the Company from the sale of its equity in Chase
were $13.9 million, resulting in a realized gain of $6.9 million. In connection with the
equity sale, the Company accrued and received cash dividend proceeds of $4.0 million from
its preferred stock investment in Chase. At the same time, the Company received $22.9
million in repayment of its principal, accrued interest and success fees on the loans to
Chase.
  Investment Concentrations
  March 31, 2011
    
    
    March 31, 2010Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueSenior term debt
    
    $
    64,566
    
    
    $
    58,627
    
    
    $
    102,446
    
    
    $
    94,359Senior subordinated term debt
    
    
    74,602
    
    
    
    62,806
    
    
    
    79,799
    
    
    
    71,112Preferred equity
    
    
    52,922
    
    
    
    25,398
    
    
    
    40,728
    
    
    
    20,425Common equity/equivalents
    
    
    5,102
    
    
    
    6,454
    
    
    
    4,594
    
    
    
    20,962Total Investments
    
    $
    197,192
    
    
    $
    153,285
    
    
    $
    227,567
    
    
    $
    206,858
  March 31, 2011
    
    
    March 31, 2010Percentage of
    
    
    
    
    
    
    Percentage ofFair Value
    
    
    Total Investments
    
    
    Fair Value
    
    
    Total InvestmentsContainers, packaging and glass
    
    $
    29,029
    
    
    
    19.0
    %
    
    $
    18,731
    
    
    
    9.1
    %Electronics
    
    
    25,012
    
    
    
    16.3
    
    
    
    
    
    
    
    Chemicals, plastics and rubber
    
    
    19,906
    
    
    
    13.0
    
    
    
    13,585
    
    
    
    6.6Cargo transport
    
    
    13,183
    
    
    
    8.6
    
    
    
    9,394
    
    
    
    4.5Diversified/Conglomerate manufacturing
    
    
    12,746
    
    
    
    8.3
    
    
    
    43,054
    
    
    
    20.8Machinery
    
    
    10,431
    
    
    
    6.8
    
    
    
    60,692
    
    
    
    29.3Buildings and real estate
    
    
    10,120
    
    
    
    6.6
    
    
    
    10,220
    
    
    
    4.9Home and office furnishings/Consumer products
    
    
    8,627
    
    
    
    5.6
    
    
    
    9,374
    
    
    
    4.5Automobile
    
    
    7,560
    
    
    
    4.9
    
    
    
    9,040
    
    
    
    4.4Aerospace and defense
    
    
    6,659
    
    
    
    4.4
    
    
    
    17,099
    
    
    
    8.3Oil and gas
    
    
    4,931
    
    
    
    3.2
    
    
    
    4,943
    
    
    
    2.4Printing and publishing
    
    
    3,073
    
    
    
    2.0
    
    
    
    2,895
    
    
    
    1.4Telecommunications
    
    
    1,499
    
    
    
    1.0
    
    
    
    7,831
    
    
    
    3.8Diversified/Conglomerate service
    
    
    509
    
    
    
    0.3
    
    
    
    
    
    
    
    Total Investments
    
    $
    153,285
    
    
    
    100.0
    %
    
    $
    206,858
    
    
    
    100.0
    %
 80




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##### Table of Contents



March 31, 2011
    
    
    March 31, 2010Percentage of
    
    
    
    
    
    
    Percentage ofFair Value
    
    
    Total Investments
    
    
    Fair Value
    
    
    Total InvestmentsSouth
    
    $
    92,172
    
    
    
    60.1
    %
    
    $
    60,363
    
    
    
    29.2
    %Northeast
    
    
    38,126
    
    
    
    24.9
    
    
    
    81,276
    
    
    
    39.3West
    
    
    12,746
    
    
    
    8.3
    
    
    
    16,124
    
    
    
    7.8Midwest
    
    
    10,241
    
    
    
    6.7
    
    
    
    49,095
    
    
    
    23.7Total Investments
    
    $
    153,285
    
    
    
    100.0
    %
    
    $
    206,858
    
    
    
    100.0
    %
  Investment Principal Repayments
  Fiscal year ending March 31,
    
    Amount2012
    
    $
    18,9462013
    
    
    33,8662014
    
    
    34,3312015
    
    
    21,9422016
    
    
    26,775Thereafter
    
    
    3,543Total contractual repayments
    
    $
    139,403Investments in equity securities
    
    
    58,023Adjustments to cost basis on debt securities
    
    
    (234
    )Total cost basis of investments held at March 31, 2011:
    
    $
    197,192
 Receivables from Portfolio Companies
  NOTE 4. RELATED PARTY TRANSACTIONS
 Investment Advisory and Management Agreement
 Consolidated Statements of Operations
 Year Ended March 31,2011
    
    
    2010Average total assets subject to base management fee(1)
    
    $
    198,950
    
    
    $
    224,200Multiplied by annual base management fee of 2%
    
    
    2
    %
    
    
    2
    %Unadjusted base management fee
    
    
    3,979
    
    
    
    4,484Reduction for loan servicing fees(2)
    
    
    (2,743
    )
    
    
    (3,747
    )Base management fee(2)
    
    $
    1,236
    
    
    $
    737Credits to base management fee from Adviser:Fee reduction for the waiver of 2.0% fee on senior syndicated loans to 0.5%
    
    
    (15
    )
    
    
    (291
    )Credit for fees received by Adviser from the portfolio companies
    
    
    (665
    )
    
    
    (433
    )Credit to base management fee from Adviser(2)
    
    
    (680
    )
    
    
    (724
    )Net base management fee
    
    $
    556
    
    
    $
    13
 81




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##### Table of Contents



Year Ended March 31,2011
    
    
    2010Incentive fee(2)
    
    $
    2,949
    
    
    $
    588Credit from voluntary, irrevocable waiver issued by Advisers board of
directors
    
    
    
    
    
    
    (102
    )Net incentive fee
    
    $
    2,949
    
    
    $
    486Total credits to fees:Fee reduction for the voluntary, irrevocable waiver of 2.0% fee on senior
syndicated loans to 0.5%
    
    $
    (15
    )
    
    $
    (291
    )Credit for fees received by Adviser from portfolio companies
    
    
    (665
    )
    
    
    (433
    )Incentive fee credit
    
    
    
    
    
    
    (102
    )Credit to base management and incentive fees from Adviser(2)
    
    $
    (680
    )
    
    $
    (826
    )
 
 (1)
    
    Average total assets subject to the base management fee is defined as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from
borrowings, valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share issuances or repurchases during the periods.(2)
    
    Reflected, in total, as a line item on the Consolidated Statement of Operationslocated elsewhere in this report. Base Management Fee
  
    
    Loan Servicing FeesThe Adviser also services the loans held by Business Investment, in return for which
it receives a 2.0% annual fee based on the monthly aggregate outstanding balance of
loans pledged under the Companys line of credit. Since the Company owns these loans,
all loan servicing fees paid to the Adviser are treated as reductions directly against
the 2.0% base management fee under the Advisory Agreement.
    
    Senior Syndicated Loan Fee WaiverThe Companys Board of Directors accepted an unconditional and irrevocable 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 senior syndicated loan participations, for the
years ended March 31, 2011 and 2010.
    
    Portfolio Company FeesUnder the Advisory Agreement, the Adviser has also provided, and continues to provide,
managerial assistance and other services to the Companys portfolio companies and may
receive fees for services other than managerial assistance. 50% of certain of these
fees and 100% of others are credited against the base management fee that the Company
would otherwise be required to pay to the Adviser.
 Incentive Fee
  
    
    no incentive fee in any calendar quarter in which its pre-incentive fee
net investment income does not exceed the hurdle rate (7.0% annualized);
    
    100% of the Companys 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 2.1875% in any calendar quarter (8.75%
annualized); and
    
    20% of the amount of the Companys pre-incentive fee net investment
income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized).
  82




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##### Table of Contents



Administration Agreement
  Related Party Fees Due
  As of March 31,2011
    
    
    2010Base management fee due to Adviser
    
    $
    341
    
    
    $
    16Loan servicing fee due to Adviser
    
    
    157
    
    
    
    219Incentive fee due to Adviser
    
    
    
    
    
    
    486Other
    
    
    1
    
    
    
    Total fees due to Adviser
    
    $
    499
    
    
    $
    721Fee due to Administrator
    
    $
    171
    
    
    $
    149Total related party fees due
    
    $
    670
    
    
    $
    870
 NOTE 5. BORROWINGS
 Credit Facility
  83




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##### Table of Contents



Short-Term Loan
  Fair Value
 Consolidated
Statements of Assets and Liabilities
 Level 3 - BorrowingsTotal Fair Value Reported in ConsolidatedStatements of Assets and LiabilitiesMarch 31, 2011
    
    
    March 31, 2010Short-Term Loan
    
    $
    40,000
    
    
    $
    75,000Credit Facility
    
    
    
    
    
    
    27,812Total
    
    $
    40,000
    
    
    $
    102,812
 84




---



##### Table of Contents



Total Fair ValueReported inShort-Term
    
    
    Credit
    
    
    Consolidated StatementsLoan
    
    
    Facility
    
    
    of Assets and LiabilitiesYear ended March 31, 2011:Fair value at March 31, 2010
    
    $
    75,000
    
    
    $
    27,812
    
    
    $
    102,812Borrowings
    
    
    207,401
    
    
    
    24,000
    
    
    
    231,401Repayments
    
    
    (242,401
    )
    
    
    (51,800
    )
    
    
    (294,201
    )Net unrealized depreciation of Credit
Facility(1)
    
    
    
    
    
    
    (12
    )
    
    
    (12
    )Fair value at March 31, 2011
    
    $
    40,000
    
    
    $
    
    
    
    $
    40,000Year ended March 31, 2010:Fair value at March 31, 2009(2)
    
    $
    
    
    
    $
    110,265
    
    
    $
    110,265Borrowings
    
    
    290,000
    
    
    
    107,500
    
    
    
    397,500Repayments
    
    
    (215,000
    
    
    
    (189,965
    )
    
    
    (404,965
    )Net unrealized appreciation of Credit
Facility(1)
    
    
    
    
    
    
    12
    
    
    
    12Fair value at March 31, 2010
    
    $
    75,000
    
    
    $
    27,812
    
    
    $
    102,812
 
 (1)
    
    Included in Net unrealized appreciation (depreciation) of
other on the accompanying Consolidated Statement of Operationsfor the
year ended March 31, 2011.(2)
    
    ASC 825 was not adopted until the second quarter of fiscal year
2010; therefore, the Credit Facility is shown at its principal balance
outstanding at March 31, 2009 in the table above.  NOTE 6. INTEREST RATE CAP AGREEMENTS
 Consolidated Statement of Operations
   NOTE 7. COMMON STOCK
  Registration Statement
 .
 85




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##### Table of Contents



NOTE 8. NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS PER SHARE
  Year Ended March 31,2011
    
    
    2010Numerator for basic and diluted net increase
(decrease) in net assets resulting from operations per
share
    
    $
    16,439
    
    
    $
    (11,071
    )Denominator for basic and diluted weighted average shares
    
    
    22,080,133
    
    
    
    22,080,133Basic and diluted net increase (decrease) in net
assets resulting from operations per share
    
    $
    0.74
    
    
    $
    (0.50
    )
 NOTE 9. DISTRIBUTIONS
  DistributionDeclaration Date
    
    Record Date
    
    Payment Date
    
    per ShareApril 7, 2010
    
    April 22, 2010
    
    April 30, 2010
    
    $
    0.04April 7, 2010
    
    May 20, 2010
    
    May 28, 2010
    
    
    0.04April 7, 2010
    
    June 22, 2010
    
    June 30, 2010
    
    
    0.04July 7, 2010
    
    July 22, 2010
    
    July 30, 2010
    
    
    0.04July 7, 2010
    
    August 23, 2010
    
    August 31, 2010
    
    
    0.04July 7, 2010
    
    September 22, 2010
    
    September 30, 2010
    
    
    0.04October 5, 2010
    
    October 21, 2010
    
    October 29, 2010
    
    
    0.04October 5, 2010
    
    November 19, 2010
    
    November 30, 2010
    
    
    0.04October 5, 2010
    
    December 23, 2010
    
    December 31, 2010
    
    
    0.04January 11, 2011
    
    January 21, 2011
    
    January 31, 2011
    
    
    0.04January 11, 2011
    
    February 21, 2011
    
    February 28, 2011
    
    
    0.04January 11, 2011
    
    March 21, 2011
    
    March 31, 2011
    
    
    0.04Total Fiscal Year 2011:
    
    $
    0.48
 DistributionDeclaration Date
    
    Record Date
    
    Payment Date
    
    per ShareApril 16, 2009
    
    April 27, 2009
    
    May 8, 2009
    
    $
    0.04April 16, 2009
    
    May 20, 2009
    
    May 29, 2009
    
    
    0.04April 16, 2009
    
    June 22, 2009
    
    June 30, 2009
    
    
    0.04July 8, 2009
    
    July 23, 2009
    
    July 31, 2009
    
    
    0.04July 8, 2009
    
    August 21, 2009
    
    August 31, 2009
    
    
    0.04July 8, 2009
    
    September 22, 2009
    
    September 30, 2009
    
    
    0.04October 6, 2009
    
    October 22, 2009
    
    October 30, 2009
    
    
    0.04October 6, 2009
    
    November 19, 2009
    
    November 30, 2009
    
    
    0.04October 6, 2009
    
    December 22, 2009
    
    December 31, 2009
    
    
    0.04January 12, 2010
    
    January 21, 2010
    
    January 29, 2010
    
    
    0.04January 12, 2010
    
    February 18, 2010
    
    February 26, 2010
    
    
    0.04January 12, 2010
    
    March 23, 2010
    
    March 31, 2010
    
    
    0.04Total Fiscal Year 2010:
    
    $
    0.48
  Distribution of Income and Gains
   86




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##### Table of Contents



Year Ended March 31,2011
    
    
    2010Capital loss carryforward
    
    $
    (14,585
    )
    
    $
    (43,507
    )Undistributed ordinary income
    
    
    495
    
    
    
    Other temporary differences
    
    
    (330
    )
    
    
    Other
    
    
    18
    
    
    
    18Net unrealized depreciation of investments
    
    
    (43,907
    )
    
    
    (20,710
    )Net unrealized depreciation of other
    
    
    (76
    )
    
    
    (51
    )Common stock
    
    
    22
    
    
    
    22Paid-in-capital
    
    
    257,192
    
    
    
    257,206Net assets
    
    $
    198,829
    
    
    $
    192,978
   Tax Year Ended March 31,2011
    
    2010Undistributed net investment income
    
    $
    (5,433
    )
    
    $
    Accumulated net realized loss
    
    
    5,433
    
    
    
    
  Tax Year Ended March 31,2011
    
    
    2010Distributions from ordinary income
    
    $
    10,598
    
    
    $
    10,598Distributions from return of capital
    
    
    
    
    
    
    Total Distributions
    
    $
    10,598
    
    
    $
    10,598
 NOTE 10. FEDERAL AND STATE INCOME TAXES
  87




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NOTE 11. COMMITMENTS AND CONTINGENCIES
     NOTE 12. FINANCIAL HIGHLIGHTS
 Year Ended March 31,2011
    
    
    2010
    
    
    2009Per Share Data(1)Net asset value at beginning of year
    
    $
    8.74
    
    
    $
    9.73
    
    
    $
    12.47Income from investment operations:Net investment income(2)
    
    
    0.73
    
    
    
    0.48
    
    
    
    0.62Realized gain (loss) on sale of investments(2)
    
    
    1.06
    
    
    
    (1.63
    )
    
    
    (0.23
    )Net unrealized (depreciation) appreciation of investments(2)
    
    
    (1.05
    )
    
    
    0.65
    
    
    
    (0.92
    )Total from investment operations
    
    
    0.74
    
    
    
    (0.50
    )
    
    
    (0.53
    )Distributions from:Net investment income
    
    
    (0.48
    )
    
    
    (0.48
    )
    
    
    (0.62
    )Tax return on capital
    
    
    
    
    
    
    
    
    
    
    (0.34
    )Total distributions(3)
    
    
    (0.48
    )
    
    
    (0.48
    )
    
    
    (0.96
    )Effect of shelf offering:Shelf registration offering costs
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.03
    )Effect on distribution of rights offering after record date(4)
    
    
    
    
    
    
    
    
    
    
    (1.22
    )Total effect of shelf offering
    
    
    
    
    
    
    (0.01
    )
    
    
    (1.25
    )Net asset value at end of year
    
    $
    9.00
    
    
    $
    8.74
    
    
    $
    9.73Per share market value at beginning of year
    
    $
    6.01
    
    
    $
    3.67
    
    
    $
    9.32Per share market value at end of year
    
    
    7.76
    
    
    
    5.98
    
    
    
    3.82Total return(5)
    
    
    38.56
    %
    
    
    79.80
    %
    
    
    (51.65
    )%Shares outstanding at end of year
    
    
    22,080,133
    
    
    
    22,080,133
    
    
    
    22,080,133
 88




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##### Table of Contents



Year Ended March 31,2011
    
    
    2010
    
    
    2009Statement of Assets and Liabilities Data:Net assets at end of year
    
    $
    198,829
    
    
    $
    192,978
    
    
    $
    214,802Average net assets(6)
    
    
    192,893
    
    
    
    191,112
    
    
    
    230,738Senior Securities Data:Total borrowings
    
    $
    40,000
    
    
    $
    102,812
    
    
    $
    110,265Asset coverage ratio(7)
    
    
    534
    %
    
    
    281
    %
    
    
    293
    %Average coverage per unit(8)
    
    $
    5,344
    
    
    $
    2,814
    
    
    $
    2,930Ratios/Supplemental Data:Ratio of expenses to average net assets(9)(10)
    
    
    5.48
    %
    
    
    5.76
    %
    
    
    6.46
    %Ratio of net expenses to average net assets(9)(11)(12)
    
    
    5.13
    %
    
    
    5.33
    %
    
    
    5.38
    %Ratio of net investment income to average net assets(9)(13)
    
    
    8.38
    %
    
    
    5.55
    %
    
    
    5.80
    %
 
 (1)
    
    Based on actual shares outstanding at the end of the corresponding period.(2)
    
    Based on weighted average basic per share data.(3)
    
    Distributions are determined based on taxable income calculated in accordance with income tax regulations, which may differ from amounts determined under accounting principles generally accepted in the United
States of America.(4)
    
    The effect of distributions from the stock rights offering after the record date represents the effect on net asset value of issuing additional shares after the record date of a distribution.(5)
    
    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 the Companys dividend
reinvestment plan.(6)
    
    Calculated using the average of the balance of net assets at the end of each month of the reporting period.(7)
    
    As a business development company, the Company is generally required to maintain an asset coverage ratio of at least 200% of total consolidated assets, less all liabilities and indebtedness not represented by
senior securities, to total borrowings and guaranty commitments. Asset coverage ratio is the ratio of the carrying value of the Companys total consolidated assets, less all liabilities and indebtedness not
represented by senior securities, to the aggregate amount of senior securities representing indebtedness.(8)
    
    Asset coverage per unit is the asset coverage ratio expressed in terms of dollar amounts per one thousand dollars of indebtedness.(9)
    
    Amounts are annualized.(10)
    
    Ratio of expenses to average net assets is computed using expenses before credits from the Adviser.(11)
    
    Ratio of net expenses to average net assets is computed using total expenses net of credits to the management fee.(12)
    
    Had the Company not received any voluntary waivers of fees due to the Adviser, the ratio of net expenses to average net assets would have been 5.14%, 5.54% and 6.08% for the fiscal years ended March 31, 2011,
2010 and 2009, respectively.(13)
    
    Had the Company not received any voluntary waivers of fees due to the Adviser, the ratio of net investment income to
average net assets would have been 8.38%, 5.34% and 5.10% for the fiscal years ended March 31,
2011, 2010 and 2009, respectively. NOTE 13. SELECTED QUARTERLY DATA (UNAUDITED)
 Year Ended March 31, 2011Quarter Ended
    
    Quarter Ended
    
    Quarter Ended
    
    Quarter EndedJune 30, 2010
    
    September 30, 2010
    
    December 31, 2010
    
    March 31, 2011Total investment income
    
    $
    7,248
    
    
    $
    4,301
    
    
    $
    10,737
    
    
    $
    3,778Net investment income
    
    
    4,207
    
    
    
    2,441
    
    
    
    7,591
    
    
    
    1,932Net increase (decrease) in
net assets resulting from
operations
    
    
    5,368
    
    
    
    (6,859
    )
    
    
    15,135
    
    
    
    2,795Net increase (decrease) in
net assets resulting from
operations per weighted
average common share
(basic & diluted)
    
    $
    0.24
    
    
    $
    (0.31
    )
    
    $
    0.68
    
    
    $
    0.13
 Year Ended March 31, 2010Quarter Ended
    
    Quarter Ended
    
    Quarter Ended
    
    Quarter EndedJune 30, 2009
    
    September 30, 2009
    
    December 31, 2009
    
    March 31, 2010Total investment income
    
    $
    5,169
    
    
    $
    4,943
    
    
    $
    5,921
    
    
    $
    4,752Net investment income
    
    
    2,445
    
    
    
    2,371
    
    
    
    3,073
    
    
    
    2,709Net (decrease) increase in
net assets resulting from
operations
    
    
    (9,190
    )
    
    
    (18,090
    )
    
    
    (4,420
    )
    
    
    20,629Net (decrease) increase in
net assets resulting from
operations per weighted
average common share
(basic & diluted)
    
    $
    (0.42
    )
    
    $
    (0.82
    )
    
    $
    (0.20
    )
    
    $
    0.93
 NOTE 14. SUBSEQUENT EVENTS
 Portfolio Activity
  
    
    In April 2011, the Company recapitalized its investment in Cavert in which the Company
received gross cash proceeds of $5.6 million from the sale of its common equity, resulting
in a realized gain of $5.5 million, $2.3 million in a partial redemption of its preferred
stock and $0.7 million in preferred dividends. At the same time, the Company invested $5.7
million in new subordinated debt in Cavert. Cavert will be reclassified from a Control
investment to an Affiliate investment during the three months ending June 30, 2011.
 89




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##### Table of Contents




    
    In April 2011, the Company invested $16.4 million in a new Control investment, Mitchell
Rubber Products, Inc. (Mitchell), consisting of subordinated debt and preferred and
common equity. Mitchell, headquartered in Mira Loma, California, develops, mixes and molds
rubber compounds for specialized applications in the non-tire rubber market.
    
    In May 2011, the Company received full repayment of its senior syndicated loan to Fifth
Third Processing Solutions, LLC. As of March 31, 2011, both fair value and cost
approximated net proceeds received of $0.5 million.
 Short-Term Loan
  Distributions
  Record Date
    
    Payment Date
    
    Distribution per ShareApril 22, 2011
    
    April 29, 2011
    
    $
    0.045May 20, 2011
    
    May 31, 2011
    
    
    0.045June 20, 2011
    
    June 30, 2011
    
    
    0.045
 90




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 a)
    
    Disclosure Controls and Procedures
  b)
    
    Managements Annual Report on Internal Control over Financial ReportingRefer to Managements Report on Internal Control over Financial Reporting located in Item 8 of this Form 10-K.c)
    
    Attestation Report of the Independent Registered Public Accounting FirmRefer to the Report of Independent Registered Public Accounting Firm located in Item 8 of this Form 10-K.d)
    
    Change in Internal Control over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION.
  PART III
  
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  91




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 a.
    
    DOCUMENTS FILED AS PART OF THIS REPORT1.
    
    The following financial statements are filed herewith:
 Report of Independent Registered Public Accounting Firm
    
    
    63Consolidated Statements of Assets and Liabilities as of March 31, 2011 and March 31, 2010
    
    
    64Consolidated Statements of Operations for the years ended March 31, 2011, March 31, 2010 and March 31, 2009
    
    
    65Consolidated Statements of Changes in Net Assets for the years ended March 31, 2011, March 31, 2010 and
March 31, 2009
    
    
    66Consolidated Statements of Cash Flows for the years ended March 31, 2011, March 31, 2010 and March 31, 2009
    
    
    67Consolidated Schedules of Investments as of March 31, 2011 and March 31, 2010
    
    
    68Notes to Consolidated Financial Statements
    
    
    72
 2.
    
    The following financial statement schedule is filed herewith:
 Schedule 12-14 Investments in and Advances to Affiliates
    
    
    94
 No other financial statement schedules are filed herewith because (1) such schedules are not
required or (2) the information has been presented in the aforementioned financial
statements.
 3.
    
    Exhibits
 The following exhibits are filed as part of this report or hereby incorporated by reference
to exhibits previously filed with the SEC:
 3.1
    
    Amended and Restated Certificate 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 May 13, 2005.3.2
    
    Amended and Restated Bylaws, incorporated by reference to Exhibit b.2 to the Pre-effective Amendment No. 3 to the
Registration Statement on Form N-2 (File No. 333-123699), filed June 21, 2005.3.3
    
    First Amendment to Amended and Restated Bylaws of Gladstone Investment Corporation, incorporated by reference to
Exhibit 99.1 to Current Report on Form 8-K (File No. 814-00704) filed July 10, 2007.4.1
    
    Specimen Stock Certificate, incorporated by reference to Exhibit 99.d to Form N-2/A (File No. 333-123699), filed June
21, 2005.4.2
    
    Dividend Reinvestment Plan, incorporated by reference to Exhibit 99.e to Pre-Effective Amendment No. 3 to the
Registration Statement on Form N-2 (File No. 333-123699), filed June 21, 2005.10.1*
    
    Investment Advisory and Management Agreement between the Company and Gladstone Management Corporation, dated June 22,
2005, incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-K filed June 14, 2006.10.2*
    
    Administration Agreement between the Registrant and Gladstone Administration, LLC, dated June 22, 2005, incorporated
by reference to Exhibit 10.2 to the Annual Report on Form 10-K filed June 14, 2006.10.3
    
    Stock Transfer Agency Agreement between the Registrant and The Bank of New York, incorporated by reference to Exhibit
k.1 to Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-123699), filed May 13, 2005.10.4
    
    Custody Agreement between the Registrant and The Bank of New York, incorporated by reference to Exhibit 99.j to
Pre-Effective Amendment No. 3 to the Registration Statement on Form N-2 (File No. 333-123699), filed June 21, 2005.10.5
    
    Third Amended and Restated Credit Agreement dated as of April 13, 2010 by and among Gladstone Business Investment, LLC
as Borrower, Gladstone Management Corporation as Servicer, the Committed Lenders named therein, the Managing Agents
named therein, and Branch Banking and Trust Company as Administrative Agent, incorporated by reference to Exhibit 10.1
to the Current Report on Form 8-K (File No. 814-00704) filed on April 14, 2010.11
    
    Computation of Per Share Earnings (included in the notes to the audited financial statements contained in this report).21
    
    Subsidiaries of the Registrant.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.
 
 *
    
    Denotes management contract or compensatory plan or arrangement. 92




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##### Table of Contents



SIGNATURES
  GLADSTONE INVESTMENT CORPORATIONDate: May 23, 2011
    By:
    /s/ DAVID WATSONDavid WatsonChief Financial Officer  Date: May 23, 2011
    
    By:
    /s/ DAVID GLADSTONEDavid GladstoneChief Executive Officer and Chairman of the Board of
Directors (principal executive officer)Date: May 23, 2011
    
    By:
    /s/ TERRY LEE BRUBAKERTerry Lee BrubakerCo-Vice Chairman, Chief Operating Officer and SecretaryDate: May 23, 2011
    
    By:
    /s/ GEORGE STELLJES IIIGeorge Stelljes IIICo-Vice Chairman and Chief Investment OfficerDate: May 23, 2011
    
    By:
    /s/ DAVID A. R. DULLUMDavid A. R. DullumPresident and DirectorDate: May 23, 2011
    
    By:
    /s/ DAVID WATSONDavid WatsonChief Financial Officer (principal financial and
accounting officer)Date: May 23, 2011
    
    By:
    /s/ ANTHONY W. PARKERAnthony W. ParkerDirectorDate: May 23, 2011
    
    By:
    /s/ MICHELA A. ENGLISHMichela A. EnglishDirectorDate: May 23, 2011
    
    By:
    /s/ PAUL ADELGRENPaul AdelgrenDirectorDate: May 23, 2011
    
    By:
    /s/ JACK REILLYJack ReillyDirectorDate: May 23, 2011
    
    By:
    /s/ JOHN OUTLANDJohn OutlandDirectorDate: May 23, 2011
    
    By:
    /s/ GERARD MEADGerard MeadDirector 93




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##### Table of Contents



SCHEDULE 12-14
 GLADSTONE INVESTMENT CORPORATION
INVESTMENTS IN AND ADVANCES TO AFFILIATES
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND WARRANTS)
 Number of Sharesor Warrants or
    
    Amount ofPrincipal Amount
    
    Equity in Netof Indebtedness
    
    Profit (Loss) for
    
    Income Earned forTitle of Issue or Nature of
    
    Held at March 31,
    
    the Year Ended
    
    the Year Ended
    
    Value atName of Issuer(1)
    
    Indebtedness
    
    2011
    
    March 31, 2011(2)
    
    March 31, 2011
    
    March 31, 2011CONTROL INVESTMENTSA. Stucki Holding Corp.(4)
    
    Senior Term Debt
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    Senior Term Debt
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    Senior Subordinated Term Debt
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    3,316
    
    
    
    Acme Cryogenics, Inc.
    
    Senior Subordinated Term Debt
    
    $
    14,500
    
    
    
    
    
    
    
    
    
    
    
    14,500Senior Subordinated Term Debt
    
    $
    415
    
    
    
    
    
    
    
    
    
    
    
    415Preferred Stock(3)
    
    
    898,814
    
    
    
    
    
    
    
    
    
    
    
    4,991Common Stock(3)
    
    
    418,072
    
    
    
    
    
    
    
    
    
    
    
    Common Stock Warrants(3)
    
    
    452,683
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,737
    
    
    
    19,906ASH Holdings Corp.
    
    Revolving Credit Facility
    
    $
    3,283
    
    
    
    
    
    
    
    
    
    
    
    Senior Subordinated Term Debt
    
    $
    6,250
    
    
    
    
    
    
    
    
    
    
    
    Preferred Stock(3)
    
    
    2,500
    
    
    
    
    
    
    
    
    
    
    
    Common Stock(3)
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Common Stock Warrants(3)
    
    
    73,599
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cavert II Holdings Corp
    
    Senior Term Debt
    
    $
    2,650
    
    
    
    
    
    
    
    
    
    
    
    2,650Senior Subordinated Term Debt
    
    $
    4,671
    
    
    
    
    
    
    
    
    
    
    
    4,671Preferred Stock(3)
    
    
    41,102
    
    
    
    
    
    
    
    
    
    
    
    5,354Common Stock(3)
    
    
    69,126
    
    
    
    
    
    
    
    
    
    
    
    5,577
    
    
    
    1,675
    
    
    
    18,252Chase II Holdings Corp.(4)
    
    Senior Term Debt
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    Senior Term Debt
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    Senior Subordinated Term Debt
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,093
    
    
    
    Country Club Enterprises, LLC
    
    Senior Subordinated Term Debt
    
    $
    8,000
    
    
    
    
    
    
    
    
    
    
    
    7,560Preferred Stock(3)
    
    
    2,380,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,291
    
    
    
    7,560Galaxy Tool Holding Corp.
    
    Senior Subordinated Term Debt
    
    $
    5,220
    
    
    
    
    
    
    
    
    
    
    
    5,220Preferred Stock(3)
    
    
    4,111,907
    
    
    
    
    
    
    
    
    
    
    
    1,439Common Stock(3)
    
    
    48,093
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,129
    
    
    
    6,659Mathey Investments, Inc.
    
    Revolving Credit Facility
    
    $
    1,032
    
    
    
    
    
    
    
    
    
    
    
    1,022Senior Term Debt
    
    $
    2,375
    
    
    
    
    
    
    
    
    
    
    
    2,345Senior Term Debt
    
    $
    3,727
    
    
    
    
    
    
    
    
    
    
    
    3,643Senior Term Debt
    
    $
    3,500
    
    
    
    
    
    
    
    
    
    
    
    3,421Common Stock(3)
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    Common Stock Warrants(3)
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,332
    
    
    
    10,431Neville Limited
    
    Common Stock(3)
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    534
    
    
    
    
    
    
    
    534Precision Southeast, Inc.
    
    Revolving Credit Facility
    
    $
    749
    
    
    
    
    
    
    
    
    
    
    
    749Senior Term Debt
    
    $
    7,775
    
    
    
    
    
    
    
    
    
    
    
    7,775Preferred Stock(3)
    
    
    19,091
    
    
    
    
    
    
    
    
    
    
    
    1,948Common Stock(3)
    
    
    90,909
    
    
    
    
    
    
    
    
    
    
    
    305
    
    
    
    294
    
    
    
    10,777
 94




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##### Table of Contents



Number of Sharesor Warrants or
    
    Amount ofPrincipal Amount
    
    Equity in Netof Indebtedness
    
    Profit (Loss) for
    
    Income Earned forTitle of Issue or Nature of
    
    Held at March 31,
    
    the Year Ended
    
    the Year Ended
    
    Value atName of Issuer(1)
    
    Indebtedness
    
    2011
    
    March 31, 2011(2)
    
    March 31, 2011
    
    March 31, 2011Tread Corp.
    
    Senior Subordinated Term Debt
    
    $
    5,000
    
    
    
    
    
    
    
    
    
    
    
    4,931Preferred Stock(3)
    
    
    832,765
    
    
    
    
    
    
    
    
    
    
    
    Common Stock(3)
    
    
    129,067
    
    
    
    
    
    
    
    
    
    
    
    Common Stock Warrants(3)
    
    
    1,022,727
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    633
    
    
    
    4,931Venyu Solutions, Inc.
    
    Senior Subordinated Term Debt
    
    $
    7,000
    
    
    
    
    
    
    
    
    
    
    
    7,000Senior Subordinated Term Debt
    
    $
    12,000
    
    
    
    
    
    
    
    
    
    
    
    12,000Preferred Stock(3)
    
    
    5,400
    
    
    
    
    
    
    
    
    
    
    
    6,012
    
    
    
    1,056
    
    
    
    25,012Total Control Investments
    
    
    
    
    
    
    
    $
    
    
    
    $
    20,556
    
    
    $
    104,062AFFILIATE INVESTMENTSDanco Acquisition Corp.
    
    Revolving Credit Facility
    
    $
    1,100
    
    
    
    
    
    
    
    
    
    
    $
    1,084Senior Term Debt
    
    $
    2,925
    
    
    
    
    
    
    
    
    
    
    
    2,881Senior Term Debt
    
    $
    8,961
    
    
    
    
    
    
    
    
    
    
    
    8,781Preferred Stock(3)
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    Common Stock Warrants(3)
    
    
    420
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    1,599
    
    
    
    12,746Noble Logistics, Inc.
    
    Revolving Credit Facility
    
    $
    300
    
    
    
    
    
    
    
    
    
    
    
    206Senior Term Debt
    
    $
    7,227
    
    
    
    
    
    
    
    
    
    
    
    4,951Senior Term Debt
    
    $
    3,650
    
    
    
    
    
    
    
    
    
    
    
    2,500Senior Term Debt
    
    $
    3,650
    
    
    
    
    
    
    
    
    
    
    
    2,500Preferred Stock(3)
    
    
    1,075,000
    
    
    
    
    
    
    
    
    
    
    
    3,026Common Stock(3)
    
    
    1,682,456
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,468
    
    
    
    13,183Quench Holdings Corp.
    
    Senior Subordinated Term Debt
    
    $
    8,000
    
    
    
    
    
    
    
    
    
    
    
    6,000Preferred Stock(3)
    
    
    388
    
    
    
    
    
    
    
    
    
    
    
    2,627Common Stock(3)
    
    
    35,242
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    830
    
    
    
    8,627Total Affiliate Investments
    
    
    
    
    
    
    
    $
    
    
    
    $
    3,897
    
    
    $
    34,556
 
 (1)
    
    Certain of the listed securities are issued by affiliate(s) of the indicated portfolio company.(2)
    
    In accordance with Regulation S-X, Rule 6-03(c)(i), the Company does not consolidate its
portfolio investments. Therefore, no equity in the net profit (loss) was recorded as of March
31, 2011.(3)
    
    Security is non-income producing.(4)
    
    Portfolio Company exited during the fiscal year ended March 31, 2011. 95




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##### Table of Contents



Title of Issue or
    
    Value as of
    
    
    Gross
    
    
    Gross
    
    
    Value as ofName of Issuer(1)
    
    Nature of Indebtedness
    
    March 31, 2010
    
    
    Additions
    
    
    Reductions
    
    
    March 31, 2011CONTROL INVESTMENTS:A. Stucki Holding Corp.(3)
    
    Senior Term Debt
    
    $
    9,101
    
    
    $
    
    
    
    $
    (9,101
    )
    
    $
    Senior Term Debt
    
    
    9,900
    
    
    
    
    
    
    
    (9,900
    )
    
    
    Senior Subordinated Term Debt
    
    
    9,456
    
    
    
    
    
    
    
    (9,456
    )
    
    
    Preferred Stock
    
    
    4,529
    
    
    
    118
    
    
    
    (4,647
    )
    
    
    Common Stock
    
    
    17,393
    
    
    
    
    
    
    
    (17,393
    )
    
    
    50,379
    
    
    
    118
    
    
    
    (50,497
    )
    
    
    Acme Cryogenics, Inc.(3)
    
    Senior Subordinated Term Debt
    
    
    13,585
    
    
    
    915
    
    
    
    
    
    
    
    14,500Senior Subordinated Term Debt
    
    
    
    
    
    
    415
    
    
    
    
    
    
    
    415Preferred Stock(2)
    
    
    
    
    
    
    4,991
    
    
    
    
    
    
    
    4,991Common Stock(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common Stock Warrants(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,585
    
    
    
    6,321
    
    
    
    
    
    
    
    19,906ASH Holdings Corp.
    
    Revolving Credit Facility
    
    
    421
    
    
    
    1,778
    
    
    
    (2,199
    )
    
    
    Senior Subordinated Term Debt
    
    
    1,750
    
    
    
    
    
    
    
    (1,750
    )
    
    
    Preferred Stock(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common Stock(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common Stock Warrants(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,171
    
    
    
    1,778
    
    
    
    (3,949
    )
    
    
    Cavert II Holding Corp.(3)
    
    Senior Term Debt
    
    
    2,875
    
    
    
    
    
    
    
    (2,875
    )
    
    
    Senior Term Debt
    
    
    2,700
    
    
    
    
    
    
    
    (50
    )
    
    
    2,650Senior Subordinated Term Debt
    
    
    4,671
    
    
    
    
    
    
    
    
    
    
    
    4,671Preferred Stock(2)
    
    
    4,959
    
    
    
    395
    
    
    
    
    
    
    
    5,354Common Stock(2)
    
    
    3,526
    
    
    
    2,051
    
    
    
    
    
    
    
    5,57718,731
    
    
    
    2,446
    
    
    
    (2,925
    )
    
    
    18,252Chase II Holdings Corp.(3)
    
    Senior Term Debt
    
    
    7,700
    
    
    
    
    
    
    
    (7,700
    )
    
    
    Senior Term Debt
    
    
    7,520
    
    
    
    
    
    
    
    (7,520
    )
    
    
    Senior Subordinated Term Debt
    
    
    6,168
    
    
    
    
    
    
    
    (6,168
    )
    
    
    Preferred Stock
    
    
    7,713
    
    
    
    3,282
    
    
    
    (10,995
    )
    
    
    Common Stock
    
    
    
    
    
    
    6,918
    
    
    
    (6,918
    )
    
    
    29,101
    
    
    
    10,200
    
    
    
    (39,301
    )
    
    
    Country Club Enterprises, LLC(3)
    
    Senior Subordinated Term Debt
    
    
    6,869
    
    
    
    1,000
    
    
    
    (309
    )
    
    
    7,560Preferred Stock(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,869
    
    
    
    1,000
    
    
    
    (309
    )
    
    
    7,560Galaxy Tool Holdings Corp.(3)
    
    Senior Subordinated Term Debt
    
    
    17,099
    
    
    
    421
    
    
    
    (12,300
    )
    
    
    5,220Preferred Stock(2)
    
    
    
    
    
    
    15,546
    
    
    
    (14,107
    )
    
    
    1,439Common Stock(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,099
    
    
    
    15,967
    
    
    
    (26,407
    )
    
    
    6,659Mathey Investments, Inc.(3)
    
    Revolving Credit Facility
    
    
    1,011
    
    
    
    11
    
    
    
    
    
    
    
    1,022Senior Term Debt
    
    
    2,328
    
    
    
    17
    
    
    
    
    
    
    
    2,345Senior Term Debt
    
    
    6,974
    
    
    
    169
    
    
    
    (3,500
    )
    
    
    3,643Senior Term Debt
    
    
    
    
    
    
    3,500
    
    
    
    (79
    )
    
    
    3,421Common Stock(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common Stock Warrants(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,313
    
    
    
    3,697
    
    
    
    3,579
    
    
    
    10,431Neville Limited
    
    Common Stock(2)
    
    
    
    
    
    
    610
    
    
    
    (76
    )
    
    
    534
    
    
    
    610
    
    
    
    (76
    )
    
    
    534Precision Southeast, Inc.(3)
    
    Revolving Credit Facility
    
    
    
    
    
    
    749
    
    
    
    
    
    
    
    749Senior Term Debt
    
    
    
    
    
    
    7,775
    
    
    
    
    
    
    
    7,775Preferred Stock(2)
    
    
    
    
    
    
    1,909
    
    
    
    39
    
    
    
    1,948Common Stock(2)
    
    
    
    
    
    
    91
    
    
    
    214
    
    
    
    305
    
    
    
    10,524
    
    
    
    253
    
    
    
    10,777Tread Corp.(3)
    
    Senior Subordinated Term Debt
    
    
    4,943
    
    
    
    
    
    
    
    (12
    )
    
    
    4,931Preferred Stock(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common Stock(2)
    
    
    
    
    
    
    1
    
    
    
    (1
    )
    
    
    Common Stock Warrants(2)
    
    
    
    
    
    
    83
    
    
    
    (83
    )
    
    
    4,943
    
    
    
    84
    
    
    
    (96
    )
    
    
    4,931
 96




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##### Table of Contents



Title of Issue or
    
    Value as of
    
    
    Gross
    
    
    Gross
    
    
    Value as ofName of Issuer(1)
    
    Nature of Indebtedness
    
    March 31, 2010
    
    
    Additions
    
    
    Reductions
    
    
    March 31, 2011Venyu Solutions, Inc.(3)
    
    Senior Subordinated Term Debt
    
    
    
    
    
    
    7,000
    
    
    
    
    
    
    
    7,000Senior Subordinated Term Debt
    
    
    
    
    
    
    12,000
    
    
    
    
    
    
    
    12,000Preferred Stock(2)
    
    
    
    
    
    
    6,012
    
    
    
    
    
    
    
    6,012
    
    
    
    25,012
    
    
    
    
    
    
    
    25,012Total Control Investments
    
    
    
    $
    153,191
    
    
    $
    77,757
    
    
    $
    (126,886
    )
    
    $
    104,062AFFILIATE INVESTMENTS:Danco Acquisition Corp.(3)
    
    Revolving Credit Facility
    
    $
    893
    
    
    $
    200
    
    
    $
    (9
    )
    
    $
    1,084Senior Term Debt
    
    
    4,131
    
    
    
    
    
    
    
    (1,250
    )
    
    
    2,881Senior Term Debt
    
    
    8,929
    
    
    
    
    
    
    
    (148
    )
    
    
    8,781Preferred Stock(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common Stock Warrants(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,953
    
    
    
    200
    
    
    
    (1,407
    )
    
    
    12,746Noble Logistics, Inc.(3)
    
    Revolving Credit Facility
    
    
    1,210
    
    
    
    696
    
    
    
    (1,700
    )
    
    
    206Senior Term Debt
    
    
    3,767
    
    
    
    1,184
    
    
    
    
    
    
    
    4,951Senior Term Debt
    
    
    4,417
    
    
    
    1,733
    
    
    
    (3,650
    )
    
    
    2,500Senior Term Debt
    
    
    
    
    
    
    3,650
    
    
    
    (1,150
    )
    
    
    2,500Preferred Stock(2)
    
    
    
    
    
    
    3,026
    
    
    
    
    
    
    
    3,026Common Stock(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,394
    
    
    
    10,289
    
    
    
    (6,500
    )
    
    
    13,183Quench Holdings Corp.(3)
    
    Senior Subordinated Term Debt
    
    
    6,150
    
    
    
    
    
    
    
    (150
    )
    
    
    6,000Preferred Stock(2)
    
    
    3,224
    
    
    
    
    
    
    
    (597
    )
    
    
    2,627Common Stock(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,374
    
    
    
    
    
    
    
    (747
    )
    
    
    8,627Total Affiliate Investments
    
    
    
    $
    32,721
    
    
    $
    10,489
    
    
    $
    (8,654
    )
    
    $
    34,556
 
 (1)
    
    Certain of the listed securities are issued by affiliate(s) of the indicated portfolio company.(2)
    
    Security is non-income producing.(3)
    
    Some or all of the securities of this portfolio company are pledged as collateral to the Companys Credit Facility.(4)
    
    Portfolio Company was exited during the fiscal year ended March 31, 2011. 97