##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





(Mark One)

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

FOR THE QUARTER ENDED MARCH 31, 2013

OR



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

FOR THE TRANSITION PERIOD
FROM            TO

COMMISSION FILE NUMBER: 814-00736





PENNANTPARK INVESTMENT CORPORATION

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|MARYLAND                                                       |  | 20-8250744                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|590 Madison Avenue, 15thFloor New York, N.Y.                   |  | 10022                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(212)-905-1000

(Registrants Telephone Number, Including Area Code)





Indicate by
check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days.    Yes   x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    Yes   ̈    No  x

The number of shares of the issuers common stock, $0.001 par value, outstanding as of May 8, 2013 was 66,450,117.









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PENNANTPARK INVESTMENT CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2013

TABLE OF CONTENTS



|                                                                                                               |  |  |    | 
|-------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|PART I. CONSOLIDATED FINANCIAL INFORMATION                                                                     |  |  |    | 
|                                                                                                               | 
|Item 1. Consolidated Financial Statements                                                                      |  |  |    | 
|                                                                                                               | 
|Consolidated Statements of Assets and Liabilities as of March 31, 2013 (unaudited) and September 
30, 2012     |  |  | 2  | 
|                                                                                                               | 
|Consolidated Statements of Operations for the three and six months ended March 
31, 2013 and 2012 (unaudited)  |  |  | 3  | 
|                                                                                                               | 
|Consolidated Statements of Changes in Net Assets for the six months ended March 
31, 2013 and 2012 (unaudited) |  |  | 4  | 
|                                                                                                               | 
|Consolidated Statements of Cash Flows for the six months ended March 31, 2013 and 2012
(unaudited)             |  |  | 5  | 
|                                                                                                               | 
|Consolidated Schedules of Investments as of March 31, 2013 (unaudited) and September 30,
2012                  |  |  | 6  | 
|                                                                                                               | 
|Notes to Consolidated Financial Statements (unaudited)                                                         |  |  | 15 | 
|                                                                                                               | 
|Report of Independent Registered Public Accounting Firm                                                        |  |  | 28 | 
|                                                                                                               | 
|Item 
2. Managements Discussion and Analysis of Financial Condition and Results of Operations                 |  |  | 29 | 
|                                                                                                               | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                             |  |  | 40 | 
|                                                                                                               | 
|Item 4. Controls and Procedures                                                                                |  |  | 40 | 
|                                                                                                               | 
|PART II. OTHER INFORMATION                                                                                     |  |  |    | 
|                                                                                                               | 
|Item 1. Legal Proceedings                                                                                      |  |  | 41 | 
|                                                                                                               | 
|Item 1A. Risk Factors                                                                                          |  |  | 41 | 
|                                                                                                               | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                            |  |  | 41 | 
|                                                                                                               | 
|Item 3. Defaults Upon Senior Securities                                                                        |  |  | 41 | 
|                                                                                                               | 
|Item 4. Mine Safety Disclosures                                                                                |  |  | 41 | 
|                                                                                                               | 
|Item 5. Other Information                                                                                      |  |  | 41 | 
|                                                                                                               | 
|Item 6. Exhibits                                                                                               |  |  | 42 | 
|                                                                                                               | 
|SIGNATURES                                                                                                     |  |  | 43 | 



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PART ICONSOLIDATED FINANCIAL INFORMATION

We are filing this Form 10-Q, or the Report, in compliance with Rule 13a-13 promulgated by the Securities and Exchange Commission, or the SEC. In this
Report, we, our or us refer to PennantPark Investment Corporation and its consolidated subsidiaries unless the context suggests otherwise. PennantPark Investment refers to only PennantPark Investment
Corporation; our SBIC Funds refers collectively to our consolidated subsidiaries, PennantPark SBIC LP, or SBIC LP, and its general partner, PennantPark SBIC GP, LLC, and PennantPark SBIC II LP, or SBIC II, and its general partner,
PennantPark SBIC GP II, LLC ; PennantPark Investment Advisers or Investment Adviser refers to PennantPark Investment Advisers, LLC; PennantPark Investment Administration or Administrator refers to
PennantPark Investment Administration, LLC. References to our portfolio or investments include investments we make through our SBIC Funds and other consolidated subsidiaries. SBA refers to the Small Business Administration; Credit
Facility refers to our multi-currency, senior secured revolving credit facility; 2025 Notes refers to our 6.25% senior notes due 2025; BDC refers to a business development company under the Investment Company Act of
1940, as amended, or the 1940 Act; Code refers to the Internal Revenue Code of 1986, as amended; RIC refers to a regulated investment company under the Code.



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##### Table of Contents

|Item 1. | Consolidated Financial Statements
|------- | ---------------------------------

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES



|                                                                                                                                                  |  |                           |               |   |                    |   |               |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------------- | - | ------------------ | - | ------------- | -
|                                                                                                                                                  |  | March 31, 2013(unaudited) |               |   | September 30, 2012 |  
|Assets                                                                                                                                            |  |                           |               |   |                    |   |               |  
|Investments at fair value                                                                                                                         |  |                           |               |   |                    |   |               |  
|Non-controlled, non-affiliated investments, at fair value(cost$917,043,333 and $871,867,953,
respectively)                                       |  | $                         | 971,792,490   |   |                    | $ | 871,892,745   |  
|Non-controlled, affiliated investments, at fair value(cost$126,891,564 and $72,576,858, respectively)                                            |  |                           | 105,565,435   |   |                    |   | 80,955,257    |  
|Controlled, affiliated investments, at fair value(cost$63,870,076 and $64,167,051, respectively)                                                 |  |                           | 37,519,282    |   |                    |   | 37,631,708    |  
|                                                                                                                                                  |  |                           |               |   |                    |   |               |  
|Total of investments, at fair value (cost$1,107,804,973 and $1,008,611,862, respectively)                                                        |  |                           | 1,114,877,207 |   |                    |   | 990,479,710   |  
|Cash equivalents (See Note 8)                                                                                                                     |  |                           | 17,333,318    |   |                    |   | 7,559,453     |  
|Interest receivable                                                                                                                               |  |                           | 14,621,482    |   |                    |   | 14,928,862    |  
|Prepaid expenses and other assets                                                                                                                 |  |                           | 5,444,939     |   |                    |   | 5,999,506     |  
|                                                                                                                                                  |  |                           |               |   |                    |   |               |  
|Total assets                                                                                                                                      |  |                           | 1,152,276,946 |   |                    |   | 1,018,967,531 |  
|                                                                                                                                                  |  |                           |               |   |                    |   |               |  
|Liabilities                                                                                                                                       |  |                           |               |   |                    |   |               |  
|Distributions payable                                                                                                                             |  |                           | 18,592,349    |   |                    |   | 15,824,061    |  
|Payable for investments purchased                                                                                                                 |  |                           | 2,935,322     |   |                    |   |              |  
|Unfunded investments                                                                                                                              |  |                           | 26,801,667    |   |                    |   | 26,935,270    |  
|Credit Facility payable (cost$171,700,000 and $145,000,000, respectively)(See Notes 5 and 10)                                                    |  |                           | 171,700,000   |   |                    |   | 144,452,500   |  
|SBA debentures payable (cost$150,000,000) (See Notes 5 and 10)                                                                                   |  |                           | 150,000,000   |   |                    |   | 150,000,000   |  
|2025 Notes payable (cost$71,250,000) (See Notes 5 and 10)                                                                                        |  |                           | 71,677,500    |   |                    |   |              |  
|Interest payable on debt                                                                                                                          |  |                           | 1,809,052     |   |                    |   | 854,725       |  
|Management fee payable (See Note 3)                                                                                                               |  |                           | 5,328,100     |   |                    |   | 4,791,913     |  
|Performance-based incentive fee payable (See Note 3)                                                                                              |  |                           | 3,559,245     |   |                    |   | 4,206,989     |  
|Accrued other expenses                                                                                                                            |  |                           | 2,497,403     |   |                    |   | 2,185,026     |  
|                                                                                                                                                  |  |                           |               |   |                    |   |               |  
|Total liabilities                                                                                                                                 |  |                           | 454,900,638   |   |                    |   | 349,250,484   |  
|                                                                                                                                                  |  |                           |               |   |                    |   |               |  
|Net assets                                                                                                                                        |  |                           |               |   |                    |   |               |  
|Common stock, 66,401,248 and 65,514,503 shares issued and outstanding, respectively.Par value $0.001 per share and
100,000,000 shares authorized. |  |                           | 66,401        |   |                    |   | 65,514        |  
|Paid-in capital in excess of par value                                                                                                            |  |                           | 754,021,968   |   |                    |   | 744,704,825   |  
|(Distributions in excess of) Undistributed net investment income                                                                                  |  |                           | (2,124,126    | ) |                    |   | 2,804,397     |  
|Accumulated net realized loss on investments                                                                                                      |  |                           | (61,232,669   | ) |                    |   | (60,273,037   | )
|Net unrealized appreciation (depreciation) on investments                                                                                         |  |                           | 7,072,234     |   |                    |   | (18,132,152   | )
|Net unrealized (appreciation) depreciation on debt                                                                                                |  |                           | (427,500      | ) |                    |   | 547,500       |  
|                                                                                                                                                  |  |                           |               |   |                    |   |               |  
|Total net assets                                                                                                                                  |  | $                         | 697,376,308   |   |                    | $ | 669,717,047   |  
|                                                                                                                                                  |  |                           |               |   |                    |   |               |  
|Total liabilities and net assets                                                                                                                  |  | $                         | 1,152,276,946 |   |                    | $ | 1,018,967,531 |  
|                                                                                                                                                  |  |                           |               |   |                    |   |               |  
|Net asset value per share                                                                                                                         |  | $                         | 10.50         |   |                    | $ | 10.22         |  
|                                                                                                                                                  |  |                           |               |   |                    |   |               |  

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2



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PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                                                  |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|--------------------------------------------------------------------------------- |  | ---------------------------- | ----------- | - | -------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ----------- | -
|                                                                                  |  | Three months ended March 31, |             |   | Six months ended March 31, |  
|                                                                                  |  | 2013                         |             |   | 2012                       |   |            | 2013 |  |   | 2012       |  
|Investment income:                                                                |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|From non-controlled, non-affiliated investments:                                  |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|Interest                                                                          |  | $                            | 28,058,570  |   |                            | $ | 24,310,488 |      |  | $ | 53,827,187 |   |  | $ | 48,330,912  |  
|Other income and dividends                                                        |  |                              | 876,680     |   |                            |   | 1,084,688  |      |  |   | 5,242,954  |   |  |   | 2,955,202   |  
|From non-controlled, affiliated investments:                                      |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|Interest                                                                          |  |                              | 938,261     |   |                            |   | 549,594    |      |  |   | 2,330,764  |   |  |   | 1,122,525   |  
|Other income                                                                      |  |                              |            |   |                            |   |           |      |  |   | 227,800    |   |  |   |            |  
|From controlled, affiliated investments:                                          |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|Interest                                                                          |  |                              | 1,183,750   |   |                            |   | 416,889    |      |  |   | 2,386,457  |   |  |   | 791,778     |  
|                                                                                  |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|Total investment income                                                           |  |                              | 31,057,261  |   |                            |   | 26,361,659 |      |  |   | 64,015,162 |   |  |   | 53,200,417  |  
|                                                                                  |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|Expenses:                                                                         |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|Base management fee (See Note 3)                                                  |  |                              | 5,328,100   |   |                            |   | 4,178,151  |      |  |   | 10,456,711 |   |  |   | 8,221,432   |  
|Performance-based incentive fee (See Note 3)                                      |  |                              | 3,559,244   |   |                            |   | 2,374,842  |      |  |   | 8,104,498  |   |  |   | 6,123,970   |  
|Interest and expenses on debt (See Note 10)                                       |  |                              | 3,984,909   |   |                            |   | 2,736,619  |      |  |   | 7,079,774  |   |  |   | 5,111,742   |  
|Administrative services expenses (See Note 3)                                     |  |                              | 1,155,537   |   |                            |   | 808,303    |      |  |   | 2,327,859  |   |  |   | 1,605,656   |  
|Other general and administrative expenses                                         |  |                              | 719,423     |   |                            |   | 897,849    |      |  |   | 1,479,955  |   |  |   | 1,740,194   |  
|                                                                                  |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|Expenses before taxes and debt issuance costs                                     |  |                              | 14,747,213  |   |                            |   | 10,995,764 |      |  |   | 29,448,797 |   |  |   | 22,802,994  |  
|Tax (credit) expense                                                              |  |                              | (190,197    | ) |                            |   | 245,000    |      |  |   | (114,896   | ) |  |   | 280,000     |  
|Debt issuance costs (See Note 5)                                                  |  |                              | 2,437,500   |   |                            |   | 5,361,319  |      |  |   | 2,437,500  |   |  |   | 5,361,319   |  
|                                                                                  |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|Total expenses                                                                    |  |                              | 16,994,516  |   |                            |   | 16,602,083 |      |  |   | 31,771,401 |   |  |   | 28,444,313  |  
|                                                                                  |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|Net investment income                                                             |  |                              | 14,062,745  |   |                            |   | 9,759,576  |      |  |   | 32,243,761 |   |  |   | 24,756,104  |  
|                                                                                  |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|Realized and unrealized (loss) gain on investmentsand debt:                       |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|Net realized loss on investments                                                  |  |                              | (1,830,764  | ) |                            |   | (3,922,455 | )    |  |   | (959,632   | ) |  |   | (11,952,011 | )
|Net change in unrealized appreciation (depreciation) on:                          |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|Non-controlled, non-affiliated investments                                        |  |                              | 26,227,226  |   |                            |   | 22,470,558 |      |  |   | 32,289,547 |   |  |   | 30,535,339  |  
|Controlled and non-controlled, affiliated investments                             |  |                              | (11,059,378 | ) |                            |   | (1,692,070 | )    |  |   | (7,085,161 | ) |  |   | 269,576     |  
|Debt appreciation (See Notes 5 and 10)                                            |  |                              | (427,500    | ) |                            |   | (217,500   | )    |  |   | (975,000   | ) |  |   | (1,365,375  | )
|                                                                                  |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|Net change in unrealized appreciation                                             |  |                              | 14,740,348  |   |                            |   | 20,560,988 |      |  |   | 24,229,386 |   |  |   | 29,439,540  |  
|                                                                                  |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|Net realized and unrealized gain from investments and debt                        |  |                              | 12,909,584  |   |                            |   | 16,638,533 |      |  |   | 23,269,754 |   |  |   | 17,487,529  |  
|                                                                                  |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|Net increase in net assets resulting from operations                              |  | $                            | 26,972,329  |   |                            | $ | 26,398,109 |      |  | $ | 55,513,515 |   |  | $ | 42,243,633  |  
|                                                                                  |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|Net increase in net assets resulting from operationsper common share (See Note 7) |  | $                            | 0.41        |   |                            | $ | 0.50       |      |  | $ | 0.84       |   |  | $ | 0.85        |  
|                                                                                  |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  
|Net investment income per common share                                            |  | $                            | 0.21        |   |                            | $ | 0.18       |      |  | $ | 0.49       |   |  | $ | 0.50        |  
|                                                                                  |  |                              |             |   |                            |   |            |      |  |   |            |   |  |   |             |  

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



3



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PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)



|                                                                                |  |                            |             |   |      |   |             |  
|------------------------------------------------------------------------------- |  | -------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                |  | Six Months Ended March 31, |            
|                                                                                |  | 2013                       |             |   | 2012 |  
|Net increase in net assets from operations:                                     |  |                            |             |   |      |   |             |  
|Net investment income                                                           |  | $                          | 32,243,761  |   |      | $ | 24,756,104  |  
|Net realized loss on investments                                                |  |                            | (959,632    | ) |      |   | (11,952,011 | )
|Net change in unrealized appreciation on investments                            |  |                            | 25,204,386  |   |      |   | 30,804,915  |  
|Net change in unrealized appreciation on debt                                   |  |                            | (975,000    | ) |      |   | (1,365,375  | )
|                                                                                |  |                            |             |   |      |   |             |  
|Net increase in net assets resulting from operations                            |  |                            | 55,513,515  |   |      |   | 42,243,633  |  
|                                                                                |  |                            |             |   |      |   |             |  
|Distributions to stockholders:                                                  |  |                            |             |   |      |   |             |  
|Distributions                                                                   |  |                            | (37,172,284 | ) |      |   | (28,531,062 | )
|Capital share transactions:                                                     |  |                            |             |   |      |   |             |  
|Public offering                                                                 |  |                            | 7,574,000   |   |      |   | 109,192,500 |  
|Offering costs                                                                  |  |                            | (265,090    | ) |      |   | (3,979,000  | )
|Reinvestment of dividends                                                       |  |                            | 2,009,120   |   |      |   | 1,724,378   |  
|                                                                                |  |                            |             |   |      |   |             |  
|Net increase from capital transactions                                          |  |                            | 9,318,030   |   |      |   | 106,937,878 |  
|                                                                                |  |                            |             |   |      |   |             |  
|Total increase in net assets                                                    |  |                            | 27,659,261  |   |      |   | 120,650,449 |  
|                                                                                |  |                            |             |   |      |   |             |  
|                                                                                |  |                           
|Net assets:                                                                     |  |                            |             |   |      |   |             |  
|Beginning of period                                                             |  | $                          | 669,717,047 |   |      | $ | 462,657,196 |  
|End of period                                                                   |  |                            | 697,376,308 |   |      |   | 583,307,645 |  
|                                                                                |  |                            |             |   |      |   |             |  
|                                                                                |  |                           
|(Distributions in excess of) Undistributed net investment income, at period end |  | $                          | (2,124,126  | ) |      | $ | 4,551,894   |  
|                                                                                |  |                            |             |   |      |   |             |  
|Capital share activity:                                                         |  |                            |             |   |      |   |             |  
|Shares issued from public offering                                              |  |                            | 700,000     |   |      |   | 10,350,000  |  
|                                                                                |  |                            |             |   |      |   |             |  
|Shares issued from reinvestment of dividends                                    |  |                            | 186,745     |   |      |   | 167,092     |  
|                                                                                |  |                            |             |   |      |   |             |  

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



4



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##### Table of Contents

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                                                        |  |                            |              |   |      |   |              |  
|----------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------------ | - | ---- | - | ------------ | -
|                                                                                                                        |  | Six Months Ended March 31, |             
|                                                                                                                        |  | 2013                       |              |   | 2012 |  
|Cash flows from operating activities:                                                                                   |  |                            |              |   |      |   |              |  
|Net increase in net assets resulting from operations                                                                    |  | $                          | 55,513,515   |   |      | $ | 42,243,633   |  
|Adjustments to reconcile net increase in net assets resulting from operations to net cash used by operating
activities: |  |                            |              |   |      |   |              |  
|Net change in unrealized appreciation on investments                                                                    |  |                            | (25,204,386  | ) |      |   | (30,804,915  | )
|Net change in unrealized appreciation on debt                                                                           |  |                            | 975,000      |   |      |   | 1,365,375    |  
|Net realized loss on investments                                                                                        |  |                            | 959,632      |   |      |   | 11,952,011   |  
|Net accretion of discount and amortization of premium                                                                   |  |                            | (3,451,454   | ) |      |   | (5,784,489   | )
|Purchase of investments                                                                                                 |  |                            | (243,825,185 | ) |      |   | (153,884,038 | )
|Payments-in-kind income                                                                                                 |  |                            | (6,379,825   | ) |      |   | (6,136,921   | )
|Proceeds from dispositions of investments                                                                               |  |                            | 153,370,119  |   |      |   | 118,544,142  |  
|Decrease (increase) in interest receivable                                                                              |  |                            | 307,380      |   |      |   | (135,633     | )
|Decrease in receivables for investments sold                                                                            |  |                            |             |   |      |   | 8,939,936    |  
|Decrease in prepaid expenses and other assets                                                                           |  |                            | 554,567      |   |      |   | 692,964      |  
|Increase (decrease) in payables for investments purchased                                                               |  |                            | 2,935,322    |   |      |   | (15,043,792  | )
|(Decrease) in unfunded investments                                                                                      |  |                            |             |   |      |   | (15,342,447  | )
|Increase in interest payable on debt                                                                                    |  |                            | 954,327      |   |      |   | 250,054      |  
|Increase in management fee payable                                                                                      |  |                            | 536,187      |   |      |   | 168,840      |  
|Decrease in performance-based incentive fee payable                                                                     |  |                            | (647,744     | ) |      |   | (1,399,124   | )
|Increase in accrued other expenses                                                                                      |  |                            | 312,377      |   |      |   | 325,610      |  
|                                                                                                                        |  |                            |              |   |      |   |              |  
|Net cash used by operating activities                                                                                   |  |                            | (63,090,168  | ) |      |   | (44,048,794  | )
|                                                                                                                        |  |                            |              |   |      |   |              |  
|Cash flows from financing activities:                                                                                   |  |                            |              |   |      |   |              |  
|Public offering                                                                                                         |  |                            | 7,574,000    |   |      |   | 109,192,500  |  
|Offering costs                                                                                                          |  |                            | (265,090     | ) |      |   | (3,979,000   | )
|Distributions paid , net of dividends reinvested                                                                        |  |                            | (32,394,877  | ) |      |   | (23,405,000  | )
|Proceeds from 2025 Notes issuance (See Note 10)                                                                         |  |                            | 71,250,000   |   |      |   |             |  
|Borrowings under Credit Facility (See Note 10)                                                                          |  |                            | 543,500,000  |   |      |   | 695,500,000  |  
|Repayments under Credit Facility (See Note 10)                                                                          |  |                            | (516,800,000 | ) |      |   | (777,900,000 | )
|                                                                                                                        |  |                            |              |   |      |   |              |  
|Net cash provided (used) by financing activities                                                                        |  |                            | 72,864,033   |   |      |   | (591,500     | )
|                                                                                                                        |  |                            |              |   |      |   |              |  
|Net increase (decrease) in cash equivalents                                                                             |  |                            | 9,773,865    |   |      |   | (44,640,294  | )
|Cash equivalents, beginning of period                                                                                   |  |                            | 7,559,453    |   |      |   | 71,604,519   |  
|                                                                                                                        |  |                            |              |   |      |   |              |  
|Cash equivalents, end of period                                                                                         |  | $                          | 17,333,318   |   |      | $ | 26,964,225   |  
|                                                                                                                        |  |                            |              |   |      |   |              |  
|                                                                                                                        |  |                           
|Supplemental disclosure of cash flow information and non-cash financing activity:                                       |  |                            |              |   |      |   |              |  
|Interest paid                                                                                                           |  | $                          | 5,907,177    |   |      | $ | 4,285,855    |  
|                                                                                                                        |  |                            |              |   |      |   |              |  
|Taxes paid                                                                                                              |  | $                          | 92,388       |   |      | $ | 258,550      |  
|                                                                                                                        |  |                            |              |   |      |   |              |  
|Dividends reinvested                                                                                                    |  | $                          | 2,009,120    |   |      | $ | 1,724,378    |  
|                                                                                                                        |  |                            |              |   |      |   |              |  
|Conversions and non-cash exchanges                                                                                      |  | $                          | 58,615,748   |   |      | $ |             |  
|                                                                                                                        |  |                            |              |   |      |   |              |  

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



5



---

##### Table of Contents

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

MARCH 31, 2013

(Unaudited)



|                                                                                    |  |          |            |  |          |                                                                       |               |  |                 |                                |  |  |             |     |             |      |            |  |                 |   |             |  |  |   |             | 
|----------------------------------------------------------------------------------- |  | -------- | ---------- |  | -------- | --------------------------------------------------------------------- | ------------- |  | --------------- | ------------------------------ |  |  | ----------- | --- | ----------- | ---- | ---------- |  | --------------- | - | ----------- |  |  | - | ----------- | 
|Issuer Name                                                                         |  | Maturity |            |  | Industry |                                                                       | CurrentCoupon |  |                 | Basis PointSpreadAboveIndex(4) |  |  | Par /Shares |     |             | Cost |            |  | Fair Value 
(3) |  
|Investments in Non-Controlled, Non-Affiliated Portfolio Companies139.3% (1), (2)   |  |          |            |  |          |                                                                       |               |  |                
|First Lien Secured Debt40.0%                                                       |  |          |            |  |          |                                                                       |               |  |                 |                                |  |  |             |     |             |      |            |  |                 |  
|Aircell Business Aviation Services LLC                                              |  |          | 06/21/2017 |  |          | Communications                                                        |               |  | 11.25           | %                              |  |  | L+975       | (8) |             |      | 14,718,750 |  |                 | $ | 14,203,109  |  |  | $ | 14,792,344  | 
|CEVA Group PLC (5),(10)                                                             |  |          | 10/01/2016 |  |          | Cargo Transport                                                       |               |  | 11.63           | %                              |  |  |            |     |             |      | 7,500,000  |  |                 |   | 7,369,798   |  |  |   | 7,800,000   | 
|CEVA Group PLC (5),(10)                                                             |  |          | 04/01/2018 |  |          | Cargo Transport                                                       |               |  | 11.50           | %                              |  |  |            |     |             |      | 1,000,000  |  |                 |   | 990,756     |  |  |   | 915,000     | 
|Columbus International, Inc. (5), (10)                                              |  |          | 11/20/2014 |  |          | Communications                                                        |               |  | 11.50           | %                              |  |  |            |     |             |      | 10,000,000 |  |                 |   | 10,000,000  |  |  |   | 11,150,000  | 
|Good Sam Enterprises, LLC (5)                                                       |  |          | 12/01/2016 |  |          | Consumer Products                                                     |               |  | 11.50           | %                              |  |  |            |     |             |      | 12,000,000 |  |                 |   | 11,815,048  |  |  |   | 12,795,000  | 
|IDQ Holdings, Inc.(5)                                                               |  |          | 04/01/2017 |  |          | Auto Sector                                                           |               |  | 11.50           | %                              |  |  |            |     |             |      | 11,500,000 |  |                 |   | 11,306,583  |  |  |   | 12,650,000  | 
|Infusystems Holdings, Inc.                                                          |  |          | 11/30/2016 |  |          | Healthcare, Education and Childcare                                   |               |  | 11.99           | %                              |  |  | P+625       | (8) |             |      | 11,600,000 |  |                 |   | 11,600,000  |  |  |   | 11,892,331  | 
|Instant Web, Inc.                                                                   |  |          | 08/07/2014 |  |          | Printing and Publishing                                               |               |  | 14.50           | %                              |  |  | L+950       | (8) |             |      | 24,058,279 |  |                 |   | 23,842,188  |  |  |   | 23,336,531  | 
|Interactive Health Solutions, Inc.                                                  |  |          | 10/04/2016 |  |          | Healthcare, Education and Childcare                                   |               |  | 11.50           | %                              |  |  | L+950       | (8) |             |      | 18,287,500 |  |                 |   | 17,958,571  |  |  |   | 18,287,500  | 
|Jacuzzi Brands Corp.                                                                |  |          | 02/07/2014 |  |          | Home and Office Furnishings, Housewares and Durable Consumer Products |               |  | 2.53            | %                              |  |  | L+225       |     |             |      | 9,562,162  |  |                 |   | 9,562,162   |  |  |   | 7,793,162   | 
|K2 Pure Solutions NoCal, L.P.                                                       |  |          | 09/10/2015 |  |          | Chemicals, Plastics and Rubber                                        |               |  | 10.50           | %                              |  |  | P+725       | (8) |             |      | 21,443,629 |  |                 |   | 20,836,604  |  |  |   | 21,336,411  | 
|Kadmon Pharmaceuticals, LLC                                                         |  |          | 04/30/2013 |  |          | Healthcare, Education and Childcare                                   |               |  | 15.00           | %                              |  |  | L+1,300     | (8) |             |      | 4,931,494  |  |                 |   | 5,116,352   |  |  |   | 5,380,260   | 
|Penton Media, Inc.                                                                  |  |          | 08/01/2014 |  |          | Other Media                                                           |               |  | 6.00(PIK 2.00   | %%)                            |  |  | L+500       | (8) |             |      | 37,777,291 |  |                 |   | 34,944,173  |  |  |   | 36,329,174  | 
|Pre-Paid Legal Services, Inc., Tranche B                                            |  |          | 12/30/2016 |  |          | Personal, Food and Miscellaneous Services                             |               |  | 11.00           | %                              |  |  | L+950       | (8) |             |      | 40,000,000 |  |                 |   | 39,153,516  |  |  |   | 40,400,000  | 
|Prince Mineral Holding Corp. (5)                                                    |  |          | 12/15/2019 |  |          | Mining, Steel, Iron and Non-Precious Metals                           |               |  | 11.50           | %                              |  |  |            |     |             |      | 14,250,000 |  |                 |   | 14,087,814  |  |  |   | 15,924,375  | 
|Tekelec Global, Inc.                                                                |  |          | 01/29/2018 |  |          | Telecommunications                                                    |               |  | 13.50           | %                              |  |  | L+1,200     | (8) |             |      | 7,983,408  |  |                 |   | 7,782,201   |  |  |   | 9,220,836   | 
|Worley Claims Services LLC                                                          |  |          | 07/06/2017 |  |          | Insurance                                                             |               |  | 12.50           | %                              |  |  | L+1,100     | (8) |             |      | 14,658,000 |  |                 |   | 14,658,000  |  |  |   | 14,584,710  | 
|Z Wireless                                                                          |  |          | 12/21/2016 |  |          | Retail                                                                |               |  | 12.50(PIK 1.50  | %%)                            |  |  | L+1,225     |     |             |      | 14,439,031 |  |                 |   | 14,168,323  |  |  |   | 14,453,756  | 
|                                                                                    |  |          |            |  |          |                                                                       |               |  |                 |                                |  |  |             |     |             |      |            |  |                 |   |             |  |  |   |             | 
|Total First Lien Secured Debt                                                       |  |          |            |  |          |                                                                       |               |  |                 |                                |  |  |             |     |             |      |            |  |                 |   | 269,395,198 |  |  |   | 279,041,390 | 
|                                                                                    |  |          |            |  |          |                                                                       |               |  |                 |                                |  |  |             |     |             |      |            |  |                 |   |             |  |  |   |             | 
|Second Lien Secured Debt32.4%                                                      |  |          |            |  |          |                                                                       |               |  |                 |                                |  |  |             |     |             |      |            |  |                 |   |             |  |  |   |             | 
|American Gilsonite Company (5)                                                      |  |          | 09/01/2017 |  |          | Diversified Natural Resources, Precious Metals and Minerals           |               |  | 11.50           | %                              |  |  |            |     |             |      | 25,400,000 |  |                 |   | 25,400,000  |  |  |   | 26,987,500  | 
|Brand Energy and Infrastructure Services, Inc.                                      |  |          | 10/23/2019 |  |          | Energy / Utilities                                                    |               |  | 11.00           | %                              |  |  | L+975       | (8) |             |      | 42,278,570 |  |                 |   | 41,429,727  |  |  |   | 42,701,356  | 
|Eureka Hunter Pipeline, LLC                                                         |  |          | 08/16/2018 |  |          | Energy / Utilities                                                    |               |  | 12.50           | %                              |  |  |            |     |             |      | 45,000,000 |  |                 |   | 44,577,851  |  |  |   | 46,350,000  | 
|Hanley Wood, LLC                                                                    |  |          | 01/15/2019 |  |          | Other Media                                                           |               |  | 11.30           | %                              |  |  | L+1,100     |     |             |      | 5,000,000  |  |                 |   | 4,901,120   |  |  |   | 5,000,000   | 
|Intermediate Transportation 100, L.L.C.(f/k/a Greatwide Logistics Services, L.L.C.) |  |          | 03/01/2017 |  |          | Cargo Transport                                                       |               |  | 11.00(PIK 11.00 | %%)                            |  |  | L+700       | (8) |             |      | 3,360,032  |  |                 |   | 3,360,034   |  |  |   | 3,360,032   | 
|Jacobs Entertainment, Inc.                                                          |  |          | 10/29/2019 |  |          | Hotels, Motels, Inns and Gaming                                       |               |  | 13.00           | %                              |  |  | L+1,175     | (8) |             |      | 38,950,000 |  |                 |   | 38,216,542  |  |  |   | 38,998,688  | 
|Learning Care Group, Inc.                                                           |  |          | 04/27/2016 |  |          | Education                                                             |               |  | 14.00(PIK 2.00  | %%)                            |  |  |            |     |             |      | 26,052,632 |  |                 |   | 25,688,754  |  |  |   | 26,248,026  | 
|Linc USA GP and Linc Energy Finance (USA), Inc.
(5)                                 |  |          | 10/31/2017 |  |          | Oil and Gas                                                           |               |  | 12.50           | %                              |  |  |            |     |             |      | 11,875,000 |  |                 |   | 11,478,991  |  |  |   | 13,003,125  | 
|Questex Media Group LLC, Term Loan A                                                |  |          | 12/15/2014 |  |          | Other Media                                                           |               |  | 9.50            | %                              |  |  | L+650       | (8) |             |      | 2,649,951  |  |                 |   | 2,649,951   |  |  |   | 2,517,453   | 
|Questex Media Group LLC, Term Loan B                                                |  |          | 12/15/2015 |  |          | Other Media                                                           |               |  | 11.50(PIK 11.50 | %%)                            |  |  | L+850       | (8) |             |      | 2,361,313  |  |                 |   | 2,361,313   |  |  |   | 2,184,214   | 
|ROC Finance LLC and ROC Finance 1 Corp.                                             |  |          | 09/01/2018 |  |          | Hotels, Motels, Inns and Gaming                                       |               |  | 12.13           | %                              |  |  |            |     |             |      | 16,000,000 |  |                 |   | 15,774,799  |  |  |   | 18,560,000  | 
|                                                                                    |  |          |            |  |          |                                                                       |               |  |                 |                                |  |  |             |     |             |      |            |  |                 |   |             |  |  |   |             | 
|Total Second Lien Secured Debt                                                      |  |          |            |  |          |                                                                       |               |  |                 |                                |  |  |             |     | 215,839,082 |      |            |  | 225,910,394     |  
|                                                                                    |  |          |            |  |          |                                                                       |               |  |                 |                                |  |  |             |     |             |      |            |  |                 |   |             |  |  |   |             | 

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



6



---

##### Table of Contents

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS(CONTINUED)

MARCH 31, 2013

(Unaudited)



|                                                                         |  |            |  |                                    |  |               |                 |      |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 
|------------------------------------------------------------------------ |  | ---------- |  | ---------------------------------- |  | ------------- | --------------- | ---- | ------------------------------ |  | - | ----------- |  |  | ----------- |  |  | --------------- | ----------- |  |  | - | ---------- | 
|Issuer Name                                                              |  | Maturity   |  | Industry                           |  | CurrentCoupon |                 |      | Basis PointSpreadAboveIndex(4) |  |   | Par /Shares |  |  | Cost        |  |  | Fair Value 
(3) |            
|Subordinated Debt/Corporate Notes52.6%                                  |  |            |  |                                    |  |               |                 |      |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 
|Acentia, LLC                                                             |  | 10/02/2017 |  | Electronics                        |  |               | 13.75           | %    |                                |  |  |             |  |  | 19,000,000  |  |  | $               | 18,585,286  |  |  | $ | 18,903,446 | 
|Affinion Group Holdings, Inc.                                            |  | 11/15/2015 |  | Consumer Products                  |  |               | 11.63           | %    |                                |  |  |             |  |  | 35,552,000  |  |  |                 | 34,388,612  |  |  |   | 22,575,520 | 
|Alegeus Technologies, LLC                                                |  | 02/15/2019 |  | Financial Services                 |  |               | 12.00           | %    |                                |  |  |             |  |  | 8,930,000   |  |  |                 | 8,759,780   |  |  |   | 9,043,070  | 
|Convergint Technologies LLC                                              |  | 03/26/2018 |  | Electronics                        |  |               | 12.00(PIK 1.00  | %%)  |                                |  |  |             |  |  | 23,395,416  |  |  |                 | 22,971,323  |  |  |   | 23,746,347 | 
|Escort, Inc.                                                             |  | 06/01/2016 |  | Electronics                        |  |               | 14.75(PIK 2.75  | %%)  |                                |  |  |             |  |  | 25,606,357  |  |  |                 | 25,161,889  |  |  |   | 25,862,420 | 
|Galls, LLC                                                               |  | 03/31/2017 |  | Distribution                       |  |               | 13.00(PIK 2.00  | %%)  |                                |  |  |             |  |  | 22,015,780  |  |  |                 | 21,651,645  |  |  |   | 22,015,780 | 
|JF Acquisition, LLC                                                      |  | 06/30/2017 |  | Distribution                       |  |               | 14.00(PIK 2.00  | %%)  |                                |  |  |             |  |  | 17,343,517  |  |  |                 | 16,952,518  |  |  |   | 17,343,517 | 
|Last Mile Funding Corp.                                                  |  | 06/30/2016 |  | Cargo Transport                    |  |               | 14.50(PIK 2.50  | %%)  |                                |  |  |             |  |  | 46,175,257  |  |  |                 | 45,373,723  |  |  |   | 46,637,010 | 
|Learning Care Group (US) Inc.                                            |  | 06/30/2016 |  | Education                          |  |               | 15.00(PIK 15.00 | %%)  |                                |  |  |             |  |  | 6,750,102   |  |  |                 | 6,226,535   |  |  |   | 6,648,851  | 
|LTI Flexible Products, Inc.                                              |  | 01/19/2019 |  | Chemicals,Plastics and Rubber      |  |               | 12.50           | %    |                                |  |  |             |  |  | 30,000,000  |  |  |                 | 30,000,000  |  |  |   | 30,300,000 | 
|LTI Flexible Products, Inc.(9)                                           |  | 01/11/2014 |  | Chemicals,Plastics and Rubber      |  |               |                |      |                                |  |  |             |  |  | 5,000,000   |  |  |                 | 4,825,000   |  |  |   | 5,050,000  | 
|MailSouth, Inc.                                                          |  | 06/15/2017 |  | Printingand Publishing             |  |               | 14.50           | %(7) |                                |  |  |             |  |  | 15,000,000  |  |  |                 | 14,667,042  |  |  |   | 15,000,000 | 
|TRAK Acquisition Corp.                                                   |  | 12/29/2015 |  | Business Services                  |  |               | 15.00           | %(7) |                                |  |  |             |  |  | 12,020,950  |  |  |                 | 11,714,348  |  |  |   | 12,020,950 | 
|TrustHouse Services Group, Inc.                                          |  | 06/03/2019 |  | Beverage, Food, andTobacco         |  |               | 14.25(PIK 2.25  | %%)  |                                |  |  |             |  |  | 14,947,163  |  |  |                 | 14,712,283  |  |  |   | 15,395,577 | 
|TrustHouse Services Group, Inc. (9)                                      |  | 06/02/2014 |  | Beverage, Food, andTobacco         |  |               |                |      |                                |  |  |             |  |  | 4,000,000   |  |  |                 | 3,920,000   |  |  |   | 4,120,000  | 
|Varel International Energy Mezzanine Funding Corp.                       |  | 01/15/2018 |  | Oil and Gas                        |  |               | 14.00(PIK 4.00  | %%)  |                                |  |  |             |  |  | 36,316,224  |  |  |                 | 35,626,100  |  |  |   | 36,163,267 | 
|Veritext Corp.                                                           |  | 12/31/2015 |  | Business Services                  |  |               | 13.00           | %    |                                |  |  |             |  |  | 16,200,000  |  |  |                 | 15,953,295  |  |  |   | 16,200,000 | 
|Vestcom International, Inc.                                              |  | 06/27/2019 |  | Printing andPublishing             |  |               | 12.00           | %    |                                |  |  |             |  |  | 39,892,933  |  |  |                 | 39,110,876  |  |  |   | 39,586,973 | 
|                                                                         |  |            |  |                                    |  |               |                 |      |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 
|Total Subordinated Debt/Corporate Notes                                  |  |            |  |                                    |  |               |                 |      |                                |  |   |             |  |  | 370,600,255 |  |  |                 | 366,612,728 | 
|                                                                         |  |            |  |                                    |  |               |                 |      |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 
|Preferred Equity/Partnership Interests 1.6% (6)                         |  |            |  |                                    |  |               |                 |      |                                |  |   |             |  |  |             |  |  |                 |             |  |  |  
|AH Holdings, Inc.                                                        |  |           |  | Healthcare, Educationand Childcare |  |               | 6.00            | %    |                                |  |  |             |  |  | 211         |  |  |                 | 500,000     |  |  |   | 778,956    | 
|AHC Mezzanine, LLC                                                       |  |           |  | Other Media                        |  |               |                |      |                                |  |  |             |  |  | 7,505       |  |  |                 | 318,896     |  |  |   |           | 
|Alegeus Technologies Holdings Corp.,Series A (Alegeus Technologies, LLC) |  |           |  | Financial Services                 |  |               |                |      |                                |  |  |             |  |  | 949         |  |  |                 | 949,050     |  |  |   | 978,720    | 
|CI (IHS) Investment Holdings, LLC(Interactive Health Solutions, Inc.)    |  |           |  | Healthcare, Educationand Childcare |  |               | 8.00            | %    |                                |  |  |             |  |  | 76,357      |  |  |                 | 765,307     |  |  |   | 1,227,217  | 
|CI (IHS) Investment Holdings, LLC(9)(Interactive Health Solutions, Inc.) |  |           |  | Healthcare, Educationand Childcare |  |               |                |      |                                |  |  |             |  |  | 38,179      |  |  |                 | 382,654     |  |  |   | 613,609    | 
|Convergint Technologies Holdings, LLC (Convergint Technologies LLC)      |  |           |  | Electronics                        |  |               | 8.00            | %    |                                |  |  |             |  |  | 2,375       |  |  |                 | 2,375,000   |  |  |   | 2,423,779  | 
|CT Technologies Holdings, LLC                                            |  |           |  | Business Services                  |  |               | 9.00            | %    |                                |  |  |             |  |  | 326,215     |  |  |                 | 326,215     |  |  |   | 326,215    | 
|HW Topco, Inc. (Hanley-Wood, LLC)                                        |  |           |  | Other Media                        |  |               | 8.00            | %    |                                |  |  |             |  |  | 3,591       |  |  |                 | 24,177      |  |  |   | 26,411     | 
|TrustHouse Services Holdings, LLC(TrustHouse Services Group, Inc.)       |  |           |  | Beverage, Food,and Tobacco         |  |               | 12.00           | %    |                                |  |  |             |  |  | 1,099       |  |  |                 | 984,344     |  |  |   | 1,464,994  | 
|TZ Holdings, L.P., Series A                                              |  |           |  | Insurance                          |  |               |                |      |                                |  |  |             |  |  | 686         |  |  |                 | 685,820     |  |  |   | 685,820    | 
|TZ Holdings, L.P., Series B                                              |  |           |  | Insurance                          |  |               | 6.50            | %    |                                |  |  |             |  |  | 1,312       |  |  |                 | 1,312,006   |  |  |   | 1,709,202  | 
|Verde Parent Holdings, Inc.                                              |  |           |  | PersonalTransportation             |  |               | 8.00            | %    |                                |  |  |             |  |  | 1,824,167   |  |  |                 | 1,824,168   |  |  |   | 1,253,995  | 
|                                                                         |  |            |  |                                    |  |               |                 |      |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 
|Total Preferred Equity/Partnership Interests                             |  |            |  |                                    |  |               |                 |      |                                |  |   |             |  |  |             |  |  |                 | 10,447,637  |  |  |   | 11,488,918 | 
|                                                                         |  |            |  |                                    |  |               |                 |      |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



7



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##### Table of Contents

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS(CONTINUED)

MARCH 31, 2013

(Unaudited)



|                                                                                |  |            |  |                                         |  |               |   |  |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 
|------------------------------------------------------------------------------- |  | ---------- |  | --------------------------------------- |  | ------------- | - |  | ------------------------------ |  | - | ----------- |  |  | ----------- |  |  | --------------- | ----------- |  |  | - | ---------- | 
|Issuer Name                                                                     |  | Maturity   |  | Industry                                |  | CurrentCoupon |   |  | Basis PointSpreadAboveIndex(4) |  |   | Par /Shares |  |  | Cost        |  |  | Fair Value 
(3) |            
|Common Equity/Warrants/Partnership Interests12.7%(6)                           |  |            |  |                                         |  |               |   |  |                                |  |   |             |  |  |             |  |  |                 |             |  |  |  
|Acentia, LLC, Class A Units(12)                                                 |  |           |  | Electronics                             |  |               |  |  |                                |  |  |             |  |  | 1,998       |  |  | $               | 2,000,000   |  |  | $ | 1,354,294  | 
|AH Holdings, Inc. (Warrants)                                                    |  | 03/23/2021 |  | Healthcare, Educationand Childcare      |  |               |  |  |                                |  |  |             |  |  | 753         |  |  |                 |            |  |  |   | 2,461,795  | 
|Alegeus Technologies Holding Corp., Class A,(Alegeus Technologies, LLC)         |  |           |  | Financial Services                      |  |               |  |  |                                |  |  |             |  |  | 1           |  |  |                 | 950         |  |  |   | 980        | 
|Autumn Games, LLC                                                               |  |           |  | Broadcasting andEntertainment           |  |               |  |  |                                |  |  |             |  |  | 1,333,330   |  |  |                 | 3,000,000   |  |  |   |           | 
|CI (Galls) Prime Investment Holdings, LLC(Galls, LLC)
(11)                      |  |           |  | Distribution                            |  |               |  |  |                                |  |  |             |  |  | 1,505,000   |  |  |                 | 1,505,000   |  |  |   | 2,043,502  | 
|CI (IHS) Investment Holdings, LLC (Interactive Health Solutions, Inc.)          |  |           |  | Healthcare, Educationand Childcare      |  |               |  |  |                                |  |  |             |  |  | 23,416      |  |  |                 | 234,693     |  |  |   | 376,363    | 
|CI (IHS) Investment Holdings, LLC (9)(Interactive
Health Solutions, Inc.)       |  |           |  | Healthcare, Educationand Childcare      |  |               |  |  |                                |  |  |             |  |  | 11,708      |  |  |                 | 117,346     |  |  |   | 188,182    | 
|Convergint Technologies Holdings, LLC(Convergint Technologies LLC)              |  |           |  | Electronics                             |  |               |  |  |                                |  |  |             |  |  | 2,375       |  |  |                 |            |  |  |   | 149,633    | 
|CT Technologies Holdings, LLC                                                   |  |           |  | Business Services                       |  |               |  |  |                                |  |  |             |  |  | 5,556       |  |  |                 | 1,918,346   |  |  |   | 6,806,853  | 
|HW Topco, Inc. (Hanley-Wood, LLC)                                               |  |           |  | Other Media                             |  |               |  |  |                                |  |  |             |  |  | 386,770     |  |  |                 | 2,697,834   |  |  |   | 2,693,070  | 
|Kadmon Holdings, LLC, Class A(Kadmon Pharmaceuticals, LLC)                      |  |           |  | Healthcare, Educationand Childcare      |  |               |  |  |                                |  |  |             |  |  | 1,079,920   |  |  |                 | 1,236,831   |  |  |   | 9,824,699  | 
|Kadmon Holdings, LLC, Class D(Kadmon Pharmaceuticals, LLC)                      |  |           |  | Healthcare, Educationand Childcare      |  |               |  |  |                                |  |  |             |  |  | 1,079,920   |  |  |                 | 1,028,806   |  |  |   | 1,028,807  | 
|Learning Care Group (US) Inc. (Warrants)                                        |  | 04/27/2020 |  | Education                               |  |               |  |  |                                |  |  |             |  |  | 6,649       |  |  |                 | 779,920     |  |  |   | 2,335,769  | 
|Magnum Hunter Resources Corporation(Eureka Hunter Pipeline, LLC)                |  |           |  | Oil and Gas                             |  |               |  |  |                                |  |  |             |  |  | 1,221,932   |  |  |                 | 3,239,999   |  |  |   | 4,899,947  | 
|Magnum Hunter Resources Corporation (Warrants) (Eureka Hunter Pipeline, LLC)    |  | 10/14/2013 |  | Oil and Gas                             |  |               |  |  |                                |  |  |             |  |  | 122,193     |  |  |                 | 105,697     |  |  |   | 909        | 
|MidOcean JF Holdings Corp.(JF Acquisition, LLC)                                 |  |           |  | Distribution                            |  |               |  |  |                                |  |  |             |  |  | 1,850       |  |  |                 | 1,850,294   |  |  |   | 1,928,624  | 
|MidOcean PPL Holdings, Inc.(Pre-Paid Legal Services, Inc.)                      |  |           |  | Personal, Food andMiscellaneousServices |  |               |  |  |                                |  |  |             |  |  | 3,000       |  |  |                 | 3,000,000   |  |  |   | 4,337,857  | 
|Paradigm Acquisition Corp.                                                      |  |           |  | Healthcare, Educationand Childcare      |  |               |  |  |                                |  |  |             |  |  | 20,000      |  |  |                 | 2,000,000   |  |  |   | 2,430,261  | 
|QMG HoldCo, LLC, Class A(Questex Media Group, LLC)                              |  |           |  | Other Media                             |  |               |  |  |                                |  |  |             |  |  | 4,325       |  |  |                 | 1,306,167   |  |  |   | 1,435,435  | 
|QMG HoldCo, LLC, Class B(Questex Media Group, LLC)                              |  |           |  | Other Media                             |  |               |  |  |                                |  |  |             |  |  | 531         |  |  |                 |            |  |  |   | 176,235    | 
|Realogy Holdings Corp. (14)(f/k/a Realogy
Corp.)                                |  |           |  | Buildings and RealEstate                |  |               |  |  |                                |  |  |             |  |  | 417,054     |  |  |                 | 10,929,118  |  |  |   | 20,368,916 | 
|SPG Boyd Holdings Corp.(LTI Flexible Products, Inc.)                            |  |           |  | Chemical, Plasticand Rubber             |  |               |  |  |                                |  |  |             |  |  | 300,000     |  |  |                 | 3,000,000   |  |  |   | 4,215,032  | 
|Titan Private Holdings I, LLC  Class A(Tekelec Global, Inc.)                   |  |           |  | Telecommunications                      |  |               |  |  |                                |  |  |             |  |  | 2,276,847   |  |  |                 | 2,274,883   |  |  |   | 8,470,962  | 
|TRAK Acquisition Corp. (Warrants)                                               |  | 12/29/2019 |  | Business Services                       |  |               |  |  |                                |  |  |             |  |  | 3,500       |  |  |                 | 29,400      |  |  |   | 1,050,109  | 
|Transportation 100 Holdco, L.L.C.
(13)(Intermediate Transportation 100, L.L.C.) |  |           |  | Cargo Transport                         |  |               |  |  |                                |  |  |             |  |  | 137,923     |  |  |                 | 2,111,588   |  |  |   | 490,624    | 
|TZ Holdings, L.P.                                                               |  |           |  | Insurance                               |  |               |  |  |                                |  |  |             |  |  | 2           |  |  |                 | 9,568       |  |  |   | 26,655     | 
|Verde Parent Holdings, Inc.                                                     |  |           |  | PersonalTransportation                  |  |               |  |  |                                |  |  |             |  |  | 9,166       |  |  |                 | 9,166       |  |  |   |           | 
|Vestcom Parent Holdings, Inc.(Vestcom International, Inc.)                      |  |           |  | Printing andPublishing                  |  |               |  |  |                                |  |  |             |  |  | 211,797     |  |  |                 | 2,325,555   |  |  |   | 2,558,933  | 
|VText Holdings, Inc.(Veritext Corp.)                                            |  |           |  | Business Services                       |  |               |  |  |                                |  |  |             |  |  | 35,526      |  |  |                 | 4,050,000   |  |  |   | 7,084,614  | 
|                                                                                |  |            |  |                                         |  |               |   |  |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 
|Total Common Equity/Warrants/Partnership Interests                              |  |            |  |                                         |  |               |   |  |                                |  |   |             |  |  |             |  |  |                 | 50,761,161  |  |  |   | 88,739,060 | 
|                                                                                |  |            |  |                                         |  |               |   |  |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 
|Total Investments in Non-Controlled, Non-Affiliated Portfolio Companies         |  |            |  |                                         |  |               |   |  |                                |  |   |             |  |  | 917,043,333 |  |  |                 | 971,792,490 | 
|                                                                                |  |            |  |                                         |  |               |   |  |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



8



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##### Table of Contents

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS(CONTINUED)

MARCH 31, 2013

(Unaudited)



|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|--------------------------------------------------------------------------- |  | ---------- |  | --------------------------------------------------- |  | ------------- | --------------- | ------------- | ------------------------------ |  | ----- | ------------- | - |  | ---------- |  |  | --------------- | ---------- |  |  | - | ---------- | 
|Issuer Name                                                                 |  | Maturity   |  | Industry                                            |  | CurrentCoupon |                 |               | Basis PointSpreadAboveIndex(4) |  |       | Par /Shares   |   |  | Cost       |  |  | Fair Value 
(3) |           
|Investments in Non-Controlled, Affiliated Portfolio Companies15.1%
(1),(2) |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            | 
|Second Lien Secured Debt1.1%                                               |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |  
|Performance, Inc.                                                           |  | 01/16/2015 |  | Leisure, AmusementMotion Pictures andEntertainment  |  |               | 7.25            | %             |                                |  | L+625 | (8)           |   |  | 8,000,000  |  |  | $               | 8,000,000  |  |  | $ | 7,932,000  | 
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|Subordinated Debt/Corporate Notes8.4%                                      |  |            |  |                                                    |  |               |                 |               |                                |  |       |               |   |  |            |  | 
|DirectBuy Holdings, Inc.                                                    |  | 11/05/2019 |  | Consumer Products                                   |  |               | 12.00(PIK 12.00 | %%)           |                                |  |      |               |   |  | 10,772,197 |  |  |                 | 10,772,197 |  |  |   | 10,772,197 | 
|Performance Holdings, Inc.                                                  |  | 07/16/2015 |  | Leisure, Amusement,Motion Pictures
andEntertainment |  |               | 15.00           | %(7)          |                                |  |      |               |   |  | 7,567,234  |  |  |                 | 7,450,132  |  |  |   | 7,567,234  | 
|Service Champ, Inc.                                                         |  | 10/02/2017 |  | Auto Sector                                         |  |               | 12.50           | %             |                                |  |      |               |   |  | 24,000,000 |  |  |                 | 23,531,789 |  |  |   | 24,276,307 | 
|Service Champ, Inc.(9)                                                      |  | 10/02/2013 |  | Auto Sector                                         |  |               |                |               |                                |  |       |               |   |  | 16,000,000 |  |  |                 | 15,640,000 |  |  |   | 16,184,205 | 
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|Total Subordinated Debt/Corporate Notes                                     |  |            |  |                                                     |  |               |                 | 57,394,118    |                                |  |       | 58,799,943    |  
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|                                                                            |  |            |  |                                                     |  |               |                
|Preferred Equity0.8% (6)                                                   |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|PAS International Holdings, Inc.(PAS Technologies, Inc.)                    |  |           |  | Aerospace andDefense                                |  |               |                |               |                                |  |      |               |   |  | 53,071     |  |  |                 | 20,059,340 |  |  |   | 5,254,072  | 
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|Common Equity/Partnership Interest4.8%
(6)                                 |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |  
|DirectBuy Holdings, Inc.                                                    |  |           |  | Consumer Products                                   |  |               |                |               |                                |  |      |               |   |  | 104,719    |  |  |                 | 21,492,822 |  |  |   | 3,698,787  | 
|DirectBuy Holdings, Inc. (Warrants)                                         |  | 11/05/2022 |  | Consumer Products                                   |  |               |                |               |                                |  |      |               |   |  | 15,486     |  |  |                 |           |  |  |   | 546,982    | 
|EnviroSolutions Holdings, Inc.                                              |  |           |  | EnvironmentalServices                               |  |               |                |               |                                |  |      |               |   |  | 141,350    |  |  |                 | 11,792,664 |  |  |   | 21,136,467 | 
|NCP-Performance (Performance Holdings, Inc.)                                |  |           |  | Leisure, Amusement,Motion Pictures
andEntertainment |  |               |                |               |                                |  |      |               |   |  | 375,000    |  |  |                 | 3,750,000  |  |  |   | 2,900,218  | 
|New Service Champ Holdings, Inc.(Service Champ, Inc.)                       |  |           |  | Auto Sector                                         |  |               |                |               |                                |  |      |               |   |  | 16,800     |  |  |                 | 4,200,000  |  |  |   | 5,243,895  | 
|PAS International Holdings, Inc.(PAS Technologies, Inc.)                    |  |           |  | Aerospace andDefense                                |  |               |                |               |                                |  |      |               |   |  | 53,071     |  |  |                 | 202,620    |  |  |   | 53,071     | 
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|Total Common Equity/Partnership Interest                                    |  |            |  |                                                     |  |               |                 | 41,438,106    |                                |  |       | 33,579,420    |  
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|                                                                            |  |            | 
|Total Investments in Non-Controlled, Affiliated Portfolio Companies         |  |            |  |                                                     |  |               |                 | 126,891,564   |                                |  |       | 105,565,435   |  
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|Investments in Controlled, Affiliated Portfolio Companies5.5% (1),(2)      |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |  
|First Lien Secured Debt1.8%                                                |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |  
|SuttonPark Holdings, Inc.                                                   |  | 06/30/2020 |  | Business Services                                   |  |               | 14.00           | %(7)          |                                |  |      |               |   |  | 10,000,000 |  |  |                 | 10,000,000 |  |  |   | 10,346,043 | 
|UP Support Services, Inc. (9)                                               |  | 12/31/2015 |  | Oil and Gas                                         |  |               |                |               |                                |  |      |               |   |  | 1,916,667  |  |  |                 | 1,758,998  |  |  |   | 1,916,667  | 
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|Total First Lien Secured Debt                                               |  |            |  |                                                     |  |               |                 | 11,758,998    |                                |  |       | 12,262,710    |  
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|Second Lien Secured Debt2.2%                                               |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |  
|UP Support Services, Inc.                                                   |  | 12/31/2015 |  | Oil and Gas                                         |  |               | 15.00(PIK 15.00 | %%)           |                                |  |      |               |   |  | 15,417,641 |  |  |                 | 13,190,366 |  |  |   | 15,224,920 | 
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|Subordinated Debt/Corporate Notes0.3%                                      |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |  
|SuttonPark Holdings, Inc.                                                   |  | 06/30/2020 |  | Business Services                                   |  |               | 14.00           | %(7)          |                                |  |       |               |   |  | 2,500,000  |  |  |                 | 2,500,000  |  |  |   | 2,167,431  | 
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|Preferred
Equity1.2(6)                                                     |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |  
|SuttonPark Holdings, Inc.                                                   |  |           |  | Business Services                                   |  |               | 14.00           | %(7)          |                                |  |      |               |   |  | 2,000      |  |  |                 | 2,000,000  |  |  |   | 1,986,526  | 
|Universal Pegasus International Holdings, Inc.(UP Support Services, Inc.)   |  |           |  | Oil and Gas                                         |  |               | 8.00            | %             |                                |  |      |               |   |  | 376,988    |  |  |                 | 34,420,612 |  |  |   | 5,877,695  | 
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|Total Preferred Equity                                                      |  |            |  |                                                     |  |               |                 | 36,420,612    |                                |  |       | 7,864,221     |  
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|Common Equity0.0%
(6)                                                      |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |  
|SuttonPark Holdings, Inc.                                                   |  |           |  | Business Services                                   |  |               |                |               |                                |  |      |               |   |  | 100        |  |  |                 | 100        |  |  |   |           | 
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|                                                                            |  |            | 
|Total Investments in Controlled, Affiliated Portfolio Companies             |  |            |  |                                                     |  |               |                 | 63,870,076    |                                |  |       | 37,519,282    |  
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|Total Investments159.9%                                                    |  |            |  |                                                     |  |               |                 | 1,107,804,973 |                                |  |       | 1,114,877,207 |  
|Cash Equivalents2.5%                                                       |  |            |  |                                                     |  |               |                 | 17,333,318    |                                |  |       | 17,333,318    |  
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|Total Investments and Cash Equivalents162.4%                               |  |            |  |                                                     |  |               | $               | 1,125,138,291 |                                |  | $     | 1,132,210,525 |  
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|Liabilities in Excess of Other Assets(62.4%)                               |  |            |  |                                                     |  |               |                 |               |                                |  |       | (434,834,217  | )
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 
|Net Assets100.0%                                                           |  |            |  |                                                     |  |               |                 |               |                                |  | $     | 697,376,308   |  
|                                                                            |  |            |  |                                                     |  |               |                 |               |                                |  |       |               |   |  |            |  |  |                 |            |  |  |   |            | 

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



9



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##### Table of Contents

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS(CONTINUED)

MARCH 31, 2013

(Unaudited)





|(1) | The provisions of the 1940 Act, classify investments based on the level of control that we maintain in a particular portfolio company. As defined in the 1940 Act, a
company is deemed as non-controlled when we own less than 25% of a portfolio companys voting securities and controlled when we own 25% or more of a portfolio companys voting securities.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The provisions of the 1940 Act classify investments further based on the level of ownership that we maintain in a particular portfolio company. As defined in the 1940
Act, a company is deemed as non-affiliated when we own less than 5% of a portfolio companys voting securities and affiliated when we own 5% or more of a portfolio companys voting securities. (see Note 6).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Valued based on our accounting policy (see Note 2).
|--- | ---------------------------------------------------

|(4) | Represents floating rate instruments that accrue interest at a predetermined spread relative to an index, typically the applicable London Interbank Offered Rate, or
LIBOR or L, or Prime or P, rate.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Security is exempt from registration under Rule 144A promulgated under the Securities Act of 1933, as amended, or the Securities Act. The security may be resold in
transactions that are exempt from registration, normally to qualified institutional buyers.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Non-income producing securities.
|--- | --------------------------------

|(7) | Coupon is payable in cash and/or in-kind or PIK.
|--- | ------------------------------------------------

|(8) | Coupon is subject to a LIBOR or Prime rate floor.
|--- | -------------------------------------------------

|(9) | Represents the purchase of a security with delayed settlement (unfunded investment). This security does not have a basis point spread above an index.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | Non-U.S. company or principal place of business outside the U.S.
|---- | ----------------------------------------------------------------

|(11) | Investment is held through PNNT CI (Galls) Prime Investment Holdings, LLC, a consolidated subsidiary.
|---- | -----------------------------------------------------------------------------------------------------

|(12) | Investment is held through PNNT Acentia LLC, a consolidated subsidiary.
|---- | -----------------------------------------------------------------------

|(13) | Investment is held through PNNT Transportation 100 Holdco, LLC, a consolidated subsidiary.
|---- | ------------------------------------------------------------------------------------------

|(14) | Security is subject to restrictions on resale.
|---- | ----------------------------------------------

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



10



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##### Table of Contents

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

SEPTEMBER 30, 2012



|                                                                                 |  |          |            |  |          |                                                                    |               |  |                 |                                |  |  |             |     |             |      |            |  |                 |   |            |  |  |   |            | 
|-------------------------------------------------------------------------------- |  | -------- | ---------- |  | -------- | ------------------------------------------------------------------ | ------------- |  | --------------- | ------------------------------ |  |  | ----------- | --- | ----------- | ---- | ---------- |  | --------------- | - | ---------- |  |  | - | ---------- | 
|Issuer Name                                                                      |  | Maturity |            |  | Industry |                                                                    | CurrentCoupon |  |                 | Basis PointSpreadAboveIndex(4) |  |  | Par /Shares |     |             | Cost |            |  | Fair Value 
(3) |  
|Investments in Non-Controlled, Non-Affiliated Portfolio Companies130.3% (1),(2) |  |          |            |  |          |                                                                    |               |  |                
|First Lien Secured Debt41.7%                                                    |  |          |            |  |          |                                                                    |               |  |                 |                                |  |  |             |     |             |      |            |  |                 |  
|Aircell Business Aviation Services LLC                                           |  |          | 06/21/2017 |  |          | Communications                                                     |               |  | 11.25           | %                              |  |  | L+975       | (8) |             |      | 14,906,250 |  |                 | $ | 14,332,682 |  |  | $ | 14,906,250 | 
|American Surgical Holdings, Inc.                                                 |  |          | 03/23/2015 |  |          | Healthcare, Education andChildcare                                 |               |  | 14.00           | %                              |  |  | L+1,000     | (8) |             |      | 17,811,828 |  |                 |   | 17,441,366 |  |  |   | 17,811,828 | 
|Brand Energy and Infrastructure Services, Inc.                                   |  |          | 02/07/2014 |  |          | Energy/Utilities                                                   |               |  | 3.68            | %                              |  |  | L+325       |     |             |      | 2,000,000  |  |                 |   | 1,757,029  |  |  |   | 1,973,334  | 
|CEVA Group PLC(5),(10)                                                           |  |          | 10/01/2016 |  |          | Cargo Transport                                                    |               |  | 11.63           | %                              |  |  |            |     |             |      | 7,500,000  |  |                 |   | 7,355,237  |  |  |   | 7,687,500  | 
|CEVA Group PLC(5),(10)                                                           |  |          | 04/01/2018 |  |          | Cargo Transport                                                    |               |  | 11.50           | %                              |  |  |            |     |             |      | 1,000,000  |  |                 |   | 990,089    |  |  |   | 880,000    | 
|Columbus International, Inc.(5),
(10)                                            |  |          | 11/20/2014 |  |          | Communications                                                     |               |  | 11.50           | %                              |  |  |            |     |             |      | 10,000,000 |  |                 |   | 10,000,000 |  |  |   | 11,100,000 | 
|Good Sam Enterprises, LLC(5)                                                     |  |          | 12/01/2016 |  |          | Consumer Products                                                  |               |  | 11.50           | %                              |  |  |            |     |             |      | 12,000,000 |  |                 |   | 11,795,443 |  |  |   | 12,720,000 | 
|Hanley-Wood, L.L.C.                                                              |  |          | 01/13/2017 |  |          | Other Media                                                        |               |  | 8.00            | %                              |  |  | L+650       | (8) |             |      | 1,752,896  |  |                 |   | 1,752,896  |  |  |   | 1,752,896  | 
|IDQ Holdings, Inc.(5)                                                            |  |          | 04/01/2017 |  |          | Auto Sector                                                        |               |  | 11.50           | %                              |  |  |            |     |             |      | 11,500,000 |  |                 |   | 11,288,165 |  |  |   | 12,218,750 | 
|Instant Web, Inc.                                                                |  |          | 08/07/2014 |  |          | Printing and Publishing                                            |               |  | 14.50           | %                              |  |  | L+950       | (8) |             |      | 24,115,645 |  |                 |   | 23,829,738 |  |  |   | 23,802,142 | 
|Interactive Health Solutions, Inc.                                               |  |          | 10/04/2016 |  |          | Healthcare, Education andChildcare                                 |               |  | 11.50           | %                              |  |  | L+950       | (8) |             |      | 18,525,000 |  |                 |   | 18,165,492 |  |  |   | 18,571,313 | 
|Jacuzzi Brands Corp.                                                             |  |          | 02/07/2014 |  |          | Home and OfficeFurnishings, Housewaresand Durable ConsumerProducts |               |  | 2.28            | %                              |  |  | L+225       |     |             |      | 9,598,649  |  |                 |   | 9,598,649  |  |  |   | 6,371,103  | 
|K2 Pure Solutions NoCal, L.P.                                                    |  |          | 09/10/2015 |  |          | Chemicals, Plastics andRubber                                      |               |  | 10.00           | %                              |  |  | L+775       | (8) |             |      | 18,952,500 |  |                 |   | 18,216,865 |  |  |   | 19,236,788 | 
|Kadmon Pharmaceuticals, LLC                                                      |  |          | 10/31/2012 |  |          | Healthcare, Education andChildcare                                 |               |  | 15.00           | %                              |  |  | L+1,300     | (8) |             |      | 4,931,494  |  |                 |   | 4,992,740  |  |  |   | 5,110,409  | 
|Learning Care Group, Inc.                                                        |  |          | 04/27/2016 |  |          | Education                                                          |               |  | 12.00           | %                              |  |  |            |     |             |      | 26,052,632 |  |                 |   | 25,640,832 |  |  |   | 25,857,237 | 
|Penton Media, Inc.                                                               |  |          | 08/01/2014 |  |          | Other Media                                                        |               |  | 5.00(PIK 1.00   | %%)                            |  |  | L+400       | (8) |             |      | 37,775,294 |  |                 |   | 33,971,917 |  |  |   | 30,503,550 | 
|Pre-Paid Legal Services, Inc., Tranche A                                         |  |          | 12/30/2016 |  |          | Personal, Food andMiscellaneous Services                           |               |  | 7.50            | %                              |  |  | L+600       | (8) |             |      | 1,552,846  |  |                 |   | 1,533,687  |  |  |   | 1,556,728  | 
|Pre-Paid Legal Services, Inc., Tranche B                                         |  |          | 12/30/2016 |  |          | Personal, Food andMiscellaneous Services                           |               |  | 11.00           | %                              |  |  | L+950       | (8) |             |      | 35,000,000 |  |                 |   | 34,118,800 |  |  |   | 35,350,000 | 
|Questex Media Group LLC(9)                                                       |  |          | 12/16/2012 |  |          | Other Media                                                        |               |  | 1.36            | %                              |  |  |            |     |             |      | 133,603    |  |                 |   | 133,603    |  |  |   | 133,603    | 
|Tekelec Global Inc. (First Out)                                                  |  |          | 01/29/2018 |  |          | Telecommunications                                                 |               |  | 9.00            | %                              |  |  | L+750       | (8) |             |      | 850,000    |  |                 |   | 838,369    |  |  |   | 850,000    | 
|Tekelec Global Inc. (Second Out)                                                 |  |          | 01/29/2018 |  |          | Telecommunications                                                 |               |  | 13.50           | %                              |  |  | L+1,200     | (8) |             |      | 10,625,000 |  |                 |   | 10,338,450 |  |  |   | 10,848,126 | 
|Worley Claims Services, LLC                                                      |  |          | 07/06/2017 |  |          | Insurance                                                          |               |  | 12.50           | %                              |  |  | L+1,100     | (8) |             |      | 14,934,000 |  |                 |   | 14,934,000 |  |  |   | 14,859,330 | 
|Yonkers Racing Corp.(5)                                                          |  |          | 07/15/2016 |  |          | Hotels, Motels, Inns andGaming                                     |               |  | 11.38           | %                              |  |  |            |     |             |      | 4,500,000  |  |                 |   | 4,401,515  |  |  |   | 4,860,000  | 
|                                                                                 |  |          |            |  |          |                                                                    |               |  |                 |                                |  |  |             |     |             |      |            |  |                 |   |            |  |  |   |            | 
|Total First Lien Secured Debt                                                    |  |          |            |  |          |                                                                    |               |  |                 |                                |  |  |             |     | 277,427,564 |      |            |  | 278,960,887     |  
|                                                                                 |  |          |            |  |          |                                                                    |               |  |                 |                                |  |  |             |     |             |      |            |  |                 |   |            |  |  |   |            | 
|Second Lien Secured Debt25.3%                                                   |  |          |            |  |          |                                                                    |               |  |                 |                                |  |  |             |     |             |      |            |  |                 |   |            |  | 
|American Gilsonite Company(5)                                                    |  |          | 09/01/2017 |  |          | Diversified NaturalResources, PreciousMetals and Minerals          |               |  | 11.50           | %                              |  |  |            |     |             |      | 25,400,000 |  |                 |   | 25,400,000 |  |  |   | 26,098,500 | 
|Brand Energy and Infrastructure Services, Inc.                                   |  |          | 02/07/2015 |  |          | Energy/Utilities                                                   |               |  | 6.33            | %                              |  |  | L+600       |     |             |      | 13,600,000 |  |                 |   | 13,378,432 |  |  |   | 12,729,600 | 
|Brand Energy and Infrastructure Services, Inc.                                   |  |          | 02/07/2015 |  |          | Energy/Utilities                                                   |               |  | 7.36            | %                              |  |  | L+700       |     |             |      | 12,000,000 |  |                 |   | 11,866,485 |  |  |   | 11,232,000 | 
|DirectBuy Holdings, Inc.(5),
(6)                                                 |  |          | 02/01/2017 |  |          | Consumer Products                                                  |               |  | 12.00           | %                              |  |  |            |     |             |      | 34,000,000 |  |                 |   | 31,964,822 |  |  |   | 10,880,000 | 
|Eureka Hunter Pipeline, LLC                                                      |  |          | 08/16/2018 |  |          | Energy/Utilities                                                   |               |  | 12.50           | %                              |  |  |            |     |             |      | 45,000,000 |  |                 |   | 44,543,688 |  |  |   | 45,000,000 | 
|Greatwide Logistics Services, L.L.C.                                             |  |          | 03/01/2014 |  |          | Cargo Transport                                                    |               |  | 11.00(PIK 11.00 | %%)                            |  |  | L+700       | (8) |             |      | 3,184,219  |  |                 |   | 3,184,222  |  |  |   | 2,292,640  | 
|Paradigm Management Services, LLC                                                |  |          | 07/31/2017 |  |          | Healthcare, Education andChildcare                                 |               |  | 12.50           | %                              |  |  | L+1,100     | (8) |             |      | 20,512,821 |  |                 |   | 20,059,979 |  |  |   | 20,512,821 | 
|Questex Media Group LLC, Term Loan A                                             |  |          | 12/15/2014 |  |          | Other Media                                                        |               |  | 9.50            | %                              |  |  | L+650       | (8) |             |      | 2,752,666  |  |                 |   | 2,752,666  |  |  |   | 2,584,753  | 
|Questex Media Group LLC, Term Loan B                                             |  |          | 12/15/2015 |  |          | Other Media                                                        |               |  | 11.50(PIK 11.50 | %%)                            |  |  | L+850       | (8) |             |      | 2,230,508  |  |                 |   | 2,230,508  |  |  |   | 2,002,996  | 
|Realogy Corp.                                                                    |  |          | 10/15/2017 |  |          | Buildings and RealEstate                                           |               |  | 13.50           | %                              |  |  |            |     |             |      | 10,000,000 |  |                 |   | 10,000,000 |  |  |   | 10,062,500 | 
|ROC Finance LLC and ROC Finance 1 Corp.                                          |  |          | 09/01/2018 |  |          | Hotels, Motels,Inns and
Gaming                                     |               |  | 12.13           | %                              |  |  |            |     |             |      | 16,000,000 |  |                 |   | 15,752,822 |  |  |   | 18,560,000 | 
|TransFirst Holdings, Inc.                                                        |  |          | 06/15/2015 |  |          | Financial Services                                                 |               |  | 6.22            | %                              |  |  | L+600       |     |             |      | 7,811,488  |  |                 |   | 7,511,344  |  |  |   | 7,411,149  | 
|                                                                                 |  |          |            |  |          |                                                                    |               |  |                 |                                |  |  |             |     |             |      |            |  |                 |   |            |  |  |   |            | 
|Total Second Lien Secured Debt                                                   |  |          |            |  |          |                                                                    |               |  |                 |                                |  |  |             |     | 188,644,968 |      |            |  | 169,366,959     |  
|                                                                                 |  |          |            |  |          |                                                                    |               |  |                 |                                |  |  |             |     |             |      |            |  |                 |   |            |  |  |   |            | 

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



11



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##### Table of Contents

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS(CONTINUED)

SEPTEMBER 30, 2012



|                                                                         |  |            |  |                                            |  |               |                 |      |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 
|------------------------------------------------------------------------ |  | ---------- |  | ------------------------------------------ |  | ------------- | --------------- | ---- | ------------------------------ |  | - | ----------- |  |  | ----------- |  |  | --------------- | ----------- |  |  | - | ---------- | 
|Issuer Name                                                              |  | Maturity   |  | Industry                                   |  | CurrentCoupon |                 |      | Basis PointSpreadAboveIndex(4) |  |   | Par /Shares |  |  | Cost        |  |  | Fair Value 
(3) |            
|Subordinated Debt/Corporate Notes52.4%                                  |  |            |  |                                            |  |               |                 |      |                                |  |   |             |  |  |             |  |  |                 |             |  |  |  
|Acentia, LLC                                                             |  | 10/02/2017 |  | Electronics                                |  |               | 13.75           | %    |                                |  |  |             |  |  | 19,000,000  |  |  | $               | 18,563,943  |  |  | $ | 19,000,000 | 
|Affinion Group Holdings, Inc.                                            |  | 11/15/2015 |  | Consumer Products                          |  |               | 11.63           | %    |                                |  |  |             |  |  | 35,552,000  |  |  |                 | 34,172,451  |  |  |   | 24,175,360 | 
|Alegeus Technologies, LLC                                                |  | 02/15/2019 |  | Financial Services                         |  |               | 12.00           | %    |                                |  |  |             |  |  | 8,930,000   |  |  |                 | 8,754,461   |  |  |   | 8,930,000  | 
|Convergint Technologies LLC                                              |  | 03/26/2018 |  | Electronics                                |  |               | 12.00(PIK 1.00  | %%)  |                                |  |  |             |  |  | 23,277,586  |  |  |                 | 22,812,086  |  |  |   | 22,812,034 | 
|Diversitech Corporation                                                  |  | 01/29/2017 |  | Manufacturing/Basic
Industry               |  |               | 13.50           | %(7) |                                |  |  |             |  |  | 11,000,000  |  |  |                 | 10,836,901  |  |  |   | 11,275,000 | 
|Escort, Inc.                                                             |  | 06/01/2016 |  | Electronics                                |  |               | 14.75(PIK 2.75  | %%)  |                                |  |  |             |  |  | 25,254,035  |  |  |                 | 24,751,548  |  |  |   | 25,254,035 | 
|Galls, LLC; Quartermaster Inc.                                           |  | 03/31/2017 |  | Distribution                               |  |               | 13.00(PIK 2.00  | %%)  |                                |  |  |             |  |  | 21,797,263  |  |  |                 | 21,399,764  |  |  |   | 21,906,249 | 
|JF Acquisition, LLC                                                      |  | 06/30/2017 |  | Distribution                               |  |               | 14.00(PIK 2.00  | %%)  |                                |  |  |             |  |  | 17,171,374  |  |  |                 | 16,748,220  |  |  |   | 17,377,430 | 
|Last Mile Funding Corp.                                                  |  | 06/30/2016 |  | Cargo Transport                            |  |               | 14.50(PIK 2.50  | %%)  |                                |  |  |             |  |  | 45,597,139  |  |  |                 | 44,677,474  |  |  |   | 45,095,570 | 
|Learning Care Group (US) Inc.                                            |  | 06/30/2016 |  | Education                                  |  |               | 15.00(PIK 15.00 | %%)  |                                |  |  |             |  |  | 5,277,718   |  |  |                 | 4,696,436   |  |  |   | 4,815,918  | 
|LTI Flexible Products, Inc.                                              |  | 01/19/2019 |  | Chemical, Plastic andRubber                |  |               | 12.50           | %    |                                |  |  |             |  |  | 30,000,000  |  |  |                 | 30,000,000  |  |  |   | 30,000,000 | 
|LTI Flexible Products, Inc.(9)                                           |  | 01/11/2014 |  | Chemical, Plastic andRubber                |  |               |                |      |                                |  |  |             |  |  | 5,000,000   |  |  |                 | 4,825,000   |  |  |   | 5,000,000  | 
|Mailsouth, Inc.                                                          |  | 06/15/2017 |  | Printingand Publishing                     |  |               | 14.50(PIK 2.00  | %%)  |                                |  |  |             |  |  | 15,000,000  |  |  |                 | 14,632,413  |  |  |   | 15,210,000 | 
|PAS Technologies, Inc.                                                   |  | 05/12/2017 |  | Aerospaceand Defense                       |  |               | 15.02(PIK 3.02  | %%)  |                                |  |  |             |  |  | 17,123,218  |  |  |                 | 16,783,033  |  |  |   | 17,123,218 | 
|Prince Mineral Holdings Corp.                                            |  | 12/03/2016 |  | Mining, Steel, Ironand
Non-Precious Metals |  |               | 13.50(PIK 2.00  | %%)  |                                |  |  |             |  |  | 26,696,517  |  |  |                 | 26,263,685  |  |  |   | 26,696,517 | 
|Realogy Corp.                                                            |  | 04/15/2018 |  | Buildings and RealEstate                   |  |               | 11.00           | %    |                                |  |  |             |  |  | 10,000,000  |  |  |                 | 9,247,298   |  |  |   | 9,400,000  | 
|TRAK Acquisition Corp.                                                   |  | 12/29/2015 |  | Business Services                          |  |               | 15.00           | %(7) |                                |  |  |             |  |  | 12,020,950  |  |  |                 | 11,708,199  |  |  |   | 12,020,950 | 
|TrustHouse Services Group, Inc.                                          |  | 06/03/2019 |  | Beverage, Food, andTobacco                 |  |               | 14.25(PIK 2.25  | %%)  |                                |  |  |             |  |  | 14,778,578  |  |  |                 | 14,527,411  |  |  |   | 14,778,578 | 
|TrustHouse Services Group,
Inc.(9)                                       |  | 06/02/2014 |  | Beverage, Food, andTobacco                 |  |               |                |      |                                |  |  |             |  |  | 4,000,000   |  |  |                 | 3,920,000   |  |  |   | 4,000,000  | 
|Veritext Corp.                                                           |  | 12/31/2015 |  | Business Services                          |  |               | 13.00           | %    |                                |  |  |             |  |  | 16,200,000  |  |  |                 | 15,916,579  |  |  |   | 16,200,000 | 
|                                                                         |  |            |  |                                            |  |               |                 |      |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 
|Total Subordinated Debt/Corporate Notes                                  |  |            |  |                                            |  |               |                 |      |                                |  |   |             |  |  | 355,236,902 |  |  |                 | 351,070,859 | 
|                                                                         |  |            |  |                                            |  |               |                 |      |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 
|Preferred Equity/Partnership Interests1.7% (6)                          |  |            |  |                                            |  |               |                 |      |                                |  |   |             |  |  |             |  |  |                 |             |  |  |  
|AH Holdings, Inc.(American Surgical Holdings, Inc.)                      |  |           |  | Healthcare, Educationand Childcare         |  |               | 6.00            | %    |                                |  |  |             |  |  | 211         |  |  |                 | 500,000     |  |  |   | 624,081    | 
|AHC Mezzanine, LLC                                                       |  |           |  | Other Media                                |  |               |                |      |                                |  |  |             |  |  | 7,505       |  |  |                 | 318,896     |  |  |   |           | 
|Alegeus Technologies Holding Corp., Series A(Alegeus Technologies, LLC)  |  |           |  | Financial Services                         |  |               |                |      |                                |  |  |             |  |  | 949         |  |  |                 | 949,050     |  |  |   | 1,031,820  | 
|CI (IHS) Investment Holdings, LLC(Interactive Health Solutions, Inc.)    |  |           |  | Healthcare, Educationand Childcare         |  |               | 8.00            | %    |                                |  |  |             |  |  | 76,357      |  |  |                 | 765,307     |  |  |   | 881,885    | 
|CI (IHS) Investment Holdings, LLC(9)(Interactive Health Solutions, Inc.) |  |           |  | Healthcare, Educationand Childcare         |  |               |                |      |                                |  |  |             |  |  | 38,179      |  |  |                 | 382,654     |  |  |   |           | 
|Convergint Technologies Holdings, LLC                                    |  |           |  | Electronics                                |  |               |                |      |                                |  |  |             |  |  | 2,375       |  |  |                 | 2,375,000   |  |  |   | 2,375,000  | 
|HW Topco, Inc.(Hanley-Wood, LLC)                                         |  |           |  | Other Media                                |  |               | 8.00            | %    |                                |  |  |             |  |  | 3,591       |  |  |                 | 24,177      |  |  |   | 27,916     | 
|PAS Tech Holdings, Inc., Series A-1(PAS Technologies, Inc.)              |  |           |  | Aerospace andDefense                       |  |               | 8.00            | %    |                                |  |  |             |  |  | 20,000      |  |  |                 | 1,980,000   |  |  |   | 823,710    | 
|TrustHouse Services Holdings, LLC                                        |  |           |  | Beverage, Food,and Tobacco                 |  |               | 12.00           | %    |                                |  |  |             |  |  | 1,099       |  |  |                 | 984,344     |  |  |   | 1,111,742  | 
|TZ Holdings, L.P., Series A(Trizetto Group, Inc.)                        |  |           |  | Insurance                                  |  |               |                |      |                                |  |  |             |  |  | 686         |  |  |                 | 685,820     |  |  |   | 685,820    | 
|TZ Holdings, L.P., Series B(Trizetto Group, Inc.)                        |  |           |  | Insurance                                  |  |               | 6.50            | %    |                                |  |  |             |  |  | 1,312       |  |  |                 | 1,312,006   |  |  |   | 1,666,679  | 
|Verde Parent Holdings, Inc.                                              |  |           |  | PersonalTransportation                     |  |               | 8.00            | %    |                                |  |  |             |  |  | 1,824,167   |  |  |                 | 1,824,167   |  |  |   | 1,949,629  | 
|                                                                         |  |            |  |                                            |  |               |                 |      |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 
|Total Preferred Equity/Partnership Interests                             |  |            |  |                                            |  |               |                 |      |                                |  |   |             |  |  | 12,101,421  |  |  |                 | 11,178,282  | 
|                                                                         |  |            |  |                                            |  |               |                 |      |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 

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PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS(CONTINUED)

SEPTEMBER 30, 2012



|                                                                              |  |            |  |                                          |  |               |   |  |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 
|----------------------------------------------------------------------------- |  | ---------- |  | ---------------------------------------- |  | ------------- | - |  | ------------------------------ |  | - | ----------- |  |  | ----------- |  |  | --------------- | ----------- |  |  | - | ---------- | 
|Issuer Name                                                                   |  | Maturity   |  | Industry                                 |  | CurrentCoupon |   |  | Basis PointSpreadAboveIndex(4) |  |   | Par /Shares |  |  | Cost        |  |  | Fair Value 
(3) |            
|Common Equity/Warrants/Partnership Interests9.2%(6)                          |  |            |  |                                          |  |               |   |  |                                |  |   |             |  |  |             |  |  |                 |             | 
|Acentia, LLC, Class A Units(12)                                               |  |           |  | Electronics                              |  |               |  |  |                                |  |  |             |  |  | 1,998       |  |  | $               | 2,000,000   |  |  | $ | 1,737,396  | 
|AH Holdings, Inc. (Warrants)(American Surgical Holdings, Inc.)                |  | 03/23/2021 |  | Healthcare, Educationand Childcare       |  |               |   |  |                                |  |   |             |  |  | 753         |  |  |                 |            |  |  |   | 2,063,780  | 
|Alegeus Technologies Holding Corp., Class A(Alegeus Technologies, LLC)        |  |           |  | Financial Services                       |  |               |  |  |                                |  |  |             |  |  | 1           |  |  |                 | 950         |  |  |   | 1,033      | 
|Autumn Games, LLC                                                             |  |           |  | Broadcasting andEntertainment            |  |               |  |  |                                |  |  |             |  |  | 1,333,330   |  |  |                 | 3,000,000   |  |  |   |           | 
|CI (Galls) Prime Investment Holdings, LLC(11)(Galls, LLC; Quartermaster Inc.) |  |           |  | Distribution                             |  |               |  |  |                                |  |  |             |  |  | 1,505,000   |  |  |                 | 1,505,000   |  |  |   | 1,680,720  | 
|CI (IHS) Investment Holdings, LLC(Interactive Health Solutions, Inc.)         |  |           |  | Healthcare, Educationand Childcare       |  |               |  |  |                                |  |  |             |  |  | 23,416      |  |  |                 | 234,693     |  |  |   | 270,457    | 
|CI (IHS) Investment Holdings, LLC(9)(Interactive
Health Solutions, Inc.)      |  |           |  | Healthcare, Educationand Childcare       |  |               |  |  |                                |  |  |             |  |  | 11,708      |  |  |                 | 117,346     |  |  |   |           | 
|Convergint Technologies Holdings, LLC(Convergint Technologies) LLC            |  |           |  | Electronics                              |  |               |  |  |                                |  |  |             |  |  | 2,375       |  |  |                 |            |  |  |   |           | 
|CT Technologies Holdings, LLC                                                 |  |           |  | Business Services                        |  |               |  |  |                                |  |  |             |  |  | 5,556       |  |  |                 | 1,904,033   |  |  |   | 6,665,183  | 
|DirectBuy Investors, L.P.                                                     |  |           |  | Consumer Products                        |  |               |  |  |                                |  |  |             |  |  | 30,000      |  |  |                 | 1,350,000   |  |  |   |           | 
|HW Topco, Inc. (Hanley-Wood, LLC)                                             |  |           |  | Other Media                              |  |               |  |  |                                |  |  |             |  |  | 348,912     |  |  |                 | 2,443,050   |  |  |   | 2,642,438  | 
|Kadmon Holdings, LLC, Class A(Kadmon Pharmaceuticals, LLC)                    |  |           |  | Healthcare, Educationand Childcare       |  |               |  |  |                                |  |  |             |  |  | 1,079,920   |  |  |                 | 1,236,832   |  |  |   | 12,013,688 | 
|Kadmon Holdings, LLC, Class D(Kadmon Pharmaceuticals, LLC)                    |  |           |  | Healthcare, Educationand Childcare       |  |               |  |  |                                |  |  |             |  |  | 1,079,920   |  |  |                 | 1,028,807   |  |  |   | 1,028,807  | 
|Learning Care Group (US) Inc. (Warrants)                                      |  | 04/27/2020 |  | Education                                |  |               |  |  |                                |  |  |             |  |  | 1,267       |  |  |                 | 779,920     |  |  |   |           | 
|Magnum Hunter Resources Corporation(Eureka Hunter Pipeline, LLC)              |  |           |  | Oil and Gas                              |  |               |  |  |                                |  |  |             |  |  | 1,221,932   |  |  |                 | 3,239,999   |  |  |   | 5,425,378  | 
|Magnum Hunter Resources Corporation(Warrants)(Eureka Hunter Pipeline, LLC)    |  | 10/14/2013 |  | Oil and Gas                              |  |               |  |  |                                |  |  |             |  |  | 122,193     |  |  |                 | 105,697     |  |  |   | 31,778     | 
|MidOcean JF Holdings Corp.(JF Acquisition, LLC)                               |  |           |  | Distribution                             |  |               |  |  |                                |  |  |             |  |  | 1,700       |  |  |                 | 1,700,000   |  |  |   | 1,641,575  | 
|MidOcean PPL Holdings, Inc.(Pre-Paid Legal Services, Inc.)                    |  |           |  | Personal, Food andMiscellaneous Services |  |               |  |  |                                |  |  |             |  |  | 3,000       |  |  |                 | 3,000,000   |  |  |   | 4,377,360  | 
|Paradigm Acquisition Corp.(Paradigm Management Services, LLC)                 |  |           |  | Healthcare, Educationand Childcare       |  |               |  |  |                                |  |  |             |  |  | 20,000      |  |  |                 | 2,000,000   |  |  |   | 2,124,491  | 
|PAS Tech Holdings, Inc.(PAS Technologies, Inc.)                               |  |           |  | Aerospace and Defense                    |  |               |  |  |                                |  |  |             |  |  | 20,000      |  |  |                 | 20,000      |  |  |   |           | 
|QMG HoldCo, LLC, Class A(Questex Media Group, Inc.)                           |  |           |  | Other Media                              |  |               |  |  |                                |  |  |             |  |  | 4,325       |  |  |                 | 1,306,166   |  |  |   | 1,404,661  | 
|QMG HoldCo, LLC, Class B(Questex Media Group, Inc.)                           |  |           |  | Other Media                              |  |               |  |  |                                |  |  |             |  |  | 531         |  |  |                 |            |  |  |   | 172,457    | 
|SPG Boyd Holdings Corp.(LTI Flexible Products, Inc.)                          |  |           |  | Chemical, Plasticand Rubber              |  |               |  |  |                                |  |  |             |  |  | 300,000     |  |  |                 | 3,000,000   |  |  |   | 3,000,000  | 
|Titan Private Holdings I, LLC  Class A(Tekelec Global, Inc.)                 |  |           |  | Telecommunications                       |  |               |  |  |                                |  |  |             |  |  | 2,276,847   |  |  |                 | 2,274,883   |  |  |   | 6,182,426  | 
|TRAK Acquisition Corp. (Warrants)                                             |  | 12/29/2019 |  | Business Services                        |  |               |  |  |                                |  |  |             |  |  | 3,500       |  |  |                 | 29,400      |  |  |   | 1,197,412  | 
|Transportation 100 Holdco, L.L.C. (13)(Greatwide
Logistics Services, L.L.C.)  |  |           |  | Cargo Transport                          |  |               |  |  |                                |  |  |             |  |  | 137,923     |  |  |                 | 2,111,588   |  |  |   |           | 
|TZ Holdings, L.P.(Trizetto Group, Inc.)                                       |  |           |  | Insurance                                |  |               |  |  |                                |  |  |             |  |  | 2           |  |  |                 | 9,567       |  |  |   | 713,718    | 
|Verde Parent Holdings, Inc.                                                   |  |           |  | PersonalTransportation                   |  |               |  |  |                                |  |  |             |  |  | 9,166       |  |  |                 | 9,167       |  |  |   |           | 
|VText Holdings, Inc.(Veritext Corp.)                                          |  |           |  | Business Services                        |  |               |  |  |                                |  |  |             |  |  | 35,526      |  |  |                 | 4,050,000   |  |  |   | 6,941,000  | 
|                                                                              |  |            |  |                                          |  |               |   |  |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 
|Total Common Equity/Warrants/ Partnership Interests                           |  |            |  |                                          |  |               |   |  |                                |  |   |             |  |  | 38,457,098  |  |  |                 | 61,315,758  | 
|                                                                              |  |            |  |                                          |  |               |   |  |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 
|Total Investments in Non-Controlled, Non-Affiliated Portfolio Companies       |  |            |  |                                          |  |               |   |  |                                |  |   |             |  |  | 871,867,953 |  |  |                 | 871,892,745 | 
|                                                                              |  |            |  |                                          |  |               |   |  |                                |  |   |             |  |  |             |  |  |                 |             |  |  |   |            | 

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PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS(CONTINUED)

SEPTEMBER 30, 2012



|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|--------------------------------------------------------------------------- |  | ---------- |  | --------------------------------------------------- |  | ------------- | --------------- | ---- | ------------------------------- |  | ----- | ------------- |  |  | ---------- | ------------ | - | --------------- | ---------- |  |  | - | ---------- | 
|Issuer Name                                                                 |  | Maturity   |  | Industry                                            |  | CurrentCoupon |                 |      | Basis PointSpreadAbove Index(4) |  |       | Par /Shares   |  |  | Cost       |              |   | Fair Value 
(3) |           
|Investments in Non-Controlled, Affiliated Portfolio Companies12.0%
(1),(2) | 
|Second Lien Secured Debt1.1%                                               |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|Performance, Inc.                                                           |  | 01/16/2015 |  | Leisure, AmusementMotion Pictures andEntertainment  |  |               | 7.25            | %    |                                 |  | L+625 | (8)           |  |  | 8,000,000  |              |   | $               | 8,000,000  |  |  | $ | 7,672,000  | 
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|Subordinated Debt/Corporate Notes7.1%                                      |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|Performance Holdings, Inc.                                                  |  | 07/16/2015 |  | Leisure, Amusement,Motion Pictures
andEntertainment |  |               | 15.00           | %(7) |                                 |  |      |               |  |  | 7,567,234  |              |   |                 | 7,435,314  |  |  |   | 7,453,725  | 
|Service Champ, Inc.                                                         |  | 10/02/2017 |  | Auto Sector                                         |  |               | 12.50           | %    |                                 |  |      |               |  |  | 24,000,000 |              |   |                 | 23,495,700 |  |  |   | 24,000,000 | 
|Service Champ, Inc.(9)                                                      |  | 10/02/2013 |  | Auto Sector                                         |  |               |                |      |                                 |  |      |               |  |  | 16,000,000 |              |   |                 | 15,640,000 |  |  |   | 16,000,000 | 
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|                                                                            |  |            |  |                                                     |  |               |                
|Total Subordinated Debt/Corporate Notes                                     |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 | 46,571,014 |  |  |   | 47,453,725 | 
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|Common Equity/Partnership Interest3.8%(6)                                  |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |  
|EnviroSolutions, Inc.                                                       |  |           |  | EnvironmentalServices                               |  |               |                |      |                                 |  |      |               |  |  | 125,106    |              |   |                 | 10,055,844 |  |  |   | 18,425,519 | 
|NCP-Performance(Performance Holdings, Inc.)                                 |  |           |  | Leisure, Amusement,Motion Pictures
andEntertainment |  |               |                |      |                                 |  |      |               |  |  | 375,000    |              |   |                 | 3,750,000  |  |  |   | 2,902,355  | 
|New Service Champ Holdings, Inc.(Service Champ, Inc.)                       |  |           |  | Auto Sector                                         |  |               |                |      |                                 |  |      |               |  |  | 16,800     |              |   |                 | 4,200,000  |  |  |   | 4,501,658  | 
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|Total Common Equity/Partnership Interest                                    |  |            |  |                                                     |  |               |                 |      |                                 |  |       | 18,005,844    |  |  |            | 25,829,532   |  
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|                                                                            |  |            |  |                                                    
|Total Investments in Non-Controlled, Affiliated Portfolio Companies         |  |            |  |                                                     |  |               |                 |      |                                 |  |       | 72,576,858    |  |  |            | 80,955,257   |  
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|Investments in Controlled, Affiliated Portfolio Companies5.6% (1),(2)      |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |  
|First Lien Secured Debt1.9%                                                |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |  
|SuttonPark Holdings, Inc.                                                   |  | 06/30/2020 |  | Business Services                                   |  |               | 14.00           | %(7) |                                 |  |      |               |  |  | 10,800,000 |              |   |                 | 10,800,000 |  |  |   | 10,800,000 | 
|UP Support Services, Inc. (9)                                               |  | 12/31/2015 |  | Oil and Gas                                         |  |               |                |      |                                 |  |      |               |  |  | 743,187    |              |   |                 | 668,632    |  |  |   | 743,187    | 
|UP Support Services, Inc. (9)                                               |  | 12/31/2015 |  | Oil and Gas                                         |  |               |                |      |                                 |  |      |               |  |  | 1,173,479  |              |   |                 | 1,068,059  |  |  |   | 1,173,479  | 
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|Total First Lien Secured Debt                                               |  |            |  |                                                     |  |               |                 |      |                                 |  |       | 12,536,691    |  |  |            | 12,716,666   |  
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|Second Lien Secured Debt2.1%                                               |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |  
|UP Support Services, Inc.                                                   |  | 12/31/2015 |  | Oil and Gas                                         |  |               | 15.00(PIK 15.00 | %%)  |                                 |  |      |               |  |  | 14,300,282 |              |   |                 | 11,809,647 |  |  |   | 14,300,282 | 
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|Subordinated Debt/Corporate Notes0.3%                                      |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |  
|SuttonPark Holdings, Inc.                                                   |  | 06/30/2020 |  | Business Services                                   |  |               | 14.00           | %(7) |                                 |  |      |               |  |  | 2,700,000  |              |   |                 | 2,700,000  |  |  |   | 2,158,053  | 
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|Preferred Equity1.3%(6)                                                    |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |  
|SuttonPark Holdings, Inc.                                                   |  |           |  | Business Services                                   |  |               | 14.00           | %    |                                 |  |      |               |  |  | 2,000      |              |   |                 | 2,000,000  |  |  |   | 216,947    | 
|Universal Pegasus International Holdings, Inc.                              |  |           |  | Oil and Gas                                         |  |               | 8.00            | %    |                                 |  |      |               |  |  | 411,988    |              |   |                 | 35,120,613 |  |  |   | 8,239,760  | 
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|Total Preferred Equity                                                      |  |            |  |                                                     |  |               |                 |      |                                 |  |       | 37,120,613    |  |  |            | 8,456,707    |  
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|Common Equity0.0%
(6)                                                      |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |  
|SuttonPark Holdings, Inc.                                                   |  |           |  | Business Services                                   |  |               |                |      |                                 |  |      |               |  |  | 100        |              |   |                 | 100        |  |  |   |           | 
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|Total Investments in Controlled, Affiliated Portfolio Companies             |  |            |  |                                                     |  |               |                 |      |                                 |  |       | 64,167,051    |  |  |            | 37,631,708   |  
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|Total Investments147.9%                                                    |  |            |  |                                                     |  |               |                 |      |                                 |  |       | 1,008,611,862 |  |  |            | 990,479,710  |  
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|Cash Equivalents1.1%                                                       |  |            |  |                                                     |  |               |                 |      |                                 |  |       | 7,559,453     |  |  |            | 7,559,453    |  
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|Total Investments and Cash Equivalents149.0%                               |  |            |  |                                                     |  |               |                 |      |                                 |  | $     | 1,016,171,315 |  |  | $          | 998,039,163  |  
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|Liabilities in Excess of Other Assets(49.0%)                               |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            | (328,322,116 | )
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 
|Net Assets100.0%                                                           |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  | $          | 669,717,047  |  
|                                                                            |  |            |  |                                                     |  |               |                 |      |                                 |  |       |               |  |  |            |              |   |                 |            |  |  |   |            | 



|(1) | The provisions of the 1940 Act classify investments based on the level of control that we maintain in a particular portfolio company. As defined in the 1940 Act, a
company is deemed as non-controlled when we own less than 25% of a portfolio companys voting securities and controlled when we own 25% or more of a portfolio companys voting securities.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The provisions of the 1940 Act classify investments further based on the level of ownership that we maintain in a particular portfolio company. As defined in the 1940
Act, a company is deemed as non-affiliated when we own less than 5% of a portfolio companys voting securities and affiliated when we own 5% or more of a portfolio companys voting securities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Valued based on our accounting policy (see Note 2).
|--- | ---------------------------------------------------

|(4) | Represents floating rate instruments that accrue interest at a predetermined spread relative to an index, typically the applicable LIBOR or L, or Prime or
P, rate.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Security is exempt from registration under Rule 144A promulgated under the Securities Act. The security may be resold in transactions that are exempt from registration,
normally to qualified institutional buyers.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Non-income producing securities.
|--- | --------------------------------

|(7) | Coupon is payable in cash and/or PIK.
|--- | -------------------------------------

|(8) | Coupon is subject to a LIBOR or Prime rate floor.
|--- | -------------------------------------------------

|(9) | Represents the purchase of a security with delayed settlement (unfunded investments). This security does not have a basis point spread above an index.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | Non-U.S. company or principal place of business outside the U.S.
|---- | ----------------------------------------------------------------

|(11) | Investment is held through PNNT CI (Galls) Prime Investment Holdings, LLC, a consolidated subsidiary.
|---- | -----------------------------------------------------------------------------------------------------

|(12) | Investment is held through PNNT Acentia LLC, a consolidated subsidiary.
|---- | -----------------------------------------------------------------------

|(13) | Investment is held through PNNT Transportation 100 Holdco, LLC, a consolidated subsidiary.
|---- | ------------------------------------------------------------------------------------------

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



14



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##### Table of Contents

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

(Unaudited)

1. ORGANIZATION

PennantPark Investment Corporation was organized as a Maryland corporation in January 2007. PennantPark Investment is a
closed-end, externally managed, non-diversified investment company that has elected to be treated as a BDC. PennantPark Investments objective is to generate both current income and capital appreciation through debt and equity investments. We
invest primarily in U.S. middle-market companies in the form of senior secured loans, mezzanine debt and, to a lesser extent, equity investments.

On April 24, 2007, we closed our initial public offering and our common stock trades on the NASDAQ Global Select Market under the symbol PNNT. We completed our initial public offering of
common stock in 2007 and issued 21.0 million shares raising $294.1 million in net proceeds. Since our initial public offering, we have sold 44.3 million shares of common stock through follow-on public offerings, resulting in net proceeds
of $448.8 million.

We have entered into an investment management agreement, or the Investment Management Agreement, with the
Investment Adviser, an external adviser that manages our day-to-day operations. We have also entered into an administration agreement, or the Administration Agreement, with the Administrator, which provides the administrative services necessary for
us to operate. PennantPark Investment, through the Investment Adviser, manages day-to-day operations of and provides investment advisory services to each of our SBIC Funds under separate investment management agreements. PennantPark Investment,
through the Administrator, also provides similar services to each of our SBIC Funds and our controlled affiliate SuttonPark Holdings, Inc. and its subsidiaries, or SPH, under separate administration agreements. See Note 3.

Our wholly owned subsidiaries, SBIC LP and SBIC II, were organized as Delaware limited partnerships in May 2010 and July 2012,
respectively. SBIC LP and SBIC II received licenses from the SBA to operate as small business investment companies, or SBICs, under Section 301(c) of the Small Business Investment Act of 1958, as amended, or the 1958 Act, in July 2010 and
January 2013, respectively. Our SBIC Funds objectives are to generate both current income and capital appreciation through debt and equity investments generally by investing with us in SBA eligible businesses that meet the investment criteria
used by PennantPark Investment.

We have formed and expect to continue to form certain taxable subsidiaries, or the Taxable
Subsidiaries, which are taxed as corporations for federal income tax purposes. These Taxable Subsidiaries allow us to hold equity securities of portfolio companies organized as pass-through entities while continuing to satisfy the requirements of a
RIC under the Code.

2. SIGNIFICANT ACCOUNTING POLICIES

The preparation of our Consolidated Financial Statements in conformity with U.S. generally accepted accounting
principles, or GAAP, requires management to make estimates and assumptions that affect the reported amount of our assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of income and expenses during the
reported periods. Actual results could differ from these estimates. We may reclassify certain prior period amounts to conform to the current period presentation. We have eliminated all intercompany balances and transactions, if any. References to
the Accounting Standards Codification, or ASC, serve as a single source of accounting literature. Subsequent events are evaluated and disclosed as appropriate for events occurring through the date the Consolidated Financial Statements are issued.

Our Consolidated Financial Statements are prepared in accordance with GAAP and pursuant to the requirements for reporting on
Form 10-K/Q and Article 6 or 10 of Regulation S-X, as appropriate. In accordance with Article 6-09 of Regulation S-X, we have provided a Consolidated Statement of Changes in Net Assets in lieu of a Consolidated Statement of Changes in
Stockholders Equity.



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(Unaudited)



Our significant accounting policies consistently applied are as follows:

(a) Investment Valuations

Our board of directors generally uses market quotations to assess the value of our investments for which market quotations are readily available. We obtain these market values from independent pricing
services or at the bid prices obtained from at least two broker/dealers if available, otherwise by a principal market maker or a primary market dealer. If the board of directors has a bona fide reason to believe any such market quote does not
reflect the fair value of an investment, it may independently value such investments by using the valuation procedure that it uses with respect to assets for which market quotations are not readily available. Investments of sufficient credit quality
purchased within 60 days of maturity are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value.

We expect that there will not be readily available market values for many of our investments which are or will be in our portfolio, and we value such investments at fair value as determined in good faith
by or under the direction of our board of directors using a documented valuation policy, described in this Report, and a consistently applied valuation process. With respect to investments for which there is no readily available market value, the
factors that the board of directors may take into account in pricing our investments at fair value include, as relevant, the nature and realizable value of any collateral, the portfolio companys ability to make payments and its earnings and
discounted cash flow, the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale
occurs, we consider the pricing indicated by the external event to corroborate or revise our valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the price used in
an actual transaction may be different than our valuation and the difference may be material. See Note 5.

With respect to
investments for which market quotations are not readily available, or for which market quotations are deemed not reflective of the fair value, our board of directors undertakes a multi-step valuation process each quarter, as described below:



| | (1) | Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of our Investment Adviser
responsible for the portfolio investment;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Preliminary valuation conclusions are then documented and discussed with the management of our Investment Adviser;
| | --- | ------------------------------------------------------------------------------------------------------------------



| | (3) | Our board of directors also engages independent valuation firms to conduct independent appraisals of our investments for which market quotations are not readily
available or are readily available but deemed not reflective of the fair value of the investment. The independent valuation firms review managements preliminary valuations in light of their own independent assessment and also in light of any
market quotations obtained from an independent pricing service, broker, dealer or market maker;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | The audit committee of our board of directors reviews the preliminary valuations of the Investment Adviser and those of the independent valuation firms and responds and
supplements the valuation recommendations of the independent valuation firms to reflect any comments; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Our board of directors discusses these valuations and determines the fair value of each investment in our portfolio in good faith based on the input of our Investment
Adviser, the respective independent valuation firms and the audit committee.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(b) Security Transactions,
Revenue Recognition, and Realized / Unrealized Gains or Losses

Security transactions are recorded on a trade-date
basis. We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, using the specific identification method, without regard to unrealized appreciation or
depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation reflects the change in the fair values of our portfolio investments and our Credit Facility
during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.



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(Unaudited)



We record interest income on an accrual basis to the extent that we expect to collect
such amounts. For loans and debt investments with contractual PIK interest, which represents interest accrued and added to the loan balance that generally becomes due at maturity, we will generally not accrue PIK interest when the portfolio company
valuation indicates that such PIK interest is not collectable. We do not accrue as a receivable interest on loans and debt investments if we have reason to doubt our ability to collect such interest. Loan origination fees, original issue discount,
or OID, market discount or premium and deferred financing costs are capitalized and we then accrete or amortize such amounts using the effective interest method as interest income or interest expense as it relates to our deferred financing costs. We
record prepayment penalties on loans and debt investments as income. Dividend income, if any, is recognized on an accrual basis on the ex-dividend date to the extent that we expect to collect such amounts.

Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and/or there is reasonable doubt
that principal or interest will be collected. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon
managements judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in managements judgment, are likely to remain current.

(c) Income Taxes

We have complied with the requirements of Subchapter M of the Code and expect to be subject to tax as a RIC. As a result, we account for income taxes using the asset liability method prescribed by ASC
740, Income Taxes. Under this method, income taxes are provided for amounts currently payable and for amounts deferred as tax assets and liabilities based on differences between the financial statement carrying amounts and the tax basis of existing
assets and liabilities. Based upon PennantPark Investments qualification and election to be subject to tax as a RIC, we do not anticipate paying any material level of federal income taxes in the future. For the three and six months ended
March 31, 2013 we received an excise tax credit of $0.2 million and $0.1 million, respectively. Although not required for us to maintain our RIC tax status, for the three and six months ended March 31, 2012 we elected to retain a portion
of our calendar year income and incurred an excise tax of approximately $0.2 million and $0.3 million, respectively.

PennantPark Investment recognizes in its Consolidated Financial Statements the effect of a tax position when it is more likely than not,
based on the technical merits, that the position will be sustained upon examination. We did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10-25 nor did we have any unrecognized tax benefits as of
the periods presented herein. Although we file federal and state tax returns, our major tax jurisdiction is federal. Our tax returns for each of our federal tax years since 2009 remain subject to examination by the Internal Revenue Service and the
state department of revenue.

Because federal income tax regulations differ from GAAP, distributions in accordance with tax
regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the Consolidated Financial
Statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. We do not consolidate the Taxable Subsidiaries for income tax purposes, but we do
consolidate the results of these Taxable Subsidiaries for financial reporting purposes.

(d) Dividends, Distributions,
and Capital Transactions

Dividends and distributions to common stockholders are recorded on the ex-dividend date. The
amount to be paid, if any, as a dividend or distributions determined by the board of directors each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are distributed at least annually.

Capital transactions, in connection with our dividend reinvestment plan or through offerings of our common stock, are
recorded when issued and offering costs are charged as a reduction of capital upon issuance of our common stock.

(e)
Consolidation

As permitted under Regulation S-X and as explained by ASC 946-810-45, Financial Services 
Investment Companies  Consolidation, PennantPark Investment will generally not consolidate its investment in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services
to us. Accordingly, we have consolidated the results of our SBIC Funds and our Taxable Subsidiaries in our Consolidated Financial Statements.



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(Unaudited)



3. AGREEMENTS

PennantPark Investments Investment Management Agreement with the Investment Adviser was re-approved by our board
of directors, including a majority of our directors who are not interested persons of PennantPark Investment, in February 2013. Under the Investment Management Agreement the Investment Adviser, subject to the overall supervision of PennantPark
Investments board of directors, manages the day-to-day operations of and provides investment advisory services to, PennantPark Investment. Our SBIC Funds investment management agreements do not affect the management or incentive fees
that we pay to the Investment Adviser on a consolidated basis. For providing these services, the Investment Adviser receives a fee from us, consisting of two componentsa base management fee and an incentive fee.

The base management fee is calculated at an annual rate of 2.00% of our average adjusted gross assets (net of U.S. Treasury
Bills and/or temporary draws under any credit facility, repurchase agreements or other balance sheet transactions undertaken at the end of a fiscal quarter for purposes of preserving investment flexibility for the next quarter, if any). The base
management fee is payable quarterly in arrears. The base management fee is calculated based on the average adjusted gross assets at the end of the two most recently completed calendar quarters, and appropriately adjusted for any share issuances or
repurchases during the current calendar quarter. For example, if we sold shares on the 45th day of a quarter and did not use the proceeds from the sale to repay outstanding indebtedness, our gross assets for such quarter would give effect to the net
proceeds of the issuance for only 45 days of the quarter during which the additional shares were outstanding. For the three and six months ended March 31, 2013, the Investment Adviser earned a base management fee of $5.3 million and $10.5
million, respectively, from us. For the three and six months ended March 31, 2012, the Investment Adviser earned a base management fee of $4.2 million and $8.2 million, respectively, from us.

The incentive fee has two parts, as follows:

One part is calculated and payable quarterly in arrears based on our Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter. For this purpose, Pre-Incentive Fee Net
Investment Income means interest income, distribution income and any other income, including any other fees other than fees for providing managerial assistance, such as commitment, origination, structuring, diligence and consulting fees or other
fees received from portfolio companies accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, any expenses payable under the Administration Agreement, and any interest expense and
distribution paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with deferred interest feature (such as OID, debt instruments with PIK
interest and zero coupon securities), accrued income not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.
Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to the hurdle rate of 1.75% per quarter (7.00% annualized). We pay the
Investment Adviser an incentive fee with respect to our Pre-Incentive Fee Net Investment Income in each calendar quarter as follows: (1) no incentive fee in any calendar quarter in which our Pre-Incentive Fee Net Investment Income does not
exceed the hurdle rate of 1.75%, (2) 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 (3) 20% of the amount of our Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.1875% in any calendar quarter. These calculations are adjusted for any share issuances or repurchases during the
relevant quarter. For the three and six months ended March 31, 2013, the Investment Adviser earned a performance based incentive fee on net investment income, as calculated under the Investment Management Agreement, of $3.6 million and $8.1
million, respectively, from us. For the three and six months ended March 31, 2012, the Investment Adviser earned an incentive fee of $2.4 million and $6.1 million, respectively, from us.

The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the
Investment Management Agreement, as of the termination date) and equals 20.0% of our realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and
unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees from inception. For the three and six months ended March 31, 2013 and 2012, the Investment Adviser did not earn
a performance based incentive fee on capital gains as calculated under the Investment Management Agreement.

Under GAAP, we
are required to accrue a capital gains incentive fee based upon net realized capital gains and net unrealized capital appreciation and depreciation on investments held at the end of each period. In calculating the capital gains incentive fee accrual
we considered the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains incentive fee would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is
not permitted to be considered in calculating the fee actually payable under the Investment Management Agreement. This accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital
appreciation or depreciation. If such amount is positive at the end of a period, then we record a capital gains incentive fee equal to 20% of such amount, less the aggregate amount of actual capital gains related incentive fees paid in all prior
years. If such amount is negative, then there is no accrual for such year. There can be no assurance that such unrealized capital appreciation will be realized in the future. For the three and six months ended March 31, 2013 and 2012, the
Investment Adviser did not earn a performance based incentive fee on capital gains as calculated under GAAP.



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MARCH 31, 2013

(Unaudited)



The Administration Agreement with the Administrator was reapproved by our board of
directors, including a majority of our directors who are not interested persons of PennantPark Investment, in February 2013. Under this agreement, the Administrator provides administrative services to us. The Administrator provides similar services
to our SBIC Funds under each of their administration agreements with PennantPark Investment. For providing these services, facilities and personnel, PennantPark Investment reimburses the Administrator for its allocable portion of overhead and other
expenses incurred by the Administrator in performing its obligations under the Administration Agreement, including rent, technology systems, insurance and PennantPark Investments allocable portion of the costs of compensation and related
expenses for its Chief Compliance Officer, Chief Financial Officer and their respective staffs. The Administrator also offers, on PennantPark Investments behalf, managerial assistance to portfolio companies to which PennantPark Investment is
required to offer such assistance. Reimbursement for certain of these costs is included in administrative services expenses in the Consolidated Statement of Operations. For the three and six months ended March 31, 2013, the Investment Adviser
and Administrator, collectively, were reimbursed $1.5 million and $2.0 million, respectively, from us, including expenses the Investment Adviser incurred on behalf of the Administrator, for the services described above. For the three and six months
ended March 31, 2012, the Investment Adviser and Administrator, collectively, were reimbursed $1.7 million and $2.4 million, respectively, from us, including expenses incurred by the Investment Advisor on behalf of the Administrator, for the
services described above.

PennantPark Investment has entered into an administration agreement with its controlled affiliate
SPH. Under the administration agreement with SPH, or the SPH Administration Agreement, PennantPark Investment through the Administrator furnishes SPH with office facilities, equipment and clerical, bookkeeping and record keeping services at such
facilities. Additionally, the Administrator performs or oversees the performance of SPHs required administrative services, which include, among other things, maintaining financial records, preparing financial reports and filing tax returns.
Payments under the SPH Administration Agreement are equal to an amount based upon SPHs allocable portion of the Administrators overhead in performing its obligations under the SPH Administration Agreement, including rent and allocable
portion of the cost of compensation and related expenses of our Chief Financial Officer and his staff. For the three and six months ended March 31, 2013, PennantPark Investment was reimbursed $0.1 million and $0.2 million, respectively, for the
services described above. For the three and six months ended March 31, 2012, PennantPark Investment was reimbursed $0.3 million and $0.5 million, respectively, for the services described above.

4. INVESTMENTS

Purchases of long-term investments, including PIK, for the three and six months ended March 31, 2013 totaled $77.7
million and $250.2 million, respectively. For the same periods in the prior year, purchases of long-term investments including PIK totaled $114.0 million and $160.0 million, respectively. Sales and repayments of long-term investments for the three
and six months ended March 31, 2013 totaled $42.5 million and $153.4 million, respectively. For the same periods in the prior year, sales and repayments of long-term investments totaled $49.3 million and $118.5 million, respectively.
Investments and cash equivalents consisted of the following:

Investments and cash equivalents consisted of the following:



|                                       |  |                |               |  |                    |   |               |      |  |   |               |  |  |   |             | 
|-------------------------------------- |  | -------------- | ------------- |  | ------------------ | - | ------------- | ---- |  | - | ------------- |  |  | - | ----------- | 
|                                       |  | March 31, 2013 |               |  | September 30, 2012 |  
|                                       |  | Cost           |               |  | Fair Value         |   |               | Cost |  |   | Fair Value    | 
|First lien                             |  | $              | 281,154,196   |  |                    | $ | 291,304,100   |      |  | $ | 289,964,255   |  |  | $ | 291,677,553 | 
|Second lien                            |  |                | 237,029,448   |  |                    |   | 249,067,314   |      |  |   | 208,454,615   |  |  |   | 191,339,241 | 
|Subordinated debt / corporate notes    |  |                | 430,494,373   |  |                    |   | 427,580,102   |      |  |   | 404,507,916   |  |  |   | 400,682,637 | 
|Preferred equity                       |  |                | 66,927,589    |  |                    |   | 24,607,210    |      |  |   | 49,222,034    |  |  |   | 19,634,989  | 
|Common equity                          |  |                | 92,199,367    |  |                    |   | 122,318,481   |      |  |   | 56,463,042    |  |  |   | 87,145,290  | 
|                                       |  |                |               |  |                    |   |               |      |  |   |               |  |  |   |             | 
|Total investments                      |  |                | 1,107,804,973 |  |                    |   | 1,114,877,207 |      |  |   | 1,008,611,862 |  |  |   | 990,479,710 | 
|Cash equivalents                       |  |                | 17,333,318    |  |                    |   | 17,333,318    |      |  |   | 7,559,453     |  |  |   | 7,559,453   | 
|                                       |  |                |               |  |                    |   |               |      |  |   |               |  |  |   |             | 
|Total investments and cash equivalents |  | $              | 1,125,138,291 |  |                    | $ | 1,132,210,525 |      |  | $ | 1,016,171,315 |  |  | $ | 998,039,163 | 
|                                       |  |                |               |  |                    |   |               |      |  |   |               |  |  |   |             | 



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(Unaudited)



The table below describes investments by industry classification and enumerates the
percentage, by fair value, of the total portfolio assets (excluding cash equivalents) in such industries as of:



|                                                            |  |                |     |   |                    |  |     |  
|----------------------------------------------------------- |  | -------------- | --- | - | ------------------ |  | --- | -
|Industry Classification                                     |  | March 31, 2013 |     |   | September 30, 2012 | 
|Energy/Utilities                                            |  |                | 8   | % |                    |  | 7   | %
|Oil and Gas                                                 |  |                | 7   |   |                    |  | 3   |  
|Printing and Publishing                                     |  |                | 7   |   |                    |  | 4   |  
|Electronics                                                 |  |                | 6   |   |                    |  | 7   |  
|Auto Sector                                                 |  |                | 5   |   |                    |  | 6   |  
|Business Services                                           |  |                | 5   |   |                    |  | 6   |  
|Cargo Transport                                             |  |                | 5   |   |                    |  | 6   |  
|Chemical, Plastic and Rubber                                |  |                | 5   |   |                    |  | 5   |  
|Consumer Products                                           |  |                | 5   |   |                    |  | 5   |  
|Healthcare, Education and Childcare                         |  |                | 5   |   |                    |  | 8   |  
|Hotels, Motels, Inns and Gaming                             |  |                | 5   |   |                    |  | 2   |  
|Other Media                                                 |  |                | 5   |   |                    |  | 4   |  
|Distribution                                                |  |                | 4   |   |                    |  | 4   |  
|Personal, Food and Miscellaneous Services                   |  |                | 4   |   |                    |  | 4   |  
|Education                                                   |  |                | 3   |   |                    |  | 3   |  
|Beverage, Food and Tobacco                                  |  |                | 2   |   |                    |  | 2   |  
|Buildings and Real Estate                                   |  |                | 2   |   |                    |  | 2   |  
|Communications                                              |  |                | 2   |   |                    |  | 3   |  
|Diversified Natural Resources, Precious Metals and Minerals |  |                | 2   |   |                    |  | 3   |  
|Environmental Services                                      |  |                | 2   |   |                    |  | 2   |  
|Insurance                                                   |  |                | 2   |   |                    |  | 2   |  
|Leisure, Amusement, Motion Pictures, Entertainment          |  |                | 2   |   |                    |  | 2   |  
|Telecommunications                                          |  |                | 2   |   |                    |  | 2   |  
|Financial Services                                          |  |                | 1   |   |                    |  | 2   |  
|Mining, Steel, Iron and Non-Precious Metals                 |  |                | 1   |   |                    |  | 3   |  
|Other                                                       |  |                | 3   |   |                    |  | 3   |  
|                                                            |  |                |     |   |                    |  |     |  
|Total                                                       |  |                | 100 | % |                    |  | 100 | %
|                                                            |  |                |     |   |                    |  |     |  

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value, as defined under ASC 820, is the price that we would receive upon selling an investment or pay to transfer
a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment or liability. ASC 820 emphasizes that valuation techniques maximize the use of observable market inputs and minimize the
use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the
assumptions market participants would use in pricing an asset or liability based on market data obtained from sources independent of us. Unobservable inputs reflect the assumptions market participants would use in pricing an asset or liability based
on the best information available to us on the reporting period date.

ASC 820 classifies the inputs used to measure these fair values into
the following hierarchies:



|         |  |                                                                                                                                                                                                                                                                                                                                                                  
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1: |  | Inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities, accessible by us at the measurement date.                                                                                                                                                                                                                      
|         | 
|Level 2: |  | Inputs that are quoted prices for similar assets or liabilities in active markets, or that are quoted prices for identical or similar assets or liabilities in markets that are not
active and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term, if applicable, of the financial instrument.
|         | 
|Level 3: |  | Inputs that are unobservable for an asset or liability because they are based on our own assumptions about how market participants would price the asset or
liability.                                                                                                                                                                                           



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A financial instruments categorization within the valuation hierarchy is based
upon the lowest level of input that is significant to the fair value measurement. Generally, most of our investments and Credit Facility are classified as Level 3. Due to the inherent uncertainty of determining the fair value of investments that do
not have a readily available market value, the price used in an actual transaction may be different than our valuation and those differences may be material.

The inputs into the determination of fair value may require significant management judgment or estimation. Even if observable market data is available, such information may be the result of consensus
pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in
classification as Level 3 information, assuming no additional corroborating evidence was available. Corroborating evidence that would result in classifying these non-binding broker/dealer bids as a Level 2 asset includes observable market-based
transactions for the same or similar assets or other relevant observable market based inputs that may be used in pricing an asset.

Our investments are generally structured as debt and equity investments in the form of senior secured loans, mezzanine debt and equity co-investments. The transaction price, excluding transaction costs,
is typically the best estimate of fair value at inception. Within our fair value hierarchy table, our investments are generally categorized as first lien, second lien, subordinated debt and preferred and common equity investments. The companies in
which we invest are typically highly leveraged, and, in most cases, are not rated by national rating agencies. If such companies were rated, we believe that they would typically receive a rating below investment grade (between BB and CCC under the
Standard & Poors system) from the national rating agencies.

A review of fair value hierarchy classifications
is conducted on a quarterly basis. Changes in our ability to observe valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as
transfers in or out of the Level 3 category as of the end of the quarter in which the reclassifications occur. During the six months ended March 31, 2013 our ability to observe valuation inputs resulted in one reclassification of assets between
Level 3 to 2 with no other reclassification between Levels. During the six months ended March 31, 2012 our ability to observe valuation inputs resulted in no reclassification of assets between Levels.

In addition to using the above inputs in cash equivalents, investments, 2025 Notes and our Credit Facility valuations, we employ the
valuation policy approved by our board of directors that is consistent with ASC 820. Consistent with our valuation policy, we evaluate the source of inputs, including any markets in which our investments are trading, in determining fair value. See
Note 2.

In accordance with Accounting Standards Update No. 2011-04 Fair Value Measurement: Amendment to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, and as outlined in the table below, our Level 3 investments using a market approach valuation technique are valued using the average of the bids from brokers or
dealers. The bids include a disclaimer, have no corroborating evidence and may be the result of consensus pricing. We do not adjust the bids.

The remainder of our portfolio, including our long-term Credit Facility, is classified as Level 3 and was valued using a market comparable or an enterprise market value technique. With respect to
investments for which there is no readily available market value, the factors that the board of directors may take into account in pricing our investments at fair value include, as relevant, the nature and realizable value of any collateral, the
portfolio companys ability to make payments, its earnings and discounted cash flow, the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. When an external event such as a
purchase transaction, public offering or subsequent equity sale occurs, the pricing indicated by the external event is used to corroborate the valuation. When using earnings multiples to value a portfolio company, the multiple used requires the use
of judgment and estimates in determining how a market participant would price such an asset. Generally, the sensitivity of unobservable inputs or combination of inputs such as industry comparable companies, market outlook, consistency, discount
rates and reliability of earnings and prospects for growth, or lack thereof, affects the multiple used in pricing an investment. As a result, any change in any one of those factors may have a significant impact on the valuation of an investment.



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PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

MARCH 31, 2013

(Unaudited)



Our Level 3 valuation techniques, unobservable inputs and ranges of inputs were
categorized as follows for ASC 820 disclosure:



|                                                           |  |                             |               |  |                     |                         |                    |                          |                                   |                     
|---------------------------------------------------------- |  | --------------------------- | ------------- |  | ------------------- | ----------------------- | ------------------ | ------------------------ | --------------------------------- | --------------------
|Asset Category                                             |  | Fair Value atMarch 31,
2013 |               |  | Valuation Technique |                         | Unobservable Input |                          | Range of Input(Weighted 
Average)
|First lien, second lien, subordinated debt/corporate notes |  | $                           | 312,775,844   |  |                     | Market Comparable       |                    | Broker/Dealer bid quotes |                                   | N/A                 
|First lien, second lien, subordinated debt/corporate notes |  |                             | 608,655,152   |  |                     | Market Comparable       |                    | Market Yield             |                                   | 8.0%  18.4% (13.5%)
|Preferred and common equity                                |  |                             | 121,655,918   |  |                     | Enterprise Market Value |                    | EBITDA multiple          |                                   | 5.5X  22.6X (9.0X) 
|                                                           |  |                             |               |  |                     |                         |                    |                          |                                   |                     
|Total Level 3 investments                                  |  | $                           | 1,043,086,914 |  |                     |                         |                    |                          |                                   |                     
|                                                           |  |                             |               |  |                     |                         |                    |                          |                                   |                     
|Long-Term Credit Facility                                  |  | $                           | 168,200,000   |  |                     | Market Comparable       |                    | Market Yield             |                                   | 3.3%                
|                                                           |  |                             |               |  |                     |                         |                    |                          |                                   |                     

Our cash equivalents, investments, 2025 Notes and Credit Facility were categorized as follows in the fair
value hierarchy for ASC 820 purposes:



|                                       |  |            |               |  |                                  |   |            |         |  |   |            |  |  |   |               | 
|-------------------------------------- |  | ---------- | ------------- |  | -------------------------------- | - | ---------- | ------- |  | - | ---------- |  |  | - | ------------- | 
|                                       |  |            |               |  | Fair Value at March 31, 2013     |  
|Description                            |  | Fair Value |               |  | Level 1                          |   |            | Level 2 |  |   | Level 3    | 
|Loan and debt investments              |  | $          | 967,951,516   |  |                                  | $ |           |         |  | $ | 46,520,520 |  |  | $ | 921,430,996   | 
|Equity investments                     |  |            | 146,925,691   |  |                                  |   | 25,268,864 |         |  |   | 909        |  |  |   | 121,655,918   | 
|                                       |  |            |               |  |                                  |   |            |         |  |   |            |  |  |   |               | 
|Total investments                      |  |            | 1,114,877,207 |  |                                  |   | 25,268,864 |         |  |   | 46,521,429 |  |  |   | 1,043,086,914 | 
|Cash equivalents                       |  |            | 17,333,318    |  |                                  |   | 17,333,318 |         |  |   |           |  |  |   |              | 
|                                       |  |            |               |  |                                  |   |            |         |  |   |            |  |  |   |               | 
|Total investments and cash equivalents |  | $          | 1,132,210,525 |  |                                  | $ | 42,602,182 |         |  | $ | 46,521,429 |  |  | $ | 1,043,086,914 | 
|                                       |  |            |               |  |                                  |   |            |         |  |   |            |  |  |   |               | 
|Long-Term Credit Facility              |  | $          | 168,200,000   |  |                                  | $ |           |         |  | $ |           |  |  | $ | 168,200,000   | 
|2025 Notes                             |  | $          | 71,677,500    |  |                                  |   | 71,677,500 |         |  |   |           |  |  |   |              | 
|                                       |  |            |               |  |                                  |   |            |         |  |   |            |  |  |   |               | 
|Total debt                             |  | $          | 239,877,500   |  |                                  | $ | 71,677,500 |         |  | $ |           |  |  | $ | 168,200,000   | 
|                                       |  |            |               |  |                                  |   |            |         |  |   |            |  |  |   |               | 
|                                       |  |           
|                                       |  |            |               |  | Fair Value at September 30, 2012 |  
|Description                            |  | Fair Value |               |  | Level 1                          |   |            | Level 2 |  |   | Level 3    | 
|Loan and debt investments              |  | $          | 883,669,431   |  |                                  | $ |           |         |  | $ | 35,275,360 |  |  | $ | 848,424,071   | 
|Equity investments                     |  |            | 106,780,279   |  |                                  |   | 5,425,378  |         |  |   | 31,778     |  |  |   | 101,323,123   | 
|                                       |  |            |               |  |                                  |   |            |         |  |   |            |  |  |   |               | 
|Total investments                      |  |            | 990,449,710   |  |                                  |   | 5,425,378  |         |  |   | 35,307,138 |  |  |   | 949,747,194   | 
|Cash equivalents                       |  |            | 7,559,453     |  |                                  |   | 7,559,453  |         |  |   |           |  |  |   |              | 
|                                       |  |            |               |  |                                  |   |            |         |  |   |            |  |  |   |               | 
|Total investments and cash equivalents |  | $          | 998,009,163   |  |                                  | $ | 12,984,831 |         |  | $ | 35,307,138 |  |  | $ | 949,747,194   | 
|                                       |  |            |               |  |                                  |   |            |         |  |   |            |  |  |   |               | 
|Long-Term Credit Facility              |  | $          | 108,952,500   |  |                                  | $ |           |         |  | $ |           |  |  | $ | 108,952,500   | 
|                                       |  |            |               |  |                                  |   |            |         |  |   |            |  |  |   |               | 



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PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

MARCH 31, 2013

(Unaudited)



The following tables show a reconciliation of the beginning and ending balances for fair
valued investments measured using significant unobservable inputs (Level 3):



|                                                                                                                                                                                                                                              |  |                                         |              |   |                   |   |             |        |  |   |               |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ------------ | - | ----------------- | - | ----------- | ------ |  | - | ------------- | -
|                                                                                                                                                                                                                                              |  | For the six months ended March 31, 2013 |             
|Description                                                                                                                                                                                                                                   |  | Loan and
debtinvestments                |              |   | Equityinvestments |   |             | Totals | 
|Beginning Balance, September 30, 2012                                                                                                                                                                                                         |  | $                                       | 848,424,071  |   |                   | $ | 101,323,123 |        |  | $ | 949,747,194   |  
|Realized gains (losses)                                                                                                                                                                                                                       |  |                                         | 2,376,015    |   |                   |   | (3,335,647  | )      |  |   | (959,632      | )
|Unrealized appreciation (depreciation)                                                                                                                                                                                                        |  |                                         | 40,321,756   |   |                   |   | (22,179,968 | )      |  |   | 18,141,788    |  
|Purchases, PIK, net discount accretion and non-cash exchanges                                                                                                                                                                                 |  |                                         | 243,962,981  |   |                   |   | 46,548,450  |        |  |   | 290,511,431   |  
|Sales and non-cash exchanges                                                                                                                                                                                                                  |  |                                         | (200,813,827 | ) |                   |   | (700,040    | )      |  |   | (201,513,867  | )
|Transfers in or out of Level 3                                                                                                                                                                                                                |  |                                         | (12,840,000  | ) |                   |   |            |        |  |   | (12,840,000   | )
|                                                                                                                                                                                                                                              |  |                                         |              |   |                   |   |             |        |  |   |               |  
|Ending Balance, March 31, 2013                                                                                                                                                                                                                |  | $                                       | 921,430,996  |   |                   | $ | 121,655,918 |        |  | $ | 1,043,086,914 |  
|                                                                                                                                                                                                                                              |  |                                         |              |   |                   |   |             |        |  |   |               |  
|Net change in unrealized appreciation (depreciation) reported within the net change in unrealized appreciation on investments in our Consolidated Statement of Operations
attributable to our Level 3 assets still held at the reporting date |  | $                                       | 41,392,812   |   |                   | $ | (23,529,968 | )      |  | $ | 17,862,844    |  
|                                                                                                                                                                                                                                              |  |                                         |              |   |                   |   |             |        |  |   |               |  
|                                                                                                                                                                                                                                              | 
|                                                                                                                                                                                                                                              |  | For the six months ended March 31, 2012 |             
|Description                                                                                                                                                                                                                                   |  | Loan and
debtinvestments                |              |   | Equityinvestments |   |             | Totals | 
|Beginning Balance, September 30, 2011                                                                                                                                                                                                         |  | $                                       | 732,694,451  |   |                   | $ | 52,353,328  |        |  | $ | 785,047,779   |  
|Realized (losses) gains                                                                                                                                                                                                                       |  |                                         | (4,447,450   | ) |                   |   | 2,534,403   |        |  |   | (1,913,047    | )
|Unrealized appreciation                                                                                                                                                                                                                       |  |                                         | 2,781,866    |   |                   |   | 8,545,282   |        |  |   | 11,327,148    |  
|Purchases, PIK and net discount accretion                                                                                                                                                                                                     |  |                                         | 144,094,844  |   |                   |   | 16,005,789  |        |  |   | 160,100,633   |  
|Sales / repayments                                                                                                                                                                                                                            |  |                                         | (111,542,433 | ) |                   |   | (5,398,142  | )      |  |   | (116,940,575  | )
|Exchanges                                                                                                                                                                                                                                     |  |                                         | (1,694,543   | ) |                   |   | 1,694,543   |        |  |   |              |  
|                                                                                                                                                                                                                                              |  |                                         |              |   |                   |   |             |        |  |   |               |  
|Transfers in or out of Level 3                                                                                                                                                                                                                |  |                                         |             |   |                   |   |            |        |  |   |              |  
|                                                                                                                                                                                                                                              |  |                                         |              |   |                   |   |             |        |  |   |               |  
|Ending Balance, March 31, 2012                                                                                                                                                                                                                |  | $                                       | 761,886,735  |   |                   | $ | 75,735,203  |        |  | $ | 837,621,938   |  
|                                                                                                                                                                                                                                              |  |                                         |              |   |                   |   |             |        |  |   |               |  
|Net change in unrealized (depreciation) appreciation reported within the net change in unrealized appreciation on investments in our Consolidated Statement of Operations
attributable to our Level 3 assets still held at the reporting date |  | $                                       | 6,191,605    |   |                   | $ | 10,390,011  |        |  | $ | 16,581,616    |  
|                                                                                                                                                                                                                                              |  |                                         |              |   |                   |   |             |        |  |   |               |  

The following tables show a reconciliation of the beginning and ending balances for fair valued
liabilities measured using significant unobservable inputs (Level 3):



|                                                                                          |  |                           |              |   |                |   |              |  
|----------------------------------------------------------------------------------------- |  | ------------------------- | ------------ | - | -------------- | - | ------------ | -
|                                                                                          |  | Carrying / Fair Value     |             
|                                                                                          |  | For the six months ended, |             
|Credit Facility                                                                           |  | March 31, 2013            |              |   | March 31, 2012 |  
|Beginning Balance, September 30, 2012(Cost  $109,500,000 and $240,900,000, respectively) |  | $                         | 108,952,500  |   |                | $ | 238,792,125  |  
|Total unrealized appreciation included in earnings                                        |  |                           | 547,500      |   |                |   | 1,365,375    |  
|Borrowings(1)                                                                             |  |                           | 311,000,000  |   |                |   | 437,800,000  |  
|Repayments(1)                                                                             |  |                           | (252,300,000 | ) |                |   | (530,200,000 | )
|Transfers in and/or out of Level 3                                                        |  |                           |             |   |                |   |             |  
|                                                                                          |  |                           |              |   |                |   |              |  
|Ending Balance, March 31, 2013(Cost  $168,200,000 and $148,500,000, respectively)        |  | $                         | 168,200,000  |   |                | $ | 147,757,500  |  
|                                                                                          |  |                           |              |   |                |   |              |  
|                                                                                          |  |                          
|(1)Excludes temporary draws.                                                              |  |                           |              |   |                |   |              |  





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PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

MARCH 31, 2013

(Unaudited)



We adopted ASC 825-10, which provides companies with an option to report selected
financial assets and liabilities at fair value, and made an irrevocable election to apply ASC 825-10 to our Credit Facility and our 2025 Notes. We elected to use the fair value option for the Credit Facility and the 2025 Notes to align the
measurement attributes of both our assets and liabilities while mitigating volatility in earnings from using different measurement attributes. Due to that election and in accordance with GAAP, we incurred $2.4 million relating to debt issuance costs
during the three months ended March 31, 2013 relating to our 2025 Notes. ASC 825-10 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for
similar types of assets and liabilities and to more easily understand the effect on earnings of a companys choice to use fair value on its earnings. ASC 825-10 also requires entities to display the fair value of the selected assets and
liabilities on the face of the Consolidated Statement of Assets and Liabilities and changes in fair value of the Credit Facility and 2025 Notes are recorded in the Consolidated Statement of Operations. We elected not to apply ASC 825-10 to any other
financial assets or liabilities, including the SBA debentures. For the three and six months ended March 31, 2013, our Credit Facility and 2025 Notes had a combined net change in unrealized appreciation of $0.4 million and $1.0 million,
respectively. For the three and six months ended March 31, 2012, our Credit Facility had a net change in unrealized appreciation of $0.2 million and $1.4 million, respectively. As of March 31, 2013 and September 30, 2012, combined net
unrealized (appreciation) depreciation on our Credit Facility and 2025 Notes totaled $(0.4) million and $0.5 million, respectively. PennantPark Investment uses a nationally recognized independent valuation service to measure the fair value of its
Credit Facility in a manner consistent with the valuation process that the board of directors uses to value investments. Our 2025 Notes trade on the New York Stock Exchange, or the NYSE, and PennantPark Investment uses the closing quote on the
exchange to measure their fair value.

6. TRANSACTIONS WITH AFFILIATED COMPANIES

An affiliated company is a company in which we have ownership of 5% or more of its voting securities. A controlled
affiliate is a company in which we own more than 25% of its voting securities. Transactions related to our investments with both controlled and non-controlled affiliates for the six months ended March 31, 2013 were as follows:



|                                               |  |                                 |             |  |                                     |   |           |                                       |  |   |                |   |  |                             |           |  |                          |   |             |  |  |   |            |  
|---------------------------------------------- |  | ------------------------------- | ----------- |  | ----------------------------------- | - | --------- | ------------------------------------- |  | - | -------------- | - |  | --------------------------- | --------- |  | ------------------------ | - | ----------- |  |  | - | ---------- | -
|Name of Investment                             |  | Fair Value
atSeptember 30, 2012 |             |  | Purchases of /Advances toAffiliates |   |           | Sale of
/Distributionsfrom Affiliates |  |   | IncomeReceived |   |  | Fair Value
atMarch 31, 2013 |           |  | Capital Gains 
/(Losses) |  
|Controlled Affiliates                          |  |                                 |             |  |                                     |   |           |                                       |  |   |                |   |  |                             |           |  |                          |   |             |  |  |   |            |  
|PAS International Holdings, Inc.*              |  | $                               | 17,946,928  |  |                                     | $ | 3,000,000 |                                       |  | $ |               |   |  | $                           |          |  |                          | $ | 5,307,142   |  |  | $ | (1,999,960 | )
|SuttonPark Holdings, Inc.                      |  |                                 | 13,175,000  |  |                                     |   | 2,000,000 |                                       |  |   | (3,000,000     | ) |  |                             | 961,333   |  |                          |   | 14,500,000  |  |  |   |           |  
|UP Support Services, Inc.                      |  |                                 | 24,456,708  |  |                                     |   | 1,117,359 |                                       |  |   | (700,000       | ) |  |                             | 1,151,016 |  |                          |   | 23,019,282  |  |  |   |           |  
|Non-Controlled Affiliates                      |  |                                 |             |  |                                     |   |           |                                       |  |   |                |   |  |                             |           |  |                          |   |             |  |  |   |            |  
|Direct Buy Holdings, Inc.**                    |  |                                 | 10,880,000  |  |                                     |   | 300,197   |                                       |  |   |               |   |  |                             | 300,197   |  |                          |   | 15,017,966  |  |  |   | (1,350,000 | )
|Envirosolutions, Inc.                          |  |                                 | 18,425,519  |  |                                     |   | 1,736,820 |                                       |  |   |               |   |  |                             |          |  |                          |   | 21,136,467  |  |  |   |           |  
|Performance Holdings, Inc.                     |  |                                 | 18,028,080  |  |                                     |   |          |                                       |  |   |               |   |  |                             | 857,542   |  |                          |   | 18,399,452  |  |  |   |           |  
|Service Champ, Inc.                            |  |                                 | 44,501,658  |  |                                     |   |          |                                       |  |   |               |   |  |                             | 743,785   |  |                          |   | 45,704,407  |  |  |   |           |  
|                                               |  |                                 |             |  |                                     |   |           |                                       |  |   |                |   |  |                             |           |  |                          |   |             |  |  |   |            |  
|Total Controlled and Non-Controlled Affiliates |  | $                               | 147,413,893 |  |                                     | $ | 8,154,376 |                                       |  | $ | (3,700,000     | ) |  | $                           | 4,013,873 |  |                          | $ | 143,084,716 |  |  | $ | (3,349,960 | )
|                                               |  |                                 |             |  |                                     |   |           |                                       |  |   |                |   |  |                             |           |  |                          |   |             |  |  |   |            |  



| | * | Became a controlled affiliate during the three months ended March 31, 2013.
| | - | ---------------------------------------------------------------------------

| | ** | Became a controlled affiliate during the three months ended December 31, 2012.
| | -- | ------------------------------------------------------------------------------



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PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

MARCH 31, 2013

(Unaudited)



7. CHANGE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE

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



|                                                                                 |  |                              |            |  |                            |   |            |      |  |   |            |  |  |   |            | 
|-------------------------------------------------------------------------------- |  | ---------------------------- | ---------- |  | -------------------------- | - | ---------- | ---- |  | - | ---------- |  |  | - | ---------- | 
|                                                                                 |  | Three months ended March 31, |            |  | Six months ended March 31, |  
|                                                                                 |  | 2013                         |            |  | 2012                       |   |            | 2013 |  |   | 2012       | 
|Numerator for net increase in net assets resulting from operations               |  | $                            | 26,972,329 |  |                            | $ | 26,398,109 |      |  | $ | 55,513,515 |  |  | $ | 42,243,633 | 
|                                                                                 |  |                              |            | 
|Denominator for basic and diluted weighted average shares                        |  |                              | 66,400,755 |  |                            |   | 53,053,201 |      |  |   | 66,286,285 |  |  |   | 49,351,372 | 
|Basic and diluted net increase in net assets per share resulting from operations |  | $                            | 0.41       |  |                            | $ | 0.50       |      |  | $ | 0.84       |  |  | $ | 0.85       | 

8. CASH EQUIVALENTS

Cash equivalents represent cash in money market funds pending investment in longer-term portfolio holdings. Our
portfolio may consist of temporary investments in U.S. Treasury Bills (of varying maturities), repurchase agreements or repurchase agreement-like treasury securities. These temporary investments with original maturities of 90 days or less are deemed
cash equivalents and are included in the Consolidated Schedule of Investments. At the end of each fiscal quarter, we may take proactive steps to preserve investment flexibility for the next quarter by investing in cash equivalents, which is
dependent upon the composition of our total assets at quarter end. We may accomplish this in several ways, including purchasing U.S. Treasury Bills and closing out our positions on a net cash basis after quarter-end, temporarily drawing down on the
Credit Facility, or utilizing repurchase agreements or other balance sheet transactions as are deemed appropriate for this purpose. These amounts are excluded from average adjusted gross assets for purposes of computing the Investment Advisers
management fee. U.S. Treasury Bills with maturities greater than 60 days from the time of purchase are valued consistent with our valuation policy. As of March 31, 2013 and September 30, 2012, cash equivalents were invested in money market
funds in the amount of $17.3 million and $7.6 million, respectively.

9. FINANCIAL HIGHLIGHTS

Below are the financial highlights:



|                                                        |  |                            |             |   |      |   |             |  
|------------------------------------------------------- |  | -------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                        |  | Six Months Ended March 31, |            
|                                                        |  | 2013                       |             |   | 2012 |  
|Per Share Data:                                         |  |                            |             |   |      |   |             |  
|Net asset value, beginning of period                    |  | $                          | 10.22       |   |      | $ | 10.13       |  
|Net investment income(1)                                |  |                            | 0.49        |   |      |   | 0.50        |  
|Net change in realized and unrealized gain(1)           |  |                            | 0.35        |   |      |   | 0.35        |  
|                                                        |  |                            |             |   |      |   |             |  
|Net increase in net assets resulting from operations(1) |  |                            | 0.84        |   |      |   | 0.85        |  
|Distributions to stockholders(1) (2)                    |  |                            | (0.56       | ) |      |   | (0.58       | )
|Effect of common stock issuance                         |  |                            |            |   |      |   | 0.06        |  
|Effect of offering costs                                |  |                            |            |   |      |   | (0.08       | )
|                                                        |  |                            |             |   |      |   |             |  
|Net asset value, end of period                          |  | $                          | 10.50       |   |      | $ | 10.38       |  
|                                                        |  |                            |             |   |      |   |             |  
|Per share market value, end of period                   |  | $                          | 11.30       |   |      | $ | 10.40       |  
|Total return*(3)                                        |  |                            | 11.91       | % |      |   | 22.89       | %
|Shares outstanding at end of period                     |  |                            | 66,401,248  |   |      |   | 56,206,873  |  
|Ratios ** / Supplemental Data:                          |  |                            |             |   |      |   |             |  
|Ratio of operating expenses to average net assets(4)    |  |                            | 6.44        | % |      |   | 6.97        | %
|Ratio of debt expenses to average net assets(5)         |  |                            | 2.40        | % |      |   | 3.00        | %
|                                                        |  |                            |             |   |      |   |             |  
|Ratio of total expenses to average net assets           |  |                            | 8.84        | % |      |   | 9.98        | %
|Ratio of net investment income to average net assets    |  |                            | 9.33        | % |      |   | 9.61        | %
|Net assets at end of period                             |  | $                          | 697,376,308 |   |      | $ | 583,307,644 |  
|                                                        |  |                            |             |   |      |   |             |  
|Average debt outstanding                                |  | $                          | 352,917,857 |   |      | $ | 335,854,645 |  
|                                                        |  |                            |             |   |      |   |             |  
|Average debt per share(1)                               |  | $                          | 5.32        |   |      | $ | 6.81        |  
|Portfolio turnover ratio                                |  |                            | 28.80       | % |      |   | 28.48       | %



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PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

MARCH 31, 2013

(Unaudited)





|* | Not annualized for periods less than one year.
|- | ----------------------------------------------

|** | Annualized for periods less than one year.
|-- | ------------------------------------------

|(1) | Calculated based on the weighted average shares outstanding for the respective periods.
|--- | ---------------------------------------------------------------------------------------

|(2) | Determined based on taxable income calculated in accordance with income tax regulations, which may differ from amounts determined under GAAP.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Based on the change in market price per share during the period and takes into account dividends and distributions, if any, reinvested in accordance with our dividend
reinvestment plan.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Operating expenses exclude debt related costs.
|--- | ----------------------------------------------

|(5) | Ratio does not annualize the 2025 Notes offering costs.
|--- | -------------------------------------------------------

10. DEBT

Credit Facility

On February 21, 2012, we amended and restated our multi-currency Credit Facility, which received $380 million in commitments, with certain lenders and SunTrust Bank, acting as administrative agent,
and JPMorgan Chase Bank, N.A., acting as syndication agent for the lenders. The Credit Facility includes an accordion feature whereby it can be expanded to $600 million if certain conditions are satisfied. As of March 31, 2013 and
September 30, 2012, there was $171.7 million (including a temporary draw of $3.5 million) and $145.0 million (including a temporary draw of $35.5 million), respectively, in outstanding borrowings under the Credit Facility, with a weighted
average interest rate at the time of 3.04% and 3.49%, respectively, exclusive of the fee on undrawn commitments of 0.50%. The Credit Facility is a four-year revolving facility, with a stated maturity date of February 21, 2016, with a one-year
term-out period following its third-year, and pricing is set at 275 basis points over LIBOR. The Credit Facility is secured by substantially all of the assets of the Company excluding assets held by our SBIC Funds.

In accordance with the 1940 Act, with certain limited exceptions, we are only allowed to borrow amounts such that we are in compliance
with our asset coverage ratio after such borrowing, excluding SBA debentures, pursuant to exemptive relief from the SEC received in June 2011.

SBA Debentures

SBIC LP is able to borrow funds from the SBA against
regulatory capital (which approximates equity capital) that is paid-in and is subject to customary regulatory requirements including an examination by the SBA. We have funded SBIC LP with $75.0 million of equity capital and had SBA debentures
outstanding of $150.0 million as of March 31, 2013. In January, 2013, our wholly-owned subsidiary, SBIC II, received a license from the SBA to operate as an SBIC under the 1958 Act. We have funded SBIC II with $2.5 million of seed capital. Our
SBIC Funds are subject to a variety of regulations and oversight by the SBA concerning, among other things, the size and nature of the companies in which it may invest as well as the structure of those investments. SBA debentures are non-recourse to
us, have a 10-year maturity, and may be prepaid at any time without penalty. The interest rate of SBA debentures is fixed at the time of issuance, often referred to as pooling, at a market-driven spread over 10-year U.S. Treasury Notes. SBA current
regulations limit the amount that SBIC LP may borrow to a maximum of $150.0 million, which is up to twice its potential regulatory capital, and may borrow to a maximum of $225 million as part of a group of SBICs under common control. SBIC LP has
accessed the maximum borrowing with its $75.0 million in regulatory capital.

As of March 31, 2013, SBIC LP had fully
drawn $150.0 million in debt commitments with a weighted average interest rate of 3.70%, exclusive of the 3.43% of upfront fees, which are amortized over the life of the loan (4.04% after upfront fees). Our fixed-rate SBA debentures as of both
March 31, 2013 and September 30, 2012 were as follows:



|                            |  |                   |  |                             |  |                  |             | 
|--------------------------- |  | ----------------- |  | --------------------------- |  | ---------------- | ----------- | 
|Issuance Dates              |  | Maturity          |  | Fixed All-inCoupon Rate (1) |  | PrincipalBalance |            
|September 22, 2010          |  | September 1, 2020 |  | 3.50%                       |  | $                | 500,000     | 
|March 29, 2011              |  | March 1, 2021     |  | 4.46                        |  |                  | 44,500,000  | 
|September 21, 2011          |  | September 1, 2021 |  | 3.38                        |  |                  | 105,000,000 | 
|                            |  |                   |  |                             |  |                  |             | 
|Weighted average rate/total |  |                   |  | 3.70%                       |  | $                | 150,000,000 | 
|                            |  |                   |  |                             |  |                  |             | 



| | (1) | Excluding 3.43% of upfront fees.
| | --- | --------------------------------





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PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

MARCH 31, 2013

(Unaudited)



Under SBA regulations, our SBIC Funds are subject to regulatory requirements, including
making investments in SBA eligible businesses, investing at least 25% of regulatory capital in eligible smaller businesses, as defined under the 1958 Act, placing certain limitations on the financing terms of investments, prohibiting investing in
certain industries, requiring capitalization thresholds and being subject to periodic audits and examinations of its financial statements that are prepared on a basis of accounting other than GAAP (for example, fair value, as defined under ASC 820,
is not required to be used for assets or liabilities for such compliance reporting). If our SBIC Funds fail to comply with applicable SBA regulations the SBA could, depending on the severity of the violation, limit or prohibit its use of debentures,
declare outstanding debentures immediately due and payable and/or limit it from making new investments. These actions by the SBA would, in turn, negatively affect us because our SBIC Funds are wholly owned by us.

2025 Notes

During the quarter ended March 31, 2013 we issued $71.3 million in aggregate principal amount of 2025 Notes, including the exercise of the over-allotment option, for net proceeds of $68.8 million
after underwriting discounts and offering costs. Interest on the 2025 Notes is paid quarterly on February 1, May 1, August 1 and November 1, at a rate of 6.25% per year, commencing on May 1, 2013. The 2025
Notes mature on February 1, 2025. We may redeem the 2025 Notes in whole or in part at any time or from time to time on or after February 1, 2016. The 2025 Notes are general, unsecured obligations and will rank equal in right of payment
with all of our existing and future senior unsecured indebtedness. The 2025 Notes are structurally subordinate to our SBA debentures and the assets pledged or secured under our Credit Facility. Our 2025 Notes trade on the NYSE under the symbol
PNTA.

11. COMMITMENTS AND CONTINGENCIES

From time to time, we, the Investment Adviser or the Administrator may be a party to legal proceedings in the ordinary
course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these
proceedings will have a material effect upon our financial condition or results of operations. Unfunded debt investments described in the Consolidated Statement of Assets and Liabilities represent unfunded delayed draws on investments.

12. SUBSEQUENT EVENTS

On April 29, 2013, we utilized the accordion feature of our Credit Facility and expanded the facility by $50
million, bringing the size of our Credit Facility to $430 million.



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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

PennantPark Investment Corporation and Subsidiaries

We have reviewed the
accompanying consolidated statement of assets and liabilities of PennantPark Investment Corporation and Subsidiaries (the Company), including the consolidated schedule of investments, as of March 31, 2013, the consolidated statement
of operations for the three and six months ended March 31, 2013 and March 31, 2012, and the consolidated statement of changes in net assets and cash flows for the six months ended March 31, 2013 and 2012. These consolidated financial
statements are the responsibility of the Companys management.

We conducted our review in accordance with standards of
the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the consolidated financial statements
taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material
modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of assets and liabilities of PennantPark Investment
Corporation and Subsidiaries, including the consolidated schedule of investments, as of September 30, 2012 and the related consolidated statements of operations, changes in net assets, and the cash flows for the year then ended (not presented
herein); and in our report dated November 14, 2012, we expressed an unqualified opinion on those consolidated financial statements.





LOGO

New York, New York

May 8, 2013



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##### Table of Contents

|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

FORWARD-LOOKING STATEMENTS

This Report, including Managements
Discussion and Analysis of Financial Condition and Results of Operations, contains statements that constitute forward-looking statements, which relate to future events or our future performance or future financial condition. These forward-looking
statements are not historical facts, but rather are based on current expectations, estimates and projections about our company, our industry, our beliefs and our assumptions. The forward-looking statements contained in this Report involve risks and
uncertainties, including statements as to:



| |  |  | our future operating results;
| | - |  | -----------------------------



| |  |  | our business prospects and the prospects of our prospective portfolio companies;
| | - |  | --------------------------------------------------------------------------------



| |  |  | the dependence of our future success on the general economy and its impact on the industries in which we invest;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | the impact of a protracted decline in the liquidity of credit markets on our business;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | the impact of investments that we expect to make;
| | - |  | -------------------------------------------------



| |  |  | the impact of fluctuations in interest rates on our business and our portfolio companies;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | our contractual arrangements and relationships with third parties;
| | - |  | ------------------------------------------------------------------



| |  |  | the valuation of our investments in portfolio companies, particularly those having no liquid trading market;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | the ability of our prospective portfolio companies to achieve their objectives;
| | - |  | -------------------------------------------------------------------------------



| |  |  | our expected financings and investments;
| | - |  | ----------------------------------------



| |  |  | the adequacy of our cash resources and working capital;
| | - |  | -------------------------------------------------------



| |  |  | the timing of cash flows, if any, from the operations of our prospective portfolio companies;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | the ability of our Investment Adviser to locate suitable investments for us and to monitor and administer our investments; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | the impact of future legislation and regulation on our business and our portfolio companies.
| | - |  | --------------------------------------------------------------------------------------------

We use words such as anticipates, believes, expects, intends, seeks,
plans, estimates and similar expressions to identify forward-looking statements. You should not place undue influence on the forward looking statements as our actual results could differ materially from those projected in the
forward-looking statements for any reason.

Although we believe that the assumptions on which these forward-looking statements
are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new loans
and investments, certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward- looking statement in this Report should not be regarded as
a representation by us that our plans and objectives will be achieved.

We have based the forward-looking statements included
in this Report on information available to us on the date of this Report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements in this
Report, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including reports on
Form 10-Q/K and current reports on Form 8-K.

You should understand that under Section 27A(b)(2)(B) of the Securities Act
of 1933, as amended, or the Securities Act, and Section 21E(b)(2)(B) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 do not
apply to forward-looking statements made in periodic reports we file under the Exchange Act.

The following analysis of our
financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related notes thereto contained elsewhere in this Report.

Overview

PennantPark Investment Corporation is a BDC whose
objectives are to generate both current income and capital appreciation through debt and equity investments primarily in U.S. middle-market companies in the form of senior secured loans, mezzanine debt and, to a lesser extent, equity investments.



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We believe the middle-market offers attractive risk-reward to investors due to the limited
amount of capital available for such companies. We seek to create a diversified portfolio that includes senior secured loans, mezzanine debt and equity investments by investing approximately $10 million to $50 million of capital, on average, in the
securities of middle-market companies. We expect this investment size to vary proportionately with the size of our capital base. We use the term middle-market to refer to companies with annual revenues between $50 million and $1 billion.
The companies in which we invest are typically highly leveraged, and, in most cases, are not rated by national rating agencies. If such companies were rated, we believe that they would typically receive a rating below investment grade (between BB
and CCC under the Standard & Poors system) from the national rating agencies. In addition, we expect our debt investments to generally range in maturity from three to ten years.

Our investment activity depends on many factors, including the amount of debt and equity capital available to middle-market companies,
the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make. We have used, and expect to continue to use, our Credit Facility, the SBA
debentures, proceeds from the rotation of our portfolio and proceeds from public and private offerings of securities to finance our investment objectives.

Organization and Structure of PennantPark Investment Corporation

PennantPark Investment Corporation was organized under the Maryland General Corporation Law in January 2007. We are a closed-end,
externally managed, non-diversified investment company that has elected to be treated as a BDC under the 1940 Act. As such, we are required to comply with certain regulatory requirements. For instance, we generally have to hold at least 70% of our
total assets in qualifying assets, including securities of U.S. private companies or thinly traded public companies (public companies with a market capitalization of less than $250 million), cash, cash equivalents, U.S. government
securities and high quality debt investments that mature in one year or less. In addition, for federal income tax purposes we intend to continue to be treated as a RIC and qualify annually under the Code.

Our wholly owned subsidiaries, SBIC LP and SBIC II, were organized as Delaware limited partnerships in May 2010 and July 2012,
respectively. SBIC LP and SBIC II received licenses from the SBA to operate as small business investment companies, or SBICs, under Section 301(c) of the Small Business Investment Act of 1958, as amended, or the 1958 Act, in July 2010 and
January 2013, respectively. Our SBIC Funds objectives are to generate both current income and capital appreciation through debt and equity investments generally by investing with us in SBA eligible businesses that meet the investment criteria
used by PennantPark Investment.

Our investment activities are managed by the Investment Adviser. Under our investment
management agreement with the Investment Adviser, or the Investment Management Agreement, we have agreed to pay our Investment Adviser an annual base management fee based on our average adjusted gross assets as well as an incentive fee based on our
investment performance. PennantPark Investment, through the Investment Adviser, provides similar services to our SBIC Funds under their investment management agreements. Our SBIC Funds investment management agreements do not affect the management
and incentive fees on a consolidated basis. We have also entered into an administrative agreement, or the Administration Agreement, with the Administrator. Under our Administration Agreement, we have agreed to reimburse the Administrator for our
allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under our Administration Agreement, including rent and our allocable portion of the costs of compensation and related expenses of our Chief
Compliance Officer, Chief Financial Officer and their respective staffs. PennantPark Investment, through the Administrator, provides similar services to our SBIC Funds under their administration agreements with us. Our board of directors, a majority
of whom are independent of us, supervises our activities, and the Investment Adviser manages our day-to-day activities.

Revenues

We generate revenue in the form of interest income on the debt securities we hold and capital gains and distributions,
if any, on investment securities that we may acquire in portfolio companies. Our debt investments, whether in the form of senior secured loans or mezzanine debt, typically have a term of three to ten years and bear interest at a fixed or floating
rate. Interest on debt securities is generally payable quarterly or semiannually. In some cases, some of our investments provide for deferred interest payments and payment-in-kind, or PIK, interest. The principal amount of the debt securities and
any accrued but unpaid interest generally becomes due at the maturity date. In addition, we may generate revenue in the form of amendment, commitment, origination, structuring or diligence fees, fees for providing managerial assistance and possibly
consulting fees. Loan origination fees, original issue discount, or OID, and market discount or premium are capitalized, and we accrete or amortize such amounts as income. We record prepayment penalties on loans and debt securities as income.
Dividend income, if any, is recognized on an accrual basis on the ex-dividend date to the extent that we expect to collect such amounts.



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Expenses

Our primary operating expenses include the payment of management fees to our Investment Adviser, our allocable portion of overhead under our Administration Agreement and other operating costs as detailed
below. Our management fee compensates our Investment Adviser for its work in identifying, evaluating, negotiating, consummating and monitoring our investments. Additionally, we pay interest expense on the outstanding debt and unused commitments we
accrue under our various debt facilities. We bear all other direct or indirect costs and expenses of our operations and transactions, including:



| |  |  | the cost of calculating our net asset value, including the cost of any third-party valuation services;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | the cost of effecting sales and repurchases of shares of our common stock and other securities;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing due diligence
and reviews of prospective investments or complimentary businesses;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | expenses incurred by the Investment Adviser in performing due diligence and reviews of investments;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | transfer agent and custodial fees;
| | - |  | ----------------------------------



| |  |  | fees and expenses associated with marketing efforts;
| | - |  | ----------------------------------------------------



| |  |  | federal and state registration fees and any stock exchange listing fees;
| | - |  | ------------------------------------------------------------------------



| |  |  | federal, state and local taxes;
| | - |  | -------------------------------



| |  |  | independent directors fees and expenses;
| | - |  | -----------------------------------------



| |  |  | brokerage commissions;
| | - |  | ----------------------



| |  |  | fidelity bond, directors and officers/errors and omissions liability insurance and other insurance premiums;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | direct costs such as printing, mailing, long distance telephone and staff;
| | - |  | --------------------------------------------------------------------------



| |  |  | fees and expenses associated with independent audits and outside legal costs;
| | - |  | -----------------------------------------------------------------------------



| |  |  | costs associated with our reporting and compliance obligations under the 1940 Act, the 1958 Act and applicable federal and state securities laws; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | all other expenses incurred by either the Administrator or us in connection with administering our business, including payments under our
Administration Agreement that will be based upon our allocable portion of overhead, and other expenses incurred by the Administrator in performing its obligations under our Administration Agreement, including rent and our allocable portion of the
costs of compensation and related expenses of our Chief Compliance Officer, Chief Financial Officer and their respective staffs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During periods of asset growth, we expect our general and administrative expenses to be relatively stable or to decline as a percentage of total assets and increase during periods of asset declines.
Incentive fees, interest expense and costs relating to future offerings of securities would be additive to the expenses described above.

PORTFOLIO AND INVESTMENT ACTIVITY

As of March 31, 2013, our portfolio totaled $1,114.9 million and consisted of $291.3 million of senior secured loans, $249.1 million of second lien secured debt, $427.6 million of subordinated debt
and $146.9 million of preferred and common equity investments. Our debt portfolio consisted of 67% fixed-rate and 33% variable-rate investments (including 30% with a London Interbank Offered Rate, or LIBOR, or prime floor). Our overall portfolio
consisted of 58 companies with an average investment size of $19.2 million, had a weighted average yield on debt investments of 13.5%, and was invested 26% in senior secured loans, 22% in second lien secured debt, 39% in subordinated debt and 13% in
preferred and common equity investments.

As of September 30, 2012, our portfolio totaled $990.5 million and consisted of
$291.7 million of senior secured loans, $191.3 million of second lien secured debt, $400.7 million of subordinated debt and $106.8 million of preferred and common equity investments. Our debt portfolio consisted of 69% fixed-rate and 31%
variable-rate investments (including 26% with a LIBOR or prime floor). As of September 30, 2012, we had one non-accrual debt investment, representing 3.2% and 1.1% of our overall portfolio on a cost and fair value basis, respectively. Our
overall portfolio consisted of 54 companies with an average investment size of $18.3 million, had a weighted average yield on debt investments of 13.2%, and was invested 30% in senior secured loans, 19% in second lien secured debt, 40% in
subordinated debt and 11% in preferred and common equity investments.





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For the three months ended March 31, 2013, we invested $75.4 million in one new
portfolio company and seven existing portfolio companies with a weighted average yield on debt investments of 13.5%. Sales and repayments of long-term investments for the three months ended March 31, 2013 totaled $42.5 million. During the three
months ended March 31, 2013, we had one investment restructured after going on non-accrual status. For the six months ended March 31, 2013, we invested $243.8 million in six new and 14 existing portfolio companies with a weighted average
yield of 12.9% on debt investments. Sales and repayments of long-term investments for the six months ended March 31, 2013 totaled $153.4 million.

For the three months ended March 31, 2012, we invested $110.9 million in five new and four existing portfolio companies with a weighted average yield on debt investments of 13.2%. Sales and
repayments of long-term investments for the three months ended March 31, 2012 totaled $49.3 million. For the six months ended March 31, 2012, we invested approximately $153.9 million in six new and 11 existing portfolio companies with a
weighted average yield of 14.2% on debt investments. Sales and repayments of long-term investments for the six months ended March 31, 2012 totaled $118.5 million.

CRITICAL ACCOUNTING POLICIES

The discussion of our financial condition and
results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these Consolidated Financial Statements requires
management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. Actual results could differ from these estimates. We may reclassify certain prior period amounts
to conform to the current period presentation. We have eliminated all intercompany balances and transactions. References to the Accounting Standards Codification, or ASC, serve as a single source of literature. Subsequent events are evaluated and
disclosed as appropriate for events occurring through the date the Consolidated Financial Statements are issued. Changes in the economic and regulatory environment, financial markets and any other parameters used in determining such estimates could
cause actual results to differ. In addition to the discussion below, we describe our critical accounting policies in the notes to our Consolidated Financial Statements.

Valuation of Portfolio Investments

Our investments generally
consist of illiquid securities, including debt and equity investments. Our board of directors generally uses market quotations to assess the value of our investments for which market quotations are readily available. We obtain these market values
from independent pricing services or at the bid prices obtained from at least two brokers or dealers, if available, or otherwise by a principal market maker or a primary market dealer. If our board of directors has a bona fide reason to believe any
such market quote does not reflect the fair value of an investment, it may independently value such investments by using the valuation procedure that it uses with respect to assets for which market quotations are not readily available. Investments
of sufficient credit quality purchased within 60 days of maturity are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value in the absence of any unusual events that may indicate such basis for deriving
fair value is no longer valid.

We expect that there may not be readily available market values for many of our investments
which are or will be in our portfolio, and we value such investments at fair value as determined in good faith by or under the direction of our board of directors using a documented valuation policy described in this Report and a consistently
applied valuation process. With respect to investments for which there is no readily available market value, the factors that the board of directors may take into account in pricing our investments at fair value include, as relevant, the nature and
realizable value of any collateral, the portfolio companys ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, comparison to publicly traded securities and other
relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we consider the pricing indicated by the external event to corroborate or revise our valuation. Due to the inherent
uncertainty of determining the fair value of investments that do not have a readily available market value, the price used in an actual transaction may differ from our valuation and the differences could be material.

With respect to investments for which market quotations are not readily available, or for which market quotations are deemed not
reflective of the fair value, our board of directors undertakes a multi-step valuation process each quarter, as described below:



| | (1) | Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of our Investment Adviser
responsible for the portfolio investment;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Preliminary valuation conclusions are then documented and discussed with the management of our Investment Adviser;
| | --- | ------------------------------------------------------------------------------------------------------------------



| | (3) | Our board of directors also engages independent valuation firms to conduct independent appraisals of our investments for which market quotations are not readily
available or are readily available but deemed not reflective of the fair value of an investment. The independent valuation firms review managements preliminary valuations in light of its own independent assessment and also in light of any
market quotations obtained from an independent pricing service, broker, dealer or market maker;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | (4) | The audit committee of our board of directors reviews the preliminary valuations of our Investment Adviser and those of the independent valuation firms and responds and
supplements the valuation recommendations of the independent valuation firms to reflect any comments; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Our board of directors discusses the valuations and determines the fair value of each investment in our portfolio in good faith, based on the input of our Investment
Adviser, the independent valuation firms and the audit committee.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Fair value, as defined under ASC 820, is the
price that we would receive upon selling an investment or pay to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment or liability. ASC 820 emphasizes that valuation
techniques maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk.
Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing an asset or liability based on market data obtained from sources independent of us. Unobservable inputs reflect the
assumptions market participants would use in pricing an asset or liability based on the best information available to us on the reporting period date.

ASC 820 classifies the inputs used to measure these fair values into the following hierarchies:



|         |  |                                                                                                                                                                                                                                                                                                                                                                  
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1: |  | Inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities, accessible by us at the measurement date.                                                                                                                                                                                                                      
|         | 
|Level 2: |  | Inputs that are quoted prices for similar assets or liabilities in active markets, or that are quoted prices for identical or similar assets or liabilities in markets that are not
active and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term, if applicable, of the financial instrument.
|         | 
|Level 3: |  | Inputs that are unobservable for an asset or liability because they are based on our own assumptions about how market participants would price the asset or
liability.                                                                                                                                                                                           

A financial instruments categorization within the valuation hierarchy is based upon the lowest
level of input that is significant to the fair value measurement. Generally, most of our investments and our Credit Facility are classified as Level 3. Due to the inherent uncertainty of determining the fair value of investments that do not have a
readily available market value, the price used in an actual transaction may be different than our valuation and those differences may be material. A review of fair value hierarchy classifications is conducted on a quarterly basis.

In addition to using the above inputs in cash equivalents, investments and our Credit Facility valuations, we employ the valuation policy
approved by our board of directors that is consistent with ASC 820. Consistent with our valuation policy, we evaluate the source of inputs, including any markets in which our investments are trading, in determining fair value.

The carrying value of our consolidated financial liabilities approximates fair value. We adopted ASC 825-10, which provides companies
with an option to report selected financial assets and liabilities at fair value, and made an irrevocable election to apply ASC 825-10 to our Credit Facility and our 2025 Notes. We elected to use the fair value option for the Credit Facility and the
2025 Notes to align the measurement attributes of both our assets and liabilities while mitigating volatility in earnings from using different measurement attributes. Due to that election and in accordance with GAAP, we incurred $2.4 million
relating to debt issuance related costs. ASC 825-10 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities
and to more easily understand the effect on earnings of a companys choice to use fair value on its earnings. ASC 825-10 also requires entities to display the fair value of the selected assets and liabilities on the face of the Consolidated
Statement of Assets and Liabilities and changes in fair value of the Credit Facility and 2025 Notes are recorded in the Consolidated Statement of Operations. We elected not to apply ASC 825-10 to any other financial assets or liabilities, including
the SBA debentures. For the three and six months ended March 31, 2013, our Credit Facility and 2025 Notes had a combined net change in unrealized appreciation of $0.4 million and $1.0 million, respectively. For the three and six months ended
March 31, 2012, our Credit Facility had a net change in unrealized appreciation of $0.2 million and $1.4 million, respectively. As of March 31, 2013 and September 30, 2012, combined net unrealized (appreciation) depreciation on our
Credit Facility and 2025 Notes totaled $(0.4) million and $0.5 million, respectively. PennantPark Investment uses a nationally recognized independent valuation service to measure the fair value of its Credit Facility in a manner consistent with the
valuation process that the board of directors uses to value investments. Our 2025 Notes trade on the New York Stock Exchange, or the NYSE, and PennantPark Investment uses the closing quote on the exchange to measure their fair value.



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Revenue Recognition

We record interest income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt investments with contractual PIK interest which represents contractual interest
accrued and added to the loan balance that generally becomes due at maturity, we will generally not accrue PIK interest if the portfolio company valuation indicates that such PIK interest is not collectible. We do not accrue as a receivable interest
on loans and debt investments if we determine that it is probable that we will not be able to collect such interest. Loan origination fees, OID, market discount or premium and deferred financing costs are capitalized and we then accrete or amortize
such amounts using the effective interest method as interest income or interest expense as it relates to our deferred financing costs. We record contractual prepayment premiums on loans and debt investments as income. Dividend income, if any, is
recognized on an accrual basis on the ex-dividend date to the extent that we expect to collect such amounts.

Net Realized Gains or
Losses and Net Change in Unrealized Appreciation or Depreciation

We measure realized gains or losses by the difference
between the net proceeds from the repayment or sale and the amortized cost basis of the investment, using the specific identification method, without regard to unrealized appreciation or depreciation previously recognized, but considering
unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized
appreciation or depreciation, when gains or losses are realized.

Payment-in-Kind Interest or PIK

We have investments in our portfolio which contain a PIK interest provision. PIK interest is added to the principal balance of the
investment and is recorded as income. For us to maintain our status as a RIC, substantially all of this income must be paid out to stockholders in the form of dividends, even though we have not collected any cash with respect to PIK securities.

Federal Income Taxes

We operate so as to qualify to maintain our election to be taxed as a RIC under Subchapter M of the Code and intend to continue to do so. To maintain RIC tax benefits, we must, among other requirements,
meet certain source-of-income and quarterly asset diversification requirements (as described below). We also must annually distribute dividends of at least 90% of the sum of our net ordinary income and realized net short-term capital gains in excess
of realized net long-term capital losses, if any, out of the assets legally available for distribution. Although not required for us to maintain our RIC tax status, in order to preclude the imposition of a 4% nondeductible federal excise tax imposed
on RICs, we may distribute during each calendar year an amount at least equal to the sum of (1) 98% of our net ordinary income for the calendar year, (2) 98.2% of the sum of our realized net capital gains for the one-year period ending on
October 31 of the calendar year and (3) the sum of any net ordinary income plus net capital gains for preceding years that were not distributed during such years. In addition, although we may distribute realized net capital gains (i.e.,
net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions in the manner described above, we have retained and may continue to retain such net capital
gains or net ordinary income to provide us with additional liquidity.

Because federal income tax regulations differ from
GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among
capital accounts in the Consolidated Financial Statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may
also result from the treatment of short-term gains as ordinary income for tax purposes.



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RESULTS OF OPERATIONS

Set forth below are the results of operations for the three and six months ended March 31, 2013 and 2012.

Investment Income

Investment income for the three and six months
ended March 31, 2013 was $31.0 million and $64.0 million, respectively, and was attributable to $9.2 million and $18.0 million from senior secured loans, $8.6 million and $15.0 million from second lien secured debt investments, $13.2 million
and $29.7 million from subordinated debt investments, and zero and $1.3 million from common equity investments, respectively. This compares to investment income for the three and six months ended March 31, 2012 which was $26.4 million and $53.2
million, respectively, and was attributable to $9.4 million and $20.7 million from senior secured loans, $4.4 million and $8.5 million from second lien secured debt investments, and $12.6 million and $24.0 million from subordinated debt investments,
respectively. The increase in investment income compared with the same period in the prior year was due to the growth of our portfolio which was funded through the issuance of shares and 2025 Notes.

Expenses

Expenses for the three and six months ended March 31, 2013 totaled $17.0 million and $31.8 million, respectively. Base management
fees for the same periods totaled $5.3 million and $10.5 million, performance-based incentive fees totaled $3.6 million and $8.1 million, debt related interest and expenses (excluding the $2.4 million debt issuance expenses associated with our 2025
Notes) totaled $4.0 million and $7.1 million, general and administrative expenses and excise tax totaled $1.7 million and $3.7 million, respectively. This compares to expenses for the three and six months ended March 31, 2012, which totaled
$16.6 million and $28.4 million, respectively. Base management fee for the same respective periods totaled $4.2 million and $8.2 million, performance-based incentive fees totaled $2.4 million and $6.1 million, Credit Facility and SBA debentures
expenses (excluding the $5.4 million upfront fees associated with amending and restating our Credit Facility) totaled $2.7 million and $5.1 million, general and administrative expenses totaled $1.7 million and $3.3 million and excise taxes totaled
$0.2 million and $0.3 million, respectively. The increase in expenses was due to the growth of the portfolio as well as the higher cost of debt capital.

Net Investment Income

Net investment income totaled $14.1 million
and $32.2 million, or $0.21 and $0.49 per share, for the three and six months ended March 31, 2013, respectively. For the same respective periods in the prior year, net investment income totaled $9.8 million and $24.8 million, or $0.18 and
$0.50 per share. The increase in net investment income compared to the same period in the prior year was primarily the result of the growth of our portfolio offset by the increased cost of debt capital.

Net Realized Gain or Losses

Sales and repayments of long-term investments for the three and six months ended March 31, 2013 totaled $42.5 million and $153.4 million, respectively, and realized losses totaled $1.8 million and
$1.0 million, respectively, due to sales and refinancing of our investments. Sales and repayments of long-term investments for the three and six months ended March 31, 2012 totaled $49.3 million and $118.5 million, respectively, and realized
losses totaled $3.9 million and $12.0 million, respectively, due to sales and refinancing of our investments.

Unrealized Appreciation
or Depreciation on Investments and Debt

For the three and six months ended March 31, 2013, we reported unrealized
appreciation on investments of $15.2 million and $25.2 million, respectively. For the three and six months ended March 31, 2012, we reported unrealized appreciation on investments of $20.8 million and $30.8 million, respectively. The change in
unrealized appreciation for current periods compared to the prior periods is the result of changes in the leveraged credit markets. As of March 31, 2013 and September 30, 2012, our net unrealized appreciation (depreciation) on investments
totaled $7.1 million and $(18.1) million, respectively.

For the three and six months ended March 31, 2013, our Credit
Facility and 2025 Notes changed in value due to unrealized appreciation of $0.4 million and $1.0 million, respectively. For the three and six months ended March 31, 2012, our Credit Facility increased in value due to unrealized appreciation of
$0.2 million and $1.4 million, respectively. The change in unrealized appreciation for current periods compared to the prior periods is the result of issuing new debt capital and the resetting of our Credit Facility to current market rates. On
March 31, 2013 and September 30, 2012, net unrealized depreciation on our Credit Facility totaled $0.4 million and $0.5 million, respectively.

Net Increase in Net Assets Resulting from Operations

Net increase
in net assets resulting from operations totaled $27.0 million and $55.5 million or $0.41 per share and $0.84 per share, for the three and six months ended March 31, 2013, respectively. This compares to a net increase in net assets resulting
from operations which totaled $26.4 million and $42.2 million, or $0.50 per share and $0.85 per share, for the three and six months ended March 31, 2012, respectively. The change in net assets from operations is due to both unrealized
appreciation on investments and net investment income.



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LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and capital resources are derived primarily from proceeds of securities offerings, debt capital and cash flows from
operations, including investment sales and repayments, and income earned. Our primary use of funds from operations includes investments in portfolio companies and payments of fees and other operating expenses we incur. We have used, and expect to
continue to use, our debt capital and proceeds from the rotation of our portfolio and proceeds from public and private offerings of securities to finance our investment objectives.

In February 2012, we amended and restated our multi-currency Credit Facility, which increased the size of the Credit Facility to $380
million, with certain lenders and SunTrust Bank, acting as administrative agent and JPMorgan Chase Bank, N.A., as syndication agent for the lenders. The Credit Facility includes an accordion feature whereby it can be expanded to $600 million if
certain conditions are satisfied. As of March 31, 2013 and September 30, 2012, we had $171.7 million (including a temporary draw of $3.5 million) and $145.0 million (including a temporary draw of $35.5 million), respectively, in
outstanding borrowings under the Credit Facility, with a weighted average interest rate at the time of 3.04% and 3.49%, respectively, exclusive of the fee on undrawn commitments of 0.50%. The Credit Facility is a four-year revolving facility with a
stated maturity date of February 2016, and a one-year term-out period following its third year. Borrowings under the Credit Facility bear interest at 275 basis points over LIBOR. As of March 31, 2013 and September 30, 2012, we had $208.3
million and $235.0 million of unused borrowing capacity, respectively, subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC. The Credit Facility is secured by substantially all of our assets excluding assets held by our
SBIC Funds.

The Credit Facility contains customary affirmative and restrictive covenants, including maintenance of a minimum
shareholders equity of the sum of (a) $220.0 million plus (b) 25% of the net proceeds from the sale of equity interests in us and our subsidiaries after the closing date of the Credit Facility and maintenance of a ratio of total
assets (less total liabilities other than indebtedness) to total indebtedness of not less than 2.0:1.0 (before any exemptive relief granted by the SEC with respect to the indebtedness of our SBIC subsidiaries). In addition to the asset coverage
ratio described in the preceding sentence, borrowings under our Credit Facility (and the incurrence of certain other permitted debt) are subject to compliance with a borrowing base that applies different advance rates to different types of assets in
the Companys portfolio. For a complete list of covenants contained in the Credit Facility, see our Form 8-K filed on February 22, 2012 and the Credit Facility agreement filed as an exhibit to our Form 10-Q filed on May 2, 2012. As of
March 31, 2013, we were in compliance with the terms of our Credit Facility.

During the quarter ended March 31,
2013 we issued $71.3 million in aggregate principal amount of 2025 Notes, after exercise of the over-allotment option, for net proceeds of $68.8 million after underwriting discounts and offering costs. Interest on the 2025 Notes is paid quarterly on
February 1, May 1, August 1 and November 1, at a rate of 6.25% per year, commencing on May 1, 2013. The 2025 Notes mature on February 1, 2025. We may redeem the 2025 Notes in whole or in part at any time
or from time to time on or after February 1, 2016. The 2025 Notes are general, unsecured obligations and will rank equal in right of payment with all of our existing and future senior unsecured indebtedness. The 2025 Notes are structurally
subordinate to our SBA debentures and the assets pledged or secured under our Credit Facility. Our 2025 Notes trade on the NYSE under the symbol PNTA.

We may raise additional equity or debt capital through both registered offerings off our shelf registration statement and private offerings of securities, by securitizing a portion of our investments or
borrowing from the SBA, among other sources. Any future additional debt capital we incur, to the extent it is available, may be issued at a higher cost and on less favorable terms and conditions than our current Credit Facility. Furthermore, our
Credit Facility availability depends on various covenants and restrictions. The primary use of existing funds and any funds raised in the future is expected to be for repayment of indebtedness, investments in portfolio companies, cash distributions
to our shareholders or for other general corporate or strategic purposes. For the six months ended March 31, 2013 we issued an additional 700,000 shares of common stock, pursuant to the underwriters partial exercise of the over-allotment
option in connection with an equity offering, at a public offering price of $10.82 per share, generating gross proceeds of $7.6 million and net proceeds of $7.3 million after underwriting discounts payable by us. Any decision to sell shares below
the then current net asset value per share of our common stock is subject to shareholder approval and a determination by our board of directors that such issuance and sale is in our and our stockholders best interests. Any sale or other
issuance of shares of our common stock at a price below net asset value per share results in immediate dilution to our stockholders interests in our common stock and a reduction in our net asset value per share.

In accordance with the 1940 Act, with certain limited exceptions, PennantPark Investment is only allowed to borrow amounts such that our
asset coverage ratio is met after such borrowing. As of March 31, 2013, we excluded the principal amounts of our SBA debentures from our asset coverage ratio pursuant to SEC exemptive relief. As a result of this exemptive relief, our ratio of
total assets on a consolidated basis, including the principal amount of our SBA debentures, to outstanding indebtedness may be less than 200%, which while providing increased investment flexibility, also increases our exposure to risks associated
with leverage.



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SBIC LP is able to borrow funds from the SBA against regulatory capital (which approximates
equity capital) that is paid-in and is subject to customary regulatory requirements including an examination by the SBA. We have funded SBIC LP with $75.0 million of equity capital and had SBA debentures outstanding of $150.0 million as of
March 31, 2013. Effective January 2013, our wholly-owned subsidiary, SBIC II, received a license from the SBA to operate as an SBIC under the 1958 Act. Our SBIC Funds are subject to a variety of regulations and oversight by the SBA concerning,
among other things, the size and nature of the companies in which it may invest as well as the structure of those investments. SBA debentures are non-recourse to us, have a 10-year maturity, and may be prepaid at any time without penalty. The
interest rate of SBA debentures is fixed at the time of issuance, often referred to as pooling, at a market-driven spread over 10-year U.S. Treasury Notes. SBA current regulations limit the amount that SBIC LP may borrow to a maximum of $150.0
million, which is up to twice its potential regulatory capital, and may borrow to a maximum of $225 million as part of a group of SBICs under common control. SBIC LP has accessed the maximum borrowing with its $75.0 million in regulatory capital.

As of March 31, 2013 and September 30, 2012, SBIC LP had fully drawn $150.0 million in debt commitments with a
weighted average interest rate of 3.70% exclusive of the 3.43% in upfront fees (4.04% after upfront fees). The SBA debentures upfront fees of 3.43% consist of a commitment fee of 1.00% and an issuance discount of 2.43%. Both fees are being amortized
over the lives of the loans. Our fixed rate SBA debentures as of March 31, 2013 and September 30, 2012 were as follows:



|                                    |  |                   |  |                             |  |                   |   |  |  |   |             |  |  |  | 
|----------------------------------- |  | ----------------- |  | --------------------------- |  | ----------------- | - |  |  | - | ----------- |  |  |  | 
|Issuance Dates                      |  | Maturity          |  | Fixed All-inCoupon Rate (1) |  | Principal Balance
|September 22, 2010                  |  | September 1, 2020 |  |                             |  | 3.50              | % |  |  | $ | 500,000     | 
|March 29, 2011                      |  | March 1, 2021     |  |                             |  | 4.46              |   |  |  |   | 44,500,000  | 
|September 21, 2011                  |  | September 1, 2021 |  |                             |  | 3.38              |   |  |  |   | 105,000,000 | 
|                                    |  |                   |  |                             |  |                   |   |  |  |   |             |  | 
|Weighted Average Rate / Total       |  |                   |  |                             |  | 3.70              | % |  |  | $ | 150,000,000 | 
|                                    |  |                   |  |                             |  |                   |   |  |  |   |             |  | 
|(1) Excludes 3.43% of
upfront fees. |  |                   |  |                             |  |                   |   |  |  |   |             | 

The SBIC program is designed to stimulate the flow of capital into eligible businesses. Under SBA
regulations, our SBIC Funds are subject to regulatory requirements, including making investments in SBA eligible businesses, investing at least 25% of regulatory capital in eligible smaller businesses, as defined under the 1958 Act, placing certain
limitations on the financing terms of investments, prohibiting investment in certain industries and requiring capitalization thresholds that limit distributions to us, and is subject to periodic audits and examinations of its financial statements
that are prepared on a basis of accounting other than GAAP (for example, fair value, as defined under ASC 820, is not required to be used for assets or liabilities for such compliance reporting). As of March 31, 2013, our SBIC Funds were in
compliance with their regulatory requirements.

In June 2011, we received exemptive relief from the SEC allowing us to modify
the asset coverage ratio requirement to exclude the SBA debentures from the calculation. Accordingly, our ratio of total assets on a consolidated basis to outstanding indebtedness may be less than 200%, which while providing increased investment
flexibility, also increases our exposure to risks associated with leverage.

Our operating activities used cash of $63.1
million for the six months ended March 31, 2013, primarily for net purchases of investments. Our financing activities provided cash of $72.9 million for the same period, primarily from the proceeds of the issuance of the 2025 Notes.

Our operating activities used cash of $44.0 million for the six months ended March 31, 2012, primarily for net purchase of
investments. Our financing activities used cash of $0.6 million for the same period and used proceeds from the equity offering to pay down the Credit Facility.



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Contractual Obligations

A summary of our significant contractual payment obligations as of March 31, 2013 including borrowings under our debt facilities and
other contractual obligations, is as follows:



|                              |  |                                      |       |  |                 |   |      |          |  |   |          |  |  |                  |       |  |  |   |       | 
|----------------------------- |  | ------------------------------------ | ----- |  | --------------- | - | ---- | -------- |  | - | -------- |  |  | ---------------- | ----- |  |  | - | ----- | 
|                              |  | Payments due by period (in millions) |      
|                              |  | Total                                |       |  | Less than1 year |   |      | 1-3years |  |   | 3-5years |  |  | More than5 years |      
|Credit Facility               |  | $                                    | 171.7 |  |                 | $ |     |          |  | $ |         |  |  | $                | 171.7 |  |  | $ |      | 
|2025 Notes                    |  |                                      | 71.3  |  |                 |   |     |          |  |   |         |  |  |                  |      |  |  |   | 71.3  | 
|SBA debentures                |  |                                      | 150.0 |  |                 |   |     |          |  |   |         |  |  |                  |      |  |  |   | 150.0 | 
|                              |  |                                      |       |  |                 |   |      |          |  |   |          |  |  |                  |       |  |  |   |       | 
|Total debt outstanding(1)     |  |                                      | 393.0 |  |                 |   |     |          |  |   |         |  |  |                  | 171.7 |  |  |   | 221.3 | 
|Unfunded investments(2)       |  |                                      | 26.8  |  |                 |   | 17.6 |          |  |   | 8.7      |  |  |                  |      |  |  |   | 0.5   | 
|                              |  |                                      |       |  |                 |   |      |          |  |   |          |  |  |                  |       |  |  |   |       | 
|Total contractual obligations |  | $                                    | 419.8 |  |                 | $ | 17.6 |          |  | $ | 8.7      |  |  | $                | 171.7 |  |  | $ | 221.8 | 
|                              |  |                                      |       |  |                 |   |      |          |  |   |          |  |  |                  |       |  |  |   |       | 



|(1) | The weighted average interest rate on the total debt outstanding as of March 31, 2013 was 3.87% exclusive of the fee on the undrawn commitment of 0.50% on the
Credit Facility and 3.43% of upfront fees on SBIC LPs SBA debentures.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Unfunded debt investments described in the Consolidated Statement of Assets and Liabilities represent unfunded delayed draws on investments.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------

We have entered into certain contracts under which we have material future commitments. Under our Investment Management Agreement, which
was most recently reapproved in February 2013, PennantPark Investment Advisers serves as our Investment Adviser in accordance with the terms of that Investment Management Agreement. PennantPark Investment, through the Investment Adviser, provides
similar services to our SBIC Funds under their investment management agreements with us. Our SBIC Funds investment management agreement does not affect the management or incentive fees that we pay to the Investment Adviser on a consolidated
basis. Payments under our Investment Management Agreement in each reporting period are equal to (1) a management fee equal to a percentage of the value of our average adjusted gross assets and (2) an incentive fee based on our performance.

Under our Administration Agreement, which was most recently reapproved in February 2013, PennantPark Investment
Administration furnishes us with office facilities and administrative services necessary to conduct our day-to-day operations. PennantPark Investment, through the Administrator, provides similar services to our SBIC Funds under their administration
agreements, which are intended to have no effect on the consolidated administration fee. If requested to provide managerial assistance to our portfolio companies, PennantPark Investment Advisers or PennantPark Investment Administration will be paid
an additional amount based on the services provided, which amount will not in any case exceed the amount we receive from the portfolio companies for such services. Payment under our Administration Agreement is based upon our allocable portion of the
Administrators overhead in performing its obligations under our Administration Agreement, including rent, technology systems, insurance and our allocable portion of the costs of our Chief Compliance Officer, Chief Financial Officer and their
respective staffs.

If any of our contractual obligations discussed above is terminated, our costs under new agreements that
we enter into may increase. In addition, we will likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under our Investment Management Agreement and our Administration Agreement. Any
new investment management agreement would also be subject to approval by our stockholders.

Off-Balance Sheet Arrangements

We currently engage in no off-balance sheet arrangements, including any risk management of commodity pricing or other
hedging practices.



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Dividends and Distributions

In order to qualify as a RIC and to not be subject to corporate-level tax on income, we are required, under Subchapter M of the Code, to
distribute annually dividends of at least 90% of the sum of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. Although
not required for us to maintain our RIC tax status, in order to preclude the imposition of a 4% nondeductible federal excise tax imposed on RICs, we may distribute during each calendar year an amount at least equal to the sum of (1) 98% of our
net ordinary income for the calendar year, (2) 98.2% of our realized net capital gains for the one-year period ending on October 31 of the calendar year and (3) any net ordinary income and net capital gains for preceding years that
were not distributed during such years. In addition, although we may distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for
such distributions, we may retain such net capital gains or ordinary income to provide us with additional liquidity. For the three and six months ended March 31, 2013 we received an excise tax credit of $(0.2) million and $(0.1) million,
respectively. For the three and six months ended March 31, 2012 we elected to retain a portion of our calendar year income and incurred an excise tax of approximately $0.2 million and $0.3 million, respectively.

During the three and six months ended March 31, 2013 we declared dividends of $0.28 and $0.56 per share, respectively, for total
dividends of $18.6 million and $37.2 million, respectively. For the same periods in the prior year, we declared dividends of $0.28 and $0.56 per share, respectively, for total dividends of $15.7 million and $28.5 million, respectively. We monitor
available net investment income to determine if a return of capital for taxation purposes may occur for the fiscal year. To the extent our taxable earnings fall below the total amount of our distributions for any given fiscal year, a portion of
those distributions may be deemed to be a return of capital to our common stockholders. Tax characteristics of all distributions will be reported to stockholders on Form 1099-DIV after the end of the calendar year and in our periodic reports filed
with the SEC.

We intend to continue to make quarterly dividends to our stockholders. Our quarterly dividends, if any, are
determined by our board of directors. We maintain an opt out dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend, then stockholders cash dividends will be automatically reinvested in
additional shares of our common stock, unless they specifically opt out of the dividend reinvestment plan so as to receive cash dividends.

We may not be able to achieve operating results that will allow us to make dividends and distributions at a specific level or to increase the amount of these dividends and distributions from time to time.
In addition, we may be limited in our ability to make dividends and distributions due to the asset coverage ratio for borrowings applicable to us as a BDC under the 1940 Act and/or due to provisions in future credit facilities. If we do not
distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of RIC status. We cannot assure stockholders that they will receive any dividends and distributions at a particular level.

Recent Developments

On April 29, 2013, we utilized the accordion feature of our Credit Facility and expanded the facility by $50 million, bringing the size of our Credit Facility to $430 million.



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|Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

We are subject to financial market risks, including changes in interest rates. As of March 31, 2013, our debt portfolio consisted of 67% fixed-rate investments and 33% variable-rate investments
(including 30% with a LIBOR or prime floor). The variable-rate loans are usually based on a LIBOR rate and typically have durations of three months after which they reset to current market interest rates. Variable-rate investments subject to a floor
generally reset by reference to the current market index after one to nine months only if the index exceeds the floor. In regards to variable-rate instruments with a floor, we do not benefit from increases in interest rates until such rates exceed
the floor and thereafter benefit from market rates above any such floor. In contrast, our cost of funds, to the extent it is not fixed, will fluctuate with changes in interest rates.

Assuming that the most recent statement of assets and liabilities was to remain constant, and no actions were taken to alter the existing
interest rate sensitivity, a hypothetical immediate 1% change in interest rates may affect net income by more than 1% over a one-year horizon. Although management believes that this measure is indicative of our sensitivity to interest rate changes,
it does not adjust for potential changes in the credit market, credit quality, size and composition of the assets on the Consolidated Statement of Assets and Liabilities and other business developments that could affect net increase in net assets
resulting from operations, or net investment income. Accordingly, no assurances can be given that actual results would not differ materially from the statement above.

Because we borrow money to make investments, our net investment income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds as well as our
level of leverage. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income or net assets.

We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts
subject to the requirements of the 1940 Act and applicable commodities laws. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with
respect to our portfolio of investments with fixed interest rates. During the periods covered by this Report, we did not engage in interest rate hedging activities.



|Item 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

As of the period covered by this Report, we, including our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer,
concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic filings with the SEC is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired
control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.

There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.



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##### Table of Contents

PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

Neither we nor our Investment Adviser nor our Administrator is currently subject to any material legal proceedings, nor, to our knowledge,
is any material legal proceeding threatened against us, or against our Investment Adviser or Administrator. From time to time, we, our Investment Adviser or Administrator may be a party to certain legal proceedings in the ordinary course of
business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will
have a material effect upon our financial condition or results of operations.



|Item 1A. | Risk Factors
|-------- | ------------

Global capital markets could enter a period of severe disruption and instability. These market conditions have historically and
could again have a material and adverseeffect on debt and equity capital markets in the United States, which could have a materially negative impact on our business, financial condition and results of operations.

The U.S. capital markets have experienced a period of disruption characterized by the freezing of credit, a lack of liquidity
in the debt capital markets, significant losses in the principal value of investments, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major financial institutions. During these periods of disruption, general
economic conditions deteriorated with material and adverse consequences for the broader financial and credit markets, and the availability of debt and equity capital for the market as a whole, and financial services firms in particular, was reduced
significantly. These conditions may reoccur for a prolonged period of time again or materially worsen in the future, including as a result of the U.S. government spending cuts that took effect March 1, 2013. We may in the future have difficulty
accessing debt and equity capital, and a severe disruption and instability in the global financial markets or deterioration in credit and financing conditions could have a material adverse effect on our business, financial condition and results of
operations.

In addition to the risk factor above and other information set forth in this Report, you should consider
carefully the factors discussed in Part I Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012 and in Part II Item 1A. Risk Factors in our Quarterly Report on
Form 10-Q for the quarter ended December 31, 2012, which could materially affect our business, financial condition and/or operating results. The risks described above, in our Annual Report on Form 10-K and our prior Quarterly Report on
Form 10-Q are not the only risks facing PennantPark Investment. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or
operating results.



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

None.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



|Item 4. | Mine Safety Disclosures
|------- | -----------------------

Not Applicable.



|Item 5. | Other Information
|------- | -----------------

None.



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|Item 6. | Exhibits
|------- | --------

Unless specifically indicated
otherwise, the following exhibits are incorporated by reference to exhibits previously filed with the SEC:



|       |  |                                                                                                                                                                                                  
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|3.1    |  | Articles of Incorporation (Incorporated by reference to the Registrants Pre-Effective Amendment No.1 to the
Registration Statement on Form N-2/A (File No. 333-140092), filed on March 5, 2007).
|       | 
|3.2    |  | Amended and Restated Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 to the Registrants Annual
Report on Form 10-K (File No. 814-00736), filed on November 16, 2011).        
|       | 
|4.1    |  | Form of Share Certificate (Incorporated by reference to Exhibit 99(d)(1) to the Registrants Registration Statement on
Form N-2 (File No. 333-150033), filed on April 2, 2008).                  
|       | 
|11     |  | Computation of Per Share Earnings (included in the notes to the Consolidated Financial Statements contained in this Report).                                                                     
|       | 
|31.1 * |  | Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.                                                                             
|       | 
|31.2 * |  | Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.                                                                             
|       | 
|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.                                                                                              
|       | 
|99.1   |  | Privacy Policy of the Registrant (Incorporated by reference to Exhibit 99.1 the Registrants Annual Report on Form 10-K (File No. 814-00736), filed on November 16,
2011).                       





|* | Filed herewith.
|- | ---------------



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.



|                  |  |                                    |  |                                                                                             
|----------------- |  | ---------------------------------- |  | --------------------------------------------------------------------------------------------
|                  |  | PENNANTPARK INVESTMENT CORPORATION
|                  |  |                                   
|Date: May 8, 2013 |  | By:                                |  | /s/    Arthur H. Penn                                                                       
|                  |  |                                    |  |                                                                                             
|                  |  |                                    |  | Arthur H. Penn                                                                              
|                  |  |                                    |  | Chairman of the Board of Directors and Chief Executive Officer
(Principal Executive Officer)
|                  |  |                                   
|Date: May 8, 2013 |  | By:                                |  | /s/    Aviv Efrat                                                                           
|                  |  |                                    |  |                                                                                             
|                  |  |                                    |  | Aviv Efrat                                                                                  
|                  |  |                                    |  | Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)          



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