Edgar Filing: GLADSTONE CAPITAL CORP

497

Filed Pursuant to Rule 497

Registration Statement No. 333-185191

PROSPECTUS SUPPLEMENT

(To Prospectus dated January 30, 2015)

LOGO

Up to $50,000,000

Common Stock

We are an externally managed specialty finance company that provides capital to small and medium-sized private U.S. businesses. We operate as a closed-end, non-diversified management investment company and have elected to be treated as a business development company, or “BDC”, under the Investment Company Act of 1940, as amended, or the “1940 Act”. For federal income tax purposes, we have elected to be treated as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code.

We have entered into separate equity distribution agreements, each dated February 27, 2015, each a “Sales Agreement” and collectively the “Sales Agreements,” with KeyBanc Capital Markets Inc. and Cantor Fitzgerald & Co., each a “Sales Agent” and collectively the “Sales Agents,” relating to the shares of our common stock, par value $0.001 per share, offered pursuant to this prospectus supplement and the accompanying prospectus. The Sales Agreements provide that we may offer and sell up to an aggregate offering price of $50,000,000 of our common stock from time to time through the Sales Agents. As of the date of this prospectus supplement, we have not sold any shares of our common stock under the Sales Agreements.

Sales of our common stock, if any, under this prospectus supplement and the accompanying prospectus may be made by means of ordinary brokers’ transactions on the NASDAQ Global Select Market, or “NASDAQ,” or that otherwise qualify for delivery of a prospectus to the NASDAQ in accordance with Rule 153 under the Securities Act of 1933, as amended, or the “Securities Act,” at market prices prevailing at the time of sale, at prices related to prevailing market prices or negotiated transactions or as otherwise agreed with each Sales Agent. Our common stock is traded on the NASDAQ Global Select Market under the symbol “GLAD.” On February 26, 2015 the last reported sale price of our common stock on the NASDAQ Global Select Market was $8.65 per share. The net asset value of our common stock on December 31, 2014 (the last date of this prospectus supplement on which we determined net asset value) was $9.31. You are urged to obtain current market quotations of our common stock.

The Sales Agents will receive from us a commission of up to 2.0% of the gross proceeds of any shares sold through the Sales Agreements pursuant to this prospectus supplement. The Sales Agents are not required to sell any specific number or dollar amount of common stock, but each will use its commercially reasonable efforts consistent with its sales and trading practices to sell the shares of our common stock offered by this prospectus supplement and the accompanying prospectus. See “Plan of Distribution” beginning on page S-41 of this prospectus supplement

Shares of closed-end investment companies, including business development companies, frequently trade at a discount to their net asset value. If our shares trade at a discount to our net asset value, it will likely increase the risk of loss for purchasers in this offering. In this regard, on February 12, 2015, our stockholders voted to allow us to issue common stock at a price below net asset value per share for the period ending on the one year anniversary of the date of our 2015 Annual Meeting of Stockholders. Our stockholders did not specify a maximum discount below net asset value at which we are able to issue our common stock, although the number of shares sold in each offering may not exceed 25% of our outstanding common stock immediately prior to such sale. In addition, we cannot issue shares of our common stock below net asset value unless our board of directors determines that it would be in our and our stockholders’ best interests to do so. Sales of common stock at prices below net asset value per share dilute the interests of existing stockholders, have the effect of reducing our net asset value per share and may reduce our market price per share. In addition, continuous sales of common stock below net asset value may have a negative impact on total returns and could have a negative impact on the market price of our shares of common stock. See “Risk Factors” and “Sale of Common Stock Below Net Asset Value” in this prospectus supplement and “Sales of Common Stock Below Net Asset Value” in the accompanying prospectus.

The securities in which we invest generally would be rated below investment grade if they were rated by rating agencies. Below investment grade securities, which are often referred to as “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. They may also be difficult to value and are illiquid.

Investing in shares of our common stock involves a high degree of risk. Before investing, you should read the material risks described in the “Risk Factors” section beginning on page S-8 of this prospectus supplement, and the “Risk Factors” sections on page 9 of the accompanying prospectus.

The Securities and Exchange Commission, or “SEC” has not approved or disapproved these securities or passed upon the adequacy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.


KeyBanc Capital Markets		Cantor Fitzgerald & Co.

The date of this prospectus supplement is February 27, 2015

TABLE OF CONTENTS


	PAGE
PROSPECTUS SUPPLEMENT

ABOUT THIS PROSPECTUS SUPPLEMENT		S-1

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		S-1

PROSPECTUS SUPPLEMENT SUMMARY		S-3

THE OFFERING		S-7

RISK FACTORS		S-8

USE OF PROCEEDS		S-10

FEES AND EXPENSES		S-11

PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS		S-15

COMMON SHARE PRICE DATA		S-15

CONSOLIDATED SELECTED FINANCIAL DATA		S-16

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		S-19

SALES OF COMMON STOCK BELOW NET ASSET VALUE		S-40

PLAN OF DISTRIBUTION		S-41

LEGAL MATTERS		S-42

EXPERTS		S-42

WHERE YOU CAN FIND MORE INFORMATION		S-42

INDEX TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS		S-F-1

PROSPECTUS

Prospectus Summary		1

Additional Information		7

Risk Factors		9

Special Note Regarding Forward-Looking Statements		27

Use of Proceeds		27


Price Range of Common Stock and Distributions			27

Common Share Price Data			28

Ratio of Earnings to Fixed Charges			29

Consolidated Selected Financial Data			29

Management’s Discussion and Analysis of Financial Condition and Results of Operations			32

Sales of Common Stock Below Net Asset Value			62

Senior Securities			67

Business			68

Portfolio Companies			87

Management			92

Control Persons and Principal Stockholders			108

Dividend Reinvestment Plan			111

Material U.S. Federal Income Tax Considerations			112

Regulation as a Business Development Company			114

Description of Our Securities			116

Certain Provisions of Maryland Law and of Our Articles of Incorporation and Bylaws			120

Share Repurchases			122

Plan of Distribution			122

Custodian, Transfer and Dividend Paying Agent and Registrar			123

Brokerage Allocation and Other Practices			124

Proxy Voting Policies and Procedures			124

Legal Matters			125

Experts			125

Financial Statements			F-1

ABOUT THIS PROSPECTUS SUPPLEMENT

This document is presented in two parts. The first part is comprised of this prospectus supplement, which describes the specific terms of this common stock offering and certain other matters relating to us. The second part, the accompanying prospectus, contains a description of our common stock and provides more general information, some of which does not apply to this offering, regarding securities that we may offer from time to time. To the extent that the information contained in this prospectus supplement differs or varies from the information contained in the accompanying prospectus, the information in this prospectus supplement will supersede such information.

This prospectus supplement is part of a registration statement on Form N-2 (Registration No. 333-185191) that we have filed with the SEC relating to the securities offered hereby. This prospectus supplement does not contain all of the information that we have included in the registration statement and the accompanying exhibits and schedules thereto in accordance with the rules and regulations of the SEC, and we refer you to such omitted information. It is important for you to read and consider all of the information contained in this prospectus supplement and the accompanying prospectus before making your investment decision. You should also read and consider the additional information incorporated by reference into this prospectus supplement and the accompanying prospectus. See “Where You Can Find More Information” in this prospectus supplement.

The distribution of this prospectus supplement and the accompanying prospectus and this offering of the securities may be restricted by law in certain jurisdictions. This prospectus supplement and the accompanying prospectus are not an offer to sell or a solicitation of an offer to buy shares of our common stock in any jurisdiction where such offer or any sale would be unlawful. Persons who come into possession of this prospectus supplement and the accompanying prospectus should inform themselves of and observe any such restrictions.

You should rely only on the information contained in this prospectus supplement, the accompanying prospectus or any “free writing prospectus” we may authorize to be delivered to you. We have not and KeyBanc Capital Markets Inc. and Cantor Fitzgerald & Co. have not, authorized any other person to provide you with information that is different or additional. If anyone provides you with different or additional information, you should not rely on it. We do not, and each of KeyBanc Capital Markets Inc., Cantor Fitzgerald & Co. and their respective affiliates do not, take any responsibility for, and can provide no assurances as to, the reliability of any information that others may provide to you. You should not assume that the information in this prospectus supplement orthe accompanying prospectus, is accurate as of any date other than their respective dates, regardless of the time of delivery of this prospectus supplement, the accompanying prospectus or any sales of the common stock. Our business, financial condition, liquidity, results of operations, funds from operations and prospects may have changed since those dates. To the extent required by law, we will amend or supplement the information contained in this prospectus supplement and the accompanying prospectus.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

All statements contained in this prospectus supplement or the accompanying prospectus, other than historical facts, may constitute “forward-looking statements.” These statements may relate to future events or our future performance or financial condition. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “believe,” “will,” “provided,” “anticipate,” “future,” “could,” “growth,” “plan,” “intend,” “expect,” “should,” “would,” “if,” “seek,” “possible,” “potential,” “likely” or the negative of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include:

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adverse changes in the economy and the capital markets;

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risks associated with negotiation and consummation of pending and future transactions;

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the loss of one or more of our executive officers, in particular David Gladstone, Terry Lee Brubaker or Robert L. Marcotte;

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changes in our business strategy;

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availability, terms and deployment of capital;

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changes in our industry, interest rates, exchange rates or the general economy;

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our business prospects and the prospects of our portfolio companies;

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the degree and nature of our competition;

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our ability to maintain our qualification as a RIC and as a BDC; and

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those factors described in the “Risk Factors” section of this prospectus supplement and the accompanying prospectus.

We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this prospectus supplement or the accompanying prospectus. The forward-looking statements contained in this prospectus supplement and the accompanying prospectus are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act.

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PROSPECTUS SUPPLEMENT SUMMARY

The following summary highlights some of the information in this prospectus supplement. It is not complete and may not contain all the information that you may want to consider. You should review the more detailed information contained elsewhere in this prospectus supplement and in the accompanying prospectus prior to making an investment in our common stock, and especially the information set forth under the heading “Risk Factors” in this prospectus supplement and the accompanying prospectus.

In this prospectus supplement and the accompanying prospectus, except where the context suggests otherwise, the “Company,” “we,” us” or “our” refers to Gladstone Capital Corporation; “Adviser” refers to Gladstone Management Corporation; “Administrator” refers to Gladstone Administration, LLC; and “Gladstone Companies” refers to our Adviser and its affiliated companies.

Gladstone Capital Corporation

Gladstone Capital Corporation is an externally managed specialty finance company that provides capital to small and medium-sized private U.S. businesses and commenced investment operations in September 2001. We are a Maryland corporation and operate as a closed-end, non-diversified management investment company and have elected to be treated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the “1940 Act”. For federal income tax purposes, we have elected to be treated as a regulated investment company, or “RIC”, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code.

As of December 31, 2014, our portfolio consisted of loans to 49 companies in 21 states in 19 different industries with a fair value of $326.6 million, consisting of senior term debt, senior subordinated term debt, preferred equity and common equity.

As of December 31, 2014, we had outstanding 21,000,160 shares of common stock, par value $0.001 per share, or common stock, and 2,440,000 shares of 6.75% Series 2021 Term Preferred Stock, par value $0.001 per share, or our Series 2021 Term Preferred Shares (also referred to as our Series 2021 Term Preferred Stock), respectively. Since our initial public offering of common stock in 2001, we have made 145 consecutive distributions on our common stock (including 8 quarterly distributions and 137 monthly distributions). Since our public offering of shares of Series 2021 Term Preferred Stock in May 2014, we have made 9 consecutive distributions on our Series 2021 Term Preferred Shares. Our monthly common stock distributions for the month of January 2015, paid in February, were per share were $0.07 and our monthly distributions for the Series 2021 Term Preferred Shares were $0.140625.

Our principal executive offices are located at 1521 Westbranch Drive, Suite 100, McLean, Virginia 22102, and our telephone number is (703) 287-5800. Our corporate website is located at http://www.GladstoneCapital.com.

Information that is contained in, or can be accessed from, our website is not incorporated into and is not a part of this prospectus supplement or the accompanying prospectus.

Investment Objectives and Strategy

We were established for the purpose of investing in debt and equity securities of established private businesses operating in the United States, or the “U.S.”. Our investment objectives are to: (1) achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time; and (2) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains. To achieve our objectives, our investment strategy is to invest in several categories of debt and equity securities, with each investment generally ranging from $5 million to $30 million, although investment size may vary, depending upon our total assets or available capital at the time of investment. We aim to maintain a portfolio allocation of approximately 95.0% debt investments and 5.0% equity investments, at cost.

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In general, our investments in debt securities have a term of no more than seven years, accrue interest at variable rates (based on the London Interbank Offered Rate, or “LIBOR”) and, to a lesser extent, at fixed rates. We seek debt instruments that pay interest monthly or, at a minimum, quarterly, have a success fee or deferred interest provision and are primarily interest only with all principal and any accrued but unpaid interest due at maturity. Generally, success fees accrue at a set rate and are contractually due upon a change of control in the business. Some debt securities have deferred interest whereby some portion of the interest payment is added to the principal balance so that the interest is paid, together with the principal, at maturity. This form of deferred interest is often called paid-in-kind, or “PIK”, interest. Typically, our equity investments take the form of preferred or common stock, limited liability company interests, or warrants or options to purchase the foregoing. Often, these equity investments occur in connection with our original investment, recapitalizing a business, or refinancing existing debt.

We expect that our target portfolio over time will primarily include the following four categories of investments in private U.S. companies:

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Senior Debt Securities: We seek to invest a portion of our assets in senior debt securities also known as senior loans, senior term loans, lines of credit and senior notes. Using its assets as collateral, the borrower typically uses senior debt to cover a substantial portion of the funding needs of the business. The senior debt security usually takes the form of first priority liens on the assets of the business. Senior debt securities may include our participation and investment in the syndicated loan market.

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Senior Subordinated Debt Securities: We seek to invest a portion of our assets in senior subordinated debt securities, also known as senior subordinated loans and senior subordinated notes. These senior subordinated debts also include second lien notes and may include participation and investment in syndicated second lien loans. Additionally, we may receive other yield enhancements, such as success fees, in connection with these senior subordinated debt securities.

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Junior Subordinated Debt Securities: We seek to invest a portion of our assets in junior subordinated debt securities, also known as subordinated loans, subordinated notes and mezzanine loans. These junior subordinated debts include second lien notes and unsecured loans. Additionally, we may receive other yield enhancements and warrants to buy common and preferred stock or limited liability interests in connection with these junior subordinated debt securities.

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Preferred and Common Equity/Equivalents: In some cases we will purchase equity securities which consist of preferred and common equity or limited liability company interests, or warrants or options to acquire such securities, and are in combination with our debt investment in a business. Additionally, we may receive equity investments derived from restructurings on some of our existing debt investments. In some cases, we will own a significant portion of the equity and in other cases we may have voting control of the businesses in which we invest.

Additionally, pursuant to the 1940 Act, we must maintain at least 70.0% of our total assets in qualifying assets, which generally include each of the investment types listed above. Therefore, the 1940 Act permits us to invest up to 30.0% of our assets in other non-qualifying assets. See “Regulation as a Business Development Company — Qualifying Assets” in the accompanying prospectus for a discussion of the types of qualifying assets in which we may invest under Section 55(a) of the 1940 Act.

Our Investment Adviser and Administrator

Gladstone Management Corporation, or “Adviser”, is our affiliated investment adviser and a privately-held company led by a management team that has extensive experience in our lines of business. Another of our and the Adviser’s affiliates, a privately-held company, Gladstone Administration, LLC, or the “Administrator”, employs, among others, our chief financial officer, treasurer, chief compliance officer, internal legal counsel and secretary and their respective staffs. Excluding our chief financial officer and treasurer, all of our executive officers serve as directors or executive officers, or both, of the following of our affiliates: Gladstone Commercial Corporation, or “Gladstone

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Commercial”, a publicly traded real estate investment trust; Gladstone Investment Corporation, or “Gladstone Investment”, a publicly traded BDC and RIC; Gladstone Land Corporation, or “Gladstone Land”, a publicly traded real estate company that invests in farmland and farm related property; the Adviser; and the Administrator. Our chief financial officer is also the chief accounting officer of the Adviser and the Administrator and the chief financial officer and treasurer of Gladstone Investment. David Gladstone, our chairman and chief executive officer, also serves on the board of managers of our affiliate, Gladstone Securities, LLC, or Gladstone Securities, a privately-held broker-dealer registered with the Financial Industry Regulatory Authority, or “FINRA”, and insured by the Securities Investor Protection Corporation.

The Adviser and Administrator also provide investment advisory and administrative services, respectively, to our affiliates, including, but not limited to: Gladstone Commercial; Gladstone Investment; and Gladstone Land. In the future, the Adviser and Administrator may provide investment advisory and administrative services, respectively, to other funds and companies, both public and private.

We have been externally managed by the Adviser pursuant to an investment advisory and management agreement since October 1, 2004. The investment advisory and management agreement originally included administrative services; however, it was amended and restated on October 1, 2006 and at that time we entered into an administration agreement with the Administrator to provide such services. The Adviser was organized as a corporation under the laws of the State of Delaware on July 2, 2002, and is a registered investment adviser under the Investment Advisers Act of 1940, as amended. The Administrator was organized as a limited liability company under the laws of the State of Delaware on March 18, 2005. The Adviser and Administrator are headquartered in McLean, Virginia, a suburb of Washington, D.C. The Adviser also has offices in several other states.

Recent Developments

Investments

The following significant investments occurred subsequent to December 31, 2014:

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Precision Metal Hose, Inc. – In February 2015, we invested $25.3 million in Precision Metal Hose, Inc., or Precision Hose, through a combination of senior term debt and equity. Precision Hose, headquartered in Romeoville, Illinois, is a global leader in the design, development, manufacture and support of performance critical flexible engineered solutions for the transfer of fluids and gases in extreme environments.

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Lignetics, Inc. – In February 2015, we invested $6.6 million in a follow-on investment in Lignetics, Inc., an existing portfolio company, through a combination of subordinated term debt and equity.

Annual Meeting of Stockholders

At our 2015 Annual Meeting of Stockholders, held on February 12, 2015, our stockholders approved a proposal authorizing us to sell shares of our common stock at a price below our then current net asset value, or “NAV” per share subject to certain limitations (including, but not limited to, that the number of shares issued and sold pursuant to such authority does not exceed 25.0% of our then outstanding common stock immediately prior to each such sale) for a period of one year from the date of approval, provided that our Board of Directors makes certain determinations prior to any such sale. The Stockholders also elected Caren D. Merrick, Walter H. Wilkinson Jr. and Terry L. Brubaker as directors to hold office for a three-year term expiring at the 2018 Annual Meeting of Stockholders.

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Distributions

On January 13, 2015, our Board of Directors declared the following monthly cash distributions to common and preferred stockholders:


Record Date	Payment Date	Distribution per Common Share		Distribution per Series 2021 Term Preferred Share
January 23, 2015	February 3, 2015	$	0.07	$	0.140625
February 18, 2015	February 27, 2015		0.07		0.140625
March 20, 2015	March 31, 2015		0.07		0.140625
	Total for the Quarter	$	0.21	$	0.421875

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THE OFFERING


Common stock offered		Shares with an aggregate offering price of up to $50,000,000.

Common stock outstanding prior to this offering		21,000,160 shares of common stock.

Manner of offering		“At-the-market” offerings made from time to time through KeyBanc Capital Markets Inc. and Cantor Fitzgerald & Co. See “Plan of Distribution” beginning on page S-41 of this prospectus supplement.

Use of Proceeds		To repay outstanding indebtedness under our $137.0 million revolving line of credit, or “Credit Facility”, to fund new investment opportunities, and for other general corporate purposes. See “Use of Proceeds” on page S-10 below.

NASDAQ Global Select Market symbol		“GLAD”

Distributions on common stock		Our distributions, if any, are authorized and paid at the discretion of our Board of Directors and are based upon the circumstances at the time of declaration. We currently intend to make distributions to stockholders on a monthly basis (declared quarterly) at the rate of $0.07 per share of common stock. Because our distributions to common stockholders are based on estimates of taxable income that may differ from actual results, future distributions payable to our common stockholders may also include, and past distributions have included, a return of capital. See “Risk Factors – Distributions to our stockholders have included and may in the future include a return of capital” in the accompanying prospectus.

Tax Matters		See “Material U.S. Federal Income Tax Considerations” beginning on page 112 of the accompanying prospectus for a discussion of material U.S. federal income tax considerations applicable to an investment in shares of our common stock.

Risk Factors		Investing in shares of our common stock involves substantial risks. Please carefully read and consider the information described under “Risk Factors” on page S-8 of this prospectus supplement, and on page 9 of the accompanying prospectus before making an investment decision.

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RISK FACTORS

Our management will have broad discretion in the use of the net proceeds from this offering and may allocate the net proceeds from this offering in ways that you and other stockholders may not approve.

Our management will have broad discretion in the use of the net proceeds, including for any of the purposes described in the section entitled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used in ways with which you may not agree with or may not otherwise be considered appropriate. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure of our management to use these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders.

The number of shares of our common stock available for future issuance or sale could adversely affect the per share trading price of our common stock.

We cannot predict whether future issuances or sales of our common stock or the availability of shares for resale in the open market will decrease the per share trading price of our common stock. The issuance of substantial numbers of shares of our common stock in the public market or the perception that such issuances might occur, the issuance of our common stock in connection with funding future portfolio or business acquisitions and other issuances of our common stock could have an adverse effect on the per share trading price of our common stock. In addition, future issuances of our common stock may be dilutive to existing stockholders.

We may be unable to invest a significant portion of the net proceeds of this offering on acceptable terms.

Delays in investing the net proceeds of this offering may impair our performance. We cannot assure you that we will be able to identify investments that meet our investment objectives or that any investment we make will produce a positive return. We may be unable to invest the net proceeds of this offering on acceptable terms within the time period that we anticipate or at all, which could adversely affect our financial condition and operating results.

Market interest rates may have an effect on the value of our common stock.

One of the factors that will influence the price of our common stock will be the distribution yield on our common stock (as a percentage of the price of our common stock) relative to market interest rates. An increase in market interest rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of our common stock to expect a higher distribution yield and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution. Thus, higher market interest rates could cause the market price of our common stock to decrease.

Our ability to pay distributions is limited by the requirements of Maryland law.

Our ability to pay distributions on our common stock is limited by the laws of Maryland. Under applicable Maryland law, a Maryland corporation generally may not make a distribution if, after giving effect to the distribution, the corporation would not be able to pay its debts as the debts become due in the usual course of business or the corporation’s total assets would be less than the sum of its total liabilities plus, unless the corporation’s charter permits otherwise, the amount that would be needed, if the corporation were dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution. Accordingly, we generally may not make a distribution on our common stock if, after giving effect to the distribution, we would not be able to pay our debts as they become due in the usual course of business or our total assets would be less than the sum of our total liabilities plus, unless the terms of such class or series provide otherwise, the amount that would be needed to satisfy the preferential rights upon dissolution of the holders of shares of any class or series of preferred stock then outstanding, if any, with preferences upon dissolution senior to those of our common stock.

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Our most recent NAV was calculated on December 31, 2014 and our NAV when calculated effective March 31, 2015 may be higher or lower.

Our most recently estimated NAV per common share is $9.31 as determined by us as of December 31, 2014. NAV per share as of March 31, 2015, and following quarters, may be higher or lower than $9.31 based on potential changes in valuations, issuances of securities, distributions paid and earnings for the quarter then ended. Our management has not yet determined, and recommended to our Board of Directors for approval, the fair value of our portfolio investments at any date subsequent to December 31, 2014. On a quarterly basis, our Board of Directors reviews and approves, in good faith, the fair value of our portfolio investments pursuant to our established investment valuation policy, based on recommendations provided by professionals of our Adviser and Administrator with oversight and direction from our valuation officer.

If we sell shares of our common stock at a discount to our net asset value per share, stockholders who do not participate in such sale will experience immediate dilution in an amount that may be material.

At our 2015 Annual Meeting of Stockholders held on February 12, 2015, our stockholders approved our ability, subject to the condition that the maximum number of shares salable below net asset value pursuant to this authority in any particular offering that could result in such dilution is limited to 25% of our then outstanding common stock immediately prior to each such offering, to sell shares of our common stock at any level of discount from net asset value per share for a period of 12 months. It should be noted that, theoretically, we may offer up to 25% of our then outstanding common stock each day. The issuance or sale by us of shares of our common stock at a discount to net asset value poses a risk of dilution to our stockholders. In particular, stockholders who do not purchase additional shares of common stock at or below the discounted price in proportion to their current ownership will experience an immediate decrease in net asset value per share (as well as in the aggregate net asset value of their shares of common stock if they do not participate at all). These stockholders will also experience a disproportionately greater decrease in their participation in our earnings and assets and their voting power than the increase we experience in our assets, potential earning power and voting interests from such issuance or sale. In addition, such sales may adversely affect the price at which our common stock trades. We have not sold shares of our common stock at prices below net asset value per share in the past but may do so in this offering. For additional information about possible sales below NAV per share, see “Sales of Common Stock Below Net Asset Value” in this prospectus supplement and for additional information and hypothetical examples of these risks, see “Sales of Common Stock Below Net Asset Value” in this prospectus supplement and in the accompanying prospectus.

The market price of our common stock may fluctuate significantly.

The market price and liquidity of the market for shares of our common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance, conditions and prospects. These factors include:

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significant volatility in the market price and trading volume of securities of business development companies or other companies in our sector, which are not necessarily related to the operating performance of the companies;

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changes in regulatory policies, accounting pronouncements or tax guidelines, particularly with respect to BDCs or RICs;

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loss of our qualification as a RIC or BDC;

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changes in earnings or variations in operating results;

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changes in the value of our portfolio of investments;

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changes in accounting guidelines governing valuation of our investments;

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any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;

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departure of our Adviser’s or any of its affiliates’ key personnel;

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operating performance of companies comparable to us;

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general economic trends and other external factors; and

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loss of a major funding source.

It is impossible to provide any assurance that the market price of our common stock will not decline in the future, and it may be difficult for our stockholders to resell their shares of our common stock in the amount or at prices or times that they find attractive, or at all.

USE OF PROCEEDS

Sales of our common stock, if any, under this prospectus supplement and the accompanying prospectus may be made by means of ordinary brokers’ transactions on the NASDAQ or that otherwise qualify for delivery of a prospectus to the NASDAQ in accordance with Rule 153 under the Securities Act, at market prices prevailing at the time of sale, at prices related to prevailing market prices or negotiated transactions or as otherwise agreed with each Sales Agent. There is no guarantee that there will be any sales of our common stock pursuant to this prospectus supplement and the accompanying prospectus. Actual sales, if any, of our common stock under this prospectus supplement and the accompanying prospectus may be less than as set forth in this paragraph depending on, among other things, the market price of our common stock at the time of any such sale. As a result, the actual net proceeds we receive may be more or less than the amount of net proceeds estimated in this prospectus supplement. However, if we sell shares of our common stock with the maximum aggregate offering price of $50,000,000, we anticipate that our net proceeds from this offering will be approximately $48,750,000 after deducting the estimated sales commission payable to the Sales Agents and our estimated offering expenses of 250,000.

We intend to use the net proceeds from this offering to repay a portion of the amount outstanding under our Credit Facility, to fund new investment opportunities, and for other general corporate purposes. As of February 27, 2015, we had $114.1 million outstanding under our Credit Facility. The Credit Facility has a revolving period end date of January 19, 2016. The interest rates on advances under our Credit Facility generally bear interest at a 30-day LIBOR plus 3.75% per annum, with a commitment fee of 0.5% per annum on undrawn amounts when our facility is drawn more than 50% and 1.0% per annum on undrawn amounts when our facility is drawn less than 50%. If our Credit Facility is not renewed or extended by January 19, 2016, all principal and interest will be due and payable on or before November 30, 2016. An affiliate of KeyBanc Capital Markets Inc. is administrative agent and a lender under our Credit Facility and may receive a portion of the net proceeds from this offering.

We intend to re-borrow under our Credit Facility to make investments in portfolio companies in accordance with our investment objectives depending on the availability of appropriate investment opportunities consistent with our investment objectives and market conditions.

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We intend to seek to invest the net proceeds received in this offering as promptly as practicable after receipt thereof consistent with our investment objectives. We anticipate that the remainder will be used for working capital and other general corporate purposes, including potential payments or distributions to shareholders. Pending such use, we will invest a portion of the net proceeds of this offering in short-term investments, such as cash and cash equivalents, which we expect will earn yields substantially lower than the interest income that we anticipate receiving in respect of investments in accordance with our investment objectives.

FEES AND EXPENSES

The following table is intended to assist you in understanding the costs and expenses that an investor in this offering will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by “us” or “Gladstone Capital,” or that “we” will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors in Gladstone Capital.


Stockholder Transaction Expenses:
Sales load or other commission (as a percentage of offering price)⁽¹⁾	2.00	%
Offering expenses (as a percentage of offering price)⁽²⁾	0.50	%
Dividend reinvestment plan expenses⁽³⁾	None

Total stockholder transaction expenses (as a percentage of offering price)	2.50	%
Annual expenses (as a percentage of net assets attributable to common stock)⁽⁴⁾:
Management fees⁽⁵⁾	5.75	%
Loan Servicing fees⁽⁶⁾	1.68	%
Incentive fees (20% of realized capital gains and 20% of pre-incentive fee net investment income)⁽⁷⁾	1.87	%

Interest payments on borrowed funds⁽⁸⁾	1.81	%
Dividend expense on mandatorily redeemable preferred stock⁽⁹⁾	2.26	%
Other expenses⁽¹⁰⁾	1.86	%

Total annual expenses⁽¹⁰⁾	15.23	%

⁽¹⁾

Represents the estimated commission with respect to the shares of common stock being sold in this offering. The Sales Agents will be entitled to a maximum compensation up to 2.0% of the gross proceeds of the sale of any shares of our common stock under the Sales Agreements, with the exact amount of such compensation to be mutually agreed upon by the Company and the Sales Agents from time to time. There is no guarantee that there will be any sales of our common stock pursuant to this prospectus supplement and the accompanying prospectus.

⁽²⁾	The percentage reflects estimated offering expenses of approximately $250,000 and assumes we sell $50,000,000 of common stock under the Sales Agreements.

⁽³⁾	The expenses of the reinvestment plan, if any, are included in stock record expenses, a component of “other expenses.”

⁽⁴⁾	The numbers presented in this table do not account for any credits or waivers for these fees. There can be no guarantee that the Adviser will waive or credit any portion of such fees in the future.

⁽⁵⁾

Our annual base management fee is 2.0% (0.5% quarterly) of our average gross assets, which are defined as total assets of Gladstone Capital, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings and are estimated by assuming the base management fee remains consistent with fees incurred for the three months ended December 31, 2014. Under the investment advisory and management agreement, the Adviser has provided and continues to provide managerial assistance to our portfolio companies. It may also provide services other than managerial assistance to our portfolio companies and receive fees therefor. Such services may include, but are not limited to: (i) assistance obtaining, sourcing or structuring credit facilities, long term loans or additional equity from unaffiliated third parties; (ii)

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negotiating important contractual financial relationships; (iii) consulting services regarding restructuring of the portfolio company and financial modeling as it relates to raising additional debt and equity capital from unaffiliated third parties; and (iv) primary role in interviewing, vetting and negotiating employment contracts with candidates in connection with adding and retaining key portfolio company management team members. At the end of each quarter, 100.0% of these fees are voluntarily and irrevocably credited against the base management fee that we would otherwise be required to pay to the Adviser; however, a small percentage of certain of such fees, primarily for valuation of the portfolio company, is retained by the Adviser in the form of reimbursement at cost for certain tasks completed by personnel of the Adviser. For the quarter ended December 31, 2014, $0.4 million, or 7.5% of total net annual expenses, of these fees were voluntarily and irrevocably credited against the base management fee.

For the three months ended December 31, 2014, the Adviser voluntarily and irrevocably agreed to credit the annual base management fee of 2.0% to 0.5% for those senior syndicated loan participations to the extent that proceeds resulting from borrowings were used to purchase such senior syndicated loan participations. For the three months ended December 31, 2014, $36,408, or 0.7% of total net annual expenses, of these fees were voluntarily and irrevocably credited against the base management fee. See “Management- Certain Transactions – Investment Advisory and Management Agreement” in the accompanying prospectus.

⁽⁶⁾

In addition, the Adviser services, administers and collects on the loans held by Gladstone Business Loan, LLC (“Business Loan”), in return for which the Adviser receives a 1.5% annual loan servicing fee payable monthly by Business Loan based on the monthly aggregate balance of loans held by Business Loan in accordance with our Credit Facility. The Loan Servicing Fee is estimated by assuming the Loan Servicing Fee remains consistent with the fees incurred for the three months ended December 31, 2014. For the three months ended December 31, 2014, the total gross loan servicing fees were $0.8 million. The entire loan servicing fee paid to the Adviser by Business Loan is voluntarily credited against the base management fee otherwise payable to the Adviser since Business Loan is a consolidated subsidiary of the Company, and overall, the base management fee (including any loan servicing fee) cannot exceed 2.0% of total assets (as reduced by cash and cash equivalents pledged to creditors) during any given fiscal year pursuant to the Advisory Agreement. After all voluntary and irrevocable credits described in this footnote and footnote 5 above that are applied against the base management fee, the total annual expenses after fee waivers would be 10.20% for the quarter ended December 31, 2014. See “Management—Certain Transactions—Investment Advisory and Management Agreement” in the accompanying prospectus and footnote 7 below.

⁽⁷⁾

The incentive fee consists of two parts: an income-based fee and a capital gains-based fee. The income-based fee is payable quarterly in arrears, and equals 20.0% of the excess, if any, of our pre-incentive fee net investment income that exceeds a 1.75% quarterly (7.0% annualized) hurdle rate of our net assets, subject to a “catch-up” provision measured as of the end of each calendar quarter. The “catch-up” provision requires us to pay 100.0% of our pre-incentive fee net investment income with respect to that portion of such income, if any, that exceeds the hurdle rate but is less than 125.0% of the quarterly hurdle rate (or 2.1875%) in any calendar quarter (8.75% annualized). The catch-up provision is meant to provide the Adviser with 20.0% of our pre-incentive fee net investment income as if a hurdle rate did not apply when our pre-incentive fee net investment income exceeds 125.0% of the quarterly hurdle rate in any calendar quarter (8.75% annualized). The income-based incentive fee is computed and paid on income that may include interest that is accrued but not yet received in cash. Our pre-incentive fee net investment income used to calculate this part of the income-based incentive fee is also included in the amount of our gross assets used to calculate the 2.0% base management fee (see footnote 5 above). The capital gains-based incentive fee equals 20.0% of our net realized capital gains since our inception, if any, computed net of all realized capital losses and unrealized capital depreciation since our inception, less any prior payments, and is payable at the end of each fiscal year. We have not recorded any capital gains-based incentive fee from our inception through December 31, 2014.

From time to time, the Adviser has voluntarily and irrevocably agreed to waive a portion of the incentive fees, to the extent net investment income did not cover 100.0% of the distributions to common stockholders during the period.

Examples of how the incentive fee would be calculated are as follows:

•

Assuming pre-incentive fee net investment income of 0.55%, there would be no income-based incentive fee because such income would not exceed the hurdle rate of 1.75%.

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•

Assuming pre-incentive fee net investment income of 2.00%, the income-based incentive fee would be as follows:

= 100.0% × (2.00% - 1.75%)

= 0.25%

•

Assuming pre-incentive fee net investment income of 2.30%, the income-based incentive fee would be as follows:

= (100.0% × (“catch-up”: 2.1875% - 1.75%)) + (20.0% × (2.30% - 2.1875%))

= (100.0% × 0.4375%) + (20.0% × 0.1125%)

= 0.4375% + 0.0225%

= 0.46%

•

Assuming net realized capital gains of 6% and realized capital losses and unrealized capital depreciation of 1%, the capital gains-based incentive fee would be as follows:

= 20.0% × (6.0% - 1.0%)

= 20.0% × 5.0%

= 1.0%

For a more detailed discussion of the calculation of the two-part incentive fee, see “Management — Certain Transactions — Investment Advisory and Management Agreement” in the accompanying prospectus.

⁽⁸⁾

Includes deferred financing costs. On April 26, 2013, we extended the maturity date of our credit facility to January 19, 2016, under which our borrowing capacity is $137.0 million. In addition, on January 29, 2013, we removed the LIBOR minimum of 1.50% on advances under our credit facility. We have drawn down on our Credit Facility and we expect to borrow additional funds in the future up to an amount so that our asset coverage, as defined in the 1940 Act, is at least 200.0% after each issuance of our senior securities. Assuming that we borrowed $137.0 million at an interest rate of 4.00% plus an additional fee related to borrowings of 0.63%, for an aggregate rate of 4.63%, interest payments and amortization of deferred financing costs on borrowed funds would have been 3.21% of our average net assets for the quarter ended December 31, 2014.

⁽⁹⁾

In May 2014, we completed a public offering of 6.75% Series 2021 Term Preferred Stock, par value $0.001 per share, at a public offering price of $25.00 per share. In the offering, we issued approximately 2.4 million shares of 6.75% Series 2021 Term Preferred Stock. Dividend expense includes the amounts paid to preferred stockholders during the three months ended September 30, 2014. Also included in this line item is the amortization of the offering costs related to our term preferred stock offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Equity – Series 2021 Term Preferred Stock” in the accompanying prospectus for additional information.

⁽¹⁰⁾

Includes our overhead expenses, including payments under the administration agreement based on our projected allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the administration agreement. See “Management — Certain Transactions — Administration Agreement” in the accompanying prospectus.

Examples

The following examples demonstrate the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our securities. In calculating the following expense amounts, we have assumed that our annual operating expenses would remain at the levels set forth in the table above.


	1 Year		3 Years		5 Years		10 Years
You would pay the following expenses on a $1,000 investment:
assuming a 5% annual return consisting entirely of ordinary income⁽¹⁾⁽²⁾	$	183	$	479	$	702	$	1,046
assuming a 5% annual return consisting entirely of capital gains⁽²⁾⁽³⁾	$	191	$	497	$	722	$	1,059

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⁽¹⁾

While the example assumes, as required by the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. Additionally, we have assumed that the entire amount of such 5.0% annual return would constitute ordinary income as we have not historically realized positive capital gains (computed net of all realized capital losses) on our investments. Because the assumed 5.0% annual return is significantly below the hurdle rate of 7.0% (annualized) that we must achieve under the investment advisory and management agreement to trigger the payment of an income-based incentive fee, we have assumed, for purposes of this example, that no income-based incentive fee would be payable if we realized a 5.0% annual return on our investments.

⁽²⁾

While the example assumes reinvestment of all distributions and distributions at NAV, participants in our dividend reinvestment plan will receive a number of shares of our common stock, determined by dividing the total dollar amount of the distribution payable to a participant by the average cost of shares of our common stock purchased in the open market in the period beginning on or before the payment date of the distribution and ending when the plan agent has expended for such purchases all of the cash that would have been otherwise payable to participants. See “Dividend Reinvestment Plan” in the accompanying prospectus for additional information regarding our dividend reinvestment plan.

⁽³⁾	While the example assumes, as required by the SEC, a 5% annual return, our performance will vary and may result in a return greater or less than 5%. For purposes of this example, we have assumed that the entire amount of such 5% annual return would constitute capital gains.

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PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

We currently intend to distribute in the form of cash distributions, a minimum of 90% of our annual ordinary income and short-term capital gains, if any, to our stockholders in the form of monthly distributions. We intend to retain long-term capital gains and treat them as deemed distributions for tax purposes. We report the estimated tax characterization of each distribution when declared while the actual tax characterization of distributions are reported annually to each stockholder on IRS Form 1099-DIV. There is no assurance that we will achieve investment results or maintain a tax status that will permit any specified level of cash distributions or year-to-year increases in cash distributions. At the option of a holder of record of common stock, all cash distributions paid with respect to our common stock can be reinvested automatically under our dividend reinvestment plan in additional whole and fractional shares of our common stock. A stockholder whose shares are held in the name of a broker or other nominee should contact the broker or nominee regarding participation in a dividend reinvestment plan. See “Risk Factors — Risks Related to Our Regulation and Structure — We will be subject to corporate-level tax if we are unable to satisfy Code requirements for RIC qualification;” “Dividend Reinvestment Plan;” and “Material U.S. Federal Income Tax Considerations” in the accompanying prospectus.

Our common stock is quoted on the NASDAQ under the symbol “GLAD.” Our common stock has historically traded at prices both above and below its NAV. There can be no assurance that any premium to NAV will be attained or maintained. As of February 26, 2015 there were 41 stockholders of record, meaning individuals or entities that we carry in our records as the registered holder (although not necessarily the beneficial owner) of our common stock.

The following table sets forth the range of high and low intraday sale prices of our common stock as reported on the NASDAQ and the distributions declared by us for the last two completed fiscal years and the current fiscal year through February 26, 2015.

COMMON SHARE PRICE DATA


	NAV(1)		High		Low		Distribution Declared		(Discount) or Premium of High Sales Price to NAV(2)			(Discount) or Premium of Low Sales Price to NAV(2)
Fiscal Year ending September 30, 2013(3)
First Quarter	$	9.17	$	9.02	$	7.25	$	0.21		(1.6	)%		(20.9	)%
Second Quarter		8.91		9.46		8.24		0.21		6.2			(7.5	)
Third Quarter		8.60		9.45		7.76		0.21		9.9			(9.8	)
Fourth Quarter		9.81		8.92		8.05		0.21		(9.1	)		(17.9	)
Fiscal Year ending September 30, 2014(4)
First Quarter		10.10		9.92		8.60		0.21		(1.8	)		(14.9	)
Second Quarter		9.79		10.37		9.27		0.21		5.9			(5.3	)
Third Quarter		8.62		10.21		9.41		0.21		18.4			9.2
Fourth Quarter		9.51		10.27		8.06		0.21		8.0			(15.2	)
Fiscal Year ending September 30, 2015(5)
First Quarter		9.31		9.41		8.02		0.21		1.1			(13.9	)
Second Quarter (through February 26, 2015)		*		8.75		7.25		0.21		*			*

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(1)	NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low intraday sale prices. The NAV per shares shown are based on outstanding shares at the end of each period.

(2)

The (discounts) premiums to NAV per share set forth in these columns represent the high or low, as applicable, intraday sale price per share for the relevant quarter minus the NAV per share as of the end of such quarter, and therefore may not reflect the (discount) premium to NAV per share on the date of the high and low intraday sale prices.

(3)

For the fiscal year ended September 30, 2013, common stockholder distributions declared and paid exceeded our accumulated earnings and profits (after taking into account term preferred stock distributions), which resulted in a partial return of capital of approximately $1.3 million, or approximately $0.06 per share. The return of capital for the year ended September 30, 2013, primarily resulted from GAAP realized losses being recognized as ordinary losses for federal income tax purposes.

(4)

For the fiscal year ended September 30, 2014, common stockholder distributions declared and paid exceeded our accumulated earnings and profits (after taking into account term preferred stock distributions), which resulted in a partial return of capital of approximately $15.2 million, or approximately $0.72 per share. The return of capital for the year ended September 30, 2014, primarily resulted from GAAP realized losses being recognized as ordinary losses for federal income tax purposes.

(5)	The characterization of the common stockholder distributions declared and paid for the fiscal year ending September 30, 2015 will be determined at fiscal year-end based upon taxable income for the full year and distributions paid during the full year.

*	Not yet available, as the NAV per share as of the end of this quarter has not yet been determined.

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CONSOLIDATED SELECTED FINANCIAL DATA

The following consolidated selected financial data for the fiscal years ended September 30, 2014, 2013, 2012, 2011 and 2010 are derived from our audited consolidated financial statements. The consolidated selected financial data for the three months ended December 31, 2014 and 2013 are derived from our unaudited consolidated financial statements included in this prospectus supplement. The other data included in the second table below is unaudited. The data should be read in conjunction with our accompanying consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus supplement.

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SELECTED FINANCIAL AND OTHER DATA

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT DATA)


	Three Months Ended December 31,						Year Ended September 30,
	2014			2013			2014			2013			2012			2011			2010
Statement of Operations Data:

Total Investment Income	$	8,726		$	8,392		$	36,585		$	36,154		$	40,322		$	35,211		$	35,539

Total Expenses, Net of Credits from Adviser		5,035			3,982			18,217			17,768			21,278			16,799			17,780


Net Investment Income		3,691			4,410			18,368			18,386			19,044			18,412			17,759


Net Realized and Unrealized (Loss) Gain on Investments, Borrowings and Other		(3,360	)		6,096			(7,135	)		13,833			(27,052	)		(39,511	)		(1,365	)

Net Increase (Decrease) in Net Assets Resulting from Operations	$	331		$	10,506		$	11,233		$	32,219		$	(8,008	)	$	(21,099	)	$	16,394

Per Share Data:

Net Investment Income per Common Share – Basic and Diluted^(A)	$	0.18		$	0.21		$	0.87		$	0.88		$	0.91		$	0.88		$	0.84

Net Increase (Decrease) in Net Assets Resulting from Operations per Common Share – Basic and Diluted^(A)		0.16			0.29			0.53			1.53			(0.38	)		(1.00	)		0.78

Cash Distributions Declared Per Common Share		0.21			0.21			0.84			0.84			0.84			0.84			0.84

Statement of Assets and Liabilities Data:

Total Assets	$	343,981		$	301,462		$	301,429		$	295,091		$	293,402		$	317,624		$	270,518

Net Assets		195,581			212,088			199,660			205,992			188,564			213,721			249,246

Net Asset Value Per Common Share		9.31			10.10			9.51			9.81			8.98			10.16			11.85

Common Shares Outstanding		21,000,160			21,000,160			21,000,160			21,000,160			21,000,160			21,039,242			21,039,242

Weighted Common Shares Outstanding – Basic and Diluted		21,000,160			21,000,160			21,000,160			21,000,160			21,011,123			21,039,242			21,060,351

Senior Securities Data:

Borrowings under Credit Facility, at cost^(B)	$	83,500		$	47,700		$	36,700		$	46,900		$	58,800		$	99,400		$	16,800

Mandatorily redeemable preferred stock^(B)		61,000			38,497			61,000			38,497			38,497			—			—

Asset coverage ratio ^(C)		236	%		346	%		305	%		341	%		296	%		315	%		1,419	%

Asset coverage per unit ^(D)	$	2,356		$	3,459		$	3,054		$	3,410		$	2,963		$	3,150		$	14,187

^(A)	Per share data is based on the weighted average common stock outstanding for both basic and diluted.

^(B)	See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information regarding our level of indebtedness.

^(C)	As a BDC, we are generally required to maintain an asset coverage ratio (as defined in Section 18(h) of the 1940 Act) of at least 200.0% on our Senior Securities. Our mandatorily redeemable preferred stock is a Senior Security that is stock.

^(D)	Asset coverage per unit is the asset coverage ratio expressed in terms of dollar amounts per one thousand dollars of indebtedness.

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	Three Months Ended December 31,						Year Ended September 30,
	2014			2013			2014			2013			2012			2011			2010
Other Unaudited Data:

Number of Portfolio Companies at Year End		49			52			45			47			50			59			39

Average Size of Portfolio Company Investment at Cost	$	7,875		$	6,571		$	7,762		$	7,069		$	7,300		$	6,488		$	7,654

Principal Amount of New Investments		44,099			44,111			81,731			80,418			45,050			110,903			23,245

Proceeds from Loan Repayments and Investments Sold		12,210			24,667			72,560			117,048			73,857			50,002			85,634

Weighted Average Yield on Investments^(E)		10.8	%		11.6	%		11.5	%		11.6	%		11.3	%		11.2	%		11.0	%

Total Return^(F)		(3.45	)		12.10			9.62			9.90			41.39			(33.77	)		37.46

^(E)	Weighted average yield on investments equals interest income on investments divided by the weighted average interest-bearing principal balance throughout the fiscal year.

^(F)

Total return equals the change in the ending market value of our common stock from the beginning of the fiscal year, taking into account dividends reinvested in accordance with the terms of our dividend reinvestment plan. Total return does not take into account distributions that may be characterized as a return of capital. For further information on the estimated character of our distributions to common stockholders, please refer to Note 9—Distributions to Common Stockholders elsewhere in this Annual Report on Form 10-K.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(dollar amounts in thousands, except per share amounts and as otherwise indicated)

All statements contained herein, other than historical facts, may constitute “forward-looking statements.” These statements may relate to, among other things, our future operating results, our business prospects and the prospects of our portfolio companies, actual and potential conflicts of interest with Gladstone Management Corporation and its affiliates, the use of borrowed money to finance our investments, the adequacy of our financing sources and working capital, and our ability to co-invest, among other factors. In some cases, you can identify forward-looking statements by terminology such as “estimate,” “may,” “might,” “believe,” “will,” “provided,” “anticipate,” “future,” “could,” “growth,” “plan,” “intend,” “expect,” “should,” “would,” “if,” “seek,” “possible,” “potential,” “likely” or the negative of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to: (1) the recurrence of adverse events in the economy and the capital markets; (2) risks associated with negotiation and consummation of pending and future transactions; (3) the loss of one or more of our executive officers, in particular David Gladstone, Terry Lee Brubaker or Robert L. Marcotte; (4) changes in our investment objectives and strategy; (5) availability, terms (including the possibility of interest rate volatility) and deployment of capital; (6) changes in our industry, interest rates, exchange rates or the general economy; (7) our business prospects and the prospects of our portfolio companies; (8) the degree and nature of our competition; (9) our ability to maintain our qualification as a RIC and as business development company; and (10) those factors described in this prospectus supplement and the accompanying prospectus. We caution readers not to place undue reliance on any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements and future results could differ materially from historical performance. We have based forward-looking statements on information available to us on the date of this report. Except as required by the federal securities laws, we undertake no obligation to publicly update or revise or any forward-looking statements, whether as a result of new information, future events or otherwise.

The following analysis of our financial condition and results of operations should be read in conjunction with our accompanying Condensed Consolidated Financial Statements and the notes thereto contained elsewhere in this prospectus supplement and the accompanying prospectus. Historical financial condition and results of operations and percentage relationships among any amounts in the financial statements are not necessarily indicative of financial condition or results of operations for any future periods.

OVERVIEW

General

We were incorporated under the Maryland General Corporation Law on May 30, 2001. We were established for the purpose of investing in debt and equity securities of established private businesses in the United States (“U.S.”). We operate as an externally managed, closed-end, non-diversified management investment company, and have elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for federal income tax purposes we have elected to be treated as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”). As a BDC and RIC, we are subject to certain constraints, including limitations imposed by the 1940 Act and the Code.

Our investment objectives are to: (1) achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time; and (2) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains. To achieve our objectives, our investment strategy is to invest in several categories of debt and equity securities, with each investment generally ranging from $5 million to $25 million, although investment size may vary, depending upon our total assets or available capital at the time of investment. We expect that our investment portfolio over time will consist of approximately 95.0% debt investments and 5.0% equity investments, at cost. As of December 31, 2014, our investment portfolio was made up of approximately 92.4% debt investments and 7.6% equity investments, at cost.

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We focus on investing in small and medium-sized middle market private businesses in the U.S. that meet certain criteria, including, but not limited to, the following: the sustainability of the business’ free cash flow and its ability to grow it over time, adequate assets for loan collateral, experienced management teams with a significant ownership interest in the borrower, reasonable capitalization of the borrower, including an ample equity contribution or cushion based on prevailing enterprise valuation multiples and, to a lesser extent, the potential to realize appreciation and gain liquidity in our equity position, if any. We lend to borrowers that need funds for growth capital or to finance acquisitions or recapitalize or refinance their existing debt facilities. We typically avoid investing in high-risk, early-stage enterprises. Our targeted portfolio companies are generally considered too small for the larger capital marketplace. We invest by ourselves or jointly with other funds and/or management of the portfolio company, depending on the opportunity. If we are participating in an investment with one or more co-investors, our investment is likely to be smaller than if we were investing alone.

In July 2012, the SEC granted us an exemptive order that expanded our ability, under certain circumstances, to co-invest with Gladstone Investment Corporation (“Gladstone Investment”) and any future BDC or closed-end management investment company that is advised (or sub-advised if it controls the fund) by Gladstone Management Corporation, our external investment adviser (the “Adviser”) or any combination of the foregoing subject to the conditions in the SEC’s order. We believe this ability to co-invest has enhanced and will continue to enhance our ability to further our investment objectives and strategies. Pursuant to this exemptive order, we co-invested with Gladstone Investment in one new proprietary investment during the three months ended December 31, 2014, as discussed under “—Investment Highlights.”

We are externally managed by the Adviser, an investment adviser registered with the SEC and an affiliate of ours, pursuant to an investment advisory and management agreement (the “Advisory Agreement”). The Adviser manages our investment activities. We have also entered into an administration agreement (the “Administration Agreement”) with Gladstone Administration, LLC (the “Administrator”), an affiliate of ours and the Adviser, whereby we pay separately for administrative services.

Our shares of common stock and 6.75% Series 2021 Term Preferred Stock (our “Series 2021 Term Preferred Stock”) are traded on the NASDAQ Global Select Market (“NASDAQ”) under the trading symbols “GLAD” and “GLADO,” respectively.

Business Environment

The strength of the global economy and the U.S. economy in particular, continues to be uncertain, although economic conditions generally appear to be improving, albeit slowly. The impacts from the 2008 recession in general, and the resulting disruptions in the capital markets in particular, have had lingering effects on our liquidity options and have increased our cost of debt and equity capital. Many of our portfolio companies, as well as those small and medium-sized companies that we evaluate for prospective investment, may remain vulnerable to the impacts of the uncertain economy. Concerns linger over the ability of the U.S. Congress to pass additional debt ceiling legislation prior to March 2015, given the budget impasse that resulted in the partial shutdown of the U.S. government in October 2013. Uncertain political, regulatory and economic conditions, including the current volatility of oil and gas demand and prices, could disproportionately impact some of the industries in which we have invested, causing us to be more vulnerable to losses in our portfolio, resulting in an increase in the number of our non-performing assets and a decrease in the fair market value of our portfolio.

We believe several factors impacting commercial banks, including industry consolidation, capital constraints and regulatory changes, have benefited our fund and other lenders like us. There has been, however, increased competitive pressure in the middle market lending marketplace from other BDCs and investment companies, as well as small banks and some private investors, for senior and senior subordinated debt. We have seen an increase in refinancing and recapitalization transactions and there has been increased competitive pressures resulting in reduced investment yields and/or higher leverage and increasingly riskier investments in the middle market segment we focus on. In addition, there has been an increase in new entrants (financial services companies, BDCs and other investment funds) seeking to capitalize on middle market lending opportunities. Many of our competitors have

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lower cost of capital than we do and also may be willing to take on riskier investments than we are. We do not know if general economic conditions will continue to improve or if adverse conditions will recur and we do not know the full extent to which the inability of the U.S. government to address its fiscal condition in the near and long term will affect us. If market instability persists or intensifies, we may experience difficulty in successfully raising and investing capital. In summary, we believe we are in a prolonged economic recovery; however, we do not know the full extent to which the impact of the current economic conditions will affect us or our portfolio companies.

Portfolio Activity

While conditions remain somewhat challenging in the marketplace, we have seen many investment opportunities that are consistent with our investment objectives and strategies and whereby we can achieve attractive risk-adjusted returns. During the three months ended December 31, 2014, we invested an aggregate of $44.1 million in six new proprietary and syndicate investments, resulting in a net expansion in our overall portfolio of four portfolio companies, due to one portfolio company paying off early resulting in a realized gain of $1.6 million and the sale of one of our non-accrual portfolio companies for net proceeds of $6.1 million. We will continue to focus on exiting challenged and non-strategic investments in our portfolio over the next several quarters in an orderly manner.

Capital Raising

Despite the challenges in the economy for the past several years, we met our capital needs through enhancements to our $137.0 million revolving line of credit (our “Credit Facility”) and by accessing the capital markets in the form of public offerings of preferred stock. For example, in May 2014, we issued approximately 2.4 million shares of our Series 2021 Term Preferred Stock (for gross proceeds of $61.0 million), which we used to redeem our previously issued 7.125% Series 2016 Term Preferred Stock (“Series 2016 Term Preferred Stock”) issued in November 2011 and also to primarily repay outstanding borrowings on our Credit Facility. Refer to “— Liquidity and Capital Resources — Equity — Term Preferred Stock” for further discussion of our term preferred stock. In addition, in January 2013, we removed the LIBOR minimum of 1.5% on advances on our Credit Facility and in April 2013, we extended the revolving period end date for an additional year to January 19, 2016. Refer to “— Liquidity and Capital Resources — Revolving Credit Facility” for further discussion of our revolving line of credit.

Although we were able to access the capital markets in 2014, we believe uncertain market conditions continue to affect the trading price of our capital stock and thus may challenge our ability to finance new investments through the issuance of equity. The current volatility in the credit market and the uncertainty surrounding the U.S. economy have led to significant stock market fluctuations, particularly with respect to the stock of financial services companies like ours. During times of increased price volatility, our common stock may be more likely to trade at a price below our net asset value (“NAV”) per share, which is not uncommon for BDCs like us.

On February 26, 2015, the closing market price of our common stock was $8.65, a 7.1% discount to our December 31, 2014, NAV per share of $9.31. When our stock trades below NAV per common share, as it has at times traded over the last several years, our ability to issue equity is constrained by provisions of the 1940 Act, which generally prohibits the issuance and sale of our common stock below NAV per common share without stockholder approval, other than through sales to our then-existing stockholders pursuant to a rights offering. At our annual meeting of stockholders held on February 12, 2015, our stockholders approved a proposal which authorizes us to sell shares of our common stock at a price below our then current NAV per common share subject to certain limitations (including, but not limited to, that the number of shares issued and sold pursuant to such authority does not exceed 25.0% of our then outstanding common stock immediately prior to each such sale) for a period of one year from the date of approval, provided that our board of directors (our “Board of Directors”) makes certain determinations prior to any such sale. Although we have not utilized this authorization to date, we may do so in the future.

The current uncertain and volatile economic conditions may also continue to cause the value of the collateral securing some of our loans to fluctuate, as well as the value of our equity investments, which has impacted and may continue to impact our ability to borrow under our Credit Facility. Additionally, our Credit Facility contains covenants regarding the maintenance of certain minimum loan concentrations and net worth, which are affected by the decrease in the aggregate value of our portfolio. Failure to meet these requirements would result in a default which, if we are unable to obtain a waiver from our lenders, would cause an acceleration of our repayment obligations under our Credit Facility. As of December 31, 2014, we were in compliance with all of our Credit Facility’s covenants.

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Regulatory Compliance

Challenges in the current market are intensified for us by certain regulatory limitations under the Code and the 1940 Act that may further constrain our ability to access the capital markets. To qualify to be taxed as a RIC, we must distribute at least 90.0% of our “investment company taxable income,” which is generally our net ordinary income plus the excess of our net short-term capital gains over net long-term capital losses. Because we are required to satisfy the RIC annual stockholder distribution requirement, and because the illiquidity of many of our investments makes it difficult for us to finance new investments through the sale of current investments, our ability to make new investments is highly dependent upon external financing. Our external financing sources may include the issuance of equity securities, debt securities or other leverage, such as borrowings under our Credit Facility. Our ability to seek external debt financing, to the extent that it is available under current market conditions, is further subject to the asset coverage limitations of the 1940 Act that require us to have an asset coverage ratio (as defined in Section 18(h) of the 1940 Act) of at least 200.0% on our senior securities representing indebtedness and our senior securities that are stock, (collectively, our “Senior Securities”).

We expect that, given these regulatory and contractual constraints in combination with current market conditions, debt and equity capital may not be sufficient in the near term. However, we believe that our amendments to our Credit Facility to decrease the interest rate on advances and extend its maturity until 2016 (refer to “— Liquidity and Capital Resources — Revolving Credit Facility” for further discussion of our revolving line of credit) and our ability to co-invest with Gladstone Investment and certain other affiliated investment funds, has increased our ability to make investments in businesses that we believe will be generally resistant to a recession and, as a result, will be likely to achieve attractive long-term returns for our stockholders.

During the quarter ended December 31, 2014, we continued to focus on building our pipeline with deals that we believe are generally recession resistant and are in businesses with steady cash flows, while providing appropriate returns, given the risks. We will also continue to work through some of the older investments in our portfolio to enhance overall returns to our stockholders.

Investment Highlights

During the three months ended December 31, 2014, we invested an aggregate of $44.1 million in six new portfolio companies and an aggregate of $17.4 million in existing portfolio companies. In addition, during the three months ended December 31, 2014, we sold our investment in one portfolio company for net proceeds of $6.1 million and we received scheduled and unscheduled principal repayments of approximately $4.5 million from existing portfolio companies. Since our initial public offering in August 2001, we have made 385 different loans to, or investments in, 191 companies for a total of approximately $1.4 billion, before giving effect to principal repayments on investments and divestitures.

Investment Activity

During the three months ended December 31, 2014, we executed the following transactions with certain of our portfolio companies:

Issuances and Originations

During the three months ended December 31, 2014, we extended an aggregate of $31.6 million of investments in three new proprietary portfolio companies and an aggregate of $12.5 million in three new syndicated portfolio companies (PSC Industrial Holdings Corp, SourceHOV, LLC and Vertellus Specialties, Inc.). Below are significant issuances and originations during the three months ended December 31, 2014:

•

In December 2014, we invested $8.4 million in B+T Holdings Inc. (“B+T”), through a combination of senior term debt and equity. B+T, headquartered in Tulsa, Oklahoma, is a full-service provider of structural

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engineering, construction, and technical services to the wireless tower industry for tower upgrades and modifications. This was a co-investment with Gladstone Investment, which invested an additional $19.6 million under the same terms as us.

•

In December 2014, we invested $15.0 million in Circuitronics, Inc. (“Circuitronics”) through a combination of senior term debt and equity. Circuitronics, headquartered in Dallas, Texas, is a premier electronic manufacturing services company focused on the design and production of specialized printed circuit board assemblies and related services.

•

In December 2014, we invested $11.0 million in Vision Government Solutions, Inc. (“Vision”) through senior term debt. Vision, headquartered in Northboro, Massachusetts, is a leading provider of land parcel management software technology and appraisal services to local government organizations, enabling efficient assessment, billing, collections, mapping, and permitting.

Repayments and Sales:

During the three months ended December 31, 2014, ten borrowers made principal repayments totaling $4.5 million in the aggregate, consisting of $4.4 million of unscheduled principal and revolver repayments, as well as $0.1 million in contractual principal amortization. Below are the significant repayments and exits during the three months ended December 31, 2014.

•

In October 2014, North American Aircraft Services, LLC (“NAAS”) paid off early resulting in a $1.6 million realized gain and success fees of $0.6 million. The resulting IRR at payoff was 18.0%.

•

In December 2014, we sold our investment in Midwest Metal Distribution, Inc. (“Midwest Metal”) for net proceeds of $6.1 million, which resulted in a realized loss of $14.5 million recorded in the three months ended December 31, 2014. Midwest Metal had been on non-accrual status at the time of the sale.

Recent Developments

Executive Officers

On January 9, 2015, David Watson resigned as the Company’s treasurer. On January 13, 2015, our Board of Directors accepted Mr. Watson’s resignation and appointed Melissa Morrison, the Company’s then-current assistant treasurer as the Company’s treasurer.

Registration Statement

On December 1, 2014, we filed Post-effective Amendment No. 4 to our universal shelf registration statement (our “Registration Statement”) on Form N-2 (File No. 333-185191) and subsequently filed Post-effective Amendment No. 5 on January 29, 2015, which the SEC was declared effective as of January 30, 2015. Our Registration Statement registers an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities and warrants to purchase common stock or preferred stock. We currently have the ability to issue up to $239.0 million in securities under our Registration Statement through one or more transactions, including any sales of common stock pursuant to this prospectus supplement and the accompanying prospectus.

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RESULTS OF OPERATIONS

Comparison of the Three Months Ended December 31, 2014, to the Three Months Ended December 31, 2013


	Three Months Ended December 31,
	2014			2013			$ Change			% Change
INVESTMENT INCOME
Interest income	$	7,648		$	8,191		$	(543	)		(6.6	)%
Other income		1,078			201			877			436.3
Total investment income		8,726			8,392			334			4.0

EXPENSES
Base management fee		1,597			1,456			141			9.7
Loan servicing fee		832			884			(52	)		(5.9	)
Incentive fee		922			974			(52	)		(5.3	)
Administration fee		281			203			78			38.4
Interest expense on borrowings		678			615			63			10.2
Distribution expense on mandatorily redeemable preferred stock		1,029			686			343			50.0
Amortization of deferred financing fees		302			315			(13	)		(4.1	)
Other expenses		638			611			27			4.4
Expenses before credits from Adviser		6,279			5,744			535			9.3
Credits to base management fee – loan servicing fee		(832	)		(884	)		52			5.9
Credits to fees from Adviser - other		(412	)		(878	)		466			53.1
Total expenses net of credits		5,035			3,982			1,053			26.4

NET INVESTMENT INCOME		3,691			4,410			(719	)		(16.3	)

NET REALIZED AND UNREALIZED (LOSS) GAIN
Net realized loss on investments and escrows		(12,858	)		(10,774	)		2,084			19.3
Net unrealized appreciation of investments		8,763			16,877			(8,114	)		(48.1	)
Net unrealized depreciation (appreciation) of other		735			(7	)		742			NM
Net (loss) gain from investments and other		(3,360	)		6,096			(9,456	)		NM
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	331		$	10,506		$	(10,175	)		(96.8	)%

NM = Not Meaningful

Investment Income

Total interest income decreased by 6.6% for the three months ended December 31, 2014, as compared to the prior year period. This decrease was due primarily to the increase in early payoffs at par during the year, resulting in a lower weighted average principal balance of interest-bearing investments compared to the prior period. This was partially offset by six new investments that we funded during the three months ended December 31, 2014. In addition, we recorded an allowance on certain interest receivables totaling $0.5 million, which reduces interest income, during the three months ended December 31, 2014, which resulted in a lower weighted average yield on the portfolio. The level of interest income from investments is directly related to the principal balance of the interest-bearing investment portfolio outstanding during the period multiplied by the weighted average yield. The weighted average principal balance of our interest-bearing investment portfolio during the three months ended December 31, 2014, was $283.0 million, compared to $299.6 million for the prior year period, a decrease of 5.5%. The annualized weighted average yield on our interest-bearing investment portfolio is based on the current stated interest rate on interest-bearing investments and decreased to 10.8% for the three months ended December 31, 2014 compared to 11.6% for the three months ended December 31, 2013. The weighted average yield on our interest-bearing investments for the three months ended December 31, 2014 includes any allowances on interest receivables made during that period.

As of December 31, 2014, two portfolio companies were on non-accrual status, with an aggregate debt cost basis of approximately $33.6 million, or 9.4%, of the cost basis of all debt investments in our portfolio. As of December 31, 2013, one portfolio company was on non-accrual status, with an aggregate debt cost basis of approximately $29.2 million, or 9.2%, of the cost basis of all debt investments in our portfolio. During the three months ended December 31, 2014, one non-accrual portfolio company was sold. See “– Overview – Investment Highlights” for more information. There were no new non-accruals added and no non-accruals placed on accrual status during the three months ended December 31, 2014 and 2013.

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For the three months ended December 31, 2014, other income consisted primarily of $0.6 million in success fees received from the early payoff of NAAS, $0.3 million in success fees prepaid by Francis Drilling Fluids, Ltd. (“FDF”), $0.1 million in dividend income and $0.1 million in other fees, both received from FDF. Other income for the three months ended December 31, 2013, consisted of $0.2 million in success fees received related to the sale of substantially all of the assets of Lindmark Acquisition, LLC (“Lindmark”) and the ensuing pay down of our debt investments at par in September 2013.

The following tables list the investment income for our five largest portfolio company investments at fair value during the respective periods:


	As of December 31, 2014					Three Months Ended December 31, 2014
Company	Fair Value		% of Portfolio			Investment Income		% of Total Income
RBC Acquisition Corp.	$	28,283		8.7	%	$	433		5.0	%
Francis Drilling Fluids, Ltd.		21,523		6.6			1,075		12.3
WadeCo Specialties, Inc.^(A)		21,097		6.5			324		3.7
Funko, LLC		19,011		5.8			249		2.9
J.America, Inc.^(B)		16,103		4.9			478		5.5
Subtotal—five largest investments		106,017		32.5			2,559		29.4
Other portfolio companies		220,607		67.5			6,165		70.6
Other non-portfolio company revenue		—		—			2		—
Total Investment Portfolio	$	326,624		100.0	%	$	8,726		100.0	%


	As of December 31, 2013					Three Months Ended December 31, 2013
Company	Fair Value		% of Portfolio			Investment Income		% of Total Income
RBC Acquisition Corp.	$	34,219		12.1	%	$	817		9.7	%
Midwest Metal Distribution, Inc.^(C)		18,098		6.4			561		6.7
J.America, Inc.^(B)		17,000		6.0			26		0.3
Francis Drilling Fluids, Ltd.		14,773		5.2			462		5.5
AG Transportation Holdings, LLC		13,065		4.6			461		5.5
Subtotal—five largest investments		97,155		34.3			2,327		27.7
Other portfolio companies		186,051		65.7			6,061		72.2
Other non-portfolio company revenue		—		—			4		0.1
Total Investment Portfolio	$	283,206		100.0	%	$	8,392		100.0	%

^(A)	Investment added in March 2014.

^(B)	Investment added in December 2013.

^(C)	Investment exited in December 2014.

Expenses

Expenses, excluding any voluntary, irrevocable and non-contractual credits from the Adviser to the base management, loan servicing, and incentive fees, increased for the three months ended December 31, 2014, by 26.4%, as compared to the prior year period. This increase was primarily due to the increases in the net incentive fee and distribution expense on our mandatorily redeemable preferred stock during the three months ended December 31, 2014.

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The increase of $0.5 million in the net incentive fee earned by the Adviser during the three months ended December 31, 2014, as compared to the prior year period, was due to the partial incentive fee credit taken in the prior year period. There was no incentive fee credit granted by the Adviser during the three months ended December 31, 2014, due to a change in the assessment of distribution coverage of net investment income to a fiscal year end basis rather than a quarterly basis.

The base management fee, loan servicing fee and incentive fee, and associated unconditional and irrevocable voluntary credits, are computed quarterly, as described under “— Investment Advisory and Management Agreement” in Note 4 of the notes to our accompanying Condensed Consolidated Financial Statements and are summarized in the following table:


	Three Months Ended December 31,
	2014			2013
Average total assets subject to base management fee^(A)	$	319,400		$	291,200
Multiplied by prorated annual base management fee of 2.0%		0.5	%		0.5	%
Base management fee^(B)	$	1,597		$	1,456
Portfolio company fee credit		(375	)		(333	)
Senior syndicated loan fee waiver		(37	)		(30	)
Net Base Management Fee	$	1,185		$	1,093

Loan servicing fee^(B)		832			884
Credit to base management fee - loan servicing fee^(B)		(832	)		(884	)
Net Loan Servicing Fee	$	—		$	—

Incentive fee^(B)		922			974
Incentive fee credit		—			(515	)
Net Incentive Fee	$	922		$	459

Portfolio company fee credit		(375	)		(333	)
Senior syndicated loan fee waiver		(37	)		(30	)
Incentive fee credit		—			(515	)
Credits to Fees From Adviser - other^(B)	$	(412	)	$	(878	)

^(A)

Average total assets subject to the base management fee is defined as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarter within the respective period and adjusted appropriately for any share issuances or repurchases during the period.

^(B)	Reflected, on a gross basis, as a line item on our accompanying Condensed Consolidated Statements of Operations.

The increase of $0.3 million in distribution expense on our mandatorily redeemable preferred stock during the three months ended December 31, 2014, as compared to the prior year period, was primarily due to the higher monthly distribution amount on our Series 2021 Term Preferred Stock, which was issued in May 2014, and which was partially offset by the voluntary redemption of our Series 2016 Term Preferred Stock, which was issued in November 2011 and redeemed in May 2014. Refer to “— Liquidity and Capital Resources — Equity — Term Preferred Stock” for further discussion of our term preferred stock.

Realized Loss and Unrealized Appreciation

Net Realized Loss on Investments and Escrows

For the three months ended December 31, 2014, we recorded a net realized loss on investments and escrows of $12.9 million, which primarily consisted of a realized loss of $14.5 million resulting from the sale of Midwest Metal during the period for net proceeds of $6.1 million. This realized loss was partially offset by the realized gain of $1.6 million we recognized on the early payoff of NAAS.

For the three months ended December 31, 2013, we recorded a net realized loss on investments of $10.8 million related to the sale of LocalTel, LLC (“LocalTel”).

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Net Unrealized Appreciation of Investments

Net unrealized appreciation (depreciation) of investments is the net change in the fair value of our investment portfolio during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains and losses are actually realized. During the three months ended December 31, 2014, we recorded net unrealized appreciation of investments in the aggregate amount of $8.8 million, which included reversals totaling $13.4 million in cumulative unrealized depreciation primarily related to the sale of Midwest Metal during the period. Excluding reversals, we had $4.6 million in net unrealized depreciation for the three months ended December 31, 2014. Over our entire portfolio, the net unrealized depreciation (excluding reversals) for the three months ended December 31, 2014, consisted of approximately $9.8 million of depreciation on our debt investments and approximately $5.2 million of appreciation on our equity investments.

The net realized gains (losses) and unrealized appreciation (depreciation) across our investments for the three months ended December 31, 2014, were as follows:


	Three Months Ended December 31, 2014
Portfolio Company	Realized (Loss) Gain			Unrealized Appreciation (Depreciation)			Reversal of Unrealized Depreciation (Appreciation)			Net Gain (Loss)
Funko, LLC	$	—		$	3,648		$	—		$	3,648
Defiance Integrated Technologies, Inc.		—			1,394			—			1,394
Midwest Metal Distribution, Inc.		(14,459	)		—			15,578			1,119
Precision Acquisition Group Holdings, Inc.		—			620			—			620
Alloy Die Casting Co.		—			417			—			417
Meridian Rack & Pinion, Inc.		—			(290	)		—			(290	)
Edge Adhesives Holdings, Inc.		—			(301	)		—			(301	)
Vision Solutions, Inc.		—			(416	)		—			(416	)
Sunshine Media Holdings		—			(439	)		—			(439	)
J.America, Inc.		—			(546	)		—			(546	)
North American Aircraft Services, LLC		1,578			—			(2,216	)		(638	)
Targus Group International, Inc.		—			(684	)		—			(684	)
WadeCo. Specialties, Inc.		—			(726	)		—			(726	)
PLATO Learning, Inc.		—			(753	)		—			(753	)
Francis Drilling Fluids, Ltd.		—			(980	)		—			(980	)
Saunders & Associates		—			(1,480	)		—			(1,480	)
GFRC Holdings, LLC		—			(2,985	)		—			(2,985	)
Other, net (<$250)		23			(1,078	)		—			(1,055	)
Total:	$	(12,858	)	$	(4,599	)	$	13,362		$	(4,095	)

The largest driver of our net unrealized depreciation (excluding reversals) for the three months ended December 31, 2014, were declines in the financial and operational performance of GFRC Holdings, LLC of $3.0 million and Saunders & Associates of $1.5 million. Partially offsetting this net unrealized depreciation for the three months ended December 31, 2014, was the net unrealized appreciation on Funko, LLC of $3.6 million and Defiance Integrated Technologies, Inc. of $1.4 million due to incremental improvements in the financial and operational performance of these portfolio companies and, to lesser extent, increases in comparable multiples used in valuations.

During the three months ended December 31, 2013, we recorded net unrealized appreciation of investments in the aggregate amount of $16.9 million, which included reversals of $10.2 million in cumulative unrealized depreciation primarily related to the sale of LocalTel during the period. Excluding reversals, we had $6.7 million in net unrealized appreciation for the three months ended December 31, 2013. Over our entire portfolio, the net unrealized appreciation (excluding reversals) was comprised of approximately $3.2 million on our debt investments and approximately $3.5 million on our equity investments for the three months ended December 31, 2013.

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The net realized losses and unrealized appreciation (depreciation) across our investments for the three months ended December 31, 2013, were as follows:


	Three Months Ended December 31, 2013
Portfolio Company	Realized Loss			Unrealized Appreciation (Depreciation)			Reversal of Unrealized Depreciation (Appreciation)			Net Gain (Loss)
RBC Acquisition Corp.	$	—		$	3,256		$	—		$	3,256
GFRC Holdings, LLC		—			1,728			45			1,773
Sunshine Media Holdings		—			1,462			—			1,462
Funko, LLC		—			648			—			648
Saunders & Associates		—			493			—			493
International Junior Golf Training Acquisition Company		—			(251	)		—			(251	)
Heartland Communications Group		—			(363	)		—			(363	)
LocalTel, LLC		(10,774	)		—			10,218			(556	)
Targus Group International, Inc.		—			(793	)		—			(793	)
Other, net (<$250)		—			556			(122	)		434
Total:	$	(10,774	)	$	6,736		$	10,141		$	6,103

The largest driver of our net unrealized appreciation (excluding reversals) for the three months ended December 31, 2013, was due to several portfolio companies’ increased financial and operational performance and, to a lesser extent, the increase in certain comparable multiples used for equity valuations during the period, most notably that of RBC Acquisition Corp.

As of December 31, 2014, the fair value of our investment portfolio was less than its cost basis by approximately $59.2 million, and our entire investment portfolio was valued at 84.6% of cost, as compared to cumulative net unrealized depreciation of $68.0 million and a valuation of our entire portfolio at 80.5% of cost as of September 30, 2014. This decrease in cumulative unrealized depreciation quarter over quarter represents net unrealized appreciation of our investments of $8.8 million for the three months ended December 31, 2014. Of our current investment portfolio, ten portfolio companies originated before December 31, 2007, representing 30.1% of the entire cost basis of our portfolio, were valued at 58.2% of cost and include our two investments on non-accrual status. Our 39 portfolio companies which originated after December 31, 2007, representing 69.9% of the entire cost basis of our portfolio, were valued at 96.0% of cost and none of these portfolio companies are on non-accrual status.

We believe that our aggregate investment portfolio was valued at a depreciated value as of December 31, 2014, primarily due to the lingering effects of the recession that began in 2008 and its affect on the performance of certain of our portfolio companies and also because we were invested in certain industries that were disproportionately impacted by the recession. The cumulative net unrealized depreciation of our investments does not have an impact on our current ability to pay distributions to stockholders; however, it may be an indication of future realized losses, which could ultimately reduce our income available for distribution to stockholders.

Net Unrealized Depreciation (Appreciation) of Other

Net unrealized depreciation (appreciation) of other includes the net change in the fair value of our Credit Facility and our interest rate swap during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains and losses are realized. During the three months ended December 31, 2014, we recorded net unrealized depreciation of borrowings of $0.7 million compared to net unrealized appreciation of borrowings of $7 for the three months ended December 31, 2013. Our Credit Facility was fair valued at $84.1 million and $38.0 million as of December 31 and September 30, 2014, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Our cash flows from operating activities are primarily generated from the interest payments on debt securities that we receive from our portfolio companies, as well as net proceeds received through repayments or sales of our investments. We utilize this cash primarily to fund new investments, make interest payments on our Credit Facility,

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make distributions to our stockholders, pay management fees to the Adviser, and for other operating expenses. Net cash used in operating activities during the three months ended December 31, 2014, was $42.3 million, as compared to $1.2 million for the three months ended December 31, 2013. The increase in cash used in operating activities was primarily due to an increase in disbursements to existing portfolio companies and a decrease in unscheduled principal repayments during the three months ended December 31, 2014.

As of December 31, 2014, we had loans to, syndicated participations in, or equity investments in 49 private companies with an aggregate cost basis of approximately $385.9 million. As of December 31, 2013, we had loans to, syndicated participations in and/or equity investments in 52 private companies with an aggregate cost basis of approximately $341.7 million.

The following table summarizes our total portfolio investment activity during the three months ended December 31, 2014 and 2013, at fair value:


	Three Months Ended December 31,
	2014			2013
Beginning investment portfolio, at fair value	$	281,286		$	256,878
New investments		44,099			44,111
Disbursements to existing portfolio companies		17,366			770
Scheduled principal repayments		(134	)		(930	)
Unscheduled principal repayments		(4,363	)		(23,737	)
Net proceeds from sales of investments		(7,713	)		—
Net unrealized (depreciation) appreciation of investments		(4,599	)		6,736
Reversal of prior period depreciation on realization		13,362			10,141
Net realized loss on investments		(12,881	)		(10,732	)
Increase in investment balance due to PIK^(A)		70			53
Interest payments received on non-accrual loans		502			—
Net change in premiums, discounts and amortization		(371	)		(84	)
Investment Portfolio, at Fair Value	$	326,624		$	283,206

^(A)	Paid-in-kind (“PIK”) interest is a non-cash source of income calculated at the contractual rate stated in a loan agreement and is added to the principal balance of a loan and recorded over the life of the obligation.

The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of December 31, 2014:


For the Fiscal Years Ending September 30:	Amount
For the remaining nine months ending September 30:
2015	$	43,666
2016		93,777
2017		12,431
2018		31,789
2019		64,037
Thereafter		111,989
Total contractual repayments	$	357,689
Equity investments		29,303
Adjustments to cost basis on debt investments		(1,132	)
Total Cost Basis of Investments Held at December 31, 2014:	$	385,860

Financing Activities

Net cash provided by financing activities for the three months ended December 31, 2014 of $42.4 million consisted primarily of net borrowings on our line of credit of $46.8 million, partially offset by $4.4 million of distributions to common stockholders. Net cash used in financing activities for the three months ended December 31, 2013 of $3.6 million consisted primarily of distributions to common stockholders of $4.4 million.

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Distributions to Stockholders

Common Stock Distributions

To qualify to be taxed as a RIC and thus avoid corporate-level federal income tax on the income that we distribute to our stockholders, we are required to distribute to our stockholders on an annual basis at least 90.0% of our investment company taxable income. Additionally, the covenants in our Credit Facility generally restrict the amount of distributions to stockholders that we can pay out to be no greater than our net investment income in each fiscal year. In accordance with these requirements, we declared and paid monthly cash distributions of $0.07 per common share for each of the three months from October 2014 through December 2014, which totaled an aggregate of $4.4 million. In January 2015, our Board of Directors declared a monthly distribution of $0.07 per common share for each of January, February and March 2015. Our Board of Directors declared these distributions to our stockholders based on our estimates of our investment company taxable income for the fiscal year ending September 30, 2015.

For the fiscal year ended September 30, 2014, which includes the three months ended December 31, 2013, our aggregate distributions to common stockholders totaled approximately $17.7 million, which were declared based on estimates of our investment company taxable income for that fiscal year. For our fiscal year ended September 30, 2014, our common stockholder distributions declared and paid exceeded our current and accumulated earnings and profits (after taking into account our preferred stock distributions), resulted in a partial return of capital of approximately $15.2 million. The return of capital was primarily due to accounting principles generally accepted in the U.S. (“GAAP”) realized losses being recognized as ordinary losses for federal income tax purposes. The characterization of the common stockholder distributions declared and paid for the fiscal year ending September 30, 2015 will be determined at fiscal year-end based upon our taxable income for the full fiscal year and distributions paid during the full fiscal year. Such a characterization made on a quarterly basis may not be representative of the actual full fiscal year characterization. If we characterized our common stockholder distributions for the three months ended December 31, 2014, 100.0% would be a return of capital, primarily due to GAAP realized losses being recognized as ordinary losses for federal income tax purposes.

Preferred Stock Distributions

Our Board of Directors also declared, and we paid, monthly cash distributions of $0.140625 per share of our Series 2021 Term Preferred Stock for each of the three months from October 2014 through December 2014, which totaled an aggregate of $1.0 million. In January 2015, our Board of directors declared a monthly distribution of $0.140625 per share of Series 2021 Term Preferred stock for each of January, February and March 2015. In accordance with GAAP, we treat these monthly distributions to preferred stockholders as an expense. For federal income tax purposes, distributions paid by us to preferred stockholders generally constitute ordinary income to the extent of our current and accumulated earnings and profits have been characterized as ordinary income to our preferred stockholders.

Equity

Registration Statement

We filed Post-effective Amendment No. 4 to our universal shelf registration statement (our “Registration Statement”) on Form N-2 (File No. 333-185191) with the SEC on December 1, 2014, and subsequently filed Post-effective Amendment No. 5 on January 29, 2015, which the SEC was declared effective as of January 30, 2015. Our Registration Statement registers an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities and warrants to purchase common stock or preferred stock. We currently have the ability to issue up to $239.0 million in securities under our Registration Statement through one or more transactions. We issued approximately 2.4 million shares of our Series 2021 Term Preferred Stock under our Registration in May 2014. No other securities have been issued under our Registration Statement.

Common Stock

We anticipate issuing equity securities to obtain additional capital in the future. However, we cannot determine the terms of any future equity issuances or whether we will be able to issue equity on terms favorable to us, or at all. Additionally, when our common stock is trading below NAV per share, as it has from time to time over the last four

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years, the 1940 Act restricts our ability to obtain additional capital by issuing common stock. Generally, the 1940 Act provides that we may not issue and sell our common stock at a price below our then current NAV per common share, other than to our then existing common stockholders pursuant to a rights offering, without first obtaining approval from our stockholders and our independent directors. As of January 30, 2015, our closing market price was $7.41 per common share, a 25.6% discount to our December 31, 2014 NAV per common share of $9.31. To the extent that our common stock trades at a market price below our NAV per common share, we will generally be precluded from raising equity capital through public offerings of our common stock, other than pursuant to stockholder approval or a rights offering to existing common stockholders.

At our Annual Meeting of Stockholders held on February 12, 2015, our stockholders approved a proposal authorizing us to sell shares of our common stock at a price below our then current NAV per share subject to certain limitations (including, but not limited to, that the number of shares issued and sold pursuant to such authority does not exceed 25.0% of our then outstanding common stock immediately prior to each such sale) for a period of one year from the date of approval, provided that our Board of Directors makes certain determinations prior to any such sale. We have not issued any common stock since February 2008 and have not issued common stock below the then current NAV per share to date.

Term Preferred Stock

Pursuant to our Registration Statement, in May 2014, we completed a public offering of approximately 2.4 million shares of our Series 2021 Term Preferred Stock, par value $0.001 per share, at a public offering price of $25.00 per share and a 6.75% rate. Gross proceeds totaled $61.0 million and net proceeds, after deducting underwriting discounts, commissions and offering expenses borne by us, were $58.5 million, a portion of which was used to voluntarily redeem all 1.5 million outstanding shares of our then existing Series 2016 Term Preferred Stock and the remainder was used to repay a portion of outstanding borrowings under our Credit Facility. In connection with the voluntary redemption of our Series 2016 Term Preferred Stock, we recognized a realized loss on extinguishment of debt of $1.3 million, which was reflected on our statement of operations during the three months ended June 30, 2014 and was primarily comprised of the unamortized deferred issuance costs at the time of redemption.

We incurred $2.5 million in total offering costs related to the issuance of our Series 2021 Term Preferred Stock, which are recorded as deferred financing fees on our accompanying Condensed Consolidated Statements of Assets and Liabilities and are being amortized over the redemption period ending June 30, 2021. The shares of our Series 2021 Term Preferred Stock and are traded under the ticker symbol of “GLADO” on the NASDAQ. Our Series 2021 Term Preferred Stock is not convertible into our common stock or any other security and provides for a fixed distribution rate equal to 6.75% per year, payable monthly (which equates in total to approximately $4.1 million per year). We are required to redeem all of the outstanding Series 2021 Term Preferred Stock on June 30, 2021 for cash at a redemption price equal to $25.00 per share plus an amount equal to all unpaid dividends and distributions on such share accumulated to (but excluding) the date of redemption (the “Redemption Price”). We may additionally be required to mandatorily redeem some or all of the shares of our Series 2021 Term Preferred Stock early, at the Redemption Price, in the event of the following: (1) upon the occurrence of certain events that would constitute a change in control of us, we would be required to redeem all of the outstanding Series 2021 Term Preferred Stock and (2) if we fail to maintain an asset coverage ratio of at least 200.0% and do not take steps to cure such asset coverage amount within a specified period of time. We may also voluntarily redeem all or a portion of the Series 2021 Term Preferred Stock at our option at the Redemption Price in order to have an asset coverage ratio of up to and including 240.0% and at any time on or after June 30, 2017. If we fail to redeem our Series 2021 Term Preferred Stock pursuant to the mandatory redemption required on June 30, 2021, or in any other circumstance in which we are required to mandatorily redeem our Series 2021 Term Preferred Stock, then the fixed distribution rate will increase by 4.0% for so long as such failure continues. As of December 31, 2014, we have not redeemed any of our outstanding Series 2021 Term Preferred Stock. Our Series 2021 Term Preferred Stock has been recorded as a liability in accordance with GAAP and, as such, affects our asset coverage, exposing us to additional leverage risks.

Pursuant to our prior registration statement, in November 2011, we completed a public offering of approximately 1.5 million shares of our Series 2016 Term Preferred Stock at a public offering price of $25.00 per share and a 7.125% rate. Gross proceeds totaled $38.5 million and net proceeds, after deducting underwriting discounts, commissions and offering expenses borne by us, were $36.4 million, a portion of which was used to repay a portion of outstanding borrowings under our Credit Facility. We incurred $2.1 million in total offering costs related to these

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transactions, which were recorded as deferred financing fees on our accompanying Condensed Consolidated Statements of Assets and Liabilities and were amortized over the redemption period ending December 31, 2016. In May 2014 when our Series 2016 Term Preferred Stock was voluntarily redeemed, the remaining unamortized costs at that time were fully written off as part of the realized loss on extinguishment of debt discussed above. Our Series 2016 Term Preferred Stock provided for a fixed distribution rate equal to 7.125% per year, payable monthly (which equated in total to approximately $2.7 million per year). The shares of our Series 2016 Term Preferred were traded under the ticker symbol of “GLADP” on the NASDAQ. In connection with the voluntary redemption, shares of our Series 2016 Term Preferred Stock were removed from listing on May 22, 2014. We had not issued any preferred stock prior to the issuance of our Series 2016 Term Preferred Stock.

Revolving Credit Facility

On April 26, 2013, we, through our wholly-owned subsidiary, Gladstone Business Loan, LLC (“Business Loan”), entered into Amendment No. 6 to the fourth amended and restated credit agreement (our “Credit Facility”) to extend the revolver period end date for one year to January 19, 2016. Our $137.0 million revolving Credit Facility was arranged by Key Equipment Finance, a division of KeyBank National Association, (“Key Equipment”) as administrative agent. KeyBank National Association, Branch Banking and Trust Company and ING Capital LLC also joined our Credit Facility as committed lenders. Subject to certain terms and conditions, our Credit Facility may be expanded from $137.0 million to a maximum of $237.0 million through the addition of other committed lenders to the facility. The interest rates on advances under our Credit Facility generally bear interest at a 30-day LIBOR plus 3.75% per annum, with a commitment fee of 0.5% per annum on undrawn amounts when our facility is drawn more than 50% and 1.0% per annum on undrawn amounts when our facility is drawn less than 50%. If our Credit Facility is not renewed or extended by January 19, 2016, all principal and interest will be due and payable on or before November 30, 2016. Prior to the April 26, 2013 amendment, on January 29, 2013, we, through Business Loan, amended our Credit Facility to remove the LIBOR minimum of 1.5% on advances. We incurred fees of $0.7 million in April 2013 and $0.6 million in January 2013 in connection with these amendments, which are being amortized through our Credit Facility’s revolver period end date of January 19, 2016. All other terms of our Credit Facility remained generally unchanged at the time of these amendments.

Interest is payable monthly during the term of our Credit Facility. Available borrowings are subject to various constraints imposed under our Credit Facility, based on the aggregate loan balance pledged by Business Loan, which varies as loans are added and repaid, regardless of whether such repayments are prepayments or made as contractually required.

Our Credit Facility also requires that any interest or principal payments on pledged loans be remitted directly by the borrower into a lockbox account with Key Equipment as custodian and with The Bank of New York Mellon Trust Company, N.A as custodian. Key Equipment, which also serves as the trustee of the account, generally remits the collected funds to us once a month.

Our Credit Facility contains covenants that require Business Loan to maintain its status as a separate legal entity, prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions), and restrict material changes to our credit and collection policies without the lenders’ consents. Our Credit Facility also generally limits payments on distributions to our stockholders to the aggregate net investment income for each of the twelve month periods ending September 30, 2015 and 2016. Business Loan is also subject to certain limitations on the type of loan investments it can apply as collateral towards the borrowing base in order to receive additional borrowing availability credit under our Credit Facility, including restrictions on geographic concentrations, sector concentrations, loan size, payment frequency and status, average life and lien property. Our Credit Facility further requires Business Loan to comply with other financial and operational covenants, which obligate Business Loan to, among other things, maintain certain financial ratios, including asset and interest coverage and a minimum number of 20 obligors required in the borrowing base. Additionally, we are subject to a performance guaranty that requires us to maintain (i) a minimum net worth (defined in our Credit Facility to include our mandatorily redeemable preferred stock) of $190.0 million plus 50.0% of all equity and subordinated debt raised after January 19, 2012, which equates to $220.5 million as of December 31, 2014, (ii) asset coverage with respect to senior securities representing indebtedness of at least 200.0%, in accordance with Section 18 of the 1940 Act and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code.

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As of December 31, 2014, and as defined in the performance guaranty of our Credit Facility, we had a net worth of $256.6 million, asset coverage of 235.6% and an active status as a BDC and RIC. In addition, we had 32 obligors in the borrowing base of our Credit Facility as of December 31, 2014. As of December 31, 2014 we were in compliance with all of our Credit Facility covenants.

On July 15, 2013, we, through Business Loan, entered into an interest rate cap agreement with KeyBank, effective July 9, 2013 and expiring January 19, 2016, for a notional amount of $35.0 million that effectively limits the interest rate on a portion of our borrowings under our revolving line of credit pursuant to the terms of our Credit Facility. The one month LIBOR cap is set at 5.0%. We incurred a premium fee of $62 in conjunction with this agreement, which is recorded in other assets on our accompanying Condensed Consolidated Statements of Assets and Liabilities. As of December 31, 2014 and September 30, 2014, the fair value of our interest rate cap agreement was $0.

Contractual Obligations and Off-Balance Sheet Arrangements

We have lines of credit with certain of our portfolio companies that have not been fully drawn. Since these commitments have expiration dates and we expect many will never be fully drawn, the total commitment amounts do not necessarily represent future cash requirements. As of December 31 and September 30, 2014, our unused line of credit commitments totaled $12.0 million and $5.9 million, respectively.

When investing in certain private equity funds, we may have uncalled capital commitments depending on the agreed upon terms of our committed ownership interest. These capital commitments usually have a specific date in the future set as a closing date, at which time the commitment is either funded or terminates. As of December 31, 2014 and September 30, 2014, we had uncalled capital commitments related to our partnership interest in Leeds Novamark Capital I, L.P. of $2.8 million.

The following table summarizes our contractual obligations as of December 31, 2014, at cost:


	Payments Due by Fiscal Years
Contractual Obligations^(A)	Less than 1 Year		1-3 Years		4-5 Years		After 5 Years		Total
Credit Facility^(B)	$	—	$	83,500	$	—	$	—	$	83,500
Series 2021 term preferred stock		—		—		—		61,000		61,000
Interest expense on debt obligations^(C)		5,800		13,457		8,235		3,088		30,580
Total	$	5,800	$	96,957	$	8,235	$	64,088	$	175,080

^(A)	Excludes our unused line of credit and uncalled capital commitments to our portfolio companies in an aggregate amount of $14.8 million as of December 31, 2014.

^(B)	Principal balance of borrowings under our Credit Facility, based on the current contractual maturity as of December 31, 2014 due to the revolving nature of the facility.

^(C)

Includes estimated interest payments on our Credit Facility and distribution obligations on our Series 2021 Term Preferred Stock. The amount of interest expense calculated for purposes of this table was based upon rates and outstanding balances as of December 31, 2014. Distribution payments on our Series 2021 Term Preferred Stock assume quarterly distribution declarations and monthly distribution distributions to stockholders through the date of mandatory redemption.

Of our interest bearing debt investments as of December 31, 2014, 34.9% had a success fee component, which enhances the yield on our debt investments. Unlike PIK income, we generally recognize success fees as income only when the payment has been received. As a result, as of December 31 and September 30, 2014, we had aggregate unrecognized success fee receivables on our accruing debt investments of $10.8 million and $11.0 million (or approximately $0.51 per common share and $0.52 million), respectively, that would be owed to us based on our current portfolio if fully paid off. Consistent with GAAP, we have not recognized our success fee receivable on our balance sheet or income statement. Due to our success fees’ contingent nature, there are no guarantees that we will be able to collect all of these success fees or know the timing of such collections.

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CRITICAL ACCOUNTING POLICIES

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported consolidated amounts of assets and liabilities, including disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could differ materially from those estimates under different assumptions or conditions. We have identified our investment valuation policy (the “Policy”), which is described below, as our most critical accounting policy.

Investment Valuation

The most significant estimate inherent in the preparation of our consolidated financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded in our accompanying Condensed Consolidated Financial Statements.

Accounting Recognition

We record our investments at fair value in accordance with the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) and the 1940 Act. Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and amortized cost basis of the investment, without regard to unrealized depreciation or appreciation previously recognized, and include investments charged off during the period, net of recoveries. Unrealized depreciation or appreciation primarily reflects the change in investment fair values, including the reversal of previously recorded unrealized depreciation or appreciation when gains or losses are realized.

In accordance with ASC 820, our investments’ fair value is determined to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between willing market participants on the measurement date. This fair value definition focuses on exit price in the principal, or most advantageous, market and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. ASC 820 also establishes the following three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of a financial instrument as of the measurement date.

•

Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical financial instruments in active markets;

•

Level 2 — inputs to the valuation methodology include quoted prices for similar financial instruments in active or inactive markets, and inputs that are observable for the financial instrument, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs are in those markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers; and

•

Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are those inputs that reflect assumptions that market participants would use when pricing the financial instrument and can include the Valuation Team’s assumptions based upon the best available information.

When a determination is made to classify our investments within Level 3 of the valuation hierarchy, such determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable, or Level 3, inputs, observable inputs (or, components that are actively quoted and can be validated to external sources). The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. As of December 31 and September 30, 2014, all of our investments were valued using Level 3 inputs and during the three months ended December 31, 2014 and 2013, there were no investments transferred into or out of Level 1, 2 or 3.

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Board Responsibility

In accordance with the 1940 Act, our Board of Directors has the ultimate responsibility for reviewing and approving, in good faith, the fair value of our investments based on the Policy. Our Board of Directors reviews valuation recommendations that are provided by professionals of the Adviser and Administrator with oversight and direction from the valuation officer (the “Valuation Team”). There is no single standard for determining fair value (especially for privately-held businesses), as fair value depends upon the specific facts and circumstances of each individual investment. In determining the fair value of our investments, the Valuation Team, led by the valuation officer, uses the Policy and each quarter our Board of Directors reviews the Policy to determine if changes thereto are advisable and also reviews whether the Valuation Team has applied the Policy consistently.

Use of Third Party Valuation Firms

The Valuation Team engages third party valuation firms to provide independent assessments of fair value of certain of our investments. Currently, the sole third-party service provider Standard & Poor’s Securities Evaluation, Inc. (“SPSE”) provides estimates of fair value on our proprietary debt investments.

The Valuation Team generally assigns SPSE’s estimates of fair value to our debt investments where we do not have the ability to effectuate a sale of the applicable portfolio company. The Valuation Team corroborates SPSE’s estimates of fair value using one or more of the valuation techniques discussed below. The Valuation Team’s estimate of value on a specific debt investment may significantly differ from SPSE’s. When this occurs, our Board of Directors reviews whether the Valuation Team has followed the Policy and whether the Valuation Team’s recommended value is reasonable in light of the Policy and other relevant facts and circumstances and then votes to accept or reject the Valuation Team’s recommended valuation.

Valuation Techniques

In accordance with ASC 820, the Valuation Team uses the following techniques when valuing our investment portfolio:

•

Total Enterprise Value — In determining the fair value using a total enterprise value (“TEV”), the Valuation Team first calculates the TEV of the portfolio company by incorporating some or all of the following factors: the portfolio company’s ability to make payments and other specific portfolio company attributes; the earnings of the portfolio company (the trailing or projected twelve month revenue or earnings before interest, taxes, depreciation and amortization (“EBITDA”)); EBITDA or revenue multiples obtained from our indexing methodology whereby the original transaction EBITDA or revenue multiple at the time of our closing is indexed to a general subset of comparable disclosed transactions and EBITDA or revenue multiples from recent sales to third parties of similar securities in similar industries; a comparison to publicly traded securities in similar industries, and other pertinent factors. The Valuation Team generally references industry statistics and may use outside experts when gathering this information. Once the TEV is determined for a portfolio company, the Valuation Team then allocates the TEV to the portfolio company’s securities in order of their relative priority in the capital structure. Generally, the Valuation Team uses TEV to value our equity investments and, in the circumstances where we have the ability to effectuate a sale of a portfolio company, our debt investments.

TEV is primarily calculated using EBITDA or revenue multiples; however, TEV may also be calculated using a discounted cash flow (“DCF”) analysis whereby future expected cash flows of the portfolio company are discounted to determine a net present value using estimated risk-adjusted discount rates, which incorporate adjustments for nonperformance and liquidity risks. Generally, the Valuation Team uses the DCF to calculate TEV to corroborate estimates of value for our equity investments where we do not have the ability to effectuate a sale of a portfolio company or for debt of credit impaired portfolio companies.

•

Yield Analysis — The Valuation Team generally determines the fair value of our debt investments using the yield analysis, which includes a DCF calculation and the Valuation Team’s own assumptions, including, but not limited to, estimated remaining life, current market yield, current leverage, and interest rate spreads. This technique develops a modified discount rate that incorporates risk premiums including, among other things, increased probability of default, increased loss upon default and increased liquidity risk. Generally, the Valuation Team uses the yield analysis to corroborate both estimates of value provided by SPSE and market quotes.

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•

Market Quotes — For our syndicate investments for which a limited market exists, fair value is generally based on readily available and reliable market quotations which are corroborated by the Valuation Team (generally by using the yield analysis explained above). In addition, the Valuation Team assesses trading activity for similar syndicated investments and evaluates variances in quotations and other market insights to determine if any available quoted prices are reliable. Typically, the Valuation Team uses the lower indicative bid price (“IBP”) in the bid-to-ask price range obtained from the respective originating syndication agent’s trading desk on or near the valuation date. The Valuation Team may take further steps to consider additional information to validate that price in accordance with the Policy.

•

Investments in Funds — For equity investments in other funds, the Valuation Team generally determines the fair value of our uninvested capital at par value and of our invested capital at the NAV provided by the fund. The Valuation Team may also determine fair value of our investments in other investment funds based on the capital accounts of the underlying entity.

In addition to the above valuation techniques, the Valuation Team may also consider the other factors when determining fair values of our investments, including but not limited to: the nature and realizable value of the collateral, including external parties’ guaranties; any relevant offers or letters of intent to acquire the portfolio company; and the markets in which the portfolio company operates. If applicable, new and follow-on proprietary debt and equity investments made during the most recently completed quarter are generally valued at original cost basis.

Fair value measurements of our investments may involve subjective judgments and estimates and due to the inherent uncertainty of determining these fair values, the fair value of our investments may fluctuate from period to period. Additionally, changes in the market environment and other events that may occur over the life of the investment may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which it is recorded.

Refer to Note 3—Investments in the accompanying notes to our accompanying Condensed Consolidated Financial Statements included elsewhere in this report for additional information regarding fair value measurements and our application of ASC 820.

Credit Monitoring and Risk Rating

The Adviser monitors a wide variety of key credit statistics that provide information regarding our portfolio companies to help us assess credit quality and portfolio performance and, in some instances, are used as inputs in our valuation techniques. Generally, we, through the Adviser, participate in periodic board meetings of our portfolio companies in which we hold board seats and also require them to provide annual audited and monthly unaudited financial statements. Using these statements or comparable information and board discussions, the Adviser calculates and evaluates certain credit statistics.

The Adviser risk rates all of our investments in debt securities. The Adviser does not risk rate our equity securities. For syndicated loans that have been rated by a Nationally Recognized Statistical Rating Organization (“NRSRO”) (as defined in Rule 2a-7 under the 1940 Act), the Adviser generally uses the average of two corporate level NRSRO’s risk ratings for such security. For all other debt securities, the Adviser uses a proprietary risk rating system. While the Adviser seeks to mirror the NRSRO systems, we cannot provide any assurance that the Adviser’s risk rating system will provide the same risk rating as an NRSRO for these securities. The Adviser’s risk rating system is used to estimate the probability of default on debt securities and the expected loss if there is a default. The Adviser’s risk rating system uses a scale of 0 to >10, with >10 being the lowest probability of default. It is the Adviser’s understanding that most debt securities of medium-sized companies do not exceed the grade of BBB on an NRSRO scale, so there would be no debt securities in the middle market that would meet the definition of AAA, AA or A. Therefore, the Adviser’s scale begins with the designation >10 as the best risk rating which may be equivalent to a BBB from an NRSRO; however, no assurance can be given that a >10 on the Adviser’s scale is equal to a BBB or Baa2 on an NRSRO scale. The Adviser’s risk rating system covers both qualitative and quantitative aspects of the

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business and the securities we hold. During the three months ended June 30, 2014, we modified our risk rating model to incorporate additional factors in our qualitative and quantitative analysis. While the overall process did not change, we believe the additional factors enhance the quality of the risk ratings of our investments. No adjustments were made to prior periods as a result of this modification.

The following table reflects risk ratings for all proprietary loans in our portfolio as of December 31, 2014 and September 30, 2014, representing approximately 78.2% and 80.8%, respectively, of the principal balance of all debt investments in our portfolio at the end of each period:


Rating	As of December 31, 2014		As of September 30, 2014
Highest		8.0		9.0
Average		5.7		5.9
Weighted Average		5.4		5.2
Lowest		3.0		2.0

The following table reflects corporate level risk ratings for all syndicated loans in our portfolio that were rated by an NRSRO as of December 31, 2014 and September 30, 2014, representing approximately 19.7% and 16.6%, respectively, of the principal balance of all debt investments in our portfolio at the end of each period:


	As of December 31,		As of September 30,
Rating	2014		2014
Highest		6.0		6.0
Average		4.6		4.6
Weighted Average		4.7		4.8
Lowest		3.0		3.5

In addition, there was one syndicated loan in our portfolio that was not rated by an NRSRO as of December 31, 2014 and September 30, 2014 and it represented 2.1% and 2.6%, respectively, of the principal balance of all debt investments in our portfolio. For the periods ended December 31, 2014 and September 30, 2014 the syndicated loan had a risk rating of 4.

Tax Status

Federal Income Taxes

We intend to continue to maintain our qualification as a RIC under Subchapter M of the Code for federal income tax purposes. As a RIC, we are not subject to federal income tax on the portion of our taxable income and gains that we distribute to our stockholders. To maintain our qualification as a RIC, we must meet certain source-of-income and asset diversification requirements. In addition, in order to qualify to be taxed as a RIC, we must also meet certain annual stockholder distribution requirements. To satisfy the RIC annual distribution requirement, we must distribute to stockholders at least 90.0% of our investment company taxable income, as defined by the Code. Our policy generally is to make distributions to our stockholders in an amount up to 100.0% of our investment company taxable income.

In an effort to limit certain federal excise taxes imposed on RICs, we currently intend to distribute to our stockholders, during each calendar year, an amount at least equal to the sum of: (1) 98.0% of our ordinary income for the calendar year, (2) 98.2% of our capital gain net income for the one-year period ending on October 31 of the calendar year, and (3) any ordinary income and capital gain net income from preceding years that were not distributed during such years. Under the RIC Modernization Act (the “RIC Act”), we are permitted to carry forward capital losses incurred in taxable years beginning after September 30, 2011, for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss

S-37

carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under the previous regulation.

Revenue Recognition

Interest Income Recognition

Interest income, adjusted for amortization of premiums, acquisition costs, and amendment fees and the accretion of original issue discounts (“OID”), is recorded on the accrual basis to the extent that such amounts are expected to be collected. Generally, when a loan becomes 90 days or more past due, or if our qualitative assessment indicates that the debtor is unable to service its debt or other obligations, we will place the loan on non-accrual status and cease recognizing interest income on that loan for financial reporting purposes until the borrower has demonstrated the ability and intent to pay contractual amounts due. However, we remain contractually entitled to this interest. Interest payments received on non-accrual loans may be recognized as income or applied to the cost basis, depending upon management’s judgment. Generally, non-accrual loans are restored to accrual status when past due principal and interest are paid and, in management’s judgment, are likely to remain current, or, due to a restructuring, the interest income is deemed to be collectible. As of December 31, 2014, two portfolio companies were on non-accrual status with an aggregate debt cost basis of approximately $33.6 million, or 9.4% of the cost basis of all debt investments in our portfolio, and an aggregate debt fair value of approximately $8.3 million, or 2.8% of the fair value of all debt investments in our portfolio. As of September 30, 2014, three portfolio companies were on non-accrual status with an aggregate debt cost basis of approximately $51.4 million, or 16.1% of the cost basis of all debt investments in our portfolio, and an aggregate debt fair value of approximately $13.2 million, or 5.2% of the fair value of all debt investments in our portfolio.

We currently hold, and we expect to hold in the future, some loans in our portfolio that contain OID or PIK provisions. We recognize OID for loans originally issued at discounts and recognize the income over the life of the obligation based on an effective yield calculation. PIK interest, computed at the contractual rate specified in a loan agreement, is added to the principal balance of a loan and recorded as income over the life of the obligation. Therefore, the actual collection of PIK income may be deferred until the time of debt principal repayment. To maintain our ability to be taxed as a RIC, we may need to pay out both of our OID and PIK non-cash income amounts in the form of distributions, even though we have not yet collected the cash on either.

As of December 31 and September 30, 2014, we had 20 and 17 original OID loans, respectively, primarily from the syndicated investments in our portfolio. We recorded OID income of $63 and $61 for the three months ended December 31, 2014 and 2013, respectively. The unamortized balance of OID investments as of December 31 and September 30, 2014, totaled $1.0 million and $0.6 million, respectively. As of December 31 and September 30, 2014, we had two and three investments which had a PIK interest component. We recorded PIK income of $67 and $92 for the three months ended December 31, 2014 and 2013, respectively. We collected $0.2 million and $0 PIK interest in cash in each of the three months ended December 31, 2014 and 2013, respectively.

Other Income Recognition

We generally record success fees upon receipt of cash. Success fees are contractually due upon a change of control in a portfolio company, typically from an exit or sale. We received an aggregate of $0.9 million in success fees during the three months ended December 31, 2014, which resulted from $0.6 million related to the early payoff of NAAS at a realized gain and $0.3 million prepayment of success fees by FDF. We received $0.2 million in success fees during the three months ended December 31, 2013 related to our sale of substantially all of the assets in Lindmark and the ensuing pay down of our debt investments at par in September 2013.

Dividend income on equity investments is accrued to the extent that such amounts are expected to be collected and if we have the option to collect such amounts in cash. During the three months ended December 31, 2014, we recorded an aggregate of $0.1 million of dividend income, net of return of capital cost basis adjustments, which resulted from our preferred equity investment in FDF. We did not record any dividend income during the three months ended December 31, 2013.

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Success fees and dividend income are recorded in other income in our accompanying Condensed Consolidated Statements of Operations.

Recent Accounting Pronouncements

See Note 2 — Summary of Significant Accounting Policies in the accompanying notes to our Condensed Consolidated Financial Statements included elsewhere in this report for a description and our adoption of recent accounting pronouncements.

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SALES OF COMMON STOCK BELOW NET ASSET VALUE

At our 2015 annual stockholders meeting, our stockholders approved our ability to sell or otherwise issue shares of our common stock at a price below the then current net asset value, or “NAV,” per common share during a one year period, which we refer to as the Stockholder Approval, beginning on February 12, 2015, and expiring on the first anniversary of such date. We intend to seek similar stockholder approval at our 2016 annual stockholders meeting. To sell shares of common stock pursuant to this authorization, no further authorization from our stockholders will be solicited but the number of common shares issued and sold pursuant to such authority cannot exceed 25% of our then outstanding common stock immediately prior to such sale and a majority of our directors who have no financial interest in the sale and a majority of our independent directors must (i) find that the sale is in our best interests and in the best interests of our stockholders and (ii) in consultation with any underwriter or underwriters of the offering, make a good faith determination as of a time either immediately prior to the first solicitation by us or on our behalf of firm commitments to purchase such shares of common stock, or immediately prior to the issuance of such common stock, that the price at which such shares of common stock are to be sold is not less than a price which closely approximates the market value of those shares of common stock, less any distributing commission or discount.

Any offering of common stock below its NAV per share will be designed to raise capital for investment in accordance with our investment objectives.

In making a determination that an offering of common stock below its NAV per share is in our and our stockholders’ best interests, our Board of Directors will consider a variety of factors including:

•

the effect that an offering below NAV per common share would have on our common stockholders, including the potential dilution they would experience as a result of the offering;

•

the amount per common share by which the offering price per share and the net proceeds per share are less than our most recently determined NAV per common share;

•

the relationship of recent market prices of common stock to NAV per share and the potential impact of the offering on the market price per share of our common stock;

•

whether the estimated offering price would closely approximate the market value of shares of our common stock;

•

the potential market impact of being able to raise capital during financial market difficulties;

•

the nature of any new investors anticipated to acquire shares of our common stock in the offering;

•

the anticipated rate of return on and quality, type and availability of investments; and

•

the leverage available to us.

Our Board of Directors will also consider the fact that sales of shares of common stock at a discount will benefit the Adviser as the Adviser will earn additional investment management fees on the proceeds of such offerings, as it would from the offering of any other of our securities or from the offering of common stock at a premium to NAV per share.

S-40

PLAN OF DISTRIBUTION

Upon written instructions from the Company, KeyBanc Capital Markets Inc. and Cantor Fitzgerald & Co., as applicable, will each use its commercially reasonable efforts consistent with its sales and trading practices to sell, as our sales agent, the common stock under the terms and subject to the conditions set forth in each Sales Agent’s Sales Agreement. We will instruct each Sales Agent as to the amount of common stock to be sold by such Sales Agent; provided, however, that, subject to the terms of the Sales Agreements, any sales of common stock pursuant to the Sales Agreements will only be effected by or through only one of KeyBanc Capital Markets Inc. or Cantor Fitzgerald & Co. on any single given day, but in no event by more than one Sales Agent. We may instruct the Sales Agents not to sell common stock if the sales cannot be effected at or above the price designated by the Company in any instruction. We or the Sales Agents may suspend the offering of shares of common stock upon proper notice and subject to other conditions.

Each Sales Agent will provide written confirmation of a sale to us no later than the opening of the trading day on the NASDAQ following each trading day in which shares of our common stock are sold under the applicable Sales Agreement. Each confirmation will include the number of shares of common stock sold on the preceding day, the net proceeds to us and the compensation payable by us to the applicable Sales Agent in connection with the sales.

Each Sales Agent will receive from us a commission to be negotiated from time to time but in no event in excess of 2.0% of the gross sales price of all shares of common stock sold through it as Sales Agent under the applicable Sales Agreement. We estimate that the total expenses for the offering, excluding compensation payable to the Sales Agents under the terms of the Sales Agreement, will be approximately $100,000, which includes our legal, accounting and printing costs and various other fees associated with the offering. Additionally, we have agreed to reimburse the Sales Agents for their reasonable out-of-pocket expenses, including the fees and disbursements of one counsel incurred by the Sales Agents in connection with this offering up to an aggregate amount of $150,000 if shares of our common stock in this offering having an aggregate offering price of $25,000,000 or more have not been offered and sold collectively under the Sales Agreements by the eighteen-month anniversary of the date of the Sales Agreements (or such earlier date at which we terminate such agreements).

Settlement for sales of shares of common stock will occur on the third trading day following the date on which such sales are made, or on some other date that is agreed upon by the Company and the applicable Sales Agent in connection with a particular transaction, in return for payment of the net proceeds to the Company. There is no arrangement for funds to be received in an escrow, trust or similar arrangement.

In connection with the sale of the common stock on our behalf, each Sales Agent may be deemed to be an “underwriter” within the meaning of the Securities Act, and the compensation of such Sales Agent may be deemed to be underwriting commissions or discounts. We have agreed to provide indemnification and contribution to each Sales Agent against certain civil liabilities, including liabilities under the Securities Act.

The offering of our shares of common stock pursuant to the Sales Agreements will terminate upon the earlier of (i) the sale of all common stock subject to the Sales Agreements or (ii) the termination of the Sales Agreements in accordance with their terms. Each Sales Agreement may be terminated by us in our sole discretion under the circumstances specified in the Sales Agreement by giving five days notice to the applicable Sales Agent. In addition, each Sales Agent may terminate its Sales Agreement under the circumstances specified in such Sales Agreement by giving five days’ notice to the Company.

The Sales Agents and their respective affiliates may perform commercial banking, investment banking and advisory services for us or our affiliates from time to time for which they have received customary fees and expenses. The Sales Agents and their respective affiliates may, from time to time, engage in transactions with and perform services for us or our affiliates in the ordinary course of business. In addition, in the ordinary course of their business activities, the Sales Agents and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our

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affiliates. The Sales Agents and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

The principal business address of KeyBanc Capital Markets Inc. is 127 Public Square, 4th Floor, Cleveland, Ohio 44114 and the principal business address of Cantor Fitzgerald & Co. is 499 Park Avenue, New York, New York 10022.

LEGAL MATTERS

Certain legal matters will be passed upon for us by Bass, Berry & Sims PLC, Nashville, Tennessee. Certain matters of Maryland law, including the validity of the common stock to be issued in connection with this offering, will be passed upon for us by Venable LLP, Baltimore, Maryland. The Sales Agents are being represented in connection with this offering by Troutman Saunders LLP. Bass, Berry & Sims PLC and Troutman Sanders LLP may rely as to certain matters of Maryland law upon the opinion of Venable LLP.

EXPERTS

The financial statements as of September 30, 2014 and September 30, 2013 and for each of the three years in the period ended September 30, 2014 and management’s assessment of the effectiveness of internal control over financial reporting (which is included in the Report of Management on Internal Controls) as of September 30, 2014 included in the accompanying prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Exchange Act and are required to file reports, proxy statements and other information with the SEC. These documents may be inspected and copied for a fee at the SEC’s public reference room, 100 F Street, N.E., Washington, D.C. 20549.

This prospectus supplement and the accompanying prospectus do not contain all of the information in our registration statement, including amendments, exhibits and schedules. Statements in this prospectus supplement and in the accompanying prospectus about the contents of any contract or other document are not necessarily complete and, in each instance, reference is made to the copy of the contract or other document filed as an exhibit to the registration statement, each such statement being qualified in all respects by this reference.

Additional information about the Company may be found in our registration statement on Form N-2 (including the related amendments, exhibits and schedules thereto) filed with the SEC. The SEC maintains a web site (http://www.sec.gov) that contains our registration statement, other documents incorporated by reference in the registration statement and other information that we have filed electronically with the SEC, including proxy statements and reports filed under the Exchange Act.

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INDEX TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


Condensed Consolidated Statements of Assets and Liabilities as of December 31 and September 30, 2014		S-F-1

Condensed Consolidated Statements of Operations for the three months ended December 31, 2014 and 2013		S-F-2

Condensed Consolidated Statements of Changes in Net Assets for the three months ended December 31, 2014 and 2013		S-F-3

Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2014 and 2013		S-F-4

Condensed Consolidated Schedules of Investments as of December 31 and September 30, 2014		S-F-5

Notes to Condensed Consolidated Financial Statements		S-F-13

GLADSTONE CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)


	December 31, 2014			September 30, 2014
ASSETS
Investments at fair value:
Non-Control/Non-Affiliate investments (Cost of $283,539 and $225,845, respectively)	$	249,107		$	198,926
Affiliate investments (Cost of $60,275 and $61,281, respectively)		55,747			57,006
Control investments (Cost of $42,046 and $62,159, respectively)		21,770			25,354

Total investments at fair value (Cost of $385,860 and $349,285, respectively)		326,624			281,286

Cash and cash equivalents		6,380			6,314
Restricted cash and cash equivalents		974			675
Interest receivable		3,583			2,767
Due from custodian		1,999			6,022
Deferred financing fees		3,039			3,340
Other assets		1,382			1,025

TOTAL ASSETS	$	343,981		$	301,429


LIABILITIES
Borrowings at fair value (Cost of $83,500 and $36,700, respectively)	$	84,078		$	38,013
Mandatorily redeemable preferred stock, $0.001 par value per share, $25 liquidation preference per share; 4,000,000 shares authorized and 2,440,000 shares issued and outstanding		61,000			61,000
Accounts payable and accrued expenses		590			462
Interest payable		207			146
Fees due to Adviser^(A)		1,470			875
Fee due to Administrator^(A)		281			218
Other liabilities		774			1,055

TOTAL LIABILITIES	$	148,400		$	101,769

Commitments and contingencies^(B)

NET ASSETS
Common stock, $0.001 par value per share, 46,000,000 shares authorized and 21,000,160 shares issued and outstanding	$	21		$	21
Capital in excess of par value		292,859			307,348
Note receivable from employee^(A)		(100	)		(100	)
Cumulative net unrealized depreciation of investments		(59,236	)		(67,999	)
Cumulative net unrealized appreciation of other		(639	)		(1,374	)
Overdistributed net investment income		(3,873	)		(1,928	)
Accumulated net realized losses		(33,451	)		(36,308	)

TOTAL NET ASSETS	$	195,581		$	199,660

NET ASSET VALUE PER COMMON SHARE AT END OF PERIOD	$	9.31		$	9.51

^(A)

Refer to Note 4—Related Party Transactions for additional information.

^(B)

Refer to Note 10—Commitments and Contingencies for additional information.

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

S-F-1

GLADSTONE CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)


	Three Months Ended December 31,
	2014			2013
INVESTMENT INCOME
Interest income
Non-Control/Non-Affiliate investments	$	6,343		$	6,399
Affiliate investments		1,121			219
Control investments		182			1,569
Other		2			4

Total interest income		7,648			8,191
Other income
Non-Control/Non-Affiliate investments		1,078			1
Affiliate investments		—			—
Control investments		—			200

Total other income		1,078			201

Total investment income		8,726			8,392

EXPENSES
Base management fee^(A)		1,597			1,456
Loan servicing fee^(A)		832			884
Incentive fee^(A)		922			974
Administration fee^(A)		281			203
Interest expense on borrowings		678			615
Dividend expense on mandatorily redeemable preferred stock		1,029			686
Amortization of deferred financing fees		302			315
Professional fees		374			290
Other general and administrative expenses		264			321

Expenses before credits from Adviser		6,279			5,744
Credit to base management fee - loan servicing fee^(A)		(832	)		(884	)
Credits to fees from Adviser - other^(A)		(412	)		(878	)

Total expenses, net of credits		5,035			3,982

NET INVESTMENT INCOME		3,691			4,410

NET REALIZED AND UNREALIZED (LOSS) GAIN
Net realized (loss) gain:
Non-Control/Non-Affiliate investments		1,578			—
Control investments		(14,459	)		(10,732	)
Escrows		23			(42	)

Total net realized loss		(12,858	)		(10,774	)
Net unrealized appreciation (depreciation):
Non-Control/Non-Affiliate investments		(7,513	)		2,094
Affiliate investments		(252	)		(155	)
Control investments		16,528			14,938
Other		735			(7	)

Total net unrealized appreciation		9,498			16,870

Net realized and unrealized (loss) gain		(3,360	)		6,096

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	331		$	10,506

BASIC AND DILUTED PER COMMON SHARE:
Net investment income	$	0.18		$	0.21

Net increase in net assets resulting from operations	$	0.02		$	0.50

Distributions declared and paid	$	0.21		$	0.21

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic and Diluted		21,000,160			21,000,160

^(A)

Refer to Note 4—Related Party Transactions for additional information.

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

S-F-2

GLADSTONE CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(IN THOUSANDS)

(UNAUDITED)


	Three Months Ended December 31,
	2014			2013
OPERATIONS
Net investment income	$	3,691		$	4,410
Net realized loss on investments		(12,858	)		(10,774	)
Net unrealized appreciation of investments		8,763			16,877
Net unrealized depreciation (appreciation) of other		735			(7	)

Net increase in net assets resulting from operations		331			10,506


DISTRIBUTIONS
Distributions to common stockholders		(4,410	)		(4,410	)


NET (DECREASE) INCREASE IN NET ASSETS		(4,079	)		6,096
NET ASSETS, BEGINNING OF PERIOD		199,660			205,992

NET ASSETS, END OF PERIOD	$	195,581		$	212,088

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

S-F-3

GLADSTONE CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)


	Three Months Ended December 31,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations	$	331		$	10,506
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
Purchase of investments		(61,465	)		(44,881	)
Principal repayments on investments		4,497			24,667
Net proceeds from sale of investments		7,713			—
Increase in investment balance due to paid-in-kind interest		(70	)		(53	)
Net change in premiums, discounts and amortization		371			84
Interest payments received on non-accrual loans		(502	)		—
Net realized loss on investments		12,881			10,732
Net unrealized appreciation of investments		(8,763	)		(16,877	)
Net unrealized (depreciation) appreciation other		(735	)		7
(Increase) decrease in restricted cash and cash equivalents		(299	)		307
Amortization of deferred financing fees		302			315
(Increase) decrease in interest receivable		(816	)		3
Decrease in due from custodian		4,023			14,344
(Increase) decrease in other assets		(357	)		177
Increase (decrease) in accounts payable and accrued expenses		128			(2	)
Increase (decrease) in interest payable		61			(22	)
Increase (decrease) in fees due to Adviser^(A)		595			(851	)
Increase in fee due to Administrator^(A)		63			77
(Decrease) increase in other liabilities		(281	)		267

Net cash used in operating activities		(42,323	)		(1,200	)


CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings		59,500			42,400
Repayments on borrowings		(12,700	)		(41,600	)
Deferred financing fees		(1	)		—
Distributions paid to common stockholders		(4,410	)		(4,410	)

Net cash provided by (used in) financing activities		42,389			(3,610	)


NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		66			(4,810	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		6,314			13,900

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	6,380		$	9,090

^(A)

Refer to Note 4—Related Party Transactions for additional information.

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

S-F-4

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

DECEMBER 31, 2014

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)


Company^(A)	Industry	Investment^(B)	Principal		Cost		Fair Value
NON-CONTROL/NON-AFFILIATE INVESTMENTS^(N):
Proprietary Investments:
AG Transportation Holdings, LLC	Cargo transport	Senior Subordinated Term Debt (13.3%, Due 3/2018)^(D)	$	13,000	$	12,920	$	12,805
		Member Profit Participation (18.0% ownership)^{(F) (H)}				1,000		—
		Profit Participation Warrants (7.0% ownership)^{(F) (H)}				244		—

						14,164		12,805

Allison Publications, LLC	Printing and publishing	Line of Credit, $0 available (8.3%, Due 9/2016)^(D)		600		600		596
		Senior Term Debt (8.3%, Due 9/2018)^(D)		2,875		2,875		2,853
		Senior Term Debt (13.0%, Due 9/2018)^{(C) (D)}		5,400		5,400		5,366

						8,875		8,815

Alloy Die Casting Co.	Diversified/ conglomerate Manufacturing	Senior Term Debt (13.5%, Due 10/2018)^(D)		5,235		5,235		5,183
		Preferred Stock (1,742 units)^{(F) (H)}				1,742		1,585
		Common Stock (270 units)^{(F) (H)}				18		—

						6,995		6,768

Behrens Manufacturing, LLC	Diversified/ conglomerate manufacturing	Senior Term Debt (13.0%, Due 12/2018)^(D)		4,275		4,275		4,232
	Diversified/ conglomerate manufacturing	Preferred Stock (1,252 shares)^{(F) (H) (K)}				1,253		1,203

						5,528		5,435

B+T Group Acquisition Inc.	Telecommunications	Line of Credit, $300 available (10.0%, Due 6/2015)^(J)		300		300		300
		Senior Term Debt (13.0%, Due 12/2019)^(J)		6,000		6,000		6,000
		Convertible Preferred Stock (5,503 units)^{(H) (J) (K)}				1,799		1,799

						8,099		8,099

Chinese Yellow Pages Company	Printing and publishing	Line of Credit, $0 available (7.3%, Due 2/2015)^(D)		108		108		81

Circuitronics, Inc.	Diversified/ conglomerate manufacturing	Line of Credit, $1,500 available (6.5%, Due 12/2017)^(J)		1,500		1,500		1,500
		Senior Term Debt (9.5%, Due 12/2019)^(J)		11,000		11,000		11,000
		Common Stock (100 shares)^(H) (J)				1,000		1,000

						13,500		13,500

Francis Drilling Fluids, Ltd.	Oil and gas	Senior Subordinated Term Debt (11.4%, Due 4/2020)^(D)		15,000		15,000		14,025
		Senior Subordinated Term Debt (10.3%, Due 4/2020)^(D)		7,000		7,000		6,545
		Preferred Equity Units (999 units)^{(F) (H)}				648		747
		Common Equity Units (999 units)^{(F) H)}				1		206

						22,649		21,523

Funko, LLC	Personal and non- durable consumer products	Senior Subordinated Term Debt (9.5%, Due 5/2019)^(J)(G)		7,500		7,500		7,500
		Senior Subordinated Term Debt (9.5%, Due 5/2019)^(J)(G)				2,000		2,000
		Preferred Equity Units (1,305 units)^(F) (H)				1,305		9,511

						10,805		19,011

GFRC Holdings, LLC	Buildings and real estate	Line of Credit, $130 available (10.5%, Due 12/2014)^(D)		270		270		134
		Senior Term Debt (10.5%, Due 6/2016)^(D)		4,924		4,924		2,435
		Senior Subordinated Term Debt (13.0%, Due 6/2016)^(D)		6,598		6,598		1,064

						11,792		3,633

Heartland Communications Group	Broadcasting and entertainment	Line of Credit, $0 available (5.0%, Due 9/2014)^{(D) (G) (I)}		100		95		65
		Line of Credit, $0 available (10.0%, Due 9/2014)^{(D) (G) (I)}		100		91		65
		Senior Term Debt (5.0%, Due 9/2014)^{(D) (G) (I)}		4,342		4,141		824
		Common Stock Warrants (8.8% ownership)^(F) (H)				66		—

						4,393		954

J. America, Inc.	Personal and non- durable consumer products	Senior Subordinated Term Debt (10.4%, Due 12/2019)^(D)(G)		7,500		7,500		7,125
	Personal and non- durable consumer products	Senior Subordinated Term Debt (11.5%, Due 12/2019)^(D)(G)		9,500		9,500		8,978

						17,000		16,103

Leeds Novamark Capital I, L.P.	Private equity fund – healthcare, education and childcare	Limited Partnership Interest (3.5% ownership, $2,778 uncalled capital commitment)^{(H) (M)}				217		49

S-F-5

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

DECEMBER 31, 2014

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)


Company^(A)	Industry	Investment^(B)	Principal		Cost		Fair Value
NON-CONTROL/NON-AFFILIATE INVESTMENTS^(N) (Continued):
Legend Communications of Wyoming, LLC	Broadcasting and entertainment	Senior Term Debt (11.0%, Due 11/2014)^(D)	$	6,699	$	6,699	$	3,724

Meridian Rack & Pinion, Inc.	Automobile	Senior Term Debt (13.5%, Due 12/2018)^(D)		4,140		4,140		4,114
	Automobile	Convertible Preferred Stock (1,449 shares)^{(F) (H)}				1,449		1,279

						5,589		5,393

Precision Acquisition Group Holdings, Inc.	Machinery	Equipment Note (9.0%, Due 3/2015)^(D)		1,000		1,000		890
		Senior Term Debt (9.0%, Due 3/2015)^(D)		4,125		4,125		1,096
		Senior Term Debt (9.0%, Due 3/2015)^{(C) (D)}		4,053		4,053		457

						9,178		2,443

Saunders & Associates	Electronics	Line of Credit, $0 available (11.3%, Due 5/2013)^(D)		917		917		275
	Electronics	Senior Term Debt (11.3%, Due 5/2013)^(D)		8,947		8,947		2,684

						9,864		2,959

Southern Petroleum Laboratories, Inc.	Oil and gas	Senior Subordinated Term Debt (11.5%, Due 2/2020)^(D)		8,000		8,000		7,940
	Oil and gas	Common Stock (100 shares)^{(F) (H)}				750		750

						8,750		8,690

Sunburst Media - Louisiana, LLC	Broadcasting and entertainment	Senior Term Debt (8.5%, Due 2/2016)^{(F) (G)}		6,026		6,026		1,600

Vision Government Solutions, Inc.	Diversified/conglomerate service	Line of Credit, $1,000 available (7.5%, Due 12/2017)^(J)		1,000		1,000		1,000
	Diversified/conglomerate service	Senior Term Debt (9.75%, Due 12/2019)^(J)		9,000		9,000		9,000

						10,000		10,000

WadeCo Specialties, Inc.	Oil and gas	Line of Credit, $3,526 available (8.0%, Due 3/2016)^(D)		1,474		1,474		1,416
		Senior Term Debt (8.0%, Due 3/2019)^(D)		13,000		13,000		12,480
		Senior Subordinated Term Debt (12.0%, Due 3/2019)^(D)		7,000		7,000		6,685
		Convertible Preferred Stock (1,000 shares)^{(F) (H)}				313		516

						21,787		21,097

Westland Technologies, Inc.	Diversified/conglomerate manufacturing	Senior Term Debt (7.5%, Due 4/2016)^(D)		50		50		50
		Senior Term Debt (12.5%, Due 4/2016)^(D)		4,000		4,000		3,728
		Common Stock (58,333 shares) ^(F) (H)				408		58

						4,458		3,836

*Subtotal – Proprietary Investments*					$	206,476	$	176,518


Syndicated Investments:
Ameriqual Group, LLC	Beverage, food and tobacco	Senior Term Debt (9.0% and 1.5% PIK, Due 3/2016)^(E)	$	7,344	$	7,300	$	6,243

Ardent Medical Services, Inc.	Healthcare, education and childcare	Senior Subordinated Term Debt (11.0%, Due 1/2019)^(E)		7,143		7,135		7,107

Autoparts Holdings Limited	Automobile	Senior Term Debt (10.5%, Due 1/2018)^(E)		700		697		684

Blue Coat Systems, Inc.	Electronics	Senior Subordinated Term Debt (9.5%, Due 6/2020)^(E)		3,000		2,975		2,925

Envision Acquisition Company, LLC	Healthcare, education and childcare	Senior Subordinated Term Debt (9.8%, Due 11/2021)^(E)		2,500		2,455		2,463

First American Payment Systems, L.P.	Finance	Senior Subordinated Term Debt (10.8%, Due 4/2019)^(E)		4,195		4,168		4,158

GTCR Valor Companies, Inc.	Electronics	Senior Subordinated Term Debt (9.5%, Due 11/2021)^(E)		3,000		2,982		2,880

New Trident Holdcorp, Inc.	Healthcare, education and childcare	Senior Subordinated Term Debt (10.3%, Due 7/2020)^(E)		4,000		3,987		3,960

S-F-6

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

DECEMBER 31, 2014

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)


Company^(A)	Industry	Investment^(B)	Principal		Cost		Fair Value
NON-CONTROL/NON-AFFILIATE INVESTMENTS^(N) (Continued):
PLATO Learning, Inc.	Healthcare, education and childcare	Senior Subordinated Term Debt (11.3%, Due 5/2019)^(E)	$	5,000	$	4,928	$	4,250

PSC Industrial Holdings Corp	Oil and gas	Senior Subordinated Term Debt (10.5%, Due 12/2021)^(E)		3,500		3,430		3,430

RP Crown Parent, LLC	Electronics	Senior Subordinated Term Debt (11.3%, Due 12/2019)^(E)		2,000		1,968		1,660

Sensus USA, Inc.	Electronics	Senior Term Debt (8.5%, Due 5/2018)^(E)		500		497		475

SourceHOV LLC	Finance	Senior Subordinated Term Debt (11.5%, Due 4/2020)^(E)		5,000		4,803		4,762

Targus Group International, Inc.	Textiles and leather	Senior Term Debt (11.0% and 1.0% PIK, Due 5/2016)^(E)		9,031		8,964		7,496

The Active Network	Electronics	Senior Subordinated Term Debt (9.5%, Due 11/2021)^(E)		1,000		995		965

Vertellus Specialties, Inc.	Chemicals, plastics and rubber	Senior Term Debt (10.5%, Due 10/2019)^(E)		3,990		3,853		3,751

Vision Solutions, Inc.	Electronics	Senior Term Debt (9.5%, Due 7/2017)^(E)		11,000		10,957		10,559

Vitera Healthcare Solutions, LLC	Healthcare, education and childcare	Senior Subordinated Term Debt (9.3%, Due 11/2021)^(E)		4,500		4,474		4,342

W3, Co.	Oil and gas	Senior Subordinated Term Debt (9.3%, Due 9/2020)^(E)		499		495		479

*Subtotal - Syndicated Investments*					$	77,063	$	72,589



Total Non-Control/Non-Affiliate Investments (represented 76.3% of total investments at fair value)					$	283,539	$	249,107


AFFILATE INVESTMENTS^(O):
Ashland Acquisition, LLC	Printing and publishing	Line of Credit, $1,500 available (12.0%, Due 7/2016)^{(D) (G)}	$	—	$	—	$	—
		Senior Term Debt (12.0%, Due 7/2018)^{(D) (G)}		7,000		7,000		7,018
		Preferred Equity Units (4,400 units)^{(F) (H)}				440		205
		Common Equity Units (4,400 units)^{(F) (H)}				—		—

						7,440		7,223

Edge Adhesives Holdings, Inc.	Diversified/conglomerate manufacturing	Line of Credit, $567 available (12.5%, Due 8/2015)^(D)		433		433		431
		Senior Term Debt (12.5%, Due 2/2019)^(D)		6,200		6,200		6,184
		Senior Subordinated Term Debt (13.8%, Due 2/2019)^(D)		1,600		1,600		1,598
		Convertible Preferred Stock (2,316 shares)^{(F) (H)}				2,316		2,613

						10,549		10,826

FedCap Partners, LLC	Private equity fund – aerospace and defense	Class A Membership Units (80 units)^{(H) (L)}				1,634		1,996

Lignetics, Inc.	Diversified natural resources, precious metals and minerals	Senior Subordinated Term Debt (12.0%, Due 3/2020)^(D)		6,000		6,000		6,000
		Common Stock (100,000 shares)^{(F) (H)}				1,000		1,419

						7,000		7,419

RBC Acquisition Corp.	Healthcare, education and childcare	Line of Credit, $0 available (9.0%, Due 12/2015)^(F)		4,000		4,000		4,000
		Mortgage Note (9.5%, Due 12/2015)^{(F) (G)}		6,891		6,891		6,891
		Senior Term Debt (12.0%, Due 12/2015)^{(C) (F)}		11,392		11,392		11,392
		Senior Subordinated Term Debt (12.5%, Due 12/2015)^(F)(G)		6,000		6,000		6,000
		Preferred Stock (4,999,000 shares)^{(F) (H) (K)}				4,999		—
		Common Stock (2,000,000 shares)^{(F) (H)}				370		—

						33,652		28,283

Total Affiliate Investments (represented 17.0% of total investments at fair value)					$	60,275	$	55,747


CONTROL INVESTMENTS^(P):
Defiance Integrated Technologies, Inc.	Automobile	Senior Subordinated Term Debt (11.0%, Due 4/2016)^{(C) (F)}	$	6,465	$	6,465	$	6,465
	Automobile	Common Stock (15,500 shares)^(F) (H)				1		7,855

						6,466		14,320

S-F-7

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

DECEMBER 31, 2014

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)


Company^(A)	Industry	Investment^(B)	Principal		Cost		Fair Value
CONTROL INVESTMENTS^(P) (Continued):
Lindmark Acquisition, LLC	Broadcasting and entertainment	Senior Subordinated Term Debt, $3,120 available (25.0%, Due Upon Demand)^{(F) (G)}	$	—	$	—	$	—
		Success Fee on Senior Subordinated Term Debt^(F)				—		84
		Common Stock (100 shares)^(F) (H)				317		—

						317		84

Sunshine Media Holdings	Printing and publishing	Line of Credit, $400 available (4.8%, Due 5/2016)^{(D) (I)}		1,600		1,600		400
		Senior Term Debt (4.8%, Due 5/2016)^{(D) (I)}		16,948		16,948		4,237
		Senior Term Debt (5.5%, Due 5/2016)^{(C) (D) (I)}		10,700		10,700		2,729
		Preferred Stock (15,270 shares)^{(F) (H) (K)}				5,275		—
		Common Stock (1,867 shares)^(F) (H)				740		—
		Common Stock Warrants (72 shares)^{(F) (H)}				—		—

						35,263		7,366

Total Control Investments (represented 6.7% of total investments at fair value)					$	42,046	$	21,770



TOTAL INVESTMENTS					$	385,860	$	326,624

^(A)

Certain of the securities listed in this schedule are issued by affiliate(s) of the indicated portfolio company. The majority of the securities listed, totaling $268.6 million at fair value, are pledged as collateral to our Credit Facility, as described further in Note 5—Borrowings. Additionally, two of our investments (FedCap Partners, LLC and Leeds Novamark Capital I, L.P.) are considered non-qualifying assets under Section 55 of the Investment Company Act of 1940, as amended, (the “1940 Act”) as of December 31, 2014.

^(B)

Percentages represent cash interest rates (which are generally indexed off of the 30-day London Interbank Offered Rate (“LIBOR”)) in effect at December 31, 2014, and due dates represent the contractual maturity date. If applicable, paid-in-kind (“PIK”) interest rates are noted separately from the cash interest rates. Senior debt securities generally take the form of first priority liens on the assets of the underlying businesses.

^(C)

Last out tranche (“LOT”) of debt, meaning if the portfolio company is liquidated, the holder of the LOT is paid after all other debt holders.

^(D)

Fair value was based on an internal yield analysis or on estimates of value submitted by Standard & Poor’s Securities Evaluations, Inc. (“SPSE”).

^(E)

Fair value was based on the indicative bid price on or near December 31, 2014, offered by the respective syndication agent’s trading desk.

^(F)

Fair value was based on the total enterprise value of the portfolio company, which was then allocated to the portfolio company’s securities in order of their relative priority in the capital structure.

^(G)

Debt security has a fixed interest rate.

^(H)

Investment is non-income producing.

^(I)

Investment is on non-accrual status.

^(J)

New or follow-on proprietary investment valued at cost, as it was determined that the price paid during the three months ended December 31, 2014 best represents fair value as of December 31, 2014.

^(K)

Aggregates all shares of such class of stock owned without regard to specific series owned within such class, some series of which may or may not be voting shares.

^(L)

There are certain limitations on our ability to transfer our units owned, withdraw or resign prior to dissolution of the entity, which must occur no later than May 3, 2020.

^(M)

There are certain limitations on our ability to withdraw our partnership interest prior to dissolution of the entity, which must occur no later than May, 9, 2024 or two years after all outstanding leverage has matured.

^(N)

Non-Control/Non-Affiliate investments, as defined by the 1940 Act, are those that are neither Control nor Affiliate investments and in which we own less than 5.0% of the issued and outstanding voting securities.

^(O)

Affiliate investments, as defined by the 1940 Act, are those in which we own, with the power to vote, between 5.0% and 25.0% of the issued and outstanding voting securities.

^(P)

Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities.

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

S-F-8

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

SEPTEMBER 30, 2014

(DOLLAR AMOUNTS IN THOUSANDS)


Company^(A)	Industry	Investment^(B)	Principal		Cost		Fair Value
NON-CONTROL/NON-AFFILIATE INVESTMENTS^(P):
Proprietary Investments:
AG Transportation Holdings, LLC	Cargo transport	Senior Subordinated Term Debt (13.3%, Due 3/2018)^(D)	$	13,000	$	12,899	$	12,838
		Member Profit Participation (18.0% ownership)^{(F) (H)}				1,000		—
		Profit Participation Warrants (7.0% ownership)^{(F) (H)}				244		—

						14,143		12,838

Allison Publications, LLC	Printing and publishing	Line of Credit, $0 available (8.3%, Due 9/2016)^(D)		600		600		598
		Senior Term Debt (8.3%, Due 9/2018)^(D)		2,875		2,875		2,864
		Senior Term Debt (13.0%, Due 9/2018)^{(C) (D)}		5,400		5,400		5,380

						8,875		8,842

Alloy Die Casting Co.	Diversified/conglomerate manufacturing	Senior Term Debt (13.5%, Due 10/2018)^(D)		5,235		5,235		5,228
		Preferred Stock (1,742 units)^{(F) (H)}				1,742		1,122
		Common Stock (270 units)^{(F) (H)}				18		—

						6,995		6,350

Behrens Manufacturing, LLC	Diversified/conglomerate manufacturing	Senior Term Debt (13.0%, Due 12/2018)^(D)		4,275		4,275		4,280
	Diversified/conglomerate manufacturing	Preferred Stock (1,253 shares)^{(F) (H) (M)}				1,253		1,150

						5,528		5,430

Chinese Yellow Pages Company	Printing and publishing	Line of Credit, $0 available (7.3%, Due 2/2015)^(D)		108		108		95

Francis Drilling Fluids, Ltd.	Oil and gas	Senior Subordinated Term Debt (12.4%, Due 11/2017)^(D)		15,000		15,000		14,550
		Senior Subordinated Term Debt (11.3%, Due 11/2017)^(J)		7,000		7,000		7,000
		Preferred Equity Units (999 units)^{(F) (H)}				983		1,081
		Common Equity Units (999 units)^{(F) H)}				1		206

						22,984		22,837

Funko, LLC	Personal and non-durable consumer products	Senior Subordinated Term Debt (12.0% and 1.5% PIK, Due 5/2019)^(D)		7,645		7,645		7,817
	Personal and non-durable consumer products	Preferred Equity Units (1,305 units)^{(F) (H)}				1,305		5,691

						8,950		13,508

GFRC Holdings, LLC	Buildings and real estate	Line of Credit, $130 available (10.5%, Due 12/2014)^(D)		270		270		149
		Senior Term Debt (10.5%, Due 6/2016)^(D)		4,924		4,924		2,708
		Senior Subordinated Term Debt (13.0%, Due 6/2016)^(D)		6,598		6,598		3,761

						11,792		6,618

Heartland Communications Group	Broadcasting and entertainment	Line of Credit, $0 available (5.0%, Due 9/2014)^{(D) (G) (I)}		100		97		65
		Line of Credit, $0 available (10.0%, Due 9/2014)^{(D) (G) (I)}		100		93		65
		Senior Term Debt (5.0%, Due 9/2014)^{(D) (G) (I)}		4,342		4,196		809
		Common Stock Warrants (8.8% ownership)^{(F) (H)}				66		—

						4,452		939

J.America, Inc.	Personal and non-durable consumer products	Senior Subordinated Term Debt (10.4%, Due 12/2019)^(D)(G)		7,500		7,500		7,350
	Personal and non-durable consumer products	Senior Subordinated Term Debt (11.5%, Due 12/2019)^(D)(G)		9,500		9,500		9,298

						17,000		16,648

Leeds Novamark Capital I, L.P.	Private equity fund – healthcare, education and childcare	Limited Partnership Interest (3.5% ownership, $2,827 uncalled capital commitment)^{(H) (O)}				173		36

Legend Communications of Wyoming, LLC	Broadcasting and entertainment	Senior Term Debt (12.0%, Due 1/2014)^(D)		6,699		6,699		3,757

S-F-9

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

SEPTEMBER 30, 2014

(DOLLAR AMOUNTS IN THOUSANDS)


Company^(A)	Industry	Investment^(B)	Principal		Cost		Fair Value
NON-CONTROL/NON-AFFILIATE INVESTMENTS^(P) (Continued):
Meridian Rack & Pinion, Inc.	Automobile	Senior Term Debt (13.5%, Due 12/2018)^(D)	$	4,140	$	4,140	$	4,135
	Automobile	Convertible Preferred Stock (1,449 shares)^{(F) (H)}				1,449		1,549

						5,589		5,684

North American Aircraft Services, LLC	Aerospace and defense	Senior Subordinated Term Debt (12.5%, Due 8/2016)^{(F) (L)}		2,115		2,115		2,115
		Success Fee on Senior Subordinated Term Debt^{(F) (L)}				—		639
		Common Stock Warrants (35,000 shares)^{(F) (H) (L)}				350		1,928

						2,465		4,682

Precision Acquisition Group Holdings, Inc.	Machinery	Equipment Note (9.0%, Due 3/2015)^(D)		1,000		1,000		881
		Senior Term Debt (9.0%, Due 3/2015)^(D)		4,125		4,125		485
		Senior Term Debt (9.0%, Due 3/2015)^{(C) (D)}		4,053		4,053		457

						9,178		1,823

Saunders & Associates	Electronics	Line of Credit, $0 available (11.3%, Due 5/2013)^(D)		917		917		413
	Electronics	Senior Term Debt (11.3%, Due 5/2013)^(D)		8,947		8,947		4,026

						9,864		4,439

Southern Petroleum Laboratories, Inc.	Oil and gas	Senior Subordinated Term Debt (11.5%, Due 2/2020)^(J)		8,000		8,000		8,000
	Oil and gas	Common Stock (100 shares)^{(H) (J)}				750		750

						8,750		8,750

Sunburst Media - Louisiana, LLC	Broadcasting and entertainment	Senior Term Debt (8.5%, Due 2/2016)^{(F) (G)}		6,026		6,026		1,600

WadeCo Specialties, Inc.	Oil and gas	Line of Credit, $526 available (8.0%, Due 3/2015)^(D)		1,474		1,474		1,452
		Senior Term Debt (8.0%, Due 3/2019)^(D)		4,500		4,500		4,433
		Senior Subordinated Term Debt (12.0%, Due 3/2019)^(D)		4,500		4,500		4,421
		Convertible Preferred Stock (1,000 shares)^{(F) (H)}				250		454

						10,724		10,760

Westland Technologies, Inc.	Diversified/conglomerate manufacturing	Senior Term Debt (7.5%, Due 4/2016)^(D)		50		50		46
		Senior Term Debt (12.5%, Due 4/2016)^(D)		4,000		4,000		3,699
		Common Stock (58,333 shares)^(H)				408		58

						4,458		3,803

*Subtotal – Proprietary Investments*					$	164,753	$	139,439


Syndicated Investments:
Ameriqual Group, LLC	Beverage, food and tobacco	Senior Term Debt (9.0% and 1.5% PIK, Due 3/2016)^(E)	$	7,335	$	7,283	$	6,235

Ardent Medical Services, Inc.	Healthcare, education and childcare	Senior Subordinated Term Debt (11.0%, Due 1/2019)^(E)		7,143		7,135		7,224

Autoparts Holdings Limited	Automobile	Senior Term Debt (10.5%, Due 1/2018)^(E)		833		830		800

Blue Coat Systems, Inc.	Electronics	Senior Subordinated Term Debt (9.5%, Due 6/2020)^(E)		3,000		2,974		3,038

Envision Acquisition Company, LLC	Healthcare, education and childcare	Senior Subordinated Term Debt (9.8%, Due 11/2021)^(E)		2,500		2,454		2,500

First American Payment Systems, L.P.	Finance	Senior Subordinated Term Debt (10.8%, Due 4/2019)^(E)		4,195		4,167		4,205

GTCR Valor Companies, Inc.	Electronics	Senior Subordinated Term Debt (9.5%, Due 11/2021)^(E)		3,000		2,982		2,970

New Trident Holdcorp, Inc.	Healthcare, education and childcare	Senior Subordinated Term Debt (10.3%, Due 7/2020)^(E)		4,000		3,987		4,000

PLATO Learning, Inc.	Healthcare, education and childcare	Senior Subordinated Term Debt (11.3%, Due 5/2019)^(E)		5,000		4,925		5,000

S-F-10

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

SEPTEMBER 30, 2014

(DOLLAR AMOUNTS IN THOUSANDS)


Company^(A)	Industry	Investment^(B)	Principal		Cost		Fair Value
NON-CONTROL/NON-AFFILIATE INVESTMENTS^(P) (Continued):
RP Crown Parent, LLC	Electronics	Senior Subordinated Term Debt (11.3%, Due 12/2019)^(E)	$	2,000	$	1,967	$	1,898

Sensus USA, Inc.	Electronics	Senior Term Debt (8.5%, Due 5/2018)^(E)		500		497		495

Targus Group International, Inc.	Textiles and leather	Senior Term Debt (11.0% and 1.0% PIK, Due 5/2016)^(D)		9,034		8,956		8,171

The Active Network	Electronics	Senior Subordinated Term Debt (9.5%, Due 11/2021)^(E)		1,000		995		1,000

Vision Solutions, Inc.	Electronics	Senior Term Debt (9.5%, Due 7/2017)^(E)		11,000		10,953		10,972

Vitera Healthcare Solutions, LLC	Healthcare, education and childcare	Senior Subordinated Term Debt (9.3%, Due 11/2021)^(E)		500		493		495

W3, Co.	Oil and Gas	Senior Subordinated Term Debt (9.3%, Due 9/2020)^(E)		499		494		484

*Subtotal - Syndicated Investments*					$	61,092	$	59,487



Total Non-Control/Non-Affiliate Investments (represented 70.7% of total investments at fair value)					$	225,845	$	198,926


AFFILATE INVESTMENTS^(Q):
Ashland Acquisition, LLC	Printing and publishing	Line of Credit, $1,500 available (12.0%, Due 7/2016)^{(D) (G)}	$	—	$	—	$	—
		Senior Term Debt (12.0%, Due 7/2018)^{(D) (G)}		7,000		7,000		7,053
		Preferred Equity Units (4,400 units)^{(F) (H)}				440		206
		Common Equity Units (4,400 units)^{(F) (H)}				—		—

						7,440		7,259

Edge Adhesives Holdings, Inc.	Diversified/conglomerate manufacturing	Line of Credit, $230 available (12.5%, Due 8/2015)^(D)		770		770		768
		Senior Term Debt (12.5%, Due 2/2019)^(D)		6,200		6,200		6,208
		Senior Subordinated Term Debt (13.8%, Due 2/2019)^(D)		1,600		1,600		1,604
		Senior Subordinated Term Debt (13.8%, Due 11/2014)^(J)		585		585		585
		Convertible Preferred Stock (2,316 shares)^{(F) (H)}				2,316		2,885

						11,471		12,050

FedCap Partners, LLC	Private equity fund – aerospace and defense	Class A Membership Units (80 units)^{(H) (N)}				1,718		2,238

Lignetics, Inc.	Diversified natural resources, precious metals and minerals	Senior Subordinated Term Debt (12.0%, Due 3/2020)^(D)		6,000		6,000		6,007
	Diversified natural resources, precious metals and minerals	Common Stock (100,000 shares)^{(F) (H)}				1,000		1,169

						7,000		7,176

RBC Acquisition Corp.	Healthcare, education and childcare	Line of Credit, $0 available (9.0%, Due 6/2014)^(F)		4,000		4,000		4,000
		Mortgage Note (9.5%, Due 12/2014)^{(F) (G)}		6,891		6,891		6,891
		Senior Term Debt (12.0%, Due 12/2014)^{(C) (F)}		11,392		11,392		11,392
		Senior Subordinated Term Debt (12.5%, Due 12/2014)^(F)(G)		6,000		6,000		6,000
		Preferred Stock (4,999,000 shares)^{(F) (H) (M)}				4,999		—
		Common Stock (2,000,000 shares)^{(F) (H)}				370		—

						33,652		28,283

Total Affiliate Investments (represented 20.3% of total investments at fair value)					$	61,281	$	57,006


CONTROL INVESTMENTS^(R):
Defiance Integrated Technologies, Inc.	Automobile	Senior Subordinated Term Debt (11.0%, Due 4/2016)^{(C) (F)}	$	6,545	$	6,545	$	6,545
	Automobile	Common Stock (15,500 shares)^(F) (H)				1		6,461

						6,546		13,006

Lindmark Acquisition, LLC	Broadcasting and entertainment	Senior Subordinated Term Debt, $3,120 available (25.0%, Due Upon Demand)^{(F) (G)}		—		—		—
	Broadcasting and entertainment	Success Fee on Senior Subordinated Term Debt^(F)				—		89
		Common Stock (100 shares)^{(F) (H)}				317		—

						317		89

S-F-11

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

SEPTEMBER 30, 2014

(DOLLAR AMOUNTS IN THOUSANDS)


Company^(A)	Industry	Investment^(B)	Principal		Cost		Fair Value
CONTROL INVESTMENTS^(R) (Continued):
Midwest Metal Distribution, Inc.	Mining, steel, iron and non-precious metals	Senior Subordinated Term Debt (12.0%, Due 7/2015)^{(F) (I)}	$	18,281	$	17,720	$	4,455
		Preferred Stock (2,000 shares)^{(F) (H) (M)}				2,175		—
		Common Stock (501 shares)^{(F) (H)}				138		—

						20,033		4,455

Sunshine Media Holdings	Printing and publishing	Line of Credit, $400 available (4.8%, Due 5/2016)^{(D) (I)}		1,600		1,600		424
		Senior Term Debt (4.8%, Due 5/2016)^{(D) (I)}		16,948		16,948		4,491
		Senior Term Debt (5.5%, Due 5/2016)^{(C) (D) (I)}		10,700		10,700		2,889
		Preferred Stock (15,270 shares)^{(F) (H) (M)}				5,275		—
		Common Stock (1,867 shares)^{(F) (H)}				740		—
		Common Stock Warrants (72 shares)^{(F) (H)}				—		—

						35,263		7,804

Total Control Investments (represented 9.0% of total investments at fair value)					$	62,159	$	25,354




TOTAL INVESTMENTS^(S)					$	349,285	$	281,286

^(A)

Certain of the securities listed in this schedule are issued by affiliate(s) of the indicated portfolio company. The majority of the securities listed, totaling $222.0 million at fair value, are pledged as collateral to our Credit Facility, as described further in Note 5—Borrowings. Additionally, two of our investments (FedCap Partners, LLC and Leeds Novamark Capital I, L.P.) are considered non-qualifying assets under Section 55 of the 1940 Act as of September 30, 2014.

^(B)

Percentages represent cash interest rates (which are generally indexed off of the 30-day LIBOR) in effect at September 30, 2014, and due dates represent the contractual maturity date. If applicable, PIK interest rates are noted separately from the cash interest rates. Senior debt securities generally take the form of first priority liens on the assets of the underlying businesses.

^(C)

LOT of debt, meaning if the portfolio company is liquidated, the holder of the LOT is paid after all other debt holders.

^(D)

Fair value was based on an internal yield analysis or on estimates of value submitted by SPSE.

^(E)

Fair value was based on the indicative bid price on or near September 30, 2014, offered by the respective syndication agent’s trading desk.

^(F)

^(G)

Debt security has a fixed interest rate.

^(H)

Investment is non-income producing.

^(I)

Investment is on non-accrual status.

^(J)

New or follow-on proprietary investment valued at cost, as it was determined that the price paid during the three months ended September 30, 2014 best represents fair value as of September 30, 2014.

^(K)

Subsequent to September 30, 2014, the debt interest rates on Francis Drilling Fluids, Ltd. were decreased to approximately 11.9% and 10.8%, respectively, based on a leverage grid.

^(L)

Subsequent to September 30, 2014, North American Aircraft Services, LLC debt and equity investment cost basis were paid off, resulting in a realized gain of $1.6 million and success fees of $0.6 million. As such, the fair value as of September 30, 2014 was based upon the payoff amount.

^(M)

Aggregates all shares of such class of stock owned without regard to specific series owned within such class, some series of which may or may not be voting shares.

^(N)

There are certain limitations on our ability to transfer our units owned, withdraw or resign prior to dissolution of the entity, which must occur no later than May 3, 2020.

^(O)

^(P)

^(Q)

Affiliate investments, as defined by the 1940 Act, are those in which we own, with the power to vote, between 5.0% and 25.0% of the issued and outstanding voting securities.

^(R)

^(S)

Cumulative gross unrealized depreciation for federal income tax purposes is $84.3 million; cumulative gross unrealized appreciation for federal income tax purposes is $15.6 million. Cumulative net unrealized depreciation is $68.7 million, based on a tax cost of $349.9 million.

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

S-F-12

GLADSTONE CAPITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

DECEMBER 31, 2014

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA AND AS OTHERWISE INDICATED)

NOTE 1. ORGANIZATION

Gladstone Capital Corporation was incorporated under the General Corporation Law of the State of Maryland on May 30, 2001, and completed an initial public offering on August 23, 2001. The terms “the Company,” “we,” “our,” and “us” all refer to Gladstone Capital Corporation and its consolidated subsidiaries. We are an externally-managed, closed-end, non-diversified management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, we have elected to be treated for federal income tax purposes as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”). We were established for the purpose of investing in debt and equity securities of established private businesses in the United States (“U.S.”). Our investment objectives are to (1) achieve and grow current income by investing in debt securities of established small and medium-sized businesses in the U.S. that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time; and (2) provide our stockholders with long-term capital appreciation of the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell them for capital gains.

Gladstone Business Loan, LLC (“Business Loan”), a wholly-owned subsidiary of ours, was established on February 3, 2003, for the sole purpose of owning a portion of our portfolio of investments in connection with our revolving line of credit.

Gladstone Financial Corporation (“Gladstone Financial”), a wholly-owned subsidiary of ours, was established on November 21, 2006, for the purpose of holding a license to operate as a Specialized Small Business Investment Company. Gladstone Financial acquired this license in February 2007. The license enables us to make investments in accordance with the United States Small Business Administration guidelines for specialized small business investment companies. As of December 31 and September 30, 2014, we held no investments through Gladstone Financial.

The financial statements of the foregoing two subsidiaries are consolidated with ours. We also have significant subsidiaries whose financial statements are not consolidated with ours. Refer to Note 12—Unconsolidated Significant Subsidiaries for additional information regarding our unconsolidated significant subsidiaries.

We are externally managed by our investment advisor, Gladstone Management Corporation (the “Adviser”), a Delaware corporation and a Securities and Exchange Commission (the “SEC”) registered investment adviser and an affiliate of ours, pursuant to an investment advisory and management agreement (the “Advisory Agreement”). Administrative services are provided by our affiliate, Gladstone Administration, LLC (the “Administrator”), a Delaware limited liability company, pursuant to an administration agreement (the “Administration Agreement”).

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Statements and Basis of Presentation

We prepare our interim financial statements in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 and 10 of Regulation S-X. Accordingly, we have omitted certain disclosures accompanying annual financial statements prepared in accordance with GAAP. The accompanying Condensed Consolidated Financial Statements include our accounts and those of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Under Article 6 of Regulation S-X, and the authoritative accounting guidance provided by the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, we are not permitted to consolidate any portfolio company investments, including those in which we have a controlling interest. In our opinion, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim periods have been included. The results of operations for the three months ended December 31, 2014, are not necessarily indicative of results that ultimately may be achieved for the fiscal year. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2014, as filed with the SEC on November 12, 2014 and amended on December 29, 2014.

Our accompanying fiscal year-end Condensed Consolidated Statement of Assets and Liabilities was derived from audited financial statements, but does not include all disclosures required by GAAP.

S-F-13

Reclassifications

Certain amounts in the prior year’s financial statements have been reclassified to conform to the presentation for the three months ended December 31, 2014, with no effect on our financial condition, results of operations or cash flows.

Revisions

Certain amounts in the prior year’s financial statements have been revised to correct the net presentation of certain fees in our results of operations. The Adviser services, administers and collects on the loans held by Business Loan, in return for which the Adviser receives a 1.5% annual fee from Business Loan. All such loan servicing fees are voluntarily and irrevocably credited back to us by the Advisor. Previously, we presented the loan servicing fee on a net basis, which is zero, because it is 100.0% credited back to us. We have revised our fee presentation related to these loan servicing fees to reflect the gross fee and related gross unconditional, non-contractual and irrevocable credit amounts for the three month period ended December 31, 2013. Management evaluated this error in presentation and concluded it was not material to the previously issued financial statements for the three months ended December 31, 2013. The impact of the revision is shown in the table below:


	Three Months Ended December 31, 2013
	As Previously Reported			As Revised
Expenses
Aggregate expenses	$	4,860		$	4,860
Loan servicing fee		—			884

Expenses before credits from Adviser		4,860			5,744

Credit to base management fee – loan servicing fee		—			(884	)
Credits to fees from Adviser - other		(878	)		(878	)

Total expenses, net of credits	$	3,982		$	3,982

Investment Valuation Policy

Accounting Recognition

Board Responsibility

In accordance with the 1940 Act, our board of directors (our “Board of Directors”) has the ultimate responsibility for reviewing and approving, in good faith, the fair value of our investments based on our established investment valuation policy (the “Policy”). Our Board of Directors reviews valuation recommendations that are provided by professionals of the Adviser and Administrator with oversight and direction from the valuation officer (the “Valuation Team”). There is no single standard for determining fair value (especially for privately-held businesses), as fair value depends upon the specific facts and circumstances of each individual investment. In determining the fair value of our investments, the Valuation Team, led by the valuation officer, uses the Policy and each quarter our Board of Directors reviews the Policy to determine if changes thereto are advisable and also reviews whether the Valuation Team has applied the Policy consistently.

Use of Third Party Valuation Firms

The Valuation Team engages third party valuation firms to provide independent assessments of fair value of certain of our investments. Currently, the sole third-party service provider, Standard & Poor’s Securities Evaluation, Inc. (“SPSE”), provides estimates of fair value on our proprietary debt investments.

The Valuation Team generally assigns SPSE’s estimates of fair value to our debt investments where we do not have the ability to effectuate a sale of the applicable portfolio company. The Valuation Team corroborates SPSE’s estimates of fair value using one or more of the valuation techniques discussed below. The Valuation Team’s estimates of value on a specific debt investment may significantly differ from SPSE’s. When this occurs, our Board of Directors reviews whether the Valuation Team has followed the Policy and whether the Valuation Team’s recommended value is reasonable in light of the Policy and other relevant facts and circumstances and then votes to accept or reject the Valuation Team’s recommended valuation.

S-F-14

Valuation Techniques

In accordance with ASC 820, the Valuation Team uses the following techniques when valuing our investment portfolio:

•

Total Enterprise Value — In determining the fair value using a total enterprise value (“TEV”), the Valuation Team first calculates the TEV of the portfolio company by incorporating some or all of the following factors: the portfolio company’s ability to make payments and other specific portfolio company attributes; the earnings of the portfolio company (the trailing or projected twelve month revenue or earnings before interest, taxes, depreciation and amortization (“EBITDA”)); EBITDA or revenue multiples obtained from our indexing methodology whereby the original transaction EBITDA or revenue multiple at the time of our closing is indexed to a general subset of comparable disclosed transactions and EBITDA or revenue multiples from recent sales to third parties of similar securities in similar industries; a comparison to publicly traded securities in similar industries; and other pertinent factors. The Valuation Team generally references industry statistics and may use outside experts when gathering this information. Once the TEV is determined for a portfolio company, the Valuation Team then allocates the TEV to the portfolio company’s securities in order of their relative priority in the capital structure. Generally, the Valuation Team uses TEV to value our equity investments and, in the circumstances where we have the ability to effectuate a sale of a portfolio company, our debt investments.

TEV is primarily calculated using EBITDA or revenue multiples; however, TEV may also be calculated using a discounted cash flow (“DCF”) analysis whereby future expected cash flows of the portfolio company are discounted to determine a net present value using estimated risk-adjusted discount rates, which incorporate adjustments for nonperformance and liquidity risks. Generally, the Valuation Team uses the DCF to calculate the TEV to corroborate estimates of value for our equity investments where we do not have the ability to effectuate a sale of a portfolio company or for debt of credit impaired portfolio companies.

•

Investments in Funds — For equity investments in other funds, the Valuation Team generally determines the fair value of our uninvested capital at par value and of our invested capital at the net asset value (“NAV”) provided by the fund. The Valuation Team may also determine fair value of our investments in other investment funds based on the capital accounts of the underlying entity.

In addition to the above valuation techniques, the Valuation Team may also consider other factors when determining fair values of our investments, including, but not limited to: the nature and realizable value of the collateral, including external parties’ guaranties; any relevant offers or letters of intent to acquire the portfolio company; and the markets in which the portfolio company operates. If applicable, new and follow-on proprietary debt and equity investments made during the most recently completed quarter are generally valued at original cost basis.

S-F-15

Refer to Note 3—Investments for additional information regarding fair value measurements and our application of ASC 820.

Interest Income Recognition

We currently hold, and we expect to hold in the future, some loans in our portfolio that contain OID or paid-in-kind (“PIK”) provisions. We recognize OID for loans originally issued at discounts and recognize the income over the life of the obligation based on an effective yield calculation. PIK interest, computed at the contractual rate specified in a loan agreement, is added to the principal balance of a loan and recorded as income over the life of the obligation. Therefore, the actual collection of PIK income may be deferred until the time of debt principal repayment. To maintain our ability to be taxed as a RIC, we may need to pay out both of our OID and PIK non-cash income amounts in the form of distributions, even though we have not yet collected the cash on either.

As of December 31 and September 30, 2014, we had 20 and 17 original OID loans, respectively, primarily from the syndicated investments in our portfolio. We recorded OID income of $63 and $61 for the three months ended December 31, 2014 and 2013, respectively. The unamortized balance of OID investments as of December 31 and September 30, 2014, totaled $1.0 million and $0.6 million, respectively. As of December 31 and September 30, 2014, we had two and three investments, respectively, which had a PIK interest component. We recorded PIK income of $67 and $92 for the three months ended December 31, 2014 and 2013, respectively. We collected $0.2 million and $0 PIK interest in cash during each of the three months ended December 31, 2014 and 2013, respectively.

Other Income Recognition

We generally record success fees upon receipt of cash. Success fees are contractually due upon a change of control in a portfolio company, typically from an exit or sale. We received an aggregate of $0.9 million in success fees during the three months ended December 31, 2014, which resulted from $0.6 million related to the early payoff of North American Aircraft Services, LLC at a realized gain and $0.3 million prepayment of success fees by Francis Drilling Fluids, LLC (“FDF”). We received $0.2 million in success fees during the three months ended December 31, 2013, which related to our sale of substantially all of the assets in Lindmark Acquisition, LLC and the ensuing pay down of our debt investments at par in September 2013.

Dividend income on equity investments is accrued to the extent that such amounts are expected to be collected and if we have the option to collect such amounts in cash. During the three months ended December 31, 2014, we recorded $0.1 million of dividend income, net of return of capital cost basis adjustments, which resulted from our preferred equity investment in FDF. We did not record any dividend income during the three months ended December 31, 2013.

Success fees and dividend income are both recorded in other income in our accompanying Condensed Consolidated Statements of Operations.

Recent Accounting Pronouncements

In August 2014, the FASB issued Accounting Standards Update 2014–15 (“ASU 2014-15), “Presentation of Financial Statements – Going Concern (Subtopic 205 – 40): Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 requires management to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern, and to provide certain disclosures when it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. Since this guidance is primarily around certain disclosures to the financial statements, we anticipate no impact on our financial position, results of operations or cash flows from adopting this standard. We are currently assessing the additional disclosure requirements, if any, of ASU 2014-15. ASU 2014-15 is effective for the annual period ending after December 31, 2016 and for annual periods and interim periods thereafter, with early adoption permitted.

S-F-16

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which supersedes or replaces nearly all GAAP revenue recognition guidance. The new guidance establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time and will expand disclosures about revenue. We are currently assessing the impact of ASU 2014-09 and anticipate no impact on our financial position, results of operations or cash flows from adopting this standard. ASU 2014-09 is effective for annual reporting periods that begin after December 15, 2016 and interim periods within those years. Early adoption is not permitted.

NOTE 3. INVESTMENTS

Fair Value

•

Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical financial instruments in active markets;

•

S-F-17

The following table presents our investments carried at fair value as of December 31 and September 30, 2014, by caption on our accompanying Condensed Consolidated Statements of Assets and Liabilities and by security type, all of which are valued using Level 3 inputs:


	Total Recurring Fair Value Measurements Reported in
	*Condensed Consolidated Statements of Assets and Liabilities* Using Significant Unobservable Inputs (Level 3)
	December 31, 2014		September 30, 2014
Non-Control/Non-Affiliate Investments
Senior debt	$	112,356	$	74,299
Senior subordinated debt		118,047		110,601
Preferred equity		16,124		10,593
Common equity/equivalents		2,580		3,433

Total Non-Control/Non-Affiliate Investments	$	249,107	$	198,926


Affiliate Investments
Senior debt	$	35,916	$	36,311
Senior subordinated debt		13,598		14,197
Preferred equity		2,613		2,885
Common equity/equivalents		3,620		3,613

Total Affiliate Investments	$	55,747	$	57,006


Control Investments
Senior debt	$	7,366	$	7,804
Senior subordinated debt		6,549		11,089
Preferred equity		—		—
Common equity/equivalents		7,855		6,461

Total Control Investments	$	21,770	$	25,354


Total Investments at Fair Value	$	326,624	$	281,286

In accordance with the FASB’s ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Reporting Standards (“IFRS”), (“ASU 2011-04”), the following table provides quantitative information about our Level 3 fair value measurements of our investments as of December 31 and September 30, 2014. The table below is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to our fair value measurements. The weighted average calculations in the table below are based on the principal balances for all debt related calculations and on the cost basis for all equity-related calculations for the particular input.

S-F-18

Quantitative Information about Level 3 Fair Value Measurements

Range / Weighted Average as of

December 31,
2014

September 30,
2014

Valuation
Technique/
Methodology

Unobservable
Input

December 31,
2014

September 30,
2014

Senior debt^(A)

76,232

54,410

Yield Analysis

Discount
Rate

6.5% - 18.4% /
11.3%

8.4% - 18.8% /
13.4%

50,198

45,502

TEV

EBITDA
multiple

4.0x - 11.9x /

6.6x

4.0x - 7.6x /
6.1x

EBITDA

$135 - $4,400 /
$1,248

$247 - $3,700 /
$1,839

Revenue
multiple

0.6x - 0.8x /
0.7x

Revenue

$2,452 - $5,419 /
$4,220

$2,416 - $5,327 /
$4,151

29,208

18,502

Market Quotes

IBP

83.0% - 97.8% /
89.7%

85.0% - 99.8% /
94.1%

Senior subordinated debt^(B)

81,200

79,470

Yield Analysis

Discount
Rate

9.3% - 13.8% /
12.4%

11.3% - 13.8% /
12.5%

43,381

32,813

Market Quotes

IBP

83.0% - 99.5% /
97.0%

94.9% - 101.3% /
99.9%

13,613

23,604

TEV

EBITDA
multiple

4.0x - 8.6x /

5.6x

4.3x - 7.6x /
6.3x

EBITDA

$600 - 4,790 /

$2,159

$1,100 - $6,219 /
$3,403

Preferred and common equity / equivalents ^(C)

30,747

24,711

TEV

EBITDA
multiple

3.8x - 8.6x /

6.2x

4.3x - 7.6x /
6.1x

EBITDA

$1,038 - $27,865 /
$4,294

$998 - $15,685 /
$4,135

2,045

2,274

Investments in
Funds

Total Investments, at Fair Value

326,624

281,286

^(A)

December 31, 2014 includes three new proprietary debt investments for $28.8 million, which were valued at cost.

^(B)

December 31, 2014 includes two follow-on proprietary debt investments for $9.5 million and September 30, 2014 includes one new proprietary debt investment for $8.0 million and two follow-on debt investments for a combined $7.6 million, which were valued at cost, and one proprietary investment, which was valued at payoff amounts totaling $2.8 million.

^(C)

December 31, 2014 includes two new proprietary equity investments for $2.8 million, which were valued at cost. September 30, 2014 includes one new proprietary equity investment for $0.8 million, which was valued at cost, and one proprietary equity investment, which was valued at payoff amount totaling $1.9 million.

Fair value measurements can be sensitive to changes in one or more of the valuation inputs. Changes in market yields, discounts rates, leverage, EBITDA or EBITDA multiples (or revenue or revenue multiples), each in isolation, may change the fair value of certain of our investments. Generally, an increase or decrease in market yields, discount rates or leverage or a decrease in EBITDA or EBITDA multiples (or revenue or revenue multiples) may result in a corresponding decrease or increase, respectively, in the fair value of certain of our investments.

The following tables provide the changes in fair value, broken out by security type, during the three months ended December 31, 2014 and 2013 for all investments for which we determine fair value using unobservable (Level 3) factors.

S-F-19


Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
FISCAL YEAR TO DATE 2015:				Senior						Common
	Senior			Subordinated			Preferred			Equity/
Three Months Ended December 31, 2014	Debt			Debt			Equity			Equivalents			Total

Fair Value as of September 30, 2014	$	118,414		$	135,887		$	13,478		$	13,507		$	281,286
Total gains (losses):
Net realized (loss) gain^(B)		—			(12,146	)		(2,175	)		1,440			(12,881	)
Net unrealized (depreciation) appreciation^(C)		(3,430	)		(6,417	)		3,794			1,454			(4,599	)
Reversal of prior period net depreciation (appreciation) on realization^(C)		—			12,627			2,175			(1,440	)		13,362
New investments, repayments and settlements:^(D)
Issuances/originations		41,611			17,019			1,799			1,106			61,535
Settlements/repayments		(957	)		(2,641	)		(334	)		(434	)		(4,366	)
Sales		—			(6,135	)		—			(1,578	)		(7,713	)

Fair Value as of December 31, 2014	$	155,638		$	138,194		$	18,737		$	14,055		$	326,624


FISCAL YEAR TO DATE 2014:				Senior						Common
	Senior			Subordinated			Preferred			Equity/
Three Months Ended December 31, 2013	Debt			Debt^(A)			Equity			Equivalents			Total

Fair Value as of September 30, 2013	$	118,134		$	127,236		$	4,626		$	6,882		$	256,878
Total (losses) gains:
Net realized (loss)^(B)		(10,732	)		—			—			—			(10,732	)
Net unrealized appreciation^(C)		1,637			1,591			438			3,070			6,736
Reversal of prior period net depreciation (appreciation) on realization^(C)		10,263			(122	)		—			—			10,141
New investments, repayments and settlements:^(D)
Issuances/originations		14,214			26,029			4,673			18			44,934
Settlements/repayments		(5,004	)		(19,668	)		—			(79	)		(24,751	)

Fair Value as of December 31, 2013	$	128,512		$	135,066		$	9,737		$	9,891		$	283,206

^(A)

Includes one junior subordinated debt investment with a fair value of $0.6 million as of December 31, 2013. During the quarter ended March 31, 2014, we exited our one junior subordinated debt investment at par.

^(B)

Included in net realized (loss) gain on our accompanying Condensed Consolidated Statements of Operations for the three months ended December 31, 2014 and 2013.

^(C)

Included in net unrealized (depreciation) appreciation of investments on our accompanying Condensed Consolidated Statements of Operations for the three months ended December 31, 2014 and 2013.

^(D)

Includes increases in the cost basis of investments resulting from new portfolio investments, the amortization of discounts, and PIK, as well as decreases in the costs basis of investments resulting from principal repayments or sales, the amortization of premiums and acquisition costs and other cost-basis adjustments.

Investment Activities

Proprietary Investments

As of December 31 and September 30, 2014, we held 30 and 29 proprietary investments with an aggregate fair value of $254.0 million and $221.8 million, or 77.8% and 78.9% of the total aggregate portfolio at fair value, respectively. During the three months ended December 31, 2014, we invested in three new proprietary investments totaling $31.6 million; sold one proprietary investment for net proceeds of $6.1 million, resulting in a realized loss of $14.5 million; and had one proprietary investment pay off early at $2.5 million of cost basis and a realized gain of $1.6 million, for which we received success fees of $0.6 million. Additionally, during the three months ended December 31, 2014, we funded a combined $13.4 million to existing proprietary portfolio companies through revolver draws and follow on investments, while scheduled and unscheduled principal repayments were $1.7 million in the aggregate from existing proprietary portfolio companies (exclusive of the aforementioned $2.5 million in early payoffs). The following significant proprietary investment transactions occurred during the three months ended December 31, 2014:

•

B+T Holdings Inc. – In December 2014, we invested $8.4 million in B+T Holdings Inc. (“B+T”), through a combination of senior term debt and equity. B+T, headquartered in Tulsa, Oklahoma, is a full-service provider of structural engineering, construction, and technical services to the wireless tower industry for tower upgrades and modifications. This was a co-investment with one of our affiliated funds, Gladstone Investment Corporation (“Gladstone Investment”). Gladstone Investment invested an additional $19.6 million under the same terms as us.

S-F-20

•

Midwest Metal Distribution, Inc. – In December 2014, we sold our investment in Midwest Metal Distribution, Inc. (“Midwest Metal”) for net proceeds of $6.1 million, which resulted in a realized loss of $14.5 million recorded in the three months ended December 31, 2014. Midwest Metal had been on non-accrual status at the time of the sale.

•

Circuitronics, Inc. – In December 2014, we invested $15.0 million in Circuitronics, Inc. (“Circuitronics”) through a combination of senior term debt and equity. Circuitronics, headquartered in Dallas, Texas, is a premier electronic manufacturing services company focused on the design and production of specialized printed circuit board assemblies and related services.

•

Vision Government Solutions, Inc. – In December 2014, we invested $11.0 million in Vision Government Solutions, Inc. (“Vision”) through senior term debt. Vision, headquartered in Northboro, Massachusetts, is a leading provider of land parcel management software technology and appraisal services to local government organizations, enabling efficient assessment, billing, collections, mapping, and permitting.

Syndicated Investments

We held a total of 19 syndicated investments with an aggregate fair value of $72.6 million, or 22.2% of our total investment portfolio at fair value, as of December 31, 2014, as compared to 16 syndicated investments with an aggregate fair value of $59.5 million, or 21.1% of our total investment portfolio at fair value, as of September 30, 2014. During the three months ended December 31, 2014, we invested in three new syndicated investments for a combined $12.5 million. Additionally, we funded an additional $4.0 million in Vitera Healthcare Solutions, LLC, an existing syndicated investment, during the three months ended December 31, 2014.

Investment Concentrations

As of December 31, 2014, our investment portfolio consisted of investments in 49 companies located in 21 states across 19 different industries, with an aggregate fair value of $326.6 million. The five largest investments at fair value as of December 31, 2014, totaled $106.0 million, or 32.5% of our total investment portfolio, as compared to the five largest investments at fair value as of September 30, 2014, which totaled $94.3 million, or 33.5% of our total investment portfolio. As of December 31, 2014, our average investment by obligor was $7.9 million at cost, compared to $7.8 million at cost as of September 30, 2014. The following table outlines our investments by security type as of December 31 and September 30, 2014:


	December 31, 2014										September 30, 2014
	Cost		Percentage of Total Investments			Fair Value		Percentage of Total Investments			Cost		Percentage of Total Investments			Fair Value		Percentage of Total Investments
Senior debt	$	208,678		54.1	%	$	155,638		47.7	%	$	168,023		48.1	%	$	118,414		42.1	%
Senior subordinated debt		147,879		38.3			138,194		42.3			151,782		43.5			135,887		48.3

Total Debt Investments		356,557		92.4			293,832		90.0			319,805		91.6			254,301		90.4

Preferred equity		20,785		5.4			18,737		5.7			21,496		6.1			13,478		4.8
Common equity/equivalents		8,518		2.2			14,055		4.3			7,984		2.3			13,507		4.8

Total Equity Investments		29,303		7.6			32,792		10.0			29,480		8.4			26,985		9.6

Total Investments	$	385,860		100.0	%	$	326,624		100.0	%	$	349,285		100.0	%	$	281,286		100.0	%

S-F-21

Investments at fair value consisted of the following industry classifications as of December 31 and September 30, 2014:


	December 31, 2014					September 30, 2014
Industry Classification	Fair Value		Percentage of Total Investments			Fair Value		Percentage of Total Investments
Oil and gas	$	55,219		16.9	%	$	42,831		15.2	%
Healthcare, education and childcare		46,474		14.2			47,538		16.9
Diversified/conglomerate manufacturing		40,366		12.4			27,634		9.8
Personal and non-durable consumer products		35,113		10.8			30,157		10.7
Electronics		26,404		8.1			24,811		8.8
Printing and publishing		23,485		7.2			23,999		8.5
Automobile		20,397		6.2			19,489		6.9
Cargo transportation		12,805		3.9			12,838		4.6
Diversified/conglomerate services		10,000		3.1			—		—
Finance		8,920		2.7			4,205		1.5
Telecommunications		8,099		2.5			—		—
Textiles and leather		7,496		2.3			8,171		2.9
Diversified natural resources, precious metals and minerals		7,419		2.3			7,176		2.6
Broadcast and entertainment		6,362		1.9			6,386		2.3
Beverage, food and tobacco		6,243		1.9			6,235		2.2
Other, < 2.0% ^(A)		6,194		1.9			6,279		2.2
Buildings and real estate		3,632		1.1			6,617		2.4
Aerospace and defense		1,996		0.6			6,920		2.5

Total Investments	$	326,624		100.0	%	$	281,286		100.0	%

^(A)

No industry within this category exceeds 2.0% of the total fair value as of the respective periods.

Investments at fair value were included in the following geographic regions of the U.S. as of December 31 and September 30, 2014:

December 31, 2014

September 30, 2014

Geographic Region

Fair Value

Percentage of
Total
Investments

Fair Value

Percentage of
Total
Investments

South

121,022

37.0

92,355

32.8