GLADSTONE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(Unaudited)

	March 31, 2006			September 30, 2005
ASSETS
Investments at fair value (Cost 3/31/2006:$206,033,242; 9/30/2005: $205,375,554)	$	206,461,282		$	200,846,763
Cash and cash equivalents	311,090			503,776
Interest receivable – investments in debt securities	1,063,698			1,406,212
Interest receivable – officers	13,015			27,067
Due from custodian	9,251,975			2,624,074
Due from Adviser	320,621			—
Deferred financing fees	23,536			70,000
Prepaid assets	145,036			177,848
Other assets	135,066			137,354
TOTAL ASSETS	$	217,725,319		$	205,793,094

LIABILITIES
Accounts payable	$	4,589		$	21,893
Interest payable	278,951			183,707
Fees due to Adviser	230,182			391,322
Borrowings under lines of credit	60,300,000			53,034,064
Accrued expenses and deferred liabilities	249,286			350,665
Funds held in escrow	200,800			200,760
Total Liabilities	61,263,808			54,182,411
Net Assets	$	156,461,511		$	151,610,683

ANALYSIS OF NET ASSETS
Common stock, $0.001 par value, 50,000,000 shares authorized and 11,308,510 and 11,303,510 shares issued and outstanding, respectively	$	11,309		$	11,304
Capital in excess of par value	164,774,090			164,610,873
Notes receivable – employees	(8,722,687		)	(8,745,781		)
Net unrealized appreciation (depreciation) on investments	428,038			(4,528,791		)
Unrealized depreciation on derivative	(229,981		)	(253,747		)
Realized (loss) gain on sale of investments	(760,845		)	42,250
Distributions less than net investment income	961,587			474,575
Total Net Assets	$	156,461,511		$	151,610,683
Net Assets Per Share	$	13.84		$	13.41

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

GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
AS OF MARCH 31, 2006
(UNAUDITED)

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

Advanced Homecare Management, Inc.	Home health nursing services	Senior Subordinated Term Debt(5)(6)	$	7,500,000	$	7,500,000
		(13.7%, Due 12/2010)

Allied Extruders, LLC P&O Packaging Acquisition	Polyethylene film manufacturer	Senior Real Estate Term Debt (11.3%,Due 3/2011)	1,000,000		1,000,000
LLC		Senior Term Debt (3)(5)	8,000,000		8,030,000
		(11.3%,Due 3/2011)

Badanco Acquisition Corp.	Manufacturing-luggage	Senior Term Debt (5)	5,880,019		5,894,719
		(10.3%, Due 2/2010)
		Senior Term Debt (3)(5)	8,650,000		8,693,250
		(13.3%, Due 2/2010)

Benetech, Inc.	Dust management systems	Senior Term Debt (5)	2,437,500		2,461,875
	for the coal and electric	(9.6%, Due 5/2009
	utility industries	Senior Term Debt (3)(5)	3,128,125		3,175,047
		(12.6%, Due 5/2009)

Consolidated Bedding, Inc.	Manufacturing-mattresses	Senior Subordinated Term Debt (5)	2,495,370		2,375,472
		(13.8%, Due 3/2009)

Country Road	Service-	Senior Subordinated Term
Communications LLC	telecommunications	Debt (5)(6)	5,958,768		6,060,000
Country Road Management, Inc.		(12.6%, Due 7/2013)

Defiance Stamping Company	Manufacturing-trucking	Senior Term Debt (3)(5)	6,325,000		6,317,094
	parts	(12.6%, Due 4/2010)

Doe & Ingalls Management	Distributor-specialty	Senior Term Debt (5)	5,100,000		5,112,750
LLC	chemicals	(9.1%, Due 11/2010)
Doe & Ingalls of North		Senior Term Debt (3)(5)	4,500,000		4,505,625
Carolina Operating LLC		(12.6%, Due 11/2010)
Doe & Ingalls of Florida
Operating LLC
Doe & Ingalls of Virginia
Operating LLC

Finn Corporation	Manufacturing-landscape	Common Stock Warrants	37,000		730,178
	equipment

Gammill, Inc.	Designer and assembler of	Senior Term Debt (5)	2,305,147		2,302,266
	quilting machines and	(9.5%, Due 12/2008)
	accessories	Senior Term Debt (3)(5)	4,601,563		4,572,803
		(12.0%, Due 12/2008)

Global Materials	Manufacturing-steel wool	Senior Term Debt (3)(5)	5,400,000		5,373,000
Technologies, Inc.	products and metal fibers	(13.6%, Due 11/2009)

John Henry Holdings, Inc.	Manufacturing-packaging	Senior Subordinated Term
	products	Debt(5)(6)	7,070,737		6,993,500
		(11.8%, Due 6/2011)

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

Mistras Holdings Corp.	Nondestructive testing	Senior Term Debt (3)(5)	$	9,666,666	$	9,437,083
	instruments, systems	(10.7%, Due 8/2008)
	and services	Senior Term Debt (3)(5)	5,333,334		5,200,001
		(12.5%, Due 8/2008)

Network Solutions LLC	Service-internet domain	Senior Term Debt (6)	4,486,678		4,488,750
	registry and host	(10.0%,Due 1/2012)

Northern Contours	Manufacturing-veneer and	Senior Subordinated Term
Northern Contours	laminate components	Debt (5)	7,000,000		7,008,750
of Kentucky, Inc.		(11.6%, Due 5/2010)
Norcon Holding LLC
Norcon Lewis LLC

Penn Engineering & Manufacturing Corp.	Manufacturing-fractional horsepower engines	Senior Subordinated Term Debt (6)	5,008,810		5,050,000
PN Merger Sub Inc.		(10.9%, Due 5/2012)
PEM Holding Co.

Polar Corporation	Manufacturing-trailer parts	Senior Subordinated Term Debt(5)(6)	10,004,963		10,030,346
		(11.3%, Due 6/2010)

Puerto Rico Cable Acquisition Company, Inc.	Service-telecommunications	Senior Subordinated Term Debt(5)(6)	7,820,642		7,823,536
		(11.3%, Due 1/2012)

RCS Management Holding	Service-healthcare	Senior Term Debt (3)	3,000,000		3,000,000
Co.	supplies	(9.3%,Due 1/2011)
		Senior Term Debt (4)	3,000,000		3,000,000
		(11.8%,Due 1/2011)

Santana Plastics	Manufacturing-	Senior Term Debt (3)(5)	5,850,000		5,850,000
	polyethylene	(12.7%, Due 11/2009)
	bathroom partitions	Senior Term Debt (4)(5)	1,901,250		1,901,250
		(13.0%, Due 11/2009)

SCPH Holdings, Inc.	Manufacturing-underwater	Credit Facility (7)	—		—
Sea Con Phoenix, Inc.	and harsh environment	(9.3%, Due 2/2007)
Phoenix Optix, Inc.	components	Senior Term Debt (5)	2,975,000		2,978,719
		(9.8%, Due 2/2010)
		Senior Term Debt (3)(5)	2,962,500		2,966,203
		(12.8%, Due 2/2010)

SCS Acquisition Corp.	Service-chemically treated	Credit Facility (8)	—		—
	equipment distribution	(8.6%, Due 12/2011)
		Senior Term Debt (9)	6,500,000		6,500,000
		(8.6%, Due 12/2011)
		Senior Term Debt (3)(10)	6,606,250		6,606,250
		(10.6%, Due 12/2011)

Company (1)

Industry

Investment (2)

Cost

Fair Value

Survey Sampling

Service-telecommunications

Senior Subordinated Term
Debt(5)(6)

2,256,602

2,269,688

(12.2%, Due 5/2012)

Tech Lighting LLC

Manufacturing-low voltage lighting systems

Senior Subordinated Term
Debt(5)(6)

9,011,222

9,000,000

(11.5%, Due 10/2010)

Thibaut Acquisition Co.

Design and disbtribution-

Credit Facility (11)

575,000

574,281

wall coverings

(9.1%,Due 1/2011)

Senior Term Debt

3,500,000

(9.1%,Due 1/2011)

Senior Term Debt (3)

3,000,000

(11.6%,Due 1/2011)

Visual Edge Technology, Inc.

Service-office supplies

Senior Subordinated Term

Graphic Enterprises, Inc.

distribution

Debt (5)

5,000,000

4,993,750

Copeco, Inc.

(12.6%, Due 8/2011)

Westlake Hardware, Inc.

Retail-hardware and

Senior Subordinated Term

WHI Holding Corp.

variety

Debt (5)

15,000,000

(11.9%, Due 1/2011)

Xspedius Communications

Service-

Senior Subordinated Term

LLC

telecommunications

Debt (5)

5,185,096

(15.3%, Due 3/2010)

Total:

206,033,242

206,461,282

(1) We do not “Control,” and are not an “Affiliate” of, any of our portfolio companies, each as defined in the Investment Company Act of 1940, as amended (the “1940 Act”). In general, under the 1940 Act, we would “Control” a portfolio company if we owned 25% or more of its voting securities and would be an “Affiliate” of a portfolio company if we owned 5% or more of its voting securities.

(2) Percentage represents interest rates in effect at December 31, 2005 and due date represents the contractual maturity date.

(3) Last Out Tranche of senior debt, meaning if the company is liquidated then the holder of the Last Out Tranche is paid after the senior debt.

(4) Last Out Tranche of senior debt, meaning if the company is liquidated then the holder of the Last Out Tranche is paid after the senior debt, however the debt is junior to another Last Out Tranche.

(5) Fair value was based on valuation prepared and provided by Standard & Poor’s Loan Evaluation Services.

(6) Marketable securities, such as syndicated loans, are valued based on the indicative bid price, as of March 31, 2005, from the respective originating syndication agent’s trading desk.

(7) Availability under the credit facility totals $500,000. There were no borrowings outstanding at March 31, 2006.

(8) Availability under the credit facility totals $2,500,000. There were no borrowings outstanding at March 31, 2006.

(9) Availability under the debt facility totals $7,500,000. The outstanding balance of the debt facility was $6,500,000 at March 31, 2006.

(10) Availability under the debt facility totals $7,500,000. The outstanding balance of the debt facility was $6,606,250 at March 31, 2006.

(11) Availability under the credit facility totals $1,000,000. Borrowings of $575,000 were outstanding at March 31, 2006.

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

GLADSTONE CAPITAL CORPORATION
CONSOLIDATED SCHEDULE OF INVESTMENTS
AS OF SEPTEMBER 30, 2005

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

Advanced Homecare Management, Inc.	Home health nursing services	Senior Subordinated Term Debt (6)	$	7,500,000	$	7,500,000
		(12.6%, Due 12/2010)

Allied Extruders, Inc.	Polyethylene film	Senior Term Debt (3)	3,950,000		3,964,813
	manufacturer	(12.3%, Due 7/2009)

ARI Holdings, Inc. (11) (12)	Manufacturing-auto parts	Senior Term Debt	3,933,939		2,880,000
		(12.8%, Due 2/2008)

Badanco Acquisition Corp.	Manufacturing-luggage	Senior Term Debt (6)	6,615,019		6,615,019
		(9.2%, Due 2/2010)
		Senior Term Debt (3)(6)	8,650,000		8,650,000
		(12.2%, Due 2/2010)

Benetech, Inc.	Dust management systems	Senior Term Debt (6)	2,762,500		2,783,219
	for the coal and electric	(8.7%, Due 5/2009)
	utility industries	Senior Term Debt (3)(6)	3,209,375		3,249,492
		(11.7%, Due 5/2009)

Consolidated Bedding, Inc.	Manufacturing-mattresses	Senior Subordinated Term Debt (6)	2,927,382		2,898,968
		(13.0%, Due 3/2009)

Country Road	Service-	Senior Subordinated Term Debt	5,955,942		6,060,000
Communications LLC	telecommunications	(11.6%, Due 7/2013)
Country Road Management, Inc.

Coyne International	Industrial services	Senior Term Debt (3)(5)(6)	6,375,052		6,367,083
Enterprises		(13.0%, PIK 2%, Due 7/2007)

Defiance Stamping	Manufacturing-trucking	Senior Term Debt (3)	6,325,000		6,332,906
Company	parts	(11.7%, Due 4/2010)

Finn Corporation	Manufacturing-landscape equipment	Senior Subordinated Term Debt (6)	10,500,000		7,350,000
		(13.0%, Due 2/2006)
		Common Stock Warrants	37,000		682,114

Gammill, Inc.	Designer and assembler of	Senior Term Debt (6)	3,771,427		3,771,427
	quilting machines and	(9.5%, Due 12/2008)
	accessories	Senior Term Debt (3)(6)	4,690,625		4,667,172
		(12.0%, Due 12/2008)

Global Materials	Manufacturing-steel wool	Senior Term Debt (3)(6)	5,500,000		5,486,250
Technologies, Inc.	products and metal fibers	(13.0%, Due 11/2009)

Infor Global Solutions Ltd.	Enterprise application solutions	Senior Subordinated Term Debt (7)	6,821,250		7,070,000
		(11.0%, Due 4/2012)

John Henry Holdings, Inc.	Manufacturing-packaging products	Senior Subordinated Term Debt(6)	7,067,923		7,064,500
		(11.0%, Due 6/2011)

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

Marcal Paper Mills, Inc. (12)	Manufacturing-paper products	Senior Subordinated Term Debt (6)	$	6,275,000	$	6,149,500
		(13.0%, Due 12/2006)
		First Mortgage Loan (5)	9,277,877		9,277,877
		(16%, PIK 1%, Due 12/2006)

Mistras Holdings Corp.	Nondestructive testing	Senior Term Debt (3)(6)	9,666,666		9,461,249
	instruments, systems	(10.5%, Due 8/2008)
	and services	Senior Term Debt (3)(6)	4,833,334		4,724,584
		(12.5%, Due 8/2008)
		Senior Term Debt (3)(6)	1,000,000		982,500
		(13.5%, Due 8/2008)

Northern Contours	Manufacturing-veneer and	Senior Subordinated Term
Northern Contours		Debt (8)	7,000,000		7,000,000
of Kentucky, Inc.	laminate components	(10.7%, Due 5/2010)
Norcon Holding LLC
Norcon Lewis LLC

Penn Engineering &	Manufacturing-fractional	Senior Subordinated Term	5,009,524		5,050,000
Manufacturing Corp.		Debt (8)
PN Merger Sub Inc.	horsepower engines	(10.0%, Due 5/2012)
PEM Holding Co.

Polar Corporation	Manufacturing-trailer parts	Senior Subordinated Term Debt (6)	8,609,566		8,627,500
		(10.3%, Due 6/2010)

Puerto Rico Cable	Service-	Senior Subordinated Term Debt	5,050,182		5,075,000
Acquisition Company, Inc.	telecommunications	(10.3%, Due 1/2012)

Regency Gas Services LLC	Midstream gas gathering and processing	Senior Subordinated Term Debt (7)	5,029,188		5,037,500
		(9.9%, Due 12/2010)

Santana Plastics	Manufacturing-	Senior Term Debt (3)(6)	6,000,000		6,007,500
	polyethylene bathroom	(11.7%, Due 11/2009)
	partitions	Senior Term Debt (4)(6)	1,950,000		1,952,438
		(13.0%, Due 11/2009)

SCPH Holdings, Inc.	Manufacturing-underwater	Credit Facility (9)	—		—
Sea Con Phoenix, Inc.	and harsh environment	(8.0%, Due 3/2006)
Phoenix Optix, Inc.	components	Senior Term Debt (3)(6)	3,237,500		3,241,547
		(8.7%, Due 2/2010)
		Senior Term Debt (6)	3,000,000		3,003,750
		(12.0%, Due 2/2010)

Survey Sampling	Service-telecommunications	Senior Subordinated Term Debt (6)	4,514,105		4,539,375
		(11.0%, Due 5/2012)

Tech Lighting LLC	Manufacturing-low voltage lighting systems	Senior Subordinated Term Debt (6)	9,012,452		9,067,500
		(10.4%, Due 10/2010)

Visual Edge Technology, Inc. Graphic Enterprises, Inc.	Service-office supplies distribution	Senior Subordinated Term Debt	5,000,000		5,000,000
Copeco, Inc.		(11.7%, Due 8/2011)

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

Woven Electronics Corporation	Custom electrical cable	Senior Term Debt (4)(6)(10)	$	8,344,999	$	8,776,435
	assemblies	(11.5%, Due 3/2009)

Xspedius Communications LLC	Service-telecommunications	Senior Subordinated Term Debt (6)	5,972,727		4,479,545
		(14.3%, Due 3/2010)

Total:			$	205,375,554	$	200,846,763

(2) Percentage represents interest rates in effect at September 30, 2005 and due date represents the contractual maturity date.

(3) Last Out Tranche of senior debt, meaning if the company is liquidated then the holder of the Last Out Tranche is paid after the senior debt.

(5) Has some paid in kind (PIK) interest. Refer to Note 2 “Summary of Significant Accounting Policies” of the Company’s Form 10-K for the fiscal year ended September 30, 2005.

(6) Fair value was based on valuation prepared and provided by Standard & Poor’s Loan Evaluation Services.

(7) Marketable securities, such as syndicated loans, are valued based on the indicative bid price, as of September 30, 2005, from the respective originating syndication agent’s trading desk.

(8) Investment was valued at cost due to recent acquisition.

(9) Availability under the credit facility totals $500,000. There were no borrowings outstanding at September 30, 2005.

(10) Includes a success fee with a $347,986 fair value and no cost basis.

(11) Non-income producing at September 30, 2005.

(12) Subsequent to September 30, 2005, the entire investment in the portfolio company was sold at the fair value reflected herein.

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

GLADSTONE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	Three Months Ended March 31,
	2006			2005
INVESTMENT INCOME
Interest income – investments	$	6,875,264		$	5,198,180
Interest income – cash and cash equivalents	4,624			5,130
Interest income – notes receivable from employees	107,033			113,599
Prepayment fees and other income	13,779			569,620
Total investment income	7,000,700			5,886,529

EXPENSES
Loan servicing (Refer to Note 12)	734,644			585,542
Management fee (Refer to Notes 12 and 15)	352,379			390,007
Professional fees	110,887			156,383
Amortization of deferred financing fees	32,286			91,912
Interest expense	948,166			439,521
Stockholder related costs	115,864			104,541
Directors fees	30,212			24,000
Insurance expense	50,590			43,890
Stock option compensation	34,065			—
General and administrative exepnses	60,791			69,475
Expenses before credit from Gladstone Management	2,469,884			1,905,271
Credit to management fee for fees collected by Gladstone Management
(Refer to Note 15)	(673,000		)	(450,000		)
Total expenses net of credit to management fee	1,796,884			1,455,271

NET INVESTMENT INCOME BEFORE INCOME TAXES	5,203,816			4,431,258
Income tax expense	—			—
NET INVESTMENT INCOME	5,203,816			4,431,258

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on sale of investments	377,500			20,000
Unrealized appreciation on derivative	24,658			15,848
Net unrealized depreciation on investments	(15,593		)	(191,728		)
Net gain (loss) on investments	386,565			(155,880		)

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	5,590,381		$	4,275,378

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE:
Basic	$	0.49		$	0.38
Diluted	$	0.48		$	0.37

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
Basic	11,308,510			11,288,833
Diluted	11,536,360			11,620,603

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

GLADSTONE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	Six Months Ended March 31
	2006			2005
INVESTMENT INCOME
Interest income – investments	$	12,722,371		$	10,905,523
Interest income – cash and cash equivalents	13,536			21,470
Interest income – notes receivable from employees	214,126			228,317
Prepayment fees and other income	80,986			809,620
Total investment income	13,031,019			11,964,930

EXPENSES
Loan servicing (Refer to Note 12)	1,450,059			1,116,494
Management fee (Refer to Notes 12 and 15)	621,080			717,309
Professional fees	233,353			395,105
Amortization of deferred financing fees	58,536			183,824
Interest expense	1,600,244			611,251
Stockholder related costs	244,799			176,310
Directors fees	54,212			51,000
Insurance expense	101,367			90,162
Stock option compensation	77,322			—
General and administrative exepnses	116,580			112,635
Expenses before credit from Gladstone Management	4,557,552			3,454,090
Credit to management fee for fees collected by Gladstone Management
(Refer to Note 15)	(1,223,000		)	(736,500		)
Total expenses net of credit to management fee	3,334,552			2,717,590

NET INVESTMENT INCOME BEFORE INCOME TAXES	9,696,467			9,247,340
Income tax expense	50,237			138,678
NET INVESTMENT INCOME	9,646,230			9,108,662

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) gain on sale of investments	(803,095		)	29,750
Unrealized appreciation (depreciation) on derivative	23,766			(8,963		)
Net unrealized appreciation on investments	4,956,829			90,877
Net gain on investments	4,177,500			111,664

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	13,823,730		$	9,220,326

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE:
Basic	$	1.22		$	0.82
Diluted	$	1.20		$	0.79

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
Basic	11,307,510			11,283,671
Diluted	11,555,479			11,614,219

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

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

	Six Months Ended March 31,
	2006			2005
Operations:
Net investment income	$	9,646,230		$	9,108,662
Net realized (loss) gain on sale of investments	(803,095		)	29,750
Unrealized appreciation (depreciation) on derivatives	23,766			(8,963		)
Net unrealized appreciation on investments	4,956,829			90,877
Net increase in net assets from operations	13,823,730			9,220,326

Capital transactions:
Distributions to stockholders	(9,159,218		)	(8,125,327		)
Stock option compensation	77,322			—
Issuance of common stock under stock option plan	85,900			157,500
Repayment of principal on employee notes	23,094			773,389
Shelf offering costs	—			(111,233		)
Decrease in net assets from capital share transactions	(8,972,902		)	(7,305,671		)

Total increase in net assets	4,850,828			1,914,655
Net assets at beginning of year	151,610,683			152,226,655
Net assets at end of period	$	156,461,511		$	154,141,310

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

GLADSTONE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Six Months Ended March 31,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES

Net increase in net assets resulting from operations	$	13,823,730		$	9,220,326
Adjustments to reconcile net increase in net assets resulting from
operations to net cash provided by (used in) operating activities:
Net amortization of premiums and discounts	(121,151		)	(8,267		)
Amortization of deferred financing fees	58,536			183,824
Stock compensation	77,322			—
Realized loss on investments	1,180,595			—
Unrealized (appreciation) depreciation on derivative	(23,766		)	8,963
Change in net unrealized appreciation	(4,956,829		)	(90,877		)
Decrease (increase) in interest receivable	356,566			(272,193		)
Increase in funds due from custodian	(6,627,901		)	(13,268,958		)
Decrease in prepaid assets	32,812			36,136
(Increase) decrease in due from affiliate	(320,621		)	109,639
Decrease in other assets	26,054			4,038
(Decrease) increase in accounts payable	(17,304		)	141
Increase in interest payable	95,244			49,810
Decrease in accrued expenses and deferred liabilities	(101,379		)	(608,523		)
(Decrease) increase in fees due to affiliate	(161,140		)	53,732
Increase in funds held in escrow	40			—
Increase in investment balance due to payment in kind interest	(74,701		)	(275,483		)
Net cash provided by (used in) operating activities	3,246,107			(4,857,692		)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of investments	(65,159,566		)	(91,463,375		)
Principal repayments on investments	63,517,133			59,835,625
Repayment of repurchase agreements	—			(21,345,997		)
Receipt of principal on notes receivable - employees	23,094			773,389
Net cash used in investing activities	(1,619,339		)	(52,200,358		)

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings from the lines of credit	69,780,000			100,400,000
Repayments on the lines of credit	(62,514,064		)	(82,043,547		)
Distributions paid	(9,159,218		)	(8,125,327		)
Exercise of employee stock options	85,900			157,500
Deferred financing fees	(12,072		)	—
Shelf offering costs	—			(111,233		)
Net cash (used in) provided by financing activities	(1,819,454		)	10,277,393

NET DECREASE IN CASH AND CASH EQUIVALENTS (1)	(192,686		)	(46,780,657		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	503,776			65,954,840
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	311,090

MARYLAND		54-2040781
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Assets and Liabilities as of March 31, 2006 and September 30, 2005
	Consolidated Schedules of Investments as of March 31, 2006 and September 30, 2005
	Consolidated Statements of Operations for the three months ended March 31, 2006 and March 31, 2005
	Consolidated Statements of Operations for the six months ended March 31, 2006 and March 31, 2005
	Consolidated Statements of Changes in Net Assets for the six months ended March 31, 2006 and March 31, 2005
	Consolidated Statements of Cash Flows for the six months ended March 31, 2006 and March 31, 2005
	Financial Highlights for the three and six months ended March 31, 2006 and March 31, 2005
	Notes to Consolidated Financial Statements

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Overview
	Results of Operations
	Liquidity and Capital Resources

Item 3.	Quantitative and Qualitative Disclosure About Market Risk

Item 4.	Controls and Procedures

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings

Item 1A.	Risk Factors

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

Item 3.	Defaults Upon Senior Securities

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

Item 5.	Other Information

Item 6.	Exhibits

SIGNATURES