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TABLE OF CONTENTS
Financial Statements

Prospectus Supplement
(To Prospectus dated January 14, 2008)

GLADSTONE INVESTMENT CORPORATION

Transferable Rights Offering to Purchase
up to 5,520,033 Shares of Common Stock
Upon Exercise of Rights to Subscribe for Such Shares

         We are granting at no cost to the holders of shares of our common stock on the record date subscription rights, or the Rights, to purchase up to an aggregate of 5,520,033 shares of our common stock. You will receive one Right for every three shares of our common stock that you own as of the record date, which is March 31, 2008, at 5:00 p.m., New York time. For every Right held, you will be able to purchase one share of our common stock at the subscription price. Fractional shares will not be issued upon exercise of Rights. As more fully described in this prospectus supplement, through an over-subscription privilege, our common stockholders on the record date, as well as purchasers of Rights, may request shares of our common stock not acquired by other stockholders in this offering.

         The subscription price per share will be ninety three percent (93%) of the volume-weighted average of the sales prices of our common stock on the NASDAQ Global Select Market for the five (5) consecutive trading days ending on the expiration date of the offering. Because the subscription price will be determined on the expiration date, stockholders who elect to exercise their rights will not know the subscription price per share at the time they exercise such rights. There is a significant possibility that this offering will dilute the ownership interest and voting power of the common stock owned by stockholders who do not fully exercise their basic subscription rights. Stockholders who do not fully exercise their basic subscription rights should expect that they will, upon completion of the offering, own a smaller proportional interest in us than before the offering.

         The Rights will expire if they are not exercised by 5:00 p.m., New York time, on April 21, 2008, the expiration date of the offering, unless extended by us, in our sole discretion, to a date not later than May 5, 2008. You will have no right to rescind your subscription after receipt of your payment of the estimated subscription price to the subscription agent.

         Please read this prospectus supplement and accompanying prospectus and prospectus supplement before investing, and keep it for future reference. It contains important information about us. The Securities and Exchange Commission, or the SEC, maintains an Internet website (http://www.sec.gov) that contains other information about us. Such information is also available free of charge by contacting Gladstone Investment Corporation at 1521 Westbranch Drive, Suite 200, McLean, VA 22101, or by calling our toll-free investor relations line at (866) 366-5745.

         We operate as a closed-end, non-diversified management investment company and have elected to be treated as a business development company under the Investment Company Act of 1940, as amended. We are principally engaged in investing in subordinated loans, mezzanine debt, preferred stock and warrants to purchase common stock of small and medium-sized companies in connection with buyouts and other recapitalizations. We also invest in senior secured loans and common stock and in senior and subordinated syndicated loans. Our investment objective is to generate both current income and capital gains through these debt and equity instruments.

         Our common stock is traded on the NASDAQ Global Select Market under the symbol "GAIN." As of March 24, 2008, the last reported sale price on the NASDAQ Global Select Market for our common stock was $9.70. The Rights are transferable and they will be admitted for trading on the NASDAQ Global Select Market under the symbol "GAINR" during the course of this offering. We anticipate that the Rights will begin trading on April 2, 2008. See "The Rights Offering" in this prospectus supplement for a complete discussion of the terms of this offer.

(1)

Estimated using 93% of the last reported sales price of a share of our common stock on the NASDAQ Global Select Market on March 24, 2008.

(2)

Assumes that all 5,520,033 shares are purchased at the Estimated Subscription Price.

(3)

We will pay to certain broker-dealers soliciting the exercise of subscription rights solicitation fees equal to 1.5% of the subscription price for each share issued as a result of their soliciting efforts. Estimated assuming that a solicitation fee is paid on all 5,520,033 shares.

(4)

Before deduction of expenses incurred by us related to this offering estimated to be approximately $615,000.

Exercising your subscription rights and investing in our shares of common stock involves risks. See "Risk Factors" beginning on page S-5 of this prospectus supplement and page 8 of the accompanying prospectus.

Neither the SEC nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus supplement or the accompanying prospectus and prospectus supplement. Any representations to the contrary are a criminal offense.

Prospectus Supplement dated March 31, 2008

TABLE OF CONTENTS

Prospectus Supplement

Prospectus Supplement

Prospectus

        We have not authorized any dealer, salesman or other person to give any information or to make any representation other than those contained or incorporated by reference in this prospectus supplement and the accompanying prospectus and prospectus supplement. You must not rely upon any information or representation not contained or incorporated by reference in this prospectus supplement and the accompanying prospectus and prospectus supplement as if we had authorized it. This prospectus supplement and the accompanying prospectus and prospectus supplement do not constitute an offer to sell or a solicitation of any offer to buy any security other than the registered securities to which they relate, nor do they constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction. The information contained in this prospectus supplement and the accompanying prospectus and prospectus supplement is accurate as of the dates on their respective covers only. Our business, financial condition, results of operations and prospects may have changed since such dates.

Summary

        This summary highlights some information from this prospectus supplement and the accompanying prospectus and prospectus supplement, and it may not contain all of the information that is important to you. To understand the terms of the Rights and the underlying common stock offered hereby, you should read this prospectus supplement and the accompanying prospectus and prospectus supplement carefully. Together, these documents describe the specific terms of the securities we are offering. You should carefully read the section titled "Risk Factors" in this prospectus supplement and the accompanying prospectus as well as the documents identified in the section "Additional Information." Except where the context suggests otherwise, the terms "we," "us," "our," the "Company" and "Gladstone Investment" refer to Gladstone Investment Corporation; "Adviser" refers to Gladstone Management Corporation; "Administrator" refers to Gladstone Administration, LLC; "Gladstone Commercial" refers to Gladstone Commercial Corporation, "Gladstone Capital" refers to Gladstone Capital Corporation; and "Gladstone Companies" refers to our Adviser and its affiliated companies.

Gladstone Investment Corporation

        We were incorporated under the General Corporation Law of the State of Delaware on February 18, 2005. We were primarily established for the purpose of investing in subordinated loans, mezzanine debt, preferred stock, and warrants to purchase common stock of small and medium-sized companies in connection with buyouts and other recapitalizations. We also invest in senior secured loans, common stock and senior and subordinated syndicated loans. Our investment objective is to generate both current income and capital gains through these debt and equity instruments. 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, which we refer to as the 1940 Act.

        We currently qualify and intend to continue to qualify for treatment as a regulated investment company, or a RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, which we refer to as the Code. As a RIC, we generally do not pay corporate level federal income taxes on any ordinary income or capital gains distributed to stockholders as dividends. To continue to qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described in the accompanying prospectus). In addition, to qualify for RIC tax treatment we are required to distribute to stockholders, for each taxable year, at least ninety percent (90%) of investment company taxable income, which is generally our ordinary income plus the excess of our realized net short-term capital gains over our realized net long term capital losses.

Our Investment Adviser and Administrator

        Our affiliate, the Adviser, is our investment adviser and is led by a management team which has extensive experience in our lines of business. All of our executive officers serve as either directors or executive officers, or both, of Gladstone Commercial, a publicly traded real estate investment trust; Gladstone Capital, a publicly traded business development company; our Adviser; and our Administrator. Additionally, all of our independent directors serve as directors of Gladstone Commercial and Gladstone Capital. Our Administrator employs our chief financial officer, chief compliance officer, controller, treasurer and their respective staffs. Our Adviser and our Administrator also provide investment advisory and administrative services to our affiliates, Gladstone Commercial, Gladstone Capital, and Gladstone Land Corporation, an agricultural real estate company owned by our chairman and chief executive officer, David Gladstone. In the future, our Adviser may provide investment advisory and administrative services to other funds, both public and private, of which it is the sponsor.

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        We have been externally managed by our Adviser pursuant to an investment advisory and management agreement since our inception. Our 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. Our Adviser is headquartered in McLean, Virginia, a suburb of Washington, D.C., and also has offices in the states of New York, New Jersey, Pennsylvania, Illinois, Texas and Washington.

Our Investment Objectives and Our Strategy

        We seek to achieve returns from current income from senior, subordinated and mezzanine debt, and capital gains from preferred stock and warrants to purchase common stock that we acquire in connection with buyouts and recapitalizations of small and mid-sized companies with established management teams. Our investments generally range between $5 million and $30 million each, although this investment size may vary proportionately as the size of our capital base changes. We invest either by ourselves or jointly with other buyout 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, then our investment is likely to be smaller than if we were investing alone. We expect that our target portfolio over time will include mostly subordinated loans, mezzanine debt, preferred stock, and warrants to buy common stock.

Recent Developments

        On March 18, 2008, we invested an aggregate of approximately $10.6 million in Mathey Dearman, Inc., which we refer to as Mathey. The investment consisted of approximately $0.8 million in common stock and warrants to purchase common stock of Mathey and approximately $9.8 million of senior and subordinated notes, along with a revolving credit facility of $2.0 million, of which $2.0 million was undrawn at March 24, 2008.

        During March 2008, we sold certain of our syndicated loan investments for an aggregate of approximately $10.2 million, and realized an aggregate loss of approximately $1.4 million on the sale of certain of these investments.

Rights Offering Summary

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        For additional information regarding this offering, see "The Rights Offering" in this prospectus supplement.

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RISK FACTORS

        You should carefully consider the risks described below and all other information provided and incorporated by reference in this prospectus supplement and the accompanying prospectus and prospectus supplement, including the Risk Factors described beginning on page 8 of the accompanying prospectus, before you decide whether to make an investment in our common stock through this offering. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us, or not presently deemed material by us, may also impair our operations and performance.

        If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. If that happens, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to the Rights Offering

The Subscription Price determined for this offering is not an indication of the value of shares of our common stock.

        The Subscription Price does not necessarily bear any relationship to the results of operations, cash flows, losses, financial condition or any other established criteria for value. You should not consider the Subscription Price as an indication of the value of our common stock. After the date of this prospectus supplement, our common stock may trade at prices below the Subscription Price. Additionally, our net asset value is determined quarterly and was last determined as of December 31, 2007. Although we are not aware of any material changes to the value of our investments that would cause our net asset value to differ materially from that determined as of December 31, 2007, our net asset value, or the discount of the Rights to our net asset value, may increase or decrease upon our next quarterly determination of net asset value. For further information regarding our valuation process, please see "Management's Discussion and Analysis of Financial Condition and Operations—Critical Accounting Policies—Investment Valuation" in the accompanying prospectus.

If you do not fully exercise your Basic Subscription Rights in this offering, there is a significant possibility you will suffer dilution of your percentage ownership of our common stock.

        There is a significant possibility that this offering will dilute the ownership interest and voting power of stockholders who do not fully exercise their Basic Subscription Rights. In other words, stockholders who do not fully exercise their subscription Rights should expect that they will, upon completion of the offering, own a smaller proportional interest in us than would otherwise be the case if they fully exercised their subscription Rights. We cannot state precisely the amount of any such dilution in share ownership because we do not know at this time what proportion of the shares will be purchased as a result of the offering. This offering will result in our issuance of up to an additional 5,520,033 shares of common stock.

        If the Subscription Price is less than our net asset value per share, then our stockholders would experience an immediate dilution of the aggregate net asset value of their shares as a result of the offer. The amount of any decrease in net asset value is not predictable because it is not known at this time what the net asset value per share will be on the Expiration Date of the offering or what proportion of the shares will be purchased as a result of the offer. Such dilution could be substantial.

        The fact that the Rights are transferable may mitigate the effects of any dilution as a result of the offer. Rights holders can transfer or sell their Rights. The cash received from the sale of Rights is partial compensation for any possible dilution. There can be no assurances, however, that a market for the Rights will develop or the Rights will have any value in that market.

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        If you do not exercise your subscription Rights prior to the scheduled Expiration Date of this offering, your Rights will expire and you will have no further Rights.

There is no established trading market for the Rights, which could make it more difficult for you to sell Rights and could adversely affect their price.

        There can be no assurance that an active trading market for the Rights will develop as a result of the offer of the Rights by any selling holder of that, if such a market develops, it will be maintained. We have applied for the Rights to be quoted on the NASDAQ Global Select Market under the Symbol "GAINR" and expect trading to begin on April 2, 2008. Future trading prices of the Rights will depend upon many factors, including our operating results, the market for similar securities, and the performance of our common stock.

If we cancel this offering, neither we nor the Subscription Agent will have any obligation to you except to return your subscription payments.

        We may withdraw or terminate this offering for any reason. If we elect to withdraw or terminate this offering, neither we nor the Subscription Agent will have any obligation with respect to Rights that have been exercised except to return, without interest or deduction, any subscription payments we or the Subscription Agent received from you.

If you do not act promptly and follow subscription instructions, then your exercise of Rights may be rejected.

        Holders of Rights who desire to purchase shares of common stock in this offering must act promptly to ensure that all required forms and payments are actually received by the Subscription Agent prior to the scheduled Expiration Date. If you are a beneficial owner of Rights and you wish to exercise your Rights, you must act promptly to ensure that your broker, custodian bank, or other nominee acts for you and that all required forms and payments are actually received by your broker, custodian bank or other nominee in sufficient time to deliver such forms and payments to the Subscription Agent to exercise the Subscription Rights associated with the common stock that you beneficially own prior to the scheduled Expiration Date. With respect to exercises of the Rights, we shall not be responsible if your broker, custodian, or nominee fails to ensure that all required forms and payments are actually received by the Subscription Agent prior to the scheduled Expiration Date.

        If you fail to complete and sign the required subscription forms, send an incorrect payment amount, or otherwise fail to follow the subscription procedures that apply to your exercise in this offering, the Subscription Agent may, depending on the circumstances, reject your subscription or accept it only to the extent of the payment received. Neither we nor our Subscription Agent are under any obligation to contact you concerning an incomplete or incorrect subscription form or payment, nor are we under any obligation to correct such forms or payment. We have the sole discretion to determine whether a subscription exercise properly follows the subscription procedures.

If you make payment of the Subscription Price by uncertified check, your check may not have cleared in sufficient time to enable you to purchase shares in this offering.

        Any uncertified check used to pay for shares to be issued in this offering must clear prior to the Expiration Date of this offering, and the clearing process may require five (5) or more business days. If you choose to exercise your Rights, in whole or in part, and to pay for shares by uncertified check and your check has not cleared prior to the Expiration Date, you will not have satisfied the conditions to exercise your Rights and will not receive the shares you attempted to purchase.

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You could be committed to buying shares of our common stock above the prevailing market price.

        The public trading market price of shares of our common stock may decline before you are delivered new common stock issuable upon the exercise of your Rights. If you exercise your Rights and, afterwards, the public trading market price of our common stock decreases below the Subscription Price, you will have committed to buying our common stock at the Subscription Price, which may be above the prevailing market price on the Expiration Date.

        Shares of our common stock are traded on the NASDAQ Global Select Market under the symbol "GAIN." On March 24, 2008, the last trading day before this offering was publicly announced, the closing price for our common stock on the NASDAQ Global Select Market was $9.70. We cannot assure you that the market price of our common stock will not decline prior to the expiration of this offering or that, after shares of our common stock are issued upon exercise of Subscription Rights, a subscribing Rights holder will be able to sell the common stock purchased in this offering at a price equal to or greater than the Subscription Price. The market price of our common stock could vary significantly, including in response to factors discussed herein and under the caption "Risk Factors" in the accompanying prospectus.

        In addition, we will not pay you interest on any money you send to the Subscription Agent when you exercise your Rights prior to the time shares of our common stock are delivered.

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THE RIGHTS OFFERING

Terms of the Offering

        We are issuing to Record Date Stockholders transferable Rights to subscribe for shares of our common stock. Each Record Date Stockholder is being issued one transferable Right for every three shares of common stock owned on the Record Date. For every Right held, you will be able to purchase one share of our common stock at the Subscription Price. Rights may be exercised at any time during the subscription period, which commences on March 31, 2008 and ends at 5:00 p.m., New York time, on April 21, 2008.

        In addition, Record Date Stockholders who exercise all or a portion of the Rights initially issued, as well as Rights Purchasers, are entitled to subscribe for shares which were not purchased by other stockholders pursuant to their Basic Subscription Rights and will have an opportunity to indicate on the "Subscription Certificate" how many shares they are willing to acquire pursuant to their Over-Subscription Privilege. If enough shares are available, all requests to buy shares that were not bought by other holders will be honored in full. Shares acquired pursuant to the Over-Subscription Privilege are also subject to availability, allocation preferences and proration, which is more fully discussed in the sub-section below entitled "Over-Subscription Privilege."

        We have not engaged an underwriter in connection with this offering; however, we have agreed to pay soliciting fees to certain broker-dealers for their soliciting efforts, which culminate in the exercise of the Rights and issuance of shares of common stock. See the section entitled "—Soliciting Fees" below.

        Rights will be evidenced by Subscription Certificates. The number of Rights issued to each holder will be stated on the Subscription Certificate delivered to such holder. The method by which the Rights may be exercised and shares paid for is explained in the sub-sections below entitled "Method of Exercise of Rights" and "Payment for Shares." A Rights holder will have no right to rescind a purchase after the Subscription Agent has received the holder's Subscription Certificate or "Notice of Guaranteed Delivery," as described below. Shares of common stock issued pursuant to an exercise of the Rights will be listed on the NASDAQ Global Select Market.

        The Rights are transferable. The Rights will be admitted for trading on the NASDAQ Global Select Market under the symbol "GAINR." We anticipate that the Rights will begin trading on April 2, 2008. Rights Purchasers who are not Record Date Stockholders may purchase Rights from Record Date Stockholders, or their transferees, and are entitled to request shares pursuant to the Over-Subscription Privilege. However, as described in greater detail below in "—Over-Subscription Privilege," Record Date Stockholders will have priority over Rights Purchasers if there are insufficient "Excess Shares" to honor all over-subscriptions.

        Participants in our dividend reinvestment plan will be issued Rights for the common stock held in their accounts in the dividend reinvestment plan as of the Record Date. Participants wishing to exercise such Rights must exercise Rights in accordance with the procedures set forth in the sub-sections below entitled "—Method of Exercise of Rights" and "—Payment for Shares." Such Rights will not be exercised automatically by the dividend reinvestment plan. The Rights must be exercised separately for each account.

        There is no minimum number of Rights which must be exercised in order for this offering to close; however, we may amend the terms and conditions of this offering or terminate this offering prior to delivery of the common stock.

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Purpose of the Offering

        Our Board of Directors has determined that this offering is in our best interest and in the best interests of our stockholders. In this regard, our Board of Directors considered, among other things, using a fixed pricing versus variable pricing mechanism, the benefits and drawbacks of conducting a non-transferable versus a transferable rights offering, and the effect on us if this offering is not fully subscribed. The offering gives existing stockholders the right to purchase additional shares at a price that may be below market without incurring any commission or sales charges (although if you exercise your Rights through a financial institution, then you are responsible for paying any fees that institution may charge).

        The offering will increase the equity capital available to pay down existing short-term debt. In connection with the approval of this offering, our Board of Directors considered, among other things, the following factors:

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the size of the discount to the market price;



•

the dilution to be experienced by non-exercising or partially non-exercising stockholders, and the possible net asset value per share dilution to be experienced by all stockholders;



•

the terms and expenses of the offering;



•

the size of the offering in relation to the number of shares outstanding;



•

the market price of our common stock, both before and after the announcement of the equity offering;



•

the general condition of the securities markets; and



•

the use to be made of the proceeds from the offering and the return to stockholders upon such use.

        There can be no assurance of the amount of dilution that a stockholder will experience or that the offering will be successful.

        We believe the offering will be a relatively low-cost method for raising additional capital because other than those fees described in the section below entitled "—Soliciting Fees," no sales commissions or underwriting discounts will be paid in respect of the shares sold in the offering. We may, in the future and at our discretion, choose to make additional offerings of shares from time to time for a number of shares and on terms that may or may not be similar to this offering. Any such future offering will be made in accordance with applicable law.

The Subscription Price

        The Subscription Price per share will be 93% of the volume-weighted average of the sales prices of our common stock on the NASDAQ Global Select Market for the five (5) consecutive trading days ending on the Expiration Date. Because the Expiration Date will be April 21, 2008 (unless we extend the offer), and the Subscription Price will be determined on the Expiration Date, Rights holders will not know the Subscription Price at the time of exercise and will be required initially to pay for both the shares subscribed for pursuant to their Basic Subscription Rights and any additional shares subscribed for pursuant to the Over-Subscription Privilege at the Estimated Subscription Price of $9.02 per share. The Estimated Subscription Price is determined using ninety three percent (93%) of the last reported sales price of a share of our common stock on the NASDAQ Global Select Market on March 24, 2008, and may be more or less than the actual Subscription Price per share. If the actual Subscription Price is lower, excess payments will be refunded (without interest), and if the actual Subscription Price is higher, Rights holders exercising their rights will be required to make an additional payment. Rights holders who exercise their Rights will have no right to rescind a purchase after receipt of their

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completed subscription certificates together with payment of the Estimated Subscription Price for each share subscribed for under their subscription Rights by the Subscription Agent.

Determination of the Subscription Price

        The Subscription Price has been determined by our Board of Directors. The factors considered, among others, by our Board of Directors in determining the Subscription Price included those factors described under "Purpose of The Offering," as well as the following factors:

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the absence of underwriting discounts (which generally range from 5% to 7% of gross offering proceeds) or sales commissions (other than those described in the section entitled "—Soliciting Fees") in connection with this offering;



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the pricing terms in other recently completed rights offerings by BDCs and other investment companies; and



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the desirability of ensuring significant stockholder participation in the offering.

Distribution of Rights

        We will issue to each holder of our common stock at no cost one transferable Right to purchase our common stock for every three shares of our common stock owned by that holder as of the Record Date. No fractional Rights will be issued. For every Right held you will be entitled to purchase one share of common stock at the Subscription Price. The Subscription Price per share will be ninety three percent (93%) of the volume-weighted average of the sales prices of our common stock on the NASDAQ Global Select Market for the five (5) consecutive trading days ending on the Expiration Date.

Basic Subscription Rights

        Your Basic Subscription Rights entitle you to purchase one share of our common stock at the Subscription Price for each Right issued to you. You are entitled to subscribe for all or any portion of the shares of our common stock underlying your Basic Subscription Rights.

Over-Subscription Privilege

        If all of the Rights initially issued are not exercised by Record Date Stockholders or Rights Purchasers, any unsubscribed Shares will be offered to other Record Date Stockholders who have exercised all or a portion of their Rights as well as to subscribing Rights Purchasers who wish to acquire additional Shares. However, to the extent there are insufficient unsubscribed Shares to satisfy all over-subscription requests, Record Date Stockholders who have exercised all or a portion of their Rights will have preference over Rights Purchasers in the Over-Subscription Privilege as discussed below. There can be no assurance that either Record Date Stockholders or Rights Purchasers will receive shares pursuant to the Over-Subscription Privilege.

        If there are not enough Excess Shares to fully honor all over-subscription requests, Excess Shares will be allocated first to Record Date Stockholders who have exercised all or a portion of their Rights in accordance with their over-subscription request. If there are not enough Excess Shares to fully honor all over-subscription requests by such Record Date Stockholders, the Excess Shares will be allocated pro rata among such Record Date Stockholders based on the number of Rights exercised up to the maximum number of over-subscribed shares indicated by the subscriber on his or her subscription certificate. The allocation process may involve a series of allocations to assure that the total number of remaining shares available for over-subscriptions is distributed on a pro rata basis. The formula to be

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used in allocating Excess Shares available to Record Date Stockholders exercising their Over-Subscription Privilege is as follows:

        If sufficient Excess Shares are available after satisfying the over-subscription requests of Record Date Stockholders, then all over-subscriptions by Rights Purchasers will be honored in full. If the Excess Shares are insufficient to permit such an allocation, remaining Excess Shares will be allocated among Rights Purchasers who over-subscribe pro rata based on the number of Rights exercised up to the maximum number of over-subscribed shares indicated by the subscriber on his or her subscription certificate. The formula to be used in allocating the Excess Shares available to Rights Purchasers exercising their Over-Subscription Privilege is as follows:

        Both Record Date Stockholders and Rights Purchasers should indicate, in the Subscription Certificate submitted with respect to the exercise of any Rights, how many shares they are willing to acquire pursuant to the Over-Subscription Privilege. The Over-Subscription Privilege must be exercised at the same time that a Record Date Stockholder or Rights Purchaser exercises their Rights.

        If you own shares of our common stock through your bank, broker, or other nominee holder who will exercise your Rights on your behalf and you wish to exercise your Over-Subscription Privilege, the bank, broker, or other nominee holder will be required to certify to us and to the Subscription Agent the following information:

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the number of Rights of our common stock held on your behalf on the Expiration Date;



•

the number of Rights exercised, whether received as a Record Date Stockholder or purchased on the NASDAQ Global Select Market;



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that all or a portion of your Basic Subscription Rights held in the same capacity have been exercised; and



•

the number of shares subscribed for under your Over-Subscription Privilege.

Your bank, broker, or other nominee holder may also disclose to us other information received from you.

        We will not offer or sell in connection with the offering any shares that are not subscribed for pursuant to the Basic Subscription Rights or the Over-Subscription Privilege.

No Fractional Rights or Shares

        We will not issue fractional Rights or fractional shares. The number of Rights issued to Record Date Stockholders will be rounded down to the nearest whole number of Rights.

Method of Exercise of Rights

        Subscription Certificate(s) which evidence the Rights and "Instructions as to Use of Subscription Certificates" will be mailed to Record Date Stockholders. In addition, a "Notice to Record

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Stockholders" describing the Rights Offering and the method for the exercise of Rights will be mailed to all Record Date Stockholders. Rights may be exercised by stockholders who are record owners by filling in and signing the enclosed Subscription Certificate(s) and mailing the certificate(s) in the envelope provided, or by delivering the completed and signed Subscription Certificate(s) to the Subscription Agent, together with required payment for the shares as described in the sub-section below entitled "Payment for Shares."

        Rights may also be exercised by a stockholder by contacting his or her broker, bank or other nominee, who can arrange, on the stockholder's behalf, for delivery of a properly completed and executed Subscription Certificate(s) and payment for the shares. A "Notice to Brokers, Bankers and Other Nominees" describing the Rights offering and the method for the exercise of Rights, as well as a "Notice to Beneficial Stockholders" and a "Beneficial Ownership Election Form," will be mailed to all banks, brokers and other nominees of Record Date Stockholders. A fee may be charged by the broker, bank or other nominee for this service. Unless stockholders are delivering their Subscription Certificate(s) pursuant to a Notice of Guaranteed Delivery as described in the sub-section below entitled "Notice of Guaranteed Delivery," Subscription Certificate(s) must be received by the Subscription Agent prior to 5:00 p.m., New York time, on the Expiration Date at the offices of the Subscription Agent.

Payment for Shares

        Stockholders or Rights Purchasers who are acquiring shares of common stock issuable upon the exercise of their Basic Subscription Rights and/or Over-Subscription Privilege must send payment for the shares to be acquired to the Subscription Agent based on the Estimated Subscription Price of $9.02. To be accepted, such payment must be made payable to "The Bank of New York, as Subscription Agent—Gladstone Investment Corp." and received by the Subscription Agent prior to 5:00 p.m. New York time on the Expiration Date. The Subscription Agent will not honor any exercise of Rights received by it after the Expiration Date. The Subscription Agent will deposit all certified checks, bank drafts, checks, money orders, and wire transfers of funds received by it prior to the final payment date into a segregated interest-bearing account (which interest will be paid to us) pending proration and issuance of shares. If this offering is terminated, we will promptly arrange for the refund, without interest, of all funds received from holders of Rights. All payments by a stockholder must be made in United States dollars either (i) by certified check, bank draft, money order, or check drawn on a bank located in the United States, or (ii) by wire transfer of same day funds to the account maintained by the Subscription Agent for this purpose at Mellon Bank, N.A., ABA No. 043-000-261, Mellon Investor Services LLC, Reorg Acct No. 011-8518, Reference: GLADSTONE, Attn: Michael Eguia (201) 680-3560 (telephone).

        Your payment will be considered received by the Subscription Agent only upon clearance of any uncertified check, receipt by the Subscription Agent of any certified check, bank draft, or money order drawn upon a bank located in the United States or of any postal, telegraphic or express money order, or receipt of collected funds in the subscription account designated. If you are paying by uncertified check, please note that uncertified checks may take five (5) or more business days to clear. If you wish to pay the Estimated Subscription Price by uncertified check, we urge you to make payment sufficiently in advance of the time this offering expires to ensure that your payment is received by the Subscription Agent and clears by the offering Expiration Date. We urge you to consider using a certified or cashier's check, money order, or wire transfer of funds should you decide to exercise your Rights.

        Unless you are delivering your Subscription Certificate pursuant to a Notice of Guaranteed Delivery, payment of the Estimated Subscription Price must be accompanied by a Subscription Certificate.

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Notice of Guaranteed Delivery

        If you wish to exercise your Rights, but time will not permit you to cause the Subscription Certificate to reach the Subscription Agent on or prior to the Expiration Date, you may nevertheless exercise your Rights if you meet the following conditions:

(a)

you have caused payment in full of the Estimated Subscription Price for each share being subscribed for pursuant to your Basic Subscription Rights and your Over-Subscription Privilege, if any, to be received by the Subscription Agent on or prior to the Expiration Date;



(b)

the Subscription Agent receives, on or prior to the Expiration Date, a "Notice of Guaranteed Delivery," from an eligible institution, stating your name, the number of Rights held, the number of Rights exercised, and the number of shares being subscribed for pursuant to the Over-Subscription Privilege, and guaranteeing the delivery to the Subscription Agent of the Subscription Certificate at or prior to 5:00 p.m., New York time, on the date three (3) business days following the Expiration Date; and



(c)

the properly completed Subscription Certificate evidencing the Rights being exercised, with any required signatures being guaranteed, are received by the Subscription Agent at or prior to 5:00 p.m., New York time, on the date three (3) business days following the Expiration Date.

Confirmation of Purchase

        Following the Expiration Date, a DRS advice will be sent by the Subscription Agent to each Record Date Stockholder or Rights Purchaser (or, if shares are held by a nominee, on the Record Date, to such nominee) showing the number of shares acquired through the Basic Subscription Rights and the Over-Subscription Privilege together with excess payments, if any, to be refunded (without interest) by us to the stockholder. If the Subscription Price is higher than the Estimated Subscription price, a due bill will be sent by the Subscription Agent to each Record Date Stockholder or Rights Purchaser (or, if shares are held by a nominee, on the Record Date, to such nominee) showing the number of shares acquired through the Basic Subscription Rights and the Over-Subscription Privilege together with an invoice showing any additional payments required to be paid by the stockholder.

        Crediting of shares acquired in this offering to any account is subject to collection of checks.

        If a stockholder who acquires shares through the Basic Subscription Rights or Over-Subscription Privilege does not make payment of all amounts due, we reserve the right to (i) apply any payment actually received by us toward the purchase of the greatest number of whole shares which could be acquired by such stockholder upon exercise of the Basic Subscription Rights or Over-Subscription Privilege; or (ii) exercise any and all other rights or remedies to which we may be entitled.

        Stockholders will have no right to revoke or rescind their subscription after receipt of their payment for shares by the Subscription Agent.

Instructions for Completing Your Subscription Certificate

        You should read and follow the instructions accompanying the Subscription Certificates carefully. If you want to exercise your Rights, you should send your Subscription Certificate(s) with your Estimated Subscription Price payment to the Subscription Agent. Do not send your Subscription Certificate(s) and Estimated Subscription Price payment to us.

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Information Agent

        Any questions or requests for assistance in connection with this offering may be directed to the Information Agent at its telephone number and address listed below:

Georgeson Inc.
199 Water Street
New York, NY 10038

Banks and Brokers Call Collect
(212) 440-9800

All Others Call Toll-Free
(866) 828-4303

        Stockholders may also call us toll-free at (866) 366-5745 or contact their brokers, banks, or other nominees for information with respect to the offering.

        The Information Agent will receive a base fee of $10,000, which excludes reimbursement for calling costs and all out-of-pocket expenses related to the offering, and we have also agreed to indemnify the Information Agent against certain liabilities which it may incur in connection with this offering.

Subscription Agent

        The Bank of New York will act as our Subscription Agent to accept exercises of Rights for this offering. You must send the completed and signed Subscription Certificate, along with payment in full of the exercise price for all shares that you wish to purchase pursuant to the Basic Subscription Rights and the Over-Subscription Privilege, to The Bank of New York.

        We suggest, for your protection, that you deliver your Subscription Certificate to the Subscription Agent by an insured, overnight, or express mail courier. If you mail your Subscription Certificate, we suggest that you use registered mail. If you wish to exercise your Rights, you should mail or deliver your Subscription Certificate and payment of the Estimated Subscription Price to the Subscription Agent as follows:

The Notice of Guaranteed Delivery may also be sent by facsimile to (201) 680-4626 with the originals to be sent promptly thereafter by the methods described above. Facsimiles should be confirmed by telephone to (201) 680-4860. Delivery to an address other than as listed above, or transmission via a facsimile number other than as listed above, will not constitute valid delivery.

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        We will pay the Subscription Agent fees and expenses of up to $25,000 and have also agreed to indemnify the Subscription Agent against certain liabilities which it may incur in connection with this offering.

        Any questions or requests for assistance concerning the method of subscribing for shares of our common stock or for additional copies of this prospectus supplement, the accompanying prospectus and prospectus supplement or the instructions as to use of the Subscription Certificates can be directed to the information or Subscription Agent at the addresses or at the telephone numbers specified above.

Expiration of the Offering

        You may exercise your Rights at any time before 5:00 p.m., New York time, on April 21, 2008, the Expiration Date for this offering. We may, in our sole discretion, extend the time for exercising your Rights to a date not later than May 5, 2008. If you do not exercise your Rights before the Expiration Date, your unexercised Rights will be null and void. We may extend the Expiration Date by giving written notice to the Subscription Agent on or before the scheduled Expiration Date and making a public announcement thereof no later than 9:00 a.m., New York time, on the next business day after the previously scheduled Expiration Date. We will not be obligated to honor your exercise of Rights if the Subscription Agent receives the documents relating to your exercise after the offering expires, regardless of when you transmitted the documents.

Calculation of Rights Exercised

        If you do not indicate the number of Rights being exercised, or do not forward full payment of the total Estimated Subscription Price for the number of Rights that you indicate are being exercised, then you will be deemed to have exercised your Basic Subscription Rights with respect to the maximum number of Rights that may be exercised with the aggregate payment you delivered to the Subscription Agent. If your aggregate payment is greater than the amount you owe for your Basic Subscription Rights and you do not indicate the number of Rights being exercised, you will be deemed to have exercised your Over-Subscription Privilege to purchase the maximum number of shares with your overpayment. If we do not apply your full payment to your purchase of shares of our common stock, we will return the excess amount to you by mail without interest or deduction as soon as practicable after the expiration of the offering.

Nominee Holders

        If you are a broker, bank, or other nominee who holds shares of our common stock for the account of others on the Record Date for this offering, you should notify the respective beneficial owners of such shares of the offering as soon as possible to find out their intentions with respect to exercising their Rights. You should obtain instructions from the beneficial owner with respect to the Rights, as set forth in the instructions we have provided to you for your distribution to beneficial owners. If the beneficial owner so instructs, you should complete the appropriate documents and submit them to the Subscription Agent with the proper payment. If you hold shares of our common stock for the account(s) of more than one beneficial owner, you may exercise the number of Rights to which all such beneficial owners in the aggregate otherwise would have been entitled had they been direct record holders of our common stock on the Record Date for this offering, provided that you, as a nominee record holder, make a proper showing to the Subscription Agent.

Beneficial Owners

        If you are a beneficial owner of shares of our common stock or will receive your Rights through a broker, bank, or other nominee, we will ask your broker, bank or other nominee to notify you of the offering. If you wish to exercise your Rights, you will need to have your broker, bank, or other nominee

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act for you. To indicate your decision, you should complete and return to your broker, bank or other nominee the form entitled "Beneficial Owner Election Form," together with full payment of the Estimated Subscription Price for each share subscribed for under your Rights (including shares subscribed for through the exercise of your Over-Subscription Privilege). You should receive this form from your broker, bank or other nominee with the other offering materials.

Amendments and Waivers; Termination

        We reserve the right to amend the terms and conditions of this offering, whether the amended terms are more or less favorable to you. We will comply with all applicable laws, including the federal securities laws, in connection with any such amendment.

        We will decide all questions as to the validity, form and eligibility (including times of receipt, beneficial ownership and compliance with other procedural matters) in our sole discretion, and our determination shall be final and binding. The acceptance of Subscription Certificates and the Subscription Price also will be determined by us. Alternative, conditional or contingent subscriptions will not be accepted. We reserve the right to reject any exercise if such exercise is not in accordance with the terms of this offering or not in proper form or if the acceptance thereof or the issuance of shares of our common stock thereto could be deemed unlawful. We reserve the right to waive any deficiency or irregularity with respect to any Subscription Certificate. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as we determine in our sole discretion. Neither we nor the Subscription Agent will be under any duty to give notification of any defect or irregularity in connection with the submission of Subscription Certificates or incur any liability for failure to give such notification.

        We reserve the right, in our sole discretion, at any time prior to delivery of the shares of our common stock offered hereby, to terminate the offering by giving written notice thereof to the Subscription Agent and making a public announcement thereof. If this offering is terminated, we will promptly arrange for the refund, without interest, of all funds received from holders of Rights. All monies received by the Subscription Agent in connection with this offering will be held by the Subscription Agent, on our behalf, in a segregated interest-bearing account. All such interest shall be payable to us even if we determine to terminate the offering and return your subscription payment.

No Revocation

        Once you elect to purchase common stock through this offering you may not revoke the election, even if you later learn information about us that you consider unfavorable. You will have no right to rescind your subscription after receipt of your payment for shares by the Subscription Agent.

Signature Guarantee May Be Required

        If you wish for the common stock underlying your Rights or a certificate representing unexercised Rights to be delivered to an address different from the one shown on the face of your Subscription Certificate, your signature(s) must be guaranteed by an eligible guarantor institution (bank, stock broker, savings & loan association or credit union) with membership in an approved signature guarantee medallion program pursuant to Rule 17Ad-15 of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. A notarization is not acceptable.

Delivery of Shares

        Unless requested otherwise, stock certificates will not be issued for shares of our common stock offered in this offering. Record Date Stockholders and Rights Purchasers will have the shares they acquire credited to their account with our transfer agent. All future dividends paid on such shares will be paid either in cash or reinvested into additional shares, depending on the election you make in

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connection with our dividend reinvestment plan. Record Date Stockholders and Rights Purchasers whose common stock is held by a nominee will have the shares they acquire credited to the account of such nominee holder.

Dilutive Effects

        Any stockholder who chooses not to participate in this offering should expect to own a smaller interest in us upon completion of this offering. There is a significant possibility that this offering will also dilute the ownership interest and voting power of stockholders who do not fully exercise their Basic Subscription Rights. The transferable feature of the Rights will afford non-participating stockholders the potential of receiving cash payment upon the sale of the Rights, receipt of which may be viewed as partial compensation for the dilution of their interests.

Soliciting Fees

        In connection with this Rights Offering, we have agreed to pay to certain broker-dealers that execute and deliver a Soliciting Dealer Agreement, fees equal to 1.5% of the Subscription Price per share for their soliciting efforts culminating in the exercise of the Rights and issuance of shares of common stock. These fees will reduce the net proceeds of this offering and could act to increase any dilution of our net asset value per share. Pursuant to the Soliciting Dealer Agreements, we will only pay soliciting fees to broker-dealers in connection with Rights that are exercised by the beneficial owners of the Rights. We will not pay soliciting fees to broker-dealers in connection with transfers of Rights. The Bank of New York will provide offering coordinator services, including coordination among soliciting broker-dealers.

Sale and Transfer of Rights through the Subscription Agent and Broker-Dealers

        The Rights are evidenced by a Subscription Certificate and are transferable until the Expiration Date. The Rights will be admitted for trading on the NASDAQ Global Select Market under the symbol "GAINR." Trading in the Rights on the NASDAQ Global Select Market is expected to be conducted beginning on or about April 2, 2008, and continuing until and including the Expiration Date. While we will use our best efforts to ensure that an adequate trading market for the Rights will exist, no assurance can be given that a market for the Rights will develop. Rights holders are encouraged to contact their broker-dealer, bank, trustee or other nominees for more information about trading of the Rights.

        Stockholders who do not wish to exercise any or all of their Rights may instruct the Subscription Agent to sell any Rights they do not intend to exercise themselves through or to a broker-dealer or other financial institution. The Subscription Agent, or the broker-dealer or other financial institution utilized for the sale may charge a fee to sell the Rights. Subscription Certificates representing the Rights to be sold must be received by the Subscription Agent on or before April 17, 2008 (or if the offer is extended, until two business days prior to the extended Expiration Date). Upon the timely receipt by the Subscription Agent of appropriate instructions to sell Rights, the Subscription Agent will ask the broker dealer or other financial institution designated on the Subscription Certificate to use their best efforts to complete the sale and the Subscription Agent will remit the proceeds of the sale to the selling stockholders. If the Rights can be sold, sales of such Rights will be deemed to have been effected at the weighted-average price received by the selling broker dealer or other financial institution on the day such Rights are sold. The sale price of any Rights sold to the brokers dealers or other financial institutions will be based upon the then current market price for the Rights. The Subscription Agent will also attempt to sell all Rights which remain unclaimed as a result of Subscription Certificates being returned by the postal authorities to the Subscription Agent as undeliverable as of the fourth business day prior to the Expiration Date of the offering. The Subscription Agent will hold the proceeds from those sales for the benefit of such non-claiming

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stockholders until such proceeds are either claimed or revert to the state pursuant to applicable state law. There can be no assurance that the Rights will be purchased, and neither we nor any broker dealer other financial institution can guarantee minimum sales price for the Rights.

Other Transfers

        The Rights evidenced by a Subscription Certificate may be transferred in whole or in part by endorsing the Subscription Certificate for transfer in accordance with the accompanying instructions. A portion of the Rights evidenced by a single Subscription Certificate may be transferred by delivering to the Subscription Agent a Subscription Certificate properly endorsed for transfer, with instructions to register such portion of the Rights evidenced thereby in the name of the transferee and to issue a new Subscription Certificate to the transferee evidencing such transferred Rights. In such event, a new Subscription Certificate evidencing the balance of the Rights, if any, will be issued to the holder or, if the holder so instructs, to an additional transferee. The signature on the Subscription Certificate must correspond to the name as written upon the face of the Subscription Certificate, without alteration or enlargement, or any change. A signature guarantee must be provided by an Eligible Guarantor Institution as that term is defined in Rule 17Ad-15 under the Exchange Act, subject to the standards and procedures adopted by us. A notarization is not acceptable.

        Stockholders wishing to transfer all or a portion of their Rights should allow at least five business days prior to the Expiration Date of the offer for (i) the transfer instructions to be received and processed by the Subscription Agent; (ii) a new Subscription Certificate to be issued and transmitted to the transferee or transferees with respect to transferred Rights, and to the transferor with respect to retained Rights, if any; and (iii) the Rights evidenced by such new Subscription Certificate to be exercised or sold by the recipients thereof. Neither we nor the Subscription Agent shall have any liability to a transferee or transferor of Rights if Subscription Certificates are not received in time for exercise prior to the Expiration Date.

        Except for the fees charged by the Subscription Agent, the Information Agent, which will be paid by us, as well as the soliciting fees described in the section above entitled "—Soliciting Fees," all commissions, fees and other expenses (including brokerage commissions and transfer taxes) incurred or charged in connection with the purchase, sale, or exercise of Rights will be paid by the account of the transferor of the Rights, and none of those commissions, fees or expenses will be paid by us, the Subscription Agent, the Information Agent.

        We anticipate that the Rights will be eligible for transfer through, and that the exercise of the Basic Subscription Rights and the Over-subscription Privilege may be effected through, the facilities of the Depository Trust Company, or DTC. Holders of DTC exercised Rights may exercise the Over-Subscription Privilege in respect of such DTC exercised Rights by properly completing and duly executing and delivering to the Subscription Agent, at or prior to 5:00 p.m., New York time, on the Expiration Date, a form entitled "Nominee Holder Over-Subscription Exercise Form," or a substantially similar form satisfactory to the Subscription Agent, together with payment of the Estimated Subscription Price for the number of shares for which the Over-Subscription Privilege is to be exercised.

Effects of this Offering on Our Adviser

        We do not believe our Adviser will benefit materially or directly from an increased base management fee as a result of this Rights offer. As discussed below in "Use of Proceeds" in this prospectus supplement, we intend to use all of the net proceeds from this offering to pay down amounts outstanding under our line of credit. Because such proceeds will be used immediately to pay down our line of credit, they will have only minimal, if any, impact on our gross assets and,

S-18

correspondingly, the base management fee we pay to our Adviser. See "Business—Investment Advisory and Management Agreement" in the accompanying prospectus.

        Our Adviser may benefit indirectly from this offering, however. By paying down our line of credit, we will have an increased borrowing capacity to make investments in buyouts and recapitalizations of small and mid-sized companies in accordance with our investment objectives. As we assume greater indebtedness to finance these investments, our gross assets will become larger and, as a result, the base management fee we pay to our Adviser will increase.

Foreign Restrictions

        Stockholders whose record addresses are outside the United States (for these purposes, the United States includes its territories and possessions and the District of Columbia) will receive written notice of the offering; however, Subscription Certificates will not be mailed to such stockholders. The Rights to which those Subscription Certificates relate will be held by the Subscription Agent for such foreign stockholder's accounts until instructions are received to exercise the Rights. If no such instructions are received by the Expiration Date, such Rights will expire.

Employee Plan Considerations

        Stockholders that are employee benefit plans subject to the Employee Retirement Income Security Act of 1974, which we refer to as ERISA (including corporate savings and 401(k) plans), and Keogh or H.R. 10 plans of self-employed individuals, or individual retirement accounts, which we refer to as Retirement Plans, should be aware of various legal considerations under ERISA and the Code. Among other considerations, additional contributions of cash to a Retirement Plan in order to exercise Rights may not be permitted by the terms of the applicable Retirement Plan. Moreover, such additional contributions would be treated as Retirement Plan contributions and, therefore, when taken together with contributions previously made, may be treated as excess or nondeductible contributions subject to excise taxes. In the case of Retirement Plans qualified under Section 401(a) of the Code, additional cash contributions could cause violations of the maximum contribution limitations of Section 415 of the Code or other qualification rules. There may be other adverse tax and ERISA consequences if Rights are sold or transferred by a Retirement Plan.

        Retirement Plans and other tax exempt entities, including governmental plans, should also be aware that if they borrow in order to finance their exercise of Rights, they may become subject to the tax on unrelated business taxable income under Section 511 of the Code. If any portion of an Individual Retirement Account is used as security for a loan, the portion so used is treated as a distribution to the Individual Retirement Account depositor.

        ERISA contains fiduciary responsibility requirements, and ERISA and the Code contain prohibited transactions rules that may affect the exercise of Rights. Due to the complexity of these rules and the penalties for noncompliance, Retirement Plans should consult with their counsel, regarding the consequences of their exercise of Rights under ERISA and the Code.

Federal Income Tax Consequences to Stockholders

        The following is a general summary of the material United States federal income tax consequences of the receipt and exercise of the Rights. The discussion is based upon applicable provisions of the Code, U.S. Treasury regulations thereunder and administrative and judicial interpretations, each as of the date of this prospectus supplement and all of which are subject to change. This summary does not cover state, local or foreign taxes. This summary does not discuss all aspects of federal income taxation relevant to the receipt, exercise and lapse of Rights, in light of particular circumstances, or to certain types of holders subject to special treatment under federal income tax laws, including dealers in securities, pension plans and trusts, financial institutions, persons who are subject to the alternative

S-19

minimum tax provisions of the Code, persons who acquired our shares in connection with stock option or stock purchase plans or in other compensatory transactions, persons who hold our shares as a hedge or as part of a hedging, straddle or other risk reduction strategy, or persons who do not hold our shares as capital assets. In addition, the following discussion does not address the tax consequences of transactions effectuated before, after or at the same time as the offering, whether or not they are in connection with the offering. No opinion of counsel has been obtained, and no ruling from the Internal Revenue Service has been requested concerning the matters described in this summary. You should consult your tax advisors regarding specific questions as to federal, state, local or foreign taxes. You should also review the discussion of certain tax considerations affecting yourself and the Company set forth in the accompanying prospectus under "Material U.S. Federal Income Tax Considerations."

        For federal income tax purposes, neither the receipt nor the exercise of the Rights by Record Date Stockholders will result in taxable income to such stockholders, and no loss will be realized if the Rights expire without exercise.

        In general, except as provided in the following sentence, your basis in the Rights received by you in this offering as a distribution with respect to your common stock will be zero. If, however, either (i) the aggregate fair market value of the Rights as of the date they are distributed to you is equal to or greater than 15% of the aggregate fair market value on the date of distribution of the common stock with respect to which the Rights are received, or (ii) you irrevocably elect, in a statement attached to your federal income tax return for the year in which the Rights are received, to allocate a portion of the basis in such common stock to the Rights, then your basis in such common stock will be allocated between such common stock and the Rights in proportion to the relative fair market values of each as of the date of distribution of the Rights. If you do not exercise the Rights, you will not be permitted to allocate any portion of your basis in your common stock to the Rights and, therefore, you will not realize a loss on the expiration of an unexercised right.

        Your basis in common stock acquired upon the exercise of a Right will be equal to the sum of (i) the Subscription Price per share, (ii) any servicing fee charged to you by your broker, bank or trust company, and (iii) the basis, if any, in the Rights that you exercised. The holding period for federal income tax purposes in any common stock acquired upon exercise of a Right will begin with the date of exercise.

        You will generally recognize gain or loss on the sale or other disposition of a Right in an amount equal to the difference between the amount realized on the sale or disposition and your basis in the Right. This will generally be long-term capital gain or loss if your holding period for the Right (which will include the holding period of the common stock with respect to which the Right is issued) is longer than one year. Otherwise, it will be classified as short-term capital gain or loss.

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IMPORTANT DATES TO REMEMBER

*

Unless the offering is extended.

†

Stockholders exercising Rights must deliver to the Subscription Agent by the Expiration Date either (i) the Subscription Certificate together with payment, or (ii) a Notice of Guaranteed Delivery together with payment.

USE OF PROCEEDS

        Assuming 5,520,033 shares of our common stock are sold at the Estimated Subscription Price of $9.02, the net proceeds of the offering are estimated to be $48,428,854 after deducting the estimated soliciting dealer fees and offering expenses payable by us of an aggregate of approximately $1,361,844. However, there can be no assurance that all of the Rights will be exercised in full.

        We intend to use all of the net proceeds from the offering to pay amounts outstanding under our credit line facility, which matures on October 16, 2008 and, as of March 24, 2008, was accruing interest at approximately 4.01% per year. Paying down the credit line will increase our assets available for investment, thereby allowing us to more fully take advantage of available investment opportunities and to reduce the relative significance of certain large positions in our investment portfolio.

DISTRIBUTIONS

        We currently intend to distribute in the form of cash dividends, a minimum of ninety percent (90%) of our ordinary income and short-term capital gains, if any, on a quarterly basis to our stockholders in the form of monthly dividends.

        Because we anticipate that this offering will be completed by no later than April 21, 2008 (unless extended), we expect that holders of shares of our common stock acquired through the offering will be entitled to any dividend declared by us, beginning with the May 2008 dividend.

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CAPITALIZATION

        The following table sets forth our actual capitalization at December 31, 2007 on a historical basis and as adjusted to reflect:

•

the sale of 5,520,033 shares of common stock at an Estimated Subscription Price of $9.02 per share; and



•

the application of net proceeds from the offering, after deducting the estimated soliciting dealer fees and offering expenses payable by us of an aggregate of $1,361,844 to pay down an aggregate of $48,428,854 of outstanding borrowings under our line of credit as described in "Use of Proceeds" in this prospectus supplement.

        This table should be read together with "Use of Proceeds" in this prospectus supplement, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included in the accompanying prospectus.

(1)

Assumes that a solicitation fee is paid on all 5,520,033 shares.

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LEGAL MATTERS

        The legality of the shares of common stock, as well as the Rights, offered hereby will be passed upon for us by Cooley Godward Kronish LLP, Reston, Virginia.

EXPERTS

        The financial statements as of March 31, 2007 and March 31, 2006 and for the years ended March 31, 2007, March 31, 2006 and the period from June 22, 2005 (commencement of operations) to March 31, 2006, and management's assessment of the effectiveness of internal control over financial reporting (which is included in Management's Report on Internal Control over Financial Reporting) as of March 31, 2007 included in the accompanying prospectus and the senior securities data included in the consolidated selected financial data included in the accompanying prospectus have been so included in reliance on the reports of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

ADDITIONAL INFORMATION

        We have filed with the SEC a Registration Statement on Form N-2 under the Securities Act of 1933, as amended, with respect to the securities offered by this prospectus supplement. This prospectus supplement and the accompanying prospectus and prospectus supplement, which are a part of the registration statement, do not contain all of the information in the registration statement, including amendments, exhibits and schedules thereto. Statements in this prospectus supplement and the accompanying prospectus and prospectus supplement about the contents of any contract or other document are not necessarily complete and in each instance we refer you to the copy of the contract or other document filed, or incorporated by reference, as an exhibit to the registration statement, and each such statement is qualified in all respects by this reference.

        We also file reports, proxy statements and other information with the SEC under the Exchange Act. Such reports, proxy statements and other information, as well as the registration statement of which this prospectus supplement and the accompanying prospectus are a part and the exhibits and schedules thereto, can be inspected at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Information about the operation of the public reference facilities may be obtained by calling the SEC at 1-202-551-8090. The SEC maintains a web site that contains reports, proxy statements and other information regarding registrants, including us, that file such information electronically with the SEC. The address of the SEC's web site is http://www.sec.gov. Copies of such material may also be obtained from the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. Our common stock is listed on the NASDAQ Global Select Market and our corporate website is located at http://www.gladstoneinvestment.com. The information contained on, or accessible through, our website is not a part of this prospectus supplement.

        We make available free of charge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

        We also furnish to our stockholders annual reports, which include annual financial information that has been examined and reported on, with an opinion expressed, by our independent registered public accounting firm. See "Experts" in this prospectus supplement and the accompanying prospectus and prospectus supplement for more information.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        All statements contained in this prospectus supplement or the accompanying prospectus and prospectus supplement, other than historical facts, may constitute "forward-looking statements." These statements may relate to, among other things, future events or our future performance or financial condition. In some cases, you can identify forward-looking statements by terminology such as "may," "believe," "will," "expect," "estimate," "suggest," "provided," "anticipate," "future," "could," "plan," "intend," "expect," "should," "would," "if," "seek," "possible" or "possibility," "potential," "likely" or the negative of such terms or comparable terminology.

        Forward-looking statements involve known and unknown risks and uncertainties. Our actual results, levels of activity, or timing of events, could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation: (1) the success or failure of the offering described herein, in particular whether or not the offering will be fully subscribed; (2) general volatility of the capital markets and the market price of shares of our common stock or the Rights; (3) the difficulties in creating an adequate and active public market for the Rights; (4) adverse changes in our industry, interest rates, or the general economy; (5) our failure or inability to establish or maintain referral arrangements with investment bankers and business brokers to generate loan opportunities; (6) the loss of one or more of our executive officers, in particular David Gladstone, Terry Lee Brubaker, or George Stelljes III; (7) our inability to extend, refinance, or maintain our credit facilities on terms reasonably acceptable to us, if at all; (8) our inability to successfully securitize our loan portfolio on terms reasonably acceptable to us, if at all; and (9) the decision of our competitors to aggressively seek to make senior and subordinated loans to small and medium-sized businesses on terms more favorable than we intend to provide. These and other risk factors are discussed 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. 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.

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PROSPECTUS SUPPLEMENT

(To Prospectus dated January 14, 2008)

GLADSTONE INVESTMENT CORPORATION

$300,000,000
COMMON STOCK
PREFERRED STOCK
SUBSCRIPTION RIGHTS
DEBT SECURITIES

        This prospectus supplement supplements the prospectus dated January 14, 2008, relating to our offer, from time to time, of up to $300 million aggregate initial offering price of our common stock, $0.001 par value per share, preferred stock, $0.001 par value per share, subscription rights or debt securities, or a combination of these securities, which we refer to in this prospectus supplement collectively as our Securities, in one or more offerings, by providing certain information regarding our recent developments and our third quarter 2007 financial results.

        Please read this prospectus supplement, and the accompanying prospectus, before investing, and keep it for future reference. The prospectus supplement and the accompanying prospectus contain information you should know before investing, including information about risks.

        We also file reports, proxy statements and other information with the SEC under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. Such reports, proxy statements and other information, as well as the registration statement and the amendments, exhibits and schedules thereto, can be inspected at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Information about the operation of the public reference facilities may be obtained by calling the SEC at 1-202-551-8090. The SEC maintains a web site that contains reports, proxy statements and other information regarding registrants, including us, that file such information electronically with the SEC. The address of the SEC's web site is http://www.sec.gov. Copies of such material may also be obtained from the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. Our common stock is listed on The Nasdaq Global Select Market and our corporate website is located at http://www.gladstoneinvestment.com. The information contained on, or accessible through, our website is not a part of this prospectus supplement or the accompanying prospectus.

        Investing in our common stock involves risks. See "Risk Factors" beginning on page 8 of the accompanying prospectus.

Neither the Securities and Exchange Commission, any state securities commission, nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus supplement is March 24, 2008.

INTERIM MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

        All statements contained herein, other than historical facts, may constitute "forward-looking statements." These statements may relate to, among other things, future events or our future performance or financial condition. In some cases, you can identify forward-looking statements by terminology such as "may," "might," "believe," "will," "provided," "anticipate," "future," "could," "growth," "plan," "intend," "expect," "should," "would," "if," "seek," "possible," "potential," "likely" or the negative of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others: (1) our future operating results as we are a company with a limited operating history; (2) the loss of one or more of our executive officers, in particular, David Gladstone, George Stelljes III, or Terry Lee Brubaker; (3) the impact of the investments that we make and the ability of these investments to achieve their objectives; (4) our contractual relationships with third parties; (5) the adequacy of our cash resources and working capital; (6) our ability to obtain future financing, if at all; and (7) those factors listed under the caption "Risk Factors" of this Quarterly Report on Form 10-Q. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Form 10-Q.

        The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto contained elsewhere in this report and our annual report on Form 10-K for the fiscal year ended March 31, 2007.

OVERVIEW

        We were incorporated under the General Corporation Laws of the State of Delaware on February 18, 2005. On June 22, 2005 we completed an initial public offering and commenced operations. We were primarily established for the purpose of investing in subordinated loans, mezzanine debt, preferred stock and warrants to purchase common stock of small and medium-sized companies in connection with buyouts and other recapitalizations. We also invest in senior secured loans and common stock and senior and subordinated syndicated loans. Our investment objective is to generate both current income and capital gains through these debt and equity instruments. We operate as a 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").

Our Investment Strategy

        We seek to achieve returns from current income from senior, subordinated and mezzanine debt, and capital gains from preferred stock and warrants to purchase common stock that we acquire in connection with buyouts and recapitalizations of small and mid-sized companies with established management teams. Our investments generally range between $10 million and $30 million each, although this investment size may vary proportionately as the size of our capital base changes. We intend to invest either by ourselves or jointly with other buyout 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, then our investment is likely to be smaller than if we were investing alone.

        We expect that our target portfolio over time will include mostly subordinated loans, mezzanine debt, preferred stock, and warrants to buy common stock. Structurally, subordinated loans and

SS-1

mezzanine loans usually rank lower in priority of payment to senior debt, such as senior bank debt, and may be unsecured. However, subordinated debt and mezzanine loans rank senior to common and preferred equity in a borrower's capital structure. Typically, subordinated debt and mezzanine loans have elements of both debt and equity instruments, offering returns in the form of interest payments associated with senior debt, while providing lenders an opportunity to participate in the capital appreciation of a borrower, if any, through an equity position. Due to its higher risk profile and often less restrictive covenants as compared to senior debt, mezzanine debt generally earns a higher return than senior secured debt. Any warrants associated with mezzanine loans are typically detachable, which allows lenders to receive repayment of their principal on an agreed amortization schedule while retaining their equity interest in the borrower. Mezzanine debt also may include a "put" feature, which permits the holder to sell its equity interest back to the borrower at a price determined through a pre-determined formula.

Non-Control/Non-Affiliate Investments

        We invested a substantial portion of the proceeds of our initial public offering in senior secured syndicated loans, since these investments typically may be originated more quickly than investments in companies undergoing a buyout or recapitalization. We employed this strategy in order to quickly invest our initial capital to generate current income, and have continued this strategy in order to build a portfolio that may be potentially securitized in the future to obtain financing to pay down borrowings and invest in additional buyout and recapitalization investments. At December 31, 2007, we had investments in 50 such syndicated loans. There can be no guarantee that we will be able to successfully securitize any loans in our portfolio.

        Senior secured syndicated loans typically involve a number of banks or other financial institutions and are generally more marketable than loans that are not syndicated. In order to invest in certain senior secured syndicated loans, we may purchase these investments at a premium or discount. We amortize premiums and discounts over the contractual life of the investment. In the event that an investment is sold prior to its contractual maturity date, we recognize a loss on any unamortized premium or a gain on any unamortized discount.

        At December 31, 2007 and March 31, 2007, we held investments in Non-Control/Non-Affiliates of approximately $185.1 million and $138.6 million, at cost, respectively. These investments were comprised primarily of syndicated loan participations of senior notes of both public and private companies as well as non-syndicated loan investments where we do not have a significant ownership interest in the portfolio company. We expect to continue purchasing syndicated loans using borrowings from our credit facility.

Control and Affiliate Investments

        At December 31, 2007, we had investments of approximately $135.5 million, at cost, in revolving credit facilities, senior debt and subordinated debt of eight portfolio companies. In addition, at December 31, 2007, we had invested approximately $35.5 million in preferred and common equity of those companies. These investments are the result of buyout and recapitalization transactions and represent our primary investment focus.

Investment Concentrations

        Approximately 75% of the aggregate fair value of our investment portfolio at December 31, 2007 was comprised of senior debt, approximately 11% was senior subordinated debt and approximately 14% was preferred and common equity securities. At December 31, 2007, we had approximately $356 million

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invested in 59 portfolio companies. The following table outlines our investments by type at December 31, 2007 and March 31, 2007:

        Investments at fair value consisted of the following industry classifications at December 31, 2007 and March 31, 2007:

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        The investments at fair value were included in the following geographic regions of the United States and Canada at December 31, 2007 and March 31, 2007:

        The geographic region depicts the location of the headquarters for the Company's portfolio companies. A portfolio company may have a number of other business locations in other geographic regions.

Our Adviser and Administrator

        Our Adviser is led by a management team which has extensive experience in our lines of business. Our Adviser also has a wholly-owned subsidiary, Gladstone Administration, LLC (the "Administrator"), which employs our chief financial officer, chief compliance officer, controller, treasurer and their respective staffs. All of our executive officers are officers or directors, or both, of our Adviser and our Administrator.

        Our Adviser also provides investment advisory and administrative services to our affiliates Gladstone Commercial Corporation, a publicly traded real estate investment trust; Gladstone Capital Corporation, a publicly traded registered investment company; and Gladstone Land Corporation, an agricultural real estate company owned by Mr. Gladstone. All of our directors and executive officers serve as either directors or executive officers, or both, of Gladstone Commercial Corporation and Gladstone Capital Corporation. In the future, our Adviser may provide investment advisory and administrative services to other funds, both public and private, of which it is the sponsor.

        We have been externally managed by our Adviser pursuant to an investment advisory and management agreement (the "Advisory Agreement") since our inception. Our 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 1940 Act. Our Adviser is headquartered in McLean, Virginia, a suburb of Washington, D.C., and also has offices in the states of New York, Illinois, Pennsylvania, New Jersey, Texas and Washington.

Investment Advisory and Management Agreement

        Pursuant to the Advisory Agreement we pay our Adviser fees, as compensation for its services, consisting of a base management fee and an incentive fee.

        The base management fee is computed and payable quarterly and is assessed at an annual rate of 2.0%. The base management fee was initially computed on the basis of the average value of our gross invested assets at the end of the two most recently completed quarters, which were total assets less the cash proceeds and cash and cash equivalent investments from the proceeds of our initial public offering that were not invested in debt and equity securities of portfolio companies. Beginning on January 1, 2007, the base management fee is assessed at an annual rate of 2.0% computed on the basis of the average value of our gross assets at the end of the two most recently completed quarters, which are

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total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings. This new calculation was originally scheduled to begin in periods after March 31, 2006; however, our Board of Directors accepted voluntary waivers from our Adviser that allowed the initial calculation of the base management fee to be effective through December 31, 2006.

        On April 11, 2007, our Board of Directors accepted a voluntary waiver from the Adviser to reduce the annual 2.0% base management fee on senior syndicated loan participations to 0.5% to the extent that proceeds resulting from borrowings were used to purchase such syndicated loan participations. This waiver remains in effect and was applied during the three and nine months ended December 31, 2007.

        When our Adviser receives fees from our portfolio companies, such as investment banking fees, structuring fees or executive recruiting services fees, 50% of certain of these fees will voluntarily be credited against the base management fee that we would otherwise be required to pay to our Adviser.

        In addition, our Adviser services the loans held by Gladstone Business Investment, LLC ("Business Investment"), in return for which the Adviser receives a 2.0% annual fee based on the monthly aggregate balance of loans held by Business Investment. Since we own these loans, all loan servicing fees paid to our Adviser are treated as reductions against the 2.0% base management fee. Overall, the base management fee due to our Adviser cannot exceed 2.0% of total assets (as reduced by cash and cash equivalents pledged to creditors) during any given fiscal year.

        The incentive fee consists of two parts: an income-based incentive fee and a capital gains incentive fee. The income-based incentive fee rewards our Adviser if our quarterly net investment income (before giving effect to any incentive fee) exceeds 1.75% of our net assets (the "hurdle rate"). We pay our Adviser an income incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows:

•

no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate (7% annualized);



•

100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875% in any calendar quarter (8.75% annualized); and



•

20% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized).

        The second part of the incentive fee is a capital gains incentive fee that is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement, as of the termination date), and equals 20% of our realized capital gains as of the end of the fiscal year. In determining the capital gains incentive fee payable to our Adviser, we calculate the cumulative aggregate realized capital gains and cumulative aggregate realized capital losses since our inception, and the aggregate unrealized capital depreciation as of the date of the calculation, as applicable, with respect to each of the investments in our portfolio.

Administration Agreement

        We have entered into an administration agreement with our Administrator (the "Administration Agreement") whereby we pay separately for administrative services. The Administration Agreement provides for payments equal to our allocable portion of our Administrator's overhead expenses in performing its obligations under the Administration Agreement including, but not limited to, rent for employees of our Administrator, and our allocable portion of the salaries and benefits expenses of our chief financial officer, controller, chief compliance officer, treasurer and their respective staffs. Our allocable portion of expenses is derived by multiplying our Administrator's total allocable expenses by

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the percentage of our average total assets (the total assets at the beginning and end of each quarter) in comparison to the average total assets of all companies managed by our Adviser under similar agreements.

Critical Accounting Policies

        The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period reported. Actual results could differ materially from those estimates. Our accounting policies are more fully described in the "Notes to Consolidated Financial Statements" contained elsewhere in this report. We have identified our investment valuation process 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.

        General Valuation Policy:    Using procedures established by our Board of Directors, we value our investment portfolio each quarter. We carry our investments at fair value, as determined in good faith by or under the direction of our Board of Directors. Securities that are publicly traded, if any, are valued at the closing price of the exchange or securities market on which they are listed on the valuation date. Securities that are not traded on a public exchange or securities market, but for which a limited market exists are valued at the indicative bid price offered by the respective originating syndication agent's desk on or near the valuation date.

        Debt and equity securities that are not publicly traded and for which a limited market does not exist are valued at fair value as determined in good faith by or under the direction of our Board of Directors. In making the good faith determination of the value of these securities, we start with the cost basis of the security, which includes paid in kind ("PIK") interest, if any. We then apply the methods set out below in "Valuation Methods." Members of our Adviser's portfolio management team prepare the valuations of our investments in portfolio companies using the most recent portfolio company financial statements and forecasts. These individuals also consult with portfolio company senior management and ownership to obtain further updates on the portfolio company's performance, including information such as industry trends, new product development, and other operational issues. Due to the uncertainty inherent in the valuation process, such estimates of fair value may differ significantly from the values that would have been obtained had a ready market for the securities existed, and the differences could be material. Additionally, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. There is no single standard for determining fair value in good faith, as fair value depends upon circumstances of each individual case. In general, fair value is the amount that we might reasonably expect to receive upon the current sale of the security.

        At December 31, 2007, we engaged Standard and Poor's Securities Evaluations, Inc. ("SPSE") to submit opinions of value for our debt securities that are issued to portfolio companies where we have no equity, or equity-like securities. In addition, securities that are not traded on a public exchange or securities market, but for which a limited market exists and that have not been rated by a nationally recognized statistical rating organization, or NRSRO (such as certain participations in syndicated loans) are also submitted to SPSE for opinions of value, along with the indicative bid price offered by the syndication agent's desk on or near the valuation date. We submit non-NRSRO rated securities to

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SPSE as part of our Board's further consideration of whether market quotations are readily available, valid and reliable and, if there are discrepancies between the indicative bid price offered by the syndication agent's desk and the opinion of value from SPSE, we determine whether it is more appropriate for the alternative method of valuation prescribed by the 1940 Act—fair value as determined in good faith by the Board of Directors—to be implemented. We request that SPSE also evaluate and assign values to success fees (conditional interest included in some loan securities) when we determine that the probability of receiving a success fee on a given loan is above 6-8%, a threshold of significance. We may also submit PIK interest to SPSE for valuation when it is determined the PIK interest is likely to be received. SPSE will only evaluate the debt portion of our investments for which we specifically request evaluation, and may decline to make requested evaluations for any reason at its sole discretion. Upon completing our collection of data with respect to the investments (including the information described under "Credit Information," the risk ratings of the loans described under "Loan Grading and Risk Rating" and the factors described under "Valuation Methods"), this valuation data is forwarded to SPSE for review and analysis. SPSE makes its independent assessment of the data that we have assembled and assesses its independent data to form an opinion as to what they consider to be the market values for the securities. With regard to its work, SPSE has issued the following paragraph:

SPSE provides evaluated price opinions which are reflective of what SPSE believes the bid side of the market would be for each loan after careful review and analysis of descriptive, market and credit information. Each price reflects SPSE's best judgment based upon careful examination of a variety of market factors. Because of fluctuation in the market and in other factors beyond its control, SPSE cannot guarantee these evaluations. The evaluations reflect the market prices, or estimates thereof, on the date specified. The prices are based on comparable market prices for similar securities. Market information has been obtained from reputable secondary market sources. Although these sources are considered reliable, SPSE cannot guarantee their accuracy.

        SPSE opinions of value of our debt securities that are issued by portfolio companies where we have no equity, or equity-like securities are submitted to our Board of Directors along with our Adviser's supplemental assessment and recommendation regarding valuation of each of these investments. Our Adviser generally accepts the opinion of value given by SPSE, however, in certain limited circumstances, such as when our Adviser may learn new information regarding an investment between the time of submission to SPSE and the date of the Board assessment, our Adviser's conclusions as to value may differ from the opinion of value delivered by SPSE. Our Board of Directors then reviews whether our Adviser has followed its established procedures for determinations of fair value, and votes to accept or reject the recommended valuation of our investment portfolio. Our Adviser and our management recommended, and the Board of Directors voted to accept, the opinions of value delivered by SPSE on the loans in our portfolio as denoted on the Schedule of Investments as of December 31, 2007 included in our consolidated financial statements.

        Because there is a delay between when we close an investment and when the investment can be evaluated by SPSE, new loans are not valued immediately by SPSE; rather, management makes its own determination about the value of these investments in accordance with our valuation policy. Because SPSE does not provide values for our equity securities, our Adviser determines the recommended fair value of these investments using valuation policies approved by our Board of Directors.

        Credit Information:    Our 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. We and our Adviser participate in the periodic board meetings of our portfolio companies in which we hold control and affiliate investments and also require them to provide annual audited and monthly unaudited financial statements. Using these statements and board discussions, our Adviser calculates and evaluates the credit statistics.

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        Loan Grading and Risk Rating:    As part of our valuation procedures we risk rate all of our investments in debt securities. For syndicated loans that have been rated by a NRSRO (as defined in Rule 2a-7 under the 1940 Act), we use the NRSRO's risk rating for such security. For all other debt securities, we use a proprietary risk rating system. Our risk rating system uses a scale of 0 to 10, with 10 being the lowest probability of default. This system is used to estimate the probability of default on debt securities and the probability of loss if there is a default. These types of systems are referred to as risk rating systems and are used by banks and rating agencies. The risk rating system covers both qualitative and quantitative aspects of the business and the securities we hold.

        For the debt securities for which we do not use a third-party NRSRO risk rating, we seek to have our risk rating system mirror the risk rating systems of major risk rating organizations, such as those provided by a NRSRO. While we seek to mirror the NRSRO systems, we cannot provide any assurance that our risk rating system will provide the same risk rating as a NRSRO for these securities. The following chart is an estimate of the relationship of our risk rating system to the designations used by two NRSROs as they risk rate debt securities of major companies. Because our system rates debt securities of companies that are unrated by any NRSRO, there can be no assurance that the correlation to the NRSRO set out below is accurate. We believe our risk rating would be significantly higher than a typical NRSRO risk rating because the risk rating of the typical NRSRO is designed for larger businesses. However, our risk rating has been designed to risk rate the securities of smaller businesses that are not rated by a typical NRSRO. Therefore, when we use our risk rating on larger business securities, the risk rating is higher than a typical NRSRO rating. The primary difference between our risk rating and the rating of a typical NRSRO is that our risk rating uses more quantitative determinants and includes qualitative determinants that we believe are not used in the NRSRO rating. It is our understanding that most debt securities of medium-sized companies do not exceed the grade of BBB on a NRSRO scale, so there would be no debt securities in the middle market that would meet the definition of AAA, AA or A. Therefore, our scale begins with the designation 10 as the best risk rating which may be equivalent to a BBB from a NRSRO, however, no assurance can be given that a 10 on our scale is equal to a BBB on a NRSRO scale.

(a)

The default rates set forth are for a ten year term debt security. If a debt security is less than ten years, then the probability of default is adjusted to a lower percentage for the shorter period, which may move the security higher on our risk rating scale.

        The above scale gives an indication of the probability of default and the magnitude of the loss if there is a default. Our policy is to stop accruing interest on an investment if we determine that interest

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is no longer collectible. At December 31, 2007, one investment was on non-accrual and at March 31, 2007 there were no investments on non-accrual. Additionally, we do not risk rate our equity securities.

        The following table lists the risk ratings for all non-syndicated loans in our portfolio at December 31, 2007 and March 31, 2007, representing approximately 46% and 44%, respectively, of all loans in our portfolio at the end of each period:

        The following table lists the risk ratings for syndicated loans in our portfolio that were not rated by an NRSRO at December 31, 2007 and March 31, 2007, representing approximately 14%, respectively, of all loans in our portfolio at the end of each period:

        For syndicated loans that are currently rated by an NRSRO, we risk rate such loans in accordance with the risk rating systems of major risk rating organizations, such as those provided by a NRSRO. The following table lists the risk ratings for all syndicated loans in our portfolio that were rated by an NRSRO at December 31, 2007 and March 31, 2007, representing approximately 40% and 42%, respectively, of all loans in our portfolio at the end of each period:

        Valuation Methods:    We determine the value of publicly-traded debt securities based on the closing price for the security on the exchange or securities market on which it is listed on the valuation date. We value debt securities that are not publicly traded, but for which a limited market for the security exists, such as certain participations in syndicated loans, at the indicative bid price offered by the respective originating syndication agent's trading desk on or near the valuation date. At December 31, 2007, none of the debt securities in our portfolio were publicly traded and there was a limited market for 50 debt securities in our portfolio. At March 31, 2007, none of the debt securities in our portfolio were publicly traded and there was a limited market for 42 debt securities in our portfolio.

        Debt securities that are issued by portfolio companies where we have an equity, or equity-like interest that are not publicly traded and for which there is no market are valued at cost, if there is adequate total enterprise value determined when valuing our equity holdings in the borrower. Fair values are discounted for any shortfall of total enterprise value over the total debt outstanding for the borrower.

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        Debt securities that are not publicly traded and that are issued by portfolio companies for which there is no market we determine the value of the security as if we currently intended to sell the security and consider some or all of the following factors:

•

the risk rating of the security;



•

the cost basis and the type of the security;



•

the nature and realizable value of the collateral;



•

the portfolio company's ability to make payments and discounted cash flow;



•

reports from portfolio company senior management and board meetings;



•

reported values of similar securities of the portfolio company or comparable companies; and



•

changes in the economy affecting the portfolio company.

        We value convertible debt, equity, success or exit fees or other equity-like securities for which there is a market based on the market prices for such securities, even if that market is not robust. At December 31, 2007 and March 31, 2007, there was no market for any of the equity securities we owned. To value convertible debt, equity, success or exit fees or other equity-like securities for which no market exists, we use the same information we would use for a debt security valuation described above, except risk-rating, as well as standard valuation techniques used by major valuation firms to value the equity securities of private companies. These valuation techniques also include discounted cash flow of the expected sale price in the future, valuation of the securities based on recent sales to third parties in comparable transactions, or a review of similar companies that are publicly traded and the market multiple of their equity securities. In gathering the sales to third parties of similar securities, we may reference industry statistics and use outside experts. At December 31, 2007 we had $35.8 million invested, at cost, in equity securities compared to our debt portfolio with a cost basis of $320.3 million. At March 31, 2007, we had $28.6 million invested, at cost, in equity securities compared to our debt portfolio with a cost basis of $246.0 million.

        At December 31, 2007, we had total unrealized depreciation of approximately $4.1 million, which was primarily comprised of $11.1 million net unrealized depreciation of our Non-Control/Non-Affiliate investments, offset by approximately $7.0 million of net appreciation of our Control and Affiliate investments. The syndicated loan market continued to be extremely volatile during the quarter ended December 31, 2007 and, as a result, certain of our syndicated loan investments experienced significant declines in fair market value. At March 31, 2007, we had total unrealized depreciation of approximately $3.7 million, which was primarily comprised of net unrealized depreciation of our preferred and common stock in Chase II Holdings Corp.

Tax Status

Federal Income Taxes

        We currently qualify and intend to continue to qualify for treatment as a RIC under Subtitle A, Chapter 1 of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a RIC, we are not subject to federal income tax on the portion of our taxable income and gains distributed to stockholders. To qualify as a RIC, we are required to distribute to stockholders at least 90% of our investment company taxable income, as defined by the Code. It is our policy to pay out as a dividend up to 100% of those amounts.

        In an effort to avoid certain excise taxes imposed on RICs, we currently intend to distribute during each calendar year, an amount at least equal to the sum of (1) 98% of our ordinary income for the calendar year, (2) 98% of our capital gains in excess of capital losses for the one-year period ending on

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October 31 of the calendar year, and (3) any ordinary income and net capital gains for preceding years that were not distributed during such years.

Revenue Recognition

Interest and Dividend Income Recognition

        Interest income is recorded on the accrual basis to the extent that such amounts are expected to be collected. We will stop accruing interest on investments when it is determined that interest is no longer collectible. At December 31, 2007, one Non-Control/Non-Affiliate investment was on non-accrual with a cost basis of approximately $2.9 million at December 31, 2007, or less than 1% of the cost basis of all loans in our portfolio. There were no accounts on non-accrual at March 31, 2007. Conditional interest, or a success fee, is recorded when earned upon full repayment of a loan investment. To date we have not recorded any conditional interest. Dividend income on preferred equity securities is accrued to the extent that such amounts are expected to be collected and that we have the option to collect such amounts in cash. To date, we have not accrued any dividend income.

Services Provided to Portfolio Companies

        As a business development company under the 1940 Act, we are required to make available significant managerial assistance to our portfolio companies. We provide these services through our Adviser, who provides these services on our behalf through its officers who are also our officers. Currently, neither we nor our Adviser charges a fee for managerial assistance, however, if our Adviser does receive fees for such managerial assistance, our Adviser will credit the managerial assistance fees to the base management fee due from us to our Adviser.

        Our Adviser receives fees for the other services it provides to our portfolio companies. These other fees are typically non-recurring, are recognized as revenue when earned and are generally paid directly to our Adviser by the borrower or potential borrower upon the closing of the investment. The services our Adviser provides to our portfolio companies vary by investment, but generally include a broad array of services such as investment banking services, arranging bank and equity financing, structuring financing from multiple lenders and investors, reviewing existing credit facilities, restructuring existing investments, raising equity and debt capital, turnaround management, merger and acquisition services and recruiting new management personnel. When our Adviser receives fees for these services, 50% of certain of those fees are voluntarily credited against the base management fee that we pay to our Adviser. Any services of this nature subsequent to the closing would typically generate a separate fee at the time of completion.

        Our Adviser also receives fees for monitoring and reviewing portfolio company investments. These fees are recurring and are generally paid annually or quarterly in advance to our Adviser throughout the life of the investment. Fees of this nature are recorded as revenue by our Adviser when earned and are not credited against the base management fee.

        We may receive fees for the origination and closing services we provide to portfolio companies through our Adviser. These fees are paid directly to us and are recognized as revenue upon closing of the originated investment and are reported as fee income in the consolidated statements of operations.

Recent Accounting Pronouncements

        In December 2007, the FASB issued SFAS No. 141(R) Business Combinations ("SFAS 141(R)"). SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination.

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SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact of this pronouncement on our consolidated financial statements.

        In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements ("SFAS 160"). This Statement amends Accounting Research Bulletin 51 to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for interim periods beginning on or after December 15, 2008. We are currently evaluating the impact of this pronouncement on our consolidated financial statements.

        In November 2007, the SEC issued Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at Fair Value Through Earnings ("SAB 109"). SAB 109 provides guidance on the accounting for written loan commitments recorded at fair value under GAAP. Specifically, the SAB revises the Staff's views on incorporating expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment. SAB 109, which supersedes SAB 105, Application of Accounting Principles to Loan Commitments, requires the expected net future cash flows related to the associated servicing of the loan be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. SAB 109 is effective in fiscal quarters beginning after December 15, 2007. We are currently evaluating the impact of this pronouncement on our consolidated financial statements.

        In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS 159"). SFAS 159 allows entities to measure at fair value many financial instruments and certain other assets and liabilities that are not otherwise required to be measured at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007 We are currently evaluating the impact of this pronouncement on our consolidated financial statements.

        In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is required to adopt the provisions of SFAS 157 beginning with the fiscal year ended March 31, 2009. We are currently evaluating the impact of this pronouncement on our consolidated financial statements.

RESULTS OF OPERATIONS

Three months ended December 31, 2007 compared to the three months ended December 31, 2006

Investment Income

        Investment income for the three months ended December 31, 2007 increased $3,244,633 to $7,544,001, compared to investment income of $4,299,368 for the three months ended December 31, 2006.

        Interest income from Non-Control/Non-Affiliate investments increased $1,305,747 to $3,891,918 for the three months ended December 31, 2007, compared to $2,586,171 for the three months ended December 31, 2006. This increase was mainly the result of approximately $43 million of additional Non-Control/Non-Affiliate investments at December 31, 2007 compared to the prior year period.

        Interest income from Control investments was $2,865,843 for the three months ended December 31, 2007, representing interest on our loan investments to our Control affiliates, compared

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to interest income of $1,264,451 for the three months ended December 31, 2006. The increase of $1,601,392 is directly attributable to the addition of two Control investments compared to the prior year period.

        Interest income from Affiliate investments was $700,494 for the three months ended December 31, 2007, representing interest on our loan investments to our Non-Control affiliates, compared to interest income of $114,668 for the three months ended December 31, 2006. The increase of $585,826 is mainly the result of recognizing a full quarter of interest income from our Affiliate investment that was purchased at the end of the prior year period, as well as the acquisition of another Affiliate investment.

        Interest income from cash and equivalents decreased $253,084 to $79,502 for the three months ended December 31, 2007 from $332,586 for the three months ended December 31, 2006. This decrease was the result of the complete investment of the proceeds of our initial public offering in Control, Affiliate and Non-Control/Non-Affiliate investments. At December 31, 2007 we had no investments in treasury securities as all of the proceeds from our initial public offering had been invested

        Other income for the three months ended December 31, 2007 was $6,244 compared to $1,492 for the three months ended December 31, 2006. Other income is primarily comprised of loan amendment fees that are received from portfolio companies and are amortized over the remaining life of the respective loans. The increase of $4,752 over the prior year quarter is primarily due to the receipt of additional amendment fees during the period.

        The weighted average yield on our portfolio of investments, excluding cash and cash equivalents, was 9.05% for the three months ended December 31, 2007 and 9.41% for the three months ended December 31, 2006. This decrease is largely the result of declining interest rates due to the volatility in the lending marketplace.

Operating Expenses

        Operating expenses for the three months ended December 31, 2007 were $3,797,775 compared to $1,401,300 for the three months ended December 31, 2006, representing an overall increase of $2,396,475.

        For the three months ended December 31, 2007, we incurred a base management fee of $497,632, after reductions for loan servicing fees of $1,287,013, for a gross base management fee (including loan servicing fees) of $1,784,645. For the three months ended December 31, 2006, we incurred a base management fee of $551,235, after reductions for loan servicing fees of $508,691, for a gross base management fee (including loan servicing fees) of $1,059,926. The increase in our gross base management fee of $724,719 results from the growth of our portfolio from the prior year period. The base management fee is computed quarterly as described under "—Investment Advisory and Management Agreement."

        We also received aggregate credits against our base management fee of $1,045,881, which were comprised of $509,555 resulting from reduced fees on syndicated loan participations and $536,326 resulting from investment banking fees paid to our Adviser during three months ended December 31, 2007. We received aggregate credits of $375,225 against our base management fee for the three months ended December 31, 2006 resulting from investment banking fees paid to our Adviser during the quarter.

        Loan servicing fees of $1,287,013 were incurred for the three months ended December 31, 2007. These fees were incurred in connection with a loan servicing agreement between Business Investment and our Adviser in connection with our credit facility established in October 2006, which is based on the size of the aggregate outstanding loan portfolio. These fees reduced the amount of the management fee due to our Adviser as noted above. The increase in loan servicing fees of $778,322

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compared to the prior year quarter is the result of an increase in the portfolio of loans being serviced by our Adviser as well as the recognition of a full quarter of loan servicing fees in the current year, compared to a partial quarter in the prior year.

        The administration fee payable to our Administrator was $211,159 for the three months ended December 31, 2007 compared to $124,101 for the three months ended December 31, 2006. This fee consists of our allocable portion of our Administrator's rent and other overhead expenses, and our allocable portion of the salaries and benefits of our chief financial officer, chief compliance officer, treasurer, controller and their respective staffs. Our allocable portion of expenses is derived by multiplying the percentage of our average assets (the assets at the beginning and ending of each quarter) in comparison to the average assets of all companies managed by our Adviser. The increase of $87,058 was mainly attributable to the personnel growth of our Administrator as well as an increase in the general overhead expenses incurred by our Administrator.

        Interest expense for the three months ended December 31, 2007 was $2,381,227 compared to $68,748 of interest expense for the three months ended December 31, 2006. The increase resulted from greater borrowings outstanding on our credit facility during the quarter, compared to the prior year quarter. We established our credit facility in October 2006 and did not have any borrowings outstanding until December 2006, resulting in only one month of interest expense.

        Deferred finance cost amortization for the three months ended December 31, 2007 was $169,329 compared to $91,392 for the three months ended December 31, 2006. The increase of $77,937 is primarily attributable to an extra month of amortization in the current quarter as the prior year quarter began amortizating these costs in November 2006. Further, the total deferred finance costs subject to amortization were greater in the current year due to amendment and renewal fees for the credit facility.

        Professional fees for the three months ended December 31, 2007 were $90,255, a decrease of $96,282 over the professional fees for the three months ended December 31, 2006 of $186,537. Professional fees primarily consist of legal fees and audit and accounting fees. The decrease is mainly due to in the timing of audit fees billed, partially in connection with our compliance with Sarbanes-Oxley regulations incurred during the prior year period, partially offset by increased general legal fees for the quarter.

        Stockholder related costs were $25,083 for the three months ended December 31, 2007, compared to $28,643 for the three months ended December 31, 2006. Stockholder related costs consist of the amortization of annual Nasdaq listing fees, transfer agent fees, annual report printing fees, Securities and Exchange Commission ("SEC") filing fees and press release costs.

        Insurance expense for the three months ended December 31, 2007 was $46,719 compared to $60,696 for the three months ended December 31, 2006. Insurance expense consists of the amortization of the directors and officers insurance policy and professional liability policy premiums. The decrease is due to a reduction in the premiums for directors and officers insurance for the current policy period.

        Directors' fees for the three months ended December 31, 2007 and 2006 were $54,709 and $54,800, respectively. Directors' fees consist of the amortization of the directors' annual stipend and individual meeting fees.

        Taxes and licenses expense for the three months ended December 31, 2007 was $41,886 as compared to $41,550 for the three months ended December 31, 2006. Taxes and licenses expense primarily comprised of franchise taxes due to the state of Delaware and other fees surrounding state and regulatory licensing, registration and other corporate filing fees.

        General and administrative expenses for the three months ended December 31, 2007 were $38,644 compared to $60,132 for the three months ended December 31, 2006. General and administrative

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expenses consist primarily of direct expenses such as travel related specifically to our portfolio companies, loan evaluation services for our portfolio companies and backup servicer expenses. The overall decrease of $21,488 is mainly due to the decrease in direct investment expenses incurred on investments that were not funded. Typically when an investment funds, these direct expenses are reimbursed to us at closing by the portfolio company

Realized and Unrealized Loss on Investments

        For the three months ended December 31, 2007, we recognized a net loss of $146,034 resulting from the partial sale of two of our syndicated loans at a discount during the three months ended December 31, 2007. We recorded net unrealized appreciation of investments in the aggregate amount of $1,503,727. The net unrealized appreciation of our investments for the three months ended December 31, 2007 was primarily related to the net appreciation of approximately $4.3 million of our Control investments, offset by a decline in market value of our syndicated loan portfolio of approximately $2.8 million from the previous quarter as the result of continued market volatility.

Net Increase in Net Assets from Operations

        Overall, we realized a net increase in net assets resulting from operations of $5,108,919 for the three months ended December 31, 2007 as a result of the factors discussed above. Our net increase in net assets from operations per basic and diluted weighted average common share for the three months ended December 31, 2007 was $0.31 compared to a net increase in net assets resulting from operations per share of $0.16 for the three months ended December 31, 2006.

Nine months ended December 31, 2007 compared to the nine months ended December 31, 2006

Investment Income

        Investment income for the nine months ended December 31, 2007 increased $8,623,365 to $21,000,099, compared to investment income of $12,376,734 for the nine months ended December 31, 2006.

        Interest income from Non-Control/Non-Affiliate investments increased $4,282,441 to $11,220,467 for the nine months ended December 31, 2007, compared to $6,938,026 for the nine months ended December 31, 2006. This increase was mainly the result of approximately $43 million of additional Non-Control/Non-Affiliate investments at December 31, 2007 compared to the prior year period.

        Interest income from Control investments was $8,043,247 for the nine months ended December 31, 2007, representing interest on our loan investments to our Control affiliates, compared to interest income of $3,711,056 for the nine months ended December 31, 2006. The increase of $4,332,191 is directly attributable to the addition of two Control investments compared to the prior year period.

        Interest income from Affiliate investments was $1,501,944 for the nine months ended December 31, 2007, representing interest on our loan investments to our Non-Control affiliates, compared to interest income of $114,668 for the nine months ended December 31, 2007. The increase of $1,387,276 is mainly the result of recognizing nine months of interest income from our Affiliate investment that was purchased at the end of the prior year period and the purchase of another Affiliate investment during the nine months ended December 31, 2007, which also generated an increase in interest income from Affiliate investments.

        Interest income from cash and equivalents decreased $1,416,893 to $193,613 for the nine months ended December 31, 2007 from $1,610,506 for the nine months ended December 31, 2006. This decrease was the result of the complete investment of the proceeds of our initial public offering in Control, Affiliate and Non-Control/Non-Affiliate investments. At December 31, 2007 we had no investments in treasury securities as all of the proceeds from our initial public offering had been invested.

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        Other income for the nine months ended December 31, 2007 was $40,828 compared to $2,478 for the three months ended December 31, 2006. Other income is primarily comprised of loan amendment fees that are received from portfolio companies and are amortized over the remaining life of the respective loans. The increase of $38,350 from the prior year period is primarily due to the repayment of two loans which resulted in the full recognition of the unamortized fees and the receipt of additional amendment fees during the period.

        The weighted average yield on our portfolio of investments, excluding cash and cash equivalents, was 9.05% for the nine months ended December 31, 2007 and 10.03% for the nine months ended December 31, 2006. This decrease is largely the result of declining interest rates from the volatility in the lending marketplace.

Operating Expenses

        Operating expenses for the nine months ended December 31, 2007 were $11,370,791, compared to $4,013,616 for the nine months ended December 31, 2006, representing an overall increase of $7,357,175.

        For the nine months ended December 31, 2007, we incurred base management fees of $1,309,951, after reductions for loan servicing fees of $3,741,082, for a gross base management fee (including loan servicing fees) of $5,051,033. For the nine months ended December 31, 2006, we incurred base management fees of $2,214,437, after reductions for loan servicing fees of $508,691, for a gross base management fee (including loan servicing fees) of $2,723,128. The increase in our gross base management fee of $2,327,905 results from the growth of our portfolio from the respective prior year periods. The base management fee is computed quarterly as described under "—Investment Advisory and Management Agreement."

        We also received aggregate credits against our base management fee of $1,932,475 which were comprised of $1,244,024 resulting from reduced fees on syndicated loan participations and $688,451 resulting from investment banking fees paid to our Adviser during the nine months ended December 31, 2007. We received aggregate credits of $375,225 against our base management fee for the nine months ended December 31, 2006 resulting from investment banking fees paid to our Adviser during the quarter.

        Loan servicing fees of $3,741,082 were incurred for the nine months ended December 31, 2007. These fees were incurred in connection with a loan servicing agreement between Business Investment and our Adviser in connection with our credit facility established in October 2006, which is based on the size of the aggregate outstanding loan portfolio. These fees reduced the amount of the management fee due to our Adviser as noted above. The increase in loan servicing fees of $3,232,391 compared to the prior year period is the result of an increase in the portfolio of loans being serviced by our Adviser as well as the recognition of a full quarter of loan servicing fees in the current year, compared to only two months in the prior year period.

        The administration fee payable to our Administrator was $646,740 for the nine months ended December 31, 2007, compared to $364,351 for the nine months ended December 31, 2006. This fee consists of our allocable portion of our Administrator's rent and other overhead expenses, and our allocable portion of the salaries and benefits of our chief financial officer, chief compliance officer, treasurer, controller and their respective staffs. Our allocable portion of expenses is derived by multiplying the percentage of our average assets (the assets at the beginning and ending of each quarter) in comparison to the average assets of all companies managed by our Adviser that are under similar administration agreements with our Administrator. The increase $282,389 was mainly attributable to the personnel growth of our Administrator as well as an increase in the general overhead expenses incurred by our Administrator.

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        Interest expense for the nine months ended December 31, 2007 was $5,818,564, compared to $68,748 of interest expense for the nine months ended December 31, 2006. The increase resulted from greater borrowings outstanding on our credit facility during the period, compared to the prior year period. We established our credit facility in October 2006 and did not have any borrowings outstanding until December 2006, resulting in only one month of interest expense.

        Deferred finance cost amortization for the nine months ended December 31, 2007 was $595,532 as compared to $91,392 for the nine months ended December 31, 2006. The increase of $504,140 is primarily attributable to nine months of amortization as the prior year period began amortizing these costs in November 2006.

        Professional fees for the nine months ended December 31, 2007 were $356,176, compared to the professional fees for the nine months ended December 31, 2006 of $354,325. Professional fees primarily consist of legal fees and audit and accounting fees. Slight increases in our general legal fees were offset by decreases in our accounting and audit fees related to our compliance with Sarbanes-Oxley regulations incurred during the prior year period.

        Stockholder related costs increased $32,803 for the nine months ended December 31, 2007 to $220,312 from $187,509 in the nine months ended December 31, 2006. Stockholder related costs consist of the amortization of annual Nasdaq listing fees, transfer agent fees, annual report printing fees, SEC filing fees and press release costs. The increase is primarily attributed to additional expenses incurred related to the solicitation of stockholder proxy votes for our annual meeting of stockholders in August 2007.

        Insurance expense for the nine months ended December 31, 2007 was $182,789 compared to $200,933 for the nine months ended December 31, 2006. Insurance expense consists of the amortization of the directors and officers insurance policy and professional liability policy premiums. The decrease of $18,144 is due to a reduction in the premiums for directors and officers insurance for the current policy period.

        Directors' fees for the nine months ended December 31, 2007 and 2006 were $176,981 and $154,300, respectively. Directors' fees consist of the amortization of the directors' annual stipend and individual meeting fees. The increase is due to fewer committee meetings held in the prior year period.

        Taxes and licenses expense for the nine months ended December 31, 2007 was $125,018 and was primarily comprised of franchise taxes due to the state of Delaware and other fees surrounding state and regulatory licensing, registration and other corporate filing fees. The decrease of $14,976 compared to the prior year period expense of $139,994 was the result of the timing of the accruals of the franchise tax to the state of Delaware in the prior year.

        General and administrative expenses for the nine months ended December 31, 2007 were $130,121 compared to $104,161 for the nine months ended December 31, 2006. General and administrative expenses consist primarily of direct expenses such as travel related specifically to our portfolio companies, loan evaluation services for our portfolio companies and backup servicer expenses. The overall increase of $25,960 is mainly due to the increase in direct expenses as the overall size of our investment portfolio grew from the prior year period.

Realized and Unrealized Loss on Investments

        For the nine months ended December 31, 2007, we recognized a net loss on the sale of seven syndicated loan participations aggregating $197,712 and we recorded net unrealized depreciation of investments in the aggregate amount of $424,286. The net unrealized depreciation of our investments for the nine months ended December 31, 2007 was primarily related to a decrease in the fair market value of our syndicated loan portfolio of approximately $10.9 million offset by an increase in our Control and Affiliate investments of approximately $10.2 million, when compared to their respective

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fair market values at March 31, 2007. Our non-syndicated Non-Control/Non-Affiliate investments also recognized unrealized gains of approximately $0.2 million during the nine months ended December 31, 2007.

Net Increase in Net Assets from Operations

        Overall, we realized a net increase in net assets resulting from operations of $9,012,310 for the nine months ended December 31, 2007 as a result of the factors discussed above. Our net increase in net assets from operations per basic and diluted weighted average common share for the nine months ended December 31, 2007 was $0.54, compared to $0.41 for the nine months ended December 31, 2006.

        We will continue to incur base management fees which are likely to increase as our investment portfolio grows, and we may begin to incur incentive fees. Our administrative expenses payable to our Administrator are also likely to grow during future periods as our average assets increase and as the expenses incurred by our Administrator to support our operations grow.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

        Net cash used in operating activities for the nine months ended December 31, 2007 was approximately $63.1 million and consisted primarily of the purchase of investments and the net unrealized depreciation of our investments, offset by repayments and sales of existing portfolio investments and an increase in amounts due from custodian.

        A summary of our investment activity for the nine months ended December 31, 2007 and December 31, 2006 is as follows:

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

Financing Activities

        During the nine months ended December 31, 2007, we recorded net borrowings under our credit facility of $50.5 million, which were used to purchase new investments.

        For the nine months ended December 31, 2007, our dividends paid of $11,426,469 exceeded our net investment income (including net realized losses) by $1,994,873. As a result, we estimate that $9,431,596, or $0.57 per share, of our dividends declared and paid to stockholders during the period were paid from ordinary income and $1,994,873, or $0.12 per share, of these dividends represented a return of capital to stockholders. We declared these dividends based on our estimates of net investment income for the fiscal year. Our investment pace continues to be slower than expected in our third year of operations and, consequently, our net investment income was lower than our original estimates.

        We anticipate continuing to borrow funds and, from time to time, issuing securities to obtain additional capital in the future. The terms of the future equity issuances cannot be determined and there can be no assurances that the equity markets will be available to us on terms we deem favorable, if at all. To this end, we have an effective registration statement on file with the SEC that permits us to issue, through one or more transactions, up to an aggregate of $300 million in securities, which may consist of common stock, preferred stock, subscription rights and/or debt securities. To date we have incurred approximately $358,000 of costs in connection with this registration statement.

Revolving Credit Facility

        On October 19, 2006, through our wholly-owned subsidiary, Business Investment, we initially obtained a $100 million revolving credit facility (the "Credit Facility"). On October 19, 2006, we executed a purchase and sale agreement pursuant to which we agreed to sell certain loans to Business Investment in consideration for a membership interest therein. Simultaneously, Business Investment executed a credit agreement (the "Credit Agreement") with Deutsche Bank AG, New York Branch ("Deutsche Bank"), as administrative agent, and others, pursuant to which Business Investment pledged the loans purchased from us to secure future advances by certain institutional lenders. Availability under the Credit Facility was originally scheduled to terminate on October 18, 2007, however, on that date we amended and extended the Credit Facility such that availability under the Credit Facility will terminate on October 16, 2008, unless extended in the discretion of the lenders at the request of Business Investment. Interest is payable monthly during the term of the Credit Facility and principal is payable out of collections on loans purchased from us during the period following the date of which availability for advances has terminated through maturity. The Credit Facility will mature two years

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following the date on which availability for advances has terminated and on such date, all principal, interest and other amounts owing under the Credit Facility will be due and payable. Interest rates charged on the advances under the facility are based on the rate paid by the lenders on commercial paper notes issued by such lenders to fund some or all of the advances, the London Interbank Offered Rate ("LIBOR"), the Prime Rate or the Federal Funds Rate, depending on market conditions, and adjusts periodically. On March 29, 2007, we increased our borrowing capacity under the Credit Facility from $100 million to $200 million. As of December 31, 2007, there was an outstanding principal balance of $150.5 million under the Credit Facility at an interest rate of approximately 5.36%. Available borrowings are subject to various constraints imposed under the Credit Agreement, based on the aggregate loan balance pledged by Business Investment, which varies as loans are added and repaid, regardless of whether such repayments are early prepayment or are made as contractually required. At December 31, 2007, the remaining borrowing capacity available under the Credit Facility was approximately $49.5 million.

        The Credit Facility contains covenants that require Business Investment to maintain its status as a separate entity; prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions); and restrict material changes to our credit and collection policies. The facility also restricts some of the terms and provisions (including interest rates, terms to maturity and payments schedules) and limits the borrower and industry concentrations of loans that are eligible to secure advances. As of December 31, 2007, Business Investment was in compliance with all of the facility covenants. We currently intend to securitize some or all of the loans held by Business Investment and if we are able to do so, we will use the proceeds from the securitization to pay down any amounts then outstanding under the revolving credit facility.

        The administrative agent also requires that any interest or principal payments on pledged loans be remitted directly by the borrower into lockbox accounts controlled by Deutsche Bank. Once a month, Deutsche Bank remits the collected funds to the Company after payment of any interest and expenses provided for under the Credit Agreement.

        Our Adviser services the loans pledged under the Credit Facility. As a condition to this servicing arrangement, we executed a performance guaranty pursuant to which we guaranteed that our Adviser would comply fully with all of its obligations under the Credit Facility. The performance guaranty requires us to maintain a minimum net worth of $100 million and to maintain "asset coverage" with respect to "senior securities representing indebtedness" of at least 200%, in accordance with Section 18 of the 1940 Act. As of December 31, 2007, we were in compliance with our covenants under the performance guaranty.

Dividends

        In order to qualify as a RIC and to avoid corporate level tax on the income we distribute to our stockholders, we are required, under Subchapter M of the Code, to distribute at least 90% of our

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ordinary income and realized net short-term capital gains to our stockholders on an annual basis. In accordance with these requirements, we declared the following dividends:

Contractual Obligations and Off-Balance Sheet Arrangements

        As of December 31, 2007, we were a party to a signed and non-binding term sheet for a buyout investment of approximately $23 million. The future scheduled contractual payments at December 31, 2007 were as follows:

        As of January 30, 2008, the above investment had not yet funded.

        We did not have any significant off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K as of December 31, 2007.

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INTERIM CONSOLIDATED FINANCIAL STATEMENTS

GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(UNAUDITED)

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

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GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

DECEMBER 31, 2007

(UNAUDITED)

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GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

DECEMBER 31, 2007

(UNAUDITED)

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GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

DECEMBER 31, 2007

(UNAUDITED)