1143513--12/6/2006--GLADSTONE_CAPITAL

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We are dependent upon our key management personnel and the key management personnel of GMC, particularly David Gladstone, George Stelljes III and Terry Lee Brubaker, and on the continued operations of GMC, for our future success. Our incentive fee may induce GMC to make certain investments, including speculative investments. We may be obligated to pay GMC incentive compensation even if we incur a loss. GMC s failure to identify and invest in securities that meet our investment criteria or perform its responsibilities under the Amended Advisory Agreement may adversely affect our ability for future growth. We operate in a highly competitive market for investment opportunities. Our business model is dependent upon developing and sustaining strong referral relationships with leveraged buyout funds and venture capital funds. Our loans to small and medium-sized borrowers are extremely risky and you could lose all or a part of your investment. Small and medium-sized businesses may have limited financial resources and may not be able to repay the loans we make to them. Small and medium-sized businesses typically have narrower product lines and smaller market shares than large businesses. There is generally little or no publicly available information about these businesses. Small and medium-sized businesses generally have less predictable operating results. Small and medium-sized businesses are more likely to be dependent on one or two persons. Small and medium-sized businesses are likely to have greater exposure to economic downturns than larger businesses. Small and medium-sized businesses may have limited operating histories. We may not realize gains from our equity investments and other yield enhancements. Because the loans we make and equity securities we receive when we make loans are not publicly traded, there will be uncertainty regarding the value of our privately held securities that could adversely affect our determination of our net asset value. The lack of liquidity of our privately held investments may adversely affect our business. Our portfolio is concentrated in a limited number of companies and industries, which subjects us to an increased risk of significant loss if any one of these companies does not repay us or if the industries experience downturns. Our business plan is dependent upon external financing which may expose us to risks associated with leverage. A change in interest rates may adversely affect our profitability and our hedging strategy may expose us to additional risks. Our credit facility imposes certain limitations on us. Our investments are typically long term and will require several years to realize liquidation events. Prepayments by our portfolio companies could adversely impact our results of operations and reduce our return on equity. We will be subject to corporate level tax if we are unable to satisfy Internal Revenue Code requirements for RIC qualification. There are significant potential conflicts of interest which could impact our investment returns. Changes in laws or regulations governing our operations, or changes in the interpretation thereof, and any failure by us to comply with laws or regulations governing our operations may adversely affect our business. We may experience fluctuation in our quarterly results. There is a risk that you may not receive dividends or that our dividends may not grow over time. Provisions of our articles of incorporation and bylaws could deter takeover attempts and adversely impact the price of our shares. The market price of our shares may fluctuate significantly. Shares of closed-end investment companies frequently trade at a discount from net asset value. We could face losses and potential liability if intrusion, viruses or similar disruptions to our technology jeopardize our confidential information or that of users of our technology.

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1143513--12/6/2006--GLADSTONE_CAPITAL_CORP