SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


þ	R	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~November 30, 2009~~May 31, 2010


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

For the transition period from to

Commission File No. 001-33376

GSC Investment Corp.

(Exact name of Registrant as specified in its charter)


Maryland		20-8700615
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

500 Campus Drive, Suite 220

Florham Park, New Jersey 07932

(Address of principal executive offices)

(973)-437-1000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YESþR NOo¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso¨ Noo¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o¨	Accelerated filer o¨	Non-accelerated filer þR	Smaller reporting company ¨
		(Do not check if a smaller reporting company)	~~Smaller reporting company~~ o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YESo¨ NOþR

The number of outstanding common shares of the registrant as of ~~January 8,~~July 7, 2010 was 16,940,109.

TABLE OF CONTENTS

						Page
				~~Page~~
PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements
•		Consolidated ~~Balance Sheets~~Statement of Assets and Liabilities as of ~~November 30, 2009~~May 31, 2010 (unaudited) and February 28, ~~2009~~		2010	3
•		Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~November 30,~~May 31, 2010 and 2009 (unaudited) ~~and November 30, 2008 (unaudited)~~			4
•		Consolidated Schedules of Investments as of ~~November 30, 2009~~May 31, 2010 (unaudited) and February 28, ~~2009~~		2010	5
•		Consolidated Statements of Changes in Net Assets for the ~~nine~~three months ended ~~November 30,~~May 31, 2010 and 2009 (unaudited) ~~and November 30, 2008 (unaudited)~~			11	10
•		Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~November 30,~~May 31, 2010 and 2009 (unaudited) ~~and November 30, 2008 (unaudited)~~			12	11
•		Notes to Consolidated Financial Statements as of ~~November 30, 2009~~May 31, 2010 (unaudited)			13	12

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

28Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39

Item 4.	Controls and Procedures	41

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 3. 1A.	Risk Factors	~~Quantitative and Qualitative Disclosures about Market Risk~~			41	42

~~Item 4.~~		~~Controls and Procedures~~			43

~~PART II. OTHER INFORMATION~~

~~Item 1.~~		~~Legal Proceedings~~			44

~~Item 1~~	A.	~~Risk Factors~~			44

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			44	42

Item 3.	Defaults Upon Senior Securities	42

~~Item 3.~~		~~Defaults Upon Senior Securities~~			44

Item 4.		Submission of Matters to a Vote of Security Holders			44	42

Item 5.	Other Information	42

Item 5. 6.	Exhibits	~~Other Information~~			44	42

~~Item 6.~~ SIGNATURES			~~Exhibits~~			44

~~SIGNATURES~~					46
~~EX-31.1~~
~~EX-31.2~~
~~EX-32.1~~43

GSC Investment Corp.

Consolidated ~~Balance Sheets~~Statement of Assets and Liabilities

As of
November 30, 2009 February 28, 2009
(unaudited)
ASSETS

Investments at fair value
Non-control/non-affiliate investments (amortized cost of $126,612,792 and $137,020,449, respectively) $ 81,805,383 $ 96,462,919
Control investments (cost of $29,233,097 and $29,905,194, respectively) 21,464,041 22,439,029
Affiliate investments (cost of $0 and $0, respectively) 318 10,527

Total investments at fair value (amortized cost of $155,845,889 and $166,925,643, respectively) 103,269,742 118,912,475
Cash and cash equivalents 5,459,780 6,356,225
Cash and cash equivalents, securitization accounts 839,290 1,178,201
Outstanding interest rate cap at fair value (cost of $131,000 and $131,000, respectively) 72,593 39,513
Interest receivable, net of reserve 3,122,764 3,087,668
Deferred credit facility financing costs, net — 529,767
Management fee receivable 1,058,861 237,370
Other assets 113,150 321,260
Receivable from unsettled trades 600,036 —

Total assets $ 114,536,216 $ 130,662,479

LIABILITIES
Revolving credit facility $ 43,840,749 $ 58,994,673
Dividend payable 2,073,066 —
Management and incentive fees payable 3,093,400 2,880,667
Accounts payable and accrued expenses 827,707 700,537
Interest and credit facility fees payable 357,455 72,825

Total liabilities $ 50,192,377 $ 62,648,702

NET ASSETS
Common stock, par value $.0001 per share, 100,000,000 common shares authorized, 16,940,109 and 8,291,384 common shares issued and outstanding, respectively 1,694 829
Capital in excess of par value 130,001,583 116,943,738
Accumulated undistributed net investment income (loss) (4,496,445 ) 6,122,492
Accumulated net realized loss from investments and derivatives (8,528,440 ) (6,948,628 )
Net unrealized depreciation on investments and derivatives (52,634,553 ) (48,104,654 )

Total Net Assets 64,343,839 68,013,777

Total liabilities and Net Assets $ 114,536,216 $ 130,662,479

NET ASSET VALUE PER SHARE $ 3.80 $ 8.20

	As of
	May 31, 2010			February 28, 2010
	(unaudited)
ASSETS

Investments at fair value
Non-control/non-affiliate investments (amortized cost of $113,009,708 and $117,678,275, respectively)	$	71,719,742		$	72,674,847
Control investments (cost of $29,233,097 and $29,233,097, respectively)		18,208,657			16,698,303
Total investments at fair value (amortized cost of $142,242,805 and $146,911,372, respectively)		89,928,399			89,373,150
Cash and cash equivalents		2,928,017			3,352,434
Cash and cash equivalents, securitization accounts		378,728			225,424
Outstanding interest rate cap at fair value (cost of $131,000 and $131,000, respectively)		22,278			42,147
Interest receivable, net of reserve of $3,269,723 and $2,120,309, respectively		2,589,212			3,473,961
Management fee receivable		231,300			327,928
Other assets		401,636			140,272

Total assets	$	96,479,570		$	96,935,316

LIABILITIES
Revolving credit facility	$	33,807,431		$	36,992,222
Management and incentive fees payable		3,482,482			3,071,093
Accounts payable and accrued expenses		779,972			1,111,081
Interest and credit facility fees payable		270,246			267,166
Due to manager		6,549			15,602
Total liabilities	$	38,346,680		$	41,457,164

NET ASSETS
Common stock, par value $.0001 per share, 100,000,000 common shares
authorized, 16,940,109 common shares issued and outstanding	$	1,694		$	1,694
Capital in excess of par value		128,339,497			128,339,497
Accumulated undistributed net investment loss		(2,843,933	)		(2,846,135	)
Accumulated net realized loss from investments and derivatives		(14,941,240	)		(12,389,830	)
Net unrealized depreciation on investments and derivatives		(52,423,128	)		(57,627,074	)
Total Net Assets		58,132,890			55,478,152

Total liabilities and Net Assets	$	96,479,570		$	96,935,316

NET ASSET VALUE PER SHARE	$	3.43		$	3.27

See accompanying notes to consolidated financial statements.

GSC Investment Corp.

Consolidated Statements of Operations

For the three months ended For the nine months ended
November 30 November 30
2009 2008 2009 2008
(unaudited) (unaudited) (unaudited) (unaudited)
INVESTMENT INCOME
Interest from investments
Non-control/Non-affiliate investments $ 2,593,082 $ 4,269,985 $ 8,566,587 $ 12,873,546
Control investments 368,374 1,452,237 1,686,088 3,198,626

Total interest income 2,961,456 5,722,222 10,252,675 16,072,172
Interest from cash and cash equivalents 2,752 38,377 22,934 141,074
Management fee income 511,236 517,875 1,549,167 1,529,762
Other income 54,699 82,189 155,111 164,683

Total investment income 3,530,143 6,360,663 11,979,887 17,907,691

EXPENSES
Interest and credit facility financing expenses 1,126,162 693,830 3,174,603 2,150,639
Base management fees 462,755 653,995 1,515,813 2,108,026
Professional fees 714,789 272,196 1,396,567 932,785
Administrator expenses 171,861 241,317 515,583 750,661
Incentive management fees — 542,231 322,183 1,289,365
Insurance 220,059 173,353 649,535 518,001
Directors fees and expenses 71,989 72,490 217,125 212,375
General & administrative 65,298 65,289 191,223 208,230

Expenses before expense waiver and reimbursement 2,832,913 2,714,701 7,982,632 8,170,082

Expense reimbursement (171,861 ) (241,317 ) (515,583 ) (800,376 )

Total expenses net of expense waiver and reimbursement 2,661,052 2,473,384 7,467,049 7,369,706

NET INVESTMENT INCOME 869,091 3,887,279 4,512,838 10,537,985

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from investments (549,864 ) (7,293,875 ) (1,579,812 ) (7,423,694 )
Net realized gain from derivatives — — — 30,454
Net unrealized appreciation/(depreciation) on investments 8,825,100 (4,142,827 ) (4,562,979 ) (10,422,015 )
Net unrealized appreciation/(depreciation) on derivatives (16,754 ) (1,419 ) 33,080 (29,745 )

Net gain/(loss) on investments 8,258,482 (11,438,121 ) (6,109,711 ) (17,845,000 )

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 9,127,573 $ (7,550,842 ) $ (1,596,873 ) $ (7,307,015 )

WEIGHTED AVERAGE — BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE $ 1.01 $ (0.91 ) $ (0.19 ) $ (0.88 )

WEIGHTED AVERAGE COMMON STOCK OUTSTANDING — BASIC AND DILUTED 9,051,711 8,291,384 8,542,983 8,291,384

	For the three months ended May 31, 2010			For the three months ended May 31, 2009
	(unaudited)			(unaudited)
INVESTMENT INCOME
Interest from investments
Non-control/Non-affiliate investments	$	1,617,267		$	3,318,840
Control investments		652,720			868,229
Total interest income		2,269,987			4,187,069
Interest from cash and cash equivalents		319			13,191
Management fee income		506,785			520,992
Other income		33,559			43,134
Total investment income		2,810,650			4,764,386

EXPENSES
Interest and credit facility financing expenses		831,121			642,893
Base management fees		411,389			547,744
Professional fees		1,142,537			339,780
Administrator expenses		155,137			171,861
Incentive management fees		-			322,183
Insurance		194,654			206,017
Directors fees and expenses		164,611			82,000
General & administrative		64,136			59,780
Expenses before expense waiver and reimbursement		2,963,585			2,372,258
Expense reimbursement		(155,137	)		(171,861	)
Total expenses net of expense waiver and reimbursement		2,808,448			2,200,397

NET INVESTMENT INCOME		2,202			2,563,989

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from investments		(2,551,410	)		(5,152	)
Net unrealized appreciation on investments		5,223,815			2,769,292
Net unrealized appreciation/(depreciation) on derivatives		(19,869	)		35,687
Net gain on investments		2,652,536			2,799,827

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	2,654,738		$	5,363,816

WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS PER COMMON SHARE	$	0.16		$	0.65

WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED		16,940,109			8,291,384

See accompanying notes to consolidated financial statements.

GSC Investment Corp.

Consolidated Schedule of Investments

~~November 30, 2009~~

~~(unaudited)~~May 31, 2010

% of
Investment Interest Principal/ Stockholders’
Company (a, c) Industry Rate/Maturity Number of Shares Cost Fair Value Equity
Non-control/Non-affiliated investments — 127.1% (b)

GFSI Inc (d) Apparel Senior Secured Notes 10.50%, 6/1/2011 $ 7,082,000 $ 7,082,000 $ 6,463,741 10.0 %

Legacy Cabinets, Inc. (d, i) Building Products First Lien Term Loan 6.54%, 8/18/2012 1,455,877 1,439,194 444,043 0.7 %

Legacy Cabinets, Inc. (d, i) Building Products Second Lien Term Loan 10.50%, 8/18/2013 1,862,420 1,828,197 96,846 0.1 %

Total Building Products 3,318,297 3,267,391 540,889 0.8 %

Hopkins Manufacturing Corporation (d) Consumer Products Second Lien Term Loan 7.53%, 1/26/2012 3,250,000 3,247,681 3,051,425 4.8 %

Targus Group International, Inc. (d) Consumer Products First Lien Term Loan 5.75%, 11/22/2012 3,114,831 2,927,489 2,341,730 3.6 %

Targus Group International, Inc. (d, i) Consumer Products Second Lien Term Loan 10.75%, 5/22/2013 5,000,000 4,777,205 1,802,500 2.8 %

Total Consumer Products 11,364,831 10,952,375 7,195,655 11.2 %

CFF Acquisition LLC (d) Consumer Services First Lien Term Loan 7.50%, 7/31/2013 308,030 308,030 276,272 0.4 %

M/C Communications, LLC (d) Education First Lien Term Loan 6.75%, 12/31/2012 827,005 827,005 549,876 0.9 %

M/C Communications, LLC (d, i) Education Class A Common Stock 166,327 30,241 59,878 0.1 %

Total Education 993,332 857,246 609,754 1.0 %

Advanced Lighting Technologies, Inc. (d) Electronics Second Lien Term Loan 6.24%, 6/1/2014 2,000,000 1,804,225 1,734,400 2.7 %

Group Dekko (d) Electronics Second Lien Term Loan 10.50%, 1/20/2012 6,843,861 6,843,861 4,487,520 7.0 %

Total Electronics 8,843,861 8,648,086 6,221,920 9.7 %

USS Mergerco, Inc. (d, i) Environmental Second Lien Term Loan 4.53%, 6/29/2013 5,960,000 5,846,833 2,693,324 4.2 %

Bankruptcy Management Solutions, Inc. (d) Financial Services Second Lien Term Loan 6.48%, 7/31/2013 4,850,000 4,825,546 2,121,875 3.3 %

Big Train, Inc. (d) Food and Beverage First Lien Term Loan 7.75%, 3/31/2012 1,985,368 1,454,623 1,765,786 2.7 %

IDI Acquisition Corp. (d) Healthcare Services Senior Secured Notes 10.75%, 12/15/2011 3,800,000 3,665,945 3,565,540 5.5 %

PRACS Institute, LTD (d) Healthcare Services Second Lien Term Loan 8.31%, 4/17/2013 4,093,750 4,055,868 3,535,363 5.5 %

Total Healthcare Services 7,893,750 7,721,813 7,100,903 11.0 %

McMillin Companies LLC (d) Homebuilding Senior Secured Notes 9.53%, 10/31/2013 7,700,000 7,314,750 4,894,890 7.6 %

Worldwide Express Operations, LLC (d) Logistics First Lien Term Loan 10.00%, 6/30/2013 2,802,960 2,798,751 2,406,061 3.7 %

Jason Incorporated (d, i) Manufacturing Unsecured Notes 13.00%, 11/1/2010 12,000,000 12,000,000 3,907,200 6.0 %

Jason Incorporated (d, i) Manufacturing Unsecured Notes 13.00%, 11/1/2010 1,700,000 1,700,000 553,520 0.9 %

Specialized Technology Resources, Inc. (d) Manufacturing Second Lien Term Loan 7.24%, 12/15/2014 5,000,000 4,791,877 4,607,000 7.2 %

Total Manufacturing 18,700,000 18,491,877 9,067,720 14.1 %

Elyria Foundry Company, LLC (d) Metals Senior Secured Notes 13.00%, 3/1/2013 5,000,000 4,872,888 4,151,000 6.5 %

(Unaudited)

% of
Investment Interest Principal/ Stockholders’
Company (a, c) Industry Rate/Maturity Number of Shares Cost Fair Value Equity
Elyria Foundry Company, LLC (i) Metals Warrants $ 3,000 $ — $ — 0.0 %

Total Metals 5,003,000 4,872,888 4,151,000 6.5 %

Abitibi-Consolidated Company of Canada (d, e) Natural Resources First Lien Term Loan 11.00%, 3/30/2009 2,948,640 2,948,640 2,565,316 4.0 %

Grant U.S. Holdings LLP (d, e) Natural Resources Second Lien Term Loan 10.75%, 9/20/2013 6,349,512 6,349,348 317,476 0.5 %

Total Natural Resources 9,298,152 9,297,988 2,882,792 4.5 %

Edgen Murray II, L.P. (d) Oil and Gas Second Lien Term Loan 6.28%, 5/11/2015 3,000,000 2,830,602 2,226,300 3.5 %

Energy Alloys, LLC (d, i) Oil and Gas Second Lien Term Loan 3.00%, 6/30/2015 6,200,000 6,200,000 2,421,720 3.7 %

Energy Alloys, LLC (d, i) Oil and Gas Warrants 3 — — 0.0 %

Total Oil and Gas 9,200,003 9,030,602 4,648,020 7.2 %

Terphane Holdings Corp. (d, e) Packaging Senior Secured Notes 12.50%, 6/15/2010 4,850,000 4,850,000 4,347,540 6.8 %

Terphane Holdings Corp. (d, e) Packaging Senior Secured Notes 12.50%, 6/15/2010 5,087,250 5,087,250 4,560,211 7.1 %

Terphane Holdings Corp. (d, e) Packaging Senior Secured Notes 10.92%, 6/15/2010 500,000 500,000 448,200 0.7 %

Total Packaging 10,437,250 10,437,250 9,355,951 14.5 %

Custom Direct, Inc. (d) Printing First Lien Term Loan 3.03%, 12/31/2013 1,977,812 1,615,866 1,676,196 2.6 %

Affinity Group, Inc. (d) Publishing First Lien Term Loan 12.75%, 3/31/2010 362,106 358,620 329,517 0.5 %

Affinity Group, Inc. (d) Publishing First Lien Term Loan 12.75%, 3/31/2010 388,144 384,412 353,211 0.5 %

Brown Publishing Company (d, i) Publishing Second Lien Term Loan 8.76%, 9/19/2014 1,203,226 1,198,390 35,013 0.1 %

Network Communications, Inc. (d) Publishing Unsecured Notes 10.75%, 12/1/2013 5,000,000 5,073,062 2,847,500 4.4 %

Penton Media, Inc. (d) Publishing First Lien Term Loan 2.53%, 2/1/2013 4,860,264 3,868,044 3,214,093 5.0 %

Total Publishing 11,813,740 10,882,528 6,779,334 10.5 %

GXS Worldwide, Inc. (d) Software Second Lien Term Loan 13.75%, 9/30/2013 1,000,000 906,349 953,300 1.6 %

Sub Total Non-control/Non-affiliated investments 126,612,792 81,805,383 127.1 %

Control investments — 33.3% (b)

GSC Partners CDO GP III, LP (h) Financial Services 100% General Partnership Interest — — — 0.0 %

% of
Investment Interest Principal/ Stockholders’
Company (a, c) Industry Rate/Maturity Number of Shares Cost Fair Value Equity
GSC Investment Corp. CLO 2007 LTD. (f, h) Structured Finance Securities Other/Structured Finance Securities 10.96%, 1/21/2020 $ 30,000,000 $ 29,233,097 $ 21,464,041 33.3 %

Sub Total Control investments 29,233,097 21,464,041 33.3 %

Affiliate investments — 0.1% (b)

GSC Partners CDO GP III, LP (g) Financial Services 6.24% Limited Partnership Interest — — 318 0.1 %

Sub Total Affiliate investments — 318 0.1 %

TOTAL INVESTMENT ASSETS — 160.5% (b) $ 155,845,889 $ 103,269,742 160.5 %

Sub Total Outstanding interest rate cap

Senior Secured Notes

First Lien Term Loan

Second Lien Term Loan

First Lien Term Loan

Second Lien Term Loan

First Lien Term Loan

Senior Secured Notes

Second Lien Term Loan

Senior Secured Notes

First Lien Term Loan

Second Lien Term Loan

Senior Secured Notes


~~(a)~~		All of the Fund’s equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except Abitibi-Consolidated Company of Canada, Grant U.S. Holdings LLP, GSC Investment Corp. CLO 2007 Ltd., Terphane Holdings Corp., and GSC Partners CDO GP III, LP.

~~(b)~~		~~Percentages are based on net assets of $64,343,839 as of November 30, 2009.~~

~~(c)~~		~~Fair valued investment (see Note 4 to the consolidated financial statements).~~

~~(d)~~		~~All or a portion of the securities are pledged as collateral under a revolving securitized credit facility (see Note 7 to the consolidated financial statements).~~

~~(e)~~		~~Non-U.S. company. The principal place of business for Terphane Holdings Corp is Brazil, and for Abitibi-Consolidated Company of Canada and Grant U.S. Holdings LLP is Canada.~~

~~(f)~~		~~10.96% represents the modeled effective interest rate that is expected to be earned over the life of the investment.~~

~~(g)~~		As defined in the Investment Company Act, we are an “Affiliate” of this portfolio company because we own 5% or more of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was an Affiliate are as follows:

First Lien Term Loan

Second Lien Term Loan

Senior Secured Notes

Second Lien Term Loan

First Lien Term Loan

Partnership Interest

Outstanding interest rate cap	Interest rate			Maturity	Notional		Cost		Fair Value		% of Net Assets

Interest rate cap		8.0	%	2/9/2014	$	36,734,694	$	87,000	$	15,812		0.0	%
Interest rate cap		8.0	%	11/30/2013		26,433,408		44,000		6,466		0.0	%

Sub Total Outstanding interest rate cap							$	131,000	$	22,278		0.0	%

(a) All of the Fund’s equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except Abitibi-Consolidated Company of Canada, Grant U.S. Holdings LLP, GSC Investment Corp. CLO 2007 Ltd., Terphane Holdings Corp., and GSC Partners CDO GP III, LP.

(b) Percentages are based on net assets of $58,132,890 as of May 31, 2010.

(d) All or a portion of the securities are pledged as collateral under a revolving securitized credit facility (see Note 7 to the consolidated financial statements).

(e) Non-U.S. company. The principal place of business for Terphane Holdings Corp is Brazil, and for Abitibi-Consolidated Company of Canada and Grant U.S. Holdings LLP is Canada.

(f) 9.73% represents the modeled effective interest rate that is expected to be earned over the life of the investment.

(g) As defined in the Investment Company Act, we are an "Affiliate" of this portfolio company because we own 5% or more of the portfolio company's outstanding voting securities. Transactions during the period in which the issuer was an Affiliate are as follows:

Interest Management Net Realized Net unrealized
Company Purchases Redemptions Sales (cost) Income fee income gains/(losses) gains/(losses)
GSC Investment Corp. CLO 2007 LTD. $ — $ — $ — $ 1,686,088 $ 1,549,167 $ — $(204,480)
GSC Partners CDO GP III, LP $ — $ — $ — $ — $ — $ — $ (98,412)

(h) As defined in the Investment Company Act, we are an "Affiliate" of this portfolio company because we own 5% or more of the portfolio company's outstanding voting securities. In addition, as defined in the Investment Company Act, we "Control" this portfolio company because we own more than 25% of the portfolio company's outstanding voting securities. Transactions during the period in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:

(i) Non-income producing at May 31, 2010.

GSC Investment Corp.

Consolidated Schedule of Investments

February 28, ~~2009~~2010

% of
Investment Interest Principal Stockholders’
Company (a, c) Industry Rate/Maturity Number of Shares Cost Fair Value Equity
Non-control/Non-affiliated investments — 141.8% (b) ��

GFSI Inc (d) Apparel Senior Secured Notes 10.50%, 6/1/2011 $ 7,082,000 $ 7,082,000 $ 6,616,004 9.7 %

Legacy Cabinets, Inc. (d) Building Products First Lien Term Loan 5.75%, 8/18/2012 1,437,555 1,420,872 975,956 1.4 %

Legacy Cabinets, Inc. (d) Building Products Second Lien Term Loan 9.75%, 8/18/2013 1,862,420 1,828,197 450,519 0.7 %

Total Building Products 3,299,975 3,249,069 1,426,475 2.1 %

Lyondell Chemical Company (d) Chemicals First Lien Term Loan 5.75%, 12/20/2013 32,381 27,281 6,152 0.0 %

Lyondell Chemical Company (d) Chemicals First Lien Term Loan 5.47%, 12/20/2013 77,141 64,991 14,657 0.0 %

Lyondell Chemical Company (d) Chemicals First Lien Term Loan 5.16%, 12/20/2014 92,962 78,320 17,663 0.0 %

Lyondell Chemical Company (d) Chemicals First Lien Term Loan 5.16%, 12/20/2014 92,962 78,320 17,663 0.0 %

Lyondell Chemical Company (d) Chemicals First Lien Term Loan 5.16%, 12/20/2014 92,962 78,320 17,663 0.0 %

Lyondell Chemical Company (d) Chemicals First Lien Term Loan 5.75%, 12/20/2013 121,428 102,303 23,071 0.0 %

Lyondell Chemical Company (d) Chemicals First Lien Term Loan 5.75%, 12/20/2013 231,354 194,916 43,957 0.1 %

Lyondell Chemical Company (d) Chemicals First Lien Term Loan 7.00%, 12/20/2014 403,388 339,854 76,644 0.1 %

Lyondell Chemical Company (d) Chemicals First Lien Term Loan 7.00%, 12/20/2014 403,388 339,854 76,644 0.1 %

Lyondell Chemical Company (d) Chemicals First Lien Term Loan 7.00%, 12/20/2014 403,388 339,854 76,644 0.1 %

Total Chemicals 1,951,354 1,644,013 370,758 0.4 %

Hopkins Manufacturing Corporation (d) Consumer Products Second Lien Term Loan 7.70%, 1/26/2012 3,250,000 3,246,870 2,627,950 3.9 %

Targus Group International, Inc. (d) Consumer Products First Lien Term Loan 4.67%, 11/22/2012 3,122,943 2,895,723 2,089,561 3.1 %

Targus Group International, Inc. (d) Consumer Products Second Lien Term Loan 9.75%, 5/22/2013 5,000,000 4,777,205 3,126,000 4.6 %

Total Consumer Products 11,372,943 10,919,798 7,843,511 11.6 %

CFF Acquisition LLC (d) Consumer Services First Lien Term Loan 8.57%, 7/31/2013 308,912 308,912 243,793 0.4 %

M/C Communications, LLC (d) Education First Lien Term Loan 13.12%, 12/31/2010 1,697,164 1,590,350 674,283 1.0 %

Advanced Lighting Technologies, Inc. (d) Electronics Second Lien Term Loan 8.53%, 6/1/2014 2,000,000 1,771,457 1,503,200 2.2 %

Group Dekko (d) Electronics Second Lien Term Loan 6.45%, 1/20/2012 6,670,000 6,670,000 5,321,326 7.8 %

IPC Systems, Inc. (d) Electronics First Lien Term Loan 3.71%, 3/31/2014 46,332 42,367 24,621 0.0 %

Total Electronics 8,716,332 8,483,824 6,849,147 10.0 %

USS Mergerco, Inc. (d) Environmental Second Lien Term Loan 4.73%, 6/29/2013 5,960,000 5,846,833 3,592,092 5.3 %

Bankruptcy Management Solutions, Inc. (d) Financial Services Second Lien Term Loan 6.70%, 7/31/2013 4,887,500 4,858,282 3,053,221 4.5 %

Big Train, Inc. (d) Food and Beverage First Lien Term Loan 4.98%, 3/31/2012 2,478,660 1,671,647 1,706,557 2.5 %

IDI Acquisition Corp. (d) Healthcare Services Senior Secured Notes 10.75%, 12/15/2011 3,800,000 3,623,605 2,428,580 3.6 %

PRACS Institute, LTD (d) Healthcare Services Second Lien Term Loan 11.13%, 4/17/2013 4,093,750 4,047,419 3,581,213 5.3 %

Total Healthcare Services 7,893,750 7,671,024 6,009,793 8.9 %

McMillin Companies LLC (d) Homebuilding Senior Secured Notes 9.53%, 4/30/2012 7,700,000 7,294,643 3,489,640 5.1 %

Asurion Corporation (d) Insurance First Lien Term Loan 3.76%, 7/3/2014 2,000,000 1,704,665 1,493,400 2.2 %

Worldwide Express Operations, LLC (d) Logistics First Lien Term Loan 6.95%, 6/30/2013 2,820,779 2,815,612 2,133,637 3.1 %

Jason Incorporated (d) Manufacturing Unsecured Notes 13.00%, 11/1/2010 12,000,000 12,000,000 8,652,000 12.7 %

Jason Incorporated (d) Manufacturing Unsecured Notes 13.00%, 11/1/2010 1,700,000 1,700,000 1,225,700 1.8 %

Specialized Technology Resources, Inc. (d) Manufacturing Second Lien Term Loan 7.48%, 12/15/2014 5,000,000 4,769,304 4,602,000 6.8 %

Total Manufacturing 18,700,000 18,469,304 14,479,700 21.3 %

% of
Investment Interest Principal Stockholders’
Company (a, c) Industry Rate/Maturity Number of Shares Cost Fair Value Equity
Blaze Recycling & Metals, LLC (d) Metals Senior Secured Notes 10.88%, 7/15/2012 $ 2,500,000 $ 2,494,342 $ 1,850,500 2.7 %

Elyria Foundry Company, LLC (d) Metals Senior Secured Notes 13.00%, 3/1/2013 5,000,000 4,853,894 3,753,000 5.5 %

Elyria Foundry Company, LLC Metals Warrants — — 89,610 0.1 %

Total Metals 7,500,000 7,348,236 5,693,110 8.3 %

Abitibi-Consolidated Company of Canada (d, e) Natural Resources First Lien Term Loan 11.50%, 3/30/2009 2,948,640 2,940,073 2,081,740 3.1 %

Grant U.S. Holdings LLP (d, e) Natural Resources Second Lien Term Loan 9.81%, 9/20/2013 6,139,928 6,139,764 2,388,432 3.5 %

Total Natural Resources 9,088,568 9,079,837 4,470,172 6.6 %

Edgen Murray II, L.P. (d) Oil and Gas Second Lien Term Loan 7.24%, 5/11/2015 3,000,000 2,815,938 2,072,700 3.0 %

Energy Alloys, LLC (d) Oil and Gas Second Lien Term Loan 11.75%, 10/5/2012 6,200,000 6,200,000 5,286,740 7.8 %

Total Oil and Gas 9,200,000 9,015,938 7,359,440 10.8 %

Stronghaven, Inc. (d) Packaging Second Lien Term Loan 13.00%, 10/31/2010 2,500,000 2,500,000 2,375,500 3.5 %

Terphane Holdings Corp. (d, e) Packaging Senior Secured Notes 12.50%, 6/15/2009 4,850,000 4,846,976 3,575,420 5.3 %

Terphane Holdings Corp. (d, e) Packaging Senior Secured Notes 12.50%, 6/15/2009 5,087,250 5,084,820 3,750,321 5.5 %

Terphane Holdings Corp. (d, e) Packaging Senior Secured Notes 12.02%, 6/15/2009 500,000 499,670 368,600 0.5 %

Total Packaging 12,937,250 12,931,466 10,069,841 14.8 %

Custom Direct, Inc. (d) Printing First Lien Term Loan 4.21%, 12/31/2013 2,049,694 1,618,148 1,638,526 2.4 %

Advanstar Communications Inc. (d) Publishing First Lien Term Loan 3.71%, 5/31/2014 1,970,000 1,553,133 807,700 1.2 %

Affinity Group, Inc. (d) Publishing First Lien Term Loan 3.01%, 6/24/2009 476,261 468,285 418,872 0.6 %

Affinity Group, Inc. (d) Publishing First Lien Term Loan 2.98%, 6/24/2009 511,811 503,239 450,137 0.7 %

Brown Publishing Company (d) Publishing Second Lien Term Loan 8.76%, 9/19/2014 1,203,226 1,198,390 288,774 0.4 %

Network Communications, Inc. (d) Publishing Unsecured Notes 10.75%, 12/1/2013 5,000,000 5,082,100 2,503,000 3.7 %

Penton Media, Inc. (d) Publishing First Lien Term Loan 3.35%, 2/1/2013 4,897,651 3,723,761 2,008,037 3.0 %

Total Publishing 14,058,949 12,528,908 6,476,520 9.6 %

GXS Worldwide, Inc. (d) Software Second Lien Term Loan 8.63%, 9/30/2013 1,000,000 887,940 773,299 1.2 %

Sub Total Non-control/Non-affiliated investments 137,020,449 96,462,919 141.8 %

Control investments — 33.0% (b)

GSC Partners CDO GP III, LP (h) Financial Services 100% General Partnership interest — — 98,412 0.1 %

Sub Total Outstanding interest rate cap

Senior Secured Notes

First Lien Term Loan

Second Lien Term Loan

First Lien Term Loan

Second Lien Term Loan

First Lien Term Loan

Senior Secured Notes

Second Lien Term Loan

Senior Secured Notes

First Lien Term Loan

Second Lien Term Loan

Senior Secured Notes


~~(a)~~		All of the Fund’s equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except Abitibi-Consolidated Company of Canada, Grant U.S. Holdings LLP, GSC Investment Corp. CLO 2007, Terphane Holdings Corp., and GSC Partners CDO GP III, LP.

~~(b)~~		~~Percentages are based on net assets of $68,013,777 as of February 28, 2009.~~

~~(c)~~		~~Fair valued investment (see Note 4 to the consolidated financial statements).~~

~~(d)~~		~~All or a portion of the securities are pledged as collateral under a revolving securitized credit facility (see Note 7 to the consolidated financial statements).~~

~~(e)~~		~~Non-U.S. company. The principal place of business for Terphane Holdings Corp is Brazil, and for Abitibi-Consolidated Company of Canada and Grant U.S. Holdings LLP is Canada.~~

~~(f)~~		~~12.15% represents the modeled effective interest rate that is expected to be earned over the life of the investment.~~

~~(g)~~		As defined in the Investment Company Act, we are an “Affiliate” of this portfolio company because we own 5% or more of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was an Affiliate are as follows:

Interest Management Net Realized Net unrealized
Company Purchases Redemptions Sales (cost) Income fee income gains/(losses) gains/(losses)
GSC Partners CDO GP III, LP $— $— $— $— $— $— $ (5,706 )

First Lien Term Loan

Second Lien Term Loan

Senior Secured Notes

First Lien Term Loan

Second Lien Term Loan

First Lien Term Loan

Partnership Interest

Company (a, c)	Industry	Investment Interest Rate/Maturity	Principal/ Number of Shares		Cost		Fair Value		% of Net Assets

Affiliate investments - 0.0% (b)

GSC Partners CDO GP III, LP (g, i)	Financial Services	6.24% Limited Partnership Interest		-		-		-		0.0	%
Sub Total Affiliate investments						-		-		0.0	%

TOTAL INVESTMENT ASSETS - 161.1% (b)					$	146,911,372	$	89,373,150		153.7	%

Outstanding interest rate cap	Interest rate			Maturity	Notional		Cost		Fair Value		% of Net Assets

Interest rate cap		8.0	%	2/9/2014	$	39,183,673	$	87,000	$	30,097		0.1	%
Interest rate cap		8.0	%	11/30/2013		26,433,408		44,000		12,050		0.0	%

Sub Total Outstanding interest rate cap							$	131,000	$	42,147		0.1	%

(b) Percentages are based on net assets of $55,478,152 as of February 28, 2010.

(d) All or a portion of the securities are pledged as collateral under a revolving securitized credit facility (see Note 7 to the consolidated financial statements).

(e) Non-U.S. company. The principal place of business for Terphane Holdings Corp is Brazil, and for Abitibi-Consolidated Company of Canada and Grant U.S. Holdings LLP is Canada.

(f) 8.27% represents the modeled effective interest rate that is expected to be earned over the life of the investment.

(i) Non-income producing at February 28, 2010.


~~(h)~~		As defined in the Investment Company Act, we are an “Affiliate” of this portfolio company because we own 5% or more of the portfolio company’s outstanding voting securities. In addition, as defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:

Interest Management Net Realized Net unrealized
Company Purchases Redemptions Sales (cost) Income fee income gains/(losses) gains/(losses)
GSC Investment Corp. CLO 2007 LTD. $— $— $— $4,393,818 $2,049,717 $— $ (6,479,722)
GSC Partners CDO GP III, LP $— $— $— $— $— $— (61,741)

GSC Investment Corp.

Consolidated Statements of Changes in Net Assets

For the nine months ended For the nine months ended
November 30, 2009 November 30, 2008
(unaudited) (unaudited)
OPERATIONS:
Net investment income $ 4,512,838 $ 10,537,985
Net realized loss from investments (1,579,812 ) (7,423,694 )
Net realized gain from derivatives — 30,454
Net unrealized depreciation on investments (4,562,979 ) (10,422,015 )
Net unrealized appreciation/(depreciation) on derivatives 33,080 (29,745 )

Net decrease in net assets from operations (1,596,873 ) (7,307,015 )

SHAREHOLDER DISTRIBUTIONS:
Distributions declared (2,073,065 ) (6,467,280 )

Net decrease in net assets from shareholder distributions (2,073,065 ) (6,467,280 )

Total decrease in net assets (3,669,938 ) (13,774,295 )
Net assets at beginning of period 68,013,777 97,869,040

Net assets at end of period $ 64,343,839 $ 84,094,745

Net asset value per common share $ 3.80 $ 10.14
Common shares outstanding at end of period 16,940,109 8,291,384

	For the three months ended May 31, 2010			For the three months ended May 31, 2009
	(unaudited)			(unaudited)
INCREASE FROM OPERATIONS:
Net investment income	$	2,202		$	2,563,989
Net realized loss from investments		(2,551,410	)		(5,152	)
Net unrealized appreciation on investments		5,223,815			2,769,292
Net unrealized appreciation/(depreciation) on derivatives		(19,869	)		35,687
Net increase in net assets from operations		2,654,738			5,363,816

Total increase in net assets		2,654,738			5,363,816
Net assets at beginning of period		55,478,152			68,013,777
Net assets at end of period	$	58,132,890		$	73,377,593

Net asset value per common share	$	3.43		$	8.85
Common shares outstanding at end of period		16,940,109			8,291,384

Accumulated undistributed net investment income (loss)	$	(2,843,933	)	$	8,686,481

See accompanying notes to consolidated financial statements.

GSC Investment Corp.

Consolidated Statements of Cash Flows

For the nine months ended For the nine months ended
November 30, 2009 November 30, 2008
(unaudited) (unaudited)
Operating activities

NET DECREASE IN NET ASSETS FROM OPERATIONS $ (1,596,873 ) $ (7,307,015 )
ADJUSTMENTS TO RECONCILE NET DECREASE IN NET ASSETS FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Paid-in-kind interest income (701,348 ) (623,724 )
Net accretion of discount on investments (747,058 ) (1,012,971 )
Amortization of deferred credit facility financing costs 633,349 132,858
Net realized loss from investments 1,579,812 7,423,694
Net unrealized depreciation on investments 4,562,979 10,422,015
Unrealized (appreciation) depreciation on derivatives (33,080 ) 29,745
Proceeds from sale and redemption of investments 10,948,348 48,713,273
Purchase of investments — (28,259,995 )
(Increase) decrease in operating assets:
Cash and cash equivalents, securitization accounts 338,911 7,255,273
Interest receivable (35,096 ) (876,033 )
Due from manager — 940,903
Management fee receivable (821,491 ) (20,535 )
Other assets 208,110 (165,392 )
Receivable from unsettled trades (600,036 ) (1,600,000 )
Increase (decrease) in operating liabilities:
Payable for unsettled trades — (11,329,150 )
Management and incentive fees payable 212,733 1,556,508
Accounts payable and accrued expenses 127,170 131,012
Interest and credit facility fees payable 284,630 (71,800 )
Due to manager — (11,048 )

NET CASH PROVIDED BY OPERATING ACTIVITIES 14,361,060 25,327,618

Financing activities

Borrowings on debt — 7,800,000
Paydowns on debt (15,153,923 ) (20,000,000 )
Credit facility financing cost (103,582 ) —
Payments of cash dividends — (9,700,920 )

NET CASH USED BY FINANCING ACTIVITIES (15,257,505 ) (21,900,920 )

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (896,445 ) 3,426,698
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,356,225 1,072,641

CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,459,780 $ 4,499,339

Supplemental Information:
Interest paid during the period $ 2,256,624 $ 2,089,581

Supplemental non-cash information
Paid-in-kind interest income $ 701,348 $ 623,724
Net accretion of discount on investments $ 747,058 $ 1,012,971
Amortization of deferred credit facility financing costs $ 633,349 $ 132,858

	For the three months ended May 31, 2010			For the three months ended May 31, 2009
	(unaudited)			(unaudited)
Operating activities
NET INCREASE IN NET ASSETS FROM OPERATIONS	$	2,654,738		$	5,363,816
ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Paid-in-kind interest income		(377,030	)		(193,771	)
Net accretion of discount on investments		(182,648	)		(274,406	)
Amortization of deferred credit facility financing costs		-			71,320
Net realized loss from investments		2,551,410			5,152
Net unrealized appreciation on investments		(5,223,815	)		(2,769,292	)
Unrealized (appreciation) depreciation on derivatives		19,869			(35,687	)
Proceeds from sale and redemption of investments		2,676,834			921,553
(Increase) decrease in operating assets:
Cash and cash equivalents, securitization accounts		(153,304	)		(850,750	)
Interest receivable		884,749			19,713
Management fee receivable		96,628			64
Other assets		(261,364	)		180,268
Increase (decrease) in operating liabilities:
Management and incentive fees payable		411,389			869,927
Accounts payable and accrued expenses		(331,109	)		(9,891	)
Interest and credit facility fees payable		3,080			154,175
Due to manager		(9,053	)		-
NET CASH PROVIDED BY OPERATING ACTIVITIES		2,760,374			3,452,191

Financing activities
Paydowns on debt		(3,184,791	)		(1,239,416	)
Credit facility financing cost		-			(25,000	)
NET CASH USED BY FINANCING ACTIVITIES		(3,184,791	)		(1,264,416	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(424,417	)		2,187,775
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		3,352,434			6,356,225
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	2,928,017		$	8,544,000

Supplemental Information:
Interest paid during the period	$	828,040		$	417,398

Supplemental non-cash information
Paid-in-kind interest income	$	377,030		$	193,771
Net accretion of discount on investments	$	182,648		$	274,406
Amortization of deferred credit facility financing costs	$	-		$	71,320

See accompanying notes to consolidated financial statements.

GSC INVESTMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~November 30, 2009~~

May 31, 2010

(unaudited)

Note 1. Organization and Basis of Presentation

GSC Investment Corp. (the “Company”, “we” and “us”) is a non-diversified ~~closed-end~~closed end management investment company incorporated in Maryland that has elected to be treated and is regulated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). We commenced operations on March 23, 2007 and completed our initial public offering (“IPO”) on March 28, 2007. We have elected to be treated as a regulated investment company (“RIC”) under subchapter M of the Internal Revenue Code (the ~~“Code”~~“code”). We expect to continue to qualify and to elect to be treated for tax purposes as a RIC. Our investment objectives are to generate both current income and capital appreciation through debt and equity investments by primarily investing in private middle market companies and select high yield bonds.

GSC Investment, LLC (the “LLC”) was organized in May 2006 as a Maryland limited liability company. As of February 28, 2007, the LLC had not yet commenced its operations and investment activities.

On March 21, 2007, the Company was incorporated and concurrently, the LLC was merged with and into the Company in accordance with the procedure for such merger in the LLC’s limited liability company agreement and Maryland law. In connection with such merger, each outstanding common share of the LLC was converted into an equivalent number of shares of common stock of the Company and the Company is the surviving entity.

We are externally managed and advised by our investment adviser, GSCP (NJ), L.P. (individually and collectively with its affiliates, “GSC Group” or the “Manager”), pursuant to an investment advisory and management agreement.

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of the Company and its special purpose financing ~~subsidiaries,~~subsidiary, GSC Investment Funding, ~~LLC and GSC Investment Funding II,~~ LLC. The consolidated financial statements reflect all adjustments and reclassifications which, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition for the periods presented. All intercompany accounts and transactions have been eliminated in consolidation. All references made to the “Company,” “we,” and “us” in the financial statements ~~encompass~~encompassing of these consolidated subsidiaries, except as stated otherwise.

Note 2. Summary of Significant Accounting Policies

Use of Estimates in the Preparation of Financial Statements

The preparation of the accompanying consolidated financial statements in conformity with ~~U.S. generally accepted accounting principles~~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 ~~income, gains (losses)~~revenues and expenses during the period reported. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include short-term, liquid investments in a money market fund. Cash and cash equivalents are carried at cost which approximates fair value.

Cash and cash equivalents, Securitization Accounts

Cash and cash equivalents, securitization accounts include amounts held in designated bank accounts in the form of cash and short-term liquid investments in money market funds representing payments received on securitized investments or other reserved amounts associated with the Company’s securitization facilities. The Company is required to use a portion of these amounts to pay interest expense, reduce borrowings, or pay other amounts in accordance with the related securitization agreements. Cash held in such accounts may not be available for the general use of the Company.

~~Risk Management~~

In the ordinary course of its business, the Company manages a variety of risks, including market risk and credit risk. Market risk is the risk of potential adverse changes to the value of investments because of changes in market conditions such as interest rate movements and volatility in investment prices.

Investment Classification

The Company classifies its investments in accordance with the requirements of the 1940 Act. Under the 1940 Act, “Control Investments” are defined as investments in companies in which we own more than 25% of the voting securities or maintain greater than 50% of the board representation. Under the 1940 Act, “Affiliated Investments” are defined as those non-control investments in companies in which we own between 5% and 25% of the voting securities. Under the 1940 Act, “Non-affiliated Investments” are defined as investments that are neither Control Investments or Affiliated Investments.

Investment Valuation

The fair value of the Company’s assets and liabilities which qualify as financial instruments under ~~Accounting Standards Codification (“ASC”)~~ASC 825 ~~(previously Statement of Financial Accounting Standards No. 107, “Disclosure About Fair Value of Financial Instruments”),~~ approximates the carrying amounts presented in the consolidated ~~balance sheets.~~statements of assets and liabilities.

Investments for which market quotations are readily available are fair valued at such market quotations obtained from independent third party pricing services and market makers subject to any decision by our board of directors to make a fair value determination to reflect significant events ~~or conditions~~ affecting the value of these investments. We value investments for which market quotations are not readily available ~~as stated above~~ at fair value as determined, in good faith, by our board of directors based on input from our Manager, our audit committee and, if our board or audit committee so request, a third party independent valuation firm. Determinations of fair value may involve subjective judgments and estimates. The types of factors that may be considered in a fair value pricing include the nature and realizable value of any collateral, the portfolio company’s ability to make payments, market yield trend analysis, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flow and other relevant factors.

We undertake a multi-step valuation process each quarter when valuing investments for which market quotations are not readily available, as described below:

Each investment is initially valued by the responsible investment professionals and preliminary valuation conclusions are documented and discussed with our senior management; and

An independent valuation firm engaged by our board of directors reviews at least one quarter of these preliminary valuations each quarter so that the valuation of each investment for which market quotes are not readily available is reviewed by the independent valuation firm at least annually.

In addition, all our investments are subject to the following valuation process.

	•		The audit committee of our board of directors reviews each preliminary valuation and our investment adviser and independent valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee; and

	•		Our board of directors discuss the valuations and determine the fair value of each investment in good faith based on the input of our investment adviser, independent valuation firm (if applicable) and audit committee.

The audit committee of our board of directors reviews each preliminary valuation and our investment adviser and independent valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee; and

Our board of directors discuss the valuations and determine the fair value of each investment, in good faith, based on the input of our investment adviser, independent valuation firm (if applicable) and audit committee.

Our equity investment in GSC Investment Corp. CLO 2007, Ltd. (“GSCIC CLO”) is carried at fair value, which is based on a discounted cash flow model that utilizes prepayment, re-investment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for similar CLO equity, when available, as determined by our investment advisor and recommended to our board of directors.

Because ~~these~~such valuations, and particularly valuations of private investments and private companies, are inherently uncertain, they may fluctuate over short periods of time and may be based on estimates. The determination of fair value by our board of directors may differ materially from the values that would have been used if a ready market for these investments ~~existed and such differences could be material.~~

existed. Our net asset value could be materially affected if the determinations regarding the fair value of our investments were materially higher or lower than the values that we ~~may~~ ultimately realize upon the disposal of such investments.

We account for derivative financial instruments in accordance with ASC ~~815 (previously, Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”).~~815. ASC 815 requires recognizing all derivative instruments as either assets or liabilities on the consolidated ~~balance sheets~~statement of assets and liabilities at fair value. The Company values derivative contracts at the closing fair value provided by the counterparty. Changes in the values of derivative contracts are included in the consolidated statement of operations.

Investment Transactions and Income Recognition

Purchases and sales of investments and the related realized gains or losses are recorded on a trade-date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis to the extent that such amounts are expected to be collected. The Company stops accruing interest on its investments when it is determined that interest is no longer collectible. If any cash is received after it is determined that interest is no longer collectible, we ~~will~~ treat the cash as payment on the principal balance until the entire principal balance has been repaid, before any interest income is recognized. Discounts and premiums on investments purchased are accreted/amortized over the life of the respective investment using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discounts and amortizations of premium on investments.

Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. ~~A reserve for accrued~~Accrued interest is generally ~~made~~reserved when a loan is placed on non-accrual status. However, the Company may also establish a reserve against accrued interest on currently performing loans if there is doubt regarding future collectability. For the nine months ended November 30, 2009, the Company established a reserve against accrued interest of $1.9 million. Interest payments received on non-accrual loans may be recognized as a reduction in principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. The Company may make exceptions to this if the loan has sufficient collateral value and is in the process of collection.

Interest income on our investment in GSCIC CLO is recorded using the effective interest method in accordance with the provision of ASC 325, ~~(previously, EITF 99-20),~~ based on the anticipated yield and the estimated cash flows over the projected life of the investment. Yields are revised when there are changes in actual or estimated cash flows due to changes in prepayments and/or ~~re-~~

~~investments,~~re-investments, credit losses or asset pricing. Changes in estimated yield are recognized as an adjustment to the estimated yield over the remaining life of the investment from the date the estimated yield was changed.

Paid-in-Kind Interest

The Company includes in income certain amounts that it has not yet received in cash, such as contractual paid-in-kind interest (“PIK”), which represents contractually deferred interest added to the ~~principal~~investment balance that is generally due at maturity. We stop accruing PIK if we do not expect the issuer to be able to pay all principal and interest when due.

Deferred Credit Facility Financing Costs

Financing costs incurred in connection with each respective credit facility have been deferred and are being amortized using the straight line method over the life of each respective facility. For the nine months ended November 30, 2009, the Company amortized $0.6 million of deferred financing costs of which $0.5 million related to the write off of all remaining deferred credit facility financing costs due to the default of Company’s revolving credit facility.

Indemnifications

In the ordinary course of its business, the Company may enter into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Company. Based on its history and experience, management feels that the likelihood of such an event is remote.

Income Taxes

The Company has filed an election to be treated for tax purposes as a RIC under Subchapter M of the Code and, among other things, intends to make the requisite distributions to its stockholders which will relieve the Company from federal income taxes. Therefore, no provision has been recorded for federal income taxes.

In order to qualify as a RIC, among other requirements, the Company is required to timely distribute to its stockholders at least 90% of its investment company taxable income, as defined by the Code, for each fiscal tax year. The Company will be subject to a nondeductible U.S. federal excise tax of 4% on undistributed income if we do not distribute at least 98% of our ~~investment company taxable~~ordinary income in any calendar year and 98% of our capital gain net income for each one-year period ending on October 31.

Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year dividend distributions into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned.

~~The Company accounts for income taxes in accordance with the provisions of~~

We adopted ASC Topic 740, ~~including accounting for uncertain tax positions (previously, FASB Interpretation No. 48, “Accounting for Uncertainty in~~ Income Taxes ~~— an interpretation of FASB Statement No. 109”~~ (“ASC 740”). on February 28, 2008. ASC 740 clarifies the accounting for ~~uncertainty in~~ income taxes by prescribing the minimum recognition threshold that an uncertain tax position is required to meet before tax benefits associated with such uncertain tax position are recognized in ~~an enterprise’s~~the consolidated financial ~~statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement~~statements. Our adoption of ~~a tax position taken or expected to be taken in a tax return.~~ ASC 740 ~~also provides guidance on derecognition, classification,~~did not require a cumulative effect adjustment to the February 28, 2008 undistributed net realized earnings. We classify interest and penalties, ~~accounting in interim periods, disclosure, and transition.~~if any, related to unrecognized tax benefits as a component of provision for income taxes.

Dividends

Dividends to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend is determined by the board of directors. Net realized capital gains, if any, are generally distributed at least annually, although we may decide to retain such capital gains for reinvestment.

The Company has adopted a dividend reinvestment plan that provides for reinvestment of our dividend distributions on behalf of our stockholders unless a stockholder elects to receive cash. As a result, if our board of directors authorizes, and we declare, a cash dividend, then our stockholders who have not ~~“opted out”~~‘‘opted out’’ of our dividend reinvestment plan will have their cash dividends

automatically reinvested in additional shares of our common stock, rather than receiving the cash dividends. If the Company’s common stock is trading below net asset value at the time of valuation, the plan administrator will receive the dividend or distribution in cash and will purchase common stock in the open market, on the New York Stock Exchange or elsewhere, for the account of each Participant.

New Accounting Pronouncements

In May 2009, the FASB issued ASC 855 (previously Statement of Financial Accounting Standards (“SFAS”) No. 165, “Subsequent Events”), which addresses accounting and disclosure requirements related to subsequent events. ASC 855 requires management to evaluate subsequent events through the date the financial statements are either issued or available to be issued, depending on the Company’s expectation of whether it will widely distribute its financial statements to its shareholders and other financial statement users. Companies are required to disclose the date through which subsequent events have been evaluated. ASC 855 is effective for interim or annual financial periods ending after June 15, 2009 and should be applied prospectively. The adoption of ASC 855 did not have a material effect on our financial condition or results of operations.

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140”,(“ (“SFAS No. 166”) which amends the derecognition guidance in SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”,eliminates the concept of a “qualifying special-purpose entity” (“QSPE”) and requires more information about transfers of financial assets, including securitization transactions as well as a company’s continuing exposure to the risks related to transferred financial assets. SFAS No. 166 ~~has not yet been~~is now codified ~~and~~ in ~~accordance with~~ ASC ~~105, remains authoritative guidance until such time that it is integrated in the FASB ASC. SFAS No. 166 is~~860. The amended requirements are effective for financial asset transfers occurring after the beginning of an entity’s first fiscal year that begins after November 15, 2009 and early adoption is prohibited. The adoption of ASC 860 by the Company ~~is currently evaluating the impact~~did not have material effect on our ~~interim~~ consolidated financial ~~statements of adopting SFAS No. 166.~~statements.

In ~~June 2009,~~January 2010, the FASB issued ~~SFAS~~ASU No. ~~167, “Amendments to FASB Interpretation No. 46)”~~2010-06, Fair Value Measurements and Disclosures (“~~SFAS No. 167”),~~ASU 2010-06” ), which amends ~~the consolidation guidance applicable~~ASC 820 and requires additional disclosure related to variable interest entities. The amendments will significantly affect the overall consolidation analysis under FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities—an interpretation of ARB No. 51, which is codified in FASB ASC 810, Consolidation” (“ASC 810”),recurring and change the way entities account for securitizations and special purpose entities as a result of the elimination of the QSPE concept in SFAS No. 166. SFAS No. 167 does not amend the ASC 810 exception that investments accounted for atnon-recurring fair value measurement in ~~accordance with the specialized accounting guidance~~respect of transfers in ~~the AICPA Audit And Accounting Guide, Investment Companies, codified~~and out of Level 1 and 2 and activity in ~~FASB ASC 946, “Financial Services— Investment Companies” (“ASC 946”), are not subject to the requirements of ASC 810. SFAS No. 167 has not yet been codified~~Level 3 fair value measurements. The update also clarifies existing disclosure about inputs and ~~in accordance with ASC 105, remains authoritative guidance until such time that it is integrated in the FASB ASC. SFAS No. 167~~valuation techniques. ASU 2010-06 is effective as of the beginning of the first fiscal year that begins after November 15, 2009 and early adoption is prohibited. The Company is currently evaluating the impact on our interim consolidated financial statements of adopting SFAS No. 167.

In June 2009, the FASB issued ASC 105, (previously SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162”) ASC 105 establishes the Codification as the source of authoritative GAAP in the United States (the “GAAP hierarchy”) to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. Once the Codification is in effect, all of its content will carry the same level of authority and the GAAP hierarchy will be modified to include only two levels of GAAP, authoritative and non-authoritative. ASC 105 is effective for financial statements issued for interim and annual periods ~~ending~~beginning after ~~September~~December 15, ~~2009. This~~2009, except for disclosures related to activity in Level 3 fair value measurements which are effective for fiscal years beginning after December 15, 2010 and for interim periods within that fiscal year. The adoption of ASU 2010–06 by the Company ~~has changed the Company’s references to U.S. GAAP accounting standards but~~ did not ~~impact any~~have a material effect on our consolidated financial statements.

Risk Management

Credit risk is the risk of default or non-performance by portfolio companies equivalent to the investment’s carrying amount.

The Company is also exposed to credit risk related to maintaining all of its cash and cash equivalents including those in securitization accounts at a major financial institution and credit risk related to the derivative counterparty.

The Company has investments in lower rated and comparable quality unrated high yield bonds and bank loans. Investments in high yield investments are accompanied by a greater degree of credit risk. The risk of loss due to default by the issuer is significantly greater for holders of high yield securities, because such investments are generally unsecured and are often subordinated to other creditors of the ~~Company’s significant accounting policies or its results of operations or financial position.~~issuer.

Note 3. Going Concern

As of ~~November 30, 2009,~~May 31, 2010, the Company remained in default on its Revolving Facility (see Note 7) and as a result of the default, our lender has the right to accelerate repayment of the outstanding indebtedness and to foreclose and liquidate the collateral pledged thereunder. Acceleration of the outstanding indebtedness and/or liquidation of the collateral would have a material adverse effect on our liquidity, financial condition and operations. The deleveraging of the Company may significantly impair the Company’s ability to effectively operate. There is no assurance that we will have sufficient funds available to pay in full the total amount of obligations that

would become due as a result of such acceleration or that we will be able to obtain additional or alternative financing to pay or refinance any such accelerated obligations.

However, we continue to believe that we will have adequate liquidity to continue to fund our operations and the interest payments on our outstanding debt, including any default interest. ~~We continue~~

On April 14, 2010, the Company entered into a definitive agreement with Saratoga Investment Advisors, LLC (“Saratoga”) and CLO Partners LLC (“CLO Partners”) and announced a $55 million recapitalization plan to ~~have discussions~~cure the debt default. The recapitalization plan includes Saratoga and CLO Partners purchasing approximately 9.8 million shares of common stock of GSC Investment Corp. for $1.52 per share pursuant to a definitive stock purchase agreement and a commitment from Madison Capital Funding LLC to provide the Company with ~~our lender regarding resolutions~~a $40 million senior secured revolving credit facility. Upon the closing of the ~~default.~~transaction, the Company will immediately borrow funds under the new credit facility that, when added to the $15 million equity investment, will be sufficient to repay the full amount of the Company's existing debt and to provide the Company with working capital thereafter. The ~~Company~~plan is ~~also working with the investment banking firm Stifel, Nicolaus & Company, which it retained~~subject to ~~evaluate strategic transaction opportunities and consider alternatives. We are focused on resolving the default and continuing to exist as a going concern.~~shareholder approval.

A fundamental principle of the preparation of financial statements in accordance with GAAP is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations and the realization of assets and settlement of liabilities occurring in the ordinary course of business. This principle is applicable to all entities except for entities in liquidation or entities for which liquidation appears imminent. In accordance with this requirement, our policy is to prepare our consolidated financial statements on a going concern basis unless we intend to liquidate or have no other alternative but to liquidate. Our ~~interim~~ consolidated financial statements have been prepared on a going concern basis and do not reflect any adjustments that might specifically result from the outcome of this uncertainty or our debt restructuring activities.

Note 4. Investments

The Company values all investments in accordance with ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) ~~(previously, Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”)~~. ASC 820 requires enhanced disclosures about ~~investments~~assets and liabilities that are measured and reported at fair value. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

ASC 820 provides guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased when compared with normal market activity for the asset or liability, and identifying transactions that are not orderly. In those circumstances, further analysis and/or significant adjustment to the transaction or quoted prices may be required at the measurement date under current market conditions.

ASC 820 establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Based on the observability of the inputs used in the valuation techniques the Company is required to provide the ~~fair value~~following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the inputs used to determine fair values. Investments carried at fair value are classified and disclosed in one of the following three categories:

	•		~~Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.~~

	•		~~Level 2 – Valuations based on inputs other than quoted prices in active markets, which are either directly or indirectly observable.~~

	•		Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The inputs into the determination of fair value may require significant management judgment or estimation. Even if observable-market data is available, such information may be the result of consensus pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level III information, assuming no additional corroborating evidence.

Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2 – Valuations based on inputs other than quoted prices in active markets, which are either directly or indirectly observable.

Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The inputs into the determination of fair value may require significant management judgment or estimation. Such information may be the result of consensus pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 information, assuming no additional corroborating evidence.

In addition to using the above inputs in investment valuations, we continue to employ the valuation policy approved by our board of directors that is consistent with ASC 820 (see Note 2). Consistent with our valuation policy, we evaluate the source of inputs, including any markets in which our investments are trading, in determining fair value.

The following table presents fair value measurements of investments as of ~~November 30, 2009~~May 31, 2010 (dollars in thousands):

Fair Value Measurements Using
Level 1 Level 2 Level 3 Total
Non-control/non-affiliate $ — $ — $ 81,805 $ 81,805
Control investments — — 21,464 21,464
Affiliate investments — — 1 1

Total investments at fair value $ — $ — $ 103,270 $ 103,270

	Fair Value Measurments Using
	Level 1		Level 2		Level 3		Total
First lien term loans	$	–	$	–	$	13,830	$	13,830
Second lien term loans		–		–		20,794		20,794
Senior secured notes		–		–		29,372		29,372
Unsecured notes		–		–		4,308		4,308
Structured finance securities		–		–		18,209		18,209
Common stock/equities		–		–		3,415		3,415
Limited partnership interest		–		–		–		–
Total	$	–	$	–	$	89,928	$	89,928

The following table presents fair value measurements of investments as of February 28, ~~2009~~2010 (dollars in thousands):

Fair Value Measurements Using
Level 1 Level 2 Level 3 Total
Non-control/non-affiliate $ — $ — $ 96,463 $ 96,463
Control investments — — 22,439 22,439
Affiliate investments — — 10 10

Total investments at fair value $ — $ — $ 118,912 $ 118,912

	Fair Value Measurments Using
	Level 1		Level 2		Level 3		Total
First lien term loans	$	–	$	–	$	16,653	$	16,653
Second lien term loans		–		–		20,267		20,267
Senior secured notes		–		–		27,742		27,742
Unsecured notes		–		–		5,690		5,690
Structured finance securities		–		–		16,698		16,698
Common stock/equities		–		–		2,323		2,323
Limited partnership interest		–		–		–		–
Total	$	–	$	–	$	89,373	$	89,373

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the ~~nine months~~quarter ended ~~November 30, 2009~~May 31, 2010 (dollars in thousands):

Level 3
Balance as of February 28, 2009 $ 118,912
Net unrealized losses (4,563 )
Purchases and other adjustments to cost 1,449
Sales and redemptions (10,948 )
Net realized loss from investments (1,580 )
Net transfers in and/or out —

Balance as of November 30, 2009 $ 103,270

The change in unrealized depreciation on securities still held at November 30, 2009 was $8.4 million, which is included in the related net change in unrealized appreciation/depreciation on the Consolidated Statement of Operations.

	First lien term loans			Second lien term loans			Senior secured notes		Unsecured notes			Structured finance securities		Common stock/equities		Total
Balance as of February 28, 2010	$	16,653		$	20,267		$	27,742	$	5,690		$	16,698	$	2,323	$	89,373
Net unrealized gains (losses)		547			2,228			1,586		(1,380	)		1,511		732		5,224
Purchases and other adjustments to cost		308			210			44		(2	)		-		-		560
Sales and redemptions		(2,664	)		(13	)		-		-			-		-		(2,677	)
Net realized loss from investments		(689	)		(1,863	)		-		-			-		-		(2,552	)
Transfers in/out		(325	)		(35	)		-		-			-		360		-
Balance as of May 31, 2010	$	13,830		$	20,794		$	29,372	$	4,308		$	18,209	$	3,415	$	89,928

Purchases and other adjustments to cost include purchases of new investments at cost, effects of refinancing/restructuring, ~~accretion of discount, and~~ accretion/amortization of income from discount/premium on debt securities, and PIK.

~~Sales~~

Sale and redemptions represent net proceeds ~~received.~~received from investments sold during the period.

Net transfers in and/or out represent existing investments that were either previously categorized as another level and the inputs to the model became unobservable or investments that were previously classified as ~~level 3 and such~~the lowest significant input became observable during the period. ~~Transfers to/from level 3~~These investments transfers are ~~shown~~recorded at their end of period fair values.

The composition of our investments as of ~~November 30, 2009,~~May 31, 2010, at amortized cost and fair value were as follows (dollars in thousands):

Fair Value
Investments at Investments at Percentage of
Amortized Cost Fair Value Total Portfolio
First lien term loans $ 18,931 $ 15,922 15.4 %
Second lien term loans 55,506 30,084 29.1
Senior secured notes 33,373 28,431 27.5
Unsecured notes 18,773 7,309 7.1
Structured finance securities 29,233 21,464 20.8
Equity/limited partnership interest 30 60 0.1

Total $ 155,846 $ 103,270 100.0 %

	Investments at Amortized Cost		Investments at Fair Value		Fair Value Percentage of Total Portfolio
First lien term loans	$	15,567	$	13,830		15.4	%
Second lien term loans		39,563		20,794		23.1
Senior secured notes		33,460		29,372		32.7
Unsecured notes		20,304		4,308		4.8
Structured finance securities		29,233		18,209		20.2
Common stock/equities		4,116		3,415		3.8
Limited partnership interest		–		–		–
Total	$	142,243	$	89,928		100.0	%

The composition of our investments as of February 28, ~~2009,~~2010, at amortized cost and fair value were as follows (dollars in thousands):

Fair Value
Investments at Investments at Percentage of
Amortized Cost Fair Value Total Portfolio
First lien term loans $ 24,901 $ 17,117 14.4 %
Second lien term loans 57,558 41,043 34.5
Senior secured notes 35,780 25,832 21.7
Unsecured notes 18,782 12,381 10.4
Structured finance securities 29,905 22,341 18.8
Equity/limited partnership interest — 198 0.2

Total $ 166,926 $ 118,912 100.0 %

Investments at
Amortized
Cost

Investments
at Fair Value

Fair Value
Percentage of
Total Portfolio

First lien term loans $ 18,936 $ 16,653 18.6 %
Second lien term loans 41,264 20,267 22.7
Senior secured notes 33,416 27,742 31.0
Unsecured notes 20,306 5,690 6.4
Structured finance securities 29,233 16,698 18.7
Common stock/equities 3,756 2,323 2.6
Limited partnership interest – – –
Total $ 146,911 $ 89,373 100.0 %

Note 5. Investment in GSC Investment Corp. CLO 2007, Ltd.

On January 22, 2008, we invested $30 million in all of the outstanding subordinated notes of GSC Investment Corp. CLO 2007, Ltd.~~, (the “GSCIC CLO”)~~, a $400 million CLO managed by us that invests primarily in senior secured loans. Additionally, we entered into a collateral management agreement with GSCIC CLO pursuant to which we will act as collateral manager to it. In return for our collateral management services, we are entitled to a senior collateral management fee of 0.10% and a subordinate collateral management fee of 0.40% of the outstanding principal amount of GSCIC CLO’s assets, to be paid quarterly to the extent of available proceeds. We are also entitled to an incentive management fee equal to 20% of excess cash flow to the extent the GSCIC CLO subordinated notes receive an internal rate of return equal to or greater than 12%. For the three ~~and nine~~ months ended ~~November 30,~~May 31, 2010 and May 31, 2009 we accrued $0.5 and ~~$1.5~~$0.5 million in management ~~fees~~fee income, respectively and ~~$0.4~~$0.7 and ~~$1.7~~$0.9 million in interest income, ~~respectively. For the three and nine months ended November 30, 2008, we accrued $0.5 and $1.5 million in management fees and $1.5 and $3.2 million in interest income, respectively.~~respectively, from GSCIC CLO. We did not ~~earn~~accrue any amounts related to the incentive management fee as the 12% hurdle rate has not yet been achieved.

Note 6. Agreements

On March 21, 2007, the Company entered into an investment advisory and management agreement (the “Management Agreement”) with GSC ~~Group.~~Group, our investment advisor. The initial term of the Management Agreement is two years, with automatic, one-year renewals at the end of each year subject to certain approvals by our board of directors and/or our stockholders. Pursuant to the Management Agreement, our investment adviser implements our business strategy on a day-to-day basis and performs certain services for us, subject to oversight by our board of directors. Our investment adviser is responsible for, among other duties, determining investment criteria, sourcing, analyzing and executing investments transactions, asset sales, financings and performing asset management duties. Under the Management Agreement, we have agreed to pay our investment adviser a management fee for investment advisory and management services consisting of a base management fee and an incentive fee.

The base management fee of 1.75% is calculated based on the average value of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds) at the end of the two most recently completed fiscal quarters, and appropriately adjusted for any share issuances or repurchases during the applicable fiscal quarter.

The incentive fee consists of the following two parts:

The first, payable quarterly in arrears, equals 20% of our pre-incentive fee net investment income (not including excise taxes), expressed as a rate of return on the value of the net assets at the end of the immediately preceding quarter, that exceeds a 1.875% quarterly (7.5% annualized) hurdle rate measured as of the end of each fiscal quarter. Under this provision, in any fiscal quarter, our investment adviser receives no incentive fee unless our pre-incentive fee net investment income, as defined above, exceeds the hurdle rate of 1.875%. Amounts received as a return of capital are not included in calculating this portion of the incentive fee. Since the hurdle rate is based on net assets, a return of less than the hurdle rate on total assets may still result in an incentive fee.

The second, payable at the end of each fiscal year equals 20% of our net realized capital gains, if any, computed net of all realized capital losses and unrealized capital depreciation, in each case on a cumulative basis, less the aggregate amount of such incentive fees paid to the investment adviser through such date.

We will defer cash payment of any incentive fee otherwise earned by our investment adviser if, during the most recent four full fiscal quarter period ending on or prior to the date such payment is to be made, the sum of (a) our aggregate distributions to our stockholders and (b) our change in net assets (defined as total assets less liabilities) (before taking into account any incentive fees payable during that period) is less than 7.5% of our net assets at the beginning of such period. These calculations will be appropriately pro rated for the first three fiscal quarters of operation and adjusted for any share issuances or repurchases during the applicable period. Such incentive fee will become payable on the next date on which such test has been satisfied for the most recent four full fiscal quarters or upon certain terminations of the ~~Management Agreement.~~investment advisory and management agreement.

~~For the three and nine months ended November 30, 2009 we incurred $0.5 and $1.5 million in base management fees, respectively.~~

For the three months ended ~~November 30,~~May 31, 2010 and May 31, 2009 we incurred ~~no incentive~~$0.4 and $0.5 million in base management ~~fees related to pre-incentive fee net investment income.~~fees. For the ~~nine~~three months ~~ended November 30,~~May 31, 2009 we incurred $0.3 million in incentive fees related to pre-incentive fee net investment income. For the three ~~and nine~~ months ended ~~November 30,~~May 31, 2010 and May 31, 2009, we incurred no incentive management fees related to net realized capital gains. As of ~~November 30, 2009, $0.5~~May 31, 2010 $0.9 million of base management fees and $2.6 million of incentive fees were unpaid and included in management and incentive fees payable in the accompanying consolidated ~~balance sheet.~~statement of assets and liabilities.

For the three and nine months ended November 30, 2008, we incurred $0.7 and $2.1 million in base management fees and $0.5 and $1.3 million in incentive fees related to pre-incentive fee net investment income. For the three and nine months ended November 30, 2008, we incurred no incentive management fees related to net realized capital gains.

As of ~~November 30, 2009,~~May 31, 2010, the end of the ~~third~~first quarter of fiscal year ~~2010,~~2011, the sum of our aggregate distributions to our stockholders and our change in net assets (defined as total assets less liabilities) (before taking into account any incentive fees payable during that period) was less than 7.5% of our net assets at the beginning of the ~~third~~first fiscal quarter of fiscal year ~~2009.~~2010. Accordingly, the payment of the incentive fee for the quarter ended ~~November 30, 2009 was deferred.~~May 31, 2010 has been deferred along with all previously deferred incentive fees. The total deferred incentive fee payable at ~~November 30, 2009 is~~May 31, 2010 was $2.6 million.

On March 21, 2007, the Company entered into a separate administration agreement (the “Administration Agreement”) with GSC Group, pursuant to which GSC Group, as our administrator, has agreed to furnish us with the facilities and administrative services necessary to conduct our day-to-day operations and provide managerial assistance on our behalf to those portfolio companies to which we are required to provide such assistance. Our allocable portion is based on the proportion that our total assets bears to the total assets or a subset of total assets administered by our administrator.

For the three ~~and nine~~ months ended ~~November 30,~~May 31, 2010 and May 31, 2009 we ~~incurred~~expensed $0.2 and ~~$0.5~~$0.2 million of administrator expenses, respectively, pertaining to bookkeeping, record keeping and other administrative services provided to the Company in addition to our allocable portion of rent and other overhead related expenses. ~~For the three and nine months ended November 30, 2008 we incurred $0.2 and $0.8 million of administrator expenses, respectively.~~ GSC Group has agreed not to be reimbursed by the Company for any expenses incurred in performing its obligations under the Administration Agreement until the Company’s total assets exceeds $500 million. Additionally, the Company’s requirement to reimburse GSC Group is capped such that the amounts payable, together with the Company’s other operating expenses, will not exceed an amount equal to 1.5% per annum of the Company’s net assets attributable to the Company’s common stock. Accordingly, for the three ~~and nine~~ months ended ~~November 30,~~May 31, 2010 and May 31, 2009, we have recorded $0.2 and ~~$0.5~~$0.2 million in expense waiver and reimbursement, respectively, under the Administration Agreement in the accompanying consolidated ~~statements~~statement of operations. ~~For the three and nine months ended November 30, 2008 we have recorded $0.2 and $0.8 million in expense waiver and reimbursement, respectively.~~

On March 23, 2007, the Manager provided the Company with a Notification of Fee Reimbursement (the “Expense Reimbursement Agreement”). The Expense Reimbursement Agreement provides for the Manager to reimburse the Company for operating expenses to the extent that our total annual operating expenses (other than investment advisory and management fees, interest and credit facility expenses, and organizational expense) exceed an amount equal to 1.55% of our net assets attributable to common stock. The Manager is not entitled to recover any reimbursements under this agreement in future periods. The term of the Expense Reimbursement Agreement is for a period of 12 months beginning March 23, 2007 and for each twelve ~~month~~months period thereafter unless otherwise

agreed by the Manager and the Company. On April 15, 2008, the Manager and the Company agreed not to extend the agreement for an additional twelve month period and terminated the Expense Reimbursement Agreement as of March 23, 2008. For the three months ended May 31, 2010 and May 31, 2009, we recorded $0.2 and $0.2 million in expense waiver and reimbursement, respectively under the Expense Reimbursement Agreement in the accompanying consolidated statement of operations.

Note 7. Borrowings

As a BDC, we are only allowed to employ leverage to the extent that our asset coverage, as defined in the 1940 Act, equals at least 200% after giving effect to such leverage. The amount of leverage that we employ at any time depends on our assessment of the market and other factors at the time of any proposed borrowing.

On April 11, 2007, we formed GSC Investment Funding LLC (“GSC Funding”), a wholly owned consolidated subsidiary of the Company, through which we entered into a revolving securitized credit facility (the “Revolving Facility”) with Deutsche Bank AG, as administrative agent, under which we may borrow up to $100 million. A significant percentage of our total assets have been pledged under the Revolving Facility to secure our obligations thereunder. Under the Revolving Facility, funds ~~are~~were borrowed from or through certain lenders and interest is payable monthly at ~~prevailing~~the greater of the commercial paper ~~rates~~rate and our lender’s prime rate plus 4.00% plus a default rate of 2.00% or, if the commercial paper market is ~~at any time~~ unavailable, atthe greater of the prevailing LIBOR rates and our lender’s prime rate plus ~~0.70% payable monthly. As~~6.00% plus a default rate of November 30, 2009, there was $43.8 million outstanding under the Revolving Facility. As of February 28, 2009, there was $59.0 million outstanding under the Revolving Facility. For the three and nine months ended November 30, 2009, we recorded $1.1 and $2.6 million of interest expense, respectively. For the nine months ended November 30, 2009, we recorded $0.6 million of amortization of deferred financing costs related to the Revolving Facility, and the interest rates during the quarter on the outstanding borrowings was 9.25%. For the three and nine months ended November 30, 2008, we recorded $0.6 and $2.0 million of interest expense and $43,964 and $132,858 of amortization of deferred financing costs related to the Revolving Facility, respectively, and the interest rates during the quarter on the outstanding borrowings ranged from 3.34% to 5.22%3.00%.

On May 1, 2007, we formed GSC Investment Funding II LLC (“GSC Funding II”), a wholly owned consolidated subsidiary of the Company, through which we entered into a $25.7 million term securitized credit facility (the “Term Facility” and, together with the Revolving Facility, the “Facilities”) with Deutsche Bank AG, as administrative agent, which was fully drawn at closing. A significant percentage of our total assets were pledged under the Term Facility to secure our obligations thereunder. The Term Facility bears interest at prevailing commercial paper rates or, if the commercial paper market is at any time unavailable, at prevailing LIBOR rates, plus 0.70%, payable quarterly.

Each of the Facilities contain limitations as to how borrowed funds may be used, such as restrictions on industry concentrations, asset size, payment frequency and status, average life, collateral interests and investment ratings. The Facilities also include certain requirements relating to portfolio performance, the violation of which could result in the early amortization of the Facilities, limit further advances (in the case of the Revolving Facility) and, in some cases, result in an event of default, allowing the lenders to accelerate repayment of amounts owed thereunder.

On December 12, 2007, the Company consolidated its Facilities by using the proceeds of a draw under the Revolving Facility to repay and terminate the Term Facility and transferring all assets in GSC Funding II to GSC Funding. The Company’s aggregate indebtedness and cost of funding were unchanged as a result of this consolidation.

In March 2009 we amended the Revolving Credit Facility to increase the portion of the portfolio that can be invested in ~~“CCC”~~"CCC" rated investments in return for an increased interest rate and expedited amortization. As a result of these transactions, ~~it was~~we expected ~~that we would~~to have additional cushion under our Borrowing Base (as defined below) that would allow us to better manage our capital in times of declining asset prices and market dislocation. If we ~~continue to be unable~~are not able to obtain new sources of financing, however, we expect our portfolio will gradually de-lever as principal payments are received, which may negatively impact our net investment income and ability to pay dividends.

At November 30, 2009 and February 28, 2009, we had $43.8 million and $59.0 million in borrowings under the Revolving Facility, respectively. The actual amount that may be outstanding at any given time (the “Borrowing Base”) is dependent upon the amount and quality of the collateral securing the Revolving Facility. Our Borrowing Base was $12.1 million at November 30, 2009 versus $59.9 million at February 28, 2009. The decline in our Borrowing Base during this period is mainly attributable to the decline in the value of the pledged collateral and the downgrade of certain public ratings or private credit estimates of the pledged collateral.

For purposes of determining the Borrowing Base, most assets are assigned the values set forth in our most recent quarterly report filed with the SEC. Accordingly, the November 30, 2009 Borrowing Base relies upon the valuations set forth in the August 31, 2009

~~quarterly report. The valuations presented in this quarterly report will not be incorporated into the Borrowing Base until after this report is filed with the SEC.~~

On July 30, 2009 we exceeded the permissible borrowing limit for 30 consecutive days, resulting in an event of default under our Revolving Facility that is continuing. As a result of this event of default, our lender has the right to accelerate repayment of the outstanding indebtedness under and Revolving Facility and to foreclose and liquidate the collateral pledged thereunder. Acceleration of the outstanding indebtedness and/or liquidation of the collateral would have a material adverse effect on our liquidity, financial condition and operations. As a result of the continuing default, the Company may be forced to sell its investments to raise funds to repay outstanding amounts. Such forced sales may result in values that could be less than carrying values reported in these financial statements. The deleveraging of the Company may significantly impair the Company’s ability to effectively operate. Please see Part ~~II,~~I, Item 1A. “Risk Factors—An event of default under the Revolving Facility may lead to a forced liquidation of the pledged assets that may yield less than the fair value of the assets” in ~~the quarterly report~~our Annual Report on form ~~10-Q~~10-K for the ~~quarterly period~~year ended ~~May 31, 2009~~February 28, 2010 for more information. Our lender has elected not to accelerate the obligation to date, but has reserved the right to do so. ~~We continue to discuss possible solutions~~

At May 31, 2010 and February 28, 2010 we had $33.8 million and $37.0 million in borrowings under the Revolving Facility, respectively. The actual amount that may be outstanding at any given time (the “Borrowing Base”) is dependent upon the amount and quality of the collateral securing the Revolving Facility. Our Borrowing Base was $6.1 million at May 31, 2010 versus $1.7 million at February 28, 2010. The increase in our Borrowing Base during the quarter is mainly attributable to the ~~event~~change in classification of ~~default~~certain defaulted assets that resulted in a higher collateral value per the Borrowing Base calculation.

For purposes of determining the Borrowing Base, most assets are assigned the values set forth in our most recent quarterly report filed with ~~our lender.~~the SEC. Accordingly, the May 31, 2010 Borrowing Base relies upon the valuations set forth in the annual report for the year ended February 28, 2010. The valuations presented in this quarterly report will not be incorporated into the Borrowing Base until after this report is filed with the SEC.

During the continuance of an event of default, the interest rate on the Revolving Facility is increased from the commercial paper rate plus 4.00% to the greater of the commercial paper rate and our lender’s prime rate plus 4.00% plus a default rate of 2.00% or, if the commercial paper market is unavailable, the greater of the prevailing LIBOR rates and our lender’s prime rate plus 6.00% plus a default rate of 3.00%. For the three months ended May 31, 2010 and May 31, 2009, we recorded $0.8 and $0.6 million of interest expense. For the three months ended May 31, 2009, we recorded $71,320 of amortization of deferred financing costs related to the Revolving Facility. For the three months ended May 31, 2010 and May 31, 2009, the interest rates on the outstanding borrowings were 9.25% and a range of 4.52% to 4.73%, respectively.

Note 8. Interest Rate Cap Agreements

In April and May 2007, pursuant to the requirements of the Facilities, GSC Funding and GSC Funding II entered into interest rate cap agreements with Deutsche Bank AG with notional amounts of ~~$34.0~~$34 million and $60.9 million at costs of $75,000, and $44,000, respectively. In May 2007 GSC Funding increased the notional under its agreement from ~~$34.0~~$34 million to ~~$40.0~~$40 million for an additional cost of $12,000. The agreements expire in February 2014 and November 2013 respectively. These interest rate caps are treated as free-standing derivatives under ASC 815 and are presented at their fair value on the consolidated ~~balance sheet~~statement of assets and liabilities and the changes in their fair value are included on the consolidated statement of operations.

The agreements provide for a payment to the Company in the event LIBOR exceeds 8%, mitigating our exposure to increases in LIBOR. With respect to calculating the payments under these agreements, the notional amount is determined based on a pre-determined schedule set forth in the respective agreements which provides for a reduction in the notional at specified dates until the maturity of the agreements. As of ~~November 30, 2009,~~May 31, 2010 we did not receive any such payments as the LIBOR has not exceeded 8%. At ~~November 30, 2009,~~May 31, 2010, the total notional outstanding for the interest rate caps was ~~$66.4~~$63.2 million with an aggregate fair value of ~~$0.07 million,~~$22,278, which is recorded in outstanding interest cap at fair value on the Company’s consolidated ~~balance sheet.~~statement of assets and liabilities. For the three ~~and nine~~ months ended ~~November 30,~~May 31, 2010 and May 31, 2009, the Company recorded ~~$0.02 million~~$19,869 of unrealized depreciation and ~~$0.03 million~~$35,687 of unrealized appreciation respectively, on derivatives in the consolidated statement of operations related to the change in the fair value of the interest rate cap agreements.

The table below summarizes our interest rate cap agreements as of ~~November 30, 2009~~May 31, 2010 (dollars in thousands):

Interest
Instrument Type Notional Rate Cap Maturity Fair Value

Interest Rate Cap Free Standing Derivative $ 40,000 8.0 % Feb 2014 $ 51
Interest Rate Cap Free Standing Derivative 26,433 8.0 Nov 2013 22

Net fair value $ 73

Instrument	Type	Notional		Interest Rate			Maturity	Fair Value
Interest Rate Cap	Free Standing Derivative	$	36,735		8.0	%	Feb 2014	$	16
Interest Rate Cap	Free Standing Derivative		26,433		8.0		Nov 2013		6
	Net fair value							$	22

The table below summarizes our interest rate cap agreements as of February 28, ~~2009~~2010 (dollars in thousands):

Interest
Instrument Type Notional Rate Cap Maturity Fair Value

Interest Rate Cap Free Standing Derivative $ 40,000 8.0 % Feb 2014 $ 28
Interest Rate Cap Free Standing Derivative 26,433 8.0 Nov 2013 12

Net fair value $ 40

Instrument Type Notional
Interest
Rate
Maturity Fair Value
Interest Rate Cap Free Standing Derivative $ 39,184 8.0 % Feb 2014 $ 30
Interest Rate Cap Free Standing Derivative 26,433 8.0 Nov 2013 12
Net fair value $ 42

Note 9. Directors Fees

The independent directors receive an annual fee of $40,000. They also receive $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting and receive $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each committee meeting. In addition, the chairman of the Audit Committee receives an annual fee of $5,000 and the chairman of each other committee receives an annual fee of $2,000 for their additional services in these capacities. In addition, we have purchased directors’ and officers’ liability insurance on behalf of our directors and officers. Independent directors have the option to receive their directors’ fees in the form of our common stock issued at a price per share equal to the greater of net asset value or the market price at the time of payment. No compensation is paid to directors who are “interested persons.” For the three ~~and nine~~ months ended ~~November 30,~~May 31, 2010 and May 31, 2009, we accrued ~~$0.07~~$0.1 and ~~$0.2~~$0.1 million for ~~directors~~directors’ fees ~~expense.~~expense, respectively. As of ~~November 30,~~May 31, 2010 and February 28, 2009, $110,500 and $54,000 in directors’ fees expense were unpaid and included in accounts payable and accrued expenses in the consolidated statements of assets and liabilities. As of May 31, 2010, we had not issued any common stock to our directors as compensation for their services.

Note 10. Stockholders’ Equity

On May 16, 2006, GSC Group capitalized the LLC, by contributing $1,000 in exchange for 67 shares, constituting all of the issued and outstanding shares of the LLC.

On March 28, 2007, the Company completed its IPO of 7,250,000 shares of common stock, priced at $15.00 per share, before underwriting discounts and commissions. Total proceeds received from the IPO, net of $7.1 million in underwriter’s discount and commissions, and $1.0 million in offering costs, were $100.7 million.

On November 13, 2009, we declared a dividend of $1.825 per share payable on December 31, 2009. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to $2.1 million or $0.25 per share. Based on shareholder elections, the dividend consisted of $2.1 million in cash and 8,648,725 of newly issued shares of common stock.

Note 11. Earnings Per Share

In accordance with the provisions of FASB ASC 260, “Earnings per Share” (“ASC 260”), basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis.

Based on shareholder elections, the dividend consisted of $2.1 million in cash and 8,648,725 shares of common stock, or 104% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash limit of 13.7% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $1.5099 per share, which equaled the volume weighted average trading price per share of the common stock on December 24 and 28, 2009. The financial statements for the period ended November 30, 2009 have been retroactively adjusted to reflect the increase in common stock as a result of the dividend in accordance with the provisions of ASC 505-20-S50 regarding disclosure of a capital structure change after the interim balance sheet but before the release of the financial statements.

The following information sets forth the computation of the weighted average basic and diluted net decrease in net assets per share from operations for the ~~nine months~~quarters ended ~~November 30,~~May 31, 2010 and May 31, 2009 ~~and November 30, 2008 (dollars in thousands except share and per share amounts):~~

Basic and diluted November 30, 2009 November 30, 2008

Net decrease in net assets from operations $ (1,597 ) $ (7,307 )
Weighted average common shares outstanding 8,542,983 8,291,384
Loss per common share-basic and diluted $ (0.19 ) $ (0.88 )

~~Note 12. Dividend~~

~~The following tables summarize dividends declared during the three months ended November 30, 2009 and November 30, 2008~~ (dollars in thousands except per share amounts):

Amount Per
Date Declared Record Date Payment Date Share * Total Amount

November 13, 2009 November 25, 2009 December 31, 2009 $ 1.825 $ 15,132

Total dividends declared $ 1.825 $ 15,132

Amount Per
Date Declared Record Date Payment Date Share * Total Amount

May 22, 2008 May 30, 2008 June 13, 2008 $ 0.39 $ 3,234
August 20, 2008 August 29, 2008 September 15, 2008 0.39 3,234

Total dividends declared $ 0.78 $ 6,468


*		~~Amount per share is calculated based on the number of shares outstanding at the date of declaration.~~

Basic and diluted	May 31, 2010		May 31, 2009
Net increase in net assets from operations	$	2,655	$	5,364
Weighted average common shares outstanding		16,940,109		8,291,384
Earnings per common share-basic and diluted	$	0.16	$	0.65

Note 12. Dividend

The Company did not declare any dividend payments during the quarters ended May 31, 2010 and May 31, 2009.

Note 13. Financial Highlights

The following is a schedule of financial highlights for the ~~nine~~three months ended ~~November 30, 2009~~May 31, 2010 and ~~November 30, 2008:~~May 31, 2009:

November 30, 2009 November 30, 2008

Per share data:
Net asset value at beginning of period $ 8.20 $ 11.80

Net investment income⁽¹⁾
0.53 1.27
Net realized losses on investments and derivatives (0.18 ) (0.89 )
Net unrealized depreciation on investments and derivatives (0.53 ) (1.26 )

Net decrease in stockholders’ equity (0.18 ) (0.88 )
Distributions declared from net investment income (1.83 ) (0.78 )
Other⁽⁶⁾
(2.39 ) —

Total distributions to stockholders (4.22 ) (0.78 )

Net asset value at end of period $ 3.80 $ 10.14
Net assets at end of period $ 64,343,839 $ 84,094,745
Shares outstanding at end of period 16,940,109 8,291,384

Per share market value at end of period $ 2.16 $ 1.55
Total return based on market value⁽²⁾
139.7 % (78.89 )%
Total return based on net asset value⁽³⁾
(2.35 )% (7.46 )%

Ratio/Supplemental data:

Ratio of net investment income to average net assets^{(4) (5)}
8.07 % 13.93 %
Ratio of operating expenses to average net assets^{(4) (5)}
9.05 % 6.77 %
Ratio of incentive management fees to average net assets⁽⁵⁾
0.65 % 1.84 %
Ratio of credit facility related expenses to average net assets⁽⁵⁾
6.41 % 3.08 %
Ratio of total expenses to average net assets^{(4) (5)}
16.11 % 11.69 %

Per share data:	May 31, 2010			May 31, 2009

Net asset value at beginning of period	$	3.27		$	8.20

Net investment income (1) (5)		0.00			0.31
Net realized losses on investments and derivatives		(0.15	)		-
Net unrealized appreciation on investments and derivatives		0.31			0.34
Net increase in stockholders’ equity		0.16			0.65

Net asset value at end of period	$	3.43		$	8.85
Net assets at end of period	$	58,132,890		$	73,377,593
Shares outstanding at end of period		16,940,109			8,291,384

Per share market value at end of period	$	1.71		$	2.90
Total return based on market value (2)		(10.94	)%		45.73	%
Total return based on net asset value (3)		4.79	%		7.93	%

Ratio/Supplemental data: (6)
Ratio of net investment income net of expense waiver and reimbursement to average net assets (4)		0.01	%		12.83	%
Ratio of operating expenses net of expense waiver and reimbursement to average net assets (4)		13.34	%		6.18	%
Ratio of incentive management fees to average net assets		0.00	%		1.61	%
Ratio of credit facility related expenses to average net assets		5.61	%		3.22	%
Ratio of total expenses net of expense waiver and reimbursement to average net assets (4)		18.95	%		11.01	%


(1)		Net investment (loss) income excluding expense waiver and reimbursement equals ~~$0.47~~($0.01) and ~~$1.17~~$0.29 per share for the ~~nine months~~quarters ended ~~November 30,~~May 31, 2010 and May 31, 2009, ~~and November 30, 2008,~~ respectively.

(2)		Total annual return ~~based on market value equals the change in market value of the Company’s shares taking into the account dividend distribution of $1.825~~is historical and assumes ~~such dividend is reinvested~~changes in ~~accordance with~~share price, reinvestments of all dividends and distributions, and no sales change for the terms of the dividend reinvestment plan at a price of $1.5099 per share to be consistent with ASC 505-20-S50 as more fully described in Note 11. For the nine months ended November 30, 2008, the total return based on market value equals the decrease in market value at November 30, 2008, of $9.49 per share over the price per share at February 29, 2008, of $11.04, plus the declared cash dividends of $0.39 per share for stockholders of record on May 30, 2008, and $0.39 per share for stockholders of record on August 29, 2008, divided by the February 29, 2008 price per share. Total return based on market value is not annualized.year.

(3)	Total annual return is historical and assumes changes in net assets value, reinvestments of all dividends and distributions, and no sales change for the year.

(4)	For the ~~nine months~~quarter ended November 30, 2009, the total return based on net asset value equals the change in net asset value during the period plus the declared cash dividend of $2,073,066 for stockholders of record on November 25, 2009, divided by the beginning net asset value during the period. For the nine months ended November 30, 2008, the total return based on net asset value equals the change in net asset value during the period plus the declared cash dividends of $0.39 per share for stockholders of record on May ~~30, 2008, and $0.39 per share for stockholders of record on August 29, 2008, divided by the beginning net asset value during the period. Total return based on net asset value is not annualized.~~

~~(4)~~		~~For the nine months ended November 30, 2009, incorporating~~31, 2010, excluding the expense waiver and reimbursement arrangement, the ratio of net investment income, operating expenses, total expenses to average net assets is ~~9.11%~~(1.03%), ~~8.01%,~~14.39% and ~~15.07%~~19.99%, respectively. For the ~~nine months~~quarter ended ~~November 30, 2008, incorporating~~May 31, 2009, excluding the expense waiver and reimbursement arrangement, the ratio of net investment income, operating expenses, total expenses to average net assets is ~~15.08%~~11.97%, ~~5.62%,~~7.04% and ~~10.54%~~11.87%, respectively.

(5)		~~Annualized.~~Amount is less than $0.005 for the quarter end May 31, 2010.

(6)

Represents the impact of the different share amounts used in calculating per share data as a result of calculating certain per share data based upon the weighted average basic shares outstanding during the period and certain per share data based on the shares outstanding as of period end.Ratios are annualized.

Note 14. Related Party Transaction

On March 20, 2007, the Company issued 959,955 and 81,362 shares of common stock, priced at $15.00 per share, to GSC Group and certain individual employees of GSC Group, respectively, in exchange for the general partnership interest and a limited partnership interest in GSC Partners CDO III GP, LP, collectively valued at $15.6 million. Additionally, GSC Group assigned its rights to act as collateral manager for GSC Partners CDO Fund III, Limited (“CDO III”) to the Company. The Company paid GSC Group $0.1 million to acquire the rights to act as collateral manager and expected to receive collateral management fees of $0.2 million. As of ~~November 30, 2009,~~May 31, 2010, the fair value of the general partnership interest and limited partnership interest ~~is $318.~~was zero.

On January 10, 2008, GSC Group notified our Dividend Reinvestment Plan Administrator that it was electing to receive dividends and other distributions in cash (rather than in additional shares of common stock) with respect to all shares of stock held by it and the investment funds under its control. For the ~~year~~quarter ended February ~~28, 2009,~~29, 2008, GSC Group received 35,911 of additional shares under the dividend reinvestment plan. As of ~~November 30, 2009,~~May 31, 2010, GSC Group and its affiliates own approximately ~~12%~~11.4% of the outstanding common shares of the Company.

On January 22, 2008, we entered into a collateral management agreement with GSCIC CLO pursuant to which we will act as collateral manager to it. In return for our collateral management services, we are entitled to a senior collateral management fee of 0.10% and a subordinate collateral management fee of 0.40% of the outstanding principal amount of GSCIC CLO’s assets, to be paid quarterly to the extent of available proceeds. We are also entitled to an incentive management fee equal to 20% of excess cash flow to the extent the GSCIC CLO subordinated notes receive an internal rate of return equal to or greater than 12%. We do not expect to enter into additional collateral management agreements in the near future.

In April 2009, our investment adviser withheld a scheduled principal amortization payment under its credit facility, resulting in a default thereunder. Since then, our investment adviser and its secured lenders have been in negotiations regarding a consensual restructuring of its obligations under such credit facility. While we are not directly affected by our investment adviser’s default, if it is unable to restructure its credit facility, or an acceleration of the outstanding principal balance by the lenders occurs, the ability of the investment adviser to retain key individuals and perform its investment advisory duties for us could be significantly impaired.

Note 15. Subsequent Events

~~For the third quarter of 2009, the Company evaluated subsequent events through January 14, 2010, the date the financial statements were issued.~~

On ~~December~~June 7, ~~2009~~2010, the Company repaid ~~$0.5~~$0.1 million of the outstanding borrowings ~~primarily from excess interest collections.~~related to the credit facility.

On ~~December 23, 2009~~June 25, 2010, the Company ~~received full par redemptions of $3.0 million and $1.0 million~~filed a definitive Proxy Statement on Schedule 14A related to ~~Edgen Murray II, L.P. and GXS Worldwide, Inc., respectively.~~ the proposed Saratoga transaction.

On ~~January 7,~~July 9, 2010, the ~~proceeds from these redemptions plus excess interest collections were used to make a repayment of $5.8~~Company repaid $0.8 million of the outstanding ~~borrowings.~~

On December 31, 2009, we paid a dividend of $1.825 per share to shareholders of record as of the close of business on November 25, 2009. Shareholders had until December 17, 2009 to elect whether to receive the dividend in cash (up to an aggregate maximum cash amount of approximately $2.1 million or approximately 13.7% of the total dividend paid) or in shares of common stock. Dueborrowings related to the ~~original terms of the dividend, shareholders who elected to receive cash received a combination of cash and common stock.~~credit facility.

Based on shareholder elections, the dividend consisted of $2.1 million in cash and 8,648,725 shares of common stock, or 104% of our outstanding common stock prior to the dividend payment. The amount of cash elected to be received was greater than the cash limit of 13.7% of the aggregate dividend amount, thus resulting in the payment of a combination of cash and stock to shareholders who elected to receive cash. The number of shares of common stock comprising the stock portion was calculated based on a price of $1.5099 per share, which equaled the volume weighted average trading price per share of the common stock on December 24 and 28, 2009. As previously mentioned in Note 11 the financial statements for the period ended November 30, 2009 have been retroactively adjusted to reflect the increase in common stock as a result of the dividend.

Shareholders who elected to receive the dividend solely in shares of common stock and shareholders who did not make an election will receive 1.209 shares of common stock for each share of common stock they owned on the record date. Holders of approximately 39% of the Company’s common stock elected to receive only stock or did not make an election.

Shareholders electing to receive the dividend in all cash, will receive cash in the amount of $0.411 per share or 22.5% of the $1.825 dividend and 0.936 shares of common stock or 77.5% of the total dividend for each share of common stock they owned on the record date. Cash in lieu of fractional shares will be issued, if applicable.

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

The following discussion should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this quarterly report. In addition to historical information, the following discussion and other parts of this quarterly report contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed in Item 1A in our Annual Report on Form 10-K for the fiscal year ended February 28, ~~2009~~2010 and Part II, Item 1A in ~~our~~this quarterly ~~reports on Form 10-Q for the quarterly periods ended May 31, 2009.~~report.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements.

The forward-looking statements contained in this quarterly report ~~include~~involve risks and uncertainties, including statements as to:

our future operating results;

our business prospects and the prospects of our portfolio companies;

the impact of investments that we expect to make;

~~declines in the value of the investments we have made;~~

our contractual arrangements and relationships with third parties;

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

the ability of our portfolio companies to achieve their objectives;

our expected financings and investments;

our regulatory structure and tax treatment, including our ability to operate as a business development company and a regulated investment company;

the adequacy of our cash resources and working capital;

the timing of cash flows, if any, from the operations of our portfolio companies;

the ability of our investment adviser to locate suitable investments for us and to monitor and effectively administer our investments; and

continued access to our Revolving ~~Facility and the decision by our lender to accelerate repayment of our outstanding bank indebtedness.~~Facility.

You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this quarterly report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this quarterly report.

~~Overview~~

Overview

GSC Investment Corp. is a Maryland corporation that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). The Company is the successor by merger to GSC Investment, LLC (the “LLC”), a Maryland limited liability company that had elected to be regulated as a BDC, which was merged into the Company concurrently with the Company’s incorporation on March 21, 2007. As a result of the merger, each outstanding common share of the LLC was converted into an equivalent number of shares of the Company’s common stock.

Our investment objectives are to generate current income and capital

appreciation through debt and equity investments by primarily investing in middle market companies and select high yield bonds. We have elected and qualified to be treated as a regulated investment company (“RIC”) under ~~subchapter~~Subchapter M of the Internal Revenue ~~Code.~~Code of 1986, as amended (the “Code”). We commenced operations on March 23, 2007 and completed our initial public offering (“IPO”) on March 28, 2007. We are externally managed and advised by our investment adviser, GSCP (NJ), L.P. (together with certain of its affiliates, “GSC Group”).

We used the net proceeds of our IPO to purchase approximately $100.7 million in aggregate principal amount of debt investments from GSC Partners CDO Fund III, Limited (“CDO Fund III”), a collateralized loan obligation (“CLO”) fund managed by our investment adviser. We used borrowings under our ~~credit facilities~~Facilities (as defined below) to purchase approximately $115.1 million in aggregate principal amount of debt investments in April and May 2007 from CDO Fund III and GSC Partners CDO Fund Limited (“CDO Fund I”), a collateralized debt obligation fund managed by our investment adviser. ~~As of November 30, 2009, our portfolio consisted of $103.3 million of investments at fair value, in 29 portfolio companies and one CLO.~~

Our portfolio is comprised primarily of investments in leveraged loans (comprised of both first and second lien ~~leveraged loans~~term loans) issued by middle market companies and high yield bonds. ~~Our strategy has been~~We seek to create a diversified portfolio by investing up to 5% of our total assets in each investment, although the investment sizes may be more or less than the targeted range. These investments ~~have been~~are sourced in both the primary and secondary markets through a network of relationships with commercial and investment banks, commercial finance companies and financial sponsors. Due to constraints imposed by our Revolving Facility, we have had limited investment activity in both the primary and secondary markets. The leveraged loans and high yield bonds that we purchase are generally used to finance buyouts, acquisitions, growth, recapitalizations and other types of transactions. Leveraged loans are generally senior debt instruments that rank ahead of subordinated debt of the portfolio company. Leveraged loans also have the benefit of security interests on the assets of the portfolio company, which may rank ahead of, or be junior to, other security interests. High yield bonds are typically subordinated to leveraged loans and generally unsecured, though a substantial amount of the high yield bonds that we currently own are secured. Substantially all of the debt investments held in our portfolio hold a non-investment grade rating by Moody’s Investors Service (“Moody’s”) and/or Standard & Poor’s or, if not rated, would be rated below investment grade if rated. High yield bonds rated below investment grade are commonly referred to as “junk bonds.” As part of our long-term strategy, we also anticipate purchasing mezzanine debt and making equity investments in middle market companies. Mezzanine debt is typically unsecured and subordinated to senior debt of the portfolio company. For purposes of this quarterly report, we generally use the term “middle market” to refer to companies with annual EBITDA of between $5 million and $50 million. EBITDA represents earnings before net interest expense, income taxes, depreciation and amortization. Investments in middle market companies are generally less liquid than equivalent investments in companies with larger capitalizations.

While our primary focus is to generate current income and capital appreciation through investments in debt and equity securities of middle market companies and high yield bonds, we intend to invest up to 30% of our ~~total~~ assets in opportunistic investments. Opportunistic investments may include investments in distressed debt, debt and equity securities of public companies, credit default swaps, emerging market debt, and structured finance vehicles, including CLOs. As part of this 30%, we may also invest in debt of middle market companies located outside the United States. Given our primary investment focus on first and second lien term loans issued by middle market companies and high yield bonds, we believe our opportunistic investments will allow us to supplement our core investments with other investments that are within our investment adviser’s expertise that we believe offer attractive yields and/or the potential for capital appreciation. As of ~~November 30, 2009,~~May 31, 2010, our investment in the subordinated notes of ~~GSC Investment Corp.~~GSCIC CLO, ~~2007, Ltd. (“GSCIC CLO”),~~ a CLO we manage, constituted ~~18.7%~~20.2% of our total ~~assets.~~investments. We do not expect to manage and purchase all of the equity in another CLO transaction in the near future. We may, however, invest in CLO securities issued by other investment managers.

As of May 31, 2010, our portfolio consisted of $89.9 million in investments. We seek to create a diversified portfolio that includes leveraged loans, mezzanine debt and high yield bonds by investing up to 5% of our total investments in each portfolio company, although the investment sizes may be more or less than the targeted range. As of May 31, 2010, we invested in excess of 5% of our total investments in 6 of the 27 portfolio companies and the GSCIC CLO, but in each case less than 20.2% of our total investments, and our five largest portfolio company exposures represented approximately 49.9% of our total investments.

As a BDC, we are required to comply with certain regulatory requirements. For instance, we have to invest at least 70% of our total assets in “qualifying assets,” including securities of U.S. operating companies whose securities are not listed on a national securities exchange (i.e., New York Stock Exchange, American Stock Exchange and The NASDAQ Global Market), U.S. operating companies with listed securities that have market capitalizations of less than $250 million, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, we are only allowed to borrow money such that our asset coverage, which, as defined in the 1940 Act, measures the ratio of total assets less total liabilities (excluding borrowings) to total borrowings, equals at least 200% after such borrowing, with certain limited exceptions.

Significant Developments in Our Business

Since the third quarter of fiscal year 2009 (November 30, 2008), due to constraints imposed by our Revolving Facility (as defined below), we have had limited investment activity in both the primary and secondary markets. The Company is working with the investment banking firm of Stifel, Nicolaus & Company, which it retained to evaluate strategic transaction opportunities and consider alternatives. There is no assurance that the exploration and evaluation of strategic opportunities and alternatives will result in any transaction.

On July 30, 2009, we exceeded permissible borrowing limits for 30 consecutive days, resulting in an event of default under our credit ~~facility. During the continuance~~facility that is continuing as of anMay 31, 2010. As a result of this event of default, our lender has the ~~interest rate on the Revolving Facility is increased from the~~

~~commercial paper rate plus 4.00%~~right to ~~the greater~~accelerate repayment of the ~~commercial paper rate~~outstanding indebtedness under our credit facility and ~~our lender’s prime rate plus 4.00% plus a default rate of 2.00% or, if~~to foreclose and liquidate the ~~commercial paper market is unavailable, the greater~~collateral pledged thereunder. Acceleration of the ~~prevailing LIBOR rates~~outstanding indebtedness and/or liquidation of the collateral would have a material adverse effect on our liquidity, financial condition and operations. As of the date of this quarterly report, our ~~lender’s prime rate plus 6.00% plus~~lender has not accelerated the debt, but has reserved the right to do so. There is no assurance that we will have sufficient funds available to pay in full the total amount of obligations that would become due as a ~~default rate~~result of ~~3.00%. Under this formula, for the three months ended November 30, 2009, the interest rate on the Revolving Facility was 9.25%.~~such acceleration or that we will be able to obtain additional or alternative financing to pay or refinance any such accelerated obligations.

Substantially all of our assets other than our investment in the subordinated notes of GSC Investment Corp. CLO 2007, Ltd. ("GSCIC ~~CLO~~CLO") are held in a special purpose subsidiary and pledged under our Revolving Facility. We commenced the two year amortization period under the Revolving Facility in January 2009, during which time all principal proceeds from the pledged assets are used to repay the Revolving Facility. In addition, during the continuance of an event of default, all interest proceeds from the pledged assets are also used to repay the Revolving Facility. As a result, the Company is required to fund isits operating expenses and dividends solely from cash on hand, management fees earned from, and the proceeds of the subordinated notes of, GSCIC CLO. Please see Part II, Item 1A. “Risk Factors—Continuance of an Event of Default under our Revolving Facility and/or deferral of payments from GSCIC CLO may result in a shortage of working capital” in this quarterly report for more information.

As of November 30, 2009, the Company remained in default on its Revolving Facility and as a result of the default, our lender has the right to accelerate repayment of the outstanding indebtedness and to foreclose and liquidate the collateral pledged thereunder. Acceleration of the outstanding indebtedness and/or liquidation of the collateral would have a material adverse effect on our liquidity, financial condition and operations. Please see Part II, Item 1A. “Risk Factors—An event of default under the Revolving Facility may lead to a forced liquidation of the pledged assets that may yield less than the fair value of the assets” in the quarterly report on form 10-Q for the quarterly period ended May 31, 2009 for more information. To date, our lender has not accelerated the debt, but has reserved the right to do so. The deleveraging of the Company may significantly impair the Company’s ability to effectively operate. ~~There is no assurance~~

On April 14, 2010, the Company announced that ~~we will have sufficient funds available~~it entered into a definitive agreement with Saratoga Investment Advisors, LLC (“Saratoga”) to ~~pay in full the total amount of obligations~~execute a $55 million recapitalization plan that would ~~become due~~cure the existing bank default. Please see “Proposed Saratoga Transaction” below for more information.

In a report dated May 27, 2010, our independent registered public accountants have determined that there is substantial doubt regarding our ability to continue as a going concern as a result of ~~such acceleration or that~~our remaining in default of our Revolving Facility. Please see Part I, Item 1A. “Risk Factors—Risks related to our liquidity and financial condition” in our Annual Report on form 10-K for the year ended February 28, 2010 for more information.

Proposed Saratoga Transaction

On April 14, 2010, we entered into a stock purchase agreement (“the Stock Purchase Agreement”) with Saratoga and CLO Partners LLC (together with Saratoga, the “Investors”) and an assignment, assumption and novation agreement (the “Assignment Agreement”) with Saratoga, pursuant to which we assumed certain rights and obligations of Saratoga under the debt commitment letter (the “Madison Commitment Letter”) Saratoga received from Madison Capital Funding LLC (“Madison”), indicating Madison’s willingness to provide the Company with a $40 million senior secured revolving credit facility (the “Replacement Facility”), subject to the satisfaction of certain terms and conditions. We refer to the transactions contemplated by the Stock Purchase Agreement collectively as the “Saratoga Transaction.”

If the conditions to closing under the Stock Purchase Agreement are satisfied, pursuant to the Stock Purchase Agreement, we will issue and sell to the Investors 9,868,422 shares of our common stock for an aggregate purchase price of approximately $15,000,000 at a price of $1.52 per share, in a private transaction that is exempt from registration under Section 4(2) of the Securities Act of 1933 and Regulation D thereunder. Concurrently with the closing of the Saratoga Transaction and pursuant to the terms of the Stock Purchase Agreement, we will (i) enter into the Replacement Facility with Madison; (ii) enter into a registration rights agreement with the Investors; (iii) enter into a trademark license agreement with Saratoga or one of its affiliates; and (iv) replace GSCP (NJ), L.P. as the Company’s investment adviser with Saratoga Investment Advisors, LLC, by executing the Investment Advisory and Management Agreement, subject to stockholder approval, and as the Company’s administrator with an affiliate of Saratoga by executing an Administration Agreement. The Company and its current investment adviser, GSCP (NJ), L.P., have entered into a Termination and Release Agreement, to be ~~able~~effective as of the closing, pursuant to ~~obtain additional or alternative financing~~which GSCP (NJ), L.P., among other things, has agreed to waive any and all accrued and unpaid deferred incentive management fees up to and as of the closing of the Saratoga Transaction but will continue to receive the base management fees earned through the date of the closing.

In addition, as a condition to closing of the Saratoga Transaction and in each case to be effective as of the closing, the Company is required to procure the resignations of Robert F. Cummings, Jr. and Richard M. Hayden, both of whom are affiliates of GSCP (NJ) L.P., as members of the Board and to elect Christian L. Oberbeck and Richard A. Petrocelli, both of whom are affiliates of Saratoga, as members of the Board (the “Saratoga Directors”). The Saratoga Directors will be elected by the Board to fill the vacancies created by the resignations described above and the Saratoga Directors will be appointed to the class of directors as determined by the Board in accordance with the Company’s organizational documents. The Company’s stockholders will have the opportunity to vote for each of the Saratoga Directors when his class of directors is up for reelection. In addition, all officers of the Company will resign at closing and the Board will appoint Mr. Oberbeck as the Company’s Chief Executive Officer and Mr. Petrocelli as the Company’s Chief Financial Officer and Chief Compliance Officer.

Promptly after closing of the Saratoga Transaction, the Company will change its name from “GSC Investment Corp.” to “Saratoga Investment Corp.” and the Company intends to undertake a one-for-ten reverse stock split, pursuant to which each stockholder will receive one share of our common stock in exchange for every ten shares owned at that time. After giving effect to the shares of common stock issued in connection with the Saratoga Transaction and the one-for-ten reverse stock split, the total number of shares of our common stock outstanding will be approximately 2.7 million.

The Company will use the net proceeds from the Saratoga Transaction and a portion of the funds available to it under the Replacement Facility to pay ~~or refinance any such accelerated obligations.~~

~~However, we continue to believe that we will have adequate liquidity to continue to fund~~the full amount of principal and accrued interest, including default interest, outstanding under our ~~operations~~Revolving Facility due and ~~the interest payments on our outstanding debt, including any default interest. We continue to have discussions with our lender regarding resolutions~~payable as of the ~~default. The~~date of closing.

Following completion of the transactions contemplated by the Stock Purchase Agreement, the Investors and certain individuals affiliated with Saratoga and Saratoga Partners, including Messrs. Oberbeck and Petrocelli, will hold approximately 36.8% of the outstanding shares of common stock of the Company. Pursuant to the provisions of the 1940 Act, the Company will be deemed to be controlled by Mr. Oberbeck following consummation of the Saratoga Transaction. Mr. Oberbeck is the Managing Partner of Saratoga Partners, an affiliate of Saratoga, and has been a member of its investment committee for 15 years. Mr. Oberbeck is the primary investor in Saratoga, and CLO Partners LLC is an entity wholly-owned by Mr. Oberbeck. Saratoga Partners has also ~~working~~provided Saratoga with an equity commitment letter, pursuant to which Saratoga Partners has agreed to fulfill and satisfy solely the payment obligations of Saratoga and CLO Partners under the Stock Purchase Agreement, subject to the satisfaction of certain terms and conditions, including the closing conditions described herein.

For more information about Saratoga, see our Definitive Proxy Statement on Schedule 14A filed with the ~~investment banking firm Stifel, Nicolaus & Company, which it retained to evaluate strategic transaction opportunities and consider alternatives. We are focused~~SEC on ~~resolving the default and continuing to exist as a going concern.~~June 25, 2010.

~~Revenues~~

Revenues

We generate revenue in the form of interest income and capital gains on the debt investments that we hold and capital gains, if any, on equity interests that we may acquire. ~~Our~~We expect our debt investments, whether in the form of first and second lien term loans, mezzanine debt or high yield bonds, ~~generally~~to have terms of up to ten years, and to bear interest at either a fixed or floating rate. Interest on debt iswill be payable generally either quarterly or semi-annually. In some cases our debt investments may provide for a portion of the interest to be paid-in-kind (“PIK”). To the extent interest is paid-in-kind, it will be payable through the increase of the principal amount of the obligation by the amount of interest due on the then-outstanding aggregate principal amount of such obligation. The principal amount of the debt and any accrued but unpaid interest will generally become due at the maturity date. In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, fees for providing managerial assistance or investment management services and possibly consulting fees. Any such fees will be generated in connection with our investments and recognized as earned. We may also invest in preferred equity securities that pay dividends on a current basis.

Pursuant to an agreement with our investment adviser entered into on October 17, 2006, prior to becoming a BDC, we acquired the right to act as investment adviser to CDO Fund III and collect the management fees related thereto from March 20, 2007 until the liquidation of the CDO Fund III assets. We paid our investment adviser a fair market price of $0.1 million for the right to act as investment advisor to CDO Fund III.

On January 22, 2008 we entered into a collateral management agreement with GSCIC CLO pursuant to which we will act as its collateral manager and receive a senior collateral management fee of 0.10% and a subordinate collateral management fee of 0.40% of the outstanding principal amount of GSCIC CLO’s assets, paid quarterly to the extent of available proceeds. We are also entitled to an incentive management fee equal to 20% of excess cash flow to the extent the GSCIC CLO subordinated notes receive an internal rate of return equal to or greater than 12%.

We recognize interest income on our investment in the subordinated notes of GSCIC CLO using the effective interest method, based on the anticipated yield and the estimated cash flows over the projected life of the investment. Yields are revised when there are changes in actual or estimated cash flows due to changes in prepayments and/or re-investments, credit losses or asset pricing. Changes in estimated yield are recognized as an adjustment to the estimated yield over the remaining life of the investment from the date the estimated yield was changed.

~~Expenses~~

Expenses

Our primary operating expenses include the payment of investment advisory and management fees, professional fees, directors and officers insurance, fees paid to independent directors and administrator expenses, including our allocable portion of our administrator’s overhead. Our allocable portion is based on the ratio of our total assets to the total assets administered by our administrator. Our investment advisory and management fees compensate our investment adviser for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses of our operations and transactions, including those ~~that may relate~~relating to:

organization;

calculating our net asset value (including the ~~costs~~cost and expenses of any independent valuation firm);

expenses incurred by our investment adviser payable to third parties, including agents, consultants or other advisers, in monitoring our financial and legal affairs and in monitoring our investments and performing due diligence on our prospective portfolio companies;

interest payable on debt, if any, incurred to finance our investments;

offerings of our common stock and other securities;

investment advisory and management fees;

administration fees;

fees payable to third parties, including agents, consultants or other advisers, relating to, or associated with, evaluating and making investments;

transfer agent and custodial fees;

registration ~~and~~ fees;

listing fees;

taxes;

independent directors’ fees and expenses;

costs of preparing and filing reports or other documents ~~with~~of the SEC;

��

~~the costs of any reports;~~

the costs of any reports;

proxy statements or other notices to stockholders, including printing costs;

	•		~~to the extent we are covered by any joint insurance policies, our allocable portion of the insurance premiums for such joint policies;~~

	•		~~direct costs and expenses of administration, including auditor and legal costs; and~~

to the extent we are covered by any joint insurance policies, our allocable portion of the insurance premiums for such joint policies;

direct costs and expenses of administration, including auditor and legal costs; and

all other expenses incurred by us or our administrator in connection with administering our business.

The amount payable to GSC Group as administrator under the administration agreement is capped to the effect that such amount, together with our other operating expenses, does not exceed an amount equal to 1.5% per annum of our net assets attributable to common stock. In addition, ~~for~~since inception and including the current one-year term of the administration agreement (expiring March 21, ~~2010)~~2011), GSC Group has waived our reimbursement obligation under the administration agreement until our total assets exceed $500 million.

Pursuant to the investment advisory and management agreement, we pay GSC Group as investment adviser a quarterly base management fee of 1.75% of the average value of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds) at the end of the two most recently completed fiscal quarters, and appropriately adjusted for any share issuances or repurchases during the applicable fiscal quarter, and an incentive fee.

The incentive fee has two parts:

A fee, payable quarterly in arrears, equal to 20% of our pre-incentive fee net investment income, expressed as a rate of return on the value of the net assets at the end of the immediately preceding quarter, that exceeds a 1.875% quarterly (7.5% annualized) hurdle rate measured as of the end of each fiscal quarter. Under this provision, in any fiscal quarter, our investment adviser receives no incentive fee unless our pre-incentive fee net investment income exceeds the hurdle rate of 1.875%. Amounts received as a return of capital are not included in calculating this portion of the incentive fee. Since the hurdle rate is based on net assets, a return of less than the hurdle rate on total assets may still result in an incentive fee.

A fee, payable at the end of each fiscal year, equal to 20% of our net realized capital gains, if any, computed net of all realized capital losses and unrealized capital depreciation, in each case on a cumulative basis, less the aggregate amount of capital gains incentive fees paid to the investment adviser through such date.

We will defer cash payment of any incentive fee otherwise earned by our investment adviser if, during the most recent four full fiscal ~~quarterly periods~~quarter period ending on or prior to the date such payment is to be made, the sum of (a) our aggregate distributions to our stockholders and (b) our change in net assets (defined as total assets less liabilities) (before taking into account any incentive fees payable during that period) is less than 7.5% of our net assets at the beginning of such period. These calculations will be appropriately pro rated for the first three fiscal quarters of operation and adjusted for any share issuances or repurchases during the applicable period. Such incentive fee will become payable on the next date on which such test has been satisfied for the most recent four full fiscal quarters or upon certain terminations of the investment advisory and management agreement. We commenced deferring cash payment of incentive fees during the quarterly period ended August 31, 2007, and have continued to defer such payments through the current quarterly ~~period; we have recorded a payable in respect~~period. As of ~~such deferred fees in the amount of~~May 31, 2010, $2.6 million as of ~~November 30, 2009.~~incentive fees have been deferred and remained unpaid and will be waived if the Saratoga Transaction is consummated. GSCP will no longer provide services to us if the Saratoga Transaction is consummated.

To the extent that any of our leveraged loans are denominated in a currency other than U.S. dollars, we may enter into currency hedging contracts to reduce our exposure to fluctuations in currency exchange rates. We may also enter into interest rate hedging agreements. Such hedging activities, which will be subject to compliance with applicable legal requirements, may include the use of interest rate caps, futures, options and forward contracts. Costs incurred in entering into or settling such contracts will be borne by us.

From the commencement of operations until March 23, 2008, GSC Group reimbursed us for operating expenses to the extent that our total annual operating expenses (other than investment advisory and management fees and interest and credit facility expenses) exceeded an amount equal to 1.55% of our net assets attributable to common stock. GSC Group has not reimbursed us since that date and we do not expect to be reimbursed in the future.

Portfolio and ~~Investment Activity~~investment activity

Corporate Debt Portfolio ~~Overview~~⁽¹⁾Overview(1)

At November 30, 2009 At February 28, 2009
($ in millions)
Number of investments 38 42
Number of portfolio companies 29 35
Average investment size $ 2.2 $ 2.3
Weighted average maturity 2.8 years 3.3 years
Number of industries 20 22
Average investment per portfolio company $ 2.8 $ 2.8
Non-Performing or delinquent investments $ 21.8 $ 0.4
Fixed rate debt (% of interest bearing portfolio) $ 35.3(43.2 %) $ 40.3(41.8 %)
Weighted average current coupon 11.7 % 11.7 %
Floating rate debt (% of interest bearing portfolio) $ 46.5(56.8 %) $ 56.2(58.2 %)
Weighted average current spread over LIBOR 7.1 % 5.9 %

	At May 31, 2010			At February 28, 2010
	($ in millions)
Number of investments		36			38
Number of portfolio companies		25			27
Average investment size	$	2.0		$	1.9
Weighted average maturity	2.3 years			2.5 years
Number of industries		18			19
Average investment per portfolio company	$	2.9		$	2.7
Non-Performing or delinquent investments	$	14.3		$	18.5
Fixed rate debt (% of interest bearing portfolio)	$	33.2 (48.6	)%	$	33.0 (46.9	)%
Weighted average current coupon		11.6	%		11.6	%
Floating rate debt (% of interest bearing portfolio)	$	35.1 (51.4	)%	$	37.4 (53.1	)%
Weighted average current spread over LIBOR		7.8	%		7.6	%


⁽¹⁾		Excludes our investment in the subordinated notes of GSCIC CLO and ~~GSC Partners CDO GP III, LP.~~investments in common stocks and limited partnership interests.

During the ~~nine~~three months ended ~~November 30,~~May 31, 2010, we made no investments in new or existing portfolio companies and had $2.7 million in aggregate amount of exits and repayments resulting in net repayments of $2.7 million for the period.

During the three months ended May 31, 2009, we made no investments in new or existing portfolio companies and had ~~$10.9~~$0.3 million in aggregate amount of exits and repayments resulting in net repayments of $10.9 million for the period. During the nine months ended November 30, 2008, we made 17 investments in an aggregate amount of $28.3 million consisting of $23.0 million in new portfolio companies and $5.3 million to existing portfolio companies and $48.7 million in aggregate amount of exits and repayments, resulting in net repayments of $20.4$0.3 million for the period.

During the three months ended November 30, 2009, we made no investments in new or existing portfolio companies and had $5.7 million in aggregate amount of exits and repayments, resulting in net repayments of $5.7 million for the period. During the three months ended November 30, 2008 we made 2 investments in an aggregate amount of $3.0 million consisting of $3.0 million in new portfolio companies and no investments in existing portfolio companies. Also during the three months ended November 30, 2008, we had $10.0 million in aggregate amount of exits and repayments, resulting in net repayments of $7.0 million in aggregate amount for the period.

Due to unfavorable conditions in the credit market and constraints imposed by our Revolving Facility, we do not expect to make any further investments unless and until we obtain a new source of financing in place of our Revolving Facility.

As of November 30, 2009, twelve investments in eight portfolio companies were non-performing or delinquent investments. Non-performing investments are investments in which the Company has stopped accruing interest income or for which the Company has established a partial or full reserve against the interest income accrual. Delinquent investments are investments that have missed a scheduled interest or maturity payment. Two of the delinquent investments did not make their respective maturity repayments, however, as of November 30, 2009, these two investments were performing and we accrued current interest income.

~~The non-performing or delinquent investments as of November 30, 2009 were as follows:~~

Percentage of
Portfolio Company Asset Fair Value Total Portfolio
($ in thousands)
Terphane Holdings Corp. Senior secured notes $ 9,356 9.1 %
Jason Incorporated Unsecured notes 4,461 4.3
USS Mergerco, Inc. Second lien term loan 2,693 2.6
Abitibi-Consolidated First lien term loan 2,565 2.5
Targus Group International Second lien term loan 1,802 1.7
Legacy Cabinets, Inc. First lien term loan 444 0.4
Grant U.S. Holdings Second lien term loan 318 0.3
Legacy Cabinets, Inc. Second lien term loan 97 0.1
Brown Publishing Company Second lien term loan 35 0.1

Total $ 21,771 21.1 %

Our portfolio composition at ~~November 30, 2009~~May 31, 2010 and February 28, ~~2009~~2010 was as follows:

Portfolio composition

At November 30, 2009 At February 28, 2009
Percentage of Weighted Average Percentage of Weighted Average
Total Portfolio Current Yield Total Portfolio Current Yield
First lien term loans 15.4 % 7.8 % 14.4 % 6.8 %
Second lien term loans 29.1 8.0 34.5 9.0
Senior secured notes 27.5 11.6 21.7 11.6
Unsecured notes 7.1 12.3 10.4 12.3
Structured Finance Securities 20.8 11.0 18.8 12.2
Equity/limited partnership interests 0.1 N/A 0.2 N/A

Total 100.0 % 9.8 % 100.0 % 10.2 %

	At May 31, 2010						At February 28, 2010
	Percentage of Total Portfolio			Weighted Average Current Yield			Percentage of Total Portfolio			Weighted Average Current Yield
First lien term loans		15.4	%		9.7	%		18.6	%		8.6	%
Second lien term loans		23.1			8.1			22.7			8.1
Senior secured notes		32.7			11.6			31.0			11.6
Unsecured notes		4.8			12.2			6.4			12.2
GSCIC CLO subordinated notes		20.2			9.7			18.7			8.3
Equity interests		3.8			N/A			2.6			N/A
Limited partnership interests		—			N/A			—			N/A
Total		100.0	%		9.8	%		100.0	%		9.3	%

Our investment in the subordinated notes of GSCIC CLO represents a first loss position in a portfolio that, at ~~November 30, 2009,~~May 31, 2010 and February 28, 2010, was composed of ~~$395.3~~$406.0 and $387.1 million, respectively, in aggregate principal amount of predominantly senior secured first lien term loans. This investment is subject to unique risks. ~~(See~~Please see Part I, Item 1A “Risk Factors—Risks related to our investments—Our investment in GSCIC CLO constitutes a leveraged investment in a portfolio of predominantly senior secured first lien term loans and is subject to additional risks and volatility”, of our Annual Report on ~~Form~~form 10-K for the ~~fiscal~~ year ended February 28, ~~2009).~~2010 for more information. We do not consolidate the GSCIC CLO portfolio in our financial statements. Accordingly, the metrics below do not include the underlying GSCIC CLO portfolio investments. However, at ~~November 30, 2009, 97.7% of the~~May 31, 2010, three GSCIC CLO portfolio investments were ~~performing~~in default and over ~~92.5%~~91.8% of the GSCIC CLO portfolio investments had a CMR (as defined below) color rating of ~~Green~~green or ~~Yellow.~~yellow.

GSC Group normally grades all of our investments using an internally developed credit and monitoring rating system (“CMR”). ~~Prior to November 30, 2009 the~~The CMR ~~rating~~ consists ~~of two components: (i) a numerical debt score and (ii) a corporate letter rating.~~

The numerical debt score is based on the objective evaluation of six risk categories: (i) leverage; (ii) seniority in the capital structure; (iii) fixed charge coverage ratio; (iv) debt service coverage/liquidity; (v) operating performance; and (vi) business/industry risk. The numerical debt score ranges from 1.00 to 5.00, which can generally be characterized as follows:

~~1.00-2.00 represents investments that hold senior positions in the capital structure and, typically, have low financial leverage and/or strong historical operating performance;~~

2.00-3.00 represents investments that hold relatively senior positions in the capital structure, either senior secured, senior unsecured, or senior subordinate, and have moderate financial leverage and/or are performing at or above expectations;

	•		~~3.00-4.00 represents investments that are junior in the capital structure, have moderate financial leverage and/or are performing at or below expectations; and~~

	•		~~4.00-5.00 represents investments that are highly leveraged and/or have poor operating performance.~~

The numerical debt score is designed to produce higher scores for debt positions that are more subordinate in the capital structure. Therefore, second lien term loans, high-yield bonds and mezzanine debt will generally be assigned scores of 2.25 or higher.

The corporate letter rating is based on several subjective criteria, including perceived financial and operating strength and covenant compliance. The corporate letter ratings range from (A) through (F) and are characterized as follows: (A) equals strong credit; (B) equals satisfactory credit; (C) equals special attention credit; (D) equals payment default risk; (E) equals payment default; and (F) equals restructured equity security.

~~Effective November 30, 2009, the CMR consisted~~ of a single component: a color rating. The color rating is based on several criteria, including financial and operating strength, probability of default, and restructuring ~~risk..~~risk. The color ratings ~~range from (Green) through (Red) and~~ are characterized as follows: (Green) —- strong credit; (Yellow) —- satisfactory credit; (Red) —- payment default risk, in payment default and/or significant restructuring activity.

The CMR distribution of our investments at ~~November 30, 2009~~May 31, 2010 and February 28, 2010 was as follows:

Portfolio CMR distribution

At November 30, 2009
Investments at Percentage of
Color Score Fair Value Total Portfolio
($ in thousands)
Green $ 10,346 10.0 %
Yellow 28,555 27.7
Red 42,904 41.5
N/A⁽¹⁾
21,465 20.8

Total $ 103,270 100.0 %

	At May 31, 2010					At February 28, 2010
	Investments at Fair Value		Percentage of Total Portfolio			Investments at Fair Value		Percentage of Total Portfolio
	($ in thousands)
Green	$	9,650		10.7	%	$	9,479		10.6	%
Yellow		23,714		26.4			27,763		31.1
Red		34,941		38.9			33,222		37.2
N/A(1)		21,623		24.0			18,909		21.1
Total	$	89,928		100.0	%	$	89,373		100.0	%


(1)		~~Predominantly comprised~~Comprised of our ~~investment~~investments in the subordinated notes of GSCIC ~~CLO.~~CLO, equity interests, and limited partnership interests.

~~The CMR distribution of our investments at February 28, 2009 was as follows:~~

~~Portfolio CMR distribution~~

At February 28, 2009
Investments at Percentage of
Numerical Debt Score Fair Value Total Portfolio
($ in thousands)
1.00 - 1.99 $ 8,941 7.5 %
2.00 - 2.99 33,831 28.5
3.00 - 3.99 49,076 41.2
4.00 - 4.99 4,614 3.9
5.00 — —
N/A⁽¹⁾
22,450 18.9

Total $ 118,912 100.0 %

At February 28, 2009
Investments at Percentage of
Corporate Letter Rating Fair Value Total Portfolio
($ in thousands)
A $ 4,602 3.9 %
B 36,818 30.9
C 42,700 35.9
D 11,668 9.8
E 674 0.6
F — —
N/A⁽¹⁾
22,450 18.9

Total $ 118,912 100.0 %


~~(1)~~		~~Predominantly comprised of our investment in the subordinated notes of GSCIC CLO.~~

The following table shows the portfolio composition by industry grouping at fair value at ~~November 30, 2009~~May 31, 2010 and February 28, ~~2009.~~2010.

Portfolio composition by industry grouping at fair value

At November 30, 2009 At February 28, 2009
Investments at Percentage of Investments at Percentage of
Fair Value Total Portfolio Fair Value Total Portfolio
($ in thousands)
Structured Finance Securities⁽¹⁾
$ 21,464 20.8 % $ 22,341 18.8 %
Packaging 9,356 9.1 10,070 8.5
Manufacturing 9,068 8.8 14,480 12.2
Consumer Products 7,196 7.0 7,843 6.6
Healthcare Services 7,101 6.9 6,010 5.0
Publishing 6,779 6.6 6,477 5.4
Apparel 6,464 6.3 6,616 5.5
Electronics 6,222 6.0 6,849 5.8
Homebuilding 4,895 4.7 3,490 2.9
Oil and Gas 4,648 4.5 7,359 6.2
Metals 4,151 4.0 5,693 4.8
Natural Resources 2,883 2.8 4,470 3.8
Environmental 2,693 2.6 3,592 3.0
Logistics 2,406 2.3 2,134 1.8
Financial Services 2,122 2.0 3,162 2.7
Food and Beverage 1,766 1.7 1,707 1.4
Printing 1,676 1.6 1,638 1.4
Software 953 0.9 773 0.6
Education 610 0.6 674 0.6
Building Products 541 0.5 1,426 1.2
Consumer Services 276 0.3 244 0.2
Chemicals — — 371 0.3
Insurance — — 1,493 1.3

Total $ 103,270 100.0 % $ 118,912 100.0 %

	At May 31, 2010					At February 28, 2010
	Investments at Fair Value		Percentage of Total Portfolio			Investments at Fair Value		Percentage of Total Portfolio
	($ in thousands)
Structured Finance Securities (1)	$	18,209		20.2	%	$	16,698		18.7	%
Packaging		9,550		10.6			9,791		11.0
Consumer Products		7,360		8.2			7,508		8.4
Healthcare Services		7,347		8.2			7,190		8.0
Apparel		7,082		7.9			6,910		7.7
Electronics		6,728		7.5			6,617		7.4
Manufacturing		5,996		6.7			6,399		7.2
Publishing		5,876		6.5			6,710		7.5
Metals		4,550		5.1			3,794		4.3
Homebuilding		4,466		5.0			3,634		4.1
Natural Resources		3,421		3.8			2,989		3.3
Environmental		2,354		2.6			2,060		2.3
Logistics		2,070		2.3			2,230		2.5
Food and Beverage		1,717		1.9			1,697		1.9
Financial Services		1,206		1.3			984		1.1
Oil and Gas		610		0.7			1,129		1.2
Education		568		0.6			634		0.7
Building Products		553		0.6			530		0.6
Consumer Services		265		0.3			255		0.3
Printing		—		—			1,614		1.8
Total	$	89,928		100.0	%	$	89,373		100.0	%


(1)		Comprised of our investment in the subordinated notes of GSCIC CLO.

The following table shows the portfolio composition by geographic location at fair value at ~~November 30, 2009~~May 31, 2010 and February 28, ~~2009.~~2010. The geographic composition is determined by the location of the corporate headquarters of the portfolio company.

Portfolio composition by geographic location at fair value

At November 30, 2009 At February 28, 2009
Investments at Percentage of Investments at Percentage of
Fair Value Total Portfolio Fair Value Total Portfolio
($ in thousands)
Midwest $ 26,060 25.2 % $ 31,716 26.7 %
Other⁽¹⁾
21,464 20.8 22,449 18.9
West 16,769 16.2 16,137 13.6
Southeast 13,978 13.6 23,094 19.4
International 12,239 11.9 12,165 10.2
Northeast 11,807 11.4 12,578 10.6
Mid-Atlantic 953 0.9 773 0.6

Total $ 103,270 100.0 % $ 118,912 100.0 %

	At May 31, 2010					At February 28, 2010
	Investments at Fair Value		Percentage of Total Portfolio			Investments at Fair Value		Percentage of Total Portfolio
	($ in thousands)
Midwest	$	22,591		25.1	%	$	23,637		26.5	%
Other(1)		18,209		20.2			16,698		18.7
West		15,618		17.4			14,695		16.4
International		12,971		14.4			12,781		14.3
Northeast		11,271		12.6			11,631		13.0
Southeast		9,268		10.3			9,931		11.1
Total	$	89,928		100.0	%	$	89,373		100.0	%


(1)		~~Predominantly comprised~~Comprised of our investment in the subordinated notes of GSCIC CLO.

Results of Operations

For the three months ended May 31, 2010 and 2009

~~Investment Income~~

~~Total investment income was $3.5 million~~Operating results for the three months ended ~~November 30,~~May 31, 2010 and 2009 ~~versus $6.4 million for the three months ended November 30, 2008, a decrease of $2.9 million or 44.5%. Total investment~~are as follows;

	For the three months ended
	May 31, 2010			May 31, 2009
	($ in thousands)
Total investment income	$	2,811		$	4,764
Total expenses before waiver and reimbursement		2,964			2,372
Total expense waiver and reimbursement		(155	)		(172	)
Total expenses net of expense waiver and reimbursement		2,808			2,200
Net investment income		2			2,564
Net realized losses		(2,551	)		(5	)
Net unrealized gains		5,204			2,805
Net increase in net assets resulting from operations	$	2,655		$	5,364

Investment income ~~was $12.0 million for the nine months ended November 30, 2009 versus $17.9 million for the nine months ended November 30, 2008, a decrease of $5.9 million or 33.1%.~~

The composition of our investment income ~~in each period was as follows:~~

~~Investment Income~~

Three months ended Nine months ended
November 30, 2009 November 30, 2008 November 30, 2009 November 30, 2008
($ in thousands)
Interest from investments $ 2,961 $ 5,722 $ 10,253 $ 16,072
Management of GSCIC CLO 511 518 1,549 1,530
Interest from cash and cash equivalents and other income 58 121 178 306

Total $ 3,530 $ 6,361 $ 11,980 $ 17,908

~~The decline in interest from investments~~ for the three months ended ~~November 30,~~May 31, 2010 and 2009 ~~versus~~was as follows:

Investment Income

	For the three months ended
	May 31, 2010		May 31, 2009
	($ in thousands)
Interest from investments	$	2,270	$	4,187
Management of GSCIC CLO		507		521
Interest from cash and cash equivalents and other income		34		56
Total	$	2,811	$	4,764

For the three months ended ~~November 30, 2008 was primarily due~~May 31, 2010, total investment income decreased $2.0 million, or 41.0% compared to ~~a reduction in income from~~ the GSCIC CLO of $1.1 million, an increase in the allowance for impaired loans and bonds of $0.6 million, a reduction in income from investments that were sold of $0.3 million, and a decrease in market discount income and the LIBOR rate earned on floating rate investments between the periods of $0.6 million.

~~The decline in interest from investments for the nine~~three months ended ~~November 30, 2009 versus the nine months ended November 30, 2008 was primarily due~~May 31, 2009. The decrease is predominantly attributable to an increase in the allowance for impaired loans and bonds, ~~of $1.9 million, a reduction in income from investments that were sold of $1.6 million, a reduction in income from the GSCIC CLO of $1.5 million, and~~ a decrease in ~~market discount income and~~ the ~~LIBOR~~effective interest rate earned on ~~floating rate investments between~~our investment in the ~~periods~~subordinated notes of ~~$0.8 million.~~GSCIC CLO, and a smaller total average portfolio. The allowance for impaired loans and bonds increased to $1.1 million, for the three months ended May 31, 2010 from $0.3 million for the three months ended May 31, 2009. Interest income from our investment in the subordinated notes of GSCIC CLO decreased $0.2 million, or 24.8%, to $0.7 million for the three months ended May 31, 2010 from $0.9 million for the three months ended May 31, 2009.

For the three ~~and nine~~ months ended ~~November 30,~~May 31, 2010 and 2009, total PIK income was ~~$0.1~~$0.4 million, and ~~$0.7 million, respectively. For the equivalent periods in 2008, total PIK income was~~ $0.2 ~~million and $0.6~~ million, respectively.

Operating Expenses

~~Total~~

The composition of our operating expenses for the three months ended May 31, 2010 and 2009 was as follows:

Operating Expenses

	For the three months ended
	May 31, 2010		May 31, 2009
	($ in thousand)
Interest and credit facility expense	$	831	$	643
Base management fees		411		548
Professional fees		1,143		340
Incentive management fees		—		322
Administrator expenses		155		172
Insurance expenses		195		206
Directors fees		165		82
General and administrative expenses		64		59
Total operating expenses before manager waiver and reimbursement	$	2,964	$	2,372

For the three months ended May 31, 2010, total operating expenses before manager expense waiver and reimbursement ~~were $2.8~~increased $0.6 million, ~~for~~or 24.9% compared to the three months ended ~~November 30, 2009 versus $2.7 million for~~May 31, 2009.

For the three months ended November 30, 2008, an increase of $0.1 million, or 4.4%. Total operating expenses before manager expense waiver and reimbursement were $8.0 million for the nine months ended November 30, 2009 versus $8.2 million for the nine months ended November 30, 2008, a decrease of $0.2 million, or 2.3%. The composition of our operating expenses in each period was as follows:

~~Operating Expenses~~

Three months ended Nine months ended
November 30, 2009 November 30, 2008 November 30, 2009 November 30, 2008
($ in thousands)
Interest and credit facility expense $ 1,126 $ 694 $ 3,175 $ 2,151
Base management fees 463 654 1,516 2,108
Professional fees 715 272 1,397 933
Incentive management fees — 542 322 1,289
Administrator expenses 172 241 516 751
Insurance expenses 220 174 650 518
Directors fees 72 73 217 212
General and administrative expenses 65 65 190 208

Total $ 2,833 $ 2,715 $ 7,983 $ 8,170

~~The change in operating expenses between the three months ended November 30, 2009 versus the three months ended November 30, 2008 was primarily attributable to~~May 31, 2010, the increase in interest and credit facility expense ~~arising from~~is primarily attributable to an increase in the interest rate on our credit facility from the commercial paper rate plus 70 basis points to the greater of the commercial paper rate and our lender’s prime rate plus 4.00% plus a default rate of 2.00%, ~~and a one time non-cash charge of $0.5 million as a result of the write-off of deferred financing costs on our credit facility, in each case,~~ as a result of our July 30, 2009 event of default (please see “—Financial Condition, Liquidity and Capital Resources” below for more information). For the three ~~and nine month periods~~months ended ~~November 30, 2009,~~May 31, 2010, the weighted average interest rate on the Revolving Facility was 9.25% ~~and 6.21% respectively,~~ compared to ~~3.99 and 3.89%~~3.85% for the ~~same periods in~~three months ended May 31, 2009.

For the ~~prior year. We also incurred an additional $0.5~~three months ended May 31, 2010, base management fees decreased $0.1 million, ~~of non-recurring legal and professional fees associated with~~or 24.9% compared to the ~~engagement of Stifel, Nicolaus & Company and the evaluation of strategic transaction opportunities. This increase was balanced by a decrease~~three months ended May 31, 2009. The reduction in base management fees ~~for the three and nine months ended November 30, 2009, resulting~~results from the decrease in the average value of our total net assets and ~~an incentive management fee not being earned for~~ the ~~three months ended November 30, 2009.~~continued reduction in the total portfolio size.

For the three months ended ~~November 30, 2009, we recorded $0.2~~May 31, 2010, professional fees increased $0.8 million, ~~in expense waiver and reimbursement from the administrator and Manager versus $0.2 million for~~or 236.3% compared to the three months ended ~~November 30, 2008.~~ May 31, 2009. The increase in professional fees is attributable to additional legal and professional fees associated with the evaluation of strategic transaction opportunities including the proposed Saratoga Transaction.

For the ~~nine~~three months ended ~~November 30, 2009, we recorded $0.5~~May 31, 2010, incentive management fees decreased $0.3 million, ~~in expense waiver and reimbursement from~~or 100.0% compared to the ~~administrator and Manager versus $0.8 million for the nine~~three months ended ~~November 30, 2008.~~May 31, 2009. The ~~decline was due~~decrease in incentive management fees is primarily attributable to ~~a cost reduction initiative by~~ the ~~administrator~~decrease in investment income and the increase in operating expenses which resulted in a ~~smaller allocation~~failure to meet the quarterly hurdle rate of ~~expenses.~~1.875% for the quarter ended May 31, 2010 resulting in no incentive management fees for the quarter.

Net Realized Gains/Losses from Investments

For the three months ended ~~November 30,~~May 31, 2010, the Company had $2.7 million of sales, repayments, exits or restructurings resulting in $2.6 million of net realized losses. The most significant realized gains and losses during the three months ended May 31, 2010 were as follows:

Three months ended May 31, 2010

Issuer	Asset Type	Gross Proceeds		Cost			Net Realized Gain/(Loss)
		($ in thousands)
Custom Direct, Inc.	First Lien Term Loan	$	1,832	$	(1,535	)	$	297
Legacy Cabinets, Inc.	Second Lien Term Loan		139		(2,002	)		(1,863	)
Legacy Cabinets, Inc.	First Lien Term Loan		502		(1,496	)		(994	)

For the three months ended May 31, 2009, the Company had ~~$0.5~~$0.3 million of sales, repayments or exits resulting in $5,152 of net realized losses. The most significant realized gains and losses ~~versus $7.3 million of net realized losses for~~during the three months ended ~~November 30, 2008. For the nine~~May 31, 2009 were as follows:

Three months ended ~~November 30,~~May 31, 2009 the Company had $1.6 million of net realized losses versus $7.4 million of net realized losses for the nine months ended November 30, 2008. The most significant gains and losses for the nine months ended November 30, 2009 were the following:

Net Realized
Issuer Asset Type Gross Proceeds Cost Gain/(Loss)
($ in thousands)
Atlantis Plastics Films, Inc.⁽¹⁾
First Lien Term Loan $ 521 $ — $ 482
Asurion Corporation First Lien Term Loan 1,930 (1,725 ) 205
Big Train, Inc. First Lien Term Loan 493 (405 ) 88
Blaze Recycling & Metals, LLC Senior Secured Notes 1,538 (2,495 ) (957 )
M/C Communications, LLC First Lien Term Loan 853 (1,670 ) (817 )
Lyondell Chemical Company First Lien Term Loan 1,233 (1,644 ) (411 )


~~(1)~~		The Company’s investment in Atlantis Plastics Films, Inc. was fully realized as of February 28, 2009. The net realized gain of $0.5 million is the result of additional liquidation proceeds received during the period ended November 30, 2009.

Issuer Asset Type
Gross
Proceeds
Cost
Net Realized
Loss

($ in thousands)
IPC Systems, Inc. First Lien Term Loan $ 14 $ (19 ) $ (5 )

Net Unrealized Appreciation/Depreciation on Investments

For the three months ended ~~November 30, 2009,~~May 31, 2010, the ~~Company’s investments~~Company had ~~an increase in~~ net unrealized appreciation of ~~$8.8~~$5.2 million, ~~versus an increase~~which was comprised of $5.3 million in unrealized appreciation, $3.2 million in unrealized depreciation and $3.1 million related to the reversal of prior period net unrealized depreciation recorded upon the exit of ~~$4.1 million for the three months ended November 30, 2008. For the nine months ended November 30, 2009, the Company’s investments had~~ an ~~increase in net unrealized depreciation of $4.6 million versus an increase in net unrealized depreciation of $10.4 million for the nine months ended November 30, 2008.~~investment. The most significant ~~cumulative~~ changes in net unrealized appreciation and depreciation for the ~~nine~~three months ended ~~November 30, 2009,~~May 31, 2010 are as follows:

Three months ended May 31, 2010

Issuer	Asset Type	Cost		Fair Value		Total Unrealized Depreciation			Quarterly Change in Unrealized Appreciation/ (Depreciation)
		($ in thousands)
GSCIC CLO	Other/Structured Finance Securities	$	29,233	$	18,209	$	(11,024	)	$	1,510
McMillin Companies, LLC	Senior Secured Notes		7,356		4,466		(2,890	)		809
Elyria Foundry Company, LLC	Senior Secured Notes		4,889		4,550		(339	)		751
Grant U.S. Holdings, LLP	Second Lien Term Loan		6,349		592		(5,757	)		434
USS Mergerco, Inc.	Common stock		3,159		2,355		(804	)		294
Jason Incorporated	Unsecured Notes		13,700		1,096		(12,604	)		(592	)
Energy Alloys, LLC	Second Lien Term Loan		6,285		610		(5,675	)		(565	)
Penton Media, Inc.	First Lien Term Loan		3,952		3,449		(503	)		(503	)

The $1.5 million decrease in net unrealized depreciation in our investment in the GSCIC subordinated notes was due to changes in various assumptions, such as portfolio default rate, recovery rate on defaults and portfolio prepayment rate, used in our discounted cash flow model. These changes were made in accordance with current market practice for CLO equity investments and not as a result of any change in the ~~following:~~

Total Unrealized YTD Change in Unrealized
Issuer Asset Type Cost Fair Value Depreciation Appreciation/(Depreciation)
($ in thousands)
Terphane Holdings Corp. Senior Secured Notes $ 10,437 $ 9,356 $ (1,081 ) $ 1,656
McMillin Companies, LLC Senior Secured Notes 7,315 4,895 (2,420 ) 1,385
Lyondell Chemical Company First Lien Term Loan — — — 1,273

Total Unrealized YTD Change in Unrealized
Issuer Asset Type Cost Fair Value Depreciation Appreciation/(Depreciation)
($ in thousands)
IDI Acquisition Corp. Senior Secured Notes $ 3,666 $ 3,566 $ (100 ) $ 1,095
Jason Incorporated Unsecured notes 13,700 4,461 (9,239 ) (5,417 )
Energy Alloys, LLC Second Lien Term Loan 6,200 2,422 (3,778 ) (2,865 )
Grant U.S. Holdings LLP Second Lien Term Loan 6,349 317 (6,032 ) (2,281 )

underlying GSCIC portfolio. The ~~increase~~decrease in unrealized depreciation in our investments in ~~Jason Incorporated, Energy Alloy and Grant U.S. Holdings LLP were due to declining prospects for each of the companies. The unrealized appreciation in our investments in Terphane Holdings Corp.,~~ McMillin Companies, LLC and ~~IDI Acquisition Corp.~~Elyria Foundry Company, LLC, were due to an improvement in the outlook for these companies. The increase in unrealized ~~appreciation~~depreciation in our ~~investment~~investments in ~~Lyondell Chemical Company was~~Jason Incorporated and Energy Alloy were due to declining prospects for each of the ~~reversal of unrealized losses upon realization of this investment.~~

companies. The ~~reasons for changes~~change in the fair ~~value~~values of ~~other portfolio~~our investments ~~must be considered on a case-by-case basis. However, two factors that we believe have had a significant impact on our portfolio overall are~~in Grant U.S. Holdings and Penton Media, Inc were due to fluctuations in the market ~~wide decrease~~quotations obtained for these investments compared to the prior period.

For the three months ended May 31, 2009, the Company had net unrealized appreciation of $2.8 million, which was comprised of $8.0 million in ~~interest yield as a result of risk re-pricing~~unrealized appreciation and the cessation of forced liquidations of loan portfolios. For example, the average yield on the Credit Suisse High Yield Index decreased from 17.85% to 9.27% from February 28, 2009 to November 30, 2009 and the average bid price on the Credit Suisse Leveraged Loan Index increased from 65.13% to 84.96% from February 27, 2009 to November 30, 2009. While we continue to believe that positive and negative market-wide movements are not necessarily indicative of any$5.2 million in unrealized depreciation The most significant changes in net unrealized appreciation and depreciation for the ~~condition or prospects of our portfolio investments, our valuation process requires us to take account of such conditions in determining the fair value of our portfolio.~~three months ended May 31, 2009 are as follows:

Three months ended May 31, 2009
Issuer

Asset Type

Cost

Fair Value

Total
Unrealized
Depreciation

Quarterly
Change in
Unrealized
Appreciation/
(Depreciation)

($ in thousands)
Terphane Holdings Corp. Senior Secured Notes $ 10,435 $ 8,568 $ (1,867 ) $ 870
Penton Media, Inc. First Lien Term Loan 3,770 2,915 (855 ) 861
IDI Acquisition Corp. Senior Secured Notes 3,638 3,207 (431 ) 764
USS Mergerco, Inc. Second Lien Term Loan 5,852 4,328 (1,524 ) 731
GSCIC CLO Other/Structured Finance Securities 29,233 19,208 (10,025 ) (2,461 )
Grant U.S. Holdings LLP Second Lien Term Loan 6,189 795 (5,394 ) (1,643 )
Targus Holdings Corp
Second Lien Term Loan
4,786 2,573 (2,213 ) (563 )

Net Unrealized Appreciation/Depreciation on Derivatives

For the three months ended ~~November 30, 2009,~~May 31, 2010, changes in the value of the interest rate caps resulted in an unrealized depreciation of ~~$16,754~~$19,869 versus an unrealized ~~depreciation~~appreciation of ~~$1,419~~$35,687 for the three months ended November 30, 2008. For the nine months ended November 30, 2009, changes in the value of the interest rate caps purchased pursuant to the credit facilities resulted in an unrealized appreciation of $33,080 versus an unrealized depreciation of $29,745 for the nine months ended November 30, 2008.May 31, 2009.

Changes in Net Asset Value from Operations

For the three months ended ~~November 30,~~May 31, 2010 and 2009, we recorded a net increase in net assets resulting from operations of ~~$9.1~~$2.7 million ~~versus a net decrease in net assets resulting from operations of $7.6~~and $5.4 million, for the three months ended November 30, 2008. The difference is attributable to an increase in unrealized appreciation and a decrease in realized losses, which outweighed the decrease in net investment income between the two periods.respectively. Based on ~~9,051,711~~16,940,109 weighted average common shares outstanding as of ~~November 30, 2009 and 8,291,384 weighted average common shares outstanding as of November 30, 2008,~~May 31, 2010, our per share net increase in net assets resulting from operations was ~~$1.01~~$0.16 for the three months ended ~~November 30, 2009 versus~~May 31, 2010. This compares to a per share ~~net decrease of $0.91 for the three months ended November 30, 2008.~~

~~For the nine months ended November 30, 2009, we recorded a net decrease~~increase in net assets resulting from operations of ~~$1.6 million versus a net decrease in net assets resulting from operations of $7.3 million~~$0.65 for the ~~nine~~three months ended November 30, 2008. The difference is attributable to a decrease in unrealized depreciation and a decrease in realized losses, which outweighed the decrease in net investment income between the two periods. BasedMay 31, 2009 based on ~~8,542,983~~8,291,384 weighted average common shares outstanding as of November 30, 2009 and 8,291,384 weighted average common shares outstanding November 30, 2008, our per share net decrease in net assets resulting from operations was $0.19 for the nine months ended November 30, 2009 versus a per share net decrease in net assets resulting from operations of $0.88 for the nine months ended November 30, 2008.May 31, 2009.

Financial condition, liquidity and capital resources

The Company’s liquidity and capital resources have been generated primarily from the net proceeds of its IPO, advances from the Revolving Facility and the Term Facility, as well as cash flows from operations. On March 28, 2007, we completed our IPO and issued 7,250,000 common shares and received net proceeds of $100.7 million.

On April 11, 2007, we entered into a $100.0 million revolving securitized credit facility (the “Revolving Facility”). On May 1, 2007, we entered into a $25.7 million term securitized credit facility (the “Term Facility” and, together with the Revolving Facility, the “Facilities”), which was fully drawn at closing. In December 2007, we consolidated the Facilities by using a draw under the Revolving Facility to repay the Term Facility. In response to the market wide decline in financial asset prices, which has negatively ~~affected~~affect the value of our portfolio, we terminated the revolving period of the Revolving Facility effective January 14, 2009 and commenced a two-year amortization period during which all principal proceeds from the collateral will be used to repay outstanding borrowings. AtIn March 2009 we amended the ~~end~~Revolving Credit Facility to decrease the minimum required collateralization and increase the portion of the ~~two year amortization period, all advances~~portfolio that can be invested in “CCC” rated investments in return for an increased interest rate and expedited amortization.

A Borrowing Base violation will ~~be due~~occur if our outstanding borrowings exceed the Borrowing Base at any time. We can cure a Borrowing Base violation by reducing our borrowing below the Borrowing Base (by, e.g., selling collateral and ~~payable. A significant percentage of our total investments has been pledged~~repaying borrowings) or pledging additional collateral to ~~secure our obligations under~~increase the ~~Revolving Facility.~~

~~At November 30, 2009,~~Borrowing Base. If we ~~had $43.8 million in borrowings~~fail to cure a Borrowing Base violation within the specified time, a default under the Revolving Facility versus $59.0 million in borrowings at February 28, 2009. The actual amount that we are permitted to borrow under the Revolving Facility at any given time (the “Borrowing Base”) is dependent upon the amount and quality of the collateral securing the Revolving Facility. Our Borrowing Base was $12.1 million at November 30, 2009 versus $59.9 million at February 28, 2009. The decline in our Borrowing Base during this period is mainly attributable to the decline in the value of the pledged collateral and the downgrade of certain public ratings or private credit estimates of the pledged collateral.

shall occur. On July 30, 2009 an unremedied Borrowing Base violation became an event of default, which is currently continuing. As a result of this event of default, our lender has the right to accelerate repayment of the outstanding indebtedness under the Revolving Facility and to foreclose and liquidate the collateral pledged thereunder. Acceleration of the outstanding indebtedness and/or liquidation of the collateral would have a material adverse effect on our liquidity, financial condition and operations. As a result of the continuing default, the Company may be forced to sell its investments to raise funds to repay outstanding amounts. Such forced sales may result in values that could be less than carrying values reported in these financial statements. The deleveraging of the Company may significantly impair the Company’s ability to effectively operate. Please see Part II, Item 1A. “Risk Factors- An event of default under the Revolving Facility may lead to a forced liquidation of the pledged assets that may yield less than the fair value of the assets” in the quarterly report on form 10-Q for the quarterly period ended May 31, 2009 for more information. To date, our lender has not accelerated the debt with respect to this event of default, but has reserved the right to do so. ~~We continue~~Please see Part I, Item 1A. “Risk Factors—Risks related to ~~discuss possible solutions to~~our liquidity and financial condition” of our Annual Report on form 10-K for the ~~event of default with our lender.~~year ended February 28, 2010 for more information.

~~For purposes~~

At May 31, 2010, we had $33.8 million in borrowings under the Revolving Facility versus $37.0 million in borrowings at February 28, 2010. The actual amount that we are permitted to borrow under the Revolving Facility at any given time (the “Borrowing Base”) is dependent upon the amount and quality of ~~determining~~the collateral securing the Revolving Facility. Our Borrowing Base was $6.1 million at May 31, 2010 versus $1.7 million at February 28, 2010. The increase in our Borrowing Base during the quarter is mainly attributable to the repayment and reinstatement of certain defaulted assets that resulted in a higher collateral value per the Borrowing Base most assets are assigned the values set forth in our most recent quarterly report filed with the SEC. Accordingly, the November 30, 2009 Borrowing Base relies upon the valuations set forth in the quarterly report for the quarter ended August 31, 2009. The valuations presented in this quarterly report will not be incorporated into the Borrowing Base until after this report is filed with the SEC. If the November 30, 2009 valuations were used to calculate the Borrowing Base at November 30, 2009, the Borrowing Base would have been $11.9 million versus $12.1 million when using the August 31, 2009 valuations.calculation.

Substantially all of our assets other than our investment in the subordinated notes of GSCIC CLO are held in a special purpose subsidiary and pledged under our Revolving Facility. We commenced the two year amortization period under the Revolving Facility in January 2009, during which time all principal proceeds from the pledged assets are used to repay the Revolving Facility. In addition, during the continuance of an event of default, all interest proceeds from the pledged assets are also used to repay the Revolving Facility. As a result, the Company is required to fund ~~its~~is operating expenses and dividends solely from cash on hand, management fees earned from, and the proceeds of the subordinated notes of, GSCIC CLO. Please see Part ~~II,~~I, Item ~~1A.~~1A “Risk Factors—~~Continuance of an Event of Default under~~Risks related to our ~~Revolving Facility and/or deferral of payments from GSCIC CLO may result~~liquidity and financial condition” in ~~a shortage of working capital” in this quarterly report~~our Annual Report on form 10-K for the year ended February 28, 2010 for more information.

In April 2009, our investment adviser withheld a scheduled principal amortization payment under its credit facility, resulting in a default thereunder. Since then, our investment adviser ~~has~~and its secured lenders have been in ~~discussions with its secured lenders~~negotiations regarding a consensual restructuring of its obligations under such credit facility. AWhile we are not directly affected by our investment adviser’s default, a material adverse change in the business, condition (financial or otherwise), operations or performance of our investment adviser could constitute a default under our Revolving Facility. Please see Part I, Item 1A “Risk Factors-Risks related to our Investment Advisor” in our Annual Report on form 10-K for the year ended February 28, 2010 for more information.

Our asset coverage ratio, as defined in the 1940 Act, was ~~247% at November 30, 2009 versus 215% at February 28, 2009.~~

~~At November 30, 2009~~272%, and 250% as of May 31, 2010 and February 28, ~~2009,~~2010, respectively.

At May 31, 2010 and February 28, 2010, the fair value of investments, cash and cash equivalents and cash and cash equivalents, securitization accounts were as follows:

At November 30, 2009 At February 28, 2009
Fair Percent Fair Percent
Value of Total Value of Total
($ in thousands)
Cash and cash equivalents $ 5,460 5.0 % $ 6,356 5.0 %
Cash and cash equivalents, securitization accounts 839 0.8 1,178 0.9
First lien term loans 15,922 14.5 17,118 13.5
Second lien term loans 30,084 27.4 41,043 32.5
Senior secured notes 28,431 25.9 25,832 20.4
Unsecured notes 7,309 6.7 12,381 9.8
Other/structured finance securities 21,464 19.6 22,341 17.7
Equity/limited partnership interests 60 0.1 198 0.2

Total $ 109,569 100.0 % $ 126,447 100.0 %

~~On November 13, 2009, our Board of Directors declared a~~

	At May 31, 2010					At February 28, 2010
	Fair Value		Percent of Total			Fair Value		Percent of Total
	($ in thousands)
Cash and cash equivalents	$	2,928		3.2	%	$	3,352		3.6	%
Cash and cash equivalents, securitization accounts		379		0.4			225		0.2
First lien term loans		13,830		14.8			16,653		17.9
Second lien term loans		20,794		22.3			20,267		21.8
Senior secured notes		29,372		31.5			27,742		29.9
Unsecured notes		4,308		4.6			5,690		6.1
Structured finance securities		18,209		19.5			16,698		18.0
Common stock		3,415		3.7			2,323		2.5
Other/limited partnership interests		–		-			-		-
Total	$	93,235		100.0	%	$	92,950		100.0	%

During the quarter ended May 31, 2010, the Company did not make any dividend of $1.825 per share payable on December 31, 2009, to common stockholders of record on November 25, 2009. Shareholders had the option to receive payment of the dividend in cash, shares of common stock, or a combination of cash and shares of common stock, provided that the aggregate cash payable to all shareholders was limited to $2.1 million or $0.25 per share.declarations.

Off-Balance Sheet Arrangements

At ~~November 30, 2009~~May 31, 2010 and February 28, ~~2009,~~2010, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our business activities contain elements of market risk. We consider our principal market risks to be fluctuations in interest rates and the inherent difficulty of determining the fair value of our investments that do not have a readily available market value. Managing these risks is essential to our business. Accordingly, we have systems and procedures designed to identify and analyze our risks, to establish appropriate policies and thresholds and to continually monitor these risks and thresholds by means of administrative and information technology systems and other policies and processes.

Interest Rate Risk

Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility, including relative changes in different interest rates, variability of spread relationships, the difference in re-pricing intervals between our assets and liabilities and

the effect that interest rates may have on our cash flows. Changes in the general level of interest rates can affect our net interest income, which is the difference between the interest income earned on interest earning assets and our interest expense incurred in connection with our interest bearing debt and liabilities. Changes in interest rates can also affect, among other things, our ability to acquire leveraged loans, high yield bonds and other debt investments and the value of our investment portfolio.

Our investment income is affected by fluctuations in various interest rates, including LIBOR and the prime rate. A large portion of our portfolio is, and we expect will continue to be, comprised of floating rate investments that utilize LIBOR. Our interest expense is affected by fluctuations in ~~the commercial paper rate and our lender’s prime rate or, if the commercial paper market is unavailable, LIBOR and~~ our lender’s prime rate. At ~~November 30, 2009,~~May 31, 2010, we had ~~$43.8~~$33.8 million of borrowings outstanding at a floating rate tied to the ~~greater of the~~ prevailing ~~commercial paper rate and our lender’s~~ prime rate plus a margin of ~~4.00% plus a default rate of 2.00% (or, if the commercial paper market is unavailable, the greater of the prevailing LIBOR rates and our lender’s prime rate plus~~ 6.00% ~~plus a default rate of 3.00%)~~.

In April and May 2007, pursuant to the Revolving Facility, the Company entered into two interest rate cap agreements with notional amounts of $34.0 million (increased to $40.0 million in May 2007) and $60.9 million. These agreements provide for a payment to the Company in the event LIBOR exceeds 8%, mitigating our exposure to increases in LIBOR. At ~~November 30, 2009,~~May 31, 2010, the aggregate interest rate cap agreement notional amount was ~~$66.4~~$63.2 million.

We have analyzed the potential impact of changes in interest rates on interest income from ~~investments net of interest expense on the Revolving Facility.~~investments. Assuming that our investments ~~at November 30, 2009~~as of May 31, 2010 were to remain constant for a full fiscal year and no actions were taken to alter the existing interest rate terms, a hypothetical change of 1% in interest rates would cause a corresponding change of approximately ~~$0.3~~$0.2 million to our interest income ~~net of interest expense.~~from investments.

Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the ~~balance sheet~~statement of assets and liabilities and other business developments that could magnify or diminish our sensitivity to interest rate changes, nor does it account for divergences in LIBOR and the commercial paper rate, which have historically moved in tandem but, in times of unusual credit dislocations, have experienced periods of divergence. Accordingly no assurances can be given that actual results would not materially differ from the potential outcome simulated by this estimate.

Portfolio Valuation

We carry our investments at fair value, as determined in good faith by our Board of Directors. Investments for which market quotations are readily available are fair valued at such market quotations. We value investments for which market quotations are not readily available at fair value as determined in good faith by our Board under our valuation policy and a consistently applied valuation process. For investments that are thinly traded, we review the depth and quality of the available quotations to determine if market quotations are readily available. If the available quotations are indicative only, we may determine that market quotations are not readily available. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments, and the differences could be material. In addition, 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 that are assigned.

The types of factors that we may take into account in fair value pricing of our investments include, as relevant, the nature and realizable value of any collateral, third party valuations, the portfolio company’s ability to make payments and its earnings, the markets in which the portfolio company does business, market yield trend analysis, comparison to publicly-traded securities, recent sales of or offers to buy comparable companies, and other relevant factors. The fair value of our investment in the subordinated notes of GSCIC CLO is based on a discounted cash flow model that utilizes prepayment, re-investment and loss assumptions which are adjusted to reflect changes in historical experience and projected performance, economic factors, the characteristics of the underlying cash flow, and comparable yields for similar CLO subordinated notes or equity, when ~~available.~~available

The table below describes the primary ~~inputs considered~~considerations made by our Board of Directors in determining the fair value of our investments at ~~November 30, 2009:~~May 31, 2010:

Percent of Total
Fair Value Investments
($ in thousands)
Third party independent valuation firm $ 41,589 40.2 %
Market yield trend analysis and enterprise valuation 32,424 31.4
Discounted cash flow model 21,464 20.8
Readily available market maker, broker quotes 7,733 7.5
Other 60 0.1

Total fair valued investments $ 103,270 100.0 %

	Fair Value		Percent of Total Investments
	($ in thousands)
Third party independent valuation firm	$	63,220		70.3	%
Discounted cash flow model		18,208		20.2
Readily available market maker, broker quotes		8,500		9.5
Total fair valued investments	$	89,928		100.0	%

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

Our CEO and CFO have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this quarterly report. Based upon that evaluation, our CEO and CFO have concluded that our current disclosure controls and procedures are effective as of the end of the period covered by this quarterly report.

Changes in internal controls over financial reporting

There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) of the Exchange Act) that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Neither we nor any of our subsidiaries are currently subject to any material legal proceedings, nor, to our knowledge, are any material legal proceedings threatened against us or our subsidiaries.

Item 1A. Risk Factors

Our business is subject to certain risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our common stock. For a discussion of these risks, please refer to Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended February 28, ~~2009 and Part II, Item 1A. “Risk Factors” in our quarterly reports on Form 10-Q for the quarterly periods ended May 31, 2009 and August 31, 2009.~~2010.

~~Continuance of an Event of Default under our Revolving Facility and/or deferral of payments from GSCIC CLO may result in a shortage of working capital.~~

During the continuance of an event of default, interest proceeds from the assets pledged under our Revolving Facility that would otherwise be available to pay dividends of the Company are diverted to repay amounts owing under the Revolving Facility. As a result, the Company has recourse only to cash on hand and management fees earned from, and the proceeds of the subordinated notes of, GSCIC CLO, to fund its operating expenses and dividends. Management fees and subordinated note distributions from GSCIC CLO are also subject to deferral depending on the performance of the GSCIC CLO portfolio. If the event of default under the Revolving Facility continues, and/or distributions from GSCIC CLO are deferred, the Company may find itself with insufficient working capital to fund its operating expenses and/or pay dividends sufficient to comply with its RIC requirements. If such an event were to occur, the ability of the Company to continue to operate and/or comply with its RIC requirements could be seriously impaired.

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

Sales of unregistered securities

We did not sell any securities during the period covered by this report that were not registered under the Securities Act.

Issuer purchases of equity securities

We did not purchase any shares of our equity securities during the period covered by this report.

Item 3. Defaults upon Senior Securities

None.

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

None.

Item 5. Other Information

In November 2009, our principal executive offices were changed from New York City to Florham Park, New Jersey as a result of our investment advisor’s consolidating its U.S. operations in New Jersey.

None

Item 6. Exhibits


Exhibit
Number		Description
31.1		Chief Executive Officer Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Chief Financial Officer Certification Pursuant to Rule 13a-14 of the Securities Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Chief Executive Officer and Chief Financial Officer Certification pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

			GSC Investment CORP.
	~~GSCInvestment~~ ~~CORP.~~

Date: ~~January 14,~~July 15, 2010	By	/s/ Seth M. Katzenstein ~~Seth M. Katzenstein~~
	Seth M. Katzenstein
	Chief Executive Officer and President, GSC
		Investment Corp.

	By	/s/ richard t. allorto, jr.

		Richard T. Allorto, Jr.
		Chief Financial Officer, GSC Investment Corp.


	As of
	November 30, 2009			February 28, 2009
	(unaudited)
ASSETS

Investments at fair value
Non-control/non-affiliate investments (amortized cost of $126,612,792 and $137,020,449, respectively)	$	81,805,383		$	96,462,919
Control investments (cost of $29,233,097 and $29,905,194, respectively)		21,464,041			22,439,029
Affiliate investments (cost of $0 and $0, respectively)		318			10,527

Total investments at fair value (amortized cost of $155,845,889 and $166,925,643, respectively)		103,269,742			118,912,475
Cash and cash equivalents		5,459,780			6,356,225
Cash and cash equivalents, securitization accounts		839,290			1,178,201
Outstanding interest rate cap at fair value (cost of $131,000 and $131,000, respectively)		72,593			39,513
Interest receivable, net of reserve		3,122,764			3,087,668
Deferred credit facility financing costs, net		—			529,767
Management fee receivable		1,058,861			237,370
Other assets		113,150			321,260
Receivable from unsettled trades		600,036			—


Total assets	$	114,536,216		$	130,662,479


LIABILITIES
Revolving credit facility	$	43,840,749		$	58,994,673
Dividend payable		2,073,066			—
Management and incentive fees payable		3,093,400			2,880,667
Accounts payable and accrued expenses		827,707			700,537
Interest and credit facility fees payable		357,455			72,825

Total liabilities	$	50,192,377		$	62,648,702


NET ASSETS
Common stock, par value $.0001 per share, 100,000,000 common shares authorized, 16,940,109 and 8,291,384 common shares issued and outstanding, respectively		1,694			829
Capital in excess of par value		130,001,583			116,943,738
Accumulated undistributed net investment income (loss)		(4,496,445	)		6,122,492
Accumulated net realized loss from investments and derivatives		(8,528,440	)		(6,948,628	)
Net unrealized depreciation on investments and derivatives		(52,634,553	)		(48,104,654	)

Total Net Assets		64,343,839			68,013,777


Total liabilities and Net Assets	$	114,536,216		$	130,662,479


NET ASSET VALUE PER SHARE	$	3.80		$	8.20


	For the three months ended						For the nine months ended
	November 30						November 30
	2009			2008			2009			2008
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
INVESTMENT INCOME
Interest from investments
Non-control/Non-affiliate investments	$	2,593,082		$	4,269,985		$	8,566,587		$	12,873,546
Control investments		368,374			1,452,237			1,686,088			3,198,626

Total interest income		2,961,456			5,722,222			10,252,675			16,072,172
Interest from cash and cash equivalents		2,752			38,377			22,934			141,074
Management fee income		511,236			517,875			1,549,167			1,529,762
Other income		54,699			82,189			155,111			164,683

Total investment income		3,530,143			6,360,663			11,979,887			17,907,691


EXPENSES
Interest and credit facility financing expenses		1,126,162			693,830			3,174,603			2,150,639
Base management fees		462,755			653,995			1,515,813			2,108,026
Professional fees		714,789			272,196			1,396,567			932,785
Administrator expenses		171,861			241,317			515,583			750,661
Incentive management fees		—			542,231			322,183			1,289,365
Insurance		220,059			173,353			649,535			518,001
Directors fees and expenses		71,989			72,490			217,125			212,375
General & administrative		65,298			65,289			191,223			208,230

Expenses before expense waiver and reimbursement		2,832,913			2,714,701			7,982,632			8,170,082

Expense reimbursement		(171,861	)		(241,317	)		(515,583	)		(800,376	)

Total expenses net of expense waiver and reimbursement		2,661,052			2,473,384			7,467,049			7,369,706


NET INVESTMENT INCOME		869,091			3,887,279			4,512,838			10,537,985


REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from investments		(549,864	)		(7,293,875	)		(1,579,812	)		(7,423,694	)
Net realized gain from derivatives		—			—			—			30,454
Net unrealized appreciation/(depreciation) on investments		8,825,100			(4,142,827	)		(4,562,979	)		(10,422,015	)
Net unrealized appreciation/(depreciation) on derivatives		(16,754	)		(1,419	)		33,080			(29,745	)

Net gain/(loss) on investments		8,258,482			(11,438,121	)		(6,109,711	)		(17,845,000	)


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	9,127,573		$	(7,550,842	)	$	(1,596,873	)	$	(7,307,015	)


WEIGHTED AVERAGE — BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE	$	1.01		$	(0.91	)	$	(0.19	)	$	(0.88	)

WEIGHTED AVERAGE COMMON STOCK OUTSTANDING — BASIC AND DILUTED		9,051,711			8,291,384			8,542,983			8,291,384


									% of
		Investment Interest	Principal/						Stockholders’
Company (a, c)	Industry	Rate/Maturity	Number of Shares		Cost		Fair Value		Equity
Non-control/Non-affiliated investments — 127.1% (b)

GFSI Inc (d)	Apparel	Senior Secured Notes 10.50%, 6/1/2011	$	7,082,000	$	7,082,000	$	6,463,741		10.0	%

Legacy Cabinets, Inc. (d, i)	Building Products	First Lien Term Loan 6.54%, 8/18/2012		1,455,877		1,439,194		444,043		0.7	%

Legacy Cabinets, Inc. (d, i)	Building Products	Second Lien Term Loan 10.50%, 8/18/2013		1,862,420		1,828,197		96,846		0.1	%


		Total Building Products		3,318,297		3,267,391		540,889		0.8	%


Hopkins Manufacturing Corporation (d)	Consumer Products	Second Lien Term Loan 7.53%, 1/26/2012		3,250,000		3,247,681		3,051,425		4.8	%

Targus Group International, Inc. (d)	Consumer Products	First Lien Term Loan 5.75%, 11/22/2012		3,114,831		2,927,489		2,341,730		3.6	%

Targus Group International, Inc. (d, i)	Consumer Products	Second Lien Term Loan 10.75%, 5/22/2013		5,000,000		4,777,205		1,802,500		2.8	%


		Total Consumer Products		11,364,831		10,952,375		7,195,655		11.2	%


CFF Acquisition LLC (d)	Consumer Services	First Lien Term Loan 7.50%, 7/31/2013		308,030		308,030		276,272		0.4	%

M/C Communications, LLC (d)	Education	First Lien Term Loan 6.75%, 12/31/2012		827,005		827,005		549,876		0.9	%

M/C Communications, LLC (d, i)	Education	Class A Common Stock		166,327		30,241		59,878		0.1	%


		Total Education		993,332		857,246		609,754		1.0	%


Advanced Lighting Technologies, Inc. (d)	Electronics	Second Lien Term Loan 6.24%, 6/1/2014		2,000,000		1,804,225		1,734,400		2.7	%

Group Dekko (d)	Electronics	Second Lien Term Loan 10.50%, 1/20/2012		6,843,861		6,843,861		4,487,520		7.0	%


		Total Electronics		8,843,861		8,648,086		6,221,920		9.7	%


USS Mergerco, Inc. (d, i)	Environmental	Second Lien Term Loan 4.53%, 6/29/2013		5,960,000		5,846,833		2,693,324		4.2	%

Bankruptcy Management Solutions, Inc. (d)	Financial Services	Second Lien Term Loan 6.48%, 7/31/2013		4,850,000		4,825,546		2,121,875		3.3	%

Big Train, Inc. (d)	Food and Beverage	First Lien Term Loan 7.75%, 3/31/2012		1,985,368		1,454,623		1,765,786		2.7	%

IDI Acquisition Corp. (d)	Healthcare Services	Senior Secured Notes 10.75%, 12/15/2011		3,800,000		3,665,945		3,565,540		5.5	%

PRACS Institute, LTD (d)	Healthcare Services	Second Lien Term Loan 8.31%, 4/17/2013		4,093,750		4,055,868		3,535,363		5.5	%


		Total Healthcare Services		7,893,750		7,721,813		7,100,903		11.0	%


McMillin Companies LLC (d)	Homebuilding	Senior Secured Notes 9.53%, 10/31/2013		7,700,000		7,314,750		4,894,890		7.6	%

Worldwide Express Operations, LLC (d)	Logistics	First Lien Term Loan 10.00%, 6/30/2013		2,802,960		2,798,751		2,406,061		3.7	%

Jason Incorporated (d, i)	Manufacturing	Unsecured Notes 13.00%, 11/1/2010		12,000,000		12,000,000		3,907,200		6.0	%

Jason Incorporated (d, i)	Manufacturing	Unsecured Notes 13.00%, 11/1/2010		1,700,000		1,700,000		553,520		0.9	%

Specialized Technology Resources, Inc. (d)	Manufacturing	Second Lien Term Loan 7.24%, 12/15/2014		5,000,000		4,791,877		4,607,000		7.2	%


		Total Manufacturing		18,700,000		18,491,877		9,067,720		14.1	%


Elyria Foundry Company, LLC (d)	Metals	Senior Secured Notes 13.00%, 3/1/2013		5,000,000		4,872,888		4,151,000		6.5	%


~~(h)~~		As defined in the Investment Company Act, we are an “Affiliate” of this portfolio company because we own 5% or more of the portfolio company’s outstanding voting securities. In addition, as defined in the Investment Company Act, we “Control” this portfolio company because we own more than 25% of the portfolio company’s outstanding voting securities. Transactions during the period in which the issuer was both an Affiliate and a portfolio company that we Control are as follows:

~~(i)~~		~~Non-income producing at November 30, 2009.~~


							Interest		Management		Net Realized		Net unrealized
Company	Purchases		Redemptions		Sales (cost)		Income		fee income		gains/(losses)		gains/(losses)
GSC Investment Corp. CLO 2007 LTD.	$	—	$	—	$	—	$	1,686,088	$	1,549,167	$	—	$(204,480)
GSC Partners CDO GP III, LP	$	—	$	—	$	—	$	—	$	—	$	—	$ (98,412)


									% of
		Investment Interest	Principal						Stockholders’
Company (a, c)	Industry	Rate/Maturity	Number of Shares		Cost		Fair Value		Equity
Non-control/Non-affiliated investments — 141.8% (b)			��

GFSI Inc (d)	Apparel	Senior Secured Notes 10.50%, 6/1/2011	$	7,082,000	$	7,082,000	$	6,616,004		9.7	%

Legacy Cabinets, Inc. (d)	Building Products	First Lien Term Loan 5.75%, 8/18/2012		1,437,555		1,420,872		975,956		1.4	%

Legacy Cabinets, Inc. (d)	Building Products	Second Lien Term Loan 9.75%, 8/18/2013		1,862,420		1,828,197		450,519		0.7	%


		Total Building Products		3,299,975		3,249,069		1,426,475		2.1	%


Lyondell Chemical Company (d)	Chemicals	First Lien Term Loan 5.75%, 12/20/2013		32,381		27,281		6,152		0.0	%

Lyondell Chemical Company (d)	Chemicals	First Lien Term Loan 5.47%, 12/20/2013		77,141		64,991		14,657		0.0	%

Lyondell Chemical Company (d)	Chemicals	First Lien Term Loan 5.16%, 12/20/2014		92,962		78,320		17,663		0.0	%

Lyondell Chemical Company (d)	Chemicals	First Lien Term Loan 5.16%, 12/20/2014		92,962		78,320		17,663		0.0	%

Lyondell Chemical Company (d)	Chemicals	First Lien Term Loan 5.16%, 12/20/2014		92,962		78,320		17,663		0.0	%

Lyondell Chemical Company (d)	Chemicals	First Lien Term Loan 5.75%, 12/20/2013		121,428		102,303		23,071		0.0	%

Lyondell Chemical Company (d)	Chemicals	First Lien Term Loan 5.75%, 12/20/2013		231,354		194,916		43,957		0.1	%

Lyondell Chemical Company (d)	Chemicals	First Lien Term Loan 7.00%, 12/20/2014		403,388		339,854		76,644		0.1	%

Lyondell Chemical Company (d)	Chemicals	First Lien Term Loan 7.00%, 12/20/2014		403,388		339,854		76,644		0.1	%

Lyondell Chemical Company (d)	Chemicals	First Lien Term Loan 7.00%, 12/20/2014		403,388		339,854		76,644		0.1	%


		Total Chemicals		1,951,354		1,644,013		370,758		0.4	%


Hopkins Manufacturing Corporation (d)	Consumer Products	Second Lien Term Loan 7.70%, 1/26/2012		3,250,000		3,246,870		2,627,950		3.9	%

Targus Group International, Inc. (d)	Consumer Products	First Lien Term Loan 4.67%, 11/22/2012		3,122,943		2,895,723		2,089,561		3.1	%

Targus Group International, Inc. (d)	Consumer Products	Second Lien Term Loan 9.75%, 5/22/2013		5,000,000		4,777,205		3,126,000		4.6	%


		Total Consumer Products		11,372,943		10,919,798		7,843,511		11.6	%


CFF Acquisition LLC (d)	Consumer Services	First Lien Term Loan 8.57%, 7/31/2013		308,912		308,912		243,793		0.4	%

M/C Communications, LLC (d)	Education	First Lien Term Loan 13.12%, 12/31/2010		1,697,164		1,590,350		674,283		1.0	%

Advanced Lighting Technologies, Inc. (d)	Electronics	Second Lien Term Loan 8.53%, 6/1/2014		2,000,000		1,771,457		1,503,200		2.2	%

Group Dekko (d)	Electronics	Second Lien Term Loan 6.45%, 1/20/2012		6,670,000		6,670,000		5,321,326		7.8	%

IPC Systems, Inc. (d)	Electronics	First Lien Term Loan 3.71%, 3/31/2014		46,332		42,367		24,621		0.0	%


		Total Electronics		8,716,332		8,483,824		6,849,147		10.0	%


USS Mergerco, Inc. (d)	Environmental	Second Lien Term Loan 4.73%, 6/29/2013		5,960,000		5,846,833		3,592,092		5.3	%

Bankruptcy Management Solutions, Inc. (d)	Financial Services	Second Lien Term Loan 6.70%, 7/31/2013		4,887,500		4,858,282		3,053,221		4.5	%

Big Train, Inc. (d)	Food and Beverage	First Lien Term Loan 4.98%, 3/31/2012		2,478,660		1,671,647		1,706,557		2.5	%

IDI Acquisition Corp. (d)	Healthcare Services	Senior Secured Notes 10.75%, 12/15/2011		3,800,000		3,623,605		2,428,580		3.6	%

PRACS Institute, LTD (d)	Healthcare Services	Second Lien Term Loan 11.13%, 4/17/2013		4,093,750		4,047,419		3,581,213		5.3	%


		Total Healthcare Services		7,893,750		7,671,024		6,009,793		8.9	%


McMillin Companies LLC (d)	Homebuilding	Senior Secured Notes 9.53%, 4/30/2012		7,700,000		7,294,643		3,489,640		5.1	%

Asurion Corporation (d)	Insurance	First Lien Term Loan 3.76%, 7/3/2014		2,000,000		1,704,665		1,493,400		2.2	%

Worldwide Express Operations, LLC (d)	Logistics	First Lien Term Loan 6.95%, 6/30/2013		2,820,779		2,815,612		2,133,637		3.1	%

Jason Incorporated (d)	Manufacturing	Unsecured Notes 13.00%, 11/1/2010		12,000,000		12,000,000		8,652,000		12.7	%

Jason Incorporated (d)	Manufacturing	Unsecured Notes 13.00%, 11/1/2010		1,700,000		1,700,000		1,225,700		1.8	%

Specialized Technology Resources, Inc. (d)	Manufacturing	Second Lien Term Loan 7.48%, 12/15/2014		5,000,000		4,769,304		4,602,000		6.8	%


		Total Manufacturing		18,700,000		18,469,304		14,479,700		21.3	%


	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
Non-control/non-affiliate	$	—	$	—	$	81,805	$	81,805
Control investments		—		—		21,464		21,464
Affiliate investments		—		—		1		1

Total investments at fair value	$	—	$	—	$	103,270	$	103,270


	Level 3
Balance as of February 28, 2009	$	118,912
Net unrealized losses		(4,563	)
Purchases and other adjustments to cost		1,449
Sales and redemptions		(10,948	)
Net realized loss from investments		(1,580	)
Net transfers in and/or out		—

Balance as of November 30, 2009	$	103,270


					Fair Value
	Investments at		Investments at		Percentage of
	Amortized Cost		Fair Value		Total Portfolio
First lien term loans	$	18,931	$	15,922		15.4	%
Second lien term loans		55,506		30,084		29.1
Senior secured notes		33,373		28,431		27.5
Unsecured notes		18,773		7,309		7.1
Structured finance securities		29,233		21,464		20.8
Equity/limited partnership interest		30		60		0.1

Total	$	155,846	$	103,270		100.0	%


Basic and diluted	November 30, 2009			November 30, 2008

Net decrease in net assets from operations	$	(1,597	)	$	(7,307	)
Weighted average common shares outstanding		8,542,983			8,291,384
Loss per common share-basic and diluted	$	(0.19	)	$	(0.88	)


			Amount Per
Date Declared	Record Date	Payment Date	Share *		Total Amount

November 13, 2009	November 25, 2009	December 31, 2009	$	1.825	$	15,132


Total dividends declared			$	1.825	$	15,132


	At November 30, 2009			At February 28, 2009
	($ in millions)
Number of investments		38			42
Number of portfolio companies		29			35
Average investment size	$	2.2		$	2.3
Weighted average maturity	2.8		years	3.3		years
Number of industries		20			22
Average investment per portfolio company	$	2.8		$	2.8
Non-Performing or delinquent investments	$	21.8		$	0.4
Fixed rate debt (% of interest bearing portfolio)	$	35.3(43.2	%)	$	40.3(41.8	%)
Weighted average current coupon		11.7	%		11.7	%
Floating rate debt (% of interest bearing portfolio)	$	46.5(56.8	%)	$	56.2(58.2	%)
Weighted average current spread over LIBOR		7.1	%		5.9	%


				Percentage of
Portfolio Company	Asset	Fair Value		Total Portfolio
		($ in thousands)
Terphane Holdings Corp.	Senior secured notes	$	9,356		9.1	%
Jason Incorporated	Unsecured notes		4,461		4.3
USS Mergerco, Inc.	Second lien term loan		2,693		2.6
Abitibi-Consolidated	First lien term loan		2,565		2.5
Targus Group International	Second lien term loan		1,802		1.7
Legacy Cabinets, Inc.	First lien term loan		444		0.4
Grant U.S. Holdings	Second lien term loan		318		0.3
Legacy Cabinets, Inc.	Second lien term loan		97		0.1
Brown Publishing Company	Second lien term loan		35		0.1

Total		$	21,771		21.1	%


	Three months ended				Nine months ended
	November 30, 2009		November 30, 2008		November 30, 2009		November 30, 2008
	($ in thousands)
Interest from investments	$	2,961	$	5,722	$	10,253	$	16,072
Management of GSCIC CLO		511		518		1,549		1,530
Interest from cash and cash equivalents and other income		58		121		178		306

Total	$	3,530	$	6,361	$	11,980	$	17,908




							Total Unrealized			YTD Change in Unrealized
Issuer	Asset Type		Cost		Fair Value		Depreciation			Appreciation/(Depreciation)
		($ in thousands)
Terphane Holdings Corp.	Senior Secured Notes		$	10,437	$	9,356	$	(1,081	)	$	1,656
McMillin Companies, LLC	Senior Secured Notes			7,315		4,895		(2,420	)		1,385
Lyondell Chemical Company	First Lien Term Loan			—		—		—			1,273

Three months ended May 31, 2009
Issuer	Asset Type	Cost		Fair Value		Total Unrealized Depreciation			Quarterly Change in Unrealized Appreciation/ (Depreciation)
		($ in thousands)
Terphane Holdings Corp.	Senior Secured Notes	$	10,435	$	8,568	$	(1,867	)	$	870
Penton Media, Inc.	First Lien Term Loan		3,770		2,915		(855	)		861
IDI Acquisition Corp.	Senior Secured Notes		3,638		3,207		(431	)		764
USS Mergerco, Inc.	Second Lien Term Loan		5,852		4,328		(1,524	)		731
GSCIC CLO	Other/Structured Finance Securities		29,233		19,208		(10,025	)		(2,461	)
Grant U.S. Holdings LLP	Second Lien Term Loan		6,189		795		(5,394	)		(1,643	)
Targus Holdings Corp	Second Lien Term Loan		4,786		2,573		(2,213	)		(563	)


	At November 30, 2009					At February 28, 2009
	Fair		Percent			Fair		Percent
	Value		of Total			Value		of Total
	($ in thousands)
Cash and cash equivalents	$	5,460		5.0	%	$	6,356		5.0	%
Cash and cash equivalents, securitization accounts		839		0.8			1,178		0.9
First lien term loans		15,922		14.5			17,118		13.5
Second lien term loans		30,084		27.4			41,043		32.5
Senior secured notes		28,431		25.9			25,832		20.4
Unsecured notes		7,309		6.7			12,381		9.8
Other/structured finance securities		21,464		19.6			22,341		17.7
Equity/limited partnership interests		60		0.1			198		0.2

Total	$	109,569		100.0	%	$	126,447		100.0	%


			Percent of Total
	Fair Value		Investments
	($ in thousands)
Third party independent valuation firm	$	41,589		40.2	%
Market yield trend analysis and enterprise valuation		32,424		31.4
Discounted cash flow model		21,464		20.8
Readily available market maker, broker quotes		7,733		7.5
Other		60		0.1

Total fair valued investments	$	103,270		100.0	%