<PAGE>
     As filed with the Securities and Exchange Commission on June 22, 2001
                                                      Registration No. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                    FORM N-2
 
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
 
                        [  ] PRE-EFFECTIVE AMENDMENT NO.
                       [  ] POST-EFFECTIVE AMENDMENT NO.
 
                         GLADSTONE CAPITAL CORPORATION
               (Exact Name of Registrant as Specified in Charter)
 
                          1750 Tysons Blvd., 4th Floor
                                McLean, VA 22102
                                 (703) 744-1165
   (Address and Telephone Number, including Area Code, of Principal Executive
                                    Offices)
 
                                David Gladstone
               Chairman of the Board and Chief Executive Officer
                         Gladstone Capital Corporation
                          1750 Tysons Blvd., 4th Floor
                                McLean, VA 22102
                                 (703) 744-1165
           (Name, Address and Telephone Number of Agent for Service)
 
                           Copies of information to:
 

<TABLE>
<S>                         <C>
Thomas R. Salley, Esq.      William G. Farrar, Esq.
Darren K. DeStefano, Esq.   Sullivan & Cromwell
Lisa W. Fitch, Esq.         125 Broad Street
Cooley Godward LLP          New York, NY 10004-2498
One Freedom Square          (212) 558-4000
Reston Town Center
11951 Freedom Drive
Reston, VA 20190
(703) 456-8000
</TABLE>

 
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
 
If any securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, other
than securities offered in connection with a dividend reinvestment plan, check
the following box. / /
 
If appropriate, check the following box:
 
/ / This [post-effective amendment] designates a new effective date for a
previously filed [post-effective amendment][registration statement]
 
/ / This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is       .
 
        CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
 

<TABLE>
<CAPTION>
                                                                         Proposed             Proposed
                                                      Amount              Maximum              Maximum            Amount of
                                                       Being       Offering Price            Aggregate         Registration
Title of Securities Being Registered              Registered             Per Unit   Offering Price (1)              Fee (2)
<S>                                      <C>                  <C>                  <C>                  <C>
---------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value per
  share................................                                                   $213,900,000              $53,475
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

 
(1) ESTIMATED PURSUANT TO RULE 457 SOLELY FOR THE PURPOSE OF DETERMINING THE
    REGISTRATION FEE.
 
(2) TRANSMITTED TO THE DESIGNATED LOCKBOX AT MELLON BANK IN PITTSBURGH, PA.
 
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION
8(a), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>
                         Gladstone Capital Corporation
                             Cross Reference Sheet
 

<TABLE>
<CAPTION>
No.                    Description                   Location
---                    -----------                   --------
<S>       <C>                                        <C>
PART A--INFORMATION REQUIRED IN A PROSPECTUS
 
Item 1.   Outside Front Cover                        Outside Front Cover
 
Item 2.   Inside Front and Outside Back Cover        Inside Front and Outside Back Cover
 
Item 3.   Fee Table and Synopsis                     Fees and Expenses
 
Item 4.   Financial Highlights                       Not Applicable
 
Item 5.   Plan of Distribution                       Underwriting
 
Item 6.   Selling Shareholders                       Not Applicable
 
Item 7.   Use of Proceeds                            Use of Proceeds
 
Item 8.   General Description of the Registrant      Outside Front Cover Page; Prospectus Summary; Business;
                                                     Risk Factors
 
Item 9.   Management                                 Management; Executive Officers and Directors
 
Item 10.  Capital Stock, Long-Term Debt and          Description of Capital Stock; Distributions; Dividend
          Other Securities                           Reinvestment Plan
 
Item 11.  Defaults and Arrears on Senior             Not Applicable
          Securities
 
Item 12.  Legal Proceedings                          Not Applicable
 
Item 13.  Table of Contents of the Statement of      Not Applicable
          Additional Information
 
PART B--INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION*
 
Item 14.  Cover Page                                 Not Applicable
 
Item 15.  Table of Contents                          Not Applicable
 
Item 16.  General Information and History            Prospectus Summary; Business
 
Item 17.  Investment Objective and Policies          Prospectus Summary; Investment Objectives and Policies;
                                                     Risk Factors; Business; Material U.S. Federal Income Tax
                                                     Considerations; Regulation
 
Item 18.  Management                                 Management
 
Item 19.  Control Persons and Principal Holders      Control Persons and Principal Stockholders
          of Securities
 
Item 20.  Investment Advisory and Other              Investment Advisor
          Services
 
Item 21.  Brokerage Allocation and Other             Fees and Expenses; Prospectus Summary; Underwriting;
          Practices                                  Brokerage Allocation and Other Practices
 
Item 22.  Tax Status                                 Distributions; Material U.S. Federal Income Tax
                                                     Considerations
 
Item 23.  Financial Statements                       Balance Sheet
</TABLE>

 
*  PURSUANT TO THE GENERAL INSTRUCTIONS TO FORM N-2, ALL INFORMATION REQUIRED TO
    BE SET FORTH IN PART B "STATEMENT OF ADDITIONAL INFORMATION" HAS BEEN
    INCLUDED IN THE PROSPECTUS AND, ACCORDINGLY NO STATEMENT OF ADDITIONAL
    INFORMATION HAS BEEN FILED AS PART OF THIS REGISTRATION STATEMENT.
 
PART C--OTHER INFORMATION
 
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.

<PAGE>
PRELIMINARY PROSPECTUS            SUBJECT TO COMPLETION            June 22, 2001
--------------------------------------------------------------------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

<PAGE>
12,400,000 Shares
 
[LOGO]
Gladstone Capital Corporation
Common Stock
-------------------------------------------------------------------------
 
Gladstone Capital Corporation is a newly organized closed-end, non-diversified
management investment company that, upon completion of this offering, will elect
to be treated as a business development company under the Investment Company Act
of 1940. Our investment objectives are to achieve a high level of current income
by investing in debt securities, consisting primarily of senior notes, senior
subordinated notes and junior subordinated notes, of established private
businesses that are backed by leveraged buyout funds, venture capital funds or
others, with a particular emphasis on senior subordinated notes. We will also
seek to provide our stockholders with long-term capital growth through the
appreciation in the value of warrants or other equity instruments that we may
receive when we make loans. At times, we may use leverage through borrowings
from banks and other financial institutions. The use of leverage can create
special risks which are discussed in greater detail in this prospectus.
 
Up to 400,000 shares will be reserved for sale by the underwriters to our
directors, officers and employees and certain persons associated with us at the
public offering price net of the sales concession.
 
Because we are newly organized, our shares have no history of public trading.
Shares of closed-end investment companies frequently trade at a discount to
their net asset value. We plan to apply to list our shares on the Nasdaq
National Market under the symbol "GLAD."
 
This prospectus contains important information you should know before investing,
including information about risks. Please read it before you invest and keep it
for future reference.
 
Investing in our common stock involves risks that are described in the "Risk
Factors" section beginning on page 7 of this prospectus.
 
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
 

<TABLE>
<CAPTION>
                                                              Per Share                           Total
<S>                                                           <C>                      <C>
-------------------------------------------------------------------------------------------------------
Public offering price                                            $15.00                  $186,000,000
-------------------------------------------------------------------------------------------------------
Underwriting discount (sales load)                                    $                  $
-------------------------------------------------------------------------------------------------------
Proceeds to us(1)                                                     $                  $
-------------------------------------------------------------------------------------------------------
</TABLE>

 
(1) BEFORE DEDUCTING EXPENSES PAYABLE BY US OF $             .
 
The underwriters may also purchase up to an additional 1,860,000 shares at the
public offering price, less the underwriting discount, within 30 days from the
date of this prospectus to cover over-allotments. If the over-allotment option
is exercised in full, the total public offering price will be $213,900,000 and
the total sales load will be $      . The proceeds to us would be
$             , less expenses of $             .
 
The shares will be ready for delivery on or about            , 2001.
 
UBS Warburg                                         First Union Securities, Inc.
 
                                Robertson Stephens
 
                   BB&T Capital Markets  Ferris, Baker Watts
 
                                                         Incorporated

<PAGE>
You should rely only on the information contained in this prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
 
TABLE OF CONTENTS
 

<TABLE>
<S>                                    <C>
Prospectus summary...................       3
 
Fees and expenses....................       6
 
Risk factors.........................       7
 
Use of proceeds......................      15
 
Distributions........................      15
 
Capitalization.......................      16
 
Management's discussion and analysis
  of financial condition and results
  of operations......................      17
 
Business.............................      19
 
Investment objectives and policies...      26
 
Prospective portfolio companies......      28
 
Management...........................      30
 
Certain transactions.................      37
 
Control persons and principal
  stockholders.......................      38
 
Determination of net asset value.....      38
 
Dividend reinvestment plan...........      39
 
Material U.S. federal income tax
  considerations.....................      40
 
Description of our capital stock.....      43
 
Certain provisions of our articles of
  incorporation and bylaws and
  Maryland General Corporation Law...      45
 
Shares eligible for future sale......      49
 
Share repurchases....................      49
 
Custodian, transfer and dividend
  paying agent and registrar.........      50
 
Brokerage allocation and other
  practices..........................      50
 
Underwriting.........................      51
 
Legal matters........................      53
 
Experts..............................      53
 
Available information................      53
 
Special note regarding
  forward-looking statements.........      54
 
Balance sheet........................     F-3
 
Notes to balance sheet...............     F-4
 
Other information....................     C-1
</TABLE>

 
Until       , 2001 (25 days after the date of this prospectus), all dealers that
buy, sell or trade our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.

<PAGE>
Prospectus summary
 
THIS SUMMARY HIGHLIGHTS SOME OF THE INFORMATION IN THIS PROSPECTUS. IT IS NOT
COMPLETE AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU MAY WANT TO
CONSIDER. YOU SHOULD READ CAREFULLY THE MORE DETAILED INFORMATION SET OUT IN
THIS PROSPECTUS INCLUDING "RISK FACTORS." EXCEPT WHERE THE CONTEXT SUGGESTS
OTHERWISE, WHEN WE USE THE TERMS "WE," "US" OR "GLADSTONE CAPITAL CORPORATION,"
WE ARE REFERRING SOLELY TO GLADSTONE CAPITAL CORPORATION AND NOT TO ITS
WHOLLY-OWNED SUBSIDIARY GLADSTONE ADVISERS, INC.
 
General
 
We are a specialty finance company that was incorporated under the General
Corporation Laws of the State of Maryland on May 30, 2001. After this offering,
we plan to invest in debt securities, consisting primarily of senior notes,
senior subordinated notes and junior subordinated notes, of established private
businesses that are backed by leveraged buyout funds, venture capital funds or
others, with a particular emphasis on senior subordinated notes. In addition, we
may acquire existing loans that meet this profile from leveraged buyout funds,
venture capital funds and others. We will also seek to provide our stockholders
with long-term capital growth through the appreciation in the value of warrants
or other equity instruments that we may receive when we make loans. During
June 2001, we entered into separate non-binding loan commitments with five
potential borrowers. Following completion of this offering, we intend to fulfill
these commitments from the net proceeds of this offering. These loans are
subject to, among other things, the satisfactory completion of our due diligence
investigation of each borrower, acceptance of terms and structure and necessary
consents. Our headquarters are in McLean, Virginia, a suburb of Washington, DC.
We also plan to open an office in New York, New York.
 
Our Structure and Our Management
 
We are a closed-end, non-diversified management investment company under the
Investment Company Act of 1940, which we refer to as the 1940 Act. Our
investment objectives are to achieve a high level of current income by investing
in debt securities, consisting primarily of senior notes, senior subordinated
notes and junior subordinated notes, of established private businesses that are
backed by leveraged buyout funds, venture capital funds or others, with a
particular emphasis on senior subordinated notes. We will also seek to provide
our stockholders with long-term capital growth through the appreciation in the
value of warrants or other equity instruments that we may receive when we make
loans.
 
Upon completion of this offering, we will elect to be treated as a business
development company registered under the 1940 Act. In addition, we will elect to
be treated for tax purposes as a regulated investment company, or RIC, under the
Internal Revenue Code of 1986. As a RIC, we generally will not have to pay
corporate level tax on any income we distribute to our stockholders as
dividends, allowing us to substantially reduce or eliminate our corporate level
tax liability. For further information, see "Regulation," "Material U.S. Federal
Income Tax Considerations" and "Dividend Reinvestment Plan."
 
We will be internally managed by our officers and directors. We will not have a
separate investment advisor and, therefore, we will not pay an investment
advisory fee. We have established a wholly-owned subsidiary that will conduct
our daily operations. It is currently estimated that our annual operating
expenses will be approximately 1% of our total assets. There can be no assurance
that our actual annual operating expenses will not exceed 1% of our total
assets.
 
We have assembled a management team which has extensive experience in our lines
of business. Our executive officers include David Gladstone, chairman and chief
executive officer, and Terry Brubaker, president and chief operating officer.
Mr. Gladstone has a total of over 25 years of debt and equity financing
experience at Allied Capital Corporation (NYSE: ALD) and American Capital
Strategies Ltd.
 
                                                                               3

<PAGE>
(NASDAQ: ACAS). Mr. Brubaker has over 25 years of operational expertise in
acquiring and managing companies, much of it at James River Corporation. Our
management, including Messrs. Gladstone and Brubaker, will make available
significant managerial assistance to the businesses in which we invest,
including operational, financial and strategic advice.
 
Our Investment Objectives and Our Strategy
 
Our investment objectives are to achieve a high level of current income by
investing in debt securities, consisting primarily of senior notes, senior
subordinated notes and junior subordinated notes, of established private
businesses that are backed by leveraged buyout funds, venture capital funds or
others, with a particular emphasis on senior subordinated notes. We will also
seek to provide our stockholders with long-term capital growth through the
appreciation in the value of warrants or other equity instruments that we may
receive when we make loans. There can be no assurance that we will realize our
investment objectives. We will seek to invest primarily in three categories of
debt of private companies:
 
-   SENIOR DEBT. We will seek to invest a small portion of our assets in senior
    debt of borrowers. Using the assets and cash flow of the underlying business
    as collateral, a business typically uses senior debt to cover a substantial
    portion of the funding needed to operate. Senior lenders are exposed to the
    least risk of all providers of debt because they command a senior position
    with respect to scheduled interest and principal payments. However, unlike
    senior subordinated and junior subordinated lenders, these senior lenders
    typically do not receive any stock or warrants to purchase stock of the
    borrowers. As such, they generally do not participate in the equity
    appreciation of the value of the business. We intend to make senior loans on
    a limited basis and some of these will only be as bridge financings. In most
    cases, these loans will be refinanced at a later date.
 
-   SENIOR SUBORDINATED DEBT. We will seek to invest a majority of our assets in
    senior subordinated debt. Senior subordinated debt is subordinated in its
    rights to receive its principal and interest payments from the borrower to
    the rights of the holders of senior debt. As a result, senior subordinated
    debt is riskier than senior debt. Although such loans are sometimes secured
    by significant collateral, many of these lenders principally rely on the
    borrower's cash flow for repayment. Additionally, lenders often receive
    warrants to acquire shares of stock in borrowers in connection with these
    loans.
 
-   JUNIOR SUBORDINATED DEBT. We will also seek to invest a small portion of our
    assets in junior subordinated debt. Junior subordinated debt is subordinated
    in its rights to receive its principal and interest payments from the
    borrower to the rights of the holders of senior debt and senior subordinated
    debt. The risk profile of junior subordinated debt is high, which permits
    the junior subordinated lender to obtain higher interest rates and warrants
    to purchase a greater portion of the borrower's stock.
 
We plan to use the established loan referral network of Messrs. Gladstone and
Brubaker and our principals to identify and make senior and subordinated loans
to selected businesses that we do not believe have sufficient access to
traditional sources of lending.
 
We will target small and medium sized private businesses that meet certain
criteria, including the potential for growth, adequate assets for loan
collateral, experienced management teams with significant ownership interest in
the business, adequate capitalization, profitable operations based on cash flow,
substantial ownership by leveraged buyout funds or venture capital funds and
potential opportunities for us to realize appreciation and gain liquidity in our
equity position. We may achieve liquidity through a merger or acquisition of the
borrower, a public offering of the borrower's stock or by exercising our right
to require the borrower to buy back our warrants, though there can be no
assurance that we will always have these rights.
 
4

<PAGE>
OFFERING
 

<TABLE>
<S>                                            <C>
Common stock offered by us (1)(2)............  12,400,000 shares
 
Common stock to be outstanding after this
  offering (1)...............................  13,052,631 shares
 
Use of proceeds..............................  We intend to use approximately $57 million of the net
                                               proceeds from this offering to fulfill non-binding
                                               commitments to make five loans. We will use the
                                               remainder of the net proceeds to invest in portfolio
                                               companies in accordance with our investment
                                               objectives and strategies. Pending such investment,
                                               we will primarily invest the net proceeds in money
                                               market instruments.
 
Listing......................................  Currently, there is no public market for our common
                                               stock. However, we plan to apply to list our common
                                               stock on the Nasdaq National Market under the symbol
                                               "GLAD."
 
Distributions................................  We intend to distribute quarterly cash dividends to
                                               our stockholders of at least 90% of our ordinary
                                               income and short-term capital gains.
 
Trading......................................  Shares of closed-end funds frequently trade at a
                                               discount to their net asset value. Shares of
                                               comparable business development companies, such as
                                               Allied Capital Corporation and American Capital
                                               Strategies Ltd., trade at a premium to net asset
                                               value. Potential purchasers of our common stock
                                               should not assume that our shares will trade at a
                                               premium to net asset value and there can be no
                                               assurance that our shares will not trade at a
                                               discount to their net asset value.
 
Risk Factors.................................  See "Risk Factors" and other information included in
                                               this prospectus for a discussion of factors you
                                               should carefully consider before deciding to invest
                                               in shares of our common stock.
 
Available Information........................  After this offering, we will be subject to the
                                               Securities Exchange Act of 1934 and will be required
                                               to file reports, proxy statements and other
                                               information with the SEC. This information will be
                                               available at the SEC's public reference room in
                                               Washington, DC and on the SEC's Internet site at
                                               http://www.sec.gov.
</TABLE>

 
(1) EXCLUDES 1,860,000 SHARES OF COMMON STOCK ISSUABLE PURSUANT TO THE
    OVER-ALLOTMENT OPTION GRANTED TO THE UNDERWRITERS.
 
(2) UP TO 400,000 SHARES OF COMMON STOCK WILL BE RESERVED FOR SALE BY THE
    UNDERWRITERS TO OUR DIRECTORS, OFFICERS AND EMPLOYEES AND CERTAIN ASSOCIATED
    PERSONS AT THE PUBLIC OFFERING PRICE NET OF THE SALES CONCESSION.
 
                                                                               5

<PAGE>
--------------------------------------------------------------------------------
 
Fees and expenses
 
The purpose of the following table is to assist a prospective investor in
understanding the various costs and expenses that an investor in this offering
will bear directly or indirectly.
 

<TABLE>
<S>                                                           <C>
STOCKHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price)..............  %(1)
Dividend Reinvestment Plan Fees.............................  None(2)
 
    Total Stockholder Transaction Expenses..................  %
 
ANNUAL EXPENSES (as a percentage of net assets attributable
  to common stock)
Management Fees.............................................  None
Interest Payments on Borrowed Funds.........................  0.0%(3)
Other Expenses..............................................  1.0%(3)
 
    Total Annual Expenses (estimated).......................  1.0%
</TABLE>

 
(1) THE UNDERWRITING DISCOUNT WITH RESPECT TO OUR COMMON STOCK SOLD IN THIS
    OFFERING, WHICH IS A ONE TIME FEE WE PAID TO THE UNDERWRITERS IN CONNECTION
    WITH THIS OFFERING, IS THE ONLY SALES LOAD PAID IN CONNECTION WITH THIS
    OFFERING.
 
(2) THE EXPENSES OF THE DIVIDEND REINVESTMENT PLAN ARE INCLUDED IN STOCK RECORD
    EXPENSES, A COMPONENT OF OTHER EXPENSES. WE HAVE NO CASH PURCHASE PLAN.
 
(3) ESTIMATES OF INTEREST PAYMENTS ON BORROWED FUNDS, OTHER EXPENSES AND TOTAL
    ANNUAL EXPENSES HAVE BEEN BASED ON OUR PROJECTED OPERATING EXPENSES
    (INCLUDING INTEREST COSTS) DIVIDED BY OUR TOTAL ASSETS SUBSEQUENT TO THIS
    OFFERING. THE PERCENTAGE IN THE TABLE ASSUMES THAT WE HAVE NOT ISSUED ANY
    SECURITIES THAT ARE SENIOR TO OUR EQUITY SECURITIES. IN FACT, WE DO NOT
    EXPECT THE NET OFFERING PROCEEDS TO BE FULLY INVESTED FOR THE FIRST YEAR.
    SEE "USE OF PROCEEDS." ONCE THE PROCEEDS OF THIS OFFERING ARE SUBSTANTIALLY
    FULLY INVESTED, WE INTEND TO BORROW FUNDS UP TO AN AMOUNT SO THAT THE ASSET
    COVERAGE, AS DEFINED IN THE 1940 ACT, IS AT LEAST 200% IMMEDIATELY AFTER
    EACH ISSUANCE OF SENIOR SECURITIES. FOR ADDITIONAL INFORMATION ABOUT OUR
    PROPOSED BORROWINGS, SEE "BUSINESS--LEVERAGE."
 
EXAMPLE
 
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in our common stock. These amounts are based upon
payment by an investor of a   % sales load (the underwriting discount paid by us
with respect to our common stock sold in this offering) and our payment of
annual operating expenses at the levels set forth in the table above which, as
indicated above, does not include leverage or related expenses.
 

<TABLE>
<CAPTION>
                                                               1 YEAR    3 YEARS    5 YEARS    10 YEARS
                                                              --------   --------   --------   --------
<S>                                                           <C>        <C>        <C>        <C>
You would pay the following expenses on a $1,000 investment,
  assuming a 5% annual return...............................    $95        $149       $209       $386
</TABLE>

 
This example and the expenses in the table above should not be considered a
representation of our future expenses, and actual expenses may be greater or
less than those shown. Moreover, while the example assumes, as required by the
SEC, a 5% annual return, our performance will vary and may result in a return
greater or less than 5%. In addition, while the example assumes reinvestment of
all dividends and distributions at net asset value, participants in our dividend
reinvestment plan may receive shares purchased by the plan administrator at the
market price in effect at that time, which may be at, above or below net asset
value. See "Dividend Reinvestment Plan" for additional information regarding our
dividend reinvestment plan.
 
--------------------------------------------------------------------------------
6

<PAGE>
--------------------------------------------------------------------------------
 
Risk factors
 
The purchase of our shares in this offering involves a number of significant
risk and other factors relating to our structure and investment objectives. As a
result, there can be no assurance that we will achieve our investment
objectives. In addition to the other information contained in this prospectus,
you should consider carefully the following information before making an
investment in our common stock.
 
RISKS RELATING TO OUR BUSINESS AND STRUCTURE
 
We are a new company with no operating history
 
We were incorporated in May 2001 and to date, we have only entered into
non-binding commitments to make loans and have not made any loans or conducted
any significant operations as a lender to small and medium sized companies. In
addition, we are subject to all of the business risks and uncertainties
associated with any new business enterprise. We may not meet our investment
objectives and the value of your investment in us may decline substantially or
be reduced to zero.
 
We are dependent upon our key management personnel for our future success,
particularly David Gladstone and Terry Brubaker
 
We are dependent on the diligence, skill and network of business contacts of our
senior management and other management members for the final selection,
structuring, closing and monitoring of our investments. Our future success
depends to a significant extent on the continued service and coordination of our
senior management team, particularly David Gladstone, our chairman and chief
executive officer, and Terry Brubaker, our president and chief operating
officer. The departure of any of our executive officers or key employees could
have a material adverse effect on our ability to implement our business strategy
and to achieve our investment objectives.
 
Our financial condition and results of operations will depend on our ability to
effectively manage our future growth
 
Our ability to achieve our investment objectives will depend on our ability to
sustain continued growth, which will depend on our ability to identify,
evaluate, finance and invest in suitable companies that meet our investment
criteria. Accomplishing this result on a cost-effective basis is largely a
function of our marketing capabilities, our management of the investment
process, our ability to provide competent, attentive and efficient services and
our access to financing sources on acceptable terms. As we grow, we will also be
required to hire, train, supervise and manage new employees. Failure to
effectively manage our future growth could have a material adverse effect on our
business, financial condition and results of operations.
 
We operate in a highly competitive market for investment opportunities
 
A large number of entities will compete with us and make the types of
investments that we plan to make in small and medium sized privately-owned
businesses. We will compete with a large number of private equity funds,
leveraged buyout funds and venture capital companies, investment banks and other
equity and non-equity based investment funds, and other sources of financing,
including traditional financial services companies such as commercial banks.
Many of our competitors are substantially larger and have considerably greater
financial, technical and marketing resources than we do. For example, some
competitors may have a lower cost of funds and access to funding sources that
are not available to us. In addition, certain of our competitors may have higher
risk tolerances or different risk assessments, which could allow them to
consider a wider variety of investments and establish more relationships and
build their market shares. Furthermore, many of our potential
 
--------------------------------------------------------------------------------
                                                                               7

<PAGE>
Risk factors
--------------------------------------------------------------------------------
 
competitors are not subject to the regulatory restrictions that the 1940 Act
imposes on us as a business development company. We cannot assure you that the
competitive pressures we face will not have a material adverse effect on our
business, financial condition and results of operations. Also, as a result of
this competition, we may not be able to take advantage of attractive investment
opportunities from time to time and there can be no assurance that we will be
able to identify and make investments that satisfy our investment objectives or
that we will be able to fully invest our available capital.
 
Our business model is dependent upon the development of strong referral
relationships with leveraged buyout funds and venture capital funds
 
We expect that we will be dependent upon informal relationships with leveraged
buyout funds and venture capital funds to provide us with deal flow. The five
non-binding loan commitments that we have made to date are all to portfolio
companies of Three Cities Fund II, L.P. and Three Cities Fund III, L.P., that
are managed by Three Cities Research Inc., a manager of leveraged buyout funds.
If we fail to maintain our relationship with funds such as Three Cities, or if
we fail to establish strong referral relationships with other funds, we will not
be able to grow our portfolio of loans and fully execute our business plan.
 
Our loans to small and medium sized borrowers are extremely risky and you could
lose your entire investment
 
Loans to small and medium sized borrowers are subject to a number of significant
risks including the following:
 
-   SMALL AND MEDIUM SIZED BUSINESSES MAY HAVE LIMITED FINANCIAL RESOURCES AND
    MAY BE UNABLE TO REPAY OUR LOANS TO THEM. Our strategy includes providing
    financing to borrowers that typically is not readily available to them.
    While we believe that this provides an attractive opportunity for us to
    generate profits, this may make it difficult for the borrowers to repay
    their loans to us upon maturity. A borrower's ability to repay its loan may
    be adversely affected by numerous factors, including the failure to meet its
    business plan, a downturn in its industry or negative economic conditions. A
    deterioration in a borrower's financial condition and prospects usually will
    be accompanied by a deterioration in the value of any collateral and a
    reduction in the likelihood of us realizing on any guarantees we may have
    obtained from the borrower's management. Although we will sometimes seek to
    be the senior, secured lender to a borrower, in most of our loans we expect
    to be subordinated to a senior lender, and our interest in any collateral
    for a loan would, accordingly, likely be subordinate to another lender's
    security interest.
 
-   SMALL AND MEDIUM SIZED BUSINESSES TYPICALLY HAVE NARROWER PRODUCT LINES AND
    SMALLER MARKET SHARES THAN LARGE BUSINESSES. Because our expected target
    borrowers are smaller businesses, they will tend to be more vulnerable to
    competitors' actions and market conditions, as well as general economic
    downturns. In addition, our portfolio companies may face intense
    competition, including competition from companies with greater financial
    resources, more extensive development, manufacturing, marketing, and other
    capabilities, and a larger number of qualified managerial and technical
    personnel.
 
-   THERE IS GENERALLY NO PUBLICLY AVAILABLE INFORMATION ABOUT THESE BUSINESSES.
    Because we expect to make loans to privately owned businesses, there will
    generally be little or no publicly available operating and financial
    information about our borrowers. As a result, we will rely on our officers,
    other employees and consultants to perform "due diligence" investigations
    about these borrowers, their operations and their prospects. We may not
    learn all of the material information we need to know regarding these
    businesses through our investigation.
 
--------------------------------------------------------------------------------
8

<PAGE>
Risk factors
--------------------------------------------------------------------------------
 
-   SMALL AND MEDIUM SIZED BUSINESSES GENERALLY HAVE LESS PREDICTABLE OPERATING
    RESULTS. We expect that our borrowers may have significant variations in
    their operating results, may from time to time be parties to litigation, may
    be engaged in rapidly changing businesses with products subject to a
    substantial risk of obsolescence, may require substantial additional capital
    to support their operations, to finance expansion or to maintain their
    competitive position, may otherwise have a weak financial position or may be
    adversely affected by changes in the business cycle. Our portfolio companies
    may not meet net income, cash flow and other coverage tests typically
    imposed by their senior lenders. A borrower's failure to satisfy financial
    or operating covenants imposed by senior lenders could lead to defaults and,
    potentially, foreclosure on its senior credit facility, which could
    additionally trigger cross-defaults in other agreements. If this were to
    occur, it is possible that the borrower's ability to repay our loan would be
    jeopardized.
 
-   SMALL OR MEDIUM SIZED BUSINESSES ARE MORE LIKELY TO BE DEPENDENT ON ONE OR
    TWO PERSONS. Typically, the success of a small or medium sized business also
    depends on the management talents and efforts of one or two persons or a
    small group of persons. The death, disability or resignation of one or more
    of these persons could have a material adverse impact on our borrower and,
    in turn, on us.
 
-   SMALL AND MEDIUM SIZED BUSINESSES ARE LIKELY TO HAVE GREATER EXPOSURE TO
    ECONOMIC DOWNTURNS THAN LARGER BUSINESSES. We expect that our borrowers will
    have fewer resources than larger businesses and an economic downturn is more
    likely to have a material adverse effect on them. If one of our borrowers is
    adversely impacted by an economic downturn, its ability to repay our loan
    would be diminished.
 
-   SMALL AND MEDIUM SIZED BUSINESSES MAY HAVE LIMITED OPERATING HISTORIES.
    While we intend to target stable companies with proven track records, we may
    make loans to new companies that meet our other investment criteria.
    Borrowers with limited operating histories will be exposed to all of the
    operating risks that are faced by new businesses and may be particularly
    susceptible to, among other risks, market downturns, competitive pressures
    and the departure of key executive officers.
 
We may not realize gains from our equity investments
 
When we make a subordinated loan, we generally expect to receive warrants to
purchase stock issued by the borrower. Our goal is to ultimately dispose of
these equity interests and realize gains upon our disposition of such interests.
We expect that over time, the gains that we realize on these warrants will
offset any losses we experience on loan defaults. However, the warrants we
receive may not appreciate in value and, in fact, may decline in value.
Accordingly, we may not be able to realize gains from our equity interests and
any gains that we do recognize on the disposition of equity interests may not be
sufficient to offset losses we experience on our loan portfolio.
 
Because our loans and equity securities are not publicly traded, there will be
uncertainty regarding the value of our privately held securities which could
adversely affect our determination of our net asset value
 
None of our portfolio loans or equity securities, at least initially, will be
publicly traded or have a readily determinable market value. We will value these
securities based on a determination of their fair value made in good faith by
management and approved by our board of directors. Due to the uncertainty
inherent in valuing these securities, as set forth in our financial statements,
our determinations of fair value may differ materially from the values that
would exist if a ready market for these securities existed. Our net asset value
could be materially affected if our determinations regarding the fair value of
our investments are materially different from the values that we ultimately
realize on our disposal of such securities.
 
--------------------------------------------------------------------------------
                                                                               9

<PAGE>
Risk factors
--------------------------------------------------------------------------------
 
The lack of liquidity of our privately held securities may adversely affect our
business
 
Most of our investments will consist of loans and warrants acquired in private
transactions directly from borrowers or from the originators of loans to such
borrowers. Substantially all of these securities will be subject to restrictions
on resale, including, in some instances, legal restrictions, or will otherwise
be less liquid than publicly traded securities. The illiquidity of our
investments may make it difficult for us to obtain cash equal to the value at
which we record our investments if the need arises. This could cause us to miss
important business opportunities. In addition, if we are required to quickly
liquidate all or a portion of our portfolio, we may realize significantly less
than the value at which we have previously recorded our investments.
 
Our portfolio will be concentrated in a limited number of companies and
industries, which subjects us to an increased risk of significant loss if any
one of these companies does not repay us or if the industries experience a
downturn
 
We intend to have outstanding loans to approximately 20 to 40 companies at any
given time. A consequence of a limited number of investments is that the
aggregate returns we realize may be substantially adversely affected by the
unfavorable performance of a small number of such loans or a substantial
writedown of any one investment. Beyond our regulatory and income tax
diversification requirements, we do not have fixed guidelines for industry
diversification, and our investments could potentially be concentrated in
relatively few industries. As a result, a downturn in an industry in which we
have made multiple loans could have a materially adverse effect on us.
 
Our business plan is dependent upon external financing which may expose us to
risks associated with leverage
 
Our business will require a substantial amount of cash to operate in addition to
the proceeds of this offering. We may acquire such additional capital from the
following sources:
 
-   SENIOR SECURITIES. We intend to issue debt securities, other evidences of
    indebtedness and possibly preferred stock, up to the maximum amount
    permitted by the 1940 Act. The 1940 Act currently permits us, as a business
    development company, to issue debt securities and preferred stock, which we
    refer to collectively as senior securities, in amounts such that our asset
    coverage, as defined in the 1940 Act, is at least 200% after each issuance
    of senior securities. As a result of issuing senior securities, we will be
    exposed to the risks associated with leverage. Although borrowing money for
    investment increases the potential for gain, it also increases the risk of a
    loss. A decrease in the value of our investments will have a greater impact
    on the value of our common stock if we borrow money to make investments. In
    addition, our ability to pay dividends or incur additional indebtedness
    would be restricted if asset coverage is not equal to at least twice our
    indebtedness. If the value of our assets declines, we might be unable to
    satisfy that test. If this happens, we may be required to liquidate a
    portion of our loan portfolio and repay a portion of our indebtedness at a
    time when a sale may be disadvantageous. Furthermore, any amounts that we
    use to service our indebtedness will not be available for distributions to
    our stockholders.
 
-   COMMON STOCK. Because we are constrained in our ability to issue debt for
    the reasons given above, we are dependent on the issuance of equity as a
    financing source. If we raise additional funds by issuing more common stock
    or debt securities convertible into or exchangeable for our common stock,
    the percentage ownership of our stockholders at the time would decrease and
    they may experience additional dilution. In addition, any convertible or
    exchangeable securities that we issue in the future may have rights,
    preferences and privileges more favorable than those of our common stock.
 
--------------------------------------------------------------------------------
10

<PAGE>
Risk factors
--------------------------------------------------------------------------------
 
-   SECURITIZATION. In addition to issuing securities to raise capital as
    described above, we anticipate that in the future, we will securitize our
    loans to generate cash for funding new investments. An inability to
    successfully securitize our loan portfolio could limit our ability to grow
    our business, fully execute our business strategy and impact our
    profitability. For a detailed description of our securitization strategy,
    see "Management's Discussion and Analysis of Financial Condition and Results
    of Operations--Financial Condition, Liquidity and Capital Resources" and
    "Business--Securitization."
 
A change in interest rates may adversely affect our profitability and our
hedging strategy may expose us to additional risks
 
A portion of our income will depend upon the difference between the rate at
which we borrow funds and the rate at which we loan these funds. We anticipate
using a combination of equity and long-term and short-term borrowings to finance
our lending activities. Certain of our borrowings may be at fixed rates and
others at variable rates. Currently, we expect approximately 50% of the loans in
our portfolio to be at fixed rates and approximately 50% to be at variable rates
determined on the basis of a benchmark prime rate. We will typically seek to
hedge against the risk of adverse movement in interest rates in our credit
facility and short-term and long-term borrowings relative to our portfolio of
assets. We expect to hedge against interest rate fluctuations by using standard
hedging instruments such as futures, options and forward contracts. While
hedging activities may insulate us against adverse fluctuations in interest
rates, they may limit our ability to participate in the benefits of lower
interest rates with respect to the hedged portfolio. Adverse developments
resulting from changes in interest rates or hedging transactions could have a
material adverse effect on our business, financial condition and results of
operations.
 
We may be unable to obtain a credit facility on terms that are acceptable to us
 
Once the proceeds of this offering are substantially invested, we will have a
continuing need for capital to finance our loans. In order to maintain RIC
status, we will be required to distribute to our stockholders at least 90% of
our ordinary income and short-term capital gains on an annual basis.
Accordingly, such earnings will not be available to fund additional loans.
Therefore, we will need to raise additional capital which, as noted above, we
expect to finance through a credit facility. We can not assure you that, once we
have substantially fully invested the proceeds of this offering, we will be able
to obtain a credit facility on terms that we find acceptable, if at all. The
unavailability of funds from commercial banks or other sources on favorable
terms could inhibit the growth of our business and have a material adverse
effect on us. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Financial Condition, Liquidity and Capital Resources"
and "Distributions."
 
Our expected credit facility will likely impose certain limitations on us
 
While there can be no assurance that we will be able to borrow from banks and
other financial institutions, we expect that we will at some time in the future
obtain a credit facility. The lender or lenders under this credit facility will
have fixed dollar claims on our assets that are senior to the claims of our
stockholders and, thus, will have a preference over our stockholders with
respect to our assets. We also expect our credit facility to contain customary
default provisions such as a minimum net worth amount, a profitability test, a
restriction on changing our business and loan quality standards. An event of
default under our expected credit facility would likely result, among other
things, in termination of further funds availability under that facility and an
accelerated maturity date for all amounts outstanding under the facility which
would likely disrupt the portfolio companies whose loan we financed through the
facility. This could reduce our revenues and, by delaying any cash payment
 
--------------------------------------------------------------------------------
                                                                              11

<PAGE>
Risk factors
--------------------------------------------------------------------------------
 
allowed to us under our facility until the lender has been paid in full, reduce
our liquidity and cash flow.
 
Our investments will typically be long term and it may require several years to
realize liquidation events
 
We expect that it will take approximately one year for the net proceeds of this
offering to be substantially invested. Since we generally intend to make five to
seven year term loans and to hold our loans and related warrants until the loans
mature, you should not expect realization events, if any, to occur over the near
term. In addition, we expect that our warrants may require several years to
appreciate in value and no assurance can be given that such appreciation will
occur.
 
We will be subject to corporate level tax if we are unable to satisfy Internal
Revenue Code requirements for RIC qualification
 
To maintain our qualification as a RIC, we must meet income source, asset
diversification and annual distribution requirements. The annual distribution
requirement is satisfied if we distribute at least 90% of our ordinary income
and short-term capital gains to our stockholders on an annual basis. Because we
intend to use leverage, we are subject to certain asset coverage ratio
requirements under the 1940 Act and could, under certain circumstances, be
restricted from making distributions necessary to qualify as a RIC. Warrants we
receive with respect to debt investments will create "original issue discount,"
which we must recognize as ordinary income, increasing the amounts we are
required to distribute to maintain RIC status. Because such warrants will not
produce distributable cash for us at the same time as we are required to make
distributions in respect of the related original issue discount, we will need to
use cash from other sources to satisfy such distribution requirements. The asset
diversification requirements must be met at the end of each calendar quarter.
Failure to meet these tests may result in our having to quickly dispose of
certain investments in order to prevent the loss of RIC status. Since most of
our investments will be illiquid, such dispositions, if possible, may not be
made at prices advantageous to us and, in fact, may result in substantial
losses. If we fail to qualify as a RIC for any reason and become fully subject
to corporate income tax, the resulting corporate taxes could substantially
reduce our net assets, the amount of income available for distribution, and the
actual amount distributed. Such a failure would have a material adverse effect
on us and our shares. For additional information regarding asset coverage ratio
and RIC requirements, see "Business--Leverage," "Material U.S. Federal Income
Tax Considerations" and "Regulation."
 
There are significant potential conflicts of interest which could impact our
investment returns
 
Our executive officers and directors serve or may serve as officers and
directors of entities who operate in the same line of business as we do.
Accordingly, they may have obligations to investors in those entities, the
fulfillment of which might not be in the best interests of us or our
stockholders. For example, David Gladstone, our chairman and chief executive
officer, is, and following this offering will continue to be, the vice chairman
of American Capital Strategies, Ltd., a leveraged buyout fund and mezzanine debt
lender. It is possible that new investment opportunities that meet our
investment objectives may come to the attention of one of our executive officers
or directors, such as Mr. Gladstone, in his role as an officer or director of
another entity, and, if so, such opportunity might not be offered to or
otherwise made available to us. However, Mr. Gladstone is under no obligation to
offer any opportunity to American Capital that comes to his attention outside of
his role as vice chairman of American Capital.
 
Changes in laws or regulations governing our operations may adversely affect our
business
 
We and our portfolio companies will be subject to regulation by laws at the
local, state and federal level. These laws and regulations, as well as their
interpretation, may be changed from time to time.
 
--------------------------------------------------------------------------------
12

<PAGE>
Risk factors
--------------------------------------------------------------------------------
 
Accordingly, any change in these laws or regulations could have a material
adverse impact on our business. For additional information regarding the
regulations we are subject to, see "Regulation."
 
We may experience fluctuations in our quarterly results
 
We could experience fluctuations in our quarterly operating results due to a
number of factors including, among others, variations in and the timing of the
recognition of realized and unrealized gains or losses, the degree to which we
encounter competition in our markets and general economic conditions. As a
result of these factors, results for any period should not be relied upon as
being indicative of performance in future periods.
 
RISKS RELATING TO THIS OFFERING
 
There is a risk that you may not receive dividends or that our dividends may not
grow over time
 
Our current intention is to distribute at least 90% of our ordinary income and
short-term capital gains to our stockholders on a quarterly basis. We currently
expect to retain net realized long-term capital gains to supplement our equity
capital and support the growth of our portfolio, although our board of directors
may determine in certain cases to make a distribution of long-term capital
gains. We cannot assure you that we will achieve investment results or maintain
a tax status that will allow or require any specified level of cash
distributions or year-to-year increases in cash distributions. For a discussion
of the tax consequences to you of net realized long-term capital gains that we
retain, see "Material U.S. Federal Income Tax Considerations."
 
Provisions of our articles of incorporation and bylaws could deter takeover
attempts and adversely impact the price of our common stock
 
Our articles of incorporation and bylaws and the Maryland General Corporation
Law contain provisions that may have the effect of discouraging, delaying or
making more difficult a change in control and preventing the removal of
incumbent directors. The existence of these provisions may negatively impact the
price of our common stock and may discourage third-party bids. These provisions
may reduce any premiums paid to you for shares of our common stock. Furthermore,
we are subject to Section 3-702 of the Maryland General Corporation Law.
Section 3-702 governs business combinations with interested stockholders, and
also could have the effect of delaying or preventing a change in control. In
addition, upon completion of this offering, our board of directors will be
elected in staggered terms which will make it more difficult for a hostile
bidder to acquire control of us.
 
The market price of our common stock may fluctuate significantly
 
The market price and marketability of shares of our common stock may from time
to time be significantly affected by numerous factors, including many over which
we have no control and that may not be directly related to us. These factors
include the following:
 
-   price and volume fluctuations in the stock market from time to time, which
    are often unrelated to the operating performance of particular companies;
 
-   significant volatility in the market price and trading volume of securities
    of RICs, business development companies or other companies in our sector,
    which is not necessarily related to the operating performance of these
    companies;
 
-   changes in regulatory policies or tax guidelines, particularly with respect
    to RICs or business development companies;
 
--------------------------------------------------------------------------------
                                                                              13

<PAGE>
Risk factors
--------------------------------------------------------------------------------
 
-   loss of RIC status;
 
-   changes in earnings or variations in operating results;
 
-   changes in the value of our portfolio of investments;
 
-   any shortfall in revenue or net income or any increase in losses from levels
    expected by securities analysts;
 
-   departure of key personnel;
 
-   operating performance of companies comparable to us;
 
-   general economic trends and other external factors; and
 
-   loss of a major funding source.
 
Fluctuations in the trading price of our common stock may adversely affect the
liquidity of the trading market for our common stock and, in the event that we
seek to raise capital through future equity financings, our ability to raise
such equity capital.
 
Prior to this offering, there has been no public market for our common stock and
we can not assure you that the market price of our shares will not decline
following the offering
 
Prior to this offering, there has been no public market for our common stock.
Consequently, the initial public offering price will be determined through
negotiations between us and the underwriters. See "Underwriting" for a
discussion of factors to be considered in determining the initial public
offering price. We can not assure you that a regular trading market for our
common stock will develop after this offering or, if one develops, that a public
trading market can be sustained. The initial public offering price will not
necessarily reflect, and may be higher than, the market price of our common
stock after the offering. Shares of closed-end investment companies frequently
trade at a discount from net asset value. This characteristic of shares of
closed-end investment companies is separate and distinct from the risk that our
net asset value per share will decline. It is not possible to predict whether
the shares of our common stock will trade at, above, or below net asset value.
 
Sales of substantial amounts of our common stock in the public market may have
an adverse effect on the market price of our common stock
 
Upon consummation of this offering, we will have 13,052,631 shares of common
stock outstanding (or 14,912,631 shares of common stock, if the over-allotment
option is fully exercised). Following this offering, sales of substantial
amounts of our common stock in the public market, pursuant to Rule 144 or
otherwise, or the availability of such shares for sale, could adversely affect
the prevailing market prices for our common stock. If this occurs, it could
impair our ability to raise additional capital through the sale of equity
securities should we desire to do so. Following this offering, 12,400,000 shares
of our common stock will be freely transferable (or 14,260,000 shares of common
stock if the over-allotment option is fully exercised), except to the extent
that shares are purchased in this offering by our affiliates. For additional
information on the transferability of our shares, see "Shares Eligible for
Future Sale."
 
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14

<PAGE>
--------------------------------------------------------------------------------
 
Use of proceeds
 
We estimate that the net proceeds of this offering will be approximately $
($      if the underwriters exercise their over-allotment option in full) after
deducting the underwriting discount and estimated offering expenses payable by
us. We expect to use approximately $57 million of the net proceeds of this
offering to fulfill our non-binding commitments to make five loans as described
under "Prospective Portfolio Companies." Each of our non-binding loan
commitments is conditioned upon the closing of this offering and, among other
things, the satisfactory completion of our due diligence investigations of each
borrower, acceptance of the terms and structure and receipt of necessary
consents. We will invest the remainder of the net proceeds in accordance with
our investment objectives and policies. See "Business--Strategy" and "Investment
Objectives and Policies" for additional information regarding our investment
objectives and policies. We estimate that it will take approximately one year
for us to substantially invest the net proceeds of this offering, depending on
the availability of appropriate opportunities and market conditions. Pending
such investment, we will primarily invest the net proceeds in money market
instruments. There can be no assurance that we will be able to achieve our
targeted investment pace. See "Business--Temporary Investments" for additional
information about temporary investments we may make while waiting to make loans.
 
Distributions
 
We intend to distribute quarterly 90% or more of our ordinary income and
short-term capital gains, if any. We intend to declare our first distribution
approximately 90 days after the date of this prospectus. While we currently
intend to retain any net realized long-term capital gains to make additional
loans, we may distribute them annually as a special distribution. For a
discussion of the consequences to you of net realized long-term capital gains
that we retain, see "Material U.S. Federal Income Tax Considerations." There can
be no assurance that we will achieve results that will permit the payment of any
cash distributions and, if we incur debt, we will be prohibited from making
distributions if doing so causes us to fail to maintain asset coverage ratios
stipulated by the 1940 Act.
 
All cash distributions will be distributed to you unless you elect to have your
dividends reinvested under our dividend reinvestment plan in additional whole
and fractional shares. If you hold your shares in the name of a broker or other
nominee, you should contact the broker or nominee regarding participation in the
dividend reinvestment plan on your behalf. See "Risk Factors--Risks Relating to
Our Business and Structure--We will be subject to corporate level tax if we are
unable to satisfy Internal Revenue Code requirements for RIC qualification" and
"Dividend Reinvestment Plan" for additional information regarding distributions.
 
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                                                                              15

<PAGE>
--------------------------------------------------------------------------------
 
Capitalization
 
The following table sets forth (a) our actual capitalization at May 30, 2001 and
(b) our capitalization at May 30, 2001, as adjusted to reflect the effects of
the sale of our common stock offered in this offering at an assumed public
offering price of $15.00. This table should be read in conjunction with "Use of
Proceeds" and our balance sheet included elsewhere in this prospectus.
 

<TABLE>
<CAPTION>
                                                                Actual     As Adjusted(1)
                                                                      (Unaudited)
-----------------------------------------------------------------------------------------
<S>                                                           <C>          <C>
Assets:
 
Stock Subscription Receivable...............................  $ 652,631
                                                              ---------
 
Total Assets................................................  $ 652,631
                                                              =========
 
Stockholders' equity:
 
Common Stock, $0.001 par value per share; 10,000,000 shares
  authorized, 652,631 shares outstanding, actual; 50,000,000
  shares authorized, 13,052,631 shares outstanding, as
  adjusted..................................................  $     653
 
Capital in excess of par value..............................    651,978
                                                              ---------
 
Total Stockholders' Equity..................................  $ 652,631
                                                              =========
</TABLE>

 
(1) DOES NOT INCLUDE THE UNDERWRITERS' OVER-ALLOTMENT OPTION OF 1,860,000
    SHARES.
 
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16

<PAGE>
--------------------------------------------------------------------------------
 
Management's discussion and analysis of financial condition
and results of operations
 
We are a newly formed company and have only recently commenced operations.
Therefore, we do not have any meaningful operations to discuss. Please see "Risk
Factors--Risks Relating to Our Business and Structure--We are a new company with
no operating history" for a discussion of risks relating to our lack of
historical operations. The following analysis of our financial condition should
be read in conjunction with our balance sheet and the notes thereto and the
other financial data included elsewhere in this prospectus.
 
OVERVIEW
 
Gladstone Capital Corporation was incorporated under the General Corporation
Laws of the State of Maryland on May 30, 2001. Our investment objectives are to
achieve a high level of current income by investing in debt securities,
consisting primarily of senior notes, senior subordinated notes and junior
subordinated notes, of established private businesses that are backed by
leveraged buyout funds, venture capital funds or others, with a particular
emphasis on senior subordinated notes. In addition, we may acquire existing
loans that meet this profile from leveraged buyout funds, venture capital funds
and others. We will also seek to provide our stockholders with long-term capital
growth through the appreciation in the value of warrants or other equity
instruments that we may receive when we make loans. We will operate as a
closed-end, non-diversified management investment company and, upon completion
of this offering, we will elect to be treated as a business development company
under the 1940 Act. This offering will significantly increase our capital
resources.
 
We will target small and medium sized businesses that meet certain criteria,
including, (1) the potential for growth in cash flow, (2) adequate assets for
loan collateral, (3) experienced management teams with significant ownership
interest in the borrower, (4) profitable operations based on the borrower's cash
flow, (5) reasonable capitalization of the borrower (usually by leveraged buyout
funds or venture capital funds) and (6) the potential for us to realize
appreciation and gain liquidity in our equity position. We anticipate that this
liquidity will be achieved through a merger or acquisition of the borrower, a
public offering by the borrower or by our exercise of a right to require the
borrower to buy back our warrants. We expect to make loans to borrowers that
need funds to finance growth, restructure their balance sheets or effect a
change of control.
 
As a business development company, we will make available significant managerial
assistance to our portfolio companies. Such assistance will typically involve
closely monitoring the operations of each company, participating in its board
and management meetings, being available for consultation with its officers and
providing organizational and financial guidance.
 
We expect that our loans typically will range from $5 million to $15 million,
mature in no more than seven years, and accrue interest at a fixed rate or an
annualized variable rate that exceeds the prime rate. To the extent possible,
our loans generally will be collateralized by a security interest in the
borrower's assets. Interest payments will generally be made monthly or quarterly
with amortization of principal generally being deferred for several years. The
principal amount of the loans and any accrued but unpaid interest will generally
become due at maturity at five to seven years. We will focus on making loans
accompanied by warrants to purchase stock in the borrowers. These warrants will
typically have a nominal exercise price and entitle us to purchase a modest
percentage of the borrower's stock.
 
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                                                                              17

<PAGE>

Management's discussion and analysis of financial condition and results of
operations
--------------------------------------------------------------------------------
 
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
 
Our sources of funds will primarily be the net proceeds of this offering,
operating cash flows and borrowings. Immediately after this offering, we expect
to have cash resources in excess of $    million and no indebtedness. For
additional information regarding the proceeds of this offering, see "Use of
Proceeds."
 
Following completion of this offering, we expect to fulfill our non-binding
commitments to make five loans in an aggregate amount of approximately
$57 million. Each non-binding loan commitment is conditioned upon the closing of
this offering and, among other things, the satisfactory completion of our due
diligence investigations of each borrower, the acceptance of terms and structure
and receipt of necessary consents. In many instances, the loans will also
require prior approval of the borrower's other lenders. For a description of the
material terms of these commitments, see "Prospective Portfolio Companies."
 
We currently intend to pursue a strategy of securitizing our loan portfolio 12
to 18 months after completion of this offering. We would use the cash we receive
upon the sale of interests in our loans to repay bank borrowings and make
additional loans. There can be no assurance that this securitization strategy
will be successful. For additional information on our securitization strategy,
see "Business--Securitization."
 
In order to qualify as a regulated investment company and to avoid corporate
level tax on the income we distribute to our stockholders, under Subchapter M of
the Internal Revenue Code we are required to distribute at least 90% of our
ordinary income and short-term capital gains on an annual basis. While we will
provide stockholders with the option of reinvesting their distributions in more
of our common stock, we anticipate borrowing funds to obtain additional capital
once the proceeds of this offering have been fully invested. For additional
information regarding our distribution policies and requirements, see
"Distributions," "Business--Leverage" and "Dividend Reinvestment Plan."
 
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B
usiness
 
Gladstone Capital Corporation is a specialty finance company that was
incorporated under the General Corporation Laws of the State of Maryland on
May 30, 2001. During June 2001, we entered into separate non-binding loan
commitments with five potential borrowers. Extension of these loans is
conditioned upon the closing of this offering and, among other things, the
satisfactory completion of our due diligence investigations of each borrower,
acceptance of the terms and structure and receipt of necessary consents. Neither
we nor any of the potential borrowers are required to enter into a loan
arrangement under the non-binding loan commitments. However, our intention is to
enter into binding loan agreements with each of these borrowers following
completion of this offering, and to fulfill our funding obligations from the
proceeds of the offering. After this offering, we plan to invest in debt
securities, consisting primarily of senior notes, senior subordinated notes and
junior subordinated notes, of established private businesses that are backed by
leveraged buyout funds, venture capital funds or others, with a particular
emphasis on senior subordinated notes. We will also seek to provide our
stockholders with long-term capital growth through the appreciation in the value
of warrants or other equity instruments that we may receive when we make loans.
Our headquarters are in McLean, Virginia, a suburb of Washington, DC. We also
plan to open an office in New York, New York. Upon completion of this offering,
we will be a business development company under the 1940 Act.
 
David Gladstone, our chairman and chief executive officer, has over 25 years
experience in making loans to and investing in small and medium sized companies
at Allied Capital Corporation and American Capital Strategies. Allied Capital
Corporation is a publicly traded subordinated debt lender and American Capital
Strategies is a publicly traded buyout and subordinated-debt lender. While
either chairman or president of Allied Capital, Mr. Gladstone oversaw, during
the years 1992 through 1997, in excess of $850 million of financing for many
small and medium sized businesses and raised, during the years 1985 through
1997, equity capital totaling an aggregate of over $430 million for seven funds.
During the past four years, as either chairman or vice chairman of American
Capital Strategies, Mr. Gladstone raised the company's initial $150 million in
capital and assisted in the company's subsequent capital raising. During his
tenure, American Capital Strategies has invested in 46 businesses and currently
has total assets of approximately $650 million. During his time at these two
companies he hired over 50 professionals.
 
Terry Brubaker, our president and chief operating officer, has over 25 years
experience in acquisitions and managing companies after the acquisition. He was
a co-architect and assisted in the implementation of the acquisition strategy of
James River Corporation that grew the company from $200 million in revenues to
over $7 billion.
 
Our chief financial officer, Harry Brill, brings significant experience from his
role as the chief accounting officer of Allied Capital where he was responsible
for the public filings of a family of five public companies and oversaw the
preparation of the operating reports and financial statements of these five
public companies and three private funds. In addition to Messrs. Gladstone and
Brubaker, we currently have three professionals, which we call principals, who
are involved in structuring and arranging financing for small and medium sized
businesses. Upon completion of this offering, we plan to hire an additional four
professionals with business lending experience (two in our Virginia office and
two in New York) and two administrative persons. We believe that the expertise
of our investing professionals will help us to be successful in lending to small
and medium sized businesses.
 
We intend to make loans to companies that are substantially owned by leveraged
buyout or venture capital funds. We believe that, through Messrs. Gladstone and
Brubaker, we have an extensive referral network comprised of venture
capitalists, leveraged buyout funds, investment bankers, attorneys, commercial
bankers and business and financial brokers. We believe that these entities will
be an
 
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important source of loan opportunities. We intend to enter into additional
informal relationships with other leveraged buyout funds and venture capital
funds, but we can not assure you that we will be able to do so or that any such
relationships will lead to the origination of loans.
 
Our five non-binding loan commitments currently constitute all of our
commitments to invest. In connection with the fulfillment of these commitments,
we expect to receive warrants to purchase an equity interest in each of the
borrowers. For a detailed description of the proposed borrowers and our loan
commitments, see "Prospective Portfolio Companies."
 
STRATEGY
 
We intend to make loans at favorable interest rates to small and medium sized
businesses that we believe have traditionally been underserved by conventional
lenders. We plan to use the established loan referral network of
Messrs. Gladstone and Brubaker, as well as our principals, to identify and make
senior and subordinated loans to selected businesses that we do not believe have
sufficient access to traditional sources of lending. We expect to make loans to
borrowers that need funds to finance growth, restructure their balance sheets or
effect a change of control, all of which we believe are typically underserved by
banks and other traditional institutional lenders.
 
Our business strategy contemplates that (i) the net capital gains from the sale
of the warrants (or stock underlying such warrants) we receive in connection
with our lending activities will exceed any losses we may experience from loan
defaults, and (ii) the fee income we derive from our lending will provide us
with a source of revenue in excess of our general and administrative expenses
(excluding interest expense). We cannot assure you that we will be able to
achieve our investment objectives or that our business strategy will be
successful.
 
We believe that many opportunities exist to provide loans to small and medium
sized businesses and we plan to take advantage of these opportunities. According
to the U.S. Small Business Administration, from 1982 to 1995, the number of
small businesses increased by 49%. In addition, in 1999, small businesses
employed 52% of the private sector work force, contributed 47% of all sales in
the United States, were responsible for 51% of the private gross domestic
product and produced an estimated 75% of new jobs.
 
We believe that the market for commercial loans to these small and medium sized
businesses is underserved for a number of reasons. First, traditional lenders,
such as commercial banks and savings and loans, are generally burdened with an
overhead and administrative structure and operate in a regulatory environment
that hinders them from lending effectively to these businesses. Second,
consolidation in the banking industry during the past decade has decreased the
number of banks willing to lend to small and medium sized businesses, as the
larger acquiring banks have sought to limit both the credit exposure and
monitoring costs associated with loans to smaller businesses. Third, the banking
and savings and loan industries have experienced structural and regulatory
changes that have greatly affected their ability to make funds available for
loans to small and medium sized businesses. Additionally, we believe that many
small and medium sized businesses prefer to obtain financing from non-bank
finance companies rather than federally insured financial institutions that they
perceive to be subject to regulatory pressure to demand the repayment of loans
when the borrower encounters a period of economic difficulties. In
October 2000, the Office of the Comptroller of the Currency released its Shared
National Credit Report on syndicated loans. This report was a review of bank
loans or formal loan commitments in excess of $20 million that are shared by
three or more lenders subject to supervision by a federal bank regulatory
agency. "Classified" loans, defined as loans that do not meet credit standards
set by the U.S. government and which include loans classified as "substandard,"
"doubtful" and "loss," increased to 3.3% of all loans reviewed as of March 31,
 
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2000, up from 2.0% as of March 31, 1999 and 1.3% as of March 31, 1998. We
believe that this unfavorable report has caused most banks to tighten the
requirements necessary for making business loans. As a result of this tightened
credit, fewer bank loans are available to medium and small businesses. We
believe that we can provide some of the loans that banks are not providing,
however we cannot assure you that we will be able to fulfill this objective.
 
We believe that we are well positioned to provide financing to small and medium
sized businesses that are undergoing a change of ownership or have strong growth
characteristics. We are not burdened with the capital and other regulatory
requirements of the banking and savings and loan industries and we have
relatively low overhead and administrative expenses. Moreover, our strategy of
accepting warrants to purchase stock of our borrowers is intended to closely
align our interests with those of our portfolio companies, thereby reducing
transaction costs, conveying our commitment to the borrowers and enhancing our
attractiveness as a financing source. Perhaps most importantly, we believe that
we have the experience and expertise to satisfy the financing needs of such
businesses. In particular, we intend to utilize Mr. Gladstone's 25 years of
experience in financing small to medium sized private businesses and
Mr. Brubaker's extensive experience in acquisitions and operations to realize a
competitive advantage. We plan to use the established network of loan referral
sources, consisting of relationships established over many years by
Messrs. Gladstone, Brubaker and our principals, to generate opportunities to
identify and make senior and subordinated loans to selected businesses that
satisfy our investment criteria. We intend to enter into additional informal
relationships with leveraged buyout funds and venture capital funds, but no
assurance can be given that we will be able to do so.
 
We will target small and medium sized private businesses that meet certain
criteria, including the potential for growth, adequate assets for loan
collateral, experienced management teams with significant ownership interest in
the business, adequate capitalization, profitable operations based on cash flow
and potential opportunities for us to realize appreciation and gain liquidity in
our various equity positions. We may achieve liquidity through a merger or
acquisition of the borrower, a public offering of the borrower's stock or by
exercising our right to require the borrower to buy back our warrants, though
there can be no assurance that we will always have these rights.
 
As a business development company, we will make available significant managerial
assistance to our portfolio companies. Such assistance will typically involve
closely monitoring the operations of each borrower, participating in its board
and management meetings, being available for consultation with its officers, and
providing organizational and financial guidance.
 
We expect to invest in senior, senior subordinated and junior subordinated
notes, with an emphasis on senior subordinated notes. We expect that our loans
typically will range from $5 million to $15 million, mature in no more than
seven years, and accrue interest at a fixed rate or an annualized variable rate
that exceeds the prime rate. To the extent possible, our loans generally will be
collateralized by a security interest in the borrower's assets though we may not
have the first claim on these assets. Interest payments will generally be made
monthly or quarterly with amortization of principal generally being deferred for
several years. The principal amount of the loans and any accrued but unpaid
interest will generally become due at maturity at five to seven years. We will
focus on making loans accompanied by warrants to purchase stock in the
borrowers. These warrants will typically have a nominal exercise price and
entitle us to purchase a modest percentage of the borrower's stock.
 
From time to time, a portfolio company may request additional financing,
providing us with additional lending opportunities. We will consider such
requests for additional financing under the criteria we have established for
initial investments and we anticipate that any debt securities we acquire in
such follow-on financing will have characteristics comparable to those issued in
the original financing. In
 
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some situations, our failure, inability or decision not to make a follow-on
investment may be detrimental to the operations or survival of a portfolio
company and thus jeopardize our investment in that borrower.
 
As noted above, we expect to receive warrants to purchase stock in many of our
borrowers. If a financing is successful, not only will our debt securities have
been repaid with interest, but we will be in a position to realize a gain on the
accompanying equity interests. The opportunity to realize such gain may occur if
the borrower is sold to new owners or if it makes a public offering of its
stock. In most cases, we will not have the right to require that a borrower
undergo an initial public offering by registering securities under the
Securities Act of 1933, which we refer to as the Securities Act, but we
generally will have the right to sell our equity interests in any subsequent
public offering by the borrower. Even when we have the right to participate in a
borrower's public offering, the underwriters might insist, particularly if we
own a large amount of equity securities, that we retain all or a substantial
portion of our shares for a specified period of time. Moreover, we may decide
not to sell an equity position even when we have the right and the opportunity
to do so. Thus, although we expect to dispose of an equity interest after a
certain time, situations may arise in which we hold equity securities for a
longer period.
 
In certain cases, we may receive the right, which we refer to as a put right, to
require the borrower to repurchase the warrants from us. When no public offering
is available, we may exercise our put rights to dispose of our equity interest
in the borrower, although our ability to exercise put rights may be limited or
nonexistent if a business is illiquid since it would be unlikely to have the
cash available to honor the put right. Similarly, we anticipate that we may
obtain the right, which we refer to as an unlocking right, to require that the
borrower purchase our warrants or stock if it rejects a bona fide third party
acquisition offer. The unlocking rights may allow us to sell our equity
interests back to the borrower at the price offered by the potential acquirer.
 
In addition to the put rights and unlocking rights described above, when one of
our portfolio companies does go public, we may undertake hedging strategies with
regard to our equity interests in the portfolio company. We may mitigate risks
associated with the volatility of publicly-traded securities through means such
as selling securities short or writing or buying call or put options. Hedging
against a decline in the value of such investments in public companies would not
eliminate fluctuations in the values of such investments or prevent losses if
the values of such investments decline, but would establish other investments
designed to gain from those same developments. Therefore, by engaging in hedging
transactions we can moderate the decline in the value of our hedged investments
in public companies. However, such hedging transactions would also limit our
opportunity to gain from an increase in the value of our investment in the
public company. While we currently hold no securities of any publicly traded
companies, and therefore have no immediate plans to undertake any such hedging
activities, it may be prudent for us to do so in the future. It should be noted
that hedging strategies do pose risks to us and our stockholders. However, we
believe that such activities, because they will be limited to only a portion of
our portfolio, are manageable.
 
It should also be noted that Section 12(a)(3) of the 1940 Act prohibits us "in
contravention of such rules and regulations or orders as [the SEC] may prescribe
as necessary or appropriate in the public interest or for the protection of
investors . . . to effect a short sale of any security . . ." However, to date,
the SEC has not promulgated regulations under this statute. It is possible that
such regulations could be promulgated in the future in a way that would require
us to change any hedging strategies that we may adopt. We will only engage in
any such hedging activities in compliance with applicable law and regulations.
 
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SELECTION OF LOAN OPPORTUNITIES
 
We have identified certain characteristics that we believe are important to
profitably lend to small and medium sized businesses. The criteria listed below
will provide a general guidepost for our lending and investment decisions,
although not all of these criteria may be followed in each instance:
 
GROWTH.  In addition to generating sufficient cash flow to service its debt, a
potential borrower generally will be required to establish its ability to grow
its cash flow. Anticipated growth will be a key factor in determining the value
ascribed to the warrants we acquire in connection with many of our loans.
 
SIGNIFICANT SPONSOR.  We will seek out businesses that have been invested in by
leveraged buyout funds or venture capital funds. We believe that having a
substantial equity sponsor that has made a meaningful investment in the business
is the hallmark of a good borrowing candidate.
 
LIQUIDATION VALUE OF ASSETS.  Although we do not intend to operate as an
asset-based lender, liquidation value of the assets collateralizing our loans
will be an important factor in each credit decision. Emphasis will be placed
both on tangible assets (accounts receivable, inventory, plant, property and
equipment) as well as intangible assets such as customer lists, networks,
databases and recurring revenue streams.
 
EXPERIENCED MANAGEMENT TEAM.  We will generally require that each borrower have
a management team that is experienced and properly incentivized through a
significant ownership interest in the borrower. We generally will require that a
borrower have, at a minimum, a strong chief executive officer and chief
financial officer who have demonstrated the ability to accomplish the borrower's
objectives and implement its business plan.
 
PROFITABLE OR NEAR PROFITABLE OPERATIONS.  We will focus on borrowers that are
profitable or near profitable at the operating level. We do not intend typically
to lend to or invest in start-up or other early stage companies, nor do we
intend typically to lend to or invest in businesses that are experiencing
operating problems.
 
EXIT STRATEGY.  Prior to making a loan that is accompanied by a warrant to
purchase stock of the borrower, we will analyze the potential for the borrower
to experience a liquidity event that will allow us to realize value for our
equity position. Liquidity events include, among other things, an initial public
offering, a private sale of our financial interest, a merger or acquisition of
the borrower or a purchase of our equity position by the borrower or one of its
stockholders.
 
OPERATIONS
 
ORIGINATION PROCESS.  Including Messrs. Gladstone and Brubaker, we currently
have five professionals responsible for originating loans and investments and
providing financial assistance to small and medium sized businesses and one
person responsible for loan accounting. Upon completion of this offering, we
plan to hire two additional professionals with substantial business lending
experience and two additional persons to handle administration. All of these
employees will operate out of our headquarters in McLean, Virginia. We also plan
to hire two additional loan officers in New York, New York, with substantial
business lending experience. To originate loans, our lending officers will use
an extensive referral network comprised of venture capitalists, leveraged buyout
funds, investment bankers, attorneys, accountants, commercial bankers and
business brokers. We intend to enter into additional informal relationships with
leveraged buyout funds and venture capital funds, but no assurance can be given
that we will be able to do so.
 
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APPROVAL PROCESS.  Our lending professionals will review informational packages
in search of potential financing opportunities and will conduct a due diligence
investigation of each applicant that passes an initial screening process. This
due diligence investigation generally will include one or more on-site visits, a
review of the potential borrower's historical and projected financial
information, interviews with management, employees, customers and vendors of the
applicant, and background checks and research on the applicant's product,
service or particular industry. Upon completion of the due diligence
investigation, our financial professional will create a borrower profile
summarizing the prospective borrower's historical financial statements, industry
and management team and analyzing its conformity to our general investment
criteria. Our lending professional will then present this profile to our credit
committee, which will initially be comprised of David Gladstone and Terry
Brubaker. Our credit committee must unanimously approve each loan and each
member of our board of directors must affirmatively review each financing.
 
COMPETITION
 
Our primary competitors will include financial institutions, leveraged buyout
funds, venture capital firms, mezzanine partnerships, hedge funds, and other
nontraditional lenders. Many of these entities have greater financial and
managerial resources than we will have. For additional information concerning
the competitive risks we face, see "Risk Factors--Risks Relating to Our Business
and Structure--We operate in a highly competitive market for investment
opportunities."
 
EMPLOYEES
 
We currently have five lending officers, all of whom are professionals working
on financings for small and medium sized businesses. Upon completion of this
offering, we intend to hire four additional professionals with business lending
experience and two additional administrative personnel. We believe that our
relations with our employees are excellent. We intend to maintain a relatively
low level of overhead by outsourcing most job functions not directly related to
marketing, underwriting our investments or our executive management.
 
TEMPORARY INVESTMENTS
 
Pending investment in other types of "qualifying assets," as described under
"Regulation," we will invest our otherwise uninvested cash primarily in cash,
cash items, government securities or high quality debt securities maturing in
one year or less from the time of investment in such high quality debt
investments, which we refer to collectively as temporary investments, so that
70% of our assets are qualifying assets. For additional information regarding
regulations to which we are subject, see "Regulation." Typically, we will invest
in U.S. Treasury bills or in repurchase obligations of a "primary dealer" in
government securities, as designated by the Federal Reserve Bank of New York, or
of any other dealer whose credit has been established to the satisfaction of the
board of directors. There is no percentage restriction on the proportion of our
assets that may be invested in such repurchase agreements. A repurchase
agreement involves the purchase by an investor, such as us, of a specified
security and the simultaneous agreement by the seller to repurchase it at an
agreed upon future date and at a price which is greater than the purchase price
by an amount that reflects an agreed-upon interest rate. Such interest rate is
effective for the period of time during which the investor's money is invested
in the arrangement and is related to current market interest rates rather than
the coupon rate on the purchased security. Our custodian, or the correspondent
in its account with the Federal Reserve/ Treasury Book Entry System, will be
required to constantly maintain underlying securities in an amount at least
equal to the repurchase price. If the seller were to default on its repurchase
obligation,
 
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we might suffer a loss to the extent that the proceeds from the sale of the
underlying security were less than the repurchase price. A seller's bankruptcy
could delay or prevent a sale of the underlying securities. Our board of
directors has established procedures, which it will review periodically,
requiring us to monitor the creditworthiness of the dealers with which we enter
into repurchase agreement transactions.
 
LEVERAGE
 
For the purpose of making investments other than temporary investments and to
take advantage of favorable interest rates, we intend to issue senior debt
securities, up to the maximum amount permitted by the 1940 Act. The 1940 Act
currently permits us to issue senior debt securities and preferred stock, which
we refer to collectively as senior securities, in amounts such that our asset
coverage, as defined in the 1940 Act, is at least 200% after each issuance of
senior securities. Such indebtedness may also be incurred for the purpose of
effecting repurchases of our common stock. As a result of issuing senior
securities, we would become exposed to the risks of leverage. For information
regarding the risks associated with leverage, see "Risk Factors--Risks Relating
to Our Business and Structure--Our business plan is dependent upon external
financing which may expose us to risks associated with leverage." We do not,
however, intend to leverage ourselves so long as we hold cash or temporary
investments in an amount sufficient to fund the amount of investments, other
than temporary investments, we project to make in the 12 months following the
completion of this offering. See "Description of Capital Stock--Preferred Stock"
and "Regulation." As permitted by the 1940 Act, we may, in addition, borrow
amounts up to 5% of our total assets for temporary or emergency purposes.
 
SECURITIZATION
 
In an effort to increase our returns and the number of loans that we can make,
we anticipate that we will seek to securitize our loans. To securitize loans, we
would create a wholly-owned subsidiary and contribute a pool of loans to the
subsidiary. Then we would seek to have the pool of loans in the subsidiary rated
by rating agencies. Once the pool of loans is rated, we would then sell
interests in the pool of loans to purchasers who we would expect to be willing
to accept a lower interest rate to invest in investment-grade loan pools. We
would use the proceeds of such sales to pay down bank debt or to make or
purchase new loans. There are risks associated with this strategy since we
intend to retain the non-investment grade portion of the subsidiary, rather than
to securitize it, and the unrated portion of the subsidiary is the one most
likely to generate losses. We do not intend to securitize any warrants that we
receive in connection with any loans we make.
 
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Investment objectives and policies
 
Our investment objectives are to achieve a high level of current income by
investing in debt securities, consisting primarily of senior notes, senior
subordinated notes and junior subordinated notes, of established private
businesses that are backed by leveraged buyout funds, venture capital funds or
others, with a particular emphasis on senior subordinated notes. We will also
seek to provide our stockholders with long-term capital growth through the
appreciation in the value of warrants or other equity instruments that we may
receive when we make loans. The following restrictions, along with these
investment objectives, are our only fundamental policies, which are policies
that may not be changed without the approval of the holders of the majority of
our outstanding voting securities, as defined in the 1940 Act. The percentage
restrictions set forth below, other than the restriction pertaining to the
issuance of senior securities, as well as those contained elsewhere in this
prospectus, apply at the time a transaction is effected, and a subsequent change
in a percentage resulting from market fluctuations or any cause other than an
action by us will not require us to dispose of portfolio securities or to take
other action to satisfy the percentage restriction.
 
We will at all times conduct our business so as to retain our status as a
business development company. In order to retain that status, we may not acquire
any assets (other than non-investment assets necessary and appropriate to its
operations as a business development company) if after giving effect to such
acquisition the value of our "qualifying assets" amounts to less than 70% of the
value of our total assets. For a summary definition of "qualifying assets," see
"Regulation." We anticipate that the securities we seek to acquire (provided
that we control or, through our officers or other participants in the financing
transaction, make significant managerial assistance available to the issuers of
these securities), as well as temporary investments, will generally be
qualifying assets. Securities of public companies, on the other hand, are
generally not qualifying assets unless they were acquired in a distribution, in
exchange for, or upon the exercise of, a right relating to securities that were
qualifying assets.
 
We may invest up to 100% of our assets in securities acquired directly from
issuers in privately negotiated transactions. With respect to such securities,
we may, for the purpose of public resale, be deemed an "underwriter" as that
term is defined in the Securities Act. We may invest up to 20% of our assets in
securities of a particular issuer. We may exceed this limitation in connection
with bridge financings, although these bridge investments will never exceed 25%
of our total assets at any time. We do not intend to concentrate our investments
in any particular industry or group of industries.
 
We will at all times endeavor to conduct our business so as to retain our status
as a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986. In order to do so, we must meet income source, asset
diversification and annual distribution requirements. To meet the income source
requirements, at least 90% of our gross income for each taxable year must be
from dividends, interest payments with respect to loans, gains from sales or
other disposition of securities or other income derived with respect to our
business of investing in securities. To meet the asset diversification
requirements, as of the close of each quarter, at least 50% of the value of our
assets must consist of cash, cash items, U.S. government securities, the
securities of other regulated investment companies and other securities to the
extent that (1) we do not hold more than 10% of the voting securities of an
issuer of such other securities and (2) such other securities of any one issuer
do not represent more than 5% of our total assets. Finally, no more than 25% of
the value of our total assets may be invested in the securities of one issuer
(other than U.S. government securities or the securities of other regulated
investment companies), or of two or more issuers that are controlled by us and
are engaged in the same or similar or related trades or businesses. To meet the
annual distribution
 
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requirement, we must distribute 90% or more of our ordinary income and
short-term capital gains, if any, on an annual basis.
 
We may issue senior securities, such as debt or preferred stock, to the extent
permitted by the 1940 Act for the purpose of making investments, to fund share
repurchases, or for temporary emergency or other purposes. As a business
development company, we may issue senior securities up to an amount so that our
asset coverage, as defined in the 1940 Act, is at least 200% immediately after
each issuance of senior securities. For a discussion of the risks associated
with the resulting leverage, see "Risk Factors--Risks Relating to Our Business
and Structure--Our business plan is dependent upon external financing which may
expose us to risks associated with leverage."
 
We will not (i) act as an underwriter of securities of other issuers (except to
the extent that we may be deemed an "underwriter" of securities we purchase that
must be registered under the Securities Act before they may be offered or sold
to the public); (ii) purchase or sell real estate or interests in real estate or
real estate investment trusts (except that we may (x) purchase and sell real
estate or interests in real estate in connection with the orderly liquidation of
investments (y) own the securities of companies or participate in a partnership
or partnerships that are in the business of buying, selling or developing real
estate or (z) finance the purchase of real estate by our portfolio companies);
(iii) sell securities short (except with regard to managing the risks associated
with publicly-traded securities issued by our portfolio companies);
(iv) purchase securities on margin (except to the extent that we may purchase
securities with borrowed money); (v) write or buy put or call options (except
(x) to the extent of warrants or conversion privileges in connection with our
acquisition financing or other investments and rights to require the issuers of
such investments or their affiliates to repurchase them under certain
circumstances, (y) with regard to managing risks associated with publicly-traded
securities issued by portfolio companies or (z) with regard to managing the
risks associated with interest rate fluctuations); (vi) engage in the purchase
or sale of commodities or commodity contracts, including futures contracts
(except where necessary in working out distressed loan or investment situations
or in managing the risks associated with interest rate fluctuations); or
(vii) acquire more than 3% of the voting stock of, or invest more than 5% of our
total assets in any securities issued by any other investment company, except as
they may be acquired as part of a merger, consolidation or acquisition of
assets. With regard to that portion of our investments in securities issued by
other investment companies, it should be noted that such investments may subject
our stockholders to additional expenses.
 
INVESTMENT ADVISOR
 
We have no investment advisor and are internally managed by our executive
officers under the supervision of our board of directors.
 
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Prospective portfolio companies
 
The following descriptions set forth certain information regarding each business
to which we have entered into a non-binding commitment to make a loan. We
currently expect that each of these non-binding commitments will be satisfied
from the net proceeds of this offering, assuming the closing of this offering
and, among other things, the satisfactory completion of our due diligence
investigations of each borrower, acceptance of the terms and structure and
receipt of necessary consents. Unless otherwise noted, the only relationship
between us and each prospective borrower is our non-binding loan commitment.
Following the closing of this offering and the fulfillment of these loan
commitments, the investments described below will be our only investments. In
the aggregate, they will represent no more than 32% of our assets and no single
investment will represent more than 11% of our assets. While we may make
additional loans to these businesses, we have no present plans to make any such
loans or investments that would raise our investment in any one business above
20% of our total assets. Any such additional loans and investments will be made
in accordance with our investment policies and procedures.
 
Based on our due diligence investigations conducted to date, we believe that
each of our potential portfolio loans described below will satisfy our general
lending criteria (i.e., growth prospects, established business, experienced
management, significant equity sponsor, potential exit strategy, etc.) and that
all of the loans and warrants will be qualifying assets under the 1940 Act. For
each loan, one of our lending professionals, either Mr. Gladstone, Mr. Brubaker
or one of our principals, has screened the potential borrower to determine
satisfaction of our general lending criteria. Subsequently, we have initiated a
due diligence investigation of the potential borrower and negotiated the terms
of the non-binding commitment letter. Upon consummation of a loan, the same
lending professional, under the supervision of our senior management, and
according to the procedures of our internal credit committee, will be
responsible for monitoring and servicing the loan. Each of the proposed
borrowers described below are portfolio companies of Three Cities Research and
came to our attention through Mr. Gladstone's relationship with Three Cities.
 
With respect to each of these non-binding commitments, we will only agree to
provide the loan if, among other things, the results of our due diligence
investigations are satisfactory to us, the terms and structure of the loans are
acceptable to us and we have received all necessary consents. If, for any
reason, we do not wish to make any one of the loans, we will not be obligated to
do so. Similarly, none of the borrowers are obligated to receive a loan from us.
Our management has initiated its due diligence of these businesses, however,
there can be no assurance that we will not discover facts in the course of our
due diligence that would render these investments imprudent nor that any of the
loans described below will actually be made.
 
Garden Ridge Corporation (Houston, TX)
 
We have signed a non-binding commitment letter to provide a $20 million senior
subordinated loan to Garden Ridge Corporation of Houston, Texas. Garden Ridge
operates 35 large retail stores that sell merchandise for the home. The stores
are located in 12 states in the Southwest and Southeast United States in urban
growth areas with its highest store concentration in Texas. Garden Ridge was
founded in 1979, went public in 1994 and was taken private in January 2000. The
expected interest rate on the loan will be 10% per annum. As part of the loan,
we expect to receive a warrant to purchase 1.8% of Garden Ridge's stock for a
nominal exercise price. Mr. Gladstone has previous experience with Garden Ridge
in connection with a loan made to Garden Ridge by Allied Capital while
Mr. Gladstone was serving as chairman and chief executive officer of Allied
Capital.
 
If we consummate the loan to Garden Ridge, it will constitute approximately
10.8% of our assets. The size of this loan will expose us to the risks
associated with Garden Ridge's business. In particular, the
 
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28

<PAGE>
Prospective portfolio companies
--------------------------------------------------------------------------------
 
home merchandise retail market in which Garden Ridge competes is very
competitive and certain of Garden Ridge's competitors and potential competitors
have greater financial resources and brand recognition than it does.
Additionally, we believe that the home merchandise retail market is susceptible
to general economic conditions. A loss of market share to its competitors or an
overall decline in retail spending in the home merchandise market could have a
material adverse impact on Garden Ridge and its ability to repay our loan, which
would likely have an adverse impact on us.
 
American Remanufacturing, Inc. (Anaheim, CA)
 
We have signed a non-binding commitment letter to provide $15 million in
subordinated debt to ARI Holdings, Inc. (ARI), headquartered in Anaheim,
California, and its parent company, American Remanufacturing, Inc. This debt is
structured as an $8 million senior subordinated loan and a $7 million junior
subordinated loan. Founded in 1997, ARI is one of the largest remanufacturers of
auto parts in the United States. The expected interest rate on each loan will be
13% per annum. In connection with the loans, we expect to receive a warrant to
buy 3.2% of ARI's stock for a nominal exercise price.
 
If we consummate the loan to ARI, it will constitute approximately 8.1% of our
assets. The size of this loan will expose us to the risks associated with ARI's
business. In particular, the automotive remanufacturing market in which ARI
competes is very competitive and certain of ARI's competitors and potential
competitors have greater financial resources than it does. We believe that, in
2000, 57% of ARI's sales were consolidated among five customers. Any loss of a
significant customer by ARI could have a materially adverse impact on ARI and
its ability to repay our loan, which would likely have an adverse impact on us.
 
Finn Corporation (Fairfield, OH)
 
We have signed a non-binding commitment letter to provide a $10.5 million senior
subordinated loan to Finn Corporation of Fairfield, Ohio. Finn was founded in
1932 and is a leading designer, manufacturer and marketer of landscape and
erosion control equipment. Finn's product line includes HydroSeeders-TM-, straw
blowers, bark blowers, compact skid steers and other related products and
services. The expected interest rate on the loan will be 13% per annum and we
expect to receive a warrant to purchase 3.0% of Finn's stock for a nominal
exercise price.
 
If we consummate the loan to Finn, it will constitute approximately 5.6% of our
assets. The size of this loan will expose us to the risks associated with Finn's
business. In particular, the landscape and erosion control equipment market in
which Finn competes is very fragmented and competitive. Certain of Finn's
competitors and potential competitors have greater financial resources than it
does. We believe that in 2000, less than 50% of Finn's sales were consolidated
among 10 customers. Any loss of a significant customer by Finn could have a
materially adverse impact on Finn and its ability to repay our loan, which would
likely have an adverse impact on us.
 
Morning Sun, Inc. (Tacoma, WA)
 
We have signed a non-binding commitment letter to provide a $6 million senior
subordinated loan to Morning Sun, Inc., located in Tacoma, Washington. Founded
in 1986, Morning Sun designs and manufactures custom imprinted and embroidered
fleece and active wear on imported blank t-shirts, sweatshirts and fleece wear.
The expected interest rate on the loan will be 13% per annum and we expect to
receive a warrant to purchase 5.5% of Morning Sun's stock for a nominal exercise
price.
 
National Directory Company (Tustin, CA)
 
We have signed a non-binding commitment letter to provide a $5 million senior
subordinated loan to National Directory Company, Inc. (NDC) of Tustin, CA.
Founded in 1982, NDC was one of the first independent yellow pages directory
publishers to serve multiple contiguous local markets. It now publishes 38
yellow page directories. The expected interest rate on the loan will be 13% per
annum and we will expect to a warrant to purchase 2% of NDC's stock for a
nominal exercise price.
 
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<PAGE>
--------------------------------------------------------------------------------
 
Management
 
Our business and affairs are managed under the direction of our board of
directors. Our board of directors currently consists of two members, but prior
to the completion of this offering, it will be expanded to five members, three
of whom will not be "interested persons" of Gladstone Capital Corporation as
defined in Section 2(a)(19) of the 1940 Act, who we refer to as our independent
directors. Our board of directors elects our officers who serve at the
discretion of the board of directors.
 
EXECUTIVE OFFICERS AND DIRECTORS
 
Our executive officers and directors and their positions are set forth below:
 

<TABLE>
<CAPTION>
NAME                                               AGE      POSITIONS
----                                             --------   ---------
<S>                                              <C>        <C>
David Gladstone................................     60      Chairman of the Board of Directors and
                                                            Chief Executive Officer (1)(4)
Terry Brubaker.................................     57      President, Chief Operating Officer and Director
                                                            (1)
Harry Brill....................................     54      Chief Financial Officer and Treasurer (1)
Virginia Rollins...............................     40      Principal
Joseph Bute....................................     51      Principal
Buzz Cooper....................................     44      Principal
David A.R. Dullum..............................     55      Director (2)(3)(4)(5)
George Stelljes, III...........................     38      Director (3)(4)(5)
Anthony W. Parker..............................     55      Director (2)(3)(5)
</TABLE>

 
------------
 
(1) INTERESTED PERSON AS DEFINED IN SECTION 2(A)(19) OF THE 1940 ACT.
 
(2) MEMBER OF THE COMPENSATION COMMITTEE.
 
(3) MEMBER OF THE AUDIT COMMITTEE.
 
(4) MEMBER OF THE EXECUTIVE COMMITTEE.
 
(5) EXPECTED TO JOIN OUR BOARD OF DIRECTORS PRIOR TO THE COMPLETION OF THIS
    OFFERING.
 
The following is a summary of certain biographical information concerning our
executive officers, directors and those individuals we expect to become
directors prior to the completion of this offering:
 
    David Gladstone.  Mr. Gladstone is a founder of Gladstone Capital
Corporation and has been our chief executive officer and chairman of our board
of directors since inception. Prior to founding Gladstone Capital Corporation,
Mr. Gladstone served as chairman of the board of directors of American Capital
Strategies, a publicly traded leveraged buyout fund and mezzanine debt finance
company, from June 1997 to August 1998, and has served as its vice chairman
since August 1998. From 1974 to February 1997, Mr. Gladstone held various
positions, including chairman and chief executive officer, with Allied Capital
Corporation, Allied Capital Corporation II, Allied Capital Lending Corporation,
Allied Capital Commercial Corporation and Allied Capital Advisors Inc. The
Allied companies were the largest group of publicly traded mezzanine debt funds
and were managers of two private venture capital limited partnerships. From 1992
to 1997, Mr. Gladstone served as a director, president and chief executive
officer of Business Mortgage Investors, a private mortgage REIT managed by
Allied Capital. Mr. Gladstone served as a director of The Riggs National
Corporation (the parent of Riggs Bank) from 1993 to May 1997 and of Riggs Bank
from 1991 to 1993. He has served as a trustee of The George Washington
University and currently is a trustee emeritus. He is a past member of the
Listings and Hearings Committee of the National Association of Securities
Dealers, Inc. He is a current member of the advisory committee to the Women's
Growth Capital Fund, a venture capital firm that finances women-owned small
businesses. Mr. Gladstone was the managing member of
 
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30

<PAGE>
Management
--------------------------------------------------------------------------------
 
The Capital Investors, a group of angel investors, and is currently a member
emeritus. He is also the chairman and owner of B & G Berry Corporation, a large
strawberry farming operation in California. Mr. Gladstone is also a director of
Capital Automotive REIT, a real estate investment trust. Mr. Gladstone holds a
MBA degree from the Harvard Business School, a MA from American University and a
BA from the University of Virginia. Mr. Gladstone has authored two books on
financing for small and medium sized businesses, VENTURE CAPITAL HANDBOOK and
VENTURE CAPITAL INVESTING.
 
    Terry Brubaker.  Mr. Brubaker has been our president and chief operating
officer and a director since May 2001. In March 1999, Mr. Brubaker was a
founder, and now serves as chairman of Heads Up Systems, a company providing
process industries with leading edge technology. From 1996 to 1999,
Mr. Brubaker served as vice president of the paper group for the American
Forest & Paper Association. From 1992 to 1995, Mr. Brubaker served as president
of Interstate Resources, a pulp and paper company. From 1991 to 1992,
Mr. Brubaker served as president of IRI, a radiation measurement equipment
manufacturer. From 1981 to 1991, Mr. Brubaker held several management positions
at James River Corporation, a forest and paper company, including vice president
of strategic planning from 1981 to 1982, group vice president of the Groveton
Group and Premium Printing Papers from 1982 to 1990 and vice president of human
resources development in 1991. From 1976 to 1981, Mr. Brubaker was strategic
planning manager and marketing manager of white papers at Boise Cascade.
Previously, Mr. Brubaker was a senior engagement manager at McKinsey & Company
from 1972 to 1976. Mr. Brubaker holds a MBA degree from the Harvard Business
School and a BSE from Princeton University.
 
    Harry Brill.  Mr. Brill has been our treasurer and chief financial officer
since May 2001. From 1995 to April 2001, Mr. Brill served as a personal
financial advisor. From 1975 to 1995, Mr. Brill held various positions,
including treasurer, chief accounting officer and controller, with Allied
Capital Corporation where Mr. Brill was responsible for all of the accounting
work for Allied Capital and its family of funds. Mr. Brill received his degree
in accounting from Ben Franklin University.
 
    Virginia Rollins.  Ms. Rollins has been a principal since May 2001. From
1998 to May 2001, Ms. Rollins served as vice president and principal of American
Capital Strategies where she was responsible for marketing, originations,
underwriting and portfolio management for the Bethesda, Maryland office. From
1993 to 1997, Ms. Rollins served as managing director and deputy managing
director of Bulgarian American Enterprise Fund, a private investment firm which
focuses on making loans to and investments in Bulgaria. Ms. Rollins holds a
Masters of International Management from the American Graduate School of
International Management and a BA from the University of North Carolina, Chapel
Hill.
 
    Joseph Bute.  Mr. Bute has been a principal since May 2001. From 1996 to
April 2001, Mr. Bute served as principal and vice president of American Capital
Strategies, where he was responsible for marketing, originations, underwriting
and portfolio management for the Pittsburgh, Pennsylvania office. During that
period, he invested $35 million for American Capital in four companies and
served as a director of each. From 1992 to 1996, Mr. Bute was director of
manufacturing services of the Steel Valley Authority where he established and
developed a nationally recognized manufacturing retention program for the
Commonwealth of Pennsylvania. Mr. Bute holds a BS from the University of San
Francisco.
 
    Buzz Cooper.  Mr. Cooper has been a principal since May 2001. From 1986 to
2000, Mr. Cooper served as a principal of Allied Capital Corporation. At Allied
Capital, Mr. Cooper was responsible for identifying, sourcing, underwriting,
managing, financing and servicing all forms of
 
--------------------------------------------------------------------------------
                                                                              31

<PAGE>
Management
--------------------------------------------------------------------------------
 
commercial real estate. During his time at Allied Capital, Mr. Cooper also
administered an investment portfolio of over $250 million. Mr. Cooper holds a BA
from Washington and Lee University.
 
    David A.R. Dullum.  Mr. Dullum is to become a director prior to the
completion of this offering. From 1995 to the present, Mr. Dullum has been a
partner of New England Partners, a venture capital firm focused on investments
in small and medium sized businesses in the Mid-Atlantic and New England
regions. From 1973 to 1990, Mr. Dullum was the managing general partner of
Frontenac Company, a Chicago-based venture capital firm. Mr. Dullum holds a MBA
from Stanford Graduate School of Business and a BME from the Georgia Institute
of Technology.
 
    George Stelljes, III.  Mr. Stelljes is to become a director prior to the
completion of this offering. In 1999, Mr. Stelljes was a co-founder, and has
since been the managing member of Camden Partners, a private equity firm which
finances high growth companies in the communications, healthcare and business
services sectors. From 1997 to 1999, Mr. Stelljes was a partner of Columbia
Capital, a venture capital firm focused on investments in communications and
information technology. Prior to joining Columbia, Mr. Stelljes was a principal
at Allied Capital Corporation from 1989 to 1997. Mr. Stelljes currently serves
on the boards of directors of Agilquest, Dominion Digital and Virginia Capital.
He is also a former board member and regional president of the National
Association of Small Business Investment Companies. Mr. Stelljes holds a MBA
from the University of Virginia and a BA in Economics from Vanderbilt
University.
 
    Anthony W. Parker.  Mr. Parker is to become a director prior to the
completion of this offering. In 1997, Mr. Parker founded Medical Funding
Corporation, a company which purchases medical receivables. In the summer of
2000, Medical Funding Corporation purchased a Snelling Personnel Agency
franchise in Washington, DC which provides full staffing services for the local
business community. Mr. Parker currently serves as chairman of Medical Funding
Corporation. From 1992 to 1996, Mr. Parker was chairman of, and a 50%
stockholder of, Capitol Resource Funding, Inc. ("CRF"), a commercial finance
company with offices in Dana Point, California and Arlington, Virginia.
Mr. Parker joined CRF shortly after its inception and was instrumental in
growing the company from a startup to one that by 1996 was purchasing
receivables at the rate of $150 million per year, with over 40 employees.
Mr. Parker practiced corporate and tax law for over 15 years--from 1980 to 1983
at Verner, Liipfert, Bernhard & McPherson, and from 1983 to 1992 in private
practice. From 1973 to 1977 Mr. Parker served as executive assistant to the
administrator of the U. S. Small Business Administration. Mr. Parker received
his J. D. and Masters in Tax Law from Georgetown Law Center and his
undergraduate degree from Harvard College.
 
COMPENSATION OF EXECUTIVE OFFICERS
 
We have entered into employment agreements with Messrs. Gladstone and Brubaker,
who we refer to as our senior executive officers. The employment agreement of
each of the senior executive officers provides for a three-year term. However,
one year before the expiration of each agreement, its term will be automatically
renewed for an additional year, unless either party has given three months
advance written notice that the automatic extensions are to cease.
 
Upon the completion of this offering, the base salary under the employment
agreements of Messrs. Gladstone and Brubaker will be $200,000 per year. Our
board of directors will have the right to increase the base salary during the
term and also, generally, to decrease it, but not below $200,000.
 
The employment agreements provide that each of the senior executive officers is
entitled to participate in a performance based bonus program under which each
will be eligible to receive up to 100% of his
 
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32

<PAGE>
Management
--------------------------------------------------------------------------------
 
base salary depending on our performance against certain criteria to be
established annually by the compensation committee of the board of directors.
 
Each senior executive officer will also be contractually entitled to participate
in our 2001 Equity Incentive Plan, described below, effective with the
completion of this offering. The employment agreements provide that
Mr. Gladstone and Mr. Brubaker will receive options to purchase 100,000 shares
and 200,000 shares, respectively, of our common stock upon completion of this
offering. These options will have an exercise price equal to the fair market
value of our common stock on the date of grant. These stock options will fully
vest over one year following the date of grant, with half of the granted options
vesting on the date of grant and the remainder vesting on the first anniversary
of the date of grant. However, each senior executive officer may exercise his
option before it is fully vested. If a senior executive officer elects to
exercise his option early, the stock he receives upon such exercise will be
restricted stock that is subject to the same vesting schedule that was
applicable to the option. Until he satisfies these vesting requirements, the
senior executive officer will not be allowed to sell, assign or convey the
shares. If a senior executive officer's employment is terminated, we will have
the right to repurchase any early exercised shares that have not vested, by
paying the exercise price to the senior executive officer.
 
If we should terminate a senior executive officer's employment by reason of his
disability, he would be entitled to receive from us, for two years, the
difference between his then current base salary plus annual bonus and any
long-term disability benefits. Additionally, the senior executive officer's
unvested options which would have vested within two years of the termination
date would immediately vest. All vested options would expire unless exercised
(and all outstanding loans resulting from the prior exercise of any options
would have to be repaid) within 18 months of the termination date. If we should
terminate a senior executive officer's employment for any reason other than
disability or cause, the senior executive officer would be entitled to receive
his base salary and annual bonus for a period of two years from the date of
termination, although he could choose to forgo the payments and thus obtain a
release from non-compete provisions applicable during this period. These
payments would also be made if the senior executive officer resigned for good
reason, which generally includes our materially and adversely changing his
responsibilities and duties or a material breach by us of our compensation
obligations under the employment agreement. The senior executive officer will
also receive severance if he is terminated in connection with a change of
control or if he is not notified that the employment agreement will be continued
upon a change in control. Mr. Gladstone's employment agreement also defines
"good reason" as a determination by him of a material difference with our board
of directors. Additionally, a senior executive officer's unvested stock options
would generally vest if his employment were terminated for any reason other than
a disability or cause or if he resigned with good reason.
 
If a senior executive officer dies, his estate will be entitled to receive an
amount equal to any bonus received in the year prior to the executive's death.
Additionally, he will be considered to have vested on the date of death in those
options which would vest within one year of the date of death, and would forfeit
any unvested options scheduled to vest after one year from the date of death.
All such vested options would expire unless exercised (and all outstanding loans
resulting from the prior exercise of any options would have to be repaid) within
18 months of the date of death.
 
In the event that we should terminate a senior executive officer's employment
for cause or in the event that the senior executive officer voluntarily
terminates his employment for other than good reason, all unvested stock options
would be forfeited and he would have no more than 90 days to exercise any vested
but unexercised options (and to repay any outstanding loans resulting from the
prior exercise of any options).
 
--------------------------------------------------------------------------------
                                                                              33

<PAGE>
Management
--------------------------------------------------------------------------------
 
Upon termination of employment, each senior executive officer would be subject
to certain non-compete covenants. In the case of Mr. Brubaker, these covenants
would generally apply for two years, although should Mr. Brubaker resign without
good reason, the covenants would apply for only one year following the date of
resignation. The covenants applicable to Mr. Gladstone are generally shorter,
although in essentially all cases Mr. Gladstone would be prohibited from
competing with us for at least one year from the completion of this offering. As
noted above, during periods when the senior executive officers are receiving
severance payments from us, they may terminate these covenants prohibiting
competition by foregoing such severance payments.
 
Each of the employment agreements also provides that the senior executive
officer will maintain the confidentiality of our confidential information during
and after the period of his employment.
 
Other than as described above, we have not entered into any employment
agreements. None of our executive officers are expected to receive compensation
during the fiscal year ending September 30, 2001 in excess of $60,000.
 
BOARD OF DIRECTORS
 
Pursuant to the terms of our bylaws, following the closing of this offering, our
directors will be divided into three classes. One class will hold office
initially for a term expiring at the annual meeting of stockholders to be held
in 2002, a second class will hold office initially for a term expiring at the
annual meeting of stockholders to be held in 2003 and a third class will hold
office initially for a term expiring at the annual meeting of stockholders to be
held in 2004. Each director holds office for the term to which he or she is
elected and until his or her successor is duly elected and qualified.
Mr. Parker's term will expire in 2002, the term of Messrs. Brubaker and Dullum
will expire in 2003, and the term of Messrs. Gladstone and Stelljes will expire
in 2004. At each annual meeting of our stockholders, the successors to the class
of directors whose terms expire at such meeting will be elected to hold office
for a term expiring at the annual meeting of stockholders held in the third year
following the year of their election.
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
EXECUTIVE COMMITTEE.  Our board of directors has authorized the creation of an
executive committee to be established immediately prior to the completion of
this offering. Membership of our executive committee initially will be comprised
of Messrs. Gladstone, Dullum and Stelljes. The executive committee has the
authority to exercise all powers of the board of directors except for actions
that must be taken by the full board of directors under the Maryland General
Corporation Law.
 
AUDIT COMMITTEE.  Our board of directors has authorized the creation of an audit
committee to be established immediately prior to the completion of this
offering. Membership of the audit committee initially will be comprised of
Messrs. Dullum, Stelljes and Parker, each of whom is an independent director.
The audit committee will make recommendations concerning the engagement of
independent public accountants, review with our independent public accountants
the plans and results of the audit engagement, approve professional services
provided by our independent public accountants, review the independence of our
independent public accountants and review the adequacy of our internal
accounting controls.
 
COMPENSATION COMMITTEE.  Our board of directors has authorized the creation of a
compensation committee to be established immediately prior to the completion of
this offering. Membership of the compensation committee initially will be
comprised of Messrs. Parker and Dullum, each of whom is an
 
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34

<PAGE>
Management
--------------------------------------------------------------------------------
 
independent director. The compensation committee will determine compensation for
our executive officers, in addition to administering initially our 2001 Plan,
which is described below.
 
COMPENSATION OF DIRECTORS
 
As compensation for serving on our board of directors, each of our non-employee
directors will receive an annual fee of $10,000 and an additional $1,000 per
each meeting of the board attended, with no additional fee paid in connection
with attending committee meetings. In addition, we will reimburse our directors
for their reasonable out-of-pocket expenses incurred in attending meetings of
the board of directors. We will also make grants of stock options to our
non-employee directors from time to time pursuant to the 2001 Plan. Each
non-employee member of our board of directors will receive, upon completion of
this offering, an option to purchase 10,000 shares of our common stock. At the
time of each annual meeting of our stockholders, each non-employee director
shall receive an additional option to purchase 10,000 shares of our common
stock.
 
None of our directors is expected to receive compensation during the fiscal year
ending September 30, 2001 in excess of $60,000.
 
2001 EQUITY INCENTIVE PLAN
 
Effective June 2, 2001, we adopted the 2001 Equity Incentive Plan, which we
refer to as the 2001 Plan, for the purpose of attracting and retaining the
services of executive officers, directors, other key employees and consultants.
Under the 2001 Plan, the board of directors or our compensation committee, may
award incentive stock options within the meaning of Section 422 of the Code, or
ISOs, to employees, and nonstatutory stock options to employees, consultants,
and non-employee directors. In addition, the 2001 Plan permits the granting of
stock bonuses and rights to purchase restricted stock.
 
We have authorized for issuance 600,000 shares of capital stock under the 2001
Plan to employees, directors or consultants. This amount is subject to increase
by 4.5% of the number of shares sold under the underwriters' over-allotment
option, up to a maximum of 681,000 shares. The share reserve shall consist of
our common stock and preferred stock. Accordingly, participants in the 2001 Plan
may receive awards of preferred or common stock, or options to purchase such
stock, as determined by our board of directors or our compensation committee.
Options granted under the 2001 Plan may be exercised for a period of no more
than 10 years from the date of grant. Unless sooner terminated by our board of
directors, the 2001 Plan will terminate on June 1, 2011 and no additional awards
may be made under the 2001 Plan after that date.
 
STOCK OPTIONS
 
Options granted under the 2001 Plan will entitle the optionee, upon exercise, to
purchase shares of capital stock from us at a specified exercise price per
share. ISOs must have a per share exercise price of no less than the fair market
value of a share of stock on the date of the grant or, if the optionee owns or
is treated as owning (under Section 424(d) of the Code) more than 10% of the
total combined voting power of all classes of our stock, 110% of the fair market
value of a share of stock on the date of the grant. Nonstatutory stock options
granted under the 2001 Plan must have a per share exercise price of no less than
the fair market value of a share of stock on the date of the grant. Options will
not be transferable other than by laws of descent and distribution and will
generally be exercisable during an optionee's lifetime only by the optionee.
 
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<PAGE>
Management
--------------------------------------------------------------------------------
 
The compensation committee will administer the 2001 Plan and have the authority,
subject to the provisions of the 2001 Plan, to determine who will receive awards
under the 2001 Plan and the terms of such awards. The compensation committee
will have the authority to adjust the number of shares available for options,
the number of shares subject to outstanding options and the exercise price for
options following the occurrence of events such as stock splits, dividends,
distributions and recapitalizations. The compensation committee may lower the
exercise price for any outstanding stock options, or may issue replacement
options for options previously granted at a higher exercise price.
 
If authorized by the compensation committee, the exercise price of an option may
be paid in the form of shares of stock that are already owned by a participant.
The compensation committee also may permit a "cashless exercise" arrangement
whereby an optionee, without payment of the exercise price, receives upon
exercise, shares having an aggregate fair market value equal to the product of
(i) the excess of the fair market value of a share on the exercise date over the
exercise price and (ii) the number of shares covered by the option. The
compensation committee may provide for payment of the exercise price with a
promissory note, with interest accruing at a commercially reasonable market
rate, and subject to such other re-payment terms and conditions as established
by the compensation committee.
 
With respect to any nonstatutory stock option (as defined in the 2001 Plan), the
compensation committee may provide that if an employee delivers shares of stock
in full or partial payment of the exercise price of the nonstatutory stock
option, the employee will be granted a "reload stock option" to purchase that
number of shares of stock delivered by the employee.
 
STOCK BONUSES OR RESTRICTED STOCK
 
Participants in the 2001 Plan may be awarded stock bonuses in exchange for their
services, or may purchase restricted stock. These shares may be subject to a
time-based vesting schedule, or the attainment of performance goals established
by the compensation committee. The purchase price for restricted stock will not
be less than the fair market value of our stock on the date of purchase. Upon a
participant's termination of service with us, we may have the option to
repurchase the unvested shares of stock at the original purchase price paid by
participant for such shares, if any. The specific terms and conditions of stock
awards shall be governed by individual agreements in a form approved by the
compensation committee. Stock awarded under the 2001 Plan is transferable if so
determined by our compensation committee in its discretion.
 
CORPORATE TRANSACTIONS AND CHANGE IN CONTROL PROVISIONS
 
Upon specified corporate transactions (as defined in the 2001 Plan), all
outstanding stock awards under the 2001 Plan may either be assumed or
substituted for by the surviving entity. If the surviving entity does not assume
or substitute similar stock awards, the stock awards held by the participants
whose continuous service has not terminated prior to the corporate transaction,
will be accelerated in full and then terminated to the extent not exercised
prior to the corporate transaction. With respect to any other stock awards which
are not assumed or substituted and are held by participants whose continuous
service has terminated on or prior to the corporate transaction, such stock
awards will not be accelerated unless otherwise provided in a written agreement
between us, or any of our affiliates, and the participant.
 
Upon a change in control (as defined in the 2001 Plan), stock awards held by
participants whose continuous service has not terminated prior to the change in
control shall be subject to additional
 
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<PAGE>
Management
--------------------------------------------------------------------------------
 
acceleration of vesting, but only to the extent as provided in any written
agreement between us, or any of our affiliates, and the participant.
 
FEDERAL TAX CONSEQUENCES
 
The following is a brief summary of the federal income tax aspects of stock
options, restricted stock grants and stock bonus awards to be granted under the
2001 Plan based upon the federal income tax laws in effect on the date hereof.
This summary is not intended to be exhaustive and does not describe state or
local tax consequences.
 
ISOS.  No taxable ordinary income is realized by the participant upon the grant
or exercise of an ISO. If shares of stock are issued to a participant pursuant
to the exercise of an ISO, and if no disqualifying disposition of the shares is
made by the participant within two years of the date of grant or within one year
after the transfer of the shares to the participant, then: (i) upon the sale of
the shares, any amount realized in excess of the option price will be taxed to
the participant as a long-term capital gain, and any loss sustained will be a
capital loss, and (ii) no deduction will be allowed to us for federal income tax
purposes. The exercise of an ISO will give rise to an item of tax preference
that may result in an alternative minimum tax liability for the participant
unless the participant makes a disqualifying disposition of the shares received
upon exercise.
 
If stock acquired upon the exercise of an ISO is disposed of prior to the
expiration of the holding periods described above, then generally: (i) the
participant will realize ordinary income in the year of disposition in an amount
equal to the excess, if any, of the fair market value of the shares at exercise
(or, if less, the amount realized on the disposition of the shares) over the
option price paid for such shares, and (ii) we will be entitled to deduct any
such recognized amount. Any further gain or loss realized by the participant
will be taxed as short-term or long-term capital gain or loss, as the case may
be, and will not result in any deduction by us. Subject to certain exceptions
for disability or death, if an ISO is exercised more than three months following
the termination of the participant's employment, the option will generally be
taxed as a non-qualified stock option.
 
NONSTATUTORY STOCK OPTIONS.  With respect to nonstatutory stock options: (i) no
income is realized by the participant at the time the option is granted;
(ii) generally upon exercise of the option, the participant realizes ordinary
income in an amount equal to the difference between the option price paid for
the shares and the fair market value of the shares on the date of exercise and
we will be entitled to a tax deduction in the same amount; and (iii) at
disposition, any appreciation (or depreciation) after date of exercise is
treated either as short-term or long-term capital gain or loss, depending upon
the length of time that the participant has held the shares.
 
RESTRICTED STOCK AND STOCK BONUS AWARDS.  To the extent a participant's
restricted stock or stock bonus award is fully vested and is not subject to our
repurchase option, the participant will recognize taxable ordinary income equal
to any excess of the stock's fair market value on the purchase date over the
purchase price. In contrast, to the extent all of a participant's restricted
stock or stock bonus award is subject to a vesting schedule and is subject to
our repurchase option, no income tax with respect to such stock will be
recognized at the time of purchase unless the participant files a Section 83(b)
election. Instead, as and when the shares vest, ordinary income equal to the
excess, if any, of the then fair market value of the stock over the participants
purchase price, will be recognized. Generally, we will be entitled to a tax
deduction equal to the amount of ordinary income recognized by the participant.
 
Certain Transactions
 
In May 2001, we issued and sold 652,631 shares of our common stock for an
aggregate purchase price of $652,631 to Mr. Gladstone, our chairman and chief
executive officer.
 
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                                                                              37

<PAGE>
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Control persons and principal stockholders
 
Immediately prior to the completion of this offering, there will be 652,631
shares of common stock outstanding and one stockholder of record. We will have
no other shares of capital stock outstanding. The following table sets forth
certain ownership information with respect to our common stock for those persons
who directly or indirectly own, control or hold with the power to vote, 5% or
more of our outstanding common stock and all officers and directors, as a group.
 

<TABLE>
<CAPTION>
                                                                                 Percentage of Common
                                                                                   Stock Outstanding
                                                      ---------------------------------------------------------------------------
                                                                                     Shares Owned
                                        Type of               Immediately Prior
Name and Address                      Ownership                to this Offering                        After Offering(1)
---------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>               <C>       <C>                            <C>       <C>
David Gladstone...................  Record and        652,631                     100.0%       652,631                           %
c/o Gladstone Capital Corporation   Beneficial
1750 Tysons Blvd., 4th Floor
McLean, Virginia 22102
 
All officers and directors as a     Record and        652,631                     100.0%                                         %
  group (9 persons)...............  Beneficial
</TABLE>

 
(1) DOES NOT REFLECT SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UPON EXERCISE
    OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION OR STOCK OPTIONS TO BE ISSUED
    UNDER THE 2001 PLAN.
 
Determination of net asset value
 
The net asset value per share of our outstanding shares will be determined
quarterly, as soon as practicable after and as of the end of each calendar
quarter, by dividing the value of total assets minus liabilities by the total
number of shares outstanding at the date as of which the determination is made.
 
In calculating the value of our total assets, securities that are traded in the
over-the-counter market or on a stock exchange are valued at the prevailing bid
price on the valuation date, unless the investment is subject to a restriction
that requires a discount from such price, which is determined by our board of
directors. All other securities are valued at fair market value as determined in
good faith by the board of directors. In making such determination, the board of
directors will value loans and non-convertible debt securities for which there
exists no public trading market at cost plus amortized original issue discount,
if any, unless adverse factors lead to a determination of a lesser value. In
valuing convertible debt securities, equity or other types of securities for
which there exists no public trading market, the board of directors will
determine fair market value on the basis of collateral, the issuer's ability to
make payments, its earnings and other pertinent factors.
 
A substantial portion of our assets will consist of securities carried at fair
market values determined by our board of directors. Determination of fair market
values involves subjective judgment not susceptible to substantiation by
auditing procedures. Accordingly, under current auditing standards, the notes to
our consolidated financial statements will refer to the uncertainty with respect
to the possible effect of such valuations on our financial statements.
 
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38

<PAGE>
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Dividend reinvestment plan
 
Pursuant to our dividend reinvestment plan, if your shares of our common stock
are registered in your own name you can have all distributions reinvested in
additional shares of our common stock by     , the plan agent, if you enroll in
the reinvestment plan by delivering an authorization form to the plan agent
prior to the corresponding dividend declaration date. The plan agent will effect
purchases of our common stock under the reinvestment plan in the open market. If
you do not elect to participate in the reinvestment plan, you will receive all
distributions in cash paid by check mailed directly to you (or if you hold your
shares in street or other nominee name, then to your nominee) as of the relevant
record date, by the plan agent, as our dividend disbursing agent. If your shares
are held in the name of a broker or nominee or if you are transferring such an
account to a new broker or nominee, you should contact the broker or nominee to
determine whether and how they may participate in the reinvestment plan.
 
The plan agent serves as agent for the holders of our common stock in
administering the reinvestment plan. After we declare a dividend, the plan agent
will, as agent for the participants, receive the cash payment and use it to buy
common stock on the Nasdaq National Market or elsewhere for the participants'
accounts. The price of the shares will be the average market price at which such
shares were purchased by the plan agent.
 
Participants in the reinvestment plan may withdraw from the reinvestment plan
upon written notice to the plan agent. Such withdrawal will be effective
immediately if received not less than ten days prior to a dividend record date;
otherwise, it will be effective the day after the related dividend distribution
date. When a participant withdraws from the reinvestment plan or upon
termination of the reinvestment plan as provided below, certificates for whole
shares of common stock credited to his or her account under the reinvestment
plan will be issued and a cash payment will be made for any fractional share of
common stock credited to such account.
 
The plan agent will maintain each participant's account in the reinvestment plan
and will furnish monthly written confirmations of all transactions in such
account, including information needed by the stockholder for personal and tax
records. Common stock in the account of each reinvestment plan participant will
be held by the plan agent in non-certificated form in the name of such
participant. Proxy materials relating to our stockholders' meetings will include
those shares purchased as well as shares held pursuant to the reinvestment plan.
 
In the case of participants who beneficially own shares that are held in the
name of banks, brokers or other nominees, the plan agent will administer the
reinvestment plan on the basis of the number of shares of common stock certified
from time to time by the record holders as the amount held for the account of
such beneficial owners. Shares of our common stock may be purchased by the plan
agent through any of the underwriters, acting as broker or, after the completion
of this offering, dealer.
 
We will pay the plan agent's fees for the handling or reinvestment of dividends
and other distributions. Each participant in the reinvestment plan will pay a
pro rata share of brokerage commissions incurred with respect to the plan
agent's open market purchases in connection with the reinvestment of
distributions. There are no other charges to participants for reinvesting
distributions.
 
Distributions are taxable whether paid in cash or reinvested in additional
shares, and the reinvestment of distributions pursuant to the reinvestment plan
will not relieve participants of any U.S. federal income tax or state income tax
that may be payable or required to be withheld on such distributions. For more
information regarding taxes that our stockholders may be required to pay, see
"Material U.S. Federal Income Tax Considerations."
 
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                                                                              39

<PAGE>
Dividend reinvestment plan
--------------------------------------------------------------------------------
 
Experience under the reinvestment plan may indicate that changes are desirable.
Accordingly, we reserve the right to amend or terminate the reinvestment plan as
applied to any distribution paid subsequent to written notice of the change sent
to participants in reinvestment plan at least 90 days before the record date for
the distribution. The reinvestment plan also may be amended or terminated by the
plan agent with our prior written consent, on at least 90 days' written notice
to participants in the reinvestment plan. All correspondence concerning the
reinvestment plan should be directed to the plan agent by mail at
or by phone at              .
 
Material U.S. federal income tax considerations
 
The following discussion is a general summary of the material U.S. federal
income tax considerations applicable to us and to an investment in our common
stock and does not purport to be a complete description of the tax
considerations applicable to such an investment. You should consult your own tax
advisor with respect to the tax considerations which pertain to your purchase of
our common stock. This summary is based on the Internal Revenue Code, Treasury
regulations thereunder, and administrative and judicial interpretations thereof,
each as of the date hereof, all of which are subject to change, possibly on a
retroactive basis. This summary does not discuss all aspects of federal income
taxation relevant to holders of our common stock in light of their particular
circumstances, or to certain types of holders subject to special treatment under
federal income tax laws, including:
 
-   stockholders who are not citizens or residents of the United States or
    entities organized under the laws of the United States;
 
-   financial institutions;
 
-   mutual funds;
 
-   a person liable for the alternative minimum tax;
 
-   tax-exempt organizations;
 
-   insurance companies;
 
-   dealers in securities;
 
-   a trader in securities that elects to use a market-to-market method of
    accounting for your securities holdings; or
 
-   stockholders who hold our stock as part of an integrated investment such as
    a hedge, constructive sale, straddle or other risk reduction strategy or as
    part of a conversion transaction.
 
This discussion assumes you hold our common stock as a capital asset within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or the
Code. This summary does not discuss any aspects of foreign, state, or local tax
laws.
 
We intend to qualify for treatment as a regulated investment company, or RIC,
under Subchapter M of the Code. To qualify for such treatment, we must
distribute to our stockholders, for each taxable year, at least 90% of our
investment company taxable income, which is generally our ordinary income plus
short term capital gains, which we refer to as the annual distribution
requirement. We must also meet several additional requirements, including:
 
-   At least 90% of our gross income for each taxable year must be from
    dividends, interest, payments with respect to securities loans, gains from
    sales or other disposition of securities, or other income derived with
    respect to our business of investing in securities, and
 
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40

<PAGE>
Material U.S. federal income tax considerations
--------------------------------------------------------------------------------
 
-   As diversification requirements, as of the close of each quarter of our
    taxable year:
 
    d at least 50% of the value of our assets must consist of cash, cash items,
      U.S. government securities, the securities of other regulated investment
      companies and other securities to the extent that (1) we do not hold more
      than 10% of the outstanding voting securities of an issuer of such other
      securities and (2) such other securities of any one issuer do not
      represent more than 5% of our total assets, and
 
   d no more than 25% of the value of our total assets may be invested in the
     securities of one issuer (other than U.S. government securities or the
     securities of other regulated investment companies), or of two or more
     issuers that are controlled by us and are engaged in the same or similar or
     related trades or businesses.
 
If we were unable to qualify for treatment as a RIC, we would be subject to tax
on all of our taxable income at regular corporate rates. We would not be able to
deduct distributions to stockholders, nor would they be required to be made.
Distributions would be taxable to our stockholders as ordinary dividend income
to the extent of our current and accumulated earnings and profits. Subject to
certain limitations under the Code, corporate distributees would be eligible for
the dividends received deduction. Distributions in excess of our current and
accumulated earnings and profits would be treated first as a return of capital
to the extent of the stockholder's tax basis, and any remaining distributions
would be treated as a gain realized from the sale or exchange of property. If we
fail to meet the RIC requirements in our first taxable year or, with respect to
later years, for more than two consecutive years and then seek to requalify as a
RIC, we would be required to recognize gain to the extent of any unrealized
appreciation on our assets unless we make a special election to pay
corporate-level tax on any such unrealized appreciation recognized during the
succeeding 10-year period. Absent such special election, any gain we recognized
would be deemed distributed to our stockholders as a taxable distribution.
 
If we qualify as a RIC and distribute to stockholders each year in a timely
manner at least 90% of our investment company taxable income, we will not be
subject to federal income tax on the portion of our taxable income and gains we
distribute to stockholders. We would, however, be subject to a 4% nondeductible
federal excise tax if we do not distribute, actually or on a deemed basis, 98%
of our income, including both ordinary income and capital gains. The excise tax
would apply only to the amount by which 98% of our income exceeds the amount of
income we distribute, actually or on a deemed basis, to stockholders. We will be
subject to regular corporate income tax, currently at rates up to 35%, on any
undistributed income, including both ordinary income and capital gains. We
intend to retain some or all of our capital gains, but to designate the retained
amount as a deemed distribution. In that case, among other consequences, we will
pay tax on the retained amount, each stockholder will be required to include its
share of the deemed distribution in income as if it had been actually
distributed to the stockholder and the stockholder will be entitled to claim a
credit or refund equal to its allocable share of the tax we pay on the retained
capital gain. The amount of the deemed distribution net of such tax will be
added to the stockholder's cost basis for his or her common stock. Since we
expect to pay tax on any retained capital gains at our regular corporate capital
gain tax rate, and since that rate is in excess of the maximum rate currently
payable by individuals on long-term capital gains, the amount of tax that
individual stockholders will be treated as having paid will exceed the tax they
owe on the capital gain dividend and such excess may be claimed as a credit or
refund against the stockholder's other tax obligations. A stockholder that is
not subject to U.S. federal income tax or tax on long-term capital gains would
be required to file a U.S. federal income tax return on the appropriate form in
order to claim a refund for the taxes we paid. In order to utilize the deemed
distribution approach, we must provide written notice to the stockholders prior
to the expiration of 60 days after the close of the relevant tax year. We will
also be subject to alternative minimum tax, but any tax preference items would
be apportioned between us and our stockholders in the same
 
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                                                                              41

<PAGE>
Material U.S. federal income tax considerations
--------------------------------------------------------------------------------
 
proportion that dividends, other than capital gain dividends, paid to each
stockholder bear to our taxable income determined without regard to the
dividends paid deduction.
 
If we acquire debt obligations that were originally issued at a discount, which
would generally include loans we make that are accompanied by warrants, that
bear interest at rates that are not either fixed rates or certain qualified
variable rates or that are not unconditionally payable at least annually over
the life of the obligation, we will be required to include in taxable income
each year a portion of the "original issue discount" that accrues over the life
of the obligation. Such original issue discount will be included in our
investment company taxable income even though we receive no cash corresponding
to such discount amount. As a result, we may be required to make additional
distributions corresponding to such original issue discount amounts in order to
satisfy the annual distribution requirement and to continue to qualify as a RIC
or to avoid the 4% excise tax. In this event, we may be required to sell
temporary investments or other assets to meet the RIC distribution requirements.
 
For any period during which we qualify for treatment as a RIC for federal income
tax purposes, distributions to our stockholders attributable to our investment
company taxable income generally will be taxable as ordinary income to
stockholders to the extent of our current or accumulated earnings and profits.
Any distributions in excess of our earnings and profits will first be treated as
a return of capital to the extent of the stockholder's adjusted basis in his or
her shares of common stock and thereafter as gain from the sale of shares of our
common stock. Distributions of our long-term capital gains, designated by us as
such, will be taxable to stockholders as long-term capital gains regardless of
the stockholder's holding period in his or her common stock and regardless of
whether paid in cash or invested in additional common stock. Corporate
stockholders are generally eligible for the 70% dividends received deduction
with respect to ordinary income, but not capital gains dividends to the extent
such amount designated by us does not exceed the dividends received by us from
domestic corporations. Any dividend declared by us in October, November or
December of any calendar year, payable to stockholders of record on a specified
date in such a month and actually paid during January of the following year,
will be treated as if it were paid by us and received by the stockholders on
December 31 of the previous year. In addition, we may elect to relate a dividend
back to the prior taxable year if we (i) declare such dividend prior to the due
date for filing our return for that taxable year, (ii) make the election in that
return, and (iii) distribute the amount in the 12-month period following the
close of the taxable year but not later than the first regular dividend payment
following the declaration. Any such election will not alter the general rule
that a stockholder will be treated as receiving a dividend in the taxable year
in which the distribution is made, subject to the October, November, December
rule described above.
 
A stockholder may recognize taxable gain or loss if the stockholder sells or
exchanges such stockholder's shares of our common stock. Any gain arising from
the sale or exchange of our common stock generally will be treated as long-term
capital gain or loss if the stockholder has held his or her shares of common
stock for more than one year. Otherwise, it will be classified as short-term
capital gain or loss. However, any capital loss arising from a sale or exchange
of shares of common stock held for six months or less will be treated as a
long-term capital loss to the extent of the amount of capital gain dividends
received, or undistributed capital gain deemed distributed, with respect to such
shares of common stock.
 
We may be required to withhold U.S. federal income tax on all taxable
distributions payable to stockholders who fail to provide us with their correct
taxpayer identification number or a certificate that the stockholder is exempt
from backup withholding, or if the IRS notifies us that the stockholder is
subject to backup withholding. Any amounts withheld may be credited against a
stockholder's U.S. federal income tax liability.
 
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42

<PAGE>
Material U.S. federal income tax considerations
--------------------------------------------------------------------------------
 
Unless an exception applies, we will mail to each stockholder, as promptly as
possible after the end of each fiscal year, a notice detailing, on a per
distribution basis, the amounts includible in such stockholder's taxable income
for such year as ordinary income and as long-term capital gains, including taxes
paid by us with respect thereto. In addition, absent an exemption, the federal
tax status of each year's distributions will be reported to the IRS.
Distributions may also be subject to additional state, local and foreign taxes
depending on each stockholder's particular situation. You should consult your
own tax adviser with respect to the particular tax consequences to you of an
investment in our common stock.
 
Under our dividend reinvestment plan, all cash distributions to stockholders
will be automatically reinvested in additional whole and fractional shares of
our common stock unless you elect to receive cash. Even if you participate in
the plan and elect to reinvest dividends, for federal income tax purposes you
will be deemed to have received cash and such amounts must be included in your
income to the extent such deemed distribution otherwise represents a taxable
dividend for the year in which such distribution is credited to your account.
 
The foregoing discussion is a summary of the principal federal income tax
consequences of the ownership, sale or other disposition of our stock. This
discussion is not exhaustive, and does not address the tax consequences of
ownership, sale or other disposition for all types of stockholders. Accordingly,
stockholders are urged to consult their own tax advisors with respect to the
income tax consequences of the ownership and disposition of our stock, including
the application and effect of the laws of any state, local, foreign or other
taxing jurisdiction in their particular circumstances.
 
Description of our capital stock
 
THE FOLLOWING DESCRIPTION IS BASED ON OUR ARTICLES OF AMENDMENT AND RESTATEMENT
TO THE ARTICLES OF INCORPORATION AND OUR BYLAWS, WHICH WE INTEND TO ADOPT PRIOR
TO THE COMPLETION OF THIS OFFERING.
 
Our authorized capital stock consists of 50,000,000 shares of capital stock,
$0.001 par value per share, all of which is initially designated as common
stock. Under our articles of incorporation, our board of directors is authorized
to classify and reclassify any unissued shares of capital stock without
requiring stockholder approval. The following summary description of our capital
stock is not necessarily complete and is subject to, and qualified in its
entirety by, our articles of incorporation. Please review our articles of
incorporation for a more detailed description of the provisions summarized
below.
 
COMMON STOCK
 
All shares of our common stock have equal rights as to earnings, assets,
dividends and voting privileges and, when issued, will be duly authorized,
validly issued, fully paid and nonassessable. Distributions may be paid to the
holders of our common stock if, as and when declared by our board of directors
out of funds legally available therefor. Shares of our common stock have no
preemptive, conversion or redemption rights and are freely transferable, except
where their transfer is restricted by federal and state securities laws. In the
event of liquidation, dissolution or winding up of Gladstone Capital
Corporation, each share of our common stock is entitled to share ratably in all
of our assets that are legally available for distribution after we pay all debts
and other liabilities and subject to any preferential rights of holders of our
preferred stock, if any is outstanding at the time. Each share of our common
stock is entitled to one vote and does not have cumulative voting rights, which
means that holders of a majority of such shares, if they so choose, could elect
all of the directors, and holders of less than a majority of such shares would,
in that case, be unable to elect any director.
 
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                                                                              43

<PAGE>
Description of our capital stock
--------------------------------------------------------------------------------
 
We intend to apply to register our common stock for listing on the Nasdaq
National Market under the ticker symbol "GLAD."
 
PREFERRED STOCK
 
In addition to shares of common stock, our articles of incorporation authorize
the issuance of shares of preferred stock. Our board of directors is authorized
to provide for the issuance of preferred stock with such preferences, powers,
rights and privileges as it deems appropriate; except that, such an issuance
must adhere to the requirements of the 1940 Act. The 1940 Act requires, among
other things, that (i) immediately after issuance and before any dividend or
distribution is made with respect to our common stock or before any purchase of
common stock is made, the preferred stock, together with all other senior
securities, must not exceed an amount equal to 50% of our total assets after
deducting the amount of such dividend, distribution or purchase price, as the
case may be, and (ii) the holders of shares of preferred stock, if any are
issued, must be entitled as a class to elect two directors at all times and to
elect a majority of the directors if dividends on the preferred stock are in
arrears by two years or more. We believe that the availability of preferred
stock will provide us with increased flexibility in structuring future
financings and acquisitions.
 
LIMITATION ON LIABILITY OF DIRECTORS
 
We have adopted provisions in our articles of incorporation, which, to the
fullest extent permitted by Maryland law and as limited by the 1940 Act, limit
the liability of our directors and officers for monetary damages. Under our
articles of incorporation we shall indemnify (i) our directors and officers to
the full extent permitted by the General Laws of the State of Maryland as
limited by the 1940 Act, including the advance of expenses under the procedures
and to the full extent permitted by law and (ii) other employees and agents to
such extent as shall be authorized by our board of directors or our bylaws and
be permitted by law. The effect of these provisions is to eliminate our rights
and the rights of our stockholders (through stockholders' derivative suits on
our behalf) to recover monetary damages against one of our directors or officers
for breach of the fiduciary duty of care as a director or officer (including
breaches resulting from negligent or grossly negligent behavior) except to the
extent this limitation is not permitted under applicable law, including the 1940
Act. These provisions do not limit or eliminate our rights or the rights of any
of our stockholders to seek nonmonetary relief such as an injunction or
rescission in the event one of our directors or officers breaches his or her
duty of care. These provisions also will not alter the liability of our
directors or officers under federal securities laws.
 
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44

<PAGE>
--------------------------------------------------------------------------------
 
Certain provisions of our articles of incorporation and bylaws and Maryland
General Corporation Law
 
THE FOLLOWING DESCRIPTION IS BASED ON OUR ARTICLES OF AMENDMENT AND RESTATEMENT
TO THE ARTICLES OF INCORPORATION AND OUR BYLAWS, WHICH WE INTEND TO ADOPT PRIOR
TO THE COMPLETION OF THIS OFFERING.
 
Our articles of incorporation and bylaws and the Maryland General Corporation
Law contain certain provisions that could make more difficult the acquisition of
us by means of a tender offer, a proxy contest or otherwise. These provisions
are expected to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
us to negotiate first with our board of directors. We believe that the benefits
of these provisions outweigh the potential disadvantages of discouraging such
proposals because, among other things, negotiation of such proposals might
result in an improvement of their terms. The description set forth below is
intended as a summary only and is qualified in its entirety by reference to our
articles of incorporation and bylaws.
 
CLASSIFIED BOARD OF DIRECTORS
 
Our bylaws provide that, upon the closing of this offering, our board of
directors will be divided into three classes of directors serving staggered
three-year terms. Under the Maryland General Corporation Law, each class must
consist as nearly as possible of one-third of the directors then elected to our
board of directors. A classified board may render more difficult a change in
control of us or removal of our incumbent management. We believe, however, that
the longer time required to elect a majority of a classified board of directors
will help to ensure continuity and stability of our management and policies.
 
NUMBER OF DIRECTORS; REMOVAL; VACANCIES
 
Our articles of incorporation provide that the number of directors will be
determined pursuant to our bylaws and our bylaws provide that a majority of our
entire board of directors may at any time increase or decrease the number of
directors. In addition, our bylaws provide that the number of directors shall
not be increased by 50% or more in any 12-month period without the approval of
at least 66 2/3% of the members of our board of directors then in office. Our
bylaws provide that any vacancies will be filled by the vote of a majority of
the remaining directors, even if less than a quorum, and the directors so
appointed shall hold office until the next election of the class for which such
directors have been chosen and until their successors are elected and qualified.
Accordingly, our board of directors could temporarily prevent any stockholder
from enlarging the board of directors and filling the new directorships with
such stockholder's own nominees.
 
Our bylaws also provide that, except as may be required by law or our articles
of incorporation, our directors may only be removed for cause and only by the
affirmative vote of 75% of the voting power of all of the shares of our capital
stock then entitled to vote generally in the election of directors, voting
together as a single class.
 
STOCKHOLDER APPROVAL REQUIREMENTS
 
Maryland General Corporation Law provides that stockholder action can be taken
only at an annual or special meeting of stockholders or by unanimous written
consent in lieu of a meeting. These
 
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                                                                              45

<PAGE>
Certain provisions of our articles of incorporation and bylaws and Maryland
General Corporation Law
--------------------------------------------------------------------------------
 
provisions may have the effect of delaying consideration of a stockholder
proposal until the next annual meeting.
 
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS
 
Our bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors or to bring other business
before an annual meeting of our stockholders, which we refer to as the
stockholder notice procedure.
 
The stockholder notice procedure provides that (i) only persons who are
nominated by, or at the direction of, the board of directors, or by a
stockholder who has given timely written notice containing specified information
to the our Secretary prior to the meeting at which directors are to be elected,
will be eligible for election as directors and (ii) at an annual meeting only
such business may be conducted as has been brought before the meeting by, or at
the direction of, our board of directors or by a stockholder who has given
timely written notice to our secretary of such stockholder's intention to bring
such business before the meeting. Except for stockholder proposals submitted in
accordance with the federal proxy rules as to which the requirements specified
therein shall control, notice of stockholder nominations or business to be
conducted at a meeting must be received by us not less than 60 days nor more
than 90 days prior to the first anniversary of the previous year's annual
meeting if the notice is to be submitted at an annual stockholders meeting or no
later than 10 days following the day on which notice of the date of a special
meeting of stockholders was given if the notice is to be submitted at a special
stockholders meeting.
 
The purpose of requiring stockholders to give us advance notice of nominations
and other business is to afford our board of directors a meaningful opportunity
to consider the qualifications of the proposed nominees and the advisability of
the other proposed business and, to the extent deemed necessary or desirable by
the board of directors, to inform stockholders and make recommendations about
such qualifications or business, as well as to provide a more orderly procedure
for conducting meetings of stockholders. Although our bylaws do not give our
board of directors any power to disapprove stockholder nominations for the
election of directors or proposals for action, they may have the effect of
precluding a contest for the election of directors or the consideration of
stockholder proposals if proper procedures are not followed and of discouraging
or deterring a third party from conducting a solicitation of proxies to elect
its own slate of directors or to approve its own proposal without regard to
whether consideration of such nominees or proposals might be harmful or
beneficial to us and our stockholders.
 
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS
 
Our articles of incorporation may be amended, altered, changed or repealed,
subject to the resolutions providing for any class or series of preferred stock,
only by the affirmative vote of both a majority of the members of our board of
directors then in office and a majority of the voting power of all of the shares
of our capital stock entitled to vote generally in the election of directors,
voting together as a single class.
 
Our articles of incorporation also provide that the bylaws may be adopted,
amended, altered, changed or repealed by the affirmative vote of the majority of
our board of directors then in office. Any action taken by our stockholders with
respect to adopting, amending, altering, changing or repealing our bylaws may be
taken only by the affirmative vote of the holders of at least 75% of the voting
power
 
--------------------------------------------------------------------------------
46

<PAGE>
Certain provisions of our articles of incorporation and bylaws and Maryland
General Corporation Law
--------------------------------------------------------------------------------
 
of all of the shares of our capital stock then entitled to vote generally in the
election of directors, voting together as a single class.
 
These provisions are intended to make it more difficult for stockholders to
circumvent certain other provisions contained in our articles of incorporation
and bylaws, such as those that provide for the classification of our board of
directors. These provisions, however, also will make it more difficult for
stockholders to amend the articles of incorporation or bylaws without the
approval of the board of directors, even if a majority of the stockholders deems
such amendment to be in the best interests of all stockholders.
 
Regulation
 
We are a closed-end, non-diversified, management investment company that will
elect to be regulated as a business development company under Section 54 of the
1940 Act. As such, we are subject to regulation under the 1940 Act. The 1940 Act
contains prohibitions and restrictions relating to transactions between business
development companies and their affiliates, principal underwriters and
affiliates of those affiliates or underwriters and requires that a majority of
the directors be persons other than "interested persons," as defined in the 1940
Act. In addition, the 1940 Act provides that we may not change the nature of our
business so as to cease to be, or to withdraw our election as, a business
development company unless approved by a majority of our outstanding voting
securities.
 
ASSET COVERAGE
 
We are permitted, under specified conditions, to issue multiple classes of
indebtedness and one class of stock senior to our common stock if our asset
coverage, as defined in the 1940 Act, is at least 200% immediately after each
such issuance. In addition, while senior securities are outstanding, we must
make provisions to prohibit any distribution to our stockholders or the
repurchase of such securities or shares unless we meet the applicable asset
coverage ratios at the time of the distribution or repurchase. We may also
borrow amounts up to 5% of the value of our total assets for temporary or
emergency purposes.
 
QUALIFYING ASSETS
 
Under the 1940 Act, a business development company may not acquire any asset
other than assets of the type listed in Section 55(a) of the 1940 Act, which are
referred to as qualifying assets, unless, at the time the acquisition is made,
qualifying assets represent at least 70% of the company's total assets. The
principal categories of qualifying assets relevant to our proposed business are
the following:
 
    (1) Securities purchased in transactions not involving any public offering
       from the issuer of such securities, which issuer is an eligible portfolio
       company. An eligible portfolio company is defined in the 1940 Act as any
       issuer which:
 
       (a) is organized under the laws of, and has its principal place of
           business in, the United States;
 
       (b) is not an investment company other than a small business investment
           company wholly-owned by the business development company; and
 
       (c) does not have any class of securities with respect to which a broker
           or dealer may extend margin credit.
 
--------------------------------------------------------------------------------
                                                                              47

<PAGE>
Regulation
--------------------------------------------------------------------------------
 
    (2) Securities of any eligible portfolio company which we control.
 
    (3) Securities received in exchange for or distributed on or with respect to
       securities described in (1) or (2) above, or pursuant to the exercise of
       options, warrants or rights relating to such securities.
 
    (4) Cash, cash items, government securities, or high quality debt securities
       maturing in one year or less from the time of investment.
 
SIGNIFICANT MANAGERIAL ASSISTANCE
 
In addition, a business development company must have been organized and have
its principal place of business in the United States and must be operated for
the purpose of making investments in the types of securities described in
(1) or (2) above. However, in order to count portfolio securities as qualifying
assets for the purpose of the 70% test, the business development company must
either control the issuer of the securities or must offer to make available to
the issuer of the securities significant managerial assistance; except that,
where the business development company purchases such securities in conjunction
with one or more other persons acting together, one of the other persons in the
group may make available such managerial assistance. Making available
significant managerial assistance means, among other things, any arrangement
whereby the business development company, through its directors, officers or
employees, offers to provide, and, if accepted, does so provide, significant
guidance and counsel concerning the management, operations or business
objectives and policies of a portfolio company.
 
CODE OF ETHICS
 
As required by the 1940 Act, we have adopted a code of ethics that establishes
procedures for personal investments and restricts certain transactions by our
personnel. Our code of ethics is filed as an exhibit to our registration
statement. For information on how to obtain a copy of our code of ethics, see
"Available Information."
 
--------------------------------------------------------------------------------
48

<PAGE>
--------------------------------------------------------------------------------
 
Shares eligible for future sale
 
Upon completion of this offering, 13,052,631 shares of our common stock will be
outstanding, based on the number of shares outstanding on June 22, 2001,
assuming no exercise of the underwriters' over-allotment option. Of these
shares, the 12,400,000 shares of our common stock sold in this offering will be
freely tradable without restriction or limitation under the Securities Act, with
the exception of shares purchased by our affiliates. Any shares purchased in
this offering by our affiliates will be subject to the volume limitations of
Rule 144. In addition, the 652,631 shares held by Mr. Gladstone prior to this
offering will be subject to a lockup agreement in favor of the representative of
the underwriters which generally provides that each of our directors and
officers shall not sell, offer to sell, contract to sell, hypothecate, grant any
option to sell or otherwise dispose of, directly or indirectly, any shares of
our common stock or securities convertible into or exchangeable for our shares
of common stock or warrants or other rights to purchase shares of our common
stock for a period of 180 days after the date of this prospectus. The
representatives of the underwriters may, in their sole discretion and at any
time without notice, release all or any portion of the securities subject to the
lockup agreements. Such shares owned by Mr. Gladstone will become eligible for
public resale under Rule 144 on              , 2002.
 
Share repurchases
 
Shares of closed-end investment companies frequently trade at discounts to net
asset value, especially shortly after the completion of the initial public
offering. We cannot predict whether our shares will trade above, at or below net
asset value. The market price of our common stock will be determined by, among
other things, the supply and demand for our shares, our investment performance
and investor perception of our overall attractiveness as an investment as
compared with alternative investments. Our board of directors has authorized our
officers, in their discretion and subject to compliance with the 1940 Act and
other applicable law, to purchase on the open market or in privately negotiated
transactions, outstanding shares of our common stock in the event that our
shares trade at a discount to net asset value. We can not assure you that we
will ever conduct any open market purchases and if we do conduct open market
purchases, we may terminate them at any time.
 
In addition, if at any time after the second anniversary of this offering, our
shares publicly trade for a substantial period of time at a substantial discount
to our then current net asset value per share, our board of directors will
consider authorizing periodic repurchases of our shares or other actions
designed to eliminate the discount. Our board of directors would consider all
relevant factors in determining whether to take any such actions, including the
effect of such actions on our status as a RIC under the Internal Revenue Code
and the availability of cash to finance these repurchases in view of the
restrictions on our ability to borrow. We can not assure you that any share
repurchases will be made or that if made, they will reduce or eliminate market
discount. Should we make any such repurchases in the future, we expect that we
would make them at prices at or below the then current net asset value per
share. Any such repurchase would cause our total assets to decrease, which may
have the effect of increasing our expense ratio. We may borrow money to finance
the repurchase of shares subject to the limitations described in this
prospectus. Any interest on such borrowing for this purpose will reduce our net
income.
 
--------------------------------------------------------------------------------
                                                                              49

<PAGE>
Custodian, transfer and dividend paying agent and registrar
--------------------------------------------------------------------------------
 
Custodian, transfer and dividend paying agent and registrar
 
Our securities are held under a custodian agreement by First Union National
Bank. The address of the custodian is 740 15th Street NW, Washington, D.C.
20005. Our assets are held under bank custodianship in compliance with the 1940
Act. The Bank of New York will act as our transfer and dividend paying agent and
registrar. The principal business address of the Bank of New York is 100 Church
Street, 14th Floor, New York, New York 10286.
 
Brokerage allocation and other practices
 
Since we will generally acquire and dispose of our investments in privately
negotiated transactions, we will infrequently use brokers in the normal course
of our business.
 
--------------------------------------------------------------------------------
50

<PAGE>
--------------------------------------------------------------------------------
 
Underwriting
 
We and the underwriters for this offering named below have entered into an
underwriting agreement concerning the shares being offered. Subject to
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. UBS Warburg LLC, First Union
Securities, Inc., Robertson Stephens, Inc., BB&T Capital Markets, a division of
Scott & Stringfellow, Inc. and Ferris, Baker Watts, Incorporated are the
representatives of the underwriters.
 

<TABLE>
<CAPTION>
                                                                Number of
Underwriters                                                       Shares
-------------------------------------------------------------------------
<S>                                                           <C>
UBS Warburg LLC.............................................
First Union Securities, Inc.................................
Robertson Stephens, Inc.....................................
BB&T Capital Markets/Scott & Stringfellow, Inc..............
Ferris, Baker Watts, Incorporated...........................
                                                              ----------
    Total...................................................  12,400,000
</TABLE>

 
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have a 30-day option to buy up to 1,860,000 shares
from us, at the public offering price less the underwriting discount (sales
load), to cover these sales. If any shares are purchased under this option, the
underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
 
The following table provides information regarding the amount of the discount to
be paid to the underwriters by us:
 

<TABLE>
<CAPTION>
                                                                       Paid by us
                                                             No exercise of    Full exercise of
                                                             over-allotment      over-allotment
                                                                     option              option
-----------------------------------------------------------------------------------------------
<S>                                                       <C>                 <C>
Per share...............................................  $                   $
    Total...............................................
</TABLE>

 
We estimate that the total expenses of this offering payable by us, excluding
the underwriting discount, will be approximately $      .
 
At our request, the underwriters have reserved up to 400,000 shares of our
common stock for sale, at the public offering price on the cover of this
prospectus less the sales concession, to our directors, officers and employees
and certain associated persons. The number of shares available for sale to the
general public will be reduced to the extent such persons purchase these
reserved shares. Any reserved shares not so purchased will be offered to the
general public on the same terms as other shares are offered hereby.
 
Shares sold by the underwriters to the general public will initially be offered
at the public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $      per share from the public offering price. Any of these
securities dealers may resell any shares purchased from the underwriters to
other brokers or dealers at a discount of up to $      per share from the public
offering price. If all the shares are not sold at the public offering price, the
representatives may change the offering price and the other selling terms.
Investors must pay for any shares purchased in the offering on or before       ,
2001.
 
We have agreed with the underwriters not to offer, sell, contract to sell, hedge
or otherwise dispose of, directly or indirectly, any of our common stock or
securities convertible into or exchangeable for
 
--------------------------------------------------------------------------------
                                                                              51

<PAGE>
Underwriting
--------------------------------------------------------------------------------
 
shares of common stock during the period from the date of this prospectus
continuing through the date 180 days after the date of this prospectus, without
the prior written consent of UBS Warburg LLC. Our executive officers and
directors have also agreed to these restrictions. Accordingly, this offering
will conform with the requirements set forth in Rule 2720 of the Conduct Rules
of NASD.
 
In connection with this offering, the underwriters may purchase and sell shares
of our common stock in the open market. These transactions may include
stabilizing transactions, short sales and purchases to cover positions created
by short sales. Stabilizing transactions consist of bids or purchases made for
the purpose of preventing or retarding a decline in the market price of our
common stock while this offering is in progress. Short sales involve the sale by
the underwriters of a greater number of shares than they are required to
purchase in this offering. Short sales may be either "covered short sales" or
"naked short sales." Covered short sales are sales made in an amount not greater
than the underwriters' over-allotment option to purchase additional shares in
this offering. The underwriters may close out any covered short position by
either exercising their over-allotment option or purchasing shares in the open
market. In determining the source of shares to close out the covered short
position, the underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to the price at
which they may purchase shares through the over-allotment option. Naked short
sales are sales in excess of the over-allotment option. The underwriters must
close out any naked short position by purchasing shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned there may be downward pressure on the price of shares in the open
market after pricing that could adversely affect investors who purchase in this
offering.
 
The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of that underwriter in stabilizing or short covering
transactions.
 
These activities by the underwriters may stabilize, maintain or otherwise affect
the market price of our common stock. As a result, the price of our common stock
may be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected on the Nasdaq National Market or
otherwise.
 
No underwriter is obligated to conduct market making activities in our common
stock and any such activities may be discontinued at any time without notice, at
the sole discretion of the underwriter. We have agreed to indemnify the several
underwriters against some liabilities, including liabilities under the
Securities Act, and to contribute to payments that the underwriters may be
required to make in respect thereof.
 
--------------------------------------------------------------------------------
52

<PAGE>
--------------------------------------------------------------------------------
 
Legal matters
 
The validity of the issuance of the common stock offered hereby will be passed
upon for us by Cooley Godward LLP, Reston, Virginia. Cooley Godward has an
option to purchase upon completion of this offering, 6,666 shares of common
stock at the public offering price set forth on the cover of this prospectus.
The validity of the shares of common stock offered hereby will be passed upon
for the underwriters by Sullivan & Cromwell, New York, New York. With respect to
all matters of Maryland law, Sullivan & Cromwell will rely upon Neuberger,
Quinn, Gielen, Rubin & Gibber, Baltimore, Maryland.
 
Experts
 
Ernst & Young LLP, independent auditors, have audited our balance sheet at
May 30, 2001, as set forth in their report. We have included our balance sheet
in the prospectus and elsewhere in the registration statement in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
 
Available information
 
Upon completion of this offering, we will become subject to the informational
requirements of the Securities Exchange Act of 1934 and will be required to file
reports, proxy statements and other information with the SEC. These documents
can be inspected and copied for a fee at the SEC's Public Reference Room, 450
5th Street, N.W., Washington, D.C. 20549. Call 1-800-SEC-0330 for information on
the operation of the public reference room. The SEC also maintains an Internet
site at http://www.sec.gov. This site contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC.
 
This prospectus does not contain all of the information in our registration
statement, including amendments, exhibits and schedules. Statements in this
prospectus about the contents of any contract or other document are not
necessarily complete and in each instance we refer you to the copy of the
contract or other document filed as an exhibit to the registration statement,
and each such statement is qualified in all respects by this reference.
 
--------------------------------------------------------------------------------
                                                                              53

<PAGE>
--------------------------------------------------------------------------------
 
Special note regarding forward-looking statements
 
Certain statements in this prospectus constitute forward-looking statements,
which relate to future events or our future performance or financial condition.
In some cases, you can identify forward-looking statements by terminology such
as "may," "believe," "enable," "will," "provide," "anticipate," "future,"
"could," "growth," "plan," "intend," "pursue," "provide," "anticipate,"
"future," "expect," "increase," "modifying," "focus," "should," "would" or the
negative of such terms or comparable terminology. These forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, levels of activity, performance or achievements of
to be materially different from any future results, levels of activity,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, (1) those listed under "Risk
Factors;" (2) adverse changes in interest rates; (3) our failure or inability to
establish or maintain referral arrangements with leveraged buyout funds and
venture capital funds to generate loan opportunities; (4) the loss of one or
more of our executive officers, in particular David Gladstone or Terry Brubaker;
(5) our inability to establish or maintain a credit facility on terms reasonably
acceptable to us, if at all; (6) our inability to successfully securitize our
loan portfolio on terms reasonably acceptable to us, if at all; and (7) the
decision of our potential competitors to aggressively seek to make senior and
subordinated loans to small and medium sized businesses on terms more favorable
than we intend to provide. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise after the date of this prospectus. As a result of the
foregoing and other factors, we can not assure you as to our future results,
levels of activity or achievements, and neither we nor any other person assumes
responsibility for the accuracy and completeness of such statements.
 
--------------------------------------------------------------------------------
54

<PAGE>
--------------------------------------------------------------------------------
 
Gladstone Capital Corporation
 
Balance Sheet
As of May 30, 2001
 
CONTENTS
 

<TABLE>
<S>                                                           <C>
Report of Independent Auditors..............................  F-2
 
Audited Balance Sheet
 
Balance Sheet...............................................  F-3
Notes to Balance Sheet......................................  F-4
</TABLE>

 
--------------------------------------------------------------------------------
                                                                             F-1

<PAGE>

REPORT OF INDEPENDENT AUDITORS
 
Board of Trustees and Shareholder
Gladstone Capital Corporation
 
We have audited the accompanying balance sheet of Gladstone Capital Corporation
as of May 30, 2001 (date of inception). The balance sheet is the responsibility
of the Company's management. Our responsibility is to express an opinion on the
balance sheet based on our audit.
 
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
 
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Gladstone Capital Corporation at
May 30, 2001 (date of inception) in conformity with accounting principles
generally accepted in the United States.
 
                                          /s/ ERNST & YOUNG LLP
 
McLean, Virginia
June 22, 2001

 
--------------------------------------------------------------------------------
F-2

<PAGE>
--------------------------------------------------------------------------------
 
Gladstone Capital Corporation
 
Balance Sheet
May 30, 2001
 

<TABLE>
<S>                                                           <C>
Assets
 
Stock subscription receivable...............................  $652,631
                                                              --------
Total assets................................................  $652,631
                                                              ========
Stockholders' equity
 
Common stock, $0.001 par value, 10,000,000 shares
  authorized, and 652,631 shares issued and outstanding.....  $    653
Capital in excess of par value..............................   651,978
                                                              --------
Total stockholders' equity..................................  $652,631
                                                              ========
</TABLE>

 
SEE ACCOMPANYING NOTES.
 
--------------------------------------------------------------------------------
                                                                             F-3

<PAGE>
--------------------------------------------------------------------------------
 
Gladstone Capital Corporation
 
Notes to Balance Sheet
May 30, 2001
 
1. ORGANIZATION AND BASIS OF PRESENTATION
 
Gladstone Capital Corporation (Company) was incorporated under the General
Corporation Laws of the State of Maryland on May 30, 2001 and has been inactive
since that date except for matters relating to its organization and registration
as a non-diversified, closed-end investment company to be treated as a business
development company under the Investment Company Act of 1940, as amended, and
the Securities Act of 1933, as amended. The Company's fiscal year-end will be
September 30.
 
The accompanying balance sheet has been prepared in accordance with accounting
principles generally accepted in the United States that require the use of
management estimates. Actual results may differ from those estimates.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Organization Costs
 
Organization costs include, among other things, cost of incorporation including
the cost of legal services pertaining to the organization and incorporation of
the business. These costs are expensed as incurred. As of May 30, 2001, the
Company had incurred no significant organization costs.
 
Offering Costs
 
The Company's initial public offering (Offering) costs include, among other
things, legal fees and other costs pertaining to the offering, registration
fees, underwriting costs and the costs of printing the prospectuses for sales
purposes. The Company will charge the offering costs to capital in excess of par
value upon completion of the Offering. As of May 30, 2001, the Company had
incurred no significant offering costs.
 
Stock Based Compensation
 
SFAS No. 123, "Accounting for Stock-Based Compensation" allows companies to
account for stock-based compensation under Accounting Principles Bulletin (APB)
No. 25, "Accounting for Stock Issued to Employees," but requires pro forma
disclosure in the notes to the financial statements as if the provision of SFAS
No. 123 had been adopted. The Company has elected to account for its stock-based
compensation in accordance with the provisions of APB No. 25.
 
3. INCOME TAXES
 
The Company intends to qualify for treatment as a regulated investment company
under Subchapter M of the Internal Revenue Code (the Code). As a regulated
investment company, the Company will not be subject to federal income tax on the
portion of its taxable income and gains distributed to stockholders. To qualify
as a regulated investment company, the Company is required to distribute to its
stockholders at least 90% of investment company taxable income, as defined by
the Code. The Company intends to distribute at least 90% of its ordinary income
and short-term capital gains on a quarterly basis. The Company may, but does not
intend to, pay out a return of capital.
 
--------------------------------------------------------------------------------
F-4

<PAGE>
Gladstone Capital Corporation
--------------------------------------------------------------------------------
 
4. STOCK SUBSCRIPTION RECEIVABLE
 
The Company received stock subscription receivables of $652,631 from the
Chairman and Chief Executive Officer in exchange for 652,631 shares of common
stock at $1.00 per share. The stock subscription receivable was funded on
June 22, 2001.
 
5. SUBSEQUENT EVENTS
 
Planned Initial Public Offering
 
The Company plans to file with the Securities and Exchange Commission to
register the Company as a non-diversified, closed-end investment company and
elect to be regulated as a business development company under the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended and
simultaneously offer 12,400,000 shares of common stock.
 
Non-binding Commitments
 
The Company has signed non-binding commitment letters to make loans to certain
businesses upon the satisfactory completion of the Offering. The loans are
subject to among other things, the satisfactory completion of the Company's due
diligence investigation on each borrower. If completed, the aggregate total of
these loans will be approximately $57 million.
 
Equity Incentive Plan
 
Effective June 2, 2001, the Company adopted the 2001 Equity Incentive Plan (2001
Plan) for the purpose of attracting and retaining executive officers, directors
and other key employees.
 
The Company has reserved 681,000 shares of common stock for the issuance of
options under the 2001 Plan to employees and directors. Options granted under
the 2001 Plan may be exercised for a period of no more than ten years from the
date of grant. Unless sooner terminated by the Company's board of directors, the
2001 Plan will terminated on June 1, 2011 and no additional awards may be made
under the 2001 Plan after that date. No options have been issued to date.
 
Formation of A Subsidiary
 
On June 13, 2001, the Company has filed with the Virginia State Corporation
Commission to incorporate Gladstone Advisers, Inc. (Advisers). The Advisers will
conduct the daily operations of the Company. The Company owns 100% of the voting
securities of Advisers. In the future, the results of operations of the Advisers
will be consolidated with the Company for financial reporting purposes.
 
--------------------------------------------------------------------------------
                                                                             F-5

<PAGE>
--------------------------------------------------------------------------------
 
Part C  Other information
 
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
 
1. FINANCIAL STATEMENTS
 
The following financial statements of Gladstone Capital Corporation (the
"Company" or the "Registrant") are included in this registration statement in
"Part A: Information Required in a Prospectus":
 

<TABLE>
<CAPTION>
                                                                              Page
<S>                                                           <C>
----------------------------------------------------------------------------------
Balance Sheet of Registrant, dated as of May 30, 2001.                         F-3
</TABLE>

 
2. EXHIBITS
 

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                  DESCRIPTION
<S>                     <C>
------------------------------------------------------------------------------------
a.1*                    Articles of Incorporation
a.2                     Articles of Amendment and Restatement of the Articles of
                        Incorporation.
b                       Bylaws.
c                       Not applicable.
d                       Specimen certificate of the Company's common stock, par
                        value $0.001 per share, the rights of holders of which are
                        defined in Exhibits a and b.
e                       Dividend Reinvestment Plan.
f                       Not applicable.
g                       Not applicable.
h                       Form of Underwriting Agreement.
i.                      2001 Equity Incentive Plan.
j                       Form of Custody Agreement with First Union National Bank
                        with respect to safekeeping.
k.1                     Form of Registrar, Transfer Agency and Service Agreement
                        between the Company and the Bank of New York.
k.2                     Employment Agreement dated June       , 2001 between the
                        Company and David Gladstone.
k.3                     Employment Agreement dated June       , 2001 between the
                        Company and Terry Brubaker.
l                       Opinion of Cooley Godward LLP.
m                       Not applicable.
n.1*                    Consent of Ernst & Young LLP, independent public
                        accountants.
n.2                     Consent of Cooley Godward LLP (included in Exhibit l).
n.3                     Consent of David A.R. Dullum to be named as director.
n.4                     Consent of George Stelljes, III to be named as director.
n.5                     Consent of Anthony W. Parker to be named as director.
o                       Not applicable.
p*                      Subscription Agreement dated May 30, 2001.
q                       Not applicable.
r                       Code of Ethics.
</TABLE>

 
*  FILED HEREWITH.
 
ITEM 25. MARKETING ARRANGEMENTS
 
The information contained under the heading "Underwriting" on page 51 of the
prospectus is incorporated herein by reference, and any information concerning
any underwriters will be contained in the accompanying prospectus supplement, if
any.
 
--------------------------------------------------------------------------------
                                                                             C-1

<PAGE>
Part C  Other information
--------------------------------------------------------------------------------
 
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
 

<TABLE>
<S>                                                           <C>
Commission registration fee.................................  $53,475
NASD filing fee*............................................       **
Nasdaq National Market Additional Listing Fee*..............       **
Accounting fees and expenses*...............................       **
Legal fees and expenses.*...................................       **
Printing and engraving*.....................................       **
Miscellaneous fees and expenses*............................       **
                                                              -------
Total.......................................................  $    **
                                                              =======
</TABLE>

 
*  ESTIMATED FOR FILING PURPOSES.
 
** TO BE COMPLETED BY AMENDMENT.
 
All of the expenses set forth above shall be borne by the Company.
 
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
 
Gladstone Advisers, Inc., a Virginia corporation ("Advisers"), is the Company's
only subsidiary. Gladstone Capital Corporation owns 100% of the voting
securities of Advisers. Advisers is consolidated with the Company for financial
reporting purposes.
 
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
 
The following table sets forth the approximate number of record holders of the
Company's common stock at June 22, 2001.
 

<TABLE>
<CAPTION>
                                                                   NUMBER OF
TITLE OF CLASS                                                RECORD HOLDERS
<S>                                                           <C>
----------------------------------------------------------------------------
Common stock, $0.001 par value..............................        1
</TABLE>

 
ITEM 29. INDEMNIFICATION
 
The Annotated Code of Maryland, Corporations and Associations (the "Maryland
Law"), Section 2-418 provides that a Maryland corporation may indemnify any
director of the corporation and any person who, while a director of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan, made a party to any proceeding by reason of service in that
capacity unless it is established that the act or omission of the director was
material to the matter giving rise to the proceeding and was committed in bad
faith or was the result of active and deliberate dishonesty; or the director
actually received an improper personal benefit in money, property or services;
or, in the case of any criminal proceeding, the director had reasonable cause to
believe that the act or omission was unlawful. Indemnification may be made
against judgments, penalties, fines, settlements, and reasonable expenses
actually incurred by the director in connection with the proceeding, but if the
proceeding was one by or in the right of the corporation, indemnification may
not be made in respect of any proceeding in which the director shall have been
adjudged to be liable to the corporation. Such indemnification may not be made
unless authorized for a specific proceeding after a determination has been made,
in the manner prescribed by the law, that indemnification is permissible in the
circumstances because the director has met the
 
--------------------------------------------------------------------------------
C-2

<PAGE>
Part C  Other information
--------------------------------------------------------------------------------
 
applicable standard of conduct. On the other hand, the director must be
indemnified for expenses if he or she has been successful in the defense of the
proceeding or as otherwise ordered by a court. The law also prescribes the
circumstances under which the corporation may advance expenses to, or obtain
insurance or similar cover for, directors.
 
The law also provides for comparable indemnification for corporate officers and
agents.
 
The Articles of Incorporation of the Company provide that its directors and
officers shall, and its agents in the discretion of the board of directors may,
be indemnified to the fullest extent permitted from time to time by the laws of
Maryland (with such power to indemnify officers and directors limited to the
scope provided for in Section 2-418 as currently in force), provided, however,
that such indemnification is limited by the Investment Company Act of 1940 or by
any valid rule, regulation or order of the Securities and Exchange Commission
thereunder. The Company's Bylaws provide that the Company may not indemnify any
director or officer against liability to the Company or its security holders to
which he or she might otherwise be subject by reason of such person's willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office unless a determination is made by
final decision of a court, by vote of a majority of a quorum of directors who
are disinterested, non-party directors or by independent legal counsel that the
liability for which indemnification is sought did not arise out of such
disabling conduct.
 
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described above, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person in the successful defense of
an action, suit or proceeding) is asserted by a director, officer or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of the court of the issue.
 
The Company carries liability insurance for the benefit of its directors and
officers on a claims-made basis of up to $  , subject to a $  retention and the
other terms thereof.
 
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
 
Not applicable.
 
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
 
The Company maintains at its principal office physical possession of each
account, book or other document required to be maintained by Section 31(a) of
the 1940 Act and the rules thereunder.
 
ITEM 32. MANAGEMENT SERVICES
 
Not applicable.
 
--------------------------------------------------------------------------------
                                                                             C-3

<PAGE>
Part C  Other information
--------------------------------------------------------------------------------
 
ITEM 33. UNDERTAKINGS
 
1. The Registrant undertakes to suspend the offering of shares until the
prospectus is amended if, subsequent to the effective date of its registration
statement, (1) the net asset value declines more than ten percent from its net
asset value as of the effective date of the registration statement; or (2) the
net asset value increases to an amount greater than the net proceeds as stated
in the prospectus.
 
2. The Registrant undertakes that:
 
(a) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
 
(b) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
 
--------------------------------------------------------------------------------
C-4

<PAGE>
--------------------------------------------------------------------------------
 
Signatures
 
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of McLean, in the
Commonwealth of Virginia, on the 22nd day of June, 2001.
 

<TABLE>
<S>                                                    <C>  <C>
                                                       GLADSTONE CAPITAL CORPORATION
 
                                                       By:  /s/ DAVID GLADSTONE
                                                            -----------------------------------------
                                                            David Gladstone
                                                            Chairman of the Board and
                                                            Chief Executive Officer
</TABLE>

 
KNOW ALL MEN BY THESE PRESENT, each person whose signature appears below hereby
constitutes and appoints David Gladstone and Terry Brubaker and each of them,
his or her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him or her and in his or her name, place,
and stead, in any and all capacities, to sign any and all amendments to this
Registration Statement and any registration statement filed pursuant to
Rule 462(b) under the Securities Act, and to file the same, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
 
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on June 22, 2001.
 

<TABLE>
<CAPTION>
                      Signature                                               Title
                      ---------                                               -----
<C>                                                    <S>
                 /s/ DAVID GLADSTONE                   Chairman of the Board and Chief Executive Officer
     -------------------------------------------       (principal executive officer)
                   David Gladstone
 
                 /s/ TERRY BRUBAKER                    President, Chief Operating Officer and Director
     -------------------------------------------
                   Terry Brubaker
 
                   /s/ HARRY BRILL                     Chief Financial Officer (principal financial and
     -------------------------------------------       accounting officer)
                     Harry Brill
</TABLE>

 
--------------------------------------------------------------------------------
                                                                             C-5





<PAGE>

                                                                  Exhibit 99.a.1

                          GLADSTONE CAPITAL CORPORATION


                            ARTICLES OF INCORPORATION


         FIRST: I, Thomas R. Salley, whose post office address is c/o Cooley
Godward LLP, One Freedom Square, Reston Town Center, 11951 Freedom Drive,
Reston, Virginia 20190, being at least eighteen (18) years of age, am hereby
forming a corporation under and by virtue of the general laws of the State of
Maryland.

         SECOND: The name of the Corporation (which is hereafter called the
"CORPORATION") is Gladstone Capital Corporation.

         THIRD: The purpose for which the Corporation is formed is to engage in
any lawful business and activity.

         FOURTH: The post office address of the principal office of the
Corporation in this State is 300 East Lombard Street, Baltimore, Maryland 21202.
The name of the Resident Agent of the Corporation in this State is The
Corporation Trust Incorporated whose address is 300 East Lombard Street,
Baltimore, Maryland 21202.

         FIFTH: The total number of shares of capital stock which the
Corporation has authority to issue is ten million (10,000,000) shares of common
stock, with a par value of $0.001 per share.

         SIXTH: The number of directors of the Corporation shall be one (1),
which number may be increased pursuant to the bylaws of the Corporation, but

shall never be less than one (1). The name of the Director who shall act until
the first annual meeting or until his successors are duly elected and qualify is
David Gladstone.

         SEVENTH: Except as may otherwise be provided by the Board of Directors,
no holder of any shares of the stock of the Corporation shall have any
pre-emptive right to purchase, subscribe for, or otherwise acquire any shares of
stock of the Corporation of any class not or hereafter authorized, or any
securities exchangeable for or convertible into such shares, or any warrants or
other instruments evidencing rights or options to subscribe for, purchase or
otherwise acquire such shares.

         EIGHTH: The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the Corporation and of the
directors and stockholders:

         1. The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of its stock of any class or
classes, whether now or hereafter authorized.

         2. The Board of Directors of the Corporation may classify or reclassify
any unissued stock by setting or changing in any one or more respects, from time
to time before issuance of 


<PAGE>

such stock, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of such stock.

         3. The Corporation reserves the right to amend its Charter so that such
amendment may alter the contract rights, as expressly set forth in the charter,
of any outstanding stock, and any objecting stockholder whose rights may or
shall be thereby substantially adversely affected shall not be entitled to
demand and receive payment of the face value of his stock.

         The enumeration and definition of a particular power of the Board of
Directors included in the foregoing shall in no way be limited or restricted by
reference to or inference from the terms of any other cause of this or any other
article of the Charter of the Corporation, or construed as or deemed by
inference or otherwise in any manner to exclude or limit any powers conferred
upon the Board of Directors under the Maryland General Corporation Law now or
hereafter in force.

         4. Notwithstanding any provision of law to the contrary, the
affirmative vote of a majority of all the votes entitled to be cast on the
matter shall be sufficient, valid and effective, after due authorization
approval and/or advice of such action by the Board of Directors, as required by
law, to approve and authorize the following acts of the Corporation:

                  (a) The amendment of the Charter of the Corporation;

                  (b) the consolidation of the Corporation with one or more
corporations to form a new consolidated corporation;

                  (c) the merger of the Corporation into another corporation or
the merger of one or more other corporations into the Corporation;

                  (d) the sale, lease, exchange or other transfer of all, or
substantially all, of the property and assets of the Corporation, including its
goodwill and franchises;

                  (e) the participation by the Corporation in a share exchange
(as defined in the Corporation and Associations Article of the Annotated Code of
Maryland) as the corporation the stock of which is to be acquired; and

                  (f) the voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation.

         NINTH: No director or officer of the Corporation shall be liable to the
Corporation or to its stockholders for money damages except (1) to the extent
that it is proved that such director or officer actually received an improper
benefit or profit in money, property or services actually received, or (2) to
the extent that a judgment or other final adjudication adverse to such director
or officer is entered in a proceeding based on a finding in the proceeding that
such director's or officer's action, or failure to act, was (a) the result of
active and deliberate dishonesty, or (b) intentionally wrongful, willful or
malicious and, in each such case, was material to the cause of action
adjudicated in the proceeding.


<PAGE>

         IN WITNESS WHEREOF, I have signed these Articles of Incorporation this
25th day of May, 2001, and I acknowledge same to be my act.




                                     /s/ T.R. Salley
                                    --------------------------------------------
                                    Thomas R. Salley
                                    Incorporator


         I HEREBY CONSENT to my designation in these Articles of Incorporation
as resident agent for the Corporation.

                                    THE CORPORATION TRUST INCORPORATED


                                    By:    /s/ Mark Diffenbaugh            
                                       -----------------------------------------
                                    Name:      Mark Diffenbaugh            
                                         ---------------------------------------
                                    Title:    Assistant Secretary 
                                          --------------------------------------
                                    



RETURN TO:
Thomas R. Salley, Esq.
Cooley Godward LLP
One Freedom Square
Reston Town Center
11951 Freedom Drive
Reston, Virginia  20190-5601





<PAGE>

                                                                   Exhibit 99N.1


                   CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to 
the use of our report dated June 22, 2001 in the Registration Statement (Form 
N-2 No. 333-    ) and related Prospectus of Gladstone Capital Corporation for 
the registration of 12,400,000 shares of common stock.


/s/ Ernst & Young LLP
McLean, Virginia
June 22, 2001







<PAGE>

                                                                    Exhibit 99.p

                          GLADSTONE CAPITAL CORPORATION

                             SUBSCRIPTION AGREEMENT

                                  May 30, 2001


Board of Directors
Gladstone Capital Corporation
1750 Tysons Boulevard, 4th Floor
McLean, Virginia  22102

Gentlemen:

         The undersigned David Gladstone (the "PURCHASER") hereby offers to
subscribe for six hundred fifty-two thousand six hundred thirty-one (652,631)
shares of the common stock, $.001 par value per share, of GLADSTONE CAPITAL
CORPORATION, a Maryland corporation (the "CORPORATION"), in exchange for an
aggregate purchase price of Six Hundred Fifty-Two Thousand Six Hundred
Thirty-One Dollars ($652,631).

         In connection with the issuance and sale to the Purchaser of the
foregoing shares of the common stock of the Corporation, the Purchaser hereby
represents, acknowledges and agrees as follows:

         The Purchaser represents that such shares and any securities issued
hereafter with respect to such shares (collectively, the "RESTRICTED SHARES")
will be held for investment only and are not being acquired with a view toward
their distribution within the meaning of the Securities Act of 1933, as amended
(the "ACT"), and the rules, regulations and interpretations of the Securities
and Exchange Commission (the "COMMISSION") promulgated
 thereunder.

         The Purchaser understands that the Restricted Shares have not been
registered under the Act and agrees not to offer for sale, sell, transfer,
pledge, hypothecate or otherwise dispose of any of the Restricted Shares in any
way that will render the transaction in which the Restricted Shares will be
issued no longer an exempt transaction under the Act; and the Purchaser further
agrees not to offer for sale, sell, transfer, pledge, hypothecate or otherwise
dispose of any of the Restricted Shares unless such shares have been registered
under the Act and such registration is effective at the time of the disposition
of such shares, or the Corporation has received the written opinion of its
counsel that such registration is not required by the Act as then in effect with
respect to the proposed sale, transfer or other disposition or that such
transaction complies with the rules, regulations and interpretations of the
Commission.

         The Purchaser further agrees that the certificate representing the
Restricted Shares shall bear substantially the following legends:


<PAGE>


                  The securities evidenced by this certificate have
                  not been registered under the Securities Act of
                  1933, as amended, and may be offered and sold only
                  if registered pursuant to the provisions of that
                  Act or if in the opinion of counsel for the issuer
                  hereof, an exemption from registration is
                  available therefor.

         The Purchaser hereby confirms and states that it has been advised by
the Corporation that the Restricted Shares have not been registered under the
Act and that consequently the Restricted Shares must be held indefinitely unless
they are subsequently registered or an exemption from such registration is
available.

         The Purchaser also confirms and states that the Corporation has
furnished the Purchaser with such information concerning the Corporation that
the Purchaser has deemed material to its decision to purchase the Restricted
Shares or has afforded to the Purchaser access to such information. The
Purchaser further states that the Corporation has not manifested any present
intention of registering, for resale by the Purchaser, any of the Restricted
Shares and that the Corporation has no obligation to the Purchaser to so
register or to make any exemption from registration available for such resale.

         The Purchaser also agrees to indemnify the Corporation against and hold
it harmless from all liability, costs and expenses (including reasonable
attorneys' fees) imposed upon it by reason of any violation by the Purchaser of
the provisions hereof.

         The benefits and the obligations hereof shall inure to and be binding
upon the Purchaser and the Corporation and their respective successors and
assigns, and shall be applicable to all the Restricted Shares, adjusted for
stock splits, stock dividends, merger, consolidation, reclassification or
exchange of the Restricted Shares.


                            [SIGNATURE PAGE FOLLOWS]


<PAGE>



                                    Very truly yours,
                                    DAVID J. GLADSTONE
                                    PURCHASER

                                    Address: 1161 Crest Lane
                                             McLean, Virginia 22102

                                    Fax:     __________________________________
                                    Phone:  (703) 276-0305
                                    E-Mail:  dgladstone@att.net

                                    /s/ David Gladstone
                                    ___________________________________________
                                    Signature

                                    Aggregate Shares Purchased: 652,631

                                    Aggregate Purchase Price: $652,631








    [SIGNATURE PAGE TO GLADSTONE CAPITAL CORPORATION SUBSCRIPTION AGREEMENT]