SEC Filing | Portman Ridge Finance Corporation

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The information in this preliminary prospectus supplement is not complete and may be changed. A registration statement relating to these securities has been filed and declared effective by the Securities and Exchange Commission. This preliminary prospectus supplement and the accompanying prospectus are not an offer to sell these securities and are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Filed pursuant to Rule 497
Registration Statement No. 333-151268

Subject to Completion, Dated September 3, 2008

PRELIMINARY PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JULY 9, 2008

4,500,000 Shares

[GRAPHIC MISSING]

Common Stock

We are offering 4,500,000 shares of our common stock. Our common stock is traded on The Nasdaq Global Select Market under the symbol “KCAP.” On August 29, 2008 the last reported sale price of a share of our common stock on The Nasdaq Global Select Market was $10.99. The net asset value per share of our common stock as of June 30, 2008 was $13.14, based on net assets of approximately $279 million as of June 30, 2008.

Shares of closed-end investment companies, including BDCs, frequently trade at a discount to their net asset value. As of the date of this prospectus supplement, our shares are trading at a discount to net asset value. If our shares continue to trade at a discount to net asset value, it may increase the risk of loss for purchasers in this public offering. See “Risk Factors — Risks related to offerings pursuant to this prospectus — Shares of closed-end investment companies, including BDCs, frequently trade at a discount to their net asset value, and we cannot assure you that the market price of our common stock will not decline following an offering” on page 29 of the accompanying prospectus for more information.

On July 21, 2008, our shareholders approved a proposal to authorize us, with approval of our Board of Directors, to sell shares of our common stock or warrants, options or rights to acquire our common stock at a price below the then current net asset value per share of such stock.

Investing in our securities involves significant risks. See “Risk Factors” beginning on page 16 of the accompanying prospectus.

This prospectus supplement and the accompanying prospectus concisely set forth important information about us that you should know before investing in us. Please read them before making an investment decision and keep them for future reference. We file annual, quarterly and current reports, proxy statements and other information about us with the SEC. This information is available free of charge by writing to Kohlberg Capital Corporation, 295 Madison Avenue, 6th Floor, New York, New York 10017, by telephone by calling collect at (212) 455-8300 or by visiting our website at http://www.kohlbergcap.com. Information contained in our website is not incorporated by reference into this prospectus, and you should not consider that information to be part of this prospectus. The above telephone number may also be used to make stockholder inquiries. You may also obtain information about us from the SEC’s website (http://www.sec.gov).

Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.


	Per share	Total⁽²⁾
Public offering price	$	$
Sales load (underwriting discounts and commissions)	$	$
Proceeds, before expenses, to us⁽¹⁾	$	$

(1)

Before expenses payable by us, which are estimated to be approximately $568,000.

(2)

Assumes no exercise of underwriters’ option to purchase up to 675,000 additional shares to cover over allotments, if any.

The underwriters may also purchase up to an additional 675,000 shares of common stock from us at the public offering price, less the underwriting discounts and commissions, payable by us to cover over-allotments, if any, within 30 days of the date of the prospectus supplement.

Delivery of the shares of common stock will be made on or about , 2008.


UBS Investment Bank		JMP Securities


BMO Capital Markets		Oppenheimer & Co.		Stifel Nicolaus

The date of this prospectus supplement is , 2008.

TABLE OF CONTENTS

You should rely only on the information contained in this prospectus supplement and accompanying prospectus. We have not authorized any dealer, salesperson or other person to provide you with different information or to make representations as to matters not stated in this prospectus supplement and accompanying prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus supplement and accompanying prospectus is not an offer to sell, or a solicitation of an offer to buy, any securities by any person in any jurisdiction where it is unlawful for that person to make such an offer or solicitation or to any person in any jurisdiction to whom it is unlawful to make such an offer or solicitation. The information in this prospectus supplement and accompanying prospectus is accurate only as of the date of this prospectus supplement and accompanying prospectus, as applicable, and under no circumstances should the delivery of this prospectus supplement and accompanying prospectus or the sale of any securities imply that the information in this prospectus supplement and accompanying prospectus is accurate as of any later date or that the affairs of Kohlberg Capital Corporation have not changed since the date hereof or thereof. We will update the information in these documents to reflect material changes only as required by law. Our business, financial condition, results of operations and prospectus may have changed since then.

KOHLBERG CAPITAL CORPORATION

Prospectus supplement


Fees and expenses			S-1
Prospectus supplement summary			S-3
Use of proceeds			S-12
Price range of common stock			S-13
Capitalization			S-14
Management’s discussion and analysis of financial condition and results of operations			S-15
Underwriting			S-35
Legal matters			S-39
Available information			S-39
Financial statements for the quarterly period ended June 30, 2008			F-1

Prospectus



Prospectus summary			1
Offerings			9
Fees and expenses			12
Selected financial and other data			13
Risk factors			14
Forward-looking statements			32
Election to be regulated as a business development company and a regulated investment company			33
Use of proceeds			34
Price range of common stock			35
Distributions			36
Selected financial data			38
Management’s discussion and analysis of financial condition and results of operations			39
Obligations and indebtedness			56
Business			57
Portfolio companies			75
Management			86
Executive compensation			92
Certain relationships and related transactions			109
Control persons and principal stockholders			111
Determination of net asset value			114
Dividend reinvestment plan			116
Regulation			117
Certain U.S. federal income tax considerations			121
Description of securities			129
Description of our common stock			130
Description of our preferred stock			134
Description of our subscription rights			136
Description of our warrants			138
Description of our debt securities			140
Shares eligible for future sale			153
Brokerage allocation and other practices			154
Plan of distribution			155
Custodian, transfer and dividend paying agent and registrar			157
Legal matters			157
Independent registered public accounting firm			157
Available information			157
Index to financial statements			F-1

This document is in two parts. The first part is this prospectus supplement, which describes the terms of this offering of common stock and also adds to and updates information contained in the accompanying prospectus. The second part is the accompanying prospectus, which provides additional information.

This prospectus supplement is not complete without, and may not be utilized except in connection with, the accompanying prospectus dated July 9, 2008 and any amendments to such prospectus. This prospectus supplement provides supplemental information regarding the Company, updates and changes information contained in the prospectus dated July 9, 2008 and describes the specific terms of this offering. The accompanying prospectus dated July 9, 2008 gives more general information, some of which may not apply to this offering. You should carefully read both this prospectus supplement and the accompanying prospectus before deciding to invest in shares of common stock. If the information in this prospectus supplement conflicts with information in the accompanying prospectus, the information in this prospectus supplement shall control.

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Fees and expenses

The following table is intended to assist you in understanding the various costs and expenses that an investor in our common stock will bear directly or indirectly. However, we caution you that some of the percentages indicated in the table below are estimates and may vary. The following table should not be considered a representation of our future expenses. Actual expenses may be greater or less than shown. Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by “us” or that “we” will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors in the Company.

Stockholder Transaction Expenses (as a percentage of the offering price)


Sales Load	5.5	%⁽¹⁾
Offering Expenses	1.1	%⁽²⁾
Dividend Reinvestment Plan Fees	None	⁽³⁾
Total Stockholder Transaction Expenses	6.6	%

Annual Expenses (as a percentage of net assets attributable to common stock)⁽⁴⁾


Operating Expenses	2.7	%⁽⁵⁾
Interest Payments on Borrowed Funds	3.1	%⁽⁶⁾
Total Annual Expenses	5.8	%

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 the Company. These amounts are based upon payment by the Company of operating expenses at the levels set forth in the table above which, except as indicated above, does not include leverage or related expenses.


	1 year		3 years		5 years		10 years
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return and sales load of 5.5%	$	120	$	227	$	332	$	586

(1)

Represents the underwriting discount with respect to the shares to be sold by us in this offering.

(2)

The percentage reflects estimated offering expenses of approximately $568,000 assuming a public offering price of $10.99 (based on the last reported sales of our common stock on August, 29, 2008).

(3)

The expenses associated with the administration of our dividend reinvestment plan are included in “Administrative and other expenses” in our statement of operations. The participants in the dividend reinvestment plan pay a pro rata share of brokerage commissions incurred with respect to open market purchases, if any, made by the administrator under the plan. For more details about the plan, see “Dividend Reinvestment Plan” in the accompanying prospectus.

(4)

“Net assets attributable to common stock” equals net assets (i.e., total assets less total liabilities), which were approximately $279 million as of June 30, 2008 and is estimated to be approximately $326 million immediately following the completion of this offering.

(5)

“Operating Expenses” represents an estimate of our annual operating expense. We do not have an investment adviser. We are internally managed by our executive officers under the supervision of our Board of Directors. As a result, we do not pay investment advisory fees. Instead we pay the operating costs associated with employing investment management professionals.

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Fees and expenses

(6)

“Interest Payments on Borrowed Funds” represents an estimate of our annual interest expense based on payments assumed to be made under our credit facility. This estimate assumes that we borrow for investment purposes an amount equal to 44% of our total assets at a per annum interest rate of approximately 3.7%. Actual interest payments may differ from the amount shown.

The example and the expenses in the tables 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 applicable rules of 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 valued at the market price in effect at that time. This price may be at, above or below net asset value. See “Dividend Reinvestment Plan” in the accompanying prospectus for additional information regarding our dividend reinvestment plan.

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Prospectus supplement summary

This summary highlights some of the information in this prospectus supplement and may not contain all of the information that is important to you. You should read carefully the more detailed information set forth under “Risk Factors” and the other information included in this prospectus supplement and accompanying prospectus. In this prospectus supplement, unless the context otherwise requires, “Company,” “Kohlberg Capital,” “we,” “us” and “our” refer to Kohlberg Capital Corporation (or Kohlberg Capital, LLC prior to the conversion described under “—Our Corporate Information”), in each case together with our wholly-owned portfolio company Katonah Debt Advisors, and “Katonah Debt Advisors” refers to Katonah Debt Advisors, L.L.C., together with the additional direct or indirect wholly-owned subsidiaries that we organize in connection with the business of Katonah Debt Advisors.

OVERVIEW

We are an internally managed, non-diversified closed-end investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We originate, structure and invest in senior secured term loans, mezzanine debt and selected equity securities primarily in privately-held middle market companies. We define the middle market as comprising companies with earnings before interest, taxes, depreciation and amortization, which we refer to as “EBITDA,” of $10 million to $50 million and/or total debt of $25 million to $150 million. In addition to our middle market investment business, our wholly-owned portfolio company, Katonah Debt Advisors, manages collateralized loan obligation funds (“CLO Funds”) that invest in broadly syndicated loans, high-yield bonds and other corporate credit instruments. We acquired Katonah Debt Advisors and certain related assets prior to our initial public offering from affiliates of Kohlberg & Co., L.L.C. (“Kohlberg & Co.”), a leading private equity firm focused on middle market investing. As of June 30, 2008, Katonah Debt Advisors had approximately $2.3 billion of assets under management.

Including employees of Katonah Debt Advisors, some of whom also serve as officers of the Company, we employ an experienced team of 20 investment professionals and 31 total staff members. Dayl W. Pearson, our President and Chief Executive Officer (“CEO”) and one of our directors, has been in the financial services industry for over 30 years. During the past 16 years, Mr. Pearson has focused almost exclusively in the middle market and has originated, structured and underwritten over $5 billion of debt and equity securities. R. Jon Corless, our Chief Investment Officer (“CIO”), has managed investment portfolios in excess of $4 billion at several institutions and has been responsible for managing portfolios of leveraged loans, high-yield bonds, mezzanine securities and middle market loans. E.A. Kratzman, our Vice President and the President of Katonah Debt Advisors, has more than 30 years of credit and investment experience and has participated in fundraising for 19 funds investing in loans, high-yield bonds and credit derivatives with an aggregate value of approximately $7 billion. Michael I. Wirth, our Chief Financial Officer (“CFO”) and Chief Compliance Officer (“CCO”), has over 19 years of experience in the structured finance industry and has advised, originated and/or managed portfolios with an aggregate value of $15 billion. The Chairman of our Board of Directors and Investment Committee, Christopher Lacovara, is one of the two co-managing partners of Kohlberg & Co. and has completed more than 25 leveraged buyouts and add-on acquisitions with an aggregate value of approximately $3.5 billion and has served on the boards of directors of numerous private and publicly-traded middle market companies.

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Recent developments

Recent Market Developments. Recent events in the subprime mortgage sector have impacted the broader financial and credit markets and have reduced the availability of capital for both broadly syndicated loans (including capital available to invest through CLO Funds) and middle market loans. Even though we have no direct exposure to commercial or residential mortgage debt (subprime or otherwise) or other consumer borrowings, we believe that the recent reduction in liquidity may affect both our middle market investment business and the asset management business of Katonah Debt Advisors in several ways:

We believe that the decrease in debt capital available to both corporate borrowers and private equity firms should result in higher interest spreads on loans and thereby increase future interest income available for distributions to our stockholders and to investors in CLO Funds.

We expect that greater structural protection that lenders require for new loans, such as lower overall financial leverage and stricter maintenance financial covenants, will increase the opportunities for us to invest, since we have generally avoided investing in highly leveraged or “covenant light” credit facilities.

We expect that the interest spread on debt issued by future CLO Funds managed by Katonah Debt Advisors will need to be higher than that on debt of its existing CLO Funds, and that Katonah Debt Advisors may need to evaluate other fund structures to continue the growth in its assets under management and fee income. Current CLO market conditions delayed the completion of several CLO Funds which Katonah Debt Advisors had expected to complete during 2007 and may delay the completion of CLO Funds anticipated to be completed during 2008.

OUR PORTFOLIO

Investment securities

Investment in CLO Fund securities

We typically make a minority investment in the subordinated securities or preferred stock of CLO Funds raised and managed by Katonah Debt Advisors and may selectively invest in securities issued by CLO Funds managed by other asset management companies. The securities issued by CLO Funds managed by Katonah Debt Advisors are primarily held by third parties. As of June 30, 2008, we had $57 million at fair value in CLO Fund securities, including those issued by funds managed by Katonah Debt Advisors. The CLO Funds managed by Katonah Debt Advisors invest primarily in broadly syndicated non-investment grade loans, high-yield bonds and other credit instruments of corporate issuers. The underlying assets in each of the CLO Funds in which we have any investment are generally diversified secured or unsecured corporate debt and exclude mortgage pools or mortgage securities (residential mortgage bonds, commercial mortgage backed securities, or related asset-backed securities), debt to companies providing mortgage lending and emerging markets investments. The CLO Funds are leveraged

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funds and any excess cash flow or “excess spread” (interest earned by the underlying securities in the fund less payments made to senior bond holders and less fund expenses and management fees) is paid to the holders of the CLO Fund’s subordinated securities or preferred stock. As of June 30, 2008, all of the CLO Funds in which we hold investments maintained the original issue credit ratings on all classes of their securities and were continuing to make cash payments to all classes of investors. As of June 30, 2008, our seasoned (over a year since inception) CLO Fund securities had an average annual cash yield of 34%.

Investment in Katonah Debt Advisors

Katonah Debt Advisors is our wholly-owned asset management company that manages CLO Funds that invest in broadly syndicated loans, high yield bonds and other credit instruments. As a manager of the CLO Funds, Katonah Debt Advisors expects to receive contractual and recurring management fees and any subsequent incentive management fees from the CLO Funds for its management and advisory services. The annual fees which Katonah Debt Advisors receives are generally based on a fixed percentage of assets under management, and Katonah Debt Advisors generates annual operating income equal to the amount by which its fee income exceeds its operating expenses. In future years, Katonah Debt Advisors may receive accrued incentive fees upon the liquidation of CLO Funds it manages, provided such CLO Funds have achieved a minimum investment return to holders of their subordinated securities or preferred stock. Katonah Debt Advisors also typically receives one-time structuring fees upon the creation of a new CLO Fund. The CLO Funds managed by Katonah Debt Advisors consist exclusively of credit instruments issued by corporations and do not invest in asset-backed securities such as those secured by commercial mortgages, residential mortgages or other consumer borrowings. As of June 30, 2008, Katonah Debt Advisors had approximately $2.3 billion of assets under management, and our 100% equity interest in the company was valued at approximately $64 million compared to $2.1 billion and $59 million, respectively as of December 31, 2007.

Portfolio valuation

We carry our investments at fair value, as determined in good faith by our Board of Directors pursuant to procedures approved by our Board of Directors. Investments for which market quotations are readily available are valued at such market quotations (“marked to market”). The Board of Directors has retained an independent valuation firm to provide third-party valuation consulting services, which consist of certain limited procedures that we identify and request the independent valuation firm to perform. As of June 30, 2008, approximately 55% of our investments were investments that were marked to market or for which we utilized the valuation services provided by the independent valuation firm in connection with the determination of fair value by our Board of Directors. Investments for which there is not a readily available market value are valued at fair value as determined in good faith by our Board of Directors under a valuation policy and a valuation process which are intended to provide a consistent basis for determining the fair value of the portfolio. However, due to the inherent uncertainty of determining the fair value of investments that cannot be marked to market, the fair value of our investments may differ significantly from the values that would have been used had a market existed for such investments or from the values that would have been placed on such assets by other market participants, and the differences could be material. See “Risk Factors — Risks Related to Our Investments — Our portfolio investments for which there is no readily available market, including our investment in Katonah Debt Advisors, are recorded at fair value as determined in good faith by our Board of Directors. As a result, there is uncertainty as to the value of these investments” and “Determination of Net Asset Value” in the accompanying prospectus.

OUR STRATEGIC RELATIONSHIP WITH KOHLBERG & CO.

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Christopher Lacovara, one of the firm’s two co-managing partners, serves as the Chairman of our Board of Directors and of our Investment Committee. Through such participation, we have access to the expertise of these individuals in the middle market and leveraged investing, which we believe enhances our capital raising, due diligence, investment selection and credit analysis activities. Affiliates of Kohlberg & Co., including those who serve on our Board of Directors and on our Investment Committee, own, in the aggregate, approximately 15% of our outstanding common stock. Kohlberg & Co. is a leading U.S. private equity firm which manages investment funds that acquire middle market companies. Since its founding in 1987, Kohlberg & Co. has organized six private equity funds, through which it has raised approximately $3.5 billion of committed capital and completed more than 80 platform and add-on acquisitions with an aggregate value of approximately $8 billion.

Because we are an internally managed BDC, we do not pay any fees to Kohlberg & Co. or any of its affiliates. Under the 1940 Act, we may be prohibited from buying or selling any security from or to any portfolio company of a private equity fund managed by Kohlberg & Co. without the prior approval of the Securities and Exchange Commission (the “SEC”). In addition, we may co-invest on a concurrent basis with Kohlberg & Co. or any of our affiliates, subject to compliance with existing regulatory guidance, applicable regulations and our allocation procedures. Certain types of negotiated co-investments may be made only if we receive an order from the SEC permitting us to do so. There can be no assurance that any such order will be obtained.

COMPETITIVE ADVANTAGES

We believe that we can successfully compete with other providers of capital in the markets in which we compete for the following reasons:

Internally managed structure and significant management resources. We are internally managed by our executive officers under the supervision of our Board of Directors and do not depend on a third party investment advisor. As a result, we do not pay investment advisory fees and all of our income is available to pay our operating costs and to make distributions to our stockholders.

Multiple sourcing capabilities for assets. We have multiple sources of loans, mezzanine investments and equity investments through our industry relationships, Katonah Debt Advisors and our strategic relationship with Kohlberg & Co. From January 1, 2007 through December 31, 2007, we reviewed 595 investment opportunities, which resulted in 50 completed transactions and a total gross investment of $374 million. Between January 1, 2008 and July 31, 2008, we reviewed approximately 234 transactions from 46 equity sponsors which resulted in 8 new transactions.

Disciplined investment process. We employ a rigorous credit review process and due diligence intensive investment strategy which our senior management has developed over more than 20 years of lending. For each analyzed company, we develop our own underwriting case and multiple stress case scenarios and an event-specific financial model reflecting company, industry and market variables. Generally, both we and the CLO Funds managed by Katonah Debt Advisors have decided not to invest in highly leveraged or “covenant light” credit facilities.

Katonah Debt Advisors’ credit platform. Katonah Debt Advisors serves as a source of our direct investment opportunities and cash flow, and certain credit analysts employed by Katonah Debt Advisors who also serve as officers of the Company serve as a resource for credit analysis.

Investments in a wide variety of portfolio companies in a number of different industries with no exposure to mortgage-backed securities. As of June 30, 2008, our investment portfolio (excluding our investments in asset manager affiliates and CLO Fund securities) is spread across 26 different industries and 89 different entities with an average balance per entity of approximately $4 million. Our investment portfolio as well as the investment portfolios of the CLO Funds in which we have invested and the investment portfolios of the CLO Funds managed by Katonah Debt Advisors consist exclusively of credit instruments and other securities issued by companies and do not include any asset-backed securities secured by commercial mortgages, residential mortgages or other consumer borrowings.

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Strategic relationship with Kohlberg & Co. We believe that Kohlberg & Co. is one of the oldest and most well-known private equity firms focused on the middle market, and we expect to continue to derive substantial benefits from our strategic relationship with Kohlberg & Co.

Significant equity ownership and alignment of incentives. Our senior management team, the senior management team of Katonah Debt Advisors and affiliates of Kohlberg & Co. together have a significant equity interest in the Company, ensuring that their incentives are strongly aligned with those of our stockholders.

RISK FACTORS

Investing in Kohlberg Capital Corporation involves significant risks. The following is a summary of certain risks that you should carefully consider before investing in our securities. For a further discussion of these and other risk factors, please see “Risk Factors” beginning on page 16 of the accompanying prospectus.

Risks related to our business

We have a limited operating history.

We are dependent upon senior management for our future success, and if we are unable to hire and retain qualified personnel or if we lose any member of our senior management team, our ability to achieve our investment objective could be significantly harmed.

We operate in a highly competitive market for investment opportunities.

If we are unable to source investments effectively, we may be unable to achieve our investment objective.

There is a risk that we may not make distributions.

We may have difficulty paying our required distributions if we recognize income before or without receiving cash equal to such income.

We may incur losses as a result of “first loss” agreements, including Katonah Debt Advisors’ agreement with Bear Stearns & Co. Inc. (“Bear Stearns”), into which we or Katonah Debt Advisors may enter in connection with warehousing credit arrangements which we put in place prior to raising a CLO Fund and pursuant to which we or Katonah Debt Advisors agree to reimburse credit providers for a portion of losses (if any) on warehouse investments. On May 30, 2008, JPMorgan Chase & Co. (“JPM”) acquired all of the outstanding capital stock of Bear Stearns in a merger transaction and Bear Stearns became a wholly-owned subsidiary of JPM.

Any unrealized losses we experience on our loan portfolio may be an indication of future realized losses, which could reduce our income available for distribution.

We may experience fluctuations in our quarterly and annual operating results and credit spreads.

We are exposed to risks associated with changes in interest rates and spreads.

The debt we incur could increase the risk of investing in our Company.

Because we have outstanding indebtedness, we are exposed to additional risks, including the typical risks associated with leverage.

The agreements governing our securitized revolving credit facility (“credit facility”) contain various covenants that limit our discretion in operating our business and also include certain financial covenants.

Because we intend to distribute substantially all of our income and net realized capital gains to our stockholders, we will need additional capital to finance our growth.

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Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval.

Risks related to our investments

Our investments may be risky, and you could lose all or part of your investment.

Our portfolio investments for which there is no readily available market, including our investment in Katonah Debt Advisors, are recorded at fair value as determined in good faith by our Board of Directors. As a result, there is uncertainty as to the value of these investments.

We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we may invest a significant portion of our assets in a relatively small number of issuers, which subjects us to a risk of significant loss if any of these issuers defaults on its obligations under any of its debt instruments or as a result of a downturn in the particular industry.

Economic recessions or downturns could negatively impact our portfolio companies and harm our operating results.

Defaults by our portfolio companies could harm our operating results.

When we are a debt or minority equity investor in a portfolio company, which generally is the case, we may not be in a position to control the entity, and its management may make decisions that could decrease the value of our investment.

Prepayments of our debt investments by our portfolio companies could negatively impact our operating results.

Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.

There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.

Our investments in equity securities involve a substantial degree of risk.

The lack of liquidity in our investments may adversely affect our business.

We may not receive all or a portion of the income we expect to receive from Katonah Debt Advisors.

We may not receive any return on our investment in the CLO Funds in which we have invested and we may be unable to raise additional CLO Funds.

Risks related to our operation as a BDC

Our management team has limited experience managing a BDC.

Our ability to enter into transactions with our affiliates is restricted.

Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital.

Changes in the laws or regulations governing our business, or changes in the interpretations thereof, and any failure by us to comply with these laws or regulations, could negatively affect the profitability of our operations.

If we do not invest a sufficient portion of our assets in “qualifying assets,” we could fail to qualify as a BDC or be precluded from investing according to our current business strategy.

If we are unable to qualify as a Regulated Investment Company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), we will be subject to corporate-level U.S. federal income tax, which will adversely affect our results of operations and financial condition.

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Risks related to this offering

There is a risk that investors in our equity securities may not receive dividends or that our dividends may not grow over time and that investors in our debt securities may not receive all of the interest income to which they are entitled.

Investing in shares of our common stock may involve an above average degree of risk.

Shares of closed-end investment companies, including BDCs, frequently trade at a discount to their net asset value, and we cannot assure you that the market price of our common stock will not decline following an offering.

We may allocate the net proceeds from this offering, to the extent it is successful, in ways with which you may not agree.

Our share price may be volatile and may fluctuate substantially.

To the extent the stock price in this offering is above the net asset value of our common stock, investors may incur immediate dilution upon the closing of this offering.

Stockholders will experience dilution in their ownership percentage if they do not participate in our dividend reinvestment plan.

If a substantial number of shares become available for sale and are sold in a short period of time, the market price of our common stock could decline.

Our principal stockholders have substantial ownership in us, which could limit your ability to influence the outcome of key transactions, including a change of control. In addition, some of our stockholders may have interests in Kohlberg Capital that differ from yours.

Certain provisions of the Delaware General Corporation Law and our certificate of incorporation and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.

FORWARD-LOOKING STATEMENTS

This prospectus supplement includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The matters discussed in this prospectus supplement, as well as in future oral and written statements by management of Kohlberg Capital Corporation, that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. Important assumptions include our ability to acquire or originate new investments, achieve certain margins and levels of profitability, the availability of additional capital, and the ability to maintain certain debt to asset ratios. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus should not be regarded as a representation by us that our plans or objectives will be achieved. The forward-looking statements contained in this prospectus supplement include statements as to:

our future operating results;

our business prospects and the prospects of our existing and prospective portfolio companies;

the impact of investments that we expect to make;

our informal relationships with third parties;

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

the ability of our portfolio companies to achieve their objectives;

our expected financings and investments;

our regulatory structure and tax treatment;

our ability to operate and to qualify as a BDC and a RIC;

Our common stock is traded on The Nasdaq Global Select Market under the symbol “KCAP.” We completed the initial public offering of our common stock in December 2006 at an initial public offering price of $15.00 per share. Prior to such initial public offering, there was no public market for our common stock. On June 30, 2008, the last reported closing price of our stock was $10.00 per share, which represented a discount of approximately 23.9% to the net asset value per share reported by us as of such date. As of August 28, 2008, we had 24 stockholders of record.

The following table sets forth the range of high and low closing prices of our common stock as reported on The Nasdaq Global Select Market since our initial public offering. The stock quotations are inter-dealer quotations and do not include markups, markdowns or commissions and as such do not necessarily represent actual transactions.


	NAV⁽¹⁾		Price range				Premium/ discount of high sales price to NAV			Premium/ discount of low sales price to NAV
			Price range
			High		Low
2006
Fourth Quarter (December 11, 2006 through December 31, 2006)	$	14.29	$	17.45	$	15.79		122.1	%		110.5	%
2007
First quarter (January 1, 2007 through March 31, 2007)	$	14.78	$	18.00	$	15.05		121.8	%		101.8	%
Second quarter (April 1, 2007 through June 30, 2007)	$	15.39	$	19.68	$	15.75		127.9	%		102.3	%
Third quarter (July 1, 2007 through September 30, 2007)	$	14.77	$	19.10	$	13.65		129.3	%		92.4	%
Fourth quarter (October 1, 2007 through December 31, 2007)	$	14.38	$	15.49	$	10.00		107.7	%		69.5	%
2008
First quarter (January 1, 2008 through March 31, 2008)	$	13.98	$	12.99	$	9.56		92.9	%		68.4	%
Second quarter (April 1, 2008 through June 30, 2008)	$	13.14	$	13.35	$	9.41		101.6	%		71.6	%
Third quarter (July 1, 2008 through August 29, 2008)		⁽²⁾	$	11.00	$	8.15		⁽²⁾			⁽²⁾

(1)

Net asset value per share is generally determined as of the last day in the relevant quarter and therefore may not reflect the net asset value per share on the date of the high and low sales prices. The net asset value shown is based on outstanding shares at the end of the applicable period.

(2)

Net asset value has not yet been calculated for this period. We generally determine the net asset value per share of our common stock on a quarterly basis. See “Determination of Net Asset Value” in the accompanying prospectus.

Shares of BDCs may trade at a market price that is less than the value of the net assets attributable to those shares. The possibility that our shares of common stock will trade at a discount from net asset value or at premiums that are unsustainable over the long term are separate and distinct from the risk that our net asset value will decrease. While our common stock has traded in excess of net asset value in the past, our common stock has recently traded below net asset value and is trading at below net asset value as of the date of this prospectus supplement. It is not possible to predict whether our shares, including the shares being offered hereby, will trade at, above or below net asset value.

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Capitalization

The following table sets forth our capitalization as of June 30, 2008 on an actual basis and an as adjusted basis assuming the sale of 4,500,000 shares of our common stock at an estimated offering price of $10.99 (the last reported sales price of our common stock on August 29, 2008) after deducting the fee paid to the underwriters and the estimated expenses of the offering payable by us and the application of the estimated net proceeds as described in “Use of Proceeds.”

This table should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements included elsewhere in this prospectus supplement.


	As of June 30, 2008 (in thousands)
	Actual			As adjusted
Cash and cash equivalents	$	14,292		$	14,292
Debt:
Credit facility		230,000			230,000
Equity:
Common stock, par value $.01 per share, 100,000,000 common shares authorized; 21,334,732 and 21,234,482 common shares issued and outstanding at June 30, 2008 on an actual basis and 25,834,732 and 25,734,482, respectively on an as adjusted basis at June 30, 2008⁽¹⁾		212			258
Capital in excess of par value		281,764			327,886
Distribution in excess of net investment income		(1,352	)		(1,352	)
Accumulated net realized losses		(622	)		(622	)
Net unrealized (depreciation) on investments		(1,024	)		(1,024	)
Total stockholders’ equity		278,979			325,146
Total capitalization	$	508,979		$	555,146

(1)

Reflects 100,250 reserved shares, as of June 30, 2008 on an actual and as adjusted basis.

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The following discussion should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this prospectus supplement. In addition to historical information, the following discussion and other parts of this prospectus contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under “Risk Factors” appearing in the accompanying prospectus and “Forward-Looking Statements” appearing elsewhere in this prospectus supplement.

GENERAL

We are an internally managed, non-diversified closed-end investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We originate, structure and invest in senior secured term loans, mezzanine debt and selected equity securities primarily in privately-held middle market companies. We define the middle market as comprising companies with earnings before interest, taxes, depreciation and amortization, which we refer to as “EBITDA,” of $10 million to $50 million and/or total debt of $25 million to $150 million. In addition to our middle market investment business, our wholly-owned portfolio company, Katonah Debt Advisors and its affiliates (collectively, “Katonah Debt Advisors”), manage collateralized loan obligation funds (“CLO Funds”) that invest in broadly syndicated loans, high-yield bonds and other corporate credit instruments. We acquired Katonah Debt Advisors and certain related assets prior to our initial public offering from affiliates of Kohlberg & Co., LLC (“Kohlberg & Co.”), a leading private equity firm focused on middle market investing. As of June 30, 2008, Katonah Debt Advisors had approximately $2.3 billion of assets under management.

As a Regulated Investment Company (“RIC”), we intend to distribute to our stockholders substantially all of our net taxable income and the excess of realized net short-term capital gains over realized net long-term capital losses. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. Pursuant to these elections, we generally will not have to pay corporate-level taxes on any income that we distribute to our stockholders.

Our common stock is traded on The NASDAQ Global Select Market under the symbol “KCAP.” The net asset value per share of our common stock at June 30, 2008 was $13.14. On June 30, 2008, the last reported sale price of a share of our common stock on The NASDAQ Global Select Market was $10.00.

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KEY QUANTITATIVE AND QUALITATIVE FINANCIAL MEASURES AND INDICATORS

Net asset value

Our net asset value (“NAV”) per share was $13.14 and $14.38 as of June 30, 2008 and December 31, 2007, respectively. As we must report our assets at fair value for each reporting period, NAV also represents the amount of stockholder’s equity per share for the reporting period. Our NAV is comprised mostly of investment assets less debt and other liabilities:


	June 30, 2008 (unaudited)				December 31, 2007
	Fair value		Per share		Fair value		Per share
Investments at fair value:
Investments in debt securities	$	380,692,261	$	17.93	$	410,954,082	$	22.81
Investments in CLO Fund securities		56,843,236		2.68		31,020,000		1.72
Investments in equity securities		3,605,297		0.17		4,752,250		0.27
Investments in asset manager affiliates		65,210,050		3.07		58,585,360		3.25
Cash and cash equivalents		14,291,881		0.67		12,088,529		0.67
Other assets		12,232,776		0.58		15,741,738		0.87
Total assets	$	532,875,501	$	25.10	$	533,141,959	$	29.59
Borrowings	$	230,000,000	$	10.83	$	255,000,000	$	14.15
Other liabilities		23,896,457		1.13		19,073,795		1.06
Total liabilities	$	253,896,457	$	11.96	$	274,073,795	$	15.21
Net Asset Value	$	278,979,044	$	13.14	$	259,068,164	$	14.38

Leverage

We use borrowed funds, known as “leverage,” to make investments and to attempt to increase returns to our shareholders by reducing our overall cost of capital. As a BDC, we are limited in the amount of leverage we can incur under the 1940 Act. We are only allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowing. As of June 30, 2008, we had $230 million of outstanding borrowings and our asset coverage was 221%. Our borrowings are made pursuant to a revolving credit facility which permits maximum borrowings of up to $275 million and has a final maturity on October 1, 2012.

Investment portfolio summary attributes as of and for the six months ended June 30, 2008

Our investment portfolio generates net investment income which is generally used to fund our dividend. Our investment portfolio consists of three primary components: debt securities, CLO Fund securities and our investment in our wholly owned asset manager, Katonah Debt Advisors. We also have investments in equity securities of approximately $4 million, which comprises approximately 1% of our investment portfolio. Below are summary attributes for each of our primary investment portfolio components (see “ — Investment Portfolio” and “ — Portfolio and Investment Activity” in this prospectus supplement for a more detailed description) as of and for the six months ended June 30, 2008:

Debt Securities

represent approximately 75% of total investment portfolio;

represent credit instruments issued by corporate borrowers;

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no asset-backed securities such as those secured by commercial mortgages or residential mortgages and no consumer borrowings;

primarily senior secured and junior secured loans (43% and 25% respectively);

spread across 26 different industries and 88 different entities;

average balance per entity of approximately $4.3 million;

all but two issuers current on their debt service obligations;

weighted average interest rate of 8.0%.

CLO Fund Securities (as of the last monthly trustee report prior to June 30, 2008 unless otherwise specified)

represent approximately 11% of total investment portfolio at June 30, 2008;

represent investments in subordinated securities or equity securities issued by CLO Funds;

all CLO Funds invest primarily in credit instruments issued by corporate borrowers;

no asset-backed securities such as those secured by commercial mortgages or residential mortgages and no consumer borrowings;

all CLO Funds have made all required cash payments to all classes of investors;

no ratings downgrades -all CLO Funds have maintained their original issue credit ratings on all rated classes of securities;

nine different CLO Fund securities; five of such CLO Funds are managed by Katonah Debt Advisors;

seasoned CLOs currently providing an annualized 34% cash return on investment during the twelve months ended June 30, 2008.

Katonah Debt Advisors

represents approximately 13% of total investment portfolio;

represents our 100% ownership of the equity interest of a profitable CLO Fund manager focused on corporate credit investing;

Katonah Debt Advisors has approximately $2.3 billion of assets under management;

receives contractual and recurring asset management fees based on par value of managed investments;

typically receives a one-time structuring fee upon completion of a new CLO Fund;

may receive an incentive fee upon liquidation of a CLO Fund provided that the CLO Fund achieves a minimum designated return on investment;

dividends paid by Katonah Debt Advisors are recognized as dividend income from affiliate asset manager on our statement of operations and are an additional source of income to pay our dividend;

for the six months ended June 30, 2008, Katonah Debt Advisors had after-tax net income of approximately $1.2 million;

for the six months ended June 30, 2008, Katonah Debt Advisors distributed $350,000 of such income in the form of a dividend which is recognized as current earnings to the Company.

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Revenue

Revenues consist primarily of investment income from interest and dividends on our investment portfolio and various ancillary fees related to our investment holdings.

Interest from Investments in Debt Securities. We generate interest income from our investments in debt securities which consist primarily of senior and junior secured loans. Our debt securities portfolio is spread across multiple industries and geographic locations, and as such, we are broadly exposed to market conditions and business environments. As a result, although our investments are exposed to market risks, we continuously seek to limit concentration of exposure in any particular sector or issuer.

Dividends from Investments in CLO Fund Securities. We generate dividend income from our investments in the most junior class of securities of CLO Funds (typically preferred shares or subordinated securities) managed by Katonah Debt Advisors and selective investments in securities issued by funds managed by other asset management companies. CLO Funds managed by Katonah Debt Advisors invest primarily in broadly syndicated non-investment grade loans, high-yield bonds and other credit instruments of corporate issuers. The Company distinguishes CLO Funds managed by Katonah Debt Advisors as “CLO fund securities managed by affiliate.” The underlying assets in each of the CLO Funds in which we have any investment are generally diversified secured or unsecured corporate debt and exclude mortgage pools or mortgage securities (residential mortgage bonds, commercial mortgage backed securities, or related asset-backed securities), debt to companies providing mortgage lending and emerging markets investments. Our CLO Fund securities are subordinate to senior bond holders who typically receive a fixed rate of return on their investment. The CLO Funds are leveraged funds and any excess cash flow or “excess spread” (interest earned by the underlying securities in the fund less payments made to senior bond holders and less fund expenses and management fees) is paid to the holders of the CLO Fund’s subordinated securities or preferred shares.

Dividends from Affiliate Asset Manager. We generate dividend income from our investment in Katonah Debt Advisors, an asset management company, which is a wholly-owned portfolio company that manages CLO Funds that invest primarily in broadly syndicated non-investment grade loans, high yield bonds and other credit instruments issued by corporations. As a manager of CLO Funds, Katonah Debt Advisors receives contractual and recurring management fees as well as an expected one-time structuring fee from the CLO Funds for its management and advisory services. In addition, Katonah Debt Advisors may also earn income related to net interest on assets accumulated for future CLO issuances on which it has provided a first loss guaranty in connection with loan warehouse arrangements for its CLO Funds. Katonah Debt Advisors generates annual operating income equal to the amount by which its fee income exceeds it operating expenses. The annual management fees which Katonah Debt Advisors receives are generally based on a fixed percentage of the par value of assets under management and are recurring in nature for the term of the CLO Fund so long as Katonah Debt Advisors manages the fund. As a result, the annual management fees earned by Katonah Debt Advisors generally are not subject to market value fluctuations in the underlying collateral. In future years, Katonah Debt Advisors may receive incentive fees upon the liquidation of CLO Funds it manages, provided such CLO Funds have achieved a minimum investment return to holders of their subordinated securities or preferred shares.

Capital Structuring Service Fees. We may earn ancillary structuring and other fees related to the origination and or investment in debt and investment securities.

Expenses

Expenses consist primarily of interest expense on outstanding borrowings, compensation expense and general and administrative expenses, including professional fees.

Interest and Amortization of Debt Issuance Costs. Interest expense is dependent on the average outstanding balance on our revolving credit facility and the base index rate for the period. Debt issuance

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costs represent fees and other direct costs incurred in connection with the Company’s borrowings. These amounts are capitalized and amortized ratably over the contractual term of the borrowing.

Compensation Expense. Compensation expense includes base salaries, bonuses, stock compensation, employee benefits and employer related payroll costs. The largest components of total compensation costs are base salaries and bonuses; generally, base salaries are expensed as incurred and bonus expenses are estimated and accrued as bonuses are paid annually. Our compensation arrangements with our employees contain a significant profit sharing and/or performance based bonus component. Therefore, as our net revenues increase, our compensations costs may also rise. In addition, our compensation expenses may also increase to reflect increased investment in personnel as we grow our products and businesses.

Professional Fees and General and Administrative Expenses. The balance of our expenses include professional fees, occupancy costs and general administrative and other costs.

Net unrealized appreciation on investments

During the three and six months ended June 30, 2008, the Company’s investments had a decrease in net unrealized appreciation of approximately $465,000 and $8.3 million, respectively. The decrease in net unrealized appreciation for the three months ended June 30, 2008 is primarily due to (i) an approximate $340,000 net decrease in the market value of certain broadly syndicated loans as a result of current market conditions; (ii) an approximate $950,000 decrease in the net value of CLO equity investments as a result of current market conditions (there are no CLO Funds in payment default — all CLO Funds are providing a current cash return and have maintained their original ratings); and, (iii) an approximate $825,000 increase in the value of Katonah Debt Advisors due to an increase in assets under management to $2.3 billion at June 30, 2008.

The decrease in net unrealized appreciation for the six months ended June 30, 2008 is primarily due to (i) an approximate $9.3 million net decrease in the market value of certain broadly syndicated loans and equity investments as a result of current market conditions; (ii) an approximate $3.7 million decrease in the net value of CLO equity investments as a result of current market conditions (there are no CLO Funds in payment default — all CLO Funds are providing a current cash return and have maintained their original ratings); and, (iii) an approximate $4.7 million increase in the value of Katonah Debt Advisors due to an increase in assets under management to $2.3 billion at June 30, 2008.

Net increase in stockholders’ equity resulting from operations

The net increase in stockholders’ equity resulting from operations for the three months ended June 30, 2008 and 2007 was approximately $7 and $17 million, respectively, or $0.36 and $0.94 per share, respectively. The net increase in stockholders’ equity resulting from operations for the six months ended June 30, 2008 and 2007 was approximately $7 and $31 million, respectively, or $0.39 and $1.72 per share, respectively.

Net investment income and net realized gains

Net investment income and net realized gains represents the net increase in stockholders’ equity before net unrealized appreciation or depreciation on investments. For the three months ended June 30, 2008 and 2007, net investment income and realized gains was approximately $8 million and $5 million, respectively, or $0.38 and $0.30 per share, respectively. For the six months ended June 30, 2008 and 2007, net investment income and realized gains was approximately $16 million and $10 million, respectively, or $0.82 and $0.57 per share, respectively. Generally, we seek to fund our dividend from net investment income and net realized gains. For the six months ended June, 2008, dividend distributions totaled approximately $16 million or $0.82 per share.

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Dividends

We intend to continue to distribute quarterly dividends to our stockholders. To avoid certain excise taxes imposed on RICs, we currently intend to distribute during each calendar year an amount at least equal to the sum of:

98% of our ordinary net taxable income for the calendar year;

98% of our capital gains, if any, in excess of capital losses for the one-year period ending on October 31 of the calendar year; and

any net ordinary income and net capital gains for the preceding year that were not distributed during such year.

Generally, we seek to fund our dividend from GAAP current earnings, primarily from net interest and dividend income generated by our investment portfolio and without a return of capital or a high reliance on realized capital gains. The following table sets forth the dividends declared by us since our initial public offering, which represent an amount equal to our estimated net investment company income for the specified quarter, including undistributed income from Katonah Debt Advisors, plus a portion of the undistributed amount of 2006 net investment company income distributed in 2007:

Dividend

Declaration
date

Record
date

Pay date

2008:

First quarter

0.41

3/14/08

4/8/07

4/28/08

Second quarter

0.41

6/13/08

7/9/08

7/28/08

2007:

Fourth quarter

0.39

12/14/07

12/24/07

1/24/08

Third quarter

0.37

9/24/07

10/10/07

10/26/07

Second quarter

0.35

6/8/07

7/9/07

7/23/07

First quarter

0.29

3/13/07

4/6/07

4/17/07

Total declared for 2007

1.40

Due to our ownership of Katonah Debt Advisors and certain timing, structural and tax considerations our dividend distributions may include a return of capital for tax purposes. For the six months ended June 30, 2008, Katonah Debt Advisors earned approximately $1.2 million of GAAP net income and distributed $350,000 in dividends to us and for the year ended December 31, 2007, Katonah Debt Advisors earned approximately $3 million of GAAP net income and distributed $500,000 in dividends to us; dividends are recorded as declared by Katonah Debt Advisors as income on our statement of operations. The Company intends to distribute, in the form of a dividend, the accumulated undistributed net income of Katonah Debt Advisors in the future.

INVESTMENT PORTFOLIO

Investment objective

Our investment objective is to generate current income and capital appreciation from the investments made by our middle market business in senior secured term loans, mezzanine debt and selected equity investments in privately-held middle market companies, and from our investment in Katonah Debt Advisors. We intend to grow our portfolio of assets by raising additional capital, including through the prudent use of leverage available to us. We will primarily invest in first and second lien term loans which, because of their priority in a company’s capital structure, we expect will have lower default rates and higher rates of recovery of principal if there is a default and which we expect will create a stable stream of interest income. While our primary investment focus is on making loans to, and selected equity

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investments in, privately-held middle market companies, we may also invest in other investments such as loans to larger, publicly-traded companies, high-yield bonds and distressed debt securities. We may also receive warrants or options to purchase common stock in connection with our debt investments. In addition, we may also invest in debt and equity securities issued by CLO Funds managed by Katonah Debt Advisors or by other asset managers. However, our investment strategy is to limit the value of our investments in the debt or equity securities issued by CLO Funds to not more than 15% of the value of our total investment portfolio. We invest almost exclusively in credit instruments issued by corporations and do not invest in asset-backed securities such as those secured by residential mortgages or other consumer borrowings.

The following table shows the Company’s portfolio by security type at June 30, 2008 and December 31, 2007:


	June 30, 2008 (unaudited)							December 31, 2007
Security type	Cost		Fair value		%⁽¹⁾			Cost		Fair value		%⁽¹⁾
Senior Secured Loan	$	223,245,488	$	216,214,013		42.7	%	$	265,390,844	$	260,138,674		51.5	%
Junior Secured Loan		136,744,636		125,317,627		24.7			120,620,715		113,259,293		22.4
Mezzanine Investment		33,057,899		31,933,121		6.3			32,418,975		33,066,115		6.5
Senior Subordinated Bond		3,008,716		2,287,500		0.5			3,009,230		2,490,000		0.5
Senior Unsecured Bond		5,196,812		4,940,000		1.0			2,000,000		2,000,000		0.4
CLO Fund Securities		65,630,476		56,843,236		11.2			36,061,264		31,020,000		6.1
Equity Securities		5,096,298		3,605,297		0.7			5,043,950		4,752,250		1.0
Affiliate Asset Managers		35,394,198		65,210,050		12.9			33,469,995		58,585,360		11.6
Total	$	507,374,523	$	506,350,844		100.0	%	$	498,014,973	$	505,311,692		100.0	%

(1)

Represents percentage of total portfolio at fair value.

Investment securities

We invest in senior secured loans and mezzanine debt and, in the future and to a lesser extent, equity capital, of middle market companies in a variety of industries. We generally target companies that generate positive cash flows because we look to cash flows as the primary source for servicing debt. However, we may invest in other industries if we are presented with attractive opportunities.

Kohlberg Capital’s Board of Directors is ultimately and solely responsible for making a good faith determination of the fair value of portfolio investments on a quarterly basis. Duff & Phelps, LLC, an independent valuation firm, provided third party valuation consulting services to Kohlberg Capital’s Board of Directors which consisted of certain limited procedures that the Company’s Board of Directors identified and requested them to perform. Kohlberg Capital’s Board of Directors may consider other methods of valuation than those set forth above to determine the fair value of investments as appropriate in conformity with GAAP. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments, and the differences could be material.

At June 30, 2008, the Company’s investments in loans and debt securities, excluding CLO Fund securities, had a weighted average interest rate of approximately 8.0%.

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investment due diligence and selection generally focuses on an underlying issuer’s net cash flow after capital expenditures to service its debt rather than on multiples of net income, valuations or other broad benchmarks which frequently miss the nuances of an issuer’s business and prospective financial performance. We also avoid concentrations in any one industry or issuer. We manage risk through a rigorous credit and investment underwriting process and an active portfolio monitoring program.

The investment portfolio (excluding the Company’s investment in asset management affiliates and CLO Funds) at June 30, 2008 is spread across 26 different industries and 89 different entities with an average balance of approximately $4.3 million. As of June 30, 2008, all but two of our portfolio companies were current on their debt service obligations. The Company’s portfolio, including the CLO Funds in which it invests, and the CLO Funds managed by Katonah Debt Advisors consist almost exclusively of credit instruments issued by corporations and do not include investments in asset-backed securities, such as those secured by commercial mortgages, residential mortgages or other consumer borrowings.

We may invest up to 30% of our investment portfolio in opportunistic investments in high-yield bonds, debt and equity securities in CLO Funds, distressed debt or equity securities of public companies. We expect that these public companies generally will have debt that is non-investment grade. We also may invest in debt of middle market companies located outside of the United States, which investments are generally not anticipated to be in excess of 10% of our investment portfolio at the time such investments are made. At June 30, 2008, approximately 13% of our investments were foreign assets (including our investments in CLO Funds, which are typically domiciled outside the U.S. and represent approximately 11% of our portfolio). As a result of regulatory restrictions, we are not permitted to invest in any portfolio company in which Kohlberg & Co. or any fund that it manages has a pre-existing investment.

At June 30, 2008, our ten largest portfolio companies represented approximately 34% of the total fair value of our investments. Our largest investment, Katonah Debt Advisors which is our wholly-owned portfolio company, represented 13% of the total fair value of our investments. Excluding Katonah Debt Advisors and CLO Fund securities, our ten largest portfolio companies represent approximately 17% of the total fair value of our investments.

CLO Fund securities

We typically make a minority investment in the subordinated securities or preferred stock of CLO Funds raised and managed by Katonah Debt Advisors and may selectively invest in securities issued by CLO Funds managed by other asset management companies. As of June 30, 2008, we had $57 million at fair value in CLO Fund securities, including those issued by funds managed by Katonah Debt Advisors. During the six months ended June 30, 2008 and in connection with the closing of Katonah Debt Advisor’s most recent CLO Fund on January 23, 2008, we invested approximately $29 million to acquire all of the shares of the most junior class of securities of the CLO Fund. As of June 30, 2008, all of the CLO Funds in which the Company holds investments maintained the original issue credit ratings on all rated classes of their securities, were distributing cash flows to all classes of investors and were performing in line with expectations with no breach of any material covenants. Our CLO Fund securities as of June 30, 2008 and December 31, 2007 are as follows:

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			June 30, 2008		December 31, 2007
CLO Fund securities	Investment	%⁽¹⁾	Cost	Fair value	Cost	Fair value
Grant Grove CLO, Ltd.	Subordinated Securities	22.2%	$4,521,101	$4,250,000	$4,415,580	$4,250,000
Katonah III, Ltd.	Preferred Shares	23.1	4,500,000	1,394,000	4,500,000	2,810,000
Katonah IV, Ltd.	Preferred Shares	17.1	3,150,000	1,012,000	3,150,000	2,420,000
Katonah V, Ltd.	Preferred Shares	26.7	3,320,000	831,000	3,320,000	420,000
Katonah VII CLO Ltd.⁽²⁾	Subordinated Securities	16.4	4,500,000	3,526,000	4,500,000	3,950,000
Katonah VIII CLO Ltd.⁽²⁾	Subordinated Securities	10.3	3,400,000	2,955,000	3,400,000	3,290,000
Katonah IX CLO Ltd.⁽²⁾	Preferred Shares	6.9	2,000,000	2,141,000	2,000,000	2,000,000
Katonah X CLO Ltd.⁽²⁾	Subordinated Securities	33.3	11,055,435	11,875,000	10,775,684	11,880,000
Katonah 2007-1 CLO Ltd. ⁽²⁾	Preferred Shares	100.0	29,183,940	28,859,236	—	—
Total			$65,630,476	$56,843,236	$36,061,264	$31,020,000

(1) Represents percentage of class held.

(2) An affiliate CLO Fund managed by Katonah Debt Advisors.

The CLO Funds managed by Katonah Debt Advisors invest primarily in broadly syndicated non-investment grade loans, high-yield bonds and other credit instruments of corporate issuers. The underlying assets in each of the CLO Funds in which we have any investment are generally diversified secured or unsecured corporate debt. The underlying assets in our CLO Funds exclude mortgage pools or mortgage securities (residential mortgage bonds, commercial mortgage backed securities, or related asset-backed securities), debt to companies providing mortgage lending and emerging markets investments. The table below summarizes certain attributes of each CLO Fund as per their June 2008 trustee report:


CLO Fund securities⁽¹⁾	Number of securities		Number of issuers		Number of industries		Average security position size		Average issuer position size
Grant Grove CLO, Ltd.		236		177		33	$	1,205,181	$	1,606,908
Katonah III, Ltd.		281		195		35		1,279,087		1,843,198
Katonah IV, Ltd.		313		218		28		1,059,902		1,521,787
Katonah V, Ltd.		345		242		30		657,560		937,431
Katonah VII CLO Ltd.		243		174		33		1,395,979		1,949,556
Katonah VIII CLO Ltd.		242		170		32		1,560,538		2,221,472
Katonah IX CLO Ltd.		240		178		33		1,650,340		2,225,178
Katonah X CLO Ltd.		229		176		30		2,019,771		2,627,997
Katonah 2007-1 CLO Ltd.		181		141		31		1,682,953		2,160,386

(1)

All data from most recent Trustee reports as of 6/30/2008.

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Katonah Debt Advisors

Katonah Debt Advisors is our wholly-owned asset management company that manages CLO Funds that invest in broadly syndicated loans, high yield bonds and other credit instruments. The CLO Funds managed by Katonah Debt Advisors consist exclusively of credit instruments issued by corporations and do not invest in asset-backed securities secured by commercial mortgages, residential mortgages or other consumer borrowings. As of June 30, 2008, Katonah Debt Advisors had approximately $2.3 billion of assets under management, and was valued at approximately $64 million.

As a manager of the CLO Funds, Katonah Debt Advisors receives contractual and recurring management fees as well as a one-time structuring fee from the CLO Funds for its management and advisory services. In addition, Katonah Debt Advisors may also earn income related to net interest on assets accumulated for future CLO issuances on which it has provided a first loss guaranty in connection with loan warehouse arrangements for its CLO Funds. Katonah Debt Advisors generates annual operating income equal to the amount by which its fee income exceeds it operating expenses. The annual management fees which Katonah Debt Advisors receives are generally based on a fixed percentage of the par value of assets under management and are recurring in nature for the term of the CLO Fund so long as Katonah Debt Advisors manages the fund. As a result, the annual management fees earned by Katonah Debt Advisors are not subject to market value fluctuations in the underlying collateral. Katonah Debt Advisors generates annual operating income equal to the amount by which its fee income exceeds it operating expenses. In future years, Katonah Debt Advisors may receive accrued incentive fees upon the liquidation of CLO Funds it manages, provided such CLO Funds have achieved a minimum investment return to holders of their subordinated securities or preferred shares.

We expect to continue to make investments in CLO Funds managed by Katonah Debt Advisors, which we believe will provide us with a current cash investment return. We believe that these investments will provide Katonah Debt Advisors with greater opportunities to access new sources of capital which will ultimately increase Katonah Debt Advisors’ assets under management and resulting management fee income. We expect to continue to receive distributions of recurring fee income and to generate capital appreciation from our investment in Katonah Debt Advisors.

The revenue that Katonah Debt Advisors generates through the fees it receives for managing CLO Funds and after paying the expenses associated with its operations, including compensation of its employees, may be distributed to us. Cash distributions of Katonah Debt Advisors’ net income is recorded as dividends from affiliate asset manager when declared. As with all other investments, Katonah Debt Advisors’ fair value is periodically determined. The valuation is based primarily on a percentage of its assets under management and/or based on Katonah Debt Advisors’ estimated operating income. Any change in value from period to period is recognized as unrealized gain or loss.

For the six months ended June 30, 2008, Katonah Debt Advisors had after-tax net income of approximately $1.2 million.

PORTFOLIO AND INVESTMENT ACTIVITY

Our primary business is lending to and investing in middle-market businesses through investments in senior secured loans, junior secured loans, subordinated/mezzanine debt investments, CLO equity investments and other equity-based investments, which may include warrants.

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Total portfolio investment activity for the six months ended June 30, 2008 and for the years ended December 31, 2007 and December 31, 2006 was as follows:


	Debt securities			CLO Fund securities			Equity securities			Affiliate asset managers			Total portfolio
2006 Activity:
Purchases / originations /draws	$	191,706,724		$	20,870,000		$	—		$	33,394,995		$	245,971,719
Pay-downs / pay-offs / sales		(533,315	)		—			—			(72,710	)		(606,025	)
Net amortized premium		(406,025	)		—			—			—			(406,025	)
Increase in fair value		—			—			—			4,252,710			4,252,710
Fair Value at December 31, 2006	$	190,767,384		$	20,870,000		$	—		$	37,574,995		$	249,212,379
2007 Activity:
Purchases / originations /draws	$	336,182,774		$	14,775,000		$	5,043,950		$	75,000		$	356,076,724
Pay-downs / pay-offs / sales		(104,037,559	)		—			—			—			(104,037,559	)
Net accretion of discount		260,848			416,264			—			—			677,112
Net realized gains		266,317			—			—			—			266,317
Increase (decrease) in fair value		(12,485,682	)		(5,041,264	)		(291,700	)		20,935,365			3,116,719
Fair Value at December 31, 2007	$	410,954,082		$	31,020,000		$	4,752,250		$	58,585,360		$	505,311,692
Year to Date 2008 Activity:
Purchases / originations /draws	$	33,592,201		$	28,859,236		$	52,349		$	1,924,203		$	64,427,989
Pay-downs / pay-offs / sales		(55,418,329	)		—			—			—			(55,418,329	)
Net accretion of discount		261,908			709,977			—			—			971,885
Net realized losses		(621,993	)		—			—			—			(621,993	)
Increase (decrease) in fair value		(8,075,608	)		(3,745,977	)		(1,199,302	)		4,700,487			(8,320,400	)
Fair Value at June 30, 2008	$	380,692,261		$	56,843,236		$	3,605,297		$	65,210,050		$	506,350,844

In December 2007, we committed to make an investment in a new distressed investment platform organized by Steven Panagos and Jonathan Katz and named Panagos and Katz Situational Investing (“PKSI”). Mr. Panagos was most recently national practice leader of Kroll Zolfo Cooper’s Corporate Advisory and Restructuring Practice and Mr. Katz was the founding partner of Special Situations Investing, a distressed investing vehicle of JP Morgan. We expect that funds managed by PKSI will invest in the debt and equity securities of companies that are restructuring due to financial or operational distress. We also expect that PKSI may selectively originate new credit facilities with borrowers that are otherwise unable to access traditional credit markets. We committed to invest up to $2.5 million directly in PKSI through an investment in Class A shares. We have a 35% economic interest in PKSI through our investment in Class B shares on which we will receive our pro rata share of its operating income and may make an investment of up to $25 million in funds managed by PKSI on which we will receive investment income. PKSI may also source distressed debt opportunities in which we may make direct investments. As of June 30, 2008, we funded approximately $1.2 million of our $2.5 million total commitment to PKSI which is an investment in the Class A shares of PKSI.

Both Katonah Debt Advisors and PKSI are considered affiliate investments. As of June 30, 2008, our affiliate asset manager investments at fair value are approximately $65 million.

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in or divest of, and many other factors, including the amount and competition for the debt and equity securities available to middle market companies, the level of merger and acquisition activity for such companies and the general economic environment.

RESULTS OF OPERATIONS

The principal measure of our financial performance is the net increase in stockholders’ equity resulting from operations which includes net investment income (loss) and net realized and unrealized gain (loss). Net investment income (loss) is the difference between our income from interest, dividends, fees, and other investment income and our operating expenses. Net realized gain (loss) on investments, is the difference between the proceeds received from dispositions of portfolio investments and their stated cost. Net unrealized appreciation (depreciation) on investments is the net change in the fair value of our investment portfolio.

Set forth below is a discussion of our results of operations for the three and six months ended June 30, 2008 and 2007.

Investment income

Investment income for the three months ended June 30, 2008 and 2007 was approximately $12 million and $9 million, respectively. Of this amount, approximately $7 million in each period was attributable to interest income on our loan and bond investments. For the three months ended June 30, 2008 and 2007 approximately $1,000 and $805,000, respectively, of such interest income was attributable to interest on assets accumulated for future CLO issuances on which Katonah Debt Advisors entered into a first loss agreement in connection with loan warehouse arrangements for Katonah Debt Advisors CLO Funds. Approximately $5 million and $2 million, respectively, of investment income is attributable to dividends earned on CLO equity investments.

Investment income for the six months ended June 30, 2008 and 2007 was approximately $27 million and $15 million, respectively. Of this amount, approximately $17 million and $11 million, respectively was attributable to interest income on our loan and bond investments. For the six months ended June 30, 2008 and 2007 approximately $470,000 and $875,000, respectively, of such interest income was attributable to interest on assets accumulated for future CLO issuances on which Katonah Debt Advisors entered into a first loss agreement in connection with loan warehouse arrangements for Katonah Debt Advisors CLO Funds. Approximately $8 million and $3 million, respectively, of investment income is attributable to dividends earned on CLO equity investments.

Investment income is primarily dependent on the composition and credit quality of our investment portfolio. Generally, our debt securities portfolio is expected to generate predictable, recurring interest income in accordance with the contractual terms of each loan. Corporate equity securities may pay a dividend and may increase in value for which a gain may be recognized; generally such dividend payments and gains are less predictable than interest income on our loan portfolio. Dividends from CLO Fund securities are dependent on the performance of the underlying assets in each CLO Fund; interest payments, principal amortization and prepayments of the underlying loans in each CLO Fund are primary factors which determine the level of income on our CLO Fund securities.

Dividends from affiliate asset manager

As of June 30, 2008, our investment in Katonah Debt Advisors was approximately $64 million. For the three months ended June 30, 2008 and 2007, Katonah Debt Advisors had GAAP net income of approximately $240,000 and $650,000, respectively. For the six months ended June 30, 2008 and 2007, Katonah Debt Advisors had GAAP net income of approximately $1.2 million and $1.1 million, respectively. For the three months ended June 30, 2008 and 2007 no distributions of Katonah Debt Advisors’ net income were made. During the six months ended June 30, 2008 distributions of Katonah

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Debt Advisors’ net income totaled $350,000; no such distributions were made during the six months ended June 30, 2007. Distributions of Katonah Debt Advisors’ net income are recorded as dividends from affiliate asset manager. The Company intends to distribute the accumulated undistributed net income of Katonah Debt Advisors in the future. For purposes of calculating distributable tax income for required quarterly dividends as a RIC, Katonah Debt Advisors’ net income is further reduced by approximately $2 million per annum for tax goodwill amortization resulting from its acquisition by us prior to our initial public offering. As a result, the amount of our declared dividends, as evaluated by management and approved by our Board of Directors, is based on our evaluation of both distributable income for tax purposes and GAAP net investment income (which excludes unrealized gains and losses).

Expenses

Total expenses for the three months ended June 30, 2008 and 2007 was approximately $4.6 million and $3.3 million, respectively. Interest expense and amortization on debt issuance costs for the period, which includes facility and program fees on the unused loan balance, was approximately $2.4 million and $1.1 million, respectively, on average debt outstanding of $235 million and $56 million, respectively. Approximately $1.5 million and $915,000, respectively, of expenses were attributable to employment compensation, including salaries, bonuses and stock option expense for the three months ended June 30, 2008 and 2007. For the three months ended June 30, 2008, other expenses included approximately $675,000 for professional fees, insurance, administrative and other. For the three months ended June 30, 2007, expenses included approximately $1.3 million for professional fees, insurance, administrative and other. For the three months ended June 30, 2008 and 2007, administrative and other costs totaled approximately $305,000 and $320,000, respectively, and include occupancy expense, insurance, technology and other office expenses.

Total expenses for the six months ended June 30, 2008 and 2007 was approximately $10.2 million and $5.0 million, respectively. Interest expense and amortization on debt issuance costs for the period, which includes facility and program fees on the unused loan balance, was approximately $5.7 million and $1.2 million, respectively, on average debt outstanding of $245 million and $30 million, respectively. Approximately $2.7 million and $1.7 million, respectively, of expenses were attributable to employment compensation, including salaries, bonuses and stock option expense for the six months ended June 30, 2008 and 2007. For the six months ended June 30, 2008, other expenses included approximately $1.7 million for professional fees, insurance, administrative and other, and for the six months ended June 30, 2007, $2.1 million for professional fees, insurance, administrative and other. For the six months ended June 30, 2008 and 2007, administrative and other costs totaled approximately $650,000 and $620,000, respectively, and include occupancy expense, insurance, technology and other office expenses.

Interest and compensation expense are generally expected to be our largest expenses each period. Interest expense is dependent on the average outstanding principal balance on our revolving credit facility and the base index rate for the period. Compensation expense includes base salaries, bonuses, stock compensation, employee benefits and employer related payroll costs. The largest components of total compensation costs are base salaries and bonuses; generally, base salaries are expensed as incurred and bonus expenses are estimated and accrued since bonuses are paid annually.

Net unrealized appreciation on investments

During the three months ended June 30, 2008 and 2007, our total investments had a decrease in net unrealized appreciation of approximately $465,000 and an increase of $11.5 million, respectively. Of this amount, Katonah Debt Advisors had unrealized appreciation of approximately $825,000 and $12.3 million, respectively, offset by unrealized losses of approximately $1.3 million and $820,000, respectively, on debt securities, equity securities and CLO Fund securities in our investment portfolio.

During the six months ended June 30, 2008 and 2007, our total investments had a decrease in net unrealized appreciation of approximately $8.3 million and an increase of $20.5 million, respectively. Of

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this amount, Katonah Debt Advisors had unrealized appreciation of approximately $4.7 million and $21.4 million, respectively, offset by unrealized losses of approximately $13.0 million and $845,000, respectively, on debt securities, equity securities and CLO Fund securities in our investment portfolio.

The increase in the unrealized value of Katonah Debt Advisors is primarily as a result of an increase in Katonah Debt Advisors’ assets under management to $2.3 billion as on June 30, 2008. During the six months ended June 30, 2008, Katonah Debt Advisors increased its assets under management through the completion of the formation of Katonah 2007-1 CLO Ltd., which included approximately $315 million in assets. In addition, as of June 30, 2008, Katonah Debt Advisors had aggregated assets of approximately $275 million for new funds it expects to complete during 2008.

Net increase in stockholders’ equity resulting from operations

The net increase in stockholders’ equity resulting from operations for the three and six months ended June 30, 2008 was approximately $7.3 million and $7.5 million, respectively, or $0.36 and $0.39 per share.

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, pay dividends to our stockholders and other general business needs. We recognize the need to have funds available for operating our business and to make investments. We seek to have adequate liquidity at all times to cover normal cyclical swings in funding availability and to allow us to meet abnormal and unexpected funding requirements. We plan to satisfy our liquidity needs through normal operations with the goal of avoiding unplanned sales of assets or emergency borrowing of funds.

In addition to the traditional sources of available funds (issuance of new equity, debt or undrawn warehouse facility capacity), in the future, we may raise additional cash funds through the securitization of assets on our balance sheet through our wholly-owned asset manager, Katonah Debt Advisors. Such a securitization will provide cash for new investments on our balance sheet as well as additional management fee income and potentially increased value (as a result of increased assets under management) for Katonah Debt Advisors.

As a BDC, we are limited in the amount of leverage we can incur to finance our investment portfolio. We are required to meet a coverage ratio of total assets to total senior securities of at least 200%. For this purpose, senior securities include all borrowings and any preferred stock. As a result, our ability to utilize leverage as a means of financing our portfolio of investments is limited by this asset coverage test.

As of June 30, 2008 and December 31, 2007 the fair value of investments and cash and cash equivalents were as follows:


	Investments at fair value
Security type	June 30, 2008		December 31, 2007
Cash and cash equivalents	$	14,291,881	$	12,088,529
Senior Secured Loan		216,214,013		260,138,674
Junior Secured Loan		125,317,627		113,259,293
Mezzanine Investment		31,933,121		33,066,115
Senior Subordinated Bond		2,287,500		2,490,000
Senior Unsecured Bond		4,940,000		2,000,000
CLO Fund Securities		56,843,236		31,020,000
Equity Securities		3,605,297		4,752,250
Affiliate Asset Managers		65,210,050		58,585,360
Total	$	520,642,725	$	517,400,221

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On February 14, 2007, we entered into a securitization revolving credit facility (the “Facility”) under which we had a right to obtain up to $200 million in financing loaned by or through BMO Capital Markets Corp. On October 1, 2007, the Company amended the Facility to increase the Company’s borrowing capacity from $200 million to $275 million, extend the maturity date from February 12, 2012 to October 1, 2012 and increase the interest spread charged on outstanding borrowings by 15 basis points, to 0.85%. The interest rate is based on prevailing commercial paper rates plus 0.85% or, if the commercial paper market is at any time unavailable, prevailing LIBOR rates plus an applicable spread. Interest is payable monthly. Advances under the Facility are used by us primarily to make additional investments. The Facility is secured by loans acquired by us with the advances under the Facility. We will borrow under the Facility through its wholly-owned, special-purpose bankruptcy remote subsidiary, Kohlberg Capital Funding LLC I.

As of June 30, 2008, the outstanding balance on the Facility was $230 million with available additional borrowing capacity of $45 million. As of June 30, 2008, we had restricted cash balances of approximately $6 million which we maintained in accordance with the terms of our Facility. A portion of these funds, approximately $3 million, was released to us in July 2008.

We expect our cash on hand, borrowings under our current Facility’s undrawn commitments, and cash generated from operations, including income earned from investments and any income distributions made by Katonah Debt Advisors, our wholly-owned portfolio company, will be adequate to meet our cash needs at our current level of operations. Our primary use of funds will be investments in secured lien loans, mezzanine debt and CLO Fund equity. In order to fund new originations, we intend to use cash on hand, advances under our credit Facility and equity financings. Our credit Facility contains collateral requirements, including, but not limited to, minimum diversity, rating and yield, and limitations on loan size. These limitations may limit our ability to fund certain new originations with advances under the Facility, in which case we will seek to fund originations using new debt or equity financings.

COMMITMENTS

We are a party to financial instruments with off-balance sheet risk in the normal course of business in order to meet the needs of the Company’s investment in portfolio companies. Such instruments include commitments to extend credit and may involve, in varying degrees, elements of credit risk in excess of amounts recognized on our balance sheet. Prior to extending such credit, we attempt to limit our credit risk by conducting extensive due diligence, obtaining collateral where necessary and negotiating appropriate financial covenants. As of June 30, 2008 and December 31, 2007, we had committed to make a total of approximately $3 million and $4 million, respectively, of investments in various revolving senior secured loans, of which approximately $600,000 was funded as of June 30, 2008 and $866,000 was funded as of December 31, 2007. As of June 30, 2008 and December 31, 2007, we had committed to make a total of approximately $875,000 and $8 million, respectively, of investments in a delayed draw senior secured loans of which $0 was funded as of June 30, 2008 and approximately $5 million was funded as of December 31, 2007.

Katonah Debt Advisors is currently a party to an agreement with Bear Stearns entered into in connection with a warehouse credit line established to fund the initial accumulation of assets for three CLO funds, pursuant to which agreement Katonah Debt Advisors has undertaken certain “first loss” commitments, as described in more detail below. In return for Katonah Debt Advisors’ first loss commitment, Katonah Debt Advisors is entitled to receive net interest income from the underlying assets in the loan warehouse. In the future, Kohlberg Capital or Katonah Debt Advisors may enter into similar agreements in connection with funding the initial accumulation of senior secured corporate loans and certain other debt securities for future CLO Funds that Katonah Debt Advisors will manage. Such “first loss” commitments relate to (i) losses (if any) as a result of individual loan investments being ineligible for purchase by a new CLO Fund (typically due to a payment default on such loan) when such fund formation is completed or,

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(ii) if a new CLO Fund has not been completed before the expiration of the related warehouse credit line, the loss (if any, and net of any accumulated interest income) on the resale of loans and debt securities funded by such warehouse credit line. In return for our first loss commitment, we receive net interest income from the underlying assets in the loan warehouse.

Katonah Debt Advisors has engaged Bear Stearns to structure and raise three CLO funds, to be named Katonah 2007-I CLO Ltd. (“Katonah 2007”), Katonah 2008-I CLO Ltd. (“Katonah 2008-I”) and Katonah 2008-II CLO Ltd. (“Katonah 2008-II” and, together with Katonah 2007 and Katonah 2008-I, the “CLO Funds”), and to be managed by Katonah Debt Advisors (directly or indirectly through a services contract with an affiliate of Katonah Debt Advisors). The agreement with Bear Stearns survives the merger of Bear Stearns with JPMorgan Chase in June 2008 and continues to be in effect in accordance with its original terms. As part of this engagement, Katonah Debt Advisors entered into certain credit lines with Bear Stearns to accumulate and fund into a loan warehouse the initial assets for the CLO Funds. As mentioned above, Katonah Debt Advisors has undertaken a first loss commitment, requiring Katonah Debt Advisors to reimburse Bear Stearns for (i) certain losses (if any) incurred on the assets warehoused for the CLO Funds prior to their completion, or (ii) if one or all of the CLO Funds fail to close, a portion of the losses (if any) on the resale of the warehoused assets. On January 23, 2008, Katonah Debt Advisors and Bear Stearns closed Katonah 2007. Kohlberg Capital received a structuring fee upon closing and Katonah Debt Advisors expects to earn an ongoing asset management fee based on the par amount of the underlying investments in Katonah 2007. Approximately $212 million of assets were transferred from the loan warehouse into Katonah 2007 and such assets are no longer subject to a first loss obligation. While the securities issued by the CLO funds managed by Katonah Debt Advisors are primarily held by third parties, Kohlberg Capital invested approximately $29 million to acquire all of the shares of the most junior class of securities of Katonah 2007. In connection with the closing of Katonah 2007, Katonah Debt Advisors’ maximum first loss obligation amount under its commitment letter with Bear Stearns was reduced from $22.5 million to $18 million.

As of June 30, 2008, Katonah 2008-I and Katonah 2008-II had acquired an aggregate of approximately $152 million and $123 million in assets, respectively, determined on the basis of the par value of such assets. If the portfolio of remaining warehoused assets for Katonah 2008-I and Katonah 2008-II had been liquidated in accordance with the terms of the engagement with Bear Stearns on June 30, 2008, the loss on such portfolio would have exceeded our maximum first loss obligation. Katonah Debt Advisors is currently in discussions with Bear Stearns regarding the timing and structure of the remaining CLO Funds, and its ability to access the warehouse credit line contemplated by the Bear Stearns commitment letter.

As of June 30, 2008, the Company funded approximately $1.2 million of our $2.5 million total commitment to PKSI which is an investment in the Class A shares of PKSI.

CRITICAL ACCOUNTING POLICIES

The financial statements are based on the selection and application of critical accounting policies, which require management to make significant estimates and assumptions. Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management’s most difficult, complex, or subjective judgments. Our critical accounting policies are those applicable to the valuation of investments and certain revenue recognition matters as discussed below.

Basis of presentation

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presented. Furthermore, the financial statements are based on the selection and application of critical accounting policies which may require management to make significant estimates and assumptions. Actual results could differ from those estimates. Critical accounting policies are those that are important to the presentation of our financial condition and results of operations that require management’s most difficult, complex or subjective judgments.

Valuation of portfolio investments

The most significant estimate inherent in the preparation of our financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded.

Value, as defined in Section 2(a)(41) of 1940 Act, is (1) the market price for those securities for which a market quotation is readily available and (2) for all other securities and assets, fair value as determined in good faith by our Board of Directors pursuant to procedures approved by our Board of Directors. Our valuation policy is intended to provide a consistent basis for determining the fair value of the portfolio based on the nature of the security, the market for the security and other considerations including the financial performance and enterprise value of the portfolio company. Because of the inherent uncertainty of valuation, the Board of Directors’ determined values may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material.

We are, for GAAP purposes, an investment company under the AICPA Audit and Accounting Guide for Investment Companies. As a result, we reflect our investments on our balance sheet at their estimated fair value with unrealized gains and losses resulting from changes in fair value reflected as a component of unrealized gains or losses on our statements of operations. Fair value is the amount that would be received to sell the investments in an orderly transaction between market participants at the measurement date (i.e., the exit price). Additionally, we do not consolidate majority or wholly-owned and controlled investments.

Effective January 1, 2007 we adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), which among other things, requires enhanced disclosures about financial instruments carried at fair value. See Note 4 to the financial statements for the additional information about the level of market observability associated with investments carried at fair value.

We have valued our investments, in the absence of observable market prices, using the valuation methodologies described below applied on a consistent basis. For some investments little market activity may exist; management’s determination of fair value is then based on the best information available in the circumstances, and may incorporate management’s own assumptions and involves a significant degree of management’s judgment.

Our investments in CLO Fund securities are carried at fair value, which is based either on (i) the present value of the net expected cash inflows for interest income and principal repayments from underlying assets and the cash outflows for interest expense, debt paydown and other fund costs for the CLO Funds which are approaching or past the end of their reinvestment period and therefore begin to sell assets and/or use principal repayments to pay-down CLO Fund debt, and for which there continue to be net cash distributions to the class of we securities own, or (ii) the net asset value of the CLO Fund for CLO Funds which are approaching or past the end of their reinvestment period and therefore begin to sell assets and/or use principal repayments to pay-down CLO Fund debt, and for which there are negligible net cash distributions to the class of securities we own, or (iii) a discounted cash flow model for more recent CLO Funds that utilizes prepayment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow and comparable yields for similar bonds or preferred shares to those in which the Company has invested. We recognize unrealized

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appreciation or depreciation on our investments in CLO Fund securities as comparable yields in the market change and/or based on changes in net asset values or estimated cash flows resulting from changes in prepayment or loss assumptions in the underlying collateral pool. As each investment in CLO Fund securities ages, the expected amount of losses and the expected timing of recognition of such losses in the underlying collateral pool are updated and the revised cash flows are used in determining the fair value of the CLO Investment. We determine the fair value of our investments in CLO Fund securities on an individual security-by-security basis.

Our investment in Katonah Debt Advisors is carried at fair value and is based on multiple approaches to value which involve value drivers such as assets under management (“AUM”), cash flow, and earnings before income taxes, depreciation and amortization (“EBITDA”). These value drivers are analyzed in the context of both quantifiable historical experience and projected performance. AUM or earnings multiples from peer comparables are then applied to the value drivers to determine fair value. Our investments in Katonah Debt Advisors and CLO Fund securities are reviewed quarterly by Duff & Phelps, LLC, an independent valuation firm, who performs certain limited procedures that the Company’s Board of Directors identified and requested, and whose conclusion is that the fair value of those investments subjected to the limited procedures did not appear to be unreasonable.

Fair values of other investments for which market prices are not observable are determined by reference to public market or private transactions or valuations for comparable companies or assets in the relevant asset class and or industry when such amounts are available. Generally these valuations are derived by multiplying a key performance metric of the investee company or asset (e.g., EBITDA) by the relevant valuation multiple observed for comparable companies or transactions, adjusted by management for differences between the investment and the referenced comparable. Such investments may also be valued at cost for a period of time after an acquisition as the best indicator of fair value. If the fair value of such investments cannot be valued by reference to observable valuation measures for comparable companies, then the primary analytical method used to estimate the fair value is a discounted cash flow method and/or cap rate analysis. A sensitivity analysis is applied to the estimated future cash flows using various factors depending on the investment, including assumed growth rates (in cash flows), capitalization rates (for determining terminal values) and appropriate discount rates to determine a range of reasonable values or to compute projected return on investment.

The determination of fair value using these methodologies takes into consideration a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment. These valuation methodologies involve a significant degree of management judgment.

After our adoption of SFAS 157, investments measured and reported at fair value are classified and disclosed in one of the following categories:

Level I — Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I include listed equities and listed securities. As required by SFAS 157, the Company does not adjust the quoted price for these investments, even in situations where we hold a large position and a sale could reasonably affect the quoted price.

Level II — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Investments which are generally included in this category include illiquid corporate loans and bonds and less liquid, privately held or restricted equity securities for which some level of recent trading activity has been observed.

Level III — Pricing inputs are unobservable for the investment and includes situations where there is

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Management’s discussion and analysis of financial condition and results of operations

little, if any, market activity for the investment. The inputs into the determination of fair value may require significant management judgment or estimation. Even if observable-market data for comparable performance or valuation measures (earnings multiples, discount rates, other financial/valuation ratios, etc.) are available, such investments are grouped as Level III if any significant data point that is not also market observable (private company earnings, cash flows, etc.) is used in the valuation process.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and it considers factors specific to the investment.

Our Board of Directors may consider other methods of valuation to determine the fair value of investments as appropriate in conformity with GAAP.

Interest income

Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis to the extent that such amounts are expected to be collected. We generally place a loan on non-accrual status and cease recognizing interest income on such loan or security when a loan or security becomes 90 days or more past due or if we otherwise do not expect the debtor to be able to service its debt obligations. Non-accrual loans remain in such status until the borrower has demonstrated the ability and intent to pay contractual amounts due or such loans become current. As of June 30, 2008, two issuers representing 1% of our total investments were on non-accrual status. As of December 31, 2007, no loans or debt securities were greater than 90 days past due or on non-accrual status.

Dividend income from CLO Fund securities

We generate dividend income from our investments in the most junior class of securities of CLO Funds (typically preferred shares or subordinated securities) managed by Katonah Debt Advisors and selective investments in securities issued by funds managed by other asset management companies. Our CLO Fund securities are subordinate to senior bond holders who typically receive a fixed rate of return on their investment. The CLO Funds are leveraged funds and any excess cash flow or “excess spread” (interest earned by the underlying securities in the fund less payments made to senior bond holders and less fund expenses and management fees) is paid to the holders of the CLO Fund’s subordinated securities or preferred shares. We make estimated interim accruals of such dividend income based on recent historical distributions and CLO Fund performance and adjust such accruals on a quarterly basis to reflect actual distributions.

Dividends from affiliate asset manager

The Company records dividend income from its affiliate asset manager on the declaration date.

Payment in kind interest

We may have loans in our portfolio that contain a payment-in-kind (“PIK”) provision. PIK interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan and recorded as interest income. To maintain our RIC status, this non-cash source of income must be paid out to stockholders in the form of dividends, even though the Company has not yet collected the cash.

Fee income

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third parties. Commitment and facility fees are generally recognized as income over the life of the underlying loan, whereas due diligence, structuring, transaction service and management service fees are generally recognized as income when the services are rendered.

Management compensation

We may, from time to time, issue stock options or restricted stock under the Kohlberg Capital Corporation 2006 Equity Incentive Plan as amended (our “Equity Incentive Plan”) to officers and employees for services rendered to us. We follow Statement of Financial Accounting Standards No. 123R (revised 2004), Accounting for Stock-Based Compensation, a method by which the fair value of options or restricted stock is determined and expensed. We use a Binary Option Pricing Model (American, call option) as its valuation model to establish the expected value of all stock option grants.

We are internally managed and therefore do not incur management fees payable to third parties.

Dividends

Dividends and distributions to common stockholders are recorded on the declaration date. The amount to be paid out as a dividend is determined by the Board of Directors each quarter and is generally based upon the earnings estimated by management for the period and fiscal year.

We have adopted a dividend reinvestment plan that provides for reinvestment of our distributions on behalf of our stockholders, unless a stockholder “opts out” of the plan to receive cash in lieu of having their cash dividends automatically reinvested in additional shares of our common stock.

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Underwriting

We are offering the shares of our common stock described in this prospectus supplement and the accompanying prospectus through the underwriters named below. UBS Securities LLC (“UBS”) and JMP Securities LLC (“JMP”) are the representatives of the underwriters. We have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, each of the underwriters has severally agreed to purchase the number of shares of common stock listed next to its name in the following table:


Underwriters		Number of shares
UBS Securities LLC
JMP Securities LLC
BMO Capital Markets Corp.
Oppenheimer & Co. Inc.
Stifel, Nicolaus & Company, Incorporated
Total

The underwriting agreement provides that the underwriters must buy all of the shares if they buy any of them. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ over-allotment option described below.

Our common stock is offered subject to a number of conditions, including:

receipt and acceptance of our common stock by the underwriters, and

the underwriters’ right to reject orders in whole or in part.

In connection with this offering, certain of the underwriters or securities dealers may distribute prospectus supplements and prospectuses electronically.

Sales of shares made outside of the United States may be made by affiliates of the underwriters. Upon the execution of the underwriting agreement, the underwriters will be obligated to purchase the shares at the prices and upon the terms stated therein, and, as a result, will thereafter bear any risk associated with changing the offering price to the public or other selling terms.

OVER-ALLOTMENT OPTION

We have granted the underwriters an option to buy up to 675,000 additional shares of our common stock. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with this offering. The underwriters have 30 days from the date of this prospectus supplement to exercise this option. If the underwriters exercise this option, they will purchase additional shares approximately in proportion to the amounts specified in the table above.

SALES LOAD (UNDERWRITING DISCOUNTS AND COMMISSIONS)

Shares sold by the underwriters to the public will initially be offered at the offering price set forth on the cover of this prospectus supplement. 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. Sales of shares made outside of the United States may be made by affiliates of the underwriters.

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Underwriting

The following table shows the per share and total sales load (underwriting discounts and commissions) we will pay to the underwriters, assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional 675,000 shares:


	No exercise	Full exercise
Per share
Total

In compliance with the Financial Industry Regulatory Authority (“FINRA”) guidelines, the maximum compensation received by FINRA Members in connection with this offering will not exceed 10% of the gross proceeds of the offering, plus 0.5% for bona fide due diligence expenses.

We estimate that the total expenses of this offering payable by us, not including the sales load (underwriting discounts and commissions), will be approximately $568,000.

NO SALES OF SIMILAR SECURITIES

We, our executive officers and directors have entered into lock-up agreements with the underwriters. Under these agreements, we and each of these persons may not, without the prior written approval of UBS and JMP, subject to limited exceptions, offer, sell, contract to sell or otherwise transfer our common stock or securities convertible into or exercisable or exchangeable for our common stock. These restrictions will be in effect for a period of 60 days after the date of this prospectus supplement. At any time and without public notice, UBS and JMP may release all or some of the securities from these lock-up agreements.

INDEMNIFICATION AND CONTRIBUTION

We have agreed to indemnify the underwriters and their controlling persons against certain liabilities, including liabilities under the Securities Act. If we are unable to provide this indemnification, we will contribute to payments the underwriters and their controlling persons may be required to make in respect of those liabilities.

NASDAQ GLOBAL SELECT MARKET LISTING

Our common stock is quoted on The Nasdaq Global Select Market under the trading symbol “KCAP.”

PRICE STABILIZATION, SHORT POSITIONS, PASSIVE MARKET MAKING

In connection with this offering, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our common stock, including:

stabilizing transactions;

short sales;

purchases to cover positions created by short sales;

imposition of penalty bids; and

syndicate covering transactions.

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. These transactions may also include making short sales of our common stock, which involve the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering. Short sales may be “covered short sales,” which are short positions in an amount not greater than the underwriters’ over-allotment option referred to above, or may be “naked short sales,” which are short positions in excess of that amount.

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Underwriting

The underwriters may close out any covered short position either by exercising their over-allotment option, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which they may purchase shares through the over-allotment option. The underwriters must close out any naked short position by purchasing shares in the open market.

Naked short sales are 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 that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchased 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.

As a result of these activities, 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. The underwriters may carry out these transactions on The Nasdaq Global Select Market, in the over-the-counter market or otherwise.

In addition, in connection with this offering the underwriters (and selling group members) may engage in passive market making transactions in our common stock on The Nasdaq Global Select Market prior to the pricing and completion of this offering. Passive market making consists of displaying bids on The Nasdaq Global Select Market no higher than the bid prices of independent market makers and making purchases at prices no higher than these independent bids and effected in response to order flow. Net purchases by a passive market maker on each day are generally limited to a specified percentage of the passive market maker’s average daily trading volume in the common stock during a specified period and must be discontinued when such limit is reached. Passive market making may cause the price of our common stock to be higher than the price that otherwise would exist in the open market in the absence of these transactions. If passive market making is commenced, it may be discontinued at any time.

AFFILIATIONS

BMO Capital Markets Corp. is a lender under a securitization revolving credit facility that has a $275 million borrowing capacity. We will borrow under this facility through our wholly-owned, special-purposes bankruptcy remote subsidiary, Kohlberg Capital Funding LLC I. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition, Liquidity, and Capital Resources” in this prospectus supplement.

The underwriters and their affiliates have provided and may provide certain commercial banking, financial advisory and investment banking services to us for which they receive fees. The underwriters and their affiliates may from time to time in the future engage in transactions with us and perform services for us in the ordinary course of their business.

NOTICE TO PROSPECTIVE INVESTORS IN THE EUROPEAN ECONOMIC AREA

In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant member state), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the relevant implementation date), an offer of shares described in this prospectus may not be made to the public in that relevant member state prior to the publication of a prospectus in relation to the shares that has been approved by the competent authority in that relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in that relevant member state, all in accordance with the

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Underwriting

Prospectus Directive, except that, with effect from and including the relevant implementation date, an offer of securities may be offered to the public in that relevant member state at any time:

to any legal entity that is authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; or

to any legal entity that has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or

in any other circumstances that do not require the publication of a prospectus pursuant to Article 3 of the Prospectus Directive.

Each purchaser of shares of our common stock described in this prospectus located within a relevant member state will be deemed to have represented, acknowledged and agreed that it is a “qualified investor” within the meaning of Article 2(1)(e) of the Prospectus Directive.

For purposes of this provision, the expression an “offer to the public” in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe the securities, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each relevant member state.

The sellers of shares of our common stock have not authorized and do not authorize the making of any offer of shares through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the shares as contemplated in this prospectus. Accordingly, no purchaser of the shares, other than the underwriters, is authorized to make any further offer of the shares on behalf of the sellers or the underwriters.

NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED KINGDOM

This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom who fall within the definition of “qualified investor” as that term is defined in Section 86(1) of the Financial Services and Markets Act 2000 (“FSMA”) or otherwise in circumstances which do not result in an offer of transferable securities to the public in the United Kingdom within the meaning of FSMA. Any invitation or inducement to engage in investment activity by the underwriters (within the meaning of section 21 of the FSMA) in connection with an issue or sale of shares of our common stock may only be communicated or caused to be communicated and will only be communicated or caused to be communicated in circumstances in which section 21(1) of FSMA does not apply. All applicable provisions of the FSMA with respect to anything done by the underwriters in relation to the shares in, from or otherwise involving the United Kingdom must be complied with. This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a “qualified investor” or a person to whom this prospectus may lawfully be communicated should not act or rely on this document or any of its contents.

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Legal matters

Certain legal matters with respect to the validity of the shares of common stock we are offering will be passed upon for us by Ropes & Gray LLP, Boston, Massachusetts. Certain legal matters related to the offering will be passed upon for the underwriters by Clifford Chance US LLP, New York, New York.

Available information

We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to the securities offered by this prospectus supplement and accompanying prospectus. The registration statement contains additional information about us and the securities being offered by this prospectus supplement and accompanying prospectus.

As a public company, we file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement of which the accompanying prospectus forms a part and the related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfosec.gov, or by writing the SEC’s Public Reference Section, Washington, D.C. 20549-0102. In addition, the SEC maintains an Internet website that contains reports, proxy and information statements and other information filed electronically by us with the SEC at http://www.sec.gov.

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Kohlberg Capital Corporation

Financial statements for the quarterly period ended June 30, 2008


	Page
Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007		F-2
Statements of Operations for the three and six months ended June 30, 2008 and 2007 (unaudited)		F-3
Statements of Changes in Net Assets for the six months ended June 30, 2008 and 2007 (unaudited)		F-4
Statements of Cash Flows for the six months ended June 30, 2008 and 2007 (unaudited)		F-5
Schedules of Investments as of June 30, 2008 (unaudited) and December 31, 2007		F-6
Financial Highlights for the six months ended June 30, 2008 and 2007 (unaudited)		F-30
Notes to Financial Statements (unaudited)		F-31

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Kohlberg Capital Corporation

Balance sheets


	As of June 30, 2008			As of December 31, 2007
	(unaudited)
ASSETS
Investments at fair value:
Investments in debt securities (cost: 2008 — $401,253,551; 2007 — $423,439,764)	$	380,692,261		$	410,954,082
Investments in CLO fund securities managed by non-affiliates (cost: 2008 — $15,491,101; 2007 — $15,385,580)		7,487,000			9,900,000
Investments in CLO fund securities managed by affiliate (cost: 2008 — $50,139,375; 2007 — $20,675,684)		49,356,236			21,120,000
Investments in equity securities (cost: 2008 — $5,096,298; 2007 — $5,043,950)		3,605,297			4,752,250
Investments in asset manager affiliates (cost: 2008 — $35,394,198; 2007 — $33,469,995)		65,210,050			58,585,360
Total investments at fair value		506,350,844			505,311,692
Cash and cash equivalents		14,291,881			12,088,529
Restricted cash		5,753,303			7,114,364
Interest and dividends receivable		4,255,203			5,592,637
Due from affiliates		317,664			540,773
Other assets		1,906,606			2,493,964
Total assets	$	532,875,501		$	533,141,959
LIABILITIES
Borrowings		230,000,000			255,000,000
Payable for open trades		11,232,952			5,905,000
Accounts payable and accrued expenses		3,813,765			6,141,892
Dividend payable		8,849,740			7,026,903
Total liabilities	$	253,896,457		$	274,073,795
Commitments and contingencies (note 8)
Stockholders’ equity
Common stock, par value $.01 per share, 100,000,000 common shares authorized; 21,334,732 and 21,234,482 common shares issued and outstanding at June 30, 2008 and 18,017,699 issued and outstanding at December 31, 2007		212,345			180,177
Capital in excess of par value		281,764,129			253,253,152
Distribution in excess of net investment income		(1,351,756	)		(1,661,884	)
Accumulated net realized losses		(621,993	)		—
Net unrealized appreciation (depreciation) on investments		(1,023,681	)		7,296,719
Total stockholders’ equity		278,979,044			259,068,164
Total liabilities and stockholders’ equity	$	532,875,501		$	533,141,959
Net asset value per share	$	13.14		$	14.38

See accompanying notes to financial statements.

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Kohlberg Capital Corporation

Statements of operations
(unaudited)


	Three months ended June 30,						Six months ended June 30,
	2008			2007			2008			2007
Investment income:
Interest from investments in debt securities	$	7,464,325		$	6,638,283		$	17,164,160		$	11,082,284
Interest from cash and cash equivalents		56,969			146,952			143,572			284,095
Dividends from investments in CLO fund securities managed by non-affiliates		2,211,687			1,053,731			3,749,894			2,169,286
Dividends from investments in CLO fund securities managed by affiliate		2,404,109			607,065			3,927,192			1,256,739
Dividends from affiliate asset manager		—			—			350,000			—
Capital structuring service fees		128,434			132,333			1,263,548			320,527
Total investment income		12,265,524			8,578,364			26,598,366			15,112,931
Expenses:
Interest and amortization of debt issuance costs		2,400,789			1,051,152			5,745,212			1,199,493
Compensation		1,531,876			916,523			2,708,715			1,734,186
Professional fees		303,426			955,342			920,074			1,378,728
Insurance		64,979			42,293			138,414			81,516
Administrative and other		305,794			320,423			651,021			619,705
Total expenses		4,606,864			3,285,733			10,163,436			5,013,628
Net investment income		7,658,660			5,292,631			16,434,930			10,099,303
Realized and unrealized gains (losses) on investments:
Net realized gains (losses) from investment transactions		104,320			133,227			(621,993	)		219,462
Net change in unrealized gains (losses) on debt securities		(329,631	)		(698,098	)		(8,075,608	)		104,893
Net change in unrealized losses on equity securities		(8,456	)		—			(1,199,302	)		—
Net change in unrealized gains on affiliate asset manager investments		823,747			12,332,741			4,700,487			21,415,851
Net change in unrealized losses on CLO fund securities managed by non-affiliates		(374,142	)		(220,000	)		(2,518,521	)		(1,050,000	)
Net change in unrealized gains (losses) on CLO fund securities managed by affiliate		(577,213	)		100,000			(1,227,456	)		100,000
Net realized and change in unrealized gains (losses) on investments		(361,375	)		11,647,870			(8,942,393	)		20,790,206
Net increase in stockholders’ equity resulting from operations	$	7,297,285		$	16,940,501		$	7,492,537		$	30,889,509
Earnings per common share — basic	$	0.36		$	0.94		$	0.39		$	1.72
Earnings per common share — diluted	$	0.36		$	0.94		$	0.39		$	1.71
Net investment income per common share — basic and diluted	$	0.38		$	0.29		$	0.86		$	0.56
Net investment income and net realized gains (losses) per common share — basic and diluted	$	0.38		$	0.30		$	0.82		$	0.57
Weighted average shares of common stock outstanding — basic		20,302,781			17,960,502			19,188,862			17,953,457
Weighted average shares of common stock outstanding — diluted		20,322,611			18,072,364			19,198,777			18,014,173

See accompanying notes to financial statements.

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Kohlberg Capital Corporation

Statements of changes in net assets
(unaudited)


	Six months ended June 30,
	2008			2007
Operations:
Net investment income	$	16,434,930		$	10,099,303
Net realized gains (losses) from investment transactions		(621,993	)		219,462
Net change in unrealized gains (losses) on investments		(8,320,400	)		20,570,744
Net increase in net assets resulting from operations		7,492,537			30,889,509
Shareholder distributions:
Dividends from net investment income		(16,124,802	)		(10,099,303	)
Dividends in excess of net investment income (loss)		—			(1,171,828	)
Distributions from realized gains		—			(220,539	)
Net decrease in net assets resulting from shareholder distributions		(16,124,802	)		(11,491,670	)
Capital share transactions:
Issuance of common stock under dividend reinvestment plan		1,292,625			306,348
Issuance of common stock		26,925,213			—
Stock based compensation		325,307			305,600
Net increase in net assets resulting from capital share transactions		28,543,145			611,948
Net assets at beginning of period		259,068,164			256,400,423
Net assets at end of period (including accumulated distributions in excess of net investment income of $1,351,756 and $682,365 in 2008 and 2007, respectively)	$	278,979,044		$	276,410,211
Net asset value per common share	$	13.14		$	15.39
Common shares outstanding at end of period		21,234,482			17,963,525

See accompanying notes to financial statements.

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Kohlberg Capital Corporation

Statements of cash flows
(unaudited)


	Six months ended June 30,
	2008			2007
Operating activities:
Net increase in stockholders’ equity resulting from operations	$	7,492,537		$	30,889,509
Adjustments to reconcile net increase in stockholders’ equity resulting from operations:
Net realized loss (gain) on investment transactions		621,993			(219,462	)
Net unrealized loss (gain) on investments		8,320,400			(20,570,744	)
Net accretion of discount on securities		(971,885	)		(81,619	)
Purchases of investments		(58,437,814	)		(162,924,848	)
Payment-in-kind interest		(662,223	)		(137,305	)
Proceeds from sale and redemption of investments		55,418,329			45,922,295
Stock based compensation expense		325,307			305,600
Changes in operating assets and liabilities:
Decrease (increase) in interest and dividends receivable		1,337,434			(3,360,587	)
Decrease (increase) in other assets		587,358			(1,341,073	)
Decrease (increase) in due from affiliate		223,109			(566,963	)
Decrease in due to affiliate		—			(87,832	)
(Decrease) increase in accounts payable and accrued expenses		(2,328,127	)		1,576,641
Net cash provided by (used in) operating activities		11,926,418			(110,596,388	)
Financing activities:
Issuance of common stock		26,925,213			—
Dividends paid in cash		(13,009,340	)		(4,898,087	)
Borrowings (repayment) of debt		(25,000,000	)		100,000,000
Decrease (increase) in restricted cash		1,361,061			(2,753,263	)
Net cash provided by (used in) financing activities		(9,723,066	)		92,348,650
Change in cash and cash equivalents		2,203,352			(18,247,738	)
Cash and cash equivalents, beginning of period		12,088,529			32,404,493
Cash and cash equivalents, end of period	$	14,291,881		$	14,156,755
Supplemental information:
Interest paid during the period	$	4,753,989		$	618,528
Non-cash dividends paid during the period under dividend reinvestment plan	$	1,292,625		$	306,348
Cash restricted during the period under terms of secured revolving credit facility	$	5,732,180		$	2,737,856

See accompanying notes to financial statements.

F-5

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of June 30, 2008
(unaudited)

Debt securities and bond portfolio


Portfolio Company/ Principal Business	Investment Interest Rate⁽¹⁾/Maturity		Principal		Cost		Value⁽²⁾
Advanced Lighting Technologies, Inc.⁽⁶⁾ Home and Office Furnishings, Housewares, and Durable Consumer Products		Senior Secured Loan— Term Loan (First Lien) 5.2%, Due 6/13	$	1,965,463	$	1,965,463	$	1,965,463
Advanced Lighting Technologies, Inc.⁽⁶⁾ Home and Office Furnishings, Housewares, and Durable Consumer Products		Senior Secured Loan— Deferred Draw Term Loan (First Lien) 5.2%, Due 6/13		358,617		350,356		358,617
Advanced Lighting Technologies, Inc. Home and Office Furnishings, Housewares, and Durable Consumer Products		Senior Secured Loan— Revolving Loan 5.5%, Due 6/13		—		—		—
Advanced Lighting Technologies, Inc.⁽⁶⁾ Home and Office Furnishings, Housewares, and Durable Consumer Products		Junior Secured Loan— Second Lien Term Loan Note 8.5%, Due 6/14		5,000,000		5,000,000		5,000,000
Aero Products International, Inc.⁽⁶⁾ Personal and Non Durable Consumer Products (Mfg. Only)		Senior Secured Loan— Term Loan 6.4%, Due 4/12		3,118,560		3,118,560		3,118,560
Aerostructures Acquisition LLC⁽⁶⁾ Aerospace and Defense		Senior Secured Loan— Delayed Draw Term Loan 5.7%, Due 3/13		500,000		500,000		500,000
Aerostructures Acquisition LLC⁽⁶⁾ Aerospace and Defense		Senior Secured Loan— Term Loan 5.8%, Due 3/13		6,256,250		6,256,250		6,256,250
AGA Medical Corporation⁽⁶⁾ Healthcare, Education and Childcare		Senior Secured Loan— Tranche B Term Loan 4.7%, Due 4/13		3,832,209		3,829,612		3,678,921
AGS LLC⁽⁶⁾ Hotels, Motels, Inns, and Gaming		Senior Secured Loan— Delayed Draw Term Loan 5.5%, Due 5/13		444,280		438,420		422,066
AGS LLC⁽⁶⁾ Hotels, Motels, Inns, and Gaming		Senior Secured Loan— Initial Term Loan 5.5%, Due 5/13		3,175,402		3,133,518		3,016,632

F-6

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of June 30, 2008
(unaudited)


Portfolio Company/ Principal Business	Investment Interest Rate⁽¹⁾/Maturity		Principal		Cost		Value⁽²⁾
AmerCable Incorporated⁽⁶⁾ Machinery (Non — Agriculture, Non-Construction, Non-Electronic)		Senior Secured Loan— Initial Term Loan 6.4%, Due 6/14		5,930,063		5,930,063		5,930,063
Astoria Generating Company Acquisitions, LLC⁽⁶⁾ Utilities		Junior Secured Loan— Second Lien Term Loan C 6.6%, Due 8/13		4,000,000		4,045,065		3,875,000
Atlantic Marine Holding Company⁽⁶⁾ Cargo Transport		Senior Secured Loan— Term Loan 6.0%, Due 3/14		1,730,705		1,740,895		1,722,046
Aurora Diagnostics, LLC⁽⁶⁾ Healthcare, Education and Childcare		Senior Secured Loan— Tranche A Term Loan (First Lien) 7.0%, Due 12/12		4,411,091		4,371,841		4,371,841
Awesome Acquisition Company (CiCi’s Pizza)⁽⁶⁾ Personal, Food and Miscellaneous Services		Junior Secured Loan— Term Loan (Second Lien) 7.8%, Due 6/14		4,000,000		3,975,510		3,820,000
AZ Chem US Inc.⁽⁶⁾ Chemicals, Plastics and Rubber		Junior Secured Loan— Second Lien Term Loan 8.2%, Due 2/14		4,000,000		3,960,094		3,220,000
Bankruptcy Management Solutions, Inc.⁽⁶⁾ Diversified/Conglomerate Service		Senior Secured Loan— First Lien Term Loan 6.5%, Due 7/12		1,965,000		1,975,703		1,852,013
Bankruptcy Management Solutions, Inc.⁽⁶⁾ Diversified/Conglomerate Service		Junior Secured Loan— Loan (Second Lien) 8.7%, Due 7/13		2,456,250		2,489,685		1,915,875
Bay Point Re Limited⁽³⁾⁽⁶⁾ Insurance		Senior Secured Loan— Loan 7.2%, Due 12/10		140,000		140,758		140,000
Bicent Power LLC⁽⁶⁾ Utilities		Junior Secured Loan— Advance (Second Lien) 6.8%, Due 12/14		4,000,000		4,000,000		3,730,000
BP Metals, LLC⁽⁶⁾ Mining, Steel, Iron and Non-Precious Metals		Senior Secured Loan— First Lien Term Loan (June 2008) 11.8%, Due 6/13		5,000,000		5,000,000		5,000,000
Caribe Information Investments Incorporated⁽⁶⁾ Printing and Publishing		Senior Secured Loan— Term Loan 5.0%, Due 3/13		1,707,996		1,701,217		1,528,657
Cast & Crew Payroll, LLC (Payroll Acquisition)⁽⁶⁾ Leisure, Amusement, Motion Pictures, Entertainment		Senior Secured Loan— Initial Term Loan 5.8%, Due 9/12		10,608,400		10,643,466		10,608,400

F-7

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of June 30, 2008
(unaudited)


Portfolio Company/ Principal Business	Investment Interest Rate⁽¹⁾/Maturity		Principal		Cost		Value⁽²⁾
CEI Holdings, Inc. (Cosmetic Essence)⁽⁶⁾ Personal and Non Durable Consumer Products (Mfg. Only)		Senior Secured Loan— Term Loan 4.9%, Due 3/14		1,698,723		1,615,524		1,528,851
Centaur, LLC⁽⁶⁾ Hotels, Motels, Inns, and Gaming		Senior Secured Loan— Term Loan (First Lien) 6.8%, Due 10/12		4,122,807		4,074,769		3,978,509
Centaur, LLC⁽⁶⁾ Hotels, Motels, Inns, and Gaming		Senior Secured Loan— Delayed Draw Term Loan 6.8%, Due 10/12		—		—		—
Charlie Acquisition Corp. Personal, Food and Miscellaneous Services		Mezzanine Investment— Senior Subordinated Notes 15.5%, Due 6/13		10,360,491		10,194,798		9,324,442
Clarke American Corp.⁽⁶⁾ Printing and Publishing		Senior Secured Loan— Tranche B Term Loan 5.3%, Due 6/14		2,970,000		2,970,000		2,524,500
Clayton Holdings, Inc⁽⁶⁾ Finance		Senior Secured Loan— Term Loan 5.5%, Due 12/11		298,714		299,747		298,714
CoActive Technologies, Inc.⁽⁶⁾ Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Senior Secured Loan— Term Loan (First Lien) 5.8%, Due 7/14		3,980,000		3,962,521		3,962,521
CoActive Technologies, Inc.⁽⁶⁾ Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Junior Secured Loan— Term Loan (Second Lien) 9.6%, Due 1/15		2,000,000		1,963,977		1,963,977
Coastal Concrete Southeast, LLC Buildings and Real Estate⁽⁴⁾		Mezzanine Investment— Mezzanine Term Loan 10.0%, Due 3/13		8,454,087		8,084,396		7,608,679
Cooper-Standard Automotive Inc⁽⁶⁾ Automobile		Senior Unsecured Bond 8.4%, Due 12/14		4,000,000		3,196,812		2,940,000
DaimlerChrysler Financial Services Americas LLC⁽⁶⁾ Finance		Senior Secured Loan— Term Loan (First Lien) 6.8%, Due 8/12		3,979,975		3,709,025		3,295,897
Dealer Computer Services, Inc. (Reynolds & Reynolds)⁽⁶⁾ Electronics		Junior Secured Loan— Term Loan (Second Lien) 8.3%, Due 10/13		1,000,000		1,008,726		990,000
Dealer Computer Services, Inc. (Reynolds & Reynolds)⁽⁶⁾ Electronics		Junior Secured Loan— Term Loan (Third Lien) 10.3%, Due 4/14		5,500,000		5,462,361		5,462,361
Delta Educational Systems, Inc.⁽⁶⁾ Healthcare, Education and Childcare		Senior Secured Loan— Term Loan 8.3%, Due 6/12		2,812,107		2,812,107		2,798,047

F-8

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of June 30, 2008
(unaudited)


Portfolio Company/ Principal Business	Investment Interest Rate⁽¹⁾/Maturity		Principal		Cost		Value⁽²⁾
Dresser, Inc.⁽⁶⁾ Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Junior Secured Loan— Term Loan (Second Lien) 8.5%, Due 5/15		3,000,000		2,961,813		2,888,760
DRI Holdings, Inc.⁽⁶⁾ Healthcare, Education and Childcare		Junior Secured Loan— US Term Loan (Second Lien) 9.1%, Due 7/15		6,000,000		5,366,194		5,700,000
Edgestone CD Acquisition Corp. (Custom Direct)⁽⁶⁾ Printing and Publishing		Senior Secured Loan— Term Loan (First Lien) 5.6%, Due 12/13		4,478,476		4,483,286		4,478,476
Edgestone CD Acquisition Corp. (Custom Direct)⁽⁶⁾ Printing and Publishing		Junior Secured Loan— Loan (Second Lien) 8.8%, Due 12/14		5,000,000		5,000,000		5,000,000
eInstruction Corporation⁽⁶⁾ Healthcare, Education and Childcare		Senior Secured Loan— Initial Term Loan 6.5%, Due 7/13		4,945,087		4,945,087		4,945,087
eInstruction Corporation⁽⁶⁾ Healthcare, Education and Childcare		Junior Secured Loan— Term Loan (Second Lien) 14.0%, Due 7/14		10,000,000		10,000,000		10,000,000
Emerson Reinsurance Ltd.⁽³⁾ Insurance		Senior Secured Loan— Series C Loan 8.1%, Due 12/11		1,000,000		1,000,000		1,000,000
Endeavor Energy Resources, L.P.⁽⁶⁾ Oil and Gas		Junior Secured Loan— Second Lien Term Loan 7.0%, Due 3/12		4,000,000		4,000,000		4,000,000
Fasteners For Retail, Inc.⁽⁶⁾ Diversified/Conglomerate Manufacturing		Senior Secured Loan— Term Loan 7.2%, Due 12/12		4,343,250		4,350,318		4,299,817
FD Alpha Acquisition LLC (Fort Dearborn)⁽⁶⁾ Printing and Publishing		Senior Secured Loan— US Term Loan 5.5%, Due 11/12		1,866,729		1,726,531		1,838,728
First American Payment Systems, L.P.⁽⁶⁾ Finance		Senior Secured Loan— Term Loan 5.6%, Due 10/13		3,642,000		3,642,000		3,550,950
Flatiron Re Ltd.⁽³⁾⁽⁶⁾ Insurance		Senior Secured Loan— Closing Date Term Loan 7.1%, Due 12/10		1,191,853		1,199,223		1,191,853
Flatiron Re Ltd.⁽³⁾⁽⁶⁾ Insurance		Senior Secured Loan— Delayed Draw Term Loan 7.1%, Due 12/10		577,304		580,873		577,304
Ford Motor Company⁽⁶⁾ Automobile		Senior Secured Loan— Term Loan 5.5%, Due 12/13		1,979,899		1,977,715		1,616,717
Freescale Semiconductor, Inc. Electronics		Senior Subordinated Bond 10.1%, Due 12/16		3,000,000		3,008,716		2,287,500

F-9

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of June 30, 2008
(unaudited)


Portfolio Company/ Principal Business	Investment Interest Rate⁽¹⁾/Maturity		Principal		Cost		Value⁽²⁾
Frontier Drilling USA, Inc.⁽⁶⁾ Oil and Gas		Senior Secured Loan— Term B Advance 6.6%, Due 6/13		2,000,000		1,998,067		1,870,000
Ginn LA Conduit Lender, Inc.⁽¹⁰⁾ Buildings and Real Estate⁽⁴⁾		Senior Secured Loan— First Lien Tranche A Credit-Linked Deposit 6.0%, Due 6/11		1,257,143		1,224,101		942,857
Ginn LA Conduit Lender, Inc.⁽¹⁰⁾ Buildings and Real Estate⁽⁴⁾		Senior Secured Loan— First Lien Tranche B Term Loan 9.5%, Due 6/11		2,694,857		2,624,028		2,021,143
Ginn LA Conduit Lender, Inc.⁽¹⁰⁾ Buildings and Real Estate⁽⁴⁾		Junior Secured Loan— Second Lien Term Loan 13.5%, Due 6/12		3,000,000		2,715,997		750,000
Gleason Works, The⁽⁶⁾ Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Senior Secured Loan— New US Term Loan 4.4%, Due 6/13		2,437,280		2,444,134		2,303,230
Hawkeye Renewables, LLC⁽⁶⁾ Farming and Agriculture		Senior Secured Loan— Term Loan (First Lien) 7.2%, Due 6/12		2,908,544		2,849,012		2,190,774
HMSC Corporation (aka Swett and Crawford)⁽⁶⁾ Insurance		Junior Secured Loan— Loan (Second Lien) 8.2%, Due 10/14		5,000,000		4,817,204		4,550,000
Huish Detergents Inc.⁽⁶⁾ Personal and Non Durable Consumer Products (Mfg. Only)		Junior Secured Loan— Loan (Second Lien) 7.1%, Due 10/14		1,000,000		1,000,000		833,000
Hunter Fan Company⁽⁶⁾ Home and Office Furnishings, Housewares, and Durable Consumer Products		Senior Secured Loan— Initial Term Loan (First Lien) 5.2%, Due 4/14		4,023,929		3,851,124		3,420,339
Hunter Fan Company⁽⁶⁾ Home and Office Furnishings, Housewares, and Durable Consumer Products		Junior Secured Loan— Loan (Second Lien) 9.5%, Due 10/14		3,000,000		3,000,000		2,347,500
IAL Acquisition Co. (International Aluminum Corporation)⁽⁶⁾ Mining, Steel, Iron and Non-Precious Metals		Senior Secured Loan— Term Loan 5.2%, Due 3/13		3,022,981		3,022,981		3,022,981
Infiltrator Systems, Inc.⁽⁶⁾ Ecological		Senior Secured Loan— Term Loan 7.5%, Due 9/12		3,930,000		3,919,181		3,919,181
Inmar, Inc.⁽⁶⁾ Retail Stores		Senior Secured Loan— Term Loan 5.0%, Due 4/13		3,755,829		3,755,829		3,755,829

F-10

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of June 30, 2008
(unaudited)


Portfolio Company/ Principal Business	Investment Interest Rate⁽¹⁾/Maturity		Principal		Cost		Value⁽²⁾
Intrapac Corporation/Corona Holdco⁽⁶⁾ Containers, Packaging and Glass		Senior Secured Loan— 1st Lien Term Loan 6.4%, Due 5/12		5,850,000		5,870,517		5,850,000
Intrapac Corporation/Corona Holdco⁽⁶⁾ Containers, Packaging and Glass		Junior Secured Loan— Term Loans (Second Lien) 10.4%, Due 5/13		3,000,000		3,019,877		3,000,000
Jones Stephens Corp.⁽⁶⁾ Buildings and Real Estate⁽⁴⁾		Senior Secured Loan— Term Loan 6.6%, Due 9/12		10,167,912		10,142,936		10,142,936
JW Aluminum Company⁽⁶⁾ Mining, Steel, Iron and Non-Precious Metals		Junior Secured Loan— Term Loan (2nd Lien) 8.7%, Due 12/13		5,371,429		5,388,768		5,210,286
Kepler Holdings Limited⁽³⁾⁽⁶⁾ Insurance		Senior Secured Loan— Loan 8.3%, Due 6/09		5,000,000		5,013,426		5,000,000
KIK Custom Products Inc.⁽⁶⁾ Personal and Non Durable Consumer Products (Mfg. Only)		Junior Secured Loan— Loan (Second Lien) 7.9%, Due 12/14		5,000,000		5,000,000		3,400,000
La Paloma Generating Company, LLC⁽⁶⁾ Utilities		Junior Secured Loan— Loan (Second Lien) 6.3%, Due 8/13		2,000,000		2,015,677		1,890,000
LBREP/L-Suncal Master I LLC⁽⁶⁾⁽¹⁰⁾ Buildings and Real Estate⁽⁴⁾		Senior Secured Loan— Term Loan (First Lien) 7.3%, Due 1/10		3,875,156		3,816,779		2,906,367
LBREP/L-Suncal Master I LLC⁽⁶⁾⁽¹⁰⁾ Buildings and Real Estate⁽⁴⁾		Junior Secured Loan— Term Loan (Second Lien) 11.3%, Due 1/11		2,000,000		1,920,194		500,000
LBREP/L-Suncal Master I LLC⁽¹⁰⁾ Buildings and Real Estate⁽⁴⁾		Junior Secured Loan— Term Loan (Third Lien) 11.8%, Due 2/12		2,332,868		2,332,868		233,287
Legacy Cabinets, Inc.⁽⁶⁾ Home and Office Furnishings, Housewares, and Durable Consumer Products		Senior Secured Loan— Term Loan 7.1%, Due 8/12		2,281,464		2,281,464		2,281,464
Levlad, LLC & Arbonne International, LLC⁽⁶⁾ Personal and Non Durable Consumer Products (Mfg. Only)		Senior Secured Loan— Term Loan 5.1%, Due 3/14		2,788,274		2,788,274		1,958,763
LN Acquisition Corp. (Lincoln Industrial)⁽⁶⁾ Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Junior Secured Loan— Initial Term Loan (Second Lien) 8.5%, Due 1/15		2,000,000		2,000,000		1,970,000

F-11

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of June 30, 2008
(unaudited)


Portfolio Company/ Principal Business	Investment Interest Rate⁽¹⁾/Maturity		Principal		Cost		Value⁽²⁾
LPL Holdings, Inc.⁽⁶⁾ Finance		Senior Secured Loan— Tranche D Term Loan 4.8%, Due 6/13		3,321,819		3,343,382		3,155,728
MCCI Group Holdings, LLC⁽⁶⁾ Healthcare, Education and Childcare		Senior Secured Loan— Term Loan (First Lien) 6.7%, Due 12/12		5,944,995		5,927,035		5,927,035
MCCI Group Holdings, LLC⁽⁶⁾ Healthcare, Education and Childcare		Junior Secured Loan— Term Loan (Second Lien) 9.9%, Due 6/13		1,000,000		1,000,000		1,000,000
Murray Energy Corporation⁽⁶⁾ Mining, Steel, Iron and Non-Precious Metals		Senior Secured Loan— Tranche B Term Loan (First Lien) 5.5%, Due 1/10		1,959,494		1,966,931		1,900,709
National Interest Security Company, L.L.C.⁽⁶⁾ Aerospace and Defense		Senior Secured Loan— Term Loan — 1st Lien 7.8%, Due 12/12		8,287,500		8,287,500		8,287,500
Northeast Biofuels, LP⁽⁶⁾ Farming and Agriculture		Senior Secured Loan— Construction Term Loan 6.2%, Due 6/13		1,365,854		1,368,464		1,229,268
Northeast Biofuels, LP⁽⁶⁾ Farming and Agriculture		Senior Secured Loan— Synthetic LC Term Loan 6.2%, Due 6/13		536,585		537,611		482,927
PAS Technologies Inc. Aerospace and Defense		Senior Secured Loan— Term Loan 7.4%, Due 6/11		3,958,333		3,938,709		3,938,709
PAS Technologies Inc. Aerospace and Defense		Senior Secured Loan— Incremental Term Loan Add On 7.3%, Due 6/11		800,562		800,562		800,562
Pegasus Solutions, Inc.⁽⁶⁾ Leisure, Amusement, Motion Pictures, Entertainment		Senior Secured Loan— Term Loan 6.1%, Due 4/13		5,725,000		5,725,000		5,725,000
Pegasus Solutions, Inc. Leisure, Amusement, Motion Pictures, Entertainment		Senior Unsecured Bond 10.5%, Due 4/15		2,000,000		2,000,000		2,000,000
Primus International Inc.⁽⁶⁾ Aerospace and Defense		Senior Secured Loan— Term Loan 4.9%, Due 6/12		1,252,922		1,255,174		1,221,599
QA Direct Holdings, LLC⁽⁶⁾ Printing and Publishing		Senior Secured Loan— Term Loan 6.9%, Due 8/14		4,962,406		4,917,438		4,917,438
Resco Products, Inc.⁽⁶⁾ Mining, Steel, Iron and Non-Precious Metals		Junior Secured Loan— Term Loan (Second Lien) 10.7%, Due 6/14		6,650,000		6,454,727		6,559,128

F-12

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of June 30, 2008
(unaudited)


Portfolio Company/ Principal Business	Investment Interest Rate⁽¹⁾/Maturity		Principal		Cost		Value⁽²⁾
Rhodes Companies, LLC, The⁽⁶⁾ Buildings and Real Estate⁽⁴⁾		Senior Secured Loan— First Lien Term Loan 10.3%, Due 11/10		1,771,111		1,694,768		1,363,756
Rhodes Companies, LLC, The⁽⁶⁾ Buildings and Real Estate⁽⁴⁾		Junior Secured Loan— Second Lien Term Loan 11.6%, Due 11/11		2,003,722		2,013,473		1,269,037
San Juan Cable, LLC⁽⁶⁾ Broadcasting and Entertainment		Junior Secured Loan— Second Lien Term Loan 8.2%, Due 10/13		3,000,000		2,980,793		2,850,000
Schneller LLC⁽⁶⁾ Aerospace and Defense		Senior Secured Loan— Term Loan 6.2%, Due 6/13		4,718,391		4,677,759		4,694,799
Seismic Micro-Technology, Inc. (SMT)⁽⁶⁾ Electronics		Senior Secured Loan— Term Loan 5.2%, Due 6/12		950,883		948,787		948,787
Seismic Micro-Technology, Inc. (SMT)⁽⁶⁾ Electronics		Senior Secured Loan— Term Loan 5.2%, Due 6/12		1,426,324		1,423,180		1,423,180
Specialized Technology Resources, Inc.⁽⁶⁾ Diversified/Conglomerate Service		Senior Secured Loan— Term Loan (First Lien) 5.0%, Due 6/14		3,950,050		3,950,050		3,950,050
Specialized Technology Resources, Inc.⁽⁶⁾ Diversified/Conglomerate Service		Junior Secured Loan— Loan (Second Lien) 9.5%, Due 12/14		7,500,000		7,500,000		7,500,000
Standard Steel, LLC⁽⁶⁾ Cargo Transport		Senior Secured Loan— Delayed Draw Term Loan 5.0%, Due 7/12		821,539		826,516		821,539
Standard Steel, LLC⁽⁶⁾ Cargo Transport		Senior Secured Loan— Initial Term Loan 5.3%, Due 7/12		4,076,499		4,101,193		4,076,499
Standard Steel, LLC⁽⁶⁾ Cargo Transport		Junior Secured Loan— Loan (Second Lien) 8.8%, Due 7/13		1,750,000		1,759,312		1,750,000
Stolle Machinery Company⁽⁶⁾ Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Senior Secured Loan— First Lien Term Loan 7.0%, Due 9/12		970,063		974,514		970,063
Stolle Machinery Company⁽⁶⁾ Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Junior Secured Loan— Loan (Second Lien) 9.0%, Due 9/13		700,000		709,663		700,000
TPF Generation Holdings, LLC⁽⁶⁾ Utilities		Junior Secured Loan— Second Lien Term Loan 7.1%, Due 12/14		2,000,000		2,030,724		1,900,000

F-13

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of June 30, 2008
(unaudited)


Portfolio Company/ Principal Business	Investment Interest Rate⁽¹⁾/Maturity		Principal		Cost		Value⁽²⁾
TransAxle LLC Automobile		Senior Secured Loan— Revolver 6.8%, Due 8/11		600,000		596,509		597,905
TransAxle LLC⁽⁶⁾ Automobile		Senior Secured Loan— Term Loan 6.8%, Due 9/12		2,654,310		2,654,310		2,654,310
TUI University, LLC⁽⁶⁾ Healthcare, Education and Childcare		Senior Secured Loan— Term Loan 6.0%, Due 10/14		3,970,000		3,789,311		3,791,350
Twin-Star International, Inc.⁽⁶⁾ Home and Office Furnishings, Housewares, and Durable Consumer Products		Senior Secured Loan— Term Loan 5.6%, Due 4/13		4,950,000		4,950,000		4,950,000
United Maritime Group, LLC (fka Teco Transport Corporation)⁽⁶⁾ Cargo Transport		Junior Secured Loan— Term Loan (Second Lien) 10.0%, Due 12/13		4,500,000		4,500,000		4,500,000
Walker Group Holdings LLC⁽⁶⁾ Cargo Transport		Junior Secured Loan— Term Loan (Second Lien) 12.5%, Due 12/12		7,500,000		7,500,000		7,500,000
Water PIK, Inc.⁽⁶⁾ Personal and Non Durable Consumer Products (Mfg. Only)		Senior Secured Loan— Loan (First Lien) 5.7%, Due 6/13		1,975,025		1,963,467		1,935,525
Wesco Aircraft Hardware Corp.⁽⁶⁾ Aerospace and Defense		Junior Secured Loan— Second Lien Term Loan 8.6%, Due 3/14		4,132,887		4,163,765		4,070,894
WireCo WorldGroup Inc. Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Mezzanine Investment 11.0%, Due 2/15		5,000,000		4,778,705		5,000,000
WireCo WorldGroup Inc.⁽⁶⁾ Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Mezzanine Investment 11.0%, Due 2/15		10,000,000		10,000,000		10,000,000
Wolf Hollow I, LP⁽⁶⁾ Utilities		Senior Secured Loan— Acquisition Term Loan 5.1%, Due 6/12		779,802		769,949		733,014
Wolf Hollow I, LP⁽⁶⁾ Utilities		Senior Secured Loan— Synthetic Letter of Credit 4.7%, Due 6/12		668,412		659,966		628,307
Wolf Hollow I, LP⁽⁶⁾ Utilities		Senior Secured Loan— Synthetic Revolver Deposits 4.7%, Due 6/12		167,103		164,992		157,077

F-14

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of June 30, 2008
(unaudited)

Portfolio Company/
Principal Business

Investment Interest Rate⁽¹⁾/Maturity

Principal

Cost

Value⁽²⁾

Wolf Hollow I, LP⁽⁶⁾
Utilities

Junior Secured Loan— Term Loan (Second Lien)
7.3%, Due 12/12

2,683,177

2,688,169

2,468,522

X-Rite, Incorporated⁽⁶⁾
Electronics

Senior Secured Loan— Term Loan (First Lien)
9.5%, Due 10/12

990,013

985,710

990,013

X-Rite, Incorporated⁽⁶⁾
Electronics

Junior Secured Loan— Loan (Second Lien)
10.5%, Due 10/13

1,000,000

Total Investment in Debt Securities and Bonds
(137% of net asset value at fair value)

$405,474,235

$401,253,551

$380,692,261

Equity Portfolio


Portfolio Company/Principal Business	Investment		Percentage Interest			Cost		Value⁽²⁾
Aerostructures Holdings L.P.⁽⁷⁾ Aerospace and Defense		Partnership Interests		1.2	%	$	1,000,000	$	1,000,000
Allen-Vanguard Corporation⁽³⁾⁽⁷⁾ Aerospace and Defense		Common Shares		0.0	%		42,541		25,680
Coastal Concrete Southeast, LLC⁽³⁾⁽⁸⁾ Buildings and Real Estate(4)		Warrants		3.5	%		474,140		—
eInstruction Acquisition, LLC⁽⁷⁾ Healthcare, Education and Childcare		Membership Units		1.1	%		1,079,617		1,079,617
FP WRCA Coinvestment Fund VII, Ltd.⁽³⁾⁽⁷⁾ Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Class A Shares		0.7	%		1,500,000		1,500,000
Park Avenue Coastal Holding, LLC⁽⁷⁾ Buildings and Real Estate⁽⁴⁾		Common Interests		2.0	%		1,000,000		—
Total Investment in Equity Securities (1% of net asset value at fair value)							$5,096,298		$3,605,297

F-15

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of June 30, 2008
(unaudited)

CLO Fund Securities


Portfolio Company/Principal Business	Investment		Percentage Interest			Cost		Value⁽²⁾
Grant Grove CLO, Ltd.⁽³⁾		Subordinated Securities		22.2	%	$	4,521,101	$	4,250,000
Katonah III, Ltd.⁽³⁾		Preferred Shares		23.1	%		4,500,000		1,394,000
Katonah IV, Ltd.⁽³⁾		Preferred Shares		17.1	%		3,150,000		1,012,000
Katonah V, Ltd.⁽³⁾		Preferred Shares		26.7	%		3,320,000		831,000
Katonah VII CLO Ltd.⁽³⁾⁽⁹⁾		Subordinated Securities		16.4	%		4,500,000		3,526,000
Katonah VIII CLO Ltd⁽³⁾		Subordinated Securities		10.3	%		3,400,000		2,955,000
Katonah IX CLO Ltd⁽³⁾⁽⁹⁾		Preferred Shares		6.9	%		2,000,000		2,141,000
Katonah X CLO Ltd⁽³⁾⁽⁹⁾		Subordinated Securities		33.3	%		11,055,435		11,875,000
Katonah 2007-I CLO Ltd.⁽³⁾⁽⁹⁾		Preferred Shares		100.0	%		29,183,940		28,859,236
Total Investment in CLO Fund Securities (20% of net asset value at fair value)							$65,630,476		$56,843,236

Affiliate Investments


Portfolio Company/Principal Business	Investment		Percentage Interest			Cost		Value⁽²⁾
Katonah Debt Advisors Asset Management Company		Preferred Shares		100.0	%	$	34,151,495	$	63,967,347
PKSI Asset Management Company		Class A Shares		100.0	%		1,239,203		1,239,203
PKSI Asset Management Company		Class B Shares		35.0	%		3,500		3,500
Total Investment in Affiliates (23% of net asset value at fair value)							$ 35,394,198		$ 65,210,050
Total Investments⁽⁵⁾ (181% of net asset value at fair value)							$507,374,523		$506,350,844

(1)

A majority of the variable rate loans to our portfolio companies bear interest at a rate that may be determined by reference to either LIBOR or an alternate Base Rate (commonly based on the Federal Funds Rate or the Prime Rate), which typically resets semi-annually, quarterly, or monthly. For each such loan, we have provided the weighted average annual stated interest rate in effect at June 30, 2008.

(2)

Reflects the fair market value of all existing investments as of June 30, 2008, as determined by our Board of Directors.

(3)

Non-U.S. company or principal place of business outside the U.S.

(4)

Buildings and real estate relate to real estate ownership, builders, managers and developers and excludes mortgage debt investments and mortgage lenders or originators. As of June 30, 2008, we had no exposure to mortgage securities (residential mortgage bonds, commercial mortgage backed securities, or related asset backed securities), companies providing mortgage lending or emerging markets investments either directly or through our investments in CLO funds.

F-16

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of June 30, 2008
(unaudited)

(5)

The aggregate cost of investments for federal income tax purposes is approximately $507 million. The aggregate gross unrealized appreciation is approximately $32 million and the aggregate gross unrealized depreciation is approximately $33 million.

(6)

Pledged as collateral for the secured revolving credit facility (see Note 6 to the financial statements).

(7)

Non-income producing.

(8)

Warrants having a strike price of $0.01 and expiration date of March 2017.

(9)

An affiliate CLO Fund managed by Katonah Debt Advisors or its affiliate.

(10)

Loan or debt security is on non-accrual status and therefore is considered non-income producing.

F-17

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of December 31, 2007

Debt securities and bond portfolio


Portfolio Company/Principal Business	Investment Interest Rate⁽¹⁾/ Maturity		Principal		Cost		Value⁽²⁾
Advanced Lighting Technologies, Inc. Home and Office Furnishings, Housewares, and Durable Consumer Products		Senior Secured Loan—Revolving Loan 7.5%, Due 6/13	$	—	$	—	$	—
Advanced Lighting Technologies, Inc.⁽⁶⁾ Home and Office Furnishings, Housewares, and Durable Consumer Products		Junior Secured Loan—Second Lien Term Loan Note 11.1%, Due 6/14		5,000,000		4,990,905		5,000,000
Advanced Lighting Technologies, Inc.⁽⁶⁾ Home and Office Furnishings, Housewares, and Durable Consumer Products		Senior Secured Loan—Term Loan (First Lien) 7.9%, Due 6/13		3,573,000		3,573,000		3,573,000
Advanced Lighting Technologies, Inc.⁽⁶⁾ Home and Office Furnishings, Housewares, and Durable Consumer Products		Senior Secured Loan—Deferred Draw Term Loan (First Lien) 7.5%, Due 6/13		650,268		650,268		650,268
Aero Products International, Inc.⁽⁶⁾ Personal and Non Durable Consumer Products (Mfg. Only)		Senior Secured Loan—Term Loan 8.8%, Due 4/12		3,700,000		3,700,000		3,681,500
Aerostructures Acquisition LLC⁽⁶⁾ Aerospace and Defense		Senior Secured Loan—Delayed Draw Term Loan 7.9%, Due 3/13		500,000		500,000		497,500
Aerostructures Acquisition LLC⁽⁶⁾ Aerospace and Defense		Senior Secured Loan—Term Loan 7.8%, Due 3/13		6,378,125		6,378,125		6,378,125
AGA Medical Corporation⁽⁶⁾ Healthcare, Education and Childcare		Senior Secured Loan—Tranche B Term Loan 7.2%, Due 4/13		3,832,209		3,829,343		3,654,970
AGS LLC⁽⁶⁾ Hotels, Motels, Inns, and Gaming		Senior Secured Loan—Delayed Draw Term Loan 7.7%, Due 5/13		579,194		562,331		550,234
AGS LLC⁽⁶⁾ Hotels, Motels, Inns, and Gaming		Senior Secured Loan—Initial Term Loan 7.9%, Due 5/13		4,802,419		4,732,592		4,562,298
Allen-Vanguard Corporation⁽³⁾ Aerospace and Defense		Senior Secured Loan— US Term Loan 12.0%, Due 9/12		2,309,736		2,277,028		2,277,028

F-18

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of December 31, 2007


Portfolio Company/Principal Business	Investment Interest Rate⁽¹⁾/ Maturity		Principal		Cost		Value⁽²⁾
AmerCable Incorporated⁽⁶⁾ Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Senior Secured Loan—Initial Term Loan 8.4%, Due 6/14		6,965,000		6,965,000		6,965,000
Astoria Generating Company Acquisitions, LLC⁽⁶⁾ Utilities		Junior Secured Loan—Second Lien Term Loan C 8.7%, Due 8/13		4,000,000		4,049,430		3,900,000
Atlantic Marine Holding Company⁽⁶⁾ Cargo Transport		Senior Secured Loan—Term Loan 7.1%, Due 3/14		1,739,465	$	1,750,599		1,730,768
Aurora Diagnostics, LLC⁽⁶⁾ Healthcare, Education and Childcare		Senior Secured Loan—Tranche A Term Loan (First Lien) 9.0%, Due 12/12		4,060,000		4,010,521		4,019,823
Awesome Acquisition Company (CiCi’s Pizza)⁽⁶⁾ Personal, Food and Miscellaneous Services		Junior Secured Loan—Term Loan (Second Lien) 9.8%, Due 6/14		4,000,000		3,973,451		3,820,000
AZ Chem US Inc.⁽⁶⁾ Chemicals, Plastics and Rubber		Junior Secured Loan—Second Lien Term Loan 10.6%, Due 2/14		4,000,000		3,956,582		3,220,000
Bankruptcy Management Solutions, Inc.⁽⁶⁾ Diversified/Conglomerate Service		Senior Secured Loan—First Lien Term Loan 7.6%, Due 7/12		1,975,000		1,987,070		1,846,625
Bankruptcy Management Solutions, Inc.⁽⁶⁾ Diversified/Conglomerate Service		Junior Secured Loan—Loan (Second Lien) 11.1%, Due 7/13		2,468,750		2,505,651		1,987,344
Bay Point Re Limited⁽³⁾⁽⁶⁾ Insurance		Senior Secured Loan—Loan 9.6%, Due 12/10		3,000,000		3,019,487		3,019,487
Bicent Power LLC⁽⁶⁾ Utilities		Junior Secured Loan—Advance (Second Lien) 8.8%, Due 12/14		4,000,000		4,000,000		3,730,000
Byram Healthcare Centers, Inc. Healthcare, Education and Childcare		Senior Secured Loan—Term Loan A 10.1%, Due 11/11		3,733,691		3,733,691		3,733,691
Byram Healthcare Centers, Inc. Healthcare, Education and Childcare		Senior Secured Loan—Revolving Loan 9.7%, Due 11/10		375,000		375,000		375,000
Caribe Information Investments Incorporated⁽⁶⁾ Printing and Publishing		Senior Secured Loan—Term Loan 7.3%, Due 3/13		2,815,534		2,803,185		2,709,951

F-19

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of December 31, 2007


Portfolio Company/Principal Business	Investment Interest Rate⁽¹⁾/ Maturity		Principal		Cost		Value⁽²⁾
Cast & Crew Payroll, LLC (Payroll Acquisition)⁽⁶⁾ Leisure, Amusement, Motion Pictures, Entertainment		Senior Secured Loan—Initial Term Loan 7.8%, Due 9/12		10,608,400		10,647,600		10,647,600
CEI Holdings, Inc. (Cosmetic Essence)⁽⁶⁾ Personal and Non Durable Consumer Products (Mfg. Only)		Senior Secured Loan—Term Loan 7.5%, Due 3/14		1,850,051		1,751,546		1,665,046
Centaur, LLC⁽⁶⁾ Hotels, Motels, Inns, and Gaming		Senior Secured Loan—Term Loan (First Lien) 8.8%, Due 10/12		4,122,807		4,069,243		3,978,509
Centaur, LLC⁽⁶⁾ Hotels, Motels, Inns, and Gaming		Senior Secured Loan—Delayed Draw Term Loan 8.7%, Due 10/12		—		—		—
Charlie Acquisition Corp. Personal, Food and Miscellaneous Services		Mezzanine Investment— Senior Subordinated Notes 15.5%, Due 6/13		10,127,500		9,945,201		9,945,201
Clarke American Corp.⁽⁶⁾ Printing and Publishing		Senior Secured Loan—Tranche B Term Loan 7.3%, Due 6/14		2,985,000		2,985,000		2,693,963
Clayton Holdings, Inc⁽⁶⁾ Finance		Senior Secured Loan—Term Loan 7.0%, Due 12/11		614,320	$	616,752	$	552,888
Coastal Concrete Southeast, LLC Buildings and Real Estate⁽⁴⁾		Mezzanine Investment—Mezzanine Term Loan 15.0%, Due 3/13		8,120,914		7,711,760		8,120,914
Concord Re Limited⁽³⁾ Insurance		Senior Secured Loan—Term Loan 9.2%, Due 2/12		3,000,000		3,024,013		3,000,000
CST Industries, Inc.⁽⁶⁾ Diversified/Conglomerate Manufacturing		Senior Secured Loan—Term Loan 7.9%, Due 8/13		987,500		990,623		990,623
DaimlerChrysler Financial Services Americas LLC⁽⁶⁾ Finance		Senior Secured Loan—Term Loan (First Lien) 9.0%, Due 8/12		1,995,000		1,903,193		1,923,519
Dealer Computer Services, Inc. (Reynolds & Reynolds) Electronics		Junior Secured Loan—Term Loan (Third Lien) 12.3%, Due 4/14		3,500,000		3,537,846		3,491,250
Dealer Computer Services, Inc. (Reynolds & Reynolds)⁽⁶⁾ Electronics		Junior Secured Loan—Term Loan (Second Lien) 10.3%, Due 10/13		1,000,000		1,009,544		990,000
Delta Educational Systems, Inc.⁽⁶⁾ Healthcare, Education and Childcare		Senior Secured Loan—Term Loan 8.3%, Due 6/12		2,876,053		2,876,053		2,876,053

F-20

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of December 31, 2007


Portfolio Company/Principal Business	Investment Interest Rate⁽¹⁾/ Maturity		Principal		Cost		Value⁽²⁾
DeltaTech Controls, Inc.⁽⁶⁾ Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Senior Secured Loan—Term Loan (First Lien) 8.0%, Due 7/14		4,000,000		3,980,991		3,980,991
DeltaTech Controls, Inc.⁽⁶⁾ Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Junior Secured Loan—Term Loan (Second Lien) 11.7%, Due 1/15		2,000,000		1,961,246		1,961,246
Dresser, Inc.⁽⁶⁾ Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Junior Secured Loan—Term Loan (Second Lien) 11.1%, Due 5/15		3,000,000		2,959,031		2,861,250
Edgestone CD Acquisition Corp. (Custom Direct)⁽⁶⁾ Printing and Publishing		Junior Secured Loan—Loan (Second Lien) 10.8%, Due 12/14		5,000,000		5,000,000		5,000,000
Edgestone CD Acquisition Corp. (Custom Direct)⁽⁶⁾ Printing and Publishing		Senior Secured Loan—Term Loan (First Lien) 7.6%, Due 12/13		4,975,000		4,980,828		4,980,828
eInstruction Corporation⁽⁶⁾ Healthcare, Education and Childcare		Junior Secured Loan—Second Lien Term Loan (Dec. 2007) 12.5%, Due 7/14		10,000,000		10,000,000		10,000,000
eInstruction Corporation⁽⁶⁾ Healthcare, Education and Childcare		Senior Secured Loan—Initial Term Loan (Dec. 2007) 9.0%, Due 7/13		4,970,013		4,970,013		4,970,013
Emerson Reinsurance Ltd.⁽³⁾ Insurance		Senior Secured Loan—Series C Loan 10.2%, Due 12/11		3,000,000		3,000,000		2,985,000
Endeavor Energy Resources, L.P. Oil and Gas		Junior Secured Loan—Second Lien Term Loan 9.6%, Due 3/12		4,000,000		4,000,000		4,000,000
Fasteners For Retail, Inc.⁽⁶⁾ Diversified/Conglomerate Manufacturing		Senior Secured Loan—Term Loan 7.9%, Due 12/12		7,926,391		7,940,720		7,728,231
FD Alpha Acquisition LLC (Fort Dearborn)⁽⁶⁾ Printing and Publishing		Senior Secured Loan— US Term Loan 8.3%, Due 11/12		915,400		915,400		901,669
First American Payment Systems, L.P.⁽⁶⁾ Finance		Senior Secured Loan—Term Loan 8.2%, Due 10/13		3,694,000		3,694,000		3,601,650
Flatiron Re Ltd.⁽³⁾ Insurance		Senior Secured Loan—Closing Date Term Loan 9.1%, Due 12/10		3,664,488		3,691,697		3,646,165
Flatiron Re Ltd.⁽³⁾ Insurance		Senior Secured Loan—Delayed Draw Term Loan 9.1%, Due 12/10		1,774,986		1,788,166		1,766,111

F-21

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of December 31, 2007


Portfolio Company/Principal Business	Investment Interest Rate⁽¹⁾/ Maturity		Principal		Cost		Value⁽²⁾
Ford Motor Company⁽⁶⁾ Automobile		Senior Secured Loan—Term Loan 8.0%, Due 12/13		1,989,950		1,987,554		1,845,678
Freescale Semiconductor, Inc. Electronics		Senior Subordinated Bond 10.1%, Due 12/16		3,000,000		3,009,230		2,490,000
Frontier Drilling USA, Inc.⁽⁶⁾ Oil and Gas		Senior Secured Loan—Term B Advance 8.7%, Due 6/13		2,000,000		1,997,874		1,960,000
Ginn LA Conduit Lender, Inc. Buildings and Real Estate⁽⁴⁾		Senior Secured Loan—First Lien Tranche A Credit-Linked Deposit 8.2%, Due 6/11		1,257,143		1,218,578		1,026,143
Ginn LA Conduit Lender, Inc. Buildings and Real Estate⁽⁴⁾		Senior Secured Loan—First Lien Tranche B Term Loan 8.3%, Due 6/11		2,701,714		2,618,835		2,205,274
Ginn LA Conduit Lender, Inc. Buildings and Real Estate⁽⁴⁾		Junior Secured Loan—Second Lien Term Loan 12.3%, Due 6/12		3,000,000		2,680,274		1,925,010
Gleason Works, The⁽⁶⁾ Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Senior Secured Loan—New US Term Loan 6.8%, Due 6/13		2,437,280		2,444,818		2,324,556
Hawkeye Renewables, LLC⁽⁶⁾ Farming and Agriculture		Senior Secured Loan—Term Loan (First Lien) 9.0%, Due 6/12		2,962,406		2,894,213		2,346,640
HealthSouth Corporation Healthcare, Education and Childcare		Senior Secured Loan—Term Loan 7.7%, Due 3/13		1,262,594		1,266,540		1,208,403
HMSC Corporation (aka Swett and Crawford)⁽⁶⁾ Insurance		Junior Secured Loan—Loan (Second Lien) 10.7%, Due 10/14		5,000,000		4,803,383		4,550,000
Huish Detergents Inc.⁽⁶⁾ Personal and Non Durable Consumer Products (Mfg. Only)		Junior Secured Loan—Loan (Second Lien) 9.1%, Due 10/14		1,000,000		1,000,000		811,660
Hunter Fan Company⁽⁶⁾ Home and Office Furnishings, Housewares, and Durable Consumer Products		Senior Secured Loan—Initial Term Loan (First Lien) 7.4%, Due 4/14		4,161,071		3,947,013		3,682,548
Hunter Fan Company⁽⁶⁾ Home and Office Furnishings, Housewares, and Durable Consumer Products		Junior Secured Loan—Loan (Second Lien) 11.6%, Due 10/14		3,000,000		3,000,000		2,430,000

F-22

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of December 31, 2007


Portfolio Company/Principal Business	Investment Interest Rate⁽¹⁾/ Maturity		Principal		Cost		Value⁽²⁾
Hunter Fan Company⁽⁶⁾ Home and Office Furnishings, Housewares, and Durable Consumer Products		Senior Secured Loan—Delayed Draw Term Loan 7.2%, Due 4/14		—		—		—
IAL Acquisition Co. (International Aluminum Corporation)⁽⁶⁾ Mining, Steel, Iron and Non-Precious Metals		Senior Secured Loan—Term Loan 7.6%, Due 3/13		4,039,700		4,039,700		4,039,700
Infiltrator Systems, Inc.⁽⁶⁾ Ecological		Senior Secured Loan—Term Loan 8.4%, Due 9/12		3,950,000		3,937,850		3,937,850
Inmar, Inc.⁽⁶⁾ Retail Stores		Senior Secured Loan—Term Loan 7.3%, Due 4/13		4,962,500		4,962,500		4,813,625
Intrapac Corporation/Corona Holdco⁽⁶⁾ Containers, Packaging and Glass		Senior Secured Loan—1st Lien Term Loan 8.5%, Due 5/12		5,850,000		5,873,152		5,873,152
Intrapac Corporation/Corona Holdco⁽⁶⁾ Containers, Packaging and Glass		Junior Secured Loan—Term Loans (Second Lien) 12.5%, Due 5/13		3,000,000		3,021,907		3,021,907
Jones Stephens Corp.⁽⁶⁾ Buildings and Real Estate⁽⁴⁾		Senior Secured Loan—Term Loan 8.8%, Due 9/12		10,245,530		10,217,367		10,217,367
JW Aluminum Company⁽⁶⁾ Mining, Steel, Iron and Non-Precious Metals		Junior Secured Loan—Term Loan (2nd Lien) 11.1%, Due 12/13		5,371,429		5,390,350		5,210,286
Kepler Holdings Limited⁽³⁾ Insurance		Senior Secured Loan—Loan 10.3%, Due 6/09		3,000,000		3,000,000		2,985,000
Kepler Holdings Limited⁽³⁾⁽⁶⁾ Insurance		Senior Secured Loan—Loan 10.3%, Due 6/09		2,000,000		2,020,139		1,990,000
KIK Custom Products Inc.⁽⁶⁾ Personal and Non Durable Consumer Products (Mfg. Only)		Junior Secured Loan—Loan (Second Lien) 9.8%, Due 12/14		5,000,000		5,000,000		3,400,000
La Paloma Generating Company, LLC Utilities		Junior Secured Loan—Loan (Second Lien) 8.3%, Due 8/13		2,000,000		2,017,210		1,890,000
LBREP/L-Suncal Master I LLC Buildings and Real Estate⁽⁴⁾		Junior Secured Loan—Term Loan (Third Lien) 13.8%, Due 2/12		2,254,068		2,254,068		2,006,120

F-23

TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of December 31, 2007


Portfolio Company/Principal Business	Investment Interest Rate⁽¹⁾/ Maturity		Principal		Cost		Value⁽²⁾
LBREP/L-Suncal Master I LLC⁽⁶⁾ Buildings and Real Estate⁽⁴⁾		Senior Secured Loan—Term Loan (First Lien) 8.2%, Due 1/10		3,920,000		3,842,022		3,567,200
LBREP/L-Suncal Master I LLC⁽⁶⁾ Buildings and Real Estate⁽⁴⁾		Junior Secured Loan—Term Loan (Second Lien) 12.2%, Due 1/11		2,000,000		1,918,000		1,780,000
Legacy Cabinets, Inc. Home and Office Furnishings, Housewares, and Durable Consumer Products		Senior Secured Loan—First Lien Term Loan 8.6%, Due 8/12		2,955,000		2,955,000		2,955,000
Levlad, LLC & Arbonne International, LLC⁽⁶⁾ Personal and Non Durable Consumer Products (Mfg. Only)		Senior Secured Loan—Term Loan 7.2%, Due 3/14		2,898,451		2,898,451		2,266,589
LN Acquisition Corp. (Lincoln Industrial)⁽⁶⁾ Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Junior Secured Loan—Initial Term Loan (Second Lien) 10.9%, Due 1/15		2,000,000		2,000,000		1,970,000
LPL Holdings, Inc.⁽⁶⁾ Finance		Senior Secured Loan—Tranche D Term Loan 6.8%, Due 6/13		5,338,639		5,376,752		5,131,767
MCCI Group Holdings, LLC⁽⁶⁾ Healthcare, Education and Childcare		Junior Secured Loan—Term Loan (Second Lien) 12.7%, Due 6/13		1,000,000		1,000,000		1,000,000
MCCI Group Holdings, LLC⁽⁶⁾ Healthcare, Education and Childcare		Senior Secured Loan—Term Loan (First Lien) 9.4%, Due 12/12		5,960,018		5,940,018		5,960,018
Murray Energy Corporation⁽⁶⁾ Mining, Steel, Iron and Non-Precious Metals		Senior Secured Loan—Tranche B Term Loan (First Lien) 7.9%, Due 1/10		1,969,620		1,979,459		1,890,835
National Interest Security Company, L.L.C.⁽⁶⁾ Aerospace and Defense		Senior Secured Loan—Term Loan 9.7%, Due 12/12		5,000,000		5,000,000		5,000,000
Northeast Biofuels, LP⁽⁶⁾ Farming and Agriculture		Senior Secured Loan—Construction Term Loan 8.5%, Due 6/13		1,365,854		1,368,725		1,229,268
Northeast Biofuels, LP⁽⁶⁾ Farming and Agriculture		Senior Secured Loan—Synthetic LC Term Loan 8.1%, Due 6/13		536,585		537,713		482,927
PAS Technologies Inc. Aerospace and Defense		Senior Secured Loan—Incremental Term Loan Add On 8.5%, Due 6/11		856,741		856,741		856,741

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Kohlberg Capital Corporation
Schedules of investments
As of December 31, 2007


Portfolio Company/Principal Business	Investment Interest Rate⁽¹⁾/ Maturity		Principal		Cost		Value⁽²⁾
PAS Technologies Inc. Aerospace and Defense		Senior Secured Loan—Term Loan 8.4%, Due 6/11		4,236,111		4,211,616		4,211,616
Pegasus Solutions, Inc. Leisure, Amusement, Motion Pictures, Entertainment		Senior Unsecured Bond 10.5%, Due 4/15		2,000,000		2,000,000		2,000,000
Pegasus Solutions, Inc.⁽⁶⁾ Leisure, Amusement, Motion Pictures, Entertainment		Senior Secured Loan—Term Loan 8.1%, Due 4/13		5,755,000		5,755,000		5,755,000
Primus International Inc.⁽⁶⁾ Aerospace and Defense		Senior Secured Loan—Term Loan 7.7%, Due 6/12		3,259,279		3,265,878		3,177,797
QA Direct Holdings, LLC⁽⁶⁾ Printing and Publishing		Senior Secured Loan—Term Loan 9.6%, Due 8/14		4,987,469		4,938,587		4,950,063
Resco Products, Inc.⁽⁶⁾ Mining, Steel, Iron and Non-Precious Metals		Junior Secured Loan—2nd Lien Term Loan 13.1%, Due 6/14		5,000,000		4,928,938		4,928,938
Rhodes Companies, LLC, The⁽⁶⁾ Buildings and Real Estate⁽⁴⁾		Senior Secured Loan—First Lien Term Loan 8.3%, Due 11/10		1,878,788		1,780,166		1,647,077
Rhodes Companies, LLC, The⁽⁶⁾ Buildings and Real Estate⁽⁴⁾		Junior Secured Loan—Second Lien Term Loan 12.6%, Due 11/11		2,000,000		2,011,185		1,266,680
San Juan Cable, LLC⁽⁶⁾ Broadcasting and Entertainment		Junior Secured Loan—Second Lien Term Loan 10.7%, Due 10/13		3,000,000		2,978,999		2,782,500
Schneller LLC⁽⁶⁾ Aerospace and Defense		Senior Secured Loan—First Lien Term Loan 8.7%, Due 6/13		4,975,000		4,927,882		4,950,125
Seismic Micro-Technology, Inc. (SMT)⁽⁶⁾ Electronics		Senior Secured Loan—Term Loan 7.6%, Due 6/12		995,000		992,532		992,532
Seismic Micro-Technology, Inc. (SMT)⁽⁶⁾ Electronics		Senior Secured Loan—Term Loan 7.6%, Due 6/12		1,492,500		1,488,798		1,488,798
Sorenson Communications, Inc.⁽⁶⁾ Electronics		Senior Secured Loan—Tranche C Term Loan 7.4%, Due 8/13		2,791,551		2,807,105		2,720,897
Specialized Technology Resources, Inc.⁽⁶⁾ Diversified/Conglomerate Service		Senior Secured Loan—Term Loan (First Lien) 7.3%, Due 6/14		5,970,000		5,970,000		5,970,000
Specialized Technology Resources, Inc.⁽⁶⁾ Diversified/Conglomerate Service		Junior Secured Loan—Loan (Second Lien) 11.8%, Due 12/14		7,500,000		7,500,000		7,500,000

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Kohlberg Capital Corporation
Schedules of investments
As of December 31, 2007


Portfolio Company/Principal Business	Investment Interest Rate⁽¹⁾/ Maturity		Principal		Cost		Value⁽²⁾
Standard Steel, LLC⁽⁶⁾ Cargo Transport		Senior Secured Loan—Delayed Draw Term Loan 7.4%, Due 7/12		825,699		831,324		831,324
Standard Steel, LLC⁽⁶⁾ Cargo Transport		Senior Secured Loan—Initial Term Loan 7.3%, Due 7/12		4,097,298		4,125,208		4,125,208
Standard Steel, LLC⁽⁶⁾ Cargo Transport		Junior Secured Loan—Loan (Second Lien) 10.8%, Due 7/13		1,750,000		1,760,240		1,760,240
Stolle Machinery Company⁽⁶⁾ Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Junior Secured Loan—Loan (Second Lien) 11.4%, Due 9/13		1,000,000		1,015,115		975,000
Stolle Machinery Company⁽⁶⁾ Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Senior Secured Loan—First Lien Term Loan 7.9%, Due 9/12		1,975,000		1,985,124		1,945,375
TLC Funding Corp.⁽⁶⁾ Healthcare, Education and Childcare		Senior Secured Loan—Term Loan (First Lien) 9.9%, Due 5/12		3,930,000		3,850,590		3,959,475
TPF Generation Holdings, LLC⁽⁶⁾ Utilities		Junior Secured Loan— Second Lien Term Loan 9.1%, Due 12/14		2,000,000		2,033,096		1,890,000
TransAxle LLC Automobile		Senior Secured Loan—Revolver 8.2%, Due 8/11		490,909		486,678		488,832
TransAxle LLC⁽⁶⁾ Automobile		Senior Secured Loan—Term Loan 9.2%, Due 9/12		2,812,500		2,812,500		2,812,500
TUI University, LLC⁽⁶⁾ Healthcare, Education and Childcare		Senior Secured Loan—Term Loan (First Lien) 8.1%, Due 10/14		3,990,000		3,794,292		3,810,450
Twin-Star International, Inc. Home and Office Furnishings, Housewares, and Durable Consumer Products		Senior Secured Loan—Term Loan 7.8%, Due 4/13		4,975,000		4,975,000		4,975,000
United Maritime Group, LLC (fka Teco Transport Corporation)⁽⁶⁾ Cargo Transport		Junior Secured Loan—Term Loan (Second Lien) 12.8%, Due 12/13		4,500,000		4,500,000		4,511,250
United Maritime Group, LLC (fka Teco Transport Corporation)⁽⁶⁾ Cargo Transport		Senior Secured Loan— 1st Lien Term Loan 9.0%, Due 12/12		2,000,000		2,000,000		2,000,000
Water PIK, Inc.⁽⁶⁾ Personal and Non Durable Consumer Products (Mfg. Only)		Senior Secured Loan—Loan (First Lien) 8.2%, Due 6/13		2,985,000		2,965,778		2,925,300

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TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of December 31, 2007


Portfolio Company/Principal Business	Investment Interest Rate⁽¹⁾/ Maturity		Principal		Cost		Value⁽²⁾
Wesco Aircraft Hardware Corp.⁽⁶⁾ Aerospace and Defense		Junior Secured Loan—Second Lien Term Loan 10.6%, Due 3/14		4,132,887		4,166,447		4,132,887
WireCo WorldGroup Inc. Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Mezzanine Investment 11.0%, Due 2/15		5,000,000		4,762,014		5,000,000
WireCo WorldGroup Inc. Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Mezzanine Investment 11.0%, Due 2/15		10,000,000		10,000,000		10,000,000
Wolf Hollow I, LP⁽⁶⁾ Utilities		Junior Secured Loan—Term Loan (Second Lien) 9.3%, Due 12/12		2,683,177		2,688,724		2,555,726
Wolf Hollow I, LP⁽⁶⁾ Utilities		Senior Secured Loan—Acquisition Term Loan 7.1%, Due 6/12		783,980		772,832		733,021
Wolf Hollow I, LP⁽⁶⁾ Utilities		Senior Secured Loan—Synthetic Letter of Credit 7.1%, Due 6/12		668,412		658,900		618,280
Wolf Hollow I, LP⁽⁶⁾ Utilities		Senior Secured Loan—Synthetic Revolver Deposits 7.1%, Due 6/12		167,103		164,727		154,570
X-Rite, Incorporated⁽⁶⁾ Electronics		Senior Secured Loan—Term Loan (First Lien) 8.5%, Due 10/12		1,995,000		1,985,328		1,985,025
X-Rite, Incorporated⁽⁶⁾ Electronics		Junior Secured Loan—Loan (Second Lien) 12.4%, Due 10/13		1,000,000		1,000,000		1,000,000
Total Investment in Debt Securities and Bonds (158% of net asset value at fair value)				$426,014,170		$423,439,764		$410,954,082

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TABLE OF CONTENTS

Kohlberg Capital Corporation
Schedules of investments
As of December 31, 2007

Equity Portfolio


Portfolio Company/Principal Business	Investment Interest Rate⁽¹⁾/ Maturity			Principal			Cost		Value⁽²⁾
Aerostructures Holdings L.P. Aerospace and Defense		Partnership Interest			1.2	%	$	1,000,000	$	1,000,000
eInstruction Acquisition, LLC Healthcare, Education and Childcare		Membership Units			1.1	%		1,069,810		1,069,810
FP WRCA Coinvestment Fund VII, Ltd.⁽³⁾ Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		Class A Shares			0.7	%		1,500,000		1,500,000
Park Avenue Coastal Holding, LLC Buildings and Real Estate⁽⁴⁾		Common Interests			2.0	%		1,000,000		803,000
Coastal Concrete Southeast, LLC Buildings and Real Estate⁽⁴⁾⁽⁷⁾		Warrants	⁽⁸⁾		0.9	%		474,140		379,440
Total Investment in Equity Securities (2% of net asset value at fair value)								$5,043,950		$4,752,250

CLO Fund Securities


Portfolio Company/Principal Business	Investment		Percentage Interest			Cost		Value⁽²⁾
Grant Grove CLO, Ltd.⁽³⁾		Subordinated Securities		22.2	%	$	4,415,580	$	4,250,000
Katonah III, Ltd.⁽³⁾		Preferred Shares		23.1	%		4,500,000		2,810,000
Katonah IV, Ltd.⁽³⁾		Preferred Shares		17.1	%		3,150,000		2,420,000
Katonah V, Ltd.⁽³⁾		Preferred Shares		26.7	%		3,320,000		420,000
Katonah VII CLO Ltd.⁽³⁾⁽⁹⁾		Subordinated Securities		16.4	%		4,500,000		3,950,000
Katonah VIII CLO Ltd⁽³⁾⁽⁹⁾		Subordinated Securities		10.3	%		3,400,000		3,290,000
Katonah IX CLO Ltd⁽³⁾⁽⁹⁾		Preferred Shares		6.9	%		2,000,000		2,000,000
Katonah X CLO Ltd⁽³⁾⁽⁹⁾		Subordinated Securities		33.3	%		10,775,684		11,880,000
Total Investment in CLO Fund Securities (12% of net asset value at fair value)							$36,061,264		$31,020,000

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Kohlberg Capital Corporation
Schedules of investments
As of December 31, 2007


Portfolio Company/Principal Business	Investment		Percentage Interest			Cost		Value⁽²⁾
Katonah Debt Advisors Asset Management Company		Membership Interests		100.0	%	$	33,394,995	$	58,510,360
PKSI Distressed Investments		Class A Shares		100.0	%		71,500		71,500
PKSI Distressed Investments		Class B Shares		35.0	%		3,500		3,500
Total Investment in Portfolio Companies (23% of net asset value at fair value)							$ 33,469,995		$ 58,585,360
Total Investments⁽⁵⁾ (195% of net asset value at fair value)							$498,014,973		$505,311,692

(1)

(2)

Reflects the fair market value of all existing investments as of December 31, 2007, as determined by our Board of Directors.

(3)

Non-U.S. company or principal place of business outside the U.S.

(4)

Buildings and real estate relate to real estate ownership, builders, managers and developers and excludes mortgage debt investments and mortgage lenders or originators. As of December 31, 2007, we had no exposure to mortgage securities (residential mortgage bonds, commercial mortgage backed securities, or related asset backed securities), companies providing mortgage lending or emerging markets investments either directly or through our investments in CLO funds.

(5)

The aggregate cost of investments for federal income tax purposes is approximately $500 million. The aggregate gross unrealized appreciation is approximately $27 million and the aggregate gross unrealized depreciation is approximately $20 million.

(6)

Pledged as collateral for the secured revolving credit facility (see Note(6) to the financial statements).

(7)

Non-income producing.

(8)

Warrants having a strike price of $0.01 and expiration date of March 2017.

(9)

An affiliate CLO Fund managed by Katonah Debt Advisors.

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Kohlberg Capital Corporation
Financial highlights
(unaudited)


	Six Months Ended June 30,
	2008			2007
Per Share Data:
Net asset value, at beginning of period	$	14.38		$	14.29
Net investment income⁽¹⁾		0.86			0.56
Net realized gains (losses)		(0.03	)		0.01
Net change in unrealized appreciation on investments		(2.60	)		1.13
Net increase (decrease) in net assets resulting from operations	$	(1.77	)	$	1.70
Distribution from net investment income and realized gains		(0.82	)		(0.64	)
Issuance of common stock under dividend reinvestment plan		0.06			0.02
Issuance of common stock		1.27			—
Stock based compensation expense		0.02			0.02
Net asset value, end of period	$	13.14		$	15.39
Total net asset value return⁽²⁾		(3.3	)%		12.2	%
Ratio/Supplemental Data:
Per share market value at beginning of period	$	12.00		$	17.30
Per share market value at end of period	$	10.00		$	18.55
Total market return⁽³⁾		(10.3	)%		10.9	%
Shares outstanding at end of period		21,234,482			17,963,525
Net assets at end of period	$	278,979,044		$	276,410,211
Portfolio turnover rate⁽⁴⁾		11.1	%		15.3	%
Average debt outstanding	$	244,890,110		$	29,889,503
Average debt outstanding per share	$	11.53		$	1.66
Ratio of net investment income to average net assets⁽⁵⁾		12.5	%		7.6	%
Ratio of total expenses to average net assets⁽⁵⁾		7.8	%		3.8	%
Ratio of interest expense to average net assets⁽⁵⁾		4.4	%		0.9	%
Ratio of non-interest expenses to average net assets⁽⁵⁾		3.4	%		2.9	%

(1)

Based on weighted average number of common shares outstanding for the period.

(2)

Total net asset value return (not annualized) equals the change in the net asset value per share over the beginning of period net asset value per share plus dividends, divided by the beginning net asset value per share.

(3)

Total market return (not annualized) equals the change in the ending market value over the beginning of period price per share plus dividends, divided by the beginning price.

(4)

Not annualized.

(5)

Annualized.

See accompanying notes to financial statements.

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TABLE OF CONTENTS

Kohlberg Capital Corporation
Notes to financial statements
(unaudited)

1 — ORGANIZATION

Kohlberg Capital Corporation (“Kohlberg Capital” or the “Company”) is an internally managed, non-diversified closed-end investment company that is regulated as a business development company (“BDC”) under the Investment Company Act of 1940. The Company originates, structures and invests in senior secured term loans, mezzanine debt and selected equity securities primarily in privately-held middle market companies. The Company defines the middle market as comprising companies with earnings before interest, taxes, depreciation and amortization (“EBITDA”), of $10 million to $50 million and/or total debt of $25 million to $150 million. The Company was formed as a Delaware LLC on August 8, 2006 and, prior to the issuance of shares of the Company’s common stock in its initial public offering, converted to a corporation incorporated in Delaware on December 11, 2006. Prior to its initial public offering (“IPO”), the Company did not have material operations. The Company’s IPO of 14,462,000 shares of common stock raised net proceeds of approximately $200 million. Prior to the IPO, the Company issued 3,484,333 shares to affiliates of Kohlberg & Co., LLC (“Kohlberg & Co.”), a leading middle market private equity firm, in exchange for the contribution of their ownership interests in Katonah Debt Advisors and in securities issued by collateralized loan obligation funds (“CLO Funds”) managed by Katonah Debt Advisors and two other asset managers to the Company. Katonah Debt Advisors manages CLO Funds which invest in broadly syndicated loans, high-yield bonds and other credit instruments. As of June 30, 2008, Katonah Debt Advisors had approximately $2.3 billion of assets under management. On April 28, 2008 the Company completed a rights offering which resulted in the issuance of 3.1 million common shares and net proceeds of approximately $27 million.

The Company’s investment objective is to generate current income and capital appreciation from investments made in senior secured term loans, mezzanine debt and selected equity investments in privately-held middle market companies. The Company also expects to continue to receive distributions of recurring fee income and to generate capital appreciation from its investment in the asset management business of Katonah Debt Advisors. The Company’s investment portfolio as well as the investment portfolios of the CLO Funds in which it has invested and the investment portfolios of the CLO Funds managed by Katonah Debt Advisors consist exclusively of credit instruments and other securities issued by corporations and do not include any asset-backed securities secured by commercial mortgages, residential mortgages or other consumer borrowings.

The Company has elected to be treated as a Regulated Investment Company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements. Pursuant to this election, the Company generally will not have to pay corporate-level taxes on any income that it distributes to its stockholders.

2 — SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The financial statements include the accounts of the Company and the accounts of its special purpose financing subsidiary, Kohlberg Capital Funding LLC I. In accordance with Article(6) of Regulation S-X under the Securities Act of 1933 and Securities Exchange Act of 1934, the Company does not consolidate portfolio company investments, including those in which it has a controlling interest (Katonah Debt Advisors and its affiliates currently is the only company in which the Company has a controlling interest) or its special purpose financing subsidiary.

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Kohlberg Capital Corporation
Notes to financial statements
(unaudited)

The accompanying unaudited financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required for annual financial statements. The unaudited interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2007, as filed with the Securities and Exchange Commission (“SEC”).

The financial statements reflect all adjustments and reclassifications which, in the opinion of management, are necessary for the fair presentation of the Company’s results of operations and financial condition for the periods presented. Furthermore, the preparation of the financial statements requires management to make significant estimates and assumptions including the fair value of investments that do not have a readily available market value. Actual results could differ from those estimates. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for the full year.

Certain reclassifications were made to prior year’s presentation to conform to the current year.

Investments

Investment transactions are recorded on the applicable trade date. Realized gains or losses are computed using the specific identification method.

Loans and Debt Securities. For loans and debt securities for which market quotations are readily available, such as broadly syndicated term loans and bonds, fair value generally is equal to the market price for those loans and securities. For loans and debt securities for which a market quotation is not readily available, such as middle market term loans, second lien term loans and mezzanine debt investments, fair value is determined by evaluating the borrower’s enterprise value and other methodologies generally used to determine fair value. The analysis of enterprise value or overall financial condition or other factors or methodologies may lead to a determination of fair value at a different amount other than cost; as a general rule, the Company will value such loans or debt securities at cost, however such loans and debt securities will be subject to fair value write-downs when the asset is considered impaired or other fair value adjustments based on other observable market data or analysis of the borrower.

Equity and Equity-Related Securities. The Company’s equity and equity-related securities in portfolio companies for which there is no liquid public market are carried at fair value based on the enterprise value of the portfolio company, which is determined using various factors, including cash flow from operations of the portfolio company and other pertinent factors, such as recent offers to purchase a portfolio company’s securities or other liquidation events. The determined fair values are generally discounted to account for restrictions on resale and minority ownership positions. The value of the Company’s equity and equity-related securities in public companies for which market quotations are readily available are based upon the closing public market price on the balance sheet date. Securities that carry certain restrictions on sale are typically valued at a discount from the public market value of the security. The Company’s investment in its wholly-owned asset management company, Katonah Debt Advisors, is valued based on standard measures such as the percentage of assets under management and a multiple of operating income used to value other asset management companies.

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Kohlberg Capital Corporation
Notes to financial statements
(unaudited)

Investments”). The Company distinguishes CLO funds managed by Katonah Debt Advisors as “CLO fund securities managed by affiliate.” The Company’s CLO Investments relate exclusively to credit instruments issued by corporations and do not include any asset-backed securities secured by commercial mortgages, residential mortgages, or consumer borrowings. As of June 30, 2008, CLO Investments represented approximately 11% of the Company’s investment portfolio.

The Company’s investments in CLO Fund securities are carried at fair value, which is based either on (i) the present value of the net expected cash inflows for interest income and principal repayments from underlying assets and the cash outflows for interest expense, debt paydown and other fund costs for the CLO Funds which are approaching or past the end of their reinvestment period and therefore begin to sell assets and/or use principal repayments to pay-down CLO Fund debt, and for which there continue to be net cash distributions to the class of securities owned by the Company, or (ii) the net asset value of the CLO Fund for CLO Funds which are approaching or past the end of their reinvestment period and therefore begin to sell assets and/or use principal repayments to pay-down CLO Fund debt, and for which there are negligible net cash distributions to the class of securities owned by the Company, or (iii) a discounted cash flow model for more recent CLO Funds that utilizes prepayment and loss assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow and comparable yields for similar bonds or preferred shares to those in which the Company has invested. The Company recognizes unrealized appreciation or depreciation on our investments in CLO Fund securities as comparable yields in the market change and/or based on changes in net asset values or estimated cash flows resulting from changes in prepayment or loss assumptions in the underlying collateral pool. As each investment in CLO Fund securities ages, the expected amount of losses and the expected timing of recognition of such losses in the underlying collateral pool are updated and the revised cash flows are used in determining the fair value of the CLO Investment. The Company determines the fair value of our investments in CLO Fund securities on an individual security-by-security basis.

Valuation of Portfolio Investments. Kohlberg Capital’s Board of Directors is ultimately and solely responsible for making a good faith determination of the fair value of portfolio investments on a quarterly basis. Duff & Phelps, LLC, an independent valuation firm, provided third party valuation consulting services to the Company’s Board of Directors which consisted of certain limited procedures that the Company’s Board of Directors identified and requested them to perform. For the preceding twelve months ended June 30, 2008, the Company’s Board of Directors asked Duff & Phelps, LLC to perform the limited procedures on 43 investments comprising approximately 52% of the total investments at fair value as of June 30, 2008 for which market quotations are not readily available. For the year ended December 31, 2007, the Company’s Board of Directors asked Duff & Phelps, LLC to perform the limited procedures on 21 investments comprising approximately 44% of the total investments at fair value as of December 31, 2007 for which market or third party quotations were not readily available. Upon completion of the limited procedures, Duff & Phelps, LLC concluded that the fair value of those investments subjected to the limited procedures did not appear to be unreasonable.

The Board of Directors may consider other methods of valuation than those set forth above to determine the fair value of investments as appropriate in conformity with GAAP. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments, and the differences could be material.

Cash and Cash Equivalents. The Company defines cash equivalents as demand deposits. Cash and cash equivalents are carried at cost which approximates fair value.

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Kohlberg Capital Corporation
Notes to financial statements
(unaudited)

Restricted Cash. Restricted cash consists mostly of cash held in an operating account pursuant to the Company’s secured revolving credit facility agreement with its lender.

Interest Income. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis to the extent that such amounts are expected to be collected. The Company generally places a loan or security on non-accrual status and ceases recognizing interest income on such loan or security when a loan or security becomes 90 days or more past due or if the Company otherwise does not expect the debtor to be able to service its debt obligations. Non-accrual loans remain in such status until the borrower has demonstrated the ability and intent to pay contractual amounts due or such loans become current. As of June 30, 2008, two issuers representing 1% of total investments at fair value were considered in default.

Dividends from Affiliate Asset Manager. The Company records dividend income from its affiliate asset manager on the declaration date.

Dividend Income from CLO Fund Securities. The Company generates dividend income from its investments in the most junior class of securities of CLO Funds (typically preferred shares or subordinated securities) managed by Katonah Debt Advisors and selective investments in securities issued by funds managed by other asset management companies. The Company’s CLO Fund securities are subordinate to senior bond holders who typically receive a fixed rate of return on their investment. The CLO Funds are leveraged funds and any excess cash flow or “excess spread” (interest earned by the underlying securities in the fund less payments made to senior bond holders and less fund expenses and management fees) is paid to the holders of the CLO Fund’s subordinated securities or preferred shares. The Company makes estimated interim accruals of such dividend income based on recent historical distributions and CLO Fund performance and adjusts such accruals on a quarterly basis to reflect actual distributions.

Capital Structuring Service Fees. The Company may earn ancillary structuring and other fees related to the origination and or investment in debt and investment securities.

Debt Issuance Costs. Debt issuance costs represent fees and other direct costs incurred in connection with the Company’s borrowings. These amounts are capitalized and amortized ratably over the contractual term of the borrowing. At June 30, 2008, there was an unamortized debt issuance cost of approximately $2 million included in other assets in the accompanying balance sheet. Amortization expense for the six months ended June 30, 2008 and 2007 was approximately $210,000 and $115,000, respectively.

Expenses. The Company is internally managed and expenses costs, as incurred, with regard to the running of its operations. Primary operating expenses include employee salaries and benefits, the costs of identifying, evaluating, negotiating, closing, monitoring and servicing the Company’s investments and related overhead charges and expenses, including rental expense and any interest expense incurred in connection with borrowings. The Company and its Asset Manager Affiliates share office space and certain other shared operating expenses. The Company has entered into an Overhead Allocation Agreement with its Asset Manager Affiliates which provides for the sharing of such expenses based on an equal sharing of office lease costs and the ratable usage of other shared resources. The aggregate net payments of such expenses under the Overhead Allocation Agreement are not material.

Dividends. Dividends and distributions to common stockholders are recorded on the declaration date. The amount to be paid out as a dividend is determined by the Board of Directors each quarter and is generally based upon the earnings estimated by management for the period and fiscal year.“

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Kohlberg Capital Corporation
Notes to financial statements
(unaudited)

The Company has adopted a dividend reinvestment plan that provides for reinvestment of its distributions on behalf of its stockholders, unless a stockholder “opts out” of the plan to receive cash in lieu of having their cash dividends automatically reinvested in additional shares of the Company’s common stock.

3 — EARNINGS PER SHARE

The following information sets forth the computation of basic and diluted net increase in stockholders’ equity per share for the three and six months ended June 30, 2008 and 2007:


	Three months ended June 30,				Six months ended June 30,
	2008		2007		2008		2007
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Numerator for basic and diluted net increase in stockholders’ equity resulting from operations per share:	$	7,297,285	$	16,940,501	$	7,492,537	$	30,889,509
Denominator for basic weighted average shares:		20,302,781		17,960,502		19,188,862		17,953,457
Dilutive effect of restricted stock:		19,830		—		9,915		—
Dilutive effect of stock options:		—		111,862		—		60,716
Denominator for diluted weighted average shares:		20,322,611		18,072,364		19,198,777		18,014,173
Basic net increase in stockholders’ equity resulting from operations per share:	$	0.36	$	0.94	$	0.39	$	1.72
Diluted net increase in stockholders’ equity resulting from operations per share:	$	0.36	$	0.94	$	0.39	$	1.71

4 — INVESTMENTS

The Company invests in senior secured loans and mezzanine debt and, to a lesser extent, equity capital of middle market companies in a variety of industries. The Company generally targets companies that generate positive cash flows because the Company looks to cash flows as the primary source for servicing debt. However, the Company may invest in other industries if it is presented with attractive opportunities.

The following table shows the Company’s portfolio by security type at June 30, 2008 and December 31, 2007:


	June 30, 2008 (unaudited)							December 31, 2007
Security type	Cost		Fair value		%⁽¹⁾			Cost		Fair value		%⁽¹⁾
Senior Secured Loan	$	223,245,488	$	216,214,013		78	%	$	265,390,844	$	260,138,674		100	%
Junior Secured Loan		136,744,636		125,317,627		45			120,620,715		113,259,293		44
Mezzanine Investment		33,057,899		31,933,121		11			32,418,975		33,066,115		12
Senior Subordinated Bond		3,008,716		2,287,500		1			3,009,230		2,490,000		1
Senior Unsecured Bond		5,196,812		4,940,000		2			2,000,000		2,000,000		1
CLO Fund Securities		65,630,476		56,843,236		20			36,061,264		31,020,000		12
Equity Securities		5,096,298		3,605,297		1			5,043,950		4,752,250		2
Affiliate Asset Managers		35,394,198		65,210,050		23			33,469,995		58,585,360		23
Total	$	507,374,523	$	506,350,844		181	%	$	498,014,973	$	505,311,692		195	%

(1)

Calculated as a percentage of net asset value at fair value.

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Kohlberg Capital Corporation
Notes to financial statements
(unaudited)

The unaudited industry concentrations, based on the fair value of the Company’s investment portfolio as of June 30, 2008 and December 31, 2007, were as follows:


	June 30, 2008							December 31, 2007
Industry classification	Cost		Fair value		% ⁽¹⁾			Cost		Fair value		% ⁽¹⁾
Aerospace and Defense	$	30,922,261	$	30,795,993		11	%	$	32,583,716	$	32,481,819		13	%
Asset Management Companies ⁽²⁾		35,394,198		65,210,050		23			33,469,995		58,585,360		23
Automobile		8,425,347		7,808,932		3			5,286,731		5,147,010		2
Broadcasting and Entertainment		2,980,793		2,850,000		1			2,978,999		2,782,500		1
Buildings and Real Estate ⁽³⁾		38,043,680		27,738,061		10			37,726,396		34,944,226		13
Cargo Transport		20,427,913		20,370,087		7			14,967,369		14,958,789		6
Chemicals, Plastics and Rubber		3,960,094		3,220,000		1			3,956,582		3,220,000		1
CLO Fund Securities		65,630,476		56,843,236		20			36,061,264		31,020,000		12
Containers, Packaging and Glass		8,890,393		8,850,000		3			8,895,059		8,895,059		3
Diversified/Conglomerate Manufacturing		4,350,318		4,299,817		2			8,931,343		8,718,855		3
Diversified/Conglomerate Service		15,915,438		15,217,938		5			17,962,721		17,303,969		7
Ecological		3,919,181		3,919,181		1			3,937,850		3,937,850		2
Electronics		13,837,480		13,101,840		5			15,830,382		15,158,502		6
Farming and Agriculture		4,755,088		3,902,969		1			4,800,651		4,058,835		2
Finance		10,994,153		10,301,289		4			11,590,697		11,209,824		4
Healthcare, Education and Childcare		43,120,803		43,291,897		16			46,715,870		46,637,705		18
Home and Office Furnishings, Housewares, and Durable Consumer Goods		21,398,407		20,323,383		7			24,091,185		23,265,816		9
Hotels, Motels, Inns and Gaming		7,646,708		7,417,207		3			9,364,165		9,091,041		4
Insurance		12,751,484		12,459,157		4			24,346,884		23,941,763		9
Leisure, Amusement, Motion Pictures, Entertainment		18,368,466		18,333,400		7			18,402,600		18,402,600		7
Machinery (Non-Agriculture, Non-Construction, Non-Electronic)		37,225,390		37,188,615		13			39,573,338		39,483,418		15
Mining, Steel, Iron and Non-Precious Metals		21,833,407		21,693,104		8			16,338,446		16,069,759		6
Oil and Gas		5,998,067		5,870,000		2			5,997,874		5,960,000		2
Personal and Non Durable Consumer Products (Mfg. Only)		15,485,826		12,774,698		5			17,315,776		14,750,095		6
Personal, Food and Miscellaneous Services		14,170,308		13,144,442		5			13,918,651		13,765,201		5
Printing and Publishing		20,798,472		20,287,799		7			21,622,999		21,236,473		8
Retail Stores		3,755,829		3,755,829		1			4,962,500		4,813,625		2
Utilities		16,374,543		15,381,920		6			16,384,930		15,471,598		6
Total	$	507,374,523	$	506,350,844		181	%	$	498,014,973	$	505,311,692		195	%

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Kohlberg Capital Corporation
Notes to financial statements
(unaudited)

(1)

Calculated as a percentage of net asset value at fair value.

(2)

Represents Katonah Debt Advisors and affiliates.

(3)

Buildings and real estate relate to real estate ownership, builders, managers and developers and excludes mortgage debt investments and mortgage lenders or originators. As of June 30, 2008 and December 31, 2007, the Company had no exposure to mortgage securities (residential mortgage bonds, commercial mortgage backed securities, or related asset backed securities) or companies providing mortgage lending.

The Company may invest up to 30% of the investment portfolio in opportunistic investments in high-yield bonds, debt and equity securities in CLO Funds, distressed debt or equity securities of public companies. The Company expects that these public companies generally will have debt that is non-investment grade. The Company also may invest in debt of middle market companies located outside of the United States, which investments (excluding the Company’s investments in CLO Funds) are generally not anticipated to be in excess of 10% of the investment portfolio at the time such investments are made. As a result of regulatory restrictions, the Company is not permitted to invest in any portfolio company in which Kohlberg & Co. or any fund that it manages has a pre-existing investment.

At June 30, 2008 and December 31, 2007, approximately 13% and 11%, respectively, of the Company’s investments were foreign assets (including the Company’s investments in CLO Funds, which are typically domiciled outside the U.S. and represented approximately 11% and 6% of its portfolio on such dates).

At June 30, 2008 and December 31, 2007, the Company’s ten largest portfolio companies represented approximately 34% and 29%, respectively, of the total fair value of its investments. The Company’s largest investment, Katonah Debt Advisors which is its wholly-owned portfolio company, represented 13% and 12% of the total fair value of the Company’s investments at June 30, 2008 and December 31, 2007, respectively. Excluding Katonah Debt Advisors and CLO Fund securities, our ten largest portfolio companies represent approximately 17% of the total fair value of our investments at both June 30, 2008 and December 31, 2007.

Investment in CLO Fund securities

The Company typically makes a minority investment in the most junior class of securities of CLO Funds (typically preferred shares or subordinated securities) managed by Katonah Debt Advisors and may selectively invest in securities issued by funds managed by other asset management companies. It is the Company’s intention that its aggregate CLO Investments generally not exceed 10% of the Company’s total investment portfolio. Preferred shares or subordinated securities issued by CLO Funds are entitled to recurring dividend distributions which generally equal the net remaining cash flow of the payments made by the underlying CLO Fund’s securities less contractual payments to senior bond holders and CLO Fund expenses. CLO Funds managed by Katonah Debt Advisors (“CLO fund securities managed by affiliate”) invest primarily in broadly syndicated non-investment grade loans, high-yield bonds and other credit instruments of corporate issuers. The underlying assets in each of the CLO Funds in which we have any investment are generally diversified secured or unsecured corporate debt and exclude mortgage pools or mortgage securities (residential mortgage bonds, commercial mortgage backed securities, or related asset-backed securities), debt to companies providing mortgage lending and emerging markets investments. The CLO Funds are leveraged funds and any excess cash flow or “excess spread” (interest earned by the underlying securities in the fund less payments made to senior bond holders and less fund expenses and management fees) is paid to the holders of the CLO Fund’s subordinated securities or preferred stock.

On January 23, 2008, the Company’s wholly-owned asset management company, Katonah Debt Advisors, closed a new $315 million CLO Fund. The Company received a structuring fee upon closing

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Kohlberg Capital Corporation
Notes to financial statements
(unaudited)

and Katonah Debt Advisors expects to earn an ongoing asset management fee based on the par amount of the underlying investments in the CLO Fund. Securities issued by CLO Funds managed by Katonah Debt Advisors are primarily held by third parties. Kohlberg Capital invested approximately $29 million to acquire all of the shares of the most junior class of securities of this latest CLO Fund.

As of June 30, 2008, all of the CLO Funds in which the Company holds investments maintained the original issue credit ratings on all rated classes of their securities and were continuing to make cash payments to all classes of investors. As of June 30, 2008, the Company’s seasoned CLO Fund securities had an average annual cash yield of approximately 34%.

The subordinated securities and preferred stock securities are considered equity positions in the CLO Funds and, as of June 30, 2008 and December 31, 2007, the Company had approximately $57 million and $31 million, respectively, of such CLO equity investments at fair value. The cost basis of the Company’s investment in CLO Fund equity securities as of June 30, 2008 was approximately $66 million and aggregate unrealized losses on the CLO Fund securities totaled approximately $9 million. The cost basis of the Company’s investment in CLO Fund equity securities as of December 31, 2007 was approximately $36 million and aggregate unrealized losses on the CLO Fund securities totaled approximately $5 million.

Fair value measurements

The Company adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements,” (“ SFAS 157”) as of January 1, 2008, which among other matters, requires enhanced disclosures about investments that are measured and reported at fair value. SFAS 157 defines fair value, establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Investments measured and reported at fair value are classified and disclosed in one of the following categories.

Level III — Pricing inputs are unobservable for the investment and includes situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value may require significant management judgment or estimation. Even if observable-market data for comparable performance or valuation measures (earnings multiples, discount rates, other financial/valuation ratios, etc.) are available, such investments are grouped as Level III if any significant data point that is not also market observable (private company earnings, cash flows, etc.) is used in the valuation process.

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Kohlberg Capital Corporation
Notes to financial statements
(unaudited)

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

The following table summarizes the fair value of investments by the above SFAS 157 fair value hierarchy levels as of June 30, 2008:


	Level I		Level II		Level III		Total
Debt securities	$	—	$	—	$	380,692,261	$	380,692,261
CLO fund securities		—		—		56,843,236		56,843,236
Equity securities		—		—		3,605,297		3,605,297
Asset manager affiliates		—		—		65,210,050		65,210,050

The following table summarizes the Level III investments by valuation methodology as of June 30, 2008:


Fair value based on	Debt securities			CLO Fund securities			Equity securities			Asset manager affiliates			Total
Third party pricing service		8	%		—%			—%			—%			8	%
Public / private company comparables		67			—			—			13			80
Discounted cash flow		—			11			—			—			11
Residual enterprise value		—			—			1			—			1
Total		75	%		11	%		1	%		13	%		100	%

As a BDC, it is required that the Company invest primarily in the debt and equity of non-public companies for which there is little, if any, market-observable information. As a result, most, if not all, of the Company’s investments at any given time will most likely be deemed Level III investments. The Company believes that investments classified as Level III for SFAS 157 have a further hierarchal framework which prioritizes and ranks such valuations based on the degree of independent and observable inputs, objectivity of data and models and the level of judgment required to adjust comparable data. The hierarchy of such methodologies are presented in the above table and discussed below in descending rank.

Investment values derived by a third party pricing service are deemed Level III values since such values are not traded on an active public exchange and may represent a traded or broker quote on an asset that is infrequently traded.

Values derived for debt securities using public/private company comparables generally utilize market-observable data from such comparables and specific, non-public and non-observable financial measures (such as earnings or cash flows) for the private, underlying company/issuer. Such non-observable company/issuer data is typically provided on a monthly basis, is certified as correct by the management of the company/issuer and audited by an independent accounting firm on an annual basis. Since such private company/issuer data is not publicly available it is not deemed market-observable data and, as a result, such investment values are grouped as Level III assets.

Values derived for asset manager affiliates using public/private company comparables generally utilize market-observable data from such comparables and specific, non-public and non-observable financial measures (such as assets under management, historical and prospective earnings) for the asset manager

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Kohlberg Capital Corporation
Notes to financial statements
(unaudited)

affiliate. The Company recognizes that comparable asset managers may not be fully comparable to its asset manager affiliates and typically identifies a range of performance measures and/or adjustments within the comparable population for which to determine value. Since any such ranges and adjustments are entity specific they are not considered market-observable data and thus require a Level III grouping.

Values derived through use of discounted cash flow models and residual enterprise value models typically have little, if any, market activity or market-observable data for such investments. Such investments are grouped as Level III assets.

The changes in investments measured at fair value for which the Company has used Level III inputs to determine fair value are as follows:


	Six Months Ended June 30, 2008
	Debt securities			CLO Fund securities			Equity securities			Asset manager affiliates		Total
Balance, December 31, 2007	$	410,954,082		$	31,020,000		$	4,752,250		$	58,585,360	$	505,311,692
Transfers in/out of Level 3		—			—			—			—		—
Net accretion of discount		261,908			709,977			—			—		971,885
Purchases (sales), net		(21,826,128	)		28,859,236			52,349			1,924,203		9,009,660
Total gain (loss) realized and unrealized included in earnings		(8,697,601	)		(3,745,977	)		(1,199,302	)		4,700,487		(8,942,393	)
Balance, June 30, 2008	$	380,692,261		$	56,843,236		$	3,605,297		$	65,210,050	$	506,350,844
Changes in unrealized gains (losses) included in earnings related to investments still held at reporting date	$	(8,075,608	)	$	(3,745,977	)	$	(1,199,302	)	$	4,700,487	$	(8,320,400	)

5 — AFFILIATE ASSET MANAGERS

Wholly-owned asset manager

Prior to its IPO, the Company issued an aggregate of 2,226,333 common shares, having a value of approximately $33 million, to affiliates of Kohlberg & Co. to acquire Katonah Debt Advisors. As a result, Katonah Debt Advisors is a wholly-owned portfolio company. As of June 30, 2008, Katonah Debt Advisors and its affiliates had approximately $2.3 billion of assets under management.

Katonah Debt Advisors manages CLO Funds primarily for third party investors that invest in broadly syndicated loans, high yield bonds and other credit instruments issued by corporations. These CLO Funds do not invest in asset-backed securities secured by commercial mortgages, residential mortgages or other consumer borrowings. At June 30, 2008, Katonah Debt Advisors had approximately $2.3 billion of assets under management and the Company’s 100% equity interest in Katonah Debt Advisors was valued at approximately $64 million. As a manager of the CLO Funds, Katonah Debt Advisors receives contractual and recurring management fees and may receive a one-time structuring fee from the CLO Funds for its management and advisory services. The annual fees which Katonah Debt Advisors receives are generally based on a fixed percentage of assets under management (at par value and not subject to changes in market value), and Katonah Debt Advisors generates annual operating income equal to the amount by which its fee income exceeds it operating expenses. In future years, Katonah Debt Advisors

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Kohlberg Capital Corporation
Notes to financial statements
(unaudited)

may receive accrued incentive fees upon the liquidation of CLO Funds it manages, provided such CLO Funds have achieved a minimum investment return to holders of their subordinated securities or preferred stock.

On January 2, 2008, the Katonah Debt Advisors platform acquired substantially all of the assets of Scott’s Cove Capital Management LLC (“Scott’s Cove”), an asset manager focused on an event-driven credit long short investment strategy. As a result of the acquisition, approximately $60 million of fee paying assets under management integrated within the Katonah Debt Advisors asset management platform. In connection with the acquisition, Katonah Debt Advisors entered into employment agreements with three Scott’s Cove investment professionals, and expects these individuals will assist in structuring, raising and investing new funds to be managed by Katonah Debt Advisors.

The Company expects to receive distributions of recurring fee income and to generate capital appreciation from its investment in the asset management business of Katonah Debt Advisors. By making investments in CLO Funds raised by Katonah Debt Advisors in the future, for which the Company expects to receive a current cash return, the Company can help Katonah Debt Advisors to raise these funds which in turn will increase its assets under management which will result in additional management fee income.

The revenue that Katonah Debt Advisors generates through the fees it receives for managing CLO Funds and after paying the expenses associated with its operations, including compensation of its employees, may be distributed to the Company. Any distributions of Katonah Debt Advisors’ net income are recorded as dividends from affiliate asset manager. As with all other investments, Katonah Debt Advisors’ fair value is periodically determined. The valuation is primarily based on an analysis of both a percentage of its assets under management and Katonah Debt Advisors’ estimated operating income. Any change in value from period to period is recognized as unrealized gain or loss.

As a separately regarded entity for tax purposes, Katonah Debt Advisors, L.L.C. is taxed at normal corporate rates. For tax purposes, any distributions of taxable net income earned by Katonah Debt Advisors to the Company would generally need to be distributed to the Company’s shareholders. Generally, such distributions of Katonah Debt Advisors’ income to the Company’s shareholders will be considered as qualified dividends for tax purposes. Katonah Debt Advisors’ taxable net income will differ from GAAP net income for both deferred tax timing adjustments and permanent tax adjustments. Deferred tax timing adjustments may include differences between lease cash payments to GAAP straight line expense and adjustments for the recognition and timing of depreciation, bonuses to employees, stock option expense, and interest rate caps. Permanent differences may include adjustments, limitations or disallowances for meals and entertainment expenses, penalties and tax goodwill amortization.

Tax goodwill amortization was created upon the purchase of 100% of the equity interests in Katonah Debt Advisors prior to the Company’s IPO in exchange for shares of the Company’s stock valued at $33 million. Although this transaction was a stock transaction rather than an asset purchase and thus no goodwill was recognized for GAAP purposes, for tax purposes such exchange was considered an asset purchase under Section 351(a) of the Code. At the time of the transfer, Katonah Debt Advisors had equity of approximately $1 million resulting in tax goodwill of approximately $32 million which will be amortized for tax purposes on a straight-line basis over 15 years, resulting in an annual difference between GAAP income and taxable income by approximately $2 million per year over such period.

At June 30, 2008 and at December 31, 2007 a net amount due from affiliates totaled approximately $320,000 and approximately $540,000, respectively.

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Kohlberg Capital Corporation
Notes to financial statements
(unaudited)

Summarized financial information for Katonah Debt Advisors follows:


	As of June 30, 2008		As of December 31, 2007
	(unaudited)		(unaudited)
Assets:
Current assets	$	8,704,543	$	7,035,155
Noncurrent assets		355,718		396,111
Total assets	$	9,060,261	$	7,431,266
Liabilities:
Current liabilities		4,293,946		4,254,202
Total liabilities	$	4,293,946	$	4,254,202


	Six months ended June 30, 2008		Six months ended June 30, 2007
	(unaudited)		(unaudited)
Gross revenue	$	7,077,883	$	4,969,190
Total expenses		5,895,132		3,830,938
Net income (loss)	$	1,182,751	$	1,138,252
Dividends declared	$	350,000	$	—
Cumulative undistributed net income	$	3,017,895	$	1,065,542

The Company intends to distribute the current and accumulated net income of Katonah Debt Advisors in the future.

Distressed debt platform

In December 2007, the Company committed to make an investment in a new distressed investment platform organized by Steven Panagos and Jonathan Katz named Panagos and Katz Situational Investing (“PKSI”). Mr. Panagos was most recently national practice leader of Kroll Zolfo Cooper’s Corporate Advisory and Restructuring Practice and Mr. Katz was the founding partner of Special Situations Investing, a distressed investing vehicle of JP Morgan. The Company expects that funds managed by PKSI will invest in the debt and equity securities of companies that are restructuring due to financial or operational distress. The Company also expects that PKSI may selectively originate new credit facilities with borrowers that are otherwise unable to access traditional credit markets. The Company has committed to invest up to $2.5 million directly in PKSI through an investment in Class A shares. The Company has a 35% economic interest in PKSI through its investment in Class B shares on which it will receive its pro rata share of PKSI’s operating income and may make an investment of up to $25 million in the funds managed by PKSI on which the Company will receive investment income. PKSI may also source distressed debt opportunities in which we may make direct investments. As of June 30, 2008, the Company funded approximately $1.2 million of its $2.5 million total commitment to PKSI which is an investment in the Class A shares of PKSI. As of June 30, 2008, PKSI had no significant operations.

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Kohlberg Capital Corporation
Notes to financial statements
(unaudited)

6 — BORROWINGS

The Company’s debt obligations consist of the following:


	As of June 30, 2008		As of December 31, 2007
	(unaudited)
Secured revolving credit facility, $275 million commitment due October 1, 2012	$	230,000,000	$	255,000,000

On February 14, 2007, the Company entered into an arrangement under which the Company may obtain up to $200 million in financing (the “Facility”). On October 1, 2007, the Company amended the credit facility to increase the Company’s borrowing capacity from $200 million to $275 million, extend the maturity date from February 12, 2012 to October 1, 2012 and increase the interest spread charged on outstanding borrowings by 15 basis points, to 0.85%. The interest rate is based on prevailing commercial paper rates plus 0.85% or, if the commercial paper market is at any time unavailable, prevailing LIBOR rates plus an applicable spread. Interest is payable monthly.

Advances under the Facility are used by the Company primarily to make additional investments. The Company expects that the Facility will be secured by loans that it currently owns and the loans acquired by the Company with the advances under the Facility. The Company will borrow under the Facility through its wholly-owned, special-purpose bankruptcy remote subsidiary, Kohlberg Capital Funding LLC I.

The weighted average daily debt balance for the three months ended June 30, 2008 and 2007 was approximately $235 million and $56 million, respectively. For the three months ended June 30, 2008 and 2007, the weighted average interest rate on weighted average outstanding borrowings was approximately 2.9 % and 5.3%, respectively, which excludes the amortization of deferred financing costs and facility and program fees on unfunded balances. The Company is in compliance with all its debt covenants. As of June 30, 2008, the Company had restricted cash balances of approximately $6 million which it maintained in accordance with the terms of the Facility. A portion of these funds, approximately $3 million, was released to the Company in July 2008.

7 — DISTRIBUTABLE TAX INCOME

The Company intends to distribute quarterly dividends to its stockholders. The Company’s quarterly dividends, if any, will be determined by the Board of Directors. To maintain its RIC status, the Company must timely distribute an amount equal to at least 90% of its taxable ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, reduced by deductible expenses, out of the assets legally available for distribution, for each year. Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income, to the extent required. At June 30, 2008, the Company had no current or accumulated undistributed taxable income.

For the quarter ended June 30, 2008, the Company declared a dividend on June 13, 2008 of $0.41 per share for a total of approximately $9 million. The record date was July 9, 2008 and the dividend was distributed on July 28, 2008.

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Kohlberg Capital Corporation
Notes to financial statements
(unaudited)

The following reconciles net increase in stockholders’ equity resulting from operations to taxable income for the six months ended June 30, 2008:


	Six months ended June, 2008
		(unaudited)
Pre-tax net increase in stockholders’ equity resulting from operations	$	7,492,537
Net unrealized losses on investments transactions not taxable		8,320,400
Expenses not currently deductible		(476,470	)
Taxable income before deductions for distributions	$	15,336,467
Taxable income before deductions for distributions per outstanding share	$	0.72

8 — COMMITMENTS AND CONTINGENCIES

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business in order to meet the needs of the Company’s investment in portfolio companies. Such instruments include commitments to extend credit and may involve, in varying degrees, elements of credit risk in excess of amounts recognized on the Company’s balance sheet. Prior to extending such credit, the Company attempts to limit its credit risk by conducting extensive due diligence, obtaining collateral where necessary and negotiating appropriate financial covenants. As of June 30, 2008 and December 31, 2007, the Company had committed to make a total of approximately $3 million and $4 million, respectively, of investments in various revolving senior secured loans, of which approximately $600,000 was funded as of June 30, 2008 and $865,000 was funded as of December 31, 2007. As of June 30, 2008 and December 31, 2007, the Company had committed to make a total of approximately $875,000 and $8 million, respectively, of investments in a delayed draw senior secured loans of which none was funded as of June 30, 2008 and approximately $5 million was funded as of December 31, 2007.

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Kohlberg Capital Corporation
Notes to financial statements
(unaudited)

the CLO Funds. As mentioned above, Katonah Debt Advisors has undertaken a first loss commitment, requiring Katonah Debt Advisors to reimburse Bear Stearns for (i) certain losses (if any) incurred on the assets warehoused for the CLO Funds prior to their completion, or (ii) if one or all of the CLO Funds fail to close, a portion of the losses (if any) on the resale of the warehoused assets. On January 23, 2008, Katonah Debt Advisors and Bear Stearns closed Katonah 2007. Kohlberg Capital received a structuring fee upon closing and Katonah Debt Advisors expects to earn an ongoing asset management fee based on the par amount of the underlying investments in Katonah 2007. Approximately $212 million of assets were transferred from the loan warehouse into Katonah 2007 and such assets are no longer subject to a first loss obligation. While the securities issued by the CLO funds managed by Katonah Debt Advisors are primarily held by third parties, Kohlberg Capital invested approximately $29 million to acquire all of the shares of the most junior class of securities of Katonah 2007. In connection with the closing of Katonah 2007, Katonah Debt Advisors’ maximum first loss obligation amount under its commitment letter with Bear Stearns was reduced from $22.5 million to $18 million.

As of June 30, 2008, the Company funded approximately $1.2 of our $2.5 million total commitment to PKSI which is an investment in the Class A shares of PKSI.

9 — STOCKHOLDERS’ EQUITY

On December 11, 2006, the Company completed its IPO of 14,462,000 shares of common stock at $15.00 per share, less an underwriting discount and IPO expenses paid by the Company totaling $1.22 per share for net proceeds of approximately $200 million. Prior to its IPO, the Company issued to affiliates of Kohlberg & Co. a total of 3,484,333 shares of its common stock for the acquisition of certain subordinated securities issued by CLO Funds and for the acquisition of Katonah Debt Advisors. On April 28, 2008 the Company completed a rights offering which resulted in the issuance of 3.1 million common shares and net proceeds of approximately $27 million. During the year ended December 31, 2007, the Company issued 71,366 shares of common stock under its dividend reinvestment plan. During the six months ended June 30, 2008, the Company issued 116,783 shares of common stock under its dividend reinvestment plan and 100,250 shares of restricted stock. The total number of shares issued and outstanding as of June 30, 2008 was 21,334,732 and 21,234,482, respectively and shares issued and outstanding as of December 31, 2007 was 18,017,699.

10 — STOCK OPTIONS

During 2006 and as amended in 2008, the Company established a stock option plan (the “Plan”) and reserved 2,000,000 shares of common stock for issuance under the Plan. The purpose of the Plan is to provide officers and prospective employees of the Company with additional incentives and align the interests of its employees with those of its shareholders. Options are exercisable at a price equal to the fair market value (market closing price) of the shares on the day the option is granted.

On December 11, 2006, concurrent with the completion of the Company’s IPO, options to purchase a total of 910,000 shares of common stock were granted to the Company’s executive officers and directors with an exercise price per share of $15.00 (the public offering price of the common stock). Such options

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Kohlberg Capital Corporation
Notes to financial statements
(unaudited)

vest equally over two, three or four years from the date of grant and have a ten-year exercise period. During the year ended December 31, 2007, the Company granted 495,000 options to its employees with a weighted average exercise price per share of $16.63, with a risk-free rate ranging between 4.6% to 5.3%, with volatility rates ranging between 20.5% to 22.4% and for which 25% of such options vest on each of the subsequent four grant date anniversaries and have a ten-year exercise period. During the six months ended June 30, 2008, and as approved by shareholders during the annual shareholders’ meeting on June 13, 2008, 20,000 options were granted to non-employee directors as partial annual compensation for their services as director. These grants were made with a ten-year exercise period with an exercise price of $11.97, with a risk free rate of 4.6% with a volatility rate of 28% and for which 50% of such options vest upon grant date and 50% vest on the first grant date anniversary.

During the year ended December 31, 2007, 90,000 options granted to employees were forfeited. During the six months ended June 30, 2008, 15,000 options granted to employees were forfeited. As of June 30, 2008, 1,320,000 total options were outstanding, 412,500 of which were exercisable. The options have an estimated remaining contractual life of 8 years and(6) months.

During the six months ended June 30, 2008, the weighted average grant date fair value per share for options granted during the period was $1.50. During the year ended December 31, 2007, the weighted average grant date fair value per share for options granted during the period was $1.90. For both the six months ended June 30, 2008 and the year ended December 31, 2007, the weighted average grant date fair value per share for options forfeited during the period was $1.81. Information with respect to options granted, exercised and forfeited under the Plan for the six months ended June 30, 2008 is as follows:


	Shares			Weighted average exercise price per share		Weighted average contractual remaining term (years)		Aggregate intrinsic value⁽¹⁾
Options outstanding at January 1, 2008		1,315,000		$	15.52
Granted		20,000		$	11.97
Exercised		—
Forfeited		(15,000	)	$	16.36
Outstanding at June 30, 2008		1,320,000		$	15.46		8.5	$	—
Total vested at June 30, 2008		412,500		$	15.33		8.5

(1)

Represents the difference between the market value of the options at June 30, 2008 and the cost for the option holders to exercise the options.

The Company uses a Binary Option Pricing Model (American, call option) as its valuation model to establish the expected value of all stock option grants. For the six months ended June 30, 2008, total stock option expense of approximately $310,000 was recognized and expensed at the Company; of this amount approximately $250,000 was expensed at the Company and approximately $60,000 was expensed at Katonah Debt Advisors. At June 30, 2008, the Company had approximately $1.2 million of compensation cost related to unvested stock-based awards the cost for which is expected to be recognized and allocated between the Company and Katonah Debt Advisors over a weighted average period of 2.0 years.

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Kohlberg Capital Corporation
Notes to financial statements
(unaudited)

Restricted stock

On June 13, 2008, the Company’s shareholders approved the Company’s 2006 Equity Incentive Plan, as amended. As of June 13, 2008, the board of directors had approved the grant of awards of 100,250 shares of restricted stock to certain executive officers of the Company. Such awards of restricted stock will vest as to 50% of the shares on the third anniversary of the grant date and the remaining 50% of the shares on the fourth anniversary of the grant date. During the six months ended June 30, 2008, the Company recognized non-cash compensation expense of approximately $12,000 relating to restricted stock grants. Dividends are paid on all outstanding shares of restricted stock, whether or not vested. In general, shares of unvested restricted stock are forfeited upon the recipient’s termination of employment.

On June 13, 2008, the Company’s Board of Directors authorized the Company to allow employees who agree to cancel options that they hold to receive shares of the Company's common stock to receive 1 share of restricted stock for every 5 options so cancelled. The shares of restricted stock received by employees through any such transaction will vest annually generally over the remaining vesting schedule as was applicable to the cancelled options. On June 30, 2008 none of such shares were vested. Subsequently on July 1, 2008, employees holding options to purchase 1,250,000 shares individually entered into agreements to cancel such options and to receive 250,000 shares of restricted stock. As a result, as of July 1, 2008, after giving effect to these option cancellations and restricted stock awards, there were options to purchase 70,000 shares of common stock outstanding and there were 350,250 shares of restricted stock outstanding.

11 — OTHER EMPLOYEE COMPENSATION

The Company adopted a 401(k) plan (“401K Plan”) effective January 1, 2007. The 401K Plan is open to all full time employees. The Plan permits an employee to defer a portion of their total annual compensation up to the Internal Revenue Service annual maximum based on age and eligibility. The Company makes contributions to the 401K Plan of up to 2.67% of the employee’s first 74.9% of maximum eligible compensation, which fully vest at the time of contribution. For the three and six months ended June 30, 2008, the Company made contributions to the 401K Plan of approximately $10,000 and $20,000. The Company contributed $5,000 for both the three and six months ended June 30, 2007.

The Company has also adopted a deferred compensation plan (“Pension Plan”) effective January 1, 2007. Employees are eligible for the Pension Plan provided that they are employed and working with the Company for at least 100 days during the year and remain employed as of the last day of the year. Employees do not make contributions to the Pension Plan. On behalf of the employee, the Company contributes to the Pension Plan 1) 8.0% of all compensation up to the Internal Revenue Service annual maximum and 2) 5.7% excess contributions on any incremental amounts above the social security wage base limitation and up to the Internal Revenue Service annual maximum. Employees vest 100% in the Pension Plan after five years of service. For the three and six months ended June 30, 2008, the Company made contributions to the Pension Plan of approximately $50,000 and $100,000. The Company contributed $25,000 for both the three and six months ended June 30, 2007.

12 — IMPACT OF NEW ACCOUNTING STANDARDS

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Kohlberg Capital Corporation
Notes to financial statements
(unaudited)

attributes for similar types of assets and liabilities and to more easily understand the effect of a company’s choice to use fair value on its earnings. SFAS 159 also requires entities to display the fair value of the selected assets and liabilities on the face of the balance sheet. SFAS 159 does not eliminate disclosure requirements of other accounting standards, including fair value measurement disclosures in SFAS 157. This statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. The Company has determined that adoption of SFAS 159 does not have an impact on the Company’s financial position or results of operations.

In March 2008, Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133” (“SFAS 161”) was issued and is effective for fiscal years beginning after November 15, 2008. SFAS 161 is intended to improve financial reporting for derivative instruments by requiring enhanced disclosure that enables investors to understand how and why an entity uses derivatives, how derivatives are accounted for, and how derivative instruments affect an entity’s results of operations and financial position. The Company expects that the adoption of SFAS 161 will not have an impact on the Company’s financial position or results of operations.

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PROSPECTUS

[GRAPHIC MISSING]

Common Stock
Preferred Stock
Warrants
Subscription Rights
Debt Securities

We are an internally managed, non-diversified closed-end investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We originate, structure and invest in senior secured term loans, mezzanine debt and selected equity securities primarily in privately-held middle market companies. We define the middle market as comprising companies with earnings before interest, taxes, depreciation and amortization of $10 million to $50 million and/or total debt of $25 million to $150 million. In addition to our middle market investment business, our wholly-owned portfolio company, Katonah Debt Advisors, L.L.C. (“Katonah Debt Advisors”) manages collateralized loan obligation funds (“CLO Funds”) that invest in broadly syndicated loans, high-yield bonds and other corporate credit instruments, and had approximately $2.3 billion of assets under management as of March 31, 2008. We acquired Katonah Debt Advisors and certain related assets prior to our initial public offering, from affiliates of Kohlberg & Co., L.L.C. (“Kohlberg & Co.”), a leading private equity firm focused on middle market investing. We maintain a strategic relationship with Kohlberg & Co., which includes access to the expertise of certain executives of Kohlberg & Co. in middle market leveraged investing and a royalty-free license to use the “Kohlberg” name.

Our investment objective is to generate current income and capital appreciation from our investments. We also expect to continue to receive distributions of recurring fee income and to generate capital appreciation from our investment in the asset management business of Katonah Debt Advisors. While our primary investment focus is on making loans to, and selected equity investments in, privately-held middle market companies, we may invest up to 30% of our capital in other investments such as loans to larger, publicly-traded companies, high-yield bonds, distressed debt securities and debt and equity securities issued by CLO Funds managed by Katonah Debt Advisors or by other asset managers. Our investment portfolio as well as the investment portfolios of the CLO Funds in which we have invested and the investment portfolios of the CLO Funds managed by Katonah Debt Advisors consist exclusively of credit instruments and other securities issued by companies and do not include any asset-backed securities secured by commercial mortgages, residential mortgages or other consumer borrowings. For a discussion of recent developments in the financial and credit markets affecting our business, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments.”

We may offer, from time to time, in one or more offerings or series, up to $200,000,000 of our common stock, preferred stock, subscription rights, debt securities or warrants representing rights to purchase shares of our common stock, preferred stock or debt securities, separately or as units comprising any combination of the foregoing, which we refer to, collectively, as the “securities.” The debt securities, preferred stock, warrants and subscription rights offered by means of this prospectus may be convertible or exchangeable into shares of our common stock. The securities may be offered at prices and on terms to be described in one or more supplements to this prospectus. In the event we offer common stock or warrants or rights to acquire such common stock hereunder, the offering price per share of our common stock less any underwriting commissions or discounts will not be less than the net asset value per share of our common stock at the time we make the offering except (1) to the extent the holders of a majority of our outstanding voting securities and the holders of a majority of our outstanding voting securities that are not held by our affiliates approve our policy and practice of making such sales, subject to approval of such sales by our Board of Directors, at a stockholders’ meeting held no earlier than one year before such sale (we are currently seeking such approvals pursuant to a proxy statement dated June 26, 2008 in connection with a special meeting of stockholders currently scheduled to be held on July 21, 2008); (2) in connection with the exercise of certain warrants, options or rights whose issuance has been approved by our stockholders at an exercise or conversion price not less than the market value of our common stock at the date of issuance (or, if no such market value exists, the net asset value per share of our common stock as of such date); (3) to the extent such an offer or sale is approved by a majority of our stockholders; or (4) under such other circumstances as may be permitted under the 1940 Act or by the Securities and Exchange Commission (“SEC”). Note that for purposes of (1) above, a “majority” of outstanding securities is defined in the 1940 Act as (i) 67% or more of the voting securities present at a stockholders’ meeting if the holders of more than 50% of the outstanding voting securities of the Company are present or represented by proxy; or (ii) 50% of the outstanding voting securities of the Company, whichever is less.

Our common stock is traded on The Nasdaq Global Select Market under the symbol “KCAP.” The net asset value per share of our common stock as of March 31, 2008 was $13.98, based on net assets of approximately $253 million as of March 31, 2008. Shares of closed-end investment companies, including BDCs, frequently trade at a discount to their net asset value. If our shares trade at a discount to net asset value, it may increase the risk of loss for purchasers in this public offering. See “Shares of closed-end investment companies, including BDCs, frequently trade at a discount to their net asset value, and we cannot assure you that the market price of our common stock will not decline following an offering” on page 28 for more information. On July 8, 2008 the last reported sale price of a share of our common stock on The Nasdaq Global Select Market was $9.31.

Investing in our securities involves significant risks. See “Risk Factors” beginning on page 14.

This prospectus and any accompanying prospectus supplement concisely set forth important information about us that you should know before investing in us. Please read them before making an investment decision and keep them for future reference. As a public company, we file annual, quarterly and current reports, proxy statements and other information about us with the SEC. This information is available free of charge by writing to Kohlberg Capital Corporation, 295 Madison Avenue, 6th Floor, New York, New York 10017, by telephone by calling collect at (212) 455-8300 or by visiting our website at http://www.kohlbergcap.com. Information contained in our website is not incorporated by reference into this prospectus, and you should not consider that information to be part of this prospectus. The above telephone number may also be used to make stockholder inquiries. You may also obtain information about us from the SEC’s website (http://www.sec.gov), which maintains the materials we file with the SEC.

Neither the SEC 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.

This prospectus may not be used to consummate sales of securities unless accompanied by a prospectus supplement.

The date of this prospectus is July 9, 2008.

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You should rely only on the information contained in this prospectus and any accompanying prospectus supplements. We have not authorized any dealer, salesperson or other person to provide you with different information or to make representations as to matters not stated in this prospectus and any accompanying prospectus supplements. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus or any accompanying prospectus supplement is not an offer to sell, or a solicitation of an offer to buy, any securities by any person in any jurisdiction where it is unlawful for that person to make such an offer or solicitation or to any person in any jurisdiction to whom it is unlawful to make such an offer or solicitation. The information in this prospectus and any accompanying prospectus supplements is accurate only as of the date of this prospectus or such prospectus supplement, as applicable, and under no circumstances should the delivery of this prospectus or any accompanying prospectus supplement or the sale of any securities imply that the information in this prospectus or such accompanying prospectus supplement is accurate as of any later date or that the affairs of Kohlberg Capital Corporation have not changed since the date hereof or thereof. We will update the information in these documents to reflect material changes only as required by law. Our business, financial condition, results of operations and prospectus may have changed since then.

KOHLBERG CAPITAL CORPORATION



	Page
Prospectus summary		1
Offerings		9
Fees and expenses		12
Selected financial and other data		13
Risk factors		14
Forward-looking statements		32
Election to be regulated as a business development company and a regulated investment company		33
Use of proceeds		34
Price range of common stock		35
Distributions		36
Selected financial data		38
Management’s discussion and analysis of financial condition and results of operations		39
Obligations and indebtedness		56
Business		57
Portfolio companies		75
Management		86
Executive compensation		92
Certain relationships and related transactions		109
Control persons and principal stockholders		111
Determination of net asset value		114
Dividend reinvestment plan		116
Regulation		117
Certain U.S. federal income tax considerations		121
Description of securities		129
Description of our common stock		130
Description of our preferred stock		134
Description of our subscription rights		136
Description of our warrants		138
Description of our debt securities		140
Shares eligible for future sale		153
Brokerage allocation and other practices		154
Plan of distribution		155
Custodian, transfer and dividend paying agent and registrar		157
Legal matters		157
Independent registered public accounting firm		157
Available information		157
Index to financial statements		F-1

Kohlberg Capital Corporation, our logo and other trademarks of Kohlberg Capital Corporation mentioned in this prospectus are the property of Kohlberg Capital Corporation. Kohlberg & Co., L.L.C., its logo and other trademarks of Kohlberg & Co., L.L.C. mentioned in this prospectus are the property of Kohlberg & Co., L.L.C. All other trademarks or trade names referred to in this prospectus are the property of their respective owners.

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About this prospectus

This prospectus is part of a registration statement that we have filed with the SEC, using the “shelf” registration process. Under the shelf registration process, we may offer, from time to time, in one or more offerings or series, up to $200,000,000 of our common stock, preferred stock, subscription rights, debt securities or warrants representing rights to purchase shares of our common stock, preferred stock or debt securities, separately or as units comprising any combination of the foregoing, on the terms to be determined at the time of the offering. The securities may be offered at prices and on terms described in one or more supplements to this prospectus. This prospectus provides you with a general description of the securities that we may offer. Each time we use this prospectus to offer securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus. Please carefully read this prospectus and any prospectus supplement together with any exhibits and the additional information described under the headings “Risk Factors” and “Available Information” before you make an investment decision.

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Prospectus summary

This summary highlights some of the information in this prospectus and may not contain all of the information that is important to you. You should read carefully the more detailed information set forth under “Risk Factors” and the other information included in this prospectus. In this prospectus, unless the context otherwise requires, “Company,” “Kohlberg Capital,” “we,” “us” and “our” refer to Kohlberg Capital Corporation (or Kohlberg Capital, LLC prior to the conversion described under “ — Our Corporate Information”), in each case together with our wholly-owned portfolio company Katonah Debt Advisors, and “Katonah Debt Advisors” refers to Katonah Debt Advisors, L.L.C., together with any additional direct or indirect wholly-owned subsidiaries that we organize in connection with the business of Katonah Debt Advisors.

OVERVIEW

We are an internally managed, non-diversified closed-end investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We originate, structure and invest in senior secured term loans, mezzanine debt and selected equity securities primarily in privately-held middle market companies. We define the middle market as comprising companies with earnings before interest, taxes, depreciation and amortization, which we refer to as “EBITDA,” of $10 million to $50 million and/or total debt of $25 million to $150 million. In addition to our middle market investment business, our wholly-owned portfolio company, Katonah Debt Advisors, manages collateralized loan obligation funds (“CLO Funds”) that invest in broadly syndicated loans, high-yield bonds and other corporate credit instruments. We acquired Katonah Debt Advisors and certain related assets prior to our initial public offering from affiliates of Kohlberg & Co., L.L.C. (“Kohlberg & Co.”), a leading private equity firm focused on middle market investing. As of March 31, 2008, Katonah Debt Advisors had approximately $2.3 billion of assets under management.

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Recent developments

We believe that the decrease in debt capital available to both corporate borrowers and private equity firms will increase our future interest income available for distributions to our stockholders and to investors in CLO Funds because of higher interest spreads on loans.

We expect that greater structural protection that lenders require for new loans, such as lower overall financial leverage and maintenance financial covenants, will increase the opportunities for us to invest, since we have generally decided not to invest in highly leveraged or “covenant light” credit facilities.

Recent Company Developments. On December 20, 2007, we committed to make an investment in a new distressed investment platform organized by Steven Panagos and Jonathan Katz and named Panagos/Katz Situational Investing (“PKSI”). Mr. Panagos was most recently national practice leader of Kroll Zolfo Cooper’s Corporate Advisory and Restructuring Practice, and Mr. Katz was the founding partner of Special Situations Investing Inc., a distressed investing vehicle of JPMorgan Chase & Co. (“JPMorgan”). We expect that funds managed by PKSI will invest in the debt and equity securities of companies that are restructuring due to financial or operational distress. We also expect that PKSI may selectively originate new credit facilities with borrowers that are otherwise unable to access traditional credit markets. We committed to invest up to $2.5 million directly in PKSI through an investment in its Class A securities. We have a 35% economic interest in PKSI through our investment in its Class B securities on which we will receive our pro rata share of its operating income and may make an investment of up to $25 million in funds managed by PKSI, on which we will receive our pro rata share of such funds’ investment income. PKSI may also source distressed debt opportunities in which we may make direct investments. As of March 31, 2008, we had funded approximately $900,000 of our $2.5 million commitment to invest in Class A securities of PKSI.

On January 2, 2008, we acquired substantially all of the assets of Scott’s Cove Capital Management LLC (“Scott’s Cove”), an asset manager focused on an event-driven credit long short investment strategy. As a result of the acquisition, we acquired approximately $60 million of fee paying assets under management. We have integrated the Scott’s Cove business within the Katonah Debt Advisors asset management platform. In connection with the acquisition, Katonah Debt Advisors entered into employment agreements with three Scott’s Cove investment professionals, and we expect these individuals will assist us in structuring, raising and investing new funds to be managed by Katonah Debt Advisors.

On January 23, 2008, our wholly-owned asset management company, Katonah Debt Advisors, closed Katonah 2007-I CLO Ltd. (“Katonah 2007”), a new $315 million CLO Fund. Kohlberg Capital received a structuring fee upon closing and Katonah Debt Advisors expects to earn an ongoing asset management fee based on the par amount of the underlying investments in the CLO Fund. Securities issued by CLO Funds managed by Katonah Debt Advisors are primarily held by third parties. Kohlberg Capital invested approximately $29 million to acquire all of the shares of the most junior class of securities of this latest CLO Fund.

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On March 31, 2008, we announced the terms of a transferable rights offering (“transferable rights offering”) for which we issued to shareholders of record as of March 31, 2008 transferable rights to subscribe for an aggregate of up to 3.1 million shares of our common stock (one right for every six shares owned as of the record date). On April 28, 2008, the expiration date of the transferable rights offering, we fixed the subscription price of $9.2666, which is equal to 95% of the volume-weighted average of the sales prices of our shares of common stock on the NASDAQ Global Select Market for the prior ten consecutive trading days. We received basic subscriptions for approximately 2.8 million shares with over-subscriptions of approximately 1.3 million shares which were allocated pro-rata among the record date stockholders in accordance with the procedures described in the transferable rights offering prospectus. No over-subscription shares were issued to holders of rights who were not record date stockholders. The issuance of the 3.1 million of shares offered through the transferable rights offering resulted in gross proceeds to us of approximately $29 million. We have used the net proceeds from the transferable rights offering to reduce existing indebtedness under our credit facility. However, such reduction of indebtedness is expected to be only temporary, and we expect to utilize our credit facility for additional borrowings in accordance with our investment objective and strategy and relevant legal rules applicable to BDCs.

OUR PORTFOLIO

Investment securities

We invest in senior secured loans and mezzanine debt and, to a lesser extent, equity capital, of middle market companies in a variety of industries. We generally target companies that generate positive cash flows because we look to cash flows as the primary source for servicing debt. However, we may invest in other companies if we are presented with attractive opportunities. Our portfolio investments at fair value decreased from $505 million at December 31, 2007 to $488 million as of March 31, 2008. The net decrease in portfolio size relates primarily to unrealized mark-to-market fair value declines in our investment portfolio. Such decline relates primarily to illiquidity in the broader debt markets and not to credit issues in our portfolio. Our intention is to hold such assets to maturity and thus mitigate such unrealized losses. During the year ended December 31, 2007, we also sold some of our initial portfolio of primarily first lien loans that were accumulated prior to completion of our initial public offering in order to move towards our targeted portfolio mix of first and second lien loans, mezzanine finance and equity securities. First lien loan balances at fair value decreased to $216 million at March 31, 2008 from $260 million at December 31, 2007. Second lien, mezzanine loan and bond positions decreased to $147 million at March 31, 2008 from $151 million at December 31, 2007. We had equity securities, other than CLO equity securities, totaling $3.6 million and investments in CLO Fund securities of $57 million at fair value as of March 31, 2008. As of March 31, 2008, our investments in loans and debt securities had an annual weighted average interest rate of approximately 7.8%. For additional information regarding our investment portfolio and estimated net asset value as of March 31, 2008 see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview — Investment Securities.”

Investment in CLO Fund securities

We typically make a minority investment in the subordinated securities or preferred stock of CLO Funds raised and managed by Katonah Debt Advisors and may selectively invest in securities issued by CLO Funds managed by other asset management companies. The securities issued by CLO Funds managed by Katonah Debt Advisors are primarily held by third parties. As of March 31, 2008, we had $57 million at fair value in CLO Fund securities, including those issued by funds managed by Katonah Debt Advisors. The CLO Funds managed by Katonah Debt Advisors invest primarily in broadly syndicated non-investment grade loans, high-yield bonds and other credit instruments of corporate issuers. The underlying assets in each of the CLO Funds in which we have any investment are generally diversified secured or unsecured corporate debt and exclude mortgage pools or mortgage securities (residential mortgage bonds, commercial mortgage backed securities, or related asset-backed securities), debt to companies providing mortgage lending and emerging markets investments. The CLO Funds

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are leveraged funds and any excess cash flow or “excess spread” (interest earned by the underlying securities in the fund less payments made to senior bond holders and less fund expenses and management fees) is paid to the holders of the CLO Fund’s subordinated securities or preferred stock. As of March 31, 2008, all of the CLO Funds in which we hold investments maintained the original issue credit ratings on all classes of their securities and were continuing to make cash payments to all classes of investors. As of March 31, 2008, our CLO Fund securities had an average annual cash yield of 28%.

Investment in Katonah Debt Advisors

Katonah Debt Advisors is our wholly-owned asset management company that manages CLO Funds that invest in broadly syndicated loans, high yield bonds and other credit instruments. As a manager of the CLO Funds, Katonah Debt Advisors expects to receive contractual and recurring management fees and any subsequent incentive management fees from the CLO Funds for its management and advisory services. The annual fees which Katonah Debt Advisors receives are generally based on a fixed percentage of assets under management, and Katonah Debt Advisors generates annual operating income equal to the amount by which its fee income exceeds it operating expenses. In future years, Katonah Debt Advisors may receive accrued incentive fees upon the liquidation of CLO Funds it manages, provided such CLO Funds have achieved a minimum investment return to holders of their subordinated securities or preferred stock. Katonah Debt Advisors also typically receives one-time structuring fees upon the creation of a new CLO Fund. The CLO Funds managed by Katonah Debt Advisors consist exclusively of credit instruments issued by corporations and do not invest in asset-backed securities such as those secured by residential mortgages or other consumer borrowings. As of March 31, 2008, Katonah Debt Advisors had approximately $2.3 billion of assets under management, and our 100% equity interest in the company was valued at approximately $63 million.

Portfolio valuation

We carry our investments at fair value, as determined in good faith by our Board of Directors pursuant to procedures approved by our Board of Directors. Investments for which market quotations are readily available are valued at such market quotations (“marked to market”). The Board of Directors has retained an independent valuation firm to provide third-party valuation consulting services, which consist of certain limited procedures that we identify and request the independent valuation firm to perform. As of March 31, 2008, approximately 51% of our investments were investments that were marked to market or for which we utilized the valuation services provided by the independent valuation firm in connection with the determination of fair value by our Board of Directors. Investments for which there is not a readily available market value are valued at fair value as determined in good faith by our Board of Directors under a valuation policy and a valuation process which are intended to provide a consistent basis for determining the fair value of the portfolio. However, due to the inherent uncertainty of determining the fair value of investments that cannot be marked to market, the fair value of our investments may differ significantly from the values that would have been used had a market existed for such investments or from the values that would have been placed on such assets by other market participants, and the differences could be material. See “Risk Factors — Risks Related to Our Investments — Our portfolio investments for which there is no readily available market, including our investment in Katonah Debt Advisors, are recorded at fair value as determined in good faith by our Board of Directors. As a result, there is uncertainty as to the value of these investments” and “Determination of Net Asset Value.”

OUR STRATEGIC RELATIONSHIP WITH KOHLBERG & CO.

We believe that we derive substantial benefits from our strategic relationship with Kohlberg & Co. The Chairman and co-managing partners of Kohlberg & Co., each of whom is a member of our Board of Directors, and, in the case of the co-managing partners, also members of our Investment Committee, each possesses on average more than 20 years of investment banking and middle market investing experience. Christopher Lacovara, one of the firm’s two co-managing partners, serves as the Chairman of our Board of Directors and of our Investment Committee. Through such participation, we have access to the expertise of these individuals in the middle market and leveraged investing, which we believe enhances our capital raising, due diligence, investment selection and credit analysis activities. Affiliates of Kohlberg

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& Co., including those who serve on our Board of Directors and on our Investment Committee, own, in the aggregate, approximately 15% of our outstanding common stock. Kohlberg & Co. is a leading U.S. private equity firm which manages investment funds that acquire middle market companies. Since its founding in 1987, Kohlberg & Co. has organized six private equity funds, through which it has raised approximately $3.5 billion of committed capital and completed more than 80 platform and add-on acquisitions with an aggregate value of approximately $7 billion.

COMPETITIVE ADVANTAGES

We believe that we can successfully compete with other providers of capital in the markets in which we compete for the following reasons:

Internally managed structure and significant management resources. We are internally managed by our executive officers under the supervision of our Board of Directors and do not depend on a third party investment advisor. As a result, we do not pay investment advisory fees and all of our income is available to pay our operating costs and to make distributions to our stockholders.

Multiple sourcing capabilities for assets. We have multiple sources of loans, mezzanine investments and equity investments through our industry relationships, Katonah Debt Advisors and our strategic relationship with Kohlberg & Co. From January 1, 2007 through December 31, 2007, we reviewed 595 investment opportunities, which resulted in 50 completed transactions and a total gross investment of $374 million.

Disciplined investment process. We employ a rigorous credit review process and due diligence intensive investment strategy which our senior management has developed over more than 20 years of lending. For each analyzed company, we develop our own underwriting case and multiple stress case scenarios and an event-specific financial model reflecting company, industry and market variables. Generally, both we and the CLO Funds managed by Katonah Debt Advisors have decided not to invest in highly leveraged or “covenant light” credit facilities.

Katonah Debt Advisors’ credit platform. Katonah Debt Advisors serves as a source of our direct investment opportunities and cash flow, and certain credit analysts employed by Katonah Debt Advisors who also serve as officers of the Company serve as a resource for credit analysis.

Investments in a wide variety of portfolio companies in a number of different industries with no exposure to mortgage-backed securities. Our investment portfolio (excluding our investments in asset manager affiliates and CLO Fund securities) is spread across 26 different industries and 86 different entities with an average balance per entity of approximately $4 million. Our investment portfolio as well as the investment portfolios of the CLO Funds in which we have invested and the investment portfolios of the CLO Funds managed by Katonah Debt Advisors consist exclusively of credit instruments and other securities issued by companies and do not include any asset-backed securities secured by commercial mortgages, residential mortgages or other consumer borrowings.

Strategic relationship with Kohlberg & Co. We believe that Kohlberg & Co. is one of the oldest and most well-known private equity firms focused on the middle market, and we expect to continue to derive substantial benefits from our strategic relationship with Kohlberg & Co.

Significant equity ownership and alignment of incentives. Our senior management team, the senior management team of Katonah Debt Advisors and affiliates of Kohlberg & Co. together have a significant equity interest in the Company, ensuring that their incentives are strongly aligned with those of our stockholders.

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RISK FACTORS

Investing in Kohlberg & Co. involves significant risks. The following is a summary of certain risks that you should carefully consider before investing in our securities. For a further discussion of these risk factors, please see “Risk Factors” beginning on page 14.