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INVESTMENTS
 12 Months Ended
Mar. 31, 2012
INVESTMENTS [Abstract]  
INVESTMENTS
3.           INVESTMENTS
 
 
We record our investments at fair value as determined in good faith by our Board of Directors in accordance with GAAP.  When available, we base the fair value of our investments on directly observable market prices or on market data derived for comparable assets.  For all other investments, inputs used to measure fair value reflect management's best estimate of assumptions that would be used by market participants in pricing the investments in a hypothetical transaction.

The levels of fair value inputs used to measure our investments are characterized in accordance with the fair value hierarchy established by the Accounting Standard Codification ("ASC").  We use judgment and consider factors specific to the investment in determining the significance of an input to a fair value measurement.  While management believes our valuation methodologies are appropriate and consistent with market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.  The three levels of the fair value hierarchy and investments that fall into each of the levels are described below:

·
Level 1:  Investments whose values are based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access.  We use Level 1 inputs for publicly traded unrestricted securities.  Such investments are valued at the closing price for listed securities and at the lower of the closing bid price or the closing sale price for   NASDAQ securities on the valuation date.
 
·
Level 2: Investments whose values are based on observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  These inputs may include quoted prices for the identical instrument in non-active markets, quoted prices for similar instruments in active markets and similar data.  We did not value any of our investments using Level 2 inputs as of March 31, 2012 and 2011.

·
Level 3: Investments whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.  These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing the investment.  We use Level 3 inputs for measuring the fair value of approximately 56.9% of our investments.  See "Notes to Consolidated Schedule of Investments" (c) on page 48 for the investment policy used to determine the fair value of these investments.

As required by ASC 820, when the inputs used to measure a fair value fall within different levels of the hierarchy, the level within the fair value measurement is categorized based on the lowest level input that is significant to the fair value measurement which may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3).  Therefore, gains and losses for such investments categorized within the Level 3 table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable (Level 3).  We conduct reviews of fair value hierarchy classifications on a quarterly basis.  Changes in the observability of valuation inputs may result in a reclassification of certain investments.

In March 2012, Form S-3 registration statements of Alamo Group Inc. (NYSE: ALG), Encore Wire Corporation (NASDAQ: WIRE), and Heelys Inc. (NASDAQ: HLYS) were filed with the Securities and Exchange Commission, or SEC. Due to these recent registrations with the SEC, the common stock of Alamo Group Inc., Encore Wire Corporation, and Heelys Inc. was transferred from Level 3 to Level 1 under ASC 820. As a result of these registrations becoming effective with the SEC, restrictions in the sale of the common stock of these companies imposed by Rule 144 of the Securities Act were lifted and valuation discounts previously applied to these holdings were removed. Had the prior period discounts been applied to ALG, WIRE, HLYS, our resulting net asset value would have been $597,793,096, or $159.22 per share at March 31, 2012. This would have represented increases of 12.3% over the March 31, 2011 net asset values.

As of March 31, 2012 and 2011, 56.9% and 94.5%, respectively, of our portfolio investments were categorized as Level 3.  Fair value determination of each portfolio investment required one or more of the following unobservable inputs:

·
Financial information obtained from each portfolio company, including unaudited statements of operations and balance sheets for the most recent period available as compared to budget numbers;
·
Audited financial information is obtained from each portfolio company, annually;
·
Current and projected financial condition of the portfolio company;
·
Current and projected ability of each portfolio company to service its debt obligations;
·
Current liquidity of the investment;
·
Projected operating results of the portfolio company;
·
Current information regarding any offers to purchase the investment;
·
Current ability of the portfolio company to raise any additional financing, as needed;
·
Changes in the economic environment which may have a material impact on the operating results of the portfolio company;
·
Internal occurrences that may have an impact (both positive and negative) on the operating performance of the portfolio company;
·
Qualitative assessment of key management; and
·
Other factors deemed relevant.

The following fair value hierarchy tables set forth our investment portfolio by level as of March 31, 2012 and March 31, 2011 (in millions):

      
Fair Value Measurements
at 3/31/12 Using
 
Asset Category
 
Total
  
Quoted
 Prices in
Active
 Markets for
 Identical
 Assets
(Level 1)
  
Significant
 Other
Observable
 Inputs
(Level 2)
  
Significant
 Unobservable
 Inputs
(Level 3)
 
Debt
 $11.2  $−  $−  $11.2 
Partnership Interests
  11.0   −   −   11.0 
Preferred Equity
  33.9   −   −   33.9 
Common Equity
  502.4   240.7   −   261.7 
Total Investments $558.5  $240.7  $−  $317.8 


      
Fair Value Measurements
at 3/31/11 Using
 
Asset Category
 
Total
  
Quoted
 Prices in
 Active
 Markets for
 Identical
 Assets
(Level 1)
  
Significant
Other
 Observable
 Inputs
(Level 2)
  
Significant
 Unobservable
 Inputs
(Level 3)
 
Debt
 $12.7  $−  $−  $12.7 
Partnership Interests
  9.5   −   −   9.5 
Preferred Equity
  45.8   −   −   45.8 
Common Equity
  421.3   26.8   −   394.5 
Total Investments
 $489.3  $26.8  $−  $462.5 
 
Changes in Fair Value Levels

We monitor the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model based valuation techniques may require the transfer of financial instruments from one fair value to another.

In March 2012, Form S-3 registration statements of Alamo Group, Inc. (NYSE: ALG), Encore Wire Corporation (NASDAQ: WIRE) and Heelys Inc. (NASDAQ: HLYS) were filed with the Securities and Exchange Commission ("SEC"). As a result of these registrations becoming effective, restrictions in the sale of common stock of these companies imposed by Rule 144 of the Securities Exchange Act of 1933 were lifted, and discounts on the common stocks of these entities were subsequently removed. Due to these recent registrations with the SEC, we transferred $227 million securities from Level 3 to Level 1 under the fair value hierarchy of ASC 820.

The following table provides a summary of changes in the fair value of investments measured using Level 3 inputs during the years ended March 31, 2012 and 2011 (in millions):

   
Fair Value
 3/31/11
  
Net Unrealized
 Appreciation
 (Depreciation)
  
New
 Investments
  
Divestitures
  
Net Changes from
 Unrealized to
 Realized
  
Conversion  of
Security from
 Debt to Equity
  
Transfer
 out of
Level 3
  
Fair
Value at
 3/31/12
 
Debt
 $12.7  $(4.6) $6.6  $(1.0) $(2.5) $0.0   -  $11.2 
Partnership Interest
 $9.5  $0.2  $1.3  $0.0  $0.0  $0.0   -  $11.0 
Preferred Equity
 $45.8  $(2.9) $6.3  $(6.1) $(9.2) $0.0   -  $33.9 
Common Equity
 $394.5  $87.0  $0.0  $0.0  $7.3  $0.0  $227.1  $261.7 
Total Investments
 $462.5  $79.7  $14.2  $(7.1) $(4.4) $0.0  $227.1  $317.8 


   
Fair Value
 3/31/10
  
Net Unrealized
 Appreciation
 (Depreciation)
  
Net Changes
 from Unrealized
 to Realized
  
New
Invest-
ments
  
Divesti-
tures
  
Conversion of
 Security from
 Debt to Equity
  
Fair
 Value 3/31/11
 
Debt
 $14.6  $0.1  $0.9  $4.2  $(4.2) $(2.9) $12.7 
Partnership Interest
  8.6   −   −   0.9   −   −   9.5 
Preferred Equity
  35.3   2.9   6.9   4.7   (6.9)  2.9   45.8 
Common Equity
  398.4   63.4   (66.5)  3.7   (4.5)  −   394.5 
Total Investments
 $456.9  $66.4  $(58.7) $13.5  $(15.6) $−  $462.5 

The total unrealized gains included in earnings that related to assets still held at report date for the years ended March 31, 2012 and 2011 were $96,949,860 and $76,132,546, respectively.