UNITED STATES SECURITIES AND EXCHANGE COMMISSION

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter Ended ~~June~~September 30, 2011

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 814-00902

NEW MOUNTAIN FINANCE AIV HOLDINGS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		80-0721242
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

787 Seventh Avenue 48th Floor New York, N.Y.		10019
(Address of principal executive offices)		(Zip Code)

(212) 730-0300

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes ox No xo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

Large accelerated filer o		Accelerated filer o

Non-accelerated filer x		Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of the registrant’s Common Stock, $0.01 par value outstanding as of ~~August~~November 2314, 2011 was 100.

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NEW MOUNTAIN FINANCE AIV HOLDINGS CORPORATION

FORM 10-Q FOR THE QUARTER ENDED ~~JUNE~~SEPTEMBER 30, 2011

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		~~PAGE~~	PAGE
PART I. FINANCIAL INFORMATION		1	1
Item 1.	Financial Statements	1	1
	Statement of Assets and Liabilities as of June 30, 2011 (unaudited)	1
	Statement of Assets and Liabilities as of September 30, 2011 (unaudited)		1
	Statement of Operations from May 19, 2011 (commencement of operations) to June 30, 2011 (unaudited)	2
	Statement of Operations for the three months ended September 30, 2011 (unaudited) and from May 19, 2011 (commencement of operations) to September 30, 2011 (unaudited)		2
	Statement of Changes in Net Assets from May 19, 2011 (commencement of operations) to June 30, 2011 (unaudited)	3
	Statement of Changes in Net Assets from May 19, 2011 (commencement of operations) to September 30, 2011 (unaudited)		3
	Statement of Cash Flows from May 19, 2011 (commencement of operations) to June 30, 2011 (unaudited)	4
	Statement of Cash Flows from May 19, 2011 (commencement of operations) to September 30, 2011 (unaudited)		4
	Notes to the Financial Statements (unaudited)	5	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
	Report of Independent Registered Public Accounting Firm		12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 4.	Controls and Procedures	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		20
Appendix A	New Mountain Finance Holdings, L.L.C Form 10-Q	A-1
Item 4.	Controls and Procedures		20
PART II. OTHER INFORMATION		II-1
Appendix A	New Mountain Finance Holdings, L.L.C Form 10-Q		A-1
Item 1.	Legal Proceedings	II-1
PART II. OTHER INFORMATION			II-1
Item 1A.	Risk Factors	II-1
Item 1.	Legal Proceedings		II-1
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	II-1
Item 1A.	Risk Factors		II-1
Item 3.	Defaults upon Senior Securities	II-1
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		II-1
Item 4.	Reserved	II-1
Item 3.	Defaults upon Senior Securities		II-1
Item 5.	Other Information	II-1
Item 4.	Reserved		II-1
Item 6.	Exhibits	II-1
Item 5.	Other Information		II-1
	Signatures	II-3
Item 6.	Exhibits		II-2
	Signatures		II-4

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

New Mountain Finance AIV Holdings Corporation

Statement of Assets and Liabilities

~~June~~September 30, 2011

(unaudited)

Assets
Investment in New Mountain Finance Holdings, L.L.C., at fair value (cost $290,923,983)	$	288,162,998
Investment in New Mountain Finance Holdings, L.L.C., at fair value (cost of $290,847,952)	$	269,403,137
Total assets	$	~~288~~269,~~162~~403,~~998~~137
Net Assets
Net assets
Common stock, par value $0.01 per share 100 shares issued and outstanding	1
Paid in capital in excess of par	290,~~923~~847,~~982~~951
Net unrealized depreciation	(2,760,985		)
Net unrealized (depreciation) appreciation	(21,444,815		)
Total Net Assets	$	288,162,998
Total net assets	$	269,403,137

The accompanying notes are an integral part of these financial statements.

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New Mountain Finance AIV Holdings Corporation

Statement of Operations

from May 19, 2011 (commencement of operations) to June 30, 2011

(unaudited)

Net investment income allocated from New Mountain Finance Holdings, L.L.C.
	Three months ended September 30, 2011			From May 19, 2011 (commencement of operations) to September 30, 2011
Interest income	$	4,581,339
Net investment income allocated from New Mountain Finance Holdings, L.L.C.
Other income	200,223
Interest income	$	9,719,171		$	14,300,510
Total expenses	(1,787,065		)
Other income	135,925			336,148
Net investment income allocated from New Mountain Finance Holdings, L.L.C.	2,994,497
Total expenses	(3,313,810		)	(5,100,875		)
Realized and unrealized gain (loss) allocated from New Mountain Finance Holdings, L.L.C.
Net investment income allocated from New Mountain Finance Holdings, L.L.C.	6,541,286			9,535,783
Realized losses on investments	(262,916		)
Realized and unrealized gain (loss) allocated from New Mountain Finance Holdings, L.L.C.
Net change in unrealized appreciation of investments	719,567
Realized gains on investments	917,370			654,454
Realized and unrealized gain (loss) allocated from New Mountain Finance Holdings, L.L.C.	456,651
Net change in unrealized (depreciation) appreciation of investments	(14,818,201		)	(14,098,634		)
Total net increase in net assets resulting from operations allocated from New Mountain Finance Holdings, L.L.C.	3,451,148
Realized and unrealized gain (loss) allocated from New Mountain Finance Holdings, L.L.C.	(13,900,831		)	(13,444,180		)
Unrealized depreciation in New Mountain Finance Holdings, L.L.C. resulting from public offering price	(6,212,133		)
Total net decrease in net assets resulting from operations allocated from New Mountain Finance Holdings, L.L.C.	(7,359,545		)	(3,908,397		)
Net decrease in net assets resulting from operations	$	(2,760,985	)
Unrealized (depreciation) appreciation in New Mountain Finance Holdings, L.L.C. resulting from public offering price	—			(6,212,133		)
Net decrease in net assets resulting from operations	$	(7,359,545	)	$	(10,120,530	)

The accompanying notes are an integral part of these financial statements.

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New Mountain Finance AIV Holdings Corporation

Statement of Changes in Net Assets

from May 19, 2011 (commencement of operations) to ~~June~~September 30, 2011

(unaudited)

Increase (Decrease) in net assets resulting from operations allocated from New Mountain Finance Holdings, L.L.C.:
Increase (decrease) in net assets resulting from operations allocated from New Mountain Finance Holdings, L.L.C.:
Net investment income	$	29,~~994~~535,~~497~~783
Realized losses on investments	(262,916		)
Realized gains on investments	654,454
Net change in unrealized appreciation of investments	719,567
Net change in unrealized (depreciation) appreciation of investments	(14,098,634		)
Total net increase in net assets resulting from operations allocated from New Mountain Finance Holdings, L.L.C.	3,451,148
Total net decrease in net assets resulting from operations allocated from New Mountain Finance Holdings, L.L.C.	(3,908,397		)
Unrealized depreciation in New Mountain Finance Holdings, L.L.C. resulting from public offering price	(6,212,133		)
Unrealized (depreciation) appreciation in New Mountain Finance Holdings, L.L.C. resulting from public offering price	(6,212,133		)
Total net decrease in net assets resulting from operations	(210,~~760~~120,~~985~~530		)
Capital Transactions
Capital transactions
Deferred Offering Costs allocated from New Mountain Finance Holdings, L.L.C.	(7,482,550		)
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.	(7,558,581		)
Contributions from Exchanged Shares	298,406,533
Contributions from exchanged shares	298,406,533
Total net increase in net assets resulting from capital transactions	290,923,983
Dividends paid	(11,324,285		)
Net increase in net assets	288,162,998
Total net increase in net assets resulting from capital transactions	279,523,667
Net increase in net assets	269,403,137
Net assets at beginning of period	—
Net assets at end of period	$	~~288~~269,~~162~~403,~~998~~137

The accompanying notes are an integral part of these financial statements.

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New Mountain Finance AIV Holdings Corporation

Statement of Cash Flows

from May 19, 2011 (commencement of operations) to ~~June~~September 30, 2011

(unaudited)

Cash flows from operating activities:
Net decrease in net assets resulting from operations	$	(210,~~760~~120,~~985~~530	)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities:
Adjustments to reconcile net (increase) decrease in net assets resulting from operations to net cash used in operating activities:
Net investment income allocated from New Mountain Finance Holdings, L.L.C.	(29,~~994~~535,~~497~~783		)
Total realized and unrealized (gain) allocated from New Mountain Finance Holdings, L.L.C.	(456,651		)
Total realized and unrealized loss (gain) allocated from New Mountain Finance Holdings, L.L.C.	13,444,180
Unrealized depreciation in New Mountain Finance Holdings, L.L.C. resulting from public offering price	6,212,133
Unrealized depreciation (appreciation) in New Mountain Finance Holdings, L.L.C. resulting from public offering price	6,212,133
Net cash flows used in operating activities	—
(Increase) decrease in operating assets:
Distributions from New Mountain Finance Holdings, L.L.C.	11,324,285
Net cash flows used in operating activities	11,324,285
Cash flows from financing activities:
Dividends paid	(11,324,285		)
Net cash flows provided by financing activities	(11,324,285		)
Net increase (decrease) in cash and cash equivalents	—
Cash and cash equivalents at the beginning of the period	—
Cash and cash equivalents at the end of the period	$	—
Non-cash financing activities:
New Mountain Guardian AIV, L.P. contribution of New Mountain Finance Holdings, L.L.C units for shares of New Mountain Finance AIV Holdings, L.L.C.	$	298,406,533
Deferred Offering Costs allocated from New Mountain Finance Holdings, L.L.C.	$	(7,482,550	)
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.	$	(7,558,581	)

The accompanying notes are an integral part of these financial statements.

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New Mountain Finance AIV Holdings Corporation

Notes to the Financial Statements

As of ~~June~~ September 30, 2011 and for the period from May 19, 2011 (commencement of operations) to ~~June~~ September 30, 2011

(unaudited)

1. Formation and Business Purpose

New Mountain Finance AIV Holdings Corporation (“AIV Holdings”, the “Company”, “we”, “us”, or “our”) is a Delaware corporation that was originally incorporated on March 11, 2011. New Mountain Guardian AIV, L.P. (“Guardian AIV”), a Delaware limited partnership, is our sole stockholder. AIV Holdings is a closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). As such, the Company is obligated to comply with certain regulatory requirements. AIV Holdings intends to be treated, and intends to comply with the requirements to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended, (the “Code”) commencing with its taxable year ending December 31, 2011.

New Mountain Finance Corporation (“New Mountain Finance”) is a Delaware corporation that was originally incorporated on June 29, 2010. New Mountain Finance is a closed-end, non-diversified management investment company that has elected to be treated as a business development company under the 1940 Act. New Mountain Finance intends to be treated, and intends to comply with the requirements to qualify annually, as a RIC under Subchapter M of the Code commencing with its taxable year ending December 31, 2011. On May 19, 2011, New Mountain Finance priced its initial public offering (the “IPO”) of 7,272,727 shares of common stock at a public offering price of $13.75 per share. Concurrently with the closing of the ~~offering~~IPO and at the public offering price of $13.75 per share, New Mountain Finance sold an additional 2,172,000 shares of its common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital (defined as New Mountain Capital Group, L.L.C. and its affiliates) in a separate private placement. New Mountain Finance entered into a joinder agreement with respect to the ~~amended~~Limited ~~and~~Liability ~~restated~~Company ~~limited~~Agreement, ~~liability~~as ~~company~~amended ~~agreement~~and restated, of New Mountain Finance Holdings, L.L.C. (the “Operating Company”), pursuant to which New Mountain Finance was admitted as a member of the Operating Company and acquired from the Operating Company, with the gross proceeds of the IPO and the concurrent private placement, common membership units (“units”) of the Operating Company (the number of units are equal to the number of shares of New Mountain Finance’s common stock sold in the IPO and the concurrent private placement).

AIV Holdings and New Mountain Finance are holding companies with no direct operations of their own, and their only business and sole asset is their ownership of units of the Operating Company. The Operating Company is externally managed and has elected to be treated as a business development company under the 1940 Act. As such, the Operating Company is obligated to comply with certain regulatory requirements. The Operating Company intends to be treated as a partnership for federal income tax purposes for so long as it has at least two members. The Operating Company, formerly known as New Mountain Guardian (Leveraged), L.L.C., was originally formed as a subsidiary of Guardian AIV by New Mountain Capital in October 2008. Guardian AIV was formed through an allocation of approximately $300.0 million of the $5.1 billion of commitments supporting New Mountain Partners III, L.P., a private equity fund managed by New Mountain Capital. In February 2009, New Mountain Capital formed a co-investment vehicle, New Mountain Guardian Partners, L.P., comprising $20.4 million of commitments. New Mountain Guardian (Leveraged), L.L.C. and New Mountain Guardian Partners, L.P., together with their respective direct and indirect wholly-owned subsidiaries, are defined as the “Predecessor Entities.” . In connection with New Mountain Finance’s IPO and through a series of transactions, the Operating Company owns all of the operations of the Predecessor Entities, including all of the assets and liabilities related to such operations.

Guardian AIV was the parent of the Operating Company prior to the IPO and, as a result of the ~~offering~~transactions ~~and~~completed ~~the~~in ~~transactions~~connection ~~contemplated~~with ~~thereby~~the IPO, obtained units in the Operating Company. Guardian AIV contributed its units in the Operating Company to its newly formed subsidiary, AIV Holdings, in exchange for common stock of AIV Holdings. AIV Holdings has the right to exchange all or any portion of its units in the Operating Company for shares of New Mountain Finance’s common stock on a one-for-one basis. At September 30, 2011, New Mountain Finance and AIV Holdings owned approximately 34.6% and 65.4%, respectively, of the units of the Operating Company.

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one-for-one basis. At June 30, 2011, New Mountain Finance and AIV Holdings owned approximately 34.6% and 65.4%, respectively, of the units of the Operating Company.

The diagram below depicts our current organizational structure.

The Company’s investment objective is to generate current income and capital appreciation through the Operating Company by the sourcing and ~~originating~~origination of debt securities at all levels of the capital structure, including first and second lien debt, notes, bonds and mezzanine securities. In some cases, the Operating Company’s investments may also include equity interests. The primary focus is in the debt of defensive growth companies, which are defined as generally exhibiting the following characteristics: (i) sustainable secular growth drivers, (ii) high barriers to competitive entry, (iii) high free cash flow after capital expenditure and working capital needs, (iv) high returns on assets and (v) opportunities for niche market dominance.

2. Summary of Significant Accounting Policies

Basis of accounting — The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company does not consolidate the Operating Company. AIV Holdings applies investment company master-feeder financial statement preparation, as described in Accounting Standards Codification 946, Financial Services — Investment Companies, (“ASC 946”) to its interest in the Operating Company (or the “Master Fund”). AIV Holdings observes that it is industry practice to follow the presentation prescribed for a Master Fund-Feeder fund structure in ASC 946 in instances in which a Master Fund is owned by more than one ~~Feeder~~feeder ~~Fund~~fund and that such presentation provides stockholders of AIV Holdings with a clearer depiction of its investment in the Master Fund. The Operating Company’s Form 10-Q for the quarter ended ~~June~~ September 30, 2011 is included in this ~~report~~filing and should be read in conjunction with that of AIV Holdings.

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Interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments, consisting solely of normal recurring accruals considered necessary for the fair presentation of financial statements for the interim period, have been included. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the period ending December 31, 2011.

Investments — AIV Holdings is a holding company with no direct operations of its own, and its sole asset is its ownership in the Operating Company. AIV Holdings’ investment in the Operating Company is carried at fair value and represents the pro-rata interest in the net assets of the Operating Company as of the applicable reporting date. AIV Holdings values its ownership interest on a quarterly basis, or more frequently if required under the 1940 Act. See the Operating Company’s Form 10-Q for the quarter ended ~~June~~ September 30, 2011 included in this filing for further details.

Cash and cash equivalents — Cash and cash equivalents include cash and short-term, highly liquid investments with original maturities of three months or less.

Revenue, Expenses, and Capital Gains (Losses) — At each quarterly valuation date, the Operating Company’s investment income, expenses, net realized gains (losses), and net increase (decrease) in unrealized appreciation (depreciation) are allocated to AIV Holdings based on its pro-rata interest in the net assets of the Operating Company. This is recorded on AIV Holdings’ Statement of Operations. New Mountain Finance used the proceeds from its IPO and concurrent private placement to purchase units in the Operating Company at $13.75 per unit (its IPO price per share). At the IPO date, $13.75 per unit represented a discount to the actual net asset value per unit of the Operating Company. As a result, AIV Holdings experienced immediate unrealized depreciation on its investment in the Operating Company equal to the difference between New Mountain Finance’s ~~initial~~IPO ~~public offering~~ price of $13.75 per unit and the actual net asset value per unit. Concurrently, New Mountain Finance experienced immediate unrealized appreciation on its investment. This unrealized depreciation is shown separately on the Statement of Operations of AIV Holdings. See the Operating Company’s Form 10-Q for the quarter ended ~~June~~ September 30, 2011 included in this filing for further details.

With respect to the expenses incident to any registration of shares of New Mountain Finance’s common stock issued in exchange for units of the Operating Company, AIV Holdings is responsible for the expenses of any demand registration (including underwriters’ discounts or commissions) and their pro -rata share of any “piggyback” registration expenses. No shares have been exchanged since formation.

Income taxes — AIV Holdings intends to elect to be treated, and intends to comply with the requirements to qualify annually, as a RIC under subchapter M of the Code commencing with its taxable year ending on December 31, 2011. As a RIC, the Company will not be subject to federal income tax on the portion of taxable income and gains timely distributed to stockholders; therefore, no provision for income taxes has been recorded.

To qualify as a RIC, the Company is required to meet certain income and asset diversification tests in addition to distributing at least 90.0% of its investment company taxable income and net capital gains, as defined by the Code. ~~Because~~Since federal income tax regulations differ from ~~accounting principles generally accepted in the United States~~GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes.

The Company will be subject to a 4.0% nondeductible federal excise tax on certain undistributed income unless the Company distributes, in a timely manner as required by the Code, an amount at least equal to the sum of (1) 98.0% of its net ordinary income earned for the calendar year and (2) 98.2% of its capital gain net income for the one-year period ending October 31 in the calendar year.

The Company has adopted the Income Taxes topic of the Codification (“ASC 740”). ASC 740 provides guidance for how uncertain income tax positions should be recognized, measured, and disclosed in the financial statements. Based on its analysis, the Company has determined that the adoption of ASC 740 did not have a material impact to the Company’s financial statements.

Dividends — ~~Dividends~~Distributions ~~and distributions~~ to common stockholders are recorded on the record date as set by the Company’s board of directors. Quarterly dividend payments are determined by the board of directors. ~~Since~~ AIV Holdings isand athe ~~holding~~Operating ~~company~~Company are required to take certain actions in order to maintain, at all ~~its~~times, ~~distributions~~a onone-to-one ratio between the number of units held by AIV Holdings and the number of shares of AIV Holdings’ common stock outstanding. In addition, in order for AIV Holdings to pay a dividend or other distribution to holders of its common stock, ~~are~~it ~~paid~~must ~~from~~be ~~distributions~~accompanied ~~received~~by ~~from~~a prior distribution by the Operating Company to all of its unit holders. The Operating Company intends to make distributions to its members that will be sufficient to enable ~~New~~AIV ~~Mountain~~Holdings ~~Finance~~ and ~~AIV~~New ~~Holdings~~Mountain Finance to pay quarterly distributions to their stockholders and to enable New Mountain Finance to obtain and maintain its status as a RIC. Under certain circumstances, the distributions that the Operating Company makes to its members may not be sufficient for AIV Holdings to satisfy the annual distribution requirement necessary ~~for AIV Holdings to qualify as a RIC. In that case, it is~~

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for AIV Holdings to qualify as a RIC. In that case, it is expected that Guardian AIV would consent to be treated as if it received distributions from AIV Holdings sufficient to satisfy the annual distribution requirement. Guardian AIV would be required to include the consent dividend in its taxable income as a dividend from AIV Holdings, which would result in phantom (i.e., non-cash) taxable income to Guardian AIV. AIV Holdings intends to make quarterly distributions to Guardian AIV, its sole stockholder, out of assets legally available for distribution each quarter. See the Operating Company’s Form 10-Q for the quarter ended ~~June~~ September 30, 2011 included in this filing for further details.

AIV Holdings does not intend to reinvest any distributions received from the Operating Company in additional units of the Operating Company.

Use of estimates — The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Changes in the economic environment, financial markets, and other metrics used in determining these estimates could cause actual results to differ from the estimates used, and the differences could be material.

3. Agreements

On May 19, 2011, in connection with the contribution by Guardian AIV of its units to AIV Holdings, AIV Holdings entered into a joinder agreement with respect to the ~~amended~~Limited ~~and~~Liability ~~restated~~Company ~~limited~~Agreement, ~~liability~~as ~~company~~amended ~~agreement~~and restated, of the Operating Company pursuant to which AIV Holdings was admitted as a member of the Operating Company. In addition, New Mountain Finance entered into a joinder agreement with respect to the ~~amended~~Limited ~~and~~Liability ~~restated~~Company ~~limited~~Agreement, ~~liability~~as ~~company~~amended ~~agreement~~and restated, of the Operating Company pursuant to which New Mountain Finance was admitted as a member of the Operating Company and agreed to acquire from the Operating Company a number of units of the Operating Company equal to the number of shares of common stock outstanding of New Mountain Finance.

The Operating Company entered into an Investment Management Agreement with New Mountain Finance Advisers BDC, L.L.C. (the “Investment Adviser”). Under the Investment Management Agreement, the Investment Adviser provides investment advisory services to the Operating Company. For providing these services, the Investment Adviser receives a fee from the Operating Company, consisting of two components — a base management fee and an incentive fee. See the Operating Company’s Form 10-Q for the quarter ended ~~June~~ September 30, 2011 included in this filing for further details.

AIV Holdings entered into a Registration Rights Agreement with New Mountain Finance, Steven B. Klinsky (the Chairman of our board of directors), an entity related to Steven B. Klinsky and the Investment Adviser. Subject to several exceptions, AIV Holdings and the Investment Adviser have the right to require New Mountain Finance to register for public resale under the Securities Act of 1933, as amended (the “Securities Act of 1933”), all registerable securities that are held by any of them and that they request to be registered. Registerable securities subject to the Registration Rights Agreement are shares of New Mountain Finance’s common stock issued or issuable in exchange for units and any other shares of New Mountain Finance’s common stock held by AIV Holdings, the Investment Adviser and any of their transferees. The rights under the Registration Rights Agreement can be conditionally exercised by AIV Holdings or the Investment Adviser, meaning that prior to the effectiveness of the registration statement related to the shares, AIV Holdings or the Investment Adviser can withdraw their request to have the shares registered. AIV Holdings and the Investment Adviser may each assign their rights to any person that acquires registerable securities subject to the Registration Rights Agreement and who agrees to be bound by the terms of the Registration Rights Agreement. Steven B. Klinsky and a related entity will have the right to “piggyback”, or include their own registrable securities in such a registration.

AIV Holdings and the Investment Adviser may require New Mountain Finance to use its reasonable best efforts to register under the Securities Act of 1933 all or any portion of these registerable securities upon a “demand request”. The demand registration rights are subject to certain limitations.

The Registration Rights Agreement includes limited blackout and suspension periods. In addition, AIV Holdings and the Investment Adviser may also require New Mountain Finance to file a shelf registration statement on Form N-2 for the resale of their registerable securities if New Mountain Finance is eligible to use Form N-2 at that time.

Holders of registerable securities have “piggyback” registration rights, including AIV Holdings, which means that these holders may include their respective shares in any future registrations of New Mountain Finance’s equity securities, whether or not that registration relates to a primary offering by New Mountain Finance or a secondary offering by or on behalf of any of New Mountain Finance’s stockholders. AIV Holdings, the Investment Adviser and Steven B. Klinsky (and a related entity) have priority over New Mountain Finance in any registration that is an underwritten offering.

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AIV Holdings, the Investment Adviser and Steven B. Klinsky (and a related entity) will be responsible for the expenses of any demand registration (including underwriters’ discounts or commissions) and their pro -rata share of any “piggyback” registration. New Mountain Finance has agreed to indemnify AIV Holdings, the Investment Adviser and Steven B. Klinsky (and a related entity) with respect to liabilities resulting from untrue statements or omissions in any registration statement filed pursuant to the Registration Rights Agreement, other than untrue statements or omissions resulting from information furnished to New Mountain Finance by such parties. AIV Holdings, the Investment Adviser and Steven B. Klinsky (and a related entity) have also agreed to indemnify New Mountain Finance with respect to liabilities resulting from untrue statements or omissions furnished by them to New Mountain Finance relating to them in any registration statement.

AIV Holdings, New Mountain Finance and the Operating Company have entered into an Administration Agreement, as amended and restated, with New Mountain Finance Administration, L.L.C. (the “Administrator”) under which the Administrator provides administrative services to AIV Holdings, New Mountain Finance and the Operating Company. The Administrator oversees AIV Holdings’, New Mountain Finance’s and the Operating Company’s financial records, prepares reports filed with the ~~SEC~~Securities and Exchange Commission, generally monitors the payment of AIV Holdings’, New Mountain Finance’s and the Operating Company’s expenses, and watches the performance of administrative and professional services rendered by others. The Operating Company will reimburse the Administrator for AIV Holdings’, New Mountain Finance’s and the Operating Company’s allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations to AIV Holdings, New Mountain Finance and the Operating Company under the Administration Agreement, as amended and restated. During the first year of operations, the Operating Company has capped its direct and indirect expenses under the Administration Agreement, as amended and restated, at $3.0 million.

AIV Holdings, the Operating Company, New Mountain Finance, the Investment Adviser and the Administrator have also entered into a Trademark License Agreement, as amended, with New Mountain Capital, L.L.C., pursuant to which New Mountain Capital, L.L.C. has agreed to grant AIV Holdings, the Operating Company, New Mountain Finance, the Investment Adviser and the Administrator, a non-exclusive, royalty-free license to use the New Mountain and the New Mountain Finance names. Under the Trademark License Agreement, as amended, subject to certain conditions, AIV Holdings, the Operating Company, New Mountain Finance, the Investment Adviser and the Administrator will have a right to use the New Mountain and New Mountain Finance names, for so long as the Investment Adviser or one of its affiliates remains the investment adviser of the Operating Company. Other than with respect to this limited license, AIV Holdings, the Operating Company, New Mountain Finance, the Investment Adviser and the Administrator will have no legal right to the New Mountain or the New Mountain Finance names.

4. Regulation

~~The~~AIV ~~Company~~Holdings intends to elect to be treated, and intends to comply with the requirements to qualify annually, as a RIC under Subchapter M of the Code. In order to qualify as a RIC, among other things, the Company is required to timely distribute to its stockholders at least 90.0% of investment company taxable income, as defined by the Code, for each year. The Company, among other things, intends to make and continue to make the requisite distributions to Guardian AIV, its sole stockholder, which will generally relieve the Company from United States (“U.S.”) federal, state, and local income taxes (excluding excise taxes which may be imposed under the Code). However, under certain circumstances, the distributions that the Operating Company makes to its members may not be sufficient for AIV Holdings to satisfy the annual distribution requirement necessary for AIV Holdings to qualify as a RIC. In that case, it is expected that Guardian AIV would consent to be treated as if it received distributions from AIV Holdings sufficient to satisfy the annual distribution requirement. Guardian AIV would be required to include the consent dividend in its taxable income as dividend from AIV Holdings, which would result in phantom (i.e., non-cash) taxable income to Guardian AIV.

Additionally, as a business development company, both AIV Holdings and the Operating Company must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70.0% of its total assets are qualifying assets (with certain limited exceptions).

5. Related Parties

AIV Holdings has entered into a number of business relationships with affiliated or related parties, including the following:

· Together, New Mountain Finance and AIV Holdings own all the outstanding units of the Operating Company. As of ~~June~~ September 30, 2011, New Mountain Finance and AIV Holdings owned approximately 34.6% and 65.4%, respectively, of the units of the Operating Company.

· The Operating Company has entered into an Investment Management Agreement with the Investment Adviser, a wholly-owned subsidiary of New Mountain Capital. See the Operating Company’s Form 10-Q for the quarter ended ~~June~~ September 30, 2011 included in this filing for further details.

· AIV Holdings, New Mountain Finance and the Operating Company have entered into an Administration Agreement, as amended and restated, with the Administrator, a wholly-owned subsidiary of New Mountain Capital. The Operating Company reimburses the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to the Operating Company, AIV Holdings and New Mountain Finance under the Administration Agreement, as amended and restated. During the first year of operations, the Operating Company has capped its direct and indirect expenses under the Administration Agreement, as amended and restated, at $3.0 million. See the Operating Company’s Form 10-Q for the quarter ended ~~June~~September 30, 2011 included in this filing for further details.

· AIV Holdings, New Mountain Finance and the Operating Company have adopted a formal code of ethics that governs the conduct of their respective officers and directors. These officers and directors also remain subject to the duties imposed by the 1940 Act, the Delaware General Corporation Law and the Delaware Limited Liability Company Act.

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· AIV Holdings, New Mountain Finance, ~~and~~ the Operating Company, the Investment Adviser and the Administrator have entered into a royalty-free ~~license~~Trademark ~~agreement~~License Agreement, as amended, with New Mountain Capital, L.L.C., pursuant to which New Mountain Capital, L.L.C. has agreed to grant AIV Holdings, New Mountain Finance, ~~and~~ the Operating Company, the Investment Adviser and the Administrator, a non-exclusive, royalty-free license to use the name “New Mountain” and “New Mountain Finance”.

Concurrently with the IPO, New Mountain Finance sold an additional 2,172,000 shares of its common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital in a separate private placement.

6. Commitments and Contingencies

In the normal course of business, the Company may enter into contracts that contain a variety of representations and warranties and which may provide general indemnifications.

7. Stockholders’ Equity

The table below illustrates the effect of certain transactions on our capital accounts:

				Paid in Capital						~~Total~~			Total
	Common Stock			in Excess			~~Net Unrealized~~Dividends			~~Stockholders’~~Net Unrealized			Stockholders’
	Shares	Par Amount		of Par			~~Depreciation~~Paid			~~Equity~~Depreciation			Equity
Balance at December 31, 2010	—	$	—	$	—		$	—		$	—		$	—
Issuances of common stock to New Mountain Guardian AIV, L.P.(1)	100	1		298,406,532			—			~~298,406,533~~—			298,406,533
Deferred Offering Costs allocated from New Mountain Finance Holdings, L.L.C.	—	—		(7,482,550		)	—			(7,482,550		)
Deferred offering costs allocated from New Mountain Finance Holdings, L.L.C.	—	—		(7,558,581		)				—			(7,558,581		)
Net increase in stockholders’ equity resulting from operations	—	—		—			(2,760,985		)	(2,760,985		)
Dividends paid	—	—		—			(11,324,285		)	—			(11,324,285		)
Balance at June 30, 2011	100	$	1	$	290,923,982		$	(2,760,985	)	$	288,162,998
Net decrease in stockholders’ equity resulting from operations	—	—		—			—			(10,120,530		)	(10,120,530		)
Balance at September 30, 2011	100	$	1	$	290,847,951		$	(11,324,285	)	$	(10,120,530	)	$	269,403,137

(1) On May 19, 2011, AIV Holdings issued 100 shares of common stock to New Mountain Guardian AIV, L.P. for their respective ownership interest in the Predecessor Entities.

8. Financial Highlights

The following information sets forth the financial highlights for the period May 19, 2011 to ~~June~~ September 30, 2011. The ratios to average net assets have been annualized.

	Period Ended
	June 30, 2011
	September 30, 2011
Total Return (a)	(03.9550		)%
Average net assets for the period	$	~~286~~280,~~437~~759,~~425~~329
Ratio to average net assets:
Total expenses	5.42		%
Total expenses allocated from New Mountain Finance Holdings, L.L.C.	4.91		%
Net investment income	9.09		%
Net investment income allocated from New Mountain Finance Holdings, L.L.C.	9.18		%

(a) Total Return is ~~calculated~~based ason the ~~total~~change in net ~~assets~~asset asvalue ofand ~~June~~takes ~~30,~~into ~~2011~~account ~~less~~dividends ~~the initial cost basis over the initial cost basis~~paid.

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9. Recent Accounting Standards Updates

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”), which provides clarification about how to measure fair value and improves comparability of fair value measurements presented and disclosed in accordance with ~~U.S.~~ GAAP and International Financial Reporting Standards. The amendments included in ASU 2011-04 clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements outlined in ASC 820, as well as includes some instances of changes to particular principles or requirements. ASU 2011-04 clarifies that (i) the concept of the highest and best use valuation premise applies only to nonfinancial assets, (ii) instruments classified in shareholders’ equity should be valued from the perspective of a market participant that holds that instrument as an asset, (iii) quantitative information should be disclosed about unobservable inputs used in a fair value measurement that is categorized within Level III of the fair value hierarchy. ASU 2011-04 changes the guidance in (i) permitting an exception to ASC 820 by allowing an entity to measure the fair value of a group of financial assets and financial liabilities exposed to market and credit risks to be consistent with the entity’s net risk exposures, instead of gross risk, (ii) applying premiums and discounts in a fair value measurement lacking a Level I inputs to be consistent with the ASC 820 requirements of fair value measurement but that applying premiums and discounts in a fair value measurement related to size as a characteristic of the holding rather than as a characteristic of the asset or liability is not permitted, and (iii) requiring additional disclosures about fair value measurements categorized within Level III of the fair value hierarchy, including the valuation processes used and the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. ASU 2011-04 is effective for the interim and annual periods beginning after December 15, 2011. The Company is currently assessing the impact that adoption of ASU 2011-04 will have on the financial statements.

10. Subsequent Events

On November 8, 2011, the Company entered into an Administration Agreement, as amended and restated, by and among the Operating Company, New Mountain Finance, AIV Holdings and the Administrator, which added AIV Holdings as a party to, and clarified certain cost and expense allocation provisions in, the Administration Agreement, as amended and restated, as discussed in Note 3, Agreements.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of

New Mountain Finance AIV Holdings Corporation

New York, New York

We have reviewed the accompanying statement of assets and liabilities of New Mountain Finance AIV Holdings Corporation (the “Company”) as of September 30, 2011, and the related statements of operations for the three month period ended September 30, 2011 and for the period from May 19, 2011(commencement of operations) to September 30, 2011 and the statements of changes in net assets and cash flows from May 19, 2011 (commencement of operations) to September 30, 2011. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

New York, New York

November 14, 2011

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

The following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto contained elsewhere in the report. See ‘‘“Risk Factors’’” for a discussion of the uncertainties, risks and assumptions associated with these statements.

Forward-Looking Statements

The information contained in this section should be read in conjunction with the financial data and financial statements and notes thereto appearing elsewhere in this quarterly report. In addition, some of the statements in this report (including in the following discussion) constitute forward-looking statements, which relate to future events or the future performance or financial condition of New Mountain Finance AIV Holdings Corporation (“AIV Holdings”, the “Company”, “we”, “us”, or “our”). The forward-looking statements contained in this report involve a number of risks and uncertainties, including:

· statements concerning the impact of a protracted decline in the liquidity of credit markets;

· the general economy, including interest and inflation rates, and its impact on the industries in which New Mountain Finance Holdings, L.L.C. (the “Operating Company”) invests;

· the ability of the Operating Company’s portfolio companies to achieve their objectives;

· the Operating Company’s ability to make investments consistent with its investment objectives, including with respect to the size, nature and terms of its investments;

· the ability of New Mountain Finance Advisers BDC, L.L.C. (the “Investment Adviser”) or its affiliates to attract and retain highly talented professionals;

· actual and potential conflicts of interest with the Investment Adviser and other affiliates of New Mountain Capital Group, L.L.C.;

· the impact of AIV Holdings’ ownership of a majority of the outstanding common membership units of the Operating Company, AIV Holdings’ only asset; and

· other factors, including those discussed in the disclosure document filed as an exhibit to our Registration Statement on Form 10, filed with the Securities and Exchange Commission ~~(the “SEC”)~~ on May 19, 2011.

We use words such as “anticipates”, “believes”, “expects”, “intends”, “will”, “should”, “may” and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” section in the disclosure document filed as an exhibit to our Registration Statement on Form 10, filed with the ~~SEC~~Securities and Exchange Commission on May 19, 2011.

We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the ~~SEC~~Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Overview

~~New Mountain Finance~~ AIV Holdings ~~Corporation (“AIV Holdings”, the “Company”, “we”, “us”, or “our”)~~ is a Delaware corporation that was originally incorporated on March 11, 2011. New Mountain Guardian AIV, L.P. (“Guardian AIV”), a Delaware limited partnership, is our sole stockholder. AIV Holdings is a closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). As such, ~~the~~we ~~Company~~are is obligated to comply with certain regulatory requirements. ~~AIV~~We ~~Holdings~~intend ~~intends~~ to be treated, and ~~intends~~intend to comply with the requirements to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended, (the “Code”) commencing with ~~its~~our taxable year ending December 31, 2011.

The following structure is expected to generally result in AIV Holdings being allocated taxable income in respect of unrecognized gains in the Predecessor Entities’ (defined below) assets, with the result that any distributions made to AIV Holdings’ sole stockholder, Guardian AIV, that are attributable to such gains generally will be treated as taxable dividends.

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2011. On May 19, 2011, New Mountain Finance priced its initial public offering (the “IPO”) of 7,272,727 shares of common stock at a public offering price of $13.75 per share. Concurrently with the closing of the offering and at the public offering price of $13.75 per share, New Mountain Finance sold an additional 2,172,000 shares of its common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital (defined as New Mountain Capital Group, L.L.C. and its affiliates) in a separate private placement. New Mountain Finance entered into a joinder agreement with respect to the amended and restated limited liability company agreement of New Mountain Finance Holdings, L.L.C. (the “Operating Company”), pursuant to which New Mountain Finance was admitted as a member of the Operating Company and acquired from the Operating Company, with the gross proceeds of the IPO and the concurrent private placement, common membership units (“units”) of the Operating Company (the number of units are equal to the number of shares of New Mountain Finance’s common stock sold in the IPO and the concurrent private placement).

AIV Holdings and New Mountain Finance are holding companies with no direct operations of their own, and their only business and sole asset is their ownership of units of the Operating Company. The Operating Company is externally managed and has elected to be treated as a business development company under the 1940 Act. As such, the Operating Company is obligated to comply with certain regulatory requirements. The Operating Company intends to be treated as a partnership for federal income tax purposes for so long as it has at least two members. The Operating Company, formerly known as New Mountain Guardian (Leveraged), L.L.C., was originally formed as a subsidiary of Guardian AIV by New Mountain Capital in October 2008. Guardian AIV was formed through an allocation of approximately $300 million of the $5.1 billion of commitments supporting New Mountain Partners III, L.P., a private equity fund managed by New Mountain Capital. In February 2009, New Mountain Capital formed a co-investment vehicle, New Mountain Guardian Partners, L.P., comprising $20.4 million of commitments. New Mountain Guardian (Leveraged), L.L.C. and New Mountain Guardian Partners, L.P., together with their respective direct and indirect wholly-owned subsidiaries, are defined as the “Predecessor Entities.” In connection with New Mountain Finance’s IPO and through a series of transactions, the Operating Company owns all of the operations of the Predecessor Entities, including all of the assets and liabilities related to such operations.

Guardian AIV was the parent of the Operating Company prior to the IPO and as a result of the offering and the transactions contemplated thereby obtained units in the Operating Company. Guardian AIV contributed its units in the Operating Company to its newly formed subsidiary, AIV Holdings, in exchange for common stock of AIV Holdings. AIV Holdings has the right to exchange all or any portion of its units in the Operating Company for shares of New Mountain Finance’s common stock on a one-for-one basis. At June 30, 2011, New Mountain Finance and AIV Holdings owned approximately 34.6% and 65.4%, respectively, of the units of the Operating Company.

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~~The~~requirements ~~diagram~~to ~~below~~qualify ~~depicts~~annually, ~~our~~as ~~current~~a ~~organizational~~RIC ~~structure~~under Subchapter M of the Code commencing with its taxable year ending December 31, 2011. On May 19, 2011, New Mountain Finance priced its initial public offering (the “IPO”) of 7,272,727 shares of common stock at a public offering price of $13.75 per share. Concurrently with the closing of the IPO and at the public offering price of $13.75 per share, New Mountain Finance sold an additional 2,172,000 shares of its common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital (defined as New Mountain Capital Group, L.L.C. and its affiliates) in a separate private placement. New Mountain Finance entered into a joinder agreement with respect to the Limited Liability Company Agreement, as amended and restated, of the Operating Company, pursuant to which New Mountain Finance was admitted as a member of the Operating Company and acquired from the Operating Company, with the gross proceeds of the IPO and the concurrent private placement, common membership units (“units”) of the Operating Company (the number of units are equal to the number of shares of New Mountain Finance’s common stock sold in the IPO and the concurrent private placement).

AIV Holdings and New Mountain Finance are holding companies with no direct operations of our own, and our only business and sole asset is our ownership of units of the Operating Company. The Operating Company’s ~~investment~~is ~~objective~~externally managed and has elected to be treated as a business development company under the 1940 Act. As such, the Operating Company is obligated to ~~generate~~comply ~~current~~with certain regulatory requirements. The Operating Company intends to be treated as a partnership for federal income ~~and~~tax ~~capital~~purposes ~~appreciation~~for ~~through~~so ~~the~~long as it has at least two members. The Operating Company, byformerly ~~the~~known ~~sourcing~~as ~~and~~New ~~originating~~Mountain Guardian (Leveraged), L.L.C., was originally formed as a subsidiary of ~~debt~~Guardian ~~securities~~AIV atby ~~all~~New ~~levels~~Mountain Capital in October 2008. Guardian AIV was formed through an allocation of approximately $300.0 million of the ~~capital~~$5.1 ~~structure,~~billion ~~including~~of ~~first~~commitments ~~and~~supporting ~~second~~New ~~lien~~Mountain ~~debt~~Partners III, ~~notes~~L.P., ~~bonds~~a ~~and~~private ~~mezzanine~~equity ~~securities~~fund managed by New Mountain Capital. In ~~some~~February 2009, ~~cases~~New Mountain Capital formed a co-investment vehicle, ~~the~~New ~~Operating~~Mountain ~~Company’s~~Guardian ~~investments~~Partners, ~~may~~L.P., ~~also~~comprising ~~include~~$20.4 ~~equity~~million ~~interests~~of commitments. ~~The~~New ~~primary~~Mountain ~~focus~~Guardian is(Leveraged), inL.L.C. ~~the~~and ~~debt~~New ofMountain ~~defensive~~Guardian ~~growth~~Partners, ~~companies~~L.P., ~~which~~together with their respective direct and indirect wholly-owned subsidiaries, are defined as ~~generally exhibiting~~ the ~~following~~“Predecessor ~~characteristics:~~Entities”. ~~(i)~~In ~~sustainable~~connection ~~secular~~with ~~growth~~New ~~drivers,~~Mountain ~~(ii)~~Finance’s ~~high~~IPO ~~barriers~~and tothrough ~~competitive~~a ~~entry~~series of transactions, ~~(iii)~~the ~~high~~Operating ~~free~~Company ~~cash~~owns ~~flow~~all ~~after~~of ~~capital~~the ~~expenditure~~operations ~~and~~of ~~working~~the ~~capital~~Predecessor ~~needs~~Entities, ~~(iv)~~including ~~high~~all ~~returns~~of onthe assets and ~~(v)~~liabilities ~~opportunities~~related ~~for~~to ~~niche~~such ~~market dominance~~operations.

AsGuardian ofAIV ~~June~~was ~~30,~~the ~~2011,~~parent of the Operating Company’s ~~net~~prior ~~asset~~to ~~value~~the ~~was~~IPO ~~$440.6 million~~ and, ~~its~~as ~~portfolio had~~ a ~~fair~~result ~~value~~ of ~~approximately~~the ~~$544.3~~transactions ~~million~~completed in 47connection ~~portfolio companies,~~ with athe ~~weighted~~IPO, ~~average~~obtained ~~Unadjusted~~units ~~and~~in ~~Adjusted~~the ~~Yield~~Operating ~~to Maturity of approximately 10~~Company.~~4% and 12.7%, respectively.~~ ~~“Adjusted~~Guardian ~~Yield~~AIV tocontributed ~~Maturity”~~its ~~assumes~~units ~~that the investments~~ in the Operating Company’s ~~portfolio~~to ~~are~~its ~~purchased~~newly atformed ~~fair~~subsidiary, ~~value~~AIV ~~on June 30~~Holdings, ~~2011~~in ~~and~~exchange ~~held~~for ~~until~~common ~~their~~stock ~~respective~~of ~~maturities~~AIV ~~with no prepayments or losses and are exited at par at maturity~~Holdings. ~~This~~AIV ~~calculation~~Holdings ~~excludes~~has the ~~impact~~right ofto ~~existing~~exchange ~~leverage,~~all ~~except~~or ~~for~~any ~~the~~portion ~~non-recourse debt~~ of ~~New~~our ~~Mountain~~units ~~Finance~~in ~~SPV~~the ~~Funding,~~Operating ~~L.L.C.~~Company ~~(“NMF~~for ~~SLF”). NMF~~shares ~~SLF is treated as a fully levered asset~~ of ~~the~~New ~~Operating~~Mountain ~~Company, with NMF SLF~~Finance’s ~~net~~common ~~asset~~stock ~~value~~on ~~being~~a ~~included~~ one-for-one ~~yield calculation purposes~~basis. ~~The~~At ~~actual~~September 30, ~~yield~~2011, toNew ~~maturity~~Mountain ~~may~~Finance beand ~~higher~~AIV orHoldings ~~lower~~owned ~~due~~approximately to34.6% ~~the~~and ~~future~~65.4%, ~~selection~~respectively, of ~~LIBOR contracts by~~ the ~~individual~~units companies in the portfolio or other factors. References to “Unadjusted Yield to Maturity” have the same assumptions as Adjusted Yield to Maturity except that NMF SLF is not treated as a fully levered asset of the Operating Company~~, but rather the assets themselves are consolidated into the Operating Company~~.

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The diagram below depicts our current organizational structure.

AIV Holdings’ investment objective is to generate current income and capital appreciation through the Operating Company by the sourcing and origination of debt securities at all levels of the capital structure, including first and second lien debt, notes, bonds and mezzanine securities. In some cases, the Operating Company’s investments may also include equity interests. The primary focus is in the debt of defensive growth companies, which are defined as generally exhibiting the following characteristics: (i) sustainable secular growth drivers, (ii) high barriers to competitive entry, (iii) high free cash flow after capital expenditure and working capital needs, (iv) high returns on assets and (v) opportunities for niche market dominance.

As of September 30, 2011, the Operating Company’s net asset value was $411.9 million and its portfolio had a fair value of approximately $604.3 million in 50 portfolio companies, with a weighted average Unadjusted and Adjusted Yield to Maturity of approximately 10.9% and 14.0%, respectively. “Adjusted Yield to Maturity” assumes that the investments in the Operating Company’s portfolio are purchased at fair value on September 30, 2011 and held until their respective maturities with no prepayments or losses and exited at par at maturity. This calculation excludes the impact of existing leverage, except for the non-recourse debt of New Mountain Finance SPV Funding, L.L.C. (“NMF SLF”). NMF SLF is treated as a fully levered asset of the Operating Company, with NMF SLF’s net asset value being included for yield calculation purposes. The actual yield to maturity may be higher or lower due to the future selection of LIBOR contracts by the individual companies in the portfolio or other factors. References to “Unadjusted Yield to Maturity” have the same assumptions as Adjusted Yield to Maturity except that NMF SLF is not treated as a fully levered asset of the Operating Company, but rather the assets themselves are consolidated into the Operating Company.

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Recent Developments

On ~~August~~November 108, 2011, ~~Daniel~~AIV ~~Hébert~~Holdings entered into Amendment No. 1 to the Trademark License Agreement, as amended, by and ~~Adam~~among JNew Mountain Capital, L.L.C., ~~Collins~~AIV ~~were~~Holdings, ~~appointed~~the toOperating Company, New Mountain Finance, the ~~board~~Investment ofAdviser ~~directors~~and ofthe Administrator, which amended the preamble, added “New Mountain Finance” to the definition of “Licensed Mark” and Canada and the European Union to the definition of “Territory”, as such terms are used in the ~~Operating~~Trademark ~~Company~~License Agreement, as amended, added a definition of “Licensed Services”, and added AIV Holdings, the Investment Adviser and the Administrator as parties to the Trademark License Agreement, as amended.

On November 8, 2011, AIV Holdings entered into an Administration Agreement, as amended and restated, by and among the Operating Company, AIV Holdings, New Mountain Finance and the Administrator, which added AIV Holdings as a party to, and clarified certain cost and expense allocation provisions in, the Administration Agreement, as amended and restated.

On November 8, 2011, AIV Holdings entered into Amendment No. 1 to the Limited Liability Company Agreement, as amended and restated, of the Operating Company, which clarified certain cost and expense allocation provisions in such agreement.

Dividend

On ~~August~~November 108, 2011, the Operating Company’s board of directors declared a ~~second~~fourth quarter 2011 distribution of $0.2730 per unit payable on ~~August~~December 3130, 2011 to holders of record as of ~~August~~December 2215, 2011. As of this record date, AIV Holdings owns 20,221,938 units of the Operating Company and therefore will receive a total dividend of $56,~~459~~066,~~923~~581.2640. Subsequently, AIV Holdings’ board of directors declared a total dividend of $56,~~459~~066,~~923~~581.2640 payable on ~~August~~December 3130, 2011 to holders of record as of ~~August~~December 2215, 2011.

~~Additionally~~Since AIV Holdings is a holding company, all distributions on ~~August 10,~~our ~~2011,~~common stock will be paid from distributions received from the Operating Company’s. The ~~board~~Operating ofCompany ~~directors~~intends ~~declared~~to amake ~~third~~distributions ~~quarter~~to ~~2011~~its ~~distribution~~members ofthat ~~$0.29~~will ~~per~~be ~~unit~~sufficient ~~payable~~to onenable ~~September 30,~~AIV ~~2011~~Holdings and New Mountain Finance to ~~holders~~pay ofquarterly ~~record~~distributions asto ofour ~~September 15,~~stockholders ~~2011.~~and Asto ofenable ~~this~~New ~~record~~Mountain ~~date,~~Finance ~~AIV~~to ~~Holdings~~obtain ~~owns~~and 20maintain its status as a RIC. Under certain circumstances,~~221,938~~ ~~units~~the ofdistributions that the Operating Company ~~and~~makes ~~therefore~~to ~~will~~its ~~receive~~members amay ~~total~~not ~~dividend~~be ~~$5,864,362~~sufficient for AIV Holdings to satisfy the annual distribution requirement necessary for AIV Holdings to qualify as a RIC.~~02.~~ ~~Subsequently~~In that case, it is expected that Guardian AIV would consent to be treated as if it received distributions from AIV Holdings’ ~~board~~sufficient ofto ~~directors~~satisfy ~~declared~~the aannual ~~total~~distribution requirement. Guardian AIV would be required to include the consent dividend ofin $5its taxable income as a dividend from AIV Holdings,~~864~~ which would result in phantom (i.e.,~~362~~ non-cash) taxable income to Guardian AIV.02 AIV ~~payable~~Holdings onintends ~~September 30,~~to ~~2011~~make quarterly distributions to ~~holders~~Guardian AIV out of ~~record~~assets aslegally ofavailable for distribution each quarter. See the Operating Company’s Form 10-Q for the quarter ended September 1530, 2011 included in this filing for further details.

Since AIV Holdings is a holding company, all distributions on its common stock will be paid from distributions received from the Operating Company. The Operating Company intends to make distributions to its members that will be sufficient to enable AIV Holdings and New Mountain Finance to pay quarterly distributions to their stockholders and to enable New Mountain Finance to obtain and maintain its status as a RIC. Under certain circumstances, the distributions that the Operating Company makes to its members may not be sufficient for AIV Holdings to satisfy the annual distribution requirement necessary for AIV Holdings to qualify as a RIC. In that case, it is expected that Guardian AIV would consent to be treated as if it received distributions from AIV Holdings sufficient to satisfy the annual distribution requirement. Guardian AIV would be required to include the consent dividend in its taxable income as a dividend from AIV Holdings, which would result in phantom (i.e., non-cash) taxable income to Guardian AIV. AIV Holdings intends to make quarterly distributions to Guardian AIV out of assets legally available for distribution each quarter. See the Operating Company’s Form 10-Q for the quarter ended June 30, 2011 included in this filing for further details.

AIV Holdings does not intend to reinvest any distributions received from the Operating Company in additional units of the Operating Company.

Critical Accounting Policies

Basis of Accounting

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates.

~~The~~We ~~Company~~do ~~does~~ not consolidate the Operating Company. AIV Holdings applies investment company master-feeder financial statement preparation, as described in Accounting Standards Codification 946, Financial Services — Investment Companies, (“ASC 946”) to ~~its~~our interest in the Operating Company (or the “Master Fund”). AIV Holdings believes that it is industry practice to follow the presentation prescribed for a Master Fund-Feeder fund structure in ASC 946 in instances in which a Master Fund is owned by more than one ~~Feeder~~feeder ~~Fund~~fund and that such presentation provides stockholders of AIV Holdings with a clearer depiction of ~~its~~our investment in the Master Fund. The Operating Company’s Form 10-Q for the quarter ended ~~June~~September 30, 2011 is included in this ~~report~~filing and should be read in conjunction with that of AIV Holdings.

Valuation of Portfolio Investments

The Operating Company conducts the valuation of its assets, pursuant to which its net asset value and consequently AIV Holdings’ net asset value is determined, at all times consistent with GAAP and the 1940 Act.

AIV Holdings is a holding company with no direct operations of its own, and its sole asset is its ownership in the Operating Company. AIV Holdings’ investment in the Operating Company is carried at fair value and represents the pro-rata interest in the net assets of the Operating Company as of the applicable reporting date. AIV Holdings values its ownership interest on a quarterly basis, or more frequently if required under the 1940 Act. See the Operating Company’s Form 10-Q for the quarter ended June 30, 2011 included in this filing for further details.16

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AIV Holdings is a holding company with no direct operations of our own, and our sole asset is our ownership in the Operating Company. AIV Holdings’ investment in the Operating Company is carried at fair value and represents the pro-rata interest in the net assets of the Operating Company as of the applicable reporting date. The Operating Company values our ownership interest on a quarterly basis, or more frequently if required under the 1940 Act. See the Operating Company’s Form 10-Q for the quarter ended September 30, 2011 included in this filing for further details.

Revenue Recognition

At each quarterly valuation date, the Operating Company’s investment income, expenses, net realized gains (losses), and net increase (decrease) in unrealized appreciation (depreciation) are allocated to AIV Holdings based on ~~its~~our pro-rata interest in the net assets of the Operating Company. This is recorded on AIV Holdings’ Statement of Operations. New Mountain Finance used the proceeds from its IPO and concurrent private placement to purchase units in the Operating Company at $13.75 per unit (its IPO price per share). At the IPO date, $13.75 per unit represented a discount to the actual net asset value per unit of the Operating Company. As a result, AIV Holdings experienced immediate unrealized depreciation on ~~its~~our investment in the Operating Company equal to the difference between New Mountain Finance’s ~~initial~~IPO ~~public offering~~ price of $13.75 per unit and the actual net asset value per unit. Concurrently, New Mountain Finance experienced immediate unrealized appreciation on its investment. This unrealized depreciation is shown separately on the Statement of Operations of AIV Holdings. See the Operating Company’s Form 10-Q for the quarter ended ~~June~~September 30, 2011 included in this filing for further details.

Results of Operations

As a result of the Master Fund-Feeder fund structure, AIV Holdings’ results of operations are a function of ~~their~~our pro-rata ownership interest in the Operating Company. Additionally, AIV Holdings commenced operations on May 19, 2011 and therefore has no comparative periods of results of operations. See the Operating Company’s Management Discussion and Analysis of Financial Condition and Results of Operations in its Form 10-Q for the quarter ended ~~June~~September 30, 2011 included in this filing for further details.

Liquidity and Capital Resources

AIV Holdings has the right to exchange all or any portion of ~~its~~our units of the Operating Company for shares of New Mountain Finance’s common stock on a one-for-one basis. If AIV Holdings exercised ~~its~~our right to exchange ~~its~~our units of the Operating Company, Guardian AIV, indirectly through AIV Holdings, would own approximately 65.4% of all outstanding shares of New Mountain Finance’s common stock as of ~~June~~September 30, 2011.

AIV Holdings is not required, and it does not intend, to make any additional capital contributions to the Operating Company.

At ~~June~~September 30, 2011, we had no cash or cash equivalents. Cash used in operating activities from May 19, 2011 (commencement of operations) to ~~June~~September 30, 2011 was ~~zero~~$11.3 million. Our liquidity is dependent on dividends from the Operating Company which we intend to distribute to our stockholders.

On May 19, 2011, New Mountain Finance priced its IPO of 7,272,727 shares of common stock at a public offering price of $13.75 per share. Concurrently with the closing of the ~~offering~~IPO and at the public offering price of $13.75 per share, ~~the~~New ~~Company~~Mountain Finance sold an additional 2,172,000 shares of its common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital in a separate private placement.

The Operating Company’s liquidity is generated and generally available through advances from ~~the~~its revolving credit facilities, from cash flows from operations, investment sales of liquid assets, repayments of senior and subordinated loans, income earned on investments and cash equivalents, and, we expect, through periodic follow-on equity offerings of New Mountain Finance.

~~Distributions and Dividends~~17

On August 10, 2011, the Operating Company’s board of directors declared a second quarter 2011 distribution of $0.27 per unit payable on August 31, 2011 to holders of record as of August 22, 2011. As of this record date, AIV Holdings owns 20,221,938 units of the Operating Company and therefore will receive a total dividend of $5,459,923.26. Subsequently, AIV Holdings’ board of directors declared a total dividend of $5,459,923.26 payable on August 31, 2011 to holders of record as of August 22, 2011.

Additionally, on August 10, 2011, the Operating Company’s board of directors declared a third quarter 2011 distribution of $0.29 per unit payable on September 30, 2011 to holders of record as of September 15, 2011. As of this record date, AIV Holdings owns 20,221,938 units of the Operating Company and therefore will receive a total dividend $5,864,362.02. Subsequently, AIV Holdings’ board of directors declared a total dividend of $5,864,362.02 payable on September 30, 2011 to holders of record as of September 15, 2011.

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Distributions and Dividends

The following table reflects the cash distributions, including dividends and returns of capital, if any, per unit that have been declared by the Operating Company’s board of directors since New Mountain Finance’s IPO:

Date Declared	Record Date	Payment Date	Amount
November 8, 2011	December 15, 2011	December 30, 2011	$	0.30
August 10, 2011	September 15, 2011	September 30, 2011	0.29
August 10, 2011	August 22, 2011	August 31, 2011	0.27

*Total*			$	0.86

On November 8, 2011, the Operating Company’s board of directors declared a fourth quarter 2011 distribution of $0.30 per unit payable on December 30, 2011 to holders of record as of December 15, 2011. As of this record date, AIV Holdings owns 20,221,938 units of the Operating Company and therefore will receive a total dividend of $6,066,581.40. Subsequently, AIV Holdings’ board of directors declared a total dividend of $6,066,581.40 payable on December 30, 2011 to holders of record as of December 15, 2011.

Tax characteristics of all dividends paid by AIV Holdings will be reported to Guardian AIV on Form 1099 after the end of the calendar year. Future quarterly dividends, if any, for both the Operating Company and AIV Holdings will be determined by the respective board of directors.

Since AIV Holdings is a holding company, all distributions on ~~its~~our common stock will be paid from distributions received from the Operating Company. The Operating Company intends to make distributions to its members that will be sufficient to enable AIV Holdings and New Mountain Finance to pay quarterly distributions to ~~their~~our stockholders and to enable New Mountain Finance to obtain and maintain its status as a RIC. Under certain circumstances, the distributions that the Operating Company makes to its members may not be sufficient for AIV Holdings to satisfy the annual distribution requirement necessary for AIV Holdings to qualify as a RIC. In that case, it is expected that Guardian AIV would consent to be treated as if it received distributions from AIV Holdings sufficient to satisfy the annual distribution requirement. Guardian AIV would be required to include the consent dividend in its taxable income as a dividend from AIV Holdings, which would result in phantom (i.e., non-cash) taxable income to Guardian AIV. AIV Holdings intends to make quarterly distributions to Guardian AIV out of assets legally available for distribution each quarter. See the Operating Company’s Form 10-Q for the quarter ended ~~June~~September 30, 2011 included in this filing for further details.

AIV Holdings does not intend to reinvest any distributions received from the Operating Company in additional units of the Operating Company.

Related Parties

AIV Holdings has entered into a number of business relationships with affiliated or related parties, including the following:

· Together, New Mountain Finance and AIV Holdings own all the outstanding units of the Operating Company. As of ~~June~~September 30, 2011, New Mountain Finance and AIV Holdings owned approximately 34.6% and 65.4%, respectively, of the units of the Operating Company.

· The Operating Company has entered into an Investment Management Agreement with the Investment Adviser, a wholly-owned subsidiary of New Mountain Capital. See the Operating Company’s Form 10-Q for the quarter ended ~~June~~September 30, 2011 included in this filing for further details.

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Item 3. Quantitative and Qualitative Disclosure about Market Risk

See the Quantitative and Qualitative Disclosure about Market Risk in the Operating Company’s Form 10-Q for the quarter ended ~~June~~September 30, 2011 included in this filing.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As of ~~June~~September 30, 2011 (the end of the period covered by this report), we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Act of 1934, as amended). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic Securities and Exchange Commission filings is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.

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and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic Securities and Exchange Commission (“SEC”) filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.

(b) Changes in Internal Controls Over Financial Reporting

Management has not identified any change in the Company’s internal control over financial reporting that occurred during the ~~second~~third quarter of 2011 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

This quarterly report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the ~~SEC~~Securities and Exchange Commission for newly public companies.

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APPENDIX A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter Ended ~~June~~September 30, 2011

o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 814-00839

NEW MOUNTAIN FINANCE HOLDINGS, L.L.C

(Exact name of registrant as specified in its charter)

Delaware		26-3633318
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
787 Seventh Avenue 48th Floor New York, N.Y.		10019
(Address of principal executive offices)		(Zip Code)

787 Seventh Avenue 48th Floor New York, N.Y.		10019
(Address of principal executive offices)		(Zip Code)

(212) 730-0300

(Registrant’s telephone number, including area code)

Large accelerated filer o		Accelerated filer o

Non-accelerated filer x		Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of the registrant’s common membership units outstanding as of ~~August~~November 1114, 2011 was 30,919,629.

A-1

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NEW MOUNTAIN FINANCE HOLDINGS, L.L.C.

FORM 10-Q FOR THE QUARTER ENDED ~~JUNE~~SEPTEMBER 30, 2011

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		PAGE
PART I. FINANCIAL INFORMATION		A-3
Item 1.	Financial Statements	A-3
	Consolidated Statements of Assets, Liabilities and Members’ Capital as of June 30, 2011 (unaudited) and December 31, 2010	A-3
	Consolidated Statements of Assets, Liabilities and Members’ Capital as of September 30, 2011 (unaudited) and December 31, 2010	A-3
	Consolidated Statements of Operations for the three and six months ended June 30, 2011 (unaudited) and June 30, 2010 (unaudited)	A-4
	Consolidated Statements of Operations for the three and nine months ended September 30, 2011 (unaudited) and September 30, 2010 (unaudited)	A-4
	Consolidated Statements of Changes in Members’ Capital for the six months ended June 30, 2011 (unaudited) and June 30, 2010 (unaudited)	A-5
	Consolidated Statements of Changes in Members’ Capital for the nine months ended September 30, 2011 (unaudited) and September 30, 2010 (unaudited)	A-5
	Consolidated Statements of Cash Flows for the six months ended June 30, 2011 (unaudited) and June 30, 2010 (unaudited)	A-6
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 (unaudited) and September 30, 2010 (unaudited)	A-6
	Consolidated Schedule of Investments as of June 30, 2011 (unaudited)	A-7
	Consolidated Schedule of Investments as of September 30, 2011 (unaudited)	A-7
	Consolidated Schedule of Investments as of December 31, 2010	A-1011
	Notes to Consolidated Financial Statements (unaudited)	A-1314
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	A-27
	Report of Independent Registered Public Accounting Firm	A-29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	A-39
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	A-30
Item 4.	Controls and Procedures	A-39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	A-44
PART II. OTHER INFORMATION		A-41
Item 4.	Controls and Procedures	A-44
Item 1.	Legal Proceedings	A-41
PART II. OTHER INFORMATION		A-45
Item 1A.	Risk Factors	A-41
Item 1.	Legal Proceedings	A-45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	A-41
Item 1A.	Risk Factors	A-45
Item 3.	Defaults upon Senior Securities	A-42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	A-45
Item 4.	Reserved	A-42
Item 3.	Defaults upon Senior Securities	A-45
Item 5.	Other Information	A-42
Item 4.	Reserved	A-45
Item 6.	Exhibits	A-42
Item 5.	Other Information	A-45
	Signatures	A-45
Item 6.	Exhibits	A-46
	Signatures	A-48

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

New Mountain Finance Holdings, L.L.C.

Consolidated Statements of Assets, Liabilities and Members’ Capital

	June 30, 2011		December 31, 2010
	September 30, 2011		December 31, 2010
	(unaudited)
Assets
Investments, at fair value (cost $524,049,396 and $414,308,823 respectively)	$	544,336,397	$	441,057,840
Investments at fair value (cost of $606,704,749 and $414,308,823, respectively)	$	604,334,414	$	441,057,840
Cash equivalents, at value (cost $60,000,067 and $0 respectively)	59,999,970		—
Cash and cash equivalents	18,438,567		10,744,082
Cash	17,850,716		10,744,082
Interest receivable	6,761,269		3,007,787
Interest receivable	4,046,499		3,007,787
Receivable from unsettled securities sold	6,755,000		—
Deferred credit facility costs (net of accumulated amortization of $381,192 and $69,909 respectively)	3,596,057		1,880,120
Deferred credit facility costs (net of accumulated amortization of $610,866 and $69,909, respectively)	3,766,729		1,880,120
Deferred offering costs	—		3,528,110
Other assets	760,367		5,842
Receivable from affiliate	1,003,530		—
Total assets	$	630,590,006	$	460,223,781
Other assets	521,556		5,842
Total assets	$	641,581,065	$	460,223,781
Liabilities
SLF credit facility	126,917,448		56,936,000
SLF Credit Facility	166,606,448		56,936,000
Holdings credit facility	34,300,000		59,696,938
Holdings Credit Facility	57,903,125		59,696,938
Payable for unsettled securities purchased	~~22,885,720~~—		94,462,500
Interest payable	1,092,341		813,192
Management fee payable	1,930,140		—
Management fee payable	807,509		—
Incentive fee payable	700,610		—
Incentive fee payable	504,393		—
Interest payable	1,229,640		813,192
Payable to affiliates	—		2,531,319
Other liabilities	31,~~477~~289,~~299~~898		3,856,571
Total liabilities	~~189~~229,~~984~~659,~~710~~861		218,296,520
Members’ Capital	~~440~~411,~~605~~921,~~296~~204		241,927,261
Total liabilities and members’ capital	$	~~630~~641,~~590~~581,~~006~~065	$	460,223,781
Outstanding Common Membership Units (a)	30,919,629
Outstanding common membership units (a)	30,919,629
Capital per unit (a)	$	1413.2532

(a) Fund was not unitized as of December 31, 2010.

The accompanying notes are an integral part of these consolidated financial statements.

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New Mountain Finance Holdings, L.L.C.

Consolidated Statements of Operations

(unaudited)

Three months ended

~~Six~~Nine months ended

June 30, 2011

June 30, 2010

June 30, 2011

June 30, 2010

September 30, 2011

September 30, 2010

September 30, 2011

September 30, 2010

Investment income

Interest income

1214,~~810~~860,~~147~~750

813,~~331~~598,~~777~~152

2338,~~978~~838,~~194~~944

1730,~~219~~818,~~965~~117

Other income

~~306~~207,~~144~~831

~~265~~282,~~192~~837

~~349~~557,~~817~~648

~~453~~736,~~934~~771

Total investment income

1315,~~116~~068,~~291~~581

813,~~596~~880,~~969~~989

2439,~~328~~396,~~011~~592

1731,~~673~~554,~~899~~888

Expenses

Interest and other credit facility expenses

1,~~534~~686,~~147~~113

~~556~~688,~~046~~686

34,~~080~~767,~~900~~013

1,~~221~~910,~~963~~649

Management fee

~~773~~1,~~509~~930,140

17,~~749~~751

~~807~~2,~~509~~737,649

3553,~~498~~249

Incentive fee

~~504~~700,~~393~~610

—

~~504~~1,~~393~~205,003

—

Professional fees (net of reimbursable expenses of $130,186)

516,678

141,307

569,834

193,342

Professional fees (net of reimbursable expenses of $816,530, $0, $946,716 and $0, respectively)

55,138

(78,628

)

624,972

114,714

Administrative expenses (net of reimbursable expenses of $180,255)

62,610

84,183

203,418

196,679

Administrative expenses (net of reimbursable expenses of $218,396, $0, $398,651 and $0, respectively)

314,250

87,858

517,668

284,537

Other general and administrative expenses

~~170~~380,~~712~~612

2120,~~173~~668

~~178~~559,~~568~~180

4162,~~700~~368

Total expenses

35,~~562~~066,~~049~~863

~~820~~736,~~458~~335

510,~~344~~411,~~622~~485

12,~~689~~425,~~182~~517

Net investment income

910,~~554~~001,~~242~~718

713,~~776~~144,~~511~~654

1828,~~983~~985,~~389~~107

1529,~~984~~129,~~717~~371

Realized gains on investments

61,~~659~~402,~~833~~671

818,~~249~~695,~~823~~670

1213,~~552~~954,~~163~~834

2947,~~193~~889,~~602~~272

Net change in unrealized (depreciation) appreciation of investments

(722,~~559~~657,~~450~~239

)

(13,~~598~~135,~~102~~223

)

(629,~~462~~119,~~113~~352

)

(1629,~~404~~539,~~095~~318

)

Net increase in capital resulting from operations

8,654,625

2,428,232

25,073,439

28,774,224

Net (decrease) increase in capital resulting from operations

(11,252,850

)

18,705,101

13,820,589

47,479,325

The accompanying notes are an integral part of these consolidated financial statements.

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New Mountain Finance Holdings, L.L.C.

Consolidated Statements of Changes in Members’ Capital

(unaudited)

	Six months ended			Six months ended
	Nine months ended			Nine months ended
	June 30, 2011			June 30, 2010
	September 30, 2011			September 30, 2010
Increase (Decrease) in members’ capital resulting from operations:
Increase (decrease) in members’ capital resulting from operations:
Net investment income	$	1828,~~983~~985,~~389~~107		$	1529,~~984~~129,~~717~~371
Realized gains on investments	1213,~~552~~954,~~163~~834			2947,~~193~~889,~~602~~272
Net change in unrealized (depreciation) appreciation of investments	(629,~~462~~119,~~113~~352		)	(1629,~~404~~539,~~095~~318		)
Net increase (decrease) in members’ capital resulting from operations	25,073,439			28,774,224
Net increase in members’ capital resulting from operations	13,820,589			47,479,325
Distributions	(10,249,155		)	(3871,~~270~~570,191		)
Contributions	195,294,674			1253,~~131~~549,~~014~~727
Offering Costs	(11,440,923		)	—
Dividends paid	(17,314,992		)	—
Net increase in members’ capital	198,678,035			2,635,047
Offering costs	(11,557,173		)	—
Net increase in members’ capital	169,993,943			29,458,861
Members’ capital at beginning of period	241,927,261			239,440,683
Members’ capital at end of period	$	~~440~~411,~~605~~921,~~296~~204		$	~~242~~268,~~075~~899,~~730~~544

The accompanying notes are an integral part of these consolidated financial statements.

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New Mountain Finance Holdings, L.L.C.

Consolidated Statements of Cash Flows

(unaudited)

	Six months ended
	Nine months ended
	June 30, 2011			June 30, 2010
	September 30, 2011			September 30, 2010
Cash flows from operating activities
Net increase in capital resulting from operations	$	2513,~~073~~820,~~439~~589		$	2847,~~774~~479,~~224~~325
Adjustments to reconcile net increase (decrease) in capital resulting from operations to net cash (used in) provided by operating activities:
Adjustments to reconcile net (increase) decrease in capital resulting from operations to net cash (used in) provided by operating activities:
Realized gains on investments	(1213,~~552~~954,~~163~~834		)	(2947,~~193~~889,~~602~~272		)
Net change in unrealized (appreciation) depreciation of investments	6,462,113			16,404,095
Net change in unrealized depreciation (appreciation) of investments	29,119,352			29,539,318
Amortization of purchase discount	(35,~~401~~048,~~906~~033		)	(713,~~494~~812,~~472~~206		)
Amortization of deferred credit facility costs	~~311~~540,~~283~~957			—
Non-cash interest	(~~727~~957,~~135~~171		)	(1,~~011~~231,~~987~~190		)
(Increase) decrease in operating assets:
Purchase of investments	(~~245~~355,~~993~~424,~~220~~928		)	(75131,~~681~~240,~~612~~778		)
Proceeds from sales and paydowns of investments	~~152~~182,~~208~~264,~~584~~633			~~110~~156,~~581~~845,~~682~~630
Cash received for purchase of undrawn portion of revolving credit facility	1,260,000			—
Cash paid for sale of undrawn portion of revolving credit facility	—			(1,837,500		)
Cash paid for drawn revolver	(535,593		)	—
Interest receivable	(13,~~038~~753,~~712~~482		)	(13,~~337~~682,~~237~~468		)
Receivable from unsettled securities sold	—(6,755,000		)	(5,~~124~~270,~~622~~124		)
Other assets	(754,525		)	1,407
Receivable from affiliate	(1,003,530		)	—
Other assets	(515,714		)	(20,675		)
Increase (decrease) in operating liabilities:
Payable for unsettled securities purchased	(7194,~~576~~462,~~780~~500		)	(310,~~482~~394,~~265~~765		)
Interest payable	279,149			(47,516		)
Management fee payable	1,930,140			—
Management fee payable	807,509			—
Incentive fee payable	700,610			—
Incentive fee payable	504,393			—
Interest payable	416,448			87,437
Payable to affiliates	(202,180		)	(~~173~~331,~~440~~154		)
Other liabilities	~~(326~~525,~~040~~198		)	~~258~~268,~~364~~254
Net cash flows (used in) provided by operating activities	(~~150~~252,~~201~~035,~~784~~038		)	4218,~~722~~509,~~263~~832
Cash flows from financing activities
Contributions	195,294,674			1253,~~131~~549,~~014~~727
Distributions	(10,249,155		)	(3871,~~270~~570,191		)
Offering costs paid	(8,344,393		)	—
Dividends paid	(17,314,992		)	—
Proceeds from Holdings credit facility	63,281,605			21,785,175
Offering costs paid	(11,500,044		)	—
Repayment of Holdings credit facility	(88,678,542		)	(38,419,909		)
Proceeds from Holdings Credit Facility	205,870,450			43,650,495
Proceeds from SLF credit facility	92,043,800			—
Repayment of Holdings Credit Facility	(207,664,263		)	(38,637,548		)
Repayment of SLF credit facility	(22,062,352		)	—
Proceeds from SLF Credit Facility	134,361,800			—
Deferred credit facility costs paid	(3,977,249		)	—
Repayment of SLF Credit Facility	(24,691,352		)	—
Net cash flows provided by (used in) financing activities	217,308,388			(42,773,911		)
Deferred credit facility costs paid	(4,377,595		)	—
Net increase in cash and cash equivalents	67,106,604			(51,648		)
Net cash flows provided by (used in) financing activities	259,729,523			(13,007,517		)
Net increase in cash and cash equivalents	7,694,485			5,502,315
Cash and cash equivalents at the beginning of the period	10,744,082			4,110,193
Cash and cash equivalents at the end of the period	$	7718,~~850~~438,~~686~~567		$	49,~~058~~612,~~545~~508
Supplemental disclosure of cash flow information
Interest paid	$	13,~~962~~025,~~278~~253		$	1,~~073~~489,~~927~~461
Non-cash financing activities:
Accrual of offering costs	~~3,096,530~~$	57,129		—$	1,971,635

The accompanying notes are an integral part of these consolidated financial statements.

A-6

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments

~~June~~ September 30, 2011

(unaudited)

				Principal
				Amount,								~~Percent of~~	Percent of
Portfolio Company,				Par Value					~~Fair~~	Fair		~~Members’~~	Members’
Location and Industry	Type of Investment	Interest Rate	Maturity Date	or Shares		~~Cost~~	Cost		~~Value~~	Value		~~Capital~~	Capital
United States
Stratus Technologies, Inc.
Information Technology	Ordinary shares (2)	—	—	144,270		$	~~65,123~~$	65,123	$	~~56,324~~$	44,838
	Preferred shares(2)	—	—	32,830		14,819			12,817
	Preferred shares (2)	—	—	32,830			14,819			10,203
						~~79,942~~	79,942		~~69,141~~	55,041		~~0.02~~	%0.01	%
Total shares						~~79,942~~	79,942		~~69,141~~	55,041		~~0.02~~	%0.01	%
United States
Alion Science and Technology Corporation
Federal Services	Warrants (2)	—	—	6,000		~~292,851~~	292,851		~~316,560~~	316,551		~~0.07~~	%0.08	%
Learning Care Group (US), Inc.
Education	Warrants (2)	—	—	~~845~~844		~~193,850~~	193,850		~~90,663~~	30,140		~~0.02~~	%0.01	%
Total warrants						~~486,701~~	486,701		~~407,223~~	346,691		~~0.09~~	%0.09	%
United States
Managed Health Care Associates, Inc.
Decision Resources, LLC
Healthcare Services	First lien (2)	3.44% (Base Rate + 3.25%)	8/1/2014	22,467,673		18,046,809			21,568,965
Business Services	First lien (3)	7.00% (Base Rate + 5.50%)	12/28/2016	$	17,865,000		17,623,450			17,686,350
	Second lien (2)	69.6950% (Base Rate + 68.5000%)	25/17/~~2015~~2018	1514,~~000~~500,000		~~11,575,183~~	14,362,809		~~14,025,000~~	14,427,500
				37,467,673		29,621,992			35,593,965			8.08	%
				32,365,000			31,986,259			32,113,850			7.80	%
Decision Resources, LLC
Meritas Schools Holdings, LLC
Business Services	First lien (3)	7.00% (Base Rate + 5.50%)	12/28/2016	17,910,000		17,658,629			17,943,580
Education	First lien (3)	7.50% (Base Rate + 6.00%)	7/29/2017	9,750,000			9,654,742			9,408,750
	Second lien (2)	911.50% (Base Rate + 810.00%)	51/729/2018	1420,~~500~~000,000		~~14,357,575~~	19,703,975		~~14,427,500~~	19,650,000
				32,410,000		32,016,204			32,371,080			7.35	%
				29,750,000			29,358,717			29,058,750			7.06	%
Novell, Inc. (fka Attachmate Corporation, NetIQ Corporation)
Lawson Software, Inc. (fka SoftBrands, Inc.)
Software	First lien (3)	6.5075% (Base Rate + 5.0025%)	47/275/2017	1220,000,000		~~11,907,570~~	19,227,852		~~12,062,495~~	18,983,340
	Second lien (2)	9.50% (Base Rate + 8.00%)	10/27/2017	15,000,000		14,853,966			15,199,995
	Subordinated (2)	11.50%	7/15/2018	10,500,000			9,758,283			9,397,500
				27,000,000		26,761,536			27,262,490			6.19	%
				30,500,000			28,986,135			28,380,840			6.89	%
Lawson Software, Inc. (fka SoftBrands, Inc.)
Managed Health Care Associates, Inc.
Software	First lien (3)	6.75% (Base Rate + 5.25%)	7/5/2017	20,000,000		19,200,000			19,215,620
Healthcare Services	First lien (2)	3.49% (Base Rate + 3.25%)	8/1/2014	15,467,673			12,720,508			14,926,304
	Subordinated(2)	11.50%	7/15/2018	4,000,000		3,685,720			3,685,720
	Second lien (2)	6.74% (Base Rate + 6.50%)	2/1/2015	15,000,000			11,759,149			13,350,000
				24,000,000		22,885,720			22,901,340			5.20	%
				30,467,673			24,479,657			28,276,304			6.87	%
Learning Care Group (US), Inc.
Novell, Inc. (fka Attachmate Corporation, NetIQ Corporation)
Education	First lien (2)	12.00%	4/27/2016	17,368,421		17,086,426			17,368,421
Software	First lien (3)	6.50% (Base Rate + 5.00%)	4/27/2017	12,000,000			11,911,515			11,591,256
	Subordinated(2)	15.00%	6/30/2016	3,044,655		2,841,846			2,919,766
	Second lien (2)	9.50% (Base Rate + 8.00%)	10/27/2017	15,000,000			14,859,699			14,400,000
				20,413,076		19,928,272			20,288,187			4.60	%
				27,000,000			26,771,214			25,991,256			6.31	%
U.S. Healthworks Holding Company, Inc.
Insight Pharmaceuticals LLC
Healthcare Services	Second lien (2)	10.50% (Base Rate + 9.00%)	6/15/2017	20,000,000		19,701,348			19,800,000			4.49	%
Healthcare Products	Second lien (2)	13.25% (Base Rate + 11.75%)	8/25/2017	25,000,000			24,008,514			24,000,000			5.83	%
Unitek Global Services, Inc.
Business Services	First lien (2)	9.00% (Base Rate + 7.50%)	4/15/2018	19,~~950~~900,000		~~19,368,140~~	19,340,601		~~19,501,125~~	19,825,375		~~4.43~~	%4.81	%
KeyPoint Government Solutions, Inc.
U.S. Healthworks Holding Company, Inc.
Federal Services	First lien (2)	10.00% (Base Rate + 8.00%)	12/31/2015	17,910,000		17,579,885			17,865,225			4.05	%
Healthcare Services	Second lien (2)	10.50% (Base Rate + 9.00%)	6/15/2017	20,000,000			19,713,799			19,500,000			4.73	%
Smile Brands Group Inc.
Learning Care Group (US), Inc.
Healthcare Services	First lien (3)	7.00% (Base Rate + 5.25%)	12/21/2017	17,412,500		17,165,414			17,470,536			3.97	%
Education	First lien (2)	12.00%	4/27/2016	17,368,421			17,101,011			16,710,234
Sotera Defense Solutions, Inc. (Global Defense Technology & Systems, Inc.)
	Subordinated (2)	15.00%	6/30/2016	3,044,655			2,851,664			2,748,385
Federal Services	First lien (3)	7.00% (Base Rate + 5.50%)	4/21/2017	17,000,000		16,834,586			17,042,500			3.87	%
				20,413,076			19,952,675			19,458,619			4.72	%
TravelCLICK, Inc. (fka TravelCLICK Acquisition Co.)
Ipreo Holdings LLC
Information Services	First lien (3)	68.5000% (Base Rate + 56.0050%)	38/165/~~2016~~2017	1618,~~458,~~750,000		~~16,147,823~~	18,340,674		~~16,304,449~~	17,718,750		~~3.70~~	%4.30	%
Brock Holdings III, Inc.
KeyPoint Government Solutions, Inc.
Industrial Services	Second lien (2)	10.00% (Base Rate + 8.25%)	3/16/2018	15,000,000		14,716,318			15,375,000			3.49	%
Federal Services	First lien (2)	10.00% (Base Rate + 8.00%)	12/31/2015	17,865,000			17,550,644			17,329,050			4.21	%

The accompanying notes are an integral part of these consolidated financial statements.

A-7

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (continued)

~~June~~September 30, 2011

(unaudited)

				Principal
				Amount,								~~Percent of~~	Percent of
Portfolio Company,				Par Value					~~Fair~~	Fair		~~Members’~~	Members’
Location and Industry	Type of Investment	Interest Rate	Maturity Date	or Shares		~~Cost~~	Cost		~~Value~~	Value		~~Capital~~	Capital
Volume Services America, Inc. (Centerplate)
Smile Brands Group Inc.
Consumer Services	First lien (2)	10.50% (Base Rate + 8.50%)	9/16/2016	14,887,500		$	14,519,018		$	14,961,938		3.40	%
Healthcare Services	First lien (3)	7.00% (Base Rate + 5.25%)	12/21/2017	$	17,368,750		$	17,129,958		$	16,847,688		4.09	%
MLM Holdings, Inc.
Sotera Defense Solutions, Inc. (Global Defense Technology & Systems, Inc.)
Software	First lien (3)	7.00% (Base Rate + 5.25%)	12/1/2016	14,887,500		14,681,208			14,924,719			3.39	%
Federal Services	First lien (3)	7.00% (Base Rate + 5.50%)	4/21/2017	16,957,500			16,799,558			16,703,138			4.05	%
Virtual Radiologic Corporation
SonicWALL, Inc.
Healthcare Information Technology	First lien (3)	7.75% (Base Rate + 4.50%)	12/22/2016	14,927,494		14,726,220			14,778,219			3.35	%
Software	First lien (3)	8.25% (Base Rate + 6.25%)	1/23/2016	5,519,759				5,532,394			5,492,159
Pacific Architects and Engineers Incorporated
	Second lien (2)	12.00% (Base Rate + 10.00%)	1/23/2017	10,000,000			9,737,356			9,975,000
Federal Services	First lien (3)	7.50% (Base Rate + 6.00%)	4/4/2017	15,000,000		14,706,963			14,700,000			3.34	%
				15,519,759			15,269,750			15,467,159			3.75	%
LANDesk Group, Inc.
Volume Services America, Inc. (Centerplate)
Software	First lien (3)	7.02% (Base Rate + 5.17%)	3/28/2016	14,750,000		14,480,083			14,473,437			3.28	%
Consumer Services	First lien (2)	10.50% (Base Rate + 8.50%)	9/16/2016	14,850,000			14,497,289			14,757,262			3.58	%
SonicWALL, Inc.
MLM Holdings, Inc.
Software	First lien (3)	87.2500% (Base Rate + 65.25%)	12/1/~~23/~~2016	314,~~485~~850,~~887~~000		~~3,501,650~~	14,652,060		~~3,503,317~~	14,590,125			3.54	%
	Second lien (2)	12.00% (Base Rate + 10.00%)	1/23/2017	10,000,000		9,728,753			10,150,000
Pacific Architects and Engineers Incorporated
				13,485,887		13,230,403			13,653,317			3.10	%
Federal Services	First lien (3)	7.50% (Base Rate + 6.00%)	4/4/2017	15,000,000			14,719,535			14,475,000			3.51	%
Airvana Network Solutions Inc.
Virtual Radiologic Corporation
Software	First lien (2)	10.00% (Base Rate + 8.00%)	3/25/2015	12,838,095		12,597,336			12,990,548			2.95	%
Healthcare Information Technology	First lien (3)	7.75% (Base Rate + 4.50%)	12/22/2016	14,889,987			14,696,646			14,145,488			3.43	%
Vision Solutions, Inc.
LANDesk Group, Inc.
Software	~~Second~~First lien (23)	97.5000% (Base Rate + 85.0025%)	73/2328/~~2017~~2016	1214,~~000~~250,000		~~11,884,519~~	14,000,807		~~12,060,000~~	13,982,813		~~2.74~~	%3.39	%
Fibertech Networks, LLC (fka Firefox Merger Sub, LLC)
SRA International, Inc.
Telecommunication	First lien (3)	6.75% (Base Rate + 5.00%)	11/30/2016	11,940,000		11,775,068			12,051,938			2.74	%
Federal Services	First lien (3)	6.50% (Base Rate + 5.25%)	7/20/2018	15,000,000			14,338,789			13,912,500			3.38	%
Mailsouth, Inc
Brock Holdings III, Inc.
Media	First lien (3)	6.75% (Base Rate + 4.99%)	12/14/2016	11,970,000		11,802,468			11,955,038			2.71	%
Industrial Services	Second lien (2)	10.00% (Base Rate + 8.25%)	3/16/2018	15,000,000			14,731,215			13,725,000			3.33	%
Merrill Communications LLC
Fibertech Networks, LLC (fka Firefox Merger Sub, LLC)
Business Services	First lien (2)	7.50% (Base Rate + 5.50%)	12/22/2012	11,421,788		9,782,937			11,407,511			2.59	%
Telecommunication	First lien (3)	6.75% (Base Rate + 5.00%)	11/30/2016	11,910,000			11,751,903			11,731,350			2.85	%
PODS Holding Funding Corp.
Consumer Services	Subordinated (2)	16.64%	12/23/2015	11,664,000		~~10,228,016~~	10,277,442		~~10,311,372~~	11,664,000		~~2.34~~	%2.83	%
CHG Companies Inc.
Mailsouth, Inc.
Healthcare Services	Second lien (2)	11.25% (Base Rate + 9.50%)	4/7/2017	10,000,000		9,814,942			10,300,000			2.34	%
Media	First lien (3)	6.75% (Base Rate + 4.99%)	12/14/2016	11,940,000			11,779,280			11,581,800			2.81	%
Vertafore, Inc.
Vision Solutions, Inc.
Software	Second lien (2)	9.7550% (Base Rate + 8.2500%)	107/2923/2017	1012,000,000		~~9,906,642~~	11,889,250		~~10,200,000~~	11,580,000		~~2.31~~	%2.81	%
Porex Corporation
TravelCLICK, Inc. (fka TravelCLICK Acquisition Co.)
Specialty Chemicals and Materials	First lien (3)	7.14% (Base Rate + 4.73%)	3/31/2015	10,000,000		9,850,430			9,900,000			2.25	%
Information Services	First lien (3)	6.50% (Base Rate + 5.00%)	3/16/2016	11,430,031			11,225,450			11,087,130			2.69	%
Merge Healthcare Inc.
Merrill Communications LLC
Healthcare Services	First lien (2)	11.75%	5/1/2015	9,000,000		8,861,269			9,675,000			2.20	%
Business Services	First lien (2)	7.50% (Base Rate + 5.50%)	12/22/2012	11,421,788			10,026,422			11,062,002			2.69	%
Sunquest Information Systems, Inc. (Misys Hospital Systems, Inc.)
CHG Companies, Inc.
Healthcare Services	Second lien (2)	911.7525% (Base Rate + 89.50%)	64/167/2017	910,000,000		~~8,829,941~~	9,820,654		~~9,270,000~~	9,975,000		~~2.10~~	%2.42	%
Mach Gen, LLC
Porex Corporation
Power Generation	Second lien (2)	7.76% (Base Rate + 7.50%)	2/22/2015	11,599,718		9,258,823			8,970,268			2.04	%
Specialty Chemicals and Materials	First lien (3)	6.76% (Base Rate + 5.24%)	3/31/2015	10,000,000			9,860,319			9,850,000			2.39	%
Research Pharmaceutical Services, Inc.
Immucor, Inc.
Healthcare Services	First lien (3)	67.7525% (Base Rate + 5.2575%)	28/1819/~~2017~~2018	75,~~500~~000,000		~~7,392,660~~	4,803,215		~~7,462,500~~	4,943,750		~~1.69~~	%
Surgery Center Holdings, Inc.
	Subordinated (2)	11.13%	8/15/2019	5,000,000			4,936,289			4,887,500
Healthcare Services	First lien (3)	6.50% (Base Rate + 5.00%)	2/6/2017	6,982,500		6,948,517			7,021,777			1.59	%
				10,000,000			9,739,504			9,831,250			2.39	%
Stratus Technologies, Inc.
Information Technology	First lien (2)	12.00%	3/29/2015	6,827,000		6,459,103			6,741,663			1.53	%
Alion Science and Technology Corporation
Federal Services	First lien (2)	12.00%	11/1/2014	6,133,884		5,502,207			6,312,789			1.43	%

The accompanying notes are an integral part of these consolidated financial statements.

A-8

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (continued)

~~June~~September 30, 2011

(unaudited)

				Principal
				Amount,								~~Percent of~~	Percent of
Portfolio Company,				Par Value					~~Fair~~	Fair		~~Members’~~	Members’
Location and Industry	Type of Investment	Interest Rate	Maturity Date	or Shares		~~Cost~~	Cost		~~Value~~	Value		~~Capital~~	Capital
Ozburn-Hessey Holding Company LLC
Airvana Network Solutions Inc.
Logistics	Second lien (2)	10.50% (Base Rate + 8.50%)	10/8/2016	6,000,000		$	5,880,252		$	6,045,000		1.37	%
Software	First lien (2)	10.00% (Base Rate + 8.00%)	3/25/2015	$	9,676,190		$	9,506,763		$	9,760,857		2.37	%
Bartlett Holdings, Inc.
Vertafore, Inc.
Industrial Services	First lien (3)	6.75% (Base Rate + 5.00%)	11/23/2016	5,970,000		5,915,090			5,999,850			1.36	%
Software	Second lien (2)	9.75% (Base Rate + 8.25%)	10/29/2017	10,000,000			9,909,344			9,641,670			2.34	%
Datatel, Inc.
Merge Healthcare Inc.
Software	Second lien (2)	8.75% (Base Rate + 7.25%)	2/19/2018	5,000,000		4,975,867			5,100,000			1.16	%
Healthcare Services	First lien (2)	11.75%	5/1/2015	9,000,000			8,870,249			9,180,000			2.23	%
Asurion, LLC (fka Asurion Corporation)
Sunquest Information Systems, Inc. (Misys Hospital Systems, Inc.)
Business Services	Second lien (2)	9.00% (Base Rate + 7.50%)	5/24/2019	5,000,000		4,975,262			5,032,030			1.14	%
Healthcare Services	Second lien (2)	9.75% (Base Rate + 8.50%)	6/16/2017	9,000,000			8,835,218			8,955,000			2.17	%
ATI Acquisition Company (fka Ability Acquisition, Inc.)
Mach Gen, LLC
Education	First lien (2)	8.25% (Base Rate + 6.00%)	12/30/2014	4,432,500		4,298,200			4,144,388			0.94	%
Power Generation	Second lien (2)	7.83% (Base Rate + 7.50%)	2/22/2015	11,829,753			9,608,302			7,869,832			1.91	%
LVI Services, Inc.
Research Pharmaceutical Services, Inc.
Industrial Services	First lien (2)	9.25% (Base Rate + 7.50%)	3/31/2014	5,141,609		4,745,421			4,113,287			0.93	%
Healthcare Services	First lien (3)	6.75% (Base Rate + 5.24%)	2/18/2017	7,453,125				7,350,346			7,192,266		1.75	%
Physiotherapy Associates, Inc. / Benchmark Medical, Inc.
Surgery Center Holdings, Inc.
Healthcare Facilities	First lien (2)	7.50% (Base Rate + 4.25%)	6/28/2013	3,803,980		3,174,013			3,784,960			0.86	%
Healthcare Services	First lien (3)	6.50% (Base Rate + 5.00%)	2/6/2017	6,965,000			6,932,609			6,581,925			1.60	%
Brickman Group Holdings, Inc.
Stratus Technologies, Inc.
Business Services	First lien (3)	7.25% (Base Rate + 5.50%)	10/14/2016	2,985,000		3,017,796			3,029,309			0.69	%
Information Technology	First lien (2)	12.00%	3/29/2015	6,827,000			6,474,599			6,007,760			1.46	%
Source Media Inc./Accuity Inc.
Alion Science and Technology Corporation
Business Services	First lien (3)	6.50% (Base Rate + 5.00%)	1/24/2017	1,972,414		1,954,023			1,987,204			0.45	%
Federal Services	First lien (2)	12.00%	11/1/2014	6,133,884			5,526,935			5,377,372			1.31	%
Education Management LLC
Ozburn-Hessey Holding Company LLC
Education	First lien (1), (2) - Drawn	—	6/1/2012	535,593		318,678			504,796
Logistics	Second lien (2)	10.50% (Base Rate + 8.50%)	10/8/2016	6,000,000			5,887,996			5,280,000			1.28	%
	First lien (1), (2) - Undrawn	—	6/1/2012	2,464,407		(998,085		)	(141,703		)
Datatel, Inc.
				3,000,000		(679,407		)	363,093			0.08	%
Software	Second lien (2)	8.75% (Base Rate + 7.25%)	2/19/2018	5,000,000			4,976,545			5,025,000			1.22	%
Kronos Incorporated
Asurion, LLC (fka Asurion Corporation)
Software	First lien (1), (2) - Undrawn	—	6/11/2013	4,198,500		(629,775		)	(225,669		)	-0.05	%
Business Services	Second lien (2)	9.00% (Base Rate + 7.50%)	5/24/2019	5,000,000			4,976,041			4,798,440			1.16	%
RGIS Services, LLC
Physiotherapy Associates, Inc. / Benchmark Medical, Inc.
Business Services	First lien (1), (2) - Undrawn	—	4/30/2013	5,000,000		(2,850,000		)	(256,350		)	-0.06	%
Healthcare Facilities	First lien (2)	7.50% (Base Rate + 4.25%)	6/28/2013	3,792,954			3,232,454			3,755,024			0.91	%
Advantage Sales & Marketing Inc.
LVI Services Inc.
Business Services	First lien (1), (2) - Undrawn	—	12/17/2015	10,500,000		(1,260,000		)	(1,155,000		)	-0.26	%
Industrial Services	First lien (2)	9.25% (Base Rate + 7.50%)	3/31/2014	5,130,971			4,995,403			3,732,782			0.91	%
Total United States				574,841,368		523,482,753			543,860,033			123.44	%
Brickman Group Holdings, Inc.
Total investments						$	524,049,396		$	544,336,397		123.55	%
Business Services	First lien (3)	7.25% (Base Rate + 5.50%)	10/14/2016	2,977,500			3,008,919			2,947,725			0.72	%
Cash Equivalents
ATI Acquisition Company (fka Ability Acquisition, Inc.)
U.S. Treasury Bill, 0.00%, 7/20/2011
Education	First lien (2)	8.25% (Base Rate + 6.00%)	12/30/2014	4,432,500			4,306,438			1,440,563			0.35	%
Government	Cash equivalent	0.00%	7/20/2011	60,000,000		60,000,067			59,999,970			13.62	%
Education Management LLC
Total investments and cash equivalents						$	584,049,463		$	604,336,367		137.17	%
Education	First lien (1), (2) - Undrawn	—	6/1/2012	3,000,000			(1,215,000		)	(291,810		)	(0.07)	%

(1)	Par Value amounts represent the drawn or undrawn (as indicated in type of investment) portion of revolving credit facilities. Cost amounts represent the cash received at settlement date net the impact of paydowns and cash paid for drawn revolvers.
(2)	The Holdings Credit Facility is collateralized by the indicated investments.
(3)	The SLF Credit Facility is collateralized by the indicated investments.

The accompanying notes are an integral part of these consolidated financial statements.

A-9

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (continued)

~~December~~September 3130, ~~2010~~2011

				Principal
				Amount,					Percent of
Portfolio Company,				Par Value			Fair		Members’
Location and Industry	Type of Investment	Interest Rate	Maturity Date	or Shares	Cost		Value		Capital
United States
Stratus Technologies, Inc.
Information Technology	Ordinary shares	—	—	103,050	$	47,063	$	45,149
	Preferred shares	—	—	23,450	10,710		10,274
					57,773		55,423		0.02	%
Total shares					57,773		55,423		0.02	%
United States
Alion Science and Technology Corporation
Federal Services	Warrants (3)	—	—	6,000	292,851		283,698		0.12	%
Learning Care Group (US), Inc.
Education	Warrants	—	—	845	193,850		193,742		0.08	%
Total warrants					486,701		477,440		0.20	%
Canada
Trident Exploration Corp. (2)
Energy	First lien (3)	12.50% (Base Rate + 9.50%)	6/30/2014	4,477,500	4,357,151		4,746,150		1.96	%
Total Canada				4,477,500	4,357,151		4,746,150		1.96	%
United States
Managed Health Care Associates, Inc.
Healthcare Services	First lien (3)	3.52% (Base Rate + 3.25%)	8/1/2014	22,467,673	17,462,237		20,557,920
	Second lien (3)	6.77% (Base Rate + 6.50%)	2/1/2015	15,000,000	11,227,497		13,200,001
				37,467,673	28,689,734		33,757,921		13.96	%
Attachmate Corporation, NetIQ Corporation
Software	Second lien (3)	7.04% (Base Rate + 6.75%)	10/13/2013	22,500,000	17,121,571		22,275,000		9.21	%
Learning Care Group (US), Inc.
Education	First lien (3)	12.00%	4/27/2016	17,368,422	17,057,656		17,192,834
	Subordinated	15.00%	6/30/2016	2,832,237	2,610,113		2,630,413
				20,200,659	19,667,769		19,823,247		8.19	%
Decision Resources, LLC
Business Services	First lien (4)	7.75% (Base Rate + 4.50%)	12/28/2016	18,000,000	17,730,000		17,820,001		7.37	%
KeyPoint Government Solutions, Inc
Federal Services	First lien (3)	10.00% (Base Rate + 8.00%)	12/31/2015	18,000,000	17,640,000		17,730,000		7.33	%
Smile Brands Group, Inc.
Healthcare Services	First lien (4)	7.50% (Base Rate + 4.25%)	12/21/2017	17,500,000	17,237,500		17,390,625		7.19	%
Volume Services America, Inc. (Centerplate)
Consumer Services	First lien (3)	10.50% (Base Rate + 8.50%)	9/16/2016	14,962,500	14,527,858		15,056,016		6.22	%
MLM Holdings, Inc.
Software	First lien (4)	7.00% (Base Rate + 5.25%)	12/1/2016	14,962,500	14,739,863		14,775,469		6.11	%
LANDesk Software, Inc.
Software	First lien (4)	7.00% (Base Rate + 5.25%)	3/28/2016	15,000,000	14,701,917		14,718,750		6.08	%
SonicWALL, Inc.
Software	First lien (4)	8.26% (Base Rate + 6.19%)	1/23/2016	4,485,887	4,507,797		4,519,531
	Second lien (3)	12.00% (Base Rate + 10.00%)	1/23/2017	10,000,000	9,712,391		10,050,000
				14,485,887	14,220,188		14,569,531		6.02	%

(unaudited)

				Principal
				Amount,								Percent of
Portfolio Company,				Par Value					Fair			Members’
Location and Industry	Type of Investment	Interest Rate	Maturity Date	or Shares		Cost			Value			Capital

Kronos Incorporated
Software	First lien (1), (2) - Undrawn	—	6/11/2013	$	4,198,500	$	(629,775	)	$	(356,873	)	(0.09	)%

RGIS Services, LLC
Business Services	First lien (1), (2) - Undrawn	—	4/30/2013	5,000,000		(2,850,000		)	(431,350		)	(0.10	)%

Advantage Sales & Marketing Inc.
Business Services	First lien (1), (2) - Undrawn	—	12/17/2015	10,500,000		(1,260,000		)	(1,155,000		)	(0.28	)%

Total United States				$	657,979,941	$	606,138,106		$	603,932,682		146.61	%

Total investments						$	606,704,749		$	604,334,414		146.71	%

(1)	Par Value amounts represent the drawn or undrawn (as indicated in type of investment) portion of revolving credit facilities. Cost amounts represent the cash received at settlement date net the impact of paydowns and cash paid for drawn revolvers.

(2)	The Holdings Credit Facility is collateralized by the indicated investments.

(3)	The SLF Credit Facility is collateralized by the indicated investments.

The accompanying notes are an integral part of these consolidated financial statements.

A-10

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments ~~(continued)~~

December 31, 2010

				Principal
				Amount,								~~Percent of~~	Percent of
Portfolio Company,				Par Value					~~Fair~~	Fair		~~Members’~~	Members’
Location and Industry	Type of Investment	Interest Rate	Maturity Date	or Shares		~~Cost~~	Cost		~~Value~~	Value		~~Capital~~	Capital
Virtual Radiologic Corporation
United States
Healthcare Information Technology	First lien (4)	7.75% (Base Rate + 4.50%)	12/22/2016	14,000,000		$	13,790,000		$	13,965,000		5.77	%
Stratus Technologies, Inc.
Asurion, LLC
Information Technology	Ordinary shares	—	—	103,050			$	47,063		$	45,149
Business Services	First lien (4)	6.75% (Base Rate + 5.25%)	3/31/2015	13,000,000		12,494,497			13,052,234			5.40	%
	Preferred shares	—	—	23,450			10,710			10,274
Aspen Dental Management, Inc.
							57,773			55,423			0.02	%
Healthcare Services	First lien (4)	7.72% (Base Rate + 6.00%)	10/6/2016	12,967,500		12,713,475			13,016,128			5.38	%
Total shares							57,773			55,423			0.02	%
Firefox Merger Sub, LLC (fka Fibertech Networks, LLC)
United States
Telecommunication	First lien (4)	6.75% (Base Rate + 5.00%)	11/30/2016	12,000,000		11,821,633			12,240,000			5.06	%
Alion Science and Technology Corporation
Airvana Network Solutions Inc.
Federal Services	Warrants (3)	—	—	6,000			292,851			283,698			0.12	%
Software	First lien (3)	11.00% (Base Rate + 9.00%)	8/27/2014	11,833,333		11,611,357			11,890,039			4.91	%
Learning Care Group (US), Inc.
Mailsouth, Inc.
Education	Warrants	—	—	845			193,850			193,742			0.08	%
Media	First lien (4)	7.00% (Base Rate + 3.75%)	12/14/2016	12,000,000		11,820,000			11,880,000			4.91	%
Total warrants							486,701			477,440			0.20	%
Merge Healthcare Inc.
Canada
Healthcare Services	First lien (3)	11.75%	5/1/2015	11,000,000		10,808,642			11,770,000			4.87	%
Trident Exploration Corp. (2)
Merrill Communications LLC
Energy	First lien (3)	12.50% (Base Rate + 9.50%)	6/30/2014	$	4,477,500		4,357,151			4,746,150			1.96	%
Business Services	First lien (3)	8.50% (Base Rate + 6.50%)	12/22/2012	11,421,788		9,332,773			11,393,234			4.71	%
Total Canada				4,477,500			4,357,151			4,746,150			1.96	%
PODS Holding Funding Corp.
United States
Consumer Services	Subordinated	16.64%	12/23/2015	11,664,000		10,137,299			10,117,351			4.18	%
Managed Health Care Associates, Inc.
Vertafore, Inc
Healthcare Services	First lien (3)	3.52% (Base Rate + 3.25%)	8/1/2014	22,467,673			17,462,237			20,557,920
Software	Second lien (3)	9.75% (Base Rate + 8.25%)	10/29/2017	10,000,000		9,901,457			10,106,250			4.18	%
	Second lien (3)	6.77% (Base Rate + 6.50%)	2/1/2015	15,000,000			11,227,497			13,200,001
CHG Companies, Inc.
				37,467,673			28,689,734			33,757,921			13.96	%
Healthcare Services	Second lien (3)	11.25% (Base Rate + 9.50%)	4/7/2017	10,000,000		9,804,011			9,900,000			4.09	%
Attachmate Corporation, NetIQ Corporation
First Data Corporation
Software	Second lien (3)	7.04% (Base Rate + 6.75%)	10/13/2013	22,500,000			17,121,571			22,275,000			9.21	%
Business Services	First lien (3)	3.01% (Base Rate + 2.75%)	9/24/2014	10,646,143		7,932,011			9,842,273			4.07	%
Learning Care Group (US), Inc.
Focus Brands, Inc.
Education	First lien (3)	12.00%	4/27/2016	17,368,422			17,057,656			17,192,834
Franchises	First lien (4)	7.25% (Base Rate + 5.50%)	11/5/2016	9,181,818		9,091,224			9,285,114			3.84	%
	Subordinated	15.00%	6/30/2016	2,832,237			2,610,113			2,630,413
Sunquest Information Systems, Inc.
				20,200,659			19,667,769			19,823,247			8.19	%
Healthcare Services	Second lien	9.75% (Base Rate + 8.50%)	6/16/2017	9,000,000		8,820,000			9,000,000			3.72	%
Decision Resources, LLC
Mach Gen, LLC
Business Services	First lien (4)	7.75% (Base Rate + 4.50%)	12/28/2016	18,000,000			17,730,000			17,820,001			7.37	%
Power Generation	Second lien	7.79% (Base Rate + 7.50%)	2/22/2015	11,145,736		8,580,242			7,803,431			3.23	%
KeyPoint Government Solutions, Inc.
SSI Investments II Limited
Federal Services	First lien (3)	10.00% (Base Rate + 8.00%)	12/31/2015	18,000,000			17,640,000			17,730,000			7.33	%
Education	Subordinated (3)	11.13%	6/1/2018	7,000,000		7,064,923			7,630,000			3.15	%
Smile Brands Group, Inc.
Hyland Software, Inc.
Healthcare Services	First lien (4)	7.50% (Base Rate + 4.25%)	12/21/2017	17,500,000			17,237,500			17,390,625			7.19	%
Software	First lien (4)	6.75% (Base Rate + 5.00%)	12/19/2016	7,500,000		7,425,000			7,528,125			3.11	%
Volume Services America, Inc. (Centerplate)
Wyle Services Corporation
Consumer Services	First lien (3)	10.50% (Base Rate + 8.50%)	9/16/2016	14,962,500			14,527,858			15,056,016			6.22	%
Federal Services	First lien (4)	7.75% (Base Rate + 5.75%)	3/25/2016	7,481,234		7,508,583			7,509,290			3.10	%
MLM Holdings, Inc.
RGIS Services, LLC
Software	First lien (4)	7.00% (Base Rate + 5.25%)	12/1/2016	14,962,500			14,739,863			14,775,469			6.11	%
Business Services	First lien (3)	2.80% (Base Rate + 2.50%)	4/30/2014	7,394,480		5,807,941			6,913,839
LANDesk Software, Inc.
	First lien (1)	—	4/30/2013	5,000,000		(2,850,000		)	(406,350		)
Software	First lien (4)	7.00% (Base Rate + 5.25%)	3/28/2016	15,000,000			14,701,917			14,718,750			6.08	%
				12,394,480		2,957,941			6,507,489			2.69	%
SonicWALL, Inc.
Alion Science and Technology Corporation
Software	First lien (4)	8.26% (Base Rate + 6.19%)	1/23/2016	4,485,887			4,507,797			4,519,531
Federal Services	First lien (3)	12.00%	11/1/2014	6,073,149		5,392,607			6,273,057			2.59	%
	Second lien (3)	12.00% (Base Rate + 10.00%)	1/23/2017	10,000,000			9,712,391			10,050,000
Kronos Incorporated
				14,485,887			14,220,188			14,569,531			6.02	%
Software	First lien (1)	—	6/11/2013	4,198,500		(629,775		)	(346,376		)
	Second lien (3)	6.05% (Base Rate + 5.75%)	6/11/2015	6,700,000		5,041,455			6,563,206
				10,898,500		4,411,680			6,216,830			2.57	%

The accompanying notes are an integral part of these consolidated financial statements.

A-11

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (continued)

December 31, 2010

				Principal
				Amount,								~~Percent of~~	Percent of
Portfolio Company,				Par Value					~~Fair~~	Fair		~~Members’~~	Members’
Location and Industry	Type of Investment	Interest Rate	Maturity Date	or Shares		~~Cost~~	Cost		~~Value~~	Value		~~Capital~~	Capital
Bartlett Holdings, Inc.
Virtual Radiologic Corporation
Industrial Services	First lien (4)	6.75% (Base Rate + 5.00%)	11/23/2016	6,000,000		$	5,940,644		$	6,037,500		2.50	%
Healthcare Information Technology	First lien (4)	7.75% (Base Rate + 4.50%)	12/22/2016	$	14,000,000		$	13,790,000		$	13,965,000		5.77	%
Ozburn-Hessey Holding Company LLC
Asurion, LLC
Logistics	Second lien	10.50% (Base Rate + 8.50%)	10/8/2016	6,000,000		5,874,951			5,985,000			2.47	%
Business Services	First lien (4)	6.75% (Base Rate + 5.25%)	3/31/2015	13,000,000			12,494,497			13,052,234			5.40	%
Vision Solutions, Inc.
Aspen Dental Management, Inc.
Software	First lien (4)	7.75% (Base Rate + 6.00%)	7/23/2016	5,775,000		5,662,174			5,753,344			2.38	%
Healthcare Services	First lien (4)	7.72% (Base Rate + 6.00%)	10/6/2016	12,967,500			12,713,475			13,016,128			5.38	%
LVI Services, Inc
Firefox Merger Sub, LLC (fka Fibertech Networks, LLC)
Industrial Services	First lien (3)	9.25% (Base Rate + 7.50%)	3/31/2014	5,162,883		4,304,472			4,388,450			1.81	%
Telecommunication	First lien (4)	6.75% (Base Rate + 5.00%)	11/30/2016	12,000,000			11,821,633			12,240,000			5.06	%
Stratus Technologies, Inc.
Airvana Network Solutions Inc.
Information Technology	First lien	12.00%	3/29/2015	5,000,000		4,796,989			4,225,000			1.75	%
Software	First lien (3)	11.00% (Base Rate + 9.00%)	8/27/2014	11,833,333			11,611,357			11,890,039			4.91	%
ATI Acquisition Company
Mailsouth, Inc.
Education	First lien (3)	8.25% (Base Rate + 5.99%)	12/30/2014	4,455,000		4,304,106			4,076,325			1.68	%
Media	First lien (4)	7.00% (Base Rate + 3.75%)	12/14/2016	12,000,000			11,820,000			11,880,000			4.91	%
Physiotherapy Associates, Inc. / Benchmark Medical, Inc.
Merge Healthcare Inc.
Healthcare Facilities	First lien (3)	7.50% (Base Rate + 4.25%)	6/28/2013	3,823,549		3,063,441			3,594,136			1.49	%
Healthcare Services	First lien (3)	11.75%	5/1/2015	11,000,000			10,808,642			11,770,000			4.87	%
Brickman Group Holdings, Inc.
Merrill Communications LLC
Business Services	First lien (43)	78.2550% (Base Rate + 56.50%)	1012/1422/~~2016~~2012	311,~~000~~421,~~000~~788		~~3,035,496~~	9,332,773		~~3,042,501~~	11,393,234		~~1.26~~	%4.71	%
Datatel, Inc
PODS Holding Funding Corp.
Software	Second lien (3)	10.25% (Base Rate + 8.25%)	12/9/2016	2,000,000		1,964,077			2,042,500			0.84	%
Consumer Services	Subordinated	16.64%	12/23/2015	11,664,000			10,137,299			10,117,351			4.18	%
Applied Systems, Inc.
Vertafore, Inc.
Software	Second lien (3)	9.2575% (Base Rate + 78.7525%)	610/829/2017	210,000,000		~~1,980,093~~	9,901,457		~~2,009,166~~	10,106,250		~~0.83~~	%4.18	%
Education Management LLC
CHG Companies, Inc.
Education	First lien (1)	—	6/1/2012	3,000,000		(1,215,000		)	(217,500		)	-0.09	%
Healthcare Services	Second lien (3)	11.25% (Base Rate + 9.50%)	4/7/2017	10,000,000			9,804,011			9,900,000			4.09	%
Total United States				460,503,332		409,407,198			435,778,827			180.13	%
First Data Corporation
Total debt investments				464,980,832		413,764,349			440,524,977			182.09	%
Business Services	First lien (3)	3.01% (Base Rate + 2.75%)	9/24/2014	10,646,143			7,932,011			9,842,273			4.07	%
Total investments						$	414,308,823		$	441,057,840		182.31	%
Focus Brands, Inc.
Franchises	First lien (4)	7.25% (Base Rate + 5.50%)	11/5/2016	9,181,818			9,091,224			9,285,114			3.84	%
Sunquest Information Systems, Inc.
Healthcare Services	Second lien	9.75% (Base Rate + 8.50%)	6/16/2017	9,000,000			8,820,000			9,000,000			3.72	%
Mach Gen, LLC
Power Generation	Second lien	7.79% (Base Rate + 7.50%)	2/22/2015	11,145,736			8,580,242			7,803,431			3.23	%
SSI Investments II Limited
Education	Subordinated (3)	11.13%	6/1/2018	7,000,000			7,064,923			7,630,000			3.15	%
Hyland Software, Inc.
Software	First lien (4)	6.75% (Base Rate + 5.00%)	12/19/2016	7,500,000			7,425,000			7,528,125			3.11	%
Wyle Services Corporation
Federal Services	First lien (4)	7.75% (Base Rate + 5.75%)	3/25/2016	7,481,234			7,508,583			7,509,290			3.10	%
RGIS Services, LLC
Business Services	First lien (3)	2.80% (Base Rate + 2.50%)	4/30/2014	7,394,480			5,807,941			6,913,839
	First lien (1)	—	4/30/2013	5,000,000			(2,850,000		)	(406,350		)
				12,394,480			2,957,941			6,507,489			2.69	%
Alion Science and Technology Corporation
Federal Services	First lien (3)	12.00%	11/1/2014	6,073,149			5,392,607			6,273,057			2.59	%
Kronos Incorporated
Software	First lien (1)	—	6/11/2013	4,198,500			(629,775		)	(346,376		)
	Second lien (3)	6.05% (Base Rate + 5.75%)	6/11/2015	6,700,000			5,041,455			6,563,206
				10,898,500			4,411,680			6,216,830			2.57	%

(1)	Par Value amounts represent the undrawn portion of revolving credit facilities. Cost amounts represent the cash received at settlement date increased for paydowns at par minus the purchase price.
(2)	The company is headquartered in Canada. The debt is issued in USD.
(3)	The Holdings credit facility (formerly known as the Debt Funding credit facility) is collateralized by the indicated investments.
(4)	The SLF credit facility is collateralized by the indicated investments.

The accompanying notes are an integral part of these consolidated financial statements.

A-12

Table of Contents

New Mountain Finance Holdings, L.L.C.

Consolidated Schedule of Investments (continued)

December 31, 2010

				Principal
				Amount,								Percent of
Portfolio Company,				Par Value					Fair			Members’
Location and Industry	Type of Investment	Interest Rate	Maturity Date	or Shares		Cost			Value			Capital

Bartlett Holdings, Inc.
Industrial Services	First lien (4)	6.75% (Base Rate + 5.00%)	11/23/2016	$	6,000,000	$	5,940,644		$	6,037,500		2.50	%

Ozburn-Hessey Holding Company LLC
Logistics	Second lien	10.50% (Base Rate + 8.50%)	10/8/2016	6,000,000		5,874,951			5,985,000			2.47	%

Vision Solutions, Inc.
Software	First lien (4)	7.75% (Base Rate + 6.00%)	7/23/2016	5,775,000		5,662,174			5,753,344			2.38	%

LVI Services Inc
Industrial Services	First lien (3)	9.25% (Base Rate + 7.50%)	3/31/2014	5,162,883		4,304,472			4,388,450			1.81	%

Stratus Technologies, Inc.
Information Technology	First lien	12.00%	3/29/2015	5,000,000		4,796,989			4,225,000			1.75	%

ATI Acquisition Company
Education	First lien (3)	8.25% (Base Rate + 5.99%)	12/30/2014	4,455,000		4,304,106			4,076,325			1.68	%

Physiotherapy Associates, Inc. / Benchmark Medical, Inc.
Healthcare Facilities	First lien (3)	7.50% (Base Rate + 4.25%)	6/28/2013	3,823,549		3,063,441			3,594,136			1.49	%

Brickman Group Holdings, Inc.
Business Services	First lien (4)	7.25% (Base Rate + 5.50%)	10/14/2016	3,000,000		3,035,496			3,042,501			1.26	%

Datatel, Inc.
Software	Second lien (3)	10.25% (Base Rate + 8.25%)	12/9/2016	2,000,000		1,964,077			2,042,500			0.84	%

Applied Systems, Inc.
Software	Second lien	9.25% (Base Rate + 7.75%)	6/8/2017	2,000,000		1,980,093			2,009,166			0.83	%

Education Management LLC
Education	First lien (1)	—	6/1/2012	3,000,000		(1,215,000		)	(217,500		)	-0.09	%

Total United States				$	460,503,332	$	409,407,198		$	435,778,827		180.13	%

Total debt investments				$	464,980,832	$	413,764,349		$	440,524,977		182.09	%

Total investments						$	414,308,823		$	441,057,840		182.31	%

(1)	Par Value amounts represent the undrawn portion of revolving credit facilities. Cost amounts represent the cash received at settlement date increased for paydowns at par minus the purchase price.

(2)	The company is headquartered in Canada. The debt is issued in United States dollars.

(3)	The Holdings credit facility (formerly known as the Debt Funding Credit Facility) is collateralized by the indicated investments.

(4)	The SLF credit facility is collateralized by the indicated investments.

The accompanying notes are an integral part of these consolidated financial statements.

A-13

Table of Contents

New Mountain Finance Holdings, L.L.C.

Notes to the Consolidated Financial Statements

~~June~~ September 30, 2011

(unaudited)

1. Formation and Business Purpose

New Mountain Finance Holdings, L.L.C. (“NMF Holdings”, the “Company”, “we”, “us”, or “our”) is a Delaware limited liability company. NMF Holdings is externally managed and has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). As such, the Company is obligated to comply with certain regulatory requirements. NMF Holdings intends to be treated as a partnership for federal income tax purposes for so long as it has at least two members.

NMF Holdings is externally managed by New Mountain Finance Advisers BDC, L.L.C. (the “Investment Adviser”). New Mountain Finance Administration, L.L.C. (the “Administrator”) provides the administrative services necessary for operations. The Investment Adviser and Administrator are wholly-owned subsidiaries of New Mountain Capital (defined as New Mountain Capital Group, L.L.C. and its affiliates). New Mountain Capital is a firm with a track record of investing in the middle market and with assets under management (which includes amounts committed, not all of which have been drawn down and invested to date) totaling ~~more~~approximately ~~than~~ $9.0 billion as of ~~June~~ September 30, 2011. New Mountain Capital focuses on investing in defensive growth companies across its private equity, public equity, and credit investment vehicles. NMF Holdings, formerly known as New Mountain Guardian (Leveraged), L.L.C., was originally formed as a subsidiary of New Mountain Guardian AIV, L.P. (“Guardian AIV”) by New Mountain Capital in October 2008. Guardian AIV was formed through an allocation of approximately $300.0 million of the $5.1 billion of commitments supporting New Mountain Partners III, L.P., a private equity fund managed by New Mountain Capital. In February 2009, New Mountain Capital formed a co-investment vehicle, New Mountain Guardian Partners, L.P., comprising $20.4 million of commitments. New Mountain Guardian (Leveraged), L.L.C. and New Mountain Guardian Partners, L.P., together with their respective direct and indirect wholly-owned subsidiaries, are defined as the “Predecessor Entities.”.

On May 19, 2011, New Mountain Finance priced its initial public offering (the “IPO”) of 7,272,727 shares of common stock at a public offering price of $13.75 per share. Concurrently with the closing of the ~~offering~~IPO and at the public offering price of $13.75 per share, New Mountain Finance sold an additional 2,172,000 shares of its common stock to certain executives and employees of, and other individuals affiliated with, New Mountain Capital in a separate private placement.

New Mountain Finance is a holding company with no direct operations of its own, and its sole asset is its ownership in NMF Holdings. New Mountain Finance entered into a joinder agreement with respect to the ~~amended~~Limited ~~and~~Liability ~~restated~~Company ~~limited~~Agreement, ~~liability~~as ~~company~~amended ~~agreement~~and restated, of NMF Holdings, pursuant to which New Mountain Finance was admitted as a member of NMF Holdings and acquired from NMF Holdings, with the gross proceeds of the IPO and the concurrent private placement, common membership units (“units”) of NMF Holdings (the number of units are equal to the number of shares of New Mountain Finance’s common stock sold in the IPO and the concurrent private placement). In connection with New Mountain Finance’s IPO and through a series of transactions, the Company owns all of the operations of the Predecessor Entities, including all of the assets and liabilities related to such operations.

Guardian AIV was the parent of the Company prior to the IPO and, as a result of the ~~offering~~transactions completed in connection with the IPO, obtained units in NMF Holdings. Guardian AIV contributed its units in NMF Holdings to its newly formed subsidiary, New Mountain Finance AIV Holdings Corporation (“AIV Holdings”), in exchange for common stock of AIV Holdings. AIV Holdings has the right to exchange all or any portion of its units in NMF Holdings for shares of New Mountain Finance’s common stock on a one-for-one basis. As of ~~June~~ September 30, 2011, New Mountain Finance and AIV Holdings own approximately 34.6% and 65.4%, respectively, of the units of NMF Holdings.

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The diagram below depicts our current organizational structure.

The Company’s investment objective is to generate current income and capital appreciation through the sourcing and origination of debt securities at all levels of the capital structure, including first and second lien debt, notes, bonds and mezzanine securities. In some cases, our investments may also include equity interests. The primary focus is in the debt of defensive growth companies, which are defined as generally exhibiting the following characteristics: (i) sustainable secular growth drivers, (ii) high barriers to competitive entry, (iii) high free cash flow after capital expenditure and working capital needs, (iv) high returns on assets and (v) opportunities for niche market dominance.

2. Summary of Significant Accounting Policies

Basis of accounting — The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company consolidates its wholly-owned subsidiary, New Mountain Finance SPV Funding, L.L.C. (“NMF SLF”). The consolidated financial statements reflect all adjustments and reclassifications which, in the opinion of management, are necessary for the fair presentation of the results of operations and financial condition for all periods presented. All intercompany transactions have been eliminated. Revenues are recognized when earned and expenses when incurred.

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Investments — NMF Holdings applies fair value accounting in accordance with GAAP. Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Investments are reflected on the Consolidated Statements of Assets, Liabilities and Members’ Capital at fair value, with changes in unrealized gains and losses resulting from changes in fair value reflected in the Consolidated Statements of Operations as “Net change in unrealized appreciation (depreciation) of investments” and realizations on portfolio investments reflected in the Consolidated Statements of Operations as “Realized gains (losses) on investments.”.

~~The~~NMF ~~Company~~Holdings values its assets on a quarterly basis, or more frequently if required under the 1940 Act. In all cases, the Company’s Board of Directors is ultimately and solely responsible for determining the fair value of the Company’s portfolio investments on a quarterly basis in good faith, including investments that are not publicly traded, those whose market prices are not readily available and any other situation where the Company’s portfolio investments require a fair value determination. Security transactions are accounted for on a trade date basis. The Company’s quarterly valuation procedures are set forth in more detail below:

(1) Investments for which market quotations are readily available on an exchange are valued at such market quotations based on the closing price indicated from Bloomberg;.

(2) Investments for which indicative prices are obtained from various pricing services and/or brokers or dealers are valued through a multi-step valuation process, as described below, to determine whether the quote(s) obtained is representative of fair value in accordance with GAAP.

a. Bond quotes are obtained through Interactive Data Corporation. Analytics are performed by the investment professionals of the Company’s Investment Adviser to ensure that the quote obtained is representative of fair value in accordance with GAAP and if so, the quote is used. If the Investment Adviser is unable to sufficiently validate the quote(s) internally and if the investment’s par value exceeds the materiality threshold, the investment is valued similarly to those assets with no readily available quotes (see (3) below); and

b. For investments other than bonds, wethe ~~look~~Company looks at the number of quotes readily available and ~~perform~~performs the following:

i. Investments for which more than two quotes are received from a pricing service are valued using the mean of the mean of the bid and ask of the quotes obtained;

ii. Investments for which one or two quotes are received from a pricing service are validated internally. The investment professionals of the Investment Adviser analyze the market quotes obtained using an array of valuation methods (further described below) to validate the fair value. If the Investment Adviser is unable to sufficiently validate the quote(s) internally and if the investment’s par value exceeds the materiality threshold, the investment is valued similarly to those assets with no readily available quotes (see (3) below).

(3) Investments for which quotations are not readily available through exchanges, pricing services, brokers, or dealers are valued ~~in good faith by the board of directors~~ through a multi-step valuation process:

a. Each portfolio company or investment is initially valued by the investment professionals of the Investment Adviser responsible for the credit monitoring;

b. Preliminary valuation conclusions will then be documented and discussed with the Company’s senior management;

c. If an investment falls into (3) above for four consecutive quarters, then at least once each fiscal year, the valuation for each portfolio investment for which the Company does not have a readily available market quotation will be reviewed by an independent valuation firm engaged by our board of directors.; and

d. Also, when deemed appropriate by the Company’s ~~senior~~ management, an independent valuation firm may be engaged to review and value investment(s) in a portfolio company, without any preliminary valuation being performed by the Investment Adviser. The investment professionals of the Investment Adviser will review and validate the value provided.

Valuation methods may include comparisons of financial ratios of the portfolio companies that issued such private securities to peer companies that are public, the nature of and the realizable value of any collateral, the portfolio company’s earnings, discounted cash flows, ~~and~~the ability to make payments, the markets in which the portfolio company conducts business, and other relevant factors, including available market data such as relevant and applicable market trading and transaction comparables; applicable market yields and multiples; security covenants; call protection provisions; information rights; comparable merger and acquisition transactions; and the principal market and enterprise values. When an external event such as a purchase transaction, public offering or subsequent sale occurs, the Company will consider the pricing indicated by the external event to corroborate the private valuation.

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The values assigned to investments are based upon available information and do not necessarily represent amounts which might ultimately be realized, since such amounts depend on future circumstances and cannot be reasonably determined until the individual positions are liquidated. 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 NMF Holdings’ investments may fluctuate from period to period.

See Note 3, Investments, for further discussion relating to investments.

Cash and cash equivalents — Cash and cash equivalents include cash and short-term, highly liquid investments. The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near maturity that there is insignificant risk of changes in value. Generally, these securities have original maturities of three months or less.

Revenue recognition — The Company’s revenue recognition policies are as follows:

Sales and paydowns of investments: Realized gains and losses on investments are determined on the specific identification method.

Interest income: Interest income, including amortization of premium and discount using the effective interest method, is recorded on the accrual basis and periodically assessed for collectability. Interest income also includes interest earned from cash on hand. Upon the prepayment of a loan or debt security, any prepayment penalties are recorded as part of interest income. The Company has loans in the portfolio that contain a payment-in-kind (“PIK”) provision. PIK represents interest that is accrued and recorded as interest income at the contractual rates, added to the loan principal on the respective capitalization dates, and generally due at maturity.

Non-~~Accrual~~accrual ~~Income~~income: Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment of the ultimate outcome. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current.

Other income: Other income represents delayed compensation and miscellaneous fees received. Delayed compensation is income earned from counterparties on trades that do not settle within a set number of business days after trade date.

Interest and other credit facility expenses — Interest and other credit facility fees are recorded on an accrual basis. See Note 7, Borrowing Facilities, for details.

Deferred credit facility costs — Deferred credit facility costs consist of expenses related to the origination of the existing credit facilities. These expenses are amortized using the straight-line method over the stated life of the related credit facility. See Note 7, Borrowing Facilities, for details.

Income taxes — NMF Holdings intends to be treated as a partnership for federal income tax purposes. Accordingly, no provision for income taxes has been made in the accompanying financial statements, as the partners are individually responsible for reporting income or loss based on their respective share of the revenues or expenses. NMF Holdings files United States (“U.S.”) federal, state, and local income tax returns.

NMF Holdings has adopted the Income Taxes topic of the Codification (“ASC 740”). ASC 740 provides guidance for how uncertain income tax positions should be recognized, measured, and disclosed in the financial statements. Based on its analysis, NMF Holdings has determined that the adoption of ASC 740 did not have a material impact to the Company’s financial statements.

Dividends — Distributions to common unit holders are recorded on the record date as set by the Company’s board of directors. The Company and New Mountain Finance are required to take certain actions in order to maintain, at all times, a one-to-one ratio between the number of units held by New Mountain Finance and the number of shares of New Mountain Finance’s common stock outstanding. In addition, in order for New Mountain Finance to pay a dividend or other distribution to holders of its common stock, it must be accompanied by a prior distribution by NMF Holdings to all of its ~~members~~unit holders. NMF Holdings intends to make distributions to its ~~members~~unit holders that will be sufficient to enable New Mountain Finance to pay quarterly distributions to its stockholders and to obtain and maintain its status as a RIC. New Mountain Finance intends to distribute approximately all of its portion of the Company’s adjusted net investment income (see Note 5, Agreements) on a quarterly basis and substantially all of its portion of the Company’s taxable income on an annual basis, except that it may retain certain net capital gains for reinvestment.

New Mountain Finance has adopted a dividend reinvestment plan that provides on behalf of its stockholders for reinvestment of any distributions declared, unless a stockholder elects to receive cash. Cash distributions reinvested in additional shares of New Mountain Finance’s common stock will be automatically reinvested by New Mountain Finance in NMF Holdings. New Mountain Finance will use only newly issued shares to implement the plan if the price at which newlyA-~~issued shares are to be~~17

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credited is equal to or greater than 110% of the last determined net asset value of the shares. Under such circumstances, the number of shares to be issued to a stockholder is determined by dividing the total dollar amount of the distribution payable to such stockholder by the market price per share of New Mountain Finance’s ~~common~~has ~~stock~~adopted ata ~~the~~dividend ~~close~~reinvestment ofplan ~~regular trading on the New York Stock Exchange (“NYSE”) on the distribution payment date. Market price per share on~~ that ~~date~~provides ~~will be the closing price for such shares~~ on ~~the~~behalf ~~NYSE~~of ~~or,~~its ifstockholders ~~no sale is reported~~ for ~~such~~reinvestment ~~day, the average~~ of ~~their~~any ~~electronically~~distributions ~~reported~~declared, ~~bid~~unless ~~and~~a ~~asked~~stockholder ~~prices.~~elects ~~If New Mountain Finance uses newly issued shares~~ to ~~implement the plan, New Mountain Finance will~~ receive, ~~on a one-for-one basis, additional units of NMF Holdings in exchange for~~ cash. Cash distributions ~~that are~~ reinvested in additional shares of New Mountain Finance’s common stock ~~under the dividend reinvestment plan. If New Mountain Finance’s common stock price is less than 110% of the last determined net asset value of the shares, New Mountain Finance~~ will ~~either~~be ~~issue~~automatically ~~new~~reinvested ~~shares or instruct the plan administrator to purchase shares in the open market to satisfy the additional shares required. Shares purchased in open market transactions~~ by the plan administrator will be allocated to a stockholder based on the average purchase price, excluding any brokerage charges or other charges, of all shares of common stock purchased in the open market. The number of shares of New Mountain Finance’s ~~common~~into ~~stock to be outstanding after giving effect to payment of the distribution cannot be established until the value per share at which~~ additional ~~shares~~units ~~will be issued has been determined and elections~~ of ~~New~~NMF ~~Mountain Finance’s stockholders have been tabulated~~Holdings.

~~Foreign~~New ~~securities~~Mountain —Finance ~~The~~applies ~~accounting~~the ~~records~~following ofin implementing the ~~Company~~dividend ~~are~~reinvestment ~~maintained in U~~plan.~~S. dollars.~~ ~~Investment~~If ~~securities~~the ~~denominated~~price inat ~~foreign~~which ~~currencies~~newly issued shares are ~~translated~~to ~~into~~be ~~U.S.~~credited ~~dollars~~to ~~based~~stockholders’ onaccounts ~~the~~is ~~rate~~greater ofthan ~~exchange~~110.0% of ~~such~~the ~~currencies~~last ondetermined ~~the~~net ~~date~~asset value of ~~valuation~~the shares, New Mountain Finance will use only newly issued shares to implement its dividend reinvestment plan. ~~Purchases~~Under ~~and~~such ~~sales~~circumstances, the number of ~~investment~~shares ~~securities~~to ~~and~~be ~~income~~issued ~~and~~to ~~expense~~a ~~items~~stockholder ~~denominated~~is indetermined ~~foreign~~by ~~currencies~~dividing ~~are~~the ~~translated~~total ~~into~~dollar ~~U.S.~~amount ~~dollars~~of ~~based~~the ondistribution payable to such stockholder by the ~~rate~~market ofprice ~~exchange~~per share of ~~such~~New ~~currencies~~Mountain Finance’s common stock on the ~~respective~~New ~~dates~~York ofStock Exchange (“NYSE”) on the ~~transactions~~distribution payment date. ~~The~~Market ~~Company~~price ~~does~~per ~~not~~share ~~isolate~~on that ~~portion~~date ofwill be the ~~results~~closing ofprice ~~operations~~for ~~resulting~~such ~~from~~shares ~~changes~~on inthe ~~foreign~~NYSE ~~exchange~~or, ~~rates~~if onno ~~investments~~sale ~~from~~is ~~the~~reported ~~fluctuations~~for ~~arising~~such ~~from~~day, ~~changes~~the inaverage ~~market~~of ~~prices~~their ofelectronically ~~securities~~reported ~~held~~bid and asked prices. ~~Such~~If ~~fluctuations~~New ~~are~~Mountain ~~included~~Finance ~~with~~uses ~~“Net~~newly ~~change~~issued inshares ~~unrealized~~to ~~appreciation~~implement ~~(depreciation)~~the ofplan, ~~investments”~~New ~~and~~Mountain ~~“Realized~~Finance ~~gains~~will ~~(losses)~~receive, on ~~investments”~~a one-for-one basis, additional units of NMF Holdings in ~~the~~exchange ~~Consolidated~~for ~~Statements~~cash distributions that are reinvested in shares of ~~Operations~~New Mountain Finance’s common stock under the dividend reinvestment plan.

~~Investments~~If ~~denominated~~the inprice ~~foreign~~at ~~currencies~~which ~~may~~newly issued shares are to be ~~negatively~~credited ~~affected~~to bystockholders’ ~~movements~~accounts inis less than 110.0% of the ~~rate~~last determined net asset value of ~~exchange~~the ~~between~~shares, New Mountain Finance will either issue new shares or instruct the ~~United~~plan ~~States~~administrator ~~dollar~~to ~~and~~purchase ~~such~~shares ~~foreign~~in ~~currencies~~the open market to satisfy the additional shares required. ~~This~~Shares ~~movement~~purchased isin ~~beyond~~open market transactions by the ~~control~~plan administrator will be allocated to a stockholder based on the average purchase price, excluding any brokerage charges or other charges, of all shares of common stock purchased in the ~~Company~~open ~~and~~market. The number of shares of New Mountain Finance’s common stock to be outstanding after giving effect to payment of the distribution cannot be ~~predicted~~established until the value per share at which additional shares will be issued has been determined and elections of New Mountain Finance’s stockholders have been tabulated.

Foreign securities — The accounting records of the Company are maintained in U.S. dollars. Investment securities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies on the respective dates of the transactions. The Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with “Net change in unrealized (depreciation) appreciation of investments” and “Realized gains on investments” in the Consolidated Statements of Operations.

Investments denominated in foreign currencies may be negatively affected by movements in the rate of exchange between the U.S. dollar and such foreign currencies. This movement is beyond the control of the Company and cannot be predicted.

Use of estimates — The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Changes in the economic environment, financial markets, and other metrics used in determining these estimates could cause actual results to differ from the estimates used, and the differences could be material.

3. Investments

At ~~June~~ September 30, 2011 investments consisted of the following:

Investment Cost and Fair Value by Type

	Cost		Fair Value
First lien	$	~~356~~383,~~267~~534,~~780~~562	$	~~370~~383,~~988~~082,~~382~~855
Second lien	~~150~~194,~~459~~779,~~391~~866		~~155~~192,~~954~~152,~~793~~442
Subordinated	1627,~~755~~823,~~582~~678		1628,~~916~~697,~~858~~385
Equity and other	566,643		~~476~~401,~~364~~732
Total investments	$	~~524~~606,~~049~~704,~~396~~749	$	~~544~~604,~~336~~334,~~397~~414

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Investment Cost and Fair Value by Industry

	Cost		Fair Value
Business Services	$	6765,~~004~~228,~~362~~242	$	7169,~~916~~161,~~909~~042
Consumer Services	24,~~747~~774,~~034~~731		2526,~~273~~421,~~310~~262
Education	2352,~~740~~596,~~915~~680		2449,~~886~~696,~~331~~262
Federal Services	5469,~~916~~228,~~492~~312		5668,~~237~~113,~~074~~611
Healthcare Facilities	3,~~174~~232,~~013~~454		3,~~784~~755,~~960~~024
Healthcare Information Technology	14,~~726~~696,~~220~~646		14,~~778~~145,~~219~~488
Healthcare Services	108,336,083		116,593,778
Healthcare Products	24,008,514		24,000,000
Industrial Services	25,376,829		25,488,137
Healthcare Services	112,871,994		116,339,433
Information Services	16,147,823		16,304,449
Industrial Services	19,726,618		17,457,782
Information Technology	6,539,045		6,810,804
Information Services	29,566,124		28,805,880
Logistics	5,880,252		6,045,000
Information Technology	6,554,541		6,062,801
Media	11,802,468		11,955,038
Logistics	5,887,996		5,280,000
Power Generation	9,258,823		8,970,268
Media	11,779,280		11,581,800
Software	130,773,539		133,340,182
Power Generation	9,608,302		7,869,832
Specialty Chemicals and Materials	9,850,430		9,900,000
Software	135,332,093		134,062,847
Telecommunication	11,775,068		12,051,938
Specialty Chemicals and Materials	9,860,319		9,850,000
Total investments	$	524,049,396	$	544,336,397
Telecommunication	11,751,903		11,731,350
Total investments	$	606,704,749	$	604,334,414

At December 31, 2010 investments consisted of the following:

Investment Cost and Fair Value by Type

	Cost		Fair Value
First lien	$	303,924,269	$	321,212,659
Second lien	90,027,745		98,934,554
Subordinated	19,812,335		20,377,764
Equity and other	544,474		532,863
Total investments	$	414,308,823	$	441,057,840

Investment Cost and Fair Value by Industry

	Cost		Fair Value
Business Services	$	53,482,718	$	61,657,732
Consumer Services	24,665,157		25,173,367
Education	30,015,648		31,505,814
Energy	4,357,151		4,746,150
Federal Services	30,834,041		31,796,045
Franchises	9,091,224		9,285,114
Healthcare Facilities	3,063,441		3,594,136
Healthcare Information Technology	13,790,000		13,965,000
Healthcare Services	88,073,362		94,834,674
Industrial Services	10,245,116		10,425,950
Information Technology	4,854,762		4,280,423
Logistics	5,874,951		5,985,000
Media	11,820,000		11,880,000
Power Generation	8,580,242		7,803,431
Software	103,739,377		111,885,004
Telecommunication	11,821,633		12,240,000
Total investments	$	414,308,823	$	441,057,840

As of ~~June~~ September 30, 2011 and December 31, 2010, there were no assets being accounted for on a non-accrual basis.

As of ~~June~~ September 30, 2011 and December 31, 2010, the Company had unfunded commitments on revolving credit facilities of $22,~~162~~698,~~907~~500 and $12,198,500, respectively, which are disclosed on the Consolidated Schedules of Investments.

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4. Fair Value

Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting Standards Codification 820, Fair Value ~~Measurement~~Measurements and ~~Disclosure,~~Disclosures (“ASC 820”), establishes a fair value hierarchy that prioritizes and ranks the inputs to valuation techniques used in measuring investments at fair value. ~~This hierarchy consists of three levels.~~ The hierarchy classifies the inputs used in measuring fair value into three levels as follows:

Level I — Quoted prices (unadjusted) are available in active markets for identical investments ~~that~~and the Company has the ability to access such quotes as of the reporting date. The type of investments which would generally be included in Level I include active exchange-traded equity securities and exchange-traded derivatives. As required by ASC 820, the Company, to the extent that ~~they~~it ~~hold~~holds such investments, does not adjust the quoted price for these investments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.

Level II — Pricing inputs are observable for the investments, either directly or indirectly, as of the reporting date, but are not the same as those used in Level I. Level II inputs include the following:

a) Quoted prices for similar assets or liabilities in active markets; b) Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently); c) Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including foreign exchange forward contracts); and d) Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

~~b) Quoted~~Level ~~prices~~III ~~for~~— ~~identical~~Pricing orinputs ~~similar~~are ~~assets~~unobservable orfor ~~liabilities~~the ininvestment ~~non-active~~and ~~markets~~include ~~(examples~~situations ~~include~~where ~~corporate~~there ~~and~~is ~~municipal~~little, ~~bonds~~if any, ~~which~~market ~~trade~~activity ~~infrequently);~~for the investment.

~~c) Pricing~~The ~~models~~inputs ~~whose~~used to measure fair value may fall into different levels. In all instances when the inputs ~~are~~fall ~~observable~~within ~~for~~different ~~substantially~~levels of the ~~full~~hierarchy, ~~term~~the level within which the fair value measurement is categorized is based on the lowest level of input that is significant to the ~~asset~~fair orvalue ~~liability~~measurement ~~(examples~~in its entirety. As such, a Level III fair value measurement may include ~~most~~inputs ~~over-~~that are both observable (Levels I and II) and unobservable (Level III). Gains and losses for such assets categorized within the~~-counter~~ ~~derivatives,~~Level ~~including~~III ~~foreign~~table ~~exchange~~below ~~forward~~may ~~contracts~~include changes in fair value that are attributable to both observable inputs (Levels II and III); and unobservable inputs (Level III).

~~d) Pricing~~The ~~models~~inputs ~~whose~~into ~~inputs~~the ~~are~~determination ~~derived~~of ~~principally~~fair ~~from~~value require significant judgment or ~~corroborated~~estimation by ~~observable~~management ~~market~~and ~~data~~consider ~~through~~factors ~~correlation~~specific orto ~~other~~each ~~means~~investment. A ~~for~~review ~~substantially~~of the ~~full~~fair ~~term~~value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in the ~~asset~~reclassification orof ~~liability~~certain investments within the fair value hierarchy from period to period. Reclassifications impacting Level III of the fair value hierarchy are reported as transfers in/out of the Level III category as of the beginning of the quarter in which the reclassifications occur.

~~Level~~The ~~III~~following —table ~~Pricing~~summarizes ~~inputs~~the ~~are~~levels ~~unobservable~~in ~~for~~ the ~~investment~~fair ~~and~~value ~~include~~hierarchy ~~situations~~that ~~where~~the ~~there~~Company’s isportfolio ~~little,~~investments iffall ~~any, market activity for the investment. The inputs~~ into ~~the~~as ~~determination~~ of ~~fair~~September 30, ~~value require significant judgment or estimation by management.~~2011:

The inputs used to measure fair value may fall into different levels. When the inputs fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level III fair value measurement may include inputs that are observable (Levels I and II) and unobservable (Level III). Therefore, gains and losses for such assets categorized within the Level III table below may include changes in fair value that are attributable to both observable inputs (Levels II and III) and unobservable inputs (Level III).

	Total		Level I	Level II		Level III
First lien	$	383,082,855	—	$	368,607,654	$	14,475,201
Second lien	192,152,442		—	168,152,442		24,000,000
Subordinated	28,697,385		—	14,285,000		14,412,385
Equity and other	401,732		—	—		401,732
Total investments	$	604,334,414	—	$	551,045,096	$	53,289,318

A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in the reclassification of certain investments within the fair value hierarchy. Reclassifications impacting Level III of the fair value hierarchy are reported as transfers in/out of the Level III category as of the beginning of the quarter in which the reclassifications occur.

The following table summarizes the levels in the fair value hierarchy that the Company’s portfolio investments fall into as of June 30, 2011:

	Total		Level I	Level II		Level III
First lien	$	370,988,382	—	$	340,193,887	$	30,794,495
Second lien	155,954,793		—	155,954,793		—
Subordinated	16,916,858		—	3,685,720		13,231,138
Equity and other	476,364		—	—		476,364
Total investments	$	544,336,397	—	$	499,834,400	$	44,501,997

The following table summarizes the levels in the fair value hierarchy that the Company’s portfolio investments fall into as of December 31, 2010:

	Total		Level I	Level II		Level III
First lien	$	321,212,659	—	$	304,237,325	$	16,975,334
Second lien	98,934,554		—	98,934,554		—
Subordinated	20,377,764		—	7,630,000		12,747,764
Equity and other	532,863		—	—		532,863
Total investments	$	441,057,840	—	$	410,801,879	$	30,255,961

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Table of Contents

The following table summarizes the changes in fair value of Level III portfolio investments for the three months ended June 30, 2011, as well as the portion of appreciation (depreciation) included in income attributable to unrealized appreciation (depreciation) related to those assets and liabilities still held at June 30, 2011:

									Equity and
	Total			First Lien			Subordinated		other
Fair value, March 31, 2011	$	29,440,577		$	15,944,572		$	13,010,878	$	485,127
Total gains or losses included in earnings:
Net change in unrealized appreciation (depreciation)	34,078			34,999			7,842		(8,763		)
Purchases, including capitalized PIK and revolver fundings	15,448,011			15,235,593			212,418		—
Transfers into Level III (1)	(420,669		)	(420,669		)	—		—
Fair value, June 30, 2011	$	44,501,997		$	30,794,495		$	13,231,138	$	476,364
Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Company at the end of the period:	$	34,078		$	34,999		$	7,842	$	(8,763	)

(1) Portfolio investments are transferred into Level III at fair value as of the beginning of the period and are transferred in accordance with the Company’s valuation policy.

The following table summarizes the changes in fair value of Level III portfolio investments for the three months ended June 30, 2010, as well as the portion of appreciation (depreciation) included in income attributable to unrealized appreciation (depreciation) related to those assets and liabilities still held at June 30, 2010:

								Equity and
	Total		First Lien		Subordinated			other
Fair value, March 31, 2010	$	—	$	—	$	—		$	—
Total gains or losses included in earnings:
Net change in unrealized appreciation (depreciation)	85,609		73,768		(16,706		)	28,547
Purchases, including capitalized PIK	19,903,731		17,028,010		2,389,020			486,701
Fair value, June 30, 2010	$	19,989,340	$	17,101,778	$	2,372,314		$	515,248
Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Company at the end of the period:	$	85,609	$	73,768	$	(16,706	)	$	28,547

The following table summarizes the changes in fair value of Level III portfolio investments for the six months ended June 30, 2011, as well as the portion of appreciation (depreciation) included in income attributable to unrealized appreciation (depreciation) related to those assets and liabilities still held at June 30, 2011:

									Equity and
	Total			First Lien			Subordinated		other
Fair value, December 31, 2010	$	30,255,961		$	16,975,334		$	12,747,764	$	532,863
Total gains or losses included in earnings:
Net change in unrealized appreciation (depreciation)	788,581			596,294			270,956		(78,669		)
Purchases, including capitalized PIK and revolver fundings	14,210,181			13,975,593			212,418		22,170
Transfers into Level III (1)	(752,726		)	(752,726		)	—		—
Fair value, June 30, 2011	$	44,501,997		$	30,794,495		$	13,231,138	$	476,364
Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Company at the end of the period:	$	788,581		$	596,294		$	270,956	$	(78,669	)

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Table of Contents

~~(1) Portfolio~~The ~~investments~~following ~~are~~table ~~transferred~~summarizes ~~into~~the changes in fair value of Level III atportfolio ~~fair~~investments ~~value~~for the three months ended September 30, 2011, as ofwell as the ~~beginning~~portion of ~~the~~appreciation ~~period~~(depreciation) ~~and~~included ~~are~~in ~~transferred~~income inattributable ~~accordance~~to ~~with~~unrealized ~~the~~appreciation ~~Company’s~~(depreciation) ~~valuation~~related ~~policy.~~to those assets and liabilities still held at September 30, 2011:

The following table summarizes the changes in fair value of Level III portfolio investments for the six months ended June 30, 2010, as well as the portion of appreciation (depreciation) included in income attributable to unrealized appreciation (depreciation) related to those assets and liabilities still held at June 30, 2010:

											Equity and
	Total			First Lien			Second Lien		Subordinated		other
Fair value, June 30, 2011	$	44,501,997		$	30,794,495		$	—	$	13,231,138	$	476,364
Total gains or losses included in earnings:
Net change in unrealized appreciation (depreciation)	22,914			(1,083,701		)	—		1,181,247		(74,632		)
Purchases, including capitalized PIK and revolver fundings	24,000,000			—			24,000,000		—		—
Proceeds from sales and paydowns of investments	(535,593		)	(535,593		)	—		—		—
Transfer out of Level III (1)	(14,700,000		)	(14,700,000		)	—		—		—
Fair value, September 30, 2011	$	53,289,318		$	14,475,201		$	24,000,000	$	14,412,385	$	401,732
Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Company at the end of the period:	$	22,914		$	(1,083,701	)	$	—	$	1,181,247	$	(74,632	)

								Equity and
	Total		First Lien		Subordinated			other
Fair value, December 31, 2009	$	—	$	—	$	—		$	—
Total gains or losses included in earnings:
Net change in unrealized appreciation (depreciation)	85,609		73,768		(16,706		)	28,547
Purchases, including capitalized PIK	19,903,731		17,028,010		2,389,020			486,701
Fair value, June 30, 2010	$	19,989,340	$	17,101,778	$	2,372,314		$	515,248
Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Company at the end of the period:	$	85,609	$	73,768	$	(16,706	)	$	28,547

(1) Portfolio investments are transferred into and out of Level III at fair value as of the beginning of the quarter in which the reclassifications occur.

~~Except~~The asfollowing ~~noted~~table insummarizes the ~~tables~~changes ~~above,~~in ~~there~~fair ~~were~~value noof ~~other~~Level ~~transfers~~III inportfolio orinvestments ~~out~~for ofthe ~~Level~~three Imonths ended September 30, II2010, oras ~~III~~well ~~during~~as the ~~six~~portion ~~months~~of ~~ended~~appreciation ~~June~~(depreciation) ~~30,~~included ~~2011~~in income attributable to unrealized appreciation (depreciation) related to those assets and ~~the~~liabilities ~~year~~still ~~ended~~held ~~December~~at 31September 30, 2010.:

Fair value risk factors — The Company seeks investment opportunities that offer the possibility of attaining substantial capital appreciation. Certain events particular to each industry in which the Company’s investments conduct their operations, as well as general economic and political conditions, may have a significant negative impact on the operations and profitability of the Company’s investments and/or on the fair value of the Company’s investments. Also, there may be risk associated with the concentration of investments in one geographic region or in certain industries. These events are beyond the control of the Company and cannot be predicted. Furthermore, the ability to liquidate investments and realize value is subject to uncertainties.

								Equity and
	Total		First Lien		Subordinated			other
Fair value, June 30, 2010	$	19,989,340	$	17,101,778	$	2,372,314		$	515,248
Total gains or losses included in earnings:
Net change in unrealized appreciation (depreciation)	65,120		88,327		(28,773		)	5,566
Purchases, including capitalized PIK	8,518,811		16,079		8,444,959			57,773
Fair value, September 30, 2010	$	28,573,271	$	17,206,184	$	10,788,500		$	578,587
Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Company at the end of the period:	$	65,120	$	88,327	$	(28,773	)	$	5,566

5. Agreements

NMF Holdings entered into an Investment Management Agreement with New Mountain Finance Advisers BDC, L.L.C. Under the Investment Management Agreement, the Investment Adviser manages the day-to-day operations of, and provides investment advisory services to, NMF Holdings. For providing these services, the Investment Adviser receives a fee from NMF Holdings, consisting of two components — a base management fee and an incentive fee.

The base management fee is calculated at an annual rate of 1.75% of the Company’s gross assets less (i) the borrowings under the SLF Credit Facility (See Note 7, Borrowing Facilities) and (ii) cash and cash equivalents. The base management fee is payable quarterly in arrears, and is calculated based on the average value of the Operating Company’s gross assets, borrowings under the SLF Credit Facility, and cash and cash equivalents at the end of each of the two most recently completed calendar quarters, and appropriately adjusted on a pro rata basis for any equity capital raises or repurchases during the current calendar quarter.

The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears and equals 20% of the Company’s ‘‘Pre-incentive Fee Adjusted Net Investment Income’’ for the immediately preceding quarter, subject to a “preferred return”, or ‘‘hurdle’’, and a ‘‘catch-up’’ feature. ‘‘Pre-Incentive Fee Net Investment Income’’ means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement with the Administrator, and any interest expense and distributions paid on any issued and outstanding preferred membership units, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

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Table of Contents

~~Under~~The ~~GAAP,~~following ~~New~~table ~~Mountain~~summarizes ~~Finance’s IPO did not step-up cost basis of~~ the ~~Company’s~~changes existing investments to fair market value at the IPO date. Since the total value of the Company’s investments at the time of the IPO was greater than the investments’ cost basis, a larger amount of amortization of purchase or original issue discount, and differences in realized gain and unrealized appreciation, may be recognized under GAAP in each period than if the step-up had occurred. This will remain until such investments are sold or mature in the future. The Company tracks the transferred (or fair ~~market)~~ value of ~~each~~Level ofIII ~~its~~portfolio investments asfor of the ~~time~~nine ofmonths ~~the~~ended ~~IPO and~~September 30, ~~for purposes of the incentive fee calculation~~2011, ~~adjusts~~as ~~Pre-Incentive~~well ~~Fee Net Investment Income to reflect the amortization of purchase or original issue discount on our investments~~ as ~~if each investment was purchased at~~ the ~~date~~portion of ~~IPO,~~appreciation ~~or stepped up to fair market value. This is defined as ‘‘Pre-incentive Fee Adjusted Net Investment Income.’’ The Company also uses the transferred~~ (~~or fair market~~depreciation) ~~value~~included ofin ~~each~~income ofattributable ~~its investments as of the time of the IPO~~ to ~~adjust capital gains or losses and~~ unrealized ~~capital~~appreciation (depreciation~~. This~~) isrelated ~~defined~~to asthose ~~“Adjusted~~assets ~~Realized~~and ~~Capital~~liabilities ~~Gains”,~~still ~~“Adjusted~~held ~~Realized~~at ~~Capital Losses”~~September 30, ~~and “Adjusted Unrealized Capital Depreciation”.~~2011:

Pre-Incentive Fee Adjusted Net Investment Income, expressed as a rate of return on the value of the Operating Company’s net assets at the end of the immediately preceding calendar quarter, will be compared to a ‘‘hurdle rate’’ of 2% per quarter or appropriately pro-rated for any partial quarter (8% annualized), subject to a ‘‘catch-up’’ provision measured as of the end of each calendar quarter. The calculation of the Company’s incentive fee with respect to the Pre-Incentive Fee Adjusted Net Investment Income for each quarter is as follows:

											Equity and
	Total			First Lien			Second Lien		Subordinated		other
Fair value, December 31, 2010	$	30,255,961		$	16,975,334		$	—	$	12,747,764	$	532,863
Total gains or losses included in earnings:
Net change in unrealized appreciation (depreciation)	811,495			(487,407		)	—		1,452,203		(153,301		)
Purchases, including capitalized PIK and revolver fundings	38,210,181			13,975,593			24,000,000		212,418		22,170
Proceeds from sales and paydowns of investments	(535,593		)	(535,593		)	—		—		—
Transfers into Level III (1)	(752,726		)	(752,726		)	—		—		—
Transfers out of Level III (1)	(14,700,000		)	(14,700,000		)	—		—		—
Fair value, September 30, 2011	$	53,289,318		$	14,475,201		$	24,000,000	$	14,412,385	$	401,732
Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Company at the end of the period:	$	811,495		$	(487,407	)	$	—	$	1,452,203	$	(153,301	)

~~· No~~(1) Portfolio ~~incentive~~investments ~~fee~~are istransferred ~~payable~~into toand ~~the~~out ~~Investment~~of ~~Adviser~~Level inIII ~~any~~at ~~calendar~~fair ~~quarter~~value inas ~~which~~of the ~~Company’s~~beginning ~~Pre-Incentive~~of ~~Fee Adjusted Net Investment Income does not exceed~~ the ~~hurdle~~quarter ~~rate~~in ofwhich ~~2% (~~the ~~‘‘preferred~~reclassifications ~~return’’ or ‘‘hurdle’’)~~occur.

~~· 100%~~The offollowing ~~the~~table ~~Company’s~~summarizes ~~Pre-Incentive~~the ~~Fee~~changes ~~Adjusted~~in ~~Net~~fair ~~Investment~~value ~~Income~~of ~~with~~Level ~~respect~~III toportfolio ~~that~~investments ~~portion~~for ofthe ~~such~~nine ~~Pre-Incentive~~months ~~Fee~~ended ~~Adjusted Net Investment Income~~September 30, ~~if any~~2010, ~~that~~as ~~exceeds~~well ~~the~~as ~~hurdle rate but is less than or equal to 2.5% in any calendar quarter (10% annualized) is payable to~~ the ~~Investment Adviser. This~~ portion of ~~the~~appreciation ~~Company’s Pre-Incentive Fee Adjusted Net Investment Income~~ (~~which~~depreciation) ~~exceeds~~included ~~the~~in ~~hurdle~~income ~~rate~~attributable ~~but~~to isunrealized ~~less~~appreciation ~~than or equal to 2.5%~~(depreciation) isrelated ~~referred~~ to asthose ~~the~~assets ~~‘‘catch-up’’.~~and ~~The~~liabilities ~~catch-up~~still ~~provision~~held isat ~~intended~~September 30, to provide the Investment Adviser with an incentive fee of 20% on all of the Company’s Pre-Incentive Fee Adjusted Net Investment Income as if a hurdle rate did not apply when the Company’s Pre-Incentive Fee Adjusted Net Investment Income exceeds 2.5% in any calendar quarter.2010:

· 20% of the amount of the Company’s Pre-Incentive Fee Adjusted Net Investment Income, if any, that exceeds 2.5% in any calendar quarter (10% annualized) is payable to the Investment Adviser once the hurdle is reached and the catch-up is achieved, (20% of all Pre-Incentive Fee Adjusted Net Investment Income thereafter is allocated to the Investment Adviser).

								Equity and
	Total		First Lien		Subordinated			other
Fair value, December 31, 2009	$	—	$	—	$	—		$	—
Total gains or losses included in earnings:
Net change in unrealized appreciation (depreciation)	150,729		162,095		(45,479		)	34,113
Purchases, including capitalized PIK	28,422,542		17,044,089		10,833,979			544,474
Fair value, September 30, 2010	$	28,573,271	$	17,206,184	$	10,788,500		$	578,587
Unrealized appreciation (depreciation) for the period relating to those Level III assets that were still held by the Company at the end of the period:	$	150,729	$	162,095	$	(45,479	)	$	34,113

~~The~~Except ~~second~~as ~~part~~noted ~~will~~in bethe ~~determined~~tables ~~and~~above, ~~payable~~there were no other transfers in ~~arrears~~or asout of Level I, II, or III during the ~~end~~three ofand ~~each~~nine ~~calendar~~months ~~year~~ended ~~(or~~September 30, ~~upon~~2011 ~~termination~~and ofSeptember 30, ~~the~~2010. Transfers ~~Investment~~into ~~Management~~Level ~~Agreement)~~III ~~and~~occurred ~~will~~as ~~equal~~quotations ~~20%~~obtained through pricing services were not deemed representative of ~~the~~fair ~~Company’s~~value ~~Adjusted~~as ~~Realized~~of ~~Capital~~the ~~Gains,~~balance ifsheet ~~any,~~date onand asuch ~~cumulative~~assets ~~basis~~were ~~from~~internally ~~inception~~valued. As quotations obtained through ~~the~~pricing ~~end~~services ofwere ~~the~~substantiated ~~each~~through ~~calendar~~additional ~~year~~market sources, ~~computed~~investments ~~net~~were transferred out of ~~all~~Level ~~Adjusted~~III. The ~~Realized~~Company ~~Capital~~invests ~~Losses~~in ~~and~~revolving ~~Adjusted~~credit ~~Unrealized~~facilities. These ~~Capital~~investments ~~Depreciation~~are oncategorized aas ~~cumulative~~Level ~~basis,~~III ~~less~~investments ~~the~~as ~~aggregate~~these ~~amount~~assets ofare ~~any~~not ~~previously~~actively ~~paid~~traded ~~capital~~and ~~gain~~their ~~incentive~~fair ~~fee~~values are often implied by the term loans of the respective portfolio companies.

Fair value risk factors — The Company seeks investment opportunities that offer the possibility of attaining substantial capital appreciation. Certain events particular to each industry in which the Company’s portfolio companies conduct their operations, as well as general economic and political conditions, may have a significant negative impact on the operations and profitability of the Company’s investments and/or on the fair value of the Company’s investments. Also, there may be risk associated with the concentration of investments in one geographic region or in certain industries. These events are beyond the control of the Company and cannot be predicted. Furthermore, the ability to liquidate investments and realize value is subject to uncertainties.

5. Agreements

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Table of Contents

~~The~~investment ~~management~~advisory ~~fee~~services ~~and incentive fee were $807~~to,~~509~~ ~~and~~NMF ~~$504,393~~Holdings. For ~~for~~providing ~~the~~these ~~period from May 19~~services, ~~2011 (effective date of~~ the Investment ~~Management~~Adviser ~~Agreement)~~receives toa ~~June~~fee ~~30,~~from ~~2011. The~~NMF ~~Consolidated~~Holdings, ~~Statement~~consisting of ~~Operations~~two ~~below~~components is— ~~adjusted~~a asbase ifmanagement ~~step-up~~fee inand ~~cost~~an ~~basis~~incentive ~~to fair market value had occured at the IPO date~~fee. ~~This statement begins on May 19, 2011, the effective date of the Investment Management Agreement.~~

						Adjusted
	Period from May 19, 2011					Period from May 19, 2011
	to June 30, 2011			Adjustments		to June 30, 2011
Investment income
Interest income	$	7,004,932		(558,689	)	$	6,446,243
Other income	306,144					306,144
Total investment income	7,311,076			(558,689	)	6,752,387
Expenses
Interest and other credit facility expenses	893,380					893,380
Management fee	807,509					807,509
Professional fees	342,535					342,535
Administrative expenses	47,923					47,923
Other general and administrative expenses	136,710					136,710
Total expenses	2,228,057			—		2,228,057
Pre-Incentive Fee Net investment income	5,083,019			(558,689	)	4,524,330
Incentive fee	504,393					504,393
Post-Incentive Fee Net Investment Income	4,578,626			(558,689	)	4,019,937
Realized loss on investments	(402,003		)	215,321		(186,682		)
Net change in unrealized appreciation of investments	1,100,228			343,368		1,443,596
Net increase in capital resulting from operations	$	5,276,851				$	5,276,851

The base management fee is calculated at an annual rate of 1.75% of the Company’s gross assets less (i) the borrowings under the SLF Credit Facility (as defined in Note 7, Borrowing Facilities) and (ii) cash and cash equivalents. The base management fee is payable quarterly in arrears, and is calculated based on the average value of the Company’s gross assets, borrowings under the SLF Credit Facility, and cash and cash equivalents at the end of each of the two most recently completed calendar quarters, and appropriately adjusted on a pro rata basis for any equity capital raises or repurchases during the current calendar quarter.

~~NMF~~The ~~Holdings~~incentive ~~and~~fee ~~New~~consists ~~Mountain~~of ~~Finance~~two ~~have~~parts. The ~~entered~~first ~~into~~part anis ~~Administration~~calculated ~~Agreement~~and ~~with~~payable ~~New~~quarterly ~~Mountain~~in ~~Finance~~arrears ~~Administration,~~and Lequals 20.~~L.C.~~0% ~~under~~of ~~which~~ the ~~Administrator~~Company’s ~~provides~~“Pre-incentive ~~administrative~~Fee ~~services.~~Adjusted ~~The~~Net ~~Administrator~~Investment ~~oversees~~Income” ~~our~~for ~~financial~~the ~~records~~immediately preceding quarter, ~~prepares~~subject ~~reports~~to ~~filed~~a ~~with~~“preferred ~~the~~return”, ~~SEC~~or “hurdle”, ~~generally~~and ~~monitors~~a ~~the~~“catch-up” ~~payment~~feature. “Pre-Incentive ofFee ~~our~~Net ~~expenses~~Investment Income” means interest income, dividend income and ~~watches~~any ~~the~~other ~~performance~~income of(including ~~administrative~~any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and ~~professional~~consulting ~~services~~fees ~~rendered~~or toother fees that the Company byreceives ~~others.~~from ~~NMF~~portfolio ~~Holdings~~companies) ~~will~~accrued ~~reimburse~~during the ~~Administrator~~calendar ~~for~~quarter, ~~New~~minus ~~Mountain~~the ~~Finance~~Company’s ~~and~~operating ~~the~~expenses ~~Company’s~~for ~~allocable~~the ~~portion~~quarter of(including ~~overhead~~the ~~and~~base ~~other~~management fee, expenses ~~incurred~~payable byunder the Administration Agreement, as amended and restated, with the Administrator, inand ~~performing~~any ~~its~~interest ~~obligations~~expense toand ~~New~~distributions ~~Mountain~~paid ~~Finance~~on any issued and ~~the~~outstanding ~~Company~~preferred ~~under~~membership units, but excluding the ~~Administration~~incentive ~~Agreement~~fee). ~~During~~Pre-Incentive ~~the~~Fee ~~first~~Net ~~year~~Investment Income includes, in the case of ~~operations~~investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that the Company has ~~capped~~not ~~its~~yet ~~direct~~received ~~and~~in ~~indirect~~cash. Pre-Incentive ~~expenses~~Fee atNet $3Investment ~~million~~Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

~~The~~Under ~~Company~~GAAP, ~~and~~ New Mountain Finance’s ~~have~~IPO ~~also~~did ~~entered~~not ~~into~~step-up athe ~~license~~cost ~~agreement~~basis ~~with~~of ~~New~~the ~~Mountain~~Company’s ~~Capital,~~existing ~~pursuant~~investments to ~~which~~fair ~~New~~market ~~Mountain~~value ~~Capital~~at ~~has~~the ~~agreed~~IPO todate. Since ~~grant~~the total value of the Company’s ~~and~~investments ~~New~~at ~~Mountain~~the ~~Finance~~time of the IPO was greater than the investments’ cost basis, a ~~non-exclusive~~larger amount of amortization of purchase or original issue discount, ~~royalty-free~~as ~~license~~well toas ~~use~~different amounts in realized gain and unrealized appreciation, may be recognized under GAAP in each period than if the ~~New~~step-up ~~Mountain~~had ~~name~~occurred. This ~~Under~~will ~~this~~remain ~~agreement,~~until ~~subject~~such toinvestments ~~certain~~are ~~conditions,~~sold or mature in the future. The Company ~~and~~tracks ~~New~~the ~~Mountain~~transferred ~~Finance~~(or ~~will~~fair ~~have~~market) avalue ~~right~~of toeach ~~use~~of its investments as of the ~~New~~time ~~Mountain~~of ~~name~~the IPO and, for sopurposes ~~long~~of as the incentive fee calculation, adjusts Pre-Incentive Fee Net Investment ~~Adviser~~Income orto ~~one~~reflect the amortization of ~~its~~purchase ~~affiliates~~or ~~remains~~original ~~the~~issue discount on our investments as if each investment ~~adviser~~was purchased at the date of the ~~Company~~IPO, or stepped up to fair market value. ~~Other~~This ~~than~~is ~~with~~defined ~~respect~~as to“Pre-incentive ~~this~~Fee ~~limited~~Adjusted ~~license,~~Net ~~the~~Investment Income”. The Company ~~and~~also ~~New~~uses ~~Mountain~~the ~~Finance~~transferred ~~will~~(or ~~have~~fair nomarket) ~~legal~~value ~~right~~of toeach of its investments as of the ~~New~~time ~~Mountain~~of ~~name~~the IPO to adjust capital gains or losses and unrealized capital depreciation. This is defined as “Adjusted Realized Capital Gains”, “Adjusted Realized Capital Losses”, and “Adjusted Unrealized Capital Depreciation”.

Pre-Incentive Fee Adjusted Net Investment Income, expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter, will be compared to a “hurdle rate” of 2.0% per quarter (8.0% annualized), subject to a “catch-up” provision measured as of the end of each calendar quarter. The hurdle rate is appropriately pro-rated for any partial periods. The calculation of the Company’s incentive fee with respect to the Pre-Incentive Fee Adjusted Net Investment Income for each quarter is as follows:

· No incentive fee is payable to the Investment Adviser in any calendar quarter in which the Company’s Pre-Incentive Fee Adjusted Net Investment Income does not exceed the hurdle rate of 2.0% (the “preferred return” or “hurdle”).

· 100.0% of the Company’s Pre-Incentive Fee Adjusted Net Investment Income with respect to that portion of such Pre-Incentive Fee Adjusted Net Investment Income, if any, that exceeds the hurdle rate but is less than or equal to 2.5% in any calendar quarter (10.0% annualized) is payable to the Investment Adviser. This portion of the Company’s Pre-Incentive Fee Adjusted Net Investment Income (which exceeds the hurdle rate but is less than or equal to 2.5%) is referred to as the “catch-up”. The catch-up provision is intended to provide the Investment Adviser with an incentive fee of 20.0% on all of the Company’s Pre-Incentive Fee Adjusted Net Investment Income as if a hurdle rate did not apply when the Company’s Pre-Incentive Fee Adjusted Net Investment Income exceeds 2.5% in any calendar quarter.

· 20.0% of the amount of the Company’s Pre-Incentive Fee Adjusted Net Investment Income, if any, that exceeds 2.5% in any calendar quarter (10.0% annualized) is payable to the Investment Adviser once the hurdle is reached and the catch-up is achieved.

The second part will be determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Management Agreement) and will equal 20.0% of the Company’s Adjusted Realized Capital Gains, if any, on a cumulative basis from inception through the end of the each calendar year, computed net of all Adjusted Realized Capital Losses and Adjusted Unrealized Capital Depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fee.

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In accordance with GAAP, NMF Holdings accrues a hypothetical capital gains incentive fee based upon the cumulative net Adjusted Realized Capital Gains and Losses and the cumulative net Adjusted Unrealized Capital Appreciation and Depreciation on investments held at the end of each period. Actual amounts paid to the Investment Adviser are consistent with the Investment Management Agreement and the 1940 Act, and are based on actual Adjusted Realized Capital Gains computed net of all Adjusted Realized Capital Losses and Adjusted Unrealized Capital Depreciation on a cumulative basis. No accrual was required for the three months ended September 30, 2011 and for the period from May 19, 2011 (effective date of the Investment Management Agreement) to September 30, 2011.

The management fee and incentive fee were $1,930,140 and $700,610 for the three months ended September 30, 2011 and $2,737,649 and $1,205,003 for the period from May 19, 2011 (effective date of the Investment Management Agreement) to September 30, 2011. The Consolidated Statement of Operations below is adjusted as if step-up in cost basis to fair market value had occurred at the IPO date. This statement begins on May 19, 2011, the effective date of the Investment Management Agreement.

The following Statement of Operations for the three months ended September 30, 2011 is adjusted to reflect this step-up to fair market value.

							Adjusted
	Three months ended						Three months ended
	to September 30, 2011			Adjustments			to September 30, 2011
Investment income

Interest income	$	14,860,750		$	(1,189,611	)	$	13,671,139
Other income	207,831						207,831
Total investment income	15,068,581			(1,189,611		)	13,878,970

Total expenses pre-incentive fee	4,366,253						4,366,253

Pre-Incentive Fee Net Investment Income	10,702,328			(1,189,611		)	9,512,717

Incentive fee	700,610						700,610

Post-Incentive Fee Net Investment Income	10,001,718			(1,189,611		)	8,812,107

Realized gain on investments	1,402,671			(1,396,525		)	6,146
Net change in unrealized (depreciation) appreciation of investments	(22,657,239		)	2,586,136			(20,071,103		)

Net decrease in capital resulting from operations	$	(11,252,850	)				$	(11,252,850	)

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The following Statement of Operations for the period May 19, 2011 (effective date of the Investment Management Agreement) to September 30, 2011 is adjusted to reflect this step-up to fair market value.

							Adjusted
	Period from May 19, 2011						Period from May 19, 2011
	to September 30, 2011			Adjustments			to September 30, 2011
Investment income

Interest income	$	21,865,682		$	(1,748,300	)	$	20,117,382
Other income	513,975						513,975
Total investment income	22,379,657			(1,748,300		)	20,631,357

Total expenses pre-incentive fee	6,594,310						6,594,310

Pre-Incentive Fee Net Investment Income	15,785,347			(1,748,300		)	14,037,047

Incentive fee	1,205,003						1,205,003

Post-Incentive Fee Net Investment Income	14,580,344			(1,748,300		)	12,832,044

Realized gain (loss) on investments	1,000,668			(1,181,204		)	(180,536		)
Net change in unrealized (depreciation) appreciation of investments	(21,557,011		)	2,929,504			(18,627,507		)

Net decrease in capital resulting from operations	$	(5,975,999	)				$	(5,975,999	)

NMF Holdings, New Mountain Finance, and AIV Holdings have entered into an Administration Agreement, as amended and restated, with New Mountain Finance Administration, L.L.C. (the “Administrator”) under which the Administrator provides administrative services. The Administrator oversees NMF Holdings’, New Mountain Finance’s and AIV Holdings’ financial records, prepares reports filed with the Securities and Exchange Commission, generally monitors the payment of NMF Holdings’, New Mountain Finance’s and AIV Holdings’ expenses, and watches the performance of administrative and professional services rendered by others. NMF Holdings will reimburse the Administrator for NMF Holdings’, New Mountain Finance’s, and AIV Holdings’ allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations to NMF Holdings, New Mountain Finance, and AIV Holdings under the Administration Agreement, as amended and restated. During the first year of operations, the Company has capped its direct and indirect expenses under the Administration Agreement, as amended and restated, at $3.0 million.

Pursuant to the Administration Agreement, as amended and restated, NMF Holdings incurred $1,345,367 in expenses in excess of the expense cap for the nine months ended September 30, 2011, of which $816,530 was receivable from affiliate as of September 30, 2011.

The Company, New Mountain Finance, AIV Holdings, the Investment Adviser and the Administrator have also entered into a Trademark License Agreement, as amended, with New Mountain Capital, L.L.C., pursuant to which New Mountain Capital, L.L.C. has agreed to grant the Company, New Mountain Finance, AIV Holdings, the Investment Adviser and the Administrator, a non-exclusive, royalty-free license to use the New Mountain and the New Mountain Finance names. Under the Trademark License Agreement, as amended, subject to certain conditions, the Company, New Mountain Finance, AIV Holdings, the Investment Adviser and the Administrator will have a right to use the New Mountain and New Mountain Finance names, for so long as the Investment Adviser or one of its affiliates remains the investment adviser of the Company. Other than with respect to this limited license, the Company, New Mountain Finance, AIV Holdings, the Investment Adviser and the Administrator will have no legal right to the New Mountain or the New Mountain Finance names.

6. Related Parties

NMF Holdings has entered into a number of business relationships with affiliated or related parties, including the following:

· NMF Holdings has entered into an Investment Management Agreement with the Investment Adviser, a wholly-owned subsidiary of New Mountain Capital. Therefore, New Mountain Capital is entitled to any profits earned by the Investment Adviser, which includes any fees payable to the Investment Adviser under the terms of the Investment Management Agreement, less expenses incurred by the Investment Adviser in performing its services under the Investment Management Agreement.

~~· NMF Holdings and New Mountain Finance have entered into an Administration Agreement with the Administrator, a wholly~~A-owned subsidiary of New Mountain Capital. The Administrator arranges office space for New Mountain Finance and the Company and provides office equipment and administrative services necessary to conduct their respective day-to-day operations pursuant to the Administration Agreement. NMF Holdings reimburses the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to NMF Holdings and New Mountain Finance under the Administration Agreement, including rent, the fees and expenses associated with performing administrative, finance, and compliance functions, and the compensation of the Company’s chief financial officer and chief compliance officer and their respective staffs. During the first year of operations, the Company has capped its direct and indirect expenses at $3 million.25

~~· Together,~~Table ~~New Mountain Finance and AIV Holdings own all the outstanding units~~ of ~~the Company. As of June 30, 2011, New Mountain Finance and AIV Holdings own approximately 34.6% and 65.4%, respectively, of the units of NMF Holdings.~~Contents

· ~~The~~NMF ~~Company~~Holdings, ~~and~~ New Mountain Finance, and AIV Holdings have entered into aan ~~royalty-free~~Administration ~~license~~Agreement, ~~agreement~~as amended and restated, with the Administrator, a wholly-owned subsidiary of New Mountain Capital,. The ~~pursuant~~Administrator toarranges ~~which~~office space for NMF Holdings, New Mountain ~~Capital~~Finance, ~~has~~and ~~agreed~~AIV Holdings and provides office equipment and administrative services necessary to ~~grant~~conduct their respective day-to-day operations pursuant to the ~~Company~~Administration Agreement, as amended and restated. NMF Holdings reimburses the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations to NMF Holdings, New Mountain Finance, aand ~~non-exclusive~~AIV Holdings under the Administration Agreement, ~~royalty-free~~as ~~license~~amended toand ~~use~~restated, including rent, the ~~name~~fees ~~‘‘New~~and ~~Mountain~~expenses associated with performing administrative, finance and compliance functions, and the compensation of the Company’’s chief financial officer and chief compliance officer and their respective staffs. During the first year of operations, the Company has capped its direct and indirect expenses under the Administration Agreement, as amended and restated, at $3.0 million.

~~The Investment Adviser and its affiliates may also manage other funds in the future that may have investment mandates that are similar~~· Together, inNew ~~whole~~Mountain ~~and~~Finance ~~in part, with NMF Holdings’ investment mandates. The Investment Adviser~~ and ~~its~~AIV ~~affiliates may determine that an investment is appropriate for NMF~~ Holdings ~~and~~own ~~for~~all ~~one~~the oroutstanding ~~more~~units of ~~those~~the ~~other funds~~Company. InAs ~~such~~of ~~event~~September 30, ~~depending~~2011, onNew ~~the~~Mountain ~~availability~~Finance ~~of such investment~~ and ~~other~~AIV ~~appropriate~~Holdings ~~factors,~~own ~~the~~approximately ~~Investment Adviser or its affiliates may determine that we should invest side-by-side with one or more other funds~~34.6% ~~Any such investments will be made only to the extent permitted by applicable law~~ and ~~interpretive~~65.4%, ~~positions~~respectively, of the ~~SEC~~units ~~and~~of ~~its~~NMF ~~staff, and consistent with the Investment Adviser’s allocation procedures~~Holdings.

~~Concurrently~~· The ~~with~~Company, ~~its~~New ~~initial~~Mountain ~~public~~Finance, ~~offering~~AIV Holdings, ~~New~~the ~~Mountain~~Investment ~~Finance~~Adviser ~~sold~~and anthe ~~additional~~Administrator 2have entered into a royalty-free Trademark License Agreement,~~172~~ as amended,~~000~~ ~~shares~~with ofNew ~~its~~Mountain ~~common~~Capital, ~~stock~~L.L.C., pursuant to ~~certain~~which ~~executives~~New ~~and~~Mountain ~~employees of~~Capital, ~~and~~L.L.C. ~~other~~has ~~individuals~~agreed ~~affiliated~~to ~~with~~grant the Company, New Mountain ~~Capital~~Finance, inAIV Holdings, the Investment Adviser and the Administrator, a ~~separate~~non-exclusive, ~~private~~royalty-free ~~placement~~license to use the name “New Mountain” and “New Mountain Finance”.

The Investment Adviser and its affiliates may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with NMF Holdings’ investment mandates. The Investment Adviser and its affiliates may determine that an investment is appropriate for NMF Holdings and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Investment Adviser or its affiliates may determine that we should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the Securities and Exchange Commission and its staff, and consistent with the Investment Adviser’s allocation procedures.

7. Borrowing Facilities

Holdings Credit Facility — The Loan and Security Agreement, as amended and restated, dated May 19, 2011 (the “Holdings Credit Facility”) among NMF Holdings as the Borrower and Collateral Administrator, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian, is structured as a revolving credit facility and matures on October 21, 2015. The maximum amount of revolving borrowings available under the Holdings Credit Facility is $160,000,000. Under the terms of the Holdings Credit Facility, the Company is permitted to borrow up to 45.0% or 25.0% of the purchase price of pledged first lien debt securities or non-first lien debt securities, respectively, subject to approval by Wells Fargo Bank, ~~N.A.~~National Association. The credit facility is collateralized by all of the investments of NMF Holdings on an investment by investment basis. All fees associated with the origination or upsizing of the ~~facility~~Holdings Credit Facility are capitalized on the Consolidated Statement of Assets, Liabilities, and Member’s Capital and charged against income over the life of the ~~facility~~Holdings Credit Facility. The Holdings Credit Facility contains certain customary affirmative and negative covenants and events of default, including the occurrence of a change in control. In addition, the Holdings Credit Facility requires the Company to maintain a minimum asset coverage ratio. However, the covenants are generally not tied to mark to market fluctuations in the prices of our investments, but rather to the performance of the underlying portfolio companies.

The Company became a party to the Holdings Credit Facility upon the IPO of New Mountain Finance. The Holdings Credit Facility amends and restates the credit facility of the Predecessor Entities (the “Predecessor Credit Facility”). The Predecessor Credit Facility consisted of two separate facilities. First, the Loan and Security Agreement dated October 21, 2009 among New Mountain Guardian (Leveraged), L.L.C. as the Collateral Manager, New Mountain Guardian Debt Funding, L.L.C. as the Borrower, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian, was structured as a revolving credit facility that matured on October 21, 2014. The maximum amount of revolving borrowings available under this credit facility was $112,500,000. Second, the Loan and Security Agreement dated November 19, 2009 among New Mountain Guardian Partners (Leveraged), L.L.C as the Collateral Manager, New Mountain Guardian Partners Debt Funding, L.L.C. as the Borrower, Wells Fargo Securities, L.L.C. as the Administrative Agent, and Wells Fargo Bank, National Association, as the Collateral Custodian, is structured as a revolving credit facility that matures on October 21, 2014. The maximum amount of revolving borrowings available under this credit facility was $7,500,000.

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~~revolving~~The ~~borrowings~~Holdings ~~available~~Credit ~~under~~Facility ~~this~~(as ~~credit~~well ~~facility~~as ~~was~~the ~~$112,500,000~~Predecessor Credit Facility) bears interest at a rate of LIBOR plus 3. ~~Second~~0% per annum and charges a non-usage fee, based on the ~~Loan~~unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the credit agreement). Interest expense and ~~Security~~non-usage ~~Agreement~~fees ~~dated~~were ~~November~~$1,162,756 19and $538,464, ~~2009~~respectively, ~~among~~for ~~New~~the ~~Mountain~~nine ~~Guardian~~months ~~Partners~~ended ~~(Leveraged)~~September 30, L2011.~~L.C~~ Interest asexpense ~~the~~and ~~Collateral~~non-usage ~~Manager~~fees were $1,608,048 ~~New~~and ~~Mountain~~$227,601, ~~Guardian~~respectively, ~~Partners~~for ~~Debt~~the ~~Funding~~nine months ended September 30, L2010.~~L.C.~~ asThe weighted average interest rate for the ~~Borrower~~nine months ended September 30, ~~Wells~~2011 ~~Fargo~~and ~~Securities~~September 30, L2010 was 3.L2% and 3.C3%, respectively. The asaverage debt outstanding for the ~~Administrative~~nine ~~Agent~~months ended September 30, 2011 and ~~Wells~~September 30, ~~Fargo~~2010 ~~Bank~~was $46,718,994 ~~National~~and ~~Association~~$64,764,538, respectively. The outstanding balance as ~~the~~of ~~Collateral~~September 30, ~~Custodian~~2011 and December 31, is2010 ~~structured~~was as$57,903,125 aand ~~revolving~~$59,696,938, ~~credit~~respectively. As ~~facility~~of ~~that~~September 30, ~~matures~~2011 onand ~~October~~December 31, 212010, ~~2014.~~the ~~The~~Company ~~maximum~~was ~~amount~~in ofcompliance ~~revolving~~with ~~borrowings~~all ~~available~~financial ~~under~~and ~~this~~operational covenants required by the credit ~~facility~~facilities ~~was~~existing ~~$7,500,000~~on such dates.

~~The~~SLF ~~Holdings~~ Credit Facility ~~(as~~— ~~well~~The Loan and Security Agreement, as amended and restated, dated October 27, 2010 (the ~~Predecessor~~“SLF Credit Facility”) ~~bears~~among ~~interest~~NMF atSLF aas ~~rate~~the ofBorrower, ~~LIBOR~~NMF ~~plus~~Holdings ~~3.00%~~as ~~per~~the ~~annum~~Collateral ~~and~~Administrator, ~~charges~~Wells aFargo ~~non-usage fee~~Securities, ~~based~~L.L.C. onas the ~~unused~~Administrative ~~facility~~Agent, ~~amount~~and ~~multiplied~~Wells byFargo Bank, National Association, as the ~~Non-Usage~~Collateral ~~Fee~~Custodian, ~~Rate~~is (structured as ~~defined~~a inrevolving ~~the~~ credit ~~agreement)~~facility and matures on October 27, 2015. Amendments ~~Interest~~to ~~expense~~the Loan and ~~non-usage~~Security ~~fees~~Agreement, ~~were~~dated ~~$893~~March 9,~~905~~ 2011 and ~~$374~~July 15,~~900,~~ ~~respectively~~2011, ~~for~~increased the ~~six~~facility ~~months~~size ~~ended~~from ~~June~~$100.0 ~~30,~~million ~~2011~~to $150.0 ~~Interest~~million ~~expense~~ and ~~non-usage~~$175.0 ~~fees~~million, ~~were~~respectively. The ~~$1,023,415~~SLF ~~and~~Credit ~~$148,548,~~Facility ~~respectively,~~is ~~for~~non-recourse ~~the~~to ~~six~~NMF ~~months~~Holdings ~~ended~~and ~~June~~is ~~30,~~secured ~~2010.~~by ~~The~~all ~~weighted~~assets ~~average~~owned ~~interest~~by ~~rate~~NMF ~~for~~SLF ~~the~~on ~~six~~an ~~months~~investment ~~ended~~by ~~June~~investment ~~30,~~basis. All ~~2011~~fees ~~and~~associated ~~June~~with ~~30,~~the ~~2010~~origination ~~was~~or ~~3.2%~~upsizing ~~and~~of ~~3.3%,~~the ~~respectively. The~~SLF ~~average~~Credit ~~debt~~Facility ~~outstanding~~are ~~for~~capitalized on the ~~six~~Consolidated ~~months~~Statement ~~ended~~of ~~June~~Assets, 30Liabilities, ~~2011~~and Member’s Capital and ~~June~~charged ~~30,~~against ~~2010~~income ~~was~~over ~~$53,853,228~~the ~~and~~life ~~$62,290,738,~~of ~~respectively~~the SLF Credit Facility. The ~~outstanding~~SLF ~~balance~~Credit asFacility ofcontains ~~June~~certain ~~30,~~customary ~~2011~~affirmative and ~~December~~negative ~~31,~~covenants ~~2010~~and ~~was~~events ~~$34~~of default,~~300,000~~ ~~and~~including ~~$59,696,938,~~the ~~respectively. As~~occurrence of ~~June~~a ~~30,~~change ~~2011~~in ~~and~~control. The ~~December~~covenants ~~31,~~are ~~2010,~~generally ~~the~~not ~~Company~~tied ~~was~~to mark to market fluctuations in ~~compliance~~the ~~with~~prices ~~all~~of ~~financial~~our ~~and~~investments, ~~operational~~but ~~covenants~~rather ~~required~~to bythe performance of the ~~existing~~underlying ~~credit~~portfolio ~~facilities~~companies.

~~SLF Credit Facility —~~ The ~~Loan and Security Agreement dated October 27, 2010 (the “~~SLF Credit Facility”) ~~among~~permits ~~NMF~~borrowings ~~SLF~~of asup ~~the~~to ~~Borrower,~~67.0% ~~NMF~~of ~~Holdings as~~ the ~~Collateral~~purchase ~~Administrator,~~price ~~Wells~~of ~~Fargo~~pledged ~~Securities,~~debt ~~L.L.C.~~securities assubject ~~the~~to ~~Administrative~~approval ~~Agent,~~by ~~and~~ Wells Fargo Bank, National Association, asand ~~the~~bears ~~Collateral~~interest ~~Custodian,~~at isa ~~structured~~rate asof aLIBOR ~~revolving~~plus ~~credit~~2.25% ~~facility~~per ~~and~~annum. A ~~matures~~non-usage onfee ~~October~~is 27paid, ~~2015.~~based Aon ~~Second Amendment to~~ the ~~Loan~~unused ~~and~~facility ~~Security~~amount ~~Agreement~~multiplied ~~was~~by ~~executed~~the onNon-Usage ~~March~~Fee 9,Rate ~~2011.~~(as ~~This~~defined ~~amendment~~in ~~increased~~ the ~~maximum~~credit ~~amount~~agreement). Interest ofexpense ~~revolving~~and ~~borrowings~~non-usage ~~available~~fees ~~under~~were ~~this credit facility from~~ $~~100~~2,~~000~~305,~~000~~096 toand $~~150~~82,~~000~~742,~~000. The~~ ~~loan~~respectively, isfor ~~non-recourse~~the tonine ~~NMF~~months ~~Holdings~~ended ~~and~~September 30, ~~secured~~2011. byThe ~~all~~weighted ~~assets~~average ~~owned~~interest byrate for the ~~borrower~~nine onmonths anended ~~investment~~September 30, by2011 ~~investment~~for ~~basis.~~the ~~All~~facility ~~fees~~was ~~associated~~2.5%. The ~~with~~average ~~the~~debt ~~origination~~outstanding orfor ~~upsizing of~~ the ~~facility~~nine ~~are~~months ~~capitalized~~ended onSeptember 30, ~~the~~2011 ~~Consolidated~~was ~~Statement of Assets~~$123, ~~Liabilities~~049,814. The ~~and~~SLF ~~Member’s~~Credit ~~Capital~~Facility ~~and~~did ~~charged~~not ~~against~~exist ~~income~~during ~~over~~ the ~~life~~nine ofmonths ~~the~~ended ~~facility~~September 30, 2010. The ~~credit~~outstanding ~~facility~~balance ~~contains~~as ~~certain~~of ~~customary~~September 30, ~~affirmative~~2011 and ~~negative~~December 31, ~~covenants~~2010 ~~and~~was ~~events~~$166,606,448 ofand ~~default~~$56,936,000, ~~including the occurrence of a change in control~~respectively. ~~The~~As ~~covenants~~of ~~are~~September 30, ~~generally~~2011 ~~not~~and ~~tied~~December 31, to2010, ~~mark~~NMF toSLF ~~market~~was ~~fluctuations~~ in ~~the~~compliance ~~prices~~with ofall ~~our~~financial ~~investments,~~and ~~but~~operational ~~rather~~covenants torequired ~~the~~by ~~performance of~~ the ~~underlying~~SLF ~~portfolio~~Credit ~~companies~~Facility.

The SLF Credit Facility permits borrowings of up to 67.0% of the purchase price of pledged debt securities subject to approval by Wells Fargo Bank, N.A. and bears interest at a rate of LIBOR plus 2.25% per annum. A non-usage fee is paid, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the credit agreement). Interest expense and non-usage fees were $1,349,394 and $58,168, respectively, for the six months ended June 30, 2011. The weighted average interest rate for the six months ended June 30, 2011 for the facility was 2.5%. The average debt outstanding for the six months ended June 30, 2011 was $108,352,940. The SLF Credit Facility did not exist during the six months ended June 30, 2010. The outstanding balance as of June 30, 2011 and December 31, 2010 was $126,917,448 and $56,936,000, respectively. As of June 30, 2011 and December 31, 2010, NMF SLF was in compliance with all financial and operational covenants required by the existing credit facilities.

8. Regulation

As a ~~BDC~~business development company, NMF Holdings must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70.0% of its total assets are qualifying assets (with certain limited exceptions).

9. Commitments and Contingencies

In the normal course of business, the Company enters into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Company has unfunded commitments on revolving credit facilities, which are disclosed on the Consolidated Schedules of Investments and in Note 3, Investments. The Company may from time to time enter into financing commitment letters. As of September 30, 2011, the Company has entered into commitment letters to purchase debt investments in an aggregate par amount of $45.0 million, which could require funding in the future. The Company may also enter into bridge financing commitments, an obligation to provide interim financing to a counterparty until permanent credit can be obtained. These commitments are short-term in nature and may expire unfunded. As of ~~June~~ September 30, 2011 and December 31, 2010, the Company had no outstanding bridge financing commitments. The Company also has revolving borrowings available under the Holdings Credit Facility and the SLF Credit Facility as of ~~June~~ September 30, 2011. See Note 7, Borrowing Facilities, for details.

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10. Financial Highlights

The following information sets forth the financial highlights for the ~~six~~nine months ended ~~June~~ September 30, 2011 and 2010. The ratios to average net assets have been annualized. The total return is not annualized.

	Six Months Ended			Six Months Ended
	Nine months ended			Nine months ended
	June 30, 2011			June 30, 2010
	September 30, 2011			September 30, 2010
Total Return	86.6805		%	1219.3494		%
Average net assets for the period	$	~~341~~346,~~266~~162,~~279~~848		$	~~240~~250,~~758~~372,~~207~~804
Ratio to average net assets:
Net investment income	11.1316		%	1315.2851		%
Total expenses (gross)	34.3153		%	1.4029		%
Total expenses (net of reimbursable expenses)	34.1301		%	1.4029		%
Per Unit Data:
	May 19, 2011 to
Net asset value, May 19, 2011 (a)	$	14.08
	September 30, 2011 (a)
Net investment income	0.15
Per unit data:
Net realized and unrealized gain	0.02
Net asset value, May 19, 2011	$	14.08
Net increase in net assets resulting from operations	0.17
Net investment income	0.47
Net asset value, June 30, 2011	$	14.25
Net realized and unrealized loss	(0.67		)
Dividends paid	(0.56		)
Net decrease in net assets resulting from operations	(0.76		)
Net asset value, September 30, 2011	$	13.32

(a) Data presented from May 19, 2011 forward as the fund became unitized on that date, the IPO date.

11. Recent Accounting Standards Updates

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”), which provides clarification about how to measure fair value and improves comparability of fair value measurements presented and disclosed in accordance with ~~U.S.~~ GAAP and International Financial Reporting Standards. ~~Some~~The ~~of the~~ amendments included in ASU 2011-404 clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements ~~(e.g.~~outlined in ASC 820, byas ~~clarifying~~well as includes some instances of changes to particular principles or requirements. ASU 2011-04 clarifies that a(i) the ~~reporting~~concept ~~entity~~of the highest and best use valuation premise applies only to nonfinancial assets, (ii) instruments classified in shareholders’ equity should ~~disclose~~be valued from the perspective of a market participant that holds that instrument as an asset, (iii) quantitative information should be disclosed about unobservable inputs used in a fair value measurement that is categorized within Level III of the fair value hierarchy). ASU ~~Other~~2011-04 ~~amendments~~changes ~~change~~the guidance in (i) permitting an exception to ASC 820 by allowing an entity to measure the fair value of a ~~particular~~group ~~principle~~of orfinancial ~~requirement~~assets ~~for~~and ~~measuring~~financial liabilities exposed to market and credit risks to be consistent with the entity’s net risk exposures, instead of gross risk, (ii) applying premiums and discounts in a fair value ormeasurement ~~disclosing~~lacking ~~information~~a ~~about~~Level I inputs to be consistent with the ASC 820 requirements of fair value ~~measurements~~measurement ~~(e.g.,~~but bythat ~~requiring~~applying ~~additional~~premiums ~~disclosures~~and ~~about~~discounts in a fair value ~~measurements~~measurement related to size as a characteristic of the holding rather than as a characteristic of the asset or liability is not permitted, ~~including~~and (iii) requiring additional disclosures about fair value measurements categorized within Level III of the fair value hierarchy, ~~[such~~including as the valuation processes used byand the ~~reporting~~sensitivity ~~entity]~~of ~~and~~the byfair ~~clarifying~~value ~~the~~measurement ~~application~~to ofchanges ~~premiums~~in unobservable inputs and ~~discounts~~the ininterrelationships abetween ~~fair~~those ~~value~~unobservable ~~measurement)~~inputs. ASU 2011-04 is effective for the interim and annual periods beginning after December 15, 2011. The Company is currently assessing the impact that adoption of ASU 2011-04 will have on the financial statements.

In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (“ASU 2010-06”), which, among other things, amends ASC 820 to require entities to separately present purchases, sales, issuances, and settlements in their reconciliation of Level III fair value measurements (i.e., to present such items on a gross basis rather than on a net basis). The adoption on January 1, 2011 of the applicable additional disclosure requirements of ASU 2010-06 listed above did not materially impact the Company’s consolidated financial statements.

12. Subsequent Events

On ~~July~~October 1527, 2011, NMF SLF entered into ~~the~~a ~~fourth~~fifth amendment to the SLF Credit Facility, which ~~increased~~removed the ~~facility~~restriction ~~amount~~to ~~from~~purchase ~~$150,000,000~~or sell loans to ~~$175,000,000~~an affiliate.

AOn October 27, 2011, NMF Holdings entered into a second amendment to the Holdings Credit Facility, which permitted NMF Holdings to borrow up to 67.0% and 45.0% of the purchase price of specified first lien debt securities and specified non-26first lien debt securities, respectively, subject to approval by Wells Fargo Bank, National Association.

On November 8, 2011, the Company entered into an Administration Agreement, as amended and restated, by and among the Company, New Mountain Finance, AIV Holdings and the Administrator, which added AIV Holdings as a party to, and clarified certain cost and expense allocation provisions in, the Administration Agreement, as amended and restated. See Note 5, Agreements, for further details.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of

New Mountain Finance Holdings, L.L.C.

New York, New York

We have reviewed the accompanying consolidated statement of assets, liabilities and members’ capital of New Mountain Finance Holdings, L.L.C. (the “Company”), including the consolidated schedule of investments as of September 30, 2011, and the related consolidated statements of operations for the three and nine month periods ended September 30, 2011 and September 30, 2010 and the consolidated statements of changes’ in members’ capital and cash flows for the nine month periods ended September 30, 2011 and September 30, 2010. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the combined statements of assets, liabilities and capital of New Mountain Finance Holdings, L.L.C. (Formerly New Mountain Guardian (Leveraged), L.L.C.), including the combined schedule of investments as of December 31, 2010, and the related combined statements of operations, changes in capital, and cash flows for the year then ended (not presented herein); and in our report dated February 25, 2011 (March 28, 2011 as to note 12), we expressed an unqualified opinion on those combined financial statements. In our opinion, the information set forth in the accompanying consolidated statement of assets, liabilities and members’capital, including the consolidated schedule of investments, as of December 31, 2010 is fairly stated, in all material respects, in relation to the combined statement of assets, liabilities, and members’ capital, including the combined schedule of investments, from which it has been derived.

DELOITTE & TOUCHE LLP

New York, New York

November 14, 2011

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

Forward-Looking Statements

The information contained in this section should be read in conjunction with the financial data and financial statements and notes thereto appearing elsewhere in this quarterly report. In addition, some of the statements in this report (including in the following discussion) constitute forward-looking statements, which relate to future events or the future performance or financial condition of New Mountain Finance Holdings, L.L.C. (“NMF Holdings”, the “Company”, “we”, “us”, or “our”). The forward-looking statements contained in this report involve a number of risks and uncertainties, including:

· statements concerning the impact of a protracted decline in the liquidity of credit markets;

· the general economy, including interest and inflation rates, and its impact on the industries in which we invest;

· the ability of our portfolio companies to achieve their objectives;

· our ability to make investments consistent with our investment objectives, including with respect to the size, nature and terms of our investments;

· the ability of New Mountain Finance Advisers BDC, L.L.C. (the “Investment Adviser”) or its affiliates to attract and retain highly talented professionals;

· actual and potential conflicts of interest with the Investment Adviser and other affiliates of New Mountain Capital Group, L.L.C.; and

· other factors, including those discussed in our Registration Statement on Form N-2, filed with the Securities and Exchange Commission ~~(the “SEC”)~~ on May 16, 2011.

We use words such as “anticipates”, “believes”, “expects”, “intends”, “will”, “should”, “may” and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” section in our Registration Statement on Form N-2, filed with the ~~SEC~~Securities and Exchange Commission on May 16, 2011.

We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the ~~SEC~~Securities and Exchange Commission, including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K.

Overview

~~New Mountain Finance Holdings, L.L.C. (“~~NMF Holdings”, ~~the “Company”, “we”, “us”, or “our”)~~ is a Delaware limited liability company. NMF Holdings is externally managed and has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). As such, ~~the~~we ~~Company~~are is obligated to comply with certain regulatory requirements. NMF Holdings intends to be treated as a partnership for federal income tax purposes for so long as it has at least two members.

NMF Holdings is externally managed by ~~New Mountain Finance Advisers BDC, L.L.C. (~~the “Investment Adviser”). New Mountain Finance Administration, L.L.C. (the “Administrator”) provides the administrative services necessary for our operations. The Investment Adviser and Administrator are wholly-owned subsidiaries of New Mountain Capital (defined as New Mountain Capital Group, L.L.C. and its affiliates). New Mountain Capital is a firm with a track record of investing in the middle market and with assets under management (which includes amounts committed, not all of which have been drawn down and invested to date) totaling ~~more~~approximately ~~than~~ $9.0 billion as of ~~June~~ September 30, 2011. New Mountain Capital focuses on investing in defensive growth companies across its private equity, public equity, and credit investment vehicles. NMF Holdings, formerly known as New Mountain Guardian (Leveraged), L.L.C., was originally formed as a subsidiary of New Mountain Guardian AIV, L.P. (“Guardian AIV”) by New Mountain Capital in October 2008. Guardian AIV was formed through an allocation of approximately $300.0 million of the $5.1 billion of commitments supporting New Mountain Partners III, L.P., a private equity fund managed by New Mountain Capital. In February 2009, New Mountain Capital formed a co-investment vehicle, New Mountain Guardian Partners, L.P., comprising $20.4 million of commitments. New Mountain Guardian (Leveraged), L.L.C. and New Mountain Guardian Partners, L.P., together with their respective direct and indirect wholly-owned subsidiaries, are defined as the “Predecessor Entities.”.

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~~The~~This ~~following~~ structure was designed to generally prevent New Mountain Finance Corporation (“New Mountain Finance”) from being allocated taxable income in respect of unrecognized gains in the Predecessor Entities’ assets, with the result that any distributions made to New Mountain Finance’s stockholders that are attributable to such gains generally will not be treated as taxable dividends.

New Mountain Finance ~~Corporation (“New Mountain Finance”)~~ is a Delaware corporation that was originally incorporated on June 29, 2010. New Mountain Finance is a closed-end, non-diversified management investment company that has elected to be treated as a business development company under the 1940 Act. As such, New Mountain Finance is obligated to comply with certain regulatory requirements. New Mountain Finance intends to be treated, and intends to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended, (the “Code”) commencing with it taxable year ending December 31, 2011.

On May 19, 2011, New Mountain Finance ~~intends~~priced toits beinitial ~~treated,~~public ~~and~~offering ~~intends~~(the to“IPO”) ~~qualify~~of ~~annually~~7,272,727 asshares of common stock at a ~~regulated~~public ~~investment~~offering ~~company~~price ~~(“RIC”)~~of ~~under~~$13.75 ~~Subchapter~~per Mshare. Concurrently with the closing of the ~~Internal~~IPO ~~Revenue~~and ~~Code~~at the public offering price of ~~1986~~$13.75 per share, asNew ~~amended~~Mountain Finance sold an additional 2,172,000 ~~(the~~shares ~~“Code”)~~of ~~commencing~~its ~~with~~common itstock ~~taxable~~to ~~year~~certain ~~ending~~executives ~~December~~and 31employees of, ~~2011~~and other individuals affiliated with, New Mountain Capital in a separate private placement.

OnNew ~~May~~Mountain ~~19,~~Finance ~~2011~~is a holding company with no direct operations of its own, and its sole asset is its ownership in NMF Holdings. New Mountain Finance ~~priced~~entered ~~its~~into ~~initial~~a ~~public~~joinder ~~offering~~agreement (with respect to the ~~“IPO”)~~Limited ofLiability 7Company Agreement,~~272,727~~ ~~shares~~as amended and restated, of ~~common~~NMF ~~stock~~Holdings, atpursuant ato ~~public~~which ~~offering~~New ~~price~~Mountain Finance was admitted as a member of ~~$13.75~~NMF ~~per~~Holdings ~~share. Concurrently~~and acquired from NMF Holdings, with the ~~closing~~gross proceeds of the ~~offering~~IPO and at the ~~public~~concurrent ~~offering~~private ~~price~~placement, common membership units (“units”) of ~~$13.75~~NMF ~~per~~Holdings ~~share,~~(the ~~New~~number ~~Mountain~~of ~~Finance~~units ~~sold~~are anequal ~~additional~~to ~~2,172,000~~the number of shares of ~~its~~New Mountain Finance’s common stock tosold ~~certain~~in ~~executives~~the IPO and ~~employees~~the ~~of,~~concurrent ~~and~~private ~~other~~placement). In ~~individuals~~connection ~~affiliated~~ with, New Mountain ~~Capital~~Finance’s inIPO and through a ~~separate~~series ~~private~~of ~~placement~~transactions, NMF Holdings owns all of the operations of the Predecessor Entities, including all of the assets and liabilities related to such operations.

~~New~~Guardian ~~Mountain~~AIV ~~Finance~~was isthe aparent ~~holding~~of ~~company~~NMF ~~with~~Holdings noprior ~~direct~~to ~~operations~~the IPO and as a result of ~~its~~the ~~own,~~transactions ~~and~~completed ~~its~~in ~~sole~~connection ~~asset~~with isthe ~~its~~IPO ~~ownership~~obtained units in NMF Holdings. ~~New~~Guardian ~~Mountain~~AIV ~~Finance~~contributed ~~entered~~its ~~into~~units ain ~~joinder~~NMF ~~agreement~~Holdings ~~with respect~~ to ~~the~~its ~~amended~~newly ~~and~~formed ~~restated limited liability company agreement of NMF Holdings~~subsidiary, ~~pursuant to which~~ New Mountain Finance ~~was~~AIV ~~admitted~~Holdings asCorporation a(“AIV ~~member~~Holdings”), ofin ~~NMF~~exchange ~~Holdings~~for ~~and~~common ~~acquired~~stock ~~from~~of ~~NMF~~AIV Holdings,. AIV ~~with~~Holdings ~~the~~has ~~gross proceeds of~~ the ~~IPO~~right ~~and~~to ~~the~~exchange ~~concurrent~~all ~~private~~or ~~placement,~~any ~~common~~portion ~~membership~~of ~~units~~its (“units”) ofin NMF Holdings ~~(the~~for ~~number of units are equal to the number of~~ shares of New Mountain Finance’s common stock ~~sold~~on ina ~~the~~one-for-one ~~IPO and the concurrent private placement)~~basis. InAs ~~connection~~of ~~with~~September 30, 2011, New Mountain Finance’s ~~IPO~~ and ~~through~~AIV ~~a series of transactions, NMF~~ Holdings ~~owns~~own ~~all~~approximately of34.6% ~~the~~and ~~operations~~65.4%, ~~of the Predecessor Entities~~respectively, ~~including all~~ of the ~~assets~~units ~~and~~of ~~liabilities~~NMF ~~related to such operations~~Holdings.

Guardian AIV was the parent of the Company prior to the IPO and as a result of the offering obtained units in NMF Holdings. Guardian AIV contributed its units in NMF Holdings to its newly formed subsidiary, New Mountain Finance AIV Holdings Corporation (“AIV Holdings”), in exchange for common stock of AIV Holdings. AIV Holdings has the right to exchange all or any portion of its units in NMF Holdings for shares of New Mountain Finance’s common stock on a oneA-~~for-one basis. As of June 30, 2011, New Mountain Finance and AIV Holdings own approximately 34.6% and 65.4%, respectively, of the units of NMF Holdings.~~31

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The diagram below depicts our current organizational structure.

~~The~~NMF ~~Company~~Holdings’s investment objective is to generate current income and capital appreciation through the sourcing and ~~originating~~origination of debt securities at all levels of the capital structure, including first and second lien debt, notes, bonds and mezzanine securities. In some cases, our investments may also include equity interests. The primary focus is in the debt of defensive growth companies, which are defined as generally exhibiting the following characteristics: (i) sustainable secular growth drivers, (ii) high barriers to competitive entry, (iii) high free cash flow after capital expenditure and working capital needs, (iv) high returns on assets and (v) opportunities for niche market dominance.

As of ~~June~~ September 30, 2011, our net asset value was $~~440~~411.69 million and our portfolio had a fair value of approximately $~~544~~604.3 million in 4750 portfolio companies, with a weighted average Unadjusted and Adjusted Yield to Maturity of approximately 10.49% and 1214.70%, respectively. “Adjusted Yield to Maturity’’” assumes that the investments in our portfolio are purchased at fair value on ~~June~~ September 30, 2011 and held until their respective maturities with no prepayments or losses and ~~are~~ exited at par at maturity. This calculation excludes the impact of existing leverage, except for the non-recourse debt of New Mountain Finance SPV Funding, L.L.C (“NMF SLF”). NMF SLF is treated as a fully levered asset of the Company, with NMF SLF’s net asset value being included for yield calculation purposes. The actual yield to maturity may be higher or lower due to the future selection of LIBOR contracts by the individual companies in our portfolio or other factors. References to “Unadjusted Yield to Maturity” have the same assumptions as Adjusted Yield to Maturity except that NMF SLF is not treated as a fully levered asset of the Company, but rather the assets themselves are consolidated into the Company.

Recent Developments

On ~~August~~October 1027, 2011, ~~Daniel~~NMF ~~Hébert~~SLF ~~and~~entered ~~Adam~~into J.a ~~Collins~~fifth ~~were~~amendment ~~appointed~~ to the ~~board~~SLF ofCredit ~~directors~~Facility, ofwhich ~~NMF~~removed ~~Holdings,~~the ~~New~~restriction ~~Mountain~~to ~~Finance,~~purchase ~~and~~or ~~AIV~~sell ~~Holdings~~loans to an affiliate.

AOn October 27, 2011, NMF Holdings entered into a second amendment to the Holdings Credit Facility, which permitted NMF Holdings to borrow up to 67.0% and 45.0% of the purchase price of specified first lien debt securities and specified non-29first lien debt securities, respectively, subject to approval by Wells Fargo Bank, National Association.

On November 8, 2011, NMF Holdings entered into Amendment No. 1 to the Trademark License Agreement, as amended, by and among New Mountain Capital, L.L.C., NMF Holdings, New Mountain Finance, AIV Holdings, the Investment Adviser and the

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Administrator, which, amended the preamble, added “New Mountain Finance” to the definition of “Licensed Mark” and Canada and the European Union to the definition of “Territory”, as such terms are used in the Trademark License Agreement, as amended, added a definition of “Licensed Services”, and added AIV Holdings, the Investment Adviser and the Administrator as parties to the Trademark License Agreement, as amended.

On November 8, 2011, NMF Holdings entered into an Administration Agreement, as amended and restated, by and among NMF Holdings, New Mountain Finance, AIV Holdings and the Administrator, which added AIV Holdings as a party to, and clarified certain cost and expense allocation provisions in, the Administration Agreement, as amended and restated.

On November 8, 2011, NMF Holdings entered into Amendment No. 1 to the Limited Liability Company Agreement, as amended and restated, of NMF Holdings, which clarified certain cost and expense allocation provisions in such agreement.

Dividend

On ~~August 10~~November 8, 2011, ~~the~~our ~~Company’s~~ board of directors, and subsequently New Mountain Finance’s board of directors, declared a ~~second~~fourth quarter 2011 distribution of $0.2730 per unit/share payable on ~~August 31~~December 30, 2011 to holders of record as of ~~August 22~~December 15, 2011.

~~Additionally~~Since New Mountain Finance is a holding company, all distributions on ~~August~~its ~~10,~~common ~~2011,~~stock ~~the~~will ~~Company’s~~be ~~board~~paid offrom ~~directors,~~distributions ~~and~~received ~~subsequently~~from NMF Holdings. NMF Holdings intends to make distributions to its unit holders that will be sufficient to enable New Mountain Finance’s ~~board~~to ofpay ~~directors,~~quarterly ~~declared~~distributions to its stockholders and to obtain and maintain its status as a ~~third~~RIC. ~~quarter~~New ~~2011~~Mountain ~~distribution~~Finance intends to distribute approximately all of ~~$0.29~~its ~~per~~portion ~~unit/share~~of ~~payable~~our adjusted net investment income (see Results of Operations) on ~~September~~a ~~30,~~quarterly ~~2011~~basis toand ~~holders~~substantially all of ~~record~~its asportion of ~~September~~our 15taxable income on an annual basis, ~~2011~~except that it may retain certain net capital gains for reinvestment.

Because New Mountain Finance is a holding company, all distributions on its common stock will be paid from distributions received from NMF Holdings. NMF Holdings intends to make distributions to its members that will be sufficient to enable New Mountain Finance to pay quarterly distributions to its stockholders and to obtain and maintain its status as a RIC. New Mountain Finance intends to distribute approximately all of its portion of the Company’s adjusted net investment income (see Results of Operations) on a quarterly basis and substantially all of its portion of the Company’s taxable income on an annual basis, except that it may retain certain net capital gains for reinvestment.

Critical Accounting Policies

Valuation of Portfolio Investments

NMF Holdings conducts the valuation of ~~our~~ assets, pursuant to which its net asset value, and, consequently, New Mountain Finance’s net asset value is determined, at all times consistent with GAAP, and the 1940 Act. ~~NMF Holdings’s valuation procedures are set forth in more detail below:~~

~~The~~NMF ~~Company~~Holdings’ values its assets on a quarterly basis, or more frequently if required under the 1940 Act. In all cases, our Board of Directors is ultimately and solely responsible for determining the fair value of our portfolio investments on a quarterly basis in good faith, including investments that are not publicly traded, those whose market prices are not readily available, and any other situation where our portfolio investments require a fair value determination. Security transactions are accounted for on a trade date basis. ~~The~~Our ~~Company’s~~ quarterly valuation procedures are set forth in more detail below:

(1) Investments for which market quotations are readily available on an exchange are valued at such market quotations based on the closing price indicated from Bloomberg;.

b. For investments other than bonds, we look at the number of quotes readily available and perform the following:

i. Investments for which more than two quotes are received from a pricing service are valued using the mean of the mean of the bid and ask of the quotes obtained;

~~(3) Investments for which quotations are not readily available through exchanges, pricing services, brokers, or dealers are valued in good faith by the board of directors through a multi~~A-~~step valuation process:~~33

a. Each portfolio company or investment is initially valued by the investment professionals of the Investment Adviser responsible for the credit monitoring;

b. Preliminary valuation conclusions will then be documented and discussed with the Company’s senior management;

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~~c. If~~to ansufficiently ~~investment~~validate ~~falls~~the ~~into~~ quote(3s) ~~above~~internally ~~for~~and ~~four~~if ~~consecutive~~the ~~quarters,~~investment’s ~~then~~par atvalue ~~least~~exceeds ~~once~~the ~~each~~materiality ~~fiscal year~~threshold, the ~~valuation for each portfolio~~ investment ~~for~~is ~~which~~valued ~~the~~similarly ~~Company~~to ~~does~~those ~~not~~assets ~~have~~with ano readily available ~~market~~quotes ~~quotation~~(see ~~will~~(3) ~~be reviewed by an independent valuation firm engaged by our board of directors~~below).

~~d. Also,~~(3) Investments ~~when~~for ~~deemed~~which ~~appropriate~~quotations byare ~~the~~not ~~Company’s~~readily ~~senior~~available ~~management~~through exchanges, anpricing ~~independent~~services, ~~valuation~~brokers, ~~firm~~or ~~may~~dealers beare ~~engaged~~valued tothrough ~~review and value investment(s) in~~ a ~~portfolio~~multi-step ~~company, without any preliminary~~ valuation ~~being performed by the Investment Adviser. The investment professionals of the Investment Adviser will review and validate the value provided.~~process:

~~Valuation~~a. Each ~~methods may include comparisons of financial ratios of the~~ portfolio ~~companies that issued such private securities to peer companies that are public, the nature and realizable value of any collateral, the portfolio~~ company’s earnings, discounted cash flows, and ability to make payments, the markets in which the portfolio company conducts business, and other relevant factors, including available market data such as relevant and applicable market trading and transaction comparables; applicable market yields and multiples; security covenants; call protection provisions; information rights; comparable merger and acquisition transactions; and the principal market and enterprise values. When an external event such as a purchase transaction, public offering or ~~subsequent~~investment ~~sale~~is ~~occurs,~~initially ~~the~~valued ~~Company~~by ~~will consider~~ the ~~pricing~~investment ~~indicated~~professionals byof the ~~external~~Investment ~~event~~Adviser toresponsible ~~corroborate~~for the ~~private~~credit ~~valuation.~~monitoring;

~~The~~b. Preliminary ~~values~~valuation ~~assigned~~conclusions towill ~~investments~~then ~~are based upon available information and do not necessarily represent amounts which might ultimately~~ be ~~realized,~~documented ~~since such amounts depend on future circumstances~~ and ~~cannot~~discussed bewith ~~reasonably~~our ~~determined~~senior ~~until the individual positions are liquidated.~~management;

~~GAAP~~c. If ~~fair~~an ~~value~~investment ~~measurement~~falls ~~guidance~~into ~~classifies~~(3) above for four consecutive quarters, then at least once each fiscal year, the ~~inputs~~valuation ~~used~~for ineach ~~measuring~~portfolio ~~fair~~investment ~~value~~for aswhich ~~follows:~~we do not have a readily available market quotation will be reviewed by an independent valuation firm engaged by our board of directors.

~~Level~~d. Also, Iwhen —deemed ~~Quoted~~appropriate ~~prices~~by ~~(unadjusted)~~our ~~are~~management, ~~available~~an inindependent ~~active~~valuation ~~markets~~firm ~~for~~may ~~identical~~be ~~investments~~engaged ~~that the Company has the ability~~ to ~~access~~review asand ofvalue ~~the reporting date. The type of investments which would generally be included~~ investment(s) in ~~Level~~a Iportfolio ~~include~~company, ~~active~~without ~~exchange-traded~~any ~~equity~~preliminary ~~securities~~valuation ~~and~~being ~~exchange-traded~~performed ~~derivatives. As required~~ by ~~ASC 820,~~ the ~~Company,~~Investment toAdviser. The ~~the~~investment ~~extent~~professionals ~~that~~of ~~they hold such investments, does not adjust~~ the ~~quoted~~Investment ~~price~~Adviser ~~for~~will ~~these~~review ~~investments, even in situations where the Company holds a large position~~ and avalidate ~~sale could reasonably impact~~ the ~~quoted~~value ~~price~~provided.

Valuation methods may include comparisons of financial ratios of the portfolio companies that issued such private securities to peer companies that are public, the nature of and the realizable value of any collateral, the portfolio company’s earnings, discounted cash flows, the ability to make payments, the markets in which the portfolio company conducts business, and other relevant factors, including available market data such as relevant and applicable market trading and transaction comparables; applicable market yields and multiples; security covenants; call protection provisions; information rights; comparable merger and acquisition transactions; and the principal market and enterprise values. When an external event such as a purchase transaction, public offering or subsequent sale occurs, we will consider the pricing indicated by the external event to corroborate the private valuation.

The values assigned to investments are based upon available information and do not necessarily represent amounts which might ultimately be realized, since such amounts depend on future circumstances and cannot be reasonably determined until the individual positions are liquidated. 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 certain investments may fluctuate from period to period.

GAAP fair value measurement guidance classifies the inputs used in measuring fair value into three levels as follows:

Level I — Quoted prices (unadjusted) are available in active markets for identical investments and NMF Holdings has the ability to access such quotes as of the reporting date. The type of investments which would generally be included in Level I include active exchange-traded equity securities and exchange-traded derivatives. As required by Accounting Standards Codification 820, Fair Value Measurements and Disclosures (“ASC 820”), NMF Holdings, to the extent that we hold such investments, does not adjust the quoted price for these investments, even in situations where NMF Holdings holds a large position and a sale could reasonably impact the quoted price.

A) Quoted prices for similar assets or liabilities in active markets;

B) Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently);

C) Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including foreign exchange forward contracts); and

D) Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability.

Level III — Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. ~~The inputs into the determination of fair value require significant judgment or estimation by management.~~

The inputs into the determination of fair value require significant judgment or estimation by management. A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in the reclassification of certain investments within the fair value hierarchy from period to period.

~~The following table summarizes the levels in the fair value hierarchy that the Company’s portfolio investments fall into as of June 30, 2011:~~A-34

(in thousands)	Total		Level I	Level II		Level III
First lien	370,989		—	$	340,194	$	30,795
Second lien	155,955		—	155,955		—
Subordinated	16,916		—	3,685		13,231
Equity and other	476		—	—		476
Total investments	$	544,336	—	$	499,834	$	44,502

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The following table summarizes the levels in the fair value hierarchy that our portfolio investments fall into as of September 30, 2011:

(in thousands)

	Total		Level I	Level II		Level III
First lien	$	383,083	—	$	368,608	$	14,475
Second lien	192,152		—	168,152		24,000
Subordinated	28,697		—	14,285		14,412
Equity and other	402		—	—		402
Total investments	$	604,334	—	$	551,045	$	53,289

Monitoring of Portfolio Investments

We monitor the performance and financial trends of our portfolio companies on at least a quarterly basis. We attempt to identify any developments within the portfolio company, the industry or the macroeconomic environment that may alter any material element of our original investment strategy.

We use an investment rating system to characterize and monitor the credit profile and expected level of returns on each investment in the portfolio. We use a four-level numeric rating scale as follows:

· Investment Rating 1 — Investment is performing above expectations;

· Investment Rating 2 — Investment is performing in-line with expectations. All new loans are rated 2 when approved;

· Investment Rating 3 — Investment is performing below expectations and risk has increased since the original investment; and

· Investment Rating 4 — Investment is performing substantially below expectations and risks have increased substantially since the original investment.

As of September 30, 2011, all investments in our portfolio had an Investment Rating of 1 or 2 with the exception of one investment. As of September 30, 2011, ATI Acquisition Company had an Investment Rating of 3 due to the underlying business encountering some regulatory headwinds which, while we believe will ultimately be resolved, have led to the company’s underperformance in the current quarter. As of September 30, 2011, our investment in ATI Acquisition Company had a cost basis of $4.3 million and a fair value of $1.4 million.

Revenue Recognition

The Company’s revenue recognition policies are as follows:

Sales and paydowns of investments: Realized gains and losses on investments are determined on the specific identification method.

Interest income: Interest income, including amortization of premium and discount using the effective interest method, is recorded on the accrual basis and periodically assessed for collectability. Interest income also includes interest earned from cash on hand. Upon the prepayment of a loan or debt security, any prepayment penalties are recorded as part of interest income. ~~The~~NMF ~~Company~~Holdings has loans in the portfolio that contain a payment-in-kind (“PIK”) provision. PIK represents interest that is accrued and recorded as interest income at the contractual rates, added to the loan principal on the respective capitalization dates, and generally due at maturity.

Other income: Other income represents delayed compensation and miscellaneous fees received. Delayed compensation is income earned from counterparties on trades that do not settle within a set number of business days after trade date.

~~Portfolio and Investment Activity~~A-35

The fair value of our investments was approximately $544.3 million in 47 portfolio companies at June 30, 2011 and $441.1 million in 43 portfolio companies at December 31, 2010. For the six months ended June 30, 2011, NMF Holdings made approximately $244.7 million of new investments in 22 portfolio companies. For the year ended December 31, 2010, NMF Holdings made approximately $332.7 million of new investments in 34 portfolio companies.

For the six months ended June 30, 2011, NMF Holdings had approximately $102.1 million in debt repayments in existing portfolio companies and sales of securities in nine portfolio companies aggregating approximately $50.1 million. In addition, during the six months ended June 30, 2011, NMF Holdings had a change in unrealized appreciation on 33 portfolio companies totaling approximately $6.3 million, which was offset by a change in unrealized depreciation on 22 portfolio companies totaling approximately $12.8 million. For the year ended December 31, 2010, NMF Holdings had approximately $40.3 million in debt repayments in existing portfolio companies and sales of securities in 16 portfolio companies aggregating approximately $217.9 million.

At June 30, 2011, our weighted average Unadjusted and Adjusted Yield to Maturity was approximately 10.4% and 12.7%, respectively.

A-32

Table of Contents

Portfolio and Investment Activity

The fair value of our investments was approximately $604.3 million in 50 portfolio companies at September 30, 2011 and $441.1 million in 43 portfolio companies at December 31, 2010. For the nine months ended September 30, 2011, NMF Holdings made approximately $354.2 million of new investments in 28 portfolio companies. For the year ended December 31, 2010, NMF Holdings made approximately $332.7 million of new investments in 34 portfolio companies.

For the nine months ended September 30, 2011, NMF Holdings had approximately $113.6 million in debt repayments in existing portfolio companies and sales of securities in 13 portfolio companies aggregating approximately $68.7 million. In addition, during the nine months ended September 30, 2011, NMF Holdings had a change in unrealized appreciation on seven portfolio companies totaling approximately $2.3 million, which was offset by a change in unrealized depreciation on 52 portfolio companies totaling approximately $31.4 million. For the year ended December 31, 2010, NMF Holdings had approximately $40.3 million in debt repayments in existing portfolio companies and sales of securities in 16 portfolio companies aggregating approximately $217.9 million. During the year ended December 31, 2010, NMF Holdings had a change in unrealized appreciation on 36 portfolio companies totaling approximately $13.0 million, which was offset by a change in unrealized depreciation on 18 portfolio companies totaling approximately $53.0 million.

At September 30, 2011, our weighted average Unadjusted and Adjusted Yield to Maturity was approximately 10.9% and 14.0%, respectively.

Results of Operations

Under GAAP, New Mountain Finance’s IPO did not step-up the cost basis of ~~the~~our ~~Company’s~~ existing investments to fair market value at the IPO date. Since the total value of ~~the~~our ~~Company’s~~ investments at the time of the IPO was greater than the investments’ cost basis, a larger amount of amortization of purchase or original issue discount, and ~~differences~~different amounts in realized gain and unrealized appreciation, may be recognized under GAAP in each period than if the step-up had occurred. This will remain until such investments are sold or mature in the future. ~~The~~We ~~Company~~track ~~tracks~~ the transferred (or fair market) value of each of ~~its~~our ~~investments~~investment as of the time of the IPO. and, for purposes of the incentive fee calculation, adjust income as if each investment was purchased at the date of the IPO (or stepped up to fair market value). The respective “Adjusted Net Investment Income” (as ~~described~~defined ~~above~~in Note 5, Agreements, of the notes to the financial statements included in this report) is used in calculating both the incentive fee and dividend payments. The below Statement of Operations for the three months ended ~~June~~September 30, 2011 is adjusted to reflect this step-up to fair market value.

						Adjusted
	Three months ended					Three months ended
(in thousands)	June 30, 2011			Adjustments		June 30, 2011
Investment income
Interest income	$	12,810		(1,117	)	$	11,693
Other income	306					306
Total investment income	13,116			(1,117	)	11,999
Expenses
Interest and other credit facility expenses	1,534					1,534
Management fee	774					774
Incentive fee	504					504
Professional fees	517					517
Administrative expenses	62					62
Other general and administrative expenses	171					171
Total expenses	3,562			—		3,562
Net investment income	9,554			(1,117	)	8,437
Realized gains on investments	6,660			(7,048	)	(388		)
Net change in unrealized (depreciation) appreciation of investments	(7,559		)	8,165		606
Net increase in capital resulting from operations	$	8,655				$	8,655

(in thousands)

For the three months ended June 30, 2011, the Company had a $1.1 million adjustment to interest income for discount amortization and a decrease of $7.0 million to realized gains to adjust for the stepped-up cost basis of the transferred investments. Adjusted Net Investment Income was $8.4 million for the three months ended June 30, 2011.

						Adjusted
	Three months ended					Three months ended
	to September 30, 2011		Adjustments			to September 30, 2011
Investment income

Interest income	$	14,861	$	(1,190	)	$	13,671
Other income	208					208
Total investment income	15,069		(1,190		)	13,879

Total expenses	5,067					5,067

Net Investment Income	10,002		(1,190		)	8,812

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