As filed with the Securities and Exchange Commission on January 29, 2007

Registration No. 333-125953

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

o		PRE-EFFECTIVE AMENDMENT NO.

þ		POST-EFFECTIVE AMENDMENT NO. 5

MVC CAPITAL, INC.

287 Bowman Avenue
2nd Floor
Purchase, NY 10577
(Address of Principal Executive Offices)

Michael T. Tokarz, Chairman
MVC Capital, Inc.
287 Bowman Avenue
2nd Floor
Purchase, NY 10577
(Name and Address of Agent for Service)

     Approximate date of proposed public offering: From time to time after the effective date of this Registration Statement.

     If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a distribution reinvestment plan, check the following box. þ

     It is proposed that this filing will become effective (check appropriate box):

þ

when declared effective pursuant to section 8(c).

     If appropriate, check the following box:

o

This [post-effective amendment] designates a new effective date for a previously filed [post-effective amendment] [registration statement].

o

This form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act and the Securities Act registration statement number of the earlier effective registration statement for the same offering is                     .

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

Proposed Maximum

Proposed Maximum

Amount of

Amount Being

Offering

Aggregate

Registration

Title of Securities Being Registered

Registered

Price per Unit

Offering Price

Fee

Common Stock, $0.01 par value per share(2)

Preferred Stock(2)

Warrants(3)

Debt Securities(4)

Total

$100,000,000(5)

$11,770(1)

(1)		Estimated pursuant to Rule 457 solely for the purpose of determining the registration fee. The proposed maximum offering price per security will be determined, from time to time, by the Registrant in connection with the sale by the Registrant of the securities registered under this registration statement. $11,770 was previously paid.
(2)		Subject to Note 5 below, there is being registered hereunder an indeterminate principal amount of common stock or preferred stock as may be sold, from time to time.
(3)		Subject to Note 5 below, there is being registered hereunder an indeterminate principal amount of warrants as may be sold, from time to time, representing rights to purchase common stock, preferred stock or debt securities.
(4)		Subject to Note 5 below, there is being registered hereunder an indeterminate principal amount of debt securities as may be sold, from time to time. If any debt securities are issued at an original issue discount, then the offering price shall be in such greater principal amount as shall result in an aggregate price to investors not to exceed $100,000,000.
(5)		In no event will the aggregate offering price of all securities issued from time to time pursuant to this registration statement exceed $100,000,000.

     The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer and sale is not permitted.

PRELIMINARY PROSPECTUS

$100,000,000

Common Stock
Preferred Stock
Warrants
Debt Securities

     MVC Capital, Inc. is a closed-end management investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). Our investment objective is to seek to maximize total return from capital appreciation and/or income. We seek to achieve our investment objective primarily by providing equity and debt financing to small and middle-market companies that are, for the most part, privately owned. No assurances can be given that we will achieve our objective.

     We are managed by The Tokarz Group Advisers LLC, a registered investment adviser.

     We may offer, from time to time, in one or more offerings or series, together or separately, up to $100,000,000 of our common stock, preferred stock, debt securities or warrants representing rights to purchase shares of our common stock, preferred stock or debt securities, which we refer to, collectively, as the “securities.” The securities may be offered at prices and on terms to be described in one or more supplements to this prospectus.

     Our common stock is traded on the New York Stock Exchange under the symbol “MVC.”

     This prospectus, and the accompanying prospectus supplement, if any, sets forth information about us that a prospective investor should know before investing. It includes the information required to be included in a prospectus and statement of additional information. Please read it before you invest and keep it for future reference. You may request a free copy of this prospectus, and the accompanying prospectus supplement, if any, annual and quarterly reports, and other information about us, and make shareholder inquiries by calling (914) 510-9400, by writing to us or from our website at www.mvccapital.com. Additional information about us has been filed with the Securities and Exchange Commission and is available on the Securities and Exchange Commission’s website at www.sec.gov.

     Investing in our securities involves a high degree of risk. Before buying any securities, you should read the discussion of the material risks of investing in our securities in “Risk Factors” beginning on page 16 of this prospectus.

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

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

January 29, 2007

TABLE OF CONTENTS

     You should rely only on the information contained in this prospectus and the accompanying prospectus supplement, if any. We have not authorized anyone to provide you with additional information, or information different from that contained in this prospectus and the accompanying prospectus supplement, if any. If anyone provides you with different or additional information, you should not rely on it. We are offering to sell, and seeking offers to buy, securities only in jurisdictions where offers and sales are permitted. The information contained in or incorporated by reference in this prospectus and the accompanying prospectus supplement, if any, is accurate only as of the date of this prospectus or such prospectus supplement. Our business, financial condition, results of operations and prospects may have changed since then.

		Page
PROSPECTUS SUMMARY			4
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA			12
FEES AND EXPENSES			13
WHERE YOU CAN FIND ADDITIONAL INFORMATION			14
RISK FACTORS			16
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS			25
USE OF PROCEEDS			26
PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS			26
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			27
SENIOR SECURITIES			52
THE COMPANY			53
PORTFOLIO COMPANIES			62
DETERMINATION OF COMPANY’S NET ASSET VALUE			66
MANAGEMENT			68
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS			74
ADVISORY AGREEMENT			76
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES			85
FEDERAL INCOME TAX MATTERS			88
CERTAIN GOVERNMENT REGULATIONS			92
DIVIDEND REINVESTMENT PLAN			94
DESCRIPTION OF SECURITIES			95
PLAN OF DISTRIBUTION			96
LEGAL COUNSEL			97
SAFEKEEPING, TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR			97
BROKERAGE ALLOCATION AND OTHER PRACTICES			97
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			98
INDEX TO FINANCIAL STATEMENTS			F-1

ABOUT THIS PROSPECTUS

     This prospectus is part of a registration statement that we have filed with the Securities and Exchange Commission, or SEC, using the “shelf” registration process. Under the shelf registration process, we may offer, from time to time, up to an aggregate of $100,000,000 of our common stock, preferred stock, debt securities or warrants representing rights to purchase shares of our common stock, preferred stock or debt securities on the terms to be determined at the time of the offering. The securities may be offered at prices and on terms described in one or more supplements to this prospectus. This prospectus provides you with a general description of the securities that we may offer. Each time we use this prospectus to offer securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus. Please carefully read this prospectus and any prospectus supplement together with any exhibits and the additional information described under the heading “Available Information” and the section under the heading “Risk Factors” before you make an investment decision.

PROSPECTUS SUMMARY

     The following summary highlights some of the information in this prospectus. It is not complete and may not contain all the information that you may want to consider. We encourage you to read this entire document and the documents to which we have referred.

     In this prospectus and any accompanying prospectus supplement, unless otherwise indicated, “MVC Capital,” “we,” “us,” “our” or the “Company” refer to MVC Capital, Inc. and its subsidiary, MVC Financial Services, Inc (“MVCFS”), and “TTG Advisers” or the “Adviser” refers to The Tokarz Group Advisers LLC. Unless the context dictates otherwise, “we” also refers to TTG Advisers acting on behalf of MVC Capital.

THE COMPANY

     MVC Capital is an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company under the 1940 Act. MVC Capital provides equity and debt investment capital to fund growth, acquisitions and recapitalizations of small and middle-market companies in a variety of industries primarily located in the United States. Our investments can take the form of common and preferred stock and warrants or rights to acquire equity interests, senior and subordinated loans, or convertible securities. Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “MVC.”

     Although the Company has been in operation since 2000, the year 2003 marked a new beginning for the Company. In February 2003, shareholders elected an entirely new board of directors. The board of directors developed a new long-term strategy for the Company. In September 2003, upon the recommendation of the board of directors, shareholders voted to adopt a new investment objective for the Company of seeking to maximize total return from capital appreciation and/or income. The Company’s prior objective had been limited to seeking long-term capital appreciation from venture capital investments in information technology industries. Consistent with our broader objective, we adopted a more flexible investment strategy of providing equity and debt financing to small and middle-market companies in a variety of industries. With the recommendation of the board of directors, shareholders also voted to appoint Michael Tokarz as Chairman and Portfolio Manager to lead the implementation of our new objective and strategy and to stabilize the existing portfolio. Prior to the arrival of Mr. Tokarz and his new management team in November 2003, the Company had experienced significant valuation declines from investments made by the former management team. After only three quarters of operations under the new management team, the Company posted a profitable third quarter for the fiscal year 2004, reversing a trend of 12 consecutive quarters of net investment losses and earned a profit for the entire fiscal year. The Company has continued to be profitable in each of the last eight quarters since then and has recorded net operating income of approximately $5.7 million and $3.9 million for the fiscal years ended October 31, 2005 and October 31, 2006, respectively. The change in net assets resulting from operations increased from $11.6 million at the end of the fiscal year 2004 to $26.3 million as of the end of the fiscal year 2005 and to $47.3 million as of the end of the fiscal year 2006.

     On September 7, 2006, the shareholders of the Company approved the Investment Advisory and Management Agreement, dated October 31, 2006 (the “Advisory Agreement”) (with over 92% of the votes cast on the agreement voting in its favor), which provided for the Company to be externally managed by The Tokarz Group Advisers LLC (“TTG Advisers”). The agreement took effect on November 1, 2006. TTG Advisers was organized to provide investment advisory and management services to the Company and other investment vehicles. TTG Advisers is a registered investment adviser that is controlled by Mr. Tokarz. All of the individuals (including the Company’s investment professionals) that had been previously employed by the Company as of the fiscal year ended October 31, 2006 are now employed by TTG Advisers and are expected to continue to provide services to the Company. It is anticipated that the Company’s investment strategy and selection process will remain the same under the externalized management structure.

ABOUT MVC CAPITAL

     The Company is managed by TTG Advisers, the Company’s investment adviser. The investment team of TTG Advisers is headed by Michael Tokarz, who has over 30 years of lending and investment experience. TTG Advisers has a dedicated originations and transaction development investment team with significant experience in private equity, leveraged finance, investment banking, distressed debt transactions and business operations. The members of the investment team have invested in and managed businesses during both recessionary and expansionary periods and through full interest rate cycles and financial market conditions. TTG Advisers has eight full-time investment professionals and one part-time investment professional, the majority of whom were previously employed by the

Company. TTG Advisers also uses the services of other investment professionals with whom it has developed long-term relationships, on an as-needed basis. In addition, TTG Advisers employs five other full-time professionals and one part-time professional who manage the operations of the Company and provide investment support functions both directly and indirectly to our portfolio companies. As TTG Advisers grows, it expects to hire, train, supervise and manage new employees at various levels, many of which would be expected to provide services to the Company.

      The fiscal year 2006 represented a positive year for the Company. The Company made 16 new investments and eight follow-on investments. The Company committed a total of $166.3 million of capital in the fiscal year 2006, compared to $53.8 million and $60.7 million in the fiscal years 2005 and 2004, respectively. The fiscal year 2006 new investments included: Turf Products, LLC (“Turf”), Strategic Outsourcing, Inc. (“SOI”), Henry Company (“Henry”), SIA BM Auto (“BM Auto”), Storage Canada, LLC (“Storage Canada”), Phoenix Coal Corporation (“Phoenix”), Harmony Pharmacy & Health Center, Inc. (“Harmony Pharmacy”), Total Safety U.S., Inc. (“Total Safety”), PreVisor, Inc. (“PreVisor”), Marine Exhibition Corporation (“Marine”), BP, Velocitius B.V. (“Velocitius”), Summit Research Labs, Inc. (“Summit”), Octagon, auto MOTOL BENI (“BENI”), and Innovative Brands LLC (“Innovative Brands”). The fiscal year 2006 follow-on investments included: Dakota Growers Pasta Company, Inc. (“Dakota”), Baltic Motors Corporation (“Baltic Motors”), SGDA Sanierungsgesellschaft fur Deponien und Altasten mbH (“SGDA”), Amersham Corporation (“Amersham”), Timberland Machines & Irrigation, Inc. (“Timberland”), SP Industries, Inc. (“SP”), Harmony Pharmacy, and Velocitius.

     The fiscal year 2005 investments included: JDC Lighting, LLC (“JDC”), SGDA, SP, BP Clothing, LLC (“BP”), Ohio Medical Corporation (“Ohio”), Amersham, Timberland, Vestal Manufacturing Enterprises, Inc. (“Vestal”), and Impact Confections, Inc. (“Impact”).

     We continue to perform due diligence and seek new investments that are consistent with our objective of maximizing total return from capital appreciation and/or income. We believe that we have extensive relationships with private equity firms, investment banks, business brokers, commercial banks, accounting firms, law firms, hedge funds, other investment firms, industry professionals and management teams of several companies, which can continue to provide us with investment opportunities.

     We are currently working on an active pipeline of potential new investment opportunities. We expect that our equity and loan investments will generally range between $3 million and $25 million each, though we may occasionally invest smaller or greater amounts of capital depending upon the particular investment. While the Company does not adhere to a specific equity and debt asset allocation mix, no more than 25% of the value of our total assets may be invested in the securities of one issuer (other than U.S. government securities), or of two or more issuers that are controlled by us and are engaged in the same or similar or related trades or businesses as of the close of each quarter. Our portfolio company investments are typically illiquid and are made through privately negotiated transactions. We generally seek to invest in companies with a history of strong, predictable, positive EBITDA (net income before net interest expense, income tax expense, depreciation and amortization).

     Our portfolio company investments currently consist of common and preferred stock, other forms of equity interest and warrants or rights to acquire equity interests, senior and subordinated loans, and convertible securities. At October 31, 2006, the value of all investments in portfolio companies was approximately $275.9 million and our gross assets were approximately $347.0 million.

     We expect that our investments in senior loans and subordinated debt will generally have stated terms of three to ten years. However, there is no limit on the maturity or duration of any security in our portfolio. Our debt investments are not, and typically will not be, rated by any rating agency, but we believe that if such investments were rated, they would be below investment grade (rated lower than “Baa3” by Moody’s or lower than “BBB-” by Standard & Poor’s). In addition, we may invest without limit in debt of any rating, including debt that has not been rated by any nationally recognized statistical rating organization.

     Our board of directors has the authority to change any of the strategies described in this prospectus without seeking the approval of our shareholders. However, the 1940 Act prohibits us from altering or changing our investment objective, strategies or policies such that we cease to be a business development company, nor can we

voluntarily withdraw our election to be regulated as a business development company, without the approval of the holders of a “majority,” as defined in the 1940 Act, of our outstanding voting securities.

COMPETITIVE ADVANTAGES

     We believe that we enjoy the following competitive advantages over various other capital providers to small and middle-market companies:

     Existing Investment Platform: As of October 31, 2006, we had approximately $347.0 million in gross assets under management. The Company made 16 new investments and eight follow-on investments pursuant to its new strategy of maximizing capital appreciation and/or income. We believe that our current investment platform provides us with the ability to, among other things, identify unique investment opportunities and conduct marketing activities and extensive due diligence for potential investments.

     New Capital Sources: We have ongoing access to sources of capital from the public debt and equity markets. This allows us access to different sources of capital versus private funds within a short time frame.

     Oversight: The public nature of the Company allows for oversight not normally found in a typical private equity firm. This oversight is provided by the SEC, the NYSE, the Company’s board of directors and, most importantly, the Company’s shareholders. The Company, through its periodic filings with the SEC, provides transparency into its investment portfolio and operations thus allowing shareholders access to information about the Company on a regular basis.

     Patient Capital: The Company’s public nature allows its shareholders to freely trade its stock. Due to this fact, the Company can be more patient with its invested capital as there is not a limited investment horizon or fund life which is normally seen in typical private equity funds.

     Seasoned Investment Team: We capitalize on the team’s significant combined experience in investing in leveraged loans, high yield bonds, mezzanine debt, distressed debt, private equity transactions and business operations. Collectively, the investment team has significant capital markets, investing and research experience and has invested and managed during both recessionary and expansionary periods and through full interest rate cycles and financial market conditions. We believe that the investment team’s extensive relationships with financial institutions and companies, across a broad range of industries, provides us with the ability to identify and invest in small and middle-market companies.

     Counsel to Portfolio Companies: We provide support for our portfolio companies in different ways including: offering advice to senior management on strategies for realizing their objectives, advising or participating on their boards of directors, offering ideas to help increase sales, reviewing monthly/quarterly financial statements, offering advice on improving margins and saving costs, helping to augment the management team, and providing access to external resources (e.g., financial, legal, accounting, or technology).

     Diverse Industry Knowledge: We provide financing to companies in a variety of industries. We generally look at companies with secure market niches and a history of predictable or dependable cash flows in which members of the investment team have prior investment experience. We believe that the ability to invest in portfolio companies in various industries has the potential to give our portfolio greater diversity.

     Creative and Extensive Transaction Structuring: We are flexible in the types of securities in which we invest and their structures. We believe that the investment team’s creativity and flexibility in structuring investments, coupled with our ability to invest in portfolio companies across various industries, gives us the ability to identify unique investment opportunities and provides us with the opportunity to be a “one-stop” capital provider to numerous small and middle-market companies.

     Disciplined and Opportunistic Investment Philosophy: Our investment philosophy and method of portfolio construction involves an assessment of the overall macroeconomic environment, financial markets and company-specific research and analysis. While the composition of our portfolio may change based on our opportunistic investment philosophy, we continue to seek to provide long-term equity and debt investment capital to small and

middle-market companies that we believe will provide us strong returns on our investments while taking into consideration the overall risk profile of the specific investment.

     Tax Status and Capital Loss Carryforwards: It is the policy of the Company to meet the requirements for qualification as a “regulated investment company” (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The Company is not subject to federal income tax to the extent that it distributes substantially all of its investment company taxable income and net realized gains for its taxable year (see “Federal Income Tax Matters”). This allows us to attract different kinds of investors than other publicly held corporations. The Company is also exempt from excise tax if it distributes 98% of its ordinary income and/or capital gains during each calendar year. As of October 31, 2006, the Company had a net capital loss carryforward of approximately $73.5 million, of which $28.2 million will expire in the year 2010, $4.2 million will expire in the year 2011, $37.8 million will expire in the year 2012 and $3.3 million will expire in the year 2013. To the extent future capital gains are offset by capital loss carryforwards, such gains need not be distributed.

     Capital loss carryforwards may be subject to additional limitations as a result of capital share activity. As of October 31, 2006, the Company also had net unrealized capital loss carryforwards of approximately $11.6 million, which is not included in the aforementioned net capital loss carryforwards balance.

OPERATING AND REGULATORY STRUCTURE

     Our tax status generally allows us to “pass-through” our income to our shareholders as dividends without the imposition of corporate level of taxation, if certain requirements are met. See “Federal Income Tax Matters.”

     As a business development company, we are required to meet certain regulatory tests, the most significant relating to our investments and borrowings. We are required to have at least 70% of the value of our total assets invested in “eligible portfolio companies” or cash or cash equivalents. Generally, U.S.-based, privately held or thinly-traded public companies are deemed “eligible portfolio companies” under the 1940 Act. A business development company must also maintain a coverage ratio of assets to borrowings of at least 200%. See “Certain Government Regulations.”

     As a business development company, we must make available significant managerial assistance to our portfolio companies. We provide support for our portfolio companies in several different ways including: offering advice to senior management on strategies for realizing their objectives, advising or participating on their boards of directors, offering ideas to help increase sales, reviewing monthly/quarterly financial statements, offering advice on improving margins and saving costs, helping to augment the management team, and providing access to external resources (e.g., financial, legal, accounting, or technology). We may receive fees for these services.

PLAN OF DISTRIBUTION

     We may offer, from time to time, up to $100,000,000 of our common stock, preferred stock, debt securities or warrants representing rights to purchase shares of our common stock, preferred stock or debt securities, on terms to be determined at the time of the offering.

     Securities may be offered at prices and on terms described in one or more supplements to this prospectus directly to one or more purchasers, through agents designated from time to time by us, or to or through underwriters or dealers. The supplement to this prospectus relating to the offering will identify any agents or underwriters involved in the sale of our securities, and will set forth any applicable purchase price, fee and commission or discount arrangement or the basis upon which such amount may be calculated.

     We may not sell securities pursuant to this prospectus without delivering a prospectus supplement describing the method and terms of the offering of such securities. See “Plan of Distribution.”

USE OF PROCEEDS

     We intend to use the net proceeds from the sale of our securities for general corporate purposes, including investing in portfolio companies in accordance with our investment objective and strategy and repaying debt. Pending such investments, we will hold the net proceeds from the sale of our securities in cash or invest all or a portion of such net proceeds in short term, highly liquid investments. The supplement to this prospectus relating to an offering will more fully identify the use of the proceeds from such offering.

DETERMINATION OF COMPANY’S NET ASSET VALUE

     Pursuant to the requirements of the 1940 Act, we value our portfolio securities at their current market value or, if market quotations are not readily available, at their estimates of fair values. Because our portfolio company investments generally do not have readily ascertainable market values, we record these investments at fair value in accordance with Valuation Procedures adopted by our board of directors. Our board of directors may also hire independent consultants to review our Valuation Procedures or to conduct an independent valuation of one or more of our portfolio investments.

     At October 31, 2006, approximately 79.5% of our total assets represented portfolio investments recorded at fair value. Pursuant to our Valuation Procedures, our Valuation Committee (“Valuation Committee”) (which is currently comprised of three independent directors) determines fair valuations of our portfolio companies on a quarterly basis (or more frequently, if deemed appropriate under the circumstances). Any changes in valuation are recorded in the statements of operations as “Net unrealized gain (loss) on investments.”

     There is no one methodology to determine fair value and, in fact, for any portfolio security, fair value may be expressed as a range of values, from which we derive a single estimate of fair value. We specifically value each individual investment and record unrealized depreciation for an investment that we believe has become impaired, including where collection of a loan or realization of an equity security is doubtful or diminished. Conversely, we will record unrealized appreciation if we have an indication (based on a significant development) that the underlying portfolio company has appreciated in value and, therefore, our equity security has also appreciated in value, where appropriate. Without a readily ascertainable market value and because of the inherent uncertainty of fair valuation, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material.

DISTRIBUTIONS

     Currently, the Company has a policy of seeking to pay quarterly dividends to shareholders. Our quarterly dividends, if any, will be determined by our board of directors. Most recently, on December 14, 2006, our board of directors declared a regular quarterly dividend of $0.12 per share and an additional special dividend of $0.06 which was paid on January 5, 2007 to shareholders of record on December 28, 2006.

     We intend to continue to qualify for treatment as a RIC under Subchapter M of the Code. To qualify for such treatment, in addition to meeting other requirements, we must distribute to our shareholders for each taxable year at least 90% of (i) our investment company taxable income (consisting generally of net investment income from interest and dividends and net short term capital gains) and (ii) our net tax-exempt interest, if any. See “Federal Income Tax Matters.”

DIVIDEND REINVESTMENT PLAN

     All of our shareholders who hold shares of common stock in their own name will automatically be enrolled in our dividend reinvestment plan (the “Plan”). All such shareholders will have any cash dividends and distributions automatically reinvested by Computershare Ltd. (f/k/a EquiServe) (the “Plan Agent”) in additional shares of our common stock. Any shareholder may, of course, elect to receive his or her dividends and distributions in cash. Currently, the Company has a policy of seeking to pay quarterly dividends to shareholders. For any of our shares that are held by banks, brokers or other entities that hold our shares as nominees for individual shareholders, the Plan Agent will administer the Plan on the basis of the number of shares certified by any nominee as being registered for shareholders that have not elected to receive dividends and distributions in cash. To receive your dividends and distributions in cash, you must notify the Plan Agent.

     The Plan Agent serves as agent for the shareholders in administering the Plan. If we declare a dividend or distribution payable in cash or in additional shares of our common stock, those shareholders participating in the Plan will receive their dividend or distribution in additional

shares of our common stock. Such shares will be either newly issued by us or purchased in the open market by the Plan Agent. If the market value of a share of our common stock on the payment date for such dividend or distribution equals or exceeds the net asset value per share on that date, we will issue new shares at the net asset value. If the net asset value exceeds the market price of our common stock, the Plan Agent will purchase in the open market such number of shares as is necessary to complete the distribution.

CORPORATE INFORMATION

     Our principal executive office is located at 287 Bowman Avenue, 2nd Floor, Purchase, New York 10577 and our telephone number is (914) 701-0310.

     Our Internet website address is http://www.mvccapital.com. Information contained on our website is not incorporated by reference into this prospectus and you should not consider information contained on our website to be part of this prospectus unless otherwise indicated.

RISK FACTORS

     Investment in MVC Capital involves certain significant risks relating to our business and investment objective. We have identified below a summary of these risks. For a more complete description of the risk factors impacting an investment in our securities, we urge you to read the “Risk Factors” section. There can be no assurance that we will achieve our investment objective and an investment in the Company should not constitute a complete investment program for an investor.

BUSINESS RISKS

	•		We depend on key personnel of TTG Advisers, especially Mr. Tokarz, in seeking to achieve our investment objective.
	•		Our investment adviser, TTG Advisers, is a newly-formed entity.
	•		Our returns may be substantially lower than the average returns historically realized by the private equity industry as a whole.
	•		Substantially all of our portfolio investments are recorded at “fair value” and, as a result, there is a degree of uncertainty regarding the carrying values of our portfolio investments.
	•		Economic recessions or downturns could impair our portfolio companies and harm our operating results.
	•		We may not realize gains from our equity investments.
	•		The market for private equity investments can be highly competitive. In some cases, our status as a regulated business development company may hinder our ability to participate in investment opportunities.
	•		Loss of pass-through tax treatment would substantially reduce net assets and income available for dividends.
	•		Changes in the law or regulations that govern us could have a material impact on our business.
	•		Results may fluctuate and may not be indicative of future performance.
	•		Our common stock price can be volatile.
	•		We are subject to market discount risk.
	•		We have not established a minimum dividend payment level and we cannot assure you of our ability to make distributions to our shareholders in the future.
	•		We have borrowed and may continue to borrow money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us.
	•		Changes in interest rates may affect our cost of capital and net operating income.
	•		We may be unable to meet our covenant obligations under our credit facility which could adversely affect our business.
	•		We have a limited operating history upon which you can evaluate our new management team.
	•		A portion of our existing investment portfolio was not selected by the investment team of TTG Advisers.
	•		Under the Advisory Agreement, TTG Advisers is entitled to compensation based on our portfolio’s performance. This arrangement may result in riskier or more speculative investments in an effort to maximize incentive compensation.
	•		There are potential conflicts of interest that could impact our investment returns.

	•		The war with Iraq, terrorist attacks and other acts of violence or war may affect any market for our common stock, impact the businesses in which we invest and harm our operations and our profitability.
	•		Our financial condition and results of operations will depend on our ability to effectively manage our future growth.

INVESTMENT RISKS

	•		Investing in private companies involves a high degree of risk.
	•		Our investments in portfolio companies are generally illiquid.
	•		Our investments in small and middle-market privately-held companies are extremely risky and the Company could lose its entire investment.
	•		Our borrowers may default on their payments, which may have an effect on our financial performance.
	•		Our investments in mezzanine and other debt securities may involve significant risks.
	•		When we are a debt or minority equity investor in a portfolio company, we may not be in a position to control the entity, and management of the company may make decisions that could decrease the value of our portfolio holdings.
	•		We may choose to waive or defer enforcement of covenants in the debt securities held in our portfolio, which may cause us to lose all or part of our investment in these companies.
	•		Our portfolio companies may incur obligations that rank equally with, or senior to, our investments in such companies. As a result, the holders of such obligations may be entitled to payments of principal or interest prior to us, preventing us from obtaining the full value of our investment in the event of an insolvency, liquidation, dissolution, reorganization, acquisition, merger or bankruptcy of the relevant portfolio company.
	•		Our portfolio investments may be concentrated in a limited number of portfolio companies, which would magnify the effect if one of those companies were to suffer a significant loss. This could negatively impact our ability to pay dividends and cause you to lose all or part of your investment.
	•		Investments in foreign debt or equity may involve significant risks in addition to the risks inherent in U.S. investments.

OFFERING RISKS

	•		Our common stock price can be volatile.
	•		Investing in our securities may involve an above average degree of risk.
	•		We may allocate the net proceeds from this offering in ways with which you may not agree.
	•		Sales of substantial amounts of our securities may have an adverse effect on the market price of our securities.
	•		Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which could dilute our existing shareholders and be senior to our common stock for the purposes of distributions, may harm the value of our common stock.

SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA

     You should read the condensed consolidated financial information below with the Consolidated Financial Statements and Notes thereto included in this prospectus. Financial information for the fiscal years ended October 31, 2006, 2005, 2004 and 2003 are derived from the consolidated financial statements, which have been audited by Ernst & Young LLP, the Company’s current independent registered public accounting firm. The following selected financial data for the fiscal year ended October 31, 2002 is derived from the financial statements, which were audited by the Company’s former independent public accounting firm. Quarterly financial information is derived from unaudited financial data, but in the opinion of management, reflects all adjustments (consisting only of normal recurring adjustments), which are necessary to present fairly the results for such interim periods. Notes referred to below are references to the “Notes to Consolidated Financial Statements,” which begin on page F-12. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 27 for more information.

		Year Ended October 31,
		2006				2005				2004				2003				2002
		(In thousands of U.S. dollars, except per share data )
Operating Data:
Interest and related portfolio income:
Interest and dividend income		$	13,909			$	9,457			$	2,996			$	2,833			$	3,740
Fee income			3,828				1,809				926				62				—
Other income			771				933				64				—				—
Total operating income			18,508				12,199				3,986				2,895				3,740
Expenses:
Employee			3,499				2,336				1,366				2,476				696
Incentive compensation (Note 5)			6,055				1,117				—				—				—
Administrative			3,420				3,021				2,891				8,911	(1)			2,573
Interest and other borrowing costs			1,594				31				2				—				—
Management fee			—				—				—				—				3,593
Total operating expenses			14,568				6,505				4,259				11,387				6,862
Litigation recovery of management fees (Note 12, 13)			—				—				370				—				—
			3,940				5,694				97				(8,492	)			(3,122	)
Tax expense (benefit), net			159				(101	)			79				—				—
Net operating income (loss)			3,781				5,795				18				(8,492	)			(3,122	)
Net realized and unrealized gains (losses):
Net realized gains (losses)			5,221				(3,295	)			(37,795	)			(4,220	)			(33,469	)
Net change in unrealized appreciation (depreciation)			38,334				23,768				49,382				(42,771	)			(21,765	)
Net realized and unrealized gains (losses) on investments			43,555				20,473				11,587				(46,991	)			(55,234	)
Net increase (decrease) in net assets resulting from operations		$	47,336			$	26,268			$	11,605			$	(55,483	)		$	(58,356	)
Per Share:
Net increase (decrease) in net assets per share resulting from operations		$	2.48			$	1.45			$	0.91			$	(3.42	)		$	(3.54	)
Dividends per share			0.48				0.24				0.12				—				0.04
Balance Sheet Data:
Portfolio at value		$	275,892			$	122,298			$	78,520			$	24,071			$	54,194
Portfolio at cost			286,851				171,591				151,582				146,515				133,864
Total assets			347,047				201,379				126,577				137,880				196,511
Shareholders’ equity			236,993				198,707				115,567				137,008				195,386
Shareholders’ equity per share (net asset value)			12.41				10.41				9.40				8.48				11.84
Common shares outstanding at period end			19,094				19,087				12,293				16,153				16,500
Other Data:
Number of Investments funded in period			24				9				7				5				10
Investments funded ($) in period		$	166,300			$	53,836			$	60,710			$	21,955			$	26,577

		2006																2005																2004
		Qtr 4				Qtr 3				Qtr 2				Qtr 1				Qtr 4				Qtr 3				Qtr2				Qtr 1				Qtr 4				Qtr 3(2)				Qtr 2				Qtr 1
		(in thousands of U.S. dollars, except per share data)
Quarterly Data (Unaudited):
Total operating income			6,104				4,607				3,915				3,882				3,361				4,404				2,439				1,995				1,811				951				508				716
Net operating income (loss) before net realized and unrealized gains			1,723				1,072				156				830				1,612				2,480				821				882				665				281				(498	)			(430	)
Net increase (decrease) in net assets resulting from operations			15,866				8,046				11,117				12,307				8,933				10,310				4,360				2,665				3,274				4,922				1,104				2,305
Net increase (decrease) in net assets resulting from operations per share			0.83				0.42				0.58				0.65				0.46				0.58				0.23				0.18				0.27				0.41				0.09				0.14
Net assets value per share			12.41				11.70				11.40				10.94				10.41				10.06				9.64				9.41				9.40				9.25				8.85				8.76

FEES AND EXPENSES

     This table describes the various costs and expenses that an investor in our common stock will bear directly or indirectly.

Shareholder Transaction Expenses

Sales load			%	(1)
Offering expenses borne by us (as a percentage of offering price)			%	(2)
Total shareholder transaction expenses (as a percentage of offering price)			%	(3)
Estimated Annual Expenses (as a percentage of average consolidated net assets attributable to common stock)(4)
Management fees			2.61	%(5)
Incentive fees payable under Advisory Agreement (20% of net realized capital gains (on new portfolio) and 20% of pre-incentive fee net operating income)			2.82	%(5)
Other expenses			1.31	%(6)
Interest payments on borrowed funds			0.74	%(7)
Total annual expenses			7.48	%
Amount waived under Expense Cap			0.67	%(8)
Total annual expenses after Expense Cap			6.81	%

Estimated Annual Expenses (as a percentage of total assets)

Management fees			2.00	%(5)
Incentive fees payable under Advisory Agreement (20% of net realized capital gains (on new portfolio) and 20% of pre-incentive fee net operating income)			2.16	%(5)
Other expenses			1.00	%(6)
Interest payments on borrowed funds			0.57	%(7)
Total annual expenses			5.73	%

Amount waived under Expense Cap			0.52	%(8)
Total annual expenses after Expense Cap			5.21	%

Example

     The following example, required by the SEC, demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in us. In calculating the following expense amounts, we assumed we would have no leverage and that our operating expenses would remain at the levels set forth in the table above.

		1 Year				3 Years				5 Years				10 Years
You would pay the following cumulative expenses on a $1,000 investment, assuming a 5.0% annual return		$	67			$	199			$	325			$	622

     Although the example assumes (as required by the SEC) a 5.0% annual return, our performance will vary and may result in a return of greater or less than 5.0%. In addition, while the example assumes reinvestment of all dividends and distributions at net asset value, participants in the dividend reinvestment plan may receive shares of common stock that we issue at net asset value or are purchased by the administrator of the dividend reinvestment plan, at the market price in effect at the time, which may be at or below net asset value. See “Dividend Reinvestment Plan.”

     The example should not be considered a representation of future expenses, and the actual expenses may be greater or less than those shown.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     We have filed with the SEC a registration statement on Form N-2 together with all amendments and related exhibits under the Securities Act of 1933. The registration statement contains additional information about us and

the common stock being offered by this prospectus. You may inspect the registration statement and the exhibits without charge at the SEC at 100 F Street, NE, Washington, DC 20549. You may obtain copies from the SEC at prescribed rates.

     We file annual, quarterly and current reports, proxy statements and other information with the SEC. You can inspect our SEC filings, without charge, at the public reference facilities of the SEC at 100 F Street, NE, Washington, DC 20549. The SEC also maintains a web site at http://www.sec.gov that contains our SEC filings. You can also obtain copies of these materials from the public reference section of the SEC at 100 F Street, NE, Washington, DC 20549, at prescribed rates. Please call the SEC at 1-202-551-8090 for further information on the public reference room. Copies may also be obtained, after paying a duplicating fee, by electronic request to publicinfo@sec.gov or by written request to Public Reference Section, Washington, DC 20549-0102. You can also inspect reports and other information we file at the offices of the NYSE, and you are able to inspect those at 20 Broad Street, New York, NY 10005.

RISK FACTORS

     Investing in MVC Capital involves a number of significant risks relating to our business and investment objective. As a result, there can be no assurance that we will achieve our investment objective. In addition to the other information contained in this prospectus, you should consider carefully the following information before making an investment in our common stock. The Company’s risk factors include those directly related to the Company’s business, its investments, and potential offerings.

BUSINESS RISKS

Business risks are risks that are associated with general business conditions, the economy, and the operations of the Company. Business risks are not risks associated with our specific investments or an offering of our securities.

We depend on key personnel of TTG Advisers, especially Mr. Tokarz, in seeking to achieve our investment objective.

     We depend on the continued services of Mr. Tokarz and certain other key management personnel of TTG Advisers. If we were to lose access to any of these personnel, particularly Mr. Tokarz, it could negatively impact our operations and we could lose business opportunities. Mr. Tokarz has entered into an agreement with TTG Advisers pursuant to which he has agreed to serve as the Company’s Portfolio Manager for the full twenty-four calendar months following November 1, 2006, absent the occurrence of certain extraordinary events. Furthermore, the Advisory Agreement may not be terminated by TTG Advisers during the initial two-year term of the Advisory Agreement. However, there is still a risk that Mr. Tokarz’s expertise may be unavailable to the Company, which could significantly impact the Company’s ability to achieve its investment objective.

Our investment adviser, TTG Advisers, is a newly-formed entity.

     Our future success depends to a significant extent on the services of our investment adviser. We are dependent for the selection, structuring, closing, and monitoring of our investment on the diligence and skill of our newly-formed investment adviser. TTG Advisers identifies, evaluates, structures, monitors and disposes of our investments, and the services it provides significantly impact our results of operations. Because TTG Advisers is newly formed, it has a limited operating history and limited equity capital. However, Mr. Tokarz and the Company’s investment and operations professionals that had been employed by the Company, as of the fiscal year ended October 31, 2006, are now employed by TTG Advisers and are expected to continue to provide services to the Company.

Our returns may be substantially lower than the average returns historically realized by the private equity industry as a whole.

     Past performance of the private equity industry is not necessarily indicative of that sector’s future performance, nor is it necessarily a good proxy for predicting the returns of the Company. We cannot guarantee that we will meet or exceed the rates of return historically realized by the private equity industry as a whole. Additionally, our overall returns are impacted by certain factors related to our structure as a publicly-traded business development company, including:

	•		the lower return we are likely to realize on short-term liquid investments during the period in which we are identifying potential investments, and
	•		the periodic disclosure required of business development companies, which could result in the Company being less attractive as an investor to certain potential portfolio companies.

Substantially all of our portfolio investments are recorded at “fair value” and, as a result, there is a degree of uncertainty regarding the carrying values of our portfolio investments.

     Pursuant to the requirements of the 1940 Act, because our portfolio company investments do not have readily ascertainable market values, we record these investments at fair value in accordance with Valuation Procedures adopted by our board of directors.

     At October 31, 2006, approximately 79.5% of our total assets represented portfolio investments recorded at fair value.

     There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. We specifically value each individual investment and record unrealized depreciation for an investment that we believe has become impaired, including where collection of a loan or realization of an equity security is doubtful. Conversely, we will record unrealized appreciation if we have an indication (based on a significant development) that the underlying portfolio company has appreciated in value and, therefore, our equity security has also appreciated in value, where appropriate. Without a readily ascertainable market value and because of the inherent uncertainty of fair valuation, fair value of our investments may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material.

     Pursuant to our valuation procedures, our Valuation Committee (which is currently comprised of three independent directors) reviews, considers and determines fair valuations on a quarterly basis (or more frequently, if deemed appropriate under the circumstances). Any changes in valuation are recorded in the statements of operations as “Net change in unrealized appreciation (depreciation) on investments.”

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

     Many of the companies in which we have made or will make investments may be susceptible to economic slowdowns or recessions. An economic slowdown may affect the ability of a company to engage in a liquidity event. These conditions could lead to financial losses in our portfolio and a decrease in our revenues, net income and assets.

     Our overall business of making private equity investments may be affected by current and future market conditions. The absence of an active mezzanine lending or private equity environment may slow the amount of private equity investment activity generally. As a result, the pace of our investment activity may slow, which could impact our ability to achieve our investment objective. In addition, significant changes in the capital markets could have an effect on the valuations of private companies and on the potential for liquidity events involving such companies. This could affect the amount and timing of any gains realized on our investments.

We may not realize gains from our equity investments.

     When we invest in mezzanine and senior debt securities, we may acquire warrants or other equity securities as well. We may also invest directly in various equity securities. Our goal is ultimately to dispose of such equity interests and realize gains upon our disposition of such interests. However, the equity interests we receive or invest in may not appreciate in value and, in fact, may decline in value. In addition, the equity securities we receive or invest in may be subject to restrictions on resale during periods in which it would be advantageous to resell. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.

The market for private equity investments can be highly competitive. In some cases, our status as a regulated business development company may hinder our ability to participate in investment opportunities.

     We face competition in our investing activities from private equity funds, other business development companies, investment banks, investment affiliates of large industrial, technology, service and financial companies, small business investment companies, wealthy individuals and foreign investors. As a regulated business development company, we are required to disclose quarterly the name and business description of portfolio companies and the value of any portfolio securities. Many of our competitors are not subject to this disclosure requirement. Our obligation to disclose this information could hinder our ability to invest in certain portfolio

companies. Additionally, other regulations, current and future, may make us less attractive as a potential investor to a given portfolio company than a private equity fund not subject to the same regulations. Furthermore, some of our competitors have greater resources than we do. Increased competition would make it more difficult for us to purchase or originate investments at attractive prices. As a result of this competition, sometimes we may be precluded from making certain investments.

Loss of pass-through tax treatment would substantially reduce net assets and income available for dividends.

     We have operated to qualify as a RIC. If we meet source of income, diversification and distribution requirements, we will qualify for effective pass-through tax treatment. We would cease to qualify for such pass-through tax treatment if we were unable to comply with these requirements. In addition, we may have difficulty meeting the requirement to make distributions to our shareholders because in certain cases we may recognize income before or without receiving cash representing such income. If we fail to qualify as a RIC, we will have to pay corporate-level taxes on all of our income whether or not we distribute it, which would substantially reduce the amount of income available for distribution to our shareholders. Even if we qualify as a RIC, we generally will be subject to a corporate-level income tax on the income we do not distribute. Moreover, if we do not distribute at least 98% of our income, we generally will be subject to a 4% excise tax.

Changes in the law or regulations that govern us could have a material impact on our business.

     We are regulated by the SEC. Changes in the laws or regulations that govern business development companies and RICs may significantly affect our business.

Results may fluctuate and may not be indicative of future performance.

     Our operating results will fluctuate and, therefore, you should not rely on current or historical period results to be indicative of our performance in future reporting periods. In addition to many of the above-cited risk factors, other factors could cause operating results to fluctuate including, among others, variations in the investment origination volume and fee income earned, variation in timing of prepayments, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions.

Our common stock price can be volatile.

     The trading price of our common stock may fluctuate substantially. The price of the common stock may be higher or lower than the price you pay for your shares, depending on many factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include the following:

	•		price and volume fluctuations in the overall stock market from time to time;
	•		significant volatility in the market price and trading volume of securities of business development companies or other financial services companies;
	•		volatility resulting from trading in derivative securities related to our common stock including puts, calls, long-term equity participation securities, or LEAPs, or short trading positions;
	•		changes in regulatory policies or tax guidelines with respect to business development companies or RICs;
	•		actual or anticipated changes in our earnings or fluctuations in our operating results or changes in the expectations of securities analysts;
	•		general economic conditions and trends;
	•		loss of a major funding source; or
	•		departures of key personnel.

We are subject to market discount risk.

     As with any stock, the price of our shares will fluctuate with market conditions and other factors. If shares are sold, the price received may be more or less than the original investment. Whether investors will realize gains or losses upon the sale of our shares will not depend directly upon our net asset value, but will depend upon the market price of the shares at the time of sale. Since the market price of our shares will be affected by such factors as the relative demand for and supply of the shares in the market, general market and economic conditions and other factors beyond our control, we cannot predict whether the shares will trade at, below or above our net asset value. Although our shares have recently traded at a premium to our net asset value, historically, our shares, as well as those of other closed-end investment companies, have frequently traded at a discount to their net asset value, which discount often fluctuates over time.

We have not established a minimum dividend payment level and we cannot assure you of our ability to make distributions to our shareholders in the future.

     We cannot assure that we will achieve investment results that will allow us to make cash distributions or year-to-year increases in cash distributions. Our ability to make distributions is impacted by, among other things, the risk factors described in this report. In addition, the asset coverage test applicable to us as a business development company can limit our ability to make distributions. Any distributions will be made at the discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our RIC status and such other factors as our board of directors may deem relevant from time to time. We cannot assure you of our ability to make distributions to our shareholders.

We have borrowed and may continue to borrow money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us.

     We have borrowed and may continue to borrow money (subject to the 1940 Act limits) in seeking to achieve our investment objective going forward. Borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore, can increase the risks associated with investing in our securities.

     Under the provisions of the 1940 Act, we are permitted, as a business development company, to borrow money or “issue senior securities” only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous.

     We may borrow from, and issue senior debt securities to, banks, insurance companies and other lenders. Lenders of these senior securities have fixed dollar claims on our assets that are superior to the claims of our common shareholders. If the value of our assets increases, then leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our consolidated assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our consolidated income in excess of consolidated interest payable on the borrowed funds would cause our net operating income to increase more than it would without the leverage, while any decrease in our consolidated income would cause net operating income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to make common stock dividend payments. Leverage is generally considered a speculative investment technique.

Changes in interest rates may affect our cost of capital and net operating income.

     Because we have borrowed and may continue to borrow money to make investments, our net operating income before net realized and unrealized gains or losses, or net operating income, may be dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. As a result, there can be no assurance that a significant change in market interest rates would not have a material adverse effect on our net operating income. In periods of declining interest rates, we may have difficulty investing our borrowed capital into investments that offer an appropriate return. In periods of sharply rising interest rates, our cost of funds would increase, which could reduce our net operating income. We may use a combination of long-term and short-term borrowings and equity capital to finance our investing activities. We may utilize our short-term credit facilities as a means to bridge to long-term financing. We may use interest rate risk management techniques in an effort to limit

our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act.

We may be unable to meet our covenant obligations under our credit facility which could adversely affect our business.

     On April 27, 2006, the Company and MVCFS, as co-borrowers entered into a new four-year, $100.0 million revolving credit facility (the “Credit Facility”) with Guggenheim Corporate Funding, LLC (“Guggenheim”) as administrative agent to the lenders. On April 27, 2006, the Company borrowed $45.0 million ($27.5 million drawn from the revolving credit facility and $17.5 million in term debt) under the Credit Facility. The $27.5 million drawn from the revolving credit facility was repaid in full on May 2, 2006. On July 28, 2006, the Company borrowed $57.5 million ($45.0 million drawn from the revolving credit facility and $12.5 million in term debt) under the Credit Facility. On August 2, 2006, the Company repaid the $45.0 million borrowed on the revolving credit facility portion of the Credit Facility. The Credit Facility contains certain covenants that if we were unable to meet would result in an event of default, which could result in payment of the applicable indebtedness being accelerated. In addition, if we require working capital greater than that provided by the Credit Facility, we may be required either to (i) seek to increase the availability under the Credit Facility or (ii) obtain other sources of financing. As of October 31, 2006, there was outstanding $50.0 million in term debt and $50.0 million on the revolving note under the Credit Facility.

We have a limited operating history upon which you can evaluate our new management team.

     Although we commenced operations in 2000, we changed our investment objective and strategy in September 2003 from seeking long-term capital appreciation from venture capital investments in information technology companies (primarily in the Internet, e-commerce, telecommunications, networking, software and information services industries) to an objective of seeking to maximize total return from capital appreciation and/or income. We no longer have a strategy seeking to concentrate our investments in the information technology industries and, as a result, our new investments may be in a variety of industries. Therefore, we have only a limited history of operations under our current investment objective and strategy upon which you can evaluate our business.

A portion of our existing investment portfolio was not selected by the investment team of TTG Advisers.

     As of October 31, 2006, 2.4% of the Company’s assets are represented by investments made by the Company’s former management team (the “Legacy Investments”) based on the fair values assigned to these investments by our Valuation Committee. These investments were made pursuant to the Company’s prior investment objective of seeking long-term capital appreciation from venture capital investments in information technology companies. Generally, a cash return may not be received on these investments until a “liquidity event,” i.e., a sale, public offering or merger, occurs. Until then, these Legacy Investments remain in the Company’s portfolio. We are managing them to try and realize maximum returns. Nevertheless, because they were not made in accordance with the Company’s current investment strategy, their future performance may impact our ability to achieve our current objective.

Under the Advisory Agreement, TTG Advisers is entitled to compensation based on our portfolio’s performance. This arrangement may result in riskier or more speculative investments in an effort to maximize incentive compensation.

     The way in which the compensation payable to TTG Advisers is determined may encourage the investment team to recommend riskier or more speculative investments and to use leverage to increase the return on our investments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would adversely affect our shareholders, including investors in this offering. In addition, key criteria related to determining appropriate investments and investment strategies, including the preservation of capital, might be under-weighted if the investment team focuses exclusively or disproportionately on maximizing returns.

There are potential conflicts of interest that could impact our investment returns.

     Our officers and directors, and members of the TTG Advisers investment team, may serve entities that operate in the same or similar lines of business as we do. Accordingly, they may have obligations to those entities, the fulfillment of which might not be in the best interests of us or our shareholders. It is possible that new investment opportunities that meet our investment objectives may come to the attention of one of the management team members or our officers or directors in his or her role as an officer or director of another entity or as an investment professional associated with that entity, and, if so, such opportunity might not be offered, or otherwise made available, to us.

     Additionally, as an investment adviser, TTG Advisers has a fiduciary obligation to act in the best interests of its clients, including us. To that end, if TTG Advisers manages any additional investment vehicles or client accounts in the future, TTG Advisers will endeavor to allocate investment opportunities in a fair and equitable manner. If TTG Advisers chooses to establish another investment fund in the future, when the investment professionals of TTG Advisers identify an investment, they will have to choose which investment fund should make the investment. As a result, there may be times when the investment team of TTG Advisers has interests that differ from those of our shareholders, giving rise to a conflict. In an effort to mitigate situations that give rise to such conflicts, TTG Advisers adheres to a policy (which was approved by our Board) relating to allocation of investment opportunities, which generally requires, among other things, that TTG Advisers continue to offer the Company investment opportunities in mezzanine and debt securities as well as non-control equity investments in small and middle market U.S. companies. For a further discussion of this allocation policy, please see “About MVC Capital—Our Investment Strategy—Allocation of Investment Opportunities” below.

The war with Iraq, terrorist attacks and other acts of violence or war may affect any market for our common stock, impact the businesses in which we invest and harm our operations and our profitability.

     The war with Iraq, its aftermath and the continuing occupation of Iraq are likely to have a substantial impact on the U.S. and world economies and securities markets. The nature, scope and duration of the war and occupation cannot be predicted with any certainty. Furthermore, terrorist attacks may harm our results of operations and your investment. We cannot assure you that there will not be further terrorist attacks against the United States or U.S. businesses. Such attacks and armed conflicts in the United States or elsewhere may impact the businesses in which we invest directly or indirectly, by undermining economic conditions in the United States. Losses resulting from terrorist events are generally uninsurable.

Our financial condition and results of operations will depend on our ability to effectively manage our future growth.

     Our ability to achieve our investment objectives can depend on our ability to sustain continued growth. Accomplishing this result on a cost-effective basis is largely a function of our marketing capabilities, our management of the investment process, our ability to provide competent, attentive and efficient services and our access to financing sources on acceptable terms. Failure to effectively manage our future growth could have a material adverse effect on our business, financial condition and results of operations.

INVESTMENT RISKS

     Investment risks are risks associated with our determination to execute on our business objective. These risks are not risks associated with general business conditions or those relating to an offering of our securities.

Investing in private companies involves a high degree of risk.

     Our investment portfolio generally consists of loans to, and investments in, private companies. Investments in private businesses involve a high degree of business and financial risk, which can result in substantial losses and accordingly should be considered speculative. There is generally very little publicly available information about the companies in which we invest, and we rely significantly on the due diligence of the members of the Company’s investment team to obtain information in connection with our investment decisions.

Our investments in portfolio companies are generally illiquid.

     We generally acquire our investments directly from the issuer in privately negotiated transactions. Most of the investments in our portfolio (other than cash or cash equivalents) are typically subject to restrictions on resale or otherwise have no established trading market. We may exit our investments when the portfolio company has a liquidity event, such as a sale, recapitalization or initial public offering. The illiquidity of our investments may adversely affect our ability to dispose of equity and debt securities at times when it may be otherwise advantageous for us to liquidate such investments. In addition, if we were forced to immediately liquidate some or all of the investments in the portfolio, the proceeds of such liquidation could be significantly less than the current value of such investments.

Our investments in small and middle-market privately-held companies are extremely risky and the Company could lose its entire investment.

     Investments in small and middle-market privately-held companies are subject to a number of significant risks including the following:

	•		Small and middle-market companies may have limited financial resources and may not be able to repay the loans we make to them. Our strategy includes providing financing to companies that typically do not have capital sources readily available to them. While we believe that this provides an attractive opportunity for us to generate profits, this may make it difficult for the borrowers to repay their loans to us upon maturity.
	•		Small and middle-market companies typically have narrower product lines and smaller market shares than large companies. Because our target companies are smaller businesses, they may be more vulnerable to competitors’ actions and market conditions, as well as general economic downturns. In addition, smaller companies may face intense competition, including competition from companies with greater financial resources, more extensive development, manufacturing, marketing and other capabilities, and a larger number of qualified managerial and technical personnel.
	•		There is generally little or no publicly available information about these privately-held companies. Because we seek to make investments in privately-held companies, there is generally little or no publicly available operating and financial information about them. As a result, we rely on our investment professionals to perform due diligence investigations of these privately-held companies, their operations and their prospects. We may not learn all of the material information we need to know regarding these companies through our investigations.
	•		Small and middle-market companies generally have less predictable operating results. We expect that our portfolio companies may have significant variations in their operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, may require substantial additional capital to support their operations, finance expansion or maintain their competitive position, may otherwise have a weak financial position or may be adversely affected by changes in the business cycle. Our portfolio companies may not meet net income, cash flow and other coverage tests typically imposed by their senior lenders.
	•		Small and middle-market businesses are more likely to be dependent on one or two persons. Typically, the success of a small or middle-market company also depends on the management talents and efforts of one or two persons or a small group of persons. The death, disability or resignation of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us.
	•		Small and middle-market companies are likely to have greater exposure to economic downturns than larger companies. We expect that our portfolio companies will have fewer resources than larger businesses and an economic downturn may thus more likely have a material adverse effect on them.
	•		Small and middle-market companies may have limited operating histories. We may make debt or equity investments in new companies that meet our investment criteria. Portfolio companies with limited operating

histories are exposed to the operating risks that new businesses face and may be particularly susceptible to, among other risks, market downturns, competitive pressures and the departure of key executive officers.

Our borrowers may default on their payments, which may have an effect on our financial performance.

     We may make long-term unsecured, subordinated loans, which may involve a higher degree of repayment risk than conventional secured loans. We primarily invest in companies that may have limited financial resources and that may be unable to obtain financing from traditional sources. In addition, numerous factors may adversely affect a portfolio company’s ability to repay a loan we make to it, including the failure to meet a business plan, a downturn in its industry or operating results, or negative economic conditions. Deterioration in a borrower’s financial condition and prospects may be accompanied by deterioration in any related collateral.

Our investments in mezzanine and other debt securities may involve significant risks.

     Our investment strategy contemplates investments in mezzanine and other debt securities of privately held companies. “Mezzanine” investments typically are structured as subordinated loans (with or without warrants) that carry a fixed rate of interest. We may also make senior secured and other types of loans or debt investments. Our debt investments are not, and typically will not be, rated by any rating agency, but we believe that if such investments were rated, they would be below investment grade quality (rated lower than “Baa3” by Moody’s or lower than “BBB-” by Standard & Poor’s, commonly referred to as “junk bonds”). Loans of below investment grade quality have predominantly speculative characteristics with respect to the borrower’s capacity to pay interest and repay principal. Our debt investments in portfolio companies may thus result in a high level of risk and volatility and/or loss of principal.

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

     We anticipate making debt and minority equity investments; therefore, we will be subject to the risk that a portfolio company may make business decisions with which we disagree, and the shareholders and management of such company may take risks or otherwise act in ways that do not serve our interests. Due to the lack of liquidity in the markets for our investments in privately held companies, we may not be able to dispose of our interests in our portfolio companies as readily as we would like. As a result, a portfolio company may make decisions that could decrease the value of our portfolio holdings.

We may choose to waive or defer enforcement of covenants in the debt securities held in our portfolio, which may cause us to lose all or part of our investment in these companies.

     Some of our loans to our portfolio companies may be structured to include customary business and financial covenants placing affirmative and negative obligations on the operation of each company’s business and its financial condition. However, from time to time, we may elect to waive breaches of these covenants, including our right to payment, or waive or defer enforcement of remedies, such as acceleration of obligations or foreclosure on collateral, depending upon the financial condition and prospects of the particular portfolio company. These actions may reduce the likelihood of our receiving the full amount of future payments of interest or principal and be accompanied by a deterioration in the value of the underlying collateral as many of these companies may have limited financial resources, may be unable to meet future obligations and may go bankrupt. This could negatively impact our ability to pay dividends and cause you to lose all or part of your investment.

Our portfolio companies may incur obligations that rank equally with, or senior to, our investments in such companies. As a result, the holders of such obligations may be entitled to payments of principal or interest prior to us, preventing us from obtaining the full value of our investment in the event of an insolvency, liquidation, dissolution, reorganization, acquisition, merger or bankruptcy of the relevant portfolio company.

     Our portfolio companies may have other obligations that rank equally with, or senior to, the securities in which we invest. By their terms, such other securities may provide that the holders are entitled to receive payment of interest or principal on or before the dates on which we are entitled to receive payments in respect of the securities in

which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of securities ranking senior to our investment in the relevant portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect of our investment. After repaying investors that are more senior than us, the portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of other securities ranking equally with securities in which we invest, we would have to share on an equal basis any distributions with other investors holding such securities in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company. As a result, we may be prevented from obtaining the full value of our investment in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.

Our portfolio investments may be concentrated in a limited number of portfolio companies, which would magnify the effect if one of those companies were to suffer a significant loss. This could negatively impact our ability to pay you dividends and cause you to lose all or part of your investment.

     While we aim to have a broad mix of investments in portfolio companies, our investments, at any time, may be concentrated in a limited number of companies. A consequence of this concentration is that the aggregate returns we seek to realize may be adversely affected if a small number of our investments perform poorly or if we need to write down the value of any one such investment. Beyond the applicable federal income tax diversification requirements, we do not have fixed guidelines for diversification, and our investments could be concentrated in relatively few portfolio companies. These factors could negatively impact our ability to pay dividends and cause you to lose all or part of your investment.

Investments in foreign debt or equity may involve significant risks in addition to the risks inherent in U.S. investments.

     Our investment strategy has resulted in some investments in debt or equity of foreign companies (subject to applicable limits prescribed by the 1940 Act). Investing in foreign companies can expose us to additional risks not typically associated with investing in U.S. companies. These risks include exchange rates, changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility.

OFFERING RISKS

Offering risks are risks that are associated with an offering of our securities.

Our common stock price can be volatile.

     The trading price of our common stock may fluctuate substantially. The price of the common stock may be higher or lower than the price you pay for your shares, depending on many factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include the following:

	•		price and volume fluctuations in the overall stock market from time to time;
	•		significant volatility in the market price and trading volume of securities of business development companies or other financial services companies;
	•		volatility resulting from trading in derivative securities related to our common stock including puts, calls, long-term equity participation securities, or LEAPs, or short trading positions;
	•		changes in regulatory policies or tax guidelines with respect to business development companies or RICs;
	•		actual or anticipated changes in our earnings or fluctuations in our operating results or changes in the expectations of securities analysts;

	•		general economic conditions and trends;
	•		loss of a major funding source; or
	•		departures of key personnel of TTG Advisers.

Investing in our securities may involve an above average degree of risk.

     The investments we make in accordance with our investment objective may result in a higher amount of risk than alternative investment options and volatility or loss of principal. Our investments in portfolio companies may be highly speculative and aggressive, and therefore, an investment in our securities may not be suitable for someone with a low risk tolerance.

We may allocate the net proceeds from this offering in ways with which you may not agree.

     We have significant flexibility in investing the net proceeds of an offering of our securities and may use the net proceeds from the offering in ways with which you may not agree or for purposes other than those contemplated at the time of the offering.

Sales of substantial amounts of our securities may have an adverse effect on the market price of our securities.

     Sales of substantial amounts of our securities, or the availability of such securities for sale, could adversely affect the prevailing market prices for our securities. If this occurs and continues, it could impair our ability to raise additional capital through the sale of securities should we desire to do so.

Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which could dilute our existing shareholders and be senior to our common stock for the purposes of distributions, may harm the value of our common stock.

     In the future, we may attempt to increase our capital resources by making additional offerings of equity or debt securities, including medium-term notes, senior or subordinated notes and classes of preferred stock or common stock. Upon the liquidation of our Company, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings by us may dilute the holdings of our existing shareholders or reduce the value of our common stock, or both. Any preferred stock we may issue would have a preference on distributions that could limit our ability to make distributions to the holders of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our shareholders bear the risk of our future offerings reducing the market price of our common stock and diluting their stock holdings in us.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

     Information contained in this prospectus may contain “forward-looking statements” which can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate” or “continue” or the negative thereof or other variations or similar words or phrases. The matters described in “Risk Factors” and certain other factors noted throughout this prospectus and in any exhibits to the registration statement of which this prospectus is a part, constitute cautionary statements identifying important factors with respect to any such forward-looking statements, including certain risks and uncertainties, that could cause actual results to differ materially from those in such forward-looking statements.

     Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be incorrect. Important assumptions include our ability to originate new investments, maintain certain margins and levels of profitability, access the capital markets for equity and debt capital, the ability to meet regulatory requirements and the ability to maintain certain debt to

asset ratios. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described in “Risk Factors” and elsewhere in this prospectus and any exhibits of the registration statement of which this prospectus is a part. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus.

USE OF PROCEEDS

     We intend to use the net proceeds from the sale of our securities for general corporate purposes, including investing in portfolio companies in accordance with our investment objective and strategy and repaying debt. Pending such investments, we will hold the net proceeds from the sale of our securities in cash or invest all or a portion of such net proceeds in short term, highly liquid investments. The supplement to this prospectus relating to an offering will more fully identify the use of the proceeds from such offering.

PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

     Our common stock is traded on the NYSE under the symbol “MVC.” The following table lists the high and low closing sales prices for our common stock, and the closing sales price as a percentage of NAV. On January 4, 2007, the last reported sale price on the NYSE for our common stock was $13.52 and the Company’s NAV per share was $13.21. To view the Company’s latest NAV per share, visit the Company’s Internet website address at http://www.mvccapital.com.

						Closing Sale				Closing Sale				Premium/Discount				Premium/Discount
						Price				Price				of High Sales				of Low Sales				Declared
		NAV(1)				High				Low				Price to NAV				Price to NAV				Dividends
Year ended October 31, 2004
First Quarter		$	8.76			$	8.47			$	7.83				-3.31	%			-10.62	%			—
Second Quarter			8.85				9.20				8.19				3.95	%			-7.46	%			—
Third Quarter			9.25				9.72				8.81				5.08	%			-4.76	%			—
Fourth Quarter		$	9.40			$	9.47			$	8.94				0.74	%			-4.89	%		$	0.12
Year ended October 31, 2005
First Quarter		$	9.41			$	9.55			$	8.95				1.49	%			-4.89	%			—
Second Quarter			9.64				9.50				9.17				-1.45	%			-4.88	%			—
Third Quarter			10.06				11.34				9.41				12.72	%			-6.46	%		$	0.12
Fourth Quarter		$	10.41			$	12.22			$	10.30				17.39	%			1.06	%		$	0.12
Year ended October 31, 2006
First Quarter		$	10.94			$	12.22			$	10.50				11.70	%			-4.02	%		$	0.12
Second Quarter			11.40				12.75				11.66				11.84	%			2.28	%		$	0.12
Third Quarter			11.70				13.49				11.98				15.30	%			2.39	%		$	0.12
Fourth Quarter		$	12.41			$	13.87			$	12.61				11.67	%			1.61	%		$	0.12

     At times, our common stock price per share has traded in excess of our net asset value per share. We cannot predict whether our shares of common stock will trade at a premium to net asset value.

     Currently, the Company has a policy of seeking to pay quarterly dividends to shareholders. Our quarterly dividends, if any, will be determined by our board of directors. Most recently, on December 14, 2006, our board of

directors declared a regular quarterly dividend of $0.12 per share and an additional special dividend of $0.06 per share, which was paid on January 5, 2007 to shareholders of record on December 28, 2006.

     We maintain a dividend reinvestment plan for our registered shareholders. As a result, if our board of directors declares a dividend or distribution, certain shareholders can have any cash dividends and distributions automatically reinvested in additional shares of our common stock. See “Dividend Reinvestment Plan.”

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

     The Company is an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company under the 1940 Act. The Company’s investment objective is to seek to maximize total return from capital appreciation and/or income.

     On November 6, 2003, Mr. Tokarz assumed his positions as Chairman and Portfolio Manager of the Company. He and the Company’s investment professionals (who, effective November 1, 2006, provide their services to the Company through the Company’s investment adviser, TTG Advisers) are seeking to implement our investment objective (i.e., to maximize total return from capital appreciation and/or income) through making a broad range of private investments in a variety of industries.

     The investments can include senior or subordinated loans, convertible debt and convertible preferred securities, common or preferred stock, equity interests, warrants or rights to acquire equity interests, and other private equity transactions. In the year ended October 31, 2005, we made six new investments and three additional investments in existing portfolio companies, committing capital totaling $53.8 million. In the year ended October 31, 2006, we made sixteen new investments and eight additional investments in existing portfolio companies, committing capital totaling $166.3 million.

     Prior to the adoption of our current investment objective, the Company’s investment objective had been to achieve long-term capital appreciation from venture capital investments in information technology companies. The Company’s investments had thus previously focused on investments in equity and debt securities of information technology companies. As of October 31, 2006, 2.4% of the current fair value of our assets consisted of Legacy Investments. We are, however, seeking to manage these Legacy Investments to try and realize maximum returns. We generally seek to capitalize on opportunities to realize cash returns on these investments when presented with a potential “liquidity event,” i.e., a sale, public offering, merger or other reorganization.

     Our new portfolio investments are made pursuant to our new objective and strategy. We are concentrating our investment efforts on small and middle-market companies that, in our view, provide opportunities to maximize total return from capital appreciation and/or income. Under our investment approach, we are permitted to invest, without limit, in any one portfolio company, subject to any diversification limits required in order for us to continue to qualify as a regulated investment company under Subchapter M of the Code.

     We participate in the private equity business generally by providing privately negotiated long-term equity and/or debt investment capital to small and middle-market companies. Our financing is generally used to fund growth, buyouts, acquisitions, recapitalizations, note purchases, and/or bridge financings. We generally invest in private companies, though, from time to time, we may invest in public companies that may lack adequate access to public capital.

Operating Income

     For the Years Ended October 31, 2006, 2005 and 2004. Total operating income was $18.5 million for the fiscal year ended October 31, 2006 and $12.2 million for the fiscal year ended October 31, 2005, an increase of $6.3 million. For the fiscal year 2005, operating income increased $8.2 million over the fiscal year 2004 operating income of $4.0 million.

For the Year Ended October 31, 2006

     Total operating income was $18.5 million for the year ended October 31, 2006. The increase in operating income over last year was primarily due to the increase in the number of investments that provide the Company with current income. For the years ended October 31, 2006 and 2005, the Company made 24 and 9 investments in portfolio companies, respectively. The main components of operating income were the interest and dividend income earned on loans to portfolio companies and the receipt of closing and monitoring fees from certain portfolio companies by the Company and MVCFS. During 2006, the Company earned approximately $13.9 million in interest and dividend income from investments in portfolio companies. Of the $13.9 million recorded in interest/dividend income, approximately $2.2 million was payment in kind interest/dividends. The payment in kind interest/dividends are computed at the contractual rate specified in each investment agreement and added to the principal balance of each investment. During the year ended October 31, 2006, the Company reclassified dividend income received from Vitality totaling approximately $900,000 to return of capital. The reclassification occurred due to the determination that Vitality did not have sufficient taxable earnings and profits for its fiscal year 2006. This reclassification to return of capital had limited impact on the Company’s net asset value. The Company’s investments yielded rates from 7.0% to 17.0%. Also, the Company earned approximately $2.3 million in interest income on its cash equivalents and short-term investments. The Company received fee income and other income from portfolio companies and other entities totaling approximately $3.8 million and $771,405, respectively. Included in other income is flow through income from limited liability companies and cash received from the Mentor Graphics Corp. (“Mentor Graphics”) multi-year earnout.

For the Year Ended October 31, 2005

     Total operating income was $12.2 million for the year ended October 31, 2005. The increase in operating income over 2004 was primarily due to the increase in the number of investments that provide the Company with current income. The main components of investment income were the interest and dividend income earned on loans to portfolio companies and the receipt of closing and monitoring fees from certain portfolio companies by the Company and MVCFS. The Company earned approximately $7.5 million in interest and dividend income from investments in portfolio companies. Of the $7.5 million recorded in interest/dividend income, approximately $1.4 million was “payment in kind” interest/dividends. The “payment in kind” interest/dividends are computed at the contractual rate specified in each investment agreement and added to the principal balance of each investment. The Company’s yielding investments were paying interest to the Company at various rates from 7.0% to 17.0%. Also, the Company earned approximately $1.9 million in interest income on its cash equivalents and short-term investments. The Company received fee income and other income from portfolio companies and other entities totaling approximately $1.8 million and $900,000 respectively. Included in other income is flow through income from limited liability companies, cash received from the Mentor Graphics multi-year earnout and a legal settlement of $473,968. See Note 12 “Legal Proceedings” of our consolidated financial statements for more information. Without the receipt of this settlement, other income earned for the year ended October 31, 2005, would have been $428,855.

For the Year Ended October 31, 2004

     Total operating income was $4.0 million for the year ended October 31, 2004. The main components of operating income were the interest income earned on loans to portfolio companies and the receipt of closing and monitoring fees from certain portfolio companies by the Company and MVCFS. The Company earned approximately $2.3 million in interest income from investments in portfolio companies. Of the $2.3 million recorded in interest income, approximately $100,000 was “payment in kind” interest. The “payment in kind” interest is computed at the contractual rate specified in each investment agreement and added to the principal balance of each investment. The Company’s yielding investments were paying interest to the Company at various rates from 10.0% to 17.0%. Also, the Company earned approximately $700,000 in interest income on its cash

equivalents and short-term investments. The Company received fee income and other income from portfolio companies totaling approximately $900,000 and $64,000 respectively.

Operating Expenses

     For the Years Ended October 31, 2006, 2005 and 2004. Operating expenses were $14.6 million for the fiscal year ended October 31, 2006 and $6.5 million for the fiscal year ended 2005, an increase of $8.1 million. For the fiscal year ended October 31, 2005, operating expenses increased $2.2 million from $4.3 million for the fiscal year ended 2004.

     For the Year Ended October 31, 2006

     Operating expenses were $14.6 million or 6.78% of the Company’s average net assets for the year ended October 31, 2006. Significant components of operating expenses for the year ended October 31, 2006, included an estimated provision for incentive compensation expense of approximately $6.1 million, salaries and benefits of approximately $3.5 million, interest and other borrowing costs of $1.6 million, legal fees of $685,396, facilities-related expenses of $603,328, and insurance premium expenses of $471,711. The estimated provision for incentive compensation expense is a non-cash, not yet payable, provisional expense relating to Mr. Tokarz’s employment agreement with the Company.

     The $8.1 million increase in the Company’s operating expenses for the year ended October 31, 2006 compared to the year ended October 31, 2005, was primarily due to: the $4.9 million increase in the provision for estimated incentive compensation; an increase in the number of employees needed to service the larger portfolio, which resulted in an increase of $1.2 million in salaries and benefits; and the Company’s rent and other facility related expenses increased approximately $118,908 primarily due to the Company’s procurement of larger office space to accommodate the Company’s increased number of employees. See Note 10 “Commitments and Contingencies” of our consolidated financial statements for more information. Finally, the increase of approximately $1.6 million compared to the year ended October 31, 2005 in the Company’s interest expense and other borrowing costs was due to borrowings under the Credit Facility.

     In February 2006, the Company renewed its Directors & Officers/Professional Liability Insurance policies at an expense of approximately $459,000 which is amortized over the twelve month life of the policy. The prior policy premium was $517,000.

     Pursuant to the terms of the Company’s employment agreement with Mr. Tokarz, during the year ended October 31, 2006, the provision for estimated incentive compensation was increased by approximately $6.1 million. The increase in the provision for incentive compensation resulted from the determination of the Valuation Committee to increase the fair value of six of the Company’s portfolio investments: Baltic Motors, Dakota, Ohio, Octagon, Turf, and Vitality, which are subject to the Company’s employment agreement with Mr. Tokarz, by a total of approximately $30.3 million. This reserve balance of approximately $7.2 million will remain unpaid until net capital gains are realized, if ever, by the Company. Without this reserve for incentive compensation, operating expenses would have been approximately $8.5 million or 3.96% of average net assets when annualized as compared to 6.78% which is reported on the Consolidated Per Share Data and Ratios, for the year ended October 31, 2006. Pursuant to Mr. Tokarz’s employment agreement with the Company, only after a realization event, may the incentive compensation be paid to him. Mr. Tokarz has determined to allocate a portion of his incentive compensation to certain employees of the Company. During the years ended October 31, 2006 and October 31, 2005, Mr. Tokarz was paid no cash or other compensation. However, on October 2, 2006 and as discussed in “Realized Gains and Losses on Portfolio Securities,” the Company realized a gain of $551,092 from the sale of a portion of the Company’s LLC member interest in Octagon. This transaction triggered an incentive compensation payment obligation to Mr. Tokarz, which payment is not required to be made until the precise amount of the payment obligation is confirmed based on the Company’s completed audited financials for the fiscal year 2006. Subject to confirmation following the audit, the payment obligation to Mr. Tokarz from this transaction is approximately $110,000 (which is expected to be paid during the first quarter of the Company’s fiscal year 2007). Please see Note 5 “Incentive Compensation” of our consolidated financial statements for more information.

     For the Year Ended October 31, 2005

     Operating expenses were $6.5 million or 3.75% of average net assets for the year ended October 31, 2005. Significant components of operating expenses for the year ended October 31, 2005 included salaries and benefits of $2.3 milllion estimated incentive compensation expense of $1.1 million insurance premium expenses of $590,493, legal fees of $529,541 and facilities related expenses of $484,420. Estimated incentive compensation expense is a non-cash, not yet payable, provisional expense relating to Mr. Tokarz’s compensation arrangement with the Company.

     The increase in the Company’s operating expenses in 2005 compared to 2004 was primarily due to an increase in employees needed to service the larger portfolio and work to continue to grow the Company. Also, the Company’s rent and other facility related expenses increased primarily due to the Company’s procurement of larger office space to accommodate the Company’s increased number of employees. See Note 10 “Commitments and Contingencies” of our consolidated financial statements for more information.

     Pursuant to the terms of the Company’s agreement with Mr. Tokarz, during the year ended October 31, 2005, the Company created a provision for $1.1 million of incentive compensation. This provision for incentive compensation resulted from the determination of the Valuation Committee to increase the fair value of five of the Company’s portfolio investments: Baltic Motors, Dakota, Octagon, Vestal and Vitality which are subject to the Company’s agreement with Mr. Tokarz, by an aggregate amount of $5.6 million. This reserve balance of $1.1 million will remain unpaid and not finally determined until net capital gains are realized, if ever, by the Company. Pursuant to Mr. Tokarz’s agreement with the Company, only after a realization event, will the incentive compensation be paid to him. Mr. Tokarz has determined to allocate a portion of his incentive compensation to certain employees of the Company. During the year ended October 31, 2005, Mr. Tokarz was paid no cash or other compensation. Without this reserve for incentive compensation, operating expenses would have been approximately $5.4 million or 3.10% of average net assets. Please see Note 5 “Incentive Compensation” of our consolidated financial statements for more information.

     In February 2005, the Company renewed its Directors & Officers/Professional Liability Insurance policies at an expense of approximately $517,000 which is amortized over the twelve month life of the policy. The prior policy premium was $719,000.

     During the year ended October 31, 2005, the Company paid or accrued $529,541 in legal fees. This amount includes legal fees of $47,171 which were incurred while pursuing a claim against Federal Insurance Company. See Note 12 “Legal Proceedings” of our consolidated financial statements for more information. The Company received $473,964 from the settlement of the legal action which was recorded as “other income.” After fees and expenses the cash received from the settlement was $426,797. Without the legal fees related to the legal action, the Company would have paid or accrued $482,370 in legal fees.

     For the Year Ended October 31, 2004

     Operating expenses were $4.3 million or 3.68% of average net assets for the year ended October 31, 2004. Significant components of operating expenses for the year ended October 31, 2004 included insurance premium expenses of $959,570, salaries and benefits of $1.4 million legal fees of $810,848, and facilities expense of $90,828.

     In February 2003, the former management of the Company (“Former Management”) entered into new Directors & Officers/Professional Liability Insurance policies with total premiums of approximately $1.4 million. The cost was amortized over the life of the policy, through February 2004, at which time at new policy was entered into with a premium of approximately $719,000. For the year ended October 31, 2004, the Company expensed $959,570 in insurance premiums.

     During the year ended October 31, 2004, the Company paid or accrued $810,848 in legal fees (compared to $1.5 million in 2003). Legal expenses included fees of $124,787 incurred while pursuing action against the Company’s former advisor, meVC Advisers, Inc. (the “Former Adviser”) for the reimbursement of management fees which were alleged to be excessive. See Note 12 “Legal Proceedings” of our consolidated financial statements for more information. The Company received $370,000 from the settlement of the legal action which was recorded as other income. After fees and expenses the cash received from the settlement was $245,213. Without the legal fees related to this litigation, the Company would have paid or accrued $686,061 in legal fees. The legal expenses for the year

ended October 31, 2004, were reflective of a decreased need for legal counsel due to the redefinition of the Company’s direction by Management.

     On January 21, 2004, the Company reached an agreement with the property manager at 3000 Sand Hill Road, Menlo Park, California to terminate its lease at such location. Under the terms of the agreement, the Company bought-out its lease directly from the property manager, for an amount equal to $232,835. As a result, the Company recovered approximately $250,000 of the remaining reserve established at October 31, 2003. Without the recovery of the reserve, the gross facilities expense for the year ended October 31, 2004 would have been approximately $340,828.

Realized Gains and Losses On Portfolio Securities

     For the Years Ended October 31, 2006, 2005 and 2004. Net realized gains for the year ended October 31, 2006 were $5.2 million and net realized losses for the year ended October 31, 2005 were $3.3 million, an increase of $8.5 million. Net realized losses for the year ended October 31, 2004 were $37.8 million which was $34.5 million more compared to the fiscal year 2005.

For the Year Ended October 31, 2006

     Net realized gains for the year ended October 31, 2006 were $5.2 million. The significant component of the Company’s net realized gain for the year ended October 31, 2006 was primarily due to the gain on the sale of ProcessClaims Inc. (“Process Claims”), the escrow distribution from Sygate Technologies, Inc. (“Sygate”), and the sale of a portion of the Octagon equity interest, an investment made during Mr. Tokarz’s tenure as portfolio manager.

     During the year ended October 31, 2006, the Company sold its investment in ProcessClaims and realized a gain of approximately $5.5 million. The Company was entitled to receive approximately $8.3 million in gross proceeds, of which approximately $400,000 or 5.0% of the proceeds will be deposited into a reserve account for one year. Due to the contingencies associated with the escrow, the Company has not presently placed any value on the proceeds deposited in escrow and has therefore not factored such proceeds into the Company’s increased NAV. The Company received net proceeds of approximately $7.9 million.

     On October 2, 2006, Octagon bought back a total of 15.0% equity interest from non-service members. This resulted in a sale of a portion of the Company’s LLC member interest to Octagon for proceeds of $1.0 million. The Company realized a gain of $551,092 from this sale.

     On October 17, 2006, the Company received a $1.6 million escrow disbursement from the sale of Sygate on October 10, 2005. Due to the contingencies associated with the escrow, the Company had not placed any value on the proceeds deposited in escrow. This resulted in an increase in NAV of $1.6 million.

     The Company received notification of the final dissolution of Yaga Inc. (“Yaga”). The Company received no proceeds from the dissolution of this company and the investment has been removed from the Company’s books. The Company realized a loss of $2.3 million as a result of this dissolution. The fair value of Yaga was previously written down to zero and therefore, the net effect of the removal of Yaga from the Company’s books on the Company’s consolidated statement of operations and NAV was zero.

     On April 7, 2006, the Company sold its investment in Lumeta Corporation (“Lumeta”) for its then carrying value of $200,000. The Company realized a loss on Lumeta of approximately $200,000. However, the Valuation Committee previously decreased the fair value of the Company’s investment in this company to $200,000 and as a result, the realized loss was offset by a reduction in unrealized losses. Therefore, the net effect of the Company’s sale of its investment in Lumeta on the Company’s consolidated statement of operations and NAV was zero.

     The Company also received a payout related to a former portfolio company, Annuncio, of approximately $70,000.

     For the Year Ended October 31, 2005

     Net realized losses for the year ended October 31, 2005 were $3.3 million. The significant components of the Company’s net realized loss for the year ended October 31, 2005 were realized gains on the Company’s investments in Sygate, Mentor Graphics and BlueStar Solutions, Inc. (“BlueStar”) which were offset by realized losses on CBCA, Inc. (“CBCA”), Phosistor Technologies, Inc. (“Phosistor”) and ShopEaze Systems, Inc. (“ShopEaze”).

     During the year ended October 31, 2005, the Company sold its entire investment in Sygate and received net proceeds of $14.4 million. In addition, approximately $1.6 million or 10% of proceeds from the sale were deposited in an escrow account for approximately one year. Due to the contingencies associated with the escrow, the Company did not place any value on the proceeds deposited in escrow and did not factor such proceeds into the Company’s NAV. The realized gain from the $14.4 million in net proceeds received was $10.4 million. The Company also sold 685,679 shares of Mentor Graphics receiving net proceeds of approximately $9.0 million and a realized gain on the shares sold of approximately $5.0 million. The Company also received approximately $300,000 from the release of money held in escrow in connection with the Company’s sale of its investment in BlueStar in 2004 (see below).

     The Company realized losses on CBCA of approximately $12.0 million, Phosistor of approximately $1.0 million and ShopEaze of approximately $6.0 million. The Company received no proceeds from these companies and they have been removed from the Company’s portfolio. The Valuation Committee previously decreased the fair value of the Company’s investment in these companies to zero and as a result, the realized losses were offset by reductions in unrealized losses. Therefore, the net effect of the transactions on the Company’s consolidated statement of operations and NAV was zero for the fiscal year ended October 31, 2005.

     For the Year Ended October 31, 2004

     Net realized losses for the year ended October 31, 2004 were $37.8 million. The significant components of the Company’s realized losses for the year ended October 31, 2004 were transactions with PTS Messaging, Inc. (“PTS Messaging”), Ishoni Networks, Inc. (“Ishoni”), Synhrgy HR Technologies, Inc. (“Synhrgy”), BlueStar and DataPlay, Inc. (“DataPlay”).

     The Company had a return of capital from PTS Messaging with proceeds totaling approximately $102,000 from the initial and final disbursement of assets and a realized loss totaling approximately $11.6 million. As of October 31, 2004 the Company no longer held an investment in PTS Messaging. The Valuation Committee previously decreased the fair value of the Company’s investment in PTS Messaging to zero.

     The Company also realized a loss on Ishoni of approximately $10.0 million. The Company received no proceeds from the dissolution of this company and the investment has been removed from the Company’s portfolio. The Valuation Committee previously decreased the fair value of the Company’s investment in Ishoni to zero.

     There was a gain of $39,630 representing proceeds received from the cashless exercise of the Company’s warrants of Synhrgy in conjunction with the early repayment by Synhrgy of the balance of Synhrgy’s credit facility.

     On August 26, 2004, Affiliated Computer Services, Inc. (“ACS”) acquired the Company’s portfolio company BlueStar in a cash transaction. The Company received approximately $4.5 million for its investment in BlueStar. The amount received included up to $459,000 in contingent payments that were held in escrow. The carrying value of the BlueStar investment was $3.0 million. The Company realized a loss of approximately $8.8 million, which was offset by a decrease in unrealized loss by the same amount. The effect of the transaction on the Company was an increase in assets by $1.1 million. After the sale, the Company no longer held an investment in BlueStar.

     On August 29, 2004, the Company entered into a transaction pursuant to which it received 602,131 Series A-1 preferred shares of DPHI, Inc. (“DPHI”), which purchased the assets of DataPlay out of bankruptcy in late 2003. The Company’s legal fees in connection with the transaction were approximately $20,000. The shares of DPHI were received in exchange for the Company’s seven promissory notes in DataPlay. The 2,500,000 shares of DataPlay Series D Preferred Stock were removed from the books of the Company for a realized loss of $7.5 million. The unrealized loss had previously been recorded; therefore, the net effect of the transaction was zero.

Unrealized Appreciation and Depreciation of Portfolio Securities

     For the Years Ended October 31, 2006, 2005 and 2004. The Company had a net change in unrealized appreciation on portfolio investments of $38.3 million for the year ended October 31, 2006. The Company had a net change in unrealized appreciation on portfolio investments of $23.8 million and $49.4 million for the years ended October 31, 2005 and 2004, respectively.

For the Year Ended October 31, 2006

     The Company had a net change in unrealized appreciation on portfolio investments of $38.3 million for the year ended October 31, 2006. The change in unrealized appreciation on investment transactions for the year ended October 31, 2006 primarily resulted from the Valuation Committee’s decision to increase the fair value of the Company’s investments in Baltic Motors common stock by $11.6 million, Dakota common stock by approximately $2.6 million, Turf’s membership interest by approximately $2.0 million, Octagon’s membership interest by approximately $562,000, Ohio common stock by $9.2 million, ProcessClaims preferred stock by $4.8 million, Foliofn preferred stock by $5.0 million, Vendio Services, Inc. (“Vendio”) preferred stock by $700,000, and Vitality common stock and warrants by $3.5 million and $400,000, respectively. The Valuation Committee also decided to decrease the fair value of the Company’s investment in Timberland common stock by $1.0 million. Other key components of the net change in unrealized appreciation were the $2.5 million depreciation reclassification from unrealized to realized caused by the removal of Yaga and Lumeta and the $4.8 million appreciation reclassification from the sale of ProcessClaims from the Company’s books.

     For the Year Ended October 31, 2005

     The Company had a net change in unrealized appreciation on portfolio investments of $23.8 million for the year ended October 31, 2005. The change in unrealized appreciation on investment transactions for the year ended October 31, 2005 primarily resulted from the Valuation Committee’s determinations to increase the fair value of the Company’s investments in Baltic Motors by $1.5 million, Dakota by $514,000, Octagon by approximately $1.0 million, Sygate by $7.5 million, Vendio Services, Inc. (“Vendio”) by approximately $1.6 million, Vestal by approximately $1.9 million and Vitality by $700,000. The increase in the fair value of these portfolio investments resulted in a change in unrealized appreciation of approximately $14.7 million. Other key components were the realization of a $10.4 million gain on the sale of the Company’s investment in Sygate, a $5.0 million gain on the sale of the Company’s investment in Mentor Graphics, the $19.0 million depreciation reclassification from unrealized to realized caused by the removal of CBCA, Phosistor and ShopEaze from the Company’s books and the $500,000 decrease in unrealized caused by repayment in full of the Arcot Systems, Inc. (“Arcot”) loan which was being carried below cost.

     For the Year Ended October 31, 2004

     Net change in unrealized appreciation for the year ended October 31, 2004 was approximately $49.4 million. The net change in unrealized appreciation on investment transactions for the year ended October 31, 2004 resulted mainly from the $37.8 million reclassification from unrealized depreciation to realized loss caused by the sale or disbursement of assets from PTS Messaging, Ishoni, Synhrgy, BlueStar and DataPlay (See Realized Gains and Losses on Portfolio Securities). This net decrease also resulted from the determinations of the Valuation Committee to (i) increase the fair value of the Company’s investments in 0-In Design Automation, Inc. (“0-In”) by $5 million, Sygate by $1.5 million, BlueStar by $1.5 million, Vendio by $634,000 and Integral Development Corp. (“Integral”) by $989,000 and (ii) decrease the fair value of the Company’s investments in Actelis Networks, Inc. (“Actelis”) by $1.0 million, CBCA by $500,000 and Sonexis, Inc. (“Sonexis”) by $500,000.

     The Company also sold its investment in 0-In for 685,679 shares of Mentor Graphics in a tax-free exchange. Of these shares, 603,396 are freely tradable and valued daily at market price. As of October 31, 2004 these shares had an unrealized gain of approximately $3.0 million above the Company’s cost basis in 0-In and $6.0 million above 0-In’s carrying value at October 31, 2003.

Portfolio Investments

     For the Years Ended October 31, 2006 and 2005. The cost of the portfolio investments held by the Company at October 31, 2006 and at October 31, 2005 was $286.9 million and $171.6 million, respectively, an increase of $115.3 million. The aggregate fair value of portfolio investments at October 31, 2006 and at October 31, 2005 was $275.9 million and $122.3 million, respectively, an increase of $153.6 million. The cost and aggregated market value of short-term securities held by the Company at October 31, 2006 and at October 31, 2005 was $0 and $51 million, respectively, a decrease of $51 million. The cost and aggregate market value of cash and cash equivalents held by the Company at October 31, 2006 and at October 31, 2005 was $66.2 million and $26.3 million, respectively, an increase of approximately $39.9 million.

     For the Year Ended October 31, 2006

     During the year ended October 31, 2006, the Company made 16 new investments, committing capital totaling approximately $142.1 million. The investments were made in Turf ($11.6 million), SOI ($5.0 million), Henry ($5.0 million), BM Auto ($15.0 million), Storage Canada ($6.0 million), Phoenix ($8.0 million), Harmony Pharmacy ($200,000), Total Safety ($6.0 million), PreVisor ($6.0 million), Marine ($14.0 million), BP ($15.0 million), Velocitius ($66,290), Summit ($16.2 million), Octagon ($17.0 million), BENI ($2.0 million), and Innovative Brands ($15.0 million).

     The Company also made eight follow-on investments in existing portfolio companies committing capital totaling approximately $24.2 million. During the year ended October 31, 2006, the Company invested approximately $879,000 in Dakota by purchasing an additional 172,104 shares of common stock at an average price of $5.11 per share. On December 22, 2005, the Company made a follow-on investment in Baltic Motors in the form of a $1.8 million revolving bridge note. Baltic Motors immediately drew down $1.5 million from the note. On January 12, 2006, Baltic Motors repaid the amount drawn from the note in full, including all unpaid interest. The note matured on January 31, 2006 and has been removed from the Company’s books. On January 12, 2006, the Company provided SGDA a $300,000 bridge loan. On March 28, 2006, the Company provided Baltic Motors a $2.0 million revolving bridge note. Baltic Motors immediately drew down $2.0 million from the note. On April 5, 2006, Baltic Motors repaid the amount drawn from the note in full, including all unpaid interest. The note matured on April 30, 2006 and has been removed from the Company’s books. On April 6, 2006, the Company invested an additional $2.0 million in SGDA in the form of a preferred equity security. On April 25, 2006, the Company purchased an additional common equity security in SGDA for $23,000. On June 30, 2006, the Company invested $2.5 million in Amersham in the form of a second lien loan. On August 4, 2006, the Company invested $750,000 in Harmony Pharmacy in the form of common stock. On September 28, 2006, the Company made another follow-on investment in Baltic Motors in the form of a $1.0 million bridge loan and $2.0 million equity investment. On October 13, 2006, the Company made a $10.0 million follow-on investment in SP. The $10.0 million was invested in the form of an additional $4.0 million in term loan B and $6.0 million in a mezzanine loan. On October 20, 2006, the Company then assigned $5.0 million of SP’s $8.0 million term loan B to Citigroup Global Markets Realty Corp. On October 24, 2006, the Company invested an additional $3.0 million in SGDA in the form of a preferred equity security. On October 26, 2006, the Company invested an additional $2.9 million in Velocitius in the form of common equity. The Company also provided Velocitius a $260,000 revolving note on October 31, 2006. Velocitius immediately drew down $143,614 from the note.

     At the beginning of the 2006 fiscal year, the revolving credit facility provided to SGDA had an outstanding balance of approximately $1.2 million. During December 2005, SGDA drew down an additional $70,600 from the credit facility. On April 28, 2006, the Company increased the availability under the revolving credit facility by $300,000. The balance of the bridge loan mentioned above, which would have matured on April 30, 2006, was added to the revolving credit facility and the bridge loan was eliminated from the Company’s books as a part of the refinancing.

     On December 21, 2005, Integral prepaid its senior credit facility from the Company in full. The Company received approximately $850,000 from the prepayment. This amount included all outstanding principal and accrued interest. The Company recorded no gain or loss as a result of the prepayment. Under the terms of the prepayment, the Company returned its warrants to Integral for no consideration.

     Effective December 27, 2005, the Company exchanged $286,200, of the approximately $3.25 million outstanding, of the Timberland junior revolving line of credit into 28.62 shares of common stock at a price of $10,000 per share. As a

result, as of July 31, 2006, the Company owned 478.62 common shares of Timberland and the funded debt under the junior revolving line of credit was reduced from $3.25 million to approximately $3.0 million.

     Effective December 31, 2005, the Company received 373,362 shares of Series E preferred stock of ProcessClaims, Inc. (“ProcessClaims”) in exchange for its rights under a warrant issued by ProcessClaims that has been held by the Company since May 2002. On January 5, 2006, the Valuation Committee increased the fair value of the Company’s entire investment in ProcessClaims by $3.3 million to $5.7 million. Please see the paragraph below for more information on ProcessClaims.

     On January 3, 2006, the Company exercised its warrant ownership in Octagon which increased its existing membership interest. As a result, Octagon is now considered an affiliate of the Company.

     Due to the dissolution of Yaga, one of the Company’s Legacy Investments, the Company realized losses on its investment in Yaga totaling $2.3 million during the year ended October 31, 2006. The Company received no proceeds from the dissolution of Yaga and the Company’s investment in Yaga has been removed from the Company’s books. The Valuation Committee previously decreased the fair value of the Company’s investment in Yaga to zero and as a result, the Company’s realized losses were offset by reductions in unrealized losses. Therefore, the net effect of the removal of Yaga from the Company’s books on the Company’s consolidated statement of operations and NAV at October 31, 2006, was zero.

     On February 24, 2006, BP repaid its second lien loan from the Company in full. The amount of the proceeds received from the prepayment was approximately $8.7 million. This amount included all outstanding principal, accrued interest, accrued monitoring fees and an early prepayment fee. The Company recorded no gain or loss as a result of the repayment.

     On April 7, 2006, the Company sold its investment in Lumeta for its then carrying value of $200,000. The Company realized a loss on Lumeta of approximately $200,000. However, the Valuation Committee previously decreased the fair value of the Company’s investment in Lumeta to $200,000 and, as a result, the realized loss was offset by a reduction in unrealized losses. Therefore, the net effect of the Company’s sale of its investment in Lumeta on the Company’s consolidated statement of operations and NAV was zero.

     On April 21, 2006, BM Auto repaid its bridge loan from the Company in full. The amount of the proceeds received from the repayment was approximately $7.2 million. This amount included all outstanding principal, accrued interest and was net of foreign taxes withheld. The Company recorded no gain or loss as a result of the repayment.

     On May 4, 2006, the Company received a working capital adjustment of approximately $250,000 related to the Company’s purchase of a membership interest in Turf. As a result, the Company’s cost basis in the investment was reduced.

     On May 30, 2006, ProcessClaims, one of the Company’s legacy portfolio companies, entered into a definitive agreement to be acquired by CCC Information Services Inc. (“CCC”). The acquisition by CCC closed on June 9, 2006. As of June 9, 2006, the Company received net proceeds of approximately $7.9 million. The gross proceeds were approximately $8.3 million of which approximately $400,000 or 5% of the gross proceeds were deposited into a reserve account for one year. Due to the contingencies associated with the escrow, the Company has not presently placed any value on the proceeds deposited in escrow and has therefore not factored such proceeds into the Company’s increased NAV. The Company’s total investment in ProcessClaims was $2.4 million which resulted in a capital gain of approximately $5.5 million.

     On July 27, 2006, SOI repaid their loan from the Company in full. The amount of the proceeds received from the prepayment was approximately $4.5 million. This amount included all outstanding principal, accrued interest, and an early prepayment fee. The Company recorded no gain or loss as a result of the prepayment.

     On August 25, 2006, Harmony Pharmacy repaid their loan from the Company in full. The amount of the proceeds received from the prepayment was $207,444. This amount included all outstanding principal and accrued interest. The Company recorded no gain or loss as a result of the prepayment.

     On August 25, 2006, SGDA’s revolving credit facility was added to the term loan, increasing the balance of the term loan by $1.6 million. The revolving credit facility was eliminated from the Company’s books as a result of this refinancing.

     Effective September 12, 2006, the Company exchanged $409,091 of the approximately $3.0 million outstanding, of the Timberland junior revolving line of credit into 40.9 shares of common stock at a price of $10,000 per share. Effective September 22, 2006, the Company exchanged $225,000 of the $2.6 million outstanding, of the Timberland junior revolving line of credit into 22.5 shares of common stock at a price of $10,000 per share. On September 22, 2006, Timberland drew down $500,000 from the junior revolving line of credit. As a result of these transactions, as of October 31, 2006, the Company owned 542.0 common shares of Timberland and the funded debt under the junior revolving line of credit was reduced from approximately $3.0 million to approximately $2.8 million.

     On October 2, 2006, Octagon bought-back a total of 15.0% equity interest from non-service members. This resulted in a sale of a portion of the Company’s LLC member interest to Octagon for proceeds of approximately $1.0 million. The Company realized a gain of $551,092 from this sale.

     On October 2, 2006, Octagon repaid their loan and revolving credit facility from the Company in full. The amount of the proceeds received from the prepayment of the loan was approximately $5.4 million. This amount included all outstanding principal, accrued interest, and an unused fee on the revolving credit facility. The Company recorded a gain as a result of these prepayments of approximately $429,000 from the acceleration of amortization of original issue discount.

     On October 20, 2006, the Company assigned $5.0 million of SP’s $8.0 million term loan B to Citigroup Global Markets Realty Corp.

     On October 30, 2006, JDC repaid $160,116 of principal on the senior subordinated debt.

     During the year ended October 31, 2006, the Valuation Committee increased the fair value of the Company’s investments in Baltic Motors common stock by $11.6 million, Dakota common stock by approximately $2.6 million, Turf’s membership interest by $2.0 million, Octagon’s membership interest by approximately $562,000, Ohio common stock by $9.2 million, Foliofn preferred stock by $5.0 million, Vendio preferred stock by $700,000, ProcessClaims preferred stock by $4.8 million and Vitality common stock and warrants by $3.5 million and $400,000, respectively. In addition, increases recorded to the cost basis and fair value of the loans to Amersham, BP, Impact, JDC, Phoenix, SP, Timberland, Turf, Marine, Summit and the Vitality and Marine preferred stock were due to the receipt of payment in kind interest/dividends totaling approximately $2.2 million. Also during the year ended October 31, 2006, the undistributed allocation of flow through income from the Company’s equity investment in Octagon increased the cost basis and fair value of the Company’s investment by approximately $279,000. During the year ended October 31, 2006, the Valuation Committee also decreased the fair value of the Company’s equity investment in Timberland by $1.0 million. The increase in fair value from payment in kind interest/dividends and flow through income has been approved by the Company’s Valuation Committee.

     At October 31, 2006, the fair value of all portfolio investments, exclusive of short-term securities, was $275.9 million with a cost basis of $286.9 million. At October 31, 2005, the fair value of all portfolio investments, exclusive of short-term securities, was $122.3 million with a cost basis of $171.6 million.

     For the Year Ended October 31, 2005

     During the year ended October 31, 2005, the Company made six new investments, committing capital totaling approximately $48.8 million. The investments were made in JDC, SGDA, SP, BP, Ohio and Amersham. The amounts invested were $3.0 million, $5.8 million, $10.5 million, $10.0 million, $17.0 million and $2.5 million respectively.

     The Company also made three follow-on investments in existing portfolio companies committing capital totaling approximately $5.0 million. In December 2004 and January 2005, the Company invested a total of $1.25 million in Timberland in the form of subordinated bridge notes. On April 15, 2005, the Company re-issued 146,750 shares of its treasury stock at the Company’s NAV per share of $9.54 in exchange for 40,500 shares of common stock of Vestal. On July 8, 2005 the Company extended Timberland a $3.25 million junior revolving note. According to the terms of the note, Timberland immediately drew $1.3 million from the revolving note and used the proceeds to repay the subordinated bridge notes in full. The repayment included all outstanding principal and accrued interest. On July 29, 2005, the Company invested an additional $325,000 in Impact in the form of a secured promissory note.

     In April 2005, Octagon drew $1.5 million from the senior secured credit facility provided to it by the Company and repaid it in full during June 2005.

     During 2005, SGDA drew approximately $1.2 million from the revolving credit facility provided to it by the Company. As of October 31, 2005, all amounts drawn from the facility remained outstanding.

     On July 14, 2005 and September 28, 2005, Timberland drew an additional $1.5 million and $425,000, respectively, from the revolving note mentioned above. As of October 31, 2005, the note was drawn in full and the balance of $3.25 million remained outstanding.

     Also, during the year ended October 31, 2005, the Company sold its entire investment in Sygate and received $14.4 million in net proceeds. In addition, approximately $1.6 million or 10.0% of proceeds from the sale were deposited in an escrow account for approximately one year. Due to the contingencies associated with the escrow, the Company did not place any value on the proceeds deposited in escrow and did not factor such proceeds into the Company’s NAV. The realized gain from the $14.4 million in net proceeds received was $10.4 million. The Company also sold 685,679 shares of Mentor Graphics receiving net proceeds of approximately $9.0 million and a realized gain on the shares sold of approximately $5.0 million. The Company also received approximately $300,000 from the escrow related to the 2004 sale of BlueStar.

     The Company realized losses on CBCA of approximately $12.0 million, Phosistor of approximately $1.0 million and ShopEaze of approximately $6.0 million. The Company received no proceeds from these companies and they have been removed from the Company’s portfolio. The Valuation Committee previously decreased the fair value of the Company’s investments in these companies to zero. Therefore, the net effect of the transactions on the Company’s consolidated statement of operations and NAV for the fiscal year ended October 31, 2005, was zero.

     On December 21, 2004, Determine Software, Inc. (“Determine”) prepaid its senior credit facility from the Company in full. The amount of proceeds the Company received from the repayment was approximately $1.6 million. This amount included all outstanding principal and accrued interest. Under the terms of the early repayment, the Company returned its approximately 2,229,955 Series C warrants for no consideration.

     On July 5, 2005, Arcot prepaid its senior credit facility from the Company in full. The amount of proceeds the Company received from the repayment was approximately $2.6 million. This amount included all outstanding principal and accrued interest. Under the terms of the early repayment, the Company returned its warrants to Arcot for no consideration.

     The Company continued to receive principal repayments on the debt securities of Integral and BP. Integral made payments during the year ended October 31, 2005, according to its credit facility agreement totaling $1.7 million. BP made two quarterly payments during the year ended totaling $833,333. Also, the Company received a one time, early repayment on Vestal’s debt securities totaling $100,000.

     During the year ended October 31, 2005, the Valuation Committee increased the fair value of the Company’s investments in Baltic Motors by $1.5 million, Dakota by $514,000, Octagon by approximately $1.0 million, Sygate by $7.5 million (which was later realized), Vendio by approximately $1.6 million, Vestal by approximately $1.9 million and Vitality by approximately $700,000. In addition, increases in the cost basis and fair value of the Octagon loan, Impact loan, Timberland loan, Vitality Series A preferred stock, JDC loan and SP loans were due to the receipt of “payment in kind” interest/dividends totaling approximately $1.4 million. Also during the year ended October 31, 2005, the undistributed allocation of flow through income from the Company’s equity investment in Octagon increased the cost basis and fair value of the investment by $114,845.

     At October 31, 2005, the fair value of all portfolio investments, exclusive of short-term securities, was $122.3 million with a cost of $171.6 million. At October 31, 2004, the fair value of all portfolio investments, exclusive of short-term securities, was $78.5 million with a cost of $151.6 million.

Portfolio Companies

     During the year ended October 31, 2006, the Company had investments in the following portfolio companies:

Actelis Networks, Inc.

     Actelis Networks, Inc. (“Actelis”), Fremont, California, a Legacy Investment, provides authentication and access control solutions designed to secure the integrity of e-business in Internet-scale and wireless environments.

     At October 31, 2005 and October 31, 2006, the Company’s investment in Actelis consisted of 150,602 shares of Series C preferred stock at a cost of $5.0 million. The investment has been assigned a fair value of $0.

Amersham Corp.

     Amersham Corp. (“Amersham”), Louisville, Colorado, is a manufacturer of precision machined components for the automotive, furniture, security and medical device markets.

     During the fiscal year 2005 the Company made an investment in Amersham. The Company’s investment in Amersham consists of $2.5 million in purchased notes, bearing annual interest at 10.0%. The notes have a maturity date of June 29, 2010. The notes have a principal face amount and cost basis of $2.5 million.

     On June 30, 2006, the Company made an additional investment in Amersham consisting of an additional $2.5 million note bearing annual interest at 16.0% from June 30, 2006 to June 30, 2008. The interest rate then steps down to 14.0% for the period July 1, 2008 to June 30, 2010, steps down to 13.0% for the period July 1, 2010 to June 30, 2012 and steps down again to 12.0% for the period July 1, 2012 to June 30, 2013. The note has a maturity date of June 30, 2013. The note has a principal face amount and cost basis of $2.6 million. The increase in the outstanding balance, cost and fair value of the loan, is due to the capitalization of “payment in kind” interest. These increases were approved by the Company’s Valuation Committee.

     At October 31, 2006, the notes had a combined outstanding balance, cost and fair value of $5.1 million.

Auto MOTOL BENI

     Auto MOTOL BENI (“BENI”), consists of two leased Ford sales and service dealerships located in the western side of Prague, in the Czech Republic.

     On October 10, 2006 the Company made an investment in BENI by purchasing 200 shares of common stock at a cost of $2.0 million.

     At October 31, 2006, the Company’s investment in BENI was assigned a cost and fair value of $2.0 million.

     Christopher Sullivan, a representative of the Company, serves as a director for BENI.

Baltic Motors Corporation

     Baltic Motors Corporation (“Baltic Motors”), Purchase, New York, is a U.S. company focused on the importation and sale of Ford and Land Rover vehicles and parts throughout Latvia, a member of the European Union.

     At October 31, 2005, the Company’s investment in Baltic Motors consisted of 54,947 shares of common stock at a cost of $6.0 million and a mezzanine loan with a cost basis of $4.5 million. The loan has a maturity date of June 24, 2007 and earns interest at 10.0% per annum.

     At October 31, 2005, the investment in Baltic Motors was assigned a fair value of $12.0 million.

     On December 22, 2005, the Company extended to Baltic Motors a $1.8 million revolving bridge note. Baltic Motors immediately drew down $1.5 million from the note. On January 12, 2006, Baltic Motors repaid the amount drawn from the note in full including all unpaid interest. The note ended on January 31, 2006 and has been removed from the Company’s books.

     On March 28, 2006, the Company extended to Baltic Motors a $2.0 million revolving bridge note. Baltic Motors immediately drew down $2.0 million from the note. On April 5, 2006, Baltic Motors repaid the amount drawn from the note in full including all unpaid interest. The note ended on April 30, 2006 and has been removed from the Company’s books.

     On September 28, 2006, the Company purchased an additional 5,737 shares of common stock at a cost of $2.0 million. The Company also extended to Baltic Motors a $1.0 million bridge loan. The loan bears annual interest at 12.0% with a maturity date of December 27, 2006.

     During the year ended October 31, 2006, the Valuation Committee increased the fair value of the Company’s equity investment in Baltic Motors by $11.6 million. The fair value of the Company’s equity investment at October 31, 2006 was $21.2 million.

     At October 31, 2006, the Company’s investment in Baltic Motors was assigned a fair value of $26.7 million. Michael Tokarz, Chairman of the Company, and Christopher Sullivan, a representative of the Company, serve as directors for Baltic Motors.

BP Clothing, LLC

     BP Clothing, LLC (“BP”), Pico Rivera, California, is a company which designs, manufactures, markets and distributes, Baby Phat(R), a line of women’s clothing.

     On June 3, 2005, the Company made an initial investment in BP consisting of a $10.0 million second lien loan bearing annual interest at LIBOR plus 8.0% for the first year and variable interest rates for the remainder of the four year term. The loan has a $10.0 million principal face amount and was issued at a cost basis of $10.0 million. The loan’s cost basis was subsequently discounted to reflect loan origination fees received. The Company is scheduled to receive quarterly principal repayments totaling $625,000 per quarter with the remaining principal balance due upon maturity.

     On February 24, 2006, BP repaid its initial second lien loan from the Company in full. The amount of the proceeds received from the prepayment was approximately $8.7 million. This amount included all outstanding principal, accrued interest, accrued monitoring fees and an early prepayment fee.

     On July 19, 2006, the Company extended to BP a subsequent $10.0 million second lien loan bearing annual interest at 14.0%. The loan has a $10.0 million principal face amount and was issued at a cost basis of $10.0 million. The loan’s cost basis was subsequently discounted to reflect loan origination fees received. The maturity date of the loan is July 18, 2012. The principal balance is due upon maturity.

     On July 20, 2006, the Company purchased at a discount $5.0 million in loan assignments in BP. The $3.0 million term loan A bears annual interest at LIBOR plus 4.25% or Prime Rate plus 3.25%. The $2.0 million term loan B bears annual interest at LIBOR plus 6.40% or Prime Rate plus 5.40%. The interest rate option on the loan assignments is at the borrower’s discretion. Both loans mature on July 18, 2011.

     On September 29, 2006, the Company received a quarterly principal payment for term loan A of $90,000. The increase in the outstanding balance, cost and fair value of the loans is due to the amortization of loan origination fees and the capitalization of “payment in kind” interest. These increases were approved by the Company’s Valuation Committee.

     At October 31, 2006, the loans had a combined outstanding balance and cost basis of $14.7 million. The loan and loan assignments had a combined fair value of $14.9 million.

Dakota Growers Pasta Company, Inc.

     Dakota Growers Pasta Company, Inc. (“Dakota”), Carrington, North Dakota, is the third largest manufacturer of dry pasta in North America and a market leader in private label sales. Dakota and its partners in DNA Dreamfields Company, LLC introduced a new process that is designed to reduce the number of digestible carbohydrates found in traditional pasta products.

     At October 31, 2005, the Company’s investment in Dakota consisted of 909,091 shares of common stock with a cost of $5.0 million and assigned fair value of $5.5 million.

     During the year ended October 31, 2006, the Company purchased an additional 172,104 shares of common stock at an average price of $5.11 per share or approximately $879,000.

     Effective January 31, 2006 and April 30, 2006, the Valuation Committee increased the fair value of the newly purchased shares to the carrying value of the original shares or approximately $6.07. The increase in the fair value of the newly purchased shares over their cost was approximately $164,000.

     Effective July 31, 2006, the Valuation Committee increased the fair value of the investment by approximately $900,000.

     Effective October 31, 2006, the Valuation Committee increased the fair value of the investment by approximately $1.5 million.

     At October 31, 2006, the Company’s investment in Dakota consisted of 1,081,195 shares of common stock with a cost of $5.9 million and assigned fair value of $9.0 million.

     Michael Tokarz, Chairman of the Company, serves as a director of Dakota.

DPHI, Inc. (formerly DataPlay, Inc.)

     DPHI, Inc. (“DPHI”), Boulder, Colorado, a Legacy Investment, is trying to develop new ways of enabling consumers to record and play digital content.

     At October 31, 2005 and October 31, 2006, the Company’s investment in DPHI consisted of 602,131 shares of Series A-1 preferred stock with a cost of $4.5 million. This investment has been assigned a fair value of $0.

Endymion Systems, Inc.

     Endymion Systems, Inc. (“Endymion”), Oakland, California, a Legacy Investment, is a single source supplier for strategic, web-enabled, end-to-end business solutions designed to help its customers leverage Internet technologies to drive growth and increase productivity.

     At October 31, 2005 and October 31, 2006, the Company’s investment in Endymion consisted of 7,156,760 shares of Series A preferred stock with a cost of $7.0 million. The investment has been assigned a fair value of $0.

Foliofn, Inc.

     Foliofn, Inc. (“Foliofn”), Vienna, Virginia, a Legacy Investment, is a financial services technology company that offers investment solutions to financial services firms and investors.

     At October 31, 2005 and October 31, 2006, the Company’s investment in Foliofn consisted of 5,802,259 shares of Series C preferred stock with a cost of $15.0 million. During the year ended October 31, 2006, the Valuation Committee increased the fair value of the Company’s equity investment in Foliofn by $5.0 million. The fair value of the Company’s equity investment at October 31, 2006 was $5.0 million.

     Bruce Shewmaker, an officer of the Company, serves as a director of Foliofn.

Harmony Pharmacy & Health Center, Inc.

     Harmony Pharmacy & Health Center, Inc. (“Harmony Pharmacy”), Purchase, NY, plans to operate pharmacy and healthcare centers primarily in airports in the United States.

     The Company invested $200,000 in Harmony Pharmacy in the form of a demand note. The note bears annual interest at 10% and is callable anytime at the Company’s discretion.

     On August 4, 2006 the Company purchased 750,000 shares of common stock at a cost of $750,000.

     On August 25, 2006, Harmony Pharmacy repaid its demand note in full. The amount of the proceeds received from the prepayment was $207,444.44. This amount included all outstanding principal and accrued interest. There was no gain or loss as a result of the prepayment.

     At October 31, 2006, the Company’s investment in Harmony Pharmacy consisted of 2.0 million shares of common stock with a cost of $750,000 and was assigned a fair value of $750,000.

     Michael Tokarz, Chairman of the Company, serves as a director of Harmony Pharmacy.

Henry Company

     Henry Company (“Henry”), Huntington Park, California, is a manufacturer and distributor of building products and specialty chemicals.

     In January 2006, The Company purchased the $5.0 million in loan assignments in Henry Company. The $3.0 million term loan A bears annual interest at LIBOR plus 3.50% and matures on April 6, 2011. The $2.0 million term loan B bears annual interest at LIBOR plus 7.75% and also matures on April 6, 2011.

     At October 31, 2006, the loans had a combined outstanding balance, cost basis, and fair value of $5.0 million.

Impact Confections, Inc.

     Impact Confections, Inc. (“Impact”), Roswell, New Mexico founded in 1981, is a manufacturer and distributor of children’s candies.

     The Company’s investment in Impact consists of 252 shares of common stock at a cost of $10,714.28 per share or $2.7 million and a loan to Impact in the form of a senior subordinated note with an outstanding balance of $5.0 million. The Company’s common stock has a preferred status if there is a liquidation of the company. The loan bears annual interest at 17.0% and matures on July 30, 2009. The loan was issued at a cost basis of $5.0 million. The loan’s cost basis was then discounted to reflect loan origination fees received.

     On July 29, 2005, the Company made a $325,000 follow-on investment in Impact in the form of a secured promissory note which bears annual interest at LIBOR plus 4.0%. The promissory note has a three year term. The note has a $325,000 principal face amount and was issued at a cost basis of $325,000. The note’s cost basis was then discounted to reflect loan origination fees received.

     At October 31, 2005, the Company’s investment in Impact consisted of 252 shares of common stock at a cost of $2.7 million, the loan to Impact with an outstanding balance of approximately $5.2 million and the secured promissory note with an outstanding balance of $325,000. The cost basis of the loan and promissory note at October 31, 2005 was approximately $5.1 million and $319,000, respectively. At October 31, 2005, the equity investment, loan and secured promissory note were assigned fair values of $2.7 million, $5.2 million and $325,000, respectively.

     At October 31, 2006, the Company’s investment in Impact consisted of 252 shares of common stock at a cost of $2.7 million, the loan to Impact with an outstanding balance of $5.5 million and the secured promissory note with a balance of $325,000. The cost basis of the loan and promissory note at October 31, 2006 were approximately $5.4 million and $321,000 respectively. At October 31, 2006, the equity investment, loan and secured promissory note were assigned fair values of $2.7 million, $5.5 million and $325,000, respectively. The increase in the outstanding balance, cost and fair value of the loan is due to the amortization of loan origination fees and the capitalization of “payment in kind” interest. These increases were approved by the Company’s Valuation Committee.

     Puneet Sanan and Shivani Khurana, representatives of the Company, serve as directors of Impact.

Innovative Brands, LLC

     Innovative Brands, LLC (“Innovative Brands”), Phoenix, Arizona, is a consumer product company that manufactures and distributes personal care products.

     The Company purchased a $15.0 million loan assignment in Innovative Brands. The $15.0 million term loan bears annual interest at 11.13% and matures on September 25, 2011.

     At October 31, 2006, the loan had an outstanding balance, cost basis, and was assigned a fair value of $15.0 million.

Integral Development Corporation

     Integral Development Corporation (“Integral”), Mountain View, California, a Legacy Investment, is a developer of technology for financial institutions to expand, integrate and automate their capital markets businesses and operations.

     At October 31, 2005, the Company’s investment in Integral consisted of an outstanding balance on the loan of approximately $1.1 million with a cost of approximately $1.1 million. The investment had been assigned a fair value of approximately $1.1 million.

     During the year ended October 31, 2006, Integral prepaid its outstanding loan balance in full including all accrued interest. The Company recorded no gain or loss as a result of the prepayment. Under the terms of the prepayment, the Company returned its warrants to Integral for no consideration.

     As of October 31, 2006, the Company no longer held any investment in Integral.

JDC Lighting, LLC

     JDC Lighting, LLC (“JDC”), New York, New York, is a distributor of commercial lighting and electrical products.

     The Company’s investment in JDC consists of a $3.0 million senior subordinated loan, bearing annual interest at 17.0% over a four year term. The loan has a $3.0 million principal face amount and was issued at a cost basis of $3.0 million. The loan’s cost basis was discounted to reflect loan origination fees received.

     At October 31, 2005, the loan had an outstanding balance of approximately $3.1 million with a cost of approximately $3.0 million. The loan was assigned a fair value of approximately $3.1 million.

     On October 30, 2006, JDC repaid $160,116 of principal.

     At October 31, 2006, the loan had an outstanding balance of approximately $3.0 million with a cost of approximately $3.0 million. The loan was assigned a fair value of approximately $3.0 million. The increase in the outstanding balance, cost and fair value of the

loan, is due to the amortization of loan origination fees and the capitalization of “payment in kind” interest. These increases were approved by the Company’s Valuation Committee.

Lumeta Corporation

     Lumeta Corporation (“Lumeta”), Somerset, New Jersey, a Legacy Investment, is a developer of network management, security, and auditing solutions. The company provides businesses with an analysis of their network security that is designed to reveal the vulnerabilities and inefficiencies of their corporate intranets.

     At October 31, 2005 and January 31, 2006, the Company’s investment in Lumeta consisted of 384,615 shares of Series A preferred stock and 266,846 shares of Series B preferred stock with a combined cost of approximately $406,000.

     At October 31, 2005 the investments were assigned a fair value of $200,000, or approximately $0.11 per share of Series A preferred stock and approximately $0.59 per share of Series B preferred stock.

     On April 7, 2006, the Company sold its investment in Lumeta for its carrying value of $200,000. The Company realized a loss on Lumeta of approximately $200,000. However, the Valuation Committee previously decreased the fair value of the Company’s investment in this company to $200,000 and as a result, the realized loss was offset by a reduction in unrealized losses. Therefore, the net effect of the Company’s sale of its investment in Lumeta on the Company’s consolidated statement of operations and NAV was zero.

     As of October 31, 2006, the Company no longer held any investment in Lumeta.

Mainstream Data, Inc.

     Mainstream Data, Inc. (“Mainstream”), Salt Lake City, Utah, a Legacy Investment, builds and operates satellite, internet, and wireless broadcast networks for information companies. Mainstream networks deliver text news, streaming stock quotations, and digital images to subscribers around the world.

     At October 31, 2005 and October 31, 2006, the Company’s investment in Mainstream consisted of 5,786 shares of common stock with a cost of $3.75 million. The investment has been assigned a fair value of $0.

Marine Exhibition Corporation

     Marine Exhibition Corporation (“Marine”), Miami, Florida, owns and operates the Miami Seaquarium. The Seaquarium is a family-oriented entertainment park.

     On July 11, 2006, the Company extended to Marine a $10.0 million senior secured loan bearing annual interest at 11.0%. The senior secured loan has a $10.0 million principal face amount and was issued at a cost basis of $10.0 million. The loan’s cost basis was subsequently discounted to reflect loan origination fees received. The maturity date of the loan is June 30, 2013. The Company also extended a secured revolving note bearing interest at LIBOR plus 1.0%. The amount available to draw down at any time on the note is $2.0 million. The Company also invested $2.0 million into Marine in the form of preferred stock, purchasing 2,000 shares. The dividend rate on the preferred stock is 12.0% per annum.

     At October 31, 2006, the Company’s senior secured loan had an outstanding balance of $10.1 million with a cost of $9.9 million. The senior secured loan was assigned a fair value of $10.1 million. The secured revolving note was not drawn upon. The preferred stock had been assigned a fair value of $2.0 million. The increase in the outstanding balance, cost and fair value of the loan and preferred stock, is due to the amortization of loan origination fees and the capitalization of “payment in kind” interest/dividends. These increases were approved by the Company’s Valuation Committee.

Octagon Credit Investors, LLC

     Octagon Credit Investors, LLC (“Octagon”), is a New York-based asset management company that manages leveraged loans and high yield bonds through collateralized debt obligations (“CDO”) funds.

     The Company’s initial investment in Octagon consisted of a $5.0 million senior subordinated loan, bearing annual interest at 15% over a seven year term. The loan has a $5.0 million principal face amount and was issued at a discounted cost basis of $4.5 million. The loan included detachable warrants with a cost basis of $550,000. The Company also provided a $5.0 million senior secured credit facility to Octagon. This credit facility expires on May 7, 2009 and bears annual interest at LIBOR plus 4.0%. The Company receives a 0.50% unused facility fee on an annual

basis and a 0.25% servicing fee on an annual basis for maintaining the credit facility. The Company also made a $560,000 equity investment in Octagon which provides the Company a membership interest in Octagon.

     At October 31, 2005, the loan had an outstanding balance of $5.2 million with a cost of $4.6 million. The loan was carried at a fair value of $4.7 million.

     At October 31, 2005, the equity investment and detachable warrants had a cost basis of $724,857 and $550,000 respectively. The equity investment and detachable warrants were assigned a fair value of approximately $1.2 million and $1.1 million, respectively.

     On January 3, 2006, the Company exercised its warrant ownership in Octagon for no additional cost which increased its existing membership interest in Octagon. As a result, Octagon is now considered an affiliate under the definition of the 1940 Act.

     Effective January 31, 2006, the Valuation Committee determined to increase the fair value of the Company’s equity investment in Octagon by $562,291.

     The cost basis and fair value of the equity investment was also increased by approximately $200,000 to account for the Company’s allocated portion of the flow-through income, from its membership interest in Octagon, which was not distributed to members. This flow-through income is recorded by the Company as “other income.”

     On October 2, 2006, Octagon repaid the loan and credit facility in full. The amount of the proceeds received from the prepayment was approximately $5.4 million. This amount included all outstanding principal, accrued interest, and unused fee on the credit facility. The Company recorded a gain as a result of these prepayments of approximately $429,000 from the acceleration of amortization of original issue discount. After this repayment, the Company extended a $5.0 million term loan, cost discounted for loan fees, and a $12.0 million revolving line of credit to Octagon. Octagon immediately drew down $3.75 million from the revolving line of credit. The Company received two distributions from Octagon on October 2, 2006, a return of capital of $191,258 and a one time incentive fee of $100,411. Also on October 2, 2006, Octagon repurchased a portion of the LLC membership interest for approximately $1.0 million. The Company realized a capital gain of approximately $550,000 from this sale.

     On October 30, 2006, Octagon repaid $500,000 of the outstanding balance on the revolving line of credit.

     At October 31, 2006, the term loan had an outstanding balance of $5.0 million with a cost of $4.9 million. The loan was assigned a fair value of $5.0 million. The revolving line of credit had an outstanding balance of $3.25 million with a cost and fair value of $3.25 million.

     At October 31, 2006, the equity investment had a cost basis of approximately $900,000 and was assigned a fair value of approximately $1.9 million.

Ohio Medical Corporation

     Ohio Medical Corporation (“Ohio”), Gurnee, Illinois, is a manufacturer and supplier of suction and oxygen therapy products, as well as medical gas equipment.

     During the fiscal year 2005, the Company invested $17.0 million and sponsored the acquisition of General Electric’s Ohmeda Brand Suction and Oxygen Therapy business unit (“GE-SOT”), a leading global supplier of suction and oxygen therapy products. On July 14, 2005, in conjunction with this transaction, the Company acquired GE-SOT’s largest supplier, Squire Cogswell/Aeros Instruments, Inc. and merged both businesses creating Ohio Medical Corporation.

     The Company’s investment in Ohio consists of 5,620 shares of common stock with a cost basis of $17.0 million.

     As of October 31, 2005, the Company’s investment was assigned a fair value of $17.0 million.

     During the year ended October 31, 2006, the Valuation Committee increased the fair value of the Company’s equity investment in Ohio by $9.2 million from $17.0 million to approximately $26.2 million.

     As of October 31, 2006, the cost basis and fair value of the Company’s investment in Ohio was $17.0 million and $26.2 million, respectively.

     Michael Tokarz, Chairman of the Company, Peter Seidenberg, Chief Financial Officer of the Company and David Hadani, a representative of the Company, serve as directors of Ohio.

Phoenix Coal Corporation

     Phoenix Coal Corporation (“Phoenix”), Madisonville, KY, is engaged in the acquisition, development, production and sale of bituminous coal reserves and resources located primarily in the Illinois Basin. With offices in Madisonville, Kentucky and Champaign, Illinois, the company is focused on consolidating small and medium-sized coal mining projects and applying proprietary technology to increase efficiency and enhance profit margins.

     On April 4, 2006, the Company purchased 1 million shares of common stock of Phoenix for a purchase price of $500,000. On June 8, 2006, the Company purchased an additional 666,667 shares of common stock of Phoenix for a purchase price of approximately $500,000.

     Also, on June 8, 2006, the Company committed to Phoenix $7.0 million in debt. The first $3.5 million second lien loan bears annual interest at 15.0%. The loan was discounted for the loan origination fees received.

     On July 26, 2006 the Company extended to Phoenix the remaining portion of the $7.0 million commitment. This $3.5 million second lien loan also bears annual interest at 15.0%. The maturity date for both loans is June 8, 2011.

     At October 31, 2006, the second lien loan had an outstanding balance of $7.1 million with a cost of $7.0 million. The loan was assigned a fair value of $7.1 million. The increase in cost and fair value of the loan is due to the amortization of loan origination fees and the capitalization of “payment in kind” interest. These increases were approved by the Company’s Valuation Committee.

     At October 31, 2006, the equity investment had a cost basis of approximately $1.0 million and was assigned a fair value of $1.0 million.

     Bruce Shewmaker, an officer of the Company, serves as a director of Phoenix.

PreVisor, Inc.

     PreVisor, Inc. (“PreVisor”), Roswell, Georgia, provides pre-employment testing and assessment solutions and related professional consulting services.

     On May 31, 2006, the Company invested $6.0 million in PreVisor in the form of common stock. Mr. Tokarz, our Chairman and Portfolio Manager, is a minority non-controlling shareholder of PreVisor. Our board of directors, including all of our directors who are not “interested persons” of the Company, as defined by the 1940 Act (the “Independent Directors”), approved the transaction (Mr. Tokarz recused himself from making a determination or recommendation on this matter).

     As of October 31, 2006, the common stock had been assigned a fair value of $6.0 million.

ProcessClaims, Inc.

     ProcessClaims, Inc. (“ProcessClaims”), a Legacy Investment, Manhattan Beach, California, provides web-based solutions and value added services that streamline the automobile insurance claims process for the insurance industry and its partners.

     At October 31, 2005, the Company’s investments in ProcessClaims consisted of 6,250,000 shares of Series C preferred stock, 849,257 shares of Series D preferred stock, and 873,362 warrants to purchase 873,362 shares of Series E convertible preferred stock with a combined cost of $2.4 million. The investment in the Series C preferred stock was assigned a fair value of $2.0 million, the investment in the Series D preferred stock was assigned a fair value of $400,000, and the investment in the Series E warrants was assigned a fair value of $0.

     Effective December 31, 2005, in a cashless transaction, the Company received 373,362 shares of Series E preferred stock of ProcessClaims in exchange for its rights under a warrant issued by ProcessClaims that has been held by the Company since May 2002.

     On January 5, 2006, the Company’s Valuation Committee determined to increase the fair value of the Company’s entire investment in ProcessClaims by $3.3 million.

     During March 2006, the Company was granted and accepted 50,000 options to purchase shares of ProcessClaims common stock. Bruce Shewmaker, an officer of the Company, serves as a director of ProcessClaims. The options were granted for Bruce Shewmaker’s service on ProcessClaims board of directors. The options vested immediately, have an exercise price of $0.32 per share and have an expiration date of ten years from the date of grant.

     Effective April 30, 2006, the Company’s Valuation Committee determined to increase the fair value of the Company’s investment in ProcessClaims by approximately $760,000.

     At April 30, 2006, the Company’s investments in ProcessClaims consisted of 6,250,000 shares of Series C preferred stock, 849,257 shares of Series D preferred stock, 373,362 shares of Series E convertible preferred stock and 50,000 common stock options with a combined cost of $2.4 million. The investment in the Series C preferred stock was assigned a fair value of $5.2 million, the investment in the Series D preferred stock was assigned a fair value of $831,000, the investment in the Series E warrants was assigned a fair value of $446,000 and the options were fair valued at $9,000.

     On May 30, 2006, ProcessClaims, one of the Company’s legacy portfolio companies, entered into a definitive agreement to be acquired by CCC Information Services Inc. (“CCC”). The acquisition by CCC closed on June 9,

2006. As of June 9, 2006, the Company received net proceeds of approximately $7.9 million. The gross proceeds were approximately $8.3 million of which approximately $400,000 or 5.0% of the gross proceeds were deposited into a reserve account for one year. Due to the contingencies associated with the escrow, the Company has not presently placed any value on the proceeds deposited in escrow and has therefore not factored such proceeds into the Company’s increased NAV. The Company’s total investment in ProcessClaims was $2.4 million which resulted in a capital gain of approximately $5.5 million.

     As of October 31, 2006, the Company no longer held any investment in ProcessClaims.

SafeStone Technologies PLC

     SafeStone Technologies PLC (“SafeStone”), Old Amersham, UK, a Legacy Investment, provides organizations with technology designed to secure access controls across the extended enterprise, enforcing compliance with security policies and enabling effective management of the corporate IT and e-business infrastructure.

     At October 31, 2005 and October 31, 2006, the Company’s investments in SafeStone consisted of 2,106,378 shares of Series A ordinary stock with a cost of $4.0 million. The investment has been assigned a fair value of $0 by the Company’s Valuation Committee.

SGDA Sanierungsgesellschaft fur Deponien und Altasten mbH

     SGDA Sanierungsgesellschaft fur Deponien und Altasten mbH (“SGDA”), Zella-Mehlis, Germany, is a company that is in the business of landfill remediation and revitalization of contaminated soil.

     The Company’s investment in SGDA consists of a $4.6 million term loan, bearing annual interest at 7.0% over a four and a half year term. The term loan has a $4.6 million principal face amount and was issued at a discounted cost basis of $4.3 million. The loan included a common equity ownership interest in SGDA with a cost basis of $315,000. The Company also made available to SGDA a $1.3 million revolving credit facility that bears annual interest at 7.0%. The credit facility expires on August 25, 2006.

     At October 31, 2005, the term loan had an outstanding balance of approximately $4.6 million with a cost of $4.3 million. The term loan was carried at a fair value of $4.3 million. The increase in the cost and fair value of the loan is due to the accretion of the market discount of the term loan. The ownership interest in SGDA has been assigned a fair value of $315,000 which is its cost basis. As of October 31, 2005, SGDA had drawn approximately $1.2 million upon the revolving credit facility.

     During December 2005, SGDA drew an additional $70,600 on the revolving line of credit. This brought the amount drawn under the line of credit to $1.3 million, the maximum available under the line of credit.

     Also during December 2005, the Company did not accrue, and therefore was not paid, approximately $23,000 in implied interest owed from the SGDA loan and revolving credit facility. This was due to a contractual agreement (based on German tax provisions) to cap the interest paid by SGDA to Company, in the aggregate, at 240,000 Euro in any given calendar year. Despite forgoing this interest management believes there is no credit risk associated with this portfolio company.

     On January 12, 2006, the Company extended to SGDA a $300,000 bridge loan. The loan bore annual interest at 7.0% and had a maturity date of April 30, 2006.

     On April 6, 2006, the Company invested an additional $2.0 million into SGDA in the form of a preferred equity interest. On April 25, 2006 the Company purchased an additional common equity interest in SGDA for $23,551.

      On April 28, 2006, the Company increased the availability under the revolving credit facility by $300,000. The balance of the bridge loan mentioned above, which would have matured on April 30, 2006, was added to the revolving credit facility and the bridge loan was removed from the Company’s books as a part of the refinancing. As of July 31, 2006, the entire $1.6 million facility was drawn in full.

     On August 25, 2006 the revolving credit facility was added to the term loan balance assuming the same terms as the term loan.

     On October 24, 2006, the Company invested an additional $3.0 million into SGDA in the form of preferred equity interest.

      At October 31, 2006, the term loan had an outstanding balance of approximately $6.2 million with a cost of approximately $6.0 million. The term loan was assigned a fair value of approximately $6.0 million. The increase in the cost and fair value of the loan is due to the accretion of the market discount of the term loan. These increases were approved by the Company’s Valuation Committee. The ownership interest in SGDA has been assigned a fair value of $338,551 which is its cost basis. The preferred stock has been assigned a fair value of approximately $5.0 million.

Sonexis, Inc.

     Sonexis, Inc. (“Sonexis”), Tewksbury, Massachusetts, a Legacy Investment, is the developer of a new kind of conferencing solution — Sonexis ConferenceManager — a modular platform that is designed to support a breadth of audio and web conferencing functionality to deliver rich media conferencing.

     At October 31, 2005 and October 31, 2006, the Company’s investment in Sonexis consisted of 131,615 shares of common stock with a cost of $10.0 million. The investment has been assigned a fair value of $0.

SIA BM Auto

     SIA BM Auto (“BM Auto”), Riga, Latvia, is a company focused on the importation and sale of BMW vehicles and parts throughout Latvia, a member of the European Union.

     The Company’s investment in BM Auto consisted of 47,300 shares of common stock at a cost of $8.0 million and a sixty day bridge loan with a cost basis of $7.0 million. The loan was repaid in full, including all principal and accrued interest, on April 21, 2006.

     At October 31, 2006, the Company’s investment in BM Auto was assigned a fair value of $8.0 million.

SP Industries, Inc.

     SP Industries, Inc. (“SP”), Warminster, Pennsylvania, is a designer, manufacturer, and marketer of laboratory research and process equipment, glassware and precision glass components, and configured-to-order manufacturing equipment.

     The Company’s investment in SP consists of a $6.5 million mezzanine loan and a $4.0 million term loan. The mezzanine loan bears annual interest at 17.0% over a seven year term. The mezzanine loan has a $6.5 million principal face amount and was issued at a cost basis of $6.5 million. The mezzanine loan’s cost basis was discounted to reflect loan origination fees received. The term loan bears annual interest at LIBOR plus 10.0% over a five year term. The term loan has a $4.0 million principal face amount and was issued at a cost basis of $4.0 million. The term loan’s cost basis was discounted to reflect loan origination fees received by the Company.

     At October 31, 2005, the mezzanine loan and the term loan had outstanding balances of $6.7 million and $4.0 million, respectively, with cost basis of approximately $6.4 million and $4.0 million, respectively. The mezzanine loan and term loan were assigned fair values of approximately $6.7 million and $4.0 million, respectively.

     On October 13, 2006 the Company extended to SP $10.0 million in the form of an additional $4.0 million of term loan and an additional $6.0 million mezzanine loan. The interest rate and maturity date of the term loan was adjusted to LIBOR plus 8.0% and March 31, 2011. The interest rate of the mezzanine loan was adjusted to 16.0% with the maturity date remaining March 31, 2012.

     On October 20, 2006 the Company assigned $5.0 million of term loan to Citigroup Global Markets Realty.

     At October 31, 2006, the mezzanine loan and the term loan had outstanding balances of approximately $13.0 million and $3.1 million, respectively, with a cost basis of approximately $12.7 million and $3.0 million, respectively. The mezzanine loan and term loan were assigned fair values of approximately $13.0 million and $3.1 million, respectively. The increase in the outstanding balance, cost and fair value of the loan, is due to the amortization of loan origination fees and the capitalization of “payment in kind” interest. These increases were approved by the Company’s Valuation Committee.

Strategic Outsourcing, Inc.

     Strategic Outsourcing, Inc. (“SOI”), Charlotte, North Carolina, is a professional employer organization that provides services that enable small businesses to outsource their human resource function.

     The Company purchased a $5.0 million loan assignment in SOI. The loan has a 5 year term and bears annual interest at LIBOR plus 5.25%

     On December 31, 2005, SOI repaid a portion of its outstanding loan. The Company’s prorated share of the repayment was approximately $108,000.

     On March 31, 2006, SOI repaid a portion of its outstanding loan. The Company’s prorated share of the repayment was approximately $108,000.

     On May 3, 2006, SOI repaid a portion of its outstanding loan. The Company’s prorated share of the repayment was approximately $440,000.

     On July 27, 2006, SOI repaid the loan assignment in full. The amount of the proceeds received from the prepayment was approximately $4.5 million. This amount included all outstanding principal, accrued interest, and an early prepayment fee.

     As of October 31, 2006, the Company no longer held any investment in SOI.

Storage Canada, LLC

     Storage Canada, LLC (“Storage Canada”), Omaha, NE, is a real estate company that owns and develops self-storage facilities throughout the U.S. and Canada.

     On March 30, 2006, the Company provided a $6.0 million loan commitment to Storage Canada on which Storage Canada immediately borrowed approximately $1.3 million. The commitment expires after one year, but may be renewed with the consent of both parties. The initial borrowing on the loan bears annual interest at 8.75% and has a maturity date of March 30, 2013. Any additional borrowings will mature seven years from the date of the subsequent borrowing. The Company receives monthly principal payments. The Company also receives a fee of 0.25% on the unused portion of the loan.

     On October 6, 2006, Storage Canada borrowed $619,000. The borrowing bears annual interest at 8.75% and has a maturity date of October 6, 2013.

     At October 31, 2006, the Company’s investment in Storage Canada had an outstanding balance of approximately $1.9 million and a cost basis of approximately $2.0 million and was assigned a fair value of approximately $1.9 million.

Summit Research Labs, Inc.

     Summit Research Labs, Inc. (“Summit”), Huguenot, NY, is a specialty chemical company that manufactures antiperspirant actives.

     On August 16, 2006, the Company extended to Summit a $5.0 million second lien loan bearing annual interest at 14.0%. The second lien loan has a $5.0 million principal face amount and was issued at a cost basis of $5.0 million. The loan’s cost basis was subsequently discounted to reflect loan origination fees received. The maturity date of the loan is August 15, 2012. The Company also invested $11.2 million into Summit in the form of preferred stock, purchasing 800 shares.

     At October 31, 2006, the Company’s second lien loan had an outstanding balance of approximately $5.0 million with a cost of approximately $5.0 million. The second lien loan was assigned a fair value of approximately $5.0 million. The preferred stock had been assigned a fair value of $11.2 million. The increase in cost and fair value of the loan is due to the amortization of loan origination fees and the capitalization of “payment in kind” interest. These increases were approved by the Company’s Valuation Committee.

     Michael Tokarz, Chairman of the Company, and Puneet Sanan and Shivani Khurana, representatives of the Company, serve as directors of Summit.

Timberland Machines & Irrigation, Inc.

     Timberland Machines & Irrigation, Inc. (“Timberland”), Enfield, Connecticut, is a distributor of landscaping outdoor power equipment and irrigation products.

     The Company’s investment in Timberland consists of a $6.0 million senior subordinated loan, bearing annual interest at 17.0% over a five year term. The note has a $6.0 million principal face amount and was issued at a cost basis of $6.0 million. The loan’s cost basis was then discounted to reflect loan origination fees received. The Company also owns 450 shares of common stock for a $4.5 million equity investment in Timberland. The Company has an option to purchase an additional 150 shares of common stock at a price of $10,000 per share. The Company has also extended to Timberland a $3.25 million junior revolving note. The junior revolving note bears interest at 12.5% per annum and matures on July 7, 2007.

     Timberland has a floor plan financing program administered by Transamerica Commercial Finance Corporation (“Transamerica”). As is typical in Timberland’s industry, under the terms of the dealer financing arrangement, Timberland guarantees the repurchase of product from Transamerica, if a dealer defaults on payment and the underlying assets are repossessed. The Company has agreed to be a co-guarantor of this repurchase commitment, but its maximum potential exposure as a result of the guarantee is contractually limited to $500,000.

     At October 31, 2005, the Company’s mezzanine loan had an outstanding balance of approximately $6.3 million with a cost of approximately $6.2 million. The mezzanine loan was assigned a fair value of approximately $6.3 million. The junior revolving note was fully

drawn upon and assigned a fair value of $3.25 million. The common stock had been assigned a fair value of $4.5 million. The warrant was assigned a fair value of $0.

     Effective December 27, 2005, the Company converted $286,200 of the Timberland junior revolving line of credit into 28.6 shares of common stock at a price of $10,000 per share. As a result, as of July 31, 2006 the Company owned 478.6 common shares and the funded debt under the junior revolving line of credit was reduced from $3.25 million to approximately $3.0 million.

     During the quarter ended, April 30, 2006, Timberland had repaid an additional $500,000 on the note leaving the total amount outstanding at approximately $2.5 million.

     On July 1, 2006, the Company reduced the interest rate on the mezzanine loan from 17.0% to approximately 14.4%.

     During the quarter ended, July 31, 2006, Timberland repaid an additional $500,000 and drew down $1.0 million on the note leaving the total amount outstanding at approximately $3.0 million.

     Effective September 12, 2006, the Company converted $409,091 of the Timberland junior revolving line of credit into 40.9 shares of common stock at a price of $10,000 per share. Effective September 22, 2006, the Company converted $225,000 of the Timberland junior revolving line of credit into 22.5 shares of common stock at a price of $10,000 per share. Timberland then borrowed $500,000 from the junior revolving line of credit. As a result of these transactions, as of October 31, 2006 the Company owned 542.0 common shares and the funded debt under the junior revolving line of credit was reduced from approximately $3.25 million to approximately $2.8 million.

     During the year ended October 31, 2006, the Valuation Committee decreased the fair value of the Company’s equity investment in Timberland by $1.0 million from approximately $5.4 million to approximately $4.4 million.

     At October 31, 2006, the Company’s mezzanine loan had an outstanding balance of approximately $6.6 million with a cost of approximately $6.6 million. The mezzanine loan was assigned a fair value of approximately $6.6 million. The increase in the outstanding balance, cost and fair value of the loan is due to the amortization of loan origination fees and the capitalization of “payment in kind” interest. These increases were approved by the Company’s Valuation Committee. The junior revolving note was assigned a fair value of approximately $2.8 million. The common stock was assigned a fair value of approximately $4.4 million. The warrant was assigned a fair value of $0.

     Michael Tokarz, Chairman of the Company, and Puneet Sanan, a representative of the Company, serve as directors of Timberland.

Total Safety U.S., Inc.

     Total Safety U.S., Inc. (“Total Safety”), Houston, Texas, is the leading provider of safety equipment and related services to the refining, petrochemical, and oil exploration and production industries.

     The Company purchased $6.0 million of loan assignments in Total Safety. The $5.0 million term loan A bears annual interest at LIBOR plus 4.5% and matures on December 31, 2010. The $1.0 million term loan B bears annual interest at LIBOR plus 8.5% and also matures on December 31, 2010.

     On June 30, 2006, the Company received a quarterly principal payment for each loan totaling $55,046.

     On September 29, 2006, the Company received a quarterly principal payment for each loan totaling $55,046.

      At October 31, 2006, the loans had a combined outstanding balance and cost basis of $5.9 million. The loan assignments were assigned a fair value of $5.9 million.

Turf Products, LLC

     Turf Products, LLC (“Turf”), Enfield, Connecticut, is a wholesale distributor of golf course and commercial turf maintenance equipment, golf course irrigation systems and consumer outdoor power equipment.

      The Company’s investment in Turf consists of senior subordinated loan, bearing interest at 15.0% per annum over a five year term. The note has a $7.5 million principal face amount and was issued at a cost basis of $7.5 million. The loan’s cost basis was then discounted to reflect loan origination fees received. The Company also owns a membership interest from a $3.8 million equity investment in Turf. The Company also has a warrant to purchase an additional 15.0% of the company.

     During the year ended October 31, 2006, the Valuation Committee increased the fair value of the Company’s equity investment in Turf by $2.0 million from $3.8 million to approximately $5.8 million.

     At October 31, 2006, the Company’s mezzanine loan had an outstanding balance of approximately $7.7 million with a cost of approximately $7.6 million. The loan was assigned a fair value of approximately $7.7 million. The increase in the outstanding balance, cost and fair value of the loan is due to the amortization of loan origination fees and the capitalization of “payment in kind” interest. These increases were approved by the Company’s Valuation Committee. The membership interest has been assigned a fair value of $5.8 million. The option was assigned a fair value of $0.

     Michael Tokarz, Chairman of the Company, and Puneet Sanan and Shivani Khurana, representatives of the Company, serve as directors of Turf.

Velocitius B.V.

     Velocitius B.V. (“Velocitius”), a Netherlands based company, manages Germany based wind farms through operating subsidiaries.

     On May 10, 2006, the Company made an equity investment of approximately $66,290 in Velocitius.

     On October 26, 2006, the Company made an additional equity investment of approximately $2.9 million.

     On October 30, 2006, the Company provided a $260,000 revolving line of credit to Velocitius on which Velocitius immediately borrowed approximately $143,614. The revolving line of credit expires on October 31, 2009. The note bears annual interest at 8.0%.

     At October 31, 2006, the equity investment in Velocitius had a cost and was assigned a fair value of approximately $3.0 million. The revolving line of credit had a cost and was assigned a fair value of $143,614.

     Bruce Shewmaker, an officer of the Company, serves as a director of Velocitius.

Vendio Services, Inc.

     Vendio Services, Inc. (“Vendio”), San Bruno, California, a Legacy Investment, offers small businesses and entrepreneurs resources to build Internet sales channels by providing software solutions designed to help these merchants efficiently market, sell and distribute their products.

     At October 31, 2005, the Company’s investments in Vendio consisted of 10,476 shares of common stock and 6,443,188 shares of Series A preferred stock at a total cost of $6.6 million. The investments were assigned a fair value of $2.7 million, $0 for the common stock and $2.7 million for the Series A preferred stock.

     During the year ended October 31, 2006, the Valuation Committee increased the fair value of the Company’s equity investment in Vendio by $700,000 from $2.7 million to $3.4 million.

     At October 31, 2006, the Company’s investments in Vendio consisted of 10,476 shares of common stock and 6,443,188 shares of Series A preferred stock at a total cost of $6.6 million. The investments were assigned a fair value of $3.4 million, $0 for the common stock and $3.4 million for the Series A preferred stock.

     Bruce Shewmaker, an officer of the Company, serves as a director of Vendio.

Vestal Manufacturing Enterprises, Inc.

     Vestal Manufacturing Enterprises, Inc. (“Vestal”), Sweetwater, Tennessee, is a market leader for steel fabricated products to brick and masonry segments of the construction industry. Vestal manufactures and sells both cast iron and fabricated steel specialty products used in the construction of single-family homes.

     The Company’s investment in Vestal consists of 81,000 shares of common stock at a cost of approximately $1.9 million and a loan of $900,000 to Vestal in the form of a senior subordinated promissory note. The loan has a maturity date of April 29, 2011 and earns interest at 12.0% per annum.

     At October 31, 2005, the senior subordinated promissory note had an outstanding balance, cost, and fair value of $900,000. The 81,000 shares of common stock of Vestal that had a cost basis of approximately $1.9 million were assigned a fair value of $3.7 million.

     On September 1, 2006, the Company received a principal payment of approximately $100,000.

     At October 31, 2006, the senior subordinated promissory note had an outstanding balance, cost, and fair value of $800,000. The 81,000 shares of common stock of Vestal that had a cost basis of approximately $1.9 million were assigned a fair value of $3.7 million.

     David Hadani and Ben Harris, representatives of the Company, serve as directors of Vestal.

Vitality Foodservice, Inc.

     Vitality Foodservice, Inc. (“Vitality”), Tampa, Florida, is a market leader in the processing and marketing of dispensed and non-dispensed juices and frozen concentrate liquid coffee to the foodservice industry. With an installed base of over 42,000 dispensers worldwide, Vitality sells its frozen concentrate through a network of over 350 distributors to such market niches as institutional foodservice, including schools, hospitals, cruise ships, hotels and restaurants.

     The Company’s investment in Vitality consists of 500,000 shares of common stock at a cost of $5.0 million and 1,000,000 shares of Series A convertible preferred stock at a cost of $10.0 million. The convertible preferred stock has a liquidation date of September 24, 2011 and has a yield of 13.0% per annum. The convertible preferred stock also has detachable warrants granting the Company the right to purchase 211,243 shares of common stock at the price of $0.01 per share.

     At October 31, 2005, the investment in Vitality consisted of 500,000 shares of common stock at a cost of $5.0 million and 1,000,000 shares of Series A convertible preferred stock at a cost of $10.5 million. The common stock, Series A convertible preferred stock and warrants were assigned fair values of $5.0 million, approximately $10.5 million and $700,000, respectively.

     Effective January 31, 2006, the Valuation Committee determined to increase the fair value of the common stock and warrants in Vitality by $3.5 million and $400,000, respectively.

     During the year ended October 31, 2006, the Company reclassified dividend income received from Vitality totaling approximately $900,000 to return of capital. The reclassification occurred due to Vitality’s determination that it will not have taxable earnings and profits for their fiscal year 2006. This reclassification to return of capital had no impact on the Company’s net asset value

     At October 31, 2006, the investment in Vitality consisted of 500,000 shares of common stock at a cost of $5.0 million and one million shares of Series A convertible preferred stock at a cost of approximately $9.7 million. The increase in the cost and fair value of the Series A convertible preferred stock is due to the capitalization of “payment in kind” dividends. These increases were approved by the Company’s Valuation Committee. The common stock, Series A convertible preferred stock and warrants were assigned fair values of $8.5 million, $11.1 million and $1.1 million, respectively.

     David Hadani, a representative of the Company, serves as a director of Vitality.

Yaga, Inc.

     Yaga, Inc. (“Yaga”), San Francisco, California, a Legacy Investment, provided a hosted application service provider (ASP) platform that is designed to address emerging revenue and payment infrastructure needs of online businesses. Yaga’s payment and accounting application supports micropayments, aggregated billing and stored value accounts while also managing royalty/affiliate accounting and split payments.

     At October 31, 2005, the Company’s investment in Yaga consisted of 300,000 shares of Series A preferred stock and 1.0 million shares of Series B with a combined cost of $2.3 million. The investments had been assigned a fair value of $0.

     During the quarter ended January 31, 2006, the Company received notification of the final dissolution of Yaga. The Company received no proceeds from the dissolution of this company and the investment has been removed from the Company’s books. The fair value of Yaga was previously written down to zero and therefore, the net effect of the removal of Yaga from the Company’s books on the Company’s consolidated statement of operations and NAV was zero.

     At October 31, 2006, the Company no longer held any investment in Yaga.

Liquidity and Capital Resources

     At October 31, 2006, the Company had investments in portfolio companies totaling $275.9 million. Also, at October 31, 2006, the Company had investments in cash equivalents totaling approximately $66.2 million. The Company considers all money market and other cash investments purchased with an original maturity of less than three months to be cash equivalents. U.S. government securities and cash equivalents are highly liquid.

     During the year ended October 31, 2006, the Company made sixteen new investments, committing capital totaling approximately $142.1 million. The investments were made in Turf, SOI, Henry, BM Auto, Storage Canada, Phoenix, Harmony Pharmacy, Inc., Total Safety, PreVisor, Marine, BP, Velocitius, Summit, Octagon, BENI, and Innovative Brands. The amounts invested were $11.6 million, $5.0 million, $5.0 million, $15.0 million, $6.0 million, $8.0 million, $200,000, $6.0 million, $6.0 million, $14.0 million, $15.0 million, $66,290, $16.2 million, $17.0 million, $2.0 million and $15.0 million, respectively.

     The Company also made eight follow-on investments in existing portfolio companies committing capital totaling approximately $24.2 million. During the year ended October 31, 2006, the Company invested approximately $879,000 in Dakota by purchasing an additional 172,104 shares of common stock at an average price of $5.11 per share. On December 22, 2005, the Company made a follow-on investment in Baltic Motors in the form of a $1.8 million revolving bridge note. Baltic Motors immediately drew down $1.5 million from the note. On January 12, 2006, Baltic Motors

repaid the amount drawn from the note in full including all unpaid interest. The note matured on January 31, 2006 and has been removed from the Company’s books. On January 12, 2006, the Company provided SGDA a $300,000 bridge loan. On March 28, 2006, the Company provided Baltic Motors a $2.0 million revolving bridge note. Baltic Motors immediately drew down $2.0 million from the note. On April 5, 2006, Baltic Motors repaid the amount drawn from the note in full including all unpaid interest. The note matured on April 30, 2006 and has been removed from the Company’s books. On April 6, 2006, the Company invested an additional $2.0 million in SGDA in the form of a preferred equity security. On April 25, 2006, the Company purchased an additional common equity security in SGDA for $23,000. On June 30, 2006, the Company invested $2.5 million in Amersham in the form of a second lien loan. On August 4, 2006, the Company invested $750,000 in Harmony Pharmacy in the form of common stock. On September 28, 2006, the Company made another follow-on investment in Baltic Motors in the form of a $1.0 million bridge loan and $2.0 million equity investment. On October 13, 2006, the Company made a $10.0 million follow-on investment in SP. The $10.0 million was invested in the form of an additional $4.0 million in term loan B and $6.0 million in a mezzanine loan. On October 20, 2006, the Company then assigned $5.0 million of SP’s $8.0 million term loan B to Citigroup Global Markets Realty Corp. On October 24, 2006, the Company invested an additional $3.0 million in SGDA in the form of a preferred equity security. On October 26, 2006, the Company invested an additional $2.9 million in Velocitius in the form of common equity. The Company also provided Velocitius a $260,000 revolving note on October 31, 2006. Velocitius immediately drew down $143,614 from the note.

     Commitments to/for Portfolio Companies:

     At October 31, 2006, the Company’s commitments to portfolio companies consisted of the following:

Open Commitments of MVC Capital, Inc.

Portfolio Company		Amount Committed		Amount Funded at October 31, 2006
Marine		$2.0 million		—
Octagon		$12.0 million		$3.25 million
Storage Canada		$6.0 million		$1.95 million
Timberland		$3.25 million		$2.83 million
Velocitius		$260,000		$143,614

     On May 7, 2004, the Company provided a $5.0 million senior secured credit facility to Octagon. This credit facility expires on May 6, 2007 and can be automatically extended until May 6, 2009. The credit facility bears annual interest at LIBOR plus 4.0%. The Company receives a 0.50% unused facility fee on an annual basis and a 0.25% servicing fee on an annual basis for maintaining the credit facility. On February 1, 2006, Octagon drew $250,000 from the credit facility. The credit facility was repaid in full including, all accrued interest on February 23, 2006. This credit facility was refinanced on October 12, 2006.

     During February 2005, the Company made available to SGDA, an approximately $1.3 million revolving credit facility that bears annual interest at 7.0%. The credit facility expired on August 25, 2006. During the fiscal year 2006, SGDA drew down $70,600 from the credit facility. On April 28, 2006, the Company increased the availability under the revolving credit facility by $300,000. The balance of the Company’s bridge loan to SDGA, which would have matured on April 30, 2006, was added to the revolving credit facility and the bridge loan was removed from the Company’s books.

     On June 30, 2005, the Company pledged its common stock of Ohio to Guggenheim to collateralize a loan made by Guggenheim to Ohio.

     On July 8, 2005 the Company extended Timberland a $3.25 million junior revolving note that bears interest at 12.5% per annum and expires on July 7, 2007. The Company also receives a fee of 0.25% on the unused portion of the note. As of October 31, 2005, the total amount outstanding on the note was $3.25 million. On December 27, 2005, the Company exchanged $286,200 of the Timberland junior revolving line of credit for 28.6 shares of common stock at a price of $10,000 per share. As of January 31, 2006, the Company owned 478.6 common shares and the funded debt under the junior revolving line of credit has been reduced from $3.25 million to approximately $3.0 million. On April 21, 2006, Timberland repaid $500,000 on the note. On May 18, 2006, Timberland repaid

an additional $500,000 on the note. On July 10, 2006, Timberland drew down $1.0 million leaving the total amount on the note outstanding at July 31, 2006 approximately $3.0 million. On September 12, 2006, the Company converted $409,091 of the Timberland junior revolving line of credit into 40.9 shares of common stock at a price of $10,000 per share. Effective September 22, 2006, the Company converted $225,000 of the Timberland junior revolving line of credit into 22.5 shares of common stock at a price of $10,000 per share. Timberland then borrowed $500,000 from the junior revolving line of credit. As a result of these transactions, as of October 31, 2006 the Company owned 542.0 common shares and the funded debt under the junior revolving line of credit was reduced from $3.25 million to approximately $2.8 million.

     On December 22, 2005, the Company extended to Baltic Motors a $1.8 million revolving bridge note. The note bears interest at 12.0% per annum and had a maturity date of January 31, 2006. Baltic Motors immediately drew $1.5 million from the note. On January 12, 2006, Baltic Motors repaid the amount drawn from the note in full including all unpaid interest. The revolver matured on January 31, 2006 and has been removed from the Company’s books.

     On March 28, 2006, the Company extended to Baltic Motors a $2.0 million revolving bridge note. Baltic Motors immediately drew down $2.0 million from the note. On April 5, 2006, Baltic Motors repaid the amount drawn from the note in full including all unpaid interest. The note matured on April 30, 2006 and has been removed from the Company’s books.

     On March 30, 2006, the Company provided a $6.0 million loan commitment to Storage Canada and the company immediately borrowed $1.3 million. The commitment expires after one year, but may be renewed with the consent of both parties. The initial borrowing on the loan bears annual interest at 8.75% and has a maturity date of March 30, 2013. Any additional borrowings will mature seven years from the date of the subsequent borrowing. The Company also receives a fee of 0.25% on the unused portion of the loan. On October 6, 2006, Storage Canada borrowed an additional $619,000. The borrowing bears annual interest at 8.75% and has a maturity date of October 6, 2013.

     On July 11, 2006, the Company extended to Marine a $2.0 million secured revolving note. The note bears annual interest at LIBOR plus 1.0%. The Company also receives a fee of 0.50% of the unused portion of the loan. There was no amount drawn on the revolving note as of October 31, 2006.

     On August 25, 2006, SGDA’s revolving credit facility was added to the term loan, increasing the balance of the term loan by $1.6 million. The revolving credit facility was eliminated from the Company’s books as a result of this refinancing.

     On October 12, 2006, the Company provided a $12.0 million revolving credit facility to Octagon in replacement of the senior secured credit facility provided on May 7, 2004. This credit facility expires on December 31, 2011. The credit facility bears annual interest at LIBOR plus 4.25%. The Company receives a 0.50% unused facility fee on an annual basis and a 0.25% servicing fee on an annual basis for maintaining the credit facility. On October 12, 2006, Octagon drew $3.75 million from the credit facility. Octagon repaid $500,000 of the credit facility on October 30, 2006. As of October 31, 2006, there was $3.25 million outstanding.

     On October 30, 2006, the Company provided a $260,000 revolving line of credit to Velocitius on which Velocitius immediately borrowed $143,614. The revolving line of credit expires on October 31, 2009. The note bears annual interest at 8.0%.

     Timberland also has a floor plan financing program administered by Transamerica. As is typical in Timberland’s industry, under the terms of the dealer financing arrangement, Timberland guarantees the repurchase of product from Transamerica, if a dealer defaults on payment and the underlying assets are repossessed. The Company has agreed to be a limited co-guarantor for up to $500,000 on this repurchase commitment.

     Commitments of the Company:

     On October 28, 2004, the Company entered into a one-year, cash collateralized, $20.0 million revolving credit facility (the “LaSalle Credit Facility”) with LaSalle Bank National Association (the “Bank”). On July 20, 2005, the Company amended the LaSalle Credit Facility, increasing the maximum aggregate loan amount available from $20.0 million to $30.0 million and extending the maturity date from October 31, 2005 to August 31, 2006. All other material terms of the LaSalle Credit Facility remained unchanged. On January 27, 2006, the Company borrowed $10.0 million under the LaSalle Credit Facility. The $10.0 million borrowed under the LaSalle Credit Facility was repaid in full by February 3, 2006. Borrowings under the LaSalle Credit Facility bore interest, at the Company’s option, at either a fixed rate equal to the LIBOR rate (for one, two, three or six months), plus 1.0% per annum, or at a floating rate equal to the Bank’s prime rate in effect from time to time, minus 1.0% per annum. The LaSalle Credit Facility expired on August 31, 2006.

     On February 16, 2005, the Company entered into a sublease (the “Sublease”) for a larger space in the building in which the Company’s current executive offices are located. Effective November 1, 2006, the Company subleased its principal executive office to TTG Advisers. The Sublease is scheduled to expire on February 28, 2007. Future payments under the Sublease for TTG Advisers total approximately $75,000 in the fiscal year 2007. The Company’s previous lease was terminated effective March 1, 2005, without penalty. The building in which the Company’s executive offices are located, 287 Bowman Avenue, is owned by Phoenix Capital Partners, LLC, an entity which is 97.0% owned by Mr. Tokarz. See Note 4 “Management” of our consolidated financial statements for more information on Mr. Tokarz.

     On April 27, 2006, the Company and MVCFS, as co-borrowers entered into a four-year, $100.0 million revolving credit facility (“the Credit Facility”) with Guggenheim as administrative agent to the lenders. On April 27, 2006, the Company borrowed $45.0 million ($27.5 million drawn from the revolving credit facility and $17.5 million in term debt) under the Credit Facility. The $27.5 million drawn from the revolving credit facility was repaid in full on May 2, 2006. On July 28, 2006, the Company borrowed $57.5 million ($45.0 million drawn from the revolving credit facility and $12.5 million in term debt) under the Credit Facility. On August 2, 2006, the Company repaid $45.0 million borrowed on the revolving credit facility. On August 31, 2006, the Company borrowed $5.0 million in term debt under the Credit Facility. On October 27, 2006, the Company borrowed $4.0 million from the revolving credit under the Credit Facility. On October 30, 2006, the Company borrowed $61.0 million under the Credit Facility, $15.0 million in term debt and $46.0 million drawn from the revolving credit facility. As of October 31, 2006, there was $50.0 million in term debt and $50.0 million on the revolving credit facility outstanding. The proceeds from borrowings made under the Credit Facility are expected to be used to fund new and existing portfolio investments, pay fees and expenses related to the financing and for general corporate purposes. The Credit Facility will expire on April 27, 2010, at which time all outstanding amounts under the Credit Facility will be due and payable. Borrowings under the Credit Facility will bear interest, at the Company’s option, at a floating rate equal to either (i) the LIBOR rate (for one, two, three or six months), plus a spread of 2.0% per annum, or (ii) the Prime rate in effect from time to time, plus a spread of 1.0% per annum. The Company paid a closing fee, legal and other costs associated with this transaction. These costs will be amortized evenly over the life of the facility. The prepaid expenses on the Balance Sheet include the unamortized portion of these costs. Borrowings under the Credit Facility will be secured, by among other things, cash, cash equivalents, debt investments, accounts receivable, equipment, instruments, general intangibles, the capital stock of MVCFS, and any proceeds from all the aforementioned items, as well as all other property except for equity investments made by the Company.

     The Company enters into contracts with portfolio companies and other parties that contain a variety of indemnifications. The Company’s maximum exposure under these arrangements is unknown. However, the Company has not experienced claims or losses pursuant to these contracts and believes the risk of loss related to indemnifications to be remote.

Subsequent Events

     Effective November 1, 2006, pursuant to the Advisory Agreement, the Company is externally managed by TTG Advisers, which serves as the Company’s investment adviser. Under the terms of the Advisory Agreement, TTG Advisers will determine, consistent with the Company’s investment strategy, the composition of the Company’s portfolio, the nature and timing of the changes to the Company’s portfolio and the manner of implementing such changes, identify, and negotiate the structure of the Company’s investments (including performing due diligence on prospective portfolio companies), close and monitor the Company’s investments, determine the securities and other assets purchased, retain or sell and oversee the administration, recordkeeping and compliance functions of the Company and/or third parties performing such functions for the Company. TTG Advisers’ services under the Advisory Agreement are not exclusive, and it may furnish similar services to other entities. Pursuant to the

Advisory Agreement, the Company is required to pay TTG Advisers a fee for investment advisory and management services consisting of two components: (i) a base management fee and (ii) an incentive fee. The base management fee shall be 2.0% per annum of the Company’s total assets excluding cash. The incentive fee will consist of two parts: (i) one part will be based on our pre-incentive fee net operating income; and (ii) the other part will be based on the capital gains realized on our portfolio of securities acquired after November 1, 2003. For a detailed description of the Advisory Agreement, please refer to the Definitive Proxy Statement on Schedule 14A (as filed with the SEC on August 3, 2006).

     On November 1, 2006, Timberland borrowed $420,291 from the secured junior revolving note.

     On November 2, 2006, the Company repaid $54.5 million borrowed on the revolving credit facility under the Credit Facility.

     On November 7, 2006, the Company made an additional $100,000 equity investment into SGDA .

     On November 7, 2006, the Company repaid $5.5 million borrowed on the revolving credit facility under the Credit Facility.

     On November 21, 2006, consistent with the contemplated spin-off identified in the Advisory Agreement (and which is depicted in this Registration Statement), the Company formed MVC Partners, a private equity firm. On December 5, 2006, MVC Partners’ subsidiary, MVC Europe LLC, arrived at an agreement to co-own BPE Management Ltd. (“BPE”) with Parex Asset Management IPAS, a management investment company and subsidiary of the Parex Bank. BPE will pursue investments in businesses throughout the Baltic region.

     In addition, on November 21, 2006, MVC Partners established its MVC Global LLC division, which pursues investments in foreign operating companies.

     On November 22, 2006, the Company invested $3.2 million in Westwood Chemical Corporation, a manufacturer of antiperspirant actives and water treatment chemicals, consisting of a $1.6 million bridge loan and $1.6 million in equity.

     On November 27, 2006, the Company increased the amount available to draw down on the Timberland secured junior revolving note from $3.25 million to $4.0 million. Timberland then borrowed $750,000 from the secured junior revolver.

     On December 6, 2006, the Company borrowed $10.0 million on the revolving credit facility under the Credit Facility. As of this time, the revolving credit facility had a balance of $15.0 million and the term loan had a balance of $35.0 million.

     On December 8, 2006, Total Safety repaid term loan A and term loan B in full including all accrued interest and fees. The total amount received in repayment for term loan A was approximately $5.0 million and for term loan B was approximately $1.0 million.

     On December 12, 2006, the Company invested $10.0 million in Levlad Arbonne International LLC, a marketer of personal care products, in the form of a $10.0 million second lien loan. The loan bears annual interest of LIBOR plus 6.5% and the maturity date is December 19, 2013.

     On December 13, 2006, the Company made an investment in Total Safety by extending a $3.5 million second lien loan and a $1.0 million first lien loan. The second lien loan has an annual interest rate of LIBOR plus 6.5% and a maturity date of December 8, 2013. The first lien loan has an annual interest rate of LIBOR plus 3.0% and a maturity date of December 8, 2012.

     On December 14, 2006, the Company’s Board of Directors declared a $0.12 per share dividend for the first quarter of the fiscal year 2007. The Board of Directors also declared an additional cash dividend of $0.06 per share. The dividends were paid on January 5, 2007 to shareholders of record on December 28, 2006. The ex-dividend date is December 26, 2006.

     On December 18, 2006, the Company extended the maturity date on the $1.0 million Baltic Motors bridge loan from December 22, 2006 to January 5, 2007. This note was then repaid in full on January 5, 2007, including principal and all accrued interest.

     On December 22, 2006, the Company invested $564,716 in Vitality in the form of common stock.

     On January 3, 2007, the Company borrowed $3.0 million on the revolving credit facility under the Credit Facility. As of this time, the revolving credit facility had a balance of $18.0 million and the term loan had a balance of $35.0 million.

     On January 4, 2007, the Company’s Valuation Committee determined to increase the fair values of the Company’s investments in the following portfolio companies by an aggregate amount of approximately $20.8 million^*: SIA BM Auto, Baltic Motors Corporation, Dakota Growers Pasta Company, Inc., Octagon Credit Investors, LLC, SGDA Sanierungsgesellschaft für Deponien und Altlasten mbH, Vendio Services, Inc., and Vitality Foodservice, Inc.

     The payment obligation to Mr. Tokarz resulting from the sale of a portion of the Company’s LLC membership interest in Octagon was approximately $110,000 and was paid on January 12, 2007.

SENIOR SECURITIES

     Information about our senior securities is shown in the following tables as of each fiscal year ended October 31 since the Company commenced operations, unless otherwise noted. The “— “ indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities.

		Total Amount
		Outstanding								Involuntary
		Exclusive of				Asset				Liquidating				Average
		Treasury				Coverage				Preference				Market Value
Class and Year		Securities(1)				per Unit(2)				per Unit(3)				per Unit(4)
Revolving Lines of Credit
2000		$	—			$	—			$	—				N/A
2001		$	—			$	—			$	—				N/A
2002		$	—			$	—			$	—				N/A
2003		$	—			$	—			$	—				N/A
2004		$	10,025,000			$	11,531.18			$	—				N/A
2005		$	—			$	—			$	—				N/A
2006		$	100,000,000			$	3,369.93			$	—				N/A

THE COMPANY

     MVC Capital is an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company under the 1940 Act. MVC Capital provides equity and debt investment capital to fund growth, acquisitions and recapitalizations of small and middle-market companies in a variety of industries primarily located in the United States. Our investments can take the form of common and preferred stock and warrants or rights to acquire equity interests, senior and subordinated loans, or convertible securities. Our common stock is traded on the NYSE under the symbol “MVC.”

     Although the Company has been in operation since 2000, the year 2003 marked a new beginning for the Company. In February 2003, shareholders elected an entirely new board of directors. The board of directors developed a new long-term strategy for the Company. In September 2003, upon the recommendation of the board of directors, shareholders voted to adopt a new investment objective for the Company of seeking to maximize total return from capital appreciation and/or income. The Company’s prior objective had been limited to seeking long-term capital appreciation from venture capital investments in the information technology industries. Consistent with our broader objective, we adopted a more flexible investment strategy of providing equity and debt financing to small and middle-market companies in a variety of industries. With the recommendation of the board of directors, shareholders also voted to appoint Michael Tokarz as Chairman and Portfolio Manager to lead the implementation of our new objective and strategy and to stabilize the existing portfolio. Prior to the arrival of Mr. Tokarz and his new management team in November 2003, the Company had experienced significant valuation declines from investments made by the former management team. After only three quarters of operations under the new management team, the Company posted a profitable third quarter for the fiscal year 2004 reversing a trend of 12 consecutive quarters of net investment losses and earned a profit for the entire fiscal year. The Company has continued to be profitable in each of the last eight quarters since then and has recorded net operating income of approximately $5.7 million and $3.9 million for the fiscal years ended October 31, 2005 and October 31, 2006, respectively. The change in net assets resulting from operations increased from $11.6 million at the end of the fiscal year 2004 to $26.3 million as of the end of the fiscal year 2005 and to $47.3 million as of the end of the fiscal year 2006.

     On September 7, 2006, the shareholders of the Company approved the Advisory Agreement (with over 92% of the votes cast on the agreement voting in its favor) that provided for the Company to be externally managed by TTG Advisers. The agreement took effect on November 1, 2006. TTG Advisers was organized to provide investment advisory and management services to the Company and other investment vehicles. TTG Advisers is a registered investment adviser that is controlled by Mr. Tokarz. All of the individuals (including the Company’s investment professionals) that had been previously employed by the Company as of the fiscal year ended October 31, 2006 are now employed by TTG Advisers and are expected to continue to provide services to the Company. It is anticipated that the Company’s investment strategy and selection process will remain the same under the externalized management structure.

ABOUT MVC CAPITAL

     The Company is managed by TTG Advisers, the Company’s investment adviser. The investment team of TTG Advisers is headed by Michael Tokarz, who has over 30 years of lending and investment experience. TTG Advisers has a dedicated originations and transaction development investment team with significant experience in private equity, leveraged finance, investment banking, distressed debt transactions and business operations. The members of the investment team have invested in and managed businesses during both recessionary and expansionary periods and through full interest rate cycles and financial market conditions. TTG Advisers has eight full-time investment professionals and one part-time investment professional, the majority of whom were previously employed by the Company. TTG Advisers also uses the services of other investment professionals with whom it has developed long-term relationships, on an as-needed basis. In addition, TTG Advisers employs five other full-time professionals and one part-time professional who manage the operations of the Company and provide investment support functions both directly and indirectly to our portfolio companies. As TTG Advisers grows, it expects to hire, train, supervise and manage new employees at various levels, many of which would be expected to provide services to the Company.

     The fiscal year 2006 represented a positive year for the Company. The Company made 16 new investments and eight follow-on investments in the fiscal year 2006, which is an increase from six new investments and three follow-on investments in the fiscal year 2005 and seven new investments in the fiscal year 2004. The Company committed a total of $166.3 million of capital in the fiscal year 2006, compared to $53.8 million and $60.7 million in the fiscal years 2005 and 2004, respectively. The fiscal year 2006 new investments included: Turf, SOI, Henry, BM Auto, Storage Canada, Phoenix,

Harmony Pharmacy, Total Safety, PreVisor, Marine, BP, Velocitius, Summit, Octagon, BENI, and Innovative Brands. The fiscal year 2006 follow-on investments included: Dakota, Baltic Motors, SGDA, Amersham, Timberland, SP, Harmony Pharmacy, and Velocitius.

     The fiscal year 2005 investments included: JDC, SGDA, SP, BP, Ohio, Amersham, Timberland, Vestal, and Impact.

     The fiscal year 2004 investments included: Vestal, Octagon, Baltic Motors, Dakota, Impact, Timberland, and Vitality.

     We continue to perform due diligence and seek new investments that are consistent with our objective of maximizing total return from capital appreciation and/or income. We believe that we have extensive relationships with private equity firms, investment banks, business brokers, commercial banks, accounting firms, law firms, hedge funds, other investment firms, industry professionals and management teams of several companies, which can continue to provide us with investment opportunities.

     We are currently working on an active pipeline of potential new investment opportunities. We expect that our equity and loan investments will generally range between $3 million and $25 million each, though we may occasionally invest smaller or greater amounts of capital depending upon the particular investment. While the Company does not adhere to a specific equity and debt asset allocation mix, no more than 25% of the value of our total assets may be invested in the securities of one issuer (other than U.S. government securities), or of two or more issuers that are controlled by us and are engaged in the same or similar or related trades or businesses as of the close of each quarter. Our portfolio company investments are typically illiquid and are made through privately negotiated transactions. We generally seek to invest in companies with a history of strong, predictable, positive EBITDA (net income before net interest expense, income tax expense, depreciation and amortization).

     Our portfolio company investments currently consist of common and preferred stock, other forms of equity interest and warrants or rights to acquire equity interests, senior and subordinated loans, and convertible securities. At October 31, 2006, the value of all investments in portfolio companies was approximately $275.9 million and our gross assets were approximately $347.0 million.

     We expect that our investments in senior loans and subordinated debt will generally have stated terms of three to ten years. However, there is no limit on the maturity or duration of any security in our portfolio. Our debt investments are not, and typically will not be, rated by any rating agency, but we believe that if such investments were rated, they would be below investment grade (rated lower than “Baa3” by Moody’s or lower than “BBB-” by Standard & Poor’s). In addition, we may invest without limit in debt of any rating, including debt that has not been rated by any nationally recognized statistical rating organization.

     On July 16, 2004, the Company formed a wholly-owned subsidiary, MVC Financial Services, Inc. (“MVCFS”). MVCFS is incorporated in Delaware and its principal purpose is to provide advisory, administrative and other services to the Company, the Company’s portfolio companies and other entities (including other private equity firms or business development companies). The Company does not hold MVCFS for investment purposes. The results of MVCFS are consolidated into the Company and all inter-company accounts have been eliminated in consolidation.

     Our board of directors has the authority to change any of the strategies described in this prospectus without seeking the approval of our shareholders. However, the 1940 Act prohibits us from altering or changing our investment objective, strategies or policies such that we cease to be a business development company, nor can we voluntarily withdraw our election to be regulated as a business development company, without the approval of the holders of a “majority”, as defined in the 1940 Act, of our outstanding voting securities.

Corporate History and Offices

     The Company was organized on December 2, 1999. Prior to July 2004, our name was meVC Draper Fisher Jurvetson Fund I, Inc. On March 31, 2000, the Company raised $330.0 million in an initial public offering whereupon it commenced operations as a closed-end investment company. On December 4, 2002, the Company announced it had commenced doing business under the name MVC Capital. We are a Delaware corporation and a non-diversified closed-end management investment company that has elected to be regulated as a business development company under the 1940 Act. On July 16, 2004, the Company formed MVCFS.

     All but one of the independent members of the current board of directors were first elected at the February 28, 2003 Annual Meeting of the shareholders, replacing the previous board of directors in its entirety. The new board of directors then worked on developing a new long-term strategy for the Company. Then, in September 2003, upon the recommendation of the board of directors, shareholders voted to adopt our new investment objective. With the recommendation of the board of directors, shareholders also voted to appoint Mr. Tokarz as Chairman and Portfolio Manager to lead the implementation of our new objective and strategy and to stabilize the existing portfolio. Mr. Tokarz and his team managed the Company under an internal structure through October 31, 2006. On September 7, 2006, the shareholders of the Company approved the Advisory Agreement (with over 92% of the votes cast on the agreement voting in its favor) that provided for the Company to be externally managed by TTG Advisers. The agreement took effect on November 1, 2006. TTG Advisers is a registered investment adviser that is controlled by Mr. Tokarz. All of the individuals (including the Company’s investment professionals) that had been previously employed by the Company as of the fiscal year ended October 31, 2006 are now employed by TTG Advisers and are expected to continue to provide services to the Company.

     Our principal executive office is located at 287 Bowman Avenue, Purchase, New York 10577 and our telephone number is (914) 701-0310. Our website address is www.mvccapital.com.

Our Investment Strategy

     On November 6, 2003, Mr. Tokarz assumed his new position as Chairman and Portfolio Manager. We seek to implement our investment objective (i.e., to maximize total return from capital appreciation and/or income) through making a broad range of private investments in a variety of industries. The investments can include common and preferred stock, other forms of equity interests and warrants or rights to acquire equity interests, senior and subordinated loans, or convertible securities. As of October 31, 2006, we made 16 new investments and eight follow-on investments, committing a total of $166.3 million of capital to these investments.

     Prior to the adoption of our current investment objective, the Company’s investment objective had been to achieve long-term capital appreciation from venture capital investments in information technology companies. The Company’s investments had thus previously focused on investments in equity and debt securities of information technology companies. As of October 31, 2006, approximately 2.4% of our assets consisted of Legacy Investments. We are, however, seeking to manage these Legacy Investments to try and realize maximum returns. We generally seek to capitalize on opportunities to realize cash returns on these investments when presented with a potential “liquidity event,” i.e., a sale, public offering, merger or other reorganization.

     Our new portfolio investments are made pursuant to our new objective and strategy. We are concentrating our investment efforts on small and middle-market companies that, in our view, provide opportunities to maximize total return from capital appreciation and/or income. Under our investment approach, we have the authority to invest, without limit, in any one portfolio company, subject to any diversification limits that may be required in order for us to continue to qualify as a “regulated investment company” (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

     We participate in the private equity business generally by providing negotiated equity and/or long-term debt investment capital. Our financing is generally used to fund growth, buyouts, acquisitions, recapitalizations, note purchases, and/or bridge financings. We may or may not be a lead investor in such transactions and may also provide equity and debt financing to companies led by private equity firms. We generally invest in private companies, though, from time to time, we may invest in small public companies that may lack adequate access to public capital. We may also seek to achieve our investment objective by establishing a subsidiary or subsidiaries that would serve as a general partner or a managing member to a private investment vehicle(s). Additionally, we may also acquire a portfolio of existing private equity or debt investments held by financial institutions or other investment funds should such opportunities arise.

     At October 31, 2006, October 31, 2005 and October 31, 2004, the fair value of the invested portion (excluding cash and short-term securities) of our net assets consisted of the following:

		Fair Value as a Percentage of Our Net Assets
		As of				As of				As of
Type of Investment		October 31, 2006				October 31, 2005				October 31, 2004
Senior/Subordinated Loans and credit facilities			55.98%				28.81%				23.80%
Common Stock			39.40%				23.10%				26.54%
Warrants			0.46%				0.89%				0.48%
Preferred Stock			13.79%				7.96%				16.64%
Other Equity Investments			6.77%				0.78%				0.48%
Other Rights			0.00%				0.00%				0.00%

     Substantially all amounts not invested in securities of portfolio companies are invested in short-term, highly liquid money market investments or held in cash in an interest bearing account. As of October 31, 2006, these investments were valued at approximately $66.2 million or 27.94% of net assets.

     Our current portfolio includes investments in a wide variety of industries, including food and food service, value-added distribution, industrial manufacturing, financial services and information technology.

     Market. We have developed and maintained relationships with intermediaries, including investment banks, financial services companies and private mezzanine and equity sponsors, through which we source investment opportunities. Through these relationships, we have been able to strengthen our position as an investor. For the transactions in which we may provide debt capital, an equity sponsor can provide a source of additional equity capital if a portfolio company requires additional financing. Private equity sponsors also assist us in confirming due diligence findings when assessing a new investment opportunity, and they may provide assistance and leadership to the portfolio company’s management throughout our investment period.

     Investment Criteria. Prospective investments are evaluated by TTG Advisers’ investment team based upon criteria that may be modified from time to time. The criteria currently being used by management in determining whether to make an investment in a prospective portfolio company include, but are not limited to, management’s view of:

	•		Businesses with secure market niches and predictable profit margins;
	•		The presence or availability of highly qualified management teams;
	•		The line of products or services offered and their market potential;
	•		The presence of a sustainable competitive advantage;
	•		Favorable industry and competitive dynamics; and
	•		Stable free cash flow of the business.

     Due diligence includes a thorough review and analysis of the business plan and operations of a potential portfolio company. We generally perform financial and operational due diligence, study the industry and competitive landscape, and meet with current and former employees, customers, suppliers and/or competitors. In addition, as applicable, we engage attorneys, independent accountants and other consultants to assist with legal, environmental, tax, accounting and marketing due diligence.

     Investment Sourcing. Mr. Tokarz and the other investment professionals have established an extensive network of investment referral relationships. Our network of relationships with investors, lenders and intermediaries includes:

	•		private mezzanine and equity investors;
	•		investment banks;
	•		business brokers;
	•		merger and acquisition advisors;
	•		financial services companies; and
	•		banks, law firms and accountants.

     Allocation of Investment Opportunities. In allocating investment opportunities, TTG Advisers adheres to the following policy, which was approved by the board of directors on October 31, 2006: (1) absent the consent of the board of directors, TTG Advisers will allocate to the Company all investment opportunities in (i) mezzanine and debt securities or (ii) equity or other “non-debt” investments that are (a) expected to be equal to or less than the lesser of 10% of the Company’s net assets or $25 million; and (b) issued by U.S. companies with less than $150 million in revenues (“Targeted Investments”); (2) notwithstanding Item 1 any private fund managed or co-managed by TTG Advisers and a person or entity not affiliated with TTG Advisers or MVC Partners, LLC, a subsidiary of the Company (“MVC Partners”), is permitted to make an investment, without regard to the Company, if such investment is sourced by a person or entity not affiliated with TTG Advisers and MVC Partners; and (3) notwithstanding Item 1, TTG Advisers shall not have an obligation to seek the consent of the board of directors nor be required to allocate to the Company any equity investment where the investor would hold a majority of the outstanding “voting securities” (as defined by the 1940 Act) of the relevant company, provided that such investment is allocated, in its entirety, to MVC Partners.

     Co-Investments. The Company is permitted to co-invest in certain portfolio companies with its affiliates, subject to specified conditions set forth in an exemptive order obtained from the Securities and Exchange Commission (the “SEC”) dated July 11, 2000. Under the terms of the exemptive order, portfolio companies purchased by the Company and its affiliates are required to be approved by the directors who are not “interested persons” of the Company (the “Independent Directors”) and are required to satisfy certain other conditions established by the SEC.

     Investment Structure. Portfolio company investments typically will be negotiated directly with the prospective portfolio company or its affiliates. The investment professionals will structure the terms of a proposed investment,

including the purchase price, the type of security to be purchased or financing to be provided and the future involvement of the Company and affiliates in the portfolio company’s business (including potential representation on its board of directors). TTG Advisers will seek to structure the terms of the investment as to provide for the capital needs of the portfolio company and at the same time seek to maximize the Company’s total return.

     Once we have determined that a prospective portfolio company is suitable for investment, we work with the management and, in certain cases, other capital providers, such as senior, junior and/or equity capital providers, to structure an investment. We negotiate on how our investment is expected to relate relative to the other capital in the portfolio company’s capital structure.

     We make preferred and common equity investments in companies as a part of our investing activities, particularly when we see a unique opportunity to profit from the growth of a company and the potential to enhance our returns. At times, we may invest in companies that are undergoing a restructuring but have several of the above attributes and a management team that we believe has the potential to achieve a successful turnaround. Preferred equity investments may be structured with a dividend yield, which may provide us with a current return, if earned and received by the Company.

     Our senior, subordinated and mezzanine debt investments are tailored to the facts and circumstances of the deal. The specific structure is negotiated over a period of several weeks and is designed to seek to protect our rights and manage our risk in the transaction. We may structure the debt instrument to require restrictive affirmative and negative covenants, default penalties, lien protection, equity calls, take control provisions and board observation. Our debt investments are not, and typically will not be, rated by any rating agency, but we believe that if such investments were rated, they would be below investment grade quality (rated lower than “Baa3” by Moody’s or lower than “BBB-” by Standard & Poor’s, commonly referred to as “junk bonds”).

     Our mezzanine debt investments are typically structured as subordinated loans (with or without warrants) that carry a fixed rate of interest. The loans may have interest-only payments in the early years and payments of both principal and interest in the later years, with maturities of three to ten years, although debt maturities and principal amortization schedules vary.

     Our mezzanine debt investments may include equity features, such as warrants or options to buy a minority interest in the portfolio company. Any warrants or other rights we receive with our debt securities generally require only a nominal cost to exercise, and thus, as the portfolio company appreciates in value, we may achieve additional investment return from this equity interest. We may structure the warrants to provide minority rights provisions and event-driven puts. We may seek to achieve additional investment return from the appreciation and sale of our warrants.

     Under certain circumstances, we may acquire more than 50% of the common stock of a company in a control buyout transaction. In addition to our common equity investment, we may also provide additional capital to the controlled portfolio company in the form of senior loans, subordinated debt or preferred stock.

     We fund new investments using cash, the reinvestment of accrued interest and dividends in debt and equity securities, or the current reinvestment of interest and dividend income through the receipt of a debt or equity security (payment-in-kind income). From time to time, we may also opt to reinvest accrued interest receivable in a new debt or equity security, in lieu of receiving such interest in cash and funding a subsequent investment. We may also acquire investments through the issuance of common or preferred stock, debt, or warrants representing rights to purchase shares of our common or preferred stock. The issuance of our stock as consideration may provide us with the benefit of raising equity without having to access the public capital markets in an underwritten offering, including the added benefit of the elimination of any commissions payable to underwriters.

     Providing Management Assistance. As a business development company, we are required to make significant managerial assistance available to the companies in our investment portfolio. In addition to the interest and dividends received from our investments, we often generate additional fee income for the structuring, diligence, transaction, administration, and management services and financial guarantees we provide to our portfolio companies through the Company or our wholly-owned subsidiary MVCFS. In some cases, officers, directors and employees of the Company may serve as members of the board of directors of portfolio companies or fill officer

roles within portfolio companies. The Company may provide guidance and management assistance to portfolio companies with respect to such matters as budgets, profit goals, business and financing strategy, management additions or replacements and plans for liquidity events for portfolio company investors such as a merger or initial public offering. MVCFS may also generate additional fee income for providing administrative and other management services to other entities, including private equity firms or other business development companies (as it currently does for Brantley Capital Corporation).

     Portfolio Company Monitoring. We monitor our portfolio companies closely to determine whether or not they continue to be attractive candidates for further investment. Specifically, we monitor their ongoing performance and operations and provide guidance and assistance where appropriate. We would decline additional investments in portfolio companies that, in TTG Advisers’ view, do not continue to show promise. However, we may make follow on investments in portfolio companies that we believe may perform well in the future.

     TTG Advisers follows established procedures for monitoring the Company’s equity and loan investments. The investment professionals have developed a multi-dimensional flexible rating system for all of the Company’s portfolio investments. These rating grids are updated regularly and reviewed by the Portfolio Manager, together with the investment team. Additionally, the Company’s Valuation Committee (the “Valuation Committee”) meets at least quarterly, to review a written valuation memorandum for each portfolio company and to discuss business updates. Furthermore, the Company’s Chief Compliance Officer administers the Company’s compliance policies and procedures, specifically as they relate to the Company’s investments in portfolio companies.

     We exit our investments generally when a liquidity event takes place, such as the sale, recapitalization or initial public offering of a portfolio company. Our equity holdings, including shares underlying warrants, after the exercise of such warrants, typically includes registration rights which would allow us to sell the securities if the portfolio company completes a public offering.

     Investment Approval Procedures. Generally, prior to approving any new investment, we follow the process outlined below. We usually conduct one to four months of due diligence and structuring before an investment is considered for approval. However, depending on the type of investment being contemplated, this process may be longer or shorter.

     The typical key steps in our investment approval process are:

	•		Initial investment screening by deal person or investment team;
	•		Investment professionals present an investment proposal containing key terms and understandings (verbal and written) to the entire investment team;
	•		Our Chief Compliance Officer reviews the proposed investment for compliance with the 1940 Act, the Code and all other relevant rules and regulations;
	•		Investment professionals are provided with authorization to commence due diligence;
	•		Any investment professional can call a meeting, as deemed necessary, to: (i) review the due diligence reports; (ii) review the investment structure and terms; or (iii) to obtain any other information deemed relevant;
	•		Once all due diligence is completed, the proposed investment is rated using a rating system which tests several factors including, but not limited to, cash flow, EBITDA growth, management and business stability. We use this rating system as the base line for tracking the investment in the future;
	•		Our Chief Compliance Officer confirms that the proposed investment will not cause us to violate the 1940 Act, the Code or any other applicable rule or regulation;
	•		Mr. Tokarz approves the transaction; and
	•		The investment is funded.

The Investment Team

     Mr. Tokarz is responsible for the day-to-day management of the Company’s portfolio. Mr. Tokarz draws upon the experience of the eight full-time investment professionals and one part-time investment professional of TTG Advisers, all of whom were previously employed by the Company. TTG Advisers also uses the services of other investment professionals, with whom it has developed long-term relationships, on an as-needed basis. TTG Advisers looks to benefit from the combined resources and investment experience of all of its investment professionals. In addition, TTG Advisers employs five other professionals who manage the operations of the Company and provide investment support functions both directly and indirectly to our portfolio companies. As the Company grows, TTG Advisers expects to hire, train, supervise and manage new employees at various levels, many of which would be expected to provide services to the Company. The following information contains biographical information for key personnel of TTG Advisers (including their titles with TTG Advisers).

     Michael Tokarz, Manager. Mr. Tokarz is a senior investment professional with over 30 years of lending and investment experience. Mr. Tokarz serves as Manager of TTG Advisers and as Chairman and Portfolio Manager of the Company. Prior to assuming his position as Chairman and Portfolio Manager of the Company, and prior to founding The Tokarz Group (in 2002), a private merchant bank of which he is Chairman, Mr. Tokarz was a General Partner with Kohlberg Kravis Roberts & Co. (“KKR”), one of the world’s most experienced private equity firms. During his 17-year tenure at KKR, he participated in diverse leveraged buyouts, financings, restructurings and dispositions. Mr. Tokarz currently serves on numerous corporate boards including Walter Industries, Inc., Stonewater Control Systems, Lomonsov, Athleta, Inc. and Apertio Ltd. In addition, Mr. Tokarz is on the Board of Managers of Illinois Ventures, a University of Illinois focused venture capital seed fund and high technology incubator, and is Chairman of a related private equity follow on investment fund. Mr. Tokarz also serves on the Board of the University of Illinois Foundation and its Investment and Executive Committees, as well as Chairman of the Budget and Finance Committees. Prior to his tenure at KKR, Mr. Tokarz was a commercial banker at Continental Illinois where he was renowned for innovation and buyout financings. Mr. Tokarz rose to run the East Coast operation of Continental Illinois from New York. He is also active on the Endowment Committee and Board of Directors of the National Wildlife Federation. He received his undergraduate degree with High Distinction in Economics and MBA in Finance from the University of Illinois and is a Certified Public Accountant.

     Bruce Shewmaker, Managing Director. Mr. Shewmaker serves as Managing Director of both TTG Advisers and the Company. Mr. Shewmaker is a senior investment professional with over 30 years of private equity and investment banking experience. Prior to becoming a Managing Director of the Company in November 2003, Mr. Shewmaker served as a member of the board of the Company from March 2003 and served out his one year term. Mr. Shewmaker was a co-founder of Merrill Lynch Venture Capital Inc. where he initiated several private equity investment partnerships, including three business development companies. During his ten year career at Merrill Lynch, he participated in sourcing, negotiating and monitoring over 40 private equity transactions including leveraged buyouts and venture capital investments, of which seven companies completed initial public offerings. More recently, Mr. Shewmaker served as President and CEO of The US Russia Investment Fund, with committed capital of $440 million, where he managed a staff of 60 people, including eight private equity professionals, in seven offices across the Russian Federation. As a Managing Director of E*OFFERING Corp., he helped this investment banking firm participate in underwriting more than 50 initial public offerings of domestic companies and was responsible for organizing a global investment banking network. While Mr. Shewmaker has spent the majority of his career with registered investment companies or investment management divisions of NYSE listed firms (divisions of The Chase Manhattan Bank and Time Inc.), in the late 1990’s Mr. Shewmaker co-founded Crossbow Ventures, a regionally focused private equity partnership located in Florida. He earned his undergraduate degree in Finance from The Ohio State University and has passed the Series 7 and 63 NASD qualifying examinations.

     David Hadani, Investment Professional. Mr. Hadani joined MVC Capital in April of 2005. He previously served as the CEO of Nebraska Heavy Industries, a firm he co-founded. Mr. Hadani has more than 15 years of operational and investment experience including senior operational and general management positions at Philips Electronics and at AlliedSignal, where he held various roles in operations, mergers and acquisitions and finance. He also worked for four years in commercial banking and has international business experience in Asia and Eastern Europe. Mr. Hadani received his bachelor degree from Washington University and his MBA from Duke University.

     Ben Harris, Investment Professional. Mr. Harris joined MVC Capital in April of 2005. Prior to joining the Company, he was the co-founder and General Counsel of Nebraska Heavy Industries. Mr. Harris has more than 10 years of experience in transactional work, venture capital, private equity and buyouts. Previously, Mr. Harris

founded ITC Ventures a Latin America-based private equity and venture capital fund responsible for launching more than 20 companies throughout Brazil, Chile and Argentina. Mr. Harris also worked for the tax and legal departments of KPMG International in Santiago, Chile. Mr. Harris received his bachelor degree from Washington University and his J.D. from the University of Nebraska College of Law.

     Shivani Khurana, Investment Professional. Ms. Khurana joined MVC Capital in March 2004 and serves as a Vice President of MVC Financial Services, Inc. with responsibilities for sourcing, executing and monitoring of investments. Before joining MVC Capital, Ms. Khurana worked at Cadigan Investment Partners, a middle-market leveraged buyout firm where she was involved in originating, structuring, financing and negotiating leveraged and management buyout, and recapitalization transactions. Previously, Ms. Khurana worked in the leveraged finance group of Wachovia Securities where she specialized in restructuring advisory, distressed debt investing and turnaround financing; and the investment banking group of Merrill Lynch. Ms. Khurana’s prior experience includes independently managing $20 million in diversified U.S. and European equities at Al-Ahlia Investment Company. Ms. Khurana received a Bachelor of Commerce with Accounting honors from Panjab University, India; an MBA in Finance from University of Sheffield, UK; and an M.S. in Finance from University of Rochester, New York.

     Forrest Mertens, Investment Professional. Mr. Mertens joined MVC Capital in January of 2003 and is responsible for the sourcing, executing and monitoring of investments. He also serves as the Company’s Technology Officer. Before joining MVC Capital, Mr. Mertens worked at Next Level Communications, a telecommunications solutions provider, where he managed the firm’s Enclosures and Backplanes product line, which generated approximately $20 million in annual revenue. Previously, Mr. Mertens worked as a Research Analyst for Beacon Investment Management, an asset management firm in Boston, MA. Mr. Mertens earned a Bachelors of Science in Business Administration from Boston University School of Management where he graduated summa cum laude.

     Puneet Sanan, Investment Professional. Mr. Sanan joined MVC Capital in March 2004 and serves as a Vice President of MVC Financial Services, Inc. with responsibilities for sourcing, executing and monitoring of investments. Before joining MVC Capital, Mr. Sanan worked at Cadigan Investment Partners, a leveraged buyout firm and was involved in originating, developing, analyzing, structuring, financing and negotiating leveraged and management buyouts, recapitalizations and growth capital financing for middle-market companies. Previously, Mr. Sanan was a Vice President and managed the Investment Banking Division of Fano Securities where he received international recognition for financial advisory work in alternative energy technology. Prior to joining Fano, Mr. Sanan was an Associate Director at UBS Warburg’s Leveraged Finance/ Financial Sponsors group where he advised leading private equity firms on leveraged buyouts, mergers and acquisitions and private equity investments. Mr. Sanan has held various corporate finance and industry positions at PaineWebber, Legg Mason, Royal Dutch/ Shell Group and Gist Brocades (now DSM N.V.). Mr. Sanan received a Bachelor of Engineering (Honors) in Chemical Engineering from Panjab University, India and an MBA in Finance from The University of Texas at Austin.

     Christopher Sullivan, Investment Professional. Mr. Sullivan joined MVC Capital first in June 2004 as an Associate on a part-time basis and then permanently in June of 2005. Mr. Sullivan is responsible for the sourcing, executing and monitoring of investments. Prior to joining MVC Capital, Mr. Sullivan worked as an Associate for Credit Suisse First Boston, in Equity Capital Markets, where he worked with numerous issuers and financial sponsors to execute 47 lead managed initial public offerings and 152 lead managed follow-on stock offerings. Before working at Credit Suisse First Boston, Mr. Sullivan worked as an Analyst in Equity Capital Markets for CIBC World Markets. Mr. Sullivan received his MBA, with a concentration in Finance, from the Carroll School of Management at Boston College in May of 2005. Mr. Sullivan holds a BA in History from Dartmouth College.

     Portfolio Support and Operations Management

     Scott Schuenke, CPA, Chief Compliance Officer. Mr. Schuenke currently serves as Chief Compliance Officer of the Company and TTG Advisers. Mr. Schuenke joined MVC Capital in June 2004 and holds various positions with the Company. Mr. Schuenke serves as the Company’s Controller where he is responsible for overseeing the financial operations of the Company and, as of October 4, 2004, he began serving as the Company’s Chief Compliance Officer. In this role, Mr. Schuenke is responsible for administering the Company’s compliance program required by Rule 38a-1 under the 1940 Act. Before Mr. Schuenke joined MVC Capital, he was a compliance officer with US Bancorp Fund Services, LLC, where he was responsible for financial reporting and compliance oversight of

more than fifteen open and closed-end registered investment companies. Previously, Mr. Schuenke worked as an audit and assurance services staff member with PricewaterhouseCoopers, LLP (“PWC”). While with PWC, he performed audit and review services for financial services clients including several large mutual fund complexes. Mr. Schuenke received his Bachelors of Business Administration from the University of Wisconsin-Milwaukee. Mr. Schuenke also holds his Masters of Professional Accountancy from the University of Wisconsin-Whitewater. Mr. Schuenke is a Certified Public Accountant licensed in the State of Wisconsin.

     Peter Seidenberg, Chief Financial Officer. Mr. Seidenberg currently serves as Chief Financial Officer of the Company and TTG Advisers. In October 2005, Mr. Seidenberg became the Chief Financial Officer of the Company. Prior to joining MVC in April 2005, Mr. Seidenberg served as a Principal of Nebraska Heavy Industries, where he worked on various engagements, including serving as CFO of Commerce One, Inc. Mr. Seidenberg has over 10 years of experience in corporate finance, operations and general management. Prior to his tenure at NHI, Mr. Seidenberg served as the Director of Finance and Business Development and as Corporate Controller for Plumtree Software, Inc. where he was responsible for driving strategic initiatives and managing the finance and accounting staff. Mr. Seidenberg has also worked at AlliedSignal and several small manufacturing companies, where he held roles in finance and operations. Mr. Seidenberg received his bachelor degree and MBA from Cornell University.

     Jaclyn Shapiro-Rothchild, Vice-President. Ms. Shapiro currently serves as Vice President and Secretary of the Company and as Vice President of TTG Advisers. Ms. Shapiro joined MVC Capital in June of 2002 and is responsible for board and shareholder matters and as the Head of Portfolio Development & Fund Administration, responsible for monitoring the Company’s legacy portfolio and directing the Company’s operations. Prior to joining MVC Capital, Ms. Shapiro was an Associate and Business Manager with Draper Fisher Jurvetson meVC Management Co. LLC, the former sub-advisor of the Company. Before joining the Company’s former sub-advisor, Ms. Shapiro was an Associate at The Bank Companies (acquired by Newmark & Co. Real Estate), where she was responsible for analyzing the various real estate trends in the Washington, DC greater metropolitan area. Previously, Ms. Shapiro worked as a Research Analyst to a Senior Portfolio Manager at Gruntal & Co. and began her business career as a Marketing Consultant at Archstone-Smith formerly known as Charles E. Smith & Co. Ms. Shapiro received her Bachelors of Business Administration degrees in Entrepreneurship and Small Business Management from George Washington University in Washington, DC.

     Compensation of the Portfolio Manager

     Mr. Tokarz does not receive compensation from TTG Advisers in the form of salary, bonus, deferred compensation or pension and retirement plans. However, as the sole controlling equity owner of TTG Advisers, he has a significant equity interest in the profits generated by TTG Advisers from its management of the Company.

     Company Ownership

     Mr. Tokarz owns, as of the date of this prospectus, over $6.0 million worth of our common shares. Mr. Tokarz purchased each share on his behalf. The Company did not grant any shares to him or any other member of the team.

Portfolio Diversity

     Our portfolio is not currently concentrated and we currently do not have a policy with respect to “concentrating” (i.e., investing 25% or more of our total assets) in any industry or group of industries and currently our portfolio is not concentrated. We may or may not concentrate in any industry or group of industries in the future.

PORTFOLIO COMPANIES

     The following is a listing of our portfolio companies in which we had an investment at October 31, 2006. The portfolio companies are presented in three categories — companies more than 25% owned which represent portfolio companies where we directly or indirectly own more than 25% of the outstanding voting securities of such portfolio company and, therefore, are deemed controlled by us under the 1940 Act; companies owned 5% to 25% which represent portfolio companies where we directly or indirectly own 5% to 25% of the outstanding voting securities of such portfolio company and, therefore, are deemed to be an affiliated person under the 1940 Act; and companies less

than 5% owned which represent portfolio companies where we directly or indirectly own less than 5% of the outstanding voting securities of such portfolio company.

          We make available significant managerial assistance to our portfolio companies. We generally receive rights to observe the meetings of our portfolio companies’ board of directors, and may have one or more voting seats on their boards.

						Percentage
		Nature of its		Title of Securities		of Class
Name and Address of Portfolio Company		Principal Business		Held by the Company		Held(1)
Companies More Than 25% Owned
Auto Motol Beni		Automotive Dealership		Common Stock			100.00	%
Plzenska 130
Prague
Praha 5
150 00 Czech Republic
Baltic Motors Corporation(2)		Automotive Dealership		Common Stock			100.00	%
31513 Northwestern Highway				Subordinated Loan
Suite 201 Farmington Hills, MI 48334				6/24/2007			NA
				Bridge Loan
				12/22/2006			NA
Ohio Medical Corp.		Manufacturer & marketer		Common Stock			56.26	%
1111 Lakeside Drive		Of medical products
Gurnee, IL 60606
Sanierungsgesellschaft für Deponien und
Altlasten mbH (SGDA)(2)		Soil Remediation		Term Loan 8/25/2009			NA
98544 Zella-Mehlis, Bahnhofsstraße 66				Common Equity			57.50	%
Germany				Preferred Equity		100.00		%
SIA BM Auto				Common Stock			87.40	%
Dârzciema 64a, Rîga, LV-1073 Latvia
				Second Lien Loan
Summit Research Labs, Inc.		Specialty Chemicals		8/15/2012			NA
15 Big Pond Road				Preferred Stock			80.00	%
Huguenot, NY 12746
Timberland Machines & Irrigation, Inc.(3)		Landscaping Equipment &		Common Stock			45.00	%
One Niblick Road		Irrigation Products		Warrants			100.00	%
PO Box 1190		Distributor		Senior Subordinated
Enfield, CT 06083				8/4/2009			NA
				Jr. Revolving Line
				7/7/2007			NA
				Senior Subordinated
Turf Products, LLC		Wholesale Distributor of		11/30/2010			NA
157 Moody Road, PO Box 1200		golf course & maintenance		LLC Interest			45.00	%
Enfield, CT 06083		equipment		Warrants			100.00	%
Velocitius B.V.		Renewable Energy		Common Equity			100.00	%
Telestone 8 - Teleport				Revolving Line			NA
Naritaweg 165				10/31/2009
P.O. Box 7241
1007 JE, Amsterdam
Vendio Services, Inc.(3)		Online Auction Enabler		Series A Preferred			37.80	%
2800 Campus Drive, Suite 150				Common Stock			0.40	%
San Mateo, CA 94403

						Percentage
		Nature of its		Title of Securities		of Class
Name and Address of Portfolio Company		Principal Business		Held by the Company		Held(1)
Vestal Manufacturing Enterprises(3)		Iron Foundry		Common Stock			90.00	%
176 Industrial Park Road				Senior Subordinated		NA
Sweetwater, TN 37874				4/29/2011
Companies 5% to 25% Owned
Dakota Growers Pasta Company, Inc.(3)		Manufacturer of		Common Stock			8.21	%
One Pasta Avenue		Packaged Foods
Carrington, ND 58421
Endymion Systems, Inc.		Software Applications		Series A Preferred			23.12	%
80 Swan Way, #250
Oakland, CA 94621
Harmony Pharmacy & Health Center, Inc.		Healthcare – Retail		Common Stock			33.30	%
287 Bowman Avenue
2nd Floor
Purchase, NY 10577
				Senior Subordinated
Impact Confections, Inc.(3)		Confections		7/30/2009		NA
888 Garden of the Gods Road, #200		Manufacturing &		Senior Subordinated
Colorado Springs, CO 80907		Distribution		7/29/2008		NA
				Common Stock A			9.96	%
				Common Stock B			100.00	%
				Senior Subordinated
Marine Exhibition Corporation		Theme Park		6/30/2013		NA
4400 Rickenbacker Causeway				Convertible Preferred
Miami, FL 33149-1095				Stock			100.00	%
				Revolving Line
				6/30/2013		NA
Octagon Credit Investors, LLC(2)		Asset Management		LLC Interest			6.24	%
52 Vanderbilt Avenue, 18th Floor				Subordinated		NA
New York, NY 10017				12/31/2011
				Revolving Line		NA
				12/31/2011
Phoenix Coal Corporation		Coal Processing and Production		Common Stock			5.64	%
1215 Nebo Road Ste A				Second Lien Note		NA
Madisonville, KY 42431				6/8/2011
PreVisor, Inc.		Human Capital Management		Common Stock			8.87	%
1805 Old Alabama Road, Suite 150
Roswell, GA 30076
Vitality Foodservice Holding Corp.(3)		Holding company of		Common Stock			11.28	%
400 North Tampa St., Suite 2000		subsidiary companies that		Series A			100.00	%
Tampa, FL 33602		are non-alcoholic		Warrants			13.46	%
		beverage suppliers
Companies Less Than 5% Owned
Actelis Networks, Inc.		Telecommunications		Series C Preferred			10.81	%
6150 Stevenson Blvd.
Fremont, CA 94538
				Second Lien Seller Note
Amersham Corporation		Precision machine		6/29/2010		NA
1797 Boxelder Street Louisville, CO 80027		components		Second Lien Seller Note 6/30/2013		NA
				Second Lien Loan
BP Clothing, LLC		Clothing designer &		7/18/2012		NA
8700 Rex Road		manufacturer		Term Loan A 7/18/2011		NA
Pico Rivera, CA 90660				Term Loan B 7/18/2011		NA

						Percentage
		Nature of its		Title of Securities		of Class
Name and Address of Portfolio Company		Principal Business		Held by the Company		Held(1)
DPHI, Inc.		Digital Media		Series A-1 Preferred			20.20	%
2580 55th Street
Boulder, CO 80301
Foliofn, Inc.(3)		Financial Services		Series C Preferred			49.36	%
PO Box 3068		Technology
Merrifield, VA 22116
				Term Loan
Innovative Brands		Consumer Products		9/22/2011		NA
4729 East Union Hills Drive
Suite 103
Phoenix, AZ 85050
Henry Company		Manufacturer of roofing		Term Loan A 4/6/2011		NA
2911 Slauson Avenue		supplies		Term Loan B 4/6/2011		NA
Huntington Park, CA 90255
JDC Lighting, LLC		Electrical Distribution		Senior Subordinated		NA
45 West 36th Street, 5th Floor				Debt 1/31/2009
New York, NY 10018
MainStream Data, Inc.		Satellite & Broadcast		Common Stock			2.83	%
375 Chipeta Way, Suite B		Communications
Salt Lake City, UT USA 84108
SafeStone Technologies PLC		Network Security Software		Series A Ordinary			2.90	%
Apollo House, Mercury Park
Wycombe Lane
Wooburn Green
Bucks HP10 0HH
Sonexis, Inc.		Web Conferencing		Common Stock			13.16	%
400 Network Center Drive, Suite 210
Tewksbury, MA 01876
SP Industries, Inc.		Specialty Glassware &		Term Loan B		NA
935 Mearns Road		Equipment		3/31/2010
Warminster, PA 18974				Subordinated Debt
				3/31/2012		NA
Storage Canada LLC		Self Storage		Term Loan 3/30/2013		NA
101 N 38th Avenue				Term Loan 10/6/2013		NA
Omaha, NE 68131
				Term Loan A
Total Safety U.S., Inc.		Engineering Services		12/31/2010		NA
11111 Wilcrest Green Drive				Term Loan B
Suite 300				12/31/2010		NA
Houston, TX 77042

     For companies held by the Company at October 31, 2006 please reference pages 38 to 50 for a brief description of each portfolio company’s business. With respect to portfolio companies in which we invested since that date, please see pages 51 to 52 for a brief description of the business of those companies. In addition, we have provided below a more detailed description for each portfolio company which represented more than 5.0% of our assets as of October 31, 2006:

Baltic Motors Corporation

     On June 24, 2004, the Company provided a $4.5 million mezzanine loan and $6.0 million in equity financing to Baltic Motors. Baltic Motors is a U.S. company focused on the importation and sale of Ford and Land Rover vehicles and parts throughout Latvia, a new entrant to the European Union as of May 1, 2004.

     On September 28, 2006, the Company purchased an additional 5,737 shares of common stock at a cost of $2.0 million. The Company also extended to Baltic Motors a $1.0 million bridge loan. The loan bears annual interest at 12.0% with a maturity date of December 22, 2006. On December 18, 2006, the Company extended the maturity date on the $1.0 million Baltic Motors bridge loan from December 22, 2006 to January 5, 2007. This note was then repaid in full on January 5, 2007, including principal and all accrued interest.

     Baltic Motors is composed of three subsidiaries. The first, SIA Baltic Motors Imports, is currently an importer of Ford vehicles, parts and accessories, and is responsible for selecting dealers and service centers within the country. The second subsidiary, SIA Baltic Motors Limited, operates Ford and Land Rover car dealerships in three locations within Latvia. The third subsidiary, SIA Baltic Ipashumu Fonds, controls the real estate holdings of Baltic Motors inclusive of all land and facilities.

     Beyond Ford and Land Rover, Baltic Motors’ relationship with Ford permits the importation of additional brands into Latvia and for potential expansion into other Baltic states. Recognizable brands include Mazda, Jaguar and Volvo. MVC Capital controls the board of directors of Baltic Motors.

Ohio Medical Corporation

     On July 1, 2005, the Company invested $17.0 million and sponsored the acquisition of General Electric’s Ohmeda Brand Suction and Oxygen Therapy business unit (“GE-SOT”), a leading global supplier of suction and oxygen therapy products. On July 14, 2005, in conjunction with this transaction, the Company acquired GE-SOT’s largest supplier, Squire Cogswell/Aeros Instruments, Inc. and merged both businesses creating Ohio Medical Corporation (“Ohio”).

     The Company’s investment in Ohio consists of 5,620 shares of Common Stock with a cost basis of $17.0 million.

     Ohio is a designer, manufacturer and marketer of vacuum regulators, flowmeters and portable suction devices that are primarily sold to healthcare facilities for application in medical gas pumping systems. Ohio markets its medical gas and industrial gas pumping systems under the Aeros and Healthcair brand names.

Vitality Foodservice, Inc.

     On September 27, 2004, the Company announced that it had provided $10.0 million of preferred and $5.0 million in common equity financing to Vitality Foodservice, Inc. (“Vitality”) to support the strategic buyout of the Company by Goldner Hawn Johnson & Morrison.

     Vitality is headquartered in Tampa, FL, and is a provider of dispensed, non-alcoholic beverages to the foodservice industry worldwide. Its “total beverage system” provides innovative, proprietary dispensers, quality beverages and leading sales and service expertise. Vitality has distribution in over 30 markets including the U.S., Canada, Europe, Central and South America, Asia, the Caribbean, and the Middle East.

DETERMINATION OF COMPANY’S NET ASSET VALUE

     Pursuant to the requirements of the 1940 Act, the Company values its portfolio securities at their current market values or, if market quotations are not readily available, at their estimates of fair values. Because the Company’s portfolio company investments generally do not have readily ascertainable market values, the Company records these investments at fair value in accordance with Valuation Procedures adopted by its board of directors. The Company’s board of directors may also hire independent consultants to review its Valuation Procedures or to conduct an independent valuation of one or more of its portfolio investments.

     Pursuant to the Company’s Valuation Procedures, the Company’s Valuation Committee determines fair valuations of portfolio company investments on a quarterly basis (or more frequently, if deemed appropriate under the circumstances). Any changes in valuation are recorded in the statements of operations as “Net unrealized gain (loss) on investments.” Currently, the Company’s net asset value per share is calculated and published on a monthly basis. The fair values determined as of the most recent quarter end are reflected, in the next calculated net asset value per share. (If the Valuation Committee determines to fair value an investment more frequently than quarterly, the most recently determined fair value would be reflected in the published net asset value per share.)

     The Company calculates its net asset value per share by subtracting all liabilities from the total value of its portfolio securities and other assets and dividing the result by the total number of outstanding shares of its common stock on the date of valuation.

     At October 31, 2006, approximately 79.5% of the Company’s total assets represented portfolio investments recorded at fair value.

     Initially, portfolio securities for which a reliable market value cannot be determined are valued at cost (absent the existence of circumstances warranting, in management’s and the Valuation Committee’s view, a different initial value). During the period that such a portfolio security is held by the Company, its original cost may cease to represent an appropriate valuation, and other factors must be considered. No pre-determined formula can be applied to determine fair values. Rather, the Valuation Committee makes fair value assessments based upon the estimated value at which the securities of the portfolio company could be sold in an orderly disposition over a reasonable period of time between willing parties (other than in a forced or liquidation sale). The liquidity event whereby the Company exits an investment is generally a sale, merger, recapitalization or, in some cases, the initial public offering of the portfolio company.

Valuation Methodology

     There is no one methodology to determine fair value and, in fact, for any portfolio security, fair value may be expressed as a range of values, from which the Company derives a single estimate of fair value. To determine the fair value of a portfolio security, the Valuation Committee analyzes the portfolio company’s financial results and projections, publicly traded comparables when available, precedent exit transactions in the market when available, as well as other factors. The Company generally requires, where practicable, portfolio companies to provide annual audited and more regular unaudited financial statements, and/or annual projections for the upcoming fiscal year.

     The fair value of the Company’s portfolio securities is inherently subjective. Because of the inherent uncertainty of fair valuation of portfolio securities that do not have readily ascertainable market values, the Company’s estimate of fair value may significantly differ from the fair market value that would have been used had a ready market existed for the securities. Such values also do not reflect brokers’ fees or other selling costs which might become payable on disposition of such investments.

Equity Securities

     The Company’s equity interests in portfolio companies for which there is no liquid public market are valued at fair value. The Valuation Committee’s analysis of fair value may include various factors, such as multiples of EBITDA, cash flow(s), net income, revenues or in limited instances book value or liquidation value. All of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or the Company’s actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners or acquisition, recapitalization, or restructuring or related items.

     The Valuation Committee may look to private merger and acquisition statistics, public trading multiples discounted for illiquidity and other factors, or industry practices in determining fair value. The Valuation Committee may also consider the size and scope of a portfolio company and its specific strengths and weaknesses, as well as any other factors it deems relevant in assessing the value. The determined fair values may be discounted to account for restrictions on resale and minority positions. Generally, the value of the Company’s equity interests in public companies for which market quotations are readily available is based upon the most recent closing public market price. Portfolio securities that carry certain restrictions on sale are typically valued at a discount from the public market value of the security.

Loans and Debt Securities

     For loans and debt securities, fair value generally approximates cost unless there is a reduced value or overall financial condition of the portfolio company or other factors indicate a lower fair value for the loan or debt security.

     Generally, in arriving at a fair value for a debt security or a loan, the Valuation Committee focuses on the portfolio company’s ability to service and repay the debt and considers its underlying assets. With respect to a convertible debt security, the Valuation Committee also analyzes the excess of the value of the underlying security over the conversion price as if the security was converted when the conversion feature is “in the money’’ (appropriately discounted if restricted). If the security is not currently convertible, the use of an appropriate discount in valuing the underlying security is typically considered. If the value of the underlying security is less than the conversion price, the Valuation Committee focuses on the portfolio company’s ability to service and repay the debt.

     When the Company receives nominal cost warrants or free equity securities (“nominal cost equity”) with a debt security, the Company allocates its cost basis in the investment between debt securities and nominal cost equity at the time of origination.

     Interest income is recorded on an accrual basis to the extent that such amounts are expected to be collected. Origination, closing and/or closing fees associated with investments in portfolio companies are accreted into income over the respective terms of the applicable loans. Upon the prepayment of a loan or debt security, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as income. Prepayment premiums are recorded on loans when received.

     For loans, debt securities, and preferred securities with contractual payment-in-kind interest or dividends, which represent contractual interest/dividends accrued and added to the loan balance or liquidation preference that generally becomes due at maturity, the Company will not accrue payment-in-kind interest/dividends if the portfolio company valuation indicates that the payment-in-kind interest is not collectible. However, the Company may accrue payment-in-kind interest if the health of the portfolio company and the underlying securities are not in question. All payment-in-kind interest that has been added to the principal balance or capitalized is subject to ratification by the Valuation Committee.

MANAGEMENT

     The overall responsibility for oversight of the Company rests with the Company’s board of directors. The day-to-day operations of the Company are delegated to TTG Advisers, subject to the supervision of our board of directors.

     The board of directors currently has five members. The board of directors maintains an Audit Committee, a Valuation Committee, a Compensation Committee, and a Nominating/Corporate Governance/Strategy Committee, and may establish additional committees in the future.

     The Company is externally managed by TTG Advisers pursuant to the Advisory Agreement. TTG Advisers was organized to provide investment advisory and management services to the Company and other investment vehicles.

     These investment professionals collectively have extensive experience in managing investments in private businesses in a variety of industries, and are familiar with the Company’s approach of lending and investing. Because the Company is externally managed, it pays a base management fee and an incentive fee. The Advisory

Agreement and fees paid by the Company to TTG Advisers pursuant to the Advisory Agreement are described under “Advisory Agreement” below.

     Information regarding the directors and the key executive officers of MVC Capital, including brief biographical information, is set forth below:

								(5)
								Number of
								Portfolios in		(6)
								Fund Complex		Other
				(3)		(4)		Overseen by		Directorships
		(2)		Term of Office/		Principal		Director or		Held by Director
(1)		Positions(s)		Length of Time		Occupation(s)		Nominee for		or Nominee for
Name, Address and Age		Held with the Company		Served		During Past 5 Years		Director		Director
Nominees for Independent Directors
Emilio Dominianni 287 Bowman Avenue 2nd Floor Purchase, NY 10577 Age: 75		Director		1 year/3 years, 11 months		Mr. Dominianni is a retired Partner of, and was Special Counsel to Coudert Brothers LLP, a law firm. He is currently a Director of Stamm International Corporation, Powrmatic Inc., and Powrmatic of Canada Ltd., manufacturers and distributors of heating, ventilating, and air conditioning equipment. He was a Director of American Air Liquide Inc., Air Liquide International Corporation, and a Consultant to Air Liquide America Corp., all manufacturers and distributors of industrial gases, and Mouli Manufacturing Corp., a distributor of kitchen and household products.		None(1)		See column 4
Gerald Hellerman 287 Bowman Avenue 2nd Floor Purchase, NY 10577 Age: 69		Director		1 year/3 years, 11 months		Mr. Hellerman has been the Principal of Hellerman Associates, a financial and corporate consulting firm, since the firm’s inception in 1993. He is currently a Director of The Mexico Equity and Income Fund, Inc., a Director and President of Innovative Clinical Solutions, Ltd., a company formerly engaged in clinical trials and physician network management which is currently in liquidation, a Director of FNC Realty Corporation which is developing and operating owned properties, a Director of AirNet Systems Inc., and a Director of Old Mutual 2100 Absolute Return Fund, L.L.C., Old Mutual 2100 Absolute Return Master Fund, L.L.C., Old Mutual 2100 Emerging Managers Fund, L.L.C. and Old Mutual 2100 Emerging Managers Master Fund, L.L.C. Mr. Hellerman is presently serving as Manager-Investment Advisor for a U.S. Department of Justice Settlement Trust. Mr. Hellerman has served as a Trustee or Director of Third Avenue Value Trust, a Trustee of Third Avenue Variable Series Trust, a Director of Clemente Global Growth Fund, Inc. and a Director of Brantley Capital Corporation.		None(1)		See column 4
Robert Knapp Millenco, L.P. 666 Fifth Avenue, 8th Floor New York, NY 10103 Age: 40		Director		1 year/3 years, 11 months		Mr. Knapp is a Managing Director of Millennium Partners where he specializes in mis-priced assets, turnaround situations, and closed end fund arbitrage. He also is a Director of the Vietnam Opportunity Fund, a Cayman Islands private equity fund listed on the London Stock Exchange, for which Millennium acted as seed investor. Formerly he served as a director for the First Hungary Fund, a Channel Islands private equity fund, and as a		None(1)		See column 4

								(5)
								Number of
								Portfolios in		(6)
								Fund Complex		Other
				(3)		(4)		Overseen by		Directorships
		(2)		Term of Office/		Principal		Director or		Held by Director
(1)		Positions(s)		Length of Time		Occupation(s)		Nominee for		or Nominee for
Name, Address and Age		Held with the Company		Served		During Past 5 Years		Director		Director
						Director of the Vietnam Frontier Fund, a Cayman Islands investment company.
William Taylor 287 Bowman Avenue 2nd Floor Purchase, NY 10577 Age: 64		Director		11 months		Mr. Taylor is a Certified Public Accountant and is currently a Director of Northern Illinois University Foundation and a Trustee of Writers Theatre. From 1976 through May, 2005, Mr. Taylor was a Partner at Deloitte & Touche. From 1997 to 2001 Mr. Taylor was a Director of Deloitte & Touche USA and from 1999 to 2003 Mr. Taylor was a Director of Deloitte Touche Tohmatsu.		None(1)		See column 4
Officer and Nominee for Interested Director
Michael Tokarz(2) 287 Bowman Avenue 2nd Floor Purchase, NY 10577 Age: 57		Director, Chairman, and Portfolio Manager		1 year/3 years, 3 months		Mr. Tokarz currently serves as Chairman and Portfolio Manager of the Company. Mr. Tokarz also is Chairman of The Tokarz Group, a private merchant bank, since 2002. Prior to this, Mr. Tokarz was a senior General Partner and Administrative Partner at Kohlberg Kravis Roberts & Co., a private equity firm specializing in management buyouts. He also currently serves on the corporate boards of Conseco, Inc., Walter Industries, Inc., IDEX Corporation, Stonewater Control Systems, Lomonosov, Athleta, Inc. and Apertio Ltd. Mr. Tokarz is an active member of the endowment committee and Board of Trustees of YMCA in Westchester County. He is also a member of the Board of the Warwick Business School in England. He is a member of the Board of the University of Illinois Foundation, and serves on its investment policy committee; he is also a member of the Venture Capital Subcommittee and serves as a member of the Board of Managers for Illinois Ventures, LLC. Mr. Tokarz also serves as the Chairman of the Illinois Emerging Technology Fund LLC. Mr. Tokarz serves as a director for the following portfolio companies of the Company: Baltic Motors, Dakota, Ohio, Timberland, and previously served on the Board of Vestal from April 2004 until July 2005.		None(1)		See column 4
Executive Officers
Bruce Shewmaker(3) 287 Bowman Avenue 2nd Floor Purchase, NY 10577 Age: 61		Managing Director		Indefinite term/3 years, 3 months		Until June 2003, Mr. Shewmaker served as Managing Director of Crossbow Ventures Inc., and as a Vice President of Crossbow Venture Partners Corp., the general partner of Crossbow Venture Partners LP, a licensed small business investment company. Mr. Shewmaker also is a co-founder and Director of Infrared Imaging Systems, Inc., a medical devices company. From 1999 to 2001, he was a Managing Director of E*OFFERING Corp., an investment banking firm which		None		See column 4