Edgar Filing: MVC CAPITAL, INC.

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 2004

REGISTRATION NO. 333-

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-2

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

[ ] PRE-EFFECTIVE AMENDMENT NO.

[ ] POST-EFFECTIVE AMENDMENT NO.

MVC CAPITAL, INC.
(FORMERLY KNOWN AS MEVC DRAPER FISHER JURVETSON FUND I, INC.)

(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

287 BOWMAN AVENUE
3RD FLOOR
PURCHASE, NEW YORK 10577
(914) 701-0310
(ADDRESS AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
PRINCIPAL EXECUTIVE OFFICES)

MICHAEL T. TOKARZ, CHAIRMAN
MVC CAPITAL, INC.
287 BOWMAN AVENUE
3RD FLOOR
PURCHASE, NEW YORK 10577

(NAME AND ADDRESS OF AGENT FOR SERVICE)

COPIES OF INFORMATION TO:

GEORGE M. SILFEN, ESQ.
SCHULTE ROTH & ZABEL LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 756-2000

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
From time to time after the effective date of the Registration Statement.

IF ANY SECURITIES BEING REGISTERED ON THIS FORM WILL BE OFFERED ON A
DELAYED OR CONTINUOUS BASIS IN RELIANCE ON RULE 415 UNDER THE SECURITIES ACT OF
1933, OTHER THAN SECURITIES OFFERED IN CONNECTION WITH A DIVIDEND REINVESTMENT
PLAN, CHECK THE FOLLOWING BOX. [ X ]

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING PRICE PER OFFERING REGISTRATION
BEING REGISTERED REGISTERED SHARE(1) PRICE(2) FEE
----------------------------------------- --------------------- ----------------- ------------------ ---------------

Common Stock, $.01 par value per 8,000,000 shares $9.38 $75,040,000 $9,508.00
share
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(1) As calculated pursuant to Rule 457(c) under the Securities Act of 1933.
Based on the average of the high and low sales prices reported on the New
York Stock Exchange on October 4, 2004.

(2) Estimated solely for the purpose of calculating the registration fee.

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.

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PROSPECTUS
(Subject to Completion)

MVC CAPITAL, INC.
(FORMERLY KNOWN AS MEVC DRAPER FISHER JURVETSON FUND I, INC.)
NON-TRANSFERABLE RIGHTS OFFERING TO PURCHASE
UP TO [ ] SHARES OF COMMON STOCK

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We are granting at no cost to the holders of shares of our common stock
subscription rights to purchase up to [ ] shares of our common stock. The rights
are non-transferable and will not be admitted for trading on the New York Stock
Exchange ("NYSE"). You will receive one right for every share of our common
stock that you own as of the record date, which is [December 3], 2004. For every
two rights held, you will be able to purchase one share of our common stock at
the subscription price. Fractional shares will not be issued upon exercise of
rights. As more fully described in this prospectus, you can also purchase shares
of our common stock not acquired by other stockholders in this rights offering.

THE SUBSCRIPTION PRICE PER SHARE WILL BE 95% OF THE FUND'S NET ASSET VALUE
("NAV") PER SHARE ON [PRICING DATE], 2004, WHICH WE REFER TO AS THE PRICING
DATE. SINCE THE CLOSE OF THE RIGHTS OFFERING ON THE EXPIRATION DATE WILL
COINCIDE WITH THE PRICING DATE, STOCKHOLDERS WHO CHOOSE TO EXERCISE THEIR RIGHTS
WILL NOT KNOW THE SUBSCRIPTION PRICE PER SHARE AT THE TIME THEY EXERCISE SUCH
RIGHTS. The offer will dilute the ownership interest and voting power of the
common stock owned by stockholders who do not fully exercise their basic
subscription rights. Further, because the subscription price per share will be
at a discount to the Fund's NAV per share, the offering will dilute (i.e.,
reduce) the Fund's NAV per share. Stockholders who do not fully exercise their
basic subscription rights should expect, upon completion of the rights offering,
to own a smaller proportional interest in the Fund than before the rights
offering.

THE RIGHTS WILL EXPIRE IF THEY ARE NOT EXERCISED BY 5:00 P.M., NEW YORK TIME, ON
[PRICING DATE], 2004, THE EXPIRATION DATE OF THE RIGHTS OFFERING UNLESS
EXTENDED. WE, IN OUR SOLE DISCRETION, MAY EXTEND THE PERIOD FOR EXERCISING THE
RIGHTS. YOU WILL HAVE NO RIGHT TO RESCIND YOUR SUBSCRIPTIONS AFTER RECEIPT OF
YOUR PAYMENT OF THE ESTIMATED SUBSCRIPTION PRICE EXCEPT AS DESCRIBED IN THIS
PROSPECTUS.

Please read this prospectus before investing, and keep it for future reference.
It contains important information about us. The Securities and Exchange
Commission ("SEC") maintains an Internet website (http://www.sec.gov) that
contains other information about us.

We are an internally managed, 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.
Our common stock is traded on the NYSE under the symbol "MVC." As of [ ], 2004,
the last reported sale price on the NYSE for our common stock was $[ ] and the
Fund's NAV per share was $[ ].

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PER SHARE TOTAL
Estimated Subscription Price(1) $[ ] $[ ]
Sales Load [None] [None]
Proceeds to the Company(2)(3) $[ ] $[ ]

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(1) Estimated, using 95% of the Fund's NAV per share on [ ], 2004.
(2) Before deduction of expenses incurred by us related to this rights offering
estimated to be $[ ].
(3) The proceeds that we will receive in this rights offering assumes that all
[ ] shares are purchased at this estimated subscription price.

YOU SHOULD REVIEW THE INFORMATION SET FORTH UNDER "RISK FACTORS" ON PAGE 21 OF
THIS PROSPECTUS BEFORE INVESTING IN OUR COMMON STOCK.

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NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATIONS TO THE CONTRARY ARE A CRIMINAL OFFENSE.

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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 SEC 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 OR
SALE IS NOT PERMITTED.

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[December 3], 2004

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WE HAVE NOT AUTHORIZED ANY DEALER, SALESMAN OR OTHER PERSON TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS. YOU MUST NOT RELY UPON ANY INFORMATION OR REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS AS IF WE HAD AUTHORIZED IT. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION IN SUCH JURISDICTION. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE AS OF THE DATE OF THIS PROSPECTUS.

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TABLE OF CONTENTS

PROSPECTUS SUMMARY.........................................................6

IMPORTANT DATES TO REMEMBER...............................................13

FEES AND EXPENSES.........................................................16

SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA............................17

RISK FACTORS..............................................................21

THE RIGHTS OFFERING.......................................................31

USE OF PROCEEDS...........................................................44

PRICE RANGE OF COMMON STOCK...............................................46

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...............................................47

SENIOR SECURITIES.........................................................61

BUSINESS..................................................................62

PORTFOLIO COMPANIES.......................................................70

DETERMINATION OF FUND'S NET ASSET VALUE...................................71

MANAGEMENT................................................................74

COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS..........................79

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.......................82

FEDERAL INCOME TAX MATTERS................................................82

CERTAIN GOVERNMENT REGULATIONS............................................88

DIVIDEND REINVESTMENT PLAN................................................91

DESCRIPTION OF CAPITAL STOCK..............................................92

LEGAL MATTERS.............................................................92

SAFEKEEPING, TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR.............92

BROKERAGE ALLOCATION AND OTHER PRACTICES..................................93

INDEPENDENT PUBLIC ACCOUNTANTS............................................93

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS...............................F-1

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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT THIS RIGHTS
OFFERING. IT MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO AN
INVESTOR. FOR A MORE COMPLETE UNDERSTANDING OF THIS RIGHTS OFFERING AND MVC
CAPITAL, WE ENCOURAGE YOU TO READ THIS ENTIRE DOCUMENT AND THE DOCUMENTS TO
WHICH WE HAVE REFERRED. NEXT TO EACH SECTION HEADING IN THIS SUMMARY, WE HAVE
REFERENCED A PAGE NUMBER WHERE YOU CAN FIND THE CORRESPONDING SECTION CONTAINING
A MORE DETAILED DISCUSSION OF THE MATTER DISCUSSED IN THE SUMMARY.

IN THIS PROSPECTUS, UNLESS OTHERWISE INDICATED, "MVC CAPITAL," "WE,"
"US," "OUR" OR THE "FUND" REFER TO MVC CAPITAL, INC. AND ITS SUBSIDIARY,
MVC FINANCIAL SERVICES, INC.

BUSINESS (PAGE 62)

MVC Capital is an internally 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 long-term
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 U.S. 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 Fund has been in operation since 2000, 2003 marked a
new beginning for the Fund. In February 2003, stockholders elected an
entirely new board of directors. The board of directors developed a new
long-term strategy for the Fund. In November 2003, upon the recommendation of
the board of directors, stockholders voted to adopt a new investment objective
for the Fund of seeking to maximize total return from capital appreciation
and/or income. The Fund's prior objective had been limited to seeking long-term
capital appreciation from venture capital investments in the information
technology industry. 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, stockholders 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 Fund had
experienced significant valuation declines from investments made by the former
management team. Since November 2003 (through [ ], 2004), we have posted a [ ]
cumulative increase in the net asset value (or NAV) from these prior
investments. In fiscal 2004, we reversed a trend of [ ] consecutive quarters of
losses, and posted a profitable third quarter. Further, the table below depicts
the change in the Fund's NAV per share from October 31, 2003 to October 31,
2004:

-------------------------- --------------------------

OCTOBER 31, 2003 OCTOBER 31, 2004
(PRIOR TO THE ARRIVAL OF
THE NEW MANAGEMENT TEAM)
---------------------- -------------------------- --------------------------

NAV PER SHARE
---------------------- -------------------------- --------------------------

In 2004, the new management team has made [seven] investments pursuant
to our new strategy and committed $[60,750,000] of capital to these investments.
These investments are described below:

OCTAGON CREDIT INVESTORS LLC ("OCTAGON"). The Fund provided
approximately $10.6 million in mezzanine and senior debt as well as equity
financing to Octagon in a management-led buyout and recapitalization. Octagon is
a New York based leveraged loan and high yield security investor.

VESTAL MANUFACTURING ENTERPRISES, INC. ("VESTAL"). The Fund provided
$1,000,000 in subordinated debt financing and $450,000 of equity financing to
Vestal as part of its management-led buyout from its former parent. Vestal is a
manufacturer and distributor of foundried iron and steel fabricated components
and is based in Sweetwater, TN.

BALTIC MOTORS CORPORATION ("BALTIC"). The Fund provided a $4,500,000
mezzanine loan and $6,000,000 in equity financing to Baltic. Baltic is a U.S.
company focused on the importation and sale of Ford and Land Rover vehicles and
parts throughout Latvia.

DAKOTA GROWERS PASTA COMPANY, INC. ("DAKOTA GROWERS"). The Fund
provided $5,000,000 in equity financing to Dakota Growers. Dakota Growers is a
manufacturer of dry pasta and is based in Carrington, ND.

IMPACT CONFECTIONS, INC. ("IMPACT"). The Fund provided a $5,000,000
mezzanine loan and $2,700,000 in equity financing to Impact to support its
acquisition of Melster Candies, Inc. Impact is a manufacturer and distributor of
candies and is based in Colorado Springs, CO.

TIMBERLAND MACHINES & IRRIGATION, INC. ("TIMBERLAND"). The Fund
provided a $6,000,000 mezzanine loan and $4,500,000 in equity financing to
Timberland in conjunction with its purchase of the assets of The Sprinkler House
and Timberland's divisions of Turf Products Corporation. Timberland is engaged
in the wholesale distribution and service of professional landscape and premium
consumer outdoor power equipment and is based in Enfield, CT.

VITALITY FOODSERVICE, INC. ("VITALITY"). The Fund provided $10,000,000
of preferred and $5,000,000 in common equity financing to Vitality to support
the strategic buyout of Vitality by Goldner Hawn Johnson & Morrison. Vitality
provides dispensed, non-alcoholic beverages to the foodservice industry
worldwide and is based in Tampa, FL.

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 financial sponsors, financial institutions, business brokers, hedge funds
and investment firms, operating professionals and management teams of several
companies, which may continue to provide us with investment opportunities. In
fact, 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 investment rationale
and merit. While the Fund 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 the securities of other regulated investment companies), or of two or more
issuers that are controlled by us and are engaged in the same or similar or
related trades or businesses as of the close of each quarter. Our investments
are typically illiquid and they are made through privately negotiated
transactions. We generally invest in companies with annual EBITDA between $3
million and $25 million. EBITDA represents net income before net interest
expense, income tax expense, depreciation and amortization.

MVC Capital's investment team is headed by Michael Tokarz, who has over
30 years of lending and investment experience. MVC has a dedicated originations
and transaction development investment team that has significant experience in
private equity, leveraged finance, investment banking and distressed debt. The
investment team professionals have invested during recessionary and expansionary
periods and through full interest rate cycles and financial market conditions.

Our board of directors has the authority to change any of the
strategies described in this prospectus without seeking the approval of our
stockholders. 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.

Our portfolio company investments currently consist of common and
preferred stock and warrants or rights to acquire equity interests, senior and
subordinated loans, or convertible securities. At [October 31, 2004], the fair
value of all investments in portfolio companies was $[ ] million and our total
assets were [ ].

Substantially all amounts not invested in securities of portfolio
companies are held in cash or are invested in short-term, highly liquid money
market investments. As of [October 31, 2004], the Fund's investments in
short-term securities were valued at $[ ] million.

Our tax status generally allows us to "pass-through" our income to our
stockholders through 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."

We expect that the proceeds from this rights offering will permit us
to:

o expand the number of investment opportunities we will be able to
consider participating in;

o make larger investments in prospective portfolio companies that
will have the potential to enhance the return and fees on such
investment, especially when we are the lead investor; and

o increase the probability that we can utilize our net operating
loss.

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

Our Internet website address is 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.

DETERMINATION OF FUND'S NET ASSET VALUE (PAGE 71)

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, 2004], approximately [ ]% of our total assets
represented investments recorded at fair value. Fair values are generally
determined on a quarterly basis.

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 an objective 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.

Pursuant to our Valuation Procedures, our valuation committee
("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
unrealized gain (loss) on investments."

THE RIGHTS OFFERING (PAGE 31)

Rights We will distribute to each holder of our
common stock one non-transferable right to
purchase our common stock for each share of
our common stock owned by such holder on the
record date, which is [December 3], 2004.
Fractional shares will not be issued upon
exercise of rights.

Basic Subscription Rights The basic subscription rights entitle you to purchase
one share of our common stock at the subscription
price for every two rights you hold. You are entitled
to subscribe for all or any portion of the shares of
our common stock underlying your basic subscription
rights.

Over-Subscription Right If you elect to exercise all of your rights to
purchase our common stock pursuant to your basic
subscription rights, you will also have an
over-subscription right to subscribe for
additional shares of our common stock, if
any, that are not purchased by other holders
of rights pursuant to their basic
subscription rights as of the expiration
date. If sufficient additional shares are
not available to honor all subscriptions, we
may, at our discretion, issue up to an
additional 25% of the shares available
pursuant to this rights offering in order to
honor such over-subscriptions.

Proration of Over- If there are shares of our common stock available
Subscription Right for sale pursuant to the exercise of the
over-subscription right (whether or not we
determine to issue additional shares to
honor all over-subscriptions), and the
number of shares is not sufficient to
satisfy in full all subscriptions submitted
for additional shares, we will allocate the
available shares pro rata among holders who
exercise their over-subscription right in
proportion to the number of shares each
subscriber for additional shares was
entitled to and elected to purchase under
his or her basic subscription rights;
provided, however, that if this pro rata
allocation results in any holder being
allocated a greater number of additional
shares than the holder subscribed for
pursuant to the exercise of such holder's
over-subscription right, then such holder
will be allocated only such number of
additional shares as such holder subscribed
for and the remaining additional shares will
be allocated pro rata among all other holders
exercising over-subscription rights.

Subscription Price The subscription price per share will be 95% of
the Fund's NAV per share on [PRICING DATE], 2004,
which we refer to as the pricing date. The estimated
subscription price is $[ ] per share. Because it is

not possible to determine the actual subscription
price until the pricing date, stockholders exercising
their subscription rights will not know the
subscription price per share at the time they
exercise their rights. As a result, we are requiring
that stockholders deliver the estimated subscription
price in connection with the exercise of their basic
subscription rights and, if applicable, their
over-subscription right. If the actual subscription
price is lower, excess payments will be refunded
(without interest), and if the actual subscription
price is higher, stockholders exercising their rights
must make an additional payment by [FINAL PAYMENT
DATE], 2004.

Expiration Date [PRICING DATE], 2004, at 5:00 p.m., New York time,
unless we decide to extend it to some later time.

Procedure for Exercising If you wish to exercise any or all of your
Subscription Rights subscription rights, you should properly complete,
sign and deliver your subscription certificate
together with full payment of the estimated
subscription price for each share subscribed for
under your subscription rights (including shares
subscribed for through the exercise of your
over-subscription right), to EquiServe Trust
Company, N.A. ("EquiServe" or "Subscription
Agent") on or prior to the expiration date.
You may not revoke an exercise of rights.

How Rights Holders Can If you hold shares of our common stock through a
Exercise Rights Through broker, bank or other nominee, we will ask your
Brokers, Banks or Other broker, bank or other nominee to notify you of
Nominees the rights offering. If you wish to exercise your
rights, you will need to have your broker, bank or
other nominee act for you. To indicate your
decision, you should complete and return to
your broker, bank or other nominee the form
entitled "Beneficial Owner Election Form,"
together with full payment of the estimated
subscription price for each share subscribed
for under your subscription rights
(including shares subscribed for through the
exercise of your over-subscription right).
You should receive this form from your
broker, bank or other nominee with the other
rights offering materials.

Amendments; Termination We reserve the right to amend the terms and
conditions of this rights offering or to terminate
this rights offering prior to delivery of the common
stock.

Non-Transferability of Subscription rights are being issued only to holders
Rights of our common stock as of the record date and are
non-transferable. Therefore, only the underlying
shares of common stock, and not the rights, will
be admitted for trading on the NYSE.

Issuance of Our Common Unless requested otherwise, stock certificates
Stock will not be issued for shares of our common stock
offered in this rights offering.

Stock Stockholders who are record owners will have the
shares they acquire credited to their account with
our transfer agent. All future dividends paid on
such shares will be paid either in cash or
reinvested in additional shares, depending on the
election you made in connection with our dividend
reinvestment plan. Stockholders whose common stock
is held by a nominee will have the shares they
acquire credited to the account of such nominee
holder.

Dilutive Effects This rights offering will dilute the ownership
interest and voting power of stockholders who
do not fully exercise their basic subscription
rights. Further, because the subscription price per
share will be at a discount to the Fund's NAV per
share, the offering will dilute (i.e., reduce) the
Fund's NAV per share.

INFORMATION AGENT

The information agent for the rights offering is:

EquiServe Trust Company, N.A.

Toll-free: [ ]

Stockholders may also call us toll-free at [ ] or contact their brokers, banks
or other nominees for information with respect to the rights offering.

IMPORTANT DATES TO REMEMBER

EVENT DATE

Record date [December 3], 2004

Subscription Period [December 3], 2004 to
[PRICING DATE], 2004*

Expiration Date and Pricing Date [PRICING DATE], 2004*

Subscription Certificates and Payment for Shares Due+ [PRICING DATE], 2004*

Notice of Guaranteed Delivery Due+ [PRICING DATE], 2004*

Subscription Certificates for Guarantees of Delivery Due [ ], 2004*

Confirmation to Participants [ ], 2004*

Final Payment for Shares [ ], 2004*

* Unless the rights offering is extended.

+ Stockholders exercising rights must deliver to the subscription agent by
the expiration date either (i) the subscription certificate together with
payment or (ii) a notice of guaranteed delivery together with payment.

USE OF PROCEEDS (PAGE 44)

Assuming the full exercise of the rights, the cash proceeds from the
sale of the shares of our common stock will be approximately $[ ], before
payment of expenses. We intend to use the net proceeds from the rights offering
to provide equity and debt financing to portfolio companies and for other
general corporate purposes.

DIVIDEND REINVESTMENT PLAN (PAGE 91)

All of our stockholders who hold shares of common stock in their own
name will automatically be enrolled in our dividend reinvestment plan. All such
stockholders will have any cash dividends and distributions automatically
reinvested by EquiServe (the "Plan Agent"), in additional shares of our common
stock. Any stockholder may, of course, elect to receive his or her dividends and
distributions in cash. Currently, the Fund does not have a set policy of paying
dividends and has not made any such payments since 2002. For any of our shares
that are held by banks, brokers or other entities that hold our shares as
nominees for individual stockholders, the Plan Agent will administer the
dividend reinvestment plan on the basis of the number of shares certified by any
nominee as being registered for stockholders 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 in writing.

The Plan Agent serves as agent for the stockholders in administering
the dividend reinvestment plan. If we declare a dividend or distribution payable
in cash or in additional shares of our common stock, those stockholders
participating in the dividend reinvestment 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, the Plan Agent will purchase in the open market such
number of shares as is necessary to complete the distribution.

RISK FACTORS (PAGE 21)

Investment in our common stock involves certain significant risks
relating to our business and our investment objective that you should consider
before exercising the rights we are offering and purchasing our common stock. We
have identified below a summary of these risks. For a more complete description
of the risk factors impacting an investment in our common stock, we urge you to
read the "Risk Factors" section on page 21. THERE CAN BE NO ASSURANCE THAT WE
WILL ACHIEVE OUR INVESTMENT OBJECTIVE AND AN INVESTMENT IN THE FUND SHOULD NOT
CONSTITUTE A COMPLETE INVESTMENT PROGRAM FOR AN INVESTOR.

o Investing in private companies involves a high degree of risk.

o Our investments in portfolio companies are generally illiquid
and are recorded at "fair value" (which involves an inherent
level of subjectivity and uncertainty).

o The offering will dilute (i.e., reduce) the Fund's NAV per
share.

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

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

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

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

o We may not realize gains from our equity investments.

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

o 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.

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

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

o Our common stock price can be volatile, and we are therefore
subject to "market discount" risk (i.e., the risk that our
shares trade at a price that is below our NAV per share).

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

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

o 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 cause you to lose all or part of your investment.

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

o The Fund's current management team did not select a material
portion of our existing investment portfolio.

o Under our agreement with our Portfolio Manager, he 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.

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

FEES AND EXPENSES

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

STOCKHOLDER TRANSACTION EXPENSES

Sales load [None]
Dividend reinvestment plan fees(1) [None]

ANNUAL EXPENSES (AS A PERCENTAGE OF CONSOLIDATED NET ASSETS ATTRIBUTABLE TO COMMON STOCK)(2)
[Operating] expenses(3) [ ]%
Interest payments on borrowed funds(4) [ ]%
Total annual expenses(5) [ ]%
====

-------------------------
(1) The expenses of our dividend reinvestment plan are included in
"Operating expenses." We have no cash purchase plan. The participants
in the dividend reinvestment plan will bear a pro rata share of
brokerage commissions incurred with respect to open market purchases
and a service fee and a pro rata share of brokerage commissions
incurred with respect to open market sales, if any. See "Dividend
Reinvestment Plan."
(2) "Consolidated net assets attributable to common stock" equals net
assets (i.e., total consolidated assets less total consolidated
liabilities and preferred stock) at [October 31, 2004].
(3) "Operating expenses" represent our estimated operating expenses for the
year ending October 31, 2004 excluding interest on indebtedness. This
percentage for the year ended October 31, 2003 was [ ]%.
(4) The "Interest payments on borrowed funds" represents our estimated
interest expenses for the year ending October 31, 2004. [We had no
outstanding borrowings at October 31, 2004] or for the year ended
October 31, 2003. See "Risk Factors."

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 expenses on a
$1,000 investment, assuming a 5.0% annual
return $[ ] $[ ] $[ ] $[ ]

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 or above 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 above 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.

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 year ended October 31, 2003 is
derived from the financial statements, which have been audited by [ ], the
Fund's current independent accountants. The following selected financial data
for the fiscal years ended October 31, 2002 and 2001 and the period ended
October 31, 2000 are derived from the financial statements, which were audited
by the Fund's former independent accountants. 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.
Interim results at and for the nine months ended July 31, 2004 are not
necessarily indicative of the results that may be expected for the year ending
October 31, 2004. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" ON PAGE 47 FOR MORE INFORMATION.

NINE MONTHS
ENDED JULY 31,
(UNAUDITED) YEAR ENDED OCTOBER 31, FOR THE PERIOD
------------------------ --------------------------------- MARCH 31, 2000 TO
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2004* 2003 2003 2002 2001 OCTOBER 31, 2000
------------------------ --------------------------------- -----------------

OPERATING DATA:
Interest and related portfolio income:
Interest and dividends $ 1,877 $ 2,153 $ 2,870 $ 3,730 $ 9,046 $ 9,326
Fee income 293 1 - 10 - -
Other income 5 - 25 - - -
----------- ----------- ----------- ----------- ----------- ---------------
Total interest and related portfolio income 2,175 2,154 2,895 3,740 9,046 9,326
=========== =========== =========== =========== =========== ===============

Expenses:
Employee 940 2,237 2,476 696 - -
Administrative 1,882 7,560 8,911 2,573 - -
Management fee - 3,593 7,388 4,615
----------- ----------- ----------- ----------- ----------- ---------------
Total operating expenses 2,822 9,797 11,387 6,862 7,388 4,615
=========== =========== =========== =========== =========== ===============

----------- ----------- ----------- ----------- ----------- ---------------
Net investment income (647) (7,643) (8,492) (3,122) 1,658 4,711
=========== =========== =========== =========== =========== ===============

Net realized and unrealized gains (losses):
Net realized gains (losses) (21,397) (152) (4,220) (33,469) 5 (1)
Net change in unrealized appreciation
(depreciation) 30,375 (43,027) (42,771) (21,765) (52,994) (4,913)
----------- ----------- ----------- ----------- ----------- ---------------
Net realized and unrealized gains (losses) on
investments 8,978 (43,179) (46,991) (55,234) (52,989) (4,914)
=========== =========== =========== =========== =========== ===============

----------- ----------- ----------- ----------- ----------- ---------------
Net increase (decrease) in net assets
resulting from operations $ 8,331 $ (50,822) $ (55,483) $ (58,356) $ (51,331) $ (203)
=========== =========== =========== =========== =========== ===============

PER SHARE:
Net increase (decrease) in net assets per
share resulting from operations $ 0.64 $ (3.13) $ (3.42) $ (3.54) $ (3.12) $ (0.01)
Dividends per share $ - $ - $ - $ 0.04 $ 0.34 $ -

NINE MONTHS
ENDED JULY 31,
(UNAUDITED) YEAR ENDED OCTOBER 31, FOR THE PERIOD
------------------------ -------------------------------- MARCH 31, 2000 TO
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2004* 2003 2003 2002 2001 OCTOBER 31, 2000
------------------------ --------------------------------- -----------------
BALANCE SHEET DATA:
Portfolio at value $ 55,342 $ 30,900 $ 24,071 $ 62,802 $ 90,926 $ 107,554
Portfolio at cost 147,534 153,600 146,515 133,864 148,886 112,554
Total assets 114,426 144,297 137,880 196,511 255,050 312,115
Shareholders' equity 113,768 141,669 137,880 195,386 254,472 311,447
Shareholders' equity per share (net asset
value) $ 9.25 $ 8.77 $ 8.48 $ 11.84 $ 15.42 $ 18.88
Common shares outstanding at period end 12,293 16,153 16,153 16,500 16,500 16,500

OTHER DATA:
Investments funded 5 5 5 10 11 16
Investments funded ($) $ 30,210 $ 21,955 $ 21,955 $ 26,577 $ 36,332 $ 102,056

2004* 2003 2002
----------------------- -------------------------------- --------------------------------
(IN THOUSANDS EXCEPT QTR 3 QTR 2 QTR 1 QTR 4 QTR 3 QTR 2 QTR 1 QTR 4 QTR 3 QTR 2 QTR 1
PER SHARE DATA) ----------------------- -------------------------------- --------------------------------
QUARTERLY DATA (UNAUDITED):

Total interest and related
portfolio income $ 951 $ 508 $ 716 $ 742 $ 776 $ 811 $ 566 $ 954 $ 806 $ 877 $ 1,103

Net investment income (loss)
before net realized and
unrealized gains 281 (498) (430) (847) (559) (5,031) (2,055) (1,049) (1,048) (532) (493)

Net increase (decrease) in net
assets resulting from operations 4,922 1,104 2,305 (4,660) (14,386) (6,649) (29,792) (8,522) (20,797) (7,280) (21,757)

Net increase (decrease) in net
assets resulting from operations
per share 0.41 0.09 0.14 (0.29) (0.89) (0.41) (1.83) (0.52) (1.26) (0.44) (1.32)

Net asset value per share 9.25 8.85 8.76 8.48 8.77 9.66 10.06 11.84 12.36 13.62 14.06

-------------------------------------------
* Data for 2004 differs from that which was filed on Form 10-Q on September 9, 2004, due to a reclassification of investment
income and related expenses which had previously been accrued for.

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 450 Fifth
Street, NW, 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 450 Fifth Street, NW,
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 450 Fifth Street, NW,
Washington, DC 20549, at prescribed rates. Please call the SEC at 1-202-942-8090
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.

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 diligence of Mr. Tokarz and the members of the
Fund's investment team to obtain information in connection with our investment
decisions. In addition, some smaller businesses have narrower product lines and
market shares than their competition, and may be more vulnerable to customer
preferences, market conditions or economic downturns, which may adversely affect
the return on, or the recovery of, our investment in such businesses.

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.

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.

At [October 31, 2004], approximately [ ]% of our total assets
represented investments recorded at fair value.

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 an objective 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 unrealized gain (loss) on investments."

YOUR INTEREST IN US MAY BE DILUTED.

Stockholders who do not fully exercise their basic subscription rights
will, upon completion of the rights offering, own a smaller interest in us than
they owned prior to the rights offering. This rights offering will dilute the
ownership interest and voting power of stockholders who do not fully exercise
their basic subscription rights. Further, because the subscription price per
share is lower than the Fund's NAV per share, the offering will dilute (i.e.,
reduce) the Fund's NAV per share.

WE DEPEND ON KEY PERSONNEL, 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. If we were to lose any of these personnel, particularly
Mr. Tokarz, it could negatively impact our operations and we could lose business
opportunities. Mr. Tokarz has an agreement with the Fund, dated November 1,
2003, which has an initial term of two years. However, Mr. Tokarz may terminate
this agreement, and thus his relationship with the Fund, at any time, upon 30
days' prior written notice. Accordingly, Mr. Tokarz is not contractually bound
to serve the Fund for an extended period of time. Thus, there is a risk that his
expertise may, at his discretion, be unavailable to the Fund, which could
significantly impact the Fund's ability to achieve its investment objective.

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.

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 typically not 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.

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 you 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 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.

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 minority investments; therefore, we will be
subject to the risk that a portfolio company may make business decisions with
which we disagree, and the stockholders 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.

OUR DEBT INVESTMENTS MAY NOT PRODUCE CAPITAL GAINS.

Most of our investments are structured as debt securities with a
relatively high fixed rate of interest and with equity features such as
conversion rights, warrants or options. As a result, debt investments are
generally structured to generate interest income from the time they are made,
and may also produce a realized gain from an accompanying equity feature.
However, we cannot assure that our portfolio will generate capital gains.

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.

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 Fund. 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:

o the lower return we are likely to realize on short-term liquid
investments during the period in which we are identifying potential
investments, and

o the periodic disclosure required of business development companies,
which could result in the Fund being less attractive as an investor
to certain potential portfolio companies.

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 otherwise attractive
investments.

LOSS OF PASS-THROUGH TAX TREATMENT WOULD SUBSTANTIALLY REDUCE NET ASSETS AND
INCOME AVAILABLE FOR DIVIDENDS.

We have operated so as to qualify as a "regulated investment company"
("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the

"Code"). 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 stockholders 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
stockholders. 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:

o price and volume fluctuations in the overall stock market from time
to time;

o significant volatility in the market price and trading volume of
securities of business development companies or other financial
services companies;

o volatility resulting from trading in derivative securities related
to our common stock including puts, calls, long-term equity
anticipation securities, or LEAPs, or short trading positions;

o changes in regulatory policies or tax guidelines with respect to
business development companies or RICs;

o actual or anticipated changes in our earnings or fluctuations in our
operating results or changes in the expectations of securities
analysts;

o general economic conditions and trends;

o loss of a major funding source; or

o 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 STOCKHOLDERS IN THE FUTURE.

We cannot assure you 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 prospectus. 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 stockholders.

WE MAY BORROW MONEY, WHICH MAGNIFIES THE POTENTIAL FOR GAIN OR LOSS ON AMOUNTS
INVESTED AND MAY INCREASE THE RISK OF INVESTING IN US.

Although we currently have incurred indebtedness only amounting to [ ]%
of the Fund's assets, we may borrow to a significantly greater degree (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
stockholders. 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 income to increase more than it would
without the leverage, while any decrease in our consolidated income would cause
net 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 INVESTMENT
INCOME.

Because we may borrow money to make investments, our net investment
income before net realized and unrealized gains or losses, or net investment
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 will not have a
material adverse effect on our net investment income. In periods of sharply
rising interest rates, our cost of funds would increase, which could reduce our
net investment 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. Our long-term fixed-rate investments are financed primarily with
equity and long-term fixed-rate debt. 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 OBTAIN A CREDIT FACILITY ON TERMS THAT ARE ACCEPTABLE TO US,
WHICH COULD INHIBIT THE GROWTH OF OUR BUSINESS AND ADVERSELY AFFECT OUR
PERFORMANCE.

In order to maintain RIC status, we will be required to distribute to
our stockholders at least 90% of the sum of "investment company taxable income"
(which generally consists of ordinary income and realized net short-term capital
gains in excess of realized net long-term capital losses, if any) and net tax
exempt interest, if any, to our stockholders on an annual basis. Accordingly,
such earnings will not be available to fund additional investments. Therefore,
we may need to raise additional capital, which we may finance in part through a
credit facility. We may not be able to obtain a credit facility on terms that we
find acceptable, if at all. The unavailability of funds from commercial banks or
other sources on favorable terms could inhibit the growth of our business and
have a material adverse effect on our performance.

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 you dividends and cause you to lose all or
part of your investment.

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 November 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 industry 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.

THE FUND'S CURRENT MANAGEMENT TEAM DID NOT SELECT A MATERIAL PORTION OF OUR
EXISTING INVESTMENT PORTFOLIO.

As of [ ], 2004, [ ]% of the Fund's assets is represented by
investments made by the Fund's former management team. These investments were
made pursuant to the Fund's prior investment objective of seeking long-term
capital appreciation from venture capital investments in information technology
companies. A cash return may generally 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 Fund's portfolio. We are
managing them to try and realize maximum returns. Nevertheless, because they
were not made in accordance with the Fund's current investment strategy, their
future performance may impact our ability to achieve our current objective.

UNDER OUR AGREEMENT WITH OUR PORTFOLIO MANAGER, HE 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 our Portfolio Manager is
determined may encourage our 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 stockholders, 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 our Portfolio Manager and his team focus exclusively
or disproportionately on maximizing returns. See "Employment Agreements" below
for a description of our Portfolio Manager's compensation arrangements.

FUTURE OFFERINGS OF DEBT SECURITIES, WHICH WOULD BE SENIOR TO OUR COMMON STOCK
UPON LIQUIDATION, OR EQUITY SECURITIES, WHICH COULD DILUTE OUR EXISTING
STOCKHOLDERS 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 Fund, 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 stockholders 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
stockholders bear the risk of our future offerings reducing the market price of
our common stock and diluting their stock holdings in us.

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.

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.

THE RIGHTS OFFERING

TERMS OF THE OFFER

We are issuing to our stockholders of record on the record date,
[December 3], 2004, non-transferable rights to subscribe for the shares of our
common stock. Each stockholder is being issued one non-transferable right for
each share of common stock owned on the record date. For every two rights held
you will be able to purchase one share of our common stock at the subscription
price. Rights may be exercised at any time during the subscription period, which
commences on [December 3], 2004 and ends at 5:00 p.m., New York time, on
[PRICING DATE], 2004.

In addition, any stockholder who fully exercises all rights initially
issued is entitled to subscribe for shares which were not purchased for by other
stockholders pursuant to their basic subscription rights and will have an
opportunity to indicate on the subscription certificate how many shares they are
willing to acquire pursuant to their over-subscription right. If enough shares
are available, all stockholder requests to buy shares that were not bought by
other holders will be honored in full. If the requests for shares exceed the
shares available, we may, at our discretion, issue up to an additional 25% of
the shares available pursuant to this rights offering in order to honor such
over-subscriptions. Shares acquired pursuant to the over-subscription right are
subject to proration, which is more fully discussed below under "Subscription
Rights -- Over-Subscription Right."

Rights will be evidenced by subscription certificates. The number of
rights issued to each holder will be stated on the subscription certificate
delivered to such holder. The method by which rights may be exercised and shares
paid for is explained in the sections entitled "Method of Exercise of Rights"
and "Payment for Shares." A rights holder will have no right to rescind a

purchase after the subscription agent has received the holder's subscription
certificate or notice of guaranteed delivery. Shares of common stock issued
pursuant to an exercise of rights will be listed on the NYSE.

The rights are non-transferable. Only the underlying shares of common
stock, and not the rights, will be admitted for trading on the NYSE. Fractional
shares will not be issued upon exercise of rights. Rights holders who receive,
or who are left with, fewer than two rights will be unable to exercise such
rights and will not be entitled to receive any cash in lieu of such shares.

Participants in our dividend reinvestment plan will be issued rights
for the common stock held in their accounts in the dividend reinvestment plan as
of the record date. Participants wishing to exercise such rights must exercise
such rights in accordance with the procedures set forth below in "Method of
Exercise of Rights" and "Payment for Shares." Such rights will [not] be
exercised automatically by the dividend reinvestment plan. The rights must be
exercised separately for each account and fractional shares may not be
aggregated between accounts.

PURPOSE OF THE OFFER

Our board of directors has determined that this rights offering is in
our best interest and in the best interests of our stockholders. The offering
gives existing stockholders the right to purchase additional shares at a price
that may be below market without incurring any commission or sales charges. The
offering will increase the equity capital available for making additional
investments in the equity or debt of primarily private companies or for other
general corporate purposes. In connection with the approval of this rights
offering, our board of directors considered, among other things, the following
factors:

o the size of the discount to the market price and to the Fund's NAV
per share;

o the increased equity capital to be available upon completion of the
rights offering for making additional investments consistent with
MVC Capital's investment objective;

o the dilution to non-exercising stockholders;

o the terms and expenses of the offering relative to other
alternatives for raising capital;

o the size of the offering in relation to the number of shares
outstanding;

o the market price of MVC Capital's common stock, both before and
after the announcement of the equity offering;

o the general condition of the securities markets; and

o any impact on operating expenses associated with an increase in
capital.

There can be no assurance of the amount of dilution that a stockholder
will experience or that the rights offering will be successful.

The purpose of setting the determination of the subscription price upon
the expiration of the offer is to attract the maximum participation of
stockholders in the offer, with minimum dilution to nonparticipating
stockholders.

We believe the rights offering will be a low-cost method for raising
additional capital since no underwriting or sales commission will be paid in
respect of the shares purchased in the rights offering. At any time, even prior
to utilizing a significant portion of our capital, we may decide to raise
additional equity capital and/or debt.

THE SUBSCRIPTION PRICE

The subscription price per share will be 95% of the Fund's NAV per
share on [PRICING DATE], 2004, which we refer to as the pricing date. See "Price
Range of Common Stock." Since the expiration date of the rights offering
coincides with the pricing date, stockholders exercising their subscription
rights will not know the subscription price per share at the time they exercise
their subscription rights. It may be more or less than the estimated
subscription price of $[ ] per share. If the actual subscription price is lower,
excess payments will be refunded (without interest), and if the actual
subscription price is higher, stockholders exercising rights must make an
additional payment by [FINAL PAYMENT DATE], 2004.

DETERMINATION OF THE SUBSCRIPTION PRICE

The subscription price has been determined by our board of directors,
and will be 95% of the Fund's NAV per share on [PRICING DATE], 2004, which we
refer to as the pricing date. The factors considered, among others, by our board
of directors in determining the subscription price included those factors
described under "Purpose of the Offer" and the following factors:

o the absence of underwriting fees or sales commission (which range
from [5]% to [7]% of offering proceeds) in connection with rights
offering;

o the pricing terms in other recently completed rights offerings; and

o desirability of ensuring significant stockholder participation in
the rights offering.

DISTRIBUTION OF RIGHTS

We will issue to each holder of our common stock at no cost one
non-transferable right to purchase our common stock for each share of our common
stock owned by that holder as of the record date, which is [December 3], 2004.
No fractional rights will be issued. For every two rights held you will be
entitled to purchase one share of common stock at the subscription price. The

subscription price per share will be 95% of the Fund's NAV per share on [PRICING
DATE], 2004, which we refer to as the pricing date. Fractional shares will not
be issued upon exercise of rights.

SUBSCRIPTION RIGHTS

Your rights entitle you to the basic subscription rights and the
over-subscription right.

o BASIC SUBSCRIPTION RIGHTS. The basic subscription rights entitle you
to purchase one share of our common stock at the subscription price
for every two rights issued to you. You are entitled to subscribe
for all or any portion of the shares of our common stock underlying
your basic subscription rights.

o OVER-SUBSCRIPTION RIGHT. If you elect to purchase all of the shares
of our common stock that you are entitled to purchase under your
basic subscription rights such that you have fewer than two rights
remaining after such election, you will also have an over-
subscription right to subscribe for additional shares of our common
stock, if any, that are not purchased by other holders of rights
under their basic subscription rights as of the expiration date.
Although you are not limited in the number of shares you can elect
to over-subscribe for, your ability to purchase the number of shares
that you wish to purchase in the exercise of your over-subscription
right will depend on the availability of such shares. We cannot
provide any assurance that sufficient shares will be available to
satisfy your request in whole or in part. If, however, the number
of shares of our common stock remaining unsold after holders have
exercised their basic subscription rights is sufficient to satisfy
in full all subscriptions submitted for additional shares, we will
allocate the shares according to the subscriptions submitted. If
sufficient additional shares are not available to honor all over-
subscriptions, the additional shares will be allocated in proportion
to the amount of shares each holder was entitled to and elected to
purchase under his or her basic subscription rights (as discussed
below) and we may, at our discretion, issue up to an additional 25%
of the shares available pursuant to this rights offering in order to
honor such over-subscriptions. Shares of our common stock purchased
through your over-subscription right must be purchased at the
subscription price.

o PRORATION OF OVER-SUBSCRIPTION RIGHT. Each holder who subscribes for
additional shares will be allocated available shares of our common
stock in proportion to the amount each holder was entitled to and
elected to purchase under his or her basic subscription rights. If
the number of shares of our common stock remaining unsold after
holders have exercised their basic subscription rights (whether or
not we determine to issue additional shares to honor all over-
subscriptions) is not sufficient to satisfy in full all
subscriptions submitted for additional shares, we will allocate
the available shares pro rata among all holders who exercise their
over-subscription right based on the number of shares each

subscriber for additional shares was entitled to and elected to
purchase under his or her basic subscription rights; provided,
however, that if this pro rata allocation results in any holder
being allocated a greater number of additional shares than the
holder subscribed for pursuant to the exercise of such holder's
over-subscription right, then such holder will be allocated only
such number of additional shares as such holder subscribed for
and the remaining additional shares will be allocated pro rata
among all other holders exercising over-subscription rights. We
will continue this allocation process until all subscriptions are
filled or all the shares of our common stock offered in this
offering have been sold. The allocation process may involve a
series of allocations in order to assure the total number of shares
available for over-subscription is distributed on a pro rata basis.
In the case of rights exercised by a nominee for a beneficial owner,
the allocation described above will be based upon the number of
shares of our common stock that the beneficial owner was entitled
to and elected to purchase under his or her basic subscription
rights.

We will not offer or sell any shares that are not subscribed for
under the basic subscription rights or over-subscription rights.

o FULL EXERCISE OF BASIC SUBSCRIPTION RIGHTS. You may exercise your
over-subscription right only if you exercise your basic subscription
rights in full by electing to purchase all of the shares of common
stock which you are entitled to purchase under your basic
subscription rights such that you have fewer than two rights
remaining after such exercise. To determine if you have fully
exercised your basic subscription rights, we will consider only
the basic subscription rights held by you in the same capacity.
For example, suppose that you were granted rights for shares of
our common stock which you own individually and shares of our
common stock which you own collectively with your spouse. If you
wish to exercise your over-subscription right with respect to the
rights you own individually, but not with respect to the rights
you own collectively with your spouse, you only need to fully
exercise your basic subscription rights with respect to your
individually owned rights. You do not have to subscribe for any
shares under the basic subscription rights owned collectively with
your spouse to exercise your individual over-subscription right.

When you complete the portion of your subscription certificate to
exercise your over-subscription right, you will be representing that you have
fully exercised your basic subscription rights as to shares of our common stock
which you hold in that capacity. You must exercise your over-subscription right
at the same time you exercise your basic subscription rights in full.

If you own shares of our common stock through your bank, broker or
other nominee holder who will exercise your subscription right on your behalf,
the bank, broker or other nominee holder will be required to certify to us and
to the subscription agent the following information:

o the number of shares of our common stock held on your behalf on the
record date;

o the number of rights exercised under your basic subscription rights;

o that your basic subscription rights held in the same capacity have
been exercised in full; and

o the number of shares subscribed for under your over-subscription
right.

Your bank, broker or other nominee holder may also disclose to us other
information received from you.

NO FRACTIONAL RIGHTS AND SHARES

We will not issue fractional rights or fractional shares. Rights
holders who receive, or who are left with, fewer than two rights will be unable
to exercise such rights and will not be entitled to receive any cash in lieu of
such shares.

METHOD OF EXERCISE OF RIGHTS

Subscription certificate(s), which evidence the subscription rights,
will be mailed to stockholders of record as of the record date. Rights may be
exercised by stockholders who are record owners by filling in and signing the
enclosed subscription certificate(s) and mailing it in the envelope provided or
delivering the completed and signed subscription certificate(s) to the
subscription agent, together with required payment for the shares as described
below under "Payment for Shares." Rights may also be exercised by a stockholder
by contacting his broker, bank or other nominee, who can arrange, on the
stockholder's behalf, delivery of a properly completed and executed subscription
certificate(s) and payment for the shares. A fee may be charged for this
service. Unless stockholders are delivering their subscription certificates
pursuant to a notice of guaranteed delivery as described below under "Notice of
Guaranteed Delivery," subscription certificate(s) must be received by the
subscription agent prior to 5:00 p.m., New York time, on the expiration date at
the offices of the subscription agent.

PAYMENT FOR SHARES

Stockholders who acquire shares pursuant to the basic subscription
rights or the over-subscription right must send payment for the shares to be
acquired pursuant to the basic subscription rights and over-subscription right,
to the subscription agent based on the estimated subscription price of $[ ] per
share. To be accepted, such payment must be made payable to "EquiServe Trust
Company, N.A., as subscription agent -- MVC Capital, Inc." and received by the
subscription agent prior to 5:00 p.m. New York time on the expiration date,
unless the rights offering is extended. The subscription agent will not honor
any exercise of rights received by it after the expiration date. The
subscription agent will deposit all bank checks, checks, money orders and wire
transfers of funds received by it prior to the final payment date into a
segregated interest-bearing account (which interest will be paid to us) pending
proration and issuance of shares. If this offering is terminated, we will
promptly arrange for the refund, without interest, of all funds received from
holders of rights. ALL PAYMENTS BY A STOCKHOLDER MUST BE MADE IN U.S. DOLLARS

EITHER (I) BY BANK CHECK, MONEY ORDER OR CHECK AND DRAWN ON A BANK LOCATED IN
THE UNITED STATES, OR (II) BY WIRE TRANSFER OF SAME DAY FUNDS TO THE ACCOUNT
MAINTAINED BY THE SUBSCRIPTION AGENT FOR THIS PURPOSE AT EQUISERVE TRUST
COMPANY, N.A., SUBSCRIPTION AGENT FOR MVC CAPITAL, INC., [BANK ADDRESS], ABA#
[ ], ACCOUNT NO. [ ].

Unless you are delivering your subscription certificate pursuant to a
notice of guaranteed delivery as described below under "Notice of Guaranteed
Delivery," payment of the estimated subscription price must be accompanied by a
subscription certificate.

NOTICE OF GUARANTEED DELIVERY

If you wish to exercise your rights, but time will not permit you to
cause the subscription certificate to reach the subscription agent on or prior
to the expiration date, you may nevertheless exercise your rights if you meet
the following conditions:

(a) you have caused payment in full of the estimated subscription price
for each share being subscribed for pursuant to your basic subscription rights
and your over-subscription right, if any, to be received by the subscription
agent on or prior to the expiration date;

(b) the subscription agent receives, on or prior to the expiration
date, a guaranteed notice, from an eligible institution, stating your name, the
number of rights held, the number of shares being subscribed for pursuant to the
basic subscription rights and the number of shares being subscribed for pursuant
to the over-subscription right, and guaranteeing the delivery to the
subscription agent of the subscription certificate at or prior to 5:00 p.m., New
York time, on the date three business days following the expiration date; and

(c) the properly completed subscription certificate evidencing the
rights being exercised, with any required signatures being guaranteed, are
received by the subscription agent at or prior to 5:00 p.m., New York time, on
the date three business days following the expiration date.

DELIVERY OF SHARES

Unless requested otherwise, stock certificates will not be issued for
shares of our common stock offered in this rights offering. Stockholders who are
record owners will have the shares they acquire credited to their account with
our transfer agent. All future dividends paid on such shares will be paid either
in cash or reinvested into additional shares, depending on the election you made
in connection with our dividend reinvestment plan. Stockholders whose common
stock is held by a nominee will have the shares they acquire credited to the
account of such nominee holder.

SIGNATURE GUARANTEE MAY BE REQUIRED

Your signature on each subscription certificate must be guaranteed by
an eligible institution such as a member firm of a registered national
securities exchange or a member of the NASD, or from a commercial bank or trust
company having an office or correspondent in the United States, subject to
standards and procedures adopted by the subscription agent, unless:

o Your subscription certificate provides that shares are to be
delivered to you as record holder of those rights; or

o You are an eligible institution.

CONFIRMATION OF PURCHASE

Within 10 business days following the expiration of the rights
offering, which we refer to as the confirmation date, a confirmation will be
sent by the subscription agent to each stockholder (or, if shares are held by a
nominee, on the record date, to such nominee) showing: (i) the number of shares
acquired through the basic subscription rights; (ii) the number of shares, if
any, acquired through the over-subscription right; (iii) the per share and total
subscription price for the shares; and (iv) the additional amount payable by the
stockholder to us or any excess to be refunded (without interest) by us to the
stockholder, in each case based on the subscription price as determined on the
pricing date.

In the case of any stockholder who exercises a right to acquire shares
through the over-subscription right, any excess payment which would otherwise be
refunded to the stockholder will be applied by us toward payment for shares
acquired through exercise of the over-subscription right. Any additional payment
required from a stockholder must be received by the subscription agent within 10
business days after the confirmation date, and any excess payment to be refunded
(without interest) by us to a stockholder will be mailed by the subscription
agent to such stockholder as soon as practicable. All payments by a stockholder
must be in U.S. dollars by (i) bank check, money order or check drawn on a bank
located in the United States and payable to "EquiServe Trust Company, N.A., as
subscription agent -- MVC Capital, Inc.," or (ii) by wire transfer of same day
funds to the account maintained by the subscription agent for this purpose at
EquiServe Trust Company, N.A., Subscription Agent for MVC Capital, Inc., [BANK
ADDRESS], ABA# [ ], Account No. [ ].

Crediting of shares acquired in this rights offering to any account is
subject to collection of checks.

If a stockholder who acquires shares through the basic subscription
rights or over-subscription right does not make payment of all amounts due, we
reserve the right to (i) apply any payment actually received by us toward the
purchase of the greatest number of whole shares which could be acquired by such
stockholder upon exercise of the basic subscription rights or over-subscription
right; (ii) exercise any and all other rights or remedies to which we may be
entitled; or (iii) find other purchasers for such subscribed-for shares.

STOCKHOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTION AFTER
RECEIPT OF THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION AGENT.

INSTRUCTIONS FOR COMPLETING YOUR SUBSCRIPTION CERTIFICATE

You should read and follow the instructions accompanying the
subscription certificates carefully. If you want to exercise your rights, you
should send your subscription certificate(s) with your estimated subscription
price payment to the subscription agent. Do not send your subscription
certificate(s) and estimated subscription price payment to us.

INFORMATION AGENT

Any questions or requests for assistance may be directed to the
information agent at its telephone number and address listed below:

The information agent for the rights offering is:

EquiServe Trust Company, N.A.
150 Royall Street, Canton, Massachusetts 02021

BANKS AND BROKERS CALL
[ ]

ALL OTHERS CALL TOLL-FREE
[ ]

Stockholders may also contact their brokers, banks or other nominees
for information with respect to the rights offering.

The information agent will receive a fee estimated to be approximately
$[25,000], which excludes reimbursement for all out-of-pocket expenses related
to the rights offering, and have also agreed to indemnify the information agent
against certain liabilities which it may incur in connection with this offering.

SUBSCRIPTION AGENT

EquiServe will act as our subscription agent to accept exercises of
subscription rights for this offering. You must send the completed and signed
certificate, along with payment in full of the exercise price for all shares
that you wish to purchase pursuant to the basic subscription rights and
over-subscription right, to EquiServe.

We suggest, for your protection, that you deliver your subscription
certificate to the subscription agent by an insured, overnight or express mail
courier. If you mail your subscription certificate, we suggest that you use
registered mail. If you wish to exercise your rights, you should mail or deliver
your subscription certificate and payment for the estimated subscription price
to the subscription agent as follows:

BY MAIL, HAND OR OVERNIGHT COURIER

EquiServe Trust Company, N.A.
150 Royall Street, Canton, Massachusetts 02021.

The notice of guaranteed delivery may also be sent by facsimile to [ ]
with the originals to be sent promptly thereafter by the methods described
above. Facsimiles should be confirmed by telephone to [ ].

DELIVERY TO AN ADDRESS OTHER THAN AS LISTED ABOVE, OR TRANSMISSION VIA
A FACSIMILE NUMBER OTHER THAN AS LISTED ABOVE, WILL NOT CONSTITUTE VALID
DELIVERY.

Any questions or requests for assistance concerning the method of
subscribing for shares of our common stock or for additional copies of this
prospectus or the instructions as to use of the subscription certificates can be
directed to the information or subscription agent at the addresses or at the
telephone numbers specified above.

We will pay the subscription agent fees and expenses of up to $[35,000]
and have also agreed to indemnify the subscription agent against certain
liabilities which it may incur in connection with this offering.

EXPIRATION OF THE RIGHTS OFFERING

You may exercise your subscription rights at any time before 5:00 p.m.,
New York time, on [PRICING DATE], 2004, the expiration date for this offering.
We may, in our sole discretion, extend the time for exercising your rights. If
you do not exercise your rights before the expiration date, your unexercised
rights will be null and void. We may extend the expiration date by giving oral
or written notice to the subscription agent on or before the scheduled
expiration date and making a public announcement thereof no later than 9:00
a.m., New York time, on the next business day after the previously scheduled
expiration date. We will not be obligated to honor your exercise of rights if
the subscription agent receives the documents relating to your exercise after
the rights offering expires, regardless of when you transmitted the documents.

CALCULATION OF RIGHTS EXERCISED

If you do not indicate the number of rights being exercised, or do not
forward full payment of the total estimated subscription price payment for the
number of rights that you indicate are being exercised, then you will be deemed
to have exercised your basic subscription rights with respect to the maximum
number of rights that may be exercised with the aggregate estimated subscription
price payment you delivered to the subscription agent. If your aggregate
estimated subscription price payment is greater than the amount you owe for your
basic subscription and you do not indicate the number of rights being exercised,
you will be deemed to have exercised your over-subscription right to purchase
the maximum number of shares with your overpayment. If we do not apply your full
subscription price payment to your purchase of shares of our common stock, we
will return the excess amount to you by mail without interest or deduction as
soon as practicable after the expiration of rights offering.

NOMINEE HOLDERS

If you are a broker, bank or other nominee who holds shares of our
common stock for the account of others on [December 3], 2004, the record date
for this offering, you should notify the respective beneficial owners of such
shares of the rights offering as soon as possible to find out their intentions
with respect to exercising their rights. You should obtain instructions from the
beneficial owner with respect to the rights, as set forth in the instructions we
have provided to you for your distribution to beneficial owners. If the
beneficial owner so instructs, you should complete the appropriate documents and
submit them to the subscription agent with the proper payment. If you hold
shares of our common stock for the account (s) of more than one beneficial
owner, you may exercise the number of rights to which all such beneficial owners

in the aggregate otherwise would have been entitled had they been direct record
holders of our common stock on the record date for this rights offering,
provided that you, as a nominee record holder, make a proper showing to the
subscription agent.

BENEFICIAL OWNERS

If you are a beneficial owner of shares of our common stock or will
receive your rights through a broker, bank or other nominee, we will ask your
broker, bank or other nominee to notify you of this rights offering. To indicate
your decision, you should complete and return to your bank, broker or other
nominee the form entitled "Beneficial Owner Election Form," together with full
payment of the estimated subscription price for each share subscribed for under
your subscription rights (including shares subscribed for through the exercise
of your over-subscription right). You should receive this form from your broker,
bank or other nominee with the other offering materials.

AMENDMENTS AND WAIVERS; TERMINATION

We reserve the right to amend the terms and conditions of this
offering, whether the amended terms are more or less favorable to you. We will
comply with all applicable laws, including the federal securities laws, in
connection with any such amendment.

We will decide all questions as to the validity, form and eligibility
(including times of receipt, beneficial ownership and compliance with other
procedural matters) in our sole discretion, and our determination shall be final
and binding. The acceptance of subscription certificates and the subscription
price also will be determined by us. Alternative, conditional or contingent
subscriptions will not be accepted. We reserve the right to reject any exercise
if such exercise is not in accordance with the terms of this rights offering or
not in proper form or if the acceptance thereof or the issuance of shares of our
common stock thereto could be deemed unlawful. We reserve the right to waive any
deficiency or irregularity with respect to any subscription certificate.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as we determine in our
sole discretion. We will not be under any duty to give notification of any
defect or irregularity in connection with the submission of subscription
certificates or incur any liability for failure to give such notification.

We reserve the right, in our sole discretion, at any time prior to
delivery of the shares of our common stock offered hereby, to terminate the
rights offering by giving oral or written notice thereof to the subscription
agent and making a public announcement thereof. If this offering is terminated,
we will promptly arrange for the refund, without interest, of all funds received
from holders of rights. All monies received by the subscription agent in
connection with this offering will be held by the subscription agent, on our
behalf, in a segregated interest-bearing account. All such interest shall be
payable to us even if we determine to terminate the offering and return your
subscription payment.

NO REVOCATION

Once you have exercised your subscription rights, you may not revoke
the exercise.

NO TRANSFER OF RIGHTS

All rights received by you in this offering are non-transferable and
may only be exercised by a subscribing holder for his or her own account. The
rights will not be admitted for trading on the NYSE. However, the shares of our
common stock issued through this rights offering will be listed and admitted for
trading on the NYSE.

DILUTIVE EFFECTS

Any stockholder who chooses not to participate in this rights offering,
should expect to own a smaller interest in us upon completion of this rights
offering. This rights offering will dilute the ownership interest and voting
power of stockholders who do not fully exercise their basic subscription rights.
Further, because the subscription price per share will be lower than the Fund's
NAV per share, the offering will dilute (i.e., reduce) the Fund's NAV per share.

FOREIGN RESTRICTIONS

Stockholders whose record addresses are outside the United States (for
these purposes, the United States includes its territories and possessions and
the District of Columbia) will receive written notice of the rights offering;
however, subscription certificates will not be mailed to such stockholders. The
rights to which those subscription certificates relate will be held by the
subscription agent for such foreign stockholder's accounts until instructions
are received to exercise the rights. If no such instructions are received by the
expiration date, such rights will expire.

ERISA CONSIDERATIONS

Fiduciaries of an employee benefit plan or other arrangement subject to
the Employee Retirement Income Security Act of 1974, as amended (an "ERISA
Plan"), and persons who are fiduciaries with respect to an IRA or Keogh Plan,
which is not subject to ERISA but is subject to the prohibited transaction
provisions of Section 4975 of the Code (together with ERISA Plans, "Benefit
Plans") should consider, among other things, the following before purchasing
shares.

ERISA imposes certain responsibilities on persons who are fiduciaries
with respect to an ERISA Plan, including prudence, diversification, an
obligation not to engage in prohibited transactions and other standards. In
determining whether a particular investment is appropriate for an ERISA Plan,
Department of Labor ("DOL") regulations provide that an ERISA Plan fiduciary
must give appropriate consideration to, among other things, the role the
investment plays in the ERISA Plan's portfolio, taking into consideration
whether the investment is designed reasonably to further the ERISA Plan's
purposes, an examination of the risk and return factors, the portfolio's
composition with regard to diversification, the liquidity and current return of
the total portfolio relative to the anticipated cash flow needs of the ERISA
Plan, the tax consequences and the projected return of the total portfolio
relative to the ERISA Plan's funding objectives. Before purchasing shares, a
fiduciary should determine whether such investment is consistent with its
fiduciary responsibilities and the DOL's regulations. For example, a fiduciary
should consider whether an investment in the Fund may be too illiquid or too

speculative for a particular ERISA Plan. If a fiduciary breaches its
responsibilities in selecting an investment or an investment course of action,
the fiduciary may be held liable for losses incurred by the ERISA Plan resulting
from such breach.

Because it is anticipated that shares will constitute "publicly offered
securities" within the meaning of the DOL plan asset regulations, the underlying
assets of the Fund should not be considered to be "plan assets" of investing
ERISA Plans for purposes of the fiduciary responsibility provisions of ERISA and
prohibited transaction rules of ERISA and the Code. Thus, the Fund's management
team will not be an ERISA fiduciary by reason of its authority with respect to
the Fund.

A Benefit Plan proposing to invest in the Fund will be deemed to
represent that it and any fiduciary responsible for such plan's investments are
aware of and understand the Fund's investment objective, policies and
strategies, that the decision to purchase shares was made with appropriate
consideration of the relevant investment factors and is consistent with the
duties and responsibilities imposed upon fiduciaries with regard to their
investment decisions under ERISA and/or the Code.

Certain prospective Benefit Plan investors may currently maintain
relationships with the Fund's management team and/or its affiliates. Each of
such persons may be deemed to be a party in interest to and/or a fiduciary of
any Benefit Plan to which it provides investment management, investment advisory
or other services. ERISA prohibits the use of plan assets for the benefit of a
party in interest and prohibits a fiduciary from using its position to cause
such Plan to make an investment from which it or certain third parties in which
such fiduciary has an interest would receive a fee or other consideration. The
Code also penalizes such actions. ERISA and Benefit Plan investors should
consult with counsel to determine if the purchase and holding of shares is a
prohibited transaction. Fiduciaries of ERISA or Benefit Plan investors will be
deemed to represent that the decision to invest in the shares was made by them
as fiduciaries independent of the Fund's management team or its affiliates, that
they are duly authorized to make such decision and that they have not relied on
any individualized advice or recommendation of the Fund's management team or its
affiliates, as a primary basis for the decision to invest in the Fund.

The provisions discussed herein are subject to continuing
administrative and judicial interpretation and review. This discussion is
general and may be affected by future publication of regulations and rulings.
Potential Benefit Plan investors should consult their advisers regarding the
consequences under ERISA and the Code relevant to purchasing and holding the
shares.

FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS

For U.S. federal income tax purposes, neither the receipt nor the
exercise of the rights will result in taxable income to you. Moreover, you will
not realize a loss if you do not exercise the rights. The holding period for a
share acquired upon exercise of a right begins with the date of exercise.

In general, except as provided in the following sentence, your basis in
the rights received by you in this rights offering as a distribution with
respect to your common stock will be zero. If, however, either (i) the aggregate
fair market value of the rights as of the date they are distributed to you is
equal to or greater than 15% of the aggregate fair market value on the date of
distribution of the common stock in existence when the rights are received, or
(ii) you irrevocably elect, in a statement attached to your federal income tax
return for the year in which the rights are received, to allocate a portion of
the basis in such common stock to the rights, then, upon exercise of the rights,
your basis in such common stock will be allocated between such common stock and
the rights in proportion to the relative fair market values of each as of the
date of distribution of the rights. If you do not exercise the rights, you will
not be permitted to allocate any portion of your basis in your common stock to
the rights and, therefore, you will not realize a loss on the expiration of an
unexercised right.

Your basis in common stock acquired upon the exercise of a right will
be equal to the sum of (i) the subscription price per share, (ii) any servicing
fee charged to you by your broker, bank or trust company, and (iii) the basis,
if any, in the rights that you exercised. The holding period for any common
stock acquired upon exercise of a right will begin with the date of exercise.
For a discussion of the consequences of holding and selling shares of our common
stock, including any shares of common stock acquired upon the exercise of a
right, see "Federal Income Tax Matters" below.

The foregoing is a general summary of the material U.S. federal income
tax consequences of the receipt and exercise of the rights. The discussion is
based upon applicable provisions of the Code, Treasury regulations thereunder
and administrative and judicial interpretations, each as of the date of this
prospectus and all of which are subject to change, and does not cover state,
local or foreign taxes. This summary does not discuss all aspects of federal
income taxation relevant to the receipt, exercise and lapse of rights, in light
of particular circumstances, or to certain types of holders subject to special
treatment under federal income tax laws, including dealers in securities,
pension plans and trusts and financial institutions. The Code and Treasury
regulations thereunder are subject to change by legislative or administrative
action, possibly with retroactive effect. You should consult your tax advisors
regarding specific questions as to federal, state, local or foreign taxes. You
should also review the discussion of certain tax considerations affecting
yourself and MVC Capital set forth under "Federal Income Tax Matters."

USE OF PROCEEDS

Assuming full exercise of the rights, the cash proceeds from the sale
of our common stock will be approximately $[ ] before deducting the offering
fees and expenses. If we, in our sole discretion, increase the number of shares
subject to this rights offering by 25% in order to satisfy over-subscriptions,
our proceeds will be approximately [ ]. However, there can be no assurance that
all the rights will be exercised in full, and the subscription price will not be
determined until the close of business on the expiration date.

We intend to use the net proceeds from the rights offering to provide
equity and debt financing to portfolio companies and for other general corporate
purposes.

We intend to invest in common and preferred stock and warrants or
rights to acquire equity interests, senior and subordinated loans, and
convertible securities. In addition to such investments, we may invest up to 30%
of the portfolio in opportunistic investments, including high-yield bonds,
equity and debt securities in collateralized debt obligation vehicles, equity
securities or distressed debt of public companies at the discretion of the
Portfolio Manager. As part of this 30%, we may also invest in equity or debt of
small and middle-market companies located outside of the United States.

We anticipate that substantially all of the net proceeds from this
rights offering will be used, as described above, within twelve months, but in
no event longer than two years. Pending investment, we intend to invest the net
proceeds from this rights offering in time deposits, income-producing securities
with maturities of three months or less that are issued or guaranteed by the
federal government or an agency of the federal government, high quality debt
securities maturing in one year or less from the time of investment or other
money market instruments. Our ability to achieve our investment objective may be
limited to the extent that the net proceeds of any offering, pending full
investment, are held in short-term instruments.

PRICE RANGE OF COMMON STOCK

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, the closing sales price as a percentage of NAV. On [ ], 2004, the last
reported closing sale price of the common stock was $[ ] per share.

PREMIUM/DISCOUNT PREMIUM/DISCOUNT
CLOSING SALE OF HIGH OF LOW
PRICE SALES PRICE SALES PRICE
NAV(1) HIGH LOW TO NAV TO NAV
-------- -------- -------- ---------------- -----------------

YEAR ENDED OCTOBER 31, 2002
First Quarter $14.06 $10.06 $9.22 -28.45% -34.42%
Second Quarter 13.62 10.06 8.80 -26.14% -35.39%
Third Quarter 12.36 9.50 7.50 -23.14% -39.32%
Fourth Quarter 11.84 8.05 7.25 -32.01% -38.77%
YEAR ENDED OCTOBER 31, 2003
First Quarter $10.06 $8.60 $7.90 -14.51% -21.47%
Second Quarter 9.66 8.68 7.85 -10.14% -18.74%
Third Quarter 8.77 8.48 7.89 -3.31% -10.03%
Fourth Quarter 8.48 8.36 7.92 -1.42% -6.60%
YEAR ENDING 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 [(through *
[December 3], 2004)]
--------------------
(1) Net asset value per share is currently calculated daily. The net asset
value shown is as of the last day in the relevant quarter and therefore
may not reflect the net asset value per share on the date of the high
and low sales prices. The net asset values shown are based on shares
outstanding at the end of each period.
* Net asset value has not yet been calculated for this period.

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.

We cannot assure that we will achieve investment results that will
permit us to make any dividend payment.

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

[TO BE UPDATED]

OVERVIEW

The Fund is a non-diversified investment company that is regulated as a
business development company under the 1940 Act. The Fund's investment
objective, as amended by shareholder vote on September 16, 2003, is to seek to
maximize total return from capital appreciation and/or income.

On November 6, 2003, Mr. Tokarz assumed his new position as Portfolio
Manager. He and his team 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, warrants or rights
to acquire equity interests, and other private equity transactions. As of
[July 31, 2004], we have made five new investments, totaling $30,210,000,
pursuant to our new objective.

Prior to the adoption of our current investment objective, the Fund's
investment objective had been to achieve long-term capital appreciation from
venture capital investments in information technology companies. The Fund's
investments had thus previously focused on investments in equity and debt
securities of information technology companies. As of [July 31, 2004], 21.96% of
our assets consisted of investments made by the Fund's former management team
pursuant to the prior investment objective. 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 RIC 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. 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 small public
companies that may lack adequate access to public capital.

INVESTMENT INCOME

FOR THE NINE MONTHS ENDED JULY 31, 2004 AND 2003. Interest, fee and
other income for the nine months ended July 31, 2004 and 2003 was $2,175,011 and
$2,153,798, respectively, an increase of approximately $21,000. The increase in
interest and fee income during the nine months ended July 31, 2004 was the

result of a combination of factors: the Fund's investment in new portfolio
companies paying different rates of interest and the Fund's receipt of closing
and monitoring fees from certain portfolio companies by the Fund and MVC
Financial Services, Inc. a wholly owned subsidiary of the Fund.

OPERATING EXPENSES

FOR THE NINE MONTHS ENDED JULY 31, 2004 AND 2003. Operating expenses
for the nine months ended July 31, 2004 and 2003 were $2.82 million and $9.80
million, respectively, a decrease of $6.98 million.

The significant components of operating expenses for the nine months
ended July 31, 2004 and the major factors contributing to the decrease over the
nine month period ended July 31, 2003 are outlined below.

During the nine month period ended July 31, 2003, Proxy and Litigation
expenses were $4 million. The expenses in 2003 were non-recurring and were
associated specifically with the costs of replacing the Board of Directors in
February 2003 and the repayment of legal expenses of the two major Fund
shareholders, Millenco, L.P. and Karpus Investment Management who obtained
judgment against the Fund in the Delaware Chancery Court.

Other significant components of operating expenses for the nine months
ended July 31, 2004 include insurance premium expenses of $773,454, salaries and
benefits of $940,332, legal fees of $565,817, facilities of $8,250 and other
expenses of $12,838.

In February 2004, the Fund renewed its Directors & Officers/
Professional Liability Insurance policies at an expense of approximately
$719,000 which is being amortized over the life of the policy. The prior policy
premium was $1.4 million. During the nine months ended July 31, 2003, the Fund
paid or accrued $689,929 in insurance premium expense.

During the nine months ended July 31, 2004, the Fund paid or accrued
$940,332 in salaries and benefits. During the nine months ended July 31, 2003,
the Fund paid or accrued $2,236,987 in salaries and benefits. The reduced
expense for the nine months ended July 31, 2004 is reflective of the significant
reduction in the number of Fund employees as compared to the previous period.

During the nine months ended July, 2004, the Fund paid or accrued
$565,817 in legal fees. During the nine months ended July 31, 2003, the Fund
paid or accrued $1,412,517 in legal fees. The reduced expense for the nine
months ended July 31, 2004 is reflective of a decreased need for legal counsel
due to the solidification of the Fund's intended direction by the current
Management and that the Fund was not involved in litigation during the current
period.

During the nine months ended July 31, 2004, the Fund showed a balance
of $8,250 in facilities expenses. During the nine months ended July 31, 2003,
the Fund paid or accrued $565,969 in facilities expenses. On January 21, 2004,
the Fund 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 Fund bought-out its lease directly from the property
manager, for an amount equal to $232,835. As a result, the Fund 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 nine
months ended July 31, 2004 was approximately $258,250.

During the nine months ended July 31, 2004, the Fund showed a balance
of $12,838 in other expenses. During the nine months ended July 31, 2003, the
Fund paid or accrued $77,561 in other expenses. On July 13, 2004, the Fund
received $245,213 from the settlement of the case Millenco L.P. v. meVC
Advisers, Inc. The recovery of the management fee was used to offset against
current year other expenses. Without this recovery the gross other expenses
for the nine months ended July 31, 2004 would have been approximately $258,051.
The increase in other expenses was caused by the retention of a firm to perform
an independent valuation of the Fund's securities as a part of the Fund's
[year-end audit] and increased professional fees related to deal expenses.
The expenses related to professional fees were not incurred in the prior
period because the Fund was not actively seeking new portfolio investments.

REALIZED GAIN AND LOSS ON PORTFOLIO SECURITIES

FOR THE NINE MONTHS ENDED JULY 31, 2004 AND 2003. Net realized losses
for the nine months ended July 31, 2004 and 2003 were $21.4 million and
$151,931, respectively, an increased loss of $21.2 million.

Realized losses for the nine months ended July 31, 2004 resulted from
the sale of PTS Messaging and Ishoni Networks. These sales resulted in net
losses of $11.5 million and $10.0 million, respectively. These losses were
previously included with unrealized losses.

Realized losses for the nine months ended July 31, 2003 resulted mainly
from the disbursement of assets from EXP Systems, Inc., a former portfolio
company, to its preferred shareholders.

UNREALIZED APPRECIATION AND DEPRECIATION OF PORTFOLIO SECURITIES

FOR THE NINE MONTHS ENDED JULY 31, 2004 AND 2003. Net decrease in
unrealized depreciation for the nine months ended July 31, 2004 was $30.38
million and net increase in unrealized depreciation for the nine months ended
July 31, 2003 was $43.02 million.

Such net decrease in unrealized depreciation on investment transactions
for the nine months ended July 31, 2004 resulted mainly from the $21.5 million
reclassification from unrealized depreciation to realized loss caused by the
disbursement of assets from PTS Messaging and Ishoni Networks. Such net decrease
also resulted from the determinations of the Valuation Committee to increase the
fair value of the Fund's investments in Sygate, 0-In, BlueStar, Vendio and
Integral by $9.6 million and to decrease the fair value of the Fund's
investments in Actelis, CBCA, and Sonexis by $2.0 million. For a further
discussion on the portfolio companies, please refer to "Portfolio Investments"
below.

The net increase in unrealized depreciation on investment transactions
for the nine months ended July 31, 2003 resulted mainly from the Valuation
Committee's decision to decrease the fair value of the Fund's investments in
Actelis Networks, Inc., Arcot, BlueStar Solutions, Inc., BS Management, CBCA,

Inc., Endymion Systems, Inc., FOLIOFN, Inc., Ishoni Networks, Inc., Lumeta
Corporation, Pagoo, Inc., Phosistor Technologies, Inc., ProcessClaims, Inc.,
DataPlay, Inc., SafeStone Technologies PLC, Sonexis, Inc., Vendio Services,
Inc., Yaga, Inc., and 0-In Design Automation, Inc.

For the nine months ended July 31, 2004, the accumulated deficit
decreased $8.3 million and for the nine months ended July 31, 2003, the
accumulated deficit increased $50.8 million. The Fund's total accumulated
deficit for the nine months ended July 31, 2004 and 2003 was $151.8 million and
$167.1 million, respectively. The decrease in accumulated deficit for the nine
months ended July 31, 2004 is due primarily to the Valuation Committee's net
increase of the fair valuations of certain portfolio company investments by $7.6
million offset by a net investment loss of $612,258. The decrease is also due to
the reclassification of previously repurchased treasury shares.

PORTFOLIO INVESTMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2004 AND THE YEAR ENDED OCTOBER 31,
2003. The cost of equity investments held by the Fund at July 31, 2004 and at
October 31, 2003 was $119.3 million and $125.6 million, respectively, a decrease
of $6.3 million. The aggregate fair value of equity investments at July 31, 2004
and at October 31, 2003 was $33.5 million and $11.6 million, respectively, an
increase of $21.9 million. The increase in the fair value of the equity
investments held by the Fund resulted mainly from the purchase of equity
positions in new portfolio companies and the Valuation Committee's increase of
the fair valuations of certain portfolio company equity investments. The cost of
debt instruments held by the Fund at July 31, 2004 and at October 31, 2003 was
$23.8 million and $16.4 million, respectively, an increase of $7.4 million. The
aggregate fair value of debt instruments at July 31, 2004 and at October 31,
2003 was $21.8 million and $12.5 million, respectively, an increase of $9.3
million. The increase in the cost and fair value of the debt investments
resulted mainly from the debt investments made in new portfolio companies during
the period. The cost of subordinated notes held by the Fund at July 31, 2004 and
at October 31, 2003 was $4.5 million and $4.5 million, respectively. The
aggregate fair value of subordinated notes at July 31, 2004 and at October 31,
2003 was $0 and $0, respectively. The cost and aggregated fair value of
short-term securities held by the Fund at July 31, 2004 and at October 31, 2003
was $57.2 million and $113.2 million, respectively, a decrease of $56.0 million.
The decrease in short-term investments resulted mainly from the return of $31.6
million in cash to the shareholders in January 2004 resulting from the
completion of the Fund's tender offer and investments made in new portfolio
companies. The cost and aggregate fair value of cash and cash equivalents held
by the Fund at July 31, 2004 and at October 31, 2003 was $1.2 million and $7
thousand, respectively, an increase of approximately $1.1 million. This change
in position was also impacted by the acquisition of highly liquid securities
with maturities of ninety days or less. Management continues to evaluate
opportunities for its portfolio companies to realize value for the Fund and its
stockholders.

During the nine months ended July 31, 2004, the Fund had active
investments in the following portfolio companies:

ACTELIS NETWORKS, INC.

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

At October 31, 2003 and July 31, 2004, the Fund's investment in Actelis
consisted of 1,506,025 shares of Series C Preferred Stock at a cost of $5.0
million. On April 29, 2004 the Valuation Committee wrote down the value of
Actelis by $1.0 million to $0.0. The investment has been assigned a fair value
of $0.0.

ARCOT SYSTEMS, INC.

Arcot Systems, Inc. ("Arcot"), Santa Clara, California, develops
solutions to address the challenges of securing e-business applications in
Internet-scale and transactional environments.

At October 31, 2003, the Fund's investment in Arcot consisted of an
outstanding balance on the loan of $5.05 million with a cost of $5.0 million.
The investment was assigned a fair value of $2.0 million and the warrants were
assigned a fair valued of $0.0.

During the nine months ended July 31, 2004, Arcot made scheduled
principal repayments totaling $981,946.

At July 31, 2004, the Fund's investment in Arcot consisted of an
outstanding balance on the loan of $4.07 million with a cost of $4.05 million.
The investment has been assigned a fair value of $2.0 million and the warrants
have been assigned a fair value of $0.0.

BALTIC MOTORS CORPORATION

Baltic Motors Corporation ("Baltic"), Farmington Hills, Michigan, 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.

On June 25, 2004, the Fund made an investment in Baltic consisting of
54,947.37 shares of Common Stock at $109.20 per share for $6.0 million. In
conjunction with this investment, the Fund made a mezzanine loan of $4.5 million
to Baltic in the form of a Senior Subordinated Note. The loan has a maturity
date of June 25, 2007 and earns interest at 10% per annum.

At July 31, 2004, the Fund's investment in Baltic had a cost and fair
value of $10.5 million. Michael Tokarz, Chairman of the Fund, and Frances Spark
and Bruce Shewmaker, officers of the Fund, serve as directors for Baltic.

BLUESTAR SOLUTIONS, INC.

BlueStar Solutions, Inc. ("BlueStar"), Cupertino, California, is a
provider of enterprise applications outsourcing services. BlueStar delivers
complete end-to-end services for managing SAP applications.

At October 31, 2003 and July 31, 2004, the Fund's investments in
BlueStar consisted of 74,211 shares of Series C Preferred Stock, 4,545,455
shares of Series D Preferred Stock, and 49,474 shares of Common Stock with a
combined cost of $13.0 million. At October 31, 2003, the investments had been
assigned a fair value of $1.5 million, or $0.00 per share of the Series C
Preferred Stock, approximately $0.33 per share of the Series D Preferred Stock,
and $0.00 per share of the Common Stock.

On April 29, 2004 and July 29, 2004 the Valuation Committee wrote up
the value of the BlueStar investment by $750,000 for a total write up of $1.5
million. The increase of the fair value was based upon better than anticipated
financial results. The investments have been assigned a combined fair value of
$3.0 million.

CBCA, INC.

CBCA, Inc. ("CBCA"), Oakland, California, has developed an automated
health benefit claims processing and payment system that includes full website
functionality.

At October 31, 2003, the Fund's investment in CBCA consisted of
5,729,562 shares of Series E Preferred Stock with a cost of $12.0 million. The
investment was assigned a fair value of $500,000, at approximately $0.09 per
share.

On November 14, 2003, CBCA raised additional capital by re-capitalizing
the company. The Fund's 5,729,562 shares in Series E Preferred Stock were
converted to 753,350 shares of Common Stock. On April 29, 2004 the Valuation
Committee wrote down the value of CBCA by $250,000. On July 29, 2004, the
Valuation Committee wrote down the value of CBCA by another $250,000. The
investment has been assigned a fair value of $0.0.

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 recently introduced a new process that reduces the number of
digestible carbohydrates found in traditional pasta products.

On July 30, 2004, the Fund made an investment in Dakota consisting of
909,091 shares of Common Stock at $5.49 per share for $5.0 million.

At July 31, 2004, the Fund's investment in Dakota had a cost and fair
value of $5.0 million. Michael Tokarz, Chairman of the Fund, serves as a
director of Dakota.

DATAPLAY, INC.

DataPlay, Inc. ("DataPlay"), Boulder, Colorado, developed new ways of
enabling consumers to record and play digital content.

At October 31, 2003 and July 31, 2004, the Fund's total investment in
DataPlay consisted of 2,500,000 shares of Series D Preferred Stock with a cost
basis of $7.5 million and seven promissory notes with a combined cost of $4.5
million. The investments have been assigned a fair value of $0.0.

DETERMINE SOFTWARE, INC.

Determine Software, Inc. ("Determine"), San Francisco, California, is a
provider of web-based contract management software.

At October 31, 2003, the Fund's investment in Determine consisted of an
outstanding balance on the loan of $2.02 million with a cost of $2.0 million and
2,229,955 warrants to purchase a future round of convertible preferred stock at
a price of $0.205 per share. The investment was assigned a fair value of $2.0
million and the warrants were assigned a fair value of $0.0.

During the nine months ended July 31, 2004, Determine made scheduled
principal repayments totaling $392,778.

At July 31, 2004, the Fund's investment in Determine consisted of a
loan which had an outstanding balance of $1.63 million with a cost of $1.62
million. The investment has been assigned a fair value of $1.62 million and the
warrants have been assigned a fair value of $0.0.

ENDYMION SYSTEMS, INC.

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

At October 31, 2003 and July 31, 2004, the Fund'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 $0.0.

FOLIOFN, INC.

FolioFN, Inc. ("FolioFN"), Vienna, Virginia, is a financial services
technology company that delivers investment solutions to financial services
firms and investors.

At October 31, 2003 and July 31, 2004, the Fund's investment in FolioFN
consisted of 5,802,259 shares of Series C Preferred Stock with a cost of $15.0
million. The investment has been assigned a fair value of $0.0.

Bruce Shewmaker, an officer of the Fund, serves as a Director of
FolioFN.

IMPACT CONFECTIONS, INC.

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

On July 30, 2004, the Fund made an investment in Impact consisting of
252.472 shares of Common Stock at $10,694.26 per share for $2.7 million. In
conjunction with this investment, the Fund made a loan of $5.0 million to Impact
in the form of a Senior Subordinated Note. The loan has a maturity of July 30,
2011 and earns interest at 17% per annum.

At July 31, 2004, the Fund's investment in Impact had a cost of $7.67
million and a combined fair value of $7.7 million.

Puneet Sanan and Shivani Khurana, employees of the Fund, serve as
directors of Impact.

INTEGRAL DEVELOPMENT CORPORATION

Integral Development Corporation ("Integral"), Mountain View,
California, is a developer of technology which enables financial institutions to
expand, integrate and automate their capital markets businesses and operations.

At October 31, 2003, the Fund's investment in Integral consisted of an
outstanding balance on the loan of $4.49 million with a cost of $4.46 million.
The investment was assigned a fair value of $3.5 million and the warrants were
assigned a fair value of $0.0.

During the nine months ended July 31, 2004, Integral made scheduled
principal repayments totaling $1,262,502.

On April 29, 2004 the Valuation Committee wrote up the fair value of
the Integral loan by $989,000 to $3.647 million.

At July 31, 2004, the Fund's investment in Integral consisted of an
outstanding balance on the loan of $3.23 million with a cost of $3.21 million.
The investment has been assigned a fair value of $3.23 million.

ISHONI NETWORKS, INC.

Ishoni Networks, Inc. ("Ishoni"), Santa Clara, California, developed
technology that allowed customer premises equipment manufacturers and service
providers to offer integrated voice, data and security services over a single
broadband connection to residential and business customers.

At October 31, 2003, the Fund's investment in Ishoni consisted of
2,003,607 shares of Series C Preferred Stock with a cost of $10.0 million. The
investment was assigned a fair value of $0.0.

During the nine months ended July 31, 2004, Ishoni filed for bankruptcy
under Chapter 7 of the U.S. Bankruptcy Code. The case was closed on April 13,
2004 as a "No Asset Case".

At July 31, 2004, the Fund no longer held any investment in Ishoni. As
a result, a realized loss of approximately $10.0 million was recognized which
was offset by a reduction in unrealized loss by the same $ 10.0 million.
Therefore, the net effect of the removal of the investment was zero.

LUMETA CORPORATION

Lumeta Corporation ("Lumeta"), Somerset, New Jersey, is a developer of
network management, security, and auditing solutions. The company provides
businesses with a comprehensive analysis of their network security that reveals
the vulnerabilities and inefficiencies of their corporate intranets.

At October 31, 2003 and July 31, 2004, the Fund'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. The
investments have been 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.

MAINSTREAM DATA, INC.

Mainstream Data, Inc. ("Mainstream"), Salt Lake City, Utah, builds and
operates satellite, internet, and wireless broadcast networks for the world's
largest information companies. Mainstream Data networks deliver text news,
streaming stock quotations, and digital images to subscribers around the world.

At October 31, 2003 and July 31, 2004, the Fund's investment in
Mainstream consisted of 85,719 shares of Series D Preferred Stock with a cost of
$3.75 million. The investment has been assigned a fair value of $0.0.

OCTAGON CREDIT INVESTORS, LLC

On May 7, 2004, the Fund made an investment in Octagon Credit
Investors, LLC ("Octagon"), a New York-based manager of leveraged loans and high
yield bonds.

The first closing consisted of a $5,000,000 Senior Subordinated Loan,
bearing interest at 15% over a seven year term. The note has a $5,000,000
principal face amount and was issued at a discounted cost basis of $4,450,000.
The mezzanine loan included detachable warrants with a cost basis of $550,000.
The Fund also entered into a $5,000,000 senior secured credit facility with
Octagon. This credit facility expires on May 7, 2009 and bears interest at LIBOR
plus 4%. Octagon has not yet drawn down on this facility.

The second closing occurred on June 1, 2004, in which the Fund closed a
$560,000 equity investment in Octagon which provides the Fund a membership
interest in the company.

At July 31, 2004, the Fund's mezzanine loan had an outstanding balance
of $5.04 million with a cost of $4.50 million. The mezzanine loan was assigned a
fair value of $4.42 million. The increase in the outstanding balance, cost and
fair value of the loan is due to the accretion of the market discount and the
capitalization of "paid in kind" interest. The equity investment in Octagon had
been assigned a fair value of $560,000.

PHOSISTOR TECHNOLOGIES, INC.

Phosistor Technologies, Inc. ("Phosistor"), Pleasanton, California,
designed and developed integrated semiconductor components and modules for
global telecommunications and data communications networks.

At October 31, 2003 and July 31, 2004, the Fund's investment in
Phosistor consisted of 6,666,667 shares of Series B Preferred Stock with a cost
of $1.0 million. The investment has been assigned a fair value of $0.0.

Phosistor ceased operations in 2003.

PROCESSCLAIMS, INC.

ProcessClaims, Inc. ("ProcessClaims"), 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, 2003 and July 31, 2004, the Fund'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 has been assigned a fair
value of $2.0 million, or approximately $0.32 per share of Series C Preferred
Stock, the investment in the Series D Preferred Stock has been assigned a fair
value of $400,000 or approximately $0.471 per share of Series D Preferred Stock,
and the investment in the Series E warrants has been assigned a fair value of
$0.0.

Nino Marakovic, an employee of the Fund, serves as a director of
ProcessClaims.

PTS MESSAGING, INC. (FORMERLY PAGOO, INC.)

PTS Messaging, Inc. ("PTS Messaging"), formerly Pagoo, Inc., Lafayette,
California, developed Internet voice technologies offering Internet services
direct to the consumer.

At October 31, 2003, the Fund's investment in PTS Messaging consisted
of 1,956,026 shares of Series A-1 Convertible Preferred Stock with a cost of
$11.6 million. The investment was assigned a fair value of $0.0.

During the nine months ended July 31, 2004, PTS Messaging initiated a
partial and final disbursement of assets with proceeds totaling approximately
$102,138. As a result, a realized loss of approximately $11.46 million was
recognized which was offset by a reduction in unrealized loss by the same $
11.46 million. Therefore, the net effect of the removal of the investment was
zero.

At July 31, 2004, the Fund no longer held any investment in PTS
Messaging.

SAFESTONE TECHNOLOGIES PLC

SafeStone Technologies PLC ("SafeStone"), Old Amersham, UK, provides
organizations with 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, 2003 and July 31, 2004, the Fund'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 $0.0.

SHOPEAZE SYSTEMS, INC.

ShopEaze Systems, Inc. ("ShopEaze"), Sunnyvale, California, partnered
with established retailers to help them build online businesses to complement
their existing brick-and-mortar businesses.

At October 31, 2003 and July 31, 2004, the Fund's investment in
ShopEaze consisted of 2,097,902 shares of Series B Preferred Stock with a cost
of $6.0 million. The investment has been assigned a fair value of $0.0. ShopEaze
ceased operations during 2002.

SONEXIS, INC.

Sonexis, Inc. ("Sonexis"), Tewksbury, Massachusetts, is the developer
of a new kind of conferencing solution - Sonexis ConferenceManager - a modular
platform that supports a breadth of audio and web conferencing functionality to
deliver rich media conferencing.

At October 31, 2003 and July 31, 2004, the Fund's investment in Sonexis
consisted of 2,590,674 shares of Series C Preferred Stock with a cost of $10.0
million. On July 29, 2004 the Valuation Committee wrote down the value of
Sonexis by $500,000. The investment has been assigned a fair value of $0.0.

SYGATE TECHNOLOGIES, INC.

Sygate Technologies, Inc. ("Sygate"), Fremont, California, is a
provider of enterprise-focused security policy enforcement solutions which
provide the infrastructure to maintain an unbroken chain of control to IT
Management.

At October 31, 2003, the Fund's investment in Sygate consisted of
9,756,098 shares of Series D Preferred Stock with a cost of $4.0 million. The
investment was assigned a fair value of $4.0 million, or approximately $0.41 per
share.

During the nine months ended July 31, 2004, the Valuation Committee
determined to increase the carrying value of the Fund's investments in the
Series D Preferred Stock of Sygate by approximately $1.5 million to $5.5
million. The increase of the fair value was based upon the company's improved
financial condition.

At July 31, 2004, the Fund's investment in Sygate consisted of
9,756,098 shares of Series D Preferred Stock with a cost of $4.0 million. The
investment has been assigned a fair value of $5.5 million, or approximately
$0.56 per share.

SYNHRGY HR TECHNOLOGIES, INC.

Synhrgy HR Technologies, Inc. ("Synhrgy"), Houston, Texas, provides
human resources technology and outsourcing services to Fortune 1000 companies.

At October 31, 2003, the Fund's investment in Synhrgy consisted of an
outstanding balance on the loan of $5.0 million with a cost of $4.96 million.
The investment was assigned a fair value of $4.96 million and the warrants were
assigned a fair value of $0.0.

During the three months ended January 31, 2004, Synhrgy repaid the
balance of its original $5.0 million credit facility to the Fund. In conjunction
with the repayment of the credit facility, the Fund also exercised its 43,750
warrants in a cashless transaction for a gain of approximately $40,000. As of
July 31, 2004, the Fund no longer held an investment in Synhrgy.

VENDIO SERVICES, INC.

Vendio Services, Inc. ("Vendio"), San Bruno, California, enables small
businesses and entrepreneurs to build Internet sales channels by providing
software solutions to help these merchants efficiently market, sell and
distribute their products.

At October 31, 2003, and July 31, 2004, the Fund's investments in
Vendio consisted of 10,476 shares of Common Stock and 6,443,188 shares of Series
A Preferred Stock at a cost of $6.6 million. At October 31, 2003, the
investments had been assigned a fair value of approximately $500,000, or $0.00
per share for the Common Stock and approximately $0.08 per share for the Series
A Preferred Stock.

On April 29, 2004, the Valuation Committee wrote up the value of Vendio
by $634,000 to $1.134 million. At July 31, 2004, the investments have been
assigned a fair value of $1.134 million, $0.00 per share for the Common Stock
and approximately $0.176 per share for the Series A Preferred Stock.

Nino Marakovic, an employee of the Fund, 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. It is believed to be the only U.S.
company which manufactures and sells both cast iron and fabricated steel
specialty products used in the construction of single-family homes.

On April 29, 2004, the Fund made an investment in Vestal consisting of
40,500 shares of Common Stock at $1.11 per share for $450,000. In conjunction
with this investment, the Fund made a loan of $1,000,000 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% per annum.

At July 31, 2004, the Fund's investment in Vestal had a cost and fair
value of $1,450,000. Michael Tokarz, Chairman of the Fund, and Bruce Shewmaker,
an officer of the Fund, serve as directors of Vestal.

YAGA, INC.

Yaga, Inc. ("Yaga"), San Francisco, California, provides a hosted
application service provider (ASP) platform that addresses 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, 2003 and July 31, 2004, the Fund's investment in Yaga
consisted of 300,000 shares of Series A Preferred Stock, 1,000,000 shares of
Series B Preferred and 100,000 warrants to purchase 100,000 shares of Series B
Preferred Shares with a combined cost of $2.3 million. The investments have been
assigned a fair value of $0.0.

0-IN DESIGN AUTOMATION, INC.

0-In Design Automation, Inc. ("0-In"), San Jose, California, is an
electronic design automation (EDA) company providing functional verification
products that help verify multi-million gate application specific integrated
circuit (ASIC) and system-on-chip (SOC) chip designs.

At October 31, 2003, the Fund's investment in 0-In consisted of
2,239,291 shares of Series E Preferred Stock at a cost of $4.0 million. The
investment was assigned a fair value of $1.0 million, or approximately $0.45 per
share.

During the nine months ended July 31, 2004, the Valuation Committee
determined to increase the carrying value of the Fund's investments in the
Series E Preferred Stock of 0-In by $5.0 million to $6.0 million.

At July 31, 2004, the Fund's investment in 0-In consisted of 2,239,291
shares of Series E Preferred Stock at a cost of $4.0 million. The investment has
been assigned a fair value of $6.0 million, or approximately $2.68 per share.
Please see Note 11, Subsequent Events, for additional information on this
investment.

LIQUIDITY AND CAPITAL RESOURCES

At July 31, 2004, the Fund had $113.7 million of investments consisting
of investments in preferred and common stocks totaling $33.5 million,
investments in debt instruments totaling $21.8 million, investments in U.S.
government securities totaling $57.2 million and cash and cash equivalents
totaling approximately $1.2 million. The Fund considers all money market and
other temporary cash investments purchased with an original maturity of three
months or less to be cash equivalents. U.S. government securities and cash
equivalents are highly liquid. During the nine months ended July 31, 2004, the
Fund made five new investments, totaling $30.26 million. The investments were
made in Vestal Manufacturing Enterprises, Inc., Octagon Credit Investors LLC,
Baltic Motors Corporation, Dakota Growers Pasta Company, Inc. and Impact
Confections, Inc. The amounts invested were $1,450,000, $5,610,000, $10,500,000,
$5,000,000, and $7,700,000 respectively. No additional investments were made in
existing portfolio companies.

Current balance sheet resources are believed to be sufficient to
finance current commitments. The Fund also maintains a $5,000,000 senior secured
credit facility with Octagon Credit Investors, LLC ("Octagon"). This credit
facility has a term of up to five years and bears interest at LIBOR plus 4%.
Octagon has not yet drawn down on this facility.

During the nine months ended July 31, 2004, the Fund commenced and
completed a tender offer to acquire up to twenty-five percent (25%) of its
outstanding shares of common stock at a per share cash purchase price equal to
ninety-five percent (95%) of net asset value per share as of December 31, 2003,
the day the offer expired. Based on a final count by the depositary for the
tender offer, 3,859,558 shares were tendered at a price of $8.18 resulting in a
total disbursement from the Fund of $31,571,184.

SUBSEQUENT EVENTS

Effective August 1, 2004, the Fund granted Determine Software Inc.
("Determine") a six month moratorium with regards to the payment of required
principal installments. The Fund agreed that for the period commencing August 1,
2004 through and including January 1, 2005, Determine shall not be required to
make scheduled payments of principal, but must continue to make payments of
interest.

On August 5, 2004, the Fund made an investment in Timberland Machines &
Irrigation, Inc. ("Timberland"). The Fund has provided Timberland with a
$6,000,000 Senior Subordinated Note and $4,500,000 in equity financing. This
financing is being used in conjunction with Timberland's purchase of the assets
of The Sprinkler House and Timberland Machines divisions of Turf Products
Corporation. The Senior Subordinated Note has a maturity date of August 5, 2009
and bears interest of 17%. The Fund also received warrants to purchase an
additional 150 shares of Common Stock at a price of $10,000 per share. Michael
Tokarz, Chairman of the Fund, and Puneet Sanan, an employee of the Fund, now
serve as directors of Timberland.

Timberland Machines has a floor plan financing program administered by
Transamerica Commercial Finance Corporation. As is typical in this 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 Fund 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 $0.5 million.

On August 26, 2004, Affiliated Computer Services, Inc. ("ACS") acquired
the Fund's portfolio company BlueStar Solutions, Inc ("BlueStar") in a cash
transaction. The Fund received approximately $4.5 million for its investment in
BlueStar. The cash received includes contingent payments, to be held in escrow
that may be received in late 2005 up to $459,000. The carrying value of the
BlueStar investment was $3.0 million. The Fund realized a loss of approximately
$8.9 million, which was offset by a decrease in unrealized loss by the same
amount. The effect of the transaction on the Fund was an increase in assets by
$1.1 million. After the sale, the Fund no longer held any investment in
BlueStar.

On August 29, 2004, the Fund entered into a transaction pursuant to
which it received 602,131 Series A-1 preferred shares of DPHI, Inc. which
purchased the assets of DataPlay, Inc. out of bankruptcy in late 2003. The
Fund's legal fees in connection with the transaction were approximately $20,000.

On September 1, 2004, Mentor Graphics Corp. ("Mentor") acquired the
Fund's portfolio company 0-In Design Automation, Inc ("0-In"). The Fund received
685,679 common shares of Mentor stock for its investment in 0-In. Of these
shares approximately 82,293 will be held in escrow for a one year period. The
603,386 shares received at the time of the exchange had a market value of
approximately $6.6 million. The Fund's carrying value of the 0-In investment was
$6.0 million. The effect of the transaction on the Fund was an increase in
assets and unrealized gain of approximately $0.6 million. After the exchange,
the Fund no longer held any investment in 0-In.

On September 24, 2004, the Fund made an investment in Vitality
Foodservice, Inc. ("Vitality"). The Fund has purchased from Vitality $10,000,000
of convertible preferred stock and $5,000,000 worth of common stock. This
financing is being used to support the strategic buyout of Vitality by
Goldner Hawn Johnson & Morrison. The convertible preferred stock has a
liquidation date of September 24, 2011 and has a dividend rate of 13%.

SENIOR SECURITIES

Information about our senior securities is shown in the following
tables as of each fiscal year ended October 31 since the Fund 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 (as of [ ], unaudited) - N/A

-----------------------
(1) Total amount of each class of senior securities outstanding at the end of
the period presented.
(2) The asset coverage ratio for a class of senior securities representing
indebtedness is calculated as our consolidated total assets, less all
liabilities and indebtedness not represented by senior securities, divided
by senior securities representing indebtedness. This asset coverage ratio
is multiplied by $1,000 to determine the Asset Coverage Per Unit. The asset
coverage ratio for a class of senior securities that is preferred stock is
calculated as our consolidated total assets, less all liabilities and
indebtedness not represented by senior securities, divided by senior
securities representing indebtedness, plus the involuntary liquidation
preference of the preferred stock (see footnote 3). The Asset Coverage Per
Unit for preferred stock is expressed in terms of dollar amounts per share.
(3) The amount to which such class of senior security would be entitled upon
the involuntary liquidation of the issuer in preference to any security
junior to it.
(4) Not applicable, as senior securities are not registered for public trading.

BUSINESS

GENERAL

MVC Capital is an internally 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 long-term 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 U.S. 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 Fund has been in operation since 2000, 2003 marked a new
beginning for the Fund. In February 2003, stockholders elected an entirely new
board of directors. The board of directors developed a new long-term strategy
for the Fund. In November 2003, upon the recommendation of the board of
directors, stockholders voted to adopt a new investment objective for the Fund
of seeking to maximize total return from capital appreciation and/or income. The
Fund's prior objective had been limited to seeking long-term capital
appreciation from venture capital investments in the information technology
industry. 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, stockholders 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. Prior to the arrival of
Mr. Tokarz and his new management team in November 2003, the Fund had
experienced significant valuation declines from investments made by the former
management team. Since November 2003 (through [ ] 2004), we have posted a [ ]
cumulative increase in the net asset value from these prior investments. In
fiscal 2004, we reversed a trend of [ ] consecutive quarters of losses and
posted a profitable third quarter.

In 2004, the new management team has made [ ] investments pursuant to
our new strategy and committed $[ ] of capital to these investments. We continue
to perform diligence and seek new investments that are consistent with our
objective. We believe that we have extensive relationships with financial
sponsors, financial institutions, business brokers, hedge funds and investment
firms, operating professionals and management teams of several companies, which
should provide us attractive investment opportunities. In fact, we are currently
working on an active pipeline of potential new investment opportunities. We
expect that our loan and equity 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 investment rationale and merit.
While the Fund 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 the
securities of other regulated investment companies), or of two or more issuers
that are controlled by us and are engaged in the same or simillar or related
trades or businesses as of the close of each quarter. Our investments are
typically illiquid and they are made through privately negotiated transactions.
We generally seek to invest in companies with annual EBITDA between $3 million
and $25 million. EBITDA represents net income before net interest expense,
income tax expense, depreciation and amortization.

Our portfolio company investments currently consist of common and
preferred stock and warrants or rights to acquire equity interests, senior and
subordinated loans, and convertible securities. At [October 31, 2004], the fair
value of all investments in portfolio companies was $[ ] million and our total
assets were [ ].

CORPORATE HISTORY AND OFFICES

MVC Capital, Inc. (the "Fund") 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 Fund raised $330 million in an initial public offering whereupon
it commenced operations as a closed-end investment company. On December 4, 2002,
the Fund 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. In July 2004, we established a
subsidiary, MVC Financial Services, Inc., which provides advisory,
administrative and other services to the Fund and our portfolio companies.

The Fund has been "internally managed," i.e., has had no investment
adviser since June 19, 2002. All of the independent members of the current board
of directors were first elected at the February 28, 2003 Annual Meeting of the
stockholders, 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
Fund. On March 6, 2003, the new board of directors terminated the Fund's
previous CEO and shortly thereafter, other members of the Fund's senior
management team (that had previously reported to the former CEO) resigned. Then,
in November 2003, upon the recommendation of the board of directors,
stockholders voted to adopt our new investment objective. With the
recommendation of the board of directors, stockholders 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.

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

OUR INVESTMENT STRATEGY

On November 6, 2003, Mr. Tokarz assumed his new position as Portfolio
Manager. He and his team 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 common and preferred stock and warrants or rights to
acquire equity interests, senior and subordinated loans, or convertible
securities. As of [October 31, 2004], we have made [seven] new investments,
totaling $[60,750,000], pursuant to our new objective.

Prior to the adoption of our current investment objective, the Fund's
investment objective had been to achieve long-term capital appreciation from
venture capital investments in information technology companies. The Fund's
investments had thus previously focused on investments in equity and debt
securities of information technology companies. As of [October 31, 2004], [ ]%
of our assets consisted of investments made by the Fund's former management team
pursuant to the prior investment objective. 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.

We participate in the private equity business generally by providing
privately 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.

At [October 31, 2004] and October 31, 2003 (prior to the adoption of
our new investment objective), the invested portion (excluding cash and
short-term money market securities) of our total assets consisted of the
following:

----------------------------------------------- -------------------------------------------
PERCENTAGE OF OUR NET ASSETS

-------------------------------------------
AS OF AS OF
TYPE OF INVESTMENT OCTOBER 31, 2004 OCTOBER 31, 2003
----------------------------------------------- --------------------- ---------------------

Subordinated Notes
----------------------------------------------- --------------------- ---------------------
Senior/Subordinated Loans
----------------------------------------------- --------------------- ---------------------
Common Stock
----------------------------------------------- --------------------- ---------------------
Warrants
----------------------------------------------- --------------------- ---------------------
Preferred Stock
----------------------------------------------- --------------------- ---------------------
Other Debt Instruments
----------------------------------------------- --------------------- ---------------------
Other Rights
----------------------------------------------- --------------------- ---------------------

Substantially all amounts not invested in securities of portfolio
companies are invested in short-term, highly liquid money market investments. As
of [October 31, 2004], these investments were valued at $[ ] million or [ ]% of
total 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 AND COMPETITION. 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 a long-term investor. For the transactions in which we may provide
debt capital, an equity sponsor can provide a reliable source of additional
equity capital if a portfolio company requires additional financing. Private
equity sponsors also assist us in confirming our own due diligence findings when
assessing a new investment opportunity, and they provide assistance and
leadership to the portfolio company's management team throughout our investment
period.

Our primary competitors to provide financing to primarily private
companies include public investment funds, including other business development
companies that invest in mezzanine, senior debt and equity securities of
privately held companies, private investment funds, commercial and investment
banks, commercial financing companies and insurance companies. We compete most
directly with the private mezzanine sector of the private capital market and
with private equity buyout firms. We believe that we have key structural and
operational advantages when compared to private mezzanine funds. Many private
mezzanine funds operate with a more expensive cost structure than ours because
of higher levels of compensation paid to the management of the funds. In
addition, our access to the public equity markets generally gives us a lower
cost of capital than that of private funds. Our lower cost of capital may give

us a pricing advantage when competing for new investments. In addition, the
perpetual nature of our corporate structure enables us to be a better long-term
partner for our portfolio companies than a traditional mezzanine fund, which
typically has a limited life.

Many of our competitors are substantially larger and have considerably
greater financial, technical and marketing resources than we do. For example,
some competitors may have a lower cost of funds and access to funding sources
that are not available to us. In addition, some of our competitors may have
higher risk tolerances or different risk assessments, which could allow them to
consider a wider variety of investments and establish more relationships than
us. Furthermore, many of our competitors are not subject to the regulatory
restrictions that the 1940 Act imposes on us as a business development company.

We also can face competition in our investing activities from private
equity funds, 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. See "Certain Government Regulations."

INVESTMENT CRITERIA. Prospective investments are evaluated by our
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:

o Businesses with secure market niches and predictable profit margins;

o The presence or availability of highly qualified management teams;

o The line of products or services offered and their market potential;

o The presence of a sustainable competitive advantage;

o Favorable industry and competitive dynamics; and

o Stable cash flow and free cash flow of the business.

Our due diligence includes a thorough review and analysis of the
business plan and operations of a potential portfolio company. We 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, we engage attorneys and independent accountants
to assist with legal, environmental, tax, and accounting due diligence.

INVESTMENT SOURCING. Mr. Tokarz and our other investment professionals
have established an extensive network of investment referral relationships. Our
network of relationships with investors, lenders and intermediaries includes:

o private mezzanine and equity investors;

o boutique investment banks;

o business brokers;

o merger and acquisition advisors;

o financial services companies; and

o banks, law firms and accountants.

INVESTMENT STRUCTURE. Portfolio company investments typically will be
negotiated directly with the prospective portfolio company or its affiliates.
The investment team 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 Fund and affiliates in the portfolio
company's business (including potential representation on its board of
directors). The investment team will seek to structure the terms of the
investment so as to provide for the capital needs of the portfolio company and
at the same time seek to maximize the Fund'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 a "deal." We negotiate to agree 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 realize 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 Fund.

Our mezzanine investments typically are 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. We
may also make senior secured and other types of loans or debt investments. Our
debt investments are typically not 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 instruments 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 mezzanine 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 previously
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 growth investment.
Although we have not done so to date, we may also acquire investments through
the issuance of our common stock. The issuance of our stock as consideration may
provide us with the benefit of raising equity without having to access the
public markets in an underwritten offering, including the added benefit of the
elimination of any underwriter commissions.

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 and management services and guarantees we
provide to our portfolio companies. In some cases, officers, directors and
employees of the Fund may serve as members of the board of directors of
portfolio companies. The Fund 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.

In July 2004, we established a subsidiary, MVC Financial Services,
Inc., which provides advisory, administrative and other services to the Fund and
our portfolio companies.

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 our 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.

The Fund follows elaborate procedures for monitoring its equity and
loan investments. The investment professionals have developed a
multi-dimensional flexible rating system for all of the Fund's portfolio
investments. These rating grids are updated periodically and reviewed by the
Portfolio Manager, together with the investment team. Additionally, the Fund's
Valuation Committee meets at least quarterly to review a written valuation
memorandum for each portfolio company and to discuss business updates.
Furthermore, the Fund's Chief Compliance Officer administers the Fund's
compliance policies and procedures, specifically as they relate to the Fund'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. [Generally, our warrants expire after the related debt is repaid.] Our
equity holdings, including shares underlying warrants, after the exercise of
such warrants, typically include registration rights which would allow us to
sell the securities if the portfolio company completes a public offering.

PORTFOLIO MANAGEMENT

OUR INVESTMENT TEAM. We are served by a team of [ ] senior investment
professionals led by Mr. Tokarz, our Chairman. Often the Fund uses the services
of other investment professionals, with whom it has developed long-term
relationships, on an as-needed basis. We look to benefit from the combined
resources and investment experience of all of the members of our team.

MICHAEL TOKARZ. Mr. Tokarz is a senior investment professional with
over 30 years of lending and investment experience. Prior to assuming his
position as Chairman and Portfolio Manager of the Fund, 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 W. SHEWMAKER. Mr. Shewmaker is a senior investment professional
with over 30 years of private equity and investment banking experience.

PUNEET SANAN. Mr. Sanan joined MVC Capital in March 2004 and serves as
a [Vice President] for the Fund responsible for sourcing, executing and
monitoring of investments. Before 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 sustained
international acclaim 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.

SHIVANI KHURANA. Ms. Khurana joined MVC Capital in March 2004 and
serves as a [Vice President] for the Fund responsible for sourcing, executing
and monitoring of investments. Before 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.

PORTFOLIO DIVERSITY

We currently do not have a policy with respect to "concentrating"
(i.e., investing 25% or 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.

EMPLOYEES

At October 31, 2004, we employed [ten] individuals including investment
and portfolio management professionals, operations professionals and
administrative staff. Substantially all of these individuals are located in the
Purchase, New York office. We believe that our relations with our employees are
excellent.

PORTFOLIO COMPANIES

The following is a listing of our portfolio companies in which we had
an investment at [October 31, 2004]. 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 or where we hold one or
more seats on the portfolio company's board of directors 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 and
where we have no other affiliations with 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. For information relating to the amount and nature of our investments in
portfolio companies, see our consolidated statement of investments at October
31, 2004 at pages F-[ ] to F-[ ].

PERCENTAGE
NAME AND ADDRESS NATURE OF ITS TITLE OF SECURITIES OF CLASS
OF PORTFOLIO COMPANY PRINCIPAL BUSINESS HELD BY THE COMPANY HELD(1)
--------------------------------- ------------------------- ------------------- ----------

(1) [Percentages shown for securities held by us represent percentage of the
class owned and do not necessarily represent voting ownership.
Percentages shown for equity securities other than warrants or options
represent the actual percentage of the class of security held before
dilution. Percentages shown for warrants and options held represent the
percentage of class of security we may own, on a fully diluted basis,
assuming we exercise our warrants or options.

(2) We directly or indirectly own more than 50% of the voting securities of
the company, or control the board of directors, or are the controlling
member.

(3) The portfolio company is deemed to be an affiliated person under the
1940 Act because we hold one or more seats on the portfolio company's
board of directors, are the general partner, or are the managing
member.]

A brief description of each portfolio company's business is found on
pages [ ] to [ ]. [In addition, we have provided a more detailed description for
each portfolio company in which we have invested more than 5% of our assets.]

DETERMINATION OF FUND'S NET ASSET VALUE

At [October 31, 2004], approximately [ ]% of our total assets
represented investments recorded at fair value. Fair values are determined on a
quarterly basis.

As a general principle, the current fair value of an investment is the
amount that we might reasonably expect to receive for the asset if it were
currently sold by us. There is a range of values that is reasonable for
investments in private companies at any particular time. Generally, our
Valuation Committee will initially set the fair value of each of our investments
at cost. Upon the occurrence of a significant development or other factor
affecting a portfolio company, such as results of operations, changes in general
market conditions, subsequent financing or the availability of market
quotations, our Valuation Committee will determine whether the event provides a
basis for valuing such investment at a number other than cost.

On a quarterly basis, and at such other times as deemed appropriate
under the circumstances, our Valuation Committee will determine the "fair value"
of our portfolio company investments. We will publish our net asset value no
less frequently than on a monthly basis. Any changes in valuation are recorded
in the statements of operations as "Net unrealized gain (loss) on investments."

The fair value of investments for which no market exists and for which
our Valuation Committee has determined that the original cost of the investment
is no longer an appropriate valuation will be determined on the basis of
Valuation Procedures adopted in good faith by our board of directors.

VALUATION METHODOLOGY

[As a general matter, our process for determining the fair value of a
portfolio company investment begins with determining the enterprise value of the
portfolio company. The fair value of our investment is based upon the enterprise
value at which 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 we exit an investment is

generally the sale, the merger, the recapitalization or, in some cases, the
initial public offering of the portfolio company.

There is no one methodology to determine enterprise value and, in fact,
for any one portfolio company, enterprise value is best expressed as a range of
fair values, from which we derive a single estimate of enterprise value. To
determine the enterprise value of a portfolio company, we analyze its historical
and projected financial results. We generally require portfolio companies to
provide annual audited and more regular unaudited financial statements, as well
as annual projections for the upcoming fiscal year. Typically in the private
equity business, companies are bought and sold based upon multiples of EBITDA,
cash flow, net income, revenues or in limited instances book value or
liquidation value. When using EBITDA to determine enterprise value, the
Valuation Committee may adjust EBITDA for non-recurring items. Such adjustments
are intended to normalize EBITDA to reflect the portfolio company's earnings
power. Adjustments to EBITDA may include compensation to previous owners, or
acquisition, recapitalization or restructuring related items.

In determining a multiple to use for valuation purposes, the Valuation
Committee may look to private merger and acquisition statistics, discounted
public trading multiples or industry practices. In estimating a reasonable
multiple, the Valuation Committee may consider not only the fact that our
portfolio company may be private relative to a peer group, but the size and
scope of our portfolio company and its specific strengths and weaknesses. In
some cases, the best valuation methodology may be a discounted cash flow
analysis based upon future projections. If a portfolio company is distressed, a
liquidation analysis may provide the best indication of enterprise value.

EQUITY SECURITIES

Our equity interests in portfolio companies for which there is no
liquid public market are valued at fair value based on the enterprise value of
the portfolio company, which is determined using various factors, including cash
flow from operations of the portfolio company and other pertinent factors such
as recent offers to purchase a portfolio company's securities or other
liquidation events. The determined fair values are generally discounted to
account for restrictions on resale and minority control positions.

The value of our equity interests in public companies for which market
quotations are readily available is based upon the closing public market price
on the balance sheet date. Securities that carry certain restrictions on sale
are typically valued at a discount from the public market value of the security.

Dividend income is recorded on cumulative preferred equity securities
on an accrual basis to the extent that such amounts are expected to be
collected, and on common equity securities on the record date for private
companies or on the ex-dividend date for publicly traded companies.

Our board of directors will review its Valuation Procedures from time
to time and make any necessary adjustments. Our board of directors may also hire
independent consultants to review our valuation procedures or to conduct an
independent valuation.

To determine the net asset value per share of our common stock, the
value of our assets, including our portfolio securities, as determined pursuant
to our Valuation Procedures, and our liabilities, if any, will be subtracted,
and the difference will be divided by the number of outstanding shares of our
common stock on the date of valuation.

The fair value of our portfolio company investments is inherently
subjective. Because of the inherent uncertainty of fair valuation of portfolio
securities that do not have readily ascertainable market values, the Fund'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 normal selling costs which might
become payable on disposition of such investments.

LOANS AND DEBT SECURITIES

For loans and debt securities, fair value generally approximates cost
unless the borrower's enterprise value or overall financial condition or other
factors lead to a determination of fair value at a different amount.

When we receive nominal cost warrants or free equity securities
("nominal cost equity"), we allocate our cost basis in our investment between
debt securities and nominal cost equity at the time of origination. At that
time, the original issue discount basis of the nominal cost equity is recorded
by increasing the cost basis in the equity and decreasing the cost basis in the
related debt securities.

Interest income is recorded on an accrual basis to the extent that such
amounts are expected to be collected. For loans and debt securities with
contractual payment-in-kind interest, which represents contractual interest
accrued and added to the loan balance that generally becomes due at maturity, we
will not accrue payment-in-kind interest if the portfolio company valuation
indicates that the payment-in-kind interest is not collectible. Loan origination
fees, original issue discount and market discount are capitalized and then
amortized into interest income using the effective interest method. The weighted
average yield on loans and debt securities is computed as the (a) annual stated
interest rate earned plus the annual amortization of loan origination fees,
original issue discount and market discount earned on accruing loans and debt
securities, divided by (b) total loans and debt securities at value. The
weighted average yield is computed as of the balance sheet date. Prepayment
premiums are recorded on loans when received.]

MANAGEMENT

Our board of directors supervises our management team. The
responsibilities of each director include, among other things, the oversight of
the Fund's management team and the quarterly valuation of our assets. The board
of directors maintains an audit committee, Valuation Committee, compensation
committee, and nominating/corporate governance committee, and may establish
additional committees in the future.

Our investment decisions are made by Mr. Tokarz, in consultation with
our other investment professionals. Mr. Tokarz is primarily responsible for
making each decision.

We are internally managed and our investment professionals manage our
portfolio. These investment professionals collectively have extensive experience
in managing investments in private businesses in a variety of industries, and
are familiar with our approach of lending and investing. Because we are
internally managed, we pay no investment advisory fees, but instead we pay the
operating costs associated with employing investment management and other
professionals. We also have an agreement with Mr. Tokarz pursuant to which he is
entitled to compensation from the Fund. That agreement is described under
"Employment Agreements" below.

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

(5)
NUMBER OF
(2) (3) PORTFOLIOS (6)
POSITION(S) TERM OF (4) IN FUND OTHER
HELD OFFICE/ PRINCIPAL COMPLEX DIRECTORSHIPS
(1) WITH THE LENGTH OF OCCUPATION(S) OVERSEEN BY HELD BY
NAME, ADDRESS AND AGE FUND TIME SERVED DURING PAST 5 YEARS DIRECTOR DIRECTOR
--------------------- ---- ----------- ------------------- -------- --------

Emilio A. Dominianni Director 1 year/1year Mr. Dominianni is a None* See column (4)
and 6 months retired Partner of,
and is currently
Riverview at Purchase Special Counsel to,
287 Bowman Avenue the law firm of
3rd Floor Coudert Brothers
Purchase, NY 10577 LLP. He is also a
Consultant to Air
Age: 73 Liquide America
Corp., an industrial
gas corporation.
Mr. Dominianni is
Director and
Secretary of
American Air
Liquide, Inc. and
Air Liquide
International Corp.,
industrial gas
corporations, and a
Director of Mouli
Manufacturing Corp.,
a kitchen utensil
supply company.

Gerald Hellerman Director 1 year/1year Mr. Hellerman has None* See column (4)
and 6 months been the Principal
Riverview at Purchase of Hellerman
287 Bowman Avenue Associates, a
3rd Floor financial and
Purchase, NY 10577 corporate consulting
firm, since the
Age: 67 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 holding an
investment in a
privately-owned
clinical knowledge
company in the
neuropsychiatry
illness field, a
Director of Frank's
Nursery & Crafts,
Inc., a company

operating the
nation's largest
chain of lawn and
garden retail
stores, which filed
for bankruptcy
protection under
Chapter 11 and is in
the process of
liquidating its
assets under
Bankruptcy Court
supervision, and a
Director of Brantley
Capital
Corporation. 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, and a
Director of Clemente
Global Growth Fund,
Inc.

Robert C. Knapp Director 1 year/1year Mr. Knapp is a None* See column (4)
and 6 months Managing Director of
Millenco, L.P. Millennium
666 Fifth Avenue, 8th Partners. He is
Floor also a Director of
New York, NY 10103 the Vietnam
Opportunity Fund, a
Age: 37 Cayman Islands
private equity fund
listed on the London
Stock Exchange, and
the First Hungary
Fund, a Channel
Islands private
equity fund. In
2001 and 2002, he
served as a Director
of Vietnam Frontier
Fund, a Cayman
Islands investment
company.

Robert S. Everett Director 1 year/6 Mr. Everett is a None* See column (4)
months Managing Director of
Everett & Solsvig, Inc. Everett & Solsvig,
10 Rockefeller Plaza Inc., a firm that
Suite 815 assists equity and
New York, NY 10020 debt holders who own
positions in
Age: 40 troubled companies.
He also is currently
serving as Chief
Restructuring
Officer of
Cornerstone Propane
Partners, L.P., a
propane distribution
company, and is an
Officer of its
subsidiary,
Cornerstone Propane,
L.P. Mr. Everett is

also a Director and
Chairman of Pangborn
Corp., and is a
Director of Kriton
Medical Inc., CSS
Holdings Corp, and
Calimet Coach
Company. Mr.
Everett has
previously founded
Kulen Capital, L.P.,
a middle-market
private investment
fund, and has served
as Managing Director
of Kulen Capital
Corp. He served as
interim Chief
Executive Officer of
the Fund from March
2003 until November
2003.

Michael T. Tokarz** Director, 1 year/9 Mr. Tokarz is None* See column (4)
Chairman, months Chairman of The
Riverview at Purchase and Tokarz Group, a
287 Bowman Avenue Portfolio private merchant
3rd Floor Manager bank, since 2002.
Purchase, NY 10577 Prior to this, Mr.
Tokarz was a senior
Age: 54 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, Lomonsov,
Athleta, Inc. and
Apertio Ltd. 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 finance
and budget committees,
and as Chairman for
Illinois Emerging
Technology Fund.

EXECUTIVE OFFICERS

Bruce W. Shewmaker Managing Indefinite Until June 2003, Mr. None* See column (4)
Director+ term/ Shewmaker served as
Riverview at Purchase 11 months Managing Director of
287 Bowman Avenue Crossbow Ventures
3rd Floor Inc., and a Vice
Purchase, NY 10577 President of
Crossbow Venture
Age: 58 Partners Corp., the
general partner of
Crossbow Venture
Partners LP, a
licensed small
business investment
company.
Mr. Shewmaker is
also 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 merged
into Wit SoundView
Group in 2000. He
has also served as a
General Partner of
ML Oklahoma Venture
Partners, L.P., a
business development
company.

Frances Rebecca Spark Principal Indefinite Ms. Spark has served None* None
Financial term/ as Principal of
Riverview at Purchase Officer 11 months Spark Consulting
287 Bowman Avenue LLC, a consulting
3rd Floor company, since 1999.
Purchase, NY 10577

Age: 46

--------------------------
* Other than the Fund.
** Mr. Tokarz is an "interested person," as defined in 1940 Act, of the
Fund (the "Interested Director") because he serves as an officer of the Fund.
+ Mr. Shewmaker served as Director of the Fund from March 2003 to March
2004.

COMMITTEES OF THE BOARD OF DIRECTORS

The current members of the audit committee are Messrs. Dominianni,
Everett and Hellerman, each of whom is an independent audit committee member as
defined in Sections 303.01 (B)(2)(a) and (3) of the NYSE's listing standards and
is not an "interested person," as defined by the 1940 Act, of the Fund (an
"Independent Director"). Mr. Hellerman is the Chairman of the Audit Committee.
The board of directors has adopted a written charter for the audit committee, a
copy of which was attached as Exhibit A to our proxy statement for the 2004

Annual Meeting of Stockholders. The audit committee's primary purposes are: (1)
oversight responsibility with respect to: (a) the adequacy of the Fund's
accounting and financial reporting processes, policies and practices; (b) the
integrity of the Fund's financial statements and the independent audit thereof;
(c) the adequacy of the Fund's overall system of internal controls and, as
appropriate, the internal controls of certain service providers; (d) the Fund's
compliance with certain legal and regulatory requirements; (e) determining the
qualification and independence of the Fund's independent auditors; and (f) the
Fund's internal audit function, if any; and (2) oversight of the preparation of
any report required to be prepared by the audit committee pursuant to the rules
of the SEC for inclusion in the Fund's annual proxy statement with respect to
the election of directors. During the Fund's most recent fiscal year ended on
October 31, 2004, the audit committee held [seven] meetings.

The Valuation Committee, the principal purpose of which is to determine
the fair values of securities in the Fund's portfolio for which market
quotations are not readily available, is currently comprised of Messrs. Everett,
Hellerman and Knapp. The Valuation Committee held [seven] meetings during the
fiscal year ended October 31, 2004.

The nominating/corporate governance committee (the "Nominating
Committee"), the principal purposes of which are to consider and nominate
persons to serve as Independent Directors and oversee the composition and
governance of the board of directors and its committees, is currently comprised
of Messrs. Dominianni, Hellerman, and Knapp, each of whom is an Independent
Director. The Nominating Committee was established in January 2004. The board of
directors has adopted a written charter for the Nominating Committee (the
"Charter"). A copy of the Charter is available on the Fund's web site at
http://www.mvccapital.com.

The compensation committee, the principal purpose of which is to review
and set the compensation of the Independent Directors, is currently comprised of
Messrs. Hellerman and Knapp. The compensation committee held [two] meetings
during the fiscal year ended October 31, 2004.

COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

DIRECTOR COMPENSATION

The following table sets forth certain information regarding the
compensation received by our Independent Directors for the fiscal year ended
October 31, 2004 from the Fund. (The Fund is not part of any Fund Complex.)

COMPENSATION TABLE

(3) (5)
(2) PENSION OR (4) TOTAL
(1) AGGREGATE RETIREMENT ESTIMATED COMPENSATION
NAME OF PERSON, COMPENSATION BENEFITS ANNUAL FROM FUND AND
POSITION FROM FUND ACCRUED AS BENEFITS UPON FUND COMPLEX
PART OF FUND RETIREMENT PAID TO
EXPENSES* DIRECTORS

Emilio Dominianni
Robert S. Everett**
Gerald Hellerman
Robert C. Knapp
Bruce W. Shewmaker+
Michael T. Tokarz

* Directors do not receive any pension or retirement benefits from the
Fund.

** Mr. Everett was elected as a director of the Fund at 2004 Annual Meeting
of Stockholders held on March 29, 2004. Mr. Everett served as interim Chief
Executive Officer of the Fund from March 6, 2003 until November 2003. During
that period, he was compensated for his services to the Fund in an amount of
$264,000. The compensation for Mr. Everett's services was paid by the Fund to
Everett & Solsvig, Inc. ("Everett & Solsvig"), a consulting firm of which Mr.
Everett is one of two partners. Mr. Everett did not receive any pension or
retirement benefits from the Fund. In addition, certain other fees were paid to
Everett & Solsvig for the provision of other administrative services to the
Fund. Those fees amounted to $94,250.

+ Mr. Shewmaker is no longer an Independent Director, since he became an
interested person of the Fund when he was appointed Managing Director as of
November 2003. As of November 2003, he ceased to receive compensation as an
Independent Director. Mr. Shewmaker's compensation also reflects fees received
for service to the Fund's Investment Committee during the months of September
and October 2003. Those fees include a per-diem fee of $2,000.

At a meeting of the board of directors held on June 6, 2003, the
board of directors reduced the annual retainer and per-meeting fees payable to
the Independent Directors by 50% for the period from July 1 to October 31, 2003.
Subsequently, at a meeting of the board of directors held on January 29, 2004,
the board of directors extended this period indefinitely. Currently (i.e.,
taking into account the 50% reduction), each Independent Director is paid an
annual retainer of $15,000 and per-meeting (including Committee meetings) fees
of $1,250 (or $750 in the case of telephonic meetings) by the Fund, and is
reimbursed by the Fund for reasonable out-of-pocket expenses. The Chairman of
each committee of the board of directors receives an additional annual retainer
of $1,500. The directors do not receive any pension or retirement benefits from
the Fund.

EXECUTIVE OFFICER COMPENSATION

Mr. Tokarz, Chairman and Portfolio Manager, joined the Fund
following the end of the last fiscal year on November 6, 2003, and thus received
no compensation from the Fund during that year.

Mr. Shewmaker and Ms. Spark also assumed their officer roles
following the end of the fiscal year ended October 31, 2003. Mr. Tokarz's

compensation is described under "Employment Agreements" below. Mr. Shewmaker's
base compensation for the 2004 fiscal year approximates [ ]. Ms. Spark's base
compensation for the 2004 fiscal year approximates [ ].

DIRECTOR EQUITY OWNERSHIP

The following table sets forth, as of [ ], 2004, with respect to each
director, certain information regarding the dollar range of equity securities
beneficially owned in the Fund. As of [ ], 2004, the directors of the Fund as a
group beneficially owned [ ]% of the outstanding shares of the Fund. The Fund
does not belong to a family of investment companies.

(3)
AGGREGATE DOLLAR RANGE
OF EQUITY SECURITIES OF
(2) ALL FUNDS OVERSEEN BY
(1) DOLLAR RANGE OF EQUITY DIRECTOR IN FAMILY OF
NAME OF DIRECTOR SECURITIES IN THE FUND INVESTMENT COMPANIES
---------------- ---------------------- --------------------
Emilio Dominianni $10,001-$50,000 $10,001-$50,000

Robert S. Everett Over $100,000 Over $100,000

Gerald Hellerman $50,001-$100,000 $50,001-$100,000

Robert C. Knapp $50,001-$100,000* $50,001-$100,000*

Michael Tokarz** Over $100,000 Over $100,000

* These shares are owned by Mr. Knapp directly.

** Mr. Tokarz is an Interested Director of the Fund because he serves as
an officer of the Fund.

EMPLOYMENT AGREEMENTS

On November 6, 2003, Mr. Tokarz assumed his new position as Chairman
and Portfolio Manager of the Fund. Mr. Tokarz receives no salary or cash bonus,
however, he will be compensated by the Fund based upon his positive performance
as the Portfolio Manager. Under the terms of his agreement with the Fund, which
provides for a two-year term, the Fund will pay Mr. Tokarz an amount equal to
the lesser of (a) 20% of the net income of the Fund for the fiscal year; and (b)
the sum of (i) 20% of the net capital gains realized by the Fund in respect of
investments made during his tenure as Portfolio Manager; and (ii) the amount, if
any, by which the Fund's total expenses for a fiscal year were less than two
percent of the Fund's net assets (determined as of the last day of the period).
Any payments made are calculated based upon the audited financials of the Fund
for the applicable fiscal year and would be paid as soon as practicable
following the completion of such audit. Mr. Tokarz has the right and the
intention to allocate all or part of such compensation to other professionals of
the Fund. For more details, please see Exhibit 10.2 of the Fund's Form 10-K for
the fiscal year ended October 31, 2003, which contains a copy of the agreement.

Ms. Spark has also entered into an employment agreement with the
Fund, pursuant to which she is compensated, effective July 1, 2004, at $[ ] per
month. The agreement has no set term and may be terminated at any time by the
Fund or Ms. Spark.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of [ ], 2004, there were [no] persons that owned 25% or more of
our outstanding voting securities, and [no] person would be deemed to control
us, as such term is defined in the 1940 Act.

The following table sets forth, as of [ ], 2004, information with
respect to the beneficial ownership of our common stock by the stockholders who
own more than 5% of our outstanding shares of common stock. Unless otherwise
indicated, we believe that each beneficial owner set forth in the table has sole
voting and investment power. Beneficial ownership is determined in accordance
with the rules of the SEC and includes voting or investment power with respect
to the securities. Ownership information for those persons who beneficially own
5% or more of our shares of common stock is based upon schedules filed by such
persons with the SEC.

NUMBER OF
NAME OF SHARES OWNED PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OF CLASS
-------------------------------- ------------ ----------
Deutsche Bank AG [992,220] [8.07]%
DB Advisors, L.L.C.
Deutsche Bank AG London Branch
Deutsche Bank Securities Inc.
Taunusanlage 12, D-60325
Frankfurt am Main
Federal Republic of Germany

Millenco, L.P. [1,121,900] [9.13]%
Millennium USA, L.P.
Millennium International, Ltd. and
Millenco Global Estate, L.P.
c/o Millennium Management, LLC
666 Fifth Avenue, 8th Floor
New York, NY 10103

Cannell Capital LLC [1,772,600] [14.42]%
J. Carlo Cannell
The Anegada Fund Limited
The Cuttyhunk Fund Limited
Tonga Partners, L.P.
GS Cannell Portfolio, LLC and
Pleiades Investment Partners, LP
150 California Street, 5th Floor
San Francisco, CA 94111

FEDERAL INCOME TAX MATTERS

This summary of certain aspects of the federal income tax treatment
of the Fund and its shareholders is based upon the Code, judicial decisions,
Treasury regulations and rulings in existence on the date hereof, all of which
are subject to change. This summary does not discuss the impact of various
proposals to amend the Code which could change certain of the tax consequences
of an investment in shares of our common stock.

You should consult your own tax adviser with respect to the tax
considerations applicable to the holding of shares of our common stock. This
discussion does not address all aspects of federal income taxation relevant to
holders of our common stock in light of their personal circumstances, or to
certain types of holders subject to special treatment under federal income tax
laws, including foreign taxpayers. This discussion does not address any aspects
of foreign, state or local tax laws. The Fund is actively managed and its
investment strategies may be employed without regard to the tax consequences of
the Fund's transactions on the Fund's shareholders.

We intend to qualify for treatment as a RIC under Subchapter M of
the Code. To qualify for such treatment, we must distribute to our stockholders
for each taxable year at least 90% of (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. We
must also meet several additional requirements, including:

- At least 90% of our gross income for each taxable year must be
from dividends, interest, payments with respect to securities loans, and gains
from sales or other disposition of stock, securities or foreign currencies, or
other income derived with respect to our business of investing in such stock,
securities or currencies,

- As diversification requirements, as of the close of each quarter
of our taxable year:

- at least 50% of the value of our assets must consist of
cash, cash items, U.S. government securities, the securities of other RICs and
other securities to the extent that (1) we do not hold more than 10% of the
outstanding voting securities of an issuer of such other securities and (2) such
other securities of any one issuer do not represent more than 5% of our total
assets, and

- no more than 25% of the value of our total assets may be
invested in the securities of one issuer (other than U.S. government securities
or the securities of other RICs), or of two or more issuers that are controlled
by us and are engaged in the same or similar or related trades or businesses.

However, the diversification requirements outlined above are
liberalized in the case of certain investment companies. In particular, if we,
as a business development company, meet certain requirements described below,
the 50% diversification requirement is modified so that we may include in our
50% pool of investments, the value of the securities of any corporate issuer
(even if we hold more than 10% of the corporate issuer's outstanding voting
securities) so long as at the time of the latest investment in the applicable
corporate issuer's securities the tax basis which we have in all securities
issued by the corporate issuer does not exceed 5% of the total value of all of
our assets. This exception does not apply if we have continuously held any
securities of the applicable corporate issuer for a period of 10 or more years.

In order for the modified diversification rule to apply, the SEC
must determine and certify to the Internal Revenue Service ("IRS") no more than
60 days prior to the close of a tax year that we are principally engaged in
furnishing capital to corporations which corporations are themselves principally
engaged in the development or exploitation of inventions, technological
improvements, new processes, or products not previously available. For purposes
of these determinations, a corporation shall be considered principally engaged
in the development or exploitation of inventions, technological improvements,
new processes, or products not previously available for at least 10 years after
the first acquisition of any security in such corporation by us if, at the date
of the original acquisition, the issuer corporation was principally so engaged.
In addition, we shall be considered at any date to be furnishing capital to any
corporation whose securities we hold, if within 10 years before such date, we
have acquired securities in the applicable corporate issuer.

The modified diversification rule does not apply to any quarter if,
at the close of such quarter, more than 25% of our total assets are comprised of
securities of corporate issuers, with respect to each of which (i) we hold more
than 10% of the outstanding voting securities of such issuer and (ii) we have
continuously held a security of such issuer (or a predecessor) for 10 or more
years.

If we were unable to qualify for treatment as a RIC, we would be
subject to tax on our ordinary income and capital gains (including gains
realized on the distribution of appreciated property) at regular corporate
rates. We would not be able to deduct distributions to stockholders, nor would
they be required to be made. Distributions would be taxable to our stockholders
as ordinary dividend income to the extent of our current and accumulated
earnings and profits. Subject to certain limitations under the Code, corporate
distributees would be eligible for the dividends received deduction and
individual distributees would qualify for the reduced tax rates applicable to
"qualified dividends". Distributions in excess of current and accumulated
earnings and profits would be treated first as a return of capital to the extent
of the stockholder's tax basis, and any remaining distributions would be treated
as a gain realized from the sale or exchange of property. If the Fund fails to
meet the requirements of Subchapter M for more than two consecutive taxable
years and then seeks to requalify under Subchapter M, it may be required to
recognize gain to the extent of any unrealized appreciation on its assets. In
that case, any gain recognized by the Fund likely would be distributed to
shareholders as a taxable distribution.

If we qualify as a RIC and distribute to stockholders each year in a
timely manner the sum of (i) at least 90% of our "investment company taxable
income" as defined in the Code and (ii) at least 90% of our net tax-exempt
interest, if any, we will not be subject to federal income tax on the portion of
our taxable income and gains we distribute to stockholders. In addition, if we
distribute in a timely manner the sum of (i) 98% of our ordinary income for each
calendar year, (ii) 98% of our capital gain net income for the one-year period
ending October 31 in that calendar year and (iii) any income not distributed in
prior years, we will not be subject to the 4% nondeductible federal excise tax
on certain undistributed income of RICs. We will be subject to regular corporate
income tax (currently at rates up to 35%) on any undistributed net investment
income and any undistributed net capital gain. We will also be subject to
alternative minimum tax, but any tax preference items would be apportioned
between us and our stockholders in the same proportion that dividends (other
than capital gain dividends) paid to each stockholder bear to our taxable income
determined without regard to the dividends paid deduction.

The Fund's net realized capital gains from securities transactions
will be distributed only after reducing such gains by the amount of any
available capital loss carryforwards. Capital losses may be carried forward to
offset any capital gains for eight years, after which any undeducted capital
loss remaining is lost as a deduction. As of the taxable year ending October 31,
2003, we had $37,689,502 of net capital loss carryforwards, $33,469,122 of which
will expire after the taxable year ending 2010, $4,220,380 of which will expire
after the taxable year ending 2011. To the extent the Fund is able to offset
capital gains with capital losses carried forward, it would enhance the Fund's
and shareholders' after-tax returns.

If we acquire debt obligations that were originally issued at a
discount, or that bear interest at rates that are not fixed (or certain
"qualified variable rates") or that is not payable, or payable at regular
intervals over the life of the obligation, we will be required to include in
taxable income each year a portion of the "original issue discount" that accrues
over the life of the obligation, regardless of whether the income is received by
us, and may be required to make distributions in order to continue to qualify as
a RIC or to avoid the 4% excise tax on certain undistributed income. In this
event, we may be required to sell temporary investments or other assets to meet
the distribution requirements.

For any period during which we qualify for treatment as a RIC for
federal income tax purposes, distributions to stockholders attributable to our
ordinary income (including dividends, interest and original issue discount) and
net short-term capital gains generally will be taxable as ordinary income to
stockholders to the extent of our current or accumulated earnings and profits,
except to the extent the we receive "qualified dividends" and designate such
amounts for individuals shareholders as "qualified dividends". It appears that
the lower tax rate for "qualified dividends" (currently a maximum rate of 15%)
will apply only if the individual shareholder holds shares in the Fund, and the
Fund holds shares in the dividend-paying corporation, at least 61 days during a
prescribed period. Under current IRS practice, the prescribed period is the
121-day period beginning 60 days before the date on which the shareholder or the
Fund, as the case may be, becomes entitled to receive the dividend. In
determining the holding period for this purpose, any period during which the
recipient's risk of loss is offset by means of options, short sales or similar
transactions is not counted. Additionally, an individual shareholder would not
benefit to the extent it is obligated (e.g., pursuant to a short sale) to make
related payments with respect to positions in substantially similar or related
property.

Corporate stockholders are generally eligible for the 70% dividends
received deduction with respect to ordinary income (but not capital gain)
dividends to the extent such amount designated by us does not exceed the
dividends received by us from domestic corporations. A corporate shareholder's
dividends-received deduction will be disallowed unless it holds shares in the
Fund, and the Fund holds shares in the dividend-paying corporation, at least 46
days during the 90-day period beginning 45 days before the date on which the
shareholder or the Fund, as the case may be, becomes entitled to receive the
dividend. In determining the holding period for this purpose, any period during
which the recipient's risk of loss is offset by means of options, short sales or
similar transactions is not counted. Additionally, a corporate shareholder would
not benefit to the extent it is obligated (e.g., pursuant to a short sale) to

make related payments with respect to positions in substantially similar or
related property. Furthermore, the dividends-received deduction will be
disallowed to the extent a corporate shareholder's investment in shares of the
Fund, or the Fund's investment in the shares of the dividend-paying corporation,
is financed with indebtedness.

Distributions in excess of our earnings and profits will first be
treated as a return of capital which reduces the stockholder's adjusted basis in
his or her shares of common stock and then as gain from the sale of shares of
our common stock. Distributions of our net long-term capital gains (designated
by us as capital gain dividends) will be taxable to stockholders as long-term
capital gains regardless of the stockholder's holding period in his or her
common stock.

Any dividend declared by us in October, November or December of any
calendar year, payable to stockholders of record on a specified date in such a
month and actually paid during January of the following year, will be treated as
if it were paid by us and received by the stockholders on December 31 of the
previous year. In addition, we may elect to relate a dividend back to the prior
taxable year if we (i) declare such dividend prior to the due date (including
extensions) for filing our return for that taxable year, (ii) make the election
in that return, and (iii) distribute the amount in the 12-month period following
the close of the taxable year but not later than the first regular dividend
payment following the declaration. Any such election will not alter the general
rule that a stockholder will be treated as receiving a dividend in the taxable
year in which the distribution is made (subject to the October, November,
December rule described above).

To the extent that we retain any capital gains, we may designate
them as "deemed distributions" and pay a tax thereon for the benefit of our
stockholders. In that event, the stockholders report their share of retained
realized long-term capital gains on their individual tax returns as if the share
had been received, and report a credit for the tax paid thereon by us. The
amount of the deemed distribution net of such tax is then added to the
stockholder's cost basis for his or her common stock. Since we expect to pay tax
on capital gains at regular corporate tax rates and the maximum rate payable by
individuals on such gains can currently be as low as 15%, the amount of credit
that individual stockholders may report is expected to exceed the amount of tax
that they would be required to pay on long-term capital gains. Stockholders who
are not subject to federal income tax or tax on long-term capital gains should
be able to file a return on the appropriate form or a claim for refund that
allows them to recover the taxes paid on their behalf.

Section 1202 of the Code permits the exclusion, for federal income
tax purposes, of 50% of any gain (subject to certain limitations) realized upon
the sale or exchange of "qualified small business stock" held for more than five
years. Generally, qualified small business stock is stock of a small business
corporation acquired directly from the issuing corporation, which must (i) at
the time of issuance and immediately thereafter have assets of not more than $50
million and (ii) throughout substantially all of the holder's holding period for
the stock be actively engaged in the conduct of a trade or business not excluded
by law. If we acquire qualified small business stock, hold such stock for five
years and dispose of such stock at a profit, a stockholder who held shares of
our common stock at the time we purchased the qualified small business stock and
at all times thereafter until we disposed of the stock would be entitled to
exclude from such stockholder's taxable income 50% of such stockholder's share

of such gain. Seven percent (7%)of any amount so excluded would currently be
treated as a preference item for alternative minimum tax purposes. Comparable
rules apply under the qualified small business stock "rollover" provisions of
section 1045 of the Code, under which gain otherwise reportable by individuals
with respect to sales by us of qualified small business stock held for more than
six months can be deferred if we reinvest the sales proceeds within 60 days in
other qualified small business stock.

A stockholder may recognize taxable gain or loss if the stockholder
sells or exchanges such stockholder's shares of common stock. Any gain arising
from the sale or exchange of common stock generally will be treated as capital
gain or loss if the common stock is held as a capital asset, and will be treated
as long-term capital gain or loss if the stockholder has held his or her shares
of common stock for more than one year. However any capital loss arising from a
sale or exchange of shares of common stock held for six months or less will be
treated as a long-term capital loss to the extent of the amount of capital gain
dividends (or undistributed capital gain) received with respect to such shares
of common stock.

Pursuant to recently issued Treasury regulations directed at tax
shelter activity, taxpayers are required to disclose to the IRS certain
information on Form 8886 if they participate in a "reportable transaction." A
transaction may be a "reportable transaction" based upon any of several indicia,
including the existence of significant book-tax differences or the recognition
of a loss in excess of certain thresholds. Investors should consult their own
tax advisors concerning any possible disclosure obligation with respect to their
investment in shares of the Fund.

We may be required to withhold U.S. federal income tax at the rate
of 28% of all taxable distributions payable to stockholders who fail to provide
us with their correct taxpayer identification number or a certificate that the
stockholder is exempt from backup withholding, or if the IRS notifies us that
the stockholder is subject to backup withholding. Any amounts withheld may be
credited against a stockholder's U.S. federal income tax liability.

There is no withholding tax to a shareholder who is not a U.S.
person within the meaning of the Code ("Non-U.S. Person") on the portion of the
Fund's distributions that consist of long-term capital gains realized by the
Fund, provided that such gains are not effectively connected with the conduct of
a trade or business in the U.S. by such Non-U.S. Person. However, the remaining
distributions to Non-U.S. Persons are generally subject to a 30% withholding
tax, unless reduced or eliminated by treaty. Other rules may apply to Non-U.S.
Persons whose income from the Fund is effectively connected with the conduct of
a U.S. trade or business by such Non-U.S. Person; such investors should consult
with their own advisers regarding those rules.

A tax-exempt U.S. person investing in the Fund will not realize
unrelated business taxable income with respect to an unleveraged investment in
shares. Tax-exempt U.S. persons are urged to consult their own tax advisors
concerning the U.S. tax consequences of an investment in the Fund.

From time to time, the Fund may be considered under the Code to be a
nonpublicly offered regulated investment company. Under Temporary Regulations,
certain expenses of nonpublicly offered regulated investment companies,
including advisory fees, may not be deductible by certain shareholders,

generally including individuals and entities that compute their taxable income
in the same manner as an individual (thus, for example, a qualified pension plan
is not subject to this rule). Such a shareholder's pro rata portion of the
affected expenses, including the management fee and incentive fee payable to the
manager, will be treated as an additional dividend to the shareholder and will
be deductible by such shareholder, subject to the 2% "floor" on miscellaneous
itemized deductions and other limitations on itemized deductions set forth in
the Code. A "nonpublicly offered regulated investment company" is a RIC whose
shares are neither (i) continuously offered pursuant to a public offering, (ii)
regularly traded on an established securities market nor (iii) held by at least
500 persons at all times during the taxable year.

Unless an exception applies, we will mail to each stockholder, as
promptly as possible after the end of each fiscal year, a notice detailing, on a
per distribution basis, the amounts includible in such stockholder's taxable
income for such year as net investment income, as net realized capital gains (if
applicable) and as "deemed" distributions of capital gains, including taxes paid
by us with respect thereto. In addition, absent an exemption, the federal tax
status of each year's distributions will be reported to the IRS. Distributions
may also be subject to additional state, local and foreign taxes depending on
each stockholder's particular situation. Stockholders should consult their own
tax advisers with respect to the particular tax consequences to them of an
investment in us.

Under our Plan, all cash distributions to stockholders will be
automatically reinvested in additional whole and fractional shares of our common
stock unless you elect to receive cash. For federal income tax purposes,
however, you will be deemed to have constructively received cash and such
amounts should be included in your income to the extent such constructive
distribution otherwise represents a taxable dividend for the year in which such
distribution is credited to your account. The amount of the distribution is the
value of the shares of common stock acquired through the dividend reinvestment
plan.

CERTAIN GOVERNMENT REGULATIONS

We operate in a highly regulated environment. The following
discussion generally summarizes certain government regulations.

BUSINESS DEVELOPMENT COMPANY. A business development company is
defined and regulated by the 1940 Act. A business development company must be
organized in the United States for the purpose of investing in or lending to
primarily private companies and making managerial assistance available to them.
A business development company may use capital provided by public stockholders
and from other sources to invest in long-term, private investments in
businesses.

As a business development company, we may not acquire any asset
other than "qualifying assets" unless, at the time we make the acquisition, the
value of our qualifying assets represent at least 70% of the value of our total
assets. The principal categories of qualifying assets relevant to our business
are:

(1) Securities purchased in transactions not involving any
public offering from the issuer of such securities, which issuer

(subject to certain limited exceptions) is an eligible portfolio
company, or from any person who is, or has been during the
preceding 13 months, an affiliated person of an eligible portfolio
company, or from any other person, subject to such rules as may be
prescribed by the SEC. An "eligible portfolio company" is defined
in the 1940 Act as any issuer which:

(a) is organized under the laws of, and has its principal
place of business in, the United States;

(b) is not an investment company (other than a small
business investment company wholly owned by the business
development company) or a company that would be an investment
company but for certain exclusions under the 1940 Act; and

o does not have any class of securities with respect
to which a broker or dealer may extend margin credit;

o is controlled by a business development company or a
group of companies including a business development company
and the business development company has an affiliated person
who is a director of the eligible portfolio company; or

o is a small and solvent company having total assets of
not more than $4 million and capital and surplus of not less
than $2 million.

(2) Securities of any eligible portfolio company which we
control.

(3) Securities purchased in a private transaction from a
U.S. issuer that is not an investment company or from an
affiliated person of the issuer, or in transactions incident
thereto, if the issuer is in bankruptcy and subject to
reorganization or if the issuer, immediately prior to the
purchase of its securities was unable to meet its obligations as
they came due without material assistance other than conventional
lending or financing arrangements.

(4) Securities of an eligible portfolio company purchased
from any person in a private transaction if there is no ready
market for such securities and we already own 60% of the
outstanding equity of the eligible portfolio company.

(5) Securities received in exchange for or distributed on
or with respect to securities described in (1) through (4) above,
or pursuant to the exercise of warrants or rights relating to
such securities.

(6) Cash, cash equivalents, U.S. Government securities or
high-quality debt maturing in one year or less from the time of
investment.

To include certain securities described above as qualifying assets
for the purpose of the 70% test, a business development company must make
available to the issuer of those securities significant managerial assistance
such as providing significant guidance and counsel concerning the management,
operations, or business objectives and policies of a portfolio company, or
making loans to a portfolio company. We offer to provide managerial assistance
to each of our portfolio companies.

As a business development company, we are entitled to issue senior
securities in the form of stock or senior securities representing indebtedness,
including debt securities and preferred stock, as long as each class of senior
security has an asset coverage of at least 200% immediately after each such
issuance. See "Risk Factors." We may also be prohibited under the 1940 Act from
knowingly participating in certain transactions with our affiliates without the
prior approval of our Independent Directors and, in some cases, prior approval
by the SEC. On July 11, 2000, the SEC granted us an exemptive order permitting
us to make co-investments with certain of our affiliates in portfolio companies,
subject to various conditions. During the last completed fiscal year, the Fund
did not engage in any transactions pursuant to this order.

We are periodically examined by the SEC for compliance with the 1940
Act.

As with other companies regulated by the 1940 Act, a business
development company must adhere to certain other substantive ongoing regulatory
requirements. A majority of our directors must be persons who are not
"interested persons," as that term is defined in the 1940 Act. Additionally, we
are required to provide and maintain a bond issued by a reputable fidelity
insurance company to protect the business development company. Furthermore, as a
business development company, we are prohibited from protecting any director or
officer against any liability to the company or our stockholders arising from
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such person's office.

We maintain a code of ethics that establishes procedures for
personal investment and restricts certain transactions by our personnel. Our
code of ethics generally does not permit investment by our employees in
securities that may be purchased or held by us. The code of ethics is filed as
an exhibit to the registration statement of which this prospectus is a part. You
may read and copy the code of ethics at the SEC's Public Reference Room in
Washington, D.C. You may obtain information on operations of the Public
Reference Room by calling the SEC at (202) 942-8090. In addition, the code of
ethics is available on the EDGAR Database on the SEC Internet site at
http://www.sec.gov. You may obtain copies of the code of ethics, after paying a
duplicating fee, by electronic request at the following email address:
publicinfo@sec.gov, or by writing to the SEC's Public Reference Section, 450 5th
Street, NW, Washington, D.C. 20549.

We may not change the nature of our business so as to cease to be,
or withdraw our election as, a business development company unless authorized by
vote of a "majority of the outstanding voting securities," as defined in the

1940 Act, of our shares. A majority of the outstanding voting securities of a
company is defined by the 1940 Act as the lesser of: (i) 67% or more of such
company's shares present at a meeting if more than 50% of the outstanding shares
of such company are present and represented by proxy, or (ii) more than 50% of
the outstanding shares of such company.

We are periodically examined by the SEC for compliance with the 1940
Act.

DIVIDEND REINVESTMENT PLAN

All of our stockholders who hold shares of common stock in their own
name will automatically be enrolled in our Plan. All such stockholders will have
any cash dividends and distributions automatically reinvested by the Plan Agent,
in additional shares of our common stock. Any stockholder may, of course, elect
to receive his or her dividends and distributions in cash. Currently, the Fund
does not have a set policy of paying dividends and has not made any such
payments since 2002. For any of our shares that are held by banks, brokers or
other entities that hold our shares as nominees for individual stockholders, the
Plan Agent will administer the dividend reinvestment plan on the basis of the
number of shares certified by any nominee as being registered for stockholders
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, as the
case may be, in writing.

The Plan Agent serves as agent for the stockholders in administering
the dividend reinvestment plan. When we declare a dividend or distribution
payable in cash or in additional shares of our common stock, those stockholders
participating in the dividend reinvestment 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, the Plan Agent will purchase in the open market such
number of shares as is necessary to complete the distribution.

The Plan Agent will maintain all stockholder accounts in the
dividend reinvestment plan and furnish written confirmation of all transactions.
Shares of our common stock in the dividend reinvestment plan will be held in the
name of the Plan Agent or its nominee and such stockholder will be considered
the beneficial owner of such shares for all purposes.

There is no charge to stockholders for participating in the dividend
reinvestment plan or for the reinvestment of dividends and distributions. We
will not incur brokerage fees with respect to newly issued shares issued in
connection with the dividend reinvestment plan. Stockholders will, however, be
charged a pro rata share of any brokerage fee charged for open market purchases
in connection with the dividend reinvestment plan.

We may terminate the dividend reinvestment plan at any time. We may
also amend the dividend reinvestment plan upon providing written notice to
stockholders participating in the dividend reinvestment plan at least 30 days
prior to such amendment. You may withdraw from the dividend reinvestment plan
upon written request to the Plan Agent. You may obtain additional information
about the dividend reinvestment plan from the Plan Agent.

DESCRIPTION OF CAPITAL STOCK

THE FOLLOWING SUMMARY OF OUR CAPITAL STOCK AND OTHER SECURITIES DOES
NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY BY,
OUR CERTIFICATE OF INCORPORATION.

Our authorized capital stock is 150,000,000 shares, $0.01 par
value.

COMMON STOCK

At [ ], 2004, there were 12,293,042 shares of common stock
outstanding and 4,206,958 shares of common stock in our treasury. To date, no
other classes of stock have been issued.

All shares of common stock have equal rights as to earnings, assets,
dividends and voting privileges and all outstanding shares of common stock are
fully paid and non-assessable. Distributions may be paid to the holders of
common stock if and when declared by our board of directors out of funds legally
available therefore. Our common stock has no preemptive, conversion, or
redemption rights and is freely transferable. In the event of liquidation, each
share of common stock is entitled to share ratably in all of our assets that are
legally available for distributions after payment of all debts and liabilities
[and subject to any prior rights of holders of preferred stock, if any, then
outstanding]. Each share of common stock is entitled to one vote and does not
have cumulative voting rights, which means that holders of a majority of the
shares, if they so choose, could elect all of the directors, and holders of less
than a majority of the shares would, in that case, be unable to elect any
director. All shares of common stock offered hereby will be, when issued and
paid for, fully paid and non-assessable.

LIMITATION ON LIABILITY OF DIRECTORS

We have adopted provisions in our certificate of incorporation
limiting the liability of our directors for monetary damages. The effect of
these provisions in the certificate of incorporation is to eliminate the rights
of MVC Capital and its stockholders (through stockholders' derivative suits on
our behalf) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director or officer (including breaches resulting
from negligent or grossly negligent behavior) except in certain limited
situations. These provisions do not limit or eliminate the rights of MVC Capital
or any stockholder to seek non-monetary relief such as an injunction or
rescission in the event of a breach of a director's or officer's duty of care.
These provisions will not alter the liability of directors or officers under
federal securities laws.

LEGAL MATTERS

The legality of the shares of common stock offered hereby will be
passed upon for MVC Capital by Schulte Roth & Zabel LLP, New York, New York.

SAFEKEEPING, TRANSFER AND DIVIDEND PAYING AGENT
AND REGISTRAR

Pursuant to an agreement with the Fund, State Street acted as the
Fund's custodian with respect to the safekeeping of its securities until October
31, 2002. The principal business office of State Street was 225 Franklin Street,

Boston, Massachusetts 02110. Effective November 1, 2002, US Bank National
Association became the custodian of the Fund's securities. The principal
business office of the current custodian is 425 Walnut Street, Cincinnati, OH
45202.

The Fund employs EquiServe as its transfer agent to record transfers
of the shares, maintain proxy records and to process distributions. EquiServe's
principal business office is 150 Royall Street, Canton, Massachusetts 02021.

BROKERAGE ALLOCATION AND OTHER PRACTICES

Since we generally acquire and dispose of our investments in
privately negotiated transactions, we infrequently use brokers in the normal
course of business.

INDEPENDENT PUBLIC ACCOUNTANTS

The audited financial statements and schedules included in this
prospectus and elsewhere in the registration statement to the extent and for the
periods indicated in their reports have been audited by [ ], [ADDRESS], for the
fiscal year ended October 31, 2003 and by the Fund's former independent
accountants for the fiscal years ended October 31, 2002 and 2001, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.

MVC CAPITAL, INC. [AND SUBSIDIARY]
CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

PAGE
--------------------
Consolidated Balance Sheets - July 31, 2004 (unaudited) F-__
and October 31, 2003 and 2002*

Consolidated Statement of Operations - For the Period F-__
November 1, 2003 to July 31, 2004 and the Period November
1, 2002 to July 31, 2003 (unaudited) and for the Years
Ended October 31, 2003, 2002 and 2001*

Consolidated Statement of Operations - For the Period May F-__
1, 2004 to July 31, 2004 and the Period May 1, 2003 to
July 31, 2003 (unaudited)*

Consolidated Statement of Cash Flows - For the Period F-__
November 1, 2003 to July 31, 2004 and the Period November
1, 2002 to July 31, 2003 (unaudited) and for the Years
Ended October 31, 2003, 2002 and 2001*

Consolidated Statement of Shareholders' Equity - For the F-__
Period November 1, 2003 to July 31, 2004 and the Period
November 1, 2002 to July 31, 2003 (unaudited) and for the
Years Ended October 31, 2003, 2002 and 2001*

Consolidated Selected Per Share Data and Ratios - For the F-__
Period November 1, 2003 to July 31, 2004 (unaudited) and
the Years ended October 31, 2003, 2002 and 2001*

Consolidated Schedule of Investments - July 31, 2004 F-__
(unaudited) and October 31, 2003*

Notes to Consolidated Financial Statements* F-__

Report of Independent Public Accountants* F-__

------------------
* To be filed by amendment.

F-1

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

1. FINANCIAL STATEMENTS.

The following financial statements of MVC Capital, Inc. (the
"Company" or the "Registrant") are included in this registration statement in
"Part A: Information Required in a Prospectus":

PAGE
----------
Consolidated Balance Sheets - July 31, 2004 F-__
(unaudited) and October 31, 2003 and 2002*

Consolidated Statement of Operations - For the F-__
Period November 1, 2003 to July 31, 2004 and
the Period November 1, 2002 to July 31, 2003
(unaudited) and for the Years Ended October 31,
2003, 2002 and 2001*

Consolidated Statement of Operations - For the F-__
Period May 1, 2004 to July 31, 2004 and the
Period May 1, 2003 to July 31, 2003 (unaudited)*

Consolidated Statement of Cash Flows - For the F-__
Period November 1, 2003 to July 31, 2004 and
the Period November 1, 2002 to July 31, 2003
(unaudited) and for the Years Ended October 31,
2003, 2002 and 2001*

Consolidated Statement of Shareholders' Equity F-__
- For the Period November 1, 2003 to July 31,
2004 and the Period November 1, 2002 to July
31, 2003 (unaudited) and for the Years Ended
October 31, 2003, 2002 and 2001*

Consolidated Selected Per Share Data and Ratios F-__
- For the Period November 1, 2003 to July 31,
2004 (unaudited) and the Years ended October
31, 2003, 2002 and 2001*

Consolidated Schedule of Investments - July 31, F-__
2004 (unaudited) and October 31, 2003*

Notes to Consolidated Financial Statements* F-__

Report of Independent Public Accountants* F-__

------------------
* To be filed by amendment.

C-1

2. EXHIBITS.

EXHIBIT
NUMBER DESCRIPTION
------------ ------------------------------------------------------------------
------------ ------------------------------------------------------------------

a. Certificate of Incorporation. (INCORPORATED BY REFERENCE TO
EXHIBIT 99.A FILED WITH THE REGISTRANT'S INITIAL REGISTRATION
STATEMENT ON FORM N-2 (FILE NO. 333-92287) FILED ON
DECEMBER 8, 1999).
b. Fourth Amended and Restated Bylaws. (INCORPORATED BY REFERENCE TO
EXHIBIT 3.(II). FILED WITH REGISTRANT'S ANNUAL REPORT ON FORM 10-K
(FILE NO. 814-00201) FILED ON JANUARY 29, 2004.)
c. Not applicable.
d.1 Form of Share Certificate. (INCORPORATED BY REFERENCE TO EXHIBIT
99.D. FILED WITH REGISTRANT'S REGISTRATION STATEMENT ON FORM N-2
(FILE NO. 333-92287) FILED ON MARCH 2, 2000.)
d.2* Form of Instructions for Use of Subscription Certificates.
d.3* Form of Notice to Shareholders Who are Record Holders.
d.4* Form of Notice to Shareholders Who are Beneficial Holders.
d.5* Form of Notice to Clients of Shareholders Who are Beneficial
Holders.
d.6* Form of Subscription Certificate.
d.7* Form of Nominee Holder Certification Form.
d.8* Form of Beneficial Owner Election Form.
d.9* Form of Nominee Holder Over-Subscription Exercise Form.
d.10* Form of Notice of Guaranteed Delivery.
d.11* Subscription Agent Agreement between Registrant and EquiServe
Trust Company, N.A.
d.12* Information Agent Agreement between Registrant and EquiServe
Trust Company, N.A.
e.* Dividend Reinvestment Plan, as amended.
f. Not applicable.
g. Not applicable.
h. Not applicable.
i.1 Lease for 287 Bowman Avenue, Purchase, NY 10577. (INCORPORATED BY
REFERENCE TO EXHIBIT 10.1 WITH REGISTRANT'S ANNUAL REPORT ON FORM
10-K (FILE NO. 814-00201) FILED ON JANUARY 29, 2004.)
i.2 Agreement between the Registrant and Michael Tokarz.
(INCORPORATED BY REFERENCE TO EXHIBIT 10.2 FILED WITH ANNUAL
REPORT ON FORM 10-K (FILE NO. 814-00201) FILED ON
JANUARY 29, 2004.)
j.* Custodian Agreement between Registrant and US Bank National
Association.
k.* Registrar, Transfer Agency and Service Agreement between
Registrant and EquiServe Trust Company, N.A.
l.* Opinion of counsel and consent to its use.
m. Not applicable.
n.1* Consent of Schulte Roth & Zabel LLP. (CONTAINED IN EXHIBIT L.)
n.2* Consent of [ ].
n.3* Letter regarding Unaudited Interim Financial Information.
o. Not applicable.

C-2

p. Not applicable.
q. Not applicable.
r.* Code of Ethics.

------------
* To be filed by amendment.

ITEM 25. MARKETING ARRANGEMENTS

Not applicable.

ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*

Commission registration fee $ [9,508.00]*
Information Agent Fees [ ]**
Subscription Agent Fees [ ]**
New York Stock Exchange Additional [ ]**
Listing Fee
Accounting fees and expenses [ ]**
Legal fees and expenses [ ]**
Printing and engraving [ ]**
Miscellaneous fees and expenses [ ]**
---------------
Total $ [ ]
=====
------------

* Estimated for filing purposes.
** To be provided by amendment.

All of the expenses set forth above shall be borne by us.

ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Direct Subsidiaries
-------------------

Set forth below is the name of our subsidiary, the state or country
under whose laws the subsidiary is organized, and the percentage of voting
securities or membership interests owned by us in such subsidiary:

MVC Financial Services, Inc. (Delaware) 100%

Our subsidiary is consolidated for financial reporting purposes.

C-3

ITEM 28. NUMBER OF HOLDERS OF SECURITIES

The following table sets forth the approximate number of record
holders of our common stock at [October 31, 2004].

NUMBER OF
TITLE OF CLASS RECORD HOLDERS
--------------------------------------- ----------------
Common stock, $.01 par value [ ]

ITEM 29. INDEMNIFICATION

The Certificate of Incorporation of the Registrant provides that its
directors and officers shall, and its agents in the discretion of the board of
directors may be indemnified to the fullest extent permitted from time to time
by the laws of Delaware, provided, however, that such indemnification is limited
by the Investment Company Act of 1940 or by any valid rule, regulation or order
of the Securities and Exchange Commission thereunder. The Registrant's Fourth
Amended and Restated Bylaws, however, provide that the Registrant may not
indemnify any director or officer against liability to the Registrant or its
security holders to which he or she might otherwise be subject by reason of such
person's willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office unless a
determination is made by final decision of a court, by vote of a majority of a
quorum of directors who are disinterested, non-party directors or by independent
legal counsel that the liability for which indemnification is sought did not
arise out of such disabling conduct.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person in the successful defense of an action, suit or proceeding) is asserted
by a director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of the court of the issue.

The Registrant carries liability insurance for the benefit of its
directors and officers on a claims-made basis of up to $[ ], subject to a $[ ]
retention and the other terms thereof.

ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Not applicable.

C-4

ITEM 31. LOCATION OF ACCOUNTS AND RECORDS

We maintain at our principal office physical possession of each
account, book or other document required to be maintained by Section 31(a) of
the 1940 Act and the rules thereunder.

ITEM 32. MANAGEMENT SERVICES

Not applicable.

ITEM 33. UNDERTAKINGS

We hereby undertake:

(1) to suspend the offering of shares until the prospectus is amended
if (a) subsequent to the effective date of this registration statement,
our net asset value declines more than ten percent from our net asset
value as of the effective date of this registration statement or (b) our
net asset value increases to an amount greater than our net proceeds as
stated in the prospectus;

(2) [Not applicable.]

(3) [Not applicable.]

(4) (a) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;

(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement; and

(iii)to include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.

(b) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of those securities at that time shall be deemed
to be the initial bona fide offering thereof; and

(c) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.

C-5

(5) that, for the purpose of determining any liability under the
Securities Act of 1933, (a) the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by us under Rule
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective; and (b)
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering thereof.

(6) [Not applicable.]

C-6

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of
Westchester, in the State of New York, on the 8th day of October, 2004.

MVC Capital, Inc.

By: /S/ MICHAEL T. TOKARZ
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Michael T. Tokarz
Chairman of the Board

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENT, each person whose signature appears
below hereby constitutes and appoints Bruce W. Shewmaker and Frances Rebecca
Spark and each of them, his or her true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him or her and in his or
her name, place, and stead, in any and all capacities, to sign any and all
amendments to this Registration Statement, and to file the same, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 8, 2004.

SIGNATURE TITLE
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/s/ MICHAEL T. TOKARZ Chairman of the Board
----------------------------
Michael T. Tokarz

/s/ EMILIO A. DOMINIANNI Director
----------------------------
Emilio A. Dominianni

/s/ GERALD HELLERMAN Director
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Gerald Hellerman

/s/ ROBERT C. KNAPP Director
----------------------------
Robert C. Knapp

/s/ ROBERT S. EVERETT Director
----------------------------
Robert S. Everett

/s/ FRANCES REBECCA SPARK Principal Financial Officer
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Frances Rebecca Spark