Edgar Filing: MVC CAPITAL, INC.

FORM 10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2009 or


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 814-00201

MVC Capital, Inc.

(Exact name of the registrant as specified in its charter)


DELAWARE (State or other jurisdiction of incorporation or organization)		94-3346760 (I.R.S. Employer Identification No.)

287 Bowman Avenue 2nd Floor
Purchase, New York		10577
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (914) 701-0310

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

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

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

Large accelerated filer o

Accelerated filer þ

Non-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company o

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

There were 24,297,087 shares of the registrant’s common stock, $.01 par value, outstanding as of June 4, 2009.

MVC Capital, Inc.
(A Delaware Corporation)
Index


			Page
Part I.	Consolidated Financial Information

	Item 1.	Consolidated Financial Statements
		Consolidated Balance Sheets
		— April 30, 2009 and October 31, 2008		3
		Consolidated Statements of Operations
		— For the Period November 1, 2008 to April 30, 2009 and
		— For the Period November 1, 2007 to April 30, 2008		4
		Consolidated Statements of Operations
		— For the Period February 1, 2009 to April 30, 2009 and
		— For the Period February 1, 2008 to April 30, 2008		5
		Consolidated Statements of Cash Flows
		— For the Period November 1, 2008 to April 30, 2009 and
		— For the Period November 1, 2007 to April 30, 2008		6
		Consolidated Statements of Changes in Net Assets
		— For the Period November 1, 2008 to April 30, 2009
		— For the Period November 1, 2007 to April 30, 2008 and
		— For the Year ended October 31, 2008		7
		Consolidated Selected Per Share Data and Ratios
		— For the Period November 1, 2008 to April 30, 2009,
		— For the Period November 1, 2007 to April 30, 2008 and
		— For the Year ended October 31, 2008		8
		Consolidated Schedule of Investments
		— April 30, 2009		9
		— October 31, 2008		11
		Notes to Consolidated Financial Statements		13

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		58

	Item 4.	Controls and Procedures		64

Part II.	Other Information			65

SIGNATURE				67

Exhibits				68
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-31
EX-32

Part I. Consolidated Financial Information

Item 1. Consolidated Financial Statements

CONSOLIDATED FINANCIAL STATEMENTS

MVC Capital, Inc.
Consolidated Balance Sheets


	April 30,			October 31,
	2009			2008
	(Unaudited)
ASSETS

Assets
Cash and cash equivalents	$	3,116,092		$	12,764,465
Investments at fair value
Non-control/Non-affiliated investments (cost $122,573,399 and $124,471,466)		87,184,611			95,781,109
Affiliate investments (cost $137,929,783 and $138,694,946)		188,665,775			181,092,250
Control investments (cost $183,753,395 and $182,433,350)		202,297,576			213,930,758

Total investments at fair value (cost $444,256,577 and $445,599,762)		478,147,962			490,804,117
Dividends, interest and fees receivable, net of reserve		2,253,662			2,641,994
Prepaid expenses		1,626,666			2,297,434
Prepaid taxes		310,637			759,025
Deferred tax, net of allowance		1,443,765			1,443,765


Total assets	$	486,898,784		$	510,710,800


LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities
Revolving credit facility	$	9,100,000		$	19,000,000
Term loan		50,000,000			50,000,000
Provision for incentive compensation (Note 9)		15,305,109			15,794,295
Management fee payable		2,420,712			2,485,580
Other accrued expenses and liabilities		430,190			1,106,256
Professional fees		435,086			425,035
Consulting fees		123,351			28,822


Total liabilities		77,814,448			88,839,988


Shareholders’ equity
Common stock, $0.01 par value; 150,000,000 shares authorized; 24,297,087 and 24,297,087 shares outstanding, respectively		283,044			283,044
Additional paid-in-capital		429,400,261			429,400,261
Accumulated earnings		34,502,958			30,144,990
Dividends paid to stockholders		(51,256,625	)		(45,425,325	)
Accumulated net realized loss		(4,933,225	)		(4,933,051	)
Net unrealized appreciation		33,891,385			45,204,355
Treasury stock, at cost, 4,007,361 and 4,007,361 shares held, respectively		(32,803,462	)		(32,803,462	)


Total shareholders’ equity		409,084,336			421,870,812


Total liabilities and shareholders’ equity	$	486,898,784		$	510,710,800


Net asset value per share	$	16.84		$	17.36

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

MVC Capital, Inc.
Consolidated Statements of Operations
(Unaudited)


	For the Six			For the Six
	Month Period			Month Period
	November			November
	1, 2008 to			1, 2007 to
	April 30, 2009			April 30, 2008
Operating Income:
Dividend income
Affiliate investments	$	1,424,295		$	2,524,078


Total dividend income		1,424,295			2,524,078


Interest income
Non-control/Non-affiliated investments		5,141,576			5,956,317
Affiliate investments		2,910,540			2,490,255
Control investments		1,465,811			3,569,789


Total interest income		9,517,927			12,016,361


Fee income
Non-control/Non-affiliated investments		391,541			627,050
Affiliate investments		603,428			361,076
Control investments		418,366			1,125,559


Total fee income		1,413,335			2,113,685


Other income (loss)		(10,067	)		322,772


Total operating income		12,345,490			16,976,896


Operating Expenses:
Management fee		4,903,946			4,203,015
Interest and other borrowing costs		1,825,507			2,252,208
Legal fees		347,000			274,000
Audit fees		342,000			223,500
Other expenses		285,565			309,264
Insurance		195,600			186,725
Administration		156,866			160,767
Consulting fees		148,200			51,600
Directors fees		144,100			120,000
Printing and postage		78,824			64,648
Public relations fees		48,800			43,200
Incentive compensation (Note 9)		(489,186	)		5,397,337


Total operating expenses		7,987,222			13,286,264


Net operating income before taxes		4,358,268			3,690,632


Tax Expenses (Benefits):
Deferred tax benefit		—			(165,082	)
Current tax expense		300			936


Total tax expense (benefit)		300			(164,146	)


Net operating income		4,357,968			3,854,778


Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency:

Net realized gain (loss) on investments and foreign currency
Non-control/Non-affiliated investments		(174	)		2,107
Affiliate investments		—			595,000
Controlled investments		—			283,118
Foreign currency		—			60,325


Total net realized gain (loss) on investments and foreign currency		(174	)		940,550

Net change in unrealized appreciation (depreciation) on investments		(11,312,970	)		33,175,903


Net realized and unrealized gain (loss) on investments and foreign currency		(11,313,144	)		34,116,453


Net increase (decrease) in net assets resulting from operations	$	(6,955,176	)	$	37,971,231


Net increase (decrease) in net assets per share resulting from operations	$	(0.28	)	$	1.56


Dividends declared per share	$	0.24		$	0.24

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

MVC Capital, Inc.
Consolidated Statements of Operations
(Unaudited)


	For the Quarter			For the Quarter
	February 1, 2009			February 1, 2008
	to April 30, 2009			to April 30, 2008
Operating Income:
Dividend income
Affiliate investments	$	507,425		$	1,680,807


Total dividend income		507,425			1,680,807


Interest income
Non-control/Non-affiliated investments		2,175,399			2,954,611
Affiliate investments		1,490,859			982,271
Control investments		978,609			1,540,942


Total interest income		4,644,867			5,477,824


Fee income
Non-control/Non-affiliated investments		192,342			185,000
Affiliate investments		241,901			152,916
Control investments		171,427			463,546


Total fee income		605,670			801,462


Other income		—			120,855


Total operating income		5,757,962			8,080,948


Operating Expenses:
Management fee		2,420,712			2,185,503
Interest, fees and other borrowing costs		734,179			1,081,012
Legal fees		177,000			139,000
Audit fees		171,000			132,000
Other expenses		151,393			190,328
Insurance		94,600			90,725
Directors fees		76,500			60,000
Administration		70,968			80,609
Consulting fees		59,500			4,600
Printing and postage		43,524			33,104
Public relations fees		22,700			21,600
Incentive compensation (Note 9)		(334,523	)		3,740,772


Total operating expenses		3,687,553			7,759,253


Net operating income before taxes		2,070,409			321,695


Tax Expenses (Benefits):
Deferred tax expense		360,255			14,524
Current tax benefit		(636	)		(200,316	)


Total tax expense (benefit)		359,619			(185,792	)


Net operating income		1,710,790			507,487


Net Realized and Unrealized Gain (Loss) on Investments:

Net realized gain (loss) on investments
Non-control/Non-affiliated investments		(84	)		1,014
Affiliate investments		—			—
Control investments		—			283,118


Total net realized gain (loss) on investments		(84	)		284,132

Net change in unrealized appreciation (depreciation) on investments		(9,519,566	)		16,366,704


Net realized and unrealized gain (loss) on investments		(9,519,650	)		16,650,836


Net increase (decrease) in net assets resulting from operations	$	(7,808,860	)	$	17,158,323


Net increase (decrease) in net assets per share resulting from operations	$	(0.32	)	$	0.70


Dividends declared per share	$	0.12		$	0.12

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

MVC Capital, Inc.
Consolidated Statements of Cash Flows
(Unaudited)


	For the Six Month Period			For the Six Month Period
	November 1, 2008 to			November 1, 2007 to
	April 30, 2009			April 30, 2008
Cash flows from Operating Activities:
Net increase (decrease) in net assets resulting from operations	$	(6,955,176	)	$	37,971,231
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided (used) by operating activities:
Realized loss (gain)		174			(940,550	)
Net change in unrealized depreciation (appreciation)		11,312,970			(33,175,903	)
Amortization of discounts and fees		(42,291	)		(40,008	)
Increase in accrued payment-in-kind dividends and interest		(2,646,785	)		(2,752,945	)
Allocation of flow through loss (income)		10,067			(120,488	)
Changes in assets and liabilities:
Dividends, interest and fees receivable		388,332			364,990
Prepaid expenses		670,768			(483,142	)
Prepaid taxes		448,388			(342,339	)
Deferred tax		—			(165,082	)
Deposits		—			25,156
Other assets		—			16,903
Incentive compensation (Note 9)		(489,186	)		(7,505,992	)
Other Liabilities		(636,354	)		186,299
Purchases of equity investments		(1,017,554	)		(47,041,964	)
Purchases of debt instruments		(9,077,248	)		(60,143,871	)
Proceeds from equity investments		286,100			6,033,900
Proceeds from debt instruments		13,830,722			87,264,120


Net cash provided (used) by operating activities		6,082,927			(70,731,060	)


Cash flows from Financing Activities:
Distributions to shareholders paid		(5,831,300	)		(5,346,298	)
Net borrowings (repayments) under revolving credit facility		(9,900,000	)		70,000,000


Net cash provided (used) by financing activities		(15,731,300	)		64,653,702


Net change in cash and cash equivalents for the period		(9,648,373	)		(6,077,358	)


Cash and cash equivalents, beginning of period		12,764,465			84,727,933


Cash and cash equivalents, end of period	$	3,116,092		$	78,650,575

During the six months ended April 30, 2009 and 2008 MVC Capital, Inc. paid $1,040,643 and $1,183,636 in interest expense, respectively.

During the six months ended April 30, 2009 and 2008 MVC Capital, Inc. paid $0 and $350,000 in income taxes, respectively.

Non-cash activity:

During the six months ended April 30, 2009 and 2008, MVC Capital, Inc. recorded payment in kind dividend and interest of $2,646,785 and $2,752,945, respectively. This amount was added to the principal balance of the investments and recorded as interest/dividend income.

During the six months ended April 30, 2009 for MVC Capital Inc., was allocated $10,067 in flow through loss from its equity investment in Octagon Credit Investors, LLC. and this amount decreased the cost of the investment. The fair value was then decreased by the Fund’s Valuation Committee. During the six months ended April 30 2008, MVC Capital, Inc. was allocated $322,771 in flow-through income from its equity investment in Octagon Credit Investors, LLC. Of this amount, $202,283 was received in cash and the balance of $120,488 was undistributed and therefore increased the cost of the investment. The fair value was then increased by the Fund’s Valuation Committee.

On November 1, 2007, MVC Capital, Inc. re-issued 15,821 shares of treasury stock, in lieu of a $240,636 cash distribution, in accordance with the Fund’s dividend reinvestment plan.

On December 3, 2007, MVC Capital, Inc. converted the Ohio Medical Corporation Convertible Unsecured Subordinated Promissory Note from $3,405,263.60 of principal and interest to 1,125.700 shares of Ohio Medical Preferred Stock.

On January 9, 2008, MVC Capital, Inc. re-issued 15,930 shares of treasury stock, in lieu of a $242,455 cash distribution, in accordance with the Fund’s dividend reinvestment plan.

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

MVC Capital, Inc.
Consolidated Statements of Changes in Net Assets


	For the Six Month Period			For the Six Month Period
	November 1, 2008 to			November 1, 2007 to			For the Year Ended
	April 30, 2009			April 30, 2008			October 31, 2008
	(Unaudited)			(Unaudited)
Operations:
Net operating income	$	4,357,968		$	3,854,778		$	3,068,328
Net realized gain (loss)		(174	)		940,550			1,418,141
Net change in unrealized appreciation (depreciation)		(11,312,970	)		33,175,903			59,465,174


Net increase (decrease) in net assets from operations		(6,955,176	)		37,971,231			63,951,643


Shareholder Distributions:
Distributions to shareholders		(5,831,300	)		(5,829,389	)		(11,660,691	)


Net decrease in net assets from shareholder distributions		(5,831,300	)		(5,829,389	)		(11,660,691	)

Capital Share Transactions:
Reissuance of treasury stock in lieu of cash dividend		—			483,091			483,091


Net increase in net assets from capital share transactions		—			483,091			483,091


Total increase (decrease) in net assets		(12,786,476	)		32,624,933			52,774,043


Net assets, beginning of period/year		421,870,812			369,096,769			369,096,769


Net assets, end of period/year	$	409,084,336		$	401,721,702		$	421,870,812


Common shares outstanding, end of period/year		24,297,087			24,297,087			24,297,087

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

MVC Capital, Inc.
Consolidated Selected Per Share Data and Ratios


	For the Six Month Period			For the Six Month Period			For the
	November 1, 2008 to			November 1, 2007 to			Year Ended
	April 30, 2009			April 30, 2008			October 31, 2008
	(Unaudited)			(Unaudited)
Net asset value, beginning of period/year	$	17.36		$	15.21		$	15.21

Gain (loss) from operations:
Net operating income		0.18			0.16			0.24
Net realized and unrealized gain (loss) on investments		(0.46	)		1.40			2.39


Total gain (loss) from investment operations		(0.28	)		1.56			2.63


Less distributions from:
Income		(0.18	)		(.16)			(0.09	)
Return of capital		(0.06	)		(.08)			(0.39	)


Total distributions		(0.24	)		(0.24	)		(0.48	)


Net asset value, end of period/year	$	16.84		$	16.53		$	17.36


Market value, end of period/year	$	8.56		$	15.56		$	12.30


Market discount		(49.17	)%		(5.87	)%		(29.15	)%

Total Return — At NAV (a)		(1.63	)%		10.33	%		17.49	%

Total Return — At Market (a)		(28.66	)%		(7.37	)%		(25.44	)%

Ratios and Supplemental Data:

Net assets, end of period (in thousands)	$	409,084		$	401,722		$	421,871

Ratios to average net assets:
Expenses excluding tax expense (benefit)		3.84	%(b)		6.96	%(b)		7.00	%
Expenses including tax expense (benefit), incentive compensation, interest and other borrowing costs		3.84	%(b)		6.88	%(b)		6.77	%
Expenses excluding incentive compensation		4.07	%(b)		4.05	%(b)		4.05	%
Expenses excluding incentive compensation, interest and other borrowing costs		3.20	%(b)		2.87	%(b)		2.93	%

Net operating income (loss) before tax expense (benefit)		2.09	%(b)		1.94	%(b)		0.54	%
Net operating income (loss) after tax expense (benefit), incentive compensation, interest and other borrowing costs		2.09	%(b)		2.02	%(b)		0.77	%
Net operating income (loss) before incentive compensation		1.86	%(b)		4.85	%(b)		3.49	%
Net operating income (loss) before incentive compensation, interest and other borrowing costs		2.73	%(b)		6.03	%(b)		4.61	%


(a)		Total annual return is historical and assumes changes in share price, reinvestments of all dividends and distributions, and no sales charge for the year.

(b)		Annualized.

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

MVC Capital, Inc.
Consolidated Schedule of Investments
April 30, 2009
(Unaudited)


Company	Industry	Investment	Principal		Cost		Fair Value
Non-control/Non-affiliated investments — 21.27% (a, c, g, f, i)

Actelis Networks, Inc.	Technology Investments	Preferred Stock (150,602 shares) (d)			$	5,000,003	$	—

Amersham Corp.	Manufacturer of Precision — Machined Components	Second Lien Seller Note 10.0000%, 06/29/2010 (h,i)	$	2,473,521		2,473,521		1,625,000
		Second Lien Seller Note 17.0000%, 06/30/2013 (b,h,i)		3,664,462		3,664,462		2,475,000

						6,137,983		4,100,000

BP Clothing, LLC	Apparel	Second Lien Loan 14.0000%, 07/18/2012 (b,h)		18,460,703		18,269,900		17,513,069
		Term Loan A 5.5200%, 07/18/2011 (h)		1,987,500		1,969,712		1,817,186
		Term Loan B 7.9200%, 07/18/2011 (h)		2,000,000		1,983,436		1,775,834

						22,223,048		21,106,089

DPHI, Inc.	Technology Investments	Preferred Stock (602,131 shares) (d,j)				4,520,355		—

FOLIOfn, Inc.	Technology Investments	Preferred Stock (5,802,259 shares) (d,j)				15,000,000		9,845,000

GDC Acquisition, LLC	Electrical Distribution	Senior Subordinated Debt 17.0000%, 08/31/2009 (b,h)		3,027,560		3,027,560		3,027,560

Henry Company	Building Products / Specialty Chemicals	Term Loan A 4.0181%, 04/06/2011 (h)		1,709,921		1,709,921		1,650,642
		Term Loan B 8.2681%, 04/06/2011 (h)		2,000,000		2,000,000		2,000,000

						3,709,921		3,650,642

Innovative Brands, LLC	Consumer Products	Term Loan 15.5000%, 09/25/2011 (h)		11,263,000		11,263,000		11,263,000

Lockorder Limited	Technology Investments	Common Stock (21,064 shares) (d,e,j)				2,007,701		—

MainStream Data, Inc.	Technology Investments	Common Stock (5,786 shares) (d,j)				3,750,000		—

Phoenix Coal Corporation	Coal Processing and Production	Common Stock (666,667 shares) (d)				500,000		146,667

SafeStone Technologies Limited	Technology Investments	Common Stock (21,064 shares) (d,e,j)				2,007,701		—

Sonexis, Inc.	Technology Investments	Common Stock (131,615 shares) (d,j)				10,000,000		—

SP Industries, Inc.	Laboratory Research Equipment	First Lien Loan 7.5000%, 12/28/2012 (h)		961,283		656,962		961,283
		Second Lien Loan 15.0000%, 12/31/2013 (b,h)		25,060,016		24,666,854		25,060,016

						25,323,816		26,021,299

Storage Canada, LLC	Self Storage	Term Loan 8.7500%, 03/30/2013 (h)		1,161,500		1,165,015		1,161,500

TerraMark, L.P.	Specialty Chemicals	Senior Secured Loan 10.0000%, 06/01/2009 (h)		700,000		700,000		700,000

Total Safety U.S., Inc.	Engineering Services	First Lien Seller Note 3.1775%, 12/08/2012 (h)		977,500		977,500		903,058
		Second Lien Seller Note 6.9275%, 12/08/2013 (h)		3,500,000		3,500,000		3,500,000

						4,477,500		4,403,058

WBS Carbons Acquistions Corp.	Specialty Chemicals	Bridge Loan 6.0000%, 12/30/2011 (h)		1,759,796		1,759,796		1,759,796

Sub Total Non-control/Non-affiliated investments						122,573,399		87,184,611


Affiliate investments — 46.03% (a, c, g, f)

Custom Alloy Corporation	Manufacturer of Pipe Fittings	Unsecured Subordinated Loan 14.0000%, 09/18/2012 (b,h)		12,210,000		11,925,862		12,210,000
		Convertible Series A Preferred Stock (9 shares)				44,000		124,258
		Convertible Series B Preferred Stock (1,991 shares)				9,956,000		28,116,142

						21,925,862		40,450,400

Dakota Growers Pasta Company, Inc.	Manufacturer of Packaged Foods	Common Stock (1,016,195 shares)				5,521,742		15,044,698
		Convertible Preferred Stock (1,065,000 shares) (d)				10,357,500		15,767,252

						15,879,242		30,811,950

Endymion Systems, Inc.	Technology Investments	Preferred Stock (7,156,760 shares) (d,j)				7,000,000		—

Harmony Pharmacy & Health Center, Inc.	Healthcare — Retail	Revolving Credit Facility 10.0000%, 12/01/2009 (b,h)		4,525,330		4,525,330		4,000,000
		Demand Note 10.0000% 12/01/2009 (h,i)		700,000		700,000		700,000
		Demand Note 10.0000% 12/01/2009 (h,i)		3,300,000		3,300,000		3,300,000
		Demand Note 10.0000% 12/01/2009 (h,i)		2,200,000		2,200,000		2,200,000
		Common Stock (2,000,000 shares) (d)				750,000		750,000

						11,475,330		10,950,000

HuaMei Capital Company, Inc.	Financial Services	Common Stock (500 shares) (d)				2,000,000		2,000,000

Marine Exhibition Corporation	Theme Park	Senior Subordinated Debt 11.0000%, 06/30/2013 (b,h)		11,162,816		11,043,331		11,162,816
		Secured Revolving Note 1.51813%, 06/30/2013 (h)		700,000		700,000		700,000
		Convertible Preferred Stock (20,000 shares) (b)				2,481,449		2,481,449

						14,224,780		14,344,265

Octagon Credit Investors, LLC	Financial Services	Term Loan 4.76813%, 12/31/2011 (h)		5,000,000		4,964,415		5,000,000
		Limited Liability Company Interest				1,122,369		2,577,274

						6,086,784		7,577,274

PreVisor, Inc.	Human Capital Management	Common Stock (9 shares) (d)				6,000,000		7,000,000

Security Holdings, B.V.	Electrical Engeneering	Common Stock (900 shares) (d,e)				28,154,200		28,154,200

U.S. Gas & Electric, Inc.	Energy Services	Second Lien Loan 14.0000%, 07/26/2012 (b,h)		8,057,016		7,914,684		8,057,016
		Senior Credit Facility 6.5088% 07/26/2010 (h)		571,429		571,429		571,429
		Convertible Series B Preferred Stock (32,200 shares) (d)				500,000		10,890,000
		Convertible Series C Preferred Stock (8,216 shares) (d)				—		760,000

						8,986,113		20,278,445

Vitality Foodservice, Inc.	Non-Alcoholic Beverages	Common Stock (556,472 shares) (d)				5,564,716		9,829,657
		Preferred Stock (1,000,000 shares) (b,h)				10,632,756		13,534,527
		Warrants (d)				—		3,735,058

						16,197,472		27,099,242

Sub Total Affiliate investments						137,929,783		188,665,775

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

MVC Capital, Inc.
Consolidated Schedule of Investments — (Continued)
April 30, 2009
(Unaudited)


Company	Industry	Investment	Principal		Cost		Fair Value
Control Investments — 49.45% (a, c, g, f, i)

MVC Automotive Group B.V.	Automotive Dealerships	Common Equity Interest (d,e)			$	34,736,939	$	41,500,000
		Bridge Loan 10.0000%, 12/31/2009 (e,h)	$	3,643,557		3,643,557		3,643,557

						38,380,496		45,143,557

MVC Partners, LLC	Private Equity Firm	Limited Liability Company Interest (d)		1,904		1,350,253		1,150,253

Ohio Medical Corporation	Medical Device Manufacturer	Common Stock (5,620 shares) (d)				17,000,000		10,700,000
		Series A Convertible Preferred Stock (12,229 shares) (b,h)				30,000,000		36,991,890

						47,000,000		47,691,890

SGDA Europe B.V.	Soil Remediation	Common Equity Interest (d,e)				7,450,000		7,450,000

SGDA Sanierungsgesellschaft fur Deponien und Altlasten mbH	Soil Remediation	Term Loan 7.0000%, 08/25/2009 (e,h)		6,187,350		6,164,031		6,164,031
		Common Equity Interest (d,e)				438,551		1,738,030
		Preferred Equity Interest (d,e)				5,000,000		6,350,000

						11,602,582		14,252,061

SIA Tekers Invest	Port Facilities	Common Stock (68,800 shares) (d,e)				2,300,000		3,900,000

Summit Research Labs, Inc.	Specialty Chemicals	Second Lien Loan 14.0000%, 08/15/2012 (b,h)		9,261,690		9,129,262		9,261,690
		Common Stock (1,115 shares) (d)				16,000,000		33,000,000

						25,129,262		42,261,690

Timberland Machines & Irrigation, Inc.	Distributor — Landscaping and Irrigation Equipment	Senior Subordinated Debt 14.5500%, 08/04/2009 (b,h)		7,452,302		7,446,976		—
		Junior Revolving Line of Credit 12.5000%, 07/07/2009 (h,i)		5,000,000		5,000,000		—
		Common Stock (542 shares) (d)				5,420,291		—
		Warrants (d)				—		—

						17,867,267		—

Turf Products, LLC	Distributor — Landscaping and Irrigation Equipment	Senior Subordinated Debt 15.0000%, 11/30/2010 (b,h)		7,676,330		7,658,525		7,676,330
		Junior Revolving Note 6.0000%, 05/1/2011 (h)		1,000,000		1,000,000		1,000,000
		Limited Liability Company Interest (d)				3,535,694		3,521,794
		Warrants (d)				—		—

						12,194,219		12,198,124

Velocitius B.V.	Renewable Energy	Common Equity Interest (d,e)				11,395,315		21,500,000

Vendio Services, Inc.	Technology Investments	Common Stock (10,476 shares) (d,j)				5,500,000		12,174
		Preferred Stock (6,443,188 shares) (d,j)				1,134,001		5,187,827

						6,634,001		5,200,001

Vestal Manufacturing Enterprises, Inc.	Iron Foundries	Senior Subordinated Debt 12.0000%, 04/29/2011 (h)		600,000		600,000		600,000
		Common Stock (81,000 shares) (d)				1,850,000		950,000

						2,450,000		1,550,000

Sub Total Control Investments						183,753,395		202,297,576

TOTAL INVESTMENT ASSETS — 116.88% (f)					$	444,256,577	$	478,147,962


(a)		These securities are restricted from public sale without prior registration under the Securities Act of 1933. The Fund negotiates certain aspects of the method and timing of the disposition of these investments, including registration rights and related costs.

(b)		These securities accrue a portion of their interest/dividends in “payment in kind” interest/dividends which is capitalized to the investment.

(c)		All of the Fund’s equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except Lockorder Limited, MVC Automotive Group B.V., SafeStone Technologies Limited, Security Holdings B.V., SGDA Europe B.V., SGDA Sanierungsgesellschaft fur Deponien und Altlasten mbH, SIA Tekers Invest, and Velocitius B.V. The Fund makes available significant managerial assistance to all of the portfolio companies in which it has invested.

(d)		Non-income producing assets.

(e)		The principal operations of these portfolio companies are located outside of the United States.

(f)		Percentages are based on net assets of $409,084,336 as of April 30, 2009.

(g)		See Note 3 for further information regarding “Investment Classification.”

(h)		All or a portion of these securities have been committed as collateral for the Guggenheim Corporate Funding, LLC Credit Facility.

(i)		All or a portion of the accrued interest on these securities have been reserved against.

(j)		Legacy investments.

—		Denotes zero cost or fair value.

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

MVC Capital, Inc.
Consolidated Schedule of Investments
October 31, 2008


Company	Industry	Investment	Principal		Cost		Fair Value
Non-control/Non-affiliated investments — 22.70% (a, c, g, f, i)

Actelis Networks, Inc.	Technology Investments	Preferred Stock (150,602 shares) (d, j)			$	5,000,003	$	—

Amersham Corp.	Manufacturer of Precision — Machined Components	Second Lien Seller Note 10.0000%, 06/29/2010 (h, i)	$	2,473,521		2,473,521		2,250,000
		Second Lien Seller Note 17.0000%, 06/30/2013 (b, h, i)		3,539,496		3,539,496		3,275,000

						6,013,017		5,525,000

BP Clothing, LLC	Apparel	Second Lien Loan 14.0000%, 07/18/2012 (b, h)		18,229,090		18,008,868		18,229,090
		Term Loan A 8.0000%, 07/18/2011 (h)		2,133,750		2,111,978		2,111,978
		Term Loan B 10.4000%, 07/18/2011 (h)		2,000,000		1,979,725		1,952,628

						22,100,571		22,293,696

DPHI, Inc.	Technology Investments	Preferred Stock (602,131 shares) (d)				4,520,355		—

FOLIOfn, Inc.	Technology Investments	Preferred Stock (5,802,259 shares) (d)				15,000,000		13,600,000

GDC Acquisition, LLC	Electrical Distribution	Senior Subordinated Debt 17.0000%, 08/31/2011 (b, h)		2,960,753		2,956,638		2,960,753

Henry Company	Building Products / Specialty Chemicals	Term Loan A 6.6175%, 04/06/2011 (h)		1,837,309		1,837,309		1,778,031
		Term Loan B 10.8675%, 04/06/2011 (h)		2,000,000		2,000,000		2,000,000

						3,837,309		3,778,031

Innovative Brands, LLC	Consumer Products	Term Loan 11.7500%, 09/25/2011 (h)		13,033,333		13,033,333		13,033,333

Lockorder Limited	Technology Investments	Common Stock (21,064 shares) (d, e)				2,007,701		—

MainStream Data, Inc.	Technology Investments	Common Stock (5,786 shares) (d)				3,750,000		—

Phoenix Coal Corporation	Coal Processing and Production	Common Stock (666,667 shares) (d)				500,000		104,667

SafeStone Technologies Limited	Technology Investments	Common Stock (21,064 shares) (d, e)				2,007,701		—

Sonexis, Inc.	Technology Investments	Common Stock (131,615 shares) (d)				10,000,000		—

SP Industries, Inc.	Laboratory Research Equipment	First Lien Loan 8.7038%, 12/28/2012 (h)		997,741		638,401		997,741
		Second Lien Loan 15.0000%, 12/31/2013 (b, h)		24,684,219		24,249,319		24,684,219

						24,887,720		25,681,960

Storage Canada, LLC	Self Storage	Term Loan 8.7500%, 03/30/2013 (h)		1,214,500		1,218,697		1,214,500

TerraMark, L.P.	Specialty Chemicals	Senior Secured Loan 10.0000%, 2/12/2009 (h)		1,500,000		1,474,810		1,500,000

Total Safety U.S., Inc.	Engineering Services	First Lien Seller Note 6.5119%, 12/08/2012 (h)		982,500		982,500		908,058
		Second Lien Seller Note 9.6713%, 12/08/2013 (h)		3,500,000		3,500,000		3,500,000

						4,482,500		4,408,058

WBS Carbons Acquistions Corp.	Specialty Chemicals	Bridge Loan 6.0000%, 12/30/2011 (h)		1,681,111		1,681,111		1,681,111

Sub Total Non-control/Non-affiliated investments						124,471,466		95,781,109


Affiliate investments — 42.93% (a, c, g, f, i)

Custom Alloy Corporation	Manufacturer of Pipe Fittings	Unsecured Subordinated Loan 14.0000%, 09/18/2012 (b, h)		12,000,000		11,674,253		12,000,000
		Convertible Series A Preferred Stock (9 shares)				44,000		143,000
		Convertible Series B Preferred Stock (1,991 shares)				9,956,000		32,357,000

						21,674,253		44,500,000

Dakota Growers Pasta Company, Inc.	Manufacturer of Packaged Foods	Common Stock (1,016,195 shares)				5,521,742		10,161,950
		Convertible Preferred Stock (1,065,000 shares) (d)				10,357,500		10,650,000

						15,879,242		20,811,950

Endymion Systems, Inc.	Technology Investments	Preferred Stock (7,156,760 shares) (d)				7,000,000		—

Harmony Pharmacy & Health Center, Inc.	Healthcare — Retail	Revolving Credit Facility 10.0000%, 12/01/2009 (b, h)		4,307,850		4,307,850		4,000,000
		Demand Note 10.0000% 12/01/2009 (h, i)		3,300,000		3,300,000		3,300,000
		Common Stock (2,000,000 shares) (d)				750,000		750,000

						8,357,850		8,050,000

HuaMei Capital Company, Inc.	Financial Services	Common Stock (500 shares) (d)				2,000,000		2,000,000

Marine Exhibition Corporation	Theme Park	Senior Subordinated Debt 11.0000%, 06/30/2013 (b, h)		10,940,457		10,806,757		10,940,457
		Secured Revolving Note 4.7038%, 06/30/2013 (h)		700,000		700,000		700,000
		Convertible Preferred Stock (20,000 shares) (b)				2,385,091		2,385,091

						13,891,848		14,025,548

Octagon Credit Investors, LLC	Financial Services	Term Loan 7.9538%, 12/31/2011 (h)		5,000,000		4,957,803		5,000,000
		Revolving Line of Credit 7.9538%, 12/31/2011 (h)		650,000		650,000		650,000
		Limited Liability Company Interest				1,132,437		2,587,342

						6,740,240		8,237,342

PreVisor, Inc.	Human Capital Management	Common Stock (9 shares) (d)				6,000,000		10,100,000

Security Holdings, B.V.	Electrical Engineering	Common Equity Interest (d, e)				28,154,200		28,154,200

U.S. Gas & Electric, Inc.	Energy Services	Second Lien Loan 14.0000%, 07/26/2012 (b, h)		7,856,322		7,692,195		7,856,322
		Senior Credit Facility 8.5000% 07/26/2010 (h)		4,368,340		4,368,340		4,368,340
		Senior Credit Facility 9.7200% 07/26/2010 (h)		571,429		571,429		571,429
		Convertible Series B Preferred Stock (32,200 shares) (d)				500,000		5,300,000
		Convertible Series C Preferred Stock (8,216 shares) (d)				—		350,000

						13,131,964		18,446,091

Vitality Foodservice, Inc.	Non-Alcoholic Beverages	Common Stock (556,472 shares) (d)				5,564,716		9,829,657
		Preferred Stock (1,000,000 shares) (b, h)				10,300,633		13,202,404
		Warrants (d)				—		3,735,058

						15,865,349		26,767,119

Sub Total Affiliate investments						138,694,946		181,092,250

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

MVC Capital, Inc.
Consolidated Schedule of Investments — (Continued)
October 31, 2008


Company	Industry	Investment	Principal		Cost		Fair Value
Control Investments — 50.71% (a, c, g, f, i)

MVC Automotive Group B.V.	Automotive Dealerships	Common Equity Interest (d, e)			$	34,736,939	$	41,500,000
		Bridge Loan 10.0000%, 12/31/2008 (e, h)	$	3,643,557		3,643,557		3,643,557

						38,380,496		45,143,557

MVC Partners, LLC	Private Equity Firm	Limited Liability Company Interest (d)				332,698		132,698

Ohio Medical Corporation	Medical Device Manufacturer	Common Stock (5,620 shares) (d)				17,000,000		17,200,000
		Series A Convertible Preferred Stock (11,306 shares) (b, h)				30,000,000		34,201,081

						47,000,000		51,401,081

SGDA Europe B.V.	Soil Remediation	Common Equity Interest (d, e)				7,450,000		7,450,000

SGDA Sanierungsgesellschaft fur Deponien und Altlasten mbH	Soil Remediation	Term Loan 7.0000%, 08/25/2009 (e, h)		6,187,350		6,129,434		6,129,434
		Common Equity Interest (d, e)				438,551		560,000
		Preferred Equity Interest (d, e)				5,000,000		6,100,000

						11,567,985		12,789,434

SIA Tekers Invest	Port Facilities	Common Stock (68,800 shares) (d, e)				2,300,000		3,175,000

Summit Research Labs, Inc.	Specialty Chemicals	Second Lien Loan 14.0000%, 08/31/2013 (b, h)		8,940,592		8,793,022		8,940,592
		Common Stock (1,115 shares) (d)				16,000,000		33,000,000

						24,793,022		41,940,592

Timberland Machines & Irrigation, Inc.	Distributor — Landscaping and Irrigation Equipment	Senior Subordinated Debt 14.5500%, 08/04/2009 (b, h)		7,250,271		7,234,799		7,250,271
		Junior Revolving Line of Credit 12.5000%, 07/07/2009 (h, i)		5,000,000		5,000,000		1,000,000
		Common Stock (542 shares) (d)				5,420,291		—
		Warrants (d)				—		—

						17,655,090		8,250,271

Turf Products, LLC	Distributor — Landscaping and Irrigation Equipment	Senior Subordinated Debt 15.0000%, 11/30/2010 (b, h)		7,676,330		7,652,949		7,676,330
		Junior Revolving Note 6.0000%, 05/01/2011 (h)		1,000,000		1,000,000		1,000,000
		Limited Liability Company Interest (d)				3,821,794		5,821,794
		Warrants (d)				—		—

						12,474,743		14,498,124

Velocitius B.V.	Renewable Energy	Common Equity Interest (d, e)				11,395,315		21,000,000

Vendio Services, Inc.	Technology Investments	Common Stock (10,476 shares) (d)				5,500,000		14,447
		Preferred Stock (6,443,188 shares) (d)				1,134,001		6,585,554

						6,634,001		6,600,001

Vestal Manufacturing Enterprises, Inc.	Iron Foundries	Senior Subordinated Debt 12.0000%, 04/29/2011 (h)		600,000		600,000		600,000
		Common Stock (81,000 shares) (d)				1,850,000		950,000

						2,450,000		1,550,000

Sub Total Control Investments						182,433,350		213,930,758

TOTAL INVESTMENT ASSETS — 116.34% (f)					$	445,599,762	$	490,804,117


(a)		These securities are restricted from public sale without prior registration under the Securities Act of 1933. The Fund negotiates certain aspects of the method and timing of the disposition of these investments, including registration rights and related costs.

(b)		These securities accrue a portion of their interest/dividends in “payment in kind” interest/dividends which is capitalized to the investment.

(c)		All of the Fund’s equity and debt investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940, except Lockorder Limited, MVC Automotive Group B.V., SafeStone Technologies Limited, Security Holdings B.V., SGDA Europe B.V., SGDA Sanierungsgesellschaft fur Deponien und Altlasten mbH, SIA Tekers Invest, and Velocitius B.V. The Fund makes available significant managerial assistance to all of the portfolio companies in which it has invested.

(d)		Non-income producing assets.

(e)		The principal operations of these portfolio companies are located outside of the United States.

(f)		Percentages are based on net assets of $421,870,812 as of October 31, 2008.

(g)		See Note 3 for further information regarding “Investment Classification.”

(h)		All or a portion of these securities have been committed as collateral for the Guggenheim Corporate Funding, LLC Credit Facility.

(i)		All or a portion of the accrued interest on these securities have been reserved against.

—		Denotes zero cost or fair value.

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

MVC Capital, Inc. (the “Company”)
Notes to Consolidated Financial Statements
April 30, 2009
(Unaudited)

1. Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete consolidated financial statements. Certain amounts have been reclassified to adjust to current period presentations. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2008, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 29, 2008.

2. Consolidation

On July 16, 2004, the Company formed a wholly-owned subsidiary, MVC Financial Services, Inc. (“MVCFS”). MVCFS is incorporated in Delaware and its principal purpose is to provide advisory, administrative and other services to the Company, the Company’s portfolio companies and other entities. MVCFS had opening equity of $1 (100 shares at $0.01 per share). The Company does not hold MVCFS for investment purposes and does not intend to sell MVCFS. In the consolidation, all intercompany accounts have been eliminated.

3. Investment Classification

As required by the Investment Company Act of 1940, as amended (the “1940 Act”), we classify our investments by level of control. As defined in the 1940 Act, “Control Investments” are investments in those companies that we are deemed to “Control.” “Affiliate Investments” are investments in those companies that are “Affiliated Companies” of us, as defined in the 1940 Act, other than Control Investments. “Non-Control/Non-Affiliate Investments” are those that are neither Control Investments nor Affiliate Investments. Generally, under that 1940 Act, we are deemed to control a company in which we have invested if we own 25% or more of the voting securities of such company or have greater than 50% representation on its board. We are deemed to be an affiliate of a company in which we have invested if we own 5% or more and less than 25% of the voting securities of such company.

4. Investment Valuation Policy

Our investments are carried at fair value in accordance with the 1940 Act and Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS No. 157”). In accordance with the 1940 Act, unrestricted minority-owned publicly traded securities for which market quotations are readily available are valued at the closing market quote on the valuation date and majority-owned publicly traded securities and other privately held securities are valued as determined in good faith by the Valuation Committee of our Board of Directors. For restricted securities of companies that are publicly traded, the value is based on the closing market quote on the valuation date minus a discount for the restriction. For unrestricted securities of companies that are publicly traded for which we have a majority-owned interest, the value is generally based on the closing market quote on the valuation date plus a control premium if the Valuation Committee of our Board of Directors determines in good faith that additional value above the closing market quote would be obtainable upon a sale or transfer of our controlling interest. At April 30, 2009, we did not hold restricted or unrestricted securities of publicly traded companies for which we have a majority-owned interest.

We adopted SFAS No. 157 on November 1, 2008. SFAS No. 157 provides a framework for measuring the fair value of assets and liabilities. SFAS No. 157 also provides guidance regarding a fair value hierarchy, which prioritizes information used to measure fair value and the effect of fair value measurements on earnings and provides for enhanced disclosures determined by the level within the hierarchy of information used in the valuation. SFAS No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances.

SFAS No. 157 defines fair value in terms of the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The price used to measure the fair value is not adjusted for transaction costs while the cost basis of our investments may include initial transaction costs. Under SFAS No. 157, the fair value measurement also assumes that the transaction to sell an asset occurs in the principal market for the asset or, in the absence of a principal market, the most advantageous market for the asset. The principal market is the market in which the reporting entity would sell or transfer the asset with the greatest volume and level of activity for the asset. In determining the principal market for an asset or liability under SFAS No. 157, it is assumed that the reporting entity has access to the market as of the measurement date. If no market for the asset exists or if the reporting entity does not have access to the principal market, the reporting entity should use a hypothetical market.

In October 2008, the Financial Accounting Standards Board, or the FASB, issued FASB Staff Position (“FSP”) No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active. FSP No. 157-3 clarifies the application of SFAS No. 157 in a market that is not active. More specifically, FSP No. 157-3 states that significant judgment should be applied to determine if observable data in a dislocated market represents forced liquidations or distressed sales and are not representative of fair value in an orderly transaction. FSP No. 157-3 also provides further guidance that the use of a reporting entity’s own assumptions about future cash flows and appropriately risk-adjusted discount rates is acceptable when relevant observable inputs are not available. In addition, FSP No. 157-3 provides guidance on the level of reliance of broker quotes or pricing services when measuring fair value in a non active market stating that less reliance should be placed on a quote that does not reflect actual market transactions and a quote that is not a binding offer. The guidance in FSP No. 157-3 is effective upon issuance for all financial statements that have not been issued and any changes in valuation techniques as a result of applying FSP No. 157-3 are accounted for as a change in accounting estimate. FSP No. 157-3 has not had a material effect on our financial position or results of operations.

In April 2009, the FASB issued FSP 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP 157-4”), which provides guidance on how to determine the fair value of assets under SFAS 157 in the current economic environment and reemphasizes that the objective of a fair value measurement remains an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. FSP 157-4 states that a transaction price that is associated with a transaction that is not orderly is not determinative of fair value or market-participant risk premiums and companies should place little, if any, weight (compared with other indications of fair value) on transactions that are not orderly when estimating fair value or market risk premiums. FSP 157-4 is effective for periods ending after June 15, 2009. We do not believe that the adoption of FSP 157-4 will have a material effect on our financial position or results of operations.

Valuation Methodology

There is no one methodology to determine fair value and, in fact, for any portfolio security, fair value may be expressed as a range of values, from which the Company derives a single fair value. To determine the fair value of a portfolio security, the Valuation Committee analyzes the portfolio company’s financial results and

projections, publicly traded comparables of companies when available, comparable private transactions when available, precedent transactions in the market when available, as well as other factors. The Company generally requires, where practicable, portfolio companies to provide annual audited and more regular unaudited financial statements, and/or annual projections for the upcoming fiscal year.

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

If a security is publicly traded, the fair value is generally equal to market value based on the closing price on the principal exchange on which the security is primarily traded.

For equity securities of portfolio companies, the Valuation Committee estimates the fair value based on the market approach with value then attributed to equity or equity like securities using the enterprise value waterfall (“Enterprise Value Waterfall”) valuation methodology. Under the Enterprise Value Waterfall valuation methodology, the Valuation Committee estimates the enterprise fair value of the portfolio company and then waterfalls the enterprise value over the portfolio company’s securities in order of their preference relative to one another. To assess the enterprise value of the portfolio company, the Valuation Committee weighs some or all of the traditional market valuation methods and factors based on the individual circumstances of the portfolio company in order to estimate the enterprise value. The methodologies for performing assets may be based on, among other things: valuations of comparable public companies, recent sales of private and public comparable companies, discounting the forecasted cash flows of the portfolio company, third party valuations of the portfolio company, consideration of any offers from third parties to buy the company, estimating the value to potential strategic buyers and considering the value of recent investments in the equity securities of the portfolio company. For non-performing assets, the Valuation Committee may estimate the liquidation or collateral value of the portfolio company’s assets. The Valuation Committee also takes into account historical and anticipated financial results.

In assessing enterprise value, the Valuation Committee considers the mergers and acquisitions (“M&A”) market as the principal market in which the Company would sell its investments in portfolio companies under circumstances where the Company has the ability to control or gain control of the board of directors of the portfolio company (“Control Companies”). This approach is consistent with the principal market that the Company would use for its portfolio companies if the Company has the ability to initiate a sale of the portfolio company as of the measurement date, i.e., if it has the ability to control or gain control of the board of directors of the portfolio company as of the measurement date. In evaluating if the Company can control or gain control of a portfolio company as of the measurement date, the Company takes into account its equity securities on a fully diluted basis as well as other factors.

For non-Control Companies, consistent with SFAS No. 157, the Valuation Committee considers a hypothetical secondary market as the principal market in which it would sell investments in those companies.

For loans and debt securities of non-Control Companies (for which the Valuation Committee has identified the hypothetical secondary market as the principal market), the Valuation Committee determines fair value based on the assumptions that a hypothetical market participant would use to value the security in a current hypothetical sale using a market yield (“Market Yield”) valuation methodology. In applying the Market Yield valuation methodology, the Valuation Committee determines the fair value based on such factors as third party broker quotes and market participant assumptions including synthetic credit ratings, estimated remaining life, current market yield and interest rate spreads of similar securities as of the measurement date.

Estimates of average life are generally based on market data of the average life of similar debt securities. However, if the Valuation Committee has information available to it that the debt security is expected to be repaid in the near term, the Valuation Committee would use an estimated life based on the expected repayment date.

The Valuation Committee determines fair value of loan and debt securities of Control Companies based on the estimate of the enterprise value of the portfolio company. To the extent the enterprise value exceeds the remaining principal amount of the loan and all other debt securities of the company, the fair value of such securities is generally estimated to be their cost. However, where the enterprise value is less than the remaining principal amount of the loan and all other debt securities, the Valuation Committee may discount the value of such securities to reflect an impairment. When the Company receives nominal cost warrants or free equity securities (“nominal cost equity”) with a debt security, the Company typically allocates its cost basis in the investment between debt securities and nominal cost equity at the time of origination. Interest income is recorded on an accrual basis to the extent that such amounts are expected to be collected. Origination, closing and/or closing fees associated with investments in portfolio companies are accreted into income over the respective terms of the applicable loans. Upon the prepayment of a loan or debt security, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as income. Prepayment premiums are recorded on loans when received.

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

5. Concentration of Market Risk

Financial instruments that subjected the Company to concentrations of market risk consisted principally of equity investments, subordinated notes, and debt instruments, which represented approximately 98.2% of the Company’s total assets at April 30, 2009. As discussed in Note 6, these investments consist of securities in companies with no readily determinable market values and as such are valued in accordance with the Company’s fair value policies and procedures. The Company’s investment strategy represents a high degree of business and financial risk due to the fact that the investments (other than cash equivalents) are generally illiquid, in small and middle market companies, and include entities with little operating history or entities that possess operations in new or developing industries. These investments, should they become publicly traded, would generally be (i) subject to restrictions on resale, if they were acquired from the issuer in private placement transactions; and (ii) susceptible to market risk.

6. Portfolio Investments

Pursuant to the requirements of the 1940 Act, we value our portfolio securities at their current market values or, if market quotations are not readily available, at their estimates of fair values. Because our portfolio company investments generally do not have readily ascertainable market values, we record these investments at fair value in accordance with Valuation Procedures adopted by our board of directors. As permitted by the SEC, the board of directors has delegated the responsibility of making fair value determinations to the Valuation Committee, subject to the board of directors’ supervision and pursuant to our Valuation Procedures.

The levels of fair value inputs used to measure our investments are characterized in accordance with the fair value hierarchy established by SFAS No. 157. Where inputs for an asset or liability fall in more than one level in the fair value hierarchy, the investment is classified in its entirety based on the lowest level input that is

significant to that investment’s fair value measurement. We use judgment and consider factors specific to the investment in determining the significance of an input to a fair value measurement. The three levels of the fair value hierarchy and investments that fall into each of the levels are described below:

	•		*Level 1:* Level 1 inputs are unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. We use Level 1 inputs for investments in publicly traded unrestricted securities for which we do not have a controlling interest. Such investments are valued at the closing price on the measurement date. We valued one of our investments using Level 1 inputs as of April 30, 2009.

	•		*Level 2:* Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. We did not value any of our investments using Level 2 inputs as of April 30, 2009.

	•		*Level 3:* Level 3 inputs are unobservable and cannot be corroborated by observable market data. We use Level 3 inputs for measuring the fair value of substantially all of our investments. See Note 4 for the investment valuation policies used to determine the fair value of these investments.

The following fair value hierarchy table sets forth our investment portfolio by level as of April 30, 2009 (in thousands):


	Level 1		Level 2		Level 3		Total
Senior/Subordinated Loans and credit facilities	$	—	$	—	$	153,440	$	153,440
Common Stock		146		—		84,925		85,071
Preferred Stock		—		—		130,048		130,048
Warrants		—		—		3,735		3,735
Other Equity Investments		—		—		105,854		105,854

Total Investments, net	$	146	$	—	$	478,002	$	478,148

The following tables sets forth a summary of changes in the fair value of investment assets and liabilities measured using Level 3 inputs for the quarter ended April 30, 2009 (in thousands):


					Reversal of Prior
					Period
					Appreciation					Purchases,
	Balances,				(Depreciation)		Unrealized			Sales, Issuances
	November 1,		Realized Gains		on Realization		Appreciation			& Settlements,			Transfers In &		Balances,
	2008		(Losses) (1)		(2)		(Depreciation) (2)			Net (3)			Out of Level 3		April 30, 2009
Senior/Subordinated Loans and credit facilities	$	167,703	$	—	$	271	$	(11,484	)	$	(3,050	)	$	—	$	153,440
Common Stock		87,741		—		—		(2,816	)		—			—		84,925
Preferred Stock		124,874		—		—		4,746			428			—		130,048
Warrants		3,735		—		—		—			—			—		3,735
Other Equity Investments		106,646		—		—		(1,800	)		1,008			—		105,854

Total	$	490,699	$	—	$	271	$	(11,354	)	$	(1,614	)	$	—	$	478,002


(1)		Included in net realized gain (loss) on investments in the Consolidated Statement of Operations.

(2)		Included in net unrealized appreciation (depreciation) of investments in the Consolidated Statement of Operations.

(3)		Includes increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the amortization of discounts, premiums and closing fees and the exchange of one or more existing securities for one or more new securities as well as decreases in the cost basis of investments resulting from principal repayments or sales and the exchange of one or more existing securities for one or more new securities.

For the Six Month Period Ended April 30, 2009

During the six month period ended April 30, 2009, the Company made three follow-on investments in existing portfolio companies committing capital totaling $3.9 million. The Company invested $2.9 million in Harmony Pharmacy & Health Center, Inc. (“Harmony Pharmacy”) in the form of two demand notes, a $700,000 demand note on November 4, 2008 and a $2.2 million demand note on March 3, 2009. The demand notes have an annual interest rate of 10%. The Company also invested approximately $1.0 million in MVC Partners LLC (“MVC Partners”) equity interest during the six month period ended April 30, 2009.

At October 31, 2008, the balance of the revolving credit facility provided to Octagon Credit Investors, LLC (“Octagon”) was $650,000. Net repayments during the six month period ended April 30, 2009 were $650,000. There was no amount outstanding as of April 30, 2009.

At October 31, 2008, the balance of the revolving senior credit facility provided to U.S. Gas & Electric, Inc. (“U.S. Gas”) was approximately $85,000. During the fiscal year ended October 31, 2008, U.S. Gas entered into a swap agreement which locked in a portion of the senior credit facility with an annual rate of LIBOR plus 6% for a period of two years. This portion of the senior credit facility, in connection to the swap agreement, was approximately $571,000 at October 31, 2008 and April 30, 2009. The balance of the remaining portion of the senior credit facility at October 31, 2008 was approximately $4.4 million. Net repayments on this portion of the senior credit facility, which were borrowed at an annual rate of Prime plus 4.5%, were approximately $4.4 million, resulting in no balance outstanding at April 30, 2009. The portion of the senior credit facility, in connection to the swap agreement, was approximately $571,000 at April 30, 2009.

During the six month period ended April 30, 2009, the Company received approximately $53,000 in principal payments on the term loan provided to Storage Canada, LLC (“Storage Canada”). The balance of the term loan at April 30, 2009 was approximately $1.2 million.

On December 15, 2008, January 2, 2009, March 6, 2009, April 1, 2009 and April 4, 2009, the Company received principal payments of $1,609,500, $37,500, $52,167, $37,500 and $33,667, respectively, on the term loan provided to Innovative Brands, LLC (“Innovative Brands”). The Company also received a loan amendment fee of approximately $57,000. The interest rate on the term loan was increased to 14.5%. The balance of the term loan as of April 30, 2009 was approximately $11.3 million.

On December 31, 2008, the Company received a quarterly principal payment from BP Clothing, LLC (“BP”) on term loan A of $146,250. The balance of term loan A as of April 30, 2009 was approximately $2.0 million.

On December 31, 2008 and March 31, 2009, Total Safety U.S., Inc. (“Total Safety”) made principal payments of $2,500 on each date on its first lien loan. The balance of the first lien loan as of April 30, 2009 was $977,500.

On December 31, 2008 and March 31, 2009, SP Industries, Inc. (“SP”) made principal payments of $17,361 and $19,097, respectively, on its first lien loan. The balance of the first lien loan as of April 30, 2009, was approximately $961,000.

On December 31, 2008, Henry Company made a principal payment of approximately $127,000 on its term loan A. The balance of term loan A as of April 30, 2009 was approximately $1.7 million.

On March 11, 2009 and April 30, 2009, TerraMark, L.P. (“TerraMark”) made principal payments of $300,000 and $500,000 on its senior secured loan resulting in a balance of $700,000 as of April 30, 2009. The maturity date was also extended to June 1, 2009.

During the six month period ended April 30, 2009, the Valuation Committee increased the fair value of the Company’s investments in U.S. Gas preferred stock by $6.0 million, SGDA Sanierungsgesellschaft fur Deponien und Altasten mbH (“SGDA”) preferred equity interest by $250,000 and common equity interest by approximately $1.2 million, SIA Tekers Invest (“Tekers”) common stock by $725,000, Velocitius B.V. (“Velocitius”) equity interest by $500,000, and Dakota Growers Pasta Company, Inc. (“Dakota Growers”) common stock by approximately $4.9 million and preferred stock by approximately $5.1 million. In addition, increases in the cost basis and fair value of the loans to GDC Acquisitions, LLC (“GDC”), Custom Alloy, SP, Marine Exhibition Corporation (“Marine”), BP, Summit Research Labs, Inc. (“Summit”), U.S. Gas, and WBS Carbons Acquisition Corp. (“WBS”), and the Vitality Foodservice, Inc. (“Vitality”) and Marine preferred stock were due to the capitalization of payment in kind (“PIK”) interest/dividends totaling $2,646,785. The Valuation Committee also increased the fair value of the Ohio Medical Corporation (“Ohio Medical”) preferred stock by approximately $2.8 million due to a PIK distribution which was treated as a return of capital. Also, during the six month period ended April 30, 2009, the undistributed allocation of flow through loss from the Company’s equity investment in Octagon decreased the cost basis and fair value of this investment by approximately $10,000. The Valuation Committee also decreased the fair value of the Company’s investments in Ohio Medical common stock by $6.5 million, Vendio Services, Inc. (“Vendio”) preferred stock by $1.4 million and common stock by $2,000, Foliofn, Inc. (“Foliofn”) preferred stock by $3.8 million, PreVisor, Inc. (“PreVisor”) common stock by $3.1 million, Custom Alloy Corporation (“Custom Alloy”) preferred stock by $4.3 million, Timberland Machines & Irrigation, Inc. (“Timberland”) senior subordinated loan by approximately $7.3 million and junior revolving line of credit by $1.0 million, Amersham Corporation (“Amersham”) second lien notes by $1.4 million, Turf Products, LLC (“Turf”) equity interest by $2.3 million, and BP term loan B by approximately $181,000, term loan A by approximately $153,000 and second lien loan by approximately $948,000, during the six month period ended April 30, 2009. The Valuation Committee also determined not to increase the fair values of the Harmony Pharmacy revolving credit facility, Timberland senior subordinated loan and the Amersham loan for the accrued PIK interest totaling approximately $544,000. During the six month period ended April 30, 2009, the Company received a return of capital distribution from Turf of approximately $286,000.

At April 30, 2009, the fair value of all portfolio investments, exclusive of short-term securities, was $478.1 million with a cost basis of $444.3 million. At April 30, 2009, the fair value and cost basis of portfolio investments made by the Company’s former management team pursuant to the prior investment objective (“Legacy Investments”) was $15.0 million and $55.9 million, respectively, and the fair value and cost basis of portfolio investments made by the Company’s current management team was $463.1 million and $388.4 million, respectively. At October 31, 2008, the fair value of all portfolio investments, exclusive of short-term securities, was $490.8 million, with a cost basis of $445.6 million. At October 31, 2008, the fair value and cost basis of Legacy Investments was $20.2 million and $55.9 million, respectively, and the fair value and cost basis of portfolio investments made by the Company’s current management team was $470.6 million and $389.7 million, respectively.

For the Year Ended October 31, 2008

During the fiscal year ended October 31, 2008, the Company made four new investments, committing capital totaling approximately $54.5 million. The investments were made in SP ($24.0 million), SGDA Europe B.V. (“SGDA Europe”) ($750,000), TerraMark ($1.5 million), and Security Holdings B.V. (“Security Holdings”) ($28.2 million).

The Company also made 11 follow-on investments in existing portfolio companies committing capital totaling approximately $71.8 million. Two of these follow-on investments were made in companies that were new investments in fiscal year 2008. During the fiscal year ended October 31, 2008, the Company made additional investments totaling approximately $217,000 in MVC Partners. In connection with these investments, MVC Partners has made an investment in MVC Acquisition Corp., a newly-formed (but not yet operating) blank check company organized for the purpose of effecting a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business. During the year ended October 31, 2008, the Company also made additional investments totaling $3.3 million in Harmony Pharmacy in the form of a demand note. The demand note has an annual interest rate of 10%. On November 30, 2007, the Company invested an additional $36.7 million in Ohio Medical in the form of a $10.0 million senior subordinated note and $26.7 million in 9,917 shares of convertible preferred stock. At this time, the $3.3 million convertible unsecured subordinated promissory note was converted into preferred stock. The note has an annual interest rate of 16% and a maturity date of May 30, 2012. On December 13, 2007, the Company assigned the Ohio Medical $10.0 million senior subordinated note to AEA Investors LLC. On January 25, 2008, the amount available on the Timberland revolving note was increased by $1.0 million to $5.0 million, which Timberland immediately borrowed. On February 29, 2008, the Company invested an additional $7.8 million in Summit in the form of a $3.0 million second lien loan and $4.8 million in common stock. The second lien loan has an annual interest rate of 14% and a maturity date of August 31, 2013. On April 25, 2008, the Company invested an additional $11.8 million in Auto MOTOL BENI (“BENI”) by purchasing 874 shares of common stock. On April 30, 2008 and July 31, 2008, the Company invested an additional $2.7 million and $4.0 million, respectively, in SGDA Europe in the form of equity interest. On July 30, 2008, the Company increased its investment in SP by approximately $1.3 million, investing an additional $1.2 million in the second lien loan and $50,000 in the first lien loan. On July 31, 2008, the Company extended Turf a $1.0 million junior revolving note. The revolving note has an annual interest rate of 6% and a maturity date of May 1, 2011. Turf immediately borrowed $1.0 million on the note. The prior junior revolving note matured on May 1, 2008. On August 4, 2008, the Company increased its investment in U.S. Gas by investing an additional $2.0 million in the second lien loan.

At the beginning of the 2008 fiscal year, the junior revolving note provided to Timberland had a balance outstanding of $4.0 million. On January 25, 2008, the amount available on the revolving note was increased by $1.0 million to $5.0 million. Net borrowings during the fiscal year ended October 31, 2008 were $1.0 million resulting in a balance outstanding as of October 31, 2008 of $5.0 million. During the fiscal year ended October 31, 2008, the Valuation Committee determined to decrease the fair value of the junior revolving note by $4.0 million to $1.0 million as of October 31, 2008.

At October 31, 2007, the balance of the revolving credit facility provided to Octagon was $4.1 million. Net repayments during the fiscal year ended October 31, 2008 were $3.5 million, resulting in a balance outstanding as of October 31, 2008 of $650,000.

At October 31, 2007, the balance of Line I, provided to Velocitius was approximately $191,000. Repayments during the fiscal year ended October 31, 2008 were approximately $191,000. There was no amount outstanding on Line I as of October 31, 2008.

At October 31, 2007, the balance of Line II, provided to Velocitius was approximately $613,000. Repayments during the fiscal year ended October 31, 2008 were approximately $613,000. There was no amount outstanding on Line II as of October 31, 2008.

At October 31, 2007, the balance of the revolving note provided to Marine was not drawn upon. Net borrowings during the fiscal year ended October 31, 2008 were $700,000, resulting in a balance outstanding as of October 31, 2008 of $700,000.

At October 31, 2007, the balance of the revolving senior credit facility provided to U.S. Gas was approximately $85,000. During the fiscal year ended October 31, 2008, U.S. Gas entered into a swap agreement which locked in a portion of the senior credit facility with an annual rate of LIBOR plus 6% for a period of two years. This portion of the senior credit facility, in connection to the swap agreement, was approximately $571,000 at October 31, 2008. Net borrowings on the remaining portion of the senior credit facility, which were borrowed at an annual rate of Prime plus 4.5%, were $4.3 million, resulting in a balance outstanding of $4.4 million at such date. The combined balance of the revolving credit facility at October 31, 2008 was $4.9 million.

During the fiscal year ended October 31, 2008, the Company received approximately $1.4 million in principal payments on the term loan provided to Storage Canada. The balance of the term loan at October 31, 2008 was approximately $1.2 million.

During the fiscal year ended October 31, 2008, Phoenix Coal Corporation (“Phoenix Coal”) began trading on the Toronto Stock Exchange. Consistent with the Company’s valuation procedures, effective June 30, 2008, the Company has been marking this investment to its market price. On July 23, 2008, the Company sold 500,000 shares of Phoenix Coal. The total amount received from the sale net of commission was approximately $512,000, resulting in a realized gain of approximately $262,000. On July 29, 2008, the Company sold an additional 500,000 shares of Phoenix Coal. The total amount received from the sale net of commission was approximately $484,000, resulting in a realized gain of approximately $234,000.

On November 1, 2007, December 1, 2007 and January 1, 2008, the Company received $111,111, respectively, as principal payments from SP on term loan B. On January 2, 2008, SP repaid term loan B and its senior subordinated loan in full, including all accrued interest. The total amount received for term loan B was $7.1 million and the amount received for the senior subordinated loan was $13.6 million.

On November 2, 2007, Genevac U.S. Holdings, Inc. (“Genevac”) made a principal payment of $1.0 million on its senior subordinated loan. On January 2, 2008, Genevac repaid its senior subordinated loan in full, including all accrued interest totaling, $11.9 million. The Company, at this time, sold 140 shares of Genevac common stock for $1.7 million, resulting in a short-term capital gain of $595,000.

On December 31, 2007, March 31, 2008 and June 30, 2008, the Company received principal payments from BP on term loan A of $90,000. On September 30, 2008, the Company received a principal payment from BP of approximately $146,000. The balance of term loan A as of October 31, 2008 was approximately $2.1 million.

On December 31, 2007, March 31, 2008, June 30, 2008 and September 30, 2008, Total Safety made principal payments of $2,500 on its first lien loan on each payment date. The balance of the first lien loan as of October 31, 2008 was approximately $983,000.

On December 31, 2007, Turf borrowed $1.0 million from the secured junior revolving note. This amount was repaid on April 28, 2008.

On January 2, 2008, February 1, 2008, April 1, 2008, July 1, 2008 and October 1, 2008, the Company received principal payments of $37,500, $1,666,667, $37,500, $37,500, and $37,500, respectively, on the term loan provided to Innovative Brands. The balance of the term loan as of October 31, 2008 was approximately $13.0 million.

On January 15, 2008, Impact Confections, Inc. (“Impact”) repaid its promissory note and senior subordinated loan in full, including all accrued interest, totaling $6.1 million. The Company, at this time, sold 252 shares of common stock at cost for $2.7 million.

On January 29, 2008, MVC Automotive Group B.V. (“MVC Automotive”) made a principal payment of $17.4 million on its bridge loan, resulting in a principal balance of $1.6 million.

On February 29, 2008, the Company sold 400 shares of WBS at its cost of $1.6 million.

On March 31, 2008, June 30, 2008 and September 30, 2008, SP made principal payments of $17,361 on its first lien loan on each payment date. The balance of the first lien loan as of October 31, 2008 was approximately $998,000.

On April 15, 2008, the Company received a principal payment of $100,000 from Vestal Manufacturing Enterprises, Inc. (“Vestal”) on its senior subordinated debt. The balance of the senior subordinated debt as of October 31, 2008 was $600,000.

On June 9, 2008, BENI was acquired by MVC Automotive to achieve operating efficiencies. BENI was, and MVC Automotive continues to be, 100% owned by the Company. MVC Automotive increased its shareholder’s equity by $14.5 million and assumed $2.0 million of debt as a result of the cashless transaction. There was no gain or loss to the Company from this transaction. The balance of the MVC Automotive bridge loan as of October 31, 2008 was $3.6 million and the common stock had a fair value of $41.5 million.

On August 5, 2008, the Company received a principal payment of $2.0 million from Custom Alloy on its unsecured subordinated debt. During the fiscal year ended October 31, 2008, Custom Alloy paid approximately $1.0 million in accrued PIK interest on its unsecured subordinated debt. The balance of the unsecured subordinated debt as of October 31, 2008 was $12.0 million.

On August 12, 2008, the Company invested $1.5 million in TerraMark in the form of a senior secured loan. The loan bears annual interest at 10% and matures on February 12, 2009.

On August 29, 2008 and September 3, 2008, GDC Acquisitions, LLC d/b/a JDC Lighting, LLC (“GDC”) made principal payments of $250,000 and $108,951, respectively, on its senior subordinated loan. The balance of the loan as of October 31, 2008 was approximately $3.0 million.

On September 3, 2008, the Company invested $28.2 million in Security Holdings in the form of common equity interest.

During the fiscal year ended October 31, 2008, the Valuation Committee increased the fair value of the Company’s investments in U.S. Gas preferred stock by $5.2 million, SGDA preferred equity interest by $500,000, Foliofn preferred stock by $6.0 million, Tekers common stock by $575,000, Custom Alloy preferred stock by $22.5 million, Velocitius equity interest by $9.6 million, MVC Automotive equity interest by $6.1 million, PreVisor common stock by $1.1 million, Summit common stock by $16.0 million, and Vitality common stock and warrants by approximately $3.4 million. In addition, increases in the cost basis and fair value of the loans to GDC, SP, Harmony, Timberland, Amersham, Marine, BP, Summit, U.S. Gas, WBS, Custom Alloy and the Vitality and Marine preferred stock were due to the capitalization of payment in kind (“PIK”) interest/dividends totaling $5,451,761. The Valuation Committee also increased the fair value of the Ohio Medical preferred stock by approximately $4.2 million due to a PIK distribution which was treated as a return of capital. Also, during the fiscal year ended October 31, 2008, the undistributed allocation of flow through income from the Company’s equity investment in Octagon increased the cost basis and fair value of this investment by approximately $22,000. The Valuation Committee also decreased the fair value of the Company’s investments in Vendio preferred stock by $2.9 million and common stock by $1,000, Vestal common stock by $2.8 million, Octagon’s membership interest by $1.2 million, Amersham second lien notes by approximately $427,000, Henry Company term loan A by approximately $59,000, Total Safety first lien loan by approximately $74,000, BP term loan B by approximately $27,000, MVC Partners equity interest by $200,000

and Timberland’s common stock by $3.4 million and its junior revolving line of credit by $4.0 million during the fiscal year ended October 31, 2008. The Valuation Committee also determined not to increase the fair values of the Harmony Pharmacy revolving credit facility and the Amersham loan for the accrued PIK totaling $308,000.

At October 31, 2008, the fair value of all portfolio investments, exclusive of short-term securities, was $490.8 million, with a cost basis of $445.6 million. At October 31, 2008, the fair value and cost basis of Legacy Investments was $20.2 million and $55.9 million, respectively, and the fair value and cost basis of portfolio investments made by the Company’s current management team was $470.6 million and $389.7 million, respectively. At October 31, 2007, the fair value of all portfolio investments, exclusive of short-term securities, was $379.2, million with a cost basis of $393.4 million. At October 31, 2007, the fair value and cost basis of Legacy Investments was $17.1 million and $55.9 million, respectively, and the fair value and cost basis of portfolio investments made by the Company’s current management team was $362.1 million and $337.5 million, respectively.

7. Commitments and Contingencies

Commitments to/for Portfolio Companies:

At April 30, 2009, the Company’s existing commitments to portfolio companies consisted of the following:

Commitments of MVC Capital, Inc.


	Amount		Amount Funded at
Portfolio Company	Committed		April 30, 2009
Timberland Junior Revolver	$	5.0 million	$	5.0 million
Marine Revolving Loan Facility	$	2.0 million	$	700,000
Octagon Revolving Credit Facility	$	7.0 million		—
Velocitius Revolving Line I	$	260,000		—
Harmony Pharmacy Revolving Credit Facility	$	4.0 million	$	4.0 million
Velocitius Revolving Line II	$	650,000		—
Tekers Guarantee	$	1.9 million		—
U.S. Gas Revolving Senior Credit Facility	$	10.0 million	$	571,000
MVC Automotive Guarantee	$	8.6 million		—
MVC Automotive Guarantee	$	5.3 million		—
MVC Automotive Guarantee	$	1.7 million		—
Turf Junior Revolver	$	1.0 million	$	1.0 million

Total	$	47.4 million	$	11.3 million

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

On July 8, 2005 the Company extended to Timberland a $3.25 million junior revolving note that bears interest at 12.5% per annum and expires on July 7, 2009. The Company also receives a fee of 0.25% on the unused portion of the note. On November 27, 2006, the amount available on the revolving note was increased by $750,000 to $4.0 million. On January 25, 2008, the amount available on the revolving note was increased by $1.0 million to $5.0 million. As of October 31, 2008 and April 30, 2009, the funded debt under the junior revolving line of credit was $5.0 million. The fair value of the loan at April 30, 2009 was $0.

October 31, 2008, the outstanding balance of the loan commitment was approximately $1.2 million. Net repayments during the six month period ended April 30, 2009 were approximately $53,000, resulting in a balance of approximately $1.2 million at such date.

On July 11, 2006, the Company provided Marine a $2.0 million secured revolving loan facility. The revolving loan facility bears annual interest at LIBOR plus 1%. The Company also receives a fee of 0.50% of the unused portion of the revolving loan facility. As of October 31, 2008 and April 30, 2009, the outstanding balance of the secured revolving loan facility was $700,000.

On October 12, 2006, the Company provided a $12.0 million revolving credit facility to Octagon in replacement of the senior secured credit facility provided on May 7, 2004. This credit facility expires on December 31, 2011. The credit facility bears annual interest at LIBOR plus 4.25%. The Company receives a 0.50% unused facility fee on an annual basis and a 0.25% servicing fee on an annual basis for maintaining the credit facility. On February 12, 2009, the commitment amount of the revolving credit facility was reduced to $7.0 million. At October 31, 2008 the outstanding balance of the revolving credit facility provided to Octagon was $650,000. Net repayments during the six month period ended April 30, 2009 were $650,000, resulting in no balance outstanding on that date.

On October 30, 2006, the Company provided Velocitius a $260,000 revolving line of credit (“Line I”). Line I expires on October 31, 2009 and bears annual interest at 8%. There was no amount outstanding on Line I at October 31, 2008 and April 30, 2009.

On January 11, 2007, the Company provided a $4.0 million revolving credit facility to Harmony Pharmacy. The credit facility bears annual interest at 10%. The Company also receives a fee of 0.50% on the unused portion of the loan. The revolving credit facility expires on December 1, 2009. At October 31, 2008 and April 30, 2009, the outstanding balance of the revolving credit facility was $4.0 million.

On May 1, 2007, the Company provided Velocitius a $650,000 revolving line of credit (“Line II”). Line II expires on April 30, 2010 and bears annual interest at 8%. There was no amount outstanding on Line II at October 31, 2008 and April 30, 2009.

On July 19, 2007, the Company agreed to guarantee a 1.4 million Euro mortgage for Tekers, equivalent to approximately $1.9 million at April 30, 2009.

On July 26, 2007, the Company provided a $10.0 million revolving senior credit facility to U.S. Gas. The revolving senior credit facility bears annual interest at either LIBOR plus 6% or Prime plus 4.5%, this election is at U.S. Gas’ discretion. The Company receives a fee of 0.50% on the unused portion of the revolving senior credit facility. The revolving senior credit facility expires on July 26, 2010. During the fiscal year ended October 31, 2008, U.S. Gas entered into a swap agreement which locked in a portion of the revolving senior credit facility with a LIBOR based borrowing rate for a period of two years. This portion of the revolving senior credit facility was approximately $571,000 at October 31, 2008 and April 30, 2009. The remaining portion of the revolving senior credit facility, which is borrowed at an annual rate of Prime plus 4.5%, was $4.4 million at October 31, 2008. Net repayments during the six month period ended April 30, 2009 were $4.4 million, resulting in no balance outstanding on that date. The portion of the senior credit facility, in connection to the swap agreement, was approximately $571,000 at April 30, 2009.

On January 15, 2008, the Company agreed to guarantee a 6.5 million Euro mortgage for MVC Automotive, equivalent to approximately $8.6 million at April 30, 2009.

making financing available to the dealership and agreeing under certain circumstances not to reduce its equity stake in MVC Automotive.

On July 31, 2008, the Company extended to Turf a $1.0 million secured junior revolving note. The note bears annual interest at 6.0% and expires on May 1, 2011. On July 31, 2008, Turf borrowed $1.0 million from the secured junior revolving note. At October 31, 2008 and April 30, 2009, the outstanding balance of the secured junior revolving note was $1.0 million.

On September 9, 2008, the Company agreed to guarantee a 35.0 million Czech Republic Koruny (“CZK”) mortgage for MVC Automotive, equivalent to approximately $1.7 million at April 30, 2009.

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

Commitments of the Company:

Effective November 1, 2006, under the terms of the Investment Advisory and Management Agreement with TTG Advisers, which has since been amended and restated (the “Amended Agreement”) and described in Note 8. Management, TTG Advisers is responsible for providing office space to the Company and for the costs associated with providing such office space. The Company’s offices continue to be located on the second floor of 287 Bowman Avenue.

On April 27, 2006, the Company and MVCFS, as co-borrowers, entered into a four-year, $100 million credit facility (“Credit Facility I”), consisting of $50.0 million in term debt and $50.0 million in revolving credit, with Guggenheim as administrative agent for the lenders. At October 31, 2008, there was $50.0 million in term debt and $19.0 million in revolving credit on Credit Facility I outstanding. During the six month period ended April 30, 2009, the Company’s net repayments on Credit Facility I were $9.9 million. As of April 30, 2009, there was $50.0 million in term debt and $9.1 million outstanding on the revolving credit facility. The proceeds from borrowings made under Credit Facility I are used to fund new and existing portfolio investments, pay fees and expenses related to obtaining the financing and for general corporate purposes. Credit Facility I will expire on April 27, 2010, at which time all outstanding amounts under Credit Facility I will be due and payable. Borrowings under Credit Facility I will bear interest, at the Company’s option, at a floating rate equal to either (i) the LIBOR rate (for one, two, three or six months), plus a spread of 2.00% per annum, or (ii) the Prime rate in effect from time to time, plus a spread of 1.00% per annum. The Company paid a closing fee, legal and other costs associated with this transaction. These costs will be amortized evenly over the life of the facility. The prepaid expenses on the Balance Sheet include the unamortized portion of these costs. Borrowings under Credit Facility I will be secured, by among other things, cash, cash equivalents, debt investments, accounts receivable, equipment, instruments, general intangibles, the capital stock of MVCFS, and any proceeds from all the aforementioned items, as well as all other property except for equity investments made by the Company.

annual fee of 25 basis points of the total amount of the facility. The Company paid a closing fee, legal and other costs associated with this transaction. These costs will be amortized evenly over the life of the facility. The prepaid expenses on the Balance Sheet include the unamortized portion of these costs. Borrowings under Credit Facility II will be secured by cash, short-term and long-term U.S. Treasury securities and other governmental agency securities whose purchase has been approved by BB&T.

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

8. Management

Our board of directors, including all of the directors who are not “interested persons,” as defined under the 1940 Act, of the Company (the “Independent Directors”), at their in-person meeting held on December 11, 2008, approved the Amended Agreement and recommended it for approval by the stockholders of the Company. On April 14, 2009, stockholders of the Company voted to approve the Amended Agreement. The Amended Agreement is identical, in all material respects, to the Company’s prior Investment Advisory and Management Agreement (the “Prior Advisory Agreement”), except for the following modifications: (i) the Amended Agreement secures Mr. Tokarz’s service as the portfolio manager of the Company for an additional two fiscal years; (ii) the Amended Agreement extends the period for which an expense cap would apply for an additional two fiscal years, and increases the expense cap to 3.5% from 3.25%; and (iii) the calculation of the capital gains portion of the incentive fee under the Amended Agreement reflects a revision so that unrealized depreciation on an investment would not reduce the fee to the extent it has already been reduced by the same unrealized depreciation on the same investment in prior fiscal years. The Prior Advisory Agreement had been in effect since November 1, 2006, when management of the Company was externalized.

Under the terms of the Amended Agreement, TTG Advisers determines, consistent with the Company’s investment strategy, the composition of the Company’s portfolio, the nature and timing of the changes to the Company’s portfolio and the manner of implementing such changes. TTG Advisers also identifies and negotiates the structure of the Company’s investments (including performing due diligence on prospective portfolio companies), closes and monitors the Company’s investments, determines the securities and other assets purchased, retains or sells and oversees the administration, recordkeeping and compliance functions of the Company and/or third parties performing such functions for the Company. TTG Advisers’ services under the Amended Agreement are not exclusive, and it may furnish similar services to other entities. Pursuant to the Amended Agreement, the Company is required to pay TTG Advisers a fee for investment advisory and management services consisting of two components—a base management fee and an incentive fee. The base management fee is calculated at 2.0% per annum of the Company’s total assets excluding cash, the value of any investment in a Third-Party Vehicle covered by a Separate Agreement (as defined in the Amended Agreement) and the value of any investment by the Company not made in portfolio companies (“Non-Eligible Assets”) but including assets purchased with borrowed funds that are not Non-Eligible Assets. The incentive fee consists of two parts: (i) one part is based on our pre-incentive fee net operating income; and (ii) the other part is based on the capital gains realized on our portfolio of securities acquired after November 1, 2003. The Amended Agreement provides for an expense cap pursuant to which TTG Advisers will absorb or reimburse operating expenses of the Company, to the extent necessary to limit the Company’s expense ratio (the consolidated expenses of the Company, including any amounts payable to TTG Advisers under the base management fee, but excluding the amount of any interest and other direct borrowing costs, taxes, incentive compensation and extraordinary expenses taken as a percentage of the Company’s average net assets) to 3.5% in each of the 2009 and 2010 fiscal years. For more information, please see Note 9 of our consolidated financial statements, “Incentive Compensation.”

9. Incentive Compensation

At October 31, 2008, the provision for estimated incentive compensation was $15,794,295. During the six month period ended April 30, 2009, this provision for incentive compensation was decreased by a net amount of $489,186 to $15,305,109. The amount of the provision reflects the Valuation Committee’s determination to increase the fair values of five of the Company’s portfolio investments (U.S. Gas, Tekers, SGDA, Velocitius, and Dakota Growers) by a total of $18.7 million. The Valuation Committee also increased the fair value of the Ohio Medical preferred stock by approximately $2.8 million due to a PIK distribution, which was treated as a return of capital. The net decrease reflects the Valuation Committee’s determination to decrease the fair values of seven of the Company’s portfolio investments (Timberland, Amersham, Turf, PreVisor, Ohio Medical, Custom Alloy and BP) by a total of $27.1 million and the Valuation Committee determination not to increase the fair values of the Harmony Pharmacy revolving credit facility, Timberland senior subordinated loan and the Amersham loan for the accrued PIK totaling $544,000. During the six month period ended April 30, 2009, there was no provision recorded for the net operating income portion of the incentive fee as pre-incentive fee net operating income did not exceed the hurdle rate.

At October 31, 2007, the provision for estimated incentive compensation was $17,875,496. During the fiscal year ended October 31, 2008, this provision for incentive compensation was decreased by a net amount of $2,081,201 to $15,794,295. The amount of the provision reflects the Valuation Committee’s determination to increase the fair values of nine of the Company’s portfolio investments (U.S. Gas, Vitality, Summit, Tekers, SGDA, Custom Alloy, Velocitius, MVC Automotive and PreVisor) by a total of $64.8 million. The Valuation Committee also increased the fair value of the Ohio Medical preferred stock by approximately $4.2 million due to a PIK distribution, which was treated as a return of capital. The net decrease in the provision for incentive compensation during the fiscal year ended October 31, 2008 was a result of the incentive compensation payment to TTG Advisers of approximately $12.9 million due to the sale of Baltic Motors and BM Auto. Pursuant to the Advisory Agreement, incentive compensation payments will be made to TTG Advisers only upon the occurrence of a realization event (as defined under such agreement). On July 24, 2007, the Company realized a gain of $66.5 million from the sale of Baltic Motors Corporation (“Baltic Motors “) and SIA BM Auto (“BM Auto”). This transaction triggered an incentive compensation payment obligation to TTG Advisers, which payment was not required to be made until the precise amount of the payment obligation was confirmed based on the Company’s completed audited financials for the fiscal year 2007. The payment obligation to TTG Advisers from this transaction totaled approximately $12.9 million (20% of the realized gain from the sale less unrealized depreciation on the portfolio). The net decrease also reflects the Valuation Committee’s determination to decrease the fair values of nine of the Company’s portfolio investments (Timberland, Octagon, Amersham, Henry Company, Total Safety, Vendio Services, Inc. (“Vendio”), BP, MVC Partners, and Vestal) by a total of $12.7 million and the Valuation Committee’s determination not to increase the fair values of the Harmony revolving credit facility and the Amersham loan for the accrued PIK interest totaling $308,000. During the fiscal year ended October 31, 2008, there was no provision recorded for the net operating income portion of the incentive fee as pre-incentive fee net operating income did not exceed the hurdle rate.

10. Tax Matters

On October 31, 2008, the Company had a net capital loss carryforward of $4,759,142 remaining, of which $1,463,592 will expire in the year 2012 and $3,295,550 will expire in the year 2013. To the extent future capital gains are offset by capital loss carryforwards, such gains need not be distributed. As of October 31, 2008, the Company had net unrealized capital gains of $42,362,385. The gross unrealized capital losses totaled $55,704,546. The total net realized capital loss carryforwards and gross unrealized capital losses at October 31, 2007 were $60,463,688.

On October 31, 2007, the Company had a net capital loss carryforward of $6,623,425 remaining, of which $3,327,875 will expire in the year 2012 and $3,295,550 will expire in the year 2013. To the extent future capital gains are offset by capital loss carryforwards, such gains need not be distributed. As of October 31, 2007, the Company had net unrealized capital losses of $15,363,252. The gross unrealized capital losses totaled $50,618,032. The total net realized capital loss carryforwards and gross unrealized capital losses at October 31, 2007 were $57,241,457.

On October 31, 2006, the Company had a net realized capital loss carryforward of $73,524,707 of which $28,213,867 will expire in the year 2010, $4,220,380 will expire in the year 2011, $37,794,910 will expire in the year 2012 and $3,295,550 will expire in the year 2013. To the extent future capital gains are offset by capital loss carryforwards, such gains need not be distributed. As of October 31, 2006, the Company had net unrealized capital losses of $11,593,572. The gross unrealized capital losses totaled $51,934,799. The total net realized and capital loss carryfowards and gross unrealized capital losses at October 31, 2006 were $125,459,506.

On October 31, 2005, the Fund had a net capital loss carryforward of $78,779,962 of which $33,469,122 will expire in the year 2010, $4,220,380 will expire in the year 2011, $37,794,910 will expire in the year 2012 and $3,295,550 will expire in the year 2013. To the extent future capital gains are offset by capital loss carryforwards, such gains need not be distributed.

On October 31, 2004, the Fund had a net capital loss carryforward of $75,484,412 of which $33,469,122 will expire in the year 2010, $4,220,380 will expire in the year 2011 and $37,794,910 will expire in the year 2012. Capital loss carryforwards may be subject to additional limitations as a result of capital share activity. To the extent future capital gains are offset by capital loss carryforwards, such gains will not be distributed.

In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. (“FIN”) 48, Accounting for Uncertainty in Income Taxes. FIN 48 applies to financial statements for fiscal years beginning after December 15, 2006 as deferred by FSP 48-2. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation requires recognition of the impact of a tax position if that position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In addition, FIN 48 provides measurement guidance whereby a tax position that meets the more-likely-than-not recognition threshold is calculated to determine the amount of benefit to recognize in the financial statements. We adopted this Interpretation during fiscal 2008 as required. The effect of adoption of FIN No. 48 has not had a material impact on our consolidated financial statements. If the tax law requires interest and/or penalties to be paid on an underpayment of income taxes, interest and penalties will be classified as income taxes on our financial statements, if applicable.

11. Dividends and Distributions to Shareholders

As a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), the Company is required to distribute to its shareholders, in a timely manner, at least 90% of its investment company taxable and tax-exempt income each year. If the Company distributes, in a calendar year, at least 98% of its ordinary income for such calendar year and its capital gain net income for the 12-month period ending on October 31 of such calendar year (as well as any portion of the respective 2% balances not distributed in the previous year), it will not be subject to the 4% non-deductible federal excise tax on certain undistributed income of RICs.

Dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Dividends and capital gain distributions are generally declared and paid quarterly according to the Company’s policy established on

July 11, 2005. An additional distribution may be paid by the Company to avoid imposition of federal income tax on any remaining undistributed net investment income and capital gains. Distributions can be made payable by the Company either in the form of a cash distribution or a stock dividend. The amount and character of income and capital gain distributions are determined in accordance with income tax regulations which may differ from U.S. generally accepted accounting principles. These differences are due primarily to differing treatments of income and gain on various investment securities held by the Company, differing treatments of expenses paid by the Company, timing differences and differing characterizations of distributions made by the Company. A key example of the primary differences in expenses paid is the variation in treatment of incentive compensation expense. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications and may affect the allocation between net operating income, net realized gain (loss) and paid in capital.

For the Quarter Ended January 31, 2009

On December 19, 2008, the Company’s board of directors declared a dividend of $0.12 per share. The dividend was payable on January 9, 2009 to shareholders of record on December 31, 2008. The total distribution amounted to $2,915,650, including reinvested distributions.

During the quarter ended January 31, 2009, as part of the Company’s dividend reinvestment plan for our common stockholders, we purchased 4,833 shares of our common stock at an average price of $11.00 in the open market in order to satisfy part of the reinvestment portion of our dividends.

For the Quarter Ended April 30, 2009

On April 13, 2009, the Company’s board of directors declared a dividend of $0.12 per share. The dividend was payable on April 30, 2009 to shareholders of record on April 23, 2009. The total distribution amounted to $2,915,650, including reinvested distributions.

During the quarter ended April 30, 2009, as part of the Company’s dividend reinvestment plan for our common stockholders, we purchased 2,704 shares of our common stock at an average price of $8.74 in the open market in order to satisfy part of the reinvestment portion of our dividends.

12. Segment Data

The Company’s reportable segments are its investing operations as a business development company, MVC Capital, Inc., and the financial advisory operations of its wholly-owned subsidiary, MVC Financial Services, Inc.

The following table presents book basis segment data for the quarter ended April 30, 2009:


	MVC			MVCFS			Consolidated

Interest and dividend income	$	10,940,349		$	1,873		$	10,942,222
Fee income		639,461			773,874			1,413,335
Other income		(10,067	)		—			(10,067	)
Total operating income		11,569,743			775,747			12,345,490
Total operating expenses		6,300,317			1,686,905			7,987,222
Net operating income (loss) before taxes		5,269,426			(911,158	)		4,358,268
Tax benefit		—			300			300
Net operating income (loss)		5,269,426			(911,458	)		4,357,968
Net realized loss on investments and foreign currency		(174	)		—			(174	)
Net change in unrealized depreciation on investments		(11,312,970	)		—			(11,312,970	)
Net decrease in net assets resulting from operations		(6,043,718	)		(911,458	)		(6,955,176	)

13. Subsequent Events

On May 4, 2009, the Company borrowed $2.0 million on its Credit Facility I.

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

This report contains certain statements of a forward-looking nature relating to future events or the future financial performance of the Company and its investment portfolio companies. Words such as may, will, expect, believe, anticipate, intend, could, estimate, might and continue, and the negative or other variations thereof or comparable terminology, are intended to identify forward-looking statements. Forward-looking statements are included in this report pursuant to the “Safe Harbor” provision of the Private Securities Litigation Reform Act of 1995. Such statements are predictions only, and the actual events or results may differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those relating to investment capital demand, pricing, market acceptance, the effect of economic conditions, litigation and the effect of regulatory proceedings, competitive forces, the results of financing and investing efforts, the ability to complete transactions and other risks identified below or in the Company’s filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. The following analysis of the financial condition and results of operations of the Company should be read in conjunction with the Financial Statements, the Notes thereto and the other financial information included elsewhere in this report and the Company’s annual report on Form 10-K for the year ended October 31, 2008.

SELECTED CONSOLIDATED FINANCIAL DATA:

Financial information for the fiscal year ended October 31, 2008 is derived from the consolidated financial statements, which have been audited by Ernst & Young LLP, the Company’s independent registered public 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.

Selected Consolidated Financial Data


	Six Month			Six Month
	Period Ended			Period Ended			Year Ended
	April 30,			April 30,			October 31,
	2009			2008			2008
	(Unaudited)			(Unaudited)
	(In thousands, except per share data)
Operating Data:
Interest and related portfolio income:
Interest and dividend income	$	10,942		$	14,540		$	26,047
Fee income		1,413			2,114			3,613
Other income		(10	)		323			367


Total operating income		12,345			16,977			30,027

Expenses:
Incentive compensation (Note 9)		(489	)		5,397			10,822
Administrative		1,746			1,434			8,989
Interest, fees and other borrowing costs		1,826			2,252			4,464
Management fee		4,904			4,203			3,620


Total operating expenses		7,987			13,286			27,895


Net operating income before taxes		4,358			3,691			2,132

Tax benefit		—			(164	)		(936	)


Net operating income		4,358			3,855			3,068

Net realized and unrealized gains (losses):
Net realized gains		—			940			1,418
Net change in unrealized appreciation (depreciation)		(11,313	)		33,176			59,465


Net realized and unrealized (losses) gains on investments		(11,313	)		34,116			60,883


Net increase (decrease) in net assets resulting from operations	$	(6,955	)	$	37,971		$	63,951


Per Share:
Net increase (decrease) in net assets per share resulting from operations	$	(0.28	)	$	1.56		$	2.63
Dividends per share	$	0.24		$	0.24		$	0.48

Balance Sheet Data:
Portfolio at fair value	$	478,148		$	430,080		$	490,804
Portfolio at cost		444,257			411,165			445,600
Total assets		486,899			565,796			510,711
Shareholders’ equity		409,084			401,722			421,871
Shareholders’ equity per share (net asset value)	$	16.84		$	16.53		$	17.36
Common shares outstanding at period end		24,297			24,297			24,297
Other Data:
Number of Investments funded in period		3			8			15
Investments funded ($) in period	$	3,918		$	87,270		$	126,300


	2009						2008											2007
	Qtr 2			Qtr 1			Qtr 4			Qtr 3			Qtr 2			Qtr 1		Qtr 4		Qtr 3			Qtr 2			Qtr 1
	(In thousands, except per share data)
Quarterly Data (Unaudited):

Total operating income		5,757			6,588			6,246			6,804			8,081			8,896		8,438		7,030			6,073			5,409
Incentive compensation		(335	)		(154	)		1,496			3,929			3,740			1,657		771		1,618			4,898			3,526
Interest, fees and other borrowing costs		736			1,090			1,190			1,022			1,081			1,171		1,223		1,252			1,256			1,128
Management fee		2,421			2,483			2,510			2,276			2,185			2,018		1,929		1,616			1,854			1,635
Administrative		865			881			1,299			887			753			681		630		608			652			669
Tax expense (benefit)		359			(359	)		(830	)		58			(186	)		22		77		(78	)		(394	)		20
Net operating income (loss) before net realized and unrealized gains		1,711			2,647			581			(1,368	)		508			3,347		3,808		2,014			(2,193	)		(1,569	)
Net increase (decrease) in net assets resulting from operations		(7,809	)		854			7,357			18,623			17,158			20,813		8,514		13,788			24,323			19,077
Net increase (decrease) in net assets resulting from operations per share		(0.32	)		0.04			0.30			0.77			0.70			0.86		0.35		0.57			1.00			1.00
Net asset value per share		16.84			17.28			17.36			17.18			16.53			15.95		15.21		14.98			14.53			13.23

OVERVIEW

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

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

The investments can include senior or subordinated loans, convertible debt and convertible preferred securities, common or preferred stock, equity interests, warrants or rights to acquire equity interests, and other private equity transactions. During the year ended October 31, 2008, the Company made four new investments and 11 follow-on investments in existing portfolio companies, committing capital totaling approximately $126.3 million pursuant to our current investment objective. During the six month period ended April 30, 2009, the Company made no new investments and three follow-on investments in existing portfolio companies, committing capital totaling $3.9 million.

Prior to the adoption of our current investment objective, the Company’s investment objective had been to achieve long-term capital appreciation from venture capital investments in information technology companies. The Company’s investments had thus previously focused on investments in equity and debt securities of information technology companies. As of April 30, 2009, 3.09% of the current fair value of our assets consisted of Legacy Investments. We are, however, seeking to manage these Legacy Investments to try and realize maximum returns. We generally seek to capitalize on opportunities to realize cash returns on these investments when presented with a potential “liquidity event,” i.e., a sale, public offering, merger or other reorganization.

Our new portfolio investments are made pursuant to our current objective and strategy. We are concentrating our investment efforts on small and middle-market companies that, in our view, provide opportunities to maximize total return from capital appreciation and/or income. Under our investment approach, we are permitted to invest, without limit, in any one portfolio company, subject to any diversification limits required in order for us to continue to qualify as a RIC under Subchapter M of the Code. Due to our asset growth and composition, compliance with the RIC requirements currently restricts our ability to make additional investments that represent more than 5% of our total assets or more than 10% of the outstanding voting securities of the issuer (“Non-Diversified Investments”).

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

We may also seek to achieve our investment objective by establishing a subsidiary or subsidiaries that would serve as a general partner or managing member to a private equity or other investment vehicle(s). In fact, during fiscal year 2006, we established MVC Partners for this purpose. Furthermore, our board of directors has authorized the establishment of a private equity fund (a “PE Fund”) that would have the ability, among other things, to make Non-Diversified Investments. A subsidiary of the Company would serve as the general partner (or managing member) of the PE Fund. Our board of directors also authorized the subsidiary’s retention of TTG Advisers to serve as portfolio manager of the PE Fund. Additionally, we may also acquire a portfolio of existing private equity or debt investments held by financial institutions or other investment funds should such opportunities arise.

OPERATING INCOME

For the Six Month Periods Ended April 30, 2009 and 2008. Total operating income was $12.3 million for the six month period ended April 30, 2009 and $17.0 million for the six month period ended April 30, 2008, a decrease of $4.7 million.

For the Six Month Period Ended April 30, 2009

Total operating income was $12.3 million for the six month period ended April 30, 2009. The decrease in operating income over the same period last year was primarily due to the repayment of investments that provide the Company with current income, a decrease in the LIBOR rate which impacts our variable rate loans, reserves against non-performing loans, and a decrease in fee income because of fewer new investments closed. The main components of investment income were the interest earned on loans and dividend income from portfolio companies and the receipt of closing and monitoring fees from certain portfolio companies by the Company and MVCFS. The Company earned approximately $10.9 million in interest and dividend income from investments in portfolio companies. Of the $10.9 million recorded in interest/dividend income, approximately $2.6 million was “payment in kind” interest/dividends. The “payment in kind” interest/dividends are computed at the contractual rate specified in each investment agreement and added to the principal balance of each investment. The Company’s debt investments yielded rates from 1.5% to 17%. Also, the Company earned approximately $7,100 in interest income on its cash equivalents and short-term investments. The Company received fee income and other income from portfolio companies and other entities totaling approximately $1.4 million.

For the Six Month Period Ended April 30, 2008

Total operating income was $17.0 million for the six month period ended April 30, 2008. The increase in operating income over the same period last year was primarily due to the increase in the number of investments that provide the Company with current income. The main components of investment income were the interest earned on loans and dividend income from portfolio companies and the receipt of closing and monitoring fees from certain portfolio companies by the Company and MVCFS. The Company earned approximately $13.9 million in interest and dividend income from investments in portfolio companies. Of the $13.9 million recorded in interest/dividend income, approximately $2.8 million was “payment in kind” interest/dividends. The “payment in kind” interest/dividends are computed at the contractual rate specified in each investment agreement and added to the principal balance of each investment. The Company’s debt investments yielded rates from 2% to 17%. Also, the Company earned approximately $670,000 in interest income on its cash equivalents and short-term investments. The Company received fee income and other income from portfolio companies and other entities totaling approximately $2.1 million and $323,000, respectively.

OPERATING EXPENSES

For the Six Month Period Ended April 30, 2009 and 2008. Operating expenses were $8.0 million for the six month period ended April 30, 2009 and $13.3 million for the six month period ended April 30, 2008, a decrease of $5.3 million.

For the Six Month Period Ended April 30, 2009

Operating expenses were $8.0 million or 3.84% of the Company’s average net assets, when annualized, for the six month period ended April 30, 2009. Significant components of operating expenses for the six month period ended April 30, 2009, included the management fee of $4.9 million and interest expense and other borrowing costs of $1.8 million.

The $5.3 million decrease in the Company’s operating expenses for the six month period ended April 30, 2009 compared to the six month period ended April 30, 2008, was primarily due to the $5.9 million decrease in the estimated provision for incentive compensation expense and the approximately $427,000 decrease in interest and other borrowing costs offset by the increase of approximately $700,000 in the management fee expense. The Amended Agreement extended the expense cap applicable to the Company for an additional two fiscal years (fiscal years 2009 and 2010) and increased the expense cap from 3.25% to 3.5%. For fiscal year 2008 and for the six month period ended April 30, 2009 annualized, the Company’s expense ratio was 2.93% and 3.20 %, respectively, (taking into account the same carve outs as those applicable to the expense cap).

Pursuant to the terms of the Advisory Agreement, during the six month period ended April 30, 2009, the provision for incentive compensation was decreased by a net amount of $489,186 to $15,305,109. The amount of the provision reflects the Valuation Committee’s determination to increase the fair values of five of the Company’s portfolio investments (U.S. Gas, Tekers, SGDA, Velocitius, and Dakota Growers) by a total of $18.7 million. The Valuation Committee also increased the fair value of the Ohio Medical preferred stock by approximately $2.8 million due to a PIK distribution, which was treated as a return of capital. The net decrease reflects the Valuation Committee’s determination to decrease the fair values of seven of the Company’s portfolio investments (Timberland, Amersham, Turf, PreVisor, Ohio Medical, Custom Alloy and BP) by a total of $27.1 million and the Valuation Committee determination not to increase the fair values of the Harmony Pharmacy revolving credit facility, Timberland senior subordinated loan and the Amersham loan for the accrued PIK totaling $544,000. During the six month period ended April 30, 2009, there was no provision recorded for the net operating income portion of the incentive fee as pre-incentive fee net operating income did not exceed the hurdle rate. Please see Note 9 “Incentive Compensation” for more information.

For the Six Month Period Ended April 30, 2008

Operating expenses were $13.3 million or 6.96% of the Company’s average net assets, when annualized, for the six month period ended April 30, 2008. Significant components of operating expenses for the six month period ended April 30, 2008, included the management fee of $4.2 million, the estimated provision for incentive compensation expense of approximately $5.4 million, and interest expense and other borrowing costs of $2.3 million. The estimated provision for incentive compensation expense is a non-cash, not yet payable, provisional expense relating to the Advisory Agreement.

The $2.3 million decrease in the Company’s operating expenses for the six month period ended April 30, 2008 compared to the six month period ended April 30, 2007, was primarily due to the $3.0 million decrease in the provision for estimated incentive compensation and the approximately $714,000 increase in the management fee expense. The Prior Advisory Agreement provided for an expense cap pursuant to which TTG Advisers would absorb or reimburse operating expenses of the Company to the extent necessary to limit the Company’s expense ratio (the consolidated expenses of the Company, including any amounts payable to TTG Advisers under the base management fee, but excluding the amount of any interest and other direct borrowing costs, taxes, incentive compensation and extraordinary expenses taken as a percentage of the Company’s average net assets) to 3.25% in each of the 2007 and 2008 fiscal years. For fiscal year 2007, the expense ratio was 3.0% (taking into account the same carve outs as those applicable to the expense cap).

Pursuant to the terms of the Prior Advisory Agreement, during the six month period ended April 30, 2008, the estimated provision for incentive compensation on the balance sheet, was decreased by a net amount of $7,505,992 to $10,369,504. The amount of the provision reflects the Valuation Committee’s determination to increase the fair values of eight of the Company’s portfolio investments: U.S. Gas, Vitality, Tekers, SGDA, Custom Alloy, MVC Automotive, PreVisor and Velocitius by a total of $28.1 million. The provision also reflects the Valuation Committee’s determination to increase the fair value of the Ohio Medical preferred stock by approximately $1.6 million due to a PIK distribution which was treated as a return of capital. The net decrease in the provision for incentive compensation during the six month period ended April 30, 2008 was a result of the incentive compensation payment to TTG Advisers of $12.9 million due to the sale of Baltic Motors and BM Auto (20% of the realized gain from the sale less unrealized depreciation on the portfolio). Pursuant to the Existing Advisory Agreement, incentive compensation payments will be made only upon the occurrence of a realization event (such as the sale of shares of Baltic Motors and BM Auto). Without this reserve for incentive compensation, operating expenses would have been approximately $7.9 million or 4.05% of average net assets when annualized as compared to 6.88%, which is reported on the Consolidated Per Share Data and Ratios, for the six month period ended April 30, 2008. During the six month period ended April 30, 2008, there was no provision recorded for the net operating income portion of the incentive fee as pre-incentive fee net operating income did not exceed the hurdle rate. Please see Note 9 “Incentive Compensation” for more information.

In February 2008, the Company renewed its Directors & Officers/Professional Liability Insurance policies at an annual premium expense of approximately $362,000, which is amortized over the twelve month life of the policy. The prior policy premium was $381,000.

REALIZED GAINS AND LOSSES ON PORTFOLIO SECURITIES

For the Six Month Period Ended April 30, 2009 and 2008. Net realized losses for the six month period ended April 30, 2009 were immaterial. Net realized gains for the six month period ended April 30, 2008, were $940,550.

For the Six Month Period Ended April 30, 2009

There were no material net realized losses or gains for the six month period ended April 30, 2009.

For the Six Month Period Ended April 30, 2008

Net realized gains for the six month period ended April 30, 2008 were $940,550. The significant component of the Company’s net realized gains for the six month period ended April 30, 2008 was primarily due to the gain on the sale of Genevac common stock. On January 2, 2008, Genevac repaid its senior subordinated loan in full, including all accrued interest. The total amount received was $11.9 million. The Company, at this time, sold 140 shares of Genevac common stock for $1.7 million, resulting in a capital gain of $595,000. The Company also received a distribution related to the sale of Baltic of approximately $283,000.

The Company also realized a gain on foreign currency of approximately $60,000.

UNREALIZED APPRECIATION AND DEPRECIATION OF PORTFOLIO SECURITIES

For the Six Month Period Ended April 30, 2009 and 2008. The Company had a net change in unrealized depreciation on portfolio investments of $11.3 million for the six month period ended April 30, 2009 and unrealized appreciation of $33.2 million for the six month period ended April 30, 2008, a decrease of approximately $44.5 million.

For the Six Month Period Ended April 30, 2009

The Company had a net change in unrealized depreciation on portfolio investments of $11.3 million for the six month period ended April 30, 2009. The change in unrealized depreciation on investment transactions for the six month period ended April 30, 2009 primarily resulted from the Valuation Committee’s decision to decrease the fair value of the Company’s investments in Ohio Medical common stock by $6.5 million, Foliofn preferred stock by $3.8 million, Vendio preferred stock by $1.4 million and common stock by $2,000, PreVisor common stock by $3.1 million, Custom Alloy preferred stock by $4.3 million, Timberland senior subordinated loan by approximately $7.3 million and junior revolving line of credit by $1.0 million, Amersham second lien notes by $1.4 million, Turf equity interest by $2.3 million, and BP term loan B by approximately $181,000, term loan A by approximately $153,000 and second lien loan by approximately $948,000. The Valuation Committee also determined not to increase the fair values of the Harmony Pharmacy revolving credit facility, Timberland senior subordinated loan and the Amersham loan for the accrued PIK totaling approximately $544,000. The Valuation Committee also increased the fair value of the Company’s investments in U.S. Gas preferred stock by $6.0 million, SGDA preferred equity interest by $250,000 and common equity interest by $1.2 million, Tekers common stock by $725,000, Velocitius equity interest by $500,000, Dakota Growers common stock by approximately $4.9 million and preferred stock by approximately $5.1 million, and Ohio Medical preferred stock by approximately $2.8 million due to a PIK distribution which was treated as a return of capital.

For the Six Month Period Ended April 30, 2008

The Company had a net change in unrealized appreciation on portfolio investments of $33.2 million for the six month period ended April 30, 2008. The change in unrealized appreciation on investment transactions for the six month period ended April 30, 2008 primarily resulted from the Valuation Committee’s decision to increase the fair value of the Company’s investments in U.S. Gas preferred stock by $5.2 million, SGDA preferred equity interest by $250,000, Foliofn preferred stock by $6.0 million, Tekers common stock by $575,000, Custom Alloy preferred stock by $8.5 million, Velocitius equity interest by $6.7 million, MVC Automotive equity interest by $3.8 million, PreVisor common stock by $2.7 million, Vitality common stock and warrants by approximately $453,000 and Ohio Medical preferred stock by approximately $1.6 million due to a PIK distribution which was treated as a return of capital. The Valuation Committee also determined to decrease the fair value of the Company’s investments in Vendio preferred stock by $2.3 million and Timberland common stock by $680,000.

PORTFOLIO INVESTMENTS

For the Six Month Period Ended April 30, 2009 and the Year Ended October 31, 2008. The cost of the portfolio investments held by the Company at April 30, 2009 and at October 31, 2008 was $444.3 million and $445.6 million, respectively, a decrease of $1.3 million. The aggregate fair value of portfolio investments at April 30, 2009 and at October 31, 2008 was $478.1 million and $490.8 million, respectively, a decrease of $12.7 million. The Company held cash and cash equivalents at April 30, 2009 and at October 31, 2008 of $3.1 million and $12.8, respectively, a decrease of approximately $9.7 million.

For the Six Month Period Ended April 30, 2009

During the six month period ended April 30, 2009, the Company made three follow-on investments in existing portfolio companies committing capital totaling $3.9 million. The Company invested $2.9 million in Harmony Pharmacy in the form of two demand notes, a $700,000 demand note on November 4, 2008 and a $2.2 million demand note on March 3, 2009. The demand notes have an annual interest rate of 10%. The Company also invested approximately $1.0 million in MVC Partners equity interest during the six month period ended April 30, 2009.

At October 31, 2008, the balance of the revolving credit facility provided to Octagon was $650,000. Net repayments during the six month period ended April 30, 2009 were $650,000. There was no amount outstanding as of April 30, 2009.

At October 31, 2008, the balance of the revolving senior credit facility provided to U.S. Gas was approximately $85,000. During the fiscal year ended October 31, 2008, U.S. Gas entered into a swap agreement which locked in a portion of the senior credit facility with an annual rate of LIBOR plus 6% for a period of two years. This portion of the senior credit facility, in connection to the swap agreement, was approximately $571,000 at October 31, 2008 and April 30, 2009. The balance of the remaining portion of the senior credit facility at October 31, 2008 was approximately $4.4 million. Net repayments on this portion of the senior credit facility, which were borrowed at an annual rate of Prime plus 4.5%, were approximately $4.4 million, resulting in no balance outstanding at April 30, 2009. The portion of the senior credit facility, in connection to the swap agreement, was approximately $571,000 at April 30, 2009.

During the six month period ended April 30, 2009, the Company received approximately $53,000 in principal payments on the term loan provided to Storage Canada. The balance of the term loan at April 30, 2009 was approximately $1.2 million.

On December 15, 2008, January 2, 2009, March 6, 2009, April 1, 2009 and April 4, 2009, the Company received principal payments of $1,609,500, $37,500, $52,167, $37,500 and $33,667, respectively, on the term loan provided to Innovative Brands. The Company also received a loan amendment fee of approximately $57,000. The interest rate on the term loan was increased to 14.5%. The balance of the term loan as of April 30, 2009 was approximately $11.3 million.

On December 31, 2008, the Company received a quarterly principal payment from BP Clothing on term loan A of $146,250. The balance of term loan A as of April 30, 2009 was approximately $2.0 million.

On December 31, 2008 and March 31, 2009, Total Safety made principal payments of $2,500 on each date on its first lien loan. The balance of the first lien loan as of April 30, 2009 was $977,500.

On December 31, 2008 and March 31, 2009, SP made principal payments of $17,361 and $19,097, respectively, on its first lien loan. The balance of the first lien loan as of April 30, 2009, was approximately $961,000.

On December 31, 2008, Henry Company made a principal payment of approximately $127,000 on its term loan A. The balance of term loan A as of April 30, 2009 was approximately $1.7 million.

On March 11, 2009 and April 30, 2009, TerraMark made principal payments of $300,000 and $500,000 on its senior secured loan resulting in a balance of $700,000 as of April 30, 2009. The maturity date was extended to June 1, 2009.

During the six month period ended April 30, 2009, the Valuation Committee increased the fair value of the Company’s investments in U.S. Gas preferred stock by $6.0 million, SGDA preferred equity interest by $250,000 and common equity interest by approximately $1.2 million, Tekers common stock by $725,000, Velocitius equity interest by $500,000, and Dakota Growers common stock by approximately $4.9 million and preferred stock by approximately $5.1 million. In addition, increases in the cost basis and fair value of the loans to GDC, SP, Marine, BP, Summit, U.S. Gas, and WBS, and the Vitality and Marine preferred stock were due to PIK interest/dividends totaling $2,646,785. The Valuation Committee also increased the fair value of the Ohio Medical preferred stock by approximately $2.8 million due to a PIK distribution which was treated as a return of capital. Also, during the six month period ended April 30, 2009, the undistributed allocation of flow through loss from the Company’s equity investment in Octagon decreased the cost basis and fair value of this investment by approximately $10,000. The Valuation Committee also decreased the fair value of the Company’s investments in Ohio Medical common stock by $6.5 million, Vendio preferred stock by $1.4 million and common stock by $2,000, Foliofn preferred stock by $3.8 million, PreVisor common stock by $3.1 million,

Custom Alloy preferred stock by $4.3 million, Timberland senior subordinated loan by approximately $7.3 million and junior revolving line of credit by $1.0 million, Amersham second lien notes by $1.4 million, Turf equity interest by $2.3 million, and BP term loan B by approximately $181,000, term loan A by approximately $153,000 and second lien loan by approximately $948,000, during the six month period ended April 30, 2009. The Valuation Committee also determined not to increase the fair values of the Harmony Pharmacy revolving credit facility, Timberland senior subordinated loan and the Amersham loan for the accrued PIK interest totaling approximately $544,000. During the six month period ended April 30, 2009, the Company received a return of capital distribution from Turf of approximately $286,000.

At April 30, 2009, the fair value of all portfolio investments, exclusive of short-term securities, was $478.1 million with a cost basis of $444.3 million. At April 30, 2009, the fair value and cost basis of Legacy Investments was $15.0 million and $55.9 million, respectively, and the fair value and cost basis of portfolio investments made by the Company’s current management team was $470.4 million and $390.5 million, respectively. At October 31, 2008, the fair value of all portfolio investments, exclusive of short-term securities, was $490.8 million, with a cost basis of $445.6 million. At October 31, 2008, the fair value and cost basis of Legacy Investments was $20.2 million and $55.9 million, respectively, and the fair value and cost basis of portfolio investments made by the Company’s current management team was $470.6 million and $389.7 million, respectively.

For the Year Ended October 31, 2008

During the fiscal year ended October 31, 2008, the Company made four new investments, committing capital totaling approximately $54.5 million. The investments were made in SP ($24.0 million), SGDA Europe ($750,000), TerraMark ($1.5 million), and Security Holdings ($28.2 million).

The Company also made 11 follow-on investments in existing portfolio companies committing capital totaling approximately $71.8 million. Two of these follow-on investments were made in companies that were new investments in fiscal year 2008. During the fiscal year ended October 31, 2008, the Company made additional investments totaling approximately $217,000 in MVC Partners. In connection with these investments, MVC Partners has made an investment in MVC Acquisition Corp., a newly-formed (but not yet operating) blank check company organized for the purpose of effecting a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business. During the year ended October 31, 2008, the Company also made additional investments totaling $3.3 million in Harmony Pharmacy in the form of a demand note. The demand note has an annual interest rate of 10%. On November 30, 2007, the Company invested an additional $36.7 million in Ohio Medical in the form of a $10.0 million senior subordinated note and $26.7 million in 9,917 shares of convertible preferred stock. At this time, the $3.3 million convertible unsecured subordinated promissory note was converted into preferred stock. The note has an annual interest rate of 16% and a maturity date of May 30, 2012. On December 13, 2007, the Company assigned the Ohio Medical $10.0 million senior subordinated note to AEA Investors LLC. On January 25, 2008, the amount available on the Timberland revolving note was increased by $1.0 million to $5.0 million, which Timberland immediately borrowed. On February 29, 2008, the Company invested an additional $7.8 million in Summit in the form of a $3.0 million second lien loan and $4.8 million in common stock. The second lien loan has an annual interest rate of 14% and a maturity date of August 31, 2013. On April 25, 2008, the Company invested an additional $11.8 million in BENI by purchasing 874 shares of common stock. On April 30, 2008 and July 31, 2008, the Company invested an additional $2.7 million and $4.0 million, respectively, in SGDA Europe in the form of equity interest. On July 30, 2008, the Company increased its investment in SP by approximately $1.3 million, investing an additional $1.2 million in the second lien loan and $50,000 in the first lien loan. On July 31, 2008, the Company extended Turf a $1.0 million junior revolving note. The revolving note has an annual interest rate of 6% and a maturity date of May 1, 2011. Turf immediately borrowed $1.0 million on the note. The prior junior revolving note matured on May 1, 2008. On August 4, 2008, the Company increased its investment in U.S. Gas by investing an additional $2.0 million in the second lien loan.

During the fiscal year ended October 31, 2008, Phoenix Coal began trading on the Toronto Stock Exchange. Consistent with the Company’s valuation procedures, effective June 30, 2008, the Company has been marking this investment to its market price. On July 23, 2008, the Company sold 500,000 shares of Phoenix Coal. The total amount received from the sale net of commission was approximately $512,000, resulting in a realized gain of approximately $262,000. On July 29, 2008, the Company sold an additional 500,000 shares of Phoenix Coal. The total amount received from the sale net of commission was approximately $484,000, resulting in a realized gain of approximately $234,000.

On November 2, 2007, Genevac made a principal payment of $1.0 million on its senior subordinated loan. On January 2, 2008, Genevac repaid its senior subordinated loan in full, including all accrued interest totaling, $11.9 million. The Company, at this time, sold 140 shares of Genevac common stock for $1.7 million, resulting in a short-term capital gain of $595,000.

On December 31, 2007, Turf borrowed $1.0 million from the secured junior revolving note. This amount was repaid on April 28, 2008.

On January 15, 2008, Impact repaid its promissory note and senior subordinated loan in full, including all accrued interest, totaling $6.1 million. The Company, at this time, sold 252 shares of common stock at cost for $2.7 million.

On January 29, 2008, MVC Automotive made a principal payment of $17.4 million on its bridge loan, resulting in a principal balance of $1.6 million.

On February 29, 2008, the Company sold 400 shares of WBS at its cost of $1.6 million.

On April 15, 2008, the Company received a principal payment of $100,000 from Vestal on its senior subordinated debt. The balance of the senior subordinated debt as of October 31, 2008 was $600,000.

On August 12, 2008, the Company invested $1.5 million in TerraMark in the form of a senior secured loan. The loan bears annual interest at 10% and matures on February 12, 2009.

On August 29, 2008 and September 3, 2008, GDC made principal payments of $250,000 and $108,951, respectively, on its senior subordinated loan. The balance of the loan as of October 31, 2008 was approximately $3.0 million.

On September 3, 2008, the Company invested $28.2 million in Security Holdings in the form of common equity interest.

Portfolio Companies

During the six month period ended April 30, 2009, the Company had investments in the following portfolio companies:

Actelis Networks, Inc.

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

At October 31, 2008 and April 30, 2009, the Company’s investment in Actelis consisted of 150,602 shares of Series C preferred stock at a cost of $5.0 million. The investment has been fair valued at $0.

Amersham Corporation

Amersham, Louisville, Colorado, is a manufacturer of precision machined components for the aviation, automotive and medical device markets.

At October 31, 2008, the Company’s investment in Amersham consisted of a $2.5 million note, bearing annual interest at 10%. The note has a maturity date of June 29, 2010. The note had a principal face amount and cost basis of $2.5 million. The Company’s investment also included an additional $3.1 million note bearing annual interest at 17%, which includes a 3% default interest rate. The interest rate then steps down to 13% for the period July 1, 2010 to June 30, 2012 and steps down again to 12% for the period July 1, 2012 to June 30, 2013. The note has a maturity date of June 30, 2013. The note had a principal face amount and cost basis of $3.5 million. At October 31, 2008, the notes had a combined outstanding balance and cost of $6.0 million and a combined fair value of $5.5 million.

During the six month period ended April 30, 2009, the Valuation Committee decreased the combined fair value of the loans by approximately $1.4 million.

At April 30, 2009, the notes had a combined outstanding balance and cost of $6.1 million and a combined fair value of $4.1 million. The increase in the outstanding balance and cost of the loan is due to the capitalization of “payment in kind” interest. The Company’s Valuation Committee did not approve an increase to the fair value of the investment as a result of the capitalization of the PIK interest.

BP Clothing, LLC

BP, Pico Rivera, California, is a company that designs, manufactures, markets and distributes Baby Phat^®, a line of women’s clothing. BP operates within the women’s urban apparel market. The urban apparel market is highly fragmented, with a small number of prominent, nationally recognized brands and a large number of small niche players. Baby Phat is a recognized urban apparel brand in the women’s category.

At October 31, 2008, the Company’s investment in BP consisted of an $18.2 million second lien loan, a $2.1 million term loan A, and a $2.0 million term loan B. The second lien loan bears annual interest at 14%. The second lien loan has a $17.5 million principal face amount and was issued at a cost basis of $17.5 million. The second lien loan’s cost basis was subsequently discounted to reflect loan origination fees received. The maturity date of the second lien loan is July 18, 2012. The principal balance is due upon maturity. The $2.1 million term loan A bears annual interest at LIBOR plus 4.25% or Prime Rate plus 3.25%. The $2.0 million term loan B bears annual interest at LIBOR plus 6.40% or Prime Rate plus 5.40%. The interest rate option on the loan assignments is at the borrower’s discretion. Both loans mature on July 18, 2011. The combined cost basis and fair value of the investments at October 31, 2008 was $22.1 million and $22.3 million, respectively.

During the six month period ended April 30, 2009, the Valuation Committee decreased the fair value of the term loan B by approximately $181,000, the term loan A by approximately $153,000, and the second lien loan by approximately $948,000.

At April 30, 2009, the loans had a combined cost basis and fair value of $22.2 million and $21.1 million, respectively. The increase in the outstanding balance, cost and fair value of the loans is due to the amortization of loan origination fees and the capitalization of “payment in kind” interest. These increases were approved by the Company’s Valuation Committee.

Custom Alloy Corporation

Custom Alloy, High Bridge, New Jersey, manufactures time sensitive and mission critical butt-weld pipe fittings for the natural gas pipeline, power generation, oil/gas refining and extraction, and nuclear generation markets.

At October 31, 2008, the Company’s investment in Custom Alloy consisted of nine shares of convertible series A preferred stock at a cost of $44,000 and a fair value of $143,000, 1,991 shares of convertible series B preferred stock at a cost of approximately $10.0 million and a fair value of approximately $32.4 million. The

unsecured subordinated loan, which bears annual interest at 14% and matures on September 18, 2012, had a cost of $11.7 million and a fair value of $12.0 million.

During the six month period ended April 30, 2009, the Valuation Committee decreased the fair value of the preferred stock by approximately $4.3 million.

At April 30, 2009, the Company’s investment in Custom Alloy consisted of nine shares of convertible series A preferred stock at a cost of $44,000 and a fair value of $124,000, 1,991 shares of convertible series B preferred stock at a cost of approximately $10.0 million and a fair value of approximately $28.1 million. The unsecured subordinated loan had an outstanding balance of $12.2 million, a cost of $11.9 million and a fair value of $12.2 million. The increase in the cost basis of the loan is due to the amortization of loan origination fees and the capitalization of “payment in kind” interest.

Michael Tokarz, Chairman of the Company, and Shivani Khurana, representative of the Company, serve as directors of Custom Alloy.

Dakota Growers Pasta Company, Inc.

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

At October 31, 2008, the Company’s investment in Dakota Growers consisted of 1,016,195 shares of common stock with a cost of $5.5 million and a fair value of $10.2 million and 1,065,000 shares of convertible preferred stock with a cost of $10.4 million and a fair value of $10.7 million.

During the six month period ended April 30, 2009, the Valuation Committee increased the fair value of the preferred stock by approximately $5.1 million and the common stock by approximately $4.9 million.

At April 30, 2009, the Company’s investment in Dakota Growers consisted of 1,016,195 shares of common stock with a cost of $5.5 million and a fair value of $15.0 million and 1,065,000 shares of convertible preferred stock with a cost of $10.4 million and a fair value of $15.8 million.

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

DPHI, Inc. (formerly DataPlay, Inc.)

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

At October 31, 2008 and April 30, 2009, the Company’s investment in DPHI consisted of 602,131 shares of Series A-1 preferred stock with a cost of $4.5 million. This investment has been fair valued at $0.

Endymion Systems, Inc.

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

At October 31, 2008 and April 30, 2009, the Company’s investment in Endymion consisted of 7,156,760 shares of Series A preferred stock with a cost of $7.0 million. The investment has been fair valued at $0.

Foliofn, Inc.

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

At October 31, 2008, the Company’s investment in Foliofn consisted of 5,802,259 shares of Series C preferred stock with a cost of $15.0 million and fair value of $13.6 million.

During the six month period ended April 30, 2009, the Valuation Committee determined to decrease the fair value of the investment by $3.8 million.

At April 30, 2009, the Company’s investment in Foliofn consisted of 5,802,259 shares of Series C preferred stock with a cost of $15.0 million and a fair value of $9.8 million.

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

GDC Acquisitions, LLC d/b/a JDC Lighting, LLC

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

At October 31, 2008, the Company’s investment in GDC consisted of a $3.0 million senior subordinated loan, bearing annual interest at 17% with a maturity date of August 31, 2011. The loan had a principal face amount, an outstanding balance and a cost basis of $3.0 million. The loan was fair valued at $3.0 million.

At April 30, 2009, the loan had an outstanding balance and cost of $3.0 million. The loan was fair valued at $3.0 million. The increase in the outstanding balance, cost and fair value of the loan is due to the amortization of loan origination fees and the capitalization of “payment in kind” interest. These increases were approved by the Company’s Valuation Committee.

Harmony Pharmacy & Health Center, Inc.

Harmony Pharmacy, Purchase, New York, operates pharmacy and healthcare centers primarily in airports in the United States. Harmony Pharmacy opened their first store in Newark International Airport in March of 2007 and opened their second store in Greenwich, Connecticut in October 2007. The third store opened in John F. Kennedy International Airport in October 2008.

At October 31, 2008, the Company’s equity investment in Harmony Pharmacy consisted of 2 million shares of common stock with a cost of $750,000 and a fair value of $750,000. The revolving credit facility had an outstanding balance of $4.3 million, a cost of $4.3 million, and a fair value of $4.0 million. The credit facility bears annual interest at 10%, matures on December 1, 2009 and has a .50% unused fee per annum. The demand note had an outstanding balance of $3.3 million with a cost and fair value of $3.3 million.

During the six month period ended April 30, 2009, the Company invested $2.9 million in Harmony Pharmacy in the form of two demand notes, a $700,000 demand note on November 4, 2008 and a $2.2 million demand note on March 3, 2009. The demand notes have an annual interest rate of 10%.

At April 30, 2009, the Company’s equity investment in Harmony Pharmacy consisted of 2 million shares of common stock with a cost of $750,000 and a fair value of $750,000. The revolving credit facility had an outstanding balance of $4.5 million, a cost of $4.5 million, and a fair value of $4.0 million. The demand notes had a total outstanding balance of $6.2 million with a cost and fair value of $6.2 million. The increase in the outstanding balance and cost basis of the revolving credit facility is due to the capitalization of “payment in kind” interest. The Company’s Valuation Committee did not approve an increase to the fair value of the investment as a result of the capitalization of the PIK interest. The Company has reserved in full against the interest accrued on the revolving credit facility and the demand notes due to losses related to expansion costs.

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

Henry Company

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

At October 31, 2008, the Company’s investment in Henry Company consisted of $3.8 million in loan assignments. The $1.8 million term loan A bears annual interest at LIBOR plus 3.5% and matures on April 6, 2011. The $2.0 million term loan B bears annual interest at LIBOR plus 7.75% and also matures on April 6, 2011.

On December 31, 2008, the Company received a principal payment of approximately $127,000 on the term loan A.

At April 30, 2009, the loans had a combined outstanding balance, cost basis, and fair value of approximately $3.7 million.

HuaMei Capital Company, Inc.

HuaMei, Chicago, Illinois, is a Chinese-American, cross border investment bank and advisory company.

At October 31, 2008 and April 30, 2009, the Company’s investment in HuaMei consisted of 500 shares of common stock with a cost and fair value of $2.0 million.

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

Innovative Brands, LLC

Innovative Brands, Phoenix, Arizona, is a consumer product company that manufactures and distributes personal care products.

At October 31, 2008, the Company’s investment in Innovative Brands consisted of a $13.0 million loan assignment. The $13.0 million term loan bears annual interest at 11.75% and matures on September 25, 2011. The loan had a cost basis and fair value of $13.0 million as of October 31, 2008.

On December 15, 2008, January 2, 2009, March 6, 2009, April 1, 2009 and April 4, 2009, the Company received principal payments of $1,609,500, $37,500, $52,167, $37,500 and $33,667, respectively, on the term loan provided to Innovative Brands. The Company also received a loan amendment fee of approximately $57,000. The interest rate on the term loan was increased to 15.5% from 11.75%.

At April 30, 2009, the loan had an outstanding balance, cost basis and a fair value of approximately $11.3 million.

Lockorder Limited (formerly Safestone Technologies PLC)

Lockorder, Old Amersham, United Kingdom, a Legacy Investment, provides organizations with technology designed to secure access controls, enforcing compliance with security policies and enabling effective management of corporate IT and e-business infrastructure.

At October 31, 2008 and April 30, 2009, the Company’s investment in Lockorder consisted of 21,064 shares of common stock with a cost of $2.0 million. The investment has been fair valued at $0 by the Company’s Valuation Committee.

Mainstream Data, Inc.

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

At October 31, 2008 and April 30, 2009, the Company’s investment in Mainstream consisted of 5,786 shares of common stock with a cost of $3.75 million. The investment has been fair valued at $0.

Marine Exhibition Corporation

Marine, Miami, Florida, owns and operates the Miami Seaquarium. The Miami Seaquarium is a family-oriented entertainment park.

At October 31, 2008, the Company’s investment in Marine consisted of a senior secured loan, a secured revolving note, and 2,000 shares of preferred stock. The senior secured loan had an outstanding balance of $10.9 million and a cost of $10.8 million. The senior secured loan bears annual interest at 11% and matures on June 30, 2013. The senior secured loan was fair valued at $10.9 million. The secured revolving note had an

outstanding balance, cost and fair value of $700,000. The secured revolving note bears interest at LIBOR plus 1%, has an unused fee of .50% per annum and matures on June 30, 2013. The preferred stock was fair valued at $2.4 million. The dividend rate on the preferred stock is 12% per annum.

At April 30, 2009, the Company’s senior secured loan had an outstanding balance of $11.2 million, a cost of $11.0 million and a fair value of $11.2 million. The secured revolving note had an outstanding balance, cost and fair value of $700,000. The preferred stock had been fair valued at $2.5 million. The increase in the outstanding balance, cost and fair value of the loan and preferred stock is due to the amortization of loan origination fees and the capitalization of “payment in kind” interest/dividends. These increases were approved by the Company’s Valuation Committee.

MVC Automotive Group B.V.

MVC Automotive, an Amsterdam-based holding company that owns and operates nine Ford dealerships located in Austria, Belgium, and the Netherlands.

At October 31, 2008 and April 30, 2009, the Company’s investment in MVC Automotive consisted of an equity interest with a cost of $34.7 million and a fair value of $41.5 million. The bridge loan, which bears annual interest at 10% and matures on December 31, 2009, had a cost and fair value of $3.6 million.

The mortgage guarantees for MVC Automotive were equivalent to approximately $15.6 million at April 30, 2009.

Michael Tokarz, Chairman of the Company, and Christopher Sullivan, a representative of the Company, serve as directors of MVC Automotive.

MVC Partners LLC

MVC Partners, Purchase, New York, a wholly-owned portfolio company, is a private equity firm established primarily to serve as the general partner, managing member or anchor investor of private investment vehicles or other portfolios.

At October 31, 2008 the Company’s equity investment in MVC Partners had a cost basis of approximately $333,000 and fair value of approximately $133,000.

During the six month period ended April 30, 2009, the Company invested approximately $1.1 million in MVC Partners equity interest.

At April 30, 2009 the Company’s equity investment in MVC Partners had a cost basis of approximately $1.4 million and fair value of approximately $1.2 million.

Octagon Credit Investors, LLC

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

At October 31, 2008, the Company’s investment in Octagon consisted of a term loan with an outstanding balance and a cost basis of $5.0 million, a revolving line of credit with an outstanding balance of $650,000 with a cost of $650,000, and an equity investment with a cost basis of approximately $1.1 million and fair value of approximately $2.6 million. The combined fair value of the investment at October 31, 2008 was $8.2 million. The term loan bears annual interest at LIBOR plus 4.25% and matures on December 31, 2011. The revolving line of credit bears annual interest at LIBOR plus 4.25%, matures on December 31, 2011 and has an unused fee of .50% per annum.

Net repayments during the six month period ended April 30, 2009 were $650,000, resulting in a balance outstanding as of April 30, 2009 of $0.

During the six month period ended April 30, 2009, the cost basis of the equity investment was decreased by approximately $10,000 because of an allocation in flow through loss.

At April 30, 2009, the term loan had an outstanding balance of $5.0 million with a cost of approximately $5.0 million. The loan was fair valued at $5.0 million. The increase in cost basis of the loan is due to the

amortization of loan origination fees. The increase was approved by the Company’s Valuation Committee. The revolving line of credit did not have an outstanding balance.

At April 30, 2009, the equity investment had a cost basis of approximately $1.1 million and a fair value of $2.6 million.

Ohio Medical Corporation

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

At October 31, 2008, the Company’s investment in Ohio Medical consisted of 5,620 shares of common stock with a cost basis and fair value of $17.0 million and $17.2 million, respectively, and 11,306 shares of convertible preferred stock with a cost basis of $30.0 million and a fair value of $34.2 million.

During the six month period ended April 30, 2009, the Valuation Committee decreased the fair value of the common stock by $6.5 million.

At April 30, 2009, the Company’s investment in Ohio Medical consisted of 5,620 shares of common stock with a cost basis and fair value of $17.0 million and $10.7 million, respectively, and 11,758 shares of convertible preferred stock with a cost basis of $30.0 million and a fair value of $37.0 million. The increase in the fair value of the convertible preferred stock is due to PIK distributions which were treated as a return of capital. This increase was approved by the Company’s Valuation Committee.

Michael Tokarz, Chairman of the Company, Peter Seidenberg, Chief Financial Officer of the Company, and Jim O’Connor, a representative of the Company, serve as directors of Ohio Medical.

Phoenix Coal Corporation

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

At October 31, 2008, the Company’s investment in Phoenix Coal consisted of 666,667 shares of common stock which had a cost basis of $500,000 and a fair value of approximately $105,000.

During the fiscal year ended October 31, 2008, Phoenix Coal began trading on the Toronto Stock Exchange (TSX: PHC). Consistent with the Company’s valuation procedures, effective June 30, 2008, the Company has been marking this investment to its market price.

At April 30, 2009, the Company’s investment in Phoenix Coal consisted of 666,667 shares of common stock which had a cost basis of $500,000 and a fair value of approximately $147,000.

PreVisor, Inc.

PreVisor, Roswell, Georgia, provides pre-employment testing and assessment solutions and related professional consulting services.

On May 31, 2006, the Company invested $6.0 million in PreVisor in the form of 9 shares of common stock. Mr. Tokarz, our Chairman and Portfolio Manager, is a minority non-controlling shareholder of PreVisor. Our board of directors, including all of our directors who are not “interested persons” of the Company, as defined by the 1940 Act (the “Independent Directors”), approved the transaction (Mr. Tokarz recused himself from making a determination or recommendation on this matter).

At October 31, 2008, the common stock had a cost basis and fair value of $6.0 million and $10.1 million, respectively.

During the six month period ended April 30, 2009, the Valuation Committee decreased the fair value of the common stock by $3.1 million.

At April 30, 2009, the common stock had a cost basis and fair value of $6.0 million and $7.0 million, respectively.

SafeStone Technologies Limited (formerly Safestone Technologies PLC)

SafeStone Limited, Old Amersham, United Kingdom, a Legacy Investment, provides organizations with technology designed to secure access controls across the extended enterprise, enforcing compliance with security policies and enabling effective management of the corporate IT and e-business infrastructure.

At October 31, 2008 and April 30, 2009, the Company’s investment in SafeStone Limited consisted of 21,064 shares of common stock with a cost of $2.0 million. The investment has been fair valued at $0 by the Company’s Valuation Committee.

Security Holdings, B.V.

Security Holdings is an Amsterdam-based holding company that owns FIMA, a Lithuanian security and engineering solutions company.

At October 31, 2008 and April 30, 2009, the Company’s investment in Security Holdings had a cost and fair value of $28.2 million.

Christopher Sullivan, a representative of the Company, serves as a director of Security Holdings.

SGDA Europe B.V.

SGDA Europe is an Amsterdam-based holding company that pursues environmental and remediation opportunities in Romania.

At October 31, 2008 and April 30, 2009, the Company’s equity investment had a cost basis and a fair value of $7.5 million.

Michael Tokarz, Chairman of the Company, and Christopher Sullivan, a representative of the Company, serve as directors of SGDA Europe.

SGDA Sanierungsgesellschaft fur Deponien und Altasten mbH

SGDA, Zella-Mehlis, Germany, is a company that is in the business of landfill remediation and revitalization of contaminated soil.

At October 31, 2008, the Company’s investment in SGDA consisted of a term loan, common equity interest, and preferred equity interest. The term loan had an outstanding balance of $6.2 million with a cost of $6.1 million. The term loan bears annual interest at 7.0% and matures on August 25, 2009. The term loan was fair valued at $6.1 million. The common equity interest in SGDA had been fair valued at $560,000 with a cost basis of approximately $439,000. The preferred equity interest had been fair valued at $6.1 million with a cost basis of $5.0 million.

During the six month period ended April 30, 2009, the Valuation Committee determined to increase the fair value of the Company’s preferred equity interest by $250,000 and the common equity interest by $1.2 million.

At April 30, 2009, the term loan had an outstanding balance of $6.2 million with a cost of $6.2 million. The term loan was fair valued at $6.2 million. The increase in the cost and fair value of the loan is due to the accretion of the market discount of the term loan. These increases were approved by the Company’s Valuation Committee. The common equity interest in SGDA has been fair valued at $1.7 million with a cost basis of approximately $439,000. The preferred equity interest has been fair valued at $6.4 million with a cost basis of $5.0 million.

SIA Tekers Invest

Tekers, Riga, Latvia, is a port facility used for the storage and servicing of vehicles.

At October 31, 2008, the Company’s investment in Tekers consisted of 68,800 shares of common stock with a cost of $2.3 million and a fair value of $3.2 million. The Company guaranteed a 1.4 million Euro mortgage for Tekers. The guarantee was equivalent to approximately $2.0 million at October 31, 2008 for Tekers.

During the six month period ended April 30, 2009, the Valuation Committee increased the fair value of the common stock by $725,000.

At April 30, 2009, the Company’s investment in Tekers consisted of 68,800 shares of common stock with a cost of $2.3 million and a fair value of $3.9 million. The guarantee was equivalent to approximately $1.9 million at April 30, 2009 for Tekers.

Sonexis, Inc.

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

At October 31, 2008 and April 30, 2009, the Company’s investment in Sonexis consisted of 131,615 shares of common stock with a cost of $10.0 million. The investment has been fair valued at $0.

SP Industries, Inc.

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

At October 31, 2008, the Company’s investment in SP consisted of a first lien loan and a second lien loan that had outstanding balances of $1.0 million and $24.7 million, respectively, with a cost basis of approximately $628,000 and $24.2 million, respectively. The first lien loan bears annual interest of LIBOR, with a 2.5% floor, plus 5% and matures on December 28, 2012, and the second lien loan bears annual interest 15% and matures on December 31, 2013. The first lien loan and second lien loan had fair values of $1.0 million and $24.7 million, respectively.

On December 31, 2008 and March 31, 2009, SP made principal payments of $17,361 and $19,097, respectively, on its first lien loan.

At April 30, 2009, the first lien loan and the second lien loan had outstanding balances of approximately $1.0 million and $25.1 million, respectively, with a cost basis of approximately $657,000 and $24.7 million, respectively. The first lien loan and second loan had fair values of approximately $1.0 million and $25.1 million, respectively. The increase in cost and fair value of the second lien loan is due to the capitalization of “payment in kind” interest. These increases were approved by the Company’s Valuation Committee.

Storage Canada, LLC

Storage Canada, Omaha, Nebraska, is a real estate company that owns and develops self-storage facilities throughout the U.S. and Canada.

At October 31, 2008, the Company’s investment in Storage Canada consisted of a term loan with an outstanding balance, cost basis and a fair value of $1.2 million. The borrowing bears annual interest at 8.75% and matures on March 30, 2013.

During the six month period ended April 30, 2009, the Company received approximately $53,000 in principal payments on the term loan provided to Storage Canada. The loan commitment to Storage Canada was not renewed in March 2009.

At April 30, 2009, the Company’s investment in Storage Canada had an outstanding balance of $1.2 million and a cost basis and fair value of $1.2 million.

Summit Research Labs, Inc.

Summit, Huguenot, New York, is a specialty chemical company that manufactures antiperspirant actives.

At October 31, 2008, the Company’s investment in Summit consisted of a second lien loan and 800 shares of common stock. The second lien loan bears annual interest at 14% and matures on August 31, 2013. The second lien loan had an outstanding balance of $8.9 million with a cost of $8.8 million. The second lien loan was fair valued at $8.9 million. The common stock had been fair valued at $33.0 million.

At April 30, 2009, the Company’s second lien loan had an outstanding balance of $9.3 million with a cost of $9.1 million. The second lien loan was fair valued at $9.3 million. The 1,115 shares of common stock were fair valued at $33.0 million and had a cost basis of $16.0 million. The increase in cost and fair value of the loan is due to the amortization of loan origination fees and the capitalization of “payment in kind” interest. These increases were approved by the Company’s Valuation Committee.

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

TerraMark, L.P.

TerraMark, L.P., Houston, Texas, is an affiliate of Benchmark Performance Group (“Benchmark”) that leases real estate to Benchmark.

On August 12, 2008, the Company invested $1.5 million in TerraMark in the form of a senior secured loan. The loan bears annual interest at 10% and matures on February 12, 2009.

At October 31, 2008 the senior secured loan had a cost and fair value of $1.5 million.

On March 11, 2009 and April 30, 2009, TerraMark made principal payments of $300,000 and $500,000, respectively, on its senior secured loan resulting in a balance of $700,000 as of April 30, 2009. The maturity date was extended to June 1, 2009.

At April 30, 2009, the Company’s senior secured loan had a cost and fair value of $700,000.

Timberland Machines & Irrigation, Inc.

Timberland, Enfield, Connecticut, is a distributor of landscaping outdoor power equipment and irrigation products.

At October 31, 2008, the Company’s investment in Timberland consisted of a mezzanine loan, junior revolving note, 542 shares of common stock and warrants. The mezzanine loan had an outstanding balance of $7.3 million with a cost of $7.2 million. The mezzanine loan bore annual interest at 14.55% and matures on August 4, 2009. The mezzanine loan was fair valued at $7.3 million. The junior revolving note had a cost of $5.0 million and was fair valued at $1.0 million. The junior revolving note bears annual interest at 12.5% and matures on July 7, 2009. The common stock was fair valued at $0. The warrant was fair valued at $0.

On February 26, 2009, Michael Tokarz, Chairman of the Company, and Puneet Sanan, a representative of the Company, resigned from the board of directors of Timberland.

During the six month period ended April 30, 2009, the Valuation Committee decreased the fair value of the mezzanine loan by $7.3 million and the revolving note by $1.0 million. The Company has reserved in full against the interest accrued on the mezzanine loan and revolving note.

At April 30, 2009, the Company’s mezzanine loan had an outstanding balance of $7.5 million with a cost of $7.4 million. The mezzanine loan was fair valued at $0. The junior revolving note had an outstanding balance and cost of $5.0 million and was fair valued at $0. The increase in the outstanding balance and cost of the loan is due to the amortization of loan origination fees and the capitalization of “payment in kind” interest. The Company’s Valuation Committee did not approve an increase to the fair value of the investment as a result of the capitalization of the PIK interest. The common stock was fair valued at $0. The warrant was fair valued at $0.

Total Safety U.S., Inc.

Total Safety, Houston, Texas, is the leading provider of safety equipment and related services to the refining, petrochemical, and oil exploration and production industries.

At October 31, 2008, the Company’s investment in Total Safety consisted of a $900,000 first lien loan bearing annual interest at LIBOR plus 2.75% and maturing on December 8, 2012 and a $3.5 million second lien loan bearing annual interest at LIBOR plus 6.5% and maturing on December 8, 2013. The loans had a combined outstanding balance and cost basis of $4.5 million. The loan assignments were fair valued at $4.4 million.

On December 31, 2008 and March 31, 2009, Total Safety made principal payments of $2,500 on its first lien loan.

At April 30, 2009, the loans had a combined outstanding balance and cost basis of $4.5 million. The loan assignments were fair valued at $4.4 million.

Turf Products, LLC

Turf, Enfield, Connecticut, is a wholesale distributor of golf course and commercial turf maintenance equipment, golf course irrigation systems and consumer outdoor power equipment.

At October 31, 2008, the Company’s investment in Turf consisted of a senior subordinated loan, bearing interest at 15% per annum with a maturity date of November 30, 2010, LLC membership interest, and warrants. The senior subordinated loan had an outstanding balance of $7.7 million with a cost of $7.7 million. The loan was fair valued at $7.7 million. The junior revolving note had an outstanding balance, cost, and fair value of $1.0 million. The membership interest had a cost of $3.8 million and a fair value of $5.8 million. The warrants had a cost of $0 and a fair value of $0.

During the six month period ended April 30, 2009, the Valuation Committee decreased the fair value of the membership interest by $2.3 million. The Company also received a return of capital distribution from Turf of approximately $286,000.

At April 30, 2009, the mezzanine loan had an outstanding balance, cost basis and a fair value of $7.7 million. The increase in the outstanding balance, cost and fair value of the loan is due to the amortization of loan origination fees. These increases were approved by the Company’s Valuation Committee. The junior revolving note had an outstanding balance of $1.0 million. The membership interest has a cost of $3.8 million and a fair value of $3.5 million. The warrant was fair valued at $0.

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

U.S. Gas & Electric, Inc.

U.S. Gas, North Miami Beach, Florida, is a licensed Energy Service Company (“ESCO”) that markets and distributes natural gas to small commercial and residential retail customers in the state of New York.

At October 31, 2008, the second lien loan had an outstanding balance of $7.9 million with a cost of $7.7 million and a fair value of $7.9 million. The senior credit facility had an outstanding balance, cost, and a fair value of $4.9 million as of October 31, 2008. The second lien loan bears annual interest at 14% and matures on July 26, 2012. The senior credit facility bears annual interest at LIBOR plus 6% or Prime plus 4.5% and matures on July 26, 2010. The 32,200 shares of convertible Series B preferred stock had a fair value of $5.3 million and a cost of $500,000, and the convertible Series C preferred stock had a fair value of $350,000 and a cost of $0.

Net repayments on the senior credit facility during the six month period ended April 30, 2009 were $4.4 million.

During the six month period ended April 30, 2009, the Valuation Committee determined to increase the fair value of the convertible Series B preferred stock by $5.6 million and convertible Series C preferred stock by $410,000.

At April 30, 2009, the second lien loan had an outstanding balance of $8.1 million with a cost of $7.9 million and a fair value of $8.1 million. The increases in the outstanding balance, cost and fair value of the loan are due to the amortization of loan origination fees and the capitalization of “payment in kind” interest. These increases were approved by the Company’s Valuation Committee. There was approximately $571,000 outstanding on the senior credit facility. The convertible Series B preferred stock had a fair value of $10.9 million and a cost of $500,000, and the convertible Series C preferred stock had a fair value of $760,000 and a cost of $0.

Puneet Sanan and Shivani Khurana, representatives of the Company, serve as directors of U.S. Gas.

Velocitius B.V.

Velocitius, a Netherlands based holding company, manages wind farms based in Germany through operating subsidiaries.

At October 31, 2008, the equity investment in Velocitius had a cost of $11.4 million and a fair value of $21.0 million. There was no amount outstanding on Line I, which expires on October 31, 2009 and bears annual interest at 8%, and Line II, which expires on April 30, 2010 and bears annual interest at 8%.

During the six month period ended April 30, 2009, the Valuation Committee increased the fair value of the Company’s equity investment by $500,000.

At April 30, 2009, the equity investment in Velocitius had a cost of $11.4 million and a fair value of $21.5 million.

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

Vendio Services, Inc.

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

At October 31, 2008, the Company’s investments in Vendio consisted of 10,476 shares of common stock and 6,443,188 shares of Series A preferred stock at a total cost of $6.6 million. The investments were fair valued at $6.6 million, $14,447 for the common stock and approximately $6.6 million for the Series A preferred stock.

During the six month period ended April 30, 2009, the Valuation Committee decreased the fair value of the preferred stock by $1.4 million and the common stock by approximately $2,000.

At April 30, 2009, the Company’s investments in Vendio consisted of 10,476 shares of common stock and 6,443,188 shares of Series A preferred stock at a total cost of $6.6 million. The investments were fair valued at $5.2 million, $12,174 for the common stock and approximately $5.2 million for the Series A preferred stock.

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

Vestal Manufacturing Enterprises, Inc.

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

At October 31, 2008 and April 30, 2009, the senior subordinated promissory note, which bears annual interest at 12% and matures on April 29, 2011, had an outstanding balance, cost, and fair value of $600,000. The 81,000 shares of common stock of Vestal that had a cost basis of $1.9 million were fair valued at $950,000.

Bruce Shewmaker and Scott Schuenke, officers of the company, serve as directors of Vestal.

Vitality Foodservice, Inc.

Vitality, Tampa, Florida, is a market leader in the processing and marketing of dispensed and non-dispensed juices and frozen concentrate liquid coffee to the foodservice industry. With an installed base of over 42,000

dispensers worldwide, Vitality sells its frozen concentrate through a network of over 350 distributors to such market niches as institutional foodservice, including schools, hospitals, cruise ships, hotels and restaurants.

At October 31, 2008, the investment in Vitality consisted of 556,472 shares of common stock at a cost of $5.6 million and 1,000,000 shares of Series A convertible preferred stock at a cost of $10.3 million. The convertible preferred stock has a dividend rate of 13% per annum. The common stock, Series A convertible preferred stock, and warrants were fair valued at $9.8 million, $13.2 million and $3.7 million, respectively.

At April 30, 2009, the investment in Vitality consisted of 556,472 shares of common stock at a cost of $5.6 million and 1,000,000 shares of Series A convertible preferred stock at a cost of $10.6 million. The increase in the cost and fair value of the Series A convertible preferred stock is due to the capitalization of “payment in kind” dividends. These increases were approved by the Company’s Valuation Committee. The common stock, Series A convertible preferred stock and warrants were fair valued at $9.8 million, $13.5 million and $3.7 million, respectively.

Peter Seidenberg, Chief Financial Officer of the Company, serves as a director of Vitality.

WBS Carbons Acquisitions Corp.

WBS, Middletown, New York, is a manufacturer of antiperspirant actives and water treatment chemicals.

At October 31, 2008, the bridge loan had an outstanding balance, cost and fair value of $1.7 million. The bridge loan bears annual interest at 6% and matures on December 30, 2011.

At April 30, 2009, the bridge loan had an outstanding balance, cost and fair value of $1.8 million. The increase in the outstanding balance, cost and fair value of the loan are due to the capitalization of “payment in kind” interest. These increases were approved by the Company’s Valuation Committee.

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

Liquidity and Capital Resources

At April 30, 2009, the Company had investments in portfolio companies totaling $478.1 million. Also, at April 30, 2009, the Company had cash equivalents totaling approximately $3.1 million. The Company considers all money market and other cash investments purchased with an original maturity of less than three months to be cash equivalents. U.S. government securities and cash equivalents are highly liquid.

During the six month period ended April 30, 2009, the Company made three follow-on investments in existing portfolio companies committing capital totaling $3.9 million. The Company invested $2.9 million in Harmony Pharmacy in the form of two demand notes, a $700,000 demand note on November 4, 2008 and a $2.2 million demand note on March 3, 2009. The demand notes have an annual interest rate of 10%. The Company also invested approximately $1.0 million in MVC Partners equity interest during the six month period ended April 30, 2009.

Current balance sheet resources, which include the additional cash resources from Credit Facility I and Credit Facility II, are believed to be sufficient to finance current commitments. Current commitments include:

Commitments to/for Portfolio Companies:

At April 30, 2009, the Company’s existing commitments to portfolio companies consisted of the following:

Commitments of MVC Capital, Inc.


	Amount		Amount Funded at
Portfolio Company	Committed		April 30, 2009
Timberland Junior Revolver	$	5.0 million	$	5.0 million
Marine Revolving Loan Facility	$	2.0 million	$	700,000
Octagon Revolving Credit Facility	$	7.0 million		—
Velocitius Revolving Line I	$	260,000		—
Harmony Pharmacy Revolving Credit Facility	$	4.0 million	$	4.0 million
Velocitius Revolving Line II	$	650,000		—
Tekers Guarantee	$	1.9 million		—
U.S. Gas Revolving Senior Credit Facility	$	10.0 million	$	571,000
MVC Automotive Guarantee	$	8.6 million		—
MVC Automotive Guarantee	$	5.3 million		—
MVC Automotive Guarantee	$	1.7 million		—
Turf Junior Revolver	$	1.0 million	$	1.0 million

Total	$	47.4 million	$	11.3 million

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

On March 30, 2006, the Company provided a $6.0 million loan commitment to Storage Canada. The commitment was for one year, but may be renewed annually with the consent of both parties. The commitment was not renewed in March 2009. The initial borrowing on the loan bears annual interest at 8.75% and has a maturity date of March 30, 2013. Any additional borrowings will mature seven years from the date of the subsequent borrowing. The Company also receives a fee of 0.25% on the unused portion of the loan. As of October 31, 2008, the outstanding balance of the loan commitment was approximately $1.2 million. Net repayments during the six month period ended April 30, 2009 were approximately $53,000, resulting in a balance of approximately $1.2 million at such date.

On July 19, 2007, the Company agreed to guarantee a 1.4 million Euro mortgage for Tekers, equivalent to approximately $1.9 million at April 30, 2009.

On January 15, 2008, the Company agreed to guarantee a 6.5 million Euro mortgage for MVC Automotive, equivalent to approximately $8.6 million at April 30, 2009.

On January 16, 2008, the Company agreed to support a 4.0 million Euro mortgage for a Ford dealership owned and operated by MVC Automotive (equivalent to approximately $5.3 million at April 30, 2009) through making financing available to the dealership and agreeing under certain circumstances not to reduce its equity stake in MVC Automotive.

On September 9, 2008, the Company agreed to guarantee a 35.0 million Czech Republic Koruny (“CZK”) mortgage for MVC Automotive, equivalent to approximately $1.7 million at April 30, 2009.

Commitments of the Company:

On April 24, 2008, the Company entered into a two-year, $50 million revolving credit facility (“Credit Facility II”) with Branch Banking and Trust Company (“BB&T”). There was no amount outstanding on Credit Facility II as of October 31, 2008 and April 30, 2009. Credit Facility II provides financing to the Company in addition to the Company’s existing $100 million Credit Facility I with Guggenheim. Proceeds from borrowings made under Credit Facility II are used to provide the Company with better overall financial flexibility in managing its investment portfolio. Borrowings under Credit Facility II bear interest at LIBOR plus 50 basis points. In addition, the Company is also subject to a 25 basis point utilization fee for the amount of Credit Facility II that is outstanding for more than 33% of the calendar days during each fiscal quarter, as well as an annual fee of 25 basis points of the total amount of the facility. The Company paid a closing fee, legal and other costs associated with this transaction. These costs will be amortized evenly over the life of the facility. The prepaid expenses on the Balance Sheet include the unamortized portion of these costs. Borrowings under Credit Facility II will be secured by cash, short-term and long-term U.S. Treasury securities and other governmental agency securities whose purchase has been approved by BB&T.

Subsequent Events

On May 4, 2009, the Company borrowed $2.0 million on its Credit Facility I.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Historically the Company has invested in small companies, and its investments in these companies are considered speculative in nature. The Company’s investments often include securities that are subject to legal or contractual restrictions on resale that adversely affect the liquidity and marketability of such securities. As a result, the Company is subject to risk of loss which may prevent our shareholders from achieving price appreciation, dividend distributions and return of capital.

Financial instruments that subjected the Company to concentrations of market risk consisted principally of equity investments, subordinated notes, and debt instruments, which represent approximately 98.2% of the Company’s total assets at April 30, 2009. As discussed in Note 6 “Portfolio Investments,” these investments consist of securities in companies with no readily determinable market values and as such are valued in accordance with the Company’s fair value policies and procedures. The Company’s investment strategy represents a high degree of business and financial risk due to the fact that the investments (other than cash equivalents) are generally illiquid, in small and middle market companies, and include entities with little operating history or entities that possess operations in new or developing industries. These investments, should they become publicly traded, would generally be: (i) subject to restrictions on resale, if they were acquired from the issuer in private placement transactions; and (ii) susceptible to market risk. At this time, the Company’s investments in short-term securities are in 90-day Treasury Bills, which are federally guaranteed securities, or other high quality, highly liquid investments. The Company’s cash balances, if not large enough to be invested in 90-day Treasury Bills or other high quality, highly liquid investments, are swept into designated money market accounts.

In addition, the following risk factors relate to market risks impacting the Company.

Investing in private companies involves a high degree of risk.

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

Our investments in portfolio companies are generally illiquid.

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

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 our Valuation Procedures adopted by our board of directors. As permitted by the SEC, the board of directors has delegated the responsibility of making fair value determinations to the Valuation Committee, subject to the board of directors’ supervision and pursuant to the Valuation Procedures.

At April 30, 2009, approximately 98.17% of our total assets represented portfolio investments recorded at fair value.

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

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

Economic recessions or downturns could impair our portfolio companies and have a material adverse impact on our business, financial condition and results of operations.

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. Through the date of this report, conditions in the public debt and equity markets have deteriorated and pricing levels have continued to decline. As a result, depending on market conditions, we could incur substantial realized losses and suffer unrealized losses in future periods, which could have a material adverse impact on our business, financial condition and results of operations. If current market conditions continue, or worsen, it may adversely impact our ability to deploy our investment strategy and achieve our investment objective.

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 and thus have a material adverse impact on our financial condition.

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 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 investments in small and middle-market privately-held companies are extremely risky and you could lose your entire investment.

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

	•		Small and middle-market companies may have limited financial resources and may not be able to repay the loans we make to them. Our strategy includes providing financing to companies that typically do not have capital sources readily available to them. While we believe that this provides an attractive opportunity for us to generate profits, this may make it difficult for the borrowers to repay their loans to us upon maturity.

	•		Small and middle-market companies typically have narrower product lines and smaller market shares than large companies. Because our target companies are smaller businesses, they may be more vulnerable to competitors’ actions and market conditions, as well as general economic downturns. In addition, smaller companies may face intense competition, including competition from companies with greater financial resources, more extensive development, manufacturing, marketing and other capabilities, and a larger number of qualified managerial and technical personnel.

	•		There is generally little or no publicly available information about these privately-held companies. There is generally little or no publicly available operating and financial information about privately-held

companies. As a result, we rely on our investment professionals to perform due diligence investigations of these privately-held companies, their operations and their prospects. We may not learn all of the material information we need to know regarding these companies through our investigations.

	•		Small and middle-market companies generally have less predictable operating results. We expect that our portfolio companies may have significant variations in their operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, may require substantial additional capital to support their operations, finance expansion or maintain their competitive position, may otherwise have a weak financial position or may be adversely affected by changes in the business cycle. Our portfolio companies may not meet net income, cash flow and other coverage tests typically imposed by their senior lenders.

	•		Small and middle-market businesses are more likely to be dependent on one or two persons. Typically, the success of a small or middle-market company also depends on the management talents and efforts of one or two persons or a small group of persons. The death, disability or resignation of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us.

	•		Small and middle-market companies are likely to have greater exposure to economic downturns than larger companies. We expect that our portfolio companies will have fewer resources than larger businesses and an economic downturn may thus more likely have a material adverse effect on them.

	•		Small and middle-market companies may have limited operating histories. We may make debt or equity investments in new companies that meet our investment criteria. Portfolio companies with limited operating histories are exposed to the operating risks that new businesses face and may be particularly susceptible to, among other risks, market downturns, competitive pressures and the departure of key executive officers.

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

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

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

We face competition in our investing activities from private equity funds, other business development companies, investment banks, investment affiliates of large industrial, technology, service and financial companies, small business investment companies, wealthy individuals and foreign investors. As a regulated business development company, we are required to disclose quarterly the name and business description of portfolio companies and the value of any portfolio securities. Many of our competitors are not subject to this disclosure requirement. Our obligation to disclose this information could hinder our ability to invest in certain portfolio companies. Additionally, other regulations, current and future, may make us less attractive as a potential investor to a given portfolio company than a private equity fund not subject to the same regulations. Furthermore, some of our competitors have greater resources than we do. Increased competition would make it

more difficult for us to purchase or originate investments at attractive prices. As a result of this competition, sometimes we may be precluded from making certain investments.

Complying with the RIC requirements may cause us to forego otherwise attractive opportunities.

In order to qualify as a RIC for U.S. federal income tax purposes, we must satisfy tests concerning the sources of our income, the nature and diversification of our assets and the amounts we distribute to our shareholders. We may be unable to pursue investments that would otherwise be advantageous to us in order to satisfy the source of income or asset diversification requirements for qualification as a RIC. In particular, to qualify as a RIC, at least 50% of our assets must be in the form of cash and cash items, Government securities, securities of other RICs, and other securities that represent not more than 5% of our total assets and not more than 10% of the outstanding voting securities of the issuer. We have from time to time held a significant portion of our assets in the form of securities that exceed 5% of our total assets or more than 10% of an outstanding security of an issuer, and compliance with the RIC requirements restricts our ability to make additional investments that represent more than 5% of our total assets or more than 10% of the outstanding voting securities of the issuer. Thus, compliance with the RIC requirements may hinder our ability to take advantage of investment opportunities believed to be attractive.

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

We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock or warrants at a price below the then-current net asset value per share of our common stock if our board of directors determines that such sale is in the best interests of the Company and its stockholders, and our stockholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our board of directors, closely approximates the market value of such securities (less any distributing commission or discount). If we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, then the percentage ownership of our stockholders at that time will decrease, and you might experience dilution.

Our common stock price can be volatile.

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

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

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

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

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

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

	•		general economic conditions and trends;

	•		loss of a major funding source; or

	•		departures of key personnel of TTG Advisers.

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 NAV, 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 NAV. Although our shares, from time to time, have traded at a premium to our NAV, currently, our shares are trading at a discount to NAV, which discount may fluctuate over time.

Our ability to grow depends on our ability to raise capital.

To fund new investments, we may need to issue periodically equity securities or borrow from financial institutions. Unfavorable economic conditions could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. If we fail to obtain capital to fund our investments, it could limit both our ability to grow our business and our profitability. With certain limited exceptions, we are only allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowing. The amount of leverage that we employ depends on TTG Advisers’ and our board of directors’ assessment of market and other factors at the time of any proposed borrowing. We cannot assure you that we will be able to maintain our current facilities or obtain other lines of credit at all or on terms acceptable to us.

Changes in interest rates may affect our cost of capital and net operating income and our ability to obtain additional financing.

Because we have borrowed and may continue to 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 would not have a material adverse effect on our net investment income. In periods of declining interest rates, we may have difficulty investing our borrowed capital into investments that offer an appropriate return. In periods of sharply rising interest rates, our cost of funds would increase, which could reduce our net 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. Additionally, we cannot assure you that financing will be available on acceptable terms, if at all. Recent turmoil in the credit markets has greatly reduced the availability of debt financing. Deterioration in the credit markets, which could delay our ability to sell certain of our loan investments in a timely manner, could also negatively impact our cash flows.

Our ability to use our capital loss carryforwards may be subject to limitations.

If we experience a shift in the ownership of our common stock (e.g., if a shareholder acquires 5% or more of our outstanding shares of common stock, or if a shareholder who owns 5% or more of our outstanding shares of common stock significantly increases or decreases its investment in the Company), our ability to utilize our capital loss carryforwards to offset future capital gains may be severely limited. Further, in the event that we are deemed to have failed to meet the requirements to qualify as a RIC, our ability to use our capital loss carryforwards could be adversely affected.

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.

Item 4. Controls and Procedures

(a) As of the end of the period covered by this quarterly report on Form 10-Q, the individual who performs the functions of a Principal Executive Officer (the “CEO”) and the individual who performs the functions of a Principal Financial Officer (the “CFO”) conducted an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based upon this evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective and provide reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

(b) There have been no changes in our internal controls over financial reporting that occurred during the fiscal quarter ended April 30, 2009, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

We are not subject to any pending legal proceeding, and no such proceedings are known to be contemplated.

Item 1A. Risk Factors

A description of the risk factors associated with our business is set forth in the “Quantitative and Qualitative Disclosures about Market Risk” section, above.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

On April 14, 2009, we held our annual meeting of stockholders. Stockholders voted on the election of six directors, each to serve until the next annual meeting of stockholders after his election (“Proposal 1”). Stockholders also voted on the proposal to approve the Amended Agreement (“Proposal 2”).

Votes were cast as follows:

Proposal 1:


(1) Emilio Dominianni	For	21,830,382.17 shares	Withheld	446,741.38 shares
(2) Gerald Hellerman	For	21,820,460.17 shares	Withheld	456,663.38 shares
(3) Warren Holtsberg	For	21,856,922.17 shares	Withheld	420,201.38 shares
(4) Robert Knapp	For	21,950,611.55 shares	Withheld	326,512.00 shares
(5) William Taylor	For	21,834,271.17 shares	Withheld	442,852.38 shares
(6) Michael Tokarz	For	21,817,422.55 shares	Withheld	459,701.00 shares

Proposal 2:

For: 14,020,508.702 shares
Against: 2,174,871.76 shares
Abstain: 25,538.088 shares
Broker non-votes: 6,056,205.00 shares

Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits


Exhibit No.		Exhibit

10.1		Amended and Restated Investment Advisory and Management Agreement

10.2		First Amendment to Company’s Administration Servicing with US Bancorp

10.3		First Amendment to Company’s Fund Accounting Agreement with US Bancorp

10.4		Amendment to Company’s Custody Agreement with US Bank

31		Rule 13a-14(a) Certifications.

32		Section 1350 Certifications.

Other required Exhibits are included in this Form 10-Q or have been previously filed with the Securities and Exchange Commission (the “SEC”) in the Company’s Registration Statements on Form N-2 (Reg. Nos. 333-147039, 333-119625, 333-125953) or the Company’s Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, as filed with the SEC (File No. 814-00201).

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed by the undersigned, thereunto duly authorized.


	MVC Capital, Inc.
Date: June 4, 2009	/s/ Michael Tokarz
	Michael Tokarz
	In the capacity of the officer who performs the functions of Principal Executive Officer.


	MVC Capital, Inc.
Date: June 4, 2009	/s/ Peter Seidenberg
	Peter Seidenberg
	In the capacity of the officer who performs the functions of Principal Financial Officer.