Edgar Filing: MVC CAPITAL, INC.

e10vq

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, 2008


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 (Address of principal executive offices)		10577 (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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions 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	Smaller reporting company o
		(Do not check if a smaller reporting company)

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 6, 2008.

MVC Capital, Inc.
(A Delaware Corporation)
Index


	Page
Part I. Consolidated Financial Information

Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - April 30, 2008 and October 31, 2007		3
Consolidated Statements of Operations - For the Period November 1, 2007 to April 30, 2008 and - For the Period November 1, 2006 to April 30, 2007		4
Consolidated Statements of Operations - For the Period February 1, 2008 to April 30, 2008 and - For the Period February 1, 2007 to April 30, 2007		5
Consolidated Statements of Cash Flows - For the Period November 1, 2007 to April 30, 2008 and - For the Period November 1, 2006 to April 30, 2007		6
Consolidated Statements of Changes in Net Assets - For the Period November 1, 2007 to April 30, 2008 - For the Period November 1, 2006 to April 30, 2007 and - For the Year ended October 31, 2007		7
Consolidated Selected Per Share Data and Ratios - For the Period November 1, 2007 to April 30, 2008, - For the Period November 1, 2006 to April 30, 2007 and - For the Year ended October 31, 2007		8
Consolidated Schedule of Investments - April 30, 2008 - October 31, 2007		9
Notes to Consolidated Financial Statements		13

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		27

Item 3. Quantitative and Qualitative Disclosures about Market Risk		57

Item 4. Controls and Procedures		63

Part II. Other Information		64

SIGNATURE		65

Exhibits		67

Part I. Consolidated Financial Information

Item 1. Consolidated Financial Statements

CONSOLIDATED FINANCIAL STATEMENTS

MVC Capital, Inc.

Consolidated Balance Sheets


	April 30,			October 31,
	2008			2007
	(Unaudited)
ASSETS
Assets
Cash and cash equivalents	$	78,650,575		$	84,727,933
Short term investments at market value (cost $49,886,250 and $0)		49,886,250			—
Investments at fair value (cost $411,165,284 and $393,428,353)
Non-control/Non-affiliated investments (cost $121,765,526 and $119,646,416)		94,236,546			85,543,666
Affiliate investments (cost $95,978,095 and $116,118,374)		119,346,534			127,959,158
Control investments (cost $193,421,663 and 157,663,563)		216,497,288			165,664,710

Total investments at fair value		430,080,368			379,167,534
Dividends, interest and fees receivable		2,740,110			3,105,100
Prepaid expenses		2,895,969			2,412,827
Prepaid taxes		570,498			228,159
Deferred tax		968,365			803,283
Deposits		—			25,156
Other assets		4,090			20,993


Total assets	$	565,796,225		$	470,490,985

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities
Revolving credit facilities	$	100,000,000		$	30,000,000
Term loan		50,000,000			50,000,000
Provision for incentive compensation (Note 9)		10,369,504			17,875,496
Management fee payable		2,185,503			1,929,258
Other accrued expenses and liabilities		970,365			977,953
Professional fees		459,003			558,091
Consulting fees		126,335			89,452
Directors’ fees		(36,187	)		(36,034	)


Total liabilities		164,074,523			101,394,216


Shareholders’ equity
Common stock, $0.01 par value; 150,000,000 shares authorized; 24,297,087 and 24,265,336 shares outstanding, respectively		283,044			283,044
Additional paid-in-capital		432,033,595			431,814,990
Accumulated earnings		28,230,622			24,375,844
Dividends paid to stockholders		(39,594,023	)		(33,764,634	)
Accumulated net realized loss		(5,343,158	)		(6,283,708	)
Net unrealized appreciation (depreciation)		18,915,084			(14,260,819	)
Treasury stock, at cost, 4,007,361 and 4,039,112 shares held, respectively		(32,803,462	)		(33,067,948	)


Total shareholders’ equity		401,721,702			369,096,769


Total liabilities and shareholders’ equity	$	565,796,225		$	470,490,985


Net asset value per share	$	16.53		$	15.21

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

MVC Capital, Inc.

Consolidated Statements of Operations

(Unaudited)


	For the Period			For the Period
	November 1, 2007 to			November 1, 2006 to
	April 30, 2008			April 30, 2007
Operating Income:
Dividend income
Affiliate investments	$	2,524,078		$	274,728


Total dividend income		2,524,078			274,728


Interest income
Non-control/Non-affiliated investments		5,956,317			5,355,816
Affiliate investments		2,490,255			2,099,371
Control investments		3,569,789			2,230,696


Total interest income		12,016,361			9,685,883


Fee income
Non-control/Non-affiliated investments		627,050			620,280
Affiliate investments		361,076			236,275
Control investments		1,125,559			517,930


Total fee income		2,113,685			1,374,485


Other income		322,772			147,195


Total operating income		16,976,896			11,482,291


Operating Expenses:
Incentive compensation (Note 9)		5,397,337			8,424,352
Management fee		4,203,015			3,489,009
Interest and other borrowing costs		2,252,208			2,384,036
Other expenses		309,264			235,192
Legal fees		274,000			308,000
Audit fees		223,500			162,000
Insurance		186,725			216,606
Administration		160,767			130,284
Directors fees		120,000			120,000
Printing and postage		64,648			48,600
Consulting fees		51,600			63,500
Public relations fees		43,200			36,901


Total operating expenses		13,286,264			15,618,480


Net operating income (loss) before taxes		3,690,632			(4,136,189	)


Tax (Benefit) Expenses:
Deferred tax (benefit) expense		(165,082	)		13,287
Current tax (benefit) expense		936			(387,430	)


Total tax benefit		(164,146	)		(374,143	)


Net operating income (loss)		3,854,778			(3,762,046	)


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		2,107			(115,282	)
Affiliate investments		595,000			—
Controlled investments		283,118			(7,806	)
Foreign currency		60,325			—


Total net realized gain (loss) on investments and foreign currency		940,550			(123,088	)

Net change in unrealized appreciation on investments		33,175,903			47,285,469


Net realized and unrealized gain on investments and foreign currency		34,116,453			47,162,381


Net increase in net assets resulting from operations	$	37,971,231		$	43,400,335


Net increase in net assets per share resulting from operations	$	1.56		$	2.00


Dividends declared per share	$	0.24		$	0.30

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, 2008 to			February 1, 2007 to
	April 30, 2008			April 30, 2007
Operating Income:
Dividend income
Affiliate investments	$	1,680,807		$	62,291


Total dividend income		1,680,807			62,291


Interest income
Non-control/Non-affiliated investments		2,954,611			2,938,470
Affiliate investments		982,271			1,108,246
Control investments		1,540,942			1,123,692


Total interest income		5,477,824			5,170,408


Fee income
Non-control/Non-affiliated investments		185,000			337,557
Affiliate investments		152,916			118,703
Control investments		463,546			261,374


Total fee income		801,462			717,634


Other income		120,855			122,723


Total operating income		8,080,948			6,073,056


Operating Expenses:
Incentive compensation (Note 9)		3,740,772			4,898,385
Management fee		2,185,503			1,854,365
Interest, fees and other borrowing costs		1,081,012			1,255,620
Legal fees		139,000			150,000
Insurance		90,725			98,106
Other expenses		190,328			118,689
Audit fees		132,000			78,000
Directors fees		60,000			60,000
Administration		80,609			72,922
Consulting fees		4,600			32,000
Printing and postage		33,104			24,300
Public relations fees		21,600			17,251


Total operating expenses		7,759,253			8,659,638


Net operating income (loss) before taxes		321,695			(2,586,582	)


Tax (Benefit) Expenses:
Deferred tax (benefit) expense		14,524			(6,466	)
Current tax benefit		(200,316	)		(387,430	)


Total tax benefit		(185,792	)		(393,896	)


Net operating income (loss)		507,487			(2,192,686	)


Net Realized and Unrealized Gain (Loss) on Investments:

Net realized gain (loss) on investments
Non-control/Non-affiliated investments		1,014			(119,250	)
Affiliate investments		—			—
Control investments		283,118			(7,806	)


Total net realized gain (loss) on investments		284,132			(127,056	)

Net change in unrealized appreciation on investments		16,366,704			26,643,241


Net realized and unrealized gain on investments		16,650,836			26,516,185


Net increase in net assets resulting from operations	$	17,158,323		$	24,323,499


Net increase in net assets per share resulting from operations	$	0.70		$	1.00


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 Period			For the Period
	November 1, 2007 to			November 1, 2006 to
	April 30, 2008			April 30, 2007
Cash flows from Operating Activities:
Net increase in net assets resulting from operations	$	37,971,231		$	43,400,335
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
Realized gain		(940,550	)		123,088
Net change in unrealized appreciation		(33,175,903	)		(47,285,469	)
Amortization of discounts and fees		(40,008	)		(44,907	)
Increase in accrued payment-in-kind dividends and interest		(2,752,945	)		(1,553,168	)
Increase in allocation of flow through income		(120,488	)		(81,155	)
Changes in assets and liabilities:
Dividends, interest and fees receivable		364,990			(539,780	)
Prepaid expenses		(483,142	)		(632,025	)
Prepaid taxes		(342,339	)		(496,060	)
Deferred tax		(165,082	)		13,287
Deposits		25,156			(296,690	)
Other assets		16,903			16,902
Incentive compensation		(7,505,992	)		8,314,134
Other Liabilities		186,299			482,141
Purchases of equity investments		(47,041,964	)		(13,601,201	)
Purchases of debt instruments		(60,143,871	)		(51,050,656	)
Purchases of short term investments		(49,881,375	)		—
Proceeds from equity investments		6,033,900			—
Proceeds from debt instruments		87,264,120			24,408,229


Net cash used in operating activities		(70,731,060	)		(38,822,995	)


Cash flows from Financing Activities:
Issuance of common stock		—			83,825,625
Offering expenses		—			(5,441,281	)
Distributions to shareholders paid		(5,346,298	)		(6,270,828	)
Net borrowings under revolving credit facility		70,000,000			—


Net cash provided by financing activities		64,653,702			72,113,516


Net change in cash and cash equivalents for the period		(6,077,358	)		33,290,521


Cash and cash equivalents, beginning of period		84,727,933			66,217,123


Cash and cash equivalents, end of period	$	78,650,575		$	99,507,664

During the six months ended April 30, 2008 and 2007 MVC Capital, Inc. paid $1,183,636 and $1,849,322 in interest expense, respectively.

During the six months ended April 30, 2008 and 2007 MVC Capital, Inc. paid $350,000 and $62,085 in income taxes, respectively.

Non-cash activity:

During the six months ended April 30, 2008 and 2007, MVC Capital, Inc. recorded payment in kind dividend and interest of $2,752,945 and $1,553,168, 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, 2008 and 2007, MVC Capital, Inc. was allocated $322,771 and $141,630, respectively, in flow-through income from its equity investment in Octagon Credit Investors, LLC. Of this amount, $202,283, and $60,475, respectively, was received in cash and the balance of $120,488 and $81,155, respectively, was undistributed and therefore increased the cost of the investment. The fair value was then increased by $120,488 and $81,155, respectively, by the Fund’s Valuation Committee.

During the six month period ended April 30, 2008, as was anticipated in the original transaction, all 1,535 shares of convertible Series F preferred stock were allocated to a strategic partner of U.S. Gas for services to be performed. If certain conditions are not met by the strategic partner, these shares could be transferred back to the Company.

On November 1, 2006, MVC Capital, Inc. re-issued 2,326 shares of treasury stock, in lieu of a $28,871 cash distribution, in accordance with the Fund’s dividend reinvestment plan.

On January 6, 2007, MVC Capital, Inc. re-issued 3,684 shares of treasury stock, in lieu of a $48,641 cash distribution, in accordance with the Fund’s dividend reinvestment plan.

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 Period			For the Period
	November 1, 2007 to			November 1, 2006 to			For the Year Ended
	April 30, 2008			April 30, 2007			October 31, 2007
	(Unaudited)			(Unaudited)
Operations:
Net operating income (loss)	$	3,854,778		$	(3,762,046	)	$	2,059,713
Net realized gain (loss)		940,550			(123,088	)		66,943,545
Net change in unrealized appreciation (depreciation)		33,175,903			47,285,469			(3,301,612	)


Net increase in net assets from operations		37,971,231			43,400,335			65,701,646


Shareholder Distributions:
Distributions to shareholders		(5,829,389	)		(6,348,340	)		(12,171,688	)


Net decrease in net assets from shareholder distributions		(5,829,389	)		(6,348,340	)		(12,171,688	)


Capital Share Transactions:
Issuance of common stock		—			83,825,625			83,825,625
Offering expenses		—			(5,441,281	)		(5,431,091	)
Reissuance of treasury stock in lieu of cash dividend		483,091			77,512			178,903


Net increase in net assets from capital share transactions		483,091			78,461,856			78,573,437


Total increase in net assets		32,624,933			115,513,851			132,103,395


Net assets, beginning of period		369,096,769			236,993,374			236,993,374


Net assets, end of period	$	401,721,702		$	352,507,225		$	369,096,769


Common shares outstanding, end of period		24,297,087			24,258,439			24,265,336

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

MVC Capital, Inc.

Consolidated Selected Per Share Data and Ratios


	For the Period			For the Period			For the
	November 1, 2007 to			November 1, 2006 to			Year Ended
	April 30, 2008			April 30, 2007			October 31, 2007
	(Unaudited)			(Unaudited)
Net asset value, beginning of period	$	15.21		$	12.41		$	12.41

Gain (loss) from operations:
Net operating income gain (loss)		0.16			(0.18	)		0.13
Net realized and unrealized gain (loss) on investments		1.40			2.18			2.79


Total gain from investment operations		1.56			2.00			2.92


Less distributions from:
Income		(0.24	)		(0.30	)		(0.54	)


Total distributions		(0.24	)		(0.30	)		(0.54	)


Capital share transactions
Anit-dilutive effect of share issuance		—			0.42			0.42


Total capital share transactions		—			0.42			0.42


Net asset value, end of period	$	16.53		$	14.53		$	15.21


Market value, end of period	$	15.56		$	17.57		$	17.06


Market premium (discount)		(5.87	)%		20.92	%		12.16	%

Total Return — At NAV (a)		10.33	%		19.78	%		27.39	%

Total Return — At Market (a)		(7.37	)%		37.07	%		35.02	%

Ratios and Supplemental Data:

Net assets, end of period (in thousands)	$	401,722		$	352,507		$	369,097

Ratios to average net assets:
Expenses excluding tax expense (benefit)		6.96	%(b)		11.15	%(b)		7.89	%
Expenses including tax expense (benefit), incentive compensation, interest and other borrowing costs		6.88	%(b)		10.89	%(b)		7.78	%
Expenses excluding incentive compensation		4.05	%(b)		4.87	%(b)		4.40	%
Expenses excluding incentive compensation, interest and other borrowing costs		2.87	%(b)		3.17	%(b)		2.88	%
Net operating income (loss) before tax expense (benefit)		1.94	%(b)		(2.95)	%(b)		0.53	%
Net operating income (loss) after tax expense (benefit), incentive compensation, interest and other borrowing costs		2.02	%(b)		(2.69)	%(b)		0.64	%
Net operating income (loss) before incentive compensation		4.85	%(b)		3.33	%(b)		4.02	%
Net operating income (loss) before incentive compensation, interest and other borrowing costs		6.03	%(b)		5.03	%(b)		5.54	%


(a)		Total 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, 2008

(Unaudited)


Company	Industry	Investment	Principal		Cost		Fair Value
Non-control/Non-affiliated investments — 23.46% (a, c, f, g)

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)	$	2,473,521		2,473,521		2,473,521
		Second Lien Seller Note 16.0000%, 06/30/2013 (b, h)		3,344,827		3,344,827		3,344,827

						5,818,348		5,818,348

BP Clothing, LLC	Apparel	Second Lien Loan 14.0000%, 07/18/2012 (b, h)		18,011,619		17,761,493		18,011,619
		Term Loan A 9.1600%, 07/18/2011 (h)		2,370,000		2,341,318		2,341,318
		Term Loan B 11.3100%, 07/18/2011 (h)		2,000,000		1,975,953		1,975,953

						22,078,764		22,328,890

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%, 01/31/2009 (b, h)		3,247,416		3,230,923		3,247,416

Henry Company	Building Products / Specialty Chemicals	Term Loan A 6.3625%, 04/06/2011 (h)		1,837,309		1,837,309		1,837,309
		Term Loan B 10.6125%, 04/06/2011 (h)		2,000,000		2,000,000		2,000,000

						3,837,309		3,837,309

Innovative Brands, LLC	Consumer Products	Term Loan 11.1250%, 09/25/2011 (h)		13,108,333		13,108,333		13,108,333

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		—

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 7.7000%, 12/28/2012 (h)		982,639		564,985		982,639
		Second Lien Loan 15.0000%, 12/31/2013 (b,h)		23,172,500		22,695,171		23,172,500

						23,260,156		24,155,139

Storage Canada, LLC	Self Storage	Term Loan 8.7500%, 03/30/2013 (h)		1,267,500		1,272,322		1,267,500
		Term Loan 8.7500%, 01/19/2014 (h)		705,000		705,000		705,000

						1,977,322		1,972,500

Total Safety U.S., Inc.	Engineering Services	First Lien Seller Note 5.4463%, 12/08/2012 (h)		987,500		987,500		987,500
		Second Lien Seller Note 9.5419%, 12/08/2013 (h)		3,500,000		3,500,000		3,500,000

						4,487,500		4,487,500

WBS Carbons Acquistions Corp.	Specialty Chemicals	Bridge Loan 5.0000%, 11/22/2011 (b, h)		1,681,111		1,681,111		1,681,111

Sub Total Non-control/Non-affiliated investments						121,765,526		94,236,546


Affiliate investments — 29.71% (a, c, f, g)

Custom Alloy Corporation	Manufacturer of Pipe Fittings	Unsecured Subordinated Loan 14.0000%, 09/18/2012 (b,h)		14,539,257		14,109,870		14,539,257
		Convertible Series A Preferred Stock (9 shares)				44,000		81,400
		Convertible Series B Preferred Stock (1,991 shares)				9,956,000		18,418,600

						24,109,870		33,039,257

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) (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		—

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)		10,721,348		10,573,194		10,721,348
		Convertible Preferred Stock (20,000 shares) (b)				2,292,475		2,292,475

						12,865,669		13,013,823

Octagon Credit Investors, LLC	Financial Services	Term Loan 6.9538%, 12/31/2011 (h)		5,000,000		4,951,080		5,000,000
		Revolving Line of Credit 6.9538%, 12/31/2011 (h)		5,400,000		5,400,000		5,400,000
		Limited Liability Company Interest				1,230,858		3,885,763

						11,581,938		14,285,763

Phoenix Coal Corporation	Coal Processing and Production	Common Stock (1,666,667 shares) (d)				1,000,000		1,000,000

PreVisor, Inc.	Human Capital Management	Common Stock (9 shares) (d)				6,000,000		11,700,000

Vitality Foodservice, Inc.	Non-Alcoholic Beverages	Common Stock (556,472 shares) (d)				5,564,716		7,692,000
		Preferred Stock (1,000,000 shares) (b, h)				9,976,660		12,878,431
		Warrants (d)				—		2,925,310

						15,541,376		23,495,741

Sub Total Affiliate investments						95,978,095		119,346,534

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

MVC Capital, Inc.

Consolidated Schedule of Investments — (Continued)

April 30, 2008
(Unaudited)


Company	Industry	Investment	Principal		Cost		Fair Value
Control Investments — 53.89% (a, c,f, g)

auto MOTOL BENI	Automotive Dealership	Bridge Loan 12.0000%, 06/30/2008 (e, h)	$	2,000,000	$	2,000,000	$	2,000,000
		Common Stock (1,074 shares) (d, e)				13,800,000		14,499,999

						15,800,000		16,499,999

Harmony Pharmacy & Health Center, Inc.	Healthcare - Retail	Revolving Credit Facility 10.0000%, 12/01/2009 (b, h)		4,099,726		4,099,726		4,000,000
		Demand Note 10.0000% (h)		3,300,000		3,300,000		3,300,000
		Common Stock (2,000,000 shares) (d)				750,000		750,000

						8,149,726		8,050,000

MVC Automotive Group BV	Automotive Dealerships	Common Equity Interest (d, e)				20,936,939		24,749,939
		Bridge Loan 10.0000%, 06/30/2008 (e, h)		1,643,557		1,643,557		1,643,557

						22,580,496		26,393,496

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

Ohio Medical Corporation	Medical Device Manufacturer	Common Stock (5,620 shares) (d)				17,000,000		17,200,000
		Series A Convertible Preferred Stock (10,453 shares) (b, h)				30,000,000		31,620,822

						47,000,000		48,820,822

SGDA Europe BV	Soil Remediation	Common Equity Interest (d, e)				3,450,000		3,450,000

SGDA Sanierungsgesellschaft	Soil Remediation	Term Loan 7.0000%, 08/25/2009 (e, h)		6,187,350		6,094,264		6,094,264
fur Deponien und Altlasten mbH		Common Equity Interest (d, e)				438,551		560,000
		Preferred Equity Interest (d, e)				5,000,000		5,850,000

						11,532,815		12,504,264

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%, 08/15/2012 (b, h)		8,628,956		8,465,993		8,628,955
		Common Stock (1,115 shares) (d)				16,000,000		17,000,000

						24,465,993		25,628,955

Timberland Machines & Irrigation, Inc.	Distributor - Landscaping and Irrigation Equipment	Senior Subordinated Debt 14.5500%, 08/04/2009 (b, h)		7,052,658		7,026,871		7,052,658
		Junior Revolving Line of Credit 12.5000%, 07/07/2009 (h)		5,000,000		5,000,000		5,000,000
		Common Stock (542 shares) (d)				5,420,291		2,740,291
		Warrants (d)				—		—

						17,447,162		14,792,949

Turf Products, LLC	Distributor - Landscaping and Irrigation Equipment	Senior Subordinated Debt 15.0000%, 11/30/2010 (b, h)		7,676,330		7,647,281		7,676,330
		Limited Liability Company Interest (d)				3,821,794		5,821,794
		Warrants (d)				—		—

						11,469,075		13,498,124

U.S. Gas & Electric, Inc.	Energy Services	Second Lien Loan 14.0000%, 07/26/2012 (b, h)		5,693,917		5,507,633		5,693,917
		Senior Credit Facility 12.2500% 07/26/2010 (h)		2,406,749		2,406,749		2,406,749
		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

						8,414,382		13,750,666

Velocitius B.V.	Renewable Energy	Common Equity Interest (d, e)				11,395,315		18,100,315

Vendio Services, Inc.	Technology Investments	Common Stock (10,476 shares) (d)				5,500,000		15,421
		Preferred Stock (6,443,188 shares) (d)				1,134,001		7,184,579

						6,634,001		7,200,000

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		3,700,000

						2,450,000		4,300,000

Sub Total Control Investments						193,421,663		216,497,288

Short Term Investments — 12.42% (g)

U.S. Treasury Bill	U.S. Government & Agency Securities	1.6518%, 7/10/2008 (i)		50,000,000		49,886,250		49,886,250

Sub Total Short Term Investments						49,886,250		49,886,250

TOTAL INVESTMENT ASSETS — 119.48% (f)					$	461,051,534	$	479,966,618


(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 auto MOTOL BENI, Lockorder Limited, SafeStone Technologies Limited, MVC Automotive, SGDA Europe BV, SGDA Sanierungsgesellschaft fur Deponien und Altlasten, 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 $401,721,702 as of April 30, 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 these securities may serve as collateral for the BB&T Credit Facility.

-		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, 2007


Company	Industry	Investment	Principal		Cost		Fair Value
Non-control/Non-affiliated investments — 23.18% (a, c, g, f)

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)	$	2,659,035		2,659,035		2,659,035
		Second Lien Seller Note 16.0000%, 06/30/2013 (b, h)		3,090,594		3,090,594		3,090,594

						5,749,629		5,749,629

BP Clothing, LLC	Apparel	Second Lien Loan 14.0000%, 07/18/2012 (b, h)		17,829,579		17,549,872		17,829,580
		Term Loan A 9.3800%, 07/18/2011 (h)		2,550,000		2,514,351		2,514,351
		Term Loan B 11.5300%, 07/18/2011 (h)		2,000,000		1,972,222		1,972,222

						22,036,445		22,316,153

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		7,600,000

Henry Company	Building Products / Specialty Chemicals	Term Loan A 8.6280%, 04/06/2011 (h)		1,837,309		1,837,309		1,837,309
		Term Loan B 12.5025%, 04/06/2011 (h)		2,000,000		2,000,000		2,000,000

						3,837,309		3,837,309

Innovative Brands, LLC	Consumer Products	Term Loan 11.1250%, 09/25/2011 (h)		14,850,000		14,850,000		14,850,000

GDC Acquisition, LLC	Electrical Distribution	Senior Subordinated Debt 17.0000%, 01/31/2009 (b, h)		3,175,371		3,147,234		3,175,371

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		—

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	Term Loan B 13.1300%, 03/31/2011 (h)		7,392,634		7,361,420		7,392,634
		Senior Subordinated Debt 16.0000%, 03/31/2012 (b, h)		13,485,570		13,236,072		13,485,570

						20,597,492		20,878,204

Storage Canada, LLC	Self Storage	Term Loan 8.7500%, 03/30/2013 (h)		1,320,500		1,326,047		1,320,500
		Term Loan 8.7500%, 10/06/2013 (h)		619,000		619,000		619,000
		Term Loan 8.7500%, 01/19/2014 (h)		705,000		705,000		705,000

						2,650,047		2,644,500

Total Safety U.S., Inc.	Engineering Services	First Lien Seller Note 8.1425%, 12/08/2012 (h)		992,500		992,500		992,500
		Second Lien Seller Note 11.3318%, 12/08/2013 (h)		3,500,000		3,500,000		3,500,000

						4,492,500		4,492,500

Sub Total Non-control/Non-affiliated investments						119,646,416		85,543,666


Affiliate investments — 34.67% (a, c, g, f)

Custom Alloy Corporation	Manufacturer of Pipe Fittings	Unsecured Subordinated Loan 14.0000%, 09/18/2012 (b,h)		14,035,389		13,557,190		14,035,389
		Convertible Series A Preferred Stock (9 shares) (d)				44,000		44,000
		Convertible Series B Preferred Stock (1,991 shares) (d)				9,956,000		9,956,000

						23,557,190		24,035,389

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) (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		—

Genevac U.S. Holdings, Inc.	Laboratory Research Equipment	Senior Subordinated Debt 12.5000%, 01/03/2008 (e, h)		12,962,963		12,962,963		12,962,963
		Common Stock (140 shares) (b, e)				1,103,002		1,103,002

						14,065,965		14,065,965

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

Impact Confections, Inc.	Confections Manufacturing and Distribution	Senior Subordinated Debt 17.0000%, 07/30/2009 (b, h)		5,718,372		5,664,803		5,718,372
		Promissory Note 9.1287%, 07/29/2008 (h)		325,000		323,388		325,000
		Common Stock (252 shares) (d)				2,700,000		2,700,000

						8,688,191		8,743,372

Marine Exhibition Corporation	Theme Park	Senior Subordinated Debt 11.0000%, 06/30/2013 (b, h)		10,506,628		10,344,177		10,506,628
		Convertible Preferred Stock (20,000 shares) (b)				2,203,455		2,203,455

						12,547,632		12,710,083

Octagon Credit Investors, LLC	Financial Services	Term Loan 9.3790%, 12/31/2011 (h)		5,000,000		4,944,431		5,000,000
		Revolving Line of Credit 9.3790%, 12/31/2011 (h)		4,100,000		4,100,000		4,100,000
		Limited Liability Company Interest				1,110,370		3,765,275

						10,154,801		12,865,275

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

MVC Capital, Inc.

Consolidated Schedule of Investments — (Continued)

October 31, 2007


Company	Industry	Investment	Principal		Cost		Fair Value
Phoenix Coal Corporation	Coal Processing and Production	Common Stock (1,666,667 shares) (d)			$	1,000,000	$	1,000,000

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

Vitality Foodservice, Inc.	Non-Alcoholic Beverages	Common Stock (556,472 shares) (d)				5,564,716		9,064,716
		Preferred Stock (1,000,000 shares) (b, h)				9,660,637		12,562,408
		Warrants (d)				—		1,100,000

						15,225,353		22,727,124

Sub Total Affiliate investments						116,118,374		127,959,158

Control Investments — 44.88% (a, c, g, f)

auto MOTOL BENI	Automotive Dealership	Bridge Loan 12.0000%, 12/31/2007 (e, h)	$	2,000,000		2,000,000		2,000,000
		Common Stock (200 shares) (d, e)				2,000,000		2,700,000

						4,000,000		4,700,000

Harmony Pharmacy & Health Center, Inc.	Healthcare - Retail	Revolving Credit Facility 10.0000%, 12/01/09 (h)		4,000,000		4,000,000		4,000,000
		Common Stock (2,000,000 shares) (d)				750,000		750,000

						4,750,000		4,750,000

MVC Automotive Group BV	Automotive Dealerships	Common Equity Interest (d,e)				20,911,500		20,911,500
		Bridge Loan 10.0000%, 03/17/2008 (e,h)		19,088,500		19,088,500		19,088,500

						40,000,000		40,000,000

MVC Partners, LLC	Private Equity Firm	Limited Liability Company Interest (d)				116,173		116,173

Ohio Medical Corporation	Medical Device Manufacturer	Common Stock (5,620 shares) (d)				17,000,000		17,200,000
		Convertible Unsecured Subordinated Promissary Note 17.1288%, 07/30/2008 (h)		3,250,000		3,250,000		3,250,000

						20,250,000		20,450,000

SIA Tekers Invest	Port Facilities	Common Stock (68,800 shares) (d, e)				2,300,000		2,600,000

SGDA Sanierungsgesellschaft fur Deponien und Altlasten mbH	Soil Remediation	Term Loan 7.0000%, 08/25/2009 (e, h)		6,187,350		6,059,477		6,059,477
		Common Equity Interest (d, e)				438,551		560,000
		Preferred Equity Interest (d, e)				5,000,000		5,600,000

						11,498,028		12,219,477

Summit Research Labs, Inc.	Specialty Chemicals	Second Lien Loan 14.0000%, 08/15/2012 (b, h)		5,414,733		5,334,906		5,414,733
		Common Stock (800 shares) (d)				11,200,000		12,200,000

						16,534,906		17,614,733

Timberland Machines & Irrigation, Inc.	Distributor - Landscaping and Irrigation Equipment	Senior Subordinated Debt 14.5500%, 08/04/2009 (b, h)		6,860,431		6,824,441		6,860,431
		Junior Revolving Line of Credit 12.5000%, 07/07/2009 (h)		4,000,000		4,000,000		4,000,000
		Common Stock (542 shares) (d)				5,420,291		3,420,291
		Warrants (d)				—		—

						16,244,732		14,280,722

Turf Products, LLC	Distributor - Landscaping and Irrigation Equipment	Senior Subordinated Debt 15.0000%, 11/30/2010 (b, h)		7,676,330		7,636,647		7,676,330
		Limited Liability Company Interest (d)				3,821,794		5,821,794
		Warrants (d)				—		—

						11,458,441		13,498,124

U.S. Gas & Electric, Inc.	Energy Services	Second Lien Loan 14.0000%, 07/26/2012 (b, h)		5,551,318		5,343,119		5,551,318
		Senior Credit Facility 12.2500% 7/26/2010 (h)		84,882		84,882		84,882
		Convertible Series B Preferred Stock (32,200 shares) (d)				500,000		500,000
		Convertible Series C Preferred Stock (8,216 shares) (d)				—		—
		Convertible Series F Preferred Stock (1,535 shares) (d)				—		—

						5,928,001		6,136,200

Velocitius B.V.	Renewable Energy	Revolving Credit Facility I, 8.0000%, 10/31/2009 (e, h)		191,084		191,084		191,084
		Revolving Credit Facility II, 8.0000%, 04/30/2010 (e, h)		612,882		612,882		612,882
		Common Equity Interest (d, e)				11,395,315		11,395,315

						12,199,281		12,199,281

Vendio Services, Inc.	Technology Investments	Common Stock (10,476 shares) (d)				5,500,000		15,421
		Preferred Stock (6,443,188 shares) (d)				1,134,001		9,484,579

						6,634,001		9,500,000

Vestal Manufacturing Enterprises, Inc.	Iron Foundries	Senior Subordinated Debt 12.0000%, 04/29/2011 (h)		700,000		700,000		700,000
		Common Stock (81,000 shares) (d)				1,850,000		3,700,000

						2,550,000		4,400,000

WBS Carbons Acquistions Corp.	Specialty Chemicals	Bridge Loan 5.0000%, 11/22/2011 (b, h)		1,600,000		1,600,000		1,600,000
		Common Stock (400 shares) (d)				1,600,000		1,600,000

						3,200,000		3,200,000

Sub Total Control Investments						157,663,563		165,664,710

TOTAL INVESTMENT ASSETS 102.73% (f)					$	393,428,353	$	379,167,534


(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 auto MOTOL BENI, Genevac U.S. Holdings, Inc., Lockorder Limited, SafeStone Technologies Limited, MVC Automotive, SGDA Sanierungsgesellschaft fur Deponien und Altlasten, 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 $369,096,769 as of October 31, 2007.

(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.

-		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, 2008

(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, 2007, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 28, 2007 and as amended on May 9, 2008 (File No. 814-00201).

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. 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 76.01% of the Company’s total assets at April 30, 2008. As discussed in Note 5, 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.

5. Portfolio Investments

For the Six Month Period Ended April 30, 2008

During the six month period ended April 30, 2008, the Company made two new investments, committing capital totaling approximately $24.8 million. The investments were made in SP Industries, Inc. (“SP”) ($24.0 million) and SGDA Europe B.V. (“SGDA Europe”) ($750,000).

The Company also made six follow-on investments in existing portfolio companies committing capital totaling approximately $62.5 million. During the six month period ended April 30, 2008, the Company made additional investments totaling approximately $217,000 in MVC Partners LLC (“MVC Partners”). In connection with these investments, MVC Partners has made an investment in MVC Acquisition Corp., a newly-formed 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. We have agreed to serve as the corporate sponsor of MVC Acquisition Corp. Michael Tokarz, our Chairman and Portfolio Manager and the Manager of TTG Advisers, and Peter Seidenberg, our Chief Financial Officer, currently serve as Chairman of the Board and Chief Financial Officer, respectively, for MVC Acquisition Corp. In connection with our sponsorship of MVC Acquisition Corp., we have agreed to purchase, through MVC Partners, an aggregate of $5,000,000 of warrants from MVC Acquisition Corp. concurrent with the consummation of its initial public offering. During the six month period ended April 30, 2008, the Company also made additional investments totaling $3.3 million in Harmony Pharmacy & Health Center, Inc. (“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 Corporation (“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 February 29, 2008, the Company invested an additional $7.8 million in Summit Research Labs, Inc. (“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, the Company invested an additional $2.7 million in SGDA Europe in the form of equity interest.

At the beginning of the 2008 fiscal year, the junior revolving note provided to Timberland Machines & Irrigation, Inc. (“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 six month period ended April 30, 2008 were $1.0 million resulting in a balance as of April 30, 2008 of $5.0 million.

At October 31, 2007, the balance of the revolving credit facility provided to Octagon Credit Investors, LLC (“Octagon”) was $4.1 million. Net borrowings during the six month period ended April 30, 2008 were $1.3 million resulting in a balance outstanding as of April 30, 2008 of $5.4 million.

At October 31, 2007, the balance of Line I, as defined in Note 6. Commitments and Contingencies, provided to Velocitius B.V. (“Velocitius”) was approximately $191,000. Repayments during the six month period ended April 30, 2008 were approximately $191,000. There was no amount outstanding on Line I as of April 30, 2008.

At October 31, 2007, the balance of Line II, as defined below, provided to Velocitius was approximately $613,000. Repayments during the six month period ended April 30, 2008 were approximately $613,000. There was no amount outstanding on Line II as of April 30, 2008.

At October 31, 2007, the balance of the revolving credit facility provided to U.S. Gas & Electric, Inc. (“U.S. Gas”) was approximately $85,000. Net borrowings during the six month period ended April 30, 2008 were $2.3 million resulting in a balance outstanding as of April 30, 2008 of approximately $2.4 million.

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 November 2, 2007, Genevac U.S. Holdings, Inc. (“Genevac”) made a principal payment of $1.0 million on its senior subordinated loan.

On December 21, 2007, Storage Canada, LLC (“Storage Canada”) repaid a portion of its term loan. Total amount received including accrued interest was approximately $622,000.

On December 31, 2007 and March 31, 2008, the Company received quarterly principal payments from BP Clothing, LLC (“BP”) on term loan A of $90,000. The balance of term loan A as of April 30, 2008 was approximately $2.4 million.

On December 31, 2007 and March 31, 2008, Total Safety U.S., Inc. (“Total Safety”) made principal payments of $2,500 on its first lien loan. The balance of the first lien loan as of April 30, 2008 was approximately $988,000.

On December 31, 2007, Turf Products LLC (“Turf”) borrowed $1.0 million from the secured junior revolving note. This was repaid on April 28, 2008. There was no amount outstanding as of April 30, 2008.

On January 2, 2008, February 1, 2008, and April 1, 2008, the Company received principal payments of $37,500, $1,666,667, and $37,500, respectively, on the term loan provided to Innovative Brands, LLC (“Innovative Brands”). The balance of the term loan as of April 30, 2008 was approximately $13.1 million.

On January 2, 2008, SP repaid term loan B and 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 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 January 3, 2008, February 3, 2008, March 3, 2008 and April 3, 2008, the Company received principal payments of $8,833 on the term loan provided to Storage Canada.

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 as of April 30, 2008.

On February 29, 2008, the Company sold 400 shares of WBS Carbons Acquisition Corp. (“WBS”) at its cost of $1.6 million.

On April 1, 2008, SP made a principal payment of $17,361 on its first lien loan. The balance of the first lien loan as of April 30, 2008, was approximately $983,000.

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 April 30, 2008, was $600,000.

During the six month period ended April 30, 2008, the Valuation Committee increased the fair value of the Company’s investments in U.S. Gas preferred stock by $5.2 million, SGDA Sanierungsgesellschaft fur Deponien und Altasten mbH (“SGDA”) preferred equity interest by $250,000, Foliofn, Inc. (“Foliofn”) preferred stock by $6.0 million, SIA Tekers Invest (“Tekers”) common stock by $575,000, Custom Alloy Corporation (“Custom Alloy”) preferred stock by $8.5 million, Velocitius equity interest by $6.7 million, MVC Automotive equity interest by $3.8 million, PreVisor, Inc. (“PreVisor”) common stock by $2.7 million and Vitality Foodservice, Inc. (“Vitality”) common stock and warrants by approximately $453,000. In addition, increases in the cost basis and fair value of the loans to GDC Acquisitions, LLC (“GDC”), SP, Harmony, Timberland, Amersham Corporation (“Amersham”), Marine Exhibition Corporation (“Marine”), BP, Summit, U.S. Gas, WBS, and Custom Alloy and the Vitality and Marine preferred stock were due to the capitalization of payment in kind (“PIK”) interest/dividends totaling $2,752,945. The Valuation Committee also increased 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. Also, during the six month period ended April 30, 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 $120,000. The Valuation Committee also decreased the fair value of the Company’s investments in Vendio Services, Inc. (“Vendio”) preferred stock by $2.3 million and Timberland common stock by $680,000 during the six month period ended April 30, 2008.

At April 30, 2008, the fair value of all portfolio investments, exclusive of short-term securities, was $430.1 million with a cost basis of $411.2 million. At April 30, 2008, 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 $20.8 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 $409.3 million and $355.3 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.

For the Year Ended October 31, 2007

During the fiscal year ended October 31, 2007, the Company made ten new investments, committing capital totaling approximately $117.3 million. The investments were made in WBS ($3.2 million), HuaMei Capital Company, Inc. (“HuaMei”) ($200,000), Levlad Arbonne International LLC (“Levlad”) ($10.1 million), Total Safety ($4.5 million), MVC Partners ($71,000), Genevac ($14.0 million), Tekers ($2.3 million), U.S. Gas ($18.9 million), Custom Alloy ($24.0 million), and MVC Automotive ($40.0 million).

common stock at the same price. On February 19, 2007, the Company invested an additional $8.4 million of common equity interest in Velocitius. On February 21, 2007 and May 4, 2007, the Company provided BP a $5.0 million and a $2.5 million second lien loan, respectively. On March 26, 2007, the Company extended a $1.0 million bridge loan to BENI. On March 30, 2007, the Company invested an additional $5.0 million in SP in the form of a subordinated term loan B. On May 1, 2007, the Company extended to Velocitius a $650,000 revolving line of credit (“Line II”). Velocitius immediately borrowed approximately $547,000. The balance of the line of credit as of October 31, 2007 was approximately $613,000. On May 8, 2007, the Company provided Baltic Motors Corporation (“Baltic Motors”) a $5.5 million bridge loan. On May 9, 2007, the Company purchased 1.0 million shares of Dakota Growers Pasta Company, Inc. (“Dakota Growers”) preferred stock at a cost of $10.0 million. At that time, 65,000 shares of Dakota Growers common stock were converted to 65,000 shares of convertible preferred stock. On June 19, 2007, the Company increased the bridge loan to BENI to $2.0 million. The remaining available amount of $1.7 million was immediately drawn. On July 30, 2007, the Company provided Ohio Medical a $2.0 million convertible unsecured promissory note. On August 20, 2007, the Company contributed an additional $45,000 to MVC Partners, increasing the Company’s limited liability interest. On September 27, 2007, the Company invested an additional $1.25 million in Ohio Medical by increasing the convertible unsecured promissory note to $3.25 million.

At the beginning of the 2007 fiscal year, the junior revolving note provided to Timberland had a balance outstanding of approximately $2.8 million. On November 27, 2006, the amount available on the revolving note was increased by $750,000 to $4.0 million. Net borrowings during for the fiscal year ended October 31, 2007 were $1.2 million resulting in a balance as of October 31, 2007 of $4.0 million.

At October 31, 2006, the balance of the revolving credit facility provided to Octagon was $3.25 million. Net borrowings during the fiscal year ended October 31, 2007 were $850,000 resulting in a balance outstanding of $4.1 million.

At October 31, 2006, the balance of Line I provided to Velocitius was approximately $144,000. Net borrowings during the fiscal year October 31, 2007 were approximately $47,000. As of October 31, 2007, the balance of Line I was approximately $191,000.

On December 1, 2006, the Company received a principal payment of approximately $100,000 from Vestal on its senior subordinated debt. As of October 31, 2007, the balance of the loan was $700,000.

On December, 8, 2006, Total Safety repaid term loan A and term loan B in full including all accrued interest and prepayment fees. The total amount received for term loan A was $5,043,775 and for term loan B was $1,009,628.

On December 29, 2006, March 30, 2007, June 29, 2007, and September 28, 2007, the Company received quarterly principal payments from BP on term loan A of $90,000.

On January 1, 2007, April 2, 2007, July 2, 2007, and October 1, 2007, the Company received principal payments of $37,500 on the term loan provided to Innovative Brands on each payment date.

On January 2, 2007, March 1, 2007, and September 27, 2007, the Company received principal payments of approximately $96,000, $1.0 million, and $63,000, respectively, on term loan A from Henry Company.

On January 5, 2007, Baltic Motors repaid the bridge loan in full including all accrued interest. The total amount received from the repayment was $1,033,000.

On January 19, 2007, Storage Canada borrowed an additional $705,000 under their credit facility. The borrowing bears annual interest of 8.75% and has a maturity date of January 19, 2014.

On February 16, 2007, the Company exchanged the $200,000 convertible promissory note due from HuaMei for 50 shares of its common stock.

On March 8, 2007, Levlad repaid its loan in full, including all accrued interest and a prepayment fee. The total amount received from the payment was approximately $10.4 million.

On March 30, 2007, June 29, 2007, and September 28, 2007, Total Safety made principal payments of $2,500 on its first lien loan.

On April 12, 2007 and April 18, 2007, BENI made principal payments of $200,000 and $500,000, respectively, on its bridge loan.

On April 16, 2007, the assets and liabilities of SafeStone Technologies PLC were transferred to two new companies, Lockorder Limited (“Lockorder”) and SafeStone Technologies Limited (“SafeStone Limited”). The Company received 21,064 shares of SafeStone Limited and 21,064 shares of Lockorder as a result of this corporate action. On a combined basis, there was no change in the cost basis or fair value due to this transaction.

On May 1, 2007, Turf repaid its secured junior revolving note in full, including accrued interest. The total amount received from the payment was approximately $1.0 million. There were no borrowings outstanding on the revolving note as of October 31, 2007.

Beginning on May 1, 2007, the Company receives monthly principal payments of $111,111 from SP on term loan B. Total principal payments for the fiscal year ended October 31, 2007 was $666,666.

On July 7, 2007, the Company extended the maturity date of the Timberland junior revolver to July 7, 2009.

On July 24, 2007, the Company sold the common stock of Baltic Motors and SIA BM Auto (“BM Auto”). The amount received from the sale of the 60,684 common shares of Baltic Motors was approximately $62.0 million, net of closing and other transaction costs, working capital adjustments and a reserve established by the Company to satisfy certain post-closing conditions requiring capital and other expenditures. Baltic Motors repaid all debt from the Company in full including all accrued interest. Total amount received from the repayment of the debt was approximately $10.2 million including all accrued interest. The remaining $51.8 million, less the $8.0 million cost basis of Baltic Motors, resulted in $43.8 million recorded as realized gain. The difference between the $51.8 million received from the Baltic Motors equity and the carrying value at October 31, 2006 is $30.6 million and the amount of the increase in net assets attributable to fiscal year 2007. The portion of the capital gain related to the equity investment made on June 24, 2004 ($40.9 million), will be treated as long-term capital gain and the portion related to the equity investment made on September 28, 2006 ($2.9 million) will be treated as a short-term capital gain. The amount received from the sale of the 47,300 common shares of BM Auto was approximately $29.7 million, net of closing and other transaction costs, working capital adjustments and a reserve established by the Company to satisfy certain post-closing conditions requiring capital and other expenditures. The $29.7 million, less the $8.0 million cost basis of BM Auto, resulted in $21.7 million recorded as a long term capital gain. The difference between the $29.7 million received from the BM Auto equity and the carrying value at October 31, 2006 is $21.7 million, which is the amount of the increase in net assets attributable to fiscal year 2007.

result was added to the Company’s gain on the sale. Of the $1.0 million gain from the reserve account, approximately $887,000 is attributable to the sale of Baltic Motors and approximately $148,000 is attributable to the sale to BM Auto. The Company also had a currency gain of approximately $42,000 from the reserve account. Total gain from the sale of Baltic Motors and BM Auto was $66.5 million.

On July 27, 2007, U.S. Gas repaid its bridge loan in full, including accrued interest. The total amount received was approximately $908,000.

On August 1, 2007, Phoenix Coal Corporation (“Phoenix Coal”) repaid its second lien loan in full including all accrued interest and fees. Total amount received from the repayment was approximately $8.4 million.

On October 31, 2007, the Company restructured the terms of the Amersham loans. The accrued interest on the loan with an outstanding balance of $2.7 million at October 31, 2007 was capitalized. The default PIK interest on the loan with a balance of $3.1 million at October 31, 2007 was forgiven up to 75%. The interest rate on this loan has been reduced to the original rate of 16%.

Net borrowings on the Harmony Pharmacy revolving credit facility during the fiscal year ended October 31, 2007 were $4.0 million, resulting in a balance outstanding of approximately $4.0 million.

Net borrowings on the U.S. Gas senior credit facility during the fiscal year ended October 31, 2007 were approximately $85,000, resulting in a balance outstanding of approximately $85,000.

During the fiscal year ended October 31, 2007, the Valuation Committee determined to increase the fair value of the Company’s investments in Dakota Growers common stock by approximately $1.9 million, Octagon’s membership interest by approximately $1.6 million, SGDA common equity interest by approximately $121,000 and preferred equity interest by $600,000, PreVisor common stock by $3.0 million, Foliofn preferred stock by $2.6 million, Tekers common stock by $300,000, BENI common stock by $700,000, Summit preferred stock by $1.0 million, Vendio preferred stock by $6.1 million, and Vendio common stock by approximately $15,000. In addition, increases in the cost basis and fair value of the loans to Impact, GDC, SP, Timberland, Amersham, Marine, Phoenix Coal, BP, Turf, Summit, U.S. Gas, Custom Alloy, Vitality and Marine preferred stock, and Genevac common stock were due to the capitalization of PIK interest/dividends totaling $2,850,999. Also, during the fiscal year ended October 31, 2007, the undistributed allocation of flow through income from the Company’s equity investment in Octagon increased the cost basis and fair value of the Company’s investment by $216,275. The Valuation Committee also determined to decrease the fair value of the Company’s investments in Ohio Medical by $9.0 million and Timberland common stock by $1.0 million during the fiscal year ended October 31, 2007.

At October 31, 2007, the fair value of all portfolio investments was $379.2 million with a cost basis of $393.4 million. At October 31, 2007, the fair value and cost basis of the 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. At October 31, 2006, the fair value of all portfolio investments was $275.9 million with a cost basis of $286.9 million. At October 31, 2006, the fair value and cost basis of Legacy Investments was $8.4 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 $267.5 million and $231.0 million, respectively.

6. Commitments and Contingencies

Commitments to/for Portfolio Companies:

At April 30, 2008, the Company’s existing commitments to portfolio companies consisted of the following:

Commitments of MVC Capital, Inc.


Portfolio Company	Amount Committed			Amount Funded at April 30, 2008
Timberland	$	5.0	million	$	5.0	million
Storage Canada	$	6.0	million	$	2.0	million
Marine	$	2.0	million		—
BENI	$		583,700		—
Octagon	$	12.0	million	$	5.4	million
Velocitius	$		260,000		—
Turf	$	1.0	million		—
Harmony Pharmacy	$	4.0	million	$	4.0	million
Velocitius	$		650,000		—
Tekers	$	2.2	million		—
U.S. Gas	$	10.0	million	$	2.4	million
U.S. Gas	$	2.0	million		—
MVC Automotive	$	10.1	million		—
MVC Automotive	$	6.2	million		—
Total	$	62.0	million	$	18.8	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. As of October 31, 2007, the funded debt under the junior revolving line of credit was $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 six month period ended April 30, 2008 were $1.0 million resulting in a balance as of April 30, 2008 of $5.0 million.

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 renewed in March 2008. 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, 2007, the outstanding balance of the loan commitment was $2.7 million. Net repayments during the six month period ended April 30, 2008 were approximately $654,000 resulting in a balance of approximately $2.0 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. There was no amount outstanding on the revolving loan facility as of April 30, 2008.

On October 10, 2006, the Company agreed to guarantee a 375,000 Euro inventory financing facility for BENI, equivalent to approximately $583,700 at April 30, 2008.

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. At October 31, 2007 the outstanding balance of the revolving credit facility provided to Octagon

was $4.1 million. Net borrowings during the six month period ended April 30, 2008 were $1.3 million resulting in a balance outstanding of $5.4 million 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%. At October 31, 2007, the balance of the Line I was approximately $191,000. Repayments during the six month period ended April 30, 2008 were approximately $191,000. There was no amount outstanding on Line II as of April 30, 2008.

On January 9, 2007, the Company extended to Turf a $1.0 million secured junior revolving note. The note bears annual interest at 12.5% and expires on May 1, 2008. The Company also receives a fee of 0.25% of the unused portion of the note. There was no amount outstanding on the secured junior revolving note as of October 31, 2007. On December 31, 2007, Turf borrowed $1.0 million from the secured junior revolving note. Turf repaid $1.0 million on the secured junior revolving note on April 28, 2008. As of April 30, 2008, there was no amount outstanding.

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, 2007 and April 30, 2008, the outstanding balance of the revolving credit facility provided was $4.0 million.

On May 1, 2007, the Company provided Line II to Velocitius. Line II expires on April 30, 2010 and bears annual interest at 8%. At October 31, 2007, there was approximately $613,000 outstanding. Repayments during the six month period ended April 30, 2008 were approximately $613,000. There was no amount outstanding on Line II as of April 30, 2008.

On July 19, 2007, the Company agreed to guarantee a 1.4 million Euro mortgage for Tekers, equivalent to approximately $2.2 million at April 30, 2008.

On July 26, 2007, the Company provided a $10.0 million revolving credit facility and a $2.0 million junior revolver to U.S. Gas. The credit facility bears annual interest at LIBOR plus 6% and the revolver bears annual interest at 14%. The Company receives a fee of 0.50% on the unused portion of the credit facility and the revolver. The revolving credit facility and junior revolver expire on July 26, 2010. At October 31, 2007, there was approximately $85,000 outstanding on the revolving credit facility. Net borrowings during the six month period ended April 30, 2008 were $2.3 million resulting in a balance outstanding of $2.4 million at such date. There was no amount outstanding on the junior revolver as of October 31, 2007 and April 30, 2008.

On January 15, 2008, the Company agreed to guarantee a 6.5 million Euro mortgage for MVC Automotive, equivalent to approximately $10.1 million at April 30, 2008.

On January 16, 2008, the Company agreed to support a 4 million Euro mortgage for a Ford dealership owned and operated by MVC Automotive (equivalent to approximately $6.2 million at April 30, 2008) through making financing available to the dealership and agreeing under certain circumstances not to reduce its equity stake in MVC Automotive.

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

Commitments of the Company:

On February 16, 2005, the Company entered into a sublease (the “Sublease”) for a larger space in the building in which the Company’s current executive offices are located, which expired on February 28, 2007. Effective November 1, 2006, under the terms of the Investment Advisory and Management Agreement with TTG Advisers (the “Advisory Agreement”), 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”) with Guggenheim as administrative agent for the lenders. At October 31, 2007, there was $50.0 million in term debt and $30.0 million on Credit Facility I outstanding. During the six month period ended April 30, 2008, the Company’s net borrowings on Credit Facility I were $20.0 million. As of April 30, 2008, there was $50.0 million in term debt and $50.0 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.

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”). During the six month period ended April 30, 2008, the Company’s net borrowings on Credit Facility II were $50.0 million. Credit Facility II provides financing to the Company in addition to the Company’s existing $100 million Credit Facility I with Guggenheim. Credit Facility II will be 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.

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.

7. Certain Issuances of Equity Securities by the Issuer

On February 28, 2007, the Company completed its public offering of 5,000,000 shares of the Company’s common stock at a price of $16.25 per share. On March 28, 2007, pursuant to the 30-day over-allotment option granted by the Company to the underwriters in connection with the offering, the underwriters purchased an

additional 158,500 shares of common stock at the purchase price of $16.25 per share. The Company raised approximately $78.4 million in net proceeds after deducting the underwriting discount and commissions and estimated offering expenses. The Company expects to use the net proceeds of the offering to fund additional investments and for general corporate purposes, including the repayment of debt.

8. Management

On November 6, 2003, Michael Tokarz assumed his positions as Chairman, Portfolio Manager and Director of the Company. From November 6, 2003 to October 31, 2006, the Company was internally managed. The Company entered into the Advisory Agreement, effective November 1, 2006, which provides for the Company to be managed externally by TTG Advisers, which is controlled by Mr. Tokarz.

Under the terms of the Advisory 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 Advisory Agreement are not exclusive, and it may furnish similar services to other entities. Pursuant to the Advisory Agreement, the Company is required to pay TTG Advisers a fee for investment advisory and management services consisting of two components—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 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 Advisory 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 3.25% in each of the 2007 and 2008 fiscal years. Please see Note 9 “Incentive Compensation” for more information.

9. Incentive Compensation

Effective November 1, 2006, Mr. Tokarz’s employment agreement with the Company terminated and the obligations under Mr. Tokarz’s agreement were superseded by those under the Advisory Agreement entered into with TTG Advisers. Pursuant to the Advisory Agreement, the Company pays an incentive fee to TTG Advisers which is generally: (i) 20% of pre-incentive fee net operating income and (ii) 20% of net realized capital gains less unrealized depreciation (on our portfolio securities acquired after November 1, 2003). TTG Advisers is entitled to an incentive fee with respect to our pre-incentive fee net operating income in each fiscal quarter as follows: no incentive fee in any fiscal quarter in which our pre-incentive fee net operating income does not exceed the hurdle rate of 1.75% of net assets, 100% of our pre-incentive fee net operating income with respect to that portion of such pre-incentive fee net operating income, if any, that exceeds the hurdle rate but is less than 2.1875% of net assets in any fiscal quarter and 20% of the amount of our pre-incentive fee net operating income, if any, that exceeds 2.1875% of net assets in any fiscal quarter. Under the Advisory Agreement, the accrual of the provision for incentive compensation for net realized capital gains is consistent with the accrual that was required under the employment agreement with Mr. Tokarz.

Under internal management, Mr. Tokarz was entitled to compensation pursuant to his agreement with the Company, under which the Company was required to pay Mr. Tokarz incentive compensation in an amount equal to the lesser of (a) 20% of the net income of the Company for the fiscal year; or (b) the sum of (i) 20% of the net capital gains realized less unrealized depreciation by the Company in respect of the investments made during his tenure as Portfolio Manager; and (ii) the amount, if any, by which the Company’s total expenses for a fiscal year were less than two percent of the Company’s net assets (determined as of the last day of the period).

At October 31, 2007, the provision for estimated incentive compensation was $17,875,496. During the six month period ended April 30, 2008, this provision for incentive compensation 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, Velocitius, MVC Automotive and PreVisor) by a total of $28.1 million. The Valuation Committee also increased 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 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, as discussed in “Realized Gains and Losses on Portfolio Securities, For the Fiscal Year Ended October 31, 2007,” the Company realized a gain of $66.5 million from the sale of Baltic Motors and 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 value of Timberland common stock by $680,000. 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.

10. Tax Matters

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.

In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. (“FIN”) 48, Accounting for Uncertainty in Income Taxes. FIN 48 is effective for financial statements issued for fiscal years beginning after December 15, 2006. 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 do not believe that FIN 48 has a material impact on the Company’s financial condition or results of operations. 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, timing differences and differing characterizations of distributions made by the Company. 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, 2008

On December 20, 2007, the Company’s board of directors declared a dividend of $0.12 per share. The dividend was payable on January 9, 2008 to shareholders of record on December 31, 2007. The total distribution amounted to $2,913,739, including distributions reinvested. In accordance with the Company’s dividend reinvestment plan (the “Plan”), Computershare Ltd., the Plan Agent, re-issued 15,930 shares of common stock from the Company’s treasury to shareholders participating in the Plan.

For the Quarter Ended April 30, 2008

On April 11, 2008, the Company’s board of directors declared a dividend of $0.12 per share. The dividend was payable on April 30, 2008 to shareholders of record on April 23, 2008. The total distribution amounted to $2,915,651, including distributions reinvested.

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 six month period ended April 30, 2008:


	MVC		MVCFS			Consolidated
Interest and dividend income	$	14,440,004	$	100,435		$	14,540,439
Fee income		118,147		1,995,538			2,113,685
Other income		322,772		—			322,772
Total operating income		14,880,923		2,095,973			16,976,896

Total operating expenses		10,668,125		2,618,139			13,286,264

Net operating income (loss) before taxes		4,212,798		(522,166	)		3,690,632
Tax benefit		—		(164,146	)		(164,146	)
Net operating income (loss)		4,212,798		(358,020	)		3,854,778
Net realized gain on investments and foreign currency		940,550		—			940,550
Net change in unrealized appreciation on investments		33,175,903		—			33,175,903
Net increase (decrease) in net assets resulting from operations		38,329,251		(358,020	)		37,971,231

In all periods prior to July 16, 2004, all business was conducted through MVC Capital, Inc. With the externalization of the Company’s management on November 1, 2006, separate invoices are now sent to MVC Capital and MVCFS for the quarterly base management fee due to TTG Advisers.

13. Recent Accounting Pronouncements

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements. Statement No. 157 (FAS 157) provides enhanced guidance for using fair value to measure assets and liabilities. FAS 157 also provides guidance regarding the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. This guidance, as required, will be applicable to our financial statements for our fiscal year 2009. During the valuation process that took place for the quarter ended April 30, 2008, the Company began reviewing whether FAS 157 would materially impact the Company’s valuations. Based upon our initial review, FAS 157 is not expected to have a material impact on our consolidated financial statements.

14. Subsequent Events

Since April 30, 2008, net repayments on the Octagon revolving credit facility were approximately $2.0 million.

On May 6, 2008, the Company repaid $50.0 million on Credit Facility I.

On May 7, 2008, the Company repaid $50.0 million on Credit Facility II.

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, 2007.

SELECTED CONSOLIDATED FINANCIAL DATA:

Financial information for the fiscal year ended October 31, 2007 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,
	2008			2007			2007
	(Unaudited)			(Unaudited)
	(In thousands, except per share data)
Operating Data:
Interest and related portfolio income:
Interest and dividend income	$	14,540		$	9,961		$	22,826
Fee income		2,114			1,374			3,750
Other income		323			147			374


Total operating income		16,977			11,482			26,950

Expenses:
Incentive compensation (Note 9)		5,397			8,424			10,813
Administrative		1,434			1,321			2,559
Interest, fees and other borrowing costs		2,252			2,384			4,859
Management fee		4,203			3,489			7,034


Total operating expenses		13,286			15,618			25,265


Net operating income (loss) before taxes		3,691			(4,136	)		1,685

Tax benefit		(164	)		(374	)		(375	)


Net operating income (loss)		3,855			(3,762	)		2,060

Net realized and unrealized gains (losses):
Net realized gains (losses)		940			(123	)		66,944
Net change in unrealized appreciation (depreciation)		33,176			47,285			(3,302	)


Net realized and unrealized gains on investments		34,116			47,162			63,642


Net increase in net assets resulting from operations	$	37,971		$	43,400		$	65,702


Per Share:
Net increase in net assets per share resulting from operations	$	1.56		$	2.00		$	2.92
Dividends per share	$	0.24		$	0.30		$	0.54
Balance Sheet Data:
Portfolio at fair value	$	430,080		$	364,977		$	379,168
Portfolio at cost		411,165			328,651			393,428
Total assets		565,796			471,392			470,491
Shareholders’ equity		401,722			352,507			369,097
Shareholders’ equity per share (net asset value)	$	16.53		$	14.53		$	15.21
Common shares outstanding at period end		24,297			24,258			24,265
Other Data:
Number of Investments funded in period		8			14			26
Investments funded ($) in period	$	87,270		$	58,990		$	167,134


	2008					2007											2006
	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		8,081			8,896		8,438		7,030			6,073			5,409			6,104		4,607		3,915			3,882
Incentive compensation		3,740			1,657		771		1,618			4,898			3,526			1,338		1,161		2,005			1,551
Interest, fees and other borrowing costs		1,081			1,171		1,223		1,252			1,256			1,128			910		636		39			9
Management fee		2,185			2,018		1,929		1,616			1,854			1,635			—		—		—			—
Other expenses		753			681		630		608			652			669			2,117		1,676		1,739			1,387
Tax expense (benefit)		(186	)		22		77		(78	)		(394	)		20			16		62		(24	)		105
Net operating income (loss) before net realized and unrealized gains		508			3,347		3,808		2,014			(2,193	)		(1,569	)		1,723		1,072		156			830
Net increase in net assets resulting from operations		17,158			20,813		8,514		13,788			24,323			19,077			15,866		8,046		11,117			12,307
Net increase in net assets resulting from operations per share		0.70			0.86		0.35		0.57			1.00			1.00			0.83		0.42		0.58			0.65
Net asset value per share		16.53			15.95		15.21		14.98			14.53			13.23			12.41		11.70		11.40			10.94

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, 2007, the Company made ten new investments and 16 follow-on investments in existing portfolio companies, committing capital totaling approximately $167.1 million pursuant to our current investment objective. During the six month period ended April 30, 2008, the Company made two new investments and six follow-on investments in existing portfolio companies, committing capital totaling approximately $87.3 million.

Prior to the adoption of our current investment objective, the Company’s investment objective had been to achieve long-term capital appreciation from venture capital investments in information technology companies. The Company’s investments had thus previously focused on investments in equity and debt securities of information technology companies. As of April 30, 2008, 3.68% 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.

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. 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, 2008 and 2007. Total operating income was $17.0 million for the six month period ended April 30, 2008 and $11.5 million for the six month period ended April 30, 2007, an increase of $5.5 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.

For the Six Month Period Ended April 30, 2007

Total operating income was $11.5 million for the six month period ended April 30, 2007. 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 and dividend income earned on loans to portfolio companies and the receipt of closing and monitoring fees from certain portfolio companies by the Company and MVCFS. The Company earned approximately $9.5 million in interest and dividend income from investments in portfolio companies. Of the $9.5 million recorded in interest/dividend income, approximately $1.6 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 0% to 19%. Also, the Company earned approximately $449,000 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 $1.4 million and $147,000, respectively.

OPERATING EXPENSES

For the Six Month Periods Ended April 30, 2008 and 2007. Operating expenses were $13.3 million for the six month period ended April 30, 2008 and $15.6 million for the six month period ended April 30, 2007, a decrease of $2.3 million.

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. It should be noted, in this regard, that the Advisory 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 3.25% 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 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 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.

For the Six Month Period Ended April 30, 2007

Operating expenses were $15.6 million or 11.15% of the Company’s average net assets, when annualized, for the six month period ended April 30, 2007. Significant components of operating expenses for the six month period ended April 30, 2007 include the estimated provision for incentive compensation expense of approximately $8.4 million, management fee of $3.5 million, and interest expense and other borrowing costs of $1.9 million. Estimated provision for incentive compensation expense is a non-cash, not yet payable, provisional expense relating to the Advisory Agreement.

The $8.9 million increase in the Company’s operating expenses in the six month period ended April 30, 2007 compared to the six month period ended April 30, 2006, was primarily due to the $4.9 million increase in the provision for estimated incentive compensation, the $2.3 million increase in the Company’s interest expense and other borrowings, and the $1.8 million increase in the management fee expense compared to the facilities and employee compensation and benefits expense incurred when the Company was internally managed. The $1.8 million increase is in part due to the externalization of management to TTG Advisers. However, the management fee expense increased by only $480,000 when annualizing the quarter ended October 31, 2006 employee compensation and benefits and facilities expense and comparing it to the annualized six month period ended April 30, 2007 management fee expense. It should be noted, in this regard, that the Advisory 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 3.25% in each of the 2007 and 2008 fiscal years. In fiscal year 2006, when the Company was still internally managed and not subject to the expense cap, the expense ratio was 3.22% (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, 2007, the provision for incentive compensation was increased by $8,424,352 to $15,596,704. During the year ended October 31, 2006, Mr. Tokarz was paid no cash or other compensation. However, on October 2, 2006, the Company realized a gain of $551,092 from the sale of a portion of the Company’s LLC membership interest in Octagon. This transaction triggered an incentive compensation payment obligation of $110,218 to Mr. Tokarz, which was paid on January 12, 2007. The increase in the provision for incentive compensation during the six month period ended April 30, 2007 was a result of the Valuation Committee’s determination to increase, by an aggregate net amount of $42,121,761, the fair values of seven of the Company’s portfolio investments (Baltic Motors, Dakota, Octagon, BM Auto, SGDA, PreVisor and Vitality) and decrease the fair value of Ohio. The reserve balance of $15,486,486 will remain unpaid until net capital gains are realized, if ever, by the Company. Pursuant to the Advisory Agreement, incentive compensation payments will be made only upon the occurrence of a realization event. Without this reserve for incentive compensation, operating expenses would have been approximately $7.2 million or 4.87% of average net assets when annualized as compared to 10.89%, which is reported on the Consolidated Per Share Data and Ratios, for the six month period ended April 30, 2007. During the six month period ended April 30, 2007, 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 2007, the Company renewed its Directors & Officers/Professional Liability Insurance policies at an expense of approximately $381,000 which is amortized over the twelve month life of the policy. The prior policy premium was $459,000.

REALIZED GAINS AND LOSSES ON PORTFOLIO SECURITIES

For the Six Month Periods Ended April 30, 2008 and 2007. Net realized gains for the six month period ended April 30, 2008 were $940,550 and net realized losses for the six month period ended April 30, 2007 were $123,088, an increase of approximately $1.1 million.

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.

For the Six Month Period Ended April 30, 2007

Net realized losses for the six month period ended April 30, 2007 were $123,088. The significant component of the Company’s net realized losses for the six month period ended April 30, 2007 was a realized loss from the prepayment from Levlad on the second lien loan, which was purchased at a premium and thus resulted in a realized loss of approximately $121,000.

UNREALIZED APPRECIATION AND DEPRECIATION OF PORTFOLIO SECURITIES

For the Six Month Periods Ended April 30, 2008 and 2007. 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 and $47.3 million for the six month period ended April 30, 2007.

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.

For the Six Month Period Ended April 30, 2007

The Company had a net increase in unrealized appreciation on portfolio investments of $47.3 million for the six month period ended April 30, 2007. The increase in unrealized appreciation on investment transactions for the six month period ended April 30, 2007 primarily resulted from the Valuation Committee’s decision to increase the fair values of the Company’s investments in Baltic common stock by $26.0 million, Dakota common stock by $1.9 million, Octagon’s membership interest by approximately $1.6 million, BM Auto common stock by $18.7 million, SGDA’s preferred equity by $350,000 and common equity by approximately $121,000, PreVisor common stock by $1.7 million, Vendio preferred stock by $4.1 million, Foliofn preferred stock by $1.1 million, and Vitality preferred stock by approximately $730,000 and a decrease in the fair value of Ohio common stock by $9.0 million.

PORTFOLIO INVESTMENTS

For the Six Month Period Ended April 30, 2008 and the Year Ended October 31, 2007. The cost of the portfolio investments held by the Company at April 30, 2008 and at October 31, 2007 was $411.2 million and $393.4 million, respectively, an increase of $17.8 million. The aggregate fair value of portfolio investments at April 30, 2008 and at October 31, 2007 was $430.1 million and $379.2 million, respectively, an increase of $50.9 million. The cost and aggregated market value of short-term securities held by the Company at April 30, 2008 and at October 31, 2007 was $49.9 million and $0, respectively, an increase of $49.9 million. The cost and aggregate fair value of cash and cash equivalents held by the Company at April 30, 2008 and at October 31, 2007 was $78.7 million and $84.7, respectively, a decrease of approximately $6.0 million.

For the Six Month Period Ended April 30, 2008

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 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. We have agreed to serve as the corporate sponsor of MVC Acquisition Corp. Michael Tokarz, our Chairman and Portfolio Manager and the Manager of TTG Advisers, and Peter Seidenberg, our Chief Financial Officer, currently serve as Chairman of the Board and Chief Financial Officer, respectively, for MVC Acquisition Corp. In connection with our sponsorship of MVC Acquisition Corp., we have agreed to purchase, through MVC Partners, an aggregate of $5,000,000 of warrants from MVC Acquisition Corp. concurrent with the consummation of its initial public offering. During the six month period ended April 30, 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 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, the Company invested an additional $2.7 million in SGDA Europe in the form of equity interest.

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 six month period ended April 30, 2008 were $1.0 million resulting in a balance as of April 30, 2008 of $5.0 million.

At October 31, 2007, the balance of the revolving credit facility provided to Octagon was $4.1 million. Net borrowings during the six month period ended April 30, 2008 were $1.3 million resulting in a balance outstanding as of April 30, 2008 of $5.4 million.

At October 31, 2007, the balance of Line I, as defined below, provided to Velocitius was approximately $191,000. Repayments during the six month period ended April 30, 2008 were approximately $191,000. There was no amount outstanding on Line I as of April 30, 2008.

At October 31, 2007, the balance of the revolving credit facility provided to U.S. Gas was approximately $85,000. Net borrowings during the six month period ended April 30, 2008 were $2.3 million resulting in a balance outstanding as of April 30, 2008 of approximately $2.4 million.

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 November 2, 2007, Genevac made a principal payment of $1.0 million on its senior subordinated loan.

On December 21, 2007, Storage Canada repaid a portion of its term loan. Total amount received including accrued interest was approximately $622,000.

On December 31, 2007 and March 31, 2008, the Company received quarterly principal payments from BP on term loan A of $90,000. The balance of term loan A as of April 30, 2008 was approximately $2.4 million.

On December 31, 2007 and March 31, 2008, Total Safety made principal payments of $2,500 on its first lien loan. The balance of the first lien loan as of April 30, 2008 was approximately $988,000.

On December 31, 2007, Turf borrowed $1.0 million from the secured junior revolving note. This was repaid on April 28, 2008. There was no amount outstanding as of April 30, 2008.

On January 2, 2008, February 1, 2008, and April 1, 2008, the Company received principal payments of $37,500, $1,666,667, and $37,500, respectively, on the term loan provided to Innovative Brands. The balance of the term loan as of April 30, 2008 was approximately $13.1 million.

On January 2, 2008, SP repaid term loan B and 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 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 January 3, 2008, February 3, 2008, March 3, 2008 and April 3, 2008, the Company received principal payments of $8,833 on the term loan provided to Storage Canada.

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 as of April 30, 2008.

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

On April 1, 2008, SP made a principal payment of $17,361 on its first lien loan. The balance of the first lien loan as of April 30, 2008, was approximately $983,000.

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 April 30, 2008, was $600,000.

During the six month period ended April 30, 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 $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 and Vitality common stock and warrants by approximately $453,000. 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 PIK interest/dividends totaling $2,752,945. The Valuation Committee also increased 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. Also, during the six month period ended April 30, 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 $120,000. The Valuation Committee

also decreased the fair value of the Company’s investments in Vendio preferred stock by $2.3 million and Timberland common stock by $680,000 during the six month period ended April 30, 2008.

At April 30, 2008, the fair value of all portfolio investments, exclusive of short-term securities, was $430.1 million with a cost basis of $411.2 million. At April 30, 2008, the fair value and cost basis of the Legacy Investments was $20.8 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 $409.3 million and $355.3 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.

For the Year Ended October 31, 2007

During the fiscal year ended October 31, 2007, the Company made ten new investments, committing capital totaling approximately $117.3 million. The investments were made in WBS ($3.2 million), HuaMei ($200,000), Levlad ($10.1 million), Total Safety ($4.5 million), MVC Partners ($71,000), Genevac ($14.0 million), Tekers ($2.3 million), U.S. Gas ($18.9 million), Custom Alloy ($24.0 million), and MVC Automotive ($40.0 million).

The Company also made 16 follow-on investments in existing portfolio companies committing capital totaling approximately $49.8 million. On November 7, 2006, the Company invested $100,000 in SGDA by purchasing an additional common equity interest. On December 22, 2006, the Company purchased an additional 56,472 shares of common stock in Vitality at a cost of approximately $565,000. On January 9, 2007, the Company extended to Turf a $1.0 million junior revolving note. Turf immediately borrowed $1.0 million from the note. On January 11, 2007, the Company provided Harmony Pharmacy a $4.0 million revolving credit facility. Harmony Pharmacy immediately borrowed $1.75 million from the credit facility. On February 16, 2007, the Company invested $1.8 million in HuaMei purchasing 450 shares of common stock. At the same time, the previously issued $200,000 convertible promissory note was exchanged for 50 shares of HuaMei common stock at the same price. On February 19, 2007, the Company invested an additional $8.4 million of common equity interest in Velocitius. On February 21, 2007 and May 4, 2007, the Company provided BP a $5.0 million and a $2.5 million second lien loan, respectively. On March 26, 2007, the Company extended a $1.0 million bridge loan to BENI. On March 30, 2007, the Company invested an additional $5.0 million in SP in the form of a subordinated term loan B. On May 1, 2007, the Company extended to Velocitius a $650,000 revolving line of credit. Velocitius immediately borrowed approximately $547,000. The balance of the line of credit as of October 31, 2007 was approximately $613,000. On May 8, 2007, the Company provided Baltic Motors a $5.5 million bridge loan. On May 9, 2007, the Company purchased 1.0 million shares of Dakota Growers preferred stock at a cost of $10.0 million. At that time, 65,000 shares of Dakota Growers common stock were converted to 65,000 shares of convertible preferred stock. On June 19, 2007, the Company increased the bridge loan to BENI to $2.0 million. The remaining available amount of $1.7 million was immediately drawn. On July 30, 2007, the Company provided Ohio Medical a $2.0 million convertible unsecured promissory note. On August 20, 2007, the Company contributed an additional $45,000 to MVC Partners, increasing the Company’s limited liability interest. On September 27, 2007, the Company invested an additional $1.25 million in Ohio Medical by increasing the convertible unsecured promissory note to $3.25 million.