o | PRE-EFFECTIVE AMENDMENT NO. |
þ | POST-EFFECTIVE AMENDMENT NO. 1 |
o | This [post-effective amendment] designates a new effective date for a previously filed [post-effective amendment] [registration statement]. | |
o | This form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act and the Securities Act registration statement number of the earlier effective registration statement for the same offering is . |
Proposed Maximum | Proposed Maximum | Amount of | ||||||||||||
Amount Being | Offering | Aggregate | Registration | |||||||||||
Title of Securities Being Registered | Registered | Price per Unit | Offering Price | Fee | ||||||||||
Common Stock, $0.01 par value per share(2)
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Preferred Stock(2)
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Warrants(3)
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Debt Securities(4)
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Total
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$100,000,000(5) | $11,770(1) | ||||||||||||
(1) | Estimated pursuant to Rule 457 solely for the purpose of determining the registration fee. The proposed maximum offering price per security will be determined, from time to time, by the Registrant in connection with the sale by the Registrant of the securities registered under this registration statement. $11,700 was previously paid. | |
(2) | Subject to Note 5 below, there is being registered hereunder an indeterminate principal amount of common stock or preferred stock as may be sold, from time to time. | |
(3) | Subject to Note 5 below, there is being registered hereunder an indeterminate principal amount of warrants as may be sold, from time to time, representing rights to purchase common stock, preferred stock or debt securities. | |
(4) | Subject to Note 5 below, there is being registered hereunder an indeterminate principal amount of debt securities as may be sold, from time to time. If any debt securities are issued at an original issue discount, then the offering price shall be in such greater principal amount as shall result in an aggregate price to investors not to exceed $100,000,000. | |
(5) | In no event will the aggregate offering price of all securities issued from time to time pursuant to this registration statement exceed $100,000,000. |
The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any state where the offer and sale is not
permitted.
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F-1 | ||||||||
Agreement | ||||||||
Amendment to Custody Agreement | ||||||||
Form of Fund Administration Servicing Agreement | ||||||||
Form of Fund Accounting Servicing Agreement | ||||||||
Consent of Ernst & Young LLP | ||||||||
Code of Ethics |
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Existing Investment Platform: As of October 31, 2005, we had approximately $201 million in gross assets under management. The Fund made eleven new investments, two follow-on investments, including the acquisition of additional shares of an existing portfolio company through the re-issuance of the Funds treasury stock, pursuant to its new strategy of maximizing capital appreciation and/or income. We believe that our current investment platform provides us with the ability to, among other things, identify unique investment opportunities and conduct marketing activities and extensive due diligence for potential investments. | |
New Capital Sources: We have ongoing access to sources of capital from the public debt and equity markets. This allows us access to different sources of capital versus private funds within a short time frame. | |
Oversight: The public nature of the Fund allows for oversight not normally found in a typical private equity firm. This oversight is provided by the Securities and Exchange Commission, the NYSE, the Funds board of directors and most importantly, the Funds shareholders. The Fund, through its periodic filings with the Securities and Exchange Commission, provides transparency into its investment portfolio and operations thus allowing shareholders access to information about the Fund on a regular basis. | |
Patient Capital: The Funds public nature allows its shareholders to freely trade its stock. Due to this fact, the Fund can be more patient with its invested capital as there is not a limited investment horizon or fund life which is normally seen in typical private equity funds . | |
Seasoned Management Team: We capitalize on our senior management teams more than 75 years of combined experience in investing in leveraged loans, high yield bonds, mezzanine debt, distressed debt, private equity transactions and business operations. Collectively, our investment team has significant capital markets, investing and research experience and has invested and managed during both recessionary and expansionary periods and through full interest rate cycles and financial market conditions. We believe that our senior managements extensive relationships with financial institutions and companies, across a broad range of industries, provides us with the ability to identify and invest in small and middle-market companies. | |
Counsel to Portfolio Companies: We provide support for our portfolio companies in different ways including: offering advice to senior management on strategies for realizing their objectives, advising or participating on their boards of directors, offering ideas to help increase sales, reviewing monthly/quarterly financial statements, offering advice on improving margins and saving costs, helping to augment the management team, and providing access to external resources ( e.g. , financial, legal, accounting, or technology). | |
Diverse Industry Knowledge: We provide financing to companies in a variety of industries. We generally look at companies with secure market niches and a history of predictable or dependable cash flows in which members of our investment team have prior investment experience. We believe that the ability to invest in portfolio companies in various industries has the potential to give our portfolio greater diversity. | |
Creative and Extensive Transaction Structuring: We are flexible in the types of securities in which we invest and their structures. We believe that our management teams creativity and flexibility in structuring investments, coupled with our ability to invest in portfolio companies across various industries, gives us the ability to identify unique investment opportunities and provides us with the opportunity to be a one-stop capital provider to numerous small and middle-market companies. | |
Disciplined and Opportunistic Investment Philosophy: Our managements investment philosophy and method of portfolio construction involves an assessment of the overall macroeconomic environment, |
3
financial markets and company-specific research and analysis. While the composition of our portfolio may change based on our opportunistic investment philosophy, we continue to seek to provide long-term equity and debt investment capital to small and middle-market companies that we believe will provide us strong returns on our investments while taking into consideration the overall risk profile of the specific investment. | |
Tax Status and Capital Loss Carryforwards: It is the policy of the Fund to meet the requirements for qualification as a regulated investment company (RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). The Fund is not subject to federal income tax to the extent that it distributes substantially all of its investment company taxable income and net realized gains for its taxable year (see Federal Income Tax Matters). This allows us to attract different kinds of investors than other publicly held corporations. The Fund is also exempt from excise tax if it distributes 98% of its ordinary income and/or capital gains during each calendar year. As of October 31, 2005, the Fund had a net capital loss carryforward of $78,779,962 of which $33,469,122 will expire in the year 2010, $4,220,380 will expire in the year 2011, $37,794,910 will expire in the year 2012 and $3,295,550 will expire in the year 2013. Capital loss carryforwards may be subject to additional limitations as a result of capital share activity. To the extent future capital gains are offset by capital loss carryforwards, such gains need not be distributed. | |
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5
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| We depend on key personnel, especially Mr. Tokarz, in seeking to achieve our investment objective. | |
| Our returns may be substantially lower than the average returns historically realized by the private equity industry as a whole. | |
| Substantially all of our portfolio investments are recorded at fair value and, as a result, there is a degree of uncertainty regarding the carrying values of our portfolio investments. | |
| Economic recessions or downturns could impair our portfolio companies and harm our operating results. | |
| We may not realize gains from our equity investments. | |
| The market for private equity investments can be highly competitive. In some cases, our status as a regulated business development company may hinder our ability to participate in investment opportunities. | |
| Loss of pass-through tax treatment would substantially reduce net assets and income available for dividends. | |
| Changes in the law or regulations that govern us could have a material impact on our business. | |
| Results may fluctuate and may not be indicative of future performance. | |
| Our stock price is subject to market discount risk. | |
| We have not established a minimum dividend payment level and we cannot assure you of our ability to make distributions to our shareholders in the future. | |
| We may borrow money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us. | |
| Changes in interest rates may affect our cost of capital and net investment income. | |
| We may be unable to meet our covenant obligations under our revolving credit facility which could adversely affect our business. | |
| We have a limited operating history upon which you can evaluate our new management team. | |
| The Funds current management team did not select a portion of our existing investment portfolio. | |
| Under our agreement with our Portfolio Manager, he is entitled to compensation based on our portfolios performance. This arrangement may result in riskier or more speculative investments in an effort to maximize incentive compensation. | |
| There are potential conflicts of interest that could impact our investment returns. | |
| The war with Iraq, terrorist attacks and other acts of violence or war may affect any market for our common stock, impact the businesses in which we invest and harm our operations and our profitability. | |
| Our financial condition and results of operations will depend on our ability to effectively manage our future growth. |
7
| Investing in private companies involves a high degree of risk. | |
| Our investments in portfolio companies are generally illiquid. | |
| Our investments in small and middle-market privately-held companies are extremely risky and the Fund could lose its entire investment. | |
| Our borrowers may default on their payments, which may have an effect on our financial performance. | |
| Our investments in mezzanine and other debt securities may involve significant risks. | |
| When we are a debt or minority equity investor in a portfolio company, we may not be in a position to control the entity, and management of the company may make decisions that could decrease the value of our portfolio holdings. | |
| We may choose to waive or defer enforcement of covenants in the debt securities held in our portfolio, which may cause us to lose all or part of our investment in these companies. | |
| Our portfolio companies may incur obligations that rank equally with, or senior to, our investments in such companies. As a result, the holders of such obligations may be entitled to payments of principal or interest prior to us, preventing us from obtaining the full value of our investment in the event of an insolvency, liquidation, dissolution, reorganization, acquisition, merger or bankruptcy of the relevant portfolio company. | |
| Our portfolio investments may be concentrated in a limited number of portfolio companies, which would magnify the effect if one of those companies were to suffer a significant loss. This could negatively impact our ability to pay dividends and cause you to lose all or part of your investment. | |
| Investments in foreign debt or equity may involve significant risks in addition to the risks inherent in U.S. investments. |
| Our common stock price can be volatile. | |
| Investing in our securities may involve an above average degree of risk. | |
| We may allocate the net proceeds from this offering in ways with which you may not agree. | |
| Sales of substantial amounts of our securities may have an adverse effect on the market price of our securities. | |
| Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which could dilute our existing shareholders and be senior to our common stock for the purposes of distributions, may harm the value of our common stock. |
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Year Ended October 31, | |||||||||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||||
(In thousands, except per share data) | |||||||||||||||||||||
Operating Data:
|
|||||||||||||||||||||
Interest and related portfolio income:
|
|||||||||||||||||||||
Interest and dividend income
|
$ | 9,457 | $ | 2,996 | $ | 2,833 | $ | 3,740 | $ | 9,046 | |||||||||||
Fee income
|
1,809 | 926 | 62 | | | ||||||||||||||||
Other income
|
933 | 64 | | | | ||||||||||||||||
Total operating income
|
12,199 | 3,986 | 2,895 | 3,740 | 9,046 | ||||||||||||||||
Expenses:
|
|||||||||||||||||||||
Employee
|
2,336 | 1,366 | 2,476 | 696 | | ||||||||||||||||
Incentive compensation (Note 5)
|
1,117 | | | | | ||||||||||||||||
Administrative
|
3,052 | 2,893 | 8,911 | (1) | 2,573 | | |||||||||||||||
Management fee
|
| | | 3,593 | 7,388 | ||||||||||||||||
Total operating expenses
|
6,505 | 4,259 | 11,387 | 6,862 | 7,388 | ||||||||||||||||
Litigation recovery of management fees (Note 12, 13)
|
| 370 | | | | ||||||||||||||||
Net operating income (loss) before taxes
|
5,694 | 97 | (8,492 | ) | (3,122 | ) | 1,658 | ||||||||||||||
Tax expense (benefit), net
|
(101 | ) | 79 | | | | |||||||||||||||
Net operating income (loss)
|
5,795 | 18 | (8,492 | ) | (3,122 | ) | 1,658 | ||||||||||||||
Net realized and unrealized gains (losses):
|
|||||||||||||||||||||
Net realized gains (losses)
|
(3,295 | ) | (37,795 | ) | (4,220 | ) | (33,469 | ) | 5 | ||||||||||||
Net change in unrealized appreciation (depreciation)
|
23,768 | 49,382 | (42,771 | ) | (21,765 | ) | (52,994 | ) | |||||||||||||
Net realized and unrealized gains (losses) on investments
|
20,473 | 11,587 | (46,991 | ) | (55,234 | ) | (52,989 | ) | |||||||||||||
Net increase (decrease) in net assets resulting from operations
|
$ | 26,268 | $ | 11,605 | $ | (55,483 | ) | $ | (58,356 | ) | $ | (51,331 | ) | ||||||||
Per Share:
|
|||||||||||||||||||||
Net increase (decrease) in net assets per share resulting from
operations
|
$ | 1.45 | $ | 0.91 | $ | (3.42 | ) | $ | (3.54 | ) | $ | (3.12 | ) | ||||||||
Dividends per share
|
$ | 0.24 | $ | 0.12 | $ | | $ | 0.04 | $ | 0.34 | |||||||||||
Balance Sheet Data:
|
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Portfolio at value
|
$ | 122,298 | $ | 78,520 | $ | 24,071 | $ | 54,194 | $ | 90,926 | |||||||||||
Portfolio at cost
|
171,591 | 151,582 | 146,515 | 133,864 | 148,886 | ||||||||||||||||
Total assets
|
201,379 | 126,577 | 137,880 | 196,511 | 255,050 | ||||||||||||||||
Shareholders equity
|
198,739 | 115,567 | 137,008 | 195,386 | 254,472 | ||||||||||||||||
Shareholders equity per share (net asset value)
|
$ | 10.41 | $ | 9.40 | $ | 8.48 | $ | 11.84 | $ | 15.42 | |||||||||||
Common shares outstanding at period end
|
19,087 | 12,293 | 16,153 | 16,500 | 16,500 | ||||||||||||||||
Other Data:
|
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Number of Investments funded in period
|
9 | 7 | 5 | 10 | 11 | ||||||||||||||||
Investments funded($) in period
|
$ | 53,836 | $ | 60,710 | $ | 21,955 | $ | 26,577 | $ | 36,332 |
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2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||||||||||||
Qtr 4 | Qtr 3 | Qtr 2 | Qtr 1 | Qtr 4 | Qtr 3(2) | Qtr 2 | Qtr 1 | Qtr 4 | Qtr 3 | Qtr 2 | Qtr 1 | |||||||||||||||||||||||||||||||||||||
(In thousands except per share data) | ||||||||||||||||||||||||||||||||||||||||||||||||
Quarterly Data (Unaudited):
|
||||||||||||||||||||||||||||||||||||||||||||||||
Total operating income
|
$ | 3,361 | $ | 4,404 | $ | 2,439 | $ | 1,995 | $ | 1,811 | $ | 951 | $ | 508 | $ | 716 | $ | 742 | $ | 776 | $ | 811 | $ | 566 | ||||||||||||||||||||||||
Net operating income (loss) before net realized and unrealized
gains
|
1,612 | 2,480 | 821 | 882 | 665 | 281 | (498 | ) | (430 | ) | (847 | ) | (559 | ) | (5,031 | ) | (2,055 | ) | ||||||||||||||||||||||||||||||
Net increase (decrease) in net assets resulting from operations
|
8,933 | 10,310 | 4,360 | 2,665 | 3,274 | 4,922 | 1,104 | 2,305 | (4,660 | ) | (14,382 | ) | (6,649 | ) | (29,792 | ) | ||||||||||||||||||||||||||||||||
Net increase (decrease) in net assets resulting from operations
per share
|
0.46 | 0.58 | 0.23 | 0.18 | 0.27 | 0.41 | 0.09 | 0.14 | (0.29 | ) | (0.89 | ) | (0.41 | ) | (1.83 | ) | ||||||||||||||||||||||||||||||||
Net asset value per share
|
10.41 | 10.06 | 9.64 | 9.41 | 9.40 | 9.25 | 8.85 | 8.76 | 8.48 | 8.77 | 9.66 | 10.06 |
(1) | The administrative expenses for the year ended October 31, 2003 included approximately $4.0 million of proxy/litigation fees and expenses. These are non-recurring expenses. |
(2) | Data for 2004 differs from that which was filed on Form 10-Q on September 9, 2004, due to a reclassification of investment income and related expenses which had previously been accrued for. |
Shareholder Transaction Expenses
|
|||||
Sales load
|
%(1) | ||||
Offering expenses borne by us (as a percentage of offering price)
|
%(2) | ||||
Total shareholder transaction expenses (as a percentage of
offering price)
|
%(3) | ||||
Annual Expenses (as a percentage of consolidated net assets
attributable to common stock)
(4)
|
|||||
Operating expenses
|
3.69 | % | |||
Management fees
|
0.00 | %(5) | |||
Interest payments on borrowed funds
|
0.00 | %(6) | |||
Total annual expenses
|
3.69 | % | |||
(1) | In the event that the securities to which this prospectus relates are sold to or through underwriters, a corresponding prospectus supplement will disclose the applicable sales load. |
(2) | The related prospectus supplement will disclose the estimated amount of offering expenses, the offering price and the offering expenses borne by us as a percentage of the offering price. |
(3) | The related prospectus supplement will disclose the offering price and the total shareholder transaction expenses as a percentage of the offering price. |
(4) | Consolidated net assets attributable to common stock equals net assets ( i.e. , total consolidated assets less total consolidated liabilities) at October 31, 2005. |
(5) | We are internally managed by Mr. Tokarz and as such do not pay any management fees. Mr. Tokarz is compensated by us pursuant to the terms of his employment agreement (See Compensation of Executive Officers and Directors Employment Agreements). |
(6) | The Interest payments on borrowed funds represents our interest expense for the year ending October 31, 2005. As of the date of this prospectus, we had no outstanding borrowings; however, we may |
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incur indebtedness and may therefore pay interest in respect thereof in the future pursuant to our credit facility or any offering of debt securities made pursuant to this prospectus or otherwise. For more information, see Risk Factors We may borrow money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us and Managements Discussion and Analysis of Financial Condition and Results of Operations. |
1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||
You would pay the following cumulative expenses on a $1,000
investment, assuming a 5.0% annual return
|
$ | 37 | $ | 113 | $ | 191 | $ | 394 |
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Business risks are risks that are associated with general business conditions, the economy, and the operations of the Fund. Business risks are not risks associated with our specific investments or an offering of our securities. |
We depend on key personnel, especially Mr. Tokarz, in seeking to achieve our investment objective. |
Our returns may be substantially lower than the average returns historically realized by the private equity industry as a whole. |
| the lower return we are likely to realize on short-term liquid investments during the period in which we are identifying potential investments, and | |
| the periodic disclosure required of business development companies, which could result in the Fund being less attractive as an investor to certain potential portfolio companies. |
Substantially all of our portfolio investments are recorded at fair value and, as a result, there is a degree of uncertainty regarding the carrying values of our portfolio investments. |
12
Economic recessions or downturns could impair our portfolio companies and harm our operating results. |
We may not realize gains from our equity investments. |
The market for private equity investments can be highly competitive. In some cases, our status as a regulated business development company may hinder our ability to participate in investment opportunities. |
Loss of pass-through tax treatment would substantially reduce net assets and income available for dividends. |
13
Changes in the law or regulations that govern us could have a material impact on our business. |
Results may fluctuate and may not be indicative of future performance. |
Our stock price is subject to market discount risk. |
We have not established a minimum dividend payment level and we cannot assure you of our ability to make distributions to our shareholders in the future. |
We may borrow money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us. |
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Changes in interest rates may affect our cost of capital and net investment income. |
We may be unable to meet our covenant obligations under our revolving credit facility which could adversely affect our business. |
We have a limited operating history upon which you can evaluate our new management team. |
The Funds current management team did not select a portion of our existing investment portfolio. |
15
Under our agreement with our Portfolio Manager, he is entitled to compensation based on our portfolios performance. This arrangement may result in riskier or more speculative investments in an effort to maximize incentive compensation. |
There are potential conflicts of interest that could impact our investment returns. |
The war with Iraq, terrorist attacks and other acts of violence or war may affect any market for our common stock, impact the businesses in which we invest and harm our operations and our profitability. |
Our financial condition and results of operations will depend on our ability to effectively manage our future growth. |
Investment risks are risks associated with our determination to execute on our business objective. These risks are not risks associated with general business conditions or those relating to an offering of our securities. |
Investing in private companies involves a high degree of risk. |
16
Our investments in portfolio companies are generally illiquid. |
Our investments in small and middle-market privately-held companies are extremely risky and the Fund could lose its entire investment. |
| Small and middle-market companies may have limited financial resources and may not be able to repay the loans we make to them. Our strategy includes providing financing to companies that typically do not have capital sources readily available to them. While we believe that this provides an attractive opportunity for us to generate profits, this may make it difficult for the borrowers to repay their loans to us upon maturity. | |
| Small and middle-market companies typically have narrower product lines and smaller market shares than large companies. Because our target companies are smaller businesses, they may be more vulnerable to competitors actions and market conditions, as well as general economic downturns. In addition, smaller companies may face intense competition, including competition from companies with greater financial resources, more extensive development, manufacturing, marketing and other capabilities, and a larger number of qualified managerial and technical personnel. | |
| There is generally little or no publicly available information about these privately-held companies. Because we seek to make investments in privately-held companies, there is generally little or no publicly available operating and financial information about them. As a result, we rely on our investment professionals to perform due diligence investigations of these privately-held companies, their operations and their prospects. We may not learn all of the material information we need to know regarding these companies through our investigations. | |
| Small and middle-market companies generally have less predictable operating results. We expect that our portfolio companies may have significant variations in their operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, may require substantial additional capital to support their operations, finance expansion or maintain their competitive position, may otherwise have a weak financial position or may be adversely affected by changes in the business cycle. Our portfolio companies may not meet net income, cash flow and other coverage tests typically imposed by their senior lenders. | |
| Small and middle-market businesses are more likely to be dependent on one or two persons. Typically, the success of a small or middle-market company also depends on the management talents and efforts of one or two persons or a small group of persons. The death, disability or resignation of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us. | |
| Small and middle-market companies are likely to have greater exposure to economic downturns than larger companies. We expect that our portfolio companies will have fewer resources than larger businesses and an economic downturn may thus more likely have a material adverse effect on them. | |
| Small and middle-market companies may have limited operating histories. We may make debt or equity investments in new companies that meet our investment criteria. Portfolio companies with limited operating histories are exposed to the operating risks that new businesses face and may be |
17
particularly susceptible to, among other risks, market downturns, competitive pressures and the departure of key executive officers. |
Our borrowers may default on their payments, which may have an effect on our financial performance. |
Our investments in mezzanine and other debt securities may involve significant risks. |
When we are a debt or minority equity investor in a portfolio company, we may not be in a position to control the entity, and management of the company may make decisions that could decrease the value of our portfolio holdings. |
We may choose to waive or defer enforcement of covenants in the debt securities held in our portfolio, which may cause us to lose all or part of our investment in these companies. |
18
Our portfolio companies may incur obligations that rank equally with, or senior to, our investments in such companies. As a result, the holders of such obligations may be entitled to payments of principal or interest prior to us, preventing us from obtaining the full value of our investment in the event of an insolvency, liquidation, dissolution, reorganization, acquisition, merger or bankruptcy of the relevant portfolio company. |
Our portfolio investments may be concentrated in a limited number of portfolio companies, which would magnify the effect if one of those companies were to suffer a significant loss. This could negatively impact our ability to pay you dividends and cause you to lose all or part of your investment. |
Investments in foreign debt or equity may involve significant risks in addition to the risks inherent in U.S. investments. |
Our common stock price can be volatile. |
19
| price and volume fluctuations in the overall stock market from time to time; | |
| significant volatility in the market price and trading volume of securities of business development companies or other financial services companies; | |
| volatility resulting from trading in derivative securities related to our common stock including puts, calls, long-term equity participation securities, or LEAPs, or short trading positions; | |
| changes in regulatory policies or tax guidelines with respect to business development companies or RICs; | |
| actual or anticipated changes in our earnings or fluctuations in our operating results or changes in the expectations of securities analysts; | |
| general economic conditions and trends; | |
| loss of a major funding source; or | |
| departures of key personnel. |
Investing in our securities may involve an above average degree of risk. |
We may allocate the net proceeds from this offering in ways with which you may not agree. |
Sales of substantial amounts of our securities may have an adverse effect on the market price of our securities. |
Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which could dilute our existing shareholders and be senior to our common stock for the purposes of distributions, may harm the value of our common stock. |
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Closing Sale Price | Premium/Discount | Premium/Discount | |||||||||||||||||||||||
of High Sales | of Low Sales | Declared | |||||||||||||||||||||||
NAV(1) | High | Low | Price to NAV | Price to NAV | Dividends | ||||||||||||||||||||
Year ending October 31, 2004
|
|||||||||||||||||||||||||
First Quarter
|
$ | 8.76 | $ | 8.47 | $ | 7.83 | (3.31 | )% | (10.62 | )% | | ||||||||||||||
Second Quarter
|
8.85 | 9.20 | 8.19 | 3.95 | % | (7.46 | )% | | |||||||||||||||||
Third Quarter
|
9.25 | 9.72 | 8.81 | 5.08 | % | (4.76 | )% | | |||||||||||||||||
Fourth Quarter
|
9.40 | 9.47 | 8.94 | 0.74 | % | (4.89 | )% | $ | .12 | ||||||||||||||||
Year ending October 31, 2005
|
|||||||||||||||||||||||||
First Quarter
|
$ | 9.41 | $ | 9.55 | $ | 8.95 | 1.49 | % | (4.89 | )% | | ||||||||||||||
Second Quarter
|
9.64 | 9.50 | 9.17 | (1.45 | )% | (4.88 | )% | | |||||||||||||||||
Third Quarter
|
10.06 | 11.34 | 9.41 | 12.61 | % | (6.55 | )% | $ | .12 | ||||||||||||||||
Fourth Quarter
|
$ | 10.41 | $ | 12.22 | $ | 10.30 | 17.39 | % | 1.06 | % | $ | .12 |
(1) | Net asset value is currently calculated and published on a monthly basis. The net asset value shown is as of the last day in the relevant quarter and therefore may not reflect the net asset value per share on the date of the high and low sales prices. The net asset values shown are based on shares outstanding at the end of each period. |
22
For the Year Ended October 31, 2005 |
23
For the Year Ended October 31, 2004 |
For the Year Ended October 31, 2003 |
For the Year Ended October 31, 2005 |
24
For the Year Ended October 31, 2004 |
For the Year Ended October 31, 2003 |
25
For the Year Ended October 31, 2005 |
26
For the Year Ended October 31, 2004 |
For the Year Ended October 31, 2003 |
For the Year Ended October 31, 2005 |
27
For the Year Ended October 31, 2004 |
For the Year Ended October 31, 2003 |
28
For the Year Ended October 31, 2005 |
29
For the Year Ended October 31, 2004 |
30
Portfolio Companies |
Actelis Networks, Inc. |
Amersham Corp. |
Arcot Systems, Inc. |
Baltic Motors Corporation |
31
BP Clothing, LLC |
CBCA, Inc. |
Dakota Growers Pasta Company, Inc. |
32
Determine Software, Inc. |
DPHI, Inc. (formerly DataPlay, Inc.) |
Endymion Systems, Inc. |
Foliofn, Inc. |
Impact Confections, Inc. |
33
Integral Development Corporation |
JDC Lighting, LLC |
Lumeta Corporation |
Mainstream Data, Inc. |
34
Mentor Graphics Corp. (formerly 0-In Design Automation, Inc.) |
Octagon Credit Investors, LLC |
35
Ohio Medical Corporation |
Phosistor Technologies, Inc. |
ProcessClaims, Inc. |
36
SafeStone Technologies PLC |
SGDA Sanierungsgesellschaft fur Deponien und Altasten mbH |
ShopEaze Systems, Inc. |
Sonexis, Inc. |
SP Industries, Inc. |
37
Sygate Technologies, Inc. |
Timberland Machines & Irrigation, Inc. |
38
Vendio Services, Inc. |
Vestal Manufacturing Enterprises, Inc. |
39
Vitality Foodservice, Inc. |
Yaga, Inc. |
Liquidity and Capital Resources |
40
41
Subsequent Events |
42
43
Total Amount | ||||||||||||||||
Outstanding | Involuntary | |||||||||||||||
Exclusive of | Asset | Liquidating | Average | |||||||||||||
Treasury | Coverage | Preference | Market Value | |||||||||||||
Class and Year | Securities(1) | per Unit(2) | per Unit(3) | per Unit(4) | ||||||||||||
Revolving Lines of Credit
|
||||||||||||||||
2000
|
$ | | $ | | $ | | N/A | |||||||||
2001
|
$ | | $ | | $ | | N/A | |||||||||
2002
|
$ | | $ | | $ | | N/A | |||||||||
2003
|
$ | | $ | | $ | | N/A | |||||||||
2004
|
$ | 10,025,000 | $ | 11,531.18 | $ | | N/A | |||||||||
2005
|
$ | | $ | | $ | | N/A |
(1) | Total amount of each class of senior securities outstanding at the end of the period presented. |
(2) | The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by senior securities representing indebtedness. This asset coverage ratio is multiplied by $1,000 to determine the Asset Coverage Per Unit. |
(3) | The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it. |
(4) | Not applicable, as senior securities are not registered for public trading. |
44
45
46
Percentage of Our Net Assets | ||||||||||||
As of | As of | As of | ||||||||||
Type of Investment | October 31, 2005 | October 31, 2004 | October 31, 2003 | |||||||||
Senior/ Subordinated Loans and credit facilities
|
28.81 | % | 23.80 | % | 9.10 | % | ||||||
Common Stock
|
23.10 | % | 26.54 | % | 0.00 | % | ||||||
Warrants
|
0.89 | % | 0.48 | % | 0.00 | % | ||||||
Preferred Stock
|
7.96 | % | 16.64 | % | 8.47 | % | ||||||
Other Equity Investments
|
0.78 | % | 0.48 | % | 0.00 | % | ||||||
Other Rights
|
0.00 | % | 0.00 | % | 0.00 | % |
| Businesses with secure market niches and predictable profit margins; | |
| The presence or availability of highly qualified management teams; | |
| The line of products or services offered and their market potential; |
47
| The presence of a sustainable competitive advantage; | |
| Favorable industry and competitive dynamics; and | |
| Stable free cash flow of the business. |
| private mezzanine and equity investors; | |
| investment banks; | |
| business brokers; | |
| merger and acquisition advisors; | |
| financial services companies; and | |
| banks, law firms and accountants. |
48
49
| Initial investment screening by deal person or investment team; | |
| Investment professionals present an investment proposal containing key terms and understandings (verbal and written) to the entire investment team; | |
| Our Chief Compliance Officer reviews the proposed investment for compliance with the 1940 Act, the Code and all other relevant rules and regulations; | |
| Investment professionals are provided with authorization to commence due diligence; | |
| Any investment professional can call a meeting, as deemed necessary, to: (i) review the due diligence reports; (ii) review the investment structure and terms; (iii) or to obtain any other information deemed relevant; | |
| Once all due diligence is completed, the proposed investment is rated using a rating system which tests several factors including, but not limited to, cash flow, EBITDA growth, management and business stability. We use this rating system as the base line for tracking the investment in the future; | |
| Our Chief Compliance Officer confirms that the proposed investment will not cause us to violate the 1940 Act, the Code or any other applicable rule or regulation; | |
| Mr. Tokarz approves the transaction; and | |
| The investment is funded. |
50
51
52
53
Percentage | |||||||||
Nature of its | Title of Securities | of Class | |||||||
Name and Address of Portfolio Company | Principal Business | Held by the Company | Held (1) | ||||||
Companies More Than 25% Owned
|
|||||||||
Baltic Motors
Corporation
(2)
|
Automotive Dealership | Common Stock | 100.00 | % | |||||
31513 Northwestern Highway | Loan due 6/24/2007 | NA | |||||||
Suite 201
Farmington Hills, MI 48334 |
|||||||||
Ohio Medical Corp.
|
Manufacturer & marketer | Common Stock | 56.26 | % | |||||
1111 Lakeside Drive | of medical products | ||||||||
Gurnee, IL 60606 | |||||||||
Sanierungsgesellschaft für Deponien und Altlasten mbH
(SGDA)
(2)
|
Soil Remediation | Term Loan | NA | ||||||
98544 Zella-Mehlis, Bahnhofsstraße 66 | Common Equity | 53.50 | % | ||||||
Germany | Revolving Credit Facility | NA | |||||||
Timberland Machines & Irrigation,
Inc.
(3)
|
Landscaping Equipment & | Common Stock | 45.00 | % | |||||
One Niblick Road | Irrigation Products | Warrants | 60.00 | % | |||||
PO Box 1190 | Distributor | Senior Subordinated | NA | ||||||
Enfield, CT 06083 | Debt due 8/4/2009 | ||||||||
Sub Bridge Note due | NA | ||||||||
1/31/2006 | |||||||||
Turf Products, LLC
|
Wholesale Distributor of | Senior Subordinated | NA | ||||||
157 Moody Road, PO Box 1200 | golf course & maintenance | LLC Interest | 45.00 | % | |||||
Enfield, CT 06083 | equipment | Warrants | 60.00 | % | |||||
Vendio Services,
Inc.
(3)
|
Online Auction Enabler | Series A Preferred | 37.80 | % | |||||
2800 Campus Drive, Suite 150 | Common Stock | 0.40 | % | ||||||
San Mateo, CA 94403 | |||||||||
Vestal Manufacturing
Enterprises
(3)
|
Iron Foundry | Common Stock | 90.00 | % | |||||
176 Industrial Park Road | Senior Subordinated | NA | |||||||
Sweetwater, TN 37874 | Debt due 4/29/2011 | ||||||||
Companies 5% to 25% Owned
|
|||||||||
Dakota Growers Pasta Company,
Inc.
(3)
|
Manufacturer of | Common Stock | 9.17 | % | |||||
One Pasta Avenue | Packaged Foods | ||||||||
Carrington, ND 58421 | |||||||||
Endymion Systems, Inc.
|
Software Applications | Series A Preferred | 23.12 | % | |||||
80 Swan Way, #250
Oakland, CA 94621 |
54
Percentage | |||||||||
Nature of its | Title of Securities | of Class | |||||||
Name and Address of Portfolio Company | Principal Business | Held by the Company | Held (1) | ||||||
Impact Confections,
Inc.
(3)
|
Confections | Class A Voting | 9.96 | % | |||||
888 Garden of the Gods Road, #200 | Manufacturing & | Common Stock | |||||||
Colorado Springs, CO 80907 | Distribution | Class B Non-voting | 100.00 | % | |||||
Common Stock | |||||||||
Subordinated Debt due | NA | ||||||||
7/30/2009 | |||||||||
Sr. Promissory Note | NA | ||||||||
Octagon Credit Investors, LLC
(2)
|
Asset Management | LLC Interest | 9.17 | % | |||||
52 Vanderbilt Avenue, 18th Floor | Subordinated Debt due | NA | |||||||
New York, NY 10017 | 5/7/2011 | ||||||||
Revolving Line of | NA | ||||||||
Credit (5/06/2007) | |||||||||
ProcessClaims,
Inc.
(3)
|
Automobile Insurance | Series C Preferred | 48.30 | % | |||||
1600 Rosecrans Ave. | Claims Processing | Series D Preferred | 15.39 | % | |||||
Building 7, Suite 300 | Series E Preferred | 20.00 | % | ||||||
Manhattan Beach, CA 90266 | |||||||||
Vitality Foodservice Holding
Corp.
(3)
|
Holding company of | Common Stock | 11.28 | % | |||||
400 North Tampa St., Suite 2000 | subsidiary companies that | Series A | 100.00 | % | |||||
Tampa, FL 33602 | are non-alcoholic | Convertible Preferred | 100.00 | % | |||||
beverage suppliers | Warrants | 13.46 | % | ||||||
Companies Less Than 5% Owned
|
|||||||||
Actelis Networks, Inc.
|
Telecommunications | Series C Preferred | 10.81 | % | |||||
6150 Stevenson Blvd.
Fremont, CA 94538 |
|||||||||
Amersham Corporation
|
Precision machine | Subordinated Debt | NA | ||||||
1797 Boxelder Street | components | due 6/29/2010 | |||||||
Louisville, CO 80027 | |||||||||
BP Clothing, LLC
|
Clothing designer & | Subordinated Loan | NA | ||||||
8700 Rex Road | manufacturer | Loan due 6/2/2009 | |||||||
Pico Rivera, CA 90660 | |||||||||
DPHI, Inc.
|
Digital Media | Series A-1 Preferred | 20.20 | % | |||||
2580 55th Street
Boulder, CO 80301 |
|||||||||
Folio
fn
,
Inc.
(3)
|
Financial Services | Series C Preferred | 49.36 | % | |||||
PO Box 3068 | Technology | ||||||||
Merrifield, VA 22116 | |||||||||
Henry Company
|
Manufacturer of roofing | Loan due 4/6/2011 | NA | ||||||
2911 Slauson Avenue | supplies | ||||||||
Huntington Park, CA 90255 | |||||||||
JDC Lighting, LLC
|
Electrical Distribution | Debt due 1/31/2009 | NA | ||||||
45 West 36th Street, 5th Floor
New York, NY 10018 |
|||||||||
Lumeta Corporation
|
Network Search & | Series A Preferred | 4.30 | % | |||||
220 Davidson Avenue | Security Software | Series B Preferred | 1.49 | % | |||||
Somerset, NJ 08873 | |||||||||
MainStream Data, Inc.
|
Satellite & Broadcast | Common Stock | 2.83 | % | |||||
375 Chipeta Way, Suite B | Communications | ||||||||
Salt Lake City, UT USA 84108 | |||||||||
SafeStone Technologies PLC
|
Network Security | Series A Ordinary | 2.90 | % | |||||
Apollo House, Mercury Park | Software | ||||||||
Wycombe Lane
Wooburn Green Bucks HP10 0HH |
55
Percentage | |||||||||
Nature of its | Title of Securities | of Class | |||||||
Name and Address of Portfolio Company | Principal Business | Held by the Company | Held (1) | ||||||
Sonexis, Inc.
|
Web Conferencing | Common Stock | 13.16 | % | |||||
400 Network Center Drive, Suite 210
Tewksbury, MA 01876 |
|||||||||
SP Industries, Inc.
|
Specialty Glassware & | Term Loan B due | NA | ||||||
935 Mearns Road | Equipment | 3/31/2010 | |||||||
Warminster, PA 18974 | Subordinated Debt | NA | |||||||
Strategic Outsourcing, Inc.
|
PEO (Professional | Senior Debt | NA | ||||||
5260 Parkway Plaza Boulevard | Employer Organization) | ||||||||
Suite 140
Charlotte, NC 28217 |
(1) | Percentages shown for securities held by us represent percentage of the class owned and do not necessarily represent voting ownership. Percentages shown for equity securities other than warrants or options represent the actual percentage of the class of security held before dilution. Percentages shown for warrants and options held represent the percentage of class of security we may own, on a fully diluted basis, assuming we exercise our warrants or options. |
(2) | We directly or indirectly own more than 50% of the voting securities of the company, or control the board of directors, or are the controlling member. |
(3) | The portfolio company is deemed to be an affiliated person under the 1940 Act because we hold one or more seats on the portfolio companys board of directors, are the general partner, or are the managing member. |
56
57
58
59
(5) | ||||||||||
Number of | ||||||||||
Portfolios | ||||||||||
(2) | (3) | in Fund | ||||||||
Positions(s) | Term of Office/ | (4) | Complex | (6) | ||||||
(1) | Held with the | Length of Time | Principal Occupation(s) During | Overseen by | Other Directorships | |||||
Name, Address and Age | Fund | Served | Past 5 Years | Director | Held by Director | |||||
Independent Directors | ||||||||||
Emilio Dominianni
287 Bowman Avenue 2nd Floor Purchase, NY 10577 Age: 74 |
Director | 1 year/3 years | Mr. Dominianni is a retired Partner of, and was Special Counsel to Coudert Brothers LLP, a law firm. He is currently a Director of Stamm International Corporation, Powrmatic Inc., and Powrmatic of Canada Ltd., manufacturers and distributors of heating, ventilating, and air conditioning equipment. He was a Director of American Air Liquide Inc., Air Liquide International Corporation, and a Consultant to Air Liquide America Corp., all manufacturers and distributors of industrial gases, and Mouli Manufacturing Corp., a distributor of kitchen and household products. | None (1) | See column 4 | |||||
Robert Everett
Everett & Solsvig, Inc. 10 Rockefeller Plaza Suite 815 |
Director | 1 year/1 year and 10 months | Mr. Everett is a Managing Director of Everett & Solsvig, Inc., a firm that assists equity | None (1) | See column 4 |
60
(5) | ||||||||||
Number of | ||||||||||
Portfolios | ||||||||||
(2) | (3) | in Fund | ||||||||
Positions(s) | Term of Office/ | (4) | Complex | (6) | ||||||
(1) | Held with the | Length of Time | Principal Occupation(s) During | Overseen by | Other Directorships | |||||
Name, Address and Age | Fund | Served | Past 5 Years | Director | Held by Director | |||||
New York, NY 10020
Age: 43 |
and debt holders who own positions in troubled companies. From 2002 through 2004, he served as Chief Restructuring Officer of Cornerstone Propane Partners, L.P., a propane distribution company, and as an Officer of its subsidiary, Cornerstone Propane, L.P. Mr. Everett also is a Director and Chairman of Pangborn Corp., and previously founded Kulen Capital, L.P., a middle-market private investment fund, and has served as Managing Director of Kulen Capital Corp. Mr. Everett served as interim Chief Executive Officer of the Fund from March 2003 until November 2003. | |||||||||
Gerald Hellerman
287 Bowman Avenue 2nd Floor Purchase, NY 10577 Age: 68 |
Director | 1 year/3 years | Mr. Hellerman has been the Principal of Hellerman Associates, a financial and corporate consulting firm, since the firms inception in 1993. He is currently a Director of The Mexico Equity and Income Fund, Inc., a Director and President of Innovative Clinical Solutions, Ltd., a company formerly engaged in clinical trials and physician network management which is currently in liquidation, a Director of FNC Realty Corporation which is developing and operating owned properties, a Director of AirNet Systems Inc. and a Director of Brantley Capital Corporation. Mr. Hellerman is presently serving as Manager-Investment Advisor for a U.S. Department of | None (1) | See column 4 |
61
(5) | ||||||||||
Number of | ||||||||||
Portfolios | ||||||||||
(2) | (3) | in Fund | ||||||||
Positions(s) | Term of Office/ | (4) | Complex | (6) | ||||||
(1) | Held with the | Length of Time | Principal Occupation(s) During | Overseen by | Other Directorships | |||||
Name, Address and Age | Fund | Served | Past 5 Years | Director | Held by Director | |||||
Justice Settlement Trust. Mr. Hellerman has served as a Trustee or Director of Third Avenue Value Trust, a Trustee of Third Avenue Variable Series Trust, and a Director of Clemente Global Growth Fund, Inc. | ||||||||||
Robert Knapp
Millenco, L.P. 666 Fifth Avenue, 8th Floor New York, NY 10103 Age: 39 |
Director | 1 year/3 years | Mr. Knapp is a Managing Director of Millennium Partners where he specializes in mis-priced assets, turnaround situations, and closed end fund arbitrage. He also is a Director of the Vietnam Opportunity Fund, a Cayman Islands private equity fund listed on the London Stock Exchange, for which Millennium acted as seed investor. Formerly he served as a director for the First Hungary Fund, a Channel Islands private equity fund, and as a Director of the Vietnam Frontier Fund, a Cayman Islands investment company. | None (1) | See column 4 | |||||
Officer and Interested Director | ||||||||||
Michael
Tokarz
(2)
287 Bowman Avenue 2nd Floor Purchase, NY 10577 Age: 56 |
Director, Chairman, and Portfolio Manager | 1 year/2 years and 3 months | Mr. Tokarz currently serves as Chairman and Portfolio Manager of the Fund. Mr. Tokarz also is Chairman of The Tokarz Group, a private merchant bank, since 2002. Prior to this, Mr. Tokarz was a senior General Partner and Administrative Partner at Kohlberg Kravis Roberts & Co., a private equity firm specializing in management buyouts. He also currently serves on the corporate boards of Conseco, Inc., Walter Industries, Inc., IDEX Corporation, Stonewater Control Systems, Lomonosov, Athleta, | None (1) | See column 4 |
62
(5) | ||||||||||
Number of | ||||||||||
Portfolios | ||||||||||
(2) | (3) | in Fund | ||||||||
Positions(s) | Term of Office/ | (4) | Complex | (6) | ||||||
(1) | Held with the | Length of Time | Principal Occupation(s) During | Overseen by | Other Directorships | |||||
Name, Address and Age | Fund | Served | Past 5 Years | Director | Held by Director | |||||
Inc. and Apertio Ltd. Mr. Tokarz is an active member of the endowment committee and Board of Trustees of YMCA in Westchester County. He is also a member of the Board of the Warwick Business School in England. He is a member of the Board of the University of Illinois Foundation, and serves on its investment policy committee; he is also a member of the Venture Capital Subcommittee and serves as a member of the Board of Managers for Illinois Ventures, LLC. Mr. Tokarz also serves as the Chairman of the Illinois Emerging Technology Fund LLC. Mr. Tokarz serves as a director for the following portfolio companies of the Fund: Baltic Motors Corporation, Dakota Growers Pasta Company, Ohio Medical, Timberland Machines & Irrigation, Inc., and previously served on the Board of Vestal Manufacturing, Inc. from April 2004 until July 2005. | ||||||||||
Executive Officers | ||||||||||
Bruce
Shewmaker
(3)
287 Bowman Avenue 2nd Floor Purchase, NY 10577 Age: 60 |
Managing Director | Indefinite term/2 years and 3 months | Until June 2003, Mr. Shewmaker served as Managing Director of Crossbow Ventures Inc., and as a Vice President of Crossbow Venture Partners Corp., the general partner of Crossbow Venture Partners LP, a licensed small business investment company. Mr. Shewmaker also is a co-founder and Director of Infrared Imaging Systems, Inc., a medical devices company. From | None | See column 4 |
63
(5) | ||||||||||
Number of | ||||||||||
Portfolios | ||||||||||
(2) | (3) | in Fund | ||||||||
Positions(s) | Term of Office/ | (4) | Complex | (6) | ||||||
(1) | Held with the | Length of Time | Principal Occupation(s) During | Overseen by | Other Directorships | |||||
Name, Address and Age | Fund | Served | Past 5 Years | Director | Held by Director | |||||
1999 to 2001, he was a Managing Director of E*OFFERING Corp., an investment banking firm which merged into Wit SoundView Group in 2000. He has also served as a General Partner of ML Oklahoma Venture Partners, L.P., a business development company. Mr. Shewmaker serves as a director for the following portfolio companies of the Fund: Baltic Motors Corporation, Folio fn , Inc., and Vestal Manufacturing, Inc. from April 2004 until July 2005 and serves on the Board of VIANY. | ||||||||||
Peter Seidenberg
287 Bowman Avenue 2nd Floor Purchase, NY 10577 Age: 36 |
Chief Financial Officer | Indefinite term/ 4 months | Mr. Seidenberg joined the Fund in April 2005 after having previously served as a Principal of Nebraska Heavy Industries, where he worked on engagements including serving as the Chief Financial Officer of Commerce One, Inc. Prior to that, Mr. Seidenberg served as the Director of Finance and Business Development and as Corporate Controller for Plumtree Software, Inc. Mr. Seidenberg has also worked at AlliedSignal and several small manufacturing companies, where he held roles in finance and operations. Mr. Seidenberg on behalf of the Fund sits on the board of Ohio Medical Corp. | None | None | |||||
Scott Schuenke
287 Bowman Avenue 2nd Floor Purchase, NY 10577 Age: 26 |
Chief Compliance Officer | Indefinite term/1 year and 4 months | Mr. Schuenke served as a Compliance Officer with U.S. Bancorp Fund Services, LLC, from 2002 until he joined MVC Capital, Inc. in | None | None |
64
(5) | ||||||||||
Number of | ||||||||||
Portfolios | ||||||||||
(2) | (3) | in Fund | ||||||||
Positions(s) | Term of Office/ | (4) | Complex | (6) | ||||||
(1) | Held with the | Length of Time | Principal Occupation(s) During | Overseen by | Other Directorships | |||||
Name, Address and Age | Fund | Served | Past 5 Years | Director | Held by Director | |||||
2004. Mr. Schuenke also served as the Secretary of The Mexico Equity & Income Fund, Inc. and Assistant Secretary of Tortoise Energy Infrastructure Corporation during his tenure at U.S. Bancorp Fund Services, LLC. | ||||||||||
Jaclyn Shapiro-Rothchild
287 Bowman Avenue 2nd Floor Purchase, NY 10577 Age: 27 |
Vice President/ Secretary | Indefinite term/1 year and 3 months Indefinite term/2 years and 1 month | Ms. Shapiro has worked directly for the Fund since June 2002. Prior to that, she was an Associate and Business Manager with Draper Fisher Jurvetson meVC Management Co. LLC, the former investment sub-adviser to the Fund, and an Associate at The Bank Companies (acquired by Newmark & Co. Real Estate), a commercial real estate company. | None | None |
(1) | Other than the Fund. |
(2) | Mr. Tokarz is an interested person, as defined in the 1940 Act, of the Fund (an Interested Director) because he serves as an officer of the Fund. |
(3) | Mr. Shewmaker served as Director of the Fund from March 2003 to March 2004. |
| oversight responsibility with respect to: (a) the adequacy of the Funds accounting and financial reporting processes, policies and practices; (b) the integrity of the Funds financial statements and the independent audit thereof; (c) the adequacy of the Funds overall system of internal controls and, as appropriate, the internal controls of certain service providers; (d) the Funds compliance with certain legal and regulatory requirements; (e) determining the qualification and independence of the Funds independent auditors; and (f) the Funds internal audit function, if any; and | |
| oversight of the preparation of any report required to be prepared by the Audit Committee pursuant to the rules of the SEC for inclusion in the Funds annual proxy statement with respect to the election of directors. |
65
66
(3) | (4) | (5) | ||||||||||||||
Pension or | Estimated | Total | ||||||||||||||
(2) | Retirement | Annual | Compensation | |||||||||||||
Aggregate | Benefits Accrued | Benefits | from Fund and | |||||||||||||
(1) | Compensation | as Part of Fund | Upon | Fund Complex | ||||||||||||
Name of Person, Position | from Fund(4) | Expenses(1) | Retirement | Paid to Directors | ||||||||||||
Interested Director
|
||||||||||||||||
Michael Tokarz,
Chairman and Portfolio Manager
|
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Independent Directors
|
||||||||||||||||
Emilio Dominianni,
Director
|
$ | 28,500 | $ | 0 | $ | 0 | $ | 28,500 | ||||||||
Robert Everett,
Director
|
$ | 32,250 | $ | 0 | $ | 0 | $ | 32,250 | ||||||||
Gerald Hellerman,
Director
|
$ | 41,875 | $ | 0 | $ | 0 | $ | 41,875 | ||||||||
Robert Knapp,
Director
|
$ | 32,000 | $ | 0 | $ | 0 | $ | 32,000 | ||||||||
Executive Officers (who are not directors)
|
||||||||||||||||
Bruce Shewmaker,
Managing Director
(2)
|
$ | 262,000 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Frances Spark,
Former Chief Financial Officer
(3)
|
$ | 220,000 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Jaclyn Shapiro,
Vice President and Secretary
|
$ | 175,000 | $ | 0 | $ | 0 | $ | 0 |
(1) | Directors do not receive any pension or retirement benefits from the Fund. |
(2) | As of the Annual Meeting of Stockholders on March 29, 2004, Mr. Shewmaker was no longer a member of the Board. |
(3) | On October 3, 2005, Ms. Spark resigned from the position of Chief Financial Officer of the Fund and Peter Seidenberg was appointed as the new Chief Financial Officer of the Fund. |
(4) | The following table provides detail as to aggregate compensation paid during fiscal 2005 to our three highest paid executive officers: |
Salary | Bonus and Awards | |||||||
Ms. Spark
|
$ | 180,000 | $ | 40,000 | ||||
Mr. Shewmaker
|
$ | 150,000 | $ | 112,000 | ||||
Ms. Shapiro
|
$ | 135,000 | $ | 40,000 |
67
(1) | These shares are owned by Mr. Knapp directly. |
(2) | Mr. Tokarz is an Interested Director of the Fund because he serves as an officer of the Fund. |
68
Amount of | Percentage of | |||||||
Shareholder Name and Address | Shares Owned | Fund Held | ||||||
The Anegada Fund Limited
|
2,797,550 | (1) | 14.65 | % | ||||
The Cuttyhunk Fund Limited
Tonga Partners, L.P. GS Cannell Portfolio, LLC and Pleiades Investment Partners, LP c/o Cannell Capital LLC 150 California Street, 5th Floor San Francisco, CA 94111 |
||||||||
QVT Financial LP
|
2,039,600 | (2) | 10.68 | % | ||||
527 Madison Avenue, 8th Floor
New York, New York 10022 |
||||||||
Western Investment Hedged Partners LP
|
1,372,400 | (3) | 7.88 | % | ||||
Western Investment Institutional Partners LLC
Western Investment Activism Partners LLC Western Investment Total Return Master Fund Ltd. and Arthur D. Lipson c/o Western Investment LLC 2855 East Cottonwood Parkway Suite 110 Salt Lake City, UT 84121 |
||||||||
Deutsch Bank AG
|
1,336,366 | (4) | 7.00 | % | ||||
Taunusanlage 12
D-60325 Frankfurt am Main Federal Republic of Germany |
||||||||
Millenco, L.P.
|
1,289,949 | (5) | 6.76 | % | ||||
Millennium Global Estate, L.P.
Millennium USA, L.P. Millennium Partners, L.P. and Millennium International, Ltd. c/o Millennium Management, LLC 666 Fifth Avenue, 8th Floor New York, NY 10103 |
69
Amount of | Percentage of | |||||||
Shareholder Name and Address | Shares Owned | Fund Held | ||||||
Wynnefield Partners Small Cap Value, L.P.
|
1,189,600 | (6) | 6.23 | % | ||||
Wynnefield Partners Small Cap Value, L.P. I
Wynnefield Small Cap Value Offshore Fund, Ltd. Channel Partnership II, L.P. Wynnefield Capital Management, LLC Wynnefield Capital, Inc. Nelson Obus c/o Wynnefield Capital Management LLC 450 Seventh Avenue Suite 509 New York, NY 10123 |
||||||||
MFP Investors, LLC
|
999,700 | (7) | 5.23 | % | ||||
51 John F. Kennedy Parkway, 2nd Floor
Short Hills, NJ 07078 |
(1) | Based upon information contained in Schedule 13G/ A filed with the SEC on February 15, 2006. |
(2) | Based upon information contained in Schedule 13G filed with the SEC on December 8, 2005. |
(3) | Based upon information contained in Schedule 13G/ A filed with the SEC on February 14, 2006. |
(4) | Based upon information contained in Schedule 13G filed with the SEC on January 31, 2006. |
(5) | Based upon information contained in Schedule 13D/ A filed with the SEC on December 1, 2005. |
(6) | Based upon information contained in Schedule 13G/ A filed with the SEC on February 14, 2006. |
(7) | Based upon information contained in Schedule 13G/ A filed with the SEC on January 20, 2005. |
| At least 90% of our gross income for each taxable year must be from dividends, interest, payments with respect to securities loans, and gains from sales or other disposition of stock, securities or foreign currencies, other income derived with respect to our business of investing in such stock, securities or currencies, or net income derived from an interest in a qualified publicly traded partnership (generally, a publicly traded partnership other than one where at least 90% of its gross income is gross income that would otherwise be qualifying gross income for a RIC), |
70
| As diversification requirements, as of the close of each quarter of our taxable year: | |
| at least 50% of the value of our assets must consist of cash, cash items, U.S. government securities, the securities of other RICs and other securities to the extent that (1) we do not hold more than 10% of the outstanding voting securities of an issuer of such other securities and (2) such other securities of any one issuer do not represent more than 5% of our total assets, and | |
| no more than 25% of the value of our total assets may be invested in the securities of one issuer (other than U.S. government securities or the securities of other RICs), of two or more issuers that are controlled by us and are engaged in the same or similar or related trades or businesses, or of one or more qualified publicly traded partnerships. |
71
72
73
74
(1) Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which: |
(a) is organized under the laws of, and has its principal place of business in, the United States; | |
(b) is not an investment company (other than a small business investment company wholly owned by the business development company) or a company that would be an investment company but for certain exclusions under the 1940 Act; and | |
(c) satisfies any of the following: |
| does not have any class of securities with respect to which a broker or dealer may extend margin credit; | |
| is controlled by a business development company or a group of companies including a business development company and the business development company has an affiliated person who is a director of the eligible portfolio company; or | |
| is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million. |
(2) Securities of any eligible portfolio company which we control. | |
(3) Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements. | |
(4) Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company. |
75
(5) Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities. | |
(6) Cash, cash equivalents, U.S. Government securities or high-quality debt maturing in one year or less from the time of investment. |
76
77
78
| the name or names of any underwriters, dealers or agents and the amounts of securities underwritten or purchased by each of them; | |
| the offering price of the securities and the proceeds to us and any discounts, commissions or concessions allowed or reallowed or paid to dealers; and | |
| any securities exchanges on which the securities may be listed. |
79
80
Page | ||||
F-2 | ||||
F-3 | ||||
F-9 | ||||
F-10 | ||||
F-12 | ||||
F-13 | ||||
F-14 | ||||
F-29 | ||||
F-30 |
F-1
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-9
F-10
F-11
F-12
F-13
F-14
F-15
F-16
F-17
F-18
F-19
F-20
F-21
F-22
F-23
F-24
F-25
F-26
F-27
F-28
F-29
F-30
F-31
C-1
C-2
C-3
C-4
C-5
C-6
Table of Contents
Company
Industry
Investment
Principal
Cost
Fair Value
Technology Investments
Preferred Stock (150,602 shares)(d)
$
5,000,003
$
Manufacturer of Precision-Machined Components
Second Lien Seller Note 10.0000%, 06/29/2010
$
2,473,521
2,473,521
2,473,521
Apparel
Second Lien Loan 11.8406%, 06/02/2009
9,166,667
8,998,430
9,166,667
Technology Investments
Preferred Stock (602,131 shares)(d)
4,520,350
Technology Investments
Preferred Stock (5,802,259 shares)(d)
15,000,000
Technology Investments
Convertible Credit Facility 11.7500%, 12/31/2005(e)
1,122,216
1,121,520
1,122,216
Electrical Distribution
Senior Subordinated Debt 17.0000%, 01/31/2009(b)
3,090,384
3,025,871
3,090,384
Technology Investments
Preferred Stock (384,615 shares)(d)
250,000
43,511
Preferred Stock (266,846 shares)(d)
156,489
156,489
406,489
200,000
Technology Investments
Common Stock (5,786 shares)(d)
3,750,000
Financial Services
Senior Subordinated Debt 15.0000%, 05/07/2011(b)
5,145,912
4,560,740
4,664,794
Limited Liability Company Interest Warrants(d)
724,857
1,228,038
550,000
1,069,457
5,835,597
6,962,289
Technology Investments
Preferred Stock (2,106,378 shares)(d, f)
4,015,402
Technology Investments
Common Stock (131,615 shares)(d)
10,000,000
Laboratory Research Equipment
Term Loan B 13.8406%, 03/31/2010(b)
4,020,488
3,947,304
4,020,488
Senior Subordinated Debt 17.0000%, 03/31/2012(b)
6,650,360
6,401,062
6,650,360
10,348,366
10,670,848
74,495,549
33,685,925
Manufacturer of Packaged Foods
Common Stock (909,091 shares)(d)
5,000,000
5,514,000
Technology Investments
Preferred Stock (7,156,760 shares)(d)
7,000,000
Table of Contents
Company
Industry
Investment
Principal
Cost
Fair Value
Confections Manufacturing and Distribution
Senior Subordinated Debt 17.0000%, 07/30/2009(b)
5,228,826
5,133,069
5,228,826
Senior Subordinated Debt 7.8406%, 07/29/2008
325,000
318,986
325,000
Common Stock (252 shares)(d)
2,700,000
2,700,000
8,152,055
8,253,826
Technology Investments
Preferred Stock (6,250,000 shares)(d)
2,000,000
2,000,000
Preferred Stock (849,257 shares)(d)
400,000
400,000
Preferred Stock Warrants(d)
20
2,400,020
2,400,000
Non-Alcoholic Beverages
Common Stock (500,000 shares)(d)
5,000,000
5,000,000
Preferred Stock (1,000,000 shares)(b)
10,517,984
10,517,984
Warrants(d)
700,000
15,517,984
16,217,984
Technology Investments
Preferred Stock (300,000 shares)(d)
300,000
Preferred Stock (1,000,000 shares)(d)
2,000,000
2,300,000
40,370,059
32,385,810
Automotive Dealership
Senior Subordinated Debt 10.0000%, 06/24/2007(f)
4,500,000
4,500,000
4,500,000
Common Stock (54,947 shares)(d, f)
6,000,000
7,500,000
10,500,000
12,000,000
Medical Device Manufacturer
Common Stock (5,620 shares)(d)
17,000,000
17,000,000
Soil Remediation
Revolving Line of Credit 7.0000%, 08/25/2006(f)
1,237,700
1,237,700
1,237,700
Term Loan 7.0000%, 08/25/2009(f)
4,579,050
4,304,560
4,304,560
Equity Interest(f)
315,000
315,000
5,857,260
5,857,260
Distributor Landscaping and
Senior Subordinated Debt 17.0000%, 08/04/2009(b)
$
6,318,684
$
6,234,373
$
6,318,684
Irrigation Equipment
Junior Revolving Line of Credit 12.5000%, 07/07/2007
3,250,000
3,250,000
3,250,000
Table of Contents
Company
Industry
Investment
Principal
Cost
Fair Value
Common Stock (450 shares)(d)
4,500,000
4,500,000
Warrants(d)
13,984,373
14,068,684
Technology Investments
Common Stock (10,476 shares)(d)
5,500,000
Preferred Stock (6,443,188 shares)(d)
1,134,001
2,700,000
6,634,001
2,700,000
Iron Foundries
Senior Subordinated Debt 12.0000%, 04/29/2011
900,000
900,000
900,000
Common Stock (81,000 shares)(d)
1,850,000
3,700,000
2,750,000
4,600,000
56,725,634
56,225,944
U.S. Government & Agency Securities
3.4400%, 12/01/2005
14,600,000
14,560,162
14,560,162
3.2200%, 12/29/2005
9,865,000
9,812,368
9,812,368
3.6300%, 01/12/2006
14,856,000
14,750,225
14,750,225
3.4300%, 01/19/2006
12,000,000
11,904,147
11,904,147
51,026,902
51,026,902
51,026,902
51,026,902
$
222,618,144
$
173,324,581
(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 Funds equity and debt investments are issued by
eligible portfolio companies, as defined in the Investment
Company Act of 1940, except Baltic Motors Corporation, Safestone
Technologies PLC and SGDA Sanierungsgesellschaft fur Deponien
und Altlasten. The Fund makes available significant managerial
assistance to all of the portfolio companies in which it has
invested.
(d)
Non-income producing assets.
(e)
Also received warrants to purchase a number of shares of
preferred stock to be determined upon exercise.
(f)
The principal operations of these portfolio companies are
located outside of the United States.
(g)
Percentages are based on net assets of $198,739,000 as of
October 31, 2005.
(h)
See Note 3 for further information regarding
Investment Classification.
-
Denotes zero cost/fair value.
Table of Contents
Company
Industry
Investment
Principal
Cost
Fair Value
Technology Investments
Preferred Stock (1,506,025 shares)(a, e)
$
5,000,003
$
Technology Investments
Convertible Credit Facility 10.0000%, 12/31/2005(a, f)
$
3,647,220
3,631,940
2,000,000
Technology Investments
Common Stock (753,350 shares)(a, e)
11,999,995
Technology Investments
Credit Facility 12.0000%, 01/31/2006(a)
1,632,222
1,624,753
1,624,753
Warrants(a, e)
1,624,753
1,624,753
Technology Investments
Preferred Stock (602,131 shares)(a, e)
4,520,350
Technology Investments
Preferred Stock (5,802,259 shares)(a, e)
15,000,000
Technology Investments
Convertible Credit Facility 10.0000%, 12/31/2005(a, f)
2,805,552
2,793,798
2,805,552
Technology Investments
Preferred Stock (384,615 shares)(a, e)
250,000
43,511
Preferred Stock (266,846 shares)(a, e)
156,489
156,489
406,489
200,000
Technology Investments
Common Stock (5,786 shares)(a, e)
3,750,000
Technology Investments
Common Stock (82,283 shares)(g)
480,008
Common Stock (603,396 shares)(b)
3,519,988
7,023,529
3,999,996
7,023,529
Financial Services
Senior Subordinated Debt 15.0000%, 05/07/2011(a, j)
5,059,696
4,414,971
4,530,286
Limited Liability Company Interest(a, e)
560,000
560,000
Warrants(a, e)
550,000
550,000
5,524,971
5,640,286
Technology Investments
Preferred Stock (2,106,378 shares)(a, e)
4,015,402
62,267,697
19,294,120
Manufacturer of Packaged Foods
Common Stock (909,091 shares)(e)
5,000,000
5,000,000
Technology Investments
Preferred Stock (7,156,760 shares)(e)
7,000,000
Table of Contents
Company
Industry
Investment
Principal
Cost
Fair Value
Confections Manufacturing and Distribution
Senior Subordinated Debt 17.0000%, 07/30/2009
5,000,000
4,887,382
5,000,000
Common Stock (252 shares)(e)
2,700,000
2,700,000
7,587,382
7,700,000
Technology Investments
Preferred Stock (6,666,667 shares)(d, e)
1,000,000
Technology Investments
Preferred Stock (6,250,000 shares)(e)
2,000,000
2,000,000
Preferred Stock (849,257 shares)(e)
400,000
400,000
Preferred Stock Warrants(e)
20
2,400,020
2,400,000
Technology Investments
Preferred Stock (2,097,902 shares)(d, e)
6,000,000
Technology Investments
Common Stock (131,615 shares)(e)
10,000,000
Technology Investments
Preferred Stock (9,756,098 shares)(e)
4,000,000
5,500,000
Non-Alcoholic Beverages
Common Stock (500,000 shares)(e)
5,000,000
5,000,000
Preferred Stock (1,000,000 shares)
10,000,000
10,000,000
Warrants(e)
15,000,000
15,000,000
Technology Investments
Preferred Stock (300,000 shares)(e)
300,000
Preferred Stock (1,000,000 shares)(e)
2,000,000
2,300,000
60,287,402
35,600,000
Automotive Dealership
Senior Subordinated Debt 10.0000%, 06/24/2007
4,500,000
4,500,000
4,500,000
Common Stock (54,947 shares)(e)
6,000,000
6,000,000
10,500,000
10,500,000
Distributor Landscaping and Irrigation Equipment
Senior Subordinated Debt 17.0000%, 08/04/2009(j)
6,042,164
5,943,114
6,042,164
Common Stock (450 shares)(e)
4,500,000
4,500,000
Warrants(e)
10,443,114
10,542,164
Table of Contents
Company
Industry
Investment
Principal
Cost
Fair Value
Technology Investments
Common Stock (10,476 shares)(e)
5,500,000
Preferred Stock (6,443,188 shares)(e)
1,134,001
1,134,001
6,634,001
1,134,001
Iron Foundries
Senior Subordinated Debt 12.0000%, 04/29/2011
1,000,000
1,000,000
1,000,000
Common Stock (40,500 shares)(e)
450,000
450,000
1,450,000
1,450,000
29,027,115
23,626,165
U.S. Government & Agency Securities
1.0000%, 11/04/2004
400,000
399,956
399,956
1.4350%, 11/18/2004
1,064,000
1,063,332
1,063,332
1.4700%, 11/26/2004
700,000
699,319
699,319
1.6200%, 01/06/2005
3,490,000
3,480,147
3,480,147
1.8000%, 01/27/2005
28,600,000
28,472,038
28,472,038
34,114,792
34,114,792
34,114,792
34,114,792
$
185,697,006
$
112,635,077
(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 shares are freely tradable with no restrictions to their
sale.
(c)
All of the Funds preferred and common stock and debt
investments are issued by eligible portfolio companies, as
defined in the Investment Company Act of 1940, except Baltic
Motors Corporation and SafeStone Technologies PLC. The Fund
makes available significant managerial assistance to all of the
portfolio companies in which it has invested.
(d)
Company in dissolution.
(e)
Non-income producing assets.
(f)
Also received warrants to purchase a number of shares of
preferred stock to be determined upon exercise.
(g)
These shares are held in escrow until September 1, 2005 and
have been valued at zero by the Funds Valuation Committee.
The Fund has no way to determine the amount of shares, if any,
it will receive from the escrow.
(h)
Percentages are based on net assets of $115,567,344 as of
October 31, 2004.
(i)
See Note 3 for further information regarding
Investment Classification.
(j)
These securities accrue a portion of their interest/dividends in
payment in kind interest/dividends which is
capitalized to the investment.
Denotes zero cost/fair value.
Table of Contents
For the Year
For the Year
For the Year
Ended
Ended
Ended
October 31, 2005
October 31, 2004
October 31, 2003
$
1,346,760
$
$
1,346,760
5,134,907
2,308,502
2,833,564
874,041
218,904
2,101,808
469,110
8,110,756
2,996,516
2,833,564
398,520
109,538
61,476
232,256
727,595
274
1,178,331
88,631
1,809,107
925,764
61,750
932,761
64,104
12,199,384
3,986,384
2,895,314
2,336,242
1,365,913
2,476,068
1,117,328
590,493
959,570
1,058,776
529,541
810,848
1,514,549
484,420
90,828
1,281,054
461,769
369,085
110,374
287,797
154,938
102,102
192,255
148,875
175,956
455,292
137,191
102,593
138,512
116,482
146,509
126,490
71,785
80,278
86,328
30,771
2,472
4,037,327
6,504,949
4,258,990
11,386,872
370,000
5,694,435
97,394
(8,491,558
)
(215,977
)
(87,278
)
115,044
166,205
(100,933
)
78,927
5,795,368
18,467
(8,491,558
)
(6,684,320
)
(17,465,808
)
(4,067,535
)
3,407,457
(20,329,102
)
(152,845
)
(18,687
)
(3,295,550
)
(37,794,910
)
(4,220,380
)
23,768,366
49,381,974
(42,771,460
)
20,472,816
11,587,064
(46,991,840
)
$
26,268,184
$
11,605,531
$
(55,483,398
)
$
1.45
$
0.91
$
(3.42
)
$
0.24
$
0.12
$
Table of Contents
For the Year
For the Year
For the Year
Ended
Ended
Ended
October 31, 2005
October 31, 2004
October 31, 2003
$
26,268,184
$
11,605,531
$
(55,483,398
)
3,295,550
37,794,910
4,220,380
(23,768,366
)
(49,381,974
)
42,771,460
(235,428
)
(1,370,777
)
(101,861
)
(114,845
)
(474,207
)
(275,661
)
63,394
(130,977
)
178,200
(361,331
)
(98,374
)
(215,977
)
(87,278
)
(43,155
)
(45,445
)
379,632
79,708
1,576,079
112,361
(252,393
)
(17,315,000
)
(34,210,000
)
(1,999,997
)
(37,950,271
)
(20,848,139
)
(19,955,000
)
(313,505,406
)
(398,988,675
)
(952,013,288
)
(550,000
)
23,396,719
4,309,991
1,884,848
10,796,111
8,478,894
3,239,364
297,482,209
478,170,586
901,534,611
(32,328,223
)
36,161,440
(75,971,718
)
60,478,127
(31,571,184
)
(2,894,917
)
(4,572,359
)
(1,475,165
)
(402,296
)
(10,025,000
)
10,025,000
45,478,472
(23,021,349
)
(2,894,917
)
13,150,249
13,140,091
(78,866,635
)
13,146,941
6,850
78,873,485
$
26,297,190
$
13,146,941
$
6,850
Table of Contents
Table of Contents
For the Year
For the Year
For the Year
Ended
Ended
Ended
October 31, 2005
October 31, 2004
October 31, 2003
$
5,795,368
$
18,467
$
(8,491,558
)
(3,295,550
)
(37,794,910
)
(4,220,380
)
23,768,366
49,381,974
(42,771,460
)
26,268,184
11,605,531
(55,483,398
)
(4,580,676
)
(10,072
)
(1,465,093
)
(4,580,676
)
(1,475,165
)
60,478,127
1,400,000
(402,296
)
8,317
(31,571,184
)
(2,894,917
)
61,484,148
(31,571,184
)
(2,894,917
)
83,171,656
(21,440,818
)
(58,378,315
)
115,567,344
137,008,162
195,386,477
$
198,739,000
$
115,567,344
$
137,008,162
19,086,566
12,293,042
16,152,600
Table of Contents
For the Year
For the Year
For the Year
For the Year
For the Year
Ended
Ended
Ended
Ended
Ended
October 31,
October 31,
October 31,
October 31,
October 31,
2005
2004
2003
2002
2001
$
9.40
$
8.48
$
11.84
$
15.42
$
18.88
0.32
(0.53
)
(0.19
)
0.10
1.13
0.91
(2.89
)
(3.35
)
(3.22
)
1.45
0.91
(3.42
)
(3.54
)
(3.12
)
(0.24
)
(0.04
)
(0.34
)
(0.12
)
(0.24
)
(0.12
)
(0.04
)
(0.34
)
(0.20
)
0.13
0.06
(0.20
)
0.13
0.06
$
10.41
$
9.40
$
8.48
$
11.84
$
15.42
$
11.25
$
9.24
$
8.10
$
7.90
$
9.25
8.07
%
(1.70
)%
(4.48
)%
(33.28
)%
(40.01
)%
13.36
%
12.26
%
(28.38
)%
(22.88
)%
(15.99
)%
24.38
%
15.56
%
2.53
%
(14.22
)%
(17.26
)%
$
198,739
$
115,567
$
137,008
$
195,386
$
254,472
3.75
%
3.68
%(c)
7.01
%(b)
3.02
%
2.50
%
3.28
%
0.08
%
(5.22
)%(b)
(1.37
)%
0.56
%
3.69
%
3.74
%(c)
7.01
%(b)
3.02
%
2.50
%
3.34
%
0.02
%
(5.22
)%(b)
(1.37
)%
0.56
%
(a)
Total annual return is historical and assumes changes in share
price, reinvestments of all dividends and distributions, and no
sales charge for the year.
(b)
The expense ratio for the year ended October 31, 2003
included approximately $4.0 million of proxy/litigation
fees and expenses. When these fees and expenses are excluded,
the Funds expense ratio was 4.52% and the net operating
loss was -2.74%.
(c)
The expense ratio for the year ended October 31, 2004,
included a one-time expense recovery of approximately $250,000
(See Note 13). For the year ended October 31, 2004,
without this one-time recovery, the expense ratio, excluding and
including tax expense would have been 3.89% and 3.95%,
respectively.
Table of Contents
1.
Organization and Business Purpose
Table of Contents
2.
Consolidation
3.
Significant Accounting Policies
Table of Contents
Table of Contents
Table of Contents
4.
Management
5.
Incentive Compensation
Table of Contents
6.
Dividends and Distributions to Shareholders
For the Year Ended October 31, 2005
For the Year Ended October 31, 2004
7.
Transactions with Other Parties
Table of Contents
8.
Concentration of Market and Credit Risk
9.
Portfolio Investments
For the Year Ended October 31, 2005
Table of Contents
For the Year Ended October 31, 2004
Table of Contents
10.
Commitments and Contingencies
Table of Contents
Table of Contents
11.
Certain Issuances of Equity Securities by the Issuer
12.
Legal Proceedings
13.
Recovery of Expenses and Unusual Income Items
Table of Contents
14.
Tax Matters
Tax Basis Accumulated Earnings (Deficit)
$
(78,779,962
)
2,325,641
(49,992,918
)
(126,447,239
)
247,035,955
4,580,676
10,072
1,465,093
Table of Contents
15.
Income Taxes
Year Ended
October 31,
October 31,
2005
2004
$
92,892
$
134,201
22,152
32,004
115,044
166,205
(174,390
)
(70,472
)
(41,587
)
(16,806
)
(215,977
)
(87,278
)
$
(100,933
)
$
78,927
Year Ended
October 31,
2005
34.00
%
(0.54
)%
4.87
%
38.33
%
October 31,
October 31,
2005
2004
$
303,255
$
87,278
$
303,255
$
87,278
$
303,255
$
87,278
$
303,255
$
87,278
Table of Contents
Valuation Allowance
16.
Segment Data
MVC
MVCFS
Consolidated
$
9,434,247
$
23,269
$
9,457,516
160,599
1,648,508
1,809,107
932,761
932,761
10,527,607
1,671,777
12,199,384
6,238,086
266,863
6,504,949
4,289,521
1,404,914
5,694,435
(100,933
)
(100,933
)
4,289,521
1,505,847
5,795,368
(3,295,550
)
(3,295,550
)
23,768,366
23,768,366
$
24,762,337
$
1,505,847
$
26,268,184
17.
Submission of Matters to a Vote of Security Holders
18.
Subsequent Events (Unaudited)
Table of Contents
Table of Contents
Ernst & Young LLP
Table of Contents
Amount of Interest or
Dividends Credited
October 31,
Gross
Gross
October 31,
Portfolio Company
Investment(1)
To Income(5)
Other(2)
2004 Value
Additions(3)
Reductions(4)
2005 Value
Loan
456,250
4,500,000
4,500,000
Common Stock
6,000,000
1,500,000
7,500,000
Common Stock
17,000,000
17,000,000
Loan
263,103
4,304,560
4,304,560
Revolver
23,624
1,237,700
1,237,700
Equity Interest
315,000
315,000
Loan
1,048,624
6,042,164
276,520
6,318,684
Revolver
194,374
4,500,000
(1,250,000
)
3,250,000
Common Stock
4,500,000
4,500,000
Warrants
Common Stock
Preferred Stock
1,134,001
1,565,999
2,700,000
Loan
115,833
1,000,000
(100,000
)
900,000
Common Stock
450,000
3,250,000
3,700,000
$
2,101,808
$
56,225,944
Common Stock
5,000,000
514,000
5,514,000
Preferred Stock
Loan
867,755
5,000,000
228,826
5,228,826
Loan
6,286
325,000
325,000
Common Stock
2,700,000
2,700,000
Preferred Stock
Preferred Stock
2,000,000
2,000,000
Preferred Stock
400,000
400,000
Warrants
Preferred Stock
Common Stock
Preferred Stock
5,500,000
8,900,000
(14,400,000
)
Common Stock
5,000,000
5,000,000
Preferred Stock*
1,346,760
10,000,000
517,984
10,517,984
Warrants
700,000
700,000
Preferred Stock
Preferred Stock
$
2,220,801
$
32,385,810
(1)
Common stock, preferred stock, warrants, options and equity
interests are generally non-income producing and restricted. The
principal amount for loans and debt securities and the number of
shares of common and preferred stock is shown in the
consolidated schedule of investments as of October 31, 2005.
Table of Contents
(2)
Other includes interest, dividend, or other income which was
applied to the principal of the investment and therefore reduced
the total investment. These reductions are also included in the
Gross Reductions for the investment, as applicable.
(3)
Gross additions include increases in the cost basis of
investments resulting from new portfolio investments,
paid-in
-kind-interest
or dividends, the amortization of discounts and closing fees,
and the exchange of one or more existing securities for one or
more new securities. Gross additions also includes net increases
in unrealized appreciation or net decreases in unrealized
depreciation.
(4)
Gross reductions include decreases in the cost basis of
investments resulting from principal collections related to
investment repayments or sales and the exchange of one or more
existing securities for one or more new securities. Gross
reductions also include net increases in unrealized depreciation
or net decreases in unrealized appreciation.
(5)
Represents the total amount of interest or dividends credited to
income for the portion of the year an investment was included in
the companies more than 25% owned or companies 5% to 25% owned
categories, respectively.
*
All or a portion of the dividend income on this investment was
or will be paid in the form of additional securities or by
increasing the liquidation preference. Dividends
paid-in
-kind are also
included in the Gross Additions for the investment, as
applicable.
Page
F-2
F-3
F-9
F-10
F-12
F-13
F-14
F-29
F-30
Table of Contents
Exhibit
Number
Description
Certificate of Incorporation.
(Previously filed as Exhibit 99.a filed with the Registrants
Pre-Effective Amendment No. 5 to registration statement on Form N-2 (File No. 333-92287)
filed on March 28, 2000).
Fifth Amended and Restated Bylaws (
Previously filed as Exhibit 99.b filed with the
Registrants Pre-Effective Amendment No. 1 to registration statement on Form N-2 (File No.
333- 125953) filed on August 29, 2005).
Not applicable.
Form of Share Certificate.
((Previously filed as Exhibit 99.d filed with Registrants
registration Statement on Form N-2/A (File No. 333-119625) filed on November 23, 2004).
Dividend Reinvestment Plan, as amended.
(Previously filed as Exhibit 99.e filed with
Registrants registration Statement on Form N-2/A (File No. 333-119625) filed on November
23, 2004).
Not applicable.
Not applicable.
Not applicable.
Agreement between the Registrant and Michael Tokarz.
(Previously filed as Exhibit 10.2 filed
with Annual Report on Form 10-K (File No. 814-00201) filed on January 29, 2004.)
Agreement between the Registrant and Michael Tokarz
Form of Custody Agreement between Registrant and U.S. Bank National Association
. (Previously
filed as Exhibit 99.j.1 filed with Registrants registration Statement on Form N-2/A (File
No. 333-119625) filed on November 23, 2004).
Form of Amendment to Custody Agreement between Registrant and U.S. Bank National Association.
Form of Custodian Agreement between
Registrant and LaSalle Bank National Association.
(Previously filed as Exhibit 99.j.3 filed with Registrants registration Statement on Form
N-2/A (File No. 333-119625) filed on November 23, 2004).
Sublease for 287 Bowman Avenue, Purchase, New York 10577.
(Previously filed as Exhibit 10
with Registrants Annual Report on Form 10-Q (File No. 814-00201) filed on June 8, 2005.)
Form of Registrar, Transfer Agency and Service Agreement with Registrant and State Street
Bank and Trust Company.
(Incorporated by reference to Exhibit 99.k(1) filed with the
Registrants pre-effective amendment no. 2 to the registration statement on Form N-2/A (File
No. 333-92287) filed on February 11, 2000).
Form of Transfer Agency Letter Agreement with Registrant and EquiServe Trust Company, N.A.
(Previously filed as Exhibit 99.k.2 filed with Registrants registration Statement on Form
N-2/A (File No. 333-119625) filed on November 23, 2004).
Form of Loan Agreement with Registrant and LaSalle Bank National Association.
(Previously
filed as Exhibit 99.k.3 filed with Registrants registration Statement on Form N-2/A (File
No. 333-119625) filed on November 23, 2004).
Form of Custody Account Pledge Agreement with Registrant and LaSalle Bank National
Association.
(Previously filed as Exhibit 99.k.4 filed with Registrants registration
Statement on Form N-2/A (File No. 333-119625) filed on November 23, 2004).
Form of Fund Administration Servicing Agreement with Registrant and U.S. Bancorp Fund
Services, LLC.
Table of Contents
Exhibit
Number
Description
Form of Fund Accounting Servicing Agreement with Registrant and U.S. Bancorp Fund Services,
LLC.
Not applicable.
Opinion of counsel and consent to its use. (
Previously filed as Exhibit 99.m.1 filed with
the Registrants Pre-Effective Amendment No. 1 to registration statement on Form N-2 (File
No. 333- 125953) filed on August 29, 2005).
Consent of Ernst & Young LLP
.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
Code of Ethics.
$
11,770
10,500
350,000
*
200,000
*
400,000
*
$
972,270
*
*
Figures are estimates.
100
%
Table of Contents
Number of
Title of Class
Record Holders
6,700
Table of Contents
(i)
to include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933;
(ii)
to reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change in
the information set forth in the registration statement; and
(iii)
to include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material change to such
information in the registration statement.
Agreement between the Registrant and Michael Tokarz
Form of Amendment to Custody Agreement between Registrant and U.S. Bank National Association
Form of Fund Administration Servicing Agreement with Registrant and U.S. Bancorp Fund
Services, LLC.
Form of Fund Accounting Servicing Agreement with Registrant and U.S. Bancorp Fund Services,
LLC.
Consent of Ernst & Young LLP
Code of Ethics
Table of Contents
MVC Capital, Inc.
By:
/S/ MICHAEL T. TOKARZ
Michael T. Tokarz
Chairman of the Board
SIGNATURE
TITLE
Chairman of the Board
Director
Director
Director
Director
Principal Financial Officer
Attorney-in-Fact
*
Signed by Bruce W. Shewmaker pursuant to a power of attorney signed by each individual
and filed with this registration statement on June 20, 2005.
MVC CAPITAL, INC. | ||||||
|
||||||
|
By: | /s/ Robert C. Knapp | ||||
|
||||||
|
Name: | Robert C. Knapp | ||||
|
Title: | Director | ||||
|
||||||
Michael Tokarz | ||||||
|
/s/ Michael Tokarz | |||||
2
MVC CAPITAL, INC.
|
U.S. BANK, N.A. | ||||||
|
By:
|
By: | ||||||
|
|||||||
|
Printed Name:
|
Printed Name: | ||||||
|
|||||||
|
Title:
|
Title: | ||||||
|
1
| A transaction is a purchase/sale of a security, free receipt/free delivery, maturity, tender or exchange. |
| No charge for the initial conversion free receipt. |
| Overdrafts charged to the account at prime interest rate plus 2. |
| Postage, Stationery | ||
| Programming, Special Reports | ||
| Proxies, Insurance | ||
| EDGAR filing | ||
| Retention of records | ||
| Federal and state regulatory filing fees | ||
| Certain insurance premiums | ||
| Expenses from board of directors meetings | ||
| Auditing and legal expenses | ||
| Blue Sky conversion expenses (if necessary) | ||
| All other out-of-pocket expenses |
2
The Fund and MVCFS hereby appoint USBFS as administrator of the Fund and MVCFS on the terms and conditions set forth in this Agreement, and USBFS hereby accepts such appointment and agrees to perform the services and duties set forth in this Agreement. |
USBFS shall provide the following fund administration services for the Fund and MVCFS, as applicable, including but not limited to: |
A. | General Fund Management: |
(1) | Act as liaison among all Fund service providers. | ||
(2) | Coordinate the Funds Board of Directors (the Board of Directors or the Directors) communication: |
a. | Print reports for the Board of Directors based on financial and administrative data provided by the Fund. | ||
b. | Prepare and distribute to appropriate parties notices announcing declaration of dividends and other distributions to shareholders. |
(3) | Audits: |
1
a. | Prepare appropriate schedules and assist independent auditors. | ||
b. | Provide information to the SEC and facilitate audit process. | ||
c. | Provide office facilities. |
(4) | Pay Fund and MVCFS expenses upon written authorization from the Fund and MVCFS. | ||
(5) | Monitor arrangements under shareholder services or similar plan. | ||
(6) | Monitor and communicate activity under share repurchase or tender offer plans. |
B. | Compliance: |
(1) | Regulatory and IRS Compliance: |
a. | Monitor compliance with the 1940 Act requirements and the Funds status as a regulated investment company under Subchapter M, including: |
(i) | Maintenance of books and records under Rule 31a-3. | ||
(ii) | IRC Section 851 90% Qualifying income | ||
(iii) | IRC Section 851 Fund Diversification | ||
(iv) | SEC Section 12(d)(1)(A) Diversification Requirement | ||
(v) | SEC Section 55(a) 70% Eligible Assets Requirement |
b. | Maintain awareness of applicable regulatory and operational service issues. |
(2) | SEC Registration and Reporting: |
a. | Prepare financial statements for inclusion into Form 10Q, Form 10K and Form 8K filings. | ||
b. | Prepare and file fidelity bond under Rule 17g-1. | ||
c. | Prepare and file reports and other documents required by U.S. stock exchanges on which the Companys shares are listed. |
C. | SEC Inspections: |
(1) | Assist in producing materials requested by the SEC. | ||
(2) | Maintain records of all materials produced as requested by the Securities and Exchange Commission. |
D. | Financial Reporting: |
(1) | Provide financial data required by the Funds Prospectus and SAI. | ||
(2) | Supervise the Funds and MVCFSs custodian and fund accountants in the maintenance of the Funds and MVCFSs general ledger and in the preparation of the Funds and MVCFSs financial statements, including |
2
(3) | Compute the dividend yield, total return and expense ratio of the Fund and the Funds portfolio turnover rate. | ||
(4) | Prepare monthly financial statements, which include without limitation the following items: |
a. | Consolidated Schedule of Investments. | ||
b. | Consolidated Balance Sheet. | ||
c. | Consolidated Statement of Operations. | ||
d. | Consolidated Statement of Changes in Net Assets. |
(5) | Prepare quarterly financial statements, which include without limitation the following items: |
a. | Consolidated Schedule of Investments. | ||
b. | Consolidated Balance Sheet. | ||
c. | Consolidated Statement of Operations. | ||
d. | Consolidated Statement of Changes in Net Assets. | ||
e. | Consolidated Statement of Cash Flows. | ||
f. | Tax Footnote to be updated on an annual basis. | ||
g. | Selected Per Share Data and Ratios. |
(7) | Prepare monthly Balance Sheet Score Cards. | ||
(8) | Coordinate certification requirements pursuant to the Sarbanes-Oxley Act. | ||
(9) | Compute Total return calculations for Market and Net Asset Value. |
E. | Tax Reporting: |
(1) | File Form 1099 Miscellaneous for payments to Directors and other service providers. | ||
(2) | Prepare tax schedules, which include without limitation the following items: |
a. | Fiscal Distribution Schedule (including recorded ROSCOP journal entry to general ledger). | ||
b. | Excise Distribution Schedule. |
USBFS shall be compensated for providing the services set forth in this Agreement in accordance with the fee schedule set forth on Exhibit A hereto (as amended from time to time). The Fund and MVCFS shall pay all fees and reimbursable expenses within thirty (30) calendar days following receipt of the billing notice, except for any fee or expense subject to a good faith dispute. The Fund and MVCFS shall notify USBFS in writing |
3
within thirty (30) calendar days following receipt of each invoice if the Fund is disputing any amounts in good faith. The Fund and MVCFS shall settle such disputed amounts within ten (10) calendar days of the day on which the parties agree to the amount to be paid. With the exception of any fee or expense the Fund and MVCFS are disputing in good faith as set forth above, unpaid invoices shall accrue a finance charge of one and one-half percent (1 1 / 2 %) per month, after the due date. Notwithstanding anything to the contrary, amounts owed by the Fund and MVCFS to USBFS shall only be paid out of the assets and property of the particular party involved. |
A. | The Fund and MVCFS hereby represent and warrant to USBFS, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that: |
(1) | They are duly organized and existing under the laws of the jurisdiction of their organization, with full power to carry on their business as now conducted, to enter into this Agreement and to perform their respective obligations hereunder; | ||
(2) | This Agreement has been duly authorized, executed and delivered in accordance with all requisite action and constitutes a valid and legally binding obligation of the Fund and MVCFS, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; and | ||
(3) | They are conducting their business in compliance in all material respects with all applicable laws and regulations, both state and federal, and have obtained all regulatory approvals necessary to carry on their business as now conducted; there is no statute, rule, regulation, order or judgment binding on them and no provision of their charters, bylaws or any contract binding them or affecting their property which would prohibit their execution or performance of this Agreement. |
B. | USBFS hereby represents and warrants to the Fund and MVCFS, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that: |
(1) | It is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder; | ||
(2) | This Agreement has been duly authorized, executed and delivered by USBFS in accordance with all requisite action and constitutes a valid and legally binding obligation of USBFS, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and |
4
other laws of general application affecting the rights and remedies of creditors and secured parties; and |
(3) | It is conducting its business in compliance in all material respects with all applicable laws and regulations, both state and federal, and has obtained all regulatory approvals necessary to carry on its business as now conducted; there is no statute, rule, regulation, order or judgment binding on it and no provision of its charter, bylaws or any contract binding it or affecting its property which would prohibit its execution or performance of this Agreement. |
A. | USBFS shall exercise reasonable care in the performance of its duties under this Agreement. USBFS shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund or MVCFS in connection with matters to which this Agreement relates, including losses resulting from mechanical breakdowns or the failure of communication or power supplies beyond USBFSs control, except a loss arising out of or relating to USBFSs refusal or failure to comply with the terms of this Agreement or from bad faith, negligence, or willful misconduct on its part in the performance of its duties under this Agreement. Notwithstanding any other provision of this Agreement, if USBFS has exercised reasonable care in the performance of its duties under this Agreement, the Fund and MVCFS shall indemnify and hold harmless USBFS from and against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including reasonable attorneys fees) which USBFS may sustain or incur or which may be asserted against USBFS by any person arising out of any action taken or omitted to be taken by it in performing the services hereunder, (i) in accordance with the standard of care set forth herein, or (ii) in reliance upon any written or oral instruction provided to USBFS by any duly authorized officer of the Fund or MVCFS, such duly authorized officer to be included in a list of authorized officers furnished to USBFS and as amended from time to time in writing by resolution of the Board of Directors, except for any and all claims, demands, losses, expenses, and liabilities arising directly or indirectly out of or relating to USBFSs refusal or failure to comply with the terms of this Agreement or from bad faith, negligence or from willful misconduct on its part in performance of its duties under this Agreement. | ||
USBFS shall indemnify and hold the Fund and MVCFS, its officers, directors and employees harmless from and against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including reasonable attorneys fees) that the Fund and MVCFS may sustain or incur or that may be asserted against the Fund and MVCFS by any person arising directly or indirectly out of any action taken or omitted to be taken by USBFS as a result of USBFSs refusal or failure to comply with the terms of this Agreement, its bad faith, negligence, or willful misconduct. |
5
In the event of a mechanical breakdown or failure of communication or power supplies beyond its control, USBFS shall take all reasonable steps to minimize service interruptions for any period that such interruption continues beyond USBFSs control. USBFS will make every reasonable effort to restore any lost or damaged data and correct any errors resulting from such a breakdown at the expense of USBFS. USBFS agrees that it shall, at all times, have reasonable contingency plans with appropriate parties, making reasonable provision for emergency use of electrical data processing equipment to the extent appropriate equipment is available. Representatives of the Fund and MVCFS shall be entitled to inspect USBFSs premises and operating capabilities at any time during regular business hours of USBFS, upon reasonable notice to USBFS. | |||
Notwithstanding the above, USBFS reserves the right to reprocess and correct administrative errors at its own expense. | |||
B. | In order that the indemnification provisions contained in this section shall apply, it is understood that if in any case the indemnitor may be asked to indemnify or hold the indemnitee harmless, the indemnitor shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the indemnitee will use all reasonable care to notify the indemnitor promptly concerning any situation that presents or appears likely to present the probability of a claim for indemnification. The indemnitor shall have the option to defend the indemnitee against any claim that may be the subject of this indemnification with counsel reasonably satisfactory to indemintee unless the legal rights and defenses available to indemnitor and indemnitee present a conflict for joint counsel. In the event that the indemnitor so elects, it will so notify the indemnitee and thereupon the indemnitor shall take over complete defense of the claim, and the indemnitee shall in such situation initiate no further legal or other expenses for which it shall seek indemnification under this section. The indemnitee shall in no case confess any claim or make any compromise in any case in which the indemnitor will be asked to indemnify the indemnitee except with the indemnitors prior written consent; provided however, that the indemnitor shall not settle a claim that results in any admission of wrongdoing by indemnitee without indemnitees prior written consent. | ||
C. | The indemnity and defense provision set forth in this Section 5 shall indefinitely survive the termination and/or assignment of this Agreement. | ||
D. | If USBFS is acting in another capacity for the Fund and MVCFS pursuant to a separate agreement, nothing herein shall be deemed to relieve USBFS of any of its obligations in such other capacity. |
USBFS agrees on behalf of itself and its directors, officers, and employees to treat confidentially and as proprietary information of the Fund and MVCFS all records and other information relative to the Fund and MVCFS and prior, present, or potential |
6
shareholders of the Fund and MVCFS (and clients of said shareholders) including all shareholder trading information, and not to use such records and information for any purpose other than the performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Fund and MVCFS, which approval shall not be unreasonably withheld and may not be withheld where USBFS may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the Fund and MVCFS. USBFS acknowledges that it may come into possession of material nonpublic information with respect to the Fund and MVCFS and confirms that it has in place effective procedures to prevent the use of such information in violation of applicable insider trading laws. | ||
Further, USBFS will adhere to the privacy policies adopted by the Fund pursuant to Title V of the Gramm-Leach-Bliley Act, as may be modified from time to time (the Act). Notwithstanding the foregoing, USBFS will not share any nonpublic personal information concerning any of the Funds and MVCFSs shareholders to any third party unless specifically directed by the Fund and MVCFS or allowed under one of the exceptions noted under the Act. |
This Agreement shall become effective as of the date first written above and will continue in effect for a period of three years; provided however, the Fund and MVCFS may terminate the agreement by giving USBSF ninety (90) days prior written notice in the event that USBFS breaches the standard of care set forth herein. Subsequent to the initial three-year term, this Agreement may be terminated by either party upon giving ninety (90) days prior written notice to the other party or such shorter period as is mutually agreed upon by the parties. However, this Agreement may be amended by mutual written consent of the parties. |
USBFS shall keep records relating to the services to be performed hereunder in the form and manner, and for such period, as it may deem advisable and is agreeable to the Fund and MVCFS, but not inconsistent with the rules and regulations of appropriate government authorities, in particular, Section 31 of the 1940 Act and the rules thereunder. USBFS agrees that all such records prepared or maintained by USBFS relating to the services to be performed by USBFS hereunder are the property of the Fund and MVCFS and will be preserved, maintained, and made available in accordance with such applicable sections and rules of the 1940 Act and will be promptly surrendered to the Fund and MVCFS on and in accordance with its request. USBFS agrees to provide any records necessary to the Fund and MVCFS to comply with the Funds disclosure controls and procedures adopted in accordance with the Sarbanes-Oxley Act. Without limiting the generality of the foregoing, the USBFS shall cooperate with the Fund and MVCFS and assist the Fund and MVCFS as necessary by providing information to enable the appropriate officers of the Fund and MVCFS to execute any required certifications. |
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This Agreement shall be construed in accordance with the laws of the State of Wisconsin, without regard to conflicts of law principles. To the extent that the applicable laws of the State of Wisconsin, or any of the provisions herein, conflict with the applicable provisions of the 1940 Act, the latter shall control, and nothing herein shall be construed in a manner inconsistent with the 1940 Act or any rule or order of the SEC thereunder. |
In the event that, in connection with termination, a successor to any of USBFSs duties or responsibilities hereunder is designated by the Fund and MVCFS by written notice to USBFS, USBFS will promptly, upon such termination and at the expense of the Fund and MVCFS, transfer to such successor all relevant books, records, correspondence, and other data established or maintained by USBFS under this Agreement in a form reasonably acceptable to the Fund and MVCFS (if such form differs from the form in which USBFS has maintained, the Fund and MVCFS shall pay any expenses associated with transferring the data to such form), and will cooperate in the transfer of such duties and responsibilities, including provision for assistance from USBFSs personnel in the establishment of books, records, and other data by such successor. |
Nothing herein contained shall be deemed to authorize or empower USBFS to act as agent for the other party to this Agreement, or to conduct business in the name, or for the account, of the other party to this Agreement. |
The Fund and MVCFS or its agent shall furnish to USBFS the data necessary to perform the services described herein at such times and in such form as mutually agreed upon. If USBFS is also acting in another capacity for the Fund and MVCFS, nothing herein shall be deemed to relieve USBFS of any of its obligations in such capacity. |
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13. | Assignment |
14. | Compliance with Laws |
15. | Legal-Related Services |
16. | Notices |
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17. | Several Obligations |
18. | Entire Agreement |
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MVC Capital, Inc. | U.S. BANCORP FUND SERVICES, LLC | |||||||
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By:
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By: | |||||||
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Michael T. Tokarz | Joe D. Redwine | ||||||
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Title:
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Chairman | Title: | President | |||||
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MVC Financial Services, Inc. | ||||||||
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By:
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Michael T. Tokarz | |||||||
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Title:
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Chairman | |||||||
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1. | Appointment of USBFS as Fund Accountant |
2. | Services and Duties of USBFS |
A. | Portfolio Accounting Services: |
(1) | Maintain portfolio records on a trade date+1 basis using security trade information communicated from the Fund. | ||
(2) | For each valuation date, obtain prices from a pricing source approved by the Board of Directors of the Fund and MVCFS, as applicable (each, the Board of Directors or the Directors) and apply those prices to the portfolio positions. For those securities where market quotations are not |
1
readily available, the Board of Directors, or a designee thereof, shall provide, in good faith, the fair value for such securities. | |||
(3) | Identify interest and dividend accrual balances as of each valuation date and calculate gross earnings on investments for the accounting period. | ||
(4) | Determine gain/loss on security sales and identify them as short-term or long-term; account for periodic distributions of gains or losses to shareholders and maintain undistributed gain or loss balances as of each valuation date. |
B. | Expense Accrual and Payment Services: |
(1) | For each valuation date, record the expense accrual amounts as directed by the Fund and MVCFS as to methodology, rate or dollar amount. | ||
(2) | Record payments for expenses upon receipt of written authorization from the Fund and MVCFS. | ||
(3) | Account for expenditures and maintain expense accrual balances at the level of accounting detail, as agreed upon by USBFS, the Fund and MVCFS. | ||
(4) | Provide expense accrual and payment reporting. |
C. | Fund Valuation and Financial Reporting Services: |
(1) | Account for Fund share repurchases, tenders, sales, exchanges, transfers, dividend reinvestments, and other Fund share activity as reported by the Funds transfer agent on a timely basis. | ||
(2) | Apply equalization accounting as directed by the Fund. | ||
(3) | Determine net investment income (earnings) for the Fund and MVCFS as of each valuation date. Account for periodic distributions of earnings to shareholders and maintain undistributed net investment income balances as of each valuation date. | ||
(4) | Maintain a general ledger and other accounts, books, and financial records for the Fund and MVCFS in the form as agreed upon. | ||
(5) | Determine the net asset value of the Fund according to the accounting policies and procedures set forth in the Funds Prospectus or other operative documents. |
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(6) | Calculate per share net asset value, per share net earnings, and other per share amounts reflective of Fund operations at such time as required by the nature and characteristics of the Fund. | ||
(7) | Communicate, at an agreed upon time, the per share price for each valuation date to parties as agreed upon from time to time. | ||
(8) | Prepare monthly reports that document the adequacy of accounting detail to support month-end ledger balances. |
D. | Tax Accounting Services: |
(1) | Maintain accounting records for the investment portfolio of the Fund to support the tax reporting required for IRS-defined regulated investment companies. | ||
(2) | Maintain tax lot detail for the Funds investment portfolio. | ||
(3) | Calculate taxable gain/loss on security sales using the tax lot relief method designated by the Fund. | ||
(4) | Provide the necessary financial information to support the taxable components of income and capital gains distributions to the Funds transfer agent to support tax reporting to the shareholders. |
E. | Compliance Control Services: |
(1) | Support reporting to regulatory bodies and support financial statement preparation by making the Funds accounting records available to the Fund, the Securities and Exchange Commission (the SEC), and the outside auditors. | ||
(2) | Maintain accounting records according to the 1940 Act and regulations provided thereunder. |
F. | USBFS will perform the following accounting functions on a monthly basis: |
(1) | Reconcile cash and investment balances of the Fund with the Funds custodian, and provide the Fund with the beginning cash balance available for investment purposes. | ||
(2) | Transmit or mail a copy of the portfolio valuation to the Fund. | ||
(3) | Review the impact of current days activity on a per share basis, and review changes in market value. |
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G. | In addition, USBFS will: |
(1) | Prepare monthly security transactions listings. | ||
(2) | Supply various statistical data as requested by the Fund on an ongoing basis. | ||
(3) | Prepare a monthly reconciliation between the Funds cash portfolio as held on USBFSs accounting records and the Funds internal records. |
3. | License of Data; Warranty; Termination of Rights |
A. | The valuation information and evaluations being provided to the Fund and MVCFS by USBFS pursuant hereto (collectively, the Data) is being licensed, not sold, to the Fund and MVCFS. The Fund and MVCFS have a limited license to use the Data only for purposes necessary to valuing the Fund and MVCFS assets, reporting to regulatory bodies and the Board of Directors (the License). The Fund and MVCFS do not have any license nor right to use the Data for purposes beyond the intentions of this Agreement including, but not limited to, resale to other users or use to create any type of historical database. The License is non-transferable and not sub-licensable. The Fund and MVCFS right to use the Data cannot be passed to or shared with any other entity. | ||
The Fund and MVCFS acknowledge the proprietary rights that USBFS and its suppliers have in the Data. | |||
B. | THE FUND AND MVCFS HEREBY ACCEPT THE DATA AS IS, WHERE IS, WITH NO WARRANTIES, EXPRESS OR IMPLIED, AS TO MERCHANTABILITY OR FITNESS FOR ANY PURPOSE OR ANY OTHER MATTER. | ||
C. | USBFS may stop supplying some or all Data to the Fund or MVCFS if USBFSs suppliers terminate any agreement to provide Data to USBFS. Also, USBFS may stop supplying some or all Data to the Fund and MVCFS if USBFS reasonably believes that the Fund or MVCFS are using the Data in violation of the License, or breaching its duties of confidentiality provided for hereunder, or if any of USBFSs suppliers demand that the Data be withheld from the Fund and MVCFS. USBFS will provide notice to the Fund and MVCFS of any termination of provision of Data as soon as reasonably possible, but no later than the next calculated net asset value. | ||
D. | Notwithstanding the language provided in Section (3) herein, USBFS is in no way absolved from any duties and responsibilities set forth in Section two (2) of |
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this Agreement, including performing tolerance checks, reviewing the current days activities on a per-share basis and reviewing changes in market value. |
4. | Pricing of Securities |
A. | For each valuation date, USBFS shall obtain prices from a pricing source recommended by USBFS and approved by the Board of Directors and apply those prices to the portfolio positions of the Fund and MVCFS, as applicable. For those securities where market quotations are not readily available, the Board of Directors shall approve, in good faith, procedures for determining the fair value for such securities. | ||
If either the Fund or MVCFS desires to provide a price that varies from the price provided by the pricing source, the Fund or MVCFS shall promptly notify and supply USBFS with the price of any such security on each valuation date. All pricing changes made by the Fund or MVCFS will be in writing and must specifically identify the securities to be changed by CUSIP, name of security, new price or rate to be applied, and, if applicable, the time period for which the new price(s) is/are effective. | |||
B. | In the event that the Fund or MVCFS at any time receive Data containing evaluations, rather than market quotations, for certain securities or certain other data related to such securities, the following provisions will apply: (i) evaluated securities are typically complicated financial instruments. There are many methodologies (including computer-based analytical modeling and individual security evaluations) available to generate approximations of the market value of such securities, and there is significant professional disagreement about which method is best. No evaluation method, including those used by USBFS and its suppliers, may consistently generate approximations that correspond to actual traded prices of the securities; (ii) methodologies used to provide the pricing portion of certain Data may rely on evaluations; however, the Fund and MVCFS acknowledge that there may be errors or defects in the software, databases, or methodologies generating the evaluations that may cause resultant evaluations to be inappropriate for use in certain applications; and (iii) the Fund and MVCFS assume all responsibility for edit checking, external verification of evaluations, and ultimately the appropriateness of using Data containing evaluations, regardless of any efforts made by USBFS and its suppliers in this respect. |
5. | Changes in Accounting Procedures | |
Any resolution passed by the Board of Directors that affects accounting practices and procedures under this Agreement shall be effective upon written receipt of notice and acceptance by USBFS. | ||
6. | Changes in Equipment, Systems, Etc. |
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USBFS reserves the right to make changes from time to time, as it deems advisable, relating to its systems, programs, rules, operating schedules and equipment, so long as such changes do not adversely affect the services provided to the Fund and MVCFS under this Agreement. |
7. | Compensation | |
USBFS shall be compensated for providing the services set forth in this Agreement in accordance with the fee schedule set forth on Exhibit A hereto (as amended from time to time). The Fund and MVCFS shall pay all fees and reimbursable expenses within thirty (30) calendar days following receipt of the billing notice, except for any fee or expense subject to a good faith dispute. The Fund and MVCFS shall notify USBFS in writing within thirty (30) calendar days following receipt of each invoice if the Fund is disputing any amounts in good faith. The Fund and MVCFS shall settle such disputed amounts within ten (10) calendar days of the day on which the parties agree to the amount to be paid. With the exception of any fee or expense the Fund and MVCFS are disputing in good faith as set forth above, unpaid invoices shall accrue a finance charge of one and one-half percent (1 1 / 2 %) per month, after the due date. Notwithstanding anything to the contrary, amounts owed by the Fund and MVCFS to USBFS shall only be paid out of the assets and property of the particular party involved. | ||
8. | Representations and Warranties |
A. | The Fund and MVCFS hereby represent and warrant to USBFS, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that: |
(1) | They are duly organized and existing under the laws of the jurisdiction of their organization, with full power to carry on their business as now conducted, to enter into this Agreement and to perform their respective obligations hereunder; | ||
(2) | This Agreement has been duly authorized, executed and delivered in accordance with all requisite action and constitutes a valid and legally binding obligation of the Fund and MVCFS, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; and | ||
(3) | They are conducting their business in compliance in all material respects with all applicable laws and regulations, both state and federal, and has obtained all regulatory approvals necessary to carry on their business as now conducted; there is no statute, rule, regulation, order or judgment binding on them and no provision of their charters, bylaws or any contract |
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binding them or affecting their property which would prohibit their execution or performance of this Agreement. |
B. | USBFS hereby represents and warrants to the Fund and MVCFS, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that: |
(1) | It is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder; | ||
(2) | This Agreement has been duly authorized, executed and delivered by USBFS in accordance with all requisite action and constitutes a valid and legally binding obligation of USBFS, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; and | ||
(3) | It is conducting its business in compliance in all material respects with all applicable laws and regulations, both state and federal, and has obtained all regulatory approvals necessary to carry on its business as now conducted; there is no statute, rule, regulation, order or judgment binding on it and no provision of its charter, bylaws or any contract binding it or affecting its property which would prohibit its execution or performance of this Agreement. |
9. | Standard of Care; Indemnification; Limitation of Liability |
A. | USBFS shall exercise reasonable care in the performance of its duties under this Agreement. Neither USBFS nor its suppliers shall be liable for any error of judgment or mistake of law or for any loss suffered by the Fund, MVCFS or any third party in connection with its duties under this Agreement, including losses resulting from mechanical breakdowns or the failure of communication or power supplies beyond USBFSs control, except a loss arising out of or relating to USBFSs refusal or failure to comply with the terms of this Agreement or from its bad faith, negligence, or willful misconduct in the performance of its duties under this Agreement. Notwithstanding any other provision of this Agreement, if USBFS has exercised reasonable care in the performance of its duties under this Agreement, the Fund and MVCFS shall indemnify and hold harmless USBFS and its suppliers from and against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including reasonable attorneys fees) that USBFS or its suppliers may sustain or incur or that may be asserted against USBFS or its suppliers by any person arising out of or related to (X) any action taken or omitted to be taken by it in performing the services hereunder (i) in accordance with the foregoing standards, or (ii) in reliance upon any written or |
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oral instruction provided to USBFS by any duly authorized officer of the Fund or MVCFS, such duly authorized officer to be included in a list of authorized officers furnished to USBFS and as amended from time to time in writing by resolutions of the Board of Directors of the Fund, or (Y) the Data, or any information, service, report, analysis or publication derived therefrom, except for any and all claims, demands, losses, expenses, and liabilities arising out of or relating to USBFSs refusal or failure to comply with the terms of this Agreement or from its bad faith, negligence or willful misconduct in the performance of its duties under this Agreement. This indemnity shall be a continuing obligation of the Fund and MVCFS, its successors and assigns, notwithstanding the termination of this Agreement. As used in this paragraph, the term USBFS shall include USBFSs directors, officers and employees. | |||
The Fund and MVCFS accept responsibility for, and acknowledge they exercise their own independent judgment in, its selection of the Data, their selection of the use or intended use of such, and any results obtained. Nothing contained herein shall be deemed to be a waiver of any rights existing under applicable law for the protection of investors. | |||
USBFS shall indemnify and hold the Fund and MVCFS harmless from and against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including reasonable attorneys fees) that the Fund or MVCFS may sustain or incur or that may be asserted against the Fund and MVCFS by any person arising out of any action taken or omitted to be taken by USBFS as a result of USBFSs refusal or failure to comply with the terms of this Agreement, or from its bad faith, negligence, or willful misconduct in the performance of its duties under this Agreement. This indemnity shall be a continuing obligation of USBFS, its successors and assigns, notwithstanding the termination of this Agreement. As used in this paragraph, the terms Fund and MVCFS shall include the Fund and MVCFS directors, officers and employees. | |||
In the event of a mechanical breakdown or failure of communication or power supplies beyond its control, USBFS shall take all reasonable steps to minimize service interruptions for any period that such interruption continues. USBFS will make every reasonable effort to restore any lost or damaged data and correct any errors resulting from such a breakdown at the expense of USBFS. USBFS agrees that it shall, at all times, have reasonable contingency plans with appropriate parties, making reasonable provision for emergency use of electrical data processing equipment to the extent appropriate equipment is available. Representatives of the Fund and MVCFS shall be entitled to inspect USBFSs premises and operating capabilities at any time during regular business hours of USBFS, upon reasonable notice to USBFS. Moreover, USBFS shall provide the Fund and MVCFS, at such times as the Fund and MVCFS may reasonably require, copies of reports rendered by independent accountants on the internal |
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controls and procedures of USBFS relating to the services provided by USBFS under this Agreement. | |||
Notwithstanding the above, USBFS reserves the right to reprocess and correct administrative errors at its own expense. | |||
In no case shall either party be liable to the other for (i) any special, indirect or consequential damages, loss of profits or goodwill (even if advised of the possibility of such); or (ii) any delay by reason of circumstances beyond its control, including acts of civil or military authority, national emergencies, labor difficulties, fire, mechanical breakdown, flood or catastrophe, acts of God, insurrection, war, riots, or failure beyond its control of transportation or power supply. | |||
B. | In order that the indemnification provisions contained in this section shall apply, it is understood that if in any case the indemnitor may be asked to indemnify or hold the indemnitee harmless, the indemnitor shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the indemnitee will use all reasonable care to notify the indemnitor promptly concerning any situation that presents or appears likely to present the probability of a claim for indemnification. The indemnitor shall have the option to defend the indemnitee against any claim that may be the subject of this indemnification with counsel reasonably satisfactory to indemintee unless the legal rights and defenses available to indemnitor and indemnitee present a conflict for joint counsel. In the event that the indemnitor so elects, it will so notify the indemnitee and thereupon the indemnitor shall take over complete defense of the claim, and the indemnitee shall in such situation initiate no further legal or other expenses for which it shall seek indemnification under this section. The indemnitee shall in no case confess any claim or make any compromise in any case in which the indemnitor will be asked to indemnify the indemnitee except with the indemnitors prior written consent ; provided however, that the indemnitor shall not settle a claim that results in any admission of wrongdoing by indemnitee without indemnitees prior written consent. | ||
C. | The indemnity and defense provisions set forth in this Section 9 shall indefinitely survive the termination and/or assignment of this Agreement. | ||
D. | If USBFS is acting in another capacity for the Fund and MVCFS pursuant to a separate agreement, nothing herein shall be deemed to relieve USBFS of any of its obligations in such other capacity. |
10. | Proprietary and Confidential Information | |
USBFS agrees on behalf of itself and its directors, officers, and employees to treat confidentially and as proprietary information of the Fund and MVCFS all records and other information relative to the Fund and MVCFS and prior, present, or potential |
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shareholders of the Fund and MVCFS (and clients of said shareholders) including all shareholder trading information, and not to use such records and information for any purpose other than the performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Fund and MVCFS, which approval shall not be unreasonably withheld and may not be withheld where USBFS may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the Fund and MVCFS. USBFS acknowledges that it may come into possession of material nonpublic information with respect to the Fund and MVCFS and confirms that it has in place effective procedures to prevent the use of such information in violation of applicable insider trading laws. | ||
Further, USBFS will adhere to the privacy policies adopted by the Fund pursuant to Title V of the Gramm-Leach-Bliley Act, as may be modified from time to time (the Act). Notwithstanding the foregoing, USBFS will not share any nonpublic personal information concerning any of the Funds and MVCFSs shareholders to any third party unless specifically directed by the Fund and MVCFS or allowed under one of the exceptions noted under the Act. | ||
11. | Term of Agreement; Amendment | |
This Agreement shall become effective as of the date first written above and will continue in effect for a period of three years; provided however, the Fund and MVCFS may terminate the agreement by giving USBFS ninety (90) days prior written notice in the event that USBFS breaches the standard of care set forth herein. Subsequent to the initial three-year term, this Agreement may be terminated by either party upon giving ninety (90) days prior written notice to the other party or such shorter period as is mutually agreed upon by the parties. However, this Agreement may be amended by mutual written consent of the parties. |
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12. | Records | |
USBFS shall keep records relating to the services to be performed hereunder in the form and manner, and for such period, as it may deem advisable and is agreeable to the Fund and MVCFS, but not inconsistent with the rules and regulations of appropriate government authorities, in particular, Section 31 of the 1940 Act and the rules thereunder. USBFS agrees that all such records prepared or maintained by USBFS relating to the services to be performed by USBFS hereunder are the property of the Fund and MVCFS, respectively and will be preserved, maintained, and made available in accordance with such applicable sections and rules of the 1940 Act and will be promptly surrendered to the Fund or MVCFS on and in accordance with its request. USBFS agrees to provide any records necessary to the Fund and MVCFS to comply with the Funds disclosure controls and procedures adopted in accordance with the Sarbanes-Oxley Act. Without limiting the generality of the foregoing, the USBFS shall cooperate with the Fund and MVCFS and assist the Fund and MVCFS as necessary by providing information to enable the appropriate officers of the Fund and MVCFS to execute any required certifications. | ||
13. | Governing Law | |
This Agreement shall be construed in accordance with the laws of the State of Wisconsin, without regard to conflicts of law principles. To the extent that the applicable laws of the State of Wisconsin, or any of the provisions herein, conflict with the applicable provisions of the 1940 Act, the latter shall control, and nothing herein shall be construed in a manner inconsistent with the 1940 Act or any rule or order of the SEC thereunder. | ||
14. | Duties in the Event of Termination | |
In the event that, in connection with termination, a successor to any of USBFSs duties or responsibilities hereunder is designated by the Fund and MVCFS by written notice to USBFS, USBFS will promptly, upon such termination and at the expense of the Fund and MVCFS, transfer to such successor all relevant books, records, correspondence, and other data established or maintained by USBFS under this Agreement in a form reasonably acceptable to the Fund and MVCFS (if such form differs from the form in which USBFS has maintained, the Fund and MVCFS shall pay any expenses associated with transferring the data to such form), and will cooperate in the transfer of such duties and responsibilities, including provision for assistance from USBFSs personnel in the establishment of books, records, and other data by such successor. | ||
15. | No Agency Relationship | |
Nothing herein contained shall be deemed to authorize or empower USBFS to act as agent for the other party to this Agreement, or to conduct business in the name, or for the account, of the other party to this Agreement. |
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16. | Data Necessary to Perform Services | |
The Fund and MVCFS or its agent shall furnish to USBFS the data necessary to perform the services described herein at such times and in such form as mutually agreed upon. If USBFS is also acting in another capacity for the Fund and MVCFS, nothing herein shall be deemed to relieve USBFS of any of its obligations in such capacity. | ||
17. | Notification of Error | |
The Fund and MVCFS will notify USBFS of any discrepancy between USBFS and the Fund and MVCFS, including, but not limited to, failing to account for a security position in the Funds portfolio, by the later of: within five (5) business days after receipt of any reports rendered by USBFS to the Fund; within five (5) business days after discovery of any error or omission not covered in the balancing or control procedure, or within five (5) business days of receiving notice from any shareholder. | ||
18. | Compliance with Laws | |
The Fund and MVCFS, as applicable, have and retain primary responsibility for all compliance matters relating to each of them, including but not limited to compliance with the 1940 Act, the Code, the SOX Act, the USA PATRIOT Act of 2002 and the policies and limitations of the Fund and MVCFS relating to their respective portfolio investments as set forth in their current prospectus and statements of additional information, as applicable. USBFSs services hereunder shall not relieve the Fund and MVCFS of their responsibilities for assuring such compliance or the Board of Directors oversight responsibility with respect to the Fund. | ||
19. | Assignment | |
This Agreement may not be assigned by either party without the prior written consent of the other party. | ||
20. | Notices | |
Any notice required or permitted to be given by either party to the other shall be in writing and shall be deemed to have been given on the date delivered personally or by courier service, upon delivery after sent by registered or certified mail, postage prepaid, return receipt requested, or on the date sent and confirmed received by facsimile transmission to the other partys address set forth below: | ||
Notice to USBFS shall be sent to: |
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and notice to the Fund and MVCFS shall be sent to: |
21. | Several Obligations | |
The parties acknowledge that the representations and obligations of the Fund and MVCFS are several and not joint, that neither the Fund nor MVCFS shall be liable for any amount owing by the other, and that the Fund and MVCFS have executed one instrument for convenience only. | ||
22. | Entire Agreement | |
This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements and understandings, whether written or oral. |
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MVC Capital, Inc. | U.S. BANCORP FUND SERVICES, LLC | |||||||
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By:
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By: | |||||||
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Michael T. Tokarz | Joe D. Redwine | ||||||
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Title:
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Chairman | Title: | President | |||||
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MVC Financial Services, Inc. | ||||||||
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By:
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Michael T. Tokarz | |||||||
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Title:
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Chairman | |||||||
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1. | To employ any device, scheme or artifice to defraud the Fund; | ||
2. | To make any untrue statement of a material fact to the Fund or omit to state a material fact necessary in order to make the statements made to the Fund, in light of the circumstances under which they are made, not misleading; | ||
3. | To engage in any act, practice, or course of business that operates or would operate as a fraud or deceit on the Fund; or | ||
4. | To engage in any manipulative practice with respect to the Fund. |
(a) | Except as provided in paragraph (b) of this Section III.E.1, prior to effecting any Personal Securities Transaction any Access Person (except for the Independent Directors) or Employee shall secure Pre-Clearance as follows: |
| Notify the Chief Compliance Officer of the proposed transaction, including the name of the issuer, the title or type of Security, the number of shares and the price per share or the principal amount of the transaction. | ||
| The Chief Compliance Officer, or his or her designee, shall, after investigation, determine that such proposed transaction would, may, or would not be consistent with the specific limitations of Section III.E. herein, and with this Code generally. The conclusion of the Chief Compliance Officer, or his or her designee, shall be promptly communicated to the Access Person making the request. |
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| The Chief Compliance Officer, or his or her designee, shall make written records of actions under this Section, which records shall be maintained and made available in the manner required by Rule 17j-1(f). |
(b) | Personal Securities Transactions in the following securities do not require prior approval pursuant to this section: |
(i) | Purchases or sales of securities issued by the United States, provided , that transactions in securities that are indirect obligations of the U.S. Government such as securities of the Federal National Mortgage Association are not exempted; | ||
(ii) | Purchases or sales of shares of registered open-end investment companies, except for shares of exchange-traded funds (ETFs); | ||
(iii) | Purchases or sales of bankers acceptances or bank certificates of deposit; | ||
(iv) | Purchases or sales of commercial paper and high quality short-term instruments, including repurchase agreements; or | ||
(v) | Purchases or sales of publicly-traded securities, except for (A) securities of an issuer whose securities are also owned by the Fund, and (B) securities issued by the Fund itself. |
(a) | No Access Person (except for the Independent Directors) or Employee shall engage in a Personal Securities Transaction involving any Security, which, with respect to the Fund, has been purchased or sold within the most recent buy or sell order; provided however, Access Persons or Employees purchase or sale of securities issued by the Fund shall not be prohibited by the Funds implementation of a share buy-back program as approved by the Funds Board of Directors so long as any such purchase or sale is in accordance with the procedures set forth in Section III.E.1 and not in contravention to the law. | ||
(b) | No Access Person (except for the Independent Directors) or Employee who is a portfolio manager or analyst shall engage in a Personal Securities Transaction involving any Security being considered for purchase or sale for the Funds portfolio within the following 7 days. | ||
(c) | Paragraphs (a) and (b) above shall not apply if any such Security is purchased or sold solely by a fund which tracks the performance of an Index, in which case such Security may be purchased or sold on any day except a day on which the Fund is trading in such security. | ||
(d) | No Access Person (except for the Independent Directors) or Employee shall profit from the purchase and sale, or sale and purchase, of the same (or an equivalent) Security in a Personal Securities Transaction within sixty calendar days. | ||
(e) | The following Personal Securities Transactions are not subject to the limitations set forth in Paragraphs (a), (b) and (d): |
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(i) | Purchases or sales effected in any account over which the person has no direct or indirect influence or control (excluding accounts over which the Access Person has joint control or ownership together with another person); | ||
(ii) | Purchases or sales of securities which are not eligible for purchase or sale by the Fund; | ||
(iii) | Purchases pursuant to an automatic dividend reinvestment plan; | ||
(iv) | Purchases effected upon the exercise or rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired. |
(a) | Investment Personnel of the Fund shall not engage in any Personal Securities Transaction that involves a Limited Offering of Securities or Initial Public Offering without the express prior approval of the Chief Compliance Officer of the Fund or his or her designee in accordance with the procedures set forth in Section III.E.6. In reviewing any such approval request, the Chief Compliance Officer, or his or her designee, shall consider, among other factors, whether the investment opportunity should be reserved for the Fund and its shareholders, and whether the opportunity is being offered to the requesting individual by virtue of his or her position with the Fund. | ||
(b) | Investment Personnel of the Fund who have received approval as set forth above and who continue to hold the Security acquired in such Limited Offering or Initial Public Offering, shall disclose any such continuing investment to the Chief Compliance Officer of the Fund, or his or her designee, if and when they should become involved in any subsequent consideration of an investment in the same issuer for the portfolio of the Fund. In such case the decision to invest in the Securities of such an issuer shall be subject to the approval of the Chief Compliance Officer, or his or her designee. | ||
(c) | The Chief Compliance Officer, or his or her designee, shall make written records of actions under this Paragraph. |
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i. | The date of transaction, the name of the issuer, the title or type of Security, the interest rate and maturity (if applicable), the number of shares, and the principal amount of each Security involved; | ||
ii. | The nature of the transaction (i.e., purchase, sale, or any other type of acquisition or disposition); | ||
iii. | The price of the Security at which the transaction was effected; | ||
iv. | The name of the broker, dealer, or bank with or through whom the transaction was effected; and | ||
v. | The date that the report is submitted by the Access Person or Employee; and |
i. | The name of the broker, dealer or bank with whom the Access Person has established the account; | ||
ii. | the date the account was established; and | ||
iii. | the date the report was submitted by the Access Person. |
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1. | The name of the security, number of shares/principal amount of each Security in which the Access Person or Employee has any direct or indirect beneficial ownership; | ||
2. | The name of the broker, dealer, or bank with whom the Access Person or Employee maintains an account in which any securities are held for the direct or indirect benefit of the Access Person or Employee. The initial security holdings report should be as of the date the person became an Access Person; and | ||
3. | The date the report is submitted by the Access Person or Employee. |
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1. | A copy of each Code of Ethics of the Fund that is in effect, or at any time within the past five years was in effect, must be maintained in an easily accessible place; | ||
2. | A record of any violation of the Code of Ethics, and of any action taken as a result of the violation, must be maintained in an easily accessible place for at least five years after the end of the fiscal year in which the violation occurs; | ||
3. | A copy of each report made by an Access Person or Employee as required, including any information provided in lieu of a quarterly transaction report, see Section IV.A, must be maintained for at least five years after the end of the fiscal year in which the report is made or the information is provided, the first two years in an easily accessible place; | ||
4. | A record of all persons, currently or within the past five years, who are or were required to make reports as deemed Access Persons or Employee, or who are or were responsible for reviewing these reports, must be maintained in an easily accessible place; | ||
5. | A copy of each report defined in Section VI.B must be maintained for at least five years after the end of the fiscal year in which it is made, the first two years in an easily accessible place. |
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1. | Describes any issues arising under its Codes of Ethics since the last report to the Funds Board of Directors, including, but not limited to, information about material violations of the Funds Code of Ethics or procedures and sanctions imposed in response to the material violations; and | ||
2. | Certifies that the Fund has adopted procedures reasonably necessary to prevent Access Persons or Employees from violating any Code of Ethics of the Fund. |
| The degree of willfulness of the violation; | ||
| The severity of the violation; | ||
| The extent, if any, to which the violator profited or benefited from the violation; | ||
| The adverse effect, if any, of the violation on the Fund; | ||
| The market value and liquidity of the class of Securities involved in the violation; | ||
| The prior violations of the Code, if any, by the violator; | ||
| The circumstances of discovery of the violation; and | ||
| If the violation involved the purchase or sale of Securities in violation of this Code (a) the price at which the Fund purchase or sale was made and (b) the violators justification for |
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making the purchase or sale, including the violators tax situation, the extent of the appreciation or depreciation of the Securities involved, and the period the Securities have been held. |
1. | The Fund shall not be required to bring legal action if the amount reasonably recoverable would not be expected to exceed $2,500; and | ||
2. | The Fund shall have no obligation to bring any legal action if the violator was not an Affiliated Person or Employee of the Fund. |
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1. | Any employee of the Fund (or of any company in a control relationship to the Fund) who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of a Security by the Fund, or whose functions or duties relate to the making of any recommendations with respect to such purchases or sales, and | ||
2. | Any natural person in a control relationship to the Fund who obtains information concerning recommendations made to the Fund with regard to the purchase or sale of a Security. |
1. | Any person directly or indirectly owning, controlling or holding with power to vote, five percent (5%) or more of the outstanding voting securities of such other person; | ||
2. | Any person, five percent (5%) or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by such other person; | ||
3. | Any person directly or indirectly controlling, controlled by, or under common control with, such other person; | ||
4. | Any officer, director, partner, co-partner, or employee of such other person; | ||
5. | If such other person is an investment company, any investment adviser thereof or any member of any advisory board thereof; and |
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6. | If such other person is an unincorporated investment company not having a board of directors, the depositor thereof. |
| your spouse/domestic partner; | ||
| minor children of you, your spouse/domestic partner, or both; | ||
| a trust of which you are a trustee or a beneficiary; | ||
| any of your relatives, or relatives of your spouse/domestic partner, that share your home; | ||
| a partnership of which you are a partner; | ||
| a corporation of which you are a substantial shareholder; or | ||
| any other person who relies on you to make investment decisions. |
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| Direct obligations of the Government of the United States; | ||
| Bankers acceptances, bank certificates of deposit, commercial paper and high quality short-term instruments, including repurchase agreements; and | ||
| Shares issued by registered open-end investment companies, except for shares of ETFs. |
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| A jail term of up to ten years; | ||
| A civil penalty of up to three times the profit gained or loss avoided; and | ||
| A criminal fine (no matter how small the profit) of up to $1 million. |
| A civil penalty of the greater of $1 million or three times the profit gained or loss avoided as result of the employees violation; and | ||
| A criminal penalty of up to $2.5 million. |
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