UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
(Mark One)
X     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
      ACT OF 1934
For the fiscal year ended ___ October 31, 2003 ________________________________
                                       or
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________________
Commission file number _________ 000-28405 ____________________________________



                     MEVC DRAPER FISHER JURVETSON FUND INC.
                                D/B/A MVC CAPITAL
             (Exact name of registrant as specified in its charter)


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



 287 BOWMAN AVENUE, PURCHASE, NEW YORK                         10577
---------------------------------------                  ----------------------
(Address of principal executive offices)                     (Zip Code)



Registrant's telephone number, including area code (914) 251-1817



Securities registered pursuant to Section 12(b) of the Act:

  Title of each class                 Name of each exchange on which registered

    COMMON STOCK                                NEW YORK STOCK EXCHANGE
-------------------------                   --------------------------------

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

Securities registered pursuant to section 12(g) of the Act:    None
_______________________________________________________________________________
                                (Title of class)


<PAGE>



_______________________________________________________________________________
                                (Title of class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.


Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
         Yes  X    No
             ----     ----

Approximate aggregate market value of common stock held by non-affiliates of the
registrant as of the last business day of the Fund's most recently completed
fiscal second quarter: $118,935,432, computed on the basis of $7.92 per share,
closing price of the common stock on the New York Stock Exchange (the "NYSE") on
April 30, 2003. For purposes of calculating this amount only, all directors and
executive officers of the registrant have been treated as affiliates.

There were 12,293,042 shares of the registrant's common stock, $.01 par value,
outstanding as of January 28, 2004. The net asset value per share at January 28,
2004 was $8.76.

Document Incorporated by Reference:

         Proxy Statement for the Fund's Annual Meeting of Shareholders 2004,
         incorporated by reference in Part III, Item 10






<PAGE>



                    meVC Draper Fisher Jurvetson Fund I, Inc.
                            (A Delaware Corporation)
                                      Index


<TABLE>
<CAPTION>

<S>  <C>          <C>                                                                                     <C>


Part I                                                                                                    Page

     Item 1.      Business................................................................................   1
     Item 2.      Properties..............................................................................  12
     Item 3.      Legal Proceedings.......................................................................  12
     Item 4.      Submission of Matters to a Vote of Security Holders.....................................  13

Part II

     Item 5.      Market for Registrant's Common Equity and Related Stockholder Matters...................  14
     Item 6.      Selected Financial Data.................................................................  15
     Item 7.      Management's Discussion and Analysis of Financial
                  Condition and Results of Operations.....................................................  16
     Item 7A.     Quantitative and Qualitative Disclosure about Market Risk...............................  31
     Item 8.      Financial Statements and Supplementary Data.............................................  33
     Item 9.      Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosures....................................................  53
     Item 9A.     Controls and Procedures ................................................................  53

Part III

     Item 10.     Directors and Executive Officers of the Registrant......................................  54
     Item 11.     Executive Compensation..................................................................  54
     Item 12.     Security Ownership of Certain Beneficial Owners and Management..........................  54
     Item 13.     Certain Relationships and Related Transactions..........................................  54
     Item 14.     Principal Accounting Fees and Services..................................................  54

Part IV

     Item 15.     Exhibits, Financial Statement Schedules and Reports on Form 8-K.........................  55

     SIGNATURES    ........................................................................................ 58


</TABLE>


<PAGE>



                                     PART I

FACTORS THAT MAY AFFECT FUTURE RESULTS

THIS ANNUAL  REPORT ON FORM 10-K  CONTAINS  CERTAIN  FORWARD-LOOKING  STATEMENTS
WITHIN THE  MEANING OF THE  FEDERAL  SECURITIES  LAWS THAT  INVOLVE  SUBSTANTIAL
UNCERTAINTIES  AND RISKS.  THE FUND'S FUTURE RESULTS MAY DIFFER  MATERIALLY FROM
ITS  HISTORICAL  RESULTS AND ACTUAL RESULTS COULD DIFFER  MATERIALLY  FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN RISK FACTORS.
READERS SHOULD PAY PARTICULAR  ATTENTION TO THE CONSIDERATIONS  DESCRIBED IN THE
SECTION  OF THIS  REPORT  ENTITLED  "MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF
FINANCIAL  CONDITION AND RESULTS OF  OPERATIONS."  READERS SHOULD ALSO CAREFULLY
REVIEW THE RISK FACTORS  DESCRIBED IN THE OTHER DOCUMENTS THE FUND FILES, OR HAS
FILED, FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION.

ITEM 1. BUSINESS

     meVC Draper Fisher  Jurvetson Fund I, Inc., D/B/A MVC Capital (the "Fund"),
is a Delaware Corporation  organized on December 2, 1999. On March 31, 2000, the
Fund raised $330 million in an initial  public  offering  whereupon it commenced
operations as a closed-end  investment company.  The Fund's investment objective
is to seek to maximize total return from capital appreciation and/or income. The
Fund seeks to achieve its  investment  objective  by  providing  equity and debt
financing to companies that are, for the most part,  privately owned ("Portfolio
Companies").  The  Fund's  current  equity  and debt  investments  in  Portfolio
Companies  consist  of equity  securities  such as common and  preferred  stock,
senior  and  subordinated  loans,  venture  capital,   mezzanine  and  preferred
instruments and private equity  instruments.  The Fund has elected to be treated
as a business  development  company under the Investment Company Act of 1940, as
amended (the "Investment  Company Act"). On December 4, 2002, the Fund announced
it had commenced doing business under the name MVC Capital.

     The Fund currently has six  employees.  From the Fund's  inception  through
February 28, 2003,  the Fund had a five-member  board of directors  (the "Former
Board"),  all of whom had been  selected by  principals  of the Fund's  original
investment  adviser and approved by the stockholders.  On February 28, 2003, the
Fund's  shareholders  elected an entirely new board of seven  directors  with no
prior  affiliation  with the Fund.  The Fund  currently has seven members on the
Board of Directors,  six of whom were elected on February 28, 2003.  Five of the
directors  are  not   "interested   persons"  of  the  Fund  (the   "Independent
Directors"),  as  defined by the  Investment  Company  Act.  The  directors  are
responsible  for  providing  overall  guidance  and  supervision  of  the  Fund,
approving the valuation of the Fund's  investments and performing various duties
imposed on directors of a business development company by the Investment Company
Act.  Among other things,  the  Independent  Directors  supervise the management
arrangements  for the Fund, the custody  arrangements  with respect to portfolio
securities,  the selection of independent public  accountants,  fidelity bonding
and any transactions with affiliates.

     The Fund's  principal  executive  office is  located at 287 Bowman  Avenue,
Purchase  NY 10577,  its  telephone  number is  914-251-1825  and its website is
WWW.MVCCAPITAL.COM. Copies of the Fund's annual regulatory filings on Form 10-K,
quarterly  regulatory  filings  on Form  10-Q,  Form 8-K,  and other  regulatory
filings may be obtained from the Fund's website, free of charge.


<PAGE>



ORGANIZATION

     From  inception  through June 19,  2002,  meVC  Advisers,  Inc., a Delaware
Corporation  (the  "Former   Advisor"  or  "meVC  Advisers")   provided  certain
management and administrative  services to the Fund under the supervision of the
Board of  Directors.  The Former  Advisor  arranged for third parties to perform
certain  management,  administrative and other services,  including hiring Fleet
Investment  Advisors,  Inc.  to manage the Fund's  cash and short term  interest
bearing  investments,  and hiring State  Street Bank and Trust Co, Inc.  ("State
Street") to handle all  functions of  administration,  accounting  and custodial
work necessary for the  operations of the Fund. The Former Advisor  provided the
Fund with office space,  facilities,  equipment,  and personnel (all paid by the
Former  Advisor).  The Former  Advisor also hired a  sub-advisor,  Draper Fisher
Jurvetson MeVC Management Co., LLC (the "Former Sub-Advisor"),  who provided the
Fund with office space,  facilities,  equipment,  and personnel (all paid by the
Former  Sub-Advisor)  to  conduct  the  investment  management  aspects  of  its
business.

     At the Annual  Meeting of the Fund held on March 27,  2002,  two  proposals
pertaining to the renewal of the contracts of the Former  Advisor and the Former
Sub-Advisor  were  rejected by the Fund's  shareholders.  The Former  Board then
determined that meVC Advisers,  Inc. and Draper Fisher Jurvetson MeVC Management
Co.,  LLC  would  continue  to  serve  as  the  Fund's  investment  advisor  and
sub-advisor,   respectively,   pursuant  to  interim  agreements,   which  under
Securities and Exchange  Commission (the "SEC") rules would be allowed to remain
in effect for a period of up to 150 days from March 27, 2002.

     On June 17, 2002, Peter S. Freudenthal, then the President, Chief Executive
Officer and  Chairman of the Board of the Former  Advisor of the Fund and of the
parent  entity  of the  Former  Advisor,  resigned  from his  positions  as Vice
Chairman,  President  and a  Director  of the  Fund.  At the same  time  Paul D.
Wozniak,  then the Vice  President of Operations  for the Former Advisor and the
Chief Operating  Officer and Chief Financial Officer of the parent entity of the
Former Advisor,  resigned from his positions as Vice President,  Chief Financial
Officer,  Treasurer and Secretary of the Fund.  Messrs.  Freudenthal and Wozniak
also resigned from the Former Advisor.

     From the Fund's inception  through June 19, 2002, the Fund had been charged
a  management  fee by meVC  Advisers  at an annual  rate of 2.5% of the  average
weekly net assets of the Fund, paid monthly in arrears.  However,  meVC Advisers
had agreed to pay all Fund expenses above and beyond the 2.5% management fee. On
June 19,  2002,  meVC  Advisers  resigned  without  prior  notice  to the  Fund,
effective  immediately,  as the  Fund's  investment  advisor.  This  resignation
resulted  in the  automatic  termination  of the  agreement  between  the Former
Advisor and the Former Sub-Advisor to the Fund.

     On June 19, 2002, the Former Board voted to  internalize  the management of
the Fund's operations  temporarily under the circumstances and appointed John M.
Grillos,  the principal of the Former Sub-Advisor and fellow director,  to serve
as the interim Chief Executive Officer.  The Former Board no longer required the
Fund to limit its expenses to 2.5% of net assets as had been the  practice  from
the Fund's  inception  through June 19, 2002.  Certain  individuals who had been


<PAGE>



employed  by the  Former  Advisor or the  Former  Sub-Advisor  were hired by Mr.
Grillos to perform the  services  formerly  provided  by the Former  Advisor and
Former Sub-Advisor.

     In October  2002,  the Former Board a)  appointed  John  Grillos,  the then
Chairman of the Board and CEO, to serve as the Fund's Chief Investment  Officer;
b) elected  William  Del  Biaggio  III as  President  of the Fund;  c) agreed to
consider  investing  in  debt  instruments  issued  by  information   technology
companies;  and d) agreed to continue to conduct the Fund's  operations  through
internal management by the Fund's Board of Directors, officers and employees. In
November  2002,  Mr.  Michael D.  Stewart  was hired as Acting  Chief  Financial
Officer of the Fund.

     Six of the seven members  (excluding  Mr. Tokarz) of the current Board were
elected  at the  February  28,  2003  Annual  Meeting of the  shareholders  (the
"Current Board"),  replacing the Former Board in its entirety. On March 6, 2003,
the results of the  election  were  certified  by the  Inspector  of  Elections,
whereupon the Current Board terminated John M. Grillos, the Fund's previous CEO.
Shortly thereafter, other members of the Fund's senior management team (that had
previously  reported  to  the  former  CEO)  resigned.   The  Fund's  day-to-day
administrative  operations  were then overseen by Robert S. Everett,  the Fund's
interim CEO who was  appointed  by the Board to fill that role on March 6, 2003.
Since these  significant  changes in the Board and  management of the Fund,  the
Fund has  operated  in a  transition  mode and,  as a result,  no new  portfolio
investments were made from early March 2003 through the end of October 2003 (the
end of the current Fiscal Year).  During this period, the Current Board explored
various alternatives for a long-term management plan for the Fund, including the
possibility of retaining an external  investment advisor.  However,  the Current
Board  concluded  that it was in the  Fund's  best  interest  to  implement  the
proposed  management  plan, as described  below, and as voted on and approved by
stockholders at the September 16, 2003 Special Meeting of Stockholders.

     On August 18, 2003,  the Fund filed a definitive  proxy  statement with the
SEC asking the stockholders to approve a proposed  management plan including (i)
appointing  Michael Tokarz as the Chairman of the Board and Portfolio Manager of
the Fund, (ii) adopting an amended  investment  objective whereby the Fund would
seek to maximize total return from capital  appreciation  and/or  income,  (iii)
seeking to achieve its  investment  objective  through  senior and  subordinated
loans, venture capital,  mezzanine and preferred  instruments and private equity
instruments  and  (iv)  conducting  a tender  offer  of up to 25% of the  Fund's
outstanding shares at a price of 95% of the net asset value of such shares.

     On November 6, 2003,  Michael  Tokarz assumed his new position as Chairman,
Portfolio  Manager and a director of the Fund,  pursuant to the shareholder vote
held on September 16, 2003.  Concurrent  with Mr. Tokarz's  appointment,  Robert
Everett  stepped  down after  completing  his role as  interim  CEO of the Fund.
Shortly thereafter,  the principal executive office of the Fund was relocated to
287 Bowman Avenue, Purchase, New York.


<PAGE>



     Subject to the  supervision  of the Current  Board,  the Fund's  management
("Management")  performs services  necessary for the operations of the Fund. The
investment  team is charged with  evaluating,  monitoring,  and disposing of the
Fund's  investments in Portfolio  Companies.  Subject to the  supervision of the
Board,  Management  has  arranged  for third  parties to perform  certain of the
administrative  services and other services  necessary for the operations of the
Fund.  Effective  November 1, 2002,  US Bancorp  Fund  Services  LLC handles all
functions  of  administration  and  accounting  work,  and  U.S.  Bank  National
Association (the "Current  Custodian")  handles all custodial work necessary for
the operations of the Fund. At the Fund's direction,  the Current Custodian also
purchases 90-day U.S.  Treasury Bills with the Fund's  short-term  assets except
that if the Fund's cash  balances  are not large enough to be invested in 90-day
Treasury Bills,  balances are swept into a designated money market account.  The
Fund  directly  incurs  expenses for all office  space,  facilities,  equipment,
personnel and other administrative costs necessary to conduct its business.

INVESTMENT PRACTICES

     Substantially all amounts not invested in securities of Portfolio Companies
are invested in  short-term,  highly liquid  investments  consisting of interest
bearing  securities  of  registered  investment  companies  (money market mutual
funds) or  securities  issued or  guaranteed as to interest and principal by the
United States or by a person or entity controlled or supervised by and acting as
an  instrumentality  of the government of the United States that have maturities
of less than one year from the date of the  investment.  As of October 31, 2003,
the Fund had investments in short term securities valued at $113.2 million.

     The Fund's investments in Portfolio  Companies are  typically structured in
private  transactions  negotiated  directly  with  the  owner or  issuer  of the
securities acquired.

     The Fund's former  investment  objective was to achieve  long-term  capital
appreciation  from  venture  capital   investments  in  information   technology
companies,   primarily   in  the   Internet,   e-commerce,   telecommunications,
networking,  software and information  services  industries.  As approved by the
stockholders  on September 16, 2003,  the Fund's  investment  objective has been
amended to read as follows:

          THE FUND'S  INVESTMENT  OBJECTIVE IS TO SEEK TO MAXIMIZE  TOTAL RETURN
          FROM CAPITAL APPRECIATION AND/OR INCOME.

     Unlike the former "long-term capital  appreciation"  objective,  the "total
return"  objective  affords the Fund the  flexibility to seek to maximize return
from both capital  appreciation  and/or income. This flexibility is particularly
important  for Mr.  Tokarz,  whose  contemplated  strategy for managing the Fund
involves seeking investment opportunities that have potential for providing both
current  yield and equity  participation,  while  seeking to protect  principal.
There can be no  assurances,  however,  that this strategy will be successful in
protecting  principal.  The amended objective also eliminates the Fund's current
limited focus on information technology companies.  The Fund has adopted related


<PAGE>



changes to its  principal  investment  strategies in order to pursue the amended
investment  objective.  These  strategies  include  investments  in  senior  and
subordinated  loans,  venture capital,  mezzanine and preferred  instruments and
private equity  investments,  and as such,  afford Mr. Tokarz the flexibility to
consider potential  investment  opportunities in a wide range of instruments and
industries.

     The Fund is  concentrating  its  investment  efforts on companies  that, in
Management's view,  provide  opportunities to maximize total return from capital
appreciation and/or income. Under the Fund's flexible investment  approach,  the
Fund has the authority to invest,  without limit, in any one Portfolio  Company,
subject to any diversification limitations that may be required in order for the
Fund to continue to qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, as amended.

INVESTMENT CRITERIA

     Prospective  investments  are evaluated by  Management  based upon criteria
that may be modified  from time to time.  The criteria  currently  being used by
Management  in  determining  whether  to make  an  investment  in a  prospective
Portfolio Company include, but are not limited to Management's view of:

     -    The presence or availability of highly qualified  management  teams;
     -    Products and services with opportunistic markets;
     -    Favorable industry and  competitive  dynamics;
     -    Cash  flow  and free  cash  flow of the business.

CO-INVESTMENTS

     The Fund is permitted to co-invest in certain Portfolio  Companies with its
affiliates,  subject to specified conditions set forth in an order obtained from
the SEC. Under the terms of the order, Portfolio Companies purchased by the Fund
and its affiliates are required to be approved by the Independent  Directors and
are required to satisfy certain conditions established by the SEC.

INVESTMENT OPERATIONS

     The  investment  operations  of the Fund will  consist  principally  of the
following basic activities:

     IDENTIFYING  INVESTMENTS.  Investment  opportunities are identified for the
Fund by the investment team. Investment proposals may, however, come to the Fund
from many other sources,  and may include unsolicited  proposals from the public
and from referrals  from banks,  lawyers,  accountants  and other members of the
financial community.


<PAGE>



     EVALUATING  INVESTMENT  OPPORTUNITIES.  Prior  to  committing  funds  to an
investment opportunity,  due diligence will be conducted to assess the prospects
and risks of the potential investment. See "Investment Criteria" above.

     STRUCTURING  INVESTMENTS.  Portfolio Company investments  typically will be
negotiated  directly with the prospective  Portfolio  Company or its affiliates.
The investment team will structure the terms of a proposed investment, including
the  purchase  price,  the type of security to be  purchased  or financing to be
provided and the future  involvement of the Fund and affiliates in the Portfolio
Company's  business  (including   potential   representation  on  its  board  of
directors).  The  investment  team  will  seek to  structure  the  terms  of the
investment so as to provide for the capital  needs of the Portfolio  Company and
at the same time seek to maximize  the Fund's  total  return  from both  capital
appreciation and/or income.


     PROVIDING  MANAGEMENT  ASSISTANCE  AND MONITORING OF  INVESTMENTS.  Private
equity investors often assist Portfolio  Companies with various aspects of their
business operations and business development companies can offer such assistance
to portfolio  companies.  In some cases,  officers and directors of the Fund may
serve as members of the board of directors of Portfolio Companies.  The Fund may
provide guidance and management  assistance to Portfolio  Companies with respect
to such  matters as budgets,  profit  goals,  business and  financing  strategy,
management  additions  or  replacements  and  plans  for  liquidity  events  for
Portfolio Company investors such as a merger or initial public offering.

TEMPORARY INVESTMENTS

     Pending investment in Portfolio  Companies,  the Fund invests its available
funds in interest-bearing money market mutual funds and U.S. Treasury securities
with maturities of less than one year (collectively,  "Temporary  Investments").
Temporary  Investments  constituting  cash, cash items, and securities issued or
guaranteed  by the U.S.  Treasury or U.S.  Government  agencies  will qualify in
determining  whether  the Fund has 70% of its total  assets  invested in Managed
Companies (as defined below) or in qualified Temporary  Investments for purposes
of the business  development  company  provisions of the Investment Company Act.
See "Regulation" below.

FOLLOW-ON INVESTMENTS

     Following its initial  investment in a Portfolio  Company,  the Fund may be
requested to make follow-on  investments in the company.  Follow-on  investments
may be made to take advantage of warrants or other  preferential  rights granted
to the Fund or  otherwise  to  increase  or  maintain  the Fund's  position in a
successful or promising  Portfolio Company.  The Fund may also be called upon to
provide  additional  equity or loans  needed  by a  Portfolio  Company  to fully
implement  its business  plans,  to develop a new line of business or to recover
from unexpected business problems.  Follow-on investments in a Portfolio Company
are evaluated on a case-by-case basis.


<PAGE>



DISPOSITION OF INVESTMENTS

     The  method  and  timing  of  the  disposition  of  the  Fund's   portfolio
investments can be critical to the realization of maximizing total return and to
the  minimization  of any  capital  losses.  The Fund  expects to dispose of its
portfolio securities through a variety of transactions, including the negotiated
private  sales of such  securities  to other  investors,  the sales of portfolio
securities  in  underwritten   public  offerings,   and  public  sales  of  such
securities.  The Fund expects the debt financings to be repaid with interest and
hopes to realize  further  appreciation  from the  warrants or other equity type
instruments  it receives in connection  with making the loan. The Fund bears the
costs of disposing of investments to the extent not paid by a Portfolio Company.

OPERATING EXPENSES

     The Fund bears the costs of obtaining office space, facilities,  equipment,
personnel  and other  administrative  costs  necessary  to  conduct  the  Fund's
business.  The Fund also bears  other costs  relating to the Fund's  operations,
including fees and expenses of the Independent  Directors;  fees of unaffiliated
transfer  agents,   registrars  and  disbursing  agents;  legal  and  accounting
expenses;  costs  of  printing  and  mailing  proxy  materials  and  reports  to
shareholders;  New York Stock Exchange fees;  custodian fees;  litigation costs;
costs of disposing of investments including brokerage fees and commissions;  and
other extraordinary or nonrecurring expenses and other expenses properly payable
by the Fund.

VALUATION

     Investments  in Portfolio  Companies are carried at fair value with the net
change in unrealized  appreciation or depreciation included in the determination
of increases or decreases in net assets resulting from their operations. Cost is
used to approximate fair value of these investments until developments affecting
an investment  provide a basis for valuing such investment at a value other than
cost.

     The fair value of investments  for which no market exists and for which the
Board of Directors  and/or the Fund's  Valuation  Committee have determined that
the original cost of the investment is no longer an  appropriate  fair valuation
will be  determined on the basis of  procedures  approved by the Current  Board.
Valuations are based upon such factors as the financial and/or operating results
of the most recent fiscal period,  the  performance  of the company  relative to
planned  budgets/forecasts,  the issuer's financial condition and the markets in
which it does  business,  the prices of any  recent  transactions  or  offerings
regarding  such  securities or any proxy  securities,  any  available  analysis,
media, or other reports or information  regarding the issuer,  or the markets or
industry in which it operates,  the nature of any restrictions on disposition of
the  securities  and  other   analytical  data.  In  the  case  of  unsuccessful
operations, the valuation may be based upon anticipated liquidation proceeds.

     Because  of  the  inherent   uncertainty  of  the  valuation  of  portfolio
securities  which do not have readily  ascertainable  market values,  the Fund's
estimate of fair value may significantly  differ from the fair market value that


<PAGE>



would have been used had a ready market existed for the securities.  Such values
do not reflect  brokers'  fees or other normal  selling costs which might become
payable on disposition of such investments.

     Investments in companies whose securities are publicly traded are valued at
their quoted market price,  less a discount to reflect the estimated  effects of
restrictions  on  the  sale  of  such  securities  ("Valuation  Discount"),   if
applicable.

     Short-term  investments  having maturities of 90 days or less are stated at
amortized cost, which approximates fair value. Other fixed income securities are
stated at fair value.  Fair value of these  securities is determined at the most
recent  bid  or  yield  equivalent  from  dealers  that  make  markets  in  such
securities.

     The Fund's Valuation  Committee reviews the valuations on a quarterly basis
or more frequently if deemed  necessary to determine their  appropriateness  and
such  valuations  are approved  quarterly by the Current  Board.  Any changes in
valuation are recorded in the statements of operations as "Net  unrealized  gain
(loss) on investments."

CUSTODIAN

     Pursuant to an  agreement  with the Fund,  State Street acted as the Fund's
custodian with respect to the  safekeeping  of its securities  until October 31,
2002.  The principal  business  office of State Street was 225 Franklin  Street,
Boston,  Massachusetts,  02110.  Effective  November 1, 2002,  US Bank  National
Association  became  the  custodian  of the  Fund's  securities.  The  principal
business office of the Current  Custodian is 425 Walnut Street,  Cincinnati,  OH
45202.

TRANSFER AGENT AND DISBURSING AGENT

     The  Fund  employs  EquiServe  Trust  Company,  N.A.  ("EquiServe")  as its
transfer agent to record transfers of the shares,  maintain proxy records and to
process  distributions.  The  principal  business  office of such company is 150
Royall Street, Canton, Massachusetts, 02021.

FACTORS THAT MAY AFFECT FUTURE  RESULTS,  THE MARKET PRICE OF COMMON STOCK,  AND
THE ACCURACY OF FORWARD-LOOKING STATEMENTS

     In the normal  course of its  business,  the Fund, in an effort to keep its
stockholders  and the public informed about the Fund's  operations and portfolio
of  investments,  may from  time-to-time  issue  certain  statements,  either in
writing or orally,  that  contain or may  contain  forward-looking  information.
Generally,  these statements  relate to business plans or strategies of the Fund
or Portfolio  Companies,  projected or anticipated  benefits or  consequences of
such plans or strategies,  projected or anticipated benefits of new or follow-on
investments  made  by or to be  made  by  the  Fund,  or  projections  involving
anticipated  purchases  or sales of  securities  or other  aspects of the Fund's
operating  results.  Forward-looking  statements  are not  guarantees  of future
performance and are subject to risks and  uncertainties  that could cause actual
results to differ  materially.  As noted  elsewhere in this  report,  the Fund's


<PAGE>



operations   and   portfolio  of   investments   are  subject  to  a  number  of
uncertainties,  risks,  and  other  influences,  many of which are  outside  the
control of the Fund,  and any one of which,  or a  combination  of which,  could
materially  affect the results of the Fund's  operations or net asset value, the
market price of its common stock, and whether forward-looking statements made by
the Fund ultimately prove to be accurate.

     The following  discussion outlines certain factors that in the future could
affect  the  Fund's  results  for 2004  and  beyond  and  cause  them to  differ
materially  from  those that may be set forth in any  forward-looking  statement
made by or on behalf of the Fund:

     LONG-TERM OBJECTIVE. The Fund is intended for investors seeking to maximize
total return from capital  appreciation  and/or income. The Portfolio  Companies
acquired by the Fund may  require  several or many years to reach  maturity  and
generally  are  illiquid.  An  investment  in shares of the Fund  should  not be
considered a complete  investment program.  Each prospective  stockholder should
take into account his  investment  objectives  as well as his other  investments
when considering the purchase of shares of the Fund.

     NON-DIVERSIFIED STATUS; NUMBER OF INVESTMENTS.  The Fund is classified as a
"non-diversified"  investment  company under the  Investment  Company Act, which
means  the Fund is not  limited  in the  proportion  of its  assets  that may be
invested  in the  securities  of a single  issuer.  To the extent the Fund takes
large positions in the securities of a small number of issuers, the Fund will be
exposed to a greater  risk of loss and the Fund's net asset value and the market
price of its common stock may  fluctuate as a result of changes in the financial
condition,  the stock  price of, or in the  market's  assessment  of any  single
Portfolio  Company  to a  greater  extent  than  would  be the case if it were a
"diversified" company holding numerous investments.  As of October 31, 2003, the
Fund has investments in 23 Portfolio Companies.

     LACK OF LIQUIDITY OF PORTFOLIO  INVESTMENTS.  The portfolio  investments of
the Fund consist  principally of securities  that are subject to restrictions on
sale  because  they  were  acquired  from  the  issuer  in  "private  placement"
transactions.  Currently,  none of the Fund's  Portfolio  Companies are publicly
traded. If in the future public markets develop for such securities,  any public
sale of these  securities by the Fund could still be burdened by the expense and
time required to register the  securities  under the  Securities Act of 1933, as
amended,  and applicable  state  securities  law,  unless an exemption from such
registration  requirements is available.  In addition,  contractual or practical
limitations  may restrict  the Fund's  ability to liquidate  its  securities  in
Portfolio Companies since in many cases the securities of such companies will be


<PAGE>



privately  held  and the  Fund  may own a  relatively  large  percentage  of the
issuer's outstanding securities.  Sales may also be limited by securities market
conditions,  which may be  unfavorable  for sales of  securities  of  particular
issuers or issuers in particular industries.  The above limitations on liquidity
of the  Fund's  securities  could  preclude  or delay  any  disposition  of such
securities or reduce the amount of proceeds that might otherwise be realized.

     DEBT FINANCINGS IN PORTFOLIO INVESTMENTS.  The portfolio investments of the
Fund may also consist of debt financing to portfolio  companies.  The borrower's
ability to repay the loan may be  adversely  impacted by a number of factors and
consequently the loan may not be fully repaid. Furthermore,  the Fund's security
interest  in any  collateral  over  the  borrower's  assets  may not  realize  a
sufficient amount to make up any shortfall.

     NEED FOR FOLLOW-ON  INVESTMENTS IN PORTFOLIO  COMPANIES.  After its initial
investment in a Portfolio Company, the Fund may be called upon from time to time
to provide  additional funds to such company or have the opportunity to increase
its  investment in a successful  situation,  e.g.,  the exercise of a warrant to
purchase  common stock.  There is no assurance  that the Fund will make, or have
sufficient funds to make, follow-on investments. Any decision by the Fund not to
make a  follow-on  investment  or any  inability  on its  part to  make  such an
investment may have a negative impact on a Portfolio  Company in need of such an
investment  or may result in a missed  opportunity  for the Fund to increase its
participation  in a  successful  operation  and may  dilute  the  Fund's  equity
interest in or reduce the expected yield on its investment.  In many cases, if a
Portfolio Company is unable to secure a follow-on investment from its investors,
the likely outcome is that the Portfolio  Company will cease operations due to a
lack of working capital available to that Portfolio Company.

     COMPETITION FOR  INVESTMENTS.  The Fund encounters  competition  from other
persons or  entities  with  similar  investment  objectives.  These  competitors
include  venture  capital firms,  small  business  investment  companies,  large
industrial and financial  companies  investing  directly or through  affiliates,
other business  development  companies,  foreign  investors of various types and
individuals. Many of these competitors have greater financial resources and more
personnel  than the Fund and may be subject to  different  and  frequently  less
stringent regulations.

     LOSS OF CONDUIT  TAX  TREATMENT.  The Fund may cease to qualify for conduit
tax  treatment  as a  regulated  investment  company  ("RIC") if it is unable to
comply with the diversification and income requirements  contained in Subchapter
M of the Internal  Revenue Code of 1986, as amended (the  "Code").  Subchapter M
requires,  among other things, that (1) at the end of each quarter of the Fund's
taxable year (i) at least 50% of the value of the Fund's  assets must consist of
cash,  government  securities,  securities of other RICs and other securities of
any single issuer that do not represent  more than 5% of the value of the Fund's
then current total assets and 10% of the outstanding  voting  securities of such


<PAGE>



issuer,  and (ii) no more  than 25% of the  value of the  Fund's  assets  may be
invested  in  the  securities  of any  one  issuer  (other  than  United  States
government  securities or  securities of other RICs),  or of two or more issuers
that are  controlled  by the  Fund and are  engaged  in the same or  similar  or
related  trades or businesses and (2) at least 90% of the Fund's gross income in
each taxable year is derived from dividends,  interest,  payments  received with
respect  to loans of  securities,  gains from the sale or other  disposition  of
stock or  securities  and  certain  related  income.  The Fund may also cease to
qualify for conduit tax  treatment,  or be subject to a 4% excise tax on certain
amounts, if it fails to distribute a sufficient portion of its income and gains.
If the Fund  ceases to  qualify  for  conduit  tax  treatment,  the Fund will be
subject to income tax on its income and gains and  stockholders  will be subject
to income tax on distributions to the extent of the Fund's earnings and profits.

     MARKET VALUE AND NET ASSET VALUE. The shares of the Fund's common stock are
listed on the NYSE.  Investors  desiring  liquidity  may trade  their  shares of
common stock on the NYSE at current market value, which may differ from the then
current net asset value (Shareholders'  Equity). Shares of closed-end investment
companies   frequently   trade  at  a  discount  from  net  asset  value.   This
characteristic  of shares of a closed-end  fund is a risk  separate and distinct
from the risk  that the  Fund's  net  asset  value  will  decrease.  The risk of
purchasing  shares of a  closed-end  fund that might trade at a discount is more
pronounced  for  investors  who wish to sell their shares in a relatively  short
period of time  because for those  investors,  realization  of a gain or loss on
their investments is likely to be more dependent upon the existence of a premium
or discount than upon portfolio performance. The Fund's shares have historically
traded at a  significant  discount to net asset value since they began  trading.
For information  concerning the trading history of the Fund's shares see "Market
for Registrant's Common Stock and Related Stockholder Matters."

     VALUATION OF INVESTMENTS.  The Fund's net asset value is based on the value
assigned to its portfolio investments. Investments in companies whose securities
are publicly traded are valued at their quoted market price,  less a discount to
reflect the estimated effects of restrictions on the sale of such securities, if
applicable. The Fund adjusts its net asset value for changes in the value of its
publicly  held  securities,  if any, on a daily  basis.  The value of the Fund's
investments  in  securities  for which market  quotations  are not  available is
determined as of the end of each fiscal quarter but monitored  regularly in case
there is a  significant  event  requiring a change in  valuation in the interim.
Cost is used to approximate  fair value of such  investments  until  significant
developments  affecting an investment  provide a basis for valuing an investment
at other than cost.  Thereafter,  such portfolio investments are carried at fair
values as determined at least quarterly.  Due to the inherent uncertainty of the
valuation of portfolio securities which do not have readily ascertainable market
values, the Fund's estimate of fair value may significantly differ from the fair
value that would have been used had a ready market  existed for the  securities.
At  October  31,  2003,  all of the  preferred  stocks and debt  instruments  in
Portfolio  Companies  held by the  Fund,  representing  approximately  8.47% and
9.10%,  respectively,  of the Fund's net assets, were invested in securities for
which market quotations were not readily available. See "Valuation."


<PAGE>



     POSSIBLE  VOLATILITY OF STOCK PRICE.  The market price of the Fund's common
stock could be subject to significant  fluctuations in response to variations in
the net asset value of the Fund,  its  quarterly  operating  results,  and other
factors.  The market price of the common stock may be significantly  affected by
such factors as the  announcement  of new or follow-on  investments in Portfolio
Companies,  the sale or proposed sale of a portfolio investment,  the results of
operations or  fluctuations  in the market  prices or appraised  value of one or
more of the Fund's Portfolio Companies,  changes in earnings estimates by market
analysts,  speculation  in the press or analyst  community  and  general  market
conditions or market conditions specific to particular industries.  From time to
time in recent years, the securities markets have experienced  significant price
and volume  fluctuations that have often been unrelated or  disproportionate  to
the operating performance of particular companies.  These broad fluctuations may
adversely affect the market price of the common stock. In addition,  the Fund is
subject to the risk of the securities markets in which the portfolio  securities
of the Fund are traded.  Securities  markets are  cyclical and the prices of the
securities traded in such markets rise and fall at various times. These cyclical
periods may extend over significant periods of time.

REGULATION

     The Fund has elected to be treated as a business  development company under
the  Investment  Company  Act.   Accordingly,   it  may  provide  for  incentive
compensation in the form of one of the following: (i) a performance fee based on
the capital  appreciation of the Fund's investments,  (ii) a profit-sharing plan
based on the Fund's income, or (iii) a stock option plan. As Portfolio  Manager,
Mr. Tokarz will be compensated  by the Fund based upon his positive  performance
as the Portfolio  Manager.  Under the terms of his agreement  with the Fund, the
Fund will pay Mr.  Tokarz an  amount  equal to the  lesser of (a) 20% of the net
income of the Fund for the  fiscal  year;  and (b) the sum of (i) 20% of the net
capital gains realized by the Fund in respect of the investments made during his
tenure as Portfolio  Manager;  and (ii) the amount,  if any, by which the Fund's
total  expenses  for a fiscal  year were less than two percent of the Fund's net
assets  (determined  as of the last day of the period).  Any payments to be made
shall be calculated based upon the audited financial  statements of the Fund for
the applicable  fiscal year and shall be paid as soon as  practicable  following
the  completion  of such audit.  Mr.  Tokarz may  allocate a part or all of such
compensation to other professionals of the Fund.

     The  Fund  may not  withdraw  its  election  to be  treated  as a  business
development  company  without first  obtaining the approval of a majority of its
shareholders. The following is a summary of the requirements imposed on business
development  companies  by the  Investment  Company Act and is  qualified in its
entirety by  reference  to the full text of the  Investment  Company Act and the
rules thereunder.

     A  business  development  company  must  be  operated  for the  purpose  of
investing in the securities of certain  present and former  "eligible  portfolio
companies" or certain  bankrupt or insolvent  companies and must make  available
significant  managerial  assistance  to such  companies.  An eligible  portfolio
company  generally is a company that (i) is organized under the laws of, and has
its  principal  place  of  business  in,  any  state or  states,  (ii) is not an


<PAGE>



investment  company and (iii)(a) does not have a class of securities  registered
on an  exchange or included  in the  Federal  Reserve  Board's  over-the-counter
margin list,  (b) is actively  controlled  by the business  development  company
acting  either  alone or as part of a group acting  together  and an  affiliated
person of the business development company is a member of the company's board of
directors  or (c) meets such other  criteria as may be  established  by the SEC.
Control is presumed to exist where the  business  development  company owns more
than 25% of the outstanding voting securities of an eligible portfolio company.

     "Making  available  significant  managerial  assistance"  is defined by the
Investment  Company  Act  to  mean  (i)  any  arrangement   whereby  a  business
development  company,  through its directors,  officers or employees,  offers to
provide  and,  if  accepted,  does  provide  significant  guidance  and  counsel
concerning the  management,  operations or business  objectives or policies of a
company or (ii) the exercise of a controlling  influence  over the management or
policies of a company by the business development company acting individually or
as part of a group of which the business  development company is a member acting
together which controls such company ("Managed Company"). A business development
company may satisfy the  requirements  of clause (i) with respect to an eligible
portfolio company by purchasing  securities of such a company as part of a group
of investors  acting  together if one person in such group  provides the type of
assistance  described in such clause.  However, the business development company
will not  satisfy  the  general  requirement  of  making  available  significant
managerial  assistance  if  it  in  all  cases  provides  such  assistance  only
indirectly through an investor group. A business  development  company need only
extend  significant  managerial  assistance  with respect to eligible  portfolio
companies  which are treated as  Qualifying  Assets (as  defined  below) for the
purpose of satisfying the 70% test discussed below.

     The  Investment  Company Act prohibits or restricts the Fund from investing
in certain types of companies,  such as brokerage  firms,  insurance  companies,
investment  banking firms and  investment  companies.  Moreover,  the Investment
Company Act limits the type of assets  that the Fund may acquire to  "Qualifying
Assets"  and  certain  assets  necessary  for its  operations  (such  as  office
furniture,  equipment and facilities) if, at the time of the  acquisition,  less
than 70% of the value of the Fund's total assets consists of Qualifying  Assets.
Qualifying  Assets  include  (i)  securities  of  companies  that were  eligible
portfolio  companies at the time that the Fund acquired their  securities;  (ii)
securities  of  companies  that  are  actively  controlled  by the  Fund;  (iii)
securities of bankrupt or insolvent  companies  that are not otherwise  eligible
portfolio  companies;  (iv)  securities  acquired as  follow-on  investments  in
companies  that were  eligible  portfolio  companies  at the time of the  Fund's
initial  acquisition of their  securities but are no longer  eligible  portfolio
companies,  provided that the Fund has  maintained a substantial  portion of its
initial investment in such companies; (v) securities received in exchange for or
distributed  on or with  respect to any of the  foregoing;  and (vi) cash items,
government securities and high-quality,  short-term debt. The Investment Company
Act also places restrictions on the nature of the transactions in which, and the
persons from whom,  securities can be purchased in order for such  securities to
be considered Qualifying Assets. As a general matter, Qualifying Assets may only
be purchased from the issuer or an affiliate in a transaction not constituting a
public offering.  The Fund may not purchase any security on margin,  except such
short-term credits as are necessary for the clearance of portfolio transactions,
or engage in short sales of securities.


<PAGE>



     The Fund is  permitted  by the  Investment  Company  Act,  under  specified
conditions,  to issue  multiple  classes  of senior  debt and a single  class of
preferred stock senior to the common stock if its asset coverage,  as defined in
the  Investment  Company Act, is at least 200% after the issuance of the debt or
the senior  stockholders'  interests.  In addition,  provisions  must be made to
prohibit any distribution to common shareholders or the repurchase of any shares
unless the asset coverage ratio is at least 200% at the time of the distribution
or repurchase.

     The Fund  generally  may sell its  securities  at a price that is below the
prevailing net asset value per share only upon the approval of the  shareholders
holding a majority  of the shares  issued by the Fund,  including  a majority of
shares held by  nonaffiliated  shareholders.  The Fund may, in  accordance  with
certain conditions  established by the SEC, sell shares below net asset value in
connection with the distribution of rights to all of its stockholders.  The Fund
may also issue  shares at less than net asset value in payment of  dividends  to
existing shareholders.

     Since the Fund is a closed-end business development  company,  stockholders
have no right to present  their shares to the Fund for  redemption.  Recognizing
the possibility  that the Fund's shares might trade at a discount,  the Board of
Directors has determined  that it would be in the best interest of  stockholders
for the Fund to be  authorized  to attempt to reduce or eliminate a market value
discount from net asset value. Accordingly,  the Fund from time to time may, but
is not required to,  repurchase its shares (including by means of tender offers)
to attempt to reduce or  eliminate  any  discount or to  increase  the net asset
value of its  shares,  or both.  Pursuant to a  shareholder  vote at the Special
Meeting  held on  September  16,  2003,  the Fund  commenced  a tender  offer on
November 26, 2003,  which  terminated on December 31, 2003, as described in Item
5, "Market for Registrant's Common Equity and Related Stockholder Matters".

     Many of the transactions  involving the Fund and its affiliates (as well as
affiliates of such  affiliates)  require the prior approval of a majority of the
Independent   Directors.   However,   certain  transactions   involving  closely
affiliated  persons of the Fund would require the prior  approval of the SEC. In
general (a) any person who owns,  controls or holds with power to vote more than
5% of the outstanding  shares, (b) any director or executive officer and (c) any
person who directly or indirectly controls,  is controlled by or is under common
control  with such person,  must obtain the prior  approval of a majority of the
Independent  Directors and, in some  situations,  the prior approval of the SEC,
before  engaging  in  certain  transactions  involving  the Fund or any  company
controlled  by the Fund.  In  accordance  with the  Investment  Company  Act,  a
majority of the directors  must be persons who are not  "interested  persons" of
the Fund as defined in such act. Except for certain  transactions  which must be
approved by the Independent Directors, the Investment Company Act generally does
not restrict transactions between the Fund and the Portfolio Companies.


<PAGE>



ITEM 2. PROPERTIES

     The Fund  does not own any real  estate  or other  physical  property.  Its
principal executive office is located at 287 Bowman Avenue,  Purchase,  New York
10577,  pursuant to an operating  lease which is scheduled to expire on November
30, 2005.  Future payments under this lease total $110,933,  with annual minimum
payments of $49,517 from December 8, 2003 through October31,  2004, $56,682 from
November 1, 2004  through  October 31,  2005,  and $4,734 from  November 1, 2005
through November 30, 2005. The building at 287 Bowman Avenue is owned by Phoenix
Capital Partners,  LLC, an entity which is 97% owned by Mr. Tokarz. The Fund has
continued to pay rent on its former office space pursuant to an operating lease,
entered into by Former Management in late 2002, which was scheduled to expire on
October  31,  2005.  Future  payments  under this lease  totaled  $597,000 as of
October 31, 2003, with annual minimum payments of $298,500;  however, in January
2004, the Fund reached agreement to terminate this lease for $232,835  effective
January 31, 2004.

ITEM 3. LEGAL PROCEEDINGS

     On February 20, 2002,  Millenco LP  ("Millenco"),  a  stockholder,  filed a
complaint in the United  States  District  Court for the District of Delaware on
behalf of the Fund against the Former  Advisor.  The complaint  alleges that the
fees  received  by the  Former  Advisor  for the year prior to the filing of the
complaint  were  excessive,  in  violation  of Section  36(b) of the  Investment
Company Act. The Former  Advisor's  motions to dismiss the action or transfer it
to California were both denied. The case is in discovery,  which has been stayed
temporarily for the purpose of settlement  negotiations and mediation  scheduled
to begin in April 2004. The Fund is monitoring this  litigation  inasmuch as any
net recovery would accrue to the Fund.

     On April 3, 2002,  Millenco filed a complaint against the Fund in the Court
of Chancery, New Castle County, Delaware, seeking a judicial confirmation of the
stockholder vote of March 27, 2002, rejecting new investment advisory agreements
between  the Fund and the Former  Advisor  and  between  the Fund and the Former
Sub-Advisor.  On April 5, 2002,  Millenco  moved to accelerate  the trial of the
case and later that day the Former Board  acknowledged  that the  proposals  for
shareholder approval of the advisory and sub-advisory  agreements had failed and
that a stockholder's meeting would not be reconvened on this matter. On July 30,
2002, Millenco filed an amended complaint against the Fund and the Fund's Former
Board in the Court of  Chancery,  New Castle  County,  Delaware,  seeking to (i)
invalidate the election of two of the Fund's former  directors,  John M. Grillos
and Larry  Gerhard,  at the 2001 and 2002 Annual  Meetings of  Stockholders,  to
three-year  terms  expiring  2004 and 2005,  respectively;  and the  election of
former director Peter Freudenthal,  at the 2001 Annual Meeting,  to a three-year
term  expiring  2004;  and (ii)  require  the Fund to hold a special  Meeting of
Stockholders,  for the purpose of holding new  elections to fill the board seats
currently  held by Mr.  Grillos and Mr.  Gerhard  and the board seat  vacated by
Peter Freudenthal due to his resignation in June 2002.


<PAGE>



     On December 19, 2002, the Court granted  judgment for Millenco holding that
the Former Board had breached its fiduciary  duty of disclosure  under  Delaware
law in  connection  with the 2001 and 2002 election of directors and ordered the
Fund to hold new elections  for the seats held by directors  Grillos and Gerhard
and former director Freudenthal.  The election was held on February 28, 2003, at
which the Fund's Current Board was elected.

     On  February  6,  2003,  the  Fund  filed a  complaint  against  Millennium
Partners,  L.P.,  Millenco  and  Karpus  Management,   Inc.  (collectively  "the
stockholders")  in the United States District Court for the Southern District of
New York,  alleging  various  violations of federal  securities law primarily in
connection with the ongoing proxy contest between Millenco and the Fund's Former
Board. The complaint asked the Court for injunctive relief aimed at limiting the
stockholders'  voting  rights  at  the  February  28,  2003  annual  meeting  of
stockholders.

     On February 24, 2003, after expedited discovery and an evidentiary hearing,
the United States  District  Court for the Southern  District of New York denied
the Fund's motion for a preliminary  injunction against the defendants,  finding
there was  insubstantial  likelihood of the Fund succeeding on any of the claims
asserted. On March 27, 2003, the Fund voluntarily dismissed the lawsuit.

     On March 3, 2003,  after the Annual  Meeting,  but prior to the transfer of
control by the Former Board to the Current Board, John Grillos signed a document
which  purported to extend the maturity date of the Fund's $3 million loan to BS
Management  from March 2003 to  September  2003 and to modify other terms of the
loan which could result in the  impairment  of the Fund's rights as a lender and
the  collectability  of the loan.  The original  March 2003 maturity date passed
without payment to the Fund of any principal or interest on the loan. The Fund's
Current  Board  believed  that BS  Management  was a shell  corporation  without
material  assets  apart from its interest in the loan and its  proceeds.  In May
2003,  the Fund  recovered  approximately  $70,000 of the original  loan from an
Irish stockbroker to which such money had been transferred by BS Management.

     In  June  2003,  the  Fund  sued  BS  Management  and  Oyster  Technologies
Investments Ltd., an Isle of Man company (which was a party to the March 3, 2003
amendment)  in the United  States  District  Court for the Northern  District of
California,  asserting that the December 2002 loan agreement was breached and/or
that the March 3, 2003 amendment was void and/or  breached.  In August 2003, the
parties settled the litigation, and the Fund received $2,580,000, plus rights to
the proceeds of sale of  approximately  1,000,000  shares of  Transware  PLC, an
Irish  public  company,  which BS  Management  had  purchased  with  some of the
proceeds  of the  original  loan.  As of the  date  of the  settlement,  453,000
Transware  shares  had  been  sold in open  market  transactions,  resulting  in
proceeds to the Fund of approximately  $29,000.  Accordingly and after deducting
approximately  $55,000  in  legal  expenses,  the  Fund  recovered  a  total  of
approximately  $2,624,000  of  the  original  $3,000,000  loan.  Potential  Fund
proceeds from the remaining  550,000  shares of Transware  stock are believed to
have nominal value at best. On August 26, 2003,  the Fund's  lawsuit  against BS
Management and Oyster  Technologies was dismissed with prejudice and the parties
were all released from any  obligations  under the December  2002  agreement and
March 2003 amendment.


<PAGE>



     In 2003,  a former  officer and  director  who had been hired by the Former
Board demanded  severance pay of approximately  $255,000,  and threatened to sue
the Fund for such  severance,  plus 10% interest and  attorney's  fees. The Fund
rejected the demand and, in 2004,  informed the former  officer that if he sued,
the Fund would oppose such lawsuit and take such affirmative legal action as may
be appropriate to recover  damages to the Fund caused by certain  conduct of the
former officer.  No assurance can be given as to whether the former officer will
sue the Fund or the outcome of such litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Fund held a Special  Meeting of  Stockholders on September 16, 2003 for
the following purpose:

          To approve the proposed management plan of the Board of Directors (the
          "Proposed  Plan") under which:  (i) Michael  Tokarz would be appointed
          Chairman of the Board of Directors and Portfolio  Manager of the Fund;
          (ii) the Fund would adopt an amended investment  objective whereby the
          Fund would seek to maximize  total  return from  capital  appreciation
          and/or  income;  (iii) the Fund would seek to achieve  its  investment
          objective  primarily  through senior and subordinated  loans,  venture
          capital,  mezzanine  and  preferred  instruments  and  private  equity
          investments;  and (iv) the Fund would  conduct a tender offer of up to
          25% of the  Fund's  outstanding  shares  at a price  of 95% of the net
          asset value of such shares.

     Of the 16,152,600 shares outstanding and entitled to vote, 8,216,271 shares
were  represented  at the  meeting by proxy or in person.  The  following  table
identifies the matter voted upon at the meeting, the number of votes cast for or
against,  as well as the number of  abstentions,  as to each such matter.  There
were no broker non-votes.


MATTER                            VOTES         VOTES              VOTES
                                   FOR         AGAINST       WITHHELD/ABSTAINED

PROPOSAL:
---------
Approval of the Proposed Plan    7,513,748      658,236              44,287
of the Board of Directors set
forth in the Notice of Special
Meeting of Shareholders dated
August 20, 2003.


<PAGE>



                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The  Fund's  shares of common  stock  began to trade on the New York  Stock
Exchange  (NYSE)  on June  26,  2000,  under  the  symbol  "MVC."  The  Fund had
approximately 11,500 shareholders on August 8, 2003, the record date set for the
Fund's Special Meeting of Shareholders held in September 2003.

     The following  table reflects,  for the periods  indicated the high and low
closing prices per share of the Fund's common stock on the NYSE, by quarter.

                           QUARTER
                           ENDED            HIGH              LOW
                           --------         -------           -------
FISCAL YEAR 2003
                           10/31/03         $8.36             $7.92
                           07/31/03         $8.48             $7.89
                           04/30/03         $8.68             $7.85
                           01/31/03         $8.60             $7.90
FISCAL YEAR 2002
                           10/31/02         $8.05             $7.25
                           07/31/02         $9.50             $7.50
                           04/30/02         $10.06            $8.80
                           01/31/02         $10.06            $9.22

DIVIDENDS

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

     During the Fund's fiscal years ended October 31, 2002 and October 31, 2003,
respectively,  the Fund did not declare, nor was it required to distribute under
Subchapter M, any dividends. In the event of a declared dividend,  distributions
can be made payable by the Fund in the form of either a cash  distribution  or a
stock dividend.  If on the Fund's  ex-dividend date, the Fund was trading on the
NYSE  at a  discount  to net  asset  value,  in  accordance  with  the  Dividend
Reinvestment Plan, the Dividend  Distribution Agent would purchase shares on the
open  market  of  the  NYSE  for  those  shareholders  electing  to  take  their
distributions in the form of stock dividends. If on the Fund's ex-dividend date,
the Fund was trading on the NYSE at a premium to net asset value,  in accordance
with the  Dividend  Reinvestment  Plan,  the Dividend  Distribution  Agent would
distribute new shares at net asset value to those shareholders  electing to take
their distributions in the form of stock dividends.

     The Fund reserves the right to retain net long-term capital gains in excess
of net short-term  capital losses for reinvestment or to pay  contingencies  and


<PAGE>



expenses.  Such  retained  amounts,  if any,  will be taxable  to the Fund,  and
shareholders  will be able to claim  their  proportionate  share of the  federal
income  taxes  paid by the  Fund on such  gains as a credit  against  their  own
federal income tax liabilities.  Stockholders  will also be entitled to increase
the  adjusted  tax basis of their Fund shares by the  difference  between  their
undistributed capital gains and their tax credit.

REPURCHASE PLAN

     During the year ended October 31, 2003, the Fund repurchased 347,400 of its
shares at an average price of approximately $8.28, excluding brokerage fees. The
Fund ceased repurchasing shares after the Current Board of Directors was elected
on February 28, 2003. The Fund's repurchase of shares was conducted according to
a written plan for the purpose of satisfying  the  provisions  set forth in Rule
10b5-1 and Rule 10b-18 under the  Securities  Exchange  Act of 1934,  as amended
(the "Exchange Act").

TENDER OFFER

     On November  26, 2003,  the Fund  commenced a tender offer to acquire up to
twenty-five  percent  (25%) of its  outstanding  shares of common stock at a per
share cash purchase price equal to ninety-five  percent (95%) of net asset value
per share as of December 31, 2003, the day the offer  expired.  Based on a final
count by the depositary for the tender offer,  3,859,558 shares, or 23.9% of the
Fund's  outstanding  common stock,  were tendered.  Because less than 25% of the
Fund's shares were tendered, the Fund purchased all shares tendered.  Each share
accepted  for purchase  was  purchased at a price of $8.18  resulting in a total
disbursement from the Fund of $31,571,184. Since completion of the tender offer,
MVC has 12,293,042 shares of common stock outstanding.  The anti-dilutive effect
of the tender offer totaled $1,650,697 or approximately $0.134 per share for all
remaining  shares after the tender offer.  The discussion  above is a summary of
the Tender  Offer and is qualified in its entirety by reference to the full text
of the Schedule TO as filed with the SEC.

ITEM 6. SELECTED FINANCIAL DATA

     The following selected financial data for the fiscal year ended October 31,
2003 is derived from the financial statements,  which have been audited by Ernst
& Young LLP, the Fund's current independent accountants.  The following selected
financial  data for the fiscal  years  ended  October  31, 2002 and 2001 and the
period ended October 31, 2000 are derived from the financial  statements,  which
were  audited by  PricewaterhouseCoopers,  LLP,  the Fund's  former  independent
accountants.  The  data  should  be  read  in  conjunction  with  the  financial
statements  and notes  thereto  and  "Management's  Discussion  and  Analysis of
Financial  Condition  and  Results of  Operations"  included  elsewhere  in this
report.


<PAGE>



<TABLE>
<CAPTION>

                                                      YEAR ENDED         YEAR ENDED         YEAR ENDED       PERIOD ENDED
                                                   OCTOBER 31, 2003   OCTOBER 31, 2002   OCTOBER 31, 2001  OCTOBER 31, 2000*
<S>                                                <C>                <C>                <C>                <C>
Total investment income                                   $2,895,314         $3,739,893        $9,046,526         $9,325,822
Total operating expenses                                 $11,386,872         $6,861,850        $7,388,061         $4,615,284
Net investment (loss) income                             $(8,491,558)       $(3,121,957)       $1,658,465         $4,710,538
Net realized (loss) gain on investment
transactions                                             $(4,220,380)      $(33,469,122)           $5,123              $(789)
Net unrealized depreciation on investment
transactions                                            $(42,771,460)      $(21,765,310)     $(52,994,121)       $(4,913,010)
Dividends declared per share                                   $0.00              $0.04             $0.34              $0.00
Balance Sheet data:
Total assets                                            $137,880,292       $196,511,000      $255,049,783       $312,114,878
Total liabilities                                           $872,130         $1,124,523          $578,227           $668,139
Total Shareholders Equity                               $137,008,162       $195,386,477      $254,471,556       $311,446,739
Net asset value per share                                      $8.48             $11.84            $15.42             $18.88


</TABLE>


* Commenced operations on March 31, 2000.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     This  report  contains  certain  statements  of  a  forward-looking  nature
relating to future events or the future  financial  performance  of the Fund and
its investment  portfolio companies.  Words such as MAY, WILL, EXPECT,  BELIEVE,
ANTICIPATE,  INTEND, COULD,  ESTIMATE,  MIGHT and CONTINUE,  and the negative or
other  variations  thereof or comparable  terminology,  are intended to identify
forward-looking  statements.  Forward-looking  statements  are  included in this
report  pursuant  to the  "Safe  Harbor"  provision  of the  Private  Securities
Litigation  Reform Act of 1995. Such  statements are  predictions  only, and the
actual  events or results  may differ  materially  from those  discussed  in the
forward-looking  statements.  Factors  that could  cause or  contribute  to such
differences  include,  but are not limited  to,  those  relating  to  investment
capital demand, pricing,  market acceptance,  the effect of economic conditions,
litigation and the effect of regulatory  proceedings,  competitive  forces,  the
results of financing and investing efforts, the ability to complete transactions
and other risks  identified below or in the Fund's filings with the SEC. Readers
are cautioned not to place undue reliance on these  forward-looking  statements,
which speak only as of the date hereof.  The Fund  undertakes  no  obligation to
publicly   revise  these   forward-looking   statements  to  reflect  events  or
circumstances  occurring  after the date hereof or to reflect the  occurrence of
unanticipated  events.  The following  analysis of the  financial  condition and
results  of  operations  of the  Fund  should  be read in  conjunction  with the
Financial  Statements,  the Notes  thereto and the other  financial  information
included elsewhere in this report.


<PAGE>



OVERVIEW

     The Fund is a  non-diversified  investment  company  that is regulated as a
business  development  company  under the  Investment  Company  Act. The primary
investment  objective,  as amended by shareholder vote on September 16, 2003, is
to seek to maximize total return from capital  appreciation  and/or income.  The
Fund seeks to achieve its  investment  objective  by  providing  equity and debt
financing to Portfolio Companies.

     Historically the Fund's investing activities have focused on private equity
securities.  Generally, private equity investments are structured as convertible
preferred  stock,  and portfolio  companies do not pay  dividends.  Consequently
current income has not been a significant part of the equity portfolio.  Private
equity  investments  typically range up to $10.0 million and the Fund's goal had
previously been for these  investments to achieve liquidity within three to five
years.  Typically  a cash  return  on the  investment  is not  received  until a
liquidity event, i.e. such as a public offering or merger, occurs.

     On  September  16, 2003,  the  stockholders  approved  the Current  Board's
Proposed Plan, as discussed in Part I, Item 1,  "Investment  Practices",  and in
Item 4,  "Submission of Matters to a Vote of Security  Holders",  which included
(i) appointing Michael Tokarz as the Chairman of the Board and Portfolio Manager
of the Fund,  (ii)  adopting an amended  investment  objective  whereby the Fund
would seek to maximize total return from capital appreciation and/or income, and
(iii)  seeking  to  achieve  its   investment   objective   through  senior  and
subordinated  loans,  venture capital,  mezzanine and preferred  instruments and
private equity  instruments  and (iv)  conducting a tender offer of up to 25% of
the Fund's  outstanding  shares at a price of 95% of the net asset value of such
shares.

     The  Fund  did not  complete  any  investments  under  the  new  investment
objective as of the end of its most recently  completed fiscal year. On November
6, 2003,  Michael Tokarz assumed his new position as Portfolio Manager and is in
the process of seeking to implement the new strategy.

GENERAL INVESTMENT CLIMATE

     During  the  current  fiscal  year,  the Fund  continued  to operate in the
aftermath  of the 2001 severe  downturn in  technology  stocks and its  profound
impact on the technology  venture capital industry.  M&A activity and new issues
of technology stocks began fiscal 2003 at pre-1998 levels but were demonstrating
signs of modest  recovery by  mid-year.  Macro  economic  trends  appeared to be
guided  throughout  the  year by the  conflict  in the  Middle  East,  the  U.S.
political debate about both the form and amount of tax stimulus, and the outlook
for job growth.  Risk capital for emerging  tech  companies  remained  scarce as
measured by the slow pace of  fundraising by private  venture  capital funds and
relatively  stable quarterly  disbursements by existing venture funds during the
period.

     It is estimated by the National Venture Capital  Association that more than
half of the  committed  capital  of  private  venture  capital  funds is held as
reserves  for  follow-on  financing.  Most  follow-on  rounds in the  technology


<PAGE>



venture-backed  companies during the past fiscal year took place at prices below
existing holdings or on terms that were more favorable to the investors than for
previous  rounds of financing.  The Fund's new management  team will continue to
evaluate every Portfolio  Company for  opportunities to participate in follow-on
investments that are believed to have potential for enhancing the Fund's overall
returns.

     The fiscal year ended October 31, 2003  revealed  that the venture  capital
industry continued its trend of devoting significant portion of its resources to
poorly performing,  unprofitable  companies.  Our co-investors and the Fund took
steps seeking to get back to pre-bubble standards of accountability and planning
in providing  assistance  to the Fund's  Portfolio  Companies.  This resulted in
falling  valuations  for those  technology  companies  without  a clear  path to
profitability or wide acceptance of new technologies and products.  Further, the
standards for alternative  methods of exiting private technology  stocks,  i.e.,
IPOs and mergers and acquisitions,  have been raised,  in Management's  view, to
require profitable operating performance or significant market penetration.

     The venture  capital  industry  appears to have made moderate  improvement,
especially in the later half of 2003,  as measured by the increased  flow of new
deals and rising tech stock  indexes.  These  trends may help create a favorable
climate for our existing holdings of technology-based  companies. With the shift
in the Fund's  investment  objective in September  2003 to seeking  total return
from  a  broad  range  of  private  equity  investments,  including  senior  and
subordinated  loans  (across  a broad  range of  industries  and  sectors),  the
investment  climate for private  technology stocks may have less of an impact on
our  activities  in the new fiscal  year and  beyond.  This  greater  investment
flexibility  may  permit us to take  advantage  of what  appears to be an uneven
economic  recovery  but  there  can  be no  assurances  such  strategy  will  be
successful.

INVESTMENT INCOME

     FOR THE YEARS ENDED OCTOBER 31, 2003 AND 2002. Dividend and interest income
was $2.9 million in 2003 and $3.7 million in 2002, a decrease of $0.8 million or
21.6%.  The  reduction  in dividend and  interest  income  during the year ended
October 31, 2003 was primarily the result of lower  interest  rates on a reduced
cash balance.  Interest and dividend income was primarily  related to the Fund's
investment in short-term investments and not from portfolio companies.

     FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001. Dividend and interest income
was $3.7 million in 2002 and $9.0 million in 2001, a decrease of $5.3 million or
58.9%.  The  reduction  in dividend and  interest  income  during the year ended
October 31, 2002 was primarily due to the  redeployment  of both cash  available
for short term investing and the decline in short-term interest rates.

OPERATING EXPENSES

     FOR THE YEARS ENDED  OCTOBER 31, 2003,  2002 AND 2001.  Operating  expenses
were $11.4 million in 2003 and $6.9 million in 2002, an increase of $4.5 million


<PAGE>



or 65.2%.  The increase in operating  expenses during the year ended October 31,
2003 is explained below.  Operating expenses were $6.9 million in 2002 and $7.39
million in 2001, a decrease of $0.49 million or 6.63%.

     On an  annualized  basis  operating  expenses are not expected to increase,
though it is not  possible  to predict  with any degree of  accuracy  the future
level of operating costs associated with the Fund's operations.

     YEAR ENDED OCTOBER 31, 2003

     Significant components of operating expenses for the year ended October 31,
2003 include proxy/litigation fees & expenses of $4.0 million (discussed below),
salaries and benefits of $2.5 million,  legal fees of $1.5  million,  facilities
costs of $1.3 million,  insurance  premium expenses of $1.1 million,  directors'
fees of $455,000, and administration fees of $139,000.

     During the year ended  October 31,  2003,  the Fund paid or  incurred  $4.0
million for legal and proxy solicitation fees and expenses,  which includes $2.2
million  accrued  and  paid at the  direction  of the  Board  of  Directors,  to
reimburse the legal and proxy  solicitation  fees and expenses of two major Fund
shareholders,  Millenco, L.P. and Karpus Investment Management,  including their
costs of obtaining a judgment  against the Fund in the Delaware  Chancery  Court
and costs  associated  with the proxy  process  and the  election of the current
Board of Directors. A review is being made of the Fund's rights of reimbursement
for expenses and losses to determine  what amounts,  if any, may be  recoverable
from the Fund's insurance carrier.

     During the year  ended  October  31,  2003,  the Fund paid or accrued  $2.5
million  in  salaries  and  benefits.  The Fund  does not  anticipate  paying or
accruing as much in salaries and  benefits for the year ending  October 31, 2004
as the number of Fund employees has been significantly reduced.

     During  the year  ended  October  31,  2003,  the Fund paid or  accrued  an
additional  $1.5 million in legal fees. The Fund does not  anticipate  paying or
accruing  as much in  legal  fees  for  the  year  ending  October  31,  2004 as
Management  and the Board of  Directors  have  solidified  the  Fund's  intended
direction.

     During the year  ended  October  31,  2003,  the Fund paid or accrued  $1.3
million  in  facilities  expenses.  Included  in that  expense  is an accrual of
$547,250  for future  payments for the Fund's  property  lease at 3000 Sand Hill
Road,  Building 1 Suite  155,  Menlo  Park,  CA for the  remainder  of the lease
through October 2005. The Fund anticipates lower facilities  expenses during the
year ending October 31, 2004.

     During the year ended October 31, 2003,  the Fund paid or accrued  $455,000
in directors' fees. On July 1, 2003, the Current Board reduced their fees by 50%
through October 31, 2003.

     In February 2003, the former  management of the Fund ("Former  Management")
entered into new Directors & Officers/Professional  Liability Insurance policies
with a premium of approximately  $1.4 million.  The cost is being amortized over
the life of the policy,  through  February  2004. For the year ended October 31,
2003, the Fund had expensed $1.1 million in insurance premiums.


<PAGE>



     YEAR ENDED OCTOBER 31, 2002

     During the fiscal year ended October 31, 2002,  the Fund operated  under an
advisory  agreement with meVC  Advisers,  Inc. The Fund was charged a management
fee by the Former  Advisor at an annual rate of 2.5% of the weekly net assets of
the Fund.  The Former  Advisor  agreed to pay all Fund expenses above and beyond
the 2.5% paid to the Former  Advisor by the Fund.  The Former  Advisor  resigned
without  notice on June 19, 2002  whereupon  the Board of Directors for the Fund
voted to internalize  all management and  administrative  functions of the Fund.
Consequently,  since June 19, 2002,  the Fund has  directly  paid all of its own
operating expenses in addition to legal fees and proxy solicitation  expenses of
incumbent directors.

     Significant  components of operating  expenses for the period from June 19,
2002  through  October 31, 2002  included  salaries  and  benefits of  $696,000,
consulting  and public  relation fees of $547,000,  directors  fees of $307,000,
professional  fees,  comprising  audit of $155,000  and legal fees of  $998,000,
insurance of $134,000 and  facilities of $166,000 . Prior to June 19, 2002,  all
Fund expenses,  including compensation to the directors and officers,  were paid
by the Former Advisor.

     Subsequent to the  resignation of the Former  Advisor,  the Fund determined
that the Former Advisor had not paid certain  vendors for services  performed on
behalf of the Fund,  which it had agreed to pay.  During  the fiscal  year ended
October  31,  2002,  the Fund paid or accrued  $463,535 in expenses to pay those
vendors.  See  "Legal  Proceedings"  in Part I,  Item 3 of this  Form 10-K for a
discussion  of legal  action  against  the Former  Advisor by Millenco  L.P.,  a
stockholder  of the Fund, to recover  certain  advisory fees paid by the Fund to
the Former Advisor.

     YEAR ENDED OCTOBER 31, 2001

     During the fiscal year ended October 31, 2001,  the Fund operated  under an
advisory  agreement with meVC  Advisers,  Inc. The Fund was charged a management
fee by the Former  Advisor at an annual rate of 2.5% of the weekly net assets of
the Fund.  The Former  Advisor  agreed to pay all Fund expenses above and beyond
the 2.5% paid to the Former  Advisor by the Fund.  During the year ended October
31, 2001, the Fund paid the Former Advisor $7.39 million in management  fees who
in turn distributed $2.96 million to the Former Sub-Advisor.

REALIZED GAINS AND LOSSES ON SALES OF PORTFOLIO SECURITIES

     FOR THE YEARS ENDED  OCTOBER 31, 2003 AND 2002.  Net  realized  losses were
$4.3 million for 2003 and $33.5 million for 2002, a decrease of $29.3 million or
87.3%.

     Realized  losses for 2003 resulted mainly from (i) the write-off of Cidera,
Inc.  due to its  ceasing  operations,  resulting  in a  realized  loss of $3.75
million,  (ii) the return of capital disbursement from EXP Systems,  Inc. to its
preferred shareholders,  resulting in a realized loss of approximately $178,000,
and (iii) the partial return of the Fund's investment in BS Management resulting
in a loss of approximately $322,000.


<PAGE>



     Realized  losses for 2002 resulted mainly from the  transactions  involving
the assets of  INFOUSA.com,  Inc.  being  acquired by INFOUSA,  Inc., the parent
company of INFOUSA.com,  Inc., resulting in a realized loss of $3.3 million, the
disbursement  of assets from EXP  Systems,  Inc. to its  preferred  shareholders
resulting in a realized loss of $8 million,  the write-off of Personic Software,
Inc. ("Personic") due to the irreversible dilution of the Fund's equity position
resulting in a realized loss of $10.8 million, the write-off of InfoImage,  Inc.
("InfoImage")  due to the company  filing for Chapter 7 of the  Bankruptcy  Code
resulting in a realized loss of $2.4 million, the write-off of IQdestination due
to the  cessation  of  operations  and  subsequent  dissolution  of the  company
resulting in a realized loss of $3.5 million,  the  acquisition of the assets of
Annuncio Software,  Inc. ("Annuncio") by PeopleSoft resulting in a realized loss
of $3.4 million, and the write-off of Mediaprise, Inc. ("Mediaprise") due to the
cessation of operations and subsequent dissolution of the company resulting in a
realized loss of $2 million.

     FOR THE YEARS ENDED  OCTOBER 31, 2002 AND 2001.  Net  realized  losses were
$33.5 million for 2002 and net realized gains were $5,123 for 2001, a difference
of $33.5 million. Such realization of gains for 2001 was mainly from the sale of
short-term securities.

UNREALIZED APPRECIATION AND DEPRECIATION OF PORTFOLIO SECURITIES AND ACCUMULATED
DEFICIT

     FOR THE YEARS ENDED OCTOBER 31, 2003 AND 2002. Net unrealized  depreciation
was $42.8  million  in 2003 and $21.8  million  in 2002,  an  increase  of $21.0
million or 96.3%.

     Such net increase in unrealized depreciation on investment transactions for
2003 resulted from the  determinations of the Valuation  Committee of the Former
Board (the "Former Valuation  Committee") and/or the Valuation  Committee of the
Current Board (the "Current Valuation Committee") to mark down the fair value of
the Fund's investments in Actelis Networks,  Inc., Arcot Systems, Inc., BlueStar
Solutions,  Inc., BS Management,  CBCA, Inc.,  Endymion Systems,  Inc., FolioFN,
Inc.,  Integral   Development   Corporation,   Ishoni  Networks,   Inc.,  Lumeta
Corporation,  Mainstream Data, Inc., PTS Messaging, Inc. (formerly Pagoo, Inc.),
Phosistor  Technologies,  Inc.,  ProcessClaims,  Inc. DataPlay,  Inc., SafeStone
Technologies   PLC,   Sonexis,    Inc.,   Vendio   Services,    Inc.   (formerly
AuctionWatch.com, Inc.), Yaga, Inc., and 0-In Design Automation, Inc. The Former
Valuation Committee marked down the fair value of the Fund's investments by $6.6
million and the Current  Valuation  Committee  marked down the fair value of the
Fund's  investments  by  an  additional  $36.2  million.  The  Former  Valuation
Committee  and/or  the  Current  Valuation  Committee  decided to write down the
carrying value of the  investments for a variety of reasons  including,  but not
limited to, portfolio  company  performance,  prospects of a particular  sector,
data on purchases or sales of similar interests of the portfolio  company,  cash
consumption,  cash on-hand,  valuation comparables,  the likelihood of a company
being  able to  attract  further  financing,  a  third  party  valuation  event,
cramdowns,  limited liquidity options,  and a company's likelihood or ability to
meet financial obligations. For a further discussion on the Portfolio Companies,
please refer to "Portfolio Investments" below.


<PAGE>



     Such net increase in unrealized depreciation on investment transactions for
2002 resulted mainly from the Former Valuation Committee's decision to mark down
the value of the Fund's investments in Actelis Networks, Inc., AuctionWatch.com,
Inc., BlueStar Solutions,  Inc., Cidera, Inc., DataPlay, Inc., Endymion Systems,
Inc.,  FolioFN,  Inc.,  Ishoni  Networks,  Inc., PTS Messaging  (formerly Pagoo,
Inc.),  SafeStone  Technologies PLC, ShopEaze Systems,  Inc., Sonexis, Inc., and
Yaga,  Inc. The Former  Valuation  Committee  decided to write down the carrying
value of the investments for a variety of reasons including, but not limited to,
portfolio  company  performance,  prospects  of a  particular  sector,  data  on
purchases  or  sales  of  similar  interests  of  the  portfolio  company,  cash
consumption,  cash on-hand,  valuation comparables,  the likelihood of a company
being  able to  attract  further  financing,  a  third  party  valuation  event,
cramdowns,  limited liquidity options,  and a company's likelihood or ability to
meet financial obligations.

     The Fund's  increase in  accumulated  deficit was $55.4 million in 2003 and
$59.1 million in 2002, a  comparatively  lower increase by $3.7 million or 6.3%.
The Fund's  total  accumulated  deficit  was $171.7  million for 2003 and $116.3
million for 2002, an increase of $55.4 million or 47.6%. The accumulated deficit
in  2003  is due  primarily  to  the  Valuation  Committee's  mark  down  of the
valuations  of certain  Portfolio  Company  investments  of $42.8  million,  net
realized losses of $4.2 million, and net investment loss of $8.5 million.

     FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001. Net unrealized  depreciation
was $21.8 million in 2002 and $53.0 million in 2001, a decrease of $31.2 million
or 58.9%.

     The net increase in unrealized  depreciation  for 2001 resulted mainly from
the  Board  of  Directors'  decision  to  mark  down  the  value  of the  Fund's
investments  in  Annuncio  Software,  Inc.;  AuctionWatch.com,   Inc.;  BlueStar
Solutions,  Inc.;  Cidera,  Inc.;  Endymion  Systems,  Inc.; EXP Systems,  Inc.;
FOLIOFN,  Inc.;  InfoImage,  Inc.;  INFOUSA.com,   Inc.;  IQdesination;   Ishoni
Networks, Inc.; Pagoo.com, Inc.; Personic Software, Inc.; SafeStone Technologies
PLC; and ShopEaze Systems, Inc.

     The Fund's  increase in  accumulated  deficit was $59.1 million in 2002 and
$56.9  million in 2001,  an increase of $2.2  million or 3.9%.  The Fund's total
accumulated  deficit was $116.3  million for 2002 and $57.2 million for 2001, an
increase of $59.1 million or 103.3%.

PORTFOLIO INVESTMENTS

     FOR THE  YEARS  ENDED  OCTOBER  31,  2003  AND  2002.  The  cost of  equity
investments  held by the Fund was $125.6  million in 2003 and $127.6  million in
2002, a decrease of $2.0  million or 1.6%.  The  aggregate  fair value of equity
investments  was $11.6  million in 2003 and $50.1 million in 2002, a decrease of
$38.5 million or 76.8%. The decrease in the fair value of the equity investments
held by the Fund resulted mainly from the Valuation Committee's mark down of the


<PAGE>



valuations  of  certain  Portfolio  Company   investments.   The  cost  of  debt
instruments  held by the  Fund was  $16.4  million  in 2003 and $0 in 2002.  The
aggregate  fair value of debt  instruments  was $12.5  million in 2003 and $0 in
2002. The increase in the cost and fair value of the debt  investments  resulted
mainly from the Fund's debt  investments  made in 2003. The cost of subordinated
notes  held by the Fund was $4.5  million in 2003 and $6.3  million  in 2002,  a
decrease of $1.8  million or 28.6%.  The  aggregate  fair value of  subordinated
notes was $0 in 2003 and $4.1 million in 2002. The decrease in the fair value of
the  subordinated  notes held by the Fund  resulted  mainly  from the  Valuation
Committee's   mark  down  of  the  valuations  of  certain   Portfolio   Company
investments. The cost and aggregated fair value of short-term securities held by
the Fund was $113.2  million in 2003 and $62.8  million in 2002,  an increase of
$50.4 million or 80.3%. The increase in short-term  investments  resulted mainly
from the Fund's  increased  investments in short-term  securities and subsequent
decrease  of  investments  in cash and cash  equivalents  in 2003.  The cost and
aggregate fair value of cash and cash equivalents held by the Fund was $6,850 in
2003 and $78.8  million  in 2002,  a  decrease  of $78.8  million  or 100%.  The
aggregate  fair value of short-term  securities  was $113.2  million in 2003 and
$62.8 million in 2002,  an increase of $50.4  million or 80.3%.  The decrease in
cash and cash equivalents resulted mainly from the Fund's decreased  investments
in  cash  and  cash  equivalents  and  subsequent  increase  of  investments  in
short-term  investments in 2003. Management continues to evaluate  opportunities
for its Portfolio Companies to realize value for the Fund and its stockholders.

     At October  31,  2003,  the Fund had active  investments  in the  following
Portfolio Companies:

   ACTELIS NETWORKS, INC.

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

     At  October  31,  2002,  the Fund's  investment  in  Actelis  consisted  of
1,506,025  shares of Series C  Preferred  Stock at a cost of $5.0  million.  The
investment was assigned a fair value of $2.5 million, or approximately $1.66 per
share.

     During the year ended  October 31, 2003,  the Current  Valuation  Committee
marked down the carrying  value of the Fund's  investment  in Actelis by writing
down the  investment by $1.5 million to $1.0 million.

     At  October  31,  2003,  the Fund's  investment  in  Actelis  consisted  of
1,506,025  shares of Series C  Preferred  Stock at a cost of $5.0  million.  The
investment  has been  assigned a fair value of $1.0  million,  or  approximately
$0.66 per share.

   ARCOT SYSTEMS, INC.

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


<PAGE>



     On December 30, 2002,  the Fund entered into an  investment of $5.0 million
in the form of a Credit  Facility with Arcot  maturing on December 31, 2005. The
note earns a floating  rate of  interest at prime plus 5% per annum with a floor
at 10% per annum and a ceiling  at 12% per annum on the  outstanding  balance of
the note. In connection with the Fund's $5.05 million Credit Facility with Arcot
Systems,  Inc., the Fund also received  warrants to purchase  shares of Series E
Convertible  Preferred  Stock  of  Arcot  Systems,  Inc.,  equal  to 3%  of  the
outstanding  common  stock on a fully  diluted  basis,  at an exercise  price of
$0.966 per share, as adjusted.  The warrants expire on December 31, 2009.

     During the year ended  October 31, 2003,  the Current  Valuation  Committee
marked down the  carrying  value of the Fund's  investments  in Arcot by writing
down the  investment by $3.0 million to $2.0 million.

     At  October  31,  2003,  the Fund's  investment  in Arcot  consisted  of an
outstanding  balance on the loan of $5.05  million with a cost of $5.0  million.
The investment is being valued at $2.0 million and the warrants are being valued
at $0.0.

   BLUESTAR SOLUTIONS, INC.

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

     At October 31, 2002, the Fund's investments in BlueStar consisted of 74,211
shares of  Series C  Preferred  Stock,  4,545,455  shares of Series D  Preferred
Stock,  49,474 shares of Common Stock,  and 136,054 warrants to purchase 136,054
shares of Series C Preferred  Stock with a combined cost of $13.0  million.  The
investments were assigned a fair value of $4.5 million, or approximately  $20.21
per share of the Series C Preferred Stock,  approximately $0.66 per share of the
Series D Preferred  Stock,  $0.00 per share of the Common  Stock,  and $0.00 per
warrant.

     During the year ended  October 31, 2003,  the Current  Valuation  Committee
marked down the carrying value of the Fund's  investments in BlueStar by writing
down the Series C Preferred  Stock by $1.5  million to $0.0 and by writing  down
the Series D Preferred  Stock by $1.5 million to $1.5 million.

     On May 26, 2003, and based on the Fund's investment-related  diligence, the
136,054 warrants to purchase shares of Series C Preferred Stock of BlueStar were
not  exercised  by the Fund.  At October 31,  2003,  the Fund's  investments  in
BlueStar  consisted  of 74,211  shares of Series C  Preferred  Stock,  4,545,455
shares of Series D Preferred  Stock,  and 49,474  shares of Common  Stock with a
combined cost of $13.0 million.  The investments have been assigned a fair value
of  $1.5  million,  or  $0.00  per  share  of  the  Series  C  Preferred  Stock,
approximately  $0.33 per share of the Series D  Preferred  Stock,  and $0.00 per
share of the Common Stock.

   BS MANAGEMENT

     On December 18, 2002,  the Fund entered into an  investment of $3.0 million
in the form of a Loan Agreement  with BS Management  maturing on March 17, 2003.
BS Management is based in the Isle of Man.


<PAGE>



     During the year ended  October 31, 2003,  the Current  Valuation  Committee
marked down the carrying  value of the Fund's  investment  in BS  Management  by
writing down the loan by $1.5 million to $1.5 million.

     On April 13, 2003,  the Fund  received a partial  return of capital from BS
Management of approximately  $70,000 and on August 22, 2003, the Fund received a
final return of capital from BS Management of $2.6 million.

     At  October  31,  2003,  the  Fund  no  longer  held  an  investment  in BS
Management.

     During the year ended  October 31, 2003,  the SEC  requested  that the Fund
provide it with  documents and other  information  concerning  the BS Management
transaction,  and the Fund has complied with such requests.

     For a discussion  of the BS Management  legal  proceedings  and  negotiated
return of capital, please refer to Part I, Item 3 "Legal Proceedings".

   CBCA, INC.

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

     At October 31, 2002,  the Fund's  investment in CBCA consisted of 4,774,636
shares of Series E Preferred Stock with a cost of $10.0 million.  The investment
was assigned a fair value of $10.0 million, or approximately $2.09 per share.

     In December  2002,  the Fund entered  into  follow-on  investments  of $2.0
million in CBCA,  consisting  of 955,346  shares of Series E Preferred  Stock at
approximately $2.09 per share.

     During the year ended  October 31, 2003,  the Current  Valuation  Committee
marked down the carrying value of the Fund's investments in CBCA by writing down
the Series E Preferred Stock by $11.5 million to $500,000.

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


     John Grillos,  the former Chief Executive  Officer of the Fund, served as a
director of CBCA and resigned his directorship on March 6, 2003.

   CIDERA, INC./MAINSTREAM DATA, INC.

     Cidera,  Inc.  ("Cidera"),   Laurel,  Maryland,   provided  satellite-based
delivery of broadband  content directly to Internet access points closest to the
end users.  Mainstream Data, Inc.  ("Mainstream"),  Salt Lake City, Utah, builds
and  operates  satellite,  Internet,  and  wireless  broadcast  networks for the
world's largest  information  companies.  Mainstream Data networks  deliver text
news,  streaming stock quotations,  and digital images to subscribers around the
world.


<PAGE>



     At October 31, 2002, the Fund's  investment in Cidera  consisted of 857,192
shares of Series D Preferred  Stock with a cost of $7.5 million.  The investment
was assigned a fair value of approximately  $500,000, or approximately $0.58 per
share.  Subsequent  to October 31,  2002,  Mainstream  was spun out from Cidera,
resulting in a 50%/50% cost basis split between the two investments.

     On September 26, 2003,  the Fund received a nominal  return of capital from
Cidera as a single and final repayment of the Fund's investment.

     During the year ended  October 31, 2003,  the Current  Valuation  Committee
marked  down the  carrying  value of the Fund's  investments  in  Mainstream  by
writing down the Series D Preferred Stock by $500,000 to $0.

     At October 31, 2003, the Fund no longer held an investment in Cidera.

     At October 31,  2003,  the Fund's  investment  in  Mainstream  consisted of
85,719  shares of Series D  Preferred  Stock with a cost of $3.75  million.  The
investment has been assigned a fair value of $0.

   DATAPLAY, INC.

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

     At October 31, 2002, the Fund's total  investment in DataPlay,  with a cost
basis of $12.0  million,  consisted  of  2,500,000  shares of Series D Preferred
Stock and seven  promissory  notes with a  combined  cost of $4.5  million.  The
investment had been assigned a fair value of $2.25 million, comprising $0.00 per
share  for the  Series  D  Preferred  Stock  and 50% of the  face  value  of the
promissory  notes.

     On November 20, 2002, DataPlay filed for bankruptcy under Chapter 11 of the
Code.

     On  January  15,  2003,  the Former  Valuation  Committee  marked  down the
remaining value of the Fund's  investment in all of the Promissory  Notes issued
by DataPlay by $2.25 million and wrote off all of the accrued  interest from the
Notes.

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

   DETERMINE SOFTWARE, INC.

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

     On February 5, 2003, the Fund entered into an investment of $2.0 million in
the form of a Credit  Facility with Determine  maturing on January 31, 2006. The
note earns a floating  rate of  interest at prime plus 5% per annum with a floor


<PAGE>



at 12% per annum on the outstanding  balance.  The Fund also received  2,229,955
warrants to purchase a future round of convertible preferred stock at a price of
$0.205 per share. The warrants expire on January 31, 2010.

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

   ENDYMION SYSTEMS, INC.

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

     At October  31,  2002,  the Fund's  investment  in  Endymion  consisted  of
7,156,760  shares of Series A Preferred  Stock with a cost of $7.0 million.  The
investment was assigned a fair value of $2.0 million, or approximately $0.28 per
share.

     During the year ended  October 31, 2003,  the Current  Valuation  Committee
marked down the carrying value of the Fund's  investments in Endymion by writing
down the Series A Preferred  Stock by $2.0 million to $0.0.

     At October  31,  2003,  the Fund's  investment  in  Endymion  consisted  of
7,156,760  shares of Series A Preferred  Stock with a cost of $7.0 million.  The
investment has been assigned a fair value of $0.0.

   FOLIOFN, INC.

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

     At  October  31,  2002,  the Fund's  investment  in  FolioFN  consisted  of
5,802,259  shares of Series C Preferred Stock with a cost of $15.0 million.  The
investment was assigned a fair value of $3.0 million, or approximately $0.52 per
share.

     During the year ended  October 31, 2003,  the Current  Valuation  Committee
marked down the carrying  value of the Fund's  investments in FolioFN by writing
down the Series C Preferred Stock by $3.0 million to $0.0.

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

     John Grillos,  the former Chief Executive  Officer of the Fund, served as a
director of FolioFN and resigned his directorship on behalf of the Fund on March
10, 2003.


<PAGE>



   INFOUSA.COM, INC.

     At October 31,  2002,  the Fund's  investment  consisted  of a $1.8 million
promissory  note from INFOUSA,  Inc.,  the parent  company of  INFOUSA.com.  The
investment was assigned a fair value of $1.8 million.

     On March 5, 2003,  the Fund received early  repayment of the INFOUSA,  Inc.
promissory note with proceeds of $1,845,445  representing  full repayment of the
note and outstanding accrued interest.

   INTEGRAL DEVELOPMENT CORPORATION

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

     On December 30, 2002,  the Fund entered into an  investment of $5.0 million
in the form of a Convertible  Credit Facility with Integral maturing on December
31, 2005. The transaction earns a floating rate of interest at prime plus 5% per
annum  with a floor  at 10% per  annum  and a  ceiling  at 12% per  annum on the
outstanding  balance,  prior to conversion.  In connection with the Fund's $5.05
million Credit  Facility with Integral  Development  Corporation,  the Fund also
received warrants to purchase shares of Series C Convertible  Preferred Stock of
Integral  Development  Corporation (or a future round of Preferred Stock), equal
to the number obtained by multiplying the outstanding  common stock by 0.030928,
at an exercise price equal to $0.70 per share.  The warrants  expire on December
31, 2009.

     During the year ended October 31, 2003, Integral made principal  repayments
of the Credit  Facility  totaling  $561,112.

     During the year ended  October 31, 2003,  the Current  Valuation  Committee
then marked down the  carrying  value of the Fund's  investments  in Integral by
writing down the investment by $1.0 million to $3.5 million.

     At October 31,  2003,  the Fund's  investment  in Integral  consisted of an
outstanding  balance on the loan of $4.46 million with a cost of $4.46  million.
The investment is being valued at $3.5 million and the warrants are being valued
at $0.0.

   ISHONI NETWORKS, INC.

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

     At October 31, 2002, the Fund's investment in Ishoni consisted of 2,003,607
shares of Series C Preferred Stock with a cost of $10.0 million.  The investment
was assigned a fair value of $2.5 million, or approximately $1.25 per share.


<PAGE>



     During the year ended  October 31,  2003,  the Former  Valuation  Committee
marked down the carrying  value of the Fund's  investments  in Ishoni by writing
down the Series C Preferred Stock by $2.5 million to $0.0.

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

   LUMETA CORPORATION

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

     At October 31, 2002, the Fund's  investment in Lumeta  consisted of 384,615
shares of Series A  Preferred  Stock and  266,846  shares of Series B  Preferred
Stock with a cost of  approximately  $250,000 and  $156,489,  respectively.  The
investment  in the  Series  A  Preferred  Stock  was  assigned  a fair  value of
approximately  $269,000 and the  investment in the Series B Preferred  Stock was
assigned a fair value of  approximately  $187,000,  or  approximately  $0.70 per
share for each the Series A and B Preferred Stock.

     During the year ended  October 31, 2003,  the Current  Valuation  Committee
marked down the carrying  value of the Fund's  investments  in Lumeta by writing
down the Series A Preferred  Stock by  approximately  $225,000 to  approximately
$44,000  and by writing  down the Series B  Preferred  Stock  from  $187,000  to
approximately $156,000.

     At October 31, 2003, the Fund's  investment in Lumeta  consisted of 384,615
shares of Series A  Preferred  Stock and  266,846  shares of Series B  Preferred
Stock with a combined cost of approximately  $406,000. The investments have been
assigned a fair value of $200,000,  or approximately $0.11 per share of Series A
Preferred Stock and approximately $0.59 per share of Series B Preferred Stock.

   PHOSISTOR TECHNOLOGIES, INC.

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

     At October 31,  2002,  the Fund's  investment  in  Phosistor  consisted  of
6,666,667  shares of Series B  Convertible  Preferred  Stock with a cost of $1.0
million.  The  investment  was  assigned  a  fair  value  of  $1.0  million,  or
approximately $0.15 per share.


<PAGE>



     During the year ended  October 31, 2003,  the Current  Valuation  Committee
marked down the carrying  value of the Fund's  investments  in Phosistor by $1.0
million to $0.0.

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

   PROCESSCLAIMS, INC.

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

     At October 31, 2002, the Fund's  investment in  ProcessClaims  consisted of
6,250,000  shares  of  Series C  Preferred  Stock,  849,257  shares  of Series D
Preferred  Stock,  and 873,362  warrants to purchase  873,362 shares of Series E
Convertible Preferred Stock with a combined cost of $2.4 million. The investment
in the Series C Preferred  Stock was assigned a fair value of $2.94 million,  or
approximately  $0.471 per share of Series C Preferred  Stock,  the investment in
the  Series  D  Preferred  Stock  was  assigned  a fair  value  of  $400,000  or
approximately  $0.471 per share of Series D Preferred  Stock, and the investment
in the Series E warrants was assigned a fair value of $0.0.

     During the year ended  October 31, 2003,  the Current  Valuation  Committee
marked down the carrying  value of the Fund's  investments in  ProcessClaims  by
writing  down the Series C  Preferred  Stock by  approximately  $940,000 to $2.0
million.

     At October 31, 2003, the Fund's  investments in ProcessClaims  consisted of
6,250,000  shares  of  Series C  Preferred  Stock,  849,257  shares  of Series D
Preferred  Stock,  and 873,362  warrants to purchase  873,362 shares of Series E
Convertible Preferred Stock with a combined cost of $2.4 million. The investment
in the Series C Preferred  Stock was assigned a fair value of $2.0  million,  or
approximately $0.32 per share of Series C Preferred Stock, the investment in the
Series D Preferred Stock was assigned a fair value of $400,000 or approximately
$0.471 per share of Series D Preferred Stock, and the investment in the Series E
warrants was assigned a fair value of $0.0.

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

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

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

     At October 31, 2002,  the Fund's  investment in PTS Messaging  consisted of
1,956,026 shares of Series A-1 Convertible  Preferred Stock with a cost of $11.6
million. The investment was assigned a fair value of approximately  $170,000, or
approximately $0.09 per share.


<PAGE>



     During the year ended  October 31, 2003,  the Current  Valuation  Committee
marked down the  carrying  value of the Fund's  investment  in PTS  Messaging by
writing  down the  Series  A-1  Convertible  Preferred  Stock  by  approximately
$170,000 to $0.0.

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

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

   SAFESTONE TECHNOLOGIES PLC

     SafeStone  Technologies  PLC  ("SafeStone"),  Old  Amersham,  UK,  provides
organizations  with  secure  access  controls  across the  extended  enterprise,
enforcing compliance with security policies and enabling effective management of
the corporate IT and e-business infrastructure.

     At October 31,  2002,  the Fund's  investments  in  SafeStone  consisted of
1,714,455  shares of Series A  Preferred  Stock and  391,923  shares of Series B
Preferred  Stock with a combined cost basis of $4.0 million.  The  investment in
the Series A  Preferred  Stock was  assigned a fair value of $2.19  million,  or
approximately $1.28 per share and the investment in the Series B Preferred Stock
was assigned a fair value of $500,000,  or approximately $1.28 per share.

     During the year ended  October 31,  2003,  the Former  Valuation  Committee
marked down the carrying value of the Fund's investments in SafeStone by writing
down the  remaining  carrying  value of the  Series A  Preferred  Stock by $1.19
million to $1.0  million.

     During the year ended  October 31, 2003,  the Current  Valuation  Committee
marked down the carrying value of the Fund's investments in SafeStone by writing
down the  remaining  carrying  value of the  Series  A  Preferred  Stock by $1.0
million to $0 and by writing down the remaining  carrying  value of the Series B
Preferred  Stock by  approximately  $500,000 to $0.

     On July 29, 2003, the Fund's  1,714,455  shares of Series A Preferred Stock
and 391,923 shares of Series B Preferred Stock were recapitalized into 2,106,378
shares of Series A Ordinary Stock.

     At October 31,  2003,  the Fund's  investments  in  SafeStone  consisted of
2,106,378  shares of Series A Ordinary  Stock with a cost of $4.0  million.  The
investments have been assigned a fair value of $0.0.

   SHOPEAZE SYSTEMS, INC.

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

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


<PAGE>



   SONEXIS, INC.

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

     At  October  31,  2002,  the Fund's  investment  in  Sonexis  consisted  of
2,590,674  shares of Series C Preferred Stock with a cost of $10.0 million.  The
investment was assigned a fair value of $7.0 million, or approximately $2.70 per
share.

     During the year ended  October 31, 2003,  the Current  Valuation  Committee
marked down the carrying  value of the Fund's  investment  in Sonexis by writing
down the Series C Preferred Stock by $6.5 million to approximately $500,000.

     At  October  31,  2003,  the Fund's  investment  in  Sonexis  consisted  of
2,590,674  shares of Series C Preferred Stock with a cost of $10.0 million.  The
investment  has  been  assigned  a fair  value  of  approximately  $500,000,  or
approximately $0.19 per share.

   SYGATE TECHNOLOGIES, INC.

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

     At October 31, 2002 and October 31, 2003,  the Fund's  investment in Sygate
consisted  of 9,756,098  shares of Series D Preferred  Stock with a cost of $4.0
million.  At both  October 31, 2002 and October 31,  2003,  the  investment  was
assigned a fair value of $4.0 million, or approximately $0.41 per share.

   SYNHRGY HR TECHNOLOGIES, INC.

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

     On December 26, 2002,  the Fund entered into an  investment of $5.0 million
in the form of a Credit Facility with Synhrgy HR Technologies,  Inc. ("Synhrgy")
maturing on January 3, 2006.  The note earns a fixed rate of interest at 12% per
annum on the  outstanding  balance of the note.  The Fund also  received  43,750
warrants to purchase  Series B-1 Preferred  Stock at a price of $8.00 per share.
The warrants expire on December 23, 2009.

     At October 31,  2003,  the Fund's  investment  in Synhrgy  consisted  of an
outstanding  balance on the loan of $5.0 million  with a cost of $4.96  million.
The  investment  is being  valued at $4.96  million and the  warrants  are being
valued at $0.0.

     Subsequent to October 31, 2003,  Synhrgy repaid the balance of its original
$5.0 million credit  facility to the Fund. In conjunction  with the repayment of


<PAGE>



the credit  facility,  the Fund also exercised its 43,750 warrants in a cashless
transaction for a gain of approximately $40,000.

   VENDIO SERVICES, INC. (FORMERLY AUCTIONWATCH.COM, INC.)

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

     At October 31, 2002,  the Fund's  investment in Vendio  consisted of 10,476
shares of Common  Stock and  6,443,188  shares of Series A Preferred  Stock at a
cost of $6.6  million.  The  investments  were  assigned  a fair  value  of $1.1
million,  or $0.00 per share for the Common  Stock and  approximately  $0.18 per
share for the Series A Preferred Stock, respectively.

     During the year ended  October 31, 2003,  the Current  Valuation  Committee
marked down the carrying  value of the Fund's  investments  in Vendio by writing
down the Series A Preferred Stock by approximately $600,000 to $500,000.

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

     On April 2, 2003, the portfolio company AuctionWatch.com,  Inc. changed its
name to Vendio Services, Inc.

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

   YAGA, INC.

     Yaga, Inc. ("Yaga"), San Francisco, California, provides an advanced hosted
application  service provider (ASP) platform that addresses emerging revenue and
payment infrastructure needs of online businesses.  Yaga's sophisticated payment
and accounting application supports micropayments, aggregated billing and stored
value  accounts  while  also  managing  royalty/affiliate  accounting  and split
payments.

     At October 31, 2002,  the Fund's  investment  in Yaga  consisted of 300,000
shares of Series A Preferred  Stock,  1,000,000 shares of Series B Preferred and
100,000  warrants to purchase 100,000 shares of Series B Preferred Shares with a
combined cost of $2.3  million.  The  investments  were assigned a fair value of
$1.3  million,  or $1.00  per  share of Series A  Preferred  Stock and  Series B
Preferred Stock and $0.00 per warrant.

     During the year ended  October 31,  2003,  the Former  Valuation  Committee
marked down the carrying value of the Fund's investments in Yaga by writing down
the Series A Preferred Stock by approximately  $300,000 to $0.0 and the Series B
Preferred Stock by approximately $350,000 to approximately $650,000.


<PAGE>



     During the year ended  October 31, 2003,  the Current  Valuation  Committee
marked down the carrying value of the Fund's investments in Yaga by writing down
the Series B Preferred Stock by approximately $650,000 to $0.0.

     At October 31, 2003,  the Fund's  investment  in Yaga  consisted of 300,000
shares of Series A Preferred  Stock,  1,000,000 shares of Series B Preferred and
100,000  warrants to purchase 100,000 shares of Series B Preferred Shares with a
combined cost of $2.3 million.  The investments  have been assigned a fair value
of $0.0.

   0-IN DESIGN AUTOMATION, INC.

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

     At October 31, 2002,  the Fund's  investment in 0-In consisted of 2,239,291
shares of Series E Preferred  Stock at a cost of $4.0 million.  The  investments
were assigned a fair value of $4.0 million, or approximately $1.79 per share.

     During the year ended  October 31, 2003,  the Current  Valuation  Committee
marked down the carrying value of the Fund's investments in 0-In by writing down
the Series E Preferred Stock by $3.0 million to $1.0 million.

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

     Mr.  Gerhard,  a director of the Fund  through  January 16,  2003,  when he
resigned, served as a director of 0-In through March 8, 2003.

LIQUIDITY AND CAPITAL RESOURCES

     At October 31, 2003, the Fund had $137.3 million of investments  consisting
of  investments   in  preferred  and  common  stocks   totaling  $11.6  million,
investments in debt  instruments  totaling  $12.5  million,  investments in U.S.
government  and agency  securities  totaling  $113.2  million  and cash and cash
equivalents totaling  approximately  $6,850. The Fund considers all money market
and all highly liquid  temporary  cash  investments  purchased  with an original
maturity of three months or less to be cash equivalents.

     Current  balance  sheet  resources are believed to be sufficient to finance
anticipated future commitments.


<PAGE>



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

SUBSEQUENT EVENTS

     On November 6, 2003,  Michael  Tokarz assumed his new position as Chairman,
Portfolio  Manager and director of the Fund.  As Portfolio  Manager,  Mr. Tokarz
will be  compensated  by the Fund based  upon his  positive  performance  as the
Portfolio Manager. Under the terms of his agreement with the Fund, the Fund will
pay Mr. Tokarz an amount equal to the lesser of (a) 20% of the net income of the
Fund for the fiscal  year;  and (b) the sum of (i) 20% of the net capital  gains
realized  by the Fund in  respect  of  investments  made  during  his  tenure as
Portfolio  Manager;  and (ii) the  amount,  if any,  by which the  Fund's  total
expenses  for a fiscal  year were less than two percent of the Fund's net assets
(determined as of the last day of the period).  Any payments to be made shall be
calculated  based upon the  audited  financials  of the Fund for the  applicable
fiscal year and shall be paid as soon as practicable following the completion of
such audit.  Mr.  Tokarz has the right and the intention to allocate all or part
of such compensation to other professionals of the Fund.

     On November  26, 2003,  the Fund  commenced a tender offer to acquire up to
twenty-five  percent  (25%) of its  outstanding  shares of common stock at a per
share cash purchase price equal to ninety-five  percent (95%) of net asset value
per share as of December 31, 2003, the day the offer  expired.  Based on a final
count by the depositary for the tender offer,  3,859,558 shares, or 23.9% of the
Fund's  outstanding  common stock,  were tendered.  Because less than 25% of the
Fund's shares were tendered, the Fund purchased all shares tendered.  Each share
accepted  for purchase  was  purchased at a price of $8.18  resulting in a total
disbursement from the Fund of $31,571,184. Since completion of the tender offer,
MVC has 12,293,042 shares of common stock outstanding.  The anti-dilutive effect
of the tender offer totaled $1,650,697 or approximately $0.134 per share for all
remaining  shares after the tender offer.  The discussion  above is a summary of
the Tender  Offer and is qualified in its entirety by reference to the full text
of the Schedule TO as filed with the SEC.

     Effective December 8, 2003, the Fund agreed to a lease for new office space
in Purchase, New York, which is scheduled to expire on November 30, 2005. Future
payments  under this lease  total  $110,933,  with  annual  minimum  payments of
$49,517 from December 8, 2003 through October31,  2004, $56,682 from November 1,
2004 through October 31, 2005, and $4,734 from November 1, 2005 through November
30,  2005.  The  building  at 287  Bowman  Avenue  is owned by  Phoenix  Capital
Partners, LLC, an entity which is 97% owned by Mr. Tokarz.


<PAGE>



     On December 29, 2003, the Current Valuation  Committee marked up the Fund's
investment in 0-In Design  Automation,  Inc. by $1.0 million to $2.0 million and
marked up the Fund's investment in Sygate Technologies,  Inc. by $1.5 million to
$5.5 million.

     On December 30, 2003, Ishoni Networks,  Inc. filed for bankruptcy in United
States Bankruptcy Court, Northern District of California, San Jose Division.

     On January  21,  2004,  the Fund  reached an  agreement  with the  property
manager at 3000 Sand Hill Road, Menlo Park, California to terminate its lease at
such  location  as a  result  of the  property  manager's  ability  to  reach an
agreement with a new tenant for the space. Under the terms of the agreement, the
Fund will buy-out its lease  directly from the property  manager,  for an amount
equal  to  $232,835.  As a  result,  the  Fund  expects  to be able  to  recover
approximately $250,000 of the remaining reserve established at October 31, 2003.

     On January 23, 2004,  Synhrgy HR  Technologies,  Inc. repaid the balance of
its original $5.0 million credit  facility to the Fund. In conjunction  with the
repayment of the credit facility, the Fund also exercised its 43,750 warrants in
a cashless transaction for a gain of approximately $40,000.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

     ILLIQUID  INVESTMENTS.  The Fund invests in securities which are subject to
legal or other  restrictions  on transfer or for which no liquid market  exists.
The market prices,  if any, for such  securities tend to be volatile and may not
be  readily  ascertainable,  and the Fund may not be able to sell  them  when it
desires to do so or to realize  what it  perceives to be their fair value in the
event of a sale. The sale of restricted and illiquid  securities  often requires
more time and results in higher brokerage  charges or dealer discounts and other
selling  expenses  than does the sale of  securities  eligible  for  trading  on
national securities exchanges or in the  over-the-counter  markets. The Fund may
not be readily able to dispose of such illiquid  investments and, in some cases,
may be  contractually  prohibited  from  disposing  of  such  investments  for a
specified period of time.  Restricted  securities may sell at a price lower than
similar securities that are not subject to restrictions on resale.

     INVESTMENTS   IN  UNLISTED   SECURITIES.   The  Fund  invests  in  unlisted
securities.  Because of the absence of any trading market for these investments,
it may take longer to liquidate,  or it may not be possible to liquidate,  these
positions than would be the case for publicly traded securities.  Although these
securities  may be resold  in  privately  negotiated  transactions,  the  prices


<PAGE>



realized on these sales  could be less than those  originally  paid by the Fund.
Further,  companies whose  securities are not publicly traded may not be subject
to public disclosure and other investor  protection  requirements  applicable to
publicly traded securities.

     GROWTH STAGE COMPANIES.  While  investments in growth stage companies offer
the opportunity for significant  capital gains, such investments  involve a high
degree of business and financial  risk which can result in  substantial  losses.
The stock market has experienced  volatility which has particularly affected the
securities of technology  companies.  As a result,  the Fund's  performance  may
experience  substantial  volatility.  An  investment  in  the  Fund  should  not
constitute a complete investment program for the investor.

     EVENTS OF SEPTEMBER 11, 2001. On September 11, 2001,  terrorist  attacks on
the  United  States  caused  significant  loss of life and  property  damage and
disruptions in U.S.  markets and in global markets.  Since that time, the United
States  has  commenced  military  action and  imposed  economic  and  diplomatic
sanctions.  The  long-term  impact  of these  events,  and of  further  possible
terrorist  attacks,  is  unclear,  but could have a  material  effect on general
economic conditions and market liquidity.

     VALUATION  RISK. The portion of our portfolio  consisting of investments in
private  companies is also subject to  valuation  risk.  The market value of the
Fund's shares in large part depends on the values of the Fund's  investments and
the prospects and financial  results of the companies in which the Fund invests.
Many of the Fund's  investments are securities of private companies that are not
publicly traded.  The financial and other  information  regarding the issuers of
these  securities  that is  available  to the Fund may be more  limited than the
information  available  in the case of issuers  whose  securities  are  publicly
traded. The Current Board and/or the Current Valuation  Committee  determine the
fair value of these securities in accordance with procedures deemed  reasonable.
However,  fair value is an estimate and,  notwithstanding the good faith efforts
of the Board of Directors to determine the fair value of securities  held by the
Fund, there can be no assurance that those values accurately  reflect the prices
that the Fund  would  realize  upon  sales of those  securities.  Moreover,  the
prospects and financial condition of the companies in which the Fund invests may
change and these changes may have a significant impact on the fair values of the
Fund's  investments.  We  value  our  privately  held  investments  based  on  a
determination  made by the Current Board and/or the Current Valuation  Committee
on  a  quarterly  basis  and  as  otherwise  required  in  accordance  with  our
established  fair value  procedures.  In the absence of a readily  ascertainable
market value, the estimated  values of our investments may differ  significantly
from the values that would exist if a ready market for these securities existed.
Any changes in valuation  are recorded in our  statements  of operations as "Net
unrealized gain (loss) on investments."

     Investments  in  short  term  securities  and  cash  and  cash  equivalents
comprised approximately 82.65% of the Fund's net assets at October 31, 2003, and
are subject to financial market risk,  including  changes in interest rates. The
Fund has  invested a portion of its  capital in debt  securities,  the yield and
value of which may be impacted by changes in market interest rates.


<PAGE>



     VALUATION OF INVESTMENTS.  Investments in non-publicly traded preferred and
common  stock are  carried  at fair  value  with the net  change  in  unrealized
appreciation  or  depreciation  included in the  determination  of  increases or
decreases  in net  assets  resulting  from  its  operations.  Cost  is  used  to
approximate  fair value of these  investments  until  developments  affecting an
investment  provide a basis for valuing  such  investment  at a value other than
cost.

     The fair value of investments  for which no market exists and for which the
Current Board and/or the Fund's  Valuation  Committee have  determined  that the
original cost of the investment is no longer an appropriate  fair valuation will
be determined on the basis of procedures  established  by the Former  Advisor in
good faith and  approved by the Current  Board.  Valuations  are based upon such
factors as the  financial  and/or  operating  results of the most recent  fiscal
period,  the performance of the company  relative to planned  budgets/forecasts,
the issuer's financial condition and the markets in which it does business,  the
prices of any recent  transactions or offerings regarding such securities or any
proxy securities, any available analysis, media, or other reports or information
regarding  the issuer,  or the markets or  industry  in which it  operates,  the
nature of any restrictions on disposition of the securities and other analytical
data. In the case of  unsuccessful  operations,  the valuation may be based upon
anticipated liquidation proceeds.

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

     Investments in securities that are publicly traded on an organized exchange
are valued at their quoted closing market price,  less a discount to reflect the
estimated  effects of restrictions  on the sale of such  securities  ("Valuation
Discount"),  if  applicable.  Investments  in  companies  whose  securities  are
actively traded in the over the counter market are valued at the average closing
of their Bid and Ask prices,  less a Valuation Discount to reflect the estimated
effects of  restrictions  on the sale of such  securities,  if applicable.  If a
reliable  last bid and ask price are not  available,  market  values  for equity
securities  are  determined  based on the last reliable bid quotation  available
from a market maker in the security.

     Short-term investments, including cash equivalents, having maturities of 90
days or less are stated at amortized cost, which  approximates fair value. Other
fixed income securities are stated at fair value. Fair value of these securities
is determined at the most recent bid or yield  equivalent from dealers that make
markets in such securities.


<PAGE>



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                                               FINANCIAL STATEMENTS

                                                   MVC CAPITAL
                                                  BALANCE SHEET

<TABLE>
<CAPTION>

                                                                                      OCTOBER 31,            OCTOBER 31,
                                                                                      2003                   2002
<S>                                                                                   <C>                    <C>
ASSETS

Cash and cash equivalents                                                         $         6,850       $    78,873,485
  (cost $6,850 and $78,873,485, respectively)
Investments in short term securities, at market value                                 113,237,521            62,797,687
  (cost $113,237,521 and $62,800,088, respectively)
Investments in subordinated notes, at fair value                                                -             4,077,474
  (cost $4,500,000 and $6,327,474, respectively) (Note 7)
Investments in debt instruments, at fair value                                         12,471,288                     -
  (cost $16,439,343 and $0, respectively) (Note 7)
Investments in preferred/common stocks, at fair value                                  11,600,000            50,116,026
  (cost $125,575,852 and $127,536,066, respectively), (Note 7)
Interest receivable                                                                       152,630               216,024
Prepaid expenses                                                                          412,003                50,672
Receivable for investments sold                                                                 -               379,632
                                                                                  ---------------       ---------------
TOTAL ASSETS                                                                      $   137,880,292       $   196,511,000
                                                                                  ===============       ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Administration                                                                             19,771                11,250
Audit fees                                                                                 70,736               149,000
Legal fees                                                                                 43,046               387,459
Directors' fees                                                                            27,511                14,400
Employee compensation & benefits                                                          102,337                57,279
Other accrued expenses                                                                    608,729               505,135
                                                                                  ---------------       ---------------
TOTAL LIABILITIES                                                                 $       872,130       $     1,124,523
                                                                                  ===============       ===============
SHAREHOLDERS' EQUITY
Common Stock, $0.01 par value; 150,000,000 shares
  authorized; 16,152,600 and 16,500,000 shares outstanding, respectively                  161,526               165,000
Additional paid in capital                                                            308,593,557           311,485,000
Accumulated deficit                                                                  (171,746,921)         (116,263,523)
                                                                                  ---------------       ---------------
TOTAL SHAREHOLDERS' EQUITY                                                            137,008,162           195,386,477
                                                                                  ---------------       ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                        $   137,880,292       $   196,511,000
                                                                                  ===============       ===============
NET ASSET VALUE PER SHARE                                                         $          8.48            $    11.84
                                                                                  ===============       ===============

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


</TABLE>


<PAGE>



<TABLE>
<CAPTION>

                                                                  MVC CAPITAL
                                                              STATEMENT OF OPERATIONS



                                                   FOR THE YEAR ENDED           FOR THE YEAR ENDED      FOR THE YEAR ENDED
                                                         OCTOBER 31, 2003         OCTOBER 31, 2002          OCTOBER 31, 2001
<S>                                                <C>                          <C>                    <C>
INVESTMENT INCOME:
  Interest income                                    $     2,870,370              $ 3,730,148             $   9,046,526
  Dividend income                                                  -                    9,745                         -
  Other income                                                24,944                        -                         -
                                                    ----------------            -------------           ---------------
TOTAL INVESTMENT INCOME                                    2,895,314                3,739,893                 9,046,526

OPERATING EXPENSES:
  Management fees                                                  -                3,592,757                 7,388,061
  Proxy/Litigation related fees & expenses                 4,037,327                        -                         -
  Employee compensation & benefits                         2,476,068                  696,399                         -
  Legal fees                                               1,514,549                  998,436                         -
  Insurance                                                1,058,776                  134,421                         -
  Facilities                                               1,281,054                  166,483                         -
  Directors fees                                             455,292                  307,200                         -
  Audit fees                                                 102,102                  155,000                         -
  Administration                                             138,512                   67,500                         -
  Consulting and public relations fees                       126,490                  546,952                         -
  Other expenses                                             110,374                   99,190                         -
  Printing and postage                                        86,328                   97,512                         -
                                                    ----------------            -------------           ---------------
Total operating expenses                                  11,386,872                6,861,850                 7,388,061

NET INVESTMENT (LOSS) INCOME                              (8,491,558)              (3,121,957)                1,658,465
                                                    ----------------            -------------           ---------------
NET REALIZED AND UNREALIZED (LOSS) GAIN ON
INVESTMENTS:

Net realized (loss) gain on
  investments                                             (4,220,380)             (33,469,122)                    5,123

Net unrealized depreciation on
  investments                                            (42,771,460)             (21,765,310)              (52,994,121)
                                                    ----------------            -------------           ---------------
Net realized and unrealized loss on
  investments                                            (46,991,840)             (55,234,432)              (52,988,998)
                                                    ----------------            -------------           ---------------

NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS                                     $    (55,483,398)           $ (58,356,389)          $   (51,330,533)
                                                    ================            =============           ===============
NET DECREASE IN NET ASSETS PER SHARE
RESULTING FROM OPERATIONS                           $          (3.42)           $       (3.54)          $         (3.12)
                                                    ================            =============           ===============
DIVIDENDS DECLARED PER SHARE                        $              -            $        0.04           $          0.34
                                                    ================            =============           ===============

</TABLE>


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


<PAGE>



<TABLE>
<CAPTION>

                                                                  MVC CAPITAL
                                                              STATEMENT OF CASH FLOWS


                                                              FOR THE YEAR ENDED     FOR THE YEAR ENDED    FOR THE YEAR ENDED
                                                                  OCTOBER 31, 2003       OCTOBER 31, 2002     OCTOBER 31, 2001
<S>                                                               <C>                <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net decrease in net assets resulting from operations         $ (55,483,398)       $   (58,356,389)      $  (51,330,533)
  Adjustments to reconcile to net cash (used for) provided by
  operating activities:
  Realized loss (gain)                                             4,220,380             33,469,122               (5,123)
  Net unrealized loss                                             42,771,460             21,765,310           52,994,121
  Changes in assets and liabilities:
  Liabilities                                                       (252,393)               546,296              (89,912)
  Prepaid expenses                                                  (361,331)               (50,672)                   -
  Interest receivable                                                 63,394                180,632              243,964
  Receivable for investments sold                                    379,632               (379,632)                   -
  Purchases of preferred stock                                    (1,999,997)           (22,076,694)         (36,331,834)
  Purchases of debt instruments                                  (19,955,000)                     -                    -
  Purchases of short-term investments                           (365,017,933)          (157,541,221)        (218,380,747)
  Purchases of cash equivalents                                 (586,995,355)        (1,119,326,199)        (955,884,612)
  Purchases of subordinated notes                                          -             (4,500,000)                   -
  Proceeds from preferred stocks                                   1,884,848              9,955,664                    -
  Proceeds from debt instruments                                   3,239,364                      -                    -
  Sales/maturities of short-term investments                     277,144,371             35,097,303          185,569,861
  Sales/maturities of cash equivalents                           624,390,240          1,328,465,233          925,452,721
                                                              --------------         --------------        -------------
NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES             (75,971,718)            67,248,753          (97,762,094)
                                                              --------------         --------------        -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Re-purchases of capital stock                                   (2,894,917)                     -                    -
  Distributions                                                            -               (728,690)          (5,644,650)
                                                              --------------         --------------        -------------
NET CASH USED FOR FINANCING ACTIVITIES                            (2,894,917)              (728,690)          (5,644,650)
                                                              --------------         --------------        -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS FOR THE YEAR             (78,866,635)            66,520,063         (103,406,744)
                                                              --------------         --------------        -------------
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                      78,873,485             12,353,422          115,760,166
                                                              --------------         --------------        -------------
CASH AND CASH EQUIVALENTS, END OF YEAR                        $        6,850         $   78,873,485        $  12,353,422
                                                              ==============         ==============        =============
</TABLE>

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


<PAGE>



<TABLE>
<CAPTION>

                                                                   MVC CAPITAL
                                                        STATEMENT OF SHAREHOLDERS' EQUITY


                                                                      ADDITIONAL                           TOTAL
                                                  COMMON              PAID IN           ACCUMULATED        SHAREHOLDERS'
                                                  STOCK               CAPITAL           DEFICIT            EQUITY
<S>                                         <C>                  <C>                    <C>             <C>
BALANCE AT NOVEMBER 1, 2000                 $     165,000        $    311,485,000   $      (203,261)    $  311,446,739
Distributions                                           -                       -        (5,644,650)        (5,644,650)
Net decrease in net assets from operations              -                       -       (51,330,533)       (51,330,533)
                                            -------------        ----------------   ---------------     --------------
BALANCE AT OCTOBER 31, 2001                 $     165,000        $    311,485,000   $   (57,178,444)    $  254,471,556
                                            -------------        ----------------   ---------------     --------------
BALANCE AT NOVEMBER 1, 2001                 $     165,000        $    311,485,000   $   (57,178,444)    $  254,471,556
Distributions                                           -                       -          (728,690)          (728,690)
Net decrease in net assets from operations              -                       -       (58,356,389)       (58,356,389)
                                            -------------        ----------------   ---------------     --------------
BALANCE AT OCTOBER 31, 2002                 $     165,000        $    311,485,000   $  (116,263,523)   $   195,386,477
                                            -------------        ----------------   ---------------     --------------

BALANCE AT NOVEMBER 1, 2002                 $     165,000        $    311,485,000   $  (116,263,523)   $   195,386,477
Shares repurchased (347,400)                       (3,474)             (2,891,443)                -         (2,894,917)
Net decrease in net assets from operations              -                       -       (55,483,398)       (55,483,398)
                                            -------------        ----------------   ---------------     --------------
BALANCE AT OCTOBER 31, 2003                 $     161,526        $    308,593,557   $  (171,746,921)    $  137,008,162
                                            -------------        ----------------   ---------------     --------------
</TABLE>

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


<PAGE>



<TABLE>
<CAPTION>


                                                            MVC CAPITAL
                                                SELECTED PER SHARE DATA AND RATIOS


                                                FOR THE                  FOR THE                 FOR THE
                                                YEAR ENDED               YEAR ENDED             YEAR ENDED
                                                OCTOBER 31, 2003         OCTOBER 31, 2002     OCTOBER 31, 2001
<S>                                             <C>                  <C>                    <C>
Net asset value, beginning of year               $      11.84            $   15.42            $    18.88

Loss from investment operations:

  Net investment (loss) income                          (0.53)               (0.19)                 0.10

  Net realized and unrealized loss on investments       (2.89)               (3.35)                (3.22)
                                                  -----------            ---------            -----------
  Total loss from investment operations                 (3.42)               (3.54)                (3.12)
                                                  -----------            ---------            -----------
Less distributions from:

  Net investment income                                     -                (0.04)                (0.34)
                                                  -----------            ---------            -----------
  Total distributions                                       -                (0.04)                (0.34)
                                                  -----------            ---------            -----------
Capital share transactions
  Anti-dilutive effect of Share Repurchase Program       0.06                    -                     -
                                                  -----------            ---------            -----------
Net asset value, end of year                     $       8.48            $   11.84            $    15.42
                                                  ===========            =========            ===========
Market value, end of year                        $       8.10            $    7.90             $    9.25
                                                  ===========            =========            ===========
Market discount                                         -4.48%              -33.28%               -40.01%

TOTAL RETURN - AT NAV (a)                              -28.38%              -22.88%               -15.99%

TOTAL RETURN - AT MARKET (a)                             2.53%              -14.22%               -17.26%


RATIOS AND SUPPLEMENTAL DATA:

Net assets, end of year (in thousands)           $    137,008            $ 195,386          $    254,472

Ratios to average net assets:

  Expenses                                               7.01%          (b)   3.02%                 2.50%

  Net investment income                                 -5.22%          (b)  -1.37%                 0.56%

</TABLE>


(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 includes approximately
$4.0 million of proxy/litigation fees and expenses. When these fees and expenses
are excluded,  the Fund's expense ratio is 4.52% and the net investment  loss is
-2.74%.

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


<PAGE>



                                                     MVC CAPITAL
                                                     SCHEDULE OF INVESTMENTS
                                                     OCTOBER 31, 2003


<TABLE>
<CAPTION>

                                                                                Date of
                                                                                Initial
Description                                          Shares/Principal           Investment       Cost               Fair Value
<S>                                                  <C>                        <C>              <C>                <C>
PREFERRED STOCKS-8.47% (a, b, d, g) (NOTE 6, 7, 8)

  TECHNOLOGY INVESTMENTS - 8.47%

  Actelis Networks, Inc. Series C                      1,506,025                May 2001    $   5,000,003       $    1,000,000

  * Blue Star Solutions, Inc.:

     Common Stock                                         49,474                May 2000        3,999,999                    -
     Series C Preferred                                   74,211                May 2000        5,999,999                    -

  * BlueStar Solutions Inc., Series D                  4,545,455                Feb. 2002       3,000,000            1,500,000

  * CBCA, Inc., Series E                               5,729,562                Apr. 2002       11,999,995             500,000

    DataPlay, Inc., Series D (e)                       2,500,000                June 2001        7,500,000                   -

  * Endymion Systems, Inc., Series A                   7,156,760                June 2000        7,000,000                   -

  * FOLIOFN, Inc., Series C                            5,802,259                June 2000       15,000,000                   -

    Ishoni Networks, Inc., Series C                    2,003,607                Nov. 2000       10,000,003                   -

    Lumeta Corporation, Series A                         384,615                Oct. 2000          250,000              43,511

    Lumeta Corporation, Series B                         266,846                June 2002          156,489             156,489

    MainStream Data, Series D                             85,719                Aug. 2002        3,750,001                   -

  * Phosistor Technologies, Inc., Series B (f)         6,666,667                Jan. 2002        1,000,000                   -

  * ProcessClaims, Inc., Series C                      6,250,000                June 2001        2,000,000           2,000,000

  * ProcessClaims, Inc., Series D                        849,257                May 2002           400,000             400,000

  * ProcessClaims, Inc.
      Series E warrants, expire 12/31/05 (g)             873,362                May 2002                20                   -

  * PTS Messaging, Inc., Series A-1 (f)                1,956,026                July 2000       11,569,939                   -

</TABLE>


<PAGE>



<TABLE>
<CAPTION>
<S>                                                    <C>                      <C>              <C>                  <C>

  * SafeStone Technologies PLC
      Series A Ordinary Shares                         2,106,378                Dec. 2000        4,015,402                   -

  ShopEaze Systems, Inc., Series B (f)                 2,097,902                May 2000         6,000,000                   -

  * Sonexis, Inc., Series C                            2,590,674                June 2000       10,000,000             500,000

  * Sygate Technologies, Inc., Series D                9,756,098                Oct. 2002        4,000,000           4,000,000

  * Vendio Services, Inc., Common Stock (c)               10,476                June 2000        5,500,000                   -

  * Vendio Services, Inc., Series A (c)                6,443,188                Jan. 2002        1,134,001             500,000

  * Yaga, Inc., Series A                                 300,000                Nov. 2000          300,000                   -


</TABLE>

The accompanying notes are an intergral part of these financial statements.


<PAGE>



                                   MVC CAPITAL
                                   SCHEDULE OF INVESTMENTS
                                   (CONTINUED)
                                   OCTOBER 31, 2003


<TABLE>
<CAPTION>


                                                                 Date of
                                                                 Initial
Description                                     Shares/Principal Investment          Cost               Fair Value
<S>                                            <C>               <C>            <C>               <C>
* Yaga, Inc.:
  Series B                                       1,000,000        June 2001       $    2,000,000     $            -
  Series B Warrants, expire 06/08/04 (g)           100,000        June 2001                    -                  -

* 0-In Design Automation, Inc., Series E         2,239,291        Nov. 2001            4,000,001          1,000,000

TOTAL PREFERRED STOCKS                                                               125,575,852         11,600,000


DEBT INSTRUMENTS-9.10% (a, b)

TECHNOLOGY INVESTMENTS - 9.10%

Arcot Systems, Inc. (h)
  10.0000%, 12/31/2005                            5,050,000        Dec. 2002           5,012,500          2,000,000

Determine Software, Inc.
  12.0000%, 01/31/2006                            2,025,000        Feb. 2003           2,009,224          2,009,224

Determine Software, Inc., Series C Warrants (g)   2,229,955        Feb. 2003                   -                  -

Intergral Development Corporation (h)
  10.0000%, 12/31/2005                            4,488,888        Dec. 2002           4,455,555          3,500,000

Synhrgy HR Technologies
  12.0000%, 01/03/2006                            5,000,000        Dec. 2002           4,962,064          4,962,064

Synhrgy HR Technologies, Series B-1 Warrant (g)      43,750        Dec. 2002                   -                  -
                                                                                      ------------      ------------
TOTAL DEBT INSTRUMENTS                                                                16,439,343         12,471,288
                                                                                      ------------      ------------

SUBORDINATED NOTES-0.00% (a, b, g)

TECHNOLOGY INVESTMENTS - 0.00%

DataPlay, Inc. (e)
  6.000%, 05/15/2005                              2,000,000        May 2002            2,000,000                  -

DataPlay, Inc. (e)
  6.000%, 06/17/2005                                500,000        June 2002             500,000                  -

DataPlay, Inc. (e)
  6.000%, 09/24/2005                                200,000        Sept. 2002            200,000                  -

DataPlay, Inc. (e)
  6.000%, 08/16/2005                                200,000        Aug. 2002             200,000                  -

DataPlay, Inc. (e)
  6.000%, 08/26/2005                                400,000        Aug. 2002             400,000                  -

DataPlay, Inc. (e)
  6.000%, 09/03/2005                                200,000        Sept. 2002            200,000                  -

DataPlay, Inc. (e)
  6.000%, 06/27/2005                              1,000,000        June 2002           1,000,000                  -
                                                                                      ------------      ------------
TOTAL SUBORDINATED NOTES                                                               4,500,000                  -
                                                                                      ------------      ------------
</TABLE>

The accompanying notes are an intergral part of these financial statements.


<PAGE>



                                   MVC CAPITAL
                                   SCHEDULE OF INVESTMENTS
                                   (CONTINUED)
                                   OCTOBER 31, 2003

<TABLE>
<CAPTION>

                                                                     Date of
                                                                     Initial                             Fair Value/
Description                                      Shares/Principal    Investment        Cost             Market Value
<S>                                             <C>                <C>                 <C>              <C>
SHORT-TERM SECURITIES-82.65% (b)

U.S. GOVERNMENT & AGENCY SECURITIES-82.65% (b)

U.S. Treasury Bill
  1.1000%, 11/06/2003                               8,338,000        Aug. 2003     $   8,337,016    $    8,337,016

U.S. Treasury Bill
  1.1000%, 11/13/2003                               5,495,000        Aug. 2003         5,493,425         5,493,425

U.S. Treasury Bill
  0.8550%, 11/20/2003                               2,585,000        Aug. 2003         2,583,840         2,583,840

U.S. Treasury Bill
  0.8400%, 12/26/2003                               9,013,000        Sept. 2003        9,001,433         9,001,433

U.S. Treasury Bill
  0.8600%, 01/02/2004                              36,649,000        Oct. 2003        36,594,719        36,594,719

U.S. Treasury Bill
  0.8000%, 01/08/2004                              13,533,000        Oct. 2003        13,512,550        13,512,550

U.S. Treasury Bill
  0.8500%, 01/15/2004                              15,738,000        Oct. 2003        15,710,459        15,710,459

U.S. Treasury Bill
  0.9200%, 01/22/2004                              14,585,000        Oct. 2003        14,556,762        14,556,762

U.S. Treasury Bill
  0.9600%, 01/29/2004                               7,463,000        Oct. 2003         7,447,317         7,447,317
                                                                                  --------------      ------------
TOTAL U.S. GOVERNMENT & AGENCY SECURITIES                                            113,237,521       113,237,521
                                                                                  --------------      ------------
TOTAL SHORT-TERM SECURITIES                                                          113,237,521       113,237,521
                                                                                  --------------      ------------

CASH AND CASH EQUIVALENTS-0.00% (b)

   MONEY MARKET FUNDS-0.00% (b)

   First American Prime Obligations Fund - Class     S  6,850        Nov. 2002             6,850             6,850
                                                                                  --------------      ------------

TOTAL CASH AND CASH EQUIVALENTS                                                            6,850             6,850
                                                                                  --------------      ------------
TOTAL INVESTMENTS-100.22% (b)                                                    $   259,759,566     $ 137,315,659
                                                                                  ==============      ============
The accompanying notes are an intergral part of these financial statements.


</TABLE>


<PAGE>



                                   MVP Capital
                       Schedule of Investments (Contined)
                                October 31, 2003


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

(b) Percentages are based on net assets of $137,008,162.

(c) As defined in the  Investment  Company Act of 1940, at October 31, 2003, the
Fund was considered to have a controlling interest in Vendio Services, Inc.

(d) All of the Fund's  preferred  and common stock and debt  investments  are in
eligible portfolio companies,  as defined in the Investment Company Act of 1940,
except  SafeStone   Technologies  PLC.  The  Fund  makes  available  significant
managerial  assistance  to  all of  the  portfolio  companies  in  which  it has
invested.

(e) Company in bankruptcy/liquidation.

(f) Company in dissolution.

(g) Non-income producing assets.

(h) Also received  warrants to purchase a number of shares of preferred stock to
be determined upon exercise.

* Affiliated Issuers (Total Market Value of $10,400,000): companies in which the
Fund owns at least 5% of the voting securities.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                    MEVC DRAPER FISHER JURVETSON FUND I, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                OCTOBER 31, 2003


1. ORGANIZATION AND BUSINESS PURPOSE

     meVC Draper Fisher  Jurvetson Fund I, Inc., D/B/A MVC Capital (the "Fund"),
is a  Delaware  corporation  organized  on  December  2,  1999  which  commenced
operations  on March 31, 2000.  On December 2, 2002 the Fund  announced  that it
would begin doing  business  under the name MVC Capital.  The Fund's  investment
objective is to seek to maximize total return from capital  appreciation  and/or
income.  The Fund seeks to achieve its investment  objective by providing equity


<PAGE>



and debt  financing to companies  that are, for the most part,  privately  owned
("Portfolio  Companies").  The Fund's current investments in Portfolio Companies
consist  of senior  and  subordinated  loans,  venture  capital,  mezzanine  and
preferred instruments and private equity investments.

     The Fund has elected to be treated as a business  development company under
the Investment  Company Act of 1940, as amended (the "Investment  Company Act").
The shares of the Fund commenced  trading on the New York Stock  Exchange,  Inc.
(the "NYSE") under the symbol MVC on June 26, 2000.

     The Fund had entered into an advisory  agreement with meVC  Advisers,  Inc.
(the "Former  Advisor")  which had entered into a  sub-advisory  agreement  with
Draper Fisher Jurvetson MeVC Management Co., LLC (the "Former Sub-Advisor").  On
June 19, 2002, the Former Advisor  resigned  without prior notice to the Fund as
the Fund's  investment  advisor.  This  resignation  resulted  in the  automatic
termination  of  the  agreement  between  the  Former  Advisor  and  the  Former
Sub-Advisor to the Fund. As a result,  the Fund's board  internalized the Fund's
operations, including management of the Fund's investments.

     Six of the seven members  (excluding  Mr. Tokarz) of the current Board were
elected at the February 28, 2003 Annual  Meeting of  Stockholders  (the "Current
Board"),  replacing  the  former  Board of  Directors  of the Fund (the  "Former
Board") in its  entirety.  On March 6, 2003,  the results of the  election  were
certified by the Inspector of Elections,  whereupon the Current Board terminated
John M. Grillos,  the Fund's previous CEO. Shortly thereafter,  other members of
the Fund's senior  management team, who had previously  reported to Mr. Grillos,
resigned.  Since these  significant  changes in the Board and  management of the
Fund,  the Fund has  operated  in a  transition  mode and,  as a result,  no new
portfolio investments were made from early March 2003 through the end of October
2003 (the end of the  Fiscal  Year).  During  this  period,  the  Current  Board
explored  various  alternatives  for a long-term  management  plan for the Fund,
including the possibility of retaining an external investment advisor.  However,
the  Current  Board  concluded  that  it was in the  Fund's  best  interests  to
implement  the  proposed  plan,  as  described  in Note 12,  and as voted on and
approved  by   stockholders  at  the  September  16,  2003  Special  Meeting  of
Stockholders.  Michael Tokarz,  as described  below, was elected to the Board at
the September 16, 2003 Special  Meeting of  Stockholders  effective  November 6,
2003.

2. SIGNIFICANT ACCOUNTING POLICIES

     The following is a summary of significant  accounting  policies followed by
the Fund in the preparation of its financial statements:

     The  preparation  of financial  statements  in accordance  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and  assumptions  that affect the reported  amounts
and  disclosures in the financial  statements.  Actual results could differ from
those estimates.

     VALUATION OF INVESTMENTS - Investments in non-publicly traded preferred and
common  stock are  carried  at fair  value  with the net  change  in  unrealized


<PAGE>



appreciation  or  depreciation  included in the  determination  of  increases or
decreases  in net  assets  resulting  from  its  operations.  Cost  is  used  to
approximate  fair value of these  investments  until  developments  affecting an
investment  provide a basis for valuing  such  investment  at a value other than
cost.

     The fair value of investments  for which no market exists and for which the
Current Board and/or the Fund's  Valuation  Committee have  determined  that the
original cost of the investment is no longer an appropriate  fair valuation will
be determined on the basis of procedures  established  by the Former  Advisor in
good faith and  approved by the Current  Board.  Valuations  are based upon such
factors as the  financial  and/or  operating  results of the most recent  fiscal
period,  the performance of the company  relative to planned  budgets/forecasts,
the issuer's financial condition and the markets in which it does business,  the
prices of any recent  transactions or offerings regarding such securities or any
proxy securities, any available analysis, media, or other reports or information
regarding  the issuer,  or the markets or  industry  in which it  operates,  the
nature of any restrictions on disposition of the securities and other analytical
data. In the case of  unsuccessful  operations,  the valuation may be based upon
anticipated liquidation proceeds.

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

     Investments in securities that are publicly traded on an organized exchange
are valued at their quoted closing market price,  less a discount to reflect the
estimated  effects of restrictions  on the sale of such  securities  ("Valuation
Discount"),  if  applicable.  Investments  in  companies  whose  securities  are
actively traded in the over the counter market are valued at the average closing
of their Bid and Ask prices,  less a Valuation Discount to reflect the estimated
effects of  restrictions  on the sale of such  securities,  if applicable.  If a
reliable  last bid and ask price are not  available,  market  values  for equity
securities  are  determined  based on the last reliable bid quotation  available
from a market maker in the security.

     Short-term investments, including cash equivalents, having maturities of 90
days or less are stated at amortized cost, which  approximates fair value. Other
fixed income securities are stated at fair value. Fair value of these securities
is determined at the most recent bid or yield  equivalent from dealers that make
markets in such securities.

     INVESTMENT   TRANSACTIONS  AND  RELATED   INVESTMENT  INCOME  -  Investment
transactions  are  accounted for on the trade date (the date the order to buy or
sell is  executed).  The cost of  securities  sold is  determined on a first-in,
first-out  basis,  unless  otherwise  specified.  Dividend  income on investment
securities is recorded on the ex-dividend date. Interest income,  which includes
accretion of discount and amortization of premium, if applicable, is recorded on
the accrual basis.


<PAGE>



     CASH AND CASH  EQUIVALENTS  - For the  purpose  of the  Balance  Sheet  and
Statement  of Cash Flows,  the Fund  considers  all money  market and all highly
liquid temporary cash investments  purchased with an original  maturity of three
months or less to be cash equivalents.

     RESTRICTED SECURITIES - The Fund will invest in privately placed restricted
securities.   These  securities  may  be  resold  in  transactions  exempt  from
registration  or to the public if the  securities  are  registered.  Disposal of
these  securities may involve  time-consuming  negotiations  and expense,  and a
prompt sale at an acceptable price may be difficult.

     INCOME  TAXES - It is the policy of the Fund to meet the  requirements  for
qualification  as a "regulated  investment  company"  under  Subchapter M of the
Internal Revenue Code of 1986, as amended. The Fund is not subject to income tax
to the extent that it distributes  all of its investment  company taxable income
and net realized gains for its taxable year. The Fund is also exempt from excise
tax if it  distributes  most of its ordinary  income and/or capital gains during
each calendar year.

     RECLASSIFICATIONS  -  There  have  been no  amounts  which  have  had to be
reclassified to conform to the current year presentation.

     3. MANAGEMENT

     For the year ended  October 31, 2003,  the Fund has managed its  operations
and investments internally.  Previously, from commencement of operations through
June 19, 2002, the Fund was charged a management fee by the Former Advisor at an
annual rate of 2.5% of the average  weekly net assets of the Fund,  paid monthly
in arrears.  A portion of this fee was also used to pay the Former  Sub-Advisor.
The Former  Advisor had entered into a  sub-advisory  agreement  with the Former
Sub-Advisor  in which the Former  Advisor paid the Former  Sub-Advisor an annual
investment  sub-advisory  fee equal to 1.0% of the  Fund's  average  weekly  net
assets,  paid monthly in arrears.  The sub-advisory  fees were not an additional
expense to the Fund.  During the period  November 1, 2001 to May 31,  2002,  the
Fund paid the  Former  Advisor  $3.48  million  in  management  fees who in turn
distributed  $1.51  million  to the  Former  Sub-Advisor.  During the year ended
October 31, 2001,  the Fund paid the Former  Advisor $7.39 million in management
fees who in turn distributed $2.96 million to the Former Sub-Advisor.

     The Former Advisor  resigned  without notice on June 19, 2002. As a result,
the Fund's board internalized the Fund's operations, including management of the
Fund's  investments,  and the  Fund  began  to pay its  expenses  directly.  The
previous 2.5% expense cap, the maximum amount of  compensation to be paid to the
Former Advisor, was terminated at the time of the Former Advisor's resignation.

     The Fund  determined  that the Former Advisor had not paid certain  vendors
for services performed on behalf of the Fund, which it had agreed to pay. During
the fiscal year ended  October 31,  2003,  the Fund paid or accrued  $463,535 in
expenses to those vendors.  See Note 10, "Legal Proceedings" for a discussion of
legal action  against the Former  Advisor by Millenco L.P., a stockholder of the
Fund, to recover certain advisory fees paid by the Fund to the Former Advisor.


<PAGE>



4. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS

     Income  dividends and capital gain  distributions,  if any, are recorded on
the  ex-dividend  date.  Dividends and capital gain  distributions,  if any, are
generally declared and paid annually. An additional  distribution may be paid by
the  Fund  to  avoid   imposition  of  federal   income  tax  on  any  remaining
undistributed net investment income and capital gains. Distributions can be made
payable  by the  Fund  either  in the  form  of a cash  distribution  or a stock
dividend.  The amount and character of income and capital gain distributions are
determined  in  accordance  with  income tax  regulations  which may differ from
accounting principles generally accepted in the United States of America.  These
differences  are due  primarily  to differing  treatments  of income and gain on
various investment securities held by the Fund, timing differences and differing
characterizations  of  distributions  made by the Fund.  Permanent  book and tax
basis  differences   relating  to  shareholder   distributions  will  result  in
reclassifications  and may affect the allocation  between net investment income,
net realized gain (loss) and paid in capital.

     During the year ended October 31, 2003,  the Fund's  expenses  exceeded its
ordinary  income and its capital losses exceeded its capital gains. As such, the
Fund did not declare any dividends during the year ended October 31, 2003.

     On December 4, 2001, the Fund announced an ordinary income cash dividend of
$0.044163 per share,  payable on January 3, 2002, to  stockholders  of record at
the close of business on December  10,  2001.  In  accordance  with the Dividend
Reinvestment Plan, the Dividend  Distribution Agent purchased shares on the open
market of the NYSE for those shareholders  electing to take their  distributions
in the form of stock dividends. The total distribution amounted to $728,690.

     On December 6, 2000, the Fund announced an ordinary income cash dividend of
$0.34210 per share, payable on January 3, 2001, to stockholders of record at the
close of  business  on  December  8,  2000.  In  accordance  with  the  Dividend
Reinvestment Plan, the Dividend  Distribution Agent purchased shares on the open
market of the NYSE for those shareholders  electing to take their  distributions
in the form of stock dividends. The total distribution amounted to $5,644,650.

5. TRANSACTIONS WITH OTHER PARTIES

     The Fund is permitted to co-invest in certain Portfolio  Companies with its
affiliates  subject to specified  conditions set forth in an order obtained from
the SEC. Under the terms of the order, Portfolio Companies purchased by the Fund
and its affiliates are required to be approved by the Independent  Directors and
are required to satisfy certain conditions established by the SEC.

     On  February  7, 2003,  the Fund  acquired  various  assets  from Sand Hill
Capital Holdings,  Inc., the entity previously affiliated with the Fund's former
President, William Del Biaggio III, for the Fund's operations, including but not
limited  to,  furniture  and  systems  hardware  and  software.  The assets were
purchased for $24,000.

     Through  March  2002,  Fleet  Investment  Advisors  managed the Fund's cash
portfolio under a sub-advisory agreement with the Former Advisor.  Subsequently,
the Former Advisor  managed those assets until its resignation on June 19, 2002.
From June 19, 2002  through  March 27, 2003,  the Fund's  short term  investment


<PAGE>



portfolio was managed internally by Fund employees.  From March 28, 2003 through
the current date, and at the Fund's  direction,  U.S. Bank National  Association
purchased  90-day U.S.  Treasury  Bills with the Fund's short term assets except
that the Fund's  cash  balances,  if not large  enough to be  invested in 90-day
Treasury Bills, are swept into a designated money market account.

     On June 19, 2002, when meVC Advisers resigned as the Investment  Advisor to
the Fund,  the  Former  Advisor's  sub-advisory  agreement  with  Draper  Fisher
Jurvetson MeVC  Management  Co., LLC (the "Former  Sub-Advisor")  was terminated
automatically as a matter of contract construction.  On June 20, 2002, the Board
voted to internalize all investment  management and administrative  functions of
the Fund.  For the year ended  October  31,  2002,  the Fund paid meVC  Advisers
advisory fees  amounting to $3.59 million and the Former Advisor paid the Former
Sub-Advisor  sub-advisory  fees  amounting to $1.58  million,  or 1% of the 2.5%
management fee.

     On June 26,  2002,  the Fund  acquired  various  assets from meVC  Advisers
necessary to run the Fund's information systems and web site,  including but not
limited to, website equipment,  systems hardware and software,  and intellectual
property. The assets were purchased for $17,855.

     In June and July  2002,  the  Fund  utilized  the  services  of the  Former
Sub-Advisor as a temporary payroll agent to facilitate the payment of the Fund's
employees.  Former  Management  and  the  Former  Board  believed  it was in the
stockholders'  best interest to maintain  continuity of payroll while operations
were initiated with the Fund's ongoing payroll vendor.

     During the year ended  October  31,  2001,  the Fund  accrued  and paid the
Former Advisor $7.39 million in management  fees who in turn  distributed  $2.96
million to the Former Sub-Advisor.

6. CONCENTRATION OF MARKET AND CREDIT RISK

     Financial  instruments  that subject the Fund to  concentrations  of market
risk consist  principally  of preferred  stocks,  subordinated  notes,  and debt
instruments,  which represent  approximately 17.57% of the Fund's net assets. As
discussed in Note 7 and Note 8,  investments  consist of securities in companies
with no readily  determinable market values and as such are valued in accordance
with the Fund's  fair  value  policies  and  procedures.  The Fund's  investment
strategy represents a high degree of business and financial risk due to the fact
that the investments  include entities with little operating history or entities
that possess operations in new or developing  industries.  These investments are
subject to  restrictions on resale because they were acquired from the issuer in
private  placement  transactions.  At  this  time,  the  Fund's  investments  in
short-term  securities are in 90-day Treasury Bills, which are federally insured
securities,  except that the Fund's  cash  balances,  if not large  enough to be
invested in 90-day  Treasury  Bills,  are swept into a  designated  money market
account.


<PAGE>



7. PORTFOLIO INVESTMENTS

     FOR THE YEAR ENDED  OCTOBER  31,  2003.  During the year ended  October 31,
2003,  the Fund  invested  a total of  approximately  $21.95  million in new and
existing Portfolio Companies.  Approximately $19.95 million was invested in five
new companies:  BS Management Limited,  Synhrgy HR Technologies,  Inc., Integral
Development  Corporation,  Arcot  Systems,  Inc., and Determine  Software,  Inc.
Approximately  $2.0 million was invested in two follow-on  investments  in CBCA,
Inc.  The  current  Board of  Directors  was  elected at the  Annual  Meeting of
Stockholders  held on February 28, 2003.  All  investments  made during the year
ended  October 31,  2003 were made under the  supervision  of the Former  Board.
There have been no new  investments  (other than  short-term  investments)  made
under the  supervision  of the Current  Board.  The Fund also had one  portfolio
company exit event with proceeds totaling  approximately  $40,000 and a realized
loss totaling  approximately $178,000 from the final disbursement of assets from
EXP Systems,  Inc., had one gain of $25,000 representing  proceeds received from
MediaPrise, Inc. in excess of the Fund's complete write-off of the investment in
MediaPrise,  Inc.  during the fiscal year ended  October 31,  2002,  and had two
return of capital  disbursements from BS Management totaling  approximately $2.7
million  and a  realized  loss of  approximately  $322,000  and  had a  complete
write-off  of  Cidera,  Inc.  of $3.75  million.  The Fund also  received  early
repayment of the infoUSA,  Inc.  promissory  note with  proceeds of  $1,845,445,
representing full repayment of the note and outstanding accrued interest.

     In  connection  with the Fund's $5.05  million  Credit  Facility with Arcot
Systems,  Inc., the Fund also received  warrants to purchase  shares of Series E
Convertible  Preferred  Stock  of  Arcot  Systems,  Inc.,  equal  to 3%  of  the
outstanding  common  stock on a fully  diluted  basis,  at an exercise  price of
approximately $0.97 per share, as adjusted.  The warrants expire on December 31,
2009.

     In connection  with the Fund's $5.05 million Credit  Facility with Integral
Development  Corporation,  the Fund also received warrants to purchase shares of
Series C Convertible  Preferred Stock of Integral Development  Corporation (or a
future round of Preferred  Stock),  equal to the number  obtained by multiplying
the  outstanding  common stock by 0.030928,  at an exercise price equal to $0.70
per share. The warrants expire on December 31, 2009.

     As a result of the change in the composition of the Board of Directors, the
Valuation  Committee  existing at the time of the change (the "Former  Valuation
Committee")  was replaced,  with the current Board electing new members to serve
on this  committee  (the  "Current  Valuation  Committee").  For the year  ended
October 31, 2003, the Former Valuation  Committee  and/or the Current  Valuation
Committee  of the  Board  of  Directors  marked  down the  value  of the  Fund's
investments in Actelis Networks,  Inc. by $1.5 million,  Arcot Systems,  Inc. by
$3.0 million,  BlueStar  Solutions,  Inc. by $3.0 million, BS Management by $1.5
million,  CBCA, Inc. by $11.5 million,  Endymion Systems,  Inc. by $2.0 million,
Foliofn, Inc. by $3.0 million, Integral Development Corporation by $1.0 million,
Ishoni  Networks,  Inc. by $2.5 million,  Lumeta  Corporation  by  approximately
$237,000,   Mainstream   Data,  Inc.  by   approximately   $500,000,   Phosistor
Technologies,  Inc.  by  $1.0  million,  ProcessClaims,  Inc.  by  approximately
$940,000, PTS Messaging,  Inc. (formerly Pagoo, Inc.) by approximately $170,000,


<PAGE>



SafeStone Technologies PLC by $1.5 million, Sonexis, Inc. by $6.5 million, Yaga,
Inc. by $1.3 million, Vendio Services, Inc. (formerly AuctionWatch.com, Inc.) by
approximately  $600,000,  0-In  Design  Automation,  Inc. by $3.0  million,  and
DataPlay Inc. by $2.25 million,  and wrote-off all of the accrued  interest from
the DataPlay,  Inc. Promissory Notes. At October 31, 2003, the fair value of all
portfolio  investments,  exclusive of short-term  securities,  was $24.1 million
with a cost of $146.5  million  and at  October  31,  2002 the fair value of all
portfolio  investments,  exclusive of short-term  securities,  was $54.2 million
with a cost of $133.9 million.

     At  October 31, 2003,  all of the Fund's investments  in  preferred  stocks
totaling  $11.6 million (8.47% of net assets),  investments in debt  instruments
totaling $12.5 million (9.10% of net assets),  and  investments in  subordinated
notes  totaling $0, had been valued by the  Valuation  Committee of the Board of
Directors, in the absence of readily ascertainable market values. Because of the
inherent  uncertainty of valuation,  these values may differ  significantly from
the  values  that would  have been used had a ready  market for the  investments
existed and the differences could be material.

     FOR THE YEAR ENDED  OCTOBER  31,  2002.  During the year ended  October 31,
2002, the Fund invested approximately  $19,000,000 in four new companies,  CBCA,
Inc.,  Phosistor  Technologies,  Inc., Sygate,  Inc. and 0-In Design Automation,
Inc., made fourteen follow-on investments in AuctionWatch.com,  Inc. (now Vendio
Services, Inc.), BlueStar Solutions, Inc., DataPlay, Inc., IQdestination,  Inc.,
Lumeta  Corporation,  ProcessClaims,  Inc.,  and SafeStone PLC of  approximately
$10,006,000,  had three  portfolio  company exit events with  proceeds  totaling
approximately $9,955,000 and realized losses totaling approximately  $14,834,000
in the sale of infoUSA.com to its parent entity, the disbursement of assets from
EXP Systems,  Inc., and the sale of Annuncio Software,  Inc. to PeopleSoft,  had
one return of capital of  approximately  $2,430,000  from Pagoo,  Inc.  (now PTS
Messaging, Inc.), and had four portfolio company write-offs with realized losses
totaling  approximately  $18,637,000 in the  irreversible  dilution of equity in
Personic  Software,  Inc.,  the filing of Chapter 7 of the US Code by InfoImage,
Inc., the cessation of operations by  IQdestination,  Inc., and the cessation of
operations by MediaPrise, Inc.

     At October 31 of 2002, all of the Fund's  investments  in preferred  stocks
totaling  $50.1 million (25.6% of net assets) and  investments  in  subordinated
notes totaling $4.1 million (2.09% of net assets), had been valued by the Former
Valuation  Committee  of the  Board of  Directors,  in the  absence  of  readily
ascertainable  market values.  Because of the inherent uncertainty of valuation,
these values may differ  significantly from the values that would have been used
had a ready  market for the  investments  existed and the  differences  could be
material.

     FOR THE YEAR ENDED  OCTOBER  31,  2001.  During the year ended  October 31,
2001, the Fund invested approximately  $28,200,000 in six new companies and made
five follow-on investments in InfoImage,  Inc., IQdestination,  Inc., Pagoo.com,
Inc. (now PTS Messaging,  Inc.),  Personic  Software,  Inc.,  and Yaga,  Inc. of
approximately $8,132,000.  During the year ended October 31, 2001, there were no
changes made or additions to the initial  investments in Lumeta  Corporation and
MediaPrise, Inc.


<PAGE>



     At October 31 of 2001, all of the Fund's  investments  in preferred  stocks
totaling  $90.9  million  (35.7% of net  assets)  had been  valued by the Former
Valuation  Committee  of the  Board of  Directors,  in the  absence  of  readily
ascertainable  market values.  Because of the inherent uncertainty of valuation,
these values may differ  significantly from the values that would have been used
had a ready  market for the  investments  existed and the  differences  could be
material.

8. COMMITMENTS AND CONTINGENCIES

     The Fund rents office space at 3000 Sand Hill Road,  Menlo Park,  CA 94025,
under a lease which is scheduled to expire on October 31, 2005.  Future payments
under this lease, as of October 31, 2003, totaled $597,000,  with annual minimum
payments  of  $298,500.  In January  2004,  the Fund agreed to a buy-out of this
lease for $232,835 effective January 31, 2004.

     On   February   13,   2003,   the  Fund   entered   into  a   Directors   &
Officers/Professional  Liability  Insurance  policy with a cost of approximately
$1.4  million.  The cost will be  amortized  over the life of the policy  ending
February  2004.  At  October  31,  2003,  the  balance  of the cost as yet to be
amortized was $424,735.

9. CERTAIN REPURCHASES OF EQUITY SECURITIES BY THE ISSUER

     During the year ended October 31, 2003, the Fund repurchased 347,400 of its
shares at an average price of approximately $8.28,  excluding brokerage fees for
the  transactions  executed  on the open  market  of the NYSE.  The Fund  ceased
repurchasing  shares  after the Current  Board was elected on February 28, 2003.
The Fund's  repurchase of shares was  conducted  according to a written plan for
the  purpose of  satisfying  the  provisions  set forth in Rule  10b5-1 and Rule
10b-18  under the  Securities  Exchange Act of 1934,  as amended (the  "Exchange
Act").

10. LEGAL PROCEEDINGS

     On February 20, 2002,  Millenco LP  ("Millenco"),  a  stockholder,  filed a
complaint in the United  States  District  Court for the District of Delaware on
behalf of the Fund against the Former  Advisor.  The complaint  alleges that the
fees  received  by the  Former  Advisor  for the year prior to the filing of the
complaint  were  excessive,  in  violation  of Section  36(b) of the  Investment
Company Act. The Former  Advisor's  motions to dismiss the action or transfer it
to California were both denied. The case is in discovery,  which has been stayed
temporarily  for  the  purpose  of  settlement  negotiations  and  mediation  is
scheduled  to begin in  April  2004.  The  Fund is  monitoring  this  litigation
inasmuch as any net recovery would accrue to the Fund.

     On April 3, 2002,  Millenco filed a complaint against the Fund in the Court
of Chancery, New Castle County, Delaware, seeking a judicial confirmation of the
stockholder vote of March 27, 2002, rejecting new investment advisory agreements
between  the Fund and the Former  Advisor  and  between  the Fund and the Former
Sub-Advisor.  On April 5, 2002,  Millenco  moved to accelerate  the trial of the
case and later  that day the Fund's  Board of  Directors  acknowledged  that the
proposals for shareholder  approval of the advisory and sub-advisory  agreements
had failed and that a  stockholder's  meeting  would not be  reconvened  on this


<PAGE>



matter.  On July 30, 2002,  Millenco filed an amended complaint against the Fund
and the  Fund's  Former  Board in the  Court of  Chancery,  New  Castle  County,
Delaware,  seeking to (i)  invalidate  the election of two of the Fund's  former
directors,  John M.  Grillos  and  Larry  Gerhard,  at the 2001 and 2002  Annual
Meetings  of   Stockholders,   to  three-year  terms  expiring  2004  and  2005,
respectively;  and invalidate the election of former director Peter Freudenthal,
at the 2001 Annual Meeting, to a three-year term expiring 2004; and (ii) require
the Fund to hold a special Meeting of  Stockholders,  for the purpose of holding
new  elections  to fill the board seats  currently  held by Mr.  Grillos and Mr.
Gerhard and the board seat vacated by Peter  Freudenthal  due to his resignation
in June 2002.

     On December 19, 2002, the Court granted  judgment for Millenco holding that
the Former Board had breached its fiduciary  duty of disclosure  under  Delaware
law in connection  with the 2001 and 2002 elections of directors and ordered the
Fund to hold new elections  for the seats held by directors  Grillos and Gerhard
and former director Freudenthal.  The election was held on February 28, 2003, at
which six members of the Fund's Current Board were elected.

     On  February  6,  2003,  the  Fund  filed a  complaint  against  Millennium
Partners,  L.P., Millenco,  L.P. and Karpus Management,  Inc. (collectively "the
stockholders")  in the United States District Court for the Southern District of
New York,  alleging  various  violations of federal  securities law primarily in
connection with the ongoing proxy contest between Millenco and the Fund's Former
Board. The complaint asked the Court for injunctive relief aimed at limiting the
stockholders'  voting  rights  at  the  February  28,  2003  annual  meeting  of
stockholders.

     On February 24, 2003, after expedited discovery and an evidentiary hearing,
the United States  District  Court for the Southern  District of New York denied
the Fund's motion for a preliminary  injunction against the defendants,  finding
there was  insubstantial  likelihood of the Fund succeeding on any of the claims
asserted. On March 27, 2003, the Fund voluntarily dismissed the lawsuit.

     On March 3, 2003,  after the Annual  Meeting,  but prior to the transfer of
control by the Former Board to the Current Board, John Grillos signed a document
which  purported to extend the maturity date of the Fund's $3 million loan to BS
Management  from March 2003 to  September  2003 and to modify other terms of the
loan which could result in the  impairment  of the Fund's rights as a lender and
the  collectability  of the loan.  The original  March 2003 maturity date passed
without payment to the Fund of any principal or interest on the loan. The Fund's
Current  Board  believed  that BS  Management  was a shell  corporation  without
material  assets  apart from its interest in the loan and its  proceeds.  In May
2003,  the Fund  recovered  approximately  $70,000 of the original  loan from an
Irish stockbroker to which such money had been transferred by BS Management.

     In  June  2003,  the  Fund  sued  BS  Management  and  Oyster  Technologies
Investments Ltd., an Isle of Man company (which was a party to the March 3, 2003
amendment)  in the United  States  District  Court for the Northern  District of
California,  asserting that the December 2002 loan agreement was breached and/or
that the March 3, 2003 amendment was void and/or  breached.  In August 2003, the
parties settled the litigation, and the Fund received $2,580,000, plus rights to
the proceeds of sale of  approximately  1,000,000  shares of  Transware  PLC, an


<PAGE>



Irish  public  company,  which BS  Management  had  purchased  with  some of the
proceeds  of the  original  loan.  As of the  date  of the  settlement,  453,000
Transware  shares  had  been  sold in open  market  transactions,  resulting  in
proceeds to the Fund of approximately  $29,000.  Accordingly and after deducting
approximately  $55,000  in  legal  expenses,  the  Fund  recovered  a  total  of
approximately  $2,624,000  of  the  original  $3,000,000  loan.  Potential  Fund
proceeds from the remaining  550,000  shares of Transware  stock are believed to
have nominal value at best. On August 26, 2003,  the Fund's  lawsuit  against BS
Management and Oyster  Technologies was dismissed with prejudice and the parties
were all released from any  obligations  under the December  2002  agreement and
March 2003 amendment.

     In 2003,  a former  officer and  director  who had been hired by the Former
Board demanded  severance pay of approximately  $255,000,  and threatened to sue
the Fund for such  severance,  plus 10% interest and  attorney's  fees. The Fund
rejected the demand and, in 2004,  informed the former  officer that if he sued,
the Fund would oppose such lawsuit and take such affirmative legal action as may
be appropriate to recover  damages to the Fund caused by certain  conduct of the
former officer.  No assurance can be given as to whether the former officer will
sue the Fund or the outcome of such litigation.

11. TAX MATTERS

     ROCSOP  ADJUSTMENT:  During  the year ended  October  31,  2003,  permanent
differences,  primarily due to net operating losses,  resulted in a net decrease
in accumulated  net investment  loss, a net increase in accumulated net realized
loss on  investment  transactions  and a  corresponding  decrease in  additional
paid-in capital. This reclassification had no effect on net assets.

DISTRIBUTIONS  TO  SHAREHOLDERS:  As of October  31,  2003,  the  components  of
accumulated earnings/(deficit) on a tax basis were as follows:


TAX BASIS ACCUMULATED EARNINGS (DEFICIT)
Accumulated capital and other losses                                (37,689,502)
Unrealized appreciation/depreciation                               (122,443,907)
Total tax basis accumulated deficit                                (160,133,409)
Add: Paid in capital                                                 297,141,571
Other temporary differences                                                    -
Tax basis net assets                                                 137,008,162


     On October  31,  2003,  the Fund had a net  capital  loss  carryforward  of
$37,689,502  of which  $33,469,122  will expire in the year 2010 and  $4,220,380
will expire in the year 2011. To the extent  future  capital gains are offset by
capital loss carryforwards, such gains will not be distributed.


<PAGE>



12. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (UNAUDITED)

     The Fund held a Special  Meeting of  Stockholders on September 16, 2003 for
the following purpose:

          To approve the proposed management plan of the Board of Directors (the
          "Proposed  Plan") under which:  (i) Michael  Tokarz would be appointed
          Chairman of the Board of Directors and Portfolio  Manager of the Fund;
          (ii) the Fund would adopt an amended investment  objective whereby the
          Fund would seek to maximize  total  return from  capital  appreciation
          and/or  income;  (iii) the Fund would seek to achieve  its  investment
          objective  primarily  through senior and subordinated  loans,  venture
          capital,  mezzanine  and  preferred  instruments  and  private  equity
          investments;  and (iv) the Fund would  conduct a tender offer of up to
          25% of the  Fund's  outstanding  shares  at a price  of 95% of the net
          asset value of such shares.

     Of the 16,152,600 shares outstanding and entitled to vote, 8,216,271 shares
were represented at the meeting by proxy or in person.  The number of votes cast
for the proposed  plan were  7,513,748,  against the proposed plan were 658,236,
and withheld were 44,287. There were no broker non-votes.

13. SUBSEQUENT EVENTS

     On November 6, 2003,  Michael  Tokarz assumed his new position as Chairman,
Portfolio  Manager and director of the Fund.  As Portfolio  Manager,  Mr. Tokarz
will be  compensated  by the Fund based  upon his  positive  performance  as the
Portfolio Manager. Under the terms of his agreement with the Fund, the Fund will
pay Mr. Tokarz an amount equal to the lesser of (a) 20% of the net income of the
Fund for the fiscal  year;  and (b) the sum of (i) 20% of the net capital  gains
realized  by the Fund in respect of the  investments  made  during his tenure as
Portfolio  Manager;  and (ii) the  amount,  if any,  by which the  Fund's  total
expenses  for a fiscal  year were less than two percent of the Fund's net assets
(determined as of the last day of the period).  Any payments to be made shall be
calculated  based  upon the  audited  financial  statements  of the Fund for the
applicable  fiscal year and shall be paid as soon as  practicable  following the
completion of such audit.

     On November  26, 2003,  the Fund  commenced a tender offer to acquire up to
twenty-five  percent  (25%) of its  outstanding  shares of common stock at a per
share cash purchase price equal to ninety-five  percent (95%) of net asset value
per share as of December 31, 2003, the day the offer  expired.  Based on a final
count by the depositary for the tender offer,  3,859,558 shares, or 23.9% of the
Fund's  outstanding  common stock,  were tendered.  Because less than 25% of the
Fund's shares were tendered, the Fund purchased all shares tendered.  Each share
accepted  for purchase  was  purchased at a price of $8.18  resulting in a total
disbursement from the Fund of $31,571,184. Since completion of the tender offer,
MVC has 12,293,042 shares of common stock outstanding.  The anti-dilutive effect
of the tender offer totaled $1,650,697 or approximately $0.134 per share for all
remaining shares after the tender offer.

     Effective December 8, 2003, the Fund agreed to a lease for new office space
in Purchase, New York, which is scheduled to expire on November 30, 2005. Future
payments  under this lease  total  $110,933,  with  annual  minimum  payments of


<PAGE>



$49,517 from December 8, 2003 through October 31, 2004, $56,682 from November 1,
2004 through October 31, 2005, and $4,734 from November 1, 2005 through November
30, 2005.  The  building at 287 Bowman  Avenue,  Purchase,  New York is owned by
Phoenix Capital Partners, LLC, an entity which is 97% owned by Mr. Tokarz.

     On December 29, 2003, the Current Valuation  Committee marked up the Fund's
investment in 0-In Design  Automation,  Inc. by $1.0 million to $2.0 million and
marked up the Fund's investment in Sygate Technologies,  Inc. by $1.5 million to
$5.5 million.

     On December 30, 2003, Ishoni Networks,  Inc. filed for bankruptcy in United
States Bankruptcy Court, Northern District of California, San Jose Division.

     On January  21,  2004,  the Fund  reached an  agreement  with the  property
manager at 3000 Sand Hill Road, Menlo Park, California to terminate its lease at
such  location  as a  result  of the  property  manager's  ability  to  reach an
agreement with a new tenant for the space. Under the terms of the agreement, the
Fund will buy-out its lease  directly from the property  manager,  for an amount
equal  to  $232,835.  As a  result,  the  Fund  expects  to be able  to  recover
approximately $250,000 of the remaining reserve established at October 31, 2003.

     On January 23, 2004,  Synhrgy HR  Technologies,  Inc. repaid the balance of
its original $5.0 million credit  facility to the Fund. In conjunction  with the
repayment of the credit facility, the Fund also exercised its 43,750 warrants in
a cashless transaction for a gain of approximately $40,000.


<PAGE>



REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of MVC Capital

We have  audited the  accompanying  balance  sheet,  including  the  schedule of
investments, of MVC Capital (the "Fund") as of October 31, 2003, and the related
statements of operations,  shareholders' equity and cash flows, and the selected
per share data and ratios for the year then ended.  These  financial  statements
and  selected  per share data and ratios  are the  responsibility  of the Fund's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements  and  selected  per share  data and ratios  based on our  audit.  The
financial  statements  of the Fund for the period ended October 31, 2002 and all
other prior  periods were audited by other  auditors  whose report  expressed an
unqualified opinion on those statements.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain  reasonable  assurance  about  whether the  financial  statements  and
selected per share data and ratios are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements and selected per share data and ratios.
An audit also includes assessing the accounting  principles used and significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audit provides a reasonable  basis
for our opinion.

     In our opinion,  the financial  statements  and selected per share data and
ratios referred to above present fairly, in all material respects, the financial
position  of the MVC  Capital  at  October  31,  2003,  and the  results  of its
operations,  the shareholders'  equity and cash flows and the selected per share
data  and  ratios  for the  year  then  ended,  in  conformity  with  accounting
principles  generally  accepted in the United States.


/s/ Ernst & Young LLP

New York, New York
January 9, 2004, except for Note 13 which date is January 23, 2004


<PAGE>



ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURES

     On April 23, 2003,  the Fund filed a report on Form 8-K advising  that,  on
April 16,  2003,  PricewaterhouseCoopers  LLP  ("PwC"),  the Fund's  independent
accountants, had resigned. The reports of PwC on the financial statements of the
Fund for the fiscal years ended October 31, 2001 and October 31, 2002 contain no
adverse  opinion  or  disclaimer  and  were  not  qualified  or  modified  as to
uncertainty,  audit scope, or accounting principle. Further, during the past two
fiscal years of the Fund and the  subsequent  interim  period  through April 16,
2003,  there  were  no  disagreements  with  PwC on  any  matter  of  accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure,  which disagreements if not resolved to the satisfaction of PwC would
have caused them to make reference to the subject matter of the  disagreement in
connection  with their reports on the financial  statements.  Exhibit 16 to this
Form 10-K is a letter from PwC stating that it agrees with the above statements.

     On October 27,  2003,  Ernst & Young,  LLP ("Ernst & Young") was engaged by
the Audit  Committee  of the Board of  Directors  as the  Fund's  new  principal
accountant.  During the Fund's two most recent fiscal years,  and any subsequent
interim  period  prior to  engaging  Ernst & Young,  the Fund (or  anyone on its
behalf)  did  not  consult  the  newly  engaged  accountant  regarding:  (i) the
application  of  accounting  principles  to  a  specified  transaction,   either
completed or proposed,  (ii) the type of audit opinion that might be rendered on
the Fund's financial  statements,  (iii) either a written report was provided to
the Fund or oral advice was provided  that the new  accountant  concluded was an
important  factor  considered  by the  Fund in  reaching  a  decision  as to the
accounting,  auditing or financial  reporting issue, or (iv) any matter that was
either the subject of a disagreement or a reportable event.

ITEM 9A. CONTROLS AND PROCEDURES

     The  Fund  recognizes  management's  responsibility  for  establishing  and
maintaining  adequate  internal  control over financial  reporting for the Fund.
Within the 90 days prior to the filing date of this annual  report on Form 10-K,
the Fund  carried  out an  evaluation  of the  effectiveness  of the  design and
operation of our disclosure controls and procedures. This evaluation was carried
out under the supervision and with the  participation  of management,  including
the individual who performs the functions of a Principal  Executive Officer (the
"CEO") and the  individual  who performs the functions of a Principal  Financial
Officer  (the  "CFO").  Based  upon  that  evaluation,  the CEO and the CFO have
concluded  that  our  disclosure   controls  and  procedures  are  adequate  and
effective.


<PAGE>



     Disclosure  controls and procedures are controls and other  procedures that
are designed to ensure that information  required to be disclosed in our reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported,  within  the time  periods  specified  in the SEC's  rules and  forms.
Disclosure  controls and procedures include,  without  limitation,  controls and
procedures  designed to ensure that information  required to be disclosed in our
reports  filed  under  the  Exchange  Act is  accumulated  and  communicated  to
management,  including our CEO and CFO, as appropriate to allow timely decisions
regarding required disclosure.

     There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
we carried out the evaluation discussed above.


                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Reference  is  made to the  information  with  respect  to  "directors  and
executive  officers  of the  Registrant"  to be  contained  in the Fund's  proxy
statement to be filed with the SEC, in connection with the Fund's annual meeting
of  shareholders  to be  held  in  2004  (the  "2004  Proxy  Statement"),  which
information is incorporated herein by reference.

     The Fund has  adopted a code of ethics  that  applies to the  Fund's  chief
executive officer and chief financial  officer/chief  accounting officer, a copy
of which can be obtained from the Fund's website  (WWW.MVCCAPITAL.COM),  free of
charge.

ITEM 11. EXECUTIVE COMPENSATION

     Reference  is  made  to  the   information   with  respect  to   "executive
compensation"  to be  contained  in  the  Fund's  2004  Proxy  Statement,  which
information is incorporated herein by reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Reference is made to the information with respect to "security ownership of
certain  beneficial  owners and  management"  to be contained in the Fund's 2004
Proxy Statement, which information is incorporated herein by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     As  stated  above  in  Item  1  (Business---Co-Investments   and  Follow-On
Investments)  and in Item 8  (Note 5 of the  notes  accompanying  the  financial
statements  in  "Transactions  with Other  Parties"),  the Fund  co-invested  in
Portfolio Companies from time to time with affiliates of the Fund and the Former
Sub-Advisor,  including  certain venture capital  investment  partnerships.  The


<PAGE>



Fund's  co-investments  with  such  affiliates  are  subject  to the  terms  and
conditions of the exemptive  order granted by the SEC,  which  relieves the Fund
from certain  provisions of the Investment Company Act and permits certain joint
transactions with the investment partnerships.

     In accordance  with the conditions of the order,  the Fund has  co-invested
with certain  affiliates  of Draper Fisher  Jurvetson in the  following  current
Portfolio Companies of the Fund: Lumeta Corporation and Phosistor  Technologies,
Inc.

     As stated above in Item 2,  "Properties",  the Fund has leased  property at
287 Bowman Avenue,  Purchase,  NY 10577 from Phoenix Capital  Partners,  LLC, an
entity which is 97% owned by Mr. Tokarz.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

     Reference is made to the information with respect to "principal  accounting
fees and  services" to be contained  in the Fund's 2004 Proxy  Statement,  which
information is incorporated herein by reference.


<PAGE>



                                     PART IV


ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K


<TABLE>
<CAPTION>
<S>                                                                                                 <C>

     (a)(1) Financial Statements                                                                    Page(s)
            --------------------                                                                    ------
              Balance Sheets
                         October 31, 2003 and October 31, 2002                                          33

              Statement of Operations
                         For the Year Ended October 31, 2003,
                         the Year Ended October 31, 2002, and
                         the Year Ended October 31, 2001                                                34

              Statement of Cash Flows
                         For the Year Ended October 31, 2003,
                         the Year Ended October 31, 2002, and
                         the Year Ended October 31, 2001                                                35

              Statement of Shareholders' Equity
                         For the Year Ended October 31, 2003,
                         the Year Ended October 31, 2002, and
                         the Year Ended October 31, 2001                                                36

              Selected Per Share Data and Ratios
                         For the Year Ended October 31, 2003,
                         the Year Ended October 31, 2002, and
                         the Year Ended October 31, 2001                                                37

              Schedule of Investments
                         October 31, 2003                                                            38-41

              Notes to Financial Statements                                                          42-51
              Report of Independent Public Accountants                                                  52

</TABLE>


          All other information  required in the financial  statement  schedules
     has been  incorporated in the financial  statements or notes thereto or has
     been omitted since the  information is not  applicable,  not present or not
     present in amounts sufficient to require submission of the schedule.


<PAGE>



   (b) Reports on Form 8-K

               On  December  2,  2002,  the Fund  filed  one  report on Form 8-K
          reporting the Fund's commencement of doing business under the name MVC
          Capital  and to  announce  the  hiring of an interim  Chief  Financial
          Officer.

               On March 11, 2003, the Fund filed a report on Form 8-K confirming
          the election  results  following the Annual  Meeting of  Shareholders,
          advising  that John  Grillos had been  terminated  as Chief  Executive
          Officer of the Fund and that Robert S.  Everett had been  appointed as
          acting Chief Executive Officer.

               On March 17,  2003,  the Fund filed a report on Form 8-K advising
          that Michael Stewart had resigned as acting Chief Financial Officer of
          the Fund,  and that the filing of the Form 10-Q  quarterly  report for
          the period  ended  January 31,  2003 would be delayed,  pending a full
          review of the portfolio  valuation by the Current Valuation  Committee
          appointed by the Board of Directors.

               On April 23,  2003,  the Fund filed a report on Form 8-K advising
          that,  on April 16,  2003,  PricewaterhouseCoopers  LLP  ("PwC"),  the
          Fund's  independent  accountants,  had  resigned.  During the past two
          fiscal years of the Fund and the  subsequent  interim  period  through
          April  16,  2003,  there  have been no  disagreements  with PwC on any
          matter of  accounting  principles or  practices,  financial  statement
          disclosure, or auditing scope or procedure, which disagreements if not
          resolved  to the  satisfaction  of PwC would have  caused them to make
          reference to the subject matter of the disagreement in connection with
          their reports on the financial statements. In addition, the report, as
          filed on Form  8-K,  advised  that a review  of the  Fund's  portfolio
          valuation had been conducted and as a result of this review,  the fair
          value of many of the Fund's holdings had been written down.

               On June 9, 2003,  the Fund filed a report on Form 8-K  announcing
          the Fund's new long term strategy,  subject to  shareholder  approval,
          pursuant  to  which  the  Fund  would:   (i)  be  managed  as  a  more
          traditional, mezzanine and buyout focused business development company
          with an increased  dividend yield, (ii) conduct a tender offer for 25%
          of the Fund's  outstanding  shares at a price of 95% of the Fund's net
          asset value,  and (iii) appoint  Michael  Tokarz,  a private  merchant
          banker and a former General  Partner of Kohlberg Kravis Roberts & Co.,
          as the Chairman of the Board and Portfolio  Manager of the Fund.  This
          Form 8-K also reported that the Fund would seek  shareholder  approval
          of the new long  term  strategy,  even  though  such  approval  is not
          required.

               On July 22,  2003,  the Fund filed a report on Form 8-K  advising
          that the Fund had filed a  preliminary  proxy  statement  with the SEC
          asking the stockholders to approve the proposed management plan of the
          Board of Directors at a special  meeting of stockholders to be held on


<PAGE>



          Tuesday, September 16, 2003. In addition, the report, as filed on Form
          8-K, advised that a review of the Fund's portfolio  valuation had been
          conducted  and as a result of this  review,  the fair value of certain
          holdings of the Fund had been written down.

               On  September  19,  2003,  the Fund  filed a  report  on Form 8-K
          advising that the Fund's  stockholders voted to implement the Board of
          Director's  Proposed  Plan  concerning  the  amendment  of the  Fund's
          investment strategy, the approval of Michael Tokarz as the Chairman of
          the  Board of  Directors  and  Portfolio  Manager  of the Fund and the
          approval  of a tender  offer for up to 25% of the  Fund's  outstanding
          shares at a price of 95% of the Fund's net asset  value.  In addition,
          the report,  as filed on Form 8-K, advised that Ernst & Young had been
          engaged as the Fund's new independent accountants.

               On October 7, 2003,  the Fund filed a report on Form 8-K advising
          that the Fund had changed its office and  principal  place of business
          to 10 Rockefeller Plaza, Suite 815, New York, New York.

               On November 6, 2003, the Fund filed a report on Form 8-K advising
          that  Michael  Tokarz  had  assumed  his  new  position  as  Chairman,
          Portfolio  Manager and director of the Fund. In addition,  the report,
          as filed on Form 8-K,  advised  that a review of the Fund's  portfolio
          valuation had been conducted and as a result of this review,  the fair
          value of certain of the Fund's holdings had been written down.


<PAGE>



   (c)    Exhibits

             Exhibit No.    Exhibit
             -------------  ---------

             3.2            Amended and Restated By-Laws.

             10.1           Lease for 287 Bowman Avenue, Purchase, NY 10577.

             10.2           Agreement between the Fund and Michael Tokarz.

             16             Letter regarding change in certifying accountant.

             23.1           Consent from PricewaterhouseCoopers LLP.

             23.2           Consent from Ernst & Young LLP.

             31             Rule 13a-14(a) Certifications.

             32             Section 1350 Certification.

   (d)    Financial Statement Schedules

          None

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.


<TABLE>
<CAPTION>
<S>                                <C>                           <C>

Date                               Signature                     Title
-------                            -------------                 ------

Date: January 29, 2004             /s/ Michael Tokarz            Chairman and Director
----------------------------       -------------------------
                                   (Michael Tokarz)

</TABLE>


<PAGE>



Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
<S>                                <C>                           <C>

Date                               Signature                     Title
-------                            -------------                 ------

Date: January 29, 2004             /s/ Michael Tokarz            Chairman and Director
----------------------------       -------------------------
                                   (Michael Tokarz)


Date: January 29, 2004             /s/ Frances Spark             Chief Financial Officer
----------------------------       -------------------------
                                   (Frances Spark)


Date: January 29, 2004             /s/ Gerald Hellerman          Director
----------------------------       -------------------------
                                   (Gerald Hellerman)


Date: January 29, 2004             /s/ Robert C. Knapp           Director
----------------------------       -------------------------
                                   (Robert C. Knapp)


Date: January 29, 2004             /s/ Bruce W. Shewmaker        Director
----------------------------       -------------------------
                                   (Bruce W. Shewmaker)


Date: January 29, 2004             /s/ George Karpus             Director
----------------------------       -------------------------
                                   (George Karpus)


Date: January 29, 2004             /s/ Emilio Dominianni         Director
----------------------------       -------------------------
                                   (Emilio Dominianni)


Date: January 29, 2004             /s/ Terry Feeney              Director
----------------------------       -------------------------
                                   (Terry Feeney)


</TABLE>