##### Table of Contents



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



|                                            |                                  
|------------------------------------------- | ---------------------------------
|For the Fiscal Year Ended December 31, 2001 | Commission File Number: 814-00127

BRANTLEY CAPITAL CORPORATION

(Exact name of registrant as specified in its
charter)


|                                                                |  |                                     
|--------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                        |  | 34-1838462                          
|                                                                |  |                                     
|(State or other Jurisdiction of
	incorporation or organization) |  | (I.R.S. Employer Identification No.)

20600 Chagrin Boulevard, Suite 1150,
Cleveland, Ohio 44122

(Address of principal executive offices
including zip code)


(216) 283-4800

(Registrants telephone number including
area code)


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

None


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

Common Stock, $.01 par value


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.  YesxNoo

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K 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.o

The aggregate market value of the voting stock
held by non-affiliates of the registrant as of March 29, 2002
was $29,822,669, based on the last sale price of such stock as
quoted by the NASDAQ National Market System on such date
(officers, directors and 5% shareholders are considered
affiliates for purposes of this calculation).

The number of shares of common stock outstanding
as of March 29, 2002 was 3,810,535.



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TABLE OF CONTENTS



|                                                 |                                                                                               |                                    |  |  |  |  |  | 
|------------------------------------------------ | --------------------------------------------------------------------------------------------- | ---------------------------------- |  |  |  |  |  | 
|PART I                                          
|                                                 | Item 1. Business                                                                             
|                                                 | Item 2. Properties                                                                           
|                                                 | Item 3. Legal Proceedings                                                                    
|                                                 | Item 4. Submission of Matters to a Vote of Security Holders                                  
|Part II                                         
|                                                 | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|                                                 | Item 6. Selected Financial Data                                                              
|                                                 | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                 | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                          
|                                                 | Item 8. Financial Statements                                                                 
|                                                 |                                                                                               | BALANCE SHEETS                    
|                                                 |                                                                                               | STATEMENTS OF OPERATIONS          
|                                                 |                                                                                               | STATEMENTS OF CASH FLOWS          
|                                                 |                                                                                               | STATEMENTS OF STOCKHOLDERS EQUITY
|NOTES TO THE FINANCIAL STATEMENTS               
|                                                 | REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                                     
|                                                 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III                                        
|                                                 | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                 | Item 11. Executive Compensation                                                              
|                                                 | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                 | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                                         
|                                                 | Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|SIGNATURES                                      
|EXHIBIT INDEX                                   
|Exhibit 23.1  Consent of Arthur Andersen LLP    
|Exhibit 99.2  Representation re: Arthur Andersen



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TABLE OF CONTENTS

|              |          |  |    |                                                                                        |  |  |    | 
|------------- | -------- |  | -- | -------------------------------------------------------------------------------------- |  |  | -- | 
|              |          |  |    | Page                                                                                  
|              |          |  |    |                                                                                       
|PART I       
|              | Item 1.  |  |    | Business                                                                               |  |  | 1  | 
|              | Item 2.  |  |    | Properties                                                                             |  |  | 16 | 
|              | Item 3.  |  |    | Legal Proceedings                                                                      |  |  | 16 | 
|              | Item 4.  |  |    | Submission of Matters to a Vote of Security
	Holders                                   |  |  | 16 | 
|PART II      
|              | Item 5.  |  |    | Market for Registrants Common Equity and
	Related Stockholder Matters                 |  |  | 17 | 
|              | Item 6.  |  |    | Selected Financial Data                                                                |  |  | 18 | 
|              | Item 7.  |  |    | Managements Discussion and Analysis of
	Financial Condition and Results of Operations |  |  | 18 | 
|              | Item 7A. |  |    | Quantitative and Qualitative Disclosures About
	Market Risk                            |  |  | 26 | 
|              | Item 8.  |  |    | Financial Statements                                                                   |  |  | 27 | 
|              | Item 9.  |  |    | Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure  |  |  | 39 | 
|PART III     
|              | Item 10. |  |    | Directors and Executive Officers of the Registrant                                     |  |  | 39 | 
|              | Item 11. |  |    | Executive Compensation                                                                 |  |  | 40 | 
|              | Item 12. |  |    | Security Ownership of Certain Beneficial Owners
	and Management                        |  |  | 40 | 
|              | Item 13. |  |    | Certain Relationships and Related Transactions                                         |  |  | 40 | 
|PART IV      
|              | Item 14. |  |    | Exhibits, Financial Statement Schedules, and
	Reports on Form 8-K                      |  |  | 41 | 
|Signatures    |          |  | 42 |                                                                                       
|Exhibit Index |          |  | 43 |                                                                                       

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PART I




Item 1. Business

We are a non-diversified investment company
incorporated on August 1, 1996 under the General
Corporation Law of the State of Maryland that has elected to be
regulated as a business development company under the Investment
Company Act of 1940. Our investment objective is to achieve
long-term capital appreciation in the value of our investments
and to provide current income primarily from interest, dividends
and fees paid by our portfolio companies.

We provide equity and long-term debt financing to
small and medium-sized companies in a variety of industries
throughout the United States. Our portfolio currently consists
primarily of private equity securities and, to a lesser extent,
mezzanine investments primarily in the form of subordinated debt
with warrants. We also invest a portion of our assets in
small-capitalization public companies. As of December 31,
2001, our portfolio was composed of the following investments:

|                                   |  |      |      |            |  |         |      |  |  |  |     |  
|---------------------------------- |  | ---- | ---- | ---------- |  | ------- | ---- |  |  |  | --- | -
|                                   |  |      |      |            |  | Percent
|                                   |  |      |      |            |  | of Fair
|                                   |  | Cost |      | Fair Value |  | Value  
|                                   |  |      |      |            |  |        
|Private Equity Securities(1)       |  | $    | 20.8 |            |  | $       | 52.6 |  |  |  | 87  | %
|Mezzanine Securities(1)            |  |      | 5.2  |            |  |         | 5.2  |  |  |  | 9   | %
|Small Capitalization Public Stocks |  |      | 2.9  |            |  |         | 2.5  |  |  |  | 4   | %
|                                   |  |      |      |            |  |         |      |  |  |  |     |  
|Total                              |  | $    | 28.9 |            |  | $       | 60.3 |  |  |  | 100 | %
|                                   |  |      |      |            |  |         |      |  |  |  |     |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our private equity securities typically consist
	of preferred stock. All of our other current investments,
	including demand notes, subordinated notes and promissory notes
	are considered mezzanine investments, although such investments
	are often accompanied by warrants to purchase common stock.
	These mezzanine investments are sometimes referred to as
	equity-linked securities.

Historically, we have focused our investing
activities on private equity securities intended to provide
long-term capital appreciation. From our inception in 1996 to
date, we have invested a total of $26.0 million in 12
private companies. At December 31, 2001, these investments
had a stated fair value of $57.8 million, a 122% increase
over our original cost. Our investing activity has increased our
net asset value per share to $17.85 as of December 31, 2001,
representing a 79% appreciation since we began operations. We
anticipate that our current assets will be fully invested in the
next twelve months.

The following table presents the fair value at
December 31, 2001 of each investment that represented more
than 5% of our total assets as of such date:

|                                   |  |            |            |                 |  |  |    |  
|---------------------------------- |  | ---------- | ---------- | --------------- |  |  | -- | -
|                                   |  |            |            | Percent        
|                                   |  | Fair Value |            | of Total Assets
|                                   |  |            |            |                
|Flight Options International, Inc. |  | $          | 32,500,000 |                 |  |  | 43 | %
|Fitness Quest, Inc.                |  |            | 8,658,041  |                 |  |  | 11 |  

For a discussion of such investments, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Financial Condition,
Liquidity and Capital Resources.

In the past year we have explored various
strategic alternatives to enhance our growth and
stockholders value. We determined that operating at our
current size or attempting to realize premature liquidity events
within our portfolio would not enhance the market value of our
common stock and would limit our ability to generate recurring
income sought by the investment community and our stockholders.

Specifically, we have been exploring the
possibility of expanding our origination of mezzanine
investments. Shares of business development companies that
invest primarily in mezzanine investments tend to trade at a
premium to net asset value per share due to the expectation of
current income produced by such investments. We believe that
current market conditions, influenced by more stringent credit
standards of commercial banks and

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more conservative capital structures sought by
entrepreneurs and equity sponsors, have created an increased
demand for mezzanine investments.


Mezzanine investments would be expected to
provide a current cash return to us in the form of interest and
origination fees. We typically participate in any increase in
the equity value of the companies to whom we provide mezzanine
financing through warrants or other equity rights. We anticipate
that mezzanine investments would provide less potential for
appreciation in our net asset value than private equity
investments, but would instead provide higher current income
that may be distributed to our stockholders. In the future, we
may also seek to further leverage our portfolio by utilizing
additional borrowings to fund our investments.

In order to fund the origination of mezzanine
investments, we are exploring various capital-raising
alternatives. See Managements Discussion and
Analysis of Financial Condition and Results of Operations.
We intend to use the proceeds of such an event to make mezzanine
investments. We can make no assurances that a capital raising
effort will be undertaken or that any of our portfolio companies
would experience a liquidity event. We can also make no
assurances that our plan to expand our origination of mezzanine
investments will be consummated or be successful.

Investments in Private Companies

We provide equity and long-term debt financing to
private companies. We seek to invest in established companies
that generally:



| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | have annual revenues of $25 million or
	greater;                               
|
| |  | operate in stable industries;                                                  
|
| |  | have demonstrated favorable financial performance
	for at least five years; and
|
| |  | have an experienced management team.                                           

We generally do not target companies in
industries where businesses tend to be particularly vulnerable
to changes in economic cycles, are capital intensive, or are
highly leveraged. Our private financing is generally used to
fund internal growth, buyouts, acquisitions and
recapitalizations.

Our investment adviser sources and originates our
investment opportunities, thereby avoiding auctions, which we
believe affords us better investment terms, enhances our
investment returns, and heightens the probability of
successfully completing a greater percentage of our targeted
transactions.

We have an extensive network of potential
investment sources. We estimate that we have historically funded
approximately 1% of all the private investment opportunities
that our investment adviser reviews on our behalf. When
assessing a prospective investment, we generally look for a
company that has achieved, or has the potential to achieve,
market leadership, critical mass, and sustainable cash flow.

We function as a partner in the growth of our
private portfolio companies, rather than merely as a financial
participant. We provide managerial assistance to our private
companies through board representation and otherwise. We
generally have one or two board seats on each of our private
companies. We expect that our representatives will play a role
in setting corporate strategies and advising our private
portfolio companies regarding important decisions affecting
their businesses, including:



| |   |                                        
| | - | ---------------------------------------
| |  | analyzing potential acquisitions;      
|
| |  | recruiting key managers;               
|
| |  | securing equity and debt financing; and
|
| |  | evaluating strategic opportunities.    

We seek to enable our stockholders to participate
in investments not typically available to the public due to the
private nature of a substantial majority of our portfolio
companies, the size of the financial commitment often required
in order to participate in such investments, and/or the
experience, skill and time commitment required to identify and
take advantage of these investment opportunities.

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Private
Equity Investments

With respect to our private equity investments,
we principally focus on companies that demonstrate strong
internal growth dynamics and that we consider to be good
candidates to achieve growth through selective acquisitions. We
also favor equity investments in private companies that we
believe can achieve the necessary size, profitability,
management depth and sophistication to become public companies
or candidates for acquisition.

Our private equity investments typically range in
size from $1 million to $5 million. We generally structure
our private equity investments as participating preferred stock
with an 8% to 10% dividend yield that accumulates and is paid
upon a liquidity event. We generally expect our private equity
investments to achieve liquidity within three to five years from
their respective origination dates, although there can be no
assurance that such a time frame will be met, and situations may
arise in which we hold securities for a significantly longer
period of time.

Mezzanine
Investments

Although we may in the future invest in different
types of equity-linked securities, to date our equity-linked
investments have been in the form of mezzanine debt with an
equity kicker such as a warrant. Our existing
mezzanine investments are generally subordinated notes, ranging
in size from $1 million to $3 million with a fixed
interest rate of approximately 12% and maturities of five to
seven years. Currently, mezzanine investments represent only
8.6% of our investment portfolio. However, we intend to dedicate
a substantial portion of our ongoing investment activities to
expand our origination of mezzanine investments, and, as a
result, we intend that mezzanine investments will become a much
larger percentage of our assets.

We believe that our mezzanine investments address
a financing need that is not currently met by banks and other
finance companies. Generally, banks and commercial finance
companies are primarily focused on providing senior secured
long-term debt. The private insurance company and high-yield
debt markets are focused primarily on very large financing
transactions. As lenders in the mezzanine sector, we are
generally focused on providing long-term debt to private
companies. We believe that our investment advisers
expertise with small and medium-sized companies will position us
well to take advantage of the opportunity created by current
market conditions.

With respect to our mezzanine investments, we
have focused and intend to continue to focus on private
companies that have demonstrated predictable and sustainable
cash flows from operations, strong tangible assets, reasonable
financial leverage relative to cash flows from operations, and
reasonable prospects to retire at least 50% of their senior
indebtedness within three years of our investment.

We expect to structure these investments, similar
to our existing mezzanine investments, as subordinated notes
with a fixed interest rate ranging from 12% to 18%, an equity
feature such as warrants to buy equity in the portfolio company
at a nominal price, and maturities of five to seven years. Upon
the closing of new mezzanine investments, we intend to receive
an origination fee from the portfolio company, typically 2% of
our investment.

The opportunity to liquidate the equity ownership
attributable to our mezzanine investments and to realize a gain
may occur if the business completes a recapitalization of its
equity, either through a sale to new owners, a public offering
of its equity, or if we exercise our contractual right, referred
to as a put right, to require the portfolio company
to purchase the warrants or options held by us at a
predetermined put price. The put price of the put right is
determined at the time of the original investment and is
structured to provide our target return.

Small-Capitalization Public Stock
Investments

Since our inception, we have invested a portion
of our assets in small-capitalization public companies. With
respect to our investments in small-capitalization public
companies, our primary focus is on companies that our investment
adviser believes have significant potential for growth in sales
and earnings. We consider a small-capitalization
company to be a company that has a market capitalization under
$1.5 billion.

We believe that our ultimate returns as an
investor in private companies are strengthened by our role as an
investor in small-capitalization public companies. This benefit
is derived from historical and future knowledge that we and our
managers have and will gain regarding companies, technologies,
management, markets and

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pricing in both public and private markets. For
example, knowledge of companies in the private markets can be
beneficial in selecting small-capitalization public stocks.
Conversely, knowledge of public companies and market performance
can be beneficial in pricing, structuring and developing
liquidity plans for our private investments.


Investment Sourcing

We enjoy significant deal sourcing benefits from
relationships that the principals of our investment adviser have
developed over the years. These individuals have, collectively,
in excess of 60 years of private company investment
experience including financings involving private equity
securities and mezzanine investments, have invested in over 80
private companies and currently manage approximately
$299 million in assets. As such, they have established an
extensive network of investment referral relationships. Our
investment adviser reviews approximately 800 investment
opportunities annually for private investment funds that it
manages.

We also work with numerous other intermediaries
to source new investment opportunities, including, but not
limited to:



| |   |                                        
| | - | ---------------------------------------
| |  | Private mezzanine and equity investors;
|
| |  | Banks, law firms, and accountants;     
|
| |  | Investment bankers;                    
|
| |  | Business brokers; and                  
|
| |  | Industry organizations.                

Selection of Investments and Underwriting
Process

Most of our investments are, and we expect that
they will continue to be, in small to medium-sized companies
with annual sales of under $500 million. The main criteria
for the selection of our investments in portfolio companies has
remained consistent since we began operations, and we expect
that these criteria will remain consistent as we seek to expand
our mezzanine investments. We seek to identify platform
companies which we believe have significant opportunities in the
markets they serve or have devised innovative products, services
or ways of doing business that afford them a distinct
competitive advantage. Such companies might achieve growth
either internally or by acquisition.

In evaluating potential portfolio companies, we
pay particular attention to the following characteristics:

Management.We seek investments in companies
whose management team consists of talented individuals of high
integrity with significant experience. We pay particular
attention to the depth of the management team and the extent to
which key managers have an ownership interest in the company.

Opportunity for Significant Influence.We favor investments in companies
in which we have the opportunity to become a partner in the
building of the business, rather than being merely a financial
participant. In addition, we pursue companies in which our
representatives will play a role in setting corporate strategies
and providing advice regarding important decisions affecting the
business, including analyzing potential acquisitions, recruiting
key managers, securing equity and debt financing and evaluating
strategic opportunities.

Market Dynamics.We prefer investments in companies
that are addressing a large, unfulfilled market demand with
long-term growth prospects that can reasonably expect to achieve
and maintain a significant market share through proprietary
products and services. We also favor investments in companies
that deliver products and services with significant performance
and cost advantages in industries and markets in which
significant barriers to effective competition by others exist.

Ability to Achieve Liquidity.We consider the potential and
likely means for achieving the liquidity that would ultimately
enable us to realize the value of our equity investments.
Possible ways of achieving liquidity include an initial public
offering of the company, a sale of the company or a purchase by
the company or its managers of our equity interest. With respect
to our mezzanine investments, we also may achieve liquidity
through an exercise of the put right that we receive in
connection with such investments.

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Ability to Service Debt.With respect to our mezzanine
investments, we seek companies that have demonstrated
predictable and sustainable cash flows from operations, strong
tangible assets, reasonable financial leverage relative to cash
flows from operations, and reasonable prospects to retire at
least 50% of their senior indebtedness within three years of our
investment.

Our investment process includes the
identification, due diligence, negotiation, documentation and
closing of the investment. Our due diligence typically includes:



| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | review of historical and prospective financial
	information;                                     
|
| |  | on-site visits;                                                                                  
|
| |  | interviews with management, employees, customers
	and vendors of the potential portfolio company;
|
| |  | background checks; and                                                                           
|
| |  | research relating to the companys
	management, markets, products and services.                  

Upon the completion of due diligence and a
decision to proceed with an investment in a company, our
investment adviser creates an investment memorandum for
presentation to our board of directors, which must approve the
investment. Additional due diligence with respect to any
investment by us may be conducted on our behalf by attorneys and
independent accountants prior to the closing of the investment,
as well as other outside advisers, as appropriate.

Portfolio Monitoring and Valuation

We have a written policy that governs the
valuation of our assets, pursuant to which our board of
directors values our assets each quarter.

We value our privately held investments based on
a determination of their fair value made in good faith by our
board of directors. Initially, the fair value of each such
security is based upon its original cost. Cost is also the
primary factor used to determine fair value on an ongoing basis
until significant developments or other factors affecting the
investment (such as results of subsequent financings, the
availability of market quotations, the portfolio companys
operations and changes in general market conditions) provide a
basis for value other than cost. Portfolio investments listed on
a securities exchange or traded on the Nasdaq Stock Market are
valued at the closing price listed on the relevant exchange or
quotation system at the date of valuation. Securities traded in
the over-the-counter market are valued based on the average of
the closing bid and asked prices on the date of valuation.

Public securities with legal, contractual or
other restrictions on transfer may be discounted due to such
restrictions. The lack of liquidity of these securities may
adversely affect our ability to dispose of them in a timely
manner and at a fair price when we deem it necessary or
advantageous to do so.

We continuously evaluate opportunities to
maximize the value of our investments. In that regard, we
periodically evaluate potential acquisitions, financing
transactions, initial public offerings, strategic alliances, and
sale opportunities involving our private portfolio companies.
These transactions and activities are generally not disclosed to
our stockholders and the investing public until such time as the
transactions are publicly announced or completed, as the case
may be. Any such pending transaction could have an impact on the
value of an investment, which is also generally not adjusted
until the transaction is publicly announced or completed.

Investment Adviser

Brantley Capital Management, L.L.C. has served as
our investment adviser since our inception pursuant to an
Investment Advisory Agreement. The principals of our investment
adviser collectively have in excess of 60 years of private
company investment experience, have invested in over 80 private
companies and currently manage approximately $299 million
in assets, including our assets.

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In addition to managing our investments,
principals of our investment adviser also manage the following
other funds:

|                                        |  |               |      |               |  |        |       |  |  |                           
|--------------------------------------- |  | ------------- | ---- | ------------- |  | ------ | ----- |  |  | --------------------------
|                                        |  |               |      | Committed     |  |       
|                                        |  |               |      | Capital       |  |       
|Fund Name                               |  | Adviser Since |      | (in millions) |  | Status
|                                        |  |               |      |               |  |       
|Brantley Venture Partners I (BVP I)     |  |               | 1987 |               |  | $      | 12.5  |  |  | Closed to new investments 
|Brantley Venture Partners II (BVP II)   |  |               | 1990 |               |  |        | 30.0  |  |  | Closed to new investments 
|Brantley Venture Partners III (BVP III) |  |               | 1993 |               |  |        | 57.5  |  |  | Closed to new investments 
|Brantley Partners IV (BP IV)            |  |               | 1998 |               |  |        | 123.5 |  |  | Approximately 40% invested

The principals of our investment adviser select
our investments and those of other private investment funds they
manage separately, considering in each case only the investment
objectives, investment position, available capital and other
pertinent factors applicable to that particular investment fund.

Since our inception, our investment adviser has
been responsible, on a day-to-day basis, for the selection and
supervision of our investments and for the oversight of our
financial records and financial reporting requirements. Our
investment adviser has experience with both equity and mezzanine
investments, including the mezzanine investments in our current
portfolio.

Under the terms of our Investment Advisory
Agreement, we pay our investment adviser an annual management
fee of 2.85% of our net assets, determined at the end of each
calendar quarter, and payable quarterly in arrears throughout
the term of the Investment Advisory Agreement. Our investment
adviser is responsible for the salaries and expenses of its own
personnel, office space costs and local telephone and
administrative support costs. For the fiscal years ended
December 31, 1999, 2000 and 2001, fees earned by our
investment advisor were $1,436,345, $1,546,093 and $1,631,885,
respectively. The Investment Advisory Agreement is renewed
annually and is terminable with 60 days notice.

As our net assets grow, our board of directors
may consider certain changes to our management structure,
including the possibility of changing it from externally to
internally managed. We believe that our external management
structure currently provides us with access to a stronger
infrastructure than we would be able to provide on a stand-alone
basis with the management fees that we pay. If our net asset
value continues to grow through investment gains or through
additional equity offerings, we may reach the conclusion that
the most cost-effective manner of managing our business is
through a different management structure.

Co-Investments and Follow-On
Investments

We have co-invested, and anticipate continuing to
co-invest, with other private investment funds managed by our
investment adviser, on terms and conditions that are the same in
all material respects for all parties. At the present time,
these funds include Brantley Venture Partners II, L.P., Brantley
Venture Partners III, L.P. and Brantley Partners IV, L.P. On
November 18, 1997, we received an exemptive order from the
Securities and Exchange Commission that, subject to certain
terms and conditions, relieves us from certain provisions of the
Investment Company Act of 1940 and generally permits us to
co-invest with investment funds managed by our investment
adviser.

Temporary Investments

Pending investments in the types of securities
described above, we invest our cash in cash equivalents,
government securities and high quality debt securities maturing
in one year or less from the time of investment.

The Investment Advisory Agreement

Pursuant to the Investment Advisory Agreement,
Brantley Capital Management, L.L.C., 20600 Chagrin Boulevard,
Suite 1150, Cleveland, Ohio 44122, serves as our investment
adviser. Subject to the overall supervision of our board of
directors, our investment adviser administers our business
affairs and furnishes us with office facilities and clerical,
bookkeeping and record keeping services at such facilities. See
Management.

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Pursuant to the terms of the Investment Advisory
Agreement, our investment adviser is responsible for, among
other things:



| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | Determining what securities we will purchase,
	retain or sell;                   
|
| |  | Identifying and evaluating the structure of the
	investments we make;            
|
| |  | Arranging debt financing for us;                                                 
|
| |  | Providing portfolio management and servicing of
	securities in our portfolio; and
|
| |  | Administering our day-to-day affairs.                                            

Our investment adviser is also responsible for
oversight of the administrator responsible for the financial
records which we are required to maintain and assists in the
preparation of financial information for reports to our
stockholders and reports filed with the Securities and Exchange
Commission. In addition, our investment adviser assists us in
determining and publishing our net asset value, oversees both
the preparation and filing of our tax returns, and the printing
and dissemination of reports to our stockholders, and generally
oversees the payment of our expenses and the performance of
administrative and professional services rendered to us by
others.

In return for its services, we pay our investment
adviser an annual management fee of 2.85% of our average net
assets, determined at the end of each calendar quarter, and
payable quarterly in arrears, throughout the term of the
Investment Advisory Agreement.

The Investment Advisory Agreement is not
exclusive, and the adviser is free to furnish similar services
to others so long as its services to us are not impaired.

Our investment adviser is responsible for the
salaries and expenses of its own personnel and for certain
additional expenses, including but not limited to:



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | all costs associated with identifying and
	selecting prospective investments; 
|
| |  | the cost of office space and necessary office
	equipment for us; and          
|
| |  | the cost of adequate corporate, administrative
	and clerical personnel for us.

We are responsible for all other expenses,
including those relating to calculating and publishing our net
asset value, all other expenses incurred by either our
investment adviser or us in connection with administering the
ordinary course of our business, and direct costs such as
printing, mailing, long distance telephone, staff, independent
accountants and outside legal costs.

The Investment Advisory Agreement was approved by
our board of directors on October 29, 1996, and is
renewable each year on November 26, provided that its
continuance is approved annually by our board of directors or by
the affirmative vote of the holders of a majority of the
outstanding shares of our common stock, including, in either
case, approval by our directors who are not interested persons.
Our board of directors recently approved the renewal of the
Investment Advisory Agreement and it is therefore subject to
renewal on November 26, 2002. The Investment Advisory
Agreement may be terminated by either party without penalty upon
at least 60 days notice to the other. See Risk
Factors  We Depend Upon Our Investment Adviser for Our
Future Success.

Administrator, Custodian, Transfer and
Dividend Paying Agent and Registrar

State Street Bank and Trust Company serves as our
administrator and, subject to appropriate review and approval by
our board of directors or our officers:



| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | oversees the determination and publication of our
	net asset value;            
|
| |  | oversees the maintenance by our custodian of
	certain of our books and records;
|
| |  | prepares income tax returns for review by our
	independent accountants;        
|
| |  | reviews and arranges for payment of our expenses;                              

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| |   |                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | prepares financial information to be submitted to
	our stockholders and arranges for the printing and dissemination
	of reports and communications to our stockholders;                                                                                        
|
| |  | prepares periodic financial information required
	to be filed with the Securities and Exchange Commission;                                                                                                                                                     
|
| |  | prepares certain reports relating to our business
	and affairs, and upon request, makes recommendations to the
	board of directors concerning the performance of the independent
	accountants or the performance and fees of the custodian and
	transfer agent;
|
| |  | oversees calculations of fees paid to our
	investment adviser, custodian and transfer agent;                                                                                                                                                                   
|
| |  | provides periodic testing of portfolios to assist
	our investment adviser in complying with the Internal Revenue
	Code, the requirements of the Investment Company Act of 1940; and                                                                            
|
| |  | provides such other services as necessary to
	administer the ordinary course of our business.                                                                                                                                                                  

For its services, we pay the administrator an
annual fee based on our average net assets of (i) 0.08% of
the first $100 million of average net assets;
(ii) 0.06% of the next $100 million of average net
assets; and (iii) 0.04% of average net assets in excess of
$200 million, subject to a minimum annual fee of $75,000.
Based on our net assets of $68,006,314 at December 31,
2001, the annual fee we would pay to the administrator in 2001
would be $75,000.

An additional annual fee of $10,000 will be
applied if we engage in leverage transactions other than
temporary borrowings. We also reimburse the administrator for
its out-of-pocket expenses.

Our administration agreement with State Street
Bank and Trust Company also provides for certain limitations on
the liability of State Street and indemnification of State
Street by us under certain circumstances. State Street cannot be
held liable for damages under the agreement unless such damages
were caused by gross negligence or willful misconduct, and such
damages are limited to State Streets total annual
compensation under the administration agreement. In addition, we
agree to indemnify State Street against any claims made under
the administration agreement that are not the result of the
gross negligence or willful misconduct of State Street, its
officers or employees.

State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA, 02110 is our transfer and dividend paying
agent and registrar as well as our custodian.

Determination of Net Asset Value

We have a written policy that governs the
valuation of our assets, pursuant to which our board of
directors values our assets each quarter.

We value our privately held investments based on
a determination of their fair value made in good faith by our
board of directors. Initially, the fair value of each such
security is based upon its original cost. Cost is also the
primary factor used to determine fair value on an ongoing basis
until significant developments or other factors affecting the
investment (such as results of subsequent financings, the
availability of market quotations, the portfolio companys
operations and changes in general market conditions) provide a
basis for value other than cost.

In adjusting the value of any given portfolio
company, our board of directors applies various methods under
the valuation guidelines to determine value. They may use, when
available, third-party transactions in a portfolio
companys securities as the basis of valuation. This basis
of valuation is referred to as the private market
method and is used only with respect to completed
transactions or firm offers made by sophisticated, independent
investors. Our board of directors may also use appraisal
procedures to determine fair value. Appraisal valuations are
based upon such factors as the portfolio companys earnings
and net worth, the market prices for similar securities of
comparable companies and an assessment of the companys
future financial prospects. In the case of unsuccessful
operations, the appraisal may be based upon liquidation value.
Appraisal valuations are necessarily subjective.

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Portfolio investments for which market quotations
are readily available and which are freely transferable are
valued as follows:



| |   |                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | securities listed on a securities exchange or
	traded on the Nasdaq Stock Market are valued at the closing
	price listed on the relevant exchange or quotation system on the
	date of valuation; and
|
| |  | securities traded in the over-the-counter market
	(known as pink sheets) are valued based on the average of the
	closing bid and asked prices on the date of valuation.                             

Securities for which market quotations are
readily available but are restricted from free trading in the
public securities markets, such as Rule 144 stock, are
valued by discounting the closing price or the closing bid and
asked prices, as the case may be, for the last trading day prior
to the date of valuation to reflect the illiquidity caused by
such restrictions, but taking into consideration the existence,
or lack thereof, of any contractual right to have the securities
registered and freed from such trading restrictions.

An investment that is exercisable for or
convertible into a security for which market quotations are
readily available or otherwise contains the right to acquire
such a security is deemed to be an investment for which market
quotations are readily available, but the value of any such
security is reduced by any consideration to be paid by us in
connection with the exercise or conversion of such security.

The value of restricted stock investments for
which no public market exists cannot be precisely determined.
Generally, such investments are valued on a going
concern basis without giving effect to any disposition
costs.

Debt securities with maturities of 60 days
or less remaining are valued under the amortized cost method.
The amount to be amortized is the value on the 61st day if the
security was obtained with more than 60 days remaining to
maturity. Securities with maturities of more than 60 days
remaining for which there is a market and which are freely
transferable are valued at the most recent bid price or yield
equivalent as obtained from dealers that make markets in such
securities. Certificates of deposit which we purchase generally
are valued at their face value, plus interest accrued to the
date of valuation.

Our board of directors reviews our valuation
policies from time to time to determine their appropriateness.
Our board of directors may also hire independent firms to review
the methodology of valuation or to conduct a valuation, which is
binding and conclusive.

In order to determine the net asset value per
share of our common stock:



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | the value of our assets, including our portfolio
	securities, is determined by our board of directors;
|
| |  | our liabilities, if any, are subtracted
	therefrom; and                                               
|
| |  | the difference is divided by the number of
	outstanding shares of our common stock.                   

The value of our investments may be very
difficult to ascertain. Valuation of our investments by the
board of directors is, by necessity, subjective and may not be
indicative of the price at which such securities may ultimately
be sold. The net asset value, as determined by our board of
directors, may not be reflective of the price at which an
investor could sell his, her or its shares of our common stock
in the open market.

Regulation as a Business Development
Company

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

A business development company is defined and
regulated by the Investment Company Act of 1940. It is a unique
kind of investment company that primarily focuses on investing
in or lending to small private companies and making managerial
assistance available to them. A business development company may
use capital provided by public stockholders and from other
sources to invest in long-term, private investments in growing
businesses. A business development company provides stockholders
the ability to retain the liquidity of a publicly traded stock,
while sharing in the possible benefits, if any, of investing in
privately owned growth companies.

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



| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Securities purchased in transactions not
	involving any public offering, the issuer of which is an
	eligible portfolio company. An eligible portfolio company is
	defined to include any issuer that:



| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | is organized and has its principal place of
	business in the United States;                                                      
|
| |  | is not an investment company other than a small
	business investment company wholly owned by a business
	development company; and
|
| |  | does not have any class of publicly traded
	securities with respect to which a broker may extend margin
	credit;                 



| |   |                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Securities received in exchange for or
	distributed with respect to securities described above or
	pursuant to the exercise of options, warrants, or rights
	relating to such securities; and         
|
| |  | Cash, cash equivalents, government securities, or
	high quality debt securities, within the meaning of the
	Investment Company Act of 1940, maturing in one year or less
	from the time of investment.

In addition, a business development company must
be organized in the United States for the purpose of making
investments in the types of securities described above. To
include certain securities described above as qualifying assets
for the purpose of the 70% test, a business development company
must make available to the issuer of those securities
significant managerial assistance such as providing significant
guidance and counsel concerning the management, operations, or
business objectives and policies of a portfolio company.

We may invest up to 30% of our assets in
portfolio investments that are not qualifying assets. This
portion of our portfolio consists primarily of investments in
small-capitalization public companies.

As a business development company, we are
entitled to issue senior securities in the form of stock or
senior securities representing indebtedness, including debt
securities and preferred stock, as long as each class of senior
security has an asset coverage of at least 200% immediately
after each such issuance. See Risk Factors  We
Borrow Money Which Magnifies the Potential for Gain or Loss on
Amounts Invested and May Increase the Risk of Investing in Our
Common Stock and Senior Securities.

We are also prohibited by the Investment Company
Act of 1940 from knowingly participating in a joint transaction,
including co-investments in a portfolio company with an
affiliated person, including any of our directors, our
investment adviser or any entity controlled or advised by any of
them. We have been granted an exemptive order from the
Securities and Exchange Commission relieving us, subject to
certain terms and conditions, from certain of the provisions of
the Investment Company Act of 1940, and generally permitting us
to engage in co-investments with certain private investment
funds managed by our investment adviser.

We have adopted a code of ethics that establishes
procedures for personal investments and restricts certain
transactions. The code of ethics is filed as an exhibit to the
registration statement of which this prospectus is a part. You
may read and copy the code of ethics at the Securities and
Exchange Commissions Public Reference Room in Washington,
DC. You may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-202-942-8090. In
addition, the code of ethics is available on the EDGAR Database
on the Commissions Internet site at http://www.sec.gov.
You may obtain copies of the code of ethics, after paying a
duplicating fee, by electronic request at the following Email
address: publicinfo@sec.gov, or by writing the Commissions
Public Reference Section Washington, DC 20549-0102.

In connection with our intention to significantly
expand our origination of mezzanine investments, our board of
directors added the provision of current income to our
investment objective. Under the Investment Company Act of 1940,
we are not required to obtain stockholder approval to amend our
investment objective.

Under the Investment Company Act of 1940, we are
prohibited, as a business development company, from selling our
common stock at a price below the current net asset value per
share for such stock unless, among other conditions, the policy
and practice of making such sales is approved by holders of a
majority of our outstanding

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voting securities, as well as the holders of a
majority of our outstanding voting securities who are not our
affiliates. In addition, a majority of our directors who are not
interested persons of our company must first
determine that any such sale would be in the best interest of
our company and our stockholders, and in consultation with the
underwriter, that the offering price would be not less than a
price that closely approximates the market price less any
distributing discount or commission.


We may not change the nature of our business so
as to cease to be, or withdraw our election as, a business
development company unless authorized by vote of a
majority of the outstanding voting securities, as
defined in the Investment Company Act of 1940. The Investment
Company Act of 1940 defines a majority of the outstanding
voting securities as (1) 67% or more of the voting
securities present at such meeting if the holders of more than
50% of the outstanding voting securities are present or
represented by proxy, or (2) 50% of the outstanding voting
securities, whichever of the two is the lesser.

Tax Status

The following discussion is a general summary
of the material United States federal income tax considerations
applicable to us and to an investment in our common stock. This
summary does not purport to be a complete description of the
income tax considerations applicable to such an investment. The
discussion is based upon the Internal Revenue Code, Treasury
Regulations, and administrative and judicial interpretations,
each as of the date of this prospectus and all of which are
subject to change. You should consult your own tax advisor with
respect to tax considerations that pertain to your purchase of
our common stock.

This summary is intended to apply to
investments in our common stock and assumes that investors hold
our common stock as capital assets. This summary does not
discuss all aspects of federal income taxation relevant to
holders of our common stock in light of particular
circumstances, or to certain types of holders subject to special
treatment under federal income tax laws, including dealers in
securities, pension plans and trusts and financial institutions.
This summary does not discuss any aspects of U.S. estate and
gift tax or foreign, state or local tax. It does not discuss the
special treatment under federal income tax laws that could
result if we invested in tax-exempt securities or certain other
investment assets.

Except as specifically indicated herein, this
summary is intended to apply to U.S. Stockholders (as defined
below) and does not purport to discuss all U.S. federal income
tax consequences to persons who are not U.S. Stockholders
(Non-U.S. Stockholders) from an investment in our
common stock. A U.S. Stockholder is a stockholder
who is (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity created in
or organized under the laws of the United States or any
political subdivision thereof, (iii) an estate, the income of
which is subject to United States federal income taxation
regardless of its source, or (iv) a trust subject to the
supervision of a court within the United States and the control
of a United States person. Non-U.S. Stockholders should consult
their own tax advisors to discuss the consequences of an
investment in our common stock.

Taxation as a Regulated Investment
Company

We intend to continue to be treated for tax
purposes as a regulated investment company under
Subchapter M of the Internal Revenue Code. If we (i) qualify as
a regulated investment company and (ii) distribute to our
stockholders in a timely manner at least 90% of our
investment company taxable income, as defined in the
Code (i.e., net investment income, including accrued original
issue discount, and net short-term capital gain) (the 90%
Distribution Requirement) each year, we will not be
subject to federal income tax on the portion of our investment
company taxable income and net capital gain (i.e., net long-term
capital gain in excess of net short-term capital loss) that we
distribute (or treat as deemed distributed) to
stockholders. In addition, if we distribute in a timely manner
the sum of (i) 98% of our ordinary income for each calendar
year, (ii) 98% of our capital gain net income for the
one-year period ending October 31 in that calendar year,
and (iii) any income not distributed in prior years, we
will not be subject to the 4% nondeductible federal excise tax
on certain undistributed income of regulated investment
companies (the Excise Tax Avoidance Requirements).
We generally will endeavor to distribute (or treat as deemed
distributed) to our stockholders all of our investment company
taxable income and our net capital gain, if any, for each
taxable year so that we will not incur federal

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income or excise taxes on our earnings. We will
be subject to federal income tax at our regular corporate rate
for any amounts of investment company taxable income or net
capital gain not distributed (or deemed distributed) to our
stockholders.


In order to qualify as a regulated investment
company for federal income tax purposes, we must, among other
things: (a) continue to qualify as a business development
company under the Investment Company Act of 1940; (b) derive in
each taxable year at least 90% of our gross income from
dividends, interest, payments with respect to securities loans,
gains from the sale of stock or other securities, or other
income derived with respect to our business of investing in such
stock or securities (the 90% Income Test); and (c)
diversify our holdings so that at the end of each quarter of the
taxable year (i) at least 50% of the value of our assets
consists of cash, cash equivalents, U.S. government securities,
securities of other regulated investment companies, and other
securities if such other securities of any one issuer do not
represent more than 5% of our assets or more than 10% of the
outstanding voting securities of the issuer (the 50% of
the Value Requirement), and (ii) no more than 25% of
the value of our assets is invested in the securities (other
than U.S. government securities or securities of other regulated
investment companies) of any one issuer or of two or more
issuers that are controlled (as determined under applicable
rules of the Internal Revenue Code) by us and are engaged in the
same or similar or related trades or businesses (the 25%
of the Value Limitation and together, the 50% of the Value
Requirement and the 25% of the Value Limitation shall be
referred to as the Diversification Test.)

Because we invest in only a limited number of
portfolio companies, we currently do not satisfy the 25% of the
Value Limitation (and therefore the Diversification Test). In
addition, we anticipate that we may not satisfy the
Diversification Test on the last day of one or more future
quarters. The Internal Revenue Code, however, modifies the above
Diversification Test in the case of certain investment companies
furnishing capital to development corporations (the
Modified Diversification Test). In order for the
Modified Diversification Test to be applicable to us, the
Securities and Exchange Commission must determine and certify to
the Internal Revenue Service no more than 60 days prior to
the close of each relevant taxable year that we are principally
engaged in the furnishing of capital to other corporations that
are principally engaged in the development or exploitation of
inventions, technological improvements, new processes, or
products not previously generally available. For purposes of
this determination, a corporation will be considered to be
principally engaged in the development or exploitation of
inventions, technological improvements, new processes, or
products not previously generally available for at least
10 years after our first acquisition of any security in
such corporation if, as of the date of such first acquisition,
the issuer corporation was principally so engaged. In addition,
we will be considered on any date to be furnishing capital to a
corporation whose securities we hold if we have acquired
securities in such corporation within the preceding
10 years. We intend to request such certification, if
necessary. Periodic recertification may be necessary.

If the Modified Diversification Test is
applicable to us, then for purposes of determining whether we
satisfy the 50% of the Value Requirement discussed above, we
will be able to include the value of the securities of any
issuer (whether or not we hold more than 10% of the outstanding
voting securities of such issuer) provided that at the time of
the latest acquisition of any securities of such issuer our
basis in all securities of such issuer held by us did not exceed
5% of the value of our total assets as of such date. The
Modified Diversification Test will not apply to any security of
an issuer if we have continuously held securities in such issuer
(or any predecessor company) for more than 10 years. In
addition, the Modified Diversification Test will not apply to us
for a quarter if, as of the close of such quarter, more than 25%
of our total assets are represented by securities of issuers for
which we hold more than 10% of the outstanding voting securities
of such issuers and with respect to which we have continuously
held securities in such issuers (or any predecessor companies)
for more than 10 years, unless the value of our total
assets represented by such securities is reduced to 25% or less
within 30 days after the close of such quarter. Even if the
Modified Diversification Test is applicable to us, we must still
satisfy the 25% of the Value Limitation discussed above. The
Internal Revenue Code also contains two other exceptions to the
Diversification Test that may allow us to continue to qualify as
a regulated investment company even if we fail to satisfy the
Diversification Test (or the Modified Diversification Test) as
of the close of any quarter. In this respect, the Code provides
that a company that satisfied the Diversification Test as of the
close of any quarter shall not lose its status as a regulated
investment company during a subsequent quarter due to a
discrepancy between the value of its various investments and the
requirements of the Diversification Test unless such discrepancy
exists

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immediately after the acquisition of any security
or other property and is wholly or partly the result of such
acquisition. Thus, if we have satisfied the Diversification Test
for at least one quarter, we will not lose our status as a
regulated investment company as a result of failing to satisfy
the Diversification Test provided such failure is due to a
fluctuation in the value of our assets or a distribution made by
us and is not attributable in whole or in part to the
acquisition of any securities (the Fluctuation in Value
Exception). In addition, if a discrepancy is due in whole
or in part to the acquisition of securities, the Internal
Revenue Code provides that a company will not lose its status as
a regulated investment company if such discrepancy is eliminated
within 30 days after the close of such quarter. Thus, we
will generally have 30 days after the close of any quarter to
dispose of assets in order to satisfy the Diversification Test.
We currently satisfy the Fluctuation in Value Exception.
Accordingly, although we do not satisfy the Diversification
Test, we are still adequately diversified under the Subchapter M
requirements for regulated investment companies.


If we fail to satisfy the Diversification Test
for any future quarter, the Modified Diversification Test and
the exceptions to the Diversification Test discussed above, we
will fail to qualify as a regulated investment company and all
of our income will be subject to federal income tax at the
regular corporate tax rate as discussed below. As a result, we
will make every effort to satisfy the Diversification Test, the
Modified Diversification Test, or the exceptions to the
Diversification Test. In order to satisfy these tests, however,
we may be prevented from making acquisitions (including
acquisitions through the exercise of options, warrants,
conversion rights, or other purchase rights) of new or
additional securities, even though we believe such acquisitions
to be advantageous or beneficial from an investment standpoint.
Alternatively, it may be necessary for us to dispose of certain
currently held securities in order to satisfy these tests even
though such dispositions may not be advantageous or beneficial
from an investment standpoint. Because our portfolio will
consist primarily of illiquid investments, we may not be able to
dispose of our assets in a timely manner or on an economically
advantageous basis in order to satisfy the Diversification Test,
the Modified Diversification Test or the exceptions to the
Diversification Test.

If we acquire or are deemed to have acquired debt
obligations that were issued originally at a discount or that
otherwise are treated under applicable tax rules as having
original issue discount, we must include in income each year a
portion of the original issue discount that accrues over the
life of the obligation regardless of whether cash representing
such income is received by us in the same taxable year. Any
amount accrued as original issue discount will be included in
our investment company taxable income for the year of accrual
and may have to be distributed to our stockholders in order to
satisfy the 90% Distribution Requirement or the Excise Tax
Avoidance Requirements even though we have not received any cash
representing such income.

Although we do not presently expect to do so, we
are authorized to borrow funds and to sell assets in order to
satisfy distribution requirements. However, under the Investment
Company Act of 1940, we are not permitted to make distributions
to our stockholders while our debt obligations and other senior
securities are outstanding unless certain asset
coverage tests are met. Moreover, our ability to dispose
of assets to meet our distribution requirements may be limited
by (i) the illiquid nature of our portfolio and/or
(ii) other requirements relating to our status as a
regulated investment company, including the Diversification
Test. If we dispose of assets in order to meet the 90%
Distribution Requirement or the Excise Tax Avoidance
Requirements, we may make such dispositions at times that, from
an investment standpoint, are not advantageous.

If we fail to satisfy the 90% Distribution
Requirement or otherwise fail to qualify as a regulated
investment company in any taxable year, we will be subject to
tax in that year on all of our taxable income, regardless of
whether we make any distributions to our stockholders. In that
case, all of our distributions to our stockholders will be
characterized as ordinary income (to the extent of our current
and accumulated earnings and profits). In contrast, as is
explained below, if we qualify as a regulated investment
company, a portion of our distributions or deemed distributions
may be characterized as long-term capital gain in the hands of
our stockholders.

The remainder of this summary assumes that we
qualify as a regulated investment company and satisfy the 90%
Distribution Requirement.

Taxation of Stockholders

Our distributions generally are taxable to our
stockholders as ordinary income or capital gains. Distributions
of our investment company taxable income will be taxable as
ordinary income to our stockholders to the extent of

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our current or accumulated earnings and profits,
whether paid in cash or reinvested in additional common stock.
Distributions of our net capital gains properly designated by us
as capital gain dividends will be taxable to a
stockholder as long-term capital gains regardless of such
stockholders holding period for his or her common stock
and regardless of whether paid in cash or reinvested in
additional common stock. Distributions in excess of our earnings
and profits first will reduce a stockholders adjusted tax
basis in such stockholders common stock and, after the
adjusted basis is reduced to zero, will constitute capital gains
to such stockholder. Any distribution automatically reinvested
in additional shares of our common stock through our opt out
dividend reinvestment plan will be taxable to a stockholder to
the same extent, and with the same character, as if such
stockholder received the distribution in cash. Any additional
shares of our common stock acquired by a stockholder pursuant to
such an automatic reinvestment of a distribution will have an
adjusted basis equal to the amount of the reinvested
distribution and will have a holding period that will commence
on the date such shares are acquired by, or allocated for the
benefit of, such stockholder. A portion of our distributions may
be subject to alternative minimum tax. You should consult your
own tax advisor to determine how an investment in our stock
would affect your alternative minimum tax liability.


At our option, we may elect to retain some or all
of our net capital gains for a tax year, but designate the
retained amount as a deemed distribution. In that
case, among other consequences, we will pay tax on the retained
amount for the benefit of our stockholders, our stockholders
will be required to report their share of the deemed
distribution on their tax returns as if it had been distributed
to them, and our stockholders will report a credit for the tax
paid thereon by us. The amount of the deemed distribution net of
such tax will be added to a stockholders cost basis for
his or her common stock. Since we expect to pay tax on any
retained net capital gains at our regular corporate capital gain
tax rate, and since that rate is in excess of the maximum rate
currently payable by individuals on long-term capital gains, the
amount of tax that individual stockholders will be treated as
having paid and for which they will receive a credit will exceed
the amount of tax that such stockholders would be required to
pay on the retained net capital gains. Such excess generally
will be available to offset other tax liability to the
stockholders. A stockholder that is not subject to U.S. federal
income tax should be able to file a return on the appropriate
form or a claim for refund that allows such stockholder to
recover the taxes paid on his or her behalf. In the event we
choose this deemed distribution option, we must
provide written notice to our stockholders prior to the
expiration of 60 days after the close of the relevant tax
year.

Any dividend we declare in October, November, or
December of any calendar year, payable to our stockholders of
record on a specified date in such a month and which we actually
pay during January of the following year, will be treated as if
it had been received by our stockholders on December 31 of
the year in which we declared the dividend.

If we acquire qualified small business
stock, hold such stock for more than five years, and
dispose of such stock at a gain, a non-corporate stockholder who
held his, her, or its common stock at the time that we purchased
the qualified small business stock and at all times thereafter
until the disposition of such qualified small business stock may
be entitled to exclude from such stockholders taxable
income up to 50% of such stockholders share of such gain.
For this purpose, qualified small business stock
generally means stock that was acquired directly from the
issuing corporation, where such issuing corporation is taxable
under Subchapter C of the Internal Revenue Code, is actively
engaged in a trade or business, and has no more than $50,000,000
of gross assets at any time prior to issuance and immediately
thereafter. A portion of any amount excluded from your taxable
income pursuant to the rules discussed in this paragraph will be
treated as a preference item for purposes of computing your
alternative minimum tax liability.

You should consider the tax implications of
buying our common stock just prior to a distribution. Even if
the price of our common stock includes the amount of the
forthcoming distribution, you may be taxed upon receipt of the
distribution and will not be entitled to offset the distribution
against your tax basis in our common stock.

You may recognize taxable gain or loss if you
sell or exchange our common stock. The amount of the gain or
loss will be measured by the difference between your adjusted
tax basis in such stock and the amount of the proceeds you
receive in exchange for such stock. Any gain or loss arising
from (or, in the case of distributions in excess of earnings and
profits, treated as arising from) the sale or exchange of our
common stock generally will be a capital gain or loss. This
capital gain or loss normally will be treated as a long-term
capital gain or loss if

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you have held such stock for more than one year;
otherwise, it will be classified as short-term capital gain or
loss. However, any capital loss arising from the sale or
exchange of our common stock held for six months or less
generally will be treated as a long-term capital loss to the
extent of the amount of capital gain dividends received, or
treated as deemed distributed, with respect to such stock and,
for this purpose, the special rules of Section 852(b)(4)(C)
of the Internal Revenue Code generally apply in determining the
holding period of such stock. In addition, all or a portion of
any loss realized upon a taxable disposition of our common stock
may be disallowed if other shares of our common stock are
purchased, under our dividend reinvestment and cash purchase
plan or otherwise, within 30 days before or after the
disposition.


In general, non-corporate stockholders currently
are subject to a maximum federal income tax rate on their net
long-term capital gain (the excess of net long-term capital gain
over net short-term capital loss) for a taxable year (including
a long-term capital gain derived from an investment in the
common stock of the company) that is lower than the maximum rate
for other income. Corporate taxpayers currently are subject to
federal income tax on net capital gains at a maximum rate equal
to the maximum rate applied to ordinary income. Tax rates
imposed by states and local jurisdictions on capital gain and
ordinary income may differ. Non-corporate stockholders with net
capital losses for a year (i.e., capital losses in excess of
capital gains) generally may deduct up to $3,000 of such losses
against their ordinary income each year; any net capital losses
of a non-corporate stockholder in excess of $3,000 generally may
be carried forward and used in subsequent years as provided in
Section 1212(b) of the Internal Revenue Code. Corporate
stockholders generally may not deduct any net capital losses for
a year, but may carryback such losses for three years or carry
forward such losses for five years.

We will send to each of our stockholders, as
promptly as possible after the end of each calendar year, a
notice detailing, on a per share and per distribution basis, the
amounts includible in such stockholders taxable income for
such year as ordinary income and as long-term capital gain. In
addition, the federal tax status of each years
distributions generally will be reported to the Internal Revenue
Service. Distributions may also be subject to additional state,
local, and foreign taxes depending on a stockholders
particular situation. Our ordinary income dividends to corporate
stockholders may, if certain conditions are met, qualify for the
dividends received deduction to the extent that we have received
qualifying dividend income during the taxable year; capital gain
dividends distributed by us are not eligible for the dividends
received deduction. However, the alternative minimum tax
applicable to corporations may reduce the benefit of the
dividends received deduction.

A Non-U.S. Stockholder may be subject to
withholding of U.S. federal tax at a 30% rate (or lower
applicable treaty rate) on our distributions (including certain
redemptions of our common stock). Accordingly, investment in our
common stock is likely to be appropriate for a Non-U.S.
Stockholder only if such person can utilize a foreign tax credit
or corresponding tax benefit in respect of such withholding tax.
Non-U.S. Stockholders should consult their own tax advisors with
respect to the U.S. federal income and withholding tax, and
state, local, and foreign tax, consequences of an investment in
our common stock.

We may be required to withhold U.S. federal
income tax (backup withholding) from all taxable
distributions payable to (i) any stockholder who fails to
furnish us with its correct taxpayer identification number or a
certificate that the stockholder is exempt from backup
withholding, and (ii) any stockholder with respect to whom the
Internal Revenue Service notifies us that such stockholder has
failed to properly report certain interest and dividend income
to the Internal Revenue Service and to respond to notices to
that effect. We may be required to report annually to the
Internal Revenue Service and to each Non-U.S. Stockholder the
amount of dividends paid to such stockholder and the amount, if
any, of tax withheld pursuant to the backup withholding rules
with respect to such dividends. This information may also be
made available to the tax authorities in the Non-U.S.
Stockholders country of residence. Backup withholding is
not an additional tax. Any amounts withheld under the backup
withholding rules from payments made to a stockholder may be
refunded or credited against such stockholders United
States federal income tax liability, if any, provided that the
required information is furnished to the Internal Revenue
Service.

Competition

We compete with a large number of private equity
and mezzanine funds, investment banks, mutual funds and other
equity and non-equity based investment funds, as well as
traditional financial services companies such as

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commercial banks and other sources of financing
in connection with our investment activity. Many of these
entities have greater financial and managerial resources than we
do. We compete with such entities primarily on the basis of the
quality of our services, the experience and contacts of our
investment adviser, our investment analysis and decision-making
processes, and the investment terms we offer in respect of the
securities to be issued by our portfolio companies. There can be
no assurance that we will be able to successfully compete for
attractive investment opportunities.


Employees

Our investment adviser provides all of the
personnel necessary to operate our business, and thus we do not
have any employees.




Item 2. Properties

The Company does not own or lease any properties.




Item 3. Legal Proceedings

Neither the Company, nor any of its property are
a party to, or the subject of, any material pending legal
proceedings, and no such material proceedings are known by the
Company to be contemplated by governmental authorities.




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

On October 26, 2001, the Company mailed to
stockholders a proxy statement for a special meeting to be held
on November 26, 2001 seeking approval of a proposal to
issue up to 12,500,000 shares of common stock at prices below
net asset value for a period of one year. On November 20,
2001, the Company announced that it was postponing the special
meeting and would revise the proposal.

On January 17, 2002, the Company mailed to
stockholders of the Company a revised proxy statement for a
special meeting of stockholders to be held on February 28,
2002 seeking stockholder approval of a proposal to issue up to
6,000,000 shares of common stock at prices per share below net
asset value; provided, that the price would not be less than (i)
$9.00 per share and (ii) market price at the time of the
offering. In order to approve the proposal the votes of
(i) a majority of the shares of the Company outstanding and
entitled to vote or (ii) 67% of the shares voted at the
meeting where at least 50% of the outstanding shares entitled to
vote were present either in person or by proxy, whichever is
less, was necessary. At the special meeting, 3,810,535 shares
were entitled to vote, 2,398,983 shares were present either in
person or by proxy, 1,383,772 shares were voted for the
proposal, 1,015,212 shares were voted against the proposal and
21,369 shares abstained. Thus, the proposal was not approved.

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Part II






|        |                                                                       
|------- | ----------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity and
	Related Stockholder Matters

Our common stock is traded on the Nasdaq National
Market under the symbol BBDC and historically has
traded at prices below our net asset value per share. The
following table sets forth, for the periods indicated, our net
asset value per share of common stock and the high and low sales
prices per share of our common stock. Prior to
September 23, 1999, our common stock traded on the Nasdaq
SmallCap Market under the same symbol. On March 29, 2002, the
last reported sales price of our common stock was $10.34 per
share.

|                              |                |           |  |                |  |     |  |        |  |  |  |       | 
|----------------------------- | -------------- | --------- |  | -------------- |  | --- |  | ------ |  |  |  | ----- | 
|                              |                |           |  |               
|                              |                |           |  | Range of Sales
|                              |                | Net Asset |  | Prices        
|                              |                | Value per |  |               
|                              |                | Share(1)  |  | High           |  | Low
|                              |                |           |  |                |  |    
|Year ended December 31,
	2000 |                |           |  |                |  |     |  |        |  |  |  |      
|                              | First Quarter  |           |  | 13.96          |  |     |  | 12.000 |  |  |  | 7.750 | 
|                              | Second Quarter |           |  | 13.97          |  |     |  | 10.750 |  |  |  | 8.375 | 
|                              | Third Quarter  |           |  | 14.18          |  |     |  | 10.250 |  |  |  | 8.188 | 
|                              | Fourth Quarter |           |  | 13.63          |  |     |  | 9.875  |  |  |  | 7.500 | 
|Year ended December 31,
	2001 |                |           |  |                |  |     |  |        |  |  |  |      
|                              | First Quarter  |           |  | 13.67          |  |     |  | 8.750  |  |  |  | 7.500 | 
|                              | Second Quarter |           |  | 14.55          |  |     |  | 9.500  |  |  |  | 7.750 | 
|                              | Third Quarter  |           |  | 14.09          |  |     |  | 9.410  |  |  |  | 7.690 | 
|                              | Fourth Quarter |           |  | 17.85          |  |     |  | 10.890 |  |  |  | 8.000 | 



---



|    |                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Net asset value per share is determined as of the
	last day in the relevant quarter and therefore may not reflect
	the net asset value per share on the date of the high or low
	sales price. The net asset values shown are based on outstanding
	shares at the end of each period.

Since our initial public offering, we have
distributed more than 98% of our ordinary income and 98% of our
capital gain net income to our stockholders on an annual basis.
For the years ended 2001, 2000, and 1999, we declared dividends
of $0.19, $0.62 and $0.46, respectively.

Our current intention is to continue distributing
our ordinary income and our short-term capital gains on an
annual basis to our stockholders. We may also choose to
distribute some or all of our net realized long-term capital
gains or, if we deem it appropriate, we may retain such gains to
support growth in our investment portfolio.

In the future, we may consider making
distributions on a quarterly basis if our investment company
taxable income (ordinary income and short-term capital gains)
grows sufficiently to support such a distribution. However, we
cannot assure you that we will achieve investment results or
maintain a tax status that will allow any specified level of
cash distributions or year-to-year increases in cash
distributions.

We maintain an opt out dividend
reinvestment and cash purchase plan for our stockholders. Under
the plan, if shares of our common stock are registered in your
name, dividends will be automatically reinvested in additional
shares of common stock unless you opt out of the
plan.

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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

(all figures in thousands except per share
data)


|                                         |  |      |        |      |  |      |        |      |  |      |        |      |  |   |        |   |  |   |        |  |  |   |        |  
|---------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ |  |  | - | ------ | -
|                                         |  | 2001 |        | 2000 |  | 1999 |        | 1998 |  | 1997 |        | 1996
|                                         |  |      |        |      |  |      |        |      |  |      |        |     
|Financial Position                       |  |      |        |      |  |      |        |      |  |      |        |      |  |   |        |   |  |   |        |  |  |   |        |  
|(as of December 31)                      |  |      |        |      |  |      |        |      |  |      |        |      |  |   |        |   |  |   |        |  |  |   |        |  
|Total assets                             |  | $    | 75,534 |      |  | $    | 58,471 |      |  | $    | 54,991 |      |  | $ | 50,456 |   |  | $ | 43,825 |  |  | $ | 36,620 |  
|Note payable                             |  |      | 6,000  |      |  |      | 6,000  |      |  |      |       |      |  |   |       |   |  |   |       |  |  |   |       |  
|Net assets                               |  |      | 68,006 |      |  |      | 51,943 |      |  |      | 52,440 |      |  |   | 49,941 |   |  |   | 42,912 |  |  |   | 36,142 |  
|Changes in Net Assets                    |  |      |        |      |  |      |        |      |  |      |        |      |  |   |        |   |  |   |        |  |  |   |        |  
|(years ended December 31)                |  |      |        |      |  |      |        |      |  |      |        |      |  |   |        |   |  |   |        |  |  |   |        |  
|Net investment income (loss)             |  |      | (1,208 | )    |  |      | 145    |      |  |      | 320    |      |  |   | (69    | ) |  |   | 31     |  |  |   | (7     | )
|Net gain on investments                  |  |      | 18,007 |      |  |      | 1,734  |      |  |      | 3,932  |      |  |   | 7,137  |   |  |   | 5,683  |  |  |   |       |  
|Net change in net assets from operations |  |      | 16,800 |      |  |      | 1,879  |      |  |      | 4,252  |      |  |   | 7,068  |   |  |   | 5,713  |  |  |   | (7     | )
|Dividends                                |  |      | 736    |      |  |      | 2,376  |      |  |      | 1,753  |      |  |   | 38     |   |  |   | 444    |  |  |   |       |  
|Per Share Data                           |  |      |        |      |  |      |        |      |  |      |        |      |  |   |        |   |  |   |        |  |  |   |        |  
|Net assets                               |  |      | 17.850 |      |  |      | 13.630 |      |  |      | 13.760 |      |  |   | 13.110 |   |  |   | 11.260 |  |  |   | 9.870  |  
|Closing market price                     |  |      | 10.890 |      |  |      | 8.625  |      |  |      | 8.000  |      |  |   | 7.125  |   |  |   | 9.630  |  |  |   | 10.000 |  
|Cash dividends                           |  |      | 0.19   |      |  |      | 0.620  |      |  |      | 0.460  |      |  |   | 0.010  |   |  |   | 0.120  |  |  |   |       |  






|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of
	Financial Condition and Results of Operations

General

Overview

We are a non-diversified investment company that
is regulated as a business development company under the
Investment Company Act of 1940. We provide equity and long-term
debt financing to small and medium-sized private companies in a
variety of industries throughout the United States. In addition,
we invest a portion of our assets in small-capitalization public
companies. Our investment objective is to achieve long-term
capital appreciation in the value of our investments and to
provide current income primarily from interest, dividends and
fees paid by our portfolio companies.

Historically, we have focused our investing
activities on private equity securities. We generally structure
our private equity investments as participating preferred stock
with an 8% to 10% dividend yield that accumulates and is paid
upon a liquidity event. Our private equity investments typically
range from $1 million to $5 million, and we generally
expect these investments to achieve liquidity within three to
five years. We typically do not receive a cash return on our
private equity investments until a liquidity event occurs, but
instead seek to achieve long-term capital appreciation in net
asset value through such investments.

In the past year we have explored various
strategic alternatives to enhance our growth and
stockholders value. We determined that operating at our
current size or attempting to realize premature liquidity events
within our portfolio would not enhance the market value of our
common stock and would limit our ability to generate recurring
income sought by the investment community and our stockholders.

Specifically, we have been exploring the
possibility of expanding our origination of mezzanine
investments. Shares of business development companies that
invest primarily in mezzanine investments tend to trade at a
premium to net asset value per share due to the expectation of
current income produced by such investments. We believe that
current market conditions, influenced by more stringent credit
standards of commercial banks and more conservative capital
structures sought by entrepreneurs and equity sponsors, have
created an increased demand for mezzanine investments.

Mezzanine investments would be expected to
provide a current cash return to us in the form of interest and
origination fees. We typically participate in any increase in
the equity value of the companies to whom we provide mezzanine
financing through warrants or other equity rights. We anticipate
that mezzanine investments would provide less potential for
appreciation in our net asset value than private equity
investments, but would

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instead provide higher current income that may be
distributed to our stockholders. In the future, we may also seek
to further leverage our portfolio by utilizing additional
borrowings to fund our investments.


In order to fund the origination of mezzanine
investments, we are exploring various capital-raising
alternatives. We intend to use the proceeds of such an event to
make mezzanine investments. We can make no assurances that a
capital raising effort will be undertaken or that any of our
portfolio companies would experience a liquidity event. We can
also make no assurances that our plan to expand our origination
of mezzanine investments will be consummated or be successful.

Certain
Accounting Policies

Privately placed equity and mezzanine securities
are carried at fair value as determined in good faith by our
board of directors. Initially, the fair value of each such
security is based upon its original cost. Cost is also the
primary factor used to determine fair value on an ongoing basis
until significant developments or other factors affecting the
investment (such as results of subsequent financings, the
availability of market quotations, the portfolio companys
operations and changes in general market conditions) provide a
basis for value other than cost.

Portfolio investments listed on a securities
exchange or traded on the Nasdaq Stock Market are valued at the
closing price listed on the relevant exchange or quotation
system on the date of valuation. Securities traded in the
over-the-counter market are valued based on the average of the
closing bid and asked prices on the date of valuation.

Origination fees are recognized as income during
the period in which they are received. Interest income is
recorded on mezzanine investments when the payment is
contractually due unless a loan is more than 30 days past
due. Interest is not accrued on any loans that are more than
30 days past due.

We account for our operations utilizing
accounting principles generally accepted in the United States
for investment companies. On this basis, the principal measure
of our financial performance is captioned Net change in
net assets resulting from operations, which is the sum of
two elements. The first element is Investment income
(loss), net, which is the difference between (1) our
income from interest, dividends and fees, and (2) our
operating expenses. The second element is Net gain
(loss) on investments, which is the sum of
(1) the difference between the proceeds received from our
dispositions of portfolio securities and their stated cost
(Net realized gain (loss) on investments), and
(2) the net change in the fair value of our investment
portfolio (Net unrealized gain (loss) on
investments).

Net realized gain (loss) on
investments and Net unrealized gain (loss) on
investments are directly related. For example, in the
period during which a security is sold to realize a gain, net
unrealized gain on investments decreases, and net realized gain
on investments increases.

Historically, we have focused our investing
activities on private equity securities. We began making such
investments in 1997 and are now entering into a phase of the
business plan which emphasizes positioning our more mature
portfolio companies for appropriate liquidity events. As a
result, we are continuously monitoring portfolio company results
and evaluating opportunities to maximize the valuation of our
investments. In that regard, we periodically evaluate potential
acquisitions, financing transactions, initial public offerings,
strategic alliances, and sale opportunities involving our
portfolio companies. Any such transaction could have an impact
on the valuation of our investments. These transactions and
activities are generally not disclosed to our stockholders and
the investing public until such time as the transactions are
publicly announced or completed, as the case may be.

Results of Operations

Dividend
and Interest Income

Dividend and interest income on investments for
the years ended December 31, 2001, 2000 and 1999 were
$1,581,837, $2,252,497 and $2,317,100, respectively. The
reduction in interest and dividend income during the

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year ended December 31, 2001 was primarily
due to the reduction in both cash available for short-term
investing and the related short-term interest rates.


Operating
Expenses

Total operating expenses during the years ended
December 31, 2001, 2000 and 1999 were $2,789,513,
$2,107,415 and $1,997,523, respectively. The significant
component of total operating expenses was advisory fees of
$1,631,885, $1,546,093 and $1,436,345 earned by our investment
adviser during the years ended December 31, 2001, 2000 and
1999, respectively.

Net
Realized and Unrealized Gains on Investment
Transactions

During the years ended December 31, 2001,
2000 and 1999, valuation of our equity and mezzanine investments
resulted in net realized and unrealized gains on investments of
$18,007,426, $1,734,233 and $3,932,077, respectively. At
December 31, 2001, and 2000, we had investments in twelve
and ten privately-held companies, respectively, as well as in
various small-capitalization public stocks which are subject to
general stock market and business conditions. The unrealized
gains during such periods were significantly influenced by
general stock market and business conditions, as well as the
December 21, 2001 and August 31, 1999 revaluations of
Flight Options International, Inc.

Financial Condition, Liquidity and Capital
Resources

At December 31, 2001 and 2000, we had
$5,369,345 and $8,882,432, respectively, in cash and cash
equivalents which were primarily invested in United States
Treasury securities. Restricted cash is held under direction of
the lender and is not readily available to fund investments or
pay operating expenses. Our management believes that our cash
and cash equivalents, together with proceeds from our
investments, will provide us with the liquidity necessary to pay
our operating expenses and make follow-on investments. However,
in order to execute our mezzanine investment plan, we will
continue to seek opportunities to raise additional capital.

At December 31, 2001 and 2000, we had
stockholders equity of $68,006,314 and $51,943,019,
respectively, resulting in a net asset value per share of $17.85
and $13.63, respectively.

At December 31, 2001, we had $6,000,000 of
outstanding indebtedness. For the year ended December 31,
2001, the weighted average interest rate on this indebtedness
was 7.2%. Brantley Venture Partners II, L.P., Brantley Venture
Partners III, L.P. and Brantley Partners IV, L.P. hold, in the
aggregate, approximately $211 million of private equity
investments. These partnerships are related to our investment
adviser in a manner that required the receipt, from the
Securities and Exchange Commission, of an exemption from certain
provisions of the Investment Company Act of 1940 in order to
permit us, under certain circumstances, to invest in the same
portfolio companies as the other private investment funds
managed by our investment adviser.

Consistent with our current long-term objectives,
our board of directors has recently asked our investment adviser
to consider ways to maximize stockholder value in the event that
our net asset value has not appreciated by a minimum of 15% per
annum for the seven-year period ending December 31, 2003.
Such actions could include, but are not limited to, a possible
recommendation to consider the sale of some or all of our
investments. Our management has been pleased with the
performance of our portfolio companies since inception and
believes that liquidity opportunities that generally start
presenting themselves several years into a portfolio of this
nature may create gains for us over the next few years. Our
portfolio is just beginning to enter a period of possible
liquidity events. However, in light of the market price of our
common stock relative to its net asset value, our management has
reiterated our planned goals and objectives and has reassured
our stockholders that our management intends to take action if
those goals and objectives are not met. Nevertheless, our
management expects to meet our net asset value appreciation
target.

At December 31, 2001 and December 31,
2000, the aggregate cost of the investments we made to date was
$28.9 million and $26.8 million, respectively, and
their aggregate market value was $60.3 million and
$41.5 million, respectively, for an aggregate fair value
appreciation of 109% and 55%, respectively. Our

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management believes that our portfolio companies
have significant potential for long-term growth in sales and
earnings. Since the completion of our initial public offering,
our management has focused its investment activities on securing
new investments for our portfolio. However, given the nature of
our current portfolio and the fact that this portfolio as a
whole is maturing, our management is seeking to position the
more mature portfolio companies for appropriate liquidity
events. We are continuously monitoring portfolio company results
and evaluating opportunities to maximize the value of our
investments. In that regard, we periodically evaluate potential
acquisitions, financing transactions, initial public offerings,
strategic alliances and sale opportunities involving our
portfolio companies. These transactions and activities are
generally not disclosed to our stockholders and the investing
public until such time as the transactions are publicly
announced or completed, as the case may be. Any such transaction
could have an impact on the valuation of our investments.
However, these revised valuations would generally not be
adjusted until the transaction is publicly announced or
completed.


We intend to expand our origination of mezzanine
investments. Thus, as we invest the net proceeds from future
portfolio company liquidity events or the issuance of additional
capital, we expect that mezzanine investments will represent a
much larger percentage of our assets. The mezzanine investments
are expected to provide a current cash return to us in the form
of interest and origination fees. Although we will typically
participate in any increase in the equity value of the companies
to whom we provide mezzanine financing through warrants or other
equity rights, we anticipate that our mezzanine investments will
provide less potential for appreciation in our net asset value
than our private equity investments, but will instead provide
higher current income that may be distributed to our
stockholders. Pending investment, we intend to invest the net
proceeds from this offering in cash equivalents, government
securities or high quality debt securities maturing within one
year or less from the time of investment. The investment income
generated from such cash equivalents is expected to be less than
the current income we anticipate from mezzanine investments.

Private
Portfolio Company Investments

The following is a list of the private companies
in which we had an investment and the cost and fair value of
such securities at December 31, 2001.

|                                    |  |                                               |  |      |            |            |  |   |            |    
|----------------------------------- |  | --------------------------------------------- |  | ---- | ---------- | ---------- |  | - | ---------- | ---
|Name of Company                     |  | Nature of its Principal Business              |  | Cost |            | Fair Value
|                                    |  |                                               |  |      |            |           
|Disposable Products Company, LLC    |  | Non-Woven Paper Products Manufacturer         |  |      | 1,379,667  |            |  |   | 1,373,000  |    
|                                   
|Fitness Quest, Inc.                 |  | Fitness Products Direct Marketer              |  |      | 3,846,358  |            |  |   | 8,658,041  |    
|                                   
|Flight Options International, Inc.  |  | Private Air Travel Services                   |  |      | 5,562,500  |            |  |   | 32,500,000 |    
|                                   
|Health Care Solutions, Inc.         |  | Home Health Care Provider                     |  |      | 2,299,000  |            |  |   | 2,328,401  |    
|                                   
|The Holland Group, Inc.             |  | Temporary Staffing                            |  |      | 2,125,000  |            |  |   | 2,125,000  |    
|                                   
|National Rehab Partners, Inc.       |  | Rehabilitation Services                       |  |      | 1,460,263  |            |  |   | 1,460,263  |    
|                                   
|Pediatric Physicians Alliance, Inc. |  | Pediatric Physician Practice Management Group |  |      | 3,439,448  |            |  |   | 3,464,348  |    
|                                   
|Petroleum Partners, Inc.            |  | Petroleum Distribution Maintenance Services   |  |      | 2,700,000  |            |  |   | 2,700,000  |    
|                                   
|Prime Office Products, Inc.         |  | Office Products Distributor                   |  |      | 1,020,000  |            |  |   | 1,020,000  |    
|                                   
|Value Creation Partners, Inc.       |  | Food Products Manufacturer and Distributor    |  |      | 2,145,460  |            |  |   | 2,225,960  |    
|                                   
|Waterlink, Inc.                     |  | Water and Waste-Water Management              |  |      |           | (1)        |  |   |           | (1)
|                                    |  |                                               |  |      |            |            |  |   |            |    
|                                    |  | Total                                         |  | $    | 25,977,696 |            |  | $ | 57,855,013 |    
|                                    |  |                                               |  |      |            |            |  |   |            |    

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|    |                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We hold a warrant to purchase common stock with
	an exercise price in excess of the market price of the common
	stock at December 31, 2001.

Our individually significant equity and mezzanine
investments at December 31, 2001 are described below:

Disposable
Products Company, LLC

On August 10, 1998, we entered into an
investment led by Banc One Capital to provide $1.0 million
of a $3.0 million subordinated debt facility with warrants
for Disposable Products Company, LLC. Disposable Products is an
acquisition strategy company in the business of manufacturing
and converting paper and non-woven materials into wiping
products for sale to commercial, institutional, industrial and
government markets. In addition, Disposable Products is a
converter and reseller of other safety and industrial/janitorial
products. Proceeds of the transaction were used to complete
Disposable Products first acquisition. The terms of the
debt facility call for a 12% interest rate per annum with a
final maturity in 2003. We also received a detachable capital
stock purchase warrant exercisable for 5% of the fully-diluted
capital stock of Disposable Products at the time of exercise at
a nominal exercise price. On January 26, 2001, we funded a
$169,667 12% promissory note from Disposable Products. In
addition, through December 28, 2001 we funded additional
12% promissory notes of $210,000 from Disposable Products.

Fitness
Quest, Inc.

On December 16, 1997, we funded a
$1.35 million commitment to invest with Brantley Venture
Partners III, L.P. in a $3.85 million preferred stock issue
for Fitness Quest, Inc. As a result, we purchased approximately
788,961 shares of Fitness Quest Series A 10% Convertible
Preferred Stock at $1.71 per share. Fitness Quest is a direct
marketing and distribution company. The proceeds were used by
Fitness Quest for a management buy-out of the company from its
previous owner, The Time Warner Music Group, a 100% wholly owned
subsidiary of Time Warner, Inc., and for other acquisitions.
Fitness Quest has been in the fitness promotional products
business since 1994. Fitness Quest operates in a highly
competitive industry and is dependent on the management talent
and efforts of key personnel for its success. We do not believe
that Fitness Quest is dependent on a single or small number of
customers, possesses significant intellectual property, or is
operating in an unusually regulated industry.

During 1997, Fitness Quest increased its revenue
and improved its operating margins and profits. After a complete
evaluation, our board of directors re-valued our Fitness Quest
investment to $5,440,000, resulting in a 1997 unrealized gain of
$4,090,000. This evaluation was based on price to earnings
ratios, cash flow multiples and other appropriate financial
measurements of similar private companies. In addition to the
above Series A 10% Convertible Preferred Stock, we funded
$1,751,300 to invest with Brantley Venture Partners III, L.P. in
a $3.5 million 10% senior subordinated debt investment in
Fitness Quest in 2000. In addition, we received a warrant to
purchase 181,172 shares of Fitness Quest common stock for $0.01
per share.

The proceeds of the most recent investment were
used to fund Fitness Quests working capital needs. During
the fourth quarter of 2000, we exchanged the senior subordinated
debt investment and related unpaid interest for 679,641 shares
of Fitness Quest common stock.

Flight
Options International, Inc. (Formerly Corporate Wings,
Inc.)

On December 23, 1997, we funded
$2.1 million to invest with Brantley Venture Partners III,
L.P. in a $6.0 million preferred stock issue for Flight
Options International, Inc. Our investment consists of
approximately 2,576,000 shares of Flight Options Series A
8% Convertible Preferred Stock at $0.8152 per share. Flight
Options provides complete private air travel service through the
sale of fractional interests in pre-owned jet aircraft. The
proceeds of the transaction were used by Flight Options to
continue to execute an acquisition strategy. We believe Flight
Options is one of the top five providers of fractional interests
in aircraft in the United States, a highly competitive industry
and is dependent on the management talent and efforts of key
personnel for its success. Flight Options is subject to certain
regulations of the Federal Aviation Administration. We do not
believe it is dependent on a single or small number of customers
or possesses significant intellectual property.

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On December 29, 1998, we completed a second
private equity investment in Flight Options. In this investment,
we purchased $962,500 of a $5.5 million preferred stock
transaction led by The Provident Bank. Our purchase represents
approximately 260,135 shares of Class A 8% Convertible
Preferred Stock at $3.70 per share. The proceeds were used by
Flight Options to fund the expansion of its fractional ownership
program and to continue to execute its acquisition strategy.
During 1998, Flight Options completed the acquisition of Miller
Aviation. Based upon the price of this subsequent financing and
the operating performance of Flight Options during 1998, the
fair value of our original investment was increased to
$9,531,760, resulting in an unrealized gain of $7,431,760. This
valuation was based on the $3.70 per share price negotiated by
The Provident Bank and was approved by our board of directors.

On August 31, 1999, Flight Options sold
$20 million of Series B 8% Preferred Stock to a third
party private equity group at $4.365 per share. Consistent with
our investment valuation guidelines, this transaction resulted
in a valuation increase on our Flight Options investment of
$1,886,030 or $0.50 per share.

On July 11, 2000, we guaranteed a portion of
Flight Options third-party borrowings. As a result, we
were issued a warrant to purchase 36,000 shares of Flight
Options common stock at a price of $0.01 per share. Our
management believes, based on the current facts and
circumstances and Flight Options financial position, that
the likelihood of a payment pursuant to such guarantee is remote.

On December 12, 2000 we purchased 469,925
shares of Flight Options Class C 8% Preferred Stock at
$5.32 per share for a total investment of $2.5 million. The
proceeds of the transaction were used by Flight Options to fund
the continued expansion of its fractional ownership program.

On June 30, 2001, Flight Options received
offers from institutional investors to purchase convertible
preferred stock or subordinated debt securities of Flight
Options which support the valuation used to complete the
December 12, 2000 Class C 8% Preferred Stock
transaction described in the preceding paragraph. As a result,
and consistent with our investment valuation guidelines, our
board of directors approved a valuation increase on the Flight
Options investment which resulted in our reporting an unrealized
gain of $2,742,889 or $0.72 per share for the quarter ended
June 30, 2001.

On December 21, 2001, Flight Options, Inc.
and Raytheon Travel Air, a Wichita, Kansas-based unit of
Raytheon Company, a Lexington, Mass. based defense contractor,
agreed to combine operations into one fractional aircraft
ownership program to be known as Flight Options. Under the terms
of the transaction, Flight Options, Inc. will hold 50.1%
ownership of the new business with Raytheon holding 49.9%.

As a result of the transaction described above,
our board of directors met to review the terms of the
transaction including, among other things, a valuation review
prepared by an investment banking firm working on the
transaction. See Determination of Net Asset Value.
Consistent with our valuation guidelines, the board used a
private market method to value our investment in Flight Options,
Inc. and approved an increase in the value of our investment in
Flight Options, Inc. to $32,500,000 from its September 30,
2001 valuation of $17,779,379, resulting in a $14,720,621 or
$3.86 per share unrealized gain reported in the fourth quarter
of 2001. At December 31, 2001, the financial statement
value of our investment in Flight Options represented an
increase of more than 484% from its original purchase price. The
commentary above reflects a four-for-one stock split executed in
2000. All share and per share amounts have been adjusted to
reflect such stock split.

Health
Care Solutions, Inc.

On September 30, 1997, we funded a
$1.5 million convertible junior subordinated promissory
note facility for Health Care Solutions, Inc. Health Care
Solutions is an acquisition strategy company in the home
healthcare services market with a strong presence in the Midwest
and Great Lakes regions. The terms of the notes called for an
18% interest rate per annum during the first year and 12% per
annum thereafter, with final maturity two years from the
closing. After the first year, the notes were convertible into
common stock at a price of $3.50 per share. In connection with
our commitment to provide this facility, we received warrants to
purchase up to $450,000 of common stock valued at an exercise
price of 10% of an initial public offering price completed
during the term of the notes, or at $3.50 per share should the
warrants be exercised other than in connection with an initial
public

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offering. The warrants are currently exercisable.
The proceeds of the notes were used by Health Care Solutions to
help finance acquisitions.


In 2000, Health Care Solutions completed a
re-capitalization plan, including a two-for-one reverse stock
split. As a result, we agreed to exchange our convertible junior
subordinated promissory note and accrued interest thereon for
246,994 shares of Series C 8% Convertible Preferred Stock
at an exchange rate of $7.50 per share. The warrants to purchase
up to $450,000 of common stock at an exercise price of 10% of an
initial public offering price or at $3.50 per share remain
outstanding and have been adjusted to reflect the reverse stock
split.

In addition to the above Series C 8%
Convertible Preferred Stock, we funded $500,000 and $299,000 12%
Convertible Subordinated Notes from Health Care Solutions in
2000. As part of this transaction, we received a warrant to
purchase up to $50,000 of Health Care Solutions common stock at
an exercise price equal to the lower of the price determined by
an initial public offering or $7.50 per share. On March 7,
2001, we agreed to exchange the $500,000 Convertible
Subordinated Note for 71,880 shares of Series D Convertible
Preferred Stock.

The
Holland Group, Inc.

On July 13, 2000, we funded a
$2.1 million commitment to invest with Brantley Partners
IV, L.P. in a $8.5 million preferred stock issue of The
Holland Group, Inc. The Holland Group is a provider of temporary
staffing and human resource management services that currently
operates 35 branches in five states. In this transaction, we
purchased 282,530 shares of The Holland Groups
Series A 8% Convertible Preferred Stock.

National
Rehab Partners, Inc.

On August 10, 1999, we funded
$1.4 million of a $1.5 million commitment to invest
with Brantley Partners IV, L.P. and a third party equity group
in a $12.0 million preferred stock issue for National Rehab
Partners, Inc. Pursuant to this commitment, we purchased
2.2 million shares of Class A 8% Convertible Preferred
Stock. The proceeds of this transaction were used to complete
the acquisition of a group of rehabilitation management service
providers. The remainder of the commitment will be funded upon
the successful closing of additional acquisitions. National
Rehab Partners is a Brentwood, Tennessee rehabilitation
management service company providing rehabilitation services
through acute care hospitals and hospital systems throughout the
United States. National Rehab Partners is the only national
rehabilitation company focused exclusively on helping hospitals
develop their outpatient rehabilitation services.

On January 10, 2001, we funded a $26,126 10%
promissory note from National Rehab Partners. On June 13,
2001, the $26,126 note and the related accrued interest were
cancelled and replaced with a $27,228 10% promissory note.

Pediatric
Physicians Alliance, Inc.

On January 28, 1999, we funded a
$3.2 million commitment to invest with Brantley Venture
Partners III, L.P. in a $7.9 million preferred stock issue
for Pediatric Physicians Alliance, Inc. Pursuant to our
commitment, we purchased 793,000 shares of Class A-2 10%
Convertible Preferred Stock. Pediatric Physicians Alliance is a
physician practice management company that develops integrated
pediatric networks of care. Their objective is to develop the
leading physician-based integrated pediatric organization in the
United States. Pediatric Physicians Alliance is dependent on the
management talent and effort of key personnel for its success in
this highly competitive industry. We do not believe it is
dependent on a single or small number of customers, possesses
significant intellectual property or that it is subject to
significant regulations. The proceeds of the transaction were
used to complete the acquisition of a number of physician
practices.

In addition to the above Class A-2 10%
Convertible Preferred Stock, in 2000 we funded $267,448 to
invest with Brantley Venture Partners III, L.P. in $668,619 of
promissory notes, with detachable warrants, in Pediatric
Physicians Alliance. The detachable warrants are for the
purchase of 30,000 shares of Pediatric Physicians Alliance
common stock at $4.00 per share.

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Petroleum
Partners, Inc.

On June 7, 2001, we entered into a
$2.7 million commitment to invest with Brantley Partners
IV, L.P. in a $15.0 million preferred stock and
subordinated debt issue for Petroleum Partners, Inc. In
connection with this commitment, we purchased 250,000 shares of
Class A 8% Convertible Preferred Stock at $1.00 per share,
600,000 shares of Class B 8% Convertible Preferred Stock at
$2.00 per share, and funded a $1,250,000 10% Convertible
Subordinated Note with a detachable warrant for the purchase of
78,125 shares of common stock at $0.01 per share. Petroleum
Partners, based in Cleveland, Ohio, is a provider of outsourced
maintenance services to the petroleum industrys retailers
and refineries. The proceeds from the transaction were used to
acquire a company which is a leading provider of petroleum and
petrochemical handling equipment and outsourced facilities
maintenance services to providers of fuel delivery systems such
as gasoline retailers and refineries. The equipment distributed
by the company includes petroleum storage tanks, pumps, fuel
dispensers, flexible piping, tank valves, leak detection gauges,
canopies, air compressors and service station lighting equipment.

Prime
Office Products, Inc. (Formerly Business Essentials,
Inc.)

On April 22, 1999, we entered into a
$1.7 million commitment to invest with Brantley Partners
IV, L.P. and Massey Burch Capital Corp. in a $10.0 million
preferred stock issue for Prime Office Products, Inc. Pursuant
to our commitment, we purchased 510,000 shares of Class A
8% Convertible Preferred Stock at $2.00 per share. Prime Office
Products is an office products marketing and distribution
company based in Nashville, Tennessee. The first part of the
commitment was funded to launch an acquisition strategy focused
on office distribution companies serving primarily commercial
and industrial customers. The remainder of the commitment will
be funded upon the closing of additional acquisitions.

Value
Creation Partners, Inc.

On June 14, 2000, we completed a
$2.1 million commitment to invest with Brantley Partners
IV, L.P. and several other private equity investors in a
$23.8 million preferred stock issue for Value Creation
Partners, Inc. Pursuant to this commitment, we purchased
approximately 35,000 shares and 269,989 shares of 8% Convertible
Preferred Stock at $5.00 and $7.30 per share, respectively.
Value Creation Partners is an acquisition strategy company in
the food industry. The proceeds of the transaction were used to
complete the acquisition of Best Brands, Inc., one of the six
largest manufacturers and distributors of a complete line of
premium ingredients, mixes and products, including equipment,
for all segments of the baking industry. Their products are sold
primarily to retail bakeries, bakery distributors, supermarket
in-store bakeries, food wholesalers and food service
establishments.

Small-Capitalization
Public Equity Investments

The following is a list of the
small-capitalization public companies in which we had an
investment at December 31, 2001 and the cost and market
value of such securities at December 31, 2001.

|                                   |  |      |           |        |  |   |           | 
|---------------------------------- |  | ---- | --------- | ------ |  | - | --------- | 
|                                   |  |      |           | Market
|Name of Company                    |  | Cost |           | Value 
|                                   |  |      |           |       
|Avocent Corp.                      |  | $    | 449,943   |        |  | $ | 396,657   | 
|Catalyst Semiconductor, Inc.       |  |      | 305,654   |        |  |   | 232,680   | 
|Ditech Communications Corp.        |  |      | 426,304   |        |  |   | 246,820   | 
|International Total Services, Inc. |  |      | 68,410    |        |  |   | 4,431     | 
|NCO Group, Inc.                    |  |      | 397,696   |        |  |   | 269,075   | 
|Regeneration Technology, Inc.      |  |      | 392,523   |        |  |   | 339,327   | 
|Rent-A-Center, Inc.                |  |      | 256,671   |        |  |   | 312,201   | 
|Verity, Inc.                       |  |      | 456,330   |        |  |   | 432,743   | 
|WMS Industries, Inc.               |  |      | 192,279   |        |  |   | 222,160   | 
|                                   |  |      |           |        |  |   |           | 
|Totals                             |  | $    | 2,945,810 |        |  | $ | 2,456,094 | 
|                                   |  |      |           |        |  |   |           | 

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|         |                                                            
|-------- | -----------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures about
	Market Risk

We invest in small and medium-sized companies,
and our investments are considered speculative in nature. Our
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, we
are subject to risk of loss which may prevent our stockholders
from achieving price appreciation and dividend distributions.

The portion of our portfolio consisting of
investments in private companies is also subject to valuation
risk. We value our privately held investments based on a
determination of their fair value made in good faith by our
board of directors on a quarterly basis in accordance with our
established guidelines. 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 consolidated statements
of operations as Net unrealized gain (loss) on
investments.

We consider the management of equity price risk
essential to conducting our business and maintaining our
profitability. A portion of our portfolio consists of
investments in private companies. We anticipate no impact on
these investments from modest changes in public market equity
prices. However, should significant changes in market prices
occur, there could be a long-term effect on valuations of
private companies, which could affect the carrying value and the
amount and timing of gains realized on these investments. A
portion of our investment portfolio also consists of shares of
common stock of small-capitalization public companies. These
investments are directly exposed to market price risk.

Impact of Inflation

We do not believe that our business is materially
affected by inflation, other than the impact that inflation may
have on the securities markets, the valuations of business
enterprises and the relationship of such valuations to
underlying earnings, all of which will influence the value of
our investments.

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##### Table of Contents






Item 8. Financial Statements

BRANTLEY CAPITAL CORPORATION






BALANCE SHEETS


|                                                                                                                                                      |                                             |                    |            |            |  |   |            |            | 
|----------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------------------ | ---------- | ---------- |  | - | ---------- | ---------- | 
|                                                                                                                                                      |                                             |                   
|                                                                                                                                                      |                                             | As of December 31,
|                                                                                                                                                      |                                             |                   
|                                                                                                                                                      |                                             | 2001               |            | 2000      
|                                                                                                                                                      |                                             |                    |            |           
|ASSETS                                                                                                                                                |                                             |                    |            |            |  |   |            |           
|Investments, at market                                                                                                                                |                                             | $                  | 60,311,107 |            |  | $ | 41,462,305 |           
|Cash and cash equivalents                                                                                                                             |                                             |                    | 5,369,345  |            |  |   | 8,882,432  |           
|Restricted cash                                                                                                                                       |                                             |                    | 6,000,000  |            |  |   | 6,000,000  |           
|Dividends and interest receivable                                                                                                                     |                                             |                    | 3,493,059  |            |  |   | 2,103,811  |           
|Other assets                                                                                                                                          |                                             |                    | 360,158    |            |  |   | 22,950     |           
|                                                                                                                                                      |                                             |                    |            |            |  |   |            |           
|                                                                                                                                                      | Total Assets                                |                    | $          | 75,533,669 |  |   | $          | 58,471,498 | 
|                                                                                                                                                      |                                             |                    |            |            |  |   |            |           
|                                                                                                                                                     
|LIABILITIES AND STOCKHOLDERS
	EQUITY                                                                                                                 |                                             |                    |            |            |  |   |            |           
|Note payable                                                                                                                                          |                                             | $                  | 6,000,000  |            |  | $ | 6,000,000  |           
|Payable for investments purchased                                                                                                                     |                                             |                    | 200,000    |            |  |   |           |           
|Advisory fee payable                                                                                                                                  |                                             |                    | 487,931    |            |  |   | 383,976    |           
|Accrued professional fees                                                                                                                             |                                             |                    | 53,163     |            |  |   | 68,370     |           
|Distributions payable                                                                                                                                 |                                             |                    | 736,455    |            |  |   |           |           
|Other liabilities                                                                                                                                     |                                             |                    | 49,806     |            |  |   | 76,133     |           
|                                                                                                                                                      |                                             |                    |            |            |  |   |            |           
|                                                                                                                                                      | Total Liabilities                           |                    | $          | 7,527,355  |  |   | $          | 6,528,479  | 
|                                                                                                                                                      |                                             |                    |            |            |  |   |            |           
|Stockholders Equity:                                                                                                                                 |                                             |                    |            |            |  |   |            |           
|Common Stock, $0.01 par value; 25,000,000 shares
	authorized and 3,810,535 shares issued and outstanding at
	December 31, 2001 and 2000, respectively |                                             | $                  | 38,105     |            |  | $ | 38,105     |           
|Additional paid in capital                                                                                                                            |                                             |                    | 37,484,895 |            |  |   | 37,484,895 |           
|Retained earnings                                                                                                                                     |                                             |                    | 30,483,314 |            |  |   | 14,420,019 |           
|                                                                                                                                                      |                                             |                    |            |            |  |   |            |           
|                                                                                                                                                      | Total Stockholders Equity                  |                    |            | 68,006,314 |  |   |            | 51,943,019 | 
|                                                                                                                                                      |                                             |                    |            |            |  |   |            |           
|                                                                                                                                                      | Total Liabilities and Stockholders
	Equity |                    | $          | 75,533,669 |  |   | $          | 58,471,498 | 
|                                                                                                                                                      |                                             |                    |            |            |  |   |            |           
|Net Asset Value Per Share                                                                                                                             |                                             | $                  | 17.85      |            |  | $ | 13.63      |           
|                                                                                                                                                      |                                             |                    |            |            |  |   |            |           

The accompanying notes to the financial
statements are an integral part of these balance sheets.

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BRANTLEY CAPITAL CORPORATION






STATEMENTS OF OPERATIONS


|                                                                                           |                                            |                                  |            |            |  |      |           |           |  |   |           |           | 
|------------------------------------------------------------------------------------------ | ------------------------------------------ | -------------------------------- | ---------- | ---------- |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|                                                                                           |                                            |                                 
|                                                                                           |                                            | For the years ended December 31,
|                                                                                           |                                            |                                 
|                                                                                           |                                            | 2001                             |            | 2000       |  | 1999
|                                                                                           |                                            |                                  |            |            |  |     
|Investment Income:                                                                         |                                            |                                  |            |            |  |      |           |           |  |   |           |          
|                                                                                           | Interest                                   |                                  | $          | 471,404    |  |      | $         | 1,240,683 |  |   | $         | 1,546,395 | 
|                                                                                           | Dividends                                  |                                  |            | 1,110,433  |  |      |           | 1,011,814 |  |   |           | 770,705   | 
|                                                                                           |                                            |                                  |            |            |  |      |           |           |  |   |           |          
|                                                                                           | Total investment income                    |                                  |            | 1,581,837  |  |      |           | 2,252,497 |  |   |           | 2,317,100 | 
|                                                                                           |                                            |                                  |            |            |  |      |           |           |  |   |           |          
|Operating Expenses:                                                                        |                                            |                                  |            |            |  |      |           |           |  |   |           |          
|                                                                                           | Advisory fees                              |                                  |            | 1,631,885  |  |      |           | 1,546,093 |  |   |           | 1,436,345 | 
|                                                                                           | Administration fees                        |                                  |            | 74,795     |  |      |           | 75,001    |  |   |           | 75,000    | 
|                                                                                           | Professional fees                          |                                  |            | 309,759    |  |      |           | 191,002   |  |   |           | 144,514   | 
|                                                                                           | Interest expense                           |                                  |            | 434,958    |  |      |           | 4,750     |  |   |           |          | 
|                                                                                           | Other                                      |                                  |            | 338,116    |  |      |           | 290,569   |  |   |           | 341,664   | 
|                                                                                           |                                            |                                  |            |            |  |      |           |           |  |   |           |          
|                                                                                           | Total expenses                             |                                  |            | 2,789,513  |  |      |           | 2,107,415 |  |   |           | 1,997,523 | 
|                                                                                           |                                            |                                  |            |            |  |      |           |           |  |   |           |          
|Investment income(loss), net                                                               |                                            |                                  | (1,207,676 | )          |  |      | 145,082   |           |  |   | 319,577   |          
|                                                                                           |                                            |                                  |            |            |  |      |           |           |  |   |           |          
|Net Realized and Unrealized Gains on
	Investments:                                         |                                            |                                  |            |            |  |      |           |           |  |   |           |          
|                                                                                           | Net realized gain on investments           |                                  |            | 1,155,843  |  |      |           | 1,564,206 |  |   |           | 2,106,117 | 
|                                                                                           | Net unrealized appreciation on investments |                                  |            | 16,851,583 |  |      |           | 170,027   |  |   |           | 1,825,960 | 
|                                                                                           |                                            |                                  |            |            |  |      |           |           |  |   |           |          
|Net realized and unrealized gain on investment
	transactions                               |                                            |                                  | 18,007,426 |            |  |      | 1,734,233 |           |  |   | 3,932,077 |          
|                                                                                           |                                            |                                  |            |            |  |      |           |           |  |   |           |          
|Net increase in net assets resulting from
	operations                                      |                                            | $                                | 16,799,750 |            |  | $    | 1,879,315 |           |  | $ | 4,251,654 |          
|                                                                                           |                                            |                                  |            |            |  |      |           |           |  |   |           |          
|Net increase in net assets resulting from
	operations per share, primary and fully diluted |                                            | $                                | 4.41       |            |  | $    | 0.49      |           |  | $ | 1.11      |          
|                                                                                           |                                            |                                  |            |            |  |      |           |           |  |   |           |          
|Weighted average number of shares outstanding,
	primary and fully diluted                  |                                            |                                  | 3,810,535  |            |  |      | 3,810,535 |           |  |   | 3,810,535 |          
|                                                                                           |                                            |                                  |            |            |  |      |           |           |  |   |           |          

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

28



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##### Table of Contents



BRANTLEY CAPITAL CORPORATION






STATEMENTS OF CASH FLOWS


|                                                               |                                                                                                               |                                             |                                  |            |              |            |            |           |                |            |            |           |                |          |  
|-------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | -------------------------------- | ---------- | ------------ | ---------- | ---------- | --------- | -------------- | ---------- | ---------- | --------- | -------------- | -------- | -
|                                                               |                                                                                                               |                                            
|                                                               |                                                                                                               | For the years ended December 31,           
|                                                               |                                                                                                               |                                            
|                                                               |                                                                                                               | 2001                                        |                                  | 2000       |              | 1999      
|                                                               |                                                                                                               |                                             |                                  |            |              |           
|Cash Flows from Operating
	Activities:                         |                                                                                                               |                                             |                                  |            |              |            |            |           |                |            |            |          
|                                                               | Net increase in net assets resulting from
	operations:                                                        |                                             | $                                | 16,799,750 |              |            | $          | 1,879,315 |                |            | $          | 4,251,654 |               
|                                                               | Adjustments to reconcile net change in net assets
	resulting from operations to net cash used for operations: |                                             |                                  |            |              |            |            |           |                |            |            |           |               
|                                                               |                                                                                                               | Net realized gain from investments          |                                  |            | (1,155,843   | )          |            |           | (1,564,206     | )          |            |           | (2,106,117     | )       
|                                                               |                                                                                                               | Net unrealized gain on investments          |                                  |            | (16,851,583  | )          |            |           | (170,027       | )          |            |           | (1,825,960     | )       
|                                                               |                                                                                                               | Changes in assets and liabilities:          |                                  |            |              |            |            |           |                |            |            |           |                |         
|                                                               |                                                                                                               |                                             | Dividend and interest receivable |            |              | (1,389,248 | )          |           |                | (868,349   | )          |           |                | (801,588 | )
|                                                               |                                                                                                               |                                             | Other assets                     |            |              | (337,208   | )          |           |                | 103,843    |            |           |                | 10,319   |  
|                                                               |                                                                                                               |                                             | Advisory fee payable             |            |              | 103,955    |            |           |                | 18,092     |            |           |                | 4,731    |  
|                                                               |                                                                                                               |                                             | Accrued professional fees        |            |              | (15,207    | )          |           |                | (17,350    | )          |           |                | 33,901   |  
|                                                               |                                                                                                               |                                             | Distributions payable            |            |              |           |            |           |                | (1,752,847 | )          |           |                |         |  
|                                                               |                                                                                                               |                                             | Other liabilities                |            |              | (26,327    | )          |           |                | (26,191    | )          |           |                | 1,958    |  
|                                                               |                                                                                                               |                                             |                                  |            |              |            |            |           |                |            |            |          
|                                                               |                                                                                                               | Net cash used for operating
	activities     |                                  |            | (2,871,711   | )          |            |           | (2,398,380     | )          |            |           | (431,102       | )       
|                                                               |                                                                                                               |                                             |                                  |            |              |            |            |           |                |            |            |          
|Cash Flows from Investing
	Activities:                         |                                                                                                               |                                             |                                  |            |              |            |            |           |                |            |            |          
|                                                               |                                                                                                               | Purchases of investment securities          |                                  |            | (5,871,814   | )          |            |           | (18,013,911    | )          |            |           | (15,837,437    | )       
|                                                               |                                                                                                               | Sales/ Maturities of investment securities  |                                  |            | 3,941,883    |            |            |           | 12,552,541     |            |            |           | 12,426,225     |         
|                                                               |                                                                                                               | Purchases of short-term investments         |                                  |            | (513,664,214 | )          |            |           | (3,707,778,089 | )          |            |           | (4,566,012,157 | )       
|                                                               |                                                                                                               | Sales/ Maturities of short-term investments |                                  |            | 514,952,769  |            |            |           | 3,707,769,863  |            |            |           | 4,566,008,131  |         
|                                                               |                                                                                                               |                                             |                                  |            |              |            |            |           |                |            |            |          
|                                                               |                                                                                                               | Net cash used for investing
	activities     |                                  |            | (641,376     | )          |            |           | (5,469,596     | )          |            |           | (3,415,238     | )       
|                                                               |                                                                                                               |                                             |                                  |            |              |            |            |           |                |            |            |          
|Cash Flows from Financing
	Activities:                         |                                                                                                               |                                             |                                  |            |              |            |            |           |                |            |            |          
|                                                               |                                                                                                               | Note Payable                                |                                  |            |             |            |            |           | 6,000,000      |            |            |           |               |         
|                                                               |                                                                                                               | Distributions                               |                                  |            |             |            |            |           | (2,376,631     | )          |            |           |               |         
|                                                               |                                                                                                               |                                             |                                  |            |              |            |            |           |                |            |            |          
|                                                               |                                                                                                               | Net cash provided by financing
	activities  |                                  |            |             |            |            |           | 3,623,369      |            |            |           |               |         
|                                                               |                                                                                                               |                                             |                                  |            |              |            |            |           |                |            |            |          
|Net change in cash and cash equivalents for
	the year          |                                                                                                               |                                             | (3,513,087                       | )          |              |            | (4,244,607 | )         |                |            | (3,846,340 | )        
|Cash, cash equivalents and restricted cash,
	beginning of year |                                                                                                               |                                             | 14,882,432                       |            |              |            | 19,127,039 |           |                |            | 22,973,379 |          
|                                                               |                                                                                                               |                                             |                                  |            |              |            |            |           |                |            |            |          
|Cash, cash equivalents and restricted cash,
	end of the year   |                                                                                                               | $                                           | 11,369,345                       |            |              | $          | 14,882,432 |           |                | $          | 19,127,039 |          
|                                                               |                                                                                                               |                                             |                                  |            |              |            |            |           |                |            |            |          

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

29



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##### Table of Contents



BRANTLEY CAPITAL CORPORATION






STATEMENTS OF STOCKHOLDERS
EQUITY


|                                                       |  |        |        |            |  |          |            |               |  |   |            |   |  |   |            |  
|------------------------------------------------------ |  | ------ | ------ | ---------- |  | -------- | ---------- | ------------- |  | - | ---------- | - |  | - | ---------- | -
|                                                       |  |        |        | Additional |  |          |            | Total        
|                                                       |  | Common |        | Paid in    |  | Retained |            | Stockholders
|                                                       |  | Stock  |        | Capital    |  | Earnings |            | Equity       
|                                                       |  |        |        |            |  |          |            |              
|Balance at December 31, 1998                           |  | $      | 38,105 |            |  | $        | 37,505,433 |               |  | $ | 12,397,990 |   |  | $ | 49,941,528 |  
|                                                       |  |        |        |            |  |          |            |               |  |   |            |   |  |   |            |  
|Net increase (decrease) in net assets from
	operations |  |        |       |            |  |          |           |               |  |   | 4,251,654  |   |  |   | 4,251,654  |  
|Distributions from:                                    |  |        |        |            |  |          |            |               |  |   |            |   |  |   |            |  
|Net investment income                                  |  |        |       |            |  |          |           |               |  |   | (495,370   | ) |  |   | (495,370   | )
|Realized gains                                         |  |        |       |            |  |          |           |               |  |   | (1,257,477 | ) |  |   | (1,257,477 | )
|                                                       |  |        |        |            |  |          |            |               |  |   |            |   |  |   |            |  
|Balance at December 31, 1999                           |  | $      | 38,105 |            |  | $        | 37,505,433 |               |  | $ | 14,896,797 |   |  | $ | 52,440,335 |  
|                                                       |  |        |        |            |  |          |            |               |  |   |            |   |  |   |            |  
|Net increase (decrease) in net assets from
	operations |  |        |       |            |  |          |           |               |  |   | 1,879,315  |   |  |   | 1,879,315  |  
|Distributions from:                                    |  |        |        |            |  |          |            |               |  |   |            |   |  |   |            |  
|Net investment income                                  |  |        |       |            |  |          | (20,538    | )             |  |   | (112,831   | ) |  |   | (133,369   | )
|Realized gains                                         |  |        |       |            |  |          |           |               |  |   | (2,243,262 | ) |  |   | (2,243,262 | )
|                                                       |  |        |        |            |  |          |            |               |  |   |            |   |  |   |            |  
|Balance at December 31, 2000                           |  | $      | 38,105 |            |  | $        | 37,484,895 |               |  | $ | 14,420,019 |   |  | $ | 51,943,019 |  
|                                                       |  |        |        |            |  |          |            |               |  |   |            |   |  |   |            |  
|Net increase (decrease) in net assets from
	operations |  |        |       |            |  |          |           |               |  |   | 16,799,750 |   |  |   | 16,799,750 |  
|Distributions from realized gains                      |  |        |       |            |  |          |           |               |  |   | (736,455   | ) |  |   | (736,455   | )
|                                                       |  |        |        |            |  |          |            |               |  |   |            |   |  |   |            |  
|Balance at December 31, 2001                           |  | $      | 38,105 |            |  | $        | 37,484,895 |               |  | $ | 30,483,314 |   |  | $ | 68,006,314 |  
|                                                       |  |        |        |            |  |          |            |               |  |   |            |   |  |   |            |  

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

30



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BRANTLEY CAPITAL CORPORATION






NOTES TO THE FINANCIAL STATEMENTS


1. Organization

Brantley Capital Corporation (the
Company), a Maryland corporation, is a
non-diversified investment company which has elected to be
regulated as a business development company under the Investment
Company Act of 1940, as amended (the Act). The
Company was organized on August 1, 1996 and commenced
operations on December 3, 1996. The Companys
principal investment objective is to achieve long-term capital
appreciation in the value of its investments and to provide
current income primarily from interest, dividends, and fees paid
by its portfolio companies. To achieve this objective, the
Company provides equity and long-term debt financing to small
and medium-sized companies in a variety of industries throughout
the United States.

The Company invests in securities classified as
restricted securities under the Securities Act of
1933. The value of restricted stock investments for which no
public market exists cannot be precisely determined. These
securities will usually be subject to restrictions on resale or
otherwise have no established trading market. The lack of
liquidity of these securities may adversely affect the ability
of the Company to dispose of them in a timely manner and at a
fair price when the Company deems it necessary or advantageous.

Privately placed securities typically depend
significantly on the management talents and efforts of one
person or a small group of persons. The loss of the services of
one or more of these persons could have a material adverse
affect on the portfolio company. In addition, due to their size
and sometimes limited product diversity, these companies may be
more vulnerable to economic downturns and often require
additional capital to expand or compete.

The Company continuously evaluates opportunities
to maximize the valuation of its investments. In that regard,
the Company periodically evaluates potential acquisitions,
financing transactions, initial public offerings, strategic
alliances and sale opportunities involving its portfolio
companies. These transactions and activities are generally not
disclosed to the Companys shareholders and the investing
public until such time as the transactions are publicly
announced or completed, as the case may be. Any such pending
transaction could have an impact on the valuation of an
investment which is also generally not adjusted until the
transaction is publicly announced or completed.

Small-cap public companies may also display more
sensitivity to changes in company, industry and market
conditions than more established public companies. Because
small-cap public companies often have fewer outstanding shares
than larger companies, it may be more difficult for the Company
to buy or sell significant amounts of shares without an
unfavorable impact on the prevailing prices.

The Company operates as a non-diversified
investment company within the meaning of the Act and therefore,
the Companys investments are likely to not be
substantially diversified.

2. Significant Accounting
Policies

The following is a summary of significant
accounting policies in conformity with accounting principles
generally accepted in the United States followed by the Company
in preparation of its financial statements.

A. Security
Valuation

Privately placed securities are carried at fair
value as determined in good faith by or under the direction of
the Board of Directors. Generally, the fair value of each
security will initially be based primarily upon its original
cost to the Company. Cost will be the primary factor used to
determine fair value on an ongoing basis until significant
developments or other factors affecting the investment (such as
results of the portfolio companys operations, changes in
the general market conditions, subsequent financings,
independent valuations or the availability of market quotations)
provide a basis for value other than cost valuation. Proceeds
from disposition of securities could differ significantly from
their estimated fair value.

31



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##### Table of Contents



NOTES TO THE FINANCIAL STATEMENTS 
Continued






Portfolio investments listed on an exchange or
traded on the Nasdaq National Market are valued at the closing
price listed on their respective exchange or system on the date
of valuation. Securities traded in the over-the-counter market
will be valued on the average of the closing bid and asked
prices on the day of valuation.

B. Repurchase
Agreements

The Company may invest in repurchase agreements
with institutions, which Brantley Capital Management, L.L.C.
(the Investment Adviser) has determined are
creditworthy. Each repurchase agreement is recorded at cost. The
Company requires that the securities purchased in a repurchase
agreement be transferred to the Companys custodian in a
manner which will enable the Company to obtain those securities
in the event of counter-party default. The seller is required to
maintain the value of the securities held at not less than the
repurchase price, including interest.

C. Cash and Cash
Equivalents

Cash equivalents consist of highly liquid
investments with minimal interest rate risk and original
maturities of three months or less at acquisition date. The
stated value of these instruments approximates fair market value
due to their short-term nature. At December 31, 2001 and
2000, cash and cash equivalents consisted of the following:

|                            |                     |              |           |              |  |   |           |           | 
|--------------------------- | ------------------- | ------------ | --------- | ------------ |  | - | --------- | --------- | 
|                            |                     | December 31, |           | December 31,
|                            |                     | 2001         |           | 2000        
|                            |                     |              |           |             
|Cash                        |                     | $            | 5,369,345 |              |  | $ | 152,253   |          
|United States Treasury Bill |                     |              |          |              |  |   | 8,730,179 |          
|                            |                     |              |           |              |  |   |           |          
|                            | Non-restricted Cash |              | $         | 5,369,345    |  |   | $         | 8,882,432 | 
|                            |                     |              |           |              |  |   |           |          
|                            | Restricted Cash     |              | $         | 6,000,000    |  |   | $         | 6,000,000 | 
|                            |                     |              |           |              |  |   |           |          

Pursuant to the note payable agreement (Note 11)
the Company is obligated to maintain $6.0 million of cash
under the direction of the lender.

D. Security Transactions and
Related Income

Security transactions are accounted for on a
trade date basis. Net realized gains or losses on sales of
securities are determined on the specific identification method.
Interest income and expenses are recognized on the accrual
basis. Dividends are recorded on the ex-dividend date for
publicly traded securities and in accordance with the security
agreement for private securities.

E. Dividends and
Distributions to Stockholders

The Company intends to make distributions to its
stockholders of substantially all of its investment company
taxable income. The Company may choose to distribute net
realized long-term capital gains, or to retain such gains to
supplement the Companys equity capital and support growth
in its portfolio. Income distributions and capital gain
distributions are determined in accordance with income tax
regulations, which may differ from accounting principles
generally accepted in the United States.

F. Income Taxes

The Company intends to continue to qualify as a
regulated investment company by complying with the applicable
provisions available to certain investment companies as defined
in applicable sections of the Internal Revenue Code. Therefore,
no provision for income taxes has been recorded.

G. Reclassifications

Certain previously reported amounts have been
reclassified to conform to the current year presentation.

32



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##### Table of Contents



NOTES TO THE FINANCIAL STATEMENTS 
Continued






H. Segments

The Company operates as one segment as defined by
Statement of Financial Accounting Standard No. 131
Disclosures about Segments of an Enterprise and Related
Information.

3. Investment Advisory
Agreement

The Company has entered into an investment
advisory agreement (the Advisory Agreement) with the
Investment Adviser under which the Investment Adviser is
entitled to an annual management fee of 2.85% of the
Companys net assets, determined at the end of each
calendar quarter, and payable quarterly in arrears throughout
the term of the Advisory Agreement. Certain officers of the
Company are also officers of the Investment Adviser. No officer
of the Investment Adviser receives any compensation from the
Company for serving as officer of the Company.

4. Investments

At December 31, 2001 and 2000, the cost of
investments for federal income tax purposes was the same for
financial reporting purposes.

5. Transactions with Related
Parties

The Company has obtained exemptive relief from
certain provisions of the Act which permit the Company to invest
in an offering in which affiliates of the Investment Adviser
also intend to invest. The Company anticipates that, subject to
certain terms and conditions, current and future affiliates of
the Adviser may frequently invest in the same portfolio
companies.

At December 31, 2001 and 2000, the Company
owed $487,931 and $383,976 respectively, to the Investment
Adviser for management and advisory services.

6. Use of Estimates

The preparation of financial statements in
accordance with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions, including the valuation of privately held
securities, that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.

7. Stockholders Equity

The Company is authorized to issue 25,000,000
shares of Common Stock with a par value $0.01 per share. Shares
totaling 3,660,535 were issued through the organization and
initial public offering of the Company at a per share price of
$10.00. On January 15, 1997, the underwriters of the
initial offering of the Companys shares exercised an
option to purchase an additional 150,000 shares of Common Stock
at $10 per share resulting in total shares outstanding of
3,810,535. The proceeds of the offerings were recorded net of
offering costs.

Under the Companys Dividend Reinvestment
and Cash Purchase Plan (the Plan), all cash
dividends and cash distributions to stockholders are
automatically reinvested unless the stockholder elects to
receive his or her distributions in cash. If the market value
per share of the Common Stock on the record date equals or
exceeds the net asset value per share of Common Stock on that
date, the Company will issue new shares at the net asset value.

If the net asset value exceeds the market price,
shares will be purchased on the open market or in private
transactions as soon as is practicable after such date, as
permitted by applicable regulations. If before the open market
purchases have been completed, the market price exceeds the net
asset value, the Company will issue new shares at net asset
value to fulfill the purchase requirements.

33



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##### Table of Contents



NOTES TO THE FINANCIAL STATEMENTS 
Continued






8. Stock Option Plans

Concurrent with the initial public offering on
December 3, 1996, the Company adopted the 1996 Stock Option
Plan (the Plan), which authorizes the issuance of
options to purchase up to 1,175,000 shares of Common Stock to
officers and employees of the Company. Options to purchase
325,000, 175,000 and 350,000 shares of Common Stock of the
Company (the Option Shares) were granted to the
Companys executive officers on December 3, 1996,
May 18, 1999 and February 23, 2000, respectively.
These options are exercisable as to one-third of the Option
Shares on the first anniversary of the option grant, as to an
additional one-third of the Option Shares on the second
anniversary of the option grant and as to the remaining
one-third of the Option Shares on the third anniversary of the
option grant. Options granted under the Plan are exercisable at
a price not less than the greater of (i) the current market
value on the date of option grant and (ii) the current net
asset value of the shares of Common Stock on the date of the
option grant. No option may be exercised more than 10 years
after the date on which it is granted. The exercise price of the
granted options is $10.00, $12.77 and $13.42, respectively.

In addition, the Company has adopted a stock
option plan relating to 75,000 shares of Common Stock to be
granted to the disinterested directors of the Company (the
Directors Plan). Upon receipt of an order from
the Securities and Exchange Commission approving such a plan as
fair and reasonable and not overreaching of the Company or its
stockholders, options to purchase 22,000, 10,000 and 12,000
shares of Common Stock were granted to the disinterested
directors on May 18, 1999, June 13, 2000 and
June 15, 2001 respectively. These options are exercisable
on the first anniversary of the option grant or (ii) the
current net asset value of the shares of Common Stock on the
date of the option grant. No options may be exercised more than
10 years after the date on which it is granted. The
exercise price of the granted options is $12.77, 13.96 and 13.67
respectively.

In order to facilitate the purchase of shares
under the Plan or Directors Plan, the Company may make
arms-length loans to each plans participants, under
the terms required by Section 57 (j)(2) of the Investment
Company Act of 1940. No loans were outstanding as of December
31, 2001.

In October 1995, the Financial Accounting
Standards Board issued Statement No. 123, Accounting for
Stock Based Compensation (the Statement). The
Statement encourages companies to recognize expense for stock
based compensation awards based on their fair value on the date
of grant. Under the Statement, companies may continue following
the existing accounting rules, provided that pro forma
disclosures are made of what net income and earnings per share
would have been had the new fair value method been used. The
Company has elected to adopt the disclosure only provisions of
SFAS No. 123 and continue the existing accounting method
and to not adopt the fair value method. Management has assessed
the impact of this pro forma disclosure requirement and
determined that it is not material to the operations of the
Company in 2001 and 2000. Management used the Black Scholes
model to perform this assessment. Key assumptions included an
estimated volatility of .283, expected option life of
5 years, an expected dividend yield of 4.38 and a risk free
interest rate of 4.95%.

34



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##### Table of Contents



NOTES TO THE FINANCIAL STATEMENTS 
Continued






9. Financial Highlights

|                                                |                                   |                         |        |       |   |   |       |       |  
|----------------------------------------------- | --------------------------------- | ----------------------- | ------ | ----- | - | - | ----- | ----- | -
|                                                |                                   |                        
|                                                |                                   | Year ended December 31,
|                                                |                                   |                        
|                                                |                                   | 2001                    |        | 2000 
|                                                |                                   |                         |        |      
|Net Asset Value, Beginning of year              |                                   | $                       | 13.63  |       |   | $ | 13.76 |      
|Income from investment operations:              |                                   |                         |        |       |   |   |       |      
|Net Investment Income/(Loss)                    |                                   |                         | (0.32  | )     |   |   | 0.04  |      
|Net Realized and Unrealized Gain on Investments |                                   |                         | 4.73   |       |   |   | 0.45  |      
|                                                |                                   |                         |        |       |   |   |       |      
|                                                | Total from investment operations: |                         |        | 4.41  |   |   |       | 0.49  |  
|                                                |                                   |                         |        |       |   |   |       |      
|Less Distributions:                             |                                   |                         |        |       |   |   |       |      
|Distributions from net investment income        |                                   |                         |       |       |   |   | (0.03 | )    
|Distributions from net realized gains           |                                   |                         | (0.19  | )     |   |   | (0.59 | )    
|                                                |                                   |                         |        |       |   |   |       |      
|                                                | Total distributions               |                         |        | (0.19 | ) |   |       | (0.62 | )
|                                                |                                   |                         |        |       |   |   |       |      
|Net Asset Value, end of year                    |                                   | $                       | 17.85  |       |   | $ | 13.63 |      
|                                                |                                   |                         |        |       |   |   |       |      
|Market Value, end of year                       |                                   | $                       | 10.890 |       |   | $ | 8.625 |      
|                                                |                                   |                         |        |       |   |   |       |      
|Total Return, at Market Value                   |                                   |                         | 28.55  | %     |   |   | 15.61 | %    
|Total Return, at NAV                            |                                   |                         | 30.96  | %     |   |   | 5.78  | %    

35



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##### Table of Contents



NOTES TO THE FINANCIAL STATEMENTS 
Continued






10. Schedule of Investments

|                                      |                                                                   |                   |           |           |  |   |            |            | 
|------------------------------------- | ----------------------------------------------------------------- | ----------------- | --------- | --------- |  | - | ---------- | ---------- | 
|                                      |                                                                   |                  
|                                      |                                                                   | December 31, 2001
|                                      |                                                                   |                  
|Name of Issuer and Title of Issue     |                                                                   | Shares/Par        |           | Value    
|                                      |                                                                   |                   |           |          
|Avionics                              |                                                                   |                   |           |           |  |   |            |           
|                                      | Flight Options International, Inc. *#                             |                   |           | 3,342,060 |  |   | $          | 32,500,000 | 
|                                      |                                                                   |                   |           |           |  |   |            |           
|Business Services                     |                                                                   |                   |           |           |  |   |            |           
|                                      | Disposable Products Company, LLC Subordinated
	Debt #             |                   |           | 1,379,667 |  |   |            | 1,373,000  | 
|                                      | The Holland Group, Inc. #                                         |                   |           | 282,530   |  |   |            | 2,125,000  | 
|                                      | International Total Services, Inc.                                |                   |           | 104,250   |  |   |            | 4,431      | 
|                                      | NCO Group, Inc.                                                   |                   |           | 11,750    |  |   |            | 269,075    | 
|                                      | Prime Office Products, Inc. #                                     |                   |           | 510,000   |  |   |            | 1,020,000  | 
|                                      | Rent-A-Center, Inc.                                               |                   |           | 9,300     |  |   |            | 312,201    | 
|                                      | Verity, Inc.                                                      |                   |           | 21,370    |  |   |            | 432,743    | 
|                                      |                                                                   |                   |           |           |  |   |            |           
|                                      |                                                                   |                   |           |           |  |   | 5,536,450  |           
|                                      |                                                                   |                   |           |           |  |   |            |           
|Drugs & Health Care                   |                                                                   |                   |           |           |  |   |            |           
|                                      | Health Care Solutions, Inc. Subordinated Debt
	with Warrants #    |                   |           | 2,427,572 |  |   |            | 2,328,401  | 
|                                      | National Rehabilitation Partners, Inc. #                          |                   |           | 2,245,603 |  |   |            | 1,460,263  | 
|                                      | Pediatric Physicians Alliance, Inc. *#                            |                   |           | 793,000   |  |   |            | 3,172,000  | 
|                                      | Pediatric Physicians Alliance, Inc. Subordinated
	Debt/Warrants # |                   |           | 297,448   |  |   |            | 292,348    | 
|                                      | Regeneration Technology, Inc.                                     |                   |           | 33,300    |  |   |            | 339,327    | 
|                                      |                                                                   |                   |           |           |  |   |            |           
|                                      |                                                                   |                   |           |           |  |   | 7,592,339  |           
|                                      |                                                                   |                   |           |           |  |   |            |           
|Electronics                           |                                                                   |                   |           |           |  |   |            |           
|                                      | Catalyst Semiconductor, Inc.                                      |                   |           | 83,100    |  |   |            | 232,680    | 
|                                      |                                                                   |                   |           |           |  |   |            |           
|Miscellaneous                         |                                                                   |                   |           |           |  |   |            |           
|                                      | Avocent Corp.                                                     |                   |           | 16,357    |  |   | $          | 396,657    | 
|                                      | Value Creation Partners, Inc. #                                   |                   |           | 304,989   |  |   |            | 2,225,960  | 
|                                      | Waterlink, Inc. (Warrants)                                        |                   |           | 53,550    |  |   |            |           | 
|                                      | WMS Industries, Inc.                                              |                   |           | 11,108    |  |   |            | 222,160    | 
|                                      |                                                                   |                   |           |           |  |   |            |           
|                                      |                                                                   |                   |           |           |  |   | 2,844,777  |           
|                                      |                                                                   |                   |           |           |  |   |            |           
|Oil                                   |                                                                   |                   |           |           |  |   |            |           
|                                      | Petroleum Partners, Inc.                                          |                   |           | 850,000   |  |   |            | 1,450,000  | 
|                                      | Petroleum Partners, Inc., Subordinated Debt with
	Warrants        |                   |           | 1,328,125 |  |   |            | 1,250,000  | 
|                                      |                                                                   |                   |           |           |  |   |            |           
|                                      |                                                                   |                   | 2,178,125 |           |  |   | 2,700,000  |           
|                                      |                                                                   |                   |           |           |  |   |            |           
|Telecommunications                    |                                                                   |                   |           |           |  |   |            |           
|                                      | Ditech Communications Corp.                                       |                   |           | 41,000    |  |   |            | 246,820    | 
|                                      |                                                                   |                   |           |           |  |   |            |           
|Retail Trade                          |                                                                   |                   |           |           |  |   |            |           
|                                      | Fitness Quest, Inc.*                                              |                   |           | 1,468,602 |  |   |            | 7,408,892  | 
|                                      | Fitness Quest, Inc., Subordinated Debt with
	Warrants             |                   |           | 181,172   |  |   |            | 1,249,149  | 
|                                      |                                                                   |                   |           |           |  |   |            |           
|                                      |                                                                   |                   |           |           |  |   | 8,658,041  |           
|                                      |                                                                   |                   |           |           |  |   |            |           
|Total Investments(Cost
	$28,923,506) |                                                                   |                   |           |           |  | $ | 60,311,107 |           
|                                      |                                                                   |                   |           |           |  |   |            |           



---

All investments are U.S. companies



|  |                                                     
|- | ----------------------------------------------------
|* | Represents 5% or more of total stockholders
	equity
| 
|# | Represents privately held securities                

36



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##### Table of Contents



NOTES TO THE FINANCIAL STATEMENTS 
Continued






11. Debt

The note payable to bank at December 31,
2001 was a secured note with interest payable at the banks
prime rate, 4.75% at December 31, 2001. Under the terms of
the note agreement, the Bank may request repayment on demand.
Interest is paid monthly. Interest paid for the years
ending December 31, 2001 and 2000 was approximately
$440,000 and $0.00.

12. Commitments and
Contingencies

The Company has an investment in Flight Options,
Inc., an aviation company providing complete private air travel
service through the sale of fractional interests in pre-owned
jet aircraft. The Company guaranteed a portion of Flight
Options, Inc. third-party borrowings. Management believes, based
on current facts and circumstances and Flight Options,
Inc.s financial position, that the likelihood of a payment
pursuant to such guarantee is remote.

37



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##### Table of Contents






REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To the Board of Directors and

Stockholders of Brantley Capital Corporation:


We have audited the accompanying balance sheets
of Brantley Capital Corporation (a Maryland corporation) as of
December 31, 2001 and 2000, and the related statements of
operations, stockholders equity and cash flows for each of
the three years in the period ended December 31, 2001.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on the financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining on a test basis evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 2001
and 2000. 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 audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of Brantley Capital Corporation as of December 31,
2001 and 2000 and the results of its operations and its cash
flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles
generally accepted in the United States.



| |                    
| | -------------------
| | ARTHUR ANDERSEN LLP

Cleveland, Ohio

March 7, 2002


38



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##### Table of Contents






Item 9. Changes in and Disagreements
with Accountants on Accounting and Financial
Disclosure

On January 31, 2000, Brantley Capital
Corporation (the Company) dismissed Ernst &
Young LLP (E&Y) as its independent auditors.
E&Ys reports on the Companys financial
statements for the past two years did not contain an adverse
opinion or a disclaimer of opinion, and were not qualified or
modified as to uncertainty, audit scope, or accounting
principles. The decision to change accountants was approved by
the Audit Committee of the Companys Board of Directors
based upon a review of fee proposals for the upcoming fiscal
year and the Companys Board of Directors.

During the Companys two most recent fiscal
years and any subsequent interim period preceding the dismissal
of E&Y, there were no disagreements with E&Y on any
matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which
disagreements, if not resolved to the satisfaction of E&Y,
would have caused them to make reference to the subject matter
of such disagreements in connection with their reports.

During the Companys two most recent fiscal
years and any subsequent interim period preceding E&Ys
dismissal:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | E&Y did not advise the Company that the
	internal controls necessary for the Company to develop reliable
	financial statements did not exist;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | (2) | E&Y did not advise the Company that
	information had come to E&Ys attention that let them
	to no longer be able to rely on managements
	representations, or that made them unwilling to be associated
	with the financial statements prepared by management;                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | (3) | E&Y did not advise the Company of the need to
	expand significantly the scope of their audit, or that
	information had come to their attention during such period that,
	if further investigated, may (i) materially impact the
	fairness or reliability of previously issued financial
	statements and Reports of Independent Auditors, or the financial
	statements issued or to be issued covering the fiscal period(s)
	subsequent to the date of the most recent financial statements
	covered by an audit report, or (ii) cause E&Y to be
	unwilling to rely on managements representations or be
	associated with the Companys financial statements; and
|
| | (4) | E&Y did not advise the Company that
	information had come to their attention that they had concluded
	materially impacted the fairness or reliability of previously
	issued financial statements and Reports of Independent Auditors,
	or the financial statements issued or to be issued covering the
	fiscal period(s) subsequent to the date of the most recent
	financial statements covered by an audit report.                                                                                                                                                                                                                                             

The Company engaged Arthur Andersen LLP
(AA) to act as its independent auditors, effective
January 12, 2000. During the Companys two most recent
fiscal years and any subsequent interim period prior to engaging
AA, the Company did not consult AA regarding either:
(i) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Companys financial
statements, and AA did not provide either a written report or
oral advice to the Company that AA concluded was an important
factor considered by the Company in reaching a decision as to
the accounting, auditing or financial reporting issue; or
(ii) any matter that was either the subject of a
disagreement or a reportable event, each as defined in
Item 304 of Regulation S-K. However, AA did provide
due diligence services in connection with proposed and/or
consummated investment transactions by the Company and its
affiliates.




PART III




Item 10. Directors and Executive Officers
of the Registrant

The information set forth under the caption
ELECTION OF DIRECTORS in the Companys
definitive Proxy Statement, to be filed within 120 days, for its
Annual Meeting of Stockholders filed pursuant to

39



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##### Table of Contents



Regulation 14A under the Securities Exchange
Act of 1934 )the 2002 Proxy Statement), is
incorporated herein by reference.





Item 11. Executive
Compensation

The information set forth under the caption
EXECUTIVE COMPENSATION in the 2002 Proxy Statement
to be filed within 120 days is incorporated herein by reference.




Item 12. Security Ownership of
Certain Beneficial Owners and Management

The information set forth under the caption
ELECTION OF DIRECTORS in the 2002 Proxy Statement to
be filed within 120 days is incorporated herein by reference.




Item 13. Certain Relationships and
Related Transactions

The Investment Adviser, pursuant to the terms of
the Investment Advisory Agreement, is responsible, on a
day-to-day basis, for the selection and supervision of portfolio
investments. Transactions between the Company and the Investment
Adviser, including operational responsibilities, duties and
compensation, are governed by the Investment Advisory Agreement.
Throughout the term of the Investment Advisory Agreement, the
Company will pay to the Investment Adviser an annual management
fee of 2.85% of the Companys net assets, determined at the
end of each calendar quarter and payable in arrears. For the
year ended December 31, 2001, the Investment Adviser was
owed an investment advisory fee in the aggregate amount of
$487,931. Robert P. Pinkas, Chairman of the Board, Chief
Executive Officer, Treasurer and a director, and Michael J.
Finn, President and a director of the Company, are officers and
managers of the Investment Adviser, and together own 100% of the
Investment Adviser.

As stated above in Item 1
(BusinessPotential Co-Investments and Follow-On
Investments) and in Item 8 (Note 5 of the notes
accompanying the financial statements in Financial
Statements and Supplementary Data), the Company co-invests
in portfolio companies from time to time with affiliates of the
Company and the Investment Adviser, including certain venture
capital investment partnerships. Certain officers and directors
of the Company and officers of the Investment Adviser also serve
as general partners of the investment partnerships general
partner. The Companys co-investments with such affiliates
are subject to the terms and conditions of the exemptive order
granted by the Commission, which relieves the Company from
certain provisions of the Act and permits certain joint
transactions with the investment partnerships.

The Company is an investor in Disposable Products
Company, LLC (DPC), as discussed in the
Companys Management, Discussion and Analysis of Financial
Condition and Results of Operations in Item 7 of this
Annual Report on Form 10-K. Grand River Industries, Ltd.
(Grand River) owns 85% of DPC. Grand River is a
limited liability company that is 100% owned by Objective
Industrial Investments Partners, L.P. (Objective).
Robert P. Pinkas, Chairman and Chief Executive Officer of the
Company, is a managing member in Objective. Mr. Pinkas, as
a result of this investment commitment in Objective, owns 20% of
Grand River.

James P. Oliver has been a director of the
Company since 1998 and is a partner with the law firm of Squire
Sanders & Dempsey L.L.P., which has represented the Company
as general counsel since shortly after its formation in 1996.

40



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##### Table of Contents






PART IV




Item 14. Exhibits, Financial
Statement Schedules, and Reports on Form 8-K

|    |  |                                                                                                                                                              
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(a) |  | The following documents are filed as part of this
	report:                                                                                                   
|   
|1.  |  | Financial Statements  The following
	financial statements of the Company are contained in Item 8
	of this Form 10-K:                                        
|    |  | Balance Sheets  December 31, 2001
	and December 31, 2000                                                                                                    
|    |  | Statements of Operations  For the
	years ended December 31, 2001, 2000 and 1999                                                                             
|    |  | Statements of Cash Flows  For the
	years ended December 31, 2001, 2000 and 1999                                                                             
|    |  | Statements of Stockholders
	Equity  For the years ended December 31, 2001,
	2000 and 1999                                                                  
|    |  | Notes to the Financial Statements                                                                                                                            
|    |  | Report of Independent Public Accountants                                                                                                                     
|   
|2.  |  | Financial Statement Schedules were omitted as
	they are not required or not applicable, or the required
	information is included in the Financial Statements.
|   
|3.  |  | Exhibits  Reference is made to the
	Exhibit Index which is found on page 43 of this
	Form 10-K.                                                             
|   
|(b) |  | No reports on Form 8-K were filed by the
	Company during the quarter ended December 31, 2001.                                                                
|   
|(c) |  | Exhibits  Reference is made to the
	Exhibit Index which is found on page 43 of this
	Form 10-K.                                                             
|   
|(d) |  | Financial Statement Schedules were omitted as
	they are not required or not applicable, or the required
	information is included in the Financial Statements.

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##### Table of Contents






SIGNATURES

Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Company has duly caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly
authorized.



| |                             
| | ----------------------------
| | BRANTLEY CAPITAL CORPORATION



| |     |                     
| | --- | --------------------
| | By: | /s/ ROBERT P. PINKAS

| | 
| | 
| | 

| |        |                  
| | ------ | -----------------
| | Title: | Robert P. Pinkas,

| |                        
| | -----------------------
| | Chairman of the Board, 
| | Chief Executive Officer
| | and Treasurer          
|
| | Date: April 1, 2002    

Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report on Form 10-K has been
signed below by the following persons on behalf of the Company
in the capacities and on the dates indicated.

|                                       |  |                                                                                                                                         |  |              
|-------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------- |  | -------------
|Signature                              |  | Title                                                                                                                                   |  | Date         
|                                       |  |                                                                                                                                         |  |              
|                                      
|/s/ ROBERT P. PINKASRobert P. Pinkas   |  | Chairman of the Board, Chief Executive Officer,
	Treasurer and Director (principal executive officer and
	principal accounting officer) |  | April 1, 2002
|                                      
|/s/ TAB A. KEPLINGERTab A. Keplinger   |  | Vice President and Chief Financial Officer
	(principal financial officer)                                                               |  | April 1, 2002
|/s/ MICHAEL J. FINNMichael J. Finn     |  | President and Director                                                                                                                  |  | April 1, 2002
|/s/ L. PATRICK BALESL. Patrick Bales   |  | Director                                                                                                                                |  | April 1, 2002
|/s/ BENJAMIN F. BRYANBenjamin F. Bryan |  | Director                                                                                                                                |  | April 1, 2002
|/s/ PETER SALTZPeter Saltz             |  | Director                                                                                                                                |  | April 1, 2002
|/s/ JAMES P. OLIVERJames P. Oliver     |  | Director                                                                                                                                |  | April 1, 2002
|/s/ JAMES M. SMITHJames M. Smith       |  | Director                                                                                                                                |  | April 1, 2002
|/s/ PHILLIP GOLDSTEINPhillip Goldstein |  | Director                                                                                                                                |  | April 1, 2002

42



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##### Table of Contents






EXHIBIT INDEX

The following exhibits are filed with this report
or are incorporated herein by reference to a prior filing, in
accordance with Rule 12b-32 under the Securities Exchange
Act of 1934. (Asterisk denotes exhibits filed with this report.)

| |             |  |  |                                                                                                                                                                          |     |  |  |                                                                                                                                                                                                                                      
| | ----------- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | Exhibit 3   |  |  | Articles of Incorporation and By-laws                                                                                                                                   
| |             |  |  |                                                                                                                                                                          | (1) |  |  | Articles of Amendment and Restatement of the
	Charter of the Company (Exhibit 3.1 to the Annual Report on
	Form 10-K filed on March 31, 1999, which exhibit is
	incorporated herein by reference)                                    
| |             |  |  |                                                                                                                                                                          | (2) |  |  | Amended and Restated Bylaws of the Company
	(Exhibit 3.2 to the Annual Report on Form 10-K filed on
	March 31, 1999, which exhibit is incorporated herein by
	reference)                                                             
|
| | Exhibit 4   |  |  | Form of Share Certificate (Exhibit 2.d to
	amendment No. 1 to the Registration Statement filed on
	October 31, 1996, which exhibit is incorporated herein by
	reference)
|
| | Exhibit  10 |  |  | Material Contracts                                                                                                                                                      
| |             |  |  |                                                                                                                                                                          | (1) |  |  | Dividend Reinvestment and Cash Purchase Plan
	(Exhibit 2.e to Amendment No. 3 to the Registration
	Statement filed on November 27, 1996, which exhibit is
	incorporated herein by reference)                                         
| |             |  |  |                                                                                                                                                                          | (2) |  |  | Form of Investment Advisory Agreement between the
	Company and the Investment Adviser (Exhibit 2.g to
	Amendment No. 3 to the Registration Statement filed on
	November 27, 1996, which exhibit is incorporated herein by
	reference)
| |             |  |  |                                                                                                                                                                          | (3) |  |  | Stock Option Plan and Form of Option Grants
	(Exhibit 2.i.1 to Amendment No. 2 to the Registration
	Statement filed on November 22, 1996, which exhibit is
	incorporated herein by reference)                                        
| |             |  |  |                                                                                                                                                                          | (4) |  |  | Disinterested Director Option Plan and Form of
	Option Grants (Exhibit 2.i.2 to Amendment No. 2 to the
	Registration Statement filed on November 22, 1996, which
	exhibit is incorporated herein by reference)                       
| |             |  |  |                                                                                                                                                                          | (5) |  |  | Form of Custodian Contract (Exhibit 2.j to
	Amendment No. 2 to the Registration Statement filed on
	November 22, 1996, which exhibit is incorporated herein by
	reference)                                                           
| |             |  |  |                                                                                                                                                                          | (6) |  |  | Form of Registrar, Transfer Agency and Service
	Agreement (Exhibit 2.k.1 to Amendment No. 2 to the
	Registration Statement filed on November 22, 1996, which
	exhibit is incorporated herein by reference)                           
| |             |  |  |                                                                                                                                                                          | (7) |  |  | Form of Administration Agreement
	(Exhibit 2.k.2 to Amendment No. 2 to the Registration
	Statement filed on November 22, 1996, which exhibit is
	incorporated herein by reference)                                                   
| |             |  |  |                                                                                                                                                                          | (8) |  |  | Form of Indemnification Agreement for Directors
	and Officers (Exhibit 2.s to Amendment No. 2 to the
	Registration Statement filed on November 22, 1996, which
	exhibit is incorporated herein by reference)                         
|
| | Exhibit  23 |  |  | Consent of Experts and Counsel                                                                                                                                          
| |             |  |  |                                                                                                                                                                          | (1) |  |  | Consent of Arthur Andersen LLP                                                                                                                                                                                                       
|
| | Exhibit  99 |  |  | Additional Exhibits                                                                                                                                                     
| |             |  |  |                                                                                                                                                                          | (1) |  |  | Form 8-K dated Jaunary 19, 2000
	(incorporated by reference into Part II of this Form 10-K)                                                                                                                                          
| |             |  |  |                                                                                                                                                                          | (2) |  |  | Representation Letter regarding Arthur Andersen
	LLP                                                                                                                                                                                 

43